Reorganization of UMDNJ to be Implemented this Year

On January 25, 2012, after nearly a decade of deliberations and strategic planning, the University of Medicine and Dentistry of New Jersey Advisory Committee issued its Final Report pursuant to a directive from Governor Chris Christie. The Report calls for and explains a proposed reorganization and “complete overhaul” of the University of Medicine and Dentistry, which will most likely be known as the New Jersey Health Sciences University once the Committee’s recommended changes commence. The implementation of these changes are said to be of a high priority for the Christie  administration. UMDNJ is one of the largest public entities in the state, operating at an annual budget of $1.7 billion.

The Committee made the following recommendations, which have been endorsed by Governor  Christie:

• A revamped and recast health sciences university based in Newark, which they suggest be named the New Jersey Health Sciences University (NJHSU). This powerful academic institution, with significantly increased autonomy for three units — University Behavioral Health Care, the School of Osteopathic Medicine and the Public Health Research Institute — will establish the foundation for a new era of medical education and patient care in our State.

• An affirmative and strong endorsement of support for the critical mission and role of University Hospital for the Newark community and for the State. The Committee recognized the hospital’s vital role while also noting that its precarious fiscal position must be addressed. To that end they are recommending a public/private partnership that would provide for the improved operations and long-term sustainability of University Hospital.

• A broader, expanded research university in southern New Jersey comprised of the assets of Rowan University and Rutgers University in Camden and encompassing, as well, the Cooper Medical School of Rowan University.

• Reaffirms Committee’s interim recommendation for institutional realignment of UMDNJ’s Robert Wood Johnson Medical School, the School of Public Health and the Cancer Institute of New Jersey into Rutgers University.

The Report stresses the urgency of the action proposed, emphasizing, “The time is now.”

Medical education and health care delivery are– particularly as they relate to UMDNJ– enormously complicated, but not so complicated that decisive action on behalf of the State and for the State’s benefit should be put off any longer.

Pointedly, as U.S. attorney, Chris Christie “led a two-year federal takeover of the institution in 2005, after Medicaid fraud was discovered.” Governor Christie is reported as saying that mismanagement and the magnitude of  UMDNJ problems that have accumulated over the years have led him to believe that the structure and scope of UMDNJ, as is, can no longer be managed effectively.   As such, under the proposed plan the university will be broken down into component parts. Thinking that time is of the essence, Governor Christie has announced that the reorganization will take place this year.

Governor Christie has said that he recognizes that the University Hospital is indispensable to the well being of the people within the region. The Report proposes to place the management of the hospital under a long-term public-private partnership, with the hope that this will “[enable] continued high quality medical programs, increase efficiency in operations and investment in capital improvements in the future.”

Some Newark residents, however, are said to oppose the plan, citing fears that privatization and the splitting off of UMDNJ units will take away jobs and resources. In contrast, Governor Christie is said to believe that the initiatives will aid the state’s efforts to attract health care and biomedical companies, and avail the University of more funding opportunities. Further rationales for the Commission’s recommendations include the ability to quickly implement the institution’s research at the medical school to benefit patients and that the changes will add substantially to the infrastructure for pharmaceutical and biomedical research.

Newark Mayor Cory Booker, who is still reviewing the reorganization report, stated that he “welcome[s] sensible reform but I would stand shoulder to shoulder with other leaders to ensure our residents don’t suffer a decline in the quality and scope of available healthcare and that we maintain abundant medical education opportunities in North Jersey.”

Bill Requiring Licensure of One-Room Ambulatory Surgery Centers In New Jersey Dies in Gov. Christie’s Pocket

Governor Christie has pocket vetoed a bill that would have required one-room ambulatory surgery centers (ASCs) in New Jersey to be licensed by the State Department of Health and Senior Services (DHSS), as ASCs with more than one operating room already are.

More than One Room

Under current law (e.g., N.J.S.A. 26:2H-1 et seq.; N.J.A.C. 8:43A), ASCs with more than one operating room are subject to a variety of statutes and regulations, including that they must obtain a license that specifies the health care services they are authorized to perform (N.J.S.A. 26:2H-12(a)) and report certain information to DHSS on a quarterly basis (N.J.S.A. 26:25-5.1e).  ASCs providing surgical and related services must “obtain ambulatory care accreditation from an accredited body recognized by [CMS]” as a condition of licensure (N.J.S.A. 26:2H-12(h)).  They also must establish and maintain a uniform system of cost accounting, reports and audits; prepare and annually review a long range plan; and establish and maintain a centralized, coordinated system of discharge planning (N.J.S.A. 26:2H-12(a)).  The statute also assesses various fees, which it caps at $4,000 for applications for licensure or renewal and $2,000 for biennial inspections (N.J.S.A. 26:2H-12(b)).    Since 2004, licensed ASCs with gross receipts greater than $300,000 also must pay an annual assessment based on its gross receipts and the assessment, capped at $200,000 (N.J.S.A. 26:2H-18.57(b); N.J.A.C. 8:31A)), is deposited in the Health Care Subsidy Fund (N.J.S.A. 26:2H-18.58).

DHHS’s implementing regulations cover a broad array of topics, including the qualifications of  persons working at these facilities, housekeeping protocols, emergency equipment, disaster plans, physical plant requirements, and laundry policies and procedures (NJAC 8:43a-1 et seq.).   The regulations impose a biennial inspection fee (N.J.A.C. 8:43A-2.2(m), although DHSS’s web site says that it inspects licensed ASCs every three years.

One Room

ASCs with only one operating room presently escape this licensure requirement (and its corresponding regulatory demands) because they are defined as physician’s surgical practices, which are excluded from the definition of surgical facilities that must be licensed.   (N.J.S.A. 26:2H-12(g)(5); N.J.A.C. 8:43A-1.3)  While surgical practices do not yet need to obtain a license,  they must register with DHSS, which registration, in turn, carries a variety of conditions.  For one, they must “obtain certification by the Centers for Medicare and Medicaid Services [(CMS)] as [] ambulatory surgery center provider[s] or obtain ambulatory care accreditation from an accrediting body recognized by [CMS]” - similar to larger ASCs.  They also must annually report to DHSS data regarding patients serviced by payment source and staffing levels.   The Commissioner of DHSS has the ability to revoke, suspend, or deny an application for a registration if the surgical practice is not in compliance.   The statute also prohibits ownership, management, or operation of a surgical practice “by any person convicted of a crime relating adversely to the person’s capability of owning, managing, or operating the practice.”  (N.J.S.A. 26:2H-12(j)) One-room ASCs also are regulated by the State Board of Medical Examiners as private physician practices.  The BME has enacted regulations establishing policies, procedures, staffing, and equipment requirements when practitioners perform surgery (other than minor surgery), special procedures, and anesthesia services in an office setting (N.J.A.C. 13:25-4A).  The BME has the authority to investigate and bring a licensing action against any physician who fails to comply with these regulations (N.J.S.A. 45:1-18, 45:1-21).  One-room ASCs serving Medicare or Medicaid patients also must satisfy federal standards and be certified by CMS.   If a one-room ASC is certified by CMS, DHSS conducts inspections on behalf of CMS every four years.  DHSS and the BME (N.J.S.A. 45:1-18(c)) also may conduct inspections to investigate complaints filed about a one-room ASC.  But there is no present state requirement that one-room ASCs be inspected by the BME or DHHS.

