Medicare and Health Reform: Part II

In his closing remarks to the Senate Finance Committee last week, Senator Baucus pointed with special pride to the effect the Committee’s reform bill will have on shaping the health care system in the longer run:

One point I want to make… is about delivery system reform.  We are starting here in this bill to finally reform our delivery system so it’s based much more on quality and patient focus, moving ever so slowly, but inexorably, from fee for service….which causes a lot of the waste in our system. We’re not going to see savings, the benefits, to the system for a while… but after four, five, six years from now, we’re going to see the real benefits of reform.

There is no doubt that the Committee’s America’s Healthy Future Act devotes considerable attention to fixing what’s wrong with the existing delivery “nonsystem” and improving government oversight. Title II (Disease Prevention and Wellness), Title III (Improving the Quality and Efficiency of Health Care), Title IV (Transparency and Program Integrity) and Title V (Fraud Waste and Abuse) of the Act consume 143 pages of the 259-page Chairman’s Mark.

And well it should.  As Professor Bill Sage’s aphorism, “It’s the delivery system stupid,” suggests, changing the structure and interactions of health care providers has long been seen as critical to efforts to control cost and improve quality.  Given serious questions about the strength and effectiveness of competition among private health insurers, especially without a public plan option to spur them, Medicare reform stands as the only viable means to bring about delivery system change.  Policy analysts have made the point that “Medicare is the place to start delivery system reform,” recommending payment reforms that reward accountable health organizations and move toward bundled payments  as a means to spur needed integration in health care delivery.

But how quickly can all this be accomplished? Read more

Public Option Alternatives

The public option has had a difficult time making its way through Senate Finance Committee mark-up sessions.  In the past week, two separate proposals for including a public option in health care reform were nixed.  Rejection of the plans, one proposed by Senator Charles Schumer of New York and the other by Senator John Rockefeller of West Virginia, is said to be indicative of a further adoption of the middle-of-the-road approach.  Still, some are optimistic that because Obama has the de facto final say on health reform legislation, he will work hard to include a public option; others debate whether the President is willing to compromise the public option for overall reform.

Instead of approving of Schumer’s or Rockefeller’s proposals, the Senate Finance Committee voted to include a proposal by Senator Maria Cantwell of Washington.  Cantwell’s amendment is said to be a compromise between Democrats and Republicans on the public option.  The plan, which would be federally-funded, would be available to those individuals who earn too much to qualify for Medicaid but are below 200% of the federal poverty level.  At present, an implementation cost analysis for the plan is still unavailable, but Cantwell says that the plan, which also give states the power to negotiate down the price of insurance, would be able to cover 75% of the uninsured population.  The plan would mirror the current health care system of Washington State.

Though many important Committee members like Sen. Baucus have approved of such an amendment, others like Senator Olympia Snowe of Maine have voted against it.  Keep in mind, Snowe has been labeled “the key to health reform.”  For Snowe, a public option would only be provided in states in which 95% of the population is deemed to not have access to “affordable” insurance through an Insurance Exchange.  Senator Tom Carper of Delaware has proposed a similar plan; however, his version leaves it up to the states to decide what it deems best for its constituents.  Under Carper’s version, states would get to choose between opening up state-funded health care plans for government employees to all residents, or creating a health insurance provider or a co-op to compete with private insurance companies.

The proposals of Carper, Cantwell & Snowe have their respective positives and negatives and are subject to, and seemingly born of, the political process. They smack of compromise.

What will it take to get any one of these proposed bills passed during the full Senate vote? The ongoing divide between liberals and conservatives on the issue of providing a public competitor to private insurance companies has created a fissure which has echoed through the common landscape now for months. But we are getting close– as the NY Times  put it– “tantalizingly close,” to sweeping Health Reform.  Floor debate will ensue shortly. Predictions abound. But in the words of Lamar Alexander, the number 3 Republican in the Senate, “There is nothing predictable about the Senate floor.”

Compromise. President Lyndon B. Johnson, key to passage of both Medicare and the Civil Rights Act famously declared: “I’m a compromiser and a maneuverer. I try to get ’something.’ That’s the way our system works.” As evidenced by the two aformentioned Johnson successes, however, Johnson also knew when to expend enough political capital to make that ’something’ meaningful. I would suggest we stand at the precipice of one of those times.

