Weekly Newsletter: June 16, 2008

Durable Medical Equipment Legislation Introduced

Last Thursday, several House Members led by Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) and Ranking Member Dave Camp (R-MI) introduced legislation (H.R. 6252) to delay implementation of competitive bidding for durable medical equipment. The legislation would nullify contracts which suppliers signed with Medicare earlier this spring and delay implementation of the first round of bidding by at least six months, with the second round delayed by over a year.

In recent years, some conservatives have raised concerns that the prices on the Medicare fee schedule for durable medical equipment were in excess of market prices. In 2002, testimony by the Department of Health and Human Services Inspector General revealed that the prices paid by Medicare for 16 selected items of durable medical equipment were higher than prices paid by Medicaid, the Federal Employee Health Benefits (FEHB) plans, and consumers purchasing directly from retailers. The Inspector General projected that using the lower prices by other payers for these 16 common items alone would have saved Medicare more than $100 million annually.

While there have been logistical difficulties associated with the first round of competitive bidding, some conservatives may still be concerned about the implications of a delay to a program that will save the federal government—and Medicare beneficiaries—billions of dollars by aligning the prices paid by Medicare for medical equipment and supplies with those in the private sector. Delays of the type contemplated by the legislation would delay competitive bidding’s implementation to a future Administration, and could enable a future President and future Congresses to take legislative action to eliminate the program altogether.

The RSC has prepared a Policy Brief on this issue, available here.

“Underinsured” Study’s Findings Subject to Interpretation

Last week several researchers associated with the Commonwealth Fund released a new study claiming that the number of “underinsured Americans” has risen sharply in recent years. According to the authors’ measure of “underinsurance”—medical expenses exceeding 10% of income (5% for low-income populations) or an insurance deductible of 5% of income—the number of “underinsured” Americans rose 60% from 2003 to 2007. This survey follows on the heels of a similar 60 Minutes broadcast on health
insurance that termed an individual receiving free care from an outreach clinic as “underinsured” due to his $500 annual deductible.

Some conservatives may have concerns both with the methodology of the study as well as its underlying rationale. The article releasing the study’s findings did not cite a recent Congressional Budget Office report noting that the percentage of out-of-pocket costs paid directly by individuals—as opposed to a third party insurance carrier or government program—declined from 31% to 13% of all health expenditures from 1975 to 2005. In addition, the survey’s authors did not assess the extent of private savings— whether in a Health Savings Account (HSA) or other vehicle—that could be drawn on by “underinsured” individuals to pay for medical expenses.

More fundamentally, the survey did not consider whether the subject individuals knowingly chose to select a plan with higher deductible exposure in order to receive lower premiums. Some conservatives may believe that implicit in the survey methodology are two questionable premises—the first that no rational person would choose to become “underinsured” according to the study’s definition of the term, and the second that policy-makers, particularly the federal government, should craft “solutions” to respond to this perceived problem. Instead, some conservatives may believe that additional reforms to create a true market in health care have the potential to slow the overall growth in health care costs, which may ultimately make the debate over “underinsurance” moot.

Article of Note: Switzerland in Massachusetts?

Last Friday’s monthly Health Matters column in CongressDaily highlighted the recent budgetary difficulties that the rising cost of health care has created for reformers in Massachusetts, which has seen the estimated cost of its comprehensive plan soar in the two years since its creation. Author Julie Rovner notes that both in its construction and its newfound financial obstacles, the Massachusetts plan looks surprisingly similar to a health reform model first adopted in Switzerland in 1994. While the Swiss model has several characteristics that conservatives may applaud—a wide choice of comprehensive plans, including those with higher deductibles that can yield savings on insurance premiums—as a model of consumer-directed health care, it also includes several forms of regulation—a mandate to purchase insurance coverage, guaranteed issue and community rating restrictions, and a prohibition on profit by carriers selling the standard benefit policy—which some conservatives may argue undermine the savings generated from a more open and transparent health system.

Whether in Switzerland, Massachusetts, or all 50 states, many conservatives have argued that health care needs more competition, not less—not just greater choice among policies for individuals and broader access to information about the price and quality of care, but a streamlining of the bureaucratic regulations that have raised the cost of health insurance. With health care costs continuing to rise at a rate that likely could make reforms like the Massachusetts experiment unsustainable, conservatives may argue that a dose of competition is just the novel concept needed to slow their unrestrained growth.

Weekly Newsletter: June 9, 2008

Committees Continue to Spar over Tobacco Tax Legislation

Congress’ return last week brought no end to a simmering jurisdictional dispute that has delayed consideration of legislation (H.R. 1108) designed to regulate tobacco products under the auspices of the Food and Drug Administration (FDA). In April, House Ways and Means Committee Chairman Rangel wrote to Speaker Pelosi requesting a sequential referral of the bill, on the grounds that the “user fee” assessed on tobacco companies in the legislation exceeds the funds directed from that fee to tobacco enforcement activities at FDA, making the legislation a general revenue raising (i.e. tax) bill under Ways and Means’ jurisdiction.

Many conservatives will view Chairman Rangel’s letter as confirmation that, notwithstanding the statements of Energy and Commerce Committee Democrats and a finding within the bill text of H.R. 1108, the proposed “user fee” is in fact an excise tax on tobacco companies to offset the expected loss of revenue resulting from FDA regulation. Some conservatives may view this tax increase as one of several concerns associated with H.R. 1108, which would impose onerous regulatory restrictions—including those on tobacco companies’ free speech rights to market and advertise their products—in the interest of protecting the public health. Some conservatives may question the wisdom of legislation requiring the FDA to regulate tobacco, particularly given the concerns raised by Congressional Democrats themselves about the FDA’s inability properly to regulate products currently within the agency’s remit.

The RSC will weigh in with conservative concerns on the tax and other issues as the legislation moves forward.

Revised Wyden Bill a Perpetual Tax-Raising Machine

Last month, the Congressional Budget Office (CBO) released a letter that could have a significant impact on any potential discussion of health care reform in the 111th Congress. In it, CBO gave a preliminary opinion that comprehensive health legislation introduced by Sen. Ron Wyden (D-OR), the Healthy Americans Act (S. 334), could be scored as budget-neutral, subject to certain conditions. In general, the bill would replace the current system of employer-provided health insurance with a “managed competition” model, whereby insurance coverage meeting a series of regulatory standards is provided through state-based pools, with a mandate on all individuals to purchase coverage and subsidies for low-income individuals and families.

Many of the bill’s potential funding sources—including a tax on all employers to pay for their employees’ insurance costs—have been well-publicized. Less advertised however were the revised bill specifications which CBO took into account when scoring the Wyden proposals. Specifically, the bill proposed to mandate coverage at least as good as that currently provided in the Blue Cross Blue Shield Standard option in the Federal Employee Health Benefits Program (FEHBP)—a generous benefit package 15% higher than the average cost of all employer-sponsored plans—with the amount of the mandate rising in future years to reflect economic growth in the gross domestic product (GDP). However, the revised specifications also note that the tax subsidy for purchasing health insurance will be indexed in future years to growth in the Consumer Price Index (CPI). Thus, under the Wyden plan, if future economic growth exceeds inflation—as it has in every year since 1992—Americans would be forced to buy more insurance but would not receive an equivalent tax subsidy to purchase that richer benefit package, leading to tax increases that would spiral over time.

On top of the many existing problems with the Wyden bill—a mandatory tax on employers, an individual mandate to purchase coverage that could prove problematic to enforce, increased regulation on insurers, and the requirement that all carriers provide coverage for abortion procedures—some conservatives may find this new perpetual tax increase most objectionable of all. While many conservatives support measures designed to control the currently uncapped tax expenditure for employer-sponsored health care as a way to slow the growth of health care costs, many of these same conservatives may have concerns about the implications of an individual mandate to purchase insurance—particularly one that could lead to automatic tax increases in future years for millions of Americans.

