Medicare Part D drug program wide open to conflicts of interest

Posted by on Tuesday, Mar 5, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions

Office of Inspector General
Department of Health and Human Services, March 2013


1. To assess sponsors’ Pharmacy and Therapeutics (P&T) committees’ conflict-of interest-definitions.
2. To determine whether sponsors’ P&T committees established objective processes to determine and manage committee members’ conflicts of interest.
3. To determine whether the Centers for Medicare & Medicaid Services (CMS) oversee sponsors’ P&T committee compliance with conflict-of-interest requirements.


Most sponsors’ P&T committees had limited definitions of conflicts of interest, which could prevent them from identifying conflicts
* Half of P&T committees’ definitions did not address conflicts prohibited by Federal regulations
* P&T committees’ definitions did not always address relationships with other entities that could benefit from formulary decisions
* More than two-thirds of P&T committees’ definitions did not address employment

Many sponsors’ P&T committees allowed members to determine and manage their own conflicts of interest
* Nearly two-thirds of P&T committees relied on members to determine whether financial interests constituted conflicts
* More than three-quarters of P&T committees relied on members to recuse themselves from discussions and votes

CMS does not adequately oversee sponsors’ P&T committee compliance with Federal conflict-of-interest requirements
* CMS does not review P&T committee conflict-of-interest information
* Data discrepancies would prevent CMS from identifying with certainty the members of each P&T committee

Conclusion and Recommendations

Our findings reveal that both sponsors and CMS conduct limited oversight of P&T committee conflicts of interest, compromising their ability to ensure that financial interests do not influence formulary decisions. Specifically, we found that without direction and oversight from CMS, many sponsors’ P&T committees have limited oversight of members’ conflicts of interest. Additionally, we found that CMS does not adequately oversee compliance with the Federal requirement that at least one physician and at least one pharmacist on each committee be free of conflict.

To address limitations in how P&T committee members’ conflicts are defined, determined, and managed, we recommend that CMS:

* Define PBMs as Entities That Could Benefit From Formulary Decisions

* Establish Minimum Standards Requiring Sponsors To Ensure That Safeguards Are Established To Prevent Improprieties Related to Employment by the Entity That Maintains the P&T Committee

* Establish Minimum Standards Requiring Sponsors To Ensure That an Objective Process Is Used To Determine Whether Disclosed Financial Interests Are Conflicts

* Establish Minimum Standards Requiring Sponsors To Ensure That an Objective Process Is Used To Manage Recusals Because of Conflicts of Interest

* Oversee Compliance With Federal P&T Committee Conflict-of-Interest Requirements and Guidance

Agency Comments and Office of Inspector General Response

CMS did not concur with our first and second recommendations, concurred with part of our third and fourth recommendations, and concurred with our fifth recommendation.

CMS maintained that it is not necessary to conduct additional P&T committee conflict-of-interest oversight because current formulary reviews and P&T committee audits appropriately protect beneficiaries from any adverse effects of potential conflicts of interest.

If conflicts of interest among P&T committee members are not addressed, beneficiaries may receive inferior therapies when safer or more effective therapies are available, limited Medicare dollars may be wasted to pay for inappropriate treatment, and public confidence in the Federal Government may be undermined. In contrast, CMS asserts that conflicts of interest would not disadvantage beneficiaries or the Federal Government because it believes that formulary decisions influenced by conflicts would result in higher premiums and the plan would be priced out of the marketplace.

When the conservatives enacted the Part D drug program for Medicare, they designed it as a private sector solution, using private insurer sponsors and private pharmacy benefit managers (PBMs), while specifically prohibiting any competing public drug plan.

An important function of these intermediaries is to select the drugs to be covered through their formularies, balancing the adequacy of drug selection with the opportunity for profit not only for the insurer sponsors and the PBMs, but also for the pharmaceutical firms supplying the drugs. This function is carried out by the sponsors’ own Pharmacy and Therapeutic (P&T) committees, and not by the government.

The potential for conflict of interest within these P&T committees is enormous. This is why this report from the Office of the Inspector General (OIG) is so important. The committee members are in a position to advocate for the interests of the insurer sponsors, or the PBMs, or the pharmaceutical firms. Decisions which benefit any or all of these would likely be detrimental to the patients who pay premiums and a portion of the Part D drug costs, and to the taxpayers who help fund the Part D program of Medicare.

But don’t worry. This program was set up to allow the free market to work its magic. Apparently this is not only the agenda of the conservatives who established this program, this laissez-faire approach is also being followed by the current “liberal” administration.

In her letter in response to the OIG report, acting CMS administrator Marilyn Tavenner wrote, “… if a P&T committee were to create a formulary while operating under a potential conflict of interest, because a discriminatory formulary would not be approved, the only potential impact would be that the bid could be more expensive and, therefore, less competitive. Beneficiaries could easily evaluate these higher premiums in the marketplace and choose a more efficient plan to meet their needs. As a result, we could expect that any authentic conflicts of interest, given our level of formulary review, would disadvantage the sponsor and not the beneficiary or Medicare program.” Note that this is the exact opposite of what is stated above.

Have you tried to shop for Part D plans? Though the premium might be the first feature you see, the complexity of the various benefits, and especially the differences in the formularies are very difficult to make sense of. How can you look up medications that may be prescribed for you next year when you don’t even know what those medications are? And are you really going to carry a formulary with you each time you see the doctor?

