By Florien M. Kruse, MPP; Stef Groenewoud, PhD; Femke Atsma, PhD; Onno P. van der Galiën, MSc; Eddy M. M. Adang, PhD; Patrick P. T. Jeurissen, PhD
HSR – Health Services Research, August 20, 2019

Abstract

Objective: To identify differences between independent treatment centers (ITCs) and general hospitals (GHs) regarding costs, quality of care, and efficiency.

Data Sources: Anonymous claims data (2013‐2015) were used. We also obtained quality indicators from a semipublic platform.

Study Design: This study uses a comparative multilevel analysis, controlling for case mix, to evaluate the performance of ITCs and GHs for patients diagnosed with cataract.

Data Collection: Reimbursement claims were extracted from existing claims databases of the largest Dutch health insurer. Quality indicators were obtained by external agencies through a mixed‐mode survey.

Principal Findings: There are no stark differences in complexity of cases for cataract care. ITCs seem to perform surgeries more frequently per care pathway, but conduct a lower number of health care activities per surgical claim. Total average costs are lower in ITCs compared with GHs, but when adjusted for case mix, the differences in costs are lower. The findings with the adjusted quality differences suggest that ITCs outperform GHs on patient satisfaction, but patients’ outcomes are similar.

Conclusion: This finding supports the postulation—based on the focus factory theory—that ITCs can provide more value for cataract care than GHs.

Selected quotes from the Introduction:

In several health care systems, ITCs are more profit‐oriented than general hospitals (GHs).

ITCs seem to embody to a greater extent the theoretical concept of the focus factory. This theory postulates that harmonizing the care portfolio and specialization would lead to better performance due to repetition, experience, and homogeneity of tasks.

ITCs would theoretically achieve more value for the same procedure compared with full‐service hospitals.

In many countries… policy makers became more receptive toward ITCs, since many health care systems opted for a more market‐driven system.

In the United States, the number of Medicare‐certified ITCs (called independent Ambulatory Surgery Centers in the US) doubled between 1991 and 2001 (1460‐3371), but recently this growth has slowed down.

Some empirical evidence on the relative performance of ITCs exists, most of which comes from the United States. However, comparative studies scrutinizing cost and quality simultaneously are lacking. The studies that analyzed quality of care either find equivocal results or find no clear medical quality advantages for ITCs over full‐service hospitals.

Findings from both the UK and the US suggest that ITCs might be cherry‐picking and treat less‐complex patients compared with hospitals.

From the demand side, it seems that the characteristics of patients seeking care from ITCs differ from those of patients seeking care from hospitals. The independent sector in the UK historically serves the interests of private practices of NHS consultants and target a more affluent clientele with additional amenities and shorter waiting lists.3, 20 Also in the United States, patients who are not insured via Medicaid more often chose to visit an ITC.

People with an indemnity health care insurance package will probably be more inclined to opt for ITCs. These insurance packages cover ITC care even when the ITC has no contract from this respective health insurer. From this perspective, people who could afford a more indemnity health care insurance package—people with a higher socioeconomic status (SES)—might have better access to ITCs. However, a recent report found no relationship between income and the choice for those insurance coverage that limits the choice of health care providers. Another reason why there might be a certain selection of patients visiting ITCs is that, according to guidelines set by the Dutch health care inspectorate, ITCs should refrain from treating patients of ASA (American Society of Anesthesiologists) type III, which are patients with severe systemic diseases.

In 2006, the Netherlands implemented a number of market‐oriented reforms of the health care system and the ITC enterprises subsequently grew. The focus factory theory would predict that ITCs would provide better value, but there remains uncertainty as to whether ITCs really do outperform GHs.

Selected quotes from the Results:

Patient characteristic statistics illustrate that there are small differences in the complexity of patients for cataract care between ITCs and GHs. The mean age is lower in ITCs. The percentage of patients who are 85 years or older is much lower in ITCs than GHs. The average number of chronic conditions illustrate that ITCs’ patients have less comorbidity, and the average number of patients with diabetes indicates possible lower ocular comorbidity. The average SES (socioeconomic status) of patients going to ITCs is higher compared with GHs. Glaucoma is the only indicator that suggests that ITCs might be treating a more complex patient group since in ITCs the number of patients with glaucoma is higher compared with GHs.

The DRG prices, which the insurer negotiates with ITCs, are substantially lower for cataract surgery than prices for GHs: on average 85.9 euros less for standard cataract surgery and 140 euros for complex cataract surgery. For patients with one cataract operation, the total cost differences are on average 94 euros per care pathway, and for patients with two cataract operations, this gap widens to 187 euros—both accounting for approximately 8 percent in cost savings.

Efficiency in this study is defined as the number of activities in a surgical claim, where fewer activities are perceived as more efficient. Results in Table 3 suggest that ITCs are more efficient in providing cataract surgery. ITCs carry out fewer health care activities within each surgical cataract DRG compared with GHs.

ITCs seem to perform better on patient satisfaction compared with GHs, but there are no differences in the patient‐reported outcomes after cataract surgery.

Selected quotes from the Discussion:

Total costs of cataract claims are lower for ITCs compared with GHs, although the adjusted cost differences are somewhat smaller than the unadjusted costs. Lower costs seem to be partly driven by lower negotiated prices, since ITCs tend to have a slightly higher number of claims per cataract care pathway. Our findings suggest that ITCs are able to offer those lower prices for cataract surgery, due to performing less health care activities within cataract surgical claims and through more intense use of optometrists. In addition, lower fixed costs (eg, lower overhead) and perhaps lower margins could be other reasons why cataract ITCs are able to offer lower prices.

