By Mary Agnes Carey, CQ HealthBeat Associate Editor

January 7, 2008 -- As the Centers for Medicare and Medicaid Services (CMS) announced a proposed regulation Monday that it said is aimed at helping low-income Medicare beneficiaries remain in their current Medicare drug plan without having to pay a premium, the group Consumers Union released an analysis that found 75 percent of Medicare drug plans have raised their costs in 2008, averaging $369 for the five commonly used drugs between December and January.

The Consumers Union analysis of data from the Medicare.gov Web site also found that about one in six plans increased prices on the five drugs by more than $500 alone during that time. Each month since December 2005, Consumers Union has been monitoring the price of five common drugs in a zip code in each of five large population states—California, New York, Illinois, Florida, and Texas. According to Consumers Union, the data has consistently shown major swings in price, most often upward.

"Most of these Medicare drug plans are increasing costs double to triple the rate of inflation, which really torpedoes the insurance industry's claim that they are getting the best deal for seniors," said Bill Vaughan, senior policy analyst for Consumers Union, in a statement.

Bush administration officials have said repeatedly that the Medicare drug benefit is working well and is helping seniors live better, healthier lives. CMS Spokesman Jeff Nelligan noted Monday a December Wall Street Journal Online/Harris Interactive Survey that found 87 percent of those enrolled in a Medicare drug benefit plan are satisfied with their plan, up from 75 percent in 2006. In that poll, six percent of beneficiaries were not satisfied with their plan.

"The design of the program helps people with Medicare with the cost of their drugs. Indeed, predictable co-payments and low monthly premiums are two reasons the satisfaction rate of the Part D program is now at 87 percent," Nelligan said. "In terms of government interference in price negotiations, both the CBO and CMS actuaries have said the savings from such a scheme are almost non-existent. The fact is, Part D is giving Medicare beneficiaries choice and access, at savings to the consumer and to the taxpayer."

In November the Department of Health and Human Services (HHS) said that more than 90 percent of beneficiaries in a stand-alone Part D prescription drug plan would have access to at least one plan in 2008 premiums lower than they paid in 2007. Beneficiaries in every state would have access to at least one prescription drug plan with premiums of less than $20 a month, and a choice of at least five plans with premiums of less than $25 a month, HHS said, with the national average monthly premium for the basic standard benefit expected to average $25, far below the original estimate for 2008 of $41.

On Monday CMS released a proposed regulation that would allow prescription drug plan sponsors, under certain conditions, to offer a reduced premium amount for certain individuals eligible for Medicare's low-income subsidy. CMS said the proposal, which would apply in regions where there otherwise would be fewer than five prescription drug plan sponsors with a "zero-premium" plan options for beneficiaries, would help to ensure there are enough organizations offering such plans and increase the number of low-income subsidy-eligible enrollees in those regions who could remain with their current plan without having to pay a premium.

"Through this proposed rule, we are seeing comment on a means of reducing the number of beneficiaries subject to random reassignment while maintaining the integrity of the annual bid process," CMS Acting Administrator Kerry Weems said in a statement. "We expect changes adopted in the final rule to be effective in the 2009 benefit year.

According to CMS, as a result of premium and subsidy changes, the premium for an individual's Medicare Part D plan can be fully covered by the subsidy in one year and not the following year. During the annual election period each fall, CMS randomly reassigns certain low-income subsidy eligible beneficiaries to another Part D plan if they would otherwise have to start paying a premium because their plan's premium will be higher than the amount subsidized by the government.

By John Reichard, CQ HealthBeat Editor

January 8, 2008 -- A respected yearly analysis of health care spending data found that 2006 marked the biggest yearly jump in Medicare spending in the past 25 years, with outlays rising 18.7 percent.

Other data in the analysis showed a remarkable moderation of U.S. health spending growth, with Medicaid spending dropping for the first time ever and outlays for physician and clinical services and nursing home care growing at their slowest rate since 1999. Meanwhile, premiums for private health insurance plans grew just 5.5 percent, the smallest rate of increase since 1997.

The data was released Tuesday in a study published in the January/February issue of the academic journal Health Affairs. The Centers for Medicare and Medicaid Services (CMS) analysts briefed reporters on the data Monday.

Prepared by economists in the Office of the Actuary at CMS, the analysis also found that health spending grew only slightly more in 2006—0. 6 percentage points—than the nominal growth in the Gross Domestic Product (GDP). Over the long term, health care spending grows considerably faster than the nominal GDP—2.5 percentage points—the study authors said. Nominal GDP measures the value of goods and services produced in a country based on current prices.

