By Kerry Young, CQ Roll Call

July 27, 2015 -- Federal officials and lawmakers are embarking on increasingly bold experiments to try to improve the long-term finances of Medicare, which grew over the past half-century to become the nation's single most influential purchaser of health care.

Medicare officials have accelerated the shift from a fee-for-service model of payment, which has dominated Medicare since the program signed into law on July 30, 1965. Medicare officials are coaxing—and increasingly seeking to compel—doctors and hospitals into participating in test programs that tie reimbursement to the results delivered for patients instead of merely rewarding volume. 

A proposed test program unveiled earlier this month would force many hospitals to participate in a test involving knee and hip replacements, the most common surgeries for people in Medicare. The federal health program for the elderly and disabled covered more than 400,000 of the procedures in 2013 at a cost of more than $7 billion.

Hospitals in 75 selected geographic areas, including New York, Los Angeles, Miami, and Tampa, might have to repay Medicare in the future if hip and knee replacements performed in their facilities show poor results. The Centers for Medicare and Medicaid Service (CMS) already has received criticism from hospital groups for its plan to make participation mandatory.

"They showed a lot of guts doing that. I know people were shocked by that," Tom Scully, who led CMS from 2001 to 2003, said about the hip-and-knee replacement experiment. "They should have done this 20 years ago. It's absolutely a no-brainer. So God bless them for doing it."

Scully, who led CMS for President George W. Bush, also said that the Obama administration is doing well with its overall efforts to move toward a greater use of bundled payments for health services. Congress gave Medicare new tools through the 2010 health law to test new payment models, including through the CMS Center for Medicare and Medicaid Innovation, which received $10 billion over a decade.

This year, Congress set in place incentives through its overhaul (PL 114-10) of physician fees that are expected to drive doctors to reduce their reliance on the fee-for-service approach.

The trustees for the Medicare program assumed that all physicians that accept Medicare patients will participate in alternative payment systems by 2039, up from 60 percent in 2019, according to an annual report released last week. 

If the efforts at tying payments to quality falter and Medicare cost growth is not curbed, the trustees warned that Medicare expenses could consume 9.1 percent of the nation's economy, or gross domestic product, by 2089, up from 3.5 percent of GDP last year.

Such growth "would substantially increase the strain on the nation's workers, the economy, Medicare beneficiaries, and the federal budget," the report said.

The efforts to overhaul Medicare's payments take time to show results, but they appear to be on track, said Keith J. Fontenot, who aided the development and implementation of the 2010 health law while serving in the Office of Management and Budget. The approach in the proposed pilot program for hip and knee replacements could be applied to other procedures and is just an example of the kinds of changes underway for Medicare, he said.

"It's a fundamental reshaping," he said. "But it's more like a glacier than an earthquake" in terms of speed.

Still, it's never clear how any attempts to slow Medicare spending will pan out and whether lawmakers or regulators in the future will change them. 

The trustees noted in their report that they earlier had expected changes made through the Affordable Care Act to cause a drop in the enrollment of insurer-run Medicare Advantage plans. In fact, enrollment continued to increase, with the trustees now projecting that 33 percent of people in Medicare will be in Advantage plans in 2018, up from 30 percent last year. Despite the steps taken in the 2010 law, the program has remained financially attractive to insurance companies, according to the report. Part of the reason is that CMS officials softened some proposed cuts when they finalized the payments. 

"These payments are higher because of various policy decisions that increased payments to health plans" and due to differences in assessing the health of patient populations, the trustees said.

By Melanie Zanona, CQ Roll Call

July 30, 2015 -- Increased competition among insurers vying for customers on the health law's insurance exchanges helped drive down premiums in 2015, the Health and Human Services Department (HHS) said in a report Thursday.

During the 2015 open enrollment period, 86 percent of consumers shopping on the exchanges established by the Affordable Care Act could choose from at least three issuers, up from 70 percent in 2014, according to the report on competition and choice.

Most counties gained at least one issuer since the previous open enrollment period, while 33 percent held steady and only 8 percent lost an issuer, HHS said.

