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Free Market Medicare? Competitive Bidding for Durable Medical Equipment

March 29, 2012 in Medicare | 1 comment

Government spending on wasteful projects is legendary.  There is the Bridge to Nowhere, Star Wars, and many more.  In Medicare, the government also has a reputation of overpaying for durable medical equipment.  For instance, critics claim that Medicare is both paying too high a price for motorized wheelchairs and buying wheelchairs for people who do not actually need them (9 percent of wheelchair purchases were found to be unnecessary).

To solve the former problem, Medicare is using a novel solution: bring the market to Medicare durable medical equipment purchases.

“Beginning this month, the Centers for Medicare and Medicaid Services (CMS) is requiring suppliers to engage in competitive bidding to supply seniors with this equipment in 91 of the nation’s largest markets, including Washington. A two-year pilot project in nine cities, which included hotbeds of durable medical equipment fraud in south Florida and Texas, succeeded in lowering Medicare’s costs by nearly a third.”

The DME industry, however, was not supportive of these changes.

“The campaign to lower prices and rein in fraud has been in the works for more than a decade. The 2003 Medicare Modernization Act called for competitive bidding, but industry pressure stalled the rollout. The nine-city pilot project that began in 2010 took place only after a delay that led Medicare to impose an across-the-board 9.5 percent cut in prices.”

One question is whether a race to the bottom to drive down cost will lead to a decrease in DME quality which will hurt patient care.  Based on initial results, prices have dropped, but quality has remained constant.

“The agency’s monitoring detected no increase in the use of emergency rooms, longer hospital stays or use of skilled nursing facilities, which could be triggered by a failure to obtain needed equipment.“

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The Start of Rationing in Medicare?

March 20, 2012 in Fraud, Health Insurance, Managed Care, Medicare | 2 comments

Prior authorization is a common tool that managed care organizations use to reduce patient utilization of medical services.  Some physicians believe that prior authorization creates barriers to effective care, but other commentators believe that prior authorizations can be implemented in a more efficient manner.  Either way, prior authorizations are a form of rationing care.

Although Medicare typically has not required patients to seek prior authorizations to use specific services, this may be changing with the start of the Prior Authorization for Power Mobility Devices Demonstration.

“This demonstration will implement a Prior Authorization process for scooters and power wheelchairs for all people with Medicare who reside in seven states with high populations of fraud- and error-prone providers (CA, IL, MI, NY, NC, FL and TX). This demonstration is designed to develop and demonstrate improved methods for the investigation and prosecution of fraud in the provision of care or services under the health programs established by the Social Security Act. This demonstration will also help ensure that a beneficiary’s medical condition warrants their medical equipment under existing coverage guidelines.”

Even though this prior authorization application seems reasonable, this could be the start of additional forms of rationing.  Rationing, however, may not necessarily be a bad thing.  Reducing unnecessary expenditures so that Medicare can become more fiscally solvent is a desirable outcome.  The key is how services are rationed.

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Measuring Patient Case Mix in Medicare

March 5, 2012 in Medicaid/Medicare, Medicare Advantage | No comments

How does Medicare measure patient case mix?  For the most part, Medicare uses the Hierarchical Condition Category (HCC) model.  A recent CMS presentation describes the HCC model in more detail.  Today I review where CMS applies the HCC model, provide an overview of the HCC methodology, briefly describe its performance, and give some background on how the HCC model was developed.

 

Applications

Medicare uses the HCC model to risk adjust spending in the following applications:

  • Medicare Advantage Capitation Payment (Implemented in 2004, fully phased-in 2007)
  • Shared Savings Program Accountable Care Organizations (To be implemented in 2012)
  • Medicare Physician Quality and Resource Use Reports (Implemented in 2009)
  • Hospital Quality Measurement for the Medicare Spending per Beneficiary (MSPB) measure. –(Implemented in 2012).

HCC Methodology

CMS-HCC model classifies all conditions but not all conditions used in payment/other applications. Most disease groups are high cost medical condition (cancer, heart disease, hip fracture). Conditions can be excluded because they do not predict future cost (e.g., appendicitis) or there is a High degree of discretion or variability in diagnosis, diagnostic coding, or treatment (e.g., symptoms, osteoarthritis). These conditions are generated from diagnosis codes on claims. Diagnosis codes from lab, radiology and home health claims are not used because they are not reliable and may indicate rule-out diagnoses. The number of times a diagnosis is recorded does not affect the model’s assignment of beneficiaries to health states.

The HCC algorithm starts with over 14,000 ICD-9-CM codes which are grouped into 805 diagnostic groups and then aggregated to 189 condition categories (CCs). From the CC’s, CMS creates 70 hierarchical condition categories where hierarchies imposed. For instance, Angina pectoris/ old myocardial infarction is not included in the acute myocardial infarction HCC (#81) but the CC for AMI is included.

