By Emily Ethridge, CQ Staff

October 14, 2011 -- The Obama administration will stop implementation of a controversial long-term care program included in last year's health care overhaul after determining they cannot find a way to make it fiscally sound and still meet the law's requirements.

Health and Human Services Secretary Kathleen Sebelius said after 19 months of work, her department was unable to find a way to structure a voluntary, self-financing, long-term care program that would be sustainable over 75 years, as the law requires.

"Despite our best analytical efforts, I do not see a viable path forward for CLASS implementation at this time," she said in letters to congressional leaders that accompanied a full report on the program, a central feature of the health care law (PL 111-148, PL 111-152).

Republicans cheered the announcement, saying it acknowledged their long-held skepticism over the program's viability. Last month, a bicameral Republican working group issued a report citing evidence the administration had concerns over the Community Living Assistance Service and Supports (CLASS) Act even before Congress passed the health care law.

"After ignoring repeated warnings from my Republican colleagues and me about the fiscal solvency of the CLASS Act, the Obama administration jammed Obamacare through Congress in order to score a political win," Sen. John Thune, R-S.D., said.

The late Sen. Edward M. Kennedy, D-Mass., pushed for the program to help bridge the coverage gap for long-term care between Medicaid and more expensive private plans. And the program came with a benefit: The Congressional Budget Office scored it as saving $70.2 billion over 10 years because the program would collect premiums for five years before paying for the long-term care.

Republicans were highly critical of the accounting, denouncing it as a budget gimmick used to improve the health care overhaul's overall budget score.

"The overriding reason the CLASS Act was included in the 2010 health care law was the accounting gimmick it enabled, so that supporters could say the law was paid for and even saved money," said Sen. Charles E. Grassley, R-Iowa.

Skepticism over the program's sustainability lead lawmakers to include a requirement in the law that the HHS secretary certify to Congress that the program could be implemented in a fiscally sound manner over 75 years.

The problem, HHS Assistant Secretary for Aging Kathy Greenlee said, comes in crafting a program that meets all those requirements: voluntary, completely self-financing, and also certifiably, fiscally sound.

"Everything we do to make the program more sound moves us away from the natural reading of the law, and thus increases the legal risk to implement the program," said Greenlee in announcing the administration's decision. "And this has lead us to the conclusion that we can't move forward at this point."

Greenlee said the health care law will still reduce the deficit by $127 billion between 2012 and 2021, even if, as expected, President Obama strikes the CLASS Act from his 2013 budget proposal, thus losing the program's scored savings.

Sebelius conceded in her letter to Congress that the agency has not been able to identify any plan that could be consistent with all those requirements. Still, she said she hoped the information gathered could be used to develop other affordable and sustainable long-term care options.

Administration officials emphasized that some kind of long-term care solution still needs to be created.

"Without insurance coverage or the personal wealth to pay large sums in their later years, more Americans with disabilities will rely on Medicaid services once their assets are depleted, putting further strain on state and federal budgets," Sebelius said in her letter.

Senate Health, Education, Labor and Pensions Committee Tom Harkin, D-Iowa, who has advocated for better long-term care options and helped push the CLASS Act, agreed.

"Our office is taking time to review the report from HHS, but does appreciate the work the secretary and her team have done in examining this program," a Harkin spokeswoman said. "The fact is that we still have a long-term care problem in this country and despite the criticism received, the CLASS program was a creative attempt to address a difficult and growing challenge for American families."

By Dena Bunis, CQ HealthBeat Managing Editor

October 13, 2011 -- Blue Shield of California announced that it would be returning $295 million to its customers this year, fulfilling its pledge to limit net income to 2 percent of revenue. White House officials credited the health care overhaul while at least one veteran analyst called the move a public relations stunt.

