2013 will bring us one short year away from full implementation of the Affordable Care Act. The Internal Revenue Service issued a proposed rule on this shared responsibility or “pay of play” mandate which applies to employers of 50 full time employees (30 or more hours per week) or more.  The IRS’s FAQ on this mandate can be found here. Here’s a link to a Wall Street Journal article on the rule, which included some surprises.  OPM will have to consider changes to the FEHBP necessary to comply with this mandate and avoid the penalties associated with non-compliance.

Folks interested in health care spending should read the New York Times’ article about Questor. Questor manufactures a drug Acthar Gel that first was developed in the 1950s due to Armour packing company’s efforts to find uses for pig by-products. Questor’s drug is derived from the pituitary glands of that animal. The drug treats an orphan (rare) condition called infantile spasms. Questor acquired the drug about ten years ago. In 2007, a new CEO “repositioned” Acthar as a specialty drug and jacked up the price which rose from $700 per vial in 2007 to $28,000 today.  A health insurer that balked at the price increase but was mau maued into paying. The New York Times explains

Insurers generally pay for Acthar because it is considered the best treatment for infantile spasms. They also tend to pay for other approved uses if cheaper drugs have been tried first. And Questcor has carefully executed the orphan-drug playbook. Patients who cannot pay are given the drug free. The company helps with insurance co-payments, to make sure that a patient’s inability to make a co-payment doesn’t stand in the way of the drug being used and the insurer paying $28,000 a vial.

In other words, Questcor shifts the cost onto insurance companies while staving off consumer protests. It has a staff of 30 people who do nothing but work on insurance reimbursements — about one staff member for each of the roughly 30 prescriptions it gets in a typical day for all uses.  Questcor executives argue that with the free drug program and the ample supply, patients have better access to Acthar now than when it was cheaper and often in short supply.

Wow, that’s a lot of chutzpah upon which to reflect.

Here is the FEHBlog’s aummary of Affordable Care Act changes that take effect in 2013 a/k/a Tuesday, many of which have been discussed on the blog earlier this year:

The FEHBlog hopes that all of his readers are enjoying the holidays. Of course, the calendar year end is a time for reflection. Healthcare Data Management reports that Aetna’s CEO Mark Bertolini has been musing about the future of the changing health insurance industry. He observed that “A new business model for insurers predicated on partnering with providers [e.g. accountable care organizations] coupled with skillful use of technology can turn the focus back on the customer. ‘We can use technology to make it easier for the consumer. Convenience is the new word for quality.’”

In a bit of a man bites dog story, the Government Accountability Office yesterday released a report recommending that CMS consider adopting certain private payer strategies to improve health care quality, which the medical industry supports:

•Private entities generally measure performance and make incentive payments at the physician-group level rather than at the individual-physician level. Physician organizations favor this approach.
•Private entities use nationally endorsed performance metrics and noted the need for a standardized set of metrics across all payers. Physician organizations concur that a standardized set of metrics would be less administratively complex.
•Most private entities in GAO’s study provide financial incentives tied to meeting absolute benchmarks–fixed performance targets–or a combination of absolute benchmarks and performance improvement. Physician organizations prefer incentives tied to absolute benchmarks over those based on how physicians perform relative to their peers. Physician organizations also favored incentives that reward improvement because baseline levels of performance vary.
•While private entities’ incentive payments vary in size and in method, private entities typically provide such payments within 7 months of the end of the performance measurement period. Physician organizations stated that financial incentives should be distributed soon after the measurement period to have the greatest effect on performance.

Happy Holidays everyone. The lame duck Congress is in recess until Thursday December 27.  The new 113th Congress begins on January 3, just a week later. Congress did pass two bills last week – an amendment to the Improper Payments Act discussed in this Federal Times article and a defense authorization act discussed in this govexec.com article. These laws impact government contracts and FEHB plan carriers are government contractors.

Kaiser Health News reports that last week the Centers for Medicare and Medicaid Service  “disclosed bonuses and penalties for nearly 3,000 hospitals as it ties
almost $1 billion in payments to the quality of care provided to
patients.” The changes take effect on January 1. Under the Affordable Care Act, Medicare reduced hospital payments by 1% which CMS reallocates based on quality assessments.

