By John Reichard, CQ HealthBeat Editor

April 5, 2013 -- An Obama administration decision to take a highly flexible approach to what Medicaid wonks call "premium assistance" could tip the balance toward widespread expansion by the states of their Medicaid programs, a top state lobbyist says.

Premium assistance refers to using Medicaid money to help recipients buy private coverage. If the administration allows that to happen, it could be a game changer, says the lobbyist, Matt Salo. He's the executive director of the National Association of Medicaid Directors.

Salo estimates that only about half of the states are on a path to expand by Jan. 1 their Medicaid programs using the federal funds provided under the health law (PL 111-148, PL 111-152). But the total could climb a lot depending on how the Department of Health and Human Services responds to a premium assistance proposal known as the Arkansas solution, Salo said in an interview.

"I think you're talking 35, 40-plus by Jan. 1 or soon thereafter," he said. And if the total climbs that high, the remaining states could also get on board within a few years, he adds.

The appeal of the approach to states hostile to the health care overhaul law is that premium assistance lets them take advantage of the billions of federal dollars provided under the health care law without appearing to expand a government program — Medicaid. Rather, it looks like an expansion of private coverage. "You're getting people enrolled in private plans," Salo said.

Arkansas is leading the charge on this. Rather than putting into the program those who would be eligible for Medicaid under the health care law expansion, Arkansas officials want to use the expansion funds to permit the newly eligible to buy coverage on the new insurance exchange created by the overhaul.

Salo says it's not at all clear that HHS will show the flexibility needed to get most of the states on board. On the one hand, it wants to accommodate states in order to widen the expansion. On the other, it doesn't want to compromise deeply held beliefs in the administration about how Medicaid benefits must be structured.

But it's clear that the administration sees the Arkansas approach as possibly a major opportunity to turn around states that are hostile to the health care law. And if it entails much heavier use of exchanges in those states, that would be a big plus for those new marketplaces, which are viewed with suspicion in parts of the country opposed to expanding coverage through the government.

Federal officials seem eager to make the Arkansas approach work. HHS Office of Health Reform Director Michael Hash recently told reporters that the administration is waiting eagerly for a formal proposal from the state. And in an April 1 letter to Arkansas Gov. Mike Beebe, HHS Secretary Kathleen Sebelius offered assurances "that we will work with you on this innovative approach." Sebelius also has had conversations in recent days with Pennsylvania Gov. Tom Corbett and Tennessee Gov. Bill Haslam. Salo adds that there are "nonstop" negotiations occurring behind the scenes involving officials from the Centers for Medicare and Medicaid Services and Arkansas, as well as with Ohio officials, who also are exploring a similar approach.

In her letter, Sebelius also noted the March 29 release of a Medicaid guidance document that "I hope will help inform states like Arkansas as you work to finalize your plan." But Salo also said the new information is an attempt to set limits on what the states can do.

A frequently asked questions document released with the guidance says: "You will have to do wraparound benefits" and "you will have to do beneficiary protection on cost-sharing." Salo said. In other words, coverage offered in exchanges to the Medicaid expansion population would have to meet certain Medicaid-specific criteria.

States led by Republican governors already are chafing at Medicaid regulations, saying the regulations explode their state budgets and should be replaced with a system of block grants.

"If CMS weren't quite so firm on those stances, you could get Tennessee to say yes right away," Salo said. "Yes, they want to make this work," he said of CMS officials. "But they also don't want to give away too much of the farm." The guidance material is "an attempt to lay out some parameters, to sort of fence in the possibilities. It's a way of saying 'we're committed to working on this but hey, Texas, we're not going to let you just do whatever you want'" with the federal Medicaid money.

Waiting for 'White Smoke'

"The folks in Arkansas and Ohio are working nonstop with CMS staff to figure out how to make this work," Salo said. "They are both actively figuring out how to make this work from a cost effectiveness standpoint, from an administrative simplification standpoint, from an operational standpoint." At some point, "there will be white smoke or there will be black smoke and we'll either have a Pope or not," he quipped. If there is an agreement with either or both of those states, that will produce a template that virtually every state not now committed to an expansion will take a look at. States would say, "'OK, I like that and I want to do it,' or 'I like most of that, can I tweak that a little bit here?'" Salo said.

But if the administration sees an opening through the Arkansas solution to tip the balance toward widespread adoption of the law, its opponents appear to be on to that fact. They may be starting to mobilize against the Arkansas solution.

