Medical Economics
·
·
3 causes for rising
costs: fee-for service pricing, redistribution of dollars away from doctors and
hospitals to drug and device manufacturers, and the medical liability crisis
·
85% of Americans have health insurance. 60% obtain health
insurance through their place of employment or as individuals, and government
agencies provide health insurance to over 25% of Americans. In 2005, 46.6
million (16%) Americans were without health insurance.
·
The share of
workers who receive health insurance from their employer has fallen from almost
70% in the late 1970s to around 50% today. In the past five years, the percent
of businesses offering medical benefits has fallen from 70% to 60%, with the
steepest decline among small firms and those employing the low-skilled.
o Only 50% of small
businesses now offer health insurance, down almost 10 percentage points since
2000.
·
Employer-provided
health coverage for retirees, once common, has shrunk, although
·
Since most bills
are paid by a third party (the insurance company or the government), neither
patients nor doctors face real pressure to control costs. Overall, Americans
pay only $1 out of every $6 spent on their health care out of their own
pockets. Doctors are generally paid for individual services and so have an
incentive to perform too many procedures. The huge tax subsidies for
employer-purchased health insurance encourage expensive care. Rapacious lawyers
and the risk of being sued exacerbate the tendency towards unnecessary
“defensive” medicine.
·
Harry Truman
wanted to create a system of national health insurance in the 1940s. When
·
·
Soaring
health costs are placing pressures on employers and employees alike. In recent
weeks, companies like Wal-Mart have joined labor unions and consumer groups in
coalitions espousing universal coverage.
·
New radiation
machines for cancer or operating rooms for heart surgery are profit centers for
hospitals, for instance. Once a hospital installs a new catheter lab, it has a
powerful incentive to refer more patients for the procedure. It's a classic
case of increased supply driving demand.
·
Evidence-Based
Medicine is being used to
evaluate the cost-effectiveness of treatments.
History
·
1940s: During the second world war
businesses, limited by wage controls, used health insurance as a way to hire
new workers.
·
1965: Medicare and Medicaid are
passed by Congress
·
1993-1994: President Bill Clinton
attempted a major reform of US health care but was unable to get the
legislation passed by Congress.
Recent developments
·
George Bush
proposes replacing the $200 billion tax subsidy for employer-purchased health
insurance with a standard (and limited) deduction for everyone who buys
insurance. His budget also cuts $70 billion from Medicare, including payments
to providers and raising premiums for high-income beneficiaries
(means-testing).
·
Pete Stark, the
top man on health in the House of Representatives, wants to move
·
The debate in
·
Unions and
business groups are also demanding action. Lee Scott, head of Wal-Mart, the
world's biggest retailer and a company often pilloried by the political left,
recently joined forces with Andy Stern, a top union leader, to push for
universal health coverage by 2012.
·
Health Care







The Uninsured
·
The number of
uninsured in the
·
The majority of
the uninsured are employed young adults. 43% are not
·
In practice, the
uninsured get emergency care at hospitals’ emergency rooms,
which is paid for by higher premiums for everyone else.
·
·
The American
Medical Association wants coverage for low-income people and children to be
expanded incrementally in the short term. In the long term, the AMA seeks a
market-based plan that uses tax credits and insurance market reforms to boost
coverage.



Private
Healthcare Financing
·
Source: “Fresh
Pain for the Uninsured”, Businessweek,
11/21/07
·
Patients pay $250 billion in medical expenses out of
their pockets. The figure could hit $420 billion by 2015.
·
When they don't get paid immediately, hospitals and
physicians typically recover around 10¢ on the dollar owed, even when they hire
collection specialists.
·
Providers are patient accounts wholesale to finance
companies, banks, credit-card companies, and even private equity firms. Many of
these third parties use credit scores and risk-analysis software to price the
debt and impose interest rates as high as 27% on past-due bills.
·
General Electric finance CareCredit
card to dentists, plastic surgeons, and some hospitals, with loan volume
expected to hit $5 billion this year, up 40% from 2006. Citigroup and Capital
One now offer similar cards.
o The GE card typically
comes with an introductory 0% interest rate, but if a payment is missed, the
rate can leap to 26.99%.
o
About
80 percent of the medical loans that CareCredit
provides are paid off on schedule and incur no finance charges, according to
the company’s president, Michael J. Testa. That, the
companies say, justifies the high default interest rates for late payments,
since that is the way they recoup the costs of doing business.
·
The zero-interest
plans are are available only to the creditworthy and typically
are due within 12 months. Otherwise, the loans after defaults can carry
interest rates of 20 percent or more.
·
For
people who think they could not pay off a zero-interest loan within a year,
most credit companies also offer longer-term medical financing deals with 12
percent to 13 percent interest payable over several years. Those plans, though,
must be arranged at the outset of the medical expense; a zero-interest plan
typically cannot be converted to the longer-term program
·
Credit
companies make money even on the interest-free deals, because they are typically
keeping 10 percent of the fee the doctor charges the patient.
·
On customers
who are good credit risks, the lender’s commission might be only 4 percent to 5
percent. But for patients with low credit ratings, a the
commission may be as high as 75 percent.
·
Source:
“Doctors Offering No-Interest Loans to
Patients”,
Hospitals
·
Lawmakers and the IRS are investigating whether nonprofit
hospitals provide sufficient free care to the uninsured to warrant more than
$50 billion in annual tax breaks.
·
Courts have
ruled that hospitals can qualify as tax-exempt under Section 501(c)(3) of the
U.S. tax code if they simply provide health care, don't blatantly deny care and
don't have shareholders who reap profits - no matter how little charity care
the hospitals actually provide.
·
In 2001 the IRS
said hospitals have to provide only limited community benefits, such as
accepting Medicare and Medicaid patients, to qualify for total exemption.
Hospitals do not even have to operate an emergency room to qualify.
·
The General
Accounting Office found that 57% of non-profit hospitals provided less charity
care than the tax benefits the hospitals received.
·
·
Joint Commission on the Accreditation of
Healthcare Organizations (JCAHO)
Hospital
Systems
·
Ascension Health is the
·
In the
o
HealthSouth is also the leading
provider of rehabilitation services.
Convenient Care Clinics
·
“Convenient care” clinics
have opened in shopping malls and inside pharmacies, and are open odd hours and
on the weekends.
·
CVS,
·
They typically charge
$50 or $60 for a visit, half or less of what it would cost to consult a doctor
and a quarter of the cost of a visit to an emergency centre. In recent months
American insurance companies and even Medicare (the government health-insurance
scheme for the elderly) have decided to extend their coverage to retail
clinics.
·
Some of these clinics
are staffed by doctors. But others use nurse-practitioners.
Private Health
Insurance
Blue Cross Blue Shield
·
The Blue Cross and Blue Shield Association is the
national trade organization that links 38 independent regional health insurance
companies.
·
Based in
·
Though historically "Blue Cross" was used for
hospital coverage while "Blue Shield" was used for medical coverage,
in most of the country one insurer operates under both brands.
·
In 1929
o
The cross symbol was first used in a 1934 advertisement
for the Hospital Service Association, today known as Blue Cross and Blue Shield
of Minnesota, and the Blue Cross began to be used in other parts of the
country.
o
In 1939, the American Hospital Association began using
the Blue Cross symbol to signify that health plans across the country met
certain standards. The AHA continued to administrate the use of the symbol
until the Blue Cross Association was founded in 1960. The two organizations
remained affiliated until 1972.
·
Another health plan gained popularity in the lumber and
mining camps of the Pacific Northwest that provide medical care by paying
monthly fees to medical service bureaus composed of groups of physicians. The
first of these, Pierce County Medical Bureau in
o
The shield symbol was created in
o
In 1948 the symbol was informally adopted by nine plans
called the Associated Medical Care Plans, and was later renamed the
National Association of Blue Shield Plans.
·
Blue Cross and/or Blue Shield insurance companies are
franchisees, independent of the association (and traditionally each other),
offering insurance plans within defined regions under one or both of the
association's brands.
·
Blue Cross-Blue Shield insurers offer some form of health
insurance coverage in every
o
The 14-state WellPoint is the
largest Blue Cross-Blue Shield member, and is a publicly-traded company. Other
multi-state organizations include CareFirst in the
Mid-Atlantic and The Regence Group in the
·
They also act as administrators of Medicare in many
states or regions of the
·
Many plans are administered by not-for-profit
organizations, while others are for-profit companies.
·
Aetna is the descendant of Aetna Insurance Company, of
·
In 1998, Aetna bought NYLCare
Health Plans for $1.05 billion, and in 1999 it bought Prudential HealthCare for
$1 billion, making it the largest provider of health benefits in the
·
In 2002, Aetna agreed to streamline communications,
reduce administrative complexity, and improve the quality of the health care
system, ending litigation between
·
In 2005, the company had $1.1 billion in earnings and
15.8 million medical members
CIGNA
·
Philadelphia-based CIGNA is the oldest stock insurance company in the

