By Rebecca Adams, CQ HealthBeat Associate Editor

July 20, 2012 -- Federal officials are planning a widespread test next year to see whether moving as many as 2 million low-income people into managed care health plans can save money without undercutting the quality of the care patients get. But even before it launches, the experiment is turning into a test of wills, with critics so far unable to convince the government to scale it back.

On July 18, the official in charge of the effort said at a Senate Special Committee on Aging hearing that federal regulators do not intend to significantly reduce the number of people who would be shifted from fee-for-service plans, where they see the doctor of their choice, into managed care, which sometimes has access restrictions.

The patients are part of the so-called dual eligibles, 9 million low-income people who qualify for Medicaid, the federal-state program for the poor, and Medicare, the federal program for the elderly and disabled.

Critics of the proposed project say it does not fit the concept of a demonstration because it is moving too fast with too many beneficiaries. But Melanie Bella, director of the Centers for Medicare and Medicaid Services (CMS) office overseeing the pilot, said that enough people must be included for agency officials to gauge whether managed care will work under a variety of conditions. She also said that the status quo, in which patients see a range of medical professionals who often do not closely coordinate their care, is not good enough.

"We are sticking with our 2 million target," Bella said after the hearing.

Savings, or Nothing

CMS officials will begin announcing as soon as August which states will get the green light to start shifting patients into managed care next year. According to guidelines CMS sent to states, the agency will work with individual states to determine payment rates based on spending and on expected savings. If the switch to managed care does not produce savings for both CMS and the state, "the demonstration will not go forward."

Twenty-six states applied, hoping to save on Medicaid. Seven want to move almost all of their dual eligibles into managed plans. Federal officials don't expect to approve all the applications, so the number of beneficiaries could be fewer than 2 million.

But critics—including Sen. John D. Rockefeller IV, D-W.Va., who helped write the language in the health overhaul law (PL 111-148, PL 111-152) that created Bella's office—say managed care might not work well for these patients, who have some of the most complex health care needs in the Medicare and Medicaid populations. Earlier this month, Rockefeller called on CMS to redesign or scrap the initiative.

Doctors and hospital executives worry that they won't get paid enough under this experiment. "Any achievable savings should come from improvements in health outcomes and quality, not restrictions in benefits or reductions in provider payments," the Federation of American Hospitals, the for-profit hospital trade group, said in a July 11 letter to senators.

Patient advocates fear not all of the services people receive now will be covered and that patients might not be able to keep using the providers that have overseen their care in the past.

Urban Institute expert Robert Berenson, a former vice chairman of the Medicare Payment Advisory Commission (MedPAC), recommended at the aging panel hearing that no more than 500,000 people be moved into managed care.

"Assume that after two or three years, CMS's outside academic evaluators find quality or access problems in state programs, perhaps from inadequate provider networks," said Berenson, something that would indicate the demonstration is not working and should be changed or stopped. "Would a future CMS administrator actually then get on the phone to the involved governors and tell them to shut down their programs and return to the status quo ... once again dislocating beneficiaries, while disturbing state budgets? It won't happen."

Federal officials and lawmakers are always hunting for ways to cut Medicare and Medicaid spending without jeopardizing patient care. Supporters of the dual-eligible test say it makes sense to target patients with the highest costs. State and federal spending on Medicaid totals $400 billion a year. Although only 15 percent of Medicaid beneficiaries are dual eligibles, they consume 39 percent of Medicaid costs.

Medicaid and Medicare both use managed care to control costs for their populations, but not for many dual eligible patients because their care is more complex and they often need to see specialists, including mental health providers—something that might not be as easy under managed plans.

Some state officials say the time for a change is long overdue. "We have had 45 years of fragmentation," said Thomas Betlach, who oversees Medicaid in Arizona. "We know the current system is not working for the people we serve or the taxpayers who are footing the bill."

State and federal officials, medical providers, insurers, patient groups and industry executives are all watching to see how the demonstration unfolds.

