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April 17, 2006

Washington Health Policy Week in Review Archive 2b63f45e-bab7-41d7-bebb-109100a9a6c1

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AARP Says Drug Prices Continue to Rise Faster than Inflation

APRIL 10, 2006 -- The cost of brand-name prescription drugs has outpaced the rate of inflation for the sixth year in a row, a new AARP report says.

The report, released Monday, found that the average price drug makers charged wholesalers and other direct purchasers increased 6 percent in 2005. Inflation over the same time period rose 3.4 percent.

Prices rose 40 percent on average over the six-year period, compared with a 17 percent rise in inflation, according to the report.

"Since these price increases charged to wholesalers are generally passed on in the prices consumers ultimately pay, brand-name drugs have become substantially less affordable to consumers at the same time they are becoming ever more essential to good medical care," John Rother, AARP's director of policy and strategy, said in a press release.

AARP says higher drug prices contribute to higher prescription drug plan premiums and higher out-of-pocket costs for consumers.

The Pharmaceutical Research and Manufacturers of America (PhRMA) takes issue with the AARP report. The industry group called AARP's methods "deeply flawed" and its findings incorrect.

PhRMA, however, uses a different measurement than AARP. The industry group prefers to compare prescription drug price increases with overall medical cost inflation, which was 3.8 percent in 2005.

PhRMA says that government data show that retail drug prices increased only 3.9 percent in 2005. The group said AARP based its findings on non-public data and that the group did not include increases in rebates and discounts seniors received through the Medicare drug benefit (PL 108-173).

"Their fuzzy math and overblown rhetoric have worn thin," PhRMA senior vice president of communications Ken Johnson said in a statement. "The U.S. government's publicly available consumer price data clearly show that inflation of prescription drug prices was in line with overall medical care cost inflation for the past several years."

The AARP study used a sample of 193 brand-name drugs the group says are the "most widely used by older Americans." The group produced the report as part of its "Rx Watchdog" project, a campaign that monitors changes in manufacturers' drug prices.

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Bush Urges Congress to Pass HSA Tax Breaks

APRIL 13, 2006 -- President Bush on Thursday urged Congress to enact tax breaks he has proposed as part of a plan to expand health savings accounts (HSAs) that Bush and other proponents say would lower national health care costs.

Speaking to the National Small Business Week Conference in Washington, D.C., Bush touted HSAs as a cure for burgeoning health insurance costs shouldered by small businesses. The administration says its expansion proposal would lower health care prices by forcing consumers to make more informed, cost-conscious decisions.

Making premiums for HSA-compatible insurance policies deductible from income taxes would remove one obstacle to increasing use of the accounts, Bush said, adding that income and payroll taxes on health insurance provided through the workplace are already waived.

"So Congress needs to end the discrimination in the tax code and give Americans who buy HSA policies on their own the same tax breaks that those who get their health insurance from their employers" receive, Bush said.

He also called on Congress to eliminate taxes on out-of-pocket spending through HSAs. The tax code limits the total tax-free HSA contribution.

Bush included both tax measures in his fiscal 2007 budget proposal. They are part of a package aimed at increasing participation in HSAs. The accounts, which were created in the 2003 Medicare drug law (PL 108-173), allow individuals who sign up for high-deductible health plans to contribute and withdraw funds to cover health care costs tax-free. The administration says once patients are forced to pay more costs out of pocket, they will begin to comparison shop and request quality data, eventually driving down health care costs.

To that end, the Bush administration has said it will push legislation requiring hospitals and other health providers to disclose their prices if those groups do not take steps on their own to do so.

"Small businesses can save money under this plan," Bush told the conference audience, hosted by the U.S. Small Business Administration.

