By Sue Ter Maat
American Medical News, February 11, 2013

For the sixth year in a row, Moody’s Investors Service is issuing a “negative outlook” to nonprofit hospital finances. Yet the bond-rating agency notes that the facilities have collectively improved their bottom lines in recent years.

In part, Moody’s said, the unexpected gains have come because of physicians. Closer relationships with physician practices, including outright acquisitions, have helped hospitals stabilize their market shares and find ways to cut costs, Moody’s said. “The theme is for tighter and closer alignment and integration [of doctors] with hospitals,” said Lisa Martin, senior vice president of Moody’s Healthcare Team.

Nonprofit hospitals’ three-year compound annual growth rate of revenue fell from 7.3% in 2008 to 5.4% in 2011, Moody’s said. The measure looks at changes over the previous three years and assigns an average annual value to them.

But hospitals have taken positive steps that have prevented an even greater negative impact, Martin said. Among them are mergers and acquisitions of other hospitals, long-term care facilities and physician practices. These forces have meant that doctors are being drawn more closely into hospital operations and decision-making through joint ventures and hospital board memberships, especially as more doctors are employed instead of working in their own practices, she said.

Mergers and acquisitions are expected to continue through 2013 and 2014, as hospitals prepare for full implementation of the ACA. Moody’s analysts consider this activity positive, because it has led to consolidation of services and reduced expenses.

But Moody’s warned that mergers and acquisitions could be difficult in the short term because of turnaround challenges at takeover targets, merging cultures and difficulty closing services after mergers.

http://www.ama-assn.org/amednews/2013/02/11/bisc0211.htm?utm_source=nwltr&utm_medium=heds-htm&utm_campaign=20130211

Comment:

By Don McCanne, M.D.

Consolidation. Mergers. Acquisitions. Between hospitals. Between physicians. Between hospitals and physicians. Between physicians and insurers. Within a framework of integrated affordable care organizations.

Our political leaders’ decision to choose a market model of health care reform led by private insurers is resulting in the shutting down of whatever minimal semblance there was of a free market between competing health plans, as we convert to health care delivery oligopolies and monopolies.

Does anyone really believe that the private insurers are going to be able to drive costs lower and quality higher by their market skills in leveraging the forces of competition between health care delivery systems? The insurers already understand that this model is fading rapidly. That is why they are involved in designing managed care products that shift the insurance risk to others while greatly expanding their market in administrative services. Plus they are gaining control of sectors of the actual health care delivery system.

Our policy experts say, “Yes, but by establishing accountable care organizations, this is the way that we can start to pay for quality instead of volume.” Accountable to whom? Not the patients nor the taxpayers.

By Alex Brill, research fellow, American Enterprise Institute
The Hill, February 7, 2013

One of the next ACA taxes scheduled to take effect is a health insurance tax that will hit small businesses and their employees particularly hard. The tax is officially imposed on health insurance companies, but the greatest effect will be felt by their customers because the insurance companies will pass most of the burden on through higher premiums. An analysis by the nonpartisan Joint Committee on Taxation found that the tax will raise insurance premiums on average by $350–$400 per affected family in 2016.

The higher premiums caused by the new tax will also prompt some employers to self-insure rather than purchase true insurance for their workers. The tax exempts employers who self-insure, as well as certain nonprofit insurers who provide more than 80 percent of their services to Medicare, Medicaid, CHIP, or dual-eligible plans.

Normally, when some taxpayers change their behavior and avoid a tax, the tax raises less revenue than might otherwise be expected. Oddly, the insurance tax is designed in a way that prevents any revenue decline. The ACA presets the insurance tax’s total revenue yield at $8 billion next year, rising to $14.3 billion by 2018. To make this possible, each year’s tax is calculated in the following year, with the preset total tax burden allocated among insurance companies based on each company’s share of the market.

If insurance companies raise premiums to cover the tax and some employers respond by self-insuring, the result will be a bigger tax on the employers that remain in the insurance market. Of course, the bigger tax would fuel another round of premium hikes, causing more employers to self-insure, further premium increases, and so on.

