Medicare Payment, a System in Need of Fixing

[Ed. Note: We are pleased to welcome Andy Braver, Esq. back to Health Reform Watch. Andy is a health care attorney who recently completed an LL.M in Health Law at Seton Hall Law. Prior to entering the LL.M. program, Andy spent five years as a healthcare provider, running a state of the art medical diagnostic imaging center.  During that time, he dealt with many important health law issues faces by providers today, including Fraud and Abuse, Medicare and Medicaid licensing and reimbursement, state and private accreditation organizations, private payers, electronic health records, and HIPAA and other privacy issues, to name just a few.]

Medicare’s fee for service payment system has many problems that need fixing.  While recent studies have predicted that Accountable Care Organizations (ACOs) may very well achieve better care and lower costs, any savings generated as a result of these new groups of providers will be just a drop in the bucket solution to a vast problem.

Medicare was projected to spend over $500 billion on patient care in 2010.  Notwithstanding the fact that the White House Office of Management and Budget believes $36 billion of the Medicare and Medicare Advantage payments made in 2009 were improper.

The problem is, there is no distinction made for the provision of quality medical care.  Conversely, there is no check in the system to make sure that the care provided is inadequate.  If you provide the service, you get paid.

I realize that in many areas of medicine, it is difficult or even impossible to create a system to accurately and impartially judge the adequacy of care provided.  How in fact do you measure the ‘quality’ of healthcare?  Do you look at the structure of an entity, its organization and ability to provide what is generally regarded as good care?  Or do you look at the actual process or provision care, measuring relative malpractice claims among other objective factors?  Many believe that better outcomes suggest better care.  While I do not believe that outcome or evidence based medicine is the answer to every problem, it certainly can be a solution to some of these challenges.

There are differences in the Medicare program based on geography, and local coverage determinations and reimbursement rates, whether using the PPS or RVU systems (Part A & B), vary greatly across the country.  That part of the system makes sense by taking into account cost of living, cost of employment, property costs, and local tax rates.

In my mind, however, these processes fail because they do not further take into account advances in technology, or reward investment in the future.  For example, Medicare pays the same amount of money for an MRI exam regardless of the type of machine that was used to take the picture, and without a thought given to the type of storage system employed by the medical provider.  Imagine a facility with a two decade old system, state licensed and able to take pictures, with a machine equivalent to the first generation digital camera I owned 15 years ago, and printed pictures that are stored in a file room.  Then imagine a state of the art facility with an HD camera taking high resolution digital pictures, stored in an electronic file system, in a format that is able to be sent electronically to specialists all around the country (or world), and accessed by the patient quickly and securely on the internet.  Are those two pictures worth the same to Medicare?  There certainly is increased value to the patient in the ‘new’ system.  Better picture quality undoubtedly leads to better diagnostic capability (better medicine), and fewer picture redos over time; long-term storage and record portability is certainly going to lower future treatment costs if the issue is a chronic one.  HITECH and the new EHR incentive programs recognize the importance of electronic medical records, but it remains to be seen how those requirements will affect licensing and reimbursement rates.  Will there be a license ranking and a tiered payment system based on perceived quality or outcome?

I certainly hope that payments are tiered when advanced technology is used, but not according to self-assessment rankings and quality benchmarks.  I would argue that medicine is the one area where any kind of ranking and result (or outcome) based assessment is virtually impossible.   People are not cars, and JD Power cannot provide meaningful answers when it comes to medicine; there is no way to objectively determine a specific course of treatment for a particular patient is better at one hospital versus another.  No two patients are the same, though it is entirely possible they might both drive the same car.  Determining quality in healthcare is exceedingly difficult.  Patient bases are different, whether because of socio-economic reasons, or geography.  So do you then look to the education of the physician to determine quality?  We don’t do the same for lawyers?  Or do we?  Do you look at healthcare structure (how an entity is organized, its equipment, etc…) to determine quality?  Or process (the # of lawsuits against it, for example)?  Better outcomes alone do not mean better healthcare, and none of these items taken alone should affect licensing of healthcare providers.  In the end, this highlights the fact that designing a system that is fair and without major flaws may never be possible with so much money in the system and with so many parties having opposed interests. But that doesn’t mean we shouldn’t try to fix the expensive and broken (the status quo is unsustainable), it just means that attainable reform could very well mean significantly less unfairness and less major flaws. Because ultimately, in this context, the perfect may be the enemy of the good.

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

Gregg Bloche’s The Hippocratic Myth

Georgetown law professor Gregg Bloche’s new book, The Hippocratic Myth, looks to be a major contribution to health policy debates. I haven’t had time to read it yet, but many reviews and radio shows give the impression of a rigorous work leavened with engaging narratives of individual patients and providers.

Bloche’s approach to rationing will rekindle many of the health care debates of 2010. A former advisor to the Obama health policy team, Bloche concludes the following:

Medicine’s therapeutic potential has surpassed our ability to pay for it, but our elected officials are afraid to tell us. The historic health reforms enacted last year will protect 30 million Americans from the Darwinian cruelty of lack of access to care. But contrary to much wishful thinking in Washington, these reforms do little to stave off looming medical cost catastrophe. Our future fiscal and social stability will turn on our ability to gain control of spending without imperiling patients’ trust in their caregivers.

Bloche also observes the importance of the medical profession in upcoming bioethical debates:

Medical judgment incorporates hidden political and moral beliefs, and doctors have become key political and legal decision-makers—on such matters as child custody, criminal punishment, access to performance-enhancing drugs, and the politics of obesity, abortion, and homosexuality.

Doctors and the rest of us will need to address the morality of innovations we never thought possible. Drugs that block—or boost—biological mechanisms of stress resistance, brain-scanning methods that read minds, and medicines that interfere with formation of traumatic memories are among the technologies that will soon be with us.

During his interview with NPR’s Leonard Lopate, Bloche mentioned an aspect of insurer practice that renders suspect many consumer-directed ideals of medical care. Many insurers’ care protocols are kept secret, as proprietary information. Bloche found the practice deeply troubling, and I agree. Insurers’ criteria for providing care are important aspects of the service they are providing. They should not be hidden from patients or doctors. In more encouraging news, Bloche notes that he has not lost an appeal of a medical coverage decision to an insurer.

Enforceable Contracts for Cheaper and More Limited Care

Bloche seems committed to permitting consumers to make enforceable contracts for lower levels of care. Tyler Cowen recently evoked that possibility of ala carte insurance in his evaluation of the recent Ryancare proposal:

Let’s say it’s 2027 and I’ve just turned 65. I fill out a Medicare application on-line and opt for a plan with superior heart coverage (my father died of a heart attack), not too much knee coverage and physical therapy (my job doesn’t require heavy lifting), no cancer heroics (my mother turned them down and I wish to follow her example), and lots of long-term disability. Is that so terrible an approach? Is it obviously worse than having the Medicare Advisory Board make all of those choices for me?

