Monday, December 21, 2009

One for the Ages: Health Reform Will Take Years to Unravel

As the Senate readies final passage of its version of the health care bill, the country now focuses on the House, and alterations its members might propose in conference committee. Any material change could jeopardize agreements among Senate Democrats, and the bill itself.

Those odds appear quite low, however. Enactment is expected before the president's State of the Union address in January.

In the end, old-fashioned politicking will have enabled the largest health care overhaul in a generation. The Republican party, simply, had little ability to stall a filibuster-proof super majority, other than attempt to win over moderate Democrats and blunt some of the legislation's more pointed provisions.

Applying lessons learned from the past, including the first Clinton administration's attempt at health reform, the Obama administration established an aggressive agenda that centered on the House and Senate majority leaders' ability to shape the manifold details. The Democrats achieve not just a politically, but also an ideologically important victory.

Even with its majority, the party had to coalesce diverse positions on contentious issues. The end result is a substantial milestone in liberal philosophy, and the fundamental belief that health care should be a right just like freedom of speech or national defense. (Lawmakers and lawyers, though, are likely to challenge this notion in terms of the constitutionality of an individual mandate.)

The bill's final version will endure well over 2,000 pages of text, or more than 700,000 words. While lawmakers, congressional staffers, lobbyists and others have pored over its many details, no one has any idea what the total impact will be, or how its different features will intersect. Large sections simply have not yet faced the glare of public disclosure, beyond a coterie of Washington insiders.

As a result, it will take years to assess its full impact. Many of the bill's significant provisions, in fact, don't take effect until after the 2012 presidential election.

Even the independent Congressional Budget Office quantifies just measurable initiatives to existing programs such as Medicare and tax law. For other, more speculative, proposals such as payment reform or comparative effectiveness research, it ascribes less value—if any at all.

And perhaps the best quantifier of all, Wall Street, cannot fully implement its discounting mechanism because it simply does not trade the vast majority of the industry's value. Drugmakers, for example, make up half of health care market capitalization, but prescription drugs account for just 12 percent of $2.4 trillion industry. (Read "The Missing Stakeholder in Health Care Reform" in the Lyceum newsletter Perspectives, volume 5, issue 10.)

With so much uncertainty, folks will dedicate considerable time and effort over the coming months to analyzing and acting on its many consequences—in particular its unintended ones—in countless settings, from corporate water coolers to massive industry conferences. Smart minds will discover loopholes, from which new businesses will emerge as others diminish.

At the bill's heart—and no different than its debate throughout 2009—are fundamental questions of government intervention and consumer choice: How far should public policy extend into the care delivery process? What impact does this have on cost, quality and access? And does this process enable consumer choice? Should it? Its enactment further emphasizes government as the primary price setter (and, therefore, the primary influencer of care), while further diminishing market-based solutions.

However industry practitioners and observers measure its consequences, the public-private tradeoff will always feature as the central framework. One of the biggest tugs-of-war, for example, will be in the expanded number of covered lives: How much economic value do these additional lives create versus the cost of tighter regulation? Does this result in better health outcomes?

Expect the following topics to feature as examples of complex issues that are legislated but which could take months and years to develop and understand fully.
  • Accountable care organizations: the real-world and virtual integration of care delivery, involving local providers such as physician group practices and hospitals, and their patients
  • Comparative effectiveness research: the comparison and recommendation of different interventions in patient care.
  • Follow on biologics: the pathway enabling the manufacturing and distribution of large-molecule medications similar to proprietary predecessors.
  • Health insurance exchanges: the government regulated marketplace of insurance plans with different levels of coverage.
  • Independent cost-cutting commission: the expert body or institution exercising politically independent powers to reduce costs and inefficiencies across the health care system.
  • Payment reform: the shift away from a volume-based, fee-for-service model to something bundled or based on episodes of care.

Borrowing directly from The Wall Street Journal and Washington Post, we've reproduced below a side-by-side comparison of the Senate and House bills, many differences which the conference committee will have to reconcile.

Senate bill: Patient Protection Affordable Care Act
House bill: Affordable Health Care for America Act

