It seems that during the last Sustainable Growth Rate (SGR) battle in December 2011, Republicans decided that a reasonable way to pay for the cost of SGR was to dun the hospital industry for an additional $15 billion dollars in reduced Medicare/Medicaid reimbursements.  According to Republicans, this would cover the two year window Congress was trying to resolve during this latest scramble to manage the unmanageable SGR.

Outraged, the hospitals launched an advertising campaign strongly criticizing the Republican SGR solution and released very public letters calling out the Republicans for reducing senior access to Medicare hospital care. (http://tinyurl.com/7nghqxr )

In response, the Chairman of the powerful House Ways and Means Committee, Rep. David Camp, had this icy reply for the AHA:

“It’s important to add a little perspective to what the hospital industry is calling ‘major reductions’ to hospitals in H.R. 3630,” the GOP statement said, pointing out that the cuts would total 0.5 percent of 10-year Medicare spending on hospitals. “Not so long ago, the major hospital trade associations endorsed and strongly supported legislation that became law. It contained $155 billion in hospital Medicare cuts – more than 10 times the reductions in H.R. 3630.” (http://tinyurl.com/74ycxuu )

There’s no surprise that this exchange occurred, actually.  This is full-on Republican retribution.

Understanding this GOP sentiment, however, takes a little bit of doing as this “payback” is built upon events that are over two years old and not fully understood by many.  Here’s the pertinent history…

Over the course of 30 days, during the memorable summer of 2009, the American healthcare establishment concluded it was time to throw in with the Obama Administration on healthcare reform.  The result?  A series of elaborate announcements, each sponsored by the White House, that featured the chastened healthcare group of the moment pledging unequivocal support for HCR.

In return for these public statements, each industry was promised “deals” from the White House.  Overall, these “deals” not only granted important relief from key HCR issues that each organization disliked, but also painted a rosy picture of the promise of new business that the law would generate for each supporter.

Each deal, however, also extracted enormous promises of “cost savings” from each group that were designed to pay for the new services HCR would provide.  These funds were to be generated either in the form of new taxes on an industry, or as reductions in provider Medicare/Medicaid reimbursement fees.  It was classic Capitol Hill “quid pro quo” politics.

As a refresher, here’s a quick summary of how the summer of 2009 unfolded:

PhRMA

The first major health player to step forward was the Pharmaceutical Manufacturers and Researchers of America (PhRMA).  On Saturday, June 20, 2009, the White House announced a 10 year $80 billion deal approved by the PhRMA Board.  The new monies would go to cover the so called “donut hole” in Part D Rx coverage contained in the Medicare Reform Act of 2003.  The funding to pay for this would come from a new tax on each Rx Company doing business with Medicare.  Additionally, PhRMA pledged to provide advertising to support passage of the full HCR bill and to not oppose the law in Congress. (http://tinyurl.com/n44wwr )

In exchange, PhRMA got a White House pledge to keep price controls (i.e., single payer) out of Medicare and Medicaid, and also reject foreign drug importation.  The biggest incentive for PhRMA was the prospect of 30 to 40 million newly insured patients utilizing and paying for the industry’s prescription drugs.

American Hospital Association

About two weeks later, the American Hospital Association (AHA) and two other affiliated hospital groups also decided it was time to capitulate.  On July 8, 2009, AHA released an agreement with the White House indicating that AHA members would take a $155 billion cut in Medicare reimbursement over the next 10 years. (See above, Rep. Camp’s reference)

In return, they received a series of promises about how funding would be distributed, a guarantee that administrative red tape would be removed from Medicare hospitalizations, as well as gaining access to the aforementioned new 30/40 million newly insured patients and creating the prospect of no more uninsured patients entering American hospitals. (http://tinyurl.com/7jzxwjl ).  AHA also agreed to shoulder some of the costs for advertising aimed at passing the final legislation.

American Medical Association

Then about one week later on July 16, 2009, the American Medical Association (AMA) saw the light, too.  It endorsed the House version of the HCR, and the general HCR concept, going forward.  It was a huge win for the White House.  In their deal, the AMA was promised health insurance market reforms to cover most Americans, confirmation of several plans to be available to consumers through health insurance exchanges, new HHS money to boost primary care services, and a new focus on physician work force problems.

However, the chief issue AMA was promised action on was the full resolution of the disastrous 1997 SGR (See above, AHA / Republican dispute).  Without this action, AMA stated support would be withdrawn (http://tinyurl.com/ncnccj ).  The White House agreed to deal with SGR, as well as all of the above.

In the end, along with the above important healthcare players, the summer parade of 2009 ended up featuring insurers, device manufacturers, and more, all falling in line with HCR.  In sum, the White House succeeded in rounding up more than $250 billion in cuts and new taxes from the healthcare groups, worth about one quarter of the money needed to fund for the entire HCR law.

Most importantly for President Obama, the very sharp knives of these potent healthcare lobbies, by and large the same ones that had destroyed HillaryCare in 1993, were sheathed for the duration of the HCR debate.

It was quite an amazing time.

For one group in Washington, however, the results went beyond amazement:  Indeed, the actions of the healthcare industry were viewed by this crowd as practically traitorous.  That group was the Republican Party.  In short, they felt completely betrayed by the healthcare community.  Why?  Historically, Republican Hill policy ran in lockstep with the views of the healthcare industry. As a result they had steadfastly opposed price controls, restrictions on access to care, and all manner of other government control over the practice of medicine.  Now, as a result of the healthcare industry agreements, all of those positions were effectively null & void.  It left the Republicans with no solid policy position versus the new law.

As the White House agreements piled up that summer, strong words from the Republicans directed towards the healthcare community began to appear.  Consider this statement from then Minority Leader John Boehner, directed to Billy Tauzin, then CEO of PhRMA, following the industry’s announcement of support for HCR:

“Appeasement rarely works as a conflict resolution strategy. This is as true in the arena of policymaking as it is in schoolyards across America. When a bully asks for your lunch money, you may have no choice but to fork it over. But cutting a deal with the bully is a different story, particularly if the “deal” means helping him steal others’ money as the price of protecting your own” (http://tinyurl.com/6robmce )

No mistaking that.  In Washington speak, that’s a declaration of war — on one of the Republican Party’s most stalwart allies.  Reportedly, the same sense of betrayal was relayed to the AHA and the AMA, if more quietly.  Behind closed doors, the Republicans told Washington reps of the healthcare industry that they needn’t bother them the next time they wanted help on the Hill.

And so time has passed and much has changed in Washington since that summer of 2009…

In part, due to the new HCR law, the Election of 2010 swept the Republicans back into the majority in the House and resulted in significant gains in the Senate.

These election results also led to expressions of unhappiness by the membership of many of the healthcare associations that had parlayed with the White House.  As a result, some of those 2009 healthcare leaders are now gone — PhRMA’s Tauzin has departed, as has the AMA’s EVP Maves.  Others who survived were chastened by strong membership pushbacks that questioned the wisdom of the deals cut with the Administration.

But in the background of all these 2010 Hill changes, and the toxic swirl that is HCR in 2012, the breach between Republicans and the healthcare industry quietly festers.  For Republicans, punishment for the summer of 2009 is clearly an ongoing “order of the day” and will be tactically delivered whenever deemed appropriate.  The slap down of AHA this past week being the latest, clear example.

However, there is another broader, more strategic question that does need to be asked here:  What if the healthcare industry’s decision to throw in with the President during the summer of 2009 was correct?  What if the Administration’s view that “outcomes” really is what healthcare reimbursement should be based on, is true?  Has the healthcare industry’s long held position supporting fee for service reimbursement seen its day?

All of these possibilities, perhaps, would lead you to ask another, more profound question: Did the US healthcare industry make a prescient call in throwing the Republicans, en mass, under the HCR bus during the summer of 2009?

Time will tell, but I would suggest for now, we do not need to be overly concerned about that sort of “big picture,” philosophical question.  That’s because, near term, as long as Republicans hold a majority in either Chamber, the US healthcare industry will continue to experience spasms of retribution from the Hill GOP as direct payback for the perceived “transgressions” of the summer of 2009.

Those are my thoughts on the summer of 2009.  I would be interested in your views.

Essential Health Benefits –Late last year, the Obama Administration decided to delegate this responsibility for creating a list of” essential health benefits” to the states (http://tinyurl.com/8965pvg).  Consumer groups cried foul, claiming HHS had dodged a key HCR responsibility; others are saying it was a shrewd political move.  Much more to come on this important issue.

 PCORI – The quiet Patient Centered Outcomes Research Institute likely enters troubled waters this year.  Right after January 1st, PCORI drew fire from the Republican Policy Committee that charged PCORI’s real role is the creation of a cult of “parsimony”, i.e., extreme frugality, in delivering U.S. medical care.  Will PCORI join IPAB and become Congressional Republicans’ “Death Panel 2”?

ACO’s – Despite early rules trouble, this important aspect of the HCR program is now operational.  Confusion and skepticism still surround this concept, especially in the area of actual cost savings.  We’ll see where we are in 2013.