"There is a lot riding on whether or not coordination and financial alignment can work to truly improve the quality and contain the cost of care for dual eligibles," said Sen. Bob Corker, R-Tenn.

By Jane Norman, CQ HealthBeat Associate Editor

July 19, 2012 -- The Centers for Medicare and Medicaid Services (CMS) has approved 15 new accountable care organizations (ACOs) under what's known as the advance payment model.

The ACOs, like others already announced and in the works, will function under the shared savings approach. But they get up front and monthly payments so they can finance the cost of the information technology and other improvements needed to coordinate care among providers.

CMS developed the model in response to comments from members of the health care industry who said smaller providers—particularly those in rural areas—didn't have the up front money to launch an ACO and would be disadvantaged.

Providers were invited to apply earlier this year for a new round of the advance payment model ACOs and CMS officials said they were reviewing 150 applications from groups that wanted to enter the program in July.

Each of the advance payment ACOs will receive an up front fixed payment; an up front varying payment based on the number of Medicare beneficiaries it serves; and a monthly payment depending on its number of beneficiaries.

The new ACOs announced were: Accountable Care Partners ACO, Jacksonville, Fla.; Coastal Medical Inc., Providence, R.I.; Cumberland Center for Healthcare Innovation, Nashville, Tenn.; Golden Life Healthcare, Sacramento, Calif.; Harbor Medical Associates, South Weymouth, Mass.; Maryland Accountable Care Organization of Eastern Shore, National Harbor; Maryland Accountable Care Organization of Western Maryland, National Harbor; Medical Mall Services of Jackson, Miss.; MPS ACO Physicians, Middletown, Conn.; Physicians ACO, Houston, Texas; PriMed, Shelton, Conn.; Quality Independent Physicians, Louisville, Ky.; Reliance Healthcare Management Solutions, Tampa, Fla.; St. Thomas Medical Group, Nashville, Tenn.; and Texoma ACO, Wichita Falls, Texas.

CMS officials said they will start accepting applications Aug. 1 for the next round of advance payment ACOs that would begin Jan. 1, 2013.

By Jane Norman, CQ HealthBeat Associate Editor

July 19, 2012 -- The Obama administration recently disclosed the contents of a final rule dealing with information that insurers must provide as part of the health law's standard health benefit package, less than two weeks after the comment period for the proposed regulation ended.

The speed with which the rule was rolled out is an indication of how quickly federal officials are moving now that the Supreme Court upheld the health overhaul law and deadlines loom for implementation of health benefits exchanges and the formation of the plans they will offer.

While the rule is not a major piece of how essential health benefits will be administered, in its proposed form it nonetheless stirred objections among insurers who said it went too far by asking them to describe not only the services they cover, but how they plan to limit access to covered services.

The requests were excessive, could cause competitive issues and could limit the flexibility that insurers have in designing their plans, insurers said.

Essential health benefits are the standard services that individual and small group plans must provide consumers under the health care law (PL 111-148, PL 111-152). States will be allowed to choose among various plans already in existence as benchmarks for setting their minimum benefits. This rule spells out what information plans that are potential benchmarks must provide to the government to help in the definition of standard benefits.

In the final rule, Health and Human Services did make some changes from its first proposal. It said, for example, that the agency initially proposed that insurers must specify whether their covered drugs are subject to prior authorization—approval from plans before they are paid for—or "step therapy," under which one drug must be tried before another is covered.

"In response to comments received on this proposal, we no longer intend to collect data on prior authorization and/or step therapy for drug coverage," HHS said.

The agency also rebuffed requests from consumer advocates for information to be gathered beyond what it had proposed. "Many commenters requested that HHS collect data in addition to the elements listed in the proposed rule, such as data on exclusions, medical necessity, habilitative services, cost-sharing (including premiums and co-pays), additional drug data, additional data on treatment limits, and a more extensive list of benefits," the agency said.

