Healthcare providers say proposed changes to Medicare's most popular accountable-care payment program are financially underwhelming and accelerate the initiative to an overly aggressive pace.
In public comment letters filed on proposed changes to the Medicare Shared Savings Program, many providers say MSSP faces an existential threat if the rule changes are not revised.
A joint comment letter signed by nearly three dozen healthcare provider organizations, including the American Medical Association, the American Academy of Pediatrics, the Medical Group Management Association, the Association of American Medical Colleges and the National Association of ACOs, is highly critical of the proposed changes.
"While the MSSP program has generated strong interest, sustained and increased participation hinges on the potential financial opportunities being adequate to support the investments needed to improve care and, ultimately, create a program that is sustainable for the long term," the providers say in their joint comment letter.
"First-year MSSP performance data from November 2014 showed that slightly more than half of participating ACOs (118/220) reduced costs enough to generate savings to the Medicare program. However, only about half of these (58) were able to meet the minimum savings threshold required to actually share in the savings. Thus, overall, only 26% of MSSP ACOs received a shared savings payment from Medicare. As currently designed, the MSSP program places too much risk and burden on providers with too little opportunity for reward in the form of shared savings."
In his comment letter, David Gross, the executive director of Morristown, NJ-based Atlantic ACO, laments proposed changes to Track 1 of MSSP, which features gain sharing with no downside risk. He says two of the proposed rule changes are particularly onerous: barring MSSP Track 1 participation to providers that have not reached the minimum saving threshold for at least one year and reducing the shared saving rate from 50% to 40%.
"The proposed requirement that continued participation by existing ACO participants in Track One of the MSSP must have achieved shared savings within the [Minimum Savings Rate] corridor in one or both [of the first two 'performance years'] would prohibit an ACO such as ours from participation despite a positive trend on many measurable performance criteria," Gross wrote.
While Atlantic ACO has yet to cross the minimum savings threshold to qualify for gain sharing payments, the organization has met MSSP quality standards set by the Centers for Medicare & Medicaid Services. "Our quality indicators as measured by CMS have consistently been at or better than national MSSP performance averages across most categories of performance. Quality trend improvement in the attributed population should be an alternative to the MSR savings threshold of performance."
Atlantic ACO officials "strongly urge" CMS to reinstate the 50% shared savings level for Track 1 MSSP participants, Gross wrote. "This erosion of the opportunity to achieve a 50% shared savings will erode the opportunity of the ACO to recoup development and operating costs and impair the ACO's ability to appropriately reward member physicians. It is a significant disincentive in moving our physician members to a value-based system of care delivery."
Gross says Atlantic ACO and its hospital partners are at risk of squandering $10 million of MSSP-related investments, and says that that softening the proposed changes to Track 1 of MSSP is "critical to our continued participation in the 2016 Medicare Shared Savings Program."
The comment letter from Rick Pollack, executive VP of the American Hospital Association, scolds CMS for crafting MSSP in a way that "applies too many 'sticks' and offers too few 'carrots' to participating providers" in the program.
"While some of CMS' proposed improvements are welcome and could make the program more attractive to new applicants and existing ACOs, we question whether other proposals go far enough to correct misguided design elements that emphasize penalties rather than rewards," Pollack wrote.
CMS, AHA contends, is moving too quickly in tightening standards for providers in MSSP Track 1, asking federal official to "balance the risk versus reward equation in a way that encourages ACOs to take on additional risk but does not penalize ACOs that need additional time and experience with the MSSP before they are able to do so."
'The Risk of Driving Providers out of the Program'
In separate recent interviews, AAMC and AMA officials said CMS needs to be more responsive to providers' concerns over MSSP to help ensure the success of Medicare's drive to accelerate value-based payment reforms.
"If ACOs are going to continue, we have sought improvements, including maintaining Track 1 and not diminishing the business case to continue participation in it," said Janis Orlowski, MD, chief healthcare officer at AAMC.
Orlowski says CMS is pushing providers too quickly toward participating in the proposed Track 3 for MSSP, which features both upside and downside risk. "Under the proposed rules, providers need to move into two-sided risk in Track 3 or lose money," she said. "CMS is pushing to diminish the attractiveness of Track 1, but they run the risk of driving providers out of the program."
Providers are willing to work with CMS to develop MSSP and other payment reforms that help move Medicare away from the fee-for-service payment model, but many are fearful of the financial consequences of moving too quickly, Orlowski says. "We want to play, but we don't want to take on a downside risk before we know exactly how the program works."
Barbara McAneny, MD, a New Mexico-based oncologist and chair of the AMA Board of Trustees, says the vast majority of physician practices operate as small businesses that are wary of fundamental changes to payment models.
"With any of these new payment programs, more flexibility is a good thing. If you've seen one physician practice, you've seen one. Physician practices are as unique as the communities they serve," she said. "We also need to make sure that small practices with four or five physicians have a safety net, so they can continue to do their core business and start trying the new services associated with value-based care."
MSSP Concerns Stretch Further Than Financial Sweetening
The joint comment letter signed by nearly three dozen healthcare provider organizations raises several concerns about the proposed MSSP rules beyond clear-cut financial incentives to participate in the program.
"The Department of Health and Human Services (HHS) recently stated a goal of tying 30% of fee-for-service Medicare payments to alternative payment models, such as ACOs, by the end of 2016, and tying 50 percent of such payments to alternative payment models by 2018," the providers wrote.
"In order for HHS to meet its goals and ensure continued and enhanced participation in the MSSP, we urge CMS to strengthen the assignment of Medicare beneficiaries, establish a more appropriate balance between risk and reward, adopt payment waivers to eliminate barriers to care coordination, modify the current benchmark methodology, and provide better and timelier data."
The window for the public to file comments on the proposed MSSP rule changes closed Feb. 6.
Broad, hospital-led opposition plays a crucial role in a court battle over the latest healthcare mega-merger in Massachusetts.
The battle lines have been firmly drawn in one of the country's most contentious clashes of healthcare consolidation titans.
When I moved to Boston fresh out of college in 1988, Eastern Massachusetts was peppered with independent community hospitals. Now, South Shore Hospital in South Weymouth is one of the last independent community hospitals in the entire region, and about a half dozen large health systems are vying for the winner's circle in the consolidation end game.
Boston-based Partners Healthcare, The Bay State's largest private employer with about 60,000 workers, has coveted South Shore Hospital for two decades. Two weeks ago, Partners' latestattempt to acquire the South Weymouth facility along with two hospitals north of Boston suffered a dramatic setback.
The Ruling
In her Jan. 29 ruling, Sanders cited two reasons for her decision.
