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.
The New Post-Reform Core Capability for Health Plans: Risk Adjustment
Medicare Advantage and Part D have for years been the world's largest experiments in paying insurers more for the care of sick members while paying less for healthier members, or risk adjustment. Some two dozen states now risk-adjust Medicaid payments to health plans, and the hundreds of Accountable Care Organizations (ACOs) launching this year and next are risk-adjusted as well. Now that the election has been decided, we know that health plans operating in the insurance exchanges launching in 2014 will also be risk-adjusted based on a similar methodology to that used in MA and Part D. It's the new core capability for health insurers in the post-reform world, and it's examined closely by my two top experts, Bill MacBain and Dr. Jack McCallum, in this month's Managed Healthcare Executive magazine here.
An Old Friend's Newest Challenge: Rein in Massachusetts' Health Costs
An old, dear friend of mine and fellow XLHealth Board member, Stuart Altman, was just appointed chief of healthcare cost containment for Massachusetts' ground-breaking reform effort -- a harbinger of things to come nationally as the Affordable Care Act now hurtles toward implementation. The local NPR affiliate did a great interview with Stu that I wanted to share here. As always, Stu brings tremendous insight and a sense of history and trends to his work, and as goes Massachusetts, so will go the rest of the country in 2014 and beyond.
"Massachusetts is the first state to say that health care costs must stop increasing faster than that of most other goods and services. Prof. Stuart Altman, a Brandeis economist who advised President Richard Nixon on health policy and President Bill Clinton on Medicare, has responsibility for helping the state achieve that goal.
Gov. Deval Patrick recently named Altman to chair the Health Policy Commission, the new board overseeing the sweeping cost-control law. The board, whose other members were announced last week, will monitor progress toward keeping health care spending in line with state economic growth overall. While he's "hopeful" the state can meet this goal, Altman notes that many attempts have failed over the years. WBUR's Martha Bebinger spoke with Altman about the challenge. Here is an edited transcript of that interview:
How do you see this new role?
Massachusetts has put together the best kind of balanced program that I could think of in the country, where it is relying at one level on the many changes that are going on in the private sector. But it also has put together an overarching public assessment of what's going on to make sure that it works, and it actually brings cost down without hurting quality.
If the changes that are currently in place don't do that, this commission is responsible for giving an early warning sign. So we don't have direct regulatory power to force the system to change, but we do have a monitoring role to make sure that it is working. If it's not, [we would] first direct the delivery system and the payers to change, and if that doesn't work, we could also recommend back to the legislature that the state needs more authority.
On one level I'm pretty optimistic. The level of changes that are occurring in the state are really very substantial. And I would say that the delivery systems, including our very big delivery systems, they really are seriously trying to restructure to live within a tighter budget than they had in the past. And the payers too -- Blue Cross, Tufts and Harvard also -- are tightening up the reins and not giving big increases.
But I've been around a long time and I've seen other years and other decades when after a while the cost-containment mechanisms in place began to fall apart, and did fall apart. So while I'm going into this quite optimistic, I also have a degree of skepticism so I'm going to be watching it pretty closely.
You have seen interest in reining in costs wax and wane. How do you rank this period?
If we look back in history we had very strong government regulation environment in the early and middle 1970s, actually put forward by a Republican administration. It looked like the government was going to be a very strong regulator of growing health care spending. We had wage and price controls from '71 to '74. We created health planning agencies all over the country. We had tough certificate-of-need laws.
And then as we move through the '70s we gradually dismantled it all and by the end of the '70s, it was all gone. Then we had a very brief period when the providers had what we called a "voluntary effort" to control their spending. All that fell apart and we had the biggest growth in our history in the 1980s.
Then we introduced managed care, which was extremely effective in slowing the growth in spending, but it was perceived by the patients — and the beneficiaries and the press — as a system that was holding back access and quality. We had this strong backlash and we essentially destroyed managed care by the end of the ‘90s. So I've seen both the private sector fall apart and the government sector fall apart.
Now, I think what's being done is smarter, and not quite as aggressive as the ‘90s, which I think is a good thing. If you're too aggressive you're going to get a lot of backlash too quickly. So I give it a higher probability of success than either the ‘90s or the ‘70s, and I am hopeful.
What's your main worry?
There are two:
Ultimately the constraints begin to hurt certain segments of the provider community, [and they] begin to put out statements to the patients that they're being denied needed care and we begin to develop a new backlash. So I think patients need to be part of this equation and we need to be balancing their needs with the people that pay the bills, so that's one side.
