Congress of course remains on the campaign trail until next month. Congress now has one more issue to add to its lame duck session’s agenda — federal regulation of compounding pharmacies. The recent deadly outbreak of fungal meningitis has been traced to a large scale compounding pharmacy in Framingham, Massachusetts called the New England Compounding Center. The FEHBlog was bowled over yesterday when he read a New York Times article explaining that

some doctors and clinics have turned away from major drug manufacturers and have taken their business to so-called compounding pharmacies, like New England Compounding, which mix up batches of drugs on their own, often for much lower prices than major manufacturers charge — and with little of the federal oversight of drug safety and quality that is routine for the big companies. “The Food and Drug Administration has more regulatory authority over a drug factory in China than over a compounding pharmacy in Massachusetts,” said Kevin Outterson, an associate professor of law at Boston University.

The federal Food and Drug Act contemplates that state regulated pharmacies may occasionally combine ingredients into compounds. However, some companies like the New England Compounding Center have engaged in large scale compounding which should but doesn’t currently fall under FDA oversight. Regrettably, the New England Contaminating Center allegedly distributed impure injectable steroids across the country. The company now has recalled all of its compounds, and according to the Hill, Sen. Richard Blumenthal (D Conn.) is asking the FDA for its legislative recommendations.

The Affordable Care Act created accountable care organizations (“ACOs”) within the Medicare Program. Healthcare.gov defines an ACO as “a group of health care providers who give coordinated care, chronic disease management, and thereby improve the quality of care patients get. The organization’s payment is tied to achieving health care quality goals and outcomes that result in cost savings.”  Medpage Today is reporting on a Health Affairs reported simulation of an ACA that successfully treats Medicare eligible patients with diabetes 2.  The simulation found that a 10% clinical improvement would create just 1.22% in savings for Medicare Parts A and B — well below the level needed to trigger savings sharing. That’s bad news for those hoping to reap some revenues from ACO’s.” On the bright side, insurers also are developing ACOs which will offer providers much more flexible contractual rather than legally mandated compensation structures.

In other cheery news, the AMA News is reporting on a silent exodus of doctors from the medical profession. That’s not good news as we are only 15 months away from the great influs of new patients that the ACA subsidized health insurance exchanges are expected to produce.

Govexec.com notes that OPM required FEHB plans to pay the U.S. Treasury for any 2011 rebate for failure to meet the 85% medical loss ratio under the Affordable Care Act to the U.S. Treasury. OPM uses the funds to moderate changes in plan premiums. This is a perfectly legal approach which Govexec.com acknowledges. This really is not a big deal because the majority of FEHB plans are enrolled in fee for service plans like Blue Cross FEP and GEHA. These retrospectively experienced rated contracts routine produce a medical loss ratio over 90%, OPM also now has a medical loss ratio based pricing methodology for HMOs participating in the FEHB Program which incents compliance with the ACA’s requirements.

The Defense Department announced yesterday that effective January 1, 2013, the U.S. Postal Service must stop delivery to FPO and APO addresses of imported pharmaceuticals and other prohibited items into Germany and the European Union. This puts the ki-bosh on the use of U.S. based mail order pharmacies filling prescriptions for U.S. expatriates in Germany and there is a significant contingent of FEHBP enrollees in Germany. The FEHBlog is aware that FEHB plans serving those enrollees are on top of this issue.

The German action strikes the FEHBlog as overkill but there’s no question about the importance of keeping a safe drug supply. Reuters reports that the Food and Drug Administration “working with international regulatory and law enforcement agencies from about 100 countries, said on Thursday that it took action against more than 4,100 Internet pharmacies, bringing civil and criminal charges, removing offending websites and seizing drugs worldwide.”

On Monday with the beginning of the new federal fiscal year, Medicare’s readmission penalty took effect. Kaiser Health News explains that

Nearly one in five Medicare patients return to the hospital within a
month of discharge, costing the government an extra $17.5 billion in
2010. Experts say many of these readmissions are unavoidable given the
infirmity of the population, but others are due to surgical mistakes or
lapses in patient care after people leave the hospital. A total of 2,217
hospitals are being punished in the first year of the program, which
began Oct. 1. Of those, 307 will be docked the maximum amount: 1 percent
of their regular Medicare reimbursements.

Overall, Medicare has estimated it will recoup about $280 million
from hospitals where it determined too many heart attack, heart failure
or pneumonia patients returned within 30 days.

