Monday, June 28, 2010


As expected, the House fell into line last week with the Senate’s six-month extension of the delay in imposing SGR-based Medicare physician payment cuts, just in time to prevent docs from getting checks 21 percent smaller than a month earlier.

Congress has been ducking the payment cuts almost since the SGR mechanism was put in place in 1997, fearful of offending physicians and fearful of reducing access as docs quit Medicare in disgust. Time may be running out, however, with the passage of health care reform with its own increases in coverage and potential Medicare payment restrictions. It’s no coincidence that Congress is getting closer and closer to the brink of letting the cuts take place, and imposing shorter and shorter delays in their imposition.

So, having bought themselves another six months, what should our elected representatives do?

Simply leaving the SGR process in place is less and less an option. After thirteen years, and with a potential thirty percent payment cut in 2011, SGR is an increasingly hot political potato. On the other hand, proposing any change is politically risky, and no change is likely before the November 2010 election. After that, Congress may get serious.

One politically courageous approach then would be to tie physician payment updates to hospital region cost increases, reflecting the Dartmouth Atlas findings of wide variations in Medicare costs and cost growth. (Take that, New York Times reporters!) Regions with highest physician costs per beneficiary and highest cost growth would be granted smallest physician payment increases. Docs in the high cost regions would undoubtedly shrilly object, with some abandoning Medicare (not necessarily bad, given that more docs leads to more utilization), while their peers in lower cost areas would look on in amusement. Worth trying? It might be a lot quicker and easier than waiting for the Independent Payment Advisory Board to make its recommendations.

Friday, June 25, 2010


As might be expected of reform legislation, the Patient Protection and Affordable Care Act places a lot of emphasis on innovation. Reasonably enough, most of the potential changes—at least in Medicare—are to be preceded by pilot or demonstration projects designed to test their feasibility. In fact, according to one health care blogger with time on his hands, PPACA includes no less than 312 mentions of demonstrations and 80 mentions of pilots.

Just how important are all these pilots and demos? Harvard’s David Cutler, who served as a key advisor to the Obama administration in developing the reform strategy, clearly believes they are vital. Writing in the June Health Affairs, he stresses the need for rapid implementation of the pilots and demonstrations in order to help achieve eventual savings of “enormous amounts of money while simultaneously improving the quality of care.”

How realistic are Professor Cutler’s expectations?

CMS’ Medicare chronic care demonstrations provide some clues. With data showing that the costliest 25 percent of beneficiaries account for 85 percent of total Medicare spending and that 75 percent of the high-cost beneficiaries have one or more major chronic conditions, the demonstrations were expected to show big benefits from care coordination—the major theme of PPACA’s proposed demos.

The outcomes were decidedly discouraging, as noted by MedPac’s 2009 report to Congress: “Results suggest that some of these programs may have modest effects on the quality of care and mixed impacts on Medicare costs, with most programs costing Medicare more than would have been spent had they not been implemented….In almost all cases, the cost to Medicare of the intervention exceeded the savings generated by reduced use of inpatient hospitalizations and other medical services.

What went wrong with such a promising effort? And what are the implications for PPACA’s pilots and demos?

The simple answer is that few providers will participate in a pilot or demonstration if it’s likely to cause their income to drop. As a result, CMS must attract “volunteers” with generous promises of shared savings or payments for additional services–essentially, bribes to compensate for lost revenue and the time-consuming process of dealing with CMS bureaucracy. So far, the bribes have outweighed the savings in almost every case. Worse still, and often overlooked in evaluations of pilots, participating providers are likely to be those most able to achieve savings—the “good guys,” rather than the typical—with resultant optimistic skewing of the results.

Will the PPACA projects be more successful? Even assuming that the heavy hand of government can be lightened to speed up project implementation and minimize the oversight burden, the picture is gloomy. PPACA includes four main categories of pilot and demonstration projects: bundling, accountable care organizations, pay-for-performance, and coordinated care. Of these, only some aspects of pay-for-performance avoid the problems of trying to tie together activities of multiple providers—exactly the problems that sank the chronic care demos.

