Today was a good day because I enjoy having my opinions vindicated.

First, the New York Times reported that the American Medical Association opposes the inclusion of a public option in the reformed health care system. Common sense at last. The public option as envisioned by Sen. Kennedy would eclipse the private health insurance market and impose low Medicare level pricing on providers who ultimately would have nowhere to shift their losses. As Prof. Uwe Reinhardt noted, every dollar of healthcare expense is a dollar of someone’s income. The AMA later issued a press release that “The AMA opposes any public plan that forces physicians to participate, expands the fiscally-challenged Medicare program or pays Medicare rates, but the AMA is willing to consider other variations of a public plan that are currently under discussion in Congress.”

The Wall Street Journal also reported that debate is not limited to the public option. Controversy has arisen over the health insurance exchange feature, which has been proposed by everyone because the devil is in the details. As noted in the article

Health insurers, seeking to protect the market for employer-sponsored plans,
argue that if subsidies are available only for standardized plans on offer in
the new exchange, then more people might leave their company health plans. For
instance, a provision in the bill proposed this week by Sen. Edward Kennedy (D.,
Mass.) would make exchange plans available to employees if their employer
doesn’t offer coverage deemed affordable.

This opt-out concept could affect the FEHB Program which offers employees a wide range of plans with varied benefit designs and pricing.

Second, I have considered the First Databank average wholesale price fixing class action settlement coming out of the federal court in Boston to be a complete waste of effort. The judge order a prospective roll back of prescription drug prices, and the prescription drug manufacturers and pharmacies are furiously working to offset the roll back. The Wall Street Journal today raised questions about the value of the settlement to consumers. The report notes that

Prices of drugs are determined by a host of middlemen. Pharmacy-benefit
managers, which pay pharmacies on behalf of employers and insurers, are
typically paid for their services based on the AWP benchmark. And PBMs also use
the benchmark to figure out what they pay pharmacies.It is unclear to what extent PBMs, once they became aware that the benchmark had allegedly been fraudulently inflated, compensated by reducing the amount they were paying pharmacies. Meanwhile, pharmacies say that a rise in the benchmark wasn’t their fault and that they can’t afford further reductions in their margins. They are
negotiating with insurers to keep their pay constant, regardless of whether the
benchmark is rolled back.

And the beat goes on. The parties who objected to the First Databank settlement have filed an expedited appeal with the U.S. Court of Appeals for the First Circuit.

There also is a related class action settlement with McKesson involving a $350 million settlement fund which is OK in my book, although as the Journal points out it may be difficult for consumers to recover. The court will consider the fairness of that settlement on July 23.

I heard Princeton Prof. Uwe Reinhardt speak yesterday at a Society of Actuaries meeting in Toronto, Canada, which is a nice city.

Prof. Reinhardt supports the President’s healthcare reform initiative. He does not believe that a single payer system will work in America because Americans do not have the same favorable attitude toward government that Canadians do. (But see this op ed from today’s Wall Street Journal.)

Prof. Reinhardt thinks that there needs to be community rating for health insurance. With community rating, everyone pays the same premium. According to the professor, in order for health insurance to work, there must be a mandate to purchase insurance. He identified New Jersey as a state that experimented unsuccessfully with a community rating program for individual health insurance that lacked a mandate.

He thinks that the health insurance exchange is a good idea but he thinks that the a risk equalization mechanism. He explained that Germany has 200 sickness funds. All of the sickness funds in a region pay providers on the same payment schedule. Premiums are set as a percentage of income. When a German enrolls for a sickness fund, a risk equalization board considers the individuals age, gender, income, and a variety of health factors (identified by a U.S. consulting firm). Based on that analysis, the Board decides the monthly risk adjusted premium paid to the sickness fund. Like a community rated FEHB plan, the sickness fund enjoys the medical underwriting gain if the individual’s medical costs come in under the risk adjusted premium. He stated that he does not understand the basis on which sickness funds compete.

Prof. Reinhardt would like to see hospitals and doctors price their services using the Medicare pricing methodologies (DRGs and RBRVS). The providers could compete by setting their own dollar modifiers in the Medicare methodologies.

