Healthcare stocks rally after Trump administration nixes drug rebate plan

https://www.beckershospitalreview.com/finance/healthcare-stocks-rally-after-trump-administration-nixes-drug-rebate-plan.html

Shares of major health insurers and other healthcare companies surged July 11 after the Trump administration yanked a plan to curb drug rebates. The healthcare rally helped push the Dow Industrial Average to 27,088 — its highest close ever.

UnitedHealth Group led the Dow to its all-time high, according to The Wall Street Journal. UnitedHealth climbed 5.5 percent July 11 to $261.16 per share.

Shares of major pharmaceutical companies, including Merck, Pfizer and Eli Lilly, lost ground on July 11, hampering the Dow’s climb, according to TheStreet.

“Pharma is getting absolutely shellacked,” Jamie Cox, managing partner for Harris Financial Group, told TheStreet. “I think being in the crosshairs of both parties in advance of an election year is definitely not a good place to be. It’s the one area where Democrats and Republicans can agree-they can beat up on pharma and there’s no negative repercussions.”

The S&P 500 also reached a record July 11, trading 0.2 percent higher. In the S&P 500, Cigna jumped 9.2 percent to $175.34 per share, while shares of CVS Health climbed 4.7 percent to $57.97. However, pharmaceutical companies and biotechnology firms broadly declined, according to The Wall Street Journal. 

 

There’s little chance appeals court will strike down ACA, legal experts say

https://www.modernhealthcare.com/legal/theres-little-chance-appeals-court-will-strike-down-aca-legal-experts-say?utm_source=modern-healthcare-daily-finance&utm_medium=email&utm_campaign=20190708&utm_content=article3-readmore

Seven months after a federal judge struck down the Affordable Care Act, a coalition of 21 Democratic attorneys general will once again defend the landmark healthcare law in New Orleans on Tuesday. The challenge, if upheld, would have far-reaching consequences for millions of Americans and the healthcare companies that serve them.

Left-leaning and conservative legal experts alike say there’s little chance the three-judge panel in New Orleans agrees with the lower court and declare the ACA unconstitutional. The arguments used by the Republican states that sued to wipe out the ACA are “frivolous,” the experts say.

“This case is different from all of the previous Obamacare cases because there is a consensus among the Republican intellectual establishment that the legal arguments are frivolous,” said Yale University health law professor Abbe Gluck. “You’ve got a lot of prominent Republican legal experts siding against the Trump administration in this case, so I think that most people are hoping that this circuit will apply very settled law and reverse the lower-court decision.”

Even so, Democratic senators on Monday were worried that the ACA would ultimately be struck down, causing millions of Americans to lose their insurance and consumer protections overnight without any Trump administration plan to pick up the pieces.

“Make no mistake, this lawsuit has a good chance of succeeding,” Sen. Chris Murphy (D-Conn.) said during a conference call Monday with reporters. “I understand that there are some legal scholars that say that the theory of the petitioners is wacky, but it survived the district court and it now has the administration as a full and complete partner with the attorneys general. There is real muscle on the side of the plaintiffs in this case.”


The appellate court arguments largely mirror those in the district court. This time around, the U.S. Justice Department is urging the 5th U.S. Circuit Court of Appeals to uphold the lower-court ruling that the entire Affordable Care Act must fall because the 2017 Congress reduced the individual mandate penalty to zero. Previously, the Justice Department argued the individual mandate is unconstitutional, but could be “severed” from most of the ACA.

This question of whether the entire ACA must go is the crux of the case. Gluck explained that a non-controversial, settled legal doctrine called “severability” states that the decision to scrap a piece of a law or destroy the whole thing rests on what Congress would have wanted. That’s something courts usually have to guess, but in this case there’s no question what Congress would have wanted: it already zeroed-out the individual mandate penalty and left the rest of the ACA alone.

“It is an absolutely outrageous argument to say that the district court was doing what Congress wanted when Congress in 2017 reduced the penalty and left the entire statute standing,” Gluck said.

Nicholas Bagley, a law professor at the University of Michigan Law School, similarly said, “These are bad legal arguments.”

The odds of the Fifth Circuit declaring the entire ACA unconstitutional are low, he said, given the arguments in the case “are thin to the point of frivolousness, and I think the Fifth Circuit judges will know that, whatever their political disposition may happen to be. But I’d be lying if I said I knew that for sure.”

The panel announced last week includes Judges Jennifer Walker Elrod, Kurt Englehardt and Carolyn Dineen King. Two were appointed by Republican presidents; one is a Democratic appointee. U.S. District Judge Reed O’Connor, who struck down the healthcare law, was also appointed by a Republican president.