Given budget pressures, it seems unlikely Congress will pass added tax breaks for HSAs this year. Senate Finance Committee Chairman Charles E. Grassley, R-Iowa, has said he doesn't expect his panel to mark up White House proposals to expand tax breaks for HSAs, citing the lack of a filibuster-proof majority to support them

Not everyone is convinced Bush's plan will accomplish its goal of lower costs. Some critics say greater transparency in pricing and quality will not translate into lower costs.

"[I]t is unreasonable to expect that information on costs and quality will cause health markets to perform like markets for other goods and services," Commonwealth Fund President Karen Davis and senior program officer Sara R. Collins wrote in an analysis of price transparency. "Patients will never have as much information about the care they need as the physicians who care for them."

The Commonwealth Fund also criticizes Bush's logic that making patients more responsible for paying their bills will make them more careful consumers. Americans already pay more out of pocket than people in countries with lower health costs, Davis and Collins wrote.

On Thursday, Bush claimed that cash contributions into HSAs plus the premium for the linked health insurance plan are "generally less than third-party-payer systems."

Bush also took the opportunity Thursday to stump for the Medicare prescription drug benefit, which has been the target of criticism from Democrats and moderate Republicans.

"This is a good deal for American seniors," Bush said. "And we're working hard to make sure that American seniors realize there is a fine opportunity for them to improve their lot in life."

The drug program, launched Jan. 1, has caused headaches for the administration. Numerous proposals to change it have been introduced in Congress. Among them have been several attempts to delay the May 15 enrollment deadline.

"People continue to be paralyzed by the array of confusing private drug plan choices and anxious that they will be locked into a plan that does not meet their needs," Robert M. Hayes, president of the Medicare Rights Center, said in a statement Thursday that urged an enrollment extension until Dec. 31, 2006.

Beneficiaries who enroll after May 15 will have to pay higher premiums, which escalate with each month they delay.

Some lawmakers also want to allow seniors to switch plans after the enrollment deadline if they are unhappy with their initial choice. Seniors can change plans only once and must do so before May 15. Dual eligibles—beneficiaries who are eligible for both Medicaid and Medicare but have been shifted to Medicare for their drug coverage—can change plans on a monthly basis.

Though Bush did not mention it Thursday, he has said repeatedly he does not believe the enrollment deadline should be extended.

Separately Wednesday, AARP released a study that found 78 percent of seniors enrolled in the drug program are happy with it, with only 20 percent of respondents saying they did not feel they were saving money.

Sixty-three percent of those who already had prescription drug coverage felt the Medicare plan was saving them money over their old plan, the report said.

AARP's Medicare Rx Plan, administered by UnitedHealth Group, is one of the health plans offered to Medicare beneficiaries. AARP officials have said money made from health plan sales is used to fund services for AARP members.

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CMS Estimates 4.6 Percent Medicare Physician Payment Cut for 2007

APRIL 10, 2006 -- The Medicare program is projecting a 4.6 percent payment cut for physicians next year due to higher spending on physician services.

Increased Medicare spending on evaluation and management services, imaging, and laboratory and other tests all helped fuel the proposed payment reduction, according to a letter the Centers for Medicare and Medicaid Services sent to the Medicare Payment Advisory Commission (MedPAC), which advises Congress on Medicare payment issues.

Medicare spending on physician services grew 8.5 percent in 2005. Growth in the volume and intensity of physician services represented 7.5 percentage points of the 8.5 percent growth in total physician spending, CMS Center for Medicare Management Director Herb B. Kuhn wrote in an April 7 letter to MedPAC Chairman Glenn M. Hackbarth.

American Medical Association Chairman Duane M. Cady said the proposed 2007 reduction will be the first in a series of cuts that will total 34 percent over the next nine years while physicians' practice costs will increase 22 percent.

"The government is asking physicians to do the impossible: Keep seeing patients and improve the quality of care, while accepting drastic cuts that don't come close to covering the cost of health care," Cady said in a statement. "Many physicians are left with no choice but to limit the number of Medicare patients in their practices."