While every hospital is getting something back, almost half aren’t
recouping the 1 percent they forfeited and thus are net losers.

Seventy percent of the scores are based on how frequently hospitals
followed 12 basic clinical standards of care, such as controlling heart
surgery patients’ blood sugar levels and giving them beta blockers to
lower their blood pressure. The other 30 percent is determined by how
well hospitals were rated by former patients in surveys asking about the communication and responsiveness of doctors and nurses and the cleanliness and quietness of their environment.

Medicare already publishes the scores for individual facilities on its Hospital Compare website. Hospitals
were scored both on how well they performed compared to their peers
from July 2011 through March 2012, and how much they improved over time.  

Standard and Poors announced last week

As measured by the S&P Healthcare Economic Commercial Index, healthcare costs covered by commercial insurance plans increased by 7.16% over the year ending October 2012, up from +7.09% reported for September 2012. Annual growth rates in Medicare claim costs rose by 2.41%, according to the S&P Healthcare Economic Medicare Index, up from +2.04% recorded in September 2012. The Professional Services Index annual growth rate was +6.63% in October 2012, up from +6.16% September print. The Hospital Index’s growth rate hit its seven-and-a-half year historic low of +3.83% in October from +3.86% recorded in September 2012. It was driven by the Hospital Commercial Index, which hit a new recent low with an annual growth rate of +4.78% – its lowest rate since October 2009. It posted +5.15% annual rate last month.

Cost curve up. Health insurers are trying to lower the cost curve. The Wall Street Journal reported last week about insurer initiatives to cover online and telephonic doctor visits in order to expand the availability of primary care coverage. “The virtual consults often cost around $40 to $45, which is much less than an ER visit and also cheaper than an urgent-care center or most in-person doctor visits.”

OPM for the past few years has engaged the FEHBP in its anti-tobacco initiatives.  Last month, HHS unveiled its new anti-tobacco website called betobaccofree.hhs.gov  In good news, Reuters reported last week that teen smoking in the USA has reached a new low.

A front page article on the New York Times this morning discussed an encouraging drug research development. The article explains that

Normal healthy cells have a mechanism that tells them to die if their DNA is too badly damaged to repair. Cancer cells have grotesquely damaged DNA, so ordinarily they would self-destruct. A protein known as p53 that Dr. Gary Gilliland of Merck calls the cell’s angel of death normally sets things in motion. But cancer cells disable p53, either directly, with a mutation, or indirectly, by attaching the p53 protein to another cellular protein that blocks it. The dream of cancer researchers has long been to reanimate p53 in cancer cells so they will die on their own.

 Drug researchers are now trying to insert another molecule between the p53 protein and the protective protein so that the p53 protein can kill the cancer cell. The interesting aspect of this research is that a successful approach will treat several different forms of cancer, including both rare and more prevalent  forms of cancer.  So it’s encouraging cooperation among the foundations that focus on cancers striking certain organs.

The article mentions that the treatment could help a retired postal clerk, likely an FEHBP enrollee. Unfortunately the article discloses in its last sentence that the clerk passed away before a human drug trial was initiated.

OPM is in the process of unveiling a new version of its website.

The FEHBlog has been predicting that the Supreme Court eventually will have overturn the Defense of Marriage Act on federalism grounds. States should have the right to define domestic relations under the Constitution. Joe Davidson weighs in with a column reaching the same conclusion today. A Republican Congress did pass DOMA but Congress could have repealed the law when the Democrats controlled Congress in 2009-10. It didn’t Instead lawyers pocket the litigation fees (and of course the FEHBlog as a lawyer has no objection to that.)

Similarly the Administration, according to Modern Healthcare, got the American Medical Association wound up over the doctors’ fiscal cliff the 27% cut in Medicare Part B payments to doctors that will occur January 1 if Congress does not take action soon. (What’s more under the general fiscal cliff the doctors will get hit with an additional 2% cut in Medicare payments due to the sequestration law.)  In the 1990s a Republican Congress did pass a law that created the sustainable growth rate formula to control Medicare spending on doctor bills. In 2009-2010, Congress considered fixing the sustainable growth rate formula as part of the Affordable Care Act but as Politico explained Speaker Pelosi punted on the issue because the fix was too expensive. As the FEHBlog has noted the CBO has billed a one year extension of the current fix at $25 billion. As Newman said (in Seinfeld) it’s a real conundrum. But everyone should have egg on their faces.

