Health Affairs

It is increasingly well-known that improper payments cost taxpayers as much as $50 billion each year. These include reimbursements for billing for non-existent patients, falsified diagnoses, non-covered procedures, services not rendered or simply upcoded, as well as billing errors in favor of providers. Steps are being taken to address these issues through increased acceptance of approaches, tools and techniques from private industry and from industries outside of healthcare. More than just technology, some of the most powerful ideas to come along are that incentives matter, decentralization may achieve results faster and better, and stretch goals are crucial.

Scale of the problem

Safeguarding taxpayer resources and maintaining access to healthcare are clear public policy priorities. The Government Accountability Office (GAO) has long designated Medicare as a high-risk federal program due to its vulnerability to waste, fraud and abuse. Conservative estimates by the National Health Care Anti-Fraud Association are that improper payments represent 3 percent of national health care spending. The GAO and others estimate nearly 10 percent of the more than $500 billion in current annual Medicare payments are improper. At the same time, Medicare provides necessary — and often much needed — access to health care for 48 million Americans.

The release of average charges for common procedures in more than 3,000 U. S. hospitals last week by the Centers for Medicare and Medicaid Services (CMS) elicited divergent reactions – not surprisingly. On one hand, it was front-page news for most of the major newspapers: “Hospital Billing Varies Wildly, Government Billing Data Shows,” was the headline in the New York Times. The article went on to speculate that these new data would likely “intensify a long debate over the methods that hospitals use to determine their charges.”

On the other hand the data were “old hat” to most health policy analysts. Several colleagues mentioned to me that “this is old news” and “it isn’t meaningful at all because we all know that charges don’t mean anything.”

“No one pays charges” is the common refrain. “Charges are merely an accounting fiction.”

Charges Do Matter — They Matter A Great Deal

Counter to the belief of both hospital industry representatives and many of my colleagues, hospital charge levels and rapidly escalating charges matter a great deal. While individual states and the Affordable Care Act (ACA) have instituted limits on the amounts low-income uninsured patients pay hospitals, insured patients that receive care at hospitals that are “Non-Par” or “out-of-network” are still victims of hospital’s exorbitant charging practices. When patients receive emergency services at an out-of-network hospital, the patient and/or insurance company (depending on insurer cost sharing for out-of-network care) pay full charges.

High and increasing hospital charges, combined with increasing proportions of cases admitted through the hospital Emergency Department (ED), are major factors behind the ever-declining negotiating leverage of private health insurers. This situation, coupled with the increased pricing power of the ever-more-concentrated provider industry, will be a major contributor to the almost certain rapid escalation in total U.S. health care costs in coming years.

The torrent of Affordable Care Act guidance that marked the end of April has continued into May, as the Centers for Medicare and Medicaid Services (CMS) released on May 1, 2013, a Health Insurance Marketplace Guidance on the role of agents, brokers, and web brokers in the health insurance marketplaces, formerly known—and still referred to here—as the exchanges.

Agents and brokers are the traditional channel through which most Americans and their employers have purchased health insurance coverage. The ACA and implementing guidance offer new forms of assistance to help consumers enroll in insurance coverage, including navigators, in-person assisters, enrollment counselors, and the exchange itself with its call center and web portal. Nevertheless, if the exchanges are to fulfill expectations by signing up millions of Americans for health insurance coverage, agents and brokers, including web-based brokers, will pay a vital role. They will play a particularly important role in assisting small employers in signing up for the SHOP exchanges. This guidance describes their role.

Although the April 1 Call Letter from the Centers for Medicare and Medicaid Services (CMS) seemed to reverse proposed rate cuts to Medicare Advantage (MA) plans, the outlook for insurers still isn’t rosy. The “all-in” impact of the per capita rate increases will be offset by new risk coding intensity adjustments, shifts to fee-for-service parity, and the Health Insurance Tax, actually resulting in an expected 2-3 percent cut for MA plans for 2014.

The Call Letter also limits beneficiary cost sharing, a lever that plans have typically used to offset reductions. Such measures come on top of the potential risk of reductions from sequestration, which may lower fee-for-service (FFS) and health plan capitations by a further 2 percent per year.

The expected impact is lower than the original CMS proposal of 8 – 9 percent for 2014, but the announcement still serves as an urgent reminder of the endgame for Medicare— the rate cuts outlined in the Affordable Care Act (ACA) that will result in approximately 14 percent reductions in MA reimbursements, relative to pre-ACA reimbursements, by 2017. Traditionally MA has enjoyed a rate premium compared with FFS, often justified by the enhanced benefits available to members. These cuts, however, will put the plans roughly at parity.

