Insurance antitrust exemption reform clears House

The House passed on March 22, 2017, H.R. 372, The Competitive Health Insurance Reform Act of 2017, with a bipartisan vote of 416 to 7. The Act repeals in part the McCarran-Ferguson Act antitrust exemption for insurers, including price fixing, bid rigging, and market allocation, and retains the exemption for certain collaborative activities. A CBO report projected that the Act would have no significant net effect on the premiums that private insurers would charge for health or dental insurance and that any effect on federal revenue would be negligible.

The report noted that health insurance premiums could be lower to the extent that enacting the bill would prevent insurers from engaging in practices currently exempted from antitrust law. On the other hand, insurers could become subject to additional litigation and thus their costs and premiums might increase. The CBO estimated that both of those effects would be small.

The American Hospital Association had expressed concerns about the abuse of market power by large commercial insurers with the Departments of Justice and Health and Human Services previously.

Is the American Health Care Act a ‘critical first step’ or unsupportable?

HHS Secretary Tom Price, M.D., supports the reconciliation recommendations known as the American Health Care Act, and considers the changes a necessary and important first step in further reforming the U.S. health care system. In a letter to the chairs of the House Committees on Energy & Commerce and Ways & Means, Price explained that in his view, the proposed legislation aligns with President Donald Trump’s promise to repeal and replace the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). Two major industry groups, however, said that they could not support the current version of the bills.

American Health Care Act 

On March 6, 2017, House Speaker Paul Ryan announced the American Health Care Act, consisting of two committee “budget reconciliation legislative recommendations,” which would be passed under the provisions of S. Con. Res. 3, a resolution which developed a streamlined process for Congress to pass health reform without threat of Senate filibuster. The document from the Ways & Means Committee would alter many of the ACA’s tax provisions, including eliminating penalties related to the individual and employer mandates, while the Energy & Commerce Committee’s document focuses on changes to the Medicaid program (see Republicans present health reform that is neither repeal nor replacement, March 7, 2017). Both committees began markup on the bills less than two days after the documents were made public.

First step in Administration’s plan

According to Price, the reconciliation legislation is just the first of three planned steps in undoing the ACA’s reforms. The reconciliation process can only be used to change some ACA provisions, though not all, and also cannot be used for all of the Trump Administration’s planned reforms. To complete those changes, HHS has two more planned steps; first, taking administrative actions to provide patients with additional options and give states more flexibility in Medicaid spending, and second, to support legislation on Trump’s other priorities including sale of insurance across state lines and medical tort reform. HHS noted that the Administration has already begun work on the second step, including Trump’s Executive Order on minimizing the economic burden of the ACA (see Trump Administration previews health care plans with Executive Order, regulatory freeze, January 23, 2017) and a Proposed rule designed to stabilize the health insurance marketplace by altering enrollment periods and other rules.

AHA and AMA opposition

Two major stakeholders in the health reform debate are the American Hospital Association (AHA) and American Medical Association (AMA), both of which released statements saying that, as currently written, neither organization could support the American Health Care Act. AHA President and CEO Richard J. Pollack wrote a letter on behalf of the hospitals, health systems, health organizations, and clinician partners associated with the group, and first raised concerns about the lack of coverage estimates from the Congressional Budget Office (CBO) and asked that Congress wait until an estimate is available before proceeding with formal consideration of the Act. The letter also listed the AHA’s policy concerns, including the restructuring of Medicaid—which “already pays providers significantly less than the cost of providing care—and the elimination of funding sources while continuing the ACA”s reductions in hospital payments.

Similarly, AMA President Andrew W. Gurman, M.D., wrote that the Act would reverse the ACA’s coverage gains, with millions of Americans losing coverage, and insisted on the involvement of physicians in the health reform debate. AMA Vice President and CEO James L. Madara, M.D., wrote a letter to the Committee Chairs and Ranking Members in which he said the organization cannot support the Act as drafted “because of the expected decline in health insurance coverage and the potential harm it would cause to vulnerable patient populations.” He noted concerns that rolling back the ACA’s Medicaid expansion would limit state flexibility and urged the Committees to “do all that is possible” to prevent individuals who currently have health insurance from losing that coverage.

AHA, hospital executive support for hospital mergers, despite antitrust concerns

Hospital mergers have reduced annual operating expenses at acquired hospitals, and evidence from a study cited by the American Hospital Association shows quality and service improvements stemming from mergers. According to Charles River Associates, despite antitrust concerns from the Federal Trade Commission (FTC), hospital leaders believe that mergers are a better tool for achieving better care coordination and population health management than looser affiliations between parties.