Legal experts said it is also likely that oral arguments will devote time to whether the Democratic states and the U.S. House of Representatives have standing to intervene in the case. The Fifth Circuit judges last week asked for supplemental briefs on that question. While the court’s request was seen by some as a sign that it is supportive of the Republican states, others viewed it as normal, given the high stakes and the fact that the Justice Department declined to defend the law.

Gluck said it’s unlikely the court will decide neither the blue states or the House have standing in the case. It would be hard to argue that the Democrat-led states would not be harmed by a ruling that invalidates the entire ACA, and the House has previously intervened to defend a statute when the executive branch chose not to, she said.

But if the Fifth Circuit does decide neither have standing, it would have to decide whether to let the lower-court decision stand or erase it, she said.

Should the appellate court uphold the lower-court ruling, the consequences would be sweeping. In a June analysis, the left-leaning Urban Institute found that the number of uninsured Americans would climb 65% to 50.3 million in 2020 if the ACA is ultimately struck down. The decision would affect not only people who buy coverage in the individual market but also those with coverage through Medicaid expansion, Medicare and from their employers.

That would also impact healthcare providers and insurers.

“No industry has been more directly impacted by the ACA than health insurance providers, which have invested vast amounts of resources to participate in the relevant markets, comply with the law’s myriad reforms, and organize their businesses to operate in a revamped healthcare system,” insurance industry lobbying group America’s Health Insurance Plans wrote in an amicus brief filed in April in support of reversing the lower-court decision.

 

 

 

How the ACA’s Medical Loss Ratio Rule Protects Consumers and Insurers Against Ongoing Uncertainty

https://www.commonwealthfund.org/publications/issue-briefs/2019/jul/how-aca-medical-loss-ratio-rule-protects-consumers-insurers

calculating bills for medical procedures

ABSTRACT

  • Issue: The Affordable Care Act’s rule on minimum medical loss ratios (MLRs) protects consumers by capping insurers’ profits and overhead. In the early years of the law, these caps were rarely used because most insurers in the individual health insurance market experienced substantial losses. More recently, however, insurers are earning substantial profits while the individual market is rattled by regulatory uncertainty and change.
  • Goal: To understand the ongoing role that the medical loss ratio rule plays in the individual health insurance market.
  • Methods: Analysis of insurers’ financial performance 2015–2017, as reported to the federal government.
  • Key Findings and Conclusion: Consumer rebates under the MLR rule increased noticeably in 2017 as insurers raised rates and regained profitability. At the same time, the rule’s calculation of MLRs based on a three-year rolling average allowed insurers in 2017 to recoup a portion of their losses from earlier years. As the individual market continues to experience cycles of profits and losses, the MLR rule dampens the severity of these cycles, thus protecting insurers as well as consumers.

Background

Regulation of insurers’ medical loss ratios (MLRs, or loss ratios) is one of the most notable consumer protections in the Affordable Care Act (ACA). The loss ratio is the percentage of premium dollars that insurers spend on medical claims and quality improvement, rather than dollars retained for administrative overhead and profit.

Under the ACA, insurers that do not incur a loss ratio of at least 80 percent (based on a three-year rolling average) in the individual or small-group market must rebate the difference to consumers.1 Put another way, insurers with average overhead and profits during the past three years that exceed 20 percent must rebate the excess to members. Large-group insurers must do the same for loss ratios less than 85 percent, or when overhead and profits average more than 15 percent of premium dollars based on a three-year average.2

The ACA’s MLR rule took effect in 2011. In its first few years, this rule provided important consumer protection by requiring substantial consumer rebates and inducing insurers to reduce their administrative costs, which likely helped to keep premiums somewhat lower.3 These protections became less visible once insurers adjusted their rates to reflect their lower overhead.4 Following substantial rate increases for individual health insurance in 2017 and 2018, however, the ACA’s loss ratio limits have renewed relevance by helping stabilize a market that has been buffeted by cyclical underpricing and overpricing.

This issue brief explains how the ACA’s MLR rule serves an important buffering function in two ways. The rule protects consumers by limiting how much insurers can attempt to recoup previous losses through higher profits in any one year. At the same time, the rule allows insurers to replenish some of their reserves that deplete during lean times by calculating MLR limits based on a three-year rolling average.

The Changing Relevance of Loss Ratio Limits

As shown in Exhibit 1, rebates in the individual health insurance market declined from almost $400 million in 2011 to slightly more than $100 million annually in 2015 and 2016,5 accounting in those later years for only about 0.14 percent of insurers’ premiums. Rebates also declined in the group markets but less dramatically (in proportionate terms).

