Tuesday, April 19, 2011
Reform rule may boost costs
While accountable care organizations authorized under the health care reform law hold the promise of lowering costs for Medicare beneficiaries, they could have the opposite effect on employer-sponsored benefit costs, health care experts warn.
Under regulations proposed last month by the Obama administration, doctors and hospitals that band together to form ACOs could earn up to $800 million in bonuses during the next three years if they meet certain quality standards, while spending less on patients than expected by the Centers for Medicare and Medicaid Services.
Conversely, ACOs that provide low-quality care or spend more than CMS anticipates could have to pay up to $40 million in penalties.
Some health care experts are concerned that ACOs may increase prices on services they provide to private-sector patients to meet the cost-savings requirements set by CMS. They also expect health care organizations to pass much of the cost of the investments required to become ACOs onto private payers.
To prevent this cost shift, some health care experts are urging employers and insurers to enter into cost- and risk-sharing arrangements with ACOs similar to those reached with CMS.
“ACOs are one of the major provisions in the Accountable Care Act that, if successful, could revolutionize the way we deliver health care in the United States, if they really are integrated, coordinated and accountable, focusing on primary and preventive care, so they can minimize hospitalization and specialty care,” said Steve Wojcik, vp, public policy at the National Business Group on Health in Washington.
“We're concerned they'll just be a repackaging to secure additional monies from Medicare,” he said. “We also want to make sure that any of the savings are true savings and not just cost-shifting to the private sector.”
“The downside risk is that there can be a lot of cost-shifting,” said Andrew Webber, president of the National Business Coalition on Health in Washington. “If we do a shared-savings arrangement in Medicare, will they make it up by increasing prices for private payers?”
“I think that employers are rightfully concerned about cost-shifting,” said Harlan Levine, North American practice leader for health management at Towers Watson & Co. in Los Angeles. “There need to be investments to create the infrastructure to create ACOs. Those investment costs will be passed on to the private sector.”
Although the proposed regulations contain a provision requiring ACOs with a certain market concentration to undergo an expedited, mandated review by the Federal Trade Commission and the Department of Justice to ensure they don't become monopolies, some health care experts question whether that provision is strong enough.
“We, like a lot of employers, are concerned that ACOs could become geographic monopolies,” said David Lansky, president and CEO of the Pacific Business Group on Health in San Francisco. “To mitigate against that, there has to be meaningful accountability. We would like a commitment to transparency. We want to see how the hospitals, providers and clinical programs perform. I'm not sure the current draft regulations go far enough.”
To prevent potential cost-shifting to the private sector, employers should “negotiate the same kind of incentive payment structure with ACOs that Medicare is going to be getting,” said Francois de Brantes, executive director of the Newtown, Conn.-based Health Care Incentives Improvement Institute Inc., the umbrella organization for Bridges to Excellence and Prometheus Payment Inc.
“If the doctors and hospitals align and assume risk for quality and cost, it could be a contracting vehicle for employers” as well as for Medicare, said Paul Keckley, executive director of the Deloitte Center for Health Solutions based in Washington. “The rules do not preclude commercial health plans or employers from contracting with the ACOs.”
“Those health systems that are posed to be ACOs aren't doing this with the thought that this will be Medicare-only,” said Mark Higdon, a partner at KPMG Healthcare based in Baltimore.
In fact, “most have had preliminary discussions with commercial insurers,” he said.
“As long as you mirror what CMS is doing, and the commercial payers can start to do that, it will be difficult for ACOs to use their market power to extract more than market rates for their services,” said Richard Weil, a Chicago-based partner in Oliver Wyman's health and life sciences consulting practice.
Regardless of their concerns about ACOs, many health care experts remain hopeful their creation, in conjunction with other value-based purchasing provisions in health care reform law, will refocus how government and private payers compensate providers.
“We're all singing from the same song book right now in terms of identifying the problem and solution,” said Mr. Lansky.
“For a long time, employers have said incentives have to be based on results, not volume. Redundancy has to be eliminated, and we're tired of paying the bill for everyone else,” said Mr. Keckley. “What I like about the rule is the balance of quality and savings.”
“This does have the promise of a transformed delivery system, more focus on prevention, chronic care management, lowering costs as an explicit goal,” said Mr. Webber. “Wouldn't that be unique for a provider organization?”
“We've done the insurance reform, and now we're moving forward with what employers have been struggling with: cost and outcomes,” said Shawn Nowicki, director of health policy at the Northeast Business Group on Health in New York. “We're hoping that it achieves better value in the system” and that “the model will spill over to private payers and be beneficial to employers.”
“Private employers are going to be very eager to move to a shared risk scenario as long as there are meaningful quality incentives attached to that, and that there are no unintended consequences like withholding care,” said Suzanne Delbanco, executive director of Catalyst for Payment Reform in San Francisco. “But employers will only view that as sustainable if there is also a sharing of the downside.”
Everywhere I go these days, investors keep telling me the same thing. They're adjusting their portfolios for the leap in inflation that lies just ahead.
These investors are probably right about inflation. It'll almost certainly tick higher in coming months. After all, it was only 1.2 percent in the fourth quarter. But all this investment capital flooding into gold and silver, inflation-adjusted Treasuries and commodities may well prove to be spectacularly ill-timed.
Let me explain why.
I'll start by making my usual caveat. I don't know what the future inflation rate will be and neither does anyone else. But, in my experience, when the overwhelming majority of investors are thinking the same thing, they're usually not thinking at all. Instead they're simply repeating the conventional wisdom.
What is that? That a sharp increase in the CPI lies just ahead thanks to a weak dollar, sharply higher commodity prices and budget-busting spending by Uncle Sam. These symptoms are obvious, of course. The dollar has spent much of the last decade wilting like last week's roses. Agricultural commodities, energy prices and metals have all rocketed higher. And Congress - the recent budget compromise notwithstanding - continues to spend our tax receipts like sailors with four hours of shore leave.
So why isn't hyperinflation dead ahead? Let's start with Milton Friedman. The Nobel Prize-winning economist famously observed that inflation is always and everywhere a monetary phenomenon. In the inflationary spiral of the 1970's and 80's, for instance, the money supply, wages and U.S. gross domestic product all rose at double-digit annual rates.
But today economic growth is tepid. Wages are stagnant. (And will remain so with unemployment high.) And the money-supply gauge known as M2, which includes cash, bank deposits, and money market funds, rose just 3.4 percent in February.
How about higher commodity prices? Chances are good that these are nearing an end. As I've often explained, high prices always sew the seeds of their own destruction. Take oil, for example. The higher it goes, the more competition (and therefore supply) it attracts. Properties that aren't economically feasible (think oil sands) suddenly become so. And consumers and businesses cut back, by conserving or buying more fuel-efficient vehicles.
Just this week, Goldman Sachs - a long-time commodity bull - reversed its position on raw materials. The firm expects the hot money going into commodities to cool down. I agree. We're likely to see lower prices for energy, grains and especially metals in the months ahead.
How about the humongous federal budget deficit? Certainly there's no way that that isn't going to be inflationary, the pessimists insist. Hmm. If only we had a modern-day example of a major, developed country that ran a persistently high deficit so we could see what happens.
And, fortunately, we do. Japan's government has been wasting (excuse me, spending) ridiculous amounts of money for more than two decades now. Its federal debt as a percentage of GDP has now hit 200%. That's more than double our rate and much more than even bankrupt Greece and Ireland's.
Has Japan suffered from hyperinflation? No. It has the opposite problem. For more than twenty years, it's been battling a persistent and debilitating deflation.
That doesn't mean we're going to have disinflation here, of course. But it certainly ought make you stop and consider whether we're in for a head-spinning rise in prices.
Yes, I know. Food prices, gasoline, health insurance costs and college tuition are already rising much faster than the official inflation rate. But consider too that appliances, cell phones, computers, consumer electronics, cars, furniture and (ahem) home prices are coming decidedly down.
The bottom line is this. Inflation may or may not become a problem. You should certainly own oil stocks, precious metals and inflation-adjusted Treasuries, but only as part of a reasonable asset allocation.
In short, don't overdo it. Because the hyperinflation that everyone keeps crowing about may be late to the party. And it may not show up at all.
Monday, April 18, 2011
I blame Geithner for today's announcement by S&P of a downgrade of US Debt instruments. As an average american I for one just don't believe S&P has the nerve to do this without first running it by and getting approval from the US Treasury. If I was the House Republicans I would immediately open an investigation into S&P and any and all contacts with the US Government over the last 60 days. I can guarantee there is a fly in the ointment somewhere.