SCOTUS – No doubt here.  This is “the one.”  The US Supreme Court is set to rule this spring on the constitutionality of the HCR insurance mandate for all Americans.  So much is riding on this decision…if one is made.

OK.  But what about the multitude of other HCR actions that continue to ride “sidecar” to these major issues?  Which ones should we be watching?  Well, for my money, I continue to believe the most intriguing smaller piece of the HCR law is the expanding role of the IRS in our healthcare.

IRS as “Enforcer” and More…

You may be surprised to learn that the IRS is directly involved in HCR, and has issued rulings and guidance on no fewer than 18 new, major programs under the 2010 law (http://tinyurl.com/y45gf6g ).  And, today, as I write this, the agency is well on its way to implementing many of these new obligations.

For example, on September 30, 2012, the above mentioned PCORI program will be funded by a new $2 tax per covered life on all existing private health insurance plans.  This “operating budget” for PCORI is being collected from insurers by the IRS…

Another new IRS responsibility is the collection of a 10% tax on services that delivered by an estimated 25,000 tanning salons in the US.  Again, the IRS is responsible for getting the money and is directed to use all of its usual tools to insure full collection.

And on and on these HCR collection mandates go.  I guess, really, there is nothing that unusual here, other than the width and breadth of the new work the IRS has been tasked with undertaking.   But aside from “collections,” few people seem aware that there is also a lot of “mission creep” going on at the IRS that’s being driven by this new law.

Check this out:  One year ago, national Taxpayer Advocate, Nina Olson, released a general summary of developments ongoing at the IRS (http://tinyurl.com/7rrl7bx ).  As you scroll down the document, you will come to a section entitled:

“IRS CHALLENGES IN ADMINISTERING BENEFITS PROGRAMS, INCLUDING HEALTH CARE REFORM”

Give it a read.  It’s a fascinating discussion.  In particular, Olson suggests that beyond its traditional role of tax “collector,” HCR has caused the agency to become a “benefits administrator,”  responsible for deterring who gets the HCR Small Business Tax Credit, the Premium Assistance Credit, the Individual Responsibility Requirement, the Employer Requirement, and more.  In short, the IRS has gone into the “judgment” business.  As Olson suggests, these new responsibilities are “way of scope” versus the skills and training of most of the current IRS staff:

 “From an organizational standpoint, there are substantial differences between benefits agencies and enforcement agencies in terms of culture, mindset, and the skill sets and training of their employees.

“As the IRS prepares to administer large portions of the health care legislation, it will have to shift from being an enforcement agency that primarily says, in effect, ‘you owe us’ to an agency that places much greater emphasis on hiring and training caseworkers to help eligible taxpayers receive benefits and work one-on-one with taxpayers to resolve legitimate disagreements.”

• Among the new areas of “benefits” calls already made by the IRS are:
  • The Service has determined who shall be covered under the extended “dependents” insurance and has, for example, ruled that the age coverage limit is actually up to 27, not 26.  News to me.
  • In this same rule they determined that temporarily housed “foster children” can also be covered under this provision.  Somewhat surprising.
  • The IRS has also made the call on when certain government debit cards can be used for Rx prescriptions, and when they may not…

Given this expanded responsibility, how is the IRS planning to accomplish this new “benefits” mission?  Well, in the main, it appears that the agency plans to bring on a lot of new help…Hundreds of new staffers & auditors…Up to 1,100 – 1,300 for 2012, alone (http://tinyurl.com/73mpkh6), and potentially thousands more going forward.  In fact, exactly how many the IRS will need has become controversial (http://tinyurl.com/5tvpfrj).  About all I can say is, let’s hope Jon Huntsman’s estimate of 19,000 new IRS FTEs is incorrect.

However, given my initial reference to the 18 new areas in HCR that the IRS is now servicing, and the many more that are yet to come, there is a deeper, philosophical concern I have here.  Basically, I am troubled by the idea of the IRS as a factor, as a “decider” in our healthcare system.

For instance:  If the IPAB determines that the GDP and medical pricing ratios are not in sync versus the allowed percentage increases under HCR, how exactly will IPAB propose raising the dollars needed to cover the short fall?  Logically, it will either be a recommendation for a reduction in entitlement services; or a tax increase to cover the shortfall…It will be up to Congress to decide how to proceed with the IPAB recommendations and you tell me which recommendation Congress will act on?  Right. They will raise taxes…And who do you think Congress is going to turn to for administration of those new taxes?  Correct, the IRS.

So one clear potential outcome for this new IRS inclusion in HCR is the prospect that Congress will learn to regularly lean on the IRS…directing them to act as its HCR “enforcer.”   This will be especially true when Congress faces unpopular policy tasks like raising taxes to cover HCR’s deficits.

And here’s another angle to consider:  In this new area of the IRS acting as “benefits administrator” for large swaths of HCR programming, how do we feel about the IRS writing the rules to determine who gets what care and why?  Right, I realize their work will be subject to oversight by some entity.  However, to me the idea of the IRS getting first crack at deciding who gets access to various medical benefits under HCR is troubling on several levels…To put it succinctly, what the heck does the IRS know about medical care, anyway?

Anyway, a substantial amount of IRS/ HCR activity is now underway.  The challenge for all of us, seems to me, is not only paying attention to the major developments of the HCR, but also keeping an eye on those other, smaller matters flowing through HCR — like the clear incursion of the IRS into our American healthcare system.

That’s my point of view.  I would be interested in hearing your thoughts on the involvement of the IRS in HCR.

The savings, according to the final 2010 CBO estimate, would provide a “net reduction in federal deficits of $143 billion…over the 2010–2019 period as result of changes in direct spending and revenues.”

Further, in August 2010, an NEJM article co-authored by Peter Orzag and Ezekiel Emanuel, MD, estimated that by 2030, total HCR savings would be up to $1 trillion.

Now, however, as various HCR elements meet the real world, many of the “savings” have proved illusory, if not completely unachievable.

To illustrate these difficulties, let’s take a look at the current status of “savings” in three key programs — Medicare Advantage, the CLASS Act, and ACOs.

Medicare Advantage

Most of us know the story of Medicare Advantage (MA). Initially designed in the ‘90’s to provide managed care services in rural areas, the program was tapped by the Bush Administration to be dramatically expanded in 2003 under the Medicare Modernization Act.

However, because of higher premiums paid under the “new” MA, the program became a target of Congressional Democrats during the HCR debate. In the end, $136 billion of the $500 billion needed to start HCR’s expanded Medicaid program was sliced out of MA and credited as a “savings” in the final law.

All was well until last January when the first real “extractions” from MA services were scheduled to take hold. Interestingly, the designated cuts didn’t occur. In April, USA Today reported that rather than cutting MA premiums, HHS was actually “enhancing” them. Further, as pointed out by Kaiser Health News, more patients were signing up:

Despite predictions that last year’s healthcare law would doom Medicare’s private insurance plans, it’s not happening – at least not yet. Enrollment in Medicare Advantage plans continues to grow at a brisk pace…

So, MA certainly doesn’t seem like a program scheduled for significant cuts by January of 2014. And the projected CBO “savings” for HCR? The “S” word for MA isn’t being discussed by HHS.

ACOs

The concept of the accountable care organizations (ACOs), from the start, was predicated on projected “savings” that were to be driven by this new concept. As Families USA stated in September of 2010:

If the accountable care organization delivers high-quality care at lower costs…This new payment approach will create an estimated $5 billion in savings for the Medicare program (by 2019).

Sounds pretty good. However, problems with the ACO concept surfaced soon after HHS issued the first rules in April of this year. The pushback from providers was intense and focused on three key points of contention:

First, what was an ACO? An HMO, a PPO, or some other new medical delivery variant?

Secondly, what about liability for losses under ACOs? According to HHS, providers would be responsible for any losses that might occur under the program. Insurers and hospitals plans rejected this as they saw ACOs as “experimental” and as such, very risky business propositions.

Thirdly, how would ACOs save money? Of particular concern was one section of the concept that stated ACO patients were free to be seen by any doctor. The providers said if ACOs were going to save money, they would need to control patient access to medical care.

After a lot of discussion, HHS withdrew the initial rules and issued a new set in October. The new rules addressed the questions about liability (there is none); and to a degree, further defined an ACO.

But on the question of direct “savings”, nothing was settled. That’s because it appears HHS is still not willing to impose HMO-like closed panels on patients, so patients can get care wherever they wish. How do you control medical costs, and generate “savings”, if you have no access control over your patients?

So will ACOs and their projected “savings” start as scheduled on January 1, 2012? Not clear. Realistically, though, the “S” word in ACOs is very much in question.

CLASS ACT

The final HCR “savings” question is cut and dried…Of all the aspects of the law that has missed on projected “savings”, the CLASS Act is clearly at the top of the list. Why? Because the prospective long-term care program for seniors went kaput in October when HHS designated the plan as “unsustainable”. So, for the CLASS ACT, the “S” word is not an issue. A cool $86 billion in savings is off the table. If you’re counting, that’s nearly 10% of the total 20 year “savings” projected in the noted NEJM article.