To fully understand this pattern, it helps to have a clearer picture of insurance pricing during this period. The individual market had a significant drop in rebates after 2014 because loss ratios in that market increased to an unprofitable level for most insurers in 2015 and 2016. Insurers underpriced those years because of the highly competitive conditions in the newly reformed individual market, coupled with actuarial uncertainty over the full extent of health care needs for the newly insured.6

But since 2017, the ACA’s MLR limits have once again become more relevant for consumers in the individual market.7 To help insurers regain profitability, state regulators allowed them to target the minimum allowable loss ratios, which meant that rates increased more than the anticipated increases in medical claims. As a result, rate increases averaged roughly 25 percent in 2017 and 30 percent in 2018.8

For the most part, these increases were caused by changes in federal rules, such as the planned phasing out of the ACA’s transitional reinsurance program, as well as the unplanned cessation of cost-sharing reduction payments to insurers.9 But these hefty increases were also driven by insurers’ aiming to substantially lower their previous loss ratios.

In fact, many insurers overshot their targeted loss ratios in 2017 and 2018, resulting in greater profitability than they may have anticipated. Accordingly, their rate increases were much more subdued in 2019, averaging only about 3 percent.10

This cyclical pattern of underpricing followed by overpricing (relative to actual medical claims) is driven in large part by insurers’ uncertainty about the ACA’s evolving market conditions. This uncertainty has two causes: actuarial and political.11

When the newly reformed individual market first opened in 2014, insurers lacked the actuarial experience needed to accurately estimate the newly insured’s use of medical services. This actuarial uncertainty carried over into 2016 because insurers must file their rates roughly 18 months prior to the end of the following rating year.12 Also, in 2015 and 2016, there was substantial turnover among insurers in the individual market, as some initial players learned that they were not able to compete effectively under the new market rules.13

The ACA’s drafters anticipated this uncertainty and included several risk-mitigating measures, known as the “three R’s:” reinsurance, risk-adjustment, and risk corridors.14 The first two measures were implemented, but risk corridors were not because of Republican opposition that characterized this market-stabilizing measure as a “bailout for insurers.15 Risk corridors would have substantially dampened the initial cycling between substantial losses and excessive profits in the ACA’s individual market.16

Despite the absence of the ACA’s full complement of stabilizing features, participating insurers began to gain their actuarial footing in 2017. At this point, however, the cause of insurers’ uncertainty shifted from typical actuarial factors to more political factors, including dramatic changes in administrative policies and market rules under the Trump administration. These changes are described in more detail elsewhere, but in brief they include abruptly ceasing cost-sharing reduction payments, repealing the individual mandate penalty, and drastically reducing funding for marketing and consumer navigation during open enrollment.17

This political and regulatory uncertainty continues. Regulators are greatly loosening rules that previously had limited the sale of non-ACA-compliant policies, and the full impact of these changes is still unknown.18 Moreover, the Justice Department has taken the position in court that the ACA should be struck down as unconstitutional, which could have a catastrophic impact on the individual market. However, the fate and timing of that litigation is highly uncertain.

In short, these roller-coaster conditions would probably have leveled out by 2017 if ongoing changes to market rules had not intensified the uncertainty. Against this backdrop, we now consider the role that the ACA’s loss ratio rule might play in stabilizing the market by protecting both consumers and insurers through continuing cycles of losses and excessive profits that result from ongoing market uncertainty.

The following sections examine two key stabilizing features in the ACA’s loss ratio rule. Using a three-year rolling average to calculate excess overhead and profits protects insurers by allowing them to recoup at least a portion of their recent losses through somewhat larger rate increases in a current year. At the same time, requiring insurers to rebate excess overhead and profits protects consumers from unjustified price increases.

In effect, the ACA’s loss ratio rule serendipitously serves a function similar to the ACA’s risk corridor provisions that were undermined by Republican opposition: the MLR rule partially shelters insurers in bad times and keeps them from unduly profiteering in good times.

Protection of Insurers

Viewing the individual market as a whole, Exhibit 2 shows that in 2015 and 2016 (averaged together), insurers had poor financial results. Their collective loss of –7.4 percent was because of a high medical loss ratio — 95 percent. Some insurers were more successful and were required to pay a rebate; however, across the entire market, these rebates averaged only $6 per person per year (50 cents a month), equal to just 0.01 percent of the premium.

Insurers’ financial performance improved dramatically in 2017. By increasing premiums by 11 percent more than the increase in claims (14% vs. 3%),19 insurers reduced their medical loss ratios by nine percentage points overall, from 95 percent to 86 percent. And, by holding steady their administrative costs, their profit margins improved by 11 points, from –7.4 percent to 3.3 percent.

Because of this financial improvement, rebates increased by almost 50 percent in 2017. But rebates still remained much lower than in the ACA’s early years, averaging only $9 a person for 2017 ($0.73 a month) marketwide.

