SEPTEMBER 16, 2005 -- Rapid growth in physician office visits, laboratory tests, and other medical services is the primary reason why Medicare beneficiaries will pay 13.2 percent more for their Part B monthly premiums in 2006, officials with the Centers for Medicare and Medicaid Services said Friday.

The premiums, which cover physician visits and other outpatient services, will rise to $88.50 in 2006, an increase of $10.30 from the current amount. The increase was roughly the same that CMS actuaries predicted in April.

The increase may complicate prospects for an increase in Medicare physician payments since any increase in what Medicare pays physicians would increase Medicare Part B premiums even further. Physician groups are hoping to prevent a scheduled 4.3 percent 2006 cut in doctor payments.

In a news release, CMS said rapid growth in hospital outpatient services also contributed to the increase, as did a requirement to increase assets that, for accounting purposes, are held in the Part B trust fund. Beneficiaries' premiums cover 25 percent of the program's costs while the federal government pays the other 75 percent.

Bill Vaughan, senior policy analyst for Consumers Union, said the Part B increase is "another wake-up call for the need to get a handle on runaway health inflation."

Increases in imaging and other high-tech services identified by the Medicare Payment Advisory Commission (MedPAC) "must be slowed to keep millions of seniors from sliding toward poverty," Vaughan stated in an e-mail. "Proposals to further increase Part B costs need to be offset with savings in these high-tech services, many of which are more profitable than they are useful to patients."

CMS officials said beneficiaries' out-of-pocket costs will be lower in 2006 due to savings in drug costs from the new Medicare prescription drug benefit (PL 108-173). Due to government financial assistance included in the new benefit, about one of four Medicare beneficiaries will pay little or no premium for either Medicare Part B, the new drug benefit (Part D), or both, next year, CMS stated.

SEPTEMBER 14, 2005 -- The cost of installing and maintaining electronic health records (EHR) systems is the biggest barrier to their adoption by medical group practices, particularly for the smallest physician groups, according to a survey released Wednesday.

Research conducted by the Medical Group Management Association Center for Research and the University of Minnesota School of Public Health found that 14.1 percent of all medical group practices use such a system and 11.5 percent said an EHR was fully implemented for all physicians and at all practice locations.

Researchers also noted that 12.5 percent of medical group practices with five or fewer full-time-equivalent (FTE) physicians have adopted an EHR, a rate that increased with the size of a medical practice. Groups with six to 10 FTE physicians reported a 15.2 percent adoption rate, groups with 11–20 FTE physicians reported an 18.9 percent adoption rate and groups of 20 or more FTE physicians had a 19.5 percent adoption rate.

The study, funded by the federal Agency for Healthcare Research and Quality, found that the average purchase and implementation cost of an EHR was $32,606 per FTE physician and maintenance costs were another $1,500 per physician per month. The average cost for EHR implementation was about 25 percent more than initial vendor estimates, researchers reported.

Lawmakers, health care analysts, and researchers have said that health information technology, or health IT, is the best way to reduce health care costs and improve medical care (see related story this issue). But many physicians have been reluctant to install such systems due to the cost and other concerns, such as liability issues and ensuring patient privacy and safety. Physicians also fear that insurers, rather than doctors, will realize most of the savings from health IT.

Bush administration officials and GOP leaders have said once national standards are in place—a process that's ongoing between the Department of Health and Human Services and the health IT community—costs of EHR systems will decrease as manufacturers compete against one another on price and features.

Such thinking is overly optimistic, said William F. Jessee, president and chief executive officer of the Medical Group Management Association. "Based on this research, [medical] practices won't go out and purchase systems" unless the implementation and operating costs are addressed, he said in an interview.

"It's going to be really, really tough," he said, in part because physicians often have to finance such systems from operating revenues, which already are being reduced by a variety of factors such as higher medical malpractice insurance premiums.

Pending House and Senate measures that promote the adoption of standards to ensure that computer systems function together efficiently would authorize limited grant money to ease the costs of adopting the technology.

Other findings of the research, which are highlighted in the September/October edition of the policy journal Health Affairs, include:

• While some practices say EHRs have helped improve efficiency, there is widespread dissatisfaction with the systems' design and performance.
• Less than 65 percent of the 3,300 medical group practices surveyed reported that the EHR provided drug formulary information or clinical guidelines and protocols, while 83.1 percent of respondents said their EHR was integrated with their practice billing system.

SEPTEMBER 14, 2005 -- The cost of health insurance premiums is rising faster than both wages and inflation, according to results of the Annual Employer Health Benefits Survey released Wednesday by the Kaiser Family Foundation.

And as health care costs have risen over the past five years, the number of businesses offering health insurance to their employees has dropped, the study indicates.

The study found that insurance premiums increased 9.2 percent since 2004. While that is lower than the previous year's growth, it is about three times the growth in workers' wages and more than two times the rate of inflation, the study found.

Annual premiums for family coverage were $10,880 in 2005, which is more than earnings for a full-time minimum-wage worker, which is $10,712, according to the survey.

"When we reach a certain tipping point, it affects how people and families respond to choosing to be insured," said Mary Pittman, president of Health Research and Educational Trust, which cosponsored the survey.

About 60 percent of businesses offered coverage to their workers in 2005, a drop from 69 percent in 2000, the results indicate. Most of those who chose to drop coverage were smaller businesses, meaning low-wage workers are bearing the brunt of increasing health care costs; they are either choosing to stay uninsured or are finding coverage through Medicaid.

The survey also indicates a new phenomena: more employers are choosing to offer their employees consumer-driven health plans that have high deductibles. But few workers have enrolled in these plans.

