Moose Call

Getting to 60 Votes in the Senate

2009-12-15T17:03:00.000-05:00

According to news reports, last night the 58 Democrats in the Senate held a closed door meeting with the two independent members of their caucus, Bernie Sanders and Joe Lieberman, in an attempt to reach a consensus on the healthcare reform bill. To secure Joe Lieberman’s support and apparently reach the 60 votes required to avoid a filibuster, the Democrats had to scrap a compromise deal reached last week on a limited expansion of Medicare to some individuals in the 55-65 age group and a private-sector approach to the public option.

From the start, some conservative Democrats had been opposed to the so-called “public option,” in which a government-run health plan would compete in the new-created insurance exchanges with private insurance companies in offering health insurance plans to individuals and small businesses. Last week, a group of Senate Democrats worked out a compromise in which, in lieu of a government-run plan, the White House Office of Personnel Management would oversee national health plans offered by private insurance companies, much like the current health insurance benefits for federal employees. In addition, certain beneficiaries in the 55-65 age group would be able to enroll in Medicare, although their premiums would not necessarily be subsidized.

Over the weekend, however, Joe Lieberman indicated that he would not be willing to support such an expansion of Medicare, leaving the Democrats without enough votes to avoid a filibuster. To win Senator Lieberman’s support, Senate Democrats apparently were willing to drop the public plan completely, including the previous compromise reached over the limited Medicare expansion. While there are still some hurdles to overcome, it appears that the Democrats now have the 60 votes they need to pass a bill in the Senate before Christmas. It would then be up to a Conference Committee to reconcile the House and Senate bills into a final bill for next month.

In the Senate Healthcare Bill, Do Premiums Increase or Decrease?

2009-12-04T17:24:00.003-05:00

On Monday, November 30, the Congressional Budget Office released its analysis on the effect of the proposed healthcare reforms in the Senate’s version of the bill on health insurance premiums. Both Democrats and Republicans have seized on this report’s conclusions to support their positions on healthcare reform legislation. Democrats have emphasized that beneficiaries in the non-group market (beneficiaries who purchased individual or family policies on their own, not through their employer) would pay lower premiums, on average, under the Senate’s reform bill, once the impact of government subsidies is taken into account. Republicans, on the other hand, have emphasized the increase in premiums in the non-group market, excluding the impact of government subsidies.

While both of these positions are accurate, it should be emphasized that the non-group market, while expanding under healthcare reform, will still account for a relatively small share of the overall insurance market. The vast majority of the non-elderly will still receive insurance from their employers, with 70% in the large group market and 13% in the small group market (in the CBO’s analysis, “small group” is defined as employers with 50 employees or less). Only 17% of non-elderly beneficiaries would be covered in the non-group market, and these non-group policies would be purchased through the new insurance exchanges. Average premiums for both the small group and large group policies would essentially be unchanged, or may even decrease under the Senate bill, according to the CBO’s analysis.

For the non-group market, however, average annual premiums would increase from $5,500 to $5,800 for singles under the Senate bill, while average annual premiums for families would increase from $13,100 to $15,200 under the Senate bill. For 57% of beneficiaries, however, the actual cost would be substantially lower because their premiums would be subsidized by the federal government. Moreover, the biggest reason for the increase in premiums in the non-group market under the Senate reforms is because the insurance coverage provisions of the new policies would be much better, on average, than current policies in the non-group market. Under the reforms, the insurance coverage for policies in the non-group market would be essentially the same as current group market policies, in contrast to current policies in the non-group market, which often offer poor coverage. Other effects of reform, such as slightly lower administrative costs and a slightly healthier pool of beneficiaries, serve to slightly offset the increase in premiums associated with the more comprehensive coverage provisions.
Therefore, according to the CBO’s analysis, average health insurance premiums for most beneficiaries would remain essentially unchanged under the Senate’s version of healthcare reform. In the non-group market, however, premiums would increase, primarily because of better insurance coverage, although 57% of beneficiaries in the non-group market would receive significant subsidies, so their costs would be much lower than the average premiums.

Dr. Brent James and Continuous Quality Improvement at Intermountain Healthcare

2009-11-09T15:22:00.001-05:00

There is an absolutely wonderful article on Intermountain Healthcare’s approach to healthcare delivery by David Leonhardt in yesterday’s New York Times Magazine, which you can read here. We have mentioned Intermountain Healthcare in this blog before, and my colleagues and I interviewed one of Intermountain’s leaders for our weekly publication earlier in the year, so the details of Intermountain’s approach were not new to us, but the author presents a thoughtful consideration of other points of view, highlighting the difficulties of convincing doctors to adopt Intermountain’s approach.

Spearheaded by Dr. Brent James, Intermountain approaches quality in healthcare delivery much the same way that Toyota approaches quality manufacturing. It seeks to reduce variation in the way that its doctors treat patients who present with the same medical condition and then continuously refines its treatment protocols in a drive to improve patient outcomes. One criticism of this approach is that, unlike automobiles, each patient is unique, so a one-size-fits-all approach may result in some patients receiving sub-optimal care. Intermountain, however, recognizes that some patients may require deviations from the standard protocol. In Intermountain’s view, it is in precisely the ability to identify those cases that a physician’s experience and training are the most valuable. As Dr. John Wennberg and his colleagues at Dartmouth have repeatedly shown, however, unwarranted variations in physician treatment practices go a long way in explaining the high cost and poor quality of healthcare delivered in much of the US healthcare system.

One of the keys to Intermountain’s approach is being able to measure results, which is made possible by its electronic medical record (EMR) system. That is one reason why the Obama administration has placed so much emphasis on initiatives to have hospitals and physicians adopt EMRs. Adopting EMRs without changing the way medicine is practiced will not improve quality, but being able to track outcomes through EMRs could be a very important step, providing the foundation of evidence to help convince doctors to adopt best practices.

House Passes Healthcare Reform Bill

2009-11-09T14:11:00.002-05:00

The House of Representative on Saturday passed its version of the healthcare reform bill by a vote of 220-215, with 39 Democrats voting against the bill and one Republican, Representative Ahn “Joseph” Cao of Louisiana, voting for the bill.

While the House vote is an important milestone, what will be most important to shaping the final legislation is what the Senate is able to pass. This week Senate Majority Leader Harry Reid is expected to unveil the Senate’s version of the bill, which is likely to include less generous subsidiaries for uninsured middle-income Americans to purchase health insurance in the new insurance exchanges, similar to the previous version of the bill put forth by Max Baucus and passed by his Senate Finance Committee.

While the House version of the bill would be very unlikely to pass the Senate, the eventual Senate version of the bill would, in all likelihood, pass the House, particularly since a more fiscally-conservative version of the bill would appeal to the Blue Dog Coalition of Democrats in the House, many of whom voted against the House version of the bill this past Saturday.

