Piper Report
Blog on Medicare, Medicaid, health reform, and more. Insights and resources on hot issues. Kip Piper, editor.
Healthcare consultant, speaker, and writer. Expert on Medicare, Medicaid, health reform, and pharma, biotech, and medical technology industries. President, Health Results Group LLC. Senior advisor to Sellers Dorsey, TogoRun, and Fleishman-Hillard. Visit KipPiper.com. Or email Kip here.
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posted: July 27, 2010

Primer on CER.jpgComparative Effectiveness Research holds extraordinary implications for healthcare stakeholders, notably the pharmaceutical, biotechnology, and medical technology industries; patients; physicians; hospitals; the federal Medicare program; state Medicaid programs; and health plans. In addition to guiding and hopefully improving day-to-day decisions by clinicians and patients, Comparative Effectiveness Research will be extraordinarily influential in coverage and reimbursement decisions.


Here is a quick primer on the massive new Comparative Effectiveness Research program in the U.S., including major changes enacted in the new health reform law.


Comparative Effectiveness Research Defined:


Comparative Effectiveness Research (CER) means research evaluating and comparing health outcomes and the clinical effectiveness, risks, and benefits of two or more medical treatments, services, or items (e.g., drugs, biologics, devices).


More specifically, this includes comparisons of:

  • Prescription drugs and biologics
  • Medical devices
  • Diagnostic tests and diagnostic tools
  • Surgical procedures
  • Protocols or guidelines for patient treatment
  • Care management practices
  • Prevention activities

Conceptually, CER looks at medical interventions across the range of prognostic, preventive, diagnostic, therapeutic, rehabilitative, and palliative care. Health policy experts have increasingly proposed that CER should also assess the effectiveness of models or systems of health care delivery. Therefore, there is a degree of interaction and overlap between CER and health services research.


CER studies may compare similar treatments - like comparing several drugs in a therapeutic class - or compare clinical effectiveness of different approaches, like comparing a drug and a surgical procedure for the treatment of the same condition.


CER employs a variety of research methods, including randomized controlled trials, meta-analyses, and observational cohort analyses. In addition to conducting the clinical effectiveness and comparative effectiveness research itself, CER also involves building of the necessary infrastructure (data, research methods, staff, training, etc.). To meet the demands of CER, researchers are developing and testing new methodologies and data sources.


To have any real value, the results of CER must be actionable, with findings effectively translated for and disseminated to the full range of decision makers.


Challenges and Controversies in Comparative Effectiveness Research:


The goal of CER is to increase our collective knowledge of what works and to improve decision making by physicians, patients, purchasers, and payors. However, by its very nature and because of the aggresive use of CER in the UK and other countries, CER raises many difficult or controversial questions. Here are a just a few examples:

  1. Should CER look only at clinical effectiveness, with eye to giving physicians and patients more information to guide their decisions?
  2. Should CER also look at cost effectiveness and cost-benefit analysis?
  3. Should CER influence or drive coverage and reimbursement decisions by Medicare and other government health programs?
  4. Who should set research priorities? How should research priorities be set? What are the research priorities?
  5. Since many studies look at large populations, how do we ensure research reflects special populations and doesn't unintentionally discriminate against sub-groups? For example, if a drug, device, or surgical procedure works best for 80% of patients, what about the other 20%?
  6. How should CER guide physician decision making or should government and payor policies be used to incent or require physicians and other providers to practice consistent with CER findings?

In a new issue brief, Gene Rich, MD from Mathematica Policy Research and Elizabeth Docteur, MS from the Center for Studying Health System Change discuss key challenges to successful implementation of the large and ambitious federal CER program. They explain how resolution of these challenges "may prove critical to the future role of this research in U.S. health care."


Comparative Effectiveness Research in Other Countries:


Here is an interesting new comparison on the Use of Comparative Effectiveness Research in Drug Coverage and Pricing Decisions in Denmark, England, France, Germany, the Netherlands, and Sweden.


Comparative Effectiveness Research Prior to 2009:


In the U.S., federally sponsored Comparative Effectiveness Research has been conducted largely by the HHS Agency for Healthcare Research and Quality (AHRQ). The bulk of the AHRQ managed CER is conducted through university-based research centers under contract with AHRQ.


Prior to 2009, the AHRQ Effective Health Care Program spent a modest $15-$30 million annually. The AHRQ Effective Health Care Program was established under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA).


AHRQ posts a wealth of reader-friendly information at www.effectivehealthcare.ahrq.gov.


Expansion of Federal Comparative Effectiveness Research in 2009:


In 2009, as part of the ARRA (Recovery Act), Congress appropriated $1.1 billion for comparative effectiveness research - $300 million for the Agency for Healthcare Research and Quality (AHRQ), $400 million for the National Institutes of Health, and $400 million for allocation at the discretion of the HHS Secretary.


Congress created a Federal Coordinating Council through which various federal agency heads could set CER priorities. Under a federal contract, an Institute of Medicine (IOM) committee recommended 100 priorities for CER.


HHS' latest status report on Recovery Act spending details how AHRQ, NIH, and the Secretary's office are using the $1.1 billion.


Major Changes to Federal Comparative Effectiveness Research in Health Reform Law:


In the new federal health reform law - Patient Protection and Affordable Care Act (PPACA) - Congress created several major changes to the federal Comparative Effectiveness Research program.


Starting October 2010, a new Patient Centered Outcomes Research Institute (PCORI) will be responsible for overseeing the federal comparative effectiveness research program. PCORI will set the national CER agenda and conduct research through contracts with federal agencies and grants and contracts with universities and researchers.


PCORI will operate as federally funded quasi-independent non-profit organization. The PCORI 19-member governing board will have 17 members appointed by Comptroller General of the US (head of the Government Accountability Office, an agency of Congress) plus directors AHRQ and NIH. The Comptroller General will designate the board chair and vice chair. Congress disbanded the Federal Coordinating Council for CER.


Patient Centered Outcomes Research Institute has a a very broad mission in the law:

Assist patients, clinicians, purchasers, and policy-makers in making informed health decisions by advancing the quality and relevance of evidence concerning the manner in which diseases, disorders, and other health conditions can effectively and appropriately be prevented, diagnosed, treated, monitored, and managed through research and evidence synthesis that considers variations in patient subpopulations, and the dissemination of research findings with respect to the relative health outcomes, clinical effectiveness, and appropriateness of medical treatments, services, and items.


The actual research will be delegated by PCORI to AHRQ and NIH. AHRQ and NIH, in turn, will contract out work to universities and research centers.


The Patient Centered Outcomes Research Institute will use a variety of expert panels. To help to ensure rigor of research methods, this includes a 15-member Methodology Committee appointed by the Comptroller General.


By law, PCORI is required to use open, transparent processes for decision making and include peer review. Wide, fast dissemination of research finding is also required. AHRQ will be responsible for translation and dissemination of evidence from CER to patients, clinicians, and other decision makers.


Expect to see federal officials, particularly the Obama Administration, using terms like "patient-centered research" instead of comparative effectiveness.


Permanent Funding Stream for Comparative Effectiveness Research:


PPACA, the health reform law, establishes a new, permanent funding stream for CER that, once fully implemented, will generate about $600 million annually for PCORI research priorities.


Specifically, health plans and self-insured employers (via TPAs) must pay a new federal tax of $2 per person they insure, generating $300 million or more each year starting in FY 2013. Another $150 million will come annually from Medicare. Finally, Congress also appropriated $50 million in FY 2011 and $150 million annually from FY 2012 through FY 2019. In effect, PCORI will also have unused ARRA CER funding at its disposal.

posted: July 23, 2010

State Exchanges Webinar.jpgAs part of health reform implementation, states will create a large and complex new marketplace for the buying and selling of health insurance coverage. Through State Exchanges, individuals and small businesses may buy federally defined benefit packages from state licensed and certified Qualified Health Plans.


For health plans, this is a huge new market with potential enrollment of 25 million to 40 million or more. For individuals and small employers, it will create a new, highly regulated pathway to buy coverage and access subsidies. Some 16 million uninsured Americans are projected to be insured through State Exchanges. For states, implementation will present extraordinary policy, regulatory, administrative, and systems challenges.


Briefing on State Exchanges and Qualified Health Plans:


For members of the Medicaid Health Plans of America (MHPA), I recently conducted a webinar on State Exchanges and Qualified Health Plans. For a variety of reasons, Medicaid health plans are better positioned for the Exchange plan market than many commercial plans. For the webinar slide deck, click here (PDF).


It was part of a series of webinars by Sellers Dorsey for Medicaid health plan leaders. Sellers Dorsey's other webinar topics included (1) grants and demonstrations under health reform law (PPACA), (2) Medicaid expansion, and (3) Medicaid drug rebate.


State Health Insurance Exchanges:


In a nutshell, starting January 2014:


  • Every state must establish an American Health Benefit Exchange for individuals and small groups to buy health insurance from Qualified Health Plans.

  • States must also create a Small Business Health Options Program Exchange (SHOP) for small businesses (separate or, more likely, part of a single state exchange).

  • States may operate the Exchange in a existing agency, create a new state agency, create new quasi-public independent agency, or contract with a non-profit non-insurer organization.

  • States may join together to operate multi-state, regional Exchanges.

  • If a state fails to create a fully functioning Exchange in time, HHS will operate an Exchange for that state. HHS will assess state readiness by January 2013.

  • Individuals and small businesses may buy health coverage insurance in or outside an Exchange. However, they must use State Exchanges to access the $450+ billion in new federal premium subsidies and tax credits.

  • State Exchanges will serve as a new, additional gateway to Medicaid and CHIP. Working with state Medicaid agencies, State Exchanges will screen all individuals who apply for Exchange coverage for eligibility for Medicaid and CHIP. If they qualify, they'll be automatically enrolled in Medicaid or CHIP.

  • Only Qualified Health Plans (QHPs) may sell coverage through the State Exchange. QHPs must be state licensed health plans and certified by the Exchange as meeting an array of new federal and state requirements. This applies to each state where the QHP intends to operate.

  • Qualified Health Plans may also offer coverage outside the Exchange. Federal rules will vary somewhat for QHP coverage outside Exchanges.

  • The feds will contract with at least two nationwide QHPs and will offer $6 billion in grants and loans to help launch new cooperative health plans.

  • The new HHS Office of Consumer Information and Insurance Oversight (OCIIO) is responsible for federal oversight of the State Exchanges and Qualified Health Plans. OCIIO will release federal rules and guidance for Exchanges and QHPs.

  • At state option, large employers may buy coverage through State Exchanges starting in 2017. This, coupled with the strong possibility of crowd-out, could lead to major enrollment growth for QHPs.

    posted: May 4, 2010

    Health Reform Impact MA and PDP.jpgMedicare Advantage plans and Medicare Part D prescription drug plans face an extraordinary array of changes as a result of the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act (HCERA). These include:


  • New payment benchmarks for Medicare Advantage (MA) plans, phased in and based on relative fee-for-service (FFS) costs.
  • Other payment related changes including bonuses for higher quality, minimum Medical Loss Ratio (MLR), and annual calculation of the MA coding intensity adjustment.
  • Benefit design changes, including changes to Part D drug coverage.
  • New requirements for MA Special Needs Plans (SNPs), including need for all SNPs to be NCQA accredited.

  • Following the legislation is tricky, since HCERA amends or replaces language Congress adopted a few days earlier in PPACA.


    Fortunately, Milliman actuaries Earl Whitney, Matt Chamblee, and Jian Yu just released an exceptionally clear and concise 7-page briefing paper on the PPACA and HCERA changes affecting Medicare Advantage plans and Medicare prescription drug plans (PDPs).


    Meanwhile, Troy Filipek and Brian Anderson, also from Milliman, have written an excellent summary of the changes made to the Part D drug benefit, including the closing of the coverage gap (donut hole) and elimination of federal tax deductibility of the retiree drug subsidy for employers. They nicely lay out the provisions and key implications.


    These two briefs may help to tide you over pending release of more detailed guidance and rule changes from CMS.

    posted: April 28, 2010

    AHDB March-April 2010.jpgThe latest issue of the journal American Health & Drug Benefits includes a valuable mix of studies and articles on economic, regulatory, and clinical issues of particular interest to payors, purchasers, and policymakers.


    Obesity: Effective Treatment Requires Change in Payers' Perspective by Rhonda Greenapple, MSPH and Jackie Ngai, MS, with Stakeholder Perspective by Jeff Januska, PharmD.


    Health Insurance Premium Increases for the 5 Largest School Districts in the United States, 2004-2008 by John R. Cantillo, MBA, with Stakeholder Perspective by F. Randy Vogenberg, PhD, RPh.


    Evolving Trends in Insulin Delivery: In Pursuit of Improvements in Diabetes Management by Firas Akhrass, MD; Nancy Skinner, RN, CCM; Kimberly Boswell, MD; and Luther B. Travis, MD, with Stakeholder Perspective by James V. Felicetta, MD.


    Healthcare Costs Associated with Switching from Brand to Generic Levothyroxine by Michael Katz, PharmD; Joseph Scherger, MD, MPH; Scott Conard, MD; Leslie Montejano, CCRP; and Stella Chang, MPH, with Stakeholder Perspective by Michael S. Jacobs, RPh.


    Pay-for-Performance Initiatives: Modest Benefits for Improving Healthcare Quality by Amit Sura, MD, MBA and Nirav R. Shah, MD, MPH, with Stakeholder Perspective by Steven T. Kmucha, MD, JD.


    Pharmacogenomics and Drug Development by Michael F. Murphy, MD, PhD.


    First Anti-Inflammatory Generic Drug Promising New Therapy for Diabetes by Dalia Buffery, MA, ABD.


    The Cardiovascular Pipeline: ACC 2010 Features Late-Stage Drugs by Wayne Kuznar.


    NCCN Panel Debates the Economics of Cancer Care by Caroline Helwick.


    PET Scans Not Recommended for Most Patients with Breast Cancer: Potential New Controversy in Breast Cancer Testing by Caroline Helwick.


    American Health & Drug Benefits:


    American Health & Drug Benefits is available in print and online at www.AHDBonline.com. AHDB is a peer-reviewed journal for 30,000 decision makers in health plans, prescription drug plans, PBMs, the federal Medicare program, state Medicaid programs, and the pharma, biotech, and medical device industries. Kip Piper is health policy editor of American Health & Drug Benefits.

    posted: April 25, 2010

    AHDB Wellness.jpgCreating a wellness-based healthcare system is the focus on a new series of articles published by American Health and Drug Benefits, a peer reviewed journal. They cover a wide spectrum of topics on how to build and support prevention and wellness, particularly for chronic conditions. The ideas and information are particularly timely given the array of prevention and wellness initiatives in the Patient Protection and Affordable Care Act (PPACA):


    The 5 Eras of Healthcare Finance: Wellness as a Clinical Model by Thomas McCarter, MD, FACP; Farrah N. Daly, MD, MBA; and Keri Cooper


    Epidemiology and Impact of Chronic Diseases: The Promise of Prevention by Nirav R. Shah, MD, MPH


    Bending the Curve, Changing Provider Organization: Implications for Wellness-Based Healthcare by Lawton Robert Burns, PhD, MBA


    Wellness-Based Healthcare: Economic Incentives and Benefit Design by Gene Reeder, RPh, PhD


    Wellness-Based Healthcare Policy: Medicare, Medicaid, and Private Insurance by Kip Piper, MA, FACHE


    FDA Policies and Wellness-Based Healthcare: Approving and Paying for Prevention by Scott Gottlieb, MD


    The Diabetes Ten City Challenge: Value-Based Benefit Design for Wellness-Based Care by Toni Fera, BPharm, PharmD


    The Role of Wellness for Large Corporations: Trends and Models by Wayne M. Lednar, MD, PhD


    Employers and a Culture of Health by Alberto M. Colombi, MD, MPH


    Healthcare Reform: Impacts on Business by F. Randy Vogenberg, RPh, PhD


    Pharmaceutical R&D Strategy and the Transition to Personalized Healthcare Planning by Michael F. Murphy, MD, PhD


    The Role of Health Plans in Prevention and Wellness by Gary M. Owens, MD


    Patient Engagement: From Medication Adherence to Health and Wellness by James T. Kenney, Jr, RPh, MBA


    The Geisinger Model: Research Is a Core Asset by
    Nirav R. Shah, MD, MPH; J.B. Jones, PhD, MBA; and Walter F. Stewart, PhD, MPH


    Click here to read or download the above collection on Wellness-Based Healthcare System of Chronic Diseases: Prevention, Intervention, and Innovation (PDF).


    Kip Piper is health policy editor of American Health and Drug Benefits. The journal's 30,000 subscribers include decision makers in health plans, drug plans, Medicare, and Medicaid.

    posted: March 4, 2010

    AHDB Jan Feb 2010.jpgHere are articles from the latest issue of American Health & Drug Benefits. AHDB is a peer-reviewed journal for 30,000 decision makers in health plans, PBMs, Medicare, Medicaid, and the pharma and biotech industries:


    Orphan Drug Pricing and Payer Management in the United States: Are We Approaching the Tipping Point? by Rebecca Hyde and Diana Dobrovolny, with Stakeholder Perspective by Kavita V. Nair, PhD.


    Physicians' Perceptions of Reimbursement as a Barrier to Comprehensive Diabetes Care by Alyssa Pozniak, PhD; Lois Olinger, MA; and Victoria Shier, MA, with Stakeholder Perspective by Gary M. Owens, MD


    Hypertension Management: An Update by Quang Nguyen, DO; Joann Dominguez, MD; Loida Nguyen, PharmD; and Nageshwara Gullapalli, MD.


    Competition from Biosimilars an Incentive for Innovation by Dalia Buffery, MA, ABD


    Emerging Trends in Breast Cancer Management by Caroline Helwick


    Rheumatology Pipeline Boasts Innovation, ID Line Is Drying Up: ACR/IDSA 2009 by Alice Goodman


    Cardiology Pipeline Is Promising: AHA 2009 by Wayne Kuznar


    Learn More:


    American Health & Drug Benefits is available in print and online at www.AHDBonline.com. To view the current or past issues or download in PDF format, click here.


    Kip Piper is health policy editor of American Health & Drug Benefits.

    posted: February 4, 2010

    Health Spending to 2019.jpgThe Centers for Medicare and Medicaid Services' Office of the Actuary (CMS/OACT) has released its projections of U.S. health care spending for the ten years 2010 through 2019, with premliminary estimates of 2009 health spending. The projections, released each year around this time, offer a fascinating, detailed look at patterns and trends in public and private health spending across programs and provider types.


    Health Care Spending in 2009:


    In 2009, National Health Expenditures (NHE) is projected to have reached $2.5 trillion, up 5.7 percent from 2008. This compares to 1.1 percent GDP decline in 2009. Health spending grew by a slow rate of 4.4 percent in 2008.


    The health care share of GDP is expected to jump from 16.2 percent of GDP in 2008 to 17.3 percent in 2009 - the largest one-year increase in history.

  • National health spending accelerated in 2009 due to several factors, notably:

  • Fast grow in Medicaid, driven by higher enrollment in the recession. Medicaid grew by 9.9 percent in 2009, compared to the 4.7 percent increase in 2008.

  • Medicare spending growth of 8.1 percent.

  • Higher utilization of services by consumers seeking treatment for the H1N1 virus.

  • Increased take-up rate for COBRA coverage due to federal subsidies of COBRA premiums.

  • Medicare, Medicaid, and Private Health Insurance in 2009:


    In 2009, Medicare was projected at $507.1 billion, a 8.1 percent increase over 2008. Medicaid spending is estimated at $378.3 billion (federal and state funds), an increase of 9.9 percent.


    The fast grow in Medicare and Medicare compares to continued slow growth in spending on private health insurance premiums, again largely due to the poor economy and unemployment. CMS projects spending on private health insurance premiums at $808.7 billion in 2009, up 3.3 percent from 2008.


    Hospital, Physician, and Prescription Drug Spending in 2009:


    Estimating Health Spending.jpgIn 2009, hospital spending increased by 5.9 percent to $760.6 billion (inpatient and outpatient). Physician and clinical services spending is expected to have reached $527.6 billion or a 6.3 percent increase in 2009. Note that in 2008 hospital and physician spending increased at more moderate rates of 4.5 percent and 5.0 percent, respectively.


    Prescription drug spending increased by an estimated 5.2 percent, for total of $246.3 billion in 2009. Part of this increase was driven by higher use of antiviral drugs. Political perceptions and grandstanding notwithstanding, drug spending continues to grow more slowly than other, much larger components of health spending and has declined as a proportion of total health costs.


    Projected Health Care Spending in 2010:


    Assuming that Congress stops the 21.3 percent cut in Medicare physician payment rates required under the Sustainable Growth Rate (SGR) provisions of current law, total U.S. health care spending is projected to increase by 4.7 percent in 2010. If Congress fails to stop the physician rate cuts, overall NEHs would grow by a more modest 3.9 percent. Fixing SGR could easily cost over $300 billion but a fix is likely, especially given the enormity of the cuts and fact this is an election year.


    Private health care spending in 2010 is projected to grow by 2.8 percent because of declining private health insurance enrollment because of high unemployment and the expiration of federal subsidies for COBRA coverage.


    Out-of-pocket spending is expected to have slowed from 2.8 percent in 2008 to 2.1 percent in 2009, reaching $283.5 billion in 2009. The recession slowed the ultization of medical services, thereby slowing growth in out-of-pocket spending on co-payments and deductibles.


    Ten Year Projection Through 2019:


    For 2010 through 2019, the CMS team of actuaries and economists project:


  • Overall national health spending will grow by average annual rate of 6.1 percent (compared to projected GDP growth of 4.4 percent annually).

  • Medicare spending will grow at average annual rate of 6.9 percent.

  • Medicaid spending will grow at average annual rate of 7.5 percent.

  • Out-of-pocket spending will grow by an average 4.8 percent per year.

  • Hospital spending will increase by an average 6.1 percent per year.

  • Physician and related clinical spending will grow by average annual rate of 5.9 percent.

  • Perscription drug spending will grow by average 6.3 percent per year.

  • Not surprisingly, public sector spending on health care is projected grow faster on average than private spending for 2009 through 2019. Average annual growth rate of 7.0 percent for taxpayer financed health care versus 5.2 percent for private spending (by employers and individuals).


    Public health care programs (Medicare, Medicaid, CHIP, VA, TRICARE, et al) will account for half of all health spending by 2012.


    By 2019, CMS Office of the Actuary projects that U.S. health spending will reach $4.5 trillion or about 19.3% of the economy as measured by GDP. (Yikes!)


    Learn More About Health Spending Projections:


    The CMS Office of the Actuary projections for U.S. health spending are nicely summarized in a new article in Health Affairs. To read the article, click here (PDF).


    To learn more, check out CMS' projections, historical tables, and methodology here.

    posted: January 22, 2010

    Shopping for Health Care.jpgHealth Insurance Exchanges - either state-based exchanges favored by moderate Democrats and Republicans (reflected in Senate bill) or a national, federally-run exchange favored by liberal Democrats (version in the House bill) - are an essential component of national health reform.


    Bottom line, health insurance exchanges would provide a far more efficient, competitive, and seamless marketplace for consumers and small business to buy health insurance coverage, while also facilitating subsidies for low-income families, easy comparison of benefit packages, and transparency of premiums.


    Deborah Maggart, a health care communications specialist at TogoRun, has written an interesting article on two competing visions of health insurance exchanges (HIEs) and implications for communications.


    The article includes links to additional resources on HIEs.

    posted: November 19, 2009

    Global Payments Report.jpgPayment reform is an integral part of national and state-based health reform efforts. Indeed, payment reform is essential to moving from quantity-based reimbursement to a performance-based health care system. That is, moving from fee-for-service to fee-for-value. Payment innovations, such as global payment, are designed to reward efficiency and higher quality, while supporting providers as they invest in patient-centered models of care.


    Massachusetts, a leader in health policy innovation, is exploring global payment concepts in an effort to rein in costs and improve care coordination and quality. The Massachusetts Medicaid Policy Institute (MMPI) has released a new report on global payment in the Medicaid context.


    The report, prepared by Mark Heit of Sellers Dorsey and Kip Piper of Health Results Group, assesses global payment options while addressing the concerns of applying the innovative payment mechanism to MassHealth, the Massachusetts Medicaid program.


    To read the report, click here (PDF).


    Global payments have been recommended for public and private payors by the Commonwealth's Special Commission on Health System Payment and the Massachusetts Health Care Quality and Cost Council.


    The MMPI report was funded through a grant from Blue Cross Blue Shield of Massachusetts (BCBSMA). BCBSMA is implementing global payments with select hospitals and physician groups.


    The Massachusetts Medicaid Policy Institute is an independent and non-partisan source of information about the Massachusetts Medicaid program. Learn more at www.massmedicaid.org.

    posted: November 8, 2009

    AHDB Sept and Oct 2009.jpgHere are articles from the latest issue of American Health & Drug Benefits. AHDB is a peer-reviewed journal for 30,000 decision makers in health plans, PBMs, Medicare, Medicaid, and the pharma and biotech industries:


    Predictive and Prognostic Models: Implications for Healthcare Decision-Making in a Modern Recession:

    F. Randy Vogenberg, RPh, PhD examines the role of predictive modeling in the healthcare decision-making process and its impact on clinical outcomes. Dr. Vogenberg discusses the difference in the value of modeling to patients, providers, employers, and health insurers. He describes how applying predictive modeling can enhance patients' and providers' ability to make the best clinical decisions. Dr. Vogenberg is principal, Institute for Integrated Healthcare, Sharon, MA; adjunct Instructor, University of Rhode Island College of Pharmacy; and senior fellow, Jefferson University School of Population Health, Philadelphia, PA.


