The Tampa Bay Times included on its front page this morning an article entitled: “Big swings in medical prices make for a wild market, but savvy patients can benefit”
“It is a chaotic landscape, which is why it is so difficult for consumers and employers to navigate,” said Castlight vice president Kristin Torres Mowat.
So what gives?
For one, the market for health care doesn’t behave like most other markets. Consumers usually don’t know how much a procedure costs until after they’ve had it, and it can be challenging to compare prices beforehand. That means providers can set their rates somewhat independently of normal market forces — the forces that keep prices consistent at neighboring gas stations.
Bruce Vogel, an associate professor of health policy at the University of Florida (and a dorm mate at UF many years ago) was quoted in the Tampa Bay Times article — “It’s hard to find a market that deviates more from the perfectly competitive structure.”
Even Florida Gov. Rick Scott, a staunch conservative who opposes most government regulation, has expressed concern over the healthcare marketplace, focusing on the transparency of hospital pricing. In the September 29 online edition of Florida Politics, Gov. Scott was quoted:
“This is all about patients and empowering patients,” he told reporters after a Florida Cabinet meeting. “They should know what (a procedure) costs and be able to get as much information as they can.”
You can read the Governor’s official statement regarding hospital price transparency and supportive comments from members of the Commission on Healthcare and Hospital Funding here.
Gov. Scott is a smart guy – an M&A attorney, who founded Columbia Hospital Corporation which merged into the Hospital Corporation of America to become Columbia/HCA, of which he was CEO for a number of years (during which time Medicare fraud issues arose). It is not like he does not know how healthcare providers in general, and hospitals in particular, price their services.
Since the advent of third-party payers, healthcare has always been an artificial market. Vendors of healthcare and consumers of healthcare (those with health insurance) have rarely negotiated prices. The insurance companies negotiated with providers over what they would pay and with the insureds (or their employers) what their premiums would be. Add Medicare to the mix which set an artificial payment standard of some negotiated percentage of the Medicare rate, and pricing for healthcare services became almost completely independent of typical economic forces like supply and demand. Don’t even try to analyze pricing in rural or underserved markets.
So what is happening nowadays, when everyone is supposed to be insured, that makes healthcare pricing and bargaining with hospitals and other healthcare providers such a hot topic? I think it is because of high deductible plans. Health insurance has basically become insurance only for catastrophic claims. When the family deductible may be $5,000 or more, the cost for “unreimbursed” services becomes a matter of personal economics — even if the provider is charging the rate previously negotiated with the healthcare insurer.
Unfortunately, the negotiating for healthcare services is far more complicated than the negotiating over the price of a car. Transparency in healthcare pricing is important, but transparency in healthcare quality is critical. Quality of care will soon be the dominant factor as we move away from procedure based payment for healthcare services to preventive care services (paid 100%) and bundled/global payments focused on the episode of care.
Adam Smith never had a chance in healthcare.
“On July 08, 2015, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that updates payment policies, payment rates, and quality provisions for services furnished under the Medicare Physician Fee Schedule (PFS) on or after January 1, 2016. This year, CMS is proposing a number of new policies, including several that are a result of recently enacted legislation. The rule also finalizes changes to several of the quality reporting initiatives that are associated with PFS payments, including the Physician Quality Reporting System (PQRS), the Physician Value-Based Payment Modifier (Value Modifier), and the Medicare Electronic Health Record (EHR) Incentive Program, as well as changes to the Physician Compare website on Medicare.gov.”
The proposed rule includes provisions relating to the following;
- physician quality reporting system
- “Physician Compare”
- EHR incentive program
- Medicare shared savings
- advance care planning
- payment provisions on Part B drugs, misvalued codes, RVU reductions, “incident to” services, physician value-based payment modifier, etc.
Perhaps most significant in the area of healthcare business transactions are the physician self-referral (Stark law) updates:
- expansion of recruitment and retention provisions to NPPs
- updating physician-owned hospital requirements
- reducing burdens of technical noncompliance through more reasonable regulations in a number of areas (based on information learned from self-dsiclosures and the rersults of recent cases)
The complete proposed rule as published in the Federal Register on July 15 can be found here.
Comments will be accepted by CMS on the proposed rule until September 8, 2015.
As healthcare providers and their lawyers know, things happen fast in healthcare. Business deals, enforcement activity, new inventions and discoveries.
