By Miriam Straus, CQ Staff

May 23, 2008 -- The Robert Wood Johnson Foundation (RWJF) announced this week it would provide $6.4 million to develop a system that aims to link health provider compensation to the quality and efficiency of care.

The money will go to the Prometheus Payment model, developed by the not-for-profit organization Prometheus Payment, Inc.

This system uses clinical practice guidelines to establish an "evidence-informed case rate" for the total cost of treating a patient with a particular condition. This rate accounts for all of the providers who would treat that patient, such as a physician, hospital, and pharmacist, and it is adjusted to reflect the severity and complexity of the condition. The rate is then combined with a margin for potential complications as well as a margin for profit, according to the Prometheus Web site.

Providers would receive compensation for providing the recommended care, but a portion of their payment would be withheld. That portion—10 percent of the total payment for doctors, and 20 percent for hospitals—would be paid back based on the provider's score on quality and efficiency measures, the Web site said.

Providers cannot receive payment for efficiency if their quality scores are below a certain threshold—an effort to discourage providers from withholding care in order to increase their efficiency scores.

Health care teams will negotiate prices and which parts of the case rate they will deliver, Prometheus said in a press release. Participation in the system is voluntary.

"[This] approach gives every clinic, hospital, and physician an incentive to do business with the right counterpart and gives them all an incentive to collaborate," said Prometheus Board Chairwoman Alice G. Gosfield in a statement.

John R. Lumpkin, the director of the RWJF health care group, said in a statement, "One of the biggest problems of our broken health care system is that health care providers get paid regardless of whether it is the right care at the right time."

The new grant will allow Prometheus to expand its set of case rates and develop a scorecard to report information to the public on performance and prices. In addition, the grant will provide for the implementation and assessment of the pilot programs, according to press releases by the two organizations.

The first areas to debut the model will be Rockford, Ill., Minneapolis, Minn., and two other locations that will be named shortly, Prometheus said. Local employers will work with providers to implement the system in Rockford, while in Minneapolis, health plans and providers will undertake a "full-scale test" of the new payments, Prometheus said in its release.

Pilot programs should be operational by January 2009.

By John Reichard, CQ HealthBeat Editor

May 19, 2008 -- Just over two years into their overhaul of the state's health system, the architects of Massachusetts' historic law to bring nearly universal health coverage to the state have racked up an impressive list of accomplishments, navigating a minefield of potential threats to the law to increase the number of insured state residents by 340,000. So far, the political coalition that produced the law has held together, but legal, cost, and regulatory challenges loom, those architects acknowledged at a Washington, D.C., forum Monday.

"There is one state representative from Cape Cod who has spoken out against this," said John E. McDonough, executive director of Health Care for All, a leading consumer health advocacy organization in the state. "Everyone else is saying, this is important, we've got to do it, we've got to make this work," McDonough said at the forum sponsored by the nonpartisan Alliance for Health Reform.

Under the law, uninsured residents over age 18 must obtain health insurance if affordable coverage is available and pay penalties if they don't. Similarly, employers with 11 or more workers must contribute toward the cost of health coverage or pay a penalty of $295 annually per uncovered worker if they don't. The 340,000 who have gained coverage represent more than half of the estimated 650,000 residents who were previously uninsured, according to a Kaiser Family Foundation evaluation.

Of the three organizations created to provide coverage, Commonwealth Care provides the most. The program provides subsidized coverage for uninsured residents who have no other coverage options. They pay no premiums if their income is below 150 percent of the federal poverty line (about $15,300 for an individual) and a sliding scale of premiums if their income is up to 300 percent of the poverty line. For uninsured residents with incomes above 300 percent of the poverty line, unsubsidized coverage is available through a menu of private plans offered by a program called Commonwealth Choice.

Coverage through Commonwealth Care and Commonwealth Choice is offered by the Commonwealth Connector, an independent authority created to offer insurance plans under the law. A third program, MassHealth, consists of expanded public health insurance programs. MassHealth raised the eligibility limit under the State Children's Health Insurance Program from 200 percent of the federal poverty line to 300 percent ($63,000 for a family of four). Payments to doctors and hospitals were increased $90 million a year for three years.

Jon Kingsdale, executive director of the Connector, told the forum that "reasonably good progress" has been made under the legislation. Two-thirds of the 340,000 have gained coverage through the subsidized program, and one-third of the newly uninsured are now enrolled in private coverage, he noted.

Public support for the overhaul law increased from 61 percent of state residents in September 2006 who knew something about the law to 67 percent in June 2007, he said. Employer support has held, with 55 percent of employers in the state agreeing with the requirement to help pay coverage costs.

