A reference pricing strategy, in which an employer agrees to pay a certain amount for a procedure and anything above that amount is the employee's responsibility, cut the price of hip and knee replacement surgeries by 19% in a one-year trial.
A pilot program that teamed Anthem Blue Cross of California with employees at the California Public Employees Retirement System (CalPERS) trimmed the price of members' hip and knee replacement surgeries by 19% in one year.
Hospital costs have come under intense scrutiny as healthcare reform has focused on cost transparency that has revealed a wide variation across hospitals for the same procedures. In California hospital charges for total knee replacement and total hip replacement surgeries ranged from $15,000 to $110,000 without evidence of difference in outcome or quality, a 2009 Anthem study showed.
But getting patients to pay attention to cost differences as they purchase healthcare services has been a seemingly insurmountable challenge.
"[Consumers] don't care what [healthcare] costs their insurers or employers, but when it is their own money they will move," states James C. Robinson, a health economist at the University of California-Berkley, who analyzed the pilot results and co-authored a report on the pilot that appears in the August issue of Health Affairs.
The pilot employed what is known as a reference pricing strategy, which Robinson describes as a "reverse deductible." For a typical health insurance plan members pay several thousand dollars in deductibles or copayments and the insurer picks up the rest of the tab. For reference pricing, employers agree to pay a certain amount for a procedure and anything above that amount is the employee's responsibility.
In its simplest form, reference pricing is like the daily per diem an employer pays for business travel. "You get $65 per day. You can spend more, but anything above $65 comes out of your pocket."
For the two-year pilot, CalPERS set a $30,000 limit on what it would allow Anthem to pay for the procedures. The insurer identified 46 hospitals across the state as value-based purchasing design facilities. To qualify, hospitals had to be part of the Anthem network, perform enough of the procedures to demonstrate skill, and charge less than $30,000 for the in-patient costs associated with each surgery.
By having the surgeries performed at a value-based facility, members paid little or no out-of-pocket costs beyond a deductible or copayment. However, if they went to a hospital that charged more than $30,000, then they had to pay the difference.
In 2011 CalPERS health plan costs dropped by 19% percent from $35,408 to $28,695 per surgical-related admission. Over two years it posted an estimated savings of $5.5 million.
In addition, surgical volumes at low-price hospitals increased by 21% for CalPERS members while higher-priced hospitals saw a 34% decrease in use by CalPERS members.
"Reference pricing completely changes the game," says Robinson. "A deductible doesn't affect your choice of hospitals because all hospital prices are above anyone's deductible. If you go to a high-price hospital or a low-price hospital, your deductible is the same."
The biggest surprise, he points out, was that some higher-priced hospitals (non value-based facilities) actually reduced their prices "in anticipation of consumer choice."
The average charge among the higher-priced hospitals fell 34% from $43,308 in 2010 to $28,465 in 2011.
Reference pricing is one tool employers may use to reduce healthcare costs. According to a Towers Watson study, 27% of employers are considering adding reference-based pricing by 2015 while 40% may add value-based benefit designs.
CalPERS is considering expanding this approach to some other procedures. In June WellPoint, Anthem's parent company, announced that it is teaming with CastLight, a technology company that specializes in healthcare transparency, to offer reference-based benefits throughout its affiliated health plans.
While health insurers intend to participate in public health insurance exchanges, the general strategy is to wait and see. Payers are looking to private exchanges and even proprietary exchanges to enable them to more efficiently serve their customers.
During their second-quarter earnings calls in July and August, senior executives at the major health plans expressed cautious optimism as they prepared for health insurance exchanges, the centerpiece of healthcare reform.
While they plan to participate in the public HIX, the overall strategy is to wait and see. Insurers are looking to private exchanges and even proprietary exchanges in the case of Aetna and Cigna, to enable them to more effectively and efficiently serve their customers.
Medicare Advantage and Medicaid remain promising and yet challenging investments in the face of state and federal funding and budget woes. To maintain revenue streams in these markets, insurers are looking to more collaborative care among their providers and providing more in-home services to prevent costly hospital stays.
Here are some of the highlights:
Aetna Aetna is in the process of developing its own proprietary health insurance exchange, which is expected to focus on population management and will include the ability for consumers to select products and services based on their individual needs.
The insurer is taking what CEO Mark T. Bertolini describes as a "cautious approach" to public health insurance exchanges, but expects to be part of up to 14 or 15 public HIX. In recent weeks Aetna has announced that it will not participate in the California, Connecticut, Georgia, or Maryland exchanges.
In addition, Aetna expects to participate in up to 15 private exchanges in 2014. The private exchanges will offer Aetna more freedom than the public exchanges in defining how it participates and the products it offers.