An RSC Policy Brief on the implications of an individual mandate can be found here.

Articles of Note: Health Insurance in Massachusetts a Fine Thing

A study on the influential Massachusetts health plan released last week indicated that beneath the political harmony that yielded a statewide “universal coverage” law two years ago, fissures loom. While health insurance coverage has increased significantly, the biggest growth in new coverage has come from low-income individuals accepting free or heavily subsidized plans provided by the Commonwealth. On the other hand, nearly 100,000 individuals paid a fine on their 2007 taxes for lacking health insurance in spite of the new mandate to purchase coverage.

Many conservatives may not be surprised by the study’s findings, particularly given the unnecessarily high cost of health insurance premiums in Massachusetts due to over-regulation. Faced with a penalty for non-compliance of $219 in 2007 and an average monthly premiums in excess of that amount, some individuals may make a rational choice to pay a fine of several hundred dollars per year rather than purchase coverage costing several thousand dollars—particularly because Massachusetts state regulations allow individuals applying for insurance after contracting an illness to receive the same premiums as those who applied when healthy. Conservatives would view the Massachusetts data as symptomatic of the problems associated with both enforcing an individual mandate and the high cost of health insurance derived from over-regulating insurance markets.

In addition, some conservatives may be concerned by a quote in The Washington Post from the head of a group that advocated for passage of the Massachusetts law: “Nobody knew what this was going to cost in the beginning.” At a time when the federal government faces unfunded obligations of nearly $86 trillion associated with the Medicare program alone, many conservatives may consider it unwise for the federal government to follow Massachusetts’ lead in enacting another expansive government entitlement without solving the underlying problems associated with the growth of health care spending.

Read the articles here.

Medicare Advantage

History and Background:  For several decades, Medicare has utilized private insurers as one option for beneficiaries to receive health care coverage.  In 1997, the Balanced Budget Act (BBA) created a new Medicare+Choice program intended to control the growth of health care costs and eliminate regional variations in payment and spending levels.  In 2003, the Medicare Modernization Act (MMA) converted the Medicare+Choice program into its current form as Medicare Advantage (MA).

Bids and Benchmarks:  The MMA made several changes to the bidding and payment structure for private Medicare Advantage plans to deliver health care to beneficiaries.  As currently constructed, plans receive capitated monthly payments that are subject to risk adjustment—so that plans caring for older, sicker beneficiaries receive higher payments than those with healthier populations.  In order to determine the capitated payment amount, plans submit annual bids to the Centers for Medicare and Medicaid Services (CMS).  The bids are compared against a benchmark established by a detailed formula—but the comparison against the benchmark does not directly allow plans to compete against each other, or against traditional Medicare, when CMS evaluates plan bids.

In the event a plan’s bid is below the annual benchmark, 75% of the savings is returned to the beneficiary in the form of lower cost-sharing (i.e. premiums, co-payments, etc.) or better benefits, with the remaining 25% returned to the federal government.  If a plan’s bid is above the benchmark, beneficiaries pay the full amount of any marginal costs above the benchmark threshold.

Benefits and Services Provided:  Most Medicare Advantage plans use rebates provided when bidding below the benchmark to cover additional services over and above those provided by traditional Medicare, and in so doing reduce beneficiaries’ exposure to out-of-pocket costs.  A Government Accountability Office (GAO) report released in February 2008 documented that in most cases, beneficiaries receive better benefits under Medicare Advantage than they would under traditional Medicare.  The GAO study found that beneficiary cost-sharing would be 42% of the amounts anticipated under traditional Medicare, with beneficiaries saving an average of $67 per month, or $804 annually.[1]  These savings to MA beneficiaries occurred because plans dedicated 89% of their rebates from low bids to reduced cost-sharing or lower premiums.  The remaining 11% of rebates were used to finance additional benefits, such as vision, dental, and hearing coverage, along with various health education, wellness, and preventive benefits.[2]  Due in part to the increased benefits which Medicare Advantage plans have provided, enrollment in MA plans is estimated to rise to 22.3% of all Medicare beneficiaries in 2008, up from 12.1% in 2004.[3]

Medicare Advantage “Overpayments”:  Some independent studies have suggested that Medicare Advantage plans incur higher costs than the average annual cost of providing coverage through traditional Medicare, though estimates vary as to the disparity between the two forms of coverage.  However, to the extent that MA plans in fact receive payments in excess of the costs of traditional Medicare, this discrepancy remains inextricably linked to two features of the Medicare Advantage program—the increased benefits for beneficiaries, and the complexity of the MA plan bidding mechanism.  Because of the problems inherent in the statutory benchmark design, plans have little incentive to submit bids less than the cost of traditional Medicare, as plans that bid above the costs of traditional Medicare but below the benchmark receive the difference between traditional Medicare costs and the plan bid as an extra payment to the plan.[4]

Last July, House Democrats attempted to “fix” the MA overpayments by passing H.R. 3162, the Children’s Health and Medicare Protection (CHAMP) Act.  Section 401 of the legislation proposed to set Medicare Advantage payments at 100% of the costs of traditional Medicare.  Despite the flaws in the bidding process discussed above, many conservatives opposed the Democrats’ proposal as an attempt to restrict beneficiary choice to private health insurance options by placing arbitrary restrictions on Medicare Advantage plans.  The Senate has not taken up the measure, which President Bush threatened to veto.

Some conservatives would also argue that a discussion focused solely on Medicare Advantage “overpayments” ignores the significant benefits that MA plans provide to key underserved beneficiary populations.  Medicare Advantage plans have expanded access to coverage in rural areas.  Moreover, the disproportionate share of low-income and minority populations who have chosen the MA option suggests that the comprehensive benefits provided are well-suited to beneficiaries among vulnerable populations.  Data from the Medicare Current Beneficiary Survey demonstrate that almost half (49%) of Medicare Advantage beneficiaries have incomes less than $20,000, and that 70% of Hispanic and African-American Medicare Advantage enrollees had incomes below the $20,000 level.[5]  For this reason, both the National Association for the Advancement of Colored People and the League of United Latin American Citizens opposed the cuts proposed by House Democrats as part of H.R. 3162.[6]

Reform Options:  To the extent that private plans are paid more than traditional Medicare for beneficiary care, some conservatives would argue that this concern is a symptom of the larger problems in Medicare Advantage bidding procedures—where more competition, not government-imposed price controls that arbitrarily reduce “overpayments,” would provide the most effective route to reforming Medicare.

Prime among the reform options would be a pure premium support model—one that would allow Medicare Advantage plans to bid against each other (as they do in the Part D prescription drug benefit), and against traditional Medicare.  This model would convert Medicare into a system similar to the Federal Employees Benefit Health Plan (FEHBP), in which beneficiaries would receive a defined contribution from Medicare to purchase a health plan of their choosing.  Previously incorporated into alternative RSC budget proposals, a premium support plan would provide a level playing field between traditional Medicare and private insurance plans, providing comprehensive reform, while confining the growth of Medicare spending to the annual statutory raise in the defined contribution limit, thus ensuring long-term fiscal stability.

