It’s time to spend less money on health care for older Americans. There, I’ve said it. But I’m not saying this because I’m some self-centered millennial – I’m turning 69 this summer. I’m saying it because, for older Americans especially, our health system has become a giant, expensive repair shop. It’s not a set of programs and supports to help us age the best way we can – mentally as well as physically.

Here’s what I mean. Thanks to American physicians’ training and financial incentives, the first thing most doctors will ask an elderly patient is “What’s the matter with you?” not “What matters to you?” In other words, they focus on the ailments they can try to fix with expensive technology, surgery or drugs, rather than ask what is important to you and how can they help enhance the quality of your life. 

If you do have a medical problem, it is not always best to concentrate exclusively on fixing it. Sometimes it is better to avoid “cures” that have severe side-effects that can reduce your quality of life. And sometimes the physician should really be calling a local social service agency or volunteer organization to figure out how you can continue living close to your friends of all ages, rather than steering you to a well-equipped nursing home that only houses seniors.

It’s not that physicians are bad people. It’s that for multiple reasons we tend to “over medicalize” aging in America by focusing too much on repairing people and not enough on preventive actions or maintenance care. For instance, Medicare and also Medicaid (for which low-income seniors qualify) will spend tens of thousands of dollars to repair a hip fracture, or to cover the cost of nursing home care. But there are few public resources available to modify a home to reduce the likelihood of ever having a fall, such as by replacing a bathtub with a walk-in shower. 

One reason for this pattern is our tendency as Americans to want to throw money at fixing problems once they become crises rather than to take prudent steps earlier to avoid the problem. Some would say that explains many of our foreign policy mishaps. It certainly explains our infrastructure problems, from poisoned water in Flint, Michigan, to deteriorating bridges on our interstates. 

But there’s another key reason. Unlike most other major countries, we spend a lot on medical care and proportionately much less on a range of other services, from transportation and in-home care to nutrition assistance – ongoing services that can both improve quality of life and reduce the likelihood of later medical problems. Other industrialized countries spend an average of roughly $2 in social services for every $1 on health care. We spend about 90 cents per health dollar. Sure, we can do medical wonders, but for many older Americans the balance is wrong. Too much expensive surgery and drug therapy. Too little on making aging easier and safer.

So what can we do to focus more on “what matters?” rather than on “what’s the matter?”

For starters we can encourage physicians and hospitals that look beyond their office walls at the things needed for a better life. The Affordable Care Act – or Obamacare – did take a step in this direction by penalizing hospitals if certain elderly discharged patients are readmitted within 30 days. The result? Hospitals are starting to look at improving the home safety of elderly patients rather than functioning simply as a repair shop. That could mean fewer falls and other incidents resulting in calls to 911.

We also need to encourage physicians to spend more time talking with older patients about their life goals and planning for possible health setbacks, just as prudent Americans talk to planners about their financial future. Medicare is helping this by now paying physicians for conversations about end-of-life planning. But Medicare and private insurance ought to cover time spent in much broader conversations about patients’ goals in aging. Perhaps even more important, medical schools need to provide much better training for physicians on how to conduct those conversations – today few physicians do that well.

The other step needed is to give government agencies and programs much greater leeway to “braid” together health, housing, social service and other funds so that we can age more safely – and happily – in our community. If we did that, we’d likely end up spending much less on medical procedures and much more on other things that actually improve physical and mental health. 

In this election year, those are “Medicare cuts” all seniors should embrace.

Editor's note: This piece originally appeared in Inside Sources.

As I’ve noted in a previous JAMA Forum post, there has been a determined and serious effort in recent years by a broad range of organizations and analysts to find a consensus approach to the growing problem of financing long-term care in the United States. These efforts have just resulted in 2 major reports, released in February.

One report comes from the Bipartisan Policy Center (BPC), a national think tank committed to finding workable bipartisan policy solutions. The other is published by the Convergence Center for Policy Resolution, an organization that convenes groups and individuals with conflicting views to seek consensus on difficult issues. Participants in the latter project, known as the Long-Term Care Financing Collaborative, included leaders from major think tanks and philanthropy, insurance associations, health and consumer advocacy groups, organizations representing the interests of older Americans, not-for-profit services, and care for elderly persons, as well as former state and federal officials. (Disclosure: I served as an advisor to the BPC project and as a member of the Collaborative).

It’s a big step forward that the diverse participants in each of these projects were able to come to agreement. Why was that possible?

For one thing, the huge cost of long-term care and earlier failures to agree clearly focused many minds. Future costs are indeed attention-grabbing. Over the next 40 years, for instance, the number of elderly US residents with a severe need for long-term services and supports (LTSS) will increase 140% to more than 15 million. Meanwhile US adults turning 65 today can expect to incur an average of $138 000 in LTSS costs. But there is a wide risk distribution, with 15% of these seniors likely incurring more than $250 000 in expenses. Meanwhile, private insurance that covers the most crippling potential costs is proving harder and harder to find, with insurers increasing premiums and most pulling out of the market—in part because of the heavy and less predictable costs of aging.

Another factor that helped agreement in these projects was that the Urban Institute was able to upgrade its dynamic simulation model and to partner with the actuarial firm Milliman to incorporate claims data into its research to provide far more sophisticated and reliable estimates of several benchmark proposals. Urban made its model available to a range of organizations, including BPC (an employee benefits consulting company), LeadingAge (an association of groups that offer aging-related services), and the Collaborative. The estimates the Urban Institute produced had the effect of narrowing the set of plausible components in any serious plan. For instance, it became clear that a voluntary public catastrophic insurance program—even with subsidies—would be hard-pressed to significantly boost the number of people acquiring insurance protection against catastrophic LTSS costs.

