PNHP

Private insurers game Part D

Private insurers game Part D

Fixing Flaws In Medicare Drug Coverage That Prompt Insurers To Avoid Low-Income Patients

By John Hsu, et al
Health Affairs
October 28, 2010

Abstract

Since 2006 numerous insurers have stopped serving the low-income segment of the Medicare Part D program, forcing millions of beneficiaries to change prescription drug plans. Using data from participating plans, we found that Medicare payments do not sufficiently reimburse insurers for the relatively high medication use among this population, creating perverse incentives for plans to avoid this part of the Part D market. Plans can accomplish this by increasing their premiums for all beneficiaries to an amount above regional benchmarks. We demonstrate that improving the accuracy of Medicare’s risk and subsidy adjustments could mitigate these perverse incentives.

http://content.healthaffairs.org/cgi/content/full/hlthaff.2009.0323v1

Comment: 

By Don McCanne, MD

Under the Medicare Part D program for prescription drugs, private insurers are paid more for lower-income subsidized patients with greater health care needs. Since the insurers find that the higher payments are still below what they find to be acceptable, they are setting their premiums at rates above the benchmark levels. This results in an automated transfer of these higher-cost beneficiaries to competitors’ programs.

As long as Congress continues to insist on using private plans for Medicare Part D, we will always see efforts by the insurers to enroll healthier patients while avoiding the sick – gaming by private insurers sometimes referred to as cherry picking and lemon dropping. (Of course, this is also true of private insurers throughout the individual, small group, and large group markets.)

The authors of this study recommend yet more administrative complexity by introducing additional modifications of the calculations in an effort to reduce these perverse incentives, but such changes certainly would not prevent the insurers from seeking other forms of gamesmanship. They owe it to their investors to game the system as much as possible.

How is the Patient Protection and Affordable Care Act addressing this problem? It isn’t. We could have had reform that would increase efficiency and equity while eliminating the private insurers, but Congress rejected that. It’s still not too late to change.

Private insurers game Part D

Fixing Flaws In Medicare Drug Coverage That Prompt Insurers To Avoid Low-Income Patients

By John Hsu, et al
Health Affairs
October 28, 2010

Abstract

Since 2006 numerous insurers have stopped serving the low-income segment of the Medicare Part D program, forcing millions of beneficiaries to change prescription drug plans. Using data from participating plans, we found that Medicare payments do not sufficiently reimburse insurers for the relatively high medication use among this population, creating perverse incentives for plans to avoid this part of the Part D market. Plans can accomplish this by increasing their premiums for all beneficiaries to an amount above regional benchmarks. We demonstrate that improving the accuracy of Medicare’s risk and subsidy adjustments could mitigate these perverse incentives.

http://content.healthaffairs.org/cgi/content/full/hlthaff.2009.0323v1

Under the Medicare Part D program for prescription drugs, private insurers are paid more for lower-income subsidized patients with greater health care needs. Since the insurers find that the higher payments are still below what they find to be acceptable, they are setting their premiums at rates above the benchmark levels. This results in an automated transfer of these higher-cost beneficiaries to competitors’ programs.

As long as Congress continues to insist on using private plans for Medicare Part D, we will always see efforts by the insurers to enroll healthier patients while avoiding the sick – gaming by private insurers sometimes referred to as cherry picking and lemon dropping. (Of course, this is also true of private insurers throughout the individual, small group, and large group markets.)

The authors of this study recommend yet more administrative complexity by introducing additional modifications of the calculations in an effort to reduce these perverse incentives, but such changes certainly would not prevent the insurers from seeking other forms of gamesmanship. They owe it to their investors to game the system as much as possible.

How is the Patient Protection and Affordable Care Act addressing this problem? It isn’t. We could have had reform that would increase efficiency and equity while eliminating the private insurers, but Congress rejected that. It’s still not too late to change.

More evidence of the expanding menace of high-deductible health plans

Profiling California’s Health Plan Enrollees: Large Enrollment in High-Deductible Health Plans

By Dylan H. Roby, Gina L. Nicholson, and Gerald F. Kominski
UCLA Center for Health Policy Research
October 2010

Three million commercially insured Californians were enrolled in high-deductible health plans in 2007. High-deductible health plans (HDHPs) have been gaining momentum in the health insurance market as a way to encourage more rational use of health care services. However, HDHPs come with risks.  While the plans offer lower monthly premiums than typical health insurance coverage, they carry much higher deductibles for health care services. For these plans, the average annual deductible for individuals with employer-based insurance is more than $1,800. Studies have shown that significant cost sharing may create disincentives for both necessary and unnecessary care. While individuals with high-deductible plans may be less likely to utilize the emergency room for care, they may also delay necessary treatment or doctor visits.

Another mechanism for improving the affordability of health insurance is the Health Savings Account (HSA), which allows individuals with high-deductible health plans to set aside tax-deductible funds for medical expenses. However, only 23% of commercial HMO and 20% of commercial Kaiser HMO enrollees with HDHPs reported having HSAs as well. Thirty-one percent of commercial PPO enrollees reported having a Health Savings Account in addition to their HDHP.

With the recent passage of health reform, individuals and families will be mandated to have health insurance beginning in 2014. To comply with the mandate and attempt to save money, consumers may purchase plans with lower premiums. However, they could still face high deductibles and cost-sharing requirements, which would harm their ability to access health care.

http://www.healthpolicy.ucla.edu/pubs/files/health-plans-fact-sheet_102110.pdf

Full UCLA report (35 pages):
http://www.healthpolicy.ucla.edu/pubs/files/hmo-enrollee-report_102710.pdf

Comment: 

By Don McCanne, MD

This large study from the UCLA Center for Health Policy Research provides yet one more confirmation that the use of high-deductible health plans (HDHPs) continues to expand because of the very high cost of private health insurance, yet these high-deductible plans are causing patients to delay or decline necessary health care.

The supporters of HDHPs claim that health consumers can be protected by health savings accounts. Yet this study confirms that two-thirds to four-fifths of Californians with HDHPs do not have health saving accounts. They remain exposed to the full brunt of the deductible.

These findings are particularly applicable to the insurance exchanges which will be established in 2014. The subsidies to purchase plans within the exchanges will be targeted to the bronze and silver plans. These are plans with lower actuarial values – paying a lower percentage of the health care costs – but they will be the plans that most individuals will have to select because the more generous gold and platinum plans will be unaffordable.

How do the bronze and silver plans maintain a lower actuarial value? Primarily by requiring large deductibles. (Also they may apply greater coinsurance rates – a percentage of the health care costs for which the patient is responsible – and they may strip benefits down to the minimum permitted by government regulations.) Thus high-deductible health plans that reduce access to care will become the norm.

We can do better than that. We can improve Medicare by providing first-dollar coverage – eliminating deductibles and coinsurance – and expanding benefits to include all essential services, and then make it universal so everyone is covered. The near nominal cost of first-dollar coverage is well worth having the assurance that financial barriers to all necessary health care would be removed for everyone.

Dubie wrong on business climate

By Paul Millman
Burlington Free Press
Sunday, October 24, 2010

Brian Dubie, Republican candidate for governor, says he is business friendly. He says he has a plan to promote business development in Vermont.

I’m president of Chroma Technology Corp. in Bellows Falls. Together with our subsidiary 89North in Burlington, we employ over 100 people at high paying jobs in Vermont. These jobs come with company provided medical benefits and a retirement plan. Chroma Technology Corp. is a 100 percent employee-owned company. We started Chroma in 1991. In 2009 and 2010 we were among Inc. magazine’s list of the 5,000 fastest growing companies in the United States. Earlier this year, Inc. magazine named Chroma one of the 20 best small-business workplaces in the United States.

Chroma was created and grown in the Vermont that Mr. Dubie blasts as a bad business climate. One of us is wrong. Chroma’s success indicates that it’s Mr. Dubie.

Mr. Dubie says that Vermont taxes discourage economic development. He’s wrong. Taxes pale compared to the soaring cost of health care.

Mr. Dubie recently made the following statement: “I have not met a businessperson yet who says if we enact a single-payer health care system in Vermont that is going to be a boon for business.”

Mr. Dubie knows better. He’s heard my mantra annually at the governor’s breakfast with the Vermont Business Roundtable where I am a member; the cost of health care restricts business development much more than taxes.

Do the math. In 2009 Chroma’s costs rose to nearly $1.3 million. Our tax liability for fiscal 2009 was only $226,000 on sales of more than $20 million. Research and development tax credits reduced that number even further.

It’s clear, and should be even to a nonbusinessman like Mr. Dubie, that the cost of health care has a much more profound effect on our ability to finance expansion than does the tax rate.

I think this is what they call a no-brainer.

During the last few years other Vermont business leaders and I testified that a publicly-financed health care system would save our companies substantial amounts of money.