·
Managed care usually refers to a HMO, PPO, or POS plan.
·
Many traditional health insurance plans now incorporate
some managed care features such as precertification
for non-emergency hospital admissions and utilization reviews.
·
A Point of Service
(POS) plan utilizes some of the features of both HMOs and PPOs.
Members of a POS plan do not make a choice about which system to use until the
point at which the service is being used.
Health Maintenance
Organizations (HMOs)
·
A health maintenance organization (HMO)
contracts with hospitals, doctors, and other providers. Care follows a set of
care guidelines provided through the HMO's network of providers.
·
Providers contract with an HMO to receive more patients
and in return usually agree to provide services at a discount. This allows the
HMO to charge a lower monthly premium.
·
Most HMOs require members to select a primary care
physician, a doctor who acts as a "gatekeeper"
to medical services. PCPs are usually internists, pediatricians, family
doctors, or general practitioners, who authorize referrals to specialists if
deemed necessary. Emergency medical care does not require prior authorization
from a PCP, and many plans also allow women to select, in addition to a PCP, an
OB/GYN whom they may see without referral.
·
HMOs also manage care through utilization review. The
amount of utilization is usually expressed as a number of visits or services or
a dollar amount per member per month. Utilization review is intended to identify
providers providing an unusually high amount or an unusually low amount of
services.
·
HMOs often provide preventive care for a lower copayment or for free. When HMOs were coming into
existence, indemnity plans often did not cover preventive services, such as
immunizations, well-baby checkups, mammograms, or physicals. It is this
inclusion of services intended to maintain a member's health that gave the HMO
its name. Some services, such as outpatient mental health care, are often
provided on a limited basis, and more costly forms of care may not be covered. Experimental
treatments and elective services that are not medically necessary (such as
elective plastic surgery) are almost never covered.
·
HMOs arrange with providers through a system called capitation, where certain providers
(usually PCPs) receive a fixed payment per member per month and in return
provide certain services for free. Under this arrangement, the provider does
not have the incentive to provide unnecessary care, as he will not receive any additional
payment for the care.
·
Since the 1980s, HMOs have been protected by Federal law
from malpractice litigation on the grounds that the decisions regarding patient
care are administrative rather than medical in nature.
·
Independent
practice associations (IPAs) take contracts from HMOs
and then negotiate with individual physicians to provide services for HMO
members.
Preferred Provider Organization
(PPO)
·
In PPOs the policy-holder is
free to choose his/her own physician, although they will generally receive
greater benefits returns (possibly including lower deductibles, lower copayments, and higher reimbursement percentages) if a
pre-approved "network" of caregivers and facilities is utilized in
non-emergency situations, and a PCP is identified and
consulted.
·
These "network" caregivers and facilities are
independent of insurance company ownership, and may hold contracts for
reimbursement with multiple insurers.
·
"Pre-certification" (prior approval) may be
required before nonemergency hospital admissions,
testing, consultations or outpatient surgery under many plans.
Consumer
directed health plans (CDHP)
·
Consumer directed health plans (CDHP), originating in
the late 1990s primarily from health e-commerce ventures, made cost and quality
information evident directly to the consumer, usually through the Internet,
thus creating a more efficient health care market.
·
Since that time, the CDHP design has dropped Internet
capabilities as a primary distinction and focused on the use of a health
benefit that couples a high deductible health plan (HDHP) with an account to
pay for first dollar medical care expenses. Typically, there is a gap between
the account contribution and deductible threshold, with unused portions of the
account accruing without tax penalty into the subsequent benefit year.
·
The most common models of these plans today are Health
Reimbursement Accounts (HRAs) and Health Savings
Accounts (HSAs).
Health
Savings Accounts (HSAs)
·
HSAs were established by the
Medicare Prescription Drug, Improvement, and Modernization Act which was signed
into law by President Bush in 2003.
·
In order to contribute to an HSA, the account owner must
be enrolled in a High Deductible Health
Plan (HDHP).
o
HSA account owners who are not enrolled in HDHPs may use funds in the account but may not continue to
make contributions.
o
The maximum out-of-pocket expense liability is often less
than that of a traditional health plan. This is because a qualified HDHP often
covers 100% after the deductible, thus eliminating co-insurance.
o
The premium for a HDHP generally is less than the premium
for traditional health care coverage. This is mostly due to the elimination of
co-payments and the higher deductibles.
o
There are no separate deductibles for prescriptions or
office visits. All money spent on these expenses are
typically credited to one's deductible.
·
They may be
funded by pre-tax dollars.
o
The deposits may be made on a pre-tax basis through an
employer if the employer's fringe benefits plan permits such deposits. If this
option is not available through the employer, contributions may be made on a
post-tax basis and then used to decrease taxable income on the following year's
Form 1040
o
Deposits to an HSA may be made by any policyholder of a
qualified High Deductible Health Plan (HDHP), or by an employer on behalf of a
policyholder.
o
If an employer makes deposits to an HDHP on behalf of its
employees, non-discrimination rules apply — that is, all employees must be
treated equally. The only exceptions to the non-discrimination rules are that
employers may treat full-time and part-time employees differently, and
employers may treat individual and family participants differently.
o
Funds deposited into an HSA are immediately
"vested," that is, available to the participant, regardless of the
source of those funds.
·
The annual maximum deposit to an HSA is the lesser of the
HDHP deductible or specified IRS limits. In 2006, the IRS limits are $2,700 for
individual plans and $5,450 for family plans. All contributions to an HSA,
regardless of source, count toward the annual maximum.
o
If a person is a participant in an HDHP for less than an
entire year, the maximum deposit is prorated based on the number of months the
person is enrolled in the HDHP. A catch-up provision also applies for HDHP
participants who are age 55 or over, allowing the IRS limit to be increased. In
2006, the maximum catch-up amount is $700
o
All deposits to an HSA become the property of the
policyholder, regardless of the source of the deposit. If the policyholder ends
participation in the HDHP, he or she loses eligibility to deposit further
funds, but funds already in the HSA remain available for use.
o
Increases in balances due to interest income do not count
against the maximum allowable annual contribution.
·
The funds roll
over each year and earn interest (unlike Medical Savings Accounts (MSAs)).
o
Funds in an HSA can be invested in stocks, bonds and
mutual funds (similar to IRAs), and many HSAs are
offered by investment firms and banks that do not sell health insurance. As
with IRAs, investment earnings are sheltered from taxation until the money is
withdrawn.
·
Withdrawals are
tax-free
when used for specific qualified medical expenses.
o
Qualified medical expenses include deductibles and
coinsurance as well as many other expenses not covered under medical plans,
such as dental, vision and chiropractic care; durable medical equipment such as
eyeglasses and hearing aids; purchase and use of over-the-counter medication;
and transportation expenses related to medical care.
o
There are several ways that funds in an HSA can be
withdrawn. Some HSAs include a debit card, some
supply checks for account holder use, and some allow for a reimbursement
process similar to other types of insurance. Most HSAs
have more than one possible method for withdrawal.
o
If funds are withdrawn for a reason other than a
qualified medical expense, those funds become subject to income tax and a 10%
penalty. Once a person reaches the age of 65 or becomes disabled, however,
funds can be withdrawn from an HSA for any reason without penalty. For funds
that are used for non-medical expenses, regular income tax needs to be paid.
o
When a person dies, the funds in their HSA are
transferred to the beneficiary named for the account. If the beneficiary is a
surviving spouse, the transfer is tax-free.
·
Many consumer organizations, such as Consumers Union, and
many medical organizations, such as the American Public Health Association,
have rejected HSAs because they benefit only healthy,
younger people and make the health care system more expensive for everyone
else.