The quality indicators used in this study were not optimal.

There is a risk that our proxy for efficiency—the number of health care activities—might not fully capture the differences in the resources used since this could vary by the different health care activities.

…whether suppliers induce demand. Several studies from the United States have indicated that this is sometimes the case, particularly among physician‐owned health care providers. Based on our own estimation, of the ITCs contracted for cataract care, 68 percent are physician‐owned. The phenomenon of supplier‐induced demand could very well affect the Dutch physician owners.

… we have found that ITCs more often carry out two cataract operations per care pathway than GHs. It is beyond the scope of this study to assess whether this indicates that ITCs are undertaking unnecessary cataract operations but it does raise concerns which merits further investigation.

This study cannot exclude the possibility of upcoding practices. Our findings do hint toward concerns of this sort.

The role of ITCs within future health care systems is still up for debate. Currently, GHs need to continue providing elective ambulatory care surgery if they are to ensure their long‐term financial survival; therefore, GHs will likely resist the reallocation of these services to ITCs.

For those interested in more details, this is an open access article available at the following link:
https://onlinelibrary.wiley.com…

Comment:

By Don McCanne, M.D.

Those supporting market approaches for health care financing frequently cite shopping for Lasik eye surgery as an example of how well the market works in supposedly keeping prices down, though this is not really a good example to study the role of ambulatory surgical centers since Lasik is not covered by insurers. However, cataract surgery is an essential health care service and is covered by private and public health plans, so this study gives us a better idea about the role of ambulatory surgical centers as opposed to general hospitals. So what are we learning here?

Costs might be slightly lower in the surgical centers and the results on quality remain inconclusive. Just as we’ve known from past experience the centers tend to care for less complex patients who are younger and healthier and have a higher socioeconomic status – features that improve the bottom line for these largely for-profit facilities. Also they do not have to produce higher margins that the general hospitals must have to meet the institutional costs of a full service facility.

A well designed single payer system uses central planning with separate budgeting of capital improvements. It is in this process where appropriate decisions can be made that best serve the interests of the community. If there is a rationale for a surgical suite in a large urban ophthalmology practice it should not be based on cherry-picking, cream-skimming, lemon-dropping, or profit-potential in a patient population limited to those with a higher socioeconomic status, with unprofitable, more complicated patients of lower socioeconomic status being dumped on the community hospital. If the ophthalmologists want a state-of-the-art operation suite, they need to make sure that it is available for all ophthalmology patients, and all credentialed ophthalmologists, wherever it is located.

And Lasik patients? Until it is decided that Lasik should be a benefit that is covered by a universal public program, no public funds – directly or indirectly – should be used to care for them. They can go out and see what the market can do for them (but, warning, without federal funds, it will be very expensive).

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By Kritee Gujral, Anirban Basu
National Bureau of Economic Research, August 2019

This paper examines the impact of California’s hospital closures occurring from 1995-2011 on adjusted inpatient mortality for time-sensitive conditions: sepsis, stroke, asthma/chronic obstructive pulmonary disease (COPD) and acute myocardial infarction (AMI). Using a difference- in-difference approach on California’s Office of Statewide Health Planning and Development (OSHPD) data, the impact of hospital closures on inpatient mortality is estimated. Outcomes of admissions in hospital service areas (HSAs) with and without closure(s) are compared before and after the closure year. The paper aims to fill gaps in prior work by using a reconciled list of California’s hospital closures and by studying differential impacts of rural and urban hospital closures. To our best knowledge, this is also the first paper explicitly studying patient outcomes of California’s rural closures. Results suggest that when treatment groups are not differentiated by hospital rurality, closures appear to have no measurable impact. However, estimating differential impacts of rural and urban closures shows that rural closures increase inpatient mortality by 0.46% points (an increase of 5.9%), whereas urban closures have no impact. Results differ across diagnostic conditions; the general effect of closures is to increase mortality for stroke patients by 3.1% and for AMI patients by 4.5%, and decrease mortality for asthma/COPD patients by 8.8%.

https://www.nber.org…

Assuring continuing access to health care in rural America

By Paul Morton Ganeles
tucson.com, Aug 24, 2019

In his Aug. 22 op-ed, Dr. TK Kelly, an emergency medical MD, appropriately stressed the problems rural residents encounter when requiring emergency medical services. During my career, I served for some 28 years as a CFO in three major metropolitan teaching hospitals; a Medicare provider appeals judge and agency chairman appointed by the secretary of health and human services; and the founding director of finance for the Hospital Association of New York State (HANYS).

In that HANYS job, I periodically conferred with health-care financial executives from most other states. They would kid me when the topic of rural hospital concerns arose that I didn’t have to listen. I reminded them that I represented more than 100 rural hospitals — not just Big Apple hospitals — and that I had vital concerns about those isolated but essential health facilities.

While the headline for the Kelly op-ed related to a funding crisis for air medical services, his essay also cited the long-standing financial plight of small rural hospitals across America which often provide lifesaving emergency medical and maternal care for farmers and ranchers and their families and employees. Those individuals often lack adequate health insurance to pay for their care and/or air transportation in dire emergencies. Even if they have insurance, those programs rarely reimburse the costs of their service and place financial burdens on hospitals and air medical providers that threaten their survival.

