A few years ago, I noted that the American Medical Association/Specialty Society Relative Value Scale Update Committee (RUC) has a dominant role in suggesting payment levels to CMS. It raises hard questions about price-setting in the health care sector, many of which cannot be answered because its processes are opaque. Now we know that judicial relief will not improve things any time soon. As Brian Klepper reports, “On January 7, a federal appeals court rejected six Georgia primary care physicians’ (PCPs) challenge to the Centers for Medicare and Medicaid Services’ (CMS) 20-year, sole-source relationship with the secretive, specialist-dominated federal advisory committee that determines the relative value of medical services.” What was the complaint?
The core of the … physicians’ legal challenge was that the RUC is a “de facto Federal Advisory Committee,” and therefore subject to the stringent accountability requirements of the Federal Advisory Committee Act (FACA). This law ensures that federal bodies have panel compositions that are numerically representative of their constituencies, that their proceedings are open, and that methodologies are scientifically credible. In other words, FACA ensures that advisory practices are aligned with the public interest.
The RUC adheres to none of these and is an object lesson in how special interests can be insinuated into and capture regulatory processes, displacing the public interest. For example, when the legal challenge was first filed, only 3 of 29 RUC panelists (10 percent) represented primary care, even though some 30 percent of US physicians practice primary care. RUC meetings are closed to the public, unless an invitation is extended by the Chair, and admission is tied to the guest signing a nondisclosure agreement. Determination of a procedure’s value has been based on as few as 30 survey responses by physicians who know that their reimbursement will be linked to how they have answered the questions.
This is a sad example of opacity in health pricing. In ordinary markets, publicity would tend to narrow the price differential between similar quality services. In health care, however, there is a triple layer of agency between care and patients whose physicians’ recommendations are often constrained by an insurer that is chosen by the patient’s employer or government. Even if we assume away the agency problems in such an arrangement, it is difficult for buyers and sellers to truly understand “market” dynamics, or even the governmental processes that underlie them.
Originally posted at Health LawProf Blog.
On February 14, 2012, Marilyn Tavenner, the acting Administrator of CMS, told reporters that CMS will “re-examine the timeframe” of the planned conversion to the ICD-10 code standard. Presently, covered entities under HIPAA must fully convert from the ICD-9 coding system to ICD-10 by October 1, 2013.
ICD-10, which stands for the International Classification of Diseases, 10th Revision, is a coding system that providers use for billing purposes and medical researchers also use for statistical analysis. ICD-10 consists of 68,000 codes that will expand upon the 13,000 codes currently being used with ICD-9. The codes, each representing a separate medical service or diagnosis, are used by providers and hospitals when they submit their bills to the insurer. The providers receive payment for their services based upon the codes and the terms of their reimbursement agreement. From these codes, medical researchers are able to evaluate kind and frequency of care; with more than five times as many descriptive codes in the new system, many researchers and evidence based medicine proponents are said to look forward to the far greater depth of analysis the new coding system will offer. The United States already lags behind many countries in ICD-10 implementation and it is said that this compliance extension will widen the gap even further.
Two days after Ms. Tavenner’s announcement, HHS issued a news release stating that “HHS will initiate a process to postpone the date by which certain health care entities have to comply with ICD-10.” Kathleen G. Sebelius, the Secretary of HHS, states in the news release that “we have heard from many in the provider community who have concerns about the administrative burdens they face in the years ahead. We are committing to work with the provider community to reexamine the pace at which HHS and the nation implement these important improvements to our health care system.”
HHS’s news release leaves a lot of questions unanswered. There is no hint at which “certain health care entities” will be granted an extension for compliance and how far off the new deadline will be. HHS claims they will “initiate a process,” which leads many to believe a formal rule making process with public comments will occur. This process could possibly take years to complete, which undoubtedly has caused a giant sigh of relief for providers and institutions across the country that feel ill-prepared for the 2013 deadline. Analysts at Health Care IT News estimate that the deadline could be pushed off a year or two if there is a formal rule-making process.