Threading the Needle

2009-11-05T16:39:00.000-05:00

We had been expecting Senate Majority Leader Harry Reid to unveil the full Senate’s version of the healthcare reform bill last week, but today there is word that it may not even be released this week. While the specific reasons for the delay have not been disclosed, we suspect he is having difficulty balancing the need to rein in the total cost of the bill against the need to keep health insurance premiums low enough to attract the participation of relatively healthy middle-income Americans who currently lack health insurance.

For example, one criticism of the Baucus bill was that it did not provide sufficiently generous subsidies for middle-income Americans to purchase health insurance, even though limiting the subsidies helped lower the overall cost of the bill. For single Americans with income of $40-50,000, for example, the annual cost of purchasing health insurance in the new exchanges to be established is estimated to be approximately $5,000. There is a concern that younger and healthier Americans in that income range who lack health insurance may decide not to purchase health insurance. In fact, because new regulations would prevent insurance plans from excluding pre-existing conditions, nothing would prevent these Americans from purchasing insurance after they realized that they were sick. Accordingly, they may feel that there is little incentive for them to purchase insurance.

While an individual mandate that imposed high penalties on individuals who did not purchase insurance might avoid this “free rider” problem, Democratic leaders in Congress are reluctant to impose high penalties on middle-income Americans who do not purchase health insurance, particularly if the health insurance policies are not perceived to be easily affordable. High penalties would be politically unpopular, as well. Low penalties, however, are not likely to provide a sufficient incentive to purchase insurance.

One possible result would be that relatively young and healthy Americans who currently lack health insurance would choose not to participate in the insurance exchange, so that the insurance pool would consist of relatively unhealthy Americans with higher healthcare costs, thereby driving up average premium costs. As average premium costs rise, even fewer healthier Americans would choose to participate

To avoid this outcome, Senator Reid will need to find the right mix of subsidies as well as penalties associated with the individual mandate, all while reining in the overall cost of the bill. That it is a difficult needle to thread.

Billy Tauzin’s $80 Billion Deal

2009-10-16T18:16:00.000-04:00

The main objective of the healthcare reform bills being considered is to expand health insurance coverage, especially by reducing the number of uninsured Americans. That goal also benefits the pharmaceutical industry because, with better insurance coverage, people consume more healthcare products and services, including prescription drugs, thus expanding the market for pharmaceuticals. In return for the favor of expanding the healthcare market, the Obama administration has sought concessions from each group who stands to benefit, including insurance companies, hospitals, and pharmaceutical companies. Rather than fight the concessions, the Pharmaceutical Research and Manufacturers of America (PhRMA), under the leadership of president Billy Tauzin, reached an agreement with the Obama administration in June that the pharmaceutical industry would shoulder $80 billion in concessions over 10 years.

What is the composition of the $80 billion? While the precise breakdown has not been disclosed, we can make very rough estimates based on the main provisions in the Baucus bill that reduce pharmaceutical company revenues.

The first is the 50% pricing discount for the drugs Medicare beneficiaries purchase in the so-called “doughnut hole” in Medicare Part D, in which Medicare provides no subsidies for the cost of prescription drugs. The discount would not apply to prescription drug purchases by one of the costliest groups of beneficiaries, the dually eligible beneficiaries who are enrolled in both Medicare and Medicaid. Their drug purchases are always subsidized, so the doughnut hole does not apply to them. Nor would the discounts apply to high-income Medicare beneficiaries who must pay higher premiums in Part B. All other beneficiaries, however, would receive a 50% price discount on their drug purchases in the doughnut hole starting in July of 2010. A rough estimate of the cost of this provision to the pharmaceutical industry is $30 billion over 10 years.

The second is the increase in the statutory rebate rates for brand drug purchases in Medicaid from 15.1% to 23.1%. Rebates for blood clotting factors and for drugs approved for pediatric use only would increase from 15.1% to 17.1%. A rough estimate of the cost of this provision to the pharmaceutical industry is a minimum of $30 billion over 10 years.

A third component is the savings reaped through increased competition as a result of the introduction of follow-on biologics. While provisions relating to follow-on biologics currently are not part of the Baucus bill, provisions similar to those approved in the amended House Energy and Commerce Committee bill and the Senate HELP Committee bill, both of which allow for 12 years of marketing exclusivity, are expected to be included in any final bill. A rough estimate of the cost to the pharmaceutical industry of introducing follow-on biologics is $7 billion over 10 years.

The fourth component is a new fee of $2.3 billion per year that will be assessed on the pharmaceutical industry based upon each company’s market share in sales to public programs, including Medicare, Medicaid, the Veterans Administration program, and the TRICARE military program. Sales of orphan drugs would be exempt. Companies with annual sales of less than $400 million would receive discounted weights for calculating their sales for the purpose of determining market share, and companies with sales of less than $5 million would be exempt. Fees for 2010 will be based on calculated market share of sales in 2009. At $2.3 billion per year, the total cost to the pharmaceutical industry over 10 years is $23 billion. Moreover, by statute, these fees would not be deductible for US income tax purposes.

Adding these four components together results in a total burden to the pharmaceutical industry over 10 years of $90 billion, $10 billion more than the $80 billion pledged by PhRMA’s Billy Tauzin.

Cutting Benefits in Medicare: Truth or Fiction?

2009-10-07T09:25:00.004-04:00

One of the flash points in the debate over healthcare reform legislation is whether the bills proposed in the House and the Senate would cut the benefits of Medicare beneficiaries. Of course, nothing can mobilize a group of senior citizens more quickly than a proposal to cut their benefits, and opponents of healthcare reform have claimed that the bills coming out of the House and Senate do just that. Are these claims valid?

The short answer is yes, at least for some beneficiaries who are enrolled in Medicare Advantage plans, which are private insurance company plans that receive Medicare dollars to deliver a package of benefits to replace Medicare Part A and Part B. One of the most signficant sources of savings in both the House and Senate bills is stems from changes in payments to Medicare Advantage plans.

