By Jane Norman, CQ HealthBeat Associate Editor

November 22, 2010 -- The Department of Health and Human Services (HHS) issued its long-awaited regulations on medical payouts required under the health care law, a standard known as the medical loss ratio (MLR).

The most immediate impact for many Americans could be a rebate check when health insurance plans spend too much on items such as administrative expenses or salaries. But the HHS rule also makes allowances for certain plans that cannot immediately meet the new standards and sets up a transition process available to states worried about smaller plans in their markets that might be forced out of business.

President Obama has repeatedly promised that Americans will not lose the health care coverage they now have, and HHS officials said the new rule will ensure that remains true. Jay Angoff, director of the Office of Consumer Information and Insurance Oversight at HHS, said at a press briefing that "no one is going to lose their coverage, even if this coverage isn't the best."

HHS Secretary Kathleen Sebelius said that the new rules are an important way for the government to hold insurers accountable. As expected, the rule issued by HHS does not dramatically differ from recommendations made by the National Association of Insurance Commissioners (NAIC), a group of state regulators that met for months following enactment of the health care law.

The new standard will "guarantee that consumers get the most out of their premium dollars," Sebelius said. The MLR was viewed by Democrats who wrote the law as a tool to keep premiums low and insurers more accountable.

The MLR goes into effect in January 2011. Insurers now writing next year's plans have been asking HHS for guidance as soon as possible.

The law (PL 111-148, PL 111-152) requires that large-group plans spend 85 percent of premiums on clinical services and activities related to quality of care. Only 15 percent can go to other items, such as administrative costs, advertising and profits. For small-group and individual plans, the ratio is 80 percent premiums and 20 percent other costs. If insurers fall short of the standards in 2011, they'll have to issue rebates for that amount in 2012.

HHS officials estimated that up to 9 million Americans will be eligible for rebates worth up to $1.4 billion beginning in 2012. Average per-person rebates "could total" $164 in the individual market, officials said. Insurers will have to pay the first round of rebates based on 2011 MLR data by August 2012.

TRANSITIONS AVAILABLE
The rule also allows states to request up to a three-year transition period to comply with the payout standard in the individual market. Officials said the rule does not make the same allowance for the small-group market. However, states are not barred from asking for a similar transition period for those plans.

At least four states—Maine, Iowa, Florida and South Carolina—and possibly more are expected to ask for transitions, said Jane Cline, the West Virginia insurance commissioner and president of the NAIC. Those requests may be for just the individual market or individual and small-group plans. "Individual commissioners will be making the determination of what to request of HHS," she said. Cline said her own state has insurance plans that would not now meet the new standard.

To qualify for a transition, a state will have to demonstrate that making insurers meet the minimum medical payout standard in the 80 percent market has a likelihood of "destabilizing" the individual market and would result in less consumer choice.

There are certain insurance plans that will have a hard time meeting the new standard because the benefits they offer are very minimal. Such plans are used by employers such as McDonald's, which has warned it might have to drop its insurance under the new standards. But according to HHS, data for those so-called "mini-med" plans and "expatriate" plans will not be included in the aggregate premium and expenditure data insurers will have to report. Insurers will be able to report their experience separately for those plans, Sebelius said.

Expatriate plans are those provided to Americans living overseas, while mini-med plans have a low level of annual dollar limits and premiums. Officials said the regulation will allow a "special methodology" for these plans to address their "unusual" expense and premium structure. "We will collect data for the first year on the mini-med plans and then make a determination about the applicability of the MLR across the board," she said. "There isn't a lot of data on this marketplace, and we know mini-meds vary dramatically."

In addition, the rule requires that insurers send consumers in such plans a notice that they are in a plan that provides less than full coverage.

RULE SPECIFIES WHAT COUNTS IN MLR
Consistent with another NAIC recommendation, the HHS regulation will allow insurers to deduct only those state and federal taxes that apply to health insurance coverage from an insurer's premium revenue when calculating its MLR, officials said. Taxes on investment income and capital gains will not be deducted from premium revenue.

