JULY 14, 2005 -- Medicare would junk its controversial formula for calculating payments to physicians and instead start paying them in 2007 based on data measuring the efficiency and quality of their care under a proposal floated late Wednesday by Nancy L. Johnson, R-Conn.

The plan is tentatively scheduled to be considered before the Ways and Means Health Subcommittee, which Johnson chairs, during a July 21 hearing. But its future is by no means certain, as it faces numerous obstacles, including finding a way to pay its estimated $50 billion five-year cost. It also faces objections of many specialty physicians who say there is not yet a way to reliably measure the quality of care they provide.

But Johnson's bet is that enough doctors will be willing to accept the measures if it means an end to the current formula, under which their payments would be cut by about 5 percent per year for the next seven years.

The plan would adopt a completely new strategy for discouraging doctors from ordering tests and services that do not result in improved care. The current "Sustainable Growth Rate" (SGR) formula reduces payments to doctors the following year if an annual target intended to limit the percentage growth in Medicare physician spending is exceeded.

But analysts say that setting a national target to limit physician spending does not give individual doctors enough of a financial incentive to treat patients more efficiently, because the individual doctor can have little impact on the overall spending figure.

Johnson's plan would entail setting minimum standards for quality and efficiency that doctors would have to meet to qualify for payment increases based on changes in the "Medicare Economic Index" (MEI), which tracks yearly changes in the costs of delivering physician care. If doctors don't meet the standards, they would not qualify for the full payment increase.

Johnson has yet to release a copy of her proposal, but physician lobbyists given a peek at the plan Wednesday afternoon said it would set a three-year course toward performance-based payment.

Early next year, perhaps March 1 or so, physician organizations would submit proposed measures of the quality and efficiency of their care to the National Quality Forum or a similar entity. Once that entity okays them, the measures would be sent to the Centers for Medicare and Medicaid Services for approval.

Doctors then would collect data assessing their performance on the measures. They'd qualify for full payment increases simply for submitting the data both in 2007 and in 2008. In 2009, full payment updates would hinge on whether they met the standards for quality and efficiency.

Depending on whether physicians bill as individuals or as a group practice, the standards would be applied to individual physicians or to the group practice as a whole. The data-gathering phase aims to allow doctors, either as individuals or as groups, to measure their care and improve it before payment hinges on performance.

Still undermined is the level of physician payments in 2006. Current calculations of MEI minus a productivity adjustment would mean an increase of almost 2 percent.

The plan differs from a proposal by Senate Finance Committee leaders in that it would end the SGR and have doctors rather than CMS propose the original measures, according to one source. However, a Finance Committee aide said CMS would consult doctors in picking the measures. He added that the Finance Committee plan says the SGR issue needs to be addressed.

House Ways and Means Chairman Bill Thomas, R-Calif., has not yet agreed to the Johnson plan, but joined with her earlier this week in sending a letter to CMS urging administrative actions that would sharply reduce the high cost of repealing the SGR approach.

Still unknown is the level of support Johnson could attract from other members of the Health Subcommittee and the full Ways and Means Committee.

Another unknown is whether such a plan would be included in budget reconciliation legislation matching appropriations to targets in the fiscal 2006 congressional budget resolution. Including it would mean the fix would only have to attract a simple majority to gain Senate passage, but such a move also could open up the package to a wide variety of Medicare-related amendments in that chamber.

JULY 14, 2005 -- A House subcommittee on Thursday approved legislation that seeks to encourage reporting of medical errors with an eye to reducing avoidable mistakes.

The bill would establish a database of reports from physicians, hospitals, and other health care providers that could be analyzed to determine patterns and identify problems that can be corrected. Information would be shielded from use in medical malpractice suits.

The Energy and Commerce Subcommittee on Health approved the bill (HR 3205), sponsored by Michael Bilirakis, R-Fla., by voice vote.

"These protections will facilitate an environment in which health care providers are able to discuss errors openly and learn from them," said subcommittee chairman Nathan Deal, R-Ga.

The legislation would establish a legal framework for health care providers to voluntarily report medical errors to patient safety organizations run by states, localities, and private entities. It would establish a national patient safety database maintained by the Department of Health and Human Services to catalog the reports and identify regional and national trends in medical mistakes.

The bill also would authorize $25 million in grants per year for fiscal 2006 and 2007 for technology upgrades to help doctors and hospitals avoid errors.

Versions of the legislation passed the House and the Senate in the 108th Congress, but the House never named conferees, and members did not meet to iron out differences in the bills.

The Institute of Medicine estimated in 1999 that medical errors cause up to 98,000 deaths a year. Lawmakers have deadlocked ever since over ways to gather and analyze data about medical mistakes without exposing health care providers to added liability.