Aetna's acquisition of Coventry Health Care, which was completed during the second quarter, is part of its strategy to enhance its opportunities in the Medicare Advantage and Medicaid markets. While both markets are expected to grow, pricing pressures in Medicare Advantage will slow that growth compared to recent years.
Cigna
Cigna expects to have about $1 billion in free cash flow to spend on strategic investments, including technology and merger and acquisition opportunities. CEO David Cordani says the insurer is looking at M&As to "further expansion of our senior footprint" as well as in the Medicare/Medicaid dual-eligibles marketplace. It is also looking at opportunities in its individual or retail-based portfolio of capabilities.
The insurer expects to participate in a variety of public and private health insurance exchanges. Private exchanges offer an opportunity to focus products on the retail purchasing experience for individual employees or customers, as well as to encourage the adoption of engagement, incentive-based programs. It plans to roll out in 2014 a proprietary exchange.
Cigna's collaborative accountable care program, an insurer/physician partnership that includes clinical support and data to enable physicians to add value to the care they provide, now has more than one million members. The insurer reports that it is seeing improvements in medical costs and care quality, which exceed the market averages.
Humana
Humana plans to participate in the health insurance exchanges in 14 states where it already sells insurance and has provider networks and clinical infrastructure in place. HIX participation is part of Humana's long-term goal to provider coverage to people for their lifetime. "This is a nice opportunity to create a relationship with somebody who is under age 65 and have them age into our Medicare programs," said James E. Murray, Humana's CFO and executive vice president.
The insurer is in the process of acquiring American Eldercare, which will enable Humana to provide long-term care management for Medicaid recipients. Bruce Broussard, Humana's CEO, noted that the acquisition will enable Humana to bring in-house services for that market that it has been outsourcing.
UnitedHealthcare
While UHC officials remain committed to Medicare Advantage, concerns about significant underfunding have lead the giant insurer to exit some of its MA markets, reduce its plan offerings, and reduce benefits. Officials expect these steps to mean MA membership growth will be slower in 2014 than it has been in recent years.
In addition, UHC is reshaping its local MA provider networks to emphasize collaboration and consistency of care, especially for members with chronic conditions. It also will increase its use of in-home health reviews and services.
UHC officials describe its health exchange participation as "modest" with an expectation that it will have a presence in 12 HIX. While describing the opportunities as "huge over the long term," Officials describe HIX participation at this point as more of a learning opportunity.
WellPoint
Joseph Swedish, the WellPoint CEO, has been on the job less than nine months, and is just beginning to make his mark on the company. He has realigned the company organization around two operating divisions—commercial and specialty business, and government business—in an effort to promote efficiency and accountability.
A review of IT expenditures—more than $1 billion annually—is underway. The goal is to free up capital to invest in data analytics and information management to improve market position and performance, especially6 in terms of medical management, customer service, and predictive modeling.
WellPoint is preparing for Medicaid expansion related to healthcare reform. It expects about 50% of its Medicaid states to participate in expansion effective Jan. 1.
Payments to hospitals were made when elective surgeries failed to take place and inpatient claims did not meet Medicare's admission requirements, says a report from the Office of Inspector General.
Over a two-year period, the Centers for Medicare & Medicaid Services paid an estimated $38.2 million to hospitals for unnecessary short-stay inpatient claims related to canceled elective surgery procedures.
According to a report issued Tuesday by the Office of Inspector General in the Department of Health and Human Services, no clinical conditions existed to justify the admissions. So when the elective surgery failed to take place for one reason or another, the inpatient claim did not meet Medicare's requirement that the admission be reasonable and necessary.
The $38.2 million estimate is based on an OIG review of 100 sample short-stay claims and surgery cancellations in 2009–2010 where 80 of those claims did not meet the reasonable and necessary test for Medicare payment. Among the unacceptable reasons for the surgery cancellations after a short stay: hospital equipment failures, lack of operating rooms, and staff scheduling conflicts.
The OIG attributed the Medicare payment errors to CMS as well as to the hospitals, pointing to:
A lack of hospital understanding of Medicare requirements for billing cancelled elective surgeries. The report notes that "although regulations clearly state that Medicare will not pay for items or services that are not reasonable and necessary, Medicare manuals did not specifically address the billing for claims in which the reason for the inpatient admission was an elective surgery that did not occur...As a result, hospitals nationwide have billed the same types of claims differently."
Restrictive CMS requirements for changing a beneficiary status from inpatient to outpatient after discharge. "Physicians cannot unilaterally change an admission decision after an admission for an elective surgery that has been canceled—even if the physician determined that the stay was no longer medically necessary. To change a physician's admission order, the hospital's utilization review committee must determine that the inpatient admission was not reasonable and necessary before the beneficiary's discharge."
