SAN DIEGO, January 15, 2011–While Big pharmaceutical companies stand to win under Obamacare, this only holds true if the economy improves and local Accountable Care Organizations (ACOs) allow brand prescription drugs to remain on formulary (a formulary is an approved list of medications that physicians can prescribe for their patients under a given insurance/managed care plan).
The average physician, however, loses big under any scenario due to bundled services and decreased, capitated reimbursement. Meanwhile, local physician board members and medical society leaders stand to profit off of their colleagues’ misery as they position themselves at the center of ACO ‘medical homes’.
The Drug Company Perspective
The pharmaceutical industry recently expressed outrage over an Obamacare/Government practice known as “academic detailing” (or “counter-detailing”) wherein government-contracted nurses and pharmacists will meet with doctors to offer the government’s point of view on expensive pharmaceutical treatments. Big Pharma is concerned that legislation must address the issue of neutrality and fairness since (unlike their own corporate ‘drug reps’) the government detailers will not be regulated to insure the accuracy of their information. In 2009, Senator Kohl introduced The Independent Drug Education and Outreach Act to put limits on what detailing programs can receive grant money and what educational materials can be disseminated by these federally-promoted detailers. This legislation never advanced to law. The idea is that the same rules that govern accuracy and other such activity for the pharmaceutical industry should be universally applied to government detailers as well.
Big Pharma signed on to Obamacare back in 2009 after numerous meetings, including some White House secret deals that involved the President and the CEOs of major drug companies. After legislators passed the Patient Protection and Affordable Care Act (PPACA) legislation, however, many in the pharmaceutical industry began to express concern that they had made a bad decision. After all, if Obamacare were to derail the economy, and local ‘mini-HMOs’ called ACOs took hold, there would be less money for new, expensive (and often superior) brand medications as more emphasis would be placed on generic medicines. The drug industry is now counting on the influx of tens of millions of additional prescription recipients to offset any potential losses incurred in the push for a more ‘nationalized’/socialized medical drug delivery system (i.e., one that would push cheaper generics over brand name drugs).
In 2010, nearly 4 million people with Medicare who reached the program’s ‘Part D’ coverage gap received a one-time, tax-free rebate check for $250. (http://www.hhs.gov/news/press/2011pres/03/20110322a.html)
This political gesture caused a net $1 billion increase in Medicare expenditures; this also contributed to the declines in personal out-of-pocket (and private health insurance) prescription drug spending because of the infusion of ‘free’ taxpayer money into the system. All of this played well with the statistics offered to the public to show that Obamacare was indeed a cost-cutter, because one only had to look to see that patients were paying less for their drugs overall. Of course, this was a shell game, but it played well on some left-leaning media venues.
Healthcare reform reduced Medicaid spending too because Medicaid and the Children’s Health Insurance Program (CHIP) grew by only 0.7% in 2010 compared with 6.8% in 2009. Again, be careful not to fall for the political gamesmanship here, because the PPACA increased the Medicaid unit rebate amount and extended rebates to Medicaid managed care plans. Thus, federal expenditures on Medicaid grew by 2.5%
Overall, assuming a healthy economy and fair access to brand drugs at the level of local ACOs, drug companies will win under Obamacare because the new health care law will boost drug spending. CMS projects that annual drug expenditures will double in the next 10 years, to $512.6 billion by 2020.
And, compliments of the PPACA, retail drug spending is projected to grow $35.2 billion (+7.3%) higher in 2020 than it would have been without healthcare reform. (http://www.drugchannels.net/2011/08/cms-bright-future-for-drug-spending-in.html)
The Community Physician Perspective
Some may describe the Obamacare-Medicare Advantage financial scheme as a complex game pitting a select few doctor leaders and hospital/health system administrators against their physician colleagues. Sometimes called ‘coding for dollars’, Medicare payment schedules and Medical Advantage contracts with physicians can be very complicated and confusing. (http://www.soa.org/files/pdf/2009-toronto-health-collender-27.pdf)
The following piece is a good summary of the Medicare Advantage money stream: http://www.lifehealthpro.com/2011/02/18/cms-unveils-2012-medicare-advantage-payment-propos
It says, essentially, that “The national per capita Medicare Advantage health plan ‘growth Percentage’ change, or cost trend, will be just 0.7%, but that quality rating bonuses should increase the average actual Medicare Advantage per-capita payment by 1.6%.”
Here is Medicare’s April 2011 Medicare Advantage report that determines rates for 2012: https://www.cms.gov/MedicareAdvtgSpecRateStats/Downloads/Announcement2012.pdf
Basically, community-based ‘mini-HMOs’ called ACOs or Accountable Care Organizations will survive by managing sick patients in a comprehensive fashion. This will entail having an ethics panel review which patients can have certain surgeries, and have certain plan managers decide if payments to providers should be withheld for ‘inadequate’ or ‘poor’ care; it will also involve deciding how much certain specialty doctors will be paid compared to others in an attempt to save the federal government money (compared to historical, actuarial data). If the local ACO/’medical home’ is effective at saving money for a given patient/disease state, it will receive bonuses from Uncle Sam; if not, it will get less money.