The AMA News explains that the penalty ramps up to 2% in the next fiscal year and 3% in the following fiscal year. HHS is considering adding over health events, such as joint replacements to the mix.

The Washington Post has a chart showing the penalties imposed on hospitals in the Washington D.C. area. Maryland hospitals are exempt from the readmission penalty because as the FEHBlog noted in the summer the federal government permits Maryland to use its own hospital rate setting methodology.

Medicare (except in the FEHBlog’s home state of Maryland) reimburses hospitals on a prospective payment system. The hospital except in outlier cases receives a fixed diagnosis related group payment based on the patient’s admitting diagnosis. The hospital gains financially if the cost of care is less than the DRG amount. Consequently, the system incents patient discharge. The new policy will change this calculus. When hospitals lose money on Medicare, they seek to recover those losses from private sector payors, including the FEHBP.  

Of course, hospitals don’t make discharge decisions; doctors do. Consequently, as Kaiser Health News points out the new policy will incent further integration between hospitals and doctors.

Congress is on the campaign trail until November 13, the beginning of the lame duck session. Monday is the beginning of a new federal fiscal year and the FEHBlog has learned from Kaiser Health News that today is the deadline for states to submit their minimum essential benefit packages to HHS. “15 states and the District of Columbia have made their choices and 17
more states are expected to do so in the next few weeks, according to
consulting firm Avalere Health.”  While FEHB plans and large group plans do not have to offer the minimum essential health benefits package, those plans cannot impose lifetime or annual dollar caps on those benefits to the extent that they are offered. OPM for the FEHBP and the Labor Department for ERISA government plans will have to help employer sponsored plans sort out any confusion created by HHS’s state by state approach (which was not dictated by the statute).

The AMA News reports on growing insurer use of the patient centered medical home strategy or primary care on steroids.

Programs supported by commercial and government insurers now exist in
nearly every state, according to a report issued Sept. 7 by the
Washington-based Patient-Centered Primary Care Collaborative, an
organization supportive of the medical home model.
For example:

• Programs run by member organizations of the national BlueCross
  BlueShield Assn. supply care to 4 million patients in 39 states, the
  District of Columbia and Puerto Rico.

• Humana offers medical home services in 10 states for 70,000 Medicare Advantage members and 35,000 commercial members.

• The Centers for Medicare & Medicaid Services announced Aug. 22
  that 500 practices with more than 2,000 physicians across the country
  will participate in the comprehensive primary care initiative.

• WellPoint, Aetna and UnitedHealthcare have announced in recent months that their medical home programs are expanding.

The momentum is growing, the report said, because insurers see evidence that medical homes save money and improve care.

Under the Affordable Care Act, States may permit large employers to join their  health insurance exchanges beginning in 2017.  Large employers are defined as an employer who employs at least 101 employees. However, in 2016, States can lower that threshold to 51 employees. (Aside — To ensure that their exchanges have enough enrollees to be viable, the District of Columbia and Vermont might require small employers to participate in their insurance exchanges. Revenue needed to operate state exchanges likely will come from an assessment or tax on participating health plans, which will be based on the number of enrollees.) Business Insurance reports that Aon Hewitt, a  large benefits consulting firm, has created its own version of a health insurance exchange for its large employers clients this year with coverage beginning in 2013. Sears, Aon, and Darden Restaurants (owner of Red Lobster among others) are participating. Of course, the FEHBP is the granddaddy of health insurance exchanges.

The Federal Times reports that “President Obama on Friday signed a six-month temporary spending bill
that will keep the government open — and further freeze federal pay
scales — until March 27 [, 2013].” The new 2013 federal fiscal year begins on Monday October 1.

Last year the FEHBlog discussed Highmark Blue Cross’s investment in the West Penn Allegheny Hospital System in Pittsburgh. Today, the Pittsburgh Post Gazette reports that  Saying that Highmark Inc. wanted it to restructure through bankruptcy, West Penn Allegheny Health System canceled the $475 million deal under which the insurer planned to acquire WPAHS.”

The Affordable Care Act authorizes OPM to contract for at least two multi-state plans to participate in all of the state health insurance exchanges by 2017.  A Health Affairs blog post discussed a draft application to act as multi state plan carrier that OPM posted last week. The draft application is available here. OPM is accepting public comments on the draft application until October 22.

