Federal laws change payments to providers

Congress, federal regulators and the Supreme Court each have taken actions affecting payments to physicians and hospitals.

By Jeff Atkinson | Reform Recap | Summer 2015


The law that threatened to reduce physicians’ pay for Part B Medicare services has been repealed. In April of this year, President Obama signed the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). The passage was a rare act of bipartisanship on a major issue. The act passed the Senate by 92-8 and the House by 392-37.

Had the law not passed or another temporary fix been implemented, physicians’ pay for Medicare services would have been reduced by 21 percent. Under the old law, which had been in effect since 1997, a “Sustainable Growth Rate” formula was applied that would automatically reduce payments if budget targets were not met.

In addition to providing what has been termed the “doc fix,” the new law also extended for two years the Children’s Health Insurance Program (CHIP) and funding for community health centers.

Payments based on quality

At the outdoor signing ceremony, President Obama said, “Not only does this legislation permanently fix payments to doctors, but it also improves it because what it starts doing is encouraging payments based on quality and not the number of tests that are provided or the number of procedures that are applied.”

Under MACRA, physicians will receive a 0.5 percent increase for Medicare services for each of the next five years. During this time the government will develop “Alternative Payment Models” and “Merit-Based Incentive Payment Systems.” Providers’ performance will be assessed in four areas: quality of care, resource use, meaningful use of electronic health records and clinical practice improvement.

By 2020, bonuses and penalties will be utilized to reflect these measures. Bonuses can provide up to a 12 percent increase from the base payment rate, and penalties can deduct up to 4 percent from the base payment rate. In 2022, bonuses can be up to 27 percent and penalties can be up to 9 percent.

Under the merit-based system, clinicians who receive the highest scores relative to benchmarks also could earn additional “exceptional performance” payments. A technical advisory committee within the Centers for Medicare & Medicaid Services (CMS) will develop details of the payment models.

Impact on physician groups

In a program already underway, payments to physician groups are adjusted by a “value-based payment modifier.” The program is being phased in, starting with large physician groups.

In 2015, payments were subject to adjustment for group practices of 100 or more physicians serving Medicare patients. There were 127 such groups: 14 groups received an upward adjustment of 1 percent; 11 groups received a downward adjustment of 0.5 or 1 percent; 81 groups received no adjustments based on their quality and cost data; and 21 groups received no adjustments because Medicare had insufficient data to make calculations about cost and quality. Quality measures are based on the Physician Quality Reporting System.

In 2016, physician groups of 10 or more will be subject to the program, and in 2017 all physicians, including solo practitioners, will be covered. Starting in 2017, potential reductions in payments will be increased to 4 percent, although solo practitioners and groups of 99 or less will not be subject to downward adjustment during their first year in the program.

Hospital-acquired conditions

One of the initiatives under the Affordable Care Act to promote quality and save costs is the Hospital-Acquired Condition Reduction Program. The program is designed to reduce preventable conditions, particularly infections, that the patient did not have upon admission to the hospital but that developed during the hospital stay.

The CMS reports that the program currently saves Medicare approximately $30 million annually. Those savings come from not making payments for treatments of conditions that CMS deems to be preventable.

Under another part of the program, CMS gives hospitals a score based on their record regarding preventable conditions. The higher the score, the less well the hospital did. Starting in 2015 the hospitals that rank in the quartile with the highest scores (i.e., the poorest records) will have a 1 percent reduction in their payments. For 2015, approximately 724 hospitals have reductions in their payment rates.

In some situations, reductions in payments might be due to poor record keeping. When a patient is admitted, it is important for the hospital and physicians to determine and document the patient’s condition. For example, if a patient has pneumonia or bed sores, even if those are not the reason for admission, those conditions should be part of the patient’s record so that the illnesses are not regarded as hospital-acquired conditions.

Another CMS program, the Hospital Value-Based Purchasing Program, will adjust payments to hospitals based in four quality domains: clinical process of care, patient experience of care, outcome and efficiency.

For 2015, the number of hospitals that will experience a positive change in the payments is slightly larger than the number of hospitals that will experience a negative change.

Accountable Care Organizations

Accountable Care Organizations (ACOs) have had a somewhat bumpy path in the quest to deliver high quality, cost-efficient care. ACOs are groups of physicians, hospitals and other health care providers that join together to give coordinated care to Medicare patients (as well as other patients). “Pioneer ACOs” were the first to join the program.

In the first performance year (2012), there were 32 Pioneer ACOs. Since then, 13 of the Pioneer ACOs have dropped out. CMS reports that Pioneer ACOs have saved the Medicare program $118 million for which the ACOs received $76 million in bonuses. Other ACOs have joined the program. In 2015, there are 405 ACOs participating in Medicare’s Shared Savings Program.

Court challenge of Medicaid rates

In March of this year, the U.S. Supreme Court issued a ruling regarding a challenge to reimbursement rates paid by the Medicaid program (Armstrong v. Exceptional Child Center, Inc.). In this case, providers of habilitation services to persons covered by Idaho’s Medicaid plan argued that the rates being paid were insufficient and violated the Medicaid Act.

Section 30 of the Act requires that a state’s Medicaid plan “assure that payments are consistent with efficiency, economy and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan….” The issue before the Court was whether this language gave providers the right to sue in federal court to challenge the reimbursement rates. The Court held the providers did not have such a right.

In an opinion written by Justice Scalia, joined by three justices with Justice Breyer concurring, the Court held that the only remedy Congress intended was for the Secretary of Health and Human Services to withhold Medicaid funds. Private parties could not sue under the act.

Justice Breyer explained that the requirement of Section 30 of the Medicaid Act is “broad and nonspecific” and that when it comes to ratemaking, “administrative agencies are far better suited to this task than judges.”

The process of setting reimbursement rates for physicians and other health care providers will be an ongoing balancing act that will include assessments of quality of care and efficiency. For the federal health care programs, the primary forums for setting rates will be legislatures and administrative agencies, but not the courts.

Jeff Atkinson teaches health care law at DePaul University College of Law in Chicago.



