Incentives for Consolidation v Anti-Trust

This is an important Kaiser Health News brief on an Idaho hospital/physician merger that is being scrutinized for potential anti-trust violations. In part it says:

While consolidation in the industry has been underway for decades, the pace has accelerated dramatically since the 2010 passage of the federal health care law. Hospitals and doctors’ groups have joined hands in part out of fear of funding cuts and in part, to position themselves for government bonuses. The bonuses are available to providers who agree to form “accountable care organizations,” which are rewarded for keeping Medicare patients healthy, rather than for the number of tests or procedures they do.

“The Affordable Care Act is pushing consolidation and working together, but the Federal Trade Commission and the Justice Department seem to be saying, ‘Wait a second, there are antitrust laws here,” said Robert Field, a law and health policy professor at Drexel University in Philadelphia. “The federal government has a schizophrenic attitude toward provider consolidation.”

FTC officials, however, deny there is any broad conflict between the Affordable Care Act and antitrust laws.

“The issues are in those small number of cases where collaboration occurs in a way that gives participants excessive marketplace power,” said Deborah Feinstein, director of the bureau of competition for the FTC.

The incentives to aggregate market power have been around for awhile, and North Carolina has seen lots of this in the form of hospitals/health systems purchasing physician practices. The incentives for such behavior are increased not only by the ACA, but by the nascent regionalized Medicaid ACO plan put forth by the N.C. General Assembly. As I said in this post on the emerging North Carolina plan:

This is going to set off another wave of aggregation/consolidation or accelerate it, whichever way you want to view it. The incentives around this sort of plan are to get as big as possible, I think. At some point, there is likely to arise some anti-trust questions around all of this.

N.C. Medicaid Reform Advisory Group

The North Carolina Medicaid Reform Advisory Group, created by last Summer’s Budget, will meet on Wed February 26, 2014:

At this meeting, DHHS will share with the advisory group an initial Medicaid reform proposal. The public is invited to observe the presentation and discussion between the advisory group and DHHS.

I have been thinking that the Medicaid Reform Advisory Group would submit a plan, but looking back at the text (see pp. 162-63) of the budget I see that is not the case. DHHS submits the plan, and the Medicaid Reform Advisory Group has been created to advise DHHS:

SECTION 12H.1.(e) Advisory Group. – There is established the North Carolina Medicaid Reform Advisory Group (Advisory Group) in order to advise the Department of Health and Human Services in its development of its detailed plan to reform Medicaid. The Advisory Group shall meet in order to (i) provide stakeholder input in a public forum and (ii) ensure the transparency of the process of developing the reform proposal. The Advisory Group shall meet at the call of the chair.

The meeting next Wednesday is framed as a discussion between DHHS and the Medicaid Reform Advisory Group (that has two sitting members of the General Assembly, and 3 persons appointed by the Governor). Here is the Medicaid Reform web page, with links to info from past meetings. This is the white paper Don Taylor NC Health Reform Proposal 1 14 14 that I put out in January on Medicaid/health reform in North Carolina.

It seems as though the meeting next week will provide a strong signal about the direction and scope of the reform that North Carolina’s executive branch has in mind for this year.

Randomly Assign Medicaid and Study?

My friend and Duke colleague Chris Conover suggests that states caught in the coverage gap due to their decision to not expand Medicaid (people too poor for exchange subsidies, but not eligible for Medicaid; WSJ says ~20-25% of the uninsured in North Carolina fall into this category) should consider a replication of the Oregon Medicaid experiment in which people were randomly assigned to Medicaid. States could then study the results.

There is merit to the idea in a State whose political leadership is uncertain about Medicaid expansion, and especially when some invoke the Oregon study as a reason to not expand Medicaid (I am not going to rehash that debate now). If multiple States undertook such an experiment,it would provide a great deal more evidence about the impact of coverage expansions, particularly given the idiosyncratic attributes of States. If North Carolina did this, we would need to very carefully design the study; for example, the Oregon study actually only included residents of Portland, as Chris notes in his piece, and we would need to make sure we invested enough resources in the study to provide definitive answers. North Carolina would especially need to make sure we could understand how such an experiment worked in both rural and urban areas.

My suggestion that North Carolina expand insurance coverage using a Basic Health Plan under Section 1331 of the ACA could certainly have an experimental component built into it. In fact, North Carolina could seek authority to do a BHP along side a Medicaid waiver, and randomly assign those below 100% of poverty to traditional Medicaid, or the private insurance/provider option that I proposed in the BHP. The comparison would then be to determine if the private coverage option differed from traditional Medicaid in terms of outcomes.