Rebates remained low for two reasons. First, although insurers’ MLRs dropped quite a bit, they remained above the regulatory minimum on average. Second, for insurers with 2017 loss ratios below 80 percent, their earlier losses in 2015–2016 decreased the rebate amount they owed because the rebate is calculated using a three-year rolling average.

This effect can be seen by examining insurers that were in the individual market all three years, 2015–2017. Out of 303 such insurers with at least 1,000 members, there were 74 insurers with loss ratios below the required 80 percent in 2017. Without the three-year rolling average, these more profitable insurers would have owed rebates averaging $258 per member in 2017. Instead, the ACA’s three-year look-back rule required insurers that were in the market that long to pay a rebate of only $21.55 per member for the year. This reduction allowed these insurers to recoup $919 million of prior 2015–2016 losses overall.

Protection of Consumers

At the same time the ACA’s MLR rule helps cushion the extent of insurers’ losses over time, it also continues to protect consumers against overpriced health plans. Although most insurers in 2017 owed no rebates, 29 insurers paid a rebate of $140 per member, amounting to $132 million, or 3.3 percent of their premiums. Not counting these rebates, these insurers had a handsome overall profit margin of 12.6 percent in 2017. As shown in Exhibit 3, these rebates reduced their profit margins by slightly more than 25 percent.

This backstop against excessive profits is expected to have even more importance once full financial reporting is complete for 2018, which included a second round of substantial rate increases.20 Despite owing rebates for 2017, insurers continued to increase rates for 2018 in part because they had to file their 2018 rates in mid-2017 without their complete 2017 financial performance data in hand. Also, insurers had to anticipate possible disruptions to the market caused by changes to the ACA’s market rules.

By building in more cushion than they needed, insurers are expecting substantially lower loss ratios in 2018, which will generate much higher rebates. One recent analysis projects that loss ratios in the individual market will drop to 70 percent for 2018, resulting in close to $1 billion in rebates.21

These consumer protections could have substantially more impact in some states than in others, depending on how much insurers were permitted to increase rates in each state. Across 50 states and the District of Columbia, insurers in 26 jurisdictions had no rebates for 2017 in the individual market, and rebates were less than $5 a person in 11 states. However, in seven states (Arizona, Massachusetts, Minnesota, Mississippi, Missouri, New Hampshire, and New Mexico), rebates exceeded $50 per person in the 2017 individual market.22 Notably, in four of these seven states (Minnesota, Missouri, New Hampshire, and New Mexico), a single insurer with profit margins of 15 percent or greater was solely responsible for the rebate (Exhibit 4).

Conclusion

When the ACA’s medical loss ratio rule first took effect in 2011, its protections were more visible to consumers, who received significant rebates while insurers substantially reduced overhead costs. In subsequent years, these protections became less noticeable, as insurers in the individual market struggled with substantial losses.

Now that the individual market appears to have regained profitability, however, the ACA’s MLR rule has renewed relevance, both for consumers and insurers. The rule has resumed its important role of paying rebates to consumers whose health plans enjoy substantial profits. Additionally, the MLR rule affords insurers that suffer substantial losses an opportunity to recoup some of those losses by averaging a low loss ratio against two prior years of high loss ratios.

By smoothing out oscillations in profits and losses, the ACA’s MLR rebate rule holds the prospect of not only continuing to protect consumers, but also of helping to counter some of the destabilizing effects of ongoing changes in regulatory policy in the individual market.

 

 

 

Here’s What’s Missing From the Health-Care Debate

https://www.bloomberg.com/opinion/articles/2019-06-28/democratic-2020-debate-medicare-for-all-and-health-care

Raise your hand if you want to debate health care.

There needs to be more frank talk and better explanations about the costs and trade-offs of plans like Medicare for All.

Health care took up a decent portion of the Democratic presidential debates this week. For all of the verbiage, we didn’t learn much new. Everybody wants universal coverage, but they have different ideas about how to get there. One group, led Vermont Senator Bernie Sanders, want a single-payer system like “Medicare for All”; others, including former Vice President Joe Biden, prefer various flavors of a public option that co-exists with elements of the status quo.

Nonetheless, there were a few moments that drew attention to important issues that could (or should) shape the health-care discussion going forward: 

 

THE BIG TRADE-OFF: People who have health under Medicare for All will have no premiums, no deductibles, no co-payments, no out-of-pocket expenses,” Sanders said during Wednesday’s debate. “Yes, they will pay more in taxes, but less in health care for what they get.” Sanders was responding to a question about whether his policies would mean higher taxes for middle-class Americans; his answer elucidated an essential truth that’s still lost on many voters.