Saying “I’m sorry…”

Most states enact “apology laws” to protect physicians who express sympathy to a patient.

By Jeff Atkinson | Reform Recap | Spring 2015


Here’s one case’s background: After taking Tylenol 3 after dental work, a woman went to a Utah emergency room needing treatment due to an allergic reaction. The emergency room physician ordered subcutaneous administration of epinephrine and two other medications to be administered intravenously. The nurse administered all three medications intravenously.

The woman cried out in pain, her heart began palpating, and she was transferred to the hospital’s ICU for observation. During the course of her treatment, her physician said, “I’m really sorry. There was kind of a complication. We messed up.” The woman filed an action for malpractice and sought to admit into evidence the statements of the physician.

Utah has an “apology statute,” which provides that in medical malpractice actions, statements or conduct of a health care provider expressing “apology, sympathy, commiseration, condolence, or compassion; or a general sense of benevolence” are not admissible in court.

Protected statements vary

Apology statutes (also referred to as “I’m sorry statutes”) have been adopted in 37 states. The most recent state to adopt such a statute was Wisconsin, which enacted its law in the spring of 2014.

The scope of the laws vary, and it is important for physicians to know which statements are protected and which are not. The most common laws are similar to the statute in Utah and focus on statements reflecting sympathy or condolence.

Some states, such as Colorado, go a step further and prohibit admission into evidence of expressions of fault as well as expressions of sympathy.

The Utah Court of Appeals ruled that the physician’s statements that “I’m really sorry” and “There was kind of a complication” were inadmissible under the state’s apology rule. On the other hand, the statement that “We messed up” was considered to be an admission of fault and, therefore, admissible against the physician and hospital. (In this case, the verdict was nonetheless in favor of the health care providers since the plaintiff did not present sufficient evidence of injury resulting from the breach of standard of care.)

Promoting better communication

Apology statutes create an exception to legal principles that usually allow a defendant’s “admissions” or “admissions against interest” to be used in evidence. A person’s admission of wrong-doing or an apology are relevant to determining if the person did something wrong, but there also can be reasons for not allowing admission of such evidence in court.

The policy behind apology statutes is to promote better communication between providers and patients. Apologies are a way of showing respect to the patient and providing more of an opportunity for closure.

They also are consistent with a physician’s ethical duties. The AMA Code of Medical Ethics, Opinion 8.12 states:

“Situations occasionally occur in which a patient suffers significant medical complications that may have resulted from the physician’s mistake or judgment. In these situations, the physician is ethically required to inform the patient of all the facts necessary to ensure understanding of what has occurred. Only through full disclosure is a patient able to make informed decisions regarding future medical care.”

Effect on liability costs

Although the research is not definitive, there is evidence that apology statutes can reduce medical liability costs. Patients and family members to whom explanations are given tend to be less angry and more likely to settle for a lower amount than if no explanation or expression of apology was made. And, in some cases, the patients may choose not to file suit.

In addition, the statutes in some states require that in order to obtain the protections of the apology statute, the statement of apology must be made within 30 days of the adverse event. Vermont and Washington are states that apply such a time limit.

Apologies or admission of fault can be difficult. The individual making the apology may fear loss of face or exposure to liability. The laws of most states offer some protection, and at least in some cases, the expression of apology can improve the physician’s relationship with the patient and the patient’s family.

Jeff Atkinson teaches health care law at DePaul University College of Law in Chicago.



The Affordable Care Act in progress

More people signed up for health insurance, but there will be delays for ICD-10, a permanent “doc fix,” the Two-Midnights Rule and the employer mandate.

By Jeff Atkinson | Reform Recap | Summer 2014


Enrollment of patients under the Affordable Care Act (ACA) grows, but some parts of the program have been postponed. When the period of open enrollment closed earlier this year, more than 8 million people had signed up for private health care insurance under the act.

The ACA also increased coverage for uninsured Americans by expanding the Medicaid program, making eligible anyone with income less than 138 percent of the federal poverty level. (In 2014 in the 48 contiguous states, 138 percent of the poverty level is $16,105 for one person and $32,913 for a family of four.) The Rand Corporation estimates that Medicaid enrollment increased by 5.9 million since enrollment expanded under the ACA.

The number of persons covered by expanded Medicaid would have been larger had it not been for the U.S. Supreme Court decision, which although upheld most of the ACA, gave states the right to opt out of Medicaid expansion (National Federation of Independent Business et al v. Sebelius, 2012). Approximately 24 states have opted out.

The cost of not expanding Medicaid 

Researchers at Harvard University Medical School and City University of New York, writing in the Health Affairs Blog, estimated that between 7,115 and 17,104 will die each year because of the lack of Medicaid expansion in opt-out states. The deaths occur because many patients without insurance will forego screenings and treatments, including medications.

The decision by some states to not expand their Medicaid programs was made even though the federal government will pay 100 percent of the costs of expansion in the first three years of the program and 90 percent of the costs thereafter.

The ACA has reduced the number of people without insurance, but 32 million are estimated to still be without insurance. According to Gallup, those most likely to be without insurance are Hispanic (37 percent) or Black (18 percent). Eleven percent of Whites are uninsured.

The Obama administration has acted to prohibit discrimination against same-sex married couples under the ACA. Insurance companies issuing policies through insurance exchanges will be obliged to offer coverage to same-sex married couples, even if the marriage is not recognized by the state in which the couple lives.

Postponement for parts of program

As a result of lobbying by various groups and administrative difficulties within the government in setting up the expanded health care program, the start dates for some parts of the ACA have been delayed, generally by about one year.

ICD-10: The tenth revision of the International Classification of Diseases (ICD-10) will not be implemented until October 1, 2015. Originally, it was to be implemented in 2013; then it was postponed to 2014; and, in April of this year, President Obama signed the Protecting Access to Medicare Act of 2014, which moved the date to 2015. ICD-9 uses 13,000 codes; ICD-10 will use 68,000 codes, providing more precision in tracking treatments and use of products. Many small physician groups and hospitals opposed the earlier implementation of ICD-10 because of the administrative burdens. Many larger hospitals, physicians groups and insurance companies favored more prompt implementation.