What’s also important about these 2 projects is that the reports agree on several key elements. These elements are likely to form the core of potentially bipartisan legislation under a new Congress and administration. Among the most important are:

• Improving the market for private insurance. The BPC and the Collaborative proposals call for a number of steps to revitalize the market for private long-term care insurance, such as allowing employment-based retirement savings to be used for premiums and perhaps using autoenrollment to increase the take-up of available coverage. Both plans propose simpler, more standardized plans, with BPC including details of standard options. The Collaborative recommends clearly delineating private and public roles in long-term care insurance, with a stronger public role in addressing high need, long duration risk. As a further step toward bolstering the insurance market, both proposals recommend exploring innovations in long-term care product design. Ideas include possible jointly marketed products with health insurance or Medicare and perhaps long-term care coverage combined with life insurance or annuities.
• Public catastrophic insurance. Both reports call for a public catastrophic program for individuals with extraordinary costs to protect them from poverty and bankruptcy. In part, this is also to help cover the “tail end” risk that discourages private insurers from offering comprehensive protection, thereby allowing insurers to focus on shorter-term, more predictable coverage.  Each report is cautious about the uncertain cost of such protection but notes that the Medicaid program currently plays the role of insurer of last resort, and so a new catastrophic long-term care insurance program could help shift from the current welfare-based model toward a system of insurance. Echoing this, a new report from LeadingAge, which represents thousands of organizations engaged in aging services, also concluded that a universal program appears the best way to handle catastrophic costs.
• Retooling Medicaid. Both reports call for revamping Medicaid, by retooling its LTSS component to better serve persons with disabilities and others with long-term needs. Under both the BPC and Collaborative plans, states would offer a sliding-scale “buy-in” for Medicaid’s LTSS benefits. For working individuals with disabilities, this would function as a wraparound service to employer-sponsored health insurance and other health coverage. As both reports point out, the public catastrophic long-term care program would produce some savings for state Medicaid programs, making it financially easier for states to offer the wraparound coverage.
• Home and community based services. The 2 reports emphasize the importance of fostering community-based care and helping family caregivers.  An AARP report found that approximately 34 million family members and friends—mainly women—provide unpaid care to an older adult each year. The BPC would streamline waivers from federal rules to encourage states to expand home and community services. The Collaborative takes a step further and recommends entirely redefining Medicaid LTSS to include all settings and services currently offered under “mandatory” and “optional” state programs, and by doing so, eliminating the current bias in financing toward institutional care. The BPC suggests exploring some support for these caregivers, including temporary respite care to allow the usual caregiver some time off. The Collaborative published a report last summer, arguing for much greater integration of health and LTSS, including housing and transportation and for greater opportunities for training and support for caregivers.

There is of course a long road between publishing recommendations and the passage of legislation. And there are gaps in these proposals. For instance, how much a full proposal would cost and how it would be paid for (including how much from savings or new taxes) depends on design choices not worked out in detail.

But the similarity of these reports, the range of people and organizations involved and the determination of the participants to find common ground are in stark contrast to the polarization and gridlock we have become accustomed to. It augers well for enacting a solution to the enormous challenge of long-term care costs.

Editor's note: This piece originally appeared in The JAMA Forum

Editor's note: On March 1, Alice Rivlin testified before the U.S. House of Representatives Committee on Energy and Commerce Subcommittee on Health on the financing and delivery of long-term care in the US. 

Chairman Pitts, Ranking Member Green: I am happy to be back before this Subcommittee, which is never afraid to take on complex issues of great importance to millions of Americans. I have worked on long-term services and supports (LTSS) for a long time and have recently had the privilege of co-chairing the Long-Term Care Initiative at the Bipartisan Policy Center (along with former Senators Bill Frist and Tom Daschle and former Governor and Secretary of Health and Human Services, Tommy Thompson). Our February 2016 report, Initial Recommendations to Improve the Financing of Long-Term Care, appended to my testimony, outlines a set of doable, practical changes in both public and private programs that could improve the availability and affordability of long-term services and supports.

I don’t need to remind this committee that Americans are living longer, and many of us will need help with the ordinary activities of daily living and suffer cognitive impairments that make it dangerous for us to cope alone. The number of people needing LTSS is rising and expected to double in the next 35 years or so.

Responsibility for LTSS is shared among seniors and people with disabilities themselves, family, friends, and volunteer care-givers; communities, state, and federal government. This shared-responsibility system is severely stressed, and will become increasingly unable to cope as the numbers needing care increase. Growing burdens fall on families, often daughters and daughters-in-law, who must manage daily conflicts between earning a living, caring for children, and meeting the needs of elderly or disabled relatives. Growth in Medicaid, the largest payer of long-term services and supports at about $123 billion per year, stresses state and federal budgets as spending for older Americans and individuals with disabilities competes with budgets for education and other investments in young people.

Many efforts to find a comprehensive solution to long-term care financing have failed—evidenced by passage and subsequent repeal of the Community Living Assistance Services and Supports (CLASS) Act and failure of the federal Long-term Care Commission to reach consensus on financing recommendations. Recently, however, a growing consensus has emerged around a set of incremental steps, which, if taken together could greatly improve the availability and affordability of long-term services and supports to America’s most vulnerable populations and take some of the burden off families and Medicaid in a fiscally responsible way. In recent weeks, The Bipartisan Policy Center and The Long-term Care Collaborative have offered similar sets of recommendations, as has LeadingAge, a key provider association.

While policymakers failed to agree on big legislative solutions, amazing progress has been made at the community level in finding new ways of keeping older Americans and people with disabilities out of institutions and in the community where they are happier and less isolated and can be served more effectively and cheaper. There has been an explosion of assisted living facilities, continuing care communities, senior villages, senior centers, senior daycare, and use of home health aides of various sorts. Growth in home and community-based services (HCBS) has been rapid, while the population served by traditional nursing homes has been virtually flat. Medicaid, with the support of both parties in Congress, has moved to increase the availability of home and community-based services.

The group working on the Bipartisan Policy Center’s Long-Term Care Initiative addressed the question: Is there a set of practical policies that could command bipartisan support that would improve the care of older Americans with disabilities, take significant pressure off families and Medicaid, and not break the bank? We came up with four proposals.

