Public Policy

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Upcoding

April 19, 2011 in Medicare, Physician Compensation, Public Policy | 1 comment

Would Congressman Ryan’s proposal solve this problem?

Medicare Part B pays outpatient physicians according to the billed Current Procedural Terminology (CPT) codes, which differ in procedure and intensity….Using nationally representative data from the 2001 to 2003 Medicare Current Beneficiary Survey, this paper…finds strong evidence that these fee differentials influence physician’s coding choice for billing purposes across a variety of specialties. For general office visits, Medicare outlays attributable to upcoding may sum to as much as 15% of total expenditures for such visits.

Likely no. For physicians paid by private insurers, they would still have an incentive to upcode. It is possible that private insurers may be better at policing upcoding, but their extra vigilience may also cause physicians to hesitate from providing necessary services since they fear they’ll be targeted for upcoding. On the other hand, for integrated managed care organizations like Kaiser Permanente, they have the opposite incentive. These providers are rewarded for reducing cost and thus insurers may claim to have providers services they did not in fact perform.

Although privatizing Medicare and/or Medicaid could solve some problems, upcoding is not likely to be one of them.

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Much Ado about Nothing

April 16, 2011 in Public Policy, Taxes | 1 comment

The government will shut down…the government won’t shut down…Compromise!  Finally, the Federal government has came to a compromise to reduce our swelling national debt.  Or have they?  The chart below shows that cutting the deficit has a lot about rhetoric and little about substance.

Congress did save $78.5 billion in their latest agreement. Since the original budget deficit for fiscal year 2011 was $1.6 trillion,  however, the negotiated savings only amounted to 5% of the deficit.

Lots of rhetoric; little action.

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Evaluating the Congressman Ryan’s Budget Proposal

April 13, 2011 in Health Reform, Medicaid, Medicare, Medicare Advantage, Public Policy | No comments

Congressman Paul Ryan’s budget proposal has made significant waves. Many will fear that the Ryan proposal means the end of Medicare and Medicaid. Although these programs will not end, there will be significant changes.

One can think of many of these changes as a transfer of risk. Consider the Medicare program. Although Medicare will not change for currently those 55 and older, for those currently younger than 55, however, individuals will receive vouchers (i.e., a standardized payment) to cover health insurance premiums to be provided by private insurance. The individual will bear the cost from choosing more generous plans. Further, although risk adjusting the standardized payment will provide sicker patient with a higher premium subsidy, beneficiaries will also bear the risk of higher premiums due to non-risk adjusted factors (unless the premiums are community rated). Medicare will have more predictable spending levels since they will basically know the how much money they will be spending in vouchers each year.

The proposal, however, will only save money if Medicare can control the amount of money its spends on these vouchers. If beneficiaries complain that the vouchers are too low, the government could raise the voucher amount so that it covers all but the most generous plans. The proposal does say that vouchers will increase by inflation and the Medicare Economic index (MEI). However, if the MEI grows significantly, there may be little savings to Medicare for adopting the voucher program.

In the Medicaid program, the proposal shifts the risk to states. Because the Ryan proposal changes the Medicaid program from a cost matching to a block grant program, states who provide more generous benefits must cover the additional costs from state coffers. Those with less generous Medicaid programs can pocket the difference. Although the block grant will be adjusted for population growth and the number of Medicaid-eligible individuals, areas with unpredicted population growth will be on the hook for covering these extra individuals out of their coffers.

The Medicaid block grant program, however, could produce a race to the bottom. States want to attract top talent (i.e., rich people) with low taxes and lots of business opportunities. Providing generous Medicaid benefits increases taxes and increases the likelihood poor people (i.e., those who pay little tax) move into the state. The status quo, however, is the opposite, (a race to the top?) where states try to spend as much as possible to maximize their federal matching dollars. In this economic climate, forcing states to economize is needed.

The voucher system Ryan proposes is similar to both the Purple Health Plan and the current Swiss system.

Note that Ryan’s plan does have some similarities to the Obama Health Reform. He plans to allow small business to pool together to offer coverage to their employees through association health plans (AHPs). He plans to set up State-Based Health Exchanges. And Ryan also plans to create a reinsurance mechanisms to insure pools of high risk individuals. Creating the high risk pool would transfer the risk of the outlier health care expenses to the pool and make the standard benefit health insurance premium more affordable. Funding these high risk pools, historically, has been prohibitively expensive.

Conceptually, I support the Ryan proposal. It moves towards less regulation, more choice, and–most importantly–reduced cost. Right now, health care is too expensive and with the baby boomers retiring, cutting costs must be the number one priority. By letting Medicare beneficiaries have some skin in the game, it will incentivize them to choose lower cost health plans and reduce the growth rate of medical utilization in the near term.  Some analysis, however, has found that switching to vouchers will not in fact reduce cost.

