By Kate Barrett, CQ Staff

SEPTEMBER 6, 2006 -- Georgia Republican Tom Price and Wisconsin Democrat Tammy Baldwin on Wednesday implored staffers from both sides of the aisle to back a House bill to allow states to act as laboratories where lawmakers could test methods to reduce the number of uninsured Americans.

In a rare joint event, advocates from the conservative Heritage Foundation and the left-leaning Brookings Institution joined the lawmakers to make the case for HR 5864.

The bill, introduced by Price and Baldwin in July, would allow states to propose health care coverage plans to a newly created commission, which would in turn compile a slate of proposals and submit them to Congress for expedited consideration.

The bill contains a budget neutral provision, requiring that the slate of programs have no net cost beyond the five-year grant appropriation.

Price, an orthopedic surgeon, said that with 46 million Americans uninsured, the bill "breaks the logjam, tests rival plans, and expands coverage to folks across the nation."

"The whole system is much too political," he said.

Stuart Butler, vice president for domestic and economic policy studies at the Heritage Foundation, said the bill is "designed specifically for a situation where there is disagreement."

Indeed, while Baldwin has long advocated a single-payer approach, Price immediately said Wednesday that he was "adamantly opposed" to such a system. The lawmakers agreed, however, that the best way to figure out which method works best would be to see them play out at the state level.

"I'm so confident in the outcome of this that I don't mind if Wisconsin, for example, wants to go headlong off the cliff," Price joked.

Henry Aaron, senior fellow in economics at the Brookings Institution, called the effort "refreshing beyond words."

Under the measure, state proposals could be statewide, multi-state, or limited to certain regions. States could propose federal waivers to the commission as well, which would be comprised of 19 members, including the Secretary of the Department of Health and Human Services and selected appointees from the state and federal level.

Baldwin said the National Governor's Association has been involved in crafting HR 5864, which currently awaits consideration in the House Energy and Commerce Committee.

With time running out in the 109th Congress, Price and Baldwin do not necessarily expect Congress to pass HR 5864 this year, and plan to reintroduce the bill again next session if needed.

"The most pragmatic approach for the balance of the session was to educate our colleagues," said Baldwin, who serves on the Energy and Commerce panel. That way, come January, she explained, "We could hit the ground running no matter who's in charge."

In the Senate, George V. Voinovich, R-Ohio, and Jeff Bingaman, D-N.M., in May introduced S 2772, which would create a similar commission.

Among a handful of differences, the Senate bill does not contain the budget neutrality provision the House bill requires.

By John Reichard, CQ HealthBeat Editor

September 8, 2006 -- A report released by the Government Accountability Office (GAO) on Friday found that while health plans associated with health savings accounts (HSAs) attracted enrollees with generally higher incomes—a common complaint about the plans—the data it examined on age differences were "inconclusive." GAO also said the data on which the study was based were too limited to allow conclusions about HSAs generally.

The knock on health plans associated with HSAs is that they will attract healthy young people and wealthy Americans who use fewer health care services, leaving traditional plans with more costly enrollees who drive up premiums.

Individuals or their employers fund HSAs, with money in the accounts growing tax-free. Funds can be withdrawn without penalty to pay for health care services not covered by high-deductible health plans sold in conjunction with the accounts. Money paid by individuals into the accounts can be deducted from taxable income.

"In 2004, 51 percent of tax filers reporting an HSA contribution to the IRS had an adjusted gross income of $75,000 or more, compared with 18 percent of all tax filers under age 65," GAO said.

IRS data showed that HSA holders on average were 47 years old, compared with the average age of 39 for all tax filers under age 65. And eHealthInsurance, an online insurance vendor, reported that in the individual market the average age of the enrollees in HSA-related health plans was 38 years old, or five years older than that of enrollees in traditional health plans it sold. But data from several employer groups showed that the average age of HSA enrollees was two to six years younger than that of other enrollees.

