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Cost Containment and the Patient Protection and Affordable Care Act

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Title: Cost Containment and the Patient Protection and Affordable Care Act


1
Cost Containment and the Patient Protection and
Affordable Care Act
  • Innovation, Business Law Colloquium
  • Health Care Reform Act
  • David Orentlicher, MD, JD
  • Visiting Professor of Law
  • University of Iowa College of Law
  • September 23, 2010

2
On one hand
  • The legislation puts into place virtually every
    cost-control reform proposed by physicians,
    economists, and health policy experts.
  • Orszag Emanuel (2010)

3
On the other hand
  • "The job of figuring how to cover uninsured
    people used up all the political oxygen that was
    available. They didn't have the energy for
    costs."
  • Alan Sager, quoted by McClatchy-Tribune News
    Service, April 1, 2010

4
Cost containment
  • Outline of todays class
  • The cost problem
  • Is PPACA the solution?
  • If not, how else might we contain costs?
  • What constraints does the law place on cost
    containment strategies?

5
Cost containment
  • Outline of todays class
  • The cost problem
  • Is PPACA the solution?
  • If not, how else might we contain costs?
  • What constraints does the law place on cost
    containment strategies?

6
The highest spending country
  • Health care spending in economically-advanced
    democracies
  • US 7,290/capita 16 of GDP
  • Switzerland 61 of US 67 of US
  • Canada 53 of US 63 of US
  • Germany 49 of US 65 of US
  • Japan 35 of US 51 of US
  • New Zealand 34 of US 57 of US
  • OECD Health Data 2009 (2007 data except 2006 for
    Japan)

7
Total expenditure on health per capita (US PPP)
OECD, 2006
8
Total expenditure as GDP
OECD, 2006
9
The cost problem
  • What do we get for our money?

10
Inadequate return on our health care
  • US health system is less efficient than systems
    in
  • Spain, France, Germany, Austria, Italy
  • UK, Denmark, Norway
  • Japan, China, Australia
  • Canada, Mexico, Colombia, Venezuela
  • Evans, et al. 2001
  • US patients treated in higher-cost communities
    have similar outcomes to US patients in
    lower-cost communities
  • Gawande 2009

11
(No Transcript)
12
Infant mortality per 1,000 births
OECD, 2006
13
Total preventable years of life lost per 100,000
pop.
OECD, 2006
14
Quality of care
  • Breast cancer, 5-year survival rate
  • US-90.5, Canada-87.1, Japan-86.1,
    France-82.8, UK -77.9
  • Colon cancer, 5-year survival rate
  • Japan-67.3, US-65.5, Canada-60.7,
    France-57.1, UK-50.7
  • Asthma hospitalization rate (per 100,000 pop.)
  • US-120, UK-75, Japan-58, France-43, Canada-18
  • Diabetes hospitalization rate (per 100,000 pop.)
  • US-57, UK-32, Canada-23, Germany-14, Italy-11

15
Inadequate return on our health care
  • Not because were less healthy

16
of pop. daily tobacco smokers
OECD, 2006
17
Alcohol consumption (liters per capita)
OECD, 2006
18
of pop. 65 years or older
OECD, 2006
19
of pop. 19 years or younger
OECD, 2006
20
Obesity rates
21
Overall effect of health status
  • Americans overall are less healthy, but this is
    only a small part of our higher health care costs
  • McKinsey Company study found that disease
    burden adds 25 billion in health care costs for
    treatment of disease (out of 2.5 trillion in
    health care spending)

22
Why are costs higher in the US?
23
Higher prices in US
  • Costs are higher in US in large part because
    prices for health care services are higher
  • Single-payer systems can bargain more effectively
    with doctors, hospitals and pharmaceutical
    companies
  • Can also have enforceable spending targets via
    all-payer regulation (Oberlander and White
    2009)
  • Higher ratio of specialists to primary care
    physicians in US
  • Probably reflects high ratio of specialist pay to
    primary care pay (Vladeck 2010)
  • High costs of medical education also may be
    important (Peterson and Burton 2007)

24
Greater use of surgical procedures and expensive
diagnostic tests
  • More procedures to treat blocked coronary
    arteries (twice OECD avg.), more knee
    replacements (50 above OCED avg.), and more
    cesarean sections (25 above OECD avg.)
  • Increase in outpatient surgery centers very
    important
  • More MRI exams (more than twice OECD avg.) and
    more CT exams (more than twice OECD avg.)
  • OECD Health Data 2009 and Peterson and Burton 2007

25
Structural contributors to high costs
  • Insurance gt Price-insensitive consumers
  • If treatment costs 100 and yields a value of
    75, it shouldnt be providedbut if the patient
    only pays 25 and receives the 75 value, it will
    be worth it to the patient
  • Americans pay more total dollars out of pocket,
    but we generally pay a smaller percentage of our
    health care costs out of pocket (i.e., through
    deductibles and co-payments) (premium payments
    are not included)
  • France-8, US-13, Germany-13, Canada-15,
    Japan-17, Switzerland-32 (Peterson and Burton
    2007)

26
Structural contributors to high costs
  • Fee-for-service reimbursement gt
    Quality-insensitive physicians and hospitals
  • When physicians and hospitals are paid more to do
    more, regardless of outcome, theyll do more
  • Especially when they lose money on higher quality
    care (Urbina 2006)
  • Example of clinic that switched from salary to
    commission on fees generated and doctors
    scheduled more appointments and ordered more
    blood tests and x-rays (Hemenway 1990)

27
Cost containment
  • Outline of todays class
  • The cost problem
  • Is PPACA the solution?
  • If not, how else might we contain costs?
  • What constraints does the law place on cost
    containment strategies?

28
PPACA and cost control
  • Many different provisions designed to contain
    costs
  • Serious question whether they really address the
    cost problemPPACA doesnt take on the major
    drivers of higher costs other than to some extent
    through demonstration projects

29
Permanent reductions in Medicare reimbursement
rates ( 3401)
  • Applies to hospitals, nursing homes and other
    facilities
  • Every year, payment rates are adjusted to reflect
    increases in the operating costs of health care
    facilities
  • The increases have been calculated from a market
    basket of goods and services that the facilities
    purchase (with reductions for failure to file
    quality data and other technical adjustments)
  • Under PPACA, a productivity adjustment will be
    made based on economy-wide productivity gains
    (which are greater than in health care)there
    also will be a ten-year further reduction in the
    update percentage (0.10 to 0.75 percent per year)
  • Estimated savings 196 billion

30
Permanent reductions in Medicare reimbursement
rates ( 3401)
  • Note that PPACA provisions reflect a mix of
    policy and politicssee the annual reductions in
    update percentages
  • 2010 0.25 2015 0.20
  • 2011 0.25 2016 0.20
  • 2012 0.10 2017 0.75
  • 2013 0.10 2018 0.75
  • 2014 0.30 2019 0.75
  • After 2019, IMAB recommendations due to kick in

31
Reduction in payment rates for Medicare Advantage
program ( 3201)
  • Medicare Advantage is an option for Medicare
    recipients to enroll in a private health care
    plan rather than choosing traditional,
    fee-for-service Medicare (Part C of Medicare)
  • While the idea was to provide a more-efficient,
    lower-cost option, Medicare Advantage plans have
    turned out to be more expensive (up to 150 of
    traditional Medicare)
  • The low-hanging fruit of cost savings
  • Estimated savings 135 billion

32
Part B Medicare premium calculation for
high-income recipients ( 3402)
  • Part B of Medicare covers physician fees,
    laboratory fees and other outpatient services
  • Most Medicare recipients pay 25 percent of the
    Part B premium currently, higher income
    recipients pay between 35 and 80 percent of the
    Part B premium.
  • PPACA freezes the income thresholds for
    higher-income premiums at 2010 levels for ten
    years before resuming annual adjustments for
    inflation.
  • Estimated savings 25 billion

33
Reduction in disproportionate share hospital
(DSH) payments ( 3133 )
  • DSH payments are made to hospitals that treat a
    disproportionate share of low-income patients
  • Originally introduced to compensate hospitals for
    higher costs of treating low-income patients now
    justified as a way to maintain access to care for
    low-income patients
  • Estimated savings 22 billion

34
Independent Medicare Advisory Board (IMAB) (
3403)
  • IMAB will develop proposals to keep Medicare
    spending within statutory targets, and proposals
    will automatically take effect unless Congress
    adopts substitute provisions
  • Proposals may not ration health care, raise costs
    to recipients, restrict benefits or modify
    eligibility criteria
  • IMAB also will provide Congress with
    recommendations for slowing the growth of health
    care spending in the private sector.
  • Estimated savings 16 billion by 2020, more
    substantial after that (assuming it works)

35
Independent Medicare Advisory Board (IMAB) (
3403)
  • Concerns about IMAB
  • Will IMAB focus on short-term fixes rather than
    long-term changes that really can bend the cost
    curve?
  • Will Congress bypass the IMAB process and
    authorize increases in funding through
    independent legislation?
  • Are the limitations on the kinds of proposals
    that IMAB can develop too restrictive?
  • Will cuts in reimbursement reduce patient access
    to physicians?

36
Patient-Centered Outcomes Research Institute (
6301)
  • Created to promote comparative-effectiveness
    research (CER)
  • Research that evaluates and compares the patient
    health outcomes and benefits of two or more
    medical treatments or services
  • Responsibilities include
  • Setting priorities for CER and funding CER
    studies
  • Analyzing data from CER studies and reporting to
    the public on the significance of the study
    results

37
Patient-Centered Outcomes Research Institute (
6301)
  • The Institute may not recommend coverage changes
    or other policies based on its analyses, but
  • Medicare and Medicaid may consider the
    Institutes analyses in determining coverage
    policies as long as
  • No denial of coverage solely on the basis of
    CER
  • Coverage decisions do not treat the lives of
    elderly, disabled or terminally ill individuals
    as having lower value

38
Can the CER institute become our NICE?
  • NICE evaluates the cost-effectiveness of medical
    therapies and approves those that are
    sufficiently cost-effective for Britains
    National Health Service
  • Treatments are cost-effective if they provide 1
    QALY for no more than 20,000 (now 31,250)
  • Sometime, NICE approves treatments up to 30,000
    (46,900) per QALY
  • Rarely, NICE approves treatments beyond 30,000
    per QALY
  • NICE has approval authority, while the CER
    institute can only issue reports

39
Whats a good buy?
Expensive more than 100,000/QALY Reasonable
50,000/QALY (UK upper limit
47,000) Very Efficient less than
25,000/QALY Most writers use 50-100,000 as
upper limit of good value, but public preferences
suggest upper limit over 200,000. Hirth RA, et
al., Medical Decision Making. 200020332-342
40
Some sample QALYs (2002 dollars) Harvard Public
Health Review (Fall 2004)
  • lt 0 (If the cost per QALY is less than zero, the
    intervention actually saves money) Flu vaccine
    for the elderly
  • Under 10,000 Beta-blocker drugs post-heart
    attack in high-risk patients
  • 10,000 to 20,000 Combination antiretroviral
    therapy for certain patients infected with the
    AIDS virus
  • 15,000 to 20,000
  • Colonoscopy every five to 10 years for women age
    50 and up
  • 20,000 to 50,000 Antihypertensive medications
    in adults age 35-64 with high blood pressure but
    no coronary heart disease
  • Lung transplant in UK (Anyanwu AC et al. J
    Thorac Cardiovasc Surg 2002123411-420)
  • 50,000-100,000 Dialysis for patients with
    end-stage kidney disease
  • Antibiotic prophylaxis during dental procedures
    for persons at moderate to high risk of bacterial
    endocarditis (88,000) (Med Decis Making.
    200525(3)308-20)
  • Over 500,000 CT and MRI scans for kids with
    headache and an intermediate risk of brain tumor

41
COST/QALY Selected Medicare services
42
Cost of treatment for metastatic colon
cancer (Schrag D. NEJM. 2004351317-319)
43
Examining the cost and cost-effectiveness of
adding bevacizumab (Avastin) to chemo in
metastatic colon cancer
  • Randomized trial compared chemotherapy alone vs.
    chemotherapy bevacizumab
  • Bevacizumab regimen prolonged median survival
    from 15.6 to 20.3 months (plt0.001)
  • Cost of extra 4.7 months?
  • 101,500 (assuming 5,000 per month for
    bevacizumab)
  • 259,149 per year of life gained (not quality
    adjusted)
  • NICE decided not to recommend for NHS coverage

44
Examining the cost and cost-effectiveness of
adding bevacizumab (Avastin) to chemo in advanced
non-small cell lung cancer
  • Randomized trial compared chemotherapy alone vs.
    chemotherapy bevacizumab
  • Bevacizumab regimen prolonged median survival
    from 10.2 to 12.5 months (p0.007)
  • Cost of extra 2.3 months?
  • 66,270-80,343
  • 345,762 per year of life gained (assuming
    66,270 cost)
  • Grusenmeyer PA, Gralla RJ. J. Clin. Oncology.
    200624(18S)6057.

45
Can the CER institute become our NICE?
  • Cost-effectiveness decisions are controversial
  • Prohibited under PPACA from being used as sole
    basis for denying coverage in federal programs
    (6301)
  • Oregon Health Care Plan
  • Ended up with fairly generous basic coverage
  • Mammography screening guidelines in 2009 (even
    though cost wasnt a factor)
  • US Preventive Services Task Force recommended
    that routine screening begin at age 50 instead of
    age 40
  • The tragic choices problem (Orentlicher 2010)
  • Its difficult to make life-and-death decisions
    openly

46
PPACA demonstration projects
  • Bundled payments for hospital care and for the
    month following discharge (capitation lite)
    (2704 and 3023)
  • Capitation payments instead of fee-for-service
    reimbursement (2705)
  • Incentives for doctors and hospitals to form
    accountable care organizations (financial rewards
    for higher quality and/or lower cost care) (2706
    and 3022)
  • Will integrated systems exploit market power to
    maintain revenues rather than to introduce
    efficiencies and reduce costs?

47
Quality-adjusted payments under PPACA
  • Incentive payments to hospitals that meet
    specified performance standards (3001)
  • Adjustments to physician reimbursement based on
    quality and cost of care provided (3001)
  • Expansion of reports to physicians that indicate
    how their use of resources in patient care
    compares to use by other physicians (3003)
  • Lower payments to hospitals with high numbers of
    patients who become sicker because of their
    hospital care (3008)
  • Lower payments to hospitals that have excessive
    numbers of patients readmitted to the hospital
    after discharge (3025)

48
Quality-adjusted payments
  • Pay for performance so far has a mixed track
    record
  • Its difficult to assess quality of caredid a
    patient do well because of or despite the
    doctors intervention?
  • Often, process-based measures are used, but those
    need continual updating
  • Impact has been modest to date

49
Tax on high-cost health plans (9001)
  • Starts in 2018
  • Imposes a 40 percent tax to the extent that the
    value of coverage exceeds a threshold amount
  • The threshold starts at 10,200 for individuals
    and 27,500 for families (which is about double
    the average cost for health care coverage)
  • The threshold amount is adjusted upward for
    health care cost inflation and higher costs of
    the individuals risk pool
  • Estimated revenues 32 billion in 2018 and 2019

50
Concerns about the Cadillac tax
  • High costs of high-cost health plans may reflect
    health status of the workforce and health care
    costs of the community rather than the richness
    of the benefits
  • Gabel, et al. 2010
  • Reducing tax subsidies for health care insurance
    may have a regressive effect (i.e., the higher
    taxes may represent a higher percentage of income
    for lower-income persons)
  • Himmelstein Woolhandler 2009 Gabel, et al. 2010

51
The bottom line under PPACA
  • Between 2009 and 2019, health care spending is
    projected to increase 0.2 as a result of PPACA
  • But
  • Health care coverage is projected to increase by
    32.5 million
  • After the big increase in spending in 2014 for
    the newly insured, health care spending is
    projected to grow by 6.7 rather than 6.8
    between 2015 and 2019
  • Sisko, et al. 2010
  • Of course, these are projections that may or may
    not come to fruition

52
Cost containment
  • Outline of todays class
  • The cost problem
  • Is PPACA the solution?
  • If not, how else might we contain costs?
  • What constraints does the law place on cost
    containment strategies?

53
Cost containment strategies
  • If main drivers of high costs are physician
    incentives to provide excessive care and patient
    incentives to demand excessive care, we should
    employ policy changes to remove these incentives
  • Changes in physician incentives
  • Salary or capitation for physicians (combined
    with quality measures to avoid under-provision of
    care)could increase physician pay and still
    lower overall costs
  • Capitation would address problem of too many
    prescriptions for expensive drugsCER institute
    important here too
  • Limits on hospital beds, surgical suites, MRI
    scanners and other facilities

54
Financial incentives for patients?
  • If people are not sufficiently sensitive to costs
    because of insurance, should we use health
    savings accounts or other mechanisms to give
    patients more skin in the game?
  • Raising out-of-pocket costs reduces patient
    demand for care, but
  • Patients do not always distinguish between
    necessary and unnecessary care
  • Caps on out-of-pocket costs prevent patient
    sensitivity to costs of high-cost services (e.g.,
    heart surgery, cancer chemotherapy)
  • Buntin et al. 2006

55
VA Reengineering Strategy
  • Define and set practice standards that have been
    shown to result in better patient outcomes
    (including elimination of wasteful hospital and
    pharmacy spending)
  • Monitor performance and measure outcomes (with
    both internal and external oversight)
  • Reward good performance and manage
    under-performance
  • Optimize use of technology (electronic records,
    reminders)
  • Promote patient safety initiatives to reduce
    medical error

56
Cost containment
  • Outline of todays class
  • The cost problem
  • Is PPACA the solution?
  • If not, how else might we contain costs?
  • What constraints does the law place on cost
    containment strategies?

57
Legal constraints on cost containment strategies
  • Legal constraints may exist when physicians make
    decisions on the basis of costs on a case-by-case
    basis (as with the closure of ICU beds in the
    Singer study) and take the patients poor
    prognosis into accountthe disparate treatment
    problem
  • University Hospital, Glanz, Baby K, and Causey
  • Legal constraints also may exist when cost
    containment policies are adopted that have a
    greater effect on persons who are sickerthe
    disparate impact problem
  • Alexander

58
Protection for the disabled against
discrimination--disparate treatment
  • In University Hospital , doctors and parents
    decided against surgery for a newborn thought to
    have a severe and permanent neurologic disability
  • The US argued that this involved discrimination
    on the basis of disability (in violation of 504
    of the Rehabilitation Act)other children with
    normal neurologic development would have received
    the surgery
  • But whats the relevant comparison? You have to
    treat similar people similarly, but you dont
    have to treat different people similarly. In
    other words, was the withholding of surgery based
    on relevant or irrelevant differences between
    Baby Jane Doe and other infants?

59
Protection for the disabled against
discrimination--disparate treatment
  • The University Hospital court rejected the 504
    claim on three grounds
  • Congress did not intend 504 to apply to medical
    treatment decisions (pp.136-137 of HCLE excerpt)
  • The problem that was being treated was related to
    the disabling conditionthe disability gave rise
    to the need for treatmentthus, the disability
    was not an irrelevant factor (pp.135-136 of HCLE
    excerpt)
  • The hospital was willing to perform the surgery
    if the parents agreed (p.137 of HCLE excerpt)

60
Protection for the disabled against
discrimination--disparate treatment
  • Glanz took a different--and more
    sensible--approach to the 504 question than did
    University Hospital.
  • In Glanz, a doctor refused to perform ear surgery
    on a patient because of an HIV infection, which
    was the patients disabling condition.
  • According to the doctor, the disability
    compromised the patients ability to benefit from
    treatmentthe HIV infection raised the patients
    risk of infection from the surgery
  • According to the court, ability to benefit from
    treatment was a relevant considerationleaving
    the question open as to how much of a
    consideration

61
Protection for the disabled against
discrimination--disparate treatment
  • Baby K and Causey illustrate concerns that
    discriminatory treatment decisions may arise
    under the guise of futility claims by doctors
    or hospitals
  • In a futility case, the doctor or hospital argues
    that there is insufficient benefit from treatment
    for the patient (medicine has nothing to offer)
  • But in many cases, the real concern is the costs
    of care

62
Protection for the disabled against
discrimination--disparate treatment
  • In Baby K, a hospital did not want to ventilate
    an anencephalic child (but it was willing to
    provide artificial nutrition and hydration to the
    child)
  • The court invoked EMTALA which requires
    stabilizing treatment in all emergencies
  • The court observed that the hospital would have
    ventilated other children with similar breathing
    difficulties
  • Note the contrast with University HospitalBaby
    Ks breathing difficulties were related to her
    anencephaly just as Baby Jane Does need for
    surgery was related to her disability

63
Protection for the disabled against
discrimination--disparate treatment
  • In Causey, a hospital withdrew dialysis and
    ventilation from a comatose woman with a 1-5
    chance of regaining consciousness and a life
    expectancy of up to two years.
  • The court rejected the concept of futility on the
    ground that it entails non-medical, value
    judgments
  • Rather, the court held that doctors can withhold
    treatment when it is not part of the medical
    professions standard of care (p.632 of HCLE
    excerpt)
  • Note the contrast with the Baby K court, which
    rejected a defense based on the professional
    standard of care

64
Protection for the disabled against
discrimination--disparate treatment
  • Putting all of the cases together, we end up with
    a majority of courts deferring to medical
    judgment, especially if there is evidence that
    the decision is based on the patients diminished
    ability to benefit from treatment (Glanz)
  • Also, courts are more deferential when hospitals
    implement decisions and are then sued rather than
    asking the court to approve the denial of care in
    advance

65
Protection for the disabled against
discrimination--disparate impact
  • Alexander gave a green light to across-the-board
    coverage restrictions that have a disparate
    impact on persons with disabilities
  • In Alexander, Tennessee capped hospitalization
    for Medicaid recipients at 14 days per year
  • Disparate impact because only 7.8 of
    non-disabled persons who were hospitalized needed
    more than 14 days, while 27.4 of disabled
    persons who were hospitalized needed more than 14
    days
  • Plaintiffs argued that the disparate impact was
    gratuitousonly ten states imposed such limits

66
Protection for the disabled against
discrimination--disparate impact
  • The Supreme Court held (in a unanimous decision
    authored by Justice Thurgood Marshall) that
  • 504 protects against some instances of disparate
    impact discrimination
  • Persons with disabilities must be provided
    meaningful access to the services offered
  • Tennessees durational limit provides meaningful
    access14 days of hospitalization is sufficient
    for 95 of disabled recipients of Medicaid
  • Court greatly concerned with administrative
    burden and feasibility of requiring Medicaid to
    avoid disparate impacts

67
Protection for the disabled against
discrimination--disparate impact
  • After Alexander, its difficult to imagine
    successful challenges to cost containment
    strategies on the basis of their disparate
    impacts
  • Especially if meaningful access is interpreted
    with respect to health care generally rather than
    the specific health care service (e.g., cancer
    chemotherapy if coverage for a very expensive
    drug is denied)

68
Legal constraints on cost containment
  • The case law indicates that political constraints
    are much more important than legal constraints

69
What is a QALY?
0
1
Perfect health
Dead
70
OECD
  • Organisation for Economic Co-operation and
    Development (www.oecd.org). The 33 member
    countries include
  • U.S., Canada, Mexico, Chile
  • Denmark, Norway, Sweden, Finland
  • U.K., France, Germany, Netherlands, Switzerland
  • Portugal, Spain, Italy, Greece, Turkey, Israel
  • Hungary, Czech Republic, Slovak Republic,
    Slovenia, Poland
  • Japan, Korea
  • Australia, New Zealand
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