Originally it was hoped that, by allowing private plans to participate in Medicare, beneficiaries might receive better coordinated care compared to fee-for-service Medicare and, if the private plans were more efficient than traditional Medicare, they might even save money for Medicare. For example, in a given region of the country, if Medicare beneficiaries on average consume medical services that cost the Medicare program $10,000 per year, there is the possibility that a private plan could deliver the same benefits for less than $10,000. If the Medicare program paid the plan $9,750 and the plan could deliver benefits for $9,500, the Medicare program would save $250 and the plan could make an extra profit of $250. To encourage plan participation, however, in recent years, for most areas (rates are actually set on a county-by-county basis), Congress has set the benchmark rates, which are the basis for payments to the Medicare Advantage plans well above the average per-beneficiary costs Medicare incurs in each area. The way the payment mechanism works is that plans bid against the benchmark rates for each county. If their bid is below the benchmark, they recieve their bid plus 75% of the difference between their bid and the benchmark, and the remaining 25% is retained by the Medicare program. So if the benchmark is $12,000 and the plan bids $11,000, the plan receives $11,750. According to the rules of Medicare Advantage, plans must use the extra $750 above the benchmark to provide extra benefits to beneficiaries. In this example, therefore, beneficiaries would receive an extra $750 in benefits. Compared to the regular fee-for-service Medicare program, however, the costs are much higher than the average per-beneficiary costs in each county. In this example, instead of incurring an average of $10,000 in costs, Medicare is paying the plan $11,750. And, while it is true that the beneficiaries in this case receive an extra $750 in benefits, Medicare is paying an extra $1,750 for those benefits. Because they can receive extra benefits, beneficiaries naturally like the Medicare Advantage program, and enrollment has soared in recent years. Now one in every four Medicare beneficiaries is enrolled in a Medicare Advantage plan.

Medicare program payments relative to FFS spending, 2009

In 2009, in comparison with traditional fee-for-service Medicare costs, Medicare is paying Medicare Advantage plans an extra 14%. It is these extra costs that Congress has taregeted for savings. The House bill sets the benchmark rates at 100% of the average per-beneficiary fee-for-service Medicare costs for each county. The Senate bill sets the bechmark rates at the weighted-average bids of each plan. In either case, the savings would be substantial. With lower benchmarks, however, plans will not be in a position to maintain the level of extra benefits they currently provide, so these extra benefits would be cut. Therefore, it is true that these extra benefits would be cut, but the traditional benefits of Medicare Part A and Part B would not be cut.

The Baucus Plan by the Numbers

2009-09-18T12:16:00.001-04:00

The Congressional Budget Office on Tuesday released a preliminary analysis of the chairman’s mark of America’s Healthy Future Act of 2009, which was released earlier that day by Senate Finance Committee Chairman Max Baucus.

The good news is that, according to the CBO, the Baucus plan would reduce the federal deficit by $49 billion dollars during the 10-year period ending in 2019. In 2019 alone, the plan achieves $16 billion in deficit reduction. Moreover, in contrast to the bill produced by the House committees, in which net outlays increased in the out years, the CBO expects the Baucus plan to further reduce the federal budget deficit after 2019, “as added revenues and cost savings are projected to grow more rapidly than the cost of the coverage expansion.”

Most of the savings are generated from two sources: 1) transitioning Medicare Advantage plans to a competitive bidding system, thereby reducing the federal subsidies that are paid to private plans; and 2) reducing annual Medicare market basket updates (annual increases in Medicare payments to providers to compensate for higher office expenses and other input costs). Cuts to the Medicare Advantage program were fully expected, as private plans on average currently receive significantly more than the costs in fee-for-service Medicare, and the reductions in the market basket updates are not overly severe, even though their cumulative impact is significant.

Of more concern, however, is a provision relating to payment for physicians’ services under Medicare Part B. Starting in 1998, as a way of controlling overall spending growth in Medicare, Congress implemented the sustainable growth rate (SGR) formula for the annual adjustment in fees paid to physicians in Medicare. Adhering to this formula, however, would have resulted in cuts to the fees paid to physicians, so Congress repeatedly has overridden the formula since 2003 to allow payment increases. But the formula was never repealed, so if Congress does nothing to override it each year, payments to physicians would automatically be cut by the cumulative difference between current payment rates and payments under the original formula. The Baucus plan once again overrides the SGR for 2010, allowing another increase in payments to physicians, but does nothing to repeal the SGR, meaning that cuts—estimated by the CBO to be approximately 25%—would begin in 2011. Because the cuts are not a change in current law, they are not scored as savings by the CBO. The issue, however, is whether it is realistic to expect that Congress would allow a drastic cut of 25% to stand. Certainly physicians will not stand by and allow these cuts to be implemented. Without these cuts, however, the deficit reductions promised by the Baucus plan would likely prove to be illusory.

So far, at least, critics of the Baucus plan have focused on other issues. In particular, many Democrats object to the exclusion of a public plan option in the insurance exchanges. Republicans, on the other hand, are objecting to including in the exchanges non-profit health insurance cooperatives, saying, in the words of Senate Minority Leader Mitch McConnell, that they are “just another name for a government plan.” From the CBO’s perspective, however, the cooperatives are a non-issue. “The proposed co-ops had very little effect on the estimates of total enrollment in the exchanges or federal costs because…they seem unlikely to establish a significant market presence in many areas of the country or to noticeably affect federal subsidy payments,” according to CBO Director Douglas Elmendorf.

But it is only a matter of time before attention gets focused on the issue of cuts to physicians’ payments, and I assume Senator Baucus knows this. Perhaps, his real plan is to use the threat of drastic cuts as a stick to force physicians to move away from a reliance on fee-for-service payments and toward adoption of alternative payment mechanisms, such as bundled payments, or the capitated payments that may come with participation in an accountable care organization. In the end, it may require the stick of payment cuts to force providers to consider the potential carrots they may receive through alternatives to fee-for-service Medicare.

Obama Makes His Case

2009-09-10T12:39:00.001-04:00

In his speech on healthcare reform before a joint session of Congress last night, President Obama presented the rationale for reform as well as an outline of a plan he favors, and he also tried to dispel many of the misconceptions that have surfaced regarding the bills that have circulated in Congress.

The outlines of his plan are very similar to the proposal released by Senator Baucus over the weekend, but there were two important differences. One is that he would impose a mandate on employers to provide health insurance to their employees, although there would be exemptions for small businesses. The second is that he would provide a public insurance option among the choices from which individuals and small businesses could choose in insurance exchanges established in each state. In explaining the rationale for a public option, he said his concern was that there be meaningful competition among insurance plans. He cited the example of Alabama, where he said that 90% of the insurance market is controlled by just one company. He downplayed the importance of a public option, however, and said that he would be open to exploring alternatives, such as having a public option only in states where insurance companies were not providing affordable coverage, or using non-profit health insurance cooperatives instead of a government-run plan.

In an effort to garner Republican support, President Obama also said that he was willing to consider medical malpractice liability reforms, an issue that Republicans have repeatedly cited as a way of reducing healthcare costs. It is also an issue that the American Medical Association would like to see addressed, but none of the bills or proposals coming out of Congress so far have addressed this issue.
Toward the closing of his speech, President Obama invoked the words of Senator Edward Kennedy and reminded everyone that Senator Kennedy had a history of working closely with key Republicans, including Senators Hatch, McCain, and Grassley, on healthcare issues. While he made a strong case for healthcare reform, whether President Obama succeeded in swaying any Republicans with his speech last night remains to be seen.

