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!

Rising Health Insurance Premiums: Don’t Let Yourself Be Spinned

It’s not surprising that opponents of health reform are capitalizing on the rather surprising findings of the Kaiser Family Foundation’s Employer Health Benefits 2011 Annual Survey that the average annual premiums for employer-sponsored health insurance increased 8 percent for single coverage and 9 percent for family coverage from 2010.   These numbers don’t sound good.

But analysis by Jon Gabel, Senior Fellow at NORC at the University of Chicago, Roland McDevitt, Director of Health Research at Towers Watson, and Ryan Lore, Senior Associate at Towers Watson, which is summarized on the Commonwealth Fund Blog and will be detailed more fully in a forthcoming issue brief, shows that the vast majority of premium increases are not tied to health reform, and those that are relate to improved coverage.  As the authors summarize:

[Our analysis] attributes only 1.8 percentage points of the 8 percent to 9 percent rise in premiums to the insurance reforms. Moreover, this marginal increase as a result of the reforms also means that families have better coverage that protects them from catastrophic health care costs as well as lower out-of-pocket costs for preventive services like colonoscopies and mammograms. It’s logical that improvements in the quality of the product would increase the cost of premiums and lower out-of-pocket costs to some degree.

This is not to minimize the impact of these increases.  Any increase in premiums, especially in a challenging economy, warrants scrutiny.  But rather than rush to judgment on data taken out of context by spinsters with a political agenda, we must continue to carefully consider the full panoply of facts and how they interrelate.  While some premium increases in the group markets seem to be linked to health reform, are the benefits worth the costs?

For example, the study estimates that expanding coverage for adult children accounts for 0.9 percent of the premium increases and affects 91 percent of group policyholders; banning limits on lifetime maximum benefits is responsible for 0.5 percent in premium increases and impacts 53 percent of group policyholders; and requiring employers to offer certain preventive services without cost-sharing increases premiums by 0.4 percent and affects 24 percent of group policyholders.   The total additional annual cost of the increased premiums tied to health reform amounts to $167 per policyholder in the group markets.

It is critical to explore whether these enhanced coverage options warrant increased premiums.  While we do, we also should ensure the public is aware that there is more to the data than nearly 10 percent premium hikes so it does not get dizzy from the spin cycle.

Progress Not Perfection: More Insured Under PPACA

A UPI article (via the RWJF feed) notes that the PPACA provision that allows “young adults who are not full-time students to remain on their parents’ insurance plans until they are 26 years old,” has resulted in a gain of 600,000 additional persons to the insurance rolls in the first quarter of this year according to Forbes Magazine.

The article also notes that a recent Kaiser study shows that “46 percent more small businesses- those with 10 or fewer employees - were now offering health insurance to their workers.

The gain was prompted by a tax benefit offered in the Affordable Care Act.”

Looks like steps in the right direction. Read more here.

Insurers’ Profits Swell, Nation Can’t Afford to Get Sick, Can’t Afford to Get Well

Reed Abelson wrote an interesting piece in The New York Times recently– and it is worth considering. Entitled, “Health Insurers Making Record Profits as Many Postpone Care,” the first paragraph speaks volumes:

The nation’s major health insurers are barreling into a third year of record profits, enriched in recent months by a lingering recessionary mind-set among Americans who are postponing or forgoing medical care.

But still there is the push to further increase premiums– with “someday there might be a rainy day” a common refrain/justification among insurers.

I’ll leave alone for now the premium increases amidst what Abelson describes as “flush” reserve coffers and shareholders “rewarded with new dividends.” Res Ipsa Loquitur. But you may want to take a quick look at Reed Abelson’s article.

Having said that, I am taken again by the equation which is said to have filled those coffers: people too broke to get themselves fixed– despite having health insurance. It’s a calculus largely unto itself. In many articles here at HRW we’ve discussed how health insurance is unlike other commodities in the marketplace– averring that the economics of health care itself and that of health care finance may not be reckoned the same as say automobiles or butter and bread.

In this instance we consider health insurance– an asset, or benefit– garnered by an employee in return for work provided to an employer. Presumably, this benefit is received in lieu of an increased rate of pay– cash– that that employee would otherwise receive. The employee may also contribute to paying for the insurance out of his or her wages– once again lessening available cash. And the benefit is not utilized– for lack of cash, or the perceived inability to take time from work in the midst of a recession. But the premium is still, of course, paid.  I generally eat the butter and bread I buy.

With health insurance we pay for an assurance (mutually contracted with risk spread) that in the event we need medical care it will be available. An assurance that we will have the means at our disposal to get well, or at least for someone to try. Though at present, it seems, the economy itself (and the prevalent high co-pay/ deductible structure) has dictated that we are not available to receive the medical care we bargained for– despite it being, ostensibly, available. More years into a recession than I care to count, as a nation we can’t afford to get sick, and can’t afford to get well. For insurers, it’s a perfect storm of the optimal. Having said that, putting aside for the moment the prospect of the catastrophic, the employer/employee/health “benefit” seems somewhat illusory. And yet, unlike butter uneaten we will continue to buy it. That is the nature of insurance– you buy it and hope you don’t need it. Though “need” as of late seems to have been redefined economically. As such, it is a very sunny day for the umbrella salesmen– the umbrellas have been all paid for, but they only hand them out on rainy days. It seems the height of hubris to now seek more money for those umbrellas because someday it might rain– or just business as usual. Apparently the risk spread over time doesn’t include insurers.

Image by Karen Apricot

Health Insurance CEO Total Compensation in 2009

Last year we posted the Total Compensation for a number of Health Insurance Company CEOs for 2007 & 2008. Those numbers, culled from the companies’ SEC filings (Schedule 14A) appear immediately below. Below that are the numbers for 2009, courtesy of FierceHealthcare.com.

As you can see, the year has brought decreases for some CEOs (but not all). One wonders, discretion being the better part of valor, if the clamor for health care reform in full force during the course of 2009 counseled caution –at least for the time being– with regard to executive compensation. If the timing for further compensation has merely been adjusted so as to backload payments until after the health care reform debate is settled? As the clamor for health care reform has turned into a political clamor for reform of health care reform, I wonder what the 2010 numbers will be. If, perhaps, the wait for the Supreme Court to settle the individual mandate question– when insurers will know whether or not a country full of customers will be ushered into their pool, will influence compensation–and the timing of its public display. Either way, the numbers for 2009 pretty much speak for themselves. And not everyone on this list can be accused of prudence– Ms. Angela Braly of WellPoint received total compensation of $13,108,198 in 2009– which is more than $3 million more than her compensation the year prior. This, of course, is the same Angela Braly who evoked the wrath of many, including Secretary Sebelius, by raising premiums as much as 39% in California amidst allegations of systemic insurance recissions for women suffering from breast cancer. It should be noted, however, that part of her total compensation figure for 2009 included additional security, “in light of growing concerns regarding the safety of Ms. Braly.”

