By CQ Staff

October 4, 2006 -- Advocates for Medicare beneficiaries have asked Centers for Medicare and Medicaid Services (CMS) Administrator Mark B. McClellan to make the drug benefit's appeals process work "more fairly and efficiently" before the 2007 enrollment period begins.

In a letter sent on Tuesday to McClellan, the groups noted problems they said beneficiaries have incurred in the Part D appeals process. The groups—which include the National Senior Citizens Law Center, the Center for Medicare Advocacy, and the Medicare Rights Center—encouraged CMS to take action to correct problems with the appeals process.

"Without mandated minimum protections for beneficiaries, advocates and CMS caseworkers have no means of ensuring that plans meet their obligations," the groups wrote McClellan.

The groups said they wrote the letter based on a Sept. 8 letter from McClellan that "does not correspond either to the requirements CMS had established for Part D plans or to the reality of the situation on the ground."

Jeffrey A. Kelman, chief medical officer for CMS' Center for Beneficiary Choices, said a March 30 guidance document from CMS deals with many of the groups' concerns.

"It's important for us that everybody get to use the transition process and the appeals and exceptions process appropriately and that nobody has the necessary drugs withheld," Kelman said.

The groups that wrote to McClellan "may not have the whole picture. We put out a lot of guidance. It's a complicated benefit," Kelman said. He also said CMS has asked the groups to refer specific cases to the agency for action.

By John Reichard, CQ HealthBeat Editor

October 5, 2006 -- Give a bunch of brainy people lots of options for how to solve a knotty problem and you might stimulate their imaginations to come up with a particularly good solution. But the message coming out of the Medicare Payment Advisory Commission on Thursday was to expect no miracles when the problem to be solved is how to replace the controversial Medicare physician payment formula.

Charged by Congress with evaluating alternatives to that formula, the influential federal advisory panel heeded the plea of its executive director, Mark Miller, to think widely about other approaches to restraining rising physician care outlays. Fueling its discussion was a staff-compiled draft document listing 11 potential alternatives. But it's clear that the commission is nowhere near knowing what to do with the list.

"It's a tremendous list, very impressive, but what are you going to do and in what order are you going to do it?" asked one commission member, former Congressional Budget Office Director Douglas Holtz-Eakin.

What is clear is the sense among many policymakers that something must be done about the formula and that Congress badly wants advice on what to do.

Known as "the SGR," the sustained growth rate formula has lined up physicians for years of annual cuts averaging 5 percent or more. Doctors have said they'll leave Medicare in droves if Congress doesn't intervene, but the cost of erasing the cuts is steep and adds to the cost of Part B premiums seniors pay for Medicare doctor coverage.

The current formula relies on growth in the gross domestic product, or total amount of economic activity in the U.S., to help establish a yearly target for growth in the volume of Medicare payments to providers. To the extent that overall spending exceeds the SGR target, payments must be cut the following year to recoup the excess spending.

If Congress acts to block an annual cut triggered by the formula, the excess spending that must be recouped doesn't go away; it must be made up in cuts the following year. And to the extent that the SGR target is exceeded in that year as well, the pile of SGR-related "debt" that must be recouped grows larger. Owing to this cumulative debt, doctors face cuts of 5 percent a year every year for nine years under the SGR, MedPAC testified earlier this year.

Miller encouraged commissioners at a meeting last month to begin thinking not only about new ways to set a spending target, but also about other approaches for controlling the volume of physician services.

The 11 alternatives outlined by MedPAC staff for increasing the value of physician spending included instituting a "payment-for-performance" system that pays more for higher-quality care; encouraging better coordination of care; exploring a "bundling" approach in which one payment would cover a number of services rather than a single service; avoiding volume increases to make up for underpayment or to boost profits from overpayment for a particular service by ensuring accurate prices; and promoting efficiency by increasing the use of primary care.