According to the Kaiser Family Foundation’s 2012 Survey of Employer Health Benefits, 15 percent of the smallest employers self-insure, roughly half of employers with 200–999 workers self-insure, and 93 percent of firms with more than 5,000 workers do so. Because the smallest employers almost never self-insure, they will end up bearing the brunt of the tax. Midsized firms will be most likely to shift to self-insuring their workers.

Congress and the public may not view insurance companies as sympathetic figures. But it’s the insurance companies’ customers who will be most penalized by this new tax, whether through $400 premium increases or by being forced to run the risks of self-insuring.

http://thehill.com/blogs/congress-blog/economy-a-budget/281749-tax-hikes-you-may-have-forgotten-about

Comment:

By Don McCanne, M.D.

When we are talking about financing our health care system – 17 percent of our GDP – we have to get tax policy right. One tax being imposed by the Affordable Care Act – a tax on health insurers – will surely be passed on to purchasers of health plans in the form of higher premiums. When health health insurance premiums are already unbearable for many, it doesn’t seem wise to adopt a tax policy that pushes premiums even higher.

Another peculiarity about this tax is that self-insured employers are exempt. We have already written about the serious problems with the current trend of small businesses self-insuring – less regulatory oversight, exemption from some of the provisions of the Affordable Care Act, and the vagaries of stop-loss insurance for the self-insured. Yet the insurance tax will increase this unfortunate trend.

Since the global amount of the tax is set in law and it is assessed proportionately amongst the insurers, as many employers convert to self-insurance, the tax payment required of those continuing to be insured through private plans will rise disproportionately. Although this might not reach the level of a death spiral, the distribution would certainly be inequitable.

One of the most important features of a single payer national health program is that it would be funded through equitable tax policies. Everyone pays their fair share, based on ability. Not only could we fix our health care system through single payer reform, but we would have the additional advantage of moving us much closer to an equitable system of taxation.

Tax hikes you may have forgotten about

By Alex Brill, research fellow, American Enterprise Institute
The Hill, February 7, 2013
One of the next ACA taxes scheduled to take effect is a health insurance tax that will hit small businesses and their employees particularly hard. The tax is officially imposed on health insurance companies, but the greatest effect will be felt by their customers because the insurance companies will pass most of the burden on through higher premiums. An analysis by the nonpartisan Joint Committee on Taxation found that the tax will raise insurance premiums on average by $350–$400 per affected family in 2016.
The higher premiums caused by the new tax will also prompt some employers to self-insure rather than purchase true insurance for their workers. The tax exempts employers who self-insure, as well as certain nonprofit insurers who provide more than 80 percent of their services to Medicare, Medicaid, CHIP, or dual-eligible plans.
Normally, when some taxpayers change their behavior and avoid a tax, the tax raises less revenue than might otherwise be expected. Oddly, the insurance tax is designed in a way that prevents any revenue decline. The ACA presets the insurance tax’s total revenue yield at $8 billion next year, rising to $14.3 billion by 2018. To make this possible, each year’s tax is calculated in the following year, with the preset total tax burden allocated among insurance companies based on each company’s share of the market.
If insurance companies raise premiums to cover the tax and some employers respond by self-insuring, the result will be a bigger tax on the employers that remain in the insurance market. Of course, the bigger tax would fuel another round of premium hikes, causing more employers to self-insure, further premium increases, and so on.
According to the Kaiser Family Foundation’s 2012 Survey of Employer Health Benefits, 15 percent of the smallest employers self-insure, roughly half of employers with 200–999 workers self-insure, and 93 percent of firms with more than 5,000 workers do so. Because the smallest employers almost never self-insure, they will end up bearing the brunt of the tax. Midsized firms will be most likely to shift to self-insuring their workers.
Congress and the public may not view insurance companies as sympathetic figures. But it’s the insurance companies’ customers who will be most penalized by this new tax, whether through $400 premium increases or by being forced to run the risks of self-insuring.
http://thehill.com/blogs/congress-blog/economy-a-budget/281749-tax-hikes…