One Rooms Cited for ‘Immediate Jeopardy’

A report issued by the New Jersey Health Care Quality Institute (NJHCQI) in April 2011 shined the spotlight on the lack of oversight of one-room ASCs.  NJHCQI reviewed reports of inspections in 2009 and 2010 of 91 ASCs in New Jersey that reportedly were funded by a one-time federal grant.  40 of the 91 inspected facilities were unlicensed one-room ASCs, 17 of which (43%) were cited for “immediate jeopardy,” which is “defined as noncompliance with established rules that has caused, or is likely to cause, serious injury, harm, impairment or death to a patient.”  (In comparison, 8 of the 51 licensed facilities (15%) that were inspected were found in “immediate jeopardy.”)   The cited violations included, among others, a variety of improper sterilization and infection control procedures; inadequate tracking of medications, including controlled substances and expired medications; improper anesthesia administration; and failing to have necessary emergency medications or an agreement to transfer patients requiring emergency care to a hospital.  The report concluded that, “[b]ased on this snapshot,  . . there is evidence that consumers may be at greater risk in unlicensed Surgical Practices than in licensed ASCs” (emphasis in original).  Thus, the NJHCQI urged the State to require regular inspections of one-room ASCs and warned patients, in the mean time, not to use these unlicensed facilities.

What Could have Been

S.2780 looked to close the regulatory gap between one-room and larger ASCs - for the most part.  The version that passed New Jersey’s Assembly and Senate on January 9, 2012 would have amended N.J.S.A. 26:2H-12 to require ASCs with one operating room to be licensed by DHSS within one year of enactment as an “ambulatory care facility licensed to provide surgical and related services.”  This licensure requirement would have replaced the current registration requirements.  DHHS, then, would have had to inspect one room ASCs, just as it inspects larger ASCs.

But S.2780 also included provisions that treated one-room ASCs differently than larger ASCs.  All one-room ASCs would have been exempt from paying the ambulatory care facility assessment required by N.J.S.A. 26:2H-18.57.  Those that are certified by CMS (whether in operation on the day of enactment or not) or accredited by the American Association for Accreditation of Ambulatory Surgery Facilities or other CMS-recognized accrediting body (and in operation on the day of enactment) would not have had to meet the physical plant and structural requirements detailed in N.J.A.C. 8:43A-19.1 et seq.  The rest of the one-room ASCs that fail these exemptions would still have been able to seek a waiver (N.J.A.C. 8:43A-2.9) of the physical plant and structural requirements, which the Commissioner could have granted if it would not have “endanger[ed] the life, safety, or health of patients of the public.”  These concessions seemed to respond to reported warnings from some one-room ASC owners that “a new fee and a potential requirement to remodel their offices might drive [them] out of business.”  The bill also would not have subjected one-room ASCs to the current restrictions on DHSS’s ability to issue new licenses to ASCs with more than one operating room (N.J.S.A. 26:2H-12(i)).

Jeffrey Shanton, chair of Advocacy & Legislative Affairs Committee for the New Jersey Association of Ambulatory Surgery Centers, is quoted as describing S2780 as “one of the most important pieces of legislation concerning the ASC industry in New Jersey in years.”  Reportedly, the New Jersey Hospital Association and the Medical Society of New Jersey joined NJAASC in supporting its passage (in addition to consumer groups, like NJHCQI).

But now, S.2780 is dead.  Governor Christie did not veto it - directly.  Instead, by not taking action on this bill, which was passed on the last day of the legislative session, he has killed it via a “pocket veto.”

Going Forward

Legislators can’t override a pocket veto, but they may re-introduce the bill and try again.  If they do, it seems eminently reasonable to require inspections of one-room ASCs, whether by DHHS or BME, as long as there is adequate funding and staffing to complete these inspections without draining resources from other critical public health programs.    It would be critical to ensure that the $2,000 inspection fee is sufficient to cover DHSS’s costs and that the Department would not be prohibited from hiring necessary staff to fulfill this legislative requirement.

The Legislature also should be sure public safety requires the one-size fits all regulation model that this bill proposed.  If the costs of complying are too high, small offices may not seek licensure as an ASC and cease performing procedures that patients may have appreciated.  Perhaps that’s an acceptable outcome, but the Legislature should study the public safety benefits against the potential costs on physicians and patient access to services.  The standard of care and quality should not vary in different settings, but perhaps there is a way for the level of formality and overhead to be in proportion to the size of the facility without compromising public safety.

It also is notable that S.2780 did nothing to resolve the existing tangle of issues caused when in-network providers refer their patients to out-of-network ambulatory surgery centers that then charge an out-of-network facility fee.    (Senator Vitale’s earlier amendment to S.2780 conditioning waiver of the ambulatory care facility assessment on the one-room ASCs’ agreement “not to charge patients or third party payors a facility fee, room charge, or other similar fee or charge” did not survive legislative negotiations.)  S.2780 also would have amended N.J.S.A. 45:9-22.5 to extend the exception to the Codey Act’s self-referral prohibitions for larger ASCs to one-room ASCs.  As Kate Greenwood has discussed, there are reasons to question the wisdom of this exception (much less to extend it).

While legislators tackle these issues, one-room ASCs still do not have to be licensed in New Jersey.  But the State may investigate complaints, so be sure to speak up, if you have concerns.  There are links here to check if a facility is licensed, get copies of inspection reports, file a complaint, and search for information about providers.

Photo (Pocket) by ArnoldRheinhold
Photo (Jeopardy!) by Justin_Levy via Flickr

Professor Frank Pasquale featured in The Record on ‘A Constitutional Right to Health Care’

Professor Frank Pasquale wrote a featured Op-ed in The Record, New Jersey’s most awarded newspaper, regarding a constitutional right to health care. Professor Pasquale, who is Associate Director of the Center for Health & Pharmaceutical Law & Policy and Editor in Chief of HRW, writes:

SHOULD the Supreme Court weigh in on America’s great health care debate? Yes. It should declare a constitutional right to health care.

This right is already enjoyed by prisoners. Law-abiding citizens deserve it, too.

The United Nations’ Universal Declaration of Human Rights states, “Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including… medical care.”

Many advanced countries have adopted - and lived up to - similar commitments.

Of course, that’s not on the Supreme Court’s agenda. Instead, it will decide whether to cripple last year’s health reform, known as the Affordable Care Act, by declaring the individual mandate unconstitutional.

I understand objections to the mandate. Cash-strapped Americans don’t deserve one more drain on their resources. I’m also not a fan of making people buy health insurance from private insurers. They waste a lot of money, and are one reason why U.S. doctors’ administrative costs are a whopping 400 percent higher than those in Canada.

If I designed the ACA, I’d have given everyone a public option, modeled on Medicare.

But I didn’t write the bill, Congress did. In precedents going all the way back to the 1819 case of McCulloch v. Maryland (and affirmed as recently as 2010), the Supreme Court has deferred to Congress’s constitutional powers to solve national problems.

Politics

The court risks looking political if it abandons that approach now. It has already jettisoned once-venerable holdings on campaign finance, equal protection and antitrust.

Read the full Op-ed here.

Defining Essential Health Benefits

As many of us just finished scurrying to fulfill our children’s increasingly unrealistic holiday wish lists (my six year-old wanted a laptop and a phone — hah!), it’s a fitting time to step back and think about what is essential.