"First, it is not in the 'public interest' as that has been defined by the case law," the judge wrote in her ruling. "By permitting the acquisitions, the settlement, if adopted by this Court, would cement Partners' already strong position in the healthcare market and give it the ability, because of this market muscle, to exact higher prices from insurers for the services its providers render.
These Partners-driven increases in costs are estimated by an independent state agency, the Massachusetts Health Policy Commission (HPC), to amount to tens of millions of dollars a year. Those costs will ultimately be borne by consumers and employers in the form of higher insurance premiums and higher deductibles on their insurance plans.
The Proposed Consent Judgment, which contains temporary price caps and other so-called 'conduct-based' remedies, does not reasonably or adequately address the harm that is almost certain to occur as a consequence of the anticompetitive conduct by Partners. …"
"Second, this Court has serious concerns as to the enforceability of the Proposed Consent Judgment. Where a consent decree contemplates ongoing judicial involvement, as it does here, and there are substantial questions regarding enforcement, this alone is sufficient to reject it. The Proposed Consent Judgment envisions a ten-year period during which this Court could be called upon to resolve disagreements among the parties in at least ten different areas, including on complicated issues relating to healthcare pricing.
Moreover, this lawsuit is brought at a time when the entire healthcare field is undergoing enormous change. This Court is ill-equipped to keep abreast of those changes as they unfold over the next decade or to predict at this point how such changes might affect the meaning and application of the Proposed Consent Judgment going forward."
'Extraordinary' Actions
Sanders could have cited a third factor in her decision: The effectiveness of a grand coalition formed by Partners' prime competitors, including Boston-based rivals Beth Israel Medical Center and Tufts Medical Center.
David Balto
"Usually when hospital mergers occur and there are anti-competition concerns, the other hospitals in the market sit on their hands. But in this case, the coalition's actions are really extraordinary," David Balto, a lawyer and former federal official who represented the American Antitrust Institute in Sanders' courtroom, told me this week. "They brought everybody together, from regulators, to unions, to other healthcare providers."
Balto says Partners' quest to acquire three more hospitals prompted stiff resistance from a powerful and highly competent set of opponents.
"We were reaching a level of concentration where competition was under threat, but this is Eastern Massachusetts, this is the best and the brightest," Balto says.
He says he always left his meetings with Partners' competitors impressed with their firm grasp on even the most minute issues linked to the AG's proposed consent agreement. "These people really have a vision of what the market should be like. They knew this merger would make a competitively broken system even worse."
Sanders' ruling will have repercussions beyond The Bay State, but it does not mark the death knell for conduct remedies in healthcare mergers, Balto says.
"The ruling really was groundbreaking, but it does not mean conduct remedies are always inappropriate," he says, citing a recent two-hospital merger deal in Utica, NY, which incorporates conduct remedies that Balto says are well-suited to the community's "financially fragile market."
"Regulators need to be nimble and flexible. There are tremendous challenges that hospitals face," he says. Elements of the Patient Protection and Affordable Care Act such as care coordination initiatives are one of the driving forces behind healthcare consolidation efforts across the country, he adds. "Eventually, there are compromises that regulators are going to have to make."
'Not Just a Power Grab'
In recognition of those compromises, Balto offers an olive branch to his legal adversaries at Partners. "Give them their due. There are important changes that they have in mind to coordinate care and to lower the cost of healthcare. These mergers were not just a power grab. They had legitimate goals that they were trying to accomplish."
In an interview last week, Andrea Murino, the Washington, DC-based attorney who has been representing the coalition, told me her clients welcomed Sanders' ruling warmly.
"We are delighted the judge realized that the proposed remedies didn't remedy anything. They were untested and would do very little to mitigate the market power that Partners enjoys," Murino said.
She shares Balto's views on the conduct remedies in the Partners merger deal and in healthcare merger cases generally. "Conduct remedies don't achieve long-term structural changes that restore competitive balance. In this case, they were too thin, too flimsy, and not commensurate with [the anticompetitive elements of the merger]… There are certainly lots of consolidation remedies, even in healthcare, where the remedies can improve competition. It really depends on the facts and the specifics of the organization you're dealing with. I don't see the world as black and white."
With Sanders' ruling upping the ante in the Eastern Massachusetts healthcare consolidation end game, Partners is apparently plotting its next move carefully. "We're currently evaluating all options," says Rich Copp, the health system's VP of communications.
Insurance cooperatives face daunting startup challenges, from market forces to federal and state regulations. A Co-op in Iowa has already succumbed to financial and political pressure.
Building a health insurance carrier from scratch is risky business.
The rapid financial collapse of CoOportunity Health, an Iowa-based insurance cooperative launched last year, highlights the growing pains being experienced at nearly two dozen federally financed co-ops across the country.
Iowa insurance officials say two factors unraveled CoOportunity's finances: higher-than-expected utilization costs among the cooperative's exchange beneficiaries and an accounting switch Congress initiated in December that stripped $81 million from the co-op's balance sheet.
Officials at cooperatives in Connecticut, Maine, and Tennessee say that though their finances are sound, a broad set of challenges exists. Among them: basic insurance-carrier startup steps such as hiring experienced staff and coping with explosive beneficiary growth over short timeframes.
Acting in concert with regulators on Jan. 15, Knoxville, TN-based Community Health Alliance froze enrollment in its health plans offered in Tennessee. CHA officials say they reached the bounds of the cooperative's ability to serve beneficiaries this year.
"The challenges are not unlike any organization where growth has to be managed to offer continued high-touch, consumer-focused service to members," they say. "Growth has to happen over time and within capacity."
CHA does not anticipate having to freeze enrollment again during next year's HIX open enrollment season, and said future exchange enrollment surges will be difficult to predict. "[Exchange] consumers will become more savvy as the environment matures, and there may be periodic enrollment spikes as the overall health insurance market, including employer-based health plans, evolve."
Connecticut Co-op Adapts to Market Forces
Ken Lalime, CEO of Wallingford, CT-based HealthyCT, says the Connecticut cooperative had a key staffing advantage over its counterparts in other states, but has still faced several startup obstacles.
Ken Lalime
CEO of HealthyCT
"We're very fortunate to be in Connecticut, the 'insurance capital of the world,' giving us access to a large pool of very experienced leaders and staff with the passion for driving change in our industry," Lalime says.
HealthyCT managed to overcome those early challenges while dealing with frequent and significant changes in healthcare mandates at the state and federal levels, he says.
Among the difficulties: lack of historical data for rate setting, and the extremely fast pace required to get HCT up and running for [HIX open enrollment on] October 1, 2013.
But its "greatest challenge has been breaking into a very mature market dominated by large, well-known carriers and driven largely by price," Lalime says.