Cowen worries that “Perhaps an individual will choose ‘no coverage for lung cancer,’ but the government cannot precommit to the outcome of no coverage.” But Bloche makes a point in an NPR interview that suggests that a physician’s decision to withhold care in that instance would not violate the Hippocratic Oath:

The rationale there is that the doctor who stints on care three years later when you get really sick is acting in accordance with your preferences as you expressed them in the employee benefits office three years before. And therefore, the doctor is not violating the Hippocratic Oath. The doctor is merely complying with your preferences when you rolled the dice in the employee benefits office.

Of course, that is in the private insurance context, not Medicare, and I don’t know if that distinction would make a difference for Bloche. But it does help me see how the book attracted a blurb from a Heritage Foundation analyst. Contemporary conservative health policy experts are committed to giving individuals the chance to buy low-cost plans, and so far the Obama Administration has been quite accommodating in granting waivers for them. My sense is that Bloche is committed to a minimum essential benefits approach that would allow consumers to opt out of “cancer heroics” (perhaps defined as biotechnology drugs costing over $7 million over one’s lifetime?), but not to waive “lung cancer” coverage generally.

Bloche argues in the book that:

[M]edicine’s capabilities and costs will inexorably grow. Increasingly, doctors will need to say no to care that’s technologically possible and that could prolong life, but that does so in competition with other national priorities. We must empower them to do so even when the consequences seem tragic. But we must give them this power without asking them to break faith at the bedside. To this end, the current regime of covert rationing, under cover of ‘medical necessity,’ should be supplanted by visible resource allocation rules–rules set for doctors and patients by social institutions. (58-9)

Transparency of this sort will compel us to come to terms the truth that insurers must say no to beneficial care to stay within the limits we impose when we seek low prices for products for products and services, elect politicians who promise low taxes, and choose cheaper health care plans for ourselves.

Though I hate to disagree with such an eloquent statement by so eminent a scholar, I am slightly troubled by that language. I think money saved from the health sector is more likely to go to new adventures in the Middle East or dot-com, housing, and commodities bubbles than it is to be allocated to “other national priorities.” Health care is only one of many sectors where US-style casino capitalism has seriously distorted capital allocation.

I also believe that the invocation of “we” here glosses over the moral role of redistribution in an extremely unequal economy. A privately insured person who really wants a procedure can spend himself down to bankruptcy, then apply for Medicaid. At that point, the government must make a decision. Given that “the government collected less in taxes in 2010 than it has in over three generations, and tax rates are at historic lows” for the very wealthy, I don’t think it is entirely fair to say “we” can’t afford certain care. Rather, those at the top of the income and wealth scale are increasingly supporting politicians who will not tax the wealthy. The current scarcity of care for the least well off is not a natural feature of the world; rather, it is epiphenomenal of repeated decisions not to impose certain tax burdens today even though they would have seemed perfectly fair 50 years ago. Since a “Wall Street transactions tax of only 0.50% on short-term speculation could raise up to $170 billion annually,” I fail to see an imperative to reduce incomes in the health sector until problems in much less socially productive sectors are addressed.

On the other hand, if our government “of the top 1%, by the top 1%, for the top 1%” continues, major cuts to the health sector are inevitable. If they must come, we need more trusted and fair voices like Bloche’s at the table. As Daniel Alpert has observed, “the U.S. has engineered a winner-take-all economy and indebted both the majority of its people and its government to keep a ‘don’t tax, but spend anyway’ consumerist fantasy alive.” Bloche helps us face the difficult task of unwinding the consequences of all those bad economic decisions.

Bloche is also admirably restrained in his sense of how much current law can do to rationalize health care spending. As he notes in a book excerpt:

30 percent of health spending [is] wasted on worthless care—about the price of the $700 billion mortgage bailout, squandered each year. . . [One study estimated that only] about 10 to 20 percent of medical procedures rest on “gold-standard” evidence — randomized clinical trials. . . . Risky and pricey therapies routinely make their way into common use without such studies. . . .

Change is looming. The 2010 health reform law created a “Patient- Centered Outcomes Research Institute,” funded by levies on Medicare and private insurers, to sponsor such research. But the funding level, less than a tenth of a percent of what Americans spend on health care each year, will do little to increase the fraction of medical decisions that rest on science. And the Institute’s governing body — composed mostly of representatives from the hospital, insurance, and drug and device industries, as well as physicians — seems almost designed to enable stakeholders to block studies that threaten their interests. Moreover, multiple provisions in the law (sought by providers and drug and device makers) hobble Medicare’s ability to base coverage decisions on research the Institute sponsors.

The mix of hope and realism in the paragraphs above reflects the judicious sensibility of the many Bloche articles I have had the good fortune to learn from. I look forward to reading his book.

Medicare, Hospitals, Serious Harm and Death

The Inspector General of the Department of Health and Human Services, Daniel R. Levinson, published an Op-ed in USA Today that is well worth considering.  The column, entitled “Medical mistakes plague Medicare patients,” speaks volumes. Levinson writes:

Today’s hospitals are modern-day marvels of healing, and we expect them to be models of patient safety as well. But a just-released report from my office shows that medical care is falling short for too many hospitalized Medicare patients. A decade after an Institute of Medicine study placed preventable medical errors among the leading causes of death in the United States, our latest study found that a disturbing number of hospitalized patients still endure harmful consequences from medical care, 44% of them preventable. These instances, which the report calls “adverse events,” include infections, surgical complications and medication errors

Such occurrences are not always preventable, particularly since many Medicare patients are elderly and have complicated health problems. But enough patient harm is avoidable to make a strong case for action. Hospitals must improve, but they need the help of lawmakers, medical professionals and patients to do so.

We’ve written about this issue before here on HRW (in the context of various calls for medical malpractice reform as part of health care reform and studies that show hospital staff neither washing their hands regularly nor utilizing the simple but effective surgical checklist). The Institute of Medicine study Inspector General Levinson referred to estimated 98,000 deaths per year. Last year I wrote:

Bloomberg reports that “The U.S. Institute of Medicine found a decade ago that medical errors kill 98,000 Americans a year” according to Les Weisbrod, president of the Washington-based trial lawyers’ group, the American Association of Justice.

According to Medical News Today, the medical error fatality figures above were supported by “Dr. Chunliu Zhan and Dr. Marlene R. Miller in a research study published in the Journal of the American Medical Association (JAMA) in October of 2003. The Zhan and Miller study supported the Institute of Medicine’s (IOM) 1999 report conclusion, which found that medical errors caused up to 98,000 deaths annually and should be considered a national epidemic.

A study by HealthGrades found more than twice that number in “potentially preventable deaths.”

And now this study. Look at the numbers; they aren’t pretty–and they cast some present doubt on the 98,000 number if one considers the rubric, “contributed to their deaths.” Levinson writes:

Errors prolonged hospital stays

This study began in response to a congressional mandate to determine the number of harmful medical events Medicare patients experienced, and the cost to taxpayers. My office arranged for physician reviewers to examine a random sample of 780 Medicare patients discharged from hospitals around the country during the month of October 2008.

Physicians determined that about one in seven patients (13.5%) experienced at least one serious instance of harm from medical care that prolonged their hospital stay, caused permanent harm, required life-sustaining intervention, or contributed to their deaths. Projected to the entire Medicare population, this rate means an estimated 134,000 hospitalized Medicare beneficiaries experienced harm from medical care in one month, with the event contributing to death for 1.5%, or approximately 15,000 patients.

