By Dena Bunis, CQ HealthBeat Managing Editor

March 10, 2011 -- The Congressional Budget Office (CBO) said that blocking funding for the health care law would mean some short-term gain—a cut in the deficit of $1.4 billion for the rest of the fiscal year. But it would add $5.7 billion to the deficit over a decade.

The CBO said all these numbers are "highly uncertain," however, because the reality would depend on how the Obama administration interpreted the defunding provisions of the fiscal 2011 spending bill (HR 1)—"in particular, how broadly or narrowly the administration would define what is meant by 'carrying out' the provisions of those laws."

The CBO analysis—in a five-page letter from Director Douglas Elmendorf to Rep. Denny Rehberg, R-Mont., chairman of the Labor-HHS-Education Appropriations Subcommittee—likely will have no practical effect, since the bill was defeated in the Senate, and any spending bill that defunds the health care law (PL 111-148, PL 111-152) would be vetoed by the president.

"When you cut through the budget tricks and accounting gimmicks, it turns out that common sense wins the day," Rehberg said in a statement about the CBO letter. "When you strip away all of the spin, and warnings that defunding Obamacare this year would cost money, you're left with the truth: $1.4 billion in savings this year. Only in Washington would someone actually buy the claim that it costs money not to spend money." Rehberg did not reference the long-term $5.7 billion that would be added to the deficit if the law's implementation is blocked.

"Once again, Republicans have exposed their hypocrisy on reducing the deficit," said Rep. Pete Stark, D-Calif., ranking member of the Ways and Means Health Subcommittee. "In a bill they claim cuts government spending, the Rehberg Amendment would increase the deficit by $5.7 billion and create $1 billion in incorrect payments in Medicare."

The CBO and the Joint Committee on Taxation, Elmendorf wrote, expect that disallowing funding for the law would affect spending and revenues four ways:

• It would delay the completion of such regulatory efforts as establishing payment rates for Medicare services provided during 2012.
• It would delay the implementation of new programs.
• It would prevent or delay providing money for grant programs.
• It would reduce compliance with the tax code because regulations would not be written.

Health and Human Services Secretary Kathleen Sebelius referenced all those elements in a letter she sent March 7 to Senate Finance Chairman Max Baucus, D-Mont.
Sebelius' letter was slammed by congressional Republicans who said she was just trying to scare seniors into thinking that defunding the law would affect their Medicare benefits which, they said, were a subject of mandatory spending.

CBO letter (pdf)

By Jane Norman, CQ HealthBeat Associate Editor

March 10, 2011 -- The Obama administration seized another opportunity to stress its flexibility when it comes to the health care law with an announcement of proposed rules on how states may apply to change certain sections of the law as long as the law's goals are met.

Republicans who want to repeal the law, though, continued to contend that the "state innovation waivers" are pointless because the federal government would keep control over basic elements of the overhaul that the GOP says are unworkable. And these waivers would come into play three years after the law takes effect.

Under the law (PL 111-148, PL 111-152) beginning in 2017, states could apply for the waivers to be able to devise their own health care approaches. President Obama in a recent meeting with the nation's governors said he supports bipartisan legislation (S 248) authored by Democrat Ron Wyden of Oregon that would move up the effective date for such waivers to 2014.

That bill has five cosponsors in the Senate—Republican Scott P. Brown of Massachusetts and Democrats Patrick J. Leahy of Vermont, Ben Nelson of Nebraska, Mary L. Landrieu of Louisiana and Joe Manchin III of West Virginia.

Steve Larsen, the director of the Office for Consumer Information and Insurance Oversight at the Department of Health and Human Services, told reporters in a conference call that the administration backs the measure because "if states have good ideas we believe there is no reason they have to wait until 2017 to put them into action." Nonetheless it's not clear there's much traction for the legislation in Congress.