"We believe the data collection proposed balances a minimal data collection burden on issuers while being sufficient to support the establishment of a potential benchmark for each state. Therefore, we are not requiring issuers to report any additional data elements in this final rule."

By Jane Norman, CQ HealthBeat Associate Editor

July 19, 2012 -- States are being encouraged to rethink their payment and delivery systems for public health programs under a new Department of Health and Human Services (HHS) initiative unveiled last week that includes $275 million in grant money.

HHS Secretary Kathleen Sebelius, a former Kansas governor, said in a statement, "I've seen states in action and I know what great laboratories they are for innovations we can put into practice nationwide." States may apply to receive competitively awarded grants that can be used either to test systems already in development or design new ones.

The effort springs from the Innovation Center created under the health care law (PL 111-148, PL 111-152) and is intended to spur improvements in Medicaid, the Children's Health Insurance Program and Medicare. Called the "State Models Innovation Models" project, it's meant to help states find ways to maintain or improve quality while reducing costs.

For example, some states are forming statewide networks for primary care, combined with advanced health information technology systems, so that primary care doctors, specialists and hospitals can communicate and coordinate better, officials said. Other approaches might be based on the same concepts as accountable care organizations.

HHS and Centers for Medicare and Medicaid Services (CMS) officials said that states are meant to work on fresh ideas with other local entities including employers, insurers, community leaders, service organizations, doctors and hospitals, consumers and tribal governments. "The goal is to create multipayer models with a broad mission to raise community health status and reduce long-term health risks for beneficiaries of Medicare, Medicaid, and the Children's Health Insurance Program," CMS says in a fact sheet.

States that already are developing systems can apply for "model testing" awards, and the Innovation Center will provide grants to five states in its first round. Some states may need Medicaid waivers or other regulatory changes to move forward as well, CMS said. Another 25 states can be chosen in the first round for "model design" awards to create "transformative" changes in their payment and delivery systems.

Applications for the first round are due Sept. 17. A second round of funding is targeted for the spring of 2013. Only one application per state will be allowed and the application must be endorsed by the governor.

By John Reichard, CQ HealthBeat Editor

July 18, 2012 -- What will the emerging health care cooperatives funded by the health law look like? Do they have any chance of surviving the competition against big insurers?

It's too soon to say for sure how they'll fare. But in the case of an emerging cooperative in Utah awarded an $85.4 million federal loan last week, the organizers involved talk a good game. They also bring some experience to the table.

The Consumer-Operated and Oriented Plan (CO-OP) program found its way into the health law as a way of mollifying liberals angry about the failure of the overhaul to require a government-run public option plan to compete with for-profit insurers.

"These new private, nonprofit insurers will be run by consumers and are designed to offer individuals and small businesses more affordable, consumer-friendly, and high-quality health insurance options," Marilyn Tavenner, Centers for Medicare and Medicaid Services acting administrator, said in announcing the loan to Aarches Community Health Care to be headquartered in the Salt Lake City area.

The vast majority of the $85 million—93 percent—will go to assure the solvency of the co-op. The remaining seven percent is start-up money. Aarches is funded almost exclusively with federal money. Those funds can't be used for marketing, but the co-op plans to contact foundations and private businesses for donations to fund marketing activities.

The co-ops differ from traditional insurers in that more than half of their board members must be customers or members of the co-op. All board members must be elected by a majority vote of people enrolled in the plan. Profits must be returned to enrollees in the form of lower premiums, expanded benefits or improved quality.

Shaun Greene, chief operating officer for Aarches, shrugs off the critics who say co-ops can't compete. Greene is a West Point graduate who says he hasn't felt such a sense of mission about his career since serving in the first Gulf War. "We are looking to be a disrupter," he said in an interview. "If you go back and look at the history of disruptive business models, people always say, 'well, you can't do that.' Which is exactly why I think the opportunity is right.