Massachusetts can only be so far ahead of the rest of the country. If inflation really begins to rear its head again in the rest of the country, the likelihood that Massachusetts would be able to really have a significantly lower level of spending growth is hard to hold on to. I'm going to be very conscious of trying to minimize any backlash and I'll also be watching what's going on in the rest of the country.
For patients, are things moving along now in terms of communicating clearly with patients as you think they should?
No. I don't think patients really understand these limited networks and tiered networks and ACOs and the like. I think there needs to be an expanded consumer education program. Also I think we need to do it smarter. You don't force a patient into any one delivery system, you just make it more expensive if they jump out of one to the other, which continues to gives them the choice. What happened in the ‘90s is that often they had no choice, they had to be at a particular network and they couldn't jump out.
So I think we've learned something in the last 20 years. If we're going to ask organizations to have responsibility for total spending of a particular patient population, [the patients] need to know they're in a particular group, but they also need to have the flexibility if for some reason they want to get out. I think we need to better educate our consumers and patients, but I think we've also learned from the ‘90s, so I'm hopeful.
This story is part of a reporting partnership that includes WBUR, NPR and Kaiser Health News.
Election Gives Health Reform the Kiss of Life
It's hard to argue this wasn't a decisive victory for the President and Democrats in the Senate. What remains to be seen is whether intractable Congressional Republicans will come to the table to get stuff done.
While it was a distant #2 issue in exit polls, this election was a de facto referendum on health reform. The ACA will not be repealed and is now assured to be Obama's lasting legacy. The "repeal and replace" campaign -- over three dozen repeal attempts in Obama's first term at taxpayer expense of more than $50 million -- is over. The GOP fought the ACA fiercely but I expect it will be hugely popular by 2016. Our hope is that Congressional Republicans will lay down their arms and help shape the ACA's implementation so they can share the credit when it's as successful as Medicare Part D has been. House Speaker John Boehner made some welcome gestures this week, asserting that "ObamaCare is the law of the land" and that the repeal agenda is over. We'll see.
Here are some thoughts on what happens in government health programs now that the election is over:
Sequestration and Fiscal Cliff: the 2% across-the-board sequester will not happen and the two parties will make a deal on the fiscal cliff that leaves everyone pissed — like compromise is supposed to. The political dynamics strongly favor the President, as his ideal scenario — raising taxes on the wealthy to accompany budget cuts -- occurs without any legislative action, and nothing happening in Congress is always a safe bet these days. Any deal reached will now involve both entitlement cuts and tax increases, we'd guess in the neighborhood of $2T or roughly half that recommended by the Simpson-Bowles Commission, and it will have bipartisan support.
"Doc Fix": The Sustainable Growth Rate (SGR) or the "doc cut" will be fixed, but it has to be paid for — and that's the obstacle both parties struggle with. MA rates are profoundly impacted by this issue, and Congress's inclination to deal with it through annual increments rather than the 10-year price tag in CBO estimates means that MA plans must wait until the next year's rates are announced. The discrepancy between how and when MA rates are set vs. FFS means that MA plans are never really made whole. It's a tremendous challenge for our industry — and an enormous windfall for MA in 2014 and beyond if Congress solves the problem.
Exchanges: Many Red State governors held out hope the election would settle whether they must prepare for health reform. The 11th hour means most have been caught flat-footed and the Federal Exchange will operate in over 30 states and will be the defining marketplace for health insurance starting in 2014. Far-right governors in Kansas and Virginia will eat the Federal fallback; Wisconsin Governor Scott Walker is now scrambling to get his own exchange together, and a handful of others may follow. It's one of the supreme ironies of Obama's reelection: the governors who screamed loudest of a "government takeover of health care" are about to get just that for their inaction, when the Federal Exchange comes to town in 2014.
Medicaid: most, if not all, of the 7-8 Red States who opposed expansion following the Supreme Court ruling will fold and take the expansion funds in the next 90 days — it's just too good a deal to pass up. Most of the 16 Million new Medicaid beneficiaries envisioned by the ACA — many childless uninsured adults -- will be assured of coverage in a second Obama term.