The "state innovation waivers" would apply to items in the law such as the qualified health plans and what benefits they would include, the structure of the health benefit exchanges, cost-sharing standards for people enrolled in health plans and the tax credits available to help pay for health insurance. States that are interested in pursuing waivers would have to enact state laws and prepare waiver applications.

Larsen said the state has to provide coverage as comprehensive and affordable as coverage under the law and to a comparable number of residents. The changes can't increase the deficit, as evaluated by HHS and the Department of the Treasury. States would have to submit regular reports to show their progress.

The waivers couldn't change consumer protections in the law such as the ban on denying people coverage because of preexisting conditions, which begins in 2014, or a current requirement that young adults up to age 26 be allowed coverage on their parents' policies. Insurance companies providing large group plans would still have to spend at least 80 percent of their premium dollars on health care.

Chiquita Brooks-LaSure, director of coverage policy in the HHS Office of Health Reform, said that states could create new systems for providing the tax credits or enrolling residents in coverage. Waivers are provided for five years and can be renewed.

But Brooks-LaSure said officials couldn't really list what possible innovations states might come up with in their waiver requests. "We certainly have a couple of thoughts about what states might come in and ask for but states are very creative and we could sit here and come up with a list but guarantee states will come up with new ideas," she said.

Larsen said that if a state wants a single-payer system and it meets the criteria in the proposed rule, it would be considered by HHS.

But a Republican spokesman for the House Ways and Means Committee said the law has little to offer for states that want to go their own way on health care. "The plan still lets the federal government set the rules, the processes and the procedures that the states must follow if they have any hope of getting an exemption, and even if a state meets all the requirements the Obama administration could still deny the state's request," said the spokesman.

Under the proposed rule, the waiver application to the Department of Health and Human Services must specify which sections of the federal law that would be waived and an explanation of how the state would meet the goals of the federal law. The application has to include a budget plan showing that the waiver wouldn't increase the federal deficit.

In addition, the state will have to submit actuarial certifications and economic analyses to support the state's projections and analyses of the waiver's impact on provisions in the law that are not waived.

By Rebecca Adams, CQ HealthBeat Associate Editor

March 11, 2011 -- Federal regulators face dual challenges as they head into the second year of implementing the health care overhaul. They must continue the methodical work of preparing for change while defending the law against opponents in Congress, the states, and the courts.

The next regulatory steps will be largely invisible to the public, in contrast to the law's inaugural year—which ends March 23—when high-profile benefits and consumer protections attracted widespread publicity and scrutiny.

Department of Health and Human Services (HHS) officials will create a Medicare initiative to encourage hospitals and physicians to coordinate more closely on patient care in the coming year. Regulators will start deciding which medical services health plans must cover as of 2014. Negotiations between federal and state officials will escalate as states prepare to launch the health insurance markets that will expand coverage. And researchers will get federal money to find the most effective way to treat diseases.

"There's a shift beginning now that moves from the implementation of early deliverables to getting ready for 2014 when big changes take effect," said Larry Levitt, vice president of the nonpartisan Kaiser Family Foundation. "Much of that will happen behind the scenes. But it's hard to imagine that this issue will disappear from the news."

Indeed, debate over the law may increase because upcoming steps to implement it are likely to stir opposition anew.

House and Senate Republicans will intensify efforts to repeal or block funding for such implementation. At the same time, state officials will argue that federal control over insurance is inappropriate and that the law's eligibility expansion of Medicaid, the state-federal program for the poor, is too costly. Federal courts will rule on more than 20 challenges to the law's constitutionality, which the Supreme Court is likely to settle.

The way HHS officials structure the core benefit package arguably will have a more direct impact on consumers than anything else they do in the coming year of implementation.
The law requires insurers to cover treatments in general categories, such as outpatient and inpatient care, emergency services, pediatric dental visits, wellness care, rehabilitation therapy and mental health benefits. But HHS officials now must translate that into specifics patients can count on from insurers.

"The lobbying has begun," said Ian D. Spatz, senior adviser to Manatt Health Solutions and the principal in the Rock Creek Policy Group. "Along with the individual mandate, it is the unresolved question of health care reform."