The Tea Party-affiliated group Americans for Prosperity on its website describes the Arkansas plan as a "scheme to expand Medicaid."

"It doesn't matter if Medicaid is expanded under its traditional program or through a premium support model; 225,000 new Arkansans will be dependent on government for their health insurance," the group says. "Adding people through the Arkansas model will inflate the already high costs of Medicaid for taxpayers." The group warns that "this model is spreading like wildfire. Numerous states including Ohio, Tennessee, and Florida are discussing a similar expansion with HHS. What is bad for Arkansas is bad for these states as well."

By Emily Ethridge, CQ Roll Call

April 5, 2013 -- The health savings in President Barack Obama's fiscal 2014 budget request may largely be repeats from an earlier deficit-reduction proposal, including asking wealthier Medicare beneficiaries to pay more for services.

A senior administration official said the budget proposal incorporates an offer that Obama made to House Speaker John A. Boehner late last year. That plan included $400 billion in savings from health care programs, most of which came from cutting payments to drug companies and hospitals.

Additional details about changes to federal health programs beyond what was included in that offer were not available at the close of last week. The White House plans to release the full budget April 10.

Boehner, R-Ohio, never accepted Obama's proposal and rejected it again last week, noting that changes to the entitlement programs were dependent on Republicans accepting increased revenues.

"If the president believes these modest entitlement savings are needed to help shore up these programs, there's no reason they should be held hostage for more tax hikes," Boehner said in a statement. "That's no way to lead and move the country forward."

He said Obama "has moved in the wrong direction, routinely taking off the table entitlement reforms he's previously told me he could support."

Of the $400 billion in health program savings from Obama's proposal, $35 billion would come from charging wealthier Medicare beneficiaries higher premiums for services. Although Medicare already does this to an extent, the budget could ask some beneficiaries to pay even higher premiums, or increase the number of people paying the higher level.

Top Democrats including Senate Finance Chairman Max Baucus of Montana and Majority Whip Richard J. Durbin of Illinois have said they could support such moves. But beneficiary advocate groups oppose additional means testing, noting that wealthier beneficiaries already pay higher premiums for Medicare services and have paid higher payroll taxes that help fund Medicare.

"We already do a significant amount of income-relating in Medicare, so we don't need to do any more," said David Certner, legislative policy director at AARP.

Certner said the move would not help lower the cost of health care, but would instead shift more costs onto beneficiaries.

Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare, also criticized the additional means testing provision.

"This budget is not the balanced plan promised to Americans before November's election and will leave millions of middle-class families in even worse shape than they are today," he said in a statement.

The Obama proposal also includes $140 billion from reducing Medicare payments to drug companies, and $30 billion from cutting hospital payments. Some of that would come from lowering reimbursements to compensate hospitals when Medicare patients don't pay their costs.

Efforts to reduce hospital readmissions for Medicare beneficiaries would account for $50 billion in savings in the proposal.

In addition, Obama's proposal called for $25 billion in savings from Medicaid, program integrity activities, payment reductions suggested by the Independent Payment Advisory Board, and a ban on financial agreements between drug companies that delay the entry of generic drugs to the marketplace. The Supreme Court is currently considering a challenge of those agreements, known as "pay-for-delay" deals.

Sources said the offer made in December also included a path to permanently repeal the formula that dictates cuts to Medicare payments to physicians. The current patch (PL 112-240) expires Dec. 31, after which physicians would see a 24 percent cut in their reimbursement rates.

The budget proposal does not seem to include other Medicare changes that have been previously discussed, such as raising the program's eligibility age. Modifying the program's benefit structure to include a combined deductible for inpatient hospital and physician services has also been suggested as common ground between the parties, but it looks like Obama is not yet putting it on the table.

By Jane Norman, CQ HealthBeat Associate Editor

April 4, 2013 -- Members of Congress from both parties are signaling their unhappiness with a proposal by the Department of Health and Human Services (HHS) to put off for a year a requirement that workers at small businesses in the exchanges be offered a smorgasbord of competing health plans.

But as the Centers for Medicare and Medicaid Services (CMS) works to ramp up a huge infrastructure for exchange enrollment beginning Oct. 1, CMS officials' comments in the proposed rule indicate they feel there's only so much they and insurers can manage in the first year of exchange operation in 2014.

Administration officials said they wanted to ensure market stability, and also said they feared that insurers might shortchange their preparations for other insurance plans for the individual and small-business exchanges if they had to produce multiple small-business plans.

