By John Reichard, CQ HealthBeat Editor

August 1, 2008 -- Two key Senate committee chairmen announced Friday the introduction of legislation (S 3408) to create what a wide cross-section of the Washington health policy establishment says is essential to controlling health costs and covering the uninsured—a public–private institute to foster research into "what works" in medicine.

"The bill would create a nonprofit corporation responsible for setting national priorities for comparative effectiveness research," said Senate Finance Committee Chairman Max Baucus, D-Mont., who joined with Senate Budget Committee Chairman Kent Conrad, D-N.D., to sponsor the measure.

"The corporation, which would be called the Health Care Comparative Effectiveness Research Institute, would be a private entity," Baucus said on the Senate floor. "But it would be governed by a public-private sector Board of Governors. It would not be an agency of the federal government."

Insulating such an entity from political pressures is key because in the past, federally funded programs to study the value of medical treatments have been slashed when findings undercut a lucrative treatment, advocates of the comparative effectiveness research say.

Officials from both federal agencies and private corporations standing to benefit from the research would be among the members of the board overseeing the new institute, which would ramp up to funding of some $300 million per year, according to Baucus.

Now, the federal government only spends $15 million to compare the effectiveness of treatments. "We should devote more than one-tenth of one percent of health spending to study how well health goods and services actually work," Baucus said. Congressional Budget Office Director Peter Orszag has estimated that up to $700 billion a year in health spending could be eliminated through research identifying treatments that do not produce the best medical outcomes.

But other analysts have noted that one person's waste is another person's income. A research agenda that targets the most costly types of treatments and produces findings that shrinks demand for those treatments may not sit well with the individual drug, device and medical professionals affected.

However, the Advanced Medical Technology Association (AdvaMed) and the Pharmaceutical Research and Manufacturers of America (PhRMA) issued statements Friday that sounded supportive of comparative effectiveness research. PhRMA Senior Vice President Ken Johnson said the lobby "supports the development and use of high-quality evidence, including comparative clinical effectiveness evidence, for healthcare decision-making."

Proposals to expand government supported research should promote timely access to needed therapies, he added, "and avoid denying or delaying patients' access to beneficial care, as what often occurs in Europe and Australia." Johnson said "PhRMA will continue to review the details of the bill, and look forward to working with both Chairmen and other members of Congress on this important issue."

AdvaMed CEO Stephen J. Ubl said that the bill "reflects a number of AdvaMed principles on comparative effectiveness and we look forward to working with the bill sponsors as it continues through the legislative process." As Congress considers the measure, "we believe safeguards should be included to ensure that the final determination of what treatment option works best for each patient should be made by individuals and their physicians."

Ubl added that "research should focus on comparative clinical effectiveness, and not on cost-effectiveness—which could lead to decision-making that may not be in the best interest of patients. While the bill does provide for a study of methods for cost-effectiveness research, we are pleased that no such research is authorized."

Baucus said the bill would provide "stable funding" for the institute. It would rely strictly on taxpayer funding from general revenues in its first three years then switch to an "all payer" system with money from both public and private sources. The institute's budget would total $5 million in 2009 and reach $300 million by the year 2013, Baucus added.

A summary of the bill says the measure would appropriate general funds from the Treasury totaling $25 million in fiscal 2010, and $75 million a year in fiscal years 2011 through fiscal 2018.

Private insurers would pay $1 per insured person per year and funding from the Medicare trust funds would total $1 per beneficiary per year.

Insurance lobbies voiced enthusiastic support for the bill despite the fees. "We very much support this notion of a public–private independent organization," Karen Ignagni, president of America's Health Insurance Plans, said in an interview.

"We're happy to do our share," Ignagni added. "This is a down payment on the agenda of most stakeholders, which is to get all Americans covered."

Findings from research sponsored by the institute would be publicly disseminated and could not take the form of clinical practice guidelines or policy recommendations. Ignagni said it would "inform coverage decisions" by health plans but said they would be unlikely to exclude treatments found to be less valuable. Instead, insurers would likely rely on "tiering" to encourage use of the most valuable treatments—an approach that charges lower co-payments for more valuable treatments and higher co-payments for those with lesser value.

"The senators should receive kudos for this and we believe it's the cornerstone of the health reform agenda and should be enacted this year," Ignagni said.

Blue Cross and Blue Shield Association President Scott P. Serota issued a statement supporting the legislation, noting that the Blues "have long advocated for such an entity." He added that by "promoting comparative effectiveness research—not just in America, but worldwide—we can improve quality, value, and expand coverage for all."

