By Nellie Bristol, CQ HealthBeat Associate Editor

May 21, 2012 -- Increases in per capita health spending for privately insured Americans from 2009 to 2010 were driven primarily by hospitals and other medical facilities raising their prices, not by people getting more and costlier services, according to a study released last week by the Health Care Cost Institute.

The research by this new group found large increases in prices for both inpatient hospital admissions and outpatient visits, at 5.1 percent and 10.1 percent, respectively. At the same time, use of the services at those facilities declined in many categories, including outpatient visits, down 3.1 percent, and inpatient admissions, down 3.3 percent.

The findings are included in the Institute's first study "Health Care Cost and Utilization Report: 2010." They are based on claims data from three major insurers—Aetna, Humana and UnitedHealthcare—covering 20 percent of the population with employer-sponsored group insurance. According to HCCI documents, the data reflect the health spending of 33 million privately insured Americans. They show actual prices paid for the services rather than just what was charged, and how much beneficiaries paid out-of-pocket.

"We can act as a trusted third party,'' said Martin Gaynor, an economics and health policy professor at Carnegie Mellon University and one of the founders of the non-profit, non-partisan Institute. HCCI was established with the mission of making data available for research, the group says. "We want to get this stuff out there, and then policy makers and others can make good decisions," Gaynor added.

The authors of the report said they were most surprised by the results that showed health expenditures increasing fastest for those 18 and younger, with an estimated annual expenditure growth of 4.5 percent. By contrast, growth for those 55 to 64 was 3.1 percent, and for those 45 to 54 was 2.2 percent.

Overall the report puts average per capita health spending at $4,255 for individuals under 65 in employer sponsored group insurance in 2010. The study shows a health care cost growth rate of 3.3 percent from 2009 to 2010, compared to a 1.6 percent rise in the Consumer Price Index.

The biggest increases in facility prices were in mental health and substance abuse inpatient admissions, at 8.6 percent; outpatient surgery, 8.9 percent; and outpatient emergency room visits, 11 percent. Estimated per capita health care spending by insurers rose 2.6 percent over the year and 7.1 percent for beneficiaries. The average out-of-pocket price of a hospital stay rose 10.7 percent—from $632 in 2009 to $700 in 2010.

In other findings, payments for professional procedures grew more slowly than many other categories. Those prices, which include doctor visits, lab tests and diagnostic imaging, grew by 2.6 percent, while the average overall price for outpatient procedures was 1.7 percent.

The Institute plans to produce cost and use reports annually along with regular supplements and to add more insurers to the program. Data from Kaiser Permanente will be included in future reports, it adds. Additional reports will focus on trends in specific areas including mental health and substance abuse, cancer and diabetes. In addition to performing its own analyses, HCCI will make data available to other researchers. Besides Gaynor, the Institute is headed by David Newman, formerly a specialist in health care at the Congressional Research Service, and Carolina-Nicole Herrera a health care economist. HCCI has start up funding of $2 million provided by the insurers involved.

Gail Wilensky, economist and Senior Fellow at Project HOPE, said the data is a good first step, although she noted it only includes administrative claims and not clinical information. The Institute's efforts to make the data available to researchers is "new and therefore promising," she said.

Chapin White, senior health research at the Center for Studying Health System Change, also praised the HCCI's effort to make the data publicly accessible. In addition, he said the first report adds detail to the trend of higher prices. "They put their finger on why we are having [premium increases] with employer sponsored insurance," he said.

• Report 

By John Reichard, CQ HealthBeat Editor

May 24, 2012 -- Starting in September, 173 million Americans will get an easy-to-understand summary of the benefits and out-of-pocket costs of their health plans, says a report Families USA recently released.

Mandated under a summary of benefits requirement in the health care law (PL 111-148, PL 111-152), the summaries may give the controversial law a bit of a boost in the eyes of a skeptical public. Insurer and employer groups lobbied hard to delay the eight-page explanations, saying they were too difficult to put together on time in an accurate way. But the Obama administration refused to postpone the release. 