Spatz predicted that because the issue of benefits is politically sensitive, the administration may delay final decisions until after the 2012 elections.

"The balance there is to make sure there is enough in there that's important without saddling the plans with too much cost burden," said Dan Mendelson, a former Clinton administration official and CEO of consulting firm Avalere Health.

The administration will soon issue a proposed rule for a voluntary program outlining the way hospitals, physicians and other providers must coordinate care for Medicare patients. Participants may be able to keep part of any savings realized by their ability to offer higher-quality care and prevent medical conditions from getting worse. Each one of these "accountable care organizations" (ACOs) will serve at least 5,000 Medicare patients.

The administration will select grant recipients to conduct comparative effectiveness research, the study of different types of treatment for the same conditions in an effort to educate those who pay for, deliver and get care about what works best. The law directed that a new institute oversee such research.

And in the coming year, HHS officials will work out details for a long-term care program that some policy experts, including Secretary Kathleen Sebelius, say must be made more fiscally sustainable. Administration officials hope to set eligibility and enrollment processes by Jan. 1, 2012, and finalize the program by October 2012.

Because the next implementation steps are not as high-profile, policy experts do not foresee big shifts in the American public's partisan divide over the law. Polls show that public opinion has remained static in the first year. Republicans generally oppose the law, while Democrats are far more supportive.

"For crying out loud, they're sending checks to seniors and it's not working," said Michael Cannon of the Cato Institute, referring to money that Medicare officials sent to beneficiaries in 2010 to reimburse them for prescription drug costs. "How is an ACO going to succeed in changing opinions when cash failed?"

Robert Blendon, professor of health policy and political analysis in the Harvard University School of Public Health, said, "With all the millions of dollars in advertising and Sunday morning talk shows, the armies on either side haven't moved their borders a lot, and that's not likely to change before the next election. The next set [of developments] are structural changes that mean a lot for experts but are very difficult for the public to get excited about."

By Jane Norman, CQ HealthBeat Associate Editor

March 8, 2010 -- A long-awaited rule on accountable care organizations (ACOs) has been delayed because it's so important to get right, Centers for Medicare and Medicaid Services Administrator Donald M. Berwick told health insurers.

Berwick told members of America's Health Insurance Plans at a conference that the ACO rule will emerge "very soon," but he didn't specify a date. "You want to know where's the rule," he told the industry crowd. "Thank you for your patience. I understand how avid you all are to see that rule emerge."

On ACOs, Berwick stressed repeatedly the importance of not rushing. It's a "very important" rule, and it's complex, Berwick said. "The good news about the ACO rule is so many people care, all over the country, private stakeholders, public stakeholders," he said.

"Everyone wants to get this right,'' he said. "We have a choice: just set a deadline and hit it, or get the process right ... I do take the concerns seriously. I am as impatient as you."
Berwick had said Feb. 1 that the rule would be out within a month (see related story). He said at the time that the issues surrounding ACOs and their implementation are "tough."

The Department of Health and Human Services (HHS) sent the proposed regulation to the Office of Management and Budget (OMB) for review on Feb. 14, according to OMB records. Before a rule can be published in the Federal Register it must pass OMB muster.

ACOs were authorized for Medicare in the 2010 health care overhaul law (PL 111-148, PL 111-152). ACOs have grown up in the private market in recent years. As organized under Medicare, the new program would allow providers, including doctors and hospitals, to coordinate closely on the care of patients. The providers would then share in any savings. The program must be established by Jan. 1, 2012.

However, concerns have risen about how antitrust agencies, including the Federal Trade Commission and Department of Justice, would enforce antitrust laws in connection with ACOs and whether some arrangements might have the potential to increase prices or reduce competition in certain market areas. Physicians also have expressed concern about their roles in ACOs and want their medical decision-making to remain a guiding force for ACOs.