Last year we noted with some amazement that

…it has struck me that Aetna’s Ronald Williams received $24,300,112 last year. That’s $467,309.85 per week. That’s a house. Maybe not a house that Mr. Williams would live in, but a house nonetheless. The man makes a house a week. And interestingly enough, if Mr. Williams were to eschew the purchase of a house on any given week and instead look to deposit the money in a bank– in order to remain FDIC insured (up to $250,000)– he would actually need to open more than one account–every week. Lest we lament the fate of the other CEOs on the list, in 2008 Ms. Braly had to get by on $189,311.76 per week, and Mr. Hemsley had to somehow manage on $62,327.73 per week (but perhaps he was able to save a little from last year when he made $253,164.02 per week).

We’ll leave Mr. Williams of Aetna alone this year, as his compensation dwindled to a mere $18,058,162 in 2009. Though not particularly inclined to hear Mr. Williams’ recession story, he had to make ends meet on $347,272 per week.

I am somewhat interested in Mr. Allen Wise of Coventry Health Care though. Mr. Wise received $17,427,789 in 2009. His first year at the helm, some of that is signing bonus. Nevertheless, it amounts to an astounding 7% of Coventry’s net income. Yes, 7%.

As my own car, a 2003 Ford Crown Victoria, has recently exceeded 100,000 miles, I thought it might be interesting to look at this total compensation in terms of cars. More specifically, my car. I like my car, one of the last of the large American rear wheel drive sedans, and expect (knock on wood) that I’ll be driving it for some time to come. It’s paid off. It came with a full leather interior and eight cylinders of pure speed. In 2009, the list price for the car brand new was $29,115. I’ll suppose (perhaps foolishly, but hypothetically) for a moment that Mr. Wise lacked my haggling skill but liked and wanted the Crown Victoria– en masse.

In 2009 Mr. Wise’s could have bought 11.5 brand new Ford Crown Victorias per week, or 599 for the year.  Considering you can’t buy a new car in New Jersey on a Sunday, that’s almost 2 per day. And in case you were wondering, $17,427,789 per year comes out to $47,747 per day. If he tired of the Crown Vic, though anachronistic, he could also purchase a 2011 Mercedes Benz SLK 300 Roadster– each day.

Res Ipsa Loquitur.

Ins. Co. & CEO With 2007 Total CEO Compensation

• Aetna Ronald A. Williams: $23,045,834
• Cigna H. Edward Hanway: $25,839,777
• Coventry Dale B. Wolf : $14,869,823
• Health Net Jay M. Gellert: $3,686,230
• Humana Michael McCallister: $10,312,557
• U.Health Grp Stephen J. Hemsley: $13,164,529
• WellPoint Angela Braly (2007): $9,094,271
  L. Glasscock (2006): $23,886,169

Ins. Co. & CEO With 2008 Total CEO Compensation

• Aetna, Ronald A. Williams: $24,300,112
• Cigna, H. Edward Hanway: $12,236,740
• Coventry, Dale Wolf: $9,047,469
• Health Net, Jay Gellert: $4,425,355
• Humana, Michael McCallister: $4,764,309
• U. Health Group, Stephen J. Hemsley: $3,241,042
• Wellpoint, Angela Braly: $9,844,212

Ins. Co. & CEO With 2009 Total CEO Compensation

• Aetna, Ronald A. Williams: $18,058,162
• Coventry, Allen Wise: $17,427,789 (took over from Dale Wolf)
• WellPoint, Angela Braly: $13,108,198
• United Health, Stephen Helmsley: $8,901,916
• Cigna, David Cordoni: $6,593,921 (took over from CEO H. Edward Hanway)
• Cigna, H. Edward Hanway: $18,800,000
• Humana, Michael McCallister: 6,509,452
• Health Net, Jay Gellert: $3,643,342

From Viral Marketing to Medical Profile Contagion

As ACA implementation lumbers ahead, and challenges to it slouch toward the Supremes, the U.S. health care system’s arbitrary old ways continue to mystify and frustrate. Consider this story on one person’s quest to obtain insurance:

Most employees assume that if they lose their job and the health coverage that comes along with it, they’ll be able to purchase insurance somewhere. . . .My husband, teenage daughter and I were all active and healthy, and I naïvely thought getting health insurance would be simple. . . .

Then the first letter arrived — denied. . . .What were these pre-existing conditions that put us into high-risk categories? For me, it was a corn on my toe for which my podiatrist had recommended an in-office procedure. My daughter was denied because she takes regular medication for a common teenage issue. My husband was denied because his ophthalmologist had identified a slow-growing cataract. Basically, if there is any possible procedure in your future, insurers will deny you. . . .

As I filled out more applications, I discovered a critical error in my strategy. The first question was “Have you ever been denied health insurance”? Now my answer was yes, giving the new companies reason to be wary of my application. I learned too late that the best tactic is to apply simultaneously to as many companies as possible, so that you don’t have to admit to a denial.

As was recently reported, “50 to 129 million (19 to 50 percent of) non-elderly Americans have some type of pre-existing health condition.” The “health care market” is sending a strong signal: don’t step out of the system if you have any continuing need for even minor care.

But what’s more worrisome are the types of information circulating about you that you aren’t even aware of. Consider this story from Businessweek about the profiling of insurance applicants by third-party intermediaries:

Most consumers and even many insurance agents are unaware that Humana, UnitedHealth Group , Aetna (AET), Blue Cross plans, and other insurance giants have ready access to applicants’ prescription histories. These online reports, available in seconds from a pair of little-known intermediary companies at a cost of only about $15 per search, typically include voluminous information going back five years on dosage, refills, and possible medical conditions. The reports also provide a numerical score predicting what a person may cost an insurer in the future. . . .

[A] 57-year-old safety consultant in the oil and gas industry, says he tried to explain that the medications weren’t for serious ailments. The blood-pressure prescription related to a minor problem his wife, Paula, had with swelling of her ankles. The antidepressant was prescribed to help her sleep—a common “off-label” treatment doctors advise for some menopausal women. But drugs for depression and other mental health conditions are often red flags to insurers. Despite his efforts to reassure Humana, the phone interview with the company representative “just went south,” Walter recounts. He and his wife remain uninsured [as of 2008].

