Colorado hospitals' competition has eye on bigger health care forces
Wednesday, 02 May 2012 20:01
US companies using debt to cover pension shortfalls
Saturday, 07 April 2012 07:19
By Danielle Robinson; Reuters ~ Apr 05, 2012
April 5 (IFR) - Faced with ballooning deficits in their pension funds, US companies are increasingly turning to the bond market to help plug the gap, taking advantage of super-low borrowing costs.
The 100 biggest US pension funds had a combined deficit of $326.8bn last year, pushing up charges to earnings to an all-time high of $38.3bn, according to consulting firm Milliman.
That figure is expected to rise to as much as $54bn in 2012, Milliman said.
To address their pension liabilities, companies are set to make record contributions into pension funds this year -- and many are turning to the debt capital markets to raise the cash.
"We have already seen a number of companies access the debt markets in recent months to finance their pension needs," said Andrew Karp, head of investment-grade debt syndicate at Bank of America Merrill Lynch.
"It's definitely something that we have identified as a potential use of proceeds this year," he said.
Low interest rates are driving the surge in pension fund deficits.
As Treasury yields drop, so too does the percentage at which the funds can discount future liabilities when calculating their size on a net present-value basis.
The discount rate fell to a historic year-end low in 2011 at 4.80%. That rate was around 6.5% in 2008.
Barring a spectacular turnaround in equity markets, there isn't much likelihood of the problem easing, as the Fed will otherwise stick to its low-rates policy through the end of 2014.
"Given the record-low discount rates, we estimate that 2012 pension expense will increase $16 billion, resulting in a record $54 billion charge to corporate earnings," said John Ehrhardt, author of the Milliman report.
Several big corporate names have already turned to the bond market in recent months.
Raytheon issued $575m in 1.4% three-year and $425m in 4.7% 30-year bonds to fund increased contributions to their pension schemes.
CSX Corp issued $300m in 4.4% 30.5-year notes, while the Kroger Company sold $450m in 2.2% five-year bonds.
MORE THAN JUST A TOUCH OF GRAY
According to the US Census Bureau, the percentage of the population 65 years or older will jump from 12.4% in 2000 to 20.7% by 2050.
That suggests the overall problem of underfunded pensions can only get worse, unless corporations start to address the shortfalls now.
At the moment many corporates have record levels of cash on hand. But for those who want to conserve their liquidity or don't have the cash to spare, record-low interest rates may convince them to use new bond issues to top up their pension funds.
"Our dialogue with corporate sponsors of pension plans is unusually active for this time of year, which is normally fairly quiet since most companies defer pension funding decisions to the fourth quarter," Caitlin Long, from Morgan Stanley's corporate strategies group, told IFR.
Normally companies issue bonds with five-year maturities for contribution money, but with funding levels at historic lows, companies are considering longer-dated deals.
"Most companies view pension deficits as roughly equal to five-year debt maturities, so funding pensions with proceeds of 10s and 30s terms out the obligation," Long said.
Last year's record 9.3% growth in liabilities versus 2010 overwhelmed the 5.9% investment return for the 100 biggest corporate pension funds, which had expected a 7.8% average return, the report said.
The shortfall came despite the fact that the corporate owners of those funds pumped $55.1bn of cash into them in 2011 -- and record levels of contributions are expected this year.
Ford and Exxon-Mobil expect that their 2012 pension contributions will be approximately $3.8bn and $2.9bn, respectively.
In addition, the study found, eight companies expect their 2012 contributions to be at least $1bn -- Boeing, Caterpillar, GE, Honeywell, Lockheed-Martin, Pepsi, Raytheon and Verizon.
The high numbers expected this year are also partly down to companies deferring some contributions until this year.
Last year's contributions from General Motors, UPS and Pepsi, for example, decreased from 2010 by $2.1bn, $1.8bn, and $1.2bn respectively, Milliman reported.
One reason for deferring was the hope that the government will amend the Pension Protection Act of 2006 to allow for lower pension contributions beginning in 2012. The US Senate has approved the bill to amend the law in mid-March, and it is currently pending in the House of Representatives.
UP IN THE AIR
According to Moody's, the aerospace and defense sector is among those most burdened with pension deficits.
It cited in particular Boeing, Lockheed Martin, Northrop Grumman, United Technologies, Honeywell, Raytheon, General Dynamics and Textron.
Those eight companies ended 2011 with $35bn in unfunded liabilities, nearly two-thirds of the entire $54bn pension deficit for the 55 companies Moody's rates in the sector.
The pension deficit is more than $15bn for the eight, Moody's said, and the sector's average funded status of 77% has plunged from 2010's average of 82% at the end of 2010.
"At a combined $51bn plus, the funding gap for these eight companies equates to about 95% of the level of under-funding for the entire 55 company rated industry group just one year ago," Moody's said in the report released this week.
Corporates are also increasingly adopting liability driven investment (LDI) initiatives to reduce the level of volatility in their pension funds. One way to reduce volatility is to cut back on equity investments, which have typically been the dominant asset class in pension funds.
For the first time in the 12 years that Milliman has been tracking pension funds, the amount of assets the funds have in fixed-income investments exceeded that in equities in the top 100.
In 2011, the percentage of pension-plan assets invested in equities dropped to 38.1% from about 43.8%, while fixed-income allocations increased to 41.4% from 36.4%.
It was the first time Milliman had seen a reduction in equity investments versus an increase in fixed income, and that shift reflects the huge volatility that pension funds have suffered by being invested too much in equities.
"Plan sponsors have several options to reduce or completely eliminate pension risk," said Wesley Smyth, an analyst at Moody's.
"We view the elimination or reduction of pension risk as a credit positive; however the resulting positive must be weighed against the cost involved."