Mr. Dubie, do you not understand that saving substantial amounts of money equals a boon for business? Perhaps Mr. Dubie doesn’t want to hear the Vermont business leaders who call for a publicly financed system.

Mr. Dubie’s concept of economic development is to lure big companies from other states. He wants to use tax credits to entice them. Oh yeah? Think Husky. Where are the two to three thousand jobs they promised when we gave them tax credits of $17 million?

We can get a much bigger return on investment by supporting the growth of smaller companies already in Vermont. Think of this list: NRG Systems, King Arthur Flour, Small Dog Electronics, Ben and Jerry’s, Green Mountain Coffee Roasters, Chroma Technology, Gardener’s Supply, groSolar, Seventh Generation, Hubbardton Forge, Zutano and Lake Champlain Chocolates.

These are all companies with both national and worldwide reputations. These are all companies that grew substantially within the current Vermont business climate. I’ll go one step further; these are all companies that grew substantially because of Vermont’s business climate.

My major criticism of Mr. Dubie is that he has been a terrible salesman for Vermont and he will continue to be so. I would never hire a salesman to sell a product he thought inferior. The voters of Vermont shouldn’t either.

Paul Millman is president of Chroma Technology Corp. in Bellows Falls.

http://www.burlingtonfreepress.com/article/20101024/OPINION02/10240321/1006/OPINION/My-Turn-Dubie-wrong-on-business-climate

Medicare-for-all doctor to speak at Chicago’s ‘Rally to Restore Sanity’

Physician says relying on Wall Street health insurance companies to finance medical care is ‘insane’

FOR IMMEDIATE RELEASE
Oct. 29, 2010

Media advisory

Contact:
Rob Stone, M.D.
Ali Thebert, PNHP, (312) 782-6006, ali@pnhp.org

What
Rob Stone, M.D., an emergency medicine physician in Bloomington, Ind., and a nationally renowned advocate for single-payer national health insurance – an improved Medicare for all – will speak at the Chicago satellite rally coinciding with the “Rally to Restore Sanity and/or Fear” hosted by comedians Jon Stewart and Stephen Colbert in Washington on Saturday. Dr. Stone is presently scheduled to speak Saturday at 1 p.m. CDT. He is available for interview before and after the rally.

Where
Grant Park, Jackson and Columbus, at the Petrillo Music Shell.

When
11 a.m. – 2 p.m., Saturday, Oct. 30

Who
Dr. Rob Stone is the director and co-founder of Hoosiers for a Commonsense Health Plan (HCHP) and is a national board member of Physicians for a National Health Program.

Stone is an outspoken advocate of single-payer national health insurance — an improved Medicare for all — and a frequent public speaker in Indiana and nationwide. Of the new health law, he says: “You’ve probably heard the quote that the definition of insanity is doing the same thing over and over again and expecting a different result. Well, that’s what we’ve been doing, trying to reform health care. We keep trying to improve our system while relying on the huge Wall Street health insurance companies, and that’s insane. It hasn’t worked, and if we want to Restore Sanity, we need to try something different. We need to get rid of the insurance companies. They are the problem, not part of the solution. We already have Medicare, an American plan with a track record that works. Get rid of the insurance companies and bring everyone into an expanded and improved Medicare for all.”

Stone has been an emergency department physician at Bloomington Hospital since 1983, and was the medical director of the Community Health Access Program Clinic in Bloomington from 2005 to 2007 until it was transformed into the Volunteers in Medicine Clinic. He continues to volunteer at the new clinic. He is assistant clinical professor of emergency medicine at Indiana University School of Medicine.

Born and raised in Evansville, Ind., he graduated from Dartmouth College and the University of Colorado Medical School. He is a diplomat of the American Board of Emergency Medicine.

This spring, Stone championed a controversial shareholder resolution at the annual meeting of WellPoint, the giant health insurer. The resolution called upon the company to return to its nonprofit roots. Despite the fact that debate on the measure was cut short, the resolution received over 30 million votes, 9.4 percent of the shares voted, which amount to “a jaw-dropping vote of no confidence” in WellPoint’s management, Stone writes in his blog at The Huffington Post.

A survey published in the Annals of Internal Medicine in April 2008 showed that 59 percent of U.S. physicians support government action to establish national health insurance, an increase of 10 percentage points over similar findings five years before.

A photo of Dr. Stone is available here and video footage of him is available here.

###

Physicians for a National Health Program (www.pnhp.org), a membership organization of over 18,000 physicians, supports a single-payer national health insurance program. PNHP is headquartered in Chicago and has chapters across the United States.

More evidence of the expanding menace of high-deductible health plans

Profiling California’s Health Plan Enrollees: Large Enrollment in High-Deductible Health Plans

By Dylan H. Roby, Gina L. Nicholson, and Gerald F. Kominski
UCLA Center for Health Policy Research
October 2010

Three million commercially insured Californians were enrolled in high-deductible health plans in 2007. High-deductible health plans (HDHPs) have been gaining momentum in the health insurance market as a way to encourage more rational use of health care services. However, HDHPs come with risks.  While the plans offer lower monthly premiums than typical health insurance coverage, they carry much higher deductibles for health care services. For these plans, the average annual deductible for individuals with employer-based insurance is more than $1,800. Studies have shown that significant cost sharing may create disincentives for both necessary and unnecessary care. While individuals with high-deductible plans may be less likely to utilize the emergency room for care, they may also delay necessary treatment or doctor visits.

Another mechanism for improving the affordability of health insurance is the Health Savings Account (HSA), which allows individuals with high-deductible health plans to set aside tax-deductible funds for medical expenses. However, only 23% of commercial HMO and 20% of commercial Kaiser HMO enrollees with HDHPs reported having HSAs as well. Thirty-one percent of commercial PPO enrollees reported having a Health Savings Account in addition to their HDHP.

With the recent passage of health reform, individuals and families will be mandated to have health insurance beginning in 2014. To comply with the mandate and attempt to save money, consumers may purchase plans with lower premiums. However, they could still face high deductibles and cost-sharing requirements, which would harm their ability to access health care.

http://www.healthpolicy.ucla.edu/pubs/files/health-plans-fact-sheet_102110.pdf

Full UCLA report (35 pages):
http://www.healthpolicy.ucla.edu/pubs/files/hmo-enrollee-report_102710.pdf

This large study from the UCLA Center for Health Policy Research provides yet one more confirmation that the use of high-deductible health plans (HDHPs) continues to expand because of the very high cost of private health insurance, yet these high-deductible plans are causing patients to delay or decline necessary health care.

The supporters of HDHPs claim that health consumers can be protected by health savings accounts. Yet this study confirms that two-thirds to four-fifths of Californians with HDHPs do not have health saving accounts. They remain exposed to the full brunt of the deductible.

These findings are particularly applicable to the insurance exchanges which will be established in 2014. The subsidies to purchase plans within the exchanges will be targeted to the bronze and silver plans. These are plans with lower actuarial values – paying a lower percentage of the health care costs – but they will be the plans that most individuals will have to select because the more generous gold and platinum plans will be unaffordable.

How do the bronze and silver plans maintain a lower actuarial value? Primarily by requiring large deductibles. (Also they may apply greater coinsurance rates – a percentage of the health care costs for which the patient is responsible – and they may strip benefits down to the minimum permitted by government regulations.) Thus high-deductible health plans that reduce access to care will become the norm.

We can do better than that. We can improve Medicare by providing first-dollar coverage – eliminating deductibles and coinsurance – and expanding benefits to include all essential services, and then make it universal so everyone is covered. The near nominal cost of first-dollar coverage is well worth having the assurance that financial barriers to all necessary health care would be removed for everyone.

How does the Affordable Care Act define ACOs?

Medicare “Accountable Care Organizations”

Shared Savings Program – New Section 1899 of Title XVIII

Centers for Medicare and Medicaid Services (CMS)
Office of Legislation

Preliminary Questions & Answers

The Affordable Care Act (ACA) improves the health care delivery system through incentives to enhance quality, improve beneficiary outcomes and increase value of care. One of these key delivery system reforms is the encouragement of Accountable Care Organizations (ACOs). ACOs facilitate coordination and cooperation among providers to improve the quality of care for Medicare beneficiaries and reduce unnecessary costs. This document provides an overview of ACOs and the Medicare Shared Savings Program.

Q: What is an “accountable care organization”?

A: An Accountable Care Organization, also called an “ACO” for short, is an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it.

For ACO purposes, “assigned” means those beneficiaries for whom the professionals in the ACO provide the bulk of primary care services. Assignment will be invisible to the beneficiary, and will not affect their guaranteed benefits or choice of doctor. A beneficiary may continue to seek services from the physicians and other providers of their choice, whether or not the physician or provider is a part of an ACO.