Reform Rodeo

1. The HITECH Act’s Breach Notification rules are now in effect. As is noted in the article, many are questioning some of the limitations in the act– which may reduce the Act’s impact on protecting privacy.

2. Eugene Volokh’s blog discusses the constitutionality of an individual mandate.

3. A persuasive article from Fortune Magazine describing how Baucus’ Finance Committee bill will raise taxes on the middle class, and in dong so violate the core tenets of the Obama administration.

4. A nicely compiled listing of the amendments that have been put forward during the Finance Bill’s mark up.

5. A FiveThirtyEight post questions those who presume that health reform is inevitable, raising some sobering thoughts.

6. Under the Obama administration, The FDA has provided a black box warning for the anti-nausea drug Phenergan, presumably in light of the Supreme Court’s recent rejection of the drug manufacturer’s claim that federal regulations preempt state court’s from suing drug manufacturers for defective warnings.

7. In case you missed it: A post from Health Reform Watch by Professor Timothy S. Jost on Health Care Cooperatives was cited by Jacob S. Hacker in an article over at the New England Journal of Medicine’s web site. Hacker’s article, “Poor Substitutes–Why Cooperatives and Triggers Can’t Achieve the Goals of a Public Option,” is well written and well read.

Reform Rodeo

1. Sen. Baucus, releases the Finance Committee’s public option-less, co-op-based draft bill that will be marked up later in the month (full draft in PDF here, Baucus’ interpretation of it in today’s WSJ op-ed) .

1(a). Ezra Klein opines about how “BaucusCare” should be improved, and in doing so provides a good overview of some of the draft’s key provisions.

2. The New York Times has a nice primer on one of the most discussed possibilities reforming health care: health insurance exchanges. It is definitely worth following the link the Times provides to the FEHB online comparison tool to see how easy it is for federal employees to shop for health insurance.

3. The Kaiser Family Foundation has released their annual report (summary in PDF format here, full report in PDF format here) the shows the changes in employer health benefits.

4. The Robert Wood Johnson Foundation summarizes a New England Journal of Medicine poll which finds that a majority of physicians support a public option.

5. The Health Care Blog has a nice run-down of HHS’s effort to retake control of EHR certification from CCHIT–and what the not-for-profit CCHIT is doing in response.

6. In Case You Missed It: Professor Nathan Cortez in The Health Care Blog on “Immigrants, Health Reform, & Lies” — originally posted here on HRW.

Senate Compromise on Public Plan Begins to Emerge. Half-a-loaf?

The Associated Press reports that a possible compromise has emerged in the Senate with regard to the “public plan” for health insurance:

The compromise offered by Sen. Kent Conrad, D-N.D., would create health care cooperatives owned by groups of residents and small businesses, similar to how electric or other cooperatives operate.

They’d be nonprofit, and without the government involvement that troubles Republicans and business groups about the public plan options.

This attempt at compromise seeks to address the purposeful omission of the issue of a public plan option from Senator Ted Kennedy’s 615 page health reform draft bill. The draft bill, by Kennedy and Democrats from his Health, Education, Labor and Pensions Committee, was said by the LA Times to have faced “furious criticism from even moderate Republicans” when it was released on Tuesday. This despite the attempts to avoid such by the Democrats through the omission of the contentious public plan option.

Kaiser Health News describes the Kennedy Plan as follows:

The plan “would require all Americans to get medical insurance, establish complex new insurance exchanges to facilitate near-universal coverage, and dramatically step up government oversight of the insurance industry.” The plan skips over - for now - the two issues Republicans have most vocally opposed, a government-run insurance option and a mandate for businesses to insure employees. Nevertheless,  the “Republican response was sharply negative” (Levey, 6/10).

The public plan compromise proffered by Senator Conrad, at least in principle (details have yet to surface) has garnered some tentative approval. AP reports that

The chairman of the Senate Finance Committee, Sen. Max Baucus of Montana, said Wednesday the idea could be key to a bipartisan health bill. Baucus raised it in a meeting with President Barack Obama, saying later that Obama showed interest. Baucus’ Republican counterpart, Sen. Chuck Grassley of Iowa, also said the concept had potential.