Doctor Panel Recommends Fewer Tests for Patients
Wednesday, 04 April 2012 08:01
New York Times
By RONI CARYN RABIN
Published: April 4,
In a move likely to alter treatment standards in hospitals and doctors’ offices nationwide, a group of nine medical specialty boards plans to recommend on Wednesday that doctors perform 45 common tests and procedures less often, and to urge patients to question these services if they are offered. Eight other specialty boards are preparing to follow suit with additional lists of procedures their members should perform far less often.
Universal Images Group, via Getty Images
A doctor reading the results of a patient’s exercise stress test.
“Overuse is one of the most serious crises in American medicine,” said Dr. Lawrence Smith, physician-in-chief at North Shore-LIJ Health System and dean of the Hofstra North Shore-LIJ School of Medicine, who was not involved in the initiative. “Many people have thought that the organizations most resistant to this idea would be the specialty organizations, so this is a very powerful message.”
Many previous attempts to rein in unnecessary care have faltered, but guidance coming from respected physician groups is likely to exert more influence than directives from other quarters. But their change of heart also reflects recent changes in the health care marketplace.
Insurers and other payers are seeking to shift more of their financial pain to providers like hospitals and physician practices, and efforts are being made to reduce financial incentives for doctors to run more tests.
The specialty groups are announcing the educational initiative called Choosing Wisely, directed at both patients and physicians, under the auspices of the American Board of Internal Medicine Foundation and in partnership with Consumer Reports.
The list of tests and procedures they advise against includes EKGs done routinely during a physical, even when there is no sign of heart trouble, M.R.I.’s ordered whenever a patient complains of back pain, and antibiotics prescribed for mild sinusitis — all quite common.
The American College of Cardiology is urging heart specialists not to perform routine stress cardiac imaging in asymptomatic patients, and the American College of Radiology is telling radiologists not to run imaging scans on patients suffering from simple headaches. The American Gastroenterological Association is urging its physicians to prescribe the lowest doses of medication needed to control acid reflux disease.
Even oncologists are being urged to cut back on scans for patients with early stage breast and prostate cancers that are not likely to spread, and kidney disease doctors are urged not to start chronic dialysis before having a serious discussion with the patient and family.
Other efforts to limit testing for patients have provoked backlashes. In November 2009, new mammography guidelines issued by the U.S. Preventive Services Task Force advised women to be screened less frequently for breast cancer, stoking fear among patients about increasing government control over personal health care decisions and the rationing of treatment.
“Any information that can help inform medical decisions is good — the concern is when the information starts to be used not just to inform decisions, but by payers to limit decisions that a patient can make,” said Kathryn Nix, health care policy analyst for the Heritage Foundation a conservative research group. “With health care reform, changes in Medicare and the advent of accountable care organizations, there has been a strong push for using this information to limit patients’ ability to make decisions themselves.”
Dr. Christine K. Cassel, president and chief executive officer of the American Board of Internal Medicine Foundation, disagreed, saying the United States can pay for all Americans’ health care needs as long as care is appropriate: “In fact, rationing is not necessary if you just don’t do the things that don’t help.”
Some experts estimate that up to one-third of the $2 trillion of annual health care costs in the United States each year is spent on unnecessary hospitalizations and tests, unproven treatments, ineffective new drugs and medical devices, and futile care at the end of life.
Some of the tests being discouraged — like CT scans for someone who fainted but has no other neurological problems — are largely motivated by concerns over a malpractice lawsuits, experts said. Clear, evidence-based guidelines like the ones to be issued Wednesday will go far both to reassure physicians and to shield them from litigation.
Still, many specialists and patient advocates expressed caution, warning that the directives could be misinterpreted and applied too broadly at the expense of patients.
“These all sound reasonable, but don’t forget that every person you’re looking after is unique,” said Dr. Eric Topol, chief academic officer of Scripps Health, a health system based in San Diego, adding that he worried that the group’s advice would make tailoring care to individual patients harder. “This kind of one-size-fits-all approach can be a real detriment to good care.”
Cancer patients also expressed concern that discouraging the use of experimental treatments could diminish their chances at finding the right drug to quash their disease.
“I was diagnosed with Stage IV breast cancer right out the gate, and I did very well — I was what they call a ‘super responder,’ and now I have no evidence of disease,” said Kristy Larch, a 44-year-old mother of two from Seattle, who was treated with Avastin, a drug that the F.D.A. no longer approves for breast cancer treatment. “Doctors can’t practice good medicine if we tie their hands.”
Many commended the specialty groups for their bold action, saying the initiative could alienate their own members, since doing fewer diagnostic tests and procedures can cut into a physician’s income under fee-for-service payment schemes that pay for each patient encounter separately.
“It’s courageous that these societies are stepping up,” said Dr. John Santa, director of the health ratings center of Consumer Reports. “I am a primary care internist myself, and I’m anticipating running into some of my colleagues who will say, ‘Y’ know, John, we all know we’ve done EKGs that weren’t necessary and bone density tests that weren’t necessary, but, you know, that was a little bit of extra money for us.’ ”
This article has been revised to reflect the following correction:
Correction: April 4, 2012
An earlier version of this article misidentified, at one point, the organization whose member groups recommend that doctors curb the use of 45 common medical tests that may be unnecessary. It is the American Board of Internal Medicine Foundation, an organization that promotes physician professionalism — not the American Board of Internal Medicine, the specialty board with which it is affiliated.
The ACA and the Supreme Court: What Are the Scenarios?
Wednesday, 04 April 2012 07:58
In this segment of Medscape One-on-One, Stuart Altman, PhD, of Brandeis University, talks with host Eli Y. Adashi, MD, about US healthcare reform and the upcoming Supreme Court hearings on the Affordable Care Act. Altman is an expert in healthcare policy and has worked with a number of presidential administrations, including the administrations of Presidents Nixon, Clinton, and Obama.