Additional policy changes to improve Medicare Advantage could eliminate the inbuilt bias towards traditional Medicare by reforming the beneficiary enrollment model and expanding consumer-driven Medicare Advantage plans.  Current law provides an inherent bias towards traditional Medicare, by automatically enrolling beneficiaries in the government-run plan; beneficiaries must take an affirmative measure to enroll in an alternative Medicare Advantage plan.  However, some conservatives may support measures that would auto-enroll beneficiaries in randomly assigned plans—both traditional Medicare and private Medicare Advantage plans—below a certain cost threshold, as occurs for dual-eligible beneficiaries randomly assigned to Part D prescription drug plans.  Some conservatives may also support reforms to Medicare Medical Savings Accounts (MSAs) that would make them more attractive to beneficiaries, providing additional incentives for seniors to become more cost-conscious when considering health care treatment options.

Conclusion: The Medicare funding warning issued by the trustees last year, and again this year, provides an opportunity to re-assess the program’s structure and finance.  These two consecutive warnings—coupled with the trustees’ estimate that the Medicare trust fund will be exhausted in just over a decade’s time—should prompt Congress to consider ways to reduce the growth of overall Medicare costs, particularly those which utilize competition and consumer empowerment to create a more efficient and cost-effective Medicare program.

Over and above the significant benefits which Medicare Advantage plans have provided to millions of beneficiaries, some conservatives may believe that private MA plans have the potential to reform Medicare and ultimately slow its overall spending levels.  Although introduction of a prescription drug benefit has significantly increased Medicare’s unfunded obligations in absolute terms, the fact that competition among Part D participants has slowed the growth of its costs suggests that similar efforts to inject competition into traditional Medicare could comprise one element of comprehensive entitlement reform.  As a result, many conservatives would oppose attempts by the Democrat majority to eliminate private MA plans from their important role in delivering Medicare benefits, and would instead support further reforms to streamline the MA bidding process and improve the opportunities for savings generated by competitive forces.

 

[1] Government Accountability Office, “Medicare Advantage: Increased Spending Relative to Medicare Fee-for-Service May Not Always Reduce Beneficiary Out-of-Pocket Costs,” (Washington, Report GAO-08-359, February 2008), available online at http://www.gao.gov/new.items/d08359.pdf (accessed May 19, 2008), p. 23.

[2] Ibid., pp. 17-20.

[3] Department of Health and Human Services, “HHS Budget in Brief: Fiscal Year 2009,” available online at http://www.hhs.gov/budget/09budget/2009BudgetInBrief.pdf (accessed May 19, 2008), p. 58.

[4] The Medicare Payment Advisory Commission (MedPAC) has alleged that the formula-driven benchmarks themselves exceed the cost of traditional Medicare.  See Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment Policy (Washington, DC, March 2008), available online at http://www.medpac.gov/documents/Mar08_EntireReport.pdf (accessed May 9, 2008), Table 3-3, p. 247.

[5] America’s Health Insurance Plans, “Low Income and Minority Beneficiaries in Medicare Advantage Plans,” (Washington, DC, AHIP Center for Policy and Research, February 2007), available online at http://www.ahipresearch.org/PDFs/FullReportAHIPMALowIncomeandMinorityFeb2007.pdf (accessed May 19, 2008), p. 3.

[6] “Minority Groups Oppose Proposed Reduction in Funds for Medicare Advantage Plans,” Kaiser Daily Health Policy Report March 16, 2007 (Washington, DC: Henry J. Kaiser Family Foundation), available online at http://www.kaisernetwork.org/daily_reports/rep_index.cfm?DR_ID=43645 (accessed May 9, 2008).

Weekly Newsletter: June 2, 2008

Health Centers Bill Would Authorize Significant Spending Increase

This week, the House is expected to take up under suspension of the rules legislation (HR 1343) reauthorizing the community health center program. The bill authorizes $14 billion in spending over the next five fiscal years, subject to annual appropriations. In addition, the bill would expand the scope of an existing government program to extend federal liability protection to volunteer medical practitioners working at community health centers.

Some conservatives may be concerned that the amount of spending contemplated by this legislation—a 40% increase in funding over a bill the House passed in 2006—may be inappropriate as a matter of fiscal policy, and further should not be considered under expedited House procedures. Some conservatives may also be concerned that the legislation’s stated goal of doubling the number of patients treated at community health centers by 2015 may be used as a justification for further spending increases in future years. Lastly, some conservatives may be concerned with a proposed expansion of a federal liability program for health center workers that has its roots in the flaws of the current medical liability system. Some conservatives may instead champion the comprehensive liability reform that all medical practitioners—private and public, volunteer and paid—need in order to restore the integrity of the doctor-patient relationship and reduce the amount of harmful litigation.

The Outlook Ahead

As Congress returns from its Memorial Day recess, several health care items remain ripe for legislative activity in the coming weeks. Democrat leaders have advised that a final version of mental health parity legislation may be voted on by both chambers, and recent reports indicate that negotiations in the Senate on health IT may yield activity prior to the August recess. In addition, legislative provisions repealing Medicaid fiscal integrity regulations, providing incentives for states to expand the State Children’s Health Insurance Program (SCHIP) to wealthier families, and imposing restrictions on physician-owned specialty hospitals remain under consideration as part of the wartime supplemental appropriations measure. The RSC has weighed in with conservative concerns on several aspects of these proposals, and will continue to do so as the process moves forward.

However, the most prominent health debate will center on the scheduled July 1 reduction in Medicare physician reimbursements under the sustainable growth rate (SGR) mechanism, and any action Congress may take to forestall such reductions. In anticipation of the debate on the Medicare legislative package, the RSC has prepared two Policy Briefs providing background on comparative effectiveness research and the Medicare Advantage program.

Articles of Note: A Tale of Two States

Last Thursday’s Wall Street Journal contained two editorials on the diverging status of health insurance markets across the 50 states. One article highlighted several key reforms enacted by Gov. Charlie Crist (R-FL) and the legislature to reform Florida’s insurance market. With the legislation’s passage, Florida became the largest of a growing number of states that are permitting carriers to offer comprehensive, lowcost insurance policies free from onerous state benefit mandates. Supporters of the concept believe that such a reform could reduce health insurance premiums by permitting carriers to create innovative insurance products and consumers to buy the plan that most suits their needs—allowing, for instance, a 20-something single male to decline maternity coverage in exchange for a lower insurance rate.

Meanwhile, a Republican Assemblyman in New Jersey introduced legislation permitting Garden State residents to purchase health insurance policies offered in other states. The initiative closely resembles federal legislation (HR 4460) offered by Congressman John Shadegg (R-AZ), and would, like the Florida legislation, attempt to reduce health insurance premiums by circumventing costly state regulations and increasing the options for consumers to find affordable coverage. Such a proposal could have significant implications in New Jersey, where guaranteed issue regulations—which encourage individuals to wait to purchase health insurance until they become sick—have raised premiums to nearly twice the national average, pricing many younger New Jerseyans out of purchasing coverage.

Many conservatives may support both these efforts, and hope that the success of Florida’s experiment provides the incentive for New Jersey and other states to follow its lead. The Journal editorial notes that the plans created by the Florida measure are “not a cure-all,” but conservatives may believe that these and similar efforts to create a more consumer-friendly health care environment could play a significant role in reducing the growth of health care costs over time.

Read the articles here: “The Florida Revelation…
…And Escape from New Jersey

Comparative Effectiveness Research

Background:  The debate about the growth of health care costs has in recent years begun to focus on disparities in health spending and treatment.  A recent Congressional Budget Office study demonstrated that regional spending on health care varies widely, yet improved care cannot be assumed by higher levels of expenditures.

Amidst rapidly growing health spending and inconsistent levels of care, policy-makers have begun to discuss the development of a research institute to study the comparative effectiveness of medical treatment programs, either by synthesizing and analyzing existing medical data or by conducting firsthand clinical trials to gauge treatments’ efficacy.  Advocates believe that such a center, by generating comprehensive data about the clinical and cost-effectiveness of courses of action for various diseases, could reduce health care cost growth by targeting patients with the most effective treatments and discouraging the use of costly but unproven medical techniques and methods.  While many stakeholders agree that such research should be undertaken, there is less agreement on the composition and funding of the entity that would be empowered to research clinical effectiveness options.