Make private long-term care insurance more affordable and available. Long term care ought to be an insurable risk. If more people bought Long-Term Care Insurance (LTCI) in their earning years, there would be less pressure on their savings and family resources and Medicaid when they became disabled. But both demand and supply of LTCI are weak and falling. Potential customers are reluctant to buy because it is costly and the need seems remote and hard to think about. Carriers find it difficult to price a product that will be used far in the future and fear losing money if customers live and use services for a long time. Many insurance companies have stopped offering LTCI.

Our report recommends developing a new type of private insurance product: “retirement long-term care insurance,” which would cover long-term care for a limited period (2-4 years) after a substantial deductible or waiting period and would have coinsurance. The insurance would provide inflation protection, which helps to ensure benefits keep pace with the rising costs of care, and a non-forfeiture benefit, which allows lapsed policyholders to access a limited benefit. Employers would be encouraged to offer such policies as a default option as part of a retirement plan. These policies, if offered through employers and public and private insurance exchanges, could cut premiums in half according estimates done by Milliman, LLC, for the Bipartisan Policy Center and other organizations. Penalty-free withdrawals would be allowed from retirement plans, such as 401(k) plans and IRAs, beginning at age 45, exclusively for the purchase of retirement LTCI.

Design a federal long-term care insurance option for those with catastrophic costs. Part of the reluctance of carriers to offer LTCI relates to the difficulty of predicting costs far in the future and the fact that a few policy holders may have extremely high costs for a very long time. A public program, covering truly catastrophic long-term care spending, could overcome this reluctance and reduce the cost of private LTCI. Catastrophic insurance, combined with retirement LTCI from the private market, could substantially relieve families and Medicaid. The cost of this program should be fully offset so as not to add to the deficit.

Streamline Medicaid home and community-based care options to encourage more effective care in lower-cost settings. While Congress has been proactive in encouraging state Medicaid programs to shift care settings from institutions to home and community-based care, states continue to face a daunting federal waiver process and multiple state options. Securing waivers requires complex negotiations between states and the federal government, and each of the existing state options have disincentives. Home and community-based options should be simplified into a single streamlined state plan amendment process.

Ensure that working people with disabilities in need of long-term services and supports do not lose access to their long-term services and supports as earnings increase. Individuals with modest employment incomes risk losing access to services that permit them to remain on the job. Existing Medicaid “buy-in” programs are often costly. Building on the “Achieving a Better Life Experience,” or “ABLE” Act, states could be given the option to offer a lower-cost, Medicaid buy-in for long-term services and supports designed to “wrap around” private health insurance or Medicare. Under this option, working individuals with disabilities would pay an income-related, sliding-scale premium.

Mr. Chairman and members of the Committee, thank you again for the opportunity to share my thoughts on this issue. It is one of America’s big challenges, but it’s an even bigger opportunity for a constructive bipartisan policy process. I look forward to continued dialogue and will keep you apprised of forthcoming recommendations by BPC’s Long-Term Care Initiative in 2016 and 2017.

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Editor's note: On March 16, Paul B. Ginsburg testified before the California Senate Committee on Health on fostering competition in consolidated markets. Download the full testimony here.

Mr. Chairman, Madame Vice Chairman and Members of the Committee, I am honored to be invited to testify before this committee on this very important topic. I am a professor of health policy at the University of Southern California and director of public policy at the USC Schaeffer Center for Health Policy and Economics. I am also a Senior Fellow and the Leonard D. Schaeffer Chair in Health Policy Studies at The Brookings Institution, where I direct the Center for Health Policy. Much of my time is now devoted to leading the new Schaeffer Initiative for Innovation in Health Policy, which is a partnership between USC and the Brookings Institution. I am best known in California for the numerous community site visits over many years that I led in the state while I was president of the Center for Studying Health System Change; most of those studies were funded by the California HealthCare Foundation.

The key points in my testimony today are:

• Health care markets are becoming more consolidated, causing price increases for purchasers of health services, and this trend will continue for the foreseeable future despite anti-trust enforcement; 
• Government can still play an effective role in addressing higher prices that come from consolidation by pursuing policies that foster increased competition in health care markets. Many of these policies can be effective even in markets with high degrees of concentration, such as in Northern California.

[1] Gaynor, M., and R. Town, The Impact of Hospital Consolidation – Update, Robert Wood Johnson Foundation Synthesis Report (June 2012).

[2] Baker, L. C., M.K Bundorf and D.P. Kessler, “Vertical Integration: Hospital Ownership Of Physician Practices Is Associated With Higher Prices And Spending,” Health Affairs, Vol. 35, No 5 (May 2014).

[3] Chapin White and Megan Egouchi, Reference Pricing: A Small Piece of the Health Care Pricing and Quality Puzzle. National Institute for Health Care Reform, Research Brief No. 18, October 2014.

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According to an August 2015 survey, 72 percent of Americans find drug costs unreasonable, with 83 percent believing that the federal government should be able to negotiate prices for Medicare. Recently, Acting Administrator of the Centers for Medicare and Medicaid Services (CMS) Andy Slavitt commented that spending on medicines increased 13 percent in 2014 while health care spending growth overall was only 5 percent, the highest rate of drug spending growth since 2001.

Some of the most expensive drugs are covered under Medicare’s medical benefit, Part B, because they are administered by a physician. They are often administered in hospital outpatient departments and physician offices, and most commonly used to treat conditions like cancer, rheumatoid arthritis, and macular degeneration. Between 2005 and 2014, spending on Part B drugs has increased annually by 7.7 percent, with the top 20 drugs by total amount of Medicare payments accounting for 57 percent of total Part B drug costs. While overall Part B drug spending is a small portion of Medicare drug spending, the high growth rate is a concern, especially as new expensive breakthrough cancer drugs enter the market and have a negative effect on consumers’ pockets.

Unlike Part D, the prescription drug benefit, there are fewer incentives built in to Part B for providers to consider lower cost treatments for patients even if the lower cost drug may be clinically equivalent to the more expensive drug, because prior to budget sequestration, providers received 6 percent on top of the Average Sales Price (ASP) of the drug. Larger providers and hospitals often receive discounts on these drugs as well, increasing the amount they receive directly on top of the out-of-pocket cost of the drug.

