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IPAB and Medicare Costs Are Bad Medicine

Mar 26, 2012• 23

By Douglas Holtz-Eakin

During the original debate over the Affordable Care Act, I wrote that the proposed law failed to address out-of-control Medicare spending. Two years later, this urgent problem remains.

Medicare is awash in a sea of red ink — $280 billion in cash flow deficits already and getting worse — that is driving the U.S. credit rating south and threatening the very foundations of the U.S. economy. It makes no sense to sit idly by while the social safety net unravels and the promise of our future dims.

Advocates argue the health care law solves this problem. Specifically, it creates the Independent Payment and Advisory Board, which will be formed in 2014 and could make its first recommendations in 2015. This advisory board will consist of 15 officials appointed by the president. Board members will be required to make recommendations to cut Medicare funding in years when spending growth exceeds targeted rates. For Congress to block these recommendations, it must veto the board’s proposal with a 60 percent majority and pass alternative cuts of the same size.

In other words, this board puts Medicare on a budgetary diet. What’s wrong with that?

First, the system is clearly set up so that the advisory board, rather than Congress, makes the policy choices about Medicare. This means that the IPAB is not just an advisory body — despite its name. And policy choices, which should be made by elected representatives, are not.

Second, the advisory board threatens the quality of patient care. It can, in essence, ration the health care available to seniors. While technically prohibited from directly altering Medicare benefits, the IPAB will have no choice but to attempt to ratchet back spending by slashing providers’ reimbursement rates.

Will Obamacare Drive Out Employer-Sponsored Insurance?

Mar 26, 2012• 23

By David Dranove

Many opponents of Obamacare claim that large employers will drop employee health coverage in droves. The Wall Street Journal has made this argument a centerpiece of its opposition to the health exchanges. The argument has some face validity – employers that drop coverage can save about $10,000 per employee in insurance costs but only have to pay fines of $2000 per employee. What employer would not want to save $8000 per employee?

Supporters of Obamacare argue that if employers do not pay for insurance, they will have to increase wages. This will temper the incentives of employers to drop coverage. This follows from a classic model in labor economics that says that employers have to give workers a competitive wage/benefits bundle, and that the mix of wages and benefits is largely fungible. Thus, if benefits fall by $10,000, wages will increase by about the same amount. The theory is well accepted.

While it has been difficult to construct empirical tests of this theory, the available evidence is largely supportive (though the evidence of 1:1 fungibility is less compelling than the evidence of some degree of fungibility.) This may explain why the Congressional Budget Office predicts that only a few million workers will lose their employer sponsored coverage and get pushed onto the exchange. Even so, the Wall Street Journal and others have dismissed this theory and evidence, arguing that employers who drop coverage will pocket the full savings and therefore than tens of millions of workers will be affected.

I want to propose a simple test of the naysayers’ position. The test relies on evidence that the Wall Street Journal and others should find unimpeachable –stock market valuations. This is a quick and dirty test but the results are so compelling that I think it is sufficient.

Simple, But wrong, Approach on Readmissions

Mar 25, 2012• 1

By Paul Levy

The tendency of government to impose crude performance metrics on hospitals is a well known phenomenon, but its use is growing as jurisdictions look for ways to cut their budgets. The latest example is found in Massachusetts.

As reported by the MA Hospital Association:

Governor Deval Patrick’s FY2013 state budget proposal includes $40 million in rate cuts for hospitals. A significant portion of these cuts would be made through highly questionable policy changes. One of the more troubling policies would double penalties on hospitals for re-admissions that occurred in 2010.

The 2012 MassHealth acute hospital RFA – the main contract between the state and hospitals serving Medicaid patients — introduced a new preventable readmission penalty for hospitals that MassHealth determined had higher-than-expected preventable readmission rates.

Inpatient payment rates for 24 hospitals were reduced by 2.2% in FY2012. Now the administration is proposing to double the penalty to 4.4% in FY2013. There are so many things wrong with this. First, as I have reported in the past:

Even if the readmission rate is the right metric to use for comparison purposes, we don’t have a model that would accurately compare one hospital to the others. This suggests that the time is not ripe to use this measure for financial incentives or penalties. It might give the impression of precision, but it is not, in fact, analytically rigorous enough for regulatory purposes.

