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April 29, 2013

Simpson-Bowles and Daschle-Frist-Domenici: Unveil Plans for Reducing Healthcare Spending

In addition to the President’s FY 2014 we previously reported on, former Fiscal Commission heads, Alan Simpson and Erskine Bowles, unveiled an updated deficit reduction plan – building on a framework released in February 2013 – including $2.5 trillion in savings from spending cuts and revenue increases, of which $585 billion comes from healthcare reductions and reforms over the next 10 years.  Highlights from this plan, courtesy of Thorn Run Partners include: 

  • Delivery System and Payment Reforms (-$60B/10): Among other recommendations, includes the cost of replacing the SGR with a payment freeze coupled with a short-term “modest” reduction below the freeze and medium-term development of a formula that promotes participation in new care models. Also expands penalties for avoidable complications and readmissions, as well as:  

o   Broadens competitive bidding to medical devices, laboratory tests, radiologic diagnostic services and other commodities;

o   Fosters “alternative benefit packages” (e.g., that combine Parts A, B and D and offer care coordination); and

  • Ensures IPAB is not restricted by “special interest carve-outs.”  The report also recommends considering giving IPAB the prerogative to recommend benefit design and cost-sharing changes. 
  • Reform Medicare Cost-Sharing Rules (-$90B/10): Proposes restricting Medigap first-dollar coverage and replacing current Medicare cost-sharing rules with a unified deductible, uniform co-insurance and out-of-pocket (OOP) maximum; the report also makes modifications to the original Fiscal Commission recommendation on cost-sharing changes, proposing varying the deductible and OOP limit with income. 
  • Expand Income Relating of Medicare Premiums (-$65B/10) 
  • Increase the Medicare Age with an Income-Related Buy-In (-$35B/10) 
  • Reduce and Reform Post-Acute Care Payments (-$70B/10): Recommends adopting the President’s policy of reducing annual growth in payments to SNFs, IRFs, LTCHs and home health facilities.  
  •   Reduce Various Payments to Hospitals (-$65B/10): Recommends a phase-out of all reimbursement for bad debts, reduced subsidies for graduate medical payments to “better align with patient care costs” and reduced enhanced payments to rural hospitals.     
  • Reduce the Costs of Prescription Drugs in Medicare (-$90B/10): Recommends mandated rebates for dual eligibles covered under Part D but notes that “unlike other proposals, this recommendation would not extend rebates to new classes of beneficiaries who were not subject to rebates prior to implementation of Part D.” Bars pay-for-delay arrangements.
  • Reduce Fraud, Abuse and Excessive Payments Within Medicare (-$25B/10): Among other policies, recommends giving HHS authority to align clinical lab payments with private-sector payments and reclassify certain payments for hospital outpatient evaluation/management (E/M) visits “so they are treated the same as similar visits to a physician’s office.” 
  • Additional Recommendations: Relate to malpractice reform, a new waiver program for state innovation and reforming Medicaid financing by reducing overpayments to States. 

In addition, the Bipartisan Policy Center’s Health Care Cost Containment Initiative released a report (see executive summary) by former Sen. Majority Leaders Tom Daschle and Bill Frist, former Senate Budget Committee Chairman Pete Domenici, and former Congressional Budget Office Director Alice Rivlin presenting 50 health-specific recommendations estimated to reduce the federal deficit by $560B over 10 years. Highlights from this report, courtesy of Thorn Run Partners include: 

Medicare Networks: Creates a third option within FFS Medicare that beneficiaries could elect – or choose Traditional Medicare or a Medicare Advantage Plan – that would involve an ACO-like network. Beneficiaries electing these new Medicare Networks would receive incentives to enroll via discounted standard premiums, an opportunity to share in savings and differential cost-sharing for in-network and out-of-network providers. The SGR would be fixed, with the highest updates during a transition period going to physicians participating in Medicare Networks accepting 2-sided risk. 

Employer-Sponsored Health Insurance (ESI) Tax Exclusion: Replaces the ACA’s “Cadillac tax” on high-cost plans with a limit on the income tax exclusion for employer-sponsored health benefits at the dollar amount equal to the 80th percentile of single and family (age and gender adjusted) ESI premiums in 2015 ($262B revenue increase/10).

