Bridging Business & Healthcare : Healthcare Management Consultants for Dispute Resolution, Valuation & Clinical Compliance

2,080. 40 times per week. That’s the number of wrong site surgeries still happening annually in hospitals and clinics across the US, according to a recently released study from The Joint Commission. I read the article with great interest yesterday morning as I was making my way through several airports traveling to a client site. As I walked through an airport I stopped to watch several news stations, expecting to see some outrage at such statistics. Maybe even a catchy new headline – “The War on Error”.  I watched them all - CNN, Fox News, the political gamut – and saw…nothing. Not one story. Not even a passing interest. 

Have medical errors become so much a part of the fabric of our healthcare system that this type of news doesn’t even merit a mention? Has getting the wrong care become not only accepted, but expected?

As healthcare reform continues to press forward, we continue to design fixes that will allow us to slowly evolve into a new delivery system, all while not changing our current system too much or too quickly. We seem to have agreed somewhere along the way that some frequency of errors is acceptable, and that we need to work on this slowly, lest we break the system we have worked so hard to create.

This study proves what we already know – our healthcare system is still broken. How long will we as a nation continue to tolerate slow and steady fixes to the system, and at what cost? 

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In a nine page letter last week to CMS, the Mayo Clinic has definitely outlined its position on ACOs. Under the current proposed rules they, like many others, have publicly chosen not to participate. Mayo goes on to say that the proposed regulations are “in conflict” with the way it currently runs it Medicare operations.

Although the Mayo Clinic is only one voice in a growing chorus of dissent, I can’t help but wonder if their voice is louder than the rest. In a public letter to Senators Ted Kennedy and Max Baucus on June 2, 2010, President Obama stated that "we should ask why places like the Mayo Clinic in Minnesota, the Cleveland Clinic in Ohio, and other institutions can offer the highest quality care at costs well below the national norm. We need to learn from their successes and replicate those best practices across our country. That’s how we can achieve reform that preserves and strengthens what’s best about our health care system, while fixing what is broken." With that type of endorsement, it would hold to reason that if Mayo is a model we can all learn from and even strive to replicate, yet they aren’t going to participate in ACOs, would it be logical for anyone to participate?

I know the Mayo model is certainly not the only way to skin the accountable care cat, but they are certainly held in high esteem by most in the medical community and even more so in the political community. Although there are those who believe that one voice alone will not be enough to derail the ACO train, I do believe that Mayo’s position will significantly drive the outcome of the final rule. As a wise friend of mine once said – “Sometimes you have to count the votes, and sometimes you have to weigh the votes.”

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Recently as a colleague of mine and I were debating the latest developments in healthcare reform, he posed a not-so-rhetorical question. “So, when do you think the independent practice of medicine as we know it will cease to be?” Current statistics, if you are believer in statistics, suggest the answer to his question might be “Sooner than you think!” Hospital employment of physicians is up 75% from 2011 to 2012, operating costs in physician practices are up 51% over the last decade, only 25% of practices have successfully implemented a fully functional electronic medical record, all in the face of flat or declining reimbursement. The die does appear to be cast.

However, even in the face of what appear to be overwhelming odds, there still remain a large group of physician practices looking to reinvent themselves in any way needed to assure their continued independence. Although the independent practice as we know it will certainly change, many are unready to write its epitaph quite yet.

So what will it take to remain independent in today’s merger happy, consolidation focused environment? Here are a few thoughts (with many thanks to my colleague Jon-David Deeson for his contributions to the list below):

• Define independence – Practices may not have to be employed/aligned/merged/acquired, but every practice will need to learn to work outside of its own four walls if they are to take advantage of new payment systems, particularly bundled payments. Even the most independent of practices will need to become comfortable sharing data, both clinical and financial, with other groups and health systems.
• Measure and share your value – Living on the reputation of being the best –ologist in town who the CEO comes to see as his/her personal physician is no longer enough.  Those physicians and practices who wish to survive independently must be able to objectively demonstrate their value to patients, physicians, and health systems that they desire to have as partners and customers. Once that value is shown, proactive transparency with the data will be crucial.
• Embrace the new quality - There must be an awareness that the traditional ways we as physicians measure ourselves will not be adequate. Successful groups must not only show that they perform better than national benchmarks, they must also demonstrate that they perform better than others in the same specialty. Relative performance will become more important than absolute performance with regard to almost all measures of quality. In a world of reform, if you are not demonstrating quality outcomes, you may not be able to play at all. Those who wish to thrive must also realize that all quality measures will not objective. Patient satisfaction and communication have always mattered, but now your income will depend on mastering them and proving that you have.
• Change your ways – Although productivity still matters, maximizing your business model around a fee for service, volume focused model will not allow practices to thrive and control their own destinies. Along with the quality focus mentioned above, physicians must learn to not only provide care, but to direct care. Developing and leading a team of providers (physician extenders, care mangers, home health providers, etc..) will differentiate a physician from the rest of the pack. This model is much different than the traditional “the-doctor-will-see-you-now” model of care most physicians grew up practicing, but mastering it will be critical for any practice wishing to succeed.

It is certainly getting tougher by the day to practice medicine independently, but for those that are willing to innovate and embrace change rather than pining for the “good old days” of medicine, there may yet be hope.

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In its June 1 letter to CMS, the American Hospital Association outlined a litany of concerns and issues with the ACO proposed rule as it is currently written.  One of the key concerns brought out by  AHA was the large number of quality metrics to be tracked by participating organizations, currently set at 65 different measures.  Their proposal goes on to suggest that CMS consider a “concise set of measures” be included in the startup phases of ACOs to encourage greater participation and a greater likelihood of success in improving those metrics.  The AHA did not, however, define what it thought those metrics should be that would adequately define high quality care delivery.

Although there are certainly many quality metrics out there currently defined by CMS and others, most would agree that they have failed to capture the measurement of the delivery of truly high quality care. With that in mind, I am going to attempt, at least in part, to fill in the blank left by AHA.  Here are my thoughts on what might constitute a few new core measures for quality.

1. Physician and nurse communication as a “trigger metric”.  Even in the most sophisticated healthcare systems, thorough communication to the patient so about their care is not always the focus for all caregivers.  No communication – no quality reward. 
2.  Percent of participating physicians using clinical decision support tools – A version of this metric currently exists in the proposed rule, but is limited only to primary care.  With the rapidly growing complexity of care, not using decision support tools as they become available will become akin to not using antibiotics to treat infections. We must learn to work in new and innovative ways, using all the tools we have available, if we truly wish to improve care and lower costs. 
3. Time to implementation of evidence based care – The medical field continues to be content with slowly adopting therapies and interventions that are known to work and save lives. As an example, the use  of care guidelines around the insertion and care of central lines has been definitively shown to save lives, yet adoption across the country is not yet universal. Adoption of this type of guideline should be expected within one year of release of data deemed as “clinically significant” by a panel led by physician experts in clinical quality.

This list may not be complete and may not represent exactly the type of quality metric that CMS or AHA has in mind.  However, if we as a healthcare system, cannot successfully address some of these tough issues at the very core of care delivery, we have little hope of reaching our defined goals of truly providing the highest quality of care that we know can be delivered.

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Yesterday was no different than many other days in my life as a consultant.  Two clients, three cities, and finally arriving late evening at the hotel. It had been a long day of travel and I was looking forward to getting into my room and off of my feet. As I got onto the elevator, for some reason, the inspection certificate caught my eye and I felt compelled to read it. Capacity 1750 lbs. No more than 5 passengers. Inspection good through January 2012. And then I saw it – Certified by the State Administrator for Elevators and Amusement Rides. Elevators AND Amusement Rides?  Did I miss the “You must be THIS tall to ride this ride” sign? Visions of “approved” rusty carnival rides whirling in the air made me very glad to step out of the elevator and onto something a bit more structurally sound.

This week a new study from Mayo Clinic was released, outlining the volume of colonoscopies a physician must perform to demonstrate expertise as rated by an objective test of endoscopic skill. The study showed that the number of procedures needed to show competence in colonoscopy was nearly double the 140 procedures currently recommended. It also raised questions regarding many procedures and the training required to attain true expertise in performing them.

As we continue to plunge into a world of healthcare accountability based on value and not solely on volume, I have to ask the question: are setting the quality bar high enough? It is a difficult discussion for many practices and health systems to have, but the question of clinical competence must be expanded beyond performance that is simply ”greater than the state or national average.” Have we given our nurses and clinical staff the appropriate training to truly excel in caring for our patients? Are we holding all physicians to the same high standards for every procedure, in every setting?  Have we allocated our financial resources to truly focus on the highest clinical outcomes attainable, not just performing better than our nearest competitor? 

As the concept of measuring value and holding each other accountable for outcomes evolves, we must be cautious not to measure only what we currently can track and assume that it is good enough. We must continue to push to measure that which truly demonstrates a standard of excellence, not just a standard of competence, even if that means that some physicians or health systems won’t be able to provide that service until they can demonstrate a higher level of care. It may be difficult, but until we in healthcare hold ourselves to these new, higher standards, we will never know if we are getting elevator or amusement ride quality.

