The market designed to create competition for biologics — typically our most expensive drugs — has been slow to take off, but some experts say that even its best-case scenario doesn’t do enough to lower drug prices.
Why it matters: While wonks debate the future of biosimilars in policy journals and on editorial pages, the argument is reflected in the political divide over whether enhanced drug competition or price regulation is the best way to address drug prices.
https://www.axios.com/the-provider-lobby-takes-on-congress-57d2acc6-b26b-4b57-aa64-a75606e612b8.html
Ending surprise medical bills inspires bipartisan kumbaya in a way nearly unheard of these days, and yet a brutal lobbying and public relations blitz by doctor and hospital groups is threatening to kill the entire effort.
Driving the news: Provider-backed groups are spending millions of dollars to sway lawmakers and the public opinion against Congress’s efforts to ban surprise billing, according to a handful of recent reports.
As the popularity of programs such as Medicare Advantage grows, it’s important to understand the spending ramifications and whether the program is yielding any savings for taxpayers.
More and more seniors are choosing coverage options outside of traditional Medicare. Together, Medicare Advantage and the Medicare Shared Savings Program cover about half of all Medicare beneficiaries. In a six-year period, Medicare Advantage alone grew by 57% and as of 2018 covered nearly 20 million seniors.
Medicare Advantage allows private insurers to contract with the federal government to care for eligible Medicare beneficiaries. Private plans receive a fixed payment — typically a per member, per month allotment — to coordinate care for beneficiaries who choose MA plans.
It’s these “predictable” payments that allow MA plans to invest in unconventional coverage options such as meal delivery and transportation to appointments, the authors said.
But despite the program’s popularity, it’s not yielding the savings that was originally expected.
“When a beneficiary joins MA, Medicare spends more, on average, than it would have if the patient had remained in traditional Medicare. We find the opposite in the MSSP: When a patient joins the Medicare ACO program, Medicare costs fall,” according to Health Affairs.
There are also differences between the two programs that should be fixed, the authors said.
The MSSP is only punitive, which is not true for the star-rating program for MA. One way to achieve a more equitable ratings system is to “radically” reduce the number of quality measures, which have become a burden for physicians, the authors said.
“We propose limiting quality measurement to five measures that are outcome oriented: hospital and ER use, patient satisfaction, and diabetes A1c and blood pressure control.”
It’s also important to find a risk adjustment model that can be used for both MA and MSSP populations, the authors said.
CMS has committed itself to reducing the amount of burden on payers and providers, and paring down quality ratings overhead is a key part of that. The agency’s removed a number of measures across its reporting programs in 2018 as part of its “Meaningful Measures” initiative, and is currently looking at others in MSSP, MA and the Merit-based Incentive Payment System.
https://www.kff.org/medicare/issue-brief/the-facts-on-medicare-spending-and-financing/
Figure 7: Sources of Medicare Revenue, 2018
Medicare, the federal health insurance program for more than 60 million people ages 65 and over and younger people with long-term disabilities, helps to pay for hospital and physician visits, prescription drugs, and other acute and post-acute care services. This issue brief includes the most recent historical and projected Medicare spending data published in the 2019 annual report of the Boards of Medicare Trustees from the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary (OACT) and the 2019 Medicare baseline and projections from the Congressional Budget Office (CBO).
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Medicare plays a major role in the health care system, accounting for 20 percent of total national health spending in 2017, 30 percent of spending on retail sales of prescription drugs, 25 percent of spending on hospital care, and 23 percent of spending on physician services. In 2018, Medicare spending (net of income from premiums and other offsetting receipts) totaled $605 billion, accounting for 15 percent of the federal budget (Figure 1).