This leads to more out-of-pocket costs for the consumer, as patients usually pay 20 percent of Part B services. The Government Accountability Office (GAO) estimated that in 2013, among new drugs covered under Part B, nearly two-thirds had per beneficiary costs of over $9,000 per year, leading to out-of-pocket costs for consumers of amounts between $1,900 and $107,000 over the year. On top of these high costs, this can lead to problems with medication adherence, even for serious conditions such as cancer.

A New Payment Model

To help change these incentives and control costs, CMS has proposed a new demonstration program, which offers a few different reimbursement methods for Part B drugs. The program includes a geographically stratified design methodology to test and evaluate the different methods. One of the methods garnering a lot of attention is a proposal to lower the administration add-on payment to providers, from current 6 percent of ASP, to 2.5 percent plus a flat fee of $16.80 per administration day.

Policymakers, physician organizations, and patient advocacy organizations have voiced major concerns raising the alarm that this initiative will negatively affect patient access to vital drugs and therefore produce poorer patient outcomes. The sequester will also have a significant impact on the percentage add on, reducing it to closer to an estimated .86 percent plus the flat fee. But we believe the goals of the program and its potential to reduce costs represent an important step in the right direction. We hope the details can be further shaped by the important communities of providers and patients who will deliver and receive medical care.

Geographic Variation

Last year, we wrote a Health Affairs Blog that highlighted some of the uses and limitations of publicly available Part B physician payment data. One major use was to show the geographic variation in practice patterns and drug administration, and we particularly looked at the difference across states in Lucentis v. Avastin usage. As seen in Exhibit 1, variation in administration is wide among states, even though both are drugs used to treat the same condition, age-related macular degeneration, and were proven to have clinically similar outcomes, but the cost of Lucentis was $2,000 per dose, while Avastin was only $50 per dose.

Using the same price estimates from our previous research, which are from 2012, we found that physician reimbursement under the proposed demonstration would potentially change from $120 to $66.80 for Lucentis, and increase from $3 to $18.05 for Avastin. Under the first payment model, providers were receiving 40 times as much to administer Lucentis instead of Avastin, while under the new proposed payment model, they would only receive 3.7 times as much.

While still a formidable gap, this new policy would have decreased financial reimbursement for providers to administer Lucentis, a costly, clinically similar drug to the much cheaper Avastin. As seen in Exhibit 1, a majority of physicians prescribe Avastin, thus this policy will allow for increased reimbursement in those cases, but in states where Lucentis is prescribed in higher proportions, prescribing patterns might start to change as a result of the proposed demonstration.

Source: Author’s estimates using 2012 CMS Cost Data and Sequestration Estimates from DrugAbacus.org

The proposed demonstration program includes much more than the ASP modifications in its second phase, including:

• discounting or eliminating beneficiary copays,
• indication-based pricing that would vary payments based on the clinical effectiveness,
• reference pricing for similar drugs,
• risk-sharing agreements with drug manufacturers based on clinical outcomes of the drug, and
• creating clinical decision tools for providers to help develop best practices.

This is all at the same time that a new model in oncology care (OCM) is being launched, which could help to draw attention to total cost of care. It is important that CMS try to address rising drug costs, but also be sure to consider all relevant considerations during the comment period to fine-tune the proposal to avoid negative effects on beneficiaries’ care.

We believe CMS should consider offering a waiver for organizations already participating in Center for Medicare & Medicaid Innovation (CMMI) models like the OCM, because financial benchmarks are based on past performance and any savings recognized in the future could be artificial, attributable to this demonstration rather than to better care coordination and some of the other practice requirements that are part of the proposed OCM. Furthermore, because this demonstration sets a new research precedent and because it is mandatory in the selected study areas rather than voluntary, CMS must try to anticipate and avoid unintended consequences related to geographic stratification.

For example, it is possible to imagine organizations with multiple locations directing patients to optimal sites for their business. Also, without a control group, some findings may be unreliable. The proposed rule currently lacks much detail, and there does not seem to be enough time for organizations to evaluate the impact of the proposed rule on their operations. Having said that, it will be important for stakeholders of all types to submit comments to the proposed rule in an effort to improve the final rule prior to implementation.

The critical question for the policymakers and stakeholders is whether this model can align with the multitude of other payment model reforms — unintended consequences could mitigate all the positive outcomes that a CMMI model offers to beneficiaries. Helping beneficiaries is and should be CMS’ ultimate obligation.

Editor’s Note: This analysis is part of The Leonard D. Schaeffer Initiative for Innovation in Health Policy, which is a partnership between the Center for Health Policy at Brookings and the USC Schaeffer Center for Health Policy and Economics. The Initiative aims to inform the national health care debate with rigorous, evidence-based analysis leading to practical recommendations using the collaborative strengths of USC and Brookings.

The passage of the Medicare Access and CHIP Reauthorization Act (MACRA) just over a year ago signaled a strong and unique bipartisan agreement to move towards value-based care, but until recently, many of the details surrounding how it would be implemented remained unknown. But last week, the Centers for Medicare and Medicaid Studies (CMS) released roughly 1,000 pages that shed more light on how physician payment will hopefully dramatically change for the better.

Some Historical Context

Prior to MACRA, how doctors were paid for providing care to Medicare patients was subject to a reimbursement formula known as the Sustainable Growth Rate (SGR). Established in 1997 to control the rate of increase in spending on physician services, the SGR pegged total spending among all Medicare-participating physicians to an overall budget target. Yet in this “tragedy of the commons,” no one physician benefitted from her good stewardship of health care resources. Total physician spending often exceeded the overall budget target, triggering reimbursement rate cuts. However, lawmakers chose to push them off into the future through what were called “doc fixes,” deferring the rate cuts temporarily. The pending cut rose to over 21 percent before MACRA’s passage as a result of compounding doc fixes.

