GAO: Diagnosis Code “Creep” Leads To Medicare Advantage Windfall

Today’s Managing Health Care Costs Indicator is $5.8 billion

Click on image to enlarge. Source

The General Accounting Office reported last week that Medicare Advantage (MA) plans, the private health plans that care for one in five Medicare beneficiaries, receive a windfall because of their effectiveness at coding member illnesses.  This is a quandary – capitation for Medicare members is only reasonable if there is careful risk adjustment. The Deficit Reduction Act of 2005 required risk adjustment to be phased in by 2010. 

Physicians in Medicare Advantage plans have a strong incentive to use coding to maximize the apparent illness of their patients.  Physicians in traditional Medicare are paid only based on services provided, so they have little incentive to aggressively code diagnoses.  As a result, the apparent severity of illness of Medicare beneficiaries who have chosen the private plans has increased dramatically faster than the severity of illness of Medicare beneficiaries on traditional Medicare.

It’s actually a bit worse than that. The Medicare Advantage plans put an enormous amount of energy into coaxing their participating physicians to aggressively code comorbidities during 2007-2009.  Here’s an example of how much it’s worth.  The Medicare payment goes up by 16% for diabetics, but goes up by over 50% for those who also have evidence of kidney or blood vessel involvement.   Mild diabetic kidney disease is quite common, but was rarely coded before risk adjustment.  Now, physicians participating in Medicare Advantage know that they must use the ICD9 code for diabetes with renal manifestations (250.4) at least every other year, or they will not get the maximum Medicare budget.   

Here are Medicare risk adjustment factors associated with diabetes. (See HCC_Coefficients_2009-2012)   Note that multiple comorbidities allow an additional upward adjustment, further encouraging more aggressive coding.

Click on image to enlarge.  Source 

CMS has been aware of this for some time, and as a result the agency has lowered all reimbursement to MA plans by 3.4% ($2.7 billion).  However, the GAO analysis suggests that the increased costs associated with aggressive coding are between 4.8% ($3.9 billion) and 7.1% ($5.8 billion).  

Across-the-board cuts to reimbursement to counteract differential coding aggressiveness means that all physicians associated with MA plans have to work even harder to be the most aggressive at coding complications.  If they merely code the same way as physicians participating in traditional Medicare, their reimbursement will fall each year.

The conclusion from a recent FTC analysis of gaming of risk adjustment:

Before risk adjustment, MA plans had an incentive to enroll individuals who were low cost, both along dimensions that will later be included in the formula and those that will not. Because risk adjustment increases payments for individuals with the conditions included in the formula and decreases payments for those with few or no conditions, risk adjustment lowers the payments MA plans would receive for these individuals, as they were selected to have low risk scores.

But in response to the new incentives created by risk adjustment, selection patterns into

MA change. After risk adjustment, MA plans have less incentive to avoid individuals with

the conditions included in the formula but have a greater return to enroll individuals who

have low costs conditional on their risk score. Indeed, relative to individuals who remain in FFS…MA enrollees' risk scores increase after risk adjustment, but their costs conditional on their risk score fall so much that, if anything, MA enrollees have lower total costs after risk adjustment.

There is no easy answer to this problem.  MA plans would seek the lowest risk Medicare beneficiaries if there were no risk adjustment.  However, they will seek to maximize the proceeds of risk adjustment when it is in place, and seek to select low-risk beneficiaries based on measures that are not included in the risk adjustment.  At a minimum, CMS should rebalance the risk adjustment “code creep” factor each year.  Further, CMS should consider applying this factor differentially to groups that have a high level of apparent “code creep.”  It’s possible that this could be done using ceilings on annual adjustments by group, exempting groups with very small or much-changed membership.  

The sad fact is that it’s easier to code aggressively than perform more effective medical management on the Medicare population.

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CBO Report on Value Based Payment Demonstration Projects

Today’s Managing Health Care Costs Indicator is 10%

I blogged on Tuesday about the Congressional Budget Office report on disease management and care coordination. Today, I’d like to talk about the CBO reporton four demonstration projects on value based payment.

The headline is that these demonstration projects were not very successful.  That’s no surprise – the CMS payment demonstration projects violated basic fundamentals of effective extrinsic incentives.

-        The incentive system should be transparent and easy to understand

-        The goals would be clear and achievable

-        The incentive should be available soon after the desired behavior

-        The target of the incentive should clearly be able to influence the outcome

-        The incentive should be presented independently from other payments

CMS wasn’t able to build incentives that fulfilled any of these criteria.  The demonstration projects were long, there was little feedback along the way.  None of the surgeons or hospital administrators felt abiding confidence that they could influence the outcomes. Payments were made years after savings were realized. These programs were inadvertently designed to fail.

The real surprise is that not all of them failed!

The big news is that one of these projects actually saved money!  The Medicare Heart Bypass Bundled Payment project saved 10% of the cost of bypass surgery without any sacrifice in quality.  (David Cutler’s 2010 review says 15%).  Two of the other demonstration projects showed small improvements in quality-based process measures, and one of the projects showed no significant change in either cost or quality.

Here is a description of this project from Health Affairs in 2008:

…under Medicare’s Participating Heart Bypass Center Demonstration, four hospitals in the 1990s were paid a single amount covering both hospital and physician services for CABG surgery. An evaluation showed that Medicare paid 10–37 percent less, physicians identified ways to reduce length-of-stay and unnecessary hospital costs, and patients preferred the single copayment, with no cost shifting to outpatient care.

Gail Wilensky, a former CMS Administrator, asserts that further projects of bundling payment were stymied by regulatory findings that prohibited hospitals from gain-sharing with their physicians.  That’s possible. Clearly, an incentive for the hospital that cannot be transmitted to the cardiac surgeon making decisions isn’t very promising.  Also, the demonstration project was small – and it’s possible that it wouldn’t scale.

Still, it’s a surprise that CMS has not tried to replicate this!  I suspect that hospitals weren’t especially enthusiastic for expansions of this demonstration project. Through the late 2000s cardiac surgery was a reliable profit center, and lowering revenue from this service line looked very unattractive to hospitals.  .

The CBO conclusion is that we need to move away from fee for service. The writer concludes that it’s hard to have an impact with payment reforms that leave the underlying fee for service system untouched. I agree that fee for service is highly inflationary, and bundled or capitated payment systems can help bring us more value.  See a series of posts from 2009 on this topic: Part One Part Two, Part Three

But transitioning from the fee for service will require many changes in the provider system, and is unlikely to be successful in rural areas and medical communities with little competition.  Furthermore, fee for service is likely the best way to pay for some rare or unusual conditions.   Therefore, we need to develop payment reform that is compatible with the existing fee for service system. Here’s a link to a Catalyst for Payment Reform issue brief on this topic.  

Medicare showed us through this early 1990s demonstration project how to effectively implement bundled payment for selected services in the context of overall fee for service payment.  It’s time to put that knowledge to use.

Click image to enlarge.  Source 

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The Congressional Budget Office Weighs in (Again) on Disease Management

Today’s Managing Health Care Costs Indicator is 34

The Congressional Budget Office released two important reviews of Medicare demonstration projects last week.  The first report is on disease management and care coordination, and the second is on value based pricing.   

I’ll cover the disease management and care coordination findings in today’s post, and will comment on the value based pricing demonstration projects in the next post.

There were a total of 34 different trials – enrolling almost 290,000 patients.  The first started in 2002 and the last was completed 2009.   A single project (at Mass General Hospital) showed significant savings, and a handful of projects showed lower inpatient utilization.  The programs were expensive; the CBO reports that the programs would have had to lower overall costs by 13% to break even.  You can get a sense of the financial results of these demonstration projects from the graphic below.  (Go to Page 22 of the working paper to see more details)

There are caveats, of course.  Medicare often wasn’t able to transmit timely data to the participating providers.   It’s hard to run a randomized or quasi-randomized trial in the real world; and providers could not make changes “on the fly” because of the study designs.  But these issues don’t change the headline.  The Medicare demonstration projects didn’t save the money that advocates promised.

My conclusions from this report

1)     There were many different trials targeting different patients using diverse approaches. All of the patients were Medicare beneficiaries who are old and are often ill – so the opportunity to improve care was large.  If it’s this hard to demonstrate impressive savings in this population – it will be harder still to show savings from similar interventions on a younger and healthier population. 

2)     The interventions were expensive.  Medical management efforts either have to be very tightly focused (but predictive modeling is notoriously unreliable) or the interventions have to be low-priced.  The CMS demonstration projects were neither

3)     The success of interventions had at least some relationship to proximity to care delivery.  It’s better for a medical management intervention to be delivered by (or with ) the health care system than by a third party on its own. Here’s an essay I wrote about this in 2005)
4) Surprising to me, "at risk" programs were no more likely to lower overall Medicare costs than programs where the program would not have to repay management fees if costs were not reduced.

My recommendations based on this report:

1)     CMS should continue to do demonstration projects.  Careful measurement is crucial to our making the right investments in the right care management.  

2)     CMS and private payers and employers should carefully measure the results of their   medical management programs.  Just because a program seems like it should work doesn’t mean it will! 

3)     Medical management programs need the engagement of patients, their families, and physicians.  Programs that are designed without connection to the provider community and engagement strategies for patients are unlikely to succeed.

Click on image to enlarge.  Source 

Next post: Value Based Payment Demonstration Project 

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Day Five of Good News: Health Care Fraud

Today’s Managing Health Care Costs Indicator is $3 billion

Health care fraud is rampant and unconscionable.  Fraud fighters have made real progress in the last year.  

Many commentators think 10% or more of total health care costs represent actual fraud – as much as $250 billion a year. We’re not talking about honest mistakes (such as billing for a C-section that was necessary and actually performed but using the wrong code). We’re not talking about ‘abuse,’ such as billing for a laboratory test that was actually performed but medically necessary.  We’re talking about downright heists, like setting up a fake laboratory company, purchasing patient Medicare numbers, billing and collecting reimbursement, and shutting down the operation before anyone asks any questions. (Great Reuters story about these phantom firms at this URL)

The good news is that health care fraud is becoming more difficult due to aggressive enforcement action by the federal government, many state governments, and many private health plans.  The Department of Justice has had the second year of record settlements, including a $3 billion settlement with Glaxo Smith Kline for improper marketing of the diabetes drug Avandia, which has been associated with increased risk of heart failure.

1. Here’s why I believe health care fraud will decline in the coming years
2. New dollars for fighting health care fraud as part of the Affordable Care Act.  
3.  Improved technology to detect fraud before payment, and willingness to submit claims to preadjudication audit. Medicare and health plans historically paid bills and then “chased” fraudulent providers after the fact. In many instances, that was simply too late
4. Transition to bundled payment, which is less amenable to fraud than fee for service
5.  Increased transparency – which will make some of the egregious cases visible to journalists who can start the investigation ball rolling

Here’s a list of pending health care fraud settlements from an advocacy group, Taxpayers Against Fraud.  

Health care represents such a large part of the economy that it will never disappear.  However, I believe that current efforts are already paying off.

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Good News Day Three: The Return of Provider Risk

Today’s Managing Health Care Costs Indicator is $1.1 billion

The Centers for Medicare and Medicaid Services recently announced that the Pioneer ACOs could save $1.1 billion over the next five years.   Blue Cross Blue Shield of Massachusetts has declared its Alternative Quality Contract a big success.  Physicians and hospitals across the country are at least asking the question “Can we deliver excellent health care and use fewer resources?”

Do I believe that the Pioneer ACO will save $1.1 billion?  I do not.

Did the AQC in Massachusetts save any money in its first year?  No

Still, this is great news!  Physicians and hospitals determine the resources that will be used in delivering health care.  The combination of the Affordable Care Act, state government shortfalls, and pressure from employers unable to tolerate continuing increases in health care expenses is driving the provider community to consider global budgeting – which was known in a different bygone age as capitation. 

Providers have shown that they can lower costs and improve quality when the incentives are aligned. See this post on Caremore earlier this fall.  Providers also can make health care a fertile environment for disruptive innovation – just as our current fee-for-service system only encourages accretive innovation.

Increased provider risk-sharing is highly likely to lead to improvements in the value delivered by our health care system.  And this year there seems to be substantial movement toward more provider risk sharing.

Who says I can’t be optimistic?

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Affordable Care Act and Pharmacy Savings

Today’s Managing Health Care Costs Indicator is $1.5 billion

I’ve been on the road early this week – where I see a lot more of USA Today. The top of the fold Tuesday trumpeted “Health Care Law Changing Behavior.”    The article itself mostly recounts pharmacy savings from the ACA, and briefly mentions full coverage for preventive care in some of the last paragraphs.

The article states that Medicare beneficiaries saved $1.5 billion this year (through August) because of the 50% discount on brand name drugs that are purchased within the “donut hole,” where cost of outpatient drugs are entirely the patient’s responsibility. The donut hole is between $2700 and $6154.  CMS states that the average saving was $569 per person.

Where did these savings come from?   The ACA included mandatory price cuts for seniors who are in the “donut hole,” and thus the funding for this comes from the brand name pharmaceutical industry.   This isn’t all a giveaway, though, by any means.   Lower priced brand name drugs for those on multiple prescriptions is a great deal if there are no generic equivalent.  However, generics tend to be 90% less expensive than brand names – so a 50% discount on a brand name remains a bad deal for seniors.

I suspect the $569 is the average savings for those who had any savings – because a bit over half of Medicare beneficiaries does not hit the $2700 in eligible outpatient pharmacy expenses.

The pharmaceutical industry made a deal early to support what became the Affordable Care Act.  PHaRMA agreed to some price concessions, but gained many more elderly with meaningful drug coverage. Out of pocket costs went down by more than 20% for seniors, leading to a bit over a 5% increase in overall drug utilization.    Marginal costs to produce drugs are very low- so these extra customers are very important to industry profitability.

Has there been behavior change?  Perhaps.  But the USA Today reporter didn’t probe very hard. Catch this quote.  

“Seniors are becoming more engaged in their care, [CMS director Jonathan] Blum said, citing the hundreds of forums Medicare has conducted about the changes.”

I’m guessing the benefit design of full coverage for preventive care might change behavior more than the hundreds of forums!

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Don Berwick’s Exit Interview

Today’s Managing Health Care Costs Indicator is 5

Don Berwick ended his 17 month run as Center of Medicare and Medicaid Services Administrator –and it’s too bad that we won’t have his willingness to be disruptive and his vision to lead CMS through these critical next few years.

Kaiser Health Networks praises Berwick for his top 5 accomplishments:

1. Made CMS less bureaucratic and more responsive
2. Made CMS a force for U.S. health improvement.

3. Pushed hospitals to improve patient safety. 

4. Started to move Medicare from paying by the procedure to paying based on outcomes. 

5. Encouraged "innovative" health care delivery models

Perhaps to be symmetrical, Berwick gave an interview to the New York Times as he was packing his bags, and noted that “20 percent to 30 percent of health spending is “waste” that yields no benefit to patients.”  He cited five key areas of waste in health care.

Berwick’s top five list, with my annotation.

1. Overtreatment of patients

There is certainly plenty of overtreatment – especially in Medicare patients at the end of life.  Much of the underlying reason is cultural –and cultural changes take a long time.

2. Failure to coordinate care

The sickest  1% of our population represents 20% of costs –and patients are on polypharmacy (more than 8-10 medications a day), and it’s hard to find a hospital discharge that includes appropriate discharge instructions. 

3. Administrative complexity

By definition a system that has multiple payers will be complex- and the Affordable Care Act increases that complexity further through a series of regulations to protect patients – but which require compliance efforts that some will find burdensome. 

4. Burdensome rules

One person’s burdensome rules are another’s critical protection.   Some rules can simplify choices (like Massachusetts’ requirement that plans offered by the health care exchange are easily comparable), while others just make for higher cost (like requiring an RN or MD license to give injections, even though medical assistants are well trained for this).  We’ll have to take a surgical scalpel to rules, not a bulldozer.  

5. Fraud

Fraud is certainly rampant in health care, and health plans and Medicare are doing a better job of ferreting it out.  Fraud settlements are the highest they’ve ever been in the last two years.  Building fraud detection into payment systems, rather than waiting for someone to complain, is critical.  There are tradeoffs in combating fraud, too.  Some systems to interdict fraud might delay payment to legitimate providers, and could increase the cost of providing care. 

This is a good list, but it’s not exhaustive.  I was surprised and a bit happy not to see variation on the list.  It’s pretty hard to get to rural Minnesota levels of utilization in urban Boston or New York – but that type of variation is usually included in estimates of health care waste.   Just because there’s waste, doesn’t mean that it will be easy to remove that waste.    I was also surprised not to see medical errors and health care acquired complications and infections.   Berwick, as the CEO of the Institute for Healthcare Improvement and as CMS Administrator, has worked tirelessly to reduce health care complications, and there is still plenty of work left to do.   

Don Berwick, I’m sure, will still be working to improve health care in his next role.

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New Prostate Cancer Vaccine : Quadrant Four Medicine

Today’s Managing Health Care Cost Indicator is $93,000

The Washington Post has a thoughtful article this morning about a new prostate cancer vaccine, Provenge.  The vaccine must be individualized for each patient, and the price has been set at $93,000 per person (each receives just a single dose). Average life expectancy increase using Provenge is 4 months.

This is great news. Individualized medicine is here!  The promise recounted in Jerry Groopman's Dr Fair's Tumor (1998,  New Yorker) is finally available for the masses.   This drug will be very desirable for people with terminal metastatic prostate cancer, their families, and their providers.   It's also good news for those of us who will get other cancers - where this type of technology could be life-saving or life-prolonging.

The good news, of course, carries a steep price tag.  The increased life expectancy means that Provenge will cost substantially over $300,000 per quality adjusted life year. ($93K *3, and assume that for someone with terminal prostate cancer, each surviving month will be at least slightly discounted because of suffering or disability associated with the cancer).     That's far more than we usually spend -and a price point that could leave us unable to invest in other health care initiatives with as much or more promise.  Even this steep price tag can be good for those with cancer, though.  Such a high price encourages more investment in future biologics to treat cancer.

Most prostate cancer is in those over 65, so Medicare's payment approach for Provenge will determine whether this drug is used commonly, or whether it is available to only the superrich.   Medicare has established  a  national coverage analysis for this product, and will have a public hearing later this month.  If Medicare makes a national coverage determination, it will be binding on all Medicare intermediaries across the country.

This is a good example of a "quadrant four" decision. It's much like Folotyn, another recent cancer therapy priced similarly.

It's easy to decide to push more quadrant one therapies (increase quality while decreasing costs). The problem is that we don't have enough of them!  It's easy to decide to prevent quadrant three therapies (increase cost while lowering quality).   It's tough to decide to push medical decisions in quadrant two (where quality is lowered a tad for a huge price savings).   It's also tough to forgo incremental quality at any price - even a high one. 

There is rumbling that having a national coverage analysis is akin to having Don Berwick, the head of CMS, convene a 'death panel.'    We need to have a sensible national discussion about what price we can afford to pay for incremental health . But it's hard to do that, especially when patients have much more compelling stories than a bunch of dry statistics that only an accountant could love.   

The conversation about limits to the resources we want to dedicate to health care will be a difficult one.  We're likely not ready for it. 

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Don Berwick

The Boston Globe reported today that Republicans will oppose Don Berwick’s nomination as the head of the Centers for Medicare and Medicaid Services (CMS) by accusing him of being “an advocate for rationing care.”

Nothing could be further from the truth.  

In most industries, it is well accepted that the highest quality requires minimizing waste.   However, in health care there has been a real divide between those who devote their careers to improving quality, and those who devote their careers to minimizing waste.    That’s starting to change, and the Institute of Medicine defined quality as Safe, Timely, Effective, Efficient, Equitable and Patient Centered.  That’s a good sign indeed.   

Don Berwick is a pioneering prophet of quality who recognized early that controlling waste, and keeping health care affordable, is critical to quality.  He has written (eloquently) about the “triple aim” of improving the experience of care, improving the health of populations, and reducing per capita costs of health care.”   His organization, the Institute for Healthcare Improvement, has helped spread knowledge, best practices, and the gospel of reducing errors and complications to save lives (and money).

We clearly need a CMS Administrator who cares deeply about quality, and who also understands the centrality of reining in our out-of-control costs.  It won’t be an easy job, because unnecessary costs in one person’s eyes are income to someone else.   Don Berwick can do this job.  We’re lucky he’s willing to try.

We must all agree that to guard our country's future financial health (and decrease the future deficit) we must control health care costs. Demagoguery accusing anyone who cares about costs of rationing, or death panels won't help. 

Berwick was prescient in Health Affairs in 2008 when he wrote:

WHETHER OR NOT THE TRIPLE AIM is within reach for the United States has become less and less a question of technical barriers. From experiments in the United States and from examples of other countries, it is now possible to describe feasible, evidence-based care system designs that achieve gains on all three aims at once: care, health, and cost. The remaining barriers are not technical; they are political. 

6-9-10: Addendum. Doctors For America (offshoot of Obama's election committee) has a petition in favor of Senate confirmation at http://drsforamerica.org/petition/berwick_letter.php 

It's also worth reading his essay "My Right Knee," available free at the Annals of Internal Medicine web site. 

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CMS: 2008 Medical Inflation Much Lower

The Centers for Medicare and Medicaid studies released its report on health care spending in 2008 – published in Health Affairs on Monday and covered extensively in the press.   The good news is that health care inflation overall was lower than it’s been for years (4.4%).  The bad news is that health care inflation continued to outpace growth in the economy – so health care moved from 15.9% to 16.2% of GDP. 

Some of the conclusions that have been widely reported 

- Health care is not immune to the effects of severe recessions

- Hospital inflation decreased to 4.5% - and hospital prices only went up 3%

- Physician services increased by 5% - the slowest rate since 1996.  Medicare physician spending, however, increased by 7.8%

- Prescription drug spending increased only 3.2% - continuing a trend of relatively low pharmaceutical inflation with the onset of many new generics and without big blockbusters coming out of the pipeline. Still, most of this increase was price (2.5%) as opposed to utilization.

-Medicare spending was up 8.6% - and growth in Medicare Advantage plans played a role.  Big cuts in Medicare Advantage reimbursement in health care reform could now have an impact on more constituents.

- Medicaid spending increased.

One observation that has not been covered extensively.  The government pays much lower rates (especially Medicaid). Therefore, a shift of a patient from commercial health insurance plans to Medicaid could  easily mean a decline of 50% in reimbursement to many hospitals.  If providers shift these costs by charging private insurers more, then there are no “real” savings.  On the other hand, if providers see decreases in revenue and reengineer their processes to allow for sustainability at lower reimbursement, then the increased government role should lower unit prices.

I’ve often blogged about the problem we have with unit price in the United States.  The CMS article has a great graphic (below) showing the role that price inflation (compared to utilization inflation) has played over the last 30 years.

 (click the image to enlarge it)

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