Section 2707 of the Affordable Care Act (ACA) requires all non-grandfathered health insurance coverage offered in the individual or small group markets beginning in 2014 to include essential health benefits (EHB).  Section 1302 then largely leaves the task of defining this term to the Secretary of HHS, as long as EHB include these ten statutorily itemized general categories:

(A) Ambulatory patient services.
(B) Emergency services.
(C) Hospitalization.
(D) Maternity and newborn care.
(E) Mental health and substance use disorder services, including behavioral health treatment.
(F) Prescription drugs.
(G) Rehabilitative and habilitative services and devices.
(H) Laboratory services.
(I) Preventive and wellness services and chronic disease management.
(J) Pediatric services, including oral and vision care.

The statute also directed that the scope of EHB must be “equal to the scope of benefits provided under a typical employer plan.”  (For more background on EHB, see Timothy Jost’s recent blog post on Health Affairs.)

Given the complexity of establishing a national floor for coverage, it is not surprising that the statute was short on specifics, and stakeholders have been waiting for HHS to provide detailed guidance as 2014 gets closer and closer.

On December 16, 2011, the Center for Consumer Information and Insurance Oversight in HHS released a bulletin outlining HHS’s intended regulatory approach to defining EHB.  After balancing “comprehensiveness, affordability, and State flexibility” along with input from various camps, HHS’s “intended regulatory approach utilizes a reference plan based on employer-sponsored coverage in the marketplace today, supplemented as necessary to ensure that plans cover each of the 10 statutory categories of EHB.”  Specifically, HHS

intends to propose that EHB be defined by a benchmark plan selected by each State.  The selected benchmark plan would serve as a reference plan, reflecting both the scope of services and any limits offered by a “typical employer plan” in that State . . . .

The bulletin identifies four benchmark plan types for 2014 and 2015 (HHS will assess the benchmark process for later years based on experience and feedback): (1) “the largest plan by enrollment in any of the three largest small group insurance products in the State’s small group market; (2) any of the largest three State employee health benefit plans by enrollment; (3) any of the largest three national FEHBP plan options by enrollment; or (4) the largest insured commercial non-Medicaid Health Maintenance Organization (HMO) operating in the State.”  It also indicated HHS’ intent to propose a default benchmark plan if a State does not exercise its discretion to select its benchmark.

Under HHS’s intended regulatory framework, insurance providers could adopt the balance achieved by the State benchmark, but it must supplement the benchmark it if it does not include all ten ACA-required categories.  HHS solicited comments regarding “options for supplementing missing categories.”  HHS also intends to require plans to offer “benefits that are ’substantially equal’ to the benefits of the benchmark plan selected by the State and modified as necessary to reflect the 10 coverage categories.”  It wants to provide flexibility to adjust benefits as long as there is coverage in all ten categories, and the flexibility will be “subject to a baseline set of relevant benefits.”

This bulletin raises more questions than it answers.  HHS itself seeks comment on a variety of issues, including the definition of habilitative services, what to require when a benchmark plan does not cover one of the ten statutory categories, or whether to permit substitutions between (and not only within) categories, subject to “a higher level of scrutiny.”   What do terms like “substantially equal” or “higher level of scrutiny” mean in practice?

On a more macro level, the bulletin raises the classic tension between centralized, prescriptive programs and those that permit states flexibility.  On the one hand, permitting state flexibility may ease states’ objections to federal interference with insurance regulation, and permit experimentation to reflect  local circumstances.  As the bulletin recognizes, all states have their own benefit mandates, so the less prescriptive the federal EHB definition, the lower the risk it will conflict with state-specific mandate requirements.

Yet with devolution comes the possibility that state decisions will frustrate the achievement of the ACA’s policy goals.  It remains to be seen how HHS effectively will police the various state and local decision makers who will exercise this discretion to protect consumers from discriminatory behavior.   How powerful will HHS’s oversight be?  For example, HHS’s review of the scope of existing coverage of mental health and substance use disorder services revealed great variations in coverage.  How much variation is acceptable?  What is the substance of the “baseline set of relevant benefits” that is supposed to limit state  discretion?  What role will politics have in this state-by-state process?

These questions just scratch the surface and remind us how critical it is to engage in this debate.  Jason Millman, writing for Politico, noted that consumer groups have not yet taken “the sky-is-falling position” in protest of HHS’s intended regulatory approach even though they have advocated for specific, federal requirements.  The sky may not be falling, but there are important policy issues in play that will benefit from careful and deliberate airing.  Comments on the bulletin must be submitted by January 31, 2012 to EssentialHealthBenefits@cms.hhs.gov.

Here’s to a new year in which more of us realize the essentials we all  shouldn’t have to live without.  Happy and safe holidays!

The Nirvana Fallacy Among Health Care Cost Cutters

One of my fun little Christmas presents was the Gruber/Newquist/Schreiber comic book guide Health Care Reform: What It Is, Why It’s Necessary, How It Works.   It’s wonderfully illustrated and has a lot of good information.  It offers a very hopeful vision of what health reform can do.  It patiently explains the politics and policy that led to the ACA, portraying it as a compromise that both “left and right” should be able to support.

Unfortunately, the authors have chosen to portray virtually anyone who opposes the ACA, on both left and right, as either angry, exasperated, selfish, or unreasonable.  (This animated penguin reminds me of several of the characters in the book.) There are also some questionable implications in various parts of the book.  For example, on p. 21, it’s suggested that if employers didn’t have to pay so much for health care, they’d just pay that in higher wages to employees.  But in an economy where corporate profits are capturing “88% of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1% of the growth in real national income,” why should we assume that will happen? Workers’ share of national income is declining; they have little bargaining power.  We can’t extrapolate the economic projections of the “Great Moderation” era to today’s Great Recession, where employers are exploiting the desperation caused by high unemployment to hold the line on wages and benefits.

One other objection: check out this graphic (my apologies for the poor camera-work), which suggests the deep problem in the US economy is that we’re spending too little on military or homeland security expenditures, and too much on health care:

Read more

Health Affairs on Community Development

A Constitutional Right Not to be Bankrupted by Health Care Costs

Those challenging the ACA in court profess deep concern about government forcing citizens to buy insurance or pay a fine.  The fundamental harm here is monetary; it’s about being required to purchase insurance, not to use it (or to get any medical care at all).

If the Court agrees with them, why can’t there be a parallel monetary right not to be bankrupted by health care costs?  In the 1973 case San Antonio School District v. Rodriguez, the Supreme Court decided, by a 5-4 vote, that children did not have a constitutional right to education.  But at that time, at least four justices thought the state was obliged to make a decent education available to all.  Why can’t a future Court do the same for health care?

If the current Supreme Court were to declare the ACA unconstitutional, it would need to abandon several landmark precedents.  That’s not a problem for the Roberts Court; it’s already jettisoned once-venerable holdings on campaign finance, equal protection, antitrust, and voting rights.

For many Americans in these tough economic times, rights to education, housing, health care, and food are a lot more meaningful than the right to be free of an insurance mandate.  We the people can locate these ideals in a Constitution and a Declaration of Independence rich with grand and sweeping language.  If the ACA’s opponents can use our nation’s founding texts to undermine the ACA, those who care about meeting basic human needs need to gear up to use them to do quite a bit more.

Does the Fee Imposed by Section 9010 of the Affordable Care Act Apply to Stop-Loss Coverage?

It was the intent of Congress in enacting the Patient Protection and Affordable Care Act to regulate health insurance comprehensively. Most of the regulatory provisions of Title I (the insurance reforms) apply to “A group health plan and a health insurance issuer offering group or individual health insurance coverage.” The definitions of these terms are drawn from the definitional section of the Public Health Services Act (added by the Health Insurance Portability and Accountability Act), which defines a “group health plan” as an ERISA plan, and a “health insurance issuer” as “an insurance company, insurance service, or insurance organization (including a health maintenance organization, as defined in paragraph (3)) which is licensed to engage in the business of insurance in a State and which is subject to State law which regulates insurance.” 42 U.S.C. § 300gg-91(a)(1), (b)(2). Thus the ACA covers both self-insured ERISA plans and insured individual and group plans.