Back to Work

2009-09-08T14:50:00.003-04:00

The Labor Day holiday yesterday was the final day of the summer recess for Congress, and both chambers are back in session today. One member of Congress who worked during the recess was Senator Max Baucus, who unveiled an 18-page “framework” for a healthcare reform bill over the weekend.

The broad outlines of the framework are familiar. It would include an individual mandate requiring most Americans to have health insurance. It would also create state insurance exchanges in which private insurance companies would compete to offer health insurance plans to individuals and small businesses, while subsidizing the cost of insurance for individuals or families with incomes up to 300% of the federal poverty level, as well as ensuring that individuals and families with incomes of up to 400% of the federal poverty level would have to pay no more than 13% of their income in health insurance premiums. Insurance reforms would prevent insurance companies from denying to coverage to individuals with pre-existing medical conditions and would also require insurance companies to cap beneficiaries’ out-of-pocket expenses. The Baucus proposal would also expand eligibility for Medicaid to 133% of the federal poverty level.

These provisions, which mirror provisions in the House bill, are relatively uncontroversial. Unlike the House bill, the Baucus proposal does not include a “play or pay” provision requiring employers to provide health insurance to their employees, but it would impose fees on employers whose employees receive subsidies on health insurance plans purchased through the new insurance exchanges.

The biggest sticking point on healthcare reform for Republicans in Congress, and even some conservative Democrats, has been over the inclusion of a public plan among the health insurance plans offered in the exchanges. The Baucus proposal does not include a public plan, but it does include a provision of non-profit health-insurance cooperatives to compete with private plans in the exchanges.

The other novel feature of the Baucus proposal is that it would impose excise taxes on insurance companies for high-end health insurance policies, defined as plans with premiums in excess of $8,000 per year for individuals and $21,000 per year for families. The rationale for taxing high-end insurance plans is that, because these plans so completely shield beneficiaries from medical treatment costs, beneficiaries have no incentive to seek cost-effective treatment. It is assumed that, by requiring insurance companies to pay a 35% tax on premiums received in excess of the thresholds, they will pass on their costs to employers in the form of higher premiums. Employers, therefore, may opt to offer their employees less generous health insurance plans, and, faced with higher potential out-of-pocket expenses, their employees may become more cost-conscious consumers of healthcare services.

Even if the costs eventually get passed onto employers, it sounds politically more palatable to tax insurance companies than employers. Some employers and unions offering such high-end plans, however, are self-insured, so they would also be subject to the tax. Moreover, not all high-premium plans offer excessive benefits. Some plans have high premiums because the employees covered are much older and sicker than average beneficiaries.

Still, although unions and public employees may be opposed to this financing option, it has the advantage of potentially contributing to a lower rate of healthcare inflation. Alternatives, such as simply taxing high-income individuals, would raise revenue but contribute nothing to lowering healthcare costs.

To raise additional revenue, across-the-board annual fees would be imposed on companies in several industries based upon their market shares, including $2.3 billion for the pharmaceutical industry, $4 billion for the medical device industry, $6 billion for the health insurance industry, and $750 million for clinical laboratories. Other provisions affecting the pharmaceutical industry include an increase in the Medicaid rebate to 23.1% and a requirement to discount the cost of drugs purchased in the Medicare Part D doughnut hole by 50%.

The lack of a public option in the Baucus proposal will likely infuriate many Democrats. In releasing a proposal that excludes a public plan, however, Senator Baucus is essentially calling the Republicans’ bluff. If Republicans are unwilling to support even his very moderate plan, then he will have made it clear that Republicans were not serious about seeking a compromise in the first place. On the other hand, if Republicans are willing to embrace his proposal, then the Senate will have a bill it can pass with bipartisan support. Excluding the public plan option may alienate many House Democrats, but both Democrats and Republicans appear to have been focusing on the public plan for ideological reasons rather than the impact it would have on choices available in the insurance exchanges. Either way, the outcome of negotiations today and tomorrow between Senator Baucus and key Republicans on the Senate Finance Committee may impact what President Obama says in his speech to Congress Wednesday night.

Death of Senator Kennedy Leaves Void in Senate

2009-08-28T14:23:00.005-04:00

Senator Edward M. Kennedy, whose career in the Senate spanned 46 years, died Tuesday, August 25, at the age of 77. As Chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, Senator Kennedy was passionate about the need for healthcare reform, which he considered “the cause of my life,” and the fate of healthcare reform legislation in Congress is left in an even more precarious position with his passing.

After being diagnosed with a malignant glioma in May of last year, Mr. Kennedy’s appearances in Washington became increasingly less frequent, and he turned over the work of his committee to his friend and Democratic colleague, Christopher Dodd. Under Mr. Dodd’s leadership, the committee passed a healthcare reform bill on July 15, but further action in the Senate has been stalled while Senator Max Baucus, who heads the Senate Finance Committee, seeks to craft a bill covering key financing provisions that will have the support of Committee Ranking Member Charles Grassley and other key Republicans. Progress on reaching a bipartisan compromise, however, has been undermined by a groundswell of conservative opposition to reform efforts, which have characterized the bills as enabling a government “takeover” of the healthcare system. The passions the issue has aroused among the conservative base have made it difficult for Mr. Grassley, who faces a reelection campaign in 2010, to appear to be working with Democrats on passing a bill. Mr. Baucus has set a deadline of September 15 for reaching a compromise with Mr. Grassley and other Republicans. If he fails to reach a compromise, as appears increasingly likely, then Senate Democrats may seek to force through legislation by invoking a process called “reconciliation,” which requires only 51 votes to pass the Senate, thereby bypassing the typical 60 votes required to avoid a filibuster. Because the reconciliation process was designed only to avoid Senate impasses on budgetary measures, however, key healthcare reform provisions unrelated to the federal budget, such as private insurance market reforms, would likely need to be separated into a second bill that would require 60 votes to pass the Senate. With Mr. Kennedy’s death, Democrats now have only 59 seats in the Senate, and my effectively have only 58 votes, since the frail health of Senator Robert Byrd has resulted in his absence.

The fate of healthcare legislation in the Senate has put a spotlight on the issue of who will fill Senator Kennedy’s seat. By Massachusetts law, a special election is required to be held 145-160 days after the Senate seat is vacated, with no interim appointment, meaning the seat will be vacant during the important upcoming months. Prior to his death, however, Mr. Kennedy urged state legislators in Massachusetts to amend the law and allow Governor Deval Patrick, a Democrat, to appoint an interim replacement until the special election can be held. Prior to 2004, Massachusetts law enabled the governor to appoint a successor to a vacant Senate seat. Ironically, however, it was Democrats who amended the law at that time because they did not want Republican Governor Mitt Romney to appoint a Republican successor if Democrat John Kerry, the other Senator from Massachusetts, had won the presidential election that year. Changing back the law now, therefore, would risk charges of hypocrisy.