Inadequate utilization review controls to determine if an admission met Medicare requirements when an elective surgery was canceled. "Many hospitals had not established utilization review controls to confirm whether inpatient admissions remained reasonable and necessary after an elective surgery was canceled…these hospitals did not perform concurrent utilization reviews because of the short stays (in some cases, only a few hours), and the hospitals did not perform utilization review after discharges because the opportunity to change the beneficiary's status from inpatient to outpatient was not available."
To reduce the payment errors the OIG made these recommendations to CMS and hospitals:
Strengthen guidance to better explain the Medicare rule that a clinical condition requiring inpatient care must exist for hospitals to bill for Part A prospective payments for canceled elective surgeries.
Implement stronger utilization review controls for claims that include admissions for canceled elective surgeries that did not occur.
In response, CMS noted that guidance is addressed in the final 2014 Inpatient Prospective Payment System rule. Hospital groups are objecting to the final IPPS rule specifying how hospitals are to be paid for Medicare beneficiaries' inpatient care starting Oct. 1. Particularly offensive to hospitals is that the rule establishes controversial terms that define an inpatient admission as opposed to "observation" status.
The report notes that CMS stated that it "does not concur with our recommendation" to emphasize to hospitals "the need for stronger utilization review controls for claims that include admissions for elective surgeries that did not occur. However, CMS stated that it has taken action to address" the concern.
The OIG reviewed the canceled elective surgery claims as part of its 2013 work plan to address emerging issues. The work plan includes almost 30 hospital-related reviews such as payments for mechanical ventilation, payments for discharges to swing beds at other hospitals, and inpatient outlier payments.
House committee members spar among themselves, but CMS chief Marilyn Tavenner manages to stay mostly above the fray as she takes questions about the Patient Protection and Affordable Care Act.
A composed Marilyn Tavenner, head of the Centers for Medicare & Medicaid Services, faced the full House Energy & Commerce Committee during a two-hour session last Thursday that was billed as an opportunity for the members to take the pulse of the Patient Protection and Affordable Care Act.
The tone was often conciliatory, but frequently combative as committee members quizzed the administrator of the Centers for Medicare & Medicaid Services on a wide range of topics related to healthcare reform, including the readiness of health insurance marketplaces, the process for income verification and self-attestation, premium costs, and even Tavenner's willingness to enroll in an exchange health plan herself. [She said she would be willing.]
At times Tavenner's presence seemed almost incidental as committee members sparred among themselves along party lines.
After Rep. Henry Waxman (D-CA) spoke about the support for healthcare reform in his district, Rep. Joe Barton (R-TX) remarked that he must "live in a parallel universe" from Waxman. "When I am out in my district I don't have anyone coming to me saying they can't wait for the Affordable Care Act to be implemented or for this great day when they can get all these benefits. I hear just the opposite."
Rep. Diane DeGette (D-CO) challenged her colleagues from both sides of the aisle "to work on educating constituents on how to make this new law work, for individuals, families, and businesses." She compared healthcare reform to the passage of Medicare Part D. "Democrats didn't like it. But we all went out to our districts and we worked with our constituents to let them know how they could enroll. Why? Because this would help our constituents. Now Medicare Part D has become very, very popular."
For her part, Tavenner managed to stay somewhat above the fray as she addressed the concerns of House Republicans.
Here are the hearing highlights:
Timeline Tavenner pushed back against suggestions that a delay in the employer mandate signaled that the entire program was off-track. She clicked off a number of upcoming deadlines that will be met, including the selection of so called "navigators" to help consumers enroll in the health exchanges, successful end-to-end testing of the exchange enrollment system, and the opening of the health insurance exchanges themselves on Oct. 1.
Tavenner added that end-to-end testing will include all the agencies necessary to confirm applicant information, including the IRS and the Social Security Administration, and that vulnerabilities will be corrected as they are identified.
Income verification and self attestation Tavenner assured House members that there will be a "100% check" against IRS records to confirm income eligibility for premium subsidies on the exchanges. Equifax, which has the CMS contract for income verification, will also be part of the process.
She explained that when IRS and Equifax records match the application process proceeds. If not, an applicant will need to produce pay stubs or other records as proof of income and go through the self attestation process. That was sticking point for several committee members.
Rep. Marsha Blackburn (R-TN) recounted the difficulties experienced by Tennessee when it used self-attestation to qualify low-income members for its TennCare program. Tavenner explained that CMS would verify every self-attestation within 90 days, although individuals will be allowed to enroll in a health plan pending the review.
"If someone is committing fraud how quickly will you remove them?" asked Blackburn. "Immediately," Tavenner replied.
