By John Reichard, CQ HealthBeat Editor

June 14, 2013 -- This year's version of the Medicare Payment Advisory Committee's June report to Congress, released last week, addresses a variety of problems in the program ranging from overall spending growth to wildly varying levels of outpatient therapy spending in different parts of the country.

It's far from the mother lode of potential payment offsets that more often is found in MedPAC's other major report to Congress each March. But it reflects effort in a variety of areas to identify and eliminate inefficient spending in the program.

Among the topics is one that would have gotten far more attention had Mitt Romney been elected president: premium support, which Republicans advocated to trim overall Medicare spending growth. MedPAC doesn't call it that, using instead the term "competitively determined plan contributions," or CPC.

It's used to describe "a federal contribution toward the coverage of the Medicare benefit, based on the cost of competing options for the coverage, including those offered by private plans and by the traditional Medicare fee for service program," the report states.

Such a system is no simple way to produce savings, MedPAC says. "Competing private plans ... do not necessarily lower cost to the Medicare program if the rules defining how they compete and how they are paid do not encourage them to do so," according to the report.
"Whether a CPC approach can lower overall Medicare spending will depend on the characteristics of each market, the specific design of the model, and how different components of the model interact," the report says.

Use Most Cost-Effective Setting

A big focus of MedPAC's work is "site-neutral payment." Medicare's payment rates often vary for the same or similar ambulatory services provided to similar patients in different settings, such as physicians' offices and hospital outpatient departments, it notes. "Such variations raise questions about how Medicare should pay for the same service when it is delivered in different settings," it adds.

If the same service can be safely provided in different settings, a prudent purchaser should not pay more for that service in one setting than in another, commissioners say. "Payment variations across settings may encourage arrangements among providers that result in care being provided in higher paid settings, thereby increasing total Medicare spending and beneficiary cost sharing."

In general, the panel advises Medicare to base its payment rates on the resources needed to treat patients in the most efficient setting while adjusting for differences in how sick the patients are that are taken care of in different settings.

In its March report, MedPAC recommended that Medicare payment rates should be equal whether a doctor evaluates or manages a patient's condition in an outpatient department or in a freestanding office. In the new June report, the commission identifies 66 groups of services provided in outpatient departments that are also frequently performed in physician's offices. "Changing OPD payment rates for these services to reduce payment differences between settings would reduce program spending and beneficiary cost sharing by $900 million in one year," the report says.

"We also identified 12 groups of services that are commonly performed in ambulatory surgical centers for which the OPD payment rates could be reduced to the ASC level. This policy would reduce Medicare program spending and beneficiary cost sharing by about $600 million per year," the commission counsels.

But the panel expressed worry about the impact of these policies on hospitals that treat many poor patients. Those patients are more likely to use a hospital outpatient department as their usual source of care. Because large reductions in Medicare revenue for the facilities could cut access to physician services for these patients, the report suggests a possible "stop-loss policy" that would limit the hospitals' loss of Medicare revenue.

Bundling Could Save Money

The report notes that Medicare rates vary widely for the care beneficiaries can receive following a hospital stay in the four post-acute care settings: skilled nursing facilities, home health care, inpatient rehabilitation hospitals, and long-term care hospitals. "Nationwide, use rates for post acute services vary widely for reasons not explained by differences in beneficiaries' health status."

As a possible remedy, reimbursement for a number of services could be bundled into one payment. The approach would entail having hospitals and post-acute care providers coordinating the treatment of patients. That way, the panel says, "providers would have an incentive to coordinate care and provide only clinically necessary services rather than furnishing more services to generate revenue."

The report illustrates a bundled payment approach for post-acute care in which CMS would compare "actual average spending for a condition with a benchmark, return some portion of payments if average spending is below the benchmark, and put providers at some risk for spending above the benchmark."

The report also discusses possible refinements to Medicare's hospital readmissions policy. Congress enacted a readmissions reduction program in 2010. It includes a penalty that reduces Medicare payments in 2013 to hospitals that had above-average readmission rates from July 2008 through June 2011. One problem with the policy is that hospitals that treat many poor patients are more likely to have readmissions and see payments cut as a result.

