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.

What’s In A Name? Possibly the Future of American Healthcare

Recent news about House GOP efforts to push through a bill nicknamed the “Repealing the Job-Killing Health Care Law Act” that would scale back healthcare reform has reminded me of a passage from Shakespeare’s Romeo and Juliet:

“What’s Montague? it is nor hand, nor foot,
Nor arm, nor face, nor any other part
Belonging to a man. O, be some other name!
What’s in a name? that which we call a rose
By any other name would smell as sweet;
So Romeo would, were he not Romeo call’d.”

So Juliet Capulet reasons through her love for Romeo Montague, who comes from a rival family, and suggests the two set aside their family names and rivalries for the sake of their love.  Okay, so the situation here isn’t quite the same and I daren’t suggest that certain political characters set aside their rivalries for the sake of the American people’s health and well-being (although, heaven forbid, it might be in our best interest!).  Yet the discussion of names — in terms of how the people associated with them can bring us together or tear us apart, branding, and even media spin — seems appropriate for our current political and social climates.  Starting with the Protected Patient Affordable… wait, errr… Obamacare… no, wait, got it, the Patient Protection and Affordable Care Act, also known as the “Affordable Care Act.”

In “Why The Affordable Care Act Needs A Better Name: ‘Americare’” (Health Affairs, August 2010), William Sage, vice provost for health affairs at UT-Austin, makes the most sensible suggestion of rebranding the healthcare law so it “become[s] something that beneficiaries would not only accept, but would also defend.”  Professor Sage proffers “Americare” as a name that:

would assert a collective interest in health system value and efficiency. It would build courage to do more than tinker at the margins with new payment methods, organizational structures, and professional skills. Most important, a shared identity would signal our decision to rein in special interests and begin a social conversation about redesigning health care delivery to produce the most cost-effective results.

Promoting a new name that fosters a collective identity — and, furthermore, that is catchy and inspiring — is not only sensible, but obvious (consider the “No Child Left Behind Act” — the policy may have its critics, but the name sure is catchy and who would argue in favor of leaving a child behind?).  So obvious, in fact, that I don’t know how the healthcare reform proponents missed the boat (Professor Sage considers three reasons why), because their opponents not only caught the boat, but started steering it right at them:  “Obamacare” (which, even if you believe it’s a friendly term (and I don’t), still focuses on the individual - the President - rather than the collective health of the American people), ”death panels,” and the “Repealing the Job-Killing Health Care Law Act.”

The AP recently reported on some statistics forecasting healthcare-related job losses that are wildly circulating around our nation’s capital.  The nonpartisan Congressional Budget Office (CBO) projected that the current healthcare law “will reduce the amount of labor used in the economy by a small amount –roughly half a percent– primarily by reducing the amount of labor that workers choose to supply” because people won’t be trapped in a job just to get the health benefits.  A recent report by House GOP leaders has cited the CBO projections and has interpreted them to mean some 650,000 jobs could potentially be in jeopardy.

Yet far from cutting the number of available jobs, the current law enables people to voluntarily leave the workforce (by retiring earlier) or continue to work in less demanding jobs.  AP reporters found that:

the law’s penalties on employers who don’t provide health insurance might cause some companies to hire fewer low-wage workers, or to hire more part-timers instead of full-time employees…. But the main consequence would still be from more people choosing not to work.

So what has the CBO (actually) said about the “Repealing the Job-Killing Health Care Law Act” (before more numbers start wildly circulating)?  In a letter to Speaker of the House John Boehner, the CBO analyzed, among other things, the bill’s potential impact on federal budget, discretionary spending, and the number of insured.  With respect to the effects on the number of insured, the letter states that under the bill:

about 32 million fewer nonelderly people would have health insurance in 2019, leaving a total of about 54 million nonelderly people uninsured. The share of legal nonelderly residents with insurance coverage in 2019 would be about 83 percent, compared with a projected share of 94 percent under current law (and 83 percent currently).