“It’s a way to bridge the gap,” Baucus told reporters.

AP reports  the outline of the  Conrad compromise as follows:

Profit-making insurance companies wouldn’t run the show, but there also wouldn’t be the federal government backing that Republicans fear would eliminate fair competition with private companies. The co-ops could get federal seed money, Conrad said, but that would be the end of federal involvement. The co-ops would negotiate directly with medical providers.

Grassley and Baucus Seek to Further Define the Difference Between Charity Care and Bad Debt for Nonprofit Hospitals. As a Matter of Collections Timing?

According to Inside ARM, an accounts receivable management online magazine, the Senate Finance Committee is presently contemplating imposing strictures upon nonprofit hospitals regarding when those hospitals may outsource the collection of unpaid bills and, presumably, the definition of “bad debt” as it relates to “community benefit.” Inside ARM states that “The proposal is meant to provide more free care and make not-for-profit hospitals more accountable for their tax-exempt status.”

Details of the initiative are said to be scant at this point, but according to Inside ARM, “Committee Chairman Max Baucus of Montana and Chuck Grassley of Iowa, the committee’s top ranking Republican, propose requiring not-for-profit hospitals to follow certain procedures before initiating collection actions against patients.” Sen. Grassley has sought to require nonprofit hospitals to justify their tax exemptions since 2005, the year in which he sent what pretty much amounts to interrogatories to the nation’s leading nonprofit hospitals regarding billing practices and questionable characterizations of “community benefit.”

Although without detail, the new timing distinction for collections seems to be based upon the amount owed being designated as “bad debt,” or that which is essentially deemed “uncollectable.” The prospective prohibition would seem to  require the amount owed to be deemed “uncollectable” or “bad debt” before it can be placed with a collection agency. A prospect the nation’s collectors, who generally work on commission, do not relish. But one hopes this provision is but one small piece of further defining “community benefit” in terms of actual charitable care.

Many nonprofit hospitals have characterized their uncollected receivables as a fulfillment of the ill-defined requirement that they offer a “community benefit” in exchange for the tax exemption they receive under 501(c)(3). Senator Grassley has said that “Neither the IRS nor Congress has done a very good job when it comes to establishing the criteria for enjoying this tax status since the IRS scrapped charity care for its community benefit standard in 1969″ (New York Times, 2/13/09).”

He has a point. But unless the prospective timing provision for outsourcing only “bad debt” is coupled with a prohibition upon characterizing mere “uncollected receivables” and  payor “shortfalls” as “community benefit,” it is hard to see what effect this bad debt collections distinction will have–besides the expansion of in house hospital collection  departments. One hopes that the pointed questions Senator Grassley asked of the nation’s leading nonprofit hospitals in ‘05 will play a substantial role in the Senate effort to reform and redefine the obligations of tax exempt nonprofit hospitals now. I believe Mr. Grassley would well agree that a mere shift in the locus of collection activities will not constitute reform worth the name.

Perhaps some background is in order. As we posted here a little while back in “The IRS, Nonprofit Hospitals, and the Meaning of “Community Benefit,” the IRS recently published the results of a two year study of nonprofit hospitals functioning under 501(c)(3), a portion of the Internal Revenue Code which garners tax exemptions for those entities it harbors. For those of you who have not yet read our post on the topic, I’ve excerpted it here below (if you have already read the piece, you can scroll down to the paragraph before Grassley’s numbered questions for the concusion to this post). The excerpted post describes how uncompensated care, bad debt and “shortfalls” in payments from Medicare and even Private Insurers can, and often are, characterized as somehow providing a “community benefit” which justifies a tax exemption for nonprofit hospitals:

Under the strictures of 501(c)(3) nonprofits are confined to paying executives “reasonable compensation” and supplying “community benefit.” Unfortunately, neither of these terms are particularly well defined. In the study’s executive summary, the IRS puts it so:

“The community benefit standard is the legal standard for determining whether a nonprofit hospital is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code.”

“Observations. Both the community benefit and reasonable compensation standards have proved difficult for the IRS to administer. Both involve application of imprecise legal standards to complex, varied and evolving fact patterns.”