Who is covered

Senate
  • The bill would ensure that 94 percent of legal residents have insurance coverage. The projected number of uninsured in 2019 is 23 million.
House
  • About 96 percent of legal residents under age 65—compared with 83 percent now. The projected number of uninsured in 2019 is 17 million.
Cost
Senate
  • The Congressional Budget Office estimates the bill to cost $871 billion and to reduce the federal budget deficit by $130 billion over 10 years
House
  • The CBO says the bill's cost is $1.05 trillion and reduces the deficit by $109 billion over 10 years
  • The net cost is $894 billion, factoring in penalties on individuals and employers who don't comply with new requirements. But after adding up a variety of new costs in the bill, including increased prescription drug coverage for seniors under Medicare, the cost is around $1.2 trillion
How it’s paid for
Senate
  • New excise tax on high-premium insurance plans, equal to 40 percent of premiums paid on plans costing more than $23,000 annually for families, $8,500 for an individual
  • $480 billion in cuts to Medicare over a decade
  • A fee on employers whose workers receive government subsidies to help them pay premiums; fines on people who fail to purchase coverage
  • An increase in the Medicare payroll tax by 0.9 percentage points to 2.35 percent on income over $200,000 a year for individuals, and $250,000 a year for couples.
  • Fees on insurance companies, drug makers and medical device manufacturers
House
  • $460 billion over the next decade from new income taxes on single people making more than $500,000 a year and couples making more than $1 million—the threshold was increased from $280,000 and $350,000, in response to lawmakers' concerns that the taxes would hit too many people and small businesses;
  • More than $400 billion in cuts to Medicare and Medicaid
  • A new $20 billion fee on medical device makers
  • $13 billion from limiting contributions to flexible spending accounts
  • Fines paid by individuals and employers who don't obtain coverage and a mix of other corporate taxes and fees
Requirements for individuals
Senate
  • Nearly every American would be required to obtain insurance, through either an employer, the exchange or other program
  • Individuals must purchase insurance or pay a penalty that would be the greater of $750 ($2,250 for a family) or 2 percent of income by 2016.
  • The maximum amount workers would be required to spend on premiums would be capped at 9.8 percent of income.
  • Exemptions for economic hardship
House
  • Individuals must have insurance
  • People who fail to purchase coverage would face a tax penalty of 2.5 percent of income.
  • People can apply for hardship waivers if coverage is unaffordable.
Requirements for employers
Senate
  • Companies with more than 200 employees are required to automatically enroll employees in plans.
  • Companies with more than 50 full-time workers that do not offer coverage would pay a fee as high as $750 multiplied by the total size of the work force if the government ends up subsidizing employees' coverage.
  • Tax credits for small employers.
House
  • Employers must pay 65 percent of family premiums or pay a penalty of 8 percent of payroll.
  • Companies with payrolls under $250,000 annually are exempt and the penalty is phased in for companies with payrolls between $500,000 and $750,000.
  • Businesses with 10 or fewer workers get tax credits to help them provide coverage.
Exchanges/subsidies
Senate
  • The bill would set up new insurance marketplaces—called exchanges—where people without access to affordable coverage through an employer could purchase comprehensive plans. Tax credits would be available on a sliding scale for individuals and families who earn up to 400 percent of the federal poverty level ($88,200 for a family of four).
House
  • Subsidies for individuals and families likely making up to 400 percent of the poverty level ($88,200 for a family of four). The subsidies would begin in 2013.
Insurance reforms
Senate
  • All plans sold to individuals and small businesses would have to cover basic benefits, including bans on lifetime limits, premium disparity based on health status and sex and coverage denials based on preexisting conditions. (Guaranteed issue, community rating, minimum insurance standards)
  • The government would set four levels of coverage: Under legislation passed by the Senate Finance Committee the least generous would pay an estimated 65 percent of health care costs per year; the most generous would cover an estimated 90 percent. Those numbers could change.
  • Establishes a national, voluntary insurance program for long-term care under which people would pay into the system while they're healthy and be eligible for cash payments if they need services for daily living needs.
House
  • A committee would recommend a so-called essential benefits package including preventive services.
  • Out-of-pocket costs would be capped.
  • The new benefits package would be the basic benefits package offered in the exchange
  • Includes bans on lifetime limits, premium disparity based on health status and sex and coverage denials based on preexisting conditions. The bill also would end a federal antitrust exemption that has for decades protected firms from federal investigations. (Guaranteed issue, community rating, minimum insurance standards)
Government-run plan
Senate
  • Democratic senators dropped a plan that would have had the government directly operate a health-insurance plan, while giving states the right to opt out
  • In place of that, the senators embraced a more limited proposal that would empower the government's Office of Personnel Management to put in place a new low-cost national health plan
  • The new national plan would be run by nonprofit entities set up by the private sector, and would be available to the public on the new insurance exchanges that would be created under the bill
House
  • A new public plan available through the insurance exchanges would be set up and run by the secretary of Health and Human Services
  • Democrats originally designed the plan to pay Medicare rates plus five percent to doctors. But the final version would let the HHS secretary negotiate rates with providers
How you choose your plan
Senate
  • Self-employed people and small businesses could pick a plan offered through new state-based purchasing pools
  • Employees would be generally allowed to keep their work-provided coverage
House