A possible refinement, the report says, would be to "evaluate a hospital's readmission rate against rates for a group of peer hospitals with a similar share of poor Medicare beneficiaries as a way to adjust readmission penalties for socioeconomic status."

The report also discusses possible adjustments to hospice payments, outpatient therapy reimbursement, and payments for ambulance services.

"Given the magnitude of hospice spending on long-stay patients, who are more profitable under the current payment system than other patients, it is important that an initial step toward payment reform be taken as soon as possible," the panel advises.

Therapy Changes Recommended.

The report says that Medicare spending on outpatient therapy in the highest spending areas of the country "is five times more than that in the lowest spending areas of the country, even after controlling for differences in patients' health status." It makes several recommendations to decrease inappropriate use of outpatient therapy services.

It also makes recommendations to assure that Medicare pays for "clinically appropriate" use of ambulances and calls for ending a floor on a payment adjustment.

The report endorses a geographic adjustment to physician payments. The "cost of living varies geographically," and Medicare payments to doctors should reflect that, it says. But the current system is flawed because of a lack of quality data on the earnings of physicians and other professions, the report says. "The adjustment should reflect geographic differences in labor costs per unit of output across markets for physicians and other health professionals," it says. It also calls for ending a floor on such geographic adjustments for payments that keep them from going below a certain level.

By John Reichard, CQ HealthBeat Editor

June 14, 2013 -- Michigan may soon be joining Arizona as a state where a Republican governor overcomes opposition from within the GOP to move legislation through the state legislature to expand Medicaid under the health care law.

The Michigan House voted late last week to approve the expansion by an unexpectedly lopsided margin of 76 to 31. Previously, Arizona state lawmakers buckled under pressure from Republican Gov. Jan Brewer to pass an expansion measure in that state.

Michigan Gov. Rick Snyder has warned lawmakers in this state that Medicaid expansion must be cleared by the state's senate by June 21 if it is to start on Jan. 1. That's because the measure will entail getting waivers from the Centers for Medicare and Medicaid Services for some of its provisions.

The Michigan Legislature is scheduled to wind up its session at the end of next week.

The wide margin of victory in the Michigan House helps to create momentum for passage in the state Senate, said a lobbyist for Michigan hospitals. Snyder, the House speaker, and the Senate majority leader in the state legislature are all cautiously optimistic that the Senate will be able to wrap up the job by the end of next week. But there is much work to be done, cautioned the lobbyist, David Finkbeiner, senior vice president for advocacy with the Michigan Health and Hospital Association.

"Michigan's legislature is controlled by Republicans, as is the governor's office," he said. "There were questions about whether or not there would be, in conjunction with Democrats, enough Republican votes, and it turned out to be more than enough" in the House.

But in the Senate, "they're interested in their own review," Finkbeiner said.

Finkbeiner said Snyder was able to bring Republicans on board in the House through efforts to craft a "Michigan-specific" approach to Medicaid. Under that approach, people in the program would have "more skin in the game," he said. It includes a provision that after four years on Medicaid, able-bodied adults would have a choice of moving to an insurance exchange to sign up for coverage or pay a higher level of out-of-pocket payments to stay on Medicaid.

By John Reichard, CQ HealthBeat Editor

June 10, 2013 -- District of Columbia officials say premiums that insurers will charge this fall on the new insurance exchange won't show a spike in rates and that customers will have a wider choice of plans than they do now.

"We're going to be the best exchange in the country," Mila Kofman, executive director of the D.C. Health Benefit Exchange, predicted in an interview.

The proposed rates for small businesses and people who are enrolling in individual coverage starting Oct. 1 "are largely in line with current premiums for policies in the market today," the D.C. Department of Insurance, Securities and Banking said in a news release. The announcement referred specifically to proposed rates by Aetna, CareFirst BlueCross BlueShield, Kaiser Permanente and United HealthCare, the four companies selling coverage to small businesses. All four—except United—also will sell individual coverage.