Figure 1: Medicare as a Share of the Federal Budget, 2018
In 2018, Medicare benefit payments totaled $731 billion, up from $462 billion in 2008 (Figure 2) (these amounts do not net out premiums and other offsetting receipts). While benefit payments for each part of Medicare (A, B, and D) increased in dollar terms over these years, the share of total benefit payments represented by each part changed. Spending on Part A benefits (mainly hospital inpatient services) decreased from 50 percent to 41 percent, spending on Part B benefits (mainly physician services and hospital outpatient services) increased from 39 percent to 46 percent, and spending on Part D prescription drug benefits increased from 11 percent to 13 percent.
Figure 2: Medicare Benefit Payments for Part A, B, and D, 2008 and 2018
Another notable change in Medicare spending in the past 10 years is the increase in payments to Medicare Advantage plans, which are private health plans that cover all Part A and Part B benefits, and typically also Part D benefits. As a percent of total Medicare benefit spending, payments for Part A and Part B benefits covered by Medicare Advantage plans increased by nearly 50 percent between 2008 and 2018, from 21 percent ($99 billion) to 32 percent ($232 billion), as private plan enrollment grew steadily over these years (Figure 3). In 2018, 34 percent of Medicare beneficiaries were enrolled in Medicare Advantage plans, up from 22 percent in 2008.
Figure 3: Medicare Benefit Payments for Traditional Medicare and Medicare Advantage, 2008-2018
The overall cost of administering benefits for traditional Medicare is relatively low. In 2018, administrative expenses for traditional Medicare (plus CMS administration and oversight of Part D) were 1.3 percent of total program spending; this includes expenses for the contractors that process claims submitted by beneficiaries in traditional Medicare and their providers. This estimate does not include insurers’ costs of administering private Medicare Advantage and Part D drug plans, which are considerably higher. Medicare’s actuaries estimate that insurers’ administrative expenses and profits for Part D plans were 10.7 percent of total plan benefit payments in 2018. The actuaries have not provided a comparable estimate for Medicare Advantage plans; however, according to a recent analysis, simple loss ratios (medical expenses as a share of total premiums collected) averaged 86 percent for Medicare Advantage plans in 2018, which means that administrative expenses, including profits, were 14 percent for Medicare Advantage plans.
There has been a notable reduction in the growth of Medicare spending in recent years, compared to prior decades, both overall and per beneficiary.
Figure 4: Actual and Projected Average Annual Growth Rates in Medicare and Private Health Insurance Spending, 1990-2028
Figure 5: Actual and Projected Average Annual Growth in Medicare Beneficiary Costs for Part A, Part B, and Part D, 1990-2028
Slower growth in Medicare spending in recent years can be attributed in part to policy changes adopted as part of the Affordable Care Act (ACA) and the Budget Control Act of 2011 (BCA). The ACA included reductions in Medicare payments to plans and providers, increased revenues, and introduced delivery system reforms that aimed to improve efficiency and quality of patient care and reduce costs, including accountable care organizations (ACOs), medical homes, bundled payments, and value-based purchasing initiatives. The BCA lowered Medicare spending through sequestration that reduced payments to providers and plans by 2 percent beginning in 2013.
In addition, although Medicare enrollment has been growing between 2 percent and 3 percent annually for several years with the aging of the baby boom generation, the influx of younger, healthier beneficiaries has contributed to lower per capita spending and a slower rate of growth in overall program spending.
Prior to 2010, per enrollee spending growth rates were comparable for Medicare and private health insurance. With the recent slowdown in the growth of Medicare spending and the recent expansion of private health insurance through the ACA, however, the difference in growth rates between Medicare and private health insurance spending per enrollee has widened.
While Medicare spending is expected to continue to grow more slowly in the future compared to long-term historical trends, Medicare’s actuaries project that future spending growth will increase at a faster rate than in recent years, in part due to growing enrollment in Medicare related to the aging of the population, increased use of services and intensity of care, and rising health care prices.
Looking ahead, CBO projects Medicare spending will double over the next 10 years, measured both in total and net of income from premiums and other offsetting receipts. CBO projects net Medicare spending to increase from $630 billion in 2019 to $1.3 trillion in 2029 (Figure 6). Between 2019 and 2029, net Medicare spending is also projected to grow as a share of the federal budget—from 14.3 percent to 18.3 percent—and the nation’s economy—from 3.0 percent to 4.1 percent of gross domestic product (GDP).