Legislative History:  Last July, the House passed—but the Senate has not considered—health legislation that included the creation of a comparative effectiveness institute.  Section 904 of the Children’s Health and Medicare Protection (CHAMP) Act (H.R. 3162) would create a “Center for Comparative Effectiveness Research” within the Department of Health and Human Services’ Agency for Healthcare Research and Quality (AHRQ).  The center would be tasked with researching “outcomes, effectiveness, and appropriateness of health care services and procedures in order to identify the manner in which diseases, disorders, and other health conditions can most effectively and appropriately be prevented, diagnosed, treated, and managed clinically.”

The Center would be financed through the establishment of a Health Care Comparative Effectiveness Research Trust Fund within the U.S. Treasury.  The Fund would receive transfers from the Medicare Trust Funds to finance the research program for fiscal years 2008-2010.  Beginning in fiscal year 2011, funding would continue to flow from the Medicare Trust Funds, but it would be supplemented by a new tax on healthcare insurance policies.  The tax would be imposed on most health insurance policies (except for workers’ compensation, tort liabilities, property, credit insurance, or Medicare supplemental coverage) at a per capita amount needed to generate $375 million annually, in conjunction with resources from the Medicare Trust Funds.  The Secretary of the HHS would determine the “fair share” per capita amount, but the bill’s provisions are expected to generate at least $2 billion over ten years.  While H.R. 3162 states that insurance carriers (or the sponsors of self-insured policies) will pay this new tax, it does not (and cannot) account for the fact that this tax will likely be passed along to consumers, raising premium costs and potentially increasing the number of Americans who cannot afford private health insurance.

H.R. 3162 would also draw down substantial funds from the Medicare Trust Funds over time, $300 million over the first three fiscal years and up to $90 million each fiscal year thereafter.  Medicare Part A (hospital services) is financed by payroll taxes, and according to the nonpartisan Medicare Trustees, it is scheduled for bankruptcy in 2019—thus committing its resources for additional research will further expedite its bankruptcy.  In addition, Medicare Part B (supplementary services) is financed in part from beneficiary premiums that rise as the cost of the program rises—thus tapping these funds for research amounts to a tax on every senior enrolled in Medicare Part B.

Future Outlook:  Because provisions unrelated to comparative effectiveness make action on the CHAMP Act unlikely in the Senate, lawmakers and various stakeholder groups continue to engage in discussions about the way to create a research institute.  Senate Finance Committee Chairman Max Baucus (D-MT) and Budget Committee Chairman Kent Conrad (D-ND) have discussed introducing stand-alone legislation on this topic; news reports indicate that their bill would fund a comparative effectiveness research institute solely from federal coffers, while House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) believes that a premium tax should help to fund the institute, so that private insurance carriers would have a financial stake in its work product.

With the current Medicare physician payment “fix” scheduled to expire June 30, and lawmakers on both sides of the aisle promising legislative action to address physician reimbursements, it is entirely possible that some form of comparative effectiveness center could be established as part of such legislation.

Implications of Comparative Effectiveness:  Apart from the concerns some conservatives may have regarding any new federal taxes to finance a comparative effectiveness institute, the research undertaken by such a center could well have significant repercussions for the role of the federal government in health care.  Any research undertaken would likely have an impact on the number and types of services covered by Medicare and Medicaid, as well as the treatment options and techniques utilized by physicians desiring reimbursement.  Congressional Budget Office Director Peter Orszag recently admitted that “the big kick” in savings associated with comparative effectiveness research would stem from insurers—and likely the federal government—implementing “changes in financial incentives tied to the research.”[1]  Although the CHAMP Act did not include provisions altering reimbursement levels to reflect comparative effectiveness research, or empowering the ostensibly non-partisan institute to do the same, such legislative measures would be a likely outcome from creation of an effectiveness center.

In addition, examples of comparative effectiveness institutes established overseas have raised concerns about whether such an approach would lead to delays in obtaining care and/or rationing of services.  In the United Kingdom, Sarah Anderson, an ophthalmologist working in Britain’s National Health Service (NHS), recently published an article criticizing the NHS for inhibiting access to care for her critically ill father.  Her father’s kidney tumor could be treated by a new drug—but while the pharmaceutical has been approved for use in Europe for two years, Britain’s National Institute for Clinical Effectiveness (NICE) will not complete its assessment of the drug’s usefulness until January.  Until then, local NHS branches can refuse to provide the drug, leaving Anderson’s family to pay for their father’s treatment on their own, or face the inevitable consequences that will follow if he cannot obtain it.  Anderson’s ultimate verdict on her family’s dilemma is a sobering one: “If Dad should lose his life to cancer, it would be devastating—but to lose his life to bureaucracy would be far, far worse.”

Some conservatives may find these overseas examples of the delays resulting from a publicly-run comparative effectiveness institute a cautionary tale for those who would establish a similar institute under the aegis of the federal government.  Conservatives may not only believe that such an approach would put bureaucrats, and not doctors and patients, at the center of medical policy, but would also result in the types of costly delays and care rationing that put lives at stake.

Conclusion:  While the goals of a comparative effectiveness institute are certainly commendable in an era of rapidly rising health spending, some conservatives may be concerned at both the means of financing an institute and its impact on the federal role in health care.  Although an institute voluntarily created and funded by private insurance or other groups could be useful, a public-private entity financed by premium taxes may only encourage lawmakers to enact additional legislative measures designed to micro-manage the doctor-patient relationship and expand an already considerable bureaucracy within the Centers for Medicare and Medicaid Services.  In short, some conservatives may be concerned that comparative effectiveness research done by the public sector could become a euphemism for government-rationed health care.

If the federal government wishes to slow the growth of Medicare spending, some conservatives might find a better solution in comprehensive Medicare reform that transforms the current program into a system similar to that under the Federal Employee Health Benefits Program (FEHBP), whereby beneficiaries would receive a defined contribution from Medicare to select a health plan of their own choosing.  These health plans could employ the results of comparative effectiveness research in their reimbursement policies, and consumers could use those criteria—as well as any “Consumer Reports”-type publications released by private entities—in evaluating both a health plan to purchase and treatment options for a particular medical condition.

 

[1] Quoted in Fawn Johnson, “Bills Pushed to Gauge Effectiveness of Medical Treatments,” CongressDaily 17 March 2008, available online at http://nationaljournal.com/pubs/congressdaily/dj080317.htm#5 (accessed March 18, 2008).

Weekly Newsletter: May 19, 2008

Democrats Advance Provisions to Expand SCHIP to Wealthier Families

This past week, Democrats in both the House and the Senate took actions to block guidance from the Administration that would keep the State Children’s Health Insurance Program (SCHIP) on mission. On Thursday, the House Energy and Commerce Health Subcommittee held a hearing on legislation (HR 5998) that would override guidance issued by the Centers for Medicare and Medicaid Services (CMS) last August. That guidance is intended to ensure first that individuals with private health insurance do not drop their coverage in order to join a government-funded program, and second that states target their SCHIP funds at the low-income families for whom the program was created before expanding their state health plans to cover children from wealthier families.

That same day, Sen. Frank Lautenberg (D-NJ) attached legislative provisions mirroring HR 5998 to the wartime supplemental appropriations measure. The provisions were attached along with language similar to a House bill (HR 5613) that would suspend several Medicaid anti-fraud regulations. Sen. Lautenberg’s home state of New Jersey—which extends government-funded health insurance to “low-income” families making over $70,000 for a family of four—is one that has taken legal action against CMS to block the SCHIP guidance.