While new IT systems might facilitate coordination of care, the jealously guarded independence of providers (and their jealously protected incomes) will continue to be a huge obstacle. Theoretically, the Independent Payment Advisory Board could recommend implementation of some changes (for example, bundling) without the PPACA pilots and demos, but this could leave IPAB without the required actuarial justification for such recommendations.

The bottom line? Trying to fix our fragmented and unorganized health care system from the bottom up, through pilots and demos, probably isn’t going to work, at least in any acceptable timeframe—and certainly isn’t going to lead to Professor Cutler’s hoped-for savings of enormous amounts of money.

Saturday, June 19, 2010


No one was astonished this week when a Republican effort to repeal the individual mandate in the Democrats’ health care overhaul failed Tuesday afternoon on a largely partisan vote.

A procedural motion to roll back the individual mandate was defeated 187-230, with essentially the same ayes and nays as for the final House vote on the original reform bill.

Republicans apparently pushed for the vote in order to be able to reiterate their opposition to—and Dems support for—a law requiring individual Americans to purchase health insurance. However, given the almost total lack of media coverage, the vote may have aroused interest only in the respective caucuses.


For the first time, the Department of Health and Human Services may be able to sidestep Congress and impose its own Medicare cost-containment policies. At least, that’s what Section 3403 of the Patient Protection and Affordable Care Act promises in creating the Independent Payment Advisory Board.

The action, so far as the public is concerned, will begin in 2014. On January 15, 2014, and annually thereafter, IPAB will make recommendations to Congress for cutting Medicare spending growth if the CMS Chief Actuary projects that per capita spending will grow faster than the average of the medical services CPI and the overall urban consumer CPI (or, after 2019, the GDP growth rate plus one percent). If Congress doesn’t pass either IPAB’s or its own legislation to meet the IPAB spending reductions within six months, HHS must implement the recommendations. IPAB may also make non-binding recommendations relating to other aspects of Medicare and to overall national health care costs.

The IPAB process for recommending and imposing changes to Medicare straddles three years. A determination in the first year (starting in 2013) by the Chief Actuary that growth will exceed the CPI targets is followed, in the second year, by IPAB submitting recommendations—which must reflect specific spending reduction targets—to Congress, and, in the third year, by HHS’s implementation of the recommendations (assuming they have not been blocked by Congress passing its own legislation).

At first sight, the IPAB process, in depoliticizing much of the authority for payment policy, seems like a huge step towards controlling the cost growth of Medicare (and of overall national health care, of which Medicare is a large component). However, IPAB’s ability to constrain spending may be limited by factors beyond its control, including:

1. Hospitals and hospices are placed “off limits” for IPAB cost cutting recommendations (other than via changes to Medicare Advantage) until 2020.
2. Changes that might raise revenues or premiums, increase beneficiary cost-sharing, restrict benefits, modify eligibility criteria, or “ration healthcare” are also excluded from IPAB’s purview.
3. The growth rate reduction percentages that will be invoked are less—at least in the earlier years—than the expected rate by which Medicare growth will exceed CPI targets.
4. Some providers may take a “first strike” approach to the threat of IPAB spending cuts (for example, by increasing utilization) in the period before the first determination by the Chief Actuary that target rates have been exceeded.
5. There is no guarantee that IPAB recommendations will succeed in reducing growth by the required amount, especially in later years when few “low-hanging fruit” remain. There could be a significant “bubble effect” as cuts in one area are balanced by increased growth elsewhere.
6. In election years, Congress may be particularly unwilling to approve IPAB recommendations, especially if they can be characterized by lobbyists as threats to beneficiary care.
7. Congress may, at any time, make changes to Medicare that increase spending growth.

One big unknown is the resolution of the “doc fix.” If Congress fails to permanently resolve the SGR issue, and physician payments are slashed by 20 percent or more, medical service costs will increase more rapidly in following years as physicians attempt to recoup lost income by driving up utilization (and intensity, too, through some diligent upcoding).