Eli Y. Adashi, MD: Hello. I am Eli Adashi, Professor of Medical Science at Brown University, and host of Medscape One-on-One. Joining me today is Dr. Stuart Altman, the Sol C. Chaikin Professor of National Health Policy at The Heller School for Social Policy and Management of Brandeis University. Welcome.
Stuart Altman, PhD: Thank you.
Power, Politics, and Universal Health Care
Dr. Adashi: I would like to dedicate today's session to your recent book, the title of which is Power, Politics, and Universal Health Care. It is, for all practical purposes, a history of healthcare in the United States over the past 100 years. Since we can't cover it all, perhaps we can look at what's been happening recently, which has been very exciting.
Dr. Altman: Yes, it has been. I've been privileged of having lived and been part of this history for at least 45 years. And, as I look at the current environment under President Obama and the whole debate over healthcare reform, many people are asking, where did all this come from? How did we get here, and why is our system so complicated? That's what prompted me and my coauthor to write this book, because really, where we are is where we've been. If you go back in time, you will see that many of the pieces that are part of the current debate really go way back.
What is a big surprise to a lot of people when they read the book is how much of the Obama plan and the current health reform plan was put together under the Nixon administration in the early 1970s. I was privileged to have worked for President Nixon during the time and was very much involved, and if you put the Obama plan and the Nixon plan up against each other, I would say about 80%-85% is the same.
The Affordable Care Act: A Huge Initiative
Dr. Adashi: That is a very interesting point, which brings me to my first question: How did the President plan this huge initiative that ended up producing the Affordable Care Act?
Dr. Altman: There is no question that without strong presidential leadership, we would never have passed it or never will pass it. I worked for Senator Obama during the campaign, and many people told him to stay away from healthcare. It is a loser. It's too complicated, there are too many forces against you, why do it, and he was determined. He said it is too important, and I am going to make it a very important, if not the most important, part of my new administration. He was willing to take it on. I also worked for President Clinton during his transition and he also took it on, but I think he made some pretty fundamental mistakes, which ultimately led to it not being passed. Without strong presidential leadership, it would not have happened, and Obama had some important friends in Congress to help make it happen as well.
Dr. Adashi: If you were to try and summarize the ingredients that made it work this time around, what would you say those were?
Dr. Altman: There is no question that you need a strong -- unfortunately, and I don't want to be too partisan -- you need a strong, Democrat-controlled Congress. Universal coverage is not a Republican issue, even though, as I said, it was Richard Nixon who really pushed it forward. Now that's a story in and of itself, why an otherwise conservative president made it his issue. Even though I was there and lived it, if you really push me, I'd say it's hard to explain. But, for the most part, it's a Democratic issue and we would not, for example, have passed Medicare in 1965 had Lyndon Johnson not had a strong majority. That's very important.
You also need to be savvy about this thing. Americans are not ready for a revolution. There are a lot of people that want a single-payer system and to simplify the system, make it fairer. And I can understand that; I understand why they want that, but it's just not in the American character. You need to be savvy, and one thing that comes as a big surprise to most people when you talk to them, including I'm sure your colleagues, is that people say, "Well, yes, we need universal coverage, but even more important we need to control healthcare costs."
But you cannot do both of them together. Sure, theoretically it makes sense -- get a good system working together -- but add serious cost-containment, and you will turn a big group of supporters of universal coverage, including doctors, hospitals, pharmaceutical companies, and insurance companies, into antagonists, which is what happened to Bill Clinton. President Obama didn't do that. While people criticize the current healthcare reform for not controlling costs, I think it was very smart.
Let's Make a Deal
Dr. Adashi: In this context, you make very clear mention of some deals that had to be in place for this to fly. Can you expand on that?
Dr. Altman: President Obama made a commitment to the American people that this healthcare reform legislation would not cost the country anything -- easy to say, hard to do. Let me say a few things about that. First of all, it had to cover about 15% of our population, which amounts to give or take 50 million Americans. To do that is not cheap. But a lot of these people are either young and don't need a lot of healthcare or are already getting healthcare. As you know, billions of dollars of free care are provided every year by our hospitals and our doctors. So it wasn't that this bill added that much to healthcare. The best estimates are that it added only about a 1%-2% increase in healthcare spending. That adds up to almost $100 billion a year, but healthcare is very expensive.
But, when you add it all up, it still costs a trillion dollars over 10 years to do this, and where was the administration going to get the trillion dollars? What the Obama administration did is it went to each of the constituent groups, such as hospitals, and they said, you stand to gain upwards of $200-$300 million a year because now you're going to get your bills paid; before, you were providing free care. We want some of it back, and the hospitals agreed to give $160 billion dollars over a period of 10 years.
They went to the pharmaceutical industry, and they said, you're going to get your prescriptions paid for; you're going to have people who, before, couldn't afford it. We want (money) from you, and they gave a certain amount back. They went to the insurance industry, and they said, we're going to mandate that everybody has to have health insurance. You stand to gain a fortune, but we don't like the things you're doing, such as denying people coverage because they have preexisting conditions. We're going to wipe those out and, in addition, we want additional money. And the insurance industry, obviously not pleased with every aspect of the bill, still supported it.
What's most important, no healthcare group opposed this legislation. With all due respect, the American Medical Association, which has not been a big fan of universal coverage, supported it and continues to support it. Yes, deals were cut, and it was mutually beneficial for the healthcare community and for the administration to cut those deals.
Healthcare Reform and the "Gang of 6"
Dr. Adashi: That's very interesting. You also make special mention of Senators Baucus and Grassley, and then the so-called "Gang of 6."
Dr. Altman: Yes.
