Site Changes

From Brady Augustine:

Ladies and gents, this is my last post at MedicaidFrontPage. I have enjoyed my time here but I decided to start my own blog at http://www.medicaidfirstaid.com/.

The new site will be up and running right after the July 4th holiday and will have a similar look and feel to this site but I am open to any suggestions for improvement. Also, the new site will include all of my previous posts from this site. If you have found my posts helpful over the past year, please update your feeds, email subscriptions, and links to point to the new site in addition to this site. I look forward to seeing you on the other side. ~BAA

US Healthcare and Reform

Ok, enough is enough. After years of arguing for the private sector marketplace to reform itself, with all manner of managed care, managed competition, disease management, care management, cost management, consumer directed health management, patient-centered medical home management, chronic care management, Medicare Coordinated Care Demonstration, Medicare Health Support, and many other in which I have personally been involved, I give in. I give in to those who show our medical costs and health premiums are growing faster than our wages.













I give in to the fact that our Medicare and Medicaid program costs are mushrooming.











I admit you only get the "best" evidence-based care about half the time you see a physician. In other words, seeing a physician has many benefits, but expecting a physician to know everything there is to know all the time, well, it only happens about half the time.
I have seen the journal article by Dr. Steve Jencks, showing the inverse relationship between the amount you pay for care and the quality of the care you receive.

And the fact that the number of uninsured, although dropping in 2007 (the latest government data) is still quite high. Although people who are uninsured can get medical care, the amount of cost shifting it takes to fund uncompensated care and the inequity in charging an uninsured person more than the actual cost of care, makes you pause and think there has to be a better way.

Tipping Points

There are three "tipping points" in play that will combine to reform and revolutionize healthcare. The first is the economy. With every 1 percent increase in the unemployed in the United States, there are 1 million new Medicaid eligible persons and 1.1 million uninsured persons. This alone would start the engines rolling on serious health care reform discussions. The fact that the Democrats, traditionally in favor of government instigated health care reform, are in control of both the Executive and Congressional branches of government makes consideration of health care reform inevitable. This past week we saw continued negotiations between Congress and the Administration over the process for healthcare reform this year (which, by the way, tracks the November 17, 2008 predictions of this blog for healthcare reform to happen this year).

But the third impetus for reform is disruptive, and at the heart of American innovation and ingenuity. As we saw this past week, Walmart announced it is entering the electronic medical record market. This is the latest of several Walmart efforts to disrupt healthcare, including low-cost drugs and offering health coverage to most employees. But look for innovations to come from other players, including CVS/Caremark and Walgreens.

With everything that is happening, we will see health reform happen one way or another. Either through government fiat, or private sector disruption - and perhaps both.

Hurry Up...And Wait

Another week in Washington, DC and discussion over the economic stimulus package has taken a back seat to other events. State legislatures, however, don't have the luxury of postponing budget decisions and already are trying to figure out how to balance their budgets. Ultimately the federal government will send funding to states to support their Medicaid programs, but every delay encroaches on state budget timetables, and also results in additional terms and conditions placed on the new federal funding. It will be a very busy winter trying to coordinate developments in the federal government wth realities in the statehouse.

Procedural Reality

After much discussion and deliberation about the size, scope, and details of the $800 Billion economic stimulus package - including how to get it passed before the Inauguration on January 20 - reality set in that the package was too big, too important, and touched too many government programs to be pushed through the political process in such a short time. Not to mention the legislative process, which needs time to physically research the appropriate laws to amend and write the legislative language. Deliberation is still underway on the size and details of the Medicaid relief package (anywhere from $20 Billion to $100 Billion, depending on whom you ask).

Congress This Week

Occupying Congress this week is "Round 2" of the financial system rescue package (aka, bank bailout, or Troubled Asset Relief Program, PL 110-343). The Bush Administration has been asking Congress for the second half of the $700 Billion TARP funding. Now that the President-Elect and his economic team see the same data and agree the economy is still in trouble, they are working with Congress to get the funding released as soon as possible and Congress could vote to release the second half of TARP funding by the middle of this week.