It's unclear whether the Bush administration will support the bill, or when lawmakers will take up the measure. A Baucus spokeswoman said "we will work to move the bill this year, but obviously time is very limited. It is important to start serious discussion on an issue important to consider in the context of health reform."

Jeff Nelligan, spokesman for the federal Medicare and Medicaid programs, offered no comment on the bill, saying "we haven't had a chance to review" the legislation.

Health care players are likely to comb carefully through its provisions to determine how much influence various sectors of health care have over the entity. Its board would have 21 members, including the secretary of Health and Human Services, the director of the Agency for Healthcare Research and Quality, and the director of the National Institutes of Health.

The Comptroller General of the United States would appoint the other 18 members, including three from each of the following groups: private payers; pharmaceutical, device, and technology companies; patients and health care consumers; doctors, including surgeons; and agencies administering public health programs.

"In addition to setting national priorities, the Institute would provide for the conduct of research studies that answer the most pressing questions about what works in health care," Baucus said. It could contract with NIH, AHRQ and private entities for research, which would be peer-reviewed. Baucus said it would be required to assess "the full spectrum of health interventions, including pharmaceuticals, medical devices, medical procedures, medical services, and other therapies."

By John Reichard, CQ HealthBeat Editor

July 31, 2008 -- One thing seemed perfectly clear at a Senate Finance Committee hearing Thursday—Chairman Max Baucus sees tax code changes as a rich vein of revenue to fund coverage of the uninsured in any health system overhaul plan he unveils in the next Congress. But Baucus was less clear on how to navigate the political hazards involved.

At issue was what the Montana Democrat called "tax subsidies for health benefits"—the fact that health insurance premiums paid by employers aren't counted as taxable income to employees. That "exclusion," Baucus noted, has been called after Medicare and Medicaid "the third largest government entitlement for health care."

Because the government doesn't tax employer-paid premiums as income, the feds forego upwards of $200 billion a year in revenue. But if the government capped that exclusion—in other words, taxed some part of the premiums paid—it could raise money to cover the uninsured. A growing number of Democrats and Republicans are drawn to the idea.

Economists at Thursday's hearing charted a path to overhauling the health care system based on changing the exclusion. The numbers they tossed around as potential revenues that could be raised are clearly dazzling to lawmakers, but the accompanying health system changes that would be needed are perhaps equally daunting.

Massachusetts Institute of Technology professor Jonathan Gruber estimated that there are $250 billion a year in foregone tax revenues from excluding employer expenditures on health insurance from taxation. But this subsidy is flawed, he said. Because higher income families have higher tax brackets, they save more than low-income families when employer payments for health insurance aren't counted as taxable income.

Gruber testified that "about three-quarters of these dollars go to the top half of the income distribution."

Another problem is that "this tax subsidy makes health insurance, which is bought with tax-sheltered dollars artificially cheap relative to other goods bought with taxed dollars, leading to over-insurance for most Americans." The $250 billion a year "is an enormous sum of money which could be more effectively deployed elsewhere, especially through alternative approaches to increasing insurance coverage."

It would be administratively simple to remove the subsidy—"employers would report their spending on insurance as taxable wages on W-2 forms, and the government would raise the resulting revenues," Gruber said.

But "many employers currently only offer health insurance because of this 'tax bribe', and ending the exclusion would lead to a large erosion of employer-sponsored insurance."

Gruber said that if an employer dropped coverage, a large body of economic evidence shows that the employee could expect to see that money in the form of higher wages. But the erosion of employer-sponsored insurance is worrisome because "sick and older individuals are treated much more fairly in employer groups than they will be in today's non-group insurance market."

Under employer-sponsored insurance, "all individuals pay the same for insurance regardless of their health or age. But in most states those who are sick or older must pay much more for their non-group insurance, and in many cases it is simply unavailable. So as employer-sponsored insurance falls we could end up with a large new set of uninsured who cannot afford, or cannot obtain at any price, non-group insurance."

Gruber offered four approaches to lessening this problem. "The first is to remove the exclusion either slowly or partially. For example, President Bush's 2005 tax policy panel suggested capping the exclusion, only subjecting insurance premiums above the national average to taxation. Alternatively, all individuals could be taxed on a portion of their employer-sponsored insurance premiums.

Another approach is to reform the insurance market so that companies couldn't charge the sick much more for their insurance. "Of course, this reform cannot happen in a vacuum, as forced community rating on insurers would lead to higher prices for all."