How nonsensical this dependency on the power of the market is can be understood by comparing the prices we get through the privatized version of the government Medicare Part D program, with the prices we get through the government purchases of drugs for the VA system. The VA pays about 40 percent less for drugs than paid under Medicare Part D (Austin Frakt). It seems that the only magic in the marketplace is the increased revenues that these intermediaries can glom off of us pathetic saps.

With HHS Secretary Kathleen Sebelius pushing private Medicare Advantage plans (yesterday’s message), and soon-to-be-confirmed CMS Administrator Marilyn Tavenner pushing private Medicare Part D drug benefits, we have the private sector pretty well covered. One more step to the defined contribution premium support proposal and the private sector will have it locked up.

Our love of the marketplace brings to mind Puck’s comment to Oberon, “Lord, what fools these mortals be!”

GAO finds CMS negligent in risk adjustment for Medicare Advantage plans

Posted by on Monday, Mar 4, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Medicare Advantage: Substantial Excess Payments Underscore Need for CMS to Improve Accuracy of Risk Score Adjustments

United States Government Accountability Office (GAO)
Report to Congressional Requesters, January 31, 2013

What GAO Found

GAO found that the cumulative impact of coding differences on risk scores increased from 2010 through 2012 and was greater than the Centers for Medicare & Medicaid Services’ (CMS) risk score adjustment of 3.4 percent for each of the 3 years. In updating the analysis from its January 2012 report, GAO estimated that cumulative Medicare Advantage (MA) risk scores in 2010 were 4.2 percent higher than they likely would have been if the same beneficiaries had been enrolled continuously in Medicare fee-for-service (FFS). For 2011, GAO estimated that differences in diagnostic coding resulted in risk scores that were 4.6 to 5.3 percent higher than they likely would have been if the same beneficiaries had been continuously enrolled in FFS. This upward trend continued for 2012, with estimated risk scores 4.9 to 6.4 percent higher.

CMS’s adjustment to risk scores for 2010 through 2012 to account for diagnostic coding differences was too low, resulting in estimated excess payments to MA plans of at least $3.2 billion. CMS’s annual 3.4 percent reduction in risk scores is equivalent to $2.8 billion in 2010, $3.0 billion in 2011 and $3.2 billion in 2012. According to GAO’s estimates, the amount of the excess payments to MA plans after accounting for CMS’s adjustments was $0.6 billion in 2010, between $1.1 billion and $1.6 billion in 2011, and between $1.5 billion and $2.9 billion in 2012. Cumulatively across the 3 years, this equals excess payments of between $3.2 billion and $5.1 billion.

For 2013, CMS continues to use the risk score adjustment of 3.4 percent it used in 2010, 2011, and 2012. To conduct its data-based analysis, CMS officials reported that they used the same methodology used in 2010, but they incorporated more recent data.

CMS officials stated that they believed there was policy discretion with respect to the most appropriate adjustment factor but did not identify the specific source of their authority to consider factors other than the required data analysis when determining the adjustment amount. While CMS did not change its risk score adjustment methodology for 2013, agency officials said they may revisit their methodology for future years.

Concluding Observations

Risk adjustment is important to ensure that payments to MA plans adequately account for differences in beneficiaries’ health status and to maintain plans’ financial incentive to enroll and care for beneficiaries regardless of their health status. Our work confirms that differences in diagnostic coding caused risk scores for MA beneficiaries to be higher than those for comparable beneficiaries in Medicare FFS in 2010, 2011, and 2012. CMS’s decision to use a 3.4 percent adjustment to risk scores for 2010 through 2012 instead of the higher adjustments called for by our analysis resulted in excess payments to MA plans. The existence of such excess payments indicates that CMS’s adjustment does not accurately account for differences in treatment and diagnostic coding between MA plans and Medicare FFS—the stated goal of the statute that required CMS to develop a diagnostic coding adjustment. In our January 2012 report, we recommended that CMS take steps to improve the accuracy of the adjustment to account for excess payments due to differences in diagnostic coding. We noted that CMS could, for example, account for additional beneficiary characteristics, include the most recent data available, identify and account for all the years of coding differences that could affect the payment year for which an adjustment is made, and incorporate the trend of the impact of coding differences on risk scores. CMS’s adjustment for 2013 is the same as it used in 2010, 2011, and 2012. However, given our finding that this adjustment was too low and resulted in estimated excess payments to MA plans of at least $3.2 billion, we continue to believe that it is important for CMS to implement our recommendation that it update its methodology to more accurately account for differences in diagnostic coding.


Medicare Advantage remains strong

U. S. Department of Health & Human Services (HHS), September 19, 2012

“Thanks to the Affordable Care Act, the Medicare Advantage and Prescription Drug programs have been strengthened and continue to improve for beneficiaries,” said (HHS Secretary Kathleen) Sebelius.

For the third year in a row, the Centers for Medicare & Medicaid Services (CMS) used authority provided by the Affordable Care Act to protect beneficiaries from significant increases in costs or cuts in benefits.

The private Medicare Advantage plans, offered as an option to traditional Medicare, have been cheating taxpayers by selectively enrolling healthier, lower-cost patients, though being paid at full rates, and more recently by coding patients as having more complicated conditions in order to qualify for higher, risk-adjusted payments. The GAO now provides us with further evidence that Secretary Sebelius and HHS/CMS have been complicit in this fraud.

The Affordable Care Act included provisions to reduce the overpayments to the private Medicare Advantage plans. This GAO report shows that HHS/CMS ignored GAO’s recommendations to improve their risk adjustment methodology, recommendations that should have reduced overpayments due to the embellished diagnostic codes being submitted by the Medicare Advantage plans. HHS/CMS refused to improve the accuracy of their adjustments, which has already resulted in overpayments to these private plans of between $3.2 billion and $5.1 billion.