That approach was applauded by WellPoint, the parent company for many Blue Cross and Blue Shield plans across the country. The delay will "provide HHS, states and issuers with the time and flexibility necessary to adapt to new operational and technical requirements," said Anthony Mader, vice president for public policy, in formal comments Wellpoint submitted.

Under the proposal unveiled in March, CMS officials said they would like to delay an "employee choice" model for small businesses in the states with federal exchanges, and also give states with their own exchanges the chance to postpone.

Small companies now often offer just one plan to keep costs manageable, but under the health care law (PL 111-148, PL 111-152) in 2014 there were to be multiple plans available for workers in the Small Business Health Options Program, or SHOP. That program was intended to create a one-stop shopping experience for small businesses and their employees and make it easier to find coverage, lawmakers said.

But in its March proposal, CMS said it would not enforce that requirement until Jan. 1, 2015, for SHOPs in the states with federal exchanges. In the state-run exchanges, states could choose to require multiple plans or stick with just one plan.

Rep. Ron Kind, D-Wis., whose state will have a federal exchange, said he was disappointed with the delay. "Small businesses and workers need health care options so they can decide which plan is best for their needs and their budgets, and delaying those choices will mean higher costs for coverage," Kind said in a statement.

Republican Rep. Sam Graves of Missouri, chairman of the House Small Business Committee, sent a letter to CMS protesting the postponement of the choice option. On Fox News last week, Graves said the point of the small-business exchanges was to reduce costs for small business by offering competitive plans.

The delay is indicative of a "mess" as implementation of the law moves forward, said Graves. "And, you know, we're trying to figure out what the administration's delay is about, why they are delaying," he said.

On the Senate side, the Democratic chairwoman of that chamber's Committee on Small Business and Entrepreneurship expressed her displeasure as well. "Delaying the implementation of these requirements, as specified under the law as Congress intended, will serve to prolong and exacerbate health care costs that are currently crippling America's nearly 29 million small businesses," wrote Mary L. Landrieu of Louisiana.

The proposed delays, she said, leave unclear what advantage the SHOP exchange will hold compared to insurance that can be obtained outside the exchange. And if too few companies participate in the SHOP marketplace, that could be a problem, she said.

CMS officials said in the proposal that they are trying to make the shift to a new system smoother by not putting too much of a burden right away on insurers or on the new small-business marketplace.

Officials said they heard concerns that insurers couldn't meet the deadlines for submitting qualified health plans for the small-business program, or might be unable to complete the enrollment and accounting system changes that would be needed to accommodate multiple plans. Insurers also warned that all the work needed on SHOP could hinder their preparations for plans in the individual exchange, officials said.

They stressed that they did not make the decision in a vacuum. "HHS has consulted with a wide range of interested stakeholders on policy matters related to the SHOP, including through regular conversations with the National Association of Insurance Commissioners, health insurance issuers, trade groups, consumer advocates, employers, agents and brokers, and other interested parties," CMS officials said in the proposal. "HHS has also held many consultations with states about the SHOP, both individually and through group conversations."

But even groups usually allied with CMS are taking issue. Families USA said in its formal comments on the proposed rule that the organization is "very concerned" about the delay. Fewer employers will enter the SHOP exchange because they won't see an incentive, said the letter from Claire McAndrew, senior health policy analyst. And contrary to CMS' opinion that the market could be destabilized by implementing choice too soon, "we believe that the consequences of this delay would create a very unstable foundation for the SHOP exchange," said McAndrew.

Kaiser Permanente, representing its allied health plans, hospitals and doctors, agreed. The delay is "very unfortunate" and threatens the viability of the SHOP exchange, said Anthony Barrueta, senior vice president for government relations.

"Absent employee choice, the SHOP exchange offers no distinct advantage over the existing inefficient marketplaces," he wrote. "As small businesses and employees are introduced to the new marketplace to purchase insurance, a fundamental consumer benefit of the SHOP exchange will not be available."

The deadline for public comment passed last week. A final rule on the proposal has not yet arrived for review at the Office of Management and Budget, the last stop prior to publication.

By John Reichard, CQ HealthBeat Editor

April 4, 2013 -- The Medicare Payment Advisory Commission spent much of its first session taking stock of an experiment in team-based care it had a big hand in launching—and found much to stress about.