Officials wouldn't be specific about how rates in 2014 would compare to 2013. D.C. exchange customers "will have a robust selection of insurance policies and a wide range of prices," said Kofman. Insurers "want to grow their business and so they're pricing in a pretty competitive way," she said. The proposed rates could come down following review of the D.C. insurance department.

As examples of some of the proposed rates, officials said that a 27-year-old next year can buy a bronze plan for as little as $124 a month and a platinum plan for as little as $249 a month. Under the health law (PL 111-148, PL 111-152), the bronze plans require policy holders to pay relatively large out-of-pocket costs, other than premiums, for covered benefits while platinum plans require them to pay relatively little out of pocket but higher premiums for those same benefits.

In other examples of proposed rates, a 40-year-old could pay as little as $166 for a bronze plan and $333 a month for a platinum plan. For a 55-year-old, a bronze plan could cost as little as $296 a month.

"Small businesses in the District could buy a bronze plan for a 27-year-old employee for as little as $144 a month and a platinum plan for a 55-year-old for as little as $572 a month," the news release said.

States and jurisdictions that support exchanges and the health care overhaul law (PL 111-148, PL 111-152) tend to highlight good deals while those unfavorable to the law point to large increases. In Ohio, for example, the state's Republican lieutenant governor, Mary Taylor, said proposed rates for individual coverage next year would add up to an 88 percent increase on average over this year. But benefits in general in the individual market this year are much skimpier than they will be next year.

Kofman said the D.C. exchange has come a long way since the start of the year, when she was the only employee on staff. She said the exchange was the first to pass "wave 2" testing, which refers to a phase of testing to exchange data with the federal data hub. The testing showed the ability of the D.C. exchange to connect securely to the hub and to exchange data back and forth. While that's an important milestone, she said, there are many other data linkages the D.C. exchange must be able to perform to determine, for example, whether a customer is a District resident. Information technology is still a work in progress, she indicated. "No state could tell you that it is nailed down," she said.

One distinctive feature of the D.C. exchange is that starting in October, the employees of small businesses will be able to choose among four insurers, if their employer decides to give them that choice. Now, small employers in the District—defined as those with 50 or fewer workers—by law only can offer employees one plan. For 2014, small employers could decide to stick to offering one insurer, or provide a choice.

That puts D.C. a full year ahead of the federal exchange, which in 2015 will only offer that employee choice model to the states it serves. "When I say we're going to be the best exchange in the country I mean it," Kofman says.

Another unusual feature is that D.C. starting in 2015 will require that employers with 50 or fewer workers only buy coverage on the exchange. Unlike in other areas, except Vermont, there won't be a market outside the exchange where small employers can shop for coverage. That makes it easier for small businesses in D.C. to compare what insurers are charging, D.C. officials say.

By John Reichard, CQ HealthBeat Editor

June 13, 2013 -- Medicare's expanding effort to bring team-based care to seniors and the disabled is flawed because it prevents doctors from reaching out to treat the sickest, most costly patients and is limited to certain parts of the country, the senator next in line to chair the Senate Finance Committee said at a Washington, D.C., conference last week.

Democratic Sen. Ron Wyden of Oregon called for technical changes to the rules governing team-based care. But more broadly, he said Congress needs to pass legislation to reorganize Medicare to better prevent avoidable hospitalizations of patients with chronic diseases and to keep them from developing additional chronic conditions.

Wyden spoke at a conference of executives who run "accountable care organizations," or ACOs. About 252 of these organizations have been formed by doctors and hospitals under the health care overhaul law (PL 111-148, PL 111-152) as a way to improve the quality and efficiency of treatment in the traditional Medicare program.

About 36.3 million of the 50.7 million people in Medicare—72 percent—are in its traditional fee-for-service program, which experts say is wasteful because no single provider quarterbacks care to avoid duplicative tests, prevent needlessly expensive treatment, or make sure patients get with good preventive care.

Wyden's comments were noteworthy not only because of his fresh take on how to fix Medicare. He also is due to take over the Finance Committee gavel from Chairman Max Baucus after the Montana Democrat retires in late 2014. That assumes Democrats retain control of the Senate, which is no sure thing.