Figure 6: Actual and Projected Net Medicare Spending, 2010-2029
Over the longer term (that is, beyond the next 10 years), both CBO and OACT expect Medicare spending to rise more rapidly than GDP due to a number of factors, including the aging of the population and faster growth in health care costs than growth in the economy on a per capita basis. According to CBO’s most recent long-term projections, net Medicare spending will grow from 3.0 percent of GDP in 2019 to 6.0 percent in 2049.
Over the next 30 years, CBO projects that “excess” health care cost growth—defined as the extent to which the growth of health care costs per beneficiary, adjusted for demographic changes, exceeds the per person growth of potential GDP (the maximum sustainable output of the economy)—will account for half of the increase in spending on the nation’s major health care programs (Medicare, Medicaid, and subsidies for ACA Marketplace coverage), and the aging of the population will account for the other half.
Medicare is funded primarily from general revenues (43 percent), payroll taxes (36 percent), and beneficiary premiums (15 percent) (Figure 7).
Figure 7: Sources of Medicare Revenue, 2018
Medicare’s financial condition can be assessed in different ways, including comparing various measures of Medicare spending—overall or per capita—to other spending measures, such as Medicare spending as a share of the federal budget or as a share of GDP, as discussed above, and estimating the solvency of the Medicare Hospital Insurance (Part A) trust fund.
The solvency of the Medicare Hospital Insurance trust fund, out of which Part A benefits are paid, is one way of measuring Medicare’s financial status, though because it only focuses on the status of Part A, it does not present a complete picture of total program spending. The solvency of Medicare in this context is measured by the level of assets in the Part A trust fund. In years when annual income to the trust fund exceeds benefits spending, the asset level increases, and when annual spending exceeds income, the asset level decreases. When spending exceeds income and the assets are fully depleted, Medicare will not have sufficient funds to pay all Part A benefits.
Each year, Medicare’s actuaries provide an estimate of the year when the asset level is projected to be fully depleted. In the 2019 Medicare Trustees report, the actuaries projected that the Part A trust fund will be depleted in 2026, the same year as their 2018 projection and three years earlier than their 2017 projection (Figure 8). The actuaries estimate that Medicare will be able to cover 89 percent of Part A costs from payroll tax revenue in 2026.
Figure 8: Figure 8: Solvency Projections of the Medicare Part A Trust Fund, 2005-2019
In the 2018 and 2019 Medicare Trustees reports, the actuaries attributed the earlier depletion date to several factors, including legislative changes enacted since the 2017 report that will reduce revenues to the Part A trust fund and increase Part A spending:
In general, Part A trust fund solvency is also affected by the level of growth in the economy, which affects Medicare’s revenue from payroll tax contributions, by overall health care spending trends, and by demographic trends—of note, an increasing number of beneficiaries, especially between 2010 and 2030 when the baby boom generation reaches Medicare eligibility age, and a declining ratio of workers per beneficiary making payroll tax contributions.
Part B and Part D do not have financing challenges similar to Part A, because both are funded by beneficiary premiums and general revenues that are set annually to match expected outlays. Expected future increases in spending under Part B and Part D, however, will require increases in general revenue funding and higher premiums paid by beneficiaries.
Although Medicare spending is on a slower upward trajectory now than in past decades, total and per capita annual growth rates are trending higher than their historically low levels of the past few years. The aging of the population, growth in Medicare enrollment due to the baby boom generation reaching the age of eligibility, and increases in per capita health care costs are leading to growth in overall Medicare spending. At the same time, recent legislative changes, including repeal of the ACA’s individual mandate and repealing IPAB, have worsened the short-term outlook for the Medicare Part A trust fund and have led to projections of higher Medicare spending in the future.