The public also appears to have tolerated the penalties involved for not having coverage. For those who did not have coverage by December 2007, the penalty was the loss of the personal deduction on state income taxes, or $219. Kingsdale noted that authorities recently went through the first tax filing season under the law. "I have beefed up our office security, but so far we haven't had to use it," he said.

Kingsdale noted that the law has driven premium costs down sharply for uninsured residents buying coverage on the individual market. Not only must they be offered coverage, premium costs have dropped by almost half. Before the law, the typical uninsured 37-year-old could expect to pay a monthly premium of $335 for individual coverage with a $5,000 deductible and no prescription drug benefit. Now that person can pay coverage for $184 a month that has a $2,000 deductible and prescription drug coverage with a $100 deductible.

Costs in the Commonwealth Care program of subsidized coverage are rising 6.5 percent per enrollee, he said. That's "below budget" but "we've got a lot of challenges," Kingsdale said. Overall, "this is a huge financial venture."

Spending under Commonwealth Care is expected to total $647 million in fiscal 2008, rising to $869 million in fiscal 2009. Lawmakers are considering a tobacco tax hike to pay for rising costs. Individual penalties for not carrying coverage in 2008 and beyond will rise to 50 percent of the average cost of a health insurance plan in the geographic region in which the resident lives, up to a maximum of $912. People can file for hardship exemptions and up to two percent of state residents are not subject to the coverage mandate because it has been determined that coverage will not be affordable for them, according to the Kaiser Commission evaluation.

Another panelist, Grace-Marie Turner of the Galen Institute, noted that taxpayer costs are rising. Although the state budget calls for $869 million in fiscal 2009, "the bill could be closer to $1.1 billion," she said. "The fines I think are going to be an issue particularly as they go up," she added. Other risks to the future of the program include a 12 percent insurance rate approved for next year, she said. And Turner said the program raises concerns about "crowd out" of private coverage. She said the employee share of job-based coverage can exceed that of subsidized Commonwealth Care. If 10 percent of those eligible shift from job-based insurance to Commonwealth Care, the cost could be an added $90 million, next year, she said.

Turner also noted that the waiver from Medicaid law Massachusetts authorities had to obtain is due to expire soon. That raises the question "is it still going to be legal under Medicaid law." Other issues include an Aug. 17, 2007, directive by the federal government blocking expansions above 250 percent of poverty if 95 percent of children below 200 percent haven't been covered.

McDonough noted that "we believe we've actually got pretty darn close to 95 percent."

Another potential threat is the possibility of a legal challenge under the Employee Retirement Income Security Act (ERISA). Law firms looking to make a name for themselves are scouring the country looking for plaintiffs to challenge the law under ERISA, McDonough said, which precludes state regulation of self-insured plans. So far that hasn't happened but "that could change this afternoon," he said.

Key to making a go of the law is the strong support it has enjoyed from a broad coalition of consumers, providers, businesses, and politicians, speakers emphasized. "Two years and one month in we're still standing and making this work."

By John Reichard, CQ HealthBeat Editor

May 23, 2008 -- A federal judge in Washington, D.C., ruled Friday that the Bush administration can't immediately reinstate a rule cutting Medicaid payments to "safety net" hospitals and clinics after the current one-year moratorium on the regulation expires Sunday.

The rule can't be reinstated right away because a "maneuver" by the administration to evade the moratorium was not permissible, said U.S. District Court Judge James Robertson.

Safety net facilities treat unusually large numbers of patients who are poor or uninsured.

However, hospital lobbies that joined forces to oppose the administration tactic said Friday in a joint news release that the order by the U.S. District Court of the District of Columbia in Alameda County Medical Center v. Leavitt only temporarily delays the regulation.

"We urge Congress to move ahead swiftly to extend the moratorium" on the regulation, said the president of one of the lobbies, Larry S. Gage of the National Association of Public Hospitals and Health Systems.

Department of Health and Human Services Secretary Michael O. Leavitt announced Thursday that it was voluntarily delaying the regulation until Aug. 1, along with another regulation cutting Medicaid payments to hospitals for that provide graduate medical education.

But hospitals say that unless Congress acts to extend the moratorium on the regulation, CMS can soon reinstate it.

The Senate voted Thursday to delay, until April 2009, the two regulations affecting safety net facilities and graduate medical education payments, along with five other cost-cutting Medicaid regulations. But President Bush has threatened to veto the war supplemental spending measure (HR 2642) that carried the regulations language.

Robertson said in his decision that the administration thought it could avoid the moratorium on the regulation affecting safety net facility payments, which was signed into law May 25, 2007.