Cost containment
Tavenner provided data based on 11 state exchanges as evidence that the exchanges will lower the cost of individual insurance "by encouraging plans to compete for consumer." She noted that in Oregon and Washington, DC insurers requested permission to amend their bids after a public release showed competitors coming in at lower rates. She also pointed to California, where she said some rates submitted to the state exchange are as much as 29% below the average premiums paid for small plans in 2013.
However, several committee members cited reports of large premium increases in their districts and states. Rep. Phil Gingrey (R-GA) referred to a 198% premium increase anticipated by some individuals in Georgia. "This is not what we are seeing across the country," replied Tavenner. "We have many stories where rates have come in lower than expected. That's why competition and transparency are so important."
Gingrey countered that Aetna and Coventry have announced that they will not participate in the Georgia exchange and in some areas Blue Cross Blue Shield will be the only option. "That's not competition."
"We have always said this process will require several years and more companies will get interested in the exchanges as we go along," Tavenner responded.
The trials of small employers
In perhaps her only slip of the two-hour session, Tavenner drew a sharp rebuke from Republicans when she characterized stories about employers reducing employee hours as "isolated incidents." Rep. Tim Murphy (R-PA) said it was "phenomenal" that Tavenner was unaware of the number of people who being adversely affected by the Affordable Care Act. "I think that's a problem."
"It seems like you are living in some sort of a cocoon," added Rep. Steve Scalise (R-LA).
Tavenner defended her stand. "I am out there. I am listening." She noted that she has criss-crossed the country meeting with small and large group employers. "There are stories with good and bad examples. That will continue to be the case."
On an earnings call, the chief executive officer of CHS offers details on the forthcoming merger with Health Management Associates. Described as a "revenue opportunity," the deal will form the largest for-profit hospital system in the U.S.
Wayne T. Smith, the chair, CEO and president of Community Health Systems, told analysts during its second-quarter earnings call Tuesday that the merger with Health Management Associates is a "unique and transformative strategic opportunity" that will position the combined company to take advantage of opportunities presented by healthcare reform.
"Our strategy for healthcare reform has been straightforward: demonstrate quality in our market, enhance productivity and manage resources, deliver infrastructure necessary to implement HI-TECH and [healthcare] reform, and participation in managed care networks. We anticipate about 14 million newly insured patients in 2014, and the combination of CHS and HMA will make us stronger and better prepared for reform."
The merger, which is expected to be completed during the first quarter of 2014, will create a 206-hospital system—the largest for-profit hospital system in the U.S. It will have 31,000 beds and operate 1,000 clinics across 29 states. On a combined basis, 63% of the hospitals are sole providers in their respective markets. The system will have more than $18 billion in annual revenue.
In his presentation and during the question-and-answer period with analysts, Smith described the financial arrangements of the merger and made the case for the HMA deal. Here are the highlights:
Why merge? Smith described the merger with HMA as a "revenue opportunity" in terms of working with physicians and building networks to enhance revenue. "This is opportunistic. This industry is having a very difficult time, if you haven't noticed, in terms of all of our earnings. This is an opportunity for us to scale, get synergies, [and] improve our geographic presence."
Purchase price. It is a $7.6 billion deal, which includes an estimated $3.9 billion in cash and stock for HMA's equity and the assumption of $3.7 billion in HMA's outstanding debt. Smith said both CHS and HMA are happy with the cash-stock combination. "We thought that was a good way because we couldn't get the value any higher than we thought it currently is. We thought it would be a good way for people to participate in the future."
Markets. Smith described the "complimentary geographic fit." CHS and HMA will serve 29 states with an overlap in 15. Although both systems have a rural flavor, their hospitals are "largely in different markets" which means the CHS brand will expand to new communities.
Cutting costs. Smith said there is about $100 million in overhead reduction to be made, including supply management. Expect CHS to eliminate some of HMA's outsourcing. Smith mentioned that CHS has an internal collection agency that brought in $250 million in 2012 at an effective rate of about half of external vendor rates. Its eligibility screening service is also internal and does the job for about one-third of outsourcing costs, according to Smith.
IT expenditures. HMA's IT system will need some investment. Smith said that the development side of HMA's IT "has very good potential" while the operating system "needs work." CHS has "factored in some extra costs that are likely to be spent over the couple of years."
Possible divestitures. When asked about anticipated divestitures from the deal or to comment on markets where there might be concerns about market share, Smith declined to comment extensively saying simply that it was "too early to talk about that."
A trio of health systems say they will jointly manage the healthcare benefit plans for an estimated 32,000 employees and dependents. "This is a starting point," says one CEO.
