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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Health Care Policy
posted: December 10, 2010

Medicare Payment Primers for 2010.jpgThe federal Medicare program has an array of complex payment policies for health care providers, health plans, and prescription drug plans. Fortunately, the outstanding staff at the Medicare Payment Advisory Commission (MedPAC) offer a series of crisp primers on Medicare reimbursement policy. MedPAC updates these annually to reflect changes in CMS payment rules and Congressional legislation.


Medicare Hospital Payment Policies:


  • Inpatient Hospital Payment (Inpatient Prospective Payment System or IPPS)

  • Outpatient Hospital Services Payment (Outpatient Prospective Payment System)

  • Critical Access Hospital (CAH) Payment

  • Psychiatric Hospital Services Payment

  • Medicare Post-Acute Provider Payment Policies:


  • Skilled Nursing Facility (SNF) Payment (SNF Prospective Payment)

  • Home Health Care Services Payment (Home Health Agency Prospective Payment)

  • Inpatient Rehabilitation Facility Payment

  • Long-Term Care Hospital (LTCH) Payment

  • Hospice Services Payment

  • Medicare Payment Policies for Physicians and Other Ambulatory Providers:


  • Physician Services Payment System

  • Ambulatory Surgical Centers (ASCs) Payment

  • Outpatient Dialysis Services Payment (including new fully bundled payment method)

  • Medicare Health Plans and Prescription Drug Plan Payment Policies:


  • Medicare Advantage Plan Payment (Medicare Part C)

  • Medicare Prescription Drug Plan Payment (PDPs and MA-PDs in Medicare Part D)

  • Medicare Payment Policies for Other Providers, Labs, Medical Equipment, and Supplies:


  • Durable Medical Equipment (DME) Reimbursement

  • Clinical Laboratory Services Reimbursement

  • Outpatient Therapy Payment

  • Oxygen and Oxygen Equipment Payment

  • posted: September 8, 2010

    Thumbnail image for ACO Primer by Kip Piper.jpgThe Accountable Care Organization (ACO) model is a new Medicare option for physicians, hospitals, and other providers to share in cost-savings. ACOs represent a dramatic change in Medicare policy and an opportunity to transform care delivery and provider alignment.


    The Medicare Gain Sharing Program, part of the newly enacted healthcare reform law, creates the option for healthcare providers to form ACOs. Through an ACO, providers will take responsibility for quality and overall care of their Medicare patients. Medicare will
    then share with ACO providers the savings from improved quality, fewer hospitalizations, and the elimination of unnecessary costs.


    Starting in 2012, the ACO model will be a nationwide option in Medicare fee-for-service (FFS). In addition to shared savings, the ACO option includes freedom of choice for Medicare beneficiaries, national quality measures, evidence-based medicine, patient-centered care delivery, advanced care coordination, and information sharing.


    Because the ACO model is designed to break down old barriers for providers to work together to improve care and reduce medical costs, state Medicaid programs and private health insurers will likely join Medicare in supporting the ACO model. Medicare may give preference to ACOs that are participating in similar arrangements with Medicaid, private payers, and other third parties - that is, multi-payor ACOs.


    Specifically, Section 1899 of the Social Security Act governs the new Medicare Shared Savings Program and the option for providers to form ACOs. The law was created by Section 3022 of the Patient Protection and Affordable Care Act of 2010 (PPACA). The Centers for Medicare and Medicaid Services (CMS) must implement the ACO option no later than January 1, 2012. CMS plans to release proposed rules by late 2010.


    To learn more about Accounable Care Organizations, please read my primer article on ACOs in the journal American Health & Drug Benefits.

    posted: September 1, 2010

    Piggy bank with stethoscope.jpgUnder the Patient Protection and Affordable Care Act (PPACA) of 2010, Medicare providers, including physician groups and hospitals, will soon have the option to form Accountable Care Organizations (ACOs) to improve quality and efficiency.


    ACO providers may share financial gains generated from improved clinical and economic performance, provided that quality goals and patient safeguards are met. Through future regulations, the Centers for Medicare and Medicaid Services (CMS) must implement the Medicaid ACO option no later than January 1, 2012. Proposed rules are expected by late 2010.


    In this interview, Dr. Mark B. McClellan, former CMS Administrator and FDA Commissioner, discusses the extraordinary implications of the new ACO option for improving patient care and reducing unnecessary costs.


    Mark is director of the Engelberg Center for Health Care Reform at the Brookings Institution, a influential think tank in Washington, DC. The Engelberg Center is engaged in several interesting projects.


    To read this interview in the journal American Health & Drug Benefits, click here (opens PDF).

    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: June 30, 2010

    Medicaid Drug Rebate Changes.jpgFederally mandated rebates for prescription drugs in Medicaid were expanded significantly - by $38 billion - under the new health reform law, with extraordinary financial, administrative, and compliance implications for pharmaceutical manufacturers, Medicaid health plans, and state Medicaid programs.


    In a new journal article, I explain changes to the Medicaid drug rebate program and implications for drug makers, health plans, and states. The article appears in the June 2010 issue of the peer-reviewed journal American Health & Drug Benefits.


    The article provides a primer on the basics of the Medicaid drug rebate program, including Average Manufacturer Price (AMP), Best Price, federal rebate agreements with drug manufacturers, supplemental rebates, Preferred Drug Lists (PDLs), reporting of drug prices by pharma and biotech companies, and drug utilization reporting by state Medicaid agencies.


    The article then summarizes the major changes effective for 2010, notably (1) increased minimum federal rebate percentages for brand and generic drugs and (2) extension of federallly mandated minimum drug rebates to Medicaid drug utilization in Medicaid managed care organizations. It concludes with a brief discussion of implications for states, drug makers, and health plans.

    posted: June 30, 2010

    Medicare Data Book 2010.jpgMedPAC released its Medicare Data Book for 2010, with a wide range of useful information on Medicare spending, utilization, beneficiaries, providers, health plans, drug plans, access, and quality. The format is reader-friendly charts and tables with bulleted summaries.


    Specifically, the latest MedPAC Data Book includes information on:


  • Medicare spending, including Medicare spending compared to national health care spending.

  • Medicare beneficiary demographics.

  • Dual-eligible beneficiaries.

  • Medicare quality and access.

  • Medicare beneficiary cost sharing and other payer liability.

  • Medicare Part B drugs and biologics.

  • Medicare Advantage program, including Medicare Advantage plans, Special Needs Plans (SNPs), and enrollment figures.

  • Medicare Part D prescription drug program.

  • MedPAC also provides an array of charts and tables on Medicare providers and care settings, with data on Medicare spending, percent of beneficiaries using the service, number of providers, volume, length of stay, and, where available, profit margins, if
    applicable. Provider types covered include inpatient hospitals, outpatient hospitals, physicians, skilled nursing facilities, home health agencies, long-term care hospitals, inpatient rehabilitation facilities, ambulatory surgical centers, dialysis facilities, and hospice.


    MedPAC - the Medicare Payment Advisory Commission - advises Congress on Medicare policy.

    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: April 3, 2010

    Medical Malpractice.jpgAn interesting new report assesses a variety of medical malpractice reforms. The study synthesizes the evidence or theoretical predictions regarding several leading medical malpractice reform ideas.


    The report synthesizes published evidence on 8 reforms widely used by states:

    • Caps on non-economic damages
    • Pretrial screening panels
    • Certificate of merit requirements
    • Attorney fee limits
    • Joint and several liability rule reform
    • Collateral source rule reform
    • Periodic payment
    • Statutes of limitation or repose


    These reforms are evaluated based on their effects on frequency and cost of malpractice claims, medical liability system overhead costs, health care providers' liability costs, defensive medicine (including utilization and spending), supply of health care services (including physician supply and patient health insurance coverage), and quality of care.


    The report also reviews 6 other, more innovative but largely untested medical malpractice reforms:

    • Schedules of non-economic damages
    • Health courts
    • Disclosure and offer programs
    • Safe harbors for physician adherence to evidenced-based clinical practice guidelines
    • Subsidized reinsurance that is made conditional upon meeting particular patient safety goals
    • Enterprise medical liability


    Based on theoretical predictions, the authors suggest that most of these latter reforms are promising enough to merit demonstrations.


    The study was commissioned by the Medicare Payment Advisory Commission (MedPAC) and produced by Michelle M. Mello, JD, PhD, professor of law and public health at the Harvard School of Public Health and Allen Kachalia, MD, JD, assistant professor at the Harvard Medical School and medical director for quality and safety, Brigham and Women's Hospital.

    posted: March 21, 2010

    LTC in PPACA.jpgThe federal health reform legislation - Patient Protection and Affordable Care Act (PPACA) - includes an ambitious list of changes to long-term care (LTC) services for seniors and the disabled. Most include a massive infusion of federal funding to help state Medicaid programs provide more LTC through home and community-based settings. Here's a quick run-down of the new LTC reforms:


    Community Living Assistance Services and Supports (CLASS) Program:

    • Creates a national, voluntary insurance program for purchasing community living assistance services and supports (CLASS program).
    • Following a five-year vesting period, the CLASS program will provide individuals with functional limitations a cash benefit of not less than an average of $50 per day to purchase non-medical services and supports necessary to maintain community residence.
    • Financed through payroll deduction of about $75 a month. All working adults will be automatically enrolled in the program, unless they choose to opt-out. The new tax is effective January 1, 2011.
    • Expected to cover $5 billion to $10 billion worth of non-medical services and supports annually.

    Medicaid Money Follows the Person Rebalancing Demonstration:

    • Extends the multi-billion dollar Medicaid Money Follows the Person Rebalancing Demonstration program through September 2016.
    • Primary objective of moving Medicaid eligible seniors from nursing homes to home, group homes, or assisted living. The three-year old initiative helps states to reduce reliance on nursing homes, while developing community-based long-term care options and enabling frail seniors and people with disabilities to live in the community.
    • Estimated $1.7 billion in additional federal funding.

    New State Options for Home and Community-Based Services:

    • Provides states with new options for offering home and community-based services (HCBS) through a Medicaid State Plan rather than through a waiver.
    • HCBS programs provide an array of non-medical services and supports - such as personal care attendants and in-home technologies - to help frail seniors and persons with disabilities live independently in their own homes.
    • PPACA ends the need for states to show federal budget neutrality to operate or expand a HCBS program.
    • At state option, this applies for individuals with incomes up to 300% of the maximum SSI payment and who have a higher level of need.
    • States may extend full Medicaid benefits to individual receiving home and community-based services under a State Plan.
    • $2.4 billion new federal funding over ten years.
    • Effective retroactively to October 1, 2010.

    Community First Choice Option:

    • Establishes the Community First Choice Option in Medicaid to provide community-based attendant supports and services to individuals with disabilities who require an institutional level of care.
    • Provides states with an enhanced federal matching rate (FMAP) of an additional six percentage points for reimbursable expenses in the program.
    • $6 billion in new federal funding over 10 years.
    • Effective October 1, 2011. Option sunsets after five years unless renewed by Congress.

    State Balancing Incentive Program:

    • Creates the State Balancing Incentive Program to provide enhanced federal matching payments to eligible states to increase the proportion of long-term care services provided through the community (instead of nursing homes and similar institutional settings).
    • Selected states will be eligible for higher federal match for Medicaid expenditures for the non-institutional long-term services and supports. HHS will select states based on an application process.
    • Total federal incentives of $1.8 billion.
    • Effective October 1, 2011 through September 30, 2015.

    For More Information on Long-Term Care Reforms:


    The new LTC initiatives in the PPACA create tremendous opportunities for state Medicaid agencies, state aging agencies, and health care organizations. For help or more information, I recommend that you contact my colleagues at Sellers Dorsey. Pat Brady and her highly skilled LTC reform team are already helping states and private organizations design and implement innovative LTC programs. These are true win-win efforts, supporting independent living and improving care, while saving dollars for taxpayers.

    posted: March 18, 2010

    MedPAC March 2010.jpgThe Medicare Payment Advisory Commission (MedPAC) has released its Medicare payment recommendations to Congress for 2011. In addition to specific recommendations for payment updates for fee-for-service providers and Medicare Advantage plans, MedPAC's report includes interesting information and analysis on spending trends, consequences of rapid spending on Medicare and the overall health care system, and the process of assessing payment adequacy.


    MedPACs informative, 381-page report includes detailed Medicare reimbursement recommendations for:

    • Inpatient hospital services (Inpatient Prospective Payment System or IPPS)
    • Outpatient hospital services (Outpatient Prospective Payment System or OPPS)
    • Physician services
    • Ambulatory surgical centers
    • Outpatient dialysis services
    • Hospice services
    • Post-acute care providers: Skilled nursing facility services, home health services, inpatient rehabilitation facility services, and long-term care hospital services
    • Medicare Advantage plans (Medicare Part C)

    The report also includes:

    • Status report on the Medicare Part D prescription drug program.
    • Comparison of quality among Medicare Advantage plans and between Medicare Advantage and fee-for-service Medicare.

    To read or download the full report, click here (PDF). To select specific topics in the report, click here.

    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: November 7, 2009

    Brain Scan.jpgA series of new articles from the journal American Health and Drug Benefits address key issues in stroke prevention and management, with a special focus on transient ischemic attacks. A transient ischemic attack (TIA), a transient stroke that lasts only a few minutes, can be a warning sign that a person is at risk for a more serious, debilitating, and potentially deadly stroke.


    Many strokes can be prevented by heeding the warning signs of TIAs, a carotid ultrasound test, and treating underlying risk factors (e.g., smoking, high blood pressure, obesity, and high cholesterol). Unfortunately, our health care system under diagnoses and under treats patients at risk for stroke, leading to preventable deaths and disabilities and significant costs, particularly for Medicare and Medicaid.


    The articles are based on presentations given at a symposium earlier this year on stroke prevention and treatment strategies:


    Epidemiology of Stroke:

    Nirav R. Shah, MD, MPH discusses stroke as the third-leading cause of death in the U.S. and a crushing burden on patients, families, the healthcare system and the economy. Dr. Shah gives an overview of the two main types of stroke, ischemic and hemorrhagic, as well as describes typical patients. He highlights areas of stroke and TIA incidence throughout the U.S., as well as the average Medicare cost in per region. Dr. Shah is assistant professor of Medicine, New York University School of Medicine, and a researcher and clinical investigator, Geisinger Health System, Danville, PA.


    TIA and Stroke: Pathophysiology, Management, and Prevention:

    Mitchell S.V. Elkind, MD, MS explores the risk factors for both TIA and stroke as well as how advances in imaging techniques have enhanced the understanding of stroke and called into question the traditional definitions of the difference between TIA and stroke. These advances have also led to new concepts of managing stroke, and have, in turn, led to new advances in therapies, with several new compounds now in clinical trials. Dr. Elkind is associate professor of neurology, and associate chairman for research and training, Columbia University.


    An Actuarial Analysis of TIA and Recurrent Stroke Costs to Commercial Payers and Employers:

    Kathryn Fitch, RN, MEd, examines the link between TIA and stroke and the costs to health plans and employers. Ms. Fitch outlines the risk factors for key populations and underscores the overall costs to employers and insurers for both primary and secondary strokes and TIA. She concludes that educating patients about risk and implementing stroke prevention initiatives can dramatically reduce the exposure of employers and insurers to these conditions. Ms. Fitch is a principal and healthcare management consultant at Milliman and based in New York.


    TIA and Recurrent Stroke Prevention Practices: Current and New Developments:

    Robert J. Adams, MS, MD looks at the gaps in the U.S. healthcare system in its approach to TIA and ischemic stroke. Dr. Adams concludes that these gaps result in barriers to the delivery of proper stroke management and prevention. He examines the unresolved issues of stroke prevention and management, as well as the place of stroke in the disease pantheon in the U.S. Unlike diabetes or heart disease, stroke does not receive its due attention as the third largest killer despite its enormous financial and human toll. Dr. Adams is a professor of neuroscience; director, South Carolina Center of Economic Excellence; and director, MUSC Stroke Center, Medical University of South Carolina.


    Care Management for TIA and Stroke Patients: Riding the Quality Improvement Wave:

    Barbara Lennert, RN, BSN, CRRN, MAOM connects the quality improvement movement to the problem of stroke management and discusses how many quality-focused organizations still do not see stroke and stroke prevention as key concerns. Ms. Lennart asserts that while there is widespread agreement on the seriousness of stroke and TIA, there is also agreement that these diseases are not taken seriously enough by health plans and quality / safety groups leading to inadequate attention to prevention and care. Ms. Lennart is director of quality improvement at Xcenda, part of the AmerisourceBergen Specialty Group.


    Healthcare Reform and Public Programs: Opportunities for TIA / Recurrent Stroke Prevention:

    Kip Piper, MA, FACHE links stroke prevention and management to health policy changes underway as a result of health reform, particularly as they relate to Medicare and Medicaid. These two programs provide valuable models as to how to include stroke care in policy. As health reform moves forward there are risks that stroke prevention and management may be left out of the equation. Mr. Piper insists that it is critical to ensure that elements of health reform are aligned with stroke prevention, care, and management.


    Integrating Patient-Centered Care and Clinical Support: A New Research Paradigm:

    Nirav M. Shah, MD, MPH explains how a "smart" electronic health record (EHR) can increase efficiency and substantially improve outcomes in the prevention and care of stroke. Dr. Shah describes how EHRs can identify and target risk factors and help modify patient behavior by allowing shared decision-making, thus improving outcomes. Dr. Shah and his colleagues at the Geisinger Health System have developed one of the nation's most sophisticated and flexible health information platforms to support patient care and clinical research.


    TIA and Recurrent Stroke: The Case for Prevention in Working Populations:

    Alberto M. Colombi, MD, MPH addresses the importance of ensuring that working populations are included in programs that focus on prevention and management of cerebrovascular diseases. With more and more people delaying retirement, government and employers must find ways to confront stroke and TIA proactively through a broad range of health programs that will reduce costs and improve outcomes among older working populations. Dr. Colombi, a top thought leader in health and productivity management (HPM). is corporate medical director, PPG Industries


    For all the articles in a single PDF, click here.


