The Supreme Court has already decided the fate of the health reform law, and in a few short weeks the rest of us will know whether it is upheld, struck down entirely, or badly damaged. Of the possible decisions, four are the most likely and each would have significant ramifications.
1) The Court could uphold the law. Prior to oral arguments, this was the conventional wisdom. Justice Anthony Kennedy’s stinging questions led many to change this view, but he has surprised Court watchers before.
If he springs another surprise and supports the individual mandate, the law’s implementation would continue unabated. States that have waited for the Court’s decision would start moving on exchanges and essential benefits.
HHS would issue more regulations: on subsidies, employer penalties, insurance requirements, and others. However, it is common knowledge that many of the more controversial rules are being slow walked until after November 6th so as to not complicate President Obama’s reelection chances.
Upholding the law would certainly raise the stakes of the November elections. Should Democrats hold the Senate and/or President Obama win reelection, it’s likely the law would be permanently ensconced. On the other hand, should Republicans control the House and Senate and Governor Romney win the presidency, they will try to repeal the law or gut it through budget reconciliation before major provisions take effect in 2014.
But based on the “train wreck” of oral arguments, it seems unlikely that the law will escape the Court unscathed. It is more likely that the law will be damaged. The question is, to what extent?
In general, there are two reasons why shortages might appear in a market. The first is high fixed costs. These include regulatory costs, the costs of converting a manufacturing plant to a new use, or the costs of creating a new factory. Industries with high fixed costs will see temporary shortages after either supply shocks (e.g., a factory goes offline) or demand shocks (e.g., an increase in the population needing a drug). The price mechanism eventually resolves such shortages. The duration of the shortage is related to the size of the fixed costs.
Shortages also appear when something interferes with the price mechanism’s ability to resolve a shortage. The classic example is government price controls (i.e., a binding price ceiling). Such shortages persist as long as the price controls (e.g., rent control) remain in place and binding.
From my study of the current spate of drug shortages, the best accounting for these shortages appears in this publication by the U.S. Department of Health and Human Services: “Economic Analysis of the Causes of Drug Shortages,” Issue Brief, October 2011.
I initially suspected these drug shortages were caused by Medicare’s Part B drug-payment system. Others, including Scott Gottleib and the Wall Street Journal, have made that claim. However, this study and a lengthy discussion with the U.S. Department of Health and Human Services’ assistant secretary for planning and evaluation have persuaded me that not only is Medicare’s Part B drug-payment system not the cause, that system doesn’t even impose binding price controls. Rather, it controls the margins that physicians earn for administering a drug. (If Medicare did impose binding price controls, would we see mark-ups of 650 percent or more for the shortage drugs?)
Rather, the shortages appear to be the result of a number of dynamics in the market for rare drugs:
Imagine that you’re being required to buy a car. You will have to pay for most of it, but you can’t choose exactly what you want. There are so many restrictions on your options that you’re forced to choose from a few used, four-cylinder, two-door sedans with manual transmissions. And there’s one more catch: If you don’t choose one yourself, the dealer will decide for you.
It’s not an enviable position to be in, but most of us would grudgingly decide that if we have to get one of the cars, it’s better to have a small say in what we get than to have someone else decide for us.
This is the same predicament that many state policymakers find themselves in regarding the creation of health insurance exchanges.
Health insurance exchanges are a key part of the health reform law. Supporters argue that exchanges will provide consumers with valuable information on their coverage options, while at the same time providing stricter regulation of health insurers. They are also the only way people can benefit from the lavish subsidies included in the law.
On Monday, the Department of Health and Human Services released a final rule governing the exchanges. The rule sets an ambitious timeline for getting the exchanges up and running in every state by January 1, 2014. Between now and then, states can either build their own exchanges and tailor them as much as federal law will allow or decide not to build exchanges at all.
But there’s a catch: If states don’t build their own exchanges, the federal government will do it for them.
The case for leapfrogging ICD-10 and holding out for ICD-11 just got a lot more curious. And though it’s not here yet, when ICD-11 is ready, it will be something ICD-10 cannot: A 21st Century classification system.
Now that HHS Secretary Kathleen Sebelius has thrown her department’s hat in the ring, saying late Wednesday that HHS intends to delay ICD-10, the most pertinent question is how long will HHS push back compliance?