As the news of Ms. Tavenner’s announcement spread, members of the industry sent out messages cautioning that a complete overhaul of the current plan is unlikely. Ms. Tavenner’s announcement, which happened at the American Medical Association (AMA) Advocacy Conference in Washington, D.C., was fittingly met with applause by AMA members. The AMA has publicly and vehemently opposed the current October 1, 2013 deadline. In a January 17, 2012 letter addressed to Speaker of the House John A. Boehner, the Executive Vice President and CEO of the AMA James L. Madara M.D. pleaded with Speaker Boehner to stop the implementation of ICD-10. In the letter, Dr. Madara argues that the conversion “will create significant burdens on the practice of medicine with no direct benefit to individual patient care, and will compete with other costly transitions associated with quality and health IT reporting programs.” Of course, Dr. Madara is referring to the task of implementing an electronic health records (EHR) system in accordance with CMS’s meaningful use criteria, which entitles a covered entity to receive incentive payments from CMS. Dr. Madara also cites to what he deems to be the competing tasks of dealing with financial penalties for non-participation in Medicare programs, including e-prescribing and the Physician Quality Reporting System.
ICD-10 opponents also cite to the industry’s recent failure to comply with the January 1, 2012 deadline to comply with the transition to Version 5010, a HIPAA electronic transactions upgrade that is necessary to support ICD-10, as evidence that the industry is not ready for the ICD-10 change. In November 2011, CMS gave in to industry pressures to extend the 5010 compliance deadline an additional ninety days. It is undeniable that providers are already subject to tremendous demands under HIPAA and the HITECH Act, on top of Medicare cuts, which are placing significant financial stress and compliance burdens on the industry. It is not surprising that ICD-10 has met a lot of resistance from providers. However, it is no secret that providers and institutions are consistently successful lobbyists for their concerns and beliefs and it remains to be seen how CMS will proceed with the scheduled ICD-10 implementation and what compromises will be made.
Proponents of the ICD-10 system argue that the new coding system will create significant positive changes in the industry because it will help collect important data that will improve the quality of patient care, decrease costs, and collect statistics for medical research. CMS and the Center for Disease Control and Prevention believe that the new codes will create more accurate and exact descriptions of diagnoses and inpatient procedures, which will improve efforts to track care, detect emerging health issues and improve quality. A report from Deloitte, a consulting firm, reported that the increased size and scope of the ICD-10 codes is expected to provide potential benefits in cost and quality measurement, public health, research, and organizational monitoring and performance measurement. Whether a provider supports the change or not, Deloitte echoes the sentiment of many that advance planning is essential. Providers and institutions that have already invested time and money into the ICD-10 implementation are frustrated and upset by CMS’s decision to “reexamine” the current compliance deadline. After all, no provider wants to see its large investment in the ICD-10 system put to waste.
The fact is that no one, perhaps even CMS and HHS, is certain about the date of the future ICD-10 implementation plan so perhaps the smartest choice for providers is to proceed with steps to continue the ICD-10 implementation. Considering the prospect of the financial disincentives attached with non-compliance, it seems like a risky choice for any provider to sit around and wait and see what may happen, especially when the ICD-10 implementation cannot happen overnight. There are providers that started the ICD-10 conversion process back in 2009 when it was first introduced and they still have not completed the task. Unfortunately for providers, the ICD-10 conversion requires time, manpower, training, testing with payers, and significant technological changes that will carry high administrative and financial costs. The Medical Group Management Association (MGMA), which opposes the ICD-10 implementation, estimates that it will cost a ten doctor practice more than $285,000 to convert to ICD-10, with software upgrades accounting for only $15,000 of that amount. According to the MGMA, the bulk amount would be for increases in claims queries, reductions in cash flow, and increased documentation time. What it comes down to is that if a provider wants to be paid for its services, noncompliance with ICD-10 is not an option. The risk for successful claims processing and receiving payments in a timely fashion is present, but adequate preparation and testing well before the compliance deadline is the best way to combat this significant risk.
One thing is certain – until HHS releases a new rule and schedule for ICD-10 implementation, opponents will continue to argue that the costs to adopt the new system are too high, the task too onerous, and the rewards too speculative to justify such an undertaking. Unless the industry comes together to find a solution for an easy transition, this could be a bumpy road until the ICD-10 transition is complete.