Vanishing “Savings”

We can all wonder why the CBO-certified HCR “savings” asserted in 2010 have begun to vanish. Some of these occurrences, however, do seem explainable:

First, let’s take the most obvious case: The CLASS Act

From the beginning, the actuarial theory that drove the alleged “savings” in the program was flawed: in 2009, Rick Foster, the Medicare Actuary, said the “savings” projected in the CLASS Act were illusory. It took HHS until this fall to finally agree. In the meantime, $86 billion in “savings” has evaporated. The worrisome question is, will we find out other parts of HCR are equally “unsustainable?”

Second, we need to acknowledge that politics has entered into this “savings” picture. In the case of Medicare Advantage, someone at HHS apparently awakened to the fact that on January 1, 2011 the Administration was scheduled to take MA benefits away from nearly 10 million senior citizens. Not a wise thing to do with a national election coming in 2012. Solution? Don’t reduce MA in 2011. To my point on politics in the “savings” equation, do we expect the 2011 MA enhancements to continue after November 2012? I’ll leave that to you to ponder.

As for ACOs, I think it’s a similar case. The only way to realize savings in the new ACO concept is to lock people into a single physician, under a closed panel of services. Why hasn’t HHS done this? Because a lot of people really don’t like a closed panel approach to care. My guess is the $5 billion in “savings” scheduled to begin accruing in January 2012 will remain a mirage until after November of 2012.

So where do things stand with the “S” word in HCR as we close out 2011? Right now, the evidence of actual “savings” is rather murky. Taking just these three important programs (MA, CLASS, ACOs), and the approximate $225 billion of the projected 10 year “savings” they are designated to drive, we find their “savings” are either off the table completely, or, at best, appear to be suspended until we get by the November 2012 elections. Given that, the Administration’s anticipated overall savings of $143 billion for the period 2010–2019 would have to be charitably labeled as “behind schedule.”

That’s my point of view. I would like to have your thoughts on the “S” word in HCR.

Source: PharmaExecBlog

Over the last year, I have come across three people who I think belong in this category. Each has faced incredible political pressure and bureaucratic pummeling. However, in the end, each has held to his position and, as a result, had an incredible impact on HCR. Here are their stories:

Doug Elmendorf: (http://tinyurl.com/739tutl) Elmendorf has been the director of the Congressional Budget Office since 2009. His background before coming to CBO includes work at the Brookings Institute as the editor of the Brookings Papers on Economic Activity, a turn as an assistant professor at Harvard, as well as several DC economic agency appointments. Elmendorf personifies the thousands of very smart, unknown bureaucrats who toil silently behind the scenes in Washington, DC. Their job is grinding out data, producing arcane reports, and serving the needs of Congress and the Executive branch. Given this background, what is it that Elmendorf, the classic DC backroom player, did to capture our interest in the midst of the healthcare reform debate?

His story goes back to the fateful summer of 2009 when the debate over President Obama’s healthcare plan was still raging. Things were looking uncertain re: passage of the measure, but the White House had made the decision to press on with the plan, come what may. However, what the President had not anticipated that summer was a Democrat-appointed economic official repeatedly questioning the savings that HCR would drive. That person was Doug Elmendorf, the Director of CBO. During several public appearances in June and July, his concise fiscal evaluations indicated that HCR would unlikely generate any savings. In time, his presentations were viewed by the White House as jeopardizing passage of the law.

As a direct result, on the evening of July 17, 2009, Elmendorf was summoned to a personal meeting with the President of the United States to discuss his findings. To say that it was unusual moment for the Director of OMB is an understatement. We can only imagine how that conversation went.

From that point forward, Elmendorf made no further statements about the costs savings impact of the new law, and the President’s measure became law in March of 2010. Presumably, in the aftermath of the law’s passage, it was expected that Mr. Elmendorf would be gentled off into the deep night of HCR’s implementation, never to be heard from again on the savings issue.

But that is not what happened. On May 28th, 2010, just two months after the law had been passed, Elmendorf decided to set the record straight. In short order, this nameless, faceless, Democratic apparatchik, responding to a request from Republican Members of Congress, publicly stated, “CBO estimates that the health legislation will increase the federal budgetary commitment to health care by nearly $400 billion during the 2010-2019 period.” (http://tinyurl.com/7vwgttg )

Immediately described in the media as a “bombshell”, the then Director of the Obama Office of Management and Budget, Peter Orzag, quickly attacked Elmendorf and attempted to discredit him. But no one bought it. Since that day, Republicans…and Democrats, alike, have been skeptical about the alleged “cost savings” contained in HCR and, thanks to the information provided by Elmendorf, they have good reason to question this.

Bob Yee: (http://tinyurl.com/73bz2g7 ) After taking advanced degrees in math and statistics from the University of California, Bob Yee became a principal at the Strategic Health Management Corporation. Over the course of 17 years, he successfully managed the Genworth Financial Group account for his firm. His professional strength was in the design of private, long term care insurance products.

Following the passage of the new HCR law, Yee seems to have been inspired by what it might do for better public access to LTC and consequently sought an opportunity to use his skills in the implementation of the new measure in the early part of 2011. Reportedly, HHS Secretary Sebelius was delighted to have Yee involved. She viewed him as a major addition to the team that was tasked with designing the new Community Living Assistance Services & Support Program, or CLASS Act…a significant section of the HCR law that dealt with long term care.

Over the summer of 2011, Yee and his team toiled away on the design of the CLASS Act. But creation of the plan apparently did not go well. Things came to a head on the morning of September 22, 2011, when Yee surprised his HHS colleagues, and really, all of Washington, DC, when he unexpectedly shipped a “farewell” email announcing that he was leaving the CLASS team. Said Yee, “I’m leaving my position as the CLASS office actuary as HHS has decided to close down the CLASS office effective tomorrow (September 23rd)”. (http://tinyurl.com/3tmbvo3) The shocking implication was clear. The highly regarded LTC actuary was stating that creation of the CLASS Act had failed.

Within an hour of Yee’s email, a shocked HHS blasted out a reply, denying that CLASS was going down. But Yee stuck to his guns and by the end of the day was quoted as saying, “Legally, this is a government program — it should be run by the government. If you don’t have a plan, how are you going to collect premiums? Today’s my last day. I’m going home.” (http://tinyurl.com/3pe3afl)

To those who knew Yee, if he said CLASS could not be designed to work, it was not going to work.

And although HHS and the Administration floundered around for a few more weeks after the “Yee Moment,” on the morning of October 14th HHS Secretary Sebelius issued a letter to Congress that effectively cancelled the implementation of the CLASS Act. (http://tinyurl.com/7cnj9wq)

Today, Yee is likely back at SHMC reflecting on his experiences in the public sector. However, the impact of man’s email is still reverberating. If you are a Member of Congress you have to be asking yourself… “How many other aspects of HCR will be quietly shut down by HHS after they are found to be “unworkable” by people like Bob Yee?”

Rick Foster http://www.soa.org/files/pdf/health-foster-bio.pdf  like Elmendorf and Yee, Foster is well educated. With two degrees in mathematics, he has been in the public sector since he graduated from college, 29 years ago. All of his work has been with either the Social Security Administration or Medicare. For the last 16 years, Foster has held the title of Chief Medicare Actuary. Arguably one of the toughest jobs in DC, you would have to assume this guy is more than wise to the ways of Washington. However, somewhere along the line, Foster decided he wasn’t going to go along with the political flow of the place.

As a result, Foster has bedeviled both Democrat and Republican Administrations for nearly three decades. He apparently believes stating the truth as he sees it is important, no matter what political toes he may step on. And he has stepped on toes!

His current “truth telling” target is the math underpinning the HCR law. Here are a few examples of his work:

• In August of last year, Foster stated in an appendix of the Annual Medicare Report, that in his view, the Medicare “cuts” that Democrats wrote into HCR “exist only on paper” and were written so the Democrats could pretend they were reducing the deficit and perform the miracles that the Medicare trustees had outlined. With the exception of cuts in Medicare Advantage, Foster predicted all HCR reductions contained in the new law would never happen in practice. (http://tinyurl.com/24lxcb8 )
• Earlier, in November of 2009, during the initial hearings of the increasingly controversial CLASS Act, Foster stated, “Voluntary, unsubsidized and non-underwritten insurance programs such as CLASS face a significant risk of failure as a result of adverse selection by participants.” As we all now know, (See Bob Yee) it took until October of this year for folks to figure out that Foster was right two years ago. (http://tinyurl.com/7rnhlbm )
• And because Foster was discrediting CLASS back in 2009, it is alleged that the Administration was keeping him away from public comment on other aspects of HCR in 2011 — for obvious reasons. Review this closely:

On November 10, 2011, Republicans wanted the Obama administration to ask the Medicare Actuary Foster to confirm, in writing, that a new patient safety program for Medicare would actually save as much as the Administration said it would. But the Administration would not cooperate with this Republican request because Foster had already publicly stated that ‘no cost estimate is currently feasible’ for the program, i.e., the savings don’t exist.