Next week is the Inauguration, when everyone (Democrat, Repubican, and Independent) settles in for a week of partying and bipartisan showmanship. Look for the Inaugural speech by President Obama to address challenges we face, including health care.

So it will not be until the following week of January 26 that Congress will get down to business. By then much of the staff-level deliberation on the size and details of the Medicaid relief package will take shape. Sources tell us the amount for Medicaid is anywhere from $60 Billion to $100 Billion, but these are just the amounts "on the table" without firm commitments. Nevertheless, it is a substantial increase from the $20 Billion first set forth at the start of discussions (especially if the SCHIP program will be funded separately, under a quick reauthorization).

How Much Medicaid FMAP Relief?

How much of the $775 Billion stimulus package goes to healthcare is still being debated, with some suggesting $80 Billion for a Medicaid FMAP increase, and $20 Billion for infrastructure improvements such as health information technology. It remains to be seen whether Congress and the Administration can support $100 Billion in new healthcare funding, but I think that is the upper limit and an outlier given the political realities of the situation. The final tally will depend both on how Congress is influenced in the coming weeks, and what the Administration wishes to hold back for a later health care reform proposal. My hunch is that the Administration will only want to provide funds to replace immediate state Medicaid budget shortfalls, and leave broader issues of health information technology infrastructure to a health reform proposal being assembled for later this year. (see November 17 entry in this blog). Stay tuned, this will get really interesting.

Medicaid Transformation

In October 2008 the government projected the cost of Medicaid will grow at 7.9%, per year, for the foreseeable future – and that was before the economy took a downturn and unemployment shot up. Given the state of the economy and further increases in unemployment, some are now projecting Medicaid expenditures could grow more than 9% in 2009.

The size of Medicaid ($339 Billion in 2008) and rapid growth make it an attractive program for efforts to innovate. The Medicaid program has seen many reform efforts through the years, most recently in programs created by the Deficit Reduction Act of 2005. One initiative explicitly requiring innovation is the Medicaid Transformation Grant Program.

Medicaid Transformation Grant Program

The Deficit Reduction Act was signed into law in 2006, with changes to Medicaid intended to give states greater flexibility in running and reforming their Medicaid programs. The Medicaid Transformation Grant Program is intended to fund pilots that test innovative technologies and methods to improve the efficiency and effectiveness of Medicaid health care services. The statute gives examples of innovative methods the program should fund, including: electronic medical records, electronic clinical decision support tools, e-prescribing, debt recovery from estates of deceased, ways to reduce fraud and abuse, medication risk and therapy management, drug utilization review, and improving access to academic medical centers.

By September 2008, 49 grants had been funded in 35 states, the District of Columbia and Puerto Rico at a total cost of $150 million. A cursory review of the funded projects shows a wide range of technologies and methods being tested:

• 19 Health information exchange/EHR
  
• 4 Verification of eligibility/citizenship
  
• 4 E-prescribing
  
• 3 Fraud & abuse
  
• 3 Predictive modeling
  
• 3 Transparency/Value Based Care
  
• 3 Outcomes improvement/Prevention
  
• 2 Debt recovery
  
• 2 Medication management
  
• 1 Clinical decision system
  
• 1 Automated credentialing

Transformation Grant Update

The Centers for Medicare and Medicaid Services gave an update on the progress of the Transformation Grants in November 2008 at the Fall Conference of the National Association of State Medicaid Directors.