The summary requirement is likely to survive if the Supreme Court ruling on the constitutionality of the 2010 law stops short of fully striking it down.

"Health plans clearly win the prize for being the most difficult major product for families to compare," said Ron Pollack, Families USA executive director. Policies "read like gobbledygook," he said.

Even people with advanced degrees don't really understand the policies they have, he said. "Most people don't even read them."
Consumers Union analyst Lynn Quincy said at a news briefing that test show the summary "really helps consumers."

"This is a new tool that consumers have not really seen before" and for the first time, thanks to the standardized format, people "can compare plans side by side on an apples to apples basis," she said. A part of the summary that lists what services a plan excludes from coverage was "extremely helpful" to people buying insurance, she said.

The consumer advocates said that the summaries will be particularly helpful to those who have a choice of health plans. Nearly 19 million Americans who buy coverage on the individual market will find it easier to make a choice, as will about 71 million Americans employed by companies that offer more than one plan, the report said.

Among the features of the summaries are "coverage fact labels" that tell the consumer how much they can expect to pay and how much they can expect the plan to pay in common health care scenarios—the rule specifies maternity and type 2 diabetes.

Advocates for diabetes patients say the feature will be particularly helpful to that patient population.

Pollack noted that summaries must give consumers other information they often have difficulty finding, such as what prescription drugs the plan covers, which providers participate, and the rights of enrollees to appeal health plan decisions.

But employer representatives have said that the required examples of costs for a particular type of ailment would be misleading because out-of-pocket costs for complex diseases vary widely from patient to patient and also by geography. They add that plans with "tiered" networks that have varying out-of-pocket charges can't be listed in the format. Consumers will be confused and angry when they end up paying something different than what is listed in the summary, critics say.

But Washington and Lee University Law Professor Timothy Jost pointed out in a recent blog in Health Affairs that the summary requirement, along with rebates to be sent to consumers this summer if their plans pay out too little for health care, is a priority for the Obama administration.

The rebates and the summaries "will be the first concrete experience that millions of Americans will have" with the health law, Jost blogged. "The administration continues to work toward ensuring that this experience in fact occurs, and that it will be a positive one."

By John Reichard, CQ HealthBeat Editor

May 25, 2012 -- Physicians groups last week urged the Ways and Means Committee not to underfund the Centers for Medicare and Medicaid Services and to support testing new forms of payment through the agency's innovation center.

The groups are responding to a request from Committee Chairman Dave Camp, R-Mich., for comments on how best to fix Medicare's "Sustainable Growth Rate" (SGR) payment formula. Letters from both the American Medical Association (AMA) and the Medical Group Management Association (MGMA) call for a period of testing new payment methods designed to improve the quality and efficiency of care.

"MGMA strongly urges Congress to repeal the SGR, provide stable payments for a period of several years to allow testing of different payment and delivery models, and then allow for a transition to new models," the group's letter said. MGMA represents medical practices employing 280,000 physicians who provide more than 40 percent of the health care services delivered in the United States.

The AMA letter said a transition period would give doctors a chance to learn how to practice under alternative forms of health care delivery and payment and "to gain skills and experience in taking accountability for improving care and lowering growth in costs."

AMA's missive added that CMS must have "adequate funding and infrastructure to ensure the agency can fully engage in these transition efforts on an effective, timely, and efficient basis."

The AMA's recommendations were consistent with those of former CMS administrators offered at a May 10 Senate Finance Committee roundtable. The letter said "options for evaluation include, but are not limited to, bundled payments, partial capitation, accountable care organizations, medical homes and other hybrid approaches that couple fee-for-service payments with a risk-based bonus opportunity." These various models aim to foster team-based care that rewards doctors financially if they practice with greater efficiency and quality.

Under the SGR, doctors will see their Medicare payments cut Jan. 1 by 30.9 percent. Congress seems certain to temporarily block that cut while it pursues a longer term solution.