These limitations may be seen in the characterizations of “community benefit” available to the hospitals in the study. Bad debt and Medicare payment shortfalls may be construed as  “community benefit.” As the debt, the credit injury, and the collection calls all inure to the community member who received treatment but could not pay, one might question if the “community benefit” involved in a failure of collection practices might be distinguishable from the “community benefit” involved in intentional charitable care. In addition, there simply is no set criteria to determine the appropriate amounts to be charged as “community benefit.” The IRS study poses the following under the heading of

“Limitations: …although the IRS designated the general categories of activities that could be reported as community benefit for purposes of the study, determining what was treated as community benefit (for example, bad debt or Medicare shortfalls) and how to measure it (cost versus charges) was largely within the respondents’ discretion.

Which is to say that those being monitored (nonprofit hospitals) to gauge the amount of money spent– to justify their tax exempt  status– were free to characterize their contributions in the manner they thought best.

Medicare shortfalls: So… if a non-profit hospital has a fee schedule rate of $100 for a procedure, and Medicare has a reimburse rate of $80 for that procedure, if a “charge” rate of measurement is used then there has been a $20 “community benefit” if the federally designated tax exempt nonprofit hospital accepts as payment the federally designated and predetermined Medicare reimbursement amount. Significantly, 19% of the hospitals also claimed “shortfalls” in payment from private insurers as uncompensated care/community benefit (See Chart: “Figure 82,” p. 105, full report).

Cost vs. Charge: So… if a procedure has a cost to the hospital of $80 and a fee schedule [or "chargemaster"] rate of $100, and the recipient of the procedure does not pay and the hospital categorizes the non-payment as “bad debt,” it has the ability to count as “community benefit” not only the cost of its unintended largesse, but also the amount it had expected as profit.

Perhaps even more telling than this latitude in characterization are the amounts actually submitted to the IRS as community benefit. Here are a few of the findings:

• The average and median percentages of total revenues reported as spent on community benefit expenditures were 9% and 6%, respectively.
• Uncompensated care accounted for 56% of aggregate community benefit expenditures reported by the hospitals in the study.

Read more

Senators Harkin & Baucus Considering Enabling Employers to Punish Employees for Failure to Address Health Issues

In Self Reliance Emerson states that “Society everywhere is in conspiracy against the manhood of every one of its members. Society is a joint-stock company in which the members agree for the better securing of his bread to each shareholder, to surrender the liberty and culture of the eater.”

If Tom Harkin has his way, in addition to liberty, you may find yourself surrendering your cheeseburgers as well. The New York Times reports that Mr. Harkin and Max Baucus have proposed that in order to lower the costs of health care, employers be given the ability to reward and punish workers according to their relative health. Such rewards and punishments will be meted out in accord with measures such as cholesterol readings, blood sugar, weight, smoking, etc…

I would suggest that to reward is one thing, to punish is another. To John Stuart Mill is attributed the statement at the heart of classical liberal notions of ordered liberty: “The rights of your fist end at my nose.” I believe Mr. Harkin and Mr. Baucus have forgotten where their noses end and mine begins.

Taxing Health Benefits, Obama Administration Said To Be “Open”

In a recent post on this blog, Professor Tim Greaney noted that Senator Max Baucus had recently said that

the tax exclusion for employer health insurance payments was on the table, [with Senator Baucus] noting two characteristics that make it an appealing target:  regressivity and potential source of considerable “revenue.”  On these and other issues, Baucus stressed the critical role OMB scoring will play in shaping the ultimate design of the legislation.

Not to say that OMB “scoring” will be influenced by the predilections of its director, but nevertheless, those predilections may be worth noting. The New York Times reports

At a recent Congressional hearing, Senator Ron Wyden, an Oregon Democrat whose own health plan would make benefits taxable, asked Peter R. Orszag, the president’s budget director, about the issue. Mr. Orszag replied that it “most firmly should remain on the table.”

Mr. Orszag, an economist who has served as director of the Congressional Budget Office, has written favorably of taxing some employer-provided health benefits and using the revenue savings for other health-related incentives. So has another Obama adviser, Jason Furman, the deputy director of the White House National Economic Council.