Instead, the Administration sent CMS Deputy Administrator Jonathan Blum to testify before the Senate, and when an obviously annoyed Sen. Mark Kirk asked Blum if he could get a letter from Foster assuring the savings suggested in the law…Blum responded that he would not commit to getting such a letter from Foster. Why? Because Foster had already made it clear there are no savings in the law and that he refused generate such a statement. (http://tinyurl.com/6p564xz)

Why have these three public servants all done what they have done? Is it their education? Their intelligence? Their basic sense of professionalism?

Probably, all of these. However, I would also assert that a better explanation of why they do what they do is that all three have raw courage. Courage to stand up to the massive sea of inertia that is HCR; assert themselves forcefully as individuals; and stake their Washington careers on their convictions and truths that shake the very premises of HCR.

That we have these public servants such as these in Washington is refreshing, even hopeful. The pity is, however, that we don’t have thousands more like them. That’s my point of view for this month. I would like to know what yours is on these three individuals who are working in the roiling seas of HCR.

There’s a lot of health theory tied up in this new bureaucracy, and if history is once again predictive of the future, we do need to study PCORI carefully.  That is because, given the outcome research experiences of the past, PCORI could end up driving some very big changes in American healthcare, and relatively soon.  Let’s review why I believe knowing about PCORI is important…

To begin, what is PCORI?…According to a recent summary from the law firm of McDermott, Will & Emery, Section 6301 of the new HCR law created PCORI to undertake extensive comparative clinical effectiveness research and defines “comparative clinical effectiveness research” as research that evaluates and compares the patient health outcomes and benefits of two or more medical treatments or services (http://tinyurl.com/6c8bqb5).

These include comparisons for treatment, care management and delivery; procedures; diagnostic tools; medical devices; therapeutics; and any other strategies used to treat, diagnose or prevent illness or injury.  In short, PCORI’s CER evaluations will pretty much cover all aspects of American healthcare.

So when you think about this, PCORI’s CER certainly sounds like the correct thing to be doing.  I mean, who can really be against the idea of seeking the most effective medical care?   However, understanding what the basis of the CER being utilized in executing the research is very important.  There can be big differences in outcomes depending on your comparative effectiveness research approach.  A short review of CER history illustrates my point.

It appears the first serious system wide application of CER was generated in the UK in the early 1970’s.  An English doctor, named Archibald Cochrane, M.D., asked his peers, “Are doctors in the British National Health Service consistently making clinical decisions based on clinical evidence obtained from randomized controlled trials?” (http://tinyurl.com/3pzafcs) The answer to the question was, “No” and the rest is public health history.

Cochrane went on to develop CER in his NHS specialty area of perinatal services, and given the success of his work, other practice areas in the NHS soon followed suit.   Importantly, the overall Cochrane approach to CER was entirely clinically based, i.e., “What medical application worked best on patients, and what did not?”  Cost of the care being delivered was not a primary part of Cochrane’s original CER formula.

British medical history shows that for more than 20 years, Cochrane’s clinical approach to CER was how NHS applied research and generated comparative effectiveness evaluations.  However, an important point in the history of CER was reached in 1999.  That year, due to continuing fiscal stress in the NHS system, the British shifted gears and decided a more aggressive form of CER was needed.  In response, they established the National Institute for Health and Clinical Excellence, or NICE, to run comparative effectiveness research.  The big change in outcome recommendations generated by this new NICE concept was that they were heavily skewed towards the cost of care.  In short order, and although Cochrane’s original clinical approach continued to be mentioned in NICE reviews, his theory was replaced with NICE’s overarching focus on cost of care (http://tinyurl.com/yzf6cc8).  Since then, cost concerns in NHS comparative research have far outweighed quality of care issues.

A good example of how the new approach was utilized can be seen in this 2007 NICE CER determination which denied reimbursement for a new macular degeneration drug for NHS patients who were going progressively blind.  In this case, NICE recommended that older, less effective macular degeneration drugs were preferred, and that administration of the dated products was to be limited to only one eye.  NICE administrators determined that spending money on drugs for treatment of both eyes was not cost effective:

“When treatments are very expensive, we have to use them where they give the most benefit to patients.” (http://tinyurl.com/mvamgs)

Which brings us back to PCORI and the ongoing developments in the American version of CER…

Today, few of us realize that operationally PCORI is already a going CER concern.  Fully staffed for over one year, PCORI has a rapidly growing budget ($50 million in 2011; $150 million in 2012…http://tinyurl.com/3whm32x), that is set to increase exponentially over the next decade thanks to a new $2 tax collected from each Medicare patient, and a new $2 tax per-covered life collected from private healthcare insurance plans.  So far, PCORI has released no comparative research.  Logically, however, that will have to happen soon as the PCORI is linked to onset of the new HCR law in 2014.

We must also appreciate that PCORI is, in fact, just a small part of a larger CER network that the Administration has put in place.  This broader CER was fully funded through ARA:

“In 2009, Congress made a major investment in ensuring high-quality, patient-centered health care by allocating $1.1 billion for CER as part of the American Recovery and Reinvestment Act (ARRA).  Of that $1.1 billion for CER, AHRQ received $700 million; of that $700 million, $400 million was transferred to the Office of the Director of NIH to support CER as well as a variety of other research projects. The remaining $400 million was allocated to HHS to be disbursed at the discretion of the Secretary.  In addition, the federal budget for Fiscal Year 2011 includes $286 million for CER under AHRQ.” (http://tinyurl.com/3hdwf6p)

So a large amount of CER infrastructure has already created over the last three years, initially by ARA; and then more recently, by HCR in 2010.

Now, you may ask, what is it that PCORI and the other CER groups are doing with all this tax money?  Currently, according the Center for Medical Technology Policy, they are in the process of setting “national clinical comparative effectiveness research priorities” and generating contracts to manage the funding and conduct of this future research (http://tinyurl.com/44x3n4p ).  But what are the priorities that PCORI is setting?

No word on this right now.  In fact, this entire “prioritization process” seems a little hazy; a little circumspect at this point.  Why not just spell it out?  Well, part of the reason may be that PCORI realizes that with each research determination that PCORI makes, it will, in fact, be choosing and recommending the future medical winners and losers in American healthcare.

One real world physician, Dr. Scott Glaser, an interventional pain specialist from Chicago, (http://tinyurl.com/3kbt5lm) recently offered his take on PCORI’s future impact:

“PCORI is going to be drawing conclusions about what (services, medications, devices, etc.) should be compensated and what shouldn’t, and this is problematic because the PCORI panels aren’t specialists in the field and don’t understand the whole continuum of care.  It’s possible they will make recommendations that will have huge unintended consequences, especially for new and emerging subspecialties such as interventional pain management.”  (http://tinyurl.com/3oal8xd)

Glaser goes on to state that to him, what is most concerning about PCORI is that insurers will be waiting eagerly for each PCORI research pronouncement, and once the CER pronouncements are made, the companies will immediately drop coverage for whatever service, drug, or device PCORI determines is not comparatively effective.

This sort of possible market impact is certainly intriguing, but to me we still need to drill down on what the long term basis of PCORI’s research will be?  Clinical experience or cost of care?  As of today, PCORI leadership is emphatic about its position on this point:

During a conference focusing on the Patient-Centered Outcomes Research Institute (PCORI), the PCORI’s executive director, Dr. Joe Selby, stated, “You can take it to the bank that PCORI will never do a cost-effectiveness analysis”.
(http://tinyurl.com/3lmc8pk)

But you have to ask yourself, practically, does Selby’s statement make much sense?  All you have to do is consider the spiraling costs associated with the currently out of control budgets for Medicaid, Medicare and US Public Health, and it makes you wonder.  Remember it was a “cost crisis” that led the British NHS to abandon clinical CER in favor of financially based CER in 1999.  Given the financial state of affairs in US public healthcare, and the strong likelihood that the new HCR law being implemented in 2014 will reflect these problems, it’s hard to see how PCORI can avoid implementing a similar cost based CER, no matter what PCORI leadership may say in 2011.

So, as we look at the broad comparative effectiveness research approach that the United States government has set in place, what will the near term impact of PCORI be?

Logically, as PCORI’s clinically based research is generated, overtime an individual physician’s experience will gradually become less valued.  PCORI’s choices for comparative effectiveness will soon prevail and influence the market.

Also, if cost drivers do eventually seep into the U.S. CER system, the cost of a service or a prescription will likely determine whether it will be part of the medical care offered, or not.

In sum, on both the clinical side and the cost side, PCORI clearly has the potential to drive major changes in the delivery of US medical care.

If all of this does come to pass, and I believe it will, then it’s fair to assert that the CER health history established in the UK will, indeed, be repeating itself here in the US.  And going forward, discerning Americans will begin to carefully review and fully understand NICE’s pronouncements on CER.  Why?  Because the CER that NICE generates is very likely going to serve as PCORI’s CER guide to future.

That’s my point of view on the Patient Centered Outcomes Research Institute, or PCORI.  I’d be interested in hearing yours.