When we are talking about financing our health care system – 17 percent of our GDP – we have to get tax policy right. One tax being imposed by the Affordable Care Act – a tax on health insurers – will surely be passed on to purchasers of health plans in the form of higher premiums. When health health insurance premiums are already unbearable for many, it doesn’t seem wise to adopt a tax policy that pushes premiums even higher.
Another peculiarity about this tax is that self-insured employers are exempt. We have already written about the serious problems with the current trend of small businesses self-insuring – less regulatory oversight, exemption from some of the provisions of the Affordable Care Act, and the vagaries of stop-loss insurance for the self-insured. Yet the insurance tax will increase this unfortunate trend.
Since the global amount of the tax is set in law and it is assessed proportionately amongst the insurers, as many employers convert to self-insurance, the tax payment required of those continuing to be insured through private plans will rise disproportionately. Although this might not reach the level of a death spiral, the distribution would certainly be inequitable.
One of the most important features of a single payer national health program is that it would be funded through equitable tax policies. Everyone pays their fair share, based on ability. Not only could we fix our health care system through single payer reform, but we would have the additional advantage of moving us much closer to an equitable system of taxation.

By Robert Lowes
Medscape Medical News, February 6, 2013

Two members of Congress today reintroduced an ambitious bill that would repeal Medicare’s sustainable growth rate (SGR) formula for setting physician pay and gradually phase out fee-for-service (FFS) reimbursement.

One major difference this time around for the bipartisan bill, originally introduced in May 2012, is that its price tag appears considerably lower, making passage more likely.

When Reps. Allyson Schwartz (D-PA) and Joe Heck, MD (R-NV), proposed this legislation last year, the Congressional Budget Office (CBO) had estimated that repealing the SGR and merely freezing current Medicare rates for 10 years would cost roughly $320 billion.

Since then, the CBO has reduced that 10-year estimate on the basis of lower than projected Medicare spending on physician services for the past 3 years. In a budget forecast released yesterday, the agency put the cost of a 10-year rate freeze at $138 billion.

The immediate effect of the bill from Schwartz and Heck, titled the Medicare Physician Payment Innovation Act, would be to avert a Medicare pay cut of roughly 25% on January 1, 2014, that is mandated by the SGR formula. Instead, the bill maintains 2013 rates through the end of 2014.

After 2014, Medicare would begin to shift from FFS to a methodology that rewards physicians for the quality and efficiency of patient care. From 2015 through 2018, the rates for primary care, preventive, and care coordination services would increase annually by 2.5% for physicians for whom 60% of Medicare allowables fall into these categories. Medicare rates for all other physician services would rise annually by 0.5%.

Meanwhile, the bill calls on the Centers for Medicare & Medicaid Services (CMS) to step up its efforts to test and evaluate new models of delivering and paying for healthcare (experiments with medical homes, accountable care organizations, and bundled payments are already underway). By October 2017, CMS must give physicians its best menu of new models to choose from. Two menu options would allow some physicians unable to fully revolutionize to participate in a modified FFS scheme.

The year to transition from FFS to “high quality, high value care” will be 2019 under the legislation. Physicians will either operate in a new, CMS-approved delivery and payment model of their choosing or traditional FFS Medicare. The government would keep FFS rates in 2019 at 2018 levels.

After 2019, physicians still embracing traditional FFS Medicare would see their rates reduced until 2024, when they would be permanently frozen at 2023 levels. Physicians operating in the new models, in contrast, would have the opportunity to earn raises for high-quality, low-cost care.

http://www.medscape.com/viewarticle/778879

A summary of the MEDICARE PHYSICIAN PAYMENT INNOVATION ACT OF 2013 can be downloaded by clicking on the link at the bottom of Rep. Allyson Schwartz’s press release:
http://schwartz.house.gov/press-release/schwartz-and-heck-introduce-bipartisan-legislation-repeal-sgr-and-reform-medicare-1

Comment:

By Don McCanne, M.D.