In fact, however, the ACA does not apply to all health insurance coverage, and does not apply to all health insurance coverage to which it does apply to the same extent.  HIPAA excepted benefit plans, including specific disease and fixed-dollar indemnity plans, and short term individual coverage are not subject to ACA requirements, and many of the provisions of the ACA that apply to individual and small group plans, including the essential benefit package, the risk adjustment program, and the risk pooling, community rating, minimum medical loss ratio, and unreasonable premium increase justification requirements do not apply to self-insured plans.  It is, therefore, important to read the ACA section by section to determine which requirements or prohibitions apply to which types of health insurance.

One particularly important provision that has not received enough attention is section 9010, “Imposition of Annual Fee on Health Insurance Providers” (at 811-815 in the link).   This provision is found in Title IX of the ACA, but was amended both by the December 2009 Managers’ Amendment, which became Title X, and by the Health Care and Education Reconciliation Act, enacted in March 2010.  Section 9010 imposes a fee, beginning in 2014, on a “covered entity’s net premiums written with respect to health insurance for any United States health risk.” The fee is determined by multiplying the fraction determined by dividing the covered entity’s net premiums by the net premiums of all covered entities that are taken into account under the statute times a set annual amount, which begins at $8 billion, but rises to $14.3 billion by 2018.  This fee will be an important revenue source for funding the ACA’s coverage expansions.

The fee imposed by section 9010 does not apply to all insurers equally.  Insurers with annual net premiums of $50 million are fully taxed on their revenues, while insurers with annual net premiums of $25 to $50 million are taxed on only half of their net premium revenues, and insurers with net premiums below $25 million are not taxed at all.  Certain tax-exempt insurers are also taxed on only half of their net premium revenues (after applying the small insurer discount just mentioned).

The fee also only applies to “covered entities.”  Section 9010(c) defines “covered entity” as an entity that “provides health insurance for any United States health risk,” subject to a number of exclusions.  These exclusions include “any employer to the extent that such employer self-insures its employees’ health risks;” government entities; certain non-profit insurers that derive 80% of their revenue from government programs; and VEBAs that are tax exempt under I.R.C. § 501(c)(9).What is the universe of “covered entities,” however, that remain subject to § 9010 after these exclusions are applied?

To answer this question it is necessary to parse the meaning of “health insurance” and “United States health risk.”  Both terms are defined in the section, but only in part.  “United States health risk” is defined to include the health risk of an individual who is a United States citizen, resident, or located in the United States. § 9010(d).  “Health insurance” is defined to exclude certain but not all forms or HIPAA excepted benefits (as defined in I.R.C. § 9832(c)), long-term care insurance, and Medicare supplemental insurance.  Nowhere in § 9010, or indeed anywhere in the Internal Revenue Code, however, are the terms “health insurance” or “health risk” defined.  Section 9010 tells us what “health insurance” is not, but not what it is.

The most interesting question is whether health insurance for a United States health risk includes stop-loss coverage.  The sale of stop-loss coverage to small employer groups is increasing very rapidly.  As noted above, self-insured small groups are not subject to many of the consumer and market protections that the ACA applies to insured small groups.  Self-insured group plans are also not subject to state regulation because of ERISA preemption.  There is thus a great deal of interest in the part of small group plans in self-insuring.  Small groups can only self-insure, however, if they can find generous stop-loss coverage that will assume most of the health risk of employees.  A small employer that fully assumed coverage for its employees without stop-loss coverage would face unacceptable risk.  Some insurers, therefore, are actively marketing stop-loss coverage, often with very low attachment points, to small groups.

Is this stop-loss coverage subject to section 9010?  It certainly is “insurance” and it certainly covers a “health risk.”   It also does not fit within any of the explicit exclusions from the term “health insurance.”  But is “stop-loss insurance” “health insurance”?  The term “health insurance” is nowhere defined in the Internal Revenue Code (which would be the relevant code since the fee is administered by the Secretary of the Treasury and the fee is considered to be an excise tax, see § 9010(f),(h)(1)).  “Health insurance coverage” and “Health insurance issuer” are defined in § 9832, but those are not the terms used in section 9010, presumably intentionally.  By analogy, the term “group health plan” is used throughout the ACA to mean an ERISA plan, but in § 1301(b) the term “health plan” is explicitly defined to not include self-insured ERISA group plans.  Wherever the term “health plan” is used in the ACA without the adjective “group,” therefore, it does not include self-insured ERISA plans, but where it appears with the adjective “group” self-insured plans are included.  Similarly, it must be presumed that Congress used the term “health insurance” to mean something different from the defined terms “health insurance coverage” or “health insurance issuer,” which terms are used throughout the ACA in different contexts.

Is stop-loss insurance that covers health care risks health insurance?  This is certainly a reasonable interpretation of the term.  Moreover, the fact that Congress explicitly excluded from the definition of “covered entity” risk borne by employers in self-insured plans, but not risk that they pass on to stop-loss insurers, indicates that Congress did not intend to exempt stop-loss plans from the fee.

Applying the fee to stop-loss coverage would help to level the playing field between conventional health insurers and health insurers that insure health risk through stop-loss plans, and might help stem the flood of small groups to self-insured status, which in turn threatens to undo the consumer protections extended to employees insured through small groups and the market protections built into the ACA to stabilize the small group market (such as the risk adjustment and risk pooling requirements).

Section 9010(c) tasks the Secretary of the Treasury with providing implementing regulations and guidance.  It is to be hoped that the Secretary will clarify through the regulatory process that the § 9010 fee applies not only to conventional insurance, but also to stop-loss insurance.  Stop-loss insurance increasingly serves as an alternative mechanism for covering the same health risks that are covered by conventional insurance, while at the same time providing a means of evading ACA consumer and market protections.  Section 9010 should be applied to stop-loss insurance just as it is to conventional insurance.

ACA Litigation, Implications for Medicaid and Mental Health Care

Receiving most of the attention and coverage following the passage of ACA has been the debate over the constitutionality of the individual mandate, in which Congress has required individuals to purchase health insurance.  This discussion has grown louder in the wake of the Eleventh Circuit’s Florida v. Health and Human Services decision, which invalidated the individual mandate as exceeding Congressional power under both the Commerce Clause and Taxing and Spending Clause.  As mentioned on this blog, that decision, along with the parties’ responses to it, has paved the road to Supreme Court review, likely early in 2012.

But also in the Eleventh Circuit’s decision — and a clear focus of the petitioners’ reply brief filed last week — is a discussion of whether, by expanding Medicaid under ACA, Congress exceeded its spending power.  This assertion was rejected by Judge Vinson in the Northern District of Florida, see Florida v. U.S. Dept. of Health and Human Svcs., 780 F.Supp.2d 1256, 1269 (N.D. Fla. 2011), as well as the Eleventh Circuit, see 648 F.3d 1235, 1268 (11th Cir. 2011).  The Eleventh Circuit relied on a few determinative factors to reject the argument:  (1) Congress has reserved the right to make changes to Medicaid, and the participating states were aware of this possibility; (2) the federal government will pay for nearly all costs of the Medicaid expansion; (3) states have “plenty of notice” to decide whether they want to continue to participate in Medicaid before the changes go into effect; and (4) it is not conclusive that states who do not participate in the new Medicaid lose their funding. Id. at 1267-68.