Kelly observed that, in the past nine years, 102 rural hospitals across America closed, and three of those were in Arizona. Kelly affirmed, “access to health care in rural America is disappearing.” My experience with HANYS in the early 1970s and since then validates Kelly’s observation and proves that the plight of rural hospitals has plagued America for more than 40 years.

Congress long ago recognized that rural health-care access and financial survival problem years ago as it enacted laws to tweak Medicare rural hospital reimbursement. Congressional actions consistently have proven to be inadequate to solve the problem because of the arcane black-box algorithms that underlie Medicare reimbursement rules.

During the experiences of my career in health care, which emphasized the costs of health care and how to cover them while providing those who need access to quality health services and with a variety of health-care funding mechanisms, I long ago concluded that America would not be able to effectively cope with the need to provide adequate access to quality care for all Americans until it scrapped its fragmented insurance and medical financing methods and adopted a single-payer insurance system (like a version of Medicare for All). The cost of covering everybody would be met by substantially reducing administrative expenses (the arcane coding and billing systems are virtually a total waste), by eliminating health-care and insurance advertising expenses, by eliminating profits, and by eliminating the obscenely exorbitant levels of compensation paid to health-care and insurance executives.

Enough studies have proven that America will be able to meet its health-care needs under a single-payer program while reducing total costs (premiums, copayments, deductibles, etc.) to every American.

That thesis also has been proven by the actual experiences of the world’s leading nations, which incur lower costs and better health-care outcomes than the U.S. to provide access to adequate health-care services not only to every resident but also, in many cases, to every visitor.

https://tucson.com…

Comment:

By Don McCanne, M.D.

Closing rural hospitals increases mortality, by 5.9% according to this study. That’s not good.

In his op-ed, Paul Morton Ganeles – an experienced executive who understands rural hospitals – states, “I long ago concluded that America would not be able to effectively cope with the need to provide adequate access to quality care for all Americans until it scrapped its fragmented insurance and medical financing methods and adopted a single-payer insurance system (like a version of Medicare for All).”

He also notes, “Congressional actions consistently have proven to be inadequate to solve the problem because of the arcane black-box algorithms that underlie Medicare reimbursement rules.” Of course, that is a major reason why we need an improved Medicare for All.

We keep providing evidence of the superiority of the single payer model of Medicare for All – a method of health care financing that is more effective, more efficient and more equitable than all others – truly affordable for each of us. So why are we even discussing lesser, fragmented and dysfunctional models such as ACA and employer-sponsored plans? They tell us that it is because people should have their choice of these less effective, less efficient, less comprehensive, and less equitable plans, if they want them. But who would really want them if they truly understood the differences?

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By Rishi K Wadhera, Karen E Joynt Maddox, Dhruv S Kazi, Changyu Shen, Robert W Yeh
BMJ, August 12, 2019

Abstract

Objective: To determine any changes in total hospital revisits within 30 days of discharge after a hospital stay for medical conditions targeted by the Hospital Readmissions Reduction Program (HRRP).

Design: Retrospective cohort study.

Setting: Hospital stays among Medicare patients for heart failure, acute myocardial infarction, or pneumonia between 1 January 2012 and 1 October 2015.

Participants: Medicare fee-for-service patients aged 65 or over.

Main outcomes: Total hospital revisits within 30 days of discharge after hospital stays for medical conditions targeted by the HRRP, and by type of revisit: treat-and-discharge visit to an emergency department, observation stay (not leading to inpatient readmission), and inpatient readmission. Patient subgroups (age, sex, race) were also evaluated for each type of revisit.

Results: Our study cohort included 3 038 740 total index hospital stays from January 2012 to September 2015: 1 357 620 for heart failure, 634 795 for acute myocardial infarction, and 1 046 325 for pneumonia. Counting all revisits after discharge, the total number of hospital revisits per 100 patient discharges for target conditions increased across the study period (monthly increase 0.023 visits per 100 patient discharges (95% confidence interval 0.010 to 0.035)). This change was due to monthly increases in treat-and-discharge visits to an emergency department (0.023 (0.015 to 0.032) and observation stays (0.022 (0.020 to 0.025)), which were only partly offset by declines in readmissions (−0.023 (−0.035 to −0.012)). Increases in observation stay use were more pronounced among non-white patients than white patients. No significant change was seen in mortality within 30 days of discharge for target conditions (−0.0034 (−0.012 to 0.0054)).

Conclusions: In the United States, total hospital revisits within 30 days of discharge for conditions targeted by the HRRP increased across the study period. This increase was due to a rise in post-discharge emergency department visits and observation stays, which exceeded the decline in readmissions. Although reductions in readmissions have been attributed to improvements in discharge planning and care transitions, our findings suggest that these declines could instead be because hospitals and clinicians have intensified efforts to treat patients who return to a hospital within 30 days of discharge in emergency departments and as observation stays.

Discussion

In this study of Medicare beneficiaries admitted to hospital for heart failure, acute myocardial infarction, and pneumonia in the US between 2012 and 2015, we found an increase in total hospital revisits within 30 days of discharge despite a reduction in 30 day readmissions. This increase was because of a rise in treat-and-discharge visits to an emergency department and observation stays within 30 days of discharge, which on national level, exceeded the decline in readmissions. Our finding of increased healthcare use during this period was more pronounced after we included all encounters within 30 days of discharge from the index hospital stay—rather than simply including the first revisit.