Why would they do this? Secretary Sebelius has repeatedly touted the Medicare Advantage plans, and has made efforts to expand enrollment in them, even though they cost the taxpayers more money. Overpaying them allows the plans to offer greater benefits in order to entice individuals to enroll. This is leading to further privatization of Medicare, opening up opportunities for Paul Ryan and other members of Congress to push future Medicare beneficiaries into his “premium support” proposal – a voucher plan to privatize Medicare.

Although the Medicare Advantage programs are more expensive, the intent is to expand enrollment and then make a simple change – convert the financing to a defined contribution (premium support), shifting more of the costs to Medicare beneficiaries through higher premiums and then through greater cost sharing (higher deductibles, etc.) to keep the premiums from skyrocketing beyond the means of most seniors.

President Obama has said that he is quite willing to put Medicare on the table as part of the austerity program being advanced by the budget hawks. Secretary Sebelius is advising him on “strengthening” Medicare. Be afraid. Be very afraid.

HHS approves private plans for Arkansas Medicaid patients

Posted by on Friday, Mar 1, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Arkansas’s unusual plan to expand Medicaid

By Sarah Kliff
The Washington Post, February 28, 2013

The Medicaid expansion has emboldened Republican governors to strike all sorts of deals with the Obama administration. They’re willing to make the program larger, the thinking tends to go, only if they can make it more conservative in the process.

The most interesting deal though may be coming out of a state with a Democratic governor: Arkansas. There, Gov. Mike Beebe must get 75 percent of his legislature to sign off on any funds necessary for the Medicaid expansion — a tough sell when Republicans control both the state House and Senate.

What the legislature could be sold on, they told the governor, was this: Using billions in federal Medicaid dollars to buy private health insurance coverage for the state’s lowest income populations.

To the surprise of many — Beebe included — Health and Human Services has given that plan the go-ahead.

Keep in mind, this is really different from what Florida did. There, Gov. Rick Scott received a waiver to move nearly all of the state Medicaid recipients into a Medicaid health plan, run by a private company, to manage their care.

What Arkansas is doing is using Medicaid dollars and sending people to the private health insurance exchanges, where they will shop for a plan like millions of other Americans expected to receive subsidies.

A  private insurance plan tends to be more expensive than Medicaid. The Congressional Budget Office estimates the difference between the two, for an individual, is $3,000.

Right now, that doesn’t matter for Arkansas: The federal government will pay 100 percent of the costs for the Medicaid expansion up until 2017. But after that, the match drops to 10 percent — and then the price tag for coverage does have an effect on the Arkansas budget.

I asked (Beebe spokesman Matt) DeCample why buy the more expensive health plans, which will ultimately cost their state, and the federal government, more money.

“These policies are going to be pricier than strictly through Medicaid expansion,” he replied, “But this is the kind of option that our legislature asked us to look for. Our primary hope is that, we can do this, and this is one way to pursue it.”…

Did I get this right? Health and Human Services has granted Arkansas a waiver to allow Medicaid dollars to be used to purchase private health plans in the state insurance exchange, even though they are much more expensive (and have more limited benefits than Medicaid). And they are doing this only so that state legislators can brag about using private insurers for a public program.


By James G. Kahn, M.D.

In his recent Time magazine article, Steven Brill paints a vivid and rather depressing picture of the perverse malfunctioning of our health care system – overpriced and technology-addicted – and he acknowledges some of the advantages of Medicare.

Sadly, however, he shies away from an endorsement of the obvious solution: an improved Medicare for all, i.e. single-payer national health insurance.

I’ll come back to that a little later. However, let me first say that Brill masterfully illuminates much of what’s wrong with U.S. health care.

Take, for example, the “chargemaster” list: an archival, bizarrely hyper-inflated price list in each hospital based on some long-lost secret formulas and automatically inflated over time.

As a physician and health policy researcher, I’ve long known about the massive charges offered to non-contract payers (read: individuals not covered by a public or private insurer), charges that are completely meaningless for costing studies because they’re almost never paid in full and don’t represent the real resources used to provide care. However, what Brill lays out brilliantly (pun intended) is the following:

* Some very poor (lower-middle income) people actually do pay the sky-high chargemaster rates.

* There is a cottage industry (growing, I’m sure, if nothing else due to this article) to help those hapless souls negotiate steep discounts on these ridiculous bills.

* Hospital administrators either refuse to discuss the chargemaster list or offer up the most heinous, transparently nonsensical justifications for using it.

* Perhaps worst of all, the CEOs of large not-for-profit providers are paid literally millions of dollars (OK, not tens of millions like big for-profit companies, but still …), thereby introducing into a supposedly public-good-oriented setting the compensation (and marketing) tone of for-profit industry.

* When these not-for-profits list their “charity” care they value it at the price levels in the chargemaster, even though the cost to produce those services is less than 10 percent of the chargemaster price.

In these and other instances, Brill performs an outstanding public service. However, he regrettably stops short (or his editors stopped him short) of explaining why a single-payer health care system is the only effective remedy for the mess we find ourselves in today. This despite the fact that much of what he says would lead you directly to that conclusion.

He goes so far as to quote others, including John Gunn, Sloan-Kettering’s chief operating officer, who says, “If you could figure out a way to pay doctors better and separately fund research … adequately, I could see where a single-payer approach would be the most logical solution. … It would certainly be a lot more efficient than hospitals like ours having hundreds of people sitting around filling out dozens of different kinds of bills for dozens of insurance companies.”