Continue reading…

The Case For Rational Rationing

Mar 24, 2012• 41

By Merrill Goozner

The House Republicans on Thursday took another swipe at the alleged rationing in Obamacare, voting to eliminate the independent advisory panel that will propose cuts in Medicare spending when it grows substantially faster than the rest of the economy.

Most people have never heard of the Independent Payment Advisory Board, but they certainly got an earful about “death panels” and “rationing” in 2010 when Republicans used it to attack the Democrats’ health care reform bill. Stoking fear of death panels and rationing helped the Republicans win control of the House.

The IPAB has nothing to do with death panels or rationing. The 15-member panel of experts will offer Congress options for holding down Medicare’s spending whenever it grows out of control. Congress has the option of either allowing those cuts to go into effect, or enacting its own menu of cost control measures.

There is no shortage of skeptical analysts who suggest Congress will be just as likely to reject IPAB recommendations and substitute nothing at all. After all, every Congress over the past decade has rejected imposing previously enacted cuts on physician pay. Why will the IPAB cuts be any different?

The reality is that neither party has a good track record when it comes to holding down Medicare spending, and the level of debate Thursday reflected their perennial obsession with the next election, not the next generation. “Do you remember death panels?” cried Rep. Jack Kingston, R-Ga., on the House floor. “It’s not necessarily a death panel, but it is a rationing panel and rationing does lead to scarcity for some. Who’s going to get the needed treatment, an 85-year-old or the 40-year-old with children?”

The Broccoli Mandate

Mar 24, 2012• 49

By Avik Roy

If you’ve been paying attention to the debate over the constitutionality of the health reform law, you’ve probably heard mention of the hypothetical “broccoli mandate.”

The question, if the federal government can make everyone buy health insurance at a particular coverage level and type, can it make everyone buy anything?

For example, could the federal government require everyone to buy a certain amount of broccoli every year, and assess penalties for a failure to do so? After all, like health insurance, broccoli has the potential to improve health, thereby reducing health care spending and perhaps enhancing economic productivity of the workforce. If the argument works for health care, why not for broccoli?

More to the point: What about the real “broccoli mandate” that the administration is already enforcing?

The idea of a broccoli mandate is a whimsical way of making a serious point.

Both as originally written and subsequently amended, the Constitution is structured under the assumption of limited government – the idea that the federal government’s power is limited to those powers specifically designated as such. Anything else a government might do is either given to the states (for example, highway patrol) or prohibited to government entirely (for example, infringing freedom of speech). The point made by raising the prospect of a “broccoli mandate” is to point out that a few of the powers granted to Congress – such as the regulation of interstate commerce – have been interpreted so broadly over the last several decades that the very idea of limited government has been called into question.

What the Supreme Court (and You) Won’t Hear About Health Reform

Mar 23, 2012• 13

By Michael L. Millenson

Pay attention when the pundits and legal poohbahs start prattling about the “severability” of the individual mandate provision that’s the focus of the much-anticipated Supreme Court hearings on the constitutionality of health reform. What the partisan obloquy about “Obamacare” too often obscures is that the Patient Protection and Affordable Care Act is mostly about patient protection and affordable care.

Case in point: the law’s landmark provisions regarding “patient-centeredness.”

Is anyone against patient-centeredness? Those elitists at the Institute of Medicine, drawing on work by suspect Massachusetts liberals at the Picker Institute, defined patient-centeredness back in 2001 (when George W. Bush was president) this way: “Care that is respectful of and responsive to individual patient preferences, needs, and values and ensuring that patient values guide all clinical decisions.” The IOM also made patient-centeredness one of six aims for U.S. health care.

Wait. Couldn’t Ron Paul and the Libertarians endorse that same individual-centric definition, which also has roots in religious teachings? (Hey, the original Tea Party was in Boston.)

If you’re a free-market conservative, patient-centeredness fits the concept of health care as a marketplace filled with consumers and providers. Interestingly, as early as 1974, under another Republican president, those IOM elitists endorsed publishing outcomes measures “so consumers can be informed of the relative effectiveness of various health providers and make their choices accordingly.”

New Johnson & Johnson CEO Discusses Medical Device Futures at Stanford Event

Mar 23, 2012• 1

By Kris Newby

It will take more than a Band-aid to fix the medical device market. This was the message delivered by Alex Gorsky, future Johnson & Johnson CEO, to an auditorium full of students and entrepreneurs at the Stanford Biodesign From the Innovator’s Workbench event last week.