"Economists believe that an appropriate long-term metric for success in the marketplace is whether we're able to achieve and maintain the appropriate number of issuers to maintain vigorous competition," said Richard Frank, assistant secretary for planning and evaluation, during a recent press call. "Because there's more choice, we have a better chance of getting consumers' preferences met."

The report comes amid concerns over the rising costs of exchange plan premiums, with some insurers announcing rate hikes for the 2016 as a result of higher-than-expected doctor visits and drug costs. A series of health insurer mergers is also generating concern about the broader competitive landscape, with provider groups urging the Obama administration to review the deals.

HHS officials said the entrance of new issuers puts pressure on existing plans to keep rates low. The report found that in counties with three or more issuers, premiums were 9 percent lower than those with only one or two issuers to choose from.

"They force the incumbent, who is being threatened, to protect their market share," Frank said.

Overall, average premium increases between 2014 and 2015 were generally low for silver-tier plans, which cover 70 percent of costs. The average premium growth rate was 2 percent in the second-lowest silver plan, and premiums decreased in some areas, according to the HHS report. When pressed about the upcoming enrollment period, Frank said "so far, the fundamentals look pretty good and there will be competition."

By Jad Chamseddine, CQ Roll Call

July 29, 2015 -- A series of major health plan mergers is adding pressure on Congress to intervene to keep the marketplace competitive and hold down costs for consumers.

The 120,900-member American Academy of Family Physicians expressed concern in a letter to Senate and House leaders last week that three deals announced in quick succession could lead to "decreased choice for consumers, higher costs for purchasers and potentially establish mass disruptions in continuity of care due to changing and narrowing networks of physicians and hospitals."

Anthem Inc. said last week it plans to buy Cigna Corp. for $54.2 billion in a deal that would create the largest U.S. health insurer. Aetna Inc. agreed earlier this month to acquire Humana Inc. in a deal valued at $37 billion, the same week that Centene Corp. unveiled plans to buy HealthNet Inc. for $6.8 billion.

The doctors group is concerned that consolidation won't end there. "Lying in wait is UnitedHealthcare, currently the largest for-profit insurance company in the country," the trade group wrote. UnitedHealthcare didn't immediately respond to a request for comment.

Similar concerns were voiced by other medical trade organizations such as the American Medical Association (AMA). "The lack of a competitive health insurance market allows the few remaining companies to exploit their market power, dictate premium increases and pursue corporate policies that are contrary to patient interests," AMA President Steven J. Sack said in a statement after Anthem's announcement.

American Hospital Association CEO Richard Umbdenstock echoed those sentiments, urging the Justice Department, Congress, and other government agencies to further scrutinize "these worrisome deals."

"We urge the United States House of Representatives and Senate to carefully evaluate these proposed mergers to ensure that the alignment of these companies promotes the best interest of all patients," the academy said, "including Medicare and Medicaid beneficiaries, and the physicians and other providers of their car."

Hearings Set

The deals already have prompted the House Judiciary Committee to schedule a hearing on competition in the health care industry for early September when Congress returns from its August recess. Chairman Robert W. Goodlatte, R-Va., previously held hearings on increased health care consolidation in September 2013.

Goodlatte blamed the Affordable Care Act for the increase in health care mergers. "Without question, the enactment of Obamacare has prompted increased consolidation in the health care industry," he said.

Rep. Tom Marino, R-Pa., added that since Congress passed the law, "we have seen one negative impact on the healthcare industry after another."

The Senate Judiciary Antitrust Subcommittee is also scheduled to hold a hearing in September to discuss the mergers and their effects on health care industry competition.

"If each of the recently announced transactions is completed, the number of major health insurers in the United States would shrink to three," said Judiciary Antitrust Subcommittee Chairman Sen. Mike Lee, R-Utah. "It is imperative that we closely examine changes in the health care market, and what has caused these changes, to ensure that consumers are not harmed and continue to receive quality health care at a competitive price."

While such hearings cannot derail health care company mergers, they can help shape public opinion about a deal and potentially put more pressure on the regulatory agencies reviewing the combinations.

House and Senate hearings on cable company Comcast Corp's unsuccessful attempt to acquire Time Warner Cable Inc. featured criticism from Democrats and Republicans.

