Congress remains in recess. The U.S. Court of Appeals for the Eleventh Circuit created a split in the circuits by deciding that the Affordable Healthcare Act’s individual mandate is unconstitutional as discussed at the Scotusblog. That blog points out that the the U.S. Supreme Court already has been asked to review the U.S. Court of Appeals for the Sixth Circuit’s opinion unholding that provision’s constitutionality (No. 11-117). Consequently, the odds appears good that the Supreme Court will rule on the issue before the 2012 Presidential election.

The Washington Post reports that “Unions reacted furiously Friday to a proposal by the Postal Service to lay off 120,000 workers by breaking labor contracts and to shift workers out of the federal employee health and retirement plans into cheaper alternatives.” (The reaction is understandable.) The Post also has provided a link to the white paper discussing the Postal Service’s vision for withdrawing from the FEHB Program. The FEHBlog seriously doubts that the Postal Service successfully will create a cheaper alternative to the FEHBP.

Why? It’s the demographics. Both the FEHBP and the Postal Service have older work forces and large cadres of annuitants (over 40% of the groups). The annuitants break down into three subgroups– early retirees (before age 65) who use more health care services than younger employees (those under 50), retirees over 65 with Medicare (Medicare Part A and B moderate the cost of this subgroup), and retirees who retired from the federal government or the Postal Service before 1983 and are not eligible for Medicare (this subgroup is the most expensive by far).

The FEHBP, utilizing group health insurance principles, successfully pools all of the employees and retirees together.  According to the white paper, the Postal Service proposes to break them out into three groups (without mentioning the pre-1983 retirees).

On Friday, the Affordable Care Act regulators issued another set of proposed rules intended to help states establish  the health insurance exchanges that will become operational in 2014. Business Insurance reports that the employer community is encouraged by the Internal Revenue Service’s announcement that “it will develop new rules that will make it easier for employers to determine if their health care plans are ‘affordable’ and exempt from a stiff financial penalty mandated by the health care reform law.”

Medcity News included a column by Dr. John Halamka from Harvard discussing why the healthcare industry has been slow to automate its processes. Dr. Halamka alludes to the key obstacle in the FEHBlog’s view — HIPAA. HIPAA was enacted almost 15 years ago and the HHS Department still has not issued all of the electronic transactions standards that Congress contemplated in 1996. Law and technology simply do not mix. Technology is flexible while the law is not. Moreover, Congress required only one side of the transaction — the health plans — to implement the standards. The approach of if you build it they will come only worked in a movie. (Congress later modified the approach to require larger providers to submit transactions electronically to Medicare). But the FEHBlog appreciates the fact that this is one horse that is unlikely to be lead back into the barn particularly as Congress doubled down with the HIPAA changes in the HITECH Act and the Affordable Care Act.

The Federal Times and the Washington Post are reporting that the Postal Service is asking Congress to permit it to layoff over one hundred thousand employees and pull its employees and retirees out of the FEHB Program and the federal employees retirement programs — in violation of its collective bargaining agreements with the Postal unions. According to the Federal Times,

The Postal Service said the Federal Employees Health Benefits Program doesn’t meet its needs, and said it will ask Congress for permission to pull its 600,000 active employees and 480,000 retirees out of the program. The Postal Service would set up its own health plan instead, which it said would be simpler, more cost effective, and more in line with the private sector.

The Postal Service forms about 27% of the FEHB Program’s  total enrollment. Pulling the Postal Service out of the FEHBP likely would create two relatively weaker health benefits programs in the FEHBlog’s view. This proposal is a big bowl of wrong.

FEHB plans will unveil their 2012 benefit designs and premium rates later next month. AIS Health reports on employee health plan benefit design trends for 2012 — in particular the growing interest in narrower provider networks and higher employee cost sharing.  These trends, however, are not rapidly adopted in competitive models like the FEHB Program where employees select their coverage.  In the program that the Postal Service evidently is contemplating for its employees, the employer can adopt aggressive approaches like these because there is no employee choice (other than declining coverage).

Reuters reports that there continues to be a substantial 24% spread between Medco’s stock price and the value of the Express Scripts acquisition deal “as contract concerns for Medco and the shaky stock market compound worries that the deal will fail to pass antitrust muster.”

