PPACA Impact and Opportunities : Health Care Lawyer & Attorney : Epstein Becker Green Law Firm : Insurance & Costs : Health Reform Musings Blog

Now that we have sweeping new health care legislation, the Patient Protection and Affordable Care Act ("the Act"), let's look at the rollout of the accountable care provisions--i.e., those changes to the payment and delivery system that hold the most long-term promise of improving quality and cost-efficiency. They are discussed in my most recent article: "The Timeline for Accountable Care: The Rollout of the Payment and Delivery Reform Provisions in the Patient Protection and Affordable Care Act and the Implications for Accountable Care Organizations," published last week in the BNA's Health Law Reporter.  Click here to read the full article (PDF).

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With the rejection in the Senate Finance Committee of two separate proposals to create a substantial public health insurance option and, instead, the approval of the relatively weak co-op proposal (which the CBO estimates to be unlikely to establish a meaningful presence and will result in only half the budget amount of $6 billion will be spent) it seemed as though the public option had breathed its last breath.  However, new developments indicate that the public option, in various forms, is still alive. 

Senator Schumer (D-NY), having failed to pass his “level playing field” public health insurance option proposal in the Finance Committee, is pushing a new public health insurance option that would allow states to “opt out” of the public plan.  The opt-out proposal is gaining fans in the Democratic Caucus, even amongst conservative Democrats who are worried the effects a public plan could have on their state.   

Senator Carper (D-DE) meanwhile has been floating options that would allow states to “opt in” to a federal public insurance plan or for the states to create their own public options.  Under the second proposal, the federal government would provide seed funding. 

In the hope of gaining a “bipartisan” bill, Senator Snowe’s (R-ME) “trigger” public plan option is still being considered as well.   Under this option, a public plan would be introduced if the price of insurance did not decrease. 

Finally, although not discussed often, the fact remains that the Senate HELP bill being merged with the Senate Finance bill contains a nationwide public option for the uninsured and employers with less than 50 employees.  This option is somewhat weaker than the House Tri-Committee bill’s public option because its rates would not be based on Medicare and it would not require Medicare-participating physicians to participate in the new plan.

All of these options provide a menu of choices for those at the negotiating table merging the two bills in the Senate (Reid, Baucus, Dodd, Emanuel, and DeParle).  Estimates are that 52-54 Senators support some type of meaningful public option (more than the co-op proposal).  Supporters now seemingly include Sen. Evan Bayh (D-IN), who explicitly endorsed Senator Carper’s state “opt-in” proposal, a sign that even the most conservative Senate Democrats are at least open to the issue.  

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As the “Three Tenors” (Chairmen Waxman, Miller and Rangel) struggle to finance the access enhancements that are central to the President’s health reform aspirations, the need for meaningful payment reform continues to challenge. This week House Speaker Nancy Pelosi urged the Chairmen to sharpen their pencils in this regard. Moreover, in a letter to the Speaker and Majority Leader Steny Hoyer, the fiscally-conservative “Blue Dog” coalition of House Democrats has now said that the current drafts fail to include sufficient structural reforms likely to succeed in lowering costs and incenting “value” (in purchasing).

These House members would like to see strenuous efforts to capture the savings promised by the literature pointing out the significant disparities in regional health care practice/resource consumption patterns. To that end, the “Blue Dogs” and many analysts are placing a great deal of hope in the ability of payment incentives to trigger the ordering of only appropriate (cost effective) diagnostic tests and pharmaceuticals and the implementation of “evidence based” care paths. 

Intuitively there is great merit to the theme. However, testing of the concepts has been limited to date. Therefore, there is yet little science from which to judge the necessary “octane” of the incentives. Moreover, the amount of change to be engendered by Medicare payment reform is unknown—hence some of the enthusiasm for a public plan that might adopt payment methodologies that echo those of a reformed Medicare fee-for-service system thus putting more strength behind the effort the “bend the curve” of growth in health care expenditures. Finally, policy makers do not how much reinforcing discernment should or could be created among beneficiaries particularly during the statistically costly “last year of life.”

While some provider systems appropriately believe they are “ready, willing and able” to operate under new payment methodologies, most are not. Moreover, even provider systems that have a high degree of clinical integration, IT infrastructure and physician leadership, face significant challenges in operating during a transition stage where some payor customers will strongly reward utilization efficiencies and others will retain payment methodologies that continue to implicitly reward providing services without regard to clinical appropriateness. (These providers are likely to capture the empathy of lawyers like me who also are increasingly operated under mixed payment methodologies.)

