Institutional SNPs (I-SNP) serve beneficiaries who, for 90 days or longer, need institutional provider services, such as long term care, nursing homes, and inpatient psychiatric facilities. Some beneficiaries receiving community-based services or home health care also might qualify for I-SNPs. Chronic Condition SNPs (C-SNP) serve beneficiaries with at least one of 15 approved chronic conditions, including cancer, chronic and disabling mental health conditions, and dementia.

Dual Eligible SNPs (D-SNP), the largest category of SNPs, enroll Medicare-Medicaid dual eligibles. Dual eligibles also often have chronic conditions or are institutionalized, so dual eligibles make up large proportions of enrollees in other SNPs as well. They are among the most expensive beneficiaries, accounting for about one third of both the Medicaid budget and the Medicare budget.

Congress initially authorized SNPs until 2008 but has since reauthorized them several times. Currently, SNPs are set to expire on December 31, 2014. If the program is allowed to expire, SNPs can convert to regular Medicare Advantage health plans, and beneficiaries can choose to enroll in Medicare Advantage or in traditional fee-for-service Medicare.

Medicare Advantage plans typically 5 percent more than fee-for-service Medicare, so the number of beneficiaries who choose to stay in Medicare Advantage will have an effect on the Medicare budget. That cost difference likely will fall after 2014 because of changes in the Affordable Care Act (ACA) health reform, which are intended to bring Medicare Advantage costs in line with traditional Medicare spending.

MedPAC Recommendations on SNP Reauthorization:

The question for Congress is: Should it extend authorization for SNPs yet again, or let them expire after 2014? The knowledgeable staff at the Medicare Payment Advisory Commission (MedPAC) has some suggestions to help Congress decide. MedPAC publishes recommendations on a host of Medicare payment policies in its annual report to Congress.

The 2013 MedPAC report has some interesting findings and recommendations on SNPs. Here is an overview:

1. Reauthorize I-SNPs

MedPAC says Congress should permanently reauthorize Institutional Special Needs Plans. Doing so would add up to $1 billion more over five years than the current-law baseline, which assumes SNPs expire after 2014.

Reasons for MedPAC’s recommendation, pulled from the report, include:

• Overall, I-SNPs perform better than other SNPs and other MA plans on the majority of available quality measures
• I-SNPs also perform well on risk-adjusted rates of hospital readmissions relative to other SNPs I–SNPs attempt to reduce hospital and emergency department utilization through care management and by emphasizing the provision of primary care. For example, some I–SNPs employ nurse practitioners to work with nursing home staff to provide primary care, care planning, and coordination of medical services.

2. Allow C-SNPs to Expire, With Some Exceptions

MedPAC recommends that Congress:

• allow the authority for Chronic Care Special Needs Plans to expire, with the exception of C–SNPs for a small number of conditions, including end-stage renal disease, HIV/AIDs, and chronic and disabling mental health conditions;
• direct the secretary, within three years, to permit Medicare Advantage plans to enhance benefit designs so that benefits can vary based on the medical needs of individuals with specific chronic or disabling conditions; and
• permit current C-SNPs to continue operating during the transition period as the secretary develops standards.
• except for the conditions noted above, impose a moratorium for all other C–SNPs as of January 1, 2014.

To justify its recommendations, MedPAC noted that C-SNPs perform poorly on quality measures compared to other SNPs and Medicare Advantage plans. Most regular Medicare Advantage plans ought to be able to incorporate some aspects of the C-SNP care management model to coordinate care for people with chronic conditions.

3. Reauthorize D-SNPs that Share Risk

Congress should, MedPAC’s report says, permanently reauthorize D-SNPs that assume clinical and financial responsibility for Medicare and Medicaid benefits, and allow all other, non-integrated D–SNPs to expire.

The main thrust behind MedPAC’s recommendation is that D-SNPs have shown great potential for reducing cost and improving quality by integrating Medicare and Medicaid care for dual eligibles. I have written a fair amount about the subject on this blog, and have given several presentations on the dual eligibles market.

There are several administrative policies that make integrated D-SNPs more difficult to manage. One barrier is that D-SNPs are not allowed to market themselves as providing combined Medicare and Medicaid benefits. Other complications stem from the fact that dual eligible enrollees get two beneficiary cards, one for Medicare and another for Medicaid, even when enrolled in one D-SNP managed care plan.

To remedy those issues, MedPAC makes the following additional recommendations for Congress:

• grant the HHS Secretary, now Kathleen Sebelius, authority to align the Medicare and Medicaid appeals and grievances processes;
• direct the Secretary to allow these D-SNPs to market the Medicare and Medicaid benefits they cover as a combined benefit package;
• direct the Secretary to allow these D–SNPs to use a single enrollment card that covers beneficiaries’ Medicare and Medicaid benefits; and direct the secretary to develop a model D–SNP contract for states.