Medicare for All is at its core a shift in how America finances health care. Right now, people pay big chunks of their health costs themselves – especially when they’re sick. Sanders’s plan would replace that out-of-pocket spending with taxes. There’s an appeal to that. It’s more equitable and would eliminate situations where health crises result in bankruptcy, or costs dissuades people from seeking care. Whether this shift will result in savings for individuals will depend on tax details as well as income and health status. If such a plan can lower costs by cutting prices and eliminating insurer profits, there’s a real possibility that many Americans come out ahead. Right now, polls suggest that broad support for Medicare for All drops when people hear about tax increases. Getting voters to understand what they get in return will be critical. 

 

RAISE YOUR HAND: On both nights, the debate moderators chose to boil the health-care debate down to one yes-or-no question. Candidates who support eliminating private health insurance in favor of a single-payer system were asked to raise their hands. This is a defining divide in the field, so it was notable that Elizabeth Warren raised hers on Wednesday. She places third in most polls behind Joe Biden and Sanders, and has been vague on health care in the past. If she’s a dogmatic supporter of Sanders’s specific plan, that tilts the race in the direction of Medicare for All. I’m not sure that’s the case, though. She could end up diverging on specifics of how the U.S. should transition to a single-payer system and structure it. As the field shrinks, it will probably benefit her to stake out a place between Sanders and Biden, who supports a milder public option. A lot of candidates want to be in that space, though none have defined it well or made it their own yet. Given ambivalent polling about the details of Medicare for All and the idea of killing private insurance, this feels like an opportunity for the person who seizes it. 

 

WHAT PRICE IS RIGHT?  America spends far more than other countries on services without getting better results. That might not change without price controls for providers. Former Maryland representative John Delaney claimed on Wednesday that these types of controls would have consequences, saying that many hospitals would be forced to close if they had to accept the rates currently paid by Medicare for all services. While the truth of that statement is a matter of some debate, what isn’t in doubt is that lower reimbursement would be necessary even for milder plans, and that this could put pressure on hospital systems.

Reform-minded candidates don’t like to talk about that, which is why Delaney’s point stood out. Instead, they preferred to focus their ire on insurers and drugmakers. Drug prices and insurer overhead are important issues too, but services eat up a far more significant portion of spending. The field won’t be able to ignore that issue and the potentially disruptive consequences of dealing with it. 

These first debates got the discussion going. The devil will be in the details.

 

 

 

Downside risk contracts still less common for ACOs, study finds

https://www.healthcarefinancenews.com/news/downside-risk-contracts-still-less-common-acos-study-finds?mkt_tok=eyJpIjoiTVRRMk9HTTFOVFV6WldFMSIsInQiOiJvdjllQmxoNHFCWWFVdm1uaEsrQWdnbm9TazQ4aTBveWRocVJpTlY0amNcL2lmdTJ5MEF5NUlOaTBmTTRMOTFEcmk1ejRqcm5xbm0yS3JTTmhwUndJRU03QVpMNkd0bkI1MzNibkhKUVdzNFwvelRINTg1TkFcL05rcVNEcUNraUhsMiJ9

The proportion of ACOs taking on downside risk remained relatively stable, with the majority in upside-only risk contacts.

While the number and variety of contracts held by Accountable Care Organizations have increased dramatically in recent years, the proportion of those bearing downside risk has seen only modest growth, according to a new study published in Health Affairs.

ACOs, which use financial incentives in an effort to improve patient care and reduce healthcare costs, have become one of the most commonly implemented value-based payment models by payers. In 2018, there were more than 1,000 ACOs nationally, covering an estimated 33 million lives and including more than 1,400 different payment arrangements.

Yet debates about the impact of the ACO model persist, especially pertaining to the contribution of downside risk, in which ACOs share responsibility for financial losses with payers if the former fail to meet their targets.

WHAT’S THE IMPACT

To help improve understanding of the rapid growth and evolution of ACOs, the research team analyzed ACO structure and contracts over a six-year period from 2012-2018, using data from the National Survey of Accountable Care Organizations.

They found that while the number of ACOs had grown fivefold during that time period, the proportion of ACOs taking on downside risk remained relatively stable — increasing from 28 percent in 2012 to 33 percent in 2018. Overall, the majority were upside-only risk contracts, which reward cost and quality improvements but do not financially penalize poor performance.

There’s concern among industry experts that these kinds of contracts might not provide adequate incentives to boost ACO performance.

When examining the leadership, services and size of ACOs, the researchers said those bearing downside risk were less likely to be physician-led or physician-owned, more likely to be part of larger, integrated delivery systems (that included hospitals), had more participating physicians, and were more likely to provide services such as inpatient rehabilitation, routine specialty care, and palliative or hospice care.