  • Beginning in 2013 through a new Health Insurance Exchange open to individuals and, initially, small employers
  • It could be expanded to large employers over time
  • States could opt to operate their own exchanges in place of the national exchange if they follow federal rules
Changes to Medicaid and Medicare
Senate
  • Senators dropped a plan to expand Medicare coverage to some people ages 55 to 64
  • For Medicaid, income eligibility levels likely to be standardized to 133 percent of poverty ($29,327 a year for a family of four)
  • States could negotiate with insurers to arrange coverage for people with incomes slightly higher than the cutoff for Medicaid
  • The federal government would pick up the full cost of the expansion for 2014 through 2016; thereafter financing will be shared through an increase in the federal medical assistance percentage ("FMAP")
House
  • For Medicaid, the federal-state insurance program for the poor would be expanded to cover all individuals under age 65 with incomes up to 150 percent of the federal poverty level ($33,075 per year for a family of four)
  • The federal government would pick up the full cost of the expansion in 2013 and 2014; thereafter the federal government would pay 90 percent and states would pay 10 percent
  • Exemptions for economic hardship
House
  • Individuals must have insurance
  • People who fail to purchase coverage would face a tax penalty of 2.5 percent of income.
  • People can apply for hardship waivers if coverage is unaffordable.
Requirements for employers
Senate
  • Companies with more than 200 employees are required to automatically enroll employees in plans.
  • Companies with more than 50 full-time workers that do not offer coverage would pay a fee as high as $750 multiplied by the total size of the work force if the government ends up subsidizing employees' coverage.
  • Tax credits for small employers.
House
  • Employers must pay 65 percent of family premiums or pay a penalty of 8 percent of payroll.
  • Companies with payrolls under $250,000 annually are exempt and the penalty is phased in for companies with payrolls between $500,000 and $750,000.
  • Businesses with 10 or fewer workers get tax credits to help them provide coverage.
Exchanges/subsidies
Senate
  • The bill would set up new insurance marketplaces—called exchanges—where people without access to affordable coverage through an employer could purchase comprehensive plans. Tax credits would be available on a sliding scale for individuals and families who earn up to 400 percent of the federal poverty level ($88,200 for a family of four).
House
  • Subsidies for individuals and families likely making up to 400 percent of the poverty level ($88,200 for a family of four). The subsidies would begin in 2013.
Insurance reforms
Senate
  • All plans sold to individuals and small businesses would have to cover basic benefits, including bans on lifetime limits, premium disparity based on health status and sex and coverage denials based on preexisting conditions. (Guaranteed issue, community rating, minimum insurance standards)
  • The government would set four levels of coverage: Under legislation passed by the Senate Finance Committee the least generous would pay an estimated 65 percent of health care costs per year; the most generous would cover an estimated 90 percent. Those numbers could change.
  • Establishes a national, voluntary insurance program for long-term care under which people would pay into the system while they're healthy and be eligible for cash payments if they need services for daily living needs.
House
  • A committee would recommend a so-called essential benefits package including preventive services.
  • Out-of-pocket costs would be capped.
  • The new benefits package would be the basic benefits package offered in the exchange
  • Includes bans on lifetime limits, premium disparity based on health status and sex and coverage denials based on preexisting conditions. The bill also would end a federal antitrust exemption that has for decades protected firms from federal investigations. (Guaranteed issue, community rating, minimum insurance standards)
Government-run plan
Senate
  • Democratic senators dropped a plan that would have had the government directly operate a health-insurance plan, while giving states the right to opt out
  • In place of that, the senators embraced a more limited proposal that would empower the government's Office of Personnel Management to put in place a new low-cost national health plan
  • The new national plan would be run by nonprofit entities set up by the private sector, and would be available to the public on the new insurance exchanges that would be created under the bill
House
  • A new public plan available through the insurance exchanges would be set up and run by the secretary of Health and Human Services
  • Democrats originally designed the plan to pay Medicare rates plus five percent to doctors. But the final version would let the HHS secretary negotiate rates with providers
How you choose your plan
Senate
  • Self-employed people and small businesses could pick a plan offered through new state-based purchasing pools
  • Employees would be generally allowed to keep their work-provided coverage
House
  • Beginning in 2013 through a new Health Insurance Exchange open to individuals and, initially, small employers
  • It could be expanded to large employers over time
  • States could opt to operate their own exchanges in place of the national exchange if they follow federal rules
Changes to Medicaid and Medicare
Senate
  • Senators dropped a plan to expand Medicare coverage to some people ages 55 to 64
  • For Medicaid, income eligibility levels likely to be standardized to 133 percent of poverty ($29,327 a year for a family of four)
  • States could negotiate with insurers to arrange coverage for people with incomes slightly higher than the cutoff for Medicaid
  • The federal government would pick up the full cost of the expansion for 2014 through 2016; thereafter financing will be shared through an increase in the federal medical assistance percentage ("FMAP")
House
  • For Medicaid, the federal-state insurance program for the poor would be expanded to cover all individuals under age 65 with incomes up to 150 percent of the federal poverty level ($33,075 per year for a family of four)
  • The federal government would pick up the full cost of the expansion in 2013 and 2014; thereafter the federal government would pay 90 percent and states would pay 10 percent