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Ask anyone who was alive in the 60’s to list the greatest accomplishments of our country and they will most certainly include the successful flight of Apollo 11 and the first moon landing.  The US spent nearly $25 billion dollars to get Neil Armstrong and company to the moon and back, but what did we really see when we got there?  Buzz Aldrin captured it best when he looked at Neil Armstrong and said: “OK. About ready to go down and get some Moon rock?” $25 billion dollars and over 200,000 miles to get there and we get…moon rock.

In 2008, the US government spent nearly $400 billion dollars on Medicare with another $200 million on Medicaid, and the numbers continue to grow every year. We now find ourselves facing the challenge of nearly 500 pages of new rules governing how this money will be spent and facing a long and arduous journey to find new models of care delivery to somehow make this all work in a new and different way. If and when we finally reach the promised land of Accountable Care Organizations, what will we find when we finally arrive?

The creation of new models of care delivery may be the greatest challenge healthcare has faced in decades, but where we actually end up may not be the most important part of the journey.  Even though our Apollo astronauts came back with a bucket of rocks, the trip to get there had great value in and of itself.  Without it we may never have had dialysis machines, CT scanners, contemporary physical therapy machines, cook/chill equipment, Mylar, athletic shoes, or even cordless power tools. 

What new innovations will come from our journey to a new world of healthcare? A patient portal app that is standard on all smartphones?  New medication delivery systems that eliminate the need for IV lines entirely? True real-time quality measures and interventions? - (Mr. Browne,  this is your patient care coordinator. I see through your iPhone app that your BP has been above baseline for 5 days. Have you been taking your medications?) And many, many others….

The destination of the new care model as it has been currently defined may end up being no more exciting or memorable than a big pile of moon rock, but the innovations we create along the way may just make it worth the trip.

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Since the term hospitalist was coined in 1996, this new specialty has grown faster than any other in the history of medicine.  Continued financial pressures on primary care, combined with increased restrictions on resident work hours and the desire of physicians for a more manageable lifestyle, created a perfect environment for the rapid growth of this field.  The success of this model has spawned the creation of similar models in obstetrics (the laborist) and, most recently, surgery (the surgicalist).  As I read through and began to digest the proposed rule for implementation of ACOs over the last week, I began to wonder if we were once again creating the perfect environment for the creation of a brand new kind of specialist….

The proposed rule has more than 50 pages dedicated to defining specific quality measures, how they will be used, and how physicians will be rewarded (or punished) based on their performance. There are 65 metrics currently outlined, the majority of which are to be measured in the outpatient, primary care setting.  Metrics include seven measures on patient satisfaction in the primary care setting, rates of 30-day post discharge visits, surveys for patients on how well they understand their care plans, “ambulatory sensitive conditions” (diabetes, CHF, dehydration, pneumonia, and others) measured both on how well you manage them as well as your ability to keep patients with these diagnoses out of the hospital – and the list goes on.  The rule goes on to outline that you must report on and perform well on each and every one of these metrics if you wish to participate in any available shared savings. The potential financial rewards for many organizations are great as are the adverse risks of underperforming. 

Primary care has been thrust into the center of medicine once again (can anybody say capitation?), but this time it appears that at least some of this model may actually stick.  Although putting the primary physician in the proverbial driver’s seat will have advantages for managing care and outcomes, there is only so much a physician can do in a day.  How will primary care physicians find the time to continue to do what they have always done – diagnose, treat, and care for their patients?  Ladies and gentlemen, I give you, The Preventionist.

The Preventionist will focus solely on the optimization of care as defined by CMS, BCBS, and any other outside entity or payer.  They will only see patients with conditions defined as focus areas for cost and quality, nothing more.  Diagnostics or other conditions? Leave that up to your family physician.  Acute illness?  We have a nurse practitioner that will see you now.  Without this focus on the ever-rising bar we are being measured against, how will any organization be able to truly succeed? This may be taking this looming model of primary care to an extreme, but ask any internist who has practiced more than 10 years if they ever thought, when they first began, they wouldn’t be caring for their own patients in the hospital?

The new rules are upon us and I do believe they were well intentioned and designed (at least in theory) to lead to better care for patients and populations at a lower cost by charging primary care, once again, to steer the ship.  However, in our haste to create a model to save money and to care for the most challenging patients, I fear we may be creating just what we are trying to avoid – misaligned incentives and a model of care that is even more fragmented than the one we have today.
 

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As I was getting my daily fix of ESPN this morning, something a bit different than the routine scores and highlights came across my TV. Two very talented men, both potentially bound for NFL stardom, were showcasing their talents for scouts, coaches, recruiters, and reporters – a panel of judges if you will. Although these players have certainly proved their talents in the past, these workouts will likely determine which player an NFL team will choose to build their future around. These workouts are vigorous, competitive, and very, very public. As draft day approaches, there is a running tally of whose stock is up and whose is down. Which player is at the top of Mel Kiper’s big board? Who will be drafted in the top ten? Will they succeed or be a bust?

As I listened to the reporter break down every step of Cam Newton’s latest pro day, I wondered what it might be like if physicians were put through this type of workout and evaluation before we were “chosen to play on a team?” If professional entertainers are subject to this type of scrutiny, shouldn’t we expect at least that from those of us sworn to care for the sick and “do no harm?”

I thought about the standard recruiting process for most physicians. A check of our background and training. A reference check from those with whom we have worked. An interview or two and a nice dinner. All of this is usually followed by an offer and a contract. Not exactly the NFL combine when it comes to assessment of quality.

The world of quality in healthcare is at a pivotal point in its history. Tracking of quality data and performance is certainly central to any health reform effort, but when it comes to individual physician performance, we admittedly have a long way to go. The arguments over which data are good enough and whether or not it “applies to me” continue to be the core of many discussions in many physician lounges and hospital board rooms. We may not ever get to the level of intensity seen on NFL draft day, but if we truly hope to deliver the highest level of quality for our patients, we must be more open to increasingly higher levels of scrutiny and evaluation of our performance.

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As a consultant, I spend a lot of time on airplanes and subsequently get to meet a new “person in the next seat” almost every week. Once the small talk is over, the conversation is nearly the same every time. “Oh, you work in healthcare! What do you think about all of this reform stuff anyway? Is there an answer?” I’m always very cautious how I frame my answer. As those of us who work in this world know, there is not AN answer so I am very careful not to endorse one model or the other, keeping the conversation turned toward the general nature of reform and the complexities it entails. 

Well today I am breaking my own rule. I want to talk about a model that just might work. I’m not sure if my inspiration was generated by the storms this weekend, making me feel a bit like the good Dr. Frankenstein, but I began to consider what a new model of care might look like if we took the best parts of some good models and built an entirely new “beast.” My thoughts are not entirely complete and your feedback is welcomed, but here goes….

The model is based on the following premises:

• Some of the best and brightest physicians have become frustrated with the complexities of billing, the noise of paperwork, and the inability to care for an unmanageable number of patients to make ends meet. As these complexities worsen, more and more physicians will either leave practice, seek out a partner (read “hospital”) to accept the growing economic risk, or move to a model of “cash for care”.
• A small number of the sickest patients consume a large share of available medical resources. In many of the new models proposed, safeguards are built in so that physicians don’t select these patients out of the care model as the risk for caring for them poses too great of a financial penalty.
• Carrots work better than sticks.

So here is the plan. Why not pay the best and brightest physicians to care for the sickest patients as simply and effectively as humanly possible? Let’s take the best parts of a concierge model of care, throw in a bit of primary care medical home and a touch of Dr. Gawande’s hotspotting model and see what we get.

The model would work like this. Take a population of no more than 300-400 patients with at least one chronic disease as their primary diagnosis and assign them to one physician. This physician would be responsible for the care of those patients and those patients only. But rather than pay the physician through any type of complex, CPT driven payment mechanism, pay them cash. No billing, no coding, simply cash up front. Sound too much like capitation? Here would be the key difference. In a capitated model, it is assumed that too much care is given and the payments are designed to reflect the risk of managing care down to a certain level of payment and reimbursement. Physicians are motivated by avoidance of an undesired negative financial outcome. In this model, the assumption up front would be one of excellent care. Remember, only those physicians who have demonstrated that they are already the best of the best in caring for complex patients would be invited. Physicians would receive payments based on their continued provision of the highest quality care to patients - not just to avoid negative outcomes, but assure positive ones. Payments would be based on the assumption that at least one hospital admission for at least half of the patients would be avoided on an annual basis. Although current payment structures for hospital care are based primarily on the volume of admissions, this model will set the stage for a value based model of reimbursement that is likely represents the next iteration of hospital payments. If you assume that a hospital admission for a chronically ill patient can quickly add up to $10,000 or more, you would very easily have enough cash flow to run a practice.   In order to assure that excellent care was given, outcome based quality and cost metrics would be measured on all patients. There would be no “quality bonuses”. Quality care is assumed and paid for on the front end. As long as the highest quality is continually demonstrated, physicians would be allowed to continue practicing in this model.

