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January 31, 2005

Washington Health Policy Week in Review Archive 19c30277-d43d-49f1-a867-b3a0c57f34ea

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Bipartisan Group Again Seeks Price Negotiations for Medicare Drugs

February 1, 2005—A group of Senate Democrats and moderate Republicans on Tuesday revived a proposal that would give the government power to bargain over the price of prescription drugs for Medicare.

The bill, similar to a measure introduced in the 108th Congress, would authorize the Health and Human Services Secretary to negotiate drug prices with pharmaceutical companies for the new Medicare drug benefit, which takes effect Jan. 1, 2006.

"As we implement the Medicare Modernization Act ... it is also crucial that we address the flip side of the coin, which is affordability," said Sen. Olympia J. Snowe, R-Maine, who sponsored the bill along with John McCain, R-Ariz.; Ron Wyden, D-Ore.; Dianne Feinstein, D-Calif., and Russell D. Feingold, D-Wis.

In addition to giving the secretary the option to negotiate prices, it would require such negotiations in cases where a health plan requests help dealing with a pharmaceutical company, or when so few private drug plans are offered in a region that "fallback" plans are in effect.

Snowe and Wyden cast the bill as an essential part of containing the costs of the prescription drug law (PL 108-173). The cost of the law was calculated by the Congressional Budget Office at $395 billion over 10 years before the bill was passed in November 2003, but subsequent estimates by the administration have shown the costs could surpass $534 billion.

The bill would set up "comprehensive, market-based cost containment," Wyden said. The current law, he said, "is equivalent to standing in Price Club and buying toilet paper one roll at a time."

During his Senate confirmation hearings earlier this month, HHS Secretary Michael O. Leavitt pledged to try to keep the costs of the new drug benefit in check. He has not said whether he would support efforts to give him price negotiating authority. The Bush administration and Republicans in Congress opposed such power when the law was being written.

During a farewell speech, outgoing HHS Secretary Tommy G. Thompson indicated that he would liked to have had that ability.

Recent reports of escalating drug prices have lawmakers concerned as well.

"Given the reports of rapidly rising drug prices . . . it remains a national imperative to ensure the cost does not increase," Snowe said.

A study from the Government Accountability Office found drug prices have increased an average of 4.6 percent per year from 2000 to 2004. But some lawmakers say pharmaceutical companies this year raised some prices at two to three times the rate of inflation.

Some lawmakers suspect that pharmaceutical companies had raised prices in anticipation of the implementation of the drug benefit in 2006.

The Snowe-Wyden proposal had no momentum in the 108th Congress and is expected to face opposition from GOP leaders who say that negotiating drug prices would be akin to government price fixing.

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Medicaid Budget Outlook Brightens a Bit

February 4, 2005—Bush administration officials said Friday that without any changes in current law, they now expect federal Medicaid spending to be $73 billion lower over the next 10 years than they previously estimated. Officials emphasized, however, that measures must still be taken to make the program more affordable and to ease the financial burden it places on states and taxpayers.

"This is better news about costs," Centers for Medicare and Medicaid Services Administrator Mark McClellan conceded in a press briefing, but added that the administration's new projected Medicaid rate averaging 7.6 percent a year over 10 years "is not very sustainable for states."

The new estimate was revealed in a briefing in which CMS officials detailed their plan to widen coverage of the uninsured and save money in Medicaid.

HHS Secretary Michael O. Leavitt scheduled the briefing after questions arose in his meeting with the press Thursday about funding for expanded health coverage, including the use of existing Medicaid spending as a financing mechanism.

CMS officials played down the significance of the lower spending estimate, noting that the projected Medicaid spending baseline is subject to frequent revisions.

The lower figure stems from changing the projected annual growth rate of federal Medicaid spending from 7.8 percent to 7.6 percent per year over 10 years. The CMS actuary made the change because the actual Medicaid spending growth rate in 2004 proved to be 9 percent rather than a projected 11percent.

Earlier this week, Leavitt detailed Medicaid policy changes to be included in the administration's budget proposal that would reduce spending growth by $60 billion over 10 years. The policy changes saving $60 billion would drive the growth rate down to 7.3 percent, officials said. Adding the $60 billion from policy changes to the $73 billion from the revised forecast means Medicaid spending will be $133 billion lower over 10 years than the administration previously estimated, officials said.

But because they plan to use $15 billion of the savings from policy changes to widen coverage, the net reduction is $118 billion. Only half of that figure can be attributed to policy changes, they stressed. A CMS official said it would be incorrect to describe the administration proposal as one seeking $118 billion in cuts.

The impact of the new figure on the drive for overhauling Medicaid is unclear. "They've already found savings, and nobody's hurt. I've got my party hat on," quipped former Senate Finance Committee aide Alec Vachon, now with the D.C.-based consulting firm Hamilton PPB. The figure from the revised forecast "is even more than the president proposed to save in the first place," he added.

