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John Gorman and Nathan Goldstein discuss what is next for Government Healthcare in this podcast. Download the recording here.
Federally Facilitated Exchanges: The draft application for qualified health plans
In at least 23 states, governors are allowing a "Federal takeover" in the form of a federally facilitated exchange (FFE). Now, CMS has published the first draft of the application that health plans need to complete to become a qualified health plan (QHP) in the CMS FFE. To be sure, the exchange regulation allows individual exchanges flexibility in defining rules and operations, provided they meet the basic requirements. This flexibility applies equally to how CMS interprets its role in operating exchanges in the FFE states.
Notwithstanding the publication of proposed rules around benefit packages, actuarial equivalents, risk adjustment and accreditation two weeks ago, the draft QHP application gives us only a glimpse at the sub-regulatory requirements an insurance provider must meet to qualify for a FFE contract. It is normal that laws beget regulation that change into sub-regulatory requirements in the form of manuals, applications and memos. The process is painstaking, long and aggravating as the government attempts to re-explain or respond to every question -- especially for new programs. So early adaptors, beware. There were approximately 100 promises of additional guidance in the final exchange regulation published in March. This draft application puts only a small dent in that promised guidance.
More importantly, for health plans who were expecting to be approved by sending CMS a copy of their state license and a benefit package, the draft application provides real meaning to "Federal takeover". The FFE application is effectively a new licensure process since each health plan is an unknown to CMS. Familiarity with a state regulator has almost no meaning, and a new set of judgments and evaluations are applied. CMS wants to see your state license first, but you will also need to explain that you are solvent and are in good standing with the state. For basics, CMS asks for extensive administrative data on the organization and its staffing. If there are corrective actions in place, CMS will determine if they are sufficient.
The draft application notes that multiple areas will have additional information added over time. One undefined, major area is a new section that will address parameters for network adequacy that may or may not agree with state licensure requirements. Also, a separate listing is required for a new, undefined provider category for essential community providers. No doubt, this section will undergo its own evolution. Additionally, for the FFE, CMS adds new requirements. For example, there is no exchange regulation for a compliance plan. However, for operating in the FFE, it's required.
Similar to applications for Medicare Advantage and Part D, FFE health plan applications will be submitted electronically. This includes the usual complexities given the nature of the systems used by CMS for validation and document uploads. A series of attestations is used to ensure that plans have reviewed requirements.
In the Medicare Advantage and Part D world, manuals and memos provide sub-regulatory guidance that defines these requirements. However, there is little or no sub-regulatory guidance for the FFE attestations. So far, only regulations are cited and, as noted above, there are over 100 places in the exchange regulation where future guidance is promised.
Finally, requirements for benefit plans and risk adjustment are in their comment period and are destined to become a part of the application. At the same time, the application promises that it will change over the next few months before it is final in early Spring 2013. However, the draft application clearly indicates to us that CMS will engage in a serious regulatory process. Clues to their methods have been firmly established in processes used in Medicare Advantage and Part D. Given the expected timeframes, health plans need to identify resources that can efficiently provide the right kind of responses during what promises to be a tumultuous startup to 2014.
The Path to a Deal on the Fiscal Cliff
Outside the Beltway Bubble it must look like we're about to go all Thelma & Louise off the fiscal cliff. In fact, each day the path to a deal becomes clearer, as brilliantly displayed by our friends at WaPo's WonkBlog. The one thing that is crystal-clear: the final deal will piss off everyone.
Medicare Advantage Plans Need the "Doc Fix" More Than Docs Do
Predictably, the "Doc Fix" has become a political football in the fiscal cliff discussions here in Washington, and it continues to have huge bearing not just on physicians but Medicare Advantage plans as well. You could say MA plans need the "Doc Fix" more than docs do.
The Sustainable Growth Rate (aka the SGR) is a formula established by Congress in the Balanced Budget Act of 1997, and sets an annual expenditure target for traditional Medicare physicians' services, based on the annual growth in per capita expenditures for physician and related services. Spending in excess of the target is supposed to produce an off-setting reduction in physician fees. Spending below the target has actually generated fee increases, which, of course, made the situation worse in the following year. As the Congressional Budget Office put it: "the SGR method allows spending per beneficiary to grow with inflation, with [some] additional adjustments."