Medicare physicians were supposed to have their payments cut 4.4 percent on Jan. 1, 2006, but Congress froze that payment cut as part of the budget reconciliation package (PL 109-171) passed late last year before adjourning.

In 2005, increases in Medicare spending for evaluation and management services accounted for 31 percent of the overall physician spending growth, while increases for spending on imaging services accounted for 27 percent. Spending on laboratory and other tests accounted for 15 percent of the overall spending growth, according to CMS. Spending on procedures made up 29 percent of the overall spending growth. Within the category of "minor procedures," the fastest-growing procedures include physical therapy, podiatry, and dermatology, CMS said.

Medicare payment rates for physicians are updated annually by a calculation based on inflation in physician costs and then adjusted further according to how Medicare spending compares with a target rate of growth, known as the sustainable growth rate (SGR). If spending is less than the SGR, doctors' payment rates are increased. If the costs are more than SGR, doctors will see a reduction in rates they are reimbursed.

While there is great dissatisfaction in Congress with the SGR formula, there is little momentum to overhaul it this year. But Congress could act to reverse the scheduled cut for 2007.

In recent years, Kuhn wrote, high rates of volume and intensity increases of 6 to 8 percent per year have exceeded the average annual 2 percent increase in the statutory volume and intensity factor in the SGR formula during the same years, resulting in negative Medicare updates for physicians.

CMS' current estimate of the sustainable growth rate for 2007 is 0.7 percent.

The figures, Kuhn noted in the letter, are preliminary and may be revised as more complete data become available.

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CMS Proposes 3.4 Percent Payment Increase for Acute Care Hospitals

APRIL 13, 2006 -- Late Wednesday the Centers for Medicare and Medicaid Services proposed a 3.4 percent payment increase in fiscal 2007 for inpatient services at acute care hospitals, with more than 1,000 hospitals in rural areas seeing an average increase of 6.7 percent.

The proposed rule—which would be fully implemented by fiscal 2008—would also base the weights assigned to diagnosis related groups (DRGs) on hospital costs rather than charges. The DRGs also would be adjusted for patient severity, CMS officials said in a news release.

The estimated market basket increase of 3.4 percent in fiscal 2007 would increase payments to acute care hospitals by $3.3 billion.

"We are taking important steps to make payments fairer to hospitals and to assure beneficiary access to services in the most appropriate setting," CMS Administrator Mark B. McClellan said in a statement. "We look forward to comprehensive feedback from hospitals, suppliers, and other stakeholders that will help to refine and improve the final version of this rule."

CMS said the proposed rule would be the start of the first significant revision of the Inpatient Prospective Payment System (IPPS) since its implementation in 1983.

CMS said the proposed changes reflect recommendations from the Medicare Payment Advisory Commission (MedPAC) and respond to some lawmakers' concerns that the current system creates incentives for certain hospital to "cherry-pick" more profitable cases. The changes also would significantly affect payment to specialty hospitals, whose growth has been slowed by statute or regulations since passage of the Medicare drug law in 2003.

CMS is considering a two-step process for changing the current DRG system. The first step, set out in the proposed rule, would assign weights to DRGs based on hospital costs rather than hospital charges. That would "eliminate biases in the current DRG system arising from the differential markup hospitals assign for ancillary services among the DRGs," according to CMS. The new DRG weights would go into effect Oct. 1.

The second step, currently scheduled for fiscal 2008, would replace the current system of 526 DRGs with either the proposed 861 consolidate severity-adjusted DRGs or an alternative security adjusted DRG system developed in response to public comments CMS is soliciting on the issue. CMS is also considering ways of improving how the current DRG system recognizes the severity of cases by fiscal 2007.

When both steps are fully implemented, CMS said, hospitals can expect to be more accurately paid for their services.

CMS is also proposing to increase the "outlier threshold" for fiscal 2007 to $25,530, up from $23,600 in 2006. The proposed increase, CMS said, is based on data that suggest "a consistent pattern of inflation in hospital charges which affect hospital cost-to-charge ratios used in determining eligibility for outlier payment." The proposed fiscal 2007 threshold is expected to keep aggregate hospital outlier payments within the target of 5.1 percent of total payments under the IPPS.