The Government Accountability Office recently issued a report on the Federal Long Term Care Insurance Program. The report considers why more carriers are not attracted to bidding for the business.

Here’s a link to a comprehensive CMS actuarial projection of health care costs over the remainder of this decade that recently was published in Health Affairs. The AMA News comments on the report here. (Spoiler — The report projects increase spending on doctors so the AMA News is happy. However, the AMA News understandably is freaking out over the fact that the Medicare Part B physician reimbursement patch expires at year end — the same time that Congress is obligated to consider its “Super Committee’s” debt reduction package

CNN Money is reporting that the Walgreen’s pharmacy chain is planning to start selling health insurance in its stores “through a private insurance exchange.” According to the article, Walgreen’s is neither confirming nor denying the report.

CMS is holding a conference call tomorrow beginning at noon to discuss the Affordable Care Act’s funding opportunity for so-called CO-OP plans.

Kaiser Health News reports on the seven U.S. hospitals with the worst readmission rates for patients suffering from heart attack, heart failure or pneumonia:

The hospitals were:

• San Juan VA Medical Center in San Juan, Puerto Rico

• Florida Hospital in Orlando

• Franciscan St. James Health in Olympia Fields, Ill.

• Our Lady of the Resurrection Medical Center in Chicago

• Beth Israel Deaconess Medical Center in Boston

• Barnes Jewish Hospital in St. Louis, Mo.

• Brookhaven Memorial Hospital Medical Center in Patchogue, N.Y.

Their rates ranged between 20 percent and 31 percent of patients being readmitted within 30 days of discharge.

Another 54 hospitals had worse-than-expected rates for two of the three types of patients, and 231 hospitals had worse-than-expected readmission rates for one of the three categories.

The readmission rates are posted on the CMS Hospital Compare website.

Congress is in recess until after Labor Day. According to Govexec.com, Sen. Ben Cardin (D Md) that “assured federal employees that since Congress had set aside money for the fiscal 2012 budget as a result of the recent deal, another showdown in the fall over appropriations was unlikely.” That is good news.

On the Express Scripts acquisition of Medco front, the Chicago Tribune reports that Rep. John Conyers (D Mich.) called for a Congressional hearing on the deal and two drug store trade associations recorded an early opposition to the deal with the Federal Trade Commission. According to Business Week, Larry Merlo, the CEO for CVS Caremark, the principal competitor which reported second quarter results last week, remarked 

Assuming that the proposed transaction is completed, I am more confident than ever that CVS Caremark can and will effectively compete in this vibrant industry. That’s because we believe that our suite of assets uniquely positions us to assist payers in controlling costs, while enhancing member access and improving health outcomes. And with the evolution of U.S. health care to more consumer-directed care, our multiple consumer touch points make us best positioned to promote cost-effective and healthy behaviors. And the success that we are having in both the 2011 and `12 selling season clearly demonstrates that our model is resonating with payers.

Reuters reports that “Evaluating generic versions of complex biotechnology medicines will require a new, more rigorous review process, U.S. drug regulators said, in the first glimpse of their thinking on the subject.” A copy of the article published in the New England Journal of Medicine is available here. Biosimilars (or bio generics) offer the potential for bending the health care cost curve down.

Modern Healthcare reports that the Centers for Medicare and Medicaid Services announced that National 5010 testing week begins on August 22. HIPAA rules and a federal law require HIPAA covered entities to replace the ANSI X4010 healthcare electronic transaction standards with the X5010 standards effective January 1, 2012. The new standards can accomodate the International Classification of Diseases 10th edition (ICD 10) data set codes which are mandated as of October 1, 2013.  The ICD 10 codes are lengthier and much more complex than the current ICD 9 codes.

During that week, providers and other organizations that process Medicare claims can test the compliance of their software systems with the ASC X12 Version 5010 data-exchange standards. A real-time help desk and Medicare administrative contractors will be available for assistance, the CMS announced in an e-mail.

Today, Congress will patch the FAA appropriations issue until September 15 so people can get back to work. As previously noted in the FEHBlog, FEHB coverage continues during a furlough like this. Employees can catch up on their share of the premiums when they return to work.