"This leads to my third suggestion, a mandate on individuals to buy health insurance. As we have shown in my home state of Massachusetts, such a mandate can lead to low prices for non-group insurance side-by-side with regulations that keep prices the same for the sick and the healthy." Analysts note that such a mandate means that insurers can offset the cost of sicker patients they insure with the premium dollars of younger and healthier enrollees.

Remarkably, Gruber said, the law in Massachusetts to create nearly universal coverage has increased the number of residents with employer-sponsored coverage despite fears that employers would drop coverage because of subsidies provided to lower-income residents to buy benefits. He speculated that employees in firms without coverage are telling their employers that they are now required to have insurance and so are putting pressure on them to provide it.

Another approach, he said, would be to move from subsidizing individuals to buy coverage to subsidizing firms because when companies offer it "the vast majority of employees will enroll."

Edward D. Kleinbard, chief of staff of the Joint Committee on Taxation, and Katherine Baicker, a health economics professor at Harvard, also noted problems with the current subsidy, pointing out that it creates inefficiency in the health care system by making the insured insensitive to the costs of care because of the problem of overinsurance. The tax subsidy gives a large number of Americans overly generous coverage, witnesses said.

Baicker said that "a not insubstantial share [of U.S. health care] is devoted to intensive, expensive care with questionable health benefits."

But Kleinbard also noted the advantages of the group health plans offered by employers, saying they help spread costs associated with sicker enrollees. He added that they have "superior negotiating power" with insurers than individuals do and can achieve administrative savings.

Baucus wondered how the federal government could trim more generous coverage in a way that is politically palatable.

"There is a lot of virtue to a long transition period" in lowering the amount of employer-paid premiums that could escape taxation, Kleinbard replied.

Baucus emphasized that he many more questions he wants to ask about changing the exclusion in future hearings. Ending the employer role in providing health care "might be too much change," he said.

At the same time, "all of us recognize that our system is unsustainable. We cannot continue on our current path. But we must strike a balance. We need to fix what's broken, without breaking what's working."

By Whitney Blair Wyckoff, CQ Staff

July 28, 2008 -- Politicians must consider dental care as important as other areas of care when evaluating health policy, said speakers at a recent briefing on dental care access.

Speakers at the briefing, which was sponsored by the Alliance for Health Reform and the Kaiser Commission on Medicaid and the Uninsured, said more than 100 million Americans don't have dental insurance, which is more than 2.5 times the amount of people who don't have medical coverage, they said.

Jack Bresch of the American Dental Education Association said there are more than 3,700 geographical locations that don't have enough dental health professionals. This number has skyrocketed from where it was 15 years ago, when the figure was 792, he said.

Burt Edelstein of the Children' Dental Health Project said these figures don't factor in shortages of people practicing dental specialties, like pediatric dentistry or oral surgery.

To address dental professional shortages, some states are looking to expand the scope of practice for hygienists who obtain a high level of education and certification. This would mean these hygienists would be able to perform some dental health procedures and offer preventative care without the supervision of a licensed dentist.

Several panelists said while SCHIP and Medicaid do provide dental coverage, reimbursement is so low that many dentists can't afford to accept them. As a result, many with public dental insurance receive sub-standard care. Panelists also said there is a huge disparity between reimbursement rates for physicians and dentists.

"They (politicians) are very good at promising coverage and very bad at paying for care," said William Prentice, senior vice president for government and public affairs for the American Dental Association. Several of the speakers emphasized that dental care coverage should be included in the SCHIP reauthorization. Dental health provisions were included in last year's failed SCHIP reauthorization legislation.

Panelists also said nearly 100 percent of dental ailments are avoidable, referring to the case of the Prince George's County child who died after not receiving adequate dental care.

The child, Deamonte Driver, never had a primary care dentist—his mother couldn't find one willing to accept his Maryland Medicaid plan. Driver developed tooth decay which then progressed into a brain infection and, after two brain surgeries, Driver died at age 12.

The emergency treatment Driver received cost $250,000. However, the cost to extract the original decaying tooth would have been less than $100, said Harry Goodman, director of the Office of Oral Health in the Maryland health department.

"This is a tragedy in the greatest sense of the word," Goodman said. "This case was so preventable."

By Danielle Parnass, CQ Staff

August 1, 2008 -- Small specialty health care practices are feeling the pinch of implementing a costly electronic health records system, which could possibly prevent greater adoption and widespread use of information technology services, said witnesses and lawmakers at a House Small Business Committee hearing.

