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October 11, 2011

Washington Health Policy Week in Review Archive 3e445d13-1d68-4abe-a97a-966e58fe1f0b

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Institute of Medicine Stresses "Affordability" in Essential Health Benefits Design

By Jane Norman, CQ HealthBeat Associate Editor

October 6, 2011 -- The "essential health benefits" that every insurer will have to provide beginning in 2014 should be tied to a typical small-employer plan, the Institute of Medicine recommended in a long-awaited report that will be closely scrutinized by patient advocates and the health care industry.

The packages should reflect small-employer costs because the plans will be offered in state insurance exchanges whose main customers—an estimated 68 million Americans—likely will be small businesses and individual workers, the nonpartisan IOM said in its 297-page report that was released last week.

It recommended that Health and Human Services (HHS) Secretary Kathleen Sebelius develop by May 1, 2012, an initial essential health benefits package based on the general categories specified in the health care law (PL 111-148, PL 111-152). These preventive, diagnostic and therapeutic services include such items as ambulatory patient services, maternity and newborn care, laboratory services, emergency services and more.

The agency then should determine what the national average premium of typical small-employer plans would be in 2014 and ensure that the package's benefits in a so-called "silver" plan do not exceed that amount, said the report. A silver plan is one of the four levels of coverage required under the health care overhaul; it's a higher level of coverage than in a bronze plan but less than gold or platinum.

Sebelius is not bound by the IOM recommendations, and the report was not designed to offer direction on what specific health care services or products should be covered or excluded. Nonetheless, its proposals are bound to be dissected by many groups with competing interests and likely will wield influence on final decisions by HHS.

There are advocates for expanded benefit coverage who may see the tie to small-employer plans as insufficient for an adequate benefits package, given that such plans often are less generous than large-group-based plans. But the report's strong emphasis on affordability may calm employer, insurance and business groups who worry that the benefit package HHS will design will be too lavish and expensive.

Initial reaction from the insurance industry was positive. America's Health Insurance Plans President and CEO Karen Ignagni said in a statement that the report urges a balance between affordability and comprehensiveness of coverage.

"The recommendation that the initial EHB package reflect the scope of benefits and design provided under a typical small-employer plan is an important step toward maintaining affordability," said Ignagni. "Focusing on 'medical effectiveness, safety and relative value' is a top priority for health plans and is vital to creating a patient-centered health care system that promotes and rewards evidence-based quality care throughout the system."

The Essential Health Benefits Coalition, which is made up of groups representing employers and business, said HHS should "hold the cost and affordability of the essential health benefits package paramount as recommended" by the IOM.

"An expansive, costly essential health benefits package could cause many employers to drop coverage and force more Americans into government-subsidized health care at a significant cost to taxpayers," National Retail Federation vice president and employee benefits policy counsel Neal Trautwein said in a statement. He is chairman of the coalition.

Sebelius said in a statement that HHS will issue its proposal on essential health benefits "soon." It is expected sometime early next year, and states are eager to see it so they can get on with designing their exchanges. But she said that before HHS formulates the package, the agency will hold a series of listening sessions to gain input from Americans on what should be in the benefits package.

"These conversations will help us ensure that every American can access quality, affordable health care coverage they can rely on," she said. The IOM in the report also urged widespread public input and transparency.

The IOM recommendations have been in the works for months. holding numerous meetings and public briefings. The institute is an arm of the National Academy of Sciences that gives independent and objective advice to policy makers. The committee that developed the recommendations was headed up by John R. Ball, former executive vice president of the American Society for Clinical Pathology.

"This report offers guidance for developing a package of essential health benefits that will achieve two equally important goals: to provide coverage for a range of Americans' health needs and to ensure the affordability of coverage, particularly for small employers and individuals who must buy their own insurance," Ball said in a statement.

The services are to be considered against criteria that they are medically effective, safe and offer high value, and also protect the vulnerable and address medical concerns of the most importance to consumers.

Benefits mandated by states should be subject to the same criteria and review, the IOM said. States that want to adopt variations on the federal package for their exchanges must make them consistent with the health care law and produce a package that is actuarially equivalent to the federal package, the report said.

The report repeatedly emphasizes that the package of benefits must be affordable for consumers while covering health care necessities. IOM committee members who prepared it say in their preface that they heard from many groups, some of whom wanted the broadest possible coverage of services and others who argued for affordability and flexibility.

