By John Reichard , CQ HealthBeat Editor

September 16, 2011 -- Overhauling Medicare's vexing physician payment formula may be an insurmountable political challenge because of the cost and the drive to reduce the deficit.

But the Medicare Payment Advisory Commission (MedPAC) has a plan to do it. It rocked the health policy world Sept. 15 by floating a bold approach for redoing the complicated formula, which each year mandates larger and larger reductions in doctor payments. The cost of fixing the problem also compounds each year.

Instead of lawmakers turning to increasingly unaffordable patches to prevent the cuts in the payment rates for physicians who treat Medicare patients, MedPAC is proposing an approach that would cost much less than the $300 billion the Congressional Budget Office estimates it would require to replace the formula. And in another big surprise, the independent advisory panel came up with a package of proposed cuts to Medicare to get the job done.

It's a long shot, to be sure, that such a plan would ever become law. But it's a serious proposal that fulfills last spring's congressional request that MedPAC develop a strategy to point the way out of the current physician payment mess.

MedPAC Chairman Glenn Hackbarth, among the most respected Medicare analysts, says the stakes are huge. The payment cuts triggered by the formula, he says, could prompt doctors to abandon the program. If lawmakers fail to act, they could face growing complaints from seniors that they can't find a doctor, just as millions of baby boomers are enrolling in Medicare.

What also made the MedPAC proposal momentous was the role the usually cautious Hackbarth took on as truth teller. In effect, he suggested that Congress can use Medicare cuts to fund only two out of three legislative goals: expanding insurance coverage under the health law (PL 111-148, PL 111-152); reducing the deficit; and junking the payment formula. Congress could raise taxes or cut spending elsewhere to cover the costs of getting rid of the formula. But as the chief congressional adviser on Medicare policy, Hackbarth wasn't going there.

Big Money

Under the MedPAC idea, Congress could replace the formula for $200 billion over a decade. The $100 billion difference from CBO's estimate would be achieved by cutting payments to specialists, instead of following CBO's assumption that reimbursement rates would remain the same for all physicians. Specialists' payments would be trimmed by 6 percent a year for three years; then they would be frozen. Reimbursements to primary care doctors would remain flat. The commission will decide at its October meeting whether formally to recommend such a plan to Congress.

Targeting specialists for payment cuts is attractive because they are highly paid compared to primary care doctors—and policy wonks have sought to narrow that gap. It may be even more important now because seniors looking for a new doctor increasingly have more trouble getting in to see a primary care physician than a specialist.

The plan would be paid for with $235 billion in payment cuts across health care sectors. MedPAC has identified $75 billion in cuts from the pharmaceutical industry; $49 billion from skilled nursing facilities, home health care and other "post-acute" care; $33 billion from beneficiaries; $26 billion from hospitals; $21 billion from labs; $14 billion from wheelchairs, hospital beds and other medical equipment; and $12 billion from Medicare's private health plans.

Few Easy Allies

There are many reasons the plan could stumble. The full commission has yet to approve it. Many, but not all the commissioners expressed support Sept. 15. When the specific policy changes needed to make the cuts are revealed early next week, some could prove too controversial. Hospitals, home health agencies, skilled nursing facilities and other providers are facing many other challenges and will resist absorbing cut to solve the payment woes of doctors.

"The proposal has the effect of pitting health care providers against each other," says Julius Hobson, a lobbyist with the law firm Polsinelli Shughart. Up to now there has been a unified effort by the physician community to replace the formula, known as the sustainable growth rate. "This is the one thing I have always feared might happen one day as policy options get considered for replacing the SGR."

AMA lobbyist Sharon McIlrath warned MedPAC members that the approach could make it hard for patients to see specialists. Many specialists are approaching retirement, she said. More than half of psychiatrists are over age 55 and the proportion is even higher for urologists and pathologists. New cuts could drive specialists to retire sooner.

Perhaps the biggest threat to the plan is that the White House and the Joint Deficit Reduction Committee may want to snap up the cuts MedPAC identified to meet their $1.2 trillion target. But Hackbarth says while MedPAC is prepared to endorse the cuts as a way to replace the doctor payment formula, that doesn't mean it would back such cuts for other purposes. And if Congress does use them to reduce the deficit, boomers won't be shy about voicing displeasure with limited access to doctors in a few years.