While known as a liberal, Senator Kennedy had a history of being able to forge bipartisan compromises with conservative Republican colleagues in order to pass important legislation. His absence in the Senate in recent months has certainly complicated the task of reaching a compromise with Republicans over healthcare reform legislation, and now it will be up to his colleagues to see if they can salvage the work of his HELP committee and further add to Senator Kennedy’s legislative legacy.

The Public Option and Healthcare Cooperatives

2009-08-21T16:03:00.001-04:00

The Obama administration spent the early part of this week seeking to assuage concerns that it was backing away from supporting a “public option,” a health insurance plan sponsored by the federal government that would compete with private plans in offering healthcare insurance through insurance exchanges in each state.

The public option has become the most contentious issue in the debate over healthcare reform. Opponents claim that a public option would undermine the market for private insurance, mainly because it would not incur the expenses of marketing and having to negotiate reimbursement rates with a network of providers, thereby enabling it to charge lower insurance premiums than private plans. In my view, it is not a foregone conclusion that a public plan would necessarily have an unfair competitive advantage in attracting beneficiaries. As some observers have pointed out, it is possible that a public plan would attract a disproportionate number of very sick beneficiaries, thereby saddling it with higher medical costs and possibly forcing it to charge higher insurance premiums than private plans, particularly if risk adjustments based on beneficiaries’ health status do not fully cover the higher medical costs.

Nevertheless, while a public plan would not necessarily pose such a dire competitive threat to private insurance plans as its opponents claim, given the difficulty of explaining the complexities of healthcare reform, opponents have been successful in simplifying the issue of healthcare reform as a further intrusion of the federal government into the practice of medicine. Therefore, to move the discussion beyond the role the federal government would play in offering a new health insurance plan, the Obama administration sought to downplay the public option.

This move angered supporters of the public option, who believe that, without the competitive pressures of a public plan, private insurers will not be forced to rein in spending growth. But the experience of private plans in the Medicare Part D drug benefit demonstrates that, even in the absence of a public option, competition among private plans can serve to drive down costs.

As an alternative to a public option, there has been some support for facilitating the creation of non-profit healthcare cooperatives that would compete with private plans. In fact, there are successful models for such a proposal, such as Seattle-based Group Health Cooperative, which is known for providing cost-effective, high-quality care. The problem is that such examples are relatively rare, and establishing cooperative from scratch takes time, with no guarantees that a new cooperative will succeed in attracting a critical mass of beneficiaries or be able to negotiate competitive reimbursement rates with local providers. Competition in some local insurance markets, particularly in rural areas, is currently often limited, with one plan often holding a dominant market position. Because the lack of insurance market competition is likely rooted, at least in part, in the relative scarcity of healthcare providers in these areas, attempting to foster competition through insurance market reforms may end up having little or no impact. In any case, some prominent Republicans have already expressed their opposition to cooperatives, too, so abandoning the public option in favor of healthcare cooperatives might not be the recipe need to attract Republican support.

The impasse appears to have left the Obama administration wondering if there is any formula for reform that leading Senate Republicans would support. There is now talk of splitting healthcare reform legislation into two bills, one of which, by using the reconciliation process (see Who is Alan Frumin post dated August 7), could pass the Senate with the votes of just 51 Democrats. This bill would include the new spending measures, such as Medicaid expansion and subsidies for health insurance premiums of low income beneficiaries, as well as the financing of these measures, and possibly could include the public option. The second bill, which would need to pass the Senate with 60 votes to avoid a filibuster, would include reforms to the market for private healthcare insurance. Of course, the Obama administration is still hoping that Senator Baucus can forge some kind of compromise in the Senate Finance Committee that attracts Republican support, but they are preparing a plan to push through reform legislation in the event a compromise fails to materialize.

Who is Alan Frumin?

2009-08-07T15:57:00.002-04:00

As Congress heads out for its summer recess, Senator Max Baucus, who chairs the Senate Finance Committee, is now saying he has set a deadline of September 15 for his committee to release its version of a healthcare reform bill. That date is important because it is exactly one month before the expiration of the reconciliation provision that would allow a healthcare reform bill to pass the Senate with a 51-vote majority, thereby bypassing the normal 60-vote majority required to avoid a filibuster.

Presumably, if Senator Baucus fails to reach a consensus on a bill with Republican Senators Grassley, Snowe, and Enzi by September 15, the Democrats will try to force through legislation before the reconciliation provision expires on October 15.

The reconciliation process, which was established by the Congressional Budget Act of 1974, was created to prevent Senate filibusters from derailing necessary budget bills. In accordance with the Byrd rule, named for its sponsor, Senator Robert Byrd, however, the Senate is prohibited from considering “extraneous matters” as part of a reconciliation bill. In essence, any provision in a bill that does not result in a change in outlays or revenues could be interpreted as “extraneous” to budget matters. Accordingly, if the Democrats try to force a healthcare reform bill through the Senate using reconciliation, any senator can challenge provisions in the bill, such as the requirements for insurance companies that are at the heart of the healthcare reform bill, as being extraneous. It is then up to the Senate parliamentarian, an obscure unelected official who advises the Senate on parliamentary rules, to determine if the provision being challenged is extraneous. If the Senate parliamentarian rules in favor of the challenge, the provision is taken out of the bill. A series of challenges under the Byrd rule, therefore, could strip many key provisions out of a healthcare reform bill, rendering it meaningless.

And who is the Senate parliamentarian? An official named Alan Frumin, who almost certainly would prefer to avoid being thrust into the spotlight in a battle over healthcare reform.

The Dog Days of Summer

2009-07-31T16:09:00.001-04:00

The phrase “dog days of summer,” apparently originally stemming from a reference to Sirius, the “Dog Star,” refers the hottest days of summer, typically extending from July through August, when it is too hot to get things done. It may also be an apt way of summing up where things stand on healthcare reform legislation.

If nothing else, this month was the month the “Blue Dog” Democrats had their place in the sun. Their opposition to the House bill slowed progress on a final House bill, but in the meantime they were able to force some compromises to be made in the bill.

Interestingly enough, the origin of the term “Blue Dog Democrat,” meaning a conservative Democrat, is connected with Billy Tauzin, the president and CEO of PhRMA. Mr Tauzin, starting in 1980, had been a Democratic Congressman from Louisiana. In the mid-1980s, a Louisiana artist named George Rodrigue began painting a series of pictures of a blue dog, paintings that eventually become relatively famous. Mr. Tauzin eventually co-founded a group of conservative Democrats who called themselves Blue Dogs to distinguish themselves from “yellow dog” Democrats, a term that apparently originated in the 1928 Presidential campaign of the New York Democrat Al Smith to describe loyal Democrats. While many Southern Democrats opposed the Smith’s nomination, others were such loyal Democrats that it was said that they would “vote for a yellow dog if he ran on the Democratic ticket." Blue Dog Democrats, by contrast, had no such party loyalties. Mr. Tauzin even ended up switching over and becoming a Republican.

