‘Tiered’ Exchange Plans, Expanded Self-Referral Ban Among Cost-Cutting Options Floated By Health Care Experts

Editor’s Note:  CRE warned that competitive bidding would “vastly expand” to other health care sectors. 

A group of 23 high-profile health policy experts on Wednesday (Aug. 1) floated far-reaching proposals to cut back health care spending that include moving to a system that would allow states to promote payment rates within a global spending target, requiring exchanges to be active purchasers and to offer at least one “tiered” product, using competitive bidding for all commodities in the federal health system and the insurance exchange, expanding the ban of self-referrals to cover private insurers, requiring full price transparency and encouraging less restrictive state scope of practice laws.

The system-wide cost-cutting proposals, which build upon and expand measures enacted in the health reform law and have already gained backing from Walmart, also would combat defensive medicine by establishing “safe harbors,” simplify administrative systems, accelerate the movement away from fee-for-service payment systems, and leverage the federal employee health benefit program to drive delivery system reform. The 11 reforms are detailed in an Aug. 1 New England Journal of Medicine article entitled: A Systemic Approach to Containing National Health Spending.

Many of the authors — which include former CMS Administrator Don Berwick, former Senate Majority Leader Tom Daschle, and Center for American Progress Health Policy Director Topher Spiro — will discuss the proposals at a CAP event on Thursday.

Spiro tells Inside Health Policy that the paper stems from a January meeting that included a broad array of health care experts who were able build consensus around the ideas. The group includes clinicians, business and insurance representative, economists, and federal and state government officials, among others.

The proposals come as lawmakers gear up to debate ways cut back the deficit and near-term options to avert a looming budget sequester. Without action national health spending is slated to grow from 18 percent of the economy to 25 percent and federal spending on health program is set to reach 40 percent of total federal spending by 2037, the article warns.

While stakeholders will likely push back on many of the concepts proposed, the authors conclude that the alternatives would be deep payment cuts and other tactics that would not be in the interest of insurers, patients, employers, states or providers. “The cut and shift approach advocated by many is fundamentally flawed,” Daschle says in a statement. “These ideas represent a better approach that will protect access to necessary care. Most important, they will put us on the path toward an actual health care system.”

“It is both important and completely feasible to reduce health care costs without any harm whatsoever to patients,” Berwick says in a statement.

Many of the proposals would need legislation to move forward, and Spiro says that they could be discussed when Congress turns to deficit reduction later this year or next session. Several of the solutions, however, could be done administratively or voluntarily by industry. For example, the Center for Medicare and Medicaid Innovation might have authority to allow states to transition into the system reliant upon the global spending targets, which the experts say should align with average growth in wages. Spiro says that this proposal should be considered as a alternative to the Medicare “premium support” idea that has been put forth by House Budget Chair Paul Ryan (R-WI).

“Rising health care costs pose a direct threat to workers’ take-home pay, the federal budget and state government finances,” says Citigroup’s Peter Orszag, former Office of Management and Budget (OMB) director and one of the authors of the paper. “The key question is how we can continue the recent deceleration of health costs. These ideas — from expanding bundled payments to innovative malpractice reform — represent a promising approach to moving toward a higher-value health care system, he says.

The group did not provide costs estimates for their proposals, but Spiro notes that the global spending strategy allows for savings flexibility. He says that back-of-the-envelope math on expanding competitive bidding — extrapolating savings from existing programmatic savings — shows a savings of about $40 billion over 10 years. The paper also suggests that administrative simplification could save $30 billion a year.

The concepts have already received praise from Walmart, the nation’s largest employer, which says that the article “details innovative methods that companies like Walmart are undertaking in order to slow the growth of health care spending and improve the overall quality of health care delivery.”

Walmart says that it plans to continue to push for “aggressive measures” in Washington, DC and to work with other “like-minded” organizations on the issue. “These principles are a strong foundation that can set the U.S. health care system on a path of sustainable growth,” Sally Welborn, Walmart’s senior vice president of benefits, said in a statement. “Businesses in particular have an immediate need for value and innovation so that we have a health care delivery system that rewards quality and efficiency.”

The following is a breakdown of the cost-cutting policies advocated by the health policy experts:

• Promote payment rates within global targets: This policy aims to combat the ability of providers to shift costs between payers by utilizing a self-regulated model under which all payers would negotiate a rate with a provider that would be binding across a state. This rates would have to adhere to a “global spending target” for private and public payers within the state. The group recommends that an independent council of payers, providers, businesses, consumers and economists set and enforce the target, and that the federal government provide grants to promote self-regulation. The proposal would also require public reporting of various measures, and would allow providers to get higher rates for performance. Funding for research, training and uncompensated care would be separated out.
• Accelerate FFS alternative: Public and private payers should adopt as soon as possible bundled payments for the 37 cardiac and orthopedic procedures used in the Medicare Acute Care Episode program, the group says. The bundles should include rehabilitation and post acute care for 90 days after discharge. Additionally, the group says that Medicare should make bundled payments for at least two chronic diseases within the next five years, and aim to base 75 percent of payments in every region on FFS alternative within 10 years.
• Tiered plans: To address the issue of “market dominance” by select providers, insurers should be able to offer tiered plans that reduce premiums and cost-sharing for patients that choose high quality and low-cost providers, the group says. The experts recommend that exchanges and state employee plans offer at least one tiered product in the Silver and Bronze plans by 2016 or before, if feasible.
• Active purchasing: “As soon as reliable quality reporting systems exist and exchanges achieve adequate scale,” the experts say, it is critical that the federal and state exchanges engage in active purchasing to secure the best rates and to promote delivery system reforms. The paper suggests that exchanges adopt a pay-for-performance model similar to the Medicare Advantage bonus system that provides extra payments to four- or five-star plans based on performance. HHS has already said that the federally facilitated exchange will take all certified products for the first year or so, but left active purchasing in later years on the table.
• Administrative simplification: The experts point out that while the health reform law requires plans to comply with new uniform electronic transactions, providers are not required to exchange information electronically. The group offers several suggestions to further streamline the process, including requiring providers and payers to electronically exchange key information as soon as possible; using a single, standardized physician credentialing system; providing a monthly “explanation of benefits” to patients electronically, with a paper opt-in; and integrating clinical and administrative functions into electronic health records. The experts recommend a task force of payers, providers and vendors set compliance targets, monitor use rates, and be given “broad authority to implement additional measures to achieve system-wide savings of $30 billion a year.”
• Price transparency: The group stresses that while prices can vary substantially in the same region, consumer rarely have access to such information prior to treatment. Price transparency would allow consumers to plan ahead and potentially choose lower-cost providers which could drive down costs in general, the group says. Risks of price collusion would be addressed through aggressive anti-trust enforcement, the experts say. They point out that insurers and states are already posting some prices on the web. Published prices should reflect the negotiated, bundled rates, and also include quality information, they say. Gag clauses and other anti-competitive clauses should be prohibited, according to the group, which recommends that state insurance commissioners and exchanges collect, audit and report data.
• Scope of practice: The experts recommend that the federal government offer bonus payments to states that meet scope-of-practice standards generated by the Institute of Medicine, and they say that Medicare and Medicaid payments should also encourage all providers to practice at the highest skill level under state law.
• Self-referrals: The group agrees that the Stark law prohibiting most self-referrals should be expanded into the private sector, but says that physicians using FFS alternatives should be exempted.
• Leveraging FEHBP: The group recommends that FEHBP align with Medicare’s efforts to transition from FFS to payment policies based on quality. FEHBP should also offered tiered plans, conduct competitive bidding, require price transparency and prohibit gag clauses, the experts say.
• Defensive medicine: The experts propose a solution that has been floated previously that would grant liability protection to physicians who follow evidence-based clinical guidance and use qualified HIT systems. “It is critical to develop the guidelines with credibility,” the group writes, noting that the Choosing Wisely initiative — in which a broad array of specialty groups listed 45 commonly used tests that may be unnecessary — is a promising route. A similar idea is already being tested in Oregon under a grant awarded in June 2010 by the administration (see related story).

— Amy Lotven