    Estimates of Commercial Population at High Risk for Cardiovascular Events: Impact of Aggressive Cholesterol Reduction:

    Kathryn Fitch, RN, MEd; Sara W. Goldberg, FSA, MAAA; Kosuke Iwasaki, FIAJ, MAAA; Bruce S. Pyenson, FSA, MAAA; Andreas Kuznik, PhD; and Henry A. Solomon, FACP, FACC analyze the effects of statin therapies on working age people at high-risk for cardiovascular disease. Using a target population of between ages 35-69, the authors found that 4 percent of the target population generated 22 percent of the risk for coronary heart disease and stroke, and that aggressive cholesterol-lowering statins significantly reduced the potential for events and is cost-neutral for payers. Ms. Fitch is healthcare management consultant, Ms. Goldberg is consulting actuary, Mr. Iwaski is consulting actuary, and Mr. Pyenson is principal and consulting actuary, at Milliman. Dr. Kuznick is associate director of outcomes research and Dr. Solomon is medical director at Pfizer.


    Impact of Prescription Benefit Coverage Limits on Sevelamer Hydrochloride Adherence for Patients with ESRD:

    Bharati Bhardwaja, PharmD, BCPS; Nikki Carroll, MS; Eli Korner, PharmD; and Kavita V. Nair, PhD discuss a new study that assesses the effects of prescription benefit coverage on medication adherence among Medicare beneficiaries diagnosed with end-stage renal disease (ESRD) taking sevelamer hydrochloride. The authors draw on lessons learned from caps on total drug spending and its impact on medication adherence, and conclude that caps on adherence negatively impact adherence and healthcare costs. Dr. Bhardwaja is a nephrology clinical pharmacy specialist, Kaiser Permanente and clinical assistant professor, University of Denver School of Pharmacy. Ms. Carroll is biostatistician at Institute for Health Research, Kaiser Permanente. Dr. Korner was research investigator, Kaiser Permanente during this study and is currently medical liaison, virology and hepatology, Roche Laboratories. Dr. Nair is associate professor, School of Pharmacy, University of Colorado at Denver.


    Private Health Plans Perspectives: Electronic Personal Health Records and Electronic Prescribing:

    Nancy M. McGee, JD, MPH; Gene Reeder, RPh, PhD; Timothy S. Regan, BPharm, RPh, CPh; J.D. Kleinke; and Steve Arnold, MD, MS, MBA, CPE analyze the results of a survey of commercial payers representing 16 national plans and 80 million covered lives to better understand payer involvement in electronic personal health records (ePHR) and e-prescribing. While respondents were enthusiastic about ePHRs and have aggressively moved to implement them, there was also disappointment in members' low utilization of these electronic systems. The authors suggest that Americans' concern about their health data being used inappropriately may be at the root. Ms. McGee is senior vice president and chief operating officer, Lash Group, San Bruno, CA. Dr. Reeder is director of payer market research at Xcenda. Mr. Regan is executive director, customer insights, at Xcenda. Mr. Kleinke is chief executive officer, Mount Tabor Online Services, Portland, OR. Dr. Arnold is vice president and chief medical officer, Touchstone Health Plan, Lagangeville, NY.


    Debate on the Elderly and End of Life Care Under Health Reform:

    In The Politics of Epidemiology, by Robert E. Henry, and End-of-Life Choices Are Necessary in Any Healthcare Reform by Gary M. Owens, MD, the authors tackle the thorny issue of how to address the elderly and end-of-life, both in healthcare reform and as a society. Mr. Henry argues that it is not a part of America's fundamental character to adopt policies that would determine what kind of care a person gets based on age and infirmity and that the government should avoid mandating processes that might ultimately encourage terminally ill patients to die quickly and efficiently. Dr. Owens argues that meaningful conversations between physician and family members and patients about their wishes at the end of their lives are important and should be encouraged to avoid potentially aggressive treatments that the patients themselves may not want. While he agrees that a health system should support the health of citizens, it should also respect the values of those facing end-of-life decisions. Mr. Henry is editor-in-chief of American Drug and Health Benefits. Dr. Owens is president, Gary Owens Associates, Philadelphia, PA.


    Can Generics Help Heal Our Ailing Healthcare System:

    Dalia Buffery, MA, ABD discusses the current struggle in Congress over the role and place of biosimilars. Recent legislative skirmishes in the House Energy and Commerce Committee defeated the 5-year exclusivity period for biosimilars proposed by Chairman Henry Waxman in favor of a 12-year exclusivity period. She asserts that while generic oral drugs have saved over $734 billion in the last decade, it will be important to craft a bill on biosimilars that both encourages and rewards innovation while also reducing costs to the system in the long run. Ms. Buffery is editorial director, American Health and Drug Benefits.


    Learn More:


    American Health & Drug Benefits is available in print and online at www.AHDBonline.com. To view the current or past issues or download in PDF format, click here.


    Kip Piper is health policy editor of American Health & Drug Benefits

    posted: August 9, 2009

    At the last annual meeting of the Academy of Managed Care Pharmacy, several of us spoke on pharmaceutical research and development in the quickly emerging value-driven healthcare system. Topics focused on the impact of value-based benefit designs, comparative effectiveness research, and government policies on the development of new drugs and biologics:


    Research and Development in the Current Healthcare System: An Overview
    Thomas McCarter, MD, FACP


    What Constitutes Medical Evidence in the Era of Comparative Effectiveness?
    Nirav R. Shah, MD, MPH, FACP


    New Government Policies: Opportunities for Supporting Research and Development
    Kip Piper, MA, FACHE


    Drug Discovery and Development in a Value-Driven Healthcare System
    Matthew Sarnes, PharmD


    A Hypothetical Case: Current Drug R&D Process
    Michael F. Murphy, MD, PhD


    Our presentations were published in a supplement issue of American Health & Drug Benefits, a peer-reviewed journal serving about 30,000 decision makers. To read the articles, which are approved for continuing education credit, click here.

    posted: July 30, 2009

    Doctor Catching Up on Laptop.jpgHere are articles from the latest issue of American Health & Drug Benefits. AHDB is a peer-reviewed journal for 30,000 decision makers in health plans, PBMs, Medicare, Medicaid, and the pharma and biotech industries:


    June - July 2009 Issue:


    Applying Evidence for Medical Technologies: Closing the Gap between R&D and Decision Maker Need
    Interview with Sean R. Tunis, MD, MSc


    The Working Patient with Cancer: Implications for Payers and Employers
    By Grant D. Lawless, BSPharm, MD, FACP


    Lower Copay and Oral Administration: Predictors of First-Fill Adherence to New Asthma Prescriptions
    By Zackary Berger, MD, PhD; William Kimbrough, MD; Colleen Gillespie, PhD; Joseph A. Boscarino, PhD, MPH; G. Craig Wood, MS; Zhengmin Qian, MD, PhD; J. B. Jones, PhD, MBA; and Nirav R. Shah, MD, MPH


    Use Pattern and Off-Label Use of Atypical Antipsychotics in Adults with Bipolar Disorder, 1998-2002
    Jeffery A. Demland, MS; Yonghua Jing, BPharm, PhD; Christina M. L. Kelton, PhD; Jeff J. Guo, BPharm, PhD; Hong Li, MPH, PhD; and Patricia R. Wigle, PharmD


    Biosimilars Policy Forum: Perspectives on Safety and Efficacy of Future Products
    By F. Randy Vogenberg, RPh, PhD


    Payer Perspectives on Healthcare Reform
    By Peyton Howell, MHA; Gene Reeder, RPh, PhD; and Timothy S. Regan, BPharm, RPh, CPh


    Prioritizing Healthcare Resources to Keep the Baby Boomers Out of Nursing Homes
    By Robert E. Henry


    The View from Washington: Healthcare Reform
    By John Gorman


    Read Current and Past Issues:


    American Health & Drug Benefits is available in print and online at www.AHDBonline.com. To view the current or past issues or download in PDF format, click here.


    AHDB also published web exclusives, available for reading here.


    Kip Piper is health policy editor of American Health & Drug Benefits.

    posted: July 28, 2009

    Boy in Hospital.jpgThe Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA) created the Medicaid and CHIP Payment and Access Commission (MACPAC) to advise Congress on a wide range of Medicaid and CHIP issues. MACPAC will start operating in early 2010.


    MACPAC Membership and Staff:


    Modeled closely after the long standing and highly influential Medicare Payment Advisory Commission (MedPAC), MACPAC will be a Congressional agency like MedPAC, the Congressional Budget Office (CBO), and the Government Accountability Office (GAO). Like MedPAC, the 17-member MACPAC will include an executive director and a professional staff of ~25-40. MACPAC appoints the executive director.


    The 17 Commission members will be appointed for three-year, staggered terms, by the Comptroller General (head of the GAO), with representation from health financing experts, physicians, health professionals, employers, third-party payors, consumers, and current or former state Medicaid / CHIP officials. Non-health care providers must constitute a majority of the MACPAC membership. MACPAC appointments must be made by January 1, 2010.


    Qualifications for MACPAC Membership:


    In general, MACPAC's membership must include individuals with direct experience as:

    • Medicaid / CHIP beneficiaries or parents of beneficiaries.
    • Individuals with national recognition for expertise in Medicaid, CHIP, health finance and economics, actuarial science, health plans, integrated health systems, reimbursement, health information technology, or health care providers (e.g., pediatricians, dentists).

    In particular, the MACPAC membership must include physicians and other health professionals, employers, third-party payors, and individuals with expertise in the delivery of health services. This must include:

    • Members representing children, pregnant women, the elderly, and individuals with disabilities
    • Current or former state Medicaid agency officials.
    • Current or former State CHIP agency officials.

    Congress seeks a mix of different professionals, broad geographic representations, and a balance between urban and rural representatives.


    Role and Duties of MACPAC in Advising Congress on Medicaid and Children's Health Insurance Program:


    Starting in 2010, MACPAC will:

    • Review Medicaid and CHIP policies affecting children's access to covered services and make recommendations to Congress, with a report due by March 1 each year.
    • More broadly examine issues affecting Medicaid and CHIP, including implications of changes in care delivery and the marketplace. Make recommendations to Congress, with report due by June each year.

    More specifically, Congress directs MACPAC to regularly review and assess:

    • Medicaid and CHIP payment policies, including state payment methodologies and factors affecting expenditures in different sectors, including the process for updating reimbursement rates for hospitals, nursing facilities, physicians, and community health centers.
    • The relationship of payment policies to access and quality of care for Medicaid and CHIP beneficiaries.
    • Interaction of Medicaid and CHIP payment policies with health care delivery.
    • Implications of health care delivery changes and other marketplace changes on access to care for Medicaid and CHIP beneficiaries.
    • The effect of other Medicaid and CHIP policies on access to covered health care services, including transportation and language barriers.

    MACPAC must also:

    • Create an early warning system to identify provider shortage areas or any other problems that threaten access to care or the health care status of Medicaid and CHIP beneficiaries.
    • Review and comment to Medicaid and CHIP related reports to Congress by HHS.
    • Upon request of committee chairs or ranking members, conduct studies, produce special reports, and make recommendations to Congress on Medicaid and CHIP issues.
    • Periodically consult with Congressional leadership (committee chairs and ranking members), make its reports available to the HHS Secretary and the public, record and report votes on all recommendations, and examine the budget consequences of recommendations.
    • Before making any recommendations, MACPAC must consider the budget consequences of such recommendations, directly or through consultation with experts.

    CHIPRA also contains provisions on MACPAC operations, data collection and access, authority, funding and staffing. Again, these closely align with existing policies governing MACPAC's sister agency MedPAC.


    Committee Jurisdictions in Congress:


    MACPAC will be accountable to the Congressional committees with jurisdiction for Medicaid and CHIP, namely:

    posted: May 27, 2009

    Federal%20CER.jpgFederal agencies are busy implementing the new program for comparative effectiveness research. The Federal Coordinating Council for Comparative Effectiveness Research (CER) has released, for public comment, a draft definition of CER and draft prioritization criteria for making research selections. The definition and criteria are intended to help guide, albeit at a high level, federal use of the $1.1 billion appropriated for comparative effectiveness research in FY 2009 and FY 2010 in the American Recovery and Reinvestment Act (ARRA).


    Draft Definition of Comparative Effectiveness Research for the Federal Coordinating Council:


    Comparative effectiveness research is the conduct and synthesis of systematic research comparing different interventions and strategies to prevent, diagnose, treat and monitor health conditions. The purpose of this research is to inform patients, providers, and decision-makers, responding to their expressed needs, about which interventions are most effective for which patients under specific circumstances. To provide this information, comparative effectiveness research must assess a comprehensive array of health-related outcomes for diverse patient populations. Defined interventions compared may include medications, procedures, medical and assistive devices and technologies, behavioral change strategies, and delivery system interventions. This research necessitates the development, expansion, and use of a variety of data sources and methods to assess comparative effectiveness.


    Draft Prioritization Criteria for Comparative Effectiveness Research:


    Threshold Minimal Criteria (i.e. must meet these to be considered):


  • Included within statutory limits of Recovery Act and FCC definition of CER.

  • Responsiveness to expressed needs and preferences of patients, clinicians, and other stakeholders, including community engagement in research.

  • Feasibility of research topic (including time necessary for research).

  • Prioritization Criteria:


    The criteria for scientifically meritorious research and investments are:


  • Potential Impact (based on prevalence of condition, burden of disease, variability in outcomes, and costs of care).

  • Potential to evaluate comparative effectiveness in diverse populations and patient sub-populations.

  • Uncertainty within the clinical and public health communities regarding management decisions.

  • Addresses need or gap unlikely to be addressed through other funding mechanisms.

  • Potential for multiplicative effect (e.g. lays foundation for future CER or generates additional investment outside government).

  • To comment on the draft definition and criteria, click here.


    Plans for Implementing Comparative Effectiveness Research:


    Of the $1.1 billion Congress appropriated for comparative effectiveness research, the Agency for Healthcare Research and Quality (AHRQ) received $300 million, the National Institutes of Health (NIH) received $400 million, and the HHS Office of the Secretary (OS) received $400 million. They have each developed plans for implementing their parts of the federal CER initiative:


  • AHRQ Implementation Plan for Comparative Effectiveness Research.

  • NIH Implementation Plan for Comparative Effectiveness Research.

  • Office of the Secretary Implementation Plan for Comparative Effectiveness Research.

  • Lessons from Comparative Effectiveness Research in Other Countries:


    Meanwhile, an interesting new report from the Deloitte Center for Health Solutions profiles comparative effectiveness programs in the United Kingdom, Australia, Canada, and Germany. The report nicely lays out the complexity, challenges, and usefulness of comparative effectiveness. It also gives a helpful history of CER in the U.S. To read the report, click here (PDF).

    posted: January 13, 2009

    Management%20Challenges.jpgThe incoming leadership at the U.S. Department of Health and Human Services (HHS) face a number of serious management challenges. These challenges, recently identified by the Office of the Inspector General (OIG), will require close, sustained attention by the Secretary's Office and the agency heads, particularly at CMS and FDA.


    The nominees for Secretary and Deputy Secretary - Tom Daschle and Bill Corr, respectively - are wise choices, especially given President-elect Obama's policy perspective and strong interest in national health reform. They are smart, seasoned policy gurus with strong relationships on the Hill. However, as the Obama Administration populates the agencies with appointees, the White House and HHS leadership should seriously consider the need for strong executives and senior management types for top positions at agencies like CMS, FDA, CDC, and NIH. Yes, they will need requisite policy and technical expertise, but at the agency level management savvy should be a priority.


    The reason is simple. The existing management challenges certainly require attention. Further, the ultimate success of the Obama Administration's health care agenda may well depend on fixing these problems. Also, the HHS Secretary's Office and the new White House Office of Health Reform will have their hands full with health reform legislation, Medicare fixes, and FDA legislation. And the White House and HHS leadership will need strong executives to effectively implement the range of major, complex new policies expected in 2009 and 2010. The Democrats have a fairly deep bench when it comes to policy wonks, researchers, and academics generally. Their bench for executives and managers is relatively thin - but they could look within the agencies themselves and in state government for management talent friendly to the Administration's policy views.


    Here is the OIG's list of top management challenges at HHS:


    Oversight of Medicare Part D Prescription Drug Benefit:

  • Drug pricing and rebates

  • Fraud and abuse safeguards

  • Access to accurate information

  • Medicare Program Integrity:

  • Contractor oversight

  • DME fraud, including error rate and competitive bidding

  • Medicare Advantage

  • Integrity of Medicaid and State Children's Health Insurance Program:

  • Prescription drugs, including fraud and pharmacy reimbursement

  • SCHIP reauthorization and eligibility

  • Home and community-based care in Medicaid

  • Quality of Care:

  • Quality measurement

  • Pay for performance (P4P)

  • Failure of care and never events

  • Transparency of ownership and performance

  • Indian health care

  • Emergency Preparedness and Response:

  • Pandemic influenza

  • Select agent transfers

  • Laboratory security

  • Oversight of Food, Drugs, and Medical Devices by FDA:

  • Food safety and security

  • Drug and medical device safety

  • Transparency of provider financial interests

  • Grants Management:

  • Grant oversight and closeout

  • President's Emergency Plan for AIDS Relief expansion

  • Head Start facility safety and compliance

  • Integrity of Information Systems and the Implementation of Health Information Technology:

  • Security of sensitive and personally identifiable information

  • Safeguards and controls over HHS information systems

  • Electronic health records and e-prescribing

  • Ethics Program Oversight and Enforcement:

  • Management of conflicts of interest by extramural grantees

  • Oversight of financial interests of clinical investigators and advisory board members

  • Oversight of HHS employees' outside and post-employment activities
  • posted: December 23, 2008

    Drug%20Use%20in%20SNP%20and%20MAPD.jpgMedicare beneficiaries in Special Needs Plans (SNPs) have higher Part D prescription drug utilization and costs than enrollees in other Medicare Advantage Prescription Drug Plans (MA-PDs) do. This is no surprise since, by design, Special Needs Plans serve higher-risk Medicare patients, including many dual eligibles. However, despite higher drug utilization rates in SNPs, SNP enrollees and other MA-PD enrollees have similar rates of inappropriate drug pairs (therapeutic duplications and drug-drug interactions).


    Compared to enrollees in other (non-SNP) Medicare Advantage drug plans, SNP enrollees fill 11% more scripts. The average annual prescription cost per SNP beneficiary is 49% higher compared to that of other MA-PD beneficiaries. The difference in per capita drug costs between SNPs and other MA-PDs appears due to a combination of factors: SNP beneficiaries' higher utilization, use of costlier drugs, lower utilization of 90-day prescriptions, and SNPs paying more for some highly utilized drugs.


    While SNP beneficiaries fill more prescriptions on average than other MA-PD beneficiaries, SNP and other MA-PD beneficiaries are exposed to potentially inappropriate drug pairs at similar frequencies. However, at higher levels of drug utilization, SNP beneficiaries are less likely to be exposed to a potentially inappropriate drug pair than other MA-PD beneficiaries.


    Most inappropriate drug pairs (65%) in SNPs and MA-PDs are drug-drug interactions. Of these, 83% presented a moderate risk and 17% a serious or severe risk of an adverse drug event. The remaining potentially inappropriate drug pairs (35%) are therapeutic duplications. The majority of inappropriate drug pairings - in both SNPs and other MA-PDs - recur and involve drugs prescribed by the same physician and filled by the same pharmacy.


    These findings, from a new analysis of 2006 data by the HHS OIG, provide further evidence for the urgent need of e-prescribing nationwide. There is also a need for genuine medication therapy management programs and more information and decision support tools for physicians and pharmacists - as well as sharpened accountability for those relatively small number of prescribers and dispensers who apparently generate the majority of potentially dangerous drug pairings.

    posted: December 18, 2008

    CBO%20Health%20Budget%20Options.jpgTo aid the incoming 111th Congress and Obama Administration, the Congressional Budget Office (CBO) released a 235-page report outlining 115 budget options for health care reform. The report catalogs most of the hottest legislative ideas on Capitol Hill, with useful background information and scores of costs and savings. Here's the list of reform ideas in the report:


    The Private Health Insurance Market:


  • Foster the Formation of Association Health Plans

  • Allow Individuals to Purchase Non-Group Health Insurance Coverage in Any State

  • Impose a Pay-or-Play Requirement on Large Employers

  • Establish a National High-Risk-Pool Program

  • Establish a National Reinsurance Program to Provide Subsidies to Insurers and Firms for Privately Insured Individuals

  • Require States to Use Community Rating for Small-Group Health Insurance Premiums

  • Create a Voucher Program to Expand Health Insurance Coverage

  • Limit Awards from Medical Malpractice Torts

  • The Tax Treatment of Health Insurance:


  • Reduce the Tax Exclusion for Employment-Based Health Insurance and the Health Insurance Deduction for Self-Employed Individuals

  • Replace the Income Tax Exclusion for Employment-Based Health Insurance with a Deduction

  • Replace the Income and Payroll Tax Exclusion with a Refundable Credit

  • Allow Self-Employed Workers to Deduct Health Insurance Premiums from Income That Is Subject to Payroll Taxes

  • Expand Eligibility for an "Above-the-Line" Deduction for Health Insurance Premiums

  • Disallow New Contributions to Health Savings Accounts

  • Allow Health Insurance Plans with Coinsurance of at Least 50 Percent to Qualify for the Health Savings Account Tax Preference

  • Levy an Excise Tax on Medigap Plans

  • Changing the Availability of Health Insurance Through Existing Federal Programs:


  • Raise the Age of Eligibility for Medicare to 67

  • Create a Medicare Buy-In Program for Individuals Ages 62 to 64

  • Eliminate or Reduce Medicare's 24-Month Waiting Period for Recipients of Social Security Disability Benefits

  • Create a Medicaid Buy-In Program

  • Require States to Adopt Premium Assistance Programs for Medicaid Enrollees

  • Expand Eligibility for Medicaid Family Planning Services

  • Expand Medicaid Eligibility to Include Young Adults with Income Below the Federal Poverty Level

  • Expand Medicaid Eligibility to Include Parents with Income Below the Federal Poverty Level

  • Establish a Medicaid Outreach Program with Mandatory Funds

  • Permanently Extend the Transitional Medical Assistance Provision in Medicaid

  • Allow People and Firms to Buy Health Insurance Plans Through the Federal Employees Health Benefits Program

  • End Enrollment in VA Medical Care for Veterans in Priority Groups 7 and 8

  • Reopen Enrollment for VA Medical Care Among Priority Group 8 Veterans for Five Years

  • The Quality and Efficiency of Health Care:


  • Bundle Payments for Hospital Care and Post-Acute Care

  • Reduce Medicare Payments to Hospitals with High Readmission Rates

  • Expand the Hospital Quality Incentive Demonstration to All Hospitals

  • Deny Payment Under Medicaid for Certain Hospital-Acquired Conditions

  • Establish Regional Centers of Excellence for Selected Surgical Procedures Covered by Medicare

  • Convert Medicare and Medicaid Disproportionate Share Hospital Payments into a Block Grant

  • Consolidate Medicare and Federal Medicaid Payments for Graduate Medical Education Costs at Teaching Hospitals

  • Allow Physicians to Form Bonus-Eligible Organizations and Receive Performance-Based Payments

  • Pay Primary Care Physicians in Medicare Using a Partial-Capitation System, with Bonuses and Penalties

  • Pay for a Medical Home for Chronically Ill Beneficiaries in Fee-for-Service Medicare

  • Require Medicare Carriers to Provide Information About Peer Profiling to Physicians

  • Require Prior Authorization for Imaging Services Under Medicare

  • Encourage Wider Use of Patient Shared-Decision Aids by Physicians in Medicare

  • Expand Medicare's Least Costly Alternative Policy to Include Viscosupplements

  • Require Drug and Device Manufacturers to Disclose Their Relationships with Physicians Who Participate in Medicare

  • Fund Research Comparing the Effectiveness of Treatment Options

  • Create Incentives in Medicare for the Adoption of Health Information Technology

  • Require the Use of Health Information Technology as a Condition of Participation in Medicare

  • Support Development of VistA to Meet Standards and Encourage Adoption

  • Sponsor Regional Markets for Health Information Technology

  • Geographic Variation in Spending for Medicare:


  • Reduce Medicare's Fees for Physicians in Areas with Unusually High Spending

  • Reduce Medicare's Payment Rates for Hospitals in Areas with a High Volume of Elective Admissions

  • Reduce Medicare's Payment Rates Across the Board in High-Spending Areas

  • Impose a Surcharge on Medicare Cost Sharing in High-Cost Areas and Prohibit Medigap Plans from Covering the Surcharge

  • Paying for Medicare Services:


  • Reduce Annual Updates in Medicare Fee-for-Service Payments to Reflect Expected Productivity Gains

  • Reduce the Update Factor for Hospitals' Inpatient Operating Payments Under Medicare by 1 Percentage Point

