Magazine Article | January 24, 2018

Government's Absurd View Of The Healthcare System

Source: Life Science Leader

By John McManus, president and founder, The McManus Group

The absurdity of the U.S. government's perspective on the implementation of government-run health programs came into focus recently in the Republican tax overhaul bill as well as the rollout of the new Medicare physician payment system.

Repeal of Individual Mandate Greases Enactment of Tax Reform
Republicans seized on the Congressional Budget Office's (CBO's) view that repeal of the individual mandate tax for failure to maintain health coverage would save taxpayers $338 billion over 10 years and inserted that provision into the tax reform legislation that was enacted in December. That provision enabled them to jam in substantially more tax breaks for corporations and individuals and still fit into their prescribed $1.5 trillion deficit-adding package.

Just as important, it was a twofer because it removed one of their most detested provisions in Obamacare, upheld by the Supreme Court in the landmark National Federation of Independent Business vs. Sebelius decision: the ability of the government to mandate purchase of a private good.

But how could repeal of the mandate tax — while leaving the actual mandate requirement in place — result in such a significant decline in government spending? CBO explains that such a policy would eventually result in 13 million more uninsured within 10 years and the associated subsidies for exchange insurance plans and for Medicaid, the program for the poor.

Let's unpack this.

CBO predicts the absence of a mandate tax that never applied to poor people enrolled in Medicaid will compel 5 million to quit the free healthcare available in that program. Individuals who are poor enough to qualify for Medicaid do not pay federal income taxes and therefore have never paid the tax penalty for failing to enroll in Medicaid. Yet CBO would have us believe that 5 million will disenroll because of the repeal of that tax?

CBO also projects another 5 million would quit the heavily subsidized coverage available in the Affordable Care Act's insurance exchanges. Yet the Kaiser Family Foundation found that 70 percent of subsidy-eligible individuals could get a "bronze" plan — the cheapest option available on the exchanges — for less than it would cost to pay the penalty tax. In fact, 54 percent could get a bronze plan for free! Nonetheless, CBO holds firm to its irrational notion that individuals would act in ways detrimental to their own interest.

Similarly, CBO projects another 2 million will quit their employer-provided coverage, which is primarily financed by employers. The employer mandate, which provides penalties to any employer with more than 50 employees that fails to provide coverage, has not been changed.

Reauthorization of CHIP
CBO's bizarre projections were amplified in its recent evaluation of the budgetary impact of extending the Children's Health Insurance Program (CHIP), which expired at the end of 2017. Partisan squabbling over how to finance a five-year extension of that program (which has broad bipartisan support) had held up reauthorization last fall. Prior to the mandate repeal, CBO had projected a five-year CHIP extension to cost $8 billion. Then, in January CBO said such an extension would cost one-tenth that amount — $800 million — due to repeal of the individual mandate.

A week later, CBO elaborated that a 10-year extension of the CHIP program, which should intuitively cost twice as much for double the time, would actually save $6 billion over 10 years! CBO explains, "Extending CHIP yields net savings to the federal government because the alternatives for that coverage are more expensive than CHIP." Repeal of the mandate would lead to disenrollment of healthy individuals that would, in turn, drive up premiums to those who remain in the exchange.

"It's like manna from heaven!" declared a senior Republican committee staffer. We should have repealed the mandate years ago! As this column goes to press, resolution of the CHIP reauthorization is imminent.

The Weird Implementation of Physician Payment Reform
The U.S. government's tortured perspective on the healthcare system is not harbored exclusively by the CBO. CMS' latest regulation implementing the new Medicare payment system for physicians authorized by the Medicare Access and CHIP Reauthorization Act (MACRA) is similarly perplexing. MACRA created two payment regimes for physicians: Alternative Payment Models (APMs) and the Merit-Based Incentive Payment System (MIPS).

The vast majority will be enrolled in MIPS for the foreseeable future. Physician practices are rated on a scale from 1 to 100 for performance related to quality metrics, utilization of electronic health records, and resource use. The law puts 5 percent of physician payments at risk in 2018, and that gradually rises to 9 percent over several years. Those practices that perform poorly are subject to penalties, which fund bonuses of high-achieving practices under a zero-sum game.  

But because CMS excluded more than 60 percent of all clinicians from the program under various discretionary criteria such as low volume and hardship, the pool of money for the incentive program is extremely constrained: just $118 million in 2018. That is on a base of over $70 billion of total physician spending. This means there is very little incentive for practices to improve health delivery, and the practices that had invested significant resources to get ready for the new payment system now feel they squandered resources with little or no payoff.

More troubling, CMS chose to grade physician practices on a substantial curve, resulting in less than 3 percent of physicians receiving negative adjustments. That miniscule group of poor performers — who had scored less than 15 on the 1 to 100 scale — must pay penalties to fund bonuses for the 97 percent of winners. Result: The winners get virtually nothing — around $200 each annually.

CMS even undermined the MIPS program to recognize "exceptional" physicians by making any practice that scored a minimum of 70 out of 100 eligible for the $500 million pool of resources. (Only government would characterize a C minus score as "exceptional!") In doing so, it disregarded the clear statutory intent of limiting bonuses for "exceptional performers" to the top 25 percent of practices above the median. Result: The typical $6,600-per-physician bonus for exceptional performers (i.e., real money) plummets to about $1,100 because CMS bizarrely defined nearly 75 percent of physicians as "exceptional." If everyone is exceptional, no one is exceptional.

The Medicare Payment Advisory Commission (MedPAC) recently opined that MIPS cannot succeed and should be repealed. It reasoned that MIPS is burdensome and complex, much of the reported information is not meaningful, scores are not comparable across clinicians, and payment adjustments are minimal in the first two years and large and arbitrary in later years. MedPAC concluded, "MIPS will not succeed in helping beneficiaries choose clinicians, help clinicians change practice patterns to improve value, or help Medicare reward clinicians based on value."

The other program under MACRA — APMs, which is seen by policymakers as the future of healthcare because it encourages physician practices to accept capitated payments for value-based delivery arrangements — is fraught with even more problems. Less than 5 percent of physicians are enrolled in such arrangements, and most of those are in mostly hospital-led accountable care organizations (ACOs) that have failed to deliver any savings to Medicare.  

The newly created Physician Technical Advisory Committee (PTAC) has approved only six APM applications of the 21 submitted, and four of those were for limited scale testing only. CMS has approved exactly zero of those applications.

MACRA was seen as landmark legislation to fundamentally reform physician delivery reform. It is essentially dysfunctional by any rational measure. Perhaps CBO can render similarly favorable budgetary projections for making necessary changes to this program as it provided for repeal of the individual mandate.

John McManus is president and founder of The McManus Group, a consulting firm specializing in strategic policy and political counsel and advocacy for healthcare clients with issues before Congress and the administration. Prior to founding his firm, McManus served Chairman Bill Thomas as the staff director of the Ways and Means Health Subcommittee, where he led the policy development, negotiations, and drafting of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Before working for Chairman Thomas, McManus worked for Eli Lilly & Company as a senior associate and for the Maryland House of Delegates as a research analyst. He earned his Master of Public Policy from Duke University and Bachelor of Arts from Washington and Lee University.