Health-related data from a wild west of unregulated intermediaries may spread to employers and other decisionmakers, just as credit scores have migrated from the bank context to influencing insurance pricing, and credit histories now influence employers. Sharona Hoffman has observed that “It is not uncommon for employers to obtain applicants’ and employees’ medical records. According to one source, every year, over ten million authorizations for release of medical information are signed by workers prior to the commencement of employment.” She has predicted disturbing possibilities arising out of that access to data:

Existing laws, including the ADA, GINA, HIPAA, and their state counterparts, provide important assurances to applicants and employees but are insufficient to guarantee that they will suffer no ill consequences as a result of EHR disclosure to employers. Employees may be especially concerned in times of recession, knowing that financial pressures make workers with health problems particularly unattractive to employers. Employers or their hired experts may develop complex scoring algorithms based on EHRs to determine which individuals are likely to be high-risk and high-cost workers. In addition, in times of financial difficulty, limited resources may be available to implement technology and policies that will secure EHR confidentiality.

Secondary uses of health data could be a very lucrative niche for profilers of the future.

Given these possibilities, individuals should at least have the right to access and correct the health data that intermediaries have compiled about them. The FTC recognized this right, and “forced the [insurance] industry to begin disclosing the use of prescription information under . . . the Fair Credit Reporting Act. . . . Copies of prescription reports are supposed to be available to consumers at no charge under federal law.” This is a small step forward. But if the “scores” assessing individual risk are compiled according to proprietary algorithms, the consumer may still feel “in the dark,” unable to adequately influence the presentation of herself to the insurer.

As Esther Dyson has stated in another context, mysterious data flows can jeopardize individual autonomy:

The comforting thing about the kind of data that Facebook primarily deals with is that it’s public. If your friends and other people can see it, so can you.

More troubling is the data you don’t even know about – the kind of data about your online activities collected by ad networks and shared with advertisers and other marketers, and sometimes correlated with offline data from other vendors. By and large, that’s information you can’t see – what you clicked on, what you searched for, which pages you came from and went to – and neither can your friends, for the most part. But that information is sold and traded, manipulated with algorithms to classify you and to determine what ads you see, what e-mails you receive, and often what offers are made to you. Of course, some of that information could go astray.

Online advertisers already slice and dice population segments (and distribute opportunities & exposure to ads) via marketing discrimination. Will the “e-health revolution” bring their methods out of cyberspace, and into the deadly serious business of offering employment and insurance based on estimates of health status that applicants can’t understand or challenge?

Linnaean Regulation in Health Insurance and Information Technology, Part II

[Ed. note: This is the second part (perhaps evident from the title) of a two part post. Though each could well stand on its own, the first part can be found here.]

Insurance Reporting and Classification

Reporting requirements may not seem like a notable accomplishment. Nevertheless, the trend toward monitoring the products and services offered by insurance companies is an important step toward accountability. HHS needs to impose some order, some translatable logic, on fields that have threatened to become enormously parasitic and unproductive by or masking the true nature of their commitments.

Consider the practical illegibility of the average insurance plan. A vanishingly small number of subscribers actually read such plans. A plan may have complex cost-sharing requirements that vary among in-network and out-of-network primary care doctors, specialists, surgeons, hospitals, and procedures. While a “great risk shift” makes consumers all the more responsible for their choices in health care, it’s hard to imagine anyone accurately mapping the true fiscal consequences of given disease episodes in an aggressively complex plan.

By setting “a minimum level of health benefits, called the essential health benefits, that must be offered by certain health plans.” As Jessica Mantel explains, the term “‘essential health benefits package’ means coverage that not only provides for the essential health benefits defined by the secretary, but also limits cost-sharing for coverage of the essential health benefits in accordance with the parameters specified in the statute.” The Cancer Action Network has applauded the ACA for promoting “more standardization in the scope and value of private health insurance coverage available.”

Similarly, setting a “medical loss ratio” involves a careful delineation of insurer payments and functions that actually contribute to care. As Tim Jost explained in Health Affairs:

Medical loss ratios have long been of interest primarily to investors. An insurer that could achieve a low MLR by holding down expenditures on health care for its enrollees was a good investment. . . . On November 22, 2010, the Department of Health and Human Services released its interim final rule implementing the requirements of the new section 2718 of the Public Health Services Act (added by section 10101 of the Affordable Care Act), entitled, “Bringing Down the Cost of Health Care Coverage.” This provision is usually referred to as the “medical loss ratio” (or MLR) requirement . . .

Section 2718 requires health insurers (including grandfathered but not self-insured plans) to report to HHS each year, the percentage of their premium revenue that the insurer spends on 1) clinical services for enrollees, 2) “activities that improve health care quality,” and 3) all other non-claims costs, excluding federal and state taxes and licensing or regulatory fees. . . .

Jost describes in details how the classification works, and how it is designed to encourage more responsible insurer behavior.

Setting a Standard for Electronic Medical Records

Electronic health records systems will also need to develop shared data management standards. EMR vendors long argued that they needed flexibility to innovate in order to best reflect doctors’ practices and improve the capture of medical information. However, there is a tension between untrammeled innovation by vendors at any given time and later, predictable needs of patients, doctors, insurers, and hospitals to compare their records and to transport information from one filing system to another.

One system may be able to understand “C,” “cgh,” or “koff” as “cough,” and may well code it in any way it chooses. But to integrate and to port data, all systems need to be able to translate a symptom into a commonly recognized code. Health care providers can only avoid getting “locked into” a system if they can transport their records from one vendor to another. Patients want their providers to seamlessly integrate records.

HHS rulemaking has lain a groundwork for this type of common language of medical recordkeeping. As Sharona Hoffman and Andy Podgurski explain,

To address this problem, it is necessary for all vendors to support what we will call a “common exchange representation” (“CER”) for EHRs. A CER is an artificial language for representing the information in EHRs, which has well defined syntax and semantics and is capable of unambiguously representing the information in any EHR from a typical EHR system. EHRs using the CER should be readily transmittable between EHR systems of different vendors. The CER should make it easy for vendors of EHR systems to implement a mechanism for translating accurately and efficiently between the CER and the system’s internal EHR format.