That’s per month. Some quick math will give us the yearly death figure: 15,000 x 12 months = 180,000 per year. And that’s just Medicare patients.

The “seriously harmed” equals 1,608,000 per year. Again, just Medicare.

Levinson continues:

Strikingly, medication errors factored in more than half the patient fatalities in our sample, including use of the wrong drug, giving the wrong dosage, or inadequately treating known side effects. Such events were commonly caused by hospital staff diagnosing patients incorrectly or failing to closely monitor their conditions.

Less serious harm also occurred. An additional one in seven hospitalized Medicare patients experienced temporary problems, such as allergic reactions or injuries from falls. And many experienced multiple events, including an elderly heart patient who had six separate events during a single hospital stay. Obviously, this situation is unacceptable — and expensive, costing taxpayers more than $4 billion a year due to the need for additional treatment or longer hospitalizations (and even more if you add costs for follow-up care).

I’ve said it before and I’ll say it again. “Seemingly, one would define “defensive medicine” as that which a doctor [or hospital] does, which he or she would not do, if solely exercising his or her [or its] discretion without the fear of being sued. Therefore, might I suggest that “defensive medicine” is only excessive if the doctor’s [or hospital's] best estimation of the situation is correct.”

You can read the rest of Inspector General Levinson’s Op-ed here. He offers some direction– much needed direction.

CRS Issues Medicare Reform Summary and Timeline

The Congressional Research Service (”CRS”) released a November 3, 2010 report entitled Medicare Provisions in the Patient Protection and Affordable Care Act (PPACA): Summary and Timeline.  It outlines and summarizes the significant changes made to the Medicare program by the Patient Protection and Affordable Care Act (”PPACA”; P.L. 111-148), as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (”the Reconciliation Act”; P.L. 111-152).

Prior to the enactment of PPACA and the Reconciliation Act (”the Reform Acts”), the Congressional Budget Office predicted that total mandatory annual expenditures would increase “from $501 billion in 2009 to $943 billion in 2019.”  Under these health reform measures, the average annual rate of spending growth will reduce from 8 - 6%, resulting in approximately $390 billion in savings over the next ten years.

Medicare Changes by Provider Type and Program

The Reform Acts will have three primary affects on Medicare Part A coverage.  It will: 1) constrain payment increases, 2) restructure payments, and 3) reduce payments to disproportionate share hospitals by $22.1 billion from FY2015 to FY2019.

The Reform Acts are expected to directly and indirectly change the way Part B Providers organize, practice, and deliver care.  Medicare Physician Quality and Reporting Initiative (PQRI) incentive payments will be extended through 2014 and “an incentive (penalty) for providers who do not report quality measures” will be implemented in 2015.  The Reform Acts create other programs, including the National Pilot Program on Payment Bundling, the shared savings program (including the accountable care organization, or ACO, model), or the value-based payment modifier under the physician fee schedule.  Additionally, the Reform Acts will save approximately $196.3 billion over 10 years by constraining annual payment increases for certain non-physician providers.

The Reform acts will save $135.6 billion over 10 years by changing Medicare Advantage (Medicare Part C) plan payments.  PPACA will decrease many benchmark amounts by tying them to the per capita fee-for-service Medicare spending amounts.  At the same time, PPACA will increase benchmarks for certain high quality plans.  By 2011, coding intensity adjustments will be applied to plan payments.

PPACA will improve coverage under the Medicare prescription drug program (Medicare Part D) by closing the coverage gap between $2,830 in total covered drug spending and the catastrophic threshold of $6,440 (the “doughnut hole”).  “Enrollees will receive a 50% discount off the price of brand-name drugs during the coverage gap starting in 2011, and the coverage gap will be phased out by 2020.”  Access to and availability of low-income subsidies will be improved through increased funding.

Efficiency and Quality of Health Care Services

To increase the efficiency and quality of Medicare services PPACA requires “the establishment of a national, voluntary pilot program that will bundle payments for physician, hospital, and post-acute care services with the goal of improving patient care and reducing spending.”  This shared savings program is expected to save $4.9 billion over ten years.  Another provision establishing payment adjustment to hospitals for “readmissions related to certain potentially preventable conditions,” will likely save $7.1 billion over the next ten years.  Approximately $1.4 billion should also be saved through the institution of a payment penalty for certain common, high-cost hospital-acquired health conditions.

Finally, the creation of a Center for Medicare and Medicaid Innovation within CMS is expected to save $1.3 billion over the next 10 years.  Its purpose will be “to research, develop, test, and expand innovative payment and delivery arrangements to improve the quality and reduce the cost of care provided to patients.”

Medicare Sustainability

To address financing challenges, the Reform Acts have established several revenue producing mechanisms.  First, a new Hospital Insurance tax of 0.9% on high-wage earners (”over $200,000 for single filers and $250,000 for joint filers effective for taxable years after December 31, 2012″) and a new Medicare tax on net investment income will together raise $210 billion between 2013 and 2019.

Second, Part B and Part D beneficiaries will face increased premiums.  Part D premium increases will save approximately $11 billion over 10 years and adjustments to the high-income threshold for Part B premiums will save $25 billion over 10 years.

Finally, to reduce spending growth, PPACA establishes an Independent Payment Advisory Board empowered to adjust payment rates.  This Board is expected to save $15.5 billion between 2015 and 2019.

Fraud, Waste and Abuse

The amount of money lost to fraud is estimated to be between 3-10% of all health care expenditures.  To combat this problem, the Reform Acts allocate $260 million in increased funding for anti-fraud activities over the next ten years.

In Conclusion

Despite the projected savings resulting from PPACA and the Reconciliation Act, “the rising cost of health care, the impact of the aging baby boomer generation, and declining revenues in a weakened economy” will continue to challenge the quality and sustainability of the Medicare Program.  The report cautions that savings estimates are based on questionable assumptions.  Furthermore, such savings can either be used to defer solvency issues or expand health insurance coverage, not both.  Meanwhile, the practice of medicine is expected to undergo significant changes.

Despite the uncertainty in coming years, the CRS report will serve as a helpful guide and benchmark.  The appendices provide detailed tables of spending adjustments by provider and by year, against which continuing surveillance of spending growth can be monitored.

Two Courts Interpret Regulations to Expand Medicare Coverage

As first reported by the New York Times, two Federal District Courts have rendered decisions within the past six weeks that expand Medicare coverage for skilled nursing care (”SNC”).  According to the rulings, Medicare beneficiaries are entitled to such coverage without, as the government contends, proof that their condition will improve as a result of treatment.

In both cases, Medicare beneficiaries appealed final decisions of the Secretary of the Department of Health and Human Services (”Secretary”) denying Medicare coverage under, individually, Part A and Part C (a Medicare Advantage plan) of the Medicare Program.  Since Medicare Part A and Medicare Advantage plans are required to cover the same medical services under 42 C.F.R. § 422.101, the courts’ frameworks of analysis should be the same.  However, each court relied on various administrative provisions to support of the principle that Medicare beneficiaries are entitled to SNC to maintain stable health and prevent deterioration of capabilities.

