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Some of My Best Friends are in Private Equity

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By PAUL LEVY

Like moths to a flame, private equity investors are quick to pounce on those sectors of the economy that have the potential for higher than average returns. Such investors also have an appetite for the higher risk that accompanies those sectors. In this manner, private equity can serve a useful role in capital formation for the economy. It also helps money managers who want a portion of their portfolio to be in that part of the risk-reward spectrum.

Health care is a fertile field for private equity. You might not think so because of concern about rising costs, but as someone once said, “One person’s costs are another person’s income.” Let’s look at it this way. First, more people will have access to insurance to pay for diagnosis and treatment because they will be newly eligible for private insurance under the national health care reform law. Second, demographic changes in society are producing an ever-increasing demand for health care services. Longer lifespans and the aging population offer a growing number of people with cancer and the other diseases that are more likely to occur with age. The number of Medicare beneficiaries is projected to rise from 46.6 million today to 78 million in 2030. (It was 40 million in the year 2000.)

It is with this background that we should consider the growing interest by private equity in proton beam facilities. You have heard before about my real concern about the cost impact of rapid expansion of the number of such facilities.

I want to expand on that today and give you a sense of how the dollars work in this kind of investment. I have pointed out how the Medicare rate-setting process contributes to its profitability. Let’s look at this in very rough form.Continue reading…

Creating Value-Based Incentives For Primary Care

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By BRIAN KLEPPER & DAVID KIBBE, MD

In a remarkable recent interview, Donald Berwick MD, Administrator of the Centers for Medicare and Medicaid Services (CMS), eloquently described his vision of value-based health care.

Paying for value is an incentive…The underlying idea of improvement is that American health care, historically built in fragments, often cannot achieve for patients what it really wants to achieve…Health delivery system reform refers to really reconfiguring care into much more seamless coordinated-care operations so that people, especially those with chronic illnesses, experience continuity of care over time and space.

So when patients come home from the hospital, there is a smooth handoff, and all the necessary information follows them. When they are seeing a specialist, that specialist is coordinating care with their primary care doctor.

This description probably resonates with most health care professionals as a better approach than the current paradigm’s fragmentation and lack of continuity of care. But as with many things in health care, it won’t be easy getting to a value-based health care approach in Medicare and Medicaid. Despite wide acknowledgement that fee-for-service perpetuates our health system’s most undesirable characteristics, the mainstream of American health care seems stuck. One wonders whether CMS can rise above the special interest lobbying, get beyond the interminable pilots and decisively act on payment reform with the conviction required to help save health care from itself.

Still, the idea of value-based reimbursement begs questions. What payment methodology will incentivize the best quality and most efficient care? What path can take us there?Continue reading…

Is the ACO DOA? Reasonable Minds Can Improve the Draft Regulations

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By DAVID HARLOW

In the current all-ACO, all the time, health care policy news cycle, we’ve been inundated with declarations that the ACO is dead, because a handful of big boys say they don’t want to play.

Today, CMS announced that it is tinkering with the proposed ACO rules by offering three variations on the ACO theme (link to press release; see also CMS ACO fact sheet).  From the fact sheet:

  • Pioneer ACO Model: The Innovation Center is now accepting applications for the Pioneer ACO Model, which will provide a faster path for mature ACOs that have already begun coordinating care for patients.  The Pioneer ACO model is estimated to save Medicare as much as $430 million over three years by better managing care for beneficiaries and eliminating duplication.  And it is designed to work in coordination with private payers in order to achieve cost savings and improve quality across the ACO, thus improving health outcomes and reducing costs for employers and patients with private insurance.
  • Advance Payment ACO Initiative: The Innovation Center is seeking public comments on whether it should offer an Advance Payment Initiative that would allow certain ACOs participating in the Medicare Shared Savings Program access to a portion of their shared savings up front, helping providers make the infrastructure and staff investments crucial to successful ACOs.  Comments should be submitted by June 17th, 2011.
  • Accelerated Development Learning Sessions: Providers interested in learning more about the steps necessary to become an ACO can attend an upcoming series of Accelerated Development Learning Sessions.  These convenient and free sessions will help providers learn what steps they can take to improve care delivery and how to develop an action plan for moving toward better-coordinated care.

Together with the Medicare Shared Savings Program, the initiatives announced today give providers a broad range of options and support that reflect the varying needs of providers in embarking on delivery system reforms.

CMS has recently hinted that it will be rejiggering the rules to encourage physician-led ACOs, too (an approach I have previously endorsed).Continue reading…

HIT Trends Summary for April 2011

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By MICHAEL LAKE

This is a summary of the HIT Trends report for April 2011.  You can get the current issue or subscribe here.