By John Reichard, CQ HealthBeat Editor

September 14, 2011 -- Any automatic cuts triggered under the debt ceiling law can't touch Medicaid. But legislation developed by the Joint Select Committee on Deficit Reduction can—and in a completely unfettered way.

So how could the so-called supercommittee best tackle Medicaid spending in a way that eases state budget burdens? Let states reap a greater share of the savings from better managing the care of the "duals," says Matt Salo, executive director of the National Association of Medicaid Directors.

Salo said that is the No. 1 priority for state Medicaid directors in the legislative package developed by the debt reduction panel.

Responding to reporters' questions after moderating a panel at an insurance industry conference, Salo said the legislation should permit states to share in some of the Medicare savings generated through improved management of the care of the 9 million or so Americans enrolled in both Medicare and Medicaid. They make up some of the sickest, frailest people in America and account for a big chunk of Medicaid spending and a relatively small share of its enrollment.

The Department of Health and Human Services (HHS) recently armed state officials with better tools to manage care of the duals by giving them access to Medicare claims data. That allows states to track how their Medicaid enrollees use Medicare services, such as hospital care and prescription drug benefits. By analyzing that data, states can identify high-cost patients and ways to redesign their Medicaid programs to save both Medicaid and Medicare money, state Medicaid officials say. But right now states benefit only from Medicaid savings from better management of the duals, not from Medicare savings.

Salo said that providing incentives to state officials by letting them share in Medicare savings would generate "huge" reductions in outlays for both Medicare and Medicaid.

Salo said the debt panel also could save big by streamlining the process for changing Medicaid programs through waivers. Getting the Centers for Medicare and Medicaid Services (CMS) to approve a waiver can sometimes take a state years. States have had to obtain waivers to add mandatory managed care to their Medicaid programs, he noted. It makes no sense to require states to obtain a waiver for something that is standard industry practice, he added.

The process should be overhauled so that far fewer waivers are required for states to change their Medicaid programs, and in instances where they must still apply for waivers, CMS should decide within a few months, he said. "It could save an enormous amount of money."

Salo said he thinks the supercommittee is considering such changes. A big question about the fate of legislation on the duals is to what extent the Congressional Budget Office (CBO) will score savings, he said.

Salo said that the "blended rate" proposal to reduce Medicaid spending is under consideration but is "losing steam." The Obama administration has proposed to save $100 billion by establishing a uniform figure for the percentage the federal government pays states for Medicaid costs. State Medicaid directors oppose that cut. Critics say it would also end the Children's Health Insurance Program.

President Obama has proposed cutting federal Medicaid funding by reducing the amount that states could tax providers, such as hospitals, to help finance Medicaid. Those taxes allow states to collect higher federal Medicaid matching payments. Salo says state directors oppose the Obama approach.

Salo said he thinks the supercommittee is also looking at ways to save Medicaid money by reducing fraud. Although there is much fraud in the program, it's hard to root out, he said, and people who say 10 percent could be cut from Medicaid spending by shutting down fraud are advocating a "highly simplistic solution to an extraordinarily complex problem."

Another idea states have advocated is ending the "maintenance of effort" rule in the health law, or "MOE".

The rule requires that states maintain current levels of Medicaid eligibility. But because it's part of the health care law, which Democrats on the deficit panel are expected to guard fiercely, Salo says he doesn't think it will be part of legislation developed by the committee.

By Dena Bunis, CQ HealthBeat Editor

September 15, 2011 -- Federal officials say the fact that Medicare Advantage premiums will go down on average by 4 percent next year and that enrollment is projected to go up by 10 percent proves that the naysayers were wrong when they said the health care overhaul would mean the end of these managed-care plans.

"We can say with complete accuracy that despite projections in 2010 that the program will decline, that this year the program has grown,'' Jonathan Blum, deputy administrator of the Centers for Medicare and Medicaid Services, said in a conference call with reporters.
Not so fast, say health industry representatives.

"All of the projections were showing the big drop in enrollment would be starting in 2013 and beyond,'' said Robert Zirkelbach, press secretary for America's Health Insurance Plans. "You can't cut $200 million from Medicare Advantage and expect there not to be a significant impact on the program." The health law (PL 111-148, PL 111-152) actually calls for $136 billion in direct cuts to Medicare Advantage payments but the insurance industry says there will be another $70 billion in indirect losses.