Q: What forms of organizations may become an ACO?

A: The statute specifies the following:
1) Physicians and other professionals in group practices
2) Physicians and other professionals in networks of practices
3) Partnerships or joint venture arrangements between hospitals and physicians/professionals
4) Hospitals employing physicians/professionals
5) Other forms that the Secretary of Health and Human Services may determine appropriate.

Q: What are the types of requirements that such an organization will have to meet to participate?

A: The statute specifies the following:
1) Have a formal legal structure to receive and distribute shared savings
2) Have a sufficient number of primary care professionals for the number of assigned beneficiaries (to be 5,000 at a minimum)
3) Agree to participate in the program for not less than a 3-year period
4) Have sufficient information regarding participating ACO health care professionals as the Secretary determines necessary to support beneficiary assignment and for the determination of payments for shared savings.
5) Have a leadership and management structure that includes clinical and administrative systems
6) Have defined processes to (a) promote evidenced-based medicine, (b) report the necessary data to evaluate quality and cost measures (this could incorporate requirements of other programs, such as the Physician Quality Reporting Initiative (PQRI), Electronic Prescribing (eRx), and Electronic Health Records (EHR), and (c) coordinate care
7) Demonstrate it meets patient-centeredness criteria, as determined by the Secretary.

Additional details will be included in a Notice of Proposed Rulemaking that CMS expects to publish this fall.

Q: How would such an organization qualify for shared savings?

A: For each 12-month period, participating ACOs that meet specified quality performance standards will be eligible to receive a share (a percentage, and any limits to be determined by the Secretary) of any savings if the actual per capita expenditures of their assigned Medicare beneficiaries are a sufficient percentage below their specified benchmark amount. The benchmark for each ACO will be based on the most recent available three years of per-beneficiary expenditures for Parts A and B services for Medicare fee-for-service beneficiaries assigned to the ACO. The benchmark for each ACO will be adjusted for beneficiary characteristics and other factors determined appropriate by the Secretary, and updated by the projected absolute amount of growth in national per capita expenditures for Part A and B.

Q: What are the quality performance standards?

A: While the specifics will be determined by the HHS Secretary and will be promulgated with the program’s regulations, they will include measures in such categories as clinical processes and outcomes of care, patient experience, and utilization (amounts and rates) of services.

Q: Will beneficiaries that receive services from a health care professional or provider that is a part of an ACO be required to receive all his/her services from the ACO?

A: No. Medicare beneficiaries will continue to be able to choose their health care professionals and other providers.

Q: Will participating ACOs be subject to payment penalties if their savings targets are not achieved?

A: No. An ACO will share in savings if program criteria are met but will not incur a payment penalty if savings targets are not achieved.

Q: When will this program begin?

A: We plan to establish the program by January 1, 2012. Agreements will begin for performance periods, to be at least three years, on or after that date.

Further details for the shared savings program will be provided in a Notice of Proposed Rulemaking which CMS expects to publish this fall.

https://www.cms.gov/OfficeofLegislation/Downloads/AccountableCareOrganization.pdf

Link to text of Sec. 1899 (under Sec. 3022) with a brief summary (plus text and summary of Sec. 2706 – Pediatric ACO Demonstration Project):
http://www.iha.org/pdfs_documents/home/IHA_PPACAACOSummary.pdf

Comment: 

By Don McCanne, MD

Since enactment of the Patient Protection and Affordable Care Act (PPACA) there has been considerable enthusiasm and hype over the provisions establishing accountable care organizations (ACOs). The purpose of today’s message is to look past the hype to see precisely what PPACA says about ACOs.

Today’s quote is the explanation of the applicable section of PPACA as provided by the Centers for Medicare and Medicaid Services (CMS). A link to the precise language of the section is also provided.

Sec. 3022 Of PPACA amends Title XVIII of the Social Security Act by adding Sec. 1899, the Shared Savings Program. The title alone provides a hint of what this really is about since it is not named Accountable Care Organizations.

Many entities already exist that can be called accountable care organizations. These include group practices, networks of individual practices, partnerships or joint ventures between hospitals and health care professionals, and hospitals employing health care professionals. Under PPACA, the Secretary of Health and Human Services (HHS) can include as ACOs any other group of providers and suppliers deemed appropriate.

What the law does is to add another administrative layer that is designed to reduce costs and promote quality. The existing entities plus any new ones formed have to meet certain requirements to qualify as an ACO, and then that allows them to participate in the shared savings program.

The specific requirements:

* Willing to become accountable for the quality, cost, and overall care of
the Medicare fee-for-service beneficiaries assigned to it

* A legal structure to receive and distribute shared savings

* A leadership and management structure that includes clinical and administrative systems

* A minimum participation of 5000 patients

* A sufficient number of primary care professionals

* Agree to participate for a minimum of three years

* Define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth, remote patient monitoring, and other such enabling technologies

* Demonstrate patient-centerness criteria specified by the Secretary

* Measure quality of clinical processes and outcomes, patient experience of care, and utilization

This program applies to patients in the traditional fee-for-service Medicare program. Patients do not enroll in the ACOs. They are assigned by the Secretary based on utilization of primary care services. The patients may not even know that they have been assigned, as they are free to go to any providers of their choice, in or out of the ACO.

The ACOs are still paid fee-for-service by Medicare just as they always have been. That doesn’t change (though an amendment authorizes the option of a partial capitation model).

So how do ACOs achieve higher quality and lower cost?

The ACOs are not rewarded monetarily for meeting the quality standards. Their motivation to comply is to avoid being suspended from the program.

Costs are reduced by the shared savings program. A benchmark is established for each ACO “using the most recent available 3 years of per-beneficiary expenditures for parts A and B services for Medicare fee-for-service beneficiaries assigned to the ACO.” If the ACO can provide care for costs below the benchmark, the ACO then shares those savings with HHS. The benchmark is reset at the beginning of each 3 year agreement.

If the costs are above the benchmark, then the fees are still paid as usual, with no adjustments.

Think about this. The incentives continue to promote greater volume. There is no penalty for running the charges up. Is the reward for reducing the volume and intensity of services enough? Since fixed costs for the ACO are relatively unchanged, the reductions in marginal overhead expenses due to reduced volume must be greater than the amount of savings that HHS shares with the ACO in order to come out ahead. Since this is the opposite of “making it up in volume,” it is more likely that net income will be reduced. Further, since the benchmarks are reset every 3 years based on lower utilization, it is very unlikely that that the ACO could continue to ratchet down services to qualify for shared savings.

Some models of integrated health systems function well and should be encouraged as long as the goal is higher quality and greater value, while shunning policies that provide perverse incentives for greater profits by reducing beneficial health care services. But why would a well-functioning integrated health care system want to add an additional administrative layer, with additional quality-reporting requirements, just to be designated as an ACO, especially when the net result likely reduces the bottom line?

It is truly unfortunate that the fervor and hype over ACOs have provided yet one more distraction from the important task at hand. We need to replace our flawed health care financing system with one that works – a single payer national health program. That would include everyone of us in a quality system that we could pay for.

How does the Affordable Care Act define ACOs?

Medicare “Accountable Care Organizations”

Shared Savings Program – New Section 1899 of Title XVIII

Centers for Medicare and Medicaid Services (CMS)
Office of Legislation

Preliminary Questions & Answers

The Affordable Care Act (ACA) improves the health care delivery system through incentives to enhance quality, improve beneficiary outcomes and increase value of care. One of these key delivery system reforms is the encouragement of Accountable Care Organizations (ACOs). ACOs facilitate coordination and cooperation among providers to improve the quality of care for Medicare beneficiaries and reduce unnecessary costs. This document provides an overview of ACOs and the Medicare Shared Savings Program.

Q: What is an “accountable care organization”?

A: An Accountable Care Organization, also called an “ACO” for short, is an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it.

For ACO purposes, “assigned” means those beneficiaries for whom the professionals in the ACO provide the bulk of primary care services. Assignment will be invisible to the beneficiary, and will not affect their guaranteed benefits or choice of doctor. A beneficiary may continue to seek services from the physicians and other providers of their choice, whether or not the physician or provider is a part of an ACO.

Q: What forms of organizations may become an ACO?

A: The statute specifies the following:
1) Physicians and other professionals in group practices
2) Physicians and other professionals in networks of practices
3) Partnerships or joint venture arrangements between hospitals and physicians/professionals
4) Hospitals employing physicians/professionals
5) Other forms that the Secretary of Health and Human Services may determine appropriate.

Q: What are the types of requirements that such an organization will have to meet to participate?