Dr. Adashi: Could you say something about how these actors influenced the process and, for that matter, the outcome?
Dr. Altman: I'd be glad to. You have to understand Congress. The Senate Finance Committee is a very key committee, for example, and it is chaired by Senator Baucus from Montana. And he is what you would think of as a moderate liberal; he's a Democrat, but he is not ready to turn over the whole healthcare system to the government. He very much wanted a bipartisan bill. He has had a long tradition of working very closely with Senator Grassley, who was the Republican majority. And he hoped that he could forge a compromise bill.
The so-called "Gang of 6" was made up of 3 Democrats and 3 Republicans. They tried to come up with a bipartisan bill. Senator Grassley, who's known for compromising, made it very clear that he was not going to go it alone. They had to come up with a bill that would bring a number of other Republicans along. He was not going to be the total flame-carrier. The majority -- the vast majority -- of the Republicans, from day 1, for a variety of reasons (some of them very political) were not going to give Obama a win on this. They had strong philosophical differences. The Gang of 6 worked very hard -- it took months -- but, at the end, they just folded their tent, and Baucus had to go it alone.
Speaker Pelosi's Role
Dr. Adashi: Speaking of credit, what can you tell our viewers about former Speaker of the House Nancy Pelosi's role in making this happen?
Dr. Altman: I would say she was very important. She is a single-payer supporter and sort of represents the so-called liberal arm of the Democratic party, but she had to recognize that in order to get this important legislation through, she was going to have to compromise her principles and put together a very moderate bill because in spite of the rhetoric, this is not socialism. This maintains a strong role for private insurance and private markets. It's a true compromise.
She agreed to compromise, but I think her most important point and where she deserves a lot of credit, is when our senator from Massachusetts, Senator Kennedy -- Mr. Healthcare -- unfortunately died at a critical time, and then surprise of surprises, was replaced by a Republican. It looked like healthcare reform was dead because, before his death, the Senate had only the 60 votes they needed to get this passed and avoid a filibuster.
It looked like gloom and doom after the recess, and there were many key people within the administration that went to the president and said, "Forget it. Maybe you should go for a little piece of legislation. You'll never get it through; don't waste your political capital." And Pelosi went to the President and said, "No, we need to make this happen. We will figure out a way." And he agreed, and he went against some of his advisors. The 2 of them, and a few others, pushed and came up with this strange animal in order to get it through. For that, she deserves a lot of credit.
How Would You Grade the Affordable Care Act?
Dr. Adashi: As key legislative achievements go -- and I'm asking a professor here -- what grade would you give the Affordable Care Act?
Dr. Altman: The pragmatist in me and, as someone who has been fighting this battle for 40 years, would give it a very high grade, like a B+ or A-. If you back away and ask, "If you didn't have all the political fights, could you design a better bill?" The answer would be "absolutely." But this is America, so you could say there's unfinished business. They didn't do cost-containment in the bill, and there are places in the bill that are poorly written. There were pieces of it that are inconsistent with each other. Ironically, what most people don't realize is that no one expected this bill to pass.
The way bills work is that the Senate passes a bill. Then, the House passes a different bill. Then, they have a committee and rewrite it. But they couldn't do that, given what I just said about the override, so they had to leave in place a bill written by the Senate that had a number of mistakes. So if you ask me technically what grade I would give it, it probably would be a C+. But in terms of politics and where we could be, I would give it a much higher grade.
Provisions That Should Have Been in the Affordable Care Act
Dr. Adashi: Speaking of which, and I realize the imperfections of the process, which provisions would you have liked to see in the Affordable Care Act that did not make it? Cost-control aside.
Dr. Altman: I liked it. While there is no cost-control in it, there are a number of provisions that set in motion some very substantial revisions in the way our healthcare system is designed and designed to operate. The Affordable Care Act integrates healthcare, giving much more power to primary care physicians and recognizing medical homes, but people need to know more. What most people have been focusing on is the part dealing with the individual mandate and whether that's constitutional or not.
From a health professional's point of view, it's the second thousand pages of the bill that really matter a lot. There were parts of it that could be written differently, but I personally -- maybe it was just my background, and the fact that I've been doing this for so long -- didn't come away feeling that there could have been much difference in it. Everything was compromised. They had to deal with hospitals that wanted certain things and physicians that wanted certain things. But I'm a creature of our system, so from my point of view, I don't know if it could have been much better.
The Supreme Court and the Affordable Care Act
Dr. Adashi: As we think ahead, it seems as if the next big road test is the hearing at the level of the Supreme Court. What scenarios should we consider in the wake of a Supreme Court decision? And obviously we have to consider 2 possible decisions: one that affirms the constitutionality of the individual mandate, and one that does not. Take us, to the best of your ability, through those 2 roads that might follow.
Dr. Altman: Okay, so let me put it in pieces. The reason why the individual mandate is so important is that currently, many Americans find that they cannot get health insurance. They have a preexisting medical condition, sometimes from birth, sometimes from some condition that they developed through life. And insurance companies either will not insure people who they know are going to cost them much more than they're ever going to pay in premiums, so either they deny coverage altogether, or they make them pay very high premiums that they can't afford.
The administration and, most Americans, think that's wrong. Under the Affordable Care Act, insurance companies have agreed to cover everybody, as long as the administration requires that every American be covered. The thing the insurance industry fears the most is that millions of healthy individuals do not buy insurance until they need it. You know, you have this view, I have this view, of somebody falling off of the roof and halfway down their spouse gives them an insurance policy to sign.
The individual mandate says to healthy, younger people, "Look, you have to buy health insurance. You really don't need it today, but sometime in the future you will need it." And if we can smooth this out, the insurance companies then get these healthy people to counterbalance the sick people they are going to have to take. If the individual mandate is ruled unconstitutional, even the administration says you no longer can ask the insurance companies to insure everybody.