Papciak v. Sebelius, 2010 U.S. Dist. LEXIS 102801

In Papciak, the eighty-one-year-old Plaintiff received seventeen days of inpatient SNC shortly after hip replacement surgery.  Medicare denied coverage for the last ten days of care, on the ground that she “had been determined to have met her maximum potential” after the first seven days, and therefore, only qualified for “custodial care” for the rest of her inpatient stay.

The US District Court for the Western District of Pennsylvania agreed with the plaintiff that the administrative decisions had failed to consider whether the plaintiff needed SNC to maintain her level of functioning.  The Medicare Skilled Nursing Facility Manual Chapter 2 §214.3 states that skilled nursing care “must be provided with the expectation that… [1] the condition of the patient will improve materially in a reasonable and generally predictable period of time, or [2] the services must be necessary for the establishment of a safe and effective maintenance program.”  Furthermore,

The Secretary’s regulations state that “[t]he restoration potential of a patient is not the deciding factor in determining whether skilled services are needed. Even if full recovery or medical improvement is not possible, a patient may need skilled services to prevent further deterioration or preserve current capabilities.” 42 C.F.R § 409.32(c) (emphasis added).

In light of the foregoing, the Court reversed the Secretary’s decision.  Because the Secretary had failed to consider the alternative reason for rehabilitative SNC, the decision could not be affirmed as a matter of law.

Anderson v. Sebelius, 2010 U.S. Dist. LEXIS 113550

In Anderson, the sixty-year-old Plaintiff required 24-hour supervision to remain safe in her home after a second stroke rendered her incontinent, cognitively impaired, and immobile.  Her physician certified six times that Anderson needed SNC for a 60-day period; however, she was denied coverage after the first of six physician-certified periods.  The US District Court for the District of Vermont held that the ALJ had incorrectly concluded that SNC is “not covered when a patient’s condition is stable and unlikely to change.”

To the contrary, “a patient’s chronic or stable condition does not provide a basis for automatically denying coverage for skilled services.”  The court cited the Medicare Benefit Policy Manual, which states:

The determination of whether a patient needs skilled nursing care should be based solely upon the patient’s unique condition and individual needs, without regard to whether the illness or injury is acute, chronic, terminal, or expected to extend over a long period of time. In addition, skilled care may, depending on the unique condition of the patient, continue to be necessary for patients whose condition is stable. § 40.1.1 (emphasis added).

Furthermore, a physician’s decision as to whether SNC was reasonable and necessary is to “be viewed from the perspective of the condition of the patient when the services were ordered and what was, at that time, reasonably expected to be appropriate treatment for the illness or injury throughout the certification period.”  § 40.1.2.1.  The Court held that the ALJ’s hindsight determination that the patient remained stable and did not improve during the certification period was inappropriate.  “The fact that skilled care has stabilized a claimant’s health does not render that level of care unnecessary. An elderly claimant need not risk a deterioration of her fragile health to validate the continuing requirement for skilled care.” (quoting Folland ex rel. Smith v. Sullivan).

Looking Ahead…

These rulings will likely benefit those with chronic conditions and disabilities.  Representative Joe Courtney, Democrat of Connecticut, led a group of seventeen House Democrats in objecting to the administration’s interpretation of the law.  According to their letter:

Beneficiaries are frequently told that Medicare will not cover skilled services if their underlying condition will not improve. For example, as people with multiple sclerosis are often not likely to improve, skilled services such as physical, occupational and speech therapies that are necessary to slow the progression of the disease, or maintain current function, are denied. As a result, these individuals’ conditions deteriorate — frequently leading to more intense, more expensive services, hospital or nursing home care.

The government has not announced whether it will challenge the decision.

CPI Says CMS Got RUC-rolled

Earlier this month, Ian Ayres questioned Medicare’s procurement auction rules. The Center for Public Integrity recently released an article that suggests Medicare’s process for deciding physician payments may also need a second look. Just as critics have charged that HHS relied excessively on a physician-allied group (the Council on Graduate Medical Education) in determining future health care work force needs, the CPI report makes a case that too much responsibility has been devolved from governmental decisionmakers to a private sector group, the American Medical Association/Specialty Society Relative Value Scale Update Committee (RUC). RUC’s dominant role in suggesting payment levels raises hard questions about price-setting in the health care sector.

Administered pricing can be a important tool of health care cost containment. However, the process of setting prices for various health care services is always at risk of capture by those who would profit from overpayments. By way of background, here is an excerpt on the resource-based relative-value scale [RB-RVS] that gave rise to committees like the RUC:
Read more

Our Own Devices

Health care finance is always going to be a contentious topic. Two recent stories about devices in health care show the unexpected ways in which technological innovation can generate new burdens, worries, and ethical dilemmas for patients and their families.

Katy Butler authored a heart-rending account of her father’s decline (and her mother’s near-exhaustion as a caregiver) in the NYT last week. Her father’s stroke changed both his and Butler’s mother’s lives:

The day before [the stroke], my mother was an upper-middle-class housewife who practiced calligraphy in her spare time. Afterward, she was one of tens of millions of people in America, most of them women, who help care for an older family member.

The story of what happens next is long and complex, but for health policy makers the nub comes down to a decision the family must make about whether to implant a permanent pacemaker when her father needs surgery to repair a hernia:

[T]he cardiologist, John Rogan, refused to clear my dad for surgery unless he received a pacemaker. . ..  The decision fell to my mother — anxious to relieve my father’s pain, exhausted with caregiving, deferential to doctors and no expert on high-tech medicine. She said yes. One of the most important medical decisions of my father’s life was over in minutes. . . .

[If my father's primary care physician had] had the chance to sit down with my parents, he could have explained that the pacemaker’s battery would last 10 years and asked whether my father wanted to live to be 89 in his nearly mute and dependent state. He could have discussed the option of using a temporary external pacemaker that, I later learned, could have seen my dad safely through surgery. But my mother never consulted Fales. And the system would have effectively penalized him if she had. Medicare would have paid him a standard office-visit rate of $54 for what would undoubtedly have been a long meeting — and nothing for phone calls to work out a plan with Rogan and the surgeon.

Medicare has made minor improvements since then, and in the House version of the health care reform bill debated last year, much better payments for such conversations were included. But after the provision was distorted as reimbursement for “death panels,” it was dropped. In my father’s case, there was only a brief informed-consent process, covering the boilerplate risks of minor surgery, handled by the general surgeon.

Butler’s family’s situation was clearly a troubling one. I do not agree with her harsher critics, who charge the New York Times has used her story to promote its political agenda:

The New York Times is continuing its promotion of the Obama administration’s cost-cutting health care legislation three months after it was signed into law. Central to the newspaper’s support for the bill is its drive to cut back on “unnecessary” treatments and procedures and to target for elimination “overly generous” insurance benefits. . . . The article is a cynical attempt to utilize the author’s family’s personal story—unarguably tragic and heartrending—to make the case that artificial pacemakers are being widely over-utilized.