Again consistent with the NAIC recommendation, the regulation will allow insurers to add to their MLR a "credibility adjustment" when the MLR for a market within a state is based on fewer than 75,000 people enrolled for the entire calendar year. This is because it is difficult to predict what will happen in a market with a small number of insured people. Insurers with fewer than 1,000 people enrolled for an entire calendar year will not be required to provide rebates.

The rule also specifies a set of "quality improving activities" that would count toward the 80 percent or 85 percent standard. They "must be grounded in evidence-based activities, take into account the specific needs of patients and be designed to increase the likelihood of desired health outcomes in ways that can be objectively measured," said a fact sheet on the rule. Insurers will not have to immediately show an activity improves quality but will have to eventually produce "measurable" results.

Plans new to a market may be able to delay reporting their MLR until the following year, again consistent with an NAIC recommendation. This will encourage new plans to enter markets without fear of having to immediately issue a rebate, officials said.

Sebelius said the standards could produce lower costs, "and that's what we call real results for real Americans."

There are civil monetary penalties if an insurer fails to comply with the law's reporting and rebate requirements. The penalty for each violation is $100 per entity, per day, per individual affected by the violation.

By Jane Norman, CQ HealthBeat Associate Editor

November 22, 2010 -- President Obama and the congressional authors of the health care law praised a key rule the Department of Health and Human Services issued on Monday on implementing a standard for medical payouts by insurers. The industry was more guarded in its reaction.

Democrats in Congress included language in the law on a national medical loss ratio (MLR) as a way to curb health insurance premium prices without directly capping them, which politically would have been more difficult. Under the MLR standard, beginning in 2011 insurers will face new mandates on how they spend premium money and must issue rebates if they do not comply.

The MLR standard is complex to explain and not easily captured in a sound bite. And it's part of a law not universally popular. Yet the announcement of the regulation offered battered Democrats a chance to highlight health care, hold out the possibility of rebate money going directly to consumers and again criticize GOP plans for the law's repeal. Beginning in 2012, $1.4 billion worth of rebates may go to policyholders, HHS said.

The law (PL 111-148, PL 111-152) requires that large-group health plans spend 85 percent of premiums on clinical services and activities related to quality of care. For small-group and individual plans, the ratio is 80 percent premiums and 20 percent other costs.

President Obama said in an e-mail statement that the law will mean insurers have to spend money on care rather than advertising costs and executive salaries. "This new rule will make our health care marketplace more transparent and ensure you get the best value for your premium dollars," he said. The e-mail included a link to a video made by Nancy-Ann DeParle, White House director of health reform, explaining the new regulation.

House Speaker Nancy Pelosi, D-Calif., said the new rule "breaks the stranglehold insurance companies have had over our health care decisions and puts power into the hands of the American people, where it belongs."

Senate Finance Chairman Max Baucus, D-Mont., said that it "helps end insurance companies' abuses, including unjustified premium increases."

House Ways and Means Chairman Sander M. Levin, D-Mich., and Pete Stark, chairman of the panel's Health Subcommittee, said in a joint statement that the new standard will help consumers get more value for their health insurance dollars by assuring most of it is spent on medical care.

"By pledging to repeal health reform, House Republicans would eliminate this important protection and allow insurance companies to continue unlimited spending on CEO bonuses, profits and lobbying—and less on patients' health care," Stark said.

"Repeal this?" asked House Education and Labor Chairman, George Miller, D-Calif.

But Rep. Joe L. Barton, a Texas Republican vying to become the new chairman of Energy and Commerce in January, said the new rule was another example of a government takeover of health care.

"Democrats just took a shellacking, but I see that hasn't interfered with the administration's slow march to total federal control over health care decisions," said Barton. "No American objects to getting better service from insurers, but history suggests that when bureaucrats enforce a one-size-fits-all policy, things get worse instead of better."

An advocate for the MLR standard was Sen. John D. Rockefeller IV, D-W.Va., who pushed for it during Senate Finance Committee work on the health care overhaul.

He praised HHS for "standing by consumers." But he also said he was "disappointed" to see that companies offering so-called "mini med" plans with limited benefits are continuing to look for exemptions from the regulations because they cannot meet the new standards. Rockefeller said he will hold a hearing on such plans in the Commerce, Science and Transportation Committee "in the coming weeks."