A lot of Americans are going to be unhappy with that. They think the individual mandate is no big deal, but it is a big deal. Those 2 things go together. The second question is can we have the rest of healthcare reform without the individual mandate. And the answer is yes. It will not be as good, it will leave hundreds of thousands, if not several million, Americans with no health insurance. But as I said before, there are a lot of other aspects of this that are very important, particularly for the healthcare delivery system.
What I most fear is that the Supreme Court not only will rule that it is unconstitutional, but essentially wipe out the whole law. If that happens, we are heading for a very serious problem, and many people in the healthcare community know it. We will have 75 million Americans with no health insurance. We will have hospitals being squeezed by regulation or by millions of people coming in with no insurance. It will not be a pleasant sight if we were to wipe this law off the books.
Controlling Costs in Healthcare
Dr. Adashi: The most significant outcome would be that we will not be able to provide close to universal health insurance, which was obviously a main goal of the bill. Granted, the Affordable Care Act could not, and should not, have dealt with controlling costs. That aside for the moment, what would be your recommendations to this or future administrations as to how to go about controlling the cost of healthcare, since that is not going away and is not being addressed by the Affordable Care Act?
Dr. Altman: This is a tough issue. Let me start out by saying there is no magic pill. There are no single or double villains here. If anything, the reason why our healthcare is so expensive is because we are all part of the problem. If you compare us with other countries, physicians in this country make more than physicians in other countries. But I've come to believe that that's not the real problem. I always define people as rich if they make more money than I do. But, in and of itself, in every country physicians make more than the average person. It's a problem, but it's not a serious problem.
We use much more expensive technology and much more of it than other countries do -- whether it's end-stage renal disease or MRIs. But surprisingly, most people don't realize that we are less likely to go to the hospital than any country in the world. When we go into the hospital, we stay there a shorter period of time than almost any other country in the world. We have other things to do other than going to the doctor. We don't overuse a lot of aspects of the healthcare.
If you add up the "overuse" and the underuse, use is not really the driving force. What is driving costs are prices. It's like marbled cake; it's sort of intertwined in every aspect. Drugs are much more expensive here, equipment is more expensive, and physicians, but everybody in healthcare makes more money, nurses, accountants, and lawyers, even us consultants. And getting at that is very hard, so the bottom line is we do need to slow the growth rate.
Having the growth in healthcare at 2%-2.5% is faster than our income. When I started as a very young man, I will admit, in 1970-1971, we were spending $75 billion. It amounted to 7.5% of our gross domestic product (GDP). Today we're spending $2.5 trillion, and it amounts to 17.5% of GDP. People said the growth was unsustainable and we couldn't grow any faster. The truth is, we are going to grow faster because we want better healthcare. But we need to slow that growth rate.
My own view is we need to be careful that, yes, we should slow it, but we can't just wake up one morning and say healthcare should not grow at all, or healthcare should not grow by the cost of living. It can't happen. My bottom line is we need a combination. We need to put some parts of the healthcare on a budget. You can do that either through government or through the private market. Both have pluses and minuses. But we can't continue to have it open-ended.
It's a longer answer, but if you leave it open-ended, what's going to happen is parts of it, like Medicaid and Medicare, are going to be pushed down. Private insurance is going to be pushed up. More and more people won't be able to afford it. So, we've got to slow the growth rate and keep the gap from getting out of line. It's not an easy thing to do; I've tried it. I've been a regulator and a marketer for over 40 years, and I'll tell you, this country has tried everything. At the end of the day, we have not had the political will. It's not that we don't have the technical will, but we don't have the political will to really do what it takes to really slow this down.
Dr. Adashi: You really don't see us going under 17% of GDP any time soon, if ever?
Dr. Altman: We would have an open rebellion because what would happen is that Americans would find that they don't have the same access, that all of a sudden the quality of care that they've come to expect would deteriorate. We would have open rebellion on the part of people who provide the care. Physicians would become venture capitalists, which they are already. The answer is no, I do not. As a matter of fact, if you push me, I think we're probably going to get to 20% of GDP.
Healthcare Under a New President
Dr. Adashi: Next question is hypothetical, but as a resident of Massachusetts, what would healthcare be like under President Romney?
Dr. Altman: Well, if President Romney would only do what Governor Romney did, I wouldn't worry about it, because actually he deserves a lot of credit for what he did here in Massachusetts. We are very proud of our healthcare. I mean, overwhelmingly, Massachusetts people are very proud and like what happened here in spite of what some newspapers and others would say. We have the lowest uninsured rate in the country, and we are trying to grapple with slowing our growth rate in healthcare costs.
In a funny sort of a way -- and this may not be a politically correct answer -- but if President Romney were to dismantle healthcare reform but leave Massachusetts alone, we'd be okay. It's the rest of the country that's going to be in bad shape. Ironically, what healthcare reform does is it brings the rest of the country closer to what exists here in Massachusetts. Who knows what would happen, but I really think if Romney were ever to become president, he would never do the things he says he's going to do because he would find that in spite of the rhetoric, a lot of Americans do not want to go back to the environment that existed before the debate.
Altman's Healthcare Journey
Dr. Adashi: On a personal note, you're a graduate of UCLA -- how did you gravitate to healthcare policy and healthcare economics? You didn't quite start this way, did you?
Dr. Altman: No. I laugh because some people plan their life and it works the way the plan goes, and I'm sure many physicians are like that. From a very young age they want to be a physician, they work hard, they take science and so on and so forth. Maybe you were like that. My life didn't evolve that way at all. I grew up in New York, and I became interested in finance. I tell people that at age 16, I worked for a Wall Street firm and I got interested in finance, and I thought I was going to go into accounting and finance.
