By Jane Norman, CQ HealthBeat Associate Editor

May 10, 2010 -- Major opportunities for innovation in health payments are at hand that could pave the way for higher quality care combined with cost savings, but the results may not be clear until years from now, members of a panel on payment innovation in the new health care law said Monday.

The non-partisan Alliance for Health Reform sponsored the discussion among experts examining provisions in the new health care law (PL 111-148, PL 111-152) that aim to cure the multiple vexing problems that dot the current health care payment system.

Those include fragmented care, a lack of coordination of services, variable quality across parts of the country and facilities and high and rapidly growing costs, said Stuart Guterman, assistant vice president for the non-partisan Commonwealth Fund's program on payment system reform.

The goals are to create incentives for providers to assume greater accountability for patients, provide rewards for better coordination among providers, slow the growth in health care spending and establish a structure that will support providers as they improve quality and efficiency, said Guterman.

There's no single correct way for care to be organized or to pay for care, said Guterman. But the results demanded from the system should be consistent.

A timeline for system and delivery reform provisions included in the new law and put together by the Commonwealth Fund runs on for 14 pages, beginning later this year when, for example, first-dollar coverage for preventive services must be provided by new health insurance plans.

It includes programs for which there are high hopes, such as accountable care organizations in which providers are encouraged to join together to gain efficiencies and improve the quality of care.

The new law gives the green light to a four-year accountable care organization demonstration project for pediatric providers organized under Medicaid, in which physicians are encouraged to join together to provide care that is more efficient and of a higher quality. In Medicare, providers organized in ACOs who reduce costs will be able to share in savings they generate. A Center for Medicare and Medicaid Innovation within the Centers for Medicare and Medicaid Services will test out innovative ideas.

"This is a big challenge but I think we need to be up to it because the alternative just isn't very pleasant," said Guterman, referring to a meat-axe approach of simply cutting payments.

Gail Wilensky, a health economist, said there's widespread agreement across the political spectrum that the traditional Medicare fee-for-service payment system must be changed. "The problem is while we have an idea about what a better system would look like, we have very little knowledge about how to get there from where we are," she said. Some 75 percent of physicians practice in groups of nine or less, and most are not aligned with hospitals where they practice, she said.

Wilensky headed up the Health Care Financing Administration, the predecessor of the Centers for Medicare and Medicaid Services (CMS). She said that her experience is that a changed payment system takes a long time to develop. It will also take time for it to gain acceptance by both providers and patients and to be assessed.

"It is extremely important to have realistic expectations," she said. Some advocates of the new health care law "seem to express an optimism and enthusiasm that bears no relationship to the reality that I know," believing that major savings will be found in a short time, she said.

It's possible to imagine curbing costs in the second five years of this decade, or more likely in the following decade, if changes made are imaginative and aggressive and good models are picked, she said.

"I'm more worried that when you have unrealistic expectations and they are not achieved, that it then spawns undesirable behavior in its aftermath," Wilensky said.

Mark Miller, executive director of the Medicare Payment Advisory Commission, which advises Congress, said the commission believes fee-for-service is a problem and has been pushing for different strategies, including bundled payments and accountable care organizations. "I think the commission agrees this is the right direction at the right time," he said.

One positive development in recent years is that there's much more linkage between Congress asking CMS to undertake some new responsibility and giving the agency the money to do it, said Miller. There's money set aside for the innovation center, he pointed out. "I think we have to be vigilant. . .that the money is protected and actually used for those purposes," he said, and not diverted for other uses. "I think it will be very important we stay focused that this is what we want to use this money for, to try things."

Medicare also must be "transparent" if it's going to be given the money and the authority to try out programs, and officials will have to be open with lawmakers if a project is not doing well, said Miller, who's also worked at CMS. "Some of this stuff is going to work. Some of it isn't going to work. I think the key will be to keep Congress informed so it won't come as a shock," he said.

By Jane Norman, CQ HealthBeat Associate Editor

May 14, 2010 -- Only insurer activities that clearly pay for health care services or improved quality should be included when new federal regulations are developed on how much insurers must spend on medical care, the American Hospital Association said in a letter Friday to the Department of Health and Human Services.

"Health insurers, by definition, are not providers of health care services, nor are they licensed to deliver care," said the hospital group. "Insurers should not be permitted to determine without clear definition and guidance what services are defined as clinical or what activities will improve the quality of health care for an enrollee."

The health care law (PL 111-148, PL 111-152) sets new standards on medical loss ratios. That means that 85 percent of insurance company spending in the large group market will have to go toward patient care and quality improvements. The minimum is 80 percent in the small group market.

The ratios go into effect in 2011 and are regarded by Democrats as a key mechanism in the new law to dampen premium increases because health insurers will be forced to spend more on patient care and less on administration, marketing or salaries. Insurers, however, say the regulations can't be so strict that they curtail efforts to improve care.