Read the full report here, and go to the MedPAC section of this blog for more posts on some of the more interesting issues in MedPAC’s reports to Congress.

Compounded Drugs Personalize Drug Treatments:

Compounded drugs are created when a physician or pharmacist mixes or changes pharmaceuticals to meet an individual patient’s needs. For example, a patient who has trouble swallowing might need a liquid version of a prescription drug that comes in tablet form. Other patients are allergic to certain ingredients and or need uncommon dose sizes.

Since pharmacists are responsible for those traditional forms of compounding, state pharmacy laws are the major form of regulation for compounded drugs. There is limited federal authority over the industry, and there are few records of how big the compounded drug (CD) market is, which drugs are compounded, or how and why they are compounded.

Though compounded drugs might seem to be an obscure topic, several recent recalls from large-scale drug compounding firms has drawn Congress’s attention to the subject. A recent brief from the Congressional Research Service (CRS) gives an excellent run-down of the status of traditional and new drug compounding practices, recent public health issues related to CDs, and possible Congressional actions to change the federal government’s policy on compounded drugs.

This blog post will give a quick overview. You can read the full CRS brief here.

CD Industry Growth:

What little information exists suggests the compounded drug industry has grown recently. Large-scale producers – far different from the individual pharmacies and physicians traditionally associated with CDs – now make compounded drugs for thousands of customers. PharMedium and New England Compounding Center are two large compounding pharmacies that together serve more than 20,000 hospitals, physicians offices, and other provider clinics.

The CRS brief gives four reasons for growth in CD production:

1. An increase outsourcing of CDs from hospitals.

Hospitals traditionally have compounded drugs for specific patients. Yet some large hospital systems have begun to mass-produce CDs, in amounts beyond what they need. For example, the Cleveland Clinic Health System reported producing 870,000 doses of compound drugs, 56 percent of which were for specific patients and the rest of which were for anticipated future needs.

2. Drug shortages, unavailability, and discontinuation of FDA-approved drugs.

One of the reasons large hospitals might mass-produce or purchase CDs is to fill a need for drugs that are otherwise unavailable because of drug production shortages. A 2013 report from the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) found that 68 percent of hospitals surveyed said they purchased CDs because of drug shortages.

3. Physician and consumer interest in individualized products.

Physicians, too, might be interested in CDs because of drug shortages. But CDs also give physicians greater flexibility to prescribe off-label drugs that are cheaper or that better serve patient health.

4. Increased interest by pharmacists in new markets.

The CRS brief describes compounded drugs as a growth business for pharmacies, particularly those looking for a way to compete against large chain retail pharmacies. Compounding also gives pharmacists greater involvement in patient care, an evolution of the pharmacy business model from distribution to individualized services.

Health Risks, Recalls of Compounded Drugs:

Compounded drugs have the potential to increase risks to public health and patient safety, particularly as demand picks up for CDs to mitigate drug shortages. Three quarters of drugs shortages are for sterile injectable generic drugs, which can be the most difficult types of drugs to compound safely. Compounding sterile drugs, or drugs with sterile and non-sterile ingredients, requires special training and facilities, and there are significant risks to drug safety when sterile drugs are compounded in non-sterile environments. Recalls of potentially unsafe CDs can exacerbate shortage problems.

There have been several high-profile drug recalls related to compounded drugs in the past two years. Among them:

• New England Compounding Center in 2012 recalled a compounded injectable steroid. The Food and Drug Administration (FDA) later found the pharmacy’s facility to be the source of contaminated drugs that led to an outbreak of fungal meningitis.
• Main Street Family Pharmacy LLC in Tennessee recalled preservative-free methylprednisolone injections. Recently, the FDA found fungal contamination in the drugs.
• Several other firms in 2013 recalled products because the firms could not guarantee sterility, though the CRS brief reports no adverse events related to the recalls.

The CRS brief compiles reports of CD recalls, but there is no federal requirement to report adverse events that stem from compounded drugs.

“The vast majority of these adverse events involve sterile compounded products. Sterile compounded products include injectable drugs, IV-delivered drugs and solutions, inhalation drugs, and parenteral nutrition that are administered directly into the body and must be sterile to assure patient safety,” CRS brief.

Congress Considering Bills to Increase Regulation:

The 113th Congress is considering two bills that would address various aspects of federal compound drug oversight.