Dual Eligibles: The migration of dual eligibles to health plans will now move forward in more than two dozen of states in the next two years. The state fiscal crisis will overwhelm concerns about the speed of the migration, and it will result in over $200 Billion in new annualized premiums for plans in the next 3 years. The duals are now affirmed as the biggest opportunity for health insurers in a generation — bigger than the exchanges. They're also the most vulnerable, complex and expensive patients in the entire US health system and will challenge health plans like never before.
Medicare Advantage and Part D will continue on the course set by the ACA, and we expect the consolidations within the industry to accelerate with the election's uncertainty resolved. Look for a much tougher CMS in a second Obama term, with a continued increase in oversight, bolder regulations raising the bar, and a tougher compliance posture from CMS for Medicare Advantage and Part D plans.
- The Stars program's current trends will continue: Standards will change every year and underperforming plans will be hunted down and eliminated. CMS may get moving on SNP-specific rating standards, as SNP plans will be in trouble soon without them. Plans with 4+ Stars will continue to get bonuses and rebates under the ACA, but 2013 will usher in a new era of sub-3 Star plans being shut down by a much tougher CMS.
- CMS will keep trying to find a better way to risk adjust. We expect an attempt to recalibrate the HCC coefficients based on encounter data, which will change the dynamic: Plans will have to find missing codes to avoid being cut, rather than getting paid more. How CMS adjusts for the FFS error rate will be crucial.
- SNP and 1876 reauthorizations will both get paid for, but we need a vehicle to get the 1876 extension quickly, since it expires the end of December 2012. SNPs expire at the end of 2013, and so have more time for reauthorization.
Medicare: We expect Medicare will serve as a piggy bank for deficit-reduction proposals, given its size and fiscal situation.
- The Ryan/Wyden Medicare reform proposal will be debated as a gesture of "cross the aisle" goodwill from the President, but won't come close to enactment. But "premium support" will go mainstream in the debate and become more palatable over time — it reeks of inevitability and Democrats must come to the table to save the program we all hold so dear. The discussion begun by Ryan and Wyden must have its day.
- We expect the cuts that have been considered in prior budget proposals will be back on the table, including: fraud detection, reforming Medicare cost sharing rules, restricting first dollar coverage in Medigap, extending Medicaid drug rebates to duals and LIS, and more means testing. Provider cuts will also be on the table, especially for hospitals.
- An increase in the eligibility age to 67 is a possibility. But unlike with Social Security, deferring the eligibility age merely cuts off the lowest-cost tail of the distribution. The cost reduction would be disproportionately small compared to the number of people politicians would upset.
ACOs: with the ACA intact, the truly astounding surge in ACOs participating in Medicare, Medicaid and the commercial market will continue. Over 100 ACOs are already operating in Medicare. Over 500 applications were received by CMS for the September filing deadline for the Medicare Shared Savings Program, and over 300 ACOs are active in the commercial market and Medicaid reforms. With the election ACOs are here to stay as the bedrock contracting vehicle for the evolution and enrichment of forward-looking providers.
While it ended up a "status quo election" it gave the Affordable Care Act an indelible kiss of life and ushers in one of the biggest changes in our domestic policy in a generation. Now it's time to get down to the real work of implementing it.
Public and Private Exchanges
It appears that Medicare beneficiaries who use the most health care services and are often considered the least able to shop over the internet for health insurance may have been the trailblazers for how health insurance will be purchased in the future. Medicare took a first step in the 1990s when it created a voluntary online marketplace where Medicare beneficiaries could select a Medicare Advantage private plan from the government run internet site "Medicare Compare". Medicare expanded the experiment when it implemented the Part D prescription drug plan benefit in 2006. At that time, all seniors and disabled beneficiaries who were not covered by an employer drug plan were required to shop and select from an online menu of new prescription drug plans during a short open enrollment period.
The automobile industry can be credited for targeting Medicare retirees in 2008 when it began a major shift from group health insurance plans to individual plans offered through a private Medicare exchange operated by Extend Health. The financially strapped auto industry cushioned the move from defined benefit plans to defined contribution health plans by offering cash to cover additional benefits and Extend Health "coordinators" to help Medicare retirees choose an individual insurance policy from a menu of private plans. Other private sector employers cautiously followed and the Extend Health private exchange serves 130 employers and 200,000 retirees. Employers report savings of $400 million annually in retiree health insurance costs and a substantial reduction in administrative burden.