My white paper Don Taylor NC Health Reform Proposal 1 14 14 goes beyond health insurance expansion and calls for a demonstration/test of an alternative medical malpractice and patient safety approach among those newly covered, and efforts to expand the supply of health care providers by lessening regulation and expanding the practice authority of non-physician providers are also included. We should seek comprehensive reform efforts, and not only focus on coverage expansion.

The ACA has quite a lot of flexibility built into it for States, and the Obama administration has shown a willingness to allow States to experiment with different models and approaches. States like North Carolina have tremendous political leverage that we are now wasting. There are many potential approaches and models. North Carolina needs to pick one and move ahead with a coverage expansion that informs overall system reform, and commit to evaluating and learning from the results.

Health Reform Ideas for North Carolina

I am releasing a white paper with some health reform ideas for North Carolina (pdf Don Taylor NC Health Reform Proposal 1 14 14). The North Carolina Medicaid Advisory Commission is discussing options that will culminate in their recommendation from the North Carolina Dept of Health and Human Services to the General Assembly on March 17, 2014.

I propose three main ideas:

  • Expand health insurance coverage while reforming Medicaid by seeking both a Medicaid waiver and developing a Basic Health Plan option under section 1331 of the ACA
  • Reform the State’s Medical Malpractice system while addressing patient safety, using Medicaid and the Basic Health Plan as a pilot population; I think the “Michigan Model” holds the most promise
  • Increase the Supply of Health Care Providers by Safely Reduction Regulation; essentially expanding the practice scope of non-physician providers to increase the effective care delivery supply

In the longer run, I suggest North Carolina consider

  • Seeking a more comprehensive waiver that would allow the full cost of the dual eligible population to be federalized, with State savings put towards insurance coverage expansions
  • Seek permission to pilot a competitive bidding demonstration in Medicare Advantage plans sold in North Carolina, two to three years after a Basic Health Plan is up and running in a North Carolina run health insurance exchange

I will spend time over the next few weeks blogging about these and other ideas that emerge (the N.C. Medicaid Advisory Commission meets tomorrow, 9am-4:30pm at the State Library, 109 Jones St., Raleigh, NC). Note that the white paper is a pdf that has hyperlinks to sources (mostly blog posts) in lieu of more traditional citations.

How North Carolina could (sorta) have universal coverage by 2016

Could North Carolina became the first State to achieve universal health insurance coverage? A student asked me recently what it would take financially to do so, and how it could most simply and quickly be done. Here is a quick estimate.

Using the Kaiser Family Foundations numbers, in 2016 there will be 1,216,000 uninsured persons in North Carolina if the Affordable Care Act were repealed. If implemented, they estimate that in 2016 398,000 persons will be covered by private insurance bought in exchanges who would otherwise be uninsured, and 377,000 (1) who otherwise would be uninsured will be covered by Medicaid if North Carolina undertakes expansion.

ScreenHunter_01 Dec. 12 11.54

NC2016_12.12.13

That would leave 440,000 persons uninsured in 2016, or around 5% of the population, down from ~17-18% today. We could get to this point easily by expanding Medicaid, and the State developing its own exchange. Any state can achieve something like what is noted in first three rows of the table via the ACA; but what would it take to be the first state to cover everyone, with at least some modicum of insurance coverage?

The last row of the table shows how much it would take (I estimate $78 Million in 2016)  to achieve stop loss catastrophic hospital coverage, for the 440,000 left out by the ACA (didn’t sign up; ineligible) using the State Employees Health Plan infrastructure, and having a deductible of $10,000 for individuals, and $25,000 for families, with the state paying hospital costs above that. This is bare bones, hospital-only coverage to be sure, but it is the cheapest way to cover everyone with at least something that I can imagine.

A few details on how I got there.

Using the Hadley et al. (2008) estimate, the cost of care received by the uninsured in 2016 would be $1,100 per capita ($550 per capita actually paid by the uninsured, $550 unpaid, and therefore implicitly subsidized via the rest of the system) for a total cost of $484 Million in North Carolina in 2016 ($242 Million paid, $242 Million implicitly subsidized). Note that this cost will exist no matter what we do, but that half of it will be implicitly paid by those not receiving care by default.