Another Medicaid analyst suggested that Congress might be tempted not to go as hard at Medicaid because of the lower estimate. "You don't have to get your hands bloody and throw people off the rolls," he said.

But the new math may mean little to House and Senate Budget Committee chairmen who view Medicaid in its current form as a serious long-term threat to state and federal budgets. The Congressional Budget Office is still assuming yearly growth at the higher figure of 7.8 percent, though that could change, sources say.

On the issue of coverage, CMS said the $142 billion that the administration will propose to widen access to health care over the next 10 years includes $82 billion in new spending and $60 billion derived from changes in Medicaid spending.

Of the $142 billion, $126 billion in new coverage initiatives would not require states to put up matching funds, a CMS document said. Of the $126 billion, $74 billion would go for tax credits to buy health coverage, $28.5 billion for tax incentives to buy health savings accounts, $19.2 billion for rebates to small employers who contribute to health savings accounts, $4 billion for grants to states to create purchasing pools to buy insurance using tax credits, and $2.038 billion for new or expanded community health centers. The $2.038 billion is an increase of $304 million over the 2005 enacted amount.

The rest of the $142 billion—$16.5 billion—would be used for various state-based programs. A total of $11.3 billion would go for a "Cover the Kids" campaign to enroll uninsured children in Medicaid or the State Children's Health Insurance Program. Almost $3 billion would go for the "New Freedom Initiative" in which Medicaid enrollees needing long-term care would get care in the home or in a community setting rather than in a nursing home. A total of $1.4 billion would go for children's vaccines.

The Transitional Medical Assistance program would get $560 million, which provides Medicaid benefits for former welfare recipients moving into the workforce. And a total of $230 million would go for state programs that assist low-income residents with out-of-pocket Medicare costs.

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Medicare Begins Big Plunge into Quality-Based Payment

January 31, 2005—Starting with a 10-site pilot program testing doctor payment, Medicare announced new plans on Monday to pay providers more for providing better care. Medicare administrator Mark McClellan said the Bush administration's budget proposal will call for adopting quality-based payment—or the buzzword, "pay for performance," or "P4P"—broadly in Medicare. Such payment could be part of legislation this year, he noted. "This is a very special year in health care" where "tremendous progress" is possible, he said.

Separately, McClellan suggested that the administration's proposal to cover the uninsured would not be modest. He said the combined impact of the proposal would be a lot bigger than covering 10 percent or 20 percent of the uninsured. McClellan hinted that the administration would propose something similar to recommendations by the Medicare Payment Advisory Commission on pay-for-performance. The advisory panel voted Jan. 12 to recommend to Congress that it extend the form of payment to hospitals, doctors and home health agencies. Last year, MedPAC urged quality-based payment for managed care plans and dialysis facilities and dialysis doctors.

Noting the MedPAC recommendations, McClellan said the administration wants "a strong dialogue" on quality-based payment.

The details of how Medicare would change its payments are unclear. MedPAC has urged taking 1 percent of current payments to each sector and setting it aside for caregivers who improve the quality of their care or meet quality benchmarks. Last year, Congress paid more to hospitals who simply provided data on quality performance, and there's some thought that Medicare might do that for doctors in 2006. Thus doctors as a whole wouldn't yet be paid based on the performance evidenced by the data. McClellan hinted Monday that any move to erase projected doctor payment cuts might be tied to quality or quality-based data in some form.

While other markets reward those who provide better service at a lower cost, not so Medicare. Former Medicare administrator Gail Wilensky noted at a Washington conference Monday that Medicare rewards those who provide more care but not better care. "In Medicare we provide the same [payment] to those who are best-in-class and to those who are barely indictable," she said.

The pilot program allows doctors in 10 group practices around the country to be paid up to 5 percent more in a given year if they lower costs and provide higher quality care. The pilot will measure costs not in terms of Medicare spending on physician care, but on all Medicare spending for the beneficiaries involved. The approach reflects the control physicians have over other types of spending by ordering hospitalizations, for example.

Some of the most prestigious names in group practice will take part, including the Dartmouth Hitchcock Clinic along the New Hampshire-Vermont border, Geisinger Health System in Pennsylvania, and the Marshfield Clinic in Wisconsin.

Care more effectively coordinated by and among doctors can reduce expensive procedures and hospitalizations for costly complications, the Centers for Medicare and Medicaid Services said. "Electronic record systems, e-mails, telemedicine, and other innovative approaches can help patients not only avoid costly complications, but perhaps even avoid the need for some office visits," it added.

Participants in the three-year "Physician Group Practice Demonstration" will include a total of 5,000 doctors and 200,000 beneficiaries in the fee-for-service side of Medicare. If the pilot is effective in lowering costs and improving care, Medicare has authority to expand it to other group practices without legislative action. A separate pilot is planned to reward doctors financially in very small practices or solo practices who invest in information technology.

