MSA’s president, Chris Vickrey, recently launched a blog to provide timely commentary on important market developments. While not necessarily limited to healthcare topics, blog posts to date have focused on legislative initiatives for healthcare reform, with links to key primary documents.
In testimony before the Senate Budget Committee yesterday, Congressional Budget Office Director Douglas Elmendorf really did not say anything that he has not already said before, but he still managed to make headlines, including on the front page of the Wall Street Journal. In response to a question from Chairman Kent Conrad, he said, “In the legislation that has been reported, we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount.” This was the subject of our last blog post.
That Dr. Elmendorf’s comments made headlines is mainly a reflection of the enormous strains that have emerged within Congress—even among Democrats in Congress—over the direction of healthcare reform. President Obama started the week by pushing Congressional leaders to move forward on healthcare legislation. Senate Finance Committee Chairman Max Baucus continues to search for bipartisan support, but the result so far has been a stalemate. With the push from President Obama, Senator Baucus was again saying that a bill would emerge this week. Once again, however, the week ended without a bill from the Senate Finance Committee and with renewed pledges to produce a bill the following week. If, in further negotiation, Mr. Baucus is able to forge a compromise that has the backing of Senator Check Grassley, the Ranking Member on the Senate Finance Committee, it will have been worth the wait. As time goes by, however, divisions seem only to be deepening, and the chances of the Senate passing a bill before the August recess seem to be slipping away.
President Obama has promised that his healthcare reforms will be budget neutral, that the higher government spending associated with expanding health insurance coverage of the uninsured will be financed by spending cuts elsewhere and by higher revenues, possibly a tax surcharge on high-income individuals.
Of course, the Obama administration is also hoping to introduce healthcare delivery system reforms that will create incentives to provide high-quality, cost-efficient care. Ideas such as creating a “medical home” for Medicare beneficiaries in which primary care physicians would be paid to coordinate care across different settings, bundling payments so that hospitals have an incentive to coordinate post-acute care and reduce the risk of re-admissions, and creating “accountable care organizations,” in which networks of primary care physicians, specialists, and hospitals would be held jointly accountable for the care and costs of Medicare beneficiaries, all have the potential to improve quality and reduce costs. But will they? The viability of applying such reforms across the entire healthcare system has not been tested. Certainly the Congressional Budget Office (CBO) does not have enough evidence—or even details on the specifics of such reforms—upon which to estimate potential budgetary savings.
Over the longer term, after the mechanics of such reforms have been tested and can be implemented across the healthcare system, incentives for providers that reward quality and efficiency may begin to reduce the escalation in healthcare spending. As John Maynard Keynes famously wrote, however, “In the long run we are all dead,” and whether we have the luxury of waiting for healthcare system savings to materialize is an open question. For even if Congress succeeds in tweaking healthcare reform legislation so that it is budget neutral over a 10-year horizon—delaying an expansion in Medicaid, for example, so that the costs do not kick in for 3-4 years, it is fairly certain that it will not be budget neutral beyond a 10-year horizon.
Yet, even before adding these expenditures, the CBO has made it quite clear that the current trajectory of government spending, of which Medicare and Medicaid are the main drivers, is unsustainable. In its Long-Term Budget Outlook released last month, the CBO projected the rise in government debt under a scenario in which Medicare payments to physicians are not cut and the alternative minimum tax is indexed to inflation (a realistic scenario, in other words). Under this scenario, as shown in the graph, federal debt exceeds 100% of GDP in 2023, 140% of GDP in 2030, and 200% of GDP in 2038. Without cutting healthcare spending in Medicare and Medicaid, the only realistic way to avoid this very scary scenario is to raise taxes. Congress continues to tiptoe around this issue because confronting harsh realities risks alienating powerful constituencies, but time is running out.
The American Recovery and Reinvestment Act of 2009 (ARRA), which is the stimulus bill that was signed into law in February, included $1.1 billion in funding for comparative effectiveness research. Of this amount, the AHRQ received $300 million, and the NIH received $400 million. An additional $400 million was to be allocated by the Office of the Secretary of the Department of Health and Human Services (HHS). How should the HHS Secretary allocate these funds?
