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    BAUCUS PLAN: FINANCING A MORE EFFICIENT HEALTH CARE SYSTEM

    .

    The meat and taters . . .

    Part 1 of 2 -- Financing a more efficient health care system:

    BAUCUS PLAN: FINANCING A MORE EFFICIENT HEALTH CARE SYSTEM

    The U.S. spends $2.3 trillion a year -- more than 16 percent of the U.S. economy -- on health care, and economists warn that rising health care costs represent a serious threat to our long-term fiscal security.  We spend more than any other country on health care -- both per capita and as a percentage of gross domestic product -- yet the Congressional Budget Office (CBO) estimates that up to one-third of that spending does not improve Americans' health outcomes.3 That means we spend over $700 billion more than we need to get the outcomes that we receive today. Clearly, excess spending must be eliminated and dollars put to better use -- not only to correct the imbalances of the current health care system, but to offset the high costs of much-needed comprehensive reform.

    Americans deserve a health care system in which everyone has affordable coverage, no matter their age, income, employment, or health status. This will require an investment.

    Some experts predict that a health system covering all Americans would necessitate $100 billion to $150 billion in new Federal spending per year. But savings from the reforms proposed earlier in this Call to Action and the financing mechanisms in this section can make the net cost of reform much smaller.

    National spending on health care can be lowered, and quality improved, by realigning the health care system toward prevention and primary care, rewarding providers that deliver quality, evidence-based care, and investing in critical research and health information technology that can lead to higher-value care. Beyond these measures, the Baucus plan endorses even further, more direct steps in these five areas to curb excess health care spending.

    • Fraud, Waste, and Abuse. New initiatives should be implemented immediately to better detect and eliminate financial fraud and abuse in our public programs. Taxpayer dollars should cover needed benefits and not fraudulent medical claims.

    • Increased Transparency. Public reporting of the costs and quality of care -- as well as the relationships between providers and drug or device makers that may lead to biased decision- making -- can encourage providers to pursue better outcomes and help patients choose better, more efficient providers and treatments when they are able to do so. Information about the full value of employer sponsored health care could help employees make better coverage decisions for themselves and their families. Greater transparency in these areas can help eliminate waste and drive better value throughout the health system.

    • Medical Malpractice. Careful reforms of medical malpractice laws can lower administrative costs and health spending throughout the system, while ensuring that injured patients are compensated fairly for their losses.

    • Private Insurance Plans in Medicare. If private insurers participate in Medicare, they must bring value to the program and beneficiaries. Overpayments to private insurers in the Medicare Advantage program must be eliminated so that spending is put on a level playing field with traditional Medicare. Payments should also be modified to promote the best of what plans have to offer beneficiaries, without financial giveaways to insurers. Price discounts for prescription drugs of the dual eligibles in Medicare's prescription drug plans should reflect discounts in Medicaid.

    • Long-Term Care Services and Supports. The current long-term care system is expensive, fragmented, and does not encourage the delivery of high-quality care. Further expanding home and community-based care, testing new models of care delivery and coordination, and better supporting family caregivers are essential to improving the quality and efficiency of the system. These ends cannot be accomplished without a stronger investment in a more robust workforce.

    • Tax Incentives for Health Coverage. Congress should also explore targeted reforms of the tax code to make incentives work better within the current system. Since the mid-1950s, tax incentives for employer-sponsored health benefits have made employer coverage more affordable for millions of workers. Similar but smaller tax incentives increase access to coverage for the self-employed and ease the burden of health expenses for people with no employer coverage. Such tax provisions have been and will continue to be the main tool used to foster employer based health insurance coverage in the U.S. But it is time to explore ways in which tax incentives can be modified to distribute benefits more fairly and effectively. At the same time, targeted reforms can promote smarter, more efficient spending of health care dollars by consumers themselves.

    In the short term, health care reform will likely cost taxpayers more than the government can  achieve in savings from all reforms and financing changes. Much of the savings from reforms, such as comparative effectiveness research and malpractice reform, would not accrue until policies have been in place for several years.

    Congress and the public must be realistic about the time frame in which the fiscal success of  reform is measured. If we fail to act, however, the current national expenditure on health care will  double from over $2 trillion to $4 trillion, tens of millions will continue to be uninsured, poor quality  ill continue to contribute to nearly 100,000 deaths each year, and the nation's entitlement  programs will consume a greater portion of the Federal budget. In short, the costs of inaction, both  n human and financial terms, would eventually be far greater than any initial outlays.

    America must choose to invest now in a health care system that will richly repay the nation with greater health and economic stability in the long term.

    finance.senate.gov/healthreform2009/finalwhitepaper.pdf

    Part 2 follows . . .

    Part 2 of 2 -- Financing a more efficient health care system :

    BAUCUS PLAN: FINANCING A MORE EFFICIENT HEALTH CARE SYSTEM


    A. FRAUD,WASTE, AND ABUSE

    Fraud, waste, and abuse cheat the taxpayer, can harm beneficiaries, and threaten the financial integrity of essential Federal health care programs. Many payment errors are the result of honest mistakes unrelated to providers or suppliers trying to take advantage of Medicare, Medicaid, and CHIP. However, some providers and suppliers purposefully manipulate these programs for financial gain.