The HCC model also includes demographic factors:

  • 24 age-sex cells (e.g., male age 80-84);
  • Medicaid dual eligible status;
  • current disability status,
  • original Medicare entitlement status

There are three separate HCC models used for the Medicare Advantage program: community, institutional, and new enrollee.

The HCC model is also used to adjust payments for beneficiaries with end-stage renal disease (ESRD), all of whom are enrolled in Medicare FFS. There are three HCC models for the ESRD population: dialysis, transplant, and functioning graft.

Physician QRUR uses age-disabled, community, new enrollee and ESRD models.

HVBP uses a single model with indicators for whether the beneficiary has ESRD or is in long term care

Performance

The model can only moderately predict cost. The R-squared is about 12%. This should not be surprising as variation in health care cost over time can be highly variable.

Development and Maintenance

The model originally developed under contract to CMS by researchers at Boston University and Research Triangle Institute (RTI) with clinical input from Harvard Medical School physicians and is currently maintained by RTI.  The model is updated every year to incorporate new diagnosis codes and is recalibrated regularly on more recent diagnosis and expenditure data.

 

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The Bernie Madoff of Medicare?

March 2, 2012 in Medicare | No comments

Physicians earn high salaries.  The Bureau of Labor Statistics notes that the median primary care physicians made $186,044, and specialists typically earn  $339,738.   Some physicians earn much more than that, but not always through legitimate means.

Consider the case of Dr. Jacques Roy:

Federal law enforcement officials announced charges in the largest healthcare fraud scam in the nation’s history, indicting a Dallas-area physician for purportedly bilking Medicare of nearly $375 million after he reportedly sent out “recruiters” to round up patients and get them to sign for treatments he never provided...

Authorities allege that Roy and his office manager in DeSoto, Texas, Teri Sivils, who was also charged, sent the healthcare recruiters door-to-door asking residents to sign forms that contained the doctor’s electronic signature and stated that his practice had seen them professionally in their own homes.

They also allegedly dispatched more recruiters to a homeless shelter in Dallas, paying them $50 every time they coaxed a street person to go to a nearby parking lot and sign the bogus forms.

The long-running ruse began in the Dallas-Fort Worth area in 2006, and over the last five years collected more Medicare beneficiaries than any other medical practice in the United States.

Also charged were five owners of home health agencies. Health and Human Services Department officials suspended payments worth about $2.3 million a month to 78 other Texas home health agencies.

Despite the enormity of the fraud, $375 million is just a drop in the buck relative to overall Medicare spending.  This represents only 0.07% of total Medicare spending in 2010 (Medicare spending in 2010 was $524 billion).  Although reducing fraud waste and abuse is important, it will not drastically decrease Medicare spending.

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Less Money for Preventive Care, More Money for Docs

February 22, 2012 in Medicaid/Medicare, Physician Compensation | No comments

Merrill Goozner reports that paying for the “doc fix” comes at the cost of preventive services.

Friday’s payroll tax cut extension bill included $18 billion to maintain Medicare physician salaries at current levels for the rest of this year. Unlike the payroll tax extension, Congress insisted on paying for the doc-fix with offsetting budget cuts.  They raised nearly a third of the money by cutting $5 billion from prevention programs initiated under the Affordable Care Act. The rest came from reduced payments to hospitals, nursing homes, and clinical labs, and reduced Medicaid payments to Louisiana.

Smoking cessation programs? Cut. Outreach to schools to get kids to eat more fruits and vegetables? Cut. More programs at local YMCAs to prevent diabetes? Cut.“The idea of paying for a ten-month fix in physician payments with a ten-year cut in prevention programs is the ultimate penny-wise, pound-foolish move,” said Richard Hamburg, deputy director of Trust for America’s Health, which lobbies for community prevention programs and more funding for state and local health departments.

Preventive care programs may improve the quality of life for some individuals, but according to the CBO expanded use of preventive care “leads to higher, not lower, medical spending overall.”  Thus, although cutting preventive care may seem to increase medical costs in the long-run, in practice the deal to cut preventive care services should save enough move to pay for this year’s doc fix.

 

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Where can I get my health care?

February 20, 2012 in Data, Medicare | 1 comment

Most people think that medical services typically provided in a physician’s office of a hospital.  However, medical services can be provided in a variety of settings.