In a news release on its website, Blue Shield Chairman Bruce Bodaken outlined how the company would return the money to policyholders in the form of credits on their premiums. For example, Blue Shield individuals and fully insured group customers will each get a 54 percent credit against one month of premium. That translates into about a $135 credit for an individual and a $420 credit for a family of four.

"We made this pledge to help make coverage affordable for our members," Bodaken said in the statement. "Today's announcement provides more tangible evidence that we're putting affordability before profit. We hope our action will inspire others in the health care industry to look for ways to make quality health care more affordable."

In a White House blog post, Deputy Chief of Staff Nancy-Ann DeParle hailed Blue Shield's move and wrote about the rate review provision in the health care overhaul (PL 111-148, PL 11-152). DeParle also pointed to other examples in the past week of states weighing in on insurance company plans to raise rates. She said New Mexico's insurance superintendent rejected Blue Cross and Blue Shield's plan to raise rates by 9.9 percent, New York's superintendent of financial services is requiring insurers for the first time to publicly justify high rate hikes, and also in California, Kaiser Permanente is decreasing premiums for small businesses and providing credits to those who had paid higher rates. Those premium credits will total $13.7 million.

Since Sept. 1, the rate review provision requires insurers to justify any proposed premium rate increases of 10 percent or more.

"Before the Affordable Care Act became law, many insurance companies could raise your premiums without any transparency or accountability. If you wanted to know why your rates were going up, they were under no obligation to tell you. Thanks to the Affordable Care Act, that's all changing,'' DeParle wrote.

Bob Laszewski, a former health insurance executive and longtime consultant, called Blue Shield's move "great public relations." But it's money, he said, that policyholders would have gotten back over a period of time anyway, probably in the form of lower premiums. Blue Shield of California is a not-for-profit health plan so any profits it makes have to go into a surplus fund and when that fund gets too large the excess gets funneled back to clients, he said.

Laszewski also said that Blue Shield announced this payback plan in June when the California legislature was considering a bill that would have given the insurance commissioner the power to regulate rates. The measure died after the insurance industry, providers and some unions lobbied against it.

Blue Shield's announcement while the bill was under consideration, Laszewski said, "was part of a [public relations] campaign to undermine more rate regulation in the state of California."

And Laszewski doesn't believe other insurers will follow Blue Shield's lead.

"Other insurers are laughing at it as a PR joke,'' Laszewski said, adding that other companies are not in the corner Blue Shield thought they were in with the regulation bill being considering by the state legislature.

By John Reichard, CQ HealthBeat Editor

October 11, 2011 --The accountable care organization (ACO) proposal issued earlier this year by Medicare officials was slammed hard from all sides and even labeled "unworkable" by one top hospital industry official.

But that hasn't left Centers for Medicare and Medicaid Administrator Donald M. Berwick feeling downhearted about the potential of ACOs to streamline care. The final version of the regulation begins is now being cleared by the White House Office of Management and Budget.

"I think this is a winning idea, I really do," Berwick said in an exclusive interview with CQ HealthBeat. "I think it's going to work very well."

It's probably only a small exaggeration to call the ACO regulation Berwick's pride and joy. "Of all the regulations that I've been dealing with, that's one I've really been most devoted to and interested in," he said.

ACOs tackle head on what Berwick views as a central problem in traditional Medicare and health care more generally—that no one doctor is paid to communicate with all the other doctors treating a patient to make sure that medications don't clash and cause dangerous interactions, or that tests aren't duplicated. Nor are caregivers paid to work together during the "handoff."

So when a patient leaves the hospital with a complicated set of "discharge" instructions, no one is in charge of making sure the patient takes needed medications and makes follow-up appointments to foster recovery and avoid a costly return visit to the hospital.

"The doctor who's seeing the patient in her office doesn't get paid to make sure that the cardiologist and the pulmonologist know everything that's happening" with the patient, he says. "The payment system is chopped up. So the ACO rule is a clever idea."

Seniors in traditional Medicare are used to having their choice of doctor or hospital—and with ACOs they won't have to give that up.