“Doc Fix” for Medicare rates: Congress punted again on passing a law to permanently fix the Sustainable Growth Rate (SGR) formula, which determines physician payment rates under Medicare. Without legislation to fix the SGR, the formula would have mandated a 24 percent cut in physician pay. Democrats and Republicans had agreed in principle that the current formula needed to be replaced by a system based more on quality guidelines than on fee-for-service. They also agreed that the payment system did not have to be a zero-sum game and that all physicians who meet quality guidelines could be eligible for increased payments. Congress could not agree, however, on how to pay for the new payment system, the cost for which is estimated to be between $128 and $180 billion over 10 years. So Congress, as part of the Protecting Access to Medicare Act, voted for the 17th time to suspend application of the formula and its reduction in payment rates.

Two-Midnights Rule: A third feature of the Protecting Access to Medicare Act was to extend the moratorium on the Centers for Medicare and Medicaid Services’ enforcement of the Two-Midnights Rule. Under the rule, a patient’s admission to the hospital is usually considered “reasonable and necessary” if the patient stays in the hospital for two midnights. If the patient is admitted to a hospital for less than that, Recovery Audit Contractors may impose penalties. Under the act, the audit contractors will not be able to audit for enforcement of the rule until April 1, 2015.

Employer mandate for medium-size companies: The obligation of companies with 50 to 99 full-time employees to provide health insurance to their employees has been postponed from Jan. 1, 2015 to Jan. 1, 2016. The mandate—referred to in the law as “employer shared responsibility”—was delayed by rules issued by the Treasury Department. In order for a company with 50 to 99 employees to postpone their obligation to provide insurance, the employers will need to certify that they have not laid off any employees in order to be under the 100-employee limit. Employers with 100 or more employees still will have to meet the Jan. 1, 2015 deadline.

Though the Affordable Care Act is accomplishing its primary purpose—providing health insurance to more individuals—several administrative aspects of the program have been difficult to implement, and the time for full implementation has been

Jeff Atkinson (JAtkin747@aol.com) teaches health care law at DePaul University College of Law in Chicago.



Peeking into physician pockets

New federal regulations allow the public to seek information about the amount of money physicians receive from Medicare and the health care industry.

By Jeff Atkinson | Reform Recap | Spring 2014


Transparency has become a theme in health care reform. In 2014, the transparency spotlight has turned to payments received by physicians from Medicare and the health care industry.

For 33 years, the amount of money that individual physicians received from Medicare was confidential. A lawsuit brought by the American Medical Association and the Florida Medical Association in the 1970’s resulted in an injunction prohibiting the release of Medicare reimbursement information for individual physicians.

In 2013, a Florida federal court judge revisited the issue and held that the federal Privacy Act no longer barred release of reimbursement information under the Freedom of Information Act.

The Centers for Medicare & Medicaid Services (CMS) then drafted regulations to comply with the court ruling. The regulations were announced in January and took effect March 18. Under the regulations, the public—including the news media—does not have an automatic right to the reimbursement records for individual physicians, and, in no case, will names of individual patients be released.

“Case-by-case determination” regarding release 

Instead, in the words of the new policy, CMS “will make a case-by-case determination” about whether to release the information after balancing “the privacy interest of individual physicians and the public interest in disclosure of such information.”

The legal issue involves exemption 6 of the federal Freedom of Information Act, which exempts from the requirement of release of information “personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.”

The details of how CMS will administer the new policy are not clear, but the tenor of the policy seems to favor release of information.

Jonathan Blum, Principal Deputy Administrator of CMS, said in the CMS Blog (Jan. 14), “Given the advantages of releasing information on Medicare payment to physicians and the agency’s commitment to data transparency, we believe replacing the prior policy with a new policy in which CMS will make case-by-case determinations is the best next step for the agency.”

Among the benefits projected from the new policy are letting patients see which physicians have the most experience in areas of practice and particular procedures as well as providing data that could help determine if fraud, abuse and waste have occurred.

Broad access vs. safeguards

Some wish CMS had gone further and had opened reimbursement records to the public in a searchable database. The Association of Health Care Journalists, for example, said, “As long as patient confidentiality is protected, we see no reason why taxpayers should not know how individual physicians are spending public dollars.”

Medical associations generally prefer a go-slow approach. The American Medical Association and other physician groups told CMS: “Steps must be taken to ensure that the release of data does not mislead the public into making inappropriate and potentially harmful health care treatment decisions. In light of these considerations, the release of raw data regarding physician claims for providing medical services should be limited for specific purposes and with appropriate safeguards.”

Some physicians also would like a vehicle for presenting the data in context. If a physician received a very high amount of income from Medicare, the physician might want it known if they had very high expenses that offset the income, including rent, office staff, malpractice insurance and equipment.

Sunshine Act to illuminate industry payments

Another area in which the public will be able to obtain information is payments made to physicians by manufacturers of drugs, biologicals, devices and medical supplies. The Affordable Care Act contains a provision called “The Physician Payments Sunshine Act.” The act is modeled on proposals by the Medicare Payment Advisory Commission and the Institute of Medicine.

Under the act, beginning Aug. 1, 2013, manufacturers were obliged to collect data on payments they make to physicians. The payments include consulting fees, honoraria, fees from serving as a speaker at education programs, food and beverages. (For a full list of payments that need to be reported, see the sidebar at the bottom of this page.)

Reports also need to be made if a physician or an immediate family member of the physician have an ownership interest or investment interest in the manufacturer.

Manufacturers are to report the data annually to CMS with the first report due March 31, 2014. The public will have access to the data, including via a searchable website, beginning Sept. 30, 2014.

Payments that do not need to be reported include: ownership of shares in publicly traded companies and mutual funds; loans of devices for periods of 90 days or less; product samples that are provided at no cost to patients; payments with a value of $10 or less (provided the annual total payment to an individual physician does not exceed $100 per year); and educational materials that are of direct benefit to patients.