Camp's effort is laying the groundwork for action in the next Congress senior policy advisor with the Polsinelli Shughart law firm, Julius Hobson said. "I would be absolutely stunned out of my mind" if Congress passed a permanent overhaul of the SGR before then in the lame duck session of Congress, he said.

Camp set a May 25 deadline for comments by some 70 physicians groups and related organizations. Both Republicans and Democrats at Ways and Means have expressed a desire to come up with the right policy to replace the SGR while worrying later about how it would be paid for. "Republicans and Democrats alike agree that continuing to do temporary, short-term patches is a less than ideal way to deal with the physician payment issue," a committee spokeswoman said. "Steps must be taken toward a permanent legislative solution, and that requires gathering the input of the stakeholders."

Hobson applauded the process, which he said should have started a long time ago. "They are really starting to take that policy look at what are we going to do to fix this," he said.

The AMA letter supports pilot programs that test a common payment approach taken by Medicare and private insurers. It also spoke favorably of a "global payment program developed by Blue Cross Blue Shield of Massachusetts," in which "a single payment amount is established to cover all costs of care for a population of patients, with adjustments for types and severity of conditions, along with annual bonuses based on the quality of care delivered."

AMA said that federal pilot programs including those developed by the Center for Medicare and Medicaid Innovation "hold a great deal of promise for increasing physicians' knowledge and experience."

Republican in the House and Senate have expressed skepticism about the need for the innovation center, which was created by the health care overhaul law with $10 billion in funding.

By Rebecca Adams, CQ HealthBeat Associate Editor

May 22, 2012 -- Sean Cavanaugh, a top official at the Center for Medicare and Medicaid Innovation, confirmed for members of a government commission last week that some demonstration projects that could reshape Medicaid could be expanded nationally.

At the meeting of the Medicaid and CHIP Payment and Access Commission (MACPAC), which is charged with advising Congress and government officials on best practices for the programs, Cavanaugh said the innovation center might be willing to test some of the policy changes that the commissioners advocate.

Cavanaugh, the acting deputy director of the Innovation Center, did not cite any specific demonstrations that the administration plans to expand nationally. But in response to questions about how Health and Human Services officials could convert a demonstration project funded by the center into national policy, he said officials could either expand a pilot into a nationwide project or initiate a rulemaking process to create a new regulation.

"There's been quite a bit of thought about it," Cavanaugh told commission member Sara Rosenbaum, a professor at the George Washington University School of Public Health and Health Services. Rosenbaum asked Cavanaugh what would prompt the administration to use evidence from a demonstration project to justify a broader policy, and Cavanaugh said there is not yet agreement among administration officials about how strong the evidence would have to be to trigger nationwide expansion of a policy that is being piloted.

Several commissioners took the opportunity to lobby Cavanaugh and other center officials to support changes in Medicaid policy that they find problematic.

The commission consists of experts, government officials, executives and medical professionals who serve on the panel part time. It was created by the Children's Health Insurance Program Reauthorization Act of 2009 (PL 111-3) and expanded in the 2010 health care overhaul (PL 111-148, PL 111-152).

Commission Vice Chairman David Sundwall told Cavanaugh that states should be able to apply for the center's health care innovation grants. That was not allowed during the first round of funding, but Sundwall said his understanding is that the process may be more open in the future.

Denise Henning, a midwife at a health center in Florida, said Centers for Medicare and Medicaid Services (CMS) officials should weigh in on the side of midwives, whom she said are often denied hospital privileges, in part because physicians "don't want the competition." She said it would be helpful "if CMS would say this isn't allowed" and inform hospital executives that "if you want to take Medicare and Medicaid money, you have to allow privileges to midwives."

Henning is president of the Midwifery Business Network and a chapter chairwoman for the American College of Nurse Midwives, according to her MACPAC biography.

"We could use CMS to be in our corner just a little bit more," Henning said.

Cavanaugh made no promises but said he believed that CMS officials could try some type of requirement under the conditions of participation in the programs.