Thus health care's share of the GDP barely increased in 2006, rising 0.1 percentage points to 16 percent of the GDP. Health care spending totaled $2.1 trillion, or $7,026 per person. Overall U.S. health care spending was up 6.7 percent in 2006, slightly faster than the 6.5 percent growth rate in 2005, which showed the slowest yearly growth since 1999.

Medicare spending in 2006 reached $401.3 billion, up from $338 billion in 2005. Much of the increase stemmed from the first full year of the Medicare prescription drug benefit, which accounted for $41 billion in Medicare outlays in 2006. But that figure was lower than the amount Medicare actuaries estimated the drug benefit would cost when the Medicare overhaul law (PL 108-193) was passed in 2003 adding the Part D drug benefit to the program. "It remains the case that Part D is turning out to be less expensive, for the time being, than we originally estimated," CMS Chief Actuary Richard Foster said.

Medicare spending grew just 6 percent in 2006 excluding the costs of prescription drugs and of administrative and insurance costs related to the program. Medicare spending grew at a faster rate—9 percent—in 2005. Spending on the private health plan side of Medicare—the Medicare Advantage program—grew "dramatically," analysts said, reflecting a 25 percent increase in enrollment in Medicare private health plans.

Retail U.S. prescription drug spending rose 8.5 percent in 2006, outpacing growth in other health care sectors. The first full year of the Medicare drug benefit was part of the reason for the considerably faster sales clip—retail U.S. drug spending grew at a slower rate of 5.8 percent in 2005. But the 2006 growth rate was well below the average annual growth rate of 13.4 percent between 1995 and 2004. Various factors fueled the increase in 2006 drug spending, including lower overall rebates and an increase in the use of the drugs with the advent of the Medicare drug benefit. "Growth in use accounted for roughly half of the growth in drug spending in 2006, compared with about 20 percent of growth in 2005," according to the study authors. "Some of this increased use can be attributed to the implementation of the Medicare Part D," they said.

Use also was up in 2006 because of new uses for existing drugs, increased use of specialty drugs to treat cancer and multiple sclerosis, and growth in drug categories such as insomnia drugs, "which experienced faster growth in use than any other class of drugs," the study said.

But increasing use of generics helped restrain prescription drug spending growth in 2006. The rate at which pharmacies dispensed generic drugs climbed to an average of 63 percent in 2006, up from 56 percent in 2005. Tiered co-payments charging lower out-of-pocket costs for generic drugs than for brand-name drugs, a loss of patent protection for certain brand name drugs and a dearth of new blockbuster brand name drugs helped explain the higher use rate for generic drugs.

However, lower rebates in 2006 contributed to the rising rate of prescription drug spending. With the advent of the Medicare drug benefit, seniors dually eligible for both Medicaid and Medicare shifted from Medicaid drug coverage to Medicare drug coverage. Legally mandated Medicaid rebates were considerably larger than the rebates negotiated by Medicare's private plans in 2006, CMS analysts said. Rebates negotiated by Medicare's private plans averaged 5 to 10 percent in 2006 while Medicaid rebates average 30 percent, analysts said.

The analysts said they lacked data to determine whether the shift of the duals from Medicaid to Medicare private plans raised prescription drug spending for the dually eligible. Medicare's share of total U.S. retail prescription drug spending totaled 18 percent in 2006, and government programs overall accounted for 34 percent.

Reporters pressed analysts on whether factors other than lower rebates pointed to higher costs for Medicare with the advent of more private plans in Medicare. For example, overall figures on health spending increases showed an 8.8 percent increase in administrative and net private health insurance costs. That category, which includes private plan profits and administrative costs, among others, rose by only 3.6 percent in 2005 when there were fewer private plans in Medicare. The increase in Medicare private plans in 2006 appeared to explain part of the jump. CMS also said in the briefing that Medicare per capita spending on enrollees in traditional Medicare averaged $9,538 in 2006 compared to $10,133 in Medicare Advantage. But Foster said a variety of factors account for different spending levels in traditional and private plan Medicare. The current level of analysis does not justify a conclusion that private health plans are adding to Medicare's costs, he said.