    There are clear differences between fraud, waste, and abuse. Fraud and abuse connote some level of culpability in that they involve billing practices or behaviors that include misrepresentation of or overcharging for services delivered. Fraud is willful or intentional, and abuse is a deviation from acceptable business and medical standards. Both lead to unnecessary costs to the payer.

    In 1994, the Health and Human Services Inspector General, June Gibbs Brown, said in testimony before the Senate Appropriations Committee that, "Fraud is the obtaining of something of value through intentional misrepresentation or concealment of material facts.

    Abuse is any practice that is not consistent with the goals of providing patients with services which (1) are medically necessary, (2) meet professionally recognized standards, and (3) are fairly priced. Waste is the incurring of unnecessary costs as a result of deficient practices, systems, or controls."

    The full magnitude of health care fraud, waste, and abuse cannot be determined with precision, but evidence of the problem is everywhere. For instance, the U.S. spends more than $2 trillion on health care every year. Of that amount, the National Health Care Anti- Fraud Association  stimates conservatively that at least three percent -- or more than $60 billion each year -- is lost to fraud. The Secretary of Health and Human Services (HHS), acting through the Department's Office of Inspector General (OIG), and the Attorney General, run the Health Care Fraud and Abuse Control (HCFAC) program, which coordinates Federal, state, and local law enforcement activities to prevent health care fraud and abuse. In the ten years since its inception, HCFAC has returned over $10.4 billion to the Medicare Trust Fund alone.

    The amount of money wasted on billing errors and other mistakes is also staggering. Last year, the Medicare program reported a fee-for-service payment error rate of 3.9 percent, which means that Medicare paid over $10.8 billion incorrectly. Many of the improvements to the delivery system discussed in the preceding chapter would help reduce wasteful spending. Better  alignment of incentives and value-based purchasing in particular would reduce waste because they will cut down on instances in which Medicare pays for something beneficiaries do not need.

    While the efforts to fight fraud, waste, and abuse have been commendable, we need to do more. Outlays for Medicare and Medicaid almost doubled between 2000 and 2008, but the outlays for fighting fraud and abuse in these programs have not kept pace. We can provide more and better care for our beneficiaries if we do more to reduce fraud, waste, and abuse.

    Medicare, Medicaid, and CHIP must have flexibility to quickly deliver high-quality, low cost services while minimizing providers' administrative burdens. More can be done to combat unnecessary spending. The Baucus plan, which includes ideas articulated by HHS OIG, would focus on preventing fraud, waste, and abuse before they happen, and aggressively detecting them when prevention fails. A five-part strategy will effectively fight fraud, waste, and abuse, while allowing the programs to effectively serve beneficiaries.

    First, the government must do a better job of screening those allowed to become providers and suppliers in Medicare, Medicaid, and CHIP. Ensuring that only well-intentioned and law-abiding people and companies have the privilege of providing health care items and services to beneficiaries is an important initial step. For example, in January of 2005, an individual arrived in Miami-Dade County from Cuba and soon thereafter enrolled as a Medicare provider. From April until June, his new company billed over $4.1 million in fraudulent claims and was paid $1.65 million. He has since disappeared. This person should never have been allowed to become a supplier.

    Second, government payment methodologies should discourage, rather than encourage, providers or suppliers from engaging in fraud, waste, or abuse. For example, in 2006, Medicare allowed an average $7,215 for rental of a piece of durable medical equipment that costs about $600 to purchase new. As a result of these excessive fees, beneficiaries also incurred $1,443 in coinsurance charges for this equipment. The competitive bidding program for durable medical equipment, prosthetics, and orthotics has been temporarily delayed. Competitive bidding is a proven method for saving money and reducing fraud in this area, however, and the program should move forward.

    Third, working with providers and suppliers to promote compliance with program requirements and quality and safety standards could actually increase it. Most health care providers and suppliers intend to act in accordance with program requirements, but need help doing so. The same is true for quality and safety standards applicable in Medicare, Medicaid, and CHIP.

    Fourth, the Federal government has an absolute duty to conduct vigilant oversight of Medicare, Medicaid, and CHIP and continuously monitor for evidence of fraud, waste, and abuse. Improvements and enhancements in the collection and review of data, establishment of internal controls, investigation of providers and suppliers, mandated reporting of violations, and penalties and sanctions would enable better detection and punishment of inappropriate or unlawful  behavior.

    Finally, responses to detected fraud must be swift and strong. Punishments must be sufficient to deter others from considering the same behavior. Program vulnerabilities that are revealed by the fraudulent conduct must be remedied to prevent repeated abuse. For example, Florida's Miami-Dade County is home to many companies that claim to be durable medical equipment suppliers, infusion clinics, and other Medicare providers and suppliers. In May 2007, the Department of Justice and HHS OIG created a strike force whose primary goal was to attack the fraud problem by decreasing the amount of time between the government's detection of a fraud scheme and the arrest and prosecution of the offenders. That effort has lead to over convictions and criminal fines and civil recoveries in excess of $140 million.

    Success demands that the resources devoted to fighting fraud, waste, and abuse be sufficient to respond to this growing problem. The Baucus plan would invest much needed resources to carry out this fight because it takes time, manpower, and money to effectively monitor and detect fraudulent, wasteful, or abusive practices. Effective elimination of fraud provides a significant return on investment. According to the Office of Management and Budget, the HHS OIG demonstrated a return on investment of 16:1 for these efforts.

    Watchdog and advisory agencies like the HHS OIG, Government Accountability Office, state Medicaid Fraud Control Units, the Medicare Payment Advisory Commission, and law enforcement agencies must be provided with the resources that they need to combat fraud, waste, and abuse. We also need to work with the HHS and CMS program managers responsible for protecting and effectively managing these programs.

    B. INCREASED TRANSPARENCY

    Making more information available to health care providers and consumers would remove much of the mystery that currently shrouds our health care system. It is often too difficult for Americans to understand what services they receive or why they receive them, what they pay for relative to their insurer, or what their insurer is charged -- not to mention what a service actually costs. Providers suffer from some of this same confusion. This lack of understanding leads to frustration.

    Increasing transparency -- providing more and better information -- would improve the level of understanding. With better information, consumers, providers and payers would gain a better understanding of how the system works and would be able to see how health care dollars are spent. Providing meaningful and useful information would alleviate much of the frustration and suspicion.

    The Baucus plan focuses on three areas that would benefit from greater transparency: physician-industry relationships, physician self-referral, and cost and quality information.

    Physician-Industry Relationships. Harvard's Eric Campbell told the Finance Committee: "A physician-industry relationship exists whenever a physician accepts anything from a pharmaceutical or device company such as dinners at fancy restaurants, pens, drug samples, lunches, trips and paid consultancies." Though these relationships may lead to advancements in medical technology and a better understanding of medical procedures, "this practice likely results in substantial increases in the costs of health care." These higher costs occur because industry gifts, "may also result in physicians prescribing higher priced, brand-name drugs instead of cheaper, equally effective alternatives." These types of relationships are common throughout the physician community.

    According to a Harvard Medical School study, "most physicians (94 percent) reported some type of relationship with the pharmaceutical industry, and most of these relationships involved receiving food in the workplace (83 percent) or receiving drug samples (78 percent). Thirty-five percent received reimbursement for costs associated with professional meetings or continuing medical education, and more than one quarter (28 percent) received payments for consulting, giving lectures, or enrolling patients in trials."

    In 2005, pharmaceutical companies spent $7 billion on sales representative visits to physicians and provided $18 billion worth of free samples.

    To dissuade inappropriate relationships, both the American Medical Association (AMA) and the Pharmaceutical Research and Manufacturers of America (PhRMA) adopted or revised their codes of conduct involving industry relationships. The AMA "allows physicians to accept gifts as long as the gifts primarily benefit patients and are not of substantial value." The PhRMA code states such relationships "are intended to benefit patients and to enhance the practice of medicine," and should be used, "solely on each patient's medical needs." Though these updated guidelines are a step in the right direction, "there is also evidence that interactions prohibited by voluntary codes continue to occur."

    Four states (Minnesota, Vermont, Maine, and West Virginia) and the District of Columbia have enacted laws that require drug manufacturers to report any cash and in-kind payments made to physicians. Many advocate more detailed reporting of gifts between industry and physicians on a national level. National legislation has been introduced that would require drug and device  companies to disclose all gifts of $25 or more to physicians and other medical providers.

    A recent MedPAC report to Congress outlined several advantages of such a requirement. It may discourage inappropriate arrangements between physician and industry, allow the media to explore potential conflicts of interest, enable payers to examine physician practices that may be influenced by particular relationships, and highlight those physicians who have decided not to take part in inappropriate relationships.

    Unfortunately, data collection alone may not prevent inappropriate relationships. However, once national, system-wide data is available, the extent of industry influence and the wasteful spending that it leads to can be better determined. With this information, stronger enforcement can be put into place, so that regardless of provider relationships, we can be sure physicians are recommending and performing medical care based on sound medical science rather than heavy-handed industry influence.

    For these reasons, the Baucus plan would require disclosure of gifts and other transfers of value made by drug and device companies to physicians and other health care professionals. Only with this information can potential bias be known. And the requirement to disclose may deter inappropriate behavior. Disclosure is the only way to know if there are inappropriate influences on the delivery of care and use of taxpayer dollars.

    Physician Self-Referral. Physicians, like most professionals, expect to get paid for the work that they perform. Some physicians, however, have found a way to game the system so that, in addition to getting paid, they reap additional financial benefits from the provision of certain health care services. Physicians can accomplish this by having ownership or other financial interests in equipment or facilities -- such as an MRI machine or a hospital -- that provide health services. When those physicians refer their patients for services from which the physician reaps the additional financial benefits -- a practice known as self-referral -- there is reason to be concerned about the physician's motives.

    Physician self-referral is generally prohibited by Federal law when the patient is covered by Medicare or Medicaid. Self-referral creates conflicting incentives for physicians, because the financial incentive to increase utilization of the financially-rewarding services may conflict with otherwise sound medical and professional judgment. Ultimately, this practice often results in an "increased use of services and higher payments from third party payers."

    Congress has enacted several laws to confront this problem. In 1972, Congress enacted the Anti-Kickback Statute, which "broadly prohibits the purposeful offer, payment, or receipt of anything of value to induce the referral of patients from services reimbursable by a federal health care program." Few prosecutions occurred, however, and referrals to imaging facilities or medical laboratories were not deterred.

    In 1989, Congress enacted the Ethics in Patient Referrals Act (known as Stark I), which prohibits physicians from "referring Medicare or Medicaid patients for clinical laboratory services to labs with which the physician has a financial relationship...unless the relationship fits within a specified exception." In 1993, Congress enacted amendments (known as Stark II) expanding the prohibited services to "physical and laboratory therapy, radiology, radiation, home health care, hospital, outpatient prescription drugs, and many types of medical equipment and supplies."

    The Baucus plan would scrutinize physician self-referral to ensure that physicians are not engaged in financial arrangements that place financial interests ahead of the needs of patients and the American taxpayer. Physicians deserve fair pay for providing services, but they should not be able to game the system unfairly. Increased transparency to both patients and payers in the form of disclosure of physicians' financial interests is first step.

    One example is physician ownership of hospitals. There is concern that physician ownership of hospitals leads to cherry-picking the patients who are healthiest and most able to pay, while leaving the patients who are sickest and least able to pay for community hospitals to treat, often without much compensation, if any. This cherry-picking only exacerbates the cost shifting to those Americans with insurance. This concern is heightened by the fact that the patient often is unaware of a physician's financial interest in providing services at a hospital in which he or she has an ownership interest.

    Physician-owned hospitals are often smaller and more specialized than community hospitals. They tend to focus on lucrative lines of service. Community hospitals, on the other hand, tend to provide all service lines, including emergency departments. Community hospitals find it difficult to compete with their more cash-rich physician owned counterparts. Over time, the trend of increasing physician ownership of hospitals jeopardizes the continued viability of community hospitals.

    The issue of self-referral must be reviewed in light of how health care is and will be delivered. No serious effort at reform can ignore the potential gaming that financial conflicts may create.

    Cost and Quality Transparency. Rising health care costs have fueled an interest in greater public availability of price and quality information. Public reporting and transparency can aid patients in making more informed decisions about their treatment options. Such information could also spur providers to make improvements by benchmarking their performance against their peers. And health care price and quality information can be used by private health plans and public programs to reward quality and efficiency.

    The demand for more transparent price and quality information has been driven primarily by employers and health plans. But consumers believe they have much to gain from greater transparency, too. A recent survey, for example, found that 84 percent of Americans want hospitals, physicians, and pharmacies to publish their prices. Additionally, 90 percent of health care consumers want to partner with their physician in making health care decisions, and more than 60 percent claim to have searched for information to help make health care decisions.

    Public programs have also embraced greater transparency. An August 2006 Executive Order directed Federal health programs ― including the Federal Employees Health Benefit Program, Medicare, programs operated by the Indian Health Service, and TRICARE ― to make quality and pricing information available to beneficiaries and enrollees by January 1, 2007.

    Pursuant to this order, and building on existing programs, Medicare currently posts hospital quality measures online at the Hospital Compare website. Hospital-specific process measures include those related to heart failure and heart attack care, pneumonia care, and surgical care improvement. Information is also available for risk-adjusted mortality rates and patient satisfaction. The Centers for Medicare and Medicaid Services (CMS) has also started making available comparative price information for common outpatient procedures, such as wrist fracture pinning, colonoscopy, and hernia repair.

    While public availability of Medicare price information is novel and has been hailed as a first step, the information is based on an average, and it is not current or hospital-specific. In addition, the price and quality information is not linked, which undermines the value of any comparison by patients and beneficiaries.

    At the state level, recent legislation has required public reporting of hospital retail charges. Most experts agree, however, that this information is too detailed and not meaningful, because it contains unit prices rather than episodes of care. Trying to estimate a hospital stay based on charge data is "like shopping for a car by adding up the prices suppliers charge for all the nuts and bolts that go into one."

    The value and usefulness of cost and quality information may be limited by practical factors. Decisions about health care are often involuntary -- made under emergency conditions or emotional distress. Patients also may not have the opportunity to choose among hospitals if a referring physician is not on staff at the preferred hospital. Even for non-urgent elective procedures like LASIK vision-correction surgery, variation in quality, misleading advertising, and inconsistent bundling of services that makes apples-to-apples price comparisons difficult, all contribute to imperfect market conditions.

    Medicare's recent experience with making cost and quality information available online, combined with real-life examples from the private sector, provide valuable lessons for making information meaningful. Some of these lessons, also described in recent congressional testimony by the Commonwealth Fund, include:

    • Information currently available is inadequate. Although progress has been made even in the past two years, cost and quality information is rarely available to patients, and physicians lack comparative information on the quality of the care they provide or the care provided by physicians to whom they refer their patients.

    • Price and quality information should be provided together. Information on the price of a specific health care service provides little value. Knowing the total cost of caring for a condition is more meaningful, particularly if combined with information on the quality or outcomes of the care.

    • Transparency alone is not likely to transform health care. Shopping for the best physician or hospital is impractical for very sick patients and patients with chronic conditions, particularly when care is sought under emergency conditions. Yet, these patients incur most health care costs. Moreover, purchasers, payers, and providers -- not patients -- are in a better position to demand greater quality and efficiency. And providing price information without a clear use could lead to collusion instead of competition.

    To promote greater transparency in ways that would be meaningful and reliable to consumers and providers, the Baucus plan would leverage Medicare's ability to play a leading role. Medicare can and should release more information about the price and quality of covered services. For example, the current price information available for outpatient procedures should be paired with information on quality measures and expanded to other sites of care.

    Medicare should also make its data more widely available, with significant regulation of its use, so that it can be combined with similar data from other payers (such as health plans that serve employers and Medicaid) to build more robust profiles of clinicians' care that are based on a broad spectrum of their patients. The Department of Health and Human Services has started down this path by initiating Charter Value Exchanges in select communities. These initiatives allow stakeholders in a community to combine their data with Medicare data with the goal of releasing a single set of cost and quality measures for the entire community. To access the Medicare data, stakeholders must agree on a common set of performance measures.

    With appropriate privacy protections, Medicare data can be instrumental in promoting greater cost and quality transparency within the health system. This data must be used in ways that build consistency around cost and quality measures, however, as done through the Charter Value Exchanges. While the prospect of data sharing generates concern among clinicians, Medicare data can be used to generate more meaningful, accurate and consistent information across the health system so that, ultimately, reporting is acceptable and less burdensome for the provider community.

    This plan also would require health plans offered through the Health Insurance Exchange to provide uniform cost and quality metrics. The Independent Health Coverage Council would work with health plans and purchasers to develop consistent definitions and principles. Plans would also be encouraged to incorporate this information into pay-for performance systems.

    As a further step in greater transparency of health care costs, information about the full cost of employer-provided health care should be transparent to employees. Currently, employers must inform employees of the amount of wages paid by the employer, along with the taxes withheld from such wages during the calendar year. The information, provided on the Form W-2, must be given to each employee by January 31 of the succeeding year. But no such requirement exists for the amount an employer pays for health insurance coverage. Some employers voluntarily report the value of the health benefits they provide, either in an annual statement to their employees or in box 14 of the Form W-2. This plan would require employer health costs to be fully disclosed to all
    employees. Better educating workers about the full cost of their health care coverage could encourage them to seek or demand lower premiums, which in turn could help contain growth in spending.

    The push for increased transparency highlights the need for greater adoption of health information technology (IT) and evidence-based medicine. This plan proposes to invest in health IT and comparative clinical effectiveness research. Taken together, these tools can help drive the U.S. health system toward greater efficiency and increased engagement in health care decision making among consumers.

    C. MEDICAL MALPRACTICE REFORM

    Medical malpractice insurance premiums have risen steadily over recent decades, at times increasing an average of 15 percent a year. Some states have seen even more dramatic increases. Pennsylvania, for example, experienced increases ranging from 26 to 73 percent in 2003. While the Government Accountability Office has found that access to medical care is not "widely affected" by large premium increases, and malpractice costs account for less than two percent of health costs, physicians and other health care providers contend that the current legal environment leads to the practice of defensive medicine. Ordering more tests, procedures, or visits primarily to avoid liability rather than to benefit patients may contribute to unnecessary health care spending.

    A serious effort at comprehensive health care reform, then, should address medical malpractice.

    Reducing malpractice premiums alone would not have a substantial effect on overall health spending. CBO estimates that a 25 to 30 percent reduction in malpractice costs "would lower health care costs by only about 0.4 to 0.5 percent, and the likely effect on health insurance premiums would be comparably small." But helping patients and providers to cooperate rather than participate in time-consuming and expensive legal battles may help to shift America's health care system away from the costly practice of defensive medicine and toward the best quality care and adherence to standards of care.

    The current litigation system does not do a good job of compensating victims of malpractice or of reducing the occurrence of medical malpractice. In fact, "research typically shows Americans rarely take their disputes to court. Of every one hundred Americans injured in an accident, only ten make a liability claim, and only two file a lawsuit." Yet, the large number of malpractice claims filed still overwhelms the legal system, and only 30 percent of claims filed result in payments to victims of medical malpractice. Alternatives to civil litigation need to be utilized so that administrative costs associated with litigation, which account for 60 percent of malpractice premiums, can be reduced, while simultaneously allowing credible claims to be compensated fairly and quickly.

    Malpractice reform could address money and time spent on litigation, as well as improve patient and provider satisfaction with the resolution of complaints or grievances. Additionally, changes made as part of reforming the health care system would affect medical malpractice. For example, damages awarded for care necessary as a result of malpractice would be reduced because the cost of care would decrease across the board. Also, improvements in preventive care and care coordination would reduce the likelihood of risky procedures that are a source of malpractice claims.

    The Fair and Reliable Medical Justice Act, introduced in the 109th Congress and again in the current Congress, includes ideas for ensuring safe and effective medical care, while working to limit malpractice insurance premiums.48 This legislation would provide grants to states to create alternatives to current tort litigation in an effort to increase access to recovery for patients with low-dollar value claims and improve satisfaction with claims resolution for patients and provides. States would have flexibility in developing alternatives to civil litigation, with three specific models outlined in the bill: (1) the early disclosure and compensation model, (2) the administrative determination of compensation model, and (3) the health court model.

    The early disclosure model offers health care providers tort liability immunity after an offer, in good faith, to pay compensation to any patient injured or harmed as a result of care. The compensation would have to include any economic loss to the patient, non-economic damages (as determined by the state) and reasonable attorney fees. The University of Michigan Health System (UMHS) implemented this system in 2002 with astounding results. Three years after the program was established, UMHS had reduced its annual litigation costs by $2 million and reduced the number of lawsuits, as well as the time it took to resolve the suits, by more than half. That is one of the goals of the early disclosure model. Fostering communication about medical errors and awarding appropriate compensation in a non-adversarial setting are the hallmarks of this approach.

    By increasing communication about medical errors, and doing so in a non-adversarial setting, the collection of medical error data will increase, leading to improved patient safety. Data collection is essential to preventing errors by enabling providers to better understand how errors occur. "Accurate information also provides a baseline measurement for further assessment of the effectiveness of the changes made." Unfortunately, under the current system, data collection remains limited because of the lack of incentives. Alternatives to litigation, such as early disclosure, provide incentives to disclose medical errors, while continuing to protect the provider and improve patient safety.

    The second approach, the administrative determination of compensation model, calls for the establishment of an administrative board to designate classes of avoidable injuries. Based on these classes, the board would determine the level of compensation awarded to the patient. An appeals process would also be established to review decisions made by the board.

    Under the third alternative, a specialized health court would be established. The court would be presided over by judges with expertise in health care with the ability to hire outside experts. The judges' decisions regarding compensation would be binding but subject to an appeals process.

    The Fair and Reliable Medical Justice Act serves as a foundation for an important element of this health reform plan. Like the legislation, the Baucus plan would call on states to take the opportunity to develop alternatives for resolving conflicts and compensating patients who are the victims of medical errors. In addition to receiving Federal assistance to establish an alternative model, states would also receive assistance to collect data about medical errors, which would help keep patients better informed and create an opportunity for providers to learn from each other. In fact, the systems developed by the Department of Defense and the Veterans Health Administration that successfully track such data could serve as models. Patients and providers should have the chance to cooperate, rather than participate in a time-consuming and expensive legal battle. This plan would help achieve that important objective.

    D. PRIVATE INSURANCE PLANS IN MEDICARE

    Medicare beneficiaries can obtain benefits through the traditional fee-for-service program or by enrolling in private insurance plans that are approved to offer Medicare benefits. Private insurance plans are paid a monthly amount by the government for each beneficiary whom they enroll. In return, insurers agree to provide coverage for the range of Medicare benefits that their enrollees need. The program allowing private insurers to serve Medicare beneficiaries is called Medicare Advantage (MA).

    The Medicare Payment Advisory Commission (MedPAC) estimates that Medicare Advantage (MA) insurers are currently paid 13 percent more than the amount Medicare would pay if the same beneficiaries remained in the traditional fee-for-service program.51 Current estimates indicate that these excess payments will total $62 billion over the next five years, and $169 billion over the next ten years.

    MedPAC has called for Medicare Advantage payments to be set equal to traditional Medicare. The health insurance industry defends these payments by pointing to extra benefits that low income MA enrollees receive relative to traditional Medicare, like eyeglasses, dental coverage, and lower copayments. But delivering these extra benefits through Medicare Advantage is not as efficient as delivering them directly through traditional Medicare. Moreover, MedPAC reports that MA plans are less efficient at delivering Medicare Part A and B benefits than the traditional fee-for-service program. Private insurers' higher overhead and added administrative costs -- including profits -- mean that fewer benefits are passed along to beneficiaries. CBO and the U.S. Comptroller General estimate the administrative costs of private plans serving Medicare beneficiaries are in the range of 11 to 13 percent, compared to estimates of 2 to 5 percent for the traditional Medicare program.

    The majority of Medicare beneficiaries have multiple chronic conditions that could be treated more effectively through interdisciplinary care teams, and the insurance industry contends that private plans better coordinate care and improve quality oversight in the Medicare program. There is no solid evidence that supports this assertion. Not all Medicare Advantage plans are designed to integrate or coordinate care across the spectrum of providers, and not all use electronic medical records to better manage care. Even so, all Medicare Advantage payments are based on the same rates -- whether or not the plan uses advanced methods of coordinating and delivering care.

    Congress must act to level the playing field between traditional Medicare and Medicare Advantage payments and the Baucus plan would do so. Enacted in July 2008, MIPPA took modest steps to reduce overpayments to private plans beginning in 2010. There are a number of ways to complete this. One is to set MA payments on par with traditional Medicare in every county in the country. However, Medicare costs can be low in some areas of the country and extraordinarily high in others. Simply setting MA payments equal to traditional Medicare could maintain overpayments in some areas and create severe underpayments in other areas relative to insurers' costs.

    The Baucus plan would seek to better understand how insurers' costs differ by region of the country in designing new policies to eliminate the remaining excess spending in the Medicare Advantage program. MIPPA has already directed MedPAC to compare Medicare and private insurance costs and develop alternative ways of setting MA payments. MA payments should be reformed to achieve neutrality with traditional Medicare at the national level. But the benchmarks against which MA plans are paid should have more to do with plans' own costs. One option is to base MA payments on a blend of local and national Medicare costs, reducing MA payments in high-use areas and increasing payments in low-use areas.

    Alternatively, insurers' payments could be based on a blend of their own costs per enrollee with Medicare's costs per beneficiary at the local or national level. Competitive bidding is another option that could be considered or tested for MA plans. At a minimum, Congress should repeal the "premium support" demonstration included in the MMA of 2003 because it unfairly ties Part B premiums to how much insurers' costs differ from traditional Medicare.

    Finally, Congress must seek ways to eliminate excess spending that results from differences in the ways MA plans and traditional Medicare code diagnoses in patients' medical records.

    In addition to determining and adopting mechanisms to reduce overpayments, Congress should consider paying Medicare Advantage plans for delivering coordinated, cost effective care to beneficiaries with the highest risk of complications and spending. One option is to pay MA plans more if they meet medical home criteria defined by NCQA and specific performance measures. If MA plans do not meet these criteria, their payments would be reduced over a defined period of time. As with proposals involving traditional fee-for-service Medicare, paying MA plans for such care could increase the quality of care provided to beneficiaries in MA plans and could possibly lower Medicare spending by reducing complications from chronic illnesses.

    Private insurance plans also deliver Medicare's prescription drug benefit and are paid by the government for each beneficiary they enroll. Insurers in the program contract with pharmacies to dispense drugs, and they negotiate with drug manufacturers for discounted prices. Current law allows insurers to use their own formularies to negotiate prices with manufacturers and to manage the quality of the drug benefit. Recent studies suggest that the price breaks negotiated by Medicare prescription drug plans are not as high as those legislated through the Medicaid drug rebate program. This means Medicare pays more than Medicaid for the prescriptions of the dual-eligible population, which was switched from Medicaid to the Medicare drug benefit in 2006.

    Congress should consider extending the Medicaid price discounts to the drugs consumed by the dual-eligible population in the Medicare program in order to maintain the previous price breaks. Insurers would continue to negotiate prices on behalf of the other beneficiaries who enroll in their plans. Congress should also be apprised of Medicare's price breaks in the aggregate, relative to Medicaid and other sectors, in order to gauge the performance of the prescription drug program.

    E. LONG-TERM CARE SERVICES AND SUPPORTS

    Long-term care differs from other types of health care in that the goal is not to cure an illness, but to provide patients with the highest level of functioning possible and improve quality of life. The need for long-term care affects individuals of all ages: children born with disabling conditions, working-age adults with inherited or acquired conditions ― many of whom are able to work ― and the elderly with chronic illnesses. Care for these individuals is most often provided by  informal caregivers ― family or friends ― who provide care with little or no compensation. More than 50 million informal caregivers currently tend to the needs of individuals and family members of all ages.

    Today, about 9.4 million adults, five percent of the adult population, receive long-term care services in the community or in institutions; and about 1.1 million children living in the community have long-term care needs. An estimated 69 percent of people turning 65 years old will need some form of long-term care assistance before they die.

    The current system for delivering long-term care is expensive, inefficient, and does not encourage the delivery of high-quality care. In 2005, national spending on long-term care was estimated to be nearly $207 billion. States and the Federal government are the largest payers of these services. Medicaid alone accounts for as much as 49 percent of long-term care spending ― most of which was provided in an institutional setting.

    Medicare covers a limited amount of post-acute care in skilled nursing facilities and in the home for certain beneficiaries. And Medicare benefits are not coordinated with Medicaid ― even though the Federal government bears much of the cost for these programs. Likewise, conflicting incentives may increase costs and diminish the quality of care. Divergent characteristics, program goals, eligibility requirements, and covered services for Medicare and Medicaid programs often lead to uncoordinated care and a fractured delivery system for individuals needing long-term care and assistance.

    The cost for nursing home care is extremely expensive, about $70,000 per year on average.
    Without financial assistance from Medicaid or private insurance, most people simply cannot afford extended nursing home care.68 Home or community-based care is more cost-effective, and most patients would prefer care in these settings to institutional care.

    In recent years, Congress has taken some steps to reform the long-term care system. The Deficit Reduction Act of 2005 provided new flexibility for states to offer home and community-based long-term care services in Medicaid. Despite this progress, the program maintains a strong bias toward institutional care due to payment and access rules. Congress has considered innovative, alternative approaches to institutional care, but reform has remained elusive due to a lack of consensus on both policy and financing.
    Home and Community Based Services (HCBS) have become a popular way to support individuals who want to remain in their own homes and communities. HCBS options are generally provided through Medicaid waivers, but beneficiaries must have a significant level of disability to qualify. And even those who qualify often have difficulty accessing care; by 2005 there was a waiting list of more than 207,000 Medicaid beneficiaries for HCBS waiver services.

    The Baucus plan would consider options to further expand access to HCBS in Medicaid. These options include providing states with new tools and incentives to make them more available to more beneficiaries and exploring options to better coordinate care for dual eligible individuals under Medicare and Medicaid.

    The plan would also encourage states to explore new options that improve access to long term care services and supports to prevent the progression of disability and to help individuals remain in their own homes. By intervening earlier with targeted assistance, states can help prevent or delay costly institutionalizations and provide a more patient centered benefit. In addition, exploring inefficiencies and conflicting incentives within Medicare and Medicaid could improve the quality of care and decrease costs.

    Providing support for family caregivers should also be an important part of any reform plan. The plan would provide assistance to individuals, families and caregivers in navigating the complex and fractured long-term care services and supports system. With this help, individuals in need of care and their families would be better able to make the most appropriate care choice.

    Family caregivers cannot be expected to fill all the gaps in our current system. Long-term care reform should include options to recruit, train, and retain a robust workforce that can ensure high-quality care. One concept that has been put forward to address these shortages is providing educational and training opportunities to adults who are participating in the Temporary Assistance for Needy Families (TANF) program, who represent a pool of more than 900,000 individuals who could provide an important resource in meeting our nation's workforce needs.

    Institutional or residential care is appropriate in some cases; however, it should be a choice for individuals and families. This plan would pilot new models of institutional care, such as the Green House model, that has shown promise for both improving the quality of life and care in these settings. In addition, this plan incorporates several options to reform the delivery system to provide better care coordination and chronic disease management. Others may include investment in aging and disability resource centers (ADRCs) and programs that limit secondary disabilities by promoting nutrition, exercise and fall prevention. Because almost 25 percent of deaths occur in long-term care settings, ways to provide the best quality care at the end of life should be considered.

    In the long run, fundamental reform of the long-term care system will be necessary. Achieving ultimate success will require both public and private solutions. While we consider options to improve the care in our public programs, we should also explore policies that make quality long-term care insurance products more affordable and accessible.

    F. TAX INCENTIVES FOR HEALTH COVERAGE

    Tax breaks for health insurance premiums and other health expenses are among the largest tax expenditures in the Federal budget. In 2007, the total value in foregone revenue for health tax benefits was more than $300 billion.78 Congress should explore ways to restructure the current tax incentives to encourage more efficient spending on health and to target our tax dollars more effectively and fairly.

    Current tax law favors individuals who receive health insurance through their employer. The employer's contribution to health care and premiums is excluded from an individual's income for both income and payroll tax purposes. In addition, an employee's share of the premium cost can be excluded if it is made through what is called a cafeteria benefit plan. This means workers are not taxed on the value of their health premiums, even though the premiums are part of the worker's total compensation package. There is no limit on the amount of premiums that can be excluded from wages. The tax exclusion fosters employment-based health coverage, because it lowers the cost of buying insurance through an employer.

    In addition to the employee exclusion, other incentives to purchase health care and health coverage are available through the tax code. An employee's pre-tax contributions for health insurance or medical expenses through a Flexible Spending Account (FSA) are excluded from income and therefore not subject to tax. There are no limits on the amount of wages an employee can contribute on a pre-tax basis to an FSA. For individuals who qualify to contribute to a Health Savings Account (HSA) by enrolling in a high-deductible health plan, up to $2,900 of those contributions for individuals and $5,800 for families are deductible in tax year 2008.

    Self-employed individuals can deduct the cost of health insurance premiums for themselves, their spouse, and their dependents for income tax purposes, but they must pay self-employment tax on these amounts. This is less favorable treatment than employer provided health insurance. And finally, those who purchase health insurance through the individual market, and those who have out-of-pocket medical expenses, may deduct their spending to the extent that it exceeds 7.5 percent of their adjusted gross income and they itemize their deductions.

    Most economists argue there are problems with the current set of tax incentives for heath care.  First, they argue that the incentives are inequitable because the amount of tax benefit received differs based on how health coverage is received: those covered through their employers are rewarded with the largest tax breaks, while those who must obtain coverage on the individual market receive a much smaller tax break, or none at all. Current incentives are also regressive because they are, for the most part, more valuable to taxpayers who are subject to higher marginal rates. As such, they give larger subsidies to higher-income workers, instead of to the lower-income Americans who need more help buying insurance.

    Second, many economists argue that the unlimited employee tax exclusion leads to increased health spending. The unlimited tax benefit for the exclusion encourages workers to purchase more expensive coverage to avoid co-payments and deductibles. This lower cost sharing can lead to higher use of services that are considered non-urgent and discretionary. Additionally, employees who have different health insurance options from which to choose may spend health care dollars unnecessarily to simply buy the most expensive plan they can afford, instead of looking at the amount of coverage that they actually need.

    Some have proposed eliminating the current tax exclusion for employer-based health insurance premiums and converting the benefit to a tax deduction or tax credit. This approach goes too far because it could cause widespread disruption in employer-based health benefits. Reform should not endanger coverage for the more than half of all Americans who now have health insurance through an employer.

    More targeted reforms of the exclusion might make the incentive more equitable and reduce spending in the health care system. One option for reform is to cap the amount of health care premiums that can be excluded from employee wages for income and payroll tax purposes. This could be done by limiting or capping the tax exclusion based on the value of health benefits or, as an alternative, based on a person's income -- or both. Employees could be allowed to exclude, for example, up to a specific dollar amount in health benefits from their wages each year. If they purchase health plans with greater benefits, the difference between a more generous plan and the cap could be subject to Federal and state income taxes. Alternatively, the exclusion could be available on a sliding scale based on income: people with low wages could be allowed to exclude 100 percent of the premiums offered through their employers, with the percent allowed phasing down or out with income.

    Tax incentives can be an effective way of subsidizing the cost of health insurance. New tax incentives for small businesses and low-income individuals were discussed earlier in this plan. Current tax policies for health coverage must promote efficient uses of care and distribute subsidies fairly. We must also balance any tax reforms in this area with the desire of Americans to maintain employer-based health coverage.

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