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The BPC Health Care Reform Plan: A Response To Coulam, Feldman, and Dowd



July 30th, 2013

We commend Robert Coulam, Roger Feldman, and Bryan Dowd for bringing attention to competitive bidding in Medicare, a meaningful strategy to constrain health care costs through reducing inefficiencies in the health care system. The authors have made valuable contributions to research in this area for many years, and we welcome vigorous discussion on both the merits and strategy for implementing such a reform.

However, we believe the authors missed the mark in their recent Health Affairs Blog analysis of the Bipartisan Policy Center’s (BPC) proposal. Most notably, they failed to consider the political realities surrounding competitive bidding. In addition, they overlooked BPC’s other Medicare recommendations that are integral to the strategy for introducing competitive bidding in Medicare Advantage (MA).

In April, BPC released A Bipartisan Rx for Patient-Centered Care and System-wide Cost Containment. This was the culmination of a nearly year-long effort led by former Senate Majority Leaders Tom Daschle and Bill Frist, former Senate Budget Committee Chairman Pete Domenici, and former Director of CBO and OMB Dr. Alice Rivlin to produce a package of comprehensive, systemic reforms to achieve a higher quality, more sustainable health care system. The initiative reflected their recognition that attempts to address our nation’s health and budget challenges are too often fragmented and unproductive.

The leaders came together to change the conversation. As part of listening to each other’s varied perspectives, they prioritized fiscal and political realities, striving to craft a package of policies that policymakers could realistically coalesce around. The leaders believed that this approach was an essential contribution to the national debate.

This response is not intended to debate the merits of Medicare premium support, a system in which traditional Medicare and Medicare Advantage (MA) plans compete directly on price to provide the Medicare benefit. Since premium support continues to face staunch and widespread political opposition, the four leaders of the BPC initiative offered an alternative that would improve quality and value in our health care system. Policymaking — particularly around issues that are laden with political sensitivities — cannot be done in a vacuum. We urge the authors, and other analysts, not to allow what they might view as a theoretically perfect solution to be the proverbial enemy of the achievable good.

BPC’s Approach: Sound, Politically Viable Policy

BPC’s report frames a thoughtful, carefully constructed, bipartisan compromise for comprehensive, system-wide reform. The recommendations promote high-value coordinated care through organized systems that hold providers accountable for quality and cost and encourage greater patient engagement in health care decisions. Importantly, the approach retains the key elements of competition, while further increasing beneficiary choice and minimizing disruption.

Fiscal sustainability is a cornerstone of BPC’s proposal, underlying the decision to design a policy that does not introduce competitive bidding in those counties where it would increase Medicare outlays — areas accounting for almost 4 out of every 10 beneficiaries according to an analysis by Acumen, LLC.

Recognizing that Medicare provides a critical lever that can lead to broader reform, BPC’s report recommends a series of integrated Medicare proposals to improve quality and lower costs. (See Note 1.) The approach preserves traditional Medicare’s promise of beneficiary choice by ensuring that beneficiaries are free to remain in an improved fee-for-service (FFS) program, but also provides strong incentives for both providers and beneficiaries to move away from FFS payment, and the fragmentation that inevitably accompanies it, towards payment approaches that support more organized, efficient, and accountable systems of care.

BPC’s report not only proposes bringing market forces to bear on Medicare Advantage by implementing a competitive bidding structure, but it also introduces a new option in traditional Medicare, a markedly improved version of ACOs called “Medicare Networks” that would provide both beneficiaries and providers strong incentives to participate. The report also proposes to modernize the Medicare benefit and limit supplemental coverage, along with expanding assistance for low-income beneficiaries and lowering the thresholds at which income-related premiums are triggered.

If enacted, BPC’s package of Medicare reforms would save taxpayers roughly $300 billion over 10 years — after paying for a permanent fix to the sustainable growth rate (SGR) formula for physician payments and the cost of increased assistance to low-income beneficiaries. As reforms take full effect, projected Medicare savings will approach $1 trillion in the second 10-year window.

Critique too narrowly focuses on MA proposal

The BPC proposal is intended as a package: the various policies interact with, and generally complement, one another. The leaders endorse the report in its entirety, meaning they accepted elements they would not have supported in isolation and allowed elements they individually sought to be excluded in the final package. As Senator Daschle remarked at the report launch, “in our negotiation, nothing was agreed to until everything was agreed to…such is the art of compromise.”

We believe the BPC approach provides a stronger means to achieve key goals of premium support — increased competition and promoting the creation of more integrated systems of care — by not focusing exclusively on competitive bidding and including other significant reforms. To “cherry-pick” BPC’s policies and discuss them in isolation is misguided.

Project leaders feel strongly that delivery system reform must create a viable path from FFS to comprehensive, quality-focused, population-based coordinated systems of care. The report proposes freezing provider payments from 2017-2023 in FFS but not in Medicare Networks, while offering enrollees lower premiums to participate in a Network. The combination of these features, working together as a package, encourages providers and beneficiaries to join either Medicare Networks or an MA plan.