A New England Journal of Medicine article by Timothy Jost raises additional concerns. Jost notes the contradiction between PPACA’s emphasis on IPAB members being nationally recognized experts and the executive grade salaries they will receive. Certainly it’s hard to see a major league health care expert giving up speaking and writing fees to become one of a panel of eighteen that emerges once a year. Although IPAB should attract competent individuals, it will be weakened in dealing with Congress by the lack of big name credibility.

Jost also worries that the annual growth reduction targets will lead to short-term fixes, rather than longer-term changes that would bend the cost curve. Given that Medicare cost growth in the next few years is likely to exceed the CPI rates, almost regardless of policy changes, a series of one-off reductions is more likely to comply with the targets than more far-reaching changes in payment methodology.

What’s likely to be the result of IPAB’s efforts? The CBO—assuming that reduction targets would be hit—estimated Medicare spending reductions of $15.5 billion over ten years, approximately 0.3 percent of projected costs . The CMS Chief Actuary, however, has expressed skepticism, noting that history suggests that the target growth rates may be unachievable. Conservative economist (and former CBO director) Douglas Holtz-Eakin, writing in Health Affairs, dismisses IPAB’s impact out of hand on the grounds that Congress will find its recommendations politically infeasible.

A more probable result than that forecast by the CBO or Holtz-Eakin is that IPAB will be optimistic in its forecasts of spending reductions, and that Congress will turn a blind eye to this optimism while also occasionally loosening payment restrictions as beneficiaries find access to care increasingly difficult—a scenario that might produce some fraction of the CBO savings estimate.

Wednesday, June 16, 2010


The Department of Health and Human Services has issued its regulations defining what health plans may be “grandfathered” under reform, along with estimates of the percentage of plans likely to be affected.

The regulations will surprise those who took a broad interpretation of President Obama’s promise that anyone who likes their current plan can keep it. While the new regs don’t contradict the president’s promise, they do reflect a narrow reading of it. Changes that would result in a plan being no longer grandfathered (and therefore subject to all the provisions of reform) include:

· Reductions in benefits
· “Significant” increases in co-payments
· Any percentage increase in coinsurance
· “Significant” increases in deductibles
· “Significant” reductions in employer contributions
· Reductions in annual payment caps
· Changes in insurance companies (excluding self-funded administration)

However, it appears that any increases in coverage would not trigger exclusion from grandfathering.

The effect of the new regs will vary according to the size of plan. HHS estimates that large group plans (with over 100 employees) will see fewest changes to their grandfathered status, since these are the most stable types of plan, with more than 80 percent still grandfathered in 2011, and more than half still grandfathered in 2013, immediately prior to the establishment of insurance exchanges and most other reform provisions. HHS also estimates that smaller group plans will see a much faster move out of their grandfathered status as they attempt to control costs by tightening benefits; 70 percent are projected to be grandfathered in 2011, but only a third will retain their grandfathered status by 2013. Individuals will be most impacted by the new regs: because of their typical plan “churn,” almost all will switch from a grandfathered plan over the next three years.

HHS cautions that the estimates will depend on medical inflation and other factors; higher medical costs will likely cause more employers to seek to cut benefits and therefore lose their plan grandfathering. It is also possible—but not considered by HHS—that insurers will make extra efforts to minimize benefit changes in order to avoid what they may perceive as the more intrusive aspects of reform.

A very rough guess—since the HHS estimates reflect numbers of plans rather than numbers of insureds—is that three-quarters of those currently covered will be in grandfathered plans in 2011, but only around half will still be grandfathered in 2013.

Monday, June 14, 2010


In addition to Medicare Advantage payment cuts and potential reductions in fee-for-service payment updates, PPACA includes various provisions intended to facilitate ongoing Medicare cost containment, notably creation of the Independent Payment Advisory Board and the Center for Medicare and Medicaid Innovation. In addition to CMI’s broad scope, PPACA requires specific pilot projects, including (in Section 3022) demonstration of accountable care organizations (ACOs).