Doctors will continue to be paid on a fee-for-service basis. "Performance targets will be set annually for each group based on the growth rate of Medicare spending in the local market," CMS said. "Performance payments may be earned if actual Medicare spending for the population assigned to the physician group is below the annual target. Performance payments will be allocated between efficiency and quality, with an increasing emphasis placed on quality during the demonstration."

Developed with the American Medical Association and the National Committee on Quality Assurance, the pilot will rely on 32 different measures of quality and of levels of preventive care provided. Examples include monitoring lipids in patients with coronary artery disease, monitoring the weight of patients with congestive heart failure, and screening and controlling blood pressure.

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Senate Budget Chairman Targets Medicaid, not Medicare

February 1, 2005—Senate Budget Committee Chairman Judd Gregg, R-N.H., said Tuesday that Medicaid will see a "more restrained" budget in fiscal 2006, but he promised to involve state governors in the process.

Gregg has signaled a desire to put federal Medicaid spending on the chopping block as part of an effort to reduce the record budget deficit. The National Governors Association is already lobbying against reductions in the federal share of the joint state—federal program.

Before hearing testimony from Congressional Budget Office Director Douglas J. Holtz-Eakin Tuesday morning, Gregg told reporters that any change in the basic structure of Medicaid "has to be done in concert with the governors." A former governor himself, he said he will "work with governors to come up with some number that's acceptable."

Gregg said, however, that the Medicaid funding level would be "more restrained than what we've seen in the past." He suggested he might consider a change in program ground rules that would "give governors more flexibility with less rate of growth in [federal] dollars."

He hinted that the more costly Medicare program may be too politically difficult to tackle this year. "The budget isn't going to drive the Medicare issue this year," Gregg said.

Gregg did say that the long-term cost of the Medicare prescription drug benefit enacted in 2003 will be a subject of debate.

On the discretionary spending side, Gregg said he expects the White House to send up "a fairly responsible defense [spending] number." The White House will be requesting $80 billion or slightly more in supplemental "emergency" spending for the wars in Iraq and Afghanistan shortly after its submits its baseline defense budget.

Gregg said it is "very much an open issue" whether Republican budget writers will include language effectively allowing oil exploration in the Alaska National Wildlife Reserve in a budget reconciliation package—which would be protected from filibusters on the Senate floor.

Holtz-Eakin discussed the CBO's latest budget and economic report with senators and reiterated his assertion that economic growth is "unlikely" to erase the expected gap between revenues and spending in the long term.

In part, he said, that is because the combined cost of Medicare, Medicaid, and Social Security will rise sharply if the growth of health care costs continues to outpace economic growth.

No 'Caps' Likely
Meanwhile, in a related development Tuesday, Mark McClellan, administrator of the Centers for Medicare and Medicaid Services, said the Bush administration will not revive its 2003 proposal to cap federal spending on so-called "optional" Medicaid populations, which include nursing home patients and certain low-income pregnant women and children in households not meeting criteria for mandatory coverage.

Under the 2003 "capped allotment" plan, states could have chosen to receive capped increases in federal outlays for optional populations each year in return for getting more federal Medicaid money up front. States showed little interest in the plan. In remarks to the AARP board of directors, McClellan said the administration would propose neither caps nor block grants, contrary to widespread speculation. "I hope people will take a close look at what the administration is saying, and not at what people are saying we're saying," he said.

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Study: Diabetics Face Grim Options When Job-Based Coverage Ends

February 2, 2005—What happens when you are a diabetic and lose coverage because of a change in employment status? Although a number of incremental approaches have been adopted in recent years to extend coverage to the newly uninsured, they reach relatively few diabetics, a study by the Georgetown University Health Policy Institute suggests.

Previewing findings from the 14-month study in remarks to the AARP board of directors Tuesday, Georgetown researcher Karen Pollitz described efforts by the research project to line up coverage for diabetics who called an American Diabetes Association help line. The study tracked some 850 cases in 50 states, and of the 600 or so resolved, only about one in five diabetics found coverage outside the workplace.

Pollitz, a representative of the American Diabetes Association, and a study participant will detail the study findings at a Feb. 8 briefing at the Kaiser Family Foundation in Washington, D.C.

About 390 of the diabetics studied tried to find coverage in the individual market. Encountering very high premiums and exclusions for preexisting conditions including diabetes, only 15 bought individual policies. "The individual market turned out to be a very tough place for people with diabetes to find coverage," she said.

Under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), employees leaving a job may qualify for continued access to the employer's group health coverage. But their premium costs skyrocket; while they have access to group rates, they no longer receive an employer contribution for those premiums. Of 377 people in the study who were about to lose their job-based coverage, only 31 enrolled in COBRA plans.