A: The statute specifies the following:
1) Have a formal legal structure to receive and distribute shared savings
2) Have a sufficient number of primary care professionals for the number of assigned beneficiaries (to be 5,000 at a minimum)
3) Agree to participate in the program for not less than a 3-year period
4) Have sufficient information regarding participating ACO health care professionals as the Secretary determines necessary to support beneficiary assignment and for the determination of payments for shared savings.
5) Have a leadership and management structure that includes clinical and administrative systems
6) Have defined processes to (a) promote evidenced-based medicine, (b) report the necessary data to evaluate quality and cost measures (this could incorporate requirements of other programs, such as the Physician Quality Reporting Initiative (PQRI), Electronic Prescribing (eRx), and Electronic Health Records (EHR), and (c) coordinate care
7) Demonstrate it meets patient-centeredness criteria, as determined by the Secretary.

Additional details will be included in a Notice of Proposed Rulemaking that CMS expects to publish this fall.

Q: How would such an organization qualify for shared savings?

A: For each 12-month period, participating ACOs that meet specified quality performance standards will be eligible to receive a share (a percentage, and any limits to be determined by the Secretary) of any savings if the actual per capita expenditures of their assigned Medicare beneficiaries are a sufficient percentage below their specified benchmark amount. The benchmark for each ACO will be based on the most recent available three years of per-beneficiary expenditures for Parts A and B services for Medicare fee-for-service beneficiaries assigned to the ACO. The benchmark for each ACO will be adjusted for beneficiary characteristics and other factors determined appropriate by the Secretary, and updated by the projected absolute amount of growth in national per capita expenditures for Part A and B.

Q: What are the quality performance standards?

A: While the specifics will be determined by the HHS Secretary and will be promulgated with the program’s regulations, they will include measures in such categories as clinical processes and outcomes of care, patient experience, and utilization (amounts and rates) of services.

Q: Will beneficiaries that receive services from a health care professional or provider that is a part of an ACO be required to receive all his/her services from the ACO?

A: No. Medicare beneficiaries will continue to be able to choose their health care professionals and other providers.

Q: Will participating ACOs be subject to payment penalties if their savings targets are not achieved?

A: No. An ACO will share in savings if program criteria are met but will not incur a payment penalty if savings targets are not achieved.

Q: When will this program begin?

A: We plan to establish the program by January 1, 2012. Agreements will begin for performance periods, to be at least three years, on or after that date.

Further details for the shared savings program will be provided in a Notice of Proposed Rulemaking which CMS expects to publish this fall.

https://www.cms.gov/OfficeofLegislation/Downloads/AccountableCareOrganization.pdf

Link to text of Sec. 1899 (under Sec. 3022) with a brief summary (plus text and summary of Sec. 2706 – Pediatric ACO Demonstration Project):
http://www.iha.org/pdfs_documents/home/IHA_PPACAACOSummary.pdf

Since enactment of the Patient Protection and Affordable Care Act (PPACA) there has been considerable enthusiasm and hype over the provisions establishing accountable care organizations (ACOs). The purpose of today’s message is to look past the hype to see precisely what PPACA says about ACOs.

Today’s quote is the explanation of the applicable section of PPACA as provided by the Centers for Medicare and Medicaid Services (CMS). A link to the precise language of the section is also provided.

Sec. 3022 Of PPACA amends Title XVIII of the Social Security Act by adding Sec. 1899, the Shared Savings Program. The title alone provides a hint of what this really is about since it is not named Accountable Care Organizations.

Many entities already exist that can be called accountable care organizations. These include group practices, networks of individual practices, partnerships or joint ventures between hospitals and health care professionals, and hospitals employing health care professionals. Under PPACA, the Secretary of Health and Human Services (HHS) can include as ACOs any other group of providers and suppliers deemed appropriate.

What the law does is to add another administrative layer that is designed to reduce costs and promote quality. The existing entities plus any new ones formed have to meet certain requirements to qualify as an ACO, and then that allows them to participate in the shared savings program.

The specific requirements:

* Willing to become accountable for the quality, cost, and overall care of the Medicare fee-for-service beneficiaries assigned to it

* A legal structure to receive and distribute shared savings

* A leadership and management structure that includes clinical and administrative systems

* A minimum participation of 5000 patients

* A sufficient number of primary care professionals

* Agree to participate for a minimum of three years

* Define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth, remote patient monitoring, and other such enabling technologies

* Demonstrate patient-centerness criteria specified by the Secretary

* Measure quality of clinical processes and outcomes, patient experience of care, and utilization

This program applies to patients in the traditional fee-for-service Medicare program. Patients do not enroll in the ACOs. They are assigned by the Secretary based on utilization of primary care services. The patients may not even know that they have been assigned, as they are free to go to any providers of their choice, in or out of the ACO.

The ACOs are still paid fee-for-service by Medicare just as they always have been. That doesn’t change (though an amendment authorizes the option of a partial capitation model).

So how do ACOs achieve higher quality and lower cost?

The ACOs are not rewarded monetarily for meeting the quality standards. Their motivation to comply is to avoid being suspended from the program.

Costs are reduced by the shared savings program. A benchmark is established for each ACO “using the most recent available 3 years of per-beneficiary expenditures for parts A and B services for Medicare fee-for-service beneficiaries assigned to the ACO.” If the ACO can provide care for costs below the benchmark, the ACO then shares those savings with HHS. The benchmark is reset at the beginning of each 3 year agreement.

If the costs are above the benchmark, then the fees are still paid as usual, with no adjustments.

Think about this. The incentives continue to promote greater volume. There is no penalty for running the charges up. Is the reward for reducing the volume and intensity of services enough? Since fixed costs for the ACO are relatively unchanged, the reductions in marginal overhead expenses due to reduced volume must be greater than the amount of savings that HHS shares with the ACO in order to come out ahead. Since this is the opposite of “making it up in volume,” it is more likely that net income will be reduced. Further, since the benchmarks are reset every 3 years based on lower utilization, it is very unlikely that that the ACO could continue to ratchet down services to qualify for shared savings.

Some models of integrated health systems function well and should be encouraged as long as the goal is higher quality and greater value, while shunning policies that provide perverse incentives for greater profits by reducing beneficial health care services. But why would a well-functioning integrated health care system want to add an additional administrative layer, with additional quality-reporting requirements, just to be designated as an ACO, especially when the net result likely reduces the bottom line?

It is truly unfortunate that the fervor and hype over ACOs have provided yet one more distraction from the important task at hand. We need to replace our flawed health care financing system with one that works – a single payer national health program. That would include everyone of us in a quality system that we could pay for.

Rep. Ryan's roadmap for Medicare

A Roadmap for America's Future, Version 2.0

A plan to solve America’s long-term economic and fiscal crisis

By Representative Paul D. Ryan, Ranking Member, Committee on the Budget
January 2010

A Medicare Program for the 21st Century.

The entire methodology of the program must be converted away from a program that shelters providers and consumers from prices – and is therefore inefficient in restraining rising costs – into one in which beneficiaries choose the most affordable coverage that best suits their needs.

For future Medicare beneficiaries who are now under 55 or younger, the proposal creates a standard Medicare payment to be used for the purchase of private health coverage. The payment will be made directly to the health plan designated by the beneficiary (similar to the administration of the refundable health care tax credit), with the beneficiary receiving any leftover amount as a payment from the health plan, or assuming financial responsibility for any difference in the payment and the total cost of the premium.

Each Medicare beneficiary becomes eligible for the payment by enrolling in a health insurance plan. Medicare will publish an annual list of plans that are “Medicare certified.” Medicare enrollees are able to use their payment to pay for one of the Medicare certified plans, or any other plan, such as those offered by former employers or available from the private market.

For affected beneficiaries, the payment replaces all components of the current Medicare Program (Medicare fee-for-service, Medicare Part B, Medicare Advantage, and Medicare Part D). Payment amounts are income-related and risk-adjusted.

For individuals now younger than 55 only, the proposal adapts Medicare’s eligibility age to reflect Americans’ improving lifespans, raising in gradually, and in modest steps, from the current 65 to 69 years and 6 months.

The proposal would establish a mechanism that would be activated if the Medicare trustees determined that the percentage of funding from general revenues exceeded 45 percent in the prior fiscal year. …the mechanism would apply an automatic 1-percent reduction in payments for services provided in Medicare’s fee-for-service sector.

http://www.roadmap.republicans.budget.house.gov/UploadedFiles/Roadmap2Final2.pdf

And…

Statement to the Commission on Deficit Reduction

By James K. Galbraith, Lloyd M. Bentsen, jr. Chair in Governnment/Business Relations, Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin
June 30, 2010

You are plainly not equipped by disposition or resources to take on the true cause of deficits now and in the future: the financial crisis. Recommendations based on CBO’s unrealistic budget and economic outlooks are destined to collapse in failure. Specifically, if cuts are proposed and enacted in Social Security and Medicare, they will hurt millions, weaken the economy, and the deficits will not decline. It’s a lose-lose proposition, with no gainers except a few predatory funds, insurance companies and such who would profit, for some time, from a chaotic private marketplace.

http://www.fiscalcommission.gov/meetings/public-forum/additional/James_Galbraith.pdf

Comment:

By Don McCanne, MD

If the Republicans regain control of the House of Representatives in the election next week, as some experts predict, Rep. Paul Ryan will likely become Chairman of the Committee on the Budget. This will coincide with the release of the report from the Commission on Deficit Reduction – a report that many fear will recommend changes that would make significant cuts in the Medicare program. Clearly, Medicare is under threat.