So in the end here is what we get:

• Patients who need the most care get focused attention from the best physicians leading to better outcomes of care than they can achieve in our current fragmented system.
• Unnecessary care, in particular expensive hospital based care, is reduced, thus decreasing total costs to the system.
• Physicians are rewarded (instead of penalized) for caring for complex patients with financial recognition, and by minimizing the administrative burdens inherent in practices currently.

As always, the devil on any idea like this is in the details, but if we are to come up with meaningful solutions we may need to develop a tolerance for living out here closer to the edge of creativity, avoiding the gravitational pull of current thought and the status quo.

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“Primum non nocere” – First, do no harm. This is one of the first things we are taught as physicians going through training. If Hippocrates were alive today, I think he would make it even simpler – “Do the right thing. Every time.” It seems simple. It seems so straight forward. But as we all learn, practicing medicine is neither of those things. To many physicians, medicine seems to have become a maze of complex clinical algorithms laced with a myriad of regulatory and legal hurdles and barriers to overcome. And at the center of it all is the dirty little issue no one seems to want to discuss – defensive medicine and tort reform.

On Jan 25^th, to very little fanfare, the HEALTH act was reintroduced into the House and passed by the Judiciary Committee several days later. The bill has been introduced to congress annually for the last 6 years with little or no traction at all. The bill, which focuses on medical malpractice reform, is a mere 28 pages in length - 1900 pages less than PPACA. The bill’s basic tenets are pretty straight forward: cap punitive damages; replace joint and several liability (in other words, not every physician can be held liable for the actions of other physicians); set statute of limitations on filing claims; and limit the amount attorneys can make on malpractice claims. 

The arguments on both sides of tort reform are certainly passionate, both for and against, but one thing is certain – sweeping the discussion under the proverbial rug and doing nothing (again) is no longer an option. Whether defensive medicine costs $7 billion, as the CBO claims, or $70 billion, as the AMA claims, it is a very real practice leading to the waste of very real dollars. 

We are all trying to make progress on changing the healthcare system to one that is focused on decreasing costs, improving outcomes, and holding one another accountable. If we do not address this barrier to providing high quality, appropriate clinical care, our ability to focus on the real issues will continue to be clouded and our chances of developing a truly improved care delivery system are greatly diminished.

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My last several posts have been, shall we say, a bit on the frustrated side, so I’ve decided today to change my approach and embrace my inner optimist. Rather than lament the challenges surrounding us as we all swim our way through the muck and mire of healthcare reform, I have resolved to focus on the positive and share some of the new care models that are being tried by some very innovative folks. To be sure, these ideas are not what has been in the mainstream press and not one of them has the momentum of ACO’s, but I believe there are some real pearls in each of them. This list is not complete by any stretch and I would love to hear about others that I might have missed.

• The Prometheus Payment system – The theory of getting a group of physicians together to decide what it costs to care for a particular disease, paying them upfront, and then holding them accountable for the care is a very interesting physician-led twist on the ACO. Several large health systems are trialing this system as we speak. It has significant backing through the Robert Wood Johnson Foundation.
• FaircareMD – By striving for transparency in pricing, this model targets those with large out-of-pocket expenses and lets patients choose their doctors based on price. Wouldn’t this get interesting if it also included good solid quality measures and let patients choose on value? Maybe we could call it ValueCareMD….?
• Practice Fusion – Practice Fusion provides a completely functional EMR free of charge (yes, that’s right – free). The EMR is web-based and ad-supported with non-intrusive ads throughout the product, shifting the cost away from the provider to the vendors.
• Care Practice – By providing 24/7 urgent care and house call service this group has embraced the concept of “radical access” leading to “the practice of least resistance.”
• Qliance and One Medical Group – These models are bringing concierge care to the masses. For a fee similar to your monthly gym membership, you can get a greater level of service and attention than your traditional primary care practice as well as online records access and same day appointments. This may appeal to those with a high deductible HSA plan and who are becoming more and more cost conscious.
• Hello Health – By putting patients in charge of their own healthcare through creative use of the Internet and social media, this model is truly on the leading edge of the healthcare curve, and it may be just what the doctor ordered for the new iPad generation.
• ZocDoc – Think OpenTable.com but for medical appointments. The website says it all: Find a doctor. Choose a time. See a doctor. You are in control.

Even though CMS has created a Center for Innovation, true innovation is much more likely to occur on the fringes in models like the ones mentioned above. I, for one, will be watching these new and exciting innovations closely as they continue to evolve. PPACA is certainly not the only game in town and others are providing us with lots of great ideas and information along the way. Maybe the healthcare reform glass is half full after all.

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Over the last several days I have been pouring myself into the latest information from CMS on what lies ahead in the world of quality – that being the proposed rule on Value Based Purchasing as published in the Federal Register. As with most things that the government produces, I prefer to read the original text, not only the summaries, as many of the finer details tend to get overlooked.

As I dug into the first page, I was actually a bit encouraged. We all know that quality will be included in whatever form of reimbursement is on the horizon and CMS’s approach sounded reasonable. 

Scoring methodologies should be reliable, as straightforward as possible, and stable over time and enable consumers, providers and payers to make meaningful distinctions among provider performance.

Makes sense to me. Then I read on….

After a 7 page description on why the metrics chosen were the most appropriate metrics, CMS goes on to dedicate a full 20 pages of the 39 page rule to describing the proposed scoring system, including a discussion of the use of "cube versus linear models" of the exchange function to determine ultimate distribution of payments among hospitals. It reminded me a bit of my vector physics classes from undergrad, but a little less understandable.

As those of you who know who know me well, I am in full support of integrating the measurement of quality into any reimbursement model. However, by trying to so fully objectify this measurement, it appears as if CMS has created (or at least proposed) a system that is begging to be gamed by those that participate in it. How long will it take for vendors to begin promoting “key indicators” that, if focused on and improved, will lead to greater reimbursement? And even if these “key indicators” are met, will we really see any appreciable improvement in quality of care? By focusing on payment reform first and care delivery reform second, we are once again creating another model of measurement rather than a model of improvement.

I don’t have all the answers, but I do believe as do many of my colleagues, that for any new delivery system to succeed, there will need to be a greater degree of collaboration between physicians and hospitals. If a measurement system of this complexity is ultimately implemented, it may very well lead us to the law of unintended consequences. By focusing on the details of the payment system and not the improvement of the delivery system, we make it more difficult, if not impossible, to achieve the integration, alignment, and redesign necessary to build the new delivery system that we can all agree is sorely needed.

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This may be a surprise to some of you, but I do not look good in a mu’u mu’u. For those of you who may not know, a mu’u mu’u is a very comfortable, very loose fitting Hawaiian dress that just sort of hangs off the shoulders of the wearer. It is designed to fit almost anyone and to be worn for any situation. And although it may fit over my frame, I certainly do not look good in one.

As I read and follow what’s happening in the healthcare landscape, it seems to me that many people are searching for the mu’u mu’u model for healthcare. What can we design that fits (most) everyone in every situation? And by doing so we have lost sight of the fact that there are very likely multiple solutions to this very complex problem.

Last week Atul Gawande wrote an excellent article in The New Yorker entitled “The Hot Spotters” that asked the question Can we lower healthcare costs by giving the neediest patients better care? His arguments were both persuasive and thought provoking. I do believe, this model may indeed work for certain patient populations – the sickest among us, but will almost certainly not work for the remainder of us. Models such as Qliance in Seattle or Hello Health in New York City provide new and innovative ways of seeing patients and will be great for some, but will not work as well for the patients Dr. Gawande describes.

Much of the discussion and debate on Capitol Hill and around the country is focused on which model will improve quality the most and save the most cost. This equation too frequently circles back around to a model which is driven by the most efficient payer structure or by what will fit into the already existing mammoth infrastructure that exists in healthcare today. As long as we continue to ask the question of which model is best, I fear we will continue to get the same answers. The question we should be asking is how can we best care for very different patients with very different healthcare needs. Before we all get herded blindly into the ACO corral, let’s be certain we are focusing on caring for the needs of patients, not just the need to have a solution.

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In yesterday’s Wall Street Journal, Tennessee Governor Phil Bredesen presented a well-written argument to show how many employers may benefit financially under the new healthcare law by no longer providing insurance coverage to their employees as a direct benefit of employment. Today, Louisiana Governor Bobby Jindal announced that his state would delay changes to the Medicaid system that would have made care available to thousands of the poorest citizens of his state due to opposition from many hospitals there. 

As I read both of these pieces, I couldn’t help but notice something, or should I say someone, continues to be conspicuously absent from these discussions. Throughout Governor Bredesen’s piece he refers to “coverage,”“plans,” and “employers” caring for patients. Governor Jindal’s plan refers to “coordinated care networks” caring for patients. Networks, plans, and employers do not care for patients – physicians do. 