In the US, nationwide reductions in readmission rates for medical conditions targeted by the HRRP have been viewed as markers of improvements in quality of care. Our findings suggest that this success could be illusory because total hospital revisits after discharge are, in fact, rising. If reductions in readmissions were being driven by widespread improvements in discharge planning, care transitions and post-discharge care after a hospital stay (as intended by the HRRP), total hospital revisits within 30 days of discharge would also be expected to decline. Instead, much of the reduction in readmissions seems to reflect intensified efforts to manage patients who return to a hospital after discharge in observation units and emergency departments, potentially because the 30 day readmission measure used to evaluate hospital performance under the HRRP does not include these types of post-discharge encounters. These observations perhaps explain why previous studies have shown that inpatient quality of care delivered to patients admitted to hospital for heart failure or acute myocardial infarction do not differ at hospitals with high versus low readmission rates.

The increase in use of observation stays and emergency department visits (compared with inpatient hospital stays) among patients who return after discharge could be a good thing if it reflects that patients are, on average, returning with lower severity illness that can be safely managed in a non-admission setting. These revisits could also be beneficial to patient care. For instance, observation stays have been associated with higher patient satisfaction than inpatient hospital stays, although they can also result in higher out-of-pocket expenditures and more financial hardship for patients than inpatient hospital stays.

However, the increasing use of emergency department visits for post-discharge care could be problematic. Data have suggested that hospitals that tend to manage patients in emergency departments rather than admitting them for an inpatient stay have higher rates of early death after discharge. We observed no change in post-discharge mortality at 30 days for target conditions during the HRRP (from 2012 to 2015). However, several independent analyses have found that the implementation of the HRRP was associated with an increase in post-discharge mortality at 30 days among patients admitted for heart failure and pneumonia compared with pre-HRRP trends (pre-2010), and that this increase was concentrated entirely among patients not readmitted after discharge. Whether intensified efforts to manage returning patients in emergency departments and observation units explain increases in mortality observed in the years that preceded our study period is an important area for further research, given that this potential mechanism could explain increased mortality under the HRRP.

https://www.bmj.com…

Comment:

By Don McCanne, M.D.

Various policy innovations today are designed to try to reduce health care spending while supposedly improving quality, or at least not impairing it. This is one of those innovations. The Hospital Readmissions Reduction Program assesses financial penalties if patients are readmitted within thirty days of discharge.

In this study they looked at patents with heart failure, acute myocardial infarction, and pneumonia. These are patients who generally are quite ill. With the best of care, their post-discharge status can easily worsen thus warranting readmission to the hospital. Yet this is one more study that showed that, with the disincentive of a financial penalty, instead of being readmitted, the patients were often managed in emergency departments or under observation. In fact, the rise in post-discharge emergency department visits and observation stays exceeded the decline in readmissions. The authors also report, “hospitals that tend to manage patients in emergency departments rather than admitting them for an inpatient stay have higher rates of early death after discharge.” Also we should be very concerned about this statement buried in the abstract: “Increases in observation stay use were more pronounced among non-white patients than white patients.”

Although the prices charged may be different between a patient held in a hospital bed for observation as opposed to one formally admitted, it is likely that the actual costs of care rendered are not that much different, so are we really saving much money by this policy? Also patients are penalized if they are held under observation instead of being admitted since cost sharing is greater for outpatient services than it is for a readmission.

The shame is that the policy community and bureaucrats busy themselves with these experiments in policy innovations that largely provide disappointing results, while they reject any consideration of a policy innovation that would recover hundreds of billions of dollars in administrative waste: the single payer model of an improved Medicare for All. What drives this? Incompetence? Greed? Ego? Insanity? Whatever it is, we need to address it so that we can get on with reform that really does work.

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By Jeneen Interlandi
The New York Times Magazine, August 14, 2019

Smallpox was not the only health disparity facing the newly emancipated, who at the close of the Civil War faced a considerably higher mortality rate than that of whites. Despite their urgent pleas for assistance, white leaders were deeply ambivalent about intervening. They worried about black epidemics spilling into their own communities and wanted the formerly enslaved to be healthy enough to return to plantation work. But they also feared that free and healthy African-Americans would upend the racial hierarchy, the historian Jim Downs writes in his 2012 book, “Sick From Freedom.”

Federal policy, he notes, reflected white ambivalence at every turn. Congress established the medical division of the Freedmen’s Bureau — the nation’s first federal health care program — to address the health crisis, but officials deployed just 120 or so doctors across the war-torn South, then ignored those doctors’ pleas for personnel and equipment. They erected more than 40 hospitals but prematurely shuttered most of them.

White legislators argued that free assistance of any kind would breed dependence and that when it came to black infirmity, hard labor was a better salve than white medicine. As the death toll rose, they developed a new theory: Blacks were so ill suited to freedom that the entire race was going extinct. “No charitable black scheme can wash out the color of the Negro, change his inferior nature or save him from his inevitable fate,” an Ohio congressman said.

In the decades following Reconstruction, the former slave states came to wield enormous congressional power through a voting bloc that was uniformly segregationist and overwhelmingly Democratic. That bloc preserved the nation’s racial stratification by securing local control of federal programs under a mantra of “states’ rights” and, in some cases, by adding qualifications directly to federal laws with discriminatory intent.

As the Columbia University historian Ira Katznelson and others have documented, it was largely at the behest of Southern Democrats that farm and domestic workers — more than half the nation’s black work force at the time — were excluded from New Deal policies, including the Social Security and Wagner Acts of 1935 (the Wagner Act ensured the right of workers to collective bargaining), and the Fair Labor Standards Act of 1938, which set a minimum wage and established the eight-hour workday. The same voting bloc ensured states controlled crucial programs like Aid to Dependent Children and the 1944 Servicemen’s Readjustment Act, better known as the G.I. Bill, allowing state leaders to effectively exclude black people.