Physicians are encouraged to contact manufacturers with whom they work to review the manufacturer’s report for accuracy. In addition, under the statute and regulations, after the manufacturers submit reports to CMS, physicians must have at least 45 days to review the report and request corrections before the information is made available to the public.

To assist physicians in tracking payments made to them by manufacturers, free smartphone apps are available through the Google Play Store and the Apple App Store. The title of the app is “Open Payments Mobile for Physicians.”

Health care is increasingly data-driven in efforts to promote quality, control costs and inform consumers. Part of that effort is making available information regarding payments physicians receive from Medicare and from health care manufacturers.

Jeff Atkinson (JAtkin747@aol.com) teaches health care law at DePaul University College of Law in Chicago.



Challenges of the insurance exchanges

Insurance exchanges offer multiple plans as they seek to balance desires for broad coverage and affordable care.

By Jeff Atkinson | Reform Recap | Winter 2014


The six-month open enrollment period for obtaining health insurance through exchanges under the Affordable Care Act (ACA) got off to a bumpy start when 8.6 million people tried to visit the federal government website in the first week, millions more visited state websites, and the computer systems could not handle the initial surge. But as the computer systems improved and the volume of inquires per day decreased, operations have become smoother. Open enrollment continues through March 31.

In 36 states, the exchanges are operated by the federal government or a joint effort of the federal and state governments. In the remaining 14 states, the states operate the exchanges.

Insurance mandate for most
The purpose of the exchanges is to make it easier for individuals without insurance and small businesses (fewer than 50 employees) to obtain insurance. Under the ACA, people are mandated to obtain private insurance subject to a few exemptions. The exemptions include being covered by other government insurance programs, including Medicare and Medicaid, or having an exemption for religious reasons.

Individuals who do not acquire insurance and do not qualify for an exemption will be obliged to pay a penalty—also referred to as a “shared responsibility payment.” In 2014, that amount is a relatively modest $95 per person or 1 percent of income, but the amounts and percentages increase in subsequent years.

To facilitate comparison shopping for insurance, the ACA provides for standardization of insurance policies. Insurance companies are not allowed to discriminate on the basis of pre-existing conditions, and lifetime limits on coverage are prohibited. The types of services covered will be the same within a given state, although individual states may vary the types of services covered, including by requiring coverage of more services than the federal government’s minimum “essential health benefits.”

The requirement of having policies with the same level of benefits was modified in November when, in response to pressure from the public and political leaders, insurance companies were allowed to renew existing policies on the same terms as they had been issued, even if the policies do not meet the new requirements of the ACA.  It will be up to the insurance companies to decide whether to reissue the old policies as well as offer the new policies required by the ACA.

Premiums vary by state
The cost of premiums varies from state to state. As the exchanges opened, the U.S. Department of Health and Human Services said the nationwide premium average turned out to be 16 percent lower than earlier projections. The amount of premium that a person pays will depend on the proportion of costs covered by the plan chosen by the individual. The ACA established four “metal levels” of coverage. A bronze level plan will cover 60 percent of a patient’s expenses; a silver plan, 70 percent; a gold plan, 80 percent; and a platinum plan, 90 percent.

The average monthly premium for an individual in the 48 contiguous states will be $328 for a silver plan. According to analysis by the Kaiser Family Foundation, the range in costs for a silver plan for a single person will be from a low of $201 in Portland, Ore., to a high of $413 in Burlington, Vt.

These amounts reflect the premiums before providing tax credits to reduce the cost. The amount of the tax credit will depend on a person’s income, with credits available for those with income up to 400 percent of the poverty level. The ACA allows insurance companies to vary rates by the age and smoking habits of applicants. An older person can be charged up to three times the premium of a younger person for the same coverage, and smokers can be required to pay up to 50 percent more for premiums. States, however, can require that rates be uniform regardless of age and smoking habits. New York, for example, has such a regulation.

Adverse impact of low-cost plans
Those who choose low-cost plans may be in for unpleasant surprises. The premiums on a bronze or silver plan will be low compared to a gold or platinum plan, but the copay by the patient will be high. For example, if a patient incurs a $100,000 medical bill, the bronze plan will pay only $60,000, and the patient will be responsible for $40,000—perhaps even more if the patient received care out of network. This will have a ripple effect on providers who may have difficulty collecting the co pay from a patient who cannot afford it.

To determine eligibility for subsidies, insurance exchanges will rely on multiple sources, including the application forms, IRS records, Social Security data, and in some cases, other wage information that is available electronically, including through credit reporting firm Equifax. If an applicant for insurance claims a tax credit for which the applicant is not eligible, the IRS will require repayment the following year.

Physicians joining large groups or hospitals
Although physicians may have difficulty collecting large copayments from patients, they also are likely to find there are more patients coming through the door since the ACA is designed to provide insurance to people who currently do not have insurance. To gain access to the increased base of patients, physicians increasingly will join large physician groups or hospitals, particularly those that have contracts as preferred providers with multiple insurance companies or employers.

Private insurance companies will provide coverage through the exchanges. Plans affiliated with the Blue Cross and Blue Shield Association will be dominant players. Blue Cross is offering plans in 47 states and the District of Columbia. Under a contract with the federal government, Blue Cross’s offerings through the exchanges will include multi-state plans in 30 states. This will facilitate having additional health plans available, particularly in small states in which there otherwise might be fewer options for buying insurance.

Some companies—including UnitedHealthcare, Aetna and Cigna—are concerned about the profitability of selling products through insurance exchanges and have chosen to limit their participation by selling their products outside the exchanges or only through the exchanges of a few states.

The American Medical Association (AMA) has expressed concern about concentration in the health insurance market. In November, it issued a report entitled “Competition in Health Insurance: A Comprehensive Study of U.S. Markets.” AMA President Ardis Dee Hoven, M.D., said, “An absence of competition in health insurance markets places a particular strain on physicians in small practices who don’t have the leverage to be equal negotiating partners with large health insurers.”The AMA says the report “is intended to help researchers, lawmakers, policymakers and regulators identify markets where mergers and acquisitions among health insurers may cause competitive harm to patients, physicians and employers.”