Some conservatives may be troubled, but not surprised, by the Democrat attempts to ensure that states can expand their SCHIP programs up the income ladder—consistent with legislation that passed the House last year permitting “low-income” families with over $80,000 in income to be added to government rolls. Given that the Administration has clarified the guidance to ensure that no child need be dropped off the SCHIP rolls as a result of the CMS policy, many conservatives would support the Administration’s attempts to keep the SCHIP program targeted on the populations for whom it was created, and oppose Democrat efforts to override these reasonable limits.

An RSC Policy Brief on this issue can be found here.

Ways and Means Hearing Examines HSAs

Last week, the House Ways and Means Health Subcommittee held a hearing analyzing the growth of Health Savings Accounts (HSAs). The Subcommittee heard testimony from the CEO of Alegent Health, a Nebraska-based health system that has implemented consumer-driven health care for its employees.

Since embarking on a consumer-driven model in 2005, Alegent has provided free preventive care and other incentives for healthy behaviors, while increasing price and quality transparency for its employees and patients alike. The results have been impressive: 92% participation by employees in consumer-directed plans, with high contribution rates to HSAs from low-income employees, lower costs, and healthier workers.

Many conservatives may believe that Alegent Health represents a successful model of how the growth of HSAs and consumer-driven health care can reduce rising health care costs. By empowering employees to take control of their lifestyle and health decisions, HSAs can encourage healthy behaviors that will reverse the growth of chronic diseases such as those linked to obesity, while incentivizing workers to accumulate real and portable savings that can be used to pay for health expenses. Some conservatives may believe the testimony at the Ways and Means hearing provided a welcome example of HSAs’ effectiveness, and a reminder why Democrat attempts further to regulate this new form of health care should be viewed with significant caution.

An RSC Policy Brief providing background on HSA enrollment can be found here.

Article of Note: Rationed Care Kills

From the United Kingdom comes a story in the Daily Mail by Sarah Anderson, an ophthalmologist fighting twin battles: to save her father’s life and against Britain’s National Health Service. Her father’s kidney tumor could be treated by a new drug—but while the pharmaceutical has been approved for use in Europe for two years, Britain’s National Institute for Clinical Effectiveness (NICE) will not complete its assessment of the drug’s usefulness until January. Until then, local NHS branches can refuse to provide the drug, leaving Anderson’s family to pay for their father’s treatment on their own, or face the inevitable consequences that will follow if he cannot obtain it.

Some conservatives may be concerned by this story’s cautionary tale, particularly in the context of efforts by Democrats to establish a similar “comparative effectiveness” institute under the aegis of the federal government. Conservatives may not only believe that such an approach would put bureaucrats, and not doctors and patients, at the center of medical policy, but would also result in the types of costly delays and care rationing that put lives at stake.

Anderson’s ultimate verdict on her family’s dilemma is a sobering one with which many conservatives would agree: “If Dad should lose his life to cancer, it would be devastating—but to lose his life to bureaucracy would be far, far worse.”

Read the article here: “How the NHS Is Letting My Father Die

SCHIP Crowd-Out

Background:  The State Children’s Health Insurance Program, established under the Balanced Budget Act (BBA) of 1997, is a state-federal partnership originally designed to provide low-income children with health insurance—specifically, those children under age 19 from families with incomes under 200 percent of the federal poverty level (FPL), or approximately $40,000 for a family of four.  States may implement SCHIP by expanding Medicaid and/or creating a new state SCHIP program.  SCHIP received nearly $40 billion in funding over ten years as part of BBA, and legislation recently passed by Congress in December (P.L. 110-173) extended the program through March 2009, while providing additional SCHIP funds for states.

One concern of many conservatives regarding the SCHIP program relates to crowd-out—a phenomenon whereby individuals who had previously held private health insurance drop that coverage in order to enroll in a public program.  The Congressional Budget Office (CBO) analysis of H.R. 3963, a five-year SCHIP reauthorization which the President vetoed (and the House failed to override), found that of the 5.8 million children who would obtain Medicaid or SCHIP coverage under the legislation, more than one-third, or 2 million, would do so by dropping private health insurance coverage.

Administration Guidance:  In order to prevent policies that encourage crowd-out, and ensure that SCHIP funds are more effectively allocated to the low-income beneficiaries for whom the program was created, the Centers for Medicare and Medicaid Services (CMS), on August 17, 2007, issued guidance to state health officials about the way CMS would evaluate proposals by states to expand their SCHIP programs to include families with incomes above 250% of the federal poverty level (FPL).  Specifically, CMS included several steps which states should take before contemplating expansions above 250% of FPL:

  • Cost sharing requirements for state plans similar to those for private plans;
  • A one-year period of uninsurance for beneficiaries prior to receiving SCHIP coverage, to ensure that individuals and families are not dropping private coverage in order to receive benefits on government rolls;
  • Monitoring of child beneficiaries’ eligibility for coverage provided by non-custodial parents;
  • Assurance that states have enrolled at least 95% of children in families below 200% of FPL who are eligible for coverage under SCHIP or Medicaid;
  • Data that private insurance coverage for targeted populations has not declined more than two percentage points in the past five years; and
  • Regular monthly reporting of enrollment data monitoring crowd-out in state plans.

The guidance intended to maximize the use of state and federal SCHIP funding by ensuring that scarce resources are targeted at the populations for whom the program was originally created, and that government funds for health insurance are not merely replacing private dollars.  CMS later used the policies embodied in the August letter to reject New York’s application to extend SCHIP to children in families making up to 400% FPL—or nearly $85,000 per year.  New York and other states are suing the federal government to overturn CMS’ decision and allow further expansion of government-funded health insurance.

On May 7, 2008, CMS issued another letter to state health officials providing further clarification on the August 17, 2007 guidance.  The letter indicated that CMS would work with states to evaluate whether the states have effectively enrolled 95% of eligible children below 200% FPL before expanding their programs up the income scale.  It also noted that CMS does not expect states to apply the anti-crowd-out provisions—including the one-year waiting period for SCHIP coverage and cost-sharing requirements comparable to private insurance plans—for unborn children or children with family incomes below 250% FPL—approximately $53,000 for a family of four.  Most importantly, the letter noted that changes made to state procedures need not be applied to current enrollees—meaning that no child need be dropped off the SCHIP rolls as a result of CMS’ August 17, 2007 letter.

Recent Legislative Developments:  On May 15, 2008, the House Energy and Commerce Committee held a legislative hearing on H.R. 5998, introduced by Reps. Frank Pallone (D-NJ) and Carol Shea-Porter (D-NH).  The legislation would prohibit the Administration from implementing its August 17, 2007 guidance letter to states regarding SCHIP crowd-out.  Press reports indicate that during the hearing, advocates of the legislation argued first that it would negatively impact enrollment in the SCHIP program, and second that the Government Accountability Office (GAO) and other experts have concluded that CMS violated the Congressional Review Act by promulgating its policy as a “guidance letter,” rather than issuing a formal rule using notice-and-comment procedures.  In response, Health Subcommittee Ranking Member Nathan Deal (R-GA) noted that the guidance process allowed for more flexibility in responding to any concerns raised by states than would a formal rule.

On the same day, an amendment by Sen. Frank Lautenberg (D-NJ) to nullify the August 17 letter was attached to the wartime supplemental spending bill at a Senate Appropriations Committee markup.  This SCHIP provision was added to legislative provisions overriding seven Medicaid anti-fraud regulations issued by CMS, which were also attached to the House version (H.R. 2642) of the supplemental spending bill.