Here are a few headlines from last week in no particular order:
- OIG Mid-Year 2015 Work Plan Mid-Year Update — The OIG published its 86 page mid-year update to its 2015 Work Plan. “This edition of the Work Plan, effective as of May 2015, describes OIG audits, evaluations, and certain legal and investigative initiatives that are ongoing. In response to adjustments made to our Work Plan, this mid-year update removes items that have been completed, postponed, or canceled and includes new items that have been started since October 2014. The word “new” before a project title indicates that the project did not appear in the previous Work Plan. For each project, we include the subject, primary objective, and criteria related to the topic. At the end of each description, we provide the internal identification code for the review (if a number has been assigned) and the year in which we expect one or more reports to be issued as a result of the review. This edition also forecasts areas for which OIG anticipates planning and/or beginning work in the upcoming fiscal year and beyond. Typically, these broader areas of focus are based on the results of OIG’s risk assessments and have been identified as significant management and performance challenges facing HHS. In FY 2015 and beyond, we will continue to focus on emerging payment, eligibility, management, and information technology systems security vulnerabilities in health care reform programs, such as the health insurance marketplaces. OIG plans to add to its portfolio of work on care quality and access in Medicare and Medicaid, as well as on public health and human services programs. OIG’s examination of the appropriateness of Medicare and Medicaid payments will continue, with possible additional work on the efficiency and effectiveness of payment policies and practices in inpatient and outpatient settings, for prescription drugs, and in managed care. Other areas under consideration for new work include, for example, the integrity of the food, drug, and medical device supply chains; the security of electronic data; the use and exchange of health information technology; and emergency preparedness and response efforts.”
- CMS Proposes New Rule for Medicaid Managed Care — “This proposed rule would modernize the Medicaid managed care regulations to reflect changes in the usage of managed care delivery systems. The proposed rule would align the rules governing Medicaid managed care with those of other major sources of coverage, including coverage through Qualified Health Plans and Medicare Advantage plans; implement statutory provisions; strengthen actuarial soundness payment provisions to promote the accountability of Medicaid managed care program rates; and promote the quality of care and strengthen efforts to reform delivery systems that serve Medicaid and CHIP beneficiaries. It would also ensure appropriate beneficiary protections and enhance policies related to program integrity. This proposed rule would also require states to establish comprehensive quality strategies for their Medicaid and CHIP programs regardless of how services are provided to beneficiaries. This proposed rule would also implement provisions of the Children’s Health Insurance Program Reauthorization Act of 2009 (CHIPRA) and addresses third party liability for trauma codes.”
- Florida Senate Tweaks Health Exchange Plan For Fast Action — “The new Senate plan would jettison an initial proposal to expand Medicaid this summer, but instead would still rely on federal money linked to President Barack Obama’s health care overhaul. Low-income Floridians would be eligible to purchase coverage through a new state-run exchange, but they would have to pay premiums and they would be required to work. The new health coverage plan would require federal approval and would not kick in until January. It would also allow consumers who are currently getting insurance through the federal exchange to continue doing so instead being bumped to an expanded Medicaid program — something the House criticized in the initial proposal.”
- New York Assembly Passes Universal Health Care Bill — The New York Assembly passed the New York Health Act, which is seen largely as a symbolic gesture and not likely to be passed by the Republican New York Senate. The bill’s Economic Analysis stated “This report analyzes the economic effects of the New York Health Act …, which would establish a comprehensive, universal health insurance program for all New Yorkers. The Act would replace the current multi-payer system of employer-based insurance, individually acquired insurance, and federally sponsored programs (e.g., Medicare and Medicaid) with a single billing pipeline funded by broad-based progressively graduated assessments collected by the State and based on income and ability to pay, thereby reducing administrative bloat and monopolistic pricing and dramatically reducing the cost of health care to New Yorkers even while extending and improving the provision of care.”
- 21st Century Cures Act: A Call to Action — “The House Energy and Commerce Committee recently approved the 21st Century Cures Act with a vote of 51-0. The nonpartisan legislation will help to modernize and personalize health care, encourage greater innovation, support research, and streamline the system to deliver better, faster cures to more patients.”
- FTC Commissioner Calls For War On Hospital Construction Laws — Law360 reported yesterday that “Federal Trade Commissioner Maureen K. Ohlhausen on Friday urged the antitrust agency to put pressure on state legislatures around the country to scrap laws requiring state approval for the construction of new hospitals, saying the laws are ‘anti-competitive’ in nature and create barriers for new market entrants.”
- Two Cardiologists To Pay Over $3.6 Million For Fraud — “Jasjit Walia and Preet Randhawa and their New Jersey-based cardiology practice Garden State Cardiovascular Specialists will pay the amount to resolve allegations that they submitted claims to federal insurance program Medicare for various cardiology diagnostic tests and procedures. The tests included stress tests, cardiac catheterizations and external counterpulsation, which were not medically necessary, US Attorney Paul Fishman for the District of New Jersey said.”
- Florida’s Medical Marijuana Rules Upheld — “Florida Administrative Hearings Judge David Watkins rejected claims by an Orange County nursery that the state’s proposed rules and regulations were unfairly developed to give advantage to bigger, politically connected nurseries to win the five regional medical-marijuana-growing licenses the law allows. … Florida may now start creating a statewide medical-marijuana program that so far has only been proposed. The program, as written, allows five companies to grow low-THC marijuana, extract an oil and sell it as medicine for people who suffer from intractable epilepsy and several other debilitating conditions.”