Other alternatives include: redesigning cost-sharing provisions in Medicare benefits to steer beneficiaries toward lower-cost or more-effective treatment options; measuring how many tests and procedures doctors order and comparing that level of resource use with that of their peers; assessing the cost-effectiveness of various types of treatments; tapping the potential of multi-specialty group practices for more efficient care; setting standards providers must meet for the quality of service, such as proficiency in interpreting medical images; and requiring contractors who pay Medicare claims to do more to reduce improper payments by detecting spikes in particular types of services, for example.

Commissioners praised the list of alternatives but said it should be reshaped into a more coherent form. "Many of these things are connected to each other, yet they are sequential," said John M. Bertko, urging the use of a timeline to detail the sequence in which the alternatives might be implemented.

"We need to be very explicit about what needs to go together," said Nancy M. Kane. "It is very misleading to think these things aren't totally related to each other."

Several commissioners expressed wariness about adopting measures on the list without retaining some form of spending target. "I would be very disappointed if this group somehow said, 'Well, we're going to do this list and let's just pitch the SGR,'" Holtz-Eakin said. "The SGR is a highly inelegant defense to anyone who looks at health care," he added. "It is, however, a very, very clear recognition of the fact that we're scared about how much it costs."

"I at least would like to keep some overall pressure on the spending that we're doing before we discard it entirely," he continued.

"Some version of a target . . . needs to be recognized in whatever we do," Bertko said. Medicare can't just do the things on the list and walk away from volume considerations and say it has done the job, agreed Francis J. Crosson. "The SGR can have a significant impact," said Robert D. Reischauer, the commission's vice chairman.

MedPAC's staff floated some ideas for tinkering with the SGR to lessen the severity of its impact on payments. The excess spending to be recouped could be limited to that of the previous year, for example, rather than basing it on the cumulative excess. Another approach would be to make yearly payment updates "less sensitive to missed targets," a MedPAC staffer said. While these "softer" SGR options would lessen cuts or allow modest increases, they would add more to future spending, the staffer added.

It was clear from the meeting that MedPAC has much work to do to meet its March 1 deadline for filing its report with Congress on possible changes to the SGR. Reischauer said that if he were a congressional aide receiving the list of alternatives, "I would feel I don't have anything to sink my teeth into."

By John Reichard, CQ HealthBeat Editor

OCTOBER 6, 2006 -- The Medicare Payment Advisory Commission (MedPAC) said Friday that a new Medicare payment system for drugs traditionally administered by doctors in their offices is in some cases causing them to refer patients elsewhere for treatment. The impact of the shift on the quality of care patients receive is unknown because of a lack of data on the issue, according to a commission study.

Under the 2003 Medicare overhaul law (PL 108-173), drugs including chemotherapy products and other powerful infusion drugs administered in the doctor's office came under a new reimbursement system pegged to actual sales prices (ASP) rather than to inflated wholesale prices, the basis of the previous system.

The shift to the new "ASP" system means doctors are reimbursed less for the purchase of the so-called Part B drugs but they now receive higher payments for administering the products. But doctors warned the change could undermine quality of care because administration fees wouldn't be high enough to make up for their revenue loss from switching to average sales prices.

Congress ordered MedPAC to study the impact of the new payments on access to care, quality of care, and physicians' offices. The data released Friday will be part of a study MedPAC must submit to Congress January 1. The study addresses drugs administered by urologists, rheumatologists, and infectious disease specialists.

MedPAC submitted a separate study a year ago dealing with oncology drugs, which found that the ASP system hasn't caused access problems but may in some cases be leading to more costly hospital-based care.

The new data shows that most physicians can buy most drugs at the Medicare payment rates but that all of the doctors contacted for the study said there were some drugs they could not buy at the Medicare rate.

The data showed "small shifts in the location of treatment," a MedPAC staffer told a meeting of the commission Friday. While a majority of beneficiaries continued to be treated in the doctor's office, "many practices sent some beneficiaries to hospital outpatient centers," the staffer said. "Less frequently, beneficiaries were sent to hospital inpatient settings, skilled nursing facilities, and long-term care hospitals," she added.