“My opinion is that CMS won’t be able to announce three months or six months of delay for ICD-10,” says Mike Arrigo, CEO of consultancy No World Borders (pictured at left). “They will need to announce a delay from October 1, 2013 to at least October 1, 2014 because of CMS fiscal planning calendars.”
Others in the industry are suggesting that even one year is not enough to lighten the burden on physicians, providers and payers enough to make the transition smoother.
“I have a gut feeling they’ll go for two years, who knows?” speculates Steve Sisko, an analyst and technology consultant focused on payers and ICD-10. “Maybe January 2015?”
“We have heard from many in the provider community who have concerns about the administrative burdens they face in the years ahead,” Sebelius said in the statement. “We are committing to work through the rulemaking process, with the provider community, to reexamine the pace at which HHS and the nation implement these important improvements to our healthcare system.”
The poor quality and high cost of health care in the U.S. is well documented. The widespread adoption of electronic medical records—for purposes of improving quality and reducing costs—is key to reversing these trends. But federal privacy regulations do not set clear and consistent rules for access to health information to improve health care quality. Consequently, the regulations serve as a disincentive to robust analysis of information in medical records and may interfere with efforts to accelerate quality improvements. This essay further explains this disincentive and suggests a potential regulatory path forward.
The U.S. has dedicated approximately 47 billion dollars to improve individual and population health through the use of electronic medical records by health care providers and patients. Much of the funding for this initiative, enacted by Congress as part of the Health Information Technology for Economic and Clinical Health Act of 2009, will be used to reimburse physicians and hospitals for the costs of purchasing and implementing electronic medical record systems. The legislation also includes funding to establish infrastructure to enable health care providers to share a patient’s personal health information for treatment and care coordination purposes and for reporting to public health authorities.
Federal policymakers also intend for electronic medical records to be actively used as tools of health system reform. The legislation directs the U.S. Department of Health and Human Services to develop a “nationwide health information technology infrastructure” that improves health care quality, reduces medical errors and disparities, and reduces health care costs from inappropriate or duplicative care.The 2011-2015 Federal Health Information Technology Strategic Plan identifies improving population health, reduction of health care costs, and “achiev[ing] rapid learning” as key goals of federal health information technology initiatives.
One of the provisions in the Patient Protection and Affordable Care Act (a.k.a ACA, a.k.a. Health Reform, a.k.a. Obamacare) is that it limits the profits of health insurance companies. The ACA imposes a minimum medical loss ratio (MLR) on all insurers. The MLR is the amount of money spent on covered person medical care divided by the total revenue received through premiums. There is some debate of what constitutes ‘medical care’ (e.g., do investments in electronic health records count as medical care?), but insurer profits certainly are non-medical.
The ACA requires health insurers in the individual and small group market to spend 80 percent of their premiums (after subtracting taxes and regulatory fees) on medical costs. The corresponding figure for large groups is 85 percent. According to a recent Kaiser tracking poll, 60 percent of the public views the MLR concept favorably, although only 38 percent was aware that the provision is in the ACA. Insurance brokers may be getting squeezed for insurers to meet this amount.
Even though the MLR is a national law, it may not apply in your state. Continue reading…
Since the passage of health reform (Affordable Care Act), many have wondered what would be covered in the benefits offered through the State Exchanges. We have been reassured that the benefits that are “essential” would be comprehensive yet affordable. But essential to whom? What is an essential benefit and who gets to decide? Tough questions. No easy answers.
Last week HHS released a bulletin punting part of the issue to the States. States will have more “flexibility” to determine what is in the essential benefit package. Of course, not complete flexibility. These benefit plans MUST include, at least, the ten categories of benefits that are defined in the law. Those categories include:
Section 1302(b)(1) provides that EHB include items and services within the following 10 benefit categories: (1) ambulatory patient services, (2) emergency services (3) hospitalization, (4) maternity and newborn care, (5) mental health and substance use disorder services, including behavioral health treatment, (6) prescription drugs, (7) rehabilitative and habilitative services and devices, (8) laboratory services, (9) preventive and wellness services and chronic disease management, and (10) pediatric services, including oral and vision care.*
Here are some questions that you might want to know about what is unfolding:
I’ve written previously about the looming train wreck from Obamacare’s new long-term care entitlement for the elderly, called the CLASS (Community Living Assistance Services and Support) Act. Democratic Senator Kent Conrad (D., N.D.), you may recall, once described the CLASS Act as “a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of.” The Obama Administration strongly supported the CLASS Act’s inclusion in the Affordable Care Act, and Conrad ended up voting for it anyway.