"The committee's solution is this: build on what currently exists, learn over time, and make it better," said the report. "That is, the initial EHB package should be a modification of what small employers are currently offering. All stakeholders should then learn enough over time—during implementation and through experimentation and research—to improve the package."

The recommendation thus would take the approach of defining a premium target for the package, which the committee said takes into account the "fundamental reality" that health benefits are a resource and no resource is unlimited.

Accompanying material compares the premium target to walking into a grocery store with a firm idea of how much to spend and filling the cart with enough food to fit a budget, rather than filling the cart with groceries and then finding out what they cost.

"The committee concludes that the EHB should be defined as a package that will fall under a predefined cost target rather than building a package and then finding out what it would cost," says the report.

In addition, the IOM said that the government should be as specific as possible about which benefits are included and which can be left out, though it won't be possible to spell out every product or service that initially will be covered.

The package should be updated beginning in 2015 for implementation in 2016 and every year thereafter, and health care costs should be explicitly incorporated by the department in that update, said the IOM. The package should have the goal of becoming more fully evidence-based and specific. Both the cost of the current package and medical inflation should be taken into account.

A "National Benefits Advisory Council" making recommendations on changes should be established, with members appointed through a nonpartisan process by the Office of the Comptroller of the United States, said the report.

And HHS needs to develop a strategy for controlling rates of growth in health care spending across all areas of the economy, so that it is in line with the rate of growth in the economy, the IOM said.

Institute of Medicine Report on Essential Health Benefits

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MedPAC Approves Physician Payment Plan, Overlooking Concerns About Offsets

By Rebecca Adams, CQ HealthBeat Associate Editor

October 6, 2011 -- Despite overwhelming provider opposition, the Medicare Payment Advisory Commission voted 15-2 to recommend a draft proposal to junk the physician payment formula that has caused problems for a decade and offset the costs to fix it with other Medicare cuts.

Even the American Medical Association (AMA), whose top priority is to eradicate the flawed formula, opposes MedPAC's proposed fix.

"Offsetting part of the cost of repeal through drastic cuts and long-term freezes to physicians falls far short of what is needed to preserve patients' access to care," AMA President Peter W. Carmel said in a written statement.

Almost all health policy experts agree that the physician payment formula, known as the sustainable growth rate (SGR), does not work as intended. Congress has repeatedly staved off scheduled cuts in physician rates that were set by the formula. But the cost of permanently fixing the problem grows with every temporary reprieve. In January, the formula would result in a nearly 30 percent payment cut for physicians if Congress does not vote to prevent it.

The MedPAC recommendation would replace the problematic SGR formula with a 10-year fee schedule that would freeze primary care payment rates and cut rates for other providers by 5.9 percent for three years before freezing those payments as well. MedPAC included a list of offsets totaling $220 billion over a decade that Congress might consider to pay for the new physician payment rates. About 34 percent of the funding for the changes would come from the drug industry; 21 percent from post-acute care, such as skilled nursing facilities and home health agencies; 15 percent from higher cost-sharing by beneficiaries; and 11 percent from hospitals.

Representatives of medical providers—who packed the room so tightly that a number of people had to stand—were not happy with the proposed cuts. They had expressed concerns about the proposal when it was unveiled.
Several groups had written letters also opposing the plan. 

Only two commissioners—Karen Borman, director of the Surgical Residency Program of Abington Memorial Hospital in Pennsylvania and Ronald Castellanos, a urologist with Southwest Florida Urologic Associates—voted against the MedPAC recommendation.

Castellanos noted that under the plan, a nurse practitioner would be eligible for higher Medicare payment rates than a physician specialist, a prospect that he called "extremely disturbing" because he said the average urologist has undergone about 17,000 hours of training while a nurse practitioner has had no more than 1500 hours.

Castellanos said that specialists who face a growing number of government regulations and declining payment rates are going to ask themselves: "Is it worth it for me to stay in practice?

"I think there are going to be a lot of doctors like myself who are going to say it's just not worth it anymore," he added.

During the deliberations on the plan, many commissioners expressed reservations about the proposal, especially the offsets.

Several said that the list of offsets should not be seen as a recommendation from MedPAC that Congress consider those specific policies to reduce spending growth. In fact, some said they had problems either with some of the precise offsets or with the overarching idea that all of the cuts should come from Medicare rather than other types of government spending. But all of those who voted to approve the recommendation said the time had come to finally stop passing one-year changes to the physician payment formula, and that goal overcame their reservations about the offsets.