    Kip Piper is health policy editor for American Health and Drug Benefits, a peer review journal with 30,000 subscribers. Issues are available at www.ahdbonline.com.

    posted: November 3, 2009

    Legislative Process.jpgThe legislative process for health care reform bills is complex, involving a series of unique steps needed in the House and Senate. My friends at Sellers Dorsey have prepared a concise, helpful outline of the next steps required for passage of a health reform bill. This includes the specific steps required by the House, Senate, House-Senate conference committee, and the President. For the description of the legislative process, click here.

    posted: November 2, 2009

    Medicare Payment Primers.jpgThe Medicare Payment Advisory Commission (MedPAC) has updated its excellent series of reader-friendly primers on Medicare payment methodologies for hospitals, physicians, Medicare Advantage plans, prescription drug plans, and other health care providers. MedPAC is an advisory agency to Congress and is highly influential, particlarly on payment methods, delivery systems, and Medicare reforms.


    Medicare Part A Reimbursement of Hospitals:


  • Medicare Inpatient Prospective Payment system (IPPS) for acute care hospitals

  • Critical Access Hospital payment system

  • Psychiatric hospital services payment system

  • Hospice services payment system

  • Medcare Part A Reimbursement of Post-Acute Providers:


  • Home health agency (HHA) services payment system

  • Skilled Nursing Facility (SNF) services payment system

  • Inpatient Rehabilitation Facilities (IRF) payment system

  • Long-Term Care Hospitals (LTCH) payment system

  • Medicare Part B for Physician Services, Other Outpatient Services, Medical Equipment, ad Supplies:


  • Physician services payment system

  • Outpatient hospital services payment system

  • Clinical laboratory services payment system

  • Ambulatory surgical centers payment system

  • Durable medical equipment payment system

  • Outpatient dialysis services payment system (ESRD facilities)

  • Outpatient therapy services payment system

  • Oxygen and oxygen equipment payment system

  • Medicare Payment of Health Plans and Drug Plans:


  • Medicare Advantage plan payment system (Medicare Part C)

  • Medicare Part D Prescription Drug Plans (PPDs and MA-PDs)

  • 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: August 8, 2009

    ARHQ CER Spending Plan.jpgThe HHS Agency for Healthcare Research and Quality (AHRQ) has announced plans for spending its $300 million share of the $1.1 billion Congress appropriated for comparative effectiveness research (CER) under the American Recovery and Reinvestment Act of 2009 (ARRA or Recovery Act for short). AHRQ plans to solicit grant applications this fall and award grants and contracts by spring 2010. The $300 million must be encumbered by end of FFY 2010.


    AHRQ Spending Plan for Comparative Effectiveness Research in 2010:


    New Grants ($198.5 million):


    $148 million for evidence generation, including prospective studies and patient registries:

    • $100 million for the Clinical and Health Outcomes Initiative in Comparative Effectiveness (CHOICE), a new national effort to establish a series of prospective pragmatic clinical comparative effectiveness studies that measure the benefits treatments produce in routine clinical practice. This will include novel study designs focusing on real-world and under-represented populations (children, elderly, racial and ethnic minorities, and other understudied populations).
    • $48 million for the establishment or enhancement of national patient registries that can be used for researching the longitudinal effects of different interventions and collecting data on under-represented populations.

    $29.5 million to support innovative translation and dissemination grants.


    $20 million to support training and career development.


    $1 million for other grants.


    New Contracts ($19.5 million):


    $9.5 million to establish an infrastructure to identify new issues for comparative effectiveness research.


    $10 million to establish a citizen's forum to engage stakeholders and to expand and standardize public involvement in the federal comparative effectiveness research program.


    Expand Existing Contracts ($79 million):


    $50 million for evidence synthesis.


    $24 million for evidence generation.


    $5 million for translation and dissemination.


    Administration ($3 million):


    $3 million for salary and benefits for new AHRQ staff to administer the CER program.


    Health Conditions Selected for Comparative Effectiveness Research:


    For the time being, AHRQ is going to use the same 14 priority conditions designated earlier by the HHS Secretary under the Medicare Modernization Act. The priority conditions were selected because of their high interest for Medicare, Medicaid, and the Children's Health Insurance Program (CHIP):

    1. Arthritis and non-traumatic joint disorders
    2. Cancer
    3. Cardiovascular disease, including stroke and hypertension
    4. Dementia and other brain and nerve conditions, including Alzheimer's Disease
    5. Depression and other mental health disorders
    6. Developmental delays, attention-deficit hyperactivity disorder, and autism
    7. Diabetes mellitus
    8. Functional limitations and disability
    9. Infectious diseases including HIV/AIDS
    10. Obesity
    11. Digestive system conditions (peptic ulcer disease and dyspepsia)
    12. Pregnancy including preterm birth
    13. Pulmonary disease and asthma
    14. Alcohol and drug abuse


    For more information on AHRQ's CER program, visit effectivehealthcare.ahrq.gov.

    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: May 18, 2009

    AHDB_0509.jpgHere are articles from the latest issue of American Health & Drug Benefits. AHDB is the peer-reviewed journal for 30,000 decision makers in health plans, PBMs, Medicare, Medicaid, and the pharma and biotech industries:


    May 2009 Issue:


    The Paradox of Public Policy Reform: Change or Continuum?
    By Robert E. Henry


    Are You Kidding Me? Clinical Comparative Effectiveness or Evidence-Based Medicine
    By Thomas Kaye RPh, MBA, FASHP


    MIPPA: First Broad Changes to Medicare Part D Plan Operations
    By Jean D. LeMasurier and Babette Edgar, PharmD, MBA
    Stakeholder Perspective by Mark Newsom, MSc


    ProvenCare: Geisinger's Model for Care Transformation through Innovative Clinical Initiatives and Value Creation
    Interview with Ronald A. Paulus, MD, MBA


    Perspective: The Integrated Patient-Centered Medical Home: Tools for Transforming Our Healthcare Delivery System
    By Matias A. Klein


    Increased Patient Cost-Sharing, Weak US Economy, and Poor Health Habits: Implications for Employers and Insurers
    By Melinda C. Haren, RN; Kirk McConnell; Arthur F. Shinn, PharmD, FASCP
    Stakeholder Perspective by Paul Anthony Polansky, BSPharm, MBA


    New Legislations on Generics and Biosimilars Brewing in Congress
    By Dalia Buffery, MA, ABD


    Paying for Cancer Care: Economic Models Start to Emerge, Dovetailing Healthcare Reform
    By Caroline Helwick


    Read Current and Past Issues:


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


    AHDB also published web exclusives, available for reading here.


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

    posted: April 1, 2009

    State%20Health%20Access%20Grants.jpgAs part of the FY 2009 Omnibus Appropriations Act, Congress created the State Health Access Grant Program. On a competitive basis, states may receive grants of $2 million to $10 million each year for five years to improve access to health insurance coverage. Grant funds will help cover the cost of staff, actuarial work, etc. to design and implement major state-based reforms.


    The grant funds should help a dozen or more states jump start reforms such as (1) subsidizing access for the uninsured, (2) modernize inefficient enrollment systems, and (3) facilitating choice of affordable insurance products in the market.


    The new program is a great opportunity for health care businesses, such as health plans, to partners with states. States must cover up with 20% match for the grants but some or all of the matching dollars may come from third parties, including health plans, provider groups, or drug manufacturers.


    My friends at Sellers Dorsey have developed an excellent summary of the State Health Access Grant Program.


    The State Health Access Grant Program is the brainchild of House Appropriations Committee Chairman Dave Obey (D, WI) and builds off the earlier State Health Planning Grant Program. The Health Resources and Services Administration (HRSA) will administer the grant program.

    posted: February 17, 2009

    Medicare%20Changes%20for%202009.jpgAs the new Obama Administration and the 111th Congress focus on health care issues, here is a quick list of some of the Medicare policy changes Democrats will likely seek in 2009-2010:


    Likely Changes in Medicare Advantage:


    1. Phase-out of difference between Medicare Advantage plan rates and Medicare fee-for-service:


  • Some Medicare Advantage (MA) plans will see lower annual increase. Others a net decrease in rates.

  • The private fee-for-service (PFFS) plans, which tend to serve rural areas, will see the biggest hit.

  • Of course, because of the unique characteristics of Medicare Advantage bidding and ratesetting process, beneficiaries will see the biggest hit. That's because the rate difference goes mostly toward lower cost sharing and greater benefits for those beneficiaries deciding to receive their Medicare Part A and Part B services through plans instead of traditional fee-for-service.

  • Likely a three to five-year phase down period. Perhaps starting in 2010, especially if Congress acts before the bids arrive in June, 2009.

  • Congress will use savings (~$60 billion over five years) to help fix physician payment formula.

  • 2. Significant increase in MA plan oversight, especially on marketing, quality, data reporting, and process compliance. Expect new CMS requirements via both rules and guidelines, plus tighter audits and faster action on plan sanctions.


    3. Special Needs Plan (SNP) law sunsets on December 31, 2010. Reauthorization prospects depend largely upon:


  • How well SNPs work with state Medicaid programs.

  • If SNPs stay focused on their target market segments (especially dual eligibles), build more enrollment (increase from current ~1.3 million), and better differentiate themselves (politically and otherwise) from other Medicare Advantage plans.

  • Likely Changes in Medicare Part D Drug Benefit:


    1. Federal negotiation of prescription drug prices in Medicare Part D. Political symbolism with no budget savings unless feds unwisely use the authority to:


  • Create a national drug formulary (like VA) or preferred drug list (like some state Medicaid programs), thereby limiting access to drive better rebate deals.

  • Regulate prices. May include further use of AMP and/or ASP to set baseline for drug and biologic prices in U.S. market.

  • Mandate minimum rebates (see below).

  • 2. Create a "Public Plan" option in Part D. This would be a government-run Part D drug plan to compete with commercial plans (MA-PDs and PDPs). Would mean federal government getting far more and directly involved in marketplace and key decisions over formularies and pricing. Huge implications for health plans, drug plans, PBMs, pharma manufacturers, and pharmacies.


    3. Require Medicaid-like best price drug rebates in the Medicare Part D benefit. Initially, this will likely apply only to prescription drugs used by dual eligibles. However, in future, it will likely extend to all of Part D. The political temptation will be too great.


    4. Like with Medicare Advantage plans (for Part A and Part B services), increased federal compliance oversight of MA-PDs and PDPs for Part D benefits.


    Other Likely Changes in Medicare Program:


    1. Development of new payment models in Medicare, notably demos of bundled hospital-physician payments, episode-based payment, and gainsharing. These reform will create new opportunities, realign incentives in the marketplace, and could help focus federal policy makers on fixing the biggest drivers to high costs.


    2. More transparency. Public reporting of prices, quality, and safety. Reporting will be increasingly tied to payment penalties for non-reporting. Policy makers are losing patience with provider trade groups balking at disclosure.


    3. Promote use of patient-centered care models and medical home concept, especially for the chronically ill.


    4. Reform Medicare physician payments, either another temporary fix or permanent change. Otherwise, docs face an automatic 20% rate cut in 2010. The current system is absurd but permanent fix will cost $262 billion to $460 billion over ten years (depending on whether rates are frozen or docs get modest annual increases).


    The changes described here range from the necessary to the useful, from the shortsighted to the unwise. But the Obama Administration and Dem leaders in the House and Senate have a long, ambitious wish list of changes for Medicare. And it is still unclear how the tough economy, budget realities, and larger health reforms will affect their Medicare agenda. Regardless, buckle up for a wild ride.

    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 22, 2008

    IOM%2020%20Indicators.jpgThe Institute of Medicine (IOM) has identified 20 key indicators that together "reflect the overall health of the nation and the efficiency and efficacy of U.S. health systems."


    Each of the 20 indicators can be readily measured over time using existing, publicly collected, reasonably high quality data. In addition to supporting nationwide snapshots, they permit drill-down views based on geography, population subgroups, and socioeconomic status.


    Here are the IOM's key indicators:


    Health Outcomes:


    1. Life Expectancy at Birth (number of years that a newborn is expected to live if current mortality rates continue to apply).


    2. Infant Mortality (deaths of infants aged under 1 year per 1,000 live births).


    3. Life Expectancy at Age 65 (number of years of life remaining to a person at age 65 if current mortality rates continue to apply).


    4. Injury Related Mortality (age-adjusted mortality rates due to intentional and unintentional injuries).


    5. Self-Reported Health Status (percentage of adults reporting fair or poor health).


    6. Unhealthy Days Physical and Mental (mean number of physically or mentally unhealthy days in past 30 days).


    7. Chronic Disease Prevalence (percentage of adults reporting one or more of six chronic diseases [diabetes, cardiovascular disease, chronic obstructive pulmonary disease, asthma, cancer, and arthritis]).


    8. Serious Psychological Distress (percentage of adults with serious psychological distress as indicated by a score of > 13 on the K6 scale, with scores ranging from 0-24).


    Health Related Behaviors:


    9. Smoking (percentage of adults who have smoked > 100 cigarettes in their lifetime and who currently smoke some days or every day).


    10. Physical Activity (percentage of adults meeting the recommendation for moderate physical activity [at least 5 days a week for 30 minutes a day of moderate intensity activity or at least 3 days a week for 20 minutes a day of vigorous intensity activity]).


    11. Excessive Drinking (percentage of adults consuming four [women] or five [men] or more drinks on one occasion and/or consuming more than an average of one [women] or two [men] drinks per day during the past 30 days)


    12. Nutrition (percentage of adults with a good diet [conformance to federal dietary guidance] as indicated by a score of > 80 on the Healthy Eating Index)


    13. Obesity (percentage of adults with a body mass index > 30).


    14. Condom Use (proportion of youth in grades 9-12 who are sexually active and do not use condoms, placing them at risk for sexually transmitted infections).


    Health Systems:


    15. Health Care Expenditures (per capita health care spending).


    16. Insurance Coverage (percentage of adults without health coverage via insurance or entitlement).


    17. Unmet Medical, Dental, and Prescription Drug Needs (percentage of [non-institutionalized] people who did not receive or delayed receiving needed medical services, dental services, or prescription drugs during the previous year).


    18. Preventive Services (percentage of adults who are up-to-date with age-appropriate screening services and flu vaccination).


    19. Childhood Immunization (percentage of children aged 19-35 months who are up-to-date with recommended immunizations).


    20. Preventable Hospitalizations (hospitalization rate for ambulatory care-sensitive conditions).


    State of the USA - a new non-profit endeavor developed under the auspices of The National Academy of Sciences and funded by several major foundations - sponsored the IOM project to identify the indicators. The IOM committee of experts was asked to (a) select indicators that, taken together, give "a broad view of health in America, covering health care, health status, and health determinants" and (b) choose only 20 indicators to ensure "maximum clarity and focus."









    posted: December 21, 2008

    Adverse%20Events.jpgHistorically, traditional payment policies - coupled with lax oversight by regulators, weak leadership from many corners of the hospital and physician communities, and an uninformed, reverential public - have served to perpetuate (sometimes even reward) the use of unsafe practices and antiquated technologies in the hospital industry. This, in turn, resulted in a frightening number of adverse events - instances where patients are harmed by medical care. The consequences are tens of thousands of deaths and millions of injuries - the vast majority quite avoidable.


    Fortunately, reduction of adverse events is now a priority. This is led by new payment and reporting policies by Medicare and some state Medicaid programs, influential players like IHI and the Leapfrog Group, the Hospital Quality Alliance, and a growing demand for disclosure of hospital and physician performance. Through realigned payment policies, public reporting of adverse events, and readily available best practices, hospitals are being given powerful new incentives to use safer practices.


    Key Issues in Adverse Event Reporting by Hospitals:


    The HHS Office of the Inspector General (OIG) has identified key issues affecting reporting of adverse events in hospitals:


  • Estimates of the incidence of adverse events in hospitals vary widely. Measurement remains difficult, although methods and tools to support proper reporting are advancing quickly.

  • Nonpayment policies for adverse events are gaining in prominence. Stakeholders see this as a powerful incentive to reduce preventable medical errors. However, there are potential drawbacks, such as perhaps discouraging hospitals from admitting complex cases and encouraging gaming in reporting.

  • Hospitals heavily rely on managers and staff to report adverse events internally, but barriers (cultural, organizational, physician relations, etc.) often inhibit reporting.

  • Hospitals report adverse events to various oversight entities. However, experts suspect substantial underreporting.

  • Public disclosure of adverse events benefits patients but also raises liability concerns.

  • Information on how to prevent adverse events is widely available. Nonetheless, many hospitals and clinicians are slow to adopt or use recommended patient safety practices.

  • The OIG believes we are finally "on the threshold of accelerated progress" in reducing the incidence of adverse events in hospitals. Yeah, their optimism is heavily couched but there has been some genuine progress. The OIG identifies a series of strategies that could hasten this.


    For the OIG report on key issues in reporting and reducing adverse events in hospitals, click here (PDF).


    State Requirements for Reporting Adverse Events:


    Today, 26 states now have adverse event reporting programs. The Institute of Medicine (IOM), which supports mandated reporting, says reporting helps hold individual hospitals accountable for performance while providing information to improve patient safety and save lives. States vary somewhat by the list of reportable events and criteria for identifying reportable events. Most of the 26 state systems focus on adverse events in hospitals but some also require or support reporting in other care settings.


    Most states told the OIG that "hospitals do not always report when adverse events occur." Underreporting is apparently common and probably substantial. To encourage better reporting, states have implemented various strategies. For example:


  • Legal protections to prevent improper disclosure.

  • Monetary penalties for failing to report an adverse event.

  • Giving feedback to hospitals about reported events.

  • Audits or state-led investigations of the hospitals' handling of reported events.

  • Promote learning through reports, training, and patient safety bulletins and alerts.

  • For the OIG report on state reporting programs, click here (PDF).

    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: December 15, 2008

    Fiscal%20Survey%20of%20States.jpgComprising 21% of state budgets and growing faster than revenues, Medicaid continues to be a serious challenge for governors, state legislatures, and state Medicaid directors.


    The National Association of State Budget Officers (NASBO) has released its latest Fiscal Survey of the States. Every six months, NASBO provides a crisp, informative snapshot on the revenue and spending situation in every state. No surprise, Medicaid budget estimates figure prominently.