Doctors said the patients most likely to be shifted to other locations were those lacking insurance coverage supplementing their Medicare coverage. The absence of that coverage leaves doctors more at risk of not collecting co-payments from patients, doctors say. Under the old system, doctors said they were more willing to take on such patients because of the higher payments they received for their drug purchases under the wholesale price system.

Other beneficiaries most likely to be referred elsewhere were those needing costly drugs or biological products and beneficiaries who also had Medicaid coverage, according to the new MedPAC data.

Doctors interviewed by MedPAC rated the referrals as a negative for patients, saying they were at less risk of infection if they received treatment in the physician's office as opposed to a hospital or other facility. But doctors who practiced in hospital outpatient centers thought the care was similar, the MedPAC staffer said. There is a lack of data to judge whether the quality of care has been affected, the staffer said.

Staff said the commission may want to consider refinements to the ASP system to ensure payment rates are accurate. Rates could in some cases be lower than the prices doctors pay for drugs because of the time lag between the filing of price data and the setting of Medicare payment rates, the staff analysis said. But commissioners expressed concern that more frequent rate adjustments would encourage manufacturers to raise prices faster.

Another reason for gaps between the reported ASPs used to set Medicare payment rates for a drug and the price paid by the doctor for the product relates to discounts. The ASP might include discounts that are not passed on to physicians. The ASP also may not include charges that physicians pay such as wholesale markups and state and local taxes.

Commissioner William Scanlan noted that such factors explain why the ASP system includes an additional percentage add-on that is included in the Medicare payment rate as a "cushion" on top of the ASP. "I really think that in order to feel comfortable about making changes here we need a lot more information," he said. No other commissioner disagreed with that assessment.

By CQ Staff

October 4, 2006 -- Many states have begun to increase the number of people covered by Medicaid and the State Children's Health Insurance Program (SCHIP), according to a new report from the National Governors Association (NGA).

The report, released Tuesday by NGA's Center for Best Practices, found that states expanded eligibility levels and enrollment policies for low-income women and children. In addition, 10 states were able to achieve modest expansions and policy advances in continuous eligibility and other practices to maintain coverage for those enrolled in Medicaid, the report found.

"As state budgets emerge from the tight fiscal pressures of recent years, policymakers have developed increasingly innovative methods to provide health insurance for this population," Center for Best Practices Director John Thomasian said in a statement.

Medicaid is the single largest health insurance program in the United States, and combined with SCHIP, Medicaid serves more than 54 million Americans each year, according to the NGA.

By CQ Staff

October 3, 2006 -- Health care spending per privately insured American rose by 7.4 percent in 2005, the same rate of increase as the previous two years, according to a Center for Studying Health System Change (HSC) study released Tuesday.

Higher spending on hospital inpatient services, physician care, and other services helped fuel the growth, while prescription drug spending grew at a slower rate for the sixth year in a row and hospital outpatient care spending growth slowed slightly, the study found.

Health spending growth continued to outpace overall economic growth in 2005, despite a robust 5.4 percent increase in the U.S. economy as measured by per capita gross domestic product, the study found.

After peaking at 10.4 percent in 2001, health care spending growth slowed to 7.8 percent in 2003, followed by a 7.5 percent increase in 2004. Spending data for the first quarter of 2006 suggest growth at a similar rate.

"Health care spending continues to grow at a much faster rate than workers' income, making health insurance less affordable to more and more people, especially low to moderate wage workers and their employers," HSC President Paul B. Ginsburg said in a news release.

By John Reichard, CQ HealthBeat Editor

October 3, 2006 -- Two new strategies for controlling Medicaid costs could undermine the health of Medicaid beneficiaries, warns a recent analysis by George Washington University Health Policy Department Chair Sara Rosenbaum.

The strategies "ultimately may lead to serious gaps in coverage and care, the loss of participating plans and providers, and undermine rather than advance population health status," Rosenbaum cautioned.

However, the head of the federal Medicaid program said Tuesday that state flexibility to reshape benefits will improve rather than harm quality. And a congressional GOP aide warned that blocking the strategies could harm rather than protect beneficiaries.