HSA critics say the high deductibles of the health plans associated with the accounts will discourage enrollees from getting needed preventive care and other services. While HSA-related health plans had higher deductibles, they covered similar health care services, GAO found.

The HSA plans charged lower premiums but had higher limits on out-of-pocket spending. One national employer survey showed the plans charged premiums 35 percent lower for single coverage and 29 percent lower for family coverage.

About half of HSA owners contributed to the accounts, while two-thirds of employers did so. Among those who claimed a deduction for HSA contributions in 2004, the average amount was $2,100, with contributions increasing with income. In 2004, the average contribution by employers funding HSAs was $1,064.

About 45 percent of tax filers who reported an HSA contribution in 2004 either by themselves or their employer also withdrew funds from their accounts that year. The average amount withdrawn was $1,910.

HSA proponents see the accounts as a way to incentivize account holders to shop carefully for health care services, but GAO did not find that to be the case in questioning members of focus groups. "Few participants researched the cost of hospital or physician services before obtaining care, although many participants researched the cost of prescription drugs," the report found.

"Participants said they would recommend HSA-eligible plans to healthy consumers, but not to people who use maintenance medication, have a chronic condition, have children, or may not have the funds to meet the high deductible," GAO said.

By John Reichard, CQ HealthBeat Editor

September 5, 2006 -- Centers for Medicare and Medicaid Services Administrator Mark B. McClellan notified agency employees by e-mail Tuesday morning that he plans to step down from his post by early October, saying he wants to spend more time with his wife and children.

CMS "is the most exciting and rewarding place that anyone could work," McClellan said in the e-mail. "But I've been in government service for much longer than my family and I had ever expected or prepared for. . . . I'm looking forward to more dinners at home with Steph and our daughters."

Asked in an afternoon press briefing where he will go next, McClellan replied, "I haven't quite decided." He said he's thinking about affiliating at least temporarily with a Washington, D.C. –area think tank, but wouldn't confirm a published report that he'll take a position with the American Enterprise Institute. He also said there are a variety of respected think tanks in the Washington area and he would gladly talk to a number of them.

McClellan also hinted that his short-term plans include helping his mother, Texas Comptroller Carol Strayhorn, in her bid to become the next governor of the state. "There are definitely some things to do down there between now and Nov. 7," he said. Longer term, McClellan said he wants to be involved in implementing "big ideas" in health care, emphasizing that he wants a hands-on role. "I'm not an ivory tower kind of guy," he said. Whether that role might involve Stanford University is unclear. McClellan has been on leave from the economics faculty at the university since the late 1990s when he joined the U.S. Treasury Department as a policy analyst. "Stanford has been very kind and forgiving" in their leave policy, McClellan said, but he stopped short of saying he'd repay that kindness by rejoining the university.

McClellan's signature achievement at CMS was implementing the new Medicare prescription drug benefit. Although the startup of the benefit was marred by cutoffs in access to vital drugs for frail, low-income seniors—or so-called dual eligibles who were moved from Medicaid to Medicare for their drug coverage—McClellan worked to fix the problems.

For the most part, even his critics praise his administrative skills in implementing the many provisions of the Medicare overhaul law (PL 108-173), which established the benefit. But California House Democrat Pete Stark called McClellan "smart to step down before at least 7 million Medicare beneficiaries hit the prescription drug program's doughnut hole," the gap in coverage where beneficiaries pay all prescription costs. "Had he waited much longer, he would have found few employers willing to hire an ex-Bush administration official."

While the Bush administration has struggled with health policy in the face of rising health costs and numbers of uninsured Americans, McClellan's tenure has generally been a point of pride for the administration and for GOP lawmakers, even though he often frustrated members of Congress with his penchant for sidestepping questions to stay on message.

Department of Health and Human Services Secretary Michael O. Leavitt issued a statement after McClellan's announcement saying that "his energy and commitment have been vital to the accomplishments of this department and administration."

But McClellan's timetable for departure leaves the administration struggling with major issues in Medicare, including the staggering costs of preventing payment cuts to physicians and a strategy for funding Medicare benefits for the baby boom generation.