    Highlights:


  • Medicaid spending is projected to increase by 5.5% in 2008 and 5.8% in 2009.

  • Total state government spending is expected to increase by 5.3% in 2008 but decline by 0.1% in 2009.

  • Medicaid enrollment decreased by 0.5% in 2007 but is expected to increase by 2.1% in 2008 and 3.5% in 2009.

  • NASBO points out that:


    Among the issues of greatest concern for states include, health care cost increases and greater utilization of services; the aging population and the impact on long-term care financing; regulatory actions at the federal level that would limit federal participation for key services; workforce shortages such as nurses; hospital finances; pressure to raise physician rates in order to maintain participation in the Medicaid program; State Children's Health Insurance Program (SCHIP) funding; mental health funding and access; expanding access to health care for the uninsured; and generally the pressure to maintain health care spending that on average consumes a greater share of state budgets over time.


    To read the full report, click here (PDF).


    The National Conference of State Legislatures (NCSL) released their own 60-page report on state budgets, including expected budget gaps in 2009 and 2010.

    posted: December 11, 2008

    Presidential%20Appointees.jpgA new Administration in the White House also means an array of new political appointees. The aptly named Plum Book, a quadrennial publication, identifies 7,000 senior-level policy making positions in the Executive and Legislative Branches. It includes all the well-know top positions - such as HHS Secretary, CMS Administrator, FDA Commissioner, and OMB Director - as well as their deputies, agency or division heads, and top aides. It also shows how positions are filled (such as by nomination and Senate confirmation, direct appointment, Schedule C, or through the Senior Executive Service), name of incumbents, and salary ranges.


    The Plum Book chapter on the Department of Health and Human Services (HHS) includes details on senior officials and supporting policy staff in:


  • Office of the Secretary

  • Centers for Medicare and Medicare Services (CMS)

  • Food and Drug Administration (FDA)

  • National Institutes of Health (NIH)

  • Centers for Disease Control and Prevention (CDC)

  • Office of Assistant Secretary for Planning and Evaluation (ASPE)

  • Agency for Health Research and Quality (AHRQ)

  • For the chapter on all the top HHS positions, click here (PDF).


    The Plum Book also gives details on appointees in other federal agencies, including the White House Office of Management and Budget (OMB), which plays a powerful role on health issues.


    To read or download a copy of the complete Plum Book, click here (PDF).

    posted: December 1, 2008

    Federal%20Budgeting.jpgThe budgetary impact of proposed health reform initiatives - whether through legislation, rules, or waivers - significantly affects the likelihood of success. The following provides a concise briefing on some key players and processes affecting cost estimates of federal health care initiatives.


    Congressional Budget Office (CBO):


    The Congressional Budget Office (CBO), a nonpartisan agency of Congress, provides Congressional committees with budgetary information and analyses. CBO's mandate is to provide Congress with objective and impartial analysis, with no policy recommendations.


    Specifically, CBO prepares fiscal estimates for pending legislation, forecasts federal revenues and expenditures, independently re-estimates the President's proposed budget, and conducts various analyses for Congress. Therefore, CBO determines the official cost/savings estimate or "score" used by Congress in considering proposed legislation or the President's proposed budget. For estimating the impact on revenues of legislation involving income, estate and gift, excise, and payroll taxes, the Congressional Budget Act directs CBO to use exclusively the revenue estimates of the Joint Committee on Taxation.


    CBO frequently calls on outside experts for advice on specific analytic matters, such as the outlook for health care spending, spending projections for Medicare and Medicaid, and the fiscal impact of major programmatic or regulatory changes. For its economic forecasts and assumptions, CBO draws on the advice of a distinguished panel of advisers that meets twice a year. CBO also has a panel of outside experts, mostly academics, to advise CBO on health care issues.


    All CBO estimates and analytic products are reviewed internally for technical competence, accuracy of data, and clarity of exposition. Draft studies are also reviewed by experts outside CBO, and the preface to each study cites the many contributors who helped shape the final product. Although outside experts and advisers provide considerable assistance, CBO is solely responsible for the accuracy of its estimates and analyses. Due to its nonpartisan status and mandate to provide objective analysis, CBO does not make explicit policy recommendations in any of its analyses.


    White House Office of Management and Budget (OMB):


    The Office of Management and Budget (OMB), part of the Executive Office of the President, is the focal point of policy and budget oversight in the Executive Branch. OMB's mandate is to ensure policymaking by cabinet departments and agencies is consistent with the policies and priorities of the President.


    In addition to making policy recommendations and preparing the President's proposed budget, OMB reviews and approves a wide range of policy and budget activities of federal agencies. This includes the authority to review and approve or disapprove proposed and final rules, waivers (e.g., Medicare or Medicaid demonstrations), legislation proposed by agencies, major "sub-regulatory" policy (e.g., program guidance, interpretations, and instructions by CMS), congressionally mandated reports, and Congressional testimony by Executive Branch officials.


    OMB provides the Administration's official estimate of the cost/savings of policies contained in regulations, waivers, and the President's proposed budget, and the Administration's position of the cost/savings of legislation under consideration in Congress. OMB also estimates the impact of federal regulations on businesses and state and local government. However, in estimating Medicare or Medicaid related costs and savings of legislation, rules, and waivers, OMB works closely with the Office of the Actuary (OACT) at the Centers for Medicare and Medicaid Services (CMS). While OMB may occasionally revise estimates provided by CMS/OACT and request refinements or recalculations, it most cases OMB adopts CMS/OACT estimates without major changes.


    PAYGO:


    PAYGO - short for "Pay as You Go" - refers to rules in the House and Senate requiring that legislative changes to mandatory programs or taxes do not increase the federal deficit. To comply with PAYGO, new mandatory spending programs, changes to existing mandatory programs (most notably, Medicaid, Medicare, SCHIP, and Social Security), and tax cuts must be offset by an equal amount of tax increases or cuts to mandatory programs. In determining the net effect of proposed changes to mandatory programs and taxes, Congress uses CBO's projections of baseline spending and fiscal effects of individual legislative provisions.


    PAYGO is a parliamentary rule, with some differences in the House and Senate. PAYGO may be overridden in the House if the House Rules Committee adopts a special order governing how a bill is considered on the floor. This allows the Majority to disregard PAYGO with support of the House leadership. The Senate may dispense with the PAYGO rule with a vote of at least 60 senators. While there are other rules applying to funding bills, PAYGO does not apply to discretionary programs funded through the annual appropriations process. In the Senate, PAYGO also does not apply to changes made through an annual budget resolution.


    The effect of PAYGO is to impose some modest degree of spending discipline on new legislation affecting Medicare or Medicaid. Since offsets are required, it means major legislative changes to Medicare and Medicaid are carried out through massive reconciliation bills.


    Budget Reconciliation and Budget Offsets:


    Because of PAYGO and the practical demands of political "horse trading," passage of major changes to Medicaid or Medicare typically requires offsetting changes elsewhere in the same programs. PAYGO makes stand-alone bills increasing net federal spending difficult to pass, even with White House support. Further, tactically it makes little sense to enact stand-alone legislation that reduces Medicare or Medicaid spending. Sponsors of savings initiatives lose the fiscal "credit" that could be used to offset higher spending elsewhere in mandatory programs.


    Therefore, budget reconciliation bills - which allow Congress to make a large number of simultaneous changes to mandatory programs and taxes to meet five-year spending targets set in the annual budget resolution process - are the primary vehicles for federal health care legislation. Enacting major changes through budget reconciliation bills has a variety of other practical benefits in the political process. For example, the massive bills make possible a large number of trades and compromises between key lawmakers, committees, and the two chambers. Budget reconciliation bills are also exempt from filibusters in the Senate.


    Given this, budget offsets are often critical to the ultimate success of provisions to increase Medicare or Medicaid spending. Therefore, it is often important to identify, develop, or otherwise support offsetting provisions - changes that would reduce mandatory health spending in some way. For example, proponents of a Medicaid funding increase could support legislation to permit new versions of expensive biologic drugs that are off patent (commonly called "biosimilars"). CBO projects biosimilars could reduce Medicare Part B spending by about $5-6 billion over five years. Through a reconciliation bill, the Medicare savings from biosimilars could be used to offset the desired higher spending elsewhere in Medicare (e.g., physician reimbursement), in Medicaid or SCHIP.


    Medicare-Medicaid Waivers:


    While budget offsets between mandatory programs are routine in legislation, similar offsets are not permitted in combined Medicare and Medicaid waivers. Under longstanding policy, Medicare and Medicaid waivers must be budget neutral to the federal government. OMB, with advice from the CMS Office of the Actuary, determines if a proposed waiver is likely to be budget neutral to the federal government. Combined Medicare-Medicaid waiver projects are permitted and increasingly used to test major reforms, especially for dual eligibles. However, proposals for combined Medicare-Medicaid waivers may not use projected federal savings in one program to offset projected higher spending in the other.


    For example, a waiver project could propose Medicaid care management to reduce hospital admissions by dual eligibles. The federal shared of the cost of Medicaid care management would be more than offset by lower federal Medicare hospital spending. However, OMB policy does not allow such cross-program offsets when determining whether budget neutrality is met. This policy, coupled with the widely different funding and programmatic characteristics of Medicare and Medicaid, make many innovative, cost-saving waiver-based initiatives impossible.


    Like the budget neutrality policy, the policy against cross-program offsets in waivers is longstanding OMB policy but not required by statute or rule. Therefore, a new Obama Administration could easily alter or abolish the limitation - dramatically increasing the ability of states and HHS to design and test major health reforms.

    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: August 18, 2008

    Medicaid%20Policy%20Making.jpgMany of my clients ask me how Medicaid policy is made, particularly for coverage, reimbursement, and managed care and other delivery systems. The $360 billion Medicaid program is highly complex and there are many nuances and exceptions, but here is a high-level primer on the basics.


    Given the Medicaid program's shared federal-state funding and governance, underlying complexity, and variability across the respective states, Medicaid policy is set through several distinct vehicles, some federal and some state.


    Medicaid Policy Making by Federal Government:


    The primary federal policy making vehicles are:


    Federal Medicaid Statutes:


    Title XIX of the Social Security Act provides the federal statutory framework for Medicaid nationwide. Like its Medicare counterpart, Title XIX is extraordinarily complex and frequently amended by Congress. The federal Medicaid statutes are a mix of mandates and options for states. Medicaid legislative changes are often accomplished through budget reconciliation bills rather than separate stand-alone legislation. Short-term fixes may be made through appropriations bills.


    Federal Medicaid Rules:


    The vast bulk of federal Medicaid rules are promulgated by the Centers for Medicare and Medicaid Services (CMS). As with Medicare rules, CMS must follow the rulemaking process required by federal Administrative Procedures Act (APA) and the same clearance process. Most proposed and final rules affecting Medicaid are drafted by staff in CMS' Center for Medicaid and State Operations (CMSO), with legal advice from the HHS Office of General Counsel (OGC). Before publication in the Federal Register, proposed and final rules require approval of the HHS Secretary and White House Office of Management and Budget (OMB). OMB's Medicaid rule reviews are conducted primarily by the Medicaid Branch in OMB's Health Division but coordinated through OMB's Office of Information and Regulatory Affairs.


    Federal Medicaid Guidance:


    CMS uses several mechanisms to make or clarify Medicaid policy through "sub-regulatory guidance." This includes CMS' State Medicaid Manual and an important and influential ad hoc series of letters to State Medicaid directors - both issued by CMSO.


    Federal law requires formal rulemaking for most substantive policy making, including interpretations of federal statutes. However, CMS often sets policy administratively, either in lieu of or far in advance of formal rule making. For example, if Congress makes significant changes to Title XIX with a tight deadline for implementation, CMS often issue a guidance letter or directive months in advance of issuing necessary conforming regulations. CMS must perform a balancing act to comply with the intent of APA and still implement frequent changes enacted by Congress or expected by the White House or HHS Secretary.


    Officially, letters to State Medicaid directors (SMDs) are not intended to make policy per se but many states and experts believe some of these SMD letters make policy that requires formal rulemaking. Under a new Executive Order, OMB now has the authority to review and approve CMS guidance. This is consistent with its longstanding authority to review rules and waivers and a response to growing use of sub-regulatory issuances by agencies across the Executive Branch. OMB's new role continues to evolve.


    Federal Medicaid Waivers:


    Under sections 1115 and 1915 of the Social Security Act, the HHS Secretary may waive a variety of federal statutes and rules to permit state Medicaid programs to change benefit packages, eligibility, cost sharing, and care delivery in ways not permitted by current law. For my recent primer on federal Medicaid and Medicare waivers, click here.


    State%20Rules.jpgMedicaid Policy Making by States:


    The state-level policy making mechanisms in Medicaid are:


    Medicaid State Plan:


    Each state Medicaid program has its own "State Plan," which serves as the funding agreement between the state Medicaid agency and CMS. The State Plan specifies all of the state's key policies on Medicaid eligibility, benefits, cost sharing, reimbursement, managed care, quality assurance, utilization management, and program integrity. Here's an example of a Medicaid State Plan.


    State Plans are highly detailed (typically 1000-2000 or more pages in length) and subject to frequent revision to reflect changes in federal law or rules, CMS guidance, state policy choices, and court rulings. State Plan Amendments (SPAs) are drafted by the state Medicaid agency and submitted to CMS for approval. Many SPAs are routine, following "preprints" - boilerplate checklists that allow states to propose SPAs needed to conform the State Plan to federal mandatory policies or common practices already approved for other states. States don't have to follow the preprints but it makes routine SPAs much easier. The state publishes a prior public notice for each SPA.


    Routine SPAs are handled by the CMS regional offices but CMSO's central office staff in Baltimore handles all major and controversial SPAs. CMS may ask questions and may deny SPAs that it determines fail to comply with federal requirements. If an SPA rejected, the state may appeal CMS' decision to the HHS Departmental Appeals Board (DAB) and thereafter to the federal courts.


    State Statutes and Administrative Rules:


    Each state also sets some degree of Medicaid policy through state statutes and administrative rules. States vary widely in the degree to which state Medicaid policies are set forth in statutes or rules. Most states set eligibility, benefit packages, and cost sharing in statute and/or rules. Other policies, such as specific reimbursement methodologies and rates, are sometimes set administratively by the state Medicaid agency through manuals and instructions to providers. The basic parameters of hospital and nursing home payment formulars are often set in state statute. Still other policies are made through the state budget process or contracting mechanisms, such as managed care RFPs and Medicaid health plan contracts.


    However, some states, specify a considerable amount of Medicaid policy through rules. While state Medicaid rules are drafted and promulgated by the state Medicaid agency, some states require legislative committee review and approval of all rules. (Note that regardless what is addressed in state statutes or rules, the State Plan must reflect the latest policies.)

    posted: August 12, 2008

    Medicare%20Medicaid%20Demos.jpgFederal waivers are powerful tools to demonstrate Medicare or Medicaid reforms, including new payment methods, benefit packages, and delivery systems. The business and policy opportunities are considerable. Here's a quick primer.


    Demonstration Waivers:


    Historically, federal policymakers have understood the need to test new ideas in the complex Medicare and Medicaid programs. Research and demonstrations projects - whether initiated by states, health services researchers, providers, health plans, CMS, or Congress - often lead to models or reforms available or mandated nationwide.


    Therefore, federal law permits the Secretary of Health and Human Services to waive certain provisions of the Social Security Act and associated regulations as needed to conduct demonstration projects in Medicare, Medicaid, or both Medicare and Medicaid. Waivers are purely discretionary unless legislation mandates a specific project.


    Medicaid Waivers under Section 1115:


    Section 1115 of the Social Security Act is the principal waiver authority in Medicaid. The HHS Secretary may waive most federal requirements regarding Medicaid benefit packages, eligibility, cost sharing, managed care, and other care delivery. A Medicaid demonstration may be statewide or for only a portion of the state (select counties). (States may also request similar waivers of federal law to reform SCHIP.)


    Ostensively, Medicaid waiver projects are research-oriented and intended to test the merits of a new reform(s) not permitted under current law. However, in practice, many Medicaid "demonstrations" are or soon evolve into indefinite, alternative models of Medicaid. Although under no obligation to do so, the HHS Secretary may approve similar or even identical waivers for multiple states.


    Medicaid waivers must be requested by the state Medicaid agency, with the approval of the governor. Federal officials may encourage states to propose waivers and Congress occasionally enacts legislation calling for waivers to demonstrate specific reforms. However, the vast majority of Medicaid waiver-based projects are initiated and designed by state governments, often with the assistance of outside experts.


    Once approved, Medicaid demonstration projects are operated by the state Medicaid agency, with oversight by CMS. The state may contract with third parties, such as health plans or other contractors, but s. 1115 demonstrations remain part of Medicaid and therefore the state is also responsible for the demonstration project.


    Roughly speaking, between a quarter and a third of Medicaid spending operates under s. 1115 waivers instead of standard Medicaid statutes and rules.


    Medicare Waivers under Sections 402/222:


    Under Sections 402/222, the HHS Secretary may waive Medicare statutes and rules to demonstrate new approaches to provider reimbursement, including tests of alternative payment methodologies, demos of new delivery systems, and coverage of additional services to improve the overall efficiency of Medicare. (Sections 402/222 refer to section 402[a] of the Social Security Amendments of 1967, as amended by section 222[a] of the Social Security Amendments of 1972.)


    Medicare demonstrations may be national or limited to certain states, regions, populations, provider types, or even providers or plans designated in advance. They may also be limited in other ways, such as capped in number of participating beneficiaries or providers. Unlike Medicaid demonstrations, participation in Medicare demonstrations, whether by beneficiaries or providers, is rarely mandatory and then only if required by a Congressional mandate.


    Any organization or individual may propose a Medicare waiver project. This includes providers, health plans, state Medicaid agencies, and health services researchers. CMS maintains an open invitation for outside parties to propose Medicare demonstration projects and the necessary waivers. However, the bulk of Medicare waiver-based demo projects are congressionally mandated in legislation or initiated administratively by CMS. CMS-initiated Medicare demonstration projects are often developed at the behest of the HHS Secretary, the White House Office of Management and Budget (OMB), the Medicare Payment Advisory Commission (MedPAC), or the Office of the Inspector General.