The topic? Accountable care organizations (ACOs), the form of health care delivery the health law envisioned would bring higher-quality, more efficient treatment to traditional Medicare. A shared-savings program under the law established payment incentives to create ACOs that would foster a more team-based care.

Much of the commentary about the ACOs at last week's meeting was critical. "We are starting to pick apart an idea we were among the first to support," commissioner Peter Butler of Chicago's Rush University Medical Center said midway through the conversation. While much uncertainty was expressed about how to proceed with the experiment, commissioners voiced little or no regret that it had been launched.

A briefing on ACOs by MedPAC staffers David Glass and Jeff Stensland showed that the organizations are now fairly plentiful in Medicare and operate in many states. Along with Medicare's new incentives, providers also are responding to pressure from commercial insurers to form the organizations.

So far 252 ACOs are taking the first steps toward coordinating treatment for 4.1 million beneficiaries.

Of those, 32 "pioneer" ACOs were launched in January 2012 and provide care for 860,000 Medicare beneficiaries. Another 27 ACOs with 370,000 beneficiaries were started in April, 2012; 87 opened in July with 1.3 million beneficiaries, and 106 more ACOs that serve 1.6 million Medicare recipients started up in January of this year.

Pioneer ACOs and regular ACOs have certain common features. The organizations have primary care providers who are responsible for coordinating care for Medicare beneficiaries. They may have a hospital or specialists too, but are not required to include them.

Both types of ACOs can assign people to their groups by contacting Medicare beneficiaries they've billed for primary care services and explaining that the ACO has an incentive to provide more coordinated, cost-effective care because the participating providers would share any savings achieved with the government. Patients have the right to opt out by saying they don't want data on their care included in determining whether the ACO meets quality and savings targets.

Both types of ACOs also must distribute bonuses to doctors who meet quality of care and savings targets. They have to define ways to promote evidence-based medicine. They have to report on quality and cost measures. And they must be "patient-centered." Beneficiaries are free to choose any provider inside or outside of the ACO.

Pioneer ACOs differ from regular ACOs in that they have larger minimum populations – 15,000 versus 5,000. They agree to move to reimbursement that for some services are fixed per capita payments. They also get to keep a higher share of savings they produce.

CMS would like ACOs to be subject to both rewards for meeting quality and savings targets and penalties for missing them. However, MedPAC staff said that only 8 of the 220 regular ACOs have agreed to be subject to both rewards and penalties. The other 212 only get bonuses if they meet targets, but pay no penalties if they miss them.

Commission staff members also assessed the relative strengths and weaknesses of ACOs and Medicare Advantage plans. MA plans have more tools to control service use but have higher overhead costs. ACOs have lower overhead because they don't enroll people the way MA plans do, negotiate rates, or process claims.

But the ACOs have less ability to control costs. That's because they have no authority to limit the size of provider networks. They can't demand "prior authorization," which requires a doctor to get plan approval before providing a given service. And they have no ability to assess higher out-of-pocket charges to discourage utilization.

Given their limited ability to control costs, ACOs tend to be clustered in markets where fee-for-service spending is relatively high and MA plans have shown they can reduce spending.

Commissioners expressed various concerns about ACOs, including their limited power to deliver savings. One concern relates to the fact that hospitals in ACOs have a limited incentive to reduce spending because any bonuses they get as a result are smaller than the revenue losses they suffer from Medicare if they deliver less care.

MedPAC Chairman Glenn Hackbarth said he was worried about an eventual beneficiary backlash against ACOs. He said a system in which the ACO and the government share in any savings but beneficiaries do not could, over time, create resentment. And that could lead to more Medicare beneficiaries opting out.

Hackbarth wondered what reaction ACOs get from beneficiaries when they "assign" them. "It does get beneficiaries' attention and they do get a lot of telephone calls," a MedPAC staffer said. But based on interviews with selected ACOs, only about 5 percent of those assigned to the organizations opt out.

Hackbarth's overall assessment of ACOs was that they are a step in the right direction, but they suffer from design features that limit policymakers' ability to improve the efficiency of the traditional Medicare fee- for-service system. They are at best an interim step, he said.

Butler noted that hospital managers face many goals from Medicare. They include not only establishing ACOs, but meeting dozens of quality measures, making effective use of health information technology, and responding to incentives under Medicare's value-based purchasing programs. It's hard to know where to focus management energies, Butler said.