The ACA seeks to balance competing interests. It wants to provide good quality coverage at an affordable cost. It seeks to give purchasers of insurance a choice, yet limit the range of choices to facilitate comparative shopping and promote price competition. Striking the best balance will be an ongoing challenge and adjustments can be expected in the years ahead.

Jeff Atkinson (JAtkin747@aol.com) teaches health care law at DePaul University College of Law in Chicago.



Medicare’s Sustainable Growth Rate formula may finally be repealed

Democrats, Republicans, the White House and the AMA all agree: The Sustainable Growth Rate formula is not working. What’s next?

By Jeff Atkinson | Fall 2013 | Reform Recap


This may be the year in which  which Medicare’s Sustainable Growth Rate (SGR) formula is finally repealed. The formula is one of Congress’s less-successful attempts at controlling health care costs. It is part of a law that each year threatened to cut physicians’ pay for Medicare services by a substantial percent, but then Congress stepped in and canceled the cut for that year.

The SGR was enacted as part of the Balanced Budget Act of 1997. Congress was concerned that the Medicare fee schedule would not sufficiently constrain spending for physicians’ services under Part B of the Medicare program because physicians, for example, might increase the volume of services to make up for a loss in revenue on per-service payments. If the cost of Part B exceeded limits specified by the formula, Medicare rates for the following year would be reduced.

Formula tied to growth in economy
The formula is a complex one. It takes into account multiple variables, including change in physicians’ fees, the number of Medicare beneficiaries, growth in the gross domestic product (GDP) per capita, and changes in health care spending due to laws and regulations. The broad goal of the formula is to not allow spending for physicians’ services to increase faster than the growth of the economy.

For the first four years of the program, there was not a problem. Actual expenditures were less than or close to the target expenditures. So the updates to the physicians’ fee schedule provided increased reimbursements to physicians for each of those years. In 2002, expenditures exceeded targets, and physician reimbursements were cut by 4.8 percent.

That was not acceptable to physicians and lawmakers. So for all years after 2002, Congress provided what has been referred to as the “doc fix” or “pay patch”—a law that suspended the payment cuts and usually provided a moderate increase for physicians.

The underlying formula, however, was not changed or repealed. Each year, the amount of payment cuts that would have to be made in order to balance the books under the formula increased. Under the formula, if Congress does not solve the problem between now and the end of the year, Medicare reimbursement rates for physicians in 2014 will be reduced by about 25 percent.

Broad support for repeal
There is near-universal agreement that the SGR formula needs to be repealed or changed. The formula has not served to cut costs, and if the formula were applied, the number of physicians willing to treat Medicare beneficiaries would be reduced. Support for change comes from Republicans, Democrats, the White House, the Medicare Payment Advisory Commission, and the American Medical Association (AMA).

In a letter to Congressional leaders urging repeal of the SGR formula, the AMA’s Executive Vice President and CEO, James Madara, M.D., said, “Stable and predictable payment models are necessary to ensure physicians can plan for investments in capital improvements and continuously make advancements in delivering higher quality and more efficient care.”

Part of what has delayed coming up with a permanent remedy has been the cost of repeal. The Congressional Budget Office (CBO) scores legislative proposals to determine their cost. Until recently, the cost of repeal of the SGR formula had been set at $244 billion over 10 years. This year, the CBO reduced its estimate to $138 billion over 10 years. That will make repeal more politically palatable.

The Affordable Care Act provides alternate ways to save health care dollars, particularly in the Medicare program. The act provides for an increase in “value-based purchasing” by which the government (and private payors) will make more payments based on value received rather than just fee-for-service. Providers with good outcomes and cost-effective care may receive bonuses; providers who do not meet quality and cost targets may find their reimbursement rates cut.

There also will be increased use of “bundled payments” by which groups of providers—including hospitals, physicians and home care agencies—will receive a single fixed payment for treatment for an episode of care or of a particular condition. For example, the care of a patient with a broken hip or the care of a patient with diabetes for a certain period of time would be a fixed global payment that would be divided among providers. The payments likely will utilize adjustment factors for severity of the patients’ conditions and case mix.

Getting the details right on adjustment factors will be challenging. The AMA’s Madara said the Centers for Medicare and Medicaid Services “is not ready to implement the value-based payment modifier and…any efficiency measures [should] be tested in large group practices before they are imposed more broadly.”

Some political leaders view health care spending as a zero-sum game. If payments to physicians go up, payments to other health care providers will need to be reduced or at least not rise as rapidly as in years past. Thus, it is expected that payments to hospitals, skilled nursing facilities and home health agencies will be cut or rise more slowly. In a recent “doc fix,” the physicians’ rates did not drop, but the money for physicians came by reducing payments for public health, prevention and hospitals.

Health care reform has some similarities to squeezing a balloon. If one tries to fix a problem on one part of the balloon by squeezing it, another part of the balloon will bulge out and need its own fix.

Jeff Atkinson (JAtkin747@aol.com) teaches health care law at DePaul University College of Law in Chicago.



Government sets “essential health benefits”

The Feds set broad coverage standards and ask states to work out the details.

By By Jeff Atkinson | Reform Recap | Summer 2013


This year, the federal government issued final regulations to set “essential health benefits” for individual and small group health plans operating under the Patient Protection and Affordable Care Act.

The regulations take effect January 1, 2014, and individual and small group health plans must provide the specified benefits after that date. Revised regulations for large groups and employer-sponsored health plans will be issued later and are likely to be similar in the nature of services that are covered.

Under the regulations, the federal government sets broad standards for what must be covered and then leaves it to each state to work out the details. The federal government lists 10 categories of services that must be covered. The list includes traditional areas of health insurance coverage, such as hospitalization, emergency services, ambulatory care and prescription drugs.

Expanded benefits in some areas
What is comparatively new—and often not covered by current health plans—is pediatric oral and vision care. In addition, there will be increased coverage for mental health services under the Affordable Care Act.