In addition, the authors found that ACOs with downside risk contracts were more likely to have participating providers who had experience with other forms of payment reform, such as bundled or capitated payments, and had more ACO contracts across payer types — Medicare, commercial and Medicaid.

THE LARGER TREND

The authors said increasing the number of ACO payment contracts per ACO suggests a broadening of financial incentives around value-based care, but that there’s been “stagnation in the proportion of ACOs with deeper financial incentives.” In 2018, just one-third chose contracts with downside risk.

CMS recently issued a rule mandating that ACOs take on financial risk sooner.

 

Hospital price transparency push draws industry ire, but effects likely limited

https://www.healthcaredive.com/news/hospital-price-transparency-push-draws-industry-ire-but-effects-likely-lim/557536/

Image result for price transparency

Far-reaching rules mandating industry price transparency could mark a major shift, but experts are skeptical the efforts will meaningfully lower prices for patients without a more fundamental system overhaul.

President Donald Trump’s executive order signed Monday directs HHS and other federal departments to begin rulemaking to require hospitals and payers to release information based on their privately negotiated rates. Providers would also have to give patients estimates of their out-of-pocket costs before a procedure.

The moves come amid efforts from the federal government and Congress to push the healthcare industry to address patient anger over high prices, particularly regarding what medical bills they can expect to receive.

Many details must still be worked out as HHS and CMS craft their proposals, but providers and payers were quick to condemn any notion of making negotiated rates public. A legal challenge to the rules is also likely.

Many policy analysts and economists said that while price transparency is good in theory, current evidence shows patients don’t take advantage of pricing information now available, said Ateev Mehrotra, associate policy of healthcare policy and Harvard Medical School.

Patients are wary of going against a doctor’s advice to undergo a certain procedure or test, and to get it done at a certain facility. A difference in price may not be enough to sway them.

Also, the healthcare system has so many moving parts and unique elements that understanding a medical bill and how the price was calculated is daunting, to say the least.

“That complexity hinders the ability of people to effectively shop for care,” Mehrotra told Healthcare Dive “It’s not like going to Amazon and buying a toothbrush or whatever.”

What the order actual does

The executive order has two main directives:

  • Within 60 days, HHS must propose a regulation “to require hospitals to publicly post standard charge information, including charges and information based on negotiated rates and for common or shoppable items and services, in an easy-to-understand, consumer-friendly, and machine-readable format using consensus-based data standards that will meaningfully inform patients’ decision making and allow patients to compare prices across hospitals.”
  • Within 90 days, HHS and the Departments of Labor and Treasury must solicit comment on a proposal “to require healthcare providers, health insurance issuers, and self-insured group health plans to provide or facilitate access to information about expected out-of-pocket costs for items or services to patients before they receive care.”

The order also outlines smaller steps, including a report from HHS on how the federal government and private companies are impeding quality and price transparency in healthcare and another on measures the White House can take to deter surprise billing.

It also directs federal agencies to increase access to de-identified claims data (an idea strongly favored by policy analysts and researchers) and requires HHS to identify priority databases to be publicly released.

The order requests the Secretary of the Treasury expand coverage options for high-deductible health plans and health savings accounts. It specifically asks the department to explore using HSA funds for direct primary care, an idea Senate HELP Committee Chairman Lamar Alexander, R-Tenn., said he “especially like[d].”

Industry pushes back

The order itself wastes no time in pointing the finger at industry players for current patient frustrations with the system. “Opaque pricing structures may benefit powerful special interest groups, such as large hospital systems and insurance companies, but they generally leave patients and taxpayers worse off than would a more transparent system,” according to the document.

As expected, payer and provider groups slammed any attempt to force them to reveal the rates they negotiate behind closed doors, though they expressed appreciation for the general push toward more transparency.

The American Hospital Association shied away from strong language as details are still being worked out, but did say “publicly posting privately negotiated rates could, in fact, undermine the competitive forces of private market dynamics, and result in increased prices.”

The Federation of American Hospitals took a similar tone in a statement from CEO Chip Kahn. “If implementing regulations take the wrong course, however, it may undercut the way insurers pay for hospital services resulting in higher spending,” he said.

Both hospital groups highlighted more transparency for patient out-of-pocket costs and suggests the onus should be on payers to communicate information on cost-sharing and co-insurance.

Mollie Gelburd, associate director of government affairs at MGMA, which represents physician groups, said doctors don’t want to be in the position of explaining complex insurance terms and rules to a patient.

“While physicians should be encouraged to talk to patients about costs, to unnecessarily have them be doing all this education when they should be doing clinical care, that sort of gets concerning,” she said.

