When a Law Loses Its Teeth, Can the Reform Still Bite?

by Dan Diamond, California Healthline Contributing Editor

Republish This Story

Economist Austin Frakt calls it the catch-22 of health reform: To change provider behavior, the change can’t threaten providers’ behavior.

At least, not at first.

CMS’ Medicare Shared Savings Program is shaping up as a textbook example of this staggered approach.

The program is designed to transform health care provider payments — eventually — by creating accountable care organizations, voluntary structures intended to spur health care provider cooperation.

But when CMS first proposed the so-called ACO rule in April, providers found the program too prescriptive. Even “poster boy” organizations like Mayo Clinic and the Cleveland Clinic announced that they would sit out ACOs, which were modeled after their own systems, Jenny Gold noted in Kaiser Health News.

But in a striking reversal, heath providers and industry associations are applauding the newly finalized MSSP. After six months of criticism, CMS crafted an ACO rule that’s much more palatable for potential participants: The agency reduced the risk of penalties, sliced the number of required quality measures and made it significantly easier for provider organizations to team up without the threat of investigation by the Federal Trade Commission.

Yet making the law more attractive also may have dimmed its initial effectiveness. The Leapfrog Group, which is focused on improving patient safety, knocked the final rule for not having enough transparency on provider performance. The American Benefits Council, which represents employers, said the program’s new changes to federal antitrust provisions may boost provider market power and lead to unnecessary price hikes.

Luring in Participants

Of course, some health reforms that were seen as too industry-friendly — and not sufficiently transformative — ultimately won over opponents.

When Republicans crafted the Medicare Part D program in 2003, many Democrats and some policy analysts said the new drug benefit would be overly generous to the health industry; its harshest critics charged that the law was a GOP sop to pharmaceutical donors, which favored the Republicans by nearly 3-to-1 in their 2002 contributions.

Yet the program is beloved by beneficiaries today, with millions of patients benefiting from prescription drug discounts each year. Many of the Democrats who voted against the law have since become staunch champions.

Still, some say that the law’s original sin — its failure to let Medicare use its massive purchasing power to negotiate discounts with the pharma industry — leads to billions of dollars in unnecessary annual spending and helps drive the federal deficit.

How DRGs Dulled the Edge

Another apt comparison may be Medicare’s last major effort to overhaul how it pays providers: the 1982-1983 fight over prospective payment.

At the time, federal lawmakers feared that paying hospitals in full for their costs was rapidly exhausting the Medicare trust fund. The plan to adopt diagnosis-related codes, or DRGs, was hatched as a way to standardize payment and slow the cost curve.

Yet providers warned that the reimbursement scheme was too rigid and would leave them shouldering new risk to deliver high-quality, low-cost care. Advocates’ criticism — that the law might benefit hospitals at the expense of patients — wouldn’t be out of place today.

Lawmakers relented by delaying the national adoption of DRGs and phasing in the program by adopting nine regional payments. Eventually, the prospective payment system would spread beyond the hospital Medicare program; meanwhile, federal spending did slow down. When DRGs were first introduced, Medicare spending was growing at about 15% per year; the annual growth rate today is about half of that.

Listening to Providers Over Patients

But eking out savings from DRGs began a cycle of rewarding provider concerns at the expense of patients, some advocates suggest.

Writing in Health Affairs, René Cabral-Daniels of the National Patient Advocate Foundation charged that the 1983 DRG reforms were “myopic in their approach to restrain costs without considering patient consequences.” She cites a 1990 study in the Journal of the American Medical Association that found DRGs led to patients being discharged “quicker and sicker” — receiving less hospital care and heading home in less-stable conditions.

That earlier debate also marked another shift in the provider-lawmaker relationship: the start of a new era of targeted lobbying.

Adopting prospective payment meant CMS began issuing annual updates to reimbursement rates; the agency often uses these rules to introduce limited reforms, too. Yet this process also gave providers a regular opportunity to lobby against a proposed version and be rewarded with a less-severe final rule.

For example, the 2010 inpatient prospective payment system rule was originally intended to slow Medicare spending as hospitals shifted to a new, more specific DRG system; after provider outcry, CMS elected to delay the cuts for another year.

