Health Care Law Reform : Health Care Lawyer & Attorney : McDermott Will & Emery Law Firm : Managed Care, Product Regulations

The Facts

Health care reform requires non-grandfathered group health plans and health insurance coverage to provide first-dollar coverage of certain preventive services furnished by in-network providers.  This requirement is effective with the first day of the first plan / policy year beginning on or after September 23, 2010.

Coverage is mandatory for four general categories of preventive services, referred to as recommended preventive services.  The U.S. Department of Health and Human Services (HHS) will maintain a complete and up-to-date list of recommended preventive services on its website. 

Coverage is not required for recommended preventive services furnished by out-of-network providers, and cost-sharing obligations also may imposed.  HHS also has adopted regulations addressing cost-sharing requirements for office visits (and other health care services) furnished at the same time as a recommended preventive service.

What’s at Stake

Group health plans and health insurance issuers offering non-grandfathered plans and policies need to evaluate their plans / policies to assess whether changes are needed, both to comply with this new coverage mandate and to promote in-network provider utilization.

Steps to Consider

Medical management techniques to administer benefits for recommended preventive services are permitted, and group health plans and health insurance issuers will want to consider what techniques may be appropriate.  An additional consideration is whether the claims submission and payment provisions need to be modified to implement the cost-sharing regulations for office visits and other health care services provided at the same time as recommended preventive services.

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On July 7, 2010, in a recess appointment, President Obama appointed Don Berwick, M.D., M.P.P., to lead the Centers for Medicare and Medicaid Services (CMS).  Dr. Berwick is a pediatrician, Harvard professor, and president and chief executive officer of the Institute for Healthcare Improvement.  As administrator of CMS, Dr. Berwick will play a pivotal role in the implementation of health reform legislation. 

The president's use of his recess appointment power obviates the traditional U.S. Senate confirmation process, which would have included a confirmation hearing at the U.S. Senate Committee on Finance (Finance Committee), at which legislators could ask questions of the nominee, and, if the Finance Committee reported the nomination, a subsequent Senate floor vote which would have provided all Senators an opportunity to discuss the nominees' record and vote for or against his confirmation.  The recess appointment avoids what would likely have been an extremely partisan and drawn out confirmation battle.  Indeed, congressional Republicans—with an eye toward the rapidly approaching November 2010 congressional elections—seemed bent on using the Berwick confirmation process as a referendum on health reform legislation.  While the recess appointment effectively installs Dr. Berwick at CMS without Senate confirmation, a recess appointment lasts only as long as the current Congress, which extends through 2011.  This means that, in order to serve beyond 2011, Dr. Berwick would need Senate confirmation in 2012, or another recess appointment. 

To learn more about Dr. Berwick's background and extensive experience, see McDermott's previous blog post.

Concern about the recess appointment was not confined to the Republican side of the aisle.  Both Senator Max Baucus (D-MT), chairman of the Finance Committee, and Senator Charles Grassley (R-IA), the ranking Republican on the Finance Committee, expressed dismay.  Senator Baucus said he was “troubled that, rather than going through the standard nomination process, Dr. Berwick was recess appointed.  Senate confirmation of presidential appointees is an essential process prescribed by the Constitution that serves as a check on executive power….by ensuring that crucial questions are asked of the nominee – and answered.”  Senator Grassley protested the recess appointment as well, saying, “The administration has taken advantage of the fact that there's no check on its power, with one-party control of Congress and the White House.”  He continued, “This recess appointment follows a pattern.  Health care legislation was written behind closed doors.  Broad new regulations have been written within the bureaucracy and issued without any public comment period.  It really flies in the face of the President's pledge to have the most transparent administration ever.” 

Despite the controversy regarding the appointment, Dr. Berwick does enjoy support from past CMS administrators, including those appointed by both Democratic and Republican administrations.  He also receives support from numerous providers and other organizations, and he has a long history of working to improve both the quality and efficiency of health care—one of the principal aims of health reform legislation. 

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The Facts

Health insurance issuers face immediate deadlines as well as long-term timeframes for implementing health care reform.  Several initiatives are underway, such as the Early Retiree Reinsurance Program. Other market reforms, including lifetime and annual dollar limit restrictions, apply to new issues and renewals beginning September 23, 2010, although limited exceptions may exist for grandfathered plans.