In 2002, for the first time the SGR generated a cut to physician fees, of 4.8%. In 2003, the SGR would have cut an additional 4.4%. Instead, Congress increased fees by 1.7% (an annualized swing of 6%, although only effective for 10 months). In 2004, the SGR would again have cut physician fees, by 4.5% -- but Congress increased fees by 1.5%...and so on to this very day. The SGR calculation is cumulative, so each year, the overrides and increases are added to the SGR, compounding the problem. The cut to occur on January 1, 2013 is projected to be 27%.
In an ideal world, Congress would use the lame duck session to fix this once and for all. After all, those who were going to lose have lost, those who were going to win have already won, new members don't arrive until January, and the next election is nearly two years away when the half-life of any political memory is about six weeks. There's never been a better time to enact the doc fix.
However, the fiscal cliff, and the remaining intransigence of the far right of the House Republican caucus, make things difficult. A permanent "doc fix" costs about $245 billion. Legislators who are pledged to reducing the size of government programs are going to have a hard time voting to add that much to Medicare, even though everyone knows that Congress will add at least that amount on an annual basis anyway.
So once again, we're likely to see a one-year fix at the last minute, kicking the can down the road another year, and again leaving doctors wondering about the viability of Medicare participation if they are going to get jerked around on an annual basis.
And, Medicare Advantage friends take note: this isn't just a physician headache. The SGR is costing Medicare Advantage plans a ton of money. While Congress consistently holds physicians whole, albeit often in the 11th hour, the SGR gets baked into the Medicare Advantage benchmark calculations. The correction to Medicare Advantage benchmark payments lags a full year. By then, a new SGR cut has been calculated, a cut probably bigger than the last. So the retroactive correction for last year's predicted cut that never happened is offset by including the next year's cut in the benchmark calculations. That's why temporary fixes continue to depress MA rates, while a permanent fix would boost them 5-6% two years later -- essentially offsetting the MA cuts that helped fund health reform. And it's why MA plans need the doc fix to happen more than docs do.
As Lewis Carroll said, "The hurrier I go, the behinder I get."
Of course they should! (But not for the reason you may think)
The New York Times reports that Hospitals fear they may bear the brunt of Medicare cuts. I should hope so! But not because they are wildly profitable at the expense of efficiency and innovation elsewhere.
To be wildly profitable itself is, in my book, no sin. But that's moot in this case: the average hospital in the US breaks even—barely—as Forbes recently noted. The fact that a small number put major dough on the bottom line only makes them like restaurants in the way that a few are able to monopolize a local market while most limp along. Just because Wolfgang Puck can buy an island doesn't mean your brother's pizzeria will thrive.
As the insanely smart Clay Christensen has postulated in The Innovator's Dilemma, hospitals are expensive because they are conflations of three highly contradictory business models: the first of these is the "Solution Shop," as typified by a consulting or law firm. These business are well-matched for the Fee-for-Service payment model. Where hospitals are concerned, this is the realm of their diagnostic and intuitive medicine activities. The value they create here is inherently open-ended. The reimbursement structure should be as well. The NYT's own "Diagnosis" Series is a brilliant example of this.
The second of these is the "Value Adding Process" business, as seen elsewhere in manufacturing, restaurants and education. Take something and do stuff to make it better. Like a pizza. Or a knee. This is best financed through a fee-for-outcome model. "I will pay you $12 for that lunch." When Atul Gawande wrote recently about what the Cheesecake Factory can teach hospitals, it was no doubt these types of medical procedures that he had in mind. Lasik surgery or knee replacements are a good match for his famous "Checklist Manifesto." One need only to look at medical tourism to see how the market has responded as hospital execs lumber along under the weight of overhead which does not drop as the price of a new hip does.
The last of these three models is the "Facilitated Network." Think of your own insurance company. You pay to get access to a risk pool. Another example from healthcare that is slowly taking off is the communities of patients (cancer suvivors, people living with diabetes) who add value with each other through social networks. One can certainly imagine many ways a thriving network of 5 million diabetics could make its sponsor a little cash.
In that hospitals are inefficiently organized, they are expensive. In that they are expensive, they have sown the seeds of their own destruction. As the market and policymakers alike look for oxen to gore, there are few better options. Time will tell if the hospital business model can disentangle itself and reorganize before the entities holding these companies crash and burn.