In any case, it is now clear that there will be no votes in either the House or the Senate on a healthcare reform bill until September. Whether there will be any progress at all, such as draft legislation from the Senate Finance Committee, is still an open question.

Coming Full Circle to IMAC

2009-07-22T15:54:00.005-04:00

In an attempt to shore up support for healthcare reform legislation, particularly among Blue Dog Democrats who have expressed concern that current draft bills do little to rein in long-term spending, the Obama administration is now proposing the establishment of an Independent Medicare Advisory Council (IMAC), which would be empowered to make recommendations on Medicare payment rates and other reforms.

It is worth recalling that former Senate Majority Leader Tom Daschle, President Obama’s original nominee for both HHS Secretary and Director of the White House Office of Health Reform, had been advocating the creation of a Federal Health Board, modeled on the Federal Reserve Board, with the independence and authority to make decisions about healthcare policy. Dr. Ezekiel Emanuel of the National Institutes of Health, who is the brother of White House Chief of Staff Rahm Emanuel and currently serves as a healthcare advisor to Peter Orszag, the Director of the Office of Management and Budget, has also advocated the creation of a Federal Health Board.

The idea of a Federal Health Board did not appear to have a very promising future, particularly after Mr. Daschle’s departure. After all, even if one concedes that Congressional meddling in Medicare policy has often served narrow political interests rather than the broader goal of high-quality, cost-effective healthcare, removing decisions from the political process and, instead, putting them in the hands of “experts” is inherently undemocratic.

Although the idea of a Federal Health Board appeared to be aborted, Senator Rockefeller proposed elevating the status of MedPAC so that it could play a similar role, an idea that the administration supported, but neither the House bill nor the Senate HELP Committee bill included such a provision.

Now, with the IMAC idea apparently gaining traction, we appear to have come full circle. Changing the name may make the idea more palatable, but the differences with the Federal Health Board idea may not simply be a matter of cosmetics. In contrast to a Federal Health Board, IMAC’s ability to set policy would only partially be insulated from the political process. Peter Orszag described the process in a letter to House Speaker Nancy Pelosi last week:

This proposed legislation would require the President to approve or disapprove each set of the IMAC’s recommendations as a package. If the President accepts the IMAC’s recommendations, Congress would then have 30 days to intervene with a joint resolution before the Secretary of Health and Human Services is authorized to implement them. If either the President disapproves the recommendations of the IMAC or Congress passes such a joint resolution, the recommendations would be null and void, and current law would remain in effect. The review process would permit intervention if the IMAC’s reforms are not in keeping with the goals of Congress or the President, while retaining autonomy for implementing annual payment updates and other Medicare reforms for the IMAC.

Currently, Congress must act if it agrees with MedPAC’s recommendations and wants to implement them as law. By contrast, with IMAC, basically Congress would have to act if it wanted to prevent IMAC’s recommendations from being implemented into law. Given the difficulty Congress has on agreeing to any course of action, that provision alone may effectively insulate IMAC from the political process while, at least on the surface, making IMAC subject to Congressional oversight. We will see if President Obama raises the idea of IMAC in his press conference this evening on healthcare reform.

Senate Timetable Slips Further Behind

2009-07-17T16:26:00.001-04:00

In testimony before the Senate Budget Committee yesterday, Congressional Budget Office Director Douglas Elmendorf really did not say anything that he has not already said before, but he still managed to make headlines, including on the front page of the Wall Street Journal. In response to a question from Chairman Kent Conrad, he said, “In the legislation that has been reported, we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount.” This was the subject of our last blog post.

That Dr. Elmendorf’s comments made headlines is mainly a reflection of the enormous strains that have emerged within Congress—even among Democrats in Congress—over the direction of healthcare reform. President Obama started the week by pushing Congressional leaders to move forward on healthcare legislation. Senate Finance Committee Chairman Max Baucus continues to search for bipartisan support, but the result so far has been a stalemate. With the push from President Obama, Senator Baucus was again saying that a bill would emerge this week. Once again, however, the week ended without a bill from the Senate Finance Committee and with renewed pledges to produce a bill the following week. If, in further negotiation, Mr. Baucus is able to forge a compromise that has the backing of Senator Check Grassley, the Ranking Member on the Senate Finance Committee, it will have been worth the wait. As time goes by, however, divisions seem only to be deepening, and the chances of the Senate passing a bill before the August recess seem to be slipping away.

In the Long Run, We Are All Dead

2009-07-10T17:44:00.003-04:00

President Obama has promised that his healthcare reforms will be budget neutral, that the higher government spending associated with expanding health insurance coverage of the uninsured will be financed by spending cuts elsewhere and by higher revenues, possibly a tax surcharge on high-income individuals.

Of course, the Obama administration is also hoping to introduce healthcare delivery system reforms that will create incentives to provide high-quality, cost-efficient care. Ideas such as creating a “medical home” for Medicare beneficiaries in which primary care physicians would be paid to coordinate care across different settings, bundling payments so that hospitals have an incentive to coordinate post-acute care and reduce the risk of re-admissions, and creating “accountable care organizations,” in which networks of primary care physicians, specialists, and hospitals would be held jointly accountable for the care and costs of Medicare beneficiaries, all have the potential to improve quality and reduce costs. But will they? The viability of applying such reforms across the entire healthcare system has not been tested. Certainly the Congressional Budget Office (CBO) does not have enough evidence—or even details on the specifics of such reforms—upon which to estimate potential budgetary savings.

Over the longer term, after the mechanics of such reforms have been tested and can be implemented across the healthcare system, incentives for providers that reward quality and efficiency may begin to reduce the escalation in healthcare spending. As John Maynard Keynes famously wrote, however, “In the long run we are all dead,” and whether we have the luxury of waiting for healthcare system savings to materialize is an open question. For even if Congress succeeds in tweaking healthcare reform legislation so that it is budget neutral over a 10-year horizon—delaying an expansion in Medicaid, for example, so that the costs do not kick in for 3-4 years, it is fairly certain that it will not be budget neutral beyond a 10-year horizon.

Yet, even before adding these expenditures, the CBO has made it quite clear that the current trajectory of government spending, of which Medicare and Medicaid are the main drivers, is unsustainable. In its Long-Term Budget Outlook released last month, the CBO projected the rise in government debt under a scenario in which Medicare payments to physicians are not cut and the alternative minimum tax is indexed to inflation (a realistic scenario, in other words). Under this scenario, as shown in the graph, federal debt exceeds 100% of GDP in 2023, 140% of GDP in 2030, and 200% of GDP in 2038. Without cutting healthcare spending in Medicare and Medicaid, the only realistic way to avoid this very scary scenario is to raise taxes. Congress continues to tiptoe around this issue because confronting harsh realities risks alienating powerful constituencies, but time is running out.

