• House Federal Workforce Subcommittee Chairman Stephen Lynch announced last week that on June 24 at 10 am, his subcommittee will hold a hearing on the cost of specialty drugs in the FEHB Program. The GAO recently issued a report on this topic. Specialty drugs are typically injected biologics rather than chemicals in pill form. The Pharmacy Times reported on February 1, 2009, that
  

  Looking ahead, the introduction of [generic versions of specialty drugs or]biogenerics could result in even more substantial savings for patients, with estimates ranging from $14 billion to as much as $67 billion within the first decade of competition. Given these estimates, it is clear that competition from biogenerics will create savings that dwarf those generated by traditional generic pharmaceuticals for both patients and government since 1984.

  However, Congress first should pass a law creating an FDA regulatory pathway for biogenerics. Earlier this month, Congressman Henry Waxman, for whom the 1984 chemical drug generic law is named, asked the President this month to have the FDA investigate ways to create this pathway without legislation according the Fierce Biotech.com. “Waxman also reminded Obama of his pledge to bring down the cost of biologics, which has helped fuel healthcare costs.”

• Speaking of drug costs, the pharmaceutical manufacturers trade association Phrma announced a deal with Senate Finance Committee Max Baucus to work cooperatively to reduce the so-call donut hole in Medicare drug coverage. This reminds me of the savings that retail stores were able to create for everyone by charging a few dollars for generic drugs.
• The Hill reports that
  

  Health policy analyst Alec Vachon on Saturday said, “The real question is — how is this ‘deal’ [between Sen. Baucus and Phrma] a positive for the pharmaceutical industry? Given the sketchy facts, two speculations: First, the deal may allow industry to dodge new drug rebates that the Finance Committee had proposed, which are profit transfers to government. Even better, given that many seniors aren’t filling prescriptions in the ‘donut hole,’ new ‘donut hole’ sales are likely very profitable — even at discount prices because of the low marginal cost of drug manufacturing.”

• The Hill further reports that
  

  Cost issues continue to dog Democrats on healthcare reform. Obama has repeatedly vowed to enact a healthcare reform bill that is completely paid for. That would mean that the $634 billion he has called for healthcare reform would be paid for by tax increases or cuts to healthcare providers.

  Covering even most of the uninsured, however, will cost well over $1 trillion and finding the offsets to completely pay for the bill are nearly politically impossible.

  The CBO numbers released last week suggest Democrats have two choices: 1. Scale back their massive plans to cover most of the 47 million uninsured and seek coverage in incremental steps; or 2. backtrack on promises to pass a healthcare reform bill that will not add to the federal deficit.

  Similarly the AP reports this afternoon that

  A Republican senator seeking a bipartisan health deal spoke Sunday of “dialing down” expectations while one of President Barack Obama’s Democratic allies questioned whether the White House had the votes necessary for a such a costly and comprehensive plan during a recession.

• Finally, last week, New York Attorney General Andrew Cuomo announced a usual reasonable and customary (“UCR”) database with HealthNet.
  

  With Health Net signing on today [June 18], we have reached our goal of covering every single insured New Yorker with our reform efforts,” said Attorney General Cuomo. “I’m also pleased to have partnered with Governor Paterson and Insurance Superintendent Dinallo and created this new regulation to codify the reforms that the entire health insurance industry has now embraced. It will eliminate the conflicts of interest that infected the industry in the past, and ensure that New York healthcare consumers are never subjected to these kind of abuses again.

  Cuomo still must name the qualified university that will run the conflict free database. I understand that Ingenix will stop offering its UCR databases sixty days after the conflict free database is operationsl.