But I was also troubled by Butler’s quoting the following studies:

In a 1997 study in The Journal of the American Geriatrics Society, 30 percent of seriously ill people surveyed in a hospital said they would “rather die” than live permanently in a nursing home. In a 2008 study in The Journal of the American College of Cardiology, 28 percent of patients with advanced heart failure said they would trade one day of excellent health for another two years in their current state.

I have not experienced “advanced heart failure,” but I know people who do, and it’s inconceivable to me that they would trade a day of “perfect health” for two months, much less two years, of stasis. Moreover, as Alasdair MacIntyre argues in his book Dependent Rational Animals, caring for others and being dependent are essential, important human experiences.

As I read Butler’s piece, I kept wishing that society had done more (perhaps along the lines of Britain’s Social Care programs) to help her family.

But even some forms of aid for the cared for (and their caregivers) are filled with philosophical complexities. Consider the Paro, a robotic seal I blogged about in last month and back in 2006. The Paro has been approved as “a Class 2 medical device (a category that includes powered wheelchairs)” to help soothe elderly patients. Here is one example of its powers:

One recent morning, staff at Marian Manor in Pittsburgh, one of Vincentian Collaborative’s homes, circulated three Paros among residents gathered for a sing-a-long. As 77-year-old Anita Biro sat down at a table, she berated two fellow residents and told them to leave, recalls Beth Kuenzi, activities manager for the home’s dementia unit. But when Ms. Kuenzi put Paro in front of Ms. Biro, her mood changed. As Ms. Biro stroked the robot’s synthetic fur, the machine batted its eyelashes and tracked movement with its head and eyes.

“I love this baby,” Ms. Biro cooed. Aides also take Paro to residents’ rooms to get them to socialize. At another Vincentian home, Lois Simmeth, 73, doesn’t always participate in group activities, but she ventures into the hall when she hears Paro’s sounds.

“I love animals,” explains Ms. Simmeth. She whispered to the robot in her lap: “I know you’re not real, but somehow, I don’t know, I love you.”

MIT Professor Sherry Turkle concedes that the Paro has some very good effects, but wonders “Why are we so willing to provide our parents, then ourselves, with faux relationships?” Another article explores advances in “building a machine that fills the basic human need for companionship.” Turkle, again, questions the larger social context:

[S]ome social critics see the use of robots with such patients as a sign of the low status of the elderly, especially those with dementia. As the technology improves . . . it will only grow more tempting to substitute Paro and its ilk for a family member, friend — or actual pet — in an ever-widening number of situations.

“Paro is the beginning,” she said. “It’s allowing us to say, ‘A robot makes sense in this situation.’ But does it really? And then what? What about a robot that reads to your kid? A robot you tell your troubles to? Who among us will eventually be deserving enough to deserve people?”

These are all fantastic questions, all-too-ready to be answered by techno-libertarian fantasists. I look forward to tracing the degree to which the decision to approve Paro as a covered device could reflect the larger ethical concerns explored by Dov Fox in his piece on the “gap between ethics and law” in other health decisionmaking.

Better Hospital Discharges = Lower Healthcare Costs?

[Ed. Note: We are pleased to welcome Jae W. Joo to HRW. Jae is a third year student at Seton Hall Law.  He graduated from Rutgers College in 2006 with a B.A. in Psychology and a minor in Philosophy.  In 2009, he interned for the Honorable Denise A. Cobham in the Superior Court of New Jersey. Currently, he is a summer intern at the New Jersey Attorney General's Tobacco and Securities Litigation Section, and also a research assistant for the Healthcare Compliance Certification Program at Seton Hall Law.]

With healthcare reform fresh out of the congressional oven, many changes are taking place in the field of healthcare and a myriad of new challenges will undoubtedly arise.  However, one of the perpetual challenges in the midst of all these changes has been the substantial amount of money needed to fund Medicare.  The Patient Protection Affordable Care Act is laden with economically efficient methods and plans to reduce costs.  However, as Lesley Alderman suggests in her NY Times article, a drastic cost saving measure may be implemented with a simple change in hospital procedure.

According to the article,

[In] a study published last year in The New England Journal of Medicine, one in five Medicare patients returns to the hospital within 30 days of being discharged. The problem is an expensive one: in 2004 these readmissions cost Medicare $17.4 billion dollars, the researchers also found.

As the study shows, readmission within 30 days of discharge has been costly and remains a substantial contributing source to the Medicare deficit.  However, discharge procedures rarely get the same level of attention as admission procedures to a hospital.

At discharge, the assumption is that the patient is better and all will be fine, said Dr. Eric A. Coleman, a geriatrician and professor of medicine at the University of Colorado Denver. But many patients, especially older ones, leave the hospital with a host of issues to manage. They may have additional medications to take, new symptoms to monitor and follow up appointments to keep, all of which require focused attention at a time when patients may not be at their sharpest.

What’s more, while insurers will pay for limited hospital stays, there’s no financial incentive for hospitals to insure that patients get and stay out. ‘A hospital may actually be financially rewarded for mishandled discharge,’ said Dr. Williams, chief of hospital medicine at Northwestern University. ‘If the patient is readmitted, they get paid again.’

While there may be a general lack of concern or awareness to improve conditions of patient discharge, Alderman’s article mentions some initiatives that have been taken to improve the discharge process.  Care Transition Intervention is a hospital-based program that helps reduce readmissions by coaching older adults on how to manage their health and take better care.  Project Boost provides hospitals guidelines to help standardize and enhance the discharge process.  Federal Centers for Medicare and Medicaid has a program to improve hospital hand-offs for high risk patients and has also been developing a program to incentivize hospitals to lower their readmission rates.

Whether or not hospitals decide to implement new discharge protocols and procedures, individual patients can help alleviate the financial burdens placed on the system by taking an active role in managing their health.  Alderman’s article points out a few tips to follow if a hospital does not have an up to date discharge procedure in place.  Following these simple tips can, it seems, make a big difference.

Community Health Law Project to Assist New Jersey’s Elderly and Disabled Save Money on Their Healthcare Costs

The Community Health Law Project (CHLP) has been awarded a grant to help seniors and individuals with disabilities save money on their healthcare costs. Founded in 1976, the Community Health Law Project (CHLP) is a non-profit advocacy and legal services organization with 10 offices located throughout New Jersey. CHLP President/ Executive Director, Harold Garwin said, “We are pleased to spearhead this initiative. It augments the Law Project’s mission to provide services to the elderly and disabled throughout the State of NJ, where so many people are eligible for benefits, but so few apply.”

The grant, made possible by the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), will be used to conduct community outreach activities and help eligible individuals apply for programs that can help them save money on their Medicare premiums, deductibles, coinsurance and/or co-pay costs.

Seton Hall Law Professor and CHLP Chairperson of the Board, Paula Franzese said “Like so many government programs, the eligibility and paperwork can be a little confusing. Fortunately this grant will allow us to get seniors and the disabled the help they need and are entitled to. The benefits can literally add up to hundreds of dollars per month.”

The programs promoted by the grant include the Medicare Savings Programs known as QMB, SLMB and QI-1; the Medicare prescription drug program’s Low Income Subsidy(LIS) (also known as Extra Help), and the state’s Pharmaceutical Assistance to the Aged and Disabled Program (PAAD).