Installing electronic medical records can cost upward of $44,000 per physician plus upkeep fees, said Committee Chairwoman Nydia M. Velázquez, D-N.Y., during Thursday's hearing. "For small health care providers with limited resources, these upfront costs are enough to break the bank," she said.

Physicians and lawmakers alike recognize the importance of a robust health information technology system to control costs and improve quality, and health IT legislation (HR 6357) is currently making its way through the House. But because of the high costs of implementation, "only a handful of solo practitioners" use electronic medical records, compared with 57 percent of larger care centers, Velázquez said.

Physicians at the witness bench called on Congress to establish standards for health IT to prevent interoperability problems where physicians cannot communicate with pharmacies or laboratories because their different programs are incompatible.

They also encouraged incentives for different providers who adopt these systems and criticized the "stick" approach for adopting greater use of electronic medical records, as recently proposed by Congressional Budget Office Director Peter R. Orszag.

"Doctors don't respond well to penalties and to forcefulness," said Ralph Hale, executive vice president of the American College of Obstetricians and Gynecologists. He said it could foster resentfulness among small practitioners who will look at the system and say they want to adopt health IT but because of the cost factor they cannot afford to do so.

Specialty doctors such as neurosurgeons, psychiatrists, and pediatricians also face challenges in finding appropriate electronic systems that are often geared toward mainstream medical practices, Velázquez said.

Edward Gotlieb, a pediatrician in Georgia representing the American Academy of Pediatrics (AAP), said channeling health IT incentives through the Medicare program would pose significant obstacles for pediatricians who receive their funds from Medicaid. Through this system, more than 60,000 practicing pediatricians will be excluded from these incentives.

And although the State Children's Health Insurance Program would provide more than $200 million in grants toward health IT, the Bush administration has twice-vetoed bills that would reauthorize the program, he said.

"The already inequitable system of funding programs for children will only be worsened," Gotlieb said. "This is not a good investment in our future."

Confidentiality and privacy issues also arise when making the switch to electronic records. Robert Plovnick, director of the Department of Quality Improvement and Psychiatric Services of the American Psychiatric Association, said many patients with mental illnesses—7 percent, according to the Department of Health and Human Services—do not seek treatment due to privacy concerns. He said a variety of technological solutions can solve this and should be implemented with standards to ensure strict security.

"Health information technology is a complex issue," said Ranking Republican Steve Chabot, R-Ohio. "The decision to implement health information technology in a small medical practice is considered an act of courage by many physicians."

By John Reichard, CQ HealthBeat

July 31, 2008 -- The Centers for Medicare and Medicaid Services (CMS) announced the release of four payment regulations Thursday, choosing to emphasize provisions to reduce medical errors in a telephone press briefing on the regulations.

But skilled nursing facilities had their attention focused elsewhere, heaping praise on the Bush administration for holding back on provisions they said would reduce their payments over $5 billion over five years. Hospice programs, however, weren't celebrating.

The regulations cover inpatient hospital care and inpatient rehabilitation facilities in addition to hospice programs and skilled nursing facilities.

Acting CMS Administrator Kerry Weems noted a report released this week by the Agency for Healthcare Research and Quality (AHRQ) in explaining Medicare's growing pressure on hospitals to avoid preventable medical mistakes.

The study found that one of every ten patients who died within 90 days of surgery in 2001 and 2002 did so because of a preventable medical error. Published in the journal Health Services Research, the study also found that preventable medical errors that occur during and after surgery may cost employers $1.5 billion a year.

The AHRQ study looked at surgeries involving patients enrolled in employer health plans, but Weems made it clear that he thinks the problem of preventable medical errors takes a big toll on Medicare enrollees as well.

Weems said that as of Oct. 1, Medicare will not pay for care for certain conditions that were not present on admission to the hospital, but that were acquired during the stay because of sloppy care. CMS announced eight of those conditions last year, and is adding three more through this year's final rule governing hospital inpatient payments. The payment cutoff for both the conditions announced last year and those just announced takes effect this October.

The three additional conditions include: surgical site infections following certain elective procedures such as orthopedic surgeries and weight reduction surgery; certain manifestations of poor control of blood sugar levels; and deep vein thrombosis or pulmonary embolism following total knee replacement and hip replacement surgeries.

The conditions are known as "never events" because they are errors that never should have occurred and can result in serious injury or death, the agency said. CMS also announced that it will undertake "national coverage determinations" on whether it will pay for surgery on the wrong body part, surgery on the wrong patient, and wrong surgery performed on a patient.