If the 440,000 uninsured persons used care uniformly, the problem would be relatively easy to fix, but that is not the case. A recent U.S. Census Analysis shows per capita out of pocket spending by the uninsured ages 0-64 of $446 (compared to my estimate above of $550), but with 63.7% of such persons having expenditures of $0 (see Table 1). Similarly, a MEPS-based analysis showed that 2002 spending by the uninsured had a mean of $1,491, but the median was only $396, again showing that the distribution includes many $0 or very low users, and a few very large ones. The very large costs are catastrophic to families who have no way of paying them, and are a burden to hospitals and other providers who have to figure out how to cross subsidize such care, some of which they must provide under longstanding law, in what is essentially an unfunded mandate.

How could we achieve what I outline in the table above?

  • Expand Medicaid under the ACA, perhaps using the Arkansas “private expansion” Medicaid model in which persons between 100%-138% of poverty receive private insurance purchased on the exchange that North Carolina could set up. Those under 100% of poverty could be covered by traditional Medicaid initially. Perhaps over time, more of them could be moved to the exchange. I have long been in favor of seeking increased flexibility for our Medicaid program so that the state can focus on acute health care, and shifting more of the responsibility for long term care to the federal government.
  • Use the N.C. State Employees health plan to create a stop-loss catastrophic hospital insurance payment mechanism, through which the State would pay for the cost of annual hospital care above $10,000 for individuals, and above $25,000 for families. I estimate that this would cost North Carolina $78 Million in 2016, and this would be an annual recurring cost (for magnitude comparison, the annual budget for running the North Carolina General Assembly is around $51 Million in 2013).
  • Why use the States Employees Health Plan (SEHP)? The SEHP has members in all 100 counties, and is certainly paying bills in every hospital in North Carolina, which means they have negotiated rates. I got the $10,000/$25,000 figures by comparing them to the SEHP maximum coinsurance (cost share + deductible) amount for their traditional 70/30 plan (in 2014 this will be $7,586 for an individual; $22,758 for a family; looking for round numbers for for simplicity and since we are talking about 2016, I rounded up to $10,000 for individuals, and $25,000 for families). This would mean hospitals would also have to charge uninsured persons what the State Employees Health Plan pays for care, a step that UNC Hospitals has already taken, which is a consumer protection of sorts that at least means the uninsured aren’t charged a rate higher than what any insurance company pays.
  • Using a recent ASPE study on the distribution of hospital bills incurred by the uninsured, 56% of such hospital bills are larger than $10,000, and 28% of those larger than $25,000 (see Table 3). Without knowing the distribution of single uninsured v those in families, I assumed the cost of the program to be $78 Million in 2016, which is 40% of the half of the uncompensated care that is currently “implicitly financed” by hospitals not receiving payment.

I acknowledge that being uninsured is not only a financial problem and that there are human consequences. This is not the same as providing the 440,000 residual uninsured with health insurance, which would be expected to increase their use of care substantially. And it could correctly be said that this policy will most directly benefit hospitals who are now providing such care but not getting reimbursed. However, if our state expands Medicaid and sets up a vigorous health care exchange to market those policies, we will have done a great deal to address the issue of uninsurance. However, we know that some will not comply, and others will not be eligible for the ACA, yet they will still be living and working here, and in some cases using large amounts of health care. It would be preferable to develop a straightforward means of paying for this care.

The plan above in neither a liberal, nor a a conservative, dream solution. And the ideas above that could be tweaked in many ways. However, what I have written could plausibly be implemented by 2016, and by doing so, North Carolina could prove itself to be a leader in state-based health reform, and address the challenges of health reform, head on.

Notes:

(1) Kaiser estimates that the number covered by Medicaid in 2016 under expansion will increase by 478,000, but the net reduction in the uninsured will be 377,000. 478k-377k=101k estimate of woodwork effect (those now eligible but not signed up) + crowd out from private and non-group insurance to Medicaid.

(2) Using AHRQ estimate of 32% of uninsured expenses accruing to inpatient hospitals plus hospital outpatient, yields estimate of $155 Million of the $484 Million total uninsured cost estimate in 2016 being hospital care. Using ASPE estimate that 28% of the uncompensated hospital bills incurred by the uninsured are greater than $25,000, and that 56% of them are larger than $10,000, I assume that paying for a weighted average of the individual and family uninsured hospital bills above $10k and $25k would account for half of the uncompensated hospital care, or $77.5 Million, in 2016.

