The Real Threat to Seniors: Single Payer

No sooner had the president’s budget arrived on Capitol Hill last Monday than the demagoguery began. Within hours of the budget’s release, Sen. Brian Schatz (D-HI) tweeted that “One party wants to expand Medicare and Medicaid and the other wants to cut them.” The facts, however, show a different contrast—one party attempting to keep a promise to seniors, and another abandoning that promise to fund other priorities.

First, the budget would not “cut” Medicare. As multiple administration officials explained during congressional hearings on the budget, Medicare spending would continue to rise every year under the president’s proposals. Only in a government town like Washington could lawmakers say with a straight face that a reduction in projected spending increases constitutes a “cut.”

Third, the budget proposals would yield tangible benefits to seniors through lower Medicare cost-sharing. A proposed rule released in July found that one of these changes would lower beneficiary co-payments by $150 million in one year. If enacted in full, seniors would see billions of dollars in savings over the ten-year budget window.

Fourth, and most importantly, legislation Schatz supports wouldn’t “expand” Medicare and Medicaid, it would eliminate them. Sen. Bernie Sanders’ single-payer bill, which Schatz has co-sponsored, would, in addition to ending Medicaid, liquidate the Medicare trust funds, using the proceeds to finance the new government-run program. As I noted last year, that makes Sanders’ bill, as well as similar legislation introduced in the House last month, not “Medicare for All” but “Medicare for None.”

That raid on the Medicare trust funds represents not just an accounting gimmick, but a statement of Democrats’ priorities—or, rather, the lack of them. Medicare has long-term funding problems, which the president’s budget attempts to address. But in using the Medicare trust funds as a piggy bank to finance a single-payer system—the full cost of which Democrats have no idea how to fund—the party shows how, in trying to provide all things to all people, it will abandon the most vulnerable.

Perhaps the best rebuttal to “Medicare for None” came from, of all people, Rep. Steny Hoyer (D-MD). In a speech on the House floor in September 2009, Hoyer said:

At some point in time, my friends, we have to buck up our courage and our judgment and say, if we take care of everybody, we won’t be able to take care of those who need us most. That’s my concern. If we take care of everybody, irrespective of their ability to pay for themselves, the Ross Perots of America, frankly, the Steny Hoyers of America, then we will not be able to take care of those most in need in America.

Therein lies the true flaw in the left’s logic. Whereas the president’s budget would work to protect Medicare for vulnerable seniors, Schatz, Sanders, and their supporters would liquidate the Medicare trust fund to finance “free” health care for Mark Zuckerberg and Elon Musk. The choice between the two paths seems as obvious as it is clear.

This post was originally published at The Federalist.

Hospital Monopolies Are What’s Wrong with American Health Care

Call it a sign of the times. If Rich Uncle Pennybags (a.k.a. “Mr. Monopoly”) appeared today, he would have little interest in holding properties like the Short Line Railroad. In the 21st century, acquiring railroads, or even utilities, is so Baltic Avenue. The real money—and the real monopolies—lie in health care, specifically in hospitals.

Despite the constant focus on prescription drug prices, pharmaceuticals represent a comparatively small slice of the American health care pie. In 2016, national spending on prescription drugs totaled $328.6 billion. That’s a large sum on its own, but only 9.8 percent of total health care spending. By contrast, spending on hospital care totaled nearly $1.1 trillion, or more than three times spending on prescriptions.

Hospitals’ Monopolistic Tactics

The Journal profiled several under-the-radar tactics that some large hospitals use to deter competition and pad their bottom lines. For instance, some contracts “prevent patients from seeing a hospital’s prices by allowing a hospital operator to block the information from online shopping tools that insurers offer.”

Hospitals use these tactics to oppose transparency, because they fear, correctly, that if patients know what they will pay for a service before they receive it, they may take their business elsewhere. It’s an arrogant and high-handed attitude straight out of Marxism.

Also in hospitals’ toolkits: So-called “must-carry” clauses, which require insurers to keep their hospitals in-network, regardless of the high prices they charge, or poor quality outcomes they achieve. The Journal reported that one of the nation’s largest retailers wanted to kick out the lowest-quality providers, but had no ability to do so.

Officials at Walmart a few years ago asked the insurers that administered its coverage…if the nation’s largest private employer could remove from its health-care networks the 5% of providers with the worst quality performance. The insurers told the giant retailer their contracts with certain health-care providers didn’t allow them to filter out specific doctors or hospitals, even based solely on quality measures.

Surprise! Obamacare Made It Worse

Many of these trends preceded President Obama’s health care law, of course. But it doesn’t take a PhD in mathematics to see how hospital mergers accelerated after 2010, the year of Obamacare’s passage:

Hospitals responded to the law by buying up other hospitals, increasing market share in an attempt to gain more negotiating “clout” against health insurers. That leverage allows them to demand clauses such as those preventing price transparency, or preventing insurers from developing smaller networks that only include efficient or better-quality providers.

Here again, industry consolidation begets higher prices. In many cases, hospitals can charge more for services provided by an “outpatient facility” as opposed to one provided by a “doctor’s office.” In some circumstances, the patient will receive the same service, provided by the same doctor, in the same office, but will end up getting charged a higher price—merely because, by buying the physician practice, the hospital can reclassify the office and procedure as taking place in an “outpatient facility.”

