Expiration of federal funding threatens state CHIP programs

In light of the fact that federal funding for the Children’s Health Insurance Program (CHIP) expired on September 30, 2017, the Kaiser Family Foundation (KFF) analyzed the impact upon states and potential outcomes. Without an extension of federal funding for CHIP, KFF reported that states have or will run out of federal CHIP funding and may face budget shortfalls for CHIP, which covered 8.9 million children in 2016.

According to KFF under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) the enhanced federal funding matching rate was further increased by 23 percent. With this, the CHIP federal matching rate ranged from 88 percent to 100 percent. Because nearly all the states included federal funding for CHIP when creating their FY 2018 state budgets, nearly all the states will face a budget shortfall if the federal funding is not extended.

In the absence of an extension of federal funding for CHIP, some states will have to reduce CHIP coverage. States that have CHIP-funded Medicaid expansions must maintain the underage under the ACA “maintenance of effort” requirement, leaving state costs to increase in the face of lower federal Medicaid match rate. However, states with separate CHIP coverage are not required to maintain it, and states may freeze enrollment or discontinue CHIP coverage altogether.

In the short run, states can continue to use federal funding accrued through the September 30 expiration. Eleven states reported that they would run out of federal funding for CHIP by the end of FY 2017, and at least one state reported that their funding would be depleted at the expiration date. By redistribution of unspent CHIP funds, the Centers for Medicare and Medicaid Services (CMS) was able to provide enough additional funding to allow that state to maintain coverage without a budget shortfall through October. CMS was also able to provide redistributed funds to several other states that were close to running out of funds.

In order to address the expected states’ budget shortfalls, Congress is working on legislation for continued funding. Both the Senate and the House have reported bills out of committee to provide an extension of federal funding for CHIP. The bills from the House and Senate contain many of the same provisions, including a five-year extension for federal funding of CHIP and a transition down from the enhanced 23 percent match provided by the ACA. However, the House bill includes some additional provisions not included in the Senate bill. Both bills still need to be debated and voted upon by the full House and Senate, and if both are passed, Congress will have to reconcile the difference between the two bills.

Study finds weak results for outcomes-based drug contracts

There is no evidence that outcomes-based pharmaceutical contracts lead to less spending or higher quality health care, according to a study conducted by the Commonwealth Fund. The limited impact of outcomes-based reimbursement may be due to the fact that the reimbursement model is only used for a small subset of drugs which offers limited metrics to evaluate the model’s effectiveness. The Commonwealth Fund suggested that voluntary testing and more rigorous evaluation could lead to better understanding of outcomes-based pharmaceutical reimbursement.

Outcomes-based

Following the trend towards value-based reimbursement in health care, some pharmaceutical manufacturers and private payers have made a push towards an outcomes-based pricing model in the prescription drug market. Outcomes-based models attach rebates and discounts to the health care outcomes observed in the patients who receive certain drugs. The purported goal of such arrangements is to improve the value of pharmaceutical-based care by paying more for drugs that work and less for drugs that do not. The reimbursement model appeals to manufacturers and payers as a means to increase the scope of formularies and coverage while reducing prices.

Restrictions

The outcomes-based model is limited by the fact that the model cannot apply to pharmaceuticals that do not have reliable outcomes measurements. Additionally, the outcomes measurements that do exist typically rely on claims data and exclude significant clinical outcomes. In other words, the outcomes-based contracts may not lead to optimized value because the actionable outcomes are limited to those that can be measured. Thus, while outcomes-based pharmaceutical reimbursement has the potential to increase the value of pharmaceutical treatments, greater evaluation of the model’s effectiveness and implementation is necessary to determine its true benefit.

Continuous improvement in compliance can proceed systematically

Provider organizations should not dread continuous improvement in compliance and can apply several techniques to simple problems to bring about simple solutions. In a Health Care Compliance Association (HCCA) webinar entitled “Continuous Improvement in Compliance,” presenter Alan Wileman, Corporate Compliance Manager at Shriners Hospitals for Children, discussed applying principles from Lean and Six Sigma to improve function and eliminate waste in company functioning.

Improvement methodologies

Wileman noted that compliance goals evolve, and that the OIG uses subjective terms for compliance matters such as “reasonable,” “appropriate,” and “meaningful.” What is meaningful or reasonable for one compliance area may not be sufficient for another area or at a later date. Overall, lowering risk is the focus of many compliance tasks, but there may be better ways to bring about that desired result.