Mark Grube, Kenneth Kaufman and Robert York’s analysis of the decline in hospital utilization rates leads the Health Affairs Blog most-read list for March. Also on the top-ten list are articles on: the human face of hospital readmissions by Risa Lavizzo-Mourey; the impact of the Affordable Care Act by Kathleen Sebelius; the health care workforce by Thomas Daschle; and physician payment reform by Bill Frist and Steven Schroeder.

The most-read list also includes David Muhlestein’s survey of the accountable care organization landscape; Diane Archer’s discussion of the effects of concentration in the health care market, and Jesse Singer’s look at the use of electronic health records by the New York City Primary Care Information Project. Also among the top ten are Tim Jost’s article about the role of federally facilitated and partnership exchanges; and an article by Sara Rosenbaum and Joel Teitelbaum on the impact of the Essential Health Benefits rule on persons with disabilities.

On April 5, 2013, the Department of Health and Human Services released its final Letter to Issuers on Federally Facilitated and State Partnership Exchanges. This letter lays down guidelines for insurers that will sell qualified health plans on the federal exchanges in 2014. A proposed version of this letter was published for comment on March 1, 2013, which I blogged about here. The final issuer letter tracks the proposed letter with few significant changes. In part because I am supposed to be on vacation in France and in part because of limited access to technology, I am not going to review the issuer letter in depth, but rather refer the reader to my earlier post, providing here only a brief overview of the final letter that highlights the respects in which it differs from the proposed rule discussed in my earlier post.

As the debate over federal budget allocations and cuts continues, the National Institutes of Health (NIH), a leading funder for both domestic and global health research, could experience a whopping $1 billion budget cut. To date, modest investments in global health have helped create platforms for discovery science, such as large multiethnic studies of genetics and epigenetics; transformative programs, such as the President’s Emergency Plan for AIDS Relief; and life-altering interventions, such as oral rehydration salts, now widely used in the management of dehydration caused by diarrhea. Not only would large cuts to the NIH slow our progress in improving health worldwide, but they would also be out of step with the burgeoning interest in global health at universities across the United States.

The Indian Supreme Court announced a decision this week that allows drug makers to continue developing cheaper generic versions of the leukemia drug Gleevec in that country. The case centered around whether certain patents held by the brand-name drug’s manufacturer were true inventions. The decision was shaped in part by the complexities of Indian patent law, which is considered far more stringent than U.S. patent policies.


The issue of secondary patenting or “patent evergreening,” to extend the life of a brand-name drug and whether secondary patents represent true innovation was the subject of an October 2012 Health Affairs article by Tahir Amin and Aaron Kesselheim.

A new Health Policy Brief from Health Affairs and the Robert Wood Johnson Foundation discusses the Multi-State Plan Program created under the Affordable Care Act. Under the program, at least two health insurance plans choosing to participate will offer coverage through every state-run, federally facilitated, and partnership exchange created under the law. Insurance companies meeting the eligibility criteria have until March 29, 2013, to submit applications to participate in 2014.

The program was created to enhance competition among health plans within the new exchanges. It will be administered by the federal Office of Personnel Management, or OPM, which also administers the Federal Employees Health Benefits program offering coverage through a variety of health plans.

On Monday, March 25, the Supreme Court will hear arguments concerning the legality under antitrust laws of “pay for delay” or “reverse payment” settlements, in which a brand-name drug manufacturer pays a patent challenger to keep the generic competitor out of the market until an agreed-upon date. A Health Affairs Blog post written last year, when the Supreme Court decided to take the case, FTC v. Watson Pharmaceuticals, provides a great overview of the issues that will be before the Justices on Monday.

In the post, Bill Sage of the University of Texas and John Golden of Harvard, examine the legal issues surrounding these controversial settlements. They also point out that, in deciding the case, “the Court will influence a much larger debate over innovation in health care markets.

As health care costs swell, the private insurance system that covers most working Americans is in crisis. Americans are paying higher and higher premiums for increasingly threadbare coverage, and employers are getting out of the business of providing health care altogether. Rising costs cannot be attributed purely to improving technology or increasing operating costs for providers, because Medicare has controlled per capita spending more effectively than commercial insurers that provide employer-sponsored coverage.

