With or without IPAB, we could see cuts to Medicare in 2018

Health Care Current | June 13, 2017

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory, and legislative changes.

My Take

With or without IPAB, we could see cuts to Medicare in 2018

By Sarah Thomas, managing director, Center for Health Solutions, Deloitte Services LP

Earlier this month, the House sent the American Health Care Act (AHCA) to the Senate, which is now crafting its own bill to repeal and replace key elements of the Affordable Care Act (ACA) through budget reconciliation. A provision of the ACA that was once in the crosshairs of Republican lawmakers has appeared to receive little attention in recent years. That might be about to change.

The Boards of Trustees for Medicare will likely soon release a report, which is expected to project rising Medicare costs. Medicare spending levels that exceed the target threshold will trigger the Independent Payment Advisory Board (IPAB) to spring into action and figure out where to cut. Here’s the rub: In the seven years since IPAB was outlined in the ACA, no one has ever served on the 15-person panel, nor has anyone even been nominated. But even if IPAB never comes to exist, Republican policymakers might still need to consider Medicare cuts. And determining where to cut will fall squarely on the shoulders of US Department of Health and Human Services (HHS) Secretary Tom Price.

The IPAB policy is this: An independent board would recommend cost-saving changes to Medicare. Congress would have to take action to consider those changes, or come up with its own plan to bring Medicare spending back in line with the target rate. Even though IPAB was never formed, provisions in the law call for action anyway.

IPAB was once a major focus area of health care stakeholders, and was referred to as “death panels” by opponents. Over the past several years, however, IPAB has been on the back burner. When crafting AHCA, House Republicans opted not to address IPAB, which falls outside of the budget reconciliation rules. Both Republican and Democratic lawmakers have proposed bills to repeal it. It could be considered in a separate vehicle by Congress later this year.

Last year, the Boards of Trustees for Medicare predicted 2017 would be the first year that spending in Medicare would exceed the target rate set in law, triggering proposals to cut spending in the program. The Trustees missed their April 30 deadline to determine if Medicare cuts were needed.

What is the process?

The law lays out a six-step process. If 2017 becomes the year that Medicare spending trends trigger action, the process begins with the Trustees report, which was due at the end of April. IPAB (if it existed) would then have the summer to work on and finalize proposals to reduce spending and bring it in line with the target established by the US Centers for Medicare and Medicaid Services (CMS) chief actuary (OACT). The final proposal would need to be submitted to the Medicare Payment Advisory Commission and to HHS by September 1. However, with no IPAB ready to take on this charge, the requirements default to HHS, which needs to turn around the proposals by January 25, 2018.

Source: Adapted from The Medicare Payment Advisory Commission (MedPAC)

Congress would need to address these proposals in 2018, as the ACA requires HHS to begin automatically implementing the proposals by August 15, 2018. Congress could pass superseding legislation that saves the same amount of money, or it could vote to waive IPAB requirements (which would require a supermajority in the Senate).

What can be cut?

The law stipulates that IPAB (or HHS acting in its place) cannot offer recommendations that would ration care, raise revenues or Part A or Part B premiums, increase cost sharing, or change benefits or reduce the number of people eligible for coverage. During the initial phase of this policy (until 2019), the law limits where the savings proposals can come from.

What is the trigger?

What sets all of this in motion is a formula that compares projected growth in Medicare per capita spending to the rates of inflation for 2015 through 2019. After 2019, the comparison is to the gross domestic product plus one percentage point. The specific rate of inflation is the average of the projected percentage increase in the consumer price index for all Urban Consumers (CPI-U) and the medical care expenditure category of the CPI-U. In general, measures of inflation capture price increases and not changes in the use or intensity of services.

What next?

Keep a look out for the 2017 Medicare Trustees report, which did not meet its April deadline. If the trigger does get pulled, we could be in for an ever more complicated health policy journey in the near future.

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In the News

HHS solicits comments on ways to reduce regulatory burden of the ACA

This week, HHS published a request for information, seeking input on opportunities to reduce regulatory burdens related to the Affordable Care Act (ACA). Specifically, HHS is requesting public comments about any potential changes to existing regulations or guidance that could:

  • Empower patients and promote consumer choice. What can HHS do to engage and inform consumers in deciding their health plan needs, and how do existing regulations potentially constrain consumer choice?
  • Stabilize the individual, small group, and non-traditional health insurance market. What can HHS do to stabilize risk pools, engage younger and healthier beneficiaries, and encourage individuals to purchase and maintain coverage?
  • Improve affordability. What can HHS do to improve health care affordability for individuals and small businesses?
  • Bolster state authority to regulate health plans. What existing policies hinder or limit states’ authority to regulate health insurance markets?

Public comment will remain open until July 12, 2017.

Background: Earlier this year, the administration issued an executive order intended to minimize the economic and regulatory burdens related to the ACA. The HHS Secretary committed to increasing flexibility for states in implementing and operating their health plan markets, and to reducing the fiscal burden of ACA-related taxes or penalties. Further, HHS undertook a review and analysis of existing regulations to determine if each rule advances the agency’s goals of stabilizing the individual insurance exchanges, empowering patients, and promoting consumer choice.

HHS: Cybersecurity remains a top concern for the health care industry

Last week, the HHS Health Care Industry Cybersecurity (HCIC) task force released a report to Congress highlighting key recommendations and action to help improve cybersecurity in health care. The report stresses the importance of public/private partnership to ensure a cohesive defense against any potential cyber threats.

To increase cybersecurity across health care, the Task Force outlined six imperatives for the industry:

According to the report, HHS should designate a cybersecurity leader to align industry-wide efforts for health care cybersecurity. The HHS cybersecurity leader would be a single point of contact for health care industry partners – such as medical device companies or health IT vendors – to discuss cybersecurity concerns. The HHS cybersecurity leader would also develop best practice guidelines, advise the health care industry, and identify best practices to protect against cybersecurity threats.

The report also addresses a key concern raised by industry: that sharing cybersecurity resources and information among partners could potentially violate the Physician Self-Referral Law (e.g. the Stark Laws) and Anti-Kickback Statutes (AKS). For example, larger provider groups that partner with independent clinicians may be able to provide technology or financial support to the independent clinicians to protect patient data and maintain organization-wide standards. However, this assistance could violate the Stark Laws or AKS standards. The task force recommends that Congress consider amending the AKS or Stark Laws to create a safe haven for subsidized or donated cybersecurity software or electronic health record (EHR) systems. Many industry groups, including the American Hospital Association and Healthcare Information and Management Systems Society (HIMSS), support the HCIC report.

Related: Following the HCIC report, the House Committee on Energy and Commerce held a hearing on HHS’s role in health care cybersecurity. According to testimony, the health care sector has unique internet of things (IoT) vulnerabilities. Typically, medical devices are not originally designed to access the internet and safety standards for medical devices are designed around the physical safety of the patient. However, when retrofitting medical devices, device manufacturers may inadvertently create vulnerabilities that could impact patient safety. During the hearing, lawmakers and witnesses noted that the WannaCry ransomware attack (see the May 23, 2017 Health Care Current) highlighted the need for more robust cybersecurity practices and leadership, especially from HHS.

House committee amends, passes FDA Reauthorization Act

Last week, the House Energy & Commerce Committee unanimously passed the Food and Drug Administration (FDA) Reauthorization Act, which includes the Prescription Drug User Fee Act (PDUFA) and its amendments governing user fees for medical devices (MDUFA), generic drugs (GDUFA), and biologic products (BsUFA).

During the markup, lawmakers added several amendments to the user-fee package, including:

During the hearing, lawmakers also debated, but did not approve, amendments that would set governance standards for off-label communication when drugs are used for off-label purposes. While the FDA recognizes that off-label use of drugs is often appropriate, there is no pathway to allow the use of off-label usage data in approving drugs for new indications. However, the committee agreed that further hearings and testimony from industry and agency experts were needed before advancing amendments.

Three Medicare Advantage programs to expire

Last week, the House Ways and Means Health Subcommittee held a hearing to discuss integrated and coordinated care for Medicare beneficiaries. The hearing aimed to look for ways to improve care delivery for Medicare Advantage (MA) beneficiaries enrolled in three programs that are set to expire next year.

The subcommittee and expert witnesses discussed Special Needs Plans (SNPs), the Program for All-Inclusive Care for the Elderly (PACE), and Value-Based Insurance Design (VBID). Witnesses included representatives from the Kaiser Family Foundation, the St. Paul’s Senior Services PACE, and Michigan’s VBID. About a third (32 percent) of dual-eligibles are enrolled in MA plans, and half of them are enrolled in SNPs. The panel discussed ways to improve care integration and coordination for Medicare beneficiaries in these programs.

SNPs: SNPs are MA plans for beneficiaries with specialized care needs (e.g., those that require nursing home or institutional-level care). SNPs have unique flexibility to encourage better care, however some research has shown that SNPs do not offer better quality when compared to standard MA plans. The three types of SNPs are those for beneficiaries who are institutionalized, dual-eligible, or have certain chronic conditions. SNPs for dual-eligible beneficiaries need better clinical and financial integration with Medicaid.

PACE: PACE is a provider-based program that integrates care for dual-eligibles and takes full financial risk from both Medicare and Medicaid. Beneficiaries must require nursing home level of care. Most enrollees incur high costs and have many needs for services. Although PACE provides coordinated and integrated care, elements of the program’s design have limited its growth. A pending proposed rule would address some of these elements.

VBID: VBID reduces cost-sharing for specific services and provider types for chronically ill beneficiaries. Director of the Center for VBID at the University of Michigan, Mark Fendrick said that MA plans in all 50 states should have the flexibility to modify their benefits to meet their enrollees’ needs. MedPAC recommends Congress allow MA plans to use the VBID program to enhance benefits for beneficiaries with chronic conditions.

MLTSS program goals aim to improve consumer health

States operating Medicaid managed long-term services and supports (MLTSS) programs hope to rebalance long-term care spending, improve health outcomes, increase access to services, and stabilize costs, according to the National Association of States United for Aging and Disabilities (NASUAD). MLTSS is a capitated managed care delivery model designed to improve long-term care services and support systems (LTSS) for the elderly and individuals with physical disabilities. Twenty three states have an MLTSS program.

NASUAD surveyed states participating in and implementing MLTSS programs and found that they have made progress meeting four main goals of the MLTSS programs.

Spending: All states participating in MLTSS programs hope to rebalance Medicaid LTSS spending, shifting some LTSS spending toward home- and community-based settings (HCBS). Florida’s goal, for example, is to have no more than one-third of MLTSS consumers residing in nursing facilities. However, many states indicated that it is difficult to demonstrate cost effectiveness without accurate performance data.

Quality of life: MLTSS may improve enrollees’ health. Most states have a designated care coordinator (nurse or social worker) to assist enrollees in coordinating MLTSS program services. A dedicated care coordinator, support for family caregivers, and the ability to live in the setting of one’s choice, all can have positive effects on consumer health and well-being.

Waitlists: Six states said they hope to reduce waitlists for certain services through MLTSS. Because of its MTLSS program, Tennessee, for example, no longer has waitlists for eligible consumers needing nursing home care. Florida was able to reinvest savings from the MLTSS program to enroll waitlisted critical-care individuals.

Budget: States are using MLTSS programs to increase budget predictability and manage costs. In shifting to a capitated, risk-adjusted MLTSS program, Florida has more predictable spending.

California Senate approves single-payer bill

The California Senate approved a bill that would move the state into a single-payer health care system, though the bill did not include a funding mechanism. SB 562 now moves to the state assembly and, if approved, to Governor Jerry Brown’s desk before being put before the voters in a ballot proposition.

A California Senate Committee on Appropriations’ report estimates that half of the cost would be covered by existing federal, state, and local funding, but the state would need another $200 billion in revenue to cover additional costs of providing care. Under the bill, the state would cover inpatient, outpatient, emergency services, dental, vision, mental health, and nursing home care for its residents. A separate report from the University of Massachusetts-Amherst, funded by the California Nurses Association, estimates the legislation would require California to raise an additional $331 billion a year.

Related: The Nevada legislature approved a bill that would allow anyone to buy into the state Medicaid program. While the bill still needs the governor’s signature, and would require a federal waiver approval, the state’s legislature is the first to approve a “public option.” The Medicaid plan, Nevada Care, would be sold on the public insurance exchange as a qualified health plan, and beneficiaries would be able to use their premium tax credits and cost-sharing reductions to pay for the coverage. It would cover all Medicaid benefits except transportation.

New York takes steps to keep insurers in exchange

New York state announced that it will bar insurers who quit the public exchange from bidding on future contracts with New York health programs. These programs include Medicaid, Child Health Plus, and the Essential Plan (a health plan offered to low-income New Yorkers who don’t qualify for Medicaid or Child Health Plus). Additionally, state agencies and authorities are banned from contracting with those insurers that withdraw from the state health exchange. About 6.4 million New Yorkers have Medicaid coverage.

Breaking Boundaries

Precision Medicine Initiative takes another big step forward

This week, the National Institutes of Health (NIH) is moving forward with its Precision Medicine Initiative (PMI), through the launch of its All of Us Research Program. The program aims to collect information on lifestyle, the environment, and biometric data from 1 million Americans. PMI’s goal is to advance understanding of the underlying factors that influence health, and ultimately improve health outcomes.

The NIH announced the initiative more than two years ago. The challenge is going to be gathering this kind of very personal data from individuals from all over the country, and from diverse backgrounds. A study published in Nature last year showed that by 2016, only 20 percent of genome samples are from people of non-European descent.

The NIH intends to engage members of underserved populations to make PMI successful. This is not easy to do, as some in the public may distrust questions from scientists or the government about their race and ethnicity, and health history. To overcome concerns about privacy and security, the program planners are leveraging relationships and building trust in communities around the country. The planners expect to involve members of underserved populations by encouraging them to join a community advisory board and asking them to help design research questions. The All of Us Program says clearly in the protocol that it will not share data with any other government agency.

The team behind PMI wants the initiative to be a two-way conversation. The scientists will collect and analyze the data and make it useful to participants. A protocol called Sync for Science will allow participants to connect with researchers through a patient portal and to authorize the release of their electronic health data. The protocol is in pilot-testing.

The program’s developers are testing the literacy levels of health surveys in different populations across the country. The next steps will be gathering genomics information, mobile and wearable sensor data, and eventually imaging data.

Analysis: The bipartisan 21st Century Cures Act, passed in December 2016, allocates more than $1 billion for PMI (see the Deloitte Center for Health Solutions’ recent paper, 21st Century Cures: The future of product innovation and approval). Success of these kinds of efforts will largely hinge on the public’s willingness to participate, and share both their self-reported data as well as biometric data from blood tests and wearables.

A recent report from HIMSS Analytics shows that health care organizations are moving toward adopting precision medicine initiatives. Of the 100 medical organizations and 5,460 hospitals surveyed, nearly 70 percent are making plans to develop precision medicine initiatives in the next two years. They are developing an IT infrastructure and are developing programs to be able to collect samples and perform sequence analysis in house.

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