However, the case for the CLASS Act has been rapidly unraveling. In February, HHS Secretary Kathleen Sebelius testified before the Senate Finance Committee, admitting for the first time that CLASS is “totally unsustainable.” Under questioning by Sen. John Thune (R., S.D.), she pointedly refused to rule out an individual mandate that would force everyone to join the program. Though Sebelius assured Thune that she had broad authority to fix CLASS’ structural problems, I obtained a Congressional Research Service report that stated the opposite. In the July/August issue ofForeign Affairs, former White House budget director Peter Orszag proposed an individual mandate as one of “the only solutions” to CLASS’ unsustainability.
So, we’re all in agreement that CLASS is a mess that could cost taxpayers hundreds of billions of dollars. So why was it included in our new health law in the first place?
The reason is simple: budget gimmickry. CLASS will rake in $86 billion in premiums from 2012-2021, but pay out substantially more than that over the long-term, rapidly generating deficits and bankruptcy. However, the Congressional Budget Office can only score the law’s impact over the next ten years, a period in which CLASS “reduces” the deficit. The claim that Obamacare was budget-neutral was critical to winning the approval of skittish moderate Democrats.
And now, today, a new Congressional investigation led by John Thune reveals that the Obama Administration knew all along that CLASS was unsustainable. “As a result of this investigation,” the authors write, “it is now clear that some officials inside HHS warned for months before passage that the CLASS program would be a fiscal disaster. Within HHS the program was repeatedly referred to as ‘a recipe for disaster’ with ‘terminal problems.’”
Last Thursday Anna Wilde Mathews of the Wall Street Journal ran an article detailing the activities surrounding primary care’s gradual awakening and mobilization. With Tom McGinty, Ms. Mathews authored a damning expose on the RUC last October that precipitated our efforts against CMS’ 20 year reliance on the AMA’s RVS Update Committee (RUC) for valuation of medical services.
There is the lawsuit by six Augusta, GA primary care physicians, spearheaded by Paul Fischer MD. (See his most recent article below). The suit claims that CMS’ and HHS’ longstanding primary relationship with the RUC has rendered that panel a “de facto” federal advisory committee. That would make it subject to the management and reporting rules of the Federal Advisory Committee Act – transparent proceedings, representative composition, scientifically valid methodologies – that attempt to ensure the public over the special interest. The fact that CMS has never required the RUC to adhere to those rules presumably means that the relationship is out of compliance with the law.
The American Academy of Family Physicians (AAFP), after declining to join the suit, issued a series of demands: more primary care seats, a sunsetting of rotating sub-specialty seats, a dedicated gerontology seat, seats for non-physicians like patients, purchasers and economists. The RUC has until March to respond. If they reject the demands, the question is whether the AAFP Board will vote to walk, as David Kibbe and I urged them to do when we began this campaign last January.
The Obama administration’s progress—with just a few stumbles—towards health care reform implementation took another major step this past week. In a carefully chosen small business setting—a Washington DC hardware store—HHS Secretary Kathleen Sibelius released draft regulations for the health benefit exchanges called for by the Affordable Care Act.
The exchanges, required to be established for every state, are predicted to serve some 24 million consumers by 2019 (provided that the ACA is neither significantly changed nor found unconstitutional), with the majority receiving federal subsidies to help pay for coverage. So far, a dozen states have enacted bills to create exchanges, while in nine states such legislation has failed.
Responding to strident opposition to the ACA requirements from conservatives and from many business owners, Secretary Sibelius emphasized the flexibility of the draft regulations, which would allow considerable variation among states, give participating businesses considerable latitude in coverage selection, and interpret states’ readiness for exchange operation more loosely than implied by the ACA itself. In describing the intent of the exchanges, she stated that they will “offer Americans competition, choice, and clout.”
Well, maybe, depending on one’s interpretation of the draft regs.