Three independent Philadelphia-area health systems are forming an initiative that could lead to the development of a new health plan. The move reflects the changing healthcare landscape where the ability to scale will be critical, value will trump volume in patient care, and providers will be expected to be more engaged in risk taking.
The initiative, which was 18 months in the making, is one of the first of its kind in the Philadelphia region, although a similar organization has been formed in Georgia where 23 hospitals announced last week that they had formed an alliance.
"We believe we need to be positioned to take risk by creating the infrastructure and access points that will enable us to enroll larger populations than any of us do now," says Barry R. Freedman, president and CEO of Einstein Healthcare Network, an integrated delivery network that is part of the initiative.
Along with Einstein, Abington Health and Aria Health will work together initially to jointly manage the healthcare benefit plans for an estimated 32,000 employees and dependents. That effort, which will include a common information system, is expected to be up and running by July 2014.
The trio, which includes 10 hospitals and 2,500 beds, currently operate individual self-funded healthcare benefit plans and use a variety of third party administrators to manage the plans. The joint venture is expected to centralize that function into a single TPA, according to Freedman.
The group hopes to develop capabilities, including information systems and support, to grow the initiative, he says. Other providers could participate on an equity basis. The initiative could also permit other companies and populations to access its provider network "through some vehicle" as subscribers.
The group plans to look at a variety of payment plans that could appeal to larger populations, including bundling, shared savings, and accountable care organizations. Freedman says the group is also open to partnering with an insurer to develop products.
Combining their efforts will provide Einstein, Abington Health, and Aria Health with the scale needed to develop the infrastructure to support population health and improve healthcare delivery, including care coordination and inpatient and outpatient care transitions. "None of us are able to do this on a comprehensive basis today," says Freedman.
The financial investment is unknown, although each system will invest equally. "It depends on what we do," says Freedman. "If we decide to have an insurance company with full commercial, Medicaid, and Medicare Advantage plans, that’s one number. If we do shared savings, that’s an entirely different number."
Put simply: The group is in the process of assessing its opportunities. "This is a starting point," Freedman says.
Work groups directed by C-suite representatives from all three health systems have been formed, with each system focusing on one area. Aria Health is focused on business planning, Einstein Health Network is looking at human resources, and Abington Health is tackling the technological infrastructure for the initiative.
The three are in the process of forming an LLC to oversee the initiative, which will have a governing board of an equal number of representatives from each health system. An executive team will be recruited to oversee the LLC.
Freedman says there are no merger plans for the three health systems.
Health Management Associates' largest shareholder says it intends to proceed with plans to replace the sitting HMA board, hours after Community Health Systems said it would acquire the embattled hospital chain.
Health Management Associates can't catch a break.
Just hours after Nashville-based Community Health Systems announced an agreement to acquire the Naples, FL-based HMA, Glenview Capital Management, Health Management Associates' largest shareholder, announced its intention to "move forward" with its effort to replace the sitting HMA board through a stockholder vote.
The vote, say some industry analysts, would amount to a "shadow vote" on the CHS acquisition.
This latest move by Glenview caps several months of upheaval for 71-hospital HMA, including an ongoing federal investigation, the adoption of a "poison pill" to ward off an unwanted takeover, and the unexpected retirement of its CEO. Yesterday HMA announced that John M. Starcher Jr., HMA's eastern group president, will serve as interim president and CEO effective Aug. 1.
HMA badly needs the acquisition. "It needs to do something, whether that's merging with CHS or replacing the board" states Frank Morgan, a healthcare services analyst with RBC Capital in Nashville. "It basically doesn't have a CEO; there's no heir apparent, and it's facing deterioration in its EBIDA."
Glenview, a New York City-based hedge fund which owns 14.6% of HMA stock, has been an active critic of the hospital system's board. In an SEC filing earlier this month calling for the election of a new HMA board, Glenview referred to the sitting board as "insular" and without a "path toward continuous improvement and growth."
The filing also noted that "the misalignment of Board and shareholder priorities has led to the misapplication and poor construction of management incentives, a myopic focus on acquisitions to the exclusion of higher returning share repurchase alternatives, and a failure to attract strong stable senior management."
Glenview has nominated a new board, collectively called the "Fresh Alternative" and characterized as "highly qualified and independent," and filed the necessary written consent to give HMA shareholders of record as of July 18 until Sept. 18 to vote for the board nominees.
In a press statement confirming that it will continue to call for a new HMA board, Glenview officials noted that over the course of several announcements on Tuesday HMA confirmed lower-than-expected earnings and the receipt of four additional subpoenas from the Office of the Inspector General at the Department of Health and Human Services as part of an ongoing investigation into HMA's patient admission practices.