"Clearly, we have a team that cares quite a bit about women's health," he said.

Another commissioner, Donna Checkett, raised concerns about the so-called institutions for mental disease (IMD) exclusion, which bans federal Medicaid matching payments for patients between the ages of 22 and 64 at inpatient mental health institutions. The policy has been in place since Medicaid was created in 1965. Back then, Congress was concerned that county and state governments would shift costs for state-run institutions to the federal government.

Checkett, vice president of state government relations for Aetna, suggested that the policy is outdated and arbitrary. Cavanaugh said CMS officials would take the concern into consideration.

The move from a limited demonstration project to a national one is a more straightforward path than starting up a new rulemaking process, Cavanaugh suggested. However, it is "very real that the administration can decide to pursue" expansion by proposing a new rule if it seems warranted, he said.

Before answering questions from commissioners, Cavanaugh went through a PowerPoint presentation about the Medicaid-related projects that the Innovation Center is funding.

• MACPAC agenda 

By John Reichard, CQ HealthBeat Editor

May 25, 2012 -- If past is prologue, the disclosure by Senate Finance Committee chairman Max Baucus that he doesn't see enough votes to confirm Marilyn Tavenner as administrator of the Centers for Medicare and Medicaid Services (CMS) isn't likely to shake her from her steady performance in cranking out rules, grants, and guidance documents to implement the health care law.

Tavenner has been consistent ever since joining the agency in early 2010 as principal deputy administrator. The hallmarks of her successful career as a corporate executive prior to joining the agency, setting goals and disciplining a large enterprise to consistently meet them, have also marked her tenure at CMS.

It's been an extended period in which the agency's thousands of staffers either haven't known who would hold the top spot at the agency or knew that the person at the helm, Donald M. Berwick, would be a short-timer because of intense criticism from Republicans on Capitol Hill.

But with Tavenner handling the operations side of CMS both before and after passage of the health care law (PL 111-148, PL 111-152), staffers have been implementing an enormously complex measure despite complaints about delays in getting exchange guidance out to the states and a lack of rulemaking in defining minimum benefits.

Tavenner may well serve out her tenure running the agency without ever shaking the "acting" status she holds as administrator of the agency. But observers say it's clear to the CMS staff that she is the boss.

In telling Politico that he doesn't see 60 votes to confirm Tavenner, Baucus didn't say whether she'd be able to get them after the election if President Obama wins reelection. But Baucus said he didn't see the lack of sufficient votes as a reflection on her qualifications.

"From an operations perspective, she is running the place beautifully," said Dan Mendelson, who oversaw Medicare, Medicaid and other federal programs as health budget chief during the Clinton administration. "Regulations are getting done without drama, consultation is happening with the private sector and the staff see her as the person in charge. It's such a political season, it's hard to imagine that things would be better for the agency on the hill if she were confirmed in the short run. The fact is that the members have no interest in coming together on significant matters of health care interest until after the election. So, while it's deplorable that a straight shooting centrist can't get confirmed, I don't see it holding her back."

Gail Wilensky, who ran Medicare and Medicaid during the George Bush administration, gives the Obama administration very low marks for failing to move more quickly on nominating a CMS administrator within a few months of President Obama taking office. Even the controversial Berwick would have been confirmed had he been nominated in the spring of 2009, Wilensky said. She added that it's bad for an agency to be run for an extended period without a confirmed administrator—and CMS hasn't had one since 2006.

The problem is that without a permanent administrator, an agency is not always as aggressive as it should be, Wilensky explained. But even so, she said Tavenner has been a good administrator and it was unrealistic to think a nominee would be confirmed in the last year of an administration. And Wilensky doesn't expect Tavenner to leave because of her doubtful confirmation prospects. Running CMS is still "a very special opportunity," Wilensky said.

By Emily Ethridge, CQ Staff

May 21, 2012 -- The medical industry is hoping this will be the year when Congress fixes, once and for all, the recurring problem of the formula that dictates how much Medicare reimburses physicians.