A number of changes to Medicare have been proposed in the past to address the fiscal challenges posed by the aging of the population and rising health care costs. Lately, policymakers have been focused more narrowly on policy options to control Medicare prescription drug spending, rather than on broader proposals to reduce the growth in Medicare spending. And there has been little discussion of revenue options that could be considered to help finance care for Medicare’s growing and aging population, including raising the Medicare payroll tax or increasing other existing taxes. Meanwhile, Medicare has featured prominently in the 2020 presidential campaign, with proposals from some Democratic candidates to expand on it as part of a Medicare-for-all plan, and ideas from others to allow people to buy into it.
The prospects for proposals that would affect Medicare’s financial outlook are unknown, but they will require careful deliberation over the effects on not only the program’s finances but also its growing number of beneficiaries.
The White House is considering a payroll tax cut, President Donald Trump confirmed Aug. 20, according to The Washington Post.
The president’s confirmation comes after the White House disputed that it was considering a payroll tax cut, the Post reported Aug. 19. The tax would help jump-start a slowing economy by giving low- and middle-income Americans more spending power.
However, payroll taxes do help fund Medicare. A cut could significantly handicap that program, which is just seven years away from running dry, depending on how the tax is designed. A payroll tax cut of two percentage points in 2011-12 reduced taxes by more than $100 billion each year, according to The Washington Post. During those years, the Obama administration redirected revenue to Social Security programs and the federal deficit took the hit, according to the report.
Read more here.
https://www.aha.org/news/perspective/2019-08-16-perspective-gearing-busy-september-capitol-hill
Two weeks ago, I wrote about the important role AHA member hospitals and health system leaders play in advocating for the field. This week, I’ll tell you exactly what we’re advocating for when Congress returns in September … and how you can help.
Here’s where things stand: There will be three issues before Congress next month that could greatly affect our field: surprise medical billing, the planned Medicaid disproportionate share hospital cuts and prescription drug pricing.
The AHA and its members strongly support protecting patients from surprise medical bills. However, we have concerns about the proposals in the House Energy & Commerce Committee and the Senate Health, Education, Labor & Pensions Committee, which both contain a rate-setting approach for settling out-of-network claims.
We believe providers and insurers should continue to be permitted to negotiate payment rates for services provided … and we strongly oppose approaches that would impose arbitrary rates on providers. Hospitals and health systems work hard to align physician networks, but we cannot compromise independent physicians’ abilities to negotiate fair contract terms with payers. These approaches would add unnecessary complexity and burden to the system.
On Medicaid DSH, legislators need to act before Oct. 1 or $4 billion in automatic cuts to hospitals and health systems will go into effect. This will be followed by another $8 billion the following year. If these cuts proceed, they will threaten our ability to care for the most vulnerable members of society. The good news is that there’s strong support in the House for preventing these cuts from kicking in: The House Energy and Commerce Committee passed legislation last month that would eliminate the Medicaid DSH cuts for the next two fiscal years and reduce the cuts by half in the following year. So let’s make sure the Senate acts on this.
In addition, on drug pricing, legislators recognize that skyrocketing drug prices — as well as shortages for many critical medicines — are hurting patients and the hospitals and health systems that care for them each day. The Senate Finance Committee has taken an important step forward by advancing a drug pricing package to the full Senate. More work needs to be done, though … especially in the House.
Here’s where you come in: Your legislators need to hear from you. Urge them to protect patients while rejecting proposals such as rate-setting or setting a “reference” or “benchmark” price. Keep encouraging them to prevent the Medicaid DSH cuts from kicking in so we can make sure the most vulnerable can access care. And tell them how important it is to rein in the skyrocketing costs of prescription drugs.
You can read our latest Action Alert here, which includes key resources for talking with your legislators over the congressional recess.
On Sept. 10, we’re holding an advocacy day on Capitol Hill … so please make plans to join us if you can and add your voice to those of your colleagues.