Remember: Hospitals Endorsed Obamacare

In 2010, the American Hospital Association, along with other hospital associations, endorsed Obamacare. At the time the hospital lobbies claimed that the measure would increase the number of Americans with health insurance coverage. For some reason, they neglected to mention how the law would also encourage the consolidation that presents ever-upward pressure on insurance premiums.

But remember too that Obama repeatedly promised his health-care law would lower premiums by $2,500 for the average family. Unfortunately for Americans, however, Obamacare’s crony capitalism—allowing hospitals to grow their operations, and thus their bottom line, in exchange for political endorsements—continues to contribute to higher premiums, putting Obama’s promise further and further away from reality.

This post was originally published at The Federalist.

Big Hospitals’ Obamacare Hypocrisy

As Republicans prepare legislation to repeal Obamacare, the health care industrial complex has raised a host of concerns. Notably, two hospital associations recently released a report highlighting the supposed negative implications of the reconciliation bill Congress passed, and President Obama vetoed, late last year.

While the hospitals allege that repealing Obamacare would decimate their industry, their report cleverly omits four inconvenient truths.

1. They Pushed Bad Ideas Because They Expect Bailouts

Kahn gave a simple, yet cynical, reply: “You could say, did you make a bad deal, and fortunately, I don’t think I’ll probably be working after 2020 [Laughter.]….I’m glad my contract only goes another six years. [Laughter.]”

Fast-forward those six years to earlier this fall, when the Congressional Budget Office (CBO) analyzed the effects of various Obamacare provisions on hospital margins. The report concluded that even under the best-case scenario—in which hospitals achieve a level of efficiency non-partisan experts doubt they can reach—the revenue from Obamacare’s coverage expansions will barely offset the negative effects of the productivity adjustments. Under the worst-case scenario, more than half of hospitals could become unprofitable by 2025, and the entire industry could face negative profit margins.

Kahn knew full well in August 2010 that Obamacare would eventually decimate his industry, through the cumulative effect of year-over-year reductions in Medicare payments. The laughter during his comments demonstrates Kahn thought it was one big joke. He and his colleagues cynically calculated first that they wouldn’t be around when those payment reductions really started to bite; and second that Congress would bail the hospitals out of their own bad deal—essentially, that hospitals are “too big to fail.”

2. Hospitals Supported Raiding Medicare to Pay for Obamacare

Last year’s reconciliation bill essentially undid the fiscal legerdemain that allowed Obamacare to pass in the first place. In the original 2010 legislation, Democrats used savings from Medicare both to improve the solvency of Medicare (at least on paper) and to fund the new entitlements.

The reconciliation bill would have repealed the new entitlements, and—in a truly novel concept—used Obamacare’s Medicare savings to…save Medicare. Instead, the hospital industry wants to continue the budget gimmickry that allows Medicare money to be spent twice and used for other projects.

3. Hospitals Believe Entitlements Are for Them, Not You

In theory, individuals receiving cash contributions in lieu of Medicaid coverage could improve their health in all sorts of ways—buy healthier food, obtain transportation to a higher-paying job, move to a better apartment closer to parks and recreation. But who would object to giving patients cash to improve their health instead of insurance? You guessed it: Hospitals.

Hospitals view Medicaid as their entitlement, not their patients’. That’s why hospitals have worked so hard for Obamacare’s Medicaid expansion. It’s also why they wouldn’t support diverting money from coverage into other programs (e.g., education, housing, nutrition, etc.) that could actually improve patients’ health more than insurance, which has been demonstrated not to improve physical health outcomes.

4. Insisting Health Care Is Their Personal Jobs Program

Hospitals will claim that repealing Obamacare will cost industry jobs, just as they pushed for states to expand Medicaid as a way to create jobs. But economic experts on both sides of the aisle find this argument frivolous at best. As Zeke Emanuel, a former Obama administration official, has noted: “Health care is about keeping people healthy or fixing them up when they get sick. It is not a jobs program.”

The health-care sector seems to believe they have a God-given right to consume at least one-sixth of the economy (and growing). Rebutting hospitals’ argument—that they, and only they, can create jobs—might represent the first step in lowering health costs, which would help non-health sectors of the economy grow more quickly.

This post was originally published at The Federalist.

The Report Every State Legislator Should Read

Regardless of the outcome of November’s elections, health care will likely return to the forefront of policy debates in 2017 — both in Washington and in state capitals across the country. Should Hillary Clinton capture the White House, liberal groups, proclaiming that Obamacare is here to stay, will likely push to expand Medicaid in the states that have rejected the program’s massive expansion under Obamacare. Hospital groups will no doubt work hand-in-glove with the Left on these efforts, claiming that only Medicaid expansion will allow hospitals to remain viable, particularly in rural areas.

That’s why a report released by the Congressional Budget Office (CBO) earlier this month should be read by every state legislator in every state likely to debate expansion next year. In analyzing profit margins over the coming decade, the nonpartisan CBO concluded that Medicaid expansion will not make a material difference in hospitals’ overall viability.

The CBO paper modeled the impact of various provisions of Obamacare in 2025, and compared those outcomes with hospitals’ profitability in 2011, before the law’s major provisions took effect. Each scenario allowed CBO analysts to isolate the effects of separate provisions — for instance, the law’s reduction in Medicare payments to reflect improved productivity, expanded health-insurance coverage through Medicaid and the exchanges, and other payment changes.