We will just have to wait and see what happens now on Capitol Hill.

Well the Federal Benefits Open Season is now over and it appears that the lame duck session will not accomplish much as the President and the Speaker are having a hard time reaching a compromise solution to the fiscal cliff created by last years debt ceiling increase law and the end of the Bush era tax cuts. Nevertheless, the Hill Floor Watch blog outlines the work that Congress has planned for this week while cliff negotiations continue.

Kaiser Health News provides insights on how going over the cliff, e.g., the mandatory sequestration affect health care programs, like Medicare. Going over the cliff would not impact the FEHBP directly because the Program is funded by the Employee Health Benefits Fund held in the U.S. Treasury. Government and employee contributions toward FEHBP coverage are deposited into this fund. However, the FEHBP would be adversely affect indirectly by for example federal employee layoffs or the 2% cut in Medicare payments (as doctors would expect the FEHBP to pick up the slack.)

Speaking of FEHBP funding, the FEHB Act requires a 4% surcharge on premiums — 3/4s of the surcharge is placed in a contingency reserve to stabilize premiums and 1/4 is available to OPM for its FEHBP administrative expenses. OPM typically uses only a portion of the available funds (less than 1% of premiums) and any balance is returned to the plans again to stabilize premiums.

The FEHBlog has been reviewing the flood of ACA regulations that have been issued since the election. One proposed rule which is several hundred pages long and is titled 2014 parameters for qualified health  plans participating in the exchanges is a real humdinger. It explains the Rube Goldberg like scheme of risk adjustments, risk corridors, and reinsurance arrangements to stabilize the exchanges. As the Washington Post notes, the charge that HHS plans to make to reimburse its exchange administrative costs is 3.5% of premiums or almost as much as the entire FEHBP surcharge which both stabilizes the Program and funds OPM’s administrative expenses. How is the law ever going to bring down the health care expense curve?

Kaiser Health News and similar consumer organizations have a basic rule — blame the health plan. That rule was followed to the letter in a recent article complaining about the overpayment recovery practices of an FEHB fee for service plan.  The article concerns a family member of an FEHB plan enrollee who reportedly underwent surgery about three years ago.  Recently, the plan asked her to refund a $9,000 payment that was made on an assistant surgeon’s charges for this surgery. The plan explained that the payment was made in error. The article jumps to the conclusion that the plan was responsible for the error, but it’s just as likely if not more likely that the surgeon committed a billing error.

As the health plan explained to the reporter, OPM requires FEHB plans to adopt and follow strict overpayment recovery rules. After all the claims dollars are paid out of and returned to the U.S. Treasury. (Your money is green but the government’s is black and white striped.) One of those rules is that the plan must attempt to recover the overpayment from the party that received the overpayment.

 Here the patient received the payment because she used a non-participating provider.  The patient contends that the FEHB plan should seek the money from the provider, not her,  because she used the claim payment to pay the doctor.

The legal principle underlying overpayment recovery is restitution or unjust enrichment. Assuming that the patient owed the doctor $9,000, she was unjustly enriched by the plan’s erroneous payment because the plan’s payment relieved her of that debt. The doctor would not owe the money back, but the patient would. If there was a billing error. then it would be the provider’s responsibility to refund the patient.

It’s unfortunate that this issue arose but medical billing practices are complex and to err is human. The soundest course of action in such situations is to follow the OPM appeal process. The FEHB claim appeal process has lead to an external review by OPM for nearly forty years. The process is time tested and according to the OPM contract the carrier must suspend overpayment recovery efforts while the appeal is under OPM consideration.

Tomorrow is the last day of the Federal Benefits Open Season. Meanwhile the lame duck Congress twiddles its collective fingers while they wait for the President and the Speaker to achieve a compromise solution to the fiscal cliff issues that confront us. The Hills Floor Watch blog provides more details.

Of course, September 30 was the end of the 2012 federal fiscal year. In the wake of that auspicious day, OPM has released its performance and accountability report for the last federal fiscal year and the agency’s Inspector General has released his semi-annual report to Congress for the six months ended September 30. The PAR includes the agency’s audited financial statements and both the PAR and the Inspector General’s report provide interesting agency perspectives on the FEHBP. For instance the PAR discloses that OPM’s FEHB Program wide claims database will become operational in the current federal fiscal year.