But McClellan's e-mail claimed progress on that front as well, referring to his efforts to create payment systems based on quality of care and improved coverage of preventive benefits to increase the value government gets for its health care dollar. "We are collaborating to move to paying for what we really want and what providers want to deliver: better care at a lower overall cost, not just more services," he said.

The continuing challenge of managing the drug benefit and complex changes in payments for hospital care suggest that a CMS insider is likely to replace McClellan on an acting basis. A number of agency watchers see one of two top CMS officials as likely to step in: Deputy CMS Administrator Leslie Norwalk or Herb Kuhn, head of the CMS Center for Medicare Management.

"The two bets would be either Leslie or Herb," a former top CMS official said. "Both have the administrative skill to do it. Herb is a little better known in Congress, but Leslie knows Part D much more," he said.

McClellan offered no hints about who might replace him but also named Abbey Block and Dennis Smith as part of a "very strong leadership team at CMS" that will ensure stability after he departs. Block is the director of the CMS Center for Beneficiary Choices and Smith is the director of the federal Medicaid program.

By John Reichard, CQ HealthBeat Editor

September 8, 2006 -- With Medicare physician spending rising fast while doctors face years of sharp payment cuts, Congress is vexed about how to pay doctors in the program. Lawmakers are worried that spending growth is unsustainable, but are concerned that without lots of new spending to erase payment cuts, doctors could bail out of the program.

Facing a March 1 deadline for analyzing alternative approaches to the current "Sustainable Growth Rate" (SGR) payment formula, members of the independent Medicare Payment Advisory Commission (MedPAC) seemed no less frustrated at a freewheeling discussion of the issue Friday morning. One described commission members as going "crazy" trying to assess alternatives.

Underlying the frustration was a sense of dissatisfaction about the current system, which relies on growth in the gross domestic product to help establish a yearly target for growth in Medicare payments to doctors. To the extent that overall spending exceeds the target, payments must be reduced in following years to produce savings equal to the excess amount.

Nancy-Ann DeParle, former head of the Medicare and Medicaid programs, suggested that economic growth is a poor measuring stick of whether increased Medicare outlays for physician care are justified. "I've never understood why the volume of physician services is tied to GDP growth," she said. "It may be there are things we want to increase" faster than GDP growth, such as spending on screening for colorectal cancer, she said.

Commission member William J. Scanlon similarly expressed dissatisfaction with a GDP-based target, saying MedPAC should evaluate what types of spending targets are more desirable.

Ronald D. Castellanos, a Florida-based urologist, said "a fairer index may be the MEI," or the Medicare Economic Index, which tracks the costs of delivering physician care. "Every medical society has gone on record" that the current GDP-based system is not working, he said.

Castellanos said closer scrutiny of the root causes of volume increases in Medicare-related physician services is needed to determine whether and to what extent growing outlays are warranted. "An increase in volume is not bad in some respects," he said. "I think we need to look at volume more carefully."

But Commission Vice Chairman Robert D. Reischauer defended the GDP-based method, reminding commission members that the ability of society to allocate resources relates to overall economic growth. And commission member John M. Bertko expressed concern about the volume of physician services in Medicare if targets were lifted altogether. "Taking a target off would send the wrong message," he said.

MedPAC Executive Director Mark Miller encouraged commission members to think broadly, however, about how to restrain spending on doctor care, saying a GDP-based system need not be the focus of the report and emphasizing that the question of how to set a spending target "is on the table."

Commission staffers noted that Congress ordered MedPAC to analyze a variety of approaches for controlling volume, including setting more specific spending targets rather than one overall national target.

Those approaches include targets specific to group practices, hospital medical staff, types of services, geographic regions, and "physician outliers" who prescribe unusually large volumes of services.

Commission staffers offered examples of how service-specific targets for physician spending might be set and how they might affect payment updates.

Targets for spending growth for evaluating patients and managing their conditions—so-called "E and M" services," such as imaging, lab tests, and major surgical procedures—could be based on GDP or historical averages of volume increases.