Quickly following are federal review of premium rate increases and medical loss ratio (MLR) standards (along with the risk of mandatory rebates if exceeded).  Multiple, and differing, statutory provisions, such as the small groups definitions, add complexities.

What’s at Stake

Implementing these reforms raises several common questions and issues:

• How do health insurance issuers modify existing products and prepare state product and rate filings to reflect new benefit requirements that are vague or undefined and for which guidance may not yet exist?
• How should health insurance issuers advise their customers?  Should grandfathered status be preserved, or will the conditions be too limiting to be practical?  The answer may differ for self-funded and fully insured plans.
• How do health insurance issuers implement new operating requirements, such as MLR standards, where state filings will need to be prepared prior to adoption of the standards?  How should existing small group requirements be reconciled with new definitions for small groups?

Steps to Consider

In addition to monitoring the release of regulations and other guidance, health insurance issuers should consider strategies for implementing reforms for which there is minimal guidance.  Consistency as to approach, coupled with a good faith defense of actions taken following critical legal analysis, may mitigate some of the potential risks.  Developing a schedule for immediate requirements is advisable, while keeping in mind the longer-term reforms that take effect upon launch of health insurance exchanges.

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The Facts

President Obama is reportedly poised to nominate Don Berwick, M.D., M.P.P., to head the Centers for Medicare & Medicaid Services (CMS).  Since 2006, when Dr. Mark McClellan left, CMS has been without a permanent administrator. 

Berwick is the current president and CEO of the Institute for Healthcare Improvement, a Cambridge, Massachusetts, organization that seeks to improve health care by "building the will for change, cultivating promising concepts for improving patient care, and helping health care systems put those ideas into action."  In its work, the institute seeks to "accelerate the measurable and continual progress of health care systems."  For more information about the institute, visit http://www.ihi.org/ihi/about/.  Berwick is also a clinical professor of pediatrics at Harvard Medical School and a professor of health care policy at the Harvard School of Public Health.  Berwick served as vice-chair of the U.S. Preventive Services Task Force, and chair of the National Advisory Council of the Agency for Healthcare Research and Quality.  He also served two terms on the Institute of Medicine’s governing council.

Berwick would have the difficult job of managing and improving Medicare, Medicaid and the Children's Health Insurance Program, while simultaneously implementing much of the recently enacted health reform legislation.  While Medicare currently covers 46 million Americans, Medicaid currently covers 43.5 million Americans and is slated to expand to cover an additional 16 million individuals through expanded eligibility in health reform legislation.  However, in light of Berwick’s vast experience in the area of health quality improvement, he seems well-positioned to lead CMS as the agency positions itself to increasingly focus on paying for value as opposed to volume.

What’s at Stake

As the new head of the largest medical payer in the nation, Berwick’s leadership and decisions would significantly affect almost everyone in the health care sector.  With the enactment of health reform legislation, implementation is the primary focus of the Obama administration.  Berwick would have a vital role in determining how this reform is rolled out and ensuring that this reform meets U.S. Department of Health and Human Services Secretary Kathleen Sebelius’s goal of HHS becoming “the face of competent government — the face of a help desk that can really respond to personal issues and questions.”

Steps to Consider

The post of CMS administrator requires U.S. Senate confirmation, a process that may reignite the deep political and philosophical divisions about the newly passed health reform legislation.  Thus, all in the health care sector should monitor the nomination and Senate confirmation process.

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The Facts 

Both the House health reform bill, H.R. 3962 (Affordable Health Care for America Act), and the Senate health reform bill, H.R. 3590 (Patient Protection and Affordable Care Act), include provisions establishing one or more health insurance marketplaces (exchanges). The exchanges would serve as an organized and transparent marketplace designed to facilitate access to, evaluation of and purchase of qualified health insurance plans by individuals and small businesses. Premium subsidies would be available through the exchange, and benefit packages would be structured in standardized tiers. An exchange would seek to create a large enough risk pool so that competition among insurers would increase not only with respect to pricing but on quality and service aspects as well. Insurance market reforms in both bills would disallow preexisting condition exclusions and impose medical loss ratio requirements. 