More fallout from the medical community’s legal assault on the Ingenix unusual reasonable and customary (“UCR”) database occurred on Friday. Insurers used the UCR database to help price out-of-network claims. The medical community claimed a conflict of interest between Ingenix and its corporate owner United Healthcare, which is the nation’s second largest health insurer.  The medical community also complained about the way that the database was compiled and applied.

In January 2009, UHC and Ingenix after fighting a legal battle for nearly a decade with the American Medical Association and later the NY Attorney General and Consumer Reports reached a global settlement under which it agreed to give the database to a non-profit approved by the AG which is Fair Health and to pay $300 million to the doctors (who proceeded to fight over the settlement proceeds among themselves for another year or two).  Several other insurers including Aetna, the nation’s third health insurer, agreed to submit claims data to Fair Health.

On Friday Aetna  further agreed to settle a class action in New Jersey involving insureds and doctors who complained about Aetna’s use of the Ingenix database to price out-of-network claims. According to Reuters, “The accord calls for Aetna to pay $60 million into a general settlement fund, plus as much as $60 million more, depending on how many people submit claims.”  Insurers stopped using the Ingenix database back in 2009. Nevertheless, cost curve up.

Speaking of the cost curve and out of network pricing which is part of fee for service health insurance, Kaiser Health News reports on a recent United Healthcare report concerning a survey of doctors:

A survey of doctors by Harris Interactive finds that 59 percent of
physicians believe that the fee-for-service system encourages them to
provide “an appropriate level of care.” Only 15 percent disagreed.
Although 37 percent of doctors thought such a system encourages the use
of more care or expensive care, 38 percent also said that a
fee-for-service system encourages coordination of care. Not
surprisingly, the 400 U.S.-based primary care physicians and 600
U.S.-based specialists surveyed, did not favor the idea of a global
capitation payment—or a fixed payment per month for all medical
services. Nearly 60 percent of the doctors surveyed said that capitation
put too much risk on the provider.

Furthermore, “physicians’
views did not differ substantially based on the size of their practice,
even though doctors in larger practices would be less exposed to
insurance risk under capitation.” Doctors also estimated that their
practices get up to 68 percent of their revenue from fee-for-service
payments.

Unfortunately for the doctors, the ACA seeks to put the kibosh on fee for service health insurance in favor of global rates through for example accountable care organizations. Cost curve down? We’ll have to wait and see. The medical community and its legal eagles do not roll over when confronted by things they don’t like such as the Ingenix UCR database or global pricing. In fairness to the doctors, the medical community did get clobbered financially by global pricing arrangements in the 1990s.

On Thursday, the Internal Revenue Service published final rules on the Patient Centered Outcomes Research Institute fee. The Affordable Care Act requires health plans – both fully insured and self-funded, including FEHB plans — to fund this Institute with a fee that starts out in plan years that end on or after October 1,, 2012, with a $1 per covered bellybutton fee. The fee paid in the second year will be $2 per covered bellybutton. The fee obligation ends in 2019.

The FEHBlog finds it odd that Congress did not require health car providers to share the burden of funding the PCORI.  But it’s an odd law. (N.B. the total federal government subsidies to the medical community for electronic medical records nears $9 billion. Modern Healthcare reports that the government has created a website that allows you to track the expansion of electronic health records. Forbes provides an update on the government’s rising concern about fraud and data breaches associated with these new devices.

Yesterday afternoon, the Supreme Court decided to consider the constitutionality of the Defense of Marriage Act (“DOMA”). The Court selected for review a U.S. Court of Appeals for the Second Circuit holding that DOMA is unconstitutional in the context of the federal estate tax which provides preferential treatment to spouses. The plaintiff in that case was a woman who was legally married to another woman under New York State law but was unable to take advantage of the estate tax’s spousal exemption due to DOMA. Just writing this sentence confirms the FEHBlog’s view that the Court will strike down DOMA as a violation of federalism principles enshrined in the Constitution. However, the Court also asked the parties to brief two preliminary questions

Whether the Executive Branch’’s agreement with the court below that DOMA is unconstitutional deprives this Court of jurisdiction to decide this case; and whether the Bipartisan Legal Advisory Group of the United States House of Representatives has Article III standing in this case.