Putting constitutional concerns aside, petitioners’ argument, if adopted by the Supreme Court early next year, can work to undo much of the good the ACA accomplishes on the ground level, including the ACA’s positive effect on those living with mental illness.  Today, according to CMS, Medicaid pays for the mental health services of 58 million Americans. See Mental Health Services Overview, Centers for Medicare & Medicaid Services, available at https://www.cms.gov/MHS/ (last modified Sept. 6, 2011).  But according to an interesting Perspective piece in September’s issue of the New England Journal of American Medicine, the ACA would likely result in coverage for at least an additional “3.7 million currently uninsured people with severe mental illnesses and many more with less severe needs for mental health and addiction treatment.”  Colleen L. Barry and Haiden A. Huskamp, Moving Beyond Parity - Mental Health and Addiction Care under the ACA, 365 N. Engl. J. Med. 973-975 (Sept. 15, 2011).  Further, in addition to mandating that Medicaid benchmark plans and state-based insurance exchanges cover mental health services as part of an essential benefits package, the ACA assists in the coordination and implementation of more community-based services, from changing the waiver laws to assist the states in administering behavioral health services to establishing grants for further community outreach.  Id.

So instead of focusing on the individual mandate debate, those in the mental health field should note the Florida petitioners’ other target of attack — Medicaid expansion.  Already rejected twice, the ultimate resolution early next year will affect millions of mental health providers as well as those who use their services and will have a profound effect on the administration of mental health services in this country.

Clarifying the AIA question

I have had a great deal of off-line correspondence with several readers about the applicability of the Anti Injunction Act to all of the lawsuits challenging the minimum essential coverage provision. Thanks to everyone who has written; it has been extremely helpful.

I remain convinced, at least at this point, that the AIA poses a very serious threat to the Supreme Court’s hearing of any challenge to the individual mandate. That said, I think I have a clearer idea of the issues that will determine the resolution of that issue.

* First, and perhaps most important, there is a very real dispute as to whether one should see the mandate (codified at 26 USC 5000A(a)) as a stand-alone legal obligation, or instead merely as part of a provision that, taken as a whole, gives those persons covered by the provision a choice between acquiring health coverage and paying a penalty.

* Second, this matters greatly, for if 5000A(a) is truly a stand-alone legal obligation, it obviously is not a “tax” within the meaning of the Anti-Injunction Act (or the General Welfare Clause). It is simply a  command, an “economic mandate” in the words of Randy Barnett.

* Conversely, if the best way to see 5000A is in its entirety, giving “applicable individual[s]” a choice between either (a) buying insurance, or (b) remitting the applicable exaction on their tax return, then the provision might well be a “tax” within the meaning of the AIA, consistent with the reasoning of Judge Motz’s opinion in Liberty University.

There is much more to this issue. I think this question functions as a basic threshold, over which all other analysis of the AIA question must cross.

[Ed. Note: This post originally appeared on the aca litigation blog, an invaluable resource in following the various lawsuits pending against the Patient Protection and Affordable Care Act (PPACA or ACA). Bradley W. Joondeph, Professor of Law at Santa Clara Law School, publishes the aca litigation blog.]

Why the 11th Circuit’s Opinion on Health Care Reform Self-Destructs

Like a tragic literary figure, the 11^th Circuit’s opinion declaring the individual mandate unconstitutional is doomed to failure by its own internal contradictions.  What follows is a series of quotes directly from the opinion, paired to show how desperately the majority twisted logic in order to find its path to a unsupportable conclusion:

1.  On the key necessary and proper argument, the court obfuscated as follows:

The government’s argument derives from a Commerce Clause doctrine of recent [1995] vintage: . . . the “essential part of a larger regulation of economic activity” language in Lopez. . . . Raich [is the] the only instance in which a statute has been sustained by the larger regulatory scheme doctrine.

HOWEVER, the court was well aware that

The Supreme Court’s most definitive statement of the Necessary and Proper Clause’s function remains Chief Justice Marshall’s articulation in McCulloch v.Maryland: 17 U.S. (4 Wheat.) 316, 421 (1819).

2.  Wearing this historical and precedential blinder, the court framed the relevant test as whether the mandate is “essential” to the ACA’s overall regulatory scheme:

[W]e conclude that the Supreme Court’s “larger regulatory scheme” doctrine embodies an observation put forth in the New Deal case of Jones & Laughlin Steel Corp.: “Although activities may be intrastate in character when separately considered, if they have such a close and substantial relation to interstate commerce that their control is essential or appropriate to protect that commerce from burdens and obstructions, Congress cannot be denied the power to exercise that control.” . . . [The failure to purchase insurance] in no way “burdens” or “obstructs” Congress’s ability to enforce its regulation of the insurance industry. . . . The government’s assertion that the individual mandate is “essential” to Congress’s broader economic regulation is further undermined by components of the Act itself.

BUT, of course, “essential,” “burden,” and “obstruct” are not the operative tests.  Instead, the court itself explained earlier in its decision that a much more lenient rational basis test applies:

“the Necessary and Proper Clause makes clear that the Constitution’s grants of specific federal legislative authority are accompanied by broad power to enact laws that are ‘convenient, or useful’ or ‘conducive’ to the authority’s ‘beneficial exercise.’” . . . On the breadth of the Necessary and Proper Clause, the Comstock Court noted that The Supreme Court must determine whether a federal statute “constitutes a means that is rationally related to the implementation of a constitutionally enumerated power.” “[T]he relevant inquiry is simply ‘whether the means chosen are reasonably adapted to the attainment of a legitimate end under the commerce power’ or under other powers that the Constitution grants Congress the authority to implement.”

The court never invokes or applies this test, even though (and perhaps because) it is one that the government easily meets.

3.   On whether the mandate relates to commerce:

[W]e are not persuaded that the formalistic dichotomy of activity and inactivity provides a workable or persuasive enough answer in this case. Although the Supreme Court’s Commerce Clause cases frequently speak in activity-laden terms, the Court has never expressly held that activity is a precondition for Congress’s ability to regulate commerce–perhaps, in part, because it has never been faced with the type of regulation at issue here. . . . As an inferior court, we may not craft new dichotomies … not  recognized by Supreme Court doctrine. . . .

BUT, of course the decision was all about a new categorical limit:

[T]he Act is forcing market entry by those outside the market . . . Until Congress passed the Act, the power to regulate commerce had not included the authority to issue an economic mandate. Now Congress seeks not only the power to reach a new class of “activity”–financial decisions whose effects are felt some time in the future–but it wishes to do so through a heretofore untested power: an economic mandate. . . . [T]his distinction . . . in truth [] strikes at the heart of whether Congress has acted within its enumerated power. Individuals subjected to this economic mandate have not made a voluntary choice to enter the stream of commerce, but instead are having that choice imposed upon them by the federal government. . . . Never before has Congress sought to regulate commerce by compelling non-market participants to enter into commerce so that Congress may regulate them. . . . The individual mandate does not wait for market entry.

4.  On the slippery slope concern:

To connect this conduct to interstate commerce would . . .  allow Congress to regulate anything. . . . To give but one example, Congress could undoubtedly require every American to purchase liability insurance, lest the consequences of their negligence or inattention lead to unfunded costs (medical and otherwise) passed on to others in the future . . .