Percent HMO Penetration, by State and
Region, 2005

Medicare
·
Medicare was signed into law in
1965 as an amendment to Social Security legislation.
o Medicare Part D covers prescription
drug costs for Medicare beneficiaries. It was enacted as part of the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) and started
on January 1, 2006.
·
The Centers for
Medicare and Medicaid Services (CMS) administers
Medicare, Medicaid, the State Children's Health Insurance Program (SCHIP), and
the Clinical Laboratory Improvement Amendments (CLIA).
o CMS was formerly HCFA (Health Care Finance Agency);
it was renamed in 2001
o CMS is a component of the Department of Health
and Human Services (HHS). Headquarters are in
o The Social Security
Administration is responsible for determining Medicare eligibility and
processing premium payments for the Medicare program.
·
Medicare is partially financed by payroll taxes imposed by the Federal Insurance Contributions Act
(FICA) and the Self-Employment Contributions Act of 1954.
o In the case of
employees, the tax is equal to 2.9% (1.45% withheld from the worker and a
matching 1.45% paid by the employer) of the wages, salaries and other
compensation in connection with employment.
o Until 1993, the law
provided a maximum amount of wages, etc., on which the Medicare tax could be
imposed each year. Beginning 1994, the compensation limit was removed.
o In the case of
self-employed individuals, the tax is 2.9% of net earnings from
self-employment, and the entire amount is paid by the self-employed individual.
·
Eligibility: In general, individuals
are eligible for Medicare if they (or their spouse) worked for at least 10
years in Medicare-covered employment and are at least 65 years old and
are a citizen or permanent resident of the
o Individuals who are under 65 years old can also be eligible if they are disabled
or have end stage renal disease. People under 65 and disabled must be receiving
disability benefits from either Social Security or the Railroad Retirement
Board for at least 24 months before automatic enrollment occurs.
·
In 2005, Medicare provided health care coverage for 42.5
million Americans. Enrollment is expected to reach 77 million by 2031.
o Medicare processes over
one billion fee-for-service claims per year, making it the nation’s largest
purchaser of managed care.
o In 2003, Medicare
accounted for almost 13% of the entire Federal Budget.
o 33 cents of every dollar
spent on health care in the
·
Part A: Hospital payments. Part B: Doctor’s
payments. Part D: Drug Coverage.
Part A: Hospital Insurance
·
Part A covers hospital stays.
·
It will pay for nursing home stays if certain criteria
are met:
·
The maximum length of stay that Medicare Part A will
cover in a skilled nursing facility per ailment is 100 days. The first 20 of
those days would be paid for in full by Medicare with the remaining 80 days
requiring a co-payment (currently $119.00 per day). Many insurance companies
will have a provision for skilled nursing care in the policies they sell.
·
Diagnosis-Related Group (DRG) is a system to classify hospital
cases into one of approximately 500 groups, developed for Medicare as part of the prospective payment
system. DRGs have been used since 1983 to determine
how much Medicare pays the hospital, since patients within each category are
similar clinically and are expected to use the same level of hospital
resources.
Part B: Medical
Insurance
·
Part B coverage includes physician and nursing services,
x-rays, laboratory and diagnostic tests, influenza and pneumonia vaccinations,
blood transfusions, renal dialysis, outpatient hospital procedures, and limited
ambulance transportation.
·
Part B also helps with durable medical equipment (DME),
including canes, walkers, wheelchairs, and mobility scooters.
·
Prosthetic devices such as
artificial limbs and breast prosthesis following mastectomy, as well as one
pair of eyeglasses following cataract surgery, and oxygen for home use is also covered.
·
Part B is optional and may be deferred if the beneficiary
or their spouse is still actively working. There is a lifetime penalty (10% per
year) imposed for not taking Part B if not actively working.
Part C: Medicare
Advantage plans
·
With the passage of the Balanced Budget Act of 1997,
Medicare beneficiaries were given the option to receive their Medicare benefits
through private health insurance plans, instead of through the Original
Medicare plan (Parts A and B). These programs were known as "Medicare+Choice" or "Part C" plans.
·
Between 1999 and 2002, HMOs across the country dropped
more than 2 million enrollees from their Medicare+Choice
plans (now known as Medicare Advantage). Providers claimed government payments
fell far short of their costs and labeled Medicare a financial black hole.
·
Pursuant to the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003, the compensation and business practices for
insurers that offer these plans changed, and "Medicare+Choice"
plans became known as "Medicare
Advantage" (MA) plans. In addition to offering comparable coverage to
Part A and Part B, Medicare Advantage plans may also offer Part D coverage.
Part D: Prescription Drugs
·
Beneficiaries must enroll in a stand-alone Prescription
Drug Plan (PDP) or Medicare Advantage plan with prescription drug coverage
(MA-PD). These plans are approved and regulated by the Medicare program, but are
actually administered by private health insurance companies.
·
Prescription
drug benefit plan is optional – participants must pay additional premium
(35$/month, 250$ deductible), 75% of costs covered to $2250, then 95% above
$5100. A
“Donut Hole", that requires seniors to pay the full cost of drugs when the
cost runs between $2250 and $5100.
·
Estimated to
cost $537 billion over 10 years
·
While the Veterans Administration has been allowed to
negotiate the cost of prescriptions provided to its beneficiaries, the federal
government, on behalf of Medicare, has been specifically disallowed by
legislation from negotiating prices for the same medications.
Premiums
·
Most people do not pay a monthly Part A premium, because
they (or a spouse) have had 40 or more quarters where they paid FICA taxes. For
Medicare eligible beneficiaries who do not have 40 or more quarters of
Medicare-covered employment, Part A may be purchased for a monthly premium of:
$216.00 per month (in 2006) for people having 30-39 quarters of Medicare-covered
employment or $393.00 per month (in 2006) for people who are not otherwise
eligible for premium-free hospital insurance and have less than 30 quarters of
Medicare-covered employment.
·
Everyone with Medicare Part B pays a premium, which for
2006 is $88.50 per month. It is common for this premium to be automatically
deducted from beneficiaries’ monthly Social Security check. Some people may
qualify to have other governmental programs pay this premium for them.
Medicare Reimbursement
·
Rates are set by
CMS
·
Balance Budget
Act of 1997 capped federal funds available for Medicare
Institutional Reimbursement
·
For institutional care such as hospital and nursing home
care, Medicare uses prospective payment
systems. A prospective payment system is one in which the health care
institution receives a set amount of money for each episode of care provided to
a patient, regardless of the actual amount of care used.
·
The actual allotment of funds is based on a list of diagnosis-related groups (DRG). The
actual amount depends on the kind of diagnosis made at the hospital.
o There are some issues
surrounding Medicare's use of DRGs because if the
patient uses less care, the hospital gets to keep the remainder. This, in
theory, should balance the costs for the hospital. However, if the patient uses
more care, then the hospital has to cover its own losses. This results in the
issue of "upcoding," when a physician makes
a more severe diagnosis to hedge against accidental costs
Medicare Physician Reimbursement History
·
Initially, Medicare compensated physicians on based on
the physician's charges, and allowed physicians to bill Medicare beneficiaries
the amount in excess of Medicare's reimbursement. For nearly 30 years from Medicare's
birth in 1965, the program operated under some form of the "usual,
customary and reasonable" physician fee system. As long as a doctor quoted
his or her usual charge for a procedure and as long as that figure was within a
certain range of fees that physicians in the same area were charging for the
same service, Medicare would pay its full share. Physicians were subject to
certain limits in what they charged, but they would hit these caps only if they
raised fees past the top end of the range. At that point, Medicare would pay
them at the upper limit for that area. If more and more physicians in the
region increased their fees at the same time, the maximum charge would rise
accordingly. Doctors soon found that they could discover Medicare's limits by
charging increasingly higher rates until the government checks started coming
back short. Medicare had adopted this payment structure because it was demanded
by a physician community that was opposed to the creation of the program in the
first place. But much of this opposition turned to approval once doctors
realized it could be profitable to see Medicare patients and to increase the
volume of services that they were offering them. There was a lot of criticism
that Medicare essentially became a money-making machine for physicians
·
In 1975, annual increases in physician fees were limited
by the Medicare Economic Index
(MEI). The MEI was designed to measure changes in costs of physician's time and
expenses, adjusted for changes in physician productivity. Within years of Medicare's launch
they started imposing more limits on how much physicians actually could charge.
A series of revisions to the program's statute implemented more stringent
controls on fee increases, created incentives for doctors to accept discounted
rates and reduced reimbursements for procedures that were deemed to be
overvalued.
·
From 1984 to 1991, the yearly change in fees was
determined by legislation. This was done because physician fees were rising
faster than projected.
·
The Omnibus Budget Reconciliation Act of 1989 made
several changes to physician payments under Medicare. Firstly, it introduced
the Medicare Fee Schedule, which took effect in 1992. Secondly, it limited the
amount Medicare non-providers could balance bill Medicare beneficiaries.
Thirdly, it introduced the Medicare
Volume Performance Standards (MVPS) as a way to control costs aimed at controlling spikes in the
volume and intensity of services.
o Relative Value Units (RVUs)
were assigned for each procedure from the Resource-Based
Relative Value Scale (RBRVS). The Medicare reimbursement for a physician
was the product of the RVU for the procedure, a Geographic Adjustment Factor (GAF) for geographic variations in
payments, and a global Conversion Factor
(CF) which converts RBRVS units to dollars.
o RBRVS was created at
o Starting in 1991, the American
Medical Association has updated RBRVS continually. As of 2003, over 3500
corrections were submitted to the CMS.
o CPT codes are developed
by a seventeen member committee known as the CPT Editorial Panel. The AMA
nominates eleven of the members while the remaining seats are nominated by the
Blue Cross Blue Shield Association, the Health Insurance Association of
America, CMS, and the American Hospital Association. The CPT Committee issues
new codes twice each year.
o The Relative Value
Update Committee (the RUC) determines the Resource Based Relative Value for
each new code and revalues all existing codes at least once every five years.
The RUC has 29 members, 23 of whom are appointed by major national medical
societies. The six remaining seats are held by the Chair (an AMA appointee), an
AMA represenative, a represenative from the CPT Editorial Panel, a
representative from the American Osteopathic Association, a representative from
the Health Care Professions Advisory Committee and a representative from the
Practice Expense Review Committee.
o The new system established a set fee schedule by
assigning each service a certain number of relative value units based on the
amount of time and resources that a physician was expected to spend on
providing the procedure. Newer and more complex services, for example,
generally would receive a higher relative value than procedures that physicians
could perform quickly and easily. Medicare then employed a special conversion
factor to turn the relative value into a dollar figure that the government
would pay to all the physicians in a given area.
o Some primary care physicians still
complained that the RVUs for services that they
provided remained undervalued compared with the ones specialists offered.
o The practice of balance billing, in
which doctors charged some patients the difference between Medicare's allowed
rate and the physician's fee, had been prohibited for Medicare-participating
physicians since the concept of accepting Medicare assignment came into being
in the mid-1980s. Now it also became strictly limited for physicians who were
nonparticipating and who accepted Medicare patients only on a case-by-case
basis.
o From 1992 to 1997,
adjustments to physician payments were adjusted using the MEI and the MVPS,
which essentially tried to compensate for the increasing volume of services
provided by physicians by decreasing their reimbursement per service.
·
In 1998, Congress replaced the VPS with the Sustainable Growth Rate (SGR). This was
done because of highly variable payment rates under the MVPS. The SGR attempts
to control spending by setting yearly and cumulative spending targets and with the nation's economy (GDP). If spending for a given
year exceeds the spending target, reimbursement rates are adjusted downward by
decreasing the Conversion Factor (CF)
·
Reimbursement is
currently determined by: Reimbursement = RBRVS x CF x GAF
o Resource
Based Relative Value Scale (RBRVS):
composed of three Relative Value Units (RVU) – work RVU, practice expense RVU, and malpractice (PLI) RVU –
multiplied by Geographic Practice Cost Index (GPCI)
§
= (Work RVU + Expense
RVU + PLI RVU) x GPCI
§
RVUs determined by Current
Procedural Terminology (CPT) code
§
RBRVS vary
between specialties. RVUs reviewed every 5 years.
§
Medicare
RBRVS: The Physicians' Guide
o Conversion
Factor (CF) updated yearly and is determined by the Sustainable Growth Rate
(SGR) formula to keep spending
controlled. If spending exceeds the target, CF is lowered the next year.
Affects all specialties equally.
§
Determinants:
medical inflation, U.S. GDP, number of beneficiaries, changes in regulations.
o Most specialties charge
200-400% of Medicare rates for their procedures and collect between 50-80% of
those charges, after contractual adjustments and write-offs.
o Although the RBRVS
system is mandated by CMS and the data for it appears in the US Federal
Register, the AMA maintains that their copyright of the CPT allows them to
charge a license fee to anyone who wishes to associate RVU values with CPT
codes. The AMA receives approximately $70 million annually from these fees,
making them reluctant to allow the free distribution of tools and data that
might help physicians calculate their fees accurately and fairly.
·
Medicare CF
updates: 1998 2.3%, 1999 5.5%, 2000 5.9%, 2002 -4.8%, 2003 1.6% (after Congress
prevented cut), 2004 1.5% (see below)
o From 2003 to 2007, the SGR mechanism was
scheduled to decrease physician payments by 4-5%. Congress overrode this
decrease in these years to hold physician payments essentially at their current
levels.
o Cuts of up to 7% per year (the most allowed) are
predicted 2008-2011. Without further continuing congressional intervention, the SGR is expected
to decrease reimbursement up to 40% by
2013.
o Physician groups, including the AMA, say Congress
should connect physician payments directly to the Medicare Economic Index, a
projection of how much doctors' costs of providing patient care go up each
year. Medicare's reimbursement formula takes into account the MEI when
calculating physician pay but lowers rates if the economy dips or physicians
exceed spending limits. But the Congressional Budget Office projects that
scuttling the current payment formula and giving doctors a percentage increase
equal to the MEI each year would run more than $200 billion over 10 years.
Medicare Reimbursement Update
·
In
late December 2007, Congress passed the Medicare, Medicaid and SCHIP Extension
Act of 2007 giving physicians a 0.5% payment increase from January 1 through
June 30, 2008; temporarily canceling a 10.1% cut that was scheduled to take
effect January 1, 2008.
·
The
way in which Congress financed this temporary reimbursement increase means that
in the absence of congressional action, the payment cut in July will be about
10.6%.
·
The
Congressional Budget Office now estimates that the cut in 2009 will be
approximately 5 percent.
·
The
participation decision period now runs through February 15, 2008, instead of ending on December 31,
2007. All participating status changes will be effective January 1, 2008. Once
finalized, Medicare participation and non-participation decisions are binding
for the entire year.
·
Physician
Quality Reporting Initiative (PQRI): This program, initially launched by CMS in July 2007, encourages
quality improvement through the use of clinical performance measures. Physicians
who meet the requirements of the program may be eligible to receive a 1.5
percent bonus payment, subject to a cap, on all Medicare claims. The bonus
payment will be made sometime in 2009. Eligible physicians should begin
submitting appropriate 2008 Quality Data Codes on qualifying Part B claims.
Information on the 119 PQRI measures and detailed specifications are available
on the CMS Web site at http://www.cms.hhs.gov/pqri.
o To assist physicians who elect to
participate, the American Medical Association has developed participation tools
for all of the measures in the 2008 PQRI program. The tools are designed to aid
physicians wishing to participate in the program to identify measures relevant
to their practice and facilitate the data collection required to report
clinical performance data. For each of the 119 measures in the program, the
tools are now available online at http://www.ama-assn.org/go/toolsMedicarePQRI