Allocating Comparative Effectiveness Research Funds

2009-07-02T11:57:00.002-04:00

The American Recovery and Reinvestment Act of 2009 (ARRA), which is the stimulus bill that was signed into law in February, included $1.1 billion in funding for comparative effectiveness research. Of this amount, the AHRQ received $300 million, and the NIH received $400 million. An additional $400 million was to be allocated by the Office of the Secretary of the Department of Health and Human Services (HHS). How should the HHS Secretary allocate these funds?

That was the question Congress posed to two committees, one organized by the Institute of Medicine (IoM), and one organized by the Federal Coordinating Council for Comparative Effectiveness Research, a group created by the ARRA with representatives from all of the major federal health agencies. Yesterday, both committees released their recommendations. A summary of the IoM’s report is available here (a PDF of the full report can be downloaded with registration at the website of the National Academies Press, http://www.nap.edu/). The Council’s report is available here. There are also two perspective articles published online in the New England Journal of Medicine on June 30, one on the IoM recommendations and one on the Council’s recommendations.

Both sets of recommendations include some surprises, at least from my perspective. In the case of the IoM recommendations, for example, while priority research topics for particular diseases, such as cardiovascular disease, are listed, almost one-fourth of the committee’s recommended priority topics are in the health care delivery system research area, a broad category that includes topics related to dissemination of results, health behavior and care management, and comparisons of settings of care, among others. One, for example, is to “compare the effectiveness of alternative redesign strategies—using decision support capabilities, electronic health records, and personal health records—for increasing health professionals’ compliance with evidence-based guidelines and patients’ adherence to guideline-based regimens for chronic disease care.”

For its part, the Council recommended that a majority of the HHS Secretary’s funds go to comparative effectiveness data infrastructure development, such as building, expanding, and linking longitudinal administrative claims databases, or linking administrative data with electronic health record-based or registry data.

The common thread here is the need for a well-designed IT infrastructure for our healthcare system, with a central role for electronic medical records. An interview article in the July 2009 issue of McKinsey Quarterly with Hal Wolf, a senior executive with Kaiser Permanente, makes it clear that KP HealthConnect, Kaiser Permanente’s electronic medical record database, is what has enabled the institution to identify and disseminate best practices. Mr. Wolf says, “We can now determine how even small changes in care pathways can have a significant impact on outcomes, and we can study patients with specific combinations of co-morbidities to identify the best treatment approaches for them.”

In a recent article published online in Health Affairs, Ari Hoffman and Steven D. Pearson put forth the useful concept of “marginal medicine” as the source of potential waste most likely to be revealed by comparative effectiveness research. They list four evidence-related categories of marginal medicine: 1) inadequate evidence of comparative net benefit for any indication; 2) use beyond boundaries of established net benefit; 3) higher cost when established benefit is comparable to other options; and 4) relatively high cost for incremental benefit compared to other options. The latter two categories address cost-effectiveness, a topic scrupulously avoided by the IoM and Council recommendations, mainly because of the controversy the issue of comparative cost-effectiveness still evokes. The last thing the pharmaceutical industry would like to see is a recreation in the US of the UK’s NICE system, which has restricted coverage of drugs deemed not to be cost-effective.

In the wider context of medical interventions, however, drug treatments, which account for approximately 11% of total US healthcare spending, will often prove to be cost-effective, particularly if the alternative is physician procedures or hospitalization, which are the two biggest drivers of spending. For example, in a new study published online in the New England Journal of Medicine examining drug spending and other medical spending among a group of Medicare beneficiaries before and after the introduction of the Part D drug benefit, beneficiaries who previously had no coverage or limited coverage for drugs prior to Part D ended up spending more on drugs after getting coverage, but their other medical expenditures declined. Even though the current emphasis on comparative effectiveness research in the US is not focused on the cost effectiveness of drugs, it is only a matter of time before the cost-effectiveness of treatments—certainly not limited to drugs—is systematically integrated into coverage and reimbursement decisions. Pharmaceutical companies that design their clinical development programs to address issues of cost-effectiveness, taking into account different modes of care, will be well-placed to thrive in the US healthcare system’s next era, even if the transition to that next era takes longer and is more difficult than current reformers envision.

House Releases Draft Healthcare Reform Bill

2009-06-19T17:34:00.003-04:00

Today the three committees in the House of Representatives working on healthcare reform(Ways and Means, Energy and Commerce, and Education and Labor) jointly released an 852-page discussion draft for a healthcare reform bill. The main components of the bill are familiar, including insurance exchanges and individual and employer mandates for health insurance. It also includes a public plan, but requires that the public plan compete on a level playing field with private plans, and it is to be financed entirely through premiums.

There are several provisions that, while not entirely unexpected, will not be welcomed by the pharmaceutical industry. For example, starting in 2011, pharmaceutical companies will have to pay rebates on drug purchases by any dual-eligible beneficiaries and any other beneficiaries whose Medicare premiums are fully subsidized. Prior to the introduction of Part D, beneficiaries who were dually eligible for Medicaid and Medicare got their prescription drugs through their Medicaid benefit, under which pharmaceutical companies are required to pay rebates. When these beneficiaries were switched into the Medicare Part D drug benefit, pharmaceutical companies essentially reaped a windfall by no longer having to pay rebates on the drugs used by these beneficiaries. The provision in the House draft bill would eliminate that windfall. In addition, starting next year, the way the Medicaid rebate is calculated for reformulations of existing drugs would change, treating the reformulation the same is the original drug for purposes of calculating the required rebate, if that calculation results in a higher rebate. This provision may have the unintended consequence of discouraging development of value-added reformulations that would benefit patients. The draft bill also includes a sunshine provision on payments to physicians.

The Senate Finance Committee was also supposed to release its bill this week, but it apparently has been delayed by efforts to reduce the total cost of the bill.

Obama: “I need your help, doctors.”

2009-06-16T13:08:00.002-04:00

In his speech at the annual meeting of the AMA yesterday, President Obama outlined his case for healthcare reform, including some basic ideas on where he would get the bulk of the money to pay for reforms. Most of what he had to say was relatively uncontroversial and unsurprising, but it still represented his most comprehensive speech on healthcare reform since taking office. One surprise is that he voiced implicit support for a proposal to expand the role—and authority—of MedPAC. Last month Senator Rockefeller introduced a bill that would convert MedPAC into an executive branch agency with the power to set payment rates in Medicare. Essentially, it appears to be a back-door method of establishing a Federal Health Board (Senator Rockefeller even stated that it would be modeled on the Federal Reserve Board)—taking payment decisions out of the hands of Congress and putting them in the hands of a board that supposedly would be immune from political pressure. Since Congress is not prone to willingly give up power, my guess is that this proposal is going nowhere.