That projected difference of 32 million in the number of uninsured people in 2019 reflects a number of differences relative to circumstances under current law. Approximately 24 million people who would otherwise purchase their own coverage through insurance exchanges would not do so, and Medicaid and the Children’s Health Insurance Program would have roughly 16 million fewer enrollees. Partly offsetting those reductions would be net increases, relative to the number projected under current law, of about 5 million people purchasing individual coverage directly from insurers and about 3 million people obtaining coverage through their employer.

Even if the Senate doesn’t approve the bill, CNN reports that healthcare law opponents, such as House Majority Leader Eric Cantor (R-VA), promise to, at the very least, defund and delay healthcare reform provisions.  Either way, healthcare law proponents must rethink their campaign to maintain (or rally, depending on how things go) support among the American people…  starting with an inspiring, new name.

(My thanks to my dad for emailing me the AP article that inspired this post and to Kate Greenwood for directing my attention to Professor Sage’s article).

Secretary Sebelius Gives a Recap of 2010

As we head into a day which promises to bring us the politics of health reform writ large– in the form of a repeal vote staged in the House– I thought it might serve to listen for a moment or two to Health and Human Services Secretary Kathleen Sebelius give an HHS recap of 2010.

There are more than enough pundits engaged in the dynamics of tomorrow’s promised vote, so I’ll opt out for the moment. But I will say this: I’ve listened to a number of commentators refer to the vote in the House as “merely symbolic.” As it concerns present repeal of the health reform law, the vote will prove futile; but to think that that many career politicians were engaging in such an act for mere “symbolic” benefit is to miscalculate badly. These are smart people– smart enough to get, and in many cases stay for decades, elected.

Having said that, there’s a practical side to the HHS overview of 2010 that I rather appreciated. In case you missed it:

Obama Signs Provision Contrary to Fraud Enforcement Trend

On December 15, 2010, President Obama signed the Medicare and Medicaid Extenders Act of 2010 (the Medicare Physician Pay Fix Bill).  In addition to its one-year delay of a 25% cut in Medicare reimbursements to physicians, the act repeals § 6502 of the Patient Protection and Affordable Care Act which would have become effective on January 1, 2011.  This move stands in stark contrast to a recent trend toward increased individual liability, specifically the increased exclusion of individuals from federal healthcare programs for fraud and abuse violations.

Enforcement Trends

The federal government, through the Department of Health & Human Services Office of the Inspector General (OIG), has increased its focus on individuals, with exclusions for fraud and abuse violations.  As previously reported, OIG released an internal advisory document on October 20, 2010, setting out nonbinding factors for permissive exclusions under § 1128(b)(15) of the Social Security Act.  The new Guidance changed the permissive exclusion standard to a quasi-mandatory standard, by creating a presumption in favor of exclusion when an individual exercises ownership, operational or managerial control over a sanctioned entity and there is evidence that such individual knew or should have known of the prohibited conduct.

OIG swiftly acted on the new Guidance by excluding Marc S. Hermelin, Chairman of the board and majority shareholder of K-V Pharmaceutical.  As a result, K-V announced on November 17, 2010 that Hermelin had resigned and agreed to divest himself of all K-V stock.  On December 7, 2010, Gregory E. Demske, Assistant Inspector General, announced that the exclusion of Hermelin was “preview of things to come.”

Further, on November 9, 2010, former GlaxoSmithKline Vice President and Associate General Counsel Lauren Stevens was charged with obstruction of justice and making a false statement in response to a Food and Drug inquiry.  Michael W. Peregrine, with McDermott Will & Emery LLP, told BNA that, “the Stevens prosecution is a piece of a broader puzzle based in part on the responsible corporate officer doctrine and reflects the government’s heightened interest in fostering individual accountability and that is consistent with other recent attempts by prosecutors to target individuals they believe are responsible for corporate misconduct.”

