Highlight on Alaska: FTC, DOJ back Alaska Senate’s move to eliminate certificates of need

Citing “considerable competitive concerns” raised by certificate of need (CON) laws, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) issued a joint statement in support of Alaska Senate Bill 62 (SB 62), which would repeal Alaska’s CON program effective July 1, 2019. CON programs generally require firms to demonstrate an unmet need for services to the state before being permitted to enter the health care market, for example, by building a new hospital. Sen. David Wilson (R-Wasilla), who submitted the bill, applauded the statement, noting, “As government officials, we should not lose sight of a basic truth that competition improves the quality and lowers the costs of services; it’s what drives innovation and ultimately leads to the delivery of better healthcare.”

CON laws were enacted to reduce costs and improve access to care, based on the assumption that the existence of too many health care facilities in the same area could lead to inflated pricing for services. However, the FTC and DOJ opined that the laws create barriers to entry and expansion, allow entities to abuse the process to delay or halt competitors’ entry or expansion, and deny consumers effective remedies from anticompetitive mergers.

Alaska’s program requires parties wishing to spend at least $1.5 million on health care facility construction, alter an existing facility’s bed capacity, or add a category of health services provided to an existing facility to secure a CON after demonstrating that the quality, availability, or accessibility of existing health care resources is less than necessary “to maintain the good health of citizens of [the] state.” Specifically, it requires parties to submit an application with a fee ranging from $2,500 to $75,000.  The Department of Health and Social Services holds a public meeting and solicits comments and then submits a recommendation to the Commissioner of Health and Social Services, who makes the ultimate decision. Members of the public substantially impacted by the CON may initiate administrative proceedings and eventually seek judicial review.

The agencies stated that the existing state law raises both the monetary and time-based costs of entry and expansion, eliminates or reduces competitive pressure that normally incentivizes firms “to innovate, improve existing services, introduce new ones, or moderate prices,” and, in the event of denials, prohibits entry or expansion.  Furthermore, the law allows incumbent firms to drag out the CON application process by filing challenges or comments in order to delay competitors’ entry into the market. It also provides a platform that allows firms to form anticompetitive agreements–for example, two firms could agree to file CON applications for separate services to avoid a lengthy application process and potential challenges from one another. Finally, the existing law could impede antitrust remedies. As an example, the joint statement cited to the case of FTC v. Phoebe Putney.  Although the Supreme Court eventually ruled that an anticompetitive merger was subject to antitrust scrutiny, the entities involved had already merged and the applicable state’s CON laws made divestiture “virtually impossible.”

 

Highlight on Pennsylvania: Better Medicaid spending through technology

Pennsylvania lawmakers introduced legislation attempting to reduce spending and improve patient care within the state’s Medicaid program. Under the proposed legislation, Senate Bill 600, the state would adopt new technology to monitor and identify areas of unnecessary or wasteful health care services and procedures. The state would have 90 days within enactment of the bill to pick a technology company and implement the monitoring. Lawmakers noted that by providing more information, patients and providers, alike, could make better health care decisions. Consequently, this would reduce Medicaid spending. Pennsylvania is one of the highest spenders per Medicaid enrollee in the U.S., with one out of every four dollars in the state’s annual budget accounted for by Medicaid.

The lawmakers have started to review tech companies with prior experience in collecting and monitoring patients to improve care, notably companies that have worked with Alaska’s Medicaid program. The tech company involved  reduced misdiagnosis rates, improved outpatient care, cut waste, and reduced Medicaid expenditures in Alaska by over 14 percent. According to Pennsylvania lawmakers, a similar program could generate between $2 billion and $4 billion in annual savings.

In fiscal year 2015-16, the federal government spent about $15.3 billion on Medicaid in Pennsylvania, while the state spent about $10.6 billion, bringing the total to $25.9 billion; the state’s Department of Health and Human Services budget over the past few years has increased by about $500 million annually. The influx of approximately 700,000 new patients into the Medicaid system is a 20 percent increase and has cost an additional $4.6 billion. State lawmakers are concerned that the push for health care reform by the federal government will result in a cut in the federal portion of Medicaid to the state.