"HMA lacks the financial acumen to deliver on its projections," according to the press statement, which also ties HMA's legal and regulatory challenges "to a lack of focus at the board level on quality and compliance."
In light of the acquisition announcement, there was some thought that Glenview, which holds stock in both of the for-profit hospital systems––14.6% of HMA stock and 9.6% of CHS stock—might step back and "take a bird in the hand," says CRT Capital Group analyst Sheryl Skolnick. The $3.9 billion deal calls for HMA stockholders to receive $13.78 per share.
By moving forward with its original plans, Skolnick says Glenview is "keeping its options open." If it is successful in getting a new board elected, then Glenview could press shareholders to reject the CHS offer in favor of letting the new board negotiate for what could be a better deal. In its press statement, Glenview officials say the CHS proposal "establishes an important floor value" for HMA shareholders to evaluate.
"As the sitting board has entered into a sale agreement concurrent with management vacancy, disappointing results, and a reduced outlook, it is difficult to assess whether the value offered… represents full and fair value or the price offered by an opportunistic acquirer to a distressed seller."
In addition, continuing its efforts to put a new board in place, Glenview wants to bring in Alvarez & Marsel, a consulting firm which specializes in turnaround and interim management, performance improvement, and business advisory services.
A&M would be tasked with strengthening the floor value of the CHS proposal, identifying areas of operational compliance and financial improvement, enhancing current regulatory and compliance efforts, providing long-term financial forecasts, and investigating and presenting alternative proposals to the CHS acquisition.
Financial incentives for self-referring providers "were likely a major factor driving" an increase in referrals and millions of dollars in unnecessary Medicare costs, a Government Accounting Office report finds.
A Government Accounting Office report which finds that physician self-referrals for anatomic pathology services accounts for millions of dollars in unnecessary Medicare costs has some physician groups calling 'foul.' Others say the findings bolster an argument for legislative changes in federal law.
The GAO report, released two weeks ago, looks at the effects of physicians sending patients to facilities where a provider or family member has an economic interest. It focused on the use of anatomic pathology services between 2004 and 2010. The GAO conducted the study in response to questions about the role of self-referral in growing Medicare Part B expenditures, which include physician and other outpatient services.
Although the federal Ethics in Patient Referrals Act (also known as the Stark law) generally prohibits self-referrals under Medicare, exceptions are permitted for certain in-office ancillary services (IOAS), including anatomic pathology services. The idea is to allow the services to be offered during an office visit as a patient convenience.
Among the GAO report findings for anatomic pathology services:
The number of self-referred services more than doubled, from 1.1 million to 2.3 million, while non-self-referred services grew by about 38% from 5.6 million to 7.8 million.
Three provider specialties: dermatology (58%), gastroenterology (15%), and urology (16%), accounted for 90% of referrals for self-referred anatomic pathology services in 2010.
In 2010 alone the GAO found that unnecessary anatomic pathology services cost Medicare $69 million.
"These analyses suggest that financial incentives for self-referring providers were likely a major factor driving the increase in referrals," according to the report.
Deepak Kapoor, MD, president of the Large Urology Group Practice Association, which represents more than has 2,000 urologists nationwide, takes exception to the findings. "I disagree profoundly with both the methodology and the report conclusions," he said in a telephone interview.
Among Dr. Kapoor's concerns is the number of physicians performing self referrals. Kapoor says the GAO reports on utilization and expenditures without taking into account the number of physicians performing the self-referral services, which he contends contributes to the increased number of services performed.
He also says the LUPGA met with the GAO and provided peer review literature that showed that during the study period the clinical standards for performing prostate biopsies increased the suggested samples from six to 12. The report notes that self-referring urology providers referred 47% more anatomic pathology services per biopsy procedure than non-self-referring urology providers (12.5 vs. 8.5).
"You can't aggregate behavior during a change in clinical standards," states Kapoor. He adds that other studies have found that physicians with their own pathology labs adopted the new clinical standard faster than others, which he says accounts for the differential between self-referring and non-self-referring providers.
The College of American Pathologists (CAP), the American Clinical Laboratory Association, and the American College of Radiology, are among the physician associations that want Congress to take immediate action to end the self-referral of anatomic pathology services.
The GAO report provides "irrefutable evidence that physician self-referral… contributes to widespread abuses, increased medical costs and over utilization," Gene Herbek, MD, FCAP, and the president-elect of the 18,000-member College of American Pathologists, said in a press statement.
In an e-mail exchange, Richard Friedberg, MD PhD, member of the CAP board of governors, and chair of the CAP council on government and professional affairs, dismissed Dr. Kapoor's clinical standards argument. "It is the ownership arrangement that accounts for the increase. The GAO study, as well as the study published last year in Health Affairs looked at the influences on the number of biopsies billed, and both found that physicians with a financial interest in providing the services billed for more services."