Europe. European progress reports on HIT show us that it’s evolving along many similar lines to current US efforts.  One report highlights beacons of e-prescribing in Sweden and Estonia where scripts are stored centrally and available from any pharmacy.  European states are also pursuing funding national centers of excellence in HIT. They are implementing EMR-like systems mostly less comprehensive than the US (34 countries); telehealth, most notably in the UK; and ID cards (24 countries).  Governments are funding and because of that, also assessing results.

There are also success stories in cross-border health information exchange on a new website that gives us a comprehensive view into European HIE activities.  There’s a report by the European standards community exploring barriers to personal health device interoperability, an issue that is holding back the world’s telehealth market.  And CSC announced it is buying iSOFT, a subcontractor that’s been struggling, in hopes of faster progress in the UK’s National Programme for IT.

Incentives. Provider incentives have been in the news.  CMS released a report on its quality (PQRI/PQRS) and e-prescribing (MIPPA) incentive programs for 2009 with providers earning $5,000 on average.  Disincentives for the e-prescribing program begin in 2012 and the quality program in 2015.  Quality data will be available over time on the CMS Physician Compare website.Continue reading…

Medicare Announces Rules For Quality Bonuses To Hospitals

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By JORDAN RAU

Medicare took its broadest step yet in moving away from its traditional hospital payment method, finalizing a plan to alter reimbursements based on the quality of care hospitals provide and patients’ satisfaction during their stays.

The initiative is the beginning of a transition from paying hospitals on the basis of the amount of care they provide. Many health care researchers believe this fee-for-service system has encouraged unnecessary care, driving up costs and giving hospitals no incentive to economize.

Medicare’s new “value-based purchasing” program was mandated in last year’s health care law. It has sparked less discussion than has another experiment to change Medicare’s payment system through accountable care organizations, where a select group of doctors and hospitals get bonuses if they find ways to save money.

But this latest payment change affects twenty times more hospitals than would ACOs. More than 3,000 acute care hospitals will have their payments adjusted starting in October 2012.Continue reading…

Can Berwick Be Saved? Here’s One Possible Scenario

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By BOB WACHTER, MD

We’ve all had the experience of hearing someone we know well say or write something totally out of character, and wondering, “what was that about?”

Don Berwick said such a thing last week, all-but-contradicting President Obama’s support for a strengthened, independent Medicare payment board. After a little head scratching, I began to wonder whether this might have been a harbinger of some good news regarding his tenure as Medicare czar.

This is one complicated political dance, so let me explain.

Berwick, as you know, received a recess appointment to lead the Centers for Medicare & Medicaid Services (CMS) last July, after his nomination had become hopelessly entangled in a web of partisan politics. I applauded President Obama for the appointment, and predicted that Don would do a great job in this crucial role, perhaps even wooing some of the Republican legislators who hijacked his nomination process to re-litigate the fracas over healthcare reform.

Then, in early March, Senate Republicans made it clear that they would not support Berwick’s continued tenure when his recess appointment expires later this year. The reasons include lingering concerns about Berwick’s politics (particularly his embrace of the British system of universal healthcare coverage), continued anger over the Affordable Care Act (ACA), and some peevishness over the recess appointment itself. In this space last month, I promoted a letter-writing campaign to try to save the Berwick appointment, though insiders told me it was “hopeless.”Continue reading…

The Rashomon of Health Care: Why the Government is Promoting and Hindering ACOs at the Same Time

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By DAVID DRANOVE

As I have previously blogged, a centerpiece of the Affordable Care Act (ACA) is the promotion of Accountable Care Organizations (ACOs). The Center for Medicare and Medicaid Services is banking on the financial incentives of ACOs (through “shared savings”), combined with over 60 pay for performance quality metrics, to promote efficient, high quality medical care. Providers are certainly taking notice. Hospitals are acquiring physician practices in numbers not seen since the 1990s and many physicians are thinking of starting their own ACOs. For the federal government to so aggressively promote the reorganization of health care delivery is unprecedented. (I am willing to debate those of you who remember the HMO Act of 1973.)

It must have quite a shock to CMS when the Federal Trade Commission announced its antitrust guidelines for ACOs. (These can be found here, especially pp. 21896-21899). I won’t dwell on the details but suffice it to say that the proposed test is likely to have a high false positive rate (challenging many ACOs that are not anticompetitive). And while the FTC lacks the resources to investigate every new ACO, the new rules certainly pose an obstacle to integration. So why is the FTC standing in the way of CMS? The answer may be found in one the masterworks of the great film director Akira Kurosawa.