Tom Norton

Eight days ago, late on the morning of September 22nd I was sitting at my desk, quietly reading emails, when suddenly, my computer began spewing:

• 11:06 EDST – “CLASS office at HHS closing down!” …
• 11:49 EDST – “CLASS closing ‘flat out false’ says Administration”…

 
And on it went, for the rest of the day, message after message…“CLASS is dead!”; “No it’s not.”; “Yes it is!”… You get the picture.  This situation quickly dissolved into a good, old fashioned digital shouting match that clearly was not about to be resolved on September 22nd, or any time soon.  Frankly, aside from the clear disparity in the positions, you had to ask yourself, “What the heck was going on here?”

First, what is CLASS?  Originally championed by the late U.S. Senator Ted Kennedy, CLASS is a new HCR acronym that stands for…Community Living Assistance Services and Supports program.  The Kaiser Family Foundation provides a good outline of the program at http://tinyurl.com/4j92sth.  In short, this is a new HCR national insurance program designed to create long term care coverage for all Americans who want it, regardless of preexisting medical conditions.

How will it work?  Basically, you will either opt into, or opt out of this program. (This part of HCR is voluntary)… Once you agree to join, a monthly fee will be taken from your pay check (about $5-$10). To get benefits, you will have to participate in the plan for five years prior to accessing the long term care payments… Currently, everyone concedes that CLASS is not a comprehensive insurance plan as currently designed.  To underscore this, note that in 2017, the first year that CLASS will start paying out, it will be providing an estimated $75 a day in LTC coverage versus the 2010 average daily fees that nursing homes were charging last year which was about $230 a day. (http://tinyurl.com/239247q).

OK, no one is arguing about nature of this coverage, but how about this business of paying $5-$10 a month for five years, and then being able to collect $75 a day in coverage for as long as you live?  Sounds like one of those, “too good to be true” moments…

Anyway, back to the hullabaloo coming out of my computer on September 22^nd.  What is the background on CLASS that led to the events of that day?

To begin, you don’t have to dig too deeply to learn that from the day CLASS was conceived, to the day it was passed, it has been a very controversial aspect of the HCR law.

For example:

• Before CLASS became law, during a hearing in October of 2009 senior Democrat Senator Kent Conrad vowed all out opposition to the idea, stating, “The CLASS Act is a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of” (http://tinyurl.com/3wmhh9n ).

 
How did Conrad determine that CLASS is a Ponzi scheme?  It’s classic. According to one consumer insurance site, “CLASS won’t be able to deliver the promised benefits if too many require benefits at the same time”…which given the demographics of the nation is absolutely going to occur. (http://tinyurl.com/3lk94c2 ). Interesting that the Chairman of the Senate Budget Committee saw CLASS in this light.

• On February 16^thof this year, HHS Secretary Sebelius stated during testimony before Conrad’s Senate Budget Committee that, “The CLASS act is totally unsustainable” (http://tinyurl.com/3dheake ).  Pretty amazing comment from the person responsible for implementing this aspect of HCR.

• The Secretary was followed by Medicare’s chief actuary, Richard Foster who wrote: “Thirty-six years of actuarial experience lead me to believe that this program (CLASS) would collapse in short order and require significant federal subsidies to continue.” (http://tinyurl.com/3f9tcx3 )

 
Collectively, you’d have to say these are rather stunning comments coming from representatives of the Majority party and Administration that passed the HCR law.  The common thread here seems to that this aspect of HCR is a substantial, if not colossal mistake…That if CLASS were actually to go online, it would go broke very quickly, versus the demand it would generate from CLASS claimants, and to sustain it, the government, i.e., we the tax payers, would have to foot the bill for the burgeoning LTC care of millions…

Further, as a key pillar of the HCR savings profile that is scheduled to save $70 billion dollars in healthcare costs out of the estimated $1 trillion that the law was supposed to generate over the course of 10 years (http://tinyurl.com/yjjdf35 ), what happens, if as the above comments suggest, CLASS is a “Ponzi scheme,” “unsustainable,” or “collapses”?  Well, let’s put it this way:  If about 10 percent of HCR savings goes up in smoke in 2011, I think it would be fair to ask about CBO’s overall savings estimate for this decade long roll out of HCR.

All very grim, but what caused CLASS ruckus in Washington, D.C. on September 22^nd?

Well, it began with one Bob Yee, an HHS actuary who was assigned to the CLASS staff.  Mr. Yee had apparently decided he had enough of the CLASS Act, and was quitting.  He issued a curt “goodbye to all colleagues” email that stated, “I’m leaving my position as the CLASS office actuary as HHS has decided to close down the CLASS office effective tomorrow (September 23^rd),” (http://tinyurl.com/3tmbvo3 ). Needless to say, Yee’s message light up computers all over Washington, D.C.

However, HHS quickly reacted to Yee’s adieu, and began splitting hairs: “No, the whole CLASS ACT program wasn’t shutting down — but appropriators decided a while back that they wouldn’t need to fund this office until later, since CBO now says the program won’t get started until 2013.”

A later HHS message explained: “While the staff of the CLASS office has been reduced, reports that the CLASS office is closing are not accurate.  We are continuing our analysis of this program.” (http://tinyurl.com/3vu9wvv )

When told of these Administration responses, Yee said, “We were told last week that staff would be reassigned to a different job.  Whether it’s a technical shutdown or a shutdown, who cares?” (http://tinyurl.com/3d6tuj3 )

Later in the day as the digital war of words raged over his farewell note, Yee was asked about the current status of CLASS.  He told The Hill, “Legally, this is a government program — it should be run by the government.  If you don’t have a plan, how are you going to collect premiums?  Today’s my last day.  I’m going home.” (http://tinyurl.com/3pe3afl)

In the aftermath of the September 22nd “Yee Moment,” HHS issued this statement yesterday: “HHS will be making recommendations on the CLASS program after reviewing various legal, policy and actuarial reports…by mid-October.” (http://1.usa.gov/onvxBD )  Should be interesting.

So, let’s review all of this for a moment.  No matter how this CLASS situation is ultimately resolved, what you need to ask yourself is not whether this aspect of the law will be fully funded, or properly staffed, or should be completely rewritten by consultants, or whatever…No, what you have to ask yourself is, “How was such a ‘caper’ ever pulled off in first place and successfully laid into the HCR law?”

For my part, as per the definition of “caper,” I have always found creative “pranks,” and truly “hare brained escapades” amusing… But, in the case of the “Great CLASS Act Caper,” gotta say, it appears the joke here may be on all of us.  That’s my view on the CLASS Act in the new HCR law.  I would be interested in your views on this subject.

Now that I have your attention, what in the world am I talking about?  It’s a long story, but let’s just say that the HCR chit that the industry signed in Washington, D.C. during the summer of 2009 has come due, and it’s time to begin paying up.  If your company does more than $5 million a year in sales to various federal government entities, you should read on.

On August 22^nd, the IRS issued temporary rules on the matter that direct the following:

“Drug manufacturers that sell $5 million or more annually through the federal government’s Medicare Parts B and D, Medicaid, Veterans Affairs, the Department of Defense and TriCare programs, are required to make combined total fee payments of $2.5 billion by Sept. 30, 2011.”

The Obama Administration, in the push for HCR in 2008, understood that it needed to bring the Rx industry “into the fold.” The subsequent deal – $80 billion over 10 years – struck between the Administration and PhRMA required the Rx industry to “fill the donut hole in Part D,” offer up other payments to ameliorate the costs of Medicare Part B, and to “contribute” to various military health services. In exchange, the Administration would back off demands for additional HCR taxes on the Rx industry, going forward.  Clearly, the industry’s theory was that the Rx volume to be generated by 35 million newly covered HCR patients would more than offset the costs of the deal. But now, two years later, PhRMA is back in protective mode, as the same fee proposals have begun to resurface. So much for the Administration’s 2009 deal with industry.

Back to the impending September tax obligation. According to the preliminary rules the IRS released on August 22^nd, the aggregate fee amount due from the Rx industry for each year of the HCR funding is:

• $2.5 billion for fee year 2011;
• $2.8 billion for fee years 2012 and 2013;
• $3 billion for fee years 2014 through 2016;
• $4 billion for fee year 2017;
• $4.1 billion  for fee year 2018;
• $2.8 billion for fee year 2019 and thereafter.

The fees for each year will be allocated:

• Using a specified formula, among covered entities (i.e., manufacturers & importers) with aggregate branded prescription drug sales of over $5 million to specified government programs (Medicare Part B program, the Medicare Part D program, the Medicaid program, any program under which branded prescription drugs are procured by the Department of Veterans Affairs, any program under which branded prescription drugs are procured by the Department of Defense, and the TRICARE retail pharmacy program).

Provides that the annual fee for each covered entity is calculated by determining the ratio of:

• The covered entity’s branded prescription drug sales taken into account during the preceding calendar year to…
• The aggregate branded prescription drug sales taken into account for all covered entities during the same year, and applying this ratio to the applicable amount.

So what is the Rx industry’s tax liability?  Here’s a 2010 estimated look at how this lays out, courtesy of Foley-Hoag, LLC:

The table that follows illustrates the graduated structure of the fee for a (hypothetical) covered entity, “ Q Pharmaceuticals,” with $1 billion in total branded prescription branded drug sales in 2010 (under specified programs):

To calculate a covered entity’s share of the statutorily determined aggregate fee, the IRS would multiply the fee by the ratio of the covered entity’s total sales taken into account to the aggregate of all covered entities branded drug sales taken into account.