Regulators this year indicated they would block the deal, prompting Comcast to abandon the transaction.

By Kerry Young, CQ Roll Call

July 28, 2015 -- The six-year slowdown in medical inflation has ended, federal researchers report. The aging population, stronger economic growth, and a rise in the number of Americans with health insurance is refueling medical cost increases.

But steps taken by insurers and Congress to rein in health care spending likely will temper the rate of growth over the next decade, actuaries, and economists for the Centers for Medicare and Medicaid Services (CMS) said in an annual report on health spending. They predict moderate increases in historical terms, even as baby boomers require more medical care, economic growth continues, and more expensive drugs are expected to reach the market.

National health spending rose 5.5 percent to $3.08 trillion last year over 2013, when it rose 3.6 percent. The pace marks the first time that inflation topped 5 percent since 2007, when the last recession and its lingering effects held annual increases close to historically low rates, the researchers said. Over the next decade, the average annual gain in health spending is expected to be 5.8 percent, with the annual increase predicted to be 6.2 percent in 2024.

Lawmakers are closely watching the pace of growth in health expenses, which are central to debates about the federal budget. The costs of caring for a rising number of older Americans have long been expected to grab an expanding share of government spending, which could then reduce the funds available for other national priorities.

The predicted national increases still lag the average of about 9 percent growth per year in the three decades prior to the last recession, CMS researchers said.

"There are factors that would make it difficult to see that growth come to those high levels of the 1980s and 1990s," Sean Keehan, a CMS economist and lead author of the study published in Health Affairs, said at a press conference.

The CMS report expresses confidence in steps taken in recent years by both public and private insurers to slow medical cost increases, which will still inevitably rise due to the aging of the population and advances in science. Total spending is forecast to hit $5.4 trillion by 2024, which would represent about 20 percent of the nation's economy, or gross domestic product. It now consumes about 18 percent of GDP.

Combined enrollment in Medicare and Medicaid will rise to about 148 million people by 2024, from 119 million beneficiaries this year. Attempts to link Medicare payments to productivity may restrain growth in the federal health program below what it would be otherwise, even with the number of enrollees rising, said the CMS researchers. The number of people covered by private insurance plans will rise from 190.6 million to 208.2 million due in part to coverage expansion in the 2010 health law, the researchers said.

Insurance companies are designing plans to shift more direct costs to consumers, with high-deductible options now accounting for one in five coverage options offered by employers to their workers, the CMS researchers said. "Therefore, even among the privately insured, many consumers are still reporting judicious use of medical care because of cost concerns," they wrote in the paper.

As a result, drugmakers may find it a tougher sell to get costly new medicines approved by health plans, especially when there are cheaper alternatives, CMS researchers said. The uproar seen last year around the introduction of Gilead Sciences Inc.'s hepatitis C pill Sovaldi may prove to be an outlier in a world with less generous insurance.

CMS researchers cited increased competition for hepatitis C drugs as one of the factors expected to slow the gain in national health spending to 5.3 percent this year from the 5.5 percent increase in 2014. Gilead initially marketed its Sovaldi pill, approved by the Food and Drug Administration in late 2013, at a price of $1,000 a pill. That since has been reduced by competition and negotiations.

Total prescription drug spending for the nation rose by 13 percent to $305 billion last year, but is predicted to rise by only 8 percent this year to $328 billion.

CMS researchers noted at the press conference that another drug introduced with an eye-catching price tag may not be covered widely by many insurers. Sanofi SA and partner Regeneron Pharmaceuticals Inc. last week announced the FDA approval of an injectable cholesterol medicine Praluent, which is intended to cost about $40 a day. Many potent generic cholesterol pills cost under $1 a pill, CMS researchers said.

Still, it's not possible to know whether pharmaceutical companies will produce new medicines that will win broad insurance coverage, Keehan said.

"We don't know which drugs will be approved and how effective they will be," Keehan said.  "It certainly is an area of uncertainty."

By Kerry Young, CQ Roll Call

July 30, 2015 -- Medicare officials are encountering substantial backlash to their bid to broaden the hospital readmission penalty program to include a form of pneumonia that tends to occur in the most frail patients.