It is estimated that only 33% of individuals eligible for QMB and 13% of those eligible for SLMB or QI-1 have actually signed up for benefits. Likewise only 53% of those eligible for LIS who are not automatically enrolled through their participation in Medicaid or SSI are believed to receive the subsidy.

Seniors and people with disabilities, especially those who now receive Medicare are encouraged to call the CHLP Hotline at 1-888-838-3180 to see if they might be eligible. Advocates are available 5 days each week from 9-5 to answer questions and provide assistance in applying. Staff is also available to make presentations to community groups and organizations who are interested in learning more about these cost saving benefit programs.

First Step in the Expansion of Medicare? Feds Assist Employer Health Plans for Retirees Age 55 +

During the Health Care reform debate, one of the many plans promulgated was to expand Medicare availability to persons aged 55 and up who are not otherwise insured. The argument on behalf of the initiative was simply that Medicare works, people like it, and it would not require the reinvention of the wheel. The system is already in place, we would just need to expand what is already there. In addition, even people who rail against “socialized medicine” seem to have an ideological (if not personal) soft spot for Medicare.

The initiative did not gain sufficient traction. There is, however, more than one way to skin a cat. The White House announced the other day that it would commence in helping to pay the medical bills for early retirees (55 and up) who have medical insurance through their former employers and are not yet eligible for Medicare.

The New York Times reports:

Under the program, the federal government can reimburse employers for 80 percent of the cost of claims from $15,000 to $90,000 a year for a retired worker who is 55 or older and not eligible for Medicare.

The primary goal it seems is to incentivize private employers to continue insuring retirees.  The Times quotes Valerie Jarrett, a senior advisor to President Obama:

“In 1988,” Ms. Jarrett said, “66 percent of large firms provided health care coverage to their retirees. Twenty years later, in 2008, the percent of firms offering coverage to retirees plummeted to 31 percent.”

Obviously, if one can indirectly continue private coverage for those over 55, one need not expand Medicare coverage to do so. But of course there remains those over 55 who are not fortunate enough, at present, to be covered by an employer retiree plan.

80 per cent of up to $90,000 is a large subsidy–by anyone’s standards. But the money will go to business which, for some reason, attenuates the subsidy sufficiently for the largesse to not be “socialism.” And businesses which benefit from such subsidies are not likely to complain–having now cultivated a personal, and thus ideological, soft spot for the program. Like Medicare.

Comment on Medicare Advantage and Prescription Drug Benefit Programs: Final Marketing Provisions (Parts III & IV)

[Ed. Note: This post is a continuation of a post we published the other day regarding "modifications and additions to initial marketing regulations implementing The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ("MMA"), which "established the Medicare Prescription Drug Benefit Program (Part D) and made revisions to [] provisions” of the Medicare Advantage Program.” The initial post, detailing the modifications, can be found here.]

By Michael Rabasca

PART III

The strongest argument against these final regulations is that they prevent eligible enrollees “from learning about their full range of healthcare options” and, thus, unduly hinder the market for Part C and Part D plans. (Federal Register, Volume 73, No. 182 at p. 54214). In order for consumers to make informed healthcare decisions, they need to have ready access to information. Marketing is all about the strategic distribution of information, and placing restrictions on plan marketing activities limits the information available to potential enrollees. Thus, regulating the marketing activities of Part C and Part D plans could lead to consumer ignorance and severely limit the choices of Medicare eligible individuals.

These new rules significantly hinder the ability of potential Part C and Part D plan participants to both obtain plan information and enroll in plans. Many individuals who are eligible for Medicare are hospitalized or living in nursing homes where healthcare is delivered. Under these rules, Part C and Part D plans would be unable to make marketing presentations, distribute enrollments applications, or collect completed applications from these individuals. Unfortunately, these potential enrollees are often the people who would benefit the most from enrolling in these plans and these regulations severely limit their ability to do so.

PART IV

I think that government oversight of Part C and Part D plans’ marketing activities provides vital protection to the individuals who are eligible to participate in these plans. I feel that Medicare participants are particularly vulnerable to questionable marketing practices, and these final regulations provide important modifications and additions and to CMS’s marketing regulatory scheme. Nevertheless, I am not convinced that these rules do enough to deter Part C and Part D plans from engaging in impermissible marketing activities. Although CMS may impose civil monetary penalties or marketing/ enrollment sanctions on plans that violate its marketing regulations, these penalties are merely discretionary. I agree with one commenter who suggested that CMS should mandate civil monetary penalties for plans that violate the marketing rules in order to ensure that violators are punished. (Federal Register, Volume 73, No. 182 at p. 54211). Additionally, I feel that CMS should provide some sort of financial incentive for both individuals and competing plans who report marketing violations in order to increase the likelihood that violations are discovered and reported. These additional enforcement tools would help to ensure that the new final marketing regulations serve their purpose by effectively protecting individuals who are eligible to participate in Part C and Part D plans from inappropriate marketing tactics.

Comment on Medicare Advantage and Prescription Drug Benefit Programs: Final Marketing Provisions (Parts I & II)

By Michael Rabasca

Part I

These rules represent modifications and additions to initial marketing regulations implementing The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (”MMA”), which “established the Medicare Prescription Drug Benefit Program (Part D) and made revisions to [] provisions” of the Medicare Advantage Program (Part C). (Federal Register, Volume 73, No. 182 at p. 54208). The Centers for Medicare and Medicaid Services’ (”CMS”) enacted these final regulations pursuant to §§ 1851(h) and 1860D-1(b)(1)(B)(vi) of the Social Security Act, which empower the CMS to “implement standards consistent with ‘fair marketing.’” (Federal Register, Volume 73, No. 182 at p. 54210).

The most significant aspect of these final regulations is the new restrictions they place on Part C and Part D plans’ marketing activities. Specifically, these rules prohibit the following:

(1) unsolicited direct contact with potential enrollees, including telemarketing (42 C.F.R. §§ 422.2268(d), 423.2268(d));

(2) selling non-healthcare related products during a plan marketing event or presentation (42 C.F.R. §§ 422.2268(f), 423.2268(f));

(3) conducting marketing presentations or distributing and/or collecting enrollment applications “in provider offices or other areas where healthcare is delivered to individuals, except . . . where such activities are conducted in common areas in healthcare settings” (42 C.F.R. §§ 422.2268(k), 423.2268(k));

(4) conducting marketing presentations or distributing and/or collecting enrollment applications at “educational events”  (42 C.F.R. §§ 422.2268(l), 423.2268(l)); and

(5) offering meals to potential plan enrollees at marketing events (42 C.F.R. §§ 422.2268(p), 423.2268(p)).