At the same time, as we all know, the recent tragic events in El Paso, Dayton and Gilroy have increased the focus on addressing gun violence. Be certain: We will continue to give voice to the fact that violence is a serious health problem, as hospitals and health systems are on the front lines of taking care of the victims and serving their communities. Beyond supporting research and education and highlighting the innovative actions taken by our members to address all forms of community violence, we’ll also continue to closely monitor evolving efforts to develop bipartisan, consensus legislation in regard to more specific approaches to address this serious problem.
You are leaders in your communities. You are the experts on health care. And when you speak up, your senators and representatives listen. Together, it’s time to engage with them so we can ensure every hospital and health system has the tools they need to always be there, ready to care.
A legal fight is looming over a Trump administration proposal that would require hospitals to list their standard prices for medical services and their negotiated rates with insurance companies—prices some believe are proprietary.
Hospital and insurance groups are likely to sue if the administration moves forward with a final rule, and the litigation could raise thorny legal questions about a company’s right to be competitive and a patient’s right to make informed health-care choices.
One way hospitals and insurance groups may try to fight the rule is by claiming their negotiated prices are trade secrets, health attorneys say.
“We’ve been looking in our research group at whether health-care prices can be trade secrets, and the law is very unsettled on this issue,” said Jaime King, associate dean and professor of law at the University of California Hastings College of Law in San Francisco.
The Centers for Medicare & Medicaid Services issued the proposed rule July 29 as part of a Trump administration push to make health-care costs more transparent.
It would require hospitals to list their standard prices and what individual insurers have agreed to pay for 70 “shoppable” medical services—like psychotherapy, blood tests, MRIs and ultrasounds—that can be scheduled in advance.
The government’s goal is to give consumers the information they need to compare what hospitals charge for similar services and to help them understand their potential financial liability for services they obtain at the hospital. Hospitals that fail to comply would be fined.
Listing the negotiated price an insurance company will pay on a patient’s behalf will show consumers how effective different health insurers are at negotiating lower out-of-pocket costs, attorneys say.
“We believe that this, in turn, will enable health-care consumers to make more informed decisions, increase market competition, and ultimately drive down the cost of health-care services, making them more affordable for all patients,” the CMS said in its proposal.
The American Hospital Association was quick to object, contending in a prepared statement that the plan “exceeds the administration’s legal authority.” If the proposal is finalized, the trade group said it would look at its legal options.
“I think it’s reasonable for hospital groups to be looking at potential challenges if the rule is finalized as proposed,” said Philo Hall, senior counsel in Epstein, Becker and Green LLP’s health-care and life sciences practice.
The Affordable Care Act amended the Public Health Service Act by requiring hospitals to make public their “standard prices” for items and services. Attorneys say the CMS is now interpreting standard prices to also include the privately negotiated rates for each individual insurer.
But neither Congress, the Department of Health and Human Services, nor hospital groups have ever considered the standard prices provision in the ACA to include commercial and financial information that is treated as confidential in a highly competitive industry, said Hall. Hall served as counsel to the George W. Bush administration’s HHS Secretary Michael Leavitt and worked closely in that role with Alex Azar, the current HHS chief.
“The concern that the government is overstepping is not frivolous,” said Michael Adelberg, a former senior CMS official who now leads the health-care strategy practice of the Faegre, Baker, Daniels Consulting.
“I don’t know if you can say to two entities ‘You can engage in a contract in a competitive market, but the most important terms of that contract are public,’” he said. “I don’t know if you can do that.”
In a statement, America’s Health Insurance Plans said the CMS proposal would make it harder for insurance companies to bargain for lower rates. The group said even the Federal Trade Commission agrees that making hospitals disclose their privately negotiated rates would create a floor—not a ceiling—for what hospitals would be willing to accept.
When the HHS Office of the National Coordinator for Health Information Technology indicated in a proposal that it was considering adding network discounts and pricing data to the definition of electronic health information, UnitedHealth Group told the agency the details of the negotiated rates and the overall cost of its networks is a trade secret.
