By Rebecca Adams, CQ HealthBeat Associate Editor

Deep within the bureaucracy of the Health and Human Services Department, a 20-person team is trying to find a way to save money and improve care for the 9.2 million people on both Medicare and Medicaid.

The task of the Federal Coordinated Health Care Office, created by the 2010 health overhaul law (PL 111-148, PL 111-152), is one of the most vexing and costly challenges facing the two entitlement programs. The office's work comes at a time Congress and state officials are increasingly concerned about the rising cost of Medicare's health care coverage for 45 million elderly and disabled Americans and Medicaid's 55 million poor patients—concern that is magnified for those in both programs.

These participants, known as dual eligibles, are in the sights of members of Congress and administration officials engaged in negotiations to identify federal spending cuts to reduce the deficit and clear the way for an increase in the debt ceiling. The group ranks among the sickest and most expensive to cover, and their medical costs are about five times higher than those of other Medicare patients.

President Obama's fiscal commission recommended last year that extending to dual beneficiaries the deep discounts drug makers offer Medicaid would save $49 billion through 2020. Pharmaceutical companies oppose the idea. The commission also said moving dual eligibles into Medicaid, a federal and state program, would save $12 billion through 2020. It also called for moving the beneficiaries into managed-care plans.

Some lawmakers warn that if Congress moves too fast it could undercut the administration's new office and hamper its efforts to implement initiatives and put in place administrative steps to cut costs and improve care for dual eligibles. The House Energy and Commerce Health Subcommittee is slated to get its first chance to hear from Melanie Bella, the office's director, sometime later this month. In the hearing, panel lawmakers are likely to solicit recommendations about how federal and state governments can save money serving dual eligibles.

The task will not be easy. In many states, financially strapped governors already are pushing Congress to give states more control over Medicaid spending. Any movement in that direction—and so far there has been none—could complicate the job of dealing with dual eligibles.

Health and Human Services Secretary Kathleen Sebelius has said $12 billion a year can be saved if initiatives from the new office help states save just 10 percent of their share of the costs of serving dual eligibles.

Bella's determination to restructure services for dual eligibles began a decade ago, when she headed Indiana's Medicaid program. The two programs are too fragmented and it is difficult to track patients, Bella said in an interview. Patients, for example, may have one set of benefits under Medicaid and another under Medicare, which offers medical and prescription drug coverage. The two programs' rules sometimes conflict and doctors often do not coordinate treatment and medicine.

Coordinating Care

Bella wants to leverage regulatory change and use demonstration projects to gain efficiencies and better align benefits to reduce duplication, avoid complications and cut hospitalizations. Already about 100,000 dual-eligible patients, most from six states, are being treated in pilot coordinated care programs with promising results. Bella hopes that by the end of 2012 a million patients will be in such "integrated care" programs.

More managed care for dual eligibles could be part of the answer. "We see managed care as one vehicle," Bella said. Such plans can do a better job of coordinating patients' services than fee-for-service options under which no one oversees a patients' care, she said.

A few projects are already in the works. Bella's office recently gave 15 states $1 million grants to design more-seamless benefit programs for dual eligibles. Bella is creating a resource center to showcase best practices in such states. And she's asked the public to submit suggestions by July 11 on how to structure and simplify Medicare and Medicaid drug and care benefits in six areas.

Still, Bella said managed care may not be the only answer, noting that some states lack networks able to handle the needs of dual eligibles. And, she said, she recognizes that beneficiaries are wary change will reduce the quality of health services, something, she said, can be addressed with the right safeguards.

Bella also has offered to give states more patient-specific information about how beneficiaries use Medicare. States already have similar data for Medicaid. State officials could use the Medicare data to pinpoint which beneficiaries are at risk for costly hospitalization and get them more preventive care or support.

She is also working with HHS's new Innovation Center to generate ideas for more demonstration projects, including creating accountable care organizations for the dual eligibles. "States are encouraged to come to us with their ideas. We'll work with them to make it happen and facilitate what it takes to put these systems in place."

By Jane Norman, CQ HealthBeat Associate Editor

Deadline day arrived for comments on Medicare's much-abused proposal for accountable care organizations (ACOs). And supporters of the Obama administration championed its pro-patient provisions in the face of criticism from the health industry.

Early industry feedback on the ACO rule focused on the expense and complexity it posed for hospitals, doctors and health organizations interested in teaming up to achieve higher quality, better patient care and lower costs. Many providers were deeply skeptical that they could participate and urged a major rewrite.

But Families USA, an advocacy organization that has strongly backed the health care law, said that the Obama administration had taken a "balanced approach" in the regulations and that they put patients first. Comments on the proposed rule were due by midnight.