These regulations also implement new rules regarding CMS’s procedure for reviewing Part C and Part D plan marketing materials. Generally, Part C and Part D plans must submit all marketing materials to CMS at least forty-five days before distribution. (42 C.F.R. §§ 422.2262(a), 423.2262(a)). However, the regulations provide for an abbreviated “file and use” procedure, under which CMS deems certain materials approved five days after submission. (Federal Register, Volume 73, No. 182 at p. 5410). Previously, Part C plans could use the “file and use” procedure to obtain approval of marketing materials if: 1) the plan had a record of continued exemplary performance in CMS reviews of its marketing materials; or 2) the plan certified that the marketing materials in question did not contain “substantive content” or, alternatively, only used “model language already reviewed and approved by CMS.” (Federal Register, Volume 73, No. 182 at p. 54210).  Part D plans, on the other hand, could only obtain “file and use” approval through plan certification. (Federal Register, Volume 73, No. 182 at p. 54210). However, these final regulations “eliminate file and use status based on an organization’s track record” for Part C plans, and implement “a uniform policy of applying the file an use policy to marketing materials that either use model language without substantive modification, or materials identified by CMS as not containing substantive content warranting CMS review” for both Part C and Part D plans. (Federal Register, Volume 73, No. 182 at p. 54210-54211).

Additionally, these final regulations implement licensure requirements for plan marketing representatives. Specifically, the rules require Part C and Part D plans to exclusively use State licensed marketing representatives to conduct direct marketing activities targeted at potential plan enrollees. (42 C.F.R. §§ 422.2272(c), 423.2272(c)). Plans must also notify states that they are using licensed representatives in a manner that is “consistent with the appointment process provided for under State law.” (42 C.F.R. §§ 422.2272(c), 423.2272(c)).

Finally, these rules mandate that Part C and Part D plans make certain disclosures to plan participants. Under these final regualtions, plans must now disclose the information specified in §§ 422.111(b) and 423.128(b) to all plan participants both “[a]t the time of enrollment and at least annually thereafter, 15 days before the annual coordinated election period.” (42 C.F.R. §§ 422.111(a)(3), 423.128(a)(3)).

PART II

The best argument in support of these final regulations is that they provide necessary consumer protections. Generally, individuals age sixty-five and older, and people with disabilities are eligible for Medicare programs. This group of potential enrollees is particularly vulnerable to dubious marketing tactics. Allowing insurers to market their Part C and Part D plans unchecked could be harmful potential participants. Indeed, permitting plans to distribute information and solicit enrollment applications at any place and in any manner they chose has the potential to confuse potential enrollees and, in some cases, could result in plans coercing individuals into participating. Thus, a free market philosophy as to plan marketing practices is inappropriate in the Part C and Part D setting, and strict regulation is required.

These new rules protect consumers by: 1) prohibiting certain problematic marketing activities; and 2) limiting the places where plans may conduct marketing activities. Indeed, prohibiting Part C and Part D plans from offering meals or selling non-healthcare related products to potential participants prevents hurried “enrollments without personal attention to the appropriateness of the plan.” (Federal Register, Volume 73, No. 182 at p. 54215). Additionally, prohibiting plans from conducting marketing activities and soliciting enrollments at educational events and anywhere healthcare is delivered prevents plans from targeting individuals for enrollment when they are vulnerable to suggestion, and avoids the appearance that individual providers and facilities recommend or support specific plans.

CMS Protects Seniors from Renegade Marketers

By Samantha B. Lansdowne, MSJ, CCMEP

On December 8, 2003, the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) was enacted creating the Medicare Prescription Drug Benefit Program, better known as Part D, while revising the Medicare Advantage (MA) program, or Part C.  Since Medicare’s establishment by the Social Security Act of 1965, the creation of Part D is considered to be the most significant change to Medicare.  With the new regulations also came new rules relating to contracts, applications, bidding processes, and marketing.  The initial set of rules became effective March 22, 2005, and as the Centers for Medicare & Medicaid Services (CMS) gained more experience with the Part D program, a necessary revision was made to some existing marketing policies utilized by plans and their representatives in attracting seniors to their program.  On May 16, 2008, by way of its authority to establish marketing rules through rulemaking, CMS proposed new marketing regulations.

Subsequently, Congress passed the Medicare Improvements for Patients and Providers Act (MIPPA) on July 15, 2008, establishing new statutory marketing regulations for both the MA and Part D plans, which were similar or in some cases identical to the CMS regulations of May 16, 2008.  The MIPPA provisions enacted into statute the provisions that CMS had previously proposed, superseding the CMS regulatory proposals.  The new MIPPA regulations were to begin on January 1, 2009; however, CMS felt that some of the rules provided important protections for Medicare beneficiaries and should instead be in effect before the 2009 plan year marketing campaign began on October 1, 2008.  So in its authority to establish rules, CMS finalized on September 18, 2008 six new marketing provisions, in addition to modifying the disclosure and dissemination of Part D information provisions, and the file and use provision.

At the same time each year, senior citizens are barraged with information on which Medicare program they should enroll in.  They have several options to choose from: 1) the Original Medicare — a fee-for-service plan managed by the Federal Government, 2) Medicare Health Plans — health plan options that are approved by Medicare but run by private companies, 3) Medicare Prescription Drug Plans — plans that add prescription drug coverage to Original Medicare, some Medicare Cost Plans, some Medicare Private Fee-for-Service Plans, and Medicare Medical Savings Account Plans, and 4) Medigap (Medicare Supplement Insurance) Policies — health insurance policies sold by private insurance companies to fill “gaps” in Original Medicare coverage.  All of these options are “sold” through representatives of the various Medicare health plans.

During Senate hearings held in February 2008 on the topic “Selling to Seniors: The Need for Accountability and Oversight of Marketing and Sales by Medicare Private Plans,” state and federal regulators, plan sponsors, and consumers testified to “overly-aggressive, inappropriate, and sometimes deceptive practices used to market, sell, and enroll seniors into Medicare private plans.”  Therefore, CMS was concerned that plan representatives were engaging in sales and marketing activities that pressured beneficiaries to make plan selections for reasons other than those that best meet their healthcare needs.

The September 18, 2008 rule (CMS-4131-F) prohibited plans and their representatives from using the following “pressure techniques”: 1) contacting potential enrollees directly without the potential enrollee first initiating contact (examples include door to door solicitation, outbound telemarketing, or approaching an individual in a parking lot); 2) cross-selling of non-healthcare related products during Medicare sales or marketing activities; 3) providing of meals to prospective enrollees at promotional and sales events; 4) conducting sales presentations or distributing and accepting plan applications in provider offices or other places where healthcare is delivered, except in the case where such activities are conducted in common areas such as a conference room or cafeteria, and 5) conducting sales presentations or distributing and accepting plan applications at educational events, such as health information fairs or state or community-sponsored events.

In addition to the above changes in marketing, plans were now to hire and use only state-licensed representatives to conduct marketing activities in accordance with applicable State appointment laws.  This requirement helps to ensure that beneficiaries do not fall prey to under-educated, unscrupulous and or otherwise substandard representatives.  Further, plans are now to disclose certain beneficiary information at the time of enrollment, and fifteen days before the annual coordinated election period.  Disclosure of plan information continues to be an important feature that gives beneficiaries the necessary information in order for them to make an informed decision about their healthcare plan.

Lastly, CMS would no longer allow plans to file and use marketing materials within 5 days of submission (instead of the normally required 45 day period) based on their previous track record of consistently meeting all of the marketing standards set forth by CMS.  Instead, a uniform file and use policy will be applied to marketing materials that either use model language without substantive modification, or materials that are indentified by CMS as not containing substantive content warranting CMS review.  This will allow CMS to focus resources on materials that contain content that warrants further scrutiny.