  • Reduce the Update Factor for Payments to Providers of Post-Acute Care Under Medicare by 1 Percentage Point

  • Eliminate Inflation-Related Updates to Medicare's Payment Rates for Home Health Care for Five Years

  • Reduce the Update Factor for Medicare's Payments for Skilled Nursing Facilities by 1 Percentage Point

  • Modify the Sustainable Growth Rate Formula for Updating Medicare's Physician Payment Rates

  • Create Service-Specific Updates for Medicare's Physician Payment Rates

  • Use the Medicare Economic Index to Update Physician Payment Rates for Evaluation and Management Services and Create Four Service-Specific Updates for Remaining Services

  • Modify the Equipment Utilization Factor for Advanced Imaging in Calculating Physicians' Fees in Medicare

  • Set the Benchmark for Private Plans in Medicare Equal to Local Per Capita Fee-for-Service Spending

  • Convert Medicare to a Premium Support System

  • Establish Benchmarks for the Medicare Advantage Program Through Competitive Bidding

  • Eliminate the One-Sided Rebasing Process for Establishing Benchmarks for Medicare Advantage Plans

  • Require Manufacturers to Pay a Minimum Rebate on Drugs Covered Under Medicare Part D

  • Establish an Abbreviated Approval Pathway for Follow-On Biologics

  • Financing and Paying for Services in Medicaid and State Children's Health Insurance Program:


  • Convert the Federal Share of Medicaid's Payments for Acute Care Services into an Allotment

  • Remove or Reduce the Floor on Federal Matching Rates for Medicaid Services

  • Equalize Federal Matching Rates for Administrative Functions in Medicaid at 50 Percent

  • Restrict the Allocation to Medicaid of Common Administrative Costs

  • Reduce the Taxes That States Are Allowed to Levy on Medicaid Providers

  • Modify the Amount of the Brand-Name Drug Rebate in the Medicaid Program

  • Apply the Fee-for-Service Medicaid Drug Rebate to Drugs Purchased for Medicaid Managed Care Enrollees

  • Apply the Medicaid Additional Rebate to New Formulations of Existing Drugs

  • Base Medicaid's Pharmacy Payment Formulas for Brand-Name Drugs on the Average Manufacturer Price

  • Encourage Therapeutic Substitution in Medicaid by Applying Federal Upper Payment Limits to Two Classes of Drugs

  • Eliminate Allotment Caps for the State Children's Health Insurance Program and Permit States to Expand Coverage up to 400 Percent of the Federal Poverty Level

  • Adjust Funding for the State Children's Health Insurance Program to Reflect Increases in Health Care Spending and Population Growth

  • Premiums and Cost Sharing in Federal Health Programs:


  • Replace Medicare's Current Cost-Sharing Requirements with a Unified Deductible, a Uniform Coinsurance Rate, and a Catastrophic Limit

  • Restrict Medigap Coverage of Medicare's Cost Sharing

  • Combine Changes to Medicare's Cost Sharing with Restrictions on Medigap Policies

  • Impose Cost Sharing for the First 20 Days of a Stay in a Skilled Nursing Facility Under Medicare

  • Require a Copayment for Home Health Episodes Covered by Medicare

  • Impose a Deductible and Coinsurance for Clinical Laboratory Services Covered by Medicare

  • Increase the Basic Premium for Medicare Part B to 35 Percent of the Program's Costs

  • Permanently Extend the Provision That Provides Cost-Sharing Assistance for Qualifying Individuals Under Medicaid

  • Eliminate the Doughnut Hole in Medicare's Drug Benefit Design

  • Institute a Premium for Higher-Income Enrollees Under Medicare's Drug Benefit Similar to That Used in Part B

  • Increase the Fraction of Beneficiaries Who Pay an Income-Related Premium for Part B of Medicare

  • Base Federal Retirees' Health Benefits on Length of Service

  • Adopt a Voucher Plan for the Federal Employees Health Benefits Program

  • Require Federal Employees Health Benefits Plans to Subsidize Premiums for Medicare Part B and Reduce Coverage of Medicare Cost Sharing by an Equivalent Amount

  • Increase Health Care Cost Sharing for Family Members of Active-Duty Military Personnel

  • Introduce Minimum Out-of-Pocket Requirements Under TRICARE For Life

  • Increase Medical Cost Sharing for Military Retirees Who Are Not Yet Eligible for Medicare

  • Require Copayments for Medical Care Provided by the VA to Enrollees Without a Service-Connected Disability

  • Long-Term Care:


  • Increase States' Flexibility to Offer Home- and Community-Based Services Through Medicaid State Plan Amendments

  • Make Home and Community-Based Services a Mandatory Benefit Under Medicaid

  • Increase the Federal Matching Rate for Home and Community-Based Services and Decrease the Federal Matching Rate for Nursing Home Services

  • Clarify Medicaid's Definition of Permissible Asset Transfers

  • Increase the "Look-Back" Period for Transfers of Assets in Medicaid

  • Implement Policies That Encourage the Use of Advance Directives

  • Require Deposits to Individual Accounts for Purchasing Long-Term Care Insurance

  • Health Behavior and Health Promotion:


  • Impose an Excise Tax on Sugar-Sweetened Beverages

  • Increase the Excise Tax on Cigarettes by One Dollar Per Pack

  • Increase All Taxes on Alcoholic Beverages to $16 Per Proof Gallon

  • Reduce Medicare Payment Rates for Primary Care Physicians Who Do Not Meet Benchmarks for Influenza Vaccination

  • Base Medicare's Coverage of Preventive Services on Evidence of Effectiveness

  • Closing the Gap Between Medicare's Spending and Receipts

  • Increase the Payroll Tax Rate for Medicare Hospital Insurance by 1 Percentage Point

  • Limit Growth in Medicare Per Capita Spending to Growth in Per Capita Gross Domestic Product Plus 1 Percentage Point

  • Design an Enforcement Mechanism for the Medicare Funding Warning

  • Set a Savings Target to Reduce Spending for Medicare by 1 Percent

  • Increase Funding for the Health Care Fraud and Abuse Control Program in Medicare and Medicaid

  • posted: December 16, 2008

    MedPAC%20Primers.jpgMedicare reimbursement policies are highly complex. Yes, that could be the litotes of the decade. Thankfully, the outstanding staff at the Medicare Payment Advisory Commission (MedPAC) produce and routinely update a series of basic primers on Medicare payment methodologies for hospitals, physicians, other providers, Medicare Advantage plans, and Part D prescription drug plans.


    MedPAC's primers are reader friendly and crafted for a general audience. Typically 2 to 4 pages in length, they summarize the basic elements of each given payment methodology, with some history, policy context, and a flow chart(s) diagramming how payments are generally calculated.


    Here are the latest primers on the basics of Medicare payment methods:


    Medicare Hospital Services:


  • Acute inpatient hospital services (inpatient PPS)

  • Critical access hospitals

  • Outpatient hospital services

  • Psychiatric hospital services

  • Medicare Outpatient Services:


  • Physician services

  • Geographic practice cost indexes for physician rates

  • Ambulatory surgical centers (ASCs)

  • Clinical laboratory services

  • Dialysis center services (ESRD facilities)

  • Outpatient therapy services

  • Durable medical equipment (DME)

  • Oxygen and oxygen equipment

  • Payment to physicians for professional liability insurance

  • Medicare Post-Acute and Related Services:


  • Skilled nursing facility services

  • Home health care services

  • Inpatient rehabilitation facilities

  • Long-term care hospitals

  • Hospice services

  • Medicare Health Plans and Prescription Drug Plans:


  • Medicare Advantage plans (HMOs, PPOs, PFFS plans)

  • Prescription drug plans (PDPs and MA-PDs)
  • posted: October 31, 2008

    MMCO%20Requirements.jpgMedicaid managed care is a complex business, far more complex than commercial, employer-sponsored health plans or Medicare Advantage plans. Medicaid health plans must meet a range of competitive, financial, clinical, operational, compliance, and political challenges. However, in smart hands, Medicaid managed care organizations (MMCO's) can and often do deliver positive results for beneficiaries (better access and higher quality), taxpayers (lower Medicaid spending initially and/or over time), and investors (top line revenue and bottom line earnings).


    Clients and colleagues often ask me about state requirements for Medicaid health plans. Therefore, here is a quick summary of the requirements found in the typical state Medicaid agency RFP for Medicaid managed care services:


    Eligibility, including eligibility categories, application and eligibility determination process, and eligibility for enrollment in managed care organization (MCO).


    Service area(s), typically by county, regional (multiple counties), or statewide.


    Enrollment, including MCO selection and assignment, auto-assignment, maximum enrollment, enrollment effective dates, enrollment period, transfers from other MCOs, enrollment of newborns, enrollment of pregnant women, and information for new enrollees.


    Disenrollment, including acceptable and unacceptable reasons for disenrollment, information for beneficiaries at risk of disenrollment, and process for disenrollment.


    Covered benefits, including services and items covered by MCO, services carved out from MCO (if any, such as prescription drugs, behavioral health, or dental), non-covered services, cost sharing for services, medical necessity determination, use of alternative services when cost effective, and use of incentives.


    Specialized services, including EPSDT services for children, prenatal care, emergency services (handling of in-network, out-of-network, out of service area, and out-of-state emergencies), urgent non-emergency services, pharmacy benefit management, mediation therapy management, preventive services, behavioral health care and crisis management, hospice, health education, women's health services, and advanced directives.


    Provider network, including (a) network capacity, (b) provider credentialing and certification, and (c) special requirements, as appropriate, for primary care providers, physician specialists, hospitals, safety net providers, community health centers, prenatal care providers, pharmacy network, dentists, local public health, and school-based clinics.


    Readiness and implementation, including requirements prior to operation, readiness reviews, and corrective actions.


    Care coordination and case management, including medical home, disease management programs, identification and stratification of high-cost and high-risk cases, beneficiary education and information, and provider education and information, referrals and care follow-up, and monitoring and formative evaluation.


    Service coordination, including (a) collaboration, coordination, referrals, and information sharing among and between primary care providers and specialists and between physical health and behavioral health providers; (b) transition of new enrollees; (c) coordination of pharmacy services; (d) coordination of dental services; (e) coordination with long-term care services (institutional and home and community-based alternatives); (f) for dual eligibles, coordination with Medicare fee-for-service providers, Medicare Advantage plans, and Medicare Part D drug plans; (g) coordination with state and local health agencies, (h) children in state custody; and (i) and response to public health emergencies and disasters.


    Marketing, including marketing guidelines, prohibited marketing and advertising practices, and state review of marketing materials.


    Quality management and improvement, including quality improvement committee, quality measures and other indicators of performance, pay for performance and other incentives, evidenced-based medicine, clinical practice guidelines, performance improvement projects and studies, identification and reduction of disparities, NCQA accreditation (if state requires or prefers), and HEDIS (i.e., the 71 HEDIS measures, CAHPS 4.0, and participation in NCQA's Quality Compass).


    Utilization management, including prior authorization for covered services, referrals, exception processing, second opinions, provider profiling, and member profiling.


    Member relations, including state review of member materials, reading-level standard, identification cards, toll-free hotline, member handbook, provider directory, member newsletter, correspondence handling, interpreter and translation services, staff training, and cultural competency.


    Member rights, including requirements, processes, and safeguards for complaints, grievances, and appeals.


    Provider relations, including provider services, toll-free hotline, member eligibility verification, web-based information, provider handbook and instructions, provider training and education, claims assistance, and provider complaints.


    Program integrity, including identification, investigation, and reporting of suspected fraud or abuse by providers, suppliers, or members; anti-fraud training of staff and subcontractors; compliance officer; compliance plan; and cooperation with federal and State authorities.


    Reporting, including routine and special reporting requirements regarding implementation; eligibility, enrollment, and disenrollment; care coordination, case management, and disease management; encounters; specialized services; provider network, provider agreements, and provider participation; service coordination; provider payments; quality management and improvement activities; HEDIS; utilization management activities; member relations and education services; member complaints, grievances, and appeals; provider complaints; marketing activities; provider relations services; financial management reports; claims management; information systems and data; fraud and abuse; subcontractor related reports; HIPAA compliance reports; non-discrimination compliance; corrective actions; personnel changes; and legal actions.


    Financial management, including capitation payment management, profit and loss, solvency, working capital, accounting requirements, financial disclosure, disclosure of ownership, independent audits, internal audit function, third party liability, and liability insurance coverage.


    Claims management, including capabilities of claims processing system, electronic and paper-based claims formats, prompt payment, payment cycles, claims processing methodology requirements, claim payment accuracy, minimum edit and audit procedures, explanation of benefits (EOB) functions, remittance advice functions, correction of payment errors, tracking and reporting, claims dispute resolution, third party claims functions (coordinating with third party payors, cost avoidance, recovery), and cross-over functions.


    Information systems and data, including information systems and data integration, information systems performance (availability, problem management, backup, disaster recovery), data and document management and retention; encounter data system (submission, processing, auditing, reporting); eligibility and enrollment system and related data exchanges; information system security and access management; system testing and change management; technical support capabilities and system user training and support; and information system and data documentation.


    Governance, management, and personnel, including licensure, board of directors, management control and capacity, staffing requirements, State right to approve personnel and subcontractors, and non-discrimination.


    Monitoring, including availability and retention of records, inspection of facilities, inspection of work performed and work products, accessibility and cooperation, independent reviewers, federal review, and corrective actions.


    Other administrative requirements, including HIPAA compliance and medical records requirements.


    In addition, states include a variety of other process and compliance related requirements and safeguards in contract language.

    posted: August 20, 2008

    Medicare%20Policy%20Making.jpgThe next President and Congress will face many fiscal and policy challenges from the $436 billion Medicare program. Following my earlier quick primers on Medicaid policy making and Medicare and Medicaid waivers, here is a similar briefing on the primary vehicles of Medicare policy making.


    As a federal health program operating nationwide, Medicare policies are made through:


    Federal Medicare Statutes:


    Title XVIII of the Social Security Act sets forth the bulk of federal Medicare laws. Given the political importance and visibility of Medicare, Medicare statutes are extremely specific, especially on provider reimbursement, benefits, cost sharing, managed care, and provider conditions of participation. Therefore, CMS' rulemaking discretion is often limited.


    In the House, the Ways and Means Committee has primary jurisdiction over Medicare but often shares jurisdiction on certain issues with the Energy and Commerce Committee. In the Senate, the Finance Committee has primary jurisdiction for Medicare. The Medicare Payment Advisory Commission (MedPAC) advises Congress on Medicare issues and often proposes major policy changes. Like with Medicaid, Medicare legislative changes are typically accomplished through budget reconciliation bills rather than separate stand-alone legislation.


    Federal Medicare Rules:


    Most federal Medicare rules are promulgated by CMS (42 CFR Part 400 through 429). CMS must follow the same rulemaking and clearance processes for federal Medicaid rules. Medicare rules are developed by the relevant operating center or office with CMS, such as the Center for Medicare Management (CMM) for fee-for-service Part A and Part B issues and the Center for Drug and Health Plan Choice (CDHPC) for Part D and Medicare Advantage issues. Legal advice comes from the HHS Office of General Counsel (OGC).


    Before publication in the Federal Register, all proposed and final rules require approval of the HHS Secretary and the White House Office of Management and Budget (OMB). OMB's Medicare rule reviews are conducted primarily by the Medicare Branch in OMB's Health Division.


    Federal Medicare Guidance:


    CMS uses numerous vehicles to convey Medicare guidance, including tens of thousands of pages of manuals, instructions, and program transmittals to contractors, providers, suppliers, health plans, and drug plans. Within the framework of the statutes and rules, considerable operational and technical policy is also set through the Medicare Advantage and Part D drug benefit applications, bids, and contracts.


    Unlike in Medicaid - where CMS is often criticized for setting substantive policy through sub-regulatory guidance - Medicare guidance is more a product of a layering effect of highly specific statutes and regulations. Therefore, the Medicare administrative guidance focuses on execution issues, operational details (e.g., coding), and clarifications within and across the four complex, sometime conflicting parts of Medicare.


    Under a new Executive Order, OMB now has the right to prior review and approval of CMS guidance, particularly any sub-regulatory guidance involving issues about $100 million, which is virtually anything in Medicare or Medicaid. To learn more, read my earlier post on expansion of OMB's review authority and implications for policy making by CMS and the FDA.

    posted: February 29, 2008

    MedPAC%20Policy%202008.jpgThe Medicare Payment Advisory Commission (MedPAC) - the influential independent Congressional agency charged with advising Congress on a wide range of Medicare policy issues - has released its Medicare payment policy recommendations for 2009. The 355-page report includes a weath of information for those tracking Medicare provider or health plan issues, particularly annual provider payment updates, reforms to Medicare Advantage, and quality incentives.


    In summary, here are MedPAC's recommendations to Congress:


    Hospital Inpatient and Outpatient Services:


  • Increase Medicare payment rates for the acute inpatient and outpatient prospective payment systems in 2009 by the projected rate of increase in the hospital market basket index, concurrent with implementation of a quality incentive payment program.

  • Reduce the indirect medical education adjustment in 2009 by 1 percentage point to 4.5 percent per 10 percent increment in the resident-to-bed ratio. The funds obtained by reducing the indirect medical education adjustment should be used to fund a quality incentive payment program.

  • Physician Services:


  • Update Medicare Part B payments for physician services in 2009 by the projected change in input prices less MedPAC's adjustment for productivity growth.

  • Enact legislation requiring the Centers for Medicare and Medicaid Services (CMS) to establish a process for measuring and reporting physician resource use on a confidential basis for a period of two years.

  • Outpatient Dialysis Services:


  • Update the Medicare composite rate in CY 2009 by the projected rate of increase in the end-stage renal disease market basket index less MedPAC's adjustment for productivity growth.

  • MedPAC reiterated its recommendation that the Congress implement a quality incentive program for physicians and facilities that treat dialysis patients.

  • Skilled Nursing Facility Services:


  • Eliminate the update to Medicare payment rates for skilled nursing facility services for FY 2009.

  • Establish a quality incentive payment policy for skilled nursing facilities in Medicare.

  • To improve quality measurement for skilled nursing facilities, the Secretary of Health and Human Services should (a) add the risk-adjusted rates of potentially avoidable re-hospitalizations and community discharge to its publicly reported post-acute care quality measures; (b) revise the pain, pressure ulcer, and delirium measures currently reported on CMS's Nursing Home Compare website; and (c) require skilled nursing facilities to conduct patient assessments at admission and discharge.

  • Home Health Services:


  • Eliminate the update to Medicare payment rates for home health care services for CY 2009.

  • Inpatient Rehabilitation Facility Services:


  • The update to payment rates for Medicare inpatient rehabilitation facility services should be eliminated for FY 2009.

  • Long-Term Care Hospital Services:


  • Update Medicare payment rates for long-term care hospitals for rate year 2009 by the projected rate of increase in the rehabilitation, psychiatric, and long-term care hospital market basket index less MedPAC's adjustment for productivity growth.

  • Medicare Advantage Special Needs Plans:


  • Establish additional, tailored performance measures for Medicare special needs plans (SNPs) and evaluate their performance on those measures within three years.

  • Furnish beneficiaries and their counselors with information on special needs plans that compares their benefits, other features, and performance with other Medicare Advantage plans and traditional fee-for-service Medicare.

  • Require chronic condition special needs plans to serve only beneficiaries with complex chronic conditions that influence many other aspects of health, have a high risk of hospitalization or other significant adverse health outcomes, and require specialized delivery systems.

  • Require dual-eligible special needs plans within three years to contract, either directly or indirectly, with states in their service areas to coordinate Medicaid benefits.

  • Require special needs plans to enroll at least 95% of their members from their target population.

  • Eliminate dual-eligible and institutionalized beneficiaries' ability to enroll in Medicare Advantage plans, except special needs plans with state contracts, outside of open enrollment. They should also continue to be able to disenroll and return to fee-for-service at any time during the year.

  • Extend the authority for Medicare special needs plans that meet the above conditions.

  • Part D Enrollment, Benefit Offerings, and Drug Plan Payments:


  • Make Medicare Part D claims data available regularly and in a timely manner to congressional support agencies (e.g., GAO, CBO) and selected executive branch agencies (e.g., OIG) for purposes of program evaluation, public health, and safety.

  • Medicare Savings Programs and Part D Low-Income Drug Subsidy:


  • Increase State Health Insurance Assistance Program funding for outreach to low-income Medicare beneficiaries.

  • Raise Medicare Savings Program income and asset criteria to conform to Part D low-income drug subsidy criteria.

  • Change program requirements so that Social Security Administration screens low-income drug subsidy applicants for federal Medicare Savings Program eligibility and enrolls them if they qualify.

  • To read the full MedPAC report, click here (large PDF file).

    posted: February 1, 2008

    Medicare%20Advantage%20Extra%20Benefits.jpgEnrollment in Medicare Advantage plans has jumped 63 percent since 2005. Over 22 percent of all Medicare beneficiaries - 8.8 million total - now receive their Medicare Part A and Part B benefits through a private health plan instead of the traditional fee-for-service system. About 88 percent of all Medicare Advantage plan enrollees also receive their Part D drug benefits from the same health plan (as part of a MA-PD).


    A new analysis confirms that Medicare Advantage plans provide significantly more health benefits and lower cost sharing than traditional fee-for-service (FFS). The value-added of health plan enrollment is greatest for Medicare beneficiaries enrolled in the genuinely managed care options, notably HMOs, PPOs, and Special Needs Plans (SNPs). The 20 percent of Medicare Advantage enrollees in relatively unmanaged Private Fee-for-Service (PFFS) plans receive extra benefits compared to the government-run traditional fee-for-service system. However, the HMO, PPO, and SNP options provide substantially more benefits and lower cost sharing than the PFFS model plans. The PFFS plans, which are controversial on Capitol Hill, typically operate only in rural areas.


    To sum up, in terms of extra benefits for Medicare beneficiaries, Medicare Advantage plans using the HMO, PPO, or SNP models are superior to both traditional fee-for-service and PFFS plans. The PFFS plans are superior to traditional fee-for-service, at least in terms of extra benefits and cost sharing.


    To read the issue brief - by Mark Merlis and sponsored by the Kaiser Family Foundation - click here (opens as a PDF).


    To learn more, please check out my other posts on Medicare and Medicare Advantage issues.

    posted: January 29, 2008

    Value%20Based%20Drug%20Benefits.jpgMore purchasers and payors are moving away from simplistic cost-driven drug benefit designs to formularies and cost sharing based on value. The impact of value-based drug benefit designs on manufacturers will depend on how quickly individual firms adapt their business thinking and communications strategies.


    Until recently, the path to success for a drug manufacturer was based largely on product novelty, physician-centric marketing, and revenue strategies balancing unit prices and concessions against formulary position.


    To maximize market share and margins in the world of value-based drug benefit designs, drug manufacturers will need to:


    (1) Demonstrate the clinical and economic case for each product and each therapeutic class with an indication,


    (2) Build absolute and comparative evidence on a continuous basis,


    (3) Develop new value-based pricing models and market partnerships, and


    (4) Communicate far more effectively with public and private payors.


    For many firms, this will require a significant, even scary change in thinking and tactics; payor-centric communications; comfort with a massive increase in transparency; and a greater willingness to partner. Therefore, while the financial risks of moving to a value-based world are daunting, ultimately the greatest challenges are intellectual.


    Value-based drug benefit designs will pose the greatest challenges to manufacturers with product lines (or pipelines) dominated "me too" drugs; rigid, risk-adverse organizational silos; and out-dated, prescriber-centric communications.

    posted: January 20, 2008

    Diabetes%20Studies%20in%20AJMC.jpgThe latest issue of the American Journal of Managed Care has several interesting articles on diabetes, demonstrating several opportunities to improve outcomes and reduce costs:


    How Managed Care Organizations Contribute to Improved Diabetes Outcomes: Patricia Salber, MD, chief medical officer and SVP at Universal American, a large Medicare health and drug plan, outlines how MCOs are improving outcomes for patients with diabetes.


    Diabetes Complications Severity Index and Risk of Mortality, Hospitalization, and Healthcare Utilization: This study show that the Diabetes Complications Severity Index (DCSI) performs better than complication counts and is a useful tool to predict mortality and hospitalization risk.


    Lower Severe Hypoglycemia Risk: Insulin Glargine Versus NPH Insulin in Type 2 Diabetes: Findings shows cost savings and lower incidence of hypoglycemia with insulin glargine.


    Diabetes Diagnosis, Resource Utilization, and Health Outcomes: Article highlights the clinical and economic case for much earlier detection of hyperglycemia.


    Do Diabetes Group Visits Lead to Lower Medical Care Charges?: Findings show that group visits (shared medical appointments) significantly reduce outpatient costs of diabetes care, primarily by substituting group visits for more expensive individual specialty care visits.


    To read or download all the articles in the January 2008 issue of AJMC, click here.

    posted: August 19, 2007

    SCHIP%20Update.jpgThe 10-year old, extremely popular, and reasonably successful State Children's Health Insurance Program (SCHIP) expires in six weeks. Congress and the White House must agree on a reauthorization bill, and so far the parties are far apart.