Karen Ignagni, CEO of America's Health Insurance Plans, which represents the industry, said in a statement that the new rules track closely with recommendations made by the National Association of Insurance Commissioners (NAIC) to HHS. "These regulations acknowledge the potential for individual insurance market disruption and take a first step toward minimizing such disruptions," said Ignagni.

The regulations allow states to ask for a transition period for individual plans in cases where plans might have to go out of business if they had to comply right away.

However, said Ignagni, "the potential for disruption to employer-provided coverage should also be acknowledged and addressed." She said the rule also should take into account the costs of programs to prevent fraud and modernizing claims coding, counting them as medical care rather than administrative costs.

Insurance agents and brokers were more blunt. The Independent Insurance Agents & Brokers of America said in a statement they were disappointed. "We are extremely concerned that this rule will lead to severe market disruption, especially in the individual and small-group markets," said Robert Rusbuldt, the group's president and CEO.

The agents and brokers are worried their profession will be in danger because their commissions won't count as clinical care or quality improvements, under the rule. Charles E. Symington, Jr., senior vice president for government affairs, said if HHS will not change the language before the rule is final, "we hope that Congress will step in and revise the MLR formula through the legislative process."

Advocacy groups who backed the law saw the broker issue differently. The American Cancer Society Cancer Action Network said that it was proper to treat commissions that way and that as much spending as possible by insurers should go toward improving health care.

Stephen Finan, the network's senior policy director, said overall the rule was "strong," though cancer advocates were less comfortable with the exception for the mini-med plans and plan to monitor the experiences of consumers in such plans.

Overall, the rule is "extremely fair," said Ethan Rome of Health Care for America Now, who said it will also be a "data gold mine" for examining insurers' spending.

Nancy LeaMond, executive vice president of AARP, said the rule as a whole strikes a balance between consumers and insurers. "We encourage the Department of Health and Human Services to continue to monitor the effects of the new regulations and make needed adjustments to ensure consumers have access to affordable health coverage and quality care," she said.

By John Reichard, CQ HealthBeat Editor

November 22, 2010 -- "Accountable care organizations"—given a boost under the health care law to spur greater teamwork among doctors and hospitals—have the potential to improve quality and contain costs in the traditional Medicare fee-for-service program, but they must be carefully structured to get the job done, the Medicare Payment Advisory Commission (MedPAC) said.

ACOs are groups of doctors, hospitals, and other caregivers that work together to improve the quality and efficiency of care.

The commission said in a letter to the Centers for Medicare and Medicaid Services (CMS) that in order to work, ACOs can't simply be given bonus payments if they meet goals for controlling costs and improving quality. They must also pay for some of the overruns if they exceed the spending target they are given.

The letter adds that ACOs could also help Medicare patients "receive more coordinated care and become more engaged with their care management, particularly if beneficiaries are informed when they are assigned to ACOs." The way they are informed will be key to their productive participation, it adds.

Who will tell seniors, in what form, and what exactly they will be told are among the issues CMS must resolve.

The letter is the latest sign that the health policy establishment regards ACOs as a way to begin trying to control spending in the fee-for-service side of Medicare, which pays providers more for each test and procedure they order and perform. That "piecework" approach is encouraging unnecessary care, many analysts say.

The health law gives a boost to ACO formation by creating a "shared savings program" at CMS that provides higher payments when the organizations control costs by a specified minimum while also hitting quality performance targets.

Hospitals, physician groups and other types of providers around the country have been organizing ACOs. They anticipate fundamental changes in Medicare payments designed to encourage greater teamwork among providers and see ACOs as a way to prepare for those changes.

Republicans are on board with the concept, underlying the sense that ACOs will be tested widely. But there is uncertainty about how to proceed.

As envisioned by the health law, each ACO would be responsible for the care of a minimum of 5,000 Medicare beneficiaries. But seniors may not be happy if they get the idea that ACOs will give providers incentives to be stingy about treatment.