This year Towers Watson bought Extend Health with plans to broaden the private exchange to serve employers in the commercial market. Aon Hewitt also announced plans to expand its private exchange to serve the commercial market. On September 27, 2012 the Wall Street Journal in a front page article discussed how two large employers, Sears Holding Group and Darden Restaurants Inc. are "planning a radical change in the way they provide health benefits…giving employees a fixed sum of money and allowing them to choose their medical coverage and insurer from an online marketplace". This shift is different from the auto industry shift since employees will still remain in employer group plans and will not select from plans in the individual market. The online marketplace operated by Aon Hewitt will offer 150,000 Sears and Darden employees 5 plans which is substantially fewer than the up to 30 plans offered by Medicare. The Journal reported that this move will be closely watched since it "might parallel the transition from company provided pensions to retirement 401k". Several recent surveys of employers find that 40 percent expect to participate in a private exchange over the next three to five years driven largely by the CFO's interest in cost savings.
On a separate track, health care reform is building health exchanges or marketplaces that will be available in October 2013 for individuals and small employer groups to purchase health insurance. The ACA exchanges are projected to provide insurance to 16 million persons. Large employers will not be eligible to participate in the ACA exchanges until 2017.
The developments under the ACA are spurring large employers to rethink their current retiree health care options. With the loss of the tax benefits from the Retiree Drug Subsidy in 2013, many employers are moving their Medicare eligible retirees into Employer Group Waiver Plans, either Medicare Advantage or Prescription Drug Plans. This trend will continue. Other employers will consider private exchanges. The 2012 Retiree Health Care Survey conducted by Aon Hewitt reports that 63 percent of employers have either made or plan to make retiree strategy changes in the near future.
So the trend is clear - increasingly Medicare retirees and active workers and their families will be using health exchanges, either public or private, to select their health care insurance in the future.
Open Enrollment and Star Ratings for 2013
Open enrollment season has started and CMS has posted the star ratings for each Medicare Advantage (MA) plan and Prescription Drug Plan (PDP) on the Medicare.gov website, which is the official site beneficiaries use to get information on their plan choices. Five star plans get a special gold star icon and have special enrollment periods. Higher performing MA plans also receive higher bonuses. Low performing plans are also designated by a special icon on the Medicare website. Most MA plans whose rating fell will see a decrease in their payments in 2014.
The good news is that overall plan ratings improved in 2013 compared to 2012. 127 MA plans had four or five star ratings compared to 106 in 2012. These represent 23 percent of all MA plans and 37 percent of all MA enrollees. The average MA-PD star rating weighted by enrollment is 3.66 percent compared to 3.44 percent in 2012. Five star plans are marked with a gold star on the Medicare Plan Finder and these include: Kaiser Foundation Health Plan (6 separate plans), Group Health Plan, Group Health Cooperative, Gunderson Lutheran Health Plan, Humana Wisconsin Health Organization, Health New England.
PDPs also improved in 2013 compared to 2012. 26 PDPs had four or five star ratings compared to 13 in 2012. The average star rating in 2013 is 3.30 compared to 2.96 for the 2012 ratings. 30 percent of PDPs received the highest ratings and these served 18 percent of enrollees. Five star PDPs with gold star ratings on the Medicare website include Excellus Health Plan in New York, Hawaii Medical Services Association Wellmark/Blue Cross Blue Shield in the upper Midwest and Northern Plains, Catamaran Insurance of DE.
The number of low performing plans declined for 2013, For 2013, 26 contracts received 2.5 stars or lower for the last three years of which 10 are MA plans and 16 are PDPs. In 2012, 30 plans were designated as low performing. 20 of the low performing plans from last year either improved their ratings, withdrew their contract or consolidated.
MA plans and PDPs have a number of concerns about the methodology used to establish the star ratings, including the age of the data (e.g. the 2013 ratings are based on 2011 data), the frequent changes in methodogy and the difficulty in improving scores from year to year. For most plans these ratings are good news and the star rating has gone up for most measures from 2012 to 2013. Three new measures focused on care coordination and improvement. For MA-PDs, the national average for the care coordination measure was 85 percent or 3.4 stars. Non-SNPs performed better on this measure than SNPs. The measure for net improvement showed that MA contracts on average achieved a score of 3.1 for Part C and 3.4 for Part D while PDPs achieved an average score of 4.1. However approximately 10 percent of the plans will see a lower bonus as a result of their new lower ratings and plans with 2.5 stars or less for three years in a row face the possibility of termination from the program.
http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/PerformanceData.html
Medicare Advantage in 2013: Stronger Than Ever
CMS recently released the September 2012 enrollment figures and market data on Medicare Advantage (MA) offerings for 2013, and the numbers show a program that's stronger than ever and defying all predictions. It's proof that this industry is capable of adapting to the new market conditions brought by the Affordable Care Act.
