|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
Updating the rules that govern hospital-physician relations
On Wednesday, the Department of Health and Human Services (HHS) announced long-awaited changes to the anti-kickback statute and the physician self-referral law (also known as the Stark law), in the form of twin proposed regulations from the Office of Inspector General (OIG) and the Centers for Medicare and Medicaid Services (CMS). The regulations mark the first significant changes in the past 30 years to the legal framework that determines how hospitals and physicians are permitted to work together. In general, that framework prohibits physicians from referring to facilities with which they have a financial relationship, a restriction that has been viewed as an obstacle to adoption of payment and delivery reforms. According to CMS, the goal of the proposals is to reduce burdensome regulation, and to encourage the transition to value-based care delivery. In particular, the changes would create permanent “safe harbors” for hospitals to provide compensation and technical support to physicians as part of Medicare and non-Medicare value-based arrangements, such as accountable care organizations (ACOs) and bundled payments, with a focus on models that include full risk or substantial downside risk. The proposed changes garnered positive early reviews from physician and hospital industry groups, as well as those involved in implementing ACOs and other value-based strategies, and will be finalized after a public comment period. Updates to the Stark and anti-kickback laws are long overdue, and these changes clarify much of the legal uncertainty we’ve heard many provider organizations complain about ever since the passage of the Affordable Care Act (ACA) and its value-based payment reforms. As HHS continues it “Regulatory Sprint to Coordinated Care”, we’ll watch for other actions intended to clear the path for innovative approaches that lower the cost of care and refocus the system on value.
How much healthcare spending is wasteful?
A new study this week in JAMA, authored by researchers at the University of Pittsburgh and the chief medical officer of insurer Humana, indicates that about 25 percent of US spending on healthcare is wasteful, and could be eliminated by targeted interventions. The study, based on a meta-review of academic literature on the topic from the past seven years, categorizes waste into six “domains” outlined in earlier work from the Institute of Medicine (IOM) and the Institute for Healthcare Improvement (IHI). In today’s dollars, the total amount of wasteful spending identified amounts to between $760B and $935B annually—equivalent to total annual Medicare spending, or what the country spends combined on primary and secondary education. The largest categories of waste were identified as “administrative complexity” (in particular billing and coding activities: $248B in waste), and “pricing failure” (the fact that prices for care are too high: $230B-$240B in waste). The study highlights proposed savings from known measures to address waste, which would amount to between $191B and $282B in waste reduction. Notably, the authors found no studies that focused on reducing administrative complexity, and so did not include that category in their proposed areas of savings.
A more expansive view of wasteful spending, meanwhile, was contained in another key study released this week by IHI, authored by a workgroup chaired by administrators at Fountain Valley, CA-based health system MemorialCare. Using a similar framework to identify areas of wasteful spending, the group identified $1T of potential savings from waste reduction measures, leading them to title their initiative the “Trillion-Dollar Checkbook”. Among the group’s leading categories for waste reduction: reducing diagnostic errors ($100B in potential savings); shifting to alternative payment models ($86B in potential savings); and addressing issues of health equity ($82B in potential savings). Beyond these lofty, but potentially difficult-to-achieve measures, the IHI study also catalogues more quotidian areas of waste, such as reducing hospital stays caused by delirium in elderly patients, reducing unnecessary electronic alerts in medical record systems, and reducing waste in blood product utilization, among others. We applaud the continued focus on wasteful spending in healthcare, and in particular the focus on known and proven approaches to address it. It’s worth remembering, however, that much of what is labeled “waste” in healthcare is tied to someone’s revenue stream—there are few areas where efforts to attack waste don’t come with a difficult conversation about reducing the amount paid to some stakeholder. Waste, it turns out, is in the eye of the beholder.
Bracing for a controversial court ruling
We’ve been keeping a close eye on the courts this week, as a ruling is expected any day now from the US Court of Appeals for the 5th Circuit in the pivotal Texas vs. US case, in which the court is reviewing the decision of a lower court that the Affordable Care Act (ACA) is unconstitutional and must be overturned. The initial ruling was based on the fact that the penalty for not carrying insurance coverage (the so-called “individual mandate”) was reduced to zero as part of tax reform legislation Congress passed in 2017. This week, the Washington Post reported that the Trump administration plans to ask for a stay if the appeals court upholds the lower court’s decision, hoping to avoid a situation in which millions of Americans lose the ACA’s insurance protections in the midst of the heated 2020 Presidential campaign. Such a request would represent yet another shift in position by the Justice Department, which first tried to narrowly target the individual mandate as unconstitutional, but then broadened its focus to more fully support the Republican state attorneys general who brought the case, arguing that the 5th Circuit should overturn the entire ACA. The appeals court heard arguments in the case in July, and a ruling is anticipated this month. “It’s not like the ruling is going to come down and the world is going to change,” the Post quotes one administration official as saying. But that appears to be just what the Trump team is worried about, particularly given the fact that the administration does not have a replacement for the ACA lined up, and now faces a Congress roiled by impeachment politics, promising little hope of passing potential stop-gap measures in case the ACA is overturned. As Democrats continue to view healthcare as their leading campaign issue, the impending ruling could create further difficulties for the President’s already challenging re-election bid. If you thought the last two weeks in politics were turbulent, fasten your seatbelts.