“Although federal courts have upheld regulations compelling the disclosure of Medicare cost report information, there is a significant difference between government payment information held by the government and the internal, proprietary information that the proposed regulation would compel UHC to disclose,” the insurance company said in comments in June.
The CMS proposal is similar to an HHS rule that would have required pharmaceutical companies to disclose the list price of their drugs in TV advertisements. A federal district court judge in July said the rule exceeded the administration’s regulatory authority and blocked it from taking effect.
In the drug pricing rule, the agency pointed to two provisions in the Social Security Act that tell the HHS secretary to make rules necessary for the “efficient administration of the Medicare and Medicaid program” as the source of authority.
But the U.S. District Court for the District of Columbia said there’s nothing in the law’s text, structure, or context to indicate Congress intended to give the HHS the power to issue a rule that forces drugmakers to disclose their list prices.
Attorneys say the agency’s authority to issue the hospital pricing rule is more explicit in the ACA.
“In this case, we have a different statutory provision that delegates the agency with a more specific task,” a former HHS attorney, who asked not to be identified, said in a conversation with Bloomberg Law.
“We’re not talking about a general statute concerning the efficient administration of the Medicare program to drug companies,” the former HHS attorney said. “We’re talking about an explicit statutory provision that directs the agency to require federally funded hospitals to disclose their ‘standard charges.’”
On that, the former HHS attorney said, the CMS could prevail. But it depends on how the agency defines “standard charges.” The agency could ultimately decide not to include negotiated rates after it considers the public comments.
In a statement, the CMS said its proposal is consistent with the ACA and responsive to patients and their advocates who say knowledge of negotiated rates is necessary for individuals to be able to determine their out-of-pocket costs for hospital services.
“All Americans have the right to know the price of their health care up front,” an agency spokesperson said. “Health-care prices shouldn’t be a mystery and consumers will be able to shop for health care just like they do for everything else they buy.”
Hospitals that care for a large share of Medicaid, low-income and uninsured patients stand to receive less funding from the federal government after the D.C. Circuit reconsidered how Medicaid disproportionate-share hospital reimbursement is calculated.
A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit reversed a lower court and reinstated a 2017 rule establishing that payments by Medicare and private insurers are to be included in calculating a hospital’s DSH limit, ultimately lowering its maximum reimbursement.
“By requiring the inclusion of payments by Medicare and private insurers, the 2017 rule ensures that DSH payments will go to hospitals that have been compensated least and are thus most in need,” Henderson wrote.
The case, brought by four children’s hospitals in Minnesota, Virginia and Washington and an association representing eight children’s hospitals in Texas, concerns the calculation of the uncompensated costs of treating Medicaid beneficiaries known as the “Medicaid shortfall.”
For instance, if a hospital spends $1 million on treating Medicaid patients who have no other healthcare coverage and Medicaid pays $600,000, then the Medicaid shortfall is $400,000. In some instances, Medicaid patients have additional third-party coverage such as Medicare or private insurance.
Hospitals cannot receive more money in Medicaid DSH payments than they spent to treat Medicaid beneficiaries or the uninsured. Part of the motivation behind that stipulation was to prevent hospitals from double dipping by collecting DSH payments to cover costs that had already been reimbursed. Previous cases also revealed that some states have made DSH payments to state psychiatric or university hospitals that exceed the net costs, or even total costs, of operating the facilities.
Providers successfully fought the 2017 rule that limited hospitals’ reimbursement. A federal judge sided with the hospitals that claimed the CMS overstepped its authority and essentially ignored payments by commercial insurers and Medicare. That was overturned Tuesday.
The Children’s Hospital Association of Texas said in a statement that it is exploring its options.
“We are disappointed with the result because it will reduce critical Medicaid funding to safety net providers like children’s hospitals,” the association said. “These hospitals are heavily reliant on Medicaid payments because between 50% and 80% of their inpatient days are covered by Medicaid. Children’s hospitals care for all children, and are, in fact, often the only place that children with complex conditions can get life-saving care.”
HENRY KOTULA 