Thus it’s conceivable that the Supreme Court could punt on the issue. The Supreme Court also took another same sex marriage case. That case arose in California. The California Supreme Court held that same sex couples have the right to be married under California’s state constitution. Subsequently, California’s votes passed Proposition 8 which trumped that decision. A same sex couple who was married in California during the interim period of legality sued the State. The U.S. Court of Appeals for the Ninth Circuit ruled that Proposition 8 violated the 14th Amendment to the U.S. Constitution by depriving a minority, which has suffered discrimination, of established rights. The Court also asked the parties to brief the question of whether the parties who brought the suit, California residents who voted  for Proposition 8 — have standing.

The Court is expected to hear arguments in these cases in March 2013 and decided them by the end of June 23. More information is available on the Scotusblog

Because the FEHBlog tries to cover all things FEHBP related, he points out that Joe Davidson from the Washington Post wrote a column this week headlined “Lack of Autism Coverage [in the FEHBP] leaves many parents upset.”  Mr. Davidson quotes the AFGE President who demands that OPM mandate rather than permit coverage of applied behavioral analysis therapy for children diagnosed with autism.

OPM’s Director John Berry is quoted in the article as explaining that FEHBP plans cover speech, occupational, and physical therapy, mental health treatment, and prescription drugs for children with autism. OPM opened the door to ABA coverage in order to allow the provider base to grow.

There is no doubt that the if you build it they will come principle applies to expansion of health care coverage. Walter Pincus also explains in the Post that

In 1992, Sen. Tom Harkin (D-Iowa) introduced a $25 million amendment to have the Pentagon conduct breast cancer research. Twenty years later, it has become a more than $200 million-a-year program covering research on dozens of diseases.

Because the President has put taxes on the radar screen, it’s worth noting that a fleet of new Affordable Care Act tax regulations along with less formal IRS guidance have arrived. The Internal Revenue Service’s ACA page highlights the new regulations which concern the following assessments that kick in next month

• The 2.3% excise tax imposed on the sale of many medical devices, and 
• The 3.8% net investment tax imposed on the passive income of, and the additional 0.9% Medicare tax imposed on the salary and wage income of individuals with adjusted gross income over $200,000 for an individual and $250,000 for a married couple. 

Reuters explains that “The [medical device] tax applies mostly to devices used and implanted by medical professionals, including items as complex as pacemakers or as simple as tongue depressors.” The tax does not apply to over the counter items or prosthetics. The medical device industry is pushing hard to repeal this tax, and the House of Representatives passed a repeal bill in June 2012. But the Senate has not taken up that bill and the Obama administration has threatened to veto it. The Administration’s logic is that the ACA creates access to 30 million new customers for the medical device industry according to the Reuters article. Assuming for the moment the truth of this statement, that expansion will not occur until 2014. By that time, the weight of this new gross income tax may have sunk many medical device manufacturers.

America’s Health Insurance Plans, the health plan trade association, released a new actuarial study about the ACA fee on health insurers that starts in 2014. This fee  is $8 billion in 2014 and goes up from there to $14.3 billion in 2018.  The fee is allocated to insurers based on their fully insured plan premiums, including FEHB plans. The fee is not deductible from the federal income tax that insurers pay. Like the medical device tax, this is an excess profits tax. The AHIP press release explains that

These Oliver Wyman reports are consistent with previous analyses on
how the health insurance tax will impact the cost of coverage:

• According to the Joint Committee on Taxation:
  “For those insurance premiums that are subject to the fee, we estimate
  that the premiums, including the tax liability, would be between 2.0 and
  2.5 percent greater than they otherwise would be.” 

• In a November 30, 2009 letter,
  the Congressional Budget Office stated that “New fees would be imposed
  on providers of health insurance and on manufacturers and importers of
  medical devices.  Both of those fees would be largely passed through to
  consumers in the form of higher premiums for private coverage.” 

For
health care reform to work, coverage needs to be affordable and there
needs to be broad participation in the health care system.  The health
insurance tax undermines the goal of affordability.