S. 959, sponsored by Sen. Tom Harkin, would allow for adverse event reporting, institute registration of compounders, create manufacturing standards for sterile CDs shipped across state lines, and would expand FDA regulation of compound drug manufacturers. The bill is ordered to be reported from the Senate Committee on Health, Education, Labor and Pensions (HELP).

H. 2186, sponsored by Rep. Ed Markey, would take similar measures.

Additional Resources:

The CRS and Congress have produced several more informative reports about other aspects of the drug compounding industry. Check out additional resources here:

“Compounding Pharmacies,” Office of Congressman Ed Markey

“Examining Drug Compounding,” House Committee on Energy and Commerce

“FDA’s Authority to Regulate Drug Compounding,” CRS report

FDA Guidance on Pharmacy Compounding

FMAP Changes Since 2009:

Federal Medical Assistance Percentages (FMAP) mark the level of federal matching funds states receive for benefit costs of a variety of programs for low-income people, including Medicaid, CHIP, and Temporary Assistance for Needy Families (TANF). FMAP rates vary widely by state, from 50 percent to just above 70 percent, based on formulas set in statute by Congress.

The American Recovery and Reinvestment Act (ARRA) increased matching rates by 10 percentage points or more in most states, using an enhanced FMAP (eFMAP). Congress passed an eFMAP extension in 2010. The measure was intended to help states at a time when state tax revenues were falling but enrollment in social services was increasing.

The biggest new development in federal match rates will be when the Affordable Care Act (ACA) Medicaid expansion takes effect in 2014. States can choose to expand Medicaid to people with incomes up to 138 percent of the federal poverty level. Only about half of states so far plan to do so. Click here for a list of states opting in to the Medicaid expansion, from Sellers Dorsey.

In those states, the federal government will initially pay for 100 percent of costs for new Medicaid enrollees who became newly eligible for the program because of the ACA. Over several years the match rate for those Medicaid enrollees drops to 90 percent. States will receive their original, lower matching rates for new Medicaid enrollees who were already eligible for Medicaid before health reform.

GAO Recommendation to Improve Federal Match Formulas:

The GAO for years has studied whether the current FMAP rate formula is appropriate. The current formula uses one metric to set rates: state per-capita income relative to the national per-capita income. States with low per-capita income receive higher matching rates. But that measure does not account for different health costs and different levels of Medicaid usage by state.

In a new report, the GAO identifies three sources of data that could address the current FMAP formula’s shortcomings. They include:

• Estimates of demand for services, based on the proportion of low-income residents in a state’s population. The GAO recommends deriving demand for Medicaid services using income figures from national surveys, such as the American Community Survey (ACS).
• Geographic cost differences, including provider personnel costs from Bureau of Labor Statistics wage data.
• Total taxable resources at a state’s disposal, which would count all possible sources of state income whether or not the income is taxed, such as corporate income. The GAO estimated income calculated with the total taxable resources metric was 42 percent higher in 2010 than when calculated using the current FMAP’s per-capita income measure.

Combining those three types of data would create a FMAP rate calculation that is more “equitable from the perspective of taxpayers,” and would “ensure that taxpayers in poorer states are not more heavily burdened than those in wealthier ones,” the GAO report says.

Read the full report here, and a one-page summary here.

Further Reading on FMAP Reform:

The GAO’s research on FMAP rates goes back at least 20 years.  Here are links to some of the office’s previous reports on the subject, with the year of publication:

Older Americans Act: Options to Better Target Need and Improve Equity, 2012.

Medicaid: Data Sets Provide Inconsistent Picture of Expenditures, 2012.

Medicaid: Prototype Formula Would Provide Automatic, Targeted Assistance to States during Economic Downturns, 2011.

Medicaid Formula: Effects of Proposed Formula on Federal Shares of State Spending, 1999

Medicaid: Matching Formula’s Performance and Potential Modifications, 1995

Changing Medicaid Formula Can Improve Distribution of Funds to States, 1983

Health Insurance Exchanges and Qualified Health Plans:

Consumers buying health coverage in the Health Insurance Exchanges will have two types of options: Qualified Health Plans (QHP) or multi-state health plans. For both types of plans, the Affordable Care Act (ACA) set baseline requirements for provider network adequacy, eligibility, enrollment, and coverage levels defined by actuarial value, and essential health benefits (EHB), among other requirements.

States that have chosen to run their own exchanges will flesh out the details of QHP requirements and plan management, and there could be a fair amount of variation from state to state. Some exchanges, such as Connect for Health Colorado, will to serve as market facilitators and approve any QHP that meets state and federal requirements. Covered California and several other exchanges will select QHP issuers through a competitive contracting process. States also have different definitions of provider network adequacy and have specific requirements for the metal-level of coverage QHPs must offer. Many state requirements have yet to be finalized for the state-run and joint federal-state operated Exchanges.