"Patients still have complete choice, they go anywhere they want, which is very interesting. . . we can still, based on behavior, attribute them to a primary care source by watching their behavior. If they get the plurality of their care from the primary care site, they're attributed to that site. And if that site wants to be an ACO, they can do a deal with Medicare.

Critics who slammed the proposed rule said it reflected an overly bureaucratic approach on the part of Berwick. They said there were too many regulations to assure quality of care. There were also too many costly operational requirements for hospitals to be able to afford to create an ACO, Berwick's response is that bringing coordinated treatment to a fragmented system is "not an easy job.

"I think it's gone well, actually" Berwick says of the rulemaking process. "The staff did a super job in beginning to understand how you set this up.

"There are many variables, like how much shared savings? How do you attribute a patient to an ACO given that they have full choice? How will we watch quality carefully enough to make sure skimping doesn't occur? What about collusion? We're now going to have cooperation between doctors and hospitals and when does that deteriorate into distorting markets? And on and on – there's probably 20 or 30 questions that arise from this rather interesting idea of merging coordination with fee for service care."

The "fun really started in a way" during the comment period. "What happened, which I found fascinating – is everybody had a way to make it better. These are competing interests," he noted. People worried about beneficiary protections wanted a lot of surveillance of ACOs to make sure they didn't short change patients on care to make higher profits. Hospitals trying to make ACOs workable wanted more simplicity. Medicare trust fund defenders wanted more savings for Medicare. And "providers want more money for providers."

"We'll have a final rule that will hopefully reflect the increased knowledge we got during the comment period," Berwick said. "Will it be perfect? Of course not. But I think it's going to be a good rule, and I think we're going to have a lot of people interested and involved" in the ACO program.

Critics also say the administration is struggling to get the final reg out. They say that ACOs are a flawed concept and that if the program is structured to draw wide participation, savings will be few. And if it's structured to produce large savings, few organizations will sign up as ACOs, they predict.

Berwick counters that "this program will be on time, it'll be fine." Medicare officials will be ready "at least" by the start of the year to begin reviewing applications.

"It will generate significant knowledge, and some good savings," he said. "We're going to learn our way into this. So the first joiners, the ones that create ACOs first, are going to over time teach us more and more about this environment of coordinated good care."

Before that, CMS will launch a program of pioneer ACOs. "We're already seeing tremendous interest in the pioneer program beyond anything I would have even imagined."

"I've reviewed the applicants and they have the properties I've wanted – pluralism, different kinds of places, geographic variation, different sizes. We're going to learn a lot from that pioneer effort. I'm hoping that the ones that we don't have room for, that can't be pioneers are going to flip over and be just as interested" in applying for the regular ACO program. Berwick says for legal reasons he can't specify how many pioneer ACOs there will be but adds that "it's a lot."

By Emily Ethridge, CQ Staff Writer

October 13, 2011 -- House Democrats who specialize in health care policy called on the joint deficit reduction committee to preserve Medicare and Medicaid and fix Medicare's flawed physician reimbursement formula, while offering up familiar health care savings proposals.

House Judiciary Committee Chairman Lamar Smith, R-Texas, had just one recommendation for the committee, also related to health care: adopt a longtime GOP proposal to overhaul the medical malpractice system.

The recommendations, contained in a flurry of letters, came on the eve of a deadline for standing committees to submit recommendations to the deficit panel, which is charged with laying out a plan to trim at least $1.2 trillion from the deficit over the next 10 years.

The Democrats' health care recommendations came from Sander M. Levin of Michigan, ranking member of the Ways and Means Committee; and Elijah E. Cummings of Maryland, ranking member of the Oversight and Government Reform Committee; and Henry A. Waxman of California, the top Democrat on the Energy and Commerce Committee.

