The Deficit Reduction Act, approved by the Senate and up for a vote in the House on Wednesday, would cut $99.3 billion from federal programs from 2006 to 2015, which includes reducing Medicaid spending by $28.3 billion and cutting Medicare spending by $22.4 billion. The Act would require a fifth of Medicaid enrollees to pay higher co-payments and more for prescription drugs, according to a New York Times article that cites a new report from the Congressional Budget Office (CBO). (Click here to download the 80-page CBO report.) The CBO estimates that the higher co-pays will force 45,000 Medicaid enrollees out of the program in 2010 and 65,000 to drop out of Medicaid in 2015. Of those affected, 60% would be children. Physicians and hospitals would not be obligated to treat Medicaid patients who failed to pay their co-payments, says the CBO.

Many seniors continue to acquire medications from Canada and abroad, claiming that mail-order prices are cheaper than the premiums and out-of-pocket expenses they would have to pay for the same drugs under Medicare Part D, reports an article in the Los Angeles Times. But without relatively healthy seniors signing up for the drug benefit, Medicare Part D could suffer financial difficulties, say insurance experts, who point out that of the 14.3 million seniors currently enrolled in Medicare’s drug plan, only 3.6 million signed up voluntarily. According to a 2004 Kaiser study, as many as 25% of seniors may find that their drug expenses are higher under Medicare Part D.

Meanwhile, the AARP is attempting to get Congress to revise Medicare Part D rules so that more seniors qualify for financial assistance under the drug benefit, according to an article in the Washington Post. The advocacy group also wants the government to negotiate drug prices instead of allowing insurance plans that sell Medicare Part D plans to set pricing.

A federal judge’s ruling last week overturned a moratorium that prevented construction of private hospitals in two counties in southern Indiana, according to an article in Louisville Business First. The judge sided with two hospital groups that claimed they were being denied the right to compete in her ruling that the counties “do not have the power to prohibit health care competition in their respective counties.” The two new facilities proposed by Kentuckiana Medical Center and Sunnyside Land Co. are a 40-bed acute-care hospital, which will include a skill-nursing facility and long-term care hospital, and a 43-bed specialty hospital for cardiology, oncology, surgery, and critical care.

While the pace of enrollment in health savings accounts (HSAs) has been blistering—a tripling of enrollees to 3 million in the last 10 months—the high-deductible plans still cover only a fraction of the 198 million Americans with health insurance, according to an article in the Los Angeles Times. And although President George Bush is expected to ask Congress to make HSAs more attractive by increasing the amount that can be contributed tax-free, half of those who have already signed up for HSAs have not funded their accounts, reports a New York Times article. When given other employer-sponsored health plan options, few employees—3% of IBM employees, for example—opt for HSAs. Yet the market research firm Forrester Research predicts that in two years, 22 million people—12% of insured Americans—will have HSAs.

This month, the IRS instituted regulations requiring tax-exempt organizations that file at least 250 returns in a calendar year to file annual returns electronically. Organizations with total assets of $100 million or more must file tax year 2005 returns electronically. And beginning next year, organizations of $10 million or more and private foundations regardless of asset size must file electronically. The IRS has a web site devoted to answering questions and providing resources to help nonprofits file electronically.

As healthcare costs continue to grow faster than the overall economy, more Americans are becoming uninsured, largely because they are losing employer-sponsored coverage, according to a study by the Alliance for Health Reform. The number of uninsured in 2004 was 45.8 million, up from 45 million in 2003. Some employers have responded to rising costs by shifting more of the expense of health insurance to employees through higher deductibles and co-pays. Others have stopped offering insurance altogether. Sixty percent of employers offered health insurance in 2005, compared to 69% in 2002. Meanwhile, enrollment in Medicaid increased by 31.5% between 2000 and 2004 and its expenditures rose faster than any other type of health insurance. The Medicaid Commission is proposing to cut expenses by $10 billion in 5 years.

Under changes to “loss-trapping rules” (LTRs), introduced by Section 470 of the American Jobs Creation Act of 2004, tax-exempt hospitals could lose the fixed priced purchasing option for certain leasing arrangements or face an increase in rents of as much as 15 percent, according to estimates by some companies. The LTRs were enacted to eliminate perceived tax abuses associated with highly structured, much publicized lease-in/lease-out (LILO) and sale-in/sale-out (SILO) transactions. The LTRs mitigate the benefits of leasing to tax-exempt entities by limiting a lessor’s ability to use deductions associated with the ownership of equipment to the extent of the rental income generated in connection with the lease of the equipment. Significantly, however, Congress acknowledged the LTRs were not intended to “inhibit legitimate commercial leasing transactions that involve a significant and genuine transfer of the benefits and burdens of tax ownership between the taxpayer and the tax-exempt lessee."

For more information, see HFMA's issue brief "Loss Trapping Rules Affect Not-For-Profit Leasing Arrangements."

A plan by New York Governor George Pataki to eliminate the 2.5% inflation adjustment in Medicaid reimbursement to hospitals would result in an annual  loss of $431 million in revenue to the state’s 229 hospitals, according to a Healthcare Association of New York State report cited in Newsday. The report said that Pataki’s reforms of New York’s Medicaid system--the largest  in the nation--would force hospitals to lay off employees and would plunge 20 struggling hospitals into the red.

The Joint Commission on Accreditation of Healthcare Organizations cautioned hospitals to be more vigilant about the accuracy of medications--duplications, incompatible drugs, and incorrect dosages--given to patients as they transition from one unit of the hospital to another or from the hospital to another healthcare facility or home. Last year, the United States Pharmacopeia received more than 2,000 voluntary reports of medication errors. Sixty-three percent of medication errors resulting in death or serious injury were due to breakdowns in communications, half of which would have been avoided through effective medication reconciliation, maintains JCAHO.

In a cost-cutting measure, the VA has denied health benefits to more than 260,000 veterans who earn above-average wages and who have no illnesses or injuries related to their military service, reports an Associated Press story. About 7.5 million military veterans currently receive VA health benefits. Meanwhile, Congress continues its ongoing debate on ways to require veterans to pay some of the healthcare costs.

Medical schools and academic medical centers should be the first to impose a ban on doctors receiving free handouts by drug companies, says an article in The Journal of the American Medical Association. The New York Times reports on the article, which claims that doctors’ clinical judgement becomes biased when they accept seminars, vacations, consulting fees, and gifts--including free drug samples--that pharmaceutical companies routinely offer. The article cites Kaiser Permanente as one of the few physician groups that has a policy of not accepting gifts from drug companies, which results in Kaiser Permanente doctors prescribing heavily marketed drugs less frequently than other physicians.

Although specialty hospitals have been successful at driving up competition among hospitals, they are also increasing costs without adding quality and efficiency, according to a study released yesterday by the Center for Studying Health System Change, a policy research organization. The study examines three markets with significant specialty hospital activity--Indianapolis; Little Rock, Ark.; and Phoenix. Employers in these markets said that general hospitals responded to the loss of profitable specialty procedures by raising prices on services where there is less competition. Community hospitals were also unable to prevent health plans from contracting with specialty hospitals.

In refining his State of the Union address, to be given Jan. 31, President Bush is considering asking Congress to give tax breaks to consumers who buy their own health insurance, reports an article in USA Today. Bush is also expected to talk about ways to provide consumers with medical price information so they can comparison shop for health care. Other topics he is likely to cover are medical malpractice reform, increasing the amounts that can be contributed to health savings accounts, and a proposal for small businesses to pool risk to get better pricing on health insurance. Sen. Edward Kennedy (D-Mass.) faults Bush for not tackling the increasing numbers of uninsured or problems with Medicare Part D. The administration’s “health proposals will fatten the bank accounts of HMOs and the drug industry, and lavish more tax giveaways on the wealthy,” Kennedy is quoted in the article.

The 59-hospital chain Healthcare Management Associates posted a 4.1% decline in profits for FY06 first quarter compared with the same quarter last year, according to a story in Modern Healthcare. Revenue was up 14.9%, but bad debt increased to 8.7% of revenue. HMA attributes profit loss to the hurricanes that affected its hospitals in Mississippi and Florida. The chain’s increased outpatient volume offset the 1.6% drop in inpatient admissions, while surgeries rose 2.1%. HMA is acquiring the 83-bed Cleveland Clinic Hospital in Naples, Fla., along with the hospital’s physician practice, and is constructing a 100-bed hospital near Naples.

Hospitals, nursing homes, and dialysis facilities are ordering nonemergency ambulance transports that do not meet Medicare requirements, according to a new report by the Office of Inspector General. In 2002, 25% of ambulance transports--most of which originated at third-party providers--were not warranted, costing Medicare $402 million in improper payments. The OIG report recommends that CMS first educate providers about Medicare’s ambulance transport benefit, and then investigate whether punitive action can be taken against providers who ignore transport requirements.

CMS announced yesterday that it will reimburse states that have stepped in to pay for prescriptions for Medicare beneficiaries who have been denied drugs through problem-plagued Medicare Part D. A Reuters story reporting on a conference call to reporters by CMS head Mark McClellan said that CMS expects states to first get reimbursement for drug costs from health insurers offering Medicare Part D, and then CMS will make up any shortfall in reimbursement. McClellan asked states to suspend payment for seniors’ prescriptions by Feb. 15.

U.S. Sen. Carl Levin (D-Mich.) is asking Congress to make immediate changes to Medicare Part D, according to an article in the Detroit Free Press. Levin is proposing that Medicare drug plans be allowed to change their formularies only once each year during open enrollment; that drug copays for dual-eligible enrollees be eliminated, and that the “doughnut hole” coverage gap that requires Medicare beneficiaries to absorb the full cost of their prescription drugs be closed.

The cost of health savings accounts and health reimbursement arrangement grew at a significantly slower rate in 2005 compared to other types of plans, according to a new study by Deloitte Center for Health Solutions. The cost of consumer-directed health plans increased an average of 2.8% from 2004 to 2005 in contrast to increases of 8% for HMOs, 8.5% for POS plans, 7.2% for PPOs, and 6.4% for indemnity plans. Businesses are projecting similar rates of growth for 2006. A previous Deloitte study found that 43% of U.S. companies either have a consumer-directed health plan in place (22%) or will be offering one in the next two years (21%).

An hour-long interaction with front-line staff during Patient Safety Leadership WalkRounds conducted weekly or monthly influenced hospital leaders’ decision making on major expenses and helped resolve numerous issues related to safety, says a study in the Joint Commission Journal on Quality and Patient Safety. Analyzing experiences at four hospitals, researchers found that 233 one-hour WalkRounds during 28 months generated 1,433 comments, primarily related to equipment, communications, pharmacy, and workforce. Hospital leaders reported that WalkRounds educated them on where to spend resources. WalkRounds also created a “culture of safety” through interactions with employees, which may foster greater job satisfaction among nurses and pave the way for large improvement initiatives.

Learn to use Executive WalkRounds from the audio webcast "Partners in Patient Safety: Essential Techniques for Financial and Nursing Leaders."

Kentucky received the go-ahead to create a new Medicaid program after CMS granted initial approval of the state’s Medicaid waiver on Wednesday. As a state with one of the highest percentages of people living below the poverty level and more than 15% on Medicaid, Kentucky expects its new program, KyHeath Choices, to stretch available resources by requiring Medicaid members to be responsible for their own health care. The program will require co-payments and premiums, except for preventive services, and offer financial incentives to Medicaid beneficiaries--to be used for gym memberships, smoking-cessation programs or other non-covered health services--if they engage in healthy practices, such as following disease-management protocols. Any Medicaid member who has access to private insurance will be required to enroll, and KyHealth Choices will pay the premiums.

This year, health care will be among the most profitable sectors for investors in the U.S. stock market, predicts Global Insight, which compiles and analyzes economic and financial data on industries and countries. The market forecasting company is advising investors to take an overweight position in the top three sectors—financial, healthcare, and information technology—and underweight the least promising sectors, which are telecom, basic materials, and consumer discretionary.

A study by the Urban Institute’s Health Policy Center that evaluates initiatives by four states to broaden Medicaid eligibility found mixed results. Public health insurance expansion boosted overall coverage rates for parents in Wisconsin and all adults in Massachusetts, but in New Jersey and California, it displaced existing private insurance and produced little evidence of an overall gain in coverage. The study, published in the journal Health Affairs, cautions policymakers not to have the expectation that extending Medicaid eligibility will only increase coverage for the uninsured. Low-income adults with private insurance may also opt to enroll in Medicaid, which is not necessarily a negative consequence, say the researchers. Replacing inadequate private coverage that has high premiums, deductibles, or co-payments with public coverage may provide families with better health and financial security.

In an effort to get Illinois not-for-profit hospitals to deliver more charity care, Illinois Attorney General Lisa Madigan introduced legislation that mandates tax-exempt Illinois hospitals give away an amount of care equal to at least 8% of hospital operating costs. In an article in the Chicago Sun-Times, Madigan calls the current level of charity care—an average of 1% of hospital charges—“miniscule.” If passed, the law would require hospitals to provide free care for uninsured patients whose income is below 150% of the federal poverty limit and give discounts of 65% to 80% to those earning between 150% to 250% of the poverty limit. Rural and government hospitals would be exempt from the mandate. A separate piece of legislation calls for more consumer-friendly billing and collection procedures for all hospitals, including allowing patients to pay in installments and more limited use of collection agencies.

CMS has proposed that the long-term care hospitals (LTCHs) PPS Federal rate remain at $38,086.04 for the 2007 rate year, based on cost reports that indicate that LTCH Medicare margins were 8.8% for FY 2003 and 11.7% for FY 2004. CMS is also proposing to adopt the Rehabilitation, Psychiatric, and Long-Term Care market basket to replace existing measures of inflation for calculating the annual update, which will result in an increase in the labor share, from 72.9% to 75.9%. Based on CMS projections, Medicare payments under the LTCH PPS will be $5.21 billion for 2007, an increase of approximately 70% since FY 2003. Click here to download the proposed rule.

At least one third-party administrator of tax-advantaged health savings accounts (HSAs) is experiencing an onslaught of new applications from consumers intent on getting a tax break from funding the accounts by April 15. PFPC, an HSA service company, says the number of new HSAs tripled in just three days, and it expects the volume to continue to increase substantially.

In his weekly radio address to the nation, President Bush focused on his plans to “help our small businesses stay vibrant and strong,” which included making health insurance more accessible to small companies and their workers. Bush said he would ask Congress to make health savings accounts more affordable and portable and to allow small businesses to purchase health insurance at a discount by pooling risk with one another. Bush also said he would push for medical malpractice reform to reduce frivolous lawsuits.

Ongoing problems with Medicare’s new drug benefit is increasing the risk of hospitalization and emergency-room visits for the low-income mentally ill who are unable to get their medications, reports a New York Times story. For some, a delay in getting medications due to pharmacies not getting approval from Medicare is causing a worsening of psychiatric symptoms. But others cannot afford the $3 per prescription for the multiple drugs they take now that their Medicaid drug coverage has been shifted to Medicare Part D. The story quotes one administrator for an assisted-living facility for the mentally ill that people with psychiatric illnesses “don’t have the insight to realize the consequences of not taking their medications. Without their medicines, they will definitely go into the hospital.”

Farmers in 18 states in the South and Midwest are being courted with an inventive proposition: contributions to health savings accounts (HSAs) in exchange for a promise to sell grain. The New York Times reports that Cargill, a grain marketing company, will contribute 8 to 10 cents a bushel to farmers who commit to sell at least 3,000 bushels to the company. The scheme gives Cargill an edge in a competitive grain market, and farmers get a hand in acquiring more affordable health care. 

Bipartisan legislation has been introduced by senators Frank Lautenberg (D-NJ) and Olympia Snowe (R-Maine) to require the federal government to reimburse the 26 states that have paid for prescription drugs for dual-eligible seniors who have had trouble getting their prescriptions filled under Medicare Part D. Although CMS says it will help states recoup the money from the private insurance plans administering the Medicare drug benefit, the legislation seeks to have Medicare directly reimburse the states, according to an article in the Pittsburgh Post-Gazette. State officials say CMS’s offer is not adequate because private insurers will reimburse a discounted price for the drugs. The article quotes David Parrella, vice chair of the National Association of State Medicaid Directors, who says that the 26 states “have no contract with the plans. So what’s their incentive to be prompt and cooperative with us?”

For the sixth year in a row, veterans have been more satisfied with both inpatient and outpatient care at the country’s VA health system than have patients at private hospitals, according to an annual telephone survey conducted by the National Quality Research Center, the CFI Group, and the Federal Consulting Group. The survey findings reported by the Washington Post show veterans scoring inpatient care an 83 out of a possible 100 points and outpatient care 80 points. In contrast, patients at private hospitals gave inpatient care a score of 73 and outpatient care 75 points.

Participating in programs that publicly report quality-of-care data has significantly increased quality improvement efforts and interest in quality issues among hospital leaders, reports a new study by the research firm Mathematica. (Click here to download the 71-page report.) Researchers surveyed senior hospital executives and directors of quality improvement on their experiences with Hospital Compare, the CMS quality initiative that allows consumers to view data on 17 clinical measures for 4,200 hospitals on its web site. Based on 1,291 interviews conducted last summer, one-quarter of respondents said that their hospitals received publicity or attention as a result of Hospital Compare scores, with 44% reporting positive publicity and 26% experiencing negative publicity. Over 80% of executives said their hospitals’ scores had significantly improved since they were posted in 2003 due to new quality improvement efforts. Of those hospitals that were below the 50th percentile in at least one measure, executives attributed the poor scores to inaccurate documentation, lack of physician involvement, not enough financial resources, and inadequate QI staff.

President Bush’s forthcoming state of the union address will highlight strategies to reduce healthcare costs, the AP reports, particularly through transferring more financial and decision-making responsibility to consumers. Specific proposals will include allowing consumers to accumulate higher amounts in health savings accounts and to get more information about healthcare prices and provider performance. Other proposals include tax incentives to encourage people without insurance through their employers to buy their own and increased portability of healthcare insurance. Bush apparently will address the advantages of electronic health records, but it is not clear whether he will put forward new incentives to encourage their adoption.

See HFMA Views post on the state of the union address.

Calling the Medicare bill “the biggest fiasco in memory,” Democratic senators today are introducing legislation designed to ensure seniors have access to prescription drugs. The bill would require all prescription drug plans to provide new enrollees with at least 30 days of prescription drugs during their transition to Medicare. In addition, the plan would provide federal reimbursement for states, pharmacies, and beneficiaries for out-of-pocket costs "because the Medicare prescription drug benefit has failed to cover their costs."

Senate Finance Committee Chairman Charles Grassley (R-IA) responded by saying it is “unacceptable that some of the poorest, sickest people are having the most trouble, according to Market Watch, but that “it's too early to commit to any legislative options because it's unclear whether any legislation is needed." Administrative remedies would be faster, he said.

Kentucky received the go-ahead to create a new Medicaid program after CMS granted initial approval of the state’s Medicaid waiver on Wednesday. “The Medicaid program as it exists today is simply unsustainable. We have a responsibility to ensure that Medicaid will be available to provide health care for current and future generations of Kentuckians,” said Governor Ernie Fletcher.

As a state with one of the highest percentages of people living below the poverty level and more than 15% on Medicaid, Kentucky expects its new program, KyHeath Choices, to stretch available resources by requiring Medicaid members to be responsible for their own health care. The program will require co-payments and premiums, except for preventive services, and offer financial incentives to Medicaid beneficiaries—to be used for gym memberships, smoking-cessation programs or other non-covered health services—if they engage in healthy practices, such as following disease-management protocols. Any Medicaid member who has access to private insurance will be required to enroll, and KyHealth Choices will pay the premiums.

HHS Secretary Mike Leavitt said that steps were underway to remedy the rampant problems Medicare beneficiaries and pharmacists have experienced since Medicare’s prescription drug benefit was rolled out on January 1, reports the Detroit News. Under fire from Democratic senators and governors, Leavitt said that help lines are now staffed by 4,500 operators—compared to 150 on January 1—and that no beneficiary should leave a pharmacy without a filled prescription. Fourteen Democratic governors have asked the federal government to reimburse the estimated hundreds of millions of dollars states have spent to pay for prescriptions that seniors were wrongly denied. Minnesota, for example, spent $1 million in three days to ensure that the sickest and poorest seniors received their prescriptions after governor Tim Pawlenty issued an emergency order to fill prescriptions, according to a report from Minnesota Public Radio. Nearly 24 million beneficiaries are covered by the Medicare Part D program, an enrollment that exceeded the federal government’s expectations.

The Medicare Coordinated Care Demonstration, launched by CMS in 2002 to improve health outcomes and reduce Medicare costs for chronically ill beneficiaries, may not result in fewer hospitalizations, says a preliminary report by the research firm Mathematica. Although final data won’t be available until the 11 demonstration sites complete the program in 2008, Mathematica has analyzed the results from the first year and found that patients whose medical care is monitored by care coordinators have not had significant increases in adherence to medication regimens and diet and exercise recommendations. The study’s authors caution, however, that behavior modification takes time and people often don’t change their habits until they experience negative consequences. The care coordinators monitor how well patients are following their doctors’ advice and their understanding of their illnesses and develop plans to assist patients in being more compliant in managing their own care.

Mandates requiring that large employers provide health insurance to workers, such as the law recently passed in Maryland and California’s defeated Proposition 72, fail to reduce the ranks of the uninsured, says a new study by the nonprofit Employment Policies Institute. The uninsured comprise mostly the unemployed, part-time workers, those employed at small firms, and employees who job hop—people who are unaffected by the mandates. "Expanding healthcare coverage will be a top priority in many statehouses this year," says Richard Berman, executive director of the Employment Policies Institute. "Unfortunately, by proposing legislation that targets large employers, many lawmakers will keep most of their state's uninsured out in the cold." Policies aimed at improving health care coverage need to consider demographic groups most in need, such as minorities and less-educated workers, say the study’s authors.

Government can best facilitate adoption of electronic health records with grant funding, development of national standards, and payment incentives. These findings are the result of research by HFMA, amplified by two roundtable discussions with senior financial executives that were conducted by HFMA in collaboration with David Brailer, MD, PhD, National Coordinator for Information Technology of the Department of Health and Human Services. Brailer has been charged with realizing the Bush administration’s plans for fully realized electronic health records by 2014.

“What we need more of in this country are standards and approaches that are consistent throughout the industry,” said Michael Blaszyk, executive vice president and CFO, Catholic Healthcare West.

“Without having a lot of available cash flow, we’re just trying to make sure we have enough assets set aside to be able to borrow against them to implement this, because there is long-range benefit in all of this. It’s just a matter of getting to that point.”said Christopher Ellington, vice president and CFO, Appalachian Regional Healthcare, Lexington, Ky.

The problem that we have with funding this type of initiative goes back to the bond issue. If we’re going to build a new hospital or do some major renovation, we can wrap a bond around that, and net financing is set aside. In a project like this, where we’re getting capital leases or operating leases, that’s only as good as the finances are at that particular time when you’re ready to go to the next step,”  “Interest rates are rising. So this whole project is only going to get more expensive as we go. And so that’s our problem. Look for more news soon on HFMA's research into EHR adoption.

CMS Administrator Mark McClellan has ordered all insurers to fill a 30-day emergency supply of prescription drugs Medicare beneficiaries were taking before the new drug program began on January 1, according to Bloomberg. In addition, insurers have been instructed that low-income seniors are not to pay more than $2 per generic prescription and no more than $5 for other prescriptions. The Medicare drug program has had a rocky start with tens of thousands of seniors reporting problems getting their prescriptions or of being overcharged. Several state governments have had to step in to cover drugs costs for their senior citizens. “I am very concerned that a number of dual eligible beneficiaries have had difficulty in obtaining their prescriptions,” McClellan stated.

The 964 healthcare mergers and acquisitions in 2005 represent a five-year high, according to a new report from Irving Levin Associates. The $158.7 billion involved in these deals was the second highest amount in the past five-year period.

Almost three-quarters of the dollars were involved in the healthcare technology segment, including biotechnology, e-health, medical devices, and pharmaceuticals. However, the healthcare services segment, particularly long-term care, represented the greatest volume of deals. Among healthcare services, managed care accounted for the highest dollar volume, as insurers organized to implement Medicare Part D.

A new GAO report finds many quality problems at the nation’s nursing homes, and that state inspectors are often understating them. The GAO report cites widespread survey and oversight problems at nursing homes, such as inspectors who often take weeks or months to look into complaints of harm to patients; serious patient weight loss, pressure sores, and injuries that go unreported; and inaccurate public data on nursing home quality. The report acknowledges that CMS has addressed many survey and oversight shortcomings, but states that CMS has not yet implemented several key initiatives related to survey consistency.

CMS is recommending that the Medicare inpatient psychiatric facility payment be increased an average 4.2% beginning July 1, 2006, through June 30, 2007. In announcing the planned change on January 13, CMS said freestanding government psychiatric hospitals will receive the largest share of the aggregate increase. Key aspects of the proposed rule include a per-diem rate increase from $575.95 to $594.66, a psychiatric facilities market basket adjustment of 4.7%, and an increase in the fixed-dollar loss threshold amount for outlier payments from $5,700 to $6,200 designed to keep overall outlier payments at 2% of total payments.

Tenet Healthcare Corporation will pay $215 million to settle federal class-action lawsuits, first brought by shareholders in 2002, alleging that they were misled by the company about improper Medicare billing practices, reports the Philadelphia Inquirer. Former Tenet executives Jeffrey Barbakow and Thomas Mackey will pay $1.5 million of the settlement. The second largest hospital chain has been beset by legal problems in recent years. In December 2004, Tenet paid $395 million to settle charges that patients received unnecessary heart bypass surgery by doctors that were named in a $54-million settlement the year before. A lawsuit involving physician kickbacks for patient admissions is currently being retried.

New York, the state that spends the most on Medicaid--$44.5 billion--is proposing to create a new agency to uncover Medicaid fraud, according to a New York Times article. Claiming that it is a conflict of interest for the state department of health to have oversight over its own Medicaid program, New York governor George Pataki will ask the state legislature to approve a $15 million budget for the new antifraud agency, which is to be headed by the Medicaid inspector general and will hire medical professionals to help investigators spot questionable medical bills. New York’s health department found only 37 cases of suspected Medicaid fraud in 2004, a fraction of the fraud cases prosecuted in other large states.

Maryland is the first state to pass a law that Wal-Mart and any corporation with 10,000 or more employees must spend 8% of payroll to purchase employee health insurance, reports the New York Times. Five companies in the state qualify under the mandate, and all but Wal-Mart, which employs 17,000 people in Maryland, provide adequate health benefits to workers. Proponents of the law say the state’s Medicaid costs will be reduced by forcing Wal-Mart to offer affordable health insurance to more employees, and they predict up to three dozen states will propose similar legislation. Wal-Mart vows to fight the Maryland law, claiming the corporation already spends nearly the mandated amount on health benefits.

A mere 9% of current Medicaid beneficiaries will be able to afford employer-sponsored health insurance or non-group private insurance if states proceed with planned Medicaid cutbacks. A new study by the Urban Institute for the Kaiser Commission on Medicaid and the Uninsured finds that only 8% of Medicaid recipients have the option of getting health coverage offered by an employer, even though 38% of them are working. Even then, affording the average annual $2,717 premiums for employer-sponsored health insurance is a major problem for families on Medicaid, whose earnings averaged less than $12,000 in 2005. And less than 1% of Medicaid beneficiaries would be able to afford the more expensive non-group private insurance. Unless premium assistance or tax credits are substantial, cutting benefits for Medicaid recipients will result in more uninsured people with a corresponding increase in morbidity and mortality, the study concludes. 

President Bush has rejected a recommendation by his Advisory Panel on Federal Tax Reform to tax workers on health insurance offered by their employers, reports Bloomberg. Current tax codes allow employers to take a deduction for the health insurance they provide their employers and for workers to receive the coverage tax-free. The panel’s recommendation was to tax employees on health insurance valued at more than $11,500 for family coverage. Instead, Bush’s healthcare agenda favors increasing deductions for medical expenses and promoting health savings accounts.

Cutting drug copayments for cholesterol medication alone will save 80,000 hospitalizations and more than 31,000 emergency visits each year—a total savings of more than $1 billion, according to a RAND Corporation study. Researchers found that patients who had $10/ month copayments for their cholesterol-lowering medications were 6 to 10% more likely to fully comply with doctors’ orders to take the drugs than patients who had $20/month copayments. And those who were more compliant in taking their medication had lower hospitalization rates and emergency room use. The study cites a 12% reduction in health care costs for Pitney Bowes employees who had lower copayments for diabetes and asthma medications. One potential problem: Health plans that lower drug copayments for high- and medium-risk patients may attract sicker enrollees, which could be offset by offering incentives to healthy patients who follow drug regimens.

The overall quality of care increased 2.8% for all Americans in 2005, according to The National Healthcare Disparities Report released by the Agency for Healthcare Research and Quality (AHRQ). But while there continue to be disparities in quality and access to care for ethnic and racial minorities, they are shrinking--except for Hispanics. The report, which evaluated disparities on 46 health care measures and 6 access measures, found that 59% of disparities measures were widening for Hispanics while 41% were decreasing. But among blacks, 58% of disparities were shrinking while 42% were increasing.

In an effort to help eliminate health disparities among minorities and the medically underserved, HHS  announced this week several new initiatives, including $56.9 million in grants to support health disparities research and a minority health data portal to give researchers access to minority health data.

Proposed cost-containment measures to reduce the number of Medicaid/SCHIP enrollees will not ease hospital emergency department (ED) volumes and may indeed reduce ED capacity as hospitals grapple with a swelling number of uninsured patients, says a report by the Center for Studying Health System Change commissioned by Kaiser Family Foundation and published in the January issue of Health Affairs. Since Medicaid/SCHIP patients are sicker and poorer than the uninsured—more than one-fourth of Medicaid/SCHIP enrollees have chronic conditions versus 5.9% of the uninsured, for example—their rates of ED visits are three times greater than the rest of the population. Shifting Medicaid/SCHIP enrollees to the ranks of the uninsured will lead to a very small net decrease in ED volume because these patients will continue to have higher medical needs than the current uninsured population, and losing Medicaid coverage will also limit their access to office-based physicians, forcing them to go to EDs even more frequently.  Consequently, EDs will be providing greater amounts of uncompensated care, and private hospitals will likely limit the uninsured care they provide, shifting even more of the burden to public hospitals.

For three years running, hospital CEOs have ranked financial concerns at the top of the list of challenges facing U.S. hospitals, reports Modern Healthcare. According to the recently survey of CEOs by the American College of Healthcare Executives, 67% of chief executive officers listed finances as their biggest worry. A distant second was a lack of medical personnel, with 36% of respondents citing the shortage as a primary concern, followed by 35% who singled out care of the uninsured as a major problem. Of their financial concerns, CEOs named Medicaid payments as the most troublesome, followed by Medicare reimbursement, bad debt, revenue cycle management, and payments from managed-care and commercial payers. The survey also revealed that quality and patient safety are more top-of-mind issues for CEOs than they were in 2004.

Despite a 5.4% physician payment cut in 2002 and only modest subsequent annual increases, physicians have not been deterred from treating Medicare patients, according to a national study released by the Center for Studying Health System Change. In 2004-2005, 72.9% of physicians accepted Medicare patients and only 3.4% completely closed their practices to new Medicare patients, which is virtually unchanged from patterns seen in 2000-2001.What did change was the proportion of primary care physicians accepting new Medicare patients, which increased from 61.7% in 2000-2001 to 65% to 2004-2005.

The study suggests that physician acceptance of Medicare patients has less to do with payment rates—when payment rates rose sharply between 1997 and 2001, physicians accepted fewer Medicare patients than in former years—than with the easing of capacity constraints that previously caused physicians to limit the number of new patients in their practices. Despite a 20% differential between Medicare and private insurance rates, Medicare beneficiaries have the same access to physicians as privately insured patients, says the study. Of those physicians not accepting new Medicare patients in 2004-2005, 69.2% gave inadequate reimbursement as the primary reason, 62% cited onerous billing requirements and paperwork, 44.8% mentioned Medicare patients’ high clinical needs, and 40.6% said their practice was too full to accept new patients.

Fitch Ratings has issued a stable but guarded outlook for the for-profit acute-care hospital management sector for 2006. Many of the same trends that affected 2005 will repeat in 2006, such as bad debts and volumes plaguing the middle quarters balanced with volume gains in the winter months and still-stable pricing. Despite the challenges and margin pressure, downgrades are not imminent. The hospital management sector remains a solid margin business with EBITDA margins in the 12% to 20% range. Other key projections from Fitch: Hospitals will continue to generate sufficient free cash flow; bad debt costs will not temper margins by more than 100 to 150 basis points in the coming year; hospitals will continue to face competition from physician-owned specialty facilities; managed care pricing will remain healthy with for-profit operators reporting price increases of 5% to 7%; modest and typical Medicare rate adjustments are expected for 2006 and 2007; and Medicaid pricing will likely be down 1% to 2% this year.

The Medicare Payment Advisory Commission (MedPAC) called most provider payment levels “adequate” when it drafted its 2007 Medicare payment recommendations to Congress on January 10. The result: a recommendation that inpatient and outpatient payments increase by the market basket minus 0.45% (which is one-half of the estimated productivity improvement). MedPAC recommended that physician payments be updated by the change in input prices less the expected productivity for 2007. Other providers fared less well, with no increases recommended for home health, long-term-care hospitals, inpatient rehabilitation facilities, and skilled nursing facilities. MedPAC will formally submit its recommendations to Congress in March.

Responding to MedPAC’s recommendation, Rick Pollack, AHA’s executive vice president, says the proposed reduction in hospital Medicare payments is a troubling decision that ignores that 68% of hospitals lost money serving Medicare patients in 2004. AHA strongly urges Congress to provide hospitals with a full market basket update.

CMS has announced that it will reprocess Medicare claims filed as of January 1 when a 4.4% physician rate cut went into affect. After the winter break, Congress is expected to pass the fiscal 2006 budget, which contains a provision to freeze provider payments at 2005 rates, replacing the 4.4% rate cut. To handle the volume of claims to be reprocessed, CMS is implementing a phased-in reprocessing schedule that ends July 1. Physicians who decided to stop accepting Medicare patients as a result of the rate cut will now have 45 days from after the bill passes to rejoin the program. Read the Kaiser Network coverage.

The growth in healthcare spending in the U.S. slowed for the second straight year in 2004, according to a report by CMS published in the January/February issue of Health Affairs. Healthcare spending in 2004 rose 7.9%, in contrast to 8.2% in 2003, and 9.1% in 2002, due in part to slower growth in prescription drug sales. Hospital spending accounted for 28% of the growth in personal health spending between 1997 and 2000 and increased to 38% during the years 2002 to 2004. Spending for physician services accounted for 29% of the total growth in personal health spending in 2004, up from an average of 25% in 2000 to 2002. A shift toward generic and over-the-counter drugs accounted for the slower growth in spending on retail prescription drugs. Private health insurance premium growth per enrollee of 8.4% in 2004 also lagged behind the 2002 growth of 11.5% and 2003’s 10.4%.

The share of the nation’s gross domestic product (GDP) spent on health care grew 0.1% to 16% in 2004, a smaller increase in the share of GDP than in recent years as economic growth in 2004 grew at its fastest rate since 1989.

The American College of Emergency Physicians (ACEP)  ranks the state of the U.S. emergency medicine system a dismal C-minus in the first-ever national report card. Based on 50 measurements, the ACEP awards the highest overall scores—no state earned an A—to California, Massachusetts, Connecticut, and the District of Columbia. Ranked at the bottom with an overall grade of D are Arkansas, Idaho, and Utah. Although there was a general correlation between overall wealth of a state and better grades, the survey also found some of the nation’s historically poorest states, such as South Carolina and West Virginia, earned better than average grades.

The report attributes the low scores earned by more than 80% of the states to overcrowded emergency departments, emergency physician shortages caused by soaring liability costs, and poor capacity to deal with public health or terrorist disasters. The ACEP survey also found that only 10 states require hospitals to submit data on ambulance diversions, which the ACEP says is an essential step to confronting the serious problem of gridlock in emergency departments.

CMS has awarded contracts to four specialty contractors (DME MACs) to administer Medicare claims from suppliers of durable medical equipment, prosthetics, and orthotics, a combined potential value of $542 million. As a result of the recent Medicare reforms, a competitive billing process was used to select the contractors for the first time in Medicare's 40-year history. The DME MACs can earn award fees based on their ability to meet the following performance requirements set by CMS: enhanced provider customer service, increased payment accuracy, improved provider education and training leading to correct claims submission, and realized cost savings resulting from efficiencies and innovation.

The DME MACs will replace the current Durable Medical Equipment Regional Carriers and will assume full responsibility for claims processing on July 1.The contracts are up for competitive bidding at least every five years.

Faced with low-income Medicare beneficiaries being denied or overcharged for medications due to federal problems implementing Medicare Part D, at least four states--Maine, New Hampshire, North Dakota, and Vermont--have stepped in to temporarily pay for their citizens’ drugs. Confusion and snags were rampant the first week the Medicare drug benefit took effect: Beneficiaries did not have proof that they were covered, low-income seniors were incorrectly charged co-payments exceeding $5 per prescription and a $250 deductible, and few beneficiaries received a temporary supply of prescription drugs they were previously taking in compliance with a Medicare Part D rule. Some low-income seniors were referred to hospital emergency rooms to get their medications.

A CMS administrator, according to a story in the New York Times, says CMS is working to resolve the problems and is currently filling “close to a million prescriptions a day, including hundreds of thousands for low-income beneficiaries.”

Thirty states are initiating legislation requiring each state’s largest employers to earmark 8% to 11% of their payroll for employee health insurance or contribute a fee to a state fund, according to a New York Times article. Backed by the A.F.L.-C.I.O. and other labor unions, the legislation directly targets Wal-Mart, the country’s largest employer, for failing to provide health insurance for more than half its 1.2 million employees. State lawmakers, impatient at the pace of federal health care reform, say that business will reap greater productivity from workers by giving them access to affordable health care. Corporations, however, claim the legislation will create a hostile business climate in those states. 

Despite a construction boom not seen in 50 years, hospitals reported an average 5.2% profit margin in 2004—the highest in six years—and 2005 margins are expected to be even higher, USA Today reported. According to the American Hospital Association, 25% of hospitals are in the red, down from about one-third in recent years, due to factors such as a more robust stock market, favorable borrowing rates, strong outpatient revenue, controlled spending, higher Medicare reimbursement, an increase in top-dollar procedures, and better bargaining with private insurers. Moody’s Investors Service reports median operating margins of 2% in 2004 and median overall margins of 4.5%. The Center for Studying Health System Change reports that hospital price growth--7% in 2004--declined for the first time in 7 years. According to the AHA, expenses dropped from 8.1% in 2003 to 6.9% in 2004.

A 2% tax levied on Maryland HMOs in 2005 in an attempt to reduce medical malpractice premiums in the state will soon be felt by consumers, according to a Dec. 26, 2005, article in the Washington Times. Seven HMOs, including Maryland’s largest with 366,000 members, say they will increase premiums to defray the cost of the $27 million they’ve paid to the state’s largest malpractice insurer in 2005. The malpractice insurer has increased malpractice rates 66.8% since 2003 but has not proposed an increase for 2006.

As the number of medical malpractice lawsuits filed in Pennsylvania has fallen by one-third from 2000 to 2004, some are declaring an end to the state’s malpractice crisis, which had doctors restricting their practice or leaving the state, according to the Philadelphia Inquirer. Reforms initiated in 2002 to stabilize the malpractice climate included a rule that limited the number of cases filed in Philadelphia, which has a reputation for delivering favorable verdicts to patients, and patient safety measures that require hospitals to report medical errors. Hospitals, however, say they continue to have trouble recruiting and retaining doctors, spending  resources on recruitment that would be better used for purchasing medical equipment.

In an effort to get more medical professionals to provide charity care services, Utah State Senator Peter Knudson is proposing legislation that would protect them from medical malpractice lawsuits, as reported in the Salt Lake Tribune. Currently, Utah law shields medical workers only if they receive no compensation for their care. The proposed legislation would close a loophole by also covering those who get their expenses reimbursed.

The first survey to assess the experiences and expectations of seniors who have enrolled in the new Medicare prescription drug benefit finds that by a 57 to 16% margin, enrolled seniors say the new benefits are worth the effort they spent evaluating the various drug plans. Conducted for America’s Health Insurance Plans, the survey also reports that slightly more than half of the enrollees say their new plan will yield immediate savings, and more than four-fifths say the plan covers the drugs they need.

The AARP also has come out in support of Medicare Part D, claiming that seniors will save more from a Medicare drug plan than if they bought the same drugs in Canada. Although Canada’s drug prices are lower, seniors’ out-of-pocket costs for the drugs make them more expensive than acquiring them from a Medicare drug plan, according to the AARP analysis.

A study by Children’s Hospital of Pittsburgh published in the December 2005 issue of Pediatrics found an unexpected rise in mortality among children transported to the hospital for specialized care after the hospital implemented a commercial computerized physician order entry program. For the 13-month period before the hospital began using the CPOE program, the mortality rate was 2.80%. Five months after CPOE was implemented, the mortality rose to 6.57%. Rebuttals from Stanford University, Harvard University, and the Leapfrog Group cited weak evidence that CPOE was related to patient deaths and possible problems in the hospital’s use of the system.