In 1945, when President Truman called on Congress to expand the nation’s hospital system as part of a larger health care plan, Southern Democrats obtained key concessions that shaped the American medical landscape for decades to come. The Hill-Burton Act provided federal grants for hospital construction to communities in need, giving funding priority to rural areas (many of them in the South). But it also ensured that states controlled the disbursement of funds and could segregate resulting facilities.

Professional societies like the American Medical Association barred black doctors; medical schools excluded black students, and most hospitals and health clinics segregated black patients. Federal health care policy was designed, both implicitly and explicitly, to exclude black Americans. As a result, they faced an array of inequities — including statistically shorter, sicker lives than their white counterparts. What’s more, access to good medical care was predicated on a system of employer-based insurance that was inherently difficult for black Americans to get. “They were denied most of the jobs that offered coverage,” says David Barton Smith, an emeritus historian of health care policy at Temple University. “And even when some of them got health insurance, as the Pullman porters did, they couldn’t make use of white facilities.”

Black doctors and nurses — most of them trained at one of two black medical colleges, Meharry and Howard — established their own professional organizations and began a concerted war against medical apartheid. By the 1950s, they were pushing for a federal health care system for all citizens.

That fight put the National Medical Association (the leading black medical society) into direct conflict with the A.M.A., which was opposed to any nationalized health plan. In the late 1930s and the 1940s, the group helped defeat two such proposals with a vitriolic campaign that informs present-day debates: They called the idea socialist and un-American and warned of government intervention in the doctor-patient relationship. The group used the same arguments in the mid-’60s, when proponents of national health insurance introduced Medicare. This time, the N.M.A. developed a countermessage: Health care was a basic human right.

Medicare and Medicaid were part of a broader plan that finally brought the legal segregation of hospitals to an end: The 1964 Civil Rights Act outlawed segregation for any entity receiving federal funds, and the new health care programs soon placed every hospital in the country in that category. But they still excluded millions of Americans. Those who did not fit into specific age, employment or income groups had little to no access to health care.

In 2010, the Affordable Care Act brought health insurance to nearly 20 million previously uninsured adults. The biggest beneficiaries of this boon were people of color, many of whom obtained coverage through the law’s Medicaid expansion. That coverage contributed to a measurable decrease in some racial health disparities, but the success was neither as enduring nor as widespread as it might have been. Several states, most of them in the former Confederacy, refused to participate in Medicaid expansion. And several are still trying to make access to the program contingent on onerous new work requirements. The results of both policies have been unequivocal. States that expanded Medicaid saw a drop in disease-related deaths, according to the National Bureau of Economic Research. But in Arkansas, the first state to implement work requirements, nearly 20,000 people were forced off the insurance plan.

One hundred and fifty years after the freed people of the South first petitioned the government for basic medical care, the United States remains the only high-income country in the world where such care is not guaranteed to every citizen. In the United States, racial health disparities have proved as foundational as democracy itself. “There has never been any period in American history where the health of blacks was equal to that of whites,” Evelynn Hammonds, a historian of science at Harvard University, says. “Disparity is built into the system.” Medicare, Medicaid and the Affordable Care Act have helped shrink those disparities. But no federal health policy yet has eradicated them.

https://www.nytimes.com…

Comment:

By Don McCanne, M.D.

When we finally enact Single Payer Medicare for All we will have to be especially attentive to see that the language of the legislation finally eliminates racial health disparities forevermore. Amen.

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A Rule by the Internal Revenue Service, the Employee Benefits Security Administration, and the Health and Human Services Department
Federal Register, June 20, 2019

Action: Final rule.

Effective date: These final rules are effective on August 19, 2019.

Summary: This document sets forth final rules to expand opportunities for working men and women and their families to access affordable, quality healthcare through changes to rules under various provisions of the Public Health Service Act (PHS Act), the Employee Retirement Income Security Act (ERISA), and the Internal Revenue Code (Code) regarding health reimbursement arrangements (HRAs) and other account-based group health plans. Specifically, the final rules allow integrating HRAs and other account-based group health plans with individual health insurance coverage or Medicare, if certain conditions are satisfied (an individual coverage HRA). The final rules also set forth conditions under which certain HRAs and other account-based group health plans will be recognized as limited excepted benefits. Also, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) are finalizing rules regarding premium tax credit (PTC) eligibility for individuals offered an individual coverage HRA. In addition, the Department of Labor (DOL) is finalizing a clarification to provide assurance that the individual health insurance coverage for which premiums are reimbursed by an individual coverage HRA or a qualified small employer health reimbursement arrangement (QSEHRA) does not become part of an ERISA plan, provided certain safe harbor conditions are satisfied. Finally, the Department of Health and Human Services (HHS) is finalizing provisions to provide a special enrollment period (SEP) in the individual market for individuals who newly gain access to an individual coverage HRA or who are newly provided a QSEHRA. The goal of the final rules is to expand the flexibility and use of HRAs and other account-based group health plans to provide more Americans with additional options to obtain quality, affordable healthcare. The final rules affect employees and their family members; employers, employee organizations, and other plan sponsors; group health plans; health insurance issuers; and purchasers of individual health insurance coverage.