Under the above scenario, where Q Pharmaceuticals total sales taken into account is $783 million in 2010, and where the aggregate sales taken into account for all covered entities is $10 billion, Q Pharmaceuticals fee would be:

If you’re an Rx firm doing an aggregate one billion dollars of business with the federal entities listed above, you’re on the hook for nearly $200 million by September 30, according to the IRS and the 2010 Foley-Hoag formula. This is a hypothetical, but the above formula is pretty straightforward.  You should be able to load in your federal sales numbers, as appropriate, and figure out where you will actually stand on September 30th.  It could be a very interesting number.

For brand managers who are sweating out sales every quarter, trying to make quota, the idea that the profitability of their product may be adversely impacted by this new HCR “fee” is no small matter. Will these fees have an impact on 2011 bottom line, year-end bonuses, for example? As HCR continues to roll out, keep an eye on the activities happening beneath the surface of the law. Rx industry CFOs and industry tax departments are well aware of this development, but I’m guessing that the September 30^th tax obligation might come as a surprise to many in the C-suite. I would be interested in your thoughts on this latest development in HCR.

Source: PharmaExecBlog

But there is one important exception to all of this HCR meandering that is brewing in the background.  That is the legal effort to get the new law heard before the Supreme Court of the United States.  The objective of the exercise is to decide either fully, or in part, if HCR is constitutional.  The simplicity of this query is our course, profound; but in my mind is probably the most important single HCR event we have seen all summer.

Why?  Because right now we have two U.S. Circuit Court of Appeals that have returned two entirely different conclusions on the constitutionality of the same law (the 11th Circuit Court of Appeals in Atlanta has determined that HCR’s requirement that nearly all Americans buy insurance is unconstitutional http://tinyurl.com/4xbyqxp; while 6th Circuit Court of Appeals in Cincinnati said in a nearly identical suit that the individual mandate was constitutional http://tinyurl.com/3cxzts9).  So, at this point, although another important U.S. appellate case in the 4^th Circuit is still to be decided, it almost doesn’t matter.  With two major appellate cases already decided in direct opposition to each other, it seems very likely that the Supreme Court will be taking up the issue of HCR, and relatively soon.  In particular, it appears the question of the individual health insurance mandate may be a primary focus of their deliberations.

Now, I am not an attorney, but anyone who has followed HCR developments closely has to appreciate the potential impact a Supreme Court decision may have on all of HCR.  As I said above, while the day-to-day administration of the law itself has continued to be move forward persistently, if unevenly, all summer long, should a Supreme Court challenge occur, there will be no equivocation…The Court is almost sure to either approve the issues at hand, or strike them down.   No dillydallying; no resubmission of rules; no political shenanigans…

What’s critical here, particularly at this point, are the timelines and various scenarios that could develop in the actual run up to a potential Supreme Court decision.  As it stands today, the next move is squarely in the Administration’s hands and, not surprisingly, their decision will likely turn on important political considerations.  That is, whatever approach is decided on regarding the Administration’s HCR appeal to the Supreme Court will directly impact the 2012 presidential campaign.  Given these sensibilities, as I read it, it appears to boil down to two possible courses of action:

1. The Direct Supreme Court Route
   The Administration has frequently gone on record stating they will appeal any case that goes against the HCR law.  So, given the decision in the 11^th Circuit that ruled against the HCR individual insurance mandate, the Justice Department — in the next 90 days – will either file an appeal directly to the Supreme Court, which they could do shortly…
2. The “En Banc” Route
   …Or, Justice could ask that the 11th Circuit Court of Appeals to re-review the case by requesting an “en banc” hearing, http://tinyurl.com/3oqpq8j, essentially a rehearing of the already decided case by all eleven members of the court, rather than just the three justice team that brought down the first ruling.  This may buy the Administration some time, some very important time, vis a’ vis November 6, 2012…but it is not a certainty.

No doubt these two different approaches are being carefully researched & thought through at the White House.  However, the consensus of published opinion right now suggests that since the 11^th Circuit is viewed as quite conservative, and therefore not likely to be supportive of the Administration’s appeal “en banc” in reviewing the 11^th Circuit ruling, the “en banc” approach would probably be a waste of time and likely not get the White House past the November 2012 election, anyway.  Most published legal thought suggests that the folks at Justice might as well go straight to the SCOTUS with the appeal http://tinyurl.com/3wwn7ke.

Backstopping this conclusion is the Administration’s oft stated public position that they are “confident” that the Supremes will find the law valid, in total and/or in parts, and so why not get on with this?…But taking a longer look at this, it may not be quite that simple a call.

On the one hand, a SCOTUS finding in favor of the HCR law, of course, is a possibility.  Indeed, reviewing the political stripes of those justices who have already supported, or not supported the law in the Appellate cases you find some rather surprising variances, both ways http://tinyurl.com/3hkfhh4. Based on the strength of these unexpected legal opinions which have already been experienced in this HCR case, it could be that the Supremes would rule in favor of the Administration…

On the other hand, given the overall political predisposition of this Supreme Court, you’d have to say the determination to take it directly to the Supremes would have to be described as an extremely risky, “all in” decision for the Administration.  And that’s because it is just as likely, as not, that the folks sitting on the SCOTUS will strike down HCR, and in particular, its health insurance mandate.

(BTW, we all know the philosophical split on the Court.  Who is the bellwether Justice to watch here on this HCR decision?  Right, the inscrutable Justice Kennedy, who once again could tip the scale either way on another big case http://tinyurl.com/3fsmdke.)

So, no matter which of the two above courses the Justice Department takes over the next 90 days, and really no matter which way the Supreme Court goes, it appears probable that a ruling will come down some time in the summer of 2012, a scant three months before the Nov. 6, 2012 election.  And that outcome is likely something the Administration would like to avoid.

Consider these outcome scenarios:

HCR is Upheld
If the law is upheld by the Supremes, President Obama will step back and reaffirm the “greatest domestic achievement” of his first term during the fall 2012 campaign, while garnering significant support from his base…That said, there will also be millions of people out there who will not agree with the Supreme Court, continue to dislike the law, and be energized against Obama’s re-election if HCR is upheld.

HCR is Struck Down
If it’s not upheld, you would have to think it’s pretty much going to be a political disaster for the President, no matter how he attempts to spin it, or who he attempts to blame…Again, as we head into a very contentious 2012 election season, a rejection of the law would also likely “fire up” those who have opposed the law and the President since the passage of HCR.

So, in some ways, you could argue that any review of the law by the Supreme Court before the election holds the potential for a “lose-lose” outcome for the President, no matter how it comes down…and no doubt the White House understands this prognosis very well.

Beyond the obvious presidential politics, what other fall out could the SCOTUS decision drive?  It would seem quite a bit of healthcare disruption if the analyses are to be believed.

As an example, according to the nonpartisan Congressional Budget Office, if the individual mandate is eliminated from the new law, an estimated 16 million more people would be uninsured than if the mandate were in place.  Premiums for those who stay in the system would rise by 15 percent to 20 percent.  And interestingly, CBO also says that fewer people using government subsidies to buy their insurance would actually save taxpayers more than $200 billion between 2011 and 2020 http://tinyurl.com/3bbxalr.

Another take on the impact of the SCOTUS decision is provided in a piece published by the Center for American Progress and written by Massachusetts Institute of Technology economist Jonathan Gruber.  Gruber forecasts that even fewer people would buy insurance if the individual mandate is eliminated. He believes 24 million more people would be uninsured than if the individual mandate were in place and in that event, rates for those who buy in would rise 27 percent.  No mention by Gruber, though, re: the issue of taxpayer savings should mandate go down http://tinyurl.com/3ddxp5o.

So, overall, much is on the line in this situation, and you would have to believe the White House, most likely, would not be at all unhappy to see this prospective Supreme Court HCR moment just go away.  However, as it stands right now, that appears unlikely.

To begin to sum this up, as I pointed out earlier the slow moving, rather uncertain direction that has surrounded the execution of HCR to this point stands in stark contrast to this possible moment with the Supreme Court.  Should that happen, in the end there will be no patched up, politically bent accommodations—no equivocation.  There will only be a very sharp edged determination, one way or the other, that likely will change the overall tone and ramifications of HCR’s broader implementation.

And after all the administrative twists and turns we have been through this summer, the prospect of a clear Supreme Court ruling in 2012 would be refreshing.  The idea that clarity on this key issue of HCR’s constitutionality could occur in one fell swoop is rather interesting to contemplate. That’s my point of view.  I would appreciate hearing what you think about the prospect of the Supreme Court taking up the issue of HCR.

But first to the “Duals.”  This is a unique class of individuals, accessing public health services through both the Medicare and state Medicaid programs.  Thus, the “Dual” designation.