Section 6502

Section 6502, which was repealed on December 15, would have continued the trend toward increased individual liability.  It would have mandated state Medicaid agencies to exclude an individual or entity that “owns, controls, or manages” a Medicaid-participating entity that:

• Has delinquent, unpaid Medicaid overpayments
• Is suspended or excluded from participation in Medicaid, or
• Is affiliated with an individual or entity that has been suspended or excluded from participation in Medicaid

The Medicaid exclusion authority of § 6502 is different than § 1128(b)(15) of the Social Security Act.  Unlike § 1128(b)(15), which provides for permissive exclusion from all federal health care programs,  § 6502 would have provided for mandatory derivative exclusion from Medicaid only.  Laurence Freedman, an attorney with Patton Boggs told BNA that “this mandatory Medicaid exclusion needed to be repealed to avoid a broad, and I believe, unintended impact.  It would have reached former executives or board members of excluded subsidiaries, for example.”

Health Reform Provisions Taking Effect in 2011

As we begin 2011, it may be of some help to look at which aspects of the new Health Reform Law(s) are scheduled to take effect this year. Kaiser Family has a fairly nifty and easily read sortable list delineated by year and area; the Wall Street Journal Health Blog has a brief but interesting article complete with links.

Highlights for 2011 include the 80 or 85% loss ratio mandate for insurers and free preventative care for seniors; in the pharm world we can look forward to a shrinking of “the donut hole,” federal subsidies for generics, and FSAs no longer paying for over the counter medicines; and lest we forget, that 3 p.m. trip to the vending machine for some form of sugar will become laden with a better informed guilt as vending machines and chain restaurants will need to post calorie and nutritional info. For a 2011 timeline authored by the Obama administration, see below, courtesy of Health Reform.gov:

2011

IMPROVING QUALITY AND LOWERING COSTS

• Offering Prescription Drug Discounts. Seniors who reach the coverage gap will receive a 50 percent discount when buying Medicare Part D covered brand-name prescription drugs. Over the next ten years, seniors will receive additional savings on brand-name and generic drugs until the coverage gap is closed in 2020. Effective January 1, 2011. Download a brochure to learn more (PDF, 3.6 MB)
• Providing Free Preventive Care for Seniors. The law provides certain free preventive services, such as annual wellness visits and personalized prevention plans for seniors on Medicare.  Effective January 1, 2011.
• Improving Health Care Quality and Efficiency. The law establishes a new Center for Medicare & Medicaid Innovation that will begin testing new ways of delivering care to patients. These methods are expected to improve the quality of care, and reduce the rate of growth in health care costs for Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP). Additionally, by January 1, 2011, HHS will submit a national strategy for quality improvement in health care, including by these programs.  Effective no later than January 1, 2011.
• Improving Care for Seniors After They Leave the Hospital. The Community Care Transitions Program will help high risk Medicare beneficiaries who are hospitalized avoid unnecessary readmissions by coordinating care and connecting patients to services in their communities. Effective January 1, 2011.
• Introducing New Innovations to Bring Down Costs. The Independent Payment Advisory Board will begin operations to develop and submit proposals to Congress and the President aimed at  extending the life of the Medicare Trust Fund.  The Board is expected to focus on ways to target waste in the system, and recommend ways to reduce costs, improve health outcomes for patients, and expand access to high-quality care.  Administrative funding becomes available October 1, 2011.

INCREASING ACCESS TO AFFORDABLE CARE

• Increasing Access to Services at Home and in the Community. The new Community First Choice Option allows States to offer home and community based services to disabled individuals through Medicaid rather than institutional care in nursing homes.  Effective beginning October 1, 2011.

HOLDING INSURANCE COMPANIES ACCOUNTABLE

• Bringing Down Health Care Premiums. To ensure premium dollars are spent primarily on health care, the new law generally requires that at least 85% of all premium dollars collected by insurance companies for large employer plans are spent on health care services and health care quality improvement. For plans sold to individuals and small employers, at least 80% of the premium must be spent on benefits and quality improvement. If insurance companies do not meet these goals, because their administrative costs or profits are too high, they must provide rebates to consumers. Effective January 1, 2011.
• Addressing Overpayments to Big Insurance Companies and Strengthening Medicare Advantage. Today, Medicare pays Medicare Advantage insurance companies over $1,000 more per person on average than is spent per person in Traditional Medicare. This results in increased premiums for all Medicare beneficiaries, including the 77 percent of beneficiaries who are not currently enrolled in a Medicare Advantage plan. The new law levels the playing field by gradually eliminating this discrepancy.  People enrolled in a Medicare Advantage plan will still receive all guaranteed Medicare benefits, and the law provides bonus payments to Medicare Advantage plans that provide high quality care.  Effective January 1, 2011. Download a brochure to learn more (PDF)
  

Photo credit: Yuval Y via Wikimedia Commoons.