Medicare categorizes providers according to a place of service variable.  The place of service include the following settings:

Pharmacy; School; Homeless Shelter; Indian Health Service Free-standing Facility; Indian Health Service Provider-based Facility; Tribal 638; Free-standing Facility; Tribal 638 Provider-based Facility; Prison/Correctional Facility; Office; Home; Assisted Living Facility; Group Home; Mobile Unit; Temporary Lodging; Walk-in Retail Health Clinic; Urgent Care Facility; Inpatient Hospital; Outpatient Hospital; Emergency Room – Hospital; Ambulatory Surgical Center; Birthing Center; Military Treatment Facility; Skilled Nursing Facility; Nursing Facility; Custodial Care Facility; Hospice; Ambulance – Land; Ambulance – Air or Water; Independent Clinic; Federally Qualified Health Center; Inpatient Psychiatric Facility; Psychiatric Facility-Partial Hospitalization; Community Mental Health Center; Intermediate Care Facility/Mentally Retarded; Residential Substance Abuse Treatment Facility; Psychiatric Residential Treatment Center; Non-residential Substance Abuse Treatment Facility; Mass Immunization Center; Comprehensive Inpatient Rehabilitation Facility; Comprehensive Outpatient Rehabilitation Facility; End-Stage Renal Disease Treatment Facility; Public Health Clinic; Rural Health Clinic; Independent Laboratory; Other Place of Service.

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Do Disease Management and Value-Based Purchasing Programs Work?

February 15, 2012 in Medicare, P4P | 2 comments

In short, the answer is no. The CBO released an issue brief examining two types of demonstrations.

  • Disease management and care coordination demonstrations have sought to improve the quality of care of beneficiaries with chronic illnesses and those whose health care is expected to be particularly costly.
  • Value-based payment demonstrations have given health care providers financial incentives to improve the quality and efficiency of care rather than payments based strictly on the volume and intensity of services delivered.

“The evaluations show that most programs have not reduced Medicare spending: In nearly every program involving disease management and care coordination, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to the participating organizations were considered. Programs in which care managers had substantial direct interaction with physicians and significant in-person interaction with patients were more likely to reduce Medicare spending than other programs, but on average even those programs did not achieve enough savings to offset their fees.”

Today, the healthcare economist looks at these programs in more detail.

Disease Management Demonstrations

These demonstrations were made up of 34 programs operated by disease management companies. “The programs used nurses as care managers to educate patients about their chronic illnesses, encourage them to follow self-care regimens, monitor their health, and track whether they received recommended tests and treatments. In most programs, the care managers were not integrated into physicians’ practices, and their contact with patients was primarily by telephone.”

These programs targeted Medicare beneficiaries with specific chronic diseases. Most programs were not tailored to focus on chronically ill beneficiaries who were expected to have the highest cost of care. The results are displayed in the chart:

test

CBO found that the lack of integration into the physician practice and the lack of physical presence made most of these disease management programs not useful.

Value-Based Purchasing Demonstrations

The list below describes the four major VBP demonstration programs and their findings.

  • Physician Group Practice (PGP) Demonstration. 10 large practices were permitted to keep some of the estimated savings if they reduced total Medicare spending for their patients. In the second year of the demonstration, average Medicare spending excluding the bonuses paid to physician groups was about 1 percent below projections; with bonuses included, average
    Medicare spending was just 0.1 percent below projections—about $7 per beneficiary. Results for years 3 and 4 of the PGP demonstration are currently being analyzed.
  • Premier Hospital Quality Incentive Demonstration. 278 hospitals were offered bonuses if their scores on quality-of-care measures were in the top tier of participating hospitals.  This demonstration had no net effect on Medicare spending.
  • Home Health Pay-for-Performance Demonstration. This demonstration allowed 273 home health agencies to keep some of the estimated savings if they reduced total Medicare spending for their patients and met certain criteria regarding quality of care.  Initial results indicate that this demonstration had no net effect on Medicare spending.
  • Medicare Participating Heart Bypass Center Demonstration. Medicare made bundled payments to cover all inpatient hospital and physicians’ services for coronary artery bypass graft surgeries conducted at seven participating hospitals. Bundled payments reduced Medicare’s expenditures for heart bypass surgeries by about 10 percent, and there were no apparent
    adverse effects on patients’ outcomes.

Whereas the first three VBP programs aimed to give providers bonuses for reducing cost and increasing quality, the Heart Bypass Center demonstration relied on bundled payments to align the financial incentives offered to hospitals and physicians. The bundled payments reduced cost without decreasing quality. Of course, measuring quality is difficult and it is possible that the Bypass demonstration did not fully capture all important aspects of quality. Nevertheless, these initial results indicate that bundling may be a more promising cost-saving mechanism than provider bonuses.

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Will competitive bidding work in Medicare?

February 9, 2012 in Medicare | No comments

In my opinion the answer is yes.  A book by Coulam, Feldman and Dowd also would agree with me.

Recently, Medicare began a competitive bidding process for durable medical equipment.  Is it working?  According to the Wall Street Journal, the answer is no.