Yet Brill characterizes the most logical solution as “unrealistic” and fraught with the danger of government overreach and intrusion, summarily dismissing it. Need we mention insurance-company overreach and intrusion in the doctor-patient relationship? Need we note the freedom of Medicare beneficiaries to choose their own doctor and hospital, something that would also characterize a single-payer system?

Incidentally, Brill sharply undervalues the government role in paying for health care. He says that the federal government pays $800 billion per year out of our $2.8 trillion health bill, with the remainder mainly picked up by private insurers and individuals.

The $800 billion federal spending on Medicare and the federal portion of Medicaid is right. However, when you add in other federal programs, the state portion of Medicaid, other state and local programs, health insurance for government employees, and tax subsidies, the total government contribution is over 60 percent of total health spending, and rising. Our government already spends enough to pay for universal single payer!

Single-payer health reform is clearly the answer. We need to create the meme and the momentum and the aura of inevitability to do the right thing — despite the opposition of individuals and organizations with massive vested financial interests in the private health industry. They can be overcome.

Think Lincoln and the 13th amendment. As he said (or at least Daniel Day-Lewis said in the movie), regarding prospects of passing the amendment out of Congress, despite doom-saying by his advisers — “I like our chances” (slight smile).

I like our chances on single payer because it’s now so obvious how irremediably broken our system is, and the house of cards will eventually fall. It’s all about perseverance and timing.

James G. Kahn, M.D., M.P.H., is a professor at the Philip R. Lee Institute for Health Policy Studies, Global Health Services, and the Department of Epidemiology and Biostatistics, all at the University of California, San Francisco. He is also past president of the California chapter of Physicians for a National Health Program.

Woolhandler, Himmelstein and Relman on the right path for Medicare

Posted by on Wednesday, Feb 27, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Sunday Dialogue: The Future of Medicare

The New York Times, February 23, 2013

Readers weigh in on problems with the health care program:

Canada’s Medicare program — phased in at the same time as the American version — shows how we can make Medicare simpler and thriftier, while simultaneously upgrading its coverage. Canada’s program covers all Canadians (not just the elderly) under a single public program in each province, and bans co-payments and deductibles.

Patients can choose any doctor and hospital. Cutting out private insurers and the complexity and fragmentation they impose has simplified paperwork for patients, doctors and hospitals. Administrative costs are roughly half United States levels, saving more than $1,000 per capita.

Over all, Medicare spending on the elderly has grown three times faster in the United States than in Canada since 1980, while life expectancy (for the elderly, as for all age groups) has grown faster in Canada. If American Medicare costs had risen at Canadian rates, we’d have saved more than $2 trillion by now, and Medicare’s trust fund would show a healthy surplus.

New York, Feb. 20, 2013

The writers, internists and professors at the CUNY School of Public Health at Hunter College, co-founded Physicians for a National Health Program.


Medicare is headed for bankruptcy because it depends largely on open-ended fee-for-service payment of almost any services providers choose to deliver, at prices mainly determined by the providers. Compounding the problem, most providers act like independent businesses seeking to increase their income, regardless of whether they are for-profit or investor-owned.

An effective Medicare fix would require a new payment system that prospectively pays providers for comprehensive care at a rate set by a single public payer. It would also need a not-for-profit medical care system based on multispecialty doctor groups that pay physicians by salary, thus minimizing incentives to deliver duplicative or unnecessary care.

The new system would have to be mandatory for all citizens, including legislators, and it would have to be financed by a progressive, earmarked health care tax.

Obviously, such reform would be slow and difficult, but so would any other change that threatened vested interests. All reform will depend on an aroused public opinion.

Tucson, Feb. 21, 2013

The writer is professor emeritus of medicine and social medicine at Harvard Medical School and a former editor in chief of The New England Journal of Medicine.…

At a time when Congress and the Obama administration are contemplating a reduction in Medicare spending as a means of paring down our national budget deficit, it is important to remind the nation of the beneficial changes that we could be making to the Medicare program that would bring affordable, high quality care to everyone under a single payer Medicare budget that we could afford. The messages of Steffie Woolhandler, David Himmelstein and Arnold Relman need to drown out the messages of those who would send Medicare down the wrong path.

Impending access crisis for low-income patients

Posted by on Tuesday, Feb 26, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

States Can Cut Back on Medicaid Payments, Administration Says

By Robert Pear
The New York Times, February 25, 2013

The Obama administration said Monday that states could cut Medicaid payments to many doctors and other health care providers to hold down costs in the program, which insures 60 million low-income people and will soon cover many more under the new health care law.

The administration’s position, set forth in a federal appeals court in California, has broad national implications as it comes as the White House is trying to persuade states to expand Medicaid as part of the new law.

In a brief filed with the United States Court of Appeals for the Ninth Circuit, in San Francisco, federal officials defended a decision by California to cut Medicaid payments to many providers by 10 percent.

Kathleen Sebelius, the secretary of health and human services, approved the cuts in October 2011 after finding that beneficiaries would still have “adequate access” to the wide range of services covered by Medicaid.

The Obama administration urged judges to uphold those cuts, which are being challenged by patients, doctors, dentists, hospitals, pharmacists and other health care providers in California.

Health care providers said California’s payment rates were inadequate even before the cuts. They pointed to a federal study that said, “California stands out because of its very low Medicaid payment levels.”

