Month: July 2015

Bundled Payments Should Focus on the Most Complex Patients First

The healthcare payment landscape, which is more accurately described as a sobering wasteland of ineffective status quo arrangements and failed attempts at reform, has heralded a winner in the form of bundled payments. These are lump sums given to acute and post-acute providers to cover the costs of care across the continuum in one bucket, from which providers will share in savings that are supposed to derive from more effective and lower-cost care.

The Center for Medicare and Medicaid Innovation (CMMI) is working hard to spread the model across the nation, in accord with its stated goal to tie 90 percent of reimbursements to quality or value by 2018. Earlier this month, CMMI announced proposed rules that would require hospitals in 80 geographic areas to participate in 5-year bundled payment demonstrations for knee and hip replacements. These rules concern almost all hospitals – not just the hospitals that are already confident in their abilities to manage cost and quality under value-based arrangements.

Such a program has the potential to catalyze real change. CMMI, and its talented and ambitious people, should be commended for “walking the talk” and pushing the agenda forward on value, quality and incentives. Requiring broad hospital participation in a new model of care financing and delivery is never easy and rarely popular, but it is an effective means to an important end. That CMMI is willing to go out on such a limb for a new idea suggests that bundled payments are showing real promise.

Michael E. Porter, the Harvard Business School professor who developed the Five Forces framework back in the late 70s, has explored the concept of value in healthcare in books and papers over the past decade. Earlier this year, he and co-author Robert S. Kaplan explained in a working paper how bundled payments will transform healthcare financing and delivery. The lengthy, well-written treatise defines bundled payments and outlines a sensible playbook for implementation. One contention warrants further examination, however:

“Eventually, value-based bundles should be fully risk adjusted for the variations in outcomes and costs caused by co-morbidities, such as diabetes and cardiac conditions, and patient risk factors, such as age and obesity. At present, we often lack sufficient data and experience to do so, but limiting bundles to less complex patients and other practical steps can allow widespread introduction of bundles as risk adjustment improves.”

I have doubts that limiting bundles to less complex patients is the right way to improve quality and reduce costs of care in places where those results are most needed. Provider groups that are participating in bundled payment initiatives are focusing on high-volume procedures for which a high degree of coordination with post-acute providers already exists. An analysis from Thomas Tsai and colleagues at the Harvard School of Public Health found the following:

“Postacute care explains the largest variation in overall episode-based spending, signaling an opportunity to align incentives across providers. However, the focus on a few selected clinical conditions and the high degree of integration that already exists between enrolled hospitals and postacute care providers may limit the generalizability of bundled payment across the Medicare system.”

It seems that most of the bundled payment action involves providers who are already delivering highly-standardized, tightly-integrated care across the continuum for patients undergoing high-volume and high-cost procedures. While the CMMI proposed rules will rapidly expand bundled payments beyond these blue chip healthcare systems, the demonstration is still limited to 90-day episodes of care that start with a knee or hip replacement in an acute care setting.

Although it is good that providers are being rewarded for their efforts to create more effective processes and better outcomes for important procedures, one wonders to what degree the benefits of the bundled payment program will reach patients who have different healthcare needs, such as diabetes or heart failure, that cannot be measured in discrete episodes of care and might involve numerous providers beyond the primary, acute, and post-acute care continuum.

These chronically ill patients are major drivers of healthcare costs. Analysis of the 2009 Medical Expenditure Panel Survey indicates that the highest-spending one percent of patients accounts for almost a quarter of healthcare spending and that the five percent of highest-spending patients account for almost half of spending.

With such high concentration of health costs and consequences among few patients, should we not focus our efforts on the most complex and sick patients first if we want to make the greatest impact on overall cost and quality? I believe we should.

Setting the expectation for providers and payers that the highest-cost and most-complex patients are the right pilot population for bundled payments will compel more rapid adoption and use of care coordinators, community health workers, and other emerging approaches to patient support. The focus would be set on preventing health events and readmissions concerning the patient who has four chronic diseases, sees six different providers, takes eight medications and lacks access to convenient transportation.

Under the current bundled payment programs, providers are spending more energy ensuring that the cost of elective orthopedic procedures and post-acute rehabilitation doesn’t deviate too much from a target price. It’s a nice goal, but it does not address the larger challenge in healthcare.

This reasoning applies to healthcare provider incentive programs far beyond bundled payments including pay-for-performance. As Richard Fuller and Norbert Goldfield, researchers in 3M’s Clinical and Economic Research unit write: “Exclusion from incentive programs may remove [complex, high-needs] patient populations from the radar of cost-cutting administrators but will also ensure that attempts to improve their care will not be a top priority.”

Including the toughest patients first in bundled arrangement is not the path that will make most providers shimmer like stars, but sometimes the band aid has to be ripped off all at once to see who steps up to embrace complexity and lead real change.