Not telling them they have been assigned to an ACO "would run the risk of a repeat of the managed care backlash experienced in the 1990s," the MedPAC letter notes. "The backlash resulted from patients feeling that they were being forced into managed care by their employers and that the financial benefits were accruing to employers or health plans, not them."

Primary care doctors could help make ACOs a success by explaining to seniors how the new approach would benefit them and what their responsibilities would be.

"Receiving higher quality care, improved care coordination, enhanced after-hours access, and greater engagement in their own care should be meaningful improvements from the beneficiaries' perspective, and having the provider describe them would increase the beneficiaries' trust in the value of those benefits," MedPAC advises. For example, beneficiary responsibilities would include more careful adherence to instructions on taking medications.

CMS is expected to issue a regulatory proposal in coming weeks on ACO formation.

By Dena Bunis, CQ HealthBeat Managing Editor

November 22, 2010 -- The Premier health care alliance, QUEST, a national collaborative of 157 hospitals working to improve quality and save money, reported that it has saved 22,164 lives and $2.13 billion over the first two years of the three-year project. The group says that if all the nation’s hospitals could replicate such results, another 64,000 lives and $23 billion could be saved each year.

"QUEST hospitals have volunteered to be a test bed for what’s possible in terms of performance improvement. These hospitals are setting new standards of excellence based on real-world experiences," Premier's president and CEO, Susan DeVore, said. "There is a national imperative to bend the health care cost curve while we continue to improve clinical quality. The hospitals in QUEST are achieving these goals. This effort testifies to the power of collaboration."

QUEST is a voluntary project that includes urban and rural, large and small, and teaching and non-teaching facilities from 34 states, including many hospitals that care for the poor and uninsured.

Using the nation's largest comparative database from Premier, QUEST participants and the Institute for Healthcare Improvement (IHI) identified the main drivers that lead to deaths, errors and excessive costs, as well as what would improve a patient’s experience in the hospital. Hospitals in QUEST are targeting those areas for improvement and are comparing themselves against one another and sharing what works best.

According to QUEST officials, when measured against Medicare data, QUEST participants had mortality rates 5 percent lower than non-participating facilities. And while inpatient care costs nationally have increased by 14 percent during the first two years of the project, the increase was just 2 percent among QUEST hospitals. In evidence-based care, QUEST participants have continued to improve performance and outperform peers by 1.5 percent, according to Hospital Compare data.

QUEST officials believe their data analysis has yielded results that could be applied nationwide. Their findings show:

• Variation between the top- and bottom-performing hospitals has narrowed over time as all hospitals have improved, proving, they say, that the QUEST model can work in any hospital, regardless of size, teaching status, safety net status or geography.
• Mortality rates among QUEST participants declined 23 percent since the baseline, with a large gain in the area of sepsis. Other conditions that drove the mortality gains included prevention of respiratory infections and cardiac care improvements.
• In the first two years, the biggest areas to bend the health care cost curve were increased labor productivity and elimination of supply costs. However, different types of hospitals bent the curve at different rates, with small teaching hospitals making the most significant gains, followed by large non-teaching and large teaching facilities.

Going forward, the next generation of QUEST—QUEST 2.0—will add more measures and clinical conditions that track with the goals of the new health care law, officials said. These include readmissions and health measures for diabetes, obesity, mental health problems and heart failure.

QUEST says it will also look more closely at cost trends to assess why some hospitals have been so successful in controlling costs relative to others. And the collaborative plans to analyze focused clinical interventions to determine which drove the greatest levels of improvement in areas such as pneumococcal vaccination and harm prevention.

By CQ Staff

November 22, 2010 -- The new health care law will provide $290 million this year for the National Health Service Corps (NHSC) loan repayment program, under which primary care medical, dental, and mental health professionals can get up to $60,000 to help pay their student loans if they work for two years in a medically underserved area.

"As we continue to seek ways to impact both the primary care workforce shortage and the increasing debt burden on new providers, NHSC serves as a model for addressing both challenges simultaneously," Health and Human Services Secretary Kathleen Sebelius said in a statement. "Increasing access to primary care physicians who can support the physical and mental well-being of individuals can help prevent disease and illness, and ensure everyone—regardless of where they live—has access to comprehensive, high-quality care." Sebelius announced this year's allocation at a community health center in Baltimore.