All three Democrats called on the deficit committee to maintain the basic promise of Medicare and Medicaid, to maintain the current Medicare eligibility age and not to shift costs onto states or beneficiaries. The lawmaker argued that such cost shifting would transfer a financial burden to those who can least afford it, and do nothing to reduce actual health care costs.

"Increasing the Medicare eligibility age may reduce Medicare spending, but outlays in other federal programs would increase, reducing the net savings to the federal government," wrote Levin.

The Democrats also said money could be saved by the continued implementation of President Obama's health care overhaul (PL 111-148, PL 111-152), and by reducing waste, fraud, and abuse in the government health programs.

Smith stressed the savings that he said would come from a medical malpractice overhaul, pointing to a Congressional Budget Office estimate that the measure would reduce the deficit by $40 billion and $57 billion over 10 years. The bill (HR 5) would cap non-economic awards at $250,000, restrict who is liable for damages and limit the amount of time in which a lawsuit could be filed.

Republicans have pushed the measure for years, but opposition from Democrats and some GOP lawmakers has prevented it from becoming law. Nearly 100 medical provider groups recently wrote to the debt reduction panel asking it to include significant medical malpractice changes, including the cap on non-economic damages—but that was countered by a letter from 21 consumer and patient advocacy group opposing the changes.

Democrats Push 'Doc Fix'

The Democrats said that any health savings should be used to fix immediate Medicare problems, primarily replacing the formula for reimbursing physicians who see Medicare patients. Although there is near-universal agreement that the formula needs to replaced, the estimated cost of repealing it is $300 billion over 10 years.

But the Democrats did not offer a detailed solution to the formula.

The Democratic lawmakers' letters also featured several familiar proposals for savings on prescription drugs.

"On the top of your list for health care savings should be righting the wrong done to taxpayers in the creation of the Medicare prescription drug program," said Waxman.

He, as well as Cummings, asked the committee to require pharmaceutical companies to provide rebates for Part D program drugs to those eligible for both Medicare and Medicaid, as well as seniors in a low-income subsidy program. Waxman has introduced legislation (HR 2190) to expand those rebates.

Waxman and Cummings also asked the committee to ban "pay for delay" agreements between brand-name and generic drug manufacturers that keep more-affordable medications from coming to market quickly. Obama has also proposed stopping such deals, and the Senate Judiciary Committee advanced a measure (S 27) to do the same, with the support of Iowa Republican Sen. Charles E. Grassley.

Cummings's letter said the deficit committee should lift a restriction in the 2003 prescription drug law (PL 108-173) that bars the secretary of Health and Human Services from negotiating lower prescription drug prices in Medicare. Pharmaceutical manufacturers oppose the idea, saying such a move could limit seniors' access to drugs.

Cummings also recommended allowing the Office of Personnel Management to contract with pharmacy benefit managers to get lower drug prices for the federal employees' health system. That provision could save $1.6 billion over 10 years, his letter said.

Waxman also urged the committee to reject new restrictions on states' financing sources for Medicaid, reductions in matching payment rates for state coverage efforts, or proposing a uniform federal matching rate created by averaging the rates the federal government pays states to cover different types of enrollees.

Waxman also called for maintaining the health care law's Prevention and Public Health Fund. Obama's deficit reduction plan would trim $3.5 billion from the $15 billion allocated to the law over 10 years.

By John Reichard, CQ HealthBeat Editor

October 14, 2011 -- The health care law aims to spur competition among insurers to lower premium costs for individuals and small employers by creating state health insurance exchanges, but in many instances, there aren't that many insurers around to compete, a new study suggests.

The study by the Kaiser Family Foundation finds that "while substantial variation exists...the current insurance markets in many states are highly concentrated with only modest competition."

States should consider how hotly contested markets are in deciding how to perform health care law (PL 111-148, PL 111-152) functions such as building exchanges and reviewing insurance rates, the study says.