That was the question Congress posed to two committees, one organized by the Institute of Medicine (IoM), and one organized by the Federal Coordinating Council for Comparative Effectiveness Research, a group created by the ARRA with representatives from all of the major federal health agencies. Yesterday, both committees released their recommendations. A summary of the IoM’s report is available here (a PDF of the full report can be downloaded with registration at the website of the National Academies Press, http://www.nap.edu/). The Council’s report is available here. There are also two perspective articles published online in the New England Journal of Medicine on June 30, one on the IoM recommendations and one on the Council’s recommendations.
Both sets of recommendations include some surprises, at least from my perspective. In the case of the IoM recommendations, for example, while priority research topics for particular diseases, such as cardiovascular disease, are listed, almost one-fourth of the committee’s recommended priority topics are in the health care delivery system research area, a broad category that includes topics related to dissemination of results, health behavior and care management, and comparisons of settings of care, among others. One, for example, is to “compare the effectiveness of alternative redesign strategies—using decision support capabilities, electronic health records, and personal health records—for increasing health professionals’ compliance with evidence-based guidelines and patients’ adherence to guideline-based regimens for chronic disease care.”
For its part, the Council recommended that a majority of the HHS Secretary’s funds go to comparative effectiveness data infrastructure development, such as building, expanding, and linking longitudinal administrative claims databases, or linking administrative data with electronic health record-based or registry data.
The common thread here is the need for a well-designed IT infrastructure for our healthcare system, with a central role for electronic medical records. An interview article in the July 2009 issue of McKinsey Quarterly with Hal Wolf, a senior executive with Kaiser Permanente, makes it clear that KP HealthConnect, Kaiser Permanente’s electronic medical record database, is what has enabled the institution to identify and disseminate best practices. Mr. Wolf says, “We can now determine how even small changes in care pathways can have a significant impact on outcomes, and we can study patients with specific combinations of co-morbidities to identify the best treatment approaches for them.”
In a recent article published online in Health Affairs, Ari Hoffman and Steven D. Pearson put forth the useful concept of “marginal medicine” as the source of potential waste most likely to be revealed by comparative effectiveness research. They list four evidence-related categories of marginal medicine: 1) inadequate evidence of comparative net benefit for any indication; 2) use beyond boundaries of established net benefit; 3) higher cost when established benefit is comparable to other options; and 4) relatively high cost for incremental benefit compared to other options. The latter two categories address cost-effectiveness, a topic scrupulously avoided by the IoM and Council recommendations, mainly because of the controversy the issue of comparative cost-effectiveness still evokes. The last thing the pharmaceutical industry would like to see is a recreation in the US of the UK’s NICE system, which has restricted coverage of drugs deemed not to be cost-effective.
In the wider context of medical interventions, however, drug treatments, which account for approximately 11% of total US healthcare spending, will often prove to be cost-effective, particularly if the alternative is physician procedures or hospitalization, which are the two biggest drivers of spending. For example, in a new study published online in the New England Journal of Medicine examining drug spending and other medical spending among a group of Medicare beneficiaries before and after the introduction of the Part D drug benefit, beneficiaries who previously had no coverage or limited coverage for drugs prior to Part D ended up spending more on drugs after getting coverage, but their other medical expenditures declined. Even though the current emphasis on comparative effectiveness research in the US is not focused on the cost effectiveness of drugs, it is only a matter of time before the cost-effectiveness of treatments—certainly not limited to drugs—is systematically integrated into coverage and reimbursement decisions. Pharmaceutical companies that design their clinical development programs to address issues of cost-effectiveness, taking into account different modes of care, will be well-placed to thrive in the US healthcare system’s next era, even if the transition to that next era takes longer and is more difficult than current reformers envision.
Today the three committees in the House of Representatives working on healthcare reform(Ways and Means, Energy and Commerce, and Education and Labor) jointly released an 852-page discussion draft for a healthcare reform bill. The main components of the bill are familiar, including insurance exchanges and individual and employer mandates for health insurance. It also includes a public plan, but requires that the public plan compete on a level playing field with private plans, and it is to be financed entirely through premiums.