There are key differences between the House and Senate proposals. The House bill would create one national exchange overseen by a new federal agency, the Health Choices Administration (HCA), with an opt-out provision for states under certain circumstances. The HCA would oversee the health plans and premiums charged for policies available through the exchange. Under the House bill, the exchange would be the exclusive marketplace for all individual (non-group) policies, other than grandfathered policies. Insurers would be required to bid to participate in the exchange, with the HCA able to negotiate terms before allowing a plan to participate in the exchange. By contrast, the Senate bill provides for each state to establish and administer its own exchange, subject to compliance with minimum federal standards, with federal intervention if a state does not provide an exchange. 

What’s at Stake

The exchanges will be at the crux of revamping the individual and small business markets. Whether there is a single national exchange or separate state exchanges will have significant implications for providers, payors and consumers. The House proposal could offer greater economies of scale and potential efficiencies for products offered across state lines, but would represent a significant shift from how insurance is currently regulated at the state level. The Senate proposal would retain the benefit of the local market knowledge of the states and would preclude an additional layer of federal regulation. 

Steps to Consider

Understand the impact of the exchanges on structure and oversight of the insurance market, evaluate current plans and prepare for refinements needed to transition to new exchanges.

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The Facts

Medicare Advantage (MA) Program changes, among other Medicare-related provisions, have appeared in drafts of jobs legislation under development on Capitol Hill. Select proposals include the following:

• The formula for calculating the CY 2011 national per capita MA growth rate, for purposes of updating CY 2011 benchmarks, would be amended to provide a 0 percent update to the physician fee schedule conversion factor.
• The Centers for Medicare and Medicaid Services (CMS) would be authorized to extend to Direct Contract MA Organizations CMS’s waiver of service area requirements available to local coordinated care plans offering 800-Series MA Plans with Members residing outside of the service area
• Special Needs Plans serving dual eligible individuals where the sponsoring MA Organization does not have a contract with the applicable state Medicaid agency, as required under § 1859(f)(3)(D) of the Social Security Act, would be permitted to operate through CY 2011, although the service areas of such plans would not be eligible for expansion.

Senate Majority Leader Harry Reid (D-NV), however, elected to move forward with draft legislation that excludes all health-related provisions. These proposed MA Program changes, among other health-related proposals, may be included in this bill, or another piece of legislation, later this month.

What’s at Stake

The proposal to modify the national per capita MA growth rate would neutralize the cut in the Medicare physician fee schedule that is statutorily required to be incorporated into MA Plan benchmarks.

Steps to Consider

MA Organizations should continue to monitor and analyze proposed changes to CY 2011 benchmarks as CY 2011 MA Plan bid submissions are developed in advance of the Monday, June 7, 2010 bid submission deadline.

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The Facts

The Senate health reform bill would establish a 15-member Independent Payment Advisory Board (IPAB) with significant authority with respect to Medicare payment rates. Beginning in 2014, in any year in which the Medicare per capita growth rate exceeded a target growth rate, the IPAB would be required to recommend Medicare spending reductions.  The recommendations would become law unless Congress passed an alternative proposal that achieved the same level of budgetary savings. Subject to some limitations—hospitals, for example, would be exempt until 2020—the IPAB could recommend spending reductions affecting Medicare providers and suppliers, as well as Medicare Advantage and Prescription Drug Plans.  In years in which the IPAB would not be required to make recommendations, it would be required to submit an advisory report.  Every two years, the IPAB would make recommendations on slowing the growth of private health expenditures. 

The proposed IPAB has drawn significant criticism from advocacy groups, and a similar provision is not included in the House bill. However, the Senate’s IPAB proposal has strong support from President Obama and is expected to emerge in some form in any final comprehensive health reform package.

What’s at Stake

Medicare providers and suppliers could be subject to significant payment cuts if the proposed IPAB is enacted and overall Medicare spending continues to increase at its current rate.  A group of providers and advocacy groups, including the American Hospital Association, joined in a January 11, 2010, letter opposing the IPAB, noting that it would not be accountable to anyone but the president (who appoints its members). Shifting payment authority from Congress to an independent commission would be a significant change, and is viewed as one of the most meaningful measures in health reform legislation with respect to bending the cost curve in health spending.