Cost savings

An analysis of non-federal short-term acute care hospital mergers between 2009 and 2014 revealed a 2.5 percent reduction in operating expense per admission at the acquired hospitals, implying annual savings of about $5.8 million (derived from average annual operating expenses). Net patient revenue per admission also declined relative to non-merging hospitals, suggesting that mergers may reduce health care costs.

Interviews with hospital executives placed savings into three categories: scale-related savings from allocating fixed costs over a larger volume of patients, reductions in cost of capital, and standardized clinical processes. In particular, supply chain savings from group purchasing and reduced overhead following consolidation of back office services were cited as important cost-saving benefits of merging.

Quality improvement 

While the study was able to quantify some cost savings related to mergers, positive effects on quality were less obvious, despite executives stressing the impact of quality improvements following clinical standardization after a merger. Small improvements were observed in a decrease in the composite indices of 30-day readmission rates, 30-day mortality rates, and overall outcome, but the only statistically significant result was a 10 percent change in the readmission rate result. The authors admitted that the modest results may partially stem from difficulty in quantifying hospital quality.

Merger specificity

The FTC asserts that improved care coordination and other benefits touted by merger supporters are not merger-specific and can be achieved through other means of association. Hospital leaders disagree based on experience showing that “looser affiliations” between parties fail to provide the necessary level of commitment and accountability to achieve the necessary cost savings and quality benefits to effectuate health reform. The interviewees opined that alliances between parties are not able to overcome the divide of being part of different systems, resulting in unwillingness to invest capital, reluctance to share intellectual property, inability to align incentives and create a common culture, and regulatory roadblocks on information sharing. The authors noted that successful loose affiliations are usually narrow in scope, limiting the cooperation to combining supply chain efforts or developing joint back office function collaborations (without sharing data between affiliates). If clinical areas are involved, they are usually limited to support services.

Kusserow on Compliance: Court will not reconsider order to clear Medicare claims appeals backlog

On December 15, 2016, HHS asked the U.S. District Court for the District of Columbia to reconsider its December 5 order requiring the agency to clear the Medicare appeals within four years, stating it would not be able to meet the requirements under the schedule recently ordered without “substantial new resources and authorities.”  The court rejected this argument, as it had already been presented by HHS and considered by the court in reaching its order.  Unless HHS appeals the Court’s decision in American Hospital Association v. Burwell (U.S. District Court for the District of Columbia, January 4, 2017), this will conclude the 2.5 year litigation initiated by the American Hospital Association (AHA) and several hospitals.   Plaintiffs challenged the failure of HHS to meet statutory timeframes related to adjudication of Medicare claims appeals. The Court adopted the plaintiffs’ proposed timetable for clearing the backlog, requiring a 30% reduction of the current backlog of cases pending at the administrative law judge (ALJ) level by December 31, 2017, a 60% reduction by December 31, 2018, a 90% reduction by December 31, 2019, and a 100% reduction by December 31, 2020.

A failure to meet the deadlines would mean that claimants may move for default judgment in their favor. HHS is further obligated to submit a report every 90 days on its “progress in reducing the backlog and includ[ing] updated figures for the current and projected backlog, as well as a description of any significant administrative and legislative actions that will affect the backlog.” The HHS Secretary argued that the timetable would require her to “make payment on Medicare claims regardless of the merit of those claims.”  The Court responded by noting that HHS has already violated Medicare statute by not complying with statutory deadlines for Medicare appeals and the timetable provides a reasonable period for “proper claim substantiation.”  “If the Secretary fails to meet the [court ordered] deadlines, plaintiffs may move for default judgment or otherwise enforce the writ of mandamus.”

Tom Herrmann, JD, who served over twenty years as a former ALJ and executive in the Office of Counsel to the Inspector General, observed that health care providers and suppliers with pending appeals will welcome the court action requiring HHS to take steps to comply with the statutory deadlines for resolution of appeals.  He explained that governing law and regulations require an ALJ to hold a hearing and render a decision within 90 days of a party’s filing of an appeal with Office of Medicare Hearings and Appeals (OMHA).  However, they have been unable to meet this deadline, resulting in a backlog of 1 million pending appeals.  A Government Accountability Office (GAO) report last June was highly critical of the HHS appeals process and the failure to meet deadlines, and the OMHA moratorium on accepting new appeals requests in order to catch up has not worked.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2017 Strategic Management Services, LLC. Published with permission.