Wyden emphasized that he wants to change the Medicare debate. And the recent Medicare Trustees' report saying the hospital trust fund won't become insolvent until 2026 should fool no one, he added.

"Washington has been stuck for ages in tired, circular Medicare debates about increasing premiums on the wealthy and raising the age of eligibility," he said in prepared remarks. "Those are important issues. They do not reform the health care delivery system for the sickest seniors."

He said Medicare "faces unsustainably high costs because the program has never been about what most drives costs—chronic disease. Seniors entering the Medicare program today are sicker than when their parents enrolled, with more cancer, more heart disease, and more diabetes."

Now, about 70 percent of Medicare patients have two or more chronic conditions and account for more than 90 percent of Medicare spending, or about $500 billion a year, he said. "Yet when chronic care even gets a rare mention with policy makers in Washington, it is usually dismissed with a 'we've got to improve care coordination" [comment] and everybody nods and moves on."

ACOs Need Revamping

Rules governing ACOs should be revised, he urged. One is the "attribution" rule which says an ACO must serve anyone coming in the door. The problem with the rule in its current form, he said, is that it "limits ACOs that want to specialize in chronic care from reaching out to the sickest seniors."

Another problem is that ACOs don't serve some of the parts of the country where seniors are sickest and team-based care is most needed. "For example, the evidence shows ACOs are not being set up in Alabama, where there are a lot of seniors in very poor health. But there are plenty of ACOs in Massachusetts, where the seniors have the good fortune of being some of the healthiest in the country."

Wyden added that even seniors in ACOs "may not be lucky enough to have an individual care plan, which is the centerpiece of top quality, coordinated chronic care." And ACOs should be changed to give seniors financial incentives to be as healthy as possible, he said.

Wyden said the type of care he wants is being practiced. He cited the case of Ken Coburn, a physician with Health Quality Partners in Doylestown, PA. Coburn has sought out some of the sickest patients and through careful coordination of their care has been able to cut hospitalizations by 39 percent, costs by 28 percent, and mortality by about 25 percent.

He added that Dartmouth researcher Jack Wennberg has examined the work of top-performing health systems that treat the patients with the most intense needs in high and low-cost states.

Wyden said Wennberg found that chronically ill patients can be treated at lower costs all around the country. "In fact, the evidence shows high-performing systems spent 13 to 24 percent less than the state averages for patients with the same needs," Wyden said. "Those are huge savings."

Wyden said that in the coming months he plans to work with Democrats and Republicans to turn his ideas about improving ACOs into legislation. In addition, "Medicare should be reconfigured to target areas with the highest incidence of chronic illness, and reward practitioners in those areas who improve care and hold down costs."

Chronic care "got missed" in the health care law (PL 111-148, PL 111-152), Wyden said. It establishes a "welcome to Medicare" physical that can identify chronic conditions, but has limited tools to manage them, he said.

Wyden acknowledged in talking to reporters after his remarks that ACOs now reach only a relatively small percentage of the people in traditional Medicare, however. Only 4 million of the 36 million people in traditional Medicare are part of an ACO.

"When we get to legislation, we are going to try to create incentives not just for ACOs, but for physician practices" to coordinate care, he said.

By John Reichard, CQ HealthBeat Editor

June 11, 2013 -- Influential lawmakers on two House committees that are pivotal to overhauling the Medicare physician payment system said recently they are working together closely on legislation to replace the sustainable growth rate (SGR) formula, despite some raised eyebrows in recent days about whether they were on the same page.

"We're intending to complete the process through the committee before the August break," Energy and Commerce Committee Chairman Fred Upton told reporters after he spoke to a Washington, D.C., conference. Upton added that the other key committee—Ways and Means, which is chaired by fellow Michigan Republican Dave Camp—may not do its own markup, something that at least one senior Ways and Means member says is still in question.

"Yeah, oh yeah, we're in sync," said Upton. The questions surrounding the two panels' working relationship arose after Upton's panel on May 28 released the latest version of a proposal addressing the SGR. That document that was identified as being from the Energy and Commerce Committee, not as also coming from Ways and Means.