BUT, why is this any real concern, considering:

The fact that Congress has never before exercised this supposed authority is telling . . . Few powers, if any, could be more attractive to Congress than compelling the purchase of certain products. Yet even if we focus on the modern era, when congressional power under the Commerce Clause has been at its height, Congress still has not asserted this authority.  Even in the face of a Great Depression, a World War, a Cold War, recessions, oil shocks, inflation, and unemployment, Congress never sought to require the purchase of wheat or war bonds, force a higher savings rate or greater consumption of American goods, or require every American to purchase a more fuel efficient vehicle . . . .

5.  On the mandate’s fit with legislative purposes, the court complained that:

the individual mandate’s attempt to reduce the number of the uninsured and correct the cost-shifting problem is woefully overinclusive.

BUT, the court also criticized the mandate for being underinclusive:

Even if the individual mandate remained intact, the “adverse selection” problem identified by Congress would persist not only with respect to [the] eight broad exemptions, but also with respect to those healthy persons who choose to pay the mandate penalty. . . . Additionally, Congress has hamstrung its own efforts to ensure compliance with the mandate by opting for toothless enforcement mechanisms.

6.  The court thought the mandate is not necessary to regulate insurers because:

[T]he conduct regulated by the individual mandate–an individual’s decision not to purchase health insurance and the concomitant absence of a commercial transaction–in no way “burdens” or “obstructs” Congress’s ability to enforce its regulation of the insurance industry.

BUT, the court conceded there is universal agreement that the mandate is needed to combat adverse selection:

Distinguished economists have filed helpful briefs on both sides of the case. While they disagree on some things, they agree about the theory of adverse selection. They agree some relatively healthy people refrain from, or opt out of, buying health insurance more often than people who are unhealthy or sick seek insurance. This results in a smaller and less healthy pool of insured persons for private insurance companies.

AND, in an analogous regulatory arena (flood insurance), the court went to some length to explain that:

Without an “individual mandate,” the flood insurance program has largely been a failure. . . . One key reason for this low participation is not surprising. . . . People living in a flood plain know that even if they do not have insurance, they can count on the virtually guaranteed availability of federal funds.

7.  Finally, on the government’s burden of persuasion, the court reflexively said:

We, as all federal courts, must begin with a presumption of constitutionality . . . We are loath to invalidate an act of Congress, and do so only after extensive circumspection.

BUT of course how it really thought and reasoned was:

[T[he government has been unable, either in its briefs or at oral argument, to point this Court to Supreme Court precedent that addresses the[] constitutionality [or economic mandates]. . . . The government’s position . . .  affords no limiting principles in which to confine Congress’s enumerated power. . . . [T]he government’s insistence that we defer to Congress’s fact findings underscores the lack of any judicially enforceable stopping point . . . . At best, we can say that the uninsured may, at some point in the unforeseeable future, create [a] cost-shifting consequence. Yet this readily leads to a scenario where we must “pile inference upon inference” to sustain Congress’s legislation . . . . The government’s factbased criteria would lead to expansive involvement by the courts in congressional legislation, requiring us to sit in judgment over when the situation is serious enough to justify an economic mandate.

Cross-posted, originally appearing on Balkinization.

Mark A. Hall, J.D., is the Fred D. & Elizabeth L. Turnage Professor of Law at Wake Forest University School of Law and a regular contributor to Seton Hall Law School’s Health Reform Watch.  He is one of the nation’s leading scholars in the areas of health care law and policy and medical and bioethics and also teaches in the MBA program at the Babcock School and is on the research faculty at Wake Forest’s Medical School. He regularly consults with government officials, foundations and think tanks about health care public policy issues, and was recently awarded the American Society of Law, Medicine and Ethics distinguished teaching award. He is the author or editor of fifteen books, including Making Medical Spending Decisions (Oxford University Press), and Health Care Law and Ethics (Aspen). He has published scholarship in the law reviews at Berkeley, Chicago, Duke, Michigan, Pennsylvania, and Stanford, and his articles have been reprinted in a dozen casebooks and anthologies.

Center News: Greater Newark Healthcare Coalition, Improving Care Through Collaboration

The Greater Newark Healthcare Coalition is now in its second year and continues to pursue cooperative projects to improve health care for the most vulnerable in the Greater Newark area. Professor John Jacobi serves as the Coalition’s board chair. Other members include a range of health providers, consumer groups, and government agencies. The projects include:

Case management of frequent utilizers of hospital emergency departments. These very fragile patients will benefit from a sophisticated evaluation of their needs and referral to appropriate community placements. Professor Jacobi and Research Fellow and Lecturer in Law Kate Greenwood are working with clinicians on this project, and will produce analysis supporting a reconfiguration of health care funding to both improve care and reduce costs.

Improved prenatal care. The Newark area has a disproportionate number of mothers with poor access to prenatal care.The Coalition is working to bring together various organizations to improve prenatal care.

Preparing physicians for new practice models. Accountable care organizations and patient- centered medical homes require the increased adoption of technology and physician practice patterns that mesh with demands for quality and efficiency. The Coalition will conduct training sessions for area physicians.

The Center’s faculty and students are engaged and committed to lending expert support to the Coalition through legislative and regulatory advocacy and policy development, believing that the fruits of health reform will reach the most vulnerable only if providers, advocates, and regulators work together in cities like Newark.

WWJD? Health Care Reform and Catholic Social Thought

This Easter, I was struck by a thought while preparing for the day’s celebrations.  I was reflecting on the significance of the day and also thinking of a topic for this week’s post when that 1990s phrase came to mind: WWJD (”What would Jesus do?”).  Although it might be biting off a bit too much to speculate as to how Jesus would vote or how God would reform the American health care system, I have settled for the more modest task of applying Catholic social thought to the debates of the day.

Health Care as a Human Right

In 1963, Pope John XXIII stated in Pacem in Terris that man “has the right to bodily integrity and to the means necessary for the proper development of life,” including the right to “medical care” and “to be looked after in the event of ill health.”  This concept is reflected in a February 2009 publication by the U.S. Conference of Catholic Bishops (USCCB):

All people need and should have access to comprehensive, quality health care that they can afford. Access to health care should not depend on a person’s stage of life, where or whether one works, how much one earns, where one lives, or where one was born. Health care is a social good, and accessible and affordable health care for everyone benefits both individuals and society as a whole.

Although the Bishops call for universal access to affordable care, the means to such an end are left to policy-makers.  For instance, this could be obtained by setting price caps, instituting a single-payor system, or requiring every citizen to maintain a minimal amount of insurance.  With regard to the means, the Bishops call for a system that “respect[s] pluralism, offering a variety of options and ensuring respect for the moral and religious convictions of patients and providers.”

Who Should Be Responsible for Providing Health Care?

In Laborem Exercens, Pope John Paul II explains that it is the role of an employer to provide for “[t]he expenses involved in health care… medical assistance should be easily available for workers, and [] as far as possible it should be cheap or even free of charge.”  However, this is not to say that employers should be the sole providers of health insurance or health care.  Such a structure would neglect the dignity of the unemployed and it would render superfluous the many religious orders that provide health care as a part of their mission.  “Health care ministry is one way the Church continues Jesus’ mission of healing and care for the “least of these” (Mt. 25).”  Catholic health care remains the largest non-profit health care system in the nation, providing care to one in six U.S. patients.

The government also has a duty to protect citizens’ rights to “those things that make life human.”  In Pacem in Terris, Pope John XXIII calls on governments to “give considerable care and thought to the question of social as well as economic progress, and to the development of essential services,” including medical care and the provision of insurance facilities.  Even imprisoned criminals are entitled to receive “timely medical care.”  Furthermore, the U.S. Conference of Catholic Bishops has called on all Catholics “to ensure that everyone has access to those things that enhance life and dignity: decent housing, a job with a living wage, and health care.”