Moving Forward with MACRA

When it was signed into law on April 16, 2015, MACRA ended the SGR, its cuts, and many previous payment incentive programs. In their place, MACRA established two overarching payment incentive schemes for providers to choose from:

1. the Merit-Based Incentive Payment System (MIPS) program, which supplants three previous payment incentives and makes positive or negative adjustments to a physician’s payment based on her performance; or


2. the Alternative Payment Model (APM) program, which awards a 5 percent bonus through 2024—with higher annual payment updates thereafter—for having a minimum percentage of Medicare and/or all-payer revenue through eligible APMs. Base physician fee rates for all Medicare providers would be updated 0.5 percent for each of the first four years, followed by no increases until 2026, when base fees would increase at different rates depending on the payment incentive program in which a physician participates.

MIPS addresses providers’ longstanding complaints that reporting that reporting under the existing programs—the Physician Quality Reporting System, the Value-Based Modifier, and Meaningful Use — is duplicative and cumbersome. Under the new MIPS program, physicians report to the government payer directly (CMS) and receive a bonus or penalty based on performance on measures of quality, resource use, meaningful use of electronic health records, and clinical practice improvement activities. The bonus or penalty physicians may see starts at 4 percent of the fee schedule in 2019 (based on their performance two years prior—in this case 2017) and increases successively to 5 percent in 2020, 7 percent in 2021, and 9 percent from 2022 onward. From 2026 onward, MIPS providers would receive an annual increase of 0.25 percent on their base fee schedules rates.

In contrast, the APM incentive program awards qualifying physicians a fixed, annual bonus of 5 percent of their reimbursement from 2019- – 2024, and provides that their fee schedule rates grow 0.5 percentage points faster than those of MIPS in 2026 and beyond, in recognition of the risk they assume in these contracts.

Yet, according to MACRA, not all APMs are created equal. APMs eligible for this track must use quality measures similar to those of MIPS, ensure electronic health records are used, and either be an approved patient-centered medical home (PCMH) or require that the participating entity “bears more than nominal financial risk” for excessive costs. Then, in order to receive the APM track bonus, physicians must have a minimum of 25 percent of their revenue from Medicare come through eligible APMs in 2019, with the minimum increasing through 2023 up to 75 percent. In 2021, a new all-payer Advanced APM option becomes available, allowing providers in APM contracts with other payers to participate in the Advanced APM incentive. To do so, they must meet the same minimum thresholds—50 percent in 2021, 75 percent in 2023—but through all provider contracts, not solely Medicare revenue, while still meeting a significantly lower Medicare-specific threshold. By creating an all-payer option, CMS hopes to enable greater provider participation by allowing all payer revenue to count toward the same minimum threshold. Under the all-payer model in 2021, for example, providers must have no less than 25 percent of Medicare revenue through Advanced APMs and 50 percent of all revenue through Advanced APMs.

MACRA Implementation Details Revealed

The newly released proposed rule provides answers to significant questions that had been left unanswered in the law surrounding the specifics of implementation of MIPS and the APM incentives. At long last, providers are gleaning insight into how CMS intends to implement MIPS and the APM track. Given the fast-approaching MIPS performance period in January 2017, here are three key highlights providers need to know:

1. Qualifying for the APM incentive track—and getting out of MIPS—will be difficult. In order to qualify for the bonus-awarding Advanced APM designation, APMs must meet the “nominal financial risk” criteria, which will be measured in three ways: an APM’s marginal rate sharing for losses, minimum loss ratio (the threshold above which providers would begin sharing in losses), and total potential risk as a percent of expected costs. Clinicians must further have a minimum share of revenue that comes in through the designated APMs.


2. Providers will have fewer opportunities to see and improve their performance on MIPS. Despite calls from provider groups for more frequent reporting and feedback periods, MIPS reporting periods will be annual, not quarterly. This is true for performance feedback from CMS, as well, though they may explore more frequent feedback cycles in the future. Quarterly reporting and feedback periods could have made the incentive programs more “actionable” for providers, alerting them to their performance closer to the time the services were rendered and providing more opportunities to improve performance.


3. MIPS allows greater flexibility than previous programs. Put simply, MIPS is the performance incentive program clinicians will participate in if not on the Advanced APM track. While compelling participation, the proposed MIPS implementation also responds to stakeholder concerns that earlier performance incentive programs were onerous and sometimes irrelevant—MIPS reduces the number of measures required in some categories and allows physicians to select from a set of measures to report on based on relevancy to their practice.

With last week’s release of the proposed rule, the Leonard D. Schaeffer Initiative for Innovation in Health Policy is kicking off a series of work products that will focus dually on further MACRA implementation issues and on translating complex policy into providers’ experience. In the blogs and publications to follow, we will dive into greater detail and discussion of the pieces of MACRA implementation highlighted here, as well as many other emerging physician payment reform issues, as the law’s implementation unfolds.

The Center for Medicare and Medicaid Innovation (CMMI, or “the Innovation Center”) recently announced an initiative called Comprehensive Primary Care Plus (CPC+). It evolved from the Comprehensive Primary Care (CPC) initiative, which began in 2012 and runs through the end of this year. Both initiatives are designed to promote and support primary care physicians in organizing their practices to deliver comprehensive primary care services. Comprehensive Primary Care Plus has some very promising components, but also misses some compelling opportunities to further advance payment for primary care services.

The earlier initiative, CPC, paid qualified primary care practices a monthly fee per Medicare beneficiary to support practices in making changes in the way they deliver care, centered on five comprehensive primary care functions: (1) access and continuity; (2) care management; (3) comprehensiveness and coordination; (4) patient and caregiver engagement; and, (5) planned care and population health. For all other care, regular fee-for-service (FFS) payment continued. The initiative was limited to seven regions where CMMI could reach agreements with key private insurers and the Medicaid program to pursue a parallel approach. The evaluation funded by CMMI found quality improvements and expenditure reductions, but savings did not cover the extra payments to practices.

Comprehensive Primary Care Plus uses the same strategy of conducting the experiment in regions where key payers are pursuing parallel efforts. In these regions, qualifying primary care practices can choose one of two tracks. Track 1 is very similar to CPC. The monthly care management fee per beneficiary remains the same, but an extra $2.50 is paid in advance, subject to refund to the government if a practice does not meet quality and utilization performance thresholds.

The Promise Of CPC+

Track 2, the more interesting part of the initiative, is for practices that are already capable of carrying out the primary care functions and are ready to increase their comprehensiveness. In addition to a higher monthly care management fee ($28), practices receive Comprehensive Primary Care Payments. These include a portion of the expected reimbursements for Evaluation and Management services, paid in advance, and reduced regular fee-for-service payments. Track 2 also includes larger rewards than does Track 1 for meeting performance thresholds.

The combination of larger per beneficiary monthly payments and lower payments for services is the most important part of the initiative. By blending capitation (monthly payments not tied to service volume) and FFS, this approach might achieve the best of both worlds.

Even when FFS payment rates are calibrated correctly (discussed below), the rates are pegged to the average costs across practices. But since a large part of practice cost is fixed, it means that the marginal cost of providing additional services is lower than the average cost, leading to incentives to increase volume under FFS. The lower payments reduce or eliminate these incentives. Fixed costs, which must also be covered, are addressed through the Comprehensive Primary Care Payments. By involving multiple payers, practices are put in a better position to pursue these changes.

An advantage of any program that increases payments to primary care practices is that it can partially compensate for a flaw in the relative value scale behind the Medicare physician fee schedule. This flaw leads to underpayment for primary care services. Although the initial relative value scale implemented in 1992 led to substantial redistribution in favor of evaluation and management services and to physicians who provide the bulk of them, a flawed update process has eroded these gains over the years to a substantial degree.

In response to legislation, the Centers for Medicare and Medicaid Services are working correct these problems, but progress is likely to come slowly. Higher payments for primary care practices through the CPC+ can help slow the degree to which physicians are leaving primary care until more fundamental fixes are made to the fee schedule. Indeed, years of interviews with private insurance executives have convinced us that concern about loss of the primary care physician workforce has been a key motivation for offering higher payment to primary care physicians in practices certified as patient centered medical homes.

Two Downsides

But there are two downsides to the CPC+.

One concerns the lack of incentives for primary care physicians to take steps to reduce costs for services beyond those delivered by their practices. These include referring their patients to efficient specialists and hospitals, as well as limiting hospital admissions. There are rewards in CPC+ for lower overall utilization by attributed beneficiaries and higher quality, but they are very small.

We had hoped that CMMI might have been inspired by the promising initiatives of CareFirst Blue Cross Blue Shield and the Arkansas Health Care Improvement initiative, which includes the Arkansas Medicaid program and Arkansas Blue Cross Blue Shield. Under those programs, primary care physicians are offered substantial bonuses for keeping spending for all services under trend for their panel of patients; there is no downside risk, which is understandable given the small percentage of spending accounted for by primary care. The private and public payers also support the primary care practices with care managers and with data on all of the services used by their patients and on the efficiency of providers they might refer to. These programs appear to be popular with physicians and have had promising early results.

The second downside concerns the inability of physicians participating in CPC+ to participate in accountable care organizations (ACOs). One of CMMI’s challenges in pursuing a wide variety of payment innovations is apportioning responsibility across the programs for beneficiaries who are attributed to multiple payment reforms. As an example, if a beneficiary attributed to an ACO has a knee replacement under one of Medicare’s a bundled payment initiatives, to avoid overpayment of shared savings, gains or losses are credited to the providers involved in the bundled payment and not to the ACO. As a result, ACOs are no longer rewarded for using certain tools to address overall spending, such as steering attributed beneficiaries to efficient providers for an episode of care or encouraging primary care physicians to increase the comprehensiveness of the care they deliver.

Keeping the physician participants in CPC+ out of ACOs altogether seems to be another step to undermine the potential of ACOs in favor of other payment approaches. This is not wise. The Innovation Center has appropriately not established a priority ranking for its various initiatives, but some of its actions have implicitly put ACOs at the bottom of the rankings. Recently, Mostashari, Kocher, and McClellan proposed addressing this issue by adding a CPC+ACO option to this initiative.

In an update to its FAQ published May 27, 2016 (after out blog was put into final form), CMMI eased its restriction somewhat by allowing up to 1,500 of the 5000 practices expected to participate in CPC+ to also participate in Medicare Shared Savings Program (MSSP) ACOs. But the prohibition continues to apply to Next Gen ACOs, the model that has created the most enthusiasm in the field. If demand for these positions in MSSP ACOs exceeds 1,500, a lottery will be held. This change is welcome but does not really address the issue of disadvantaging ACOs in situations where a beneficiary is attributed to two or more payment reform models. CMMI is sending a signal that CPC+, notwithstanding its lack of incentives concerning spending outside of primary care, is a powerful enough reform that diverting practices away from ACOs is not a problem. ACOs are completely dependent on primary care physician membership to function, meaning that any physician practices beyond 1,500 that enroll in CPC+ will reduce the size and the impact of the ACO program. CMMI has never published a priority ranking of reform models, but its actions keep indicating that ACOs are at the bottom.

The Innovation Center should be lauded for continuing to support improved payment models for primary care. Its blending of substantial monthly payments with lower payments per service is promising. But the highest potential rewards come from broadening primary care physicians’ incentives to include the cost and quality of services by other providers. CMMI should pursue this approach.

Editor's note: This piece originally appeared in Health Affairs Blog.

Event Information

An American Enterprise Institute-Brookings/USC Schaeffer Initiative Event
 

For most of the last five decades, the most-discussed finding by the Medicare trustees has been the insolvency date, when Medicare’s trust fund would no longer be able to pay all of the program’s costs. Last year’s report projected that the hospital insurance trust fund would be depleted by 2030 – just 14 years from now. The report also predicted a more immediate and controversial event: the Independent Payment Advisory Board (IPAB), famously nicknamed “death panels,” would be required to submit proposals to reduce Medicare spending in 2018, with the reductions taking place in 2019. Do we remain on this path to automatic Medicare cuts next year?

