June 2011

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15.3%.

Does that seem a little high?  If you check your paycheck, the amount of money that is actually deducted from your paycheck for Social Security and Medicare is only 7.65%.  Employers, however, pay an equal amount of taxes on your behalf (i.e., an additional 7.65%).  Previous studies have indicated that all taxes employers pay on employees behalf is funded through lower employee earnings.  In other words, if the employer didn’t have to pay these taxes, your salary would be 7.65% higher.  Ouch!

Here is the breakdown of what where your payroll tax deductions are going.

OASDI HI Total
Employees 6.20 1.45 7.65
Employers 6.20 1.45 7.65
Combined total 12.40 2.90 15.30

 

Notes that OASDI (Old Age Survivors and Disability Insurance) is Social Security and HI (Hospital Insurance) covers only for Medicare beneficiaries’ Part A  (i.e., hospital) medical costs.

Source: A SUMMARY OF THE 2011 ANNUAL REPORTS

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Do you support Accountable Care Organizations?  Many policymakers think they are a great idea.  Why?  If ACOs better integrate care coordination between a variety of physician specialists and other providers, ACOs can increase the efficiency of the health care system.  Improving quality and reducing cost sounds like a great idea.

To implement these integrated care settings in practice, however, Michael Cannon notes that potential ACOs would be funded through savings they provide to Medicare.  This also sound pretty attractive.

If you are a provider, however, ACOs may be couched in a different light: lower reimbursement levels.  If the government believes ACOs can improve efficiency, Medicare can pay providers less for the same services (and ostensibly maintain the same quality level).

Robert Laszewski writes, “Here’s a flash for the policy wonks pushing ACOs: They only work if the provider gets paid less for the same patient population. Why would they be dumb enough to voluntarily accept that outcome?”

In the short-run, the answer is no.  As I’ve mentioned in the past, however, in the long-run, ACOs can increase provider market share and give Medicare less bargaining power in the long-run.

Medicare’s short-run push to coordinate care and reduce cost may result in a more concentrated fee-for-service marketplace and higher Medicare cost in the long-run.  Medicare may want to stick with it’s existing form of ACOs: Medicare Advantage plans.

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The Center for Disease Control issued the first official notice of the disease that would become known as AIDS 30 years ago on June 5.  My current home, San Francisco, was especially hard hit.  NPR interviews physicians at the San Francisco General Hospital and the Center of AIDS Research at University of California, San Francisco.

At the beginning, we knew all of the patients that we took care of in San Francisco and we knew all the patients in San Francisco with the disease. But then the numbers started to increase, increase, increase, even in those early years and then we didn’t know their names. And then I said, wow, this is big. I think, let’s say, 1991, San Francisco was just devastated. I mean, men were walking around in the Castro as skeletons suffering from the wasting syndrome.

I remember on a TV interview telling the woman interviewing me that my grandmother complained that all of her friends were demented or dying. And I said, yeah, grandma, so were mine and I’m, you know, quite a bit younger than you are. But it was exhausting but we fought on.

To help fight to cure AIDS, you can donate to UCSF’s AIDS Research Institute or the International AIDS Vaccine Initiative (IAVI).

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California think they have found the answer.

The bill in question is AB 52, introduced by Assemblyman Mike Feuer (D-Los Angeles). It would prevent health insurance premium increases from going into effect without the prior approval of the commissioner of insurance or the director of the Department of Managed Health Care, who share jurisdiction over health insurers.

The bill would give insurance regulators the same prior-approval authority they were given over auto and homeowner policies by Proposition 103 in 1988. Under current law, California health insurance regulators can’t reject a rate increase even if they think it’s unreasonable — they can only try to jawbone the insurance company or shame it with a public objection.

Small business support this measure.  That is likely because small business care more about cost control than the quality of health care.

If the state forces insurance companies to cut premiums, however, something has to give.  Likely there will be more rationing, physician and hospital payments will be cut, and the quality of care will decrease.  Although there is much waste in healthcare, cutting spending with such a blunt tool as AB52 will decrease the quality of health care.  At this point, however, reducing (or simply holding constant) health plan premiums may be a more important goal than improving quality.

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A recent article in The New Republic examines some of the cunundrums facing today’s health care system.  Most significantly, the article mentions that ”In the war against disease, we have unwittingly created a kind of medicine that is barely affordable now and forbiddingly unaffordable in the long run.”

The article offers a few suggestions of how to address many of the U.S. healthcare systems ills.  For instance, it makes a compelling case that more resources should be spent on health care for the young and middle aged relative to the elderly (since a health improvement for a young person benefits them over more years typically than an older person).

One of the major proposals of the article was “a top-down, bottom-up study of the entire U.S. health system, with a view toward taking it apart and reconstructing it in a manner adapted to our nation’s needs—a multiyear, multidisciplinary project whose aim would be to change the very culture of American medicine.”

The authors motivates the study using the Flexner Report as a precedent:

“At the turn of the twentieth century, U.S. medical education was a disgrace, and care of the sick, except in a certain few facilities, was almost as bad. Something had to be done. In 1908, the newly founded Carnegie Foundation for the Advancement of Teaching stepped in, hiring a 42-year-old educator named Abraham Flexner to embark on a study of medical education in North America. His report, published two years later, became a clarion call for drastic change. Subsequently, armed with a total of $600 million provided by the Carnegie and Rockefeller philanthropies and other contributors, Flexner visited 35 schools in the United States and Canada, and provided the financial wherewithal for the changes so desperately needed. The result of this remarkable effort was that, within ten years, U.S. medical schools became the prototype upon which all others tried to fashion themselves; our nation’s medicine, like the vastly improved institutions that gave it new life, became the gold standard for the world.”