All stakeholders should be financially responsible for universal healthcare, according to ability to pay.  “A fair health care system assures society’s obligation to finance universal access to comprehensive health care in an equitable fashion, based on ability to pay.”  At a bare minimum, the legislatively structured system should reallocate wealth to the extent that all pay their fair share.

The Individual Mandate

The individual mandate, section 1501 of the Affordable Care Act, has been the most contentious (or at least most litigious) aspect of the Affordable Care Act.  As such, it raises the question: WWJD?  At the very least, the USCCB would design the system to create:

1)      effective measures to reduce waste, inefficiency, and unnecessary care;

2)      measures that control rising costs; and

3)      incentives to individuals and providers for effective and economical use of resources.

According to the District Court of the Northern District of Florida, the argument for the individual mandate is that “[w]ithout the individual mandate and penalty in place… people would simply ‘game the system’ by waiting until they get sick or injured and only then purchase health insurance (that insurers must by law now provide), which would result in increased costs for the insurance companies.”  Essentially, the individual mandate forces all individuals to pay their fair share into the insurance pool.  As a result, health insurance costs will decrease.

Although the individual mandate would spread responsibility for universal access to affordable health care, it does not address the three USCCB principles for socially beneficial health reform.  First, it fails to address inefficiency or create incentives for the economical use of resources (except that some may spend less on luxury items or vices to pay their insurance premiums).  Second, although it would reduce premiums, it fails to reduce costs.  Universal insurance coverage does not address the problem of moral hazard.

What the individual mandate does do, is redistribute wealth to the extent needed to cover all individuals and make health care more accessible to all regardless of ability to pay.  Although the individual mandate achieves one Catholic objective (universal, affordable access), it fails to truly “fix” the broken health care system.  More is needed to achieve “true reform” in the Catholic sense.

***

The satisfaction of universal needs, including adequate healthcare, is a constant endeavor.  In the words of Pope John XXIII: “What has so far been achieved is insufficient compared with what needs to be done; all men must realize that. Every day provides a more important, a more fitting enterprise to which they must turn their hands–industry, trade unions, professional organizations, insurance, cultural institutions, the law, politics, medical and recreational facilities, and other such activities. The age in which we live needs all these things.”

Why Reduce Health Care Costs?

One rare point of elite consensus is that the US needs to reduce health care costs. Frightening graphs expose America as a spendthrift outlier. Before he decamped to Citigroup, the President’s OMB director warned about how important it was to “bend the cost curve.” The President’s opponents are even more passionate about austerity.

Journalists and academics support that political consensus. Andrew Sullivan calls health spending a “giant suck from the rest of the working economy.” Gregg Bloche estimates that “the 30% of health care spending that’s wasted on worthless care” is “about the price of the $700 billion mortgage bailout, squandered every year.” He calls rising health spending an “existential challenge,” menacing other “national priorities.” Perhaps inspired by Children of the Corn, George Mason economist Robin Hanson compares modern medicine to a voracious brat:

King Solomon famously threatened to cut a disputed baby in half, to expose the fake mother who would permit such a thing. The debate over medicine today is like that baby, but with disputants who won’t fall for Solomon’s trick. The left says markets won’t ensure everyone gets enough of the precious medical baby. The right says governments produce a much inferior baby. I say: cut the baby in half, dollar-wise, and throw half away! Our “precious” medical baby is in fact a vast monster filling our great temple, whose feeding starves our people and future. Half a monster is plenty.

But when you scratch the surface of these sentiments, you have to wonder: is the overall level of health care spending really the most important threat facing the country? Is it one of the most important threats? There are many ways to raise revenue to pay for rising health costs. Aspects of the Affordable Care Act, like ACOs and pilot projects, are designed to help root out unnecessary care.

I am happy to join the crusade against waste. But why focus on total health spending as particularly egregious or worrisome? Let’s explore some of the usual rationales.

Terrible Tax Expenditures and Suspect Subsidies?

Employment-based insurance gets favorable tax treatment, and much Medicare and Medicaid spending is drawn from general revenues. So, the story goes, medicine’s big spenders don’t have enough “skin in the game.” Once health and wealth are traded off at the personal level (as the Harvard Business School’s Clayton Christensen advocates), people will be much less likely to demand so much care. Government can attend to other national priorities, or individuals will enjoy higher incomes and will be free to spend more.

I respect these arguments to a point, but I worry they partake of the “nirvana fallacy.” If I could be certain that leviathan would repurpose all those wasted health care dollars on infrastructure, or green energy, or smart defense, or healthier agriculture, I’d be ready to end tax-advantaged health insurance in an instant. But I find it hard to imagine Washington going in any of these directions presently.

Giving tax dollars back to taxpayers also sounds great, until one processes exactly how unequal our income distribution is. In 2004, “the top 0.1% — that’s one-tenth of one percent — had more combined pre-tax income than the poorest 120 million people.” To the extent health-related taxes are cut, very wealthy households may see millions per year in income gains; the median household might enjoy thousands of dollars per year. Sure, middle income families will find important uses for those funds (other than bidding up the price of housing and education). But at what price? What if the insurance systems start collapsing without subsidies, and more physicians (who are already expressing a desire to work less) start seeking out pure cash practices? A few interactions with the the very wealthy may be far more lucrative than dozens of ordinary appointments.

Consider the math: billing a $20,000 retainer from each of 50 millionaires annually may be a lot more attractive to physicians than trying to wrangle up 500 patients paying $2000 each—or, worse, getting the money from their insurers. There are about 10 million millionaires in the US; that’s a lot of buying power. One $10,000 score by a cosmetic dentist from such a client could be worth 400 visits from Medicaid patients seeking diagnostic procedures. Providers are voting with their feet, and a Medicaid card is already on its way to becoming a “useless piece of plastic” for many patients. Given those trends, simply reducing health care “purchasing power” generally risks some very troubling outcomes for the very people the health care cost cutters claim to protect. No one should welcome a health care plutonomy, where the richest 5% consume 35% of services, regardless of how sick they are.

Is Anyone Underpaid in Health Care?

Health commentators rightly draw attention to big insurer CEO paydays. Top layers of management at hospitals and pharma firms are also getting scrutiny. Wonks are up in arms about specialist pay. Read more

It’s Not the ‘Shared Savings’, Stupid: Why ACOs Under the Proposed Rule Will Change Medicine As We Know It

CMS got the Medicare Shared Savings Program (MSSP) proposed rule largely right, but not because of the actual “shared savings” that the ACO model is commonly associated with. Rather, the MSSP will usher in a shift from the practice of medicine as primarily an art, to the practice of medicine as primarily a science.

The explosion over the last 50 years of drugs and devices — and the studies and guidelines concerning their effectiveness — is staggering. Couple this explosion with the lack of effective means for physicians and health care providers to make sense of the information, and it’s not surprising that we have a bloated, inefficient, and costly system that fails to provide value commensurate with our health care budget.

This systemic problem is no secret. The HITECH Act attempts to target the health information technology (HIT) problem with an incentive program, and PPACA attempts to increase evidence-based medicine (EBM) with projects like the Patient-Centered Outcomes Research Institute. But a piecemeal approach does not ensure the necessary integration between HIT and EBM, nor sufficient incentives for industry to embrace them.

Why such faith in the MSSP?