Still, the ACO program may represent a promising start to slowly winning providers over to yet another payment model. Frakt concludes that “you have to start with sensible structures that have no teeth.” “Then you have to add small teeth … [then] maybe some canines,” he adds. “By the time we see the fangs, we’re ready for them. The transition is gradual. Everybody is on board.”

Here’s what else is happening around the nation.

Administration Actions

Challenges to Reform

  • In a brief filed with the U.S. Supreme Court on Monday, the 26 states challenging the constitutionality of the federal health reform law urged the high court to consider all the issues in their lawsuit. The states have questioned the constitutionality of the individual mandate, whether the mandate is distinct from the rest of the law and whether the overhaul’s Medicaid expansion is constitutional, according to Florida Attorney General Pam Bondi (R). Issues related to state law and the employer mandate have been raised in some of the other reform lawsuits (Norman, CQ HealthBeat, 10/24).

In the States

  • States facing budget shortfalls and rising health care costs are testing a variety of strategies to limit Medicaid spending. Although the federal health reform law requires states to maintain Medicaid eligibility and enrollment standards through 2014, states are permitted to cut optional Medicaid benefits (Galewitz [1], Kaiser Health News/USA Today, 10/24). Some states already are reducing such benefits, including prescription drug coverage, vision and dental care, and visits to certain specialists, while others are limiting coverage for hospital stays. Such plans require federal approval, which many states already have been granted (Galewitz [2], Kaiser Health News/USA Today, 10/24).

On the Campaign Trail

  • During a Republican presidential debate in Las Vegas last week, former Massachusetts Gov. Mitt Romney was once again forced to defend the state health reform law that he signed in 2006 (Viser/Jan, “Political Intelligence,” Boston Globe, 10/18). Texas Gov. Rick Perry, former Sen. Rick Santorum (Pa.) and former House Speaker Newt Gingrich (Ga.) were most critical about the Massachusetts law, which they noted had been used as a model for the federal health reform law (West, “Politics Now,” Los Angeles Times, 10/18). Romney frequently reiterated that the Massachusetts law was a solution designed to address a state problem and pledged to take steps to repeal the federal law if he is elected next year (Haberkorn, Politico, 10/18).

On the Hill

  • This week, the House is scheduled to vote on a bill (HR 2576) that would scale back the expansion of Medicaid scheduled to take effect in 2014 under the federal health reform law. Under the health reform law, an individual’s modified adjusted gross income — a calculation that excludes some Social Security benefits — will be used to determine Medicaid eligibility. The new measure would replace that standard with a more-restrictive one typically used for federal assistance programs, making it harder for U.S. residents to qualify for Medicaid and insurance subsidies. The bill — projected to cut the deficit by about $13 billion over 10 years — is expected to pass with bipartisan support (Pecquet, “Healthwatch,” The Hill, 10/21).
  • In a recent letter to President Obama, a bipartisan group of 50 House lawmakers expressed their opposition to an administration plan to shorten the exclusivity period for drugmakers that develop biologics from 12 years — as provided under the federal health reform law — to seven years (Pecquet, “Healthwatch,” The Hill, 10/18). They said companies would have less incentive to innovate and develop new treatments without the longer period of protection from generic competitors (Adams, CQ HealthBeat, 10/18). They added that a 12-year period also would balance “the need for patient access with incentives for innovation.” The plan to reduce the exclusivity period — in Obama’s deficit-reduction plan — also could force drugmakers to move to other countries with less-stringent regulations, they wrote (“Healthwatch,” The Hill, 10/18).

Rolling Out Reform

  • A recent audit by the U.S. Treasury Department‘s inspector general for tax administration said the IRS is meeting the technological requirements of the tax-related provisions in the federal health reform law and the challenges posed by dozens of changes to the tax code in the overhaul. The report found that the tax agency has established a plan to systematically address the more than 40 tax code modifications, of which eight include penalties for U.S. residents who fail to obtain health insurance coverage and incentives for individuals who do. The report also recommended that IRS disclose clearly its procedures for addressing unresolved issues that might emerge with the reform law, which the agency agreed to do (Becker, “Healthwatch,” The Hill, 10/24).

Related Topics

Medicare Road to Reform The Health Law