Saturday, December 12, 2009

Controlled Information Exchange

What's the point of information exchange, if you can't view it, analyze it or pass it along?

On Friday, December 11th, shares in the market research firm IMS Health tumbled on news of a proposed amendment to the Senate health bill that would ban drugmaker access to prescription data. Should this legislative action pass, it would force down the company's valuation just as IMS's management team finalizes the company's sale—the largest private equity transaction of 2009—to TPG and the Canada Pension Plan.

The federal rule's terms are not groundbreaking at the state level. They would mimic similar legislation enacted in New Hampshire, Maine and Vermont over the past four years. In fact, it was also IMS Health that lost a 2008 appeal against the state of New Hampshire and its law banning prescription drug data gathering. In June 2009, the US Supreme Court declined to review the appeal, opening the possibility for other states to legislate similar bans.

Important questions
And while the Senate amendment may not pass, it does raise important questions, none of which is likely to disappear anytime soon:

  • How important is free flowing information to the economic model of an industry and its value chain?
  • What are appropriate consumer protection mechanisms?
  • Do digital data require a different set of rules than analogue data?
  • What's the balance of power between states and the federal government in controlling information flow?

Because the debate over prescription drug information features—as its key issues—consumer privacy, data ownership and government intervention, its participants are likely to extend across and beyond the health care sector.

To put it simply, the implications of a national law are as vast as the economy itself. They impact not just the usefulness of health information exchange, but the effectiveness of the care delivery system, and—beyond health care—the general application of market analysis to consumer buying behavior.

Consider this just in terms of health care. As part of the March 2009 stimulus bill, lawmakers allocated nearly $20 billion in incentive money that the Department of Health and Human Services ("HHS") will pay out to providers adopting electronic health records in a meaningful way. The first payments are scheduled to begin in little more than a year.

Digital health information, the argument goes, leads to better patient outcomes because it allows for critical data exchange across the care delivery system, which includes not just providers, but also product manufacturers, service vendors, payers, consultants and others.

Already, that system is learning new HIPAA rules, which impose additional restrictions on information flow, and now include both civil and criminal penalties for non-compliance. If government hardens the flow even more, especially as the health industry transitions to a digital framework, it could, in effect, devalue taxpayer money to zero even before HHS doles out the incentives. (Read "Digital Health Records Biggest Obstacle" in the Lyceum newsletter Perspectives, volume 5, issue 10.)

HHS, as an aside, will pay this money through Medicare reimbursement, utilizing the current fee-for-service framework. Many industry people believe Congress missed an important opportunity to shift reimbursement to a value-based system.

The Health Insurance Portability and Accountability Act ("HIPAA") of 1996 established standards for electronic information exchange and the use and disclosure of patient information. Health professionals have complained about its burdensome requirements, often challenging patient care and medical research capabilities, and its added administrative costs. In March 2009, under the American Recovery and Reinvestment Act, Congress introduced the Health Information Technology for Economic and Clinical Health, or "HITECH", Act, which further tightens standards in the handling of patient data—for example, its tracking practices and notification of breaches. HITECH imposes more severe penalties and expands the number of liable parties, or covered entities, to include business associates.

Limited information
Even if providers can implement EHR systems that function appropriately as defined by "meaningful use"—and many industry people don't expect this to lead to substantially higher penetration rates among different provider groups than the single digits that currently exist—few of them would have much use for the patient information that the systems could navigate.

It would be no different than purchasing a fully-loaded, high-performance sports car, when onerous road rules limit its owner just to driving around the block.

While government should establish basic parameters, it risks derailing substantial progress in digital information exchange if it complicates a nascent system. Unintended consequences could have lasting impact.

Government would also establish a precedent that extends to other industries. Lawyers will likely challenge any effort aimed at packaging and selling consumer buying behavior, including highly sophisticated systems in the retail industry. Even companies relying on proprietary systems, such as Walmart and Amazon.com, could see direct challenges to their business models, if a national consumer protection law is aggressively pursued.

At the very least, we're learning how just one small amendment to a massive congressional bill could propagate an economic shock wave. Sorting through the bill's myriad details could take longer than its multi-year roll out.

Perhaps we'll discover that many of these details cancel the net economic impact. Then again, maybe they'll multiply the impact.

Either way, the market's reaction to IMS Health reveals deep-rooted uncertainty that won't soon go away.