December is always a timely month for making New Year’s predictions, but especially so for health care, given the national debate on health care reform. A recent article by the Medical Group Management Association (MGMA) contained five health care predictions, which not surprisingly form the core of the various health care reform proposals:
1. Health care insurance coverage will be expanded for the uninsured;
2. Providers will be paid less for their services;
3. Business and personal income taxes will increase;
4. The use of health care information technology (HIT) in the form of e-prescribing, electronic medical records (EMR) or electronic health records (EHR) will expand, first through payment incentives and then through mandates;
5. Providers (i.e., hospitals, physicians) will continue to integrate to cope with reimbursement changes such as medical homes, accountable care organizations, bundled payments and global payments (all of which could just be new names for capitated payment systems).
I thought it would be helpful to expound on some of these predictions and relate them to the general health care reform proposals.
All reform proposals include provisions for expanding coverage. However, the issue is more complex than simply expanding coverage for the public assistance component of the population, because it includes provisions that both encourage and require more employer-sponsored health coverage (play or pay) and more individually purchased health coverage (individual mandates) for healthy individuals who can afford the coverage, but who chose not to buy into an insurance pool. On a theoretical basis, this defeats the concept of insurance, which is to spread the risk. For example, state law requires all vehicle owners to purchase insurance; individual mandates are a move toward that concept and an obvious benefit to health insurance companies.
On an individual basis, increased coverage is facilitated either by discouraging insurance company practices that limit availability (i.e., pre-existing conditions, benefit cap) or by providing financial assistance (through premium assistance, tax credits or premium credits) for individuals who cannot afford individual insurance, and by imposing excess taxes on the individuals who can afford insurance but decline to purchase it. On the employer side and the insurance company side, increased coverage is provided either by the “public option” or by requiring the creation of structures intended to make insurance more available and more affordable, such as insurance pools and regional insurance exchanges. The chief opponents of the public option are the more affluent taxpayers who believe they will be taxed to provide for additional benefits and health insurance companies that object to government establishing another competitive insurance entity. The commercial health insurance industry would much prefer the public option to be limited to the Medicaid type programs, but require employers and healthy individuals to purchase insurance from existing providers. As a matter of fact, the healthy individuals who currently decline to purchase insurance would be the absolute best new customers (i.e., premium payers with little in the way of medical expenses).
Industry opponents of the public option claim that competition among the insurance companies will provide the most cost-effective mechanism for increasing coverage and restraining costs. However, health insurance is not like auto insurance. An individual can buy auto insurance online from almost any auto insurance company in the country; when an accident happens, there will be plenty of auto collision repair shops vying for the chance to fix your car and accept the insurance payment from whomever. We in Western Pennsylvania know that won’t work here. All of the major hospitals and many of the regional hospitals are controlled by two systems—UPMC and WPAHS—with UPMC controlling a significant majority of the beds in certain markets. Similarly, thousands of physicians are employed by both institutions. Without the participation of UPMC and WPAHS in a regional insurance exchange, there would simply not be sufficient hospitals or physicians available to other insurance plans to provide medical care on a cost-effective basis. Sure these networks might participate at “charge levels,” but that would not enhance competition. Perhaps, if participation in the regional insurance exchange products was mandatory for all institutions that are either non-profit or that participate in federal health care programs, then the regional insurance exchange idea might work.
A recent article by the Kaiser Foundation indicated that the health care competition is not much more effective in many other states. In nine states, one insurer controlled more than 75 percent of the market. In 39 other states, two insurers controlled at least 50 percent of the market. With concentration of economic power to that extent, solving the health care insurance problem with increased competition would seem unlikely.
Taxes will increase
The current Medicare system is not paying for itself in terms of the premiums covering expenses. It is not difficult to understand why we cannot both increase coverage and decrease costs. Therefore, all of the proposals that provide public options and premium subsidies to increase coverage also contain tax increases on employers and individuals to pay for that coverage.
From the employer’s perspective there would be taxes on excess benefits or Cadillac-type plans, excise taxes on individuals who do not purchase coverage, and limitations on deductions for high benefit health insurance plan premiums.
On an individual basis, marginal income tax rates in the upper brackets would increase, health insurance in excess of certain thresholds would be taxed, funding of flexible spending accounts would be limited and the benefit distributions taxed. In addition, some proposals include fees or excise taxes on pharmaceutical companies, health insurance companies and medical device companies.