Payments would be updated depending on how spending for those services compared with GDP growth or service-specific historical rates of volume growth. Using GDP as a standard would result in an 8.8 percent cut in payments for imaging services given how much the recent growth in imaging volume exceeds GDP, according to a MedPAC staffer.

Another approach would be to compare current volume growth in imaging to recent trends in imaging growth, resulting in more modest cuts. That method would increase payments for E and M services and major surgical procedures, the staffer added.

Targets also could be set by geographic region, with parts of the country with large volumes of services and high rates of volume increases receiving lower payment increases or actual cuts.

Setting targets specific to smaller numbers of physicians would have a greater impact on individual physician behavior in controlling service volumes, but it would increase the administrative burden on Medicare, commissioners noted.

MedPAC isn't required to endorse a specific approach in its March 1 report. But its job evaluating the pros and cons of various alternatives goes beyond evaluating the five types of targets: group practice, hospital medical staff, type or service, geographic areas, and physician outlier.

Miller reminded commissioners that they should think about other approaches to controlling the volume of physician services as well, such as pay-for-performance systems, measures of resource use, improved coordination of care, and the use of clinical practice guidelines.

MedPAC Chairman Glenn M. Hackbarth suggested that an even more fundamental rethinking of the Medicare program might be in order. He expressed doubt that targets that focus narrowly on doctors are the way to go, saying what's needed are incentives to have doctors, hospitals, and other providers team up to provide better care.

"I think the elephant in the room . . . is the fee-for-service system does not work," he said. By giving doctors an incentive to order more tests and procedures, fee-for-service payment has increased access to care and boosted technology, but it does not result in consistently high-quality care, he said. What's needed are better incentives to organize care, he concluded.

By CQ Staff

September 5, 2006 -- Costs, complications, and deaths associated with hospital stays could be reduced if hospitals followed certain steps to ensure patients received high-quality care, according to an analysis released Tuesday.

The analysis, conducted by an alliance of not-for-profit hospitals, known as Premier Inc., with the Centers for Medicare and Medicaid Services, finds that if medical professionals adopted certain care strategies for pneumonia, heart bypass, heart attack, and hip and knee replacement patients, they could lower hospital costs by $1.35 billion.

The analysis also reveals that doing so could result in a total of 750,000 fewer days in the hospital, 10,000 fewer readmissions, 8,100 fewer complications, and 5,700 fewer deaths.

The findings released Tuesday are part of a three-year project designed to determine whether financially rewarding hospitals is an effective way to improve the quality of patient care.

The Premier Inc. and CMS demonstration project, started in 2003, is testing the merits of "value-based purchasing," which links payment to quality of care. A budget savings bill (PL 109-171) that President Bush signed in February requires CMS to develop a plan to enact value-based purchasing beginning in 2009.

"Our nation's current health care payment system pays all hospitals the same way regardless of the quality of care delivered," said Premier President and Chief Executive Officer Richard A. Norling. "These new findings point the way toward a payment system that's better for patients and hospitals—one that rewards hospitals for delivering higher quality care."

The demonstration project was conducted by gathering a set of 33 factors that indicate high-quality service from more than 250 participating hospitals nationwide.

By John Reichard, CQ HealthBeat Editor

September 8, 2006 -- There may not be much time left before lawmakers adjourn to campaign for midterm elections, but House Energy and Commerce Health Subcommittee Chairman Nathan Deal, R-Ga., apparently intends to make the most of it.

Deal said Thursday that there is "plenty of time" left for Congress to pass legislation fostering the adoption of health information technology, adding that he also expects House passage of legislation reauthorizing the Ryan White CARE Act, which provides a safety net to Americans living with HIV, within two weeks.

Deal also said he's hopeful that Congress will pass legislation that would block a scheduled 5.1 percent cut in Medicare payments to physicians.