Monthly capitated rates for Medicare Advantage plans are set by the feds in April the year before, and are based on the local FFS (Fee For Service) Medicare fee schedule. HMOs/IPAs/ACOs may earn more money (i.e., ‘double down’) by having a higher Risk Adjustment Formula (RAF) number. This number depends on ICD codes and other factors like age. (e.g., 90 year olds are more frail than 70 year olds, and diabetic patients with dementia cost more to take care of than non-diabetic, non-demented patients, etc.).
The Physician vs. ACO Battle
In the short run, physicians are set for further decreases in Medicare reimbursement. The SGR (Sustainable Growth Rate) formula for paying doctors for Medicare services is set for a 27.4% cut in 6 weeks if Congress cannot come up with either a semi-permanent ‘fix’ or, as they have done for years, simply apply another 2-6 month deferment on the rate decreases. Despite the often misquoted ‘rewards’ for physicians for the utilization of certain performance criteria, e-prescriptions and the like, doctors will face progressive cuts in Medicare pay (on top of the SGR cuts) starting in 2014 and beyond if they do not comply with every onerous layer of new government mandates in practice guidelines.
Thus, many doctors will not be able to sustain their current level of patient care in the near future. According to the Investor Business Daily poll of September 2009, and several polls by other sources since, upwards of 45% of physicians may stop seeing Medicare patients altogether or simply retire early.
Herein lies the rub for community doctors: Medicare Advantage plans like Secure Horizons may get more money every year for the near future (in contrast to decreasing doctors’ pay), but not actually pass these increased revenues along to physicians participating in IPA/ACO/’medical homes’. Remember: SGR cuts are only for Fee For Service (FFS) dollars paid to physicians, not for Medicare Advantage (MA) dollars paid to health systems. If FFS cuts go through, MA plans like Secure Horizons may still receive, for example, $400/month per capitated patient life (plus additional dollars for creative coding for various severe disease states) but then turn around and pay physicians 30% less based on the new fee-for-service/SGR formula.
Until the Medicare Advantage plan dollars are themselves cut in the future, the plans and individuals at the center of the ACO/medical home power structure could be pocketing the difference—potentially millions of dollars essentially picked from the pockets of community doctors. The profits for local and state medical society leaders who may be involved in such schemes could be multiple times what they would earn actually taking care of patients.
Hospital/Health Systems Commit Fraud to Garner Increased Federal Monies
In some cases, hospital systems—not unlike the core of the newly forming, Obamacare-mandated, ACO cost-cutting units—will game the ‘coding for dollars’ scheme to fraudulently capture more money from a shrinking national pie of health care funds. In the context of struggling community doctors, who will be facing decreasing slices of this pie, this is particularly disturbing. The added funds could be used to pad the pockets of the ACO/health system leaders.
Here, a “hospital’s reimbursement from Medicare increased by more than $6,700 [per patient under their care] – from $4,708 to $11,463 – by noting kwashiorkor [a rare, third-world country malnutrition problem] on the [patient’s] bill, according to a California Watch analysis of billing information obtained under the federal Freedom of Information Act.” This fraud was widespread and committed over 1,000 times in one year at just one location.
In the end, in typical big government fashion, the health reform movement made a crucial mistake in placing the power of cost-cutting measures in the hands of those who are not actually delivering direct patient care. Big Pharma made deals with the creators of Obamacare, and these deals may or may not end up being successful for the drug companies themselves. Most notably, consumers could end up losing because if needed new drugs cannot come to market due to restricted brand drug availability in local ACO formularies, resulting in decreased revenues and decreased research and development, then future breakthroughs and patient care innovations may never come to fruition.
Likewise, ACOs will be creating hundreds of community-based managed care power brokers, who will pit a select few potential profiteers (individuals and health systems) against the broader group of medical providers in a local area. If the doctors at the bedside and office setting cannot make ends meet and thus restrict services/access and/or close up shop altogether, the community as a whole will suffer.
The better way to implement health care reform would have been to do what both Hillary-care and Obama-care both failed to do: empower doctors themselves to create new ways to increase access and decrease costs and waste. Since the American Medical Association represents only a minority of community physician members, and has existing conflicts of interest due to tens of millions of dollars annually in federal-protected copyrights on medical billing codes, they were not an honest broker in the ‘Act’s’ creation.
The real danger moving forward with the implementation of Obamacare is that the law could be ruled unconstitutional and repealed, and yet local Accountable Care Organizations could live on. This may very well increase costs and waste by allowing middlemen to control, profit and manipulate community medical care for self-serving—not community-serving—purposes.
Doctor Dorin is a Hopkins-trained, board-certified anesthesiologist, practicing in a large group in San Diego. He is a small business owner, a Commander in the US Navy Reserves, and the Founder/President of America’s Medical Society, Inc., (AMS) a non-profit corporation created to serve and educate physicians and the general public in matters of national health-care reform and medical politics
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