Coincidentally, however, yesterday MedPAC released its annual report to Congress. It contains useful discussions of several important topics relating to payment reforms, including accountable care organizations, disease management demonstration programs in Medicare (a topic we are addressing in this week’s issue of our Shuho weekly report), and Medicare Advantage. One chapter also explores some of the issues MedPAC is considering for follow-on biologics.

Also yesterday, the CBO released an analysis of the bill Senator Kennedy introduced last week. The cost of the bill to the federal budget as calculated by the CBO—just above $1 trillion over ten years—does not come as a big surprise. What many commentators are focusing on, however, is that, even after spending over $1 trillion, the CBO projects that 37 million people—13% of the non-elderly—will remain uninsured. Partly this is because the version of the bill introduced last week lacked key provisions, such as a pay-or-play mandate on employers, an expansion of the Medicaid program, and the addition of a public plan, that are expected to be added later. These provisions will reduce the number of uninsured, but they may also add to the cost of the bill, if the cost of expanding Medicaid exceeds the net cost reductions associated with a pay-or-play employer mandate.

Just Don’t Call it “Comparative Effectiveness Research”

2009-06-12T15:33:00.002-04:00

Two bills introduced in the Senate this week give further impetus to comparative effectiveness research, but both avoid the term “comparative effectiveness research” in the names of the entities they create to pursue the research. One, introduced by Senators Baucus and Conrad in the Senate Finance Committee, is solely devoted to the creation of a “Patient-Centered Outcomes Research Institute.” The other, the “Affordable Health Choices Act” introduced by Senator Kennedy in the Senate Health, Education, Labor and Pensions Committee, is a more complete version of draft healthcare reform legislation Senator Kennedy circulated at the end of last week, and it includes one short provision that would create a “Center for Health Outcomes Research and Evaluation” within the Agency for Healthcare Research and Quality (AHRQ).

Why the conspicuous absence of “comparative effectiveness research” in the names of these entities? Critics of the Obama administration’s effort to establish comprehensive healthcare reform legislation have tried to mobilize opposition by claiming it would use the results of comparative effectiveness research to dictate patient treatment regimens to doctors or provide insurance coverage in Medicare or other government health insurance programs only to “government-approved” treatment regimens.

Both bills take pains to ensure that comparative effectiveness research results will not constrain coverage or treatment options. The bill by Senators Baucus and Conrad states that research findings “shall not include practice guidelines, coverage recommendations, or policy recommendations” and that neither the reports nor research findings of the Institute “shall be construed as mandates, guidelines, or recommendations for payment, coverage, or treatment.” Similarly, Senator Kennedy’s bill states that “Center reports and recommendations shall not be construed as mandates for payment, coverage, or treatment.”

Despite these similarities, however, the two bills are quite different. Senator Kennedy’s Center mainly appears to be an extension of what the AHRQ is already doing, and no specific budget or funding mechanism is mentioned in the bill. By contrast, the bill by Senators Baucus and Conrad creates a new non-profit entity that would be governed by a board appointed by the Comptroller General composed of a broad spectrum of stakeholders, including representatives from drug and device manufacturers. In addition to annual appropriations of $150 million, the Institute would be funded by a surcharge of $2 per person to be paid by all public and private insurance plans based on their number of covered lives, resulting in an annual budget of roughly $750 million. Moreover, up to 20% of this amount can be used to fund organizations that currently perform comparative effectiveness research, such as the Cochrane Collaboration. With such a significant budget, the Institute could certainly fund a lot of comparative effectiveness research, including large-scale comparative clinical trials.

The Devil is in the Details

2009-06-09T16:49:00.004-04:00

The broad outlines of this year’s healthcare reform legislation are now in focus. It looks like it will include an individual mandate;

Massachusetts-style insurance exchanges, with subsidies to low-income beneficiaries who are not eligible for Medicaid
an obligation for employers to either offer insurance to their employees or pay a per-employee annual penalty, with exclusions for small employers
possibly a watered-down public plan that would compete with private plans in the exchange; modest expansions of Medicaid and SCHIP
modified benchmark formulas for Medicare Advantage plans to reduce federal subsidies
expansion of pay-for-performance programs and bundled payments in Medicare
incentives for primary care physicians to provide care coordination in Medicare
pilot programs for alternative reimbursement systems for Accountable Care Organizations in Medicare.

In addition to these reforms of federal programs, in the pharmaceutical field there is likely to be an add-on for follow-on biologics, and there may even be legislation that would prohibit “reverse payments” in patent infringement settlement agreements between brand and generic drug manufacturers.

Of course, I could be wrong. Over the past seven months, my track record as a healthcare reform prognosticator is not exactly stellar, changing with each shift in the winds. In the immediate aftermath of last November’s election, as Tom Daschle’s name was being mentioned as a possible pick for HHS Secretary, I believed that Daschle’s idea of creating a Federal Health Board was not likely to be part of any Obama administration proposal for healthcare reform. Weeks later, when Daschle had been nominated as HHS Secretary and Director of the White House Office of Health Reform, and Jeanne Lambrew, Daschle’s co-author on Critical: What We Can Do About the Health-Care Crisis, was nominated as Deputy Director of the White House Office of Health Reform, I changed my mind, deciding that their book would serve as a blueprint for proposed reforms, with a prominent role for a Federal Health Board. Weeks after that, when Daschle withdrew his nomination, I changed my mind again, deciding that the whole process was in a state of disarray. Before long, however, signs of progress—and consensus-building—began to emerge, pivoting in particular around Senator Baucus and Senator Kennedy.

These days, the only one talking about a Federal Health Board idea is the always-lovable Senator Charles Grassley, and he wants it known that he is against the idea (as noted in this interview article last week in the new and wonderful Kaiser Health News site).

Even if the broad outlines of healthcare legislation are more or less set, however, the details matter, too. At the end of last week, Senator Kennedy’s office released what was described as a “draft of a draft” of healthcare reform legislation, the American Health Choices Act. This 170-page document, however, really focuses on just two aspects of healthcare reform: 1) the creation of insurance exchanges, here called “gateways,” with an individual mandate and employer “play or pay” provisions; and 2) the creation of a new and voluntary insurance program, the Community Living Assistance Services and Supports Act (CLASS Act), which would provide assistance to individuals who become incapacitated and need to either be placed in an assisted living facility or need the help of a visiting nurse in their home.

One of the most divisive issues in the healthcare reform debate is whether a public plan would be created to compete with private plans in health insurance exchanges. The draft language for the American Health Choices Act makes passing reference to an “affordable access plan” that would be created by the HHS Secretary and that would reimburse providers at Medicare rates plus 10%. No further details on this public plan are offered. We will also have to wait to find out how Senator Kennedy intends to raise revenues in order to make his plan budget neutral. While there is broad public support for healthcare reform, it is exactly these types of details that could mobilize opposition to specific proposals for reform.