Rather, commercial insurers cannot contain costs because the pricing mechanism for medical services is broken. When it comes to health care, competition simply isn’t working.

Prices in the private sector are out of control. On average, private insurers pay 25 percent more than Medicare for physician services and 30 percent more for hospital care. What’s more, both public and private sector payment rates for doctors in America are far and away the highest in the world, and research suggests that these high rates are among the principal reasons health care is so much more expensive in this country than elsewhere.

These international gaps are much wider in the private sector. For instance, private payments for an office visit in the United States cost 70 percent more than those abroad, while public payments are 27 percent higher.

The loud cries warning that rising health care costs are going to destroy the nation’s economy have been shouted so often that the will to move firmly in any one direction has almost halted. We’ve all heard them: health care costs are unsustainable, excessive spending is fueling our nation’s debt, and despite high costs, health outcomes are behind much of the world and aren’t improving.

The way doctors are paid is one of the most significant drivers of escalating health care costs. The National Commission on Physician Payment Reform, which we chair, was formed by the Society of General Internal Medicine to provide the public and private sector with recommendations for transforming the way we pay doctors in order to rein in spending and improve quality.

On Monday, after a year of intensive study, the 14-member Commission issued a blueprint for exactly how to move the nation toward a physician payment system that will yield better results for payers and patients.

It is as natural for doctors, hospitals, health plans and others to aggressively affirm their “patient-centeredness” as it is for politicians to loudly proclaim their fealty to the hard-working American middle class. Like the politicians, the health care professionals no doubt believe every word they say.

The most accurate measure of “patient-centered” care, however, lies not in intentions but implementation. Ask one simple question ­– what effect does this policy have on patients’ ability to control their own lives? ­­­– and you start to separate the revolutionary from the repackaged. “A reform is a correction of abuses,” the 19^th-century British Parliament member Edward Bulwer-Lytton noted. “A revolution is a transfer of power.”

With that in mind, which purportedly patient-centric policy proposals portend a true power shift, and which are flying a false flag?

Falling Short Of Shifting Power

The two most prominent examples of initiatives whose names suggest power sharing but whose reality is quite different are so-called “consumer-driven health plans” (CDHP) and the “patient-centered medical home” (PCMH). Both may be worthy policies on their merits, but their names are public relations spin designed to put a more attractive public face on “defined contribution health insurance” and “increased primary-care reimbursement.

A bureaucracy-centric governing philosophy is spreading in health care, and with it comes heavy reliance on “experts” to determine how to curb costs outside the normal legislative and democratic process. This was embodied at the national level by the Affordable Care Act (ACA), and most recently at the state level in a new Massachusetts growth-capping... Read the rest of this entry »

The National Bureau of Economic Research (NBER) is organizing a conference on how organizational structure, management practices, and related innovations affect the costs, cost-effectiveness, and outcomes of health care, focusing on the hospital industry and health systems that have hospitals at their core. The organizers of the two-day conference, which will bring together economists, physicians, and policymakers, are Amitabh Chandra, David Cutler, Robert Huckman and Elizabeth Martinez.

Completed papers or detailed outlines and abstracts for potential presentation at the conference may be uploaded here. Papers, outlines, or abstracts must be submitted by February 28, 2013; authors will be notified about whether their paper has been included on the program by March 15, 2013. Accepted papers will also be invited for submission to a special issue of Health Affairs. Questions should be directed to confer@nber.org.

Americans remain deeply divided over health care. Liberals emphasize the goal of comprehensive, lifelong health insurance for every citizen. Conservatives emphasize the goal of a more competitive free market in health care, without government getting between doctors and their patients. Everyone shares the goal of reducing the runaway costs of health care in the United States, which are the highest in the world.

Many doubt whether the Affordable Care Act, aka ObamaCare, can achieve any of these goals adequately. One widely held goal it clearly cannot achieve is to improve the global competiveness of American companies by removing, from employers, the costly burden of providing health insurance for employees. What shall be argued here is that national health insurance achieves every one of these goals, but only in a form much like that outlined below, incorporating ten features.

The dramatic expansions in health insurance coverage included in the Patient Protection and Affordable Care Act (ACA) will give millions of low-income Americans greater choice in where and how they receive their health care. Until now, most of the discussion around our changing healthcare landscape has focused on the goals of payers and providers, rather than the needs and desires of patients. Although policymakers have emphasized the importance — and necessity — of engaging patients differently under reform, there have been few data to inform these discussions.