Medicare Advantage (MA): Establishes a standardized minimum benefit for MA Plans that would include all services covered by traditional Medicare, a cost-sharing limit to protect against catastrophic expenses and slightly lower cost-sharing. Plans would be paid using a “competitive pricing system,” although this only would take effect in certain regions where it saves costs to the federal government versus the old benchmark (this proposal is detailed on p. 43 of the full report). Separately, the report recommends ending the MA Star Demonstration and “revert[ing] to the smaller bonus payments under current law.”

Modernized Benefit Design: Includes a single, combined A+B deductible and generally replaces co-insurance with co-payments on most covered services, similar to MedPAC recommendations, among several other provisions.  

  • DME: Recommends continued implementation of competitive bidding but lower benchmarks for certain equipment types because “over the long term, we believe the median-bid level is unnecessarily generous to DME suppliers.” 
  • Site of Care Differentials: Suggests equalizing the payment rates for E/M services to the rate of the lowest-cost setting, including facility payments (estimated to save $8.7B/10), and equalizing payments at the level of the lowest-cost site for procedures that are performed both in outpatient departments and physician offices in certain circumstances, such as when the procedure is conducted in physician offices more than half of the time (savings not estimated). 
  • High-Quality, Low-Cost Drug Utilization: Makes various recommendations including:  

Adjusting the Part D LIS cost-sharing to encourage the use of high-value drugs (-$44.3B/10);

Changing Part B reimbursement for provider-administered drugs (specifically, changing the reimbursement to equal the average sales price of the medication plus a flat payment, with the flat payment being set separately – and being payment neutral, before any behavioral change – for each therapeutic class, as designated by HHS) (Savings not estimated);

Convert from Average Wholesale Price to Average Sales Price for remaining Part B drug and vaccine reimbursements (Savings not estimated);  

Address anti-competitive settlements between brand and generic drug manufacturers (-$4B/10); and

Close the REMS loophole that “inhibits development of generic drugs” (-$753M/10). 

  • Graduate Medical Education: Makes several recommendations including reducing IME percentage add-on to inpatient hospital admissions from 5.5 percent to 3.5 percent and repurposing savings for performance-based incentive payments and additional residency slots.

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Some of these provisions sound good or are long overdue, while others have me somewhat worried. While the topic has been unsavory to politicians for years, we have needed to raise the age of medicare enrollment for a long time. It needs to be set on a gradual progressive increase, perhaps tied to life expectancy. Some sort of provision which accounts for an individuals wealth has also long been discussed as a cost saving measure. Offering a buy-in (presumably tiered) seems like a reasonable approach. Post-acute payment reform is a hot-button topic right now and prime for an overhaul. Exactly what such reform should look like is a bit open to debate though. It just doesn't make sense to make more off of a surgery when there are complications that when it goes off perfectly. It creates warped incentive schemes. It will be much easier to reduce complications if hospitals have to eat the cost of caring for complications.

As discussed in a recent post on this blog, the return on investment for investigations of fraudulent filings within medicare and medicaid has been excellent (7.4 times investment?), so investing more to further reduce medicare fraud makes a lot of sense.

The big items in here that have me worried are the cost reductions for drugs. Medicare has traditionally offered relatively little drug coverage, yet economic studies have repeatedly shown that drugs reduce healthcare expenses from hospitalizations, surgery, and other areas of care. New drugs provide this cost offset effect better than old drugs, as a whole tending to pay for their additional expense by reducing non-drug healthcare costs. Thus, I am troubled by the reductions in medicare's already rather meager drug coverage. I expect we shall see these expenses show right back up in non-drug healthcare expenses.

A significant chunk of the work on the new drug cost offset effect was conducted using medicare as a model system, thus we know that these results hold within medicare when considering drugs generally and new drugs in particular. I therefore find it quite concerning that the government has chosen to cut costs by directly reducing the amount of money spent on drugs and furthermore has done so by more than it is reducing hospital reimbursement, even though hospital reimbursement is a larger chunk of health care costs.

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