Rep. Ryan is being touted as a brilliant wonder boy who has crafted a budget proposal, “A Roadmap for America’s Future,” that would return the government to solvency. Not only is the fundamental premise incorrect, he has introduced no new concepts, but rather a rehash of old proposals to privatize programs which the government is better suited to deliver.

His proposal for Medicare is to eliminate the government program as a defined benefit and substitute vouchers for private health plans as a defined contribution that shifts more risks to Medicare beneficiaries. He would also postpone eligibility until age 69 and a half (even he choked on 70).

He claims that the problem is that Medicare “shelters consumers from prices,” but that isn’t true. Medicare has deductibles and coinsurance that can result in considerable out-of-pocket expenses. It is the private sector plans – Medigap, retirement plans, Medicare Advantage plans – that tend to reduce the out-of-pocket spending. Most Medicare beneficiaries have such coverage, especially the Medigap plans.

Rep. Ryan is not calling for more sensitivity to health care prices; he is calling for more sensitivity to insurance premiums. By holding down the government contribution, most Medicare beneficiaries will be forced to buy plans with fewer benefits because that is all that they can afford. What a cruel and inhumane approach to financing health care. As Prof. James Galbraith says, cuts in Medicare “will hurt millions.”

Almost everyone recognizes that Medicare benefits are insufficient, and that is why so many purchase Medigap plans. But are Medigap plans a reasonable approach to expand coverage? They provide one of the worst values in private insurance coverage. They are terribly overpriced considering the benefits provided. It would be far better and overall less expensive to roll over the Medigap and Part D drug benefits into the traditional Medicare program, and then eliminate Medigap, Part D, and the Medicare Advantage plans.

We need to change the national dialogue. The current discussion is about pulling back on Medicare – the wrong discussion. We need to get the word out about what a rip-off the private sector plans are. We need to get rid of them by improving Medicare and making them unnecessary. Once we’ve done that then we need to get the word out about how our improved Medicare would be a better program for everyone.

Rep. Ryan’s roadmap for Medicare

A Roadmap for America’s Future, Version 2.0

A plan to solve America’s long-term economic and fiscal crisis

By Representative Paul D. Ryan, Ranking Member, Committee on the Budget
January 2010

A Medicare Program for the 21st Century.

The entire methodology of the program must be converted away from a program that shelters providers and consumers from prices – and is therefore inefficient in restraining rising costs – into one in which beneficiaries choose the most affordable coverage that best suits their needs.

For future Medicare beneficiaries who are now under 55 or younger, the proposal creates a standard Medicare payment to be used for the purchase of private health coverage. The payment will be made directly to the health plan designated by the beneficiary (similar to the administration of the refundable health care tax credit), with the beneficiary receiving any leftover amount as a payment from the health plan, or assuming financial responsibility for any difference in the payment and the total cost of the premium.

Each Medicare beneficiary becomes eligible for the payment by enrolling in a health insurance plan. Medicare will publish an annual list of plans that are “Medicare certified.” Medicare enrollees are able to use their payment to pay for one of the Medicare certified plans, or any other plan, such as those offered by former employers or available from the private market.

For affected beneficiaries, the payment replaces all components of the current Medicare Program (Medicare fee-for-service, Medicare Part B, Medicare Advantage, and Medicare Part D). Payment amounts are income-related and risk-adjusted.

For individuals now younger than 55 only, the proposal adapts Medicare’s eligibility age to reflect Americans’ improving lifespans, raising in gradually, and in modest steps, from the current 65 to 69 years and 6 months.

The proposal would establish a mechanism that would be activated if the Medicare trustees determined that the percentage of funding from general revenues exceeded 45 percent in the prior fiscal year. …the mechanism would apply an automatic 1-percent reduction in payments for services provided in Medicare’s fee-for-service sector.

http://www.roadmap.republicans.budget.house.gov/UploadedFiles/Roadmap2Final2.pdf

And…

Statement to the Commission on Deficit Reduction

By James K. Galbraith, Lloyd M. Bentsen, jr. Chair in Governnment/Business Relations, Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin
June 30, 2010

You are plainly not equipped by disposition or resources to take on the true cause of deficits now and in the future: the financial crisis. Recommendations based on CBO’s unrealistic budget and economic outlooks are destined to collapse in failure. Specifically, if cuts are proposed and enacted in Social Security and Medicare, they will hurt millions, weaken the economy, and the deficits will not decline. It’s a lose-lose proposition, with no gainers except a few predatory funds, insurance companies and such who would profit, for some time, from a chaotic private marketplace.

http://www.fiscalcommission.gov/meetings/public-forum/additional/James_Galbraith.pdf

Comment:

By Don McCanne, MD

If the Republicans regain control of the House of Representatives in the election next week, as some experts predict, Rep. Paul Ryan will likely become Chairman of the Committee on the Budget. This will coincide with the release of the report from the Commission on Deficit Reduction – a report that many fear will recommend changes that would make significant cuts in the Medicare program. Clearly, Medicare is under threat.

Rep. Ryan is being touted as a brilliant wonder boy who has crafted a budget proposal, “A Roadmap for America’s Future,” that would return the government to solvency. Not only is the fundamental premise incorrect, he has introduced no new concepts, but rather a rehash of old proposals to privatize programs which the government is better suited to deliver.

His proposal for Medicare is to eliminate the government program as a defined benefit and substitute vouchers for private health plans as a defined contribution that shifts more risks to Medicare beneficiaries. He would also postpone eligibility until age 69 and a half (even he choked on 70).

He claims that the problem is that Medicare “shelters consumers from prices,” but that isn’t true. Medicare has deductibles and coinsurance that can result in considerable out-of-pocket expenses. It is the private sector plans – Medigap, retirement plans, Medicare Advantage plans – that tend to reduce the out-of-pocket spending. Most Medicare beneficiaries have such coverage, especially the Medigap plans.

Rep. Ryan is not calling for more sensitivity to health care prices; he is calling for more sensitivity to insurance premiums. By holding down the government contribution, most Medicare beneficiaries will be forced to buy plans with fewer benefits because that is all that they can afford. What a cruel and inhumane approach to financing health care. As Prof. James Galbraith says, cuts in Medicare “will hurt millions.”

Almost everyone recognizes that Medicare benefits are insufficient, and that is why so many purchase Medigap plans. But are Medigap plans a reasonable approach to expand coverage? They provide one of the worst values in private insurance coverage. They are terribly overpriced considering the benefits provided. It would be far better and overall less expensive to roll over the Medigap and Part D drug benefits into the traditional Medicare program, and then eliminate Medigap, Part D, and the Medicare Advantage plans.

We need to change the national dialogue. The current discussion is about pulling back on Medicare – the wrong discussion. We need to get the word out about what a rip-off the private sector plans are. We need to get rid of them by improving Medicare and making them unnecessary. Once we’ve done that then we need to get the word out about how our improved Medicare would be a better program for everyone.

Rep. Ryan’s roadmap for Medicare

A Roadmap for America’s Future, Version 2.0

A plan to solve America’s long-term economic and fiscal crisis

By Representative Paul D. Ryan, Ranking Member, Committee on the Budget
January 2010

A Medicare Program for the 21st Century.

The entire methodology of the program must be converted away from a program that shelters providers and consumers from prices – and is therefore inefficient in restraining rising costs – into one in which beneficiaries choose the most affordable coverage that best suits their needs.

For future Medicare beneficiaries who are now under 55 or younger, the proposal creates a standard Medicare payment to be used for the purchase of private health coverage. The payment will be made directly to the health plan designated by the beneficiary (similar to the administration of the refundable health care tax credit), with the beneficiary receiving any leftover amount as a payment from the health plan, or assuming financial responsibility for any difference in the payment and the total cost of the premium.

Each Medicare beneficiary becomes eligible for the payment by enrolling in a health insurance plan. Medicare will publish an annual list of plans that are “Medicare certified.” Medicare enrollees are able to use their payment to pay for one of the Medicare certified plans, or any other plan, such as those offered by former employers or available from the private market.

For affected beneficiaries, the payment replaces all components of the current Medicare Program (Medicare fee-for-service, Medicare Part B, Medicare Advantage, and Medicare Part D). Payment amounts are income-related and risk-adjusted.