(3) Note: The North Carolina Hospital Association claims that hospitals delivered $1.5 Billion charity care and bad debt in 2010 (see p. 41 of the pdf, page 37 of the document); I am not going to get into it, but they are discounting for a wildly unrealistic initial number, whereas the ASPE work asserts costs; note the markdown from charges to costs in table 3 row 1, is 25 fold.

North Carolina Medicaid reform reset

The North Carolina Medicaid Advisory Commission held a public meeting yesterday, that is best described as a reset. The Governor’s initial Medicaid proposal that envisioned 3 or 4 “entities” bidding against one another to deliver the full Medicaid package in all 100 counties is now dead (7 part series on the plan; more).

In its stead appears to be the beginnings of a regional-based approach (map below) that will be messaged around “building upon the strengths of existing North Carolina providers”.

ScreenHunter_01 Dec. 06 15.37

This reset addresses some of the concerns that privatization would entail the state “walking away from exisiting provider organizations now serving the Medicaid” population. However, the figure above noting the “% payments out of region” still points to a desire to have managed care companies go ‘at risk’ for covered lives in defined geographical areas. However, some Republican members of the General Assembly appear to be skeptical (not just the Democrats). They are asking the question: what would out of state managed care/insurance companies add to the State?

A few preliminary thoughts.

  • The Governor’s initial plan outline was unworkable, and it is good that they have moved away from that.
  • The map above divides the State into regions in which large, integrated health systems would have an obvious advantage in delivering care: Carolinas Health Care System in region 6, Vidant (East Carolina University) in region 7. Wake Forest take region 2. Duke and UNC are both in region 3, but UNC has a big presence in region 1 as well.
  • If at least part of the Medicaid population will be put into comprehensive (across the benefit package; more than just primary care) at risk managed care contracts, who has the heft to bid? The obvious in state insurer is Blue Cross/Blue Shield North Carolina, and then I am sure some of the national for profit managed care companies will be interested. The large in-state health systems could contract with insurers, but they actually have the provider brands in the State. Why give that away? My guess is the next weeks and months will see the creation of new, state-based managed care organizations that join the insurance function with the care delivery footprint of these large provider systems to defend the Medicaid market share they now enjoy. They really don’t have much choice.
  • What about Community Care North Carolina, the highly touted primary care delivery network that is the backbone of current Medicaid primary care now? They could contract with all, some, or one of the various managed care companies, insurance companies, or large delivery systems (and presumably this could differ by region of the state). They are certainly at the heart of a “lets go with what works well in North Carolina” message. Earlier this year, some worried that CCNC would be killed. Now they are very much alive.
  • The past 15+years have seen tremendous aggregation of health care providers in North Carolina. If North Carolina goes ahead with an at risk managed care approach to the program, that will just increase the pressures for further aggregation of one type or another (maybe even provider/insurance aggregation), as the big in state care delivery players prepare to fend off the out of state for profit managed care companies.

Stay tuned.

N.C. Medicaid Administrative Costs

The line “Medicaid is broken so we can’t expand it” has been repeated ad nauseum in North Carolina during the past year, with a key claim being that North Carolina spent more than several comparator states on administrative costs. Adam Searing recounts the events of the past year, including factual push back that unfortunately had little political impact.

A recent North Carolina General Assembly Fiscal Staff study shows that not only are the North Carolina Medicaid Program’s administrative costs not higher than those State’s to which they were compared, but are actually lower:

ScreenHunter_01 Nov. 25 13.51

Slide 20 above shows where North Carolina ranks in terms of percentage of program costs going to administration as compared to the states used for comparison in the Spring. The source of the earlier error was that amounts being paid to managed care companies were being to assumed to go 100% toward patient care, when in fact managed care companies used some of that for administrative costs (as they reasonably could be expected to do), and a portion of the money would go to profit (as is reasonable to expect; why else would they being doing it).

Above is an apples-to-apples comparison. The earlier mistake was not one of getting the numbers wrong (from the CMS-64 form). It was a case of the numbers not being very meaningful in the manner they were presented given the rise in managed care across many of the comparator states. As the N.C. Fiscal Staff Study from last week noted:

ScreenHunter_02 Nov. 25 14.01

North Carolina doesn’t have higher than expected administrative costs; they are actually lower than those used for comparison last January. This is not a reason to not expand Medicaid in North Carolina.

 

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