[Ed. Note: We are pleased to welcome Andy Braver, Esq. back to Health Reform Watch. Andy is a health care attorney who recently completed an LL.M in Health Law at Seton Hall Law. Prior to entering the LL.M. program, Andy spent five years as a healthcare provider, running a state of the art medical diagnostic imaging center. During that time, he dealt with many important health law issues faces by providers today, including Fraud and Abuse, Medicare and Medicaid licensing and reimbursement, state and private accreditation organizations, private payers, electronic health records, and HIPAA and other privacy issues, to name just a few.]
Medicare’s fee for service payment system has many problems that need fixing. While recent studies have predicted that Accountable Care Organizations (ACOs) may very well achieve better care and lower costs, any savings generated as a result of these new groups of providers will be just a drop in the bucket solution to a vast problem.
Medicare was projected to spend over $500 billion on patient care in 2010. Notwithstanding the fact that the White House Office of Management and Budget believes $36 billion of the Medicare and Medicare Advantage payments made in 2009 were improper.
The problem is, there is no distinction made for the provision of quality medical care. Conversely, there is no check in the system to make sure that the care provided is inadequate. If you provide the service, you get paid.
I realize that in many areas of medicine, it is difficult or even impossible to create a system to accurately and impartially judge the adequacy of care provided. How in fact do you measure the ‘quality’ of healthcare? Do you look at the structure of an entity, its organization and ability to provide what is generally regarded as good care? Or do you look at the actual process or provision care, measuring relative malpractice claims among other objective factors? Many believe that better outcomes suggest better care. While I do not believe that outcome or evidence based medicine is the answer to every problem, it certainly can be a solution to some of these challenges.
There are differences in the Medicare program based on geography, and local coverage determinations and reimbursement rates, whether using the PPS or RVU systems (Part A & B), vary greatly across the country. That part of the system makes sense by taking into account cost of living, cost of employment, property costs, and local tax rates.
In my mind, however, these processes fail because they do not further take into account advances in technology, or reward investment in the future. For example, Medicare pays the same amount of money for an MRI exam regardless of the type of machine that was used to take the picture, and without a thought given to the type of storage system employed by the medical provider. Imagine a facility with a two decade old system, state licensed and able to take pictures, with a machine equivalent to the first generation digital camera I owned 15 years ago, and printed pictures that are stored in a file room. Then imagine a state of the art facility with an HD camera taking high resolution digital pictures, stored in an electronic file system, in a format that is able to be sent electronically to specialists all around the country (or world), and accessed by the patient quickly and securely on the internet. Are those two pictures worth the same to Medicare? There certainly is increased value to the patient in the ‘new’ system. Better picture quality undoubtedly leads to better diagnostic capability (better medicine), and fewer picture redos over time; long-term storage and record portability is certainly going to lower future treatment costs if the issue is a chronic one. HITECH and the new EHR incentive programs recognize the importance of electronic medical records, but it remains to be seen how those requirements will affect licensing and reimbursement rates. Will there be a license ranking and a tiered payment system based on perceived quality or outcome?
I certainly hope that payments are tiered when advanced technology is used, but not according to self-assessment rankings and quality benchmarks. I would argue that medicine is the one area where any kind of ranking and result (or outcome) based assessment is virtually impossible. People are not cars, and JD Power cannot provide meaningful answers when it comes to medicine; there is no way to objectively determine a specific course of treatment for a particular patient is better at one hospital versus another. No two patients are the same, though it is entirely possible they might both drive the same car. Determining quality in healthcare is exceedingly difficult. Patient bases are different, whether because of socio-economic reasons, or geography. So do you then look to the education of the physician to determine quality? We don’t do the same for lawyers? Or do we? Do you look at healthcare structure (how an entity is organized, its equipment, etc…) to determine quality? Or process (the # of lawsuits against it, for example)? Better outcomes alone do not mean better healthcare, and none of these items taken alone should affect licensing of healthcare providers. In the end, this highlights the fact that designing a system that is fair and without major flaws may never be possible with so much money in the system and with so many parties having opposed interests. But that doesn’t mean we shouldn’t try to fix the expensive and broken (the status quo is unsustainable), it just means that attainable reform could very well mean significantly less unfairness and less major flaws. Because ultimately, in this context, the perfect may be the enemy of the good.