Steps to Consider

• Understand the broad and significant powers granted to the IPAB. For example, achieving coverage of new procedures and technologies could be impeded significantly if the role of Congress is minimized.
• Keep informed about the Medicare per capita growth rate and the IPAB’s authority to make recommendations for payment reductions.
• Should the IPAB be enacted, work to identify individuals for nomination. ‪

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The Facts

Both the Senate and House health reform bills would impose Medical Loss Ratio (MLR) requirements on insurers. MLR measures the percentage of an insurer’s premium revenue spent on health care services. In the House bill, the Secretary of HHS would have to establish the MLR at or above 85 percent. Any issuer with a lower MLR would have to provide “rebates to enrollees of the amount by which the issuer’s medical loss ratio is less than the level so specified.” The House bill also would impose MLR requirements on Managed Care Organizations (MCOs) and Medicare Advantage Plans (MA Plans). The Senate bill is less onerous for insurers because the MLR is currently set at 80 percent and state taxes would be excluded from the MLR determination. Note, however, that potential revisions to the Senate bill reportedly include a 90 percent MLR. In the House bill, the MLR provision would expire January 1, 2013 (excepting the MA Plan and MCO requirements), while the Senate’s would remain in effect until December 31, 2013. 

What’s at Stake

Health insurance issuers could potentially be forced to provide significant rebates. The cost of these rebates will greatly depend on which costs are excluded from the MLR determination. Also, the MLR provisions in the House bill applicable to MA Plans and MCOs have no sunset provisions, thus increasing their potential long-term impact.

Steps to Consider

• Follow the legislation closely because it is a very fluid process, and assess its impact.
• Understand the impact of the proposed MLR requirements and be prepared to adapt quickly to their requirements.
• Closely analyze which details are left to the Secretary of HHS to define by regulation. The rulemaking process will provide an opportunity for advocacy, should MLR provisions be enacted.

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The Facts

Both the House health reform bill, H.R. 3962 (Affordable Health Care for America Act), and the Senate version (Patient Protection and Affordable Care Act), include provisions (House Section 1301 and Senate Section 3022) establishing Accountable Care Organizations (ACOs).  ACOs are provider-centric organizations focused on the costs and quality of care received by a designated population of patients over time.  ACOs can consist of vertically and horizontally positioned providers, including physician groups and hospitals.  In its most basic concept, although paid on a fee-for-service basis, ACOs that meet quality-of-care targets and reduce the aggregate costs of care rendered to their patient population relative to a spending benchmark are rewarded with a share of the savings they achieve for the Medicare program.

What’s at Stake

Regardless of whether health reform legislation is passed, providers will be increasingly challenged to adopt operating models through which they are responsible and accountable for the quality, cost and overall care of a defined population of patients.  Emphasis will be placed on clinical processes and outcomes, the patient care experience and utilization.

Steps to Consider

• Evaluate why and assess those actions necessary to migrate from a financially driven model to a clinically integrated driven model if you previously operated a Physician Hospital Organization (PHO) that did not succeed. 
• Evaluate investments in infrastructure and redesigned care processes for high quality and efficient service delivery.
• Establish appropriate committees to explore and evaluate adoption of clinical best practices.
• Bolster capabilities to capture and report on quality measures.
• Coordinate with other providers to facilitate the sharing of effective strategies on quality improvement, care coordination and efficiency.
• Assess hospital-physician relationships and your ability to promote and sustain quality based initiatives.

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The Facts

The Senate’s Patient Protection and Affordable Care Act mirrors the Senate Finance Committee’s proposal to modify local Medicare Advantage (MA) Plan payments by moving to an enrollment-weighted average competitive bidding system.

Currently, local benchmarks reflect Adjusted Community Rate for each county, as updated annually over the past several years.  To calculate Plan payments, MA Organizations annually submit bids for their plan benefit packages that are compared to the benchmark for the county/counties in the Plan’s service area. 