But, he added, that in order to be credible to commercial insurers, hospital officials have to show they are working toward more efficient care. The ACO structure helps providers do that. On balance, providers are learning a lot and the ACO structure is forcing them to reorganize care in a way that ultimately will benefit the health of the population they treat, Butler said.

Commissioner Craig Samitt of the Dean Health System in Madison, Wis., made a similar point. He said he's worried that three years from now the commission will decide ACOs aren't worthwhile because on average they may not show great quality or efficiency gains. But Samitt said that concern about averages shouldn't blind commissioners to another benefit of ACOs. And that's that some ACOs will prove to be top performers and will identify best practices that other providers can then follow.

Overall, commissioners weren't clear about how to remedy the flaws of ACOs to make them more effective in the future. But they indicated that the beginnings of more coordinated treatment were worthwhile. And they expressed relief that the commission is now beginning the process of figuring out where to go from here.

By Jane Norman, CQ HealthBeat Associate Editor

April 2, 2013 -- Officials need to do more to make sure insurance companies are supplying complete and accurate information to a government website that helps consumers locate health insurance policies, the Health and Human Services (HHS) Office of Inspector General said in a recent report.

The issue is of particular interest because the HHS "plan-finder," which was mandated under the health care law (PL 111-148, PL 111-152), is a precursor to the interactive health insurance exchanges that are supposed to be up and running by later this year. The finder, which includes data on individual and small group policies, is the first-ever attempt by the government to help Americans find insurance and compare options. It's supposed to display information in a consumer-friendly way, and also provide information on public programs like Medicaid. However, consumers can't actually purchase insurance through it, unlike the exchanges.

Launched in July 2010 at healthcare.gov, the finder had 2 million visitors between then and July 2011, the report said. As of March, it included data from about 8,000 private health insurance products.

The Center for Medicare and Medicaid Services (CMS) contracts with a private firm for data collection, storage and maintenance, and the estimated cost of management and operation of the finder in fiscal 2012 was $17.2 million, the report said.

The OIG said in the report that most private insurers reported data as required for use on the site. But CMS officials failed to follow up with those that didn't submit detailed pricing and benefit information, said the inspector general. About 13 percent didn't submit required reports in November 2011 and January 2012, said the report.

In addition, CMS has not required insurers to certify as to the completeness of the data they submitted, the report said. CMS officials also have been unable to identify all the insurers who are required under the 2010 law to submit basic company and product information, said the report.

Also, "the products and plans displayed were not always available for sale or were not always recognized by insurers' representatives," the report said. And there were some inconsistencies that might make the data confusing to consumers, it said.

CMS officials generally agreed with the inspector general's findings, the report said, and they have begun to make changes to address them. But in a letter included with the report, acting CMS Administrator Marilyn Tavenner also said that the report may "overstate" problems with the finder and that officials reach out to insurers when errors are reported. Regulations currently under review for 2014 should help make the finder operate more efficiently, she said.

By Jane Norman, CQ HealthBeat Associate Editor

April 2, 2013 -- The insurance industry landed a victory last week when the Obama administration backed away from a proposed cut in Medicare Advantage plans. And insurers also scored a second coup when officials delayed proposed changes in the star rating system for awarding bonuses to plans.

Under the five-star rating system, Medicare Advantage plans are rated from one star to five stars, with five being the best. The idea is to give consumers a better idea about the quality of their private plans.

The star scores are based on how well plans do on more than 50 performance measures, and in 2012 the plans began receiving bonuses based on these ratings. Most enrollees are in plans with at least three or three and a half stars.

But in an initial proposal in February, the Centers for Medicare and Medicaid Services (CMS) proposed a new method for computing the star scores that got a cold shoulder from both insurers and members of Congress.

House members in a March 27 letter protested that the CMS proposed change could mean some "popular" plans would find it harder to achieve four or five stars, and they asked the agency to delay implementing the new policy.

"Further changes to the star rating should be transparent, made prospectively after the end of the current plan performance period and allow for input from the stakeholder community and members of Congress," the lawmakers said.

In their response last week, CMS officials said they have been considering various ways to better reflect the true performance of the private plans. Currently, each individual quality measure receives a star rating and the stars are then averaged to obtain an overall summary score. CMS proposed to instead use a system in which scores for each underlying individual measure were computed and then averaged, thinking it might bring more precise results.

But in their announcement last week, officials said they have now opted to delay changes until more research can be done. "We hope to present the results of our additional research to plans this summer," they said.

• Final Medicare Advantage Call Letter (PDF)