The Obama administration estimates that 32 million people will receive mental health coverage that did not have it before, and that the scope of coverage for many who already have mental health coverage will improve. (For the list of the 10 categories of services, see the sidebar on page 23.)

If a state wishes to require that insurance provided in the state cover benefits beyond those required by the federal government, the state is free to do so, but the state will need to absorb the added costs, such as the cost of providing extra insurance for Medicaid patients.

The regulations direct states to select a “base-benchmark plan” that will define specific benefits that will be covered under each of the 10 categories. The benchmark plan can be selected from several options, including one of the three largest small group insurance products offered in the state, the state employee health plan, or one of the three largest federal employee health plans. For most states, the benchmark will be a plan offered by BlueCross BlueShield; for California it will be the Kaiser Foundation Health Plan; and for New York it will be Oxford Health Insurance.

If a benchmark plan selected by a state does not provide benefits in one or more of the 10 categories, then the state must select another plan to define the benefits in the missing category.

Coverage between states may vary
The deference given to states in selecting benchmark plans means that package of specific health benefits will vary from state to state. Regarding drug benefits, for example, the formulary of a benchmark plan chosen in one state may list 500 drugs while the formulary of a benchmark plan in another state may offer 1,000 drugs.

Under the federal regulations, however, “A health plan providing essential health benefits must have procedures in place that allow an enrollee to request and gain access to clinically appropriate drugs not covered by the health plan.”

The federal regulations also affirm the principle under the Affordable Care Act that health plans may not discriminate against individuals on the basis of health condition, age or quality of life.

The regulations track the Affordable Care Act regarding giving consumers a choice of levels of coverage, which will affect the premium the consumers will pay. The different amounts of coverage are described as “metal levels.” A bronze level plan will cover 60 percent of a patient’s expenses; a silver plan, 70 percent; a gold plan, 80 percent; and a platinum plan, 90 percent.

Regardless of which metal plan a consumer chooses, there are limits to the annual deductible that can be imposed on people obtaining coverage through the small group market. For an individual, the maximum deductible is $2,000. For coverage of two or more people, the limit is $4,000. After 2014, the deductible limits may increase with inflation. In addition, if a patient is in a network plan and chooses to receive care out of network, the added cost of receiving out-of-network care is borne by the patient and is not part of the annual limit.

Trade-offs of expanded coverage  
The “essential benefit plan” is designed to accomplish at least two goals—to provide a base level of coverage for people obtaining coverage through the individual and small group markets (subject to variation between states), and to give consumers a better opportunity to compare insurance plans.
By requiring insurance companies to standardize their products regarding scope of coverage and the levels of deductibles, consumers will better be able to compare the value of products that are offered.

Under the new regulations, the cost of insurance is likely to go up, particularly for healthy young adults. More people will be covered by insurance, but the costs for some will be more difficult to bear.

Jeff Atkinson (JAtkin747@aol.com) teaches health care law at DePaul University College of Law in Chicago.



Dealing with the shortage of primary care providers

Methods for easing a shortage of primary care providers include increasing Medicaid reimbursement rates and changing policy for graduate medical education.

By By Jeff Atkinson | Reform Recap | Spring 2013


A hallmark of the Affordable Care Act is increasing the number of Americans covered by health insurance. Three of the main ways of accomplishing that are the expansion of the Medicaid system, the individual mandate to purchase health insurance, and the availability of tax credits to help purchase insurance for persons earning less than 400 percent of the poverty level. In 2012-13, 400 percent of the poverty level is $44,680 for an individual and $92,200 for a family of four.

With these initiatives, approximately 32 million more people will be covered by health insurance by 2014. In addition, a growing number of Americans are reaching Medicare age, and their health care needs are greater than those of Americans in younger age groups. The Census Bureau projects that in the next 10 years there will be a 36 percent increase in the number of Americans over 65.

Shortage of 62,900 in 2015
The growth in the number of people covered by public and private health insurance means an increased need for health care providers. The Association of American Medical Colleges estimates that there will be a shortage of 62,900 physicians in 2015 and a shortage of 91,500 physicians by 2020—about half in primary care.

Health care policy analysts generally recommend that between 40 and 50 percent of the physician workforce provides primary care. In recent years, the proportion of primary care physicians is 32 percent according to a 2010 report from the Department of Health and Human Services Council on Graduate Medical Education (COGME).

To increase the number of primary care providers, the Affordable Care Act seeks to attract more providers to primary care by increasing Medicaid payments to 100 percent or more of Medicare rates. Physicians eligible for the increased payments are family physicians, pediatricians, internists and certain subspecialists.

Eligible physicians need to be board certified in one of the designated primary care specialties or attest that at least 60 percent of the Medicaid codes they billed in the previous calendar year were for primary care codes specified by the Affordable Care Act and its regulations. Obstetricians and gynecologists do not qualify for the increased rates, even though they provide primary care.

The increased rates for primary care include payments for work done by advanced practice nurses and physician assistants if they are operating under the supervision of a physician, but the higher rates are not available if the nurses or physician assistants are working independently.

Payment impact varies by state
The impact on pay for primary care physicians will vary significantly from state to state since currently each state sets its own reimbursement rate. Nationwide, in 2012 the average fees for Medicaid physicians were 66 percent of the Medicare rates according to a survey commissioned by the Kaiser Family Foundation.

The lowest rate was in Rhode Island (58 percent of Medicare rates); the highest rate was in Alaska (242 percent of the Medicare rates). The foundation said that, on average, Medicaid fees for primary care services will rise by 73 percent. A state-by-state summary of the new Medicaid physician fees is available online at kff.org/medicaid/upload/8398.pdf.

The cost of raising primary care Medicaid rates for 2013 and 2014 is estimated to be $11.9 billion—a cost that will be borne fully by the federal government. The Accountable Care Act does not specify what happens to the rates after 2014. If the rates drop or if the federal government tries to shift a significant amount of the added costs to the states, the program may be less successful in securing the services of primary care physicians willing to accept Medicaid patients.

To help meet the need for more physicians, 18 more medical schools are being established. The Association of American Medical Colleges reports there will be an additional 7,000 graduates every year for the next decade.

