HFMA VIEWS

The White House’s proposed budget for FY10 comes as an opening salvo in what is shaping up as a major effort to initiate healthcare reform this year.

One of the budget’s most prominent features is a plan to establish a $630 billion reserve fund to finance healthcare reform over the next 10 years. More than half of this amount would come from affluent households, which would see their itemized deductions capped at 28 percent. The remainder of the funds would come from various stakeholders in the healthcare system, including drug makers, insurance companies, and hospitals.

As reported in the New York Times, pharmaceutical companies would be asked to increase the discounts they offer to Medicaid to at least 22.1 percent. Health insurance companies would be asked to give up an estimated $176 billion over 10 years as payments for Medicare beneficiaries enrolled in private Medicare Advantage plans are cut. Medicare would use a bundled payment system for hospitals, and penalize hospitals with high patient readmission rates within 30 days after initial discharge, saving an estimated $26 billion. And pay-for-performance initiatives linking hospital payment to specified quality outcomes would provide another $12 billion over the 10 year period.

Richard L. Clarke, president and CEO of HFMA, noted that the budget proposals contain components consistent with HFMA’s principles of healthcare payment reform, but also cautioned that “both bundled payments and pay-for-performance are monumental shifts and should be implemented in a phased and thoughtful manner.” 

Another interesting perspective on the projected cost savings of the proposals came in testimony by Douglas Elmendorf ,  director of the Congressional Budget Office, before the Senate Finance Committee on Wednesday, Feb. 25. Elmendorf noted that “many analysts agree that payment systems should move away from a fee-for-service design,” as proposed in the budget. But with respect to alternative payment approaches, such as bundled payments, the “precise effects are uncertain.” Almost inevitable, he said, are cutbacks in the number and types of services provided relative to current levels if healthcare costs are to be reduced. He also testified that savings resulting from reduced payments to hospitals with high rates of readmission may be slow to materialize, as Medicare would first have to gather information about readmission rates and notify hospitals before payment reductions could be implemented.

Health insurers are already pushing back. In a statement on the budget, Karen Ignani, president and CEO of America’s Health Insurance Plans, argues that the budget’s proposals regarding Medicare Advantage “would force seniors enrolled in Medicare Advantage to fund a disproportionate share of the costs to reform the healthcare system.” The markets responded to the budget’s health insurance proposals by sending the stocks of insurers down sharply.  

Other organizations are taking a wait-and-see approach. The American Hospital Association noted that a “careful and thoughtful approach to experimenting with bundled payments for post-acute services and providing incentives for improving quality of care through value-based purchasing are areas worthy of consideration,” but also said that it found the budget’s approach to these issue “problematic.” And the Pharmaceutical Research and Manufacturers of America (PhRMA) issued a statement of congratulations on a budget proposal “that lays a solid foundation for essential comprehensive healthcare reform,” while urging “against the adoption of policies that could undermine innovation and disrupt patient access to life-saving medicines.”

Stories about the economic stimulus package dominated the news in health care this week. A sizable portion of the package's total $787 billion will be directed at health care, but the long-term effects on the financial health of providers remain uncertain.

The American Hospital Association (AHA) “strongly urged” passage of the package in a statement released  on Friday, Feb. 13, the day that the bill was voted on in the House of Representatives and the Senate. According to the AHA, the package “provides immediate relief to help shore up our fragile healthcare system, and, at the same time, lays the foundation for more comprehensive efforts to make significant improvements and reforms to health care.” The American Medical Association similarly applauded the legislation’s expansion of Medicaid and COBRA funding as “a necessary stop-gap measure” and supported provisions promoting the adoption of healthcare IT and “independent clinical effectiveness research.”

An analysis by Moody’s of the bill’s economic impact on the not-for-profit hospital sector, reported in this week’s HFMA News, was a bit less sanguine. It sees some short-term benefits, particularly to urban hospitals with substantial Medicaid populations. In the long term, however, Moody’s expects the effects to be minimal, noting that many challenges facing the industry are likely to outlast the main two-year spending window for the stimulus package.

Healthcare providers should take note of stimulus package incentives and penalties related to adoption of electronic health records (EHRs). Both hospitals and physicians will qualify for Medicare incentives if they begin using EHRs before 2015. In 2015 and beyond, however, providers will face Medicare payment penalties if they are not “meaningful users” of EHRs. The Waller Lansden law firm offers a good online summary of the law’s EHR provisions.

This week’s report from the IRS on executive compensation and community benefit in the not-for-profit hospital sector is providing fodder for both sides of the debate on the issue of not-for-profits’ tax-exempt status.

The report, which was based on a questionnaire sent to 500 not-for-profit hospitals, found that compensation for the top management official--typically the CEO--averaged $490,000. The IRS noted that there “may be a disconnect” between what members of the public, as taxpayers, consider reasonable and what is permitted under tax law. Certainly, as the Wall Street Journal’s Health Blog pointed out, the timing of the report was not ideal. A lawyer for not-for-profit hospitals quoted by the Journal said that this report lands in a “toxic environment” and suggested that the tax exemption received by not-for-profits is similar to the bailout money for the banking and automobile industries. But as the IRS itself notes in the report, the compensation levels reported by the hospitals in its study are supported under current law, and “nearly all examined amounts were. . .within the range of reasonable compensation.” To add some perspective, we should remember that the average hospital CEO compensation reported in the study was less than half of John Thain’s office remodeling budget at Merrill Lynch.

The community benefit section of the report found that not-for-profit hospitals spent, on average, 9 percent of their revenues on community benefit expenditures. The actual distribution of this spending was uneven, however, with hospitals in high-population urban areas spending the most, and with the bulk of uncompensated care and medical research expenditures concentrated among a relatively small number of hospitals. The American Hospital Association, in responding to the report, notes that “there are good reasons for variation in how hospitals meet their community benefit obligations. A hospital in rural Iowa serves a very different community than one in New York City and the programs and services they offer should be different.”

Senator Charles Grassley (R-Iowa), who has cast a critical eye on community benefit reporting by not-for-profits, described the IRS report as “helpful,” but also stated that he intends to ask the IRS for a report comparing not-for-profit and for-profit hospitals. He also indicated that he would like to see charity care replace community benefit as the justification for tax-exempt status. “The Treasury Department could do a lot of good, and probably more quickly than Congress, by re-establishing those charity care requirements,” Sen. Grassley stated, “and if it looks like that can't get done, then Congress will have to step in.”

In observations on the report’s findings, the IRS notes that the new Schedule H of Form 990 should provide more accurate and complete data on community benefit as discussions about the community benefit standard continue. An article by Travis Patton in the February issue of hfm magazine offers advice  on preparing for Schedule H reporting. Based on the report’s findings, not-for-profit hospitals should also ensure that they continue to adhere to the Internal Revenue Code's rebuttable presumption standard in determining executive compensation.

How will Tom Daschle’s decision to withdraw his name from consideration for Health & Human Services secretary affect President Obama’s plans for healthcare reform? And who will the president find to replace Daschle, both at HHS and as director of the new White House Office of Health Reform?

The Washington Post reported that the Obama administration was at a loss following Daschle’s withdrawal. Daschle was already becoming the public face of healthcare reform for the administration, attending community healthcare discussion groups during the presidential transition period and working to mobilize grass-roots support for reform. David Axelrod, the president’s senior adviser, was quoted in the New York Times as saying, “There was no Plan B.”

Outside the administration, speculation on potential successors began immediately. Jeanne Lambrew, who is already serving as the deputy director of the White House health reform office, has been identified as a logical replacement as the office's director. The New Republic notes that she has already been doing much of the heavy lifting for the office.

Many more names have been suggested for HHS secretary. The Wall Street Journal’s Health  Blog offered a round-up of current and former governors, including Gov. Kathleen Sebelius of Kansas, Gov. Ed Rendell of Pennsylvania, Gov. Jennifer Granholm of Michigan, and former Oregon governor John Kitzhaber. Also on the list is former Vermont governor Howard Dean, a one-time physician whose name was being circulated for the position before Daschle was tapped for the job. Senator Ron Wyden (D-Ore.) was named in Forbes.com as a choice who would combine Daschle’s legislative experience and healthcare expertise (a healthcare reform plan he wrote two years ago “received applause from the wonk world,” Forbes notes). The Baltimore Sun also looked to members of Congress, including Sen. Barbara Mikulski (D-Md.), Sen. Max Baucus (D-Mont.), and Sen. Debbie Stabenow (D-Mich.), as well as Rep. Rosa DeLauro (D-Ct.). The Sun also named Mark McClellan, who has served both as CMS head and as FDA administrator.

While Daschle’s withdrawal was seen as a big setback to the administration, healthcare reform is by no means dead in the water. The New York Times noted that Congressional Democrats may now “have more running room to shape a health care plan to their liking.” And the Chicago Tribune, calling for Daschle’s withdrawal in a Feb. 3 op-ed, refuted the notion that Daschle was indispensable to reform. President Obama, the paper observed, “might keep in mind the wisdom of Charles de Gaulle, who noted that the graveyards are full of indispensable men.”