They are categorized in this class because they are both extremely poor, as well as in need of substantial medical service and support.  According to the 2008 Kaiser Family Foundation comparative survey of the 40 million standard Medicare patients, versus the estimated 9 million “Dual Eligible” patients http://tinyurl.com/3zlhuwx , consider the following:

• Of those with annual incomes of $10,000 and under, those in standard Medicare account for 6% of this population;  while in the “Duals” group, 57% are extremely poor
• For those with cognitive impairment, standard Medicare has 24%; “Duals” have 54%
• For patients with less than a high school education, standard Medicare has 19%; “Duals” 52%
• For fair-to-poor health, standard Medicare has 22%; “Duals” 50%

In short, the “Duals” are among the poorest, sickest, least educated, most cognitively impaired group of citizens in the United States.  They need more care, for more medical issues, and use more medical services that are often very expensive, including extended inpatient hospitalization and nursing home care… than any other category of public health patients.

And how do these demographics manifest themselves financially?

• Again, according to the Kaiser Family Foundation, http://tinyurl.com/3esld37 while “Duals” make up about 18% of the national Medicaid population, spending on “Duals” approaches nearly 50% of all Medicaid costs. Why?  Medicaid pays for the “Duals” inpatient & nursing home care costs, the most expensive medical services.
• Additionally, according the California Scan Foundation, http://tinyurl.com/3rv4t8j although “Duals” make up only 16% of Medicare patients, they consume 27% of the program’s total cost.  Why?   Again, I think in consideration of all of the above, it’s obvious.  Just a lot of sick folks who require a lot of medical care in those categories not covered by Medicaid.
• Overall, according to the Wall Street Journal, http://tinyurl.com/6cvh3yr of the total $900 billion spent on the approximate 105 million Medicare and Medicaid patients in 2010, the “Duals” made up 1/3 of the costs, or $300 billion.

These are astounding statistics…I frankly had no idea that the impact of the “Duals” is as exceptional as it is.

But how did we get to this point?  For decades, the “Duals” have bounced around in various health categories and have been covered in what can only be described as a patchwork of healthcare delivery provided by both Medicaid and Medicare.  The best summary I can find indicates seven separate levels of “Duals” medical care are currently active, woven between various elements of Medicare and Medicaid services. http://tinyurl.com/3kt7sht As you read this list, your head may start to spin at the complexity of all the parameters and angles entailed in the provision of care for the “Duals.”

As the classes and costs of caring for the “duals” have expanded over the years, not surprisingly, the result has been monumental cost shifting jousts between Medicaid and Medicare.  It boils down to a day-to-day, never ending fight between the two agencies as to which has responsibility for caring for these folks.   As one CMS official who oversees “Duals” eligibility recently told the Wall Street Journal: “The programs (Medicaid and Medicare) were never designed to work together”.  And so, pertaining to the “duals”, they often don’t.

So, what has the new healthcare reform law done for the “Duals?”  Actually, according to the Center for American Progress, a lot.  The new HCR law is offering several opportunities for experimenting with different delivery approaches, most of which touch on better coordination of care between Medicare and Medicaid, which, given the above comments from CMS, is obviously desperately needed in the “Duals” category.

Some of the HCR provisions include:

• Establishment of a new office, The Federal Coordinated Health Care
  Office, charged specifically with improving the delivery of care for “Dual Eligibles”

• Elimination of cost-shifting between Medicare and Medicaid

• Creation of the Center for Medicare and Medicaid Innovation at CMS responsible for testing payment and service delivery models likely to reduce spending while improving quality of care

The clear goal is to somehow untangle the mess that has snarled “Dual Eligible” healthcare over the decades.  And it’s all right there in the HCR law.

OK.  So a happy ending for the “Duals”, right?   No, not quite…

Amazingly, in the midst of the recent debt ceiling debate, serious proposals to create rebates on the Rx drugs used by large numbers of “Duals” who currently are in the Medicare Part D and Medicaid programs were presented.  In the language of the Hill, the “Dual Eligible” category was viewed as “a source of potential revenue.”

President Obama, for example, stated that large savings that could come from drug rebates on prescriptions provided to “Duals” in the Medicare Part D program, while Rep. Henry Waxman and Sen. Jay Rockefeller introduced legislation that would extend Medicaid rebates to “dual eligibles” and those who qualify for the low-income subsidy program. Collectively, they asserted that such rebates could reduce the deficit by $112 billion over the next ten years.

As you might expect, however, there was an opposite point of view to that expressed above.  In particular, a PhRMA report from former CBO Director, Douglas Holtz-Eakin, and the conservative American Action Forum http://tinyurl.com/452pwg5 suggested that the proposed Medicare rebates would shift the costs of the rebates to the private market, as well as to Part D patients (including the “Duals”), thereby diminishing the advantages of the current Medicare Part D program.  Among those advantages which Holtz-Eakins says would be lost is the 41% lower cost the current Part D private system has driven, versus the cost first envisioned when the law was passed in 2003. http://tinyurl.com/3sj2c23 According to the AAF report:

“Reports by CBO as well as other researchers indicate that the current Medicaid rebate program has already shown a track record of increasing prescription drug costs in private sector markets.

A new federal rebate in Medicare Part D is likely to do the same, but because the Medicare program is much larger, the impact would be more significant. Such an impact would likely be felt in the employer-based insurance market, as well as in government programs including Part D.

That is, to the extent that deeper discounts are paid to the government, a share of manufacturers’ added costs for these discounts could ultimately be borne by consumers, either within Part D or in other markets. http://tinyurl.com/452pwg5

So, while the “Duals” likely have no idea that they ended up in the middle of the debt ceiling squabble, it appears they were there, and likely will continue to be in play this fall.  Certainly Erskine B. Bowles and Alan K. Simpson, two of the strongest proponents of cleaning up the budget mess via a series of hard, difficult policy changes, have reiterated, most recently in the New York Times that “drug company rebates on Medicare services” should be carefully looked at during this fall’s Super Committee deliberations and beyond. http://tinyurl.com/3ombd57

In thinking about the prospect of these new Part D rebates, I’ve got some questions and thoughts on how these may work out.  Never mind the impact on the manufacturers or the insurers:  We all know how that comes down.  But how will the “Duals” come out in all of this?  Here are a few musings:

1. Rx Manufacturer Participation
   If the new Part D rebates were to go into effect, as they did with Medicaid rebates, the Rx industry may balk at participating in the Part D program, entirely, or possibly only providing lower cost, older products that have lower rebates.  Or, perhaps they would limit their Part D offerings to generics, only, as generics have no rebate – In such a case, “Duals” would lose on the quality of Rx care being provided by Part D versus what they can access today.
   
2. Insurer Participation
   The insurers providing Part D coverage could determine that the hassle of the new rebates on Rxs is an oveall “business negative” and so, decide they will not participate in Part D program –  In this instance, “Duals” would lose on substantially diminished insurance options and Rx coverage versus what is currently offered in Part D.
   
3. The “Duals”
   For those insurers and Rx companies still participating in Part D after the new rebates were to go into effect, actual payments for the drug products used by “Duals” would likely increase as the premiums from the insurers offering Part D would go up.  In this case, the “Duals” would have to pay more out of pocket to get the same Rx, if the product is still available at all.  — So , in the end, the “Duals” would be paying for a portion of the new rebates.
   
4. The “Duals” Will be Exempt
   There will likely also be some who suggest the “Duals” care will be exempted from fiscal impact.  And they may.  — My argument is based on what that exemption will actually mean.  If they are exempted, for instance, from copayments, but the Part D offering is substantially reduced by the insurers, or the Rx companies walk away for this latest rebate scheme, what in the end does that “exemption” really mean?

So, you have to say, it looks like the period between Thanksgiving and Christmas of this year will be another time filled with Congressional “sound and fury”… A lot just has to happen, for sure, and if the latest deal is to believed, there really will be no escaping this one.  Deep, deep cuts, will have to be made.

And, given the hard look the concept got during the Debt Ceiling situation, I think it is fair to assume the Part D rebate on the “Dual Eligibles” will likely to be in play again this fall.  Should it be passed, it will be a very interesting moment as I see it.  Consider this: Conceptually, the “Duals”, who are supposed to benefit from the rebate, could apparently end up paying for significant portions of the “savings,” either in the form of reduced quality and/or access to Rx care; or in actual higher costs for Rx products provided by Part D insurers.

To me, this seems to be a rather odd way to address the expanding medical needs of the “Duals,” America’s poorest, sickest, least educated, and most cognitively impaired citizens… You just have to wonder if anyone on the “Super Committee” will be thinking through all of this.

That’s my point of view on the situation of the “Dual Eligibles” under HCR, as impacted by the Debt Ceiling Debate and the oncoming “Super Committee” deliberations.  I’d like to know what you think about all of this…

Sixteen months into the new Healthcare Reform law, many continue to wonder about the status one of the most confused aspects of the new HCR — the elusive Accountable Care Organization, or ACO. And why are ACOs viewed this way? Simply stated, the heated debate over exactly what an ACO is … and what it is not … has not been resolved as of this writing. (http://tinyurl.com/3nydsqj).