Worries have cropped up among health care advocates because language in the new law is vague on how medical costs are defined. Some lawmakers such as Sen. John D. Rockefeller IV, D-W.Va., have warned that insurers already are trying to game the system by reclassifying administrative costs as medical.

The National Association of Insurance Commissioners is developing recommendations for HHS Secretary Kathleen Sebelius on what should be included in the medical loss ratio percentages. But AHA issued strong cautions in its letter to Sebelius.

Only payments to licensed professionals and entities for health care services should be classified as health care services, costs counted toward improving quality should meet specific criteria and loss adjustment activities should be counted as administrative costs, said AHA.

The regulations "must clearly define which activities do and do not improve health care quality and restrict the ability of health insurers to subjectively make such a determination," said the hospital group.

An analysis should be used to distinguish between an activity that's designed to limit services and one that's meant to improve health, AHA said. Additionally, activities that improve quality should not include loss adjustment expenses, generally connected with claim investigation, litigation or appeals, the AHA said.

By Jane Norman, CQ HealthBeat Associate Editor

May 13, 2010 -- Democrats' full-throttle assault on the health insurance industry continued unabated Thursday as part of an unfolding campaign to portray the new health care law as a necessary antidote for insurer abuses.

Sen. Dianne Feinstein, D-Calif., and Rep. Jan Schakowsky, D-Ill., renewed their call for action on Feinstein's legislation to cap rate hikes, though Feinstein acknowledged in a conference call with reporters that she likely can't gain 60 votes in the Senate for her measure (S 3078). "This is hard, and, candidly, I'm not sure at this point," Feinstein said.

Republican votes likely would be needed and "that's the difficult part," she said.

Meanwhile, two senior senators — one a Republican — shipped off a letter to health insurer WellPoint Inc. demanding a detailed explanation of the assumptions that went into a proposed rate increase rejected by California regulators because of its miscalculations.

The WellPoint letter from Finance Chairman Max Baucus, D-Mont., and committee ranking Republican Charles E. Grassley of Iowa follows a barrage of criticism of WellPoint by lawmakers and the Obama administration over the proposed premium increase of up to 39 percent, as well as to the company's cancellations of policies in the individual market.

WellPoint has fought back, and CEO Angela Braly wrote to President Obama last weekend in protest after he criticized WellPoint during his weekly radio address.

The senators said Thursday's letter is a follow-up to a February letter in which they initially questioned the proposed rate increase. Now, they say, they want more details about how the proposal by Anthem Blue Cross, which is part of WellPoint, was so flawed that it was rejected by the California Department of Insurance.

"Shoddy calculations don't excuse 40 percent rate hikes," Baucus said in a statement. "We will continue pressing for answers and use our full oversight authority to protect American consumers from unreasonable premium increases."

Grassley said, "The errors and questionable assumptions discovered by the independent actuary make it clear that WellPoint's rates and the process used to come up with those rates deserve a great deal of further scrutiny."

The senators said an independent auditor hired by the state of California found serious problems with the proposed rate increase and indicated it may have been overstated by as much as 10 percent.

They asked for a detailed explanation of the source and the extent of the miscalculations, steps to be taken to address problems in the methodologies, internal and external processes that WellPoint has in place to review rate filings, and information on challenges in other states. The committee leaders asked for a reply by May 28.

Schakowsky is "very optimistic" that she and Feinstein will be able to push through limits on premium increases, she said in a call with reporters that was organized by Health Care for America Now, which advocated for the health care law. She called WellPoint a "poster child for unbridled greed" and said the measure is supported by the Obama administration. "We're looking at every possible vehicle to move it forward," she said.

But Feinstein said some members of the Senate believe that regulatory authority over rate hikes should remain with the states and they are resistant to allowing the federal government additional regulatory power. She said it probably would not be offered as an amendment to the financial regulatory bill moving through the Senate, because it would be regarded as not pertinent.

Feinstein's bill would allow the secretary of Health and Human Services to review premium increases in states where the insurance commissioner does not have sufficient authority to do so, and to block or modify them before they go into effect. The secretary also could take corrective actions, such as providing rebates to consumers affected by large increases.

The health insurance industry, as it has in the past, argued that premium increases are due to underlying cost drivers that they cannot control. America's Health Insurance Plans (AHIP) distributed a chart showing that U.S. spending on prescription drugs rose by more than 100 percent between 2000 and 2009, physician and clinical services by 82 percent and hospital care by 30 percent. Additionally, the trade group said, the growth in premiums tracked directly with the growth in benefits, with spending on each rising 72 percent from 2000 to 2008.