Conclusion:  Most conservatives support enrollment and funding of the SCHIP program for the populations for whom the SCHIP program was created.  That is why in December the House passed, by a 411—3 vote, legislation reauthorizing and extending the SCHIP program through March 2009.  That legislation included an additional $800 million in funding for states to ensure that all currently eligible children will continue to have access to state-based SCHIP coverage.

However, many conservatives retain concerns about the significant expansions of SCHIP contemplated by House Democrats and their impact on reducing private health insurance coverage while increasing reliance on a government-funded program.  In this vein, the Administration’s guidance to states remains consistent with the goal of ensuring that SCHIP remains targeted toward the low-income populations for which it was designed.  Therefore, many conservatives will support the reasonable attempts by CMS to bolster the integrity of the SCHIP program while retaining state plans’ flexibility, and question efforts by Congressional Democrats—and states like New York—to encourage further expansion of government-funded health insurance financed by federal taxpayers.

Certificate of Need Programs

History and Background:  In the 1960s, some health care policy makers began to believe that an excess supply of providers was having an inflationary impact on the price of health care.  As a result, several states, beginning with New York in 1964, enacted “certificate of need” (CON) laws giving state agencies the power to evaluate whether a new hospital or nursing home facility was needed prior to its construction.  Prompted in part by support from the American Hospital Association, 20 states enacted certificate of need laws by 1975.[1]

In January 1975, President Ford signed into law the National Health Planning and Resources Development Act (P.L. 93-641), originally sponsored by Sen. Ted Kennedy (D-MA).  The Act provided incentives for states to enact approval mechanisms prior to the construction of major facilities. As a result, by 1980 all states but Louisiana had established CON programs.[2]  However, Congress enacted legislation (P.L. 99-660) repealing the federal law in November 1986, which in time led 14 states to abolish their certificate of need programs.  Nevertheless, 36 states and the District of Columbia maintain some form of restriction on the construction of new medical facilities absent a determination of necessity.

Changes within the Hospital Industry:  In the more than four decades since the first certificate of need program was established, the hospital industry has undergone numerous changes and consolidations that may be seen as undermining the original rationale for the certificate of need mechanism.  At the time certificate of need laws were enacted, most hospitals received cost-based reimbursement for services from both the federal government and private insurers.  This payment mechanism, when coupled with a perceived lack of incentives for consumers to become cost-conscious about their health care expenditures, led policy-makers to impose external restrictions on providers’ growth (in an attempt to slow the growth of health expenditures) due to a belief that they would fail to compete on price grounds.[3]  However, the intervening decades have seen a move away from cost-based reimbursement and toward prospective payment for procedures, along with greater incentives—higher deductibles, Health Savings Accounts, co-insurance, etc.—for consumers to demonstrate price sensitivity in health care.  Thus the economic conditions which led regulators to impose certificate of need restrictions have changed appreciably for both consumers and providers, which may prompt a re-evaluation of their usefulness and efficacy.

In addition, a wave of consolidation within the hospital sector has attracted the attention of antitrust regulators, who have examined the impact of hospital mergers on health care.  As of 2001, nearly 54% of hospitals nationwide had joined a larger hospital system, with a further 12.7% working in looser affiliations.  Combined, two-thirds of hospitals nationwide (66.7%) participated in some form of network or system affiliation—more than double the 31% two decades previously, in 1979.[4]

In 2004, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) conducted a series of fact-finding hearings that culminated in a joint study analyzing the antitrust implications of health care policy, which featured several chapters specifically devoted to the changes within the hospital industry.[5]  Reports submitted to the panel cited the “extensive consolidation” within the health care industry, “at times creating virtual monopolies in geographic submarkets” that allowed hospitals to “exert greater leverage in managed care contract negotiations” while pressuring physicians to join a particular system.[6]  Other witnesses noted the way in which hospital systems attempt to include at least one “must have” hospital in each geographic market, which will allow the system to demand price increases.[7]

Both the FTC-DOJ report and other independent studies have noted the link between high levels of consolidation within the hospital industry and higher prices.  Best estimates indicate that hospital mergers tend to increase prices from 5-40%—while also resulting in decreases in quality.[8]  A National Bureau of Economic Research working paper found that, by resulting in a loss of consumer surplus of $42.2 billion over a decade (most of which went to providers), hospital mergers had the net effect of raising insurance premiums 3-5%, thus increasing the number of uninsured by almost 5.5 million life-years from 1990 through 2003.[9]

Effect of CON on Competition, Price, and Quality:  Conservatives who believe in free markets may not object to consolidation within the hospital industry, or any other industry, provided that no other external factor interferes with the operation of the economic market.  However, if the market has been distorted through public policy actions by legislators—as in the case of the 36 states and the District of Columbia with certificate of need laws—some conservatives may view such laws with caution, due to the potential negative implications which a state-granted oligopoly for existing providers may have on the ability of new entrants to improve the health care marketplace through innovative practices and techniques.

The same FTC-DOJ report that noted the correlation between hospital consolidation and rising prices also criticized the state certificate of need model as anticompetitive and not in consumers’ best interest.  Witnesses testified that the barriers to entry presented by certificate of need requirements impeded rapid implementation of new health care technologies, with significant adverse effects on overall health care spending—rising prices due to more limited access to care, and/or re-directing spending to other areas of health care (i.e. a restriction on development of new beds leading to increased investment in radiological or other equipment).[10]  The report concluded:

The Agencies believe that CON programs are generally not successful in containing health care costs and that they can pose anticompetitive risks….CON programs risk entrenching oligopolists and eroding consumer welfare.  The aim of controlling costs is laudable, but there appear to be other, more effective means of achieving this goal that do not pose anticompetitive risks.[11]

Because of the “serious competitive concerns” that outweighed the purported benefits, the agencies advised states to re-evaluate whether their certificate of need programs in fact serve the public good.

In addition to the impact of certificate of need programs on price and market penetration, the stubbornly high rates of medical errors and hospital-acquired infections may be symptomatic of quality control difficulties rooted in a lack of competition.  The 1999 Institute of Medicine study To Err Is Human estimated that between 44,000 and 98,000 Americans die annually in hospitals due to preventable medical errors, creating a total economic cost of as much as $29 billion, and a November 2006 report utilizing data from a new infection-reporting regime in Pennsylvania found 19,154 cases of hospital-acquired infections in 2005 alone, representing an infection incident rate of more than 1 in 100 hospitalizations.[12]  With consolidation having eroded the breadth of competing hospitals in some markets, and state certificate of need programs presenting a significant barrier for potential new entrants, the prime driver of quality improvement within the hospital sector may be fear of litigation—a process which some conservatives may find economically inefficient and poor public policy.

The impact of certificate of need programs on quality improvements was illustrated in data from an October 2003 Government Accountability Office (GAO) study examining physician-owned specialty hospitals.  According to GAO, 83% of all specialty hospitals—and all specialty hospitals then under development—were located in states without certificate of need requirements.[13]  The FTC-DOJ study also cited the example of a Florida law enacted in 2003, which barred single-practice specialty hospitals while simultaneously eliminating certificate of need requirements for various cardiac programs at general hospitals.[14]  Some conservatives may therefore be concerned first that the innovation and quality improvements which physician-owned specialty hospitals have introduced are being denied to residents in many states due to certificate of need restrictions, and second that this archaic and bureaucratic mechanism has become a political football that existing facilities attempt to manipulate in order to maintain existing oligopolies.[15]

Security Impact:  The September 11 attacks and subsequent concerns regarding incidents of mass terrorism, bioterrorism, or pandemic outbreaks have raised the prominence of the need for “surge capacity” in the event of a major public health disaster.  Although such surge capacity need not be located within the confines of a hospital, specialized medical centers may play a significant role in any response to a large-scale incident.