Gorsky, who in a few weeks will take the helm of the world’s largest health-care corporation, discussed challenges and opportunities in medical device market, as his company navigates through a turbulent world economy and a string of product recalls.

“It’s a difficult market,” he said. “The days of incremental innovation are over.”

And, while Gorsky thinks population growth will drive up worldwide demand for health care, it’s unclear who will pay for it.

Gorsky sees a fundamental shift in the way medical devices are purchased, which may change the innovator’s design approach. In the United States, buying decisions will shift from surgeons to cost-conscious hospital buyers. And that may create demand for keep-it-simple medical devices – designs that provide 50 percent of the bells-and-whistles of current devices for 15 percent of the cost. In addition, he cited the need for more clinical information on efficacy and safety, to help hospital administrators justify medical device purchases.

As the U.S. struggles to stem rising health care costs, his company will look to emerging markets – especially China – for growth. He predicts that these health care markets will grow at 4 to 5 times the rate of the domestic market.

The Strange Tale of NextGen and NextGen

Mar 23, 2012• 64

By Matthew Holt

There’s a conference styling itself as mini-TED for health care in New York next week. It’s called NextGen Health. There is of course a major EMR called NextGen Healthcare (owned by publicly traded QSII). You might imagine that there’s scope for some confusion between the two brand names, and you’d be right. But the tale of what’s transpired about that confusion is quite the melodrama. Read on and have your Friday chuckle.

Nextgen Health the conference is run by Ari Teman who also runs the Nextgen Charities conference. After he started planning the Nextgen Health conference, the other (bigger, richer, with the EMR) Nextgen asked him to stop using the same name and–when he refused–sued him for trademark infringement. Ho hum you say, happens every day. True, but then this gets more fun.

Saturday of last week, I got an email that was basically a press release saying that the CEO of QSI (the Nextgen EMR company) had been arrested that day for sending an emissary to conduct some kind of raid or home invasion on Ari Teman’s house. I paid attention partly because it was wacky news for the usually doudy EMR business and partly because I’d met Ari Teman at a function in NY the previous Monday. He’d invited himself to breakfast with me the next day where he told me lots about himself and how great his conference was going to be, and eventually asked for my & Health 2.0’s help in marketing it. You may suspect that meeting people who think their new thing is the greatest ever is not that unusual in my line of work, and you’d be right. So I took some of this with a grain of salt, but the line-up looked good and he had people I respect involved and so I agreed to look at a marketing deal.

Then the “press release” arrived about the “arrests” of QSI’s CEO, chief counsel, bottlewasher, dog and more, following the “raid” on Ari’s house while he was at the Aetna meeting at which I’d met him and I was speaking. The “release” was actually mostly a self-promotional piece for Ari and the conference (well, mostly about Ari who you may not realize is a “Jewish Federations of North America’s Jewish Community Hero of the Year“).

I did what any self-respecting lazy blogger would do and sent it to a real HIT industry gossip queen/journalist (Inga@HISTalk) to run down the truth.Continue reading…

What About the Employer Mandate? Companies Watching Supreme Court Case

Mar 22, 2012

By James Klein

Next week the U.S. Supreme Court will hear 6-1/2 hours of oral arguments concerning the challenges to the Patient Protection and Affordable Care Act (PPACA). This is the most time the high Court has devoted to oral arguments since the 1966 challenge to the Voting Rights Act. Virtually all attention has been on the central question – whether Congress exceeded its Constitutional authority by requiring virtually all Americans to obtain health coverage. Yet, that is only one of four questions the Court will consider. The other three have received scant attention. And the answer to one of them could have far-ranging consequences for millions of Americans whose coverage is provided by their employers.

The threshold question is a procedural one: whether it is premature for the Court to even consider the case since the PPACA tax/penalty for not obtaining health coverage will not be imposed until 2015, when Americans who fail to obtain coverage in the previous year file their income tax returns. Another question invokes the Constitution’s “Spending Clause” to determine if the Federal funds available to pay for PPACA’s expansion of Medicaid impermissibly coerces – rather than just encourages – the States to comply with the Medicaid provisions. Unexpected decisions on either of these two questions are “wild cards” that could leave the viability of the law in doubt.

The question receiving greatest media scrutiny is whether the Constitution’s “Commerce Clause,” from which Congress derives authority to regulate interstate activity, allows the federal government to require Americans to purchase health coverage. In essence, is declining to obtain health insurance (even though one will still presumably obtain health services) “activity” or “inactivity?”