In its news release on January 20, the U.S. Attorney’s Office for the District of Massachusetts announced that that the South Shore Physician Hospital Organization in South Weymouth has agreed to pay $1.775 million to settle allegations of operating a recruitment grant program through which it paid kickbacks to its physician members in exchange for patient referrals. The news release talks about false claims as if the care was not given, but the claims were only “false” because of the kickback taint.
There is great pressure on physicians and hospitals to form networks to capture patients, improve care, and reduce costs.
Without knowing, I am guessing that the grant program by SSPHO was intended to build the network and reward physicians who joined (and referrals were probably required to be made to the hospital and other physician network members). I can see how this could be construed to be a kickback, but we need these networks and I suspect that no harm was done to the Medicare or Medicaid programs.
Even if my guess about the SSPHO is wrong, it’s still time that we allowed healthcare innovators and entrepreneurs to act like real business people and recruit and reward participants in a sensible and straightforward manner — without calling it a kickback.
From Healthcare Intelligence Network — essentially a sales promo for their book. According to HIN, a successful physician compensation strategy includes organizational goals, governance, and physician engagement. This is slanted from the healthcare organization viewpoint.
Nevertheless, still worth a look.
A few weeks ago, the Healthcare Financial Management Association (“HFMA”) published a report examining healthcare acquisition and affiliation activity. The report is titled “Acquisition and Affiliation Strategies” and is available as a free download.
There are no surprises in the Report’s so-called “research highlights.” In fact, the highlights are ho-hum obvious:
An emphasis on value-focused strategies. The healthcare organizations interviewed for this report understand that the best way to gain market share is by meeting care purchasers’ demand for high quality, convenient access, and competitive prices. They are seeking acquisition and affiliation partners that will help them achieve these goals.
An understanding that different needs require different approaches. Organizational needs vary greatly depending on local market conditions and the organization’s mission, existing capabilities, and future goals. Organizations are considering a range of partners and partnership opportunities to meet these needs, often pursuing several options simultaneously.
The emergence of new organizational combinations. Healthcare organizations are growing both horizontally (e.g., hospital to hospital) and vertically (e.g., healthcare system to health plan), and different types of organizations are combining forces (e.g., academic medical centers and regional health systems).
A blurring of the lines between competition and collaboration. Market conditions and organizational needs are opening up collaborative possibilities for organizations that may have viewed one another as competitors.
The need to change governance and support structures as organizations change. As organizations grow and gain new capabilities, they are reevaluating and reshaping existing board and management structures, IT systems, financial systems and fund-flow models, and physician relationships to accommodate the changes.
However, the conclusion reached by the Report is very telling:
Few doubt that the forces transforming health care today will lead to further consolidation within the industry. The difference is significant, however, between consolidation that seeks only to increase market power and an acquisition and affiliation strategy that seeks partners who can help produce the cost-efficiencies, gains in clinical quality, and access that care purchasers both need and demand. By taking the latter approach, healthcare organizations will be best-positioned to compete in their markets and win market share by offering patients, employers, and other purchasers a superior value proposition. [emphasis added]
The acquisition/affiliation focus of healthcare organizations has shifted away from market share and toward quality and cost-effective care. That is an important shift. Healthcare organizations that may have looked like good targets in the past may no longer be desirable. If an acquisition or affiliation is the goal, all parties need to make sure that their own healthcare houses are in order. Otherwise, they may be standing at the altar alone.
I’m shocked to find that hospital run care is more expensive (with apologies to Casablanca):
For the past four years, Pennsylvania insurance company Highmark has watched its bills for cancer care skyrocket. The increase wasn’t because of new drugs being prescribed or a spike in diagnoses. Instead, the culprit was a change that had nothing to do with care: Previously independent oncology clinics and private practices have been acquired by big hospital systems that charge higher rates, sometimes three times as much, for chemotherapy drugs. “The site of care and the type of service provided does not change at all,” says Tom Fitzpatrick, Highmark’s vice president of contracting. “The only significant difference that we primarily see is the [patient] gets a wristband placed on them.”
Hospitals have long charged more than freestanding medical offices for similar services. It’s part of how they pay for higher operating expenses such as running 24-hour emergency rooms. As the Affordable Care Act attempts to steer people away from pricey inpatient admissions, hospitals have begun buying up doctors’ offices in hopes of increasing their revenue and market share. The number of oncology practices owned by hospitals increased by 24 percent from 2011 to 2012. By turning what used to be independent medical offices into so-called hospital outpatient centers, hospitals are creating networks that, critics say, give them the power to set prices and ultimately raise costs for private insurers and government programs such as Medicare.
From Businessweek: Hospitals Buy Clinics, Doctors’ Practices; Higher Prices Result