House Republican leaders announced Thursday that their goal is to have their last votes before recessing on Sept. 29. A lame-duck session is scheduled to begin in the House on Nov. 13. The Senate is expected to follow a similar schedule.

Interviewed after a speech Thursday to the Bush administration's Medicaid Commission, Deal said, "I wish I could tell you" whether a House-Senate conference to resolve differences between health information technology bills (HR 4157, S 1418) will occur before or after the election. But he added that Congress has "plenty of time" to get it done. "There are not that many differences on it."

One sticking point, however, is whether to preserve House language that would exempt hospital donations of information technology to physician practices from prosecution under federal anti-kickback laws. Deal expressed concern that dropping that language would mean the final legislation would do little to speed adoption of technology. "If we do that, we may have a very hollow bill," he said.

Insurers, however, are lobbying for the removal of the House language. In a Sept. 1 letter to House and Senate leaders, health insurance lobby America's Health Insurance Plans (AHIP) said the language is not needed because the Department of Health and Human Services recently issued final regulations addressing the issue.

The lobby objects to the language on the grounds that it does not require technology donated by a hospital to a physician's office to be compatible, or "interoperable," with that used by other hospitals. Thus, a doctor's office might receive a system that allows it to exchange a patient's medical records electronically with one hospital system, but not with another.

"As a result, the physician could be forced to funnel his or her patients to a particular hospital or hospital system to the exclusion of other appropriate treatment options," according to a legal memo prepared for AHIP by the D.C. law firm Epstein Becker and Green. Other hospitals would not be able to compete effectively in the marketplace, potentially violating antitrust law and driving up the cost of care, the memo said.

AHIP President Karen Ignagni said in the letter that if Congress does include exemption language in the final bill, it should be "accompanied by interoperability requirements to improve communication and the flow of information throughout the health care system."

AHIP also objects to two other provisions in the House-passed legislation, those requiring the adoption of a new set of diagnosis and procedure billing codes—the so-called ICD-10 codes—by October 2010 and those providing an expedited process for revising other IT standards. The ICD-10 deadline is "unrealistic," and the expedited process would not allow for public comment, potentially leading to unworkable standards, AHIP said.

Physician Payments

On the physician payment issue, Deal said in the interview that "we will do something" this year, but suggested that it would be a limited fix because of the high costs of doing something long term. "I would prefer to get it done before the election," he added.

The current payment formula sets physicians up for several consecutive years of cuts, but Congress will be hard-pressed to pay for more than a one-year fix. Deal indicated that the five-year cost of erasing the 5.1 percent cut and keeping payments the same in 2007 as they are in 2006 would be $13 billion.

Asked how Congress would pay to erase the cut, Deal said a $10 billion fund to keep managed care plans in Medicare "is always a target." He added "there are not a lot of identifiable funding sources out there." It would be hard to go to sources other than the stabilization fund "without stepping on toes."

Deal indicated that the payment fix would be contingent on the reporting of data by physicians on the quality of their care.

A "budget brief" released Thursday by the Congressional Budget Office put the five-year cost of increasing physician payment rates by one percent in 2007 at $13 billion and at $6 billion over 10 years. The estimate assumes the payment update would not be treated as a change in law or regulation.

If it were treated as such a change, the five-year cost also would be $13 billion, but the 10-year cost would be $31 billion. If physician payment rates were allowed to increase at the rate of medical inflation, the five-year cost would be $58 billion and the 10-year cost $218 billion.

Medicaid Changes

Asked what further changes he'd like to see relating to Medicaid program, Deal expressed support for creating a permanent federal advisory commission for Medicaid along the lines of the Medicare Payment Advisory Commission.

He told the Bush administration Medicaid Commission that he'd like to see financial incentives for families to take care of elderly or disabled members who otherwise would be treated in nursing homes. Doing so with proper safeguards to prevent families from misusing funds could save the government money, he said. Deal also expressed support for tax-free withdrawals from Individual Retirement Accounts to pay premiums for long-term care insurance policies.