Prof. Reinhardt noted that Sen. Kennedy had floated his health care reform bill which includes an mandate but allows a premium subsidy up to five times the poverty level ($110,000 of income for a family). He predicted that this approach would cost an extra $2 trillion over ten years. A more modest subsidy up to three times the poverty level would cost an extra $1.2 trillion over ten years.

• The FEHB Program’s enrollment is about 50% federal and USPS annuitants. Consequently, it’s significant that according to the Federal Times, “Military and federal retirees, disabled veterans and others receiving inflation-adjusted federal benefits should not expect to see any increase this year, according to a new Congressional Budget Office estimate.”
• On Thursday, the House of Representatives passed a paid parental leave bill for federal employees (H.R. 636), according to Govexec.com. The Office of Management and Budget has endorsed this bill in a Statement of Administration policy. The bill now must be passed by the Senate. In the last Congress, the House passed this legislation but the Senate did not. The bill is before the Senate Government Operations and Homeland Security Committee.
• Kaiser Health News published an interesting review of opinion on how opposition to the President’s health care reform initiative might develop.

• According to the White House blog, the President spelled out his health reform vision yesterday in a letter to Senators Ted Kennedy and Max Baucus. His letter talks about his support for universal coverage , for establishing a health insurance exchange similar to the FEHBP except that unlike the FEHBP the health insurance exchange would include a public plan option, and hold down Medicare spending by adopting Medpac recommendations. It’s a tall order.
• The New York Times report notes that the President’s letter “did not use the terms ‘individual mandate’ and ’employer mandate,’ which suggest a degree of coercion that Democrats try to avoid implying.”
• The Politico reports that on views from the other side of the Senate aisle — “It wasn’t helpful,” Iowa Sen. Chuck Grassley, the ranking Republican on the Senate Finance Committee, said of the president’s letter. “Words make a difference, and it made a difference.”
• Modern Healthcare reports that Senate Finance Committee Chair Max Baucus who had been low keying the public plan option, is falling in line with the President’s strong support for the public plan option. According to that report,
  

  “Baucus ** * hinted that a public option would likely look and feel more like a private plan, adhering to open-market principles and “where the government’s thumb is very, very light. Nevertheless, many Republicans say they remain unswayed in their opposition. “Our caucus is very, very much against a public option,” said Sen. Chuck Grassley of Iowa, the senior Republican on the Finance Committee. He also said that provisions requiring employers to pay an added tax if they don’t offer health coverage to their workers are also dealbreakers. “And that’s all you can say,” he said.

  Similarly, the New York Times reports that “the 51-member Blue Dog Coalition [of House Democrats}, said the public plan should be available only as a backup [similar to Medicare Part D], if private insurers did not rein in costs and offer affordable coverage to everyone.” June may prove to be an interesting month.

Following up on last month’s meeting with President Obama, the American Medical Association, the American Hospital Association, America’s Health Insurance Plans, Phrma, and more sent the President a letter with more detailed suggestions on bending the health care cost curve. Also today, the GAO released a report on FEHB plan member cost sharing for specialty or biologic drugs. The PBM trade association, PCMA, points out that Congress could start bending the curve by passing a law that creates a regulatory pathway for lower priced “bio-similar” drugs. Good point.

• Word of Senate Health Education Labor and Pensions Committee Chairman Ted Kennedy’s healthcare reform proposal leaked last week, and the New York Times promptly and in my view understandably reported yesterday that Kennedy’s plan is at odds with the bipartisan plan under development by Senate Finance Committee Chairman Max Baucus. The New York Times reported that
  

  As a starting point for his bill, Mr. Kennedy favors a public plan that looks
  like Medicare, the government-run program for older Americans created in 1965, when he was a young senator.

  By contrast, Senator Max Baucus, the Montana Democrat who is chairman of the Finance Committee, has been working for months with the panel’s senior Republican, Charles E. Grassley of Iowa, in the hope of forging a bipartisan bill, which would probably play down the option of a public plan.

  Mr. Grassley opposes creation of a new government insurance program and says “we cannot afford the public health plan we have already,” referring to Medicare.