"The plans know what the law is,'' Blum said. "They have very smart actuaries. They can calculate the future. If we were going to see pullouts we would have seen them by now but we haven't."

In 2010, the Congressional Budget Office (CBO) estimated that Medicare Advantage enrollment will drop from 11.7 million enrollees in 2011 to 7.5 million in 2018 and then start trending back up in 2019.

CBO had projected a leveling out of enrollment in 2011 but there has been a steady increase. There were nearly 7 million seniors enrolled in Medicare Advantage plans in 2006, 11.9 million this year and 13 million are projected for 2012. About 24 percent of Medicare recipients enroll in these plans.

Federal officials did not want to speculate about future enrollment. But Blum attributed the drop in premiums—from an average of $33.48 a month this year to $32 a month next year—to an increasingly competitive environment and the tools the health law gave negotiators at the Center for Medicare and Medicaid Services (CMS) to wring savings from the plans.

Blum pointed out that 2012 will be the first year the plans will be able to receive quality bonuses, a $6.7 billion program based on a five-star measurement. Those bonuses were designed to both cushion the blow of Medicare Advantage payment cuts and to show a commitment to quality improvement.

Blum said CMS officials also were careful to measure total beneficiary cost changes to make sure that any premium decreases aren't offset by large increases in co-payments or deductibles. And plans also are retaining supplemental benefits that CMS tracks, such as vision and hearing care.

The open enrollment period for Center for Medicare and Medicaid Services plans has been moved up this year, said Health and Human Services Secretary Kathleen Sebelius. That is designed to give seniors more time to review any plan changes and make their choices, and also ensure they will get their insurance cards in time for the new plan year beginning Jan. 1. The open enrollment period will begin Oct. 15 and close Dec. 7.

By Jane Norman, CQ HealthBeat Associate Editor

September 13, 2011 -- While at least for the moment, a majority of Americans receive their health insurance through their employers, recently released Census Bureau estimates indicate that might not be the case for long.

Even before the economic downturn began, the share of people enrolled in employer-sponsored insurance was declining. Census figures for 2010 show that it now stands at 55.3 percent, raising the prospect it may slip below the majority mark within a few years.

The 2010 percentage was down just slightly from 56.1 percent in 2009—but it's dramatically lower than the 64 percent of Americans who had employer-sponsored coverage in the relatively buoyant days of 1999.

To supporters of the president's health care law (PL 111-148, PL 111-152), this trend demonstrates the need for the framework the law establishes for providing insurance and extending new consumer protections in the individual market. Both the rate and number of people covered by insurance they buy on their own—a traditionally expensive and problem-fraught market—rose in 2010 to an estimated 9.8 percent—30.1 million people.

The liberal-leaning Families USA said in a written statement that the decline in employer coverage has been driven by the sharp increase in health insurance premiums. Such increases have forced businesses to drop their plans and provisions in the law that assist small businesses in buying insurance for workers will be helpful, the group said.

But for the law's opponents, the trend away from employer or other private insurance shows an alarming shift to reliance on such public programs as Medicare and Medicaid whose costs are rising—and which may be targets for deficit reduction. The census said that 31 percent of Americans now are covered by a government plan, compared to 30.6 percent in 2009 and 24.2 percent in 1999.

"It's a concern for those who want to preserve the private market," said Nina Owcharenko, director of the Center for Health Policy Studies at the conservative Heritage Foundation. The percentages of those enrolled in public programs will also rise as the Medicaid law is extended to millions more enrollees in 2014.

Plenty of people remain uninsured, the estimates found, though as ever the percentages and numbers vary by age, region of residence and ethnicity.

For example, most regions showed no statistical differences in the uninsured rate with the exception of the Northeast, where the numbers rose to 6.8 million uninsured from 6.4 million in 2009. The Northeast, which includes states like Massachusetts with universal coverage, still had the lowest uninsured rate of the country's four regions—12.4 percent.

The census numbers were included in the annual report on income, poverty and health insurance coverage in the United States and covered the first full calendar year following the recession - as officially designated - from December 2007 to June 2009.

The Census Bureau reported that 16.3 percent of Americans did not have health insurance in 2010, a figure not statistically different from 2009. However, the number of people without insurance rose slightly from 49 million to 49.9 million.