The only way to prevent the financial conflict of interest, Friedberg says, is to "remove anatomic pathology services from the in-office ancillary services exception. CAP believes Congress should act immediately to end self-referral of anatomic pathology services."
Instead of a change to the law, the GAO recommends these steps for the Centers for Medicare & Medicaid Services:
Insert a self-referral flag on Medicare Part B claim forms and require providers to indicate if the claim is for self-referral services.
Develop and implement a process to ensure the appropriateness of biopsy procedures performed by self-referring providers.
Develop and implement a payment approach to limit the financial incentives associated with self referral.
Kapoor says it is notable that despite the GAO's contention that self-referring is a cost driver, "it didn't recommend that the law be changed."
The GAO report, the second in a series, was prepared at the request of the Senate Finance Committee, which is leading a bipartisan effort to identify the effects of physician self-referral on the Medicare budget.
The first GAO report, released in October 2012, focused on self-referral for magnetic resonance imaging and computed tomography services. In that report, the GAO estimated that Medicare spent approximately $109 million more in 2010 than it would have without self-referrals. Future reports, expected this year, will cover self-referral in radiation therapy service and physical therapy services.
While Sen. Max Baucus (D-MT), the committee chair, has expressed concern about the report findings, he has not yet endorsed a legislative remedy.
"A doctor's first concern should be their patients' health, not their own personal wealth," Sen. Baucus said in a press statement. "This is yet another example of why we need to move toward a healthcare system that pays for care based on value, not volume... we need to find ways to clamp down on these doctors and make sure patients are getting the tests that are necessary and right for them."
In the House, 17 members of the GOP doctor's caucus signed a letter in late June asking Rep. John Boehner (R-OH), the Speaker of the House, and Rep. Nancy Pelosi (D-CA), the Democratic leader, to reject any efforts to change the IOAS exemption.
"We would like to express our strong support for preserving in-office ancillary services," says the letter. "This provision permits physician practices to provide critical services…in an integrated and coordinated fashion…Integration of these medical services facilitates the development of coordinated clinical pathways, improves communication between specialists, offers better quality control of ancillary services, and enhances data collection?all of which can improve patient care."
For his part, President Barack Obama has included eliminating the IOAS exemption for radiation oncology, clinical laboratory services, and physical therapy in his FY 2014 budget with an estimated savings of $6 billion over 10 years. However, anatomic pathology remains an exemption.
Two prominent media reports critical of the American Medical Association's influence over payment rates for services on the Medicare physician fee schedule coincide with a renewed legislative push to diminish the group's power over pricing.
The Washington Post headline in Sunday's paper, How a Secretive Panel Uses Data that Distort Doctors' Pay, was deliberately provocative. And it got a strong rebuttal from the American Medical Association, in the form of a fact sheet. Among the facts listed: The Committee is not a secretive body.
But that panel, the AMA's Specialty Society Relative Value Scale Update Committee, is again the focus of a legislative effort to clip its wings.
In late June, Rep. Jim McDermott (D-WA) introduced HR 2545 (the Accuracy in Medicare Physician Payment Act of 2013). McDermott, a psychiatrist by training, wants to reduce Medicare's reliance on the committee, which is known in physician circles as the RUC.
In a statement announcing the bill, McDermott noted that for more than 20 years the Centers for Medicare & Medicaid Services has relied on the RUC committee to "set payment rates for the 7,400 services on the Medicare physician fee schedule. No other area of the Medicare program asks providers to play such an active role in setting their own payments."
The RUC meets three times a year to decide how physician services should be valued, which is a polite euphemism for how services should be priced. Most of the 31 committee members are from medical specialties, although some are primary care practitioners. Over several days of closed proceedings, RUC members vote on service prices, oops, I mean "values."
Typically the RUC has been free to go about its business, but in recent years it has found itself under something of a microscope as the Medicare program struggles with increased healthcare costs, and McDermott and others question the CMS reliance on the RUC.
In separate reports this month, both the Washington Postand the Washington Monthly, took a good look at the internal workings of RUC. The committee is set up to advise CMS, but in reality, CMS "has accepted about 90%" of the RUC recommendations. The Washington Monthly article states that the RUC has "de facto control" over how about $85 million in Medicare funding is spent each year.
Its influence stretches beyond Medicare and extends to commercial payers. According to a 2009 document from the AMA practice management center, "more than 75% of private payers" incorporate Medicare's Relative-Value Scale fee schedule into at least one product line.