As politicians and businesses scramble to try to define and implement the new normal, physicians continue to be seen at only at the end of every story, simply reacting to each new twist in interpretation of the law as it is imposed. With few exceptions, physicians seem to be content to follow the actions of others.

I am not calling for a massive rebellion on the physician front, but simply for individual physicians to begin to take a leadership role in the process. Ask most physicians and they will agree that the current delivery system is unsustainable and that changes must be made. If we as physicians want to be more than a footnote in this process, then we must begin to take a more active role in shaping it as it unfolds.

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This morning United Health Care announced its new Cancer Care Payment Pilot. According to UHC, this pilot is designed to “advance a new cancer payment model that focuses on best treatment practices and better health outcomes.” As a matter of fact, most agree that the cost of treating cancer under the current model is unsustainable. As evidence for this position, Dr. Michael Neuss, an oncologist from Cincinnati, described existing payment plans that reward physicians for using expensive chemotherapy medications as “our dirty secret” in today’s New York times. In this world of the “new normal” of healthcare reform, I am “all for” exploring new models of care that attempt to provide the best care at the best price, but that does not appear to be the true goal of this model.

In reviewing the details of the model as outlined by UHC, this new pilot will reimburse providers utilizing a bundled payment plan based on the “expected cost” of treating a patient. The physician will choose the care plan, but all reimbursement will be independent of the drugs that are chosen to treat the patient. Basically, the physician will get a flat fee for what it should cost for him/her to see the patient in the office, plus a bit of a bump for case management and drug administration. The drugs will be reimbursed at cost, removing any profit incentive for the physician.

So far so good right? Not so fast. Although the disincentive for profiting on medications may lead to lower costs, what incentive will there be for truly improved quality and better care? Reading on in UHC’s press release, they do mention that they will be measuring the number of emergency room visits  (a cost measure), the incidence of complications (a cost/quality measure), and “health outcomes.” Exactly how they will be measuring outcomes is not said.

Even if you give UHC the benefit of the doubt that they are going to create robust, meaningful, outcomes-based quality metrics (which I am admittedly skeptical of), they have missed the boat on one very important piece of this equation. None of these quality metrics appear to be tied in any way to the physician’s income. How much the physician is paid is tied solely to the time likely to be spent caring for the patient – a bundling of expected fee for service payments, nothing more.

Creating appropriate incentives for any behavior is complicated, but B.F. Skinner showed long ago that negative reinforcement is short-lived. If you desire to have long-term change, you must reinforce a desired behavior. We must create new models that help us reign in cost. However, without including positive financial incentives that reward the best care, we will simply end up with another band-aid approach that rewards the payer, frustrates the physician, and fails to provide incentives to improve the outcomes of those at the center of care, the patients.

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Last week the healthcare world was all abuzz. The federal government was set to begin the journey that every player in the marketplace has been waiting for, the road to the accountable care organization. Over 300 industry leaders gathered in Baltimore to hear just how this was going to occur, to hear the “new normal.”  Well… that’s not exactly what was heard. Although there were some mentions of changes to safe harbors and inclusion of all players, not a lot of new and different ideas were shared. While following those who were live tweeting the event, comments like “..is an ACO a PHO without the H?” and “Without antitrust legislation, we’ll have only large hospital networks remaining..”  and even “..capitation is on the horizon” were the norm of the conversation.

The closer we get to implementation of this “new” model, the more similar it appears to ideas that have been tried (and failed) before. It seems we have not yet developed the appetite for a model that is new and truly different.

Apple’s iPad has been out for less than a year.   It is anticipated that within the year it will have its own category of electronics, and will outsell netbooks by a large margin within the next two years. The iPad was expected to do well, but not this well. The iPad, like healthcare reform, was promoted as something new and truly different. But the iPad was not only new and different, it was also better for the customer…at least at some things. It made doing things that customers truly wanted to do (get information fast) better and easier, even at the cost of not being as good at others (word processing, gaming, etc.).

In an article in Kaiser Health News this morning, the author outlines how many industry players are lining up to make ACO’s work – not for the patient, our customers, but for them, the providers of services. These industry insiders all seem to be afraid of what they might have to give up under this new model of care, and are looking to make sure they maximize their own gains. There may be a lesson for us to learn from our friends at Apple. If we truly want to improve our model of care, we are going to need to give some things up. Everything cannot stay the same with different titles. Different for the sake of different is not going to cut it either. If healthcare is truly going to be reformed, we need to come up with both “different” and “better” – for the providers AND for the patients. So the question remains, does the highly publicized and government-endorsed accountable care organization meet these standards? Based on those attending the listening sessions this past week, I’m afraid the jury is still out.

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As we continue to move further down the path of healthcare reform, finding ways to focus on and measure the quality of clinicians is generating more and more discussion. An article published this week in the Columbus Dispatch highlighted the value of board certification as a proxy for quality. The article even went so far as to reference the possibility of a higher rate of pay for physicians who maintain their certification. Opponents to board certification argue that performing well on a multiple choice exam does not truly represent good clinical quality, and that the cost to the physician as well as the time lost caring for patients in this era of physician shortage is not warranted. 

In a related article from NPR, the dying art of physical examination of the patient was highlighted.  In a 2002 study of family physicians, less than 40% could correctly identify 12 common heart sounds.

It would seem to me that these two studies cry out for the same solution – include hands on testing as a component of demonstrated competence for physicians. Now, before I cause a revolt at the ABMS, let’s think about this for a minute. Nurses are required to continually demonstrate hands on competencies in most hospitals to continue working in individual units such as the ICU. To be certified as an open water lifeguard you must demonstrate at least 4000 hours of open water experience to even be considered. If you want to fly a multiengine commercial jet you need at least 280 hours of experience, 10 of which are under the eye of an inflight instructor while demonstrating all the requisite skills needed to fly in a myriad of different circumstances. Why then would it seem so far fetched to require the same demonstration of skill for physicians? Combine a written course to assure mastery of knowledge with a live demonstration of clinical skills relevant to each physician specialty.   Putting something of this nature into practice would of course be very challenging, but if we are truly going to demonstrate quality, this may be a good place to start the conversation.

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This week the newly appointed head of CMS, Dr. Donald Berwick, gave his first public speech since his appointment in July. As the speech opened, he mentioned a lot of the “what’s” of healthcare reform; costs must decrease, new ideas are needed, we must work together, change is imperative, etc He did not, however, mention much regarding “how” he intends to lead us there. Further into the speech however, Dr. Berwick may have given us a glimpse into his plan. He referred to a “three part strategy" to:

• Improve the experience of patient care;
• Attack population-wide causes of disease; and,
• Reduce per-capita costs of health care. 

This strategy is an apparent reference to the “Triple Aim”, a concept first promoted by Dr. Berwick following its introduction in an article published in the journal Health Affairs in 2008.

Since his appointment, Dr. Berwick has been criticized for not outlining a solid plan to implement healthcare reform. When asked how he would do just that in his original article, Dr. Berwick did have a plan. That plan included some very difficult and not very politically popular suggestions: global budget caps on total healthcare spending, measurement and fixed accountability for the health status of populations of patients, standardized measures of care and quality, sharing of financial gains with those that help reduce cost and improve quality, and training clinicians to improve their ability to change processes of care. Curiously, Dr. Berwick chose not to include any of those suggestions in his speech this week.

Over the last few months, the healthcare reform debate has been peppered with cries of things that various groups will NOT do, but no one has yet emerged as the leader who has the ideas of what we CAN do to achieve meaningful reform. Among other attributes, leadership involves establishing a clear vision, sharing that vision clearly so that others can follow, and then providing the information, knowledge and methods needed to accomplish that vision. I may not agree with every tenant of Dr. Berwick’s plan, but he at least he (at one time) had a plan. By choosing not to continue casting his vision for that plan, the opportunity to become the leader healthcare reform desperately needs may just have passed him by.

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We all have our guilty pleasures. One of mine is reading my weekly issue of Sports Illustrated cover to cover. During this time of year, every issue ends with the same column titled “Things I Think I Think” – a column dedicated to “all the latest news, buzz, and inside information”. Like all of you, I have been bombarded with buzz daily about the latest developments in healthcare reform. In an attempt to keep up, I have immersed myself in the law for the last several months, trying to make as much sense of it as I can. After taking in all of this information, and adding in a few of my own thoughts, here (so far) is what I think…I think.