Lobbyists have suggested that the panel may be moving on different tracks, at least temporarily. Ways and Means has direct jurisdiction over a number of potential payment offsets, which likely won't be decided until much later this year when Congress considers debt limit legislation. Energy and Commerce aims to report out a bill soon resolving the policy details concerning what reimbursement approach should replace the SGR. So if there are any differences in opinion over policy and pay fors, Upton and Camp aren't talking about them publicly.

"I'm not sure they'll need to do a markup because of what we're doing," Upton said of the Ways and Means Committee. "We're in absolute sync."

Upton, Camp, and a slew of other lawmakers who play leading roles in tax and health policy spoke at a conference sponsored by the Baker Hostetler law firm and the Yale Club of Washington, D.C.

Ways and Means Health Subcommittee Chairman Kevin Brady, who also spoke at the event, said it would be premature to say his committee won't do its own markup. The Texas Republican said that while the working relationship is "excellent" between the two committees, "we haven't decided on the timetable, on markups, what dates, what months and how we do that."

Brady added that "over the next month it's a laser focus on finding the right replacement."

A bigger hurtle than the ability of lawmakers to reach common ground on the policy concerning how to replace the SGR, is the question of how to offset the 10-year, $139.1 billion cost.

Both Upton and Camp offered no clues about how they do would that, and suggested that none would be forthcoming any time soon.
"We haven't identified a pay for yet, and if I had, I wouldn't be mentioning it to the press," Camp said after his remarks. "I'm obviously working very closely with the [Energy and] Commerce Committee on that and I think they're doing a markup."

"Would you just wait?" Upton good-naturedly admonished a reporter who broached the topic of offsets. "We haven't started yet. We haven't started."

Senate Finance Committee Chairman Max Baucus, D-Mont., has pointed to a tax overhaul as the source of offsets for the SGR fix. But there's plenty of skepticism that any tax overhaul could be completed before the next big physician payment cut is set to take effect Jan. 1. And even if a tax plan is arrived at, it's iffy that it would generate SGR replacement offsets. That means other providers in the Medicare program remain as potentially large targets for cuts later this year to block physician payment cuts.

By John Reichard, CQ HealthBeat Editor

June 10, 2013 -- Among the decisions millions of uninsured Americans will have to make this fall is how to claim the tax credit that offsets some or most of their cost of buying health insurance.

It's not a simple matter to decide. And getting it wrong could mean a whopping tax bill down the road or an unexpected windfall.

Consumer activists who support the health care law are intent on making the decision less of a gamble. And they certainly want to avoid the nasty surprise for consumers of a tax bill that's hundreds of dollars larger than expected.

It's the kind of thing that could further undercut support for a law that polls show is not exactly well liked by the American people.

Consumers Union has developed a brochure that it is confident will make the choice manageable. And officials there say the pamphlet has tested well among focus groups that have included a wide cross section of consumers, including in states hostile to the health law (PL 111-148, PL 111-152).

A close look at the brochure and the thinking behind it reveals some of the calculations consumers will have to make, and why the credit could be problematic.

For example, to keep from taking too big a credit, consumers will have to tell the local exchange things they might not be too keen on sharing, such as changes in income or a reduction in household size stemming from a divorce.

Lynn Quincy, senior health policy with Consumers Union, noted in a recent presentation to Maryland outreach groups that even getting people to pay attention to a brochure in the first place is a challenge.

She says that if people think a leaflet is from an insurance company they won't bother reading it. And one of the problems with the tax credit is that middle income people think it's for poor people, not for them.

Consumers Union, which got a grant from the Robert Wood Johnson Foundation to help with the project, found a way to deal with both problems on the first page of the brochure. It says at the top: "Health Insurance Marketplace—healthcare.gov."

That establishes the information as coming from the government. As much as people are apt to be suspicious of the government, particularly in states opposed to the health law, consumer testing shows they trust it as an objective source of information on things like insurance, says Quincy.

That was true not only in Massachusetts, she said, but in two other states where CU did focus group testing—Oklahoma and Utah.