For almost a decade, Congress has overridden the reductions in payment rates dictated by the Sustainable Growth Rate, a 1997 formula designed to keep Medicare costs under control. But lawmakers have never come up with a way to handle the problem permanently. In the past few weeks, however, they have started to talk about possible solutions in a way they haven't before.

In the House, Pennsylvania Democrat Allyson Y. Schwartz and Nevada Republican Joe Heck introduced legislation to get rid of the SGR and begin a series of demonstration programs to develop new payment models that could replace it. "We stand on the precipice of being able to solve this problem once and for all," Heck says.

The Senate Finance Committee brought in four former Medicare chiefs on May 10 to brainstorm ideas for how to do away with the nagging payment-reimbursement issue. The top Republican on the panel, Utah's Orrin G. Hatch, said that despite the bipartisan support to repeal the formula, "a solution has eluded the Congress up to this particular point."

That can be blamed on two things. First, the Congressional Budget Office estimates the cost of repealing the formula at $316 billion over 10 years. Second—and this is where lawmakers are now focusing their attention—there is no consensus on how to replace the system.

The caution comes from remembering that the formula was put in place with the best of intentions. It was enacted as part of a balanced-budget proposal to help curb the growth rate of Medicare spending. The formula calls for automatic cuts in Medicare's reimbursement rates for providers when the growth rate of provider costs exceeds the growth rate of the economy.

Beginning in 2002, the formula has called for cuts. Congress allowed the first cuts to take place, but since then, lawmakers have given in to provider protests and blocked the reductions. Instead, they went for short-term payment patches known as the "doc fix." The current patch expires at the end of the year.

"What was intended by SGR was a good idea, but we blinked," said Oklahoma Republican Sen. Tom Coburn. "We tried the stick, and we don't have the guts to hold the stick."

Beyond Fee-for-Service

Lawmakers are again trying to figure out what could replace the formula. Many provider groups and experts agree that Medicare must replace the fee-for-service payment model, and that one system won't work for all types of physicians in all types of environments.

Finance Chairman Max Baucus asked the former Medicare directors to send him, by mid-June, short- and long-term suggestions on new ways to handle physician payments. The Montana Democrat said he felt that the consensus was to repeal the formula, put in place stable but temporary payment rates and then gradually move to new payment models.

That is the model promoted in the Schwartz-Heck legislation, which would set a five-year transition period during which physicians would get small rate increases and the Centers for Medicare and Medicaid Services would develop and test new payment models. By 2017, physicians could choose from at least four delivery and payment models identified by CMS.

One of those models could rely on bundled payments, a system suggested by Gail Wilensky, who directed Medicare from 1990 through 1992. Under that plan, Medicare would provide a single payment for a health incident rather than pay each care provider separately. That means doctors, hospitals and post-hospital treatment providers would all have an incentive to coordinate and provide the most efficient and best-quality care, with all sharing the potential savings.

Bruce Vladeck, who ran Medicare and Medicaid during the Clinton administration, warned that some bundled payment models wouldn't work in smaller communities with fewer providers and suggested looking at separate reimbursement systems in rural communities and those in urban areas.

Of course, there is still the matter of how to pay for any replacement. Schwartz and Heck's proposal would use the anticipated savings from winding down the wars in Iraq and Afghanistan to pay for the change. Although some Republicans have balked at that offset, the sponsors say it could win support in both parties.

If Congress continues with temporary fixes, however, instituting a replacement will only become harder. Every time it blocks the cuts, Congress increases the cost of getting rid of the formula, because Medicare savings have never been realized. That means that with every new fix, Congress must pay for the cost of the increased payment rates as well as make up for the missed savings and postponed rate reductions.

And whatever the ultimate solution is, it still needs to find savings within Medicare, the experts said.

"While the SGR system is flawed, some semblance of budgetary control ... needs to be returned," said Mark McClellan, who ran Medicare and Medicaid during the George W. Bush administration. "It's very clear at this point that we can't just do another patch."