Medicare Future Viability
·
In its 2006 annual
report to Congress, the Medicare Board of Trustees reported that the program's
hospital insurance trust fund could run out of money by 2018. The trustees have
made such projections in the past, but this one was bleaker than the outlook
reported just last year.
·
The ratio of workers paying Medicare taxes to retirees
drawing benefits is shrinking at the same time that the price of health care
services per person is increasing. Currently there are 3.9 workers paying taxes
into Medicare for every older American receiving services.
By 2030 that will drop to 2.4 workers for each beneficiary.
·
Part of the cost of Medicare is fraud, which government auditors estimate costs Medicare billions of dollars a year.
The Government Accountability Office lists Medicare as a "high-risk"
government program in need of reform, in part because of its vulnerability to
fraud and partly because of its long-term financial problems.


·
Medicaid is the health insurance program for individuals and
families with low incomes and resources.
·
Medicaid was created in 1965 through Title XIX of the
Social Security Act.
·
Each state administers its own Medicaid program while the
federal Centers for Medicare and Medicaid Services (CMS) monitors the state-run
programs and establishes requirements for service delivery, quality, funding,
and eligibility standards.
o
State participation in Medicaid is voluntary; however,
all states have participated since 1982.
o
In some states Medicaid is subcontracted to private
health insurance companies, while other states pay providers (i.e., doctors,
clinics and hospitals) directly.
·
It is jointly funded by the states and federal
government. Federal funding pays for about half the states' Medicaid costs.
o
Medicaid, on average, takes up a quarter of each state's
budget.
·
In 2002, Medicaid enrollees numbered 40 million, the largest group being children (46 percent).
·
Among the groups of people served by Medicaid are
eligible low-income parents, children, seniors, and people with disabilities.
o
Medicaid payments assist nearly 60 percent of all nursing
home residents and about 37 percent of all childbirths in the
o
In 2001, about 6.5 million Americans were enrolled in
both Medicare and Medicaid, also known as Medicare dual eligible.
·
Most states
Medicaid reimbursements are pegged at percentage of Medicare
·
The Deficit Reduction Act (DRA) of 2005 significantly
changed rules governing the treatment of asset transfers and homes of nursing
home residents.
o
Many programs do not consider the value of one's home in
calculating eligibility, therefore it is often
recommended that retirees pursue home ownership. By adopting the recommended
strategies, seniors hope they will quickly qualify for Medicaid benefits if the
need for long-term care arises.
SCHIP
·
The State Children’s Health Insurance Program (SCHIP)
was started in 1997 to cover children whose parents make income above the
poverty line and so are ineligible for Medicaid. The
original program covered families with incomes up to 200 percent above the
federal poverty level.
·
It is jointly
financed by the federal and state governments.
·
Sixteen states cover
children in families with incomes above 200 percent of the poverty level, and
some want to go higher.
·
Fourteen states
include adults in the program.
·
In 2007,
Congress twice passed bills that would have raised the threshold to 300 percent
above the federal poverty level. The bill also repealed a restriction in the
current SCHIP program that requires states to first insure 95 percent of
eligible children before expanding the program to include adults. To cover $35 billion spending increase, the
bill includes a tax increase for smokers.
o President Bush vetoed these bills twice, saying he
wanted to return the program to its “original objective” of covering children
with family incomes less than twice the poverty level. Mr. Bush wants to prohibit states from
adding childless adults and restrict eligibility for parents.