Background: Executive Order

On October 12, 2017, President Trump issued Executive Order 13813, “Promoting Healthcare Choice and Competition Across the United States,” stating, in part, that the “Administration will prioritize three areas for improvement in the near term: association health plans (AHPs), short-term, limited-duration insurance (STLDI), and health reimbursement arrangements (HRAs).” With regard to HRAs, the Executive Order directs the Secretaries of the Treasury, Labor, and HHS to “consider proposing regulations or revising guidance, to the extent permitted by law and supported by sound policy, to increase the usability of HRAs, to expand employers’ ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with nongroup coverage.” The Executive Order further provides that expanding “the flexibility and use of HRAs would provide many Americans, including employees who work at small businesses, with more options for financing their healthcare.”

Isolated quotes under “II. Overview of the Final Rules on Individual Coverage HRAs and Excepted Benefit HRAs—the Departments of the Treasury, Labor, and Health and Human Services”:

“Some commenters expressed general support for allowing employers to move to a defined contribution approach for health insurance coverage, including because this likely permits greater employee choice.”

“One commenter expressed general concern about the shifting of employees from a defined benefit health plan system to a defined contribution health plan system, because, according to the commenter, it may result in less comprehensive coverage.”

“Other commenters stated that individuals in the individual market could face more expensive plans, lower employer contributions, narrower networks, and higher cost sharing.”

https://www.federalregister.gov…

Could next year be the beginning of the end of traditional employer-sponsored health insurance?

By Michael Kolber
The Hill, August 20, 2019

The same type of transformation that turned traditional pension plans into employee-directed 401(k)s may be coming for employer-sponsored health plans—and sooner than most realize.

The consequences of this transformation would be widespread, with impacts throughout the health care system, from hospitals and doctors to drug and device makers to insurance companies, brokers and vendors. It could even impact the political debate about single-payer health care.

A new rule from the IRS and other federal agencies could set this afoot. Beginning in January 2020, any employer can give employees pretax compensation to buy individual market health insurance instead of providing a traditional employer-sponsored group health plan.

Thinkers from across the political spectrum have long decried the uniquely American phenomenon of tying health benefits to employment. In addition to creating an artificial linkage between employment and health coverage, generous employer-sponsored health benefits may play a role in driving health care inflation. But two factors have generally preserved the status quo, with about half of Americans in employment-based coverage.

First, until the Affordable Care Act was implemented, the individual market for health insurance was not functional in many places, leaving employers with few options if they wanted to ratchet back their health benefits. Individuals could have been denied coverage or charged higher rates based on health status, or had pre-existing condition exclusions imposed.

Second, both before and after the ACA, employers had a significant incentive to provide generous health benefits because employer spending on a health plan is not treated as taxable income for the employee, effectively increasing the value of this form of compensation to the employee. The ACA added to this incentive by affirmatively requiring large employers to share in the responsibility for providing health coverage to employees. On top of this, Obama-era rulings interpreting the ACA effectively precluded all employers (large and small) from contributing to the cost of individual coverage obtained by employees.

The ACA fixed the first problem—guaranteeing access to individual market coverage at a uniform price regardless of health status and without pre-existing condition exclusions—but in doing so exacerbated the second. The new federal rule now solves the second problem: Employers will be permitted to fund “health reimbursement arrangements” (HRAs) for employees to buy individual market health insurance. The employee does not pay income tax on amounts the employer contributes to the HRA.

The major remaining constraint on the 401(k)-ization of employer health benefits will be the pressures of the labor market. Will employees accept jobs that don’t guarantee them particular health benefits but instead offer defined contributions to an HRA that may or may not be sufficient to buy equivalent coverage on the individual market? Many employers would love not to have to bear the administrative burdens of running a traditional health plan, and all are looking for ways to keep health costs down. How many will be willing to test the labor market in this way?

The federal government estimates that within five years, about 11 million people will receive individual market coverage funded through an HRA, but those people will be spread across 800,000 employers, meaning only about a dozen employees will get health care this way from each participating employer. The IRS admits this estimate is highly uncertain, but there is little reason to think so few employers will make this shift, or that it will remain limited to very small employers. As with other disruptive innovations, it is entirely plausible that what begins in the low end of employers will take over the entire sector. Further, even among the 11 million the IRS predicts, the IRS estimates that most will be replacing conventional group health plans with HRAs—these are not employees, for the most part, whose employers are using an HRA to offer coverage for this first time.

The consequences could be dramatic. Today, reimbursement by employment-based health plans is the fuel that drives many sectors of the health economy, in many cases keeping afloat hospitals, physicians, dialysis providers, drug and device makers, and other providers that may receive lower reimbursement for patients on Medicare or Medicaid (and nothing for those who remain uninsured). And, at least today, the individual market coverage that an HRA would buy is quite different from employment-based coverage: Typically there are fewer providers in network, who may receive lower reimbursement rates. There may be no out-of-network benefits except in emergencies, and deductibles and other enrollee cost-sharing are often much higher.

If millions more people join the individual market through HRAs, these plan design features could change to look more like conventional employment-based coverage—or HRAs may further incentivize lower-premium plans, reinforcing the need for less comprehensive plans. Either way, each sector of the health care system will need to think about the implications: Hospitals and doctors will need to continue their focus on collecting payments from individual patients with high-deductible plans, and all providers will need to understand a world of potentially lower reimbursement and higher enrollee cost-sharing. Brokers and tech vendors will need to help employees navigate increasingly complex coverage decisions. Insurers may need to adjust to the higher administrative costs implicit in individual market coverage.