    Unlike many Medicaid waiver-based projects, most Medicare waiver projects tend to be genuine demonstrations projects with a careful research design and evaluation methodology. Given this research emphasis, requests to replicate currently operating Medicare demonstrations are often denied unless a research value can be shown.


    Occasionally, ss. 402/222 authority is used to issue what CMS informally calls "operational waivers." These later waivers are often made to address emergencies or fix short-term operational problems (e.g., provider payments after a natural disaster, reimburse states for drug payments during Medicare Part D transition).


    Once approved, Medicare waiver projects are administered by CMS either directly, through contractors (e.g., Medicare administrative contractors, Medicare Advantage plans), or (rarely) through states. Except for operational waivers, CMS evaluates each demonstration projects. Major Medicare demonstrations, including congressionally mandated projects, are evaluated by independent health services researchers hired by CMS. CMS' budget for evaluations is small, with congressionally mandated demonstrations using most of the available funding. This, coupled with the administrative burden of designing, operating, and monitoring waivers, tends to limit the number of Medicare waivers CMS is able to consider.


    Combined Medicare-Medicaid Projects:


    States may propose demonstration projects involving the waiver of both Medicaid and Medicare statutes and rules. Combining the authority offered by s. 1115 (Medicaid) and ss. 402/222 (Medicare), the HHS Secretary is able to consider an array of Medicare-Medicaid demonstration ideas, most notably state-wide or regional initiatives changing care delivery, benefit packages, and service reimbursement for dual eligibles.


    Examples of combined Medicare-Medicaid waiver projects include:


  • Massachusetts Senior Care Options: Fully integrated managed care program, offered through Senior Care Organizations (SCOs), covering the full range of acute and long-term care benefits for dually eligible and Medicaid-only recipients age 65 and over.

  • Minnesota Senior Health Options (MSHO): Combines all Medicare and Medicaid covered health benefits and support systems into one health care package. Covers beneficiaries aged 65 older who are dual eligibles or who have Medicaid only. MSHO enrollees are assigned a care coordinator who helps them get their heath care and related support services.

  • Historically rarer than Medicaid-only and Medicare-only demonstrations, combined waiver-based projects are increasingly popular as states develop integrated care models for dual eligibles and managed long-term care models. A variety of other activities by policymakers and the marketplace have also dramatically increased interest in and practicality of combined waiver demonstrations. These include the advent and popularity of Medicare Advantage Special Needs Plans (MA-SNPs), advances in risk adjustment methodologies and quality measurement, sharing of best practices, and collaborations among influential states, foundations, thought leaders, think tanks, and CMS.


    Waiver Application Process:


    Applications for Medicare or Medicaid waivers must include project scope and objectives, the specific statutes and rules to be waived, spending and enrollment projections, research design, evaluation plan, and details on safeguards appropriate to the project (e.g., quality, access, appeal rights).


    Applications for s. 1115 Medicaid waivers are submitted to the HHS Secretary or CMS Administrator and reviewed by the CMS Center for Medicaid and State Operations (CMSO). Other CMS offices - such as the Office of Research, Development and Information (ORDI) - may provide technical advice to CMSO.


    Proposals for Medicare waiver projects are submitted to the HHS Secretary or CMS Administrator and reviewed by the Office of Research, Development and Information (ORDI) and the affected operating center: the Center for Medicare Management for projects related to fee-for-service Part A or Part B and the Center for Drug and Health Plan Choice for Medicare Advantage or Part D related projects.


    The Medicare and Medicaid Cost Estimates Group in the CMS Office of the Actuary (OACT) estimates the fiscal impact of proposed Medicaid and Medicare waivers.


    Proposals for combined Medicaid-Medicaid waivers are naturally reviewed by several units of CMS, with a center, a cross-agency team, or the Administrator's office taking responsibility for coordinating the review. The particulars vary and are highly situational.


    Waiver Approval Process:


    Waiver applications - particularly the details of s. 1115 Medicaid waivers and combined Medicare-Medicaid demonstrations - are subject to complex and often lengthy negotiations. Given the technical complexity and policy and fiscal implications of Medicaid or combined Medicare-Medicaid waiver requests, specialized consultants often support senior state staff during CMS negotiations. Senior federal and state officials often weigh in during negotiations. This may include active participation by the HHS Secretary, CMS Administrator, Governor, and State Medicaid Director.


    Every proposed Medicaid or Medicare waiver program must be budget neutral to the federal government. That is, Medicaid or Medicare under the requested waivers must be projected to cost the applicable federal program no more than expected spending without the waivers. By tradition, proposed Medicare-Medicaid demonstrations may not claim federal savings in one program to offset higher federal costs in the other.


    While not required by federal law, the last four Administrations have enforced the policy expectation that all waivers are determined to be budget neutral prior to approval. The budget neutrality requirement applies only during the review process. Unless the waiver includes a cap on the federal share of spending, there is no fiscal penalty if a demonstration is ultimately not budget neutral.


    There is no set methodology - economic or actuarial - for determining federal budget neutrality. Successful Medicaid waiver negotiations are highly dependent on a state's ability to demonstrate budget neutrality to the satisfaction of federal officials, particularly to CMS actuaries and White House budget staff. Modeling budget neutrality often requires a rigorous mix of creative policy work and analytically sound forecasting. Political priorities and imperatives - together with caution regarding setting new precedents - often informally influence waiver negotiations and assessments of budget neutrality.


    Authority to issue waivers under s. 1115 and ss. 402/222 rests with the HHS Secretary. However, all Medicaid and Medicare waivers, regardless of size and scope, require the prior review and approval of the White House Office of Management and Budget (OMB). OMB may require changes, additional terms and conditions, or reject the proposed waivers.


    Once approved, waivers include specific terms and conditions negotiated with CMS. These vary considerably, depending on the nature of the demonstration.


    Medicaid demonstrations are typically approved for an initial five-year period. Thereafter, they may be renewed ever three years indefinitely. Renewals must be budget neutral and receive OMB approval.


    Medicare waiver projects initiated by CMS are typically operated for three or five years, depending on how much time is needed to test the policy change. Congressionally mandated waivers vary in length, with most three to five years in length and some indefinite.

    posted: June 6, 2008

    Medicaid%20Podcasts.jpgAre you curious or mystified by the intricucies and vagaries of Medicaid financing or federal Medicaid waivers? If so, please check out my new podcasts courtesy of Sellers Dorsey, the influential Medicaid and health reform consultancy.


    Medicaid Financing 101: Concise review of Medicaid financing and the many opportunities available to find solutions to Medicaid budget needs. To listen, click here (opens MP3 file, right-click to save).


    Medicaid Section 1115 Waivers: Primer on federal s. 1115 waivers used by states to reform Medicaid and the State Children's Health Insurance Program (SCHIP). To listen, client here.


    The Sellers Dorsey Report is a regular series of free podcasts on Medicaid and federal and state health reform. The 8-10 minute podcasts include primers and updates on hot issues in Washington. You may listen on your PC or load the MP3 file to your iPod or other portable media player.


    For alerts to new podcasts on Medicaid or health reform, register here.

    posted: May 9, 2008

    RDHC.jpgSerious and costly performance problems riddle U.S. health care. Because of overuse, under use, and misuse of health care, researchers at the Juran Institute and elsewhere estimate that about 30 percent of health care costs are generated by poor quality. Therefore, poor quality medical care will cost about $720 billion in 2008 (30% of $2.4 trillion).


    Poor quality also reduces productivity. For every dollar of health care spending caused by poor quality, poor care costs an estimated 50 cents in lost productivity. When applied to the $822 billion in care provided through employer-sponsored insurance, this translates to an additional $123 billion in costs.


    A recent study by the Health Research Institute at PricewaterhouseCoopers estimates that wasteful health care spending costs $1.2 trillion annually. Analyzing findings from a wealth of published studies, the PwC researchers looked at the cost of waste from clinically inappropriate care and overt errors, individual behaviors leading to costly health problems, and antiquated operational processes that add costs without providing any value.


    Making matters worse, research on the care patients receive from physicians, hospitals, and other providers paints a frustrating, even scary picture. For example, studies conducted by the respected RAND Corporation show that Americans receive clinically inadequate or inappropriate care at shockingly high rates.


    Specifically, RAND's research shows that acute care for insured adults is appropriate only 53.5 percent of the time on average. In other words, about 46 percent of acute care is clinically incorrect. Similarly, about 43.9 percent of chronic care and 45.1 percent of preventive care is inappropriate according to accepted medical standards. Children receive 68 percent of recommended care for acute medical problems, 53 percent of recommended care for chronic medical conditions, and 41 percent of recommended preventive care.


    The bottom line is health care - whether for adults or children - is inappropriate or unnecessary about half the time. Basically, it's a coin flip.


    Root Causes of Poor Quality, High Costs:


    Ultimately, three immutable laws of economics explain the underlying causes of this poor performance:


    1. Price is what you pay but value is what you get:


    Taking a page from Warren Buffet's playbook, buyers of health benefits must focus on value, not price. Price is an important part of the equation but meaningless if you don't know the value of what you are receiving for that price. Unfortunately, in health care we obsess on unit prices. In no other marketplace or domain of life do Americans - corporations, consumers, federal and state policymakers, news media - pay so much attention to price and so little to value.


    2. You get what you pay for:


    Today, we pay for quantity, not quality. Poor performers are sustained and rewarded. The best performers are financially penalized and professionally demoralized. The consequences are all too obvious.


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


    In sharp contrast to virtually every other industry, health care is highly opaque. American health care is full of decision makers - consumers, physicians, and other providers, health plans, public officials - who lack the information needed to make decisions.


    Five Steps to Higher Performance:


    The problems are daunting but solvable. To improve the quality and cost effectiveness of health care delivery, purchasers and payors must tightly focus on strategies to expect, measure, disclose, reward, and support results:


    1. Expect Results:


  • Set actionable performance expectations for health care providers, particularly physicians, clinics, hospitals, pharmacies, and long-term care providers.

  • Ensure that expectations are clear, decision relevant, and supported by evidence.

  • 2. Measure Results:


  • Rigorously measure clinical and economic performance compared to expectations.

  • Use consensus endorsed measures such as those adopted by the National Quality Forum.

  • However, don't let the perfect be the enemy of the good or analysis be the enemy of action.

  • 3. Disclose Results:


  • Publicly report the clinical and economic performance.

  • Ensure that reporting of performance is frequent and timely.

  • Use reader-friendly formats that support the differing decision making needs of consumers, providers, health plans, purchasers (employers, Medicare, Medicaid), and the media.

  • 4. Reward Results:


  • Directly align coverage, reimbursement, cost sharing, market share, contracting, utilization management, and other key policies with performance expectations.

  • Specifically, reward higher performance through monetary incentives (pay-for-performance or P4P), greater market share, public recognition, and regulatory flexibility.

  • Reward positive consumer behaviors through incentives like differential co-pays (e.g., low or zero co-pay to see the best physicians, very high co-pay to see poor quality docs).

  • 5. Support Results:


    Support the infrastructure and processes essential to results-driven health care. These include:


  • Evidence-based medicine and value-based benefit designs.

  • Patient-centered care, including stronger physician-patient communication, referrals, and genuine follow-up.

  • Chronic care management.

  • Modern health information technology, including electronic medical records, e-prescribing, and e-lab results.

  • Comparative effectiveness research.

  • Health services research to build our knowledge base on costs, quality, and access.

  • Education and training of physicians, patients, and family care givers.

  • 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: October 9, 2007

    Comparative%20Effectiveness%20Methods.jpgThe journal Medical Care has published series of outstanding articles on emerging methods and tools to compare the effectiveness of medical therapies, prescription drugs, and devices. The peer-reviewed articles are an outgrowth from a symposium on comparative effectiveness research sponsored by the Agency for Healthcare Research and Quality (AHRQ).


    Here are links to the individual articles in PDF format:


  • Emerging Methods in Comparative Effectiveness and Safety: Symposium Overview and Summary.

  • Medicare Part D Data: Major Changes on the Horizon.

  • Methodologic Challenges to Studying Patient Safety and Comparative Effectiveness.

  • Creating and Synthesizing Evidence With Decision Makers in Mind: Integrating Evidence From Clinical Trials and Other Study Designs.

  • Improving Depiction of Benefits and Harms: Analyses of Studies of Well-Known Therapeutics and Review of High-Impact Medical Journals.

  • Cluster Randomized Trials: Opportunities and Barriers Identified by Leaders of Eight Health Plans.

  • Design of Cluster-Randomized Trials of Quality Improvement Interventions Aimed at Medical Care Providers.

  • Designed Delays Versus Rigorous Pragmatic Trials: Lower Carat Gold Standards Can Produce Relevant Drug Evaluations.

  • Practice-Based Evidence Study Design for Comparative Effectiveness Research.

  • Studying Prescription Drug Use and Outcomes With Medicaid Claims Data: Strengths, Limitations, and Strategies.

  • Assessment of Adherence to and Persistence on Disease-Modifying Antirheumatic Drugs (DMARDs) in Patients With Rheumatoid Arthritis.

  • Out-of-Pocket Pharmacy Expenditures for Veterans Under Medicare Part D.

  • Developing Indicators of Inpatient Adverse Drug Events Through Nonlinear Analysis Using Administrative Data.

  • Real-Time Vaccine Safety Surveillance for the Early Detection of Adverse Events.

  • Evaluation and Overview of the National Electronic Injury Surveillance System-Cooperative Adverse Drug Event Surveillance Project (NEISS-CADES).

  • Using Inverse Probability-Weighted Estimators in Comparative Effectiveness Analyses With Observational Databases.

  • A Simulation-Based Evaluation of Methods to Estimate the Impact of an Adverse Event on Hospital Length of Stay.

  • Evaluating the Validity of an Instrumental Variable Study of Neuroleptics: Can Between-Physician Differences in Prescribing Patterns Be Used to Estimate Treatment Effects?

  • Heterogeneity and the Interpretation of Treatment Effect Estimates From Risk Adjustment and Instrumental Variable Methods: Surgery for Early-Stage Breast Cancer.

  • Increasing Levels of Restriction in Pharmacoepidemiologic Database Studies of Elderly and Comparison With Randomized Trial Results.

  • Use of Propensity Score Technique to Account for Exposure-Related Covariates: An Example and Lesson.

  • Using Propensity Scores Subclassification to Estimate Effects of Longitudinal Treatments: An Example Using a New Diabetes Medication.

  • Adjustments for Unmeasured Confounders in Pharmacoepidemiologic Database Studies Using External Information.

  • Comparison of Meta-Analytic Results of Indirect, Direct, and Combined Comparisons of Drugs for Chronic Insomnia in Adults: A Case Study.
  • posted: October 5, 2007

    Medicare%20Payment%20Policy%20Primers.jpgThe Medicare Payment Advisory Commission (MedPAC), the savvy nonpartisan shop that advises Congress on Medicare program issues, has updated its excellent series of primers. Extremely complex and changing constantly, Medicare payment policy will drive $479 billion in health spending in 2008. MedPAC's primers, typically four crisply-written pages, explain the basic steps and methodologies Medicare uses to reimburse fee-for-service providers, Medicare Advantage plans, and Medicare prescription drug plans.


    Here are MedPAC's updated primers on the basics of Medicare reimbursement policy (click on links to open in PDF format):


    Medicare Hospital Reimbursement:


  • Hospital acute inpatient services payment system (inpatient prospective payment system or IPPS)

  • Outpatient hospital services payment system (outpatient prospective payment system or OPPS)

  • Critical access hospital payments

  • Psychiatric hospital services payment system

  • Medicare Post-Acute Provider Reimbursement:


  • Skilled nursing facility services payment system

  • Inpatient rehabilitation facilities payment system

  • Long-term care hospitals payment system

  • Home health care services payment system

  • Medicare Physician Reimbursement:


  • Physician services payment

  • Medicare payment to physicians for professional liability insurance

  • Geographic practice cost indexes

  • Medicare Managed Care (Part C and Part D):


  • Medicare Advantage plan payment system

  • Medicare Part D payment system (PDPs and MA-PDs)

  • Other Medicare Reimbursement Policies:


  • Outpatient dialysis services payment system (ESRD facilities)

  • Durable medical equipment payment system (DME reimbursement)

  • Oxygen and oxygen equipment payment system

  • Ambulatory surgical centers payment system

  • Clinical laboratory services payment system

  • Outpatient therapy services reimbursement

  • Hospice services reimbursement

  • 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 17, 2007

    AMP%20and%20Medicaid%20Pharmacy%20Rules.jpgIn the Deficit Reduction Act (DRA), Congress made major, controversial, and technically complex changes to Medicaid prescription drug pricing and pharmacy reimbursement. The policy changes, which are expected to save the feds and states $8.4 billion over the next five years, present significant challenges to both drug manufacturers and retail pharmacies.


    To implement the DRA changes, the Center for Medicare and Medicaid Services (CMS) issued final rules that, most notably: (a) revise the definition of average manufacturer price (AMP), (b) create a new formula for calculating Federal Upper Limits (FULs) on multisource drugs, (c) require rebates for certain physician-administered drugs, and (d) clarify rebate liability for authorized generic drugs.


    Significant Implications:


    For pharmacies, the DRA changes represent significant cuts to Medicaid reimbursement - unless states act to mitigate the changes or increase dispensing fees to compensate for lower product reimbursement. While CMS tried to mitigate the impact on pharmacies, studies by GAO, OIG, and pharmacy trade groups suggest that pharmacies could easily lose money with many drugs dispensed under Medicaid, with the biggest loss in generic drugs.


    The changes also hold major implications for pharmaceutical companies. The new policies create new financial, operational, and compliance challenges. They will require most drug makers to rethink pricing strategies and access the impact across all their classes of trade. Average Manufacturer Price (AMP), a calculation that has been a closely held secret under the law since 1991, will become transparent through monthly public reporting of AMP-based prices of every drug on sale in the U.S. You may expect this to have some interesting effects on marketplace behavior and payor negotiations. And, of course, the changes will increase rebate payments to states.