CMS says Medicare Advantage will grow by around 1.24 million members in 2012: individual Medicare enrollment has grown almost 800,000 lives this year, while group employer plan membership is up 200,000 lives. Special needs plan (SNP) enrollment is up nearly 100,000 lives. These are astounding figures for a program most on Capitol Hill thought would be in its death throes by now.
CMS estimates average member premiums will increase by 4.7% while MA enrollment is projected to grow by 11% -- or roughly another 1.5 million -- in 2013. MA plans will offer nearly 43,200 distinct MA product offerings and nearly 11,900 SNP offerings in 2013; the industry clearly remains heavily committed to MA despite a cloudy rate outlook with the ACA's payment cuts beginning to be felt next year. 32% of MA/SNP products are zero-premium in 2013 -- exactly in line with the 2012 ratio.
Humana will again offer the most MA/SNP plans (12,125) for the 2013 MA plan year, again dominating the Medicare market with over 22% of the entire MA/SNP market in 2013. Humana continues its expansion with increased network-based HMO and PPO products by nearly 16%.
Overall HMO/PPO products expanded by 21% for 2013. PPO products will account for 63% of Humana's product portfolio in 2013. United Healthcare expanded its product offerings by nearly 250% to 10,155 distinct products in 2013 from 2,939 in 2012. This growth was largely driven by the acquisition of XL Health and its vast SNP product portfolio earlier this year. Of the other major Medicare players, WellCare and United will offer the highest mix of zero premium non-SNP MA plans at 90% and 86%, respectively.
MA plans are also extraordinarily positioned for the migration of some 9 Million dual eligibles that will begin transitioning to plans in 2013. The number of Special Needs Plans (SNPs) available will increase by 61% in 2013 to 11,881, rapidly outpacing the 21% growth rate in 2012. United's SNP product portfolio is expanding by over 800% due to its acquisition of XL Health, and is now the leading SNP carrier in the market by a wide margin.
CMS expects 11% enrollment growth, so the MA market will continue to grow as a percentage of overall industry revenue in 2013. The average MA member premium rate increase of 4.7% should also provide some offset to weak-to-falling rates from CMS as the ACA cuts take effect. However, overall pricing in MA will remain muted and Medicare cost trends are creeping up slightly -- so MA margins will likely compress in 2013, an indication that plans will trade margin for membership as the ACA cuts become the norm over the next few years.
Anyway you look at it Medicare Advantage is thriving and a resounding success -- and provides the best blueprint going for reform -- both of Medicare itself, and the health system more generally as the ACA is implemented in 2014.
Time to Reauthorize Special Needs Plans
Special Needs Plans (SNPs) are a special type of health plan for America's most vulnerable and complex seniors that are set to expire at the end of 2013. Over 500 SNPs serve more than 1.5 million Medicare beneficiaries across the United States. Done well, the SNP significantly improves outcomes and brings down costs thanks to personal care planning, care-transition assistance, disease management, and medication therapy management. Not all SNPs are good at what they're designed to accomplish, but there are many providing patient-centered, coordinated care to vulnerable populations showing signs of success -- the program should be allowed to continue.
There are three types of SNPs since their launch in 2006: Institutional SNPs serve individuals who reside in institutional settings or are eligible for skilled nursing. Chronic SNPs serve individuals living with multiple chronic conditions, such as diabetes, congestive heart failure, and end-stage renal disease. Dual-eligible SNPs serve those eligible for both Medicare and Medicaid (MediCal in California).
An April 2012 study found that SCAN Health Plan's dual-eligible members had a hospital readmission rate that was 25%lower than dual eligibles with identical risk profiles in Medicare fee-for-service. The study also found that SCAN performed 14% better than fee-for-service on keeping people out of the hospital for preventable conditions and episodes of care.
A five-year extension for SNPs would stabilize specialty care for the 1.5 million beneficiaries in SNPs while continuing the progress they are making in reducing emergency department visits, hospitalizations, re-hospitalizations and nursing home stays. An extension would also allow states, if they choose, to construct their duals and long-term care demonstrations on a SNP framework, and allow time to evaluate findings from SNPs so that CMS can work with Congress to enact a permanent program going forward.