OPM Issues Final Rules for Multi-State Plans:

The health reform law requires at least two multi-state health plans to be offered in each exchange. But the federal Office of Personnel Management, not states, will be in charge of regulating multi-state plans. The OPM currently runs the Federal Employees Health Benefits (FEHB) Program.

The OPM recently finalized its rules for the Multi-State Plan Program (MSPP), after a two-year process. OPM will contract with at least two issues to offer multi-state plans. One of the plans must be a non-profit corporation. Among other requirements, MSPs must:

• offer plans in all states and the District of Columbia within four years of becoming an MSP
• become licensed in states where they operate, and abide by QHP enrollment and eligibility requirements in those states
• offer a uniform benefits package in each state
• offer a benefits package that is “substantially equal” to either the EHB benchmark plans in each state where the MSP is offered, or any EHB benchmark plan the OPM selects

That last requirement received several comments that asking MSP to follow a mix of state and federal EHB benchmarks would create the possibility for adverse selection and consumer confusion. But the OPM kept the rule, saying that there was no evidence the rule would create confusion and that differences among federal and state benchmark plans are “unlikely to be actuarially significant.”

Read the OPM’s final multi-state plan rule here.

Resources for Understanding the MSPP:

The Multi-State Plan Program presents yet another complicating factor in implementing Health Insurance Exchanges, set to begin enrollment on Oct. 1, 2013. Here is a list of good resources to help explain the MSPP and the recent OPM rules:

Multi-State Health Plans: The Final Rule, by Jane Hyatt Thorpe, Trish Riley, and Teresa Cascio, for Health Reform GPS

Multi-State Health Plans Implementation Brief, also by Jane Hyatt Thorpe, Trish Riley, and Teresa Cascio, for Health Reform GPS

MSPP Fact Sheet, by the U.S. Office of Personnel Management

Final Rule: Establishment of the Multi-State Plan Program for the Affordable Insurance Exchanges, by the Office of Health Innovation, Virginia Commonwealth University School of Medicine

Implementing Health Reform: The ACA’s Multi-State Plan Program, by Timothy Jost, for Health Affairs

Implementing Health Reform: The Multi-State Plan Program Final Rule, also by Timothy Jost, for Health Affairs 

DoD, VA Among Largest Government Drug Purchasers:

The federal government pays for more than a third of prescription drug costs in America. The biggest purchasers are Medicare Part D and the Medicaid drug benefit.

But the DoD and the VA were major purchasers, too. TRICARE, the Veterans Health Administration (VHA), and the Military Health System provide prescription drug coverage for 18.5 million military service men and women, their dependents, military retirees, and veterans. Together, the programs accounted for more than 10 percent – about $11 billion – of all federal prescription drug spending in 2011.

DoD Pays Less for Brand-Name Drugs, VA Pays Less for Generics:

In a recent report, the GAO compared a sample of prices for 83 drugs that had high usage rates and expenditures at both the DoD and the VA. Roughly half of the drugs were generic drugs and the other half were brand-name pharmaceuticals. The VA purchased mostly generic drugs, whereas the DoD purchased mostly brand-name drugs.

GAO’s main takeaway for this report was that buying in bulk allowed the agencies to negotiate significantly lower prices, even when buying brand-name drugs. In the GAO’s words:

“Substantially higher prices paid by one agency were correlated with substantially lower utilization by that agency… DoD officials told GAO that in certain circumstances they are able to obtain competitive prices for brand-name drugs – even below the prices for generic equivalents – and therefore will often preferentially purchase brand-name drugs.”

Here are a few details and highlights from the report:

• generic drugs accounted for 83 percent of VA’s utilization of the sample drugs
• brand-name drugs accounted for 54 percent of DoD’s utilization of the sample drugs
• DoD paid an average of $0.11 per unit more than VA across the entire sample of 83 drugs and an average of $0.04 per unit more than VA for the generic drugs in the sample
• VA paid an average of $1.01 per unit more  than DoD for the brand-name drugs

If DoD and VA had each been able to obtain the lowest of DoD’s or VA’s average unit price for each of the 83 drugs in the sample, the maximum potential savings for DoD would have been about $19.1 million (7.5 percent of DoD’s spending for the drugs in the sample) in the first quarter of 2012 and the maximum potential savings for VA would have been about $13.9 million (5.1 percent of VA’s spending on the drugs in the sample).