"Starting out, it can be difficult to negotiate contracts in an industry favoring volume-based discounts. Because we couldn't compete on price at the outset, we built our business plan around other factors. We put more resources where we expected higher enrollments but we didn't exclude the rest of our small state. We created partnerships with high-volume brokers who welcomed a new choice for their clients, and we connected with other nonprofits and small businesses. We offered products both on and off the Connecticut exchange and, in early 2014, we expanded into the large group market, which offers the greatest opportunity for growth."
In Maine, Challenges on Multiple Fronts
Kevin Lewis, CEO of Lewiston, ME-based Maine Community Health Options, says MCHO's challenges have ranged from common startup obstacles to thorny problems that are unique to PPACA cooperatives.
"In the very early going, there were challenges in terms of staff recruitment," Lewis said of summer 2012. "We were two people in the very beginning."
Securing enough financing to cope with beneficiary growth and federally mandated financial reserve levels has vexed cooperative officials across the country, including at MCHO and CHA in Tennessee. co-ops are federally mandated to maintain a relatively high risk-based capital ratio: 500% as compared to the 300% RBC ratio set for health insurance carriers in many state.
Lewis says accessing third-party capital for MCHO required significant effort. "We couldn't use the federal financing for marketing," he said of the first HIX open enrollment period in fall 2013. But "we were able to meet the challenge."
MCHO drew third-party financing from several sources, including a loan for office equipment purchases from the cooperative's banking partner, Cleveland, OH-based Key Bank. "It was uncollateralized except for the equipment itself," Lewis says. "They definitely took a stake in our success."
Financing is a challenge for all of the PPACA-spawned cooperatives. "The lack of significant, established capital and capital investors may possibly be the largest difference in structure [the cooperatives] face versus traditional commercial health plans," CHA officials say.
While higher-than-expected beneficiary growth last year created call center capacity challenges and prompted MCHO to secure $64.8 million in federal solvency funding to maintain regulator-mandated reserve levels in future years, Lewis says the Maine-based cooperative “has been in the black since Day One.” He also noted that having 40,000 beneficiaries in 2014 as opposed to the 15,000 the cooperative had forecast became a major strong point. "The greater membership smoothed the utilization rates across the entire [beneficiary] pool."
Casualty of PPACA Political Battle
CoOportunity is the first major casualty in the post-midterm election struggle over the PPACA in Washington, a legal analyst at New York-based Wolters Kluwer Law and Business says.
Kathryn Beard, JD, says Republican lawmakers nixed HIX risk corridor payments as an asset for exchange carriers to whittle away at the PPACA. "This provision was included in the Consolidated and Further Continuing Appropriations Act of 2015 for two reasons, to damage the Affordable Care Act, and to push back against the Obama administration's use of executive action and rulemaking."
Beard says HIX risk-corridor payments have become a political football. "Although… the [PPACA] required the establishment of a temporary risk corridor program, no funding source was specified for the program… The appropriations bill for FY 2014 contained language that would have allowed use of other funding for the risk-corridor program, but no payments were received during that year."
"President Obama's FY 2015 budget proposal included a provision to use the CMS Program Management account to make risk-corridor program payments. ACA opponents Rep. Fred Upton (R-MI) and Sen. Jeff Sessions (R-AL) accused the Obama administration of 'circumventing Congress and seeking to write its own laws' for this plan, which they referred to as an Executive attempt to make appropriations. Therefore, the FY 2015 appropriations bill contains different language from 2014, ensuring that the president's proposal would not go into effect."
Beard says the loss of risk-corridor payments as an asset has implications for any carrier operating on the exchanges that has priced health plan products too low for the market conditions. "The lack of funding for the risk-corridor program will be a problem for any co-op or carrier that, like CoOportunity, offered qualified health plans on the [exchanges] at a lower price than other insurers. The low cost of CoOportunity’s plans resulted in more enrollees, and a more costly, sicker pool of enrollees than anticipated."
Rep. Upton and Sen. Sessions did not immediately respond to requests for comment.
Healthcare providers' concerns about payment reform efforts initiated by Medicare and other payers reach further than their angst over cost-cutting zealotry.
James Weinstein, DO,
President and CEO,
Dartmouth-Hitchcock Health
"We need to create a sustainable health system, not a sustainable healthcare system," says James Weinstein, DO, president and CEO of Lebanon, NH-based Dartmouth-Hitchcock Health. "The model needs to focus on health, not healthcare."
Weinstein acknowledges the economic necessity to "cut the spend" in Medicare, noting that the program was launched 50 years ago with a blank-check financing model. "Medicare was a great big idea to help our seniors. But today, we can ask, 'Is Medicare going to break us?'"
However, payment reform alone is inadequate to the monumental task at hand, the spine surgeon says.
"We need a health and healthcare revolution in the United States," he said. "We need to redesign the healthcare landscape.… As a society, we skirt the real tragedies that are next to us every day—in our school systems and the support systems in our homes. The social underpinnings of our nation are being whittled away. We're regressing to the mean. We have to get away from just payment reform… This has to be a community partnership."
Weinstein, one of the founding members of the Hanover, NH-based High Value Healthcare Collaborative, says his concerns about payment reform efforts at Medicare and other healthcare payers extend beyond angst over cost-cutting zealotry.
"We started this journey in 2004," the spine surgeon says of value-based healthcare delivery reforms at Dartmouth-Hitchcock. The organization has been involved in initiatives at the local, regional, and national level such as population health programs and at-risk contracting. "The models keep changing, and it's difficult to keep up… It becomes a race to the bottom. Everybody is trying to save money."
Weinstein says Dartmouth-Hitchcock is among a select group of "the walking-willing"—healthcare organizations that have risen to the challenge of participating in ambitious payment reform initiatives such as Medicare's Pioneer ACO program. "If the best organizations are struggling to make these programs work, I worry about the ability of the nation to do it," he said.
Physician Practices: 'We Have a Lot to Lose'
Barbara McAneny, MD, chairperson of the American Medical Association Board of Trustees, shares many of Weinstein's concerns about Medicare payment reform.
"We welcome the idea that we are going to have more options to get paid, but I am concerned about the practices that aren't ready," she said in a recent interview.
McAneny says many physician practices are run as small businesses with narrow profit margins. As such, they lack the financial foundation to retool their practices from the fee-for-service payment model to new value-based payment models. "We run the risk of losing more medical practices," the New Mexico-based oncologist said.
"The Medicare payment reforms are moving alarmingly fast, without a clear path forward. We cannot sacrifice the doctors who aren't ready to move forward because we need every one of them seeing patients… If we do not have a program to keep physician practices functioning, we have a lot to lose."