Groups including the American Geriatrics Society want the proposal dropped from Medicare's fiscal 2016 payment rule for care provided to people admitted to hospitals. The Centers for Medicare and Medicaid Services (CMS) is expected to soon unveil its final version of this rule, which it released in draft form in April. The annual inpatient hospital regulation will address dozens of policy issues regarding procedures. It also will change payment rates for services.

CMS wants to change the readmission penalty starting in fiscal 2017 to include cases of aspiration pneumonia, which occurs when food, liquid and vomit are advertently drawn into the lungs. Medicare officials argued that this change regarding pneumonia in the penalty program would "better represent the complete population of a hospital's patients" who are treated for the lung infections. Pneumonia with a root cause of bacterial and viral infections already are incorporated into the penalty program.

The American Hospital Association, the American Medical Association and the Association of American Medical Colleges are among the groups objecting to the proposed expansion. Aspiration pneumonia tends to occur when people have been so weakened by disease that their ability to swallow is affected, groups told CMS in comments on the payment rules. It's seen in people left debilitated by strokes as well as those suffering from dementia.

The leaders of the American Geriatrics Society told CMS that hospital staff might seek the wrong treatment for these patients in an attempt to avoid penalties.

"We fear that the unintended consequences of this policy would far outweigh the benefits," Steven R. Counsell, president of the group, and Nancy E. Lundebjerg, its chief executive, said in a June letter to CMS." This policy could lead to increased feeding tube placement (which does not decrease aspiration risk, according to the medical literature and expert opinions, but nonetheless is a local practice pattern in some parts of the U.S.)."

Previous hospital payment rules established a framework for the readmission penalty program, which was mandated by the 2010 health law (PL 111-148, PL 111-152). Other conditions weighed in the penalty calculations are heart failure and heart attacks. The program contributed to a reduction of about 100,000 hospital stays in 2013, according to recent testimony by the Medicare Payment Advisory Commission. 

CMS will respond to the objections made about the aspiration pneumonia proposal for the penalty program in the final version of the fiscal 2016 hospital payment rule that has been under review since July 24 by the Office of Management and Budget, which does a last check on federal regulations before they are released. 

July 31, 2015 -- Medicare officials have released final annual payment rules that cover programs that collectively spend more than $125 billion annually. The new regulations address policy issues affecting hospital, psychiatric, rehabilitation, and hospice care.

The Centers for Medicare and Medicaid Services (CMS) had released draft versions of the four payment rules in April. CMS also reminded health care professionals of the Oct. 1 deadline for conversion to the new ICD-10 billing codes. 

The rules impacted:

• Hospital inpatient payments. The biggest of the four rules in terms of expenses, the regulation covers services provided to people in the traditional Medicare system when admitted to hospitals. CMS estimated in the final rule that the changes in payment policies will increase operating payments by 0.4 percent, or $378 million, and fiscal 2016 capital payments by a 2.3 percent, or a $187 million rise. Medicare's direct expenses for hospital inpatient services plus funds for capital budgets cost more than $100 billion a year, making this one of the largest single expenses for the federal government.
• Hospice. CMS estimated that fiscal 2016 payments for care provided to people thought to be in their final months of life will rise 1.1 percent, or $160 million. Hospice is covered primarily through traditional Medicare, and not split among the government-run program and the private plans managed by insurers. Medicare spends more than $15 billion a year on the care of people considered to be within months of dying.
• Inpatient rehabilitation services. Aggregate payments will rise about 1.8 percent, or $135 million, CMS said. Inpatient rehabilitation is one of the ways in which Medicare pays for post-acute care, or the treatment of people recovering from strokes, surgeries, and other serious conditions. Medicare has been spending about $7.7 billion a year on inpatient rehabilitation. Skilled-nursing centers, which receive more than $30 billion a year from Medicare, also treat this group of patients.
• Inpatient psychiatric facilities. CMS said aggregate payments for hospice care may rise by about 1.5 percent, or $75 million, in fiscal 2016. Medicare's payments for this care have been running a total of about $5 billion.