There are also important opportunities for standardization in the security field:

As is true for a common exchange format, standardized security policies and mechanisms are unlikely to be adopted by vendors and providers without a regulatory mandate. In order to facilitate compliance and provide vendors with clear guidance, the regulatory mandate might incorporate, by explicit reference, some established and emerging security standards, such as the Internet Engineering Task Force’s Transport Layer Security (“TLS”) standard or its Public-Key Infrastructure (X.509) standard.

The discussion can quickly become technical, and it is difficult to explore all the ins and outs of the process. But the underlying purpose is clear: to develop some standard forms of interacting in a realm where “spontaneous order” is unlikely to arise and “network power” could lead to lock-in.

Of course, there are important differences between the EHR and health insurance landscapes. Symptoms refer to conditions that are, by and large, objective. (One can even imagine ubiquitous video cameras and sensors creating something like a complete patient record (or medical life log) for patients who consent to that type of monitoring.) Insurance contracts, by contrast, do not have the same “ontological firmness.” They must contemplate vague and open-ended spells of illness.

Nevertheless, a process similar to common exchange representation is now going on in the consumer affairs office of HHS. As the Office of Consumer Information and Insurance Oversight lays ground rules for ACA implementation, it must decide on some basic questions: what counts as insurance? What is a deductible? The ultimate goal is to require insurers to convey with far more precision what services they truly cover. The health insurance and health IT landscapes will only become governable when practices are nameable, classifiable, and comparable.

X-Posted: Concurring Opinions.

Linnaean Regulation in Health Insurance and Information Technology, Part I

I was recently listening to Health Affairs’s “Newsmaker Breakfast with Karen Pollitz.” She gave a fascinating presentation on the challenges she faces as she develops HealthCare.Gov as a portal for information about health insurance. As I noted a few years ago, health insurers can easily mislead consumers about the nature of their coverage, and disclosure charts can be very helpful.

But even disclosure charts run up against the slipperiness of language. Pollitz noted that for some plans, a “deductible” was not really a deductible; you could easily spend much more out-of-pocket on health care than the stated “deductible level” before coverage kicked in.

How can an individual make an informed choice when words lose their meaning in a tangle of qualifications and conditions? At what point does a deductible cease being a deductible? While this might seem like a relatively technical question of insurance regulation, it is reflects a more general information-gathering problem that will confront regulators in coming years. Scientists could only predict and control aspects of the natural world when they could be named and classified. Any successful regime of healthcare reform will depend, at a bare minimum, on a flexible yet standardized classification system that can map what health insurers are doing. Like Linnaeus patiently organizing a welter of living forms, regulators will need to taxonomize pullulating permutations of insurer practices.

The Rise of Health Care’s Middlemen

The United States leads the world in payments to private insurance providers. The industry has extraordinary power over access to health care. In 2010, long-standing dissatisfaction with the sector culminated in the Patient Protection and Affordable Care Act (ACA). Congress rejected changes like a public option in healthcare, in favor of a complex and reticulated statutory scheme to better regulate insurers. There have not been dramatic changes in the way that health insurance companies are run, and their stock prices tended to rise as reform became more certain.

The ACA has set in motion dozens of regulatory proceedings. The government also allocated $20 billion toward equipping all medical offices with electronic health records in the 2009 stimulus bill, the American Reinvestment and Recovery Act. Health regulators must now try to catch up with technologically advanced intermediaries in insurance and IT fields.

Immediately after the ACA passed, naysayers on both left and right complained that divisions like OCCIO were unprepared for their new regulatory roles. Perhaps the most compelling case for repealing the ACA is a belief that regulatory agencies will inevitably be captured, or overwhelmed with information from far far better funded attorneys and lobbyists representing insurance and IT firms.*

Nevertheless, the ACA has catalyzed one very important process: the development of an infrastructure of monitoring and reporting that will be necessary for any future informed regulation. It’s shocking to consider how inadequate past reviews were here. As of 1997, the “US Department of Labor had resources to review each employer-sponsored group health plan under its jurisdiction once every 300 years.” The Bush years did not significantly address that shortage. Moreover, “state insurance department staff levels declined 11% in 2007 while premium volume increased 12%.” The personnel simply haven’t been around.

Starting essentially from scratch, Pollitz and her fellow regulators are engaging in a painstaking rebuilding of the foundations necessary for substantial regulation. Having long neglected even to closely monitor the sharp practices of health insurers, federal regulators are now beginning new programs of surveillance.**

*The latter point does appear to be valid with respect to the public record now being compiled in dozens of rulemaking processes. In rule after rule, industry comments overwhelmingly dominate public interest or academic contributions. It’s sad to think that groups like Campaign for America’s Future, or labor unions, having spent so much time getting the ACA passed, are now ceding much of the regulatory field to insurers. On the other hand, given the Administration’s recent appointments, and recent McSurance waivers, who knows whether good comments would have an impact.

**For more on the importance of ongoing surveillance in complex business environments, see Larry Cata Backer on SarBox, and the last part of my earlier post on high finance.

Part II

X-Posted: Concurring Opinions.

Balance Billing: The National Conference of Insurance Legislators’ Plan

This past week I found myself (once again) sitting across a big desk from the surgery scheduler who works for my son’s ear nose and throat doctor.  She had a stack of papers for me to sign and as she passed me each one she offered a brief explanation of what it was.  As required by the March 2009 revisions to New Jersey’s Codey Law, one informed me that the surgery center where my son’s ear tubes were to be inserted was “physician-owned,” another that it was “out-of-network.”  Regarding the latter, the scheduler reassured me that, while the center could “balance bill” me for the portion of the facility fee not covered by my insurance, it would not.  I was told the same thing the first time around and nevertheless received a bill from the center for nearly $5,000; after I got over the shock, I called to ask that it be reduced and breathed a sigh of relief when it was, to $100.

So, balance billing was already on my mind when I received an email from Interim Vice Provost & Professor of Law Kathleen M. Boozang, calling my attention to a recent St. Louis Post-Dispatch article reporting that Steven Powell “has sued Washington University in St. Louis, accusing the university’s doctors and other Missouri health care providers of routinely and illegally over-billing for medical services.”  After Mr. Powell was hospitalized in 2008 at Barnes-Jewish Hospital, the hospital’s owner and Washington University, whose doctors staff Barnes-Jewish, sued Mr. Powell to recover fees not covered by his insurance carrier that he would not or could not pay.  Mr. Powell’s prospects for success are not clear, since Missouri, like most states, does not, at least not explicitly, forbid out-of-network health care providers from billing their patients for the portion of the provider’s fee not covered by insurance.