Further details on the Ryan plan are below:

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The Purple Health Plan

April 12, 2011 in Health Reform, Public Policy | 3 comments

The Purple Health Plan is supposed to be a “moderate” plan for health reform–purple is after all a mix of red and blue.  The plan is endorsed by five Nobel laureates.  So what is the Purple Health Plan?

Key provisions of the plan include the following:

  • All Americans receive a voucher each year to purchase a standard plan from the private-plan provider of their choice.
  • Vouchers are individually risk-adjusted; those with higher expected healthcare costs, based on documented medical conditions, receive larger vouchers.
  • Participating insurance companies providing standard plans cannot deny coverage.Americans choose doctors and hospitals included in the standard plan they choose.
  • Plan providers offer supplemental plans to their participants and cannot deny supplemental insurance coverage to their participants.
  • The government (federal and state) ends the tax exclusion of employer-provided health insurance premiums.
  • Like all other Americans, Medicare, Medicaid, and health exchange participants are covered by the Purple Health Plan subject to appropriate transition provisions.
  • Each year a panel of doctors sets the coverages of the standard plan subject to a strict budget, namely that the total cost to the government of the vouchers cannot exceed 10 percent of GDP.

Where did these Nobel Laureates come up with such an idea?  Would it work in practice?  It turns out, this basic framework has already been implemented in Switzerland.  I have already written about the Swiss system here, here and here.  One of this plan’s drawback is that risk adjustment will never be exact and adverse selection will always occur to varying degrees.  In addition, believing that a panel of doctors will conserve resources and not simply advocate an expansion benefits to their particular specialties seems a bit naive from my point of view.    Overall, however, I believe that this proposal is eminently reasonable.

 

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Regional Differences in Medicare Spending and Health Status

April 4, 2011 in Medicaid/Medicare, Medicare, Public Policy | 1 comment

Previous research by the team at Dartmouth Atlas found that there is significant regional variation in spending and disease diagnosis frequency, but this variation is not correlated with higher quality.  However, regional variation may be overstated.  According to Zuckerman et al. (2010):

“Unadjusted Medicare spending per beneficiary was 52% higher in geographic regions in the highest spending quintile than in regions in the lowest quintile. After adjustment for demographic and baseline health characteristics and changes in health status, the difference in spending between the highest and lowest quintiles was reduced to 33%. Health status accounted for 29% of the unadjusted geographic difference in per-beneficiary spending; additional adjustment for area-level dif ferences in the supply of medical resources did not further reduce the observed differences between the top and bottom quintiles.”

The authors used 2000-2002 data from the MCBS to draw these conclusions.  They controlled for age, sex, race, urban/rural, self-reported health status, smoking status, BMI, previous diagnoses of diabetes or hypertension, family income, supplementary insurance coverage, and area-level supply of medical resources.  The analysis was conducted at the HRR level.

If regional variation is spending is mostly due to disease burden rather than practice patterns, efforts to change practice patterns at the region level may prove fruitless.

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Disaster Management

March 24, 2011 in Public Policy | No comments

Natural disasters such as earthquakes, hurricanes, and tornados are some of the most devastating events any city can endure. These disasters compromise the health of many residents due to lack of food and clean water, injuries and contagious diseases.  For most of the history of the U.S., federal assistance to communities hit by diasters took the form of one-time appropriations from Congress.

As the Wilson Quarterly notes, however, after the great depression, federal agencies were formed to help out these unfortunate communities.  Federal efforts include the creation of the Reconstruction Finance Corporation in 1932.  ”The Federal Civil Defense Administration was created to help the country in the case of nuclear war, but, in part thanks to pressure from state and local governments, they soon became key instruments in responding to natural disasters.”  In 1979, Congress created the Federal Emergency Management Agency.  This act consolidated various disaster-response programs throughout the government.

Patrick Roberts argues in a 2010 National Affairs article that it may be time for the White House to back off from disaster management.  At the state an local levels, politicians hope that disasters look horrible on television to generate more FEMA money.  Roberts argues that the government should steer development away from disaster prone areas and should delegate disaster relief to the state and local level.

This is not as easy as it sounds however.  FEMA’s National Flood Insurance Program (NFIP) likely underprices premiums for flood insurance and thus encourages development on flood plains.  Many libertarians would ask the private market to perform such as task.  Private insurance companies, however, do not like this type of insurance since the risk is correlated. In the automobile insurance market, being involved in a car accident has a small effect on the probability my neighbor has a car accident. In the disaster insurance market, however, the probability I experience a disaster is very high if my neighbor has experienced a disaster.  Thus, insurance companies who provider coverage within a narrow geographic area are at risk for insolvency if a serious natural disaster strikes.  Nevertheless, I generally support delegating more emergency management operations to the state and local level.