In an interview, Gov. Jerry Brown of California, a Democrat, said the Medicaid cuts were essential to his efforts to dig the state out of a budget hole.

Federal law says Medicaid rates must be “sufficient to enlist enough providers” so that Medicaid beneficiaries have access to care at least to the same extent as the general population in the same geographic area.

Moreover, the administration said, Congress gave states “wide discretion” to set Medicaid rates, and courts should not second-guess decisions by Secretary Sebelius on the adequacy of rates.

“There is no general mandate under Medicaid to reimburse providers for all or substantially all of their costs,” the administration said.…


Healthcare overhaul may threaten California’s safety net

By Anna Gorman
Los Angeles Times, February 25, 2013

An estimated 3 million to 4 million Californians — about 10% of the state’s population — could remain uninsured even after the healthcare overhaul law takes full effect. The burden of their care will fall to public hospitals, county health centers and community clinics. And those institutions may be in jeopardy.

County health leaders and others say the national health law has had the unintended consequence of threatening the financial stability of the state’s safety net.

And under the federal law, some of the funding that goes to safety-net hospitals is also set to decrease.

Now, as the state scrambles to create the new healthcare infrastructure, Gov. Jerry Brown is proposing to take back another crucial pot of money that counties have depended on for more than two decades to care for the uninsured.,0,3348028.story

California has been a leader in setting national trends in health care financing. Two developments should have low-income patients very concerned. California’s Medicaid program is critically underfunded, and the state is reducing payment rates by another ten percent. Also, the state is reducing funding for local safety-net institutions which provide critical access for low-income populations.

Perhaps the most alarming of all is the official response of the Obama administration (in an appeals court filing): “There is no general mandate under Medicaid to reimburse providers for all or substantially all of their costs.”

We have said over and over again that Medicaid, as a welfare program, will never have the political support to fund it adequately. The burden of the additional load of Medicaid patients will surely find the health care resources strained beyond the capacity of willing providers, especially when you consider that California already is not meeting the costs of providing care to this vulnerable population. And the 3 to 4 million Californians who will remain uninsured will need to rely on the safety-net institutions, though those institutions also are in jeopardy – again because of the lack of political support for welfare programs.

If California is successful with its cruel budget trimming, it can be anticipated that many more states will follow.

Here’s an amazing fact: Low income patients do not have the money to pay for health care. (What an intuitive stroke of genius!) What they need is an affordable system that removes financial barriers to care while ensuring adequate financing of our entire health care delivery system, thereby removing health system disincentives to providing essential care for this vulnerable population. Make that for all of us.

TIME: Steven Brill’s “bitter pill” should wake us up

Posted by on Monday, Feb 25, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Bitter Pill: Why Medical Bills Are Killing Us

By Steven Brill
TIME, February 20, 2013

The Way Out Of the Sinkhole

“I was driving through central Florida a year or two ago,” says Medicare’s (Jonathan) Blum. “And it seemed like every billboard I saw advertised some hospital with these big shiny buildings or showed some new wing of a hospital being constructed … So when you tell me that the hospitals say they are losing money on Medicare and shifting costs from Medicare patients to other patients, my reaction is that Central Florida is overflowing with Medicare patients and all those hospitals are expanding and advertising for Medicare patients. So you can’t tell me they’re losing money … Hospitals don’t lose money when they serve Medicare patients.”

If that’s the case, I asked, why not just extend the program to everyone and pay for it all by charging people under 65 the kinds of premiums they would pay to private insurance companies? “That’s not for me to say,” Blum replied.

In the debate over controlling Medicare costs, politicians from both parties continue to suggest that Congress raise the age of eligibility for Medicare from 65 to 67. Doing so, they argue, would save the government tens of billions of dollars a year. So it’s worth noting another detail about the case of Janice S., which we examined earlier. Had she felt those chest pains and gone to the Stamford Hospital emergency room a month later, she would have been on Medicare, because she would have just celebrated her 65th birthday.

If covered by Medicare, Janice S.’s $21,000 bill would have been deeply discounted and, as is standard, Medicare would have picked up 80% of the reduced cost. The bottom line is that Janice S. would probably have ended up paying $500 to $600 for her 20% share of her heart-attack scare. And she would have paid only a fraction of that — maybe $100 — if, like most Medicare beneficiaries, she had paid for supplemental insurance to cover most of that 20%.

In fact, those numbers would seem to argue for lowering the Medicare age, not raising it — and not just from Janice S.’s standpoint but also from the taxpayers’ side of the equation. That’s not a liberal argument for protecting entitlements while the deficit balloons. It’s just a matter of hardheaded arithmetic.

As currently constituted, Obamacare is going to require people like Janice S. to get private insurance coverage and will subsidize those who can’t afford it. But the cost of that private insurance — and therefore those subsidies — will be much higher than if the same people were enrolled in Medicare at an earlier age. That’s because Medicare buys health care services at much lower rates than any insurance company. Thus the best way both to lower the deficit and to help save money for people like Janice S. would seem to be to bring her and other near seniors into the Medicare system before they reach 65.

Meanwhile, adding younger people like Janice S. would lower the overall cost per beneficiary to Medicare and help cut its deficit still more, because younger members are likelier to be healthier.

If that logic applies to 64-year-olds, then it would seem to apply even more readily to healthier 40-year-olds or 18-year-olds. This is the single-payer approach favored by liberals and used by most developed countries.


Yet while Medicare may not be a realistic systemwide model for reform, the way Medicare works does demonstrate, by comparison, how the overall health care market doesn’t work.