Then, I got under the wing of a very, almost charismatic professor who taught me about general economics. I went to UCLA to become a person involved in what we call human resources. I wrote my dissertation on unemployed married women, of all things. I want to take a little credit for the fact that I anticipated in the early 1960s that women were here to stay when it comes to the labor market.
Then crazy things happened. I wound up in the Pentagon working on an all-volunteer military during President Johnson, and I met a group of people from HEW, and they asked me to do a study about the supply of nurses.
Dr. Adashi: You're referring to the Department of Health, Education, and Welfare.
Dr. Altman: Yes, this was before the Department of Health and Human Services. I wrote a book on the supply of nurses, and then fluke of flukes, I wound up in the Nixon administration, having a very high position in that administration during the early 1970s, when government was a real force in healthcare. With the HMO Act, we doubled the number of training slots for physicians, we tried to regulate healthcare costs, and we set up planning agencies, and it gave me a ringside seat in almost every aspect of healthcare. Once I got into healthcare, I was hooked, and I've been part of it ever since.
Dr. Adashi: Thank you.
Dr. Altman: It's my pleasure.
Dr. Adashi: On this note, sincere thanks to Dr. Altman, and to you, our viewers, for joining Medscape One-on-One. Until next time, I am Eli Adashi.
Independent Payment Advisory Board Will Help Reduce Health Costs Repealing IPAB would Be Unwise
Friday, 30 March 2012 06:54
Contrary to critics’ claims, IPAB will not usurp the role of Congress in setting Medicare policy, nor will it limit Medicare beneficiaries’ access to care. Efforts to repeal IPAB are misguided. If successful, such efforts could lead to more draconian steps, such as replacing guaranteed Medicare benefits with a premium support system, or voucher, whose value would fall farther behind the cost of health care each year.
The Independent Payment Advisory Board is an expert body charged with developing and submitting proposals to slow the growth of Medicare and private health care spending and improve the quality of care. The President nominates the board’s 15 members, who require Senate confirmation, for staggered six-year terms. The board must include physicians and other health professionals, experts in health finance, health services researchers, employers, and representatives of consumers and the elderly. To prevent control by special interests, health care providers may not constitute a majority of the board’s membership.
If the projected growth in Medicare costs per beneficiary for 2015 and thereafter exceeds a specified target level (computed as a five-year moving average), the board must produce a proposal to reduce or eliminate the difference. If the board fails to submit the required proposal, the Secretary of Health and Human Services (HHS) must submit one instead. For 2015 through 2019, the target growth rate is the average of overall inflation and medical inflation. For 2020 and thereafter, the target is the rate of increase in gross domestic product (GDP) per capita plus one percentage point. The required reductions, however, may not exceed 0.5 percent of Medicare spending in 2015, 1.0 percent in 2016, 1.25 percent in 2017, and 1.5 percent in 2018 and thereafter. Thus, the target growth rate does not necessarily represent a binding cap on Medicare spending.
The board’s proposal (or that of the Secretary) may not include any recommendation to ration health care, increase Medicare premiums or cost-sharing, cut Medicare benefits, or restrict eligibility. It must focus exclusively on proposals for achieving savings in the payment and delivery of health care services — not shifting costs to beneficiaries.
The board’s recommendations will go into effect automatically unless Congress passes, and the President signs, legislation to modify or overturn them. Congress may consider, on a fast-track basis, an alternative proposal that achieves the same amount of savings; if the alternative proposal achieves a smaller amount of savings, approval requires a three-fifths vote of the Senate. If the board recommends changes that the President supports, the President can veto legislation to block them, and as is always the case, a two-thirds vote of the House and Senate would be required to override a veto.
Starting in 2015, the board is also required to make advisory recommendations at least every other year for slowing the growth of non-federal health care spending while preserving or enhancing the quality of care. These recommendations do not go into effect automatically and can be implemented only through discretionary actions by the federal government, state or local governments, or private-sector entities.
IPAB Will Backstop Other Cost-Control Measures
The Independent Payment Advisory Board provides an important backstop to the other cost-containment measures in the Affordable Care Act. The ACA puts in place several complementary approaches to slow the growth of Medicare costs.
First, the ACA trims payments to health care providers under Medicare’s current payment mechanisms. Medicare payment rates for covered services are updated annually based on increases in the prices of the goods and services purchased by providers. The ACA reduces the annual payment updates to account for improvements in economy-wide productivity in those cases where the updates did not already incorporate such adjustments. The productivity adjustments will have a big effect over the long run, reducing the growth of payments to providers by about one percentage point per year. The ACA also makes further reductions in the payment updates for hospitals through 2019 (in addition to the productivity adjustments), reduces overpayments to Medicare Advantage plans (the private insurance plans that participate in Medicare), and revises payments for home health care.
Second, the ACA begins to restructure the health care payment and delivery system to stop paying providers for more visits or procedures and begin rewarding effective, high-value health care. Among other steps, it reduces Medicare payments to hospitals with high readmission rates, creates new payment models to reward accountable care organizations (physician-led organizations that take responsibility for the cost and quality of care), and initiates pilot programs for bundling Medicare payments to hospitals and other medical facilities for services they provide during a single episode of care. The ACA also establishes a Center for Medicare and Medicaid Innovation to identify and foster new ways to increase the value of care and better coordinate care for low-income Medicare beneficiaries who also are enrolled in Medicaid, and gives the HHS Secretary authority to implement approaches that prove successful in reducing costs and maintaining health-care quality without new legislation. The Congressional Budget Office (CBO) has not estimated savings from these provisions in the next ten years because their effects are not yet proven, but they hold promise to slow the growth of Medicare spending over the long run.
The third element of cost-control is the Independent Payment Advisory Board, which serves as a backstop or fail-safe mechanism. Only if the first two approaches do not hold the growth of Medicare spending to the targets will the IPAB process be triggered.