Filed under: Bioethics, Drugs & Devices, Transparency
CMS has published proposed rules for its implementation of the Physician Payment Sunshine Act (SUNSHINE ACT or Act), which was enacted by Congress as part of the 2010 Patient Protection and Affordable Care Act. In short, the SUNSHINE ACT requires life science companies to report annually to CMS their conferral of anything of value, whether it be payment for services or a dinner, in connection with a particular product of the paying company. By requiring CMS to post the information on its website, the Act seeks to ensure that interested patients become aware of physicians’ conflicts of interest that could affect their prescription of a branded drug or choice of a specific medical device.
The SUNSHINE ACT represents another example of the transparency movement, which has had varying degrees of success in either changing the behavior of the parties subject to disclosure, and/or enabling consumers to make better decisions based upon their access to the disclosed information. It is likely that the SUNSHINE ACT will impact physicians and manufacturers’ behavior more than it will enlighten consumers about conflicts of interest. Some physicians will simply conclude that accepting certain gifts or benefits from pharmaceutical or medical device companies isn’t worth having their names on the CMS website. Some companies have already discovered that they haven’t necessarily reaped the value of the costs of gifting many physicians, or that the cost of recording certain activities simply isn’t worth the return on investment. Unquestionably, certain transactions will continue to be valuable to both physician and company, and will continue.
It is unlikely that most patients will access the information either before or after a physician visit, or know what to do with the information even if they discover that their physician has an equity interest in the knee she plans to use in next week’s surgery – does such a close relationship with the knee manufacturer signal that the physician is great, or that something nefarious is going on? The information is likely to be used by consumer watchdog groups, as well as hospital formulary committees and medical school deans interested in knowing the sources and amounts of outside income being earned by faculty. Divorce attorneys are likely to find the information useful if their client’s soon-to-be ex-spouse hasn’t reported significant pharma consulting fees as income.
CMS rulemaking is behind schedule, thereby delaying the SUNSHINE ACT’s implementation. It is likely, however, that the ultimate rules will still require that 2012 data be submitted, even if not by the deadline originally contemplated by Congress.
The statute requires manufacturers of drugs, devices, biological or medical supplies covered by Medicare, Medicaid or the Children’s Health Insurance Program (CHIP) (“applicable manufacturers”) to report annually to HHS payments or transfers of value to physicians and teaching hospitals (“covered recipients”). Failure to comply will result in Civil Monetary Penalties. HHS, in turn, must publish this information on a public web site which is searchable, downloadable and able to be aggregated. Compliance with the SUNSHINE ACT’s reporting requirements does not exempt applicable manufacturers from application of fraud, waste and abuse laws.
The proposed rule merges the SUNSHINE ACT definition of “manufacturer of a covered drug, device, biological, or medical supply” with the statutory section clarifying that the entity covered by the SUNSHINE ACT must be “operating in the United States, or in a territory, possession, or commonwealth of the United States” to define applicable manufacturer as one
(1) Engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply for sale or distribution in the United States, or in a territory, possession, or commonwealth of the United States; or
(2) Under common ownership with an entity in paragraph (1) of this definition, which provides assistance or support to such entity with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological, or medical supply for the sale or distribution in the United States, or in a territory, possession, or commonwealth of the United States.
The operative activity that invokes statutory coverage, then, is sale of a product in the United States, as opposed to where the product is produced, or where the entity is located or incorporated. Pursuant to the rationale that risks inhere in conflicts of interest irrespective of where the manufacturer is located if the product is sold in the United States, any entity under common ownership with the manufacturer that is involved in the production, distribution or sale of at least one covered product in the United States must report all payments and conferral of value upon covered recipients. Further, as proposed, the product sponsor (i.e., the entity that obtained FDA approval) is subject to the reporting requirement, even if the sponsor is not involved in the manufacture of the covered product. CMS is considering alternative interpretations of the common ownership concept.