Other tricky questions are how patients will be assigned to ACOs, how they will be notified of these assignments, how small practices can join ACOs and how the quality of care in ACOs will be measured.

By John Reichard, CQ HealthBeat Editor

March 7, 2011 -- A proposal setting out goals for improving the quality of care in Medicare is a "call to action" to make dramatic improvements in the program, says an executive with one of the entities responsible for carrying out the agenda.

Known to insiders as the "10th Statement of Work," the draft proposal lays out responsibilities for Quality Improvement Organizations. QIOs contract with Medicare to weed out excessive treatment but also to ensure that beneficiaries aren't shortchanged on care. Their duties include working with doctors, hospitals, and nursing homes to re-engineer the delivery of care to make it safer and more efficient.

The QIO executive, who requested anonymity in order to speak freely, said the draft proposal is "innovative" and "expansive" and attributed the unusual tone of the document to Centers for Medicare and Medicaid Services Administrator Donald M. Berwick. Berwick is much admired in the quality improvement field, and the latest QIO "to do" list gives him a chance to stamp his imprint on Medicare.

"I think you have to credit Berwick for the inspirational tone of the statement of work," the executive said. Every three years CMS updates the statement of work; this update is scheduled to take effect Aug. 1.

The document says its goal is to "ensure the right care, at the right time, every time." Among its aims are to improve "care transitions leading to the reduction of readmissions" to the hospital and to use data to "drive dramatic improvement in communities."

Readmissions are a red flag suggesting that a patient wasn't treated properly during his or her first stay in the hospital. When the patient is discharged from the hospital and moves from one setting of care to another, instructions for follow-up care to ensure a full recovery may be lost in the process or become unclear in the mind of the patient or of subsequent caregivers.

"The most effective interventions may depend on changes in the processes of care at a community level that engage more than one provider (including hospitals, home health agencies, dialysis facilities, nursing homes, and physician offices), as well as patients, families, and community health care stakeholders," the draft proposal says.

"The QIO shall form relationships with many community organizations and play a coordinating role to ensure communitywide adoption of improved practices." That too is a hallmark of Berwick's career; as head of the Boston-based Institute for Healthcare Improvement he enlisted a variety of provider groups to work toward common quality improvement goals, such as reducing deaths of hospital patients from medical errors.

"These efforts aim to reduce readmissions following hospitalization by 20 percent over three years and to yield sustainable and replicable strategies to achieve high-value health care for sick and disabled Medicare beneficiaries," the document says.

Another goal is to reduce the number of medical conditions caused by substandard treatment in nursing homes. QIOs are supposed to contribute to the goal of reducing health-care-acquired conditions by Medicare patients in nursing homes by 40 percent over three years.

The QIO executive said that the organizations have tended to focus on relatively small groups of providers to more easily demonstrate that their efforts improve quality of care. But the latest proposal is notable because of its emphasis on broader, communitywide involvement, the executive said.

Comments on the draft document are due March 15. The final version will come out this spring.

By John Reichard, CQ HealthBeat Editor

March 9, 2011 -- Health and Human Services (HHS) insurance exchange chieftain Joel Ario sought to paint an inviting picture of health insurance exchanges under the overhaul law in a speech to health plan executives, saying that ultimately they could create a marketplace of up to 100 million Americans and that states now designing exchanges are anxious to have many insurers participate.

Ario also noted that much of the technical complexity involved in establishing exchanges relates to the information technology involved. On that front, Ario and Henry Chao, the chief HHS information officer involved in creating exchanges, tried to be reassuring.

They said HHS has set up a "data services hub" to help states get access to "authoritative" data that exchanges will need to do things such as verify citizenship and determine whether consumers are eligible for Medicaid rather than for tax credits to buy insurance. And Chao, who did the IT behind the highly complex but ultimately successful Part D Medicare drug benefit, said HHS has been working closely with the Treasury Department and the IRS on IT challenges.