McAneny says many physician practices fear their financial survival is at stake as officials at the Centers for Medicare & Medicaid Services forge ahead with value-based payment reforms. "It's very scary to bet your farm that CMS got it right."
From a provider perspective, McAneny says flexibility is the key to making payment reform effective without disrupting physician practices across the country.
"The payment system has to have enough flexibility in it that physician practices can adapt to reforms," she said. "Medicine is very, very complex now. Orthopedics is a specialty for a reason. Healthcare is complex, and we can't expect to fit all the specialties in medicine into one mold… If we do not have a system that provides a safety net for small practices, it will be an infrastructure that will be hard to replace."
"Change Will be Slow"
Cynthia Ambres, MD, a US lead partner and strategy consultant at KPMG, says there is wide variation among healthcare providers in their preparations for value-based payment reform.
"Some providers are much more prepared for value-based contracts than others, but the latest initiatives from CMS will create a greater sense of urgency to act," she said recently via email. "Many hospitals moving away from fee-for-service will do so very reluctantly, because of the risks associated with value-based contracts and the dependence upon fee-for-service revenue. KPMG'ssurvey of providers showed that nearly half of them expect value-based contracts to hurt profits."
"Providers that have made the investments ahead of this shift are in a much better position than those who haven't. The investments are in technology and the ability to use data and analytics to get a true sense of costs of delivering care and what procedures deliver value. These investments really need to be made to help ensure a sensible approach to ACO strategy and entering bundled-payment agreements."
Providers need to watch their steps carefully as they move forward with matching their healthcare delivery reforms with healthcare payment reforms, Ambres says.
Hospitals are pairing with clinics and other providers to control hospital admissions "to the best of their ability," she says. "Certain chronic conditions, such as diabetes and cardiovascular disease, can be managed with a high degree of coordinated care. Even conditions that have highly personalized treatment programs, such as cancer, can be bundled, but providers need to be very astute about how they are going to price those services."
"A few costly cancer patients in the mix can lead to a contract being unprofitable. So providers should prepare themselves with data to make sure that they can enter these payment arrangements with a better understanding of the risks and opportunities to improve care and manage costs."
She says there are several areas where providers are ahead of the value-based reform curve, launching value-based care delivery initiatives without a corresponding payment model at Medicare and other payers.
"We have some examples of efficient, high-quality care that are, for many, still too new for broad, appropriate reimbursement structures to be in place." Ambres cites online care, daily and weekly patient coaching, home monitoring, and group rehabilitation programs. "The payment systems will catch up eventually; but for now, many of these opportunities remain clustered in pilots and demonstrations. Until we have true bundled payments and more providers at risk, change will be slow."
Individual hospital performance accounts for less than half of the variation in pooled readmission rates across the United States, researchers find.
County-based data collected from across the country show hospitals are far from solely responsible for readmission rates.
An analysis of the data, which is slated for publication this month in the journal Health Services Research, features information collected from 4,000 hospitals for patients with three conditions: acute myocardial infarction, heart failure, and pneumonia. The key finding of the study, "Community Factors and Hospital Readmission Rates," is that 58% of the variation in readmission rates was related to community characteristics outside a hospital's control.
Jeph Herrin, PhD, lead author, says several elements of a community's health capabilities that are not under hospital control help drive readmissions. "The health system outside the hospital, independent of any socioeconomic status characteristics, is important to understanding geographic differences in readmission rates," Herrin said in an interview.
"Our results indicate that at least some of the accountability should be shifted away from hospitals," he says.
The study comes as hospitals are facing growing financial penalties over readmissions. The Centers for Medicare & Medicaid Services' the Hospital Readmissions Reduction Program cuts a hospital's aggregate Medicare reimbursement if a facility reports higher-than-expected 30-day, risk-adjusted readmission rates for patients 65 years and older. The penalties were phased in, starting with up to a 1% Medicare reimbursement cut starting Oct. 1, 2012, and rising to up to 3%, effective Oct. 1, 2014.
Herrin and his co-authors examined county data for three types of community characteristics:
"Sociodemographic" factors such as living alone and educational levels
Access-to-care measures including general practitioners per capita
The number and quality of nursing homes in a county
More than half, "58% of the total variation in publicly reported hospital 30-day readmission rates was attributable to the county where the hospital was located. Expressed differently, the results suggest that individual hospital performance accounts for only 42% of the variation in pooled readmission rates across the United States," the study says.
While socioeconomic status (SES) factors such as educational level were associated with hospital readmission rates, nursing home density and quality were found to be more significant factors.
CMS is planning to roll out a readmissions reduction program that targets skilled nursing facilities. The Protecting Access to Medical Care Act of 2014, last year's congressional patch of Medicare's reviled Sustainable Growth Rate formula for physician reimbursement, includes a value-based purchasing (VBP) program for skilled nursing facilities.
Beginning in October 2018, under the VBP program, CMS is expected to hold skilled nursing facilities accountable for hospital readmissions through financial incentives such as linking Medicare payment rates to performance standards.
Spreading Responsibility for Hospital Readmissions
The Los Angeles-based physician who wrote an editorial to accompany Herrin's readmissions study says the analysis breaks new ground. "It's the first study that I've seen that really has done a rigorous and in-depth look at the factors happening outside the hospital," Teryl Nuckols, MD, a hospitalist and director of the Cedar-Sinai Medical Center Division of General Medicine, said in an interview.
She says the research Herrin and his team conducted shows the necessity to hold more parties accountable for hospital readmission rates. "There's definitely a need for greater coordination of care. There's a need for increased collaboration between the in-patient and out-patient settings. What the [HRRP] policy does is it makes the hospitals accountable for all of it," Nuckols says. "The readmissions penalties for hospitals are meaningful. They have created an incentive [to reduce readmissions]."
Future research on the impact of SES on readmission rates should focus on rural and inner-city areas. "It really warrants additional study," Nuckols said.
A CMS spokesman says the agency is gauging its hospital readmission reduction efforts carefully: "We are establishing a detailed plan to comprehensively analyze the impact of SES factors for Medicare payment systems and programs, and investigating data sources that would enable accurate measurement of SES."
No 'Magic Answer' to Hospital Readmission Puzzle
The lead author of another recent study on readmissions that cast doubt on the effectiveness of readmission reduction programs says the research Herrin and his team conducted accurately reflects the challenge.
"If you have a well-greased community, readmissions are a manageable problem," says Ariel Linden, DPH. "Providers are humming along; there's outpatient coordination. You don't need to be as concerned about readmissions. People are going to fall through the cracks, but not as much [as in communities with fragmented healthcare services or low socioeconomic status.]"