And really, if you think about it, this unsettled state of affairs is somewhat odd. The ACO concept is fairly well defined in the HCR Act, and since it is based on years of theoretical research conducted by the Dartmouth Health Care Atlas, you have to wonder, “What can be so misunderstood about the idea?” The answer is, apparently a lot. Today, it is clear that even those experts tasked with setting up the new ACO’s (hospitals, doctors groups, healthcare provider organizations, etc.) are struggling mightily to get a handle on this concept.

Questions like, “Aren’t ACOs really just modified PPOs?”; or, “Really, they must be just good old, off the shelf HMOs, right?”; or how about, “They have to be something new. Maybe a potent combo of HMO/PPO?”…are being debated daily in healthcare journals, newspapers, policy websites, and, importantly, in the healthcare board rooms of America. As of today, the “answer” to all of this is a thoroughly jumbled mix that is comprised of differences in geography, service area populations, and local medical cultures.

As a result of all this quibbling, there is now a growing portfolio entitled, “This is what an ACO really is.” And given the variety of answers in that file, probably the more daunting challenge for ACOs is, once you think you actually understand what an ACO actually is, how the heck do you execute one these things in the real world?

A Review of Actual ACO Execution
Probably the most useful way to approach this ACO execution question is to consider those ACOs that are planned or actually up and running; those entities that are “thinking about” an ACO launch; and still others that are not acting at all. Let’s quickly review a few of each, remembering that the official CMS ACO Medicare launch date is January 1st, 2012, less than six months from today.

Planned & Working ACOs…
As of this writing, we have found a limited number of actual ACOs that are up and running. However, many groups do seem near an activation stage for later this year. For example, in a recent membership survey, the publication CIMO (Chief Medical Information Officer) found that 17% of members surveyed reported they were planning to launch their ACO by January 1, 2012. While not an overwhelming response, this is not an insignificant group indicating planned forward action on ACOs, soon.

Beyond this, certainly the most prominent functioning ACO to date is the successful pilot being run by the California Public Employee Retirement System (CalPERS). Launched in January of 2010, this program is currently delivering care to about 40,000 patients. According to information released by CalPERS in April, (and heavily endorsed by CMS) this ACO approach includes a diverse partnership with the Hill Physicians Medical Group, Catholic Healthcare West, and the Blue Shield of California Health Maintenance Organization (HMO) (An HMO? We’ll come back to this point, in a moment). The CalPERS’s ACO goal, similar to that stated in the HCR law, is creating “an integrated health care approach that improves health care quality and reduces costs.”

Early examples of cost savings in this CalPERS ACO pilot include a 17 percent reduction in patient re-admissions; a half-day reduction in the average patient length of stay; a nearly 14 percent drop in the total days patients spend in a facility; and a 50 percent reduction in the number of patients who stay in a hospital 20 or more days. Overall, CalPERS is saying this ACO is likely to result in $15.5 million in total savings when the pilot ends in December of this year.

So, on the face of it, this all sounds pretty good, even impressive!… Indeed, CalPERS is so enthusiastic about the pilot that it is talking about rapidly expanding the model for its entire public employee population in CA.

So all is happiness and light with this California ACO experience. Except for one thing. Let’s go back to the primary service point in the CalPERS program. Yup. It’s an HMO (Blue Shield of California Health Maintenance Organization). So when others are thrashing about trying to determine what an ACO really is, and how to execute it … is what’s old (HMOs), now brand new (ACOs)?? That is, is an ACO really just an HMO? Indeed, is this significant CalPERS success just another point of disagreement?

Those “Thinking About” ACOs…
It’s pretty clear that those currently “thinking about” establishing ACOs — currently make up the vast majority of the potential ACOs groups. They know a lot about ACOs; continue to research and ruminate about them carefully; but right now, they aren’t committed to the ACO concept.

Clearly the most notable in this group would be several entities that participated in the CMS Physician Group Practice (PGP) Demonstration project that ran from April 2005 to March 2010. Ten, large regional organizations including groups like the Marshfield Clinic of Wisconsin; Everett Clinic of Washington State; Park Nicolette Group of Minnesota; The University of Michigan Hospitals of Ann Arbor; etc … joined CMS with the high hopes of proving that the ACO concept was workable and, in fact, the “next big thing” in healthcare delivery.

However, when the results of the five year project were announced this past winter, it was clear that nine out ten of those participating entities were unhappy with the ACO concept. Indeed, the only member of the pilot group that seemed to be marginally pleased with the outcome was the Marshfield Clinic.

Things got even more interesting this March when CMS announced its “real world” ACO rules would be based on the increasingly controversial results of the five year PGP pilot. When this information was released, the nine pilot groups that did not like the PGP pilot were direct in expressing their displeasure with CMS’s “real world” vision for ACOs. In fact, the nominal winner in the PGP pilot, the Marshfield Clinic, joined the other nine groups in stating there were major problems with the proposed CMS ACO rules.

Jointly, the ten PGP participants sent a letter to CMS expressing concern over many of CMS’s ACO decisions. Highlights included:

· In the CMS demonstration, all 10 sites received up to 80 percent of verified savings to Medicare. In the real world, CMS proposed that only 50 percent or 60 percent savings in the ACO program would go to the ACO. The 10 found this unacceptable.

· Additionally, under the CMS “real world” rules, ACOs are to be subject to penalties if they don’t hit savings and quality targets, called a two-sided risk model. In the demonstration pilots, CMS did not penalize the ACOs for not meeting these goals. The 10 were not pleased with this rule.

· Finally, to participate in the “real world” ACO program, sites will have to subject themselves to additional government scrutiny and regulatory burden. For example, they will have to let CMS review their marketing materials and invite additional reviews of business arrangements by the HHS Office of Inspector General and the Federal Trade Commission. The response? As one pilot ACO participant drolly observed,“Everybody invites the OIG over to dinner, right?”

In sum, not an overwhelming endorsement from the PGP participants of the proposed CMS ACO rules…

So, as we back away from those “thinking about” establishing an ACO, you gotta say, there is just a lot of uncertainty out there. And, really, I’d say, that’s probably a bit of an understatement.

Those who are “Just Saying No”…
In contrast to all the uncertainly of the last group, there is one growing collection of key healthcare entities out there who believe have the ACO conundrum all figured out. Their approach to this boggy territory? Well, they are just saying “No” to establishing Medicare ACOs.

Certainly the most important voice among these naysayers is the prestigious Mayo Clinic of Rochester, Minnesota. Remarkably, shortly after the issuance of the CMS ACO rules in the spring of this year, Mayo responded bluntly, and curtly to the news: “Mayo Clinic is not going to participate in a Medicare accountable care organization under the circumstances proposed.” Dr. Douglas Wood, Mayo’s chairman of health care policy and research, went on to say, “Mayo does not want to significantly change what it believes is its current efficient, patient-friendly program, and so, will not be participating in the new CMS ACO venture, at least as currently structured.”

Shadowing the stunning Mayo rejection came word from the American Medical Group Association, the trade association representing most potential ACO organizers, that 93% of their membership would not be participating in the CMS Medicare ACO concept.

So, in a sense, that was that. The combination of one of the most legendary health centers in the US, along with a major association representing most of the future, potential ACOs, collectively turned their backs on one of the key centerpieces of the new HCR law. We can only imagine the reaction at CMS when these Mayo/AMGA statements were received in Washington, DC. No doubt, it must have fallen somewhere between a debilitating anxiety attack … and simply running up a crisp white flag.

So, to begin to wrap this up, I think it’s fair to say that even a very strong CMS ACO advocate would have to agree that ACOs are “just beginning to get traction” in the HCR schematic. Beyond the continuing debates over the ACO theory, right now, it’s pretty apparent there just isn’t much ACO infrastructure in place. With the exception of the successful CalPERs ACO, which as we have pointed out is actually premised on a long functioning California HMO, and the prospective 17% of those in the CMIO survey who say they are “planning to implement in 2012,” there is little public evidence that a broad ACO activation is underway.

Further, the reported difficulties of the participants in the CMS PGP Demonstration project, along with the follow-on negative response to the March 2010 “real world” CMS ACO rules, have caused most organizations that are supposed to be moving towards establishment of ACOs to be either cautiously designing unique ACO approaches that will benefit their organizing group…or finds them “standing down” until the smoke clears around the ACO issue.

Certainly, the happiest folks in the entire ACO swirl right now are the Mayo Clinic and the members of AMGA who have made the call to simply say “no” to whatever it is that an ACO may turn out to be, come what may from CMS. Obviously, they believe there are significant downsides to establishing ACOs and they are not afraid to walk away from the concept. All of that said, it really is an amazing stand if you think about its significance to HCR program.

So, where are we with healthcare reform’s ACO’s? At the least, all of this suggests substantial problems for the formal CMS launch of Medicare ACOs next January, 2012. In fact, taking a broad look at the facts in hand, I think you would be safe in saying that with less than six months to go before the official CMS ACO start-up date, the ACO concept is actually in fairly deep trouble…And if that’s true, that important fact and what it portends for the overall implementation of the 2010 HCR law must be viewed as a key, critical development for HCR.

Those are my thoughts on the state of affairs with HCR’s ACO concept. I would welcome your thinking on this ongoing, important aspect of the new law…

Tom Norton