We Love Us Some Kitzhaber...Medicaid Reform Genius
It's happy days for us when Sarah Kliff at WaPo, one of our favorite bloggers, posts a great "get" with Oregon Governor John Kitzhaber, MD -- one of our favorite Medicaid reformers. It was such a terrific interview I wanted to reprint it here, with thanks to both for an illuminating discussion of the way forward on reforming entitlements:
Interview: Gov. John Kitzhaber on Oregon's $1.9 billion Medicaid experiment
"Oregon is in the middle of a multibillion-dollar Medicaid experiment. It has promised the Obama administration it can slow the program's growth to a rate comparable to the rest of the economy over the next two years. That means reducing Medicaid cost growth, on a per capita basis, by 2 percent.
If Oregon can't pull it off, the state stands to lose $1.9 billion in federal funds meant to jump start that process. As Oregon Gov. John Kitzhaber (D) put it, his state has "to change how you do business in order to survive."
The new business plan, he says, is to pay doctors for the quality of health care they provide, rather than the quantity. The idea is to eliminate expensive care that doesn't improve health care — a readmission, for example, for an issue that should have been solved on a first hospital visit. The structure is similar to the Accountable Care Organizations that the Affordable Care Act created in Medicare.
Oregon's revamped Medicaid program launched at the start of this month. We spoke at length about the risks involved in the new project, how it's going and whether it can be expected to improve the health of Oregon's Medicaid recipients. What follows is a transcript, lightly edited for grammar and content.
Sarah Kliff: What's changing on the ground right now in Oregon about how Medicaid patients receive their care?
Gov. John Kitzhaber: The Coordinated Care Organizations have only been up since Sept. 1, but essentially the model is a patient-centered medical home. Each person will have a single point of contact with the delivery system, some sort of a care manager. We'll increase our use of home health workers to essentially try to manage chronic conditions at home. Then there will be financial incentives. If hospitals can, for example, reduce admission rates by five per thousand, those cost savings get shared within the system. They don't go off to a third party.
SK: The Obama administration has given you an additional $1.9 billion to put toward improving your system for this project. How is that money being spent?
JK: We had a big hole in our budget. Providers did take an 11 percent cut, notwithstanding this money. This basically prevents any further cuts to the system. It gives us five years to get the delivery model up and running and realize the savings. It's like changing a car tire while you're driving down the road. You have to maintain the current delivery system while changing it. It gives us the resources to do that.
SK: What's at stake for Oregon here? If you don't hit the cost metrics that you've promised, what happens?
JK: The $1.9 billion is contingent on this gradually ramping down of costs. Chunks of those resources go away if we don't achieve those cost metrics. There will be resources pulled out of the system which will make it more difficult. The real incentive is if we don't transform the system, we go back to the 40 percent cut. There's no more money. This is one where you really have to change how you do business in order to survive. I think the system appreciates that. The grand bargain was they give us the flexibility, they give us $1.9 billion, we reduce the Medicaid cost trend by 2 percent points per member by the end of the second year and improve health outcomes. That's the grand bargain.
SK: How will the administration measure what counts as higher quality care? How do you safeguard against providers skimping on care?
JK: There are metrics we're developing with [the Center for Medicare Services] about patient outcomes and population health metrics. So this is clearly unlike an old HMO, which could save costs by skimping on care.
There will be some things we won't do, but they will be things that don't have an impact on health outcomes. If you can manage someone with congestive heart failure in their home, which is not that hard to do, you save $50,000 every time you avoid them going into the hospital.
There will be clear, specific outcome measures and they're around access, they're around relationship to outcomes. Right now, payment is all about quantity. The more you do, the more you get paid. We're shifting to outcomes-based and performance based-funding.
SK: You're looking at a two-year timeline that you'll be measured on both spending reductions and quality improvements. What kind of health care outcomes can you change in that relatively short time span?
JK: I think what you're going to see is some significant improvements in access. You may see some reductions in low-birth weight infants. If you provide good prenatal care, you can actually see that return pretty quick. Hopefully we'll see an increase in the number of kids who are immunized.
The real big cost savings we're probably not going to see until the end of the second year. Those will be the results of reducing hospitalizations and better managing chronic conditions at home. One of the metrics might be how many times someone with a chronic condition has come had to go to the hospital.