Unless you are protected by Medicare, the health care market is not a market at all. It’s a crapshoot. People fare differently according to circumstances they can neither control nor predict. They may have no insurance. They may have insurance, but their employer chooses their insurance plan and it may have a payout limit or not cover a drug or treatment they need. They may or may not be old enough to be on Medicare or, given the different standards of the 50 states, be poor enough to be on Medicaid. If they’re not protected by Medicare or they’re protected only partly by private insurance with high co-pays, they have little visibility into pricing, let alone control of it. They have little choice of hospitals or the services they are billed for, even if they somehow know the prices before they get billed for the services. They have no idea what their bills mean, and those who maintain the chargemasters couldn’t explain them if they wanted to. How much of the bills they end up paying may depend on the generosity of the hospital or on whether they happen to get the help of a billing advocate. They have no choice of the drugs that they have to buy or the lab tests or CT scans that they have to get, and they would not know what to do if they did have a choice. They are powerless buyers in a seller’s market where the only sure thing is the profit of the sellers.

Indeed, the only player in the system that seems to have to balance countervailing interests the way market players in a real market usually do is Medicare. It has to answer to Congress and the taxpayers for wasting money, and it has to answer to portions of the same groups for trying to hold on to money it shouldn’t. Hospitals, drug companies and other suppliers, even the insurance companies, don’t have those worries.…

Steven Brill’s TIME article, “Bitter Pill: Why Medical Bills Are Killing Us,” seems to be awakening those who have, until now, accepted the very high prices of health care as an inevitability for having a technologically advanced health care system here in the United States.

In his 36 page article – which will surely be required reading in many health policy courses – Brill makes it clear that we no longer need to take the “bitter pill” of medical bills that are killing us. Clearly, Medicare already has several tools to control costs and has the potential for further improving value in the nation’s health care purchasing.

At the end of his article, Brill seems to be advancing a non sequitur when he writes, “The real issue isn’t whether we have a single payer or multiple payers. It’s whether whoever pays has a fair chance in a fair market… We don’t have to scrap our system and aren’t likely to.” This certainly does not follow from what he had to say as the central theme of his article.

He then recommends some tired or inadequate remedies that would have very little impact on the problems that we face in health care. What is ironic is that he has built a tremendous case for the logical solution – an improved Medicare for all – and then he seems to dismiss it. You cannot read his article and escape the conclusion that a single payer national health program is an absolute imperative, that is, if we really do want affordable care for everyone.

Download this article (the full 36 pages is available for free at the link above), and share it with others. But put a Post-it note on it that states: WARNING! For the health of our nation, ignore the section at the end titled “Changing Our Choices” (that’s the tired remedies section), but concentrate on what an improved Medicare system could do for all of us.

CMS limits innovative designs to multi-payer models

Posted by on Friday, Feb 22, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

State Innovation Models Initiative: General Information

Centers for Medicare and Medicaid Services
Center for Medicare and Medicaid Innovation, February 2013

The State Innovation Models Initiative is providing up to $300 million to support the development and testing of state-based models for multi-payer payment and health care delivery system transformation with the aim of improving health system performance for residents of participating states. The projects will be broad based and focus on people enrolled in Medicare, Medicaid and the Children’s Health Insurance Program (CHIP).


The Innovation Center created the State Innovation Models initiative for states that are prepared for or committed to planning, designing, testing, and supporting evaluation of new payment and service delivery models in the context of larger health system transformation. The Innovation Center is interested in testing innovative payment and service delivery models that have the potential to lower costs for Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP), while maintaining or improving quality of care for program beneficiaries. The goal is to create multi-payer models with a broad mission to raise community health status and reduce long term health risks for beneficiaries of Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP).

For more information, click on “Fact Sheet: State Innovation Models Initiative” at this link:


State Receives $937,691 Grant to Continue Healthcare Transformation Efforts

State of Hawaii, February 21, 2013

The State of Hawaii once again has an opportunity to demonstrate its leadership in healthcare transformation. The Centers for Medicare and Medicaid Services (CMS) today announced that Hawaii was awarded a planning grant worth $937,691 as part of the agency’s State Innovations Model (SIM) initiative.

Beginning April 1, the state will have six months to design and submit a State Healthcare Innovation Plan, built around multipayer payment and healthcare delivery system transformation.

“Transforming our state’s healthcare system continues to be a focus of my New Day plan, and under the leadership of Beth Giesting, the state’s healthcare transformation coordinator, we’ve made great strides over the last year,” said Gov. Neil Abercrombie.…

Section 3021 of the Affordable Care Act establishes the Center for Medicare and Medicaid Innovation. Its purpose is “to test innovative payment and service delivery models to reduce program expenditures under the applicable titles (Medicare and Medicaid) while preserving or enhancing the quality of care furnished to individuals under such titles.”

The law lists “opportunities” for models to be tested, including “allowing states to test and evaluate systems of all-payer payment reform for the medical care of residents of the state.” Of note, nowhere does section 3021 limit the innovative testing to “multi-payer models.” Yet CMS now states that “the goal is to create multi-payer models.”

To show how important this administrative decision is, look at Hawaii. Gov. Neil Abercrombie has been a single payer supporter. He was a cosponsor of H.R. 676, John Conyers’ single payer bill, when he was a member of Congress. Efforts have recently been underway to move Hawaii towards becoming a single payer state. But now with this grant, Hawaii is going to “design and submit a State Healthcare Innovation Plan, built around multipayer payment and healthcare delivery system transformation.”

The CMS fact sheet (link above) list other states receiving funds under this program, including states that were thought to be in a position to lead the way on single payer reform, such as Vermont and California.