Under the Senate bill, by CY 2015, benchmarks would equal enrollment-weighted averages of local MA Plan bids for the service area.  A ceiling would be established in each area so that local benchmarks could not exceed the levels that would have existed under current law.

What’s at Stake

The Senate proposal is markedly different from H.R. 3962, which would phase in benchmarks equal to the adjusted average per capita cost estimate payable under traditional Fee-For-Service Medicare.  Importantly, the House bill would initiate the transition beginning with the 2011 benefit year, as compared to the Senate proposal, which would initiate the transition with the 2012 benefit year.

Steps to Consider

The Senate bill is estimated to reduce MA Plan payments by $118 billion between 2010 and 2019, the traditional 10-year cost estimate period.  The Congressional Budget Office estimates that H.R. 3962 would reduce MA Plan payments by $170 billion in the same period.

In anticipation of these reforms, MA Organizations should begin to analyze their plan benefit packages, provider payment arrangements and member populations, and to discern the extent to which they can modify operations and/or develop and implement new initiatives.

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The Facts

Health reform legislation approved by the House Energy and Commerce Committee on July 31, 2009, includes an amendment to strike the so-called Part D “non-interference” clause, which prohibits the Secretary of the U.S. Department of Health and Human Services (the Secretary) from interfering with negotiations between pharmaceutical manufacturers, pharmacies and Part D Plan Sponsors.  Click here for an overview of the underlying legislation.

The amendment would authorize the Secretary to directly negotiate with pharmaceutical manufacturers the prices—including discounts, rebates and other price concessions— that may be charged to Part D Plan Sponsors for covered Part D drugs. The negotiated prices would apply beginning in CY 2011, and would not prevent Part D Plan Sponsors from obtaining further reductions or discounts.

What’s at Stake

Inclusion of this amendment renews debate on the role of competition within the Medicare prescription drug benefit, and whether the federal government or private health plans are better suited to achieve greater reductions on prescription drug costs for Medicare beneficiaries (and taxpayers).  That this concept is part of health reform legislation also is noteworthy for potentially signaling a first step towards federal price setting for pharmaceuticals.

Steps to Consider

Part D Plan Sponsors, pharmacies and pharmaceutical manufacturers alike should closely watch reconciliation of the Energy and Commerce Committee’s bill with the bills adopted by the two other House committees of jurisdiction to see the fate of this clause. Whether the Senate Finance Committee includes such a provision in its draft legislation also will be significant. 

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The Facts

Draft health care reform bills circulating on Capitol Hill would seek to expand access to health insurance by creating “health insurance exchanges” or “gateways” (Exchanges) at the state or local level. Qualified individuals and small businesses could purchase health insurance offered by a private entity participating in an Exchange, or, if adopted, a public plan option.

• Covering essential benefits:   The draft House “Tri-Committee” bill released on June 19, 2009, would require qualified health benefits plans to cover “essential” benefits through defined benefit packages that would vary by the insured’s cost-sharing obligation. Plan sponsors could elect to offer benefit plans that include additional benefits, such as vision care. The amended Senate bill proposed by Democrats on the HELP Committee would permit sponsors of qualified health plans to provide “essential” benefits through benefit plans with one of three cost-sharing variations. States could require these plans to cover additional benefits.
• Sponsors of Qualifying Health Plans:  Both bills anticipate that private entities (including health insurers and HMOs) would participate in the Exchanges by sponsoring these qualified health plans. The House bill contemplates a bidding process with selected entities entering into a minimum one-year contract to offer plans in the Exchanges. The Senate bill would authorize the Exchanges’ administrators to permit participation of “certified” sponsors that are “determined” to offer plan(s) that are “in the interests of qualified individuals and qualified employers.”

What’s at Stake

For health care providers, whether their services would be part of the “essential” benefits defined for these qualifying health plans, and the terms and conditions (including payment) of participation will be key. For health insurers and other managed care organizations, a significant question is the extent to which the conditions of participation in the Exchanges—including mandatory acceptance of all enrollees and participation in the risk-pooling mechanism established for the Exchanges—affect the ability to offer the essential benefits (and any permissible additional benefits) at an affordable rate. 

The role of a public plan option, if any, will be critical for all potential participants.