  President Obama has championed a public plan, saying it would help “keep the private sector honest,” though he has indicated he will be flexible on the details.
  House Democratic leaders, including three committee chairmen drafting the House bill, are close to Senator Kennedy’s position.

  I couldn’t agree more with Sen. Grassley. Medicare is rapidly going broke, and I fail to understand how health care reform will fix that problem. Moreover, I don’t understand the President’s point particularly as the bulk of health care fraud is on the provider side. My wife owns a knitting store. Does there need to be a government run knitting store in order to keep her honest? And there is no public plan option in the successful FEHB Program.

  AHIP released a Milliman report last December explaining how Medicare’s and Medicaid’s low reimbursements to providers shift substantial costs onto the private sector. The study found that cost shifting:

  •Adds an estimated $1,512, or 10.6 percent, to the average premium for a family of four
  •Of this amount, employers pay approximately $1,115 and the employee share is $397
  •Families pay an additional $276 more in coinsurance and deductibles due to the cost-shift

  Nevertheless, according to the New York Times

  Under Mr. Kennedy’s proposal, the government-sponsored plan might pay more than Medicare, perhaps 10 percent more, but less than private insurance.
  Under the House bill, the public plan would use Medicare fee schedules in setting payments to health care providers.

  How will private sector plans be able to compete as providers seek to shift more public option plan costs onto them. And when the public plan option drives the private sector health care industry out of the market as Medicare did in 1960s where will the providers shift costs?

  Today the New York Times reported that Sens. Kennedy and Baucus “issued a joint statement on Saturday saying they would “seek common ground on health reform legislation.” Time will tell. The Washington Post reports that

  A top administration official said the White House expects Kennedy to unveil his bill Monday. A timetable released by Kennedy’s office calls for Democrats on the Senate health committee to meet Tuesday, with a bipartisan session scheduled for Friday. Committee markups could begin June 16.

• Athena Healthcare released its annual healthcare payer rankings, which considers speed of payments, denial rates, etc. — Humana, Aetna, and Cigna are 1, 2 and 3.
• And as this is the FEHBlog, it’s worth noting that today is deadline for FEHB Program carriers to submit their 2010 benefit and rate proposals to OPM in response to OPM’s call letter. OPM expects to complete benefit and rate negotiations by August 14, 2009.

Govexec.com reports that OPM Director John Berry said today that “his longer-term goals include moving aggressively to control costs in the Federal Employees Health Benefits Program.” That objective is easier said than achieved, particularly given the demographics of the FEHB Program. Because the federal government offers generous retiree benefits, half of the Program’s four million enrollees are annuitants and the average age of a FEHBP enrollee is around sixty. Moreover, OPM and the carriers have been doing a good job with the Program, in my opinion.

Modern Healthcare reports that the United Healthcare Group released a paper concluding that “The federal government could save more than half a trillion dollars over the next decade simply by pushing initiatives to reduce medical errors, to promote better treatment of chronic and advanced illnesses, and to step up case management.” Here are the 15 United Healthcare initiatives:

A. Incentivizing Member / Beneficiary Use of High Quality Providers 2010-2019 Savings
Option 1: Member Incentives to Use Highest Quality Providers Assessment of quality and efficiency of providers using “episodes of care” analytics measured against evidence-based standards and efficiency benchmarks. Provides members with incentives to use highest quality physicians. ~$37 billion
Option 2: Cancer Support Programs Voluntary guidance on cancer treatment best practices and patient options, including hospice care. Case management to prevent hospital readmissions between therapy sessions. ~$5 billion
Option 3: Transplant Solutions Program Voluntary guidance for patients on selecting the best transplant centers in the nation for their condition. ~$0.7 billion
B. Reducing Avoidable and Inappropriate Care
Option 4: Institutional Preadmission Program Provision of onsite nurse practitioners at skilled nursing facilities to manage illnesses and prevent avoidable hospitalizations. ~$166 billion
Option 5: Transitional Case Management Program Follow-up with patients after leaving the hospital to reduce readmissions by checking on recovery progress and supporting adherence to discharge plans and recommended medical care. ~$55 billion
Option 6: Advanced Illness Program Provides information and guidance to patients and their families about both their condition and the benefits of further treatment options including palliative care at the end of life. ~$18 billion
Option 7: Disease Management for Congestive Heart Failure Voluntary coaching for members with higher-acuity chronic illness to ensure treatment compliance. ~$25 billion
Option 8: Gaps In Care Program Voluntary intervention for members with chronic illness, but relatively good health to ensure ongoing treatment compliance. ~$1.4 billion
Option 9: Integrated Medical Management Application of clinical evidence-based care management tools with targeted preventative care and patient education tools to reduce admission rates. ~$102 billion
C. Incentivizing Physicians to Encourage High Quality Care
Option 10: Patient-Centered Medical Home Establish a primary care physician as the central ongoing coordinator of patient care. Reduces inappropriate or duplicative treatments while ensuring needed ‘anticipatory’ care is provided. ~$20 billion
Option 11: Physician Additional Compensation Program Rewarding physicians for providing comprehensive medical care and utilizing resources appropriately. ~$24 billion
Option 12: Specialist Data Sharing Sharing comparative quality and effectiveness data with physicians to induce behavioral change towards evidence-based clinical practice. ~$15 billion
D. Applying Evidence-Based Standards to Reimbursement Policies
Option 13: Radiology Benefit Management Application of clinical evidence to determine clinically appropriate diagnostic radiology studies. ~$13 billion
Option 14: Radiology Therapy Management Application of clinical evidence to determine clinically appropriate usage of radiology therapies. ~$5 billion
Option 15: Prospective Claims Review Analysis of claims before they are paid to detect upcoding, duplicate billing and billing for non-existent patients. ~$57 billion

I think that it’s helpful to review the list and the paper because many if not all of these initiatives are being mulled over by the Senate Finance Committee and the new Federal Coordinating Council for Comparative Effectiveness Research created by the 2009 recovery act. And speaking of cost effectiveness, Health Affairs has published a study based on Medicare’s Hospital Compare initiative which finds no correlation between intensity of spending and quality of care. “The absence of positive correlations suggests that some institutions achieve exemplary performance on quality measures in settings that feature lower intensity of care.” Medicine is as much an art as it is a science.

Under the no good deed etc. heading, the New York Times reported yesterday that legal experts are raising anti-trust concerns about cooperative efforts among health care providers and payers to control costs. The article points out historical precedents from the Clinton and Carter administration to support those opinions.

President Obama today nominated U.S. appellate judge Sonia Sotomayor to the Supreme Court seat being vacated by Justice Souter. I can tell my answering service to stand down. Also the FEHBlog notes that the good Judge authored the U.S. Court of Appeals for the Second Circuit’s decision in the Empire Healthchoice Assurance Inc v. McVeigh, 396 F.3d 135, case which the Supreme Court ultimately upheld. McVeigh is the Supreme Court’s only decision interpreting the FEHB Act.

On the fun facts to know and tell front, CNN reports that “Over the course of almost 17 years on the federal bench, Sotomayor has written opinions on at least eight cases that the Supreme Court later reviewed on appeal, according to a CNN analysis of Sotomayor’s cases. Of those cases, six were either overturned or sent back to the lower court for further consideration. One case was upheld, but Sotomayor’s legal reasoning was panned in the opinion signed by entire court. An eighth case is still being deliberated.” CNN mistakenly lists McVeigh as a Supreme Court decision that reversed Judge Sotomayor.

Happy Memorial Day weekend, everyone.

• Following up last Thursday’s post, the AP expanded on Senator Baucus’s health care reform comments to report that “the health overhaul would cover nearly everyone _ 94 percent to 96 percent of the population _ but not undocumented workers. The current system covers 86% according to the same article. Also the American Hospital Association weighed in with Sen. Baucus’s Finance Committee on the public plan option under consideration. According to Modern Healthcare,
  

  A chief concern, the AHA letter states, centers on a history of government
  underpayments in programs such as Medicare and Medicaid. According to a 2007 AHA survey, 58% of U.S. hospitals, or 2,840, said they were not paid their cost for providing care to Medicare patients. With Medicaid, hospitals lost some $10.4 billion in 2007 due to payment shortfalls.