In business news and notes, the Wall Street Journal is reporting that Medco is facing the loss of its sixth largest customer,  Blue Cross Blue Shield of North Carolina. That major insurer is contemplating joining Prime Therapeutics, a prescription manager owner by a group of Blues organizations. Shedding clients is not good for any company but it strikes the FEHBlog that this shift could boost the case that Express Scripts and Medco are making to the antitrust regulators that their deal will not create an anti-competitive monolith.

Meanwhile, a smaller PBM, SXC Health Solutions, announced a definitive agreement to acquire “PTRx, Inc. (“PTRx”), a full-service PBM, and SaveDirectRx, Inc. (“SaveDirectRx”), its exclusive mail-order pharmacy provider, both based in San Antonio,” for $77 million. 


Finally, Blackstone Capital Partners is taking the major electronic healthcare transaction interchange company Emdeon private in a transaction valued at $3 billion. Emdeon emerged from Healthion’s acquisition of WebMD Envoy in the 1990s. A lot of health plans and health care providers contract with Emdeon.  

The Nation’s leadership raised the debt ceiling in time to avoid the crisis that the Administration predicted. Congress recessed until last month without resolving the Federal Aviation Administration appropriations issue that has resulted in a furlough of 4,000 employees according to the Federal Times.

CBS News explains that the new debt ceiling law, among other things,

 Creates a 12-person House and Senate special committee to identify further spending cuts. The committee must complete its work by Thanksgiving – November 23 – and Congress must hold an up or down vote on the committee recommendations by December 23. The committee could overhaul the tax code or find savings in benefit programs like Medicaid, Medicare or Social Security. Congress could not modify the committee’s recommendation.

Should the special committee deadlock or should Congress reject the committee’s recommendations, then automatic across the board spending cuts of at least $1.2 trillion would go into effect.

A National Underwriter article explains how this process may affect health insurers.

Health care providers are concerned about the new law. Modern Healthcare notes that

some physician advocates warned about the complicated timing of the work of the deficit reduction panel, which will have to offer $1.5 trillion in cuts by Nov. 23 and secure congressional passage by Dec. 23. That is the same time frame in which Congress will need to find billions of dollars to pay for another delay of the 29.5% cut in Medicare physician reimbursements scheduled for the beginning of 2012.

Speaking of Medicare, the Centers for Medicare and Medicaid Services announced today the Program’s inpatient hospital care reimbursement policies for the federal fiscal year that begins October 1, 2012

CMS projects that total Medicare operating payments to acute care hospitals for inpatient services occurring in FY 2012 will increase by $1.13 billion, or 1.1 percent, in FY 2012 compared with FY 2011, due to a 1.0 percent increase in payment rates together with other policies adopted in the final rule. 

To provide hospitals with an incentive to reduce preventable hospital readmissions and improve care coordination, the Affordable Care Act requires CMS to implement a Hospital Readmissions Reduction Program that will reduce payments beginning in FY 2013 – for discharges on or after Oct. 1, 2012 ‑ to certain hospitals that have excess readmissions for certain selected conditions.   Today’s final rule finalizes readmissions measures for three conditions — acute myocardial infarction (or heart attack), heart failure, and pneumonia – as well as the methodology that will be used to calculate excess readmission rates for these conditions.

The final rule also adopts a Medicare spending per beneficiary measure for both the Hospital IQR Program and the new Hospital Inpatient Value-Based Purchasing (VBP) program required by the Affordable Care Act.   The new measure will assess Part A and Part B beneficiary spending during a period of time that spans from three days prior to a hospital admission through 30 days after the patient is discharged.   The goal is to encourage hospitals to provide high quality care to Medicare beneficiaries at a lower cost and to promote greater efficiencies across care settings and throughout the entire U.S. health care system.

The House and Senate remain in session this week as the leadership and the President seek to resolve the debt ceiling issue which, according to the Administration, comes to a head on Tuesday, August 2. The Wall Street Journal is now reporting that “President Barack Obama, speaking from the White House, said the leaders of both parties in both chambers of Congress have agreed to a deal to raise the federal debt ceiling and cut government spending.”