    States will benefit from the resulting cost savings. However, state Medicaid directors face strong pressure from community and chain pharmacies to compensate for lost revenue. States also have concerns about the reliability of CMS and pharma industry data, especially in the first couple years given the big change in methodology, scope, and frequency of data reporting. States must also make a variety of systems changes under short notice.


    Across the health care system, the DRA changes are further evidence of the increasing power of government policy on the pharmaceutical supply chain. Now that taxpayer-funded health programs pay for the majority of drugs, changes in Medicaid or Medicare drug policy are no longer limited to affected program. Federal changes ripple throughout the industry, forcing changes in commercial practices and business strategy.


    Finally, the new rules put a few more nails in the coffin of Average Wholesale Price (AWP) or published prices.


    Average%20Manufacturer%20Price.jpgAverage Manufacturer Price:


    In concept, Average Manufacturer Price (AMP) is the average unit price paid to the manufacturer for the drug in the U.S. by wholesalers for drugs distributed to the retail pharmacy class of trade. (Try to repeat that ten times fast.) However, how this plays out has been highly controversial, leading to inconsistencies across manufacturers, numerous highly critical studies by the HHS Office of the Inspector General (OIG) and Government Accountability Office (GAO), allegations of gaming, and countless law suits against drug makers by U.S. attorneys and state attorneys general.


    Following the statutory changes made by the DRA, CMS' final rule makes several fundamental changes to AMP. Most notably, the final rule:


  • Excludes customary prompt pay discounts to wholesalers from the calculation of AMP.

  • Clarifies definition of retail class of trade and wholesaler and how to treat sales reimbursed by third party payors.

  • Defines what prices should be included in or excluded from the determination of a drug's AMP.

  • Excludes sales to nursing homes and discounts, rebates, or prices to PBMs (except when PBMs act as mail order pharmacies - an exception very controversial with retail pharmacies).

  • Defines many key terms for purposes of the Medicaid drug rebate program. Newly defined terms include retail pharmacy class of trade, customary prompt pay discounts, administrative and service fees, returned goods, average unit price, bona fide service fee, bundled sales, net sales, and manufacturer coupons.

  • Clarifies how manufacturers should account for price reductions and other pricing arrangements in calculating AMP.

  • Prior to the DRA, sales by a manufacturer of covered outpatient drugs below 10% of AMP were defined as "nominal sales" and generally excluded from Medicaid best price. While the final rule continues to define nominal sales as those sales at less than 10% of AMP, the best price exemption will now be limited to sales to: 340B covered entities, intermediate care facilities for the mentally retarded (ICF-MRs), and state-owned or operated nursing facilities.


    Federal%20Upper%20Limit%20on%20Drugs.jpgFederal Upper Limits:


    For twenty years, the federal rules have limited the amount state Medicaid programs may reimburse pharmacies for generic drugs. Using a Federal Upper Limit (FUL) for each affected drug product, the idea is to help ensure the government is a prudent buyer and pays close to market levels. Before the DRA, the FUL was set at 150% of the published price for the least costly therapeutic equivalent using all available national price compendia.


    However, that never worked well. Over time, the old FUL system became very costly to states and problematic for nearly everyone involved.


    As a result, the DRA changed the methodology used to establish a FUL on multiple source drugs:


  • A FUL will be established for each multiple source drug for which the FDA has rated two or more products as therapeutically equivalent, regardless of other formulations.

  • Multiple source drug now means a drug for which there is at least one other drug product rated as therapeutically equivalent.

  • FUL for multiple source drugs are now based on 250% of AMP. (Note that this has the added effect of making another powerful party - pharmacies - keenly interested in how well drug makers report their product AMPs.)

  • Outlier AMPs are excluded from the FUL calculation process. However, CMS is seeking public comments on the new outlier policy.

  • Requirements for Drug Manufacturers:


    To accomplish all these changes in AMP and FUL, the law creates new requirements for pharmaceutical manufacturers. As I discussed in an earlier post, these new requirements, when coupled with the new approach to AMP, create significant financial, operational, and compliance challenges to pharma companies.


    Most notably, pharma companies must:


  • Report pricing data to CMS on a quarterly basis, including AMP, best price, customary prompt pay discounts, and nominal price.

  • Submit monthly AMPs, calculated the same manner as the quarterly AMP, except the period is one month. Drug manufacturers must use 12-month rolling average to estimate lagged price concessions. Companies may recalculate and report their base date AMPs to CMS during the first four quarters after publication of the final rule. The rule allows manufacturers to recalculate their base date AMPs on a product-by-product basis if auditable.

  • Retain records used in calculating the customary prompt pay discounts and nominal prices reported to CMS.

  • Certify their quarterly and monthly pricing reports. Must be certified by the manufacturer's CEO or CFO or designee. (Bet they'll just love doing that.)

  • Rebates on Physician-Administered Drugs:


    Before DRA, most States did not collect rebates on physician-administered drugs. Physician drug claims typically did not contain the National Drug Codes (NDCs) necessary for state to invoice drug manufacturers for rebates. Per the DRA, the CMS rule requires states to collect NDC numbers from providers to enable rebate collection on biologics and other physician-administered drugs in Medicaid.


    This year, state Medicaid agencies must require providers to submit claims for single source, physician-administered drugs using HCPCS codes or NDC numbers that allow states to bill for rebates. Starting next year, states must require providers to submit claims for single source physician-administered drugs and 20 Secretary-specified, multiple source physician-administered drugs using NDC numbers. States that require additional time to comply may ask for a hardship waiver.

    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: June 5, 2007

    Health%20Care%20Innovation.jpgWhen it comes to innovation in health coverage, finance, and purchasing, states are the most likely innovators. The role states can play as laboratories of reform is a key advantage of our Federalist system of government. Right now, as many states find themselves in a strong fiscal condition, states are taking the lead in expanding health coverage, reforming market dynamics, and transforming Medicaid.


    As with any kind innovation, states play different roles and vary in their ability and interest in adopting a particular innovation in coverage, financing, or care delivery. Some states will play the role of genuine innovators, while others will follow the leaders. Still others will take their time and a few will lag well behind the field.


    You can see this play out in Medicaid managed care, where a few states like Wisconsin, Arizona, and Minnesota are serial innovators. Several other states follow their lead fairly quickly. And a few states, notably states like Mississippi, Illinois, and Alabama, tend to lag well behind the country.


    Studies on the diffusion of innovation may be helpful to businesses, wonks, advocates, and others as they try to understand, navigate, influence, and ultimately take advantage of state health reforms.


    Experts in the diffusion of innovation say that adopters of any particular new idea or approach can be reliably categorized into five groups:


    Innovators: About 2.5% of players (individuals, businesses, or, in our context here, states) are the true innovators. They tend to be adventurous, open to new ideas, decisive, willing to take risks, highly educated, well versed in best practices, and connected to best sources of information.


    Early Adopters: Studies say that early adopters are about 13.5% of a market. They are typically popular among their peers, smart, well educated. They are less creative, less venturesome than the innovators but are fairly decisive and like to ride the leading edge, gaining what they can from advances.


    Early Majority: About 34% are deliberate in assessing a new idea. They take their time, prefer others to take the lead in advancing business or policy, and are more informally connected to thought leaders and mavens.


    Late Majority: Late Majority players, also about 34% of population, are skeptics and traditionalists. With fewer resources, less internal expertise, and more moderate education, they are risk adverse, rather indecisive, and extremely cautious in adopting, implementing, and evaluating new ideas.


    Laggards: About 16% are true laggards, often in every sense of the word. They are highly risk adverse, isolated from best practices and their peers, and conservative by instinct. They are often not so much indecisive as they are indifferent or nonplused by decision making.


    Applying this to the world of states and health reform, we are likely to see about 3 states playing role as genuine innovators and another 7 states as quick adopters. Another 34 states will take more time, either in adopting an innovation as policy or in implementing it locally. Finally, about 8 states will likely do little or nothing. Of course, a state that is an innovator in one policy domain - like managed care - may be a follower in some other area like coverage expansion. And we should not underestimate the impact of leadership - a new governor or new Medicaid director - on moving a state from late player to innovator.


    If you are a business interested in new opportunities created by state health reforms or a trade group or advocate interested in influencing state health policies, you need to know which states are the innovators or early adopters and which are the late players or laggards. Even if you are not interested in an innovator state's local market, you need to understand that state's role in influencing what other states will do. Working closely with the innovators and early adopters can generate invaluable market intelligence and lead to unique, powerful position as reforms move across the country.


    To learn more, please visit my list of recommended reading on innovation.

    posted: March 28, 2007

    Effective%20Health%20Care%20Program.jpgNormally, $15 million a year doesn't buy you much in the federal government. A notable exception is the Effective Health Care Program at the Agency for Healthcare Research and Quality (AHRQ). Drug manufacturers, device makers, health plans, state Medicaid agencies, Wall Street analysts, physicians, and patient groups should all follow it closely.


    The Medicare Modernization Act of 2003 (MMA) authorized AHRQ to conduct and support research on outcomes, comparative clinical effectiveness, and appropriateness of pharmaceuticals, devices, and health care services. With a modest budget, a tiny but dedicated staff, and partnerships with top research institutions, AHRQ's Effective Health Care Program involves three approaches to research the comparative effectiveness of different medical treatments, drug therapies, and clinical practices:


    1. Review and Synthesize Knowledge: AHRQ's network of 12 Evidence-based Practice Centers systematically review published and unpublished scientific evidence on what is known. Given the huge volume of studies and journal articles produced every year, it is next to impossible for providers, payors, and other key decision makers to keep up and even harder for them to thoughtfully weigh the evidence. AHRQ and its research partners synthesize the science and build a meaningful evidence base.


    2. Promote and Generate New Knowledge: The DEcIDE Research Network studies new scientific evidence and analytic tools in an accelerated and practical format. DEcIDE stands for "Developing Evidence to Inform Decisions about Effectiveness." Comprised of 13 university research centers and think tanks, the DEcIDE network conducts accelerated practical studies about the comparative clinical effectiveness, safety, and appropriateness of specific health care services, drugs, and devices. In other words, what works best for patients.


    3. Compile Findings and Translate and Disseminate Knowledge to Decision Makers: AHRQ's John M. Eisenberg Clinical Decisions and Communications Science Center takes the research results and transform them into into a variety of useful, actionable formats for stakeholders (e.g., providers, payors, purchasers, patients, manufacturers). Specifically, these include (a) consumer guides (short summaries of health care research that can help with decisions about treatments), (b) clinician guides (brief evidence summaries to assist clinical decision making), (c) policymaker guides (short reports of research evidence for use in health care policy making), and (d) white papers on state-of-the-art concepts in health communication.


    The past couple years, the initiative has focused on ten priority health care conditions, selected because of their high impact on Medicare, Medicaid, SCHIP, and other federal health programs:


  • Arthritis and non-traumatic joint disorders

  • Cancer

  • Chronic obstructive pulmonary disease and asthma

  • Dementia including Alzheimer's disease

  • Depression and other mood disorders

  • Diabetes mellitus

  • Ischemic heart disease

  • Peptic ulcer disease and dyspepsia

  • Pneumonia

  • Stroke and hypertension

  • Later this year, AHRQ will entertain nominations for other priority conditions.


    Here's a sampling of the excellent work already generated. For a directory of these reports, with free access in PDF format, click here:


  • Medication Therapy Management Programs in Medicare Part D Prescription Drug Plans

  • Comparative Effectiveness of Second-Generation Antidepressants in the Pharmacologic Treatment of Adult Depression

  • Efficacy and Comparative Effectiveness of Off-Label Use of Atypical Antipsychotics

  • Comparative Effectiveness of Management Strategies for Renal Artery Stenosis

  • Comparative Effectiveness and Safety of Analgesics for Osteoarthritis

  • Comparative Effectiveness of Epoetin and Darbepoetin for Managing Anemia in Patients Undergoing Cancer Treatment

  • Effectiveness of Noninvasive Diagnostic Tests for Breast Abnormalities

  • Comparative Effectiveness of Management Strategies for Gastroesophageal Reflux Disease

  • The Effective Health Care Program has 40 other reports in the works, covering a wide range of topics. These include more comparative effectiveness reviews of specific drugs as well as tools to measure quality, reduce errors, and monitor therapies. To get notified when new research becomes available, sign up for AHRQ's email list.

    posted: March 22, 2007

    Enhancing%20Drug%20Safety.jpgThe Enhancing Drug Safety and Innovation Act of 2007 (reintroduced as Senate Bill 484), sponsored by Senator Mike Enzi (R-WY) and co-sponsored by Senator Ted Kennedy (D-MA), is worth watching as the new Congress contemplates pharmaceutical industry legislation.


    As proposed, The Enhancing Drug Safety and Innovation Act of 2007 has five components:


    1. Amends the Federal Food, Drug, and Cosmetic Act to require an application for approval for a new drug or biological product to include a proposed Risk Evaluation and Mitigation Strategy (REMS). Designed to be an integrated, flexible mechanism to acquire and adapt to new safety information about a drug, REMS would require (a) labeling for the drug for use by health care providers; (b) submission of reports for the drug; and (c) a statement as to whether the analysis and surveillance are sufficient to assess the serious risks of the drug. REMS is modeled after the risk management approach taken by the European Union.


    2. Establishes a Drug Safety Oversight Board.


    3. Requires the Secretary of Health and Human Services to establish the Reagan-Udall Institute for Applied Biomedical Research as a nonprofit corporation to advance the Critical Path Initiative to modernize medical product development, accelerate innovation, and enhance product safety. Requires the Institute to have a Board of Directors. Allows the Board to coordinate and collaborate with other entities to conduct research, education, and outreach and to modernize the sciences of developing, manufacturing, and evaluating the safety and effectiveness of diagnostics, devices, biologics, and drugs.


    4. Amends the Public Health Service Act to require the Secretary, acting through the Director of the National Institutes of Health (NIH), to establish and administer a clinical trial registry database and a clinical trial results database. Requires a responsible party for a clinical trial to submit clinical trial information to the NIH Director for inclusion in the databases.


    5. Requires each individual under consideration for a term on an FDA advisory committee providing advice or recommendations to the Secretary regarding FDA activities to disclose industry financial interests.


    To learn more, check out the Senate Committee on Health, Education, Labor, and Pensions' hearing on the bill.

    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 17, 2007

    Science%20Business%20Book%20Cover.jpgScience Business: The Promise, the Reality, and the Future of Biotech


    Summary: Why has the biotechnology industry failed to perform up to expectations - despite all its promise? In Science Business, Gary P. Pisano, Ph.D. answers this question by providing an incisive critique of the industry. Dr. Pisano not only reveals the underlying causes of biotech's problems; he offers the most sophisticated analysis yet on how the industry works. And he provides clear prescriptions for companies, investors, and policymakers seeking ways to improve the industry's performance. According to Dr. Pisano, the biotech industry's problems stem from its special character as a science-based business. This character poses three unique business challenges: (1) how to finance highly risky investments under profound uncertainty and long time horizons for R&D, (2) how to learn rapidly enough to keep pace with advances in drug science knowledge, and (3) how to integrate capabilities across a broad spectrum of scientific and technological knowledge bases.


    Business%20of%20Healthcare%20Innovation.jpgThe Business of Healthcare Innovation


    Summary: Robert Lawton Burns, Ph.D., MBA focuses on the key role of the 'producers' as the main source of innovation in this wide-ranging analysis of business trends in the manufacturing branch of the health care industry. Written by industry academics and executives, the book provides a detailed overview of the pharmaceutical, biotechnology, genomics / proteomics, medical device, and information technology sectors. Most importantly, it describes the growing convergence between these sectors and the need for executives in one sector to increasingly draw upon trends in the others.


    Overdose%20by%20Richard%20Epstein.jpgOverdose: How Excessive Government Regulation Stifles Pharmaceutical Innovation


    Summary: This book is the first to offer a comprehensive examination of the pharmaceutical industry by following the tortuous course of a new drug as it progresses from early development to final delivery. Richard A. Epstein looks closely at the regulatory framework that surrounds all aspects of making pharmaceutical products today, and he assesses which current legal and regulatory practices make sense and which have gone awry. While critics of pharmaceutical companies call for ever more stringent controls on virtually every aspect of drug development and approval, Professor Epstein cautions that the effect of such an approach will be to stifle pharmaceutical innovation and slow the delivery of beneficial treatments to the patients who need them.


    The%20New%20Medicines.jpgThe New Medicines: How Drugs are Created, Approved, Marketed, and Sold


    Today, most people use prescription medications. Every year, the multi-billion dollar pharmaceutical industry produces new medicines that treat everything from arthritis to AIDS, from high cholesterol to depression. But, despite recent controversies regarding the safety of drugs, consumers know little about the medications that they ingest and inject. How are these new medicines invented? How do consumers know that drugs are safe and effective? How are they tested? Who regulates their production - and who watches the regulators? How do drug companies produce the vast quantities needed for the marketplace, and why do they market their drugs as they do? The New Medicines (by Bernice Schacter, Ph.D.) leads the reader through the maze of the modern drug industry - from bench to bedside - and provides consumers with a step-by-step understanding of how new medicines are created, approved, marketed, and sold.


    Inside%20the%20FDA.jpgInside the FDA: The Business and Politics Behind the Drugs We Take and the Food We Eat


    Because of the importance of what it regulates, the FDA comes under tremendous political, industry, and consumer pressure. But the pressure goes far beyond the ordinary lobbying of Washington trade groups. Its mandate - one quarter of the national economy - brings the FDA into the middle of some of the most important and contentious issues of modern society. From "designer" babies and abortion to the price of prescription drugs and the role of government itself, Inside the FDA takes readers on an intriguing journey into the world of today's most powerful consumer agency. In a time when companies continue to accuse the FDA of nitpicking and needlessly delaying needed new drugs, and consumers are convinced that the agency bends to industry pressure by rushing unsafe drugs to market, Inside the FDA digs deep to reveal the truth. Through scores of interviews and real-world stories, author Fran Hawthorne (senior contributing editor of Institutional Investor) also shows how and why the agency makes some of its most controversial decisions as well as how its recent reaction to certain issues - including the revolutionary cancer drug Erbitux, stem cell research, and bioengineering of food - may jeopardize its ability to keep up with future scientific developments.