What does PPACA mean by an ACO? Dr. Elliott Fisher of Dartmouth Medical School, a primary originator of the concept, defined it as “a provider-led organization whose mission is to manage the full continuum of care and be accountable for the overall costs and quality of care for a defined population” and listed several provider groupings that could form ACOs. PPACA provides additional criteria, including having a formal legal structure and administrative systems, meeting CMS requirements for quality assurance and reporting, and serving at least 5000 Medicare beneficiaries. PPACA also specifies a deadline for the ACO pilot: “Not later than January 1, 2012, the Secretary shall establish…a program…”

The goal of an ACO is to reduce costs and improve quality of care through cooperation and coordination among providers, similar to that achieved by integrated delivery systems like Geisinger, HealthPartners, and Intermountain Health Care, but within what may be essentially a virtual organization superimposed on a loose network of providers and covering only a subset of patients.

The ACO concept has been enthusiastically supported by an impressive list of health care experts, plus Dartmouth and the Brookings Institute, but not by Jeff Goldsmith, the author of a critical piece posted on the Health Affairs blog. Goldsmith is particularly skeptical about the difficulty of getting providers to work together, noting “a thundering absence of collegiality – in my view, the central precondition of assuming risk and managing care…” Goldsmith is also doubtful about economic aspects of ACOs: “40% of physicians no longer have any Medicare hospital-related fee income. So squashing hospitals and physicians back together into economic interdependence in a joint hospital/physician economic pool makes no real-world sense.” In a rebuttal piece, Brookings’ Dr. Mark McClellan and others defended ACOs as a critical step away from volume-based health care payment and toward better care at lower cost, but provided no examples of successful implementations.

And that’s the problem. Like some mythical medieval creature, the ACO has not been sighted, other than within existing formal organizational structures in which providers are subject to centralized management—and payment.

This doesn’t mean that we won’t be reading about some ACO successes. The Brookings-Dartmouth ACO Learning Network has attracted an impressive list of interested provider organizations and is assisting in pilot implementations. However AultCare and Carilion Clinic—the Network’s first pilot sites—both have existing health plans and have much in common with integrated delivery systems. Even so, efforts to revamp IT and financial systems have been substantial, with key details—like how to reward providers for cost savings—still to be worked out, according to a recent article in Modern Healthcare.

Prospects for the virtual forms of ACOs seem much less promising, given the need to create, more or less from scratch, the support systems necessary to make the concept feasible, plus the extreme difficulties of changing the mindset of providers who may demonstrate Goldsmith’s “thundering lack of collegiality.” Vermont—where the ACO concept has been studied since 2008, and where the schedule for pilot project start-up has already slipped a year, to 2011—provides a measure of the time and effort involved, with a recent Commonwealth Fund report providing a lengthy list of “lessons learned” (so far, that is).

An even greater obstacle than lack of provider collegiality may be provider fear of loss of income. Physicians used to having control over their own fee-for-service world may well hesitate to sign up for a “share of savings” that is dependent on reduced billings by ACO providers, especially if the share will be net of the administrative costs necessary to support the ACO.

None of this means that Dr. Fisher and his colleagues are wrong in their objectives. If the health care “waste” identified by the Dartmouth Atlas project and other studies is to be reduced, providers must work cooperatively. It may even be that successful implementation of ACO concepts, first by formal integrated delivery systems, and then by less tightly organized systems with existing central management, will start to put enough pressure on other providers they too begin to look beyond billings to better integrated patient care.

Or more likely not, at least in the near term, given the practical and behavioral problems involved. ACO principles of a continuum of care, resource planning, and performance measurement represent huge challenges to all but centrally managed systems. Unless the CMS ACO pilot is to be based on such a system, its deadline seems unlikely to be met, and yet its objective—to use another medieval analogy—of finding a way to turn the leaden dross of health care waste into the gold of high performance care depends on making the ACO concept work in much looser networks —and CMS has shown very little talent for alchemy.

ROLLBACK RHETORIC—BUT WHO’S NOTICING? has a couple of related stories about the ongoing Republican opposition to health care reform.

The first is about lack of media interest in the GOP’s latest bill to repeal reform—a non-starter, obviously, but designed to capture public attention in the run-up to the November elections.’s headline says “Spill Drowns Out GOP Health Message,” and notes that with public attention on the BP oil spill, there’s not much interest in an issue that’s starting to be old—except for the effective PR value associated with the mailing out of $250 checks to seniors whose drug expenses fell into the “donut hole.”