Ario noted in his remarks, made at a meeting sponsored by America's Health Insurance Plans, that exchanges, scheduled to open in 2014 under the health care law (PL 111-148, PL 111-152), initially will have 15 million to 20 million customers. But if they work well, they ultimately could include up to 100 million people. Under the health care law, after several years states will have the option of opening up exchanges to larger employers.

Ario's remarks followed a letter from 21 Republican governors complaining that the law is too restrictive about how exchanges will function. Ario denied that, adding, for example, that no state is trying to limit the marketplace to one insurer. All the states want "robust competition," he said.

He noted that some analysts say it is a mistake to have too many choices because it confuses consumers. But Web technology on sites such as Travelocity for picking airplane flights lets users easily deal with a large number of choices, using screening questions that narrow down choices, he said, adding that the same approach can be taken in dealing with insurance options.

Exchanges also offer insurers an opportunity to create commercial-type products for the Medicaid market, he said. Under the health care law, many people are expected to move from Medicaid to commercial products purchased with tax credits and back again as their income levels fluctuate. Insurers can design commercial products that allow consumers to stay in the same plan to help them weather such transitions, analysts say.

Ario asserted that the exchanges will accommodate health plans with high deductibles, which Republicans often tout as a way to better restrain heath spending by putting more consumer "skin in the game." The bronze tier of health plan options to be offered by exchanges creates plenty of opportunities for such "consumer-driven" health plans, he said.

Ario said that states can start applying for HHS grants later this month to help them establish exchanges. Self-described "pace car" states such as Oregon, California and Wisconsin, which are farther along with exchanges, are expected to apply for multi-year awards. States that want to move more incrementally can do so. They can apply for less money every quarter to work on smaller pieces of the creation effort, he said.

Ario listed 11 areas that states can concentrate on incrementally: background research on the insurance market, stakeholder consultation, establishing legal authority for exchanges, governance of exchanges, the integration of Medicaid and private insurers in exchanges, IT systems, market regulatory revisions, consumer assistance, business operations, oversight and program integrity, and sound financial management. But by June 2012, all states will need multi-year grants given the deadlines they face for exchange creation, he warned.

Notable by omission in Ario's remarks was any reference to a proposed rule on exchanges. States and insurers are looking to that proposal to get a clearer picture of the obligations they face. Ario said late last year that the rule would be proposed this spring. His failure to mention it suggests that timetable may not be met.

Ario said that 35 to 40 states have legislation pending or laws enacted to create exchanges. If they get legal authority for exchanges and a governance structure established this year, they will be in position next year to make other operations decisions.

In general, he described 2011 as the year to begin building exchanges and 2012 as the year to begin testing them. "We're definitely moving toward an implementation phase here," he said. A state must demonstrate to HHS by Jan. 1, 2013, that it will have a viable exchange by Jan. 1, 2014, or the federal government will operate that state's exchange.

IT Challenges
States can't wait around until 2012 to start working on IT, however.

Chao, chief information officer at the Center for Insurance Information and Oversight at the Centers for Medicare and Medicaid Services, was introduced at the meeting as a surprisingly calm presence in light of the big IT challenges.

Chao said the IT effort he oversaw for Medicare Part D "was a great warm-up exercise."

"The challenges are not insurmountable," Chao said. "I think it requires a different degree of collaboration and information sharing, particularly at the starting stages of taking this on.

"Over the past eight months or so, we've been closely collaborating with the IRS, looking at what I would call the front part of the exchange, the eligibility and verification aspect of it; the back part of the exchange operation, which is reconciliation of the . . . tax credit; and really trying to come together on what that operational scenario is going to look like."

Chao added that "after eight months, we've made some significant progress, albeit there are outstanding policy issues that are being discussed. I don't think that the details necessarily prevent us from being able to make advances in assumptions about how architecture and process will work."

Chao has a decade of experience at HHS working in the Medicaid program, which should be helpful in dealing with information challenges relating to determining Medicaid eligibility.