As part of the rulemaking process, CMS received comments from managed care organizations and other insurance industry representatives, members of Congress, representatives of health care providers, beneficiaries, and many others.  While most comments were supportive, some of the proposed rulemaking was greeted with great opposition.  One concern was the time frame for implementation of certain provisions prior to the 2009 open enrollment period.  Critics wanted the new rules to go into effect after the 2009 period and others even argued for no sooner than 2010.  Another area that drew concern was the new uniform application of the file and use policy.  Opponents asked for additional clarification and even commented that there would be additional burden on CMS.  The new marketing rules attracted the most resistance.  CMS received many comments that the rules were overly restrictive, would prevent beneficiaries from learning about the full range of healthcare options available to them, and that further clarification was needed.  It is clear from reading the final rule though that CMS put a lot of thought into the changes being made.  Plans and their representatives will have no choice but to comply with the new regulations as both Congress and CMS favor the change.

Low Income Benchmark Methodology for Drug Plans Under Medicare

By Jason Halpin

Each year, Prescription Drug Plans (PDPs) and Medicare Advantage Prescription Drug (MA-PD) plans submit bids to the Centers for Medicare and Medicaid Services to determine what their beneficiary premia will be. And each year, Medicare calculates the Part D premium low-income subsidy (LIS or the “benchmark premium”) for low-income beneficiaries based on the new premiums.

The upshot of the annual change in both the beneficiary premium and the LIS is that one year, the subsidy could pay for a low-income beneficiary’s premium in its entirety, but the next year, the premium could increase or the subsidy could decrease, leaving the beneficiary with the possibility they could have to pay a monthly premium equal to the difference between the premium and the subsidy.

Fortunately for low-income beneficiaries, Medicare seeks to avoid this scenario. If full-benefit dual eligible beneficiaries do not actively choose a plan when they first enroll in Medicare, they are enrolled into a PDP plan where they would not pay a premium. If, in the following year, they would have to pay a premium, LIS-eligible beneficiaries may “elect,” by doing nothing, to be reassigned to a PDP with no premium. LIS-eligible beneficiaries can also choose to stay in their plan and pay a premium or pick another plan with or without a premium.

Unfortunately for low-income beneficiaries, those who are subject to reassignment may also be subject to the complexity and hassle of having to change their pharmacy and their medications, and perhaps having to get new prescriptions from their doctors. Congress and CMS, therefore, have adopted a policy of seeking mechanisms to avoid reassignment.

When establishing the guidelines for determining the LIS, Congress mandated, in 42 U.S.C. § 1395w-114(b), that weighted averages should be used, presumably to ensure that the benchmark premium accurately reflects the actual average premium for an individual PDP or MA-PD beneficiary in the region and is not skewed by outliers, such as a comparatively lightly subscribed PDP with abnormally low premiums. Maintaining stability in the benchmark premium helps to promote continuity for beneficiaries and cost predictability for the government.

Figuring out the precise formula for the benchmark premium is in the hands of CMS, pursuant to its authority to administer the Medicare program under 42 U.S.C. § 1395hh. Accordingly, on April 3, 2008, CMS issued a final rule, Modification to the Weighting Methodology Used to Calculate the Low-Income Benchmark Amount.

While 42 U.S.C. § 1395w-114(b) states that Part D premium amounts must be “weighted,” to calculate the benchmark premiums, it says nothing about what that weight should be. Prior to the promulgation of the rule the weight given a particular PDP or MA-PD plan equaled a percentage, with the numerator being the number of Part D eligible beneficiaries enrolled in the plan and the denominator being the number of Part D eligible beneficiaries enrolled in all PDP and MA-PD plans in the PDP region.

The new regulations change the formula such that the weight given a particular PDP or MA-PD plan now equals a percentage, with the numerator being the number of Part D LIS-eligible beneficiaries enrolled in the plan and the denominator being the number of Part D LIS-eligible beneficiaries enrolled in all PDP and MA-PD plans in the PDP region.

By changing the formula to reference only LIS-eligible beneficiaries, the rule gives more weight to the premiums of plans that serve more low-income beneficiaries. Proponents of this formulation argue that it stabilizes and, in general, increases the benchmark premium, thereby reducing the risk of reassignment.

As CMS suggested in its response to comments on the rule, PDPs typically support a greater share of LIS enrollment, thanks to auto and facilitated enrollment. PDPs also typically have higher premiums than MA-PDs because MA-PDs can apply Part A and B rebates to lower their Part D premiums. The rule’s proponents argued that giving more weight to the higher PDP premiums–due to their higher LIS enrollment–would push the benchmark higher, bring more plans under the line, and protect more beneficiaries from reassignment. CMS estimated that if  LIS-enrollment weighting were used in 2008, reassignments would have been reduced by 850,000 from 2.1 million.

Critics still cried foul. Because the rule, and its predecessor regulations, dictated that MA-PD post-rebate premiums (which are about $20 less than PDP premiums on average) be factored into the benchmark formula, MA-PD premiums exerted downward pressure on the benchmark regardless of the weight given PDPs, leaving more PDP plans than necessary above the line and forcing more reassignments than the critics would tolerate.

In 2009, the critics’ views were largely borne out. The predicted benchmark increases were less dramatic than anticipated; though 28 out of 34 regions experienced increases (CMS predicted 27 out of 34), the increases in six of these regions were negligible (50 cents or less). Six regions saw decreased benchmarks. In addition, 1.6 million LIS-eligible beneficiaries were reassigned to new PDPs, and 620,000 were notified they would need to either pick a new plan or start paying a premium; the anticipated reduction was not as large as CMS expected.

To its credit, however, CMS responded appropriately in 2009, establishing a Medicare Demonstration to use pre-rebate MA-PD premiums in the benchmark formula. This greatly reduces the skewing effect of low post-rebate MA-PD premiums. According to the Kaiser Family Foundation, the pre-rebate MA-PD premiums  are actually slightly higher than PDP premiums. The weight of LIS-heavy PDP premiums thus pushed benchmark premiums up in all but one region for 2010, and 1.1 million beneficiaries were reassigned.

While some critics maintain that CMS could do more to reduce reassignments, the methods they suggest have rightly been rejected by CMS. Critics suggest the similar options of either allowing plans to waive the difference between their premiums and the benchmark, or reinstituting CMS’ de minimis policy, whereby an LIS-eligible beneficiary left with a premium that is less than a de minimis amount after recalcuation and application of the subsidy would not have to pay that de minimis amount.

CMS rejected both ideas because both provide a disincentive to plans keeping their bids low. If plans knew they could reduce their premiums for LIS-eligible premiums regardless of the premium their bids produced, they would not even try to keep their bids low. Also, if a plan had to write off a large amount of its premium, the revenue estimates in its bid would be undermined.

While recrafting the benchmark formula has not eliminated all reassignments, it has been very successful in reducing them. The new formula has reduced reassignments by half since 2008 and assured that less than 10 percent of LIS-eligible beneficiaries are reassigned. While CMS must work on reducing this number further, the reformulation of the benchmark premium is a good start.

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