Through an overhauled Medicare open enrollment process, seniors will be able to compare all of their options side-by-side with information on premiums and relevant cost-sharing, encouraging vigorous competition among Medicare Networks, MA Plans, and FFS in each region. Given the lack of political consensus around proposals that would allow the premium for traditional Medicare to be determined by bidding, we view Medicare Networks as a key transitional strategy to facilitate the emergence of more — and more cost-effective — provider-run systems of coordinated care. Over time, we expect that Medicare Networks may increasingly choose to participate in MA, either by partnering with an MA insurer or by developing the necessary infrastructure and capabilities to qualify to contract as a Provider Sponsored Organization (PSO).

The authors’ analysis also ignores an important feature of BPC’s competitively bid MA proposal, which specifies a new standardized benefit package under the competitive system that, in the initial years, would have an actuarial value 5 percent higher than that of traditional Medicare. The 5 percent differential would help create a meaningful distinction between traditional Medicare and MA. Because we would transition to the enhanced benefits in areas where competitive bidding lowers Medicare costs, the enrollees effectively gain the first 5 percentage points of the savings, while also minimizing disruption. This differential would be gradually phased out over 10 years.

The authors also overlooked our requirement that CMS review MA benefits and bids to ensure that they are in line with the difference in actuarial value (much as is done for Part D and MA today), which addresses their concern about plans “gaming” actuarial values, supplemental benefits, and bids.

Response to Specific Critiques

1. The authors’ critiques that MA plans might bid high to game the system or form a cartel to fix their bids to keep a region from moving to competitive bidding rely on unrealistic assumptions about the behavior of low-priced MA plans. Setting high bids to prevent the competitive bidding trigger would have to be done every year by the leading plan(s) at a cost of continuous loss in market share to other MA plans. The Federal Trade Commission (FTC) has also been very successful in prosecuting price fixing because it is a per se violation of the antitrust law.

Moreover, unlike in the commercial insurance market, dominant MA plans in a region are not at all the norm. According to CMS data compiled by the Kaiser Family Foundation, only 8 percent of MA enrollees live in a state where the largest MA plan has at least 50 percent of the market. The average market share of the leading MA plan in each state (MA enrollment weighted) is 36 percent.

In particular, the authors’ hypothetical (their Figures 1 & 2) about plans gaming bids by overstating basic Medicare costs and understating enhanced benefits would both be illegal and apparent to CMS, which has been a vigilant regulator of MA. Despite similar dynamics, it’s important to note that such malfeasance is not a problem in Medicare Part D

2. The authors argue that applying competitive bidding only to Medicare Advantage would result in little savings, but they minimize the significance of promising results from an earlier competitive bidding demonstration. In the late 1990s, CMS attempted to demonstrate MA (then known as “Medicare+Choice”) competitive bidding in four cities, as the authors acknowledge. Although the demonstrations were later blocked, MA plan bids in Denver came in 25 to 38 percent below what the government would have paid plans under the then-current administered system.

3. The authors maintain that MA plans will vigorously oppose the BPC reforms because they worry that the federal government “will favor its own FFS plan against MA plans locked in a competitive bidding system.” This ignores the crux of our long-term reform strategy. In reality, BPC’s proposal would freeze FFS provider payments and offer beneficiaries lower costs if they choose to join a Medicare Network or MA Plan, as well as providing Part D-like (reduced premium) incentives for beneficiaries to select lower-bidding plans. With providers facing strong incentives to form more organized systems of care, MA Plans able to offer lower cost sharing, and supplemental coverage restrictions in place, Medicare Advantage will remain a viable option for beneficiaries and will likely continue to grow in popularity.

Importance of Assuring Fiscal Responsibility

A cornerstone of the leaders’ agreement is the importance of reducing the rate of growth in health care costs in general, and Medicare costs in particular. The large savings associated with BPC’s recommendations result from the wide-ranging reforms that, taken as a package, promote more coordinated, quality-driven, and accountable care. As with any realistic Medicare package, achieving savings requires tough actions. Notably, the savings estimated for the BPC plan result entirely from the reforms; none is associated with a cap on the growth of spending. We — and our independent cost-estimators — believe the reforms will cause real changes in incentives and behaviors which, in turn, will cause spending growth to slow.

However, because of the importance of assuring fiscal sustainability, and in a “belts and suspenders” approach, starting in 2020 our proposal would introduce back-up per beneficiary (age-adjusted) caps equal to GDP per capita + 0.5 percentage points; these caps would apply separately to the growth of FFS, regional Medicare Network benchmarks, and Medicare Advantage benchmarks. The cap on MA benchmark growth also provides a backstop against any anticompetitive behavior driving up prices in a region.

Conclusion

The leaders of BPC’s Health Care Cost Containment Initiative and staff encourage continued dialogue to refine and clarify these proposals and their underlying principles. Achieving progress requires creative bipartisanship, fundamental changes in the status quo, and hard work to assure that innovative proposals are carefully assessed and refined to protect beneficiaries, providers and taxpayers alike.

Making progress in the current environment means that people must avoid reiterating previously held positions that have resulted in stalemate, looking instead for common ground. The goal of BPC’s recommendations is to move the ball forward as policymakers work to enact systemic health care reform that encourages providers to move away from volume-based reimbursement, holds providers accountable for quality, and engages patients in care decisions.

Note 1. BPC’s report also focuses on federal health-related tax policy reforms, as well as proposals for states and the federal government to encourage competition and price/quality transparency, create pathways to safe harbors, explore the potential of prevention and shore up the primary care workforce.

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