According to the fact sheet, Vermont has been awarded a $45 million grant to establish “three models: a shared-savings ACO model that involves integration of payment and services across an entire delivery system; a bundled payment model that involve integration of payment and services across multiple independent providers; and a pay-for-performance model aimed at improving the quality, performance, and efficiency of individual providers.” That doesn’t exactly have a single payer ring to it.

Although the law did not limit the innovations to be developed and tested to multi-payer models, the Obama administration has. Once again, single payer advocates have been denied a seat at the table. What are we going to do about it?

Intensity bias in risk adjustment

Posted by on Thursday, Feb 21, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Observational intensity bias associated with illness adjustment: cross sectional analysis of insurance claims

By John E Wennberg, Douglas O Staiger, Sandra M Sharp, Daniel J Gottlieb, Gwyn Bevan, Klim McPherson, H Gilbert Welch
BMJ, February 21, 2013


We have shown that a method of risk adjustment that used data on diagnoses and controlled for the effects of supply, by using data on the frequency of visits by physicians in the year prior to a patient’s death, was more efficient than the standard method; but that still accounted for less than 25% of geographic variation in age, sex, and race adjusted mortality among fee for service Medicare beneficiaries. Thus, our study points to the importance of developing risk adjustment methods that better explain variation in age, sex, and race mortality rates and suggests that these will be found by using data that are clearly independent of the effects of supply.


Dartmouth Study Questions Widely Used Risk-Adjustment Methods

By Jordan Rau
Kaiser Health News, February 21, 2013

In evaluating a hospital and health plan in the increasingly expensive U.S. health care system, federal officials and researchers often first factor in an assessment of how sick their patients are. A new study, however, challenges the validity of several widely used “risk-adjustment” efforts and suggests that Medicare is overpaying some plans and facilities while underpaying others.

Without these risk adjustments to level the comparisons, a hospital with more frail and very ill patients—who are more likely to die — might incorrectly appear to be doing a worse job than a hospital with healthier patients — who are more likely to survive.

Medicare risk-adjusts when determining how much to pay private Medicare Advantage insurance plans. It also used risk adjustments when deciding that 2,217 hospitals should be penalized for having high rates of patient readmissions.  Risk adjustment is also a key component in new models of delivering care, such as the accountable care organizations.

The new study by the Dartmouth Atlas Project, published today in the health journal BMJ, faults the practice of trying to assess how sick patients are by looking at records to see patient diagnoses. The authors argue that the more times patients see doctors or get tests, the more new diagnoses they are given. “The more one looks, the more one finds,” the authors wrote. The Atlas researchers have asserted in three decades of research that areas of the country with gluts of hospital beds, specialists and other providers tend to deliver more care, whether it’s needed or not.

“You would think sicker places would have higher visit rates, but they don’t,” said Dr. John Wennberg, the lead author and the founder of the Atlas.

Here’s how their latest study worked: The researchers examined Medicare records for more than 5 million beneficiaries in 306 different regions of the country. They looked at three different formulas commonly used to assess how sick patients are, each based on the number and nature of diagnoses for patients as well their age, race and sex. Medicare uses one of those methods, known as “hierarchical condition categories” (HCC) to adjust for risk.

The researchers also analyzed the death rates of patient populations in each of the 306 regions. They found that the sickness of the patients explained between 10 and 12 percent of the discrepancy between places with high mortality rates and those with low mortality rates. But there was still a wide spread between regions of the country. For instance, under the HCC method, the death rate in the Salt Lake City region was 59.3 patients per 1,000—much higher than around Miami, where the death rate was 32.6 patients per 1,000. If that difference were accurate, then it would appear that patients in Salt Lake City were getting astoundingly worse care than in Miami—something that the researchers considered implausible.

Next, the researchers looked at the number of physician visits the patients had in the previous year. They then used statistical methods to “correct” the sickness rates, essentially reclassifying those patients with lots of excess physician visits as less sick than they would appear based by their diagnoses alone.

When the researchers used this revised metric to look at regional death rates, they now found it explained between 21 percent and 24 percent of the differences between high-mortality and low-mortality areas—twice as much as the standard risk-adjustment methods explained. Once visits were factored into the equation, Salt Lake City’s death rate dropped to 51.8 patients per 1,000 and Miami’s rate rose to 47.3 percent. That was much closer than before, although there remained an unexplained variation.

In a phone interview, Wennberg said the paper showed that the government and others need to refine the methods of adjusting for risk. “The way we’re doing it now has a lot of problems,” he said.…

Private insurers pride themselves on market innovation. They will always find ways to reduce the amount that they spend on patients. They use devious methods to selectively enroll healthier individuals while receiving payments that are more appropriate for a mixture of both the sick and the healthy. When efforts are made by means of risk adjustment to modify payments to compensate for this injustice, insurers will use data manipulations to make their patients appear to be even sicker than they are in order to receive extra payments for their care.

This study by John Wennberg and his colleagues demonstrates that the differing regional rates of visits by physicians introduces a bias that makes it appear that regions with lower visits by physicians have higher costs and higher mortality rates, and vice versa. They conclude that correcting for such variations in intensity of patient observation (physician visit rates) would improve current risk adjustment methodologies, but that this would still account for “less than 25% of geographic variation in age, sex, and race adjusted mortality among fee for service Medicare beneficiaries.”

We already know that the private Medicare Advantage plans play games with risk adjustment. The Affordable Care Act will require risk adjustment between the private plans offered by the state insurance exchanges, and we can anticipate that they, too, will game the system.