Steps to Consider

Both bills offer general parameters for defining the “essential” benefits, setting provider network requirements, and adopting criteria for qualifying health plan sponsors. The details, however, likely will be addressed through the administrative rulemaking process, albeit in accordance with any requirements included in the final legislation.

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The Facts
Among the proposals set out in the draft health reform legislation introduced by Democrats from three key committees of the U.S. House of Representatives are provisions to significantly modify the Medicare Advantage (MA) Program, including:

• Benchmarks and Payment Rates: Beginning in 2011, the benchmark upon which MA Plan payment rates are calculated would be modified to reflect average per capita costs under traditional Medicare fee-for-service for the applicable service area. This would affect MA Plan payment rates as well as the potential scope of supplemental benefits MA Plans would offer.
  
  The legislation would provide up to 1% increases in the applicable benchmark for “high quality” MA Plans. Such “high quality” MA Plans would be identified based upon HEDIS data and consumer (CAHPS) surveys until the Secretary establishes a new metric to assess the quality of care available through MA Plans.
  
  The Secretary’s authority to implement coding intensity adjustments in the determination of MA Plan payment rates also would become permanent.
   
• Administrative Costs: The Centers for Medicare and Medicaid Services (CMS) would be required to publish annually MA Plans’ medical loss ratios (MLRs), risk-adjusted per enrollee payment and average risk score.
  
  CMS also would be required to audit MA Organizations’ (MAOs) administrative costs to assess MAOs’ compliance with the applicable requirements of the Federal Acquisition Regulations that apply to other government contractors.

The House bill also would mandate that CMS create an office or program designed to improve the coordination of benefits for dual-eligible beneficiaries, modify components of the Medicare Part D Program, and enhance the Secretary’s and CMS’s authority sanction MAOs and Part D Plan Sponsors that engage in (or contract with an individual or entity that engages in) prohibited marketing activities, among other activities.

What’s at Stake
As part of the reform process, the Democratic majority within the U.S. House of Representatives appears determined to make quality of care offered to MA enrollees a focus through increased performance reporting and corresponding payment adjustments. Additional obligations – including public reporting of MLRs and compliance with the FAR administrative cost requirements – will increase MAOs’ costs to participate in the Program.

Steps to Consider
In addition to monitoring the potential downward adjustments to the MA benchmarks, MAOs should consider the potential implications associated with the proposed requirements, such as:

• Competitive position in light of enhanced public reporting
• Costs of complying with new reporting requirements
• Potential risks of non-compliance with marketing and administrative cost provisions

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The Facts
This week Senator Edward Kennedy (D-MA), chairman of one of two Senate Committees with responsibility for advancing a health care reform proposal, released the first comprehensive draft of health care reform legislation, the Affordable Health Choices Act.  Note that final decisions on such critical issues as a public plan and an employer coverage mandate are described in the bill merely as “policy under discussion.”  Below are selected highlights of the draft: 

• Creates state-based insurance exchanges called “American Health Benefit Gateways”
• Requires insurers to report expenditures to the government, which could trigger mandatory rebates to plan members
• Stipulates that insurance premiums may only vary based on family structure, community rating, the actuarial value of the benefit and age 
• Prohibits pre-existing conditions exclusions
• Requires guaranteed availability and renewability of coverage
• Prohibits lifetime or annual limits on coverage
• Mandates individual coverage, with certain exceptions
• Significantly expands Medicaid

What’s at Stake
Senator Kennedy’s decision to table inclusion of a public plan and employer mandate reflects his effort to leave ground for forging a compromise with Republicans.  However, Senate Republicans continue to vociferously object to the public plan, and many other elements of the Kennedy proposal.  President Obama, sensing the rocky debut of the first health reform bill, summoned Senate leaders June 10, 2009, to the White House, where he reiterated his insistence that a bipartisan bill be achieved this year and made clear his flexibility on all aspects of the legislation.

Steps to Consider
Evaluate how reform proposals may require changes in the operations of your organization, and consider working with policy makers and key stakeholders to shape the ultimate outcome of health reform.