Pay for performance
·
Pay for performance is emerging movement in health
insurance in which Providers are rewarded for quality of healthcare services.
This is a fundamental change from fee for service payment. Over 100 private and
federal pilot programs are underway.
·
Current methods of healthcare payment may actually reward
less-safe care, since some insurance companies will not pay for new practices
to reduce errors, while physicians and hospitals can bill for additional
services that are needed when patients are injured by mistakes. However, early
studies of pay for performance showed little gain in quality for the money
spent, as well as evidence suggesting unintended consequences, like the
avoidance of high-risk patients, when payment was linked to outcome
improvements.
·
Medicare has various pay-for-performance ("P4P") initiatives”
underway:
o Payments for better care
coordination between home, hospital and offices for patients with chronic
illnesses.
o A set of 10 hospital quality
measures which, if reported to CMS, will increase the payments that hospitals
receive for each discharge. By the third year of the demonstration, those
hospitals that do not meet a threshold on quality will be subject to reductions
in payment.
o Rewards to physicians for
improving health outcomes by the use of health information technology in the
care of chronically ill Medicare patients.
·
As a disincentive, CMS has proposed eliminating payments for negative
consequences of care that results in injury, illness or death. This rule,
effective October 2008, would reduce payments for medical complications such as
"never events" as defined by the National Quality Forum, including
hospital infections. Other private health payers are considering similar
actions; the Leapfrog Group is exploring how to provide support to its members
who are interested in ensuring that their employees do not get billed for such
an event, and who do not wish to reimburse for these events themselves.
Physician groups involved in the management of complications, such as the
Infectious Diseases Society of America, have voiced objections to these
proposals, observing that "some patients develop infections despite
application of all evidence-based practices known to avoid infection", and
that a punitive response may discourage further study and slow the dramatic
improvements that have already been made.
·
AMA collaborated with state and
local medical societies to raise strong objections to UnitedHealthcare’s
pilot pay-for-performance program in
·
Agency
for Healthcare Research and Quality (AHRQ).
American Medical
Association (AMA)
·
The American Medical Association (AMA) is the
largest association of medical doctors in the
·
The affiliated American Medical Association Alliance
is an organization of physicians and their spouses that is working to support
family medicine and to build healthy communities. In 1996, the alliance
launched the Stop America's Violence Everywhere (SAVE) program.
·
The AMA Physician
Specialty Codes are a standard in the
·
In 1847, Nathan Smith Davis and others established the
AMA at the
·
In the 1930s, the AMA attempted to prohibit its members
from working for the primitive health maintenance organizations that had sprung
up during the Great Depression. The AMA's subsequent conviction for violating
the Sherman Antitrust Act was affirmed by the U.S. Supreme Court. American
Medical Ass'n. v.
·
In 1948, AMA hired PR firm Whitaker & Baxter to
defeat government-run universal healthcare coverage, spending $4 million ($37.5
million in 2006 dollars)
·
The AMA's campaign against Medicare in the 1950s and
1960s included the Operation Coffee Cup supported by Ronald Reagan
·
In 1999, AMA creates Physicians for Responsible
Negotiations
·
In 2000, AMA supported the Patients' Bill of Rights legislation in Congress.
·
The AMA Foundation
provides approximately $1 million annually in tuition assistance to financially
constrained students
Medical Liability
·
Tort costs add $70 billion to $126 billion to
the costs of health care each year.
·
Plaintiffs’
attorneys make over $40 billion annually (growing 9%/year for past 30 years).
·
A
Harvard School of Public Health study
released in the New England Journal of Medicine in May 2006 found that
37% of the injury claims did not involve medical errors, and 3% involved no
injuries. The study also concluded that "the overhead costs of malpractice
litigation are exorbitant," with 54 cents of every dollar of compensation
going to legal costs. 15% of the cases were decided by trial verdict.
·
Nationally,
malpractice awards have risen dramatically. The median nearly doubled between
1997 and 2003, increasing from $157,000 to $300,000.
·
In 2003, 70% of
cases were closed without the plaintiff collecting a dime, and of the mere 5.8%
of cases that made it to a jury, the doctors won more than 85% of the time.
·
It costs to
defend physicians— an average $17,408 per case dropped or dismissed, and an
average $87,720 per claim when the doctor won at trial.
·
A 1996 study
published by The New England Journal of Medicine found that the severity of a
plaintiff's disability was the only reliable predictor of whether he or she
received payment, whereas there was no significant correlation with adverse
events or negligence. This buttresses the common understanding that juries
award damages as much out of sympathy as out of rationality.
·
"Defensive
medicine" has been estimated to add $70 billion to $126 billion to the nation's
annual health care bill.
·
The GAO report contains several
affronts to accepted wisdom. The agency studied trends in 5 states with
reported malpractice-related problems (


o AMA crisis states:

·
Professional Liability Insurance (PLI) (malpractice insurance)
o
Investment
losses by insurance companies are not responsible for increases in PLI
premiums. Investments were 80% bonds, 10-15% stocks. Interest rate decreases were
equaled by capital gains.
o
Neurosurgeons'
rates jumped from $55,500 to $84,100 from 2001 to 2003 and soared to more than
$300,000 in some states
o 2001
o Rise in malpractice premiums have forced doctors to
move or stop practicing
o
In 2004, no one
was performing brain surgery in southern Illinois because the last holdout, B.
Theo Mellion, MD, of Carbondale, left when his
malpractice insurance carrier refused to renew his coverage and those carriers
willing to provide coverage were quoting annual premiums of $200,000 to
$300,000
o
At the
University of Nevada Medical Center in 2002 had to close its
o Providers of liability coverage include private
insurers and members of the PIAA, a trade association of more than 50 liability
insurers owned and run by doctors and dentists. Together, PIAA insurers cover
about 60% of the country's physicians; the rest carry other insurance.
o The
o
Tort Reform
·
Tort reform typically refers to
several provisions, including:
o Capping noneconomic damages (and sometimes
total damages).
o Establishing time limits for filing a lawsuit.
o Abolishing the "collateral
source rule" that prevents a defendant from showing that a plaintiff's
losses or damages have been partly paid by other insurers or third parties.
o Removing or modifying "joint and several liability"
so that defendants are responsible only for their portion of damages based on
alleged fault.
o Allowing damages to be paid in installments rather than lump sums.
o Adjusting contingency fees so that the bulk of awards go to plaintiffs
rather than attorneys.
·
Most Tort Reform
legislation is occurring in individual states, by placing caps on damage awards
(primarily non-economic damage – i.e. pain and suffering)
o MICRA reforms in CA capped non-economic damages at
$250,000, are being used as a model for federal legislation.
§
Since 1976,
§
§
A few states,
such as
·
With joint and several liability,
defendants can be held individually responsible for the entire amount of a
judgment, regardless of their portion of guilt. With several liability, defendants pay only
their share of damages. This has also been the object of reforms.