In 2009, two states, Louisiana and Texas, enacted laws that tackle the problems associated with balance billing not by banning the practice but, among other things, by requiring that the practice be made transparent.  The National Conference of Insurance Legislators, the self-described “voice of state legislators in Washington in the face of mounting federal initiatives to preempt state insurance regulation,” has promulgated a draft Balance Billing Disclosure Model Act modeled on the Louisiana and Texas statutes.  NCOIL will consider adoption of the Model Act at its next meeting, to be held in March of this year.

Under NCOIL’s draft Model Act, healthcare facilities would be required to provide “conspicuous written disclosure to a consumer at the time the consumer is first treated on a non-emergency basis at the facility, at pre-admission, or first receives non-emergency or post-stabilization services at the facility,” informing the consumer that the facility is either in- or out-of-network and, if the latter, that “the consumer may be billed for medical services for the amount unpaid by the consumer’s health benefit plan.”  Health benefit plans would also be required to make disclosures about the potential for balance billing, “in conjunction with issuance or renewal of the plan’s insurance policy or evidence of coverage.”  Finally, facility-based healthcare providers  would be required to (1) take steps to include sufficient information in their bills to enable patients to understand why they are being balance billed, (2) provide patients with over-the-phone assistance understanding such bills, and (3) work with patients to implement payment plans.

NCOIL received comments on the draft Model Act from a number of stakeholders.  The American Hospital Assocation wrote that “[a]n approach focused on disclosure sidesteps the key issue here: the adequacy of the insurer’s network with respect to contracts with facility-based physicians.”  Families USA suggested that “[a]s part of requirements that health plans maintain adequate provider networks, health plans should contract with an adequate number of anesthesiologists, emergency room providers, and other facility-based providers to see their members at each in-network facility and should establish reasonable procedures to help both patients and families to identify and locate those participating providers.”

Predictably America’s Health Insurance Plans have a different take, arguing that the most pressing concern is “[p]rotecting consumers from runaway charges billed by some out-of-network providers[.]“  AHIP points out that “[w]hen an individual receives services from a facility and accompanying facility-based practitioners, the consumer rarely has the opportunity to select the radiologist, anesthesiologist or pathologist.  Therefore, the proposed disclosure of charges and participating status of the practitioner would have a very limited practical impact because the consumer generally cannot act on this information.”

Tellingly, everyone agrees that disclosure will not be a magic bullet.

Pharma Coupons: Enriching the Drug Companies

A recent New York Times article highlighted an increasing trend in pharmaceutical consumerism.  Many drug companies are providing copayment or coinsurance payment assistance.  These subsidies now exist “for about half of the top 100 brand-name drugs sold in this country,” according to health analyst Richard Evans of Sector & Sovereign Research.  Some patients receive copayment cards or coupons from their physicians while others find them on the internet.

So what’s the big deal?  Insurance companies use cost sharing to encourage patient selection of less-costly therapeutic options.  Pricing differences influence consumer choices; The American Journal of Managed Care reported in 2005 that most studies of cost sharing and prescription purchasing estimate that a 10% increase in price would decrease consumer use by 1-4%.  As NPR reported, “[t]he copay strategy worked so well that in 2003, more than half of all drugs picked up at pharmacies were generics.”

In mid-2006, pharmaceutical companies introduced coupons to reduce beneficiaries’ out-of-pocket costs for expensive drugs.  The “pharmaceutical subsidies” act as a counter-incentive, steering patients toward more expensive drugs–which wind up costing the consumer less– or zero–out-of-pocket.  As a result, the use of pharmaceutical copayment cards or coupons has tripled since their inception.

Financial Assistance or Greedy Marketing?

According to the NY Times, “[d]rug companies say the [copayment assistance] plans help some patients afford medicines that they otherwise could not.”  However, this seemingly altruistic explanation rings–shall we say– like something less than the entire truth.  For starters, these coupons are widely available on the internet and physicians who distribute the cards do not screen patients for financial need.  As the NYTimes reports,

Executives at Medicis, the company that sells Solodyn, have told investors that the co-payment card is used by an “overwhelming majority” of patients, and is largely responsible for doubling use of the drug, to 26,000 prescriptions a week.

That sounds like brilliant marketing, not need-based financial assistance.

Also, when we think of those who are most in need, we often think (rightly or wrongly) of the uninsured, the poor and the elderly — none of whom benefit from the pharmaceutical subsidy!  As the Amgen First Step Program website states, it is “a medical benefit co-pay coupon program to help commercially insured eligible patients with their deductible, co-insurance, and/or co-pay requirements” for listed drugs.  Excluded from the program are the uninsured or those in publicly funded health insurance plans.

It is unsurprising that the uninsured are excluded from participation.  According to Joshua Schimmer, a biotechnology analyst, “it seems the best strategy for a pharmaceutical company is to price their drug as high as they possibly can and offer that co-pay assistance broadly.”  For example, over the past five years, Jazz Pharmaceuticals has quadrupled the price of its narcolepsy drug Xyrem, while increasing copayment assistance to a maximum $1,200 a month.  In order for the pricing system to work, pharmaceutical companies rely on consumers to choose the subsidized drug and insurers to foot the increased bill.

It is likewise unsurprising that the publicly insured are excluded, but for a very different reason; to offer subsidies to Medicare or Medicaid patients would be illegal.  Under 42 U.S.C. § 1320a-7b (1),(2), the knowing and willful offer, payment, or receipt of any remuneration in return for the purchase of any good “for which payment may be made in whole or in part under a Federal health care program” is a felony punishable by up to $25,000 or five years imprisonment.  Illegal remuneration includes “waiver of coinsurance and deductible amounts (or any part thereof)…”  (§ 1320a-7a (i)(6)).

So What’s the Big Deal?

The pharmaceutical copay cards and coupons are a big problem.  First, they circumvent the cost sharing structures established by health insurance plans, raising systemic health costs.  As the NYTimes reported:

“The member is somewhat insulated from the cost of the prescription,” said Kevin Slavik, senior director of pharmacy at the Health Care Service Corporation, which runs Blue Cross and Blue Shield plans in Illinois and three other states. “In essence, it drives up the total cost of providing the prescription benefit.”

That increased cost is passed on to the privately insured in the form of increased premiums and to the public through increased taxes.  As Eileen Wood, vice president of the Capital District Physicians’ Health Plan, told NPR in 2009:

those coupons come with a consequence. If everyone started using coupons to get the more expensive drugs, “we’d have to raise premiums,” she says. “There’s no question about that.”