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A Dishonest Budget?

February 25, 2011 in Public Policy | No comments

The most recent Federal Budget leaves much to be desired.  There are spending cuts.  The Economist reports that although Mr Obama’s team projects that his budget will cause the deficit will fall “…from a post-war record 11% of GDP in the current fiscal year to 3.1% by 2021. That would stabilise the debt, albeit at a still-lofty 77% of GDP.”  However, the CBO believes that a these figures are too rosy, and it is more likely the deficit will only fall to 7% by 2021.

More important, President Obama did little to reduce the looming three-headed budget catastrophe of Medicare, Medicaid and Social Security.  Michael Cannon notes in particular that the President did little to correct the “Doc Fix”.  To reduce physician payments over time, Medicare implemented the sustainable growth rate (SGR) in 1998.  Congress, however, reverses the reimbursement reductions every year.  Thus, if the full SGR would go into place next year, Medicare physicians would receive 25% less revenue per service than the year before.  This is of course untenable.

Michael Cannon explains how President Obama addressed the ‘Doc Fix’ in the FY2012 Budget.

“Rather than propose a permanent ‘doc fix,’ the Obama administration proposes a temporary and dishonest one.  As shown by the blue bars in the below graph, the administration proposes to delay these cuts until 2014 at a cost of $54 billion.  As shown by the black line, the administration proposes to pay for this additional spending by reducing the rate of spending growth in other areas of Medicare by $62 billion over the next 10 years.  Note that only 6 percent of these Medicare ‘cuts’ will occur in 2012 and 2013.  The other 94 percent of the ‘cuts’ will come after the administration has spent the $54 billion it wants to spend.  Note also that the vast majority of the ‘cuts’ would take effect after Barack Obama is no longer president.   Finally, the president offers no proposals to deal with the cuts in physician payments during the last eight years of the 10-year budget window (as shown by the purple bars).”

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Legal Barriers to ACO implementation

January 17, 2011 in Public Policy, Supply of Medical Services | 1 comment

Accountable Care Organizations (ACOs) are the latest rage in health policy circles.  Health reform legislation will allow for federal health agencies to create waiver programs to allow for the creation of ACOs.  For ACOs to actually come to fruition, the waivers must take into account existing laws which currently greatly limit the scope under which ACOs could operate.  These statutes include restrictions on:

  • Incentives to Reduce Care: The statute 42 U.S.C. 1320a–7a(b) states that a hospital or critical access hospital may not knowingly make a payment, directly or indirectly to a physician as an inducement to reduce or limit services provided to a Medicare or Medicaid beneficiary under the direct care of the physician.
  • Beneficiary Compensation:  Persons may not provide remuneration to a Medicare or Medicaid beneficiary where the person knows or should know that the remuneration is likely to influence the beneficiary to order or receive a service from a particular provider, practitioner or supplier where the item may be covered in whole or in part under the Medicare or Medicaid program See 42 U.S.C. 1320a–7a(a)(5).
  • Certain Referrals.  According to the Stark Law, a physician may not refer Medicare patients for certain designated health services to an entity with which the physician or an immediate family member has a financial relationship, unless an exception applies. An entity receiving a prohibited referral may not bill the Medicare program for the resulting items and services.  See 42 U.S.C. 1395nn.
  • Physician Kickbacks.  According to the Anti-Kickback Statute, 42 U.S.C. 1320a–7b(b)(1) and (2). Persons may not knowingly offer or receive, directly or indirectly, overtly or covertly, in cash or in kind, any remuneration to induce or influence the furnishing, arrangement, purchase, leasing, or ordering of items or services for which payment may be made in whole or in part under a federal healthcare program.
  • Balance Billing.  As outlined in 42 U.S.C.1320a-7a(a)(2), Medicare will directly pay the fee schedule amount for the services, and the beneficiary will be responsible for paying the coinsurance and any remaining deductible. Collectively, the fee schedule payment and coinsurance/deductible are referred to as the “allowed amount.” By accepting assignment, the provider agrees to accept the “allowed amount” as “payment in full” for the services.

How would Medicare get around these legal restrictions?  An article by the American Health Lawyers Association outlines some waiver options which would be useful to get around these restrictions to create a viable system of ACOs.  Eliminating all these restrictions, however, may not be desirable.  I generally support allowing Medicare providers to balance bill patients.  Allowing for physician “kickbacks,” can also be useful to incentivize physicians to select the best and/or most cost effective treatment option.   The incentive structure, if not properly constructive, can increase the amount of bias in physician diagnosis and treatment decisions.