Weems said CMS also sent a letter to state Medicaid directors urging them to adopt the same non-payment policies for never events as were announced in the final inpatient payment rule. Nearly 20 states have or are considering non-payment in Medicaid for some never events, CMS said.

The American Medical Association (AMA) protested Thursday that CMS acted inappropriately on never events.

"The federal government's decision today to no longer pay hospitals for care provided for three additional medical conditions acquired in the hospital puts patient care at risk," said AMA President-elect J. James Rohack. "We are working hard to improve quality and efficiency, but simply not paying for complications or conditions that while regrettable—are not entirely preventable—is not the way to do it. It is unacceptable that this program is being expanded beyond the original eight conditions identified last year for non-payment when the first phase of the program has not even begun.

"HHS is confusing events that should never happen in a hospital, like wrong-site surgery, with often unavoidable conditions, like surgical site infections," Rohack added. "To be reasonably preventable, there should be solid evidence that by following guidelines, the occurrence of an event can be reduced to zero or near zero. This is not the case for many of the now-banned conditions."

Weems said that CMS also is adding to the number of quality performance measures on which hospitals must report data in fiscal 2009 in order to qualify for Medicare's full payment update in fiscal 2010. They now must report on 30 measures to get their full payment update in fiscal 2009; the final rule adds 13 more measures, a bit of a reprieve in that the agency had discussed adding 43 more measures to get the full 2010 update.

The final hospital inpatient payment rule will increase payments to hospitals in fiscal 2009 by $4.75 billion and provides a 3.1 percent increase in payment rates.

Skilled nursing facilities meanwhile got the welcome news that CMS delayed a recalibration of payment categories the agency planned to correct what it said was a previous payment error. Weems said "we will continue to evaluate the underlying data carefully."

The decision averted $770 million in cuts in fiscal 2009 and more than $5 billion in cuts over five years, the American Health Care Association and the Alliance for Quality Nursing Home Care said in a joint news release.

CMS estimated that payments to skilled nursing facilities would rise $780 million overall, reflecting a 3.4 percent payment update.

Hospice programs meanwhile issued a statement Thursday calling on Congress to block what they said were cuts announced by CMS. The agency said hospices will see a 2.5 percent increase in their payments in 2009, 1.1 percent less than would have been the case had it decided not to phase out certain payments relating to switching to a new wage index about a decade ago. "Phasing out this special adjustment will save Medicare $2.18 billion over five years," CMS said.

But the National Hospice and Palliative Care Organization said the change is effectively a cut and will force many hospice providers to either cut back care to the terminally ill or "shut their doors altogether." J. Donald Schumacher, the organization's CEO, said "let's be clear, the Administration's cuts will seriously hurt the most vulnerable."

CMS also announced that a final payment rule governing services provided by inpatient rehabilitation facilities would mean total fiscal 2009 payments of $5.6 billion for the providers.

By Whitney Blair Wyckoff, CQ Staff

July 28, 2008 -- The number of working-age adults with major chronic conditions has increased by 25 percent over the last 10 years, according to a new study from the Kaiser Family Foundation.

The study also found that chronic disease sufferers without health care coverage experienced a decrease in access to health care in the same period.

Forty percent of the population has one or more chronic disease, the study said, and those individuals make up three-fourths of health care spending. In the study, "major chronic diseases" included heart disease, hypertension, stroke, diabetes, pulmonary conditions such as emphysema and asthma, and cancer.

Several health experts have said prevention of these diseases is a way to lower health care costs. A study published last week showed that investing $10 per person per year in community-based disease prevention, it could save more than $16 billion annually within five years.

The Kaiser study found that in 1997, 46 million non-elderly adult Americans had a chronic disease, but by 2006, that number rose to 57.7 million. The percentage of working-age adults with a chronic disease also has increased from 28 percent in 1997 to 31 percent by 2006. Rates of hypertension, diabetes, emphysema, and cancer rates all increased statistically.

The study found that over the 10-year period, more individuals with chronic disease were older, from racial or ethnic minority groups, college educated, unmarried, and male.

The study also found that, after socioeconomic differences were controlled, 34.4 percent of working-age, uninsured adults with chronic conditions had no usual source of care in 2006, which is up from 29.2 percent in 1997. Those with Medicaid or private insurance were much less unlikely to have no usual source of care. Five percent of Medicaid patients had no usual source of care, up from 4.6 percent in 1997. Among those with private insurance, 4.7 percent had no usual source of care, down from 6.5 percent.