Covered Drug, Device, Biological, or Medical Supply (“covered product”)
The SUNSHINE ACT focuses upon those products for which Medicare, Medicaid and CHIP pay. This is relatively straightforward in many contexts, but CMS seeks to ensure that it captures situations where such products are part of a composite rate payment, such as the inpatient or outpatient hospital reimbursement, or the end-stage renal disease prospective payment system. As such, CMS proposes to define “covered drug, device, biological, or medical supply” as:
Any drug, device, biological, or medical supply for which payment is available under Title XVIII of the Act or under a State plan under title XIX or XXI (or a waiver of such plan), either separately, as part of a fee schedule payment, or as part of a composite payment rate (for example, the hospital inpatient prospective payment system or the hospital outpatient prospective payment system). With respect to a drug or biological, this definition is limited to those drug and biological products that, by law, require a prescription to be dispensed. With respect to a device or medical supply, this definition is limited to those devices (including medical supplies) that, by law, require premarket approval by or premarket notification to the Food and Drug Administration.
CMS seeks comments on its plan to exclude from the scope of regulation those manufacturers who produce and sell only over the counter (OTC) products. More specifically, this exemption would not extend to a manufacturer who sells even one prescription product who is otherwise subject to the reporting requirements of the SUNSHINE ACT. Similarly, CMS seeks to interpret the SUNSHINE ACT to cover only those medical devices that require premarket approval, on the theory that this is the segment of the market most likely to have extensive provider relationships. If a device manufacturer produces a single product that requires pre-market approval, it would have to report all payments and conferrals of value to covered recipients.
The SUNSHINE ACT defines “covered recipients” as (1) a physician, other than a physician who is an employee of an applicable manufacturer; or (2) a teaching hospital. The term physician includes both doctors of medicine and osteopathy as well as podiatrists, optometrists and licensed chiropractors. CMS interprets the statute to include within its scope those who act on behalf of covered recipients. Teaching hospital is not defined by the statute; CMS seeks comments on its proposal to identify such entities by virtue of their receipt of Medicare graduate medical education funds. CMS will publish this list annually on its website for manufacturers’ reference.
CMS plans to utilize the National Plan & Provider Enumeration System, which it maintains on its website, to collect the data regarding covered recipients required by the SUNSHINE ACT: covered recipient’s name and business address, and, for physicians, the National Provider Identifier and specialty.
Payments or Other Transfers of Value
The report must also include the date, form (i.e., cash, stock, ownership interest), nature (i.e., education, research, consulting fees, food) and amount of payment, and the market name of the product associated with the payment. CMS continues to consider how to handle payments made to a single covered recipient related to multiple products. CMS seeks to generate data in a form most easily understood by consumers.
The statutory definition requires such conferrals to be reported irrespective of whether they were requested by the physician or hospital and includes those made by third parties as long as the applicable manufacturer knows the identity of the covered recipient. CMS proposes that payments made through a group practice be reported under the specific recipient physician’s name. If a physician requests the conferral to be directed to another physician or entity, the manufacturer should report the conferral under the requesting physician’s name as well as the name of the actual recipient.
Charitable contributions by an applicable manufacturer to, at the request of, or on behalf of a covered recipient are reportable.
The SUNSHINE ACT excludes from its reporting requirement the following payments:
- Transfers of value less than $10, unless the aggregated amount exceeds $100 in a calendar year
- Product samples not intended to be sold that are intended for patient use
- Educational materials that directly benefit patients or are intended for patient use
- The loan of a covered device for a period not to exceed 90 days, to permit evaluation
- Items or services provided under a contractual warranty
- A transfer of value or payment to a covered recipient when that person is receiving the conferral in his/her capacity as a patient
- Discounts, including rebates
- In-kind items used for the provision of charity care
- A dividend or profit distribution from ownership or investment interest in a publicly traded security or mutual fund
- Self-insurance payments to covered employees by an applicable manufacturer
- Non-medical services
- Transfers of value made by third parties where the applicable manufacturer is unaware of the identity of the covered individual
CMS will be moving rapidly to respond to comments and finalize these rules, which will likely involve changes from the discussion here. State laws that pre-date the Act are pre-empted to the extent that they require reporting of the same information, which leaves them the discretion to retain those reporting requirements that are not redundant. States seeking to impose as much of a burden on manufacturers as possible are likely to retain their individualized reporting requirements, others may find the costs not worth the benefits now that the feds have finally stepped in.
 Section 1128G(e)(9).
 Subsection (e)(2) further clarifies that the entity covered by the SUNSHINE ACT must be “operating in the United States, or in a territory, possession, or commonwealth of the United States.”