Currently, however, there is not a plan for a corresponding increase in the number of residency positions paid by the Medicare system. The federal government through the Medicare program (and, to a lesser extent, the Medicaid program) has been the primary funder of graduate medical education (GME)—paying $11.5 billion per year to more than 1,000 hospitals at a cost of about $100,000 per resident per year.

Another U.S. government agency in the Department of Heath and Human Services—the Health Resources and Services Administration—also is working to increase the supply of primary care physicians. In February, the Health Resources and Services Administration announced it was making a $4 million grant to the Wright Center for Graduate Medical Education in Scranton, Pa., and the A.T. Still University of Health Sciences’ School of Osteopathic Medicine in Mesa, Ariz., to train osteopathic residents in primary care.

During the first year, the program is expected to place 29 residents in community health centers in medically underserved areas throughout the country (not just in Pennsylvania and Arizona).  Dr. Thomas McWilliams, associate dean for graduate medical education at ATSU, said that currently, more than half of the available seats are unoccupied for the July 1 start date, but he expects more applications to be made after the allopathic match in March.  For more information on the program, see news.atsu.edu/index.php/archives/1561.

Conflicting policies on paying for GME
Graduate Medical Education is caught between conflicting policy goals. On the one hand, there are calls for increased funding, particularly for primary care training programs. The Association of American Medical Colleges has recommended a 15 percent increase in GME positions (4,000 per year) to meet growing health care needs.

On the other hand, the cost of GME is considered by many to be excessive. The number of residency slots has been capped at 1996 levels, although some exceptions have been made, and the Accountable Care Act provides for a moderate increase of 300 physician training positions per year. The political pressure to avoid further increased deficits makes it difficult to obtain increased funding for GME. Congress and the White House have not developed a unified plan to handle the issue.

The Institute of Medicine, part of the National Academy of Sciences, is studying the issue of GME and how best to align financing with the needs of the public for the health care workforce. The Institute’s report is due in 2014. Among the issues that will be considered will be the appropriate level of funding for teaching hospitals and proportion of funding for teaching hospitals versus community-based clinics and health centers. Recruitment of physicians, particularly for primary care, also could be increased by more use of medical school scholarships and loan forgiveness programs.

Jeff Atkinson (JAtkin747@aol.com) teaches health care law at DePaul University College of Law in Chicago.



Implementing the Affordable Care Act

Following the election, the Obama administration moves forward with insurance mandates, Medicaid expansion, insurance exchanges and more.

By Jeff Atkinson | Reform Recap | Uncategorized | Winter 2013


With the reelection of President Obama and the upholding of most provisions of the Affordable Care Act by the U.S. Supreme Court, the path for continued implementation of the act has been cleared, although implementation is likely to take longer than originally hoped by the Obama administration.

A key feature of the act is expanding health insurance for more than 30 million people who are currently without health insurance. This will be accomplished in several ways.

Individual mandate in 2014

The individual mandate for persons to acquire health insurance if it is not provided by their employers or other sources is scheduled to take effect January 1, 2014. The mandate applies to persons who are required to file federal tax returns. (In 2012, that threshold was $9,000 for individuals under 65, and $19,000 for married persons under 65 filing jointly.)

The penalty for people who do not obtain health insurance starts low and grows higher. In 2014, the penalty will be $95 per adult or 1 percent of family income, whichever is greater. In 2016, the penalty will be $695 per adult or 2.5 percent of family income, whichever is greater. The penalty was upheld by the Supreme Court in 2012 as a constitutional use of Congress’ taxing power. A potential problem for effective implementation of the act is that the penalties are low enough that some people may choose to pay the penalties rather than spend a larger amount on health insurance.

Employers of more than 50 people also are required to provide health insurance to their employees or pay a penalty of $3,000 per worker per year for each employee that received a tax credit for purchasing the employee’s own insurance.

Medicaid expansion

The Medicaid program will be expanded to cover individuals and families who are at 133 percent of the poverty level. In 2012, 133 percent of the poverty level is $14,856 for an individual and $30,657 for a family of four in the 40 contiguous states—and higher dollar amounts for Alaska and Hawaii. The expansion of the Medicaid program will cover about 17 million more people and also is scheduled to take effect in 2014.

Republican governors in six southern states (Florida, Georgia, Louisiana, Mississippi, South Carolina, Texas) have threatened to block Medicaid expansion in their states, even though the federal government will pay the added costs of expansion until 2016. It is possible that state legislatures in those states may override the governors or induce the governors to change their minds.

For people with incomes above the eligibility level for Medicaid, tax credits will be available to help pay for health insurance. The tax credits apply to persons with incomes up to 400 percent of the poverty level. (In 2012, 400 percent of the poverty level is $44,680 for an individual and $92,200 for a family of four.)

Establishing insurance exchanges

The uncertainty of whether President Obama or Mitt Romney would win the election caused a showdown in implementation of some parts of the Affordable Care Act. States were supposed to decide in November whether they would establish their own insurance exchanges, establish exchanges in cooperation with the federal government, or leave the establishment of exchanges to the federal government.

Insurance exchanges would facilitate purchase of health insurance by individuals and small employers by spreading the risk to larger groups and (hopefully) making insurance less expensive than it would be under the current system of purchasing insurance for individuals and small employers.

Approximately one-third of states have announced plans for establishing insurance exchanges. For the remainder of states, the Obama administration has granted an extension of time to decide whether to establish insurance exchanges. Generally, Republican states are more likely to be undecided or not willing to establish their own exchanges. If a state does not establish its own exchange, the federal government will.

New regulations on the horizon

Implementing the Patient Protection and Affordable Care Act (or any complex new law) requires a lot of regulations to work out the details. Since health care reform was a highly controversial issue in the election, the Obama administration slowed down the release of new regulations in the months prior to the election, probably to avoid yet more controversy.

Now that the election is over, the pace of new regulations and proposed regulations will increase. Subjects of the regulations will include the specific “essential benefits package” that health insurance plans must cover, exceptions to the insurance mandate for individuals and employers, excise taxes on medical devices, and the requirements of non-for-profit hospitals to maintain tax-exempt status.