Improvement methodologies such as Lean, Six Sigma, and project management have been proven to streamline procedures, eliminate waste, and bring value. Lean ideas and practices originally derived from industrial manufacturing, and have one main purpose: eliminating waste. Six Sigma is often grouped with Lean concepts, and focuses on eliminating error waste by removing variation in procedures. According to Six Sigma, there may be multiple ways to do the same thing, but there is always a best way to do so that reduces variation. Project management focuses on clearly defined terms, roles, and goals in order to successfully complete a project—a non-routine operation with a definite beginning, end, and goal.

Waste

According to Wileman, there are several types of waste. Among those discussed included talent, inventory, waiting, defects, and motion. Compliance departments should ensure that a particular task is being completed by the employee whose strengths play to that area. Motion waste comes from requiring employees to move around the work area too much in unnecessary ways, when communication could effectively be conducted in a non-face-to-face manner or when a workplace could be reorganized to provide a better workflow.

Toolkit

Reorganization also applies to employees’ personal workspaces, which should be uncluttered and only contain the necessary, crucial supplies. Wileman suggests adding the “5S” strategy to an operation’s compliance toolkit. The five elements are: sort, set in order, shine, standardize, and sustain. These elements ensure that a workspace is stocked as necessary, arranged to promote efficiency, neat, organized consistently with other spaces, and sustained in this manner. For tasks, the “DMAIC” acronym is made up of the elements define, measure, analyze, improve, and control. Once a problem is clearly defined, it is easier to map out the process, identify the cause of the problem, implement the solution, and maintain the solution over time.

Prescription drug spending in U.S. among highest worldwide

Prescription drug spending in the United States exceeds spending in nine other high income countries, with generic drugs comprising 84 percent of the total pharmaceutical market. Besides the U.S., a Commonwealth Fund issue brief looked at prescription drug spending in Australia, Canada, France, Germany, the Netherlands, Norway, Sweden, Switzerland and the United Kingdom.

Prescription drug spending in U.S. increases in 1990s

According to the Commonwealth Fund review, spending on prescriptions drugs increased substantially in the mid-1990s due largely to the growth of the pharmaceutical industry. For instance, FDA approved drugs were at an all-time high and sales of cancer drugs increased. Additionally, drug spending increased due to the expansion of federal programs such as the Children’s Health Insurance Program, Medicaid, and Medicare.

Prescription drug spending increased by 20 percent over a period of two years during the mid-2000s. The growth was primarily due to introducing many expensive specialty drugs to treat hepatitis C, cystic fibrosis and other conditions. Passage of the Affordable Care Act likely led to such increases as well. U.S. spending on pharmaceuticals surpassed $1,000 per person in 2015 and was 30 percent to 190 percent higher than in the nine other countries. The next countries, behind the U.S., in spending in 2015 were Switzerland with $783, Germany with $686, and Canada with $669.

Reasons U.S. spending on prescription drugs is so high

The Commonwealth Fund offered possible reasons to explain why the U.S. spends so much on prescription drugs, including country population and volume of drugs consumed, drug utilization per person, type and mix of drugs consumed (e.g., generics versus brand-name drugs), and prices at which drugs are sold.

Although the U.S. population is ranked among the largest and has the highest prescription drug spending as a country, spending per capita remains much higher in the U.S. than that of other countries. Higher per person spending is not due to the large population of the U.S., however.

The impact of generic prescription drugs

Generic drugs make up 84 percent of the total U.S. pharmaceutical market, which is a larger share than in all other countries, excluding the U.K., which is tied with the U.S. with 84 percent. Followed by the U.S. are Germany with 81 percent, Netherlands with 71 percent and Canada with 70 percent of the share of generic prescription drugs. Lower prescription drug prices in the other countries reflect more centralized processes for obtaining pharmaceuticals and setting coverage.

Conclusion. Price continues to play a primary factor in the high prices associated with prescription drugs in the U.S. The reasons can be attributed to the fragmented nature of health care delivery and payment, as well as separate negotiation arrangements between drug manufacturers and payers and complicated arrangements for federal and state health programs. Also, the U.S., unlike other countries, allows for greater latitude for monopoly pricing of brand name drugs.