For individuals now younger than 55 only, the proposal adapts Medicare’s eligibility age to reflect Americans’ improving lifespans, raising in gradually, and in modest steps, from the current 65 to 69 years and 6 months.

The proposal would establish a mechanism that would be activated if the Medicare trustees determined that the percentage of funding from general revenues exceeded 45 percent in the prior fiscal year. …the mechanism would apply an automatic 1-percent reduction in payments for services provided in Medicare’s fee-for-service sector.

http://www.roadmap.republicans.budget.house.gov/UploadedFiles/Roadmap2Final2.pdf

And…

Statement to the Commission on Deficit Reduction

By James K. Galbraith, Lloyd M. Bentsen, jr. Chair in Governnment/Business Relations, Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin
June 30, 2010

You are plainly not equipped by disposition or resources to take on the true cause of deficits now and in the future: the financial crisis. Recommendations based on CBO’s unrealistic budget and economic outlooks are destined to collapse in failure. Specifically, if cuts are proposed and enacted in Social Security and Medicare, they will hurt millions, weaken the economy, and the deficits will not decline. It’s a lose-lose proposition, with no gainers except a few predatory funds, insurance companies and such who would profit, for some time, from a chaotic private marketplace.

http://www.fiscalcommission.gov/meetings/public-forum/additional/James_Galbraith.pdf

If the Republicans regain control of the House of Representatives in the election next week, as some experts predict, Rep. Paul Ryan will likely become Chairman of the Committee on the Budget. This will coincide with the release of the report from the Commission on Deficit Reduction – a report that many fear will recommend changes that would make significant cuts in the Medicare program. Clearly, Medicare is under threat.

Rep. Ryan is being touted as a brilliant wonder boy who has crafted a budget proposal, “A Roadmap for America’s Future,” that would return the government to solvency. Not only is the fundamental premise incorrect, he has introduced no new concepts, but rather a rehash of old proposals to privatize programs which the government is better suited to deliver.

His proposal for Medicare is to eliminate the government program as a defined benefit and substitute vouchers for private health plans as a defined contribution that shifts more risks to Medicare beneficiaries. He would also postpone eligibility until age 69 and a half (even he choked on 70).

He claims that the problem is that Medicare “shelters consumers from prices,” but that isn’t true. Medicare has deductibles and coinsurance that can result in considerable out-of-pocket expenses. It is the private sector plans – Medigap, retirement plans, Medicare Advantage plans – that tend to reduce the out-of-pocket spending. Most Medicare beneficiaries have such coverage, especially the Medigap plans.

Rep. Ryan is not calling for more sensitivity to health care prices; he is calling for more sensitivity to insurance premiums. By holding down the government contribution, most Medicare beneficiaries will be forced to buy plans with fewer benefits because that is all that they can afford. What a cruel and inhumane approach to financing health care. As Prof. James Galbraith says, cuts in Medicare “will hurt millions.”

Almost everyone recognizes that Medicare benefits are insufficient, and that is why so many purchase Medigap plans. But are Medigap plans a reasonable approach to expand coverage? They provide one of the worst values in private insurance coverage. They are terribly overpriced considering the benefits provided. It would be far better and overall less expensive to roll over the Medigap and Part D drug benefits into the traditional Medicare program, and then eliminate Medigap, Part D, and the Medicare Advantage plans.

We need to change the national dialogue. The current discussion is about pulling back on Medicare – the wrong discussion. We need to get the word out about what a rip-off the private sector plans are. We need to get rid of them by improving Medicare and making them unnecessary. Once we’ve done that then we need to get the word out about how our improved Medicare would be a better program for everyone.

Tea Party Inc.: The Big Money and Powerful Elites Behind the Right Wing's Latest Uprising

By Adele M. Stan
AlterNet/The Investigative Fund at The Nation Institute, October 26, 2010

This article was reported in collaboration with The Investigative Fund at The Nation Institute.

Win or lose, the Tea Party movement will come away from next week’s elections triumphant, having injected into the Republican Party a group of candidates pledged to the dismantling of government and wed to the religious right. Of the movement’s dozen favored candidates for U.S. Senate, all are anti-abortion, and five oppose it even in cases of rape and incest. Among their number are Colorado’s Ken Buck, who has compared homosexuality to alcoholism, and Nevada’s Sharron Angle, who wants to demolish both the Department of Education and the Environmental Protection Agency. Major GOP players, from political strategist Karl Rove to former Bush speechwriter David Frum, have fretted publicly over Tea Party extremism, with Frum complaining of the movement’s “paranoid delusions.”

But it has now become clear that these Tea Party “outsiders” are all part of an inside game, a battle for control of the Republican party.

Though billed as a people’s movement, the Tea Party wouldn’t exist without a gusher of cash from oil billionaire David H. Koch and the vast media empire of Rupert Murdoch. Many of the small donations to Tea Party candidates have been cultivated by either Fox News Channel, a property of Murdoch’s News Corporation, or the Americans for Prosperity Foundation, chaired by Koch. The movement’s major organizations are all run, not by first-time, mad-as-hell activists, but by former GOP officials or operatives.

Taken together, Americans for Prosperity, FreedomWorks (another far-right political group seeded by the Kochs) and Murdoch’s News Corp, owner of Fox News and the Wall Street Journal, form the corporate headquarters of a conglomerate one might call Tea Party, Inc. This is the syndicate that funds the organizing, crafts the messages, and channels the rage of conservative Americans at their falling fortunes into an oppositional force to President Obama and to any government solution to the current economic calamity. Groups such as Tea Party Express, Tea Party Nation, and the FreedomWorks-affiliated Tea Party Patriots; the bevy of political consultants for hire; and various allied elected officials can be understood as Tea Party, Inc.’s loosely affiliated subsidiaries. The Web sites of FreedomWorks, Americans for Prosperity and the Tea Party side projects of Fox News Channel’s Glenn Beck are linked with those of Tea Party Express and Tea Party Patriots, all of which in turn solicit support for Tea Party candidates.

The armies of angry white people with their “Don’t Tread on Me” flags, the actual grassroots activists, are not the agents of the Tea Party revolt, but its end users, enriching the Tea Party’s corporate owners just as you and I enrich Google through our clicks.

Coming Out Party

Tea Party, Inc. was on full display in our nation’s capital in late August, when Glenn Beck gathered his angry white multitudes at the Lincoln Memorial on the anniversary of Martin Luther King’s historic “I Have a Dream” speech. The tens of thousands of Tea Partiers who showed up for this political revival were mobilized by untold hours of free promotion on Murdoch’s network, while a related “Take America Back” convention, held the day before at Constitution Hall, was convened by FreedomWorks.

At that event, the crowd was treated to a trailer for a forthcoming film called Runaway Slave, narrated by Rev. C.L. Bryant, an African-American pastor from Louisiana identified as “a former NAACP radical,” who made the case that liberalism is yet another means of enslaving black people.

“[I]n the black community,” Bryant says in the film, “there’s always somebody who’s gotta keep them niggers in control.” A photo of Jesse Jackson flashed on the screen. Then one of Al Sharpton. Some images flashed by so quickly that they were barely discernable. One was of a wriggling maggot.

Before the night was out, Glenn Beck himself graced the stage, asking the crowd to “expect miracles” at the next day’s rally.

A few miles away, a more sedate crowd was jammed into a Marriott ballroom for a gala dinner that wrapped up yet another activist conference, the Defending the American Dream Summit, this one convened by the Americans for Prosperity Foundation. Striding toward the podium to the opening strains of “New York, New York” was chairman Koch. Tall and dapper in a precisely tailored dark suit, the 70-year-old stood in sharp contrast to the 2,500 middle-class women in pastel frocks and men in department-store sport coats who populated the ballroom tables.

Koch prefers to be known for the hundreds of millions he lavishes on his adopted city’s cultural institutions — the New York City Ballet, the Metropolitan Museum of Art, and the Metropolitan Opera, to name a few. But the quieter largess behind events like these, dispensed by David Koch and his brother Charles, has reshaped Washington, D.C., and our national politics. Though Americans for Prosperity, which he founded, and its foundation, whose board he chairs, have been instrumental in organizing the Tea Party movement, Koch still publicly claims to have no Tea Party ties, making tonight’s appearance notable.

“Six years ago, when we launched this organization,” he said in his uneasy and halting style, “we envisioned a grassroots organization of Americans from all walks of life banded together to advance economic freedom and prosperity by limiting government’s reach, and curbing government’s growth, reining in government spending. We envisioned an organization that would boldly and unapologetically defend the free-market economy. The Tea Party is Koch’s dream come true; the Washington summit, he told attendees, was designed to train grassroots activists in the defense of the “free-market economy” and “to send a message to the political class that these activists [are] energized and watching” its members.