Hospitals receive an additional payment—called an outlier payment—if the estimated costs of an individual case exceed the Medicare payment rate by a threshold amount that is set by Medicare regulations.

The proposed rule will be published in the April 25 Federal Register. Comments on the proposed rule will be accepted until June 12 and a final rule will be published later this year, CMS said.

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Study Finds Barriers Exist to Patient-Centered Care

APRIL 10, 2006 -- Less than one-quarter of primary care physicians are achieving the highest levels of patient-centered care in their daily practices, according to new research published Monday.

The findings, published in the Archives of Internal Medicine, found that nearly two-thirds of primary care physicians allowed same-day appointments for patients who requested them, and 65 percent said they receive information on a timely basis about the results of patient referrals.

However, the study, compiled by Commonwealth Fund researchers, also found a gap between attitudes and behavior in the area of patient-centered care. Eighty-seven percent of primary care physicians support improved teamwork between physicians and other medical professionals to improve patient care, while 83 percent of primary care physicians surveyed agreed that patients should have access to their own medical records. But the report concludes that just 16 percent of primary care physicians use e-mail to communicate with their patients and 12 percent said they planned to use e-mail with their patients in the next year.

About three-quarters of primary care physicians surveyed have experienced some problems with the availability of patients' medical records, test results, or other relevant information at the time of a scheduled visit, and slightly less than half, or 48 percent, sent patients reminder notices about regular preventive or follow-up care.

Primary care physicians surveyed said they faced significant barriers to adopting more practices to improve patient-centered care. According to the survey, 63 percent of physicians reported that training and knowledge stopped them from implementing patient-centered practices while 84 percent cited cost as a barrier.

Areas for improvement include using more information technology, team-based care, and collecting feedback from patients.

"We know that patient-centered care improves the quality of health care and the survey findings clearly tell us that physicians are moving in the right direction, but they need adequate support," one of the study's authors, Anne-Marie Audet, said in a release. "The challenge will be to get them the technical assistance and financial incentives that will allow them to integrate these patient-centered care practices."

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The Health Care May Be (Almost) Universal, But Not So the Kudos

APRIL 14, 2006 -- While a new Massachusetts law to cover virtually all of the state's uninsured residents has drawn praise from across the political spectrum, the kudos are not universal.

"This legislation provides little hope for middle-class families" and "sends the wrong message to other states looking for answers to their own health care crises," AFL-CIO President John Sweeney said of the measure signed into law April 12 by the state's Republican governor, Mitt Romney. The law requires individuals without coverage to obtain it, offering subsidies to low-income residents to do so.

Sweeney lauded those sliding-scale subsidies but said they wouldn't be available once a worker's income reaches $28,000 a year. That would mean paying 15 percent of pretax income—a "huge" outlay for a working family—for the average plan, he said. Cheaper policies available to the uninsured would be so stripped down as to be "coverage in name only," according to Sweeney. "Universal health care should mean just that—affordable health care for all, not just for the top and the bottom."

Sweeney also took a swipe at Romney for vetoing a provision of the law that would have required employers with more than 10 workers to pay $295 for each employee not provided with health insurance.

The sum is "meager" compared with what working families would have to pay for an average plan, "but in Romney's eyes, even that was too much to ask of his business friends," Sweeney said. Romney said the plan will be workable without the assessment.

Sweeney's criticism aside, the Massachusetts law was the product of efforts by a remarkably disparate group. Among those attending the signing ceremony and praised by Romney for their efforts were federal Medicaid director Dennis Smith, Heritage Foundation analyst Robert E. Moffit, Sen. Edward M. Kennedy, D-Mass., and Massachusetts Institute of Technology economist Jonathan Gruber.

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