Interviews with Virginia Attorney General and White House Health Reform Director

In case you missed it: courtesy of PBS, a minute and 45 seconds of recap and then interviews with White House health reform director Nancy-Ann DeParle and Virginia Attorney General Ken Cuccinelli on the constitutionality (or lack thereof) of the individual mandate. Attorney General Cuccinelli brought the suit against the mandate that won in Virginia federal court last week. (It takes a moment or two to buffer).

Two Proposals to Reduce Health Care Spending

In the past few weeks, two bipartisan groups have made deficit reduction proposals that address national health care spending.  The nation faces a trillion dollar-plus budget deficit, and health care spending is a large proportion of ongoing spending.

National Commission on Fiscal Responsibility and Reform

On November 10, the chairmen of the bipartisan National Commission on Fiscal Responsibility and Reform released an initial draft proposal to reduce the deficit.  The panel consists of ten Democrats and eight Republicans, “charged with identifying policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run.”

Several commission members have praised the proposal, but will seek changes before endorsing a final version.  The chairmen, Erskine Bowles, former chief-of-staff to then President Clinton, and Alan Simpson, a former GOP senator held a closed-door meeting this past week to discuss modifications before the panel presents its final recommendations on December 1.

Although the drafted proposal addresses a broad array of fiscal problems and objectives, it makes dramatic changes to health care spending.  In the medium term, the chairmen propose the following:

• Pay doctors and other providers less, improve efficiency, and reward quality by speeding up payment reforms and increasing drug rebates. Specifically:
  • Replace cuts required by the Medicare Sustainable Growth Rate (SGR) through 2015 with modest reductions while directing CMS to establish a new payment system, beginning in 2015, to reduce costs and improve quality.
  • Require rebates for brand-name drugs as a condition of participating in Medicare Part D.
• Pay lawyers less and reduce the cost of defensive medicine by adopting comprehensive tort reform.
• Expand cost-sharing in Medicare to promote informed consumer health choices and spending. Specifically:
  • Eliminate first-dollar coverage in Medigap plans.
  • Replace existing cost-sharing rules with universal deductible, single coinsurance rate, and catastrophic cap for Medicare Part A and Part B.
• Expand successful cost containment demonstration.
• Strengthen the Independent Payment Advisory Board (IPAB).
• Identify an additional $200 billion savings in federal health spending, for instance:
  • Expand ACOs, Payment Bundling, and Other Payment Reform
  • Cut Federal Spending on Graduate and Indirect Medical Education
  • Convert The Federal Share Of Medicaid Payments For Long-Term Care Into a Capped Allotment

In the long term, the chairmen propose to set a global target federal health spending after 2020 and limit growth to the gross domestic product (GDP) plus one-percent.

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.

Just What the Doctor’s Health Lawyer Ordered: An ACA Litigation Blog

In what promises to be a tremendous resource for all keeping score on the health reform law litigation front, Brad Joondeph, Professor of Law at Santa Clara University School of Law, has put together a blog which features updates on  PPACA litigation as well as a compilation of the pertinent documents in such cases. Described as  “A place to find news updates, legal analysis, and all official documents related to the states’ constitutional challenges to the Patient Protection and Affordable Care Act (as amended by the Health Care and Education Reconciliation Act of 2010),” it is.

You can find the ACA Litigation Blog here. Going forward, HRW will gladly feature it as a live RSS feed in the far right sidebar.