    Here are some key resources to understand the radically different House and Senate bills. Most notably, the House bill is far more expansive and expensive. While the bill is ostensively to reauthorize and expand SCHIP, the House bill would also make dozens of significant changes to both Medicare and Medicaid. The more moderate Senate bill focuses on renewing SCHIP, providing additional federal dollars to cover more children, and proposing higher tobacco taxes to offset the new federal SCHIP costs.


    Children's Health Insurance Program Reauthorization Act (Senate Bill 1893):


    The Senate bill, called the Children's Health Insurance Program Reauthorization Act of 2007, would extend coverage to an additional 2.2 million children. This is a net figure. An estimated 4.5 million kids would move to SCHIP coverage, but CBO estimates that 1.7 million of these would move from private insurance to SCHIP because of crowd-out and another 600,000 would move from Medicaid to SCHIP. Because of interactions between Medicaid and SCHIP coverage, the Senate bill would increase add, net of crowd-out, about 1.5 million kids to Medicaid.


    To sum up, the Senate approach would provide SCHIP or Medicaid health coverage to a net 4 million uninsured children. But about 2.1 million privately insured children would have to move from their existing private insurance coverage to taxpayer financed care. To read the Congressional Budget Office's cost and enrollment estimates for the Senate bill, click here.


    Children's Health and Medicare Protection Act (HR 3162):


    Based on CBO projections, the House bill, called the Children's Health and Medicare Protection Act, would increase coverage for a net 5 million children. About 3.1 million uninsured kids would be newly covered by Medicaid and about 1.9 million by SCHIP.


    Again, because government financed health coverage "crowds out" private coverage, the House bill would cause about 2.5 million insured children to lose existing private coverage and move to taxpayer-funded coverage. Click here to read CBO's cost and enrollment estimates for the House bill, including the bill's many unrelated changes to Medicare and Medicaid.


    Before closing, it's important to note that whatever Congress does with SCHIP reauthorization, the program is highly dependent on subsequent state policies, including appropriation of state budget dollars. And several aspects of the Congressional SCHIP proposals would hurt state finances and restrict flexibility, making children's health coverage at the state level more costly and complex.

    posted: July 20, 2007

    ASP%20for%20Biologics.jpgThe well-regarded industry trade journal Biotechnology Healthcare has an excellent article by Patrick Mullen on The Arrival of Average Sales Price. In it, Mr. Mullen interviews several top industry experts (yes, including me) on the rationale for and impact of Average Sales Price (ASP) and how health plans are following Medicare's lead:


    Health plans are beginning to adopt the average sales price method of paying oncologists and other specialists for office-administered drugs. ASP is more transparent and has a smaller markup than its much maligned predecessor, average wholesale price. The speed of ASP uptake will affect everyone who makes, sells, prescribes, and takes these medications.


    Average Sales Price and Drug Reimbursement:

    In 2005, as part of the Medicare Modernization Act (MMA), the way Medicare Part B reimbursed physicians and clinics for biologics and other physician-administered injectable drugs changed fundamentally. Medicare Part B, the nation's largest payor of injectable drugs, started using Average Sales Price (ASP) to base payments for most drug products covered by Part B fee-for-service.


    Using a new, tighter, and more accurate definition of ASP, drug manufacturers must report the Average Sales Price of each of their products. CMS, through its Part B claims processing contractors, reimburses physicians for covered drug products administered to Medicare benies at 106% of ASP, adjusted for volume.


    Wide Ranging Impact of ASP in Marketplace:


    Physician offices, particularly oncologists, have seen significant drops in Medicare revenue. While the impact on drug makers is mixed, overall the switch to ASP has tightened profit margins and required many manufacturers to revise projections.


    Also, like the move of Medicaid to a new and publicly reported version of Average Manufacturer Price (AMP), the ASP reforms are another way drug prices are becoming transparent and flatter or less variable. The transformative effect on business practices and strategy should not be underestimated.


    For Medicare Part B, the switch to ASP-based payment has saved billions of dollars and dramatically slowed the growth in Part B prescription drug spending. Beneficiaries have benefited as well, since they are paying the 20% Part B copay on lower prices. However, there is some evidence that some docs are switching drug therapies (which may or may not be clinically optimal for patients) or forcing patients to receive injections from other settings, such as outpatient hospitals. The behavioral effect on physician practices is still hard to discern beyond the realm of anecdote but is something worth monitoring closely, especially in light of low Medicare rates for professional fees.


    To Learn More About ASP:


    In addition to the article in Biotechnology Healthcare mentioned above, here are some MedPAC resources to understand ASP, Medicare spending on drugs and biologics, and Medicare reimbursement of physician services:


  • MedPAC Report on Impact of Changes in Medicare Payments for Part B Drugs.

  • MedPAC Data Book Chapter on Medicare Drug Spending and Utilization.

  • Primer on Medicare Part B physician payment.

  • posted: July 2, 2007

    Private%20Equity%20and%20Health%20Care.jpgThe Carlyle Group, a large private equity firm, announced today that it is buying Manor Care, a large operator of nursing homes and long-term care services, for $6 billion. This got the good folks at Marketplace Radio to ask why private equity firms seem to be so interested in buying up health care companies. And the resulting radio story broadcast today brought together an unusual cast of characters, including myself and Michael Moore. Yes, that Michael Moore.


    To listen to the radio interview, click here. To read the transcript online, click here.

    posted: June 25, 2007

    CMS%20Nomination%20Hearings.jpgKerry Weems, Secretary Mike Leavitt's deputy chief of staff and President Bush's nominee to head the Centers for Medicare and Medicaid Services (CMS), faces tough Senate confirmation hearings in July. A savvy, career HHS insider with a wealth of experience in the fiscal and organizational mechanics of federal health programs, Mr. Weems is a good choice for an administrator to steer CMS in the last 18 months of the Bush Administration. But he nonetheless faces several serious challenges during the confirmation process. A few examples:


    1. Efforts to Hold Confirmation Hostage to Policy Commitments:


    Senators, trade groups, and advocates of all flavors have long policy wish lists. As FDA Commissioner Andrew C. von Eschenbach, M.D. can attest, the confirmation process - in committee and on the Senate floor - is a unique opportunity for Democrats and even some Republicans to hold up confirmation until the nominee or Department concedes to certain policy demands. And the wish lists for the FDA are nothing compared to what many want from CMS.


    2. A Maze of Medicare and Medicaid Controversies:


    For better or worse, a wide range of delicate issues at CMS were left unexamined during Republican control of Congress. The Democrats now in charge of the Hill are eager to make political hay with health issues, reshape policy, and give their core constituencies a crack, albeit by proxy, at challenging CMS actions in a public forum.


    Regardless of the Administration or the party running the Executive Branch, Medicare and Medicaid are full of dirty little secrets, some real and some imagined, intertwined within a massive level of complexity prone to misconception and manipulation by political foes and those of varying motivations eager for a larger slice of an $800 billion+ pie. Many critics of CMS see the Weems nomination hearings and floor debate as a unique opportunity.


    3. Nomination of a Non-Wonk:


    While Kerry Weems has a lot going for him and CMS would likely benefit from leadership by a career insider, he is not a health policy wonk. That is, he is not a academic, researcher, health policy maker, or lobbyist (not that most lobbyists are mavens but they like playing them on TV). He's a budget and finance guy and a career one at that. Not a bad thing at all, but a potential problem in a town that grossly overvalues what MD's and PhD's typically know about health policy or finance and sees "budget guys" in health programs as somehow being on a first name basis with the devil.


    Some advocacy groups, who naturally have the ear of Dems in the Senate, are concerned that Mr. Weems lacks the requisite substantive expertise in Medicare or Medicaid policy (well, make that Medicare, since unfortunately few inside the Beltway understand or track Medicaid). When a Republican is in charge of the White House, Dems and advocates are much more comfortable with an academic running CMS. And when a Democrat is in charge, they virtually insist on it. In its 30-year history, CMS (formerly named HCFA) has had nearly as many administrators and acting administrators. Add to this extremely high turnover the fact that CMS is rather unique in having a tiny number of political appointees.


    There are notable exceptions. Gail Wilensky, Ph.D., one of the nation's most talented health policy experts, turned out to be an excellent administrator in the early 1990's. And there have been times where the agency was led by a budget guy, most notably Leonard Schaeffer, who ran HCFA is its early days. He came to HCFA from managing health budgets for the State of Illinois and later was the founding chairman and CEO of WellPoint.


    Kerry Weems will have his hands full next month. But he's a smart fellow, with a keen sense for detail, and HHS and CMS staffs are briefing him around the clock in preparation. He'll do well before the Senate if given a fair shake.

    posted: June 19, 2007

    Medicare%20PFFS%20Plans.jpgOf the 45 million Medicare beneficiaries, 19 percent are enrolled in a Medicare Advantage health plan. The other 81 percent choose to remain in traditional fee-for-service Medicare for Part A and Part B services. Governed under Part C of Medicare, Medicare Advantage health plans come in several flavors, most notably HMOs, PPOs, special needs plans (SNPs), and private fee-for-service plans.


    While only about 16% of Medicare Advantage enrollees and about 3 percent of all Medicare beneficiaries are in private fee-for-service plans, these PFFS plans are receiving considerable attention by Congress and Wall Street. To help you understand the unusual dynamics at play, here are some helpful resources:


    An Examination of Medicare Private Fee-for-Service Plans: This paper by Jonathan Blum, et al from Avalere Health, covers the history, features, trends, and policy and market implications of PFFS plans.


    The Medicare Advantage Program: Trends and Options: Congressional Budget Office (CBO) report, with CBO's projections for Medicare managed care enrollment.


    Private Fee-For-Service Plans in Medicare Advantage: Testimony by Mark E. Miller, Ph.D., executive director of the Medicare Payment Advisory Commission (MedPAC) on MedPAC's observations and recommendations.


    Private Fee-For-Service Plans In Medicare: Rapid Growth and Future Implications: In testimony before the House Ways and Means Committee, Patricia Neuman, Ph.D, a Kaiser Family Foundation vice president, offered a thoughtful overview of many of the key issues.


    The Impact of Reductions in Medicare Advantage Funding on Beneficiaries: This study, by Adam J. Atherly, Ph.D. and Kenneth E. Thorpe, Ph.D. of Emory University, shows financial savings Medicare Advantage enrollees receive and therefore the adverse impact on benies of proposed cuts to Medicare Advantage plans.


    Medicare Advantage Program Payment System: An excellent 4-page primer by MedPAC on how CMS sets Medicare Advantage plan payments.

    posted: March 5, 2007

    HHS%20and%20CMS%20Leadership.jpgMy sources in the Bush Administration tell me that the President will nominate Kerry Weems as the next administrator of the Centers for Medicare and Medicaid Services (CMS). Mr. Weems, a savvy finance expert with a long career at HHS, is well-liked by HHS Secretary Mike Leavitt, former Secretary Tommy Thompson, and the White House Office of Management and Budget (OMB). He served as HHS' budget director and is now deputy chief of staff.


    Nomination of Mr. Weems will be a departure from tradition. Historically, CMS administrators have been either academics or lobbyists. The academics often lack leadership and executive skills and the lobbyists often come across as too Machiavellian. Since the agency's creation in 1978, CMS (formerly called HCFA) has had about 30 administrators or acting administrators - about one per year. As a respected career insider, Mr. Weems is well positioned to deal with CMS' powerful, technocratic, hardworking but often demoralized bureaucracy.


    Leslie Norwalk, CMS acting administrator, is expected to resign sometime in April. Ms. Norwalk, a health industry lawyer, was counselor to the CMS administrator (Tom Scully) from 2001-2004 and became deputy administrator in 2004.


    Herb Kuhn will likely take over as acting administrator while Kerry Weems goes through the grueling Senate confirmation process. Mr. Kuhn, a highly respected hospital industry guru, has been director of CMS' Center for Medicare Management (CMM), which oversees Medicare Part A and Part B policy and Medicare's vast fee-for-service operations. Mr. Kuhn, has been serving as acting deputy administrator. He's a talented, well-liked fellow, and an excellent prospect for deputy administrator.


    As CMS goes through the musical chairs, speculation is growing that HHS Secretary Mike Leavitt plans to leave and rejoin the private sector this spring.

    posted: March 3, 2007

    Office%20of%20Management%20and%20Budget.jpgUnder a new Executive Order, President Bush has significantly expanded the authority of the White House Office of Management and Budget (OMB) over policymaking by the Centers for Medicare and Medicaid Services (CMS) and the Food and Drug Administration (FDA).


    Specifically, OMB now has the authority to review and approve a vast array of written guidance issued day-to-day by CMS and FDA. The expansion of OMB's oversight authority has far-reaching implications for Medicare and Medicaid policy and the regulation of the drug and device industries.


    In recent years, an increasing amount of agency policymaking has come in the form of "sub-regulatory guidance." That is, written guidance that does not go through the formal rulemaking process. In the case of CMS, this written guidance shows up, for example, as memorandums to health plans, letters to state officials, and manuals or other instructions. In its role administering the Federal Food, Drug, and Cosmetic Act (FDCA), the FDA has its own system of guidance documents.


    While the FDA approach to sub-regulatory guidance has its own critics and limitations, the FDA approach is better organized and managed than CMS' approach. FDA has been at it longer than CMS but also has (relatively speaking) a narrower, more explicit scope of work. The FDCA and all its amendments is no walk in the park, but Titles 18, 19, and 21 of the Social Security Act are exercises in pure legislative surrealism.


    President Bush's new Executive Order means that much of this written guidance is now subject to prior review and approval by OMB. While OMB has always been a key player, particularly in Medicare and Medicaid policy, the E.O. greatly increases OMB's influence and may result in a substantial power shift in many day-to-day issues affecting providers, health plans, drug manufacturers, states, and other stakeholders. (In the interest of full disclosure, my career includes service on OMB's Medicare and Medicaid team.)


    For those interested in more background, below is a quick overview of the rulemaking process and the increasing role of written guidance in lieu of rules.


    OMB%20Rule%20Review.jpgBackground on OMB Regulatory Review:


    Virtually all CMS and FDA proposed and final rules are subject to prior review and approval of the Office of Management and Budget (OMB), the powerful policy management arm of the White House. (It's important to note that OMB also reviews Medicare and Medicaid waivers, agency budget requests and legislative proposals, and written testimony to Congress.) OMB's regulatory oversight was created by Presidential Executive Order in the Reagan Administration and modified but retained by the Clinton Administration.


    The basic idea is to help ensure that agency rulemaking activities follow the sitting President's policy objectives to the extent possible under the laws passed by Congress. OMB oversight also allows for a more thoughtful and disciplined approach to regulations, to keep track of the impact of agency rules on individuals, businesses, and states and guard against such things as unnecessary or excessive regulations and conflicting rules across different federal agencies.


    In principle, the rulemaking process is designed to (1) inform the public of planned rules in detail; (2) give the public, including stakeholders and experts, an opportunity to comment, provide new information, and suggest alternatives; (3) ensure the rulemaking agency considers and responds to public comments before issuing final rules; (4) ensure that all federal rules can be found in a central publication (published in the Federal Register and formally codified in the Code of Federal Regulations); and (5) provide a comprehensive public record for use by the courts, Congress, and the news media in overseeing an agency's use of power and interpretation of statutes.


    Written Guidance Instead of Formal Rules:


    In other words, the formal rulemaking process provides for far more thoughtful, documented, and transparent policymaking than the so-called sub-regulatory guidance. However, developing proposed and final rules is a laborious process taking months and sometimes even years. And CMS faces the imperatives of implementing massive pieces of legislation, such as the Deficit Reduction Act (DRA) and the Medicare Modernization Act (MMA). Even if CMS always had the necessary staff, expertise, systems, and budget to implement the avalanche of Medicare and Medicaid legislation on time (it never does, unfortunately), there are just not enough hours in the day to promulgate all the necessary rules to meet statutory deadlines.


    Therefore, much of CMS policymaking is done through written guidance, letters, memos, and memos - and not regulations. While it's easy to understand the practical pressures, many legal observers seriously question CMS's compliance with the Administrative Procedures Act (APA). The APA, originally enacted in 1946, governs when and how agencies must go through the formal rulemaking process.


    Privately, several players have told me how CMS's informal approach to many Medicare and Medicaid policies would likely not stand up in federal court. However, trade groups, states, and other stakeholders don't want to anger the increasingly powerful agency - and, in many cases, written guidance today is better than waiting months or even years for a rule.


    Like its sister agency CMS, the FDA is increasingly using sub-regulatory guidance in lieu of formal rules. Given the demands facing the FDA, including a variety of reforms and pending legislative changes, this is expected to increase. To get a flavor, check out the list of guidance documents from the FDA's Center for Drug Evaluation and Research (CDRR). You'll see it includes various backgrounders mixed with policy statements and instructions.

    posted: February 20, 2007

    Medical%20Loss%20Ratios.jpgIn health policy, bad ideas never go away. Case in point is the proposal in California to require that health plans spend at least 85% of premium revenue on provider payments. Specifically, as part of his $12 billion Stay Healthy California package of reforms, Governor Arnold Schwarzenegger proposes to set a new minimum medical loss ratio for health plans.


    In a nutshell, a health insurer's medical loss ratio (MLR) is an accounting construct and relative differences from one health plan to another has absolutely nothing to do with affordability of premiums, access to care, quality of care, patient satisfaction, adequacy of provider networks, or virtually anything else of interest to policy makers.


    Further, it is based on a staggering array of faulty assumptions about health care delivery, insurance markets, and the uninsured, and ignorance of the difference between price and value. And artificial medical loss ratio standards result in many unintended consequences, including less competition, fewer consumer options, pushing more people into taxpayer-financed Medicaid and SCHIP, and restricting resources needed to improve quality and reduce medical errors.


    Jamie Robinson, Ph.D., professor of economics and chair of the health policy program at the University of California, Berkeley, put it best in a definitive article in Health Affairs:


    The medical loss ratio is an accounting monstrosity that enthralls the unsophisticated observer and distorts the policy discourse.


    Juxtaposition of low medical loss ratio with forprofit status has fed the flames of HMO bashing but is completely without substance.


    Thanks to the hard work of Secretary Kim Belshe and her excellent team, Governor Schwarzenegger's health reform initiative has many components worthy of serious consideration. However, further regulation of medical loss ratios - a long discredited idea that will only hinder the Governor's coverage objectives - is not one of them.

    posted: February 13, 2007

    SCHIP Issues.jpgThe $7 billion State Children's Health Insurance Program (SCHIP) is up for reauthorization in Congress this year. SCHIP, which began in October 1997, now covers over four million Americans, primarily children in families with incomes too high to qualify for Medicaid but too low to afford commercial health insurance coverage.


    Popular with both Democrats and Republicans, SCHIP is certain to be reauthorized by Congress. However, members of Congress differ on whether and to what extent SCHIP should be expanded, how much to increase federal funding, whether SCHIP should be reserved for truly low income children or open to more moderate income families, and whether SCHIP should be used as a vehicle to expand coverage to uninsured workers. In addition, there remain serious questions about how much taxpayer-funded SCHIP has crowded out employer-sponsored coverage.


    The policy issues and design options are many. Ultimately, the battle over SCHIP is a microcosm of the larger national debate on what government can or should do about the uninsured, the role of individual and employer responsibility, what is "affordable", what is an adequate package of covered benefits, and much more.


    Overview of SCHIP:


    Each state, within broad federal guidelines, determines the design of its own program, including eligibility, benefit design, cost sharing, and operating procedures. States may operate SCHIP separately or in conjunction with Medicaid. SCHIP benefits are delivered primarily through health plans under contract with states.


    On a federal level, SCHIP is governed by Title XXI of the Social Security Act. However, several states have requested and received Section 1115 waivers to redesign the SCHIP eligibility, cost sharing, and/or benefits.


    Unlike Medicaid, which is largely an open-ended entitlement, states may cap SCHIP enrollment and federal funds for SCHIP are capped. This year, unless Congress increases aggregate federal funds for SCHIP, about 16 states may need to either cap enrollment or appropriate additional state funds to maintain the program.


    Budget Challenge of Funding Children's Health Coverage:


    The best guess is Congress will need to increase the federal cap on SCHIP funding by $12 billion to $15 billion over the next five years to maintain coverage for the four million now enrolled. (During the year, about six million receive coverage at some point and about four million are covered at any given point in time.) Absent either a big increase in the federal cap or a big jump in state-only appropriations to SCHIP, about one million kids will lose coverage.


    Resources to Understand SCHIP:


    Here are several excellent resources to better understand the State Children's Health Insurance Program:


  • Fact Sheet on SCHIP: How it's administered and financed, who is eligible, and what services are covered. Crisp two-pager from KFF.

  • SCHIP's Financing Structure: Here's a great four-page primer on how the State Children's Health Insurance Program is financed. From Georgetown University's Health Policy Institute.

  • A Decade of SCHIP Experience and Issues for Reauthorization: This KFF report highlights lessons learned since 1997 and key issues for SCHIP reauthorization.

  • SCHIP: Past, Present, and Future: This outstanding paper "reviews the program's history and design, describes its present challenges and successes, assesses issues Congress is likely to consider during reauthorization, and explores future policy options including potential changes in eligibility and financing." By Jeanne M. Lambrew, Ph.D., an associate professor of health policy at George Washington University.

  • State Experiences in Implementing SCHIP and Considerations for Reauthorization: Comprehensive analysis by GAO, with lots of useful background information.

  • Coverage Patterns among SCHIP-Eligible Children and Their Parents: This informative Urban Institute paper tackles three critically important questions, namely, (1) how many children remain uninsured, (2) how many SCHIP-enrolled children have access to employer-sponsored commercial health insurance coverage, and (3) how many SCHIP enrollees have uninsured parents.
  • posted: February 10, 2007

    State Health Reform.jpgIn health care, states serve as the nation's laboratories of reform - able to test innovations in financing, coverage, regulation, and care delivery. In 2007, states are leading the way on health insurance coverage expansion, leveraging a mix of policies including universal coverage, individual mandates, tax credits and Section 125 plans, and insurance "exchanges" or "connectors" to facilitate buying of affordable health plans.


    Because so much is going on and since I do a fair amount of workin this area, several readers of the Piper Report asked me to post some resources on what's going on in the states. So here you go.


    State Health Reform Commissions:


    Several states have created task forces or study committees to examine options for coverage expansion and make recommendations. Most are appointed by the governor or governor and legislative leaders. A few are special committees of the legislature. Here are states with health reform commissions:


  • Illinois
  • Colorado
  • Louisiana
  • Maine
  • North Carolina
  • New Mexico
  • New Jersey
  • Oregon
  • Vermont
  • Virginia (Governor's Commission)
  • Viginia (Legislature's Joint Committee)
  • Wisconsin

  • Governors' Health Care Reform Initiatives:


    Several governors have announced detailed health reform proposals. Most focus largely or entirely on coverage expansion but several also thankfully include initiatives to improve quality of care, combat medical errors, and/or increase transparency of provider prices and performance.


  • New York
  • California
  • Minnesota
  • Connecticut
  • Pennsylvania
  • Washington

  • More Resources on State-Based Health Reform:


    Massachusetts, of course, started the ball rolling with its groundbreaking, bipartisan reform initiative in 2006. To learn more, here's an excellent article from BNA's Health Policy Report on the impact of Massachusetts health reform on coverage expansion efforts in others states (PDF).


    The National Conference of State Legislatures (NCSL) maintains a helpful list of legislative bills on universal coverage proposed in states.


    For the best books on health reform, Medicaid, and other hot topics in health care, please visit my book recommendations.


    For latest state-specific data on health care coverage and spending, check out the free, easy-to-use tools on StateHealthFacts.org.


    Questions on State Health Reform:


    Feel free to contact me if you have questions on what's going on in the states.

    posted: January 24, 2007

    Bush%20Health%20Reform.jpgPresident Bush has joined the health reform debate with a proposal of his own. The Bush approach is as intriguing as it is controversial.


    First, the Administration seeks to reform the federal tax code to change the tax treatment of health insurance premiums and offer new tax deductions to help make coverage more affordable. Second, the White House wants to give states the ability to extend basic coverage to the uninsured by redirecting funds from uncompensated care pools.


    Changes to Tax Deductibility of Health Insurance:


    Today, most employees are not taxed on the value of employer-sponsored health insurance coverage. That is, the employer's share is not taxed and any employee contribution is taken out of income before taxes.


    Many health economists believe this pre-tax treatment of health insurance tends, over time, to distort the market by giving a tax incentive to take income in the form of health coverage and insulating most working Americans from the cost of medical care. They argue this contributes to health inflation and creates a costly and unfair playing field for Americans without access to group coverage.


    The Bush Administration proposes several major changes to the tax treatment of health insurance premiums:


  • Starting in 2009, a new federal tax deduction for those who obtain health insurance on their own or through an employer.

  • The new deductions would start at $7,500 for individuals and $15,000 for families and increase annually by the general Consumer Price Index (CPI).

  • The new deductions would be available to all individuals and families who purchase health insurance, regardless of the value of their policies or whether they itemize deductions on their federal tax returns.

  • Americans with employer-sponsored health coverage worth more than the proposed allowable deductions would pay taxes on the difference. That is, for the first time the feds would tax the value of employer-sponsored coverage but only the portion above the deduction amount.

  • If the tax changes are enacted, the Bush Administration estimates that about three million individuals who are now uninsured will gain health coverage. Of Americans with employer-sponsored coverage, about 80 percent (roughly 100 million taxpayers) would see a reduction in taxes. For example, a family with an annual income of $60,000 would see tax savings of about $4,500 annually. The other 20 percent - about 30 million, mostly higher income individuals - would see modest increase in their federal tax bill.