Last Wednesday (the FEHBlog missed posting at the end of the week as he was moving his law offices — the FEHBlog is now officially a K Street lawyer), the Washington Post posted an enlightening Q&A on the impact of a default on federal workers. In a live chat, Eric Yoder of the Post addressed the following FEHBP related question:

Under the normal furlough rules, the health insurance continues on for up to a year I think. However, the possiblity exists that the insurance bill would not be paid according to today’s WP. How real is that possibilty? What are federal workers supposed to do? When is OPM going to address this and other issues regarding the possible furlogh that would start if federal workers are not paid, etc. ?

Eric Yoder : If funding lapse shutdown policies are followed, health insurance would continue uninterrupted, and for employees put on nonpay status, and assuming that status would continue past the next pay date, the employee’s obligation would accumulate and would be taken out of the next pay received.

But of course, that’s an assumption. We have tried repeatedly to get OPM to answer questions about this and they have refused. The administration’s stance is that it doesn’t think a default will happen and therefore all of this talk is speculation. But employees such as yourself do have real concerns.

Using this past spring as a guide when a shutdown loomed, the administration did not provide any guidance until literally the day before the shutdown was to happen. Until then, you can only watch and wait.

On Friday, the Post reported this comment confirming the soundness of Mr. Yoder’s answer:

Moira K. Mack, a spokeswoman for the Office of Management and Budget, said in a statement, “The president believes we will resolve this situation and avoid any disruption in government operations or payments.” She added that the budget agency would not engage in “hypotheticals” on what happens if the government loses its borrowing authority.

The FEHBlog hopes that the President is right but with all due respect to OMB, engaging in contingency planning is all about addressing hypothetical situations.

In addition to the debt ceiling, Congress presumably also has to address ongoing furlough of over 1,000 Federal Aviation Administration employees before going on August recess. Of course, the federal government’s fiscal year ends on September 30, which may result in another round of “hypotheticals” about government shutdowns.

Tomorrow is the deadline for public comments on the proposed revisions to the HIPAA accounting for disclosures rule which includes a new and burdensome access report requirement.  So far 194 comments have been posted on regulations.gov. Modern Healthcare reports that two major organizations — American Health Information Management Association and Medical Group Management Association — have voiced their opposition to the access report requirement.

Kaiser Health News offers an interesting report about an impending Medicare rule to penalize hospitals which have a high readmission rates and high costs. The upshot is that

many hospitals are already scrambling to change how they supervise former patients, says Chas Roades, chief research officer at The Advisory Board Company, a health care consultancy. “One of the big themes I’m hearing now across the hospital industry is, ‘We can no longer think of ourselves as just hospital companies, we have to be full-service health care managers,'” he says.

Consider Trinity Health, which owns 50 hospitals around the country, including Holy Cross in Silver Spring, Md. Before patients leave the hospital, Trinity’s nurses now set up appointments for them with their regular doctors. They also make sure patients can get to the appointment, either by helping them figure out whether Medicare or Medicaid pays for transportation, or by paying for the trips directly.

“We’re trying to do a better job of sending them home better-prepared, rather than just saying good luck,” says Dr. Terry O’Rourke, Trinity’s chief clinical officer. But he says there are limits to what they can do: “The majority of physicians are not employed by the hospital, and we don’t have control over their practices.”

Dr. Kavita Patel, a Brookings Institution fellow and former Obama administration official, says changes occurring in both the private sector and Medicare will speed up the trend of hospitals’ overseeing the care of former patients.
For example, she says, many hospitals are buying the practices of primary care doctors, making it easier for them to arrange and oversee the care of patients after discharge. “The more hospitals realize they’re going to be held accountable, that’s where they are going to get creative,” Patel says. 

The FEHBlog noticed several reports this week about the tidal wave of blockbuster drugs that will become available as generics over the next 14 months, such as Lipitor, Plavix, and Lexapro.  The Wall Street Journal reported yesterday on the prescription drug manufacturer Merck’s announcement of a 13,000 employee layoff:

Prescription drugs with $91.8 billion in U.S. sales are slated to face competition from cheaper generics due to patent expirations through 2015, according to investment bank Crédit Agricole. However, setbacks in developing new drugs have hurt companies’ ability to find new revenue.
There are new drugs coming on the market and under development. But the pipeline is expected to yield just $78 billion in world-wide sales by 2015, according to Kalorama Information, a medical market-research firm.