It is unlikely that this magnitude of savings could be achieved in practice because of the complexity of the prescription drug market and factors that affect the prices DoD and VA are able to obtain for drugs.

Some of the difference in drug prices between the DoD and VA has to do with their respective prescription drug formularies, which are lists of covered drugs. The VHA is essentially a large network of health care providers, so it has a lot of control over which drugs are prescribed and covered. Read the VA drug formulary here.

TRICARE, on the other hand, is similar to most other health plans in that it allows beneficiaries to visit physicians and hospitals who are not part of the Military Health System. As a result, the TRICARE drug formulary must be more broad to allow different providers to prescribe a wider range of medicines.

Read a summary of the GAO’s report here, and the full report here.

Premium Increases Under the ACA:

Health Insurance Exchanges (HIX) are scheduled to start enrollment on Oct. 1, 2013. Yet there is little agreement among researchers about the exchange population’s profile. The Affordable Care Act (ACA) changes are unprecedented, so there are several different models and assumptions researchers use to guess morbidity rates, provider service use, take-up rates, and levels of crowd-out from employers dropping employer-sponsored insurance (ESI).

Premiums are likely to increase for young men, at least, thanks to health reform law requirements limiting how much more health plans can charge expensive enrollees, such as women, older people, and sicker people. Unlike today, health plans will not be able to charge higher premiums for the sick or women, even though their average health care costs are much higher.  Also, insurers will be limited in how much more than may charge older enrollees.  As a result, the ACA mandates a massive shift in costs, with men, the young, and the healthy significantly economically subsidizing women, the old, and the unhealthy.  But projections vary widely on how much health insurance premiums will increase for different populations and markets.

A study from the Society of Actuaries, for example, predicted a 32 percent per-member per-month (PMPM) cost increase in the national non-group (individual) health insurance market, after the ACA insurance regulations take effect in 2014. An American Action Forum report estimated premiums for young people would increase as much as 169 percent. Milliman and other consultancies have done premium impact estimates for specific states, such as this one in Indiana. Another recent analysis from the Urban Institute predicted that cost increases for young people with exchange coverage would be limited.

If young people and healthy people choose not to participate in the Health Insurance Exchanges, health plans will face adverse selection, meaning the most risky people to cover are those most likely to enroll. Adverse selection would further raise premiums and jeopardize the success of Qualified Health Plans (QHP) on the exchanges.

For more details on ACA premium effects and Health Insurance Exchanges, see the health reform section of this blog.

Majority of Young People Could be Subsidy Eligible:

Premium shock and adverse selection might be mitigated if taxpayer subsidies for exchange coverage encourage young, healthy people to participate. The ACA includes premium and cost-sharing subsidies for people earning 133 percent to 400 percent of the federal poverty level.

A recent report from Avalere Health estimates that two thirds adults ages 30 and younger would be eligible for federal subsidies. Here is an overview of the one-page brief:

• Two-thirds of people ages 30 or younger have incomes low enough to make them eligible for premium subsidies.
• 46 percent of people currently insured in the non-group market will be eligible for subsidies.
• Outreach and marketing will be crucial to attract young, healthy people to the exchanges.

You can read the Avalere brief here.

Those factors make high blood pressure a topic of interest for Medicare, Medicaid, Medicare Advantage plans, and other private health plans. Health insurers and providers increasingly are focusing their efforts to reduce health care costs for people with chronic conditions, who account for a large portion of health costs and spending. The Centers for Medicare and Medicaid Services (CMS) estimates Medicare beneficiaries with two or more chronic conditions accounted for 93 percent of Medicare spending in 2011, or about $276 billion.  Several million of those newly insured under the Affordable Care Act (ACA) starting in 2014 likely have undiagnosed, untreated, or poorly managed hypertension.

Health information technology (HIT), electronic health records (EHR), and health data are vital to identifying which treatments are most effective. Payors increasingly are keeping track of chronic disease care data to evaluate physicians and hospitals, incorporating those metrics into payment reforms and policy changes. CMS, for example, recently launched a data dashboard tool to help researchers, physicians, and policymakers gather information about how to increase the quality and reduce the cost of care. Health IT also facilitates chronic care management and patient engagement, through remote patient monitoring, e-prescribing, and telehealth.

Hypertension Care Expenditures Reach $42.9 billion:

The Agency for Healthcare Research and Quality (AHRQ) has long gathered extensive data on health costs and spending. AHRQ frequently produces statistical briefs using data from the Medical Expenditure Panel Survey (MEPS). Subjects for recent briefs include avoidable hospitalizations among seniors in nursing homes, health care associated infections in hospitals, and expenditures on common conditions among young women.