Furthermore, publicly funded plans must also pay the increased price of prescription drug benefit, which is passed on to taxpayers.  Any benefit to the coupon user in the form of reduced out-of-pocket expenses is diminished by higher premiums and taxes.  In the final analysis, the only real beneficiaries of these “pharmaceutical subsidies” are the drug companies who offer them.

Moving Forward

This issue is not one that is likely to disappear.  Currently, Massachusetts is the only state that does not allow pharmaceutical coupons; it is possible that other states or the federal government will follow suit.  As for insurers, some may begin requiring patients to try generic drugs first, as Capital District Physicians’ Health Plan has, or simply drop coverage of these drugs altogether.  Either way, drug company coupons will remain a topic to watch in 2011.

An Ounce of Prevention: Coverage Battles Rage Over the Biologic Synagis

Yesterday, I got a note from my son’s kindergarten teacher alerting me that the class had run out of hand sanitizer and tissues and needed donations to replenish their supply.  Proof positive that cold and flu season is upon us.

Less commonly known is that, in most or all of the country, it is also respiratory syncytial virus (RSV) season.  RSV is a widespread respiratory virus; almost everyone gets it by the time they turn two and it doesn’t usually result in anything more than a common cold.  As the CDC explains, however, RSV can cause lower respiratory infections such as bronchiolitis and pneumonia and these can be severe.  The virus is the number one cause of hospitalization in babies under one in the United States.

While there is no RSV vaccine, the biologic Synagis (palivizumab) can help prevent the development of severe illness in high risk children.  According to the American Academy of Pediatrics’ influential Red Book, this includes children under two with chronic lung disease, babies under one born at 28 weeks gestation or earlier, babies under six months born at 29-32 weeks gestation, and babies under six months born at 32-35 weeks with at least one of a number of enumerated risk factors such as daycare attendance.

There is a catch.  Synagis costs $900 or more per injection and each injection lasts just one month.  Because a season’s worth of protection from RSV costs many thousands of dollars (one payor puts it at $7,030 per patient), it is perhaps unsurprising that there is ample anecdotal evidence of baseless denials of coverage, by both private insurance companies and Medicaid.  The law student who blogs at Nonsense and Frippery has written three searing posts about her family’s Herculean efforts to secure Synagis shots — first from her private insurance company and then from Medicaid — for her son who was born at 25 weeks gestation in April 2010.  (The posts (which contain some strong language) are here, here, and here.)

With the passage of health reform, the United States has, for the first time, an abbreviated approval pathway for biologic drugs that are “biosimilar” to or “interchangeable” with already-approved biologics.  Its passage creates hope that less expensive versions of at least some biologics will be available here at some point in the future.  As the FDA concedes, however, there are many “issues and challenges associated with the implementation of the Biologics Price Competition and Innovation Act of 2009.”  Monoclonal antibodies like Synagis are likely to prove particularly challenging, for industry and regulators, because they are immensely complex molecules.  In Europe, where there has been an abbreviated approval pathway for biologics since 2004, the European Medicines Agency has yet to approve a biosimilar “mAb”.  This is expected to change, though.  In November, the EMA released a draft guideline for biosimilar “mAbs” and generic versions of rituximab, a drug used to treat non-Hodgkin’s lymphoma and rheumatoid arthritis, are in development.

While biosimilars may someday provide some relief to payors, in the meantime, one may merely seek to hold those payors accountable for baseless denials of Synagis and other expensive, but cost-effective, medicines that they purport to cover.

Mini-Med and the Hidden Backstop

We started the Health Reform Watch Blog at Seton Hall two years ago in part because I worried that, whatever legislation emerged from the 111th Congress, it could be severely compromised during the implementation process. As HHS continues the Herculean task of promulgating rules based on the text of the ACA, and adjudicating disputes, it is bound to make some mistakes. I am glad to say that one of our bloggers commented on one of those mistakes a couple months back, well before it got the spotlight of Congressional hearings that it deserves.

Mini-med health plans are characterized by low premiums and very low payment caps. At McDonald’s, low-level employees can get $2,000 a year of coverage for $680.68 of premiums; as Tim Noah reports, “$24 per week for a policy with a $5,000 ceiling and $32 per week for a policy with a $10,000 ceiling.” Mini-meds faced several regulatory hurdles this year, as Noah explains:

Annual limits on payouts are already being phased out under the health care law; as of Sept. 23, they aren’t allowed to fall below $750,000, which is a whole lot more than McDonald’s’ $2,000, $5,000, or $10,000. But HHS signaled it was willing to grant waivers to mini-meds. Then the mini-meds fell afoul of another pending regulation concerning the “medical-loss ratio”; i.e., how much revenue insurers spend on health benefits as opposed to overhead or dividends to stockholders.

The rule requires health insurers to spend between 80 percent and 85 percent of their revenue on medical care. No can do, McDonald’s told HHS in an e-mail obtained by the Wall Street Journal’s Janet Adamy. The high turnover rate among McDonald’s’ employees, the company said, occasions lots and lots of paperwork, so we can’t keep our administrative costs down relative to our payouts, which—in case you hadn’t noticed—are pretty darned low to begin with. On these dubious grounds, HHS granted the mini-meds an exemption through 2011 that could easily stretch to 2014.

Reporting on yesterday’s Senate Hearing on the mini-med plans, Noah describes one employee’s experience with this exciting, flexible market innovation:

Eugene Melville, a witness who works part-time for a big-box retailer . . . said he purchased through his employer a mini-med policy from Aetna with a $20,000 annual limit. In July, Melville said, he went to the doctor “for what I thought was an injury from a car accident.” The doctor noticed a lump in Melville’s neck, ordered up a biopsy, and diagnosed Melville with oral cancer. Melville figured he had close to $20,000 left to spend on the recommended treatment, but he quickly learned that within that $20,000 ceiling there were smaller ceilings–$2000 on hospital lab tests, surgical supplies, and drugs; $2000 for outpatient treatments such as chemotherapy—that effectively prevented him from using his mini-med insurance at all. Eventually he enrolled in a program for the medically indigent that did not offer the surgical options recommended by his doctor. The kicker, Melville said, was that Aetna sent him a letter suggesting that his oral cancer was a preexisting condition.