"For us it's all about our vision around primary care, building a medical home, really reinventing the family doctor," he said. "It's a very simple concept. But it gets us off of the fee-for-service treadmill that so many doctors find themselves on today.

"Our vision is a retainer payment to physicians where they're incented to just take care of the patients," Greene said. "Instead of pumping, 30, 35 patients through a day, running as many services and tests as they can, they're now incented just to see less patients and take better care of them."

The medical home concept entails ready access to doctors and nurses, team-based treatment and lots of preventive care. How can that be accomplished and keep costs down?

Greene says Aarches will rely on federally funded community health centers for that piece of the system. Those centers already have a strong reputation for serving as medical homes, he said. And he adds that they are readily accepted by the Hispanic population Aarches will target in urban areas and by people in general in rural areas where health centers may be the only game in town.

But co-ops must provide hospital care too. That's where the experience of the company's CEO Linn Baker will come into play, Greene says. He notes that in the 1970s, Baker started up the health program for Utah state and local employees, called the Public Employees Health Plan (PEHP). And during his tenure, Baker instituted a "centers of excellence" approach to contracting with hospitals.

Under that system, the health plan contracted with facilities that offered the best deals on "episodes of care," such as coronary artery bypass surgery and knee surgery, Baker said in an interview. Plan members were given booklets explaining the benefits and risks of the procedures and how much various hospitals charged. While they could go to other hospitals, they were charged lower out-of-pocket fees if they went to the preferred hospitals.

This approach, similar to the tiered co-payments increasingly in use today, will be followed by Aarches in establishing its hospital network, Greene said.

Baker said he's long hoped to see such "transparency" adopted widely in the U.S. health system as a way to bring down costs and he sees an opportunity to help do that by coming out of retirement to run Aarches. "I've always believed in market solutions," he said.

Aarches officials said their aim is to be the low cost health plan in the Utah market.

How can they deliver the mix of services they're promising and make that happen? One answer they say is the Utah exchange that will offer the co-op among the menu of plans offered to uninsured state residents who will shop on the Utah insurance exchange using federal subsidies to help pay their premiums. That will give them access to thousands of potential enrollees who lack coverage now. It's a low cost way to reach potential enrollees, Greene suggests.

"This is not going to be easy," he admits. "It's going to be heavy lifting." But Aarches is projecting enrollment of 20,000 in 2014, 30,000 in 2015, and 40,000 in 2016.

Baker says he's had success competing in the past. PEHP was very successful in competing with other insurers for the business of colleges and school districts, he said, crediting the plan's relatively low administrative costs.

One major question hanging over the co-op is the fate of the health care law. What happens if Republicans make big gains in the elections and follow through on their promise to repeal the overhaul?

"Cooler heads are going to prevail whichever way the elections go," Greene predicts. But if federally subsidized purchase of coverage does disappear because the health law is dismantled, Aarches will have "mitigation strategies" in place that involve going after the business of self-insured employers, he said.

By CQ Staff

July 19, 2012 -- The Centers for Medicare and Medicaid Services (CMS) have rolled out two redesigned Web sites officials said will make it easier for people to find the information they need to decide which hospital or nursing home they should go to.

"These enhanced tools give patients, their families, and caregivers the ability to make an informed decision on where to seek care by looking at how well hospitals and nursing homes are performing on important quality measures," CMS Acting Administrator Marilyn Tavenner said last week, "and anyone looking to compare hospitals or nursing homes—not just those on Medicare—can take advantage of these Web sites."

One site is dedicated to information about hospitals, the other focuses on nursing home information. According to CMS, both sites contain important data on how well these facilities perform on quality measures—such as the frequency of infections that develop in the hospital, how often patients have to be readmitted to the hospital, and the percentage of nursing residents who report having moderate to severe pain while staying in the nursing homes.

The design of the Web sites has been improved to include interactive maps to find hospitals and glossaries to make information easier to understand.

• Hospital site
• Nursing home site