In a PowerPoint presentation, MedPAC staff noted, "Offsetting the cost within Medicare compels difficult choices—both in offsets and in fee reductions—that MedPAC may not support outside of the context of repealing the SGR system."

After the vote, lobbyists and other representatives of physicians and other medical professionals lined up to express their unhappiness. Even though most of them expressed support for ditching the current SGR formula, they argued that the costs should not be borne by Medicare providers. Many types of providers are already preparing for other cuts that were in the 2010 health care overhaul (PL 111-148, PL 111-152) and may face additional cuts if Congress passes them this year as part of legislation to reduce the deficit. Two speakers said the medical profession should not pay for higher-than-scheduled payment rates for physicians because providers did not create the flawed formula—Congress did.

"For almost everyone in this room, it's been kind of a disheartening morning," said Barbara Tomar, director of federal affairs for the American College of Emergency Physicians, in a comment that seemed to resonate with the rest of the crowd.

The draft recommendations were:

  • "The Congress should repeal the sustainable growth rate and replace it with a 10-year path of statutory fee schedule updates. This path is comprised of a freeze in current payment levels for primary care and for all other services, annual payment reductions of 5.9 percent for three years, followed by a freeze. The commission is offering a list of options for the Congress to consider if it decides to offset the cost of repealing the SGR system within the Medicare program." Approved 15-2.
  • "The Congress should direct the secretary [of Health and Human Services] to regularly collect data—including service volume and work time—to establish more accurate work and practice expense values. To help assess whether Medicare's fees are adequate for efficient care delivery, the data should be collected from a cohort of efficient practices rather than a sample of all practices. The initial round of data collection should be completed within three years." Approved 17-0.
  • "The Congress should direct the secretary to identify overpriced fee-schedule services and reduce their RVUs accordingly. To fulfill this requirement, the secretary could use the data collected under the process in recommendation 2. These reductions should be budget neutral within the fee schedule. Starting in 2015, the Congress should specify that the RVU reductions should achieve an annual numeric goal—for each of five consecutive years—of at least 1 percent of fee-schedule spending." Approved 16-1.
  • "Under the 10-year update path specified in draft recommendation 1, the secretary should increase the shared savings opportunity for physicians and health professionals who join or lead two-sided risk ACOs. The secretary should compute spending benchmarks for these ACOS using 2011 fee-schedule rates. Approved 15-1, with one abstention."

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Study: 'Worst' Hospitals Serve More Elderly, Black, Hispanic, and Medicaid Patients

By Jane Norman, CQ HealthBeat Associate Editor

October 6, 2011 -- The nation's worst hospitals care for double the share of elderly black patients as the best ones, as well as a larger proportion of elderly Hispanic and Medicaid patients, a recent report said.

The worst hospitals are far more likely to be small or public hospitals in the South, with the best hospitals usually urban teaching hospitals.

The finding has broad implications as the Medicare system moves toward a value-based purchasing approach in which lower-quality, high-cost hospitals are penalized financially. Some hospitals may be put at risk of failure—thereby reducing access for poor and minority patients—if their profit margins are affected, the authors said.

The study, by Ashish K. Jha and Arnold M. Epstein of the Harvard School of Public Health and E. John Orav of Harvard Medical School, was published in the October issue of the journal Health Affairs and funded by the Commonwealth Fund.

They wrote that the health care law (PL 111-148, PL 111-152) authorizes the Center for Medicare and Medicaid Services to make higher payments to hospitals that demonstrate better-quality performance and to reduce reimbursements to those that don't improve. The best outcome for hospitals will be to increase quality and reduce costs, but whether they can achieve both is unclear, they said.

Using data from the government and the American Hospital Association, they grouped 3,229 U.S. hospitals into categories of high quality and low cost, or "best"; high quality and high cost; low quality and low cost; and low quality and high cost, or "worst." The hospitals were not identified by name.

Of them, 122 ranked as the "best" and 178 as the "worst." The best hospitals were more likely to be located in the Northeast, to be nonprofit and to have a cardiac intensive care unit. They were "significantly" more likely to be major teaching hospitals, be in urban areas and have higher nurse-to-patient ratios.

The authors said 6.8 percent of those discharged from the best hospitals were elderly black patients, compared to almost 15 percent of such patients discharged from the worst hospitals. There were similar findings for Medicaid patients.