The American Enterprise Institute and the Schaeffer Initiative for Innovation in Health Policy, a collaboration between the USC Leonard D. Schaeffer Center for Health Policy & Economics and the Brookings Institution, hosted a discussion of the new 2016 trustees report on June 23. Medicare’s Chief Actuary Paul Spitalnic summarized the key findings followed by a panel of experts who discussed the potential consequences of the report for policy actions that might be taken to improve the program’s fiscal condition. You can join the conversation at #MedicareReport.

Video

• Introduction and keynote address
• Panel discussion

Audio

• The 2016 Medicare Trustees Report: One year closer to IPAB cuts?

Event Materials

• AEI TR16 final
• 20160623_medicaretrusteesreport_transcript

Given the lackluster healthcare exchange enrollment numbers, unaffordable coverage, and increasing overall healthcare costs, President Obama is wrong to think the Affordable Care Act (ACA) needs just a few tweaks – its most fundamental aspects need to be rethought. Obama’s essay marks the first time a modern sitting president has had a piece published in the journal.

Much of the progress made under the ACA expanding healthcare coverage to the uninsured has been thanks to increased enrollment in Medicaid -- not the exchanges -- a harbinger of even less progress to come.  Secretary of Health and Human Services Sylvia Burwell sharply adjusted down projections of new exchange enrollees in 2016 to 1.3 million. Furthermore, the Congressional Budget Office (CBO) has estimated that over the next decade, as the population increases, coverage will expand only modestly and the proportion of the uninsured will cease to decline.

Six key areas in the ACA are flawed -- and need to be fixed if healthcare reform is to meet its promise and not have rampant cost problems:

1. Subsidies still leave plans too expensive. Congress must continue income-related subsidies while making coverage affordable to both households and taxpayers, which is “no easy task” because it could drive up costs of the ACA considerably.
2. The Cadillac tax needs to be fixed. While better than nothing, it doesn’t confront the underlying problem of health insurance being tax deductible, which is regressive and inefficient. One suggestion is a modification of the Cadillac tax that makes any excess plan costs above a cap be considered taxable income to the employee, as opposed to an excise tax.
3. Increase federalism in the healthcare system. States should apply for waivers under Section 1332, which takes effect in 2017 and gives states flexibility to meet the law’s goals while retaining its basic protections. The Administration has made a serious mistake in dragging its feet and acting overly restrictively with states who could launch their own bold and far-reaching experiments, as it has itself in encouraging conservative states to expand Medicaid under the ACA.
4. The exchanges need to be the primary vehicle for health insurance – not Medicaid expansion. Equalizing the subsidy structure for exchange plans and the tax treatment of employer-sponsored benefits, more employees would go on the exchanges which gives them greater choice and portability.
5. Replace the Independent Payment Advisory Board with a premium support system for Medicare. Premium support would enforce a long-term budget for Medicare by allowing greater control of the beneficiaries themselves, as opposed to imposing payment and price controls; it would also accelerate innovation in the design and pricing of Medicare services.
6. The ACA should focus more on the “upstream” determinants of health – beyond just medical services. We need to find ways to blend health, housing, transportation, social services and other items to reduce the need for costly medical services, he writes.

If it were a separate economy, the US health system would be equivalent to the first or sixth largest economy in the world. It is both pragmatic and principled to recognize that achieving agreement on how to redesign an economy that large, or to do it successfully in 1 piece of legislation, is beyond the capabilities of the federal government. That is why core parts of the ACA need to be reassessed and revised and why empowering the US system of federalism to adapt and experiment with this law is so important.

Read "The Future of the Affordable Care Act: Reassessment and Revision."

Since the Affordable Care Act’s (ACA) health insurance marketplaces first took effect in 2014, news story after story has focused on premium increases for certain plans, in certain cities, or for certain individuals. Based on preliminary reports, premiums now appear set to rise by a substantial amount in 2017.

What these individual data points miss, however, is that average premiums in the individual market actually dropped significantly upon implementation of the ACA, according to our new analysis, even while consumers got better coverage. In other words, people are getting more for less under the ACA.

Covered California, that state’s marketplace, just announced premium increases averaging 13.2 percent. But even if premiums increase by the 10 or 15 percent overall that some are predicting for 2017, they will still be far lower than premiums otherwise would have been in the absence of the law. Moreover, this analysis does not include the effects of premium and cost-sharing subsidies that serve to make ACA marketplace plans more affordable for many people.

2014 Premiums In the ACA Marketplaces Were 10-21 Percent Lower Than 2013 Individual Market Premiums

While many stories of pronounced increases are simply the natural result of a law that works differently in every region and for people of different health statuses, it appears to be conventional wisdom that the ACA increased premiums in the individual, non-group insurance market, if only because it increased the quality and robustness of coverage. Indeed, many of the ACA’s new rules do have the anticipated effect of increasing premiums, such as:

• mandated guaranteed issue regardless of health status;
• restrictions on the ability to charge different premiums based on anything besides age and smoking habits;
• requirements for plans to offer certain benefits deemed “essential;”
• limits on out-of-pocket costs an enrollee can pay for covered services in a given year; and
• the elimination of any lifetime limits on coverage.

However, many features of the ACA push in the opposite direction and save consumers money. The individual mandate and federal subsidies greatly expanded the number of people purchasing coverage in the individual market, pushing premiums down both by increasing the sheer size of the market – the bigger the market, the lower the prices – and including many healthier people who previously went uninsured. In addition, the ACA created relatively transparent marketplaces where insurers must compete on premiums for products standardized by actuarial value, allowing competition to drive down prices.

Together, by creating a much larger and more competitive market, these changes placed strong downward pressure on insurance premiums, outweighing the factors pushing in the opposite direction. Stronger rate review and minimum requirements for how much an insurance plan must spend on actual health care expenses furthered this downward pressure on prices.

According to our analysis, average premiums for the second-lowest cost silver-level (SLS) marketplace plan in 2014, which serves as a benchmark for ACA subsidies, were between 10 and 21 percent lower than average individual market premiums in 2013, before the ACA, even while providing enrollees with significantly richer coverage and a broader set of benefits. Silver-level ACA plans cover roughly 17 percent more of an enrollee’s health expenses than pre-ACA plans did, on average. In essence, then, consumers received more coverage at a lower price.