Providers will be paid less
All of the plans are chock full of programs to reduce fraud, eliminate waste, increase efficiency and pay for performance. There is a plethora of new commissions, task forces, research centers, pilot programs, national strategies and incentives for compliance effectiveness, all of which are intended to reduce costs and improve efficiency. However, none of these suggestions seriously contemplates that the efficiency increases and cost reductions will offset the contemplated benefit increases.
The Medicare Fee Schedule proposed by CMS for 2010 already contemplates a 21.5 percent decrease in Medicare payments to physicians, which is the statutorily mandated increase imposed by the Sustainable Growth Rate (SGR) formula adopted when RB-RVS was adopted in the early ’90s. I would expect that everybody understands the arithmetic of the contemplated SGR reductions, because this has been an issue for the last six years. SGR is a formula intended to neutralize volume or intensity increases over the intensity that was originally projected as part of the budget process for designing RB-RVS. CMS projected utilization and budgeted to pay for that projected utilization over the period of years. SGR was intended to automatically reduce the Medicare conversion factor if the volume or intensity exceeded those projections. Since intensity has routinely exceeded expectations and the SGR reduction intended to offset those increases has been statutorily waived by Congress for each of the last five or six years, the gap simply continues to grow. Congress is working on a response to this issue independently of the various health care reform proposals, but no solution was in sight at the time of this article. One of the primary reasons the AMA is supporting “reform” is the expectation of a permanent SGR fix, but that issue is still unresolved.
Several things we do know for sure about physician reimbursement in 2010 are as follows:
1. CMS has eliminated the consult billing codes and slightly increased the work relative value units for evaluation and management codes;
2. Starting in January 2012, accreditation will be required for the suppliers of the technical component of advanced diagnostic imaging services, which are currently defined as MRI, CT, nuclear medicine and PET, although CMS retains authority to expand that category;
3. Technical component reimbursement for diagnostic imaging equipment costing more than 1 million dollars will be reduced by almost 50 percent by changing the assumed equipment utilization rate from 50 percent to 95 percent, meaning that the budgeted amount for the technical component will be distributed over almost twice as many procedures, thereby effectively reducing the TC by almost 50 percent;
4. Primary care, ophthalmology, dermatology and geriatrics will see an increase in relative value units for their services, while imaging specialties such as radiology and cardiology will see significant reductions, with nuclear medicine facing a cut of approximately 18 percent.
No discussion of health care reform would be complete without the inclusion of tort reform as an issue. However, we need to remember that these issues are politically linked, but not necessarily financially linked. Tort reform clearly has an impact on the cost of malpractice insurance premiums, as amply demonstrated in the states that have enacted tort reform through some combination of caps on non-economic damages and limitation of plaintiffs’ attorneys fees. However, most studies regarding utilization, including a recent study by the Congressional Budget Office, conclude that tort reform has only a .002 or .003 (.2-.3 percent) impact on utilization. Therefore, although tort reform may indeed be a just concept, it has very little to do with the cost of health care. Note that one health care reform proposal offers federal dollars to states to develop alternative resolution mechanisms so long as they do not adopt damage caps, a concept unlikely to survive constitutional scrutiny pursuant to the Equal Protection Amendment.
Furthermore, it may actually be too late for tort reform to have much impact on the cost of medical malpractice insurance in states such as Pennsylvania. Ironically, that is not because Pennsylvania has managed its malpractice program so adeptly. Conversely, it is because malpractice insurance reforming efforts and protections in Pennsylvania have failed so miserably that almost all major health care systems provide captive insurance programs or risk pools for their own institutional insurance and for the physicians who are employed or otherwise affiliated with those hospitals. The need to manage malpractice costs was driven by the wide fluctuations and malpractice premium costs arising out of the mismanagement of the CAT fund. Although the CAT fund was ultimately abandoned and replaced with a similar but heretofore better managed Mcare program, by the time that happened so many institutions and physicians had become self-insured that the attractiveness of Pennsylvania as a malpractice insurance market was so reduced that any improvements in the existing commercial malpractice insurance practices and programs would have little impact on the statewide cost of malpractice insurance or the medical practices of those insured by the captive groups.