Under the Health Insurance Accountability and Portability Act of 1996, people leaving or changing jobs have to be offered access to individual coverage, but there is no limit on the premiums the insurer involved can charge. Eighty-seven people in the study were eligible for coverage because of the law, but only 11 signed up because of the high cost of the premiums.

Only seven people in the study got coverage through state "high-risk pools," which are designed to offer benefits to the otherwise uninsurable. But even those pools charge premiums that often are unaffordable or have coverage that excludes preexisting conditions such as diabetes. Policies sold in the pools typically make buyers wait a year before covering care relating to diabetes—and a huge part of the care required by diabetics is related to diabetes since it is a "head-to-toe" disease, Pollitz said.

The costs involved in treating diabetes can be great, which explains not only why patients need coverage but why insurers aim to avoid providing it. Even basic preventive care is expensive, costing about $200 a month for items such as test strips to measure glucose levels.

But costs skyrocket if the disease isn't kept in check through good preventive care. Pollitz said that one in every 10 dollars spent on health care in the U.S. is spent on diabetes, and one in five is spent on diabetics—the latter statistic reflecting the many complications that arise providing treatment for people with the disease.

How would uninsured diabetics fare under other emerging forms of coverage? Pollitz said Association Health Plans would exempt participating health plans from mandates giving diabetics access to care. Health Savings Accounts would give people assets to pay for care—if they don't get sick, Pollitz noted dryly. HSAs and their associated high-deductible plans give holders an incentive not to spend on care, but doing without is not cost-effective if one has diabetes, Pollitz said.

Asked about government initiatives to bring down the costs of coverage through reinsurance, Pollitz said they may be tantamount to giving the insurer a subsidy and saying "would you mind lowering your price?" The trick, she said, is to make sure the reinsurance payments to the insurer get passed along in the form of lower premiums.

Not surprisingly, Pollitz, an aide to HHS Secretary Donna Shalala during the Clinton administration, supports universal coverage with benefits that are "affordable, adequate, and available." Asked by AARP's receptive board whether national health care could get back on the national agenda, Pollitz said it could, perhaps through a grassroots movement. What's needed is to put a human face on the national health issue, she said, adding "this is about people and people are truly suffering."

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Study Finds Half of All Bankruptcies Tied to Illness or Injury

February 4, 2005—Nearly half of all bankruptcies in the United States are in families that experience financial distress after a serious illness or injury.

Researchers at Harvard Medical School found that the number of health-related bankruptcies increased 23-fold from 1980 to 2001, which suggests that high medical bills were a major contributor to the growth in the number of individuals seeking federal bankruptcy protection.

The number of overall bankruptcies was 3.6 times higher in 2001 than in 1980.

Most of the filings were middle-class workers who had health insurance at the onset of their medical difficulties, according to the report, which was published Feb. 2 on the Health Affairs Web site.

"The medical debtors we surveyed were demographically typical Americans who got sick," said David U. Himmelstein, associate professor of medicine at Harvard Medical School. "They differed from others filing for bankruptcy in one important respect: They were more likely to have experienced a lapse in health coverage."

While many had coverage at the onset of their illness but lost it, in other cases even continuous coverage left families with ruinous medical bills, he said in a news release.

Himmelstein and his colleagues reviewed 1,771 personal bankruptcy documents in five federal judicial districts in 2001, and conducted follow-up surveys with 931 of those debtors to determine how illness contributes to bankruptcy in America.

Among those whose illnesses led to bankruptcy, out-of-pocket costs averaged $11,854 since the start of illness; 75.7 percent had insurance at the onset illness. Medical debtors were 42 percent more likely than others debtors to experience lapses in coverage.

"Debtors' narratives painted a picture of families arriving at the bankruptcy courthouse emotionally and financially exhausted, hoping to stop the collection calls, save their homes, and stabilize their economic circumstances," the Harvard researchers wrote.

Some of the people interviewed expressed fear that their medical care providers would refuse to continue their care, and a few recounted actual experiences where that fear came true.

Medical and job problems often came together. One man told the researchers that he underwent lung surgery and suffered a heart attack. Both hospitalizations were covered by his employer-based insurance, but he was unable to return to his physically demanding job. While he found new employment, he was denied coverage because of his preexisting conditions, which required costly ongoing care.

Families struggling to pay medical debts they accrued while caring for their chronically ill children was another common rationale for filing bankruptcy, as was difficulty in making high copayments and deductibles.

The findings raise several health policy implications, such as deficiencies in the financial safety net for American families confronting illness, the researchers found.

"While 45 million Americans are uninsured at any point in time, many more experience spells without coverage. We found little evidence that such gaps were voluntary," they wrote.

The findings also conclude that many health insurance policies prove to be too skimpy in the face of serious illness, and that even good employment-based coverage sometimes fails to protect families.

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