    From a federal perspective, the proposal is expected to be budget neutral over the first ten years. In the early years, the proposal would cost the federal government $30-40 billion a year. However, by 2013 the changes are expected to increase net federal revenues. This is because it is structured to redistribute dollars in the system, over time taxpayers will tend to gravitate to health plans falling below the deductible amounts, and tax revenues will increase as more compensation shifts from benefits to wages.


    Affordable Choices Grants to States:


    The second component of the President's health reform package is called the Affordable Choices Initiative. Leveraging existing waiver authority and some likely legislative changes in Medicaid and Medicare, the Administration proposes to give states grants and new flexibility to offer basic, affordable health insurance coverage to the uninsured.


    Specifically, the White House wants to allow states to redirect about $30 billion in dollars now used to help hospitals with uncompensated care. Both Medicaid and Medicare have disproportionate share hospital programs. While the methodologies differ, the federal Medicare program and state Medicaid programs use disproportionate share hospital (DSH) payments to send additional dollars to hospitals that serve a disproportionate number of uninsured patients.


    Given the large number of states engaged in health reform initiatives and the presence of the large pools of dollars, the White House sees a unique opportunity to foster state-based coverage expansions and move dollars to subsidize health plans for the uninsured.


    The Administration has also hinted at an interest in using savings that would result from new proposed federal rules to cap Medicaid payments to publicly owned providers. Right now, if the final rules are issued this summer as expected, many states and public hospitals will lose and the feds will pocket the savings for budget purposes.


    However, because of the dollars involved and the pressure it places on many states and public providers, the proposed cap on Medicaid payments could be used to sweeten the Affordable Choices Initiative. For some states, it could become a case of "use it or lose it." In addition to giving states and public hospitals an added incentive to come to the table and perhaps soften Congressional opposition, it would add several billion dollars to the pool of funds for state-based coverage expansions.


    More Details Forthcoming:


    More details on the tax deductibility proposal and the Affordable Choices grants are expected on Monday, February 5, when the White House releases President Bush's proposed budget for FY 2008.


    The tax deductibility proposal already faces stiff opposition from key Democrats in Congress. And hospital industry groups are lining up to oppose the Affordable Choices Grants. However, the two proposals certainly contribute to the debate and improve the chances of some major health reform legislation in 2007.

    posted: January 10, 2007

    Drug%20Price%20Negotiations%20Continued.jpgWith sound, furry, and a fair quota of sound bites and photo opps, House Democrats are pushing for quick adoption of H.R. 4, the Medicare Prescription Drug Price Negotiation Act of 2007. The bill would require the Secretary of HHS to negotiate with pharmaceutical manufacturers on drug prices in Medicare Part D.


    As I explained in an earlier post, federal drug price negotiations would not generate savings above what are already achieved via the marketplace - unless Congress wants to severely limit the number of new and existing drugs available to seniors. However, the conclusion is counter intuitive to the uninitiated, especially given media hype and partisan palaver.


    Today, the Congressional Budget Office (CBO) told Rep. John Dingell, new Ways and Means Committee chairman, that federal drug price negotiations under H.R. 4 would save nothing. Here are the salient points of CBO's official estimate:


    CBO estimates that H.R. 4 would have a negligible effect on federal spending because we anticipate that the Secretary would be unable to negotiate prices across the broad range of covered Part D drugs that are more favorable than those obtained by PDPs under current law. Since the legislation specifically directs the Secretary to negotiate only about the prices that could be charged to PDPs, and explicitly indicates that the Secretary would not have authority to negotiate about some other factors that may influence the prescription drug market, we assume that the negotiations would be limited solely to a discussion about the prices to be charged to PDPs. In that context, the Secretary's ability to influence the outcome of those negotiations would be limited. For example, without the authority to establish a formulary, we believe that the Secretary would not be able to encourage the use of particular drugs by Part D beneficiaries, and as a result would lack the leverage to obtain significant discounts in his negotiations with drug manufacturers.


    Instead, prices for covered Part D drugs would continue to be determined through negotiations between drug manufacturers and PDPs. Under current law, PDPs are allowed to establish formularies - subject to certain limits - and thus have some ability to direct demand to drugs produced by one manufacturer rather than another. The PDPs also bear substantial financial risk and therefore have strong incentives to negotiate price discounts in order to control their costs and offer coverage that attracts enrollees through features such as low premiums and cost-sharing requirements. Therefore, the PDPs have both the incentives and the tools to negotiate drug prices that the government, under the legislation, would not have. H.R. 4 would not alter that essential dynamic.


    To read CBO's letter to Chairman Dingell, click here (PDF). To learn more about the issue, please check out my earlier story.

    posted: December 30, 2006

    State%20False%20Claims%20Acts.jpgThe federal False Claims Act has been an effective tool in combating fraud and abuse in government programs, particularly Medicare. Several states have their own state versions of false claims legislation. The federal Deficit Reduction Act (DRA), enacted last February, gives states a powerful new financial incentive to enact state false claims acts modeled after the federal version and directed at fighting Medicaid fraud and abuse.


    Specifically, states with state false claims acts that meet certain federal standards are able to keep more of whatever is recovered from fraudulent Medicaid providers or suppliers. The incentive amounts to ten percentage points of any recovery. For example, if a state has a 50% federal Medicaid match, it would normally have to return to the feds 50% of anything recovered. However, if the state has a federally compliant false claims act, the state gets to keep 60% or a 10 percentage point jump in its share. For most states, this could easily result in millions of dollars kept in the state.


    OIG Review of State False Claims Acts:


    Under the DRA, the HHS Office of the Inspector General (OIG) is responsible for looking at state false claims laws (whether new, existing, or amended) to see if they meet the federal standard and therefore if the state gets the incentive. To read the OIG's review guidelines, click here.


    So far, at the request of state officials, the OIG has looked at existing statutes in ten states: California, Florida, Illinois, Indiana, Louisiana, Massachusetts, Michigan, Nevada, Tennessee, and Texas. According to the OIG, the state false claims statutes in Illinois, Massachusetts, and Tennessee meet the DRA requirements and therefore these states' Medicaid programs may keep more of any Medicaid recoveries. The other states will need to amend their statutes if they wish to qualify for financial incentive.


    Background on Federal False Claims Act:


    Since the nation's founding, federal law has permitted private citizens to sue on behalf of the government to combat fraud in public programs. If the fraud or false claim is proven in court, the citizen bringing the suit gets to keep a portion of the funds recovered as an incentive.


    Today, fraud fighters and whistleblowers use the federal False Claims Act, which was enacted in 1863 to stop fraud by military suppliers to the Union Army. Revised several times by Congress, the federal False Claims Act (FCA) has been increasingly used to bring lawsuits against health care providers and suppliers.


    Of course, federal prosecutors may also bring criminal charges but in criminal cases they must prove guilt beyond a reasonable doubt. Civil cases are much easier to win in the complex world of health care claims since the standard is a preponderance of the evidence.


    How the False Claims Act Works:


    How%20FCA%20Works.jpgUnder the False Claims Act, a person with knowledge of fraud against the U.S. government may file a civil suit on behalf of the government against the person or business that allegedly committed the fraud. These are referred to qui tam cases. "Qui tam" (pronounced "key tam" or "kwee tam" and Latin for "who as well") is used in short for longer Latin phrase meaning "he who (sues) for the king as well as for himself." (Okay, for Latin buffs, it's qui tam pro domino rege quam pro seipse. Now you know why everybody just says Qui Tam.)


    Qui tam lawsuits are first filed with the federal district court in secret, to give the U.S. Justice Department time to decide whether to intervene and take over prosecuting the case itself. DOJ takes on about a quarter of these cases. If DOJ decides not to take the case, the qui tam plaintiff or "relator" - who is often an internal whistleblower since they need to be the source of information in the case - may pursue the case on behalf of the federal government but at his or her own expense. However, unlike other civil actions where a person can represent themselves (unwise but possible), the relator must hire an attorney to represent them.


    The False Claims Act provides for treble damages. Therefore, if fraud is proven through the civil case, the defendant(s) are liable for three times the original cost of the fraud to the taxpayers - plus civil fines of $5,000 to $10,000 for each instance of fraud or false claim.


    The amount received by a successful qui tam plaintiff depends on whether the DOJ took the case. If the Justice Department takes the case, the qui tam plaintiff gets between 15% and 25% of the recovery. If the Justice Department declines to take the case and the relator pursues the civil suit on their own, the qui tam plaintiff receives 25% to 30% of the recovery.


    Given the size of some of these incentives, the Justice Department often balks and tries to get them reduced, arguing that the plaintiff lacked the direct knowledge required to qualify. Therefore, the payouts to successful whistleblowers often lead to legal battles long after the fraud is proven and defendants pay up.


    Earlier this month, the U.S. Supreme Court heard oral arguments in just such a case where the federal government was challenging the right of a successful qui tam plaintiff to collect a portion of recoveries. The ruling, expected by this summer, could have a major impact on future qui tam suits.


    Please check out my previous posts on Medicaid program integrity issues.

    posted: October 2, 2006

    OIG%20Medicaid%20Work%20Plan.jpgThe Office of the Inspector General (OIG) at HHS has released its 93-page work plan for FY 2007. The OIG plans to examine nearly 100 issues in Medicaid, with particular attention on:


    1. Medicaid reimbursement of hospitals, nursing homes, managed care organizations, home and community-based care, and mental health providers.


    2. Medicaid prescription drug benefit issues, including pharmaceutical industry practices affecting pricing and rebates.


    3. Financing practices used by states, most notably provider taxes, certified public expenditures, and upper payment limit issues.


    4. Budget neutrality of Medicaid waivers, specifically Section 1115 Medicaid reform waivers and Section 1915 waivers for managed care or home- and community-based care programs.


    Role and Influence of OIG in Medicaid:


    The federal government has significantly increased staffing at both CMS and the OIG to review or audit state Medicaid agencies, Medicaid providers, drug manufacturers, and Medicaid managed care organizations. This, in turn, has increased the number, diversity, and complexity of Medicaid issues under review by the two federal agencies.


    OIG studies and evaluations often help states learn about ways to improve Medicaid program efficiency. They also help CMS target its limited resources. OIG reports also provide valuable insights on best practices and program innovations. And, of course, OIG reports can lead to recommendations that CMS recover federal funds from states or recoup payments from providers.


    Part of the OIG's work plan focuses on checking to ensure that CMS, states, or providers are compliant with newly enacted or even long standing federal requirements. Other projects will look to see whether inappropriate or questionable practices recently found in a few locations are isolated cases or indications of a broader, national problem in Medicaid.


    However, several of the OIG's Medicaid related projects for 2007 will look at controversial Medicaid policy issues such as whether waivers approved by the Secretary of HHS are budget neutral and if some states are using Medicaid to pay for non-emergency care for illegal immigrants.


    Medicaid Hospital Payments:


    In the hospital arena, the OIG will look at the reasonableness of cost outlier payments for inpatient admissions, state compliance with OBRA '93 limits on disproportionate share hospital payments, and whether states are correctly determining hospital eligibility for disproportionate share payments.


    Medicaid Long-Term Care Services:


    The OIG intends to look more closely at home and community-based services. For example, the OIG will examine whether states are inadvertently paying for home and community-based services after a beneficiary's death or during a hospitalization. They are also looking at whether certain states are improperly claiming federal match on state costs of administering home and community-based waiver programs. As I mentioned earlier, they are also evaluating whether home and community-based waiver programs are budget neutral. That is, whether they are no more costly than nursing home care.


    Elsewhere in Medicaid long-term care, the OIG plans to study state determinations of nursing home eligibility and the adequacy of state safeguards against improper asset transfers. They also want to know if states are recovering funds from estates as required by federal law. In addition, they plan to study possible duplicate payments to nursing homes and hospitals. Specifically, they want to get a handle on whether some hospitals are being paid for patients already discharged to a nursing home and if nursing homes are being paid while a beneficiary is a hospital inpatient. Further, the OIG plans to see if some home care providers were improperly paid for care provided to residents of assisted living facilities. The OIG also has projects to examine the appropriateness of Medicaid payments to personal care providers and physical and occupational therapists.


    Mental Health and Substance Abuse Services:


    Mental health and substance abuse services and providers are also coming under greater scrutiny. For example, the OIG is looking at the appropriateness of Medicaid payments for community mental health centers, outpatient clinics, day treatment programs, inpatient and outpatient alcohol and drug treatment, and community residencies for persons with mental disabilities.


    Medicaid Drug Costs:


    The OIG work plan for FY 2007 naturally includes a long list of projects looking at Medicaid prescription drug costs. This includes reviews of how drug companies determine average manufacturer price (AMP) and the adequacy of CMS' oversight of Medicaid drug rebates. Other OIG studies will assess drug price fluctuations and whether states overpay for drugs to treat HIV.


    Medicaid Managed Care:


    The OIG work plan also calls for several evaluations of issues affecting Medicaid managed care organizations (MMCOs). For example, the OIG wants to know if some states are inappropriately paying Medicaid MCOs for dual eligibles and if states are paying fee-for-service claims for beneficiaries covered under Medicaid health plans. The OIG also intends to examine the completeness and accuracy of encounter data submitted by Medicaid MCOs.


    State Administration of Medicaid:


    The Office of the Inspector General is also eager to evaluate a wide range of issues regarding day-to-day administration of Medicaid by states. Again, the list of target issues is long. For example, the OIG work plan includes projects to examine state administrative costs, program integrity efforts, information systems, administrative claiming by counties, state overrides of claims system edits and audits, revenue maximization practices, and third party collections.


    To Learn More:


    Those are just some of the Medicaid related topics the OIG plans to study in FY 2007. Most of the OIG projects will likely result in a public report in 2007. To read the full work plan, click here (PDF).

    posted: August 31, 2006

    Medicaid%20Error%20Reduction.jpgAs part of a larger, federal government-wide congressionally mandated initiative to reduce inappropriate payments, CMS has published its final rule on Medicaid / SCHIP payment error rate measurement. As expected, it represents a significant expansion of federal oversight of day-to-day state Medicaid operations and of the lives of Medicaid providers and Medicaid managed care organizations.


    Medicaid Payment Error Rate Measurement:


    The Medicaid Payment Error Rate Measurement (PERM) initiative is a complicated process but means that every state will undergo a detailed examination of paid claims, capitation payments, reimbursement and premium policies, coding, and more. States must turn over vast amounts of data every quarter, plus virtually everything else on rates, policies, and claims processing edits and audits.


    CMS will hire a series of new contractors to examine all this, run samples, and identify errors. CMS will then set maximum acceptable error rates (based on what it or its contractors determine is an "error") and then state must take corrective action. These corrective actions could include recovering payments, changing reimbursement policies, and revising claims processing requirements.


    States Targeted for Federal Review:


    States will rotate, with each state going through the entire process every three years. The states selected for the first round (FY 2006) are Pennsylvania, Ohio, Illinois, Michigan, Missouri, Minnesota, Arkansas, Connecticut, New Mexico, Virginia, Wisconsin, Oklahoma, North Dakota, Wyoming, Kansas, Idaho, Delaware.


    Second round states (FY 2007) are North Carolina, Georgia, California, Massachusetts, Tennessee, New Jersey, Kentucky, West Virginia, Maryland, Alabama, South Carolina, Colorado, Utah, Vermont, Nebraska, New Hampshire, Rhode Island. Third round states (FY 2008) are New York, Florida, Texas, Louisiana, Indiana, Mississippi, Iowa, Maine, Oregon, Arizona, Washington, District of Columbia, Alaska, Hawaii, Montana, South Dakota, Nevada.


    Opportunities and Challenges:


    If CMS manages the process well and works cooperatively with states, the PERM may help (1) save taxpayer dollars, (2) improve the operations of the less sophisticated state Medicaid programs, (3) showcase the best run Medicaid shops and best fiscal agents, (4) help CMS develop greater respect for the hard work of states, (5) identify inappropriate provider practices across state lines, (6) facilitate comparative research and analysis of Medicaid, and (6) allow CMS and states identify, build, and share best practices.


    However, PERM raises many practical concerns, especially given the enormous complexity of Medicaid and wide technical and programmatic variation among state Medicaid programs. Even if a state has a low error rate, the administrative burden could be intense, with a steep learning curve for CMS and the new federal contractors and endless arguments among the parties on what is or is not a genuine error. For states with high error rates, the implications include need to update systems, modernize procedures, redirect or replace fiscal agents, change payment and claims procedures, and much more. And add to this, controversial recoveries of federal dollars from states and providers.

    posted: August 6, 2006

    More%20on%20Integrated%20Plans.jpgMedicare Advantage Special Needs Plans (MA-SNPs) are a fast growing innovation in the marketplace. A new Medicare managed care option created under the Medicare Modernization Act (MMA), MA-SNPs are able to tailor plan designs and delivery to serve the needs of dual eligibles, beneficiaries in nursing homes or at risk of institutionalization, and beneficiaries with chronic, severe conditions.


    For CY 2006, there are 276 federally approved MA-SNPs with an enrollment of over 500,000. More insurers are jumping in to offer Special Needs Plans in 2007 and others are moving to market the new plans to millions of high-cost, high-need Medicare beneficiaries. Given this competition and the many advantages of MA-SNPs for dual eligibles and other chronically ill beneficiaries, MA-SNP should exceed one million in 2007 and two million in 2008.


    As I reported earlier, states and CMS are working to dovetail Medicare's requirements for MA-SNPs and state and federal requirements for Medicaid managed care organizations (MMCOs). The objective is to provide states with an exciting new voluntary option to integrate health care for the nation's 6.3 million dual eligibles.


    In close collaboration with the National Association of State Medicaid Directors (NASMD), CMS has released a new guide for states on integrating Medicaid and Medicare services and a series of how-to guides on integrating enrollment, marketing, and quality assurance.


    To learn more about MA-SNPs or integrated Medicare-Medicaid health plans, check out my earlier posts or contact me for more resources.

    posted: July 5, 2006

    Patient%20Centered%20Care.jpgPatient-centered care - one of the new buzz phrases in health care - is all about aligning the delivery of medical care with the needs and preferences of patients. Research shows that the practices and tools of patient-centered care result in:


  • Superior clinical outcomes

  • Higher consumer satisfaction

  • Improved access to needed care

  • Reduction of inappropriate use

  • Lower healthcare costs

  • Unfortunately, despite overwhelming support of the medical community and patient advocates, only 22 percent of physicians practice patient-centered care.


    Patient-Centered Care Defined:


    Patient-centered care is one of the six essential components of high quality medical care, according to the Institute of Medicine (IOM), the respected healthcare arm of the National Academy of Sciences. The IOM defines patient-centered care as:


    Health care that establishes a partnership among practitioners, patients, and their families (when appropriate) to ensure that decisions respect patients' wants, needs, and preferences and that patients have the education and support they need to make decisions and participate in their own care.


    Key Components of Patent-Centered Care:


    At its core, patient-centered care is all about improved patient-provider communication, where patients and providers collaborate for the benefit of the patient. Ideally, patient-centered care delivery involves an array of tools and practices, including:


  • Strong continuity of care, including close communication between primary care physicians and specialists, careful "hand-off" of patients among providers, and thorough post-hospital, post-surgical support and follow-up.

  • Effective use of modern health information technology, including (a) electronic medical records, (b) electronic prescribing, (c) e-lab results, (d) online scheduling, (e) email communications, and (f) automated patient reminders.

  • Clinic management and procedures to ensure (a) effective medication therapy management, (b) timely appointments, (c) access to after-hours services, and (d) fast, easy patient access to medical records.

  • Tools and information to facilitate patient decision making, including (a) reliable, actionable information on provider performance (i.e., transparency of quality, cost, safety) and (b) information and self-management tools to help patients manage their own conditions.

  • To learn more, check out these resources:


    The Commonwealth Fund's excellent initiatives on patient-centered care.


    Report from the Economic and Social Research Institute on the key components of patient-centered care that are unique to underserved populations.


    Tools from the HHS Agency for Healthcare Research and Quality (AHRQ).

    posted: June 5, 2006

    Medicaid%20Benchmark%20Plans.jpgUsing new flexibility created by the Deficit Reduction Act (DRA), states may restructure Medicaid benefits. States may now customize Medicaid health care benefits to specific populations, model some benefit package after commercial-like health plans, and offer additional benefits as incentives to reward healthier patient behavior.


    Based on the concept of benchmark benefit packages first used in the State Children's Health Insurance Program (SCHIP), the new restructuring options are expected to save $11 billion over the next ten years (about $6 billion federal savings, $5 billion state savings) and ultimately affect 1.6 million Medicaid beneficiaries.


    Kentucky, West Virginia, and Idaho are the first states to use the new options. With help from leading consultants, other states are exploring ways to use DRA flexibility to reform some benefit packages and section 1115 waivers to modernize Medicaid, contain costs, and expand coverage.


    Here is a quick briefing on Medicaid benchmark coverage permitted under the DRA:


    1. Through the state plan amendment (SPA) process, states may provide Medicaid benefits through benchmark or benchmark equivalent packages for children and some non-disabled adults. The benchmark packages would replace existing Medicaid benefits for the targeted populations.


    2. The newly designed benefit packages may include wrap-around services or additional benefits not now covered by the state's Medicaid program. Every benchmark benefit package must cover Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) services for children under 19, federally qualified health center (FQHC) services, and rural health clinic services.


    3. Benchmark coverage means the same health benefit package offered by (a) the state for state employees, (b) standard Blue Cross Blue Shield Plan offered under the Federal Employee Health Benefits Plan (FEHBP), (c) the state’s largest commercial HMO, or (d) other models approved by the HHS Secretary.


    4. Benchmark-equivalent coverage means a package with the same actuarial value as one of the benchmark plans. If a state uses this route, benchmark-equivalent coverage must include (a) inpatient and outpatient hospital services, (b) physician services, (c) lab and x-ray services, (d) well child care and immunizations, and (e) other preventive services designated by the Secretary. For prescription drugs, mental health services, and hearing and vision services, a benchmark-equivalent package must provide at least 75 percent of the actuarial value of coverage. States must use generally accepted actuarial principles and methodologies.


    5. States may only use benchmark or benchmark-equivalent packages to beneficiary groups already covered under the state Medicaid plan. Therefore, by itself, the DRA benchmark package option cannot be used to expand health coverage to new populations.


    6. In addition, many beneficiary groups are exempt from benchmark coverage, including (a) dual eligibles, (b) persons with disabilities or special health care needs, (c) beneficiaries needing long-term care services, (d) foster care children, (d) pregnant women with federally mandated coverage, and (e) individuals eligible for Medicaid via the TANF welfare reform law.

    posted: June 3, 2006

    OTC%20Drugs%20in%20Medicare%20Part%20D.jpgMedicare drug plans will dramatically increase coverage of over-the-counter (OTC) drugs in 2007 based on new guidance from the Centers for Medicare and Medicaid Services (CMS).


    In creating Medicare Part D, the Medicare Modernization Act (MMA) excluded OTCs from coverage. Taxpayer dollars could not be used to pay for OTC products even when clinically appropriate and cost effective. This was in sharp contrast to pharmacy benefit designs common in commercial coverage and Medicaid, where employers, states, health plans, and PBMs try to take advantage of new, inexpensive OTC alternatives to popular prescription drugs.


    For 2006, CMS allowed Medicare prescription drug plans (PDPs) and Medicare Advantage drug plans (MA-PDs) to cover OTCs under narrow circumstances. For example, OTC coverage was limited to federally approved step therapy programs, with no prior authorization for the OTC. To pay for OTC products, drug plans must use administrative dollars and not federal benefit dollars.


    For 2007, CMS is loosening restrictions on PDP and MA-PD coverage of safe, effective over-the-counter drugs that are less expensive than prescription alternatives in the plan's formulary. Medicare drug plans must still use administrative dollars because of the statutory limit. However, OTC products may be covered outside of a step therapy program. To ensure Part D enrollees have continued access to prescription versions, drug plans that decide to cover OTCs outside a federally-approval step therapy protocol may not use prior authorization or other tools to require OTC use before a formulary legend drug is covered. Plans must also educate enrollees on differences between the prescription and non-prescription available for a given need.


    Compared to their prescription alternatives, OTCs often represent savings of 60-70 percent or more. Seniors tend to be heavy users of proton pump inhibitors (PPI), non-steroidal anti-inflammatory drugs (NSAIDs), and antihistamines - categories with low-cost OTC alternatives likely appropriate for many patients. Therefore, next year many Medicare drug plans will likely offer free OTCs to drive utilization, reduce costs, ease the doughnut hole, and improve enrollee satisfaction and retention.


    In addition to reducing costs for drug plans and many beneficiaries, wider access to OTCs in Part D may also reduce state Medicaid spending. Under MMA, 6 million dual eligibles were moved from Medicaid to Medicare for purposes of most drug coverage. However, Medicaid drug coverage is broader than Medicare Part D in many states. To save dollars, most states cover some OTCs. If a state Medicaid program covers an OTC for one group of Medicaid recipients, federal law requires the state to cover the OTC for all, including dual eligibles. The continued overlap of Medicare and Medicaid drug coverage for duals creates opportunities for confusion, cost shifting, even gaming. But the new OTC coverage options in Part D should allow states to save some Medicaid pharmacy dollars - provided CMS is proactive in working cooperatively with states, drug plans, and pharmacies on the issue.