Health care investors face concomitant uncertainties. How will the companies they are backing fare in an era where providers are incentivized to order fewer tests, labs and scans? Will the target’s product line continue to do well among providers who are scrutinizing costs to earn incentive payments? Similarly, are the company’s products on the short list for comparative effectiveness review and, if so, what are the likely results and how will such review affect provider system choices?  Therefore, as we watch the Congress adopt payment policy reform, we open up interesting new forecasting questions with regard to the nature of such reform, its pace and its impacts on market actors.

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For the last week or so, the health reform public policy debate has been keyed to the Senate HELP Committee’s draft and thus dominated by whether or not the “Exchange” to be employed in access reform should include a “public plan” and, if so, whether such a plan should have the power to access provider payment rates tied to Medicare and whether Medicare participating providers would be required to contract with it. With this week’s release of the Senate Finance Committee’s draft, it will be interesting to see whether payment reform can similarly capture the attention of the press. Frankly, we have low expectations in this regard insofar as the consequences that the prevalence of fee for service payment methodologies have on health care output are hard to grasp relative to the easier concept of “universal coverage”. Perhaps it is ultimately less important that payment reform capture the air waves than the degree to which payment reform is incorporated in whatever pieces of health reform make it through this session of Congress.

There are, of course, a few helpful signs. The New York Times gave front page treatment to the President’s public embrace of the payment reform issue and his distribution of the Gawande article on health care incentives in the New Yorker. The New America foundation released a report on delivery system change which White House Health leader Nancy Anne DeParle also applauded. These may, however, faint notes against a cacophony of sound around the easier to enunciate (though themselves ill understood) concepts around public plan and access.

Gawande, Len Nichols, Peter Orszag and others are of course right that changing the predominant fee for service incentives that power the health care delivery system is vital to improving both the cost and quality of American health care. Using “medical home”, “accountable care organization”, and episode payments will begin to inject new incentives into the planning and care paths chosen by providers. We expect that Senator Baucus’ Committee draft will begin to increase the content of these payment methodologies into the fuel that powers our enormous health care engine. They are the crucial elements to the much lauded quest to “bend the health care cost curve”. Therefore, even if they do not capture the attention of CNN and MSNBC, the strength of these reform elements in the Senate Finance Committee’s bill, and their survival, bears watching by all who invest in as well as receive health care.

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Written by Paul Campbell and Maura Farrell

The Washington Post has reported that Congressional Democrats have reached a tentative agreement on President Obama’s $3.5 trillion budget, including reconciliation instructions which would allow health reform legislation to pass the Senate with only 51 votes. The agreement would charge each of the Committees with jurisdiction over authorization of healthcare legislation to find $1 billion in savings. If the agreement moves forward and is passed by the full House and the Senate (as expected), these “instructions” would allow for the Senate to bypass normal Senate parliamentary rules requiring 60 votes for approval. The tentative conference agreement would also extend for two years the Medicare physician payment “fix”. The extension reduces a budget savings needed for a complete repeal of the current payment methodology, which applies a sustainable growth rate (SGR) limit.  

Reconciliation represents a win for House Speaker Pelosi, who shepherded the inclusion of the reconciliation provision in the House Budget. Pelosi’s hope was that reconciliation be included in the conference committee agreement, despite the fact that the Senate Budget Committee did not include the measure. The win also increases the House’s leverage in negotiations of health reform legislation. This process will be unlike the House Leadership’s experience with negotiations on a compromise for the American Recovery and Reinvestment Act (ARRA), when Majority Leader Reid needed to get the help of three Republican Senators to ensure passage of the stimulus bill in the Senate. 

Unlike the Senate, which will move two health reform bills concurrently, the House has agreed to develop a unified plan. Notably, both Speaker Pelosi and Ways and Means Chairman Charles Rangel are strong supporters of a public plan. 

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The need to change the rate at which health care costs increase (“Bending the Curve”) is axiomatic in the health reform debate. According to the President, Orszag at OMB, Hackbarth at MedPAC, and others, primary tools for this change are payment system changes. While the testimony that has been given in this regard is useful directionally,  the organizations and systems thus far identified are largely at a gestational stage and we do not know whether they are far reaching enough to “move the needle” much less “bend the curve”.

Seemingly the most fully developed of these notions is the proposal to bundle payment for the majority of facility services occurring within 30 days of a discharge into the DRG. The need for such a proposal was recently revalidated in a New Journal of Medicine article identifying the frequency and high cost of hospital readmissions. Moreover, the CBO and the President’s budget have at least put savings estimates around this program. These estimates are substantial but do not, by themselves, bend the curve materially.