"On May 24, with full knowledge that the moratorium had been passed but had not yet been signed by the President, the [HHS] Secretary rushed a typo-ridden final rule to the Office of the Federal Register for 'emergency display and publication,'" Robertson wrote in his decision. The "'emergency'" was the impending presidential signature on the moratorium legislation, Robertson noted wryly.

But because a required notification to Congress to make the rule effective was transmitted on the 25th, the day the moratorium took effect, the rule violated the moratorium, the judge said.

Jeff Nelligan, a spokesman for the Centers for Medicare and Medicaid Services, said "we are still reviewing the decision. Importantly, the judge ruled on a technicality" relating to the effect of the moratorium "and did not rule against us on the substance of the rule. We remain convinced that the rule will ultimately be upheld on its merits by the judge." But Nelligan also noted that CMS plans to move on its own to delay the effective date of the rule until Aug. 1.

The agency has announced that step to give Congress time to deal legislatively with the issues underpinning the payment rule. CMS and independent analysts say that states use unjustified accounting tactics to boost federal Medicaid payments to safety net facilities, threatening the fiscal integrity of Medicaid.

By CQ Staff

May 23, 2008 -- The Senate Finance Committee, looking ahead to one of the most pressing issues that will face the next president and Congress, on Friday announced plans for a bipartisan, bicameral health policy "summit" next month.

Finance Chairman Max Baucus, D-Mont., and ranking Republican Charles E. Grassley of Iowa said the summit will take place June 16 at the Library of Congress as part of its year-long series of hearings, forums, and other events to prepare for congressional action next year.

"Our broken health care system is endangering families and sapping this country's ability to compete economically, and Americans want something done about it," Baucus said in announcing the June 16 event. "All of us in Congress have a responsibility to learn all we can now, start talking through the sticky issues, and be ready to move when the time comes for real reform."

Grassley said it was critical to build broad-based support for efforts to tackle the soaring costs and coverage gaps of the current mixed private–public health care system.

"I'm glad to support an event that encourages a productive dialogue and gets people focused on ideas and possibilities. ... This summit is a chance to study the opportunities that exist to improve access and quality in America's health care system, and to consider what's involved in making possible reforms," Grassley said.

Federal Reserve Chairman Ben S. Bernanke will be a keynote speaker at the summit, along with Dr. J. Craig Venter, a pioneer in sequencing the human genome. Bernanke will discuss the impact of health care spending on the U.S. economy, while Venter will address research advances and their relevance to overhaul the health system.

The Finance Committee leaders said discussions at the summit will cover state-based health care reform efforts, trends in employer-sponsored health coverage, demographic trends, public programs, and delivery-of-care issues.

The House Ways and Means Committee also is canvassing experts. A Health Subcommittee hearing last month was intended to "lay the groundwork" for an expected attempt next year to overhaul the health insurance system, said panel Chairman Pete Stark, D-Calif. Congress has not seriously discussed a broad health care overhaul since the ill-fated Clinton administration health plan of 1993.

Health care is an oft-mentioned topic on the presidential campaign trail this year. An estimated 47 million Americans are uninsured, and millions more are under-insured, meaning that their coverage isn't sufficient to cover catastrophic problems like cancer.

Both Democratic presidential candidates—Sens. Barack Obama of Illinois and Hillary Rodham Clinton of New York—have produced detailed health overhaul plans, as has Republican Sen. John McCain of Arizona.

Medicare Pressure
The financial strain on Medicare of an aging population and rapidly increasing health costs provides one major impetus for action in the next year or two.

Virtually every health expert to testify before Congress has said that it is impossible to effectively address cost pressures on Medicare without overhauling the broader health care coverage and delivery system.

Medicare Part A, which covers hospital care, is projected to begin paying more in benefits than it collects from payroll taxes this year.

Medicare trustees said in their annual report in March that Medicare's hospital insurance trust fund will be exhausted in 2019, leaving Congress to either tap general income tax revenues to keep the program running or cut benefits.

Congress, not prone to doing anything difficult or controversial until it faces an immovable deadline, has not passed major Medicare legislation since 2003, when it dramatically expanded the program to include a prescription drug benefit (PL 108-173).

By Reed Cooley, CQ Staff

May 19, 2008 -- A discussion of the kind of role the government should play in the health care system marked the sharpest policy divides among a gathering of presidential health care advisors on Monday.

During the forum hosted by Women in Government Relations, Tom Miller, an economic advisor to Sen. John McCain, R-Ariz., called the rival health care plans of Sens. Hillary Rodham Clinton, D-N.Y., and Barack Obama, D-Ill.,—which he said push for universal coverage without first addressing costs—"presumptive" and "counter-productive." In particular, Miller took issue with Democrats' emphasis on what he described as increasing public funding and amplifying government regulation of the insurance industry.