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The Facts
House Democrats released the broad parameters of their comprehensive health reform bill June 8, 2009.  The three House committees with jurisdiction over health reform plan to work from this common framework to develop a systemic reform proposal.  Click here for a health reform timeline.  Below are highlights of the plan: 

• Protects current coverage and preserves choice of doctors, hospitals and plans
• Creates a new national health insurance plan
• Creates a national health insurance exchange and allows for regional or state exchanges
• Initiates delivery system reforms, such as accountable care organizations, to incentivize quality and restrain health spending growth
• Imposes individual coverage requirement and employer “pay or play”
• Prohibits insurers from excluding pre-existing conditions and forbids rating based on gender, health status or occupation, and limits premium variation based on age 
• Reforms Medicare’s sustainable growth rate formula for physician payment
• Eliminates perceived overpayments to Medicare Advantage Plans

What’s at Stake
Reporting out a House bill by the August recess is at stake. While the House Democrats have united the three key House committees in producing this common framework, considerable dissension within the Democratic party remains.  A core area of disagreement is whether to include a public plan.  Pressure to achieve reform this year is considerable, as the Democrats do not want to risk spilling into next year’s congressional cycle.

Steps to Consider
Providers should assess the impact of a public plan option and expanded coverage, among other proposals.  Insurers should examine the impact of a Medicare-like public plan option on provider payments and the ultimate competitiveness of private plans, review the concept of the insurance exchange and assess the business impact of the proposed new insurance market reforms.  Insurers that act as Medicare Advantage Plans should monitor proposals to reduce payments.  Both providers and insurers should assess the potential impact of accountable care organizations.  Finally, employers should carefully monitor “pay or play” proposals and prepare to adapt to potential requirements.

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The Facts
On May 18, 2009, the Senate Finance Committee released the last of its three anticipated health reform option papers.  The proposals under consideration would make significant changes in the obligations of tax-exempt hospitals to provide charitable patient care, as well as changes in Medicare provider payments, beneficiary cost-sharing and taxability of employer-sponsored health benefits.

Charity Care Obligations of Tax-Exempt Hospitals
Tax-exempt hospitals could be required to do a periodic community needs analysis, provide minimum amounts of free care to the poor, not refuse services to patients who are unable to pay and adhere to restrictions in patient collection practices.  Senator Charles Grassley (R-Iowa) has justified these proposed new requirements because making health insurance coverage available to everyone should, in theory, minimize the amount of hospital uncompensated care.  Under this proposal, in addition to revoking federal tax-exempt status, the Internal Revenue Service could impose significant excise taxes (intermediate sanctions) on exempt hospitals that fail to comply with these new requirements.

Click here for the comment letter from McDermott partner Douglas Mancino outlining reasons to reject the Finance Committee's proposals to require tax-exempt hospitals to regularly conduct a community needs analysis and to provide a minimum annual level of charitable patient care.  This letter includes a copy of the new schedule H for tax-exempt hospitals and Mr. Mancino's article, "The Charity Care Conundrum for Nonprofit Hospitals."

Payments to Providers and Drug Manufacturers
Medicare would propose “spending reductions in [regional] areas...above a certain threshold compared to the national average.”  Medicare would reduce graduate medical education or disproportionate share payments.  Physician payments could be tied to outcomes and productivity, and reduced by a panel of experts if determined to be “misvalued.”  There would also be adjustments made to beneficiary cost-sharing, including a single annual maximum or other combined approach.  Beneficiaries would also face higher Part D prescription drug premiums, perhaps based on income.  Prescription drug makers could be subject to higher Medicaid rebate requirements.  Home health agencies would also face significant reductions in their Medicare payments.

Taxability of Employer-Sponsored Health Benefits
Various proposals were advanced for eliminating deductions for, as well as taxing the value of, employee health benefits, for all or just higher-income taxpayers.  The taxable amount could be the full value of the benefits or just their value above a benchmark basic plan such as the Federal Employees Health Benefits Program.

What’s at Stake
Tax-exempt hospitals may be required to provide substantial additional amounts of free and heavily discounted care to patients who cannot afford to pay, or risk punitive excise taxes. Providers and pharmaceutical companies would face a wide variety of payment adjustments, which are likely to be adverse in many if not most cases.  Higher-income employees and perhaps all employees would face the elimination, in whole or in part, of the current tax exclusion for health benefits.