Other emerging notions of delivery system innovation to bend the curve include “bonus eligible organizations” and “accountable health organizations”. These innovations return us to familiar, but largely abandoned in practice, managed care territory -- incentivization of physicians outside a group practice setting. Of course the success of such programs will depend on the strength of the incentive and that strength (as we learned in IPA model managed care) will be affected by the size of bonus or withhold, the timing of its payment, whether the data is believable and whether the opportunity to collect it is perceived by the physician to be real. Also, the real savings these organizations might achieve will be in lowering the “preference sensitive” care that is subject to wide geographic variations.

Full fledged capitation had potentially the strongest (most effective?) incentives. However, “capitation” carries a lot of media and political baggage so the term is being studiously avoided.  That political reality is understandable.  However, before we count our budgetary savings, we need to be sure that the alternative methods of payment sufficiently change physician incentives before we can realistically expect to “bend the curve” and can fairly claim the budgetary savings such a change would bring.

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In yesterday’s post on The Health Care Blog, Bill Kramer remarks upon a key difference in the health reform discourse this go-round. Simply put, “the Obama Administration is changing the debate in a fundamental way.” As President Obama stated in his opening remarks to last week’s White House Forum on Health Reform, “[h]ealthcare reform is no longer just a moral imperative, it is a fiscal imperative.”

Kramer explains that past attempts at reform suffered from political sticker shock over concerns that health reform would dramatically enlarge the federal deficit. However, this time, the Obama Administration is emphasizing that reform will not pose an additional burden to the already laden deficit. Indeed, health reform is a necessary tool to “tame” the deficit over the long term.

And framing health reform as an economic necessity is already having an effect. As Nancy-Ann DeParle, director of the White House Office for Health Reform, pointed out in her Wednesday op-ed in The Boston Globe: there are no defenders of the status quo. Two happenings from yesterday, both involving key stakeholders, echo this sentiment:

Regional White House Forum on Health Reform - Dearborn Michigan
Underscoring the link between long-term economic prosperity and health reform, the White House chose Michigan, the state with the highest unemployment rate in the nation, as the site for the first of five Regional White House Forum on Health Reform. In his announcement of the Regional White House Forum series, President Obama called on participants of these forums to “put forward their best ideas about how we bring down costs and expand coverage for American families."

Among the 250 attendees were doctors, patients, insurers, policy experts and health care advocates. The forum was hosted by Governors Jennifer Granholm of Michigan and Jim Doyle of Wisconsin. Notable politicos in attendance included Congressmen John Dingell and John Conyers, Jr., as well as White House Domestic Policy Director Melody Barnes, who helped to moderate the event. Reports of the town hall-style event indicate that “guests in the room uniformly supported broad and sweeping reform focused on expanding access to the uninsured, improving medical records and emphasizing preventative care.”

The remaining four regional forums will take place in Burlington, VT (March 17th), Des Moines, IA (March 23rd), Greensboro, NC (March 31st), and Los Angeles, CA (April 6th).

Business Roundtable urges lawmakers to act quickly on health reform
Yesterday heard from another key stakeholder group, Business Roundtable. The association released a study showing that American companies were losing out to other countries with cheaper healthcare and healthier workers. As reported by Reuters, Business Roundtable “wants changes that would reduce costs through greater use of technology and other efficiencies and require everyone to obtain health coverage. The group also supports plans to provide government aid to help those who cannot afford insurance, but said they do not want to see a government insurance plan that dominates the market.”

Members of the Business Roundtable also heard from President Obama yesterday on the critical need for health reform. A transcript of the President’s speech is posted on the Wall Street Journal’s Washington Wire blog.

If yesterdays goings-on are any indication, Kramer and DeParle are right: the landscape has changed and the health form battle will be fought on different grounds. Everyone is in favor of change. The devil, of course, will be in the details.

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Thursday's White House Forum on Health Reform brought together people who have a stake in our health care system with people who have the ability to change it. Prior to his inauguration, President Obama called on Americans to hold community discussions about health care. More than 9,000 Americans signed up to host discussions in all 50 states and more than 30,000 Americans attended these discussions. These community groups submitted reports to the White House that detailed their concerns about the health care system and their suggestions for reform. At the Forum, several of these community participants joined health care experts to participate in the Forum discussions.

Did these community representatives have any meaningful impact on Thursday’s discussion? Let’s hope so – engaging members of our nation’s communities adds a necessary human element to these debates as they begin to take shape and hopefully will demonstrate to those who can effect change that every ordinary person must be involved in this important national discussion. The President expressed his desire see change by the end of this year. We should harness the energy generated by yesterday's discussions to promote actions that result in health reform efforts and engage all Americans - all "stakeholders" - in these efforts. 