AHIP spokesmen also pointed out that the 13 health plan companies on the Fortune 500 list had profit margins on average of 3.19 percent in 2009 and 2.3 percent for the same companies in 2008. Drug companies had average profits of 24 percent in 2009, and medical device makers topped 11 percent, AHIP said.

By Jane Norman, CQ HealthBeat Associate Editor

May 12, 2010 -- The Justice Department says in its first response to a lawsuit challenging the constitutionality of the new health care law that opponents are "flatly wrong" to claim the government does not have the authority to require individuals to buy health insurance.

The department responded to a suit that was filed in U.S. District Court for the Eastern District of Michigan by the Thomas More Law Center, a national public interest law center with headquarters in Ann Arbor, Mich., that says its mission is to defend "America's Christian heritage and moral values."

On March 23, the same day President Obama signed the health care law, the center filed the suit on its own behalf and on that of four Michigan residents who do not have private health insurance.

It is separate from a suit in federal courts in Florida filed by attorneys general and governors from 20 states also challenging the new law (PL 111-148, PL 111-152). Other suits have been filed as well.

Named in the Michigan suit are Obama, Health and Human Services Secretary Kathleen Sebelius, Attorney General Eric H. Holder Jr. and Treasury Secretary Timothy F. Geithner.

Opponents of the law argue that Congress exceeded its constitutional authority in approving the law because it goes beyond regulation of interstate commerce and usurps powers reserved for states and people. The penalty provision essentially is a tax, it says. It also contends the new law forces citizens to fund abortions contrary to the free expression of religion in the First Amendment.

But Justice Department lawyers say that the center and the Michigan residents do not have standing to bring a challenge to the law because they filed the suit four years before the law goes into effect, have demonstrated no injury and "merely speculate" the law will harm them once in force.

"The health care industry operates in interstate commerce and there is a long-recognized federal interest in its regulation," adds the Justice Department. The new law "seeks to reduce the number of uninsured Americans and the escalating costs they impose on the health care system" and makes needed changes in insurance regulations, it says.

"Integral" to the bill is its requirement that all Americans, with some exceptions, either hold health insurance or pay a penalty, the suit says. Congress determined this requirement was essential and its absence would undercut federal regulation of the market because otherwise, individuals would wait until they were sick to buy insurance, the Justice Department says. Congress determined that spreading costs across a large pool of consumers would serve to reduce prices.

Despite those findings and the billions of dollars authorized by the health care law, "plaintiffs claim that this integral part of the act falls outside of both Congress' authority over interstate commerce and its power to tax and spend for the general welfare," Justice says. "These claims are flatly wrong."

However, the center says: "There is no enumerated power in the Constitution that permits the federal government to mandate that every American citizen purchase or obtain health care coverage or face a penalty."

The center's suit is being handled by Robert Muise, senior legal counsel, and private attorney David Yerushalmi. The response was submitted by department trial lawyers Ethan P. Davis and Jesse Z. Grauman and is also signed by Assistant Attorney General Tony West, Deputy Assistant Attorney General Ian Heath Gershengorn, U.S. Attorney Barbara McQuade and Sheila Lieber, deputy director of the civil division.

By John Reichard, CQ HealthBeat Editor

May 14, 2010 -- At first glance, the health care overhaul law appears to deal a mortal blow to the venerable Medicare Payment Advisory Commission, which Congress created to ensure that Medicare pays the right amount and delivers decent care to the elderly.

Unhappy with the panel's limited impact on the entitlement program, Congress used the overhaul law to create a sleek, high-powered board that seemingly overshadows the oft-ignored "MedPAC."

The new entity, the Independent Payment Advisory Board (IPAB), was created to control the growth of Medicare spending. And its recommendations become law unless the House and the Senate each adopt, by a three-fifths majority, a resolution to block them. If the president vetoes the resolution, two-thirds of each chamber will have to vote to override the veto in order to block the recommendations.

But even as Congress endowed IPAB with such powers, it kept MedPAC firmly tucked in its back pocket, clearly unwilling to dump its long-time adviser. The language of the overhaul law (PL 111-148, PL 111-152) guarantees that MedPAC won't quickly fade into oblivion as IPAB starts staffing up late next year. But the overlapping functions of the two bodies have fueled confusion over whether they will compete, cooperate or merge.

Headed by chairman Glenn Hackbarth, MedPAC has sought in recent years to lead Congress away from what many analysts regard as bloated payments to Medicare's private health care plans.

Its analysts have pinpointed health care sectors, such as home care, where big increases in the number of providers signal that Medicare is paying too much.

Consistent MedPAC findings that, overall, seniors have reasonable access to doctors have allowed lawmakers to filter warnings from lobbyists that payments are becoming dangerously low.

And MedPAC has been coaxing Congress toward policies that foster more team-based care, reward higher quality and avoid wasteful care through "comparative effectiveness" research to identify which treatments work and which don't.