Hypertension is the focus of the latest AHRQ statistical brief, and is a good resource to inform health policy for chronic conditions. An overview of the findings:

• In 2010, about 58.6 million persons or 25.1 percent of adults age 18 and older were treated for hypertension.
• Direct health care spending to treat hypertension totaled $42.9 billion in 2010, with almost half ($20.4 billion) in the form of prescription drugs.
• Annual expenditures for those treated for hypertension averaged $733 per adult in 2010.
• The mean expenditure per person for the treatment of hypertension was higher for Hispanics and non-Hispanic blacks ($981 and $887, respectively), than for non-Hispanic whites ($679) and non-Hispanic others ($661).

Read the full brief here.

Research on Hypertension:

Health Affairs is another good resource for research about the effects of high blood pressure on chronic disease, health costs, prescription drug benefits, employee health care, and health care policy in general. Below are several abstracts for Health Affairs articles on the subject.

Mobile Clinic In Massachusetts Associated With Cost Savings From Lowering Blood Pressure And Emergency Department Use

By Zirui Song, Caterina Hill, Jennifer Bennet, Anthony Vavasis, and Nancy E. Oriol

Mobile health clinics are in increasingly wide use, but evidence of their clinical impact or cost-effectiveness is limited. Using a unique data set of 5,900 patients who made a total of 10,509 visits in 2010–12 to the Family Van, an urban mobile health clinic in Massachusetts, we examined the effect of screenings and counseling provided by the clinic on blood pressure. Patients who presented with high blood pressure during their initial visit experienced average reductions of 10.7 mmHg and 6.2 mmHg in systolic and diastolic blood pressure, respectively, during their follow-up visits. These changes were associated with 32.2 percent and 44.6 percent reductions in the relative risk of myocardial infarction and stroke, respectively, which we converted into savings using estimates of the incidence and costs of these conditions over thirty months. The savings from this reduction in blood pressure and patient-reported avoided emergency department visits produced a positive lower bound for the clinic’s return on investment of 1.3. All other services of the clinic—those aimed at diabetes, obesity, and maternal health, for example—were excluded from this lower-bound estimate. Policy makers should consider mobile clinics as a delivery model for underserved communities with poor health status and high use of emergency departments.

Hypertension, Diabetes, And Elevated Cholesterol Among Insured And Uninsured U.S. Adults

By Andrew P. Wilper, Steffie Woolhandler, Karen E. Lasser, Danny McCormick, David H. Bor, and David U. Himmelstein

In this paper we explore whether uninsured Americans with three chronic conditions were less likely than the insured to be aware of their illness or to have it controlled. Among those with diabetes and elevated cholesterol, the uninsured were more often undiagnosed. Among hypertensives and people with elevated cholesterol, the uninsured more often had uncontrolled conditions. Undiagnosed and uncontrolled chronic illness, which is common among insured people, is even more frequent among the uninsured.

How Cumulative Risks Warrant A Shift In Our Approach To Racial Health Disparities: The Case Of Lead, Stress, And Hypertension

By Margaret Hicken, Richard Gragg, and Howard Hu

Blacks have persistently higher rates of high blood pressure, or hypertension, compared to whites, resulting in higher health costs and mortality rates. Recent research has shown that social and environmental factors—such as high levels of stress and exposure to lead—may explain racial disparities in hypertension. Based on these findings, we recommend a fundamental shift in approaches to health disparities to focus on these sorts of cumulative risks and health effects. Federal and state agencies and research institutions should develop strategic plans to learn more about these connections and apply the broader findings to policies to reduce health disparities.

Drug coverage and drug purchases by Medicare beneficiaries with hypertension

By J Blustein

Research has shown that older Americans with prescription drug coverage purchase more medications; however, it is unclear whether they are more likely to purchase essential medications. This study addresses that question by examining the relationship between drug coverage and medication purchases among older Americans with hypertension. It finds that drug coverage has a significant impact: It lowers the likelihood that persons with hypertension will go without antihypertensive drugs, and it raises the number of tablets purchased among those who purchase these essential drugs.

Wellness Incentives In The Workplace: Cost Savings Through Cost Shifting To Unhealthy Workers

By Jill R. Horwitz, Brenna D. Kelly, and John E. DiNardo

The Affordable Care Act encourages workplace wellness programs, chiefly by promoting programs that reward employees for changing health-related behavior or improving measurable health outcomes. Recognizing the risk that unhealthy employees might be punished rather than helped by such programs, the act also forbids health-based discrimination. We reviewed results of randomized controlled trials and identified challenges for workplace wellness programs to function as the act intends. For example, research results raise doubts that employees with health risk factors, such as obesity and tobacco use, spend more on medical care than others. Such groups may not be especially promising targets for financial incentives meant to save costs through health improvement. Although there may be other valid reasons, beyond lowering costs, to institute workplace wellness programs, we found little evidence that such programs can easily save costs through health improvement without being discriminatory. Our evidence suggests that savings to employers may come from cost shifting, with the most vulnerable employees—those from lower socioeconomic strata with the most health risks—probably bearing greater costs that in effect subsidize their healthier colleagues.