The result: extensive cost-cutting throughout the pharmaceutical industry. Drug makers announced plans to eliminate 53,636 U.S. jobs in 2010, according to Challenger, Gray & Christmas, a job-outplacement firm. Through June, companies had announced 4,771 job cuts.
The new round of layoffs at Merck targets personnel in administrative positions and at the company’s headquarters, [Merck CEO Kenneth] Frazier said. The company spokesman said 35% to 40% of the new work-force reductions will be in the U.S., while Merck will continue to hire new employees in “growth areas,” including emerging markets such as China.

When finished by the end of 2015, [Merck] will have eliminated about 30% of the work force it had at the end of 2009, in the wake of its $41.1 billion acquisition of Schering-Plough. Some of the cuts have been offset by hiring, however. 

The Affordable Care Act regulators issued in today’s Federal Register corrections to the June 24, 2011, amendments to the July 23, 2010, claims, internal and external appeals procedures rule. None of the corrections impact the applicability of the rule to the FEHB Program.

The FEHBlog ran across this Institute of Medicine report on improving access to oral health for vulnerable and underserved populations in the U.S. This report strongly suggests to the FEHBlog that the essential benefits package that the IOM’s recommended esssential benefits package will include at least routine dental benefits for children and adults. FEHB plans and other group health plans that provide dental coverage would not be able to place annual or lifetime dollar limits on on dental (or any other) benefits that HHS deems essential. The HHS Secretary is expected to announce this package in 2013 based on the IOM recommendations and public hearings.

On the Express Scripts purchase of Medco front, Bloomberg reports that a Medco shareholder has filed suit in federal court alleging that the Medco board did not obtain the best price for the shareholders.  Medco’s stock price continues to trade below the Express Scripts offer of $71.36 in Express Scripts stock and cash for each Medco share. Medco closed today at $64.58. Meanwhile, Business Insurance reports that “Medco Health Solutions Inc. and AstraZeneca P.L.C. were subpoenaed by the U.S. Department of Justice over their relationship involving four of AstraZeneca’s drugs, including widely used acid reflux medicines Nexium and Prilosec.”

The AMA News reports that the Centers for Medicare and Medicaid Services is adding the question “Do you accept new Medicare patients” to the forms that doctors and other health care providers must use to enroll or re-enroll in Medicare programs.

Officials working on the Medicare agency’s Physician Compare website had requested that the question be added for future versions of the online comparison tool, said CMS spokeswoman Ellen Griffith.
“We actually have received suggestions from both physicians and beneficiaries to add this element, since it is frustrating to beneficiaries to call physicians who are not accepting new patients and for those physicians to field those calls when they are not taking new patients,” Griffith said.

The House and Senate remain in session this week as the House and Senate leadership, together with the President, focus on raising debt ceiling. While scanning the internet to prepare this FEHBlog entry, I noticed articles in Govexec.com and the Federal Times reporting that the Federal Aviation Administration has furloughed 4,000 employees because the House and Senate cannot agree on a funding law for the agency.

Business Insurance reported on consumer advocacy groups’ negative reactions to the Express Scrips – Medco merger discussed in Friday’s FEHBlog entry.

Antitrust regulators could well take a hard look at how many options big companies have when they look for a pharmacy benefits contractor, said this expert [who asked not to be named].
“The question is how many alternatives do large companies have?” this person asked. “When a large company goes out to bid its (drug) plan, how many options do they have?”

The expert is overlooking the fact that many major health insurers, including U.S. Healthcare, Aetna, and CIGNA, have their own prescription benefit manager units.  Although these companies do not insure the health plans of large companies, they do administer those plans and certainly would be willing to provide PBM services too. As noted in the FEHBlog there is another rapidly growing PBM, Catalyst Health Solutions, which recently purchased Walgreen’s PBM unit. Plus as noted in Friday’s FEHBlog entry, the Express Scripts – Medco acquisition agreement includes divestment provisions intended to address anti-trust regulators concerns. Anti-trust regulator approval of this transaction is not a slam dunk but changes are reasonably good, in the FEHBlog’s gut reaction view.