(Tip of the hat to the HealthLawProf Blog for pointing it out)

Recommended Reading: Recent Legal Scholarship on Health Reform

In recent months, the first law review articles on the Patient Protection and Affordable Care Act (PPACA) have begun to appear. I highlight here two very recent contributions to the legal literature that are well-worth reading.

In Setting National Standards for Health Plans Under Healthcare Reform (published in the October 2010 issue of the UCLA Law Review) Jessica Mantel argues persuasively that the notice-and-comment rulemaking procedure set forth in PPACA for defining “essential health benefits” will result in politically-driven decisions that do not serve the broad public interest, using as one case study the controversy over the U.S. Preventive Services Task Force’s recommendations regarding routine screening mammograms.  Professor Mantel proposes that the power to define essential health benefits be vested not in the Secretary of Health & Human Services, as PPACA provides, but instead in an independent commission — modeled on the Base Realignment and Closure Commission — that “could give more careful consideration to the relevant empirical evidence on clinical efficacy and cost-effectiveness, showing sensitivity to the concerns of all individuals impacted by its decisions, correct for fallacies or biases in public opinion, and exercise moral powers of persuasion in evaluating the various policy options.”  The commission’s proposed package of essential health benefits would be subject to an up-or-down vote in Congress and any subsequent changes Congress wished to make would be subject to an “actuarial offset requirement,” i.e., if Congress wanted to expand coverage in one area it would have to contract it in another.  Professor Mantel considers the possibility that the resultant benefits package would tilt in favor of well-organized, wealthy special interest groups but ultimately discounts it, in part because “groups defending the status quo have important advantages over those seeking new mandated benefits legislation.”  Even if Professor Mantel’s proposed reform to healthcare reform is not adopted, her article’s thoughtful analysis of the potential for politics to interfere with the establishment of fair and reasonable national coverage standards is a very valuable contribution.

Richard Saver’s Health Care Reform’s Wild Card: The Uncertain Effectiveness of Comparative Effectiveness (forthcoming in the University of Pennsylvania Law Review) similarly addresses a weakness in PPACA — in this case, its “fail[ure] to bet smart and play the [comparative effectiveness research (CER)] wild card effectively.”  Professor Saver highlights a number of what he calls “translation barriers” that “jeopardize making productive use of governmentally funded CER.”  Included among these is vagueness in the statutory definition of comparative effectiveness that leaves unclear the extent to which cost effectiveness can or should be evaluated and creates the potential for “misson-creep.”  Other barriers include the fact that comparative effectiveness studies are (1) costly, (2) pose design and execution challenges, (3) may raise more questions than they answer, (4) fail to account adequately for patient and provider differences, and (5) fail to keep pace with innovation.  Surpassing all these in importance, Professor Saver argues, is the simple fact that physicians lack “strong incentives . . .  to adapt to CER.”  He concludes his article by laying out a number of concrete steps to address these translation barriers, including rewarding physicians who follow evidence-based practice recommendations with enhanced reimbursement and liability safe harbors, deploying academic detailers to persuade physicians to conform their practices to CER, and systematically studying what implementation methods work and what do not.   I recommend this article for its comprehensive and insightful analysis of the comparative effectiveness research component of health reform and also for its fascinating discussion of the reasons (some legitimate and some less so) underlying practicing physicians’ resistance to CER.

CRS Issues Medicare Reform Summary and Timeline

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

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

Medicare Changes by Provider Type and Program

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

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

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

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

Efficiency and Quality of Health Care Services

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

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

Medicare Sustainability

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

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

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

Fraud, Waste and Abuse

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

In Conclusion

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

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

The Boys Are Back In Town… But Will They Have Much Repeal?

A week before the election, the  L.A. Times quoted Senator Orrin Hatch (R-Utah) as saying his party “could come up with a healthcare system that American people would not only be proud of, but would actually love.”  That same article reported how Republican and other conservative candidates have been promising to repeal the Patient Protection and Affordable Care Act (PPACA) without proposing a viable alternative.  In fact, the Republican track record for the past decade isn’t anything to trumpet.  Rather than lowering healthcare costs and expanding access to care,

from President George W. Bush’s election in 2000 to the end of GOP congressional majorities in 2006, Republicans failed to pass major healthcare changes despite evidence of an escalating crisis.

American workers saw their health insurance premiums jump 78%, as the average price tag for an employer-provided family health plan surged to $11,480 a year, according to a survey of employer health benefits by the nonprofit Kaiser Family Foundation and the Health Research & Educational Trust.

That took a toll on businesses and employees. In 2000, 69% of employers provided their workers with health benefits, the Kaiser surveys found. In 2006, 61% were offering health insurance.

By the time Republicans lost control of Congress, an estimated 43.6 million Americans did not have health insurance, up from 41.3 million six years before.

Be that as it may.  The election has taken place, the Republicans have regained control of the House, and the country is left to wonder: are the days of PPACA — or any kind of healthcare reform — numbered?  The Washington Post observes that election day “[e]xit polls showed… roughly half the public wants to repeal the bill but that the other half wants to keep or expand it, setting the stage for a potential showdown.”  Prescriptions, a N.Y. Times health blog, interviewed a a portfolio manager and health care strategist, and found that he “‘[didn't] think anybody wants to kiss off 30 million new customers’….  What the health insurers and drug and device makers want is not repeal, he argued, but ‘reform light.’”

Granted, the Democrats still control the Senate, a Democratic president remains in office for at least two more years, and the Republicans didn’t win enough seats to override a presidential veto.  So if an outright repeal isn’t in the cards, then what other options do the Republicans have to scale back this “monstrosity,” to borrow the colorful phrase used by incoming House Speaker and Minority Leader John Boehner (R-Ohio)?

The N.Y. Times suggests that Republicans might direct Congress to chip away at or eliminate the less popular PPACA provisions, such as the tax on manufacturers of medical devices, the requirement for many employers to contribute to insurance for employees, or the mandate that everyone have health insurance.  The article notes that

with Republicans winning control of many governors’ mansions and making gains at the state legislative level, they will be able to determine how the new law is carried out locally.

Republicans in Congress said they would try to give states more latitude and discretion on issues like the design of health insurance exchanges. The law calls for creation of an exchange in each state and says only government-approved insurance plans can be sold on the exchange.

The new rules, though stricter than in the past, may well be less stringent than they would have been if Democrats had not taken what Mr. Obama described as “a shellacking.” In addition, Republicans said they would try to cut the budget for federal enforcement of the law and related rules.

On Wednesday, Rep. Boehner expressed his belief that “the health care bill will kill jobs in America, ruin the best health care system in the world and bankrupt our country.”  In response to these claims, Kaiser Health News asked 3 dozen people across the country,  including physicians, CEOs and Presidents, administrators: ”[i]f you ended up in an elevator with Rep. Boehner, what single thing would you urge him to do about health care in this country?”  (Click here to read their responses.)  I’d urge him to repeal his stance.

Election Fallout and Why State Initiatives to Exempt Residents from Health Care Law are Not Just Symbolic

As the election results filter in and America finds itself trying on some level to read tea leaves, analysts and pollsters are hard at work trying to get a sense of why things fell out the way they did. Most pertinent to this blog, of course, is just what kind of role the health care law played in these elections. The Wall Street Journal’s Health Blog writes:

Official exit polls put health care as the second-most important issue driving votes, with 19% of those surveyed by Edison Research (for media organizations) saying it was their key issue, Politico reports. That paled, however, to the 62% who said the economy was most important.

Time Magazine’s Swampland Blog has a quick and effective breakdown of the health reform impact on a number of candidates. Entitled “Mixed Results on the Health  Reform Referendum,” you can find that here.

I have, however, issue with one aspect of the Time piece. It states:

Voters in Arizona, Colorado and Oklahoma also had a chance to weigh in on symbolic ballot initiatives to amend their state constitutions to exempts residents from portions of the Affordable Care Act. These are symbolic because federal law trumps state law — the point of the initiatives is basically to send a message of opposition. Oklahoma voters resoundingly approved their measure. (Missouri voters acted similarly in August.) It’s still early, but Colorado voters look like they are more split, with 55% of voter voting against the measure with 24% of precincts reporting. In Arizona, even fewer votes have been tallied — the count stands at 56% approving the measure with 14% of precincts reporting. (emphasis added).

I do not discount that these initiatives have symbolic value, but as I’ve noted before on this blog, such initiatives are not wholly symbolic. When the AMA’s Amed News wrote a similar story regarding the similar Missouri initiative, I noted that a federal judge in Virginia found standing in a challenge against the health care law based upon just such an initiative. I wrote:

Generalities aside, as is best in this regard, it strikes me that the Missouri initiative may have more than just symbolic value. Importantly, in the recent federal court decision regarding Virginia’s suit against the individual mandate, the judge in that case found standing for the state of Virginia–an exceedingly important, though procedural, ruling. It is exceedingly important because without standing the case could simply not go forward. The judge in the case found standing for Virginia’s 10th Amendment claim largely based upon a law passed subsequent by the state of Virginia. Regarding that matter I wrote:

In deciding the standing issue, Judge Hudson, according to Professor Jack Balkin, made much of the “Virginia Health Care Freedom Act– which asserts that no Virgina citizen may be forced to purchase health care insurance; that this law conflicts with the federal Affordable Care Act, and therefore Virginia has standing to challenge the act under the 10th amendment.”

Virginia’s Act was passed subsequent to the federal law in question; other states challenging the individual mandate do not, at present, have such a law to rely on. As Professor Balkin points out, however, the Virginia Act being deemed sufficient to buttress standing in a States’ rights Tenth Amendment claim is interesting– to say the least. It begs the question.

In more than just symbolic terms, Missouri may have just answered that question–at least in terms of 10^th Amendment standing–if, of course, its federal district court sees the matter in the same way as did Judge Hudson. Certainly not guaranteed– the Missouri Federal Court is not bound by the Federal Court of Virginia– but nonetheless, Missourian’s just laid claim to an argument that has won elsewhere.

Arizona, Colorado and Oklahoma may have just done the same.

Health Care Law Challenges Move Toward Supreme Court: Michigan Suit Denied as Florida Suit Moves Forward

Just a week after a Michigan judge prevented a suit challenging the Patient Protection and Affordable Care Act from moving forward, a Florida judge allowed a similar challenge to be judged on its merits. Both cases, Thomas More Law Center v. Obama and Florida v. U.S. Department of Health and Human Services, challenge the new health care law. Specifically, the suits alleged that the individual mandate provision of the health care law, which is scheduled to go into effect in 2014 and would require every individual (except for a number exempted) in the U.S. to purchase health care, violates the constitution. In Michigan, a judge held that it does not. In Florida, a judge held that, due to its unprecedented nature, it could violate the constitution and denied the motion to dismiss, which will allow the case to move forward based on its merits.

Many commentators believe these lawsuits and others, like Virginia v. Sebelius in Virginia and Kinder v. Geithner in Missouri, will ultimately end up in the U.S. Supreme Court.

Florida v. Department of Health and Human Services

The Florida suit alleged that the statute violates the U.S. Constitution by mandating that every American purchase health care or else pay a penalty. The six-count complaint charged that the statute exceeded congressional authority under the commerce clause, violated due process and otherwise interfered with states’ sovereignty rights.

The 65-page opinion begins by determining whether, for analytical purposes, the prescribed payment for non-compliance with the individual mandate was a penalty or a tax. The court considered it a penalty, therefore holding that the statute cannot be considered constitutional based only on the federal government’s taxation powers.

The court also considered whether the plaintiffs had standing to pursue the litigation, which, in short, requires that a plaintiff has suffered a concrete harm  by the defendant which is capable of being redressed by the court. The court held that it did because while the individual mandate provision will not take effect until 2014, the injury is impending and will occur in due time.

Addressing the merits of the case, the court dismissed plaintiffs’ claim that the law interfered with the individual states’ (19 others joined Florida in the suit) sovereignty rights as employers. The court also dismissed plaintiffs argument that the individual mandate violates due process rights, holding that the freedom to decide whether or not to buy health care is not a “fundamental right.”

The plaintiffs argued that the federal government exceeded its power over the states by “coercing” them to expand Medicare. The court ruled that the argument was “shaky,” but nevertheless allowed it to move forward because little law in the Fourth Circuit (which includes Florida) addresses the coercion theory: that is the theory that the federal government may induce states to participate in federal programs through financial incentives, but it cannot put the states in a position where rejecting a federal program would be so burdensome as to tip the scale from mere inducement to actual coercion. The theory came from the Supreme Court’s decision in South Dakota v. Dole.

Finally, the court addressed plaintiffs’ claim that the statute improperly expands the commerce clause of the U.S. Constitution. The court reasoned that the individual mandate is unprecedented in history (apparently not having read Bradley Latino’s article, “The Original Individual Mandate, Circa 1792“), which alone does not make it unconstitutional. However, the court held that the unprecedented nature and novelty of the commerce clause justification makes the question as to whether the statute is an unconstitutional expansion of the commerce clause, at the very least, enough to state a claim for relief. Hence, the court ruled, the litigation may move forward. Which is to say that the plaintiffs claim survived in part the motion to dismiss for failure to state a claim. A first, but important hurdle, though governed by a deferential standard in favor of the plaintiffs. Barring the unforeseen, the next hurdle will be the motion for summary judgment.

“In American legal practice summary judgment can be awarded by the court prior to trial, effectively holding that no trial will be necessary. Issuance of summary judgment can be based only upon the court’s finding that: 1) there are no issues of “material” fact requiring a trial for their resolution, and 2) in applying the law to the undisputed facts, one party is clearly entitled to judgment.”

Thomas More Law Center v. Obama

On Oct. 7, just a week before the Florida ruling, a Michigan judge, deciding on the merits of the case, found for the defendants in a suit challenging the individual mandate to buy health insurance in the Patient Protection and Affordable Care Act. The opinion, written by Judge Steeh, found that the Plaintiffs, the Thomas More Law Center and other individually named plaintiffs, had standing even though they have not been penalized under the law for not buying health care. This provision does not take effect until 2014.

The judge ruled that the plaintiffs had standing because, even though the challenged provision of the bill does not go into effect for four more years, they suffered an immediate harm because they could be taking an action, or arranging their affairs,  such as saving money in anticipation of the mandate.

In Virginia v. Sebelius, the court also found standing for the plaintiff in a challenge to the statute. There, however, the court ruled that the plaintiff, the Commonwealth of Virginia, had standing because the commonwealth made its own statute prohibiting any individual mandates to purchase health insurance. The claim survived a motion to dismiss and will move forward.

Here, however, the motion was dismissed on other grounds. Judge Steeh rejected plaintiffs’ argument that refraining from purchasing insurance was economic “inactivity” and therefore could not be subject to federal control under the commerce clause of the U.S. Constitution. Instead, the judge reasoned that plaintiffs were making an “economic decision” to pay for healthcare services later, out of pocket, rather than sooner, by purchasing a health insurance plan.

Finally, the judge reasoned that the individual mandate is essential to a broader regulatory scheme. Citing Gonzalez v. Raich, where the Supreme Court sustained Congress’s authority to prohibit the possession of homegrown marijuana for personal use because of its impact upon the aggregate, the court noted that the individual mandate on healthcare was essential to a broader regulatory scheme. Like in Raich, the statute would not work without a mandate to purchase health insurance, the court noted, because, “the most costly individuals would be in the insurance system and the least costly would be outside it.” The court concluded that the individual mandate is a reasonable or rational means of carrying out Congress’s goal.

The Florida court’s ruling on standing makes it the third court to allow a suit challenging the individual mandate to overcome the standing argument, a procedural hurdle some commentators did not believe those opposed to the individual mandate could overcome. Having said that, the Michigan court’s decision is the first of the suits to be decided on the merits– and the Individual Mandate prevailed.

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