The Capitol Hill Franchise

The self-appointed head of Tea Party, Inc.’s Capitol Hill division is the junior senator from South Carolina, Jim DeMint. DeMint is the top Senate recipient of donations from the Koch Industries’ PAC, reeling in $22,000 in the current election cycle for a race he stands virtually no chance of losing. The Kochs’ PAC is also the number three donor to DeMint’s PAC, the Senate Conservatives Fund, which he spends on other races.

In DeMint, the Kochs found a politician who will make no compromises on their far-right agenda, favoring tax cuts and opposing health-care reform, green energy, labor unions and regulation of any kind. Last year, DeMint received the Americans for Prosperity Foundation’s George Washington Award, bestowed upon the senator by Koch himself. Speaking at the organization’s summit in August, Koch said DeMint “has consistently stood for freedom against this big-government agenda.” In backing DeMint’s power play against leaders of the Republican establishment, particularly his challenge to the power of Senate Minority Leader Mitch McConnell, the Kochs stand poised to push those establishment leaders into the same uncompromising positions.

Echoing DeMint’s agenda are Rep. Michele Bachmann, a Minnesota Republican who, in July, founded a Tea Party Caucus in the House of Representatives, and Rep. Mike Pence, a Republican from Indiana, who is House GOP conference chairman and a charter member of the new caucus. Both are Tea Party favorites, and Bachmann is a regular speaker at Americans for Prosperity events. At the Americans for Prosperity Foundation’s RightOnline conference, held in Las Vegas in July, Pence used a luncheon address to make the case for melding the free-market Tea Party agenda with the values of the religious right, while Bachmann entertained a banquet crowd with herplan to phase out Social Security
.

FreedomWorks has its eye on a political transformation in the Senate, and is closely allied with DeMint, whose PAC is spending hundreds of thousands of dollars on behalf of many of the same Tea Party-backed Senate candidates endorsed by the FreedomWorks PAC, including Sharron Angle (currently in a tight race against Senate Majority Leader Harry Reid), Rand Paul in Kentucky, Marco Rubio in Florida, and Utah’s Mike Lee. (Bachmann’s Tea Party Caucus was announced the day after Paul, addressing FreedomWorks activists on a July 13 conference call, suggested a Tea Party caucus for the Senate.) Each of these candidacies began as primary challenges to establishment Republicans endorsed by McConnell.

In September, Huffington Post political columnist Sam Stein cited a Democratic strategist who said that by the midterms’ close, Americans for Prosperity will have spent $45 million on organizing “voter education” and get-out-the-vote activities that test the limits of legal nonprofit expenditures. Actually, Americans for Prosperity president Tim Phillips told me his plan was to raise and spend even more, though he wouldn’t name a figure. Even the lesser amount, according to tax filings, would represent a tripling of its funds since 2008.

FreedomWorks also hopes to triple its revenue, from $3 million in 2008, according to tax filings, to an anticipated $10 million this election cycle, according to Adam Brandon, the group’s communications director. In a fundraising video sent by FreedomWorks to new members, leaders announce that every dollar raised will be matched by an unnamed donor. Both Brandon and Koch Industries spokesperson Melissa Cohlmia say that FreedomWorks has received no funding from the Kochs or their foundations since 2004, so there is likely another high-roller involved. But neither FreedomWorks nor Americans for Prosperity,nor its foundation, is required by law to disclose its donors and — like advocacy organizations across the political spectrum — they don’t.

At any rate, the vast expenditures on organizing have worked in at least one way: FreedomWorks’ membership had reached nearly 1.1 million by mid-October, according to the group’s Web site ticker. Americans for Prosperity claims 1.5 million members and chapters in 31 states.

Both groups excel at training activists and spreading the word for Tea Party candidates, who have raked in a significant portion of their campaign donations from small donors, according to the Center for Responsive Politics. When Angle’s campaign announced earlier this month that it had raised a whopping $14 million since June, spokesperson Jarrod Agen told the Washington Post that 96 percent of those donations were $200 or less. (At press time, neither Angle nor the FEC had released official filings.)

One “voter education” exercise I witnessed was the dispatch of participants in July’s RightOnline conference to canvass the Las Vegas suburbs, armed with a script about Harry Reid. “Reid voted for the failed $800 billion stimulus plan that has wasted our tax dollars on more government,” it read. “Reid’s policies will make government bigger, waste more money, drive up budget deficits and kill jobs.”

The canvassers had just heard Angle, Reid’s opponent, deliver the conference’s closing speech. But as they boarded vans for their deployments, they were reminded this was, of course, a nonpartisan exercise ” since the Americans for Prosperity Foundation, a nonprofit, is forbidden from endorsing candidates.

The Money Men

The Tea Party’s two major patrons are fabulously wealthy. David Koch is heir to the fortunes of Koch Industries, described in 2008 by Fortune as the largest privately held corporation in the United States, and was ranked by Forbes as one of the world’s richest people, with an estimated personal wealth of $17.5 billion. Rupert Murdoch, founder and CEO of News Corp — ranked by Fortune as world’s second-largest entertainment company — was also rated by Forbes among the world’s wealthiest, with personal wealth of $6.3 billion.

Koch Industries, with David as executive vice-president and his brother Charles as CEO, presides over a vast conglomerate of oil and gas interests, as well as holdings in timber and chemicals. Since the 1970s, the two men have funded and controlled a large network of right-wing institutions, launching the libertarian Cato Institute in 1977 and the Mercatus Institute in 1985, all of which advocate business deregulation under the rubric of “free markets.”

Both cornerstones of Tea Party Inc. — FreedomWorks and the two entities comprising Americans for Prosperity — sprang from Koch’s riches. FreedomWorks rose from the ashes of Citizens for a Sound Economy, an early Astroturf group and think tank he founded during the Reagan years to advocate for lower taxes, less regulation, and smaller government. CSE was rebranded as FreedomWorks in 2004, after a corporate-style merger with Empower America, founded by the late Republican Congressman Jack Kemp to limit government and privatize government services.

That same year, Koch rebranded CSE’s foundation as the Americans for Prosperity Foundation and founded its sibling organization, Americans for Prosperity.[i] Koch hired the politically connected Tim Phillips to serve as president of both organizations. (Phillips is a business partner of former Christian Coalition director Ralph Reed in a political consulting firm, Century Strategies, which was implicated, but never charged, in the bribery scandal that sent Jack Abramoff to prison.)

Koch and his allies built the underpinnings for a movement not quite ready to be born. The absent ingredient was rage. But by 2009, with the collapse of the economy and the election of the nation’s first African-American president, the supply chain of rage was complete, and the Tea Party came roaring to life. Rupert Murdoch gave the new movement legitimacy by means of sympathetic columns in the Wall Street Journal, boosterism from Sean Hannity and Glenn Beck and a regular media platform on Fox News Channel for Tea Party personalities and candidates. As Jane Mayer remarked in her New Yorker profile of the Kochs, the Tea Party had at last turned their private agenda into a mass movement.

The role of these groups in launching the movement is indisputable. In concert with Glenn Beck’s 912 Project, FreedomWorks did the logistical organizing for the first Tea Party march on Washington, in September 2009. Beck launched the 912 Project on his Fox News Channel show, promoted the march on his show and mobilized for it through a social networking Web site built by his production company.

Since then, the groups have been tearing through the Murdoch-Koch agenda. Americans for Prosperity says it convened, through an offshoot, some 300 rallies against health-care reform, and once the healthcare bill was passed in March, the organization quickly moved to block cap-and-trade as a means of regulating carbon emissions. In fact, at an Americans for Prosperity Foundation conference I attended in Pittsburgh in August 2009, cap-and-trade was already being introduced as the next Tea Party battle. This is a longstanding priority for Koch Industries, a major polluter heavily invested in old energy technologies. In a March 2010 report, Greenpeace said that, over the years, the Koch brothers have “quietly funneled” nearly $50 million to “climate-denial front groups that are working to delay policies and regulations aimed at stopping global warming.”

Wall Street Journal columnist Stephen Moore — a member of the newspaper’s editorial board and a former fellow at the Koch-funded Cato Institute — told the gathering of Tea Party activists he thought global warming was “the greatest hoax of the last 100 years.” He called the climate change agenda “not just evil, butcontrary to the free-market system that made this country great.”

The Media Storm

It is not unusual for op-ed pages to reflect the bias of an outlet
‘s owners. It is highly unusual, however, for news operations to engage in outright political organizing on behalf of a CEO’s agenda. Yet that’s just what certain Fox News hosts and Wall Street Journal columnists seem to be doing on behalf of Rupert Murdoch, who is opposed to regulation of any kind, hates taxes, and despises labor unions — having famously broken unions at his UK newspapers.