Practices are more concerned about payer provider directories and their accuracy, something not addressed in the executive order. Not having that type of information can be detrimental for a patient seeking care and further regulation in the area could help, Gelburd said.

Regardless, providers will likely view with frustration any regulations that increase their reporting and paperwork burdens, she said.

“I think the efficacy of pricing transparency and reducing healthcare costs, the jury is still out on that,” she said. “But if you have that onerous administrative requirement, that’s certainly going to drive up costs for those practices, especially those smaller practices.”

Payer lobby America’s Health Insurance Plans was quick to voice its opposition to the order.

CEO Matt Eyles said in a statement disclosing privately negotiated rates would “reduce incentives to offer lower rates, creating a floor — not a ceiling — for the prices that hospitals would be willing to accept.” He argued that current tools payers use to inform patients of cost expectations, such as cost calculators, are already offering meaningful help.

AHIP also said the order works against the industry’s efforts to shift to paying for quality instead of quantity. “Requiring price disclosure for thousands of hospital items, services and procedures perpetuates the old days of the American health care system paying for volume over value,” he said. “We know that is a formula for higher costs and worse care for everyone.”

Limited effects

One potential effect of making rates public is that prices would eventually trend toward equalization. That wouldn’t necessarily reduce costs, however, and could actually increase them for some patients. A payer able to negotiate a favorable rate for a specific patient population in a specific geographic area might lose that advantage, for example, Christopher Holt, director of healthcare policy at the conservative leaning American Action Forum, told Healthcare Dive.

John Nicolaou of PA Consulting told Healthcare Dive consumers will need help deciphering whatever information is made available however. Reams of data could offer the average patient little to no insight without payer or third-party tools to analyze and understand the information.

“It starts the process, just publishing that information and just making it available,” he said. “It’s got to be consumable and actionable, and that’s going to take a lot more time.”

The order does require the information being made public be “easy-to-understand” and able to “meaningfully inform patients’ decision making and allow patients to compare prices across hospitals.” That’s far easier said than done, however, Harvard’s Mehrotra said. “We haven’t seen anybody able to put this information in a usable way that patients are able to effectively act upon,” he said.

Holt said patients are also limited in their ability to shop around for healthcare, considering they often have little choice in what insurance company they use. People with employer-based plans typically don’t have the option to switch, and those in the individual market can only do so once a year.

Another aspect to consider is the limited reach of the federal government. CMS can require providers and payers in the Medicare Advantage program, for example, to meet price transparency requirements, but much of the licensing and regulations for payer and providers comes at the state level.

Waiting for details, lawsuits

One of the biggest questions for payers and providers in the wake of Monday’s announcement is how far exactly the rulemaking from HHS will go in mandating transparency. One one end, the requirements could stick close to giving patients information about their expected out-of-pocket costs without revealing the details of payer-provider negotiations. Full transparency, on the other hand, would mean publishing the now-secret negotiated rates for anyone to see.

“I think it’s the start of a much longer process,” Holt said. “It’s going to depend a lot on how much information is going to be required to be divulged and how that’s going to be collected.”

It’s almost certain that as soon as any concrete efforts at implementation are made, lawsuits will follow.

That’s what happened after Ohio passed a price transparency law in 2015 that required providers give patients information on out-of-pocket costs before a procedure — a proposal the executive order also puts forward.

The law still has not been enforced, as it has been caught up in the courts. The Ohio Hospital Association and Ohio State Medical Association sued over the law, arguing it was too vague and could lead to a delay in patient care.

 

The Lessons of Washington State’s Watered Down ‘Public Option’

Jay Inslee, the governor of Washington, signing a measure in May that puts the state on track to create the nation’s first “public option” health insurance.

Jay Inslee, the governor of Washington, signing a measure in May that puts the state on track to create the nation’s first “public option” health insurance.

A big health care experiment for Democrats shows how fiercely doctors and hospitals will fight.

For those who dream of universal health care, Washington State looks like a pioneer. As Gov. Jay Inslee pointed out in the first Democratic presidential debate on Wednesday, his state has created the country’s first “public option” — a government-run health plan that would compete with private insurance.

Ten years ago, the idea of a public option was so contentious that Obamacare became law only after the concept was discarded. Now it’s gaining support again, particularly among Democratic candidates like Joe Biden who see it as a more moderate alternative to a Bernie Sanders-style “Medicare for all.”

New Mexico and Colorado are exploring whether they can move faster than Congress and also introduce state-level, public health coverage open to all residents.

But a closer look at the Washington public option signed into law last month, and how it was watered down for passage, is a reminder of why the idea ultimately failed to make it into the Affordable Care Act and gives a preview of the tricky politics of extending the government’s reach into health care.