The study showed that the Medicaid spending actually dropped by 0.9 percent in 2006 to $310.6 billion. The drop largely stemmed from the transfer of drug coverage of the dually eligible from Medicaid to Medicare. Removing drug spending from the analysis, Medicaid spending grew 5.6 percent in 2006, but that growth "still was slow compared with an 8.0 percent increase in 2005," the analysis said. It attributed slower growth in part to "weak" enrollment growth of just 0.2 percent in 2006. That enrollment increase—the smallest since 1998—occurred "primarily because of improved economic conditions and more restrictive eligibility criteria."

Overall, U.S. spending on hospital care grew 7 percent to $648 billion in 2006, a slightly slower growth rate than in 2005. Low growth in the use of services was partly offset by an uptick in hospital price growth of 4.4 percent in 2006. Hospital prices grew 3.8 percent in 2005. Spending for physician and clinical care services grew 5.9 percent to $447.6 billion. Physician prices grew just 1.9 percent in 2006 compared to 3.4 percent in 2005. Slower growth partly stemmed from a Medicare physician payment freeze in 2006. "Private insurers appear to have followed the low Medicare price update in setting prices for privately financed physician services," the study said.

Spending on care in freestanding nursing homes rose 3.5 percent in 2006 to $124.9 billion, partly reflecting more modest nursing home price increases. Spending for home health care grew 9.9 percent to $52.7 billion.

The many indicators of slowing spending growth may not last long, analysts suggested. For example, health care spending tends to increase at rates similar to nominal GDP growth in the few years after a recession, reflecting the longer time it takes for a recession to affect health care, analysts said. But then rates rise considerably faster than nominal GDP growth.

Writing in the same issue of Health Affairs, Paul Ginsburg, president of the Washington, D.C. –based Center for Health System Change, suggested that the cost growth slowdown won't last.

"Many factors indicate that relief for purchasers and consumers will be short-lived. Research on local health care markets suggests that rapid expansion of provider capacity and incentives to increase volume of care are continuing," Ginsburg said.

He added that the increasing incidence of obesity is a major factor behind rising health care costs.

By Mary Agnes Carey, CQ HealthBeat Associate Editor

January 10, 2008 -- The Medicare Payment Advisory Commission (MedPAC) Thursday approved two recommendations concerning skilled nursing facilities and home health agencies. MedPAC then approved two others on long-term care hospitals and inpatient rehabilitation facilities that were revised from last month's draft recommendations in part due to provisions included in legislation signed into law in December that blocked a scheduled Medicare payment cut to physicians.

Consistent with a draft recommendation unveiled in December, commissioners voted to recommend that Congress freeze Medicare payment rates for skilled nursing facilities (SNFs) in fiscal 2009 at current levels, citing projected aggregate Medicare margins of 11.4 percent.

In addition, the panel approved a recommendation that Congress should establish a quality incentive payment policy for SNFs in Medicare and commissioners also approved a package of recommendations aimed at improving quality measurements for SNFs.

MedPAC Commissioner William J. Scanlon, who voted against the recommendation to establish a quality incentive payment policy for SNFs in Medicare, said it was not yet the right time for Congress to create a national "pay-for-performance" program for the facilities. He stated that more testing of the concept was needed before implementation, perhaps through a current Centers for Medicare and Medicaid Services (CMS) demonstration project. "When government does something and it turns out to be wrong, it's very hard to reverse it," Scanlon said.

In a statement, the Alliance for Quality Nursing Home Care called MedPAC's assessment of the industry "flawed and far off the mark," adding that the recommendation does not address shortfalls in Medicaid payments. "MedPAC gives Congress and the public a flawed basis on which to determine the best policy for America's seniors and the workers who provide their care," Alliance President Alan G. Rosenbloom said in a statement.

During Thursday's meeting the panel also approved a recommendation that Congress freeze 2009 payments to home health agencies at 2008 rates.

According to MedPAC, the recommendation would result in no major implications for beneficiaries and providers and would decrease federal spending by $250 million to $750 million in 2009 and between $1.5 billion and $5 billion over the next five years.

"Even a freeze seems to result in an extraordinarily generous payment level," said commissioner Jack Ebeler, who at the panel's December meeting suggested that MedPAC discuss a five percent reduction to home health agencies due to their profit margins, projected to hit an estimated 11.4 percent in 2008.

Two other payment recommendations the panel approved were modified from their December draft recommendations in part due to provisions included in legislation (PL 110-173) Congress approved and President Bush signed into law to extend funding for SCHIP and temporarily stop a scheduled cut in Medicare payment rates for physicians. MedPAC voted to recommend that the payment update for inpatient rehabilitation facilities (IRFs) be eliminated for fiscal 2009, a change from a draft recommendation in December that would have increased Medicare's payment rate for the sector by one percent.