• Even though I get email every day on how to be one, and the law allows for the formation of them, I don’t believe that ACOs are ready for primetime just yet. There is a lot of good that may come from them in theory, but the operational challenges of actually designing, implementing, and successfully managing an ACO are daunting at best. The complexities of actually pulling all of the moving parts together may prove too much for the majority of healthcare organizations, leaving much of what the law has set out to do a distant goal for many. 
• The pilot project that CMS has underway for orthopedics, interventional cardiology, and cardiovascular surgery is already approaching the halfway mark, with preliminary performance data expected in November of 2010. These bundled payment models are likely here to stay, at least in high dollar specialties. There are several facts that lead me to this conclusion. First, these models are designed to jointly incentivize physicians and hospitals in their efforts to deliver high quality care by removing the primary reimbursement barrier facing them today; disparate payment systems that are misaligned.  Secondly, the outcomes metrics in these specialties are well developed, and some of them have already been rolled out by CMS for public comment outside of the demonstration project to be used in other portions of the healthcare law. And last, but certainly not least, the enormous amount of financial savings that is likely to be gained by implementing these models will simply be too great for CMS and other payers to ignore.
• Physician payment reform may not come in the form of repealing the SGR, but will be greatly shaped by the Value Based Payment Modifier section of the new law. This section (section 3007) is designed to reward physicians who deliver high quality, low cost care with respect to their peers by changing the amount paid per work RVU. The metrics to be used are due out by January 2012, rule making is set for 2013, with full implementation scheduled for January 1, 2015. This may seem a long way out, but the advantage this modifier may have over other methodologies is that it avoids the need to overhaul the payment infrastructure currently in place. Once quality metrics are defined, you will simply be paid more (or less) per work RVU using the same systems that CMS currently has in place.

At the end of the day, I guess what I think I think is that even though we have a long way to go before all of the pieces of the puzzle fall into place for truly meaningful reform, we are soon to see the effects of several of these pieces,  signaling the beginning of truly significant change to our system.

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This week Modern Healthcare released its annual list of the top 100 most powerful people in healthcare. It’s populated with many people who most would agree are quite powerful –Barack Obama, Nancy Pelosi, Bill Gates, and the list goes on.  Perhaps more interestingly, however, are the people who topped the 2008 list of healthcare’s power brokers – Steve Case (founder of AOL and Revolution Health), Eric Schmidt (CEO of Google) and Hillary Rodham Clinton – who have dropped off of the list entirely. If they had such enormous power two years ago, why are they seemingly no longer even in the equation?

Webster’s dictionary defines power as “the possession of control or command over others; authority; ascendancy.”  Power is fleeting. Exerting power may allow you to achieve your short-term goal, but it has a downside – it gets used up. If your only approach is to exert or impose your will to achieve your ends, there will always be another waiting to take your place.

Influence is another thing entirely. It is the capacity or power of persons to be a compelling force, to produce effects on the actions, behaviors or opinions of others. In short, to influence is to cause long-term, meaningful change.

For better or worse, we now have an outline for change to our healthcare system, but we have yet to see the type of long-term influential leadership needed to sustain and implement meaningful change. There are some new and creative ideas out there; some of which just might work, but unless we can identify consistent, passionate, and effective leadership in healthcare at the highest levels, the door will continue to spin.

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As all of us who work in healthcare know, we are all swinging for the fences to hit the home run of Electronic Health Record ("EHR") implementation. Practices and hospitals across the country are racing to make sure all of the myriad of boxes are checked, T’s are crossed, and I’s are dotted to be sure that their version of the EHR meets all of the new standards for meaningfulness. There are core measure items and menu measure items – pick all from column A and some from column B and you now have meaning. The search for meaning has been defined, but achieving it still seems a very distant reality for many of us that are just stepping up to the proverbial plate.

In the midst of this mad scramble toward meaning, two very different studies on IT were released this week. On Monday, a study was published stating that only “fully functional” emergency department EHR’s led to lower lengths of stay and lower waiting times. The study goes on to say that only 1.7% of the systems surveyed met the definition of “fully functional”. In fact, if you ended up in an ER with an EHR that was of the more basic variety, your wait time was likely to be longer than the majority of hospitals with no EHR at all. (A swing….and a miss.)

On Thursday an article in the Boston Globe's health blog, White Coat Notes, highlighted a new study being undertaken by the Emergency Department ("ED") in Boston’s MetroWest Medical Center. The program allows patients to text the ED to check on wait times. One of the goals of this program is to “promote better customer service” by decreasing waiting times. At the time of publication of the article, over 450 patients had sent text messages to the two emergency departments in the MetroWest system. The average wait time was 24 minutes to see a physician. (A bunt down the third base line…and he scores!)

Like many other parts of the new healthcare reform world, many of the goals may be admirable, but seem unobtainable and overwhelming to many hospitals and healthcare providers. Successful implementation of the EHR across the healthcare system may be the home run we are all looking for, but if we want to achieve true meaning for IT in healthcare, we may have to hit a few singles first.

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This past week, Nevada’s state board of health found itself in the middle of an all too familiar debate – just how much information should hospitals be required to share directly with the public.  The debate arose over a new regulation that would require Nevada hospitals to report hospital acquired infections to the CDC’s infection database. That information would then be available to state regulators to track, trend, and respond to as needed.  The information would not, however, be available directly to the public. In leading the debate against full public disclosure, Bill Welch, the president of the Nevada Hospital Association, stated that although he was against allowing the public to identify which hospitals had which infections, he was in favor of “meaningful transparency.”
 
This debate over how much to share already has taken place in at least 27 other states. But as I read how others had solved this, I began to believe we aren’t looking for the right answer as much as we are asking the wrong question.
 
As an industry, healthcare is going through a transition in the realm of quality.  It is moving (or in some cases being moved) from only measuring processes of care – did the patient get an aspirin - to measuring outcomes of care – did the patient live or die?  Forces from within the industry, such as doctors Pronovost and Gawandi, and external forces as great as the new healthcare law itself are driving healthcare quickly toward this goal. While progress is being made, we are far from the end of this transition. 

Focusing on “how transparent we are” misses the point.  When we can focus on and achieve meaningful quality as demonstrated by consistently improved outcomes, debating over who sees the data won’t seem very meaningful at all.

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Recently, a friend of mine went out to his car late one night to run an errand, only to find that it would not start. He was immediately concerned as he had an early AM meeting that he couldn’t miss. He had just replaced the battery so knew it must be something else. Knowing nothing of cars, he did what any of us would do, he Googled it. One brief phrase – “Infiniti QX56 won’t start battery new”—and presto, up popped three online mechanics, one at $15, one at $25, and one at $45. Choosing the middle of the range, he clicked on the link and there was his trusty online mechanic at 11:30 PM to answer his questions and hopefully solve his dilemma. After a brief history of the problem, the mechanic quickly shared with him what he thought to be the most likely answer – it was a relay switch. Fortunate for him, this particular model has 6 other relays that are identical, one of which was to the fog lights. The fix was simple; he would just need to switch out the two parts. Knowing that my friend was not adept in the ways of car repair, the mechanic, e-mailed him a diagram of where to find the correct part, he switched it out, and like magic, his car started up. Thirty minutes after getting online – Problem solved.

As I thought about this story, it made me wonder about how we continue to care for patients today. My physician’s office is one of the very few places in my life that I have to wait for an appointment in order to receive the information I want or need. A friend of mine called last week for an appointment as a new patient with a specialist she needed to see. First available appointment – 6 weeks.

Much of the discussion we are seeing is about how physicians must change the way we practice in response to healthcare reform and the new law. Although that is undeniably true, there are other forces of change at work in the world of healthcare. Given that nearly everything else in our lives has become designed around immediate access, it is only a matter of time until physician practices must find a way to get on board. 

• New models of care, using social media tools and immediate access such as hellohealth are emerging. Follow @jayparkinson on twitter to see more.

• Jennifer Shyne Dyer, MD, [@endogoddess] is using texts and tweets to monitor her diabetic patients. 

• The Mayo Clinic recently launched its new Center for Social Media with the tagline Bringing the Social Media Revolution to Healthcare.  

If physicians are to survive and thrive in this new healthcare world, they will need to join in this “revolution,” developing new and creative ways to care for their patients and make information immediately available to them.  How long will it be till your patients are really able to see you…now?

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This past week, CMS announced a public comment period on several newly released quality metrics focused on stroke outcomes – 30-day all cause mortality and 30-day readmission rates. As I spend most of my day working on healthcare reform and quality, I spent the weekend diving into these metrics, wanting to be sure exactly which clinical improvements CMS was looking to incentivize physicians and hospitals to achieve. I quickly scrolled down through the 30-page “Measure Information Form,” looking to find the definition of the metric and why it was chosen. I had to go about 10 pages into the document, but there it was.  I came upon the section titled “Measure Justification” with the subtitle "Importance.” Under this impressive heading, CMS went on to say it would define this "Importance” by the "Extent to which the specific measure focus is important to making significant gains in healthcare quality (safety, timeliness, effectiveness, efficiency, equity, patient-centeredness) and improving health outcomes for a specific high impact aspect of healthcare where there is variation in or overall poor performance.” OK. Makes sense so far.

Not too much further into the document, CMS goes on to define the Summary of Evidence of High Impact. Perfect. This is just what I am looking for. Let’s see – Affects Large Numbers. I can buy that. Stroke affects almost 800,000 people every year in the U.S. Next. Leading Cause of Morbidity/Mortality. Stroke is the third leading cause of death in the U.S. after heart disease and cancer. Well said. CMS seems to be right on point. Next. Severity of Illness Stroke survivors frequently experience significant long term disability. And finally – High Resource Use. The estimated direct and indirect cost of cerebrovascular disease for 2010 is $73.7 billion. Hey, wait just a minute. I thought we were talking about improving clinical quality. How did this get in here?