On May 5 and 7, 2008, the House Committee on Oversight and Government Reform held hearings regarding a potential lack of hospital surge capacity.[16]  Chairman Henry Waxman (D-CA) attempted to assert that the implementation of several proposed Medicaid anti-fraud regulations would compel hospitals to reduce or eliminate trauma centers whose services would be needed in the event of a major terror incident.  In response, Secretary of Health and Human Services Mike Leavitt noted that the need for proper public health capacity to respond to terrorist incidents should not impede the Administration from enacting reasonable controls to ensure that the Medicaid program meets its statutory goal of providing health care to low-income individuals, as opposed to serving as a bioterror response agency.

In addition to agreeing with the Secretary’s assertion that the distinction between public health preparedness and implementation of Medicaid anti-fraud regulations saving $42 billion over a decade is a false dichotomy, some conservatives may also believe that a better way to increase “surge capacity” in 36 states and the District of Columbia would involve a repeal of certificate of need restrictions.  Rather than maintaining bureaucratic regulations that prevent construction of health care facilities of critical importance in a mass-casualty incident—or jeopardizing existing physician-owned trauma centers by enacting new restrictions on physician ownership, as House Democrats have proposed—conservatives may believe that a better alternative would allow free markets to innovate and create new medical centers should capacity for trauma units or other segments of care be lacking in a particular market.

Conclusion:  Proposals to expand the government’s role in health care have frequently been criticized by conservatives as the first step towards rationed care.  However, some conservatives may use the certificate of need model to argue that 36 states and the District of Columbia already ration health care, by limiting the ability of new entrants to provide medical services to their citizens.  For instance, the recent decision of the Michigan Certificate of Need Commission to limit the number of new radiation facilities in the state may have an adverse impact on cancer patients seeking access to a novel form of treatment.[17]

With a McKinsey group study noting that hospitals account for 50% of the excess spending in American health care relative to other countries, some conservatives may argue that the hospital industry in particular warrants the additional innovation and reduced costs which new entrants can provide.[18]  Congress itself recognized this fact in 1980 by passing legislation (P.L. 96-499) making ambulatory surgery centers (ASCs) eligible for Medicare reimbursement, believing that new ASCs could perform certain medical procedures more cost-effectively than general hospitals.[19]  Yet the exhaustive FTC-DOJ study, as well as related literature, have documented the ways in which state-based certificate of need laws have undermined market-based efforts at cost control—by resulting in less competition, higher prices, and a diminished emphasis on quality that new market entrants can elicit.  In addition, the changed environment of a post-9/11 world raises questions as to whether states with certificate of need programs are denying to their citizens facilities that could be of critical importance in a public health crisis.  Viewed from these perspectives, the certificate of need model may look less like an effective mechanism to contain the growth of health care costs than an outdated shibboleth that ultimately harms the citizens whom it was designed to protect.

Some conservatives may believe that the nearly 100,000 deaths annually due to preventable medical errors constitute proof positive that the certificate of need model should be permanently dismantled, and that the billions of dollars in hospital expenditures made by the federal government may warrant a federal role in persuading recalcitrant states to do so.  This fiscal year alone, the federal government will spend at least $27.1 billion on payments to hospitals not directly attributable to patient care—including Medicare and Medicaid disproportionate share hospital payments, and graduate and indirect medical education costs.[20]  Some conservatives may therefore support policies intended to link some or all of these payments to states’ repeal of certificate of need laws, in the belief that the abolition of such measures will improve competition, drive down prices, and enhance the quality of health care nationwide.

 

[1] “Certificate of Need State Laws 2008,” (Washington, DC, National Council of State Legislatures, updated May 8, 2008), available online at http://www.ncsl.org/programs/health/cert-need.htm (accessed May 11, 2008).

[2] Cited in Improving Health Care: A Dose of Competition (Washington, DC, Department of Justice and Federal Trade Commission Joint Report, July 2004), available online at http://www.ftc.gov/reports/healthcare/040723healthcarerpt.pdf (accessed May 11, 2008), p. 301.

[3] Ibid., pp. 302-303.

[4] Ibid., pp. 133-134.

[5] Background information, agendas, and transcripts for the hearings can be found online at http://www.ftc.gov/bc/healthcare/research/healthcarehearing.htm (accessed May 12, 2008).

[6] Cara Lesser and Paul Ginsburg, “Back to the Future?: New Cost and Access Challenges Emerge,” (Washington, DC, Center for Studying Health System Change Issue Brief No. 35, February 2001), available online at http://www.hschange.com/CONTENT/295/ (accessed May 11, 2008).

[7] Cited in Dose of Competition, p. 138.

[8] William Vogt and Robert Town, “How Has Hospital Consolidation Affected the Price and Quality of Hospital  Care?” (Princeton, NJ, Robert Wood Johnson Foundation Research Synthesis Project No. 9, February 2006), available online at http://www.rwjf.org/pr/synthesis/reports_and_briefs/pdf/no9_researchreport.pdf (accessed May 12, 2008), pp. 8-10.

[9] Robert Town et al., “The Welfare Consequences of Hospital Mergers,” (Cambridge, MA, National Bureau of Economic Research Working Paper 12244), available online at http://www.nber.org/papers/w12244.pdf?new_window=1 (accessed May 13, 2008), Tables 8-10, pp. 48-50.

[10] See ibid., pp. 301-306.

[11] Ibid., p. 306.

[12] Institute of Medicine, To Err Is Human: Building a Safer Health System, summary available online at http://www.iom.edu/Object.File/Master/4/117/ToErr-8pager.pdf (accessed March 1, 2008); Pennsylvania Health Care Cost Containment Council, Hospital Acquired Infections in Pennsylvania, available online at http://www.phc4.org/reports/hai/05/docs/hai2005report.pdf (accessed March 1, 2008).

[13] “Specialty Hospitals: Geographic Location, Services Provided, and Financial Performance,” (Washington, Government Accountability Office, Report GAO-04-167), available online at http://www.gao.gov/new.items/d04167.pdf (accessed May 11, 2008), pp. 20-21.

[14] Cited in Dose of Competition, p. 146, note 116.

[15] The Center for Responsive Politics notes that from 1998 through March 2008, the hospital and nursing home industry spent more than $610 million on federal lobbying alone, placing it ninth among 121 industry categories.  Data available online at http://www.opensecrets.org/lobby/top.php?indexType=i (accessed May 12, 2008).

[16] Information about the hearings can be found at http://oversight.house.gov/story.asp?ID=1929 (accessed May 10, 2008).

[17] Andrew Pollack, “States Limit Costly Sites for Cancer Radiation,” New York Times May 1, 2008, available online at http://www.nytimes.com/2008/05/01/technology/01proton.html?_r=2&adxnnl=1&8br=&oref=slogin&adxnnlx=1210543656-RJG4oNSF434Dh4b52KfeFA&pagewanted=print (accessed May 11, 2008).

[18] Cited in Regina Herzlinger, Who Killed Health Care? America’s $2 Trillion Medical Problem—and the Consumer Driven Cure (New York, McGraw-Hill, 2007), p. 62.

[19] Cited in Dose of Competition, p. 148.

[20] Congressional Budget Office March 2008 baselines for Medicare and Medicaid, available online at http://www.cbo.gov/budget/factsheets/2008b/medicare.pdf and http://www.cbo.gov/budget/factsheets/2008b/medicaidBaseline.pdf, respectively  (accessed May 12, 2008).