Outcomes also were different between categories of hospitals for patients admitted with acute myocardial infarction or pneumonia. Patients admitted to low-cost, low-quality hospitals had a 12 percent to 19 percent higher likelihood of death compared to those admitted to the best hospitals.

"Our findings have important implications" for the value-based purchasing program, the authors said. The program now focuses on quality, but Congress also wants Medicare to pay closer attention to costs per case when it comes to payments, and that likely will become a key feature of future payment changes, they said. Even if costs aren't counted, reduced payments to hospitals in the future will mean hospitals have to focus more on efficiency, they said.

It's also possible that hospitals that perform poorly could catch up, and that happened in a Centers for Medicare and Medicaid Services demonstration program, they said.

"It is unclear why some hospitals are able to provide high-quality care at comparatively low cost, while other hospitals struggle to do so," they added. "It is tempting to assume that high-cost, low-quality hospitals are mismanaged, and this may be true. Whether having a greater proportion of minority and Medicaid patients puts these hospitals at a disadvantage is unclear."

Nonetheless, ensuring lower-performing hospitals provide high-quality care is critical if the nation is to make headway in reducing disparities, they said. The 1 percent of Medicare reimbursements at risk might seem modest, but given that many hospitals are running at zero or negative margins, "even losing a portion of that one percent may put some hospitals at risk of financial failure," they said.

In a separate report also published in Health Affairs, the Center for Studying Health System Change reported that it might be just as important to educate Hispanic patients about how to take charge of their own care as expanding access to care. The report, funded by the Robert Wood Johnson Foundation, said that active participation by patients, or how confident, skillful and knowledgeable they feel about improving their health care, is important.

"The findings in this study suggest that lower patient activation may be an important reason for greater unmet medical need, particularly among Hispanics," wrote the authors—Peter J. Cunningham, of the center; Judith Hibbard, of the University of Oregon; and Claire B. Gibbons of the Robert Wood Johnson Foundation.

"Historically, health policy makers have focused on improving the functioning of various components of the delivery system and on addressing gaps in coverage," they said. "Yet evidence is mounting that policymakers also need to focus on enabling and supporting consumers so they can be effective participants in the system."

Health Affairs October Issue

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Study: Families Hit Much Harder by Health Costs Than Many Realize

By John Reichard, CQ HealthBeat Editor

October 3, 2011 -- Rising health care costs hit families much harder than many people realize. And the pocketbook impact, when fully understood, underscores how critical it is to control those expenses, according to a new study by Rand Corp.

Despite the rise in household incomes between 1999 and 2009, the average family only had $95 more per month to spend by the end of that period, the study said. One of the biggest reasons for that was the increase in insurance premiums, out-of-pocket costs and taxes related to health care, it added.

Rand analysts said the typical family's monthly before-tax income grew by $1,910. Rising prices for consumer goods and taxes not related to health care consumed 52 percent of that. Most of the rest went for higher health costs, leaving families with only $95 more per month.

"Had health care costs tracked the rise in the Consumer Price Index, rather than outpacing it, an average American family would have had an additional $450 per month—more than $5,000 per year—to spend on other priorities," Rand researchers said.

The statistics most often quoted to illustrate rising health costs fail to capture the impact on families, they added.

For example, U.S. health care spending between 1999 and 2009 nearly doubled, growing from $1.3 trillion to $2.5 trillion. Health spending consumed 17.6 percent of the gross domestic product, up from 13.8 percent. "Although these numbers are striking, they do not easily translate into figures that are meaningful to individual Americans."

Increases in premiums and out-of-pocket spending by families more vividly show the impact—but they are just part of the story. Health costs also affect families because they hold down wage hikes and also boost the state and federal taxes families must pay because of the rising costs of Medicare and Medicaid.

Between 1999 and 2009 the average family's share of monthly premium costs rose from $85 to $195. The part the employer paid rose from $240 to $550 per month. These extra payments by employers represented forgone wages, the study said. Most economists assume that the growing sums employers pay in premiums would have gone for higher wages had health costs not increased.

"Out-of-pocket health care spending also rose sharply, largely because of steeper co-pays and deductibles, as well as higher prices for drugs and medical supplies," the study said.

According to a Rand estimate, the family's monthly tax bill for government health care was $345 in 1999 and $440 in 2009. "The latter number would have been far higher if the government had collected enough taxes to cover health care spending," the study added. "Instead, it added the difference to the federal budget deficit."