• Taking his cue from Secretary of State Hillary Clinton, the President extended certain non-statutory fringe benefits to same sex domestic partners, including voluntary long term care insurance and allowing employees to use sick leave to care for those domestic partners and their children. The President also reiterated his call for the repeal of the federal Defense of Marriage Act which prohibits the extension of FEHB Program coverage to same sex domestic partners. Senator Lieberman, who chairs the Senate Homeland Security and Government Operations Committee, has reintroduced his Domestic Partnership and Obligations bill (S. 1102 / HR 2517) which would achieve the President’s goal.
• OPM posted on the web its FY 2010 budget justification / performance budget document which makes the following statement about the FEHB Program:
  

  The ever-increasing cost of health care is a national challenge. OPM, through
  tough contract negotiations and extensive program oversight, has had remarkable success. Annual average premium increases were only about 2 % in both 2007 and 2008 contracts but the 2009 contract increase was 7.0%.

  OPM is committed to expanding the use of health information technology (HIT) within the FEHBP. Included among these initiatives are electronic personnel health records, e-Prescriptions, and disease management programs. OPM believes that these and other HIT initiatives will improve the quality of care and reduce the cost of health care by eliminating manual tasks, improving the coordinated quality of care and reducing medical errors. OPM’s major challenges to expanding the use of HIT within the FEHBP will be managing considerable implementation costs and ensuring that participant data is secure and safe from unauthorized access.

• Here’s the AMA House of Delegate’s approval resolution on health care reform –“Resolved, That our AMA support health system reform alternatives that are consistent with AMA principles of pluralism, freedom of choice, freedom of practice, and universal access for patient.” According to Modern Healthcare, the AMA is keeping its options open.

• Senate Finance Committee Chairman Max Baucus is holding off on the release of his healthcare reform bill until he can get his funding problems straightened out according to the Politico. Business Insurance similarly reports that House Democrats are struggling to find a way to fund this initiative. Meanwhile, Congressional Republicans, according to CNN.com, continue to pitch their more modest reform bill.
• Meanwhile, Modern Healthcare reports that the American Medical Association’s House of Delegates is debating a resolution on the public option. After the current AMA President Nancy Nielsen spoke against the health insurance industry, the House voted to remove from the resolution a line reading that the AMA “oppose[s] those alternatives that would risk the elimination of a healthy competitive market for private health insurance.” I expect that the AMA President might steal the line of the ALPA president who reportedly remarked that “We don’t want to kill the golden goose. We just want to choke it by the neck until it gives us every last egg.”
• The Wall Street Journal reports today that “The [Senate Finance] committee is close to settling on a plan that would create state-run marketplaces where private health-insurance companies would compete to offer coverage. To answer demands from Democrats including Mr. Obama that a public plan be offered as well, the committee is heavily favoring nonprofit cooperatives that would be governed by their members and would compete inside the new insurance exchanges, people familiar with the matter said.”
• Government HIT News reports that the new HHS Health Information Technology Policy Committee is setting an aggressive schedule for implementing a program — required by the 2009 recovery act — to pay doctors and other health care providers bonuses for their “meaningful use” of health information technology.

• The OPM Inspector General’s semi-annual report to Congress for the period ending March 31, 2009, is posted here. This report discusses the Inspector General’s audits of FEHB plans and his anti-fraud efforts against providers and others.
• OPM published in the June 11 Federal Register its list of medically underserved states for 2010. There was no change from 2009. This action is required in order to implement Section 890(m)(2) of the FEHB Act which established special coverage rules in those states.
• Vangent Inc. announced on June 9 that it was awarded a contract from the U.S. Office of Personnel Management to provide Open Season Services as part of the Federal Employee Health Benefits (FEHB) Program.
• Congress enacted a law to permit the Food and Drug Administration to regulate tobacco products. The House passed the Senate version thereby by-passing the need for a conference committee which might have considered various federal retirement policy changes discussed in this Govexec.com article. The tobacco regulation law does include “several measures expanding federal employees’ options under the Thrift Savings Plan.”
• The President will give a major health care reform speech before the American Medical Association tomorrow. In yesterday’s radio address, the President proposed $313 billion in Medicare and Medicaid cuts over 10 years. This proposal elicited howls from affected provider groups, including hospitals, prescription benefits managers, and medical device manufacturers according to the AP.

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.