He says future research is likely to show a direct correlation between hospital readmission rates and the level of economic distress in a community. "In a disadvantaged community, you have Medicaid patients and the uninsured. Doctors don't want to see them because reimbursement rates are low," Linden said. "These patients are the high-fliers in the emergency room; and when they get out of the ER, there's nothing for them out in the community to keep them on track."
As Herrin's research implies, a broad and flexible approach is needed to reduce hospital readmission rates, Linden said.
"I don't think there's a magic answer here," said Linden, an adjunct associate professor at the University of Michigan's School of Public Health in Ann Arbor and president of Linden Consulting Group. "Reaching individual patients through nurses or other readmission reduction programs takes a tremendous amount of resources to make a dent at the population-health level."
To achieve significant reductions in hospital readmissions, he says the healthcare industry has to find a way to deploy a broad set of solutions.
"We need more doctors. We need to pay doctors to see patients who don't have insurance. We need to reimburse higher for Medicaid patients. We need more coordinated care. The key is doing all of it. I don't think doing any one thing is going to solve much."
Health Services Research is a publication of AcademyHealth. A grant from The Commonwealth Fund, a private foundation based in Washington, DC, financed Herrin's research.
One of the fledgling insurance cooperatives developed under the healthcare reform law has taken a financially fatal turn in Iowa. Now the repayment of solvency and start-up loans to CMS may be in peril.
With a liquidation petition filed last week, the Des Moines, IA-based health insurance carrier is destined to become the first financial failure among the nearly two dozen cooperatives launched simultaneously last year with the Patient Protection and Affordable Care Act exchanges.
In a statement announcing the liquidation petition, Iowa Insurance Division (IID) officials said CoOportunity is insolvent and beyond rehabilitation. Iowa Commissioner Nick Gerhart, who obtained a court order placing the company into rehabilitation in late December, concluded that "further efforts to rehabilitate the company would be futile."
CoOportunity's demise could cost taxpayers at least $145.3 million, money the Centers for Medicare & Medicaid Services gave the cooperative in start-up loans beginning in 2012 and a $32.7 million "solvency funding" loan awarded on Sept. 26, according to federal records.
CMS also provided $15.4 million last year to help cover the cash-starved cooperative's operational costs, according to the petition for rehabilitationfiled in December.
Operational losses are continuing at CoOportunity, and liabilities exceed assets by at least $48 million. "It is difficult to predict if there will be sufficient funds to repay solvency and start-up loans from CMS," IID officials said via email on Friday.
In addition to CoOportunity, five other PPACA cooperatives received solvency loans in the fall, according to CMS:
Cooperatives Weathering Start-Up Storm
Officials at three of the five cooperatives that received solvency loans say their organizations are now financially sound. Officials at the Kentucky Health Cooperative did not respond in time for publication.
HealthyCT CEO Ken Lalime said HCT applied for solvency funding in the summer to ensure the cooperative had adequate reserves. "HealthyCT took advantage of the opportunity to acquire an additional solvency funding of $48 million to further strengthen our financial position and to reduce the risk of not meeting established requirements. As a new entrant in the Connecticut health insurance market, the fund fortifies our capital position and ensures that adequate capital is on hand in the remote chance that losses could jeopardize HCT's financial stability," Lalime said Sunday.
Kevin Lewis, CEO of Maine Community Health Options, said MCHO applied for solvency funding in June to help finance reserves and expenses linked to beneficiary growth.
"MCHO received an additional solvency award to support our growth as well as expansion into New Hampshire… Health insurers need to maintain a risk-based capital (RBC) ratio with plenty of reserves to cover unexpected liabilities arising from the membership… CO-OPs are held to an even higher standard, with an RBC requirement set by CMS at 500% as opposed to 300% in most states… This solvency funding is for upcoming growth, not present need," Lewis said Saturday.
Melissa Duffy, chief strategy officer at Common Ground Healthcare Cooperative, said CGHC has faced challenges but is highly unlikely to follow CoOportunity into the financial abyss.
"The CO-OP program always envisioned additional loans and adjustments in light of updated business plans and [actuarial] projections. Unfortunately, quite a bit of funding was cut from the program after [start-up] loans were granted, which made this more difficult. CGHC has exceeded its projections, not dramatically like Iowa, but enough that it was prudent for us to request additional solvency," Duffy said Saturday.
Health Republic officials say they are confident about the cooperative's finances. "With decades of experience in the health insurance industry, Health Republic's executive leadership has made prudent business decisions along every step of the way, including negotiating lower-cost services, diversifying our commercial business lines, and securing affordable rates that allow us to maintain solid financial footing," they said in an email Sunday.
Utilization Costs, Accounting Switch Crush Cooperative
IID officials say a pair of factors collapsed CoOportunity's finances: higher-than-expected beneficiary utilization of healthcare services and an act of Congress that changed the accounting standards for HIX risk corridors, which is part of a CMS program that protects carriers from risks associated with operating on the exchanges.
Last year, CoOportunity sustained a net loss of $45.7 million between Jan. 1 and Oct. 31, according to court records. IID officials say a preliminary examination of CoOportunity's healthcare service claims indicates that several factors drove utilization costs beyond the limits of the cooperative's actuarial projections.
"While we are still investigating the cause, some items we have noticed are high incidence of HIV/AIDS patients enrolled with CoOportunity Health, with very high medical costs due to high-cost medications and frequency of other conditions, including hepatitis C. Sovaldi as a course of treatment for hepatitis C costs approximately $85,000," the IID officials said, adding there was also a "high incidence of transplants, which are very high-cost procedures."
IID says CoOportunity appears to have been over exposed to one of the primary risks that face insurance carriers operating on the new exchanges: "Pent up demand for services for people who had not had insurance coverage."
An act of Congress in early December pushed CoOportunity over the financial edge, according to the liquidation petition filed last week: "The [PPACA] provides three risk-spreading mechanisms to address risk pool issues by limiting the amount an insurance company can lose by participating in the [PPACA exchanges].
These mechanisms are
Risk corridors
Risk adjustment
Reinsurance
Payments from the Three R's have been treated as assets of CoOportunity. However, on December 13, 2014, when Congress adopted the Consolidated and Further Continuing Appropriations Act of 2015, a provision of the Act placed in jeopardy the projected risk corridor asset. CoOportunity estimates the potential loss of assets attributable to the risk corridors to be approximately $81 million dollars."
The risk-corridor accounting switch prompted the rapid unraveling of CoOportunity's finances, according to IID and court records. On Dec. 16, CMS advised CoOportunity and Gerhart that the federal agency would not be providing further financial assistance. That day, Gerhart declared the cooperative in a "hazardous financial condition" and placed CoOportunity under a supervision order.