In the second part of this post, I will present a modest proposal for a different kind of bundled payment – one that prioritizes and meets the needs of complex patients with chronic disease.

King v. Burwell: A Victory for the Affordable Care Act

This blog post was co-authored with Anina Oliver and Alyssa Kennedy for the “Wonk Tank” blog of the Wharton Public Policy Initiative (PPI) at the Wharton School of the University of Pennsylvania.
In late June, the Supreme Court made a 6-3 decision in the King v. Burwell case, which upheld health insurance subsidies provided to low- and middle-income people in the 34 states where the federal government operates the insurance exchanges under the Affordable Care Act (ACA).  As previously mentioned in The Health, Education, and Welfare branch’s review of the case in March, the case centered on whether the federal government had the authority to provide subsidies to help low-income Americans buy health insurance.  The plaintiffs argued that the law as written did not allow for subsidized insurance in the 34 states – representing 8 million enrollees – where the federal government had set up insurance exchanges.  Thus, they contended that the insurance subsidies were only allowed in states that have set up their own insurance exchange by pointing to the clause: “established by the state.”

WHAT WOULD HAPPEN IF THE GOVERNMENT STOPPED OFFERING SUBSIDIES?

RAND researchers found that eliminating tax credits in the 34 states would severely disrupt the overall individual health insurance market. Specifically, eliminating tax credits in all of those states would cause:

  • “Premiums in the individual market to rise 43%”

  • “Enrollment in the individual market to fall by 68%; 70% among adults ages 18–34”

  • “More than 11 million Americans to become uninsured”

[RAND’s findings]

They also found that by eliminating subsidies in federally facilitated insurance exchanges (FFM):

  • “Premiums in the individual market in FFM states would rise 47%”

  • “Enrollment in the individual market in FFM states would fall by 70%”

  • “About 8 million Americans would become uninsured”

[RAND’s findings]

Ultimately these subsidies, in the form of tax credits, allow many Americans to be able to afford health insurance so that the overall individual insurance market is secured from falling into a “death spiral.” Therefore, if these subsidies were eliminated not only would millions of people not be able to afford health insurance, but also the insurance market would have begun to fall into severe financial jeopardy. President Obama and Congress would then have had to scramble to find a quick solution to prevent such a catastrophe.

REVIEW OF THE COURT’S DECISION

In the Opinion of the Court, Chief Justice Roberts first discusses three core reforms of the ACA (insurance regulation in the form of guaranteed issue and community rating requirements, an individual mandate, and tax credits to individuals) and the critical importance that all three are being upheld to maintain the integrity of the Act. King et al. argue that the Act states that an individual may be eligible for a tax credit if he is enrolled in an insurance plan through “an Exchange established by the State”, meaning that subsidies should not be available to individuals who gain insurance through federally run exchanges. The Government rebuts that this phrase should be read to include federal exchanges.

Roberts continues that when judging an agency’s interpretation of a law, the Justices applied the two-step framework utilized in Chevron U.S.A., Inc. v. NRDC. First, they examine whether the statute is ambiguous; then, they determine if the agency’s interpretation of the statute is reasonable. But, Roberts quotes from FDA v. Brown & Williamson Tobacco Corp, “In extraordinary cases, however, there may be reason to hesitate before concluding that Congress has intended such an implicit delegation.”And Roberts states that King v. Burwell is such a case. Tax credits are a core reform of the ACA, involve billions of dollars, and affect the price of health insurance for millions of people. He states that had Congress intended to delegate the role of determining whether or not users of federal exchanges can qualify for tax credit to an agency, they would have expressly named one. Thus, it follows that the Supreme Court must determine the true intent of the law.

Section 36B of the Internal Revenue Code concerns refundable credit for coverage under a qualified health plan. It allows an individual to receive tax credits to buy an insurance plan exclusively if the individuals enrolls in a plan through “an Exchange established by the State under [42 U.S.C. Section 18031].” Thus, he outlines that three things must be true: first, that the individual must enroll in an insurance plan through an exchange; second, that the exchange must be established by the State; and third, that exchange must be established under [42 U.S.C. Section 18031]. The controversy is surrounding the second requirement, which Roberts posits is not clear when read in the context of the overall Act. Roberts points out two examples in which the Act, if it indeed meant to refer only to an exchange established by the state as a state exchange and not including federal exchanges, would not make sense. Section 18032 defines those who are eligible for health plans through the exchange as “qualified individuals” who “reside in the State that established the Exchange.” If the wording were taken at face value, there would be no qualified individuals on the Federal Exchanges, though, Roberts states, “the Act clearly contemplates that there will be qualified individuals on every Exchange.” Additionally, the Act states that the health plans the exchanges offer should consider “the interests of qualified individuals … in the State or States in which such Exchange operates,” which would be similarly exclusionary of individuals using the federal exchange; Thus, Roberts concludes, “[t]hese provisions suggest that the Act may not always use the phrase ‘established by that State’ in its most natural sense. Thus, the meaning of that phrase may not be as clear as it appears when read out of context.”