• The American Hospital Association also wrote to the Justice Department raising antitrust concerns about health plan consolidation. America’s Health Insurance Plans (AHIP) retorted in a press release that
  

  “A recent letter from American Hospital Association to the Department of
  Justice (DOJ) asks the department to take a ‘more aggressive role in
  understanding how health plan market power and consolidation harm hospitals and other providers.’ This letter uses erroneous data to draw an erroneous
  conclusion that, unfortunately, is being used today by advocates for creating a
  public program in health care reform to justify their position.

  “We are forwarding today to the DOJ a letter reiterating our concerns with hospital consolidation through merger and affiliation, and its effect on costs for
  consumers. As the nation pursues health care reform, our public discourse
  must be based on the facts and must be focused on what the outcome of our
  discussion will mean for consumers and the economic health of our nation.”

• Also speaking of hospitals, the New York Times reported on a new trend in hospital construction to utilize private rather than semi-private rooms. That will have an interesting impact on health plan benefits which are based on semi-private room coverage. In that regard, the actuarial consulting firm Milliman released its fifth annual Medical Index. According to a Milliman press release,
  

  Key MMI findings include:

  The total 2009 medical cost for a typical American
  family of four is $16,771, compared with the 2008 figure of $15,609. This is a
  7.4% increase from 2008 to 2009.

  This is the third straight year of decreasing cost trends. Even so, the $1,162 increase is the highest since the 2006 increase of $1,169, when cost trends were at 9.6%.

  Every category of costs except inpatient and outpatient facility care experienced lower cost trends than last year.

  This is the third consecutive double-digit percentage increase in the amount that employees spend for healthcare services. This is primarily due to increased employee contributions, as out-of-pocket cost-sharing trends were more modest.

  The current economic environment has significant implications for healthcare costs. The consequences of employers’ lost business, consumer insecurity, and provider revenue pressures affect healthcare utilization, charges for healthcare services, and who pays for the healthcare. The unprecedented uncertainty has accelerated cost increases in some ways and at the same time has reduced certain categories of utilization (e.g., electiveprocedures).

• The American Medical Association and the American Association of PPOs partnered on a health care provider contracting toolkit, an encouraging development. According to the AMA press release,
  

  The toolkit provides quick reference documents on several key issues that arise during the contracting process, including:

  Responsibilities of PPNs/Payers
  Physicians Contracting with PPNs
  Assessing Network Value
  Primary/Secondary Network Matrix
  Understanding Silent PPOs

  The toolkit is available in hard copy, or can be accessed online at AAPPO and AMA Web sites.

• Government HIT News reports that “The Office of the National Coordinator for Health Information Technology (ONC) has proposed developing a Web site containing facts about personal health record (PHR) systems and the privacy policies related their use to help consumers make informed decisions.

According to the Hill, Senate Finance Committee chairman Max Baucus is predicting 75% to 80% chance of passing health reform this year. I think that the chances of health care reform are high, and President Obama certainly has learned from his Secretary of State’s mistakes in 2003, but it is risky to count your chickens before they hatch. I am puzzled by the fact that the Medicare trustees’ recent announcement of the impending collapse of the Medicare Part A trust (indeed before I’m eligible) is not raising more alarms. The Administration is arguing that universal health care will solve the Medicare trust problem. “Just as families, communities and businesses are struggling under the crushing burden of skyrocketing healthcare costs, so too are our Medicare Trust funds,” said [HHS Secretary Kathleen] Sebelius. “This isn’t just another government report. It’s yet another sign that we can’t wait for real, comprehensive health reform.” I can’t see the connection. The Financial Times offers an interview with OMB Director Peter Orzag who said “’We have been very clear that a deficit-increasing healthcare reform is neither practical nor desirable.’” A senior administration official told the FT that health reform would have to be deficit-neutral over 10 years and in the tenth year, and promise substantial savings over the longer term.” That obviously is easier said than done, and I expect that in the end the medical community will get jittery over reform. Of course, the health insurance industry already is.