"While some stakeholders are concerned about asking too much of ACOs and individual providers, we believe that they must be held to a standard that is high enough to ensure they deliver high-quality, patient-centered care," said the Families USA comments written by Michealle Gady, a health policy analyst.

What's important is that Medicare beneficiaries and their needs remain at the center of the system, Gady said. "It is essential that new delivery systems, such as ACOs, are more than a new way to pay health care providers," she wrote.

The group did suggest some changes in the rule. One suggestion pointed to one of the proposal's most controversial recommendations—that ACOs suffer financial penalties if they exceed spending targets.

Families USA officials said they are worried about the model under which in their third year, ACOs would share in Medicare savings and losses. This could harm beneficiaries if the ACO is not ready to assume the risk and is undercapitalized, the advocacy group's comments said. Instead there should be an evaluation at the end of the second year to determine the ACO's ability to sustain risk, the group said. And if that review finds the ACO is not yet stable enough to handle risk, the ACO should allowed to finish its third year without any financial penalties.

The group also asked for more beneficiary representation on ACO governing boards and improvements in the way patients are notified that they are part of ACOs.

ACOs, authorized under the health care law (PL 111-148, PL 111-152), will include physicians, hospitals and health care systems working together to improve quality and lower costs. ACOs will share in savings that are achieved as well as risks under the models proposed by CMS.

MedPAC Weighs In

In its comments, the influential Medicare Payment Advisory Commission, (MedPAC), an independent body that advises Congress and that hopes ACOs can be effective, advised patience and a look at the long term.

MedPAC said that if it is structured carefully, the shared savings program could present a path to correcting "undesirable incentives" in fee for service Medicare that lead to rising costs. However, creating a well-functioning ACO will require a significant investment of money, effort and time, and the traditional fee-for-service system may remain attractive to providers, MedPAC said.

Thus it would be a mistake to judge the success of the program by counting how many ACOs participate right away, said MedPAC. A program that builds gradually and is designed to meet the goals of high quality care and slower spending growth is more likely to succeed.

MedPAC made six general recommendations, including simpler quality reporting by focusing on a narrower set of quality measures and clear performance thresholds for each measure.

In addition, MedPAC said beneficiaries should be assigned to all types of primary care providers, including non-physician practitioners and specialists "under certain circumstances." The Center for Medicare and Medicaid also should allow people in an ACO to be assigned to community health centers and rural health centers, MedPAC said. Under the rule as written, patients can't be assigned to practitioners at those facilities.

A group of patients' rights advocates submitted comments suggesting additional protections for patients assigned to an ACO. "First, the physician or health care provider's primary fiduciary responsibility should be to the patient and not the ACO," they said. "In other words, the physician can counsel the patient and refer the patient out of the ACO without fear of retaliation."

They also said that ACO staff members who perform auditing and quality assurance should be employed by and report directly to the ACO boards.

Those groups included Health Watch USA, the Citizen Advocacy Center, the Cautious Patient Foundation, and Mothers Against Medical Error.

Another group representing patients, Dialysis Patient Citizens, expressed concerns that the proposed rule might give ACOs an incentive to exclude patients with costly chronic conditions like kidney disease.

For example, the group said it was concerned that specialists and non-primary care providers can't form ACOs, as nephrologists often serve as the primary care providers for people with end-stage renal disease and are in the best position to coordinate care.

• Families USA Comments on ACO Proposed Rule (pdf)

By Jane Norman, CQ HealthBeat Associate Editor

Health insurance exchanges aren't stalled everywhere. Oregon's legislature this week passed bipartisan exchange legislation and the governor is expected to sign it.

"I look forward to signing this key piece of our health care improvement agenda," Gov. John Kitzhaber, a Democrat, said in a statement.

The Oregonian newspaper reported that the bill gained a large majority in the state's House despite opposition from the left and the right. Conservatives in the tea party movement viewed any action on the health care law (PL 111-148, PL 111-152) implementation as an endorsement of the overhaul, while unions protested that the setup of the exchange gives too much clout to the insurance industry. The exchange won't have the power to extract lower rates from insurance plans.

The bill establishes the Oregon Health Insurance Corporation as a public entity governed by a nine-member board of directors that will set the standards for participation by insurance companies; seven will be appointed by the governor. At least two must be consumer representatives. Two may be from the insurance industry, which drew the protests of unions.

The exchange board will set minimum standards and decide which insurance companies participate, though two national insurers are allowed. Many more details will be filled in when the board writes a business plan, which the state legislature will have to approve in 2012.

By Rebecca Adams, CQ HealthBeat Associate Editor

Department of Health and Human Services Secretary Kathleen A. Sebelius praised the announcement of Blue Shield of California officials that they will limit the company's annual net income to 2 percent of revenue and will give $180 million of its 2010 income back through credits to customers and charitable contributions.