    More Excellent Books on Pharma and Biotech:


    For additional reading on the pharmaceutical industry, biotechnology, and prescription drug issues, please check out my recommended reading lists:


  • Pharmaceutical Industry Bookshelf
  • Pharmaceutical Marketing
  • Drug and Medical Device Regulation
  • Drug Discovery and Development

  • Best Blog on FDA and Pharma Industry Communications:


    For insightful, industry-savvy advice on the FDA, drug regulation, and pharma strategic communications, please visit Eye on FDA - the excellent blog by my friend and colleague Mark Senak, JD, senior vice president at Fleishman-Hillard.


    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 14, 2007

    Medicare%20PPS%20Book%20Cover.jpg
    When asked about health care innovations, especially practices directed at controlling costs, most policymakers and wonks point to private sector solutions, such as the cost-constraining effects of HMOs in the 1990's or today's ideation of consumer-directed health plans. But is this conventional wisdom wrong? What about public sector health policies, most notably in Medicare or Medicaid?


    In a fascinating new book, two top thought leaders show how a powerful and complex Medicare payment formula led to fundamental changes across the health care system, facilitating a dramatic power shift from providers (hospitals and physicians) to buyers (Medicare, Medicaid, and employers).


    Influence of Medicare PPS on U.S. Health System:


    In Medicare Prospective Payment and the Shaping of U.S. Health Care, Rick Mayes, Ph.D. and Robert A. Berenson, M.D. describe how Medicare's transformation from retrospective, cost-based payment methods to prospective payment systems (PPS) "both initiated and repeatedly intensified the economic restructuring of the U.S. health care system." In addition to providing a thoughtful history of Medicare PPS from a research concept to the single most powerful financial driver in health care, Drs. Mayes and Berenson make the case that the public sector has been the major innovator.


    In building their case and exploring how PPS works in the real world, they interviewed 65 health financing experts, including several former CMS administrators. Bob Berenson and Rick Mayes do a nice job challenging conventional wisdom, which in health policy is always a good thing.


    Earlier in my career, I cut my teeth on PPS at the White House Office of Management and Budget, where my scope included Medicare Part A and hospital reimbursement policy. Therefore, for me, Medicare Prospective Payment and the Shaping of U.S. Health Care made for a particularly intriguing read. But you don't need to be a Medicare wonk to understand and benefit from this crisp, well-written book.


    Prospective Payment Systems in a Nutshell:


    Medicare%20PPS%20in%20Nutshell.jpgOld style cost-based or retrospective systems are inherently inflationary, reward inefficient providers, and reimburse largely for factors unrelated to the patient. In a nutshell, prospective payment is based on reimbursing health care providers for factors outside their control - notably the diagnosis and other relevant characteristics of the patient and outside, industry-wide factors like inflation and geographic variation in wage rates.


    Under a prospective payment system (PPS), a provider receives a fixed payment to cover an episode of care during a period of time. The payment formulas are highly complex, with many adjustments to address everything from outliers, teaching-related costs, and uncompensated care to more purely political issues. The idea is to set the bundled, prospective payment on what it costs an efficient provider to serve the patient. The efficient players make money; the inefficient lose money.


    Every year, rates are modified to reflect inflation or technical refinements. However, annual increases are often driven by federal budget constraints or attempts to moderate provider profit margins. Also, because PPS is about promoting economic efficiency, payments have little to do with quality of care or patient safety - hence, recent interest in adding elements of Pay for Performance (P4P) into the system.


    Medicare began using the PPS approach for inpatient hospital services in 1983-84. Through a series of Congressional changes, PPS-based approaches are now used in Medicare to pay outpatient hospital services, skilled nursing facilities, home health agencies, and hospice organizations. While each provider type has its own kind of prospective payment method, the concept is the same. Prospective payment is also used heavily by state Medicaid programs and employer-sponsored health plans.

    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: December 27, 2006

    Medicare%20Policy%20Primer.jpgMedicare is a study in contrasts. In its financing, the program is modeled as what health wonks call "social insurance," which in reality is a euphemism for a politically effective but fiscally troubling mix of social welfare, health insurance, and cross-generational income transfers. Limited in coverage, slow to add coverage of new technologies, and often high in cost sharing, Medicare often cost-shifts to state Medicaid programs. While relatively cheap for the government to administer, Medicare is astonishingly complex, placing providers, supplies, health plans, and patients under a mountain of red tape.


    In Medicare: A Policy Primer, Dr. Marilyn Moon - a respected researcher, former Medicare trustee, and one of the nation's leading Medicare policy gurus - "explains what Medicare is, how it works, and where is it headed." In this excellent introduction, Dr. Moon outlines the history of Medicare, taking readers from the program's origins in 1965 and the Great Society to today. The Medicare primer also walks readers through how the massive $370 billion program works in relation to the rest of the U.S. health care system and other federal programs.


    While Dr. Moon is an unrepentant fan of Medicare and takes a decidedly Liberal, pro-entitlement approach to health policy, she takes pains to provide a thoughtful, balanced discussion of Medicare's key strengths and failings. She also debunks some lingering myths and assesses several of the more popular Medicare reform options.


    Marilyn Moon, Ph.D. is currently vice president and director of the health program at the American Institutes for Research.


    Published by Urban Institute Press, Medicare: A Policy Primer is available on Amazon.com here or direct from Urban Institute Press.


    To learn more about Medicare, please check out my list of recommended Medicare books.

    posted: December 18, 2006

    DRA%20Changes%20to%20AMP%20and%20Best%20Price.jpgIn the Deficit Reduction Act (DRA), Congress made a series of significant changes to pharmaceutical pricing, Medicaid best price rebates, and Medicaid payments to pharmacies for prescription drugs. The new policies, which are expected to save the feds and states $8.4 billion over the next five years, create major challenges to both pharmaceutical manufacturers and pharmacies.


    DRA Drug Pricing Changes in a Nutshell:


    While the DRA has many moving parts, in general the new policies will:


    1. Drive more Medicaid drug spending toward generics and reduce the market advantages of authorized generics.


    2. Make Average Manufacturer Price (AMP) - a key measure of drug prices in the marketplace and the metric used in determining Medicaid rebates - transparent to the public. Previously, AMP was confidential and known only to government officials.


    3. Lower AMP on many prescription drugs, putting drug makers under increased cost pressures and increasing Medicaid rebates to states.


    4. Increase the compliance risks of drug manufacturers.


    5. Reduce Medicaid reimbursement to pharmacies.


    6. Put another nail in the coffin of Average Wholesale Price (AWP) by moving Medicaid pharmacy reimbursement systems from AWP to AMP.


    Federal Proposed Rules:


    DRA%20Drug%20Rules.jpgToday, the Centers for Medicare and Medicaid Services (CMS) released proposed rules on implementing the DRA drug pricing policies. Final rules are expected in June 2007.


    However, because key provisions are effective on January 1, 2007, pharma companies must come into compliance based on incomplete guidance and be prepared to make major changes again this summer.


    DRA Changes to Average Manufacturer Price (AMP) and Medicaid Best Price:


    The law requires significant changes to how drug manufacturers calculate Average Manufacturer Price (AMP) and Medicaid Best Price (BP), reducing the market power of some key price concessions used by manufacturers:


  • AMP must exclude prompt pay discounts to wholesalers.

  • Fewer nominal price arrangement excluded from BP calculation.

  • Authorized generics are included in calculation of AMP and BP.

  • Drug sales to children's hospitals are now exempt from BP calculation.

  • Drug manufacturers must report AMP on a monthly basis starting January 2007. More importantly, average manufacturer prices on all drugs will publicly posted on CMS' website starting Spring 2007 after CMS resolves some data and systems issues. Previously, reporting was quarterly and confidential by law.


    DRA also mandates significant changes to the federal upper payment limit (FUL) for multiple source drugs. The feds are widening the definition of what is a multiple source drug and setting FUL at 250% of AMP. Previously, FUL was set at 150% of the Average Wholesale Price (AWP). This will further increase pricing pressure on brand drugs when generics are available.


    Operational Challenges of DRA for Pharmaceutical Industry:


    Challenges%20to%20Pharma%20Industry.jpgThe drug industry faces many practical, operational challenges in meeting the new requirements for 2007:


    1. Incomplete federal guidance. Until the final rules arrive, the drug industry must implement the DRA changes with limited federal guidance. Key factors still unclear include class of trade designations, treatment of administrative and service fees, adjusting for lagged price concessions and returned goods, correcting and restating AMP, and a variety of baseline AMP issues.


    2. Moving from quarterly to more complex monthly reporting, plus adjusting for each month's transactions.


    3. Adapting data, systems, staff, and reporting to accommodate different pricing methodologies required by CMS. For example, calculating and reporting AMP under Medicaid vs. calculating and reporting Average Sales Price (ASP) under Medicare Part B.


    Financial Challenges of DRA for Pharmaceutical Companies:


    The new DRA policies also pose significant financial challenges for pharma companies. For example:


  • Transparency of AMP (and ASP) will substantially increase pricing and political pressures.

  • Frightening but inevitable expansion of regulated drug pricing by government (Dr. Faust, please call your office).

  • Increased pressure on brand-name drugs and authorized generics and further fuel for market shift to generics.

  • More parties now have strong financial interest in AMP - especially pharmacies.

  • Impact of exclusion of prompt pay discounts, most nominal pricing, and other class of trade discounts.

  • Major investment in systems, data, compliance, legal, and PR resources.

  • Compliance Challenges of DRA for Drug Manufacturers:


    The DRA changes present new or expanded compliance challenges for drug manufacturers. Given the frequency, changes, and overall complexity, there are many ways to inadvertently screw up federal reporting. Ensuring compliance will require heavy reliance on other parts of company and on external partners. Transparency of pricing will likely lead to new regulations, audits, and Congressional hearings. Finally, while over time DRA reporting may make it easier to defend against suits, companies should expect dramatic increase in whistleblower suits under federal and state False Claims Acts.


    Learn More:


    For the DRA statutory changes affecting drug pricing, click here (PDF).


    For the proposed rule, click here (PDF). For CMS' fact sheet on the proposed rule, click here (PDF).


    Read the OIG's recommendations to the HHS Secretary on DRA implementation issues. The OIG report includes useful background information.


    For more information or a briefing, feel free to contact me.

    posted: December 9, 2006

    Negotiating%20Drug%20Prices.jpgThere's a lot of truth in the old joke about the problem with Republicans and Democrats: Republicans need a heart and Democrats need a brain. As Democrats prepare to take control of Congress, they appear eager to prove the joke by pursuing legislation to require government "negotiations" on prescription drug prices in Medicare Part D.


    The idea has emotional appeal, so let's see if there is any evidence to support the idea. (If you come from the Bumper Sticker School of Health Policy, stop here. The facts will only confuse you and don't easily make for emotive talking points.)


    Non-Interference Requirement in MMA:


    Price%20Negotiations.jpgIn the Medicare Moderation Act, the massive 2003 legislation that created the Medicare Part D drug benefit among other Medicare reforms, Congress prohibited the Centers for Medicare and Medicaid Services (CMS) from interfering with drug pricing in the competitive market. Part D prescription drug plans - Medicare Advantage drug plans (MA-PDs) and prescription drug plans (PDPs) - would battle among themselves to cut the best deals with pharmaceutical manufacturers and pharmacies and openly compete for enrollees.


    The statute at controversy, found at section 1860D-11(i) of the Social Security Act, is short and sweet:


    (i) NONINTERFERENCE. In order to promote competition under this part and in carrying out this part, the Secretary:

    (1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors; and

    (2) may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.


    Estimated Savings of Federal Drug Price Negotiations:


    Drug%20Savings%20Unlikely.jpgSupporters of federal staff negotiating drug prices argue that it would generate billions of dollars in savings for taxpayers and seniors. However, the Congressional Budget Office (CBO) - the highly respected, non-partisan fiscal advisor to both houses of Congress and the agency that officially scores the cost and savings of all legislative proposals - agrees with top health economists and Medicare experts that federal price negotiations will save precisely zip.


    Following passage of MMA, Senate leaders asked CBO to examine the effect of striking the 'noninterference' provision. CBO reported:


    We estimate that striking that provision would have a negligible effect on federal spending because CBO estimates that substantial savings will be obtained by the private plans and that the Secretary would not be able to negotiate prices that further reduce federal spending to a significant degree. Because they will be at substantial financial risk, private plans will have strong incentives to negotiate price discounts, both to control their own costs in providing the drug benefit and to attract enrollees with low premiums and cost-sharing requirements.


    CBO was then asked if the federal government could save anything if CMS centrally negotiated prices with makers of single-source drugs. (Single-source prescription drugs are brand-name drugs that have no generic equivalent on the market and are generally available from only one manufacturer.) Again, CBO concluded that savings are unlikely, unless of course federal officials are willing to play hardball and restrict patient access to therapeutically unique drugs until the manufacturers agree to government price demands:


    Most single-source drugs face competition from other drugs that are therapeutic alternatives. CBO believes that there is little, if any, potential savings from negotiations involving those single-source drugs. We expect that risk-bearing private plans will have strong incentives to negotiate price discounts for such drugs and that the Secretary would not be able to negotiate prices that further reduce federal spending to a significant degree.


    Nevertheless, there is potential for some savings if the Secretary were to have the authority to negotiate prices with manufacturers of single-source drugs that do not face competition from therapeutic alternatives. Private plans offering a prescription drug benefit to Medicare beneficiaries will have less leverage in negotiating discounts for drugs without therapeutic alternatives than they have in price negotiations for drugs that do face such competition. (In that regard, the Medicare plans will be no different than private health plans that offer prescription drug coverage to other populations.)


    Under current law, there already are significant pressures that limit the prices that manufacturers charge for drugs - whether those drugs face competition from therapeutic alternatives or not. Those pressures include the prospects that plans will not cover a drug (or will substantially limit the amount they pay for a drug) and that manufacturers will provoke a backlash (potentially including legislation) if they set prices too high. Moreover, the creation of the Medicare drug benefit has given federal officials greater opportunity and incentive than under prior law to bring pressure on manufacturers - for example, by influencing public opinion and policy makers--if the prices that manufacturers set for single-source drugs that are not subject to competition from therapeutic alternatives are perceived as being too high. Giving the Secretary an additional tool--the authority to negotiate prices with manufacturers of such drugs - would put greater pressure on those manufacturers and could produce some additional savings.


    Ample Evidence Against Federal Drug Price Negotiations:


    Not only would federal price negotiations save little or nothing compared to the increasingly competitive private marketplace, there are host of other arguments against the idea.


    In a fascinating new study - The Human Cost of Federal Price Negotiations: The Medicare Prescription Drug Benefit and Pharmaceutical Innovation - Benjamin Zycher, Ph.D., an economist and senior fellow at the Manhattan Institute's Center for Medical Progress, carefully "estimates the impact that federal negotiation of prescription drug prices would have on pharmaceutical research and development (R & D) investment through 2025."


    Dr. Zycher concludes that, while federal price negotiations could save some Medicare dollars, "the longer-term human costs of government price-negotiation...are likely to be large and adverse." Most notably, the data show government mandated negotiations would dramatically reduce the development of new, life-saving drugs (about a dozen annually), resulting in "...a loss of 5 million expected life-years annually, an adverse effect that can be valued conservatively at about $500 billion per year, an amount far in excess of total annual U.S. spending on pharmaceuticals."


    In Compromising Quality: The High Cost of Government Drug Purchasing, Edmund F. Haislmaier provides a crisp, devastating critique of the idea of federal drug price negotiations. He disects the core myths and outlines how it would only serve to threaten quality and access.


    Proponents of government price negotiations assume that Medicare has more bargaining leverage than the private sector. In Why the New Congress Should Not Fix Drug Prices, researcher Greg D'Angelo does a nice job dismantling this faulty assumption.


    Wait, It Gets Worse:


    VA%20Drug%20Formulary.jpgMany advocates of federal negotiations point to the VA's prescription drug program as an example of how to reduce drug prices. As I have explained to many audiences, comparing the VA approach to Medicare Part D is not even an apples to oranges comparison. It's more like comparing apples and poodles - and makes as much sense.


    A groundbreaking study, by Frank R. Lichtenberg, Ph.D. of the Columbia School of Business, should put such comparisons to rest. In Older Drugs, Shorter Lives? An Examination of the Health Effects of the Veterans Health Administration Formulary, Dr. Lichtenberg shows the VH approach is not about prices or genuine negotiations. With the VA's tight budget, it is all about restricting veterans' access to new (and many old) medications to save dollars and hit budget targets.


    The VA's highly restrictive national formulary excludes 62% of drugs approved by the FDA during the 1990's and 81% of new medications approved since 2000. Even worse, the drug benefit designed for our nation's veterans does not pay for a staggering 78% of new, high-priority prescription drugs approved by the FDA on an expedited basis since 1997 because of their life-saving impact. By comparison, commercial health plans, Medicare Part D drug plans, and state Medicaid programs cover the vast majority of new drugs and move quick to add coverage for most drugs given fast-track by the FDA.


    Dr. Lichtenberg's 2005 study shows that the VA's prescription drug system - seen by many as the "model" for Medicare Part D - reduced the life span and survival rates of vets since its 1997 introduction. Note to Congress: Death is always cheaper than life but rarely preferable.


    Recap:


    Dangers%20of%20Price%20Controls.jpgSo, let's recap. Even putting aside the dangers of a massive increase in government power, fact it would dramatically reduce consumer and physician decision making, fact it would shift costs to other payors, and fact it would inevitably lead to economically disastrous price controls, the federal government negotiating drug prices will likely save little or nothing - unless Congress wants to severely restrict patient access to new and existing medications, thereby shortening lives, reducing quality of life, and increasing costs well beyond any savings. And that's if it's even feasible for CMS to do it. Trust me, it's not.

    posted: October 17, 2006

    Medicaid%20Provider%20Tax%20Debate.jpgThe Bush Administration remains intent on issuing new regulations to implement several Medicaid budget cuts proposed in the President's FY 2007 budget last February. Most notably, the Administration wants to reduce state use of provider taxes by capping assessments at three percent, instead of the current six percent. This could be done by mandating that states phase down state provider assessment rates over three to five years.