 

Highlight on Wisconsin: Medicaid waiver could be first of its kind

Wisconsin Governor Scott Walker (R) supports a number of novel Medicaid requirements for the state’s beneficiaries, including premium payments, drug testing, and a work requirement. Although a formal plan is not expected to be released until mid-April and sent to HHS by the end of May, if the plan is approved, Wisconsin would become the first state in the country with mandatory drug testing for Medicaid beneficiaries. Testing would be based upon Medicaid applicants’ answers to a screening. The proposal would mandate treatment for those who test positive. The screening is designed to limit the number of individuals in the program.

Price and Verma

The Wisconsin approach is part of a bigger theme of Republican-led states looking to limit Medicaid spending. Governors expect reciprocation from new HHS and CMS leaders regarding the restrictive ideals and, accordingly, are looking to get more out of Medicaid waivers than the Obama Administration allowed. The strategy is not without its rationale. In their first joint action, HHS Secretary Price and CMS Administrator Verma sent a letter to state governors discussing potential improvements to the Medicaid program. In that letter, Price and Verma wrote that the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) expansion of Medicaid “to non-disabled, working-age adults without dependent children was a clear departure from the core, historical mission of the program.” Also, prior to her position as Administrator, Verma worked on a proposed work requirement for Indiana’s Medicaid program. The Obama Administration rejected that proposal.

Drug screening

While the Obama Administration allowed states to differ in the expectation they placed upon program enrollees, governors like Walker are hoping they will see more eye-to-eye with Price and Verma than they did with Obama Administration officials on restrictive policies like work requirements. In light of the recent failure of the American Health Care Act (AHCA) in Congress, and that legislation’s attempt to cut Medicaid funding through per-capita caps, the Trump Administration is incentivized to find savings in other places. Walker believes Wisconsin’s plan is a promising approach. However, there is concern that the Trump Administration will be opposed to the drug screening because the Administration is trying to appear sympathetic to the growing drug epidemic. Opponents criticize the drug screening measuring, noting that the best way to help drug abusers is to expand Medicaid and provide them with the care they need.

Unconstitutional?

Other critics have called the drug screening measure illegal. However, the state’s Medicaid director defended the plan to test Medicaid recipients for drug use, rejecting assertions that the requirement would be unconstitutional. In addition to asking the Trump Administration whether Wisconsin can drug test childless adults on Medicaid, Governor Walker plans to request the ability to drug test able-bodied adults seeking other public benefits including food stamps and jobless payments—a request the Obama administration denied.

Highlight on Minnesota: Health plans’ red ink worst in a decade

Nonprofit insurers in Minnesota reported an operating loss of $687 million on nearly $25.9 billion in revenue for 2016, according to a trade group for insurers, the Minnesota Council of Health Plans. The financial results were the worst in a decade, with losses in both the state public health insurance programs and the marketplace where individuals purchase coverage for themselves.

Overall, revenue from premiums increased 4 percent over the prior year, while expenses increased 6 percent to $26.6 billion. State public programs accounted for more than half of the overall losses, followed by continued losses in the individual market. According to the report, on average, health insurers paid $763 per second for care. To pay those bills, insurers withdrew nearly $560 million from state-mandated medical reserves. The bulk of the financial losses reported did not result from the employer group and Medicare markets, which remained steady, and where most Minnesotans get health insurance.

In the individual market, Blue Cross and Blue Shield of Minnesota said it lost $142 million for 2016, compared to a $265 million deficit the previous year. The decline mirrored the drop in enrollment, the insurer noted, rather than an improvement in the business. Over the last 10 years, health insurers returned a profit in seven. The numbers reported by the trade group focused solely on revenue and income from the health insurance business, as investment returns made by insurers were not counted in the numbers. Some saw hope in the overall numbers, however, noting that the market was not in a “death spiral,” as some health law critics have argued, because many insurers in 2016 saw slight improvements from the previous year.