Provisions in the Medicare/SCHIP law that affected the MedPAC draft recommendation include that the new law eliminates payment updates for IRFs in fiscal 2008 and 2009 and changes classification criteria for the facilities, rolling back the "75 percent" rule to permanently freeze at 60 percent the proportion of patients that must fall into certain medical categories for facilities to control quality for inpatient rehabilitation payments. The agreement also would permit co-morbid conditions to count toward the threshold.

At Thursday's meeting the panel also modified a December draft recommendation dealing with long-term acute care hospitals, which treat medically complex cases. The draft recommendation would have frozen 2009 payments at 2008 levels. The draft recommends that secretary for the Department of Health and Human Services update rates in 2009 for the facilities, known as LTCHs, by the projected rate of increase in the rehabilitation, psychiatric and long-term care hospital market basket rate less the commission's adjustment for productivity growth, which would result in an estimated 1.6 percent increase in Medicare payment rates.

The recommendation is expected to decrease federal spending by less than $1 billion over five years with no adverse impact on beneficiaries or providers.

Among its provisions, the Medicare/SCHIP measure changes the definition of LTCHs to require a patient screening process, on-site physician availability and consulting physicians and interdisciplinary treatment teams. The new law also rolls back for three years a CMS regulation proposed last January to extend the so-called 25 percent rule to virtually all LTCHs for which more than 25 percent of their discharged patients were admitted from an individual hospital, regardless of whether that hospital was located in the general vicinity of the LTCH.

At the time, CMS said hospitals have been building nearby LTCHs to get around the "25 percent rule," but that their proposal would close that loophole.

By Mary Agnes Carey, CQ HealthBeat Associate Editor

January 9, 2008 -- Medical researchers have found that the Medicare drug benefit has had a "modest but significant" effect on both reducing out-of-pocket expenses for seniors and increasing their use of prescription drugs.

The study, released Tuesday on the Web site of the Annals of Internal Medicine, found that the drug benefit led to a 13.1 percent decrease in out-of-pocket expenses for patients and a 5.9 percent increase in prescription use. Researchers from the University of Chicago Medical Center, Harvard University, and Virginia Commonwealth University used data from more than 117,000 patients to assess the impact of the drug plan, which was created in 2003 (PL 108-173) and implemented in January 2006. The study also will be published in the Feb. 5 print edition of the Annuals of Internal Medicine.

Researchers studied data on beneficiaries who filled at least one prescription in both the 2005 and 2006 calendar years at any retail or mail-order member of the Chicago-based Walgreens pharmacy chain. They compared the purchases of 117,648 patients aged 66–79 who were covered by Part D with control subjects aged 60–63 who were not yet eligible for the benefit.

For beneficiaries who enrolled before the May 15, 2006, deadline, the drug benefit saved them about $6 a month and gave them, on average, an extra three to four days worth of one medicine per month, the study found. After the enrollment deadline, the average savings among all eligible seniors in the study increased to about $9 a month and 14 extra days of medicine per month.

The study's authors said the report was the most thorough study to date to assess the impact of the drug benefit. G. Caleb Alexander, assistant professor of medicine at the University of Chicago Medical Center, said in a news release that the study found the drug benefit "had a modest but significant effect on both savings and drug use" but added that more research must be done to see whether those effects have any influence on people's health.

Centers for Medicare and Medicaid Services (CMS) Director of Media Affairs Jeff Nelligan said that CMS is reviewing the report's findings. "But we do know that on average, Part D beneficiaries are saving approximately $1,200 annually on their drugs and that Part D trimmed from 33 percent to 8 percent the number of seniors who had no drug coverage at all," he said. "Enhanced access, choice, and cost are some of the reasons underlying the most recent survey results of the program, which show that almost nine out of 10 beneficiaries are satisfied with Part D. "

On Monday, the group Consumers Union released an analysis that found 75 percent of Medicare drug plans have raised their costs in 2008, averaging $369 for the five commonly used drugs between December and January. Analyzing data from the Medicare.gov Web site, the group found that about one in six plans increased prices on the five drugs by more than $500 alone during that time.

By Sara Lubbes, CQ Staff

January 11, 2008 -- As many as 27,000 Americans may have died in 2006 because they did not have health insurance, a new study estimates.