Love and Disdain
But MedPAC commissioners have learned over the years that Congress can react to its recommendations in sharply different and unpredictable ways — and that often it doesn't listen at all.

Gail Wilensky, who chaired the commission from 1997 to 2001, described the interaction with Capitol Hill as a "love-disdain" relationship. To illustrate the point, she laughingly recalled her annual briefings with former Ways and Means Chairman Bill Thomas, R-Calif. (1979-2007).

"Sometimes he seemed very angry with the recommendations that came out of MedPAC, and sometimes very enthusiastic," she said. ". . . I was trying to understand why that was, since we were doing our best to provide good, sound, unbiased advice on matters that they asked us to opine on. And he said, 'Well, when you recommend something that we want to hear, we're enthusiastic, and when you recommend something that we don't want to hear, we don't like it.' I laughed and said, 'Well, now that we have that clear, let me tell you what we're recommending.'"

Too often lawmakers turn a deaf ear because they are swayed by lobbyists and don't listen to analysts like those at MedPAC, said Sen. John D. Rockefeller IV. "The fact that they were good, but had no authority, made me move" to the IPAB model, said the West Virginia Democrat, who successfully championed the board in the health care overhaul.

Rockefeller said he largely views the two bodies as having the same review authority, but added that IPAB has power and MedPAC doesn't. "In the natural order of working these out, maybe MedPAC hangs around, maybe it doesn't," he said.

Tom Scully, who ran Medicare and Medicaid during the Bush administration, also sees MedPAC's future as uncertain. Most people assume that MedPAC will eventually be subsumed into IPAB, he noted. "But in the short term, Congress needs MedPAC," he said. "MedPAC is one of the few places that actually takes a long-term global look" at the health care system.

Still, MedPAC may be on much firmer ground than many believe. It has a wide research portfolio and a respected staff that carries it out. In addition, Congress wanted its own advisory group to review IPAB's recommendations — and gave that job in statute to MedPAC. There's also doubt whether IPAB will survive as power shifts in Congress in coming years, since many Republicans depict it as an instrument of rationing.

Wilensky, who ran Medicare under President George H.W. Bush, opposes IPAB, saying its members will be unaccountable. "I will not be surprised if it's blown out of the water," she said.

But Stuart Guterman, a former MedPAC deputy director and now a Commonwealth Fund vice president, said the two panels could work in tandem, given the need for analysis of the complex health care system. And IPAB could be the entity that gives MedPAC greater force by drawing on its work to make its own recommendations, he said.

By John Reichard and Emily Ethridge, CQ Staff

May 13, 2010 -- In an exchange that presages a bruising confirmation battle, the White House hit back hard Wednesday night against Republican attempts to cast Donald M. Berwick, the president's nominee to lead the Centers for Medicare and Medicaid Services, as someone who would deny patients necessary care.

Berwick, a professor of pediatrics at Harvard Medical School and the head of the nonprofit Institute for Healthcare Improvement, traveled to the Capitol on Wednesday to meet with Kansas Republican Sen. Pat Roberts, one of his fiercest critics, in advance of his confirmation hearing before the Senate Finance Committee.

But the visit apparently did little to change Roberts' views.

"Most of us will agree that he is the wrong man, wrong time, wrong job," Roberts said on the Senate floor afterward.

Roberts has assailed Berwick's work on comparative effectiveness research to determine which treatments and medicines are most effective. Republicans contend that it might be used to deny payment for treatments determined to be less effective in studies of a broad population. GOP members also raised that argument to criticize the health care overhaul (PL 111-148, PL 111-152).

Roberts also portrayed Berwick as supporting rationing patient care at the end of life, quoting the pediatrician as saying that "most people who have serious pain do not need advanced methods; they just need the morphine and counseling that have been around for centuries."

Sounding one of the themes that drove opposition to the president's health care overhaul, Roberts said, "This is very similar to the president's remarks about the elderly approaching the end of their life."

The White House denounced the remarks as a distortion of Berwick's record and an effort to rehash unsuccessful arguments about the health care overhaul.

Spokesman Reid Cherlin said Republicans were trying to use the confirmation process to "trot out the same arguments and scare tactics they hoped would block health insurance reform."

"The fact is," Cherlin said, "rationing is rampant in the system today as insurers make arbitrary decisions about who can get the care they need. Don Berwick wants to see a system in which those decisions are transparent — and that the people who make them are held accountable."

Berwick is also slated to meet soon with Minority Leader Mitch McConnell, R-Ky., Majority Leader Harry Reid, D-Nev., and Finance Committee Chairman Max Baucus, D-Mont., according to aides. A date for his hearing before the Senate Finance Committee has not been set.

Cherlin said the president looked forward to Berwick's confirmation.