Yesterday evening, the Colorado Department of Health Care Policy and Financing (HCPF) and the Colorado Department of Insurance (DOI) submitted a final report to Colorado Legislature regarding the development of a public health insurance option (the Public Option). In short, the final report’s recommendations closely resemble the draft recommendations issued in early October. However, after holding a number of stakeholder meetings, the HCPF and DOI leadership has elected not to move forward with a standard fee schedule but instead with a formula-based fee schedule that takes into account the inherent variability in hospital operations across the state. In addition, the final report provides added detail on proposed future activities, such as the development of an Advisory Board, use of shared savings under a Medicaid 1332 waiver, and the development of a more robust small group market.

Background. Pursuant to the passage of HB19-1004 earlier this year, HCPF and DOI have been working together to make available a Public Option in the Colorado individual health care insurance marketplace. This Public Option would resemble those individual plans offered by various carriers in the State, but would mandate adherence to a fee schedule instead of charges negotiated off a hospital’s chargemaster (an itemized list of gross charges developed by each hospital for various products and services offered by that hospital). Ideally, the Public Option would be anchored to reduced net hospital charges compared to current alternatives, and would therefore be more affordable.

Keys to the Final Report. While yesterday’s final report closely resembles the draft report issued over a month ago, there are some changes and added details worth considering.

• The Final Report maintains a focus on hospital pricing (and pricing in general) as a lynchpin to the lack of health care affordability in the State. Considering where Colorado ranks in terms of hospital prices and profitability (#12 for the former, according to a John’s Hopkins University report: [https://wusfnews.wusf.usf.edu/sites/wusf/files/201910/hospital_prices_in_the_u.s._report.pdf] and #2 for the latter, according to Medicare cost report analyses conducted by HCPF and DOI), this seems appropriate. Items such as pharmaceutical pricing, physician reimbursement and waste received less attention, but could in theory be addressed in the future. Policy initiatives contained in the report omit those that would specifically enable hospitals to address administrative bloat and medical supply expense, instead leaving that to the hospitals to address on their own.
• The Final Report maintains the draft recommendations of partnering with health care insurers to launch the Public Option. This also makes sense and will probably work. In an indirect way, the Public Option is essentially a coverage expansion, making health care more affordable for those that can’t or won’t purchase health care insurance for financial reasons. But for a proposed increase in the Medical Loss Ratio (MLR), insurance companies ought to be O.K. with the idea of underwriting more policies while avoiding the threat of wholesale disruption. From the State’s perspective, leadership gets to avoid budgetary expense and risk, as well as potential operational disruption (developing and managing a provider network, ensuring eligibility and claims administration is smooth year-to-year, etc.).
• Instead of insisting that health care insurers build a network off of a fee schedule that averages between 175% and 225% of Medicare prices (yes, twice what Medicare currently pays hospitals for various services), HCPF and DOI recommend that hospitals be paid according to a formula that takes into key variables, such as 1) payer mix (e.g. does the hospital disproportionately serve the poor and indigent), 2) hospital designation (e.g. is the hospital a critical access hospital that needs to stay in business in the interest of Coloradoans), 3) margins, and 4) administrative expenses. This, in my opinion, is a better approach than “one size fits all”. There are inherent differences in hospital operations that tie to Colorado’s diversity statewide, and driving a universal fee schedule whose prevalence likely increases in the future puts vulnerable hospitals at risk of closure. Of note, the Final Report included an updated actuarial analysis of anticipated savings based on the new inputs highlighted above. Where the Draft Report pegged savings at 9-18%, the Final Report has the Public Option saving about 10% vs. current alternatives.
• The Final Report speaks more specifically to the use of a Medicaid 1332 waiver to channel public option savings into greater affordability in the future. Under federal law, a state can apply for a waiver to direct savings it creates versus projected federal spending, rather than simply abide by the statutory formula. In this case, the State is contemplating using Public Option savings to improve subsidies for individuals between 200% and 250% of the Federal Poverty level (income of about $24-30K), as well as a create a subsidy for individuals between 250% and 400% of the Federal Poverty Level. As noted in both the Draft- and Final Report, these are the individuals who find it the most difficult to afford health care insurance and access the system, even if they have coverage. According the Final Report, the Public Option will create about $89mm in savings in 2022, the first year of availability.
• Finally, the Final Report tantalizingly hints at the future of the Public Option. Specifically, the Report speaks to the development of options for employers with up to 100 employees. Today, many small employers do not offer coverage to their employees and there are issues that impede coverage for employees and families of those that do. Over the short-term, the Final Report recommends that small business employees be allowed to avail themselves of the individual Public Option. Further, it recommends that this access be extended to small business owners that choose to self-fund with stop-loss insurance. Over the longer-term, the Final Report speaks to the notion of developing a dedicated Public Option for the small group market with the help of health insurers that are participating in the individual market. While it will take time, the implication here is that the fee-schedule based, transparent model of shopping for health care will grow, and that health insurers will be called upon to act as agents of improved affordability for the State.

Broader Implications. As we head into a presidential election in which several Democratic candidates are recommending dramatic changes to the way in which Americans access health care coverage, it’s probably worth noting that Colorado could serve as a model for where we are headed. Colorado is one of the first states in the country to pursue a public option and, in my mind, one of the states with both a tractable plan and the mandate to get it done. Without question, what happens depends substantially on who is elected and why. However, it’s worth noting that the Trump administration is already moving to increase transparency around hospital operations and the contracts hospitals and doctors have with health insurers. Thus, whether we are negotiating Medicare for all, Medicare for all who want it, or a Trump-driven alternative, I think it’s reasonable to expect change in the coming years. In my mind, there are limits to what can be done about labor-driven savings, considering the availability and compensation of physicians and nurses, as well as structural constraints that govern the training thereof. As a consequence, we will likely focus our reform efforts on hospital pricing and efficiency, pharmaceutical pricing and unnecessary utilization. In that context, especially in light of how much of our health care bill is dedicated to hospital inpatient and outpatient spending, we will not be able to enact stochastic reform, but rather incremental reform; we can’t take a dramatic or one-size-fits-all approach without inadvertently affecting access or quality. In that context, an “opt-in” model underpinned by greater regulatory oversight (i.e. a public option, whether it’s called Medicare or not) is the most likely route forward. Colorado’s plan could certainly serve as a blueprint in this regard.

The full report can be found here:

https://www.colorado.gov/hcpf/proposal-affordable-health-coverage-option

Today, the department of Health and Human Services (HHS) announced that the Centers for Medicare and Medicaid Services (CMS) had issued two rules governing price transparency in our health care system. The first is a final rule governing outpatient and ambulatory surgery center price transparency, while the other is a proposed transparency-in-coverage rule. Proposed rules are typically opened to a comment period after which a final rule is issued.

The Hospital Outpatient Prospective Payment System (OPPS) transparency rule impacts hospitals directly. In order to comply, hospitals will have to post standard charge information, including list prices (the rule says “charges”, but these are the same thing), discounted cash prices, payer-specific negotiated prices and minimum- and maximum-negotiated prices. For up to 300 “shoppable” services, hospitals will be required to display the price information in a way consumers can use it to shop for services. In my way of thinking, this is only a mildly helpful rule.

• Hospitals are being compelled to provide high-level pricing information, not granular information. Thus, the rule is helpful in that it will allow competing hospitals and health insurers in a local market to learn a bit about what one another are paying and being paid. This, over time, will probably drive more competitive behavior, especially if further reforms are assumed to be forthcoming.
• Individual customers (patients) don’t get a lot out of this, in my opinion. While they will be able to “shop” for up to 300 common services, there appears to be a lot of latitude governing what’s a consumer-friendly tool in the world of health care. Will a consumer needing a partial knee replacement really know to shop for this specific procedure correctly at each hospital and whether the offering is what their doctor has recommended (e.g. the Oxford unicompartmental prosthetic from Zimmer Biomet)? Even if they did, will they know whether the most affordable hospital is in network, and what their out-of-pocket obligation might be? I doubt consumers will easily go from hospital website to hospital website comparing gross, cash-pay and negotiated rates for a procedure their physician has recommended they undergo.

The “Transparency in Coverage” proposed rule requires health plans to give consumers real-time, personalized access to cost-sharing information, through an online tool that most group health plans and health insurance issuers would be required to make available. In principle, that’s a fairly important statement. Theoretically, persons scheduling a procedure would be able to shop for the best location at which to have a procedure done. Best, in my way of thinking, means the most affordable to the patient, while maintaining high quality. Because cost-sharing often ties to a percentage of the overall cost of the procedure, persons would, as a side-consequence, learn something about the contractual rates agreed to between their health insurer and the hospitals at which the procedure is offered. While CMS doesn’t make clear exactly what will be required, today’s announcement goes on to say that health insurance issuers will be required to disclose negotiated rates for in-network providers (i.e. hospitals, clinics, etc.), and allowable rates of reimbursement for out-of-network providers. Depending on the level of granularity demanded by the government, this will also help shed light on the actual (not list) prices hospitals charge their various customers. In today’s health care environment, list prices bear very little resemblance to negotiated prices, with the former often reaching multiples of the latter. Finally, CMS proposes in the rule that health insurance issuers be allowed to take credit for “shared savings” payments in their loss ratio calculations. This is important because it removes a potential dis-incentive amongst health insurers tied to the calculation of loss ratios and statutory minimums. Put simply, if insurers were to offer lower cost plans and their customers were to choose lower-cost providers under the new transparency rules, loss ratios could improve to the point where insurers were dis-incentivized financially.

While these rules are certainly good news for health care consumers, there are a few wrinkles that may impede the rate and magnitude of impact of these rules.

• First, only beneficiaries of a particular plan will have immediate access to the cost-sharing information. Certainly, there could be organizations interested in aggregating the data for the purposes of publishing broader analyses, but we don’t know what the results of these efforts might be. A lot will probably depend on whether CMS is able to demand plan-by-provider level pricing, including how cost-sharing is calculated on the various constituents’ websites.
• Second, there’s the issue of the caregivers, including the doctor. Health care is a fairly clubby industry. Doctors have admitting privileges to certain hospitals, and these often tie to soft relationships the doctors and hospitals have with one another. In addition, doctors are most comfortable with the other doctors and caregivers with whom they’ve developed a relationship (e.g. O.R. nurses, anesthesiologists). Thus, if a patient wants to use a particular hospital, especially one a bit out-of-the-way geographically, he or she might have to choose a different doctor – one with whom he or she has little familiarity.
• Third, there’s a question of what plans will be covered. Given the exemptions the Employee Retirement and Income Security Act (ERISA) affords self-funded plans, I would expect this rule to impact only risk-based individual and group plans. Thus, we are talking about less than half of the covered workers in this country having access to an estimate of cost-sharing at the inception of this rule. Here’s the Kaiser Family Foundation chart on that subject:

• Fourth, there’s the question of implementation. According to today’s press release, the Outpatient Prospective Payment transparency rule will go into effect January 1, 2021, while the Transparency in Coverage rule will go into effect one year after finalization. That’s actually quite fast in the world of health care, although this schedule means we probably won’t witness dramatic effects on the system until 2022 and beyond. On the one hand, hospitals will be required to develop and publish information under the OPPS transparency rule within the coming year; this is the easier of the two rules with which to comply. On the other hand, proposed rules carry with them a 60-day comment period. Thus, the Transparency in Coverage final rule won’t be issued until 2020, which means that health insurers will likely have until open enrollment in the fall of 2021 to come up with 1) the information, 2) the consumer friendly shopping tool and the high-level negotiated rate website, and 3) any plan design changes they deem desirable or necessary. If the Transparency in Coverage final rule is implemented on such a schedule, it will then take added time for stakeholders to adapt to the new environment.

ANALYSIS

Although it’s frustrating to see just how slowly and incrementally health care moves, I do feel as though we are finally poised to follow through with some pretty material changes to our health care system. For what feels like the first time, there are persons with both intent and deep understanding in positions of influence both at the Federal and State level. Persons such as Seema Verma and Alex Azar do appear to understand how our sausage is made and are moving ahead with reform that will ultimately have teeth. The same can be said for persons influencing reform in states like Colorado and North Carolina, among others.  At the same time, health care is routinely cited as the number one issue amongst voters, and we are heading into what’s arguably a very contentious election year.  I’m fairly certain the nature and scope of policy proposals in health care will receive significant attention in 2020, and that these will be compared with what’s been the experience under Obamacare and initiatives spearheaded under the Trump administration.  Over time, changes – whether driven first at the federal or state level – will likely lead patients to shop more aggressively for care, and high fixed cost entities like hospitals will have to respond by competing more aggressively for volumes. I would hope and expect that quality information improves in lock step with the financial information such that consumers can incorporate this into their thinking when it truly matters, and emphasize the financial information instead when providers are considered to be largely interchangeable. It’s a bit early to be making predictions about the future role of health insurers, since their fate likely hangs in the balance of whether a true public option becomes available at the federal level and whether a plurality of our population is compelled to take advantage thereof.

BLOG TOPIC #1:  HEALTH CARE

To test things out, I’m posting a map and link I think persons following health care reform may find of increasing interest over time.  It is the map published by All-Payer Claims Database (APCD) council, and it is interactive on that organization’s website.

APCD’s are at this point state-based databases of health care claims information sourced from many different payors and providers.  While they do not contain claims from all sources, they are typically diversified enough to provide a good cross section of activity and a reliable sense of what services are being provided at a reliably estimable cost.

The APCD council was originally a regional organization charged with helping states develop APCD’s and standardize rules, formatting, etc.  With APCD’s expanding nationwide, the organization changed its name and its objectives in 2010.

 https://www.apcdcouncil.org/state/map