The shift could also impact political realities: A significant hurdle to state and federal “single payer” health care reform is the general satisfaction today of the millions of people in employment-based coverage, representing about 60 percent of nonelderly adults. If these people are shifted to higher-deductible plans with narrower provider networks, and are forced to comparison-shop for a plan each year, the fortunes of single payer could improve, as the alternative begins to seem less attractive.

n short, the health care system must wrestle with whether HRAs will make traditional group health plans as rare as traditional “defined-benefit” pensions, and, if so, how quickly.

Michael Kolber is a partner at Manatt Health.

https://thehill.com…

Comment:

By Don McCanne, M.D.

President Trump’s Executive Order of October 12, 2017 (quoted above) generated alarm because he ordered the prioritization of association health plans (AHPs), which historically have had a terrible track record, and the prioritization of short-term, limited-duration insurance (STLDI), which are grossly inadequate plans. Although considerable concern was expressed then about these recommendations, it is likely that any impact will be negligible since there is essentially no market interest in these plans. What should concern everyone instead is his third order: the prioritization of health reimbursement arrangements (HRAs).

HRAs sound benign, sort of like health savings accounts (HSAs) or flexible spending accounts (FSAs). The primary difference is that HRAs are designed to be full health benefit plans by pairing them with health insurance plans. Why is that important?

Most of you are aware what happened when 401k retirement plans were established. Employers began discontinuing their traditional pension plans which provided a defined benefit – essentially guaranteed income in retirement, but they are mostly history now (only 16% of Fortune 500 companies offer them, down from 59% in 1998). In contrast, the 401k plans are funded by a defined contribution with no guarantee of the amount the plan will pay nor how long the payments will last. This shift from defined benefit to defined contribution has been disastrous for many who find that Social Security payments along with the 401k distributions fall far short of the financial needs in their retirement years.

It looks now like the new rule based on Trump’s order to prioritize HRAs is a setup to convert today’s defined benefit employer-sponsored health plans into defined contribution HRA health plans, beginning with smaller businesses, especially new businesses that are just initiating their plans. But large businesses have been looking for relief so certainly a defined contribution approach will be appealing to them. According to today’s Quote of the Day sources, that conversion means lower premiums that buy less generous plans, higher deductibles and other cost sharing, lower provider payments and narrower networks which may threaten the adequacy of the health care delivery system. Those currently favoring employer-sponsored plans over Single Payer Medicare for All should immediately reconsider what they are wishing for.

Michael Kolber suggests that the inevitable increased dissatisfaction may drive greater support for a single payer system, but based on previous decades of the perpetual inertia preventing us from enacting effective, efficient, and equitable reform, it may be a decade or more before the light bulb goes on. Many more people will suffer, go bankrupt, or even die prematurely.

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By Lawrence Mishel and Julia Wolfe
Economic Policy Institute, August 14, 2019

What this report finds: The increased focus on growing inequality has led to an increased focus on CEO pay. Corporate boards running America’s largest public firms are giving top executives outsize compensation packages. Average pay of CEOs at the top 350 firms in 2018 was $17.2 million—or $14.0 million using a more conservative measure. (Stock options make up a big part of CEO pay packages, and the conservative measure values the options when granted, versus when cashed in, or “realized.”) CEO compensation is very high relative to typical worker compensation (by a ratio of 278-to-1 or 221-to-1). In contrast, the CEO-to-typical-worker compensation ratio (options realized) was 20-to-1 in 1965 and 58-to-1 in 1989. CEOs are even making a lot more—about five times as much—as other earners in the top 0.1%. From 1978 to 2018, CEO compensation grew by 1,007.5% (940.3% under the options-realized measure), far outstripping S&P stock market growth (706.7%) and the wage growth of very high earners (339.2%). In contrast, wages for the typical worker grew by just 11.9%.

Why it matters: Exorbitant CEO pay is a major contributor to rising inequality that we could safely do away with. CEOs are getting more because of their power to set pay, not because they are increasing productivity or possess specific, high-demand skills. This escalation of CEO compensation, and of executive compensation more generally, has fueled the growth of top 1.0% and top 0.1% incomes, leaving less of the fruits of economic growth for ordinary workers and widening the gap between very high earners and the bottom 90%. The economy would suffer no harm if CEOs were paid less (or taxed more).

From the Conclusion

Some observers argue that exorbitant CEO compensation is merely a symbolic issue, with no consequences for the vast majority of workers. However, the escalation of CEO compensation, and of executive compensation more generally, has fueled the growth of top 1.0% and top 0.1% incomes, generating widespread inequality.

High CEO pay reflects economic rents—concessions CEOs can draw from the economy not by virtue of their contribution to economic output but by virtue of their position. Clifford (2017) describes the Lake Wobegon world of setting CEO compensation that fuels its growth: Every firm wants to believe its CEO is above average and therefore needs to be correspondingly remunerated. But, in fact, CEO compensation could be reduced across the board and the economy would not suffer any loss of output.

Another implication of rising pay for CEOs and other executives is that it reflects income that otherwise would have accrued to others: What these executives earned was not available for broader-based wage growth for other workers. (Bivens and Mishel 2013 explore this issue in depth.) It is useful, in this context, to note that wage growth for the bottom 90% would have been nearly twice as fast over the 1979–2017 period had wage inequality not grown. Most of the rise of inequality took the form of redistributing wages from the bottom 90% (whose share of wages fell from 69.8% to 60.9%) to the top 1.0% (whose wage share nearly doubled, rising from 7.3% to 13.4%).

https://www.epi.org…

Comment:

By Don McCanne, M.D.