Any major change to the health care system "has to resonate with our political culture, our history. Our economy is a market-based economy," Miller said.

Katherine Hayes, a health policy advisor in the Clinton camp, highlighted the human aspect of the toll of high health care costs and argued that the government has a duty to ensure coverage for all Americans.

"I look at some of these Republicans and wonder if they've ever had to go in and buy health insurance coverage," she said.

"Certainly we need competition in our health care system, but if you're going to receive federal dollars, you have to play by certain federal rules," Hayes added.

Hayes also pointed out that those Americans without health insurance contributed significantly to the cost of the system, citing a study that found that the cost of care for the country's 48 million uninsured contributes an extra $922 to every family premium.

Miller said such statistics misconstrue the facts. "Covering [the uninsured] isn't going to make a difference in terms of your premiums," he said.

Miller criticized aspects of Democratic proposals that would increase regulations on insurance companies, especially those that would prohibit raising premiums for consumers with pre-existing health conditions. He touted McCain's emphasis on two kinds of personal responsibility—wellness and a commitment to finding the best health coverage for one's own family.

"We weren't misinformed when we pulled up to the McDonald's two times a day," he said.

Both Hayes and Dora Hughes, Obama's health advisor, pointed out that low-cost foods are sometimes the only option for those who can't afford healthier choices.

"What does personal responsibility mean? Does it mean that someone who is obese and has diabetes should be punished?" Hayes asked.

She added that both Democratic health plans would avoid what she considered the chief crime of McCain's proposal: the abandonment of citizens to "the mercy of the market."

However, both parties' representatives appeared to agree on one point: that the health care system and the economy are inextricably linked.

Forum moderator Julie Barnes of the New America Foundation pointed out other major challenges facing the next president, including the Iraq War, the economy, and environmental issues, and asked, "How can we realistically keep health care at the top of the agenda?"

Hughes replied, "Whether we look at it from the lens of economy or separately from the lens of health care, we have the political impetus as well as the political will to address the health care crisis."

By Drew Armstrong, CQ Staff

May 21, 2008 -- Senate Finance Chairman Max Baucus, unable to nail down a bipartisan bill to block a scheduled reduction in Medicare payments to physicians, has decided to proceed without GOP support.

Baucus, D-Mont., said Wednesday that he will move forward after the Memorial Day recess with a Democrat-supported Medicare bill that Republicans almost certainly will block, forcing an eventual compromise ahead of the June 30 deadline.

"It seems clear to me that we're not going to get an agreement in time to meet the deadlines, so I'm going to move forward with a bill that I think has the right policies and priorities for the Medicare program, to include the doctor fix for 18 months," Baucus said Wednesday, following a meeting with committee members from both sides.

Members of both parties want to halt a 10.6 percent cut in Medicare payment rates for doctors that is scheduled to take effect July 1. But they have been at loggerheads over how to offset the cost of an 18-month fix, which is estimated at $14 billion to $18 billion.

Some Democrats are not optimistic about the chances for getting their bill enacted by the deadline, but see a chance to take a philosophical stand, at least.

"It's going to get vetoed anyways. But we still need to say what we stand for," Sen. John D. Rockefeller IV, D-W.Va., said on Tuesday, following a meeting with committee Democrats. "Our guy's going to be president, so we'll be able to do more next year," Rockefeller predicted.

Republicans insist a bill can be cleared this year.

"Before this process is over, I'm confident that we're going to have a bipartisan package that passes the Senate," said ranking Finance Republican Charles E. Grassley of Iowa. "There are differences, but there aren't big differences," he said.

The largest disagreement has been over how to pay for the package. According to Sen. Kent Conrad, D-N.D., the Democrats' plan would cost $18.2 billion over five years, while the GOP counter-offer would cost $14.9 billion.

Baucus is hoping to add some extras to the package, such as a small increase to physician payment rates, electronic prescribing incentives for doctors, and funding for preventive care programs.

The bulk of either plan is likely to be paid for with cuts to Medicare Advantage, a private-sector version of Medicare subsidized by the government. There is general agreement to cut "Indirect Medical Education" payments to hospitals funneled through Medicare Advantage plans.

But that is where the consensus ends. Baucus and other Democrats want to put a cap on the subsidy that some of the private plans receive, noting that they cost taxpayers more than the traditional Medicare program. "We simply, as a country, cannot afford to continue. There has to be some reasonable limitation" on the amount paid to the private plans, Conrad said.

Republicans and the White House do not want to alter the subsidies for the private insurance plans.