Early lessons from the program reported by CMS include:

• The program is too short as it has taken more time than expected to launch
  
• Health information exchange governance is very difficult to establish given the different interests of stakeholders, the fragmented health system, and other eHealth initiatives already underway
  
• Legal hurdles exist, such as HIPAA, state laws, and business agreements
  
• Roles and responsibilities need to be defined, otherwise there is neither process nor progress
  
• Government procurements take time to implementAutomation of manual processes takes enormous effort and resources

Health Reform Realities

All the Medicaid Transformation Grant projects are using technologies and methods already piloted elsewhere, in either commercial health care or other government programs. As co-chair of a government task force on health information technology I had first hand experience studying many of these efforts. We reviewed much of what has already been done and little in these Medicaid projects is truly novel. Other government demonstration programs, such as the Medicare Coordinated Care Demonstration, used electronic medical records, predictive modeling, clinical decision support, patient self-management tools, medication management, web-based patient and physician portals, and other technologies and methods. In fact, the update and “early lessons” discussed last month revealed nothing that hadn’t already been experienced in other pilots, except that the Medicaid programs are finally catching up to where the leading edge of industry has been for a few years.

Perhaps the true novelty is the fact that Medicaid is allowed to innovate? Relaxing federal regulations and seeding projects will spawn new thinking and allow state Medicaid programs to begin breaking the chains of government mandates that constrain innovation and conflict with how the health care system really works. In addition, as we learned the hard way in the Medicare demonstrations, chronic care coordination is very different for an elderly and low-income population than for commercial health insurance (one of the Medicare demonstrations I ran for my company had dual-eligibles, presenting unique challenges). The Medicaid Transformation pilots will help demonstrate how these technologies and methods work for low income and disabled persons.

What Next?

The next official, public update of the Medicare Transformation Grants will be at the first Medicaid Health System Transformation Summit on January 4-7. This is also an opportunity for the grant recipients to exchange information on what works – an important step for innovations to course correct and succeed.

The pilots are scheduled to end March 2009, but most of the grant awardees have requested extensions through Spring 2010, to allow completion of the projects. The future of the program, however, is not clear unless it is reauthorized by Congress. Other ways to fund the Transformation projects include new HIT grants in an economic stimulus package or as part of the SCHIP reauthorization in Spring 2009. Also, one of the Obama campaign promises was to spend $10 Billion annually on health information technology, which could be used to continue funding the Transformation projects.

President-Elect Obama in his upcoming Saturday (January 5) address to the country will continue to reiterate his interest in spending on HIT when he says "to save not only jobs, but money and lives, we will update and computerize our healthcare system to cut red tape, prevent medical mistakes and help reduce healthcare costs by billions of dollars each year."

Finally, some suggest state Medicaid programs should not be allowed to experiment with reforms - instead the federal government should implement a national reform for everyone. In the coming debate over health care reform it will be interesting to see which side prevails: supporters of federalism, or supporters of centralized authority.

Health Reform Sooner Than You Think

Federal government led health care reform will happen, soon. For years we have anguished about the number of uninsured, poor quality of care, and high rate of medical cost inflation. Since the Clinton proposal was rejected in the early 90s nothing dramatic has happened to ameliorate these matters. On top of it all, the current fiscal crisis would appear to dampen any ability to address our health care problems, especially by a Democratic party previously embracing significant government spending as a way out of the problem.

But just when you thought health care reform was "off the table," we will see a number of foreseen and unforeseen events coalesce to make health reform not only likely, but imperative. Let me briefly review the current landscape, describe why timing is right for significant health reform, and discuss what will happen next and why you need to act now if you want to participate in the next great wave of change. (NB: this is not arguing for or against federally mandated reforms, just an evaluation of the current state of affairs, and reasons why things are different than previous times we attempted to change the health system).