Today’s FEHBlog post focuses (as usual) on rising healthcare costs. Last week, S&P which has unveiled a new website for its indices announced that healthcare costs were up in July “Healthcare costs covered by commercial insurance plans increased by 8.34% over the year ending July 2012, up from the +8.06% reported for June 2012. Annual growth rates in Medicare claim costs rose by 2.79%,
according to the S&P Healthcare Economic Medicare Index, up from the +2.27% recorded in June
2012.”

The Healthcare Cost Institute, which analyzes deidentified claims date provided by Aetna, Humana, and United Healthcare, reported this week that healthcare spending rose 4.6% in 2011 following two years of slower growth.

Prices rose for all major categories of health care—hospital stays,
outpatient care, procedures and prescriptions—outpacing an uptick in the
use of many of these services. Prices rose fastest for outpatient care.

“Prices continue be the main culprit for rising health care costs,”
said HCCI Executive Director David Newman. “If we are really going to
get health care spending under control, we have to better understand why
those prices are rising and the implications those increases have for
the U.S. health care budget.”

AHIP reports that

An article by Bob Kocher and Ezekiel Emanuel in the Journal of the American Medical Association (subscription
required) looks at how hospital consolidation is driving up health care
costs, noting that “prices for hospital services are 13% to 25% higher
in consolidated hospital markets.” [The ACA is driving this consolidation.]

Hospital spending currently accounts for one-third of all health
expenditures. According to the article, “…hospital price increases are
now the largest contributor to increases in insurance premiums.
According to an estimate for 2013, hospital prices will increase
8.2%—more than any other sector of health care spending.”

The FEHBlog’s favorite stories concern hospital and doctor use of their new electronic healthcare technology to recover more dollars from Medicare, Medicaid, and commercal plans. A Forbes columnists explains that “Based on my reporting of the health IT industry, [the increased recoveries likely reflect the fact that] that doctors have been “under coding” medical procedures over the years by using paper charts.” Nevertheless, following a New York Times article on Sunday, the federal government sent a “stern letter” to various hospital associations warning against the use of EHRs to artifically inflate recoveries. Healthcare IT News reports that the associations are placing the blame on complex Medicare reimbursement rules. (There is no doubt that Medicare reimbursement rules are hideously complicated.)

No good deed goes unpunished. The federal government has spent nearly $7.0 billion to purchase the technology for the providers. The Institute of Medicine, according to the AMA News, is hoping that this investment will ultimately reduce waste in the healthcare system. However, according to EHR Intelligence, the investment cannot pay off unless Congress permits the establishment of a uniform patient identifier. The bottom line from the FEHBlog’s perspective is healthcare technology should be delinked from the law and there should be no free lunch.

The FEHBlog remains concerned that hospitals will use the ICD-10 roll-out to renegotiate its provider contracts. The ICD-10 includes multitudes of new diagnosis codes and new hospital procedure codes.  The implementation date is now October 1, 2014, just about two years from now.

In closing, the FEHBlog again expresses his admiration for the FEHBP carriers for generally holding down premium increases for 2013.

The Senate recessed early Saturday morning after joining the House of Representatives in passing a continuing resolution funding the federal government through March 31, 2013 — the mid-way point of the next federal fiscal year. Here are links to a Hill report and a Govexec report on the resolution.  Now both the House and the Senate like the President are out on the campaign trail until November 6. Congress will return for a lame duck session after the election.

The Federal Times reports on OPM’s press release about 2013 FEHBP premiums. The article notes that

OPM is encouraging health insurers to find ways to take better care
of their enrollees. OPM wants insurers to reduce hospital readmissions
by 20 percent and cut preventable “hospital-acquired conditions,” such
as falls, by 40 percent. Foley said those are significant factors
driving up the cost of medical care.

OPM also wants insurers to
improve maternity and neonatal care and to eliminate early elective
delivery of babies before 39 weeks.

While these are worthy goals, the simple fact of the matter is that health plans with the exception of staff model HMOs like Kaiser do not provide patient care; rather they pay for care. Of course, as payors, health plans can influence care to a certain extent that varies with their leverage.  In that regard, NCQA recently issued its insurer rankings which is based on their certification and quality standards. The bottom line, however, is that doctors and hospitals as professionals under the Hippocratic oath and their professional societies must step up their game as illustrated by this article in yesterday’s Wall Street Journal.

Crabby Appleton was a character in the Tom Terrific cartoons when the FEHBlog was a lad. (Crabby Appleton also was a band in the 1970s but I have the cartoon character in mind.) The FEHBlog loves that name and he always considers the day after the announcement of next year’s FEHBP premiums (today) to be Crabby Appleton day.