Payments to physicians

Payments to physicians for primary care will rise under the Affordable Care Act. Effective January 1, 2013, Medicaid payment rates for primary care providers will be set at 100 percent of the Medicare rates. The increased payments will apply to family medicine, general internal medicine and pediatric medicine. The federal government will pay all of the added costs from the increased rates through the end of 2014 at which time some of the added costs may shift to the states.

Although there is added emphasis on primary care and increased payments to primary care providers, cost containment is a high priority under the Affordable Care Act. Methods for containing costs while promoting quality care include increased use of bundled payments and payments to accountable care organizations (ACOs).

With bundled payments, groups of providers—including hospitals, physicians and home care agencies—will receive a fixed sum for a patient’s inpatient care and post acute care services rather than individual payments for each service performed. Depending on the plan to which providers agree, payments may be increased or decreased depending on whether the providers meet quality and cost-containment goals.

A Medicare pilot program for bundled payments will begin in 2013. One of the challenges will be to develop equitable systems for dividing the fixed payments between providers. If the bundled payments work out, their use will be expanded, both by the government as well as private insurers.

Jeff Atkinson (JAtkin747@aol.com) teaches health care law at DePaul University College of Law in Chicago.



Comparing reform plans

By Jeff Atkinson | Fall 2012 | Reform Recap


One of the biggest differences between Mitt Romney’s and Barack Obama’s health policies is who is responsible for making available health insurance coverage. Mitt Romney would place primary reliance on state governments and the private sector. Barack Obama would rely more on the federal government.

Romney’s plan, according to his website, “will begin by returning states to their proper place in charge of regulating local insurance markets and caring for the poor, uninsured and chronically ill.” He says on his first day in office, he will issue an executive order issuing waivers to all 50 states allowing them to develop their own health plans (including Medicaid) without most of the regulations that are currently set by the Obama administration. Romney also would ask Congress to repeal the Patient Protection and Affordable Care Act.

Fewer regulations under Romney

Under the Romney approach, there would be fewer federal regulations regarding how state Medicaid programs and private health insurance plans would operate. States would receive block grants with reduced restrictions on how money is spent. For covering persons who are difficult to insure, Romney favors high-risk pools and reinsurance. In addition, small businesses and individuals would be encouraged to form purchasing pools.

Medicare also would change under Romney as he seeks to have seniors obtain more of their health insurance coverage from the private market rather than from government-run Medicare. Under his plan, seniors would receive a “defined contribution or premium support” from which they could buy health care coverage from Medicare or from the private sector. Although Romney favors less regulation of insurance, he would require private insurance plans that offer alternatives to Medicare to provide coverage comparable to Medicare.

The amount of the contribution or support for health coverage for seniors has not been announced. According to the Romney campaign, “Lower income seniors will receive more generous support to ensure that they can afford coverage; wealthier seniors will receive less support.”

Perhaps to avoid scaring current Medicare beneficiaries or those soon to be eligible for Medicare, the campaign says: “This plan has no effect on current seniors or those nearing retirement. It will go into effect for younger Americans when they reach retirement in the future.”

Romney maintains that “a competitive, market-oriented system” is the best way to deliver health care and that private insurers competing with each other will promote quality and hold down costs. To that end, Romney would allow insurance plans to be purchased across state lines.

Obama standing on his record

President Obama is quite willing to stand on his record. The “health care” portion of the Obama-Biden website leads off with a statement that the Affordable Care Act will “restore health care as a basic cornerstone of middle-class security in America.”

The Obama campaign cites the changes that are taking place, including: providing coverage for 34 million Americans without insurance; ending discrimination based on preexisting conditions; allowing young adults to stay on their parents’ insurance policies until they turn age 26; providing more preventive services to Medicare beneficiaries and persons covered by private insurance; closing the Medicare “doughnut hole” on payments for prescription drugs; and ending lifetime limits on insurance coverage.

Obama says the Affordable Care Act will reduce the federal deficit by $127 billion between 2012 and 2021. He also noted that the Affordable Care Act requires insurance companies to spend 80 percent of premiums on health care (instead of overhead, marketing and profits). Insurance companies that do not meet that criteria will have to pay rebates to consumers.

When President Obama seeks to provide more uniform health care rights for Americans, the vehicle for that is federal law and regulation.

Areas of agreement

Although Mitt Romney and President Obama differ significantly on their methods of achieving health care reform, they do share some approaches.

Prevention of discrimination on the basis of preexisting conditions
Both candidates favor laws that would prevent insurance companies from discriminating against individuals seeking health insurance on the basis of preexisting conditions. Romney emphasizes that the protection should apply to persons who have maintained continuous coverage.


If a person changes jobs, they should be able to maintain their insurance.

Quality measures

To help promote quality and informed choice, both Romney and Obama favor obtaining and disseminating information about the quality of service by health care providers and insurance companies.

Information technology

Both candidates also support increased use of information technology to promote efficiency in the health care system.

Alternatives to fee-for-service

Both candidates recognize the need to control costs and promote quality by developing alternatives to fee-for-service. Such options would include bundling payments to a group of providers for a single episode of care and higher payments to providers for better
quality care.

Medical malpractice reform

Obama and Romney favor medical malpractice reform, including using non-litigation alternatives to dispute resolution. In addition, Romney emphasizes placing caps on non-economic damages. Obama places more emphasis on providing immunity to providers if they follow recognized guidelines.

The presidential election will set the path for future health care reforms—with the alternative paths being continuation and expansion of the federal government’s involvement in health care versus curtailment of the federal government’s involvement and more reliance on states and private insurance. In either case, the makeup of Congress also will affect the pace of future reforms.

For more information about the health care policies of the candidates from their websites, see:
• Barack Obama
• Mitt Romney
mittromney.com/issues/health-care (Health care)
mittromney.com/issues/medicare (Medicare)

Jeff Atkinson (JAtkin747@aol.com) teaches health care law at DePaul University College of Law in Chicago.




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