Source: Douglas A. Hastings, Robert G. Homchick, Peter M. Leibold, Arthur N. Lerner, Beth Schermer, Lisa D. Vandecaveye. Waivers Under the Medicare Shared Savings Program: An Outline of the Options. American Health Lawyers Association, October 28, 2010.

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Health Reform’s Consumer Protections?

January 11, 2011 in Health Reform, Public Policy | 2 comments

The provision of the ACA (a.k.a. Health Reform) have a number of provisions to mandate more generous health insurance benefits.  Some of these provisions include the following:
  • Health plans generally must allow adult children up to age 26 to stay on their parents’ policies
  • Health Plans cannot charge co-payments for preventive services
  • Health plans cannot impose a lifetime limit on benefits.
  • Health plans must limit the percentage of revenues they can spend on administrative expenses
  • Health plans are prohibited from turning away individuals with pre-existing conditions.

Some sources such as The New York Times claims that these provisions are consumer protections.  Michael Cannon of the Cato Institute, however, disagrees.  He writes:

“These supposed consumer protections are hurting millions of Americans by increasing the cost of insurance, increasing the cost of hiring and driving insurers out of business… [HHS] estimated that one of the law’s regulations – the requirement to purchase unlimited annual coverage – will increase some people’s premiums by 7 percent or more when fully implemented. A Connecticut insurer estimated that just the provisions taking effect last year would increase some premiums by 20-30 percent… The ban on discriminating against children with pre-existing conditions has caused insurers to stop selling child-only policies in dozens of states.”

“In 2008, Congress passed a similar mandate that supporters said would expand coverage for mental-health and substance-abuse services. Instead, that mandate spurred the Screen Actors Guild to eliminate mental-health coverage for 12,000 of its lower-paid members. It had the same effect on 3,500 members of the Chicago’s Plumbers Welfare Fund, and 2,200 employees of Woodman’s Food Market in Wisconsin. Other employers are curtailing access to mental-health services thanks to this mandate, and some insurers have stopped selling such coverage altogether.”

Cannon makes some good points.  The generosity of the ‘consumer protection’ provisions will certainly drive up price.  In particular, the provision health plans are prohibited from turning away individuals with pre-existing conditions is a major issue.   The reason is that opportunistic individuals could decide not to buy insurance until they get sick.  The cost to these newly sick individuals will be the same as for healthy individuals as insurers cannot discriminate against individuals with pre-existing conditions.  To counteract this problem, Health Reform has an individual mandate which–if penalties are stiff enough–prevent this type of opportunistic behavior.

Like all things, however, there are tradeoffs to these provisions.  Sure, eliminating a lifetime limit on benefits will increase premiums, but for very sick individuals, this provision is a blessing.  Eliminating co-payments for preventive services may be worthwhile if the services improve health and reduce cost.  Many preventive services, however, may improve health, but increase cost.  Further, providers will lobby to have more and more services be classified as preventive which may not in fact be so.

Although Cannon wisely points out that mandating increases in benefit generosity will increase cost, one must acknowledge that there is a trade-off here.  Although “such mandates force consumers to divert income from food, housing, and education to pay for the additional coverage,” more increasing health plan generosity is a benefit for those who can afford it.

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Japan: Bigger deficit problems than the U.S.

November 22, 2010 in Economics - General, Public Policy | No comments

The cover of The Economist this week looked at America’s budget deficit.  According to their estimates, “America’s budget deficit in the fiscal year that ended on September 30th stood at $1.3 trillion; at 9% of GDP, the second-largest since the second world war.”  The short run cause of this deficit is the recent severe recession, the wars in Iraq and Afghanistan, and the stimulus spending.  In the long run, however, entitlements will further destabilize the country’s fiscal soundness.  Entitlements such as Social Security, Medicare and Medicaid “…will double the federal debt by 2027; and the number keeps on rising after then.”

Nevertheless, the prospects for Japan look even bleaker.  While the U.S. debt has exceeded 50% of GDP, Japan’s debt is near 200% of GDP.  Further, Japan is aging quickly; the median age in Japan is 44.6.  Although a long life expectancy is a good thing, it will be difficult to support so many older workers without a concurrent rise in the number of workers.  Since the birth rate in Japan is so low (2nd lowest in the world), fewer and fewer youth are entering the job market.  More immigration could help, but it is currently difficult for non-Japanese immigrants to gain citizenship even after working in Japan for many decades.

More from the Economist:

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