“Normally when the government wants to buy something, it asks companies how much they can provide and to name their price. Winners are selected from the lowest bid up until the government has what it needs at the lowest possible cost, and thereby finds competitive equilibrium prices.

Under Medicare’s highly unusual version of competitive bidding, it will pay the winners the median price of all the winning bids, rather than using the clearing price. Bids are also for some reason nonbinding.

This matters because it creates incentives for unscrupulous third-party companies to make low-ball “suicide bids.” If the median price shakes out high enough, they automatically win the contract, buy the medical products from manufacturers and turn a profit. If it isn’t, they can dump the contract since bidding involves no commitment.”

I still think competitive bidding in Medicare will work; the auctions just have to be set up in a more logical way.

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Medicare Payments for Hospitals in Under-served Areas

January 23, 2012 in Hospitals, Medicare | No comments

One of the goals of Medicare is to provide its beneficiaries access to quality care regardless of where they live.  Thus, the Medicare program provides financial incentives to providers located in these remote areas.

Whereas most Medicare pays most hospitals through the inpatient prospective payment system (IPPS), it pays certain rural hospitals based on their reported costs.  Medicare pays Critical Access Hospitals (CAH), for instance, 101 percent of its report cost for inpatient, outpatient, laboratory, and therapy services.  It also pays this providers 101 percent of their cost for post-acute care for CAH beds are “swing beds” (which are beds that can be used for either acute or post-acute care).

However, how should Medicare define ‘critical’? The simplest definition is just whether a hospital is in a rural (i.e., non-metropolitan) area. However, there are various gradations of ‘rural’. A rural hospital on the outskirts of a big city would be far less ‘critical’ then one very far from distant areas. One could define ‘critical’ based on facility volume. If the low volume is due to poor quality, however, defining these hospitals as critical could just reward poor hospitals. Third, could define a hospital as isolated based on its distance from other facilities who could provide comparable care. Alternatively, one could identify critical hospitals based on demographic factors such as population density in the surrounding areas.

Below, I provide more information on other types of types of rural hospital designations in Medicare.
Read the rest of this entry »

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Medicare reducing reimbursement for low-quality docs

January 16, 2012 in Medicare, P4P, Physician Compensation | 4 comments

In 2015, Medicare will begin implementing a value-based purchasing (VPB) program for physicians.  Initially the program will target only certain physicians and groups of physicians, but by 2017 all physicians is participate in this program.

The VBP program will evaluate physicians along two broad dimensions: quality and cost.  In the final rule:

Section 1848(p) of the Act requires the Secretary to ‘‘establish a payment modifier that provides for differential payment to a physician or a group of physicians’’ under the physician fee schedule ‘‘based upon the quality of care furnished compared to cost *** during a performance period.’’ The provision requires that ‘‘such payment modifier be separate from the geographic adjustment factors’’ established for the physician fee schedule. In addition, section 1848(p)(4)(C) of the Act requires that the value modifier be implemented in a budget-neutral manner.

 

Quality

The current quality measures to be used include:

  1. The measures in the core set of the Physician Quality Reporting System (PQRS);
  2. All measures in the Group Practice Reporting Option (GPRO) of the Physician Quality Reporting System; and
  3. the core measures, alternate core, and 38 additional measures in the Electronic Health Records (EHR) Incentive Program measures.

Cost

The current measures of cost CMS is using are total per capita cost measures and per capita cost measures for beneficiaries with four chronic conditions (COPD; heart failure; coronary artery disease; and diabetes).

By January 2012, however, CMS will choose an episode grouper which can evaluate physicians based on episodes of care. Specifically:

Section 1848(n)(9)(A) of the Act requires us to develop by January 1, 2012, an episode grouper that combines separate, but clinically related items and services into an episode of care for an
individual, as appropriate.

Other Issues

One of the main problems of the physician VBP is attribution of patients to doctors. In managed care organizations, patients are assigned a primary care doctor or gatekeeper who are responsible for the patient’s overall care. In Medicare, the patient can see any willing provider; because the primary care doctor cannot restrict the patient’s choice of care, it is more difficult to hold them responsible for the care. Specifically, Medicare beneficiaries never have to choose a primary care doctor, so identifying the doctor to be ultimately responsible for each patient’s overall care is difficult.

Physicians require additional information to understand why the received the VBP scores they did. For this purpose, CMS will create Physician Feedback Reports, confidential reports providing more detailed information of the underlying factors which produce these scores.

For the VBP modifier in 2015, CMS will use 2013 as the initial performance period 2013. This means that payment adjustments in 2015 will be on care provided 2 years ago. Although evaluating physician performance, allowing for appeals and adjusting payments takes time; two years is a long lead time.

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