Was the Flexner Report a force only for good.  Although its true that the Flexner report lead to the improvements in medical education, it also helped to turn medicine into a cartel-like occupation.   As physician education requirements increased and the number of medical school spots decreased, the supply of American-educated physicians has not kept pace with need.  Physicians use their smaller numbers to increase their fees.  Further, by restricting the provision of certain medical services to certain specialties, physicians have been able to restrict competition and drive up prices.  Flexner may have increased quality, but it also increased cost.  [For more posts regarding my thoughts on licensure, see here]

On a side note, the notion that we need a single study of the U.S. healthcare system is not revolutionary.  Taking a bird’s eye view of health care is useful but many current academics, policymakers, and researchers in the private sector are already in the process of identifying the areas where the U.S. health care system could be improved.

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  • The Secretary, with the Office of Inspector General, should conduct medical review activities in counties that have aberrant home health utilization.  The Secretary should implement the new authorities to suspend payment and the enrollment of new providers if they indicate significant fraud.
  • The Congress should direct the Secretary to begin a two-year rebasing of home health rates in 2013 and eliminate the market basket update for 2012.
  • The Secretary should revise the home health case-mix system to rely on patient characteristics to set payment for therapy and nontherapy services and should no longer use the number of therapy visits as a payment factor.
  • The Congress should direct the Secretary to establish a per episode copay for home health episodes that are not preceded by hospitalization or post-acute care use.

See this post to review MedPAC’s earlier home health recommendations.

High Margins and CMS Response
Home health agencies’ (HHAs’) have high Medicare margins, averaging 17.4 percent between 2001 and 2008 and averaging 17.7 percent in 2009.  Much of these high margins may be due to an increase in the reported number of visits per home-health visit (since more visits per episodes leads to higher Medicare payments per episode). Payments per episode increased 7 percent from 2008-2009.  MedPAC believes that Medicare is currently overpaying for home health services.  To reduce both the margins and the expansion of HHAs, the Patient Protection and Affordable Care Act of 2010 (PPACA) includes the following provisions:

  • 2011—The base rate for a home health episode is reduced by 2.5 percent, and the market basket update is reduced by 1 percent.
  • 2012 and 2013—The market basket update is reduced by 1 percent.
  • 2014 to 2017—A phased rebasing of an episode payment is implemented to lower payments to a level equal to the costs of the average episode. The Secretary may lower payments by no more than 3.5 percent a year, for a cumulative reduction in payments of 14 percent by 2016. These reductions will be offset by the payment update for each year (under PPACA, the update in 2015 and following years will be equal to the market basket adjusted for productivity).

Other PPACA provisions include:

  • The Secretary has authority to halt the enrollment of new HHAs in areas deemed at high risk of fraud.
  • The Secretary also has the authority to suspend payment when unusual patterns are observed for providers or geographic areas.
  • The Secretary now has the  authority to require additional background checks for new providers of services deemed to be at high risk of fraud.
  • Physician review: Beneficiaries will need to have an encounter with a physician or nurse practitioner through an office visit or “telehealth” session when receiving home health care
  • The law passed a 3 percent rural add-on for episodes delivered in rural counties.

Quality

Quality is measured using the Outcome-Based Quality Monitoring (OBQM) data set, collected via the Outcome and Assessment Information Set (OASIS). At the Commission’s direction, the University of Colorado is examining two areas for more clinically focused measures: the amount of improvement in walking for beneficiaries who receive home health care after a hip or knee replacement and the hospitalization rate for causes that are potentially preventable.

Including therapy visits as part of PPS

An analysis by the Urban Institute found that the current case-mix system predicted 55 percent of episode-level costs for all non outlier episodes, but the explanatory power dropped to 7.6 percent if the number of therapy visits received was excluded as a case-mix grouping.  The steep decline in explanatory power indicates that the case-mix adjuster is highly dependent on the inclusion of therapy visits provided and that patient characteristics are less important in the predictive power attained by the current case-mix system. This reliance on the amount of services provided is counter to the goals of prospective payment, as the number of therapy visits provided is not a prospective attribute of a patient, but a factor under the control of the provider…The current case-mix system predicted about77 percent of the variation in episode-level therapy costs but less than 1 percent of the variation in non-therapy costs.

Beneficiary Cost Sharing

Adding a beneficiary cost sharing for home health care could be an additional measure to encourage appropriate use of home health services. The health services literature has generally found that beneficiaries consume more services when cost sharing is limited or nonexistent, and some evidence suggests that these additional services do not always contribute to improved health outcomes. Cost sharing may be appropriate for home health care because there are no clear clinical standards for many uses of the benefit…Adding a cost sharing requirement would give beneficiaries some incentive to weigh the value of home health services before accepting them and would dissuade beneficiaries from using it when it has minimal value. Cost sharing would also mitigate incentives in the home health PPS that reward volume.  One drawback, however, is that copayments encourage beneficiaries to use higher cost post acute care settings, such as skilled nursing facilities or inpatient rehabilitation facilities.  Thus, limiting copayments to community-admitted beneficiaries seems more reasonable.

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In addition to today’s 5th anniversary Cavalcade of Risk, here are some more links to get you through a shortened workweek.

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Russell Hutchinson at Moneyblog hosts the Fifth Anniversary edition of the Cavalcade of Risk.

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