What Health Care Federalism Looks Like
Insurers are beginning to grumble about the state-by-state variation in Exchange design as implementation bears down on the industry. Fierce Health Payer has a quick summary of the griping here. While I can't blame them for their frustrations (hey, we have to figure out all 50, too!) I do wonder how they would feel about the alternative: a national exchange whose model may not adequately recognize the dramatic differences in how care is delivered by geography, demography, provider culture, et al. Just look to the Medicare Advantage program and its challenges thus far in creating a quality rating system that does not properly account for the challenges in caring for a rural population.
Curious to know your thoughts, dear readers, on the virtues of the open vs. closed models….
Democrats Painting Themselves Into a Corner on Entitlements in Fiscal Cliff
It took no time for Democrats to walk back the growing momentum on an eligibility age increase for Medicare: last week House Minority Leader Nancy Pelosi and prominent Democrats in the Senate slammed the door on that idea. So today several Senate Democrats floated a key Medicare concession to try to get to yes on the fiscal cliff: higher premium payments for wealthy seniors, or means testing. Problem is, like an increase in eligibility age, it won't get them very far in terms of savings. It doesn't add up to enough to appease GOP deficit hawks, and it really pisses off liberals who see means testing as a slippery slope to a welfare-like Medicare.
So the Dems are saying no to increasing the eligibility age on Medicare; no to touching Social Security; and no to cutting Medicaid. A number of Senate Democrats are saying they can hold their nose and support means testing if it means the GOP will raise taxes on the top 2 percent of wage earners and if it's part of a significant deficit reduction plan. There's overwhelming opposition among Democrats to going any further, which means they're painting themselves -- and President Obama -- into a corner on entitlements.
The President broke with Democratic orthodoxy when he agreed tentatively to raising the Medicare age in last summer's doomed debt-ceiling talks with House Speaker John Boehner. The President proposed additional Medicare means testing in his deficit reduction plan, and the idea also showed up in last year's deficit-reduction list between Vice President Joe Biden and House Majority Leader Eric Cantor.
Obama has offered up $600 billion in cuts to health-based entitlement programs and non-mandatory programs, including a proposal that saves $350 billion by overhauling bulk purchases of prescription drugs as well as Medicare means testing. But the President is demanding $1.4 trillion in new taxes, including raising marginal tax rates on families who earn more than $250,000. Boehner has floated $800 billion in new taxes from closing unspecified loopholes and deductions as well as $1 trillion in cuts, including out of entitlement programs. So you can see the path to a deal by splitting the baby: $800 billion in entitlement cuts, and $1.1 trillion in new taxes.
Both the President and House Republicans released proposals in 2012 that would require more seniors to pay a means-tested premium. House Republicans would have reduced the income level from $85,000 to $80,000 for individuals and $170,000 to $160,000 for couples. The President would have charged more to the wealthiest 25 percent of seniors. Obama's plan would have saved $20 billion over 10 years, but other plans have been estimated to save more than $200 billion.
Senate Finance Committee Chairman Max Baucus (D-MT) said he's more open to means testing than moving the entitlement age from 65 to 67: "It's more fair." Senate Majority Whip Dick Durbin (D-IL) and Budget Committee Chairman Kent Conrad (D-ND) are advocates of the proposal, and other Democrats are open to it as well.
The GOP says means testing is only a first step, arguing that Medicare, Medicaid, Social Security and the Children's Health Insurance Program (CHIP) consume over 40% of an annual Federal budget of $3.6 trillion. They insist more structural reforms are necessary. Democrats are nervous that Obama will be excessively conciliatory on entitlement cuts in his negotiations with Boehner and will expect their votes to support any agreement he can reach.
Leaving themselves such a skinny path out of this wilderness will make the home stretch on the fiscal cliff a tough slog for Democrats.
Health Affairs: Medicare Advantage is Crushing Fee-for-Service
Two new Health Affairs studies this month brought further evidence that Medicare Advantage (MA) is crushing traditional fee-for-service Medicare in quality, and that the world's largest experiment in risk adjustment is working in MA.
The first study suggests that members of Medicare plans "might use fewer services and be experiencing more appropriate use of services than enrollees in traditional Medicare."
The second suggests that the government has succeeded over the past decade in reducing favorable risk selection in MA plans by introducing diagnosis-based risk adjustment, a lock-in period for members, and expanded plan types.