A week later, the insurance commissioner petitioned for rehabilitation. The petition to liquidate the cooperative was filed less than two months after the risk-corridor accounting switch in Congress.
To avoid an interruption in services, the cooperative's 96,000 beneficiaries in Iowa and Nebraska have until Feb. 28 to enroll in a new HIX health plan, according to IID. A special enrollment period for CoOportunity beneficiaries also has been set for March 1 to April 29.
John Hunter, a lawyer for Brown, Winick, Graves, Gross, Baskerville and Schoenebaum PLC, the Des Moines-based law firm representing CoOportunity, declined to comment for this report.
Commercial insurance data for the third quarter of 2014 shows an ongoing rise in healthcare service utilization in the individual market and utilization rates dropping in the group market.
One of the great mysteries of federally driven healthcare reform and value-oriented changes in commercial health plans is unraveling.
National Association of Insurance Commissioners data collected from state insurance departments across the country is providing insight about the impact these historic changes are having on medical service utilization rates.
In the third quarter of 2014, healthcare service utilization spiked in the individual insurance market, but declined significantly in the group market, according to an analysis of NAIC's commercial insurance data conducted by the Princeton, NJ-based Robert Wood Johnson Foundation.
"It shows two trends that are really significant," Katherine Hempstead, team director and senior program officer at RWJF, told me last week.
Utilization Gaps
Hempstead analyzed NAIC data for the third quarter of 2014, which shows a 9.5% year-over-year increase in ambulatory care utilization in the individual insurance market and a 4% decline for ambulatory care utilization in the group market.
The utilization pattern gap is even wider for hospital admissions, with year-over-year admission rates spiking by nearly one-third in the individual market and falling 7% in the group market.
Hempstead noted a couple of caveats about the NAIC statistics, particularly for the group market. She says the data does not include every state, most notably California, and also excludes self-insured employers.
Hempstead says medical underwriting reforms under the Patient Protection and Affordable Care Act, such as disallowing pre-existing conditions as a factor in health plan eligibility, have transformed the individual market.
"In the non-group market, you find a big change in the population linked to medical underwriting. It will be interesting to see whether there is a leveling off of utilization. It's not a surprise that health costs are going to rise in the individual market because a lot of sick people couldn't get insurance before the ACA."
She also noted there could be "pent up demand" for medical services among low-income people who delayed receiving necessary care until obtaining healthcare coverage through the PPACA-spawned exchanges and expansion of Medicaid to more adults in two dozen states.
Assessing the decline in healthcare service utilization rates in the group insurance market is tricky. There was a 5% decrease in group market enrollment in the third quarter of last year. "With the group market, you have a combination of different care management and migration, so it's difficult to determine how the group market is playing out," Hempstead says.
Widespread benefit design changes and increased cost sharing with patients are exerting downward pressure on healthcare utilization rates for all health plan beneficiaries. "All insured populations are under different care management, which is driving down utilization."
The healthcare researcher says commercial payers and benefit managers at large businesses should find the NAIC group market utilization data heartening. "There have been a number of studies now that show when people have more responsibility for healthcare they are more sensitive to the price of care and use less care. Providers are also being incentivized to have their patients use care differently [such as by using more cost-effective settings]."
Insights from the NAIC healthcare utilization data are "sobering," Hempstead says.
'A Wild Ride' "This definitely has implications for premiums. The primary factor pushing premiums upward is [that] the ACA allowed more people into the non-group market who are low-income, and you can expect people with lower incomes to be less healthy." The next key trend to watch, she says, is whether the downward pressures on utilization in the group market can be replicated in the individual market.
"The same factors are at work as in the group market: high-deductible plans and provider-side innovations like ACOs that incentivize providers to give care more efficiently. The individual market is experiencing the same benefit design and care management techniques as the group market. Right now, we're on a wild ride."
With a pinch of economic logic added to the mix, extrapolating from Hempstead's analysis to predict long-term healthcare utilization trends in the commercial insurance market generates a bright forecast.
In the group market, there are indications that strong downward pressure on healthcare utilization rates will continue. From the health-plan and self-insured-employer perspectives, efforts have just begun to deploy benefit design changes, narrow networks, and cost sharing to promote better health outcomes while simultaneously containing costs.
From the consumer perspective, tremendous potential remains to lower utilization rates through care delivery innovations such as retail clinics and urgent care centers that match a patient's medical condition to the most cost-effective setting.
In the individual market, Hempstead and others have already raised the key utilization question: Will there be a leveling off?
As long as value-based healthcare industry reforms continue and employers keep squeezing value out of their health plans, an eventual utilization slowdown in the individual market is likely.
Low-income people who have gained health coverage through the PPACA exchanges and Medicaid expansion are almost undoubtedly in poor health relative to their more affluent fellow citizens.
In the logic of healthcare reform, the early utilization spike in the post-PPACA individual insurance market should level off over time. As more low-income Americans gain affordable access to medical services, the overall health of this population should improve. In addition, as Hempstead noted, the individual market is experiencing the same benefit design and cost sharing changes that have driven down utilization rates in the group market.
Payment and delivery reform is taking the healthcare industry on a wild ride, and the destination is starting to come into view.
Accelerating Medicare's drive to value-based payment and delivery models would boost care quality and generate enough cost savings to pay for "doc fix" reform, advocates say.
The perennial problem in Congress over how Medicare reimburses physicians is providing an opportunity for the foes of fee-for-service medicine.
Over the past dozen years, Congress has repeatedly patched Medicare's widely despised Sustainable Growth Rate formula for physician reimbursement. The temporary SGR fixes have featured a cast of usual suspects of Medicare budget offsets: cuts to provider payments or offsets affecting Medicare beneficiaries such as cost-sharing through deductibles.
A bipartisan and bicameral 10-year deal on a so-called "doc fix" for Medicare fell apart last winter over the politically daunting offset obstacle. Now the Congressional Budget Office estimates that the cost of implementing last winter's $128 billion SGR repeal-and-replace deal has risen to $144 billion.
The current SGR patch expires March 31.
The "pay-for" problem was on parade last week in Congress during a two-day hearing of the House Energy & Commerce Committee's health panel. Republican members of the health subcommittee appeared unified on the necessity to find budget offsets for any long-term replacement of SGR.
For those members of Congress contemplating SGR legislation without offsets, the health subcommittee's chairman issued a warning rooted in realpolitik during the opening session of the hearing Wednesday: "Think of what your goals are. The danger is, and it's a high risk, nothing is going to happen," said Rep. Joe Pitts, (R-PA), evoking the specter of another SGR patch.
A six-member panel of witnesses appeared before the House lawmakers on Thursday, and unanimously opposed offsets drawn from their constituencies.