SK: I want to talk a bit about how your proposal compares to the idea of a block grant that some of your Republican counterparts have proposed. Both essentially make a trade off, saying the state could spend less if it's given more flexibility. What do you see as the key differences?
JK: Let's say you have 100 people and a block grant that allows you to spend $100 per person. Let's say the auto industry goes belly-up and now instead of 100 people, you've got 200 people. Now you're only spending $50 per person.
There's no relationship between the block grant and the cost of the care you're trying to provide. It's a meat ax approach that just saves money. It's not designed to improve health outcomes.
What we're doing is we're establishing a per person, per year amount that will grow at a fixed rate. If you add 10 people, they still get that amount. The cost savings are in the rate of inflation. The only way you can achieve that is change your delivery model.
One of the conversations we had at the White House, was they said, ‘let's say we give Oregon this $1.9 billion and increased flexibility. What's to keep us from giving this to other states?' I said, "well, if another state came to you — lets say New Jersey."
Let's say Gov. [Chris] Christie came you and said, "We will promise you that if you give us X amount of money, we will reduce our medicaid inflation rate to 3.5 percent. We'll increase access, we'll improve outcomes." I'd say, give them the money because if every state did what Oregon is doing, the total saving is $1.5 trillion over five years.
SK: Have you heard from other states who want to try the approach you're taking?
JK: Right after we got the money, we had about 10 states call us up and say how'd you get that money. We haven't had anyone else follow up and say, we want to do it too. I think part of it is due to the election cycle. After the election, when states are faced again with dealing with stuff, I think a lot of states will look at what we're doing. It's actually up now.
Part of this is just good communication. This is hard. It's a big paradigm shift. You need to sit down together so you don't feel like you're all by yourself. You need to figure out what's working and what isn't. What can the state do to facilitate this.
SK: What are the biggest obstacles to making this work?
The biggest challenge is the old business model. People are used to having this unfettered flow of cash that increases every year coming into the health care
What we've signed up for is basically a cap on spending. Even if you figure out a way to raise more money, you can't spend it in the Medicaid program. We're getting there slowly with that. The other big piece is making sure that the private sector knows its in their interest to align their purchasing power with the 900,000 people we have or else some of this is going to be a cost-shift onto them.
SK: How did you get hospitals on board with this? Why should they get behind the idea of essentially capping the amount they can earn from Medicaid?
JK: At the end of the day, they know this isn't working…The lack of resources is what's really driving and motivating people to change. They know the alternative is worse than this.
The interesting thing is, I have to remind them of this all the time, and say let's not do this, then what's your world like? It doesn't look good at all. You have to continually remind them that the alternative is just a whole lot worse for them.
Newbies Slow Dual Eligible Expansion in Key States
After last week's AHIP conference on Medicare and Medicaid and MANY coffees and cocktails later, a picture emerged that the only thing slowing the movement of dual eligibles into health plans isn't nervous advocacy groups or overstretched regulators -- it's newbies to the game of caring for the nation's most vulnerable patients.
Dual-eligible expansion has slowed in key states due to the influx of a number of inexperienced plans in states like Florida and New York — Florida in particular, where provider-sponsored plans and other late-comers are popping up like mushrooms in response to the state's long-term care integration RFP. Ohio has selected its plans in a tortured process, but many are newcomers to duals and many influential providers are in disarray, slowing momentum. By contrast, California is moving apace — in counties with experienced plans like Orange and Los Angeles, while delaying implementation in counties covered by plans with little or no track record.
Some interesting challenges lay ahead for Melanie Bella's Office of Federal/State Integration at CMS, which has handled the surge admirably but now needs to balance quality priorities against Medicaid agencies that want fewer strings attached despite the flood of newbies. At this stage CMS's pipeline and market intel suggests the following states to watch:
|
Year |
Early Adopter States |
|
2013 |
MA, CA, FL, IL, OH, MN, WI |
|
2014 |
AZ, HI, NY, TN, TX, WA, ID, MI, OR, RI, SC, VA |
To address the "newbie" phenomenon, I suspect in many of these states some very strange bedfellows will emerge, like Blue Cross/Blue Shield plans partnering with large provider systems or traditional Medicaid-focused plans. Stay tuned — it ain't easy getting a $200 billion market off the ground among companies with precious little track record in serving those who need their services the most. The launch of Part D will seem like a milk run once this transition is complete.