When I was a young physician in training, we spent hours learning to read and interpret clinical studies, always keeping current on the latest trends to assure we were providing the best clinical care to our patients. It wasn’t that we were trained to ignore the cost of care, but we didn’t include it as we defined whether or not quality was improved. Quality was on one hand, cost on the other, and we weighed them together in our decision. Now it seems as if that line has become a bit blurred. 

In 2007, CMS released a report to Congress entitled “Plan to Implement a Medicare Hospital Value-Based Purchasing Program.” The report's goal is defined by moving more towards a value-based system of care as follows:

CMS recommends replacing the current quality reporting program with a new program that could include both public reporting and financial incentives for better performance as tools to drive improvements in clinical quality, patient-centeredness, and efficiency.

When you critically examine current demonstration projects, the trend continues. Right alongside of "Post-operative stroke” you will find "Average and median length of stay” both listed as metrics to measure quality.

When the definition of whether or not quality is achieved is dependent on the resources consumed, are we limiting our focus to only those outcomes that also provide financial savings? Has cost become the new sine qua non of quality? Maybe the new line isn’t that blurred after all….

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“I read the news today, oh boy"

The outlook for Medicare has improved substantially, or at least so say the Trustees of the Social Security and Medicare trust funds in their recently released report. According to this latest report, Medicare will now be solvent until at least 2029. The good news is, this is 12 years longer than previous estimates. The bad news is, I will only be 64 – 2 years short of eligibility for my full Medicare benefit. Paul McCartney's words – “Will you still need me, will you still feed me?" – suddenly have taken on a very personal meaning.

According to the report, this windfall for Medicare is entirely due to “...program changes made in the Patient Protection and Affordable Care Act.” It goes on to say that “If health care efficiency cannot be substantially improved through productivity gains or other measures, then over time the statutory Medicare payment rates would become inadequate.”

This new math is quite telling. With all the new programs and new ideas, why does health care reform only buy us 12 more years in an admittedly optimistic, best case scenario? For all of the talk about continuity and coordination, this plan is largely focused on gaining efficiencies in our current system. New models of payment do not necessarily equal new models of care. There are certainly opportunities to lower our costs, and improve our delivery, but there is a limit to the efficiency you can gain in any system. There is only so much juice in the proverbial orange. 

We are currently living in a system of uncoordinated sick care with the goal being to move to a system of coordinated health care. Although the new law moves us in that direction, it really only gets part of the way – to a coordinated sick care system. Unless we can continue to move toward a model of truly coordinated health care, we are simply delaying the inevitable. We may have a good start, but we still need a better plan.

Title: When I'm Sixty-Four, John Lennon & Paul McCartney

Opening Quote: A Day In the Life Lyrics, Paul McCartney

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"It would be so nice if something made sense for a change.”

Alice in Wonderland

One of the primary challenges of living in the new healthcare world is embracing the concept of value. Value in the world of healthcare means mastering the balance between improving the quality of care while simultaneously decreasing its cost. I frequently am privy to debates on what constitutes “real” quality and how is it going to be defined and by whom, but I am rarely questioned about cost. Cost would seem to be rather straight forward. Not so fast. A recent study published in the Journal of Hospital Medicine showed that only one tenth of hospitalists were within a 10% accuracy rate when surveyed about the actual cost of commonly used inpatient services, tests and procedures. Some were off by thousands of dollars. A recent article on healthleadersmedia.com referred to this phenomenon as “price opacity”. The article goes on to say that It would be almost unheard of for you, the individual patient, to be able get a clear price on a menu before the service is delivered”

One of the key tenants of healthcare reform has been the promotion of transparency, mostly focused on quality. I do agree that transparency is necessary and will ultimately lead to improved care, but if we are ever to get to truly improved value – not just improved quality – we are going to need to find a way to clear the smoke from the costs of care for physicians and patients alike.

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Great Britain and the National Health Service are having a rough week. A total overhaul of the “model” healthcare system with $30 billion in savings targets needed to keep the country from fiscal ruin were announced to a flurry of political wrangling. One paper called the US healthcare effort a “warm-up act” in comparison. Trying to keep up with all things healthcare, I read the summary of the new healthcare proposal for Great Britain, hoping to pull out a nugget or two on centralization of care or significant payment reform. What I found headlining the summary surprised me – “First, we will put patients at the heart of everything we do.”

Now, maybe I shouldn’t have been so surprised. Healthcare is, after all, supposed to be about the patients we care for. My curiosity piqued, I looked at our new law, the PATIENT protection and affordable care act to see how our focus on patients compared. The proposed law in Great Britain is very direct – “The Government’s ambition is to achieve healthcare outcomes that are among the best in the world. This can only be realized by involving patients fully in their own care.” They have dedicated the first section of their new law to ways for the patient to lead his or her own care and focus on shared decision making.

How did we tackle this?  The words “patient decision” are used together a total of 25 times in our new law, 24 of which are contained in a single section outlining a demonstration project on the creation of patient aids to help patients make the “right decision” about their care. The words “shared decision” found a mere 13 times, 9 of which are in the same demonstration project mentioned above.  

I’m not here to say the British have gotten it all right. I do believe however that there is a valuable lesson to be learned. Allowing patients to have a shared decision-making role can be uncomfortable for us in the industry for a myriad of reasons. But without it, will we really be able to make significant change in our system?  More and more research has shown improvement in outcomes as well as cost savings by including patients more directly in their own clinical decisions. With the majority of our discussion focusing on the “affordable care” piece of the puzzle, we may all be better served by realigning our focus on the patient.

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As a father of three teenage boys, my life is rarely dull. Their insights and slant on most things are generally entertaining to say the least. Last night as I was sitting at my dinner table, my 16 year old son caught my attention.  “Dad, the folks who make video games have got it figured out. They are marketing geniuses. They must be rolling in money.” Curious, I asked what he meant. He went on to share with me that on his new gaming system, there was a small avatar that sat in the lower right hand corner of the screen. According to my son, this avatar had no purpose whatsoever. It was not part of the game. It didn’t even move. It just sat there and blinked. The gaming company, it seems, has developed a system of buying “points” as imaginary money and with this money you can customize and dress your avatar in any way you wish. My son, perplexed by this, said “Dad, why would anyone buy something that has absolutely no value?”

My thoughts immediately went to the world I work in every day… the world of healthcare. CT scans for every headache in the ED? MRI for everyone with back pain? The list goes on.

As a physician, I do understand that the thought that goes behind these decisions is complex, but our current system has led some to pursue this type of behavior with incentives that are far from clinical. According to a recent survey by the Commonwealth Fund and Modern Healthcare, 93% of those healthcare leaders surveyed believe that current financial incentives for providers and other stakeholders are “extremely significant” or “very significant” barriers to the growth and adoption of new care models such as accountable care organizations. As we transition to a new system which places a greater value on quality, we as health care leaders have an obligation to ensure that these incentives are designed to assure true value is delivered. Let’s make sure we are no longer just “dressing the avatar."

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PYA’s one-stop healthcare reform information website is getting great reviews in its debut at the American Health Lawyers Association conference in Seattle.

PYA ReformLoupe is our free, interactive website that continuously updates our firm’s healthcare alerts, news stories, blogs, social network sites and other Internet information while it idles on a computer desktop or mobile communications device. Users can also use ReformLoupe to search the hundreds of pages of the healthcare reform act (PPACA.)

Typical comments from Seattle are: “This is great. What’s the subscription fee?” When told there’s no cost to use it, the next question is, “For how long?”

The original idea was to do something that is quick and easily accessible for physicians, healthcare executives and others, like attorneys, whose primary professional interests are in healthcare. As our affiliates at Bluegill Creative were building and designing the site, we decided that journalists, bloggers or anyone else with an interest in healthcare reform might find it useful. We opened it up for everyone, and there really is no cost for using it.

Users can customize the flow of information they want to see, save their preferences for the next visit and search the summary of the federal healthcare reform law.

Look for posts from several of our staff, including Marty Brown, senior healthcare consulting shareholder; Mark Browne, MD, principal consultant and a former practicing physician and hospital executive; James Lloyd, shareholder and healthcare valuation specialist; and Carol Carden, a finance, valuation and managed care consulting shareholder.

After you’ve visited the site, let us know what you think and give us your suggestions on the Contact link.

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NY Times:

In Health Care Overhaul, Boons for Hospitals and Drug Makers

March 21, 2010

“Hospitals have little to fear...the hospitals agreed to help defray the costs of the legislation by agreeing to contribute $155 billion....”

Moody’s Investors Service:

Long-term Credit Challenges of Healthcare Reform Outweigh Benefits for Not-for-Profit Hospitals

April 2010

So who are we to believe? The “old gray lady,” a journalism destination in the midst of a journalism wasteland...or a comprehensive analysis as prepared by Moody’s Investors Service....