The Medicare D check mailing is part of the second story, too—a report of President Obama’s speech to seniors at a nationally televised town hall meeting that focused on the GOP threats of repeal of the benefits of reform, including—as well as the $250 checks—free preventive care, and new protections for the insured.

Expect to see plenty of Democratic ads featuring those checks as we get closer to November!

Tuesday, June 8, 2010


According to, Democratic allies are about to initiate a huge publicity campaign—the Health Information Center—to defend health care reform.

The estimated $125 million campaign is expected to be co-chaired by former Senate Majority Leader Tom Daschle and by Victoria Kennedy, the late Senator’s widow.

Funding is already being raised from unions, businesses, and foundations, with a budget target of $25 million a year to cover the five years through the implementation of the bulk of PPAC’A’s provisions.

Monday, June 7, 2010


(This is the third of a series of commentaries on details of the 2010 health care reform legislation.)

Although the Patient Protection and Affordable Care Act incorporates numerous health care system fixes, including new regulations to protect consumers, new rules for insurers, expansions of existing programs, new payment incentives and subsidies, and penalties for non-coverage, it mandates almost no structural changes, with one big exception: establishment of insurance exchanges in each state.

Insurance exchanges, designed to facilitate enrollees’ coverage choices within a competitive market, are not new. Exchange mechanisms have been used for several years for employee coverage selection by the federal government and by many states. And, since 2007, Massachusetts has operated what is probably closest in design to the PPACA concept—the Connector.

What’s been the experience so far?

The Federal Employees Health Benefit program provides by far the largest existing exchange, used by eight million government employees and retirees. Although employee surveys show that the FEHBP model works well in facilitating coverage choice, its market competition effect is limited. With no standard benefit package, apples-to-apples comparisons of coverage value are impossible, while with the government picking up some three-quarters of premium costs, employees may be relatively insensitive to price differences. While FEHBP presumably gains the lower premium advantages of large groups, the rate of premium increases has been close to that of the non-exchange private sector, according to a 2006 GAO report. (Premiums for California’s CalPERS, the largest state exchange, rose slightly faster than the private sector’s, according to the same report.)

Efforts have also been made by states and business groups to create exchanges for private sector employee coverage but, almost without exception, these have failed. In most cases, the primary problem was adverse selection: insurers marketing outside the exchange cherry-picked the best risks, leaving older and sicker groups to seek coverage via the exchange, which inevitably found itself in a death spiral as premiums rose and the better risks found coverage elsewhere.

So what about Massachusetts?

Although Massachusetts’ Connector is the prototype for the PPACA exchanges, extrapolating from the Connector experience requires caution. The state reform law that created the Connector was enacted in a strong economy, in a state with an exceptionally low level of uninsured, and with bipartisan political support and the backing of providers, consumers, and businesses, a combination unlikely to be true when the PPACA exchanges are rolled out. The Connector has two components: a subsidized program for lower-income individuals who do not qualify for other government coverage, and a much smaller (only 20,000 participants) unsubsidized program for small groups and individuals. As with FEHBP, the Connector seems to have functioned well in helping consumers choose health plans, but has had little success in controlling premium costs—perhaps because enrollment is low relative to the overall market. The Connector board has rejected most plans’ premium proposals for the next year and insurers are currently threatening to withdraw from the exchange.

Does PPACA adequately consider the experience of other exchanges? The regulatory details of PPACA’s exchanges are yet to be determined, but the legislative language implies some potential problems:

1. Enrollment numbers will depend on consumers’ acceptance of the individual mandate. (The CBO estimates 24 million exchange enrollees, assuming the mandate is found constitutional.) Massachusetts’ mandate was imposed pre-recession, but even so, the uninsured rate has only been halved, indicating that some states—Texas and Florida, for example—may continue to have large numbers without coverage.