The Times also noted that

When Senator Max Baucus, Democrat of Montana, advocated taxing benefits at a recent hearing of the Finance Committee, which he leads, Treasury Secretary Timothy F. Geithner assured him that the administration was open to all ideas from Congress. Mr. Geithner did, however, allude to the position that Mr. Obama had taken as a candidate.

The Times reports that sentiment elsewhere, however, was not quite as sanguine about the proposal: “Many Democrats, especially House liberals, are opposed. ‘It’s a dumb idea,’ said Representative Pete Stark of California, chairman of the Ways and Means Subcommittee on Health. “We have to maintain as much as we can of the employer payments.”

The Times article is well worth taking a moment or two to read; it relays a number of different viewpoints regarding the matter, and also features a political aspect certainly worth noting: during the presidential election campaign, Obama was quite critical of  a John McCain proposal to tax health benefits. Obama denounced the McCain plan as “the largest middle-class tax increase in history.” The Times reports that

At the time, even some Obama supporters said privately that he might come to regret his position if he won the election; in effect, they said, he was potentially giving up an important option to help finance his ambitious health care agenda to reduce medical costs and to expand coverage to the 46 million uninsured Americans. Now that Mr. Obama has begun the health debate, several advisers say that while he will not propose changing the tax-free status of employee health benefits, neither will he oppose it if Congress does so.

Senator Baucus on Delivery System Reform

Tim Greaney,

Director, Center for Health Law Studies

Chester A. Myers Professor of Law

Saint Louis University School of Law

Senator Baucus’ March 3 press conference sponsored by the Kaiser Family Foundation Health Care Reform Newsmaker Series: Sen. Max Baucus (D-MT) offered a few insights into the early state of the debate on health reform legislation.

Two points stood out.  First, he observed that “delivery reform” was for him a central element in designing reform legislation. Pressed to define what he meant, Baucus mentioned value based purchasing and the medical home concept.  Second, he stated that the tax exclusion for employer health insurance payments was on the table, noting two characteristics that make it an appealing target:  regressivity and potential source of considerable “revenue.”  On these and other issues, Baucus stressed the critical role OMB scoring will play in shaping the ultimate design of the legislation.

The known unknown here, however, is how some of the relatively novel delivery reforms like medical homes will be defined and implemented — and hence ultimately scored by OMB for their impact on system costs. One problem is that the “medical home” may encompass a wide range of delivery/financing arrangements. In general the medical home has been broadly defined as a physician-directed practice that provides care that is “accessible, continuous, comprehensive and coordinated and delivered in the context of family and community.” But as Bob Berenson and colleagues pointed out in Health Affairs last September,[1] few primary care medical practices are close to having the size, management capabilities and infrastructure (electronic and otherwise) to function as medical homes.  Transitioning to such practices (even on a virtual office basis) will surely take time, money, and a sea change in culture and practice style.  Estimating the pace and effectiveness of such change may prove as daunting as projecting next months Dow Jones average.

---

[1] Robert Berenson et al., A House is Not a Home: Keeping Patients at the Center of Practice Design, 27 Health Affairs 1219 (Sept/Oct 2008)

Baucus’ Baby Boom Buy-In

There are over 5.1 million uninsured Americans between the ages of 55 and 64.  Given the current economic climate and increasing unemployment rate, that number is sure to increase as employers lay off baby-boomers to cut the costs of providing them with benefits.

Senate Finance Committee Chair Max Baucus (D-Mont.) proposed a plan for health care reform last November that allows Americans ages 55 through 64 to buy into Medicare.  Baucus’ plan would allow members of that age group who are currently uninsured or who have lost their employment to pay a monthly premium and receive Medicare benefits.

Sunday’s Charleston Gazette examined Baucus’ plan to allow 55- to 64-year-olds to buy into Medicare.

The idea has been around for years, but it has gained new currency as the recession deepens and a Democrat-run Congress and White House begin to discuss health-care reform.

Advocates of an early Medicare buy-in say it would complement other entitlement reforms because it would keep older workers healthy and productive longer and help rein in government spending over the long haul,

said The Gazette.

Read more