News Corp’s best-known personalities accomplish this by working hand in glove with the like-minded ideologues at Americans for Prosperity. Fox News hosts, along with Stephen Moore and fellow Wall Street Journal columnist John Fund, are regular speakers at conferences sponsored by the Americans for Prosperity Foundation. At the group’s 2009 RightOnline conference, a third of the plenary speakers were News Corp writers and pundits, including Moore and Fund, as well as Jim Pinkerton and Michelle Malkin, who were paid Fox commentators at the time. Fox News personality John Stossel spoke against health-care reform at three rallies sponsored by Americans for Prosperity, while Sean Hannity, host of a prime-time Fox News show, live-broadcast Americans for Prosperity’s 2009 Tax Day protest in Atlanta — and the network preempted regular programming to present it. Moore and Fund also shill for the foundation’s anti-regulatory “worker education” project, known as Prosperity101.

The door swings the other way as well. By means of his regular presence on Fox’s airwaves and column at the FoxNation Web site, Americans for Prosperity vice president Phil Kerpen was instrumental in building the case against Obama green jobs adviser Van Jones, who was ultimately forced to resign his White House post.

At last year’s RightOnline conference, I asked Americans for Prosperity president Tim Phillips if his group worked in partnership with News Corp, given the presence of so many of its personalities on the roster.

“Not at all, not at all,” he replied with a laugh. “The fact is, the Wall Street Journal’s my favorite newspaper; I love those guys. I like what they write. I look at Steve Moore and John Fund, and those are two of the smartest guys. But there’s no partnership — financially, understood, or anything else.”

News Corp enjoys a similarly friendly — if similarly informal — relationship with FreedomWorks. In early October, FreedomWorks was promoting its Take America Back campaign — a get-out-the-vote effort — with a photo of Glenn Beck standing before his iconic blackboard. The FreedomWorks’ Web site also featured an audio message from Beck: “I’ve been sayin’ it for weeks. If you care about freedom, you must get involved. If you really want to end tyranny in Washington, you must get involved. And the group you need to find out about is FreedomWorks. Take America back — FreedomWorks.org.” Just days ago, Beck’s image was used in a splash screen to solicit contributions for FreedomWorks’ PAC.

To Rupert Murdoch, Glenn Beck is much more than a broadcaster; he’s Murdoch’s lead community organizer. His show has leached revenue since the civil rights group Color of Change launched a boycott of his advertisers, reportedly chasing away at least 100. But his act is far more profitable to News Corp in another way — by creating the conditions for a stripping away of federal regulations that limit the growth of News Corp and its bottom line. And so Beck’s rants become more shrill and his claims more preposterous, whether he is stoking racial fears or recalling that old bogeyman threat of looming socialism — a theme straight out of the John Birch Society, of which the Kochs’ father, Fred, was a founding member.

The Campaigns

In Washington, D.C., Adam Brandon, FreedomWorks’ communications director, is bubbling over with excitement at the end of a long, hot July day. “I’m racking up the frequent flyer miles,” he says of his relentless weekend trips to train Tea Party activists in how to chalk up wins for candidates FreedomWorks’ PAC has endorsed.

FreedomWorks doesn’t aim to elect just any Tea Party candidate to office: as with DeMint’s Senate Conservatives Fund, its endorsements seem designed to undermine the current GOP establishment, push the party rightward and further an anti-regulatory agenda. Well before others joined in, FreedomWorks embraced far-right insurgencies, notably those of Marco Rubio and Rand Paul. Both endorsements put FreedomWorks at loggerheads with Sen. McConnell, whose candidates — including his hand-picked protg in his home state of Kentucky — were vanquished.

DeMint’s PAC spends hefty amounts on behalf of its endorsed candidates, including $447,000 for Rubio and $95,000 for Paul ($95,000). FreedomWorks matches DeMint’s cash with ground forces. The PAC runs an online “service center,” where, according to FreedomWorks president Matt Kibbe, Tea Partiers “get the tools they need to turn a protest into a sophisticated, turn-out-the-vote effort.” Those tools include walking maps, door-hangers, talking points, and “a sophisticated phone-banking system that is going to allow you to make calls in all of our targeted races.” If you’re an activist in Wisconsin, FreedomWorks can set you up to turn out voters for Rand Paul in Kentucky. Combined, these Tea Party outfits have proven that they have the potential to decide elections.

When I asked whether FreedomWorks’ endorsements were chosen in part to undermine McConnell, Brandon declined to answer directly, but his response revealed the intimate ties between his outfit and DeMint’s. DeMint has been stalwart on behalf of FreedomWorks’ positions, Brandon explained. These include opposition to healthcare and energy reform and labor unions. But DeMint needs more people like him in the Senate in order to create something of a caucus — “a new power center,” Brandon called it.

Their combined might was recently on display in Utah, where DeMint and FreedomWorks joined forces to replace incumbent Republican Senator Bob Bennett. DeMint’s PAC and FreedomWorks’ PAC each rank among the top twelve donors to Bennett’s challenger, Tea Partier Mike Lee.

In Utah, candidates must win delegates at their state party convention; primaries take place only if a run-off is needed. So FreedomWorks helped pack the convention with Tea Party-allied delegates, and Lee showed convention-goers a video endorsement by DeMint. Bennett lost his seat that day, coming in third with 26 percent of the vote. (The remainder was split between Lee and another Tea Party candidate.) Lee prevailed in the subsequent two-way primary, with more help from DeMint’s PAC, which has spent $315,000on his behalf, including $184,000 in so-called “independent expenditures,” according to FEC filings.

Suppliers and Subsidiaries

While Americans for Prosperity, FreedomWorks and News Corp run the boardroom of Tea Party, Inc., a growing number of national organizations have sprung up to provide a range of services; call them the suppliers. Some have similar names — Tea Party Patriots, Tea Party Nation, Tea Party Express — though they compete ferociously. Reed’s Faith & Freedom Coalition provides a unique service to Tea Party Inc.: the promise of delivering religious-right voters to its candidates. Like the big players, these groups, too, are run by former Republican officials or political consultants.

Tea Party Patriots, perhaps the most substantial of these groups, was born of FreedomWorks, as co-founder Jenny Beth Martin points out in a FreedomWorks video, and its state chapters do the on-the-ground organizing for FreedomWorks’ agenda. Martin, a former Republican political consultant in Georgia, coordinates the group with Mark Meckler, a Northern California attorney who previously ran an online political consultancy with GOP ties.

More flamboyant is Tea Party Express, another name for Our Country Deserves Better, an anti-Obama PAC founded by Howard Kaloogian, the California attorney who orchestrated the recall of Gov. Gray Davis. The group has already wea
thered controversy — its spokesperson, radio talk-show host Mark Williams, was forced to exit the organization in July after authoring a demeaning satire of NAACP president Ben Jealous. But Tea Party Express has nevertheless raised $6.6 million this election, according to recent FEC data, making it, in the estimation of the New York Times, “the single biggest independent supporter of Tea Party candidates.” And the group has racked up primary victories for Tea Party insurgencies such as Christine O’Donnell in Delaware, who benefitted from $250,000 in Tea Party Express ad buys; Joe Miller in Alaska, who beat incumbent Lisa Murkowski with the aid of $550,000 from the group; and Angle, who has enjoyed nearly $1 million in “independent expenditure” advertising by the group, according to FEC filings.

“Sharron Angle, in my opinion, wouldn’t have won [the Republican primary] without the Tea Party Express,” California Republican consultant and Tea Party organizer Eric Odom told participants in this year’s RightOnline conference.

Reed’s Faith & Freedom Coalition, which seeks to unite the Tea Party and the religious right, is provides a unique service to Tea Party Inc.: delivery of religious-right voters to its candidates. On September 11, Reed brought together a few hundred activists for a strategy briefing at Washington, D.C.’s Mayflower Hotel. The event featured speakers from the GOP’s glory days, from Karl Rove to Newt Gingrich.There Reed instructed activists on how to “move the needle” when the polls are against you.

“We’re building databases of faith-based and fiscal conservatives in every key congressional race, U.S. Senate race or governor’s race, and a lot of targeted state legislative races,” Reed explained. “Those voters are going to be contacted an average of seven times.We’re gonna mail “em, we’re gonna phone “em, if we have an e-mail, we’re gonna e-mail “em, if we have a cell phone number, we’re gonna text-message them.And at the end, we’re gonna knock on their door.”

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Reed’s big announcement of his new Faith & Freedom Coalition took place in August 2009, at an Atlanta rally against health-care reform convened by Americans for Prosperity, the organization fronted by his old business partner, Tim Phillips. FreedomWorks chairman Dick Armey delivered the keynote address, and Fox News contributor Herman Cain made the business case against health-care reform.

Phillips couldn’t make it to Atlanta that day. He was stuck in Pittsburgh, at his RightOnline conference, rubbing elbows with the stars of Rupert Murdoch’s News Corp.”

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