"This is a great step forward in lowering costs for the people of California, and we are pleased that Blue Shield is committed to providing better care at prices that better reflect underlying medical costs," Sebelius said

Blue Shield of California Chairman Bruce Bodaken announced the move at a speech at the Commonwealth Club in San Francisco.

"The action we're taking today is rooted in our longstanding commitment to universal coverage," Bodaken said. "Even with the passage of federal health reform, coverage will be denied to far too many. Only if we solve the seemingly intractable problem of rising health care costs will the dream of universal coverage truly be achieved. . . . Our pledge today tangibly demonstrates that Blue Shield puts affordability before profit."

The company, one of the largest insurers in the state, has come under fire in recent months - particularly from California Democratic congressional lawmakers—for big rate increases. And Bodaken himself has taken some heat for his $4.6 million 2010 salary.

The insurer said that the pledge would stay in effect unless the company's board of directors determines that Blue Shield does not have enough funds to stay competitive.

The excess $180 million will be given out in three ways.

First, about $167 million will go back to customers. The average individual customer will get a credit in October of about $80, and an average family of four will get about $250. For businesses in the small group market, the average individual worker will get $125 for one employee, and a family of four will get about $340. For larger businesses in the group market, employers will decide how to distribute the rebates to their workers, but the average credit will be $110–$130 per employee.

Another $10 million will help support California hospitals and physician groups in accountable care organizations.

And $3 million will be given to local nonprofit groups that provide health care to low-income Californians.

Sebelius noted that Blue Shield acted under pressure from two new rules created by the health care overhaul (PL 111-148, PL 111-152).

A new rate review rule requires insurers to explain premium rate increases over 10 percent and post that information on the Internet. HHS officials said they had given states additional resources to strengthen scrutiny of proposed premium increases or to help change laws so that they can block increases that are found to be too high.

Blue Shield also was required by a new medical loss ratio rule to spend a certain minimal amount of premium dollars on medical care or improvements in quality—80 percent for individual policies and 85 percent for big groups.

Sebelius did not suggest in her statement that California Blue Shield was violating either of the two new rules.

By Rebecca Adams, CQ HealthBeat Associate Editor

The expansion of health coverage for families that is envisioned in the health care overhaul faces a number of barriers, researchers at an Urban Institute briefing said.

The health care law (PL 111-148, PL 111-152) expands family coverage through Medicaid, new tax credits and other programs.

Among the challenges are problems at the state level that could make Medicaid expansion difficult. Those include outdated computer systems, complex enrollment procedures, a political culture and workforce that may lead some state employees to make it difficult for new applicants, and financial obstacles.

For example, the health care law provides a high federal match, initially 100 percent, of the costs for people who became eligible for Medicaid through changes in the law. But if people who had previously been eligible for Medicaid but who were unaware of their eligibility start signing up for coverage, the higher federal matching rate does not apply. Instead, state officials would get the same matching rate as before— an average of 57 percent.

Senior fellow Stan Dorn said that states are "rightly" worried that they will face financial concerns if an influx of people seeks to enroll for Medicaid and not all are eligible for the higher matching rate.

Just the mechanics of administering the coverage for families also could get complicated. Urban Institute researchers have found that 28 million children live in a household that does not include at least one parent, so eligibility for families could be complex. And 20 million children are in families in which the parents and children are eligible for different types of coverage under the law. About 6.5 million children face both types of situations.

Those problems, coupled with barriers some Medicaid patients face in being able to get appointments with some types of physicians, demonstrate some of the difficulties in implementing the program.

• Complex Situation Brief (pdf)
• Urban Institute (pdf)
  

David Blumenthal, the Obama administration's former National Coordinator for Health Information Technology, has been named chairman of The Commonwealth Fund Commission on a High Performance Health System.

Blumenthal is currently Samuel O. Thier professor of medicine and professor of health care policy at Massachusetts General Hospital/Partners Healthcare System and Harvard Medical School. He succeeds James J. Mongan, founding chairman of the fund's Commission on a High Performance Health System, who died May 3, 2011.

"We are very fortunate to have Dr. Blumenthal as chairman of the commission during this critical period of implementation of the Affordable Care Act," said James R. Tallon, Jr., chairman of The Commonwealth Fund. "The commission will be well served by his deep understanding of the challenges and opportunities we face as we move the U.S. toward a high-performing health care system that will help set our nation on the path to a sound economic future."

The commission's 17 members include experts and leaders representing every sector of health care, as well as the state and federal policy arena, the business sector, professional societies and academia. The group is charged with developing recommendations promoting a high-performing health system that provides all Americans with affordable access to high-quality, safe care while maximizing efficiency in its delivery and administration.

Before he joined the Obama administration, Blumenthal was a practicing primary care physician and director of the Institute for Health Policy. He has also served on the staff of the Senate Subcommittee on Health and Scientific Research.