Filed under: Drug Pricing, Drugs & Devices, Health Reform, Hospitals, Medicare, Social Justice
One rare point of elite consensus is that the US needs to reduce health care costs. Frightening graphs expose America as a spendthrift outlier. Before he decamped to Citigroup, the President’s OMB director warned about how important it was to “bend the cost curve.” The President’s opponents are even more passionate about austerity.
Journalists and academics support that political consensus. Andrew Sullivan calls health spending a “giant suck from the rest of the working economy.” Gregg Bloche estimates that “the 30% of health care spending that’s wasted on worthless care” is “about the price of the $700 billion mortgage bailout, squandered every year.” He calls rising health spending an “existential challenge,” menacing other “national priorities.” Perhaps inspired by Children of the Corn, George Mason economist Robin Hanson compares modern medicine to a voracious brat:
King Solomon famously threatened to cut a disputed baby in half, to expose the fake mother who would permit such a thing. The debate over medicine today is like that baby, but with disputants who won’t fall for Solomon’s trick. The left says markets won’t ensure everyone gets enough of the precious medical baby. The right says governments produce a much inferior baby. I say: cut the baby in half, dollar-wise, and throw half away! Our “precious” medical baby is in fact a vast monster filling our great temple, whose feeding starves our people and future. Half a monster is plenty.
But when you scratch the surface of these sentiments, you have to wonder: is the overall level of health care spending really the most important threat facing the country? Is it one of the most important threats? There are many ways to raise revenue to pay for rising health costs. Aspects of the Affordable Care Act, like ACOs and pilot projects, are designed to help root out unnecessary care.
I am happy to join the crusade against waste. But why focus on total health spending as particularly egregious or worrisome? Let’s explore some of the usual rationales.
Terrible Tax Expenditures and Suspect Subsidies?
Employment-based insurance gets favorable tax treatment, and much Medicare and Medicaid spending is drawn from general revenues. So, the story goes, medicine’s big spenders don’t have enough “skin in the game.” Once health and wealth are traded off at the personal level (as the Harvard Business School’s Clayton Christensen advocates), people will be much less likely to demand so much care. Government can attend to other national priorities, or individuals will enjoy higher incomes and will be free to spend more.
I respect these arguments to a point, but I worry they partake of the “nirvana fallacy.” If I could be certain that leviathan would repurpose all those wasted health care dollars on infrastructure, or green energy, or smart defense, or healthier agriculture, I’d be ready to end tax-advantaged health insurance in an instant. But I find it hard to imagine Washington going in any of these directions presently.
Giving tax dollars back to taxpayers also sounds great, until one processes exactly how unequal our income distribution is. In 2004, “the top 0.1% — that’s one-tenth of one percent — had more combined pre-tax income than the poorest 120 million people.” To the extent health-related taxes are cut, very wealthy households may see millions per year in income gains; the median household might enjoy thousands of dollars per year. Sure, middle income families will find important uses for those funds (other than bidding up the price of housing and education). But at what price? What if the insurance systems start collapsing without subsidies, and more physicians (who are already expressing a desire to work less) start seeking out pure cash practices? A few interactions with the the very wealthy may be far more lucrative than dozens of ordinary appointments.
Consider the math: billing a $20,000 retainer from each of 50 millionaires annually may be a lot more attractive to physicians than trying to wrangle up 500 patients paying $2000 each—or, worse, getting the money from their insurers. There are about 10 million millionaires in the US; that’s a lot of buying power. One $10,000 score by a cosmetic dentist from such a client could be worth 400 visits from Medicaid patients seeking diagnostic procedures. Providers are voting with their feet, and a Medicaid card is already on its way to becoming a “useless piece of plastic” for many patients. Given those trends, simply reducing health care “purchasing power” generally risks some very troubling outcomes for the very people the health care cost cutters claim to protect. No one should welcome a health care plutonomy, where the richest 5% consume 35% of services, regardless of how sick they are.
Is Anyone Underpaid in Health Care?
Health commentators rightly draw attention to big insurer CEO paydays. Top layers of management at hospitals and pharma firms are also getting scrutiny. Wonks are up in arms about specialist pay. Read more