The Obama Mandate

On November 4 we elected a new President with a mandate for change. Although President-Elect Obama assiduously avoided focusing on health care, due to advisors' concerns about this "third rail" of politics, the campaign did set forth a proposal that (according to The Lewin Group) significantly reduces the number of uninsured persons by providing new health insurance coverage for 27 million of the 45 million uninsured. The Obama plan would:

• Require employers to provide health insurance or pay a tax,
  
• give insurance premium subsidies to persons with low to moderate incomes,
  
• mandate coverage for children,
  
• expand the Medicaid program to cover low-income adults,
  
• create a national Health Insurance Exchange, modeled after the Federal Employees Health Plan, giving insurance options for persons without employee health insurance, self-employed persons, small employers, and other individuals without coverage,
  
• regulate health insurance to prohibit pre-existing condition exclusions and individual underwriting, and require a minimum benefit package,
  
• give small employers a tax credit to purchase health insurance for employees,
  
• cover catastrophic expenses through a federal government reinsurance program, and
  
• require care coordination and health information technology for federally funded programs.

Nothing in this proposal is earth shattering, however collectively it will significantly impact the health system. It remains to be seen whether these changes will actually result in reductions in either health spending or the price of health insurance.

Call To Action, Health Reform 2009

On November 12 the Senate Finance Committee, led by Senator Max Baucus (D-MT) released a health care reform proposal in their document "Call To Action, Health Reform 2009," which would mandate health insurance coverage for everyone. Employers would have to provide insurance or pay a tax. Individuals and small businesses would be given income-based subsidies to purchase insurance through a national Health Insurance Exchange (modeled after the federal employees health plan). Significant expansion of government programs is also envisioned, including a Medicare "Buy-In" for persons aged 55 to 64, Medicaid for all persons below the poverty level, and SCHIP coverage for all children up to 250 percent of the poverty line.

The only major difference with the Obama plan is the universal mandate, already underway in Massachusetts, where we are learning much about unintended consequences and the challenges of implementation. Moreover, there is broad and bi-partisan support for many of the cost containment and quality improvement elements of the Baucus plan. Again, it remains to be seen whether any of these policy ideals will actually contain costs.

Chance of Becoming Law

The elements of both proposals, and whether they over-regulate health insurance, certainly can be debated. More important, neither Obama nor Baucus propose anything dramatically new. Rather, these are the latest in a long string of policy pronouncements and initiatives to reform healthcare going back before 1993 when the ill-fated Clinton proposal was launched. These latest proposals embody the latest thinking based on reforms already implemented in various states (e.g., Massachusetts), and policies already discussed in Congress for years (such as health insurance modeled after the federal employees plan, wellness and prevention, and health information technology).

Whatever the reform plan, timing is auspicious for health reform to be signed into law before the end of 2010 for fundamental reasons having nothing to do with the substance. First, health reform is popular as demand for health reform has increased dramatically. The economic downturn has refocused the private sector on the growing burden of health costs and the potential to bankrupt companies such as General Motors. State Medicaid programs also are feeling the pinch caused by decreasing tax revenues and increasing number of persons newly eligible. Health reform would appeal to many Members of Congress seeking a solution to complex issues.

Second, the process favors health reform. Our system of government is open to public scrutiny, has many levels of bureaucracy resulting in longer time to deliberate, more "touch points" to influence legislation, and significant critical mass needed for major legislation to pass - especially for an issue as complex as health care finance and delivery. There is a natural cycle to major initiatives, requiring considerable time for legislation to be developed, refined, debated, voted, and signed into law.

My years in the US Congress, White House, and since then as a "legislative advocate" include working on, and getting signed into law, several major bills. My experience is that it usually takes ten to fifteen years of debate before major reforms become law. For example, after the prescription drug benefit in the Catastrophic Health Act of 1988 was repealed, it took 15 years for a comprehensive Medicare prescription drug benefit to be enacted in 2003. As the person who led the process that developed the Clean Air Act of 1990, I was fascinated to learn the law had not been reauthorized in 14 years. The fact that major health reform was last seriously considered by Congress and the White House in 1993 is not insignificant, as critical mass for reform has been developing for the past 15 years. Major legislation is even more likely if the changes are perceived as being evolutionary, rather than revolutionary. Both the Baucus and Obama proposals are striking in that they are not radical departures from the current system, but build on a number of state reforms and other initiatives already debated or underway.