Roberts also states that in Section 18041, which that allows the Secretary of Health and Human Services to create “such [an] Exchange” in a state if the state does not create one. This, he says, indicates that state and federal exchangers should be the same. But if only state exchanges benefitted from tax credits, they would be fundamentally different Roberts concludes the Opinion of the Court by asserting that Section 36B is not only ambiguous, and that when considered correctly in the context of the laws, intends that tax credits be able on federal exchanges as well.

Justice Scalia wrote the dissent; in a summary both of this case and the strong tone he uses throughout the dissent, he writes, “the Court’s interpretation clashes with a statutory definition, renders words inoperative in at least seven separate provisions of the Act, overlooks the contrast between provisions that say ‘Exchange’ and those that say ‘Exchange established by the State,’ gives the same phrase one meaning for purposes of tax credits but an entirely different meaning for other purposes, and (let us not forget) contradicts the ordinary meaning of the words Congress used.” Specifically, he disagrees with a number of key points of Roberts’ opinion.

Scalia asserts that federal exchanges established in states that do not form their own can operate without tax credits; unlike Roberts, who states that all three of the main reforms of the ACA must all be upheld in order to increase the number of insured individuals, Scalia posits that guaranteed issue and community rating requirements, and the individual mandate are sufficient. Continuing his spirited criticism of the Opinion of the Court, he states that the phrase “Exchange established by the State” appears seven times of the Act that mentions tax credits, and that it is unlikely that Congress would have mistakenly left out any reference to federal exchange each of the those many times. He states that the Court should have only interpreted the law as written by Congress as opposed to “interpreting” it, and memorably asserts that the Court has effectively rewritten the law to “uphold and assist its favorite” to the extent that it should instead be called “SCOTUScare”. 

THE FUTURE OF HEALTHCARE REFORM 

The King decision affirmed that the ACA is and will continue to be key legislation responsible for advancing and improving the U.S. healthcare system. It even solidified the notion that, as President Obama said, “The Affordable Care Act is here to stay.” Yet, as the U.S. continues forward with the ACA, it is important to realize that the Act is not infallible and there are still important areas of the law and its implementation that need to be changed and revised.

Observers noted that several of the 14 states that established their own exchanges might decide to switch over to the federal exchange. These pioneer states that embraced the law, and its core concept of the transparent insurance exchange, will soon face difficulties in maintaining their exchange websites due to technological complexity and dried up federal and state funding. Now that the potential risk of losing tax credit subsidies for purchasing coverage through the Healthcare.gov exchange has been averted, it might not be as difficult for states like Vermont and Hawaii to make the change from a state-based exchange to a federal one – in essence, outsourcing. Margot Sanger-Katz wrote in the New York Times last month that, “If the court had ruled for the health law’s challengers, we would have seen more states adopting the state-based model to preserve subsidies for their residents. Now that the government has won, movement is likely to be in the other direction.” However, it remains an open question whether switching from a specialized state exchange to a more generic federal one will be so simple.

The ruling has also brought to the fore another decision facing some states: whether or not to expand Medicaid eligibility using federal funding. 19 states, most of which are under Republican leadership, have not moved forwardwith expansion. However, the tide is starting to turn as the ACA gains strength in measurements of both judicial and public opinion. Last month President Obama traveled to Tennessee, a state where, like in many others, hospitals and insurers want Medicaid expansion while the conservative-leaning state legislature and governor are against expansion. The reasons for opposition are a combination of blanket political resistance to the ACA, concerns over long-term budget sustainability, and concerns of diminished state-based autonomy regarding how to provide healthcare for low-income populations.

Even patients who have private insurance will begin to feel the pinch: most insurance companies are requesting double-digit increases in 2016 for individual plans, including those purchased through exchanges, due to higher-than-estimated claims from enrollees under the Affordable Care Act. While supporters of the law applaud the fact that people are making use of their new access to long-needed care, insurance companies will have to make upward premium adjustments that affect all beneficiaries. These premium increases will not help the President’s case as he strives to secure the healthcare cost-reduction legacy of the Affordable Care Act.

These issues with the ACA are important to address as the U.S. continues implementing provisions of the Act and working on reforming our healthcare system for the future. And despite the ACA’s success and future changes, it will continue to face legal challenges and calls for repeal by many of its challengers; it will also continue to be a much discussed and debated piece of legislation in the upcoming 2016 presidential race.