The study by the Urban Institute, a nonprofit group that analyzes social and economic problems, puts a new spin on a six-year-old Institute of Medicine (IOM) study that found that 18,000 people died in 2001 because of a lack of insurance.

The Urban Institute study suggests as many as 21,000 people may have died from a lack of insurance in 2001.

Using data from the U.S. Census Bureau, study lead author Stan Dorn, a senior researcher at the Urban Institute, compared the IOM's method for calculating the number of uninsured to an alternative method he believes more accurately reflects the number of Americans who die because they do not have insurance.

Using the IOM's method on data from 2000 to 2006, researchers found that about 137,000 people likely died because of a lack of insurance, including 22,000 people in 2006.

But using an alternative method, researchers found that as many as 165,000 people likely died within that time period, with 27,000 people dying in 2006. The number is about 20 percent higher than the IOM method would reflect.

Dorn explained why the numbers differ: The IOM calculation is based on breaking the census data out by age groups—such as ages 25 to 34 and 35 to 44—and factoring in a suggested health research standard that the lack of insurance increases a person's likelihood of death by 25 percent, Dorn explained.

For his alternative calculation, he also used the 25 percent figure but eliminated the age group breakdown and used as his base number the total number of American deaths for each year of census data. The new calculation results were 20 percent higher than the IOM methodology.

"Even that could be an underestimation," he said. Some studies have shown that the likelihood of death might be closer to 40 percent for the uninsured, he said.

"This is all a question of common sense," Dorn said. "Nowadays we know that medicine can save your life and if you have to choose between food and medicine, for instance, you're playing Russian Roulette with your health."

By Caitlin Webber, CQ Staff

January 11, 2008 -- Although the United States is the global leader in health care spending, it ranks last among industrialized nations in preventing deaths from treatable conditions, according to a recent study from The Commonwealth Fund.

The study also found that the nation lagged behind developed nations in improving avoidable death rates. Between 75,000 and 100,000 lives could be spared annually, the study said, if the United States matched progress made by France, Japan, and Australia—the top-ranked nations.

"It is startling to see the U.S. falling even farther behind on this crucial indicator of health system performance," said Senior Vice President Cathy Schoen. "The fact that other countries are reducing these preventable deaths more rapidly, yet spending far less, indicates that policy, goals, and efforts to improve health systems make a difference."

The study, published in the January/February issue of the journal Health Affairs, examined deaths before age 75 from conditions "amenable to health care" in the United States, Canada, Australia, New Zealand, and 14 European countries between 1997–1998 and 2002–2003. Researchers Ellen Nolte and Martin McKee of the London School of Hygiene and Tropical Medicine focused on more than 30 conditions that could be effectively treated with health care, including appendicitis, bacterial infections, tuberculosis, thyroid disease, measles, epilepsy, diabetes, and certain cancers.

The United States placed fourth from the bottom in 1997–1998, but plunged to last place by 2002–2003 with 110 preventable deaths out of 100,000 people.

The study reveals an average 16 percent drop in preventable deaths among the 19 nations in the five years studied—the United States had only a 4 percent decline.

It's hard to ignore that the slow decline in U.S. preventable deaths "has coincided with an increase in the uninsured population, an issue that is now receiving renewed attention in several states and among presidential candidates from both parties," researchers said in a statement.

About 47 million Americans lacked health insurance in 2006, according to the U.S. Census Bureau.

According to the World Health Organization, America spends more on heath care, nearly $2.1 trillion annually, than any other nation in the world. The United States is the only country in the study without universal medical care.

The study found Ireland, where the preventable death rate fell 23 percent, along with Austria and the United Kingdom, to be the most improved countries. France had the lowest preventable morality rate, with 65 deaths per 100,000 people.

The study's authors said the rate of preventable deaths "is a valuable indicator of health care system performance" but should not be construed as a definitive measurement, but rather "as an indicator of potential weaknesses in health care that can then be investigated in more depth."

Catherine Hoffman, associate director at Kaiser Commission on Medicaid and the Uninsured, said in an interview that the study is "consistent with many international comparisons where the U.S. doesn't fare well."

While it is fair to compare health among economically developed countries, Hoffman said using averages masks "the racial, socioeconomic, and access disparities the U.S. deals with [that] drive differences in health outcomes."

If the study had compared preventable death rates among insured Americans, Hoffman said she expects "the U.S. would have done far better in its ranking."