    The current six percent cap was set in federal rules 14 years ago. Provider assessments, commonly a tax on hospitals or nursing homes, generate revenue for many state treasuries. These tax receipts are then matched with federal dollars, thereby doubling or even tripling or more the dollars available. That is, depending on the state's federal Medicaid matching rate, one dollar raised from a provider tax can ultimately generate anywhere from two dollars to nearly five dollars in new Medicaid funding.


    The total is used in Medicaid to fund provider rates increases and other state Medicaid budget priorities. In 1991, Congress enacted limits on state use of provider taxes to generate federal Medicaid funds. In 1992, federal rules imposed a six percent cap on assessment rates, with any tax higher than six percent presumed to be out of compliance.


    Cutting the maximum assessment in half would reduce federal Medicaid funding by about $6 billion and create big budget holes for affected states. The Administration has drafted the rule but is expected to wait until after the election to publish it, if then. While CMS and the White House are interested in the federal savings such a rule would generate, they are even more interested in the leverage it would provide over states. Specifically, it would encourage more states to come to the table and make deals for major Medicaid reforms using section 1115 waivers.


    A majority of House members and many in the Senate are opposed to the proposal. Therefore, there's a chance the Congress may block, at least temporarily, any rule to cut state use of provider taxes. As part of the annual appropriations bill for the Departments of Health and Human Services, Labor, and Education, the House Appropriations Committee included a provision prohibiting CMS from issuing the rule during FY 2007.


    Because getting a statutory change is so difficult, riders to appropriations bills are another way to stop an Administration action. If passed, such a rider makes it illegal for CMS to spend any staff time issuing or enforcing a particular policy during that fiscal year.


    The full House plans to take up the Labor-HHS-Education appropriations bill in November. However, the Senate would need to agree to the language and there is a good chance the entire appropriations process could fall apart after the election.


    Meanwhile, the Senate Appropriations Committee passed its version the Labor-HHS-Education funding bill for FY 2007. In it, they included a provision asking CMS to hold off issuing new rules curtailing the ability of schools to claim Medicaid payments for administrative and transportation services for children with disabilities. The Committee wants HHS to study the possible impact of proposed cuts to school-based services, with a report on March 1, 2007. They want CMS to take no action until the Committee reviews the study.


    Congress will try to resume the appropriations process after the election. But the two chambers will need to pass their respective versions of the Labor-HHS-Education bill and then resolve differences in a conference. And, given the political environment, that may be tough.

    posted: October 17, 2006

    Early%20Look%20at%20FY%202008%20Budget.jpgCongress may be in recess but the Bush Administration is already busy developing the President's budget for FY 2008. With federal tax receipts coming in at a rate much higher than expected, some in the Administration see a window of opportunity to propose a budget that would eliminate the federal deficit in three or four years. However, even with rosy figures for economic growth, a balanced budget would require dramatic reductions in current levels of Medicaid and Medicare spending.


    Sources tell me that the Bush Administration is looking - albeit carefully - at proposing a series of Medicaid and Medicare budget cuts as part of the President's FY 2007 budget submission to Congress this February. The bulk of the specific details will be ironed out late this fall but we do know that Administration budget writers have not given up on their eagerness to reduce significantly federal outlays for health programs.


    But it's still very early. At this point, the budgeteers are running scenarios and crafting options for internal briefings later this fall. With Medicaid spending growth at its slowest pace in a decade and Medicare spending seen by many as a much bigger fiscal problem, the White House may ultimately decide to focus on Medicare reforms.


    Of course, with a few exceptions, any proposals in the President's budget will require Congressional approval. And right now, Capitol Hill has no stomach for major cuts to either Medicaid or Medicare. If Democrats take control of the House, which looks increasingly likely according to the latest polling figures, you can expect a genuine battle royale, as the two parties position for the 2008 presidential election.

    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: August 3, 2006

    Medicaid%20Transformation%20Grants.jpgIn the Deficit Reduction Act (DRA), Congress authorized the new $150 million Medicaid Transformation Grant Program to help states design and implement reforms to increase quality and efficiency of Medicaid. This is a unique opportunity to help states restructure and modernize Medicaid, save taxpayer dollars, and improve services. But states must act fast to take advantage.


    State Medicaid agencies may submit grant proposals to CMS by September 15, 2006. For grants, CMS has a total budget of $75 million in FFY 2007 and another $75 million in FFY 2008. The amount of each grant will vary and will depend on the number of applications received. State matching funds are not required.


    While states have wide discretion in proposing projects and may propose multiple projects in a single grant application, CMS is encouraging states to look at ways to improve Medicaid program operations and efficiency.


    In the area of improving Medicaid program efficiency, CMS is particularly interested in grant projects to:


  • Reduce waste, fraud, and abuse under Medicaid.

  • Improve collection rates in Medicaid estate recovery programs.

  • Reduce Medicaid prescription drug spending, especially for high cost drug categories, through education, incentives, and greater use of generic drugs.

  • CMS is also interested in projects to improve the effectiveness of Medicaid. Examples include projects on:


  • Reducing medical error rates and improving patient safety.

  • Advancing the use of electronic health records, clinical decision support tools, e-prescribing programs, and other system improvements.

  • Improving coordination of care through care management programs and other efforts to prevent complications and avoid duplicative or unnecessary services.

  • Pay for performance (P4P) programs or other performance-based incentives to reward and support high quality, evidenced-based care.

  • In the arena of improved care delivery, CMS is particularly interested in grant proposals to:


  • Promote personal control over services, with greater emphasis on prevention steps.

  • Improving access to primary and specialty physician care for the uninsured using integrated university-based hospital and clinic systems.

  • This is a unique, one-time opportunity for states but, with grant applications due in six weeks, the timeline is tight. States needing help or advice in writing an application may contact me or my friends at Sellers Feinberg for assistance.

    posted: July 13, 2006

    Medicaid%20Budget%20Projections.jpgThe White House Office of Management and Budget (OMB) released new Medicaid spending projections, showing a significantly lower rate of growth. Nationally, while federal Medicare costs continue to rise dramatically and far faster than medical inflation, Medicaid spending growth has moderated considerably.


    Twice each year, OMB releases its latest projections of federal revenues and expenditures. Projections are announced in February as part of the President's proposed budget and updated in July as part of what's called the Mid-Session Review. Falling in the middle of each year's Congressional session, the Mid-Session Review gives Capitol Hill the Administration's latest fiscal projections.


    For Medicaid, OMB works with CMS budget staff and actuaries to update estimates of federal Medicaid spending in the current fiscal year and for the next five years. They rely heavily on spending estimates and enrollment reports prepared by state Medicaid agencies.


    From FY 2002 through FY 2005, the federal share of Medicaid grew at an average annual pace of 7.2 percent. Federal Medicaid spending is now expected to grow by a modest 1.8 percent this year (FY 2006) and by 4.6 percent in FY 2007.


    Compared to earlier estimates, aggregate federal spending on Medicaid is now expected to be 8 percent lower. Specifically, the new projections of federal Medicaid spending for FY 2007 through FY 2016 are $53.3 billion lower than the projections contained in the President's 2007 Budget.


    Naturally, Medicaid spending growth varies widely from state to state. However, 16 states now expect to spend less on Medicaid this year than last year. States with flat or negative Medicaid spending growth this year include Georgia, Maryland, Michigan, New Hampshire, Nevada, South Carolina, South Dakota, Texas, and Wisconsin. Medicaid spending in large states - most notably Florida and California - continues to grow but at a much lower pace.


    While some of this slowed growth in the federal share of Medicaid is an artifact of the shift of prescription drug benefits for dual eligibles from Medicaid to Medicare Part D, slower spending growth is a byproduct of a variety of factors. These include improved economic conditions, cost containment initiatives, new waiver-based programs, greater use of private health plans, increased use of generic drugs, and the steady shift away from nursing homes to home and community-based programs.


    As we reported earlier, CMS is considering new rules to restrict state use of provider taxes and cut back on Medicaid payments to publicly owned providers and facilities. The new OMB figures give states, provider groups, and advocates new ammunition to oppose this and other Bush Administration efforts to cut federal Medicaid spending. It also highlights the effectiveness of state-based initiatives to reform Medicaid - that is, reforms that are initiated by states themselves but with federal support and cooperation.


    While OMB's new Medicaid projections are good news for states and the feds, the new Medicare projections show faster spending growth in Medicare Part A and Part B. The five-year cost estimate for Medicare Part A (inpatient hospital and post-acute care) is $17 billion higher. The five-year cost estimate for Medicare Part B (physician and other outpatient services) is $30 billion higher. The jump in Medicare Part A and Part B growth rates are largely attributable to rapid increases in per capita use of services.


    However, because of stiff price competition among drug plans and a slower than expected sign-up rate, the five-year cost estimate for Medicare Part D is $34 billion lower than the projections last February. For FY 2006 through FY 2016, the projected cost of the new Medicare drug benefit is $76 billion lower.


    Medicare's high growth rate increases pressure on Congress and the White House to reform Part A and Part B. In addition to putting greater pressure on the federal budget, higher Medicare costs also mean big, politically tough jumps in beneficiary cost sharing (e.g., the 11% increase in Part B premiums for 2007). And of course, state Medicaid programs are on the hook to pay for Medicare cost sharing for dual eligibles and other low-income Medicare beneficiaries. Bottom line: because so much of state Medicaid budgets are now driven by the health care costs of dual eligibles, higher Medicare costs and utilization can increase state Medicaid costs.


    For better or worse, a byproduct of Medicare's problems may be to divert attention from Medicaid inside the Beltway. However, federal money is fungible (especially in the hunt for budget savings) and states continue to press for greater flexibility. For many on Capitol Hill and in the Bush Administration, fiscal frustrations with Medicare are part of larger frustrations with federal entitlements. So even with slow growth in the near-term, Medicaid remains in the spotlight.

    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 10, 2006

    Medicaid%20Budget%20Cuts.jpgThe Bush Administration is preparing regulations to cut federal Medicaid funding to states by about $6 billion.


    In the President's budget for FY 2007, the Bush Administration proposed a series of Medicaid budget cuts. Most of these would require legislation and the House and Senate have shown no desire to cut federal Medicaid spending in advance of the November election. However, Administration officials have signaled their intention to proceed with several billion dollars of Medicaid cuts that can be implemented by regulation.


    Specifically, the Bush Administration is eager to (1) restrict state use of provider taxes and (2) cap Medicaid reimbursement to publicly owned hospitals and nursing homes. Together, these changes would reduce federal funding to state Medicaid programs by about $6 billion - perhaps more - over the next five years.


    Currently, many states use provider taxes to help fund Medicaid costs. Revenues received from these assessments - usually on nursing facilities or hospitals - can then be matched with federal funds and used to pay providers. Depending on the state's federal matching rate (which range from 50% to nearly 80% based on the state's per capita income), each dollar of provider tax revenue can in turn generate another $1 to $4 in federal dollars for use in Medicaid.


    Since 1991, federal law has limited state use of provider taxes. Most notably, Medicaid provider tax programs must be broad based, applied uniformly across all health care providers in the same class, and not hold providers harmless for tax payments. (For specific federal requirements, see section 1903[w] of the federal Social Security Act and 42 CFR 433.68.)


    Federal rules also say that taxes imposed on providers may not exceed six percent of a provider's total revenues. The Bush Administration wants to phase down the allowable provider tax rate from 6 percent to 3 percent. This would reduce federal Medicaid funding to states by about $2.1 billion over five years. Because it would also end up to half of state provider assessment revenues, the fiscal hit on states and Medicaid would be magnified by a billion dollars or more.


    The feds are also eager to refine rules to cap Medicaid payments to government-owned providers to no more than the cost of providing services to Medicaid beneficiaries. Projected to cut federal Medicaid spending by $3.8 billion over five years, the change would hit many large public hospitals particularly hard. Federal officials believe that some states pay government owned providers more under Medicaid in order to cross subsidize other state and local costs. However, states and advocates counter by showing how Medicaid funding helps cover fiscal demands of the uninsured and keep key facilities operating.


    Adding to state concerns, federal officials may implement the cuts by bypassing the traditional proposed rule process. In most cases of federal rulemaking, agencies start by publishing a proposed rule and reviewing comments before publishing a final rule. To implement the changes to provider taxes and payment of publicly provided facilities, the Centers for Medicare and Medicaid Services (CMS) wants to issue final rules with comment. While states and other interested parties could still send in comments, the cuts would take effect without further rules. From the federal perspective, the contemplated changes are "clarifications" of policy and therefore don't warrant proposed rules.

    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: 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 20, 2006

    Transparency%20of%20Medical%20Prices.jpgIt is an immutable truth of economics. Transparency is an essential ingredient for a market to function with any semblance of efficiency or effectiveness. Lack of transparency - what economists call asynchronous information - leads to rapid inflation, gross inefficiency, gaming and abuse, ignorant consumers, poor quality, rampant error rates, and misaligned resources. In other words, you get America's $1.9 trillion health care system.


    After years of behind the scenes work by top health care thought leaders, the White House and key Congressional leaders are jumping on board and calling for reforms to ensure transparency (read public reporting) of health care provider prices. While prices are only part of the information needs of patients, purchasers, and payors, nationwide transparency of medical prices is essential. Health Savings Accounts and other consumer-driven health reforms such as Medicaid Health Opportunity Accounts are largely pointless in a health care system otherwise rooted in incomplete, inaccurate, and inaccessible information.


    As leaders contemplate specific measures to promote transparency of prices, they should also consider sending every Medicaid and Medicare beneficiary a quarterly report on the cost of their care. (I am not talking about Explanation of Benefits [EOB] notices. EOBs don't give a picture of their overall costs or utilization and offer no comparative, trend, or historical information.)


    Using simple, colorful charts and tables and an emphasis on decision relevant information, a well-designed report would show them what care they received, what providers charged, what public programs paid, how much they paid in cost sharing, and how their medical costs compare to their peers (age group, sex, health status, and geography).


    For Medicare beneficiaries, the reports could help bust a core myth of Medicare financing by showing what Medicare has paid for their care compared to what as an individual they paid in Medicare taxes and cost-sharing to date. In Medicaid, the reports would be invaluable to state efforts to move toward consumer-directed models where chronically ill or disabled patients and their families take active control of their medical lives. It would also help low-income families better understand the health care system. For dual eligibles - the 6.3 million Americans with annual health costs of a quarter trillion dollars - these personalized reports would be truly eye opening for patients and their families.


    Over time, the reports could help Medicaid and Medicare beneficiaries see how their providers, health plans, and drug plans compare on measures of quality, errors, and cost effectiveness. And they could include simple health reminders.


    Of course, not every benie would read the reports much less change their behavior based on the information. But the vary act of creating the reports would require Medicare and Medicaid to modernize information systems, turn transaction data into genuine decision-relevant information, and begin thinking of program beneficiaries as consumers in need of more than monstrously dull doorstops masquerading as handbooks.


    Americans, including Medicaid and Medicare beneficiaries, are not stupid. But when it comes to health care costs, they are too often ignorant or oblivious. That must stop. Yes, there is a learning curve and some people prefer the bliss of ignorance to the dilemmas of judgment. Nonetheless, as consumers, as Americans, as human beings we are entitled to the information we need to make decisions. Keeping Medicare and Medicaid beneficiaries and their families in the dark is as costly as it is insulting.

    posted: March 16, 2006

    Competitive%20Acquisition%20Program.jpgComing on the heels of Medicare Part D and the new Part B drug-pricing schema based on Average Sales Price (ASP), the new Competitive Acquisition Program (CAP) for Medicare Part B drugs and biologics represents yet another major change to the pharmaceutical supply chain. While it is too early to reliably predict the impact or even viability of CAP, it's critical for players to understand the initiative. Ultimately, CAP may have a dramatic impact on drug manufacturers, distributors, physicians, and beneficiaries.


    Road to Average Sales Price (ASP):


    While Medicare Part B drug coverage is complex, generally speaking Part B drug coverage is limited to physician-administered drugs and therefore primarily injectibles. Prior to the Medicare Modernization Act of 2003, Medicare reimbursed physician offices for Part B drugs based on percentages of Average Wholesale Price (AWP). Physicians would buy what they need, administer drugs to patients as necessary, charge beneficiaries for their deductible and 20% Part B co-payment, and bill Medicare for the drug and the office visit.


    This approach was widely criticized by MedPAC, GAO, and the OIG as well as outside experts. Under the AWP-based system, Medicare drug payments were far higher than other payors. It also meant higher patient co-payments. However, in fairness to physicians, in many ways the higher drug reimbursement helped make up for Medicare's below-market office visit rates.


    Under MMA, Congress changed that way Medicare reimburses physicians for drugs and biologics covered under Medicare Part B. Since January 2005, Medicare reimburses physicians using a new formula based on Average Sales Price (ASP). For most Part B drugs, physician offices are now paid 106% of ASP.


    In brief, ASP is what a pharma or biotechnology company makes on a given product, net of rebates and other price concessions. The Centers for Medicare and Medicaid Services (CMS) calculates ASP using net sales data provided by drug makers. Medicare adds 6% to help cover physicians' costs of buying, storing, and billing. The new ASP-based payment system results in substantial savings to Medicare but of course also lower revenues for physicians.


    Basics of the Competitive Acquisition Program (CAP):


    Starting in July 2006, physicians will have an alternative to buying and billing for Part B drugs and ASP-based payment. The upcoming Competitive Acquisition Program (CAP) will give physicians the option of obtaining most Part B drugs needed by Medicare patients from vendors selected by CMS. Medicare physicians may elect to participate in CAP on an annual basis.


    The CMS-approved vendors, selected through competitive bidding, will negotiate with manufacturers, buy and distribute supplies to physicians, bill beneficiaries for any applicable deductible and coinsurance, and bill Medicare's designated national carrier for drug costs. The carrier will pay the CAP vendor after verifying that the physician administered the drug. To do this, the carrier will match the CAP vendor's claim for the drug with the corresponding physician claim for drug administration. Following this verification, the CAP vendor will bill the beneficiary (or the beneficiary's Medigap policy or other third party insurance) for applicable cost sharing.