The conflict of perception is stark in its nature, but it reflects the lack of understanding by millions of people about the impact of the PPACA.

I find Moody’s analysis to be thoughtful and thorough; yet even it is limited by the potential impact of reconciliation, state reactions, regulatory interpretation, and numerous other competitive reactions.

To quote Roger Goodell, NFL commissioner, “do not let 'perfect' get in the way of better.” But there is always a better, and I don’t think better will always come out of legislation. To wit, hospitals did not agree to defray the cost of the legislation by agreeing to contribute $155 billion over 10 years as the NY Times states. Hospitals simply absorbed this legislative impact, understanding that other significant changes must occur which will hopefully offset this cost.

This analysis of PPACA is still not complete. And as patients and providers are impacted, you can rest assured, more changes will be promulgated. Providers, however, must begin the planning and education process now. We have performed five health system education sessions for their board members and the dialogue that has occurred in those sessions was superb and thought provoking.

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I continue to hear that 2014 is the year that so much of PPACA will really "kick in."  Our clients have been lulled into this false sense of security. In today's PYA Alert, it is apparent that action must be taken immediately in the areas of In-Office Imaging Services and Refund of Overpayments.

Please read the alert to see if you are impacted, and if you haven't already subscribed, please sign up here to receive PYA Alerts.

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I work with clients daily who are trying to best prepare themselves by implementing quality-based incentive compensation into their physician alignment strategies. As healthcare reform continues to be better understood and begins to be implemented, it is critical that hospitals understand how these bonuses/penalties will work.

The clients I work with are prone to latch on to the concept of a 1% to 2% bonus for quality outcomes, citing Pay for Performance and similar programs. However, the industry is moving away from a “carrot” and more to a “stick.” Healthcare reform will continue this movement. I found an interesting article that lays out the direction of quality-based incentive compensation in the future.

For hospitals that want to be on the forefront of the quality-based incentive compensation movement, it is important to start now by:

1. redesigning metrics based on outcomes;
2. requiring improvement year to year to continue earning incentive; and
3. incorporating down-side as well as up-side criteria in the agreement.

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In 1995, leaders from two health systems and Pershing Yoakley & Associates tackled what many thought was an impossible task – improve medical care and patient satisfaction while reducing costs. They embraced the challenge by developing a comprehensive provider network that contracted to serve over 130,000 TennCare (Tennessee’s Medicaid program) members in Tennessee.

This wasn’t your typical healthcare initiative. The network previously servicing that population had lost over $35 million in its first year and was tracking to lose over $25 million in its second year, despite numerous efforts to contain costs.

In approximately 90 days, a network of over 1,200 providers was developed and contracts finalized. The network consisted of providers for all levels of care from home health to major medical centers. Policies were developed, including care plans, to promote the best medical practices while improving patient service. Below are a few examples of the network’s efforts to provide high quality care less expensively.

• Primary care physicians were assigned to every member to establish what is now commonly referred to as a “medical home.”
• Case managers were hired to serve those having the greatest needs or facing medical crisis.
• Highly trained, experienced pharmacists were made available for consultations with physicians to assist in managing medications for those seriously ill and/or facing chronic medical conditions.
• Arrangements were made with bus and other transportation companies to provide transportation for those lacking such resources or with special needs to ensure members could travel to appointments.
• Robust data systems were developed to monitor and report information to staff and management to allow timely monitoring of utilization.
• Caregivers were recognized and rewarded for successfully improving patient outcomes and service satisfaction.

In addition, care initiatives were promoted that would have long-term benefits. As an example, vaccination rates for kids exceeded 95%, a rate previously unheard of for this population.

Within six months of start-up, the network was successful beyond everyone’s dreams. Enrollees were receiving high quality healthcare in appropriate settings. Emergency room usage was dropping and unnecessary inpatient hospital admissions were virtually eliminated. Patient satisfaction scores were vastly improved and physicians participating in the program became its champions. Finally, those financial losses were eliminated as the network’s financial results were break-even by the fifth month.

In short, those responsible for the formation of the network were ecstatic and dreaming of promoting it as an effective model for the state and, ultimately, the country. That never happened.

The Downfall

During the network’s second year of operations, a federal judge ruled that certain TennCare benefits or services could not be limited as designed under the plan, including prescription drugs.  The ruling was seen as being so pervasive that common medical management practices were discouraged due to the legal risks of being deemed a violation of patient rights. Demand for services, particularly prescription drugs, exploded.

As an example, the average cost per member per month (“PMPM”) for prescription drugs was approximately $20 PMPM when the initiative began. After the judge’s ruling, prescription costs began rising rapidly, quickly reaching almost $40 PMPM. The decision was then made to shut down the network as the potential financial and legal risks were overwhelming. We continued to follow data on the enrollees, learning that prescription drug costs eventually escalated to over $80 PMPM within a very few years. 

The enormity of the TennCare funding problems ultimately required the governor and legislators to work on reform provisions that limited the impact of the judicial rulings. The scope of benefits was narrowly defined and strict limitations enacted.

Unfortunately, the “model” network was a casualty long before the crisis was solved. Those involved in its creation are still troubled by the loss of such an effective program. Those that advocated for a broad expansion of benefits, indirectly contributed to substantial restrictions in benefits. As I read about other states facing budget deficits and escalating healthcare expenditures, it repeatedly reminds me of the promising results of our initiative that were undermined by the actions and/or inactions of those who did not understand the unintended consequences of their positions.

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There is no doubt that cost control will be a major component of efforts to overhaul the current healthcare system.  These efforts are now only vaguely spelled out in the Patient Protection and Affordable Care Act (PPACA) and include such approaches as the development of accountable care organizations (ACOs), implementation of patient-centered medical homes (PCMH) and utilization of global payment methods (perhaps a new and improved version of capitation).  Quality of care will continue to be a driving factor, which incidentally means that pay-for-performance (or value-based purchasing) will be emphasized in payment reform.  For example, the PPACA outlines the implementation of the hospital value-based purchasing program with a proposed effective date of October 1, 2012.  Acute care hospitals will receive bonus payments for performance in five measures.  In the following year, hospitals will also be evaluated utilizing efficiency measures such as Medicare spending per beneficiary in addition to the five core measures. 

Similar to the Balanced Budget Act of 1997 (BBA), it is also quite likely that a reduction in physician payment for services may also become necessary (termed "productivity adjustments" in the PPACA).  However, while physicians did see a cut in payment during the initial years of the BBA, payment was increased in subsequent years.  The report issued by the CMS actuary determined that "projected Medicare cuts could drive about 15 percent of hospitals and other institutional providers into the red."  It seems that it would be somewhat counterproductive to open up healthcare coverage to additional millions while jeopardizing coverage for others.  Another potential impact of cutting payment to physicians, other than its effect on current physician practices, hospitals and Medicare beneficiaries, is fewer physicians entering the field of medicine in the future.  Should the proposed payment cuts actually be enacted, it is probable that fewer graduates will commit to practice medicine.  This would be very detrimental to healthcare access. 

It seems that cutting costs while attempting to improve quality and increase access to care will require extensive creativity and great sacrifice on many fronts.  The Rolling Stones said it best - You can't always get what you want.  I just hope that as we try very hard as a nation to find the best solution to our healthcare issues we will get what we need. 

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The patient-centered medical home (PCMH) is not a new concept, but it's getting increased attention as a result of the Patient Protection and Affordable Care Act (PPACA).  Under the PPACA, the newly funded Center for Medicare & Medicaid Innovation will evaluate the effectiveness of medical home models.  Many healthcare providers have already begun to implement the medical home model in an effort to provide more coordinated care, improve quality and decrease overall healthcare costs (read about Blue Cross Blue Shield of Texas and Carillion's implementation of a medical home model). 

Some say that the PCMH model is just a new version of the "gatekeeper" model even though there are significant distinctions between the two.  Under the new legislation, it is very likely that primary care physicians will play a more central role in the healthcare delivery system - more playing time on the field.  So, what are the key tenets of a PCMH?  The AAFP and the NCQA both lay out some basic requirements in their extensive checklists - but here are a few to get you thinking.

• On-going relationship with a personal physician
• Physician-directed medical practice
• Whole person orientation - care across all stages of life
• Coordinated care across all facets of the healthcare system and the patient's community
• Emphasis on quality and safety
• Enhanced access to care
• Payment reflective of various components - i.e. support adoption and use of health IT, e-mail and telephone consultation, separate fee-for-service payments for face-to-face visits, share in savings from reduced hospitalizations, additional payments for quality improvement

It will be interesting to see if a shift to PCMH models on a nationwide scale will in fact reduce healthcare costs while improving quality and outcomes.  A shift in the paradigm, a procedurally-based payment system emphasizing the role of specialists to that of a primary care physician playing a larger role in the delivery of care across the healthcare spectrum, will require more primary care physicians.  Do we have the necessary resources to build this medical home?  Time will tell....