Against this backdrop, Blue Shield of California Foundation commissioned a series of representative, random-sample surveys of Californians aged 19 to 64 with household incomes less than 200 percent of the federal poverty level. The ultimate goal of these surveys is to bring the voices of low-income Californians into the conversation about how best to deliver care in the ACA-shaped future in order to inform policy choices and help providers prepare for a reformed healthcare system.

Resetting Expectations

The first report, On the Cusp of Change: The Healthcare Preferences of Low-Income Californians, based on a spring 2011 survey, revealed that fewer than half of low-income residents feel satisfied with their current health care and six in ten report being interested in switching to a new facility if they had the insurance to cover it. With full implementation of the ACA rapidly approaching in 2014, providers serving low-income Californians will have to change the way that they practice in order to retain their current patients, and attract those who are newly eligible for coverage.

For the third year in a row, national health spending in 2011 grew less than 4 percent, according to the CMS Office of the Actuary. However, the report said modest rebounds in pharmaceutical spending and physician visits pointed toward an acceleration of costs in 2012 and beyond. CMS’s analysts make much of the cyclical character of health spending’s relationship to economic growth and also forecast a doubling of cost growth in 2014 to coincide with the implementation of health reform.

This non-economist respectfully disagrees and believes the pause could be more durable, even after 2014. Something deeper and more troublesome than the recession is at work here. As observed last year, the health spending curve actually bent downward a decade ago, four years before the economic crisis. Health cost growth has now spent three years at a pre-Medicare (indeed, a pre-Kennedy Administration) low.

In a recent posting Richard Frank and Jack Hoadley argue in support of a proposal that would introduce Medicaid-style rebates into Medicare’s Part D drug program for the low-income subsidy population. The evidence argues against such a policy.

At the outset, however, it is important to note that we agree on the basic goal: a Part D program that displays effective cost containment in a very tight federal budgetary environment. The good news is that the existing program is quite successful in this regard. Since 2007 per capita costs in Part D have grown at a compound annual rate of 1.8 percent, while costs in Part A and B have grown at 3.6 percent and 3.7 percent, respectively. The program’s negotiated rebates between large purchasers and drug manufacturers, and the ability for consumers to compare plan prices and benefits, have resulted in lower than expected Part D spending overall. (In contrast, note that from 1990 to 2005, average annual drug cost growth in the Medicaid program was about 13.1 percent per year.)

What would the proposed policy do to improve on this record? Impose a rebate of $137 billion over the next 10 years (according to the Congressional Budget Office). On its face, imposing a Medicaid-style rebate to the low-income subsidy Part D population may sound appealing. Of course, just like the Medicaid rebate program, the Part D rebate proposal isn’t a market-driven negotiation between businesses seeking to serve a common market — it’s a government fiat.

A proposal to require manufacturers to pay a minimum rebate on drugs covered under Medicare Part D for those beneficiaries who receive the program’s Low-Income Subsidy (LIS) has received considerable attention during the current debate over the federal budget. Through mandating discounts in the form of rebates, this proposal would ensure lower drug prices than currently negotiated by private Part D drug plans.

A study by the HHS Inspector General in August 2011 found that rebates negotiated by private plans average about one-third the size of those received in the Medicaid program, where most LIS beneficiaries received drug coverage prior to the implementation of Part D. The proposal is scored by the Congressional Budget Office as achieving savings of $137 billion over 10 years (2013-2022) or about $15 billion in the first full year of implementation.

The rebate approach has been part of Medicaid drug pricing for over 20 years and includes three components. The rebate is set as the greater of (1) a minimum rebate, currently set at 23.1 percent of the average manufacturer price (AMP) for most brand-name drugs and (2) the difference between the AMP and the “best price,” defined as the lowest manufacturer price paid for a prescription drug by any private purchaser. In addition, if a brand drug’s AMP rises faster than inflation, the minimum rebate is increased based on the change in AMP compared to the consumer price index.

It has come to our attention that a number of interested parties have signed a letter, sponsored by the Council on Affordable Health Coverage, expressing concerns about this budget proposal. The analysis upon which the concerns are based is that by Douglas Holtz-Eakin and colleagues. They offer two arguments against this policy, which they claim would increase Part D premiums by 20 to 40 percent and shift costs to employers, Medicaid, and non-LIS Medicare beneficiaries. They are: