States Are Bundling Social Services with Medicaid


NCPA recently published a study encouraging Congress to bundle payments to states for Medicaid with payments for other social services, proposing this reform as an adjustment to Representative Paul Ryan’s Opportunity Grants proposal.

New research from the Center for Health Care Strategies, Inc. shows that states are already doing this through Medicaid Accountable Care Organizations (ACOs). One tool, used in Oregon, is the global budget:

Through the global budget, CCOs [Coordinated Care Organizations] can include Medicaid‐covered services, such as non‐emergent medical transportation, as well as services that are not traditionally covered, to support patients’ needs. The latter services can include health education (e.g., healthy meal preparation classes); peer support groups (e.g., post‐partum depression programs); home and living environment improvements (e.g., air conditioners, athletic shoes); housing supports (e.g., shelter, utilities, critical repairs).

Paternalistic? Yes. However, the federal government has funded segregated programs from different departments subsidizing Medicaid and social services for decades. It would be better for Congress to recognize what states are doing at the local level and encourage that by bundling all welfare payments in to one grant for which local service organizations can compete.

Obamacare Health Plans Shun the Sick More in 2015 than 2014


A consistent theme of this blog is that Obamacare motivates health plans to shun the sick and attract the healthy. We often cite research from Avalere to support our case.

Avalere has done it again, with a study of how Obamacare plans place drugs for the most serious diseases, as HIV, cancer, and multiple sclerosis — on the highest drug formulary cost-sharing tier. Cop-pays of 40 percent are not uncommon. And the situation is worse in 2015 than 2014. The bar chart below shows how many silver plans (the most common Obamacare plans) place all single-source drugs (that is, branded drugs without generic competition) in a therapeutic category on their most expensive tier. For eight of ten of these categories, a larger share of silver plans do so in 2015 than 2014. For example, 51 percent of silver plans put multiple sclerosis (MS) drugs on their most expensive tier. Last year, only 42 percent did.


GAO: Medicare, Medicaid, Veterans Health Administration at High Risk for Fraud, Waste, Abuse


The Government Accountability Office (GAO) has published its annual update of federal programs “that it identifies as high risk due to their greater vulnerabilities to fraud, waste, abuse, and mismanagement…”

Healthcare programs feature high on the list. Medicare, the entitlement program for seniors, and Medicaid, the joint state federal welfare program for low-income households, are longstanding members of the list; and the GAO notes that legislation will be required to fix them:

We designated Medicare as a high-risk program in 1990 due to its size, complexity, and susceptibility to mismanagement and improper payments.

We designated Medicaid as a high-risk program in 2003 due to its size, growth, diversity of programs, and concerns about the adequacy of fiscal oversight.

21st Century Cures: Waking Up Dormant Drug Therapies


A similar version of this Health Alert appeared at Forbes.

Representative Fred Upton, Chairman of the House Energy & Commerce Committee, recently released a discussion draft of legislative language for the 21st Century Cures Initiative. This initiative attempts nothing less than to “boil the ocean” of regulations and incentives that govern medical innovation in the U.S. The 400-plus-page draft rolls up a number of previously proposed bills (including an updated version of Representative Marsha Blackburn’s SOFTWARE Act, discussed in a previous Health Alert).

A large share of the draft incorporates legislation designed to improve the incentives for inventing new medicines, or finding new uses for old medicines. This is important, because we are facing a crisis in pharmaceutical innovation.

One of these is the Dormant Therapies Act, put forward by Senator Orrin Hatch (R-UT) and Senator Michael Bennet (D-CO). This would give a “dormant therapy” 15 years of marketing exclusivity after approval by the Food and Drug Administration (FDA), significantly more than currently exists.

The designation of “dormant therapy” will add to the complexity of other designations already in law: breakthrough, pediatric, orphan and fast-track. Currently, the longest terms of exclusivity are for orphan drugs (seven years) and biologics (12 years). Most new drugs only receive five years of marketing exclusivity.

This increasingly complex web of exceptions to ordinary patent law are due to the extraordinary length of time the FDA takes to approve a new medicine. Although a U.S. patent has a term of 20 years, the time chewed up in FDA review is not taken into account. As a rule of thumb, it takes 12 to 15 years for the FDA to approve a new medicine, which results in only five to eight years of effective patent life.

The dormant designation differs from other designations in that the innovator waives any patents that extend beyond the 15-year marketing exclusivity, in exchange for extending patents that expire within 15 years. The principle behind the Dormant Therapies Act is sound. Nevertheless, there is room for improvement.

Is Obamacare Finally Juicing Healthcare Jobs?


Last week’s employment report showed good growth, and jobs in health care were a big part of it (Table 1). Total nonfarm payroll increased by 257, 000, of which 38,000 (15 percent) were jobs in health care. Job growth in healthcare was 0.26 percent, month on month, versus only 0.17 percent for nonfarm, non-health jobs.


HSA Update: Assets Up 25 Percent to $24 Billion


Key findings from the 2014 Year-End Devenir HSA Research Report, which reports on Health Savings Accounts:

  • HSA accounts approach 14 million. HSA accounts rose to 13.8 million, holding over $24 billion, a year over year increase of 25% for HSA assets and 29% for accounts for the period of December 31st, 2013 to December 31st, 2014.
  • Health plans drive growth. During 2014, health plans were the leading driver of new account growth, accounting for 35% of new accounts.
  • Continued strong market fuels HSA investment growth. HSA investment assets reached an estimated $3.2 billion in December, up 40% year over year. The average investment account holder has a $12,995 average total balance (deposit and investment account).
  • Investors show solid returns. Investors achieved an average annualized return of 12.5% on their HSA investments over the last 3 years.
  • HSA assets exceed $27 billion January 2015. The 2015 January HSA Supplement Survey found that HSAs grew to over $27 billion in assets by the end of January, 2015.


Sorry Dartmouth, Geographic Variation in Medical Procedure Rates is Not Unique to the U.S.


The Dartmouth Institute maintains that large variation in the use of various medical procedures demonstrates the inefficiency inherent in the way that the U.S. health care system is organized. The mere fact that variation exists also means that the U.S. system is inequitable. If procedure rates vary, some people have too little access to medicine while others have too much.

Members of the Dartmouth group also claim that “geography is destiny for Medicare patients.” Its Dartmouth Atlas Project claims to show that although Medicare spends more in areas where there are more hospital beds, physicians overall, and specialists per capita, people do not get better care.

If one believes these claims, then the solution to U.S. health care spending is to remove decision making power from individual patients and physicians. Instead, government should have the power to forcibly equalize treatment and resource use everywhere in the country. Fortunately, a large amount of evidence suggests that the Dartmouth Institute interpretation leaves much to be desired and that it is possible that government control is more likely to be the problem than the solution.

For example, this 2010 Dartmouth Atlas Surgery Report from the Dartmouth Institute made much of the national variation in Medicare hip replacement rates in 2000-01. Noting that the rate ranged from 1.2 per 1,000 in the hospital referral area of Alexandria, Louisiana, to 6.7 per 1,000 in the hospital referral area of Boulder, Colorado, it concluded that

[b]ased on the data presented here, it appears that patients in some regions and among some populations may not be getting adequate access to the procedures, while patients in other regions and among other populations may be undergoing the procedures at higher rates than necessary.

Reaching such a conclusion from local hip replacement rates requires assuming that the U.S. population is composed of identical people identically distributed over a featureless geographic plain that is everywhere the same.

Tax Chickens Come Home to Roost


One of the worst aspects of Obamacare has nothing to do with health care directly: It is the harmful effect on the labor market caused by Obamacare’s crazy quilt of subsidies. Because these subsidies phase out with income, they create extremely high effective marginal income tax rates. The Congressional Budget Office estimates that this will lead to 2 million fewer jobs in 2017 than would have existed without Obamacare.

Because the subsidies fluctuate significantly with income, this also creates a practical problem: People applying for Obamacare coverage now have to predict their income for the entire year. If they get it wrong, the IRS will demand repayment of subsidies. Don’t forget that many Obamacare beneficiaries are likely only slightly aware of the value of their subsidies, because the Obamacare exchange websites deliberately try to disguise them, in order to make people believe that their health insurance is less expensive than it was (as opposed to more expensive, but subsidized by other taxpayers.)

“Site-Neutral” Medicare Payments: A Good Idea from President Obama’s Budget


Imagine that there are two providers of the same service. Their quality and timeliness are comparable. However, one provider charges significantly more than the other. In a normally functioning market, you would expect that the more expensive provider would have to significantly change its cost structure to stay in business.

What if the more expensive provider argued that it had higher overhead, and therefore needed and deserved to be paid more? He would be laughed out of the marketplace. Yet, this is exactly what happens in Medicare. Because of different fee schedules, doctors in independent practice are paid less for the same procedure than hospital-based outpatient facilities. Unsurprisingly, this has resulted in hospitals buying up physician practices, in order to profit from this arbitrage:

For example, Medicare pays more than twice as much for a level II echocardiogram in an outpatient facility ($453) as it does in a freestanding physician office ($189). This payment difference creates a financial incentive for hospitals to purchase freestanding physicians’ offices and convert them to HOPDs without changing their location or patient mix. For example, from 2010 to 2012, echocardiograms provided in HOPDs increased 33 percent, while those in physician offices declined 10 percent. (Medicare Payment Advisory Commission, March 2014, p. 53)

The Obama Administration Should Disclose Legal Risks of Losing Coverage to Obamacare Applicants


(A version of this Health Alert appeared in The Hill.)

An increasing number of businesses are figuring out that continuing to offer health benefits puts them at a competitive disadvantage versus firms which socialize the costs of health care by shifting their employees onto Obamacare exchanges.

However, these employers are handing their employees a risk that they likely do not appreciate. If they are operating in one of 36 states where Obamacare might come to a screeching halt in the second half of 2015, their employees could lose their subsidized Obamacare plans as early as July.

This is what will happen after a Supreme Court decision in favor of the petitioner in the Obamacare case of King v. Burwell. This case addresses the question of whether the Administration can pay Obamacare subsidies to insurers in states that did not establish their own Obamacare exchanges.

The Court will hear oral arguments on March 4, and is expected to announce its decision in June or July. If the Supreme Court finds in favor of King, tax credits to health insurers via the federally operated exchanges in 36 states will likely stop within a few weeks. As a result, enrollees will be exposed to the true premiums of their policies for the first time. Many will not be able to afford them.

Enrollees are likely unaware of this, because the exchanges were designed to camouflage the subsidies. The Obama Administration likes to pretend that it has actually lowered the cost of health insurance in the individual market. So, the exchanges are designed only to present to applicants only the premiums net of subsidies.

According to a recent report published by the Administration, the average Bronze plan for a single person in 2015 is $265 per month. Silver, the most popular plan, has an average premium of $336 per month. Platinum, the most expensive, costs $439. However, the Administration also notes that 8 of 10 returning enrollees will be able to get a plan for less than $100, regardless of the metal level they selected in 2014 (emphasis in the original).