Had taxes kept pace with the growth in federal health spending over the 10-year period, "the typical family would have paid out an additional $390 per month in taxes." So rather than having an added $95 per month to spend after the decade's growth in household income, they actually would have wound up with a deficit of $295 per month.

"The complex ways in which Americans pay for health care obscure the impact of health care cost growth on the finances of American families," the study concluded. "These sobering facts provide further evidence that lowering health care costs is one of the most important challenges of our time."

Other recent studies show no change in these trends.

A study of 371 large employers by the consulting firm Aon Hewitt found that premiums will rise 7 percent in 2012. The average total health care premium per employee will reach $10,475 in 2012, up from $9,792 in 2010. Employees next year will pay $2,306 toward that, compared to $2,084 in 2011.

Aon Hewitt added that "average employee out-of-pocket costs, such as co-payments, coinsurance and deductibles, are expected to be $2,275 in 2012, compared to $2,007 in 2011 and $1,691 in 2010."

Last week a joint study by the Kaiser Family Foundation and the Health Research and Educational Trust reported that premiums jumped 9 percent this year for employer-sponsored family coverage. The average tab: $15,073 this year, with workers paying $4,129 and employers $10,944. The study also assessed some of the impact of the health care law (PL 111-148, PL 111-152). It found that employers added 2.3 million young adults to their policies because of the health care law. Fifty-six percent of covered workers were in "grandfathered" plans exempt from some of the requirements of the law, such as covering preventive benefits with no cost sharing and having an independent board outside the company to which one could appeal denied claims.

The Kaiser-HRET study also found that 31 percent of covered workers are now in high-deductible health plans. That means they pay deductibles of at least $1,000 for single coverage. Higher deductibles are more prevalent among smaller employers. Thus half of covered workers who work for firms with 3 to 199 workers pay at least $1,000 as their deductibles.

The growth in high deductible health plan enrollment in part reflects growing use of health savings accounts or "health reimbursement arrangements." These are savings plans for health care expenses that provide tax breaks are and are sold in conjunction with high-deductible health plans. The proportion of workers in either of these two types of plans has grown from 8 percent in 2009 to 17 percent in 2011.

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Proposed Rule Would Give CMS Power to Drop Poor-Quality Plans

By John Reichard, CQ HealthBeat Editor

October 3, 2011 -- The Centers for Medicare and Medicaid Services (CMS) announced a proposed rule that would give the agency the power to drop Medicare Advantage plans and Medicare prescription drug coverage plans that get low marks for quality.

CMS could terminate plans that fail for three years to earn at least a three-star rating under the agency's five-star rating system.

The provision is part of a regulatory proposal for 2013 that also would put in place certain elements of the health care law (PL 111-148, PL 111-152).

For example, the proposal codifies the 50 percent discount on brand-name drugs prescribed for beneficiaries in the "doughnut hole"—the part of the Part D drug benefit in which beneficiaries are 100 percent responsible for their drug costs.

It also would expand covered drugs in Part D to include benzodiazepines and barbiturates for certain health conditions. Physicians could more easily appeal prescriptions denied by Part D plans.

"Special needs" plans serving people enrolled in both Medicare and Medicaid could offer certain extra benefits, such as nursing services in the home and food delivery to the homes of vulnerable beneficiaries, CMS said in a news release.

Prescribers could more easily order drugs for fewer than 30 days to help synchronize the times that multiple prescriptions are available for refill. The proposal also includes provisions to help fight fraud.

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Medicare Needs to Take the Lead on Dual Eligibles, Report Asserts

By CQ Staff

October 3, 2011 -- A new Urban Institute report says that Medicare should assume the primary responsibility for improving care and reducing costs for dual eligibles rather than relying on state Medicaid programs to come up with solutions.

Dual eligibles are the 9 million Americans who receive their health care from both Medicare and Medicaid, and their complex needs account for more than 40 percent of those federal programs' costs. Putting the states or Medicaid in the lead for their care is "risky" because for most beneficiaries, Medicaid plays a limited and primarily financial role, says the report, which was funded by the Robert Wood Johnson Foundation.

"Medicaid managed care plans lack both experience and capacity to handle the care needs of the most expensive dual eligibles," says the report. It adds that assigning states responsibility over Medicare and Medicaid funds for dual eligibles as authorized by the health care law "would allow states to substitute Medicare funds for expenditures Medicaid would otherwise make."

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