Payment Changes Will Produce Most of the Needed Savings
Both CBO and the Administration project that the ACA’s explicit reductions in Medicare payment rates will produce most or all of the savings needed to meet the law’s spending targets and that IPAB recommendations will not be needed in the next few years.
According to the Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS), Medicare spending per beneficiary is projected to grow by about 3 percent a year over the next ten years, well below its average of 7 percent a year during the previous decade and also below the projected rate of growth of private health care costs. Both the 2011 Medicare trustees’ report and the President’s fiscal year 2013 budget project that IPAB will be called upon to reduce Medicare spending for 2018 and 2019 — but not in any other year.
CBO reaches much the same conclusion. It projects that Medicare expenditures per beneficiary will grow by an average of just under 3 percent per year from 2015 through 2022 and that IPAB will not be needed to achieve additional Medicare savings to hit the Medicare spending target in any of those years. Recognizing that any projections are uncertain, however, CBO acknowledges that there is some chance the IPAB mechanism will be triggered and therefore attaches a cost to repealing IPAB — about $3 billion over the next ten years.
Some observers have expressed concern that IPAB is prohibited from proposing cuts in hospital payments through 2019. Congress included this limitation in the ACA because hospitals agreed, as part of the ACA, to other reductions in their payment rates to help pay for health reform and to strengthen Medicare’s finances. The measure restricting IPAB from proposing reductions in hospital payments through 2019 will have little practical significance anyway if IPAB is not required to recommend significant savings during these years.
The chief actuary of CMS and other analysts have raised questions about whether the health-care sector can consistently achieve the same improvements in productivity as the rest of the economy, and therefore whether the productivity-based adjustments to Medicare’s payment rates can be sustained indefinitely. The actuary’s office has therefore prepared an illustrative alternative projection in which the productivity adjustments are gradually phased down after 2020. If the productivity adjustments in the Affordable Care Act were only partially implemented, as the actuary speculates, then IPAB would have an important role to play as a backstop method of cost containment. (Here, too, IPAB recommendations likely would not be needed before 2018.)
IPAB Will Not Usurp the Role of Congress
One criticism of IPAB is that it will usurp the role of Congress and place too much power in the hands of unelected government officials. This charge, however, is highly exaggerated.
To some extent, limiting congressional micromanagement of Medicare payment policy is desirable. Many times in the past, efforts to reform Medicare payments have been slowed or stopped by health-care interests that have successfully lobbied Congress to protect their income stream at Medicare’s expense. Examples include attempts to institute such basic, common-sense reforms as use of competitive bidding for durable medical equipment and measures to reduce overpayments to private insurance plans, secure better prices for prescription drugs, and place limits on physician-owned hospitals (which typically focus on highly profitable services and healthier patients). IPAB can give Congress political cover for making necessary but controversial decisions such as these that are opposed by special interests that can finance high-powered lobbying campaigns and make substantial campaign contributions.
Moreover, if Congress wishes to, it can structure the Medicare program so that it meets the spending targets without having to call upon IPAB. According to current projections, actions that Congress has already taken in enacting the ACA will do precisely that for much of the coming decade. But even if the IPAB process is triggered, Congress can always substitute its own proposals for those that IPAB recommends. Furthermore, as previously noted, the law places tight restrictions on what IPAB may propose; the board may not make recommendations to ration health care, cut benefits, increase premiums and cost sharing, or restrict eligibility for the program.
“Giving a body of experts the capacity to propose ways to slow spending growth will not diminish the power of elected officials,” a group of over 100 health policy experts has written, “because Congress may approve, disapprove, or replace the IPAB’s proposals with alternatives that achieve the same objectives.” As Rep. Henry Waxman (D-CA) has put it, “Congress has the final say over Medicare policy. And Congress has the final say over all IPAB recommendations.” Or as Rep. George Miller (D-CA) has observed, “Congress retains its role in health care — but in an improved, more efficient fashion.”
Alternatives to IPAB Would Be Far Worse
The other major criticism of IPAB is that it will limit beneficiaries’ access to care. This accusation is the opposite of the truth. In fact, if IPAB is repealed, the alternatives are likely to be much worse for Medicare beneficiaries.
IPAB has an important role to play in the effort to improve the efficiency of the health care payment and delivery system. Drawing on the studies, demonstrations, and pilot projects initiated by the ACA, the board will be in a position to develop thoughtful, cost-effective ways of slowing the growth of Medicare and other health spending instead of imposing across-the-board, poorly targeted cuts in payments to providers or increases in beneficiaries’ premiums or cost sharing.
For example, the law authorizes IPAB to recommend changes in relative payment amounts for different forms of care. IPAB could propose higher payments for treatments and prevention activities that are found to be more cost-effective. Such changes would not restrict the choices of either physicians or beneficiaries, but they could prompt both providers and patients to pay more careful attention to the latest research findings. IPAB could also recommend payment methods that would reward providers for quality and efficiency and offer incentives for consumers to choose more efficient providers or procedures.
IPAB is an important piece of the ACA’s strategy to slow the growth of health care costs through delivery system reforms, such as accountable care organizations, bundled payments, and comparative effectiveness research. If the law’s cost-growth target is missed, IPAB is charged with developing proposals to produce the requisite savings while shielding Medicare beneficiaries from increases in premiums or cost sharing or reductions in benefits. If IPAB is repealed, however, Congress is more likely to consider blunt proposals that would significantly shift costs to beneficiaries, such as sharply increasing Medicare premiums, deductibles, and co-insurance and raising the Medicare eligibility age.