Last week, Standard and Poors released its updated healthcare economic indices. U.S. healthcare costs rose 5.58% over the 12 months ended May 31, 2011.

Over the year ending May 2011, healthcare costs covered by commercial insurance increased by 7.35%, as measured by the S&P Healthcare Economic Commercial Index. Medicare claim costs rose at an annual rate of 2.64%, as measured by the S&P Healthcare Economic Medicare Index. The Commercial and Medicare Indices are respectively 0.25 and 0.16 percentage points above their April 2011 annual rates.

Kaiser Health News featured a roundtable of expert opinions who identified trends that have the potential to lower the healthcare cost curve.

The AMA News reported that beginning August 1, FAIR Health, the New York non-profit that now managed Ingenix’s usual reasonable and customary databases for pricing out-of-network provider claims, will unveil its online tool to help consumers project health care bills for out-of-network services by geographic region. According to the AMA news article,

The goal is to give patients an idea of what they will be billed if they choose to see an out-of-network physician, so they can better prepare to meet out-of-pocket expenses or select a physician who charges a lower-than-average fee. The information is free and based on independent data. 

August 1 is also the deadline for public comment on the Health and Human Services Department’s May 31 proposed rule broadly expanding the HIPAA accounting for disclosures rule to include so-called access reports. 87 comments already have been filed on this proposed rule at regulations.gov. The FEHBlog was impressed by the comments submitted by the College of Healthcare Information Management Executives, strongly opposing the access report requirement.

Yesterday, a blockbuster merger of two of the three largest prescription benefit managers — Express Sripts and Medco — valued at $29.1 billion was announced.

Under the agreement, Medco shareholders will receive $71.36 per share in cash and stock, or $29.1 billion, based on yesterday’s closing price. Medco shareholders will receive $28.80 in cash and 0.81 shares for each Medco share they own upon closing of the transaction. The agreement has been unanimously approved by the boards of directors of both companies.

Medco also disclosed that its $11 billion contract with United Healthcare will not be renewed after December 31, 2012. Assuming that this merger clears federal antitrust review, the big three PBMs in 2013 in order would be ESI-Medco, Caremark CVS, and United Healthcare.  United Healthcare’s decision to go its own way may help the merging parties obtain anti-trust approval.

The New York Times has an interesting story about the efforts that the merging parties are making to clear anti-trust hurdles.

In Express Scripts’ case, the parties’ acquisition agreement requires Express Scripts to take substantial steps to obtain antitrust clearance. The primary requirement is that the newly combined Express Scripts-Medco must undertake the following steps to satisfy the F.T.C. if it legally makes such a request (this is Section 5.8(e) of the merger agreement):
1) The divestiture of one mail-order dispensing facility anywhere except St. Louis, where Express Scripts is based.
2) The divestiture of specialty pharmacy dispensing or infusion facilities having a net book value no more than $30 million outside of Indianapolis.
3) The divestiture of contracts that generated collectively earnings before interest, taxes, depreciation and amortization, or Ebitda, not in excess of $115 million during the last 12 months.
The agreement also states that in no event shall Express Scripts be required to divest get more than 35 million individual prescription drug claims

Investors evidently are hedging their bets about anti-trust approval because

Shares in Medco rose again on Friday, up nearly 2.8 percent at $65.61 as of early afternoon. But that’s still well below the $74.98 that Express Scripts’ stock-and-cash offer is now worth.

To be clear, Express Scripts has also reaped some benefits from its offer as well. Its shares were up nearly 3 percent at $57.01 by Friday afternoon.

But there remains significant concern about whether the deal would survive antitrust scrutiny. Express Scripts and Medco are two of the three biggest pure-play pharmacy benefit managers, and such horizontal mergers tend to be looked at more skeptically than other kinds of deals. (Deal aficionados remember that Express Scripts’ attempt to buy Caremark Rx was scuttled largely because of antitrust fears.)

Other analysts believed the deal can still win regulatory approval. 

The anti-trust review process lead by the Federal Trade Commission and the Justice Department is expected to take six months.