There are several provisions that, while not entirely unexpected, will not be welcomed by the pharmaceutical industry. For example, starting in 2011, pharmaceutical companies will have to pay rebates on drug purchases by any dual-eligible beneficiaries and any other beneficiaries whose Medicare premiums are fully subsidized. Prior to the introduction of Part D, beneficiaries who were dually eligible for Medicaid and Medicare got their prescription drugs through their Medicaid benefit, under which pharmaceutical companies are required to pay rebates. When these beneficiaries were switched into the Medicare Part D drug benefit, pharmaceutical companies essentially reaped a windfall by no longer having to pay rebates on the drugs used by these beneficiaries. The provision in the House draft bill would eliminate that windfall. In addition, starting next year, the way the Medicaid rebate is calculated for reformulations of existing drugs would change, treating the reformulation the same is the original drug for purposes of calculating the required rebate, if that calculation results in a higher rebate. This provision may have the unintended consequence of discouraging development of value-added reformulations that would benefit patients. The draft bill also includes a sunshine provision on payments to physicians.
The Senate Finance Committee was also supposed to release its bill this week, but it apparently has been delayed by efforts to reduce the total cost of the bill.
In his speech at the annual meeting of the AMA yesterday, President Obama outlined his case for healthcare reform, including some basic ideas on where he would get the bulk of the money to pay for reforms. Most of what he had to say was relatively uncontroversial and unsurprising, but it still represented his most comprehensive speech on healthcare reform since taking office. One surprise is that he voiced implicit support for a proposal to expand the role—and authority—of MedPAC. Last month Senator Rockefeller introduced a bill that would convert MedPAC into an executive branch agency with the power to set payment rates in Medicare. Essentially, it appears to be a back-door method of establishing a Federal Health Board (Senator Rockefeller even stated that it would be modeled on the Federal Reserve Board)—taking payment decisions out of the hands of Congress and putting them in the hands of a board that supposedly would be immune from political pressure. Since Congress is not prone to willingly give up power, my guess is that this proposal is going nowhere.
Coincidentally, however, yesterday MedPAC released its annual report to Congress. It contains useful discussions of several important topics relating to payment reforms, including accountable care organizations, disease management demonstration programs in Medicare (a topic we are addressing in this week’s issue of our Shuho weekly report), and Medicare Advantage. One chapter also explores some of the issues MedPAC is considering for follow-on biologics.
Also yesterday, the CBO released an analysis of the bill Senator Kennedy introduced last week. The cost of the bill to the federal budget as calculated by the CBO—just above $1 trillion over ten years—does not come as a big surprise. What many commentators are focusing on, however, is that, even after spending over $1 trillion, the CBO projects that 37 million people—13% of the non-elderly—will remain uninsured. Partly this is because the version of the bill introduced last week lacked key provisions, such as a pay-or-play mandate on employers, an expansion of the Medicaid program, and the addition of a public plan, that are expected to be added later. These provisions will reduce the number of uninsured, but they may also add to the cost of the bill, if the cost of expanding Medicaid exceeds the net cost reductions associated with a pay-or-play employer mandate.
Two bills introduced in the Senate this week give further impetus to comparative effectiveness research, but both avoid the term “comparative effectiveness research” in the names of the entities they create to pursue the research. One, introduced by Senators Baucus and Conrad in the Senate Finance Committee, is solely devoted to the creation of a “Patient-Centered Outcomes Research Institute.” The other, the “Affordable Health Choices Act” introduced by Senator Kennedy in the Senate Health, Education, Labor and Pensions Committee, is a more complete version of draft healthcare reform legislation Senator Kennedy circulated at the end of last week, and it includes one short provision that would create a “Center for Health Outcomes Research and Evaluation” within the Agency for Healthcare Research and Quality (AHRQ).
Why the conspicuous absence of “comparative effectiveness research” in the names of these entities? Critics of the Obama administration’s effort to establish comprehensive healthcare reform legislation have tried to mobilize opposition by claiming it would use the results of comparative effectiveness research to dictate patient treatment regimens to doctors or provide insurance coverage in Medicare or other government health insurance programs only to “government-approved” treatment regimens.
Both bills take pains to ensure that comparative effectiveness research results will not constrain coverage or treatment options. The bill by Senators Baucus and Conrad states that research findings “shall not include practice guidelines, coverage recommendations, or policy recommendations” and that neither the reports nor research findings of the Institute “shall be construed as mandates, guidelines, or recommendations for payment, coverage, or treatment.” Similarly, Senator Kennedy’s bill states that “Center reports and recommendations shall not be construed as mandates for payment, coverage, or treatment.”