Census officials said that revisions in the way the figures on health insurance are estimated prompted a revision of last year's data, and they released a paper detailing the statistical methods used. The result slightly reduced the rate of the uninsured in 2009 from the 16.7 percent reported last year to 16.1 percent. Robert Greenstein and other officials at the liberal-leaning Center on Budget and Policy Priorities said the revision produced more accurate estimates; some analysts have been critical of census health insurance estimating approaches in the past.

White House officials pointed out that the data showed a clear benefit from the health care law provision that allows young adults to remain on their parents' policies until the age of 26. It took effect for plan renewals beginning on Sept. 23.

The percentage of young adults ages 18 to 24 with insurance increased from 70.7 percent in 2009 to 72.8 percent in 2010, Health and Human Services Secretary Kathleen Sebelius said in a blog post.

"We expect even more will gain coverage in 2011 when the policy is fully phased in," she said. The gain was key because young adults traditionally make up the largest group of uninsured people.

For those older than 34, though, the outlook wasn't as promising, perhaps indicating the toll that economic problems has taken among older people.

Among Americans 25 to 34, the uninsured rate of 28.4 percent wasn't statistically different from 2009, but for those 35 to 44 it went up from 21 percent to 21.8 percent. For those 45 to 64, it rose from 15.6 percent to 16.3 percent. Even among people over 65, presumably eligible for Medicare, the uninsured rate increased from 1.7 percent to 2 percent.

The estimates also showed that in 2010, 9.8 percent of children under age 18 lacked health insurance, which was not statistically different from 2009 estimates. Among children in poverty, though, 15.4 percent were uninsured in 2010.

Among ethnic groups, the census said 30.7 percent of Hispanics are uninsured, much higher than the national average. But that was actually a decrease from 2009 when it was 31.6 percent. The uninsured rate for blacks was 20.8 percent and it was 11.7 percent for non-Hispanic whites in 2010. There was a rise in the uninsured among Asians, from 16.5 percent in 2009 to 18.1 percent in 2010.

By John Reichard, CQ HealthBeat Editor

September 13, 2011 -- States are relying on a fairly heavy dose of managed care to control their Medicaid costs, a new survey says. And they may turn to such plans even more as cost pressures mount and an estimated 16 million more uninsured people get added to the program in 2014 under the health law.

The survey also found that the growing reliance on Medicaid managed care in some states is increasing access by poor populations to medical treatment, contrary to the stereotype that such plans cut off access to care.

The 50-state survey was conducted in late 2010 by the Kaiser Family Foundation and the consulting firm Health Management Associates.

According to the survey, the use of managed care in Medicaid has risen steadily in recent decades. "Nearly all states operate comprehensive Medicaid managed care programs, covering about 66 percent of all Medicaid beneficiaries," it found. Only three states—Alaska, New Hampshire and Wyoming—have no Medicaid managed care. But managed care penetration in Medicaid varies widely from state to state. For example, in nine states, fewer than half of their Medicaid enrollees are in comprehensive managed care plans and nine states have more than 80 percent in the plans.

"In all, 46 states mandate managed care for most children, and 44 do so for pregnant women, and parents and other caretaker adults," the survey said. Increasingly, states are looking to enroll more medically complex and fragile beneficiaries in managed care plans, with half the states reporting some form of managed care arrangement for their residents who qualify for both Medicare and Medicaid. That's a population dominated by the frail and chronically ill. But enrollment is low among the "duals" for now.

Managed care plans create networks of providers who agree to serve the Medicaid population. "Many but not all states with managed care organizations (25) reported that Medicaid enrollees sometimes face access problems," a summary of the survey said. "Gaps in access to dental care, pediatric specialists, psychiatrists and other mental health providers and other specialists were all cited. At the same time, the vast majority of state officials perceived managed care to improve access, relative to fee-for-service, significantly in some cases."

The summary also said that "managed care offers significant potential to improve access and care for Medicaid beneficiaries, it can fail as a strategy" if the "capitation" rates—fixed per capita payments doctors get per Medicaid patient they agree to treat—are too low. That also can happen if networks are too scanty to meet the needs of patients or the state maintains poor oversight of its managed care program, the study said.