Robert Umbdenstock, president and CEO of the Washington, DC-based American Hospital Association, opened Thursday's witness testimony with a flat-out rejection of any solution that requires offsets from healthcare providers. "The AHA cannot support any proposal to fix the physician payment problem at the expense of funding for services provided by other caregivers. Offsets should not come from other providers, including hospitals," he testified.
Eric Schneidewind, president-elect of the DC-based American Association of Retired Persons, testified that seniors cannot shoulder any SGR repeal offset burden. "The typical Medicare beneficiary cannot afford to pay more out of pocket," he said.
Umbdenstock and Schneidewind were the only witnesses to propose specific SGR repeal offsets during the health subcommittee hearing Thursday.
Offsetting SGR Repeal With Medicare Reform Windfall
Accelerating value-based healthcare payment and delivery reforms could not only pay for replacing SGR but also improve quality of care and reduce long-term Medicare spending, according to reform advocates and some members of the E&C Committee's health panel.
Alice Rivlin, PhD, director of the Engelberg Center for Health Reform at The Brookings Institution in DC, acknowledged during the hearing the political necessity of finding offsets, but urged lawmakers to launch a wave of value-based reforms in Medicare.
"Replacing the SGR can advance payment reform," she testified. "It can move the healthcare delivery system away from fee-for-service, which is still very prevalent in Medicare, which rewards volume rather than value, and move it toward higher quality and less waste. And that's good for everybody, especially beneficiaries of Medicare."
While directing a question to Schneidewind, Rep. Doris Matsui, (D-CA), called for Medicare reforms to be a prime component of any long-term SGR repeal deal. "New payment and delivery models incentivized in SGR repeal-and-replace policy can make Medicare services more effective and maybe even more efficient. This will save money, while improving care … and involve savings to the overall health system, not to mention the improvement in the quality of care that can have an invaluable effect on a patient's life," she said.
Matsui said improving Medicare's healthcare services is the best solution to the SGR problem: "A more holistic approach to patient care, including strong preventive care, saves costs and lives."
On Friday, a veteran of many SGR battles in Congress who serves on the E&C Committee's health panel said he was skeptical that value-based reforms in coming years can be the featured financing element for a doc fix now.
Rep. Michael Burgess, MD, (R-TX), said Medicare reforms will be accounted for in any long-term SGR repeal deal, but that more traditional offsets will be necessary. "[Reform] is going to be part of whatever group of offsets that's decided upon but I don't think there's enough offset there. It's a struggle to get that up to a number that's enough for a complete offset given the way the budget folks look at such things."
Burgess, who practiced medicine for nearly three decades in North Texas, said the CBO is unlikely to "score" the cost-savings from Medicare reforms high enough to pay for the doc fix. "If CBO would score things by what they save and not what they cost, we maybe could. That gets into the whole CBO scoring legislation that we have had for years," he said.
The Texas Republican also said it is unclear whether a majority of lawmakers in both houses of Congress can shun the historical approach to SGR offsets and bank on reforms to finance a repeal-and-replace deal. "That is to be determined. I just don't think there's any way we can answer that right now," he said.
Reformer Proposes Pain-Free Doc Fix
"The problem is, Congress has been led to believe the only way to deal with this is to cut something else," Harold Miller, president and CEO of the Pittsburgh-based Center for Healthcare Quality and Payment Reform, said after the hearing. "The way to get the offset is not by cutting someone else's fee, it's by redesigning care."
In a report released this month, CHQPR calls for a long-term SGR replacement deal financed with cost savings generated from accelerated and widely adopted accountable payment models. The report, which Miller authored, says Medicare officials have not gone far enough or fast enough in developing accountable payment models.
Miller said the Medicare Shared Savings Program, the government's most popular accountable care organization initiative, is "still fee-for-service " and does little to fundamentally shift providers from volume to value. He believes MSSP gain-sharing only offers an incentive to boost efficiency in fee-for-service operations, with providers grabbing a slice of the cost savings.
The CHQPR report calls for the Centers for Medicare & Medicaid Services to rapidly deploy three accountable payment models that have demonstrated effectiveness:
Bundled payments: Allowing providers flexibility to redesign care at reduced cost. "The CMS bundled payment initiative saved an enormous amount of money," Miller said. "The demonstration has already proved that it is going to work."
Warrantied payments: "It's the same idea as a warranty on anything else you buy. Now for infections and complications, we pay the doctors more to treat them, we don't pay doctors anything for preventing them… Providers make much more profit if you have an infection or complication."
Condition payments: "The orthopedists get paid a ton of money to perform a back surgery on you. But they get paid next to nothing to manage your pain or otherwise treat your condition."
Miller says marrying value-based healthcare delivery with value-based healthcare payments would lower Medicare spending more than the 0.5% annual reduction required to finance a 10-year, $144 billion doc fix. He also says having value-based reforms at the heart of an SGR replacement plan is feasible politically and administratively.
"Either the CBO can give it a score, or Congress can say that it will save money," he said, adding federal officials can move quickly to enact accountable payment models. "The [Diagnosis-Related Group codes] were implemented in 14 months starting in 1983. They can do it."
HHS officials highlight a three-year payment reform timeline, which calls for boosting fee-for-service Medicare reimbursements and increasing reimbursements linked to quality and value.
Federal officials have announced an accelerated effort to use payment reform as a mechanism to shift Medicare and the broader healthcare industry away from the fee-for-service model.
During a gathering in the nation's capital Monday, nearly two dozen healthcare industry stakeholders, including providers, commercial payers, and Department of Health and Human Services Secretary Sylvia Burwell, announced plans to ramp up Medicare payment reforms featuring alternative payment models and value-based payments.
"Whether you are a patient, a provider, a business, a health plan, or a taxpayer, it is in our common interest to build a healthcare system that delivers better care, spends healthcare dollars more wisely and results in healthier people," Burwell said. "We believe these goals can drive transformative change, help us manage and track progress, and create accountability for measurable improvement."
In a statement released Monday morning, HHS officials said the payment reform initiative includes creation of a "learning and action network" to promote the development and promulgation of value-based payment models. "HHS will intensify its work with states and private payers to support adoption of alternative payments models through their own aligned work, sometimes even exceeding the goals set for Medicare. The Network will hold its first meeting in March."
3-Year Timeline
In a conference call Monday afternoon with members of the media, senior HHS officials highlighted a three-year payment reform timeline, which calls for boosting the percentage of fee-for-service Medicare reimbursements based on alternative payment models (APM) and increasing the percentage of all reimbursements linked to quality and value.
In the early phase of the payment reform initiative's implementation, APMs will be limited to three pathways: Medicare's existing accountable care organization efforts, the Pioneer ACO program and the Medicare Shared Savings Program; bundled payments; and payment models tied to patient-centered medical homes.