Download "Affordable Care Act Premiums are Lower Than You Think" »

Editor's note: This piece originally appeared in Health Affairs.

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• Download "Affordable Care Act Premiums are Lower Than You Think"

As the nation still struggles with high healthcare costs that consume larger and larger portions of patient budgets as well as government coffers, the search for ways to get costs under control continues. Total healthcare spending in the U.S. now represents almost 18 percent of our entire economy. One promising cost-savings approach is called “reference pricing,” where the insurer establishes a price ceiling on selected services (joint replacement, colonoscopy, lab tests, etc.). Often, this price cap is based on the average of the negotiated prices for providers in its network, and anything above the reference price has to be covered by the insured consumer.

A study published in JAMA Internal Medicine by James Robinson and colleagues analyzed grocery store Safeway’s experience with reference pricing for laboratory services such as such as a lipid panel, comprehensive metabolic panel or prostate-specific antigen test. Safeway’s non-union employees were given information on prices at all laboratories through a mobile digital platform and told what Safeway would cover. Patients who chose a lab charging above the payment limit were required to pay the full difference themselves.

Employers see this type of program as a way to incentivize employees to think through the price of services when making healthcare decisions. Employees enjoy savings when they switch to a provider whose negotiated price is below the reference price, whereas if they choose services above it, they are responsible for the additional cost.

Robinson’s results show substantial savings to both Safeway and to its covered employees from reference pricing. Compared to trends in prices paid by insurance enrollees not subject to the caps of reference pricing, costs paid per test went down almost 32 percent, with a total savings over three years of $2.57 million – patients saved $1.05 million in out-of-pocket costs and Safeway saved $1.7 million.

I wrote an accompanying editorial in JAMA Internal Medicine focusing on different types of consumer-driven approaches to obtain lower prices; I argue that approaches that make the job simpler for consumers are likely to be even more successful. There is some work involved for patients to make reference pricing work, and many may have little awareness of price differences across laboratories, especially differences between those in some physicians’ offices, which tend to be more expensive but also more convenient, and in large commercial laboratories. Safeway helped steer their employees with accessible information: they provided employees with a smartphone app to compare lab prices.

But high-deductible plans like Safeway’s that provide extensive price information to consumers often have only limited impact because of the complexity of shopping for each service involved in a course of treatment -- something close to impossible for inpatient care. In addition, high deductibles are typically met for most hospitalizations (which tend to be the very expensive), so those consumers are less incentivized to comparison shop.

Plans that have limited provider networks relieve the consumer of much complexity and steer them towards providers with lower costs. Rather than review extensive price information, the consumer can focus on whether the provider is in the network. Reference pricing is another approach that simplifies—is the price less than the reference price? What was striking about Robinson’s results is that reference pricing for laboratories was employed in a high-deductible plan, showing that the savings achieved—in excess of 30 percent compared to a control—were beyond what the high deductible had accomplished.

While promising, reference pricing cannot be applied to all medical services: it works best for standardized services and where variation in quality is less of a concern. It also can be applied only to services that are “shoppable,” which is only about one-third of privately-insured spending. Even if reference pricing expanded to a number of other medical services, other cost containment approaches, including other network strategies, are needed to successfully contain health spending and lower costs for non-shoppable medical services.

Editor's note: This piece originally appeared in JAMA.

Editor’s note: This week the Democrats gather in Philadelphia to nominate a candidate for president and adopt a party platform. Given that there are no minority reports to the Democratic platform, it is likely that it will be adopted as-is this week. And so we can begin the comparison of the two major party platforms. For those who say there are no differences between the Republican and Democratic parties, just read the platforms side-by-side. In many instances, the differences are—as Donald Trump would say, yuuuge. But in one surprising instance, the two parties actually agree. This piece walks readers through one of the biggest contrasts, while an earlier piece by Elaine Kamarck detailed a striking similarity.

When it comes to Republicans and the environment, black is the new green. In addition to denouncing “radical environmentalists” and calling for dismantling the EPA, the platform adopted in Cleveland yesterday calls coal “abundant, clean, affordable, reliable domestic energy resource” and unequivocally opposes “any” carbon tax.

Meanwhile, Democrats are moving in the opposite direction. By the time the party’s draft 2016 platform emerged from the final regional committee meeting in Orlando, it contained a robust section on environmental issues in general and climate change in particular. One of the many amendments adopted in Orlando contains the following sentence: “Democrats believe that carbon dioxide, methane, and other greenhouse gases should be priced to reflect their negative externalities, and to accelerate the transition to a clean energy economy and help meet our climate goals.” In plain English, there should be what amounts to a tax (whatever it may be called) on the atmospheric emissions principally responsible for climate change, including but not limited to CO2.

As Brookings’ Adele Morris pointed out in a recent paper, this proposal raises a host of design issues, including determining initial price levels, payers, recipients, and uses of revenues raised. It would have to be squared with existing federal tax, climate, and energy policies as well as with climate initiatives at the state level.

But these devilish details should not obstruct the broader view: To the best of my knowledge, this is the first time that the platform of a major American political party has advocated taxing greenhouse gas emissions. Many economists, including some with a conservative orientation, will applaud this proposal. Many supporters and producers of fossils fuels will be dismayed.

It remains to be seen how the American people will respond. In a survey conducted in 2015 by Resources for the Future in partnership with Stanford University and the New York Times, 67 percent of the respondents endorsed requiring companies “to pay a tax to the government for every ton of greenhouse gases [they] put out,” with the proviso that all the revenue would be devoted to reducing the amount of income taxes that individuals pay. Previous surveys found similar sentiments: public support increases sharply when the greenhouse gas tax is explicitly revenue-neutral and declines sharply if it threatens an overall increase in individual taxes.

Once this plank of the Democratic platform becomes widely known, Republicans are likely to attack it as yet another example of Democrats’ propensity to raise taxes. The platform’s silence on the question of revenue-neutrality may add some credibility to this charge. Much will depend on the ability of the Democratic Party and its presidential nominee to clarify its proposal and to link it to goals the public endorses.