As I noted in 2008, supercheap plans have many social costs. MiniMed providers call their offerings “health insurance,” but they skip out when the really serious bills start. Then it’s up to the state to force hospitals to provide care via EMTALA, or providers to seek some way of providing uncompensated care. Medicaid, charity care, other subsidies—all form the hidden backstop that make mini-med function as a nice bonus to the minimally ill, and a fig leaf of “insurance provision” for firms shamed into some semblance of social responsibility. Just like the Fed’s long-stonewalled 2008 commercial paper intervention helped McDonald’s weather financial storms, the hidden backstop of government-funded health care saves it from the embarrassment of watching its employees die from lack of treatment if their McSurance fails to pay for more than a half-day at the hospital. In both cases, a titan of the “free market” is ultimately dependent on government intervention.

Health Reform Watch blogger Corey Klein worried about the implications when the waivers were granted in October:

Remember, a poll by the Associated Press reminds us that Americans who believe the health care bill did not go far enough outnumber those who believe the health care law went too far two-to-one. . . . [But] [t]he McDonald’s episode could be the start of many unintended consequences of the health plan. If the administration is so quick to buckle to private insurers demands, then what hope does the health care law have of actually making a difference in how American’s get their health care?

Noah concludes that “what [McDonald's] call[s] health insurance wouldn’t meet the fiduciary standards of a second-rate Christmas club.” Let’s hope this ill-advised 2011 waiver doesn’t last into 2012.

HHS Releases Much Anticipated Medical Loss Ratio Regulations

Closely resembling model regulations recently released by the National Association of Insurance Commissioners, the Obama administration today released regulations implementing the provisions of the ACA which govern the amount of each premium dollar that health insurers must spend on medical care. This amount that must be spent on actual health care or quality improvement (as opposed to administrative costs or dividends) is known as the medical loss ratio.

The ACA requires that health insurers spend at least 80% of premium revenue on treatment or quality improvement in the small group market, and 85% in the large group market. The statute also provides that the premium dollars required to be spent on health care or quality improvement, but which are not in fact spent on such services, must be rebated to the insured.

Healthcare.gov’s factsheet on medical loss ratios states that:

In 2011, the new rules will protect up to 74.8 million insured Americans, and estimates indicate that up to 9 million Americans could be eligible for rebates, starting in 2012, worth up to $1.4 billion.  Average rebates per person could total $164 in the individual market.

One aspect of the regulations that has caught the attention of many is a provision allowing health insurers to include the money they spend on federal taxes towards their medical loss ratio — essentially making it easier for insurers to meet the requisite level. As Bloomberg reports:

U.S. health insurers can include the cost of federal taxes in determining whether they spend enough on patient care, increasing the amount that can be kept for administration or profit under new rules. Company shares rose.

Bloomberg , quoting the U.S. Health and Human Services Department, also notes that insurance companies may receive favorable treatment in terms of the timing of the MLR rules:

Health plans led by Indianapolis-based WellPoint Inc. may also win delays from the spending requirements if individual states show the federal government that the so-called medical- loss ratio rule will destabilize insurance markets.

HHS has provided a number of resources on the medical loss ratio regulations, including:

• A News Release
• A Fact Sheet
• The Regulation (pdf)

Barring any of the possible delays mentioned above, the rules are slated to go into effect in 2011, with rebates, if any, being provided in 2012.

Medical Loss Ratios

Beginning January 1, 2011, the Patient Protection and Affordable Care Act (PPACA) requires all health insurance plans to spend a set percentage of their aggregate premium income on medical claims and “quality improvement expenses”–85% for large group plans, 80% for individual and small group plans.  This set aside provision is known as a “medical loss ratio” or “minimum loss ratio” (MLR).  Should a health plan spend even slightly less than the required MLR, it must reimburse its customers, pro rata.

Many states already have MLR-based insurance rate regulations, often around 50% to 60%.  Other states have ratios much closer–or in New Jersey’s case, equal–to what PPACA will soon require.  The big difference will be how those MLRs are calculated.  For that, Congress turned to the National Association of Insurance Commissioners (NAIC).

The NAIC submitted its final recommendations to HHS on October 14, after months of conference calls and minor revisions. PPACA actually calls for NAIC to define terms and methodologies to implement the MLR requirement under the law, subject only to certification by HHS.

• The NAIC excludes federal and state taxes from premium revenues, despite being told by the congressional committee chairs responsible for PPACA that the reform law intended only to exclude new federal premium taxes. Taxes paid on investment income would still be counted as revenue under the NAIC’s recommendations.
• For smaller carriers, the NAIC recommends a “credibility adjustment” of up to 8.3% added to actual claim and QI expenses, should their loss ratios be sub-regulation. This is meant to account for the increased difficulty of predicting future claims for smaller risk pools. Plans covering 75,000 lives or more would not be eligible for credibility adjustments. (The commissioners declined a “last-minute” proposal to allow adjustments for larger carriers.)
• In 2011, the NAIC does not think the super-small carriers–those covering fewer than a thousand lives–should pay rebates at all.
• Medical spending must be calculated state-by-state, and not nationally. Some large insurers pushed hard to have it the other way.

Obviously, the state commissioners are wary of the adverse effects uniform MLR requirements might have on small insurers.

As Timothy Jost, a consumer representative to the NAIC has noted, allowing smaller carriers some elbow room on the MLR calculations doesn’t run counter to the reform statute’s legislative purpose.  PPACA already allows HHS to temporarily “adjust” MLRs for individual plans to account for carriers in states with higher administrative costs.  The purpose of MLR regulations isn’t to mail rebate checks to consumers, but to ensure that the lions share of premium revenue is spent on actual medical care.

Oh, and quality improvement.

In states like New Jersey, determining the actual loss ratio for a plan is a matter of simple math, dividing the total amount of claims paid by the total amount of premium revenue collected.  Under the NAIC’s pre-reform rubric, the loss equals incurred claims plus the amount the carrier sets aside to pay future claims (the “contract reserves”).

The PPACA loss ratio, however, can include more than just claims paid in the numerator-namely, “activities that improve health care quality” or quality improvement (QI) expenses.

The commissioners settled on this basic definition for QI expenses:

“[E]xpenses, other than those billed or allocated by a provider for care delivery (i.e., clinical or claims costs), for all plan activities that are designed to improve health care quality and increase the likelihood of desired health outcomes in ways that are capable of being objectively measured and of producing verifiable results and achievements.”