Weekly Newsletter: May 12, 2008

War Supplemental Attempts to Override Medicaid Fiscal Integrity Regulations

News reports surfaced in recent days that House Democrats will attempt to attach to the wartime supplemental appropriations bill provisions of legislation (H.R. 5613) that would impose moratoria on several proposed regulations issued by the Centers for Medicare and Medicaid Services (CMS) to restore fiscal integrity to the Medicaid program. Other reports also suggest that much of the increase in Medicaid spending on anti-fraud oversight, inserted into the legislation at the behest of Energy and Commerce Committee Ranking Member Joe Barton (R-TX), will not be included in the appropriations measure.

In addition to the concerns many conservatives may have about unnecessary domestic spending provisions being attached to a bill funding troops in harm’s way overseas, some conservatives may also be concerned by congressional actions to block regulations that respond to more than a dozen Government Accountability Office (GAO) reports released since 1994 highlighting the various ways states have attempted to “game” the Medicaid program and increase the amount of federal matching funds received. The history of these abuses has prompted the Administration to threaten a veto of any measure attempting to block CMS’ attempts to restore the fiscal integrity of the Medicaid program.

Reports also suggesting that the Senate version of the supplemental may attempt to pay for part of the costs associated with the Medicaid regulations by enacting additional restrictions on physician-owned hospitals. Some conservatives may therefore be concerned that Senate Democrats are attempting to override critical regulations to restore integrity to the Medicaid program—and paying for the moratoria by enacting bureaucratic restrictions that will stifle an important source of innovation in health care.

RSC Briefs on the federal-state Medicaid relationship can be found here, here, here, and here.

An RSC Policy Brief on physician-owned hospitals can be found here.

Ways and Means Hearing Scheduled on HSAs

This Wednesday, the House Ways and Means Health Subcommittee will hold a hearing designed to undermine the growth of Health Savings Accounts (HSAs). The hearing comes on the heels of a Government Accountability Office (GAO) report requested by Subcommittee Chairman Pete Stark (D-CA) that Democrats used to assert that HSAs are nothing more than a tax shelter for wealthy individuals.

Some conservatives may be strongly skeptical of the Democrat conclusions, particularly as the GAO report utilized tax data from a year when the number of HSA policy-holders was one-sixth its current level. In addition, many conservatives may applaud the data demonstrating that individuals are building real savings in their HSA accounts to use for health expenses—money that consumers, not insurance companies or government bureaucrats, can control and spend for health care needs. These data on the amount of savings accumulated by HSA holders fly in the face of statements by Subcommittee Chairman Stark that HSAs are “woefully inadequate” as a means to provide health care coverage.

What is clear is that HSAs have proved tremendously popular in the four years since their introduction. America’s Health Insurance Plans recently reported that more than 6.1 million individuals are covered by HSA-eligible insurance, and that enrollment in HSA plans had increased by 35% during 2007 alone. Given the widespread adoption of this new consumer-directed product, and its impact on reducing the growth of health care costs, many conservatives may object to any Democrat proposals to eliminate HSAs or make them unattractive through unnecessary bureaucratic regulations.

An RSC Policy Brief providing background on HSA enrollment can be found here.

Articles of Note: Washington’s Other Health Care Mess

Two articles in The Washington Post in the past week highlighted growing opposition to a measure designed to provide universal health care in the District of Columbia. The proposed program, similar to one enacted in Massachusetts two years ago, would impose an individual mandate on all individuals to purchase health insurance coverage, and would expand public insurance subsidies for those individuals not eligible for current government-run health care programs.

Much opposition has centered on the new taxes necessary to finance the expansion of government-run health care—a doubling of the District’s tobacco tax, a new tax on Health Maintenance Organizations, and an increase in taxes on all health insurance premiums. The health insurer with whom the District had expected to contract for the program has also expressed reservations about its willingness to participate.

Advocates of the District’s health care plan face the same obstacles that have plagued the Massachusetts experiment: unpopular new taxes that can stifle economic growth, an individual mandate that can prove difficult to enforce, and few controls on spiraling health care costs that form the root cause of many access and coverage shortcomings in the current system. Some conservatives would therefore advise District leaders that, rather than establishing a new entitlement program with unknown future obligations, policy-makers would be best advised to reform health care markets to create the kind of consumer-oriented innovations that can slow the growth of health care costs, thereby increasing affordability of coverage.

Read the articles here: “Speakers Express Division on Bill to Mandate Health Care Coverage
Provider, Doctors May Pull Out of Program

Weekly Newsletter: May 5, 2008

Democrat Attacks on HSAs Miss the Mark

This past week, Democrats attempted to use a Government Accountability Office (GAO) report to cast aspersions on Health Savings Accounts (HSAs). The Democrats who requested the GAO report—which analyzed data from HSA contributions made in 2005—asserted that the study proved that HSAs are nothing more than a tax shelter for wealthy individuals.

However, some conservatives may be strongly skeptical of these conclusions, particularly as the report utilized tax data from a year when the number of HSA policy-holders was one-sixth its current level. In addition, many conservatives may applaud the data demonstrating that individuals are building real savings in their HSA accounts to use for health expenses—money that consumers, not insurance companies or government bureaucrats, can control and spend for health care needs.

What is clear is that HSAs have proved tremendously popular in the four years since their introduction. America’s Health Insurance Plans reported Wednesday that more than 6.1 million individuals are covered by HSA-eligible insurance, and that enrollment in HSA plans had increased by 35% during 2007 alone. Given the widespread adoption of this new consumer-directed product, and its impact on reducing the growth of health care costs, many conservatives may object to any Democrat proposals to eliminate HSAs or make them unattractive through unnecessary bureaucratic regulations.

The RSC Policy Brief summarizing the HSA reports can be found here.

Leavitt Speech Highlights Need for Entitlement Reform

Last Wednesday, Secretary of Health and Human Services Mike Leavitt used a speech at the Newseum to advance the cause of Medicare reform, outlining some over-arching principles to guide policy-makers looking to curb the spiraling growth of federal entitlements. In his speech—and a subsequent briefing before RSC Members and staff—he compared the federal government’s looming entitlement obligations as a whirlpool threatening to consume growing amounts of the economy, and advocated for increased competition in Medicare Parts A and B as one measure to stem the spiraling costs.

Many conservatives will support Secretary Leavitt’s call for comprehensive reform, and seek an immediate solution to the problems plaguing Medicare. This year’s Medicare trustees report placed the program’s total unfunded obligations at $86 trillion—which will provide some conservatives with a strong impetus to use all available legislative mechanisms to advance the cause of Medicare reform.

The RSC has released Policy Briefs highlighting the Medicare “trigger,” the President’s proposed legislation, and other options for comprehensive entitlement reform.

Genetic Non-Discrimination Act Passes Overwhelmingly

Last Thursday, the House by a 414-1 vote passed the Senate amendments to the Genetic Information Non-Discrimination Act (H.R. 493), sending the bill to the President’s desk. The compromise language negotiated between Senate sponsors and Sen. Tom Coburn (R-OK) had previously passed the Senate on a 95-0 vote.

The compromise language corrects several issues of concern to conservatives. Insurers and employers will be prohibited from discriminating against individuals on the basis of fetal genetic information, ensuring that individuals will not feel pressured into aborting their unborn children. In addition, existing policies on insurance underwriting for diseases already manifest in individuals will be maintained, and entities subject to existing privacy regulations under the Health Insurance Portability and Accountability Act (HIPAA) will not be subject to a new regulatory regime. Lastly, the compromise language improved a conservative concern that employers will not be subject to Equal Employment Opportunity Commission (EEOC) tribunals or lawsuits for decisions they make in their capacity as an insurer for their employees.

The RSC Legislative Bulletin on the Genetic Information Non-Discrimination Act can be found here.