Finally, Democratic control of Congress and the Executive branch give additional momentum to issues such as health care. There is a brief, two-year window of opportunity at the beginning of any new Presidential term when significant issues can be addressed – before politics divert attention away from substantive reforms and towards the re-election process. Moreover, the current economic slump will increase the appetite for reform due to the high and growing cost of health care for businesses and government programs such as Medicaid, Medicare, and TRICARE. In light of the $700 Billion rescue package for banks, might there be $100 Billion annually available for the health and welfare of Americans? It could even be argued that health reform will help stimulate the economy by providing health insurance for everyone, and soften the economic downturn by reducing the financial burden of healthcare for businesses and individuals. At a minimum this might be good for the health industry as health insurance plans get increasing member volume, but perhaps at lower margins.

Next Steps

Both Congress and the new Administration have health reform proposals, with hearings going back decades in the former institution and a campaign proposal developed in the latter – with input from health policy "wonks" that have been deliberating the issues for decades. Although not set in stone, these proposals are now being further developed in the Presidential Transition to be announced in President Obama's Budget in late January 2009, and by Congressional Committees to be introduced in Congress when they convene again in February 2009. By then the general outline of reform will be established, with Congress taking the lead as the Administration is steeped in the quagmire of the economy. Hearings will be scheduled for Spring 2009 to bring all interested parties together and further refine legislative language.

By August 2009 legislation will be drafted, allowing constituent review during the August recess and triggering Congressional consideration before they adjourn in November for their mid-term break. Typically with significant legislation there will be constituent push-back and lobbying pressure, leading to some kind of “summit” meeting in September where Congressional and Administration officials come together to discuss their various constituent stakeholder interests. Several times I have been involved as a government official in these legislative denouement, and they usually result in “horse trading” where compromise is the rule and nobody fully wins or loses. The lesson learned is to make sure you talk early and often to whomever may ultimately represent your perspective, know where you have both support and opposition, and track the players carefully.

Legislation could be passed as early as October 2009, with changes to Medicaid and Medicare laws pushed through in the budget reconciliation process – requiring a simple majority (instead of the 60 vote majority to avoid Senate delay, see blog by Ezra Klein for more). If the legislation is too contentious, it can be set aside for Congress to take up again when it reconvenes in February 2010 for the second half of their two year term. This delay will also allow Congress and the Administration to work out any contentious issues, making it easier for Congress to pass legislation.

Conclusion

Everyone agrees that health care finance and delivery in the United States needs to be improved. Until now we have had neither the consensus to allow change, nor the events necessary to force change. My thesis is that we currently have a rare confluence of events (including financial crisis, change of power, policy ripeness, political will, and 15 years of policy debate experience) to trigger serious consideration of health reform. Given all the variables involved in passing major legislation, it will be difficult to stop the momentum beginning to build behind health care reform.

Innovation-Based Medicaid Reform

The country has entered a recession. Medicaid will be hard hit. An economic stimulus package will come to the rescue. Should the stimulus package be used entirely for short term consumption of health services, or could it be used for long-term transformation of healthcare?

Last week unemployment was reported to be 6.5% in October, with some predictions in the Wall Street Journal that it could exceed 8 percent next year. The impact on Medicaid is outlined in a recent report by the Kaiser Commission on Medicaid and the Uninsured, noting that every 1% rise in unemployment results in a 1% increase in Medicaid/SCHIP enrollment, a $1.4 Billion increase in state Medicaid spending, and a 3-4% decline in state tax revenues.

States are clamoring for an economic stimulus package, which will be used partly to fund the anticipated increase in Medicaid spending, and the states are likely to get an increase in their FMAP funds. Congressional hearings, and recent pronouncements by the Obama Transition Team, indicate they are looking at an economic stimulus that is timely, targeted, and temporary. These principles will have a short-term impact, designed to effectively spur a slow economy. But why can’t economic stimulus also give long-term, transformative benefits by focusing on innovation? A new report by Robert Atkinson calls for an “innovation-based economic stimulus package.”