The NAIC reigns in this fairly broad definition with four basic qualifications:

• QI expenses “must be directed toward individual enrollees or may be incurred for the benefit of specified segments of enrollees. . . . [S]uch activities may provide health improvements to the population beyond those enrolled in coverage as long as no additional costs are incurred due to the non-enrollees other than allowable QI expenses associated with self insured plans.”
• “QI expenses should be grounded in evidence-based medicine, widely accepted best clinical practice, or criteria issued by recognized professional medical societies, accreditation bodies, government agencies or other nationally recognized health care quality organizations.”
• QI expenses “should not be designed primarily to control or contain cost, although they may have cost reducing or cost neutral benefits as long as the primary focus is to improve quality.”
• QI activities must be “primarily designed to achieve the following goals set out in Section 2717 of the PHSA and Section 1311 of the PPACA:

✓”Improve health outcomes including increasing the likelihood of desired outcomes compared to a baseline and reducing health disparities among specified populations;

✓”Prevent hospital readmissions;

✓”Improve patient safety and reduce medical errors, lower infection and mortality rates;

✓”Increase wellness and promote health activities; or

✓”Enhance the use of health care data to improve quality, transparency, and outcomes.”

The proposal goes on to explain, in detail, what it considers to be the parameters of those five requirements.  Some ambitious examples include various “[a]ctivities to identify and encourage evidence based medicine . . . .”  Such expenditures, aimed at improving the quality of care received by patients, are welcomed by most consumer advocates.

Other expenses are of less obvious value to the consumer.  Nurse hotlines, for example, are often criticized as being administrative, cost-cutting expenditures dressed up to seem more beneficial to consumers than they are.  The NAIC’s recommendations include “face-to-face, telephonic or web-based interactions” as QI expenses, so long as they accomplish one of the goals listed under the “Improve health outcomes” or “Increase wellness” categories.

The problem with nurse hotlines isn’t that they can’t benefit consumers, but that it will be difficult for state and federal regulators to be sure that they are.

For instance, last summer, our family doctor told my wife she might need some minor hand surgery; baffled by what kind of person did such a thing, I called our insurer’s nurse hotline and learned that--of course–hand surgeons do hand surgery.  The nurse then gave us the numbers and addresses of the nearest hand surgeons who accepted our insurance.  This saved us time, no question. But it’s also information we could have gotten by, say, calling a hospital or calling back our general practitioner.

Having happened in 2010, my insurer most likely has to recognize the hotline as an administrative expense, inapplicable to its medical loss percentage.  In 2011, if HHS adopts/certifies the NAIC’s recommendations whole cloth, the hotline may or may not be counted in the MLR depending on whether its “primary focus” is determined to actually improve quality or merely reduce the insurer’s expenses.

But how can regulatory agencies know for sure?  The line is seemingly somewhat open to interpretation. And this, of course, is only one example. If this is the new landscape of health care finance, you can bet that insurers will be hard at work attempting to “re-cast” administrative roles into “quality improvement” functions. It would seem as though someone, somewhere, has to be monitoring QI expenses very carefully.  At least half of the states have made their disinterest pretty clear.

Accountable Care Organizations: Landmark Report from California

Earlier this week the Integrated Healthcare Association (IHA) released an important whitepaper entitled “Accountable Care Organizations in California — Lessons for the National Debate on Delivery System Reform.” (Click here for a pdf of the whitepaper). The IHA describes itself as: “a statewide multi-stakeholder leadership group that promotes quality improvement, accountability and affordability of health care in California. “

ACOs have been discussed before at HRW in the context of reforming the health care delivery system. Unfortunately, ACOs are relatively new and untested. This is what makes California — a tried-and-true state policy laboratory — a valuable laboratory for health reform, particularly for models like the ACO that the reform law attempts to leverage. The tables provided in the whitepaper make it easy to appreciate California’s experience with ACOs:

The upshot of IHA’s report are the ten lessons that they have distilled from the 285+ physician organizations that together display many of the characteristics of ACOs. These lessons are as follows:

Lesson One: A variety of organizational structures are effective at delivering high quality coordinated care; at least as important to success as structure are an organization’s capabilities, culture and infrastructure, as well as the alignment of goals between the organization and its individual physicians.

Lesson Two: In California, a range of relationships exist between physician organizations and hospitals. Alignment of incentives between physician organizations and hospitals offer important opportunities for performance improvements across the entire continuum of care.

Lesson Three: As a method of payment, capitation can be effective at encouraging coordinated care, but payment methods should vary across ACOs depending on an organization’s ability to assume risk.

Lesson Four: Health plans acting in concert on payment methods and performance measurement helped facilitate the growth of California’s provider organizations, and should also play an integral part in fostering ACO development nationally.

Lesson Five: ACOs are not a panacea for healthcare spending control.

Lesson Six: ACOs must be agnostic to insurance type; most provider organizations in California have focused on commercial, Medicare and Medicaid HMO plans for their patients, but for ACOs to be viable across the country, mechanisms must be found to encourage PPO and traditional Medicare and Medicaid patients to use their services.

Lesson Seven: Balancing patient choice with the desire to decrease costs and effectively coordinate care is difficult. California’s experience underscores the challenge of promoting care coordination in an environment of unrestricted provider choice.

Lesson Eight: Regulation of the financial solvency of provider organizations is important to ensure market stability.

Lesson Nine: Consumer protections from capitated provider organizations need to be balanced, not overburdening.

Lesson Ten: Special attention must be given to establishing ACOs in areas with social and economic challenges.

There is a common thread that runs through many of these lessons: the tension between new organizational models and the payment models that currently exist:

In California, provider organizations have developed hand-in-hand with HMO products, and have been largely unsuccessful in their attempts to diversify into serving PPO patients. This has been driven in part by regulatory restrictions at both the State and  Federal  level  surrounding  providers  accepting capitation  and  FFS  payments. Downward trends in HMO enrollment in California have meant that this failure to diversify has limited the impact of the state’s physician organizations. In order for ACOs to flourish, laws and policies must allow for innovative provider payment arrangements, regardless of insurance type, and internal organizational changes will be needed to adapt to different payment methods.

As the report goes on to describe:

The greatest challenge and greatest opportunity facing ACOs in California and elsewhere is the potential for integrating the coordinated care programs developed originally for HMO and other narrow network insurance products into PPO and other broad network products.

The managed-care backlash of the 1990s is a reminder that past is prologue.  Increased consumer choice through products like PPOs is likely here to stay for quite some time. What remains to be seen is how the future regulations governing ACOs will promote greater collaboration in the delivery of care while embracing the payment models that consumers have come to appreciate and expect.

Next Page »