The Medicare sustainable growth rate (SGR) formula seemed to be an equitable method of slowing the non-sustainable increases in Medicare spending. What happened?

Health care spending continued to increase at very high rates, and these increases were funded by private commercial insurance plans. The funds paid pumped up the supply side in health care while having very little ameliorating impact on the demand side. As our health care system continued to be richly funded (too richly, when compared to other wealthy nations), the Medicare SGR formula fell further behind each year in meeting this ever-increasing demand for more funds.

It soon became apparent that if the SGR rates were imposed, physicians would likely restrict their participation in the Medicare program, first by not accepting new patients, and eventually many of them would drop out of the program altogether. For that reason the SGR reductions were deferred most years, and now they have grown to a deficit of about 26 percent.

When physicians are already dissatisfied with Medicare payment rates (cumulative increases have been less than the medical inflation rate), a further abrupt reduction of 26 percent would surely cause many physicians to bail – either limiting their practices to privately insured patients, or retiring early if the reductions wipe out net income.

Members of Congress do support Medicare, even if some would want to shift costs from the federal budget to the beneficiaries themselves. They do understand that the guillotine effect of imposing these reductions would likely severely impair access for patients due to a lack of willing providers. They know that they have to do something.

In defining this problem, members off Congress think in terms of the federal budget. By postponing the reductions, the money has already been spent, yet it is carried on the books as a deficit. What can Congress do to remove this deficit from the budget without having to increase federal revenues?

Quite simply, they need to find other ways to reduce the projected increases in spending. If you download the summary of the Medicare Physician Payment Innovation Act of 2013 (link above), you will see some of the schemes proposed. Most are already familiar, though many are unproven, and some ideas are innovative. Regardless, they are all methods of slowing the growth in Medicare spending while doing very little that would control spending in the private sector. We will still be faced with the same problem that we have now under SGR. In comparison with private insurance payments, Medicare will continue to trail, and the physicians will grow evermore restless.

Rather than taking one program – Medicare – and trying to make it comply with budget austerity, we need to have a financing system in which the entire health care delivery system complies with a single, universal global budget – a single payer national health program. Yes, there would continue to be turf issues between the factions competing for the funds and the public stewards of the funds, but at least the distribution would be equitable and adequate, which was the intent of SGR in the first place.

There are those who contend that we could never adhere to a budget, that it is impossible to fund all of the care that we need if we are limited by a budget. We need only to look at other nations to see that they, with their publicly supervised global or quasi-global budgets, have been able to provide quality care for everyone at an average of half of what we are spending. We can do it, and with a very rich budget at that.