Because if ACOs want to participate in the shared savings they must meet the dual requirements of EBM and HIT. It’s this double-envelopment — combined with the ‘carrot’ of shared savings — that will finally usher in a medical revolution.

Thomas Kuhn, a trained physicist who is better known for his contributions to the philosophy of science , introduced the idea of “paradigm shifts” that occur as science evolves. In “The Structure of Scientific Revolutions,” Kuhn posits that instead of a linear evolution of scientific discovery, the discovery of anomalies can force traditional explanations of natural phenomena to be questioned. If enough anomalies accrue that seriously undermine an accepted explanation, a “crisis moment” occurs. In this circumstance “a scientist’s world is qualitatively transformed [and] quantitatively enriched by fundamental novelties of either fact or theory and a scientific revolution is born.” But as Kuhn notes — with import to our discussion of the MSSP — prior beliefs and experiences can make accepting a new paradigm difficult for scientists.

Kuhn’s theory of the evolution of science helps to explain health reform, or the lack thereof. Our health care paradigm — the spending of significant resources on health care per capita — has accrued significant anomalies, most notably outcomes that do not match up with our spending. We have tried HMOs, PPOs, and every many other types of arrangements, but to no avail. We are in a “crisis moment.” And we have a new paradigm: health care decision making that utilizes EBM at the point of care.

And that, my friends, is where the savings will ultimately be found.

A 2004 study demonstrated that following evidence-based guidelines for the treatment of hypertension in the elderly would save $1.2 billion annually.

There is no shortage of similar studies showing billions of dollars, and better health outcomes, waiting to be unlocked. So why isn’t it occurring?

A new review by Stanford University’s Adam Elshaug, M.P.H., Ph.D., and Alan Garber, M.D., Ph.D. demonstrates that recent studies on complex vertebral spinal procedures point have “cast doubt on the magnitude of any benefits from these procedures and at worst established their ineffectiveness.” The studies have caused payers like Blue Cross to limit or withdraw coverage of the procedure. After analyzing the data, the authors found that a conservative estimate of the savings of scaling down the costly and ineffective procedure would yield between $450 million and $725 million depending on the continued use of the procedures.

But the authors make a crucial point at the end of their piece:

Of course, savings will be derived from [comparative effectiveness research] CER only if practice changes. In the United States, it’s unclear whether these studies are powerful enough to overturn coverage decisions or cut utilization of established procedures. . . ACA features such as bundled payments, shared savings programs, and outcomes-based payments offer mechanisms for stimulating the adoption of practices that are supported by CER and the abandonment of practices that CER calls into question.

I interpret this as an acknowledgment that we have enough data to start saving money and increasing care, but that we are stuck in a rut where the practice of medicine itself is having troubling embracing science, and we are relying on the payers to pick up the slack.

This is not to say that medicine can ever — or should ever — become entirely science-based. There are embedded values in the process of health care decision making that science cannot determine, such as a patient’s desire for aggressive treatment and the risks or costs they are willing to incur. Regardless, there is a baseline degree of science-based medicine that will improve quality, afford greater patient (and physician) autonomy, and decrease cost. Moreover,  studies have shown that better informed patients make more cost-effective choices.

The problem is our inability and/or our unwillingness to embrace the inevitable paradigm shift to a greater science-based medicine even during a crisis moment. That is where the MSSP double-envelopment strategy comes in.

CMS’s Double-Envelopment Strategy: Attract with the Savings, Surround with EBM and HIT

The MSSP allows an ACO, each year, to recoup some of the savings that they have realized in reference to a benchmark cost. There is a fairly complicated procedure for determining the actual savings that the ACO can collect, but the idea is simple: incentivize the health care providers to reduce the cost of care. Health care organizations are racing to form ACOs, but while doing so they are being surrounded by EBM and HIT requirements that will drive a shift in health care delivery.

With respect to EBM, the proposed rule requires ACOs to implement evidence-based medicine or clinical practice guidelines and processes in an effort to improve individual care, improve the health of the population, and lower the growth of health care expenditures. The guidelines and processes must cover diagnoses with “significant potential” for the ACO to achieve quality and cost improvements, taking into account the circumstances of individual beneficiaries. All ACO participants and suppliers/providers must agree to abide by these guidelines and processes, and must be evaluated for their compliance. The rule also states that remedial actions must be a possibility for non-compliance, and ACOs must have policies and procedures for ACO expulsion of participants and/or providers/suppliers.

On the HIT side, ACOs are required to have an infrastructure, such as information technology (which may include EHR technology that is certified for CMS’s incentive-based meaningful use program). This infrastructure must enable the ACO to collect and evaluate data and provide feedback to ACO participants and ACO providers/suppliers across the entire ACO, including providing information to influence decision making at the point of care. Moreover, fifty percent of the primary care providers of an ACO must be “meaningful users” as defined by the HITECH Act by the second year of their ACO contract. As others have noted, the meaningful use requirement is extremely aggressive when considering that the proposed rule allows ACOs to come online as soon as Jan 1st, 2012. Industry has seen the writing on the wall, and has responded with nothing short of an ACO arms race.

The ACO-driven Paradigm Shift

Thus, the proposed rule requires ACOs to leverage HIT to evaluate data and provide feedback to others in the ACO, and do it in such a way that the feedback influences decision making at the point of care.  In other words, it is setting the stage for informed decision making for both physician and patient alike. This is the holy grail of health care reform: that is, an HIT network with users that are reporting data that can be leveraged to enable providers to suggest treatments that are proven to have better outcomes for their specific patient, and to do so at the point of care.

This is in contrast to the current paradigm of managing costs by relying primarily on ex post decision making at the payer level. Often, however, the consumer who has their desired procedure or drug denied (for reasons often opaque to either the physician, insurer, or patient) will decide to pay out of pocket, and can go bankrupt in the process. In this case, no costs have been reduced, rather, they have been shifted to the consumer. While some insurers create and use HIT and EBM, their behind-the-scenes decision making has not been embraced by physicians or patients. That’s because patients trust their physicians, not their insurers. The locus of reform must be on the decision making at the physician-patient level, and that is precisely where the proposed rule places it.

The proposed rule also clearly addresses the fact that you can’t get new practices adopted if physicians have to, for example, minimize their EHR application, fire up their web browser, and start searching the Cochrane Collaboration or some other site for possibly relevant data. They are going to have to do it from within the HIT system.

There is an added benefit politically to this paradigm shift: if the focus is on data-driven doctor-patient decision making, we bypass the political push and pull often associated with determining what treatment is “medically necessary.” This would satisfy the progressive ideal of providing high quality care without overbearing cost-control, while also satisfying the conservative refrain that the doctor-patient relationship remains independent. If the process of creating EBM decision making is HIT-focused, it also encourages the antithesis of cookbook medicine by tailoring the process to the individual patient.

The Long View

Too much focus has been placed on the short term issue of how much money the ACOs can recoup. This is a valid worry for the industry, particularly the smaller practices that can’t afford setting up an ACO. The federal government must do whatever it can to allay these worries so that industry further strives to create the HIT-EBM framework that the shared savings program envisions. If it means increasing the percentage of savings that the ACOs can receive, then so be it. Or perhaps ACOs should come online a year later after the meaningful use stage of EHRs has progressed.

Regardless of how the final rule mitigates industry difficulties, the ACO model is our best chance at creating a true paradigm shift that will better provide the medically necessary and efficient delivery of health care resources. It may take 5, 10, or 20 years to robustly develop the systems and the data, but nobody said a medical revolution would be easy.

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