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September 24, 2012

Washington Health Policy Week in Review Archive f8c24d33-ae0c-41a6-94b2-03fa358adf05

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Bequeath to Future Generations Health Spending That's Under Control, Kitzhaber Urges Boomers

By John Reichard, CQ HealthBeat Editor

September 18, 2012 -- Can Oregon Gov. John Kitzhaber nudge his fellow Democrats closer to embracing an approach that caps Medicaid spending growth? One might think so judging by his remarks last week at a forum sponsored by the left-leaning Center for American Progress, which showcased his state's new law to tackle runaway Medicaid spending by retooling its health care delivery system.

Kitzhaber, who is a doctor, was outspoken and impassioned in a way few of his fellow Democrats are right now about the moral imperative to chop Medicaid and Medicare spending growth and to not pour money into a broken health care system. He said fixing health care costs is something baby boomers must take on and get done for future generations.

A cap on Medicaid spending growth is how Oregon is addressing rising costs, he said. His speech drew warm applause from the CAP audience—surprising perhaps in light of fierce Democratic opposition to the Republican efforts to block grant Medicaid.

Center officials touted the effort as a way to use the Medicaid program as a driver to broadly reduce health care costs. They hailed it as one of a handful of promising state-based cost control efforts.

Under Kitzhaber's leadership, Oregon has passed a law that caps yearly per person Medicaid spending growth over five years to reduce federal and state Medicaid outlays in Oregon by $11 billion.

The law, which Kitzhaber signed early this year and federal officials approved this spring, delivers savings not through cutting provider payment rates or dropping people from the Medicaid rolls, but by trying to get at the real underlying problem, which is the rising cost of care, Kitzhaber said.

Without getting at costs, state and federal officials can simply shift the costs of care onto the private sector, Kitzhaber noted. "Unless our efforts at health care reform address this cost-shifting cycle, we're not going to be able to solve this problem in the long term," he said.
The fiscal crisis besetting state and federal governments creates an opening to make fundamental changes in health care delivery, that's what happened in Oregon, and that's the way it can work on the federal level too, he said.

The 2009 economic stimulus law (PL 111-5) was a "lifeline" that injected badly needed education and Medicaid funds into his state's budget, but it did so with "absolutely no incentives" to change the health care system, he said. Kitzhaber said when he took office early last year the state was looking at a $2 billion shortfall in Medicaid funding. State officials had to balance the budget. They could have fixed the hole in Medicaid funding by cutting provider payment rates 40 percent but elected instead to cut costs with a plan to retool health care.

New Business Model

Oregon state lawmakers passed legislation in June 2011 to design a new business model around "community care organizations," or "CCOs." Kitzhaber described them as organized around "natural" health care communities, such as counties or hospital referral areas.

The business model calls for these local health care delivery entities to comply with four central elements. "The first one is service integration, care coordination, and a focus on wellness, prevention, and the community-based management of chronic conditions," the governor said. Second, these provider entities must connect with community-based programs that try to improve public health, and the governance structure of the CCOs must reflect this emphasis on the health of the local population.

Third they must manage the utilization of health care resources using a global budget that grows at a fixed rate, with adjustments made to compensate in areas that have a sicker population. Fourth, they must meet standards for access to health care and for clinical outcomes.

In February, Oregon adopted legislation that implemented the design called for in the 2011 law. In May, Kitzhaber said he negotiated with federal officials the final details of a federal waiver allowing these changes in the state's Medicaid program. The waiver also provided for "a significant infusion of up-front federal money to allow us to stabilize the delivery system" during the transition to a new health care model, he said.

Medicaid officials have agreed to provide $1.9 billion in federal dollars to Oregon over the next five years "to help us transform the delivery system." In return, Oregon agreed to reduce the per member inflation rate in Medicaid by two percentage points and to lock in that rate of growth over five years.

"These cost savings will fully pay back that $1.9 billion investment in five years and will save the state and federal government $11 billion over the next ten years," Kitzhaber said.

If every state stuck to that same limited inflation rate, the nation would save $1.5 trillion over the next decade, he added.

How exactly will this money be saved? As an example, Kitzhaber cited the CCOs' use of community care workers who would do innovative things to keep people with chronic conditions from having to go to the hospital. Kitzhaber noted that people at risk of chronic heart failure can be tipped over into that condition and into costly hospitalizations if they get too hot during heat waves.

CCOs, paid to keep patients well, can do things like buy people a $200 air conditioner, which could be sufficient to keep a congestive heart failure patient from incurring a $50,000 hospitalization. "The difference is $49,800. Benefits aren't cut and quality of life improves, he added.

"That's essentially what we're trying to do – to change the care model and the business model and to realign our organizations and our financial incentives to focus on prevention and wellness," he said.

Still an Experiment

But Kitzhaber admitted that the system is experimental, and said CCOs will have to be continually experimenting and learning from each other how to control costs. Kitzhaber said he's meeting regularly with the CEOs of the CCOs. "We just have to learn from the mistakes," he said.

How will Oregon spur retooling of health care to reach state residents more broadly with the new model? The state's Medicaid program has about 600,000 enrollees. And beyond those Medicaid patients, Kitzhaber said the state also pays for health care for another 300,000 state employees and public school teachers. That means 900,000 people—or one of every four state residents—is covered through the state. That gives the state considerable leverage in dealing with providers to get them to adopt the new care model.

Kitzhaber says the model could save another $5 billion on care delivered to the 300,000 non-Medicaid people whose health insurance is under state control. That plus the $11 billion in Medicaid brings the savings to $16 billion.

He explained that providers facing less revenue from the public programs could then try and cost-shift the losses to the private sector that could insurers to increase their premiums. "To avoid that, we have started conversations with the private sector because we believe it's imperative that private employers begin to take steps to align their purchasing power with that of the state and to demand the same kind of care model that grows at a lower rate of inflation."

That's all well and good, and the CAP audience seemed energized by the presentation. But aren't Democrats in general opposed to fixed allotments of Medicaid funds to the states? Kitzhaber told reporters after his remarks that "the problem with just a cap is it penalizes you if your population grows." He said his understanding is that block grants wouldn't adjust for Medicaid enrollment changes.

"So we're saying it makes more sense to have a per capita rate, and that rate grows at a fixed amount," he said. "We picked three and a half percent, which is a two percentage point reduction. In order to grow at that rate, you've got to fundamentally change the delivery model in order to make that happen."

So what if Congress capped growth per capita? That wouldn't be enough, Kitzhaber said. Delivery system changes would "absolutely" have to be a part of that.

How would that 3.5 percentage growth gap be enforced? What happens if Medicaid spending rises faster than 3.5 percent? Does Oregon just not get money above the 3.5 percent rate?

"The discipline is. . . we've got $1.9 billion spread over five years" the federal government will give Oregon to retool the system. If say after the second year Oregon isn't limiting Medicaid spending growth to 3.5 percent per capita, "we lose the rest of the money," Kitzhaber said, referring to the remainder of the $1.9 billion, which is being spread out in payments to the state over five years. Also, "we're back to the old Medicaid program."

That's a pretty big disincentive, the governor said. "We'd have to drop people, because providers would get about a 40 percent cut." Providers "are highly motivated to change the system."

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Agencies Say Demo Shows Electronic Health Records Can Be Securely Transmitted

By Rebecca Adams, CQ HealthBeat Associate Editor

September 17, 2012 -- The departments of Veterans Affairs and Health and Human Services recently said they've demonstrated how to share sensitive electronic health records between the two agencies without revealing personal information.

One of the biggest concerns of privacy advocates about electronic health records is that confidential health information will be accidentally disclosed.

Officials said that the HHS' Substance Abuse and Mental Health Services Administration (SAMHSA) used new standards to securely send to the VA a mock patient's substance abuse treatment records after electronically verifying that the mock patient had consented to the transmission.

The patient's record was tagged with privacy data, which signaled to the VA electronic system that substance abuse treatment information within the clinical document is protected by federal confidentiality laws. Those laws prevent it from being further disclosed without the patient's consent, and mean it can only be used for certain authorized purposes.

"This project helps demonstrate that with proper standards in place, existing privacy laws and policies can be implemented appropriately in an electronic environment," said Joy Pritts, chief privacy officer at the Office of the National Coordinator for Health Information Technology.

"Privacy and the protection of sensitive health information are paramount for many patients with behavioral health conditions," said SAMHSA Administrator Pamela Hyde. "The tools developed in this pilot will be critical for building trust and capacity in EHRs and health information exchanges, especially for patients with behavioral health problems."

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No Sign of Essential Benefits Proposal, but Some Say States Can Progress Anyway

By John Reichard, CQ HealthBeat Editor

September 19, 2012 -- Despite indications that it might be out by now, a proposed rule setting minimum standards for the benefits that insurers must provide under the health care law has yet to emerge—and the Obama administration may be skittish about releasing it before the approaching election.

Insurers, states, and health care law supporters all say that with enrollment in insurance exchanges set to begin in a little more than a year, having a proposed rule is key. Insurers have to be able to craft the benefit packages they will offer in the exchanges, among many other tasks they must accomplish to prepare for the exchanges, which will begin to operate in 2014.

Some state officials and lawmakers say not having a proposal makes it difficult to comply with the health care law (PL 111-148, PL 111-152) because states have no assurances that the essential benefit packages they adopt will meet the demands of regulators at the Centers for Medicare and Medicaid Services (CMS).

CMS has issued a "bulletin" to guide states on putting together an essential benefits standard. But that's not the same as a proposed regulation.

Even those who ardently support the health care law and are sympathetic to the administration are anxious about the lack of a proposal. "I hope to see it before the election," said Timothy Jost, a professor at Washington and Lee University Law School. "The states need it, and so do the plans. October 2013, when plan enrollment begins, is coming up awfully fast."

Michael Hash, then the acting head of the CMS Center for Consumer Information and Insurance Oversight, told a Capitol Hill forum in July that he expected the proposal to be out "shortly." Close observers of CMS predicted it would be issued by the end of the summer. 

But the White House Office of Management and Budget, which normally notifies the public of such things, has issued no notice on its website that the proposed rule is under review. It often takes OMB weeks, if not months, to sign off on such proposals.

Whether or not the proposal comes out before the election may hinge on whether it breaks new ground.

"The bureaucratic survival rule for an election year is, above all, do no harm to the incumbent," said a managed care industry consultant. "So if the rule just repeats previous guidance that the states identify the most prevalent benefits currently offered, then the White House will issue it, as it will not generate employer or payer opposition.

"However, if the rule includes specific benefit mandates beyond the general categories previously specified, then the Republicans and the carriers will claim that the benefits are not affordable—an accusation the administration probably does not want to debate shortly before Election Day," the consultant continued.

Some state officials—such as Joshua Sharfstein, Maryland's secretary of health and mental hygiene,—have been preparing despite the absence of the proposal. Sharfstein said in a recent interview that state officials have held internal meetings to identify the benefits that Maryland will adopt and have conducted public meetings to get stakeholder reaction.

Michigan has tentatively adopted a minimum benefits package and has put it up for public comment. A consumer group in that state has objected to a proposal, saying it lacks sufficient provisions for mental health care.

"In the absence of more formal rules, states are beginning to select their EHB plans," Heather Howard, an official with the Robert Wood Johnson Foundation, testified before the House Ways and Means Health Subcommittee on Sept. 12. "For example, the Oregon Exchange Board issued a preliminary recommendation to select the third-largest small-group plan as its EHB benchmark."

Howard said that in Colorado, the governor's office released a draft benchmark plan for public comment after giving stakeholders a chance to weigh in. "While highly specific guidance could have made the choice easy for states, the deliberate and open process of selecting an EHB in several leading states has helped to ensure broad acceptance from the stakeholder community and a clear understanding of why and how the EHB was chosen," she said.

Howard added that it's "absolutely" the case that more formal rules on essential benefits are needed. But it's not the case that implementation efforts need to come to a halt in their absence, she added.

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Double-Digit Medicare Advantage Growth Spurt to Continue in 2013, HHS Says

By Jane Norman, CQ HealthBeat Associate Editor

September 19, 2012 -- Enrollment in Medicare Advantage programs is projected to grow by 11 percent in 2013, and premiums will rise only slightly, Health and Human Services officials (HHS) recently announced.

The growth in the Medicare private plan alternative insurance program comes despite reductions in payments to the insurers that were included in the health care law (PL 111-148, PL 111-152), showing that the program apparently remains popular. During the debate over the health care law, Republicans repeatedly warned that the cuts would doom the program and outrage seniors, so its growth is a refutation of that argument for Democrats.

Leaders of the health insurance industry in reaction to the HHS announcement warned that growth may not continue because of the size of the cuts to come. "We remain concerned that the benefits and coverage Medicare Advantage beneficiaries rely on today could be put at risk as the health care reform law's unprecedented $200 billion in cuts to the program are phased in and a new premium tax begins in 2014," Karen Ignagni, president and CEO of America's Health Insurance Plans, said in a statement. She said that given the size and scope of the cuts, beneficiaries are likely to face higher costs and coverage disruptions in years to come.

In a conference call with reporters, though, Medicare officials said they believe the program will continue to thrive because they have strengthened it and are doing a better job of negotiating good deals for beneficiaries in a competitive marketplace.

Jonathan Blum, Medicare director, said that "we are clearly overseeing this program in a much stronger way" and focusing on compliance and quality.

Blum said that so far, projections of rising premiums and program disruptions by Medicare actuaries and others have not been proven true. "We see the plans participating in the program making longstanding commitments to the program," he said. "From where we sit operating the program, experience is much different."

Reductions in insurer payments began in 2011 and "certainly plans understand the schedule of reductions," said Blum. But he said that from everything HHS analysts can see, despite more payment reductions planned for the future, there are "very strong commitments to the program" being made by insurance plans.

But Senate Republicans said that according to the Congressional Budget Office, just 4 percent of planned cuts have been made in Medicare Advantage, and Republicans slammed "misleading claims" by HHS about the health of the program.

The HHS announcement comes two days before the health subcommittee of the House Ways and Means Committee is scheduled to hold a hearing on the status of the Medicare Advantage program.

Medicare officials said premiums for Medicare Advantage have fallen by 10 percent since the 2010 law's enactment, which seems almost certainly a factor in its growth.

Officials said in an HHS statement that the average Medicare Advantage premium in 2013 is projected to increase by $1.47, compared with 2012, for a monthly total of $32.59. In comparison, the 2010 monthly premium was $36.14 a month, officials said.

If beneficiaries in Medicare Advantage shop around and enroll in less expensive plans in 2013, as many did in 2012, the average MA monthly premium would then increase by just 57 cents, officials said. Plan choices also are expected to increase by 7 percent in 2013.

Annual open enrollment for Medicare Advantage health and prescription drug plans begins Oct. 15 and ends Dec. 1.

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Bipartisan Policy Center Poised to Provide Analysis in Upcoming Deficit Debates

By Rebecca Adams, CQ HealthBeat Associate Editor

September 21, 2012 -- The Bipartisan Policy Center is positioning itself to be a major player in upcoming debates over containing health care costs that might emerge in Congress as lawmakers try to rein in the deficit. A new report marks the first step in its health care cost initiative funded in part by the Robert Wood Johnson Foundation and the Peter G. Peterson Foundation.

The organization is gathering information from the Centers for Medicare and Medicaid Services (CMS), such as Medicare and Medicaid claims data, to inform a significant upcoming report that will include recommendations to Congress. BPC officials also are asking private health insurers and health systems for data. The group hopes to use the information to draw conclusions about how best to lower costs.

BPC Senior Vice President and former GOP Senate aide Bill Hoagland, who recently began working at the center, told CQ HealthBeat earlier this month that a major proposal will be released by early next year. Hoagland said then that while he isn't embracing a premium support approach to control health care costs, nor endorsing the 2010 health overhaul law, there are elements of both that can be combined to tackle rising costs.

The 27-page white paper provides an overview of the major cost drivers in the U.S. health care system. It specifically mentions several issues including health care financing and delivery, the needs of an aging population, advancing medical technology, insurance design, the lack of transparency in cost and quality information, consolidation of insurance companies and medical providers, the tax treatment of insurance and the effects of a long list of laws and regulations.

Policies could curb spending growth tied to some of the issues, the report said, but others such as the aging population cannot be solved by policy changes. Some federal policies are needed, the report said, while others are in the purview of the states.

The health care law (PL 111-148, PL 111-152) will "help control costs," the report said, but it says the measure does not go far enough. "Multiple policy changes, developed with a broad bipartisan approach, will be necessary to address our health care cost growth challenges," the report says.

Among the wide range of factors affecting spending growth are:

  • The current fee-for-service system prevalent in the United States incentivizes medical providers to perform more tests and procedures, and the cost is masked by third-party insurance, the report said.
  • Administrative costs, due to the need for providers to bill different payers, are estimated to be between $156 billion and $183 billion per year.
  • Consolidation of hospitals in the 1990s is believed to have raised prices by at least five percent, the report said.
  • Fraud and waste cost Medicare and Medicaid at least $50 billion to $100 billion per year.
  • Prices in the U.S. are higher than in other nations, with per capita spending on physician services reaching $1,599 in 2008, compared to $310 per person in other developed countries.


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