There has been much written about the growth in income and wealth inequality and the injustices that result therefrom. As one important contributor, this study shows that CEO compensation is obscene, but does that really matter, and, if so, what should we do about it?

Some say that we should not begrudge those with very high incomes and wealth, but the problem is that, as this and many other studies have shown us, their high compensation “reflects income that otherwise would have accrued to others.”

The greatest concern that most people have regarding health care is its affordability. At 18% of our GDP, the majority cannot afford to pay their proportionate share into a pool of funds that would comprise our national health expenditures.

It becomes immediately obvious that an important step towards making health care affordable for all of us would be to recover some of the excess income from the very wealthy that should be accruing to others and place that in a universal risk pool for health care. Taxes function not only as a source of public revenues, but they also serve to make income and wealth more equitable (not necessarily equal, but fair).

There are certainly other policies that can be established to inject more fairness into our economy, but establishing an equitable Single Payer Medicare for All that’s affordable for each of us would be a giant first step toward rectifying the injustices of income and wealth inequality, while providing us all with the great benefit of access to health care nirvana.

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By Laura Skopec, John Holahan, and Caroline Elmendorf
Robert Wood Johnson Foundation, Urban Institute, August 15, 2019

The Issue

Between 2013 and 2016, the uninsurance rate for nonelderly Americans from birth to age 64 fell every year, and 18.5 million more Americans had health insurance coverage in 2016 than in 2013. However, these coverage gains stalled in 2017. Using the American Community Survey, this research finds that uninsurance increased between 2016 and 2017, despite a strong economy and accompanying increases in incomes and employer-sponsored insurance (ESI) coverage.

Key Findings

• The uninsured rate climbed from 10.0 percent in 2016 to 10.2 percent in 2017, the first increase since 2013, after significant declines driven by the Affordable Care Act (ACA). This decline resulted in 700,000 more uninsured people in 2017 than in 2016.
• The uninsured rate held stable in Medicaid expansion states at 7.6 percent, but increased from 13.7 percent to 14.3 percent in states that did not expand Medicaid.
• Non-Medicaid expansion states lost marketplace coverage at twice the rate of expansion states.

Conclusion

Factoring in population growth in 2017, gains in ESI mitigated, but did not overcome reductions in Medicaid and CHIP and ACA marketplace coverage. Researchers observed broadly distributed losses across all age groups and income levels. Non-Hispanic white and black nonelderly people, those with at least some college education, and those living in the South and Midwest, experienced disproportionate coverage losses. The authors conclude that these increases in uninsurance will likely occur disproportionally in nonexpasion states, given their greater reliance on private coverage.

From the Brief

Overall, coverage losses were concentrated in the 19 states that did not expand Medicaid eligibility under the Affordable Care Act by July 1, 2017. Between 2016 and 2017, uninsurance held stable in Medicaid expansion states but increased by 0.5 percentage points in nonexpansion states. Though both expansion and nonexpansion states saw increases in employer-sponsored insurance and decreases in Medicaid/CHIP and private nongroup coverage over this period, the percentage-point decline in private nongroup coverage in nonexpansion states was nearly double that in expansion states (-0.6 percentage points versus -0.3 percentage points), precipitating larger coverage losses.

The increasing uninsurance rate in nonexpansion states between 2016 and 2017 may reflect their greater exposure to changes in the availability and affordability of marketplace and private nongroup coverage. In nonexpansion states, nonelderly people with incomes between 100 percent and 138 percent of the federal poverty level are eligible for marketplace subsidies to purchase private nongroup coverage, rather than Medicaid/CHIP coverage, so coverage gains in these states between 2013 and 2016 relied more on the availability and affordability of private nongroup coverage than coverage gains in Medicaid expansion states. Further changes to private nongroup coverage and marketplace policies in 2018 and 2019, including shorter open enrollment periods, availability of short-term, limited-duration policies, loss of federal funds to support cost-sharing subsidies, and repeal of the individual mandate to purchase coverage, may also disproportionately reduce coverage in nonexpansion states in the coming years.

https://www.rwjf.org…

Comment:

By Don McCanne, M.D.

With the implementation of the Affordable Care Act (ACA), 18.5 million more Americans had health insurance coverage in 2016 than in 2013. However, the numbers of uninsured declined by 700,000 between 2016 and 2017. The decline was predominantly in the private nongroup and ACA marketplace plans and occurred primarily in states that did not expand their Medicaid eligibility.

Although the greatest success of ACA was in the expansion of Medicaid, the Medicaid program already existed and could have been expanded without enactment of ACA. The other ACA program – establishment of the private insurance exchanges or marketplaces – has fallen short of goals of universality and affordability, and enrollment began reversing in 2016. ACA also increased regulatory oversight, but at a cost of increased financial barriers to care through higher deductibles, and diminished access to care because of wider use of restricted provider networks. There is also some question about the expansion of Medicaid since many were forced into Medicaid managed care programs that seem to be falling short on performance.

The current debate over reform is whether 1) to continue to try to tweak ACA, perhaps adding more administrative complexity through a public option, in spite of the post-ACA highly flawed, dysfunctional health financing infrastructure, or 2) to replace the system with an as yet undefined Republican plan which would likely transfer more of the responsibility of obtaining care to individual patients making care even less affordable and less accessible, or 3) to enact and implement a single payer model of an improved version of Medicare that would cover everyone. There is really only one reasonable choice here: Single Payer Medicare for All – that is if we want to have a high quality health care system that takes care of everyone of us and is affordable for each of us.

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