Under the health care law (PL 111-148, PL 111-152), the money awards are higher than in previous years, and the program will give medical professionals the option of working half-time to fulfill their service obligation. They also will get credit for some teaching hours.

"By the end of fiscal year 2011, we expect that over 10,800 clinicians will be caring for more than 11 million people, more than tripling the National Health Service Corps since 2008," said NHSC Director Rebecca Spitzgo. She said that by 2015 the corps will support more than 15,000 new primary care professionals.

By John Reichard, CQ HealthBeat Editor

November 24, 2010 -- More and more of the prescription drug plans competing in the Medicare program are experimenting with new cost-control methods, says a new study by the Washington, D.C., consulting firm, Avalere Health.

The changes reflect growing efforts by the plans to gain an edge in the Medicare market by negotiating better deals for the generic drugs and specialty drugs that they include in their formularies—their list of covered products. Specialty drugs include biotech products that cost thousands, if not tens of thousands, of dollars per year.

Avalere President Dan Mendelson noted that companies offering drug plans use the Medicare market to test coverage changes that they then adapt in the commercial marketplace for younger Americans.

"These Medicare products are the cutting edge of formulary design, coming soon to a commercial plan near you," he said.

One of the biggest changes for next year is the number of Medicare plans switching to "five-tier" coverage as a way to steer beneficiaries to particular drugs on which they have negotiated volume discounts. The experimentation reflects the competitive nature of the market, in which price-sensitive seniors compare monthly premiums in choosing a plan.

The tiers vary by the type of drug—whether brand-name, generic, or specialty—and the amount out-of-pocket charges enrollees must pay. "This is a very dynamic market," Mendelson said. "What's happening is the plans are trying to force a better deal for consumers."

Many of the drug plans offered in the Part D prescription drug program in Medicare are changing their out-of-pocket charges, which means seniors will have shop carefully to get the coverage that best suits them, he said.

In some cases, the changes may be a shock.

For example, Humana is offering a plan that relies on Walmart pharmacies to keep down costs and charge low premiums and out-of-pocket expenses. But enrollees who try to fill their prescriptions at a pharmacy other Walmart's may face much higher charges.

Thus in the case of the arthritis drug Enbrel, the Humana enrollee pays $588 out of pocket per prescription at Walmart and $849 at another pharmacy.

"Consumers interested in the lower premiums offered by this plan need to understand that their costs—particularly on injected and specialty pharmaceuticals—may be significantly higher if they don't shop at the pharmacy designated by the plan," Mendelson said.

Plans structure their coverage in tiers. Three tiers used to be the norm—one for generic drugs, preferred brand name drugs, and non-preferred brand name drugs. The generic tier had the lowest co-payment per prescription. The brand name drug had a higher co-payment and the non-preferred brand, an even higher copayment. The aim: encourage enrollees to use lower cost drugs.

Three tiers then became four tiers, reflecting the addition of a tier for specialty drugs. Now five tiers is the trend. In 2011, 41 percent of plan offerings will have at least five tiers, up from 27 percent in 2009.

Mendelson says there are two main types of five tier plans. One type has preferred generic drugs, non-preferred generic drugs, preferred brand name drugs, non-preferred brand name drugs and specialty drugs. Another type has generic drugs, preferred brand name drugs, non preferred brand name drugs, preferred specialty drugs and non-preferred specialty drugs.

Plans negotiate volume discounts for preferred generics or preferred specialty drugs, and drive enrollees to them by charging lower out-of-pocket charges than for their non-preferred counterparts.

Mendelson says that plans are changing which drugs they cover in addition to tinkering with out-of-pocket charges. A United Healthcare plan for example is retooling its formulary to reduce the number of covered drugs by 25 percent. That means seniors have to make sure that the drugs they rely on are covered when they pick a plan.

But Mendelson noted a reduction in the number of covered drugs doesn't necessarily hurt consumers because it could mean a plan is simply dropping coverage of a brand name drug and maintaining coverage of its less pricey generic alternative.