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I read a few interesting articles regarding planned expansions by the nation’s largest retail pharmacies in Business Week and this one in Health Leaders. CVS, Walgreens and Wal-Mart have all announced plans to greatly expand their in-store clinics in anticipation of primary care shortages due to healthcare reform and the increase in the number of Americans with insurance coverage.

While the clinics themselves do not typically generate a profit, the additional foot traffic will likely improve profits for retail pharmacies resulting in increases in their value. It will be interesting to see if the regional and local pharmacies (to the extent these still exist) follow suit resulting in an overall upward movement in acquisition multiples for pharmacies across the nation.

For those of us involved in the healthcare valuation industry, we will need to keep this shift in operations and its potential impact on the valuation of not only pharmacies, but also on primary care practices in mind.

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Approximately 4 years ago, a family friend who was a practicing attorney in his early 60's had a moderately complex valve surgery performed at a reputable hospital. He was told he would eventually need the surgery, but it was not critical to have immediately. He decided to proceed with the surgery.  He was in relatively decent health. He survived the surgery and recovered well, getting moved from CCU to private room within a couple of days. Then he acquired an infection (sepsis). He never returned home, leaving a widow and many loved ones.
 
Risks are inherent in any invasive procedure. But the incidence of hospital-acquired sepsis and pneumonia are preventable and manageable. Without doing so, the costs are extraordinary. For example, Healthcare Financial Management Magazine recently reported that in 2006 alone there were 48,000 people "killed" due to these two hospital-acquired infections. The cost of these infections totaled 8.1 billion dollars....and this does not include the cost associated with the loss of a productive life, as in the case of my friend.
 
The ultimate face of real healthcare reform will likely include more accountability for these types of results as, indeed, government payers such as Medicare have already begun to reduce payments for such infections. Clinical outcomes must be the centerpiece of real reform. Time will tell if PPACA will accomplish this or not. But rest assured that a central tenet  of any health system strategic plan we are privileged to lead will include a focus on improving clinical outcomes. Consumers cannot easily discern quality in healthcare (see Michael Millenson's post about misunderstood Joint Commission data.), but numerous efforts are under way to provide real direction for consumers. This will, of course, eventually impact market share, as it should.
 
We are interested to learn more from our clients and friends about how they discern quality. Are there websites you utilize? Reports you read? Let us know. We will of course keep you posted on all things Quality, Strategy, and Finance related to healthcare, so check our healthcare blog often for updates.

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Now that federal healthcare legislation has been signed in to law, I hope that the fiscal impact of the legislation does not imitate that of other reform efforts made at state and regional levels. What appeared to start as an expressed effort to contain rising healthcare costs now appears to expand access while failing to include enough remedies to contain costs. Increasing access is an admirable and worthy goal; failing to recognize and prepare for the total financial impact can be hazardous to fiscal health.

In 1994, the state of Tennessee enacted TennCare as a Medicaid waiver program to expand access to Medicaid coverage to total approximately 1.4 million Tennesseans while controlling rising state healthcare expenditures.  It was a commendable goal, but an action that led to massive increases in state healthcare funding obligations. The resulting budget crisis jeopardized the State’s bond rating. The crisis was a catalyst that forced bipartisan efforts to contain costs by slashing enrollment and reducing benefits. Leadership by Tennessee’s current governor, Phil Bredesen, a former managed care health insurance company executive, was instrumental in defusing the crisis. Some who closely observed that crisis wonder if our federal branches, executive, legislative and judicial, will be facing similar challenges within this decade. 

Immediately upon passage of TennCare, numerous efforts were made through the judicial system to expand benefits. Such efforts were surprisingly successful, causing providers to face legal risks if they denied any form of care as medically unnecessary. Utilization of services, including emergency rooms and inpatient hospital facilities, exploded. Physicians “closed” their practices to new patients to avoid the escalating legal and financial risks. Evidence of the inability for providers to manage utilization was Tennessee’s quick ascension to first in the nation in prescriptions per capita for psychotropic drugs. One provider network, established to be a “model” program was initially successful in balancing the management of care and resources while increasing quality and member satisfaction scores. It promoted public health initiatives such as increased vaccination rates and annual checkups while establishing  “medical homes” for its membership through a strong primary care network. It was enormously successful in its first two years as it addressed many of the challenging and perplexing issues of balancing provider resources with patient needs. However, a federal judge’s ruling regarding TennCare program benefits and coverage made it apparent that it would be impossible to manage utilization of resources without being exposed to enormous financial and legal risks. The “model” network soon elected to shut down operations as it foresaw the inevitable financial collapse it would face if it attempted to meet unrestrained demands for medical services.

One definitive difference between the current federal initiative and Tennessee’s program is the federal government’s ability to pay for its legislation by borrowing through budget deficits. By constitutional mandate, Tennessee must balance its budget annually, as must most states. That “limitation” probably saved the economic well being of the state. Legislators could not reportedly “kick the can” down the road for the next legislative session or administration to fix. Thus, the funding crisis never grew to an overwhelming magnitude. Our federal government has no such imposed discipline. 

Some may say, “This time it’s different.” Some have even pointed to the Massachusetts’ initiative, a state much different than Tennessee. Massachusetts’ universal insurance program was adopted in 2006 at an expected annual cost to taxpayers of $88 million annually. Timothy P. Cahill, State Treasurer of Massachusetts, recently wrote in The Wall Street Journal that the program “has been a fiscal train wreck.”  Massachusetts’ governor has just recently announced a $294 million shortfall related to healthcare costs. In his editorial letter to The Journal, Mr. Cahill wrote:

If not for federal Medicaid reimbursements and commitments from Washington to prop up this plan, Massachusetts would be broke. The only reason MassCare has survived is that we have been repeatedly bailed out by the federal government. But that raises the question: Who will bail America out if we implement a similar program? 

Many who have worked on various state and regional reform efforts also ask that question. We desire meaningful, affordable reform. Some, like me, fear those who have crafted this federal reform do not grasp the frightening enormity of possible unintended consequences. Our national leaders would not be the first to make such a mistake. Just ask Massachusetts. Just ask Tennessee. The scale of the federal initiative is exponentially larger than those of Tennessee and Massachusetts combined. Unfortunately, and frighteningly, so are the possible unintended consequences.

So, what’s my point? The need for healthcare reform is irrefutable. Even the leaders of both parties agree on that! Now that we have a starting point, the just passed legislation, let’s demand bipartisan efforts to effectively implement the plan. When problems arise, and they will, don’t stand on the sideline pointing out the issues. Jump in and be part of the solution.

Learn from Tennessee’s experiences. TennCare has trod a rocky road, but our state and its residents are better for it having been implemented. Its evolution has been painful at times. However, Tennesseans now have an affordable program that does provide much needed coverage for 1.2 million residents. Children have benefited enormously. TennCare, and now CoverKids, effectively serves kids at greatest risk. I do not know how one “puts a price”on that. It seems priceless to me. 

I think we all should follow the example of Tennessee Governor Phil Bredesen, who deserves praise for his effective leadership in transforming TennCare to the program it is today. Governor Bredesen, who opposed the federal reform legislation that just passed recently, said he’s “going to get on with the business of figuring out how to make this work.” Sound advise for all, both those who supported the federal reform legislation and those who opposed it. When unintended adverse consequences arise, all should try to address and mitigate such. And when unforeseen benefits for our country appear, let’s gratefully acknowledge those as well.

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On March 30^th, President Obama signed into law the Health Care and Education Reconciliation Act of 2010 (the “Reconciliation Act”). This Act is the final piece of legislation relating to healthcare reform and modifies some items contained in the Patient Protection and Affordable Care Act (the "Healthcare Act”) signed into law last week. It also includes some additional items previously unmentioned, as detailed below.

Unearned Income Medicare Contribution – Beginning in 2013, the Reconciliation Act levies a 3.8% surtax on the lesser of net investment income or income in excess of a defined threshold amount. The thresholds are $250,000 for a joint or surviving spouse return, $125,000 for married individuals filing separately, and $200,000 for all others. For estates and trusts, the 3.8% surtax is on the lesser of undistributed net investment income or income in excess of the highest estate or trust tax bracket.

Individual Health Insurance Requirement – Penalties for the lack of coverage continue to be phased in starting in 2014, but the penalty itself decreased slightly from the ones noted in the Healthcare Act. By 2016, penalties will reach the greater of $695 per uninsured adult or 2.5% of household income, with a cap of $2,085 per family. 

Penalties on Large Employers – After 2013, penalties will be assessed on largeemployers (those with at least 50 full-time employees) that do not offer affordable health coverage and have any employees who qualify for tax credits because they purchased insurance on an exchange. The Reconciliation Act modifies the penalty amount to be $2,000 for every full-time employee over a 30-employee threshold, regardless of how many employees actually receive a tax credit.

Dependent Coverage – Effective upon the President’s signature, the general exclusion for reimbursements for medical care expenses under an employer-provided plan extends to any child of the employee age 26 and under as of the end of the tax year.

Excise Tax on High-Cost Employer-Sponsored Plans – For tax years after 2017, a 40% nondeductible excise tