By Anne L. Kim, CQ Roll Call

March 14, 2014 -- The House recently passed legislation that would change the way Medicare pays doctors, with an offset that is expected to be scrapped by the Democratic-controlled Senate.

The chamber passed the bill (HR 4015) by a 238-181 vote. A dozen Democrats voted in favor.

The measure would repeal the sustainable growth rate formula in current law, and replace it with systems to adjust payments based on performance factors or on a provider's participation in alternative payment models.

While lawmakers have agreed on the policy, which constitutes the underlying bill, they are divided over how to pay for it.

Under the rule (H Res 515) that provided for floor consideration, the House automatically adopted an amendment by Ways and Means Chairman Dave Camp, R-Mich., that would offset the bill's $138 billion cost with a five-year delay of the 2010 health care law's (PL 111-148, PL 111-152) individual mandate penalty.

Republicans have been arguing that the Obama administration has delayed portions of the health care law for others and that exemptions should be extended to all individuals.

The proposal may not be the final version of the bill, but it's time for the Senate to pass their own version and appoint conferees, said Rep. Phil Gingrey, R-Ga.

"Let's go to conference, let's work with the Senate to get a pay for that can work," said Energy and Commerce Chairman Fred Upton, R-Mich.

Democrats counter that Republicans, by tacking the proposal to delay the individual mandate penalty to the bill, are thwarting a bipartisan, bicameral agreement on the sustainable growth rate formula.

"Everybody knows that this provision is a non-starter," said Rep. Diana DeGette, D-Colo.

By attaching the individual mandate penalty delay onto the bill, Republicans have singlehandedly "stomped" on months of negotiations on the sustainable growth rate formula, said Frank Pallone Jr., D-N.J.

All but one of the dozen Democrats who supported the bill last week also backed legislation (HR 4118) the House passed last week that would delay the individual mandate penalties for one year. Brad Schneider, D-Ill., did not vote on that measure. A total of 27 Democrats voted in favor of the one-year delay.

The White House threatened to veto the "doc fix" bill over the offset.

The Senate is expected to take up the issue when it returns from a weeklong recess.

Lawmakers have until the end of the month to act before the current patch (PL 113-67) expires and a 24 percent cut in Medicare physician payment rates takes place under the SGR.

By Emily Ethridge

March 10, 2014 -- For years, doctors have pushed lawmakers to do away with Medicare's outdated physician payment formula and move to a more stable system that would reward quality work, not just volume. Congress is now closer than ever to repealing the sustainable growth rate (SGR) formula, which has resulted in repeated short-term "doc fixes" to avert drastic cuts in Medicare reimbursements.

But after 16 years under that detested but familiar approach, are doctors really ready for a new world of Medicare payments?

The question yet to be answered is whether the new approach that various congressional committees have agreed upon—incorporated into a House bill that may come to the floor this week, and a companion Senate measure—will build new payment models that fit all kinds of practices, from the solo primary-care provider to the large multispecialty network. Any payment system also must avoid the faults of its predecessor, which, after all, was enacted with the best of cost-saving intentions.

Doctors' groups acknowledge that some of their members may have trouble adjusting. But they say that ending the SGR formula will be worth it. "We will do just about anything to get rid of the SGR. Whatever it takes—within reason," says Alex Valadka, a neurosurgeon and spokesman for the Alliance of Specialty Medicine. "Whatever we haven't figured out yet, we will figure out."

Lawmakers passed the first doc fix in 2003, and since then the government has spent $153.7 billion on 16 of the patches, according to the American Medical Association. That is more than the $138.4 billion cost over 11 years estimated for bipartisan, bicameral legislation that would repeal the SGR and replace it with new payment systems.

Physicians' groups of all types support the legislation (HR 4015, S 2000), which represents a policy agreement among three committees—Senate Finance, House Energy and Commerce and House Ways and Means. The groups see it as their best shot at doing away with the recurring doc fix nuisance. Yet they also know that some medical practices will transition much more easily than others to the new payment systems created in the bill.

Smaller practices and those in rural areas will have a harder time participating in group-oriented alternative payment models created in the bill. And specialists are concerned about how they will work within those models and whether they will have a chance to be judged by quality metrics that suit their practices.

For lawmakers who crafted the replacement legislation, a one-size-fits-all model like the SGR was out of the question. The bill instead attempts to extend some flexibility to providers, giving them the choice of staying in a program that rewards doctors for meeting performance thresholds within the traditional fee-for-service system or opting into an approved alternative payment model.

Standardization Ahead

The wide variety of practices across the country means that provider readiness varies greatly. Jay Crosson of the American Medical Association says physicians vary widely in terms of practice design, technology and, particularly, marketplace. "If you've seen one practice, you've seen one practice, as the saying goes," says Crosson, the AMA's group vice president for physician satisfaction and care delivery payment.

A post-SGR world will throw all of these Medicare providers into a payment scheme that everyone will be trying for the first time—and not everyone is guaranteed to do well.

"Under the current system, the people who do well tend to be those who have a higher volume of procedures that are highly reimbursed," says Bob Doherty, senior vice president for government affairs and public policy at the American College of Physicians. "Whenever you create incentives, you're going to create new categories of people who do well and people who don't do well."

Lawmakers who support the bill say it would enable providers to find a payment model that works for them. After a five-year period of payment stability, doctors' payments would be adjusted based on whether they participate in a new Merit-Based Incentive Payment system in traditional fee-for-service Medicare or in one of the new models that try to measure how well doctors do in keeping patients healthy.

Provider-group representatives acknowledged that most large multispecialty group practices are well-positioned to move away from fee-for-service but that smaller independent practices and specialties may have a harder time.

"The little bitty ones, I think it's fair to say, are the most worried," said Len Nichols, director of the Center for Health Policy Research and Ethics at George Mason University. "It's kind of like, you only jump in the river if it's burning behind you. Well, it's kind of burning behind them—because fee-for-service is coming down because we can't afford it."

Crosson said the merit-based system will be the more attractive avenue for smaller practices because it will have stable payments without the risk of an alternative payment model. "Generally speaking, the small practices have neither the expertise nor the financial resources to be able to do this on their own," he said of alternative payment models.

The bill makes an effort to help smaller practices move into the new world. It would provide $40 million annually for the next four fiscal years to help providers in small practices, particularly those in rural or medically underserved areas, make a transition.

Doherty said that many small providers are still in the early stages of converting to electronic records, and "it's hard to imagine doing a successful, merit-based reporting system that is not supported by electronic health records." He added that many small groups lack other infrastructure and technology needed to participate in some alternative payment models.

In contrast, American Academy of Family Physicians President Reid Blackwelder says family physicians "are probably in a better place than many" to move to the new models. He says two-thirds of family physicians use electronic medical records—"far and away more than any other specialty." One-third are already in patient-centered medical-home demonstration projects, which qualify under the bill as an alternative payment model. A medical-home practice agrees to monitor and coordinate the overall care of beneficiaries.

Trouble for Specialists

Specialty providers also are expected to have a more difficult time with the payment transition. Anything in the bill meant to encourage better and more primary care, Nichols says, is likely to result in less specialty care.

"They see almost all of these initiatives as designed to reduce their income," Nichols says of specialists. "Well, you know what—you can't reduce spending unless you reduce spending."

Valadka, of the Alliance of Specialty Medicine, says his group is working to ensure that specialists will have appropriate metrics for quality measurement as well as the right incentives to participate in alternative payment models. "Although we certainly support the legislation ... there's still a lot of work that needs to be done to make sure that all the incentives aren't pointing exclusively to primary-care practitioners," he said.

Physicians also say they will keep a close watch on the MIPS, which would combine and modify Medicare's current quality performance incentive programs. Under the program, providers would receive a score from 0 to 100 for their performance in four categories, and payments would be based on where the score falls relative to a performance threshold.

Providers praise language that would allow professional groups and stakeholders to weigh in annually on which quality measures should be used in the next performance period and that would give providers credit for improving.

But for the MIPs to succeed, many physicians will have to change the culture and structures of their practices to meet those quality metrics, said Doherty. He emphasized that the Centers for Medicare and Medicaid Services would need to give feedback to providers quickly so they could improve before the next reporting period.

One aspect of the bill that all of the provider groups praised is a period, through 2018, with 0.5 percent annual payment updates. Groups say the interval would provide much-needed constancy after years of watching to see whether Congress would avert scheduled cuts.

Doherty says the transition time would give providers a chance to evaluate which payment model they should participate in later and prepare accordingly.

"One of the most important benefits if this bill goes through, and pretty much in this fashion, will be a five-year period of stability with payment for Medicare," Blackwelder says. "We haven't had that in ... I can't even remember."

By John Reichard, CQ HealthBeat Editor

March 14, 2014 -- The administration is expected to ease a key spending rule in the health care overhaul as part of efforts to prevent insurers from jacking up premiums in the online insurance marketplaces next year.

The Centers for Medicare and Medicaid Services (CMS) signaled its intent to adjust the so-called medical loss ratio, or MLR, requirement in a section of a 335-page rule published this week. Called "Benefit and Payment Parameters for 2015," the rule appeared in the March 11 Federal Register. The agency first signaled it might take such a step last fall.

Adjusting the rules was one of the ways the agency said it might give insurers more money to compensate for last fall's trouble launch of the online health care marketplaces.

"We intend to propose several amendments to the MLR regulations," the agency stated in a section listing 13 topics for future rulemaking. The MLR establishes how much health plans must spend on patient care and limits the extent to which insurers can add their administrative costs to the premiums they charge.

Health plans must pay rebates to consumers if their costs exceed 15 percent of premium dollars collected from larger employers and 20 percent to smaller ones. Analysts say the rules suppress industry profits by forcing companies to either keep premiums down or pay rebates.

CMS aggressively defended the standards during contentious rulemaking that led to their issuance. But now, following the botched rollout of the healthcare.gov federal insurance marketplace, the agency is bending because of higher costs plans have incurred to get people enrolled.

"We intend to propose standardized methodologies to take into account the special circumstances of issuers associated with the initial open enrollment and other changes to the market in 2014, including incurred costs due to technical problems during the launch of the state and federal exchanges," the rule stated.

"We also intend to propose amendments that would improve the consistency of MLR and rebate calculations in states that require the individual and small group markets to be merged."

Further, CMS said it intended to propose certain adjustments in calculating the costs of adopting the expensive new "ICD-10" medical diagnostic coding system in calculating expenses relating to the MLR. Specifically, it said it would lengthen the period insurers have to include the costs in their MLR calculations—language suggesting plans could stretch out their reporting of such administrative expenses. And CMS said it would clarify "the rules for distribution of de minimus rebates."

It's unclear how big an impact the MLR adjustments would have on rebates or premium charges. Robert Zirkelbach, spokesman for America's Health Insurance Plans, said his group does not yet have a formal position on how the MLR should be adjusted.

But he added, "health plans have made considerable investments in time, resources, and manpower to help minimize disruption for consumers caused by the technical problems with healthcare.gov. Health plans should not be penalized for the extra work they did to help consumers through the enrollment process."

CMS has been moving in various ways to limit the political hit defenders of the health law (PL 111-148, PL 111-152) could take in the November elections. Recent actions included delaying a mandate employers cover workers, extending the period certain consumers can keep plans that don't comply with the law's minimum coverage requirements and ruling that subsidies to help some people pay out of pocket health expenses won't be subject to sequestration cuts.

An insurance industry source who requested anonymity said that MLR changes could help insurers selling plans on the federal exchange by increasing the allowable administrative costs. That will depend on what the administration defines as allowable and how much additional premium income a plan can retain, the source added.

"A larger retention might help by decreasing the 2015 premium increases. It is no secret that the administration does not want to deal with an 'October Surprise' a month before the mid-term elections of large Medicare Advantage premium increases and significant premium increases in the exchanges," the industry source said.

The effect also could vary for plans sold on exchanges run by states, instead of the federal marketplace, including California, New York, Oregon, Maryland, Kentucky, and Washington. "How would the feds audit incurred costs?" the source asked. "If Oregon had more problems than Washington, does that mean that health plans in Oregon get a larger cost deduction? We would have to see a rule to determine what is allowable."

By Rebecca Adams, CQ HealthBeat Associate Editor

March 13, 2014 -- Top officials running six state-run health insurance marketplaces said last week that they expect strong gains in coverage over last year, even though they don't know how many people signing up were previously uninsured.

In New York, one state that is trying to track the gains, about 70 percent of applicants reported they did not have coverage when they signed up. The officials on a call with reporters were from California, Colorado, Connecticut, Kentucky, New York, and Washington.

"We don't have net gain numbers but I am absolutely certain it is a huge net gain in insurance," said Covered California Executive Director Peter Lee. California will rely on a statewide survey to determine the coverage gains arising from the health care law. Many in the state also saw their insurance policies expire because the benefits did not meet requirements of the overhaul (PL 111-148, PL 111-152).

California officials have reported separately that 923,832 people had enrolled in Covered California health insurance plans from October 1 through March 9. Another 1.1 million people who applied through the state exchange website were determined to probably qualify for Medicaid coverage, and an additional 968,500 people were enrolled in Medicaid through state or county agencies.

In states such as California and Colorado that have a sense of enrollment pay-up rates, at least 85 percent of people who signed up also paid their premiums. Although New York officials do not get such data quickly from insurers, New York State Department of Health counsel Lisa Sbrana said that officials are hearing similar numbers anecdotally. In Connecticut, 92 percent of individuals who signed up sent in their money, and Washington collects the money at the time of sign-ups, meaning all have paid.

State-run exchanges typically have had more success in enrolling large numbers of people than the federal website healthcare.gov that is handling enrollment in 36 states. That is in part because states have more funding available for publicity and state officials are actively recruiting people to sign up.

The officials on the call organized by the advocacy group Families USA said that they do not yet have a sense of how insurers will price their 2015 premiums when the companies submit bids in May. In many states, the percentage of young adults among people signing up is lower than government officials wanted. In California, which makes up about one-fifth of the nation's enrollment this year in the marketplaces, about 26 percent of the sign-ups are in the 18- to 34-year-old range. That is proportional to the general population but below a goal of 40 percent that many officials had hoped for.

Washington Health Benefit Exchange CEO Richard Onizuka said that the percentage of young adults among people signing up for Medicaid are higher than among those enrolling in marketplace plans. He added that the average age of applicants is "creeping down."

Some officials said that they believe that federal financial protections for insurers will hold down premiums in the first few years.

"I can't get too excited about that issue," said Access Connecticut CEO Kevin Counihan about the share of the young adult population in enrollment.

Counihan has touted his state's success running its own marketplace so much that he is now peddling his staff's services to other states for a fee. One state has already expressed interest, he said on the call.

Other state officials also said they are pleased with the implementation so far, although some said it will continue to be challenging, particularly since state exchanges are supposed to be financially self-sustaining in 2015.

All of the officials are gearing up for a busy promotional period heading into the end of open enrollment on March 31 and an expected surge in applications.

"The last weekend will be pretty crazy," said Lee.

By Rebecca Adams, CQ HealthBeat Associate Editor

March 12, 2014 -- The problem of churning, in which individuals' eligibility for government-financed health programs such as Medicaid or new health law marketplace plans changes over the course of a year, is likely to be "a major challenge for every state," according to a recent Health Affairs study.

Consumers may have to change their coverage—and in some cases, their doctors—midway through the year if their income rises or falls unless state officials intervene.

The District of Columbia is expected to have the most churning, and Mississippi is expected to have the least, according to the report by researchers from the Harvard School of Public Health, Vanderbilt University School of Medicine and the George Washington University School of Public Health and Health Services. In general, the authors found that richer states with lower poverty rates and higher per capita incomes were likely to experience more churning between Medicaid and the marketplace plans.

About half of adults that are eligible for Medicaid or subsidized marketplace coverage could face an eligibility change within a year, according to the authors.

Consumers in some states that don't expand Medicaid could find themselves without coverage at all if their income falls below the federal poverty level, which is the threshold for obtaining subsidized marketplace coverage. States that have not expanded Medicaid often do not have any government-financed coverage available for non-disabled, childless adults at that income level.

The authors examine a series of policy prescriptions that could allow consumers to have more continuous coverage.

State officials could adopt 12-month continuous Medicaid eligibility periods or temporarily allow continuous coverage when people are trying to re-enroll, as a way of overcoming the effects of income fluctuations. States also could choose to assess people's eligibility for Medicaid using projected annual income instead of current monthly income. A third option is to use Medicaid funds to buy coverage through marketplace plans for people with incomes below 138 percent of poverty, a solution officials in Arkansas, Iowa and Michigan have embraced with the federal government's blessing.

The authors noted that states also could create a Basic Health Program, an option under the health care law (PL 111-148, PL 111-152) that allows Medicaid expansions to be combined with marketplace subsidies into a single program for individuals and families with incomes of up to 200 percent of the poverty level.

States could also encourage Medicaid managed care plans to offer coverage in state marketplaces.

"Reducing such churning will greatly increase the likelihood of stable coverage and improved quality of care," wrote the authors.

By John Reichard, CQ HealthBeat Editor

March 10, 2014 -- Community health centers, long a bipartisan funding priority on Capitol Hill, face a sharp drop-off in federal support in fiscal 2016 that could force a number of centers to close, slash staff, or curtail services.

If lawmakers do not intervene, a key part of the strategy for meeting growing demand for healthcare services as coverage expands under the health law will be undermined, advocates for centers say.

Typically located in medically underserved areas, the centers take all comers. They set charges on a sliding scale that varies with income and insurance status. Centers do not provide hospital care but do offer an array of other basic primary care services.

This fiscal year, congressional funding provides $3.7 billion for the centers, consisting of $1.5 billion in discretionary funds, and $2.2 billion in mandatory funding under the health law (PL 111-148, PL 111-152).

In fiscal 2015, the mandatory money grows to $3.6 billion under a five-year health law program championed by Sen. Bernard Sanders (I–Vt). The total would be $5.1 billion, assuming the $1.5 billion in discretionary outlays continues. But in fiscal 2016, the mandatory funds dry up, resulting in a 70 percent drop over year-earlier totals, said Dan Hawkins, senior vice president of the National Association of Community Health Centers.

"There's a big jump in '15, and then there's this cliff," Hawkins said in an interview last week.

Hawkins group has been trying to call attention to the issue, mostly behind the scenes with the Obama administration, but increasingly in a public way. Without a more predictable funding outlook, centers can't effectively plan for staffing and service delivery, he says.

"We can't wait until then," Hawkins said. "Health centers need to have some, I won't say certainty, but some sense of stability looking forward. They're out there hiring providers, physicians, dentists, nurse practitioners, psychologists, they're contracting for space or they're renewing their space contracts."

The centers also are buying equipment and must have "a reasonable expectation that the resources are going to be there," Hawkins said. "Already we know that those resources are not going to come in the form of third party payments for a lot more folks."

That's because coverage expansion under the health law hasn't been nearly as large as authors of the statute projected.

But demand for services is nevertheless growing. When Massachusetts passed its coverage expansion law in 2006, long wait times developed for primary care among people who were newly insured. Expanding community health centers was a big part of lessening the marketplace chaos then and could serve a similar function as more people get insurance cards under the health law, he said.

There's every reason to think Sanders will again champion an extension of mandatory funding. A big part of his pitch likely will be the tradition of bipartisan support for the centers, a priority of White House officials during the presidency of George W. Bush. Center boosters also tout the expansion of primary care as a way to save the health system money.

The Obama administration has heeded the association's lobbying, Its budget proposal unveiled last week would extend mandatory funding of the centers for three more years. In each of fiscal years 2016, 2017, and 2018, it would total $2.7 billion. That's less than the $3.6 billion in fiscal 2015, but a half billion increase over the current level of $2.2 billion.

The centers could feel pressure from other kinds of funding dropoffs. The National Health Service Corp., which places young doctors in medically underserved areas in return for lessening their tuition debts, relies provides almost half of the doctors in community health centers. Mandatory funding for the corps totals $283 million in fiscal 2014 but would end after fiscal 2015.

Obama has proposed to increase funding for the effort sharply, but it too faces the same question that clouds the future of the centers' funding: Will Republicans agree to continue mandatory funding created under the health law, despite their bitter opposition to the overhaul? Hawkins agrees that won't be easy to accomplish but adds "to us, this is not about the ACA, this is about health centers."

On that basis, the centers have a shot at a decent funding outlook, and perhaps the continuation of mandatory funding. But that would likely require payment offsets from other health providers.