|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
The Great Healthcare Debates, round 2
Across two marathon nights of debate among Democratic candidates this week, it seemed as though everyone was running to be President of Healthcare. With 30 minutes on the first night and 24 minutes on the second night devoted to the topic of Medicare for All (M4A), public options, KamalaCare, Obamacare and related topics, a sharp divide emerged between progressive and moderate candidates. The M4A contingent, including Sanders, Warren, Harris, Sen. Kirsten Gillibrand (D-NY), and New York Mayor Bill de Blasio, staked out aggressive positions on the future of private insurance (diminished or abolished) and government coverage (universal or nearly-universal). The M4A advocates faced fierce critiques from moderates, who forcefully argued for building on the successes of the Affordable Care Act (ACA), and more modest proposals to allow Americans to buy into “public option” plans. During the course of the exchanges, insurance companies and pharmaceutical firms came in for the strongest criticism, while there was relatively little discussion of the contribution of hospitals and doctors to what was widely described as a healthcare cost crisis. At one point, frontrunner and former Vice President Joe Biden even seemed to suggest jailing insurance executives, although by that point in the debate it seemed as though few candidates had any clear idea what was actually being discussed, whether or not they had “written the damn bill”. There was little discussion of how to pay for any of the proposals being discussed, which could cost into the trillions of dollars, although it’s clear that some form of new tax revenue would be needed to fund almost any proposal. In general, this latest round of debates was further evidence that healthcare reform is far too complex for 60-second talking points and 15-second retorts. Nonetheless, expect more of the same in the next round, as the leading progressives come face-to-face with the frontrunning moderates. Buckle up, it’s going to be a bumpy ride.
Getting to know KamalaCare
In advance of this week’s Democratic debates, Sen. Kamala Harris (D-CA) introduced her version of “Medicare for All”, which might better be called “Medicare Advantage for All”. Building on the popularity of Medicare Advantage (MA), in which a third of seniors are already enrolled, Harris proposes offering MA coverage to everyone, not just over-65s. “KamalaCare” would have a 10-year phase-in period and launch an immediate Medicare buy-in option, as well as immediately enrolling newborns. At the end of the transition period, private insurance could only be purchased in the form of MA plans, or narrower plans that provide supplemental coverage. Harris’s strategy appears designed to ease opposition from the insurance industry, which already profits handsomely from providing private Medicare coverage. In stark contrast to the plans of Sens. Bernie Sanders (I-VT) and Elizabeth Warren (D-MA), Harris’s plan would preserve a leading role for private coverage, albeit with greater restrictions on benefit levels and out-of-pocket expenditures. The role of employer-based coverage, which remains broadly poplar and covers about half of insured Americans, remains unclear under Harris’s plan. Harris has said she views the linkage between employment and health coverage as unfair. She proposes paying for her plan through increased taxes on households making more than $100,000, stock and bond transactions, and income taxes on offshore companies. The newly-announced “KamalaCare” plan is an attempt to thread the needle between more aggressive single-payer proposals and narrower “public option” approaches being touted by moderate Democrats. We view some form of MA buy-in option as the most likely outcome, if any, of the ongoing coverage expansion debate.
New rules fill in details on the Trump transparency push
Amid a flurry of rulemaking this week, the Centers for Medicare and Medicaid Services (CMS) laid out its proposal to force hospitals to reveal negotiated rates, as directed by President Trump’s executive order issued in June. As part of the 2020 Medicare Hospital Outpatient Prospective Payment System (HOPPS) proposed rule, the agency will require hospitals to publish the list price, or gross charges, as well as the insurer-negotiated rates for all “shoppable” services online in a machine-readable format beginning in January 2020. Most noteworthy, the proposal defines a shoppable service as any “service that can be scheduled by a health care consumer in advance”, creating a broad and long list of hospital procedures and services, from simple diagnostics to complex surgeries, that would be subject to the regulation. CMS calls the proposal a “first step” toward transparency, likely bracing for significant pushback from industry stakeholders, many of whom came out against the proposal with guns blazing. Five hospital advocacy organizations, including the American Hospital Association and the Federation of American Hospitals, immediately issued a joint statement, calling it a “misguided attempt” that could “harm patients by reducing patient access to care”; payer advocacy groups listed similar concerns. Much of the criticism from industry stakeholders focuses on the inability of consumers to digest, compare and act on complex pricing information. We view that response as paternalistic on its face, and think it ignores the greater impact will come from employers, who can use the data to assemble lower-cost networks and hold insurers and providers accountable for price variability. Lobbying efforts across the comment period will surely water down the final rule and early attempts at transparency will be imperfect, but the proposal sets a clear direction toward full rate transparency, which over time is likely inevitable.
The HOPPS rule and 2020 Physician Fee Schedule proposed rule, also issued this week, included a host of other changes that would be headline news if not overshadowed by the price transparency debate. CMS removed total hip arthroplasty from the “inpatient only” list and added total knee replacements to the list of procedures eligible for reimbursement in the ambulatory surgical center (ASC) setting, opening the door for large volumes of profitable hip and knee replacements to continue move away from the hospital. CMS also continued the march toward site neutral payments, reducing payment for clinic visits performed in a hospital outpatient setting by an additional 30 percent. Setting aside last year’s controversial proposal to condense evaluation and management (E&M) code payment for clinic visits, the PFS rule includes a rate bump for the most intensive visits while holding payment for shorter visits steady, providing a significant payment boost to primary care physicians and “cognitive” specialists who manage the most complex patients—but also creating more incentive to “upcode”. Taken in full, the proposed rules are consistent with the agency’s move toward payment policies that actively direct care to lower-cost settings and facilitate healthcare market competition over voluntary incentives that nudge providers to reduce costs.