Despite these similarities, however, the two bills are quite different. Senator Kennedy’s Center mainly appears to be an extension of what the AHRQ is already doing, and no specific budget or funding mechanism is mentioned in the bill. By contrast, the bill by Senators Baucus and Conrad creates a new non-profit entity that would be governed by a board appointed by the Comptroller General composed of a broad spectrum of stakeholders, including representatives from drug and device manufacturers. In addition to annual appropriations of $150 million, the Institute would be funded by a surcharge of $2 per person to be paid by all public and private insurance plans based on their number of covered lives, resulting in an annual budget of roughly $750 million. Moreover, up to 20% of this amount can be used to fund organizations that currently perform comparative effectiveness research, such as the Cochrane Collaboration. With such a significant budget, the Institute could certainly fund a lot of comparative effectiveness research, including large-scale comparative clinical trials.
The broad outlines of this year’s healthcare reform legislation are now in focus. It looks like it will include an individual mandate;
Massachusetts-style insurance exchanges, with subsidies to low-income beneficiaries who are not eligible for Medicaid
an obligation for employers to either offer insurance to their employees or pay a per-employee annual penalty, with exclusions for small employers
possibly a watered-down public plan that would compete with private plans in the exchange; modest expansions of Medicaid and SCHIP
modified benchmark formulas for Medicare Advantage plans to reduce federal subsidies
expansion of pay-for-performance programs and bundled payments in Medicare
incentives for primary care physicians to provide care coordination in Medicare
pilot programs for alternative reimbursement systems for Accountable Care Organizations in Medicare.
In addition to these reforms of federal programs, in the pharmaceutical field there is likely to be an add-on for follow-on biologics, and there may even be legislation that would prohibit “reverse payments” in patent infringement settlement agreements between brand and generic drug manufacturers.
Of course, I could be wrong. Over the past seven months, my track record as a healthcare reform prognosticator is not exactly stellar, changing with each shift in the winds. In the immediate aftermath of last November’s election, as Tom Daschle’s name was being mentioned as a possible pick for HHS Secretary, I believed that Daschle’s idea of creating a Federal Health Board was not likely to be part of any Obama administration proposal for healthcare reform. Weeks later, when Daschle had been nominated as HHS Secretary and Director of the White House Office of Health Reform, and Jeanne Lambrew, Daschle’s co-author on Critical: What We Can Do About the Health-Care Crisis, was nominated as Deputy Director of the White House Office of Health Reform, I changed my mind, deciding that their book would serve as a blueprint for proposed reforms, with a prominent role for a Federal Health Board. Weeks after that, when Daschle withdrew his nomination, I changed my mind again, deciding that the whole process was in a state of disarray. Before long, however, signs of progress—and consensus-building—began to emerge, pivoting in particular around Senator Baucus and Senator Kennedy.
These days, the only one talking about a Federal Health Board idea is the always-lovable Senator Charles Grassley, and he wants it known that he is against the idea (as noted in this interview article last week in the new and wonderful Kaiser Health News site).
Even if the broad outlines of healthcare legislation are more or less set, however, the details matter, too. At the end of last week, Senator Kennedy’s office released what was described as a “draft of a draft” of healthcare reform legislation, the American Health Choices Act. This 170-page document, however, really focuses on just two aspects of healthcare reform: 1) the creation of insurance exchanges, here called “gateways,” with an individual mandate and employer “play or pay” provisions; and 2) the creation of a new and voluntary insurance program, the Community Living Assistance Services and Supports Act (CLASS Act), which would provide assistance to individuals who become incapacitated and need to either be placed in an assisted living facility or need the help of a visiting nurse in their home.
One of the most divisive issues in the healthcare reform debate is whether a public plan would be created to compete with private plans in health insurance exchanges. The draft language for the American Health Choices Act makes passing reference to an “affordable access plan” that would be created by the HHS Secretary and that would reimburse providers at Medicare rates plus 10%. No further details on this public plan are offered. We will also have to wait to find out how Senator Kennedy intends to raise revenues in order to make his plan budget neutral. While there is broad public support for healthcare reform, it is exactly these types of details that could mobilize opposition to specific proposals for reform.