The "high level of managed care activity in Medicaid programs is likely to continue or even build, given ongoing state budget pressures, focus on improving care for people with complex needs, the Medicaid expansion and industry interest in a growing Medicaid market," the study said.

Vernon Smith of Health Management Associates noted that managed care is a potential tool for holding providers accountable for the treatment they provide. During a briefing at Kaiser headquarters, Smith said that in some instances states require managed care plans to be accredited to take part in Medicaid. Every state with Medicaid managed care requires plans to be rated based on quality performance measures and 15 states prepare quality "report cards" for beneficiaries to be used in picking a plan, the survey found.

Jason Helgerson, Medicaid director for New York state, said that "amazing" cost growth in traditional fee-for-service medicine is pushing the state to sharply increase its use of managed care. As an example, he said that the Medicaid budget for home health care has doubled over the past five years while the number of people served has actually declined. Medicaid officials are "on a three-year glide path to ending fee for service in our state," he said. But managing care to meet treatment needs and control costs is difficult, he said. If managed care "is not done right, it can actually cost you more money," Helgerson warned.

The survey shed some light on how well states think they are prepared for the health law's expansion of Medicaid. Of the 30 states that responded to a question on whether their managed care plans can absorb an expanded Medicaid population, 20 said they could.

Joe Vesowate, an official with the Texas state government's Medicaid division, said that many plans are competing in his state for Medicaid business. Because of that dynamic he said he thinks they will be able to be able to absorb the big expected enrollment increase in the state. "The key for us is to make sure that the business relationships we have our adequate to meet the need," he said.

Kaiser survey (pdf)

By Dena Bunis, CQ HealthBeat Managing Editor

September 12, 2011 -- As recommendations for the deficit committee about how to cut Medicare build, two liberal-leaning health policy analysts urged lawmakers to reject proposals to raise the eligibility age, saying doing so would shift costs and raise overhaul health care spending.

President Obama is expected to outline exactly how he would cut costs from the entitlement program as part of his long-term deficit reduction strategy. And raising the age is a possible option given wide reports that such a possibility was floated during the debt ceiling negotiations.

"The higher costs to individuals, employers and state would be twice as large as the savings to the federal government,'' Paul Van deWater, senior fellow at the Center on Budget and Policy Priorities (CBPP) said. He said raising eligibility age would increase "the burden health care costs places on the economy."

Van deWater referenced an analysis by the Kaiser Family Foundation that said if 65- and 66-year-olds were no longer eligible for Medicare, federal spending would be reduced by $24 billion in 2014. But he said, the net federal savings would be far less than that because in 2014 the health overhaul law (PL 111-148, PL 111-152) will be in full force in 2014 and those seniors losing Medicare would be eligible for Medicaid and the insurance subsidies under the new law. And that, he said, would reduce that $24 billion savings figure to $5.7 billion for 2014.

Besides the impact on the federal government, Van deWater said, raising the age would mean 65- and 66-year-olds would pay an estimated $2,200 more a year in premiums and co-pays. Medicaid costs would also rise because some of those 65- and 66-year-olds would qualify for that health program for the poor. And employers would face higher costs for some retirees who otherwise would have had Medicare as their primary insurer. Medicare beneficiaries, he said, would end up with higher premiums because the 65- and 66-year-olds who are usually the healthiest Medicare beneficiaries would no longer be in the program's risk pool. But many in the age group no longer eligible for Medicare would seek coverage in the exchanges and that would likely increase premiums in that marketplace, he said.

An even greater number of seniors citizens could also wind up uninsured, Van deWater said, if the health care law is either repealed or found unconstitutional by the courts.

Henry Aaron, senior fellow at The Brookings Institution, commented on one justification often made for raising the Medicare age: that the eligibility age for Social Security is already increasing and it would make sense for the threshold ages for both programs to be the same.

"That justification as it happens doesn't withstand scrutiny'' Aaron said. "It reflects a fundamental misunderstanding of how Social Security works.''

Aaron said because two-thirds of pensioners routinely claim Social Security benefits before they turn age 65 and only five percent wait until they are 67, that even now the typical beneficiary waits up to three years to get into Medicare.

Raising the Medicare eligibility age, Aaron said, would "simply increases an already quite problematic gap between the time people retire and when they are eligible for Medicare."