Will this latest study finally bring us a risk adjustment process that the insurers cannot game? Unlikely. As more data are added, such as the intensity of patient observation suggested by this study, the administrative complexity increases, while the insurers find ever more not-yet-patched holes in the risk adjustment infrastructure.

As long as individual patients are linked to individual private plans, there will always be intermediaries – the private insurers – who will manipulate the system to their own benefit. We should remove these superfluous, administratively inefficient middlemen and replace them with our own public administrators. The task of negotiating appropriate payments with health care professionals and institutions would be much simpler if we got the private intermediaries out of the way.

Young immigrants excluded from ACA benefits

Posted by on Wednesday, Feb 20, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Young immigrants shut out of health reform

By Drew Joseph
San Francisco Chronicle, February 19, 2013

California’s young immigrants who have been granted reprieves to stay in the country stand to gain little from the federal health reform law that the state Legislature is working to implement.

The Affordable Care Act excludes illegal immigrants from accessing the law’s benefits, but some immigrant and health advocates are angry that the young people known as Dreamers have been left out, saying the policy contradicts the law’s intent of expanding coverage to more people.

“It really defeats what the goals of the ACA were to begin with,” said Sonal Ambegaokar, health policy attorney at the National Immigration Law Center.

The Deferred Action for Childhood Arrivals program (DACA), which was announced in June, allows people who were brought into the United States when they were young to stay for two years if they pursue education or military service. The young people eligible for the program are known as Dreamers, in reference to the proposed Dream Act – legislation that would give them a path to citizenship.

More than a quarter of the 1.76 million people who are or will be eligible to apply for DACA – about 460,000 immigrants – live in California, according to an August 2012 Migration Policy Institute report.

After the DACA program was announced, the Obama administration clarified the policy, specifying that people to whom DACA applies will not qualify for Medicaid now or as the health law is implemented. And while many Americans will receive subsidies to buy insurance through their state’s exchanges – the insurance marketplaces established by the Affordable Care Act – people granted DACA approval will not be able to purchase coverage through those exchanges even with their own money.

Critics say the rule does not make sense. They argue that people approved for the program are lawfully present in the country, but when it comes to health care, they are treated as undocumented immigrants and will face a harder time finding coverage.…


Health Care for DACA Grantees

National Immigration Law Center, January 2013

What health insurance options are available to DACA grantees under ACA?

Until recently, like other individuals granted deferred action, DACA grantees would have had access to all the new health insurance options under ACA as “lawfully present” individuals. Due to a rule change by the Obama administration in August 2012, DACA grantees were specifically excluded from the ACA as well as nonemergency Medicaid and CHIP, and have the same access to health insurance as do undocumented individuals despite being granted deferred action by the U.S. Department of Homeland Security. As a result of the rule change, DACA grantees who have valid work permits and valid Social Security numbers (SSNs) and who are otherwise eligible:

* Cannot enroll today in affordable coverage through Medicaid or CHIP unless their state provides coverage to a broader group of lawfully present individuals.

* Do not have access today to prenatal care through Medicaid or CHIP unless their state provides coverage for pregnant women regardless of the woman’s immigration status.

* Cannot apply today for private health insurance under Pre-Existing Condition Insurance Plan (PCIP) unless their state has a similar health insurance program that is available regardless of status.

* Will not be able to buy affordable private health insurance, even at full cost, in the new insurance marketplaces created by ACA after 2014.

* Will not be eligible for federal tax credits (or subsidies) to help make private health insurance affordable after 2014, even if they are paying federal taxes.

* Will not be eligible for the Basic Health Plan if their state has this program.

* Likely will not be required to have health insurance after 2014.

What health care options do DACA grantees and undocumented individuals have today?

* Emergency-room care.

* Community health centers and free clinics.

* Public and safety-net hospitals.

* Public health services (immunizations, treatment of communicable diseases such as tuberculosis, HIV, or sexually transmitted diseases).

* Emergency treatment under the emergency Medicaid program, including labor and delivery for pregnancy.

* Hospital and community health centers’ financial assistance programs (also known as “charity care”).

* Private health insurance.

Young immigrant children who were brought to this country and remained here without proper documentation have been raised here and are as much a part of our culture as are legal citizens. The Dream Act has been proposed to grant these individuals legal status to match the reality that this is their country.

Because of the failure of Congress to pass the Dream Act, President Obama has established the Deferred Action for Childhood Arrivals program (DACA). This is not a replacement of the Dream Act, but it is aimed at the same demographic, and it does provide temporary, potentially renewable legal status.

It seems that these individuals under DACA should have the same access to health care as other documented immigrants. However, it was decided that they would specifically be excluded from the provisions of the Affordable Care Act. They are not totally excluded from all health care since they have the same access as undocumented immigrants – those services and facilities listed above.

Although some might say that these services are adequate for this population, most of us want not want these limitations placed on our health care (with the exception of being able to purchase insurance outside of the exchanges and without subsidies – a problem for this population).

Immigration policy and health policy are two different topics. They should be dealt with separately. Right now, Congress is engaged in a process to reform immigration, and hopefully our lawmakers will demonstrate wisdom and benevolence in their decisions.

Health care is another matter. Everyone should have whatever health care is necessary. Period. Our laws and regulations and their implementation should have a goal of making certain that people get the care that they need. The Obama administration’s interpretation of their own DACA program falls short.

Under an optimally designed single payer program, whomever you are, if you need care, you get care. That’s the way it should be.

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