Inpatient hospital services make up the single largest category of Medicare spending, at $133 billion in FY 2011, or about 25 percent of the Medicare budget. Inpatient hospital visits, along with post-acute care, are paid under Medicare Part A. Funding for Part A hospital insurance comes from payroll taxes, the Part A deductible, and taxpayer subsidies.

Outpatient hospital services, ambulatory care, some home health care, and physician visits are covered under Medicare Part B.  Medicare Part A and Part B services are available through Medicare Advantage health plans and traditional fee-for-service Medicare.

MedPAC Recommendations on Medicare Hospital Reimbursement:

Each year, the Medicare Payment Advisory Commission (MedPAC) reports to Congress on whether fee-for-service Medicare payment policies are adequate and on reforms to Medicare payment methods and care delivery models.

For example, last year MedPAC recommended equalizing payments for physician evaluation and management services, regardless of whether they were in a hospital or in a doctor’s office. Increasingly, providers bill for evaluation and management visits as hospital services, instead of physician office services, because the hospital visits have a higher payment rate.

For FY 2014, recommendations for Medicare hospital payments in the 2013 MedPAC Report to Congress are more straightforward:

“Congress should increase payment rates for the inpatient and outpatient prospective payment systems in 2014 by 1 percent. For inpatient services, the Congress should also require the Secretary of Health and Human Services to use the difference between the statutory update and the recommended 1 percent update to offset increases in payment rates due to documentation and coding changes and to recover past overpayments.”

Medicare Hospital Margins, Usage Data:

While the recommendation seems relatively simple, MedPAC’s excellent staff and savvy Commissioners puts a lot of thought into determining whether Medicare payment rates are where they should be.  MedPAC reports often include lots of data about access to care, and the prevalence and financial health of providers, including profit / loss margins.

Here are some of the more interesting data on hospitals receiving Medicare payments:

• The number of hospitals – 4,800 – and the range of services offered both continue to grow.
• Hospitals reduced 30-day mortality rates across five prevalent clinical conditions and readmission rates improved slightly from 2008 to 2011.  Preventable hospital readmissions are a major contributor to wasteful health care spending.  As part of the Affordable Care Act (ACA), the Centers for Medicare and Medicaid Services (CMS) launched a Hospital Readmission Reduction Program that financially penalizes hospitals with high readmission rates, starting in FY 2013.  MedPAC’s report to Congress says it’s too early to say whether the program has reduced readmissions.
• Overall Medicare hospital margins declined from -4.5 percent in 2010 to -5.8 percent in 2011, meaning hospitals on average serve Medicare patients at a loss. MedPAC expects the overall margin of roughly -6 percent to remain for 2013.
• However, Medicare hospital margins were a positive 2 percent for hospitals that consistently perform well on cost, mortality, and hospital readmission measures.

Learn More About Hospital Payment Issues:

To learn more, read the full report, and please check out the MedPAC and hospital sections of this blog for more on a wide range of issues.  Also see my previous post about an interesting statistical brief on hospitalizations, Hospital Admissions: Trends in Hospitalizations.

Recent Pace in Health Care Cost Growth:

There has been a string of good news for health costs and spending in the past few months. The Congressional Budget Office (CBO) 10-year spending projections for Medicare dropped 2 percent, compared to its previous estimate, and its Medicaid budget projection fell 5.5 percent. The Kaiser Family Foundation reported relatively slow growth for employer-sponsored insurance (ESI) average premiums in 2012 – 4 percent for family health coverage. USA Today reported health spending as a share of the economy shrank to 17.04 percent last year, compared to 17.12 percent in the year before.

One key statistic seemed to explain much of the good news. The Centers for Medicare and Medicaid (CMS) Office of the Actuary (OACT) found that national health expenditures grew 3.9 percent each year from 2009 to 2011, the lowest level of growth in 50 years. Health costs still grew faster than inflation but were a big improvement on growth rates of the early 2000s, which reached almost 10 percent per year.

Health Spending Slowed Because the Economy Slowed:

But the good news might only be temporary. A new analysis from the Kaiser Family Foundation finds that 77 percent of the drop in health care spending was because of a broad economic downturn during the Great Recession. Though the recession ended in 2009, health spending lags behind economic changes over a period of six years, the brief says.