More employers also are offering employees accounts to pay for part of their medical expenses directly—such as health reimbursement arrangements, a health insurance plan where businesses reimburse employees for medical expenses, or health savings accounts. And more businesses are offering disease management programs that provide coverage for diabetes, asthma, and hypertension as part of the health plans.

Meanwhile, the study found that less-restrictive insurance plans such as preferred provider organizations are becoming more common than health maintenance organizations, which generally cost less.

The survey evaluated 2,013 businesses with three or more employees.

Following the release of the report, Sen. Olympia J. Snowe, R-Maine, chairwoman of the Senate Committee on Small Business and Entrepreneurship, called for the Senate to pass her legislation (S 406) that would allow small businesses to pool together to provide health insurance to their employees. But that bill has not moved so far in the Senate and is not expected to pass. The House passed a companion bill (HR 525) on July 26.

SEPTEMBER 16, 2005 -- The CEO of the health plan that's farthest along nationally in the adoption of health care information technology urged Congress Friday to "wire U.S. health care" with an infrastructure investment program along the lines of the Federal Highway Act or the Rural Electrification Administration.

George Halvorson, CEO of Kaiser Permanente, the nation's largest HMO with 8 million members, said financial assistance to health care providers could be funded through improved diabetes care in the Medicare program.

"Diabetics spend 25 percent of Medicare dollars—a 10 percent improvement in care would allow for a 2.5 percent allocation" to a program of financial assistance to providers of health care, he told a forum on IT sponsored by the nonpartisan Alliance for Health Reform. The allocation would add up to about $7.5 billion a year.

Without data—electronic medical records and computerized systems to ensure that physicians prescribe drugs safely and deliver care based on the best medical practices—reform of the health system isn't possible, Halvorson said. But with data, the "Six-Sigma" principles applied in some industries to drive down errors to almost zero can be pursued in health care, he said.

Quality improvement hinges on having systematic ways of delivering health care services and IT is essential to creating and improving those systems, he said.

Few observers see any chance of a big federal program to wire the nation's health care system. But speakers at the forum agreed that a key obstacle to IT adoption is the fact that doctors and hospitals pay for the systems but insurers reap almost all of the savings.

Halvorson said that both government health programs and private insurers should help fund the wiring of health care. Kaiser is investing some $3 billion to do so for its members, but its investment pays off in savings, too, since the HMO, unlike other many other payers, actually delivers care because it owns hospitals and medical practices.

The only chance of a big federal investment hinges on scoring changes by the Congressional Budget Office (CBO), opined Carolyn Clancy, head of the Agency for Healthcare Research and Quality (AHRQ). Right now, CBO doesn't score IT as producing savings, which adds to the cost of legislation promoting health care IT. Clancy said AHRQ is funding research that may prove useful to CBO in assessing whether IT delivers savings.

Clancy also noted private insurers have provided funds for IT. She said the giant insurer Wellpoint, for example, gave doctors computer systems or agreed to pay for them, but got a relatively weak response to the offer in part because of concerns about the costs of supporting the systems.

RAND Corporation researcher Richard Hillestad said if 90 percent of the U.S. health system adopted electronic medical record systems, savings would total about $70 billion per year after subtracting costs.

That estimate prompted Brookings Institution economist Henry Aaron to comment from the audience that the emphasis on IT as a way to save money is misplaced. The yearly savings are small relative to overall U.S. health spending, he said, adding that the emphasis instead should be IT's ability to deliver enormous improvements in quality.

SEPTEMBER 14, 2005 -- Widespread and effective use of interconnected health information technology systems would slice $162 billion a year from the nation's health care bill, says a new study by the RAND Corporation.

The costs of constructing such a system would be relatively low, but the government needs to help ensure it is built and try to eliminate barriers to savings, says the study published in the September/October issue of the policy journal Health Affairs.

A research team led by RAND's Richard Hillestad calculated the average yearly cost to hospitals and doctors of adopting a standardized electronic medical records system over a 15-year period. The cost to hospitals would run $6.5 billion per year for a total of $98 billion over the 15 years. The cost to doctors would average $1.1 billion, or $17.2 billion over the same period.

About 20 percent to 25 percent of U.S. hospitals and 15 percent to 20 percent of U.S. physicians' offices have an electronic medical records system now, the study says.

Computerized systems for ordering medications could prevent 200,000 "adverse drug events" in hospitals and 2 million in doctors' offices and clinics, the study estimates. Savings would total up to $3.5 billion in ambulatory settings and $1 billion a year in hospitals. Medicare would benefit because 60 percent of the hospital savings and 40 percent of the ambulatory care savings would come from fewer medication errors in patients 65 or older.

The study's upper-end estimate of savings from health care IT was $346 billion or more per year based on infotech's impact on other selected industries. But factors needed to generate savings appear to be missing in health care, including strong competition on cost and quality and "a strong champion firm or institution that drives change," the study concludes.

And while the researchers state that the potential savings from moving to an electronic system "would outweigh costs relatively quickly during the adoption cycle," they urge that "the time to act is now" to avoid "lengthy, uneven adoption of nonstandardized, noninteroperable electronic medical records systems."

The study notes that barriers to potential savings include: the costs of buying and running systems, disruptive effects on physician practices during adoption, and a payment system that delivers most of the savings to insurers and patients and most of the costs to hospitals and doctors.

The authors urge that the federal government address such barriers to ensure the development of "interoperability and robust information exchange networks."

The government needs to spur creation of national standards for computer systems and programs to measure, report, and reward high-quality efficient care, the authors state. And they urge government and business to consider targeted subsidies to communities to create regional information networks.