HHS officials said efforts are already under way to develop and implement more ambitious value-based payment models, including episode-of-care payment for chronic illnesses and oncology care that will require providers to shoulder a significant level of cost risk.
The reform initiative calls for Medicare fee-for-service payments through APMs to rise from the current 20% level to 30% by the end of 2016. The percentage is slated to rise to 50% by the end of 2018.
It additionally calls for the percentage of Medicare payments that are linked to quality and value to reach 85% by 2016 and 90% by 2018. Existing Medicare quality and value linked payment programs include the Hospital Value-Based Purchasing (VBP) program and the Hospital Readmission Reduction Program (HRRP).
One HHS official noted that the agency is showing an unprecedented level of commitment to move Medicare away from fee-for-service payments to value-based payments. "This is the first time in history that we have a date-certain. … This sets very clear goals."
Marrying Value-Based Care Delivery With Value-Based Payment
HHS officials started foreshadowing the Medicare payment reform initiative in the fall.
In November, the Centers for Medicare & Medicaid Services released details about developing and optimizing APMs, linking fee-for-service payments to quality and value, Medicare ACO and bundled payment projects, and PCMH models. The slideshow highlights several value-oriented Medicare payment reform strategies and potential benefits:
Establishing greater focus on better care, better health, and lower costs for patients
Engaging in accountable care and other alternative contracts based on achieving better outcomes at lower cost
Testing models to better coordinate care for people with multiple chronic conditions
"Relentless pursuit of improving health outcomes"
A primary goal of the Medicare payment reform initiative is to develop and enhance the alignment between value-based healthcare delivery and value-based healthcare payment models.
One HHS official said the Medicare payment reforms will "support care delivery reforms," noting that hospitals and other providers are "on the frontline" of the battle to create a value-based healthcare industry.
Payment reform "can only be accomplished with partnerships," one of the HHS officials noted. To successfully shift the entire healthcare industry from volume to value, providers, commercial payers, regulators and every other major stakeholder will have to be "all working at the table on this."
Healthcare Payment Reformer Cautiously Optimistic
Suzanne Delbanco, PhD, executive director of Catalyst for Payment Reform, a Berkeley, CA-based nonprofit, says the Medicare initiative is a big step in the right direction, but it is only a single step.
"CPR obviously welcomes great company in advocating for rapid payment reform. Medicare and Medicaid can change the face of healthcare," Delbanco said Monday after Burwell's announcement.
Federal officials, however, have a lot of work ahead to implement reforms and move beyond "tinkering with fee-for-service" payments. "It's not as simple as saying, 'Hurrah, we've arrived at a new delivery model and we're going to save a lot of money!'" Delbanco says. "Most of the reforms that CMS is talking about are working off a fee-for-service architecture… It takes a huge amount of infrastructure change to handle more than that. Changing will be hard for Medicare and for providers."
Noting the looming March 31 deadline to fix or patch Medicare's loathed fee-for-service physician payment system, the Sustainable Growth Rate, she says the time may be right for CMS to accelerate alternative payment models, as long as HHS proceeds carefully.
"We need to move forward boldly with experimentation, but we will have to be willing to make changes," Delbanco said. "We have to be sober about it. We have to look objectively at the results and make mid-course corrections as needed."
A federal Court of Appeals panel has rejected the Obama administration's contention that hospital admission-status decisions are mainly in the hands of physicians and beyond the authority of Medicare.
The U.S. Court of Appeals has sided partially with the plaintiffs in a hospital patient admission-status case with huge cost implications for some Medicare beneficiaries.
In an opinion released Thursday, the US Court of Appeals for the Second Circuit sent the case back to District Court, ordering the lower federal court to review whether Medicare beneficiary rights under the due process clause of the Constitution are being violated.
The case centers on Medicare payments for beneficiaries transferred from hospitals to skilled nursing facilities, where patients face paying the whole bill if they leave the hospital without spending at least three days (two midnights) designated as inpatients.
The plaintiffs in the case have argued that there should be federal rules for patient notification about whether they are classified as being under observation or as inpatients. The plaintiffs are also seeking an avenue to appeal admission-status decisions.
The three-judge Court of Appeals panel rejected the Obama administration's contention that hospital admission-status decisions are mainly in the hands of physicians and beyond the authority of Medicare:
"The District Court erred in concluding that plaintiffs lacked a property interest in being treated as 'inpatients,' because, in so concluding, the District Court accepted as true the [Department of Health and Human Services] Secretary's assertion that a hospital's decision to formally admit a patient is 'a complex medical judgment' left to the doctor's discretion. That conclusion, however, constituted an impermissible finding of fact, which in any event is inconsistent with the complaint's allegations that the decision to admit is, in practice, guided by fixed and objective criteria set forth in 'commercial screening guides' issued by the Centers for Medicare & Medicaid Services (CMS)."
The judges rejected the plaintiff's other main contention on appeal, finding the admission-status rules do not violate the Medicare statute.
In November 2011, seven Medicare beneficiaries or their estates filed a federal lawsuit against Kathleen Sebelius, who was then serving as secretary of HHS. The case, which was filed at the federal District Court in Connecticut, was originally titled Bagnall vs. Sebelius, but has since been renamed Lee Barrows, et al. vs. Sylvia Mathews Burwell, the current HHS secretary.
The Center for Medicare Advocacy is representing the plaintiffs in the case. On Thursday, CMA attorney Alice Bers said the Court of Appeals ruling could represent a significant victory for Medicare beneficiaries. "The court recognized that hospital patients in 'observation status' may have Medicare appeal rights protected by the Constitution," she said.
The legal process is far from over, Bers added. "Plaintiffs made plausible allegations that Medicare has not left this decision to doctors' discretion and has set criteria for whether or not someone should be admitted."
"The parties are now to go back to the District Court for discovery on the issue of whether, as a factual matter, the decision is actually in doctors' discretion as the secretary of HHS states, or, is being directed by Medicare as plaintiffs state. If plaintiffs can show [that] Medicare directs this decision, they can proceed on their due process claims. The District Court will still have to address other questions that are also part of the due process analysis."
Bers said "property interest" is a pivotal issue in the case. "Bottom line: The Second Circuit recognizes that Medicare beneficiaries may have a property interest in their Medicare Part A coverage as hospital inpatients that is protected by the due process clause of the Constitution."
She noted that "…under the two-midnight rule, it seems doctors have even less discretion than before about admissions decisions."
The Department of Justice attorney who represented HHS before the Court of Appeals, Jeffrey Clair, did not respond to a request for comment in time for publication.