Qualification Blueprint

The other heading on the first page was one that testing showed had broad appeal no matter how one felt about the health law, while also making it clear that the middle class can get the tax credit. The heading that worked best, together with pictures of smiling people: "Cut the cost of health insurance: A new tax credit helps lower and middle income families."

The next page of the four-step document is designed to quickly establish whether the reader is qualified to receive the tax credit. If they answer "No" to three questions they may be able to take it: 1) Does your employer offer health insurance? 2) Do you receive Medicare? and 3) Does your family make more than the yearly income below?

The dollar amounts listed clearly show that the credit isn't just for the poor. It says, for example, that a family of four with a yearly income of $94,200 could qualify. A family of six with an income of $126,360 could also be eligible. And an individual could be earn as much as $45,960 a year and get the credit.

Step two answers the question: "What is this tax credit?" It explains that the "Health Premium Tax Credit reduces the total amount of income tax you owe the IRS. You get the tax credit to help cut the cost of your health insurance." It then asks "Can I use my tax credit for any health plan?" "NO" is the emphatic answer. "You MUST buy your health insurance from" and then it gives the name of the insurance exchange together with the phone number and website.

Weighing the Options

Step Three explains that there are two ways to take the credit and then advises: "You decide!"

Under the "Take It Now!" option, the brochure for federal exchanges explains that consumers must sign up between October, 2013 and March, 2014 by going to healthcare.gov. Consumers should say they want the credit "in advance." At that point the consumer can choose to take all of the credit in advance or part of it, leaving some wiggle room in case their income or family situation changes and it turns out they aren't entitled to as much of a credit.

The brochure explains that taking the credit in advance will mean that in 2014, the consumer will "pay a lower premium each month. It then says that between January, 2015 and April, 2015, the Health Insurance Marketplace will send a statement showing how much tax credit the consumer received in 2014 so they can enter that on their 2014 tax return.

The advantage: "Lower your health care premium each month!"

Option two is "Take it Later!" Again, the brochure explains when and where to sign up for coverage. However, this time it explains that "you pay the full premium each month in 2014—and now you are covered." Then when the consumer files his or her 2014 taxes, they'll be able to subtract the premium credit from the income taxes they owe "or get a bigger refund if you don't owe anything."

The advantage: "Lower the amount you pay at tax time!"

To personalize the decision, the brochure shows a smiling picture of "Jane" mulling her options. Readers quickly tune in to such personal stories to grasp what the brochure is saying, Quincy says.

Jane says: "If I take the credit now, I lower my monthly premium cost to $60." But "if I take the same tax credit later, I pay the full $300 premium now but get a bigger refund next April" totaling $1,980 rather than having to pay the IRS $900.

Avoiding Repayments

The final step asks "Taking the Credit Now? Get the Right Tax Credit."

"If you take the tax credit in advance, changes to your family size or income—or even a new job that offers health insurance—could mean you're getting the wrong amount of tax credit," the brochure says. "To make sure you get the right amount, call when you have changes" in family size or income, it says.

"Remember, it's your responsibility to tell your state's Marketplace!" readers are counseled and are reminded of the phone number to call. If family size goes down through divorce or because a child can no longer be claimed on a return, the brochure advises the consumer to call to recalculate the credit amount "so you won't owe money." And if the family sizes increases or one's income goes down, "call so you might get more credit." The pamphlet then tells the story of "Claudia and Patrick" who took the credit in advance, got an increase in income and forgot to tell the exchange. They had to pay the government back $2,000.

"Remember, it's your responsibility to tell your state's Marketplace!" readers are reminded. "You control how much tax credit you use in advance." To lessen the odds of an unpleasant surprise, "talk to your Marketplace about taking a partial credit," it says. "Your monthly premiums will still be lower but not as much. By taking the rest at tax time, there is less chance of repayment."

Quincy says that focus group testing shows that even those with negative opinions about the health law thought it was fair that they should have to tell the exchange about changes in their family size and income. And those with a negative view of the overhaul also said they would take the credit because they thought it would help their families.