A quick overview of the findings:

• Annual health spending growth is expected to stay where it is for the next few years but reach 7.1 percent by 2019.
• That estimate is based on economic changes alone, regardless of other factors, and assumes excess growth – the level health spending increases above inflation rates – remains at its 20-year average of around 1.6 percent.
• The numbers do not include an expected one-time growth increase in health spending of 2-3 percentage points, when millions more Americans get coverage after 2014 because of the Affordable Care Act (ACA) health reform law.
• There is some evidence changes in U.S. health care system are contributing to lower rates of growth, such as the rise of managed care plans and additional cost-sharing.

Cost Control Efforts in Public and Private Sectors:

While costs are expected to increase more rapidly in the near future, both the public and private sectors are engaged in a wide variety of efforts to contain costs, with payment reform and delivery reform given the highest priority.

The health reform law encourages several Medicare payment reform models, such as Accountable Care Organizations (ACO) and bundled payments, intended to create incentives for Medicare providers to curb unnecessary medical care. Wasteful health care accounts for about one third of health care spending, and is estimated to reach up to $1 trillion each year.

Care coordination models for Medicare-Medicaid dual eligibles, which account for a third of the Medicare and Medicaid budgets, also have the potential to reduce costs and improve care.  Medicaid health plans and Medicare Advantage Special Needs Plans for dual eligibles (D-SNP) are central to state demonstrations testing that theory. Private health plans and large employers also are focusing on care coordination and payment reform to keep costs down and improve care.

For more on the subject, see the payment reform section of this blog.  Also check out my post, 7 Ideas to Reduce Costs and Improve Outcomes in Medicare and Medicaid.

Medicare and Medicaid Spending on Dual Eligibles:

Even among dual eligibles, certain sub-populations have outsized impacts on health costs. For a breakdown, see this recent report from the Medicaid and CHIP Payment and Access Commission (MACPAC). MACPAC is a counterpart to the Medicare Payment Advisory Commission (MedPAC), and is charged with advising Congress on the federal Medicaid policies.

MACPAC’s 2013 report to Congress looks at average Medicare and Medicaid health spending for four subgroups of all-year, full-benefit dual eligibles. Full-benefit dual eligibles represent three quarters of the dual eligible population and receive full benefits from both Medicare and Medicaid.

The MACPAC report breaks down full-benefit dual eligibles into four categories based on what type of long-term services and supports (LTSS) they received.  The categories are:

1. Dual eligibles who received Medicaid financing for nursing home care or other institutional long-term services and supports.

2. Those who received services under Medicaid Home and Community-Based Services (HCBS) waivers, which provide a wide range of home-based, non-medical services and supports. This group does not include anyone who received Medicaid institutional care.

3. People who received home and community-based services but not through an HCBS waiver under s. 1915 of the Social Security Act. People in this group include those receiving Medicaid home care benefits under the Medicaid State Plan, such as home health or personal care services, but not those receiving any Medicaid nursing home care.

4. Dual eligibles who did not use any Medicaid long-term care services, including no nursing home or home and community-based services.

Institutionalized Dual Eligibles the Most Expensive:

MACPAC’s analysis of Medicare and Medicaid spending across the various subgroups of dual eligibles reveals interesting data.  Because CMS fails to make more timely readily available, the report uses 2007 data.  Naturally, the number of dual eligibles and their health costs have grown since then. Here are some of the findings:

• Institutional service users on average cost Medicare and Medicaid $69,505 per person in 2007.
• Institutional service users cost 40 percent more than the next-most expensive group and four times more than dual eligibles who did not use long-term services and supports.
• HCBS waiver users cost the second-most on average ($49,457), followed by non-waiver HCBS users ($35,164), and non-LTSS users ($14,835).
• For institutional and HCBS-waiver users, the two most expensive groups, Medicaid paid about two thirds of the cost with Medicare paying the rest.
• Medicare paid 56 percent of health spending on non-waiver HCBS users and 81 percent of spending on non-LTSS users.

MACPAC’s excellent analysis has a number of helpful graphs that break down the numbers in different ways. See the full report here.

Learn More About Dual Eligible Spending:

Dual eligibles have become a hot topic in health policy circles in large part because of their huge effect on federal and state health spending, their highly complex clinical characteristics, and the need to integrate financing and care delivery across Medicaid and Medicare.  The Sellers Dorsey team is busy working with health plans and other organizations to integrate care for dual eligibles.

To learn more, browse the dual eligibles section of the Piper Report.