The Senate Health, Education, Labor and Pensions Committee approved its version (S 544) of the legislation by voice vote March 9. The panel approved the measure with the understanding that Chairman Michael B. Enzi, R-Wyo., would work with the committee's ranking Democrat, Edward M. Kennedy of Massachusetts, to insert a colloquy into the record that clarifies the bill would not shield information currently available to attorneys for use in court cases.

JULY 12, 2005 -- Under the new Medicare drug benefit, patients hammered with high drug costs year after year will have to pay bigger percentages of their annual drug bills than patients with relatively low yearly costs, according to a study published Tuesday in the health policy journal Health Affairs.

Congress should consider changing the cost-sharing provision of the benefit "if fairness is judged on the basis of the share of income devoted to out-of-pocket payments," advised the study led by Bruce Stuart, a professor at the University of Maryland Center on Aging. The study suggests incorporating a cap on the proportion of income a patient spends on drugs.

The study examines the impact of the "doughnut hole" gap in coverage, in which beneficiaries pay 100 percent of prescription costs after they exceed a certain level of out-of-pocket spending and before the catastrophic benefit kicks in.

For people with big yearly drug bills, this means they will pay higher percentages of their drug bills, and in many cases will pay a relatively large share of their household incomes for prescription drugs—even though the benefit is designed to protect against catastrophic drug expenses, the study says.

"Because drug spending is highly persistent over time, beneficiaries who experience the biggest gaps in coverage are likely to do so year after year, with potentially serious consequences," the study says.

Centers for Medicare and Medicaid Services spokesman Garry Karr defended the catastrophic benefit, saying it will bring "major help" to beneficiaries facing several thousand dollars in yearly drug expenses.

The study examined the cumulative impact of the drug benefit's gaps in coverage by forecasting out-of-pocket spending by three categories of beneficiaries over the first three years of the benefit—potential enrollees in the standard Medicare drug benefit, "high spenders" with projected 2006 prescription spending above $2,250, and "catastrophic spenders" with projected spending above $5,100.

Under the standard benefit, the beneficiary pays all of the first $250 dollars in prescription costs during the year, 25 percent of the costs between $250 and $2,250, 100 percent of the costs between $2,250 and $5,100, and 5 percent of the costs after $5,100.

The study projected that potential enrollees in the standard benefit would have to pay 44 percent of their total out-of-pocket costs, high spenders 67 percent, and catastrophic spenders 51 percent. If all groups paid 56 percent, the total annual cost to taxpayers of the standard drug benefit would not change, the study said.

The average high spender will accumulate total out-of-pocket drug costs of almost $11,000 during 2006–08, and the average catastrophic spender $12,300 (the figures do not include premiums beneficiaries must pay each month for the drug benefit).

The researchers estimated that if one member of a household headed by someone age 65 or older was a high spender, that household would spend 12.6 percent of its income on prescription drug costs. The figure would be 14.2 percent in the case of a household with a catastrophic spender.

"Under these circumstances, the combined out-of-pocket obligation for an aged couple . . . could easily approach 20 percent of household income," the study's authors state.

The researchers suggest "replacing the current catastrophic threshold with a cap on the proportion of beneficiaries' household income paid out of pocket for drugs," and said how low the cap should be set "is open to debate."

CMS spokesman Karr voiced concern the study might deter patients from signing up for the standard drug benefit. Many beneficiaries have no coverage at all, and without catastrophic protection, "they're going to have to cover all of the costs" of their prescriptions.

Karr added that far fewer people would fall into the "doughnut hole" gap than a quick glance at the study might indicate. The study said 38 percent of beneficiaries would cross the threshold where they begin paying 100 percent of drug costs. But Karr said that figure is not the percentage of all Medicare beneficiaries who would fall into the gap; rather, it is the percentage who would do so that had signed up for standard coverage.

Many beneficiaries won't get standard coverage, he noted. About 33 percent of beneficiaries will get Medicare's low-income drug benefit, which does not have the doughnut hole. Another 15 percent will sign up for Medicare Advantage plans, which in many cases will offer better benefits than the standard coverage. And 25 percent of beneficiaries will get drug coverage through former employers.

Factoring in these non-standard categories means only about 10 percent of all Medicare beneficiaries would fall into the doughnut hole in standard coverage, Karr calculated.

JULY 14, 2005 -- A bill to extend a grant program for states that create health insurance pools for high-risk individuals was approved Thursday by the House Energy and Commerce Health Subcommittee.

The bill (HR 3204), sponsored by John Shadegg, R-Ariz., and approved by voice vote, would reauthorize $15 million in leftover grants for fiscal 2005 to states that establish high-risk pools. It also would extend and increase funding for states that already have risk pools, authorizing $50 million a year in operating grants through 2009.

"It's one step in the right direction for high-risk individuals," said Shadegg.