Known as "limited-benefit" and "defined-contribution" arrangements, the strategies would not apply to all Medicaid beneficiaries in states that use them. They would most affect families with children among the various populations covered by Medicaid, Rosenbaum noted in the report, which was supported by a grant to the university from the health insurance lobby America's Health Insurance Plans (AHIP).

Department of Health and Human Services Secretary Michael O. Leavitt has urged an overhaul of Medicaid based in part on the argument that it's better to give a larger number of people "Chevrolet" benefits rather than a smaller number "Cadillac" coverage.

Part of the argument for the strategies is that there are relatively healthy populations in Medicaid, such as families with children, for whom extensive benefits are not necessary. But the study challenges that premise. "The great majority of children and half of all adults who are enrolled in Medicaid and who have serious functional health limitations may in fact be members of the 'healthy' Medicaid population at whom coverage reduction initiatives may be targeted," the GWU analysis said.

"Cost-management tools that may be appropriate for a middle-class employed population must be approached with extreme care in the case of Medicaid-enrolled children and adults," said Rosenbaum in a statement released with the study.

Florida has received the green light for "defined-contribution" revisions in its Medicaid program, which means the state will pay a flat per capita amount for the cost of health coverage instead of paying whatever it costs to deliver care under a guaranteed set of benefits. That latter approach is known as a defined-benefits arrangement and is traditional in Medicaid and Medicare.

Oklahoma and South Carolina have proposed revisions similar to Florida's, according to the study.

The study uses the term "limited-benefit" coverage to mean a health plan whose coverage is more narrow than traditional Medicaid. A budget savings measure (PL 109-171) signed into law in February makes it easier for states to adopt these arrangements. Idaho, Kentucky, and West Virginia were among the first states to take advantage of these new powers in enrolling low-income children and their parents in health plans.

While proponents say the strategies mimic coverage commonplace in the commercial sector, "Medicaid's primary function is to provide a safety net for those who are most in need," Rosenbaum said.

The issue of the suitability of such coverage for a larger proportion of the Medicaid population could become more prominent later this year with the release of recommendations by the Bush administration's Medicaid Commission for long-term changes to the program. Some observers say the commission might endorse wider use of benefit packages for Medicaid along the lines of those used in the State Children's Health Insurance Program (SCHIP), which in turn are based on employer-sponsored benefits.

While Democrats have complained about the growing use of private health plans in federally funded health care programs, Rosenbaum said Medicaid's unique patient population does not rule out the use of these plans.

"Many states contract with health plans to insure coverage and manage patient care, and these organizations have shown to be effective, particularly in experienced states that have a long history of managed care collaboration and that use actuarially sound rate structures," she said.

"The challenge facing Medicaid purchasers is to maintain a comprehensive approach to coverage design while incentivizing participating plans and providers to seek efficiencies," Rosenbaum concluded.

The study is a flashing yellow light that states should move cautiously in revising their Medicaid programs, AHIP President Karen Ignagni said Sept. 13. "Comprehensive Medicaid health plans, when appropriately funded, have the ability to improve the quality of care being delivered to beneficiaries," she said. States should build on tools used by the plans such as prevention, care coordination, and disease management programs, she said.

"The idea that Medicaid must continue to provide a limitless benefit regardless of the population described is unrealistic," the GOP aide said in response to the study. "States should be allowed to carefully move forward with alternative packages. Efforts to shut them down before they even begin jeopardize coverage for Medicaid beneficiaries as states face difficult budget choices. Remember, states can drop populations if they feel that is the only way to balance their budgets," the aide said.

"There were lots of folks who didn't want to give states flexibility when SCHIP was created and they were proven wrong," added Dennis Smith, director of the Center for Medicaid and State Operations at the Centers for Medicare and Medicaid Services.

"Two-thirds of Medicaid spending occurs because states have made choices to serve individuals beyond what the federal law requires them to do," he said. "States are designing programs that will improve quality, access, and health outcomes. Medicaid should keep pace with the people it serves, not merely maintain old, outdated models that favor institutions rather than individuals."