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Health care reform: Cost savings, but at what cost?

On March 11, 2010 the Congressional Budget Office released an “Updated Estimate of Budgetary Impact” for the Senate-passed version of H.R. 3590. Some highlights and analysis follow.
“CBO and JCT [the Joint Committee on Taxation] now estimate that, on balance, the direct spending and revenue effects of enacting H.R. 3590 as passed by the Senate would yield a net reduction in federal deficits of $118 billion over the 2010–2019 period.”
How does it do that? According to the CBO’s analysis, the bill would cut Medicare Fee-for-Service payments by about $186 billion over the next 9 years, reduce Medicare Advantage payments by about $118 billion, and reduce Medicare and Medicaid DSH payments by about $43 billion over the same period, plus about $82 billion in other savings.

OK, so the government is going to spend less money, but that won't cover all the costs. According to the CBO's analysis, the bill would also substantially increase government revenue through a set of taxes and fees, including an excise tax on certain high-cost health insurance plans (good for about $149 billion through 2019), federally-based reinsurance and risk-adjustment "collections" ($106 billion), "fees" from "certain manufacturers and insurers" ($101 billion), "additional hospital insurance tax" ($87 billion), "other" revenue provisions ($77 billion), penalty payments ($39 billion), and what appears to be a halo of "associated effects of coverage provisions on revenues" ($57 billion).

This is an incomplete list of all the budgetary impacts, but there are other non-government costs that could be significant.

The CBO has provided a very handy itemized section-by-section list of projected budgetary impact, and has projected very little (if any) budgetary impact for the "quality improvement" (i.e., the goal of spending less money for better care) and "program integrity" (i.e., reductions in fraudulent or "abusive" payments under Medicare and Medicaid) provisions of the bill.

Of particular interest to some entities may be new administrative reporting requirements. The CBO is projecting that Title VI, Subtitle A of the bill (§§ 6001–6005) would have little (if any) impact on government revenues. What the CBO has not—and indeed, cannot have—accounted for is the likely burden that these requirements may place on health care providers. Section 6001 would introduce rather complex conditions that must be met to ensure a physician's compliance with the "Stark Law" (Social Security Act § 1877/42 U.S.C. § 1395nn) if the physician has had (as of February 1, 2010) an ownership or investment interest in a hospital. This provision is applicable to physicians who treat Medicare patients.

Section 6002 would require drug, device, biological, or medical supply manufacturers to publicly disclose on a government-run website any "payment or other transfer of value" to physicians by the manufacturers. Manufacturers and "group purchasing organizations" would also need to report any physician "ownership or investment interest" in such entities. With penalties of between $1,000 and $10,000 for each untimely unreported "ownership or investment interest" or "payment or transfer of value" (capped at $150,000 "with respect to each annual submission of information"), and between $10,000 and $100,000 for a "knowing" failure to submit the information (capped at $1,000,000 "with respect to each annual submission of information"), manufacturers and group purchasing organizations should take notice. Furthermore, it appears that the annual caps are applicable only to each physician or covered individual or entity whose interest must be reported, rather than the total of all reportable interests or payments. So if an entity has many physician investors, the penalties could multiply rather quickly: all the more reason to scrupulously report the information. Again, this provision is applicable to entities that sell product/services to Medicare patients.

Section 6003 would require a physician subject to the Stark Law, when making certain referrals for radiology services, to "inform the individual in writing at the time of the referral that the individual may obtain the services for which the individual is being referred from [someone other than the prescribing doctor or group practice] ... and provide such individual with a written list of suppliers ... who furnish such services in the area in which such individual resides". If this provision goes into effect, physicians with in-house radiology capabilities should very carefully review their radiology referral/prescription forms and procedures. They would likely also need to build (or access) a geographical database of radiology providers, likely by zip code, to facilitate the "written list" component of the provision. Free? Not for the physician. Applicable to Medicare patients? Of course.

These are just a few examples. The bill would also introduce other significant administrative reporting requirements for distributors of drug samples, pharmacy benefit managers, and nursing homes, all of whom provide services to (are you seeing a pattern here?): Medicare patients.

Although all this reporting will likely increase the transparency of some of the more opaque institutions in the health care world, there can be no doubt that these new provisions would increase administrative costs. No one in the history of health care has responded to increased administrative costs by voluntarily lowering fees charged to patients.

However, because the health care providers subject to these reporting provisions are by definition providing Medicare services, and Medicare services are the biggest item on the chopping block, these providers would by law almost certainly receive less for each unit of care provided to their patients. It is a rare person who happily does more of the same work for less money, so how much would this really cost? In other words, would there be fewer doctors or nursing homes willing to take on Medicare patients? Probably. How many fewer? How would this affect the quality of care? That depends on the quality and efficiency of the systems available to help Medicare providers comply with these requirements. What would this do to the cost of care provided to other patients? The money to pay for this has to come from somewhere.

Comments? Questions?

© 2010 Alex M. Hendler. All Rights Reserved.

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