2. Exchange participation by insurers will be voluntary, suggesting that some plans may prefer to focus entirely on their grandfathered business. Any insurer will be able to offer non-grandfathered coverage outside the exchanges (but must offer similar benefits), potentially offering cherry-picking opportunities to carriers who avoid the exchanges and the single risk pool for exchange participants.

3. Some smaller states, and others with low percentages of uninsured, may find that the number of exchange options results in insufficiently diverse risk pools, in which older and sicker individuals may dominate. PPACA provides for the option of separate pools and exchanges for individuals and small groups (Massachusetts combined them), as well as Co-Op plans (a sop for public plan advocates) and Multi-State plans (to be established by the federal Office of Personnel Management, FEHBP’s parent), each with up to four benefit levels, plus a young adult catastrophic coverage plan, plus an under-21 plan. While PPACA includes some risk-sharing provisions, this elaborate structure seems sure to present some actuarial challenges.

4. The flexibility (or vagueness) of benefits required to be offered seems likely to make value comparisons difficult. PPACA includes only a generic list of covered services, with specific benefits “to be determined by the Secretary of HHS and equal to the scope of benefits under a typical employee-based plan,” and also allows additional benefits to be offered beyond these. (In contrast, Massachusetts initially required plans to provide similar “actuarial values,” but recently decided to mandate identical benefits to make price comparison easier.)

5. Some state governors have indicated that they will not comply with the requirement to establish an exchange. While PPACA would then require the federal government to create an exchange, the lack of state support could be problematic, especially since the legislation provides only twelve months for federal implementation.

So, how likely are the new exchanges to succeed? Much depends on the extent to which the final regulations can bridge the gap between the PPACA provisions and experience. In most states, the exchanges should be effective in facilitating coverage selection, although the efforts that Massachusetts found necessary to establish and maintain an exchange serving a very small population imply that a large state with many currently uninsured could find this a big task. The exchanges should also reduce administrative costs for participating plans as broker commissions and some marketing and enrollment costs are eliminated. (The CBO estimates reductions of 1 to 4 percent in small group premiums and 7 to 10 percent for individual premiums for exchange participants.)

The bigger problem may be that of increased medical costs, as relatively static provider supply is faced with demand increased by the previously uninsured. (Even with only a small percentage increase in the number of insured, Massachusetts health care costs have increased faster than most other states since reform was implemented.)

Insurance exchanges do have considerable cost-containment potential, but if experience is any guide, the PPACA versions will fall short unless their enrollment numbers are large enough to attract competitive rates from insurers and provide risk pool diversity, and unless competing plan benefits are sufficiently comparable that consumers can determine best value—and even then, exchange savings may be offset by the effects of reform-driven imbalances between consumer demand and provider supply.

Tuesday, June 1, 2010

THE BERWICK NOMINATION – REFORM RHETORIC REDUX, Kaiser Health News, The Health Care Blog, and other on-line health care news and opinion sources all have lengthy pieces on Republican threats to derail Dr. Donald Berwick’s nomination as Administrator of the Centers for Medicare and Medicaid.

Dr. Berwick’s specific sins, according to the GOP, relate to his work for—and admiration for—Britain’s National Health Service, which gained him an honorary knighthood in 2005.

A l-e-n-g-t-h-y piece in THCB by Maggie Mahar on Dr. Berwick’s nomination is titled “Support for Berwick to Head Medicare Grows,” and emphasizes the apparently almost unanimous support (so far) for Dr. Berwick from medical groups around the country, including the American Hospital Association. This support is obviously vital to the nomination, but it could be swamped in the rapids of political rhetoric.

Given Dr. Berwick’s exemplary career experience, it seems highly unlikely that he will fail to be confirmed. What is certain, however, is that the confirmation hearings—tentatively scheduled for late June, but with the possibility of delay—will serve as an opportunity for opponents of health care reform to revisit the entire reform debate. Dr. Berwick’s hearing will provide a national stage—four months or less before the November election—for concerted attacks on the Democrats’ reform legislation, attacks that Senate Republicans will make every effort to prolong. And that could have a very big impact on reform, as some of its Congressional supporters are defeated and others suddenly discover that they really weren’t as enthusiastic as they said they were back in 2009.