SGR Repeal Bill Favors Primary Care

By Robert Lowes
Medscape Medical News, February 6, 2013
Two members of Congress today reintroduced an ambitious bill that would repeal Medicare’s sustainable growth rate (SGR) formula for setting physician pay and gradually phase out fee-for-service (FFS) reimbursement.
One major difference this time around for the bipartisan bill, originally introduced in May 2012, is that its price tag appears considerably lower, making passage more likely.
When Reps. Allyson Schwartz (D-PA) and Joe Heck, MD (R-NV), proposed this legislation last year, the Congressional Budget Office (CBO) had estimated that repealing the SGR and merely freezing current Medicare rates for 10 years would cost roughly $320 billion.
Since then, the CBO has reduced that 10-year estimate on the basis of lower than projected Medicare spending on physician services for the past 3 years. In a budget forecast released yesterday, the agency put the cost of a 10-year rate freeze at $138 billion.
The immediate effect of the bill from Schwartz and Heck, titled the Medicare Physician Payment Innovation Act, would be to avert a Medicare pay cut of roughly 25% on January 1, 2014, that is mandated by the SGR formula. Instead, the bill maintains 2013 rates through the end of 2014.
After 2014, Medicare would begin to shift from FFS to a methodology that rewards physicians for the quality and efficiency of patient care. From 2015 through 2018, the rates for primary care, preventive, and care coordination services would increase annually by 2.5% for physicians for whom 60% of Medicare allowables fall into these categories. Medicare rates for all other physician services would rise annually by 0.5%.
Meanwhile, the bill calls on the Centers for Medicare & Medicaid Services (CMS) to step up its efforts to test and evaluate new models of delivering and paying for healthcare (experiments with medical homes, accountable care organizations, and bundled payments are already underway). By October 2017, CMS must give physicians its best menu of new models to choose from. Two menu options would allow some physicians unable to fully revolutionize to participate in a modified FFS scheme.
The year to transition from FFS to “high quality, high value care” will be 2019 under the legislation. Physicians will either operate in a new, CMS-approved delivery and payment model of their choosing or traditional FFS Medicare. The government would keep FFS rates in 2019 at 2018 levels.
After 2019, physicians still embracing traditional FFS Medicare would see their rates reduced until 2024, when they would be permanently frozen at 2023 levels. Physicians operating in the new models, in contrast, would have the opportunity to earn raises for high-quality, low-cost care.
http://www.medscape.com/viewarticle/778879
A summary of the MEDICARE PHYSICIAN PAYMENT INNOVATION ACT OF 2013 can be downloaded by clicking on the link at the bottom of Rep. Allyson Schwartz’s press release:
http://schwartz.house.gov/press-release/schwartz-and-heck-introduce-bipa…

The Medicare sustainable growth rate (SGR) formula seemed to be an equitable method of slowing the non-sustainable increases in Medicare spending. What happened?
Health care spending continued to increase at very high rates, and these increases were funded by private commercial insurance plans. The funds paid pumped up the supply side in health care while having very little ameliorating impact on the demand side. As our health care system continued to be richly funded (too richly, when compared to other wealthy nations), the Medicare SGR formula fell further behind each year in meeting this ever-increasing demand for more funds.
It soon became apparent that if the SGR rates were imposed, physicians would likely restrict their participation in the Medicare program, first by not accepting new patients, and eventually many of them would drop out of the program altogether. For that reason the SGR reductions were deferred most years, and now they have grown to a deficit of about 26 percent.
When physicians are already dissatisfied with Medicare payment rates (cumulative increases have been less than the medical inflation rate), a further abrupt reduction of 26 percent would surely cause many physicians to bail – either limiting their practices to privately insured patients, or retiring early if the reductions wipe out net income.
Members of Congress do support Medicare, even if some would want to shift costs from the federal budget to the beneficiaries themselves. They do understand that the guillotine effect of imposing these reductions would likely severely impair access for patients due to a lack of willing providers. They know that they have to do something.
In defining this problem, members off Congress think in terms of the federal budget. By postponing the reductions, the money has already been spent, yet it is carried on the books as a deficit. What can Congress do to remove this deficit from the budget without having to increase federal revenues?
Quite simply, they need to find other ways to reduce the projected increases in spending. If you download the summary of the Medicare Physician Payment Innovation Act of 2013 (link above), you will see some of the schemes proposed. Most are already familiar, though many are unproven, and some ideas are innovative. Regardless, they are all methods of slowing the growth in Medicare spending while doing very little that would control spending in the private sector. We will still be faced with the same problem that we have now under SGR. In comparison with private insurance payments, Medicare will continue to trail, and the physicians will grow evermore restless.
Rather than taking one program – Medicare – and trying to make it comply with budget austerity, we need to have a financing system in which the entire health care delivery system complies with a single, universal global budget – a single payer national health program. Yes, there would continue to be turf issues between the factions competing for the funds and the public stewards of the funds, but at least the distribution would be equitable and adequate, which was the intent of SGR in the first place.
There are those who contend that we could never adhere to a budget, that it is impossible to fund all of the care that we need if we are limited by a budget. We need only to look at other nations to see that they, with their publicly supervised global or quasi-global budgets, have been able to provide quality care for everyone at an average of half of what we are spending. We can do it, and with a very rich budget at that.