States with few insurers can counteract the market power of the big players by employing an "active purchaser" model, for example. Under that structure, the state has the power to force down rates by threatening exclusion from the exchange. States with uncompetitive markets also can pass laws requiring insurers to obtain their approval for rate increases, it adds.

In the individual market, just a handful of states have markets rated either as "competitive" or as having only "moderate concentration," the study says. Those states include Colorado (seven insurers with market shares of 5 percent or more); Wisconsin (six); Missouri (five); and Pennsylvania (five). Alabama, with two insurers with more than five percent of the market—one of which has an 86 percent share—is the least competitive market.

In total, 30 states have individual insurance markets in which one insurer controls at least half the market.

The small-group market is similarly concentrated. Twenty-six states and the District of Columbia have small-group insurance markets with a single insurer accounting for more than half the market.

Researchers in the study also employed the technical tool known as the "Herfindahl-Hirschman Index" to rate the level of competition in a state. The index squares the market share of competing insurers. Thus if a market had 10 insurers each with 10 percent market shares, the index would total 1,000 (each of the 10 would have a value of 100, adding up to a total of 1,000).

A value below 1,000 indicates a highly competitive market. A value between 1,000 and 1,500 indicates an unconcentrated market. One between 1,500 and 2,500 suggests moderate concentration. Results above 2,500 generally indicate a highly concentrated market.

Using that scale only one state in the study—Wisconsin in the individual insurance market—had a rating below 1,500 (1,434) indicating an unconcentrated market. The median index rating in the individual market was 3,761. Alabama in the small-group market had a rating of 9,175 and the median rating was 3,595. The upshot: markets have a long way to go to be rated as truly competitive.

• Study

By Rebecca Adams, CQ HealthBeat Associate Editor

October 11, 2011 --A former Medicare administrator expressed some doubts about whether the committee charged with reaching a deal on deficit reduction can come up with a plan that can pass Congress.

Former Centers for Medicare and Medicaid Administrator Tom Scully was pessimistic about the prospects, saying that the political environment has only worsened throughout the year. If the supercommittee, formally known as the Joint Select Committee on Deficit Reduction, does not reach an agreement on at least $1.2 trillion in deficit reduction savings that Congress passes, then across-the-board cuts will be triggered under the August debt ceiling law (PL 112-25). The idea behind sequestration was to give lawmakers a reason to act, but Scully said it gives them an out. Scully spoke at an Alliance for Health Reform briefing and answered questions afterward.

When asked to predict what the supercommittee would come up with, Scully had a short response: "Nothing."

He said that although members of the committee are sincerely interested in finding a deal, the political atmosphere and pressures from groups that might be subject to cuts from the panel make it difficult. He also did not think it likely that the group would be able to reach consensus on a package that would impose some cuts of their own that would move partly toward the $1.2 trillion goal, while allowing across-the-board cuts to fill in the remaining gap. Under the rules, programs such as Medicaid are exempt from sequestration, but Medicare provider reimbursements are not.

"Why would a conservative House Republican say 'I'll vote for half a loaf?' " said Scully. "I just don't see that happening."

He predicted that the exercise would help build relationships among lawmakers who might work together in 2013 on a budget deal that has a better chance of becoming reality, when lawmakers are "shooting with real bullets."

During the Alliance briefing, Scully predicted that Congress would debate a "big, brutal, massive deficit reduction deal in 2013."

He also said that Congress might delay the implementation of the health care law (PL 111-148, PL 111-152) and that if policy makers had known in 2003 that the economy and deficits would be in such bad shape now, the prescription drug benefit would never have been created.

Scully shared the stage with his successor, former CMS Administrator Mark McClellan, who said that payment delivery changes, including bundling payments and creating medical homes, are the best way to get additional savings from Medicare. McClellan said that, in part because the health care law already puts in place reductions in Medicare spending growth, "it is hard to get more savings at this point" from reducing providers' payments, and it will be "hard to do any of this in the coming months."