The Washington Post offered an example of a Florida physician who performs in a typical 9-10-hour-day at least 12 colonoscopies and four other procedures. According to the RUC a basic colonoscopy takes 75 minutes of physician time. Based on medical journals, interviews, and physician records, however, the typical colonoscopy takes closer to 30 minutes, according to the newspaper.
Barbara Levy, MD, the RUC chair, and the AMA are contesting some of the newspaper findings, too. She describes the colonoscopy findings as "based on outlier ambulatory surgical centers in Florida and some practices in Pennsylvania."
Rep. McDermott, the ranking member of the House Ways & Means Subcommittee on Health, wants CMS to more or less stop rubber-stamping RUC decisions. His bill calls for CMS to have more "muscle and resources to do the job."
Based on a recommendation from the nonpartisan Medicare Payment Advisory Committee, the bill would establish a panel of independent experts within CMS to review the work of the RUC, identify problems with the fee schedule, and develop evidence to justify more accurate updates. To avoid potential conflicts of interest, the panel would not have any direct interest in the fee schedule and would include Medicare beneficiaries.
The bill would require the panel to hold open meetings and publish minutes.
The current bill has already lined up the support of the American Academy of Family Physicians, which represents more than 110,600 family physicians, family medicine residents, and medical students. McDermott contends that the RUC has contributed to the primary care physician shortage by making specialties and subspecialties more financially lucrative.
Of course, the powerful AMA can be expected to flex its muscles and campaign purse strings. Rep. McDermott introduced a similar bill in 2011. It never saw the light of day after being assigned to two House committees: Energy & Commerce and Ways & Means.
So-called "doc-fix" legislation that would replace the sustainable growth rate formula with a system that rewards physicians for delivering quality care could be up for a full committee vote this week.
A bipartisan proposal to repeal and replace the sustainable growth rate formula took a critical step forward on Tuesday. By voice vote, the Energy and Commerce subcommittee on Health passed a bill that replaces the existing Medicare's physician payment formula with a system to reward physicians for delivering quality care.
The action clears the way for a full committee vote, which could happen this week. Rep. Fred Upton (R-MI), who chairs the E&C Committee, has let it be known that he wants a full House vote on the SGR repeal and replace bill before Congress takes its annual August recess.
Still, Rep. Joe Pitts (R-PA), the subcommittee chair, heaped praise upon the bill. "The time of temporary fixes and kicking the can down the road has ended," Pitts said in a statement. "The bipartisan committee draft we approved today permanently repeals the SGR and places us on a path to paying for innovation and quality, not volume of services, and puts doctors not bureaucrats, back in charge of medicine."
In addition to repealing the SGR, the key components of the bill include:
A five-year period of payment stability The bill provides an annual statutory update of 0.5% per year for 2014 through 2018. During this time, payment incentives such as the Physician Quality Reporting Program (PQRS) and the Electronic Health Record (EHR) Incentive Program will continue.
Rewarding performance Beginning in 2019, physicians receiving fee-for-service reimbursement will receive an additional update adjustment based on quality performance under the update incentive program (UIP). Performance will be assessed based on quality measures and clinical practice improvement.
Providers and other stakeholders will have a say in the development and selection of the UIP quality measures. High-performing providers will have the opportunity to earn a 1% bonus payment, while low performing providers will see a 1% reduction in payments.
Alternative payment models
Beginning in 2015, providers and other stakeholders may submit proposals for new payment models to an independent entity that will review proposals and make recommendations to the Department of Health and Human Services for models to move forward as either a demonstrations or permanent programs.
Care coordination and patient-centered medical homes
The bill establishes new payment codes for complex chronic care management. The legislation also ensures that Medicare payment is available for care coordination services performed by physicians who are certified as a level III medical home by the National Committee on Quality Assurance, recognized as a patient-centered specialty practice by the National Committee on Quality Assurance, and have received equivalent certification or meet other comparable qualifications.
Expanded Data for Care Improvement To expand the availability of Medicare data for providers to use in developing new models of care and improving quality and patient care, the legislation expands access to Medicare data for certain certified entities.
The legislation eliminates the roadblocks that prevented these entities from sharing data directly with providers to facilitate the development of alternative payment models and care improvement.
Improved payment accuracy The bill would ensure that providers could be compensated for the cost of submitting data. The legislation also directs Medicare to identify improperly valued services under the fee schedule that would result in a net reduction of 1% of the projected amount of expenditures for a year during 2016 through 2018.
Numerous physician groups, including the American College of Physicians, the American Academy of Family Physicians, and the Premier healthcare alliance, are voicing general support for the bill.
There are, however, calls for Congress to make changes in the bill to monitor patient access, to risk-adjust the quality measures for patient socio-economic status, and provide more funding for primary care physicians.