Federal Tort Reform Legislation
·
HR5
(Health Act): In 2003 the US House of Representatives passed caps non-economic
damages at $250,000, punitive damages at 2x economic
or $250,000; 1 year statue of limitations, 3 year statute of repose;
proportionate share liability, unlimited economic damages. Similar bills passed
in 2004 and 2005. The
U.S. Senate halted Republican-backed medical liability reform legislation for
the fifth time in four years in 2006.
·
Patient’s First Act (S11): based on California MICRA reforms. Failed in Senate 7/9/03 by
democratic filibuster. (All democrats voted against it)
·
Advocacy Groups:
Doctors for Medical Liability Reform (DMLR)
·
Creating special
medical courts: www.cgood.org
Stark Laws
·
Stark law, actually two separate provisions, governs
physician self-referral for Medicare
and Medicaid patients. The law is named for US Congressman Pete Stark, who
sponsored the initial bill.
·
Physician self-referral is the practice of a physician
referring a patient to a medical facility in which he has a financial interest,
be it ownership, investment, or a structured compensation arrangement.
·
Critics of the practice allege an inherent conflict of
interest, given the physician's position to benefit from the referral. They
suggest that such arrangements may encourage over-utilization of services, in
turn driving up health care costs. In addition, they believe that it would
create a captive referral system, which limits competition by other providers.
·
Others respond to these concerns by stating that while
problems exist, they are not widespread. Further, these observers contend that,
in many cases, physician investors are responding to a demonstrated need which
would otherwise not be met, particularly in a medically underserved area.
·
Stark I: The Omnibus Budget
Reconciliation Act of 1989 barred self-referrals for clinical laboratory
services under the Medicare program.
·
Stark II: The Omnibus Budget Reconciliation
Act of 1993 expanded the restriction to a range of additional health services
and applied it to both Medicare and Medicaid.
·
In 1995 President Clinton vetoed amendments to repeal
prohibitions based on compensation arrangements and reduce in the list of
services subject to the ban.
·
In the Consolidated Omnibus
Budget Reconciliation Act of 1985, or COBRA,
the U.S. Congress mandated an insurance program giving some employees the
ability to continue health insurance coverage after leaving employment.
·
The Act allows both workers and their immediate family
members who had been covered by a health care plan to maintain their coverage
if a "qualifying event" causes them to lose coverage.
·
COBRA does not require the employer to pay for the cost;
instead it allows employees to pay the full cost of the premium the employer
previously paid, plus a 2% administrative charge (150% for the disability
extension). Employees and dependents can also opt for a lesser form of
coverage. Employees and dependents lose coverage if they fail to make timely
payments of these premiums.
·
Employee Brochure,
Department of Labor; Other Resources,
Department of Labor; General information
from CMS; US Department of
Labor website COBRA FAQ.; Understand COBRA
·
The Emergency Medical Treatment and Active Labor Act
was passed in 1986 as part of the Consolidated Omnibus Budget Reconciliation
Act.
·
It requires hospitals and ambulance services to provide
care to anyone needing emergency treatment regardless of citizenship, legal
status or ability to pay.
·
There are no reimbursement provisions; as a result of the
act, patients needing emergency treatment can be discharged only under their
own informed consent or when their condition requires transfer to a hospital
better equipped to administer the treatment.
·
The Health Insurance Portability and Accountability
Act (HIPAA) was enacted by the U.S. Congress in 1996
·
Title I of HIPAA protects health insurance coverage for
workers and their families when they change or lose their jobs
o Title I prohibits any
group health plan from creating eligibility rules or assessing premiums for
individuals in the plan based on health status, medical history, genetic
information, or disability. This does not apply to private individual
insurance.
o Title I also limits
restrictions that a group health plan can place on benefits for preexisting
conditions. Group health plans may refuse to provide benefits relating to
preexisting conditions for a period of 12 months after enrollment in the plan
or 18 months in the case of late enrollment. However, individuals may reduce
this exclusion period if they had health insurance prior to enrolling in the
plan. Title I allows individuals to reduce the exclusion period by the amount
of time that they had “creditable coverage” prior to enrolling in the plan and
after any “significant breaks” in coverage. “Creditable coverage” is defined
quite broadly and includes nearly all group and individual health plans,
Medicare, and Medicaid. A “significant break” in coverage is defined as any 63
day period without any creditable coverage.
·
Title II of HIPAA, the Administrative Simplification (AS)
provisions, requires the establishment of national standards for electronic
health care transactions and national identifiers for providers, health
insurance plans, and employers. The AS provisions also address the security and
privacy of health data.
o Title II of HIPAA
defines numerous offenses relating to health care and sets civil and criminal
penalties for them. It also creates several programs to control fraud and abuse
within the health care system
o The Privacy Rule took
effect in 2003. It establishes regulations for the use and disclosure of
Protected Health Information (PHI). PHI is any information about health status,
provision of health care, or payment for health care that can be linked to an
individual. This is interpreted rather broadly and includes any part of a
patient’s medical record or payment history.
o Providers must disclose
PHI to the individual within 30 days upon request. They also must disclose PHI
when required to do so by law, such as reporting suspected child abuse to state
child welfare agencies.
o Providers may disclose PHI
to facilitate treatment, payment, or health care operations or if the covered
entity has obtained authorization from the individual. However, when a provider
discloses any PHI, it must make a reasonable effort to disclose only the
minimum necessary information required to achieve its purpose.
o The Privacy Rule gives
individuals the right to request that a covered entity correct any inaccurate
PHI. It also requires covered entities to take reasonable steps to ensure the
confidentiality of communications with individuals. For instance, an individual
can ask to be called at his or her work number, instead of home or cell phone
number.
o The Privacy Rule
requires covered entities to notify individuals of uses of their PHI. Covered
entities must also keep track of disclosures of PHI and document privacy
policies and procedures. They must appoint a Privacy Official and a contact
person responsible for receiving complaints and train all members of their
workforce in procedures regarding PHI.
o The Security Rule complements
the Privacy Rule. It lays out three types of security safeguards required for
compliance: administrative, physical, and technical. Required specifications
must be adopted and administered as dictated by the Rule. Addressable
specifications are more flexible. The standards and specifications are as
follows:
·
Administrative Safeguards - policies and procedures designed to clearly show
how the entity will comply with the act
o
Covered entities (entities that must comply with HIPAA requirements)
must adopt a written set of privacy procedures and designate a privacy officer
to be responsible for developing and implementing all required policies and
procedures.
o
The policies and procedures must reference management oversight and
organizational buy-in to compliance with the documented security controls.
o
Procedures should clearly identify employees or classes of employees who
will have access to protected health information (PHI). Access to PHI in all
forms must be restricted to only those employees who have a need for it to
complete their job function.
o
The procedures must address access authorization, establishment,
modification, and termination.
o
Entities must show that an appropriate ongoing training program
regarding the handling PHI is provided to employees performing health plan
administrative functions.
o
Covered entities that out-source some of their business processes to a
third party must ensure that their vendors also have a framework in place to
comply with HIPAA requirements. Companies typically gain this assurance through
clauses in the contracts stating that the vendor will meet the same data
protection requirements that apply to the covered entity. Care must be taken to
determine if the vendor further out-sources any data handling functions to other
vendors and monitor whether appropriate contracts and controls are in place.
o
A contingency plan should be in place for responding to emergencies.
Covered entities are responsible for backing up their data and having disaster
recovery procedures in place. The plan should document data priority and
failure analysis, testing activities, and change control procedures.
o
Internal audits play a key role in HIPAA compliance by reviewing
operations with the goal of identifying potential security violations. Policies
and procedures should specifically document the scope, frequency, and
procedures of audits. Audits should be both routine and event-based.
o
Procedures should document instructions for addressing and responding to
security breaches that are identified either during the audit or the normal
course of operations.
·
Physical Safeguards - controlling physical access to protect against inappropriate access
to protected data
o
Controls must govern the introduction and removal of hardware and
software from the network. (When equipment is retired it must be disposed of
properly to ensure that PHI is not compromised.)
o
Access to equipment containing health information should be carefully
controlled and monitored.
o
Access to hardware and software must be limited to properly authorized
individuals.
o
Required access controls consist of facility security plans, maintenance
records, and visitor sign-in and escorts.
o
Policies are required to address proper workstation use. Workstations
should be removed from high traffic areas and monitor screens should not be in
direct view of the public.
o
If the covered entities utilize contractors or agents, they too must be
fully trained on their physical access responsibilities.
·
Technical Safeguards - controlling access to computer systems and
enabling covered entities to protect communications containing PHI transmitted
electronically over open networks from being intercepted by anyone other than
the intended recipient
o
Information systems housing PHI must be protected from intrusion. When
information flows over open networks, some form of encryption must be utilized.
If closed systems/networks are utilized, existing access controls are
considered sufficient and encryption is optional.
o
Each covered entity is responsible for ensuring that the data within its
systems has not been changed or erased in an unauthorized manner.
o
Data corroboration, including the use of check sum, double-keying,
message authentication, and digital signature may be used to ensure data
integrity.
o
Covered entities must also authenticate entities it communicates with.
Authentication consists of corroborating that an entity is who it claims to be.
Examples of corroboration include: password systems, two or three-way
handshakes, telephone callback, and token systems.
o
Covered entities must make documentation of their HIPAA practices
available to the government to determine compliance.
o
In addition to policies and procedures and access records, information
technology documentation should also include a written record of all
configuration settings on the components of the network because these
components are complex, configurable, and always changing.
o
Documented risk analysis and risk management programs are required.
Covered entities must carefully consider the risks of their operations as they
implement systems to comply with the act. (The requirement of risk analysis and
risk management implies that the act’s security requirements are a minimum
standard and places responsibility on covered entities to take all reasonable
precautions necessary to prevent PHI from being used for non-health purposes.)
·
Effects of HIPAA: The complex legalities
and potentially stiff penalties associated with HIPAA, as well as the increase
in paperwork and the cost of its implementation, were causes for concern among
physicians and medical centers.
o
Research: HIPAA restrictions on researchers have affected
their ability to perform retrospective, chart-based research as well as their
ability to prospectively evaluate patients by contacting them for follow-up. A
study from the
o
The complexity of HIPAA, combined with potentially stiff
penalties for violators, can lead physicians and medical centers to withhold
information from those who may have a right to it.
o
With an early emphasis on the potentially severe
penalties associated with violation, many practices and centers turned to
private, for-profit "HIPAA consultants". In addition to the costs of
developing and revamping systems and practices, the increase in paperwork and
staff time necessary to meet the legal requirements of HIPAA may impact the finances
of medical centers and practices.
·
The Clinical Laboratory Improvement Amendments (CLIA), passed by Congress in 1988, are standards that regulate
all laboratory testing in the
FMLA
·
The Family and Medical Leave Act of 1993 allows an
employee to take unpaid leave due to illness or to care for a sick family
member.
·
Critics of the act have suggested that, by mandating
various forms of leave that are used more often by female than male employees,
the Act, like the Pregnancy Discrimination Act of 1978, makes women more
expensive to employ than men in general.
·
Twelve (12) workweeks of leave per twelve (12) months for
various reasons such as: Caring for a newborn child, Handling adoption or
foster care placement issues, Caring for a sick child,
spouse or parent, Being physically unable to perform one's job.
·
It requires: Restoration to the same or equal position
upon return to work, Protection of employee benefits, Protection from
retaliation.
·
The leave guaranteed by the act is unpaid, and is
available to those working for employers with 50 or more employees within a 75
mile radius. In addition, an employee must have worked for the company at least
12 months and 1,250 hours in those 12 months.
·
Medicare bill of
2003 placed 18-month moratorium on building of specialty hospitals during MedPAC study (completed in 2005). This was extended until
late 2006.
·
2005: The AMA successfully urged CMS to reverse a plan to eliminate coverage of
many procedures performed at ambulatory surgery centers. Without the reversal,
ambulatory surgery centers would have been off-limits for Medicare patients for
nearly 100 procedures.
·
Special exemption
to Stark Laws had been granted. A Senate bill has been proposed permanently
removing this exemption
Ambulatory Surgery
Centers
·
An ambulatory surgery center (also known as outpatient surgery center or same day surgery center) provides
surgery, pain management and certain diagnostic (e.g., colonoscopy) services in
an outpatient setting.
·
The first ASC was established in
·
Physicians who perform surgeries in the center will often
own a small part of the center (a 1% or less ownership might be common, but
percentages can vary considerable). Physicians may own the surgery center;
however it is very common to have a corporation own a percentage.
·
In the
·
In the
·
The trade organizations of ASCs
include the Federated Ambulatory Surgery Association
(FASA) and American
Association of Ambulatory Surgery Centers (AAASC)
·
Adoption of EMRs and other
health information technology, such as computer physician order entry (CPOE),
has been minimal in the
·
The development of standards for EMR interoperability is
at the forefront of the national health care agenda. There are currently
multiple competing vendors of EHR systems, each selling a software suite that
in many cases is not compatible with those of their competitors. There are more
than 25 major brands currently on the market.
·
In 2004, President Bush created the Office of the
National Coordinator for Health Information Technology (ONC) in order to
address interoperability issues and to establish a National Health Information
Network (NHIN). Under the ONC, Regional Health Information Organizations (RHIOs) have been established in many states. Congress is
currently working on legislation to increase funding to these and similar
programs.
·
The digital scanning process involved in conversion of old
paper records to EMR is an expensive, time-consuming process, which must be
done to exacting standards
·
At
·
Until recently most EMR systems were developed using
older programming languages such as Visual Basic and C++; however with many
systems now being developed using Microsoft .NET Framework and Java technology EMRs can be securely implemented across multiple locations
with greater performance and interoperability. Prior to the recent introduction
of IEEE 802.11 g and n wireless technology access to large files such as MRI
and X-Ray images was slow. With these new wireless technologies data can be
securely transferred at speeds of up to 108Mbps, across extended distances and
in older buildings built with brick or concrete walls.
·
Medical records, such as physician orders, exam and test
reports are legal documents, which must be kept in unaltered form and
authenticated by the creator.
·
Digital signatures: Most national and international
standards accept electronic signatures. With proper security software,
electronic authentication is more difficult to falsify than the handwritten
doctor's signature.
·
The Certification Commission
for Healthcare Information Technology (CCHIT), a private nonprofit
group, was funded in 2005 by the U.S. Department of Health and Human Services
to develop a set of standards and certify vendors who meet them. In 2006, CCHIT
announced that 22 EHR products had achieved certification.
·
The Department of Veterans Affairs (VA) has the largest
enterprise-wide health information system that includes an electronic medical
record, known as the Veterans Health Information Systems and Technology
Architecture or
·
Office of the National
Coordinator for Health Information Technology (ONC); National Resource Center for Health Information Technology; ICMCC portal
Biomedical Research
·
Total funding from federal,
state, and local governments; private entities; and industry increased from
$37.1 billion in 1994 to $94.3 billion in 2003
·
The proportion of biomedical
research support that comes from industry has remained relatively constant from
the 1994 to 2003 period, ranging from 56% to 61%. The NIH is the next largest funder at 28%. State and local government support and
private funds accounted for 5% and 3%of biomedical research funds, respectively
·
Currently, most research sponsors
strongly favor support of investigators and programs, rather than buildings,
laboratory instrumentation, clinical databases, and other research
infrastructure. This is a growing problem for teaching hospitals and
universities, which must rely on endowments and gifts for those investments.
Changes in clinical reimbursement and other pressures on operating margins in
academic medical centers limit the amount of cross-subsidy available for
research.
·
Although the proportions of basic
and applied federal spending have remained constant, pharmaceutical companies
have increasingly emphasized clinical trials. In part, this reflects the
growing length and complexity of the trials process, as well as other factors that
have increased companies’ research costs.
In contrast, medical device companies are spending more on relevant
biological, materials, and electronics research while also conducting more
involved trials. Their behavior also reflects the convergence of drug and
device applications, as with drug-eluting implantables,
neural stimulation, alternative drug delivery, and in vivo therapeutic
monitoring.
·
Industry’s shift to favor
late-stage clinical trials, the stable distribution of NIH spending on basic
and applied research, and the growing preference of venture investors for
companies having products that are close to market reflect this “translation gap.” That is a lack of translational research between basic
research and clinical applications.
o
There have been increasingly
strident calls for creative remedies, including shifting the relative
proportion of public and private monies to translational research. Past
investment has produced prodigious new basic knowledge in molecular biology,
the genome, neuroscience, immunology, and other areas. Their full clinical
promise is yet to be realized.
o The NIH’s Roadmap Initiative is aimed at
alleviating translation as a rate-limiting step.
·
Foundations will likely play an
even more important role. A 1998 Institute of Medicine report advocated that
foundations fill visible gaps by funding research that is speculative scientifically,
politically risky or unpopular, and where commercial value is low or not
readily apparent
·
See Moses et al, Porter et al
JAMA 11/11/06
National Institutes of Health (NIH)
·
In 2004, the $28
billion NIH budget comprised about one third of national biomedical research
spending, with pharmaceutical and biotechnology industry support accounting for
$49 billion and other federal and private sector entities making up the
remainder.
·
In 1995, the US
House of Representatives budget resolution called for a cut in funding for the
NIH of 5% for FY 1996 and a freeze on NIH funding through FY 2000. However, the
NIH received an increase of almost 6% for FY 1996, followed by 7% increases in
the following 2 years, and doubling the NIH budget over 5 years—FYs 1999-2003.
·
The very small
increases afforded the agency in FYs 2004 and 2005 and the 0.5% increase
proposed by the president for FY 2006 are significantly below projected levels
of biomedical research and development inflation (estimated at 3.2% for FY 2006
alone).
·
The NIH spends
approximately 36% of its budget on clinical research, while the remainder
supports long-term investments in fundamental biomedical research.
·
The NIH is often
the only source of funds for those studies considered too risky or lacking
sufficient financial incentives to attract private capital, in areas such as
vaccine development, or in the staging of large population studies designed to
identify optimal strategies for the prevention of high prevalence disorders.
·
The




History
·
Most of today's major pharmaceutical companies were
founded in the late 19th and early 20th centuries.
·
Key discoveries of the 1920s and 1930s, such as insulin
and penicillin, became mass-manufactured and distributed.
·
Legislation was enacted to test and approve drugs and to
require appropriate labeling. Prescription and nonprescription drugs became
legally distinguished from one another as the pharmaceutical industry matured.
·
The industry got underway in earnest from the 1950s, due
to the development of systematic scientific approaches, understanding of human
biology (including DNA) and sophisticated manufacturing techniques.
·
Numerous new drugs were developed during the 1950s and
mass-produced and marketed through the 1960s. This included the first oral
contraceptive, “The Pill”, Cortisone, blood-pressure drugs and other heart
medications.
o
MAO Inhibitors, chlorpromazine (Thorazine),
Haldol (Haloperidol) and the tranquilizers ushered in
the age of psychiatric medication.
o
Valium (diazepam), discovered in 1960, was marketed from
1963 and rapidly became the most prescribed drug in history, prior to
controversy over dependency and habituation.
·
Attempts were made to increase regulation and to limit
financial links between pharmaceutical companies and prescribing physicians,
including by the relatively new US FDA. Phamaceutical
companies became required to prove efficacy in clinical trials before marketing
drugs.
o
Such calls increased in the 1960s after the thalidomide
tragedy came to light, in which the use of a new tranquilizer in pregnant women
caused severe birth defects.
o
In 1964, the World Medical Association issued its
Declaration of Helsinki, which set standards for clinical research and demanded
that subjects be given informed consent before enrolling in an experiment.
·
Cancer drugs were a feature of the 1970s.
·
The industry remained relatively small scale until the
1970s when it began to expand at a greater rate. Legislation allowing for
strong patents, to cover both the process of manufacture and the specific products, came in to force in most countries.
·
By the mid-1980s, small biotechnology firms were
struggling for survival, which led to the formation of mutually beneficial
partnerships with large pharmaceutical companies and a host of corporate
buyouts of the smaller firms. Pharmaceutical manufacturing became concentrated,
with a few large companies holding a dominant position throughout the world and
with a few companies producing medicines within each country.
·
The pharmaceutical industry entered the 1980s pressured
by managed care economics and a host of new regulations, both safety and
environmental, but also transformed by new DNA chemistries and new technologies
for analysis and computation. Drugs for heart disease and for AIDS were a
feature of the 1980s, involving challenges to regulatory bodies and a faster
approval process.
·
A new business atmosphere became institutionalized in the
1990s, characterized by mergers and takeovers, and by a dramatic increase in
the use of contract research organizations for clinical development and even
for basic R&D. 'Big Pharma' confronted a new
business climate and new regulations, born in part from dealing with world
market forces and protests by activists in developing countries.
·
Marketing changed dramatically in the 1990s, partly
because of a new consumerism. The Internet made possible the direct purchase of
medicines by drug consumers and of raw materials by drug producers,
transforming the nature of business. In the
·
In the 1990s, The new
antidepressants, the SSRIs, notably Fluoxetine (Prozac), rapidly became bestsellers and
marketed for additional disorders.
·
Drug development progressed from a hit-and-miss approach
to rational drug discovery in both laboratory design and natural-product
surveys.
·
Demand for nutritional supplements and so-called
alternative medicines created new opportunities and increased competition in
the industry.
·
Controversies emerged around adverse effects, notably
regarding Vioxx in the
·
There are now more than 200 major pharmaceutical companies,
jointly said to be more profitable than almost any other industry, and
employing more political lobbyists than any other industry.
·
Drug discovery is the process by which
drugs are discovered and/or designed. In the past most drugs have been
discovered either by identifying the active ingredient from traditional
remedies or by serendipitous discovery. A newer approach has been to understand
how disease and infection are controlled at the molecular and physiology level
and to target specific entities based on this knowledge.
·
Drug development is considered a costly
and intensive process.
o
Of all compounds investigated for use in humans only a
small fraction is eventually approved, and only after heavy investment in
pre-clinical development, clinical trials, and safety monitoring to determine
the safety and efficacy of a compound.
o
The cost for a new drug, not including marketing, has
been estimated at about $1 billion although this includes expenditure on the
development of other prospective drugs that fail to reach market. A study by
the consulting firm Bain & Company reported that the cost for discovering,
developing and launching (which factored in marketing and other business
expenses) a new drug (along with the prospective drugs that fail) rose over a
five year period to nearly $1.7 billion in 2003. Calculations and claims in
this area are controversial because of the implications for regulation and
subsidization of the industry.
o
Despite the doubling of
biomedical research funding and the shift toward clinical research by
pharmaceutical companies, the number of new molecular entities approved by the
FDA has fallen from 35 per year (1994 to 1997) to 23 per year (2001 to 2004),
and it is lagging behind that of the biotechnology and device sectors. Financial
return to investors has paralleled those changes
o
Three factors are commonly cited by industry observers to explain the
productivity differences: increasing costs of clinical trials, the evolution of
the mix of targets to more complex categories, and the adoption of riskier
development strategies.
o
Observers differ sharply on the role of regulation in driving the
decline in pharmaceutical productivity. Time elapsed from submission of trial
results to FDA action has diminished, and the FDA maintains that it has not
tightened its regulatory standards.38 However, it does seem indisputable that there have been
shifts in the acceptable threshold for risk/benefit for many diseases.
o
Device trials are typically shorter, involve fewer participants, and
interpret risk and benefit differently. There is no doubt that simpler FDA requirements for devices adds to their commercial
attractiveness and willingness of companies to support research.
·
A company may apply for and be granted a patent for the drug, or the process of
producing the drug, for about 20 years. Only after rigorous study and testing,
which can take as long as 12 years, will governmental authorities grant
permission for the company to market and sell the drug.
o
When the patent for the drug runs out, a generic drug is usually created by a
competing company and released, causing the price to drop markedly. Often the
owner of the branded drug will introduce a generic version before the patent
runs out in order to get a head start in the generic market.
o
From 1978,
·
There are special rules for certain rare diseases ("orphan diseases") involving fewer
than 200,000 people in the
·
There have been increasing accusations and findings that
clinical trials conducted or funded by pharmaceutical companies are much more
likely to report positive results for the preferred medication. Between 1980
and 1997, drug industry funding for academic research rose
eight fold, as research costs rose, and the rate of federal support fell. Drug
researchers not directly employed by pharmaceutical companies often look to
companies for grants, and companies often look to researchers for studies that
will make their products look favorable. Sponsored researchers are rewarded by
drug companies, for example with support for their conference/symposium costs.
Lecture scripts and even journal articles presented by academic researchers may
actually be 'ghost-written' by pharmaceutical companies. Some researchers who
have tried to reveal ethical issues with clinical trials or who tried to
publish papers that show harmful effects of new drugs or cheaper alternatives
have been threatened by drug companies with lawsuits.
·
Where pharmaceutics have been shown to cause
side-effects, civil action has occurred, especially in countries where tort
payouts are likely to be large. Due to high-profile cases leading to large
compensations, most pharmaceutical companies endorse tort reform. Recent
controversies have involved Vioxx and SSRI
antidepressants
·
Pfizer's cholesterol pill Lipitor
remains the best-selling drug in the world for the fifth year in a row. Its
annual sales were $12.9 billion, more than twice as much as its closest
competitors: Plavix, the blood thinner from
Bristol-Myers Squibb and Sanofi-Aventis; Nexium, the heartburn pill from AstraZeneca;
and Advair, the asthma inhaler from GlaxoSmithKline
·
In 2006, global spending on prescription drugs topped
$600 billion, even as growth slowed somewhat in Europe and
o
Medicare Part D will significantly alter the revenue
models for pharmaceutical companies. Revenues from the program are expected to
be $724 Billion between 2006 and 2015.
·
The top pharmeceutical
companies are: Pfizer, Johnson & Johnson, sanofi-Aventis,
GlaxoSmithKline, Novartis, Hoffman-Laroche, Merck, AstraZeneca,
Abbott, Bristol-Myers Squibb
·
Advertising is commonly in healthcare journals as well as
through more mainstream media routes.
o
In some countries, notably the
o
Pharmaceutical companies generally employ sales people
(often called 'drug reps' or, an older term, 'detail men') to market directly
and personally to physicians and other healthcare providers.
o
Currently, there are approximately 100,000 pharmaceutical
sales reps in the
o
There have been accusations and findings of influence on
doctors and other health professionals through drug reps, including the
constant provision of marketing 'gifts' and biased information to health
professionals; highly prevalent advertising in journals and conferences;
funding supposedly independent healthcare organizations and health promotion
campaigns; sponsorship of medical schools or nurse training, with influence on
the curriculum; hiring physicians as paid consultants on medical advisory
boards.
·
Private insurance or public health bodies (e.g. the NHS
in the
·
The role of pharmaceutical companies in the developing
world is a matter of some debate, ranging from aid provided to the developing
world, to those critical of the use of the poorest in human clinical trials,
often without adequate protections.
o
Other criticisms include an alleged reluctance of the
industry to invest in treatments of diseases in less economically advanced
countries, such as malaria; and criticism for the price of patented AIDS drugs.
o
Under World Trade Organization rules, a developing
country has options for obtaining needed medications under compulsory licensing
or importation of cheaper versions of the drugs, even before patent expiration.
Pharmaceutical companies often offer much needed medication at no or reduced
cost to the developing countries.
o
Proposals to allow the manufacture of generic AIDS drugs
are not without controversy; it is sometimes claimed that this might cause
pharmaceutical companies to move away from AIDS drug research and focus their
research on other, more profitable areas.
o
In 2001,
Biotechnology
·
A biotechnology company is any company that uses
derivatives of biological systems or living organisms to make (or modify)
products (or processes) for specific use.
·
Often biotechnology companies produce pharmaceutical
drugs. Typically a biopharmaceutical
made in this manner is composed of very large molecules that are unstable and
must be administered by injection.
·
Biotech companies very often start life as very small
spin-offs from university research departments and are high-tech 'start-up'
companies. They often need to get bought out or enter into a licensing
agreement with a big mainstream pharmaceutical company to see their idea
actually available for patients.
·
Pharmaceuticals developed by biotechnological processes
often must be injected in a physician's office rather than be delivered in the
form of a capsule taken orally. Medicare payments for these drugs are usually
made through Medicare Part B (physician office) rather than Part D

Other
·
Third-Party
Liability: Insurance companies often refuse to pay
·
Electronic
Prescribing: CMS developing standards
·
Economic
Credentialing: A
·
Physician Assistants (PAs) earn their
education through a post-collegiate accredited training program. Once they
satisfactorily complete the program, they take the Physicians Assistance
National Certification Examination (PANCE). When the PA has successfully passed
the examination, the Board of Medical Examiners can issue a Physician Assistant
license.
·
Physician Workforce:

Physicians and
Investment Firms
·
See Topol et al, Jama 11/11/06
·
Currently 10% of US physicians are
engaged in a formal consultancy with the investment industry.
o
These include individual
stockbrokers and analysts, investment bankers, venture capital firms, and
investment firms including hedge funds
·
Until recently it was quite
uncommon for physicians to have a consulting relationship with the investment
community.
o Not only have more physicians started their own hedge funds or venture
capital firms, or served as stock analysts for the large financial firms, but
the likelihood that physicians exchange information with the investment
community has increased exponentially in recent years.
·
An entire industry now exists to
facilitate consultation by physicians with investment companies of various
kinds.
o One of the largest is the Gerson Lehrman Group, started in 1998, which agreements with more
than 60 000 physicians and contracts with more than 50 asset management firms. Leerink Swann & Company, started in 1995, has more than
15 000 research-oriented physicians in its network. Other companies include
Off the Track Research; Black Diamond; Decision Resources; the Monitor Group;
and Clinical Advisor
·
Physicians who consult for the
investment industry are paid on an hourly basis, with rates ranging from $200
to more than $1000.
·
Stock analysts have even posed as
patients volunteering to participate in a clinical trial or as physicians
conducting a trial
·
Anand and Smith, in a
·
By providing data or observations
about an ongoing clinical trial, a physician consultant may not only violate
the confidentiality agreement with the trial’s sponsor but potentially also
provide insider, proprietary information. This is an illegal activity, even if
it is not associated with a financial gain for the physician investigator
beyond the consultancy fee. The issue can be very subtle, exemplified by the
insight that “clever clients can read a lot in a doctor’s silences and pauses”
·
It is exceedingly rare to find
disclosure of a relationship between a physician and an investment firm in
peer-reviewed medical publications. Until now, many physicians have not
considered this type of relationship to represent a potential conflict of
interest

Revised: 11/25/07
Text
Copyright 2007