The Medicaid program has seen numerous attempts at reforms since the program began in 1965. A Special Report on Medicaid by the Pew Center on the States shows every state has implemented a variety of projects attempting to manage better Medicaid costs and quality. Some of these initiatives have succeeded, but more can be done.

Rather than focusing only on short-term consumption of health services, wouldn’t it be better to use some of the economic stimulus to help find long-term solutions? The current economic crises affords a rare opportunity for short-term stimulus and long-range reform.

Impact on Health Insurers of Democratic Majority

A recent article in the Wall Street Journal assesses the impact on health insurers of Democratic rule. The article indicates health insurers are looking to get new business from policy changes due to the upcoming Democratic control of the Administration and Congress. The article also indicates, however, other Democratic supported policies will cut health insurer reimbursements.

Will the increase in one program and cuts in another just be an economic wash? Will health insurers truly see more business coming their way? Democratic control will result in significant policy changes, with important implications for the future of healthcare in this country that could help or hurt health insurers depending on how they are positioned. What is certain is that significant change is coming, which could result in winners and losers.

The article talks about two separate issues: additional funding to programs for low income persons, such as Medicaid and SCHIP on the one hand, and reductions in funding to Medicare Advantage and especially PFFS plans, on the other. The argument is that although potential Medicare Advantage cuts are now ever more likely, other public programs will see increasing spending and "net-net" the health insurers "could actually grow slightly more" under Democratic rule. For this to happen, however, the health insurers will have to deftly maneuver through a policy and legislative quagmire.

The seeds of the current environment, and the policy debate, have already been sown. Reauthorization of the SCHIP program caused a stalemate last year between Congress and the Administration, resulting in temporary reauthorization that has to be revisited by April 2009. The physician payment "sustainable growth" quandry helped make health insurers a target for reimbursement cuts in the effort to find funding to avoid physician cuts. Kinks in new programs, such as "Private Fee For Service" Medicare health plans and Special Needs Plans increased Congressional oversight and skepticism. State expansions of Medicaid coverage have begun to strain government budgets, resulting in rate changes and cuts. Compounding the matter are other background issues including the current economic downturn, growing unemployment, commercial membership attrition, state budget deficits, a large uninsured population, increasing government entitlement program liabilities, and higher costs of medical care.

What impact will all this have on health insurers? The Wall Street article is fair, and quotes a number of insurance company executives who assure they are ready for the change, but belies the fact the debate has been ongoing for years. As a result, policy positions are known and it is likely the pace and magnitude of change will increase, especially in the current economic environment, with far reaching consequences for publicly funded programs.

A research report, by the investment research firm Sanford C. Bernstein, cited in the WSJ article indicates changes in government may cause health insurance industry revenue to grow slightly, but with narrower margins. I contend the health insurance industry is going to grow anyway, because it a huge industry with the infrastructure and economic incentives to grow. The question remains what will be the impact on health insurers of the impending changes in government policy, how will they grow?

Under the circumstances growth will not come the same way it has in the past five years when Medicare business helped defray the cost of commercial business and both saw expansion in market share. Instead health insurers will be doing less high paying Medicare business, more high-cost chronic care Medicare work, less commercial business, and more low-margin Medicaid and SCHIP work. In this environment you will only stay in business if you have a good balance of Medicare and Medicaid business, use effective medical cost management, and can work in an environment shifting to higher volume with lower margins.

The good news is that many health insurers were set up to effectively manage high volume health care. Health information technology, transparency, gain sharing models, and other innovations have helped. On the other hand, higher payment rates in the past five years also resulted in complacency by some insurers. The changing political and policy landscape will force health insurers to change they way they do business, and could cause some companies to go out of business or drop government-funded programs. The one thing certain in this environment is change.