Ranking Democrat Sherrod Brown of Ohio said that state high-risk pools are not a viable long-term solution for insuring people with serious chronic health problems. "In many states, high-risk insurance pools are the only option for individuals who fall through the cracks of our patchwork health insurance system," he said. But he added, "High-risk pools are not a solution, they are an emergency shelter, and a shaky one at that."

Funded and operated by the states, the insurance programs help people who are unable to obtain insurance in the private market because of existing medical conditions or limited income. The premiums in state pools are capped at a percentage of market premiums to keep them affordable.

The pool program was created in 2002 as part of a law (PL 107-210) that revived fast-track procedures for congressional action on trade agreements. The law also included several provisions designed to ease the burdens of American workers who suffered because of liberalized trade.
The trade law authorized $20 million in seed grants for fiscal year 2003 to encourage states to launch the high-risk pools, but some state officials said the requirements were too cumbersome. Authorization for the program expired in September 2004.

Allocation of the grants would be determined by the proportion of uninsured residents in a state, the number of people enrolled in a state's high-risk pool and a set amount distributed equally among states.

The Senate Health, Education, Labor and Pensions Committee approved its version of the legislation (S 288) by voice vote Feb. 9.

JULY 13, 2005 -- Their tongues unbound by political considerations and sharpened by the fact that they have client's money on the line, Wall Street analysts often deliver refreshingly direct assessments of the business impact of health policy.

They didn't disappoint at a Washington forum Wednesday morning.

For example, Robert Laszewski, president of Health Policy and Strategy Associates, declared the Medicare Advantage program created by the Medicare overhaul law a short-term "gold mine" for managed care plans. Laszewski also likened the health insurance industry's prospects overall to a "long walk off a short pier."

The analysts at the "Wall Street Comes to Washington" forum sponsored by the Center on Studying Health System Change also offered insights into what Washington should expect from health care marketplace changes—perhaps not much cost control from consolidating the health insurance industry, for example.

Managed care plans are flocking to the Medicare Advantage program created by the Medicare overhaul law (PL 108-173) because the overall health insurance market isn't growing, Laszewski said. Overall industry enrollment is "flat as a board," which means companies are trying to grow either by buying each other or by adding new products, he said.

The need to add products is why insurers are so interested in offering plans in the new Part D prescription drug plan part of Medicare and in the Medicare Advantage managed care side of the program, he said. Payments to Medicare HMOs and PPOs have been beefed up and will stay high as long as Republicans control Congress because they want the private sector side of Medicare to succeed, Laszewski said. But he said if Democrats gain control of Congress, they will "screw it up" payment-wise for the plans.

Morgan Stanley analyst Christine Arnold called the Part D market a "near term opportunity" for insurers offering prescription drug plans. She predicted enrollment of about 19 million people in the plans in 2006, a figure that includes some 7 million who she said will have drug benefits through managed care plans.

But she predicted profits would taper off over time because people who are healthy and stay out now will sign up when they get sick. The penalties in the law for such delayed enrollment aren't stiff enough to keep that from happening, she said.

Other Wall Street predictions of up to 30 million people getting Medicare drug benefits are "incredibly aggressive," said Ted Shannon, a stock analyst with Janus Capital Management. The risks of entering the market are not well understood by insurers, and finding people to enroll could be difficult, he said.

Laszewski said he isn't keen on the Part D program as a market opportunity for plans because federal regulations will render ineffective in Medicare the cost control tactics used in the commercial market to keep to drug benefit prices in line.

The analysts' assessments also varied on the market impact of health savings accounts created under the new Medicare law. The accounts, which are owned by individual consumers and give them greater control over how and where their health care dollars are spent, are part of the new benefits trend in health care called "consumer-driven health care."

Shannon said health savings accounts will dominate the insurance market five to 10 years from now. Goodman said the shift toward trying to manage costs on "the demand side"—by making sure individual consumers have "skin in the game" by paying a bigger share of their health care bills—should be beneficial.

Health savings accounts are making a big splash in the individual market and are attractive to small employers, Goodman said, but their benefits are overstated. Laszewski agreed emphatically, mocking the excited chatter of health savings account advocates about the benefits of having "skin in the game—yada yada."

Consumer-driven health care "is a wonderful thing," said Laszewski, but individuals with health savings and similar accounts don't control the biggest outlays for health care—the ones insurers make when people get really sick. The idea that consumer-driven health care is the answer to rising costs won't last long, he predicted. In "about another year or two, we're going to get this out of our systems," he said.

Laszewski also said it's premature to think costs can be brought under control through data that identifies the most efficient doctors and hospitals. "We don't have the slightest flipping idea where the most efficient providers are," he said.

Analysts noted the health insurance industry is consolidating, but none called that the answer to rising costs. Shannon said there are still 500 health plans in the United States, but that can't last. Many existing plans lack the money to educate enrollees about which providers deliver the best value on health care, he said. Health care will consolidate the way banking did in the mid-1980s, he predicted.