Deal also backed charging higher co-payments to Medicaid patients who go to emergency rooms for non-emergency care and protecting hospitals from liability if their emergency rooms direct patients to other less costly sources of care if they are accessible and medically appropriate.

By Mary Agnes Carey, CQ HealthBeat Associate Editor

SEPTEMBER 6, 2006 --- Market consolidation among health care insurers is boosting insurers' profits while driving up costs and hurting the quality of patient care, physicians told the Senate Judiciary Committee on Wednesday.

But a witness for the insurance industry said that "vigorous competition" exists among health care insurers and that health plans are working to promote more transparency in terms of quality and cost—efforts that will benefit both providers and consumers.

The session demonstrated the difficulties lawmakers face in trying to determine the factors behind rising health care costs and develop strategies to control them. While the panel reached no conclusions—the hearing was cut short due to a Senate floor vote—it was another reminder of the ongoing tensions between insurers, providers, and patients and Congress' role in that dynamic.

Committee Chairman Arlen Specter, R-Pa., said that as he traveled his state over the August break he heard many complaints about rising health care costs, especially from small business owners. Judiciary member Sen. Tom Coburn, R-Okla., an obstetrician, discussed his own frustrations as a physician with reimbursements from private insurers and federal health care programs.

"Fixing the problem is creating a real market for health care in this country," Coburn said, urging changes such as better financial incentives for innovative care and fewer dollars spent on insurance administrative costs.

Edward L. Langston, chair-elect of the American Medical Association's board of trustees, said health plans are pursuing "aggressive acquisition strategies to assume dominant positions in their markets," a trend that "will lead to a health care system dominated by a few publicly traded companies that operate in the interest of shareholders rather than patients."

Congress, as well as federal regulatory agencies, must address "the serious public policy issues raised by the unfettered consolidation of health care markets," Langston said.

Another witness, Pennsylvania Medical Society President Mark A. Piasio, said that while many Pennsylvania insurers are posting huge profits and surplus reserves, premiums continue to skyrocket and patient cost-sharing has increased without any improvements in care. From 2000 to 2004, Piasio said, Pennsylvania health insurers increased premiums 40 percent per enrollee, from $2,161 to $3,022, nearly double the U.S. average, while insurers' surplus reserves rose from $5 billion to $6.8 billion.

Federal regulators should be more active in monitoring such activity, said Sen. Patrick J. Leahy, D-Vt. In a statement, Leahy said the Justice Department and Federal Trade Commission "should be vigorously enforcing the antitrust laws not just against physician groups, as it has, but against insurance companies engaging in anticompetitive behavior"

A witness for the insurance industry, Stephanie W. Kanwit, special counsel for America's Health Insurance Plans, said her group members operate in one of the most highly competitive industries in the country and that consumers benefit from that competition. "Consumers have lots of options," Kanwit said, adding that there are multiple competing health plans purchasing physician services in every major metropolitan area in the U.S., each offering multiple products to consumers and employers. For example, she said that in Los Angeles there are 16 HMOs, 20 in Miami, and 14 in Philadelphia.

To counter claims that insurers dictate prices and coverage terms to physicians, Kanwit presented insurance industry data that found the average physician contracts with about 13 health plans and receives about half of his or her practice revenues from health plan contracts. She also discussed her group's work with the Ambulatory Care Quality Alliance, a coalition that includes insurers, employers, physicians, and government agencies, to develop measures to help patients and purchasers evaluate the cost, quality, and efficiency of care delivered. The group also aims to have such data help practitioners determine how their performance compares with their peers in similar specialties.

As the hearing closed, Specter encouraged representatives of the Justice Department and the Federal Trade Commission who had testified at the hearing to scrutinize an upcoming merger between Pennsylvania insurers Highmark and Independence Blue Cross. He also urged Kanwit to push her members to testify before the panel the next time they are asked to do so. Five insurers were invited to testify at Wednesday's hearing but none did.

"That's not a very good sign if the Senate Judiciary Committee wants to have a hearing on this issue and insurers won't come in," Specter said.