Steps to Consider

• Tax-exempt hospitals should examine their current approaches to charitable patient care and consider the financial impact of being required to expand their current federally mandated emergency room services obligations to include non-emergency care.
• Employers should carefully monitor taxable health benefits proposals and prepare to adapt to the elimination or reduction of the current tax exclusion

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The Facts
On April 29, 2009, the Senate Finance Committee released the first of three anticipated health reform option papers. The Committee’s white paper includes four proposals to “promote quality, efficiency and care management” in the Medicare Advantage (MA) Program: modifying the MA Plan payment system, increasing payments for chronic care management, linking payment to quality and simplifying the supplemental benefits offered to Members.

What’s at Stake
The Committee sets out two alternate reform proposals for the MA Plan payment system that would take effect beginning in 2012. One approach would reduce the existing benchmarks to which MA Plan bids are compared, and the other would change the methodology by which the benchmarks are determined to that used in the Medicare Part D Program. The Committee also proposes to pay bonuses for evidence-based care management programs for chronic conditions. A Medicare Advantage Organization (MAO) that does not currently target chronic illnesses with care management activities should consider implementing such programs now so that it only has to incorporate adjustments to receive the bonus payment. Finally, the Committee proposes to tie a portion of MA Plan payment rates to quality performance. An MAO would need to ensure that its processes for collecting and submitting data are refined to capture all relevant data that may affect quality measures, and thus payment. 

Steps to Consider
The changes are proposed to take effect in 2012, meaning MAOs would have to position themselves to respond to the changes in time for the June 2011 bid submission deadline. In anticipation of these or similar reforms, an MAO should begin to analyze its plan benefit packages, provider payment arrangements and member population, and to discern the extent to which the MAO can modify its operations and/or develop and implement new initiatives. Health care providers can identify those MA Plans that represent a material portion of the providers’ patient population and initiate a dialogue to explore potential new areas of collaboration that will help improve quality outcomes while managing costs.

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The Facts
The proposals under consideration in the Senate Finance Committee’s first of three anticipated health reform option papers, released on April 29, 2009, would make significant Medicare payment changes. Value-based purchasing would result in Medicare paying hospitals, home health agencies and skilled nursing facilities based on their actual performance against quality measures, rather than being paid for providing services and reporting on quality measures and activities, as they are now. Accountable care organizations would be established as a vehicle for groups of providers to voluntarily meet quality thresholds and share in cost savings achieved for the Medicare program. Bonus payments for primary care physicians and general surgeons of up to 5 percent of fee schedule amounts would be provided to physicians who furnish at least 60 percent of their services in specified ambulatory settings or practice in rural scarcity areas.

What’s at Stake
Providers will face increasing demands to shift the paradigm of patient care from a model based on fee-for-service payments to one oriented to quality measurements and care coordination. Providers also will be competing on the basis of quality and may experience changes in reimbursement individually, but the total pool of funds will not generally increase for many of the proposed reforms.

Steps to Consider

• Examine current approaches to patient care and consider internal and external steps necessary to manage the impending shift from traditional fee-for-service payments to payments based on quality measurements and care coordination.
• Explore relationships with management companies or better performing partners who can improve overall quality.
• Consider new relationships with physicians to invest doctors in quality outcomes.
• Continually evaluate ongoing business decisions in light of the direction and quick pace health reform is taking.

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Senator Kennedy’s Senior Health Policy Advisor John McDonough, one of the key architects of the health reform effort, spoke at McDermott’s Washington, D.C., office in mid-April 2009 on the outlook for health reform. Other speakers included principals from Speaker Pelosi’s health care advisory team, Families USA and America’s Health Insurance Plans. McDonough affirmed that systemic health reform will happen in this Congress. Unlike in the Clinton years, all stakeholders are aligned and coordinating towards this end. Both the House and Senate intend to pass bills by the August 2009 recess. If Republicans block reform in 2009, the Democrats will change tactics to accomplish reform through budget reconciliation, which is not subject to filibuster. Click here to read John McDonough’s core predictions and our insights on how those policies, if adopted, would affect the health care industry.

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