In the movie Rashomon, four men witness different moments of what might or might not have been a heinous crime. Testifying at trial just three days later, the men attempt to describe the entire terrible episode from their own limited perspectives. The healthcare event whose details are in dispute occurred not three days ago, or even three years ago. And it wasn’t just one event, it was the entire decade of the 1990s. I believe that support or opposition to ACOs depends critically on how one views that lost decade.

Those who adamantly support ACOs – that includes most of my health services research colleagues, especially those still working in Washington to implement the ACA – view the 1990s as a lost opportunity. During the 1990s, hospitals merged with each other and with their medical staffs to create integrated delivery systems. IDSs were the forerunners of ACOs. They were supposed to coordinate care, accept shared financial risk, and give us greater efficiency and quality. Leading health policy analysts at the time could not wax more enthusiastic about how IDSs would change the system. And health providers were eager to jump on the bandwagon; IDS were hailed as “a new wave becoming a tidal wave.” (There were a few naysayers, including this blogger and my friends on the faculty at the Wharton school.) Unfortunately, the IDS wave crashed. Few IDSs saved money or raised quality; many lost their shirts.Continue reading…

Comparing Hospitals on Safety, Quality and Cost

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By MERRILL GOOZNER

The Sunlight Foundation today gave us a fascinating first peak at the hospital safety data from the Centers for Medicare and Medicaid Services, which was finally convinced to release the information after years of stonewalling by the American Hospital Association. For the first time, the public can compare less-than-stellar performance at competing local hospitals on key indicators like catheter or urinary tract infections or bed sores.

As their story points out, the data only cover about 60 percent of hospitals since many states, like Maryland, failed to cooperate with the voluntary CMS program. They also caution that any comparison of the raw numbers must take into account the numerous confounding variables that can make one hospital look more slipshod in its practices than another. Some hospitals take in many more older and poorer patients, who are more likely to have multiple chronic conditions that make them prone to complications during their hospital stays.

Yet as Arthur Levin of the Center for Medical Consumers, a New York-based advocacy group, pointed out, “”I think it’s fair (to release the data) as long as everybody agrees on what the limitations are, and what the caveats are. There are those who say this data isn’t ready for prime time and public review. If we waited for perfection, we wouldn’t have anything out there.”Continue reading…

Primary Care Revolt: Replace the RUC

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By RICHARD REECE, MD

An under-the-radar revolution is going on out there. It is a revolt of primary care physicians against the AMA and CMS. It is a request for parity with specialists. It is a movement to replace how primary care practitioners are paid.

Why the revolt against the AMA and CMS? Because primary care doctors yearn to correct myths about primary care vis-à-vis specialists, and because they believe, by altering how the AMA and CMS pay doctors, health costs can be brought down, and primary care can be re-invigorated. Health systems with a broad primary care base have lower costs. In the U.S., two-thirds of doctors are specialists, and one-third are in primary care, the reverse of most nations, which have 50% or lower costs.

In the early 1990s, the AMA formed the Relative Value Scale Update Committee (RUC), which specialists now dominate. RUC sets payment codes for doctors. Since RUC’s inception, the payment differential has been growing between primary care doctors and specialists, so much so that the typical primary care doctor now makes only 30% of what an orthopedic surgeon makes. On average, primary care incomes are 50% of those of specialists.Continue reading…

Summary of CMS Proposed Rule on Accountable Care Organizations

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By JORDAN T. COHEN

(Second in a series. See Part 1.)

CMS recently released the proposed rule that will regulate PPACA’s Medicare Shared Savings Program (MSSP). The MSSP relies on the accountable care organization (ACO) model in order to generate and distribute savings. HealthReformWatch.com has discussed the general framework for ACOs before. Clocking in at nearly 500 hundred pages, the proposed rule helps to flesh out what was largely a philosophical exercise in cooperative health care delivery. Below are what I believe to be a number of key pieces of the proposed rule.

Proposed Rule Highlights

The 2 ACO Models – (425.7)

There will be two ACO models. The choice between models appears to be largely geared towards minimizing ACO risk while hospitals and providers are first bringing their ACOs online.

  • One-Sided Model: A one-sided ACO shares in the savings, but is not on the hook to share in any of the losses (i.e., costs surpassing the ACO’s benchmark as determined by CMS, see below).
  • Two-Sided Model: A two-sided ACO shares in both the savings as well as the losses.

Basic Time frame and Structure

Not surprisingly, ACO hopefuls must form an agreement with CMS directly. ACOs under the MSSP must last for not less than three years after the application has been approved. (425.18).  The performance period will be 12 months. The ACO must have at least 5,000 beneficiaries, and must include a sufficient number of primary care physicians to treat the ACO beneficiary population.Continue reading…

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