Why? Take a look at today’s Federal Diary headline — “Health premiums rise is modest but unwelcome.”  The federal employee unions (which choose not to sponsor plans in the FEHBP) revel in dumping on OPM’s press release even when the average increase, like this year, is peanuts (and below the projected 4% increase for large employers noted in the FEHBlog last week). The FEHBlog knows that this rate increase is nothing short of miraculous given the aging demographics of this group (half annuitants) and rising healthcare costs. It’s a tribute to OPM and the carriers. It’s easier to carp from the sidelines.

The FEHBlog notes two eye-popping article from Kaiser Health News and the New England Journal of Medicine. The Kaiser article knocks the FEHBP becauise the FEHBP’s average cost increase over the last 10 years have been higher than Medicare’s. What a red herring argument. Of course, Medicare which as the FEHBlog has illustrated time and time again relies on artificially low rates set by law comes in with lower increases than the FEHBP which has negotiated rates. Plus those rates are higher than they should be because Medicare shift costs onto the FEHBP and private sector plans.

The New England Journal of Medicine commentary suggests that the FEHBP could be “much more innovative” by imitating Medicare.  Wow. The authors simply do not understand the FEHBP or the private market.

Turning to that market. the FEHBlog notes that Blue Cross and GEHA are two FEHB plans that already have announced their 2013 benefit changes on the heels of the OPM press release.

OPM issued its Open Season press release today. “The average premium for the 8.2 million people covered by the Federal Employees Health Benefits (FEHB) Program will increase by 3.4 percent in 2013, which is lower than last year’s increase of 3.8 percent.” OPM explained that there are no significant program wide benefit changes for 2013 (other than those mandated by the Affordable Care Act). You can find the 2013 rates here. The Washington Post adds that “There will be 230 participating plans in the FEHBP during 2013, up from the current 206, all but 13 of them health maintenance organization plans available only in a local area.”

Congress is in session for the latter part of this week following the Jewish New Year celebration that begins this evening. The House passed the continuing fund resolution funding the federal government for the first six months of the new federal fiscal year that begins on October 1, 2012.  According the Hill’s Floor Watch, the Senate is expected to pass the House resolution later this week.

The White House released its statutorily mandated sequestration report on Friday.  The sequestration will take effect in January 2013 unless Congress unless Congress and the White House agree on a great compromise to reduce future budget deficits by $1.2 trillion through 2021 in the lame duck session following the election. The Hill reports that “Sequestration would cut $11 billion from Medicare and take millions of dollars away from Affordable Care Act implementation programs.” Govexec.com reports that 

A senior Obama administration official could not estimate how many job
losses or agency furloughs would occur if governmentwide spending cuts
are triggered, but said federal employees would feel the effects of
sequestration: “Clearly, if a sequester would occur, this would have a
significant impact on the federal workforce.” President Obama has said he will exempt military personnel from the
effects of sequestration. Veterans benefits also are protected.

According to the report (pp. 134-35), the sequester would not apply to the FEHBP trust fund held in the U.S. Treasury.  This trust provides financing for FEHB plans and OPM’s administration of the program.

This could be the week that OPM releases the 2013 premiums and government contribution for the FEHBP. Last week the Kaiser Family Foundation reported that “Health insurance premiums rose 4 percent for family coverage this year,
well below last year’s increase and half the 8 percent average of the
previous decade – largely because people used less health care in an
uncertain economy.” Of course, as the FEHBlog has noted the AMA News joyously has reported an uptick in doctors visits this year.  The Kaiser article adds that a May 2012 PriceWaterhouseCoopers “report estimates [employers] will see premiums rise 5.5 percent next year. That’s a benchmark against which to measure the FEHBP increase for 2013.

The FEHBlog nearly levitated this morning when he read this Washington Post article (p. A3) captioned “Doctors, Others Billing Medicare at Higher Rates.”  While upcoding is nothing new, the reason for the current upcoding binge was surprising:

Many doctors and hospitals say that computerized medical records encourage the move to higher codes because the software makes it easier for providers to quickly create documentation for charges. One electronic medical records company predicts on its Web site that its product will result in an increase of one coding level for each patient visit, potentially adding $225,000 in new revenue in a year.

Of course, the government has spent nearly $7 billion over the past three paying for hospitals and doctors to use electronic health records. The gift that keeps on giving.