    For the Part B drug categories they have selected, physicians opting for CAP will receive all of those drugs (used for Medicare patients) from the approved CAP vendor. Physician offices participating in CAP will continue to bill Medicare as usual for the drug administration fee and other office fees.


    Under certain conditions, a participating CAP physician may provide a drug to a Medicare beneficiary from his or her own stock and obtain the replacement drug from the CAP vendor. There is also an exception for "furnish as written" situations when the physician specifies that a certain brand of a drug is medically necessary and that drug is not available from the CAP vendor. In those cases, the participating CAP physician may buy the drug, administer it to the beneficiary, and bill Medicare using the ASP system.


    CAP Bidding and Contracting:


    Every three years, CMS will solicit bids from qualifying vendors - primarily major distributors and specialty pharmacy shops. MMA gives CMS the authority to select drugs or categories of drugs that will be included in the program. Drugs may be excluded from the CAP if competition will not result in significant savings compared to the ASP system or when necessary to avoid disruption in access to a drug.


    In April, CMS is expected to announce the CAP vendors for the program's July 1, 2006 start.


    Market Implications of CAP:


    In an upcoming story, I will comment on the implications of CAP for drug manufacturers, drug distributors, and physicians.

    posted: March 3, 2006

    OIG%20and%20Drug%20Benefits.jpgThe HHS Office of the Inspector (OIG) is studying a long list of issues related to Medicare Part B physician-administered drugs, the new Medicare Part D outpatient prescription drug benefit, and state Medicaid pharmacy benefits. In addition to its investigative and audit function, the talented staff at the HHS OIG also conduct analyses and evaluations, typically resulting in public reports. Below are the drug benefit-related topics that the OIG selected for close examination this year. Some were mandated by Congress, others requested by CMS or OMB. Think of it as a useful sentinel of upcoming hot issues and controversies.


    Medicare Part B Physician-Administered Drugs:

  • Drug Manufacturers' Methodologies for Computing Average Sales Price (ASP)
  • CMS' System for Collecting and Maintaining Average Sales Price Data from Drug Manufacturers
  • Effectiveness of Average Sales Price Cost Controls
  • Medicare Payments for Oral Anti-Emetic Medications
  • Monitoring of Market Prices for Part B Drugs
  • CMS' Ability to Prevent Duplicate Payments for Part B Drugs under the Competitive Acquisition Program (CAP)
  • Medicare Reimbursement for End Stage Renal Disease (ESRD) Drugs
  • Adequacy of Reimbursement Rate for Drugs under the Average Sales Price (ASP), with Focus on Hematology and Oncology Practices

  • Medicare Part D Prescription Drug Benefit:

  • CMS Program Integrity Safeguards for Medicare Drug Plan Applicants
  • Beneficiary Awareness of the Medicare Part D Low-Income Subsidy
  • Tracking Beneficiaries True Out-of-Pocket (TrOOP) Costs for Part D Prescription Drug Coverage
  • Prescription Drug Plan Marketing Materials
  • Auto-Enrollment of Dual Eligibles into Medicare Part D Plans
  • Medicare Prescription Drug Benefit Pharmacy Access in Rural Areas
  • Monitoring Fluctuation in Drug Prices under Stand-Alone Prescription Drug Plans (PDPs) and Medicare Advantage Prescription Drug Plans (MA-PDs)
  • Coordination and Oversight of Medicare Part B and Part D to Avoid Duplicate Payments for Drugs
  • Enrollee Access to Negotiated Prices for Covered Part D Prescription Drugs
  • Prescription Drug Plans' Use of Formularies and Compliance with Federal Requirements Regarding P&T Committees, Breath and Depth of Formularies, and Beneficiary Appeal Rights
  • Coordination Between State Pharmaceutical Assistance Programs (SPAPs) and Medicare Part D
  • Implementation of Required Programs to Deter Fraud, Waste, and Abuse
  • CMS Capacity to Administer Employer Drug Subsidies
  • Adequacy of Medicare Part D Drug Benefit Payment System, Fiscal Controls, and CMS Procedures
  • Calculation of State Clawback Payments to Medicare
  • Medicare Part D Risk-Sharing Payments and Recoveries, Particularly the Adequacy of CMS Systems and Controls

  • State Medicaid Prescription Drug Benefits:

  • Average Manufacturer Price and Average Wholesale Price
  • Adequacy of Drug Manufacturers' Methodologies for Computing Average Manufacturer Price and Best Price
  • Potential Savings from Indexing the Generic Drug Rebate
  • Drug Rebate Impact from Drugs Incorrectly Classified as Generic
  • Prescribing Patterns for Oxycontin, Hydrocodone, Xanax, Diazepam, and Soma
  • Effect of Nominal Pricing on Medicaid Drug Rebates
  • Medicaid Reimbursement of Drugs for Long Term Care Pharmacies
  • Effect of Authorized Generic Drugs on Medicaid Drug Rebates
  • Medicaid Payments for HIV Drugs and Possible Inappropriate Pharmacy Practices
  • State Collection of Rebates for Drugs with Zero Dollar Unit Rebate Amounts
  • Dispute Resolution in the Medicaid Prescription Drug Rebate Program
  • Medicaid Generic Drug Utilization Among States
  • States Compliance with Federal Upper Limit Requirements for Certain Generic Drugs
  • Medicaid Drug Pricing in State Maximum Allowable Cost (MAC) Programs

  • Naturally, the list is subject to change and should not be considered as the only topics under review. The OIG changes its work plan to accommodate new problems and changing conditions. Therefore, the topics will fluctuate. For more information, including past studies and reports, visit the OIG site.

    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: March 1, 2006

    Medicaid%20Nursing%20Home%20Coverage.jpgLong-term care expenditures now exceed $200 billion a year and growing fast. State Medicaid programs pay the lion's share and cover a far broader range of institutional, community, and home-based services than Medicare. To encourage folks to buy long-term care insurance and take pressure off taxpayers, the new Deficit Reduction Act of 2005 (DRA) allows any state to create a Long-Term Care Partnership Program.


    The Long-Term Care Partnership Program - a public-private partnership between states and private insurance companies - helps reduce Medicaid expenditures by delaying or eliminating the need for some people to rely on taxpayers to pay for long-term care services. The idea was developed in the late 1980's and early 1990's with support from The Robert Wood Johnson Foundation (RWJF).


    Here's how it works:


    1. To qualify for Medicaid, applicants must meet certain eligibility requirements, including income and asset requirements. Traditionally, Medicaid applicants cannot have assets that exceed certain thresholds. They must deplete ("spend-down") their assets until the Medicaid financial eligibility threshold is met. Many folks, particularly wealthier individuals, hire elder law attorneys to find ways to legally hide or divert assets so heirs get the bulk of their assets while taxpayers pay for nursing home care.


    2. Under the Long-Term Care Partnership Program, individuals are encouraged to buy long-term care (LTC) insurance policies that meet state and federal standards on private LTC coverage and consumer protections.


    3. If the privately insured individual eventually needs long-term care services, they first rely on benefits from their private long-term care insurance policy to cover LTC costs before they access Medicaid.


    4. To encourage the purchase of private LTC coverage, long-term care insurance policyholders are allowed to protect some or all of their assets from Medicaid spend-down requirements during the eligibility determination process. They still must meet income requirements for Medicaid.


    5. Four states now have Long-Term Care Partnership Programs: California, Connecticut, Indiana, and New York. Since 1993, federal law had limited the program to these states. The Deficit Reduction Act of 2005 (DRA) now permits any state to participate. (The DRA also made a number of other LTC-related changes to Medicaid.)


    To learn more, check out:


    - Briefing by Government Accountability Office (GAO)


    - The Long-Term Care Partnership Program: Issues and Options from the Brookings Institution.


    - Medicaid's Long-Term Care Insurance Partnership Program, a detailed report from the Congressional Research Service (CRS).


    - Who Will Pay for Long Term Care?: Insights from the Partnership Programs, an excellent book edited by Nelda McCall at Laguna Research Associates.

    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 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: October 29, 2005

    Reality Check for Big Pharma and Medicare Part D.jpgIn retrospect, will the pharmaceutical industry's support of the Medicare drug benefit be revealed as a modern-day Faustian bargain?


    Conventional wisdom, particularly inside the Beltway, says that the Bush Administration is in the pocket of pharmaceutical manufacturers. Indeed, this knee-jerk assumption is a virtual article of faith among health policy wonks, the media, and others on the Left. They immediately point to the Medicare prescription drug benefit as their "evidence."


    But is this accurate? Will the Medicare drug benefit ultimately help or hurt the pharmaceutical industry? Or is Medicare Part D merely a lesser of two evils for the manufacturers?


    Not if you look at how the Medicare drug benefit is playing out. Every day, as we get closer to launch of the massive new $800 billion program, pharma companies face significant new challenges.


    In January 2006, Medicare as a purchaser will jump from about 2 percent of the prescription drug market to over 25 percent. By 2008, the government - Medicare and Medicaid combined - will buy over half of all prescription drugs. If you take into account beneficiary cost-sharing and federal drug benefit subsidies to employers, the government will drive about three-quarters of the drug supply chain by 2008.


    If the history of Medicare teaches us anything, Congress will not be able to resist the temptation to regulate, micromanage, and administer prices. Unfortunately, the pharma industry faces an inevitable increase in government regulation.


    History also tells us that Medicare will cost shift to commercial buyers of prescription drugs, including employers, hospitals, and the uninsured. Again, bad but likely inevitable.


    Notwithstanding the downsides of regulation and bureaucracy, some pharma players will win in this new environment, particularly in the early years. This includes generic drug makers as at-risk Medicare drug plans drive seniors from brand drugs to low-cost generics.


    Other winners will likely include manufacturers specializing in drugs for diabetes, heart failure, hypertension, and high cholesterol - areas where Medicare Part D will unleash pent-up demand. And drug makers with robust pipelines will win, provided it is a pipeline of vale-added products and not more "me-too" drugs.


    Ultimately, to win the new world of government-driven drug benefits, pharma manufacturers will need to understand the market is changing. The old rules, strategies, and tools are no longer enough.

    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: September 19, 2005

    The Business of Healthcare Innovation.jpgThe market dynamics, business models, and corporate strategies of pharma, biotech, genomics, medical device development, and health care information technology are converging. And you better get ready.


    Written by business gurus at the Wharton School and health industry executives, The Business of Healthcare Innovation provides an invaluable analysis of key business trends in the manufacturing side of health care. Editor Lawton R. Burns, Ph.D. and contributors focus on the producer side of health care and demonstrate how manufacturers serve as the principal drivers of health care innovation.


    Specifically, The Business of Healthcare Innovation:


    · Provides an insightful, detailed overview of the most influential players - namely, the pharmaceutical, biotechnology, genomics/proteomics, medical device, and information technology sectors.


    · Describes and assesses the market structures, business models, and corporate strategies of each of these six sectors.


    · Shows how the six sectors are converging, drawing increasingly on the trends, tools, and solutions of each other.


    A compelling, business-savvy look at the manufacturing side of health care, The Business of Healthcare Innovation is highly recommended for executives, policy makers, investors, and consultants to business and government decision makers.

    posted: September 17, 2005

    Physician Drug Prescription.jpgOnce the Food and Drug Administration (FDA) approves a new prescription drug for one medical indication, physicians are free to prescribe it for virtually any condition. While there are downsides of prescribing drugs "off-label," it allows patients and payors to benefit as physicians test drugs under real-world conditions and identify new applications.


    Because formal clinical trials and the FDA review process can take years, valuable new uses of a drug may be validated by studies in peer-reviewed medical journals years before the new indication becomes officially approved. And because of research and regulatory costs, drug makers cannot justify pursuing FDA approval for new indications, even when a new indication is highly cost-effective for purchasers, plans, and patients. Indeed, some diagnoses have no "on-label" drugs and are treated entirely on an off-label basis.


    With the new Medicare drug benefit (Medicare Part D), the federal government will become the world's largest buyer of prescription drugs. In Part D, a prescription drug is coverable by a Medicare drug plan (PDP or MA-PD) only if it is prescribed for a medically accepted indication as defined under federal Medicaid law. This includes uses that are approved by the FDA or supported by a citation in one of four drug compendia:


    · American Medical Association Drug Evaluations
    · American Hospital Formulary Service Drug Information
    · DRUGDEX Information System
    · United States Pharmacopeia Drug Information


    Because of this restriction in the Medicare Modernization Act, indications that are supported in peer-reviewed medical literature but not yet approved by the FDA or accepted in one of the compendia are not "medically accepted" by Medicare. In such cases, the Medicare drug plans may not pay for the drug.


    While this helps Medicare drug plans manage their financial exposure and allows them to crack down on inappropriate drug therapy, it also means that it'll be harder for physicians to identify valuable new uses of medications. As we loose this critically important path to expanding our evidence base, patients and the economy will suffer.


    This is yet another reason why we need a comprehensive approach to post-market surveillance and assessment of prescription drugs, continuous improvement of the evidence base of what works, and more effective ways to bring that evidence to day-to-day clinical practice.

    posted: September 5, 2005

    FDA and Plan B Drug.jpgRegardless where you come down on the issue of contraception and availability of the new Plan B "morning after" pill, the Food and Drug Administration's handing of Plan B provides ample evidence against expanded regulation of the pharmaceutical industry.


    Plan B, an emergency contraction drug, was approved for sale by prescription in 1999 "indicated to prevent pregnancy following unprotected intercourse, a known or suspected contraceptive failure, or in cases of sexual assault." When taken within 72 hours of unprotected intercourse, it reduces the chance of pregnancy by 84 percent. Plan B is not RU-486, the so-called abortion pill. It doesn't not work if the woman is already pregnant, although reportedly it sometimes prevents a fertilized egg from implanting in the uterus.


    Because Plan B is more effective the sooner it is taken, an FDA advisory panel voted overwhelmingly to recommend the drug for sale over the counter (OTC). Concerned that women under 16 may not understand the label instructions, the FDA rejected the committee's recommendation.


    To accommodate the FDA's concerns, the drug's maker, Barr Pharmaceuticals (NYSE: BRL), asked the FDA to allow OTC access to Plan B for women age 16 and older. A prescription would still be required for those 15 and younger. For many, that seemed like a reasonable approach, although of course it wouldn't satisfy radicals on the Left or the Right. Now, contrary to the statutes governing the FDA and the FDA's own rules, the matter is again on hold.


    Plan B is a political football to be sure and the FDA Commissioner, Lester M. Crawford, is in a tough spot. Any discussion of contraception " particularly an entirely new method designed to help reduce the chance of a pregnancy after intercourse " brings out both sides, particularly the Far Left and the Far Right.


    However, the FDA's job is not to make the nation's social policy or, for that matter, the nation's health policy. Its sole job " and therefore sole authority " is to determine whether Plan B is safe and effective. It already made that decision in the affirmative. Federal law " and the FDA commissioner's promises to Congress " dictates that Barr's request for OTC status be approved. If elected lawmakers are concerned about women's or girls' access to contraceptives (either because they see it as too restrictive or too loose), then they are free to debate it to their heart's content and the rest of us can watch them on C-SPAN. However, the FDA is an administrative agency charged with a specific scientific mission.


    The FDA's mishandling of Plan B does have a positive aspect. It provides an excellent case study in why we must guard against over regulation of health care, whether of pharmaceuticals or medical services. Just as it's important to make sure our courts not legislate, it's also important that executive branch agencies stick to their knitting.


    With the new Medicare drug benefit, the federal government will soon become the world's largest buyer of prescription drugs. Taxpayer-funded programs " notably Medicaid and Medicare " already account for just under half of the nation's health spending. With more and more medical dollars in the hands of the government (gulp), lawmakers will be overcome with an urge to legislate and regulate. We must guard against this terribly perverse, inherently counterproductive instinct.


    With so much public money in the mix, it is not realistic to assume a complete separation of science and politics. But that's why we have a system of laws, due process, transparent decision-making, and limited, precise delegation of authority. The situation of Plan B and the FDA shows how this can quickly brake down if we are not watching.

    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: 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: May 27, 2005

    Inside the Food and Drug Administration (FDA).jpgInside the FDA: The Business and Politics Behind the Drugs We Take and the Food We Eat is a thoughtful, balanced, and well-researched look inside controversial and troubled Food and Drug Administration.


    Author Fran Hawthorne is an experienced business journalist and her skills are evident here. Digging into the FDA�s complex and conflicting world, the book provides an informative picture of FDA�s bureaucratic, political, and scientific drivers. Ms. Hawthorne does a nice job of laying out what the FDA is suppose to do, what is really does, and where and why it fails.


    Inside the FDA helps us understand the recent raft of problems surrounding the over- and mis-regulation of prescription drugs. It makes for a great read. To read a excerpt, click here.

    posted: May 22, 2005

    Puzzle of State Health Reforms.jpgStates continue to serve as laboratories for health care reform. In recent years, many of these state-based efforts have focused on:


    1. Leveraging Employer-Based Coverage: With the goal of making health insurance coverage more affordable to small businesses and their employees, state tools include (a) premium assistance, (b) reinsurance to moderate high-risk cases, (c) state negotiated health plan options, and (d) hybrids mixing taxpayer and employer-sponsored models.


    2. Pharmaceutical Purchasing: To improve the cost-effectiveness of prescription drug benefits, state-based reforms include (a) intra-state and multi-state purchasing pools, (b) negotiated discounts for low-income populations, and (c) evidence-based coverage combining preferred drug lists (PDLs) and supplemental rebates from pharmaceutical manufacturers.


    3. Care Management for High-Cost Patients: With over 75 percent of Medicaid costs driven by a small proportion of patients, states are developing new programs based on the latest care and disease management techniques.


    4. Modernizing Uncompensated Care Programs: While taxpayers invest billions of dollars each year to help compensate hospitals for serving uninsured patients, most of these efforts are blunt, highly inefficient programs with misaligned incentives. Therefore, some states are exploring alternatives designed to leverage these funds to promote primary care.


    To learn more about state-based reforms, including lessons learned, check out the work of our friends at the Economic and Social Research Institute (ESRI). ESRI�s excellent team, with support from the Commonwealth Fund, has a series of informative reports.

    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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