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For health care facilities, and those who invest in them or lend to them, the President’s budget underscored the emerging “shape of things to come” in the delivery system. In short, the Administration intends to compel delivery system modifications through aggressive payment policy changes.

What industry segments are immediately concerned? -- home health agencies, skilled nursing facilities, IRFs, LTCHs, and rehab facilities. In the name of “efficiency and accountability” the President proposes to bleed (Bleeding Edge redux?) $950M over 5 years and $17.8B over ten years from payments that would otherwise have gone to these facilities. We know this because the budget is echoing Director Orszag’s work at the CBO, finding savings from putting into the hands of hospitals financial responsibility, on an MS-DRG by MS-DRG basis, for the care Medicare otherwise would have paid these facilities for within 30 days after inpatient discharge.

In the CBO formulation, bundled payments would have been applied to 1/3 of discharges by 2013 and all discharges by 2015. The budget scores this proposal somewhat higher than CBO did so one might speculate that more rapid application is now on the Director’s mind. Somewhat comforting to investors in the affected facilities is that savings begin in 2013 and that over half of the ten year savings are not realized until 2018 and 2019.

Does this “reform” propel acquisitions of post-acute facilities by acute facilities? Alternatively, will acute facilities have the market power to negotiate favorable terms in purchasing post-acute services from such facilities? Does this require additional hospital and physician integration to produce the admission patterns that will allow hospitals not to lose their shirts in paying for the new care?

Will any state insurance departments want to see hospitals establish reserves against the possibility of the cost of their post-acute care payment responsibilities exceeding their financial wherewithal? The CBO write-up of this program also included take backs so that hospitals would only realize 20% of the savings that Medicare expects that they would produce. Of course there could be a big negative for acute care hospitals if Medicare’s take backs make the margins small and expected savings do not materialize because of case mix, physician ordering patterns, or a dozen other variables. What upheaval do you predict?

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Many people ask, “can we afford to pay for health care reform?” However, the more pressing question is whether we can afford not to reform our health care system. The collapse of our financial markets and the general deterioration of the economy make fundamental health reform an urgent priority. Investing in our health care system will pay off by helping to keep Americans healthy and economically stable.

On February 10, 2009, Senate Budget Committee Chairman Kent Conrad (D-N.D.) said that health care reform plans cannot add substantial costs to the system, one which already is straining the federal budget.  At the same time, the course the current health care system is currently on is unsustainable and changes based on major new spending are not the answer.

Former Congressional Budget Office Director Peter Orszag has noted that reforming the health care system is not just a human imperative, but is also the nation’s greatest economic reform opportunity. Without cost-related changes to the system, private and public health care spending will reach an estimated 37 percent of the gross domestic product in 2050.

During the February 10 hearing, current CBO Director Douglas Elmendorf also testified.  He has outlined options for expanding coverage and controlling costs in two CBO reports (Key Issues in Analyzing Major Health Insurance Proposals and Budget Options, Volume 1: Health Care) that were released in late 2008. These reports indicate that there is consensus regarding the broad direction for health reform—such as stronger incentives to control costs and provide more information about care quality and value—but the specific details are less certain, often because there is a lack of evidence on how cost-effective these proposed measures would be.

The window of opportunity for health reform is wide open, as is the opportunity to develop strategies that will allow such reform to be accomplished in a fiscally responsible way. Lawmakers must build Americans’ confidence in allowing the government to take the necessary actions to reform the health care system without reinforcing fears that government involvement will not be in the best interests of Americans. Some things to keep in mind:

• Reinforce Obvious Truths.  When it comes to health care dollars and services, more is not always better. Americans know that our current health care system does not provide value for all that it expends on the costs of providing services. Health care reform must reinforce the importance of providing quality care in as cost effective a manner as possible. We need to prove that it is possible to save money without sacrificing quality.

• Make Everyone an Ally. A sense of individual and of shared responsibility must play a role in health reform, so that all participants understand that . We must make everyone—consumers, states and businesses—feel the impact of health care reform on their wallets so that we as a nation can reach a consensus on a long-term vision for health reform. The federal government cannot solve the problem alone. Many states, for example, have launched their own efforts to control the costs of health care, as have many employers. Most consumers feel the direct effect of paying for some or all of their health care and the need to make personal choices regarding their consumption. Coordination among all the participants may create the necessary shared sense of responsibility that will inspire change.

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