By analyzing the effects of expanded insurance coverage, and examining whether expanding Medicaid in more states would impact hospitals’ financial condition, CBO shows that such an expansion will not materially improve their solvency:

Differing assumptions about the number of states that expand Medicaid coverage have a small effect on our projections of aggregate hospitals’ margins. That is in part because the hospitals that would receive the greatest benefit from the expansion of Medicaid coverage in additional states are more likely to have negative margins, and because in most cases the additional revenue from the Medicaid expansion is not sufficient to change those hospitals’ margins from negative to positive. Moreover, the total additional revenue that hospitals as a group would receive from the newly covered Medicaid beneficiaries…is not large enough relative to their revenues from other sources to substantially alter the projected aggregate margins.

A “small effect” and “not large enough…to substantially alter” projections — far from the panacea hospitals claim Medicaid expansion will be for their bottom lines.

The report provides several reasons why Medicaid expansion will not cure hospitals’ financial woes. Whereas CBO assumed that exchange plans would reimburse hospitals above their average costs, “Medicaid’s payment rates are below hospitals’ average costs.” Medicaid revenues will likely grow more slowly over time, as Medicaid payment rates cannot exceed Medicare levels — and Obamacare dramatically slowed those Medicare reimbursement levels. Moreover, CBO estimated “that the use of hospitals’ services among the newly insured will increase by about 40 percent as a result of having insurance.” If Medicaid pays hospitals less than their average costs, then inducing additional patient demand by expanding coverage could actually exacerbate hospitals’ shortfalls, not improve them.

To put it bluntly, hospitals made a horrible deal by endorsing Obamacare in 2009. The industry agreed to annual reductions in their Medicare payments forever in exchange for a one-time increase in the number of insured patients. The CBO report quantifies how badly the hospital industry missed its target. Even if hospitals revolutionize their productivity — a standard nonpartisan experts doubt they will achieve — the added revenue from Obamacare’s coverage expansions will barely offset the effects of the Medicare-reimbursement reductions. Under the worst-case scenario, as many as half of all hospitals could become unprofitable within a decade — and the entire industry could face negative profit margins.

Medicaid expansion cannot save hospitals from the financial woes they inflicted upon themselves by endorsing Obamacare — but it can make both federal and state governments less solvent in the process. Prior research has shown how the Medicaid rolls in states that did expand drastically exceeded projections — and a new Mercatus Center report released earlier this month noted that costs per beneficiary have grown as well.

With the costs of Medicaid growing in states that did expand, and CBO showing meager financial benefits to hospitals as a result of expansion, state legislators have every reason to resist the temptation to dramatically expand the welfare state under Obamacare.

This post was originally published at National Review.

Big Hospitals’ Obamacare Deal Betrays Seniors and the Poor

A backroom deal made during the writing of Obamacare will harm seniors and the poor, according to The Wall Street Journal (WSJ).

During their closed-room dealings with the Obama Administration, the hospital industry’s lobbyists agreed to support Obamacare—provided that the law placed restrictions on physician-owned “specialty” hospitals, noted WSJ. These innovative specialty hospitals frequently have quality outcomes better than most traditional facilities, but no matter—the big hospital lobbyists wanted to eliminate a source of competition. So Obamacare prohibits new physician-owned hospitals from receiving Medicare payments — and prohibits most existing facilities from expanding if they wish to keep treating Medicare patients.

WSJ highlighted the actions specialty hospitals have been forced to take in response to these Obamacare restrictions:

Forest Park Medical Center in Dallas has stopped accepting Medicare patients, allowing it to escape the law’s restrictions entirely…. Rejecting Medicare ‘was a big leap, but we felt like the law gave us no choice,’ said J. Robert Wyatt, a Forest Park founder….

Other doctor-owned facilities are asking the federal government to let them duck the law’s restrictions altogether. Doctors Hospital at Renaissance near McAllen, Texas, is trying to get a waiver allowing it to expand as more than 53% of its payments come through the Medicaid federal-state insurance program for the poor.

In other words, because hospital lobbyists cut a backroom deal to support Obamacare, seniors and low-income patients have fewer health care options. Think that these examples of Americans losing access to care would prompt the hospital-industrial complex to reconsider its backroom deal? Not a chance:

Any effort to undo the expansion limits faces an uphill battle with Democrats, because the restrictions were a deal-breaker for hospitals when the White House sought their support for the law in 2009, industry lobbyists say.

Obamacare’s backroom deals (the “Louisiana Purchase,” the “Gator Aid,” and the “Cornhusker Kickback”) represented the worst in politics—well-heeled lobbyists seeking to obtain government largesse through pork-barrel spending and regulatory loopholes. The Wall Street Journal story reminds us how those backroom deals have real-world consequences when it comes to medical access—another example of how Obamacare has harmed patient care.

This post was originally published at The Daily Signal.

Weekly Newsletter: September 22, 2008

  • Specialty Hospital Ban a Special-Interest Boondoggle Reports circulated late last week that restrictions on physician-owned specialty hospitals may be included in mental health parity legislation that could come to the House floor this week. While later press reports indicated that the specialty hospital provisions would be excluded from the mental health parity bill, legislative activity cannot be ruled out.

    Advocates of a specialty hospital ban state that restricting physician ownership will slow the growth of health care costs and improve the solvency of the Medicare program. However, a look at the record of the Democrat-controlled 110th Congress shows little attempt to control the growth of health spending or solve Medicare’s long-term funding shortfalls:

  • Democrats rejected an attempt to make wealthy seniors pay $2 per day more for prescription drug coverage—which would save Medicare $12.1 billion over ten years;
  • Democrats rejected reasonable reforms to the current medical liability reform system that would eliminate the need for defensive medicine practices that raise health care costs—saving the federal government more than $6 billion over ten years;
  • Democrats could not pass structural reforms to the current system of Medicare physician payments—choosing instead to pass a budgetary gimmick that will give physicians a 21% reimbursement cut in January 2010.Given these actions—and an impending floor vote on a bill (HR 758) that will likely increase health care costs by billions of dollars—conservatives may question why Democrats have passed up attempts to save Medicare more than $12 billion by charging billionaires like Warren Buffett more for their prescription drugs and instead remain fixated on saving one-tenth that amount by eradicating a free market for physician-owned facilities.

    Part of the answer may lie in the lobbying activities of entities like the American Hospital Association— which spent nearly $20 million last year alone, and nearly $153 million over the last decade, on federal lobbying activities. Despite the fact that, by one measure, specialty hospitals represent less than 1% of total Medicare hospital spending, traditional hospitals continue their attempts to eradicate this potential source of competition—going so far as to draw a rebuke from Health and Human Services’ Inspector General for “misrepresent[ing]” the IG’s conclusions in a document sent to Congressional staff. Despite— or perhaps because of—these deceptive lobbying practices, some conservatives may support efforts to maintain free markets in health care, and oppose any further efforts by Congressional Democrats to pass a specialty hospital ban.

Medicaid Fraud Will Not Be Addressed by Bailout

Last Tuesday’s New York Times highlighted the case of Staten Island University Hospital, an institution with a history of questionable billing practices—and now one of the largest fraud settlements against a single hospital. This week the hospital agreed to return nearly $90 million to respond to claims of overbilling government programs as a result of two whistle-blower lawsuits and actions by federal prosecutors. The lawsuits and charges alleged among other things that the hospital deliberately inflated bed and patient counts in order to obtain reimbursements from Medicare and Medicaid, and come after the hospital had reached two previous settlements—one in 1999 resulting in $45 million in Medicaid repayments, and another in 2005 resulting in $76.5 returned to Medicaid—with state authorities regarding fraudulent billing activity.

Many conservatives may not be surprised by these repeated instances of fraud and graft within the program, given that a former New York state Medicaid investigator estimated that 40% of all Medicaid payments were fraudulent or questionable in nature. However, this episode may only strengthen conservative concerns that a proposed “temporary” increase in federal Medicaid matching funds (HR 5268) would do nothing to combat this fraud and abuse before spending additional federal dollars. Indeed, given that a single hospital has settled more than $200 million in fraud claims, some conservatives may wonder whether, if the Medicaid program had appropriate anti-fraud efforts in place, an additional $10-15 billion “bailout” for states would even be needed at all.

Read the article here.

Weekly Newsletter: September 15, 2008

Medicaid: More Spending Does Not Equal Reform

Today, Health and Human Services Secretary Mike Leavitt will be addressing a conference on Medicaid reform in Washington. The symposium comes at a time when some want Congress to pass legislation (H.R. 5268) providing more than $10 billion in Medicaid spending to states as a way to “fix” the program’s problems. However, many conservatives may believe that policy-makers should not use additional spending as a way to shirk from their duties to reform what is often an outmoded model of care.

In the past few years, several states have embarked upon novel and innovative reforms to improve the quality of care provided in the Medicaid program. Most recently, Rhode Island submitted a waiver application to the Centers for Medicare and Medicaid Services (CMS), asking for flexibility to revamp its program. Notable elements of this reform proposal include:

  • Incentives to promote wellness and prevention, including consumer-directed accounts and Health Savings Accounts (HSAs);
  • A shift to home and community-based care instead of a traditional nursing home setting for elderly populations;
  • Incentives to purchase long-term care insurance, so as to eliminate the need for Medicaid long-term care financing;
  • Competitive bidding for durable medical equipment; and
  • A novel financing model that ensures that total Medicaid expenses will rise by up to 5% per year.

    Many conservatives may support these and other similar reform initiatives proposed by states, as one way to slow the growth of health care costs and thereby reduce America’s unsustainable entitlement spending. Moreover, some conservatives may believe that time on the legislative calendar debating a Medicaid bailout should instead be used to discuss these types of comprehensive structural reforms to the program—so that the poorest beneficiaries are not subjected to more of the same from a government health system that does not work for many.

    The RSC has prepared a one-pager highlighting the need for comprehensive Medicaid reform based on examples from several states; the document can be found here.

    Cautionary Tales from Across the Pond

    This past week, a British think-tank published a paper that spoke the heretofore unthinkable: the policy group Reform advocated replacing the single-payer National Health Service with a voucher-based private health system. Under the proposal, individuals would receive a £2,000 voucher to purchase private insurance—injecting competition into a health system previously dominated by government, and bringing with it the potential to slow the growth of costs while achieving better value through improved care.

    The Reform proposal comes on the heels of several disturbing developments regarding the National Health Service last month. One survey found that a quarter of cancer specialists are purposely keeping their patients “in the dark” about treatment options—in order to avoid upsetting those patients when they find out the NHS will not pay for their treatments. Several weeks earlier, the National Institute of Health and Clinical Excellence (NICE)—Britain’s comparative effectiveness institute—adopted a policy of refusing to pay for four kidney cancer drugs, even though the pharmaceuticals made “significant gains” in survival times, because NICE did not believe the drugs were cost-effective.

    Conservatives may not be surprised by any of these developments—as the rationing of care frequently leads to demands to reform or abolish the governmental bureaucracies that deny life-saving treatments to patients. Some conservatives may also believe that the type of changes advocated by Reform with respect to the National Health Service, if applied to Medicare, could allow seniors a wide range of options to receive their health care, while achieving cost-savings through competition that could slow the growth of skyrocketing health and entitlement costs.

    Read the BBC News article: “Doctors ‘Keep Cancer Drugs Quiet’”

    Article of Note: The Hospital-Industrial Complex

    An article in the Wall Street Journal last month revealed the continuance of a troubling trend: hospitals using their monopoly power to raise prices for consumers—helping to contribute to the growth in health care costs. Consolidations in recent decades—coupled with state certificate-of-need laws that provide government-sanctioned exclusivity in most states—have allowed regional hospitals to tighten their grip on many markets, and the Journal article tells the tale of Carilion Health System in southwest Virginia:

  • Colonoscopy prices four to 10 times higher than a local clinic;
  • Neck CT scans more than double the price of an imaging center;
  • A significant spike in regional health insurance premiums to the highest level in the state; and
  • Over $105 million in net income achieved by a non-profit hospital over the past five years.

One local businessman called the area a “one-market town…in terms of health care,” noting that the hospital “has the leverage”—and the article demonstrates that its impact on both physician practices and the insurance premiums paid by thousands of Virginians has been significant.

The piece comes at a time when the hospital industry is attempting to eradicate one of its few remaining sources of competition, by asking Congress to place a ban on the development of physician-owned specialty hospitals. Some conservatives may oppose this measure as a high-handed approach by Washington policy-makers to interfere with free markets, further solidifying existing hospitals’ monopolies, and stifling the type of innovation in health care that new entrants like specialty hospitals can create to slow the growth of health care costs.

Additionally, conservatives may note a letter from the Department of Health and Human Services’ Inspector General from this April, which publicly rebuked several hospital trade associations for making “several statements that misrepresent our findings and draw[ing] several conclusions that we did not make” in a white paper to Congressional policy-makers on the need for a specialty hospital ban. Some conservatives may therefore be highly skeptical of claims from self-interested parties exhibiting monopolistic tendencies, who have made deceptive and misleading statements to Congress to advance their claims—and apparently lack the integrity to apologize for doing so.

Read the article here: Wall Street Journal: “Non-profit Hospitals Flex Pricing Power

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).

Legislative Bulletin: H.R. 5613, Protecting the Medicaid Safety Net Act

Order of Business:  The bill is scheduled to be considered on Tuesday, April 22nd, under a motion to suspend the rules and pass the bill.

Summary:  H.R. 5613 would extend certain existing moratoria on the Centers for Medicare and Medicaid Services (CMS), prohibiting the agency from promulgating rules related to the integrity of the Medicaid program until April 1, 2009.  In particular, the bill would extend moratoria on proposed regulations placing restrictions on intergovernmental transfers and restricting payments for graduate medical education; the prohibitions were first enacted as part of last year’s supplemental wartime appropriation (P.L. 110-28) and are scheduled to expire on May 25, 2008.  The bill would also extend prohibitions on CMS regulations relating to rehabilitation services, as well as school-based administrative and transportation services; these prohibitions were first enacted in Medicare physician payment legislation (P.L. 110-173) last December, and are scheduled to expire on June 30, 2008.

In addition, H.R. 5613 would impose additional new moratoria on CMS relating to other proposed Medicaid regulations, also until April 2009.  Specifically, the bill would prohibit the Secretary of Health and Human Services from imposing additional restrictions with respect to targeted case management payments, the definition of outpatient hospital services, and Medicaid provider taxes (with certain exceptions).

The bill also appropriates an additional $25 million per year to CMS for the purposes of anti-fraud enforcement activity within the Medicaid program.

H.R. 5613 includes two reports to Congress on the proposed regulations.  By July 1, 2008, the Department of Health and Human Services (HHS) will report on its justification and authority for proposing the regulations.  The bill also includes $5 million in appropriations for HHS to hire an independent contractor to produce a report by March 1, 2009, on the proposed regulations and their impact on states.

H.R. 5613 also extends a web-based asset verification system to all 50 states, effective by the end of fiscal year 2013.  This provision would expand the Social Security Administration’s Supplemental Security Income (SSI) pilot program, giving states a new tool for verifying the assets of Medicaid recipients.  Currently, such a system only exists as a demonstration project in three states: California, New Jersey, and New York.

Additional Background on Changes Made in Committee:  During consideration in the Energy and Commerce Committee, Chairman Dingell and Ranking Member Joe Barton (R-TX) reached agreement on several modifications to the legislation.  The revised language incorporated at Subcommittee narrowed the scope of the proposed moratoria to permit CMS to engage in outreach activities with states.  Over the past several years, CMS has used various state-level audits to reach agreements with state Medicaid agencies to curtail abusive and/or questionable financing tactics.  The revised language in H.R. 5613 would permit CMS to continue these individual consent agreements with states, while maintaining the moratoria on CMS’ ability to enact regulations prohibiting these activities permanently.