On one level, the law is a big milestone. It allows the state to regulate some health care prices, a crucial feature of congressional public option and single-payer plans.

But the law also made big compromises that experts say will make it less powerful. To gain enough political support to pass, health care prices were set significantly higher than drafters originally hoped.

“It started out as a very aggressive effort to push down prices to Medicare levels, and ended up something quite a bit more modest,” said Larry Levitt, senior vice president for health reform at the Kaiser Family Foundation.

So while Washington is on track to have a public option soon, it may not deliver the steep premium cuts that supporters want. The state estimates that individual market premiums will fall 5 percent to 10 percent when the new public plan begins.

“This bill is important, but it’s also relatively modest,” said David Frockt, the state senator who sponsored the bill. “When I see candidates talking about the public option, I don’t think they’re really grasping the level of opposition they’re going to face.”

During the Affordable Care Act debate, more liberal Democrats hoped a public option would reduce the uninsured rate by offering lower premiums and putting competitive pressure on private plans to do the same. President Obama backed it, saying in 2009 that such a policy would “keep the private sector honest.”

The public option came under fierce attack from the health care industry. Private health plans in particular did not look forward to competing against a new public insurer that offered lower rates, and fought against a government-run plan that they said “would significantly disrupt the coverage that people currently rely on.” The policy narrowly fell out of the health care law but never left the policy debate.

Congressional Democrats have started to revisit the idea in the past year, with health care as a top policy issue in the 2018 midterm elections.

“During the midterm elections, Medicare for all was gaining a lot of traction,” said Eileen Cody, the Washington state legislator who introduced the first version of the public option bill. “After the election, we had to decide, what do we want to do about it?”

Ms. Cody introduced a bill in January to create a public option that would pay hospitals and doctors the same prices as Medicare does, which is also how many congressional public option proposals would set fees. The Washington State Health Benefit Exchange, the marketplace that manages individual Affordable Care Act plans, estimates that private plans currently pay 174 percent of Medicare fees, making the proposed rates a steep payment cut.

“I felt that capping the rates was very important,” Ms. Cody said.“If we didn’t start somewhere, then the rates were going to keep going up.”

Doctors and hospitals in Washington lobbied against the rate regulation, arguing that they rely on private insurers’ higher payment rates to keep their doors open while still accepting patients from Medicaid, the public plan that covers lower-income Americans and generally pays lower rates.

“Politically, we were trying to be in every conversation,” says Jennifer Hanscom, executive director of the Washington State Medical Association, which lobbies on behalf of doctors. “We were trying to be in the room, saying rate setting doesn’t work for us — let’s consider some other options. As soon as it was put in the bill, that’s where our opposition started to solidify.”

Legislators were in a policy bind. The whole point of the public option was to reduce premiums by cutting health care prices. But if they cut the prices too much, they risked a revolt. Doctors and hospitals could snub the new plan, declining to participate in the network.

“The whole debate was about the rate mechanism,” said Mr. Frockt, the state senator. “With the original bill, with Medicare rates, there was strong opposition from all quarters. The insurers, the hospitals, the doctors, everybody.”

Mr. Frockt and his colleagues ultimately raised the fees for the public option up to 160 percent of Medicare rates.

“I don’t think the bill would have passed at Medicare rates,” Mr. Frockt said. “I think having the Medicare-plus rates was crucial to getting the final few votes.”

Other elements of the Washington State plan could further weaken the public option. Instead of starting an insurance company from scratch, the state decided to contract with private insurers to run the day-to-day operations of the new plan.

“It would have cost the state hundreds of millions of dollars just to operate the plan,” said Jason McGill, who recently served as a senior health policy adviser to Mr. Inslee. He noted that insurers were required to maintain large financial reserves, to ensure they don’t go bankrupt if a few patients have especially costly medical bills.

“Why would we do that when there are already insurers that do that? It just didn’t make financial sense. It may one day, and we’ll stay on top of this, but we’re not willing to totally mothball the health care system quite yet.”

Hospitals and doctors will also get to decide whether to participate in the new plan, which pays lower prices than private competitors. The state decided to make participation voluntary, although state officials say they will consider revisiting that if they’re unable to build a strong network of health care providers.

Most federal versions of the public option would give patients access to Medicare’s expansive network of doctors and hospitals.

Although Mr. Frockt is proud of the new bill, he’s also measured in describing how it will affect his state’s residents. After going through the process of passing the country’s first public option, he’s cautious in his expectations for what a future president and Democratic Congress might be able to achieve. But he does have a clearer sense of what the debate will be like, and where it will focus.

“This is a core debate in the Democratic Party: Do we build on the current system, or do we move to a universal system and how do we get there?” he said. “I think the rate-setting issue is going to be vital. It’s what this is all about.”