Most important, repealing IPAB would fuel pressure to replace the current Medicare guarantee with a system of vouchers or premium support, under which beneficiaries would bear the brunt of efforts to control costs. Premium support would replace Medicare’s guarantee of health coverage with a fixed payment, or voucher, that beneficiaries would use to help them purchase either private health insurance or traditional Medicare. It would achieve budgetary savings by limiting the growth of the voucher to less than the rate of growth of health care costs. As a result, Medicare beneficiaries would have to pay more in premiums or receive less in benefits with each passing year — precisely the outcome that IPAB is directed to avoid.
As well as shifting costs to beneficiaries, premium support would deny Medicare much of its ability to serve as a leader in controlling health-care costs by depriving it of the considerable market power it enjoys based on its large enrollment. Thanks to Medicare’s role as the largest purchaser of health care, adoption by Medicare of IPAB recommendations is likely to lead in many cases to their adoption by private insurers as well, which have proven much less effective in driving cost control on their own, and who have often looked to Medicare to institute cost-containment measures first and then followed suit. In contrast, even if traditional Medicare were retained as an option, premium support would substantially reduce enrollment in traditional Medicare, dilute its buying power, and likely result in increases rather than decreases in overall health care costs.
Possible Improvements in IPAB
Critics of IPAB have also raised other objections to the board — some simply false, others inconsistent with each other. For example, opponents have erroneously claimed that IPAB members could accept gifts of money or property from lobbyists. In fact, the law makes clear that IPAB members are subject to the same ethical standards as officers of the executive branch — including a prohibition on receipt of gifts. Some critics have described the salaries of IPAB’s members as “generous,” while others have argued that the board won’t pay enough to attract a sufficient number of well qualified members. (IPAB membership will be a full-time position, and members will be compensated at the rate for level III of the Executive Schedule, currently $165,300 a year.)
None of this is to suggest that IPAB leaves no room for improvement. In particular, changes could be made that would allow IPAB to focus less on short-term savings and more on proposals to slow the growth of costs in the long run. In addition, since health care cost growth fundamentally is a system-wide problem rather than a Medicare-specific problem, Congress could allow IPAB to make binding recommendations to reform payments and slow cost growth in the private sector as well as in Medicare. While Medicare has frequently been the key leader in developing innovative ways to reduce costs, such as developing the prospective payment system for hospital care that was later adopted by private insurers, IPAB could be improved to help accelerate that trend. In these ways, IPAB could play an expanded role in promoting payment and delivery reform throughout the health care system.
 Patient Protection and Affordable Care Act, Public Law 111-148, section 3403, as amended by section 10320.
 For details of how the process will work, see Jack Ebeler, The Independent Payment Advisory Board: A New Approach to Controlling Medicare Spending, Kaiser Family Foundation, April 2011, http://www.kff.org/medicare/upload/8150.pdf.
 Office of the Actuary, Centers for Medicare & Medicaid Services, Projected Medicare Expenditures under an Illustrative Scenario with Alternative Payment Updates to Medicare Providers, May 13, 2011, https://www.cms.gov/ReportsTrustFunds/Downloads/2011TRAlternativeScenario.pdf.
 Centers for Medicare & Medicaid Services, National Health Expenditure Projections 2010-2020: Forecast Summary and Selected Tables, July 2011, table 17, https://www.cms.gov/NationalHealthExpendData/downloads/proj2010.pdf.
 Congressional Budget Office, Cost Estimate, H.R. 452, Medicare Decisions Accountability Act of 2011, March 7, 2012, http://www.cbo.gov/sites/default/files/cbofiles/attachments/hr452_2012.pdf.
 Office of the Actuary, Centers for Medicare & Medicaid Services, Projected Medicare Expenditures under an Illustrative Scenario with Alternative Payment Updates to Medicare Providers.
 Jennifer Haberkorn, “Health Policy Brief: The Independent Payment Advisory Board,” Health Affairs, December 15, 2011, http://healthaffairs.org/healthpolicybriefs/brief_pdfs/healthpolicybrief_59.pdf.
 Topher Spiro, The Independent Payment Advisory Board: Protecting Medicare Beneficiaries and Taxpayers from Special Interests, Center for American Progress, March 5, 2012, http://www.americanprogress.org/issues/2012/03/pdf/spiro_ipab.pdf.
 Henry Aaron and others, Letter to the Honorable John Boehner, Nancy Pelosi, Harry Reid, and Mitch McConnell, May 20, 2011, http://nchc.org/sites/default/files/resources/Document.pdf.
 Henry A. Waxman, Opening Statement, House Energy and Commerce Committee, Subcommittee on Health, July 13, 2011.
 George Miller, Testimony before the House Energy and Commerce Committee, Health Subcommittee, Hearing on the Independent Payment Advisory Board, July 13, 2011.
 Henry Aaron, “IPAB Repeal Not Warranted,” Politico, July 14, 2011.
 Timothy Stoltzfus Jost, “The Independent Payment Advisory Board,” New England Journal of Medicine, May 26, 2010.
 See, for example, Paul N. Van de Water, Raising Medicare’s Eligibility Age Would Increase Overall Health Spending and Shift Costs to Seniors, States and Employers, Center on Budget and Policy Priorities, August 23, 2011, and Juliette Cubanski et al., Restructuring Medicare’s Benefit Design: Implications for Beneficiaries and Spending,Kaiser Family Foundation, November 2011.
 Paul N. Van de Water, Converting Medicare to Premium Support Would Likely Lead to Two-Tier Health Care System, Center on Budget and Policy Priorities, September 26, 2011.
 U.S. House of Representatives, Committee on Ways and Means, Troubling Things You May Not Know About IPAB, March 5, 2012.
 Section 1899A(g)(1)(C) of the Social Security Act, as added by section 3403 of the ACA.
 Judith Feder, Testimony Before the House Committee on Energy and Commerce, Health Subcommittee, July 13, 2011.