In addition, the substitute language adopted in Committee included the additional $25 million per year in anti-fraud enforcement, as well as an independent study assessing the need for the regulations and their potential impact on states.  The Committee substitute also incorporated the web-based asset verification system to pay for the moratorium; the Administration had previously suggested that this program be extended as a savings mechanism to finance portions of the farm bill.

Additional Background on Proposed Regulations:  During the past year, the Centers for Medicare and Medicaid Services (CMS) has attempted to move forward on several proposed regulations addressing specific issues and service areas within the Medicaid program.  Many of these regulations respond to Government Accountability Office (GAO) studies and reports by the HHS Inspector General highlighting areas where the fiscal integrity of the Medicaid program needed improvement.  A brief summary of each rule that would be halted by H.R. 5613 follows:

Intergovernmental Transfers:  This rule would limit reimbursement for publicly-owned health providers to costs incurred, narrow the definition of unit of government, and require providers to retain all Medicaid payments, in order to restrain intergovernmental transfers designed primarily to maximize states’ federal Medicaid payments.  A final rule was issued on May 29, 2007; the moratorium currently in place expires on May 25, 2008.  The Congressional Budget Office (CBO) scores this regulation as saving $9.0 billion in federal outlays over five years, and $22.0 billion over a decade.

Graduate Medical Education:  This rule would eliminate Medicaid reimbursement for graduate medical education, on the grounds that reimbursements for medical training are outside the statutory scope of the Medicaid program.  A Notice of Proposed Rulemaking (NPRM) was issued on May 23, 2007; the current moratorium expires May 25, 2008.  Five year estimated savings are $0.8 billion, and ten year estimated savings are $1.9 billion.

School-Based Administrative and Transportation Services:  This rule would prohibit federal Medicaid payments for administrative activities performed by schools and transportation of children to and from school.  In some instances, school districts bill Medicaid for transporting students to and from school, even though this is an educational expense, not a reimbursable medical expense.  In addition, HHS audits found that schools were claiming capital and debt service as “administrative services” subject to Medicaid reimbursement.  The proposed rule would not alter the current policy of reimbursing schools for bona fide medical expenses incurred on school property, such as speech therapy.  A final rule was issued December 28, 2007; the current moratorium expires June 30, 2008.  Five year estimated savings are $4.2 billion, and ten year savings are estimated at $10.2 billion.

Rehabilitation Services:  This rule would restrict the scope of rehabilitation services subject to the federal Medicaid match and eliminate coverage of day habilitation services for individuals with developmental disabilities.  In many instances, CMS has found that states have billed therapeutic foster care as a “bundled” payment, resulting in federal payments for activities related to foster care as opposed to direct medical expenses.  In other cases, state plans for reimbursable expenses include recreational or social activities not directly related to rehabilitative goals.  An NPRM was issued on August 13, 2007; the current moratorium expires on June 30, 2008.  CBO scores this change as saving $1.4 billion over five years, and $3.5 billion over a decade.

Outpatient Hospital Services:  This rule would restrict the scope of Medicaid outpatient hospital services and clarify the upper payment classification for outpatient services to align more closely with the Medicare definition of outpatient services.  An NPRM was issued on September 28, 2007; no moratorium is currently in place.  Five year savings are estimated at $0.3 billion, and ten year savings are estimated at $0.7 billion.

Targeted Case Management:  This rule would restrict the scope of targeted case management services, and specify that Medicaid will not reimburse states for services where another third party is liable for payment.  In many cases, HHS audits have found a lack of documentation related to targeted case management claims, or state plans for reimbursement that fall outside the scope of the Medicaid program’s focus on medical services.  A final rule was issued December 4, 2007, subject to an implementation date of March 3, 2008.  The change would save an estimated $1.5 billion over five years, and $3.3 billion over ten.

Provider Taxes:  This rule would reduce the permissible level of Medicaid provider taxes, as included in the Tax Relief and Health Care Act of 2006 (P.L. 109-432), and would also clarify the hold harmless provision for provider taxes with respect to the positive correlation between the level of provider taxes imposed by states and direct or indirect Medicaid payments from states back to providers.  A final rule was issued February 22, 2008, subject to a compliance date of October 1, 2008.  Five and ten year savings are estimated at $0.6 billion.

In total, the proposed regulations are collectively projected to result in approximately $16-18 billion in savings to the federal government over the next five fiscal years, and more than $42 billion over a decade.[1]  By point of comparison, these savings would constitute just over 1% of total federal spending on Medicaid, which over the next five years is estimated to total more than $1.2 trillion.[2]

Additional Background on GAO Reports of Medicaid Abuses:  Since 1994, the Government Accountability Office (GAO) has compiled more than a dozen reports highlighting problems with Medicaid financing, and specifically the ways in which state governments attempt to “game” Medicaid reimbursement policies in order to maximize the amount of federal revenue funding state health care programs.  The persistent shortcomings in federal oversight of these state funding schemes prompted GAO to add the Medicaid program to its list of federal entities at high risk of mismanagement, waste, and abuse in 2003.

Several of the GAO reports discuss state reimbursement efforts for several of the services CMS proposes to change in its new regulations.  For instance, testimony in June 2005 analyzed the ways in which 34 states—up from 10 in 2002—employed contingency-fee consultants to maximize federal Medicaid payments.  The report found that from 2000-2004, Georgia obtained $1.5 billion in additional reimbursements, and Massachusetts $570 million.[3]  The report concluded that the states’ claims for targeted case management “appear to be inconsistent with current CMS policy” and claims for rehabilitation services “were inconsistent with federal law.”[4]

In other areas, GAO found potentially inappropriate behavior—higher reimbursements for school-based health and administrative services that were not fully passed on to the relevant school districts, and questionable administrative costs, such as a 100% claim on a Massachusetts state official’s salary as a Medicaid administrative cost, even though the official worked on unrelated projects for other states designed to increase their own Medicaid reimbursements.[5]

The GAO reports also demonstrate states’ use of intergovernmental transfers to maximize federal Medicaid reimbursements.  In these schemes, local-government health facilities transfer funds to the state Medicaid agency.  The Medicaid agency in turn transfers funds back to the local-government facility—but not before filing a claim with CMS to obtain federal reimbursement.  Although permissible under current law in many cases, GAO found that these schemes “are inconsistent with Medicaid’s federal-state partnership and fiscal integrity.”[6]

Many of the GAO reports over the past decade—whose titles are listed at the bottom of this bulletin—have included calls for additional federal oversight around various state Medicaid reimbursement initiatives, particularly the need for clear and consistently applied guidance from CMS about the permissiveness of various financing arrangements.[7]  Several of CMS’ proposed regulations attempt to remedy this problem, and restore clarity and fiscal integrity to the Medicaid program.

Additional Background on Medicaid Waste and Fraud: Although much of the debate surrounding the proposed CMS regulations has centered on the proper scope and limits of covered services within the Medicaid program, it is also worth noting the considerable amount of waste and criminal fraud present within some state Medicaid programs.  An extensive investigation published by The New York Times in July 2005 revealed several examples of highly questionable activity within the New York Medicaid program:

  • A Brooklyn dentist who billed Medicaid for performing 991 procedures in a single day;
  • One physician who wrote 12% of all the prescriptions purchased by New York Medicaid for an AIDS-related drug to treat wasting syndrome—allegedly so the steroid could be re-sold on the black market to bodybuilders;
  • Over $300 million—far more than any other state Medicaid program—in spending on transportation services, some of which involved rides for seniors mobile enough to rely on public transportation and other services which investigators believe may not have been performed at all; and
  • A school administrator in Buffalo who in a single day recommended that 4,434 students receive speech therapy funded by Medicaid—part of $1.2 billion in improper spending by the state on speech services, according to a federal audit.

A former state investigator of Medicaid abuse estimated that fraudulent claims totaled approximately 40% of all Medicaid spending in New York—nearly $18 billion per year, which may help explain why New York’s Medicaid expenditures greatly exceed California’s, despite a smaller overall population and fewer Medicaid beneficiaries.[8]

However, other audits emphasize that in some cases, providers can be victims of state efforts to reclaim additional federal Medicaid dollars.  A 2004 report from the Department of Health and Human Services’ Inspector General found that New York state required a nursing home to return more than half of its Medicaid revenues to the state, resulting in net revenues to the nursing home that were $20 million less than its operating costs.  The report noted:

The state’s upper-payment-limit funding approach benefited the state and the county more than the nursing home.  The state received $20 million more than it expended for the nursing home’s Medicaid residents without effectively contributing any money, and the county was reimbursed 100 percent for its upper-payment-limit contribution.  We are concerned that the federal government in effect provided almost all of the nursing home’s Medicaid funding, contrary to the principle that Medicaid is a shared responsibility of the federal and state governments.

The audit went on to note that the high level of Medicaid payments the nursing home was required to return to the state—and the operating losses the nursing home incurred on its Medicaid patients as a result—led to significant levels of understaffing that may have affected the quality of care provided to patients.[9]

Other HHS audits reflect Medicaid reimbursement submissions by states that either lack appropriate documentation for the claims or represent inappropriate use of Medicaid resources.  For example, one May 2003 claim for Medicaid targeted case management reimbursement included the following notation from the case manager explaining her contact with the beneficiary:

Phone call with mother.  Discussed the outstanding warrant for [name redacted].  She does not know where he is.  She will call police when he shows up.

While it may represent good public policy for this type of contact—which attempted to locate a juvenile for whom an outstanding arrest warrant existed—some conservatives would argue that such actions lie outside the scope of the Medicaid program’s intent and represent a far-from-ideal expenditure of federal matching dollars.

Committee Action:  On March 13, 2008, the bill was introduced and referred to the Energy and Commerce Committee.  On April 16, 2008, the full Energy and Commerce Committee reported the bill to the full House by a vote of 46-0.

Possible Conservative Concerns:  Numerous aspects of this legislation may raise concerns for conservatives, including, but not necessarily limited to, the following:

  • Process.  H.R. 5613 is being brought to the House floor under suspension of the rules, a procedure generally reserved for minor authorizations and smaller pieces of legislation, such as the naming of post offices.  Some conservatives may be concerned that a bill costing over a billion dollars is being rushed through House floor consideration under expedited procedures.
  • Budgetary Gimmick.  In order to comply with PAYGO rules, H.R. 5613 would impose a moratorium on CMS action until April 2009—and the legislation contains provisions offsetting the cost to the federal government for all savings not realized through that date.  However, staff for Energy and Commerce Committee Chairman Dingell have publicly stated that H.R. 5613 is intended to delay the implementation of the Medicaid rules just long enough so that a future Administration can withdraw them.  Because withdrawing the regulations would result in approximately $16-18 billion in lost savings to the federal government over five years, and because action taken by a future Administration would not be subject to PAYGO, some conservatives may believe that H.R. 5613’s sponsors intend to violate the spirit, if not the letter, of the PAYGO requirement under House rules.
  • Undermine Previous Republican Efforts to Reform Medicaid.  In December 2005, 212 Members of Congress—all Republicans—voted for legislation (P.L. 109-171) that generated less than $4.8 billion in savings from the Medicaid program as a first attempt to restore its fiscal integrity.  However, if the moratoria remain intact, those modest reductions in Medicaid’s growth rate would be more than exceeded by the $16-18 billion in foregone savings associated with the regulations’ repeal.
  • Encourage State Efforts to “Game” the Medicaid Program.  As highlighted above, nearly three dozen states have in recent years hired contingency fee consultants designed to maximize the portion of Medicaid costs paid for by the federal government.  Blocking regulations designed to respond to funding mechanisms which states and their consultants have established—and more than a dozen GAO reports over nearly 15 years have criticized—may only further encourage states to take steps that increase federal costs and  undermine Medicaid’s fiscal integrity.
  • Harm Hospitals and Other Providers.  As explained above, HHS Inspector General reports have revealed that various funding mechanisms designed to increase federal Medicaid revenues for states have often had the ancillary effect of reducing net payments to providers.  H.R. 5613, by blocking regulations designed to ensure that payments to Medicaid providers do not become ensnared in various schemes by states to increase federal Medicaid spending, may prevent some providers from seeing their net Medicaid payments rise when the proposed regulations take effect.

Administration Position:  Although the Statement of Administration Policy (SAP) was not available at press time, Health and Human Services Secretary Leavitt has previously written to Energy and Commerce Chairman Dingell and Ranking Member Barton indicating that the Administration strongly opposes H.R. 5613 and would recommend a Presidential veto.

Cost to Taxpayers:  A final score of the bill was not available at press time.  However, a preliminary CBO estimate indicated that H.R. 5613’s moratorium through April 2009 on the issuance of seven proposed regulations would cost taxpayers $1.65 billion over five and ten years.  However, as noted above, this score presumes the full implementation of the regulations in April 2009 under a new Administration.  Outright repeal of the regulations would cost $16.5 billion over five years—ten times the cost of H.R. 5613.

Additional mandatory spending—both $25 million annually for CMS anti-fraud enforcement activity with respect to Medicaid, and $5 million for an independent study on the proposed regulations—would cost $129 million over five years, and $254 million over ten.

H.R. 5613 would pay for this spending by extending an asset verification pilot program currently operating in three states to all 50 states, saving $1.0 billion over five years and $4.5 billion over ten.  The bill would also make adjustments to the Physician Assistance and Quality Improvement (PAQI) fund to comply with five-year PAYGO scoring rules, and deposit the additional savings over and above the ten-year cost of the moratoria.  Reports indicate that the $2.6 billion in additional ten-year savings will be withdrawn from the PAQI fund later this year to help finance Medicare physician reimbursement legislation.

Does the Bill Expand the Size and Scope of the Federal Government?:  Yes, the bill would prohibit CMS from taking administrative actions (which are already built into CBO’s budgetary baseline) to prevent states from expanding the scope of the Medicaid program.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?:  No.

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?:  A Committee report citing compliance with House earmark disclosure rules was unavailable at press time.

Constitutional Authority:  A Committee report citing constitutional authority was unavailable at press time.

 

[1] Because CMS proposals with respect to rehabilitation services (estimated savings of $1.4 billion over five years), graduate medical education ($0.8 billion estimated savings), and the definition of outpatient hospital services ($0.3 billion estimated savings) are at the proposed rulemaking stage, CBO assigns a baseline weighting factor of 50% to the proposed regulations, reflecting the uncertainties of the rulemaking process.  Thus, while CBO estimates a total of $17.8 billion in savings over five years if all rules were implemented as currently issued, a permanent prohibition on these seven rules would require $16.5 billion in savings under House PAYGO rules.

[2] Office of Management and Budget, Analytical Perspectives: Budget of the United States Government, Fiscal Year 2009, available online at http://www.whitehouse.gov/omb/budget/fy2009/pdf/spec.pdf (accessed April 1, 2008), p. 383.

[3] Government Accountability Office, “Medicaid Financing: States’ Use of Contingency Fee Consultants to Maximize Federal Reimbursements Highlights Need for Increased Federal Oversight,” (Washington, Report GAO-05-748, June 2005) available online at http://www.gao.gov/new.items/d05748.pdf (accessed March 31, 2008), p. 4.

[4] Ibid., p. 19.

[5] Ibid., pp. 27-29.

[6] Ibid., p. 24.

[7] See ibid., p. 30.

[8] Clifford Levy and Michael Luo, “Medicaid Fraud May Reach into Billions,” The New York Times 18 July 2005, available online at http://www.nytimes.com/2005/07/18/nyregion/18medicaid.html?_r=1&pagewanted=print&oref=slogin (accessed March 29, 2008).

[9] “Adequacy of Medicaid Payments to Albany County Nursing Home,” (Washington, DC, Department of Health and Human Services Office of the Inspector General Report #A-02-02-01020), available online at http://oig.hhs.gov/oas/reports/region2/20201020.pdf (accessed April 20, 2008), pp. 6-7.