    While drug plans and beneficiaries will win - and states may win - from the new OTC coverage guidance, pharmacies will lose because of lower product and dispensing fee revenue. Some pharmaceutical manufacturers will also lose, notably those prescription drug makers facing competing OTCs in hot categories like proton pump inhibitors.

    posted: June 1, 2006

    Medicaid%20Restructuring.jpgUsing new benefit design and cost-sharing options created by the Deficit Reduction Act (DRA), states are busy restructuring Medicaid programs. With recently announced approvals from HHS Secretary Mike Leavitt, Kentucky, West Virginia, and Idaho are the first states to take advantage of DRA flexibility.


    With the help of top advisors, other states are working on their own Medicaid initiatives, using a mix of DRA options and creative Section 1115 waivers.


    Here's a quick summary of the new Medicaid reforms in Kentucky, West Virginia, and Idaho:


    Kentucky Medicaid Reform:


    Kentucky will offer benefit packages aimed at meeting the health care needs of three different groups: (1) children, (2) the elderly and people with disabilities who need institutional care, and (3) the general Medicaid population.


    Through four new benefit packages, Medicaid enrollees will be offered the most appropriate benefit plan based on their needs:


    1. The Family Choices program will serve healthy children.


    2. Comprehensive Choices and Optimum Choices will serve individuals with complex health care needs.


    3. Global Choices, which is most similar to Kentucky's traditional Medicaid program, will serve other vulnerable populations.


    Kentucky's Medicaid restructuring includes a new disease management program with special incentives to encourage healthier behavior by chronically ill beneficiaries. After successfully participating in a disease management program for one year, participants will be eligible for services not otherwise available, such as dental or vision services.


    The Kentucky reform program will also help Medicaid recipients buy employer-sponsored coverage. If a beneficiary chooses their employer's plan instead of Medicaid, the state will help cover the premium.


    West Virginia Medicaid Reform:


    West Virginia will offer enrollees a choice of two benefit packages:


    1. A Basic plan modeled after current Medicaid benefits.


    2. An Enhanced plan that includes a broader range of health services in exchange for complying with all recommended medical treatment and wellness behaviors.


    The new benefits under the Enhanced plan will include tobacco cessation, nutritional education, diabetes care, chemical dependency services, mental health services, cardiac rehabilitation, chiropractic services, and emergent dental services.


    West Virginia's Enhanced plan will also cover skilled nursing care, orthotics, and prosthetics for children. Both the Basic and Enhanced plans will cover Early, Periodic Screening, Diagnosis, and Treatment (EPSDT) services for children.


    To enroll in the Enhanced benefit, beneficiaries must sign a member agreement stating they will comply with all recommended medical treatment and wellness behaviors. The Basic plan - with the standard Medicaid package - is the default benefit for those who chose not to join the Enhanced plan or who decide they want to leave the Enhanced plan.


    Idaho Medicaid Reform:


    Idaho will offer three new benefit packages aimed at meeting the health care needs of different groups: children, people with disabilities, and beneficiaries who are eligible for both Medicaid and Medicare (aka dual eligibles).


    All three new packages - Basic, Enhanced, and Coordinated - are voluntary. Any enrollee who chooses one of the new plans can opt out and return to standard Medicaid at any time they wish.


    Here are some details on Idaho's three plans:


    1. The Basic plan will serve healthy children and adults and will cover most of traditional Medicaid benefits, including EPSDT services for children. However, the Basic plan will not cover long-term care, organ transplants, and intensive mental health treatment.


    2. The Enhanced plan is designed to serve individuals with more complex medical needs, most notably the elderly and disabled. The Enhanced plan will cover all the traditional Medicaid benefits, including long-term care. Beneficiaries enrolled in the Basic plan who need services not available in that plan will be moved to the Enhanced plan.


    3. The Coordinated plan will serve dual eligibles. It will include all services now covered under Idaho's traditional Medicaid program. For coverage under the Coordinated plan, dual eligibles must also be enrolled in Medicare Part B and Part D.


    Each of these benefit plans will include new preventive services, including nutrition services and other benefits to help smokers, the obese, and others adopt healthier habits.


    Idaho's Medicaid restructuring includes several other important reforms:


    1. The working disabled may purchase the basic benefit package.


    2. Eligibility for children in Medicaid and the State Children's Health Insurance Program (SCHIP) will be streamlined. This includes elimination of an asset test for some children.


    3. Using SCHIP dollars, the state will help schools offer preventive health services to low-income children.

    posted: May 20, 2006

    Redefining Health Care.jpgThe world's leading guru of competitive strategy, Michael Porter, Ph.D., has turned his sights on explaining the fundamental cause of high costs, poor quality, consumer dissatisfaction, uneven access, and skyrocketing premiums in American health care.


    In Redefining Health Care, Porter and innovation expert Elizabeth Teisberg, Ph.D. provide a thoughtful, groundbreaking framework to use competition to drive dramatic increases in quality and efficiency.


    Unlike many wonks who foolishly believe that health care is not a market, Drs. Porter and Teisberg see competition " of a sort " in operation. They show us that the current competitive environment in health care is designed to "shift costs, accumulate bargaining power, and restrict services." That is, what we have now is dysfunctional, zero-sum competition serving to limit, even reduce value for patients. And they see all this taking place "...at the wrong level-among health plans, networks, and hospitals " rather than where it matters most, in the diagnosis, treatment, and prevention of specific health conditions."


    Focusing on how to move American health care to positive-sum competition based on economic and clinical value for patients, Redefining Health Care provides a series of specific recommendations for the key players " including physicians, hospitals, health plans, employers, Medicare, and Medicaid.

    posted: April 27, 2006

    Massachusetts%20Health%20Care%20Reform.jpgTo learn about the Massachusetts health care reform initiative, here are two podcasts on this groundbreaking new program to cover virtually all the uninsured in the Commonwealth.


    For Sellers, Feinberg and Associates, the lead consultants on the Massachusetts reform project, I host a biweekly podcast on hot issues in Medicaid. These concise audio briefings help state leaders and business executives keep tabs with Medicaid on Capitol Hill and CMS.


    In Part 1 of the special audio briefing on the Massachusetts health reform initiative, Marty Sellers, President and founder of Sellers Feinberg, describes the key components of the Massachusetts initiative, how it was developed, and implications for other states and the healthcare market.


    In Part 2, Peggy Handrich, the former Wisconsin Medicaid director and now leader of Sellers Feinberg's strategic Medicaid consulting practice, describes the key financial and programmatic characteristics of the Massachusetts health reform.


    To listen directly on your computer, click here for Part 1 and here for Part 2. The podcasts are in the popular MP3 format, so you may also right-click to save and upload them to your iPod or other MP3 player for listening on the road.


    For a useful two-page fact sheet on the Massachusetts health care reform plan, click here (PDF).


    To subscribe to receive the free podcasts on Medicaid, please contact Sellers Feinberg. The folks there are working with a number of other states on health reform and Medicaid restructuring initiatives.

    posted: April 5, 2006

    Part%20D%20Risk%20Mitigation.jpgBeing a Medicare prescription drug plan can be a profitable business. For the smart players, it will be highly profitable over time and indispensable to market position. But Medicare Part D can also be financially risky and volatile - particularly given:


  • Complexities of the Medicare population
  • Inherent uncertainties of a radically new and complex government program
  • Vagaries of drug pricing and utilization management
  • Stiff competition among plans
  • Multitude of benefit designs
  • High start-up costs
  • Inexperience of some of the players
  • Unpredictable enrollment (aggregate and mix)


    That's why Medicare Part D includes three separate mechanisms to mitigate the financial risks of Medicare drug plans. The mechanisms created under the Medicare Modernization Act (MMA) - risk corridors, risk adjustment, and federal reinsurance - apply to both the stand-alone Prescription Drug Plans (PDPs) and the Medicare Advantage prescription drug plans (MA-PDs).


    Each of the three methods mitigates different kinds of risk. While they help stabilize the drug plan market and facilitate market entry, they also benefit Part D enrollees in important, sometimes subtle ways.


    Risk Corridors for Profit and Loss:


    Using a system of risk corridors that compares actual incurred drug benefit costs to estimated costs submitted in bids, Medicare limits the profits and losses of Part D drug plans.


    Specifically, if a Medicare drug plan's actual benefit costs exceed expected (bid) levels by a sufficient degree, the plan will receive an additional federal payment to cover a portion of the loss. However, if a drug plan's actual spending falls sufficiently below projections, the plan must share some of the profit with the feds. Risk corridors apply to actual and expected drug benefits costs but exclude plan administrative costs and federal reinsurance payments.


    Risk corridors partially protect prescription drug plans from dramatic changes in drug spending, including the unexpected cost of new medications. Estimating per capita drug costs is also tough, particularly for a brand new benefit of unprecedented size and complexity. Therefore, the corridor mechanism also helps protect drug plans from this uncertainty.


    Here's how it works. After each contract year, CMS will would compare each drug plan's expected and actual benefit costs. The thresholds (when the mechanism kicks in) and the proportions of profit and loss shared vary.


    For 2006 and 2007, Medicare drug plans will bear all gains and losses that fall within 2.5 percent of their expected costs. If costs differ from expectations by more than 2.5 percent but less than 5 percent, the risk corridor payment will cover 75 percent of the amount in that range. If actual and expected costs differ by more than 5 percent, the risk corridor payment will cover 75 percent of the amount between 2.5 percent and 5 percent and 80 percent of the amount in excess of 5 percent. If a sufficient number of plans serving a substantial majority of enrollees receive risk corridor payments for a given year, the feds will cover 90 percent of costs falling within the corridor (instead of 75 percent).


    For 2008 through 2011, the risk corridor thresholds will double. The assumption is that by then the private drug plans will have sufficient experience in bidding and projecting costs. Specifically, the 2.5 percent factor goes to 5 percent and 5 percent is replaced by 10 percent. Within these new, wider corridors, the federal share covered by the risk corridors drops from 75 percent to 50 percent. For cost deviations exceeding 10 percent, the federal share will remain at 80 percent.


    For contract years 2012 and beyond, CMS has the authority to further increase the risk corridor thresholds provided they are structured symmetrically.


    Risk Adjustment:


    Risk adjustment is designed to adjust a drug plan's monthly premium from the government to account for differences in beneficiaries' expected drug spending. The adjustment methodology is based on a few readily available factors - notably age, sex, and health status. While not perfect predictors by any means, these factors are reasonably effective in grouping large numbers of beneficiaries in terms of likely relative differences in expected drug spending.


    Using the risk adjustment factor applied prospectively to the federal share of the plan's monthly premium, CMS pays Medicare drug plans more for sicker beneficiaries who are expected to incur higher drug costs and less for healthier enrollees who are expected to have lower drug spending. (For most Part D enrollees, taxpayers subsidize 75 percent of drug plan premiums, with enrollees paying the other 25 percent. For dual eligibles, federal and state taxpayers pay 100 percent of the premium. For benies who qualify for the low-income subsidy, the federal share of the premium varies from 75-100 percent based on a sliding scale.)


    Like risk adjustment systems used elsewhere in Medicare and Medicaid, the Part D risk adjustment mechanism is intended to vary the federal share of premiums based on factors that are beyond the control of the drug plan. That is, given the widely varying prescription drug needs of the Medicare population, it helps mitigate the risk of adverse selection.


    Risk adjustment will also help protect beneficiaries with high drug needs by increasing federal subsidies. And low cost, healthier enrollees are protected from paying higher premiums if they happen to select a drug plan with a disproportionate number of sicker members.


    Federal Reinsurance:


    Federal reinsurance payments to Medicare drug plans will kick in when an enrollee's actual drug spending reaches Part D's annual catastrophic threshold (commonly called the "doughnut hole"). For Part D beneficiaries who are not dual eligibles or receiving the low-income subsidy, Federal taxpayers will cover 95 percent of any drug costs above the doughnut hole ($5,100 in 2006). (Dual eligibles and benies qualifying for low-income subsidy pay only nominal co-payments [$2-$5]. As a result, federal reinsurance is effectively 100 percent.)


    Paid to the drug plans on a retrospective basis, federal reinsurance payments will serve to limit the risk that plans face in serving the highest-cost beneficiaries. Because a plan's costs of providing drug coverage above the catastrophic threshold will likely correlate with fluctuations of average drug prices and utilization patterns, reinsurance payments should also provide plans with some protection against uncertainty about future drug costs. However, because reinsurance is retrospective by nature, the mechanism will not address the financial risks involved in providing the front-end portion of the benefit.

  • posted: March 2, 2006

    Medicare%20Advantage%20SNP%20Market.jpgMedicare Advantage Special Needs Plans (MA-SNPs) are an important new innovation in the healthcare marketplace. Ultimately, as I reported last fall in the Piper Report, MA-SNPs may evolve to serve an untapped $250 billion market. Here's a quick briefing on Special Needs Plans and how they become integrated Medicaid / Medicare health plans:


    Brief History of Medicare Managed Care:


    Since 1970's, Medicare has included an HMO option as alternative to receiving all Medicare Part A and Part B services from traditional fee-for-service Medicare. The Balanced Budget Act of 1997 (BBA) renamed Medicare managed care to "Medicare+Choice" and added a new range of options for Medicare beneficiaries: preferred provider organizations (PPOs), provider-sponsored organizations (PSOs), private fee-for-service (PFFS) plans, and Medical savings accounts (MSAs) linked with high deductible insurance plans.


    Medicare Modernization Act of 2003:


    In addition to creating the new Medicare Part D prescription drug benefit, the Medicare Modernization Act of 2003 (MMA) renamed Medicare+Choice to "Medicare Advantage" (MA) and created new MA plan options for beneficiaries - regional preferred provider organizations (PPOs) and "Special Needs Plans" for dual eligibles, the institutionalized, or those with severe and disabling conditions. MMA also created new incentives for health plan participation in the over $300 billion Medicare market, most notably risk adjustment to Medicare Advantage plan premiums and increased Medicare Advantage plan premiums.


    Basics of Medicare Advantage:


    The Medicare Advantage program is governed under Medicare Part C, which refers to Part C of Title XVIII of the federal Social Security Act. Medicare Advantage (MA) plans provide all Medicare-covered benefits under Part A and Part B and serve as an alternative to traditional Medicare fee-for-service. Most kinds of MA plans (including all the most popular ones) must also offer a voluntary drug benefit under Part D.


    This way, beneficiaries may get all Medicare-covered benefits (Part A, Part B, and Part D) through one health plan. If a benie wants to sign up for Part D but stay in unmanaged fee-for-service for Part A and B services, they must enroll in a stand-alone prescription drug plan (PDP) to receive Medicare drug coverage. (Part D thankfully does not have a government-run fee-for-service option.)


    Part D is major draw for new Medicare Advantage enrollment. Compared to the alternative (fee-for-service for Part A and Part B benefits and a stand-alone prescription drug plan for Part D benefit), Medicare Advantage plans are able to offer lower cost sharing, more benefits, fewer hassles, and higher performing mix of providers. However, because they have higher expectations regarding provider quality and cost-effectiveness, Medicare Advantage plans (particularly HMO-based plans) tend to offer a narrower choice of providers than Medicare fee-for-service.


    Medicare Advantage Enrollment:


    More private insurers are participating in Medicare than ever - 459 approved Medicare Advantage plans, up from 247 in 2005. Currently, over 14% of beneficiaries (6+ million) are enrolled in Medicare Advantage plans - up from 12% (4.9 million) in 2005. Plan enrollment varies widely state to state, with the highest penetration (20% to 30%+) in AZ, CA, CO, OR, PA, and RI.


    Long-range projections of Medicare Advantage enrollment vary widely. The White House Office of Management and Budget (OMB) believes that by 2013 30% of Medicare beneficiaries will be enrolled in Medicare Advantage plans. The Congressional Budget Office (CBO) projects that 16% of beneficiaries will be in a Medicare Advantage plan by 2013. At the current path, MA plan enrollment should exceed 16% in 2006.


    Medicare Advantage Premiums:


    Medicare uses a complex system to calculate plan premiums, blending administrative pricing with competitive bidding, market benchmarking, and risk adjustment. There are separate bidding and rate-setting processes for Parts A/B and Part D.


    For example, for the Part A and Part B portion of Medicare Advantage plan payments, Medicare uses a benchmarking process to compare bids and leverage competition to maximize value for beneficiaries and taxpayers. If a plan's bid is above benchmark, enrollees in that plan pay the difference. If lower, 75% of difference goes to enrollees as extra benefits or lower cost sharing (or a reserve fund) and 25% goes to Medicare.


    Basics of Special Needs Plans:


    Prior to MMA, Medicare health plans were required to market generally to the Medicare population in their geographic service area and could not limit enrollment to specific population. Under the new Special Needs Plan option, insurers may propose a Medicare Advantage plan that is restricted to a special needs population either exclusively or disproportionately.


    The ability to separately market and enroll special needs populations - coupled with Part D and risk adjustment - has created significant interest in this market. It's important to note that authority for Medicare Advantage Special Needs Plans (MA-SNPs) expires in December 2008. Therefore, Congressional action required to continue after 2008.


    Target Populations for Special Needs Plans:


    Under MMA, there are three target populations for Medicare Advantage Special Needs Plans:


    1. Institutionalized Beneficiaries (~3.5 million): Medicare beneficiaries who reside or are expected to reside for 90 days or longer in a long-term care facility. Also includes Medicare beneficiaries who live in the community but who require an equivalent level of care to those residing in a long-term care facility.


    2. Dually Eligible beneficiaries (~7.5 million): Medicare beneficiaries who are also in Medicaid for full Medicaid benefits (~6.2 million) and low-income Medicare beneficiaries who receive subsidies from their state Medicaid program for their Medicare cost sharing (~1.3 million in QMB, SLIM, or QI programs).


    3. Medicare Beneficiaries with Chronic, Severe Conditions (~millions more): The feds are particularly interested in MA-SNPs designed to serve Medicare beneficiaries with cardiovascular disease, diabetes, congestive heart failure, osteoarthritis, mental disorders, end-stage renal disease (ESRD), and/or HIV/AIDS. However, there is no preset definition for this target group. CMS evaluates MA-SNP proposals on case-by-case basis. CMS focuses on appropriateness of the target population, clinical programs and special expertise of the MA-SNP, and how the MA-SNP will cover full target population it specifies without discriminating against "sicker" members.


    Basics of Dual Eligibles:


    Health care spending for dual eligibles now hovers at a massive quarter trillion dollars - about 60% provided by Medicaid and 40% from Medicare. While dual eligibles drive over a quarter of all Medicare costs, dual eligibles drive over 40% of state Medicaid budgets. (For variety of reasons, including different definitions of duals and accounting for Part D costs, estimates vary. For example, when talking about "dual eligibles" some wonks are referring to the 6.2 million full-benefit duals. Other times the term refers to both the full-benefit folks plus the 1.3 million Medicare-only beneficiaries with partial Medicaid subsidy.)


    Dual eligibles are a vulnerable, high cost population in desperate need of coordinated care. About 2/3 live in community and 1/3 reside in long-term care facilities. They commonly have multiple morbidities (5-8) and some 45% have severe mental illness. Compared to the overall Medicare population, they are lower income, older, disproportionately female, disproportionately minority, and less educated. They are often live highly isolated lives, with little or no support system.


    MA-SNP Market for 2006:


    Since passage of MMA, the number of approved Medicare Advantage Special Needs Plans (MA-SNPs) has steadily increased, from 11 in 2004 to 276 in 2006. Of the 276 MA-SNPs approved for CY 2006, 226 are designed for dual eligibles, 37 for beneficiaries with institutional level of care, and 13 for specific chronic conditions (e.g., ESRD). One or more MA-SNPs now operating in most states: AL, AZ, AK, CA, CO, CT, FL, GA, HI, IA, ID, IL, IN, KS, KY,LA, ME, MD, DE, MA, RI, MI, MN, MO, MS, NE, NE, NV, PA,NJ, NM, NY, NC, OH, OK, OR, PR, SD, TN, TX, UT, WA, WI.


    Integrating Medicaid and Medicare via MA-SNPs:


    Historically, integration of health care for dual eligibles has been a major challenge. Medicaid and Medicare vary radically in financing, coverage policies, delivery systems, beneficiary rights, and day-to-day administration. For dual eligibles, this results in misaligned benefit structures, little or no care coordination, lower quality, over and under utilization, huge opportunities for cost-shifting, and seemingly endless conflicts between the feds and states. The human and economics costs are extraordinary.


    While created to serve the Medicare side of the market, Medicare Advantage Special Needs Plans create new opportunities to integrate Medicaid and Medicare coverage for dual eligibles. Last fall, I laid out the rationale here in the Piper Report (click to read that story). The idea is picking up steam, generating considerable interest from states and health plans.


    Basics of Integrated Medicaid-Medicare Health Plan:


    In brief, here's how it could work. A health plan contracts with both Medicare (with CMS as a MA-SNP) and the state Medicaid program. For its dual eligible enrollees, the plan is then responsible for all Medicare and Medicaid benefits. The integrated Medicare-Medicaid plan would also be responsible for coordinating benefits with other payors like VA.


    The combined Medicaid / MA-SNP would receive fully capitated, risk adjusted premiums for (1) Medicare Part A and Part B (MA plan bidding and benchmarking), (2) Medicare Part D drug benefit (MA-PD bidding and benchmarking), (3) Medicaid benefits (actuarially determined, with bid or proposal process determined by the state), and (4) state Medicaid payment for Medicare cost sharing. The state Medicaid program could create incentives to encourage dual eligibles to enroll in integrated plans. For example, the state could limit coverage of popular home- and community-based long-term care services to duals enrolled in integrated plans.


    With some grant support from The Robert Wood Johnson Foundation, five states are developing concept: Florida, Minnesota, New Mexico, New York, and Washington. To make integrated Medicaid / Medicare plans practicable, they are working to standardize and simplify: (1) plan rate setting and risk-adjustment; (2) performance standards, measurement, and reporting; (3) grievance and appeal procedures; (4) marketing guidelines; and (5) state contracting processes with MA-SNPs.

    posted: February 24, 2006

    Medicaid%20Fraud%20and%20Abuse.jpgSince Medicaid is administered by the states, traditionally virtually all Medicaid anti-fraud efforts were managed by state Medicaid agencies, with civil enforcement and payment recoveries by the Medicaid agency and criminal prosecutions by the state attorney general and the AG's Medicaid fraud control unit (MFCU). States vary widely in their approaches, the relative sophistication of tools used, and staff resources dedicated. For example, Northern and Western states tend to focus on provider fraud and Southern states tend to focus more on beneficiary fraud.


    The recently enacted Deficit Reduction Act of 2005 (DRA) significantly expands the federal government's role in combating Medicaid fraud and abuse. The new provisions have far-reaching implications for states, providers, and health plans as well as for the federal-state relationship. If managed well and in close coordination with the states, it could save taxpayers billions of dollars. If not, it could easily result in chaos and confusion for Medicaid providers and health plans and a time sink for state Medicaid agencies.


    It also creates (1) significant new business opportunities for anti-fraud contractors and systems vendors, (2) new financial incentives for states to beef up their own systems and staff, and (3) new opportunities for whistleblowers and for qui tam suits.


    The DRA creates a federal Medicaid Integrity Program, including new contractors, additional federal staff, and financial incentives for states to increase their own efforts at fraud detection and payment recovery. Congress is giving the Centers for Medicare & Medicaid Services (CMS) an additional 100 staff plus $50-$75 million a year for outside contractors. If a state enacts its own false claims act, it will be able to retain a larger share of any payment recoveries. (Only 15 states and DC now have some form of state false claims act.) The effect is that compliant states could increase their savings from anti-fraud efforts by as much as 20 percent.


    The new law also requires organizations with more than $5 million in annual Medicaid payments to regularly train employees on Medicaid fraud laws and reporting. Across the country, this will apply to thousands of hospitals, nursing homes, home care providers, Medicaid managed care organizations, and counties, as well as many chain pharmacies, clinics, other providers, and the Medicaid fiscal agents like EDS and ACS.

    posted: February 5, 2006

    Health%20Savings%20Accounts.jpgThere's a hot debate over the pros and cons of health savings accounts (HSAs). Like most other health policy issues these days, the debate is based more on differences in political and economic ideology than on facts. While on its face it may appear as a debate between Republicans and Democrats, in reality its a classic debate between Capitalists and Socialists, between believers in the power of markets and belivers in the power of government.


    HSAs were made possible by the Medicare Modernization Act of 2003 and build on the earlier concept of medical savings accounts. In his State of the Union address, President Bush proposed several reforms to increase the availability of HSAs. While only three million Americans now have coverage through HSAs and the linked high-deductible health plans, many market watchers expect dramatic growth over the next couple years.


    Here are some resources to understand health savings accounts (HSAs) and high-deductible health plans:


    Fundamentals of Health Savings Accounts: Briefing paper from National Health Policy Forum (NHPF).


    Primer on Health Savings Accounts for Consumers: Presentation by National Association of Health Underwriters (NAHU).


    Health Savings Accounts as a Tool for Market Change: Issue brief from the HCFO program at AcademyHealth.


    High Deductible Health Plans and Health Savings Accounts - For Better or Worse? From By Dr. Karen Davis, president of The Commonwealth Fund.


    Health Savings Accounts - Health Care Reform's Best Kept Secret: By Robert F. Hamilton, MD, FACS


    What High-Deductible Plans Look Like - Findings From A National Survey of Employers: Shows availability, enrollment, premiums, and cost sharing for high-deductible health plans offered with HSAs, from Kaiser Family Foundation and Center for Studying Health System Change.


    Turning Medicaid Beneficiaries into Purchasers of Health Care: Critical success factors for using consumer-driven health plans in Medicaid, by Chuck Milligan, JD and colleagues.


    HSA Information from U.S. Department of the Treasury: Includes directory of organizations, tax information, frequently asked questions, online resources, and glossary of terms.


    Online Tools for Consumer-Directed Health Plans: The Kaiser Family Foundation hosted a demonstration of some online tools made available to enrollees in consumer-directed health plans.

    posted: February 3, 2006

    Navigating%20Medicare%20Drug%20Coverage.jpgFor outpatient prescription drugs, Medicare has two distinct programs with a maze of complex policies. Physicians, Medicare patients, retail pharmacies, Medicare drug plans, Medicare Advantage health plans, nursing homes, and long-term care pharmacies are all struggling with how to navigate Medicare drug coverage under Part B and Part D. To help you, here's an overview:


    Basics of Medicare Part B Drug Coverage:


    Drug coverage applies under Part B under this basic situations:


    1. Drugs billed by physicians and provided incident to physician service for that patient (e.g., chemotherapy drugs).


    2. Drugs billed by pharmacy suppliers and administered through durable medical equipment (DME) benefit (e.g., respiratory drugs given via nebulizer).


    3. Some drugs billed by pharmacy suppliers and self-administered by the patient (e.g., immunosuppressive drugs, some oral anti-cancer drugs).


    4. Separately billable drugs provided in hospital outpatient departments. Increasingly, Medicare is bundling drug costs within outpatient hospital payment rates.


    5. Separately billable End Stage Renal Disease (ESRD) drugs (e.g., erythropoietin). Increasingly, Medicare is bundling ESRD drug costs within ESRD facility payment rates.


    Medicare Part B Drug Coverage in Physician Offices:


    For Medicare Part B drug coverage in a physician's office, here are the basics:


    1. Must be furnished "incident to" a physician service. Normally, this means the drug is physician prescribed and dispensed or physician prescribed and administered during a patient office visit.


    2. As a result, Medicare Part B drug coverage is usually limited to drugs or biologicals administered by injection or infusion.


    3. If the injection is generally self-administered it is not covered under Part B (e.g., Imitrex). That is, in most cases Part B coverage of a specific drug stops if more than half of Medicare beneficiaries on the drug self-administer it.


    4. Medicare uses mix of local and national coverage decisions. Therefore, in absence of a national coverage decision by CMS, local coverage decisions are made my individual Medicare contractors (Part B claims processors, commonly called "carriers"). Therefore, regional differences can and do occur. That is, a specific drug could be covered in one state and not another.


    Formulary Basics in Medicare Part D Drug Benefit:


    1. While Medicare drug plan formularies are subject to CMS review during the annual bidding process, the Medicare Modernization Act (MMA) gives Medicare prescription drug plans (PDPs and MA-PDs) wide latitude.


    2. There is no national drug formulary or mandated formulary. Most Medicare drug plans use commercial-like drug formularies.


    3. Regarding therapeutic classes or categories used to structure a formulary, Medicare drug plans may use USP model guidelines or use their own structure. The USP model is not a formulary and not mandated.


    4. Medicare drug plans must use P&T committees for formulary decisions.


    5. For most drug classes, PDPs and MA-PDs must cover at least two drugs. CMS reviews each formulary to make sure Part D plans are not cherry picking or otherwise discriminating against certain kinds of patients.


    6. Plans must cover "all or substantially all" of the drugs in six classes: Antidepressant, Antipsychotic, Anticonvulsant, Anticancer, Immunosuppressant, and HIV / AIDS.


    7. Step therapy, prior authorization and cost tiers are allowed. Many Medicare drug plans are using four tiers in their benefit designs.


    Coverage of Non-Formulary Drugs Under Medicare Part D:


    1. The Medicare Modernization Act (MMA) requires Medicare drugs plans to ultimately cover any drug (not otherwise excluded under Part D) if "medically necessary" and "medically accepted", regardless of formularies.


    2. Drug plans are not required to list off-label on formularies, but physicians may still prescribe off-label drugs for medically accepted indications. Physicians must justify off-label use and the indication must be listed one of four compendiums accepted by CMS (e.g., DRUGDEX, USP).


    3. To justify off-label coverage for a medically necessary, medically accepted drug, the physician must determine that all drugs on plan's formulary for the treatment of the same condition (a) would not be as effective and/or (b) have adverse effects for patient. The same applies to justify an exception from a higher tier co-payment.


    4. A multi-step appeal process is available to beneficiary to seek coverage of a non-formulary drug or an exception from a tier. Steps include drug plan review, independent review, administrative law judge, HHS department appeals board, and the federal courts. The exceptions and appeals process may be initiated by the beneficiary, their physician, or another person designated by the patient.


    Prescription Drugs Excluded from Medicare Part D:


    1. The following kinds of drugs are not covered under Part D:


    - Weight-related, fertility, cosmetic, symptomatic relief cough or colds, vitamins (except prenatal), barbiturates, and benzodiazepines.


    - Over-the-counter (OTC) drugs, unless through a CMS-approved step therapy program and then only if free using the drug plan's non-benefit dollars. Few Medicare plans are covering OTCs this year.


    - Drugs covered by Medicare Part A or Part B for that individual in that instance.


    2. For dual eligibles, Medicaid may cover drugs not covered by Part D. State Medicaid programs must cover if drug is covered for non-dual Medicaid population (e.g., OTCs). This means dual eligibles will obtain drugs through multiple programs.


    Naturally, this is a high-level overview and is neither comprehensive or an official statement of federal policy. For more details, click here to read CMS' draft guidance explaining differences between Part B and Part D drug coverage. There are many nuances, twists and turns. So please be careful and closely monitor guidance from CMS and OIG.

    posted: January 29, 2006

    Health%20Reform%20in%20States.jpgHealth care reform is a hot topic again. President Bush is rolling out a series of initiatives to improve health insurance coverage. Congress is poised to approve a 1,000-page budget reconciliation bill with dozens of key changes to Medicaid and Medicare. CMS continues to work hard to implement the Medicare drug benefit. And the national Medicaid reform commission is holding meetings to construct a package of long-range reforms to the world's most complex health program.


    Through all of this, states remain the nation's laboratories for genuine health reform. One of the many advantages of our Federalist system is the ability of states to design and test new approaches. State-based reforms are inherently more pragmatic - allowing for faster, less risky implementations and designs that reflect local political and market needs. Compared to federal agencies, states are closer to the ground level, more nimble in responding to inevitable problems, better positioned to partner with employers, and tend to have a deeper bench of real-world, operational expertise.


    In Massachusetts, Governor Mitt Romney's health reform plan will cover virtually all of the Commonwealth's uninsured by 2009. It's an ingenious mix of Medicaid financing, market reforms, and public-private partnerships. In Michigan, Governor Jennifer M. Granholm has proposed her own innovative health reform initiative - Michigan First Health Care Plan - to cover over a half million uninsured Michiganders. The good folks at Sellers Feinberg, experts in Medicaid restructuring and super waivers, are advisors to both states.


    Governors Romney and Granholm differ in many respects, most notably politics and state situations. However, they share the same goal and have the courage to think out of the box and take action.

    posted: January 15, 2006

    Pharma%20Industry%20Can%20Help%20States.jpgWhile the feds work to fix a series of technical problems plaguing the new Medicare Part D drug benefit, governors are stepping in to help ensure dual eligibles and other vulnerable beneficiaries have access to prescription drugs. As a result, states are incurring millions of dollars of costs. They shouldn't have to - by federal law, drug coverage for these patients is now the sole responsibility of CMS and the prescription drug plans. However, governors of both parties are doing the right and necessary thing. Of course, Congress should be the one doing this. But Congress is too distracted to act quickly and the Bush Administration has been adamant in opposing changes to Part D until well after implementation.


    The crisis creates a great opportunity for the pharmaceutical industry to step in and help make Part D work. As I've pointed out before, drug makers have a lot riding on the success of Part D. No, it's not that they will make more money. In fact, it's more likely that most brand manufacturers will see lower margins under Medicare. It's because failure of Part D - whether real or imagined - will undoubtedly lead to more government regulation of the industry and a new push for price controls. And the much-maligned industry needs all the good will it can get.


    Pharma manufacturers should act immediately to offer to make states whole for the cost of temporary drug coverage for dual eligibles. Specifically, drug makers should work with the National Governors Association (NGA), National Association of State Medicaid Directors (NASMD), and the HHS Office of the Inspector General (HHS) to create a private trust fund that reimburses states for all of their costs associated will filling the gaps while CMS and the drug plans get things fixed. The trust fund can be set up through a non-profit and be totally neutral as to the drug products being reimbursed. The point is to step in, help make it work, create good will, and avoid further pain and frustration.

    posted: January 14, 2006

    Medicare%20Part%20D%20Problems.jpgRube Goldberg believed there were two ways to do things - the simple way and the hard way. And that, for some inexplicable reason, many people preferred doing things the hard way. His famous cartoons illustrated the tendency of human beings to exert maximum effort to achieve minimal results.


    Notwithstanding the best of intentions, an influx of a mountain of taxpayer cash, the savings available to many low-income seniors, and the hard work of unfairly maligned federal staff, the Medicare drug benefit has become a Rube Goldberg cartoon.


    Since passage of the Medicare Modernization Act (MMA) in December 2003, I have been warning about predicable surprises and inevitable consequences. The good news is I am batting 1000 on predictions. The bad news is I am batting 1000 on predictions. If it were not for the fact real people are affected, I'd be happy to sit back and gloat about my prescience. Or perhaps hire a skywriter to paint "I Told You So" high above Security Boulevard.


    But truth is, this was easy to see and I was far from alone. While there are many flaws in the design of MMA and lost opportunities in the implementation, the most troubling problems revolve around the chaos and risks of transferring over six million vulnerable dual eligibles from Medicaid drug coverage to Medicare Part D. Virtually all of the other problems of Part D implementation can be ironed out with some more time, experience, and legislative tinkering.

    posted: January 6, 2006

    The%20Immutable%20Laws%20of%20Health%20Care%20-%20Kip%20Piper.jpg

    1. You get what you pay for.


    2. Price is what you pay but value is what you get.


    3. You can't fix what you can't see.


    4. Incentives matter, whether you intend them to or not.


    5. No matter what they say, it's always about money and autonomy.


    6. There are no essential providers, only essential services.


    7. More is rarely better and often worse.


    8. Health care providers are not your children. You are under no obligation to treat them the same for different performance.


    9. If you pay them, they will come. If you don't pay them, they'll come anyway and it will cost you.


    10. Never let a health plan or provider do what you would do if you were they.


    11. Uninformed choice is not choice.


    12. It's all in the execution and in the communication of the execution.


    13. Health care is a game of chess. The player who thinks the most moves ahead wins.


    14. Health care policy making is like puppetry. If you can see the strings it doesn't work.


    15. In health politics, complexity and chaos can be your friends or you enemies. Your choice.


    16. Death is always cheaper than life but rarely preferable.


    17. Until they award a Nobel Prize for health policy, style rules substance and perception rules reality.


    18. Health care policy is an art - but more sculpture than painting. What you leave out is more important than what you put in.


    19. Get paid for what is in your control but only pay for what is outside theirs.


    20. Results matter. Period.

    posted: December 17, 2005

    Mental Health Care Parity.jpgWhen enacted in 1996, the federal Medical Health Parity Act (MHPA) was expected to increase health insurance premiums by 3.2% to 8.7%. For employers with 50 or more employees, the Act required parity between annual and lifetime dollar limits for mental health and physical health services.


    Specifically, the MHPA:


    1. Requires parity of mental health benefits with medical and surgical benefits with respect to aggregate lifetime and annual dollar limits under a group health plan.


    2. Says that employers still have discretion regarding the scope of mental health benefits offered to employees and their dependents (e.g., cost sharing, limits on number of visits, and medical necessity).


    3. Does not apply to benefits for substance abuse or chemical dependency.


    4. Does not apply to a coverage if the parity provisions result in an increase in the cost one percent or more.


    An excellent new analysis by Steve P. Melek, a principal and consulting actuary with Milliman, shows that the federal mandate did not increase costs as expected. In fact, MHPA had little effect on overall health costs and, in some cases, may have helped save dollars. This is at least partially due to the fact that MHPA came at the same time as a big increase in the use of managed behavioral health care.


    Coverage mandates are rarely a good idea, are driven largely by political expediency and health system naivete, and often generate unintended consequences. But Mr. Melek's analysis shows how health policy and market interventions by the government are not made in a vacuum. Indirectly, it also suggests that employers, health plans, and legislators should focus their attention on what patients need - not on arbitrary or discriminatory limits on access.

    posted: December 10, 2005

    Losers in Medicare Drug Benefit.jpgAs promised, here's my list of likely losers under the new Medicare prescription drug benefit:


    ● Dual Eligibles: These 6.5 million highly vulnerable beneficiaries will lose their Medicaid drug benefit and be enrolled in the less generous, slightly more expensive, far more complex Medicare drug benefit. They also face the likelihood of a dangerous transition in drug therapy. If there is a silver lining here, it's the prospect of Medicare Advantage Special Needs Plans (MA-SNPs). That is, the hope that over time dual Medicare-Medicaid beneficiaries will sign up to get all their Medicare benefits from health plans tailored to their needs. Even better states work with MA-SNPs to bundle all Medicaid services with Medicare Part A, Part B, and Part D. See my earlier post on this idea and other stories on dual eligible issues.


    ● Retirees with Employer-Sponsored Drug Coverage: The trend has certainly been toward employers reducing retiree health coverage. With $100 billion in new taxpayer-financed incentives and an array of options to cost shift, Medicare Part D ensures that millions of retirees will move - slowly but inevitably - from relatively generous employer-sponsored drug coverage to more limited, more costly taxpayer-subsidized coverage. Employers are in a bind, to be sure, so don't blame them for taking advantage of this gift horse. It's anyone's guess whether Part D and the $100 billion in subsidies for employers will serve to slow or hasten the death of employer-sponsored drug coverage for retirees.


    ● States: Because of the now notorious "clawback" and variety of other factors, including a likely strong woodwork effect, loss of supplemental rebates, and unfunded mandates, drug benefits for dual eligibles will cost cash-stripped state governments more under federal management. Under Part D and the resulting fragmentation of benefits across multiple, uncoordinated programs, state Medicaid programs also lose critically important data and face greater challenges to managing the health costs of the most expensive, most vulnerable Medicaid beneficiaries. Since it's highly likely that many dual eligibles will have problems getting their prescriptions in the early months of Part D, states may be forced to step in and use their own money to cover drugs as the bugs are worked out.


    ● Community Pharmacies: The shift of dual eligibles to Medicare for their prescription drugs also means a large chunk of retail pharmacy business is moving from Medicaid (which, in most states, is the highest payor of pharmacy services) to private drug plans (which are the lowest payors). Specifically, state Medicaid programs commonly pay much higher dispensing fees and pay a higher rate for a pharmacy's drug acquisition costs. Commercial insurers, including those offering Medicare drug plans, are just the opposite. States do get better deals from drug manufacturers because of rebates and the Medicaid "best price" law, but those dollars are on the backend and pharmacies don't benefit. The large drug store chains have some flexibility to juggle the business impact of Part D. However, many small independent pharmacies face significant financial losses.


    ● Big Pharma: Some, perhaps most, pharmaceutical manufacturers will see a temporary boost in their top lines. Yet, most will experience a significant and likely steady, long-lasting hit to the bottom line. Yes, some drug makers will benefit from the pent-up demand released by the Medicare drug benefit. But the potential for increased sales in the short term is nothing compared to pricing pressures generated by the confluence of market dynamics, including drug plan competition, price transparency, and price sensitivity of at-risk drug plans. Add to this the likelihood of a massive increase in government oversight, substantially higher compliance risks, and challenges of shifting from a sales-based to research-based strategy. Some drug makers will win but it will depend on how quickly and deftly they can adapt to a brave new world of Part D.


    Please check out my previous post on the Medicare drug benefit, including post on the likely winners in the business of Part D.

    posted: November 20, 2005

    Marketing to Diverse Medicare Population.jpgThe new Medicare prescription drug benefit presents major marketing challenges for both the competing drug plans and officials at CMS and SSA. While the feds must conduct a massive outreach campaign to educate 43 million Medicare beneficiaries about the complex program, the drug plan sponsors must market their plan designs, which vary widely in delivery, cost sharing, and formularies.


    With over 2,000 drug plan options across the country and each beneficiary having to select among 40-50+ plan designs in their own regions, the marketing challenges are extraordinary. Add to this the intricate, anti-intuitive program design set up by Congress in the Medicare Modernization Act and how Part D handles the dual eligibles, low-income seniors, retirees with employer sponsored drug coverage, veterans, and others all differently - and, well, you have the makings of quite a mess.


    Yet, the challenges don't end there. The Medicare population is not homogeneous, media stereotypes notwithstanding. Beneficiaries vary widely by income, assets, age, disability status, setting, ethnicity, and existing drug coverage. Almost 70 percent already have prescription drug coverage without Part D. Those without drug coverage are a diverse mix of rich and poor, healthy and sick, active and isolated, urban and rural. As a group, American seniors are one of the wealthiest cohorts in world history but among them, there are many low-income seniors struggling every day.


    In terms of race and ethnicity, African Americans and Latinos make up 15 percent of Medicare's beneficiaries ages 65 and older and 27 percent of Medicare's under-65 disabled beneficiaries. However, while less than a third of white beneficiaries are sufficiently low in income to qualify for federal drug subsidies, over 60 percent of African Americans and Latinos on Medicare may qualify for the low-income subsidy. While a sizable majority of all Medicare beneficiaries have access to drug coverage without Part D, African American and Latino beneficiaries are more likely to have no drug coverage now. In addition, the vulnerable dual eligible population, with its 6.5 million souls, is disproportionately African American or Latino beneficiaries.


    Traditional, television-centric marketing tactics are necessary but not sufficient to reach Medicare's diverse population and offer the benefits of Part D, particularly the substantial savings available through the low-income subsidy. To differentiate themselves in a crowded market and maximize both enrollment and retention, Medicare prescription drug plans need to adopt a more sophisticated, multi-facetted array of marketing tactics and mediums. Among them, viral or word-of-mouth marketing is essential. In addition to being extremely effective in situations like this, the costs and risks are low.

    posted: October 22, 2005

    Medicare Prescription Drug Data Sharing.jpgSophisticated health care purchasers and health plans know the value of prescription drug data. When analyzed with paid claims data from physicians and hospitals, data from pharmacy claims can be used to identify, understand, and track a wide range of issues.


    Starting January 2006, when the 6.5 million dual eligibles move from Medicaid to Medicare for their prescription drug benefits, state Medicaid agencies will no longer have access to data on drug use by these extremely expensive, at-risk beneficiaries - patients who drive over 40 percent of Medicaid costs. As a result, Medicaid managers will lose an invaluable source of information, severely handicapping the ability of states to monitor quality, access, and costs and catch waste, fraud, and abuse.


    The Centers for Medicare and Medicaid Services (CMS) lacks the legal authority to require Medicare prescription drug plans (PDPs and MA-PDs) share data with Medicaid. However, nothing precludes voluntary Rx data sharing between Medicare drug plans and states.


    Voluntary data sharing would be an easy, inexpensive way for Medicare drug plans to gain goodwill among states and advocates, generate positive publicity, and differentiate themselves from the mass of competitor plans. In addition, because dual eligibles may switch plans any time and multiple times each year, two-way data exchanges with states would aide drug therapy transitions, utilization review, and medication therapy management. Stand-alone PDPs, which are at risk only for drug costs and therefore will not have access to any non-drug data, could greatly benefit from data from state Medicaid programs (e.g., diagnoses, prescription history, providers seen)


    To help make this happen:


    - A major pharmaceutical manufacturer should offer to fund a national initiative to show the business and clinical case for information exchange, develop data sharing agreements, iron out any technical obstacles (e.g., data safeguards), and cover the modest start-up costs (e.g., systems changes). In addition to generating goodwill, this would help minimize disruption in drug therapy, quality problems, and errors - and reduce lost revenue and bad publicity that will inevitably result if duals have problems accessing vital medications.


    - In their standards for a Medicare drug plan to be designated as a preferred plan for low-income beneficiaries, State Pharmaceutical Assistance Programs (SPAPs) should require that preferred drug plans to exchange duals' Rx data with states.

    posted: September 24, 2005

    Medicare Advantage Special Needs Plans.jpgMedicare Advantage is the new name for voluntary managed care options in Medicare (also know as Medicare Part C and formerly "Medicare+Choice"). Medicare Advantage plans are now available in nearly every area of the country. Beneficiaries who select a MA plan elect to receive all Medicare benefits through the health plan (HMO or PPO). This includes all Part A and Part B services, plus the new Part D drug benefit as an optional add-on.


    The Medicare Modernization Act (MMA) created a Medicare Advantage option called "specialized MA plans for special needs individuals" ("special needs plans" or "SNPs"). These Medicare health plans limit their enrollment to special needs beneficiaries (or disproportionate percentage of special needs beneficiaries). The idea is to encourage greater access to Medicare Advantage plans for special needs individuals and allow plans to tailor programs to meet unique needs. MMA also created risk adjustment, removing a major disincentive to serve high-cost populations. Two groups of special needs individuals are specified in MMA: (1) beneficiaries who are institutionalized and (2) dual eligibles. CMS may also establish other "special needs" groups among beneficiaries with severe or disabling chronic conditions. Like other Medicare Advantage plans, special needs plans have the ability to lower beneficiary cost sharing and cover services not available to beneficiaries in fee-for-service Medicare.


    This creates a new opportunity for state Medicaid programs to extend the benefits of managed care to dual eligibles, who nationwide account for over 40 percent of Medicaid costs. Because of a labyrinth of conflicts between federal Medicare and Medicaid laws, it has been very hard for states to implement large-scale programs to improve care delivery for their highest cost, most vulnerable beneficiaries. The result has been high costs, extraordinary inefficiency, frustration for patients and their families, and higher risk for poor quality.


    Working with CMS and Medicare Advantage special needs plans (MA-SNPs) operating in the state, a state Medicaid agency could offer to capitate all Medicaid services to any MA-SNP with dual eligible enrollees. The MA-SNP would then be responsible for all Medicare and Medicaid benefits, including all long-term care and prescription drug benefits. To ensure appropriate payment and oversight, the state would risk adjust the Medicaid side of the capitation and MA-SNPs would have one set of quality standards and grievance procedures (presumably based on the more stringent Medicaid protections). Enrollment would remain voluntary like it is for other Medicare beneficiaries, but states could create powerful incentives for duals to enroll in MA-SNPs. For example, the state could limit coverage of home- and community-based services (HCBS) to MA-SNP enrollees when two or more MA-SNPs are available.


    Beneficiaries would benefit from higher quality, better access (in real terms), modern care coordination, less paperwork, closer oversight of their rights, and likely more services. States would win from a range of benefit and administrative savings, plus more predictable spending.


    For a fact sheet on Medicare Advantage, click here. To learn about plans, enrollment, and other key issues, click here.

    posted: August 6, 2005

    Medicare Part D Low Income Subsidy.jpgIt's still early in the nationwide push to get millions of low-income Medicare beneficiaries to sign up for the subsidy that could cover the bulk of their prescription drug expenses. But, as many of us expected, applications are coming in at a trickle.


    The low-income subsidy is one of the most positive aspects of the new Medicare prescription drug benefit (aka, Medicare Part D). Of the 43 million Medicare beneficiaries, up to seven million may be eligible for the generous, taxpayer-financed subsidies of most of their drug costs. However, they must apply for the subsidy, navigate the application form, meet the income and asset tests set by Congress, and later sign up for the drug benefit and pick a drug plan.


    Experience from other subsidy programs tells us that it's tough to get low-income seniors to apply for benefits. They are hard to reach and risk adverse. They don't like the idea of signing up for what is seen as a welfare benefit. In addition, they are often struggling with multiple health issues and low health literacy. Ultimately, you can lead people to a subsidy but you can't make them take it.


    The Medicare savings programs are a good case in point. For low-income Medicare beneficiaries who do not otherwise qualify for full Medicaid benefits, the feds mandate that state Medicaid programs pay some or all of the individual's Medicare cost sharing. But, after years of outreach efforts, perhaps only 30 percent of eligible beneficiaries are enrolled.


    Inside the Beltway, a host of players is worried that signup for the low-income subsidy will be painfully slow. Even putting aside the primary objective of ensuring access to needed medications, response to the low-income subsidy will drive perceptions of whether Part D is a success or failure.


    Like virtually every aspect of Medicare Part D, it will take time, effort, money, creativity, partnerships, luck, and patience to make the low-income subsidy a success. However, whether we like it or not, this is a public program, operating in a media and politically driven fish bowl - and expectation are foolishly unrealistic. We need to show patience, but ultimately perceptions will rule reality. And if, come January 2006, only a small portion of eligible beneficiaries sign up for the subsidy, expect a lively blame game.


    To read other stories on the Medicare drug benefit, click here.

    posted: July 15, 2005

    Mastering the Merger Book.gifThe health care sector is poised for more mergers and acquisitions, particularly in health plan and biotechnology segments. UnitedHealth Group's deal PacifiCare is only the beginning of a hot M&A season the next couple years.


    Mergers and acquisitions (M&A) are often essential to a company's growth and viability. However, a staggering 70 percent of mergers fail, often with devastating consequences for all concerned. For healthcare executives contemplating a deal, Mastering the Merger is filled with excellent, actionable advice. It is written in a tight, compelling way that business leaders will find quite useful.


    Mastering the Merger focuses on the importance of due diligence well before targets are identified and M&A decisions are made. Specifically, it describes:


    1. The most important questions prospective acquirers must ask before consummating any deal, regardless of size. Here the authors show executives how to ask and answer the big questions.


    2. Strategies and tactics to effectively target acquisitions and close deals.


    3. How to decide which aspects of a newly acquired business to leave independent and which to integrate. The authors focus here on how to integrate quickly but where it matters.


    4. How to anticipate and deal with contingencies. The emphasis is on how to predict and manage the unexpected.


    Authors David Harding and Sam Rovit are partners at Bain and Company and write often for the Harvard Business Review. Bain and Company is an elite business consulting firm that specializes in increasing the underlying market value of companies. Because successful mergers are a key method of increasing a company's value, Harding and Rovit are in an excellent position to share what works and what does not.

    posted: June 21, 2005

    By Michael H. Bailit, MBA
    President of Bailit Health Purchasing, LLC


    Introduction


    The serious problems in our health care system have been more than adequately documented in this journal and many others over the two past decades. Rates of uninsurance rise with a steadiness fueled by costs that seemingly know no bound. Quality varies with little or any relationship to cost, and ill-informed consumers cannot be confident that they are receiving the care that they need.


    It initially appears astounding that that these problems are not getting resolved despite the well-intended efforts of many, many people. In fact with respect to cost growth and insurance coverage, the problems with our health care system are getting worse. Much worse. We who work in the field of health policy have failed.


    Yet, the reasons for this failure are not difficult to understand. The health care industry represents a whopping 14.9% of the GDP (Levit, Smith, Cowan, Sensenig, and Catlin, 2004). It is an economic monolith, that becomes larger and, hence, more difficult to change every day. There are two sectors which foot the growing health care bill, neither of which is up to the challenge of curbing the expansion: government and employers.


    Government


    "One person's waste is another person's income.' (Wasson, 2004)


    Federal and state government pay the largest share of the health care bill. They fight valiantly to control health expenditure growth, but rarely, if ever, by addressing the problem. Instead government purchasers often end up shifting costs to private payers. States and the federal government also reduce covered health care services in times of profound economic hardship. Finally, state and federal government assume loans (especially the federal government) and cut other service expenditures to meet the growing demand for health care dollars.


    Ultimately, however, government fails to manage the growth of health care costs for two primary reasons. First, constituting a large economic sector, health care employs many Americans, thus creating a mission conflict for those elected and appointed to serve us. Reductions in healthcare expenditures result in lower income and potentially reduced employment for many Americans, including some who are politically influential. Second, most Americans don't want health cost growth restricted since the impact of costs is not directly visible to most Americans. That is, American taxpayers don't appear to appreciate how growing health care costs reduce available funds for other government programs and contribute to government debt.


    To continue reading, click here.

    posted: May 30, 2005

    Winners and Losers in Medicare Drug Benefit.jpgThe Medicare prescription drug benefit (aka, Medicare Part D) is biggest thing to hit American health care in decades. The massive, costly, and extraordinarily complex new program will likely realign the entire pharmaceutical supply chain and create a raft of new winners and losers in the marketplace. Looking into my crystal ball, here are some likely winners:


    ● Low-Income Medicare Beneficiaries Without Prescription Drug Coverage: Over two-thirds of the 41 million Medicare beneficiaries already have prescription drug coverage and many of those without drug coverage are wealthy or healthy enough to not worry. However, several million beneficiaries will benefit from the heavy subsidies offered for low-income, low-asset enrollees in Part D. Countless thousands will live longer, healthy, happier lives as a result. In addition, the process of enrolling in the Part D low-income sudsidy will likely increase the number of beneficiaries taking advantage of the Medicare savings programs. This is where state Medicaid programs pick up some or all of Medicare cost sharing.


    ● Employers Offering Retiree Drug Coverage: With nearly $100 billion in new taxpayer subsidies and a range of new options to cost shift retiree drug coverage to taxpayers, public and private employers are big winners over the long run.


    ● Generic Drug Manufacturers: Under Medicare Part D, drug benefits will be delivered by private drug plans at risk for drug spending. Most Part D enrollees will be served by a totally new creature in the marketplace - stand-alone prescription drug plans (PDPs) at risk only for unit cost and utilization. Using their relatively wide discretion in setting formularies and benefit designs, drug plans will work hard to drive patients to low-cost generic versions of medications.


    ● Beneficiaries in Medicare Advantage Health Plans: The new Medicare Advantage health plans are a boon to beneficiaries. Compared to the often dysfunctional and perpetually outdated Medicare fee-for-service system, Medicare Advantage (aka, Medicare Part C) offers seniors a range of voluntary HMO and PPO plans, lower cost sharing, higher quality, less paperwork, and often more benefits.


    ● Large, National Insurers: To successfully compete as a Medicare drug plan and establish a strong beachhead, players need deep pockets to manage risk, a sophisticated and scalable infrastructure, Medicare-savvy marketing, a stomach for the government contracting, and a recognized, positive brand. While many players are seriously overconfident and dangerously naive about the Part D business (sorry, guys), large national players have a shot at winning early on. If they play it smart, the large insurers can leverage the new market opportunities of both Medicare Part D and Medicare Part C. Of course, the federal government is not the most reliable purchaser and Congressional action can change winners to losers darn quick.


    ● Administrative Services Contractors: To survive and ultimately succeed in the Medicare drug benefit business, players will need a range of new or expanded capacities, including call centers, claims processing, drug utilization review systems, decision support tools, and medication therapy management (MTM) programs.


    ● Consultants, Actuaries, and Lobbyists: Last but not least, demand for consultants and actuaries is already through the roof. Right now, the biggest demand is for specialists who help drug plans prepare bids to Medicare. Later this fall, demand will grow for experts in marketing to and managing the complex Medicare population, including dual eligibles - who will ultimately make or break many drug plans in 2006 and 2007. Moreover, the business of pharma industry consultants, Medicare/Medicaid gurus, and public affairs specialists will undoubtedly rise dramatically as drug manufacturers begin to realize that strategically and tactically Part D is a whole new ballgame.


    What about the losers, you ask? There are plenty. Stay tuned for my list of the likely losers under the brave new world of Medicare Part D.

    posted: April 2, 2005

    Prescription Pick Up Counter.jpgMedicare observers expect heavy competition for drug plan contracts with the Centers for Medicare & Medicaid Services (CMS). It now appears CMS will receive several hundred applications, including applications from major insurers offering drug benefit packages in every state.


    Since adoption of the Medicare Modernization Act (MMA), most observers - most notably CMS itself - feared inadequate competition for 2006 contracts. Only a few wonks, including your humble editor, believed the Medicare business, while complex and unprecedented, is too strategic and lucrative for insurers to ignore.


    Prospective drug plan sponsors skillfully played up CMS? fear and perceived inexperience, consistently warning against policies that might restrict the discretion of drug plans. In addition, CMS has a long tradition of taking a ?light touch? to health plan contracting under Medicare+Choice (now called Medicare Advantage).


    The result is Medicare?s drug plan rules, guidelines, and application procedures are highly deferential to drug plan bidders. Add to this (a) the captive market of nearly seven million dual eligibles, (b) the financial safety valves of risk corridors and risk adjustment, and (c) strategic imperatives of a quickly changing pharmaceutical supply chain ? and you have market opportunities that are hard, if not foolish, to refuse.


    This, of course, merely indicates there will be heavy competition. However, do not confuse this with smooth implementation, profitable operation, or a successful drug benefit. Stay tuned for ongoing commentary on the predictable surprises of the Medicare prescription drug benefit.

    posted: February 18, 2005

    Drugs from Rx Bottle.jpgWhen the Medicare prescription drug benefit begins on January 1, 2006, about seven million beneficiaries face more restricted drug formularies. Currently, these "dual eligible" individuals receive their drug benefit through state Medicaid programs, which offer more liberal formularies than what will be expected of the new Medicare drug plans.


    In addition, most of these high-risk patients will be enrolled in stand-alone prescription drug plans (PDPs) at risk for drug costs only. Unlike health plans, which are at risk for the full spectrum of care, PDPs will have no financial incentive to use drugs to avoid costlier hospitalizations.


    A new report sponsored by the American Society of Consultant Pharmacists (ASCP) describes a variety of health risks to seniors and disabled persons (particularly those in nursing homes) posed by drugs excluded under the Medicare drug benefit.


    The author, Dr. Richard G. Stefanacci, executive director of the Health Policy Institute at the University of Sciences in Philadelphia, concludes:

    While the magnitude of the change from the current Medicaid coverage of many medications for dually eligible residents is enormous, the real costs may not be realized for some time. These will come in the form of costly medication substitutions, potentially avoidable emergency room visits and admissions and, even worse, untimely deaths.
    posted: December 12, 2004

    Pay Here Sign.jpgThe pay-for-performance (P4P) movement continues to grow:


    1. The Medicare Payment Assessment Commission (MedPAC) is calling on Congress to incorporate quality incentives in Medicare payments to hospitals, physicians, and home health agencies. In 2003, MedPAC released similar P4P recommendations for Medicare managed care plans and dialysis facilities. MedPAC says the Centers for Medicare & Medicaid Services (CMS) should earmark between 1% and 2% of Medicare payments to pay bonuses to providers that meet specific quality measures. The quality incentives would into account the severity of patients' illnesses.


    2. The Joint Commission on Accreditation of Healthcare Organizations (JCAHO) released principles for constructing pay-for-performance programs to align provider reimbursement with quality of care.


    3. The American Medical Association released a new report to get physicians ready for pay-for-performance. The report says pay-for-performance is a "tsunami building offshore in a sea of stakeholder unrest, threatening those who are not prepared."

    posted: December 10, 2004

    Elated Senior Businessman.jpgUnder the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Congress increased payments to Medicare Advantage plans. The objective is to increase participation by health plans and thereby create more choices for Medicare beneficiaries.


    While many pundits have criticized the payment increases as a “give away” to the health plan industry, those same critics fail to mention that Medicare Advantage plans must use the increased funding to reduce beneficiary cost sharing, enhance benefits, or improve access.


    According to a new study from Mathematica Policy Research:


    • About half of March 2004 MMA increase was used by Medicare Advantage plans to reduce beneficiary premiums and other cost sharing or to enhance benefits.


    • Most of those benefit changes were used to reduce plan premiums, which dropped an average of $9 per month. The rest was used to improve physician and hospital reimbursement.


    • Average out-of-pocket costs declined to the 2003 level.


    • Among those plans that offer prescription drug coverage, a higher proportion now cover brand name drugs instead of only generics.


    • Coinsurance for physician services was reduced slightly and the proportion of plans with any cost-sharing for hospital services remained about the same.


    • Coverage of dental, vision, or hearing services (which are not covered through fee-for-service Medicare) increased some.


    Authored by Lori Achman, MPP and Marsha Gold, Sc.D. at Mathematica, the study was sponsored by The Commonwealth Fund as part of a larger project to understand benefits and premiums in Medicare managed care.


    To download the complete study (PDF), click here.

    posted: December 10, 2004

    Financial Risk - Dice - 2.jpgPrescription drug utilization varies dramatically among individuals. To make sure Medicare payments to Prescription Drug Plans (PDPs) reflect the health status of enrollees, the Centers for Medicare & Medicaid Services (CMS) is developing a risk adjustment methodology. Risk adjustment is a statistical process used to identify and adjust for variation in patient costs that stem from differences in key risk factors - each a demographic or diagnostic characteristic of the patient.


    The CMS methodology, which is mandated by the Medicare Modernization Act (MMA), will use various inputs ? age, sex, disability status, and diagnoses ? to create a reasonable estimate of a PDP?s cost liability. Risk adjustment will result in more fair and accurate drug plan payments and help ensure access for the most vulnerable beneficiaries.


    For PowerPoint slides on CMS? planned approach, click here.

    posted: December 3, 2004

    Pills Spilled.jpgUnder the new Medicare prescription drug benefit, drug plans will have a fair amount of discretion in setting formularies. The idea is to encourage competition among drug plans and offer Medicare beneficiaries choice. The Centers for Medicare & Medicaid Services (CMS) will review the benefit designs of drug plan bidders to ensure the beneficiaries have appropriate access to needed drugs.


    CMS has released draft guidelines for reviewing prescription drug plan formularies. CMS' strategy for drug benefit review is designed to promote "appropriate operation of beneficiary protections and formulary oversight that includes access to all Part D covered drugs, while providing flexibility in plan design as expected under the Medicare Modernization Act (MMA)." Public comments are due by Thursday, December 30, 2004.


    CMS also released a helpful fact sheet that summarizes the formulary review process.

    posted: November 15, 2004

    Exam of Baby.jpgOver nine million American children - 12.8 percent of kids - have special health care needs. They face a wide range of conditions, including congenital anomalies, severe physical disabilities, severe asthma, complex organ system diseases (e.g. cystic fibrosis, sickle cell anemia), major depression, and the devastating effects of physical and sexual abuse.


    Medicaid health plans serve a large portion of children with special health care needs. With support from the Center for Health Care Strategies, eleven Medicaid health plans and a primary care case management (PCCM) program collaborated over two years to develop, pilot, and refine best practice models for serving this population. The result is an excellent new toolkit on clinical and administrative best practices.


    The toolkit includes specific advice on how to identify children and their needs, create comprehensive medical homes, help parents navigate the delivery system, improve preventive services, establish enhanced care management systems, and ensure coordination among specialists.


    It also includes informative case studies of innovations by Health Net of California, Lovelace Community Health Plan in New Mexico, Partnership HealthPlan of California, and Access II Care, a provider-led PCCM program in North Carolina.

    posted: November 5, 2004

    A new report examines the impact of state budget cuts on Medicaid managed care programs in four states: Florida, Massachusetts, Michigan, and Oregon. Developed by Bailit Health Purchasing LLC for the National Academy for State Health Policy, the study offers valuable insights. It's recommended reading for state Medicaid executives, state budget staff, Medicaid health plans, consultants, and advocates.

    posted: November 4, 2004

    Pharmacy benefit managers (PBMs) already administer Rx benefits for most employers and several Medicaid programs. Medicare's voluntary prescription drug benefit, set to begin in 2006, creates a huge new market opportunity for PBMs. However, the Medicare drug benefit will also create significant new challenges to PBMs and other organizations bidding to cover Medicare beneficiaries. And the PBM industry is under increasing scrutiny by regulators and state attorneys general.


    Bob Atlas, a leading managed care consultant and former president of The Lewin Group, explores these business challenges in an excellent new article in Health Affairs. Atlas examines the history and business practices of PBMs and the role PBMs may play in the new Medicare drug benefit. He observes that PBMs appear to have "both the capacity and the technical capability to deliver the benefits, although many PBMs will likely partner with others more comfortable taking risk: insurers or the government itself."

    posted: October 29, 2004

    A Bright Idea.jpgMedicaid health plans are the Ginger Rogers of managed care. They have to do everything commercial and Medicare health plans do but have to do it backwards and in high heels. Despite dealing with more complex requirements and the toughest, most vulnerable patient populations, Medicaid health plans often provide higher quality and better access to care than their commercial counterparts.


    To reward the highest performing health plans, state Medicaid agencies are increasingly using a new tool - performance-based auto-assignment. Auto-assignment is when new Medicaid beneficiaries are automatically assigned to a health plan when they don't voluntarily select a plan within the required time frame. While a state may simply assign new patients randomly among available plans, it may also use auto-assignment to incentivize the best health plans with increased enrollment. The better the perform, the greater the plan's proportion of auto-assigned enrollees.


    Michael Bailit, CEO of Bailit Health Purchasing LLC and a leading expert on Medicaid and employer managed care, says for auto-assignment to work as an incentive additional assignment volume must be desired by the health plans. States must also:

    - Establish clear goals at the outset and involve stakeholders early in the process.
    - Focus on data that is reliable and measures that can be audited.
    - Revisit measures on a regular basis and view the algorithm as something that is modifiable.
    - View auto-assignment as an incentive strategy that can be use in complimentary fashion with other incentive strategies.


    With the help of Bailit Health Purchasing, California Medicaid (MediCal) is developing a performance-based auto-assignment program. Starting in 2005, MediCal will use the approach to reward health plans with superior performance (relative to other health plans in the county), create a quality improvement incentive for all plans, and support the preservation of the safety net. Medicaid programs in Michigan and New York state already have experience using auto-assignment to drive quality improvement.


    When the new Medicare prescription drug benefit begins in January 2006, 7 million dual eligibles (persons enrolled in both Medicare and Medicaid) will receive their drug benefits through prescription drug plans (PDPs). If they don't select a PDP, Medicare will auto-assign them into a plan. Given the positive experience of state Medicaid programs, Medicare may wish to consider using performance-based auto-assignment to help drive drug plan quality.

    posted: October 15, 2004

    Cost of Drugs.jpgTo help organizations planning to submit bids to serve beneficiaries under the new Medicare prescription drug benefit, the Centers for Medicare & Medicaid Services (CMS) has posted a wealth of valuable new information on it's website.


    Designed to help potential drug plan bidders better understand and estimate the Medicare population's use of prescription drugs, the new data sets include:


    - Drug utilization by seniors enrolled in the Federal Employee Health Benefit national Blue Cross Blue Shield plan: annual per capita utilization by state, broken down by spending, prescriptions filled, and supply days, and separately reported for total sales, retail sales and mail order. In Zip file.


    - Distributions of prescription drug expenses based on the Medicare Current Beneficiary Survey (MBCS).


    - Demographic characteristics such as age and sex, insurance characteristics (including existence of prescription drug coverage), summary Medicare Part A and Part B use and expenditures, and annual prescription drug expenditure (by various payer categories, including consumer payments).


    Earlier, CMS released detailed information on Medicaid drug spending and use, including data on seven million dual Medicare-Medicaid eligibles.

    posted: September 5, 2004

    Health insurers, whether commercial health plans or public programs like Medicaid and Medicare, only wish to pay for care that is necessary. Every day they make decisions on what is and is not "medically necessary."


    Gov. Phil Bredesen has proposed a new definition of medical necessity for TennCare, Tennessee's long-troubled Medicaid program. To be covered by TennCare, a health care service must be (1) required to diagnose and treat an enrollee's medical condition, (2) safe and effective, (3) the least costly alternative course of treatment adequate to address the enrollee's medical condition, and (4) not experimental or investigational.


    Beneficiary advocates, who have a long and effective history of challenging TennCare in federal court, are concerned that the new definition is vague and overly restrictive. The Governor has promised to further refine it in regulations to minimize unintended consequences.


    All this reminded me of the definition of medical necessaity I wrote for the Wisconsin Medicaid program in the 1990's. While no definition is perfect, you might find this one interesting:


    “Medically necessary” means service or item that is:

    (a) Required to prevent, identify or treat a recipient’s illness, injury or disability; and

    (b) Meets the following standards:

    1. Is consistent with the recipient’s symptoms or with prevention, diagnosis or treatment of the recipient’s illness, injury or disability;

    2. Is provided consistent with standards of acceptable quality of care applicable to the type of service, the type of provider and the setting in which the service is provided;

    3. Is appropriate with regard to generally accepted standards of medical practice;

    4. Is not medically contraindicated with regard to the recipient’s diagnoses, the recipient’s symptoms or other medically necessary services being provided to the recipient;

    5. Is of proven medical value or usefulness and is not experimental in nature;

    6. Is not duplicative with respect to other services being provided to the recipient;

    7. Is not solely for the convenience of the recipient, the recipient’s family or a provider;

    8. With respect to prior authorization of a service and to other prospective coverage determinations made by the department, is cost–effective compared to an alternative medically necessary service which is reasonably accessible to the recipient; and

    9. Is the most appropriate supply or level of service that can safely and effectively be provided to the recipient.

    posted: August 15, 2004

    One Hundred Dollar Bill.jpgIn Medicaid, health plans save money and improve quality of care. While this is no surprise for state Medicaid execs, the mounting evidence of HMO performance in Medicaid is in sharp contrast to public and media perceptions.


    In a carefully analysis of 14 studies, The Lewin Group found that "In the overwhelming majority of cases, the state Medicaid managed care programs were found to have improved Medicaid beneficiaries’ access to services, and both the programs and individual MCOs have earned high satisfaction ratings from enrollees."


    Overall, compared to fee-for-service, Medicaid health plans typically save taxpayers between 2 and 19 percent. In Medicaid HMOs, prescription drug costs are 10-15 percent lower and preventable inpatient admissions are 25-38 percent lower.


    While the AHIP-sponsored analysis focused on cost savings, The Lewin Group found ample evidence that Medicaid managed care programs improve access and quality.

    posted: July 18, 2004

    Consumer-Driven Health Care (Cover).jpgIn Consumer-Driven Health Care, Regina E. Herzlinger, a leading health care thought leader and a professor at the Harvard Business School, provides a thought-provoking look inside a new, powerful force transforming America's dysfunctional health care industry. Consumer-Driven Health Care builds on her popular 1997 book Market-Driven Health Care: Who Wins, Who Loses in the Transformation of America's Largest Service Industry.


    In the first part of her new 900-page book, Dr. Herzlinger makes a convincing case about how and why health care is broken and why market-based solutions - which empower consumers - are best. She restates the case she made in Market-Driven Health Care for putting consumers directly in charge of their own decisions (picking insurance plans, making medical decisions).


    Through transparency of information, a realignment of incentives, and new tools to support decision-making, the consumer-driven model gives individuals a clear stake in their own health care. While not unique to other parts of the US economy, the approach is a radical departure for the $1.7 trillion health care market. As Dr. Herzlinger makes clear in her energetic analysis, the absence of these proven market-based tools goes a long to explain how health care became our most inefficient, outdated, and error-prone industry.


    The second part – 80 percent of the book - is a collection of 73 think pieces written by 92 other experts. With short introductions by Dr. Herzlinger, these articles serve as a useful initial knowledge base for a growing field with an uncertain future.


    Consumer-Driven Health Care has its limitations. For example, Dr. Herzlinger's case for the consumer-driven model fails to address the Medicare and Medicaid systems. It also leaves a variety of practical transition and execution issues unaddressed, although these are beyond the purpose of this volume. Because articles were written several years ago as part of a conference and most of the writers lack purchaser-side experience, the book also does not deal with the growing list of market-based reforms underway by large employers and innovative health plans.


    In addition, since the field is still in its infancy, Dr. Herzlinger is a business researcher, and the contributors are largely wide-eyed entrepreneurs, the book will likely frustrate health policy wonks and others stuck in the technical minutia and ideological fights that characterize most health care discussions. But then, that’s just as well. Too often analysts forget that health care is a business and operates as a market, albeit a flawed one insulated from tools proven to drive quality and efficiency.


    Dr. Herzlinger also has her detractors. It reminds me of the old joke that there are two kinds of people in the world – people who like Wayne Newton and people who don’t. Well, it seems that health care wonkdom is divided by those who like Reggie Herzlinger’s ideas and those who don’t. However, given the massive problems in American health care, her contributions remain as useful as they are provocative.


    For a primer on consumer-driven health care, I recommend Let's Put Consumers in Charge of Health Care, a concise article by Dr. Herzlinger in Harvard Business Review (July 2002 issue).

    posted: May 29, 2004

    Med Symbol Over.jpgThe June 2004 issue of the Harvard Business Review contains an outstanding article on Redefining Competition in Health Care by Michael E. Porter, Ph.D. of the Harvard Business School and Elizabeth Olmsted Teisberg, Ph.D. of the University of Virginia's Darden School of Business.


    Their carefully researched, well-argued, actionable recommendations include:

    - Standardized information about individual diseases and treatments should be collected and disseminated widely so patients can make informed choices.

    - Purchasers, providers, and health plans should establish transparent billing and pricing to reduce cost shifting, confusion, pricing discrimination, and a host of other inefficiencies.

    - Providers should be experts in specific conditions and treatments rather than try to be all things to all patients.


    posted: May 22, 2004

    Two Women at Desk.jpg Consumer-driven health care - new models and technologies to empower consumers to make informed choices - is growing in popularity. At it's core, consumer-driven health care is all about transparency of costs and quality of care, and giving consumers the tools and information they need.


    To learn more, check out the best books on consumer-driven health care, including Regina E. Herzlinger's excellent new book. Read it first.

    Consider This
    In ancient China, physicians were paid only when their patients were kept well and often not paid if the patient got sick. If a patient died, a special lantern was hung outside the doctor's house. Upon each death, another lantern was added. This is the first known use of the two most powerful drivers for health care performance - incentives and transparency.
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