The studies together paint a compelling picture that MA plans are crushing traditional Medicare in cost containment without necessarily serving the healthiest members, and that risk adjustment has the desired effect.
Raising the Medicare Eligibility Age and Its Implications in the Fiscal Cliff Negotiations
You'd never guess from what you see in the news, but the fiscal cliff negotiations are proceeding on two tracks and there is a deal to be done in the coming weeks. One track is public: the screeds in the media and parliamentary chicanery on the Hill, all with the goal of proving their ideological purity to their respective bases and beating the crap out of the guys across the aisle. Speaker Boehner last Friday: "There isn't a progress report, because there's no progress to report." That piece has been depressing as hell to watch. Didn't we do this with disastrous results last August? The two parties are like little boys with toys.
The other track is private: the horse-trading going on behind closed doors by Boehner and President Obama. There, a deal is coming together. What we see is a game of chicken between Democrats and Republicans -- Dems won't budge on entitlement cuts and Republicans continue to reject any tax increases on the wealthy -- and at some point in the next two weeks, one party will blink. And the path to a deal is this: raise tax rates a little, giving Democrats a win, but not all the way back to 39.6 percent, giving Republicans a win. They'll cap some tax deductions as well to generate more revenue.
The bigger question is what Republicans will get on the spending side of the deal. There will be cuts to Medicare -- we're thinking in the neighborhood of $400-500 billion -- and the big concession from the Dems is likely to be an increase in the Medicare eligibility age from 65 to 67. It's not great policy as it would disproportionately impact minorities and hospitals and wouldn't actually save much if anything, but it has huge symbolic importance for deficit hawks and Tea Partiers, so it represents an outsize bone for the President to toss in. That's why you see Nancy Pelosi screaming it's a non-starter -- they're making it tastier for the right.
Sarah Kliff from WaPo did a terrific post today on the five biggest implications of an increase in the eligibility age. She points out that the change would move about 5 million seniors out of Medicare, and back to their employers' insurance, into the exchanges, or into Medicaid if eligible. A whopper of a finding: "as the federal government saves $5.7 billion in 2014 by spending less on Medicare, (employers and Medicaid) would spend $11.7 billion more providing the same health care benefits." Not much of a saver there -- but red meat for budget cutters.
Transition Readiness
As AEP comes to a close on December 7, we are well into the time that organizations need to make sure that new members receive all of their required materials, including their identification cards. Having the annual election stretch to December 31 in the past was certainly to an organization's advantage from a sales perspective, but it was an operational challenge when it came to ensuring those late applicants had access to services on day one.
In regards to access to services, there is no time like the present to make sure your Part D transition policies and procedures are in place, functional, and operational. (In fact, there's no time like the past to have done this already.) CMS identified in their September 10 memo that transitioning new and existing members is a best practice, insomuch that it eases administration and all beneficiaries are treated as new in order to meet the transition requirements. However, plan sponsors tell me that this is not always feasible, and thus they implement the minimum requirements necessary.
So what is the requirement you ask? Plan sponsors must provide a temporary fill when the member requests a refill of a non-formulary drug (including Part D drugs that are on a plan‟s formulary but require prior authorization or step therapy under a plan‟s utilization management rules) within the first 90 days of coverage under a new plan. This 90 day time frame applies to retail, home infusion, long-term care and mail-order pharmacies. Failure to do so was a common finding in the 2012 program audits. CMS found that incorrect transition logic or edits had been applied, leaving some transition-eligible drugs to be rejected.
Think about what the obligations are as outlined in the Prescription Drug Benefit Manual Chapter 6 (as well as all subsequent guidance), and ask the right questions of your PBM to ensure this process is in place. Not only that, but to share the wise words of a former manager of mine, "Trust but verify." Review your rejected claims on a daily basis and analyze if any rejections are inappropriate, and if so, do what's needed to ensure members get their drugs. Failure to do so, in my opinion, is one of the most serious reasons that CMS may find a plan in breach of their Federal contract. Your Medicare Compliance Officer will soon be attesting to seven questions specific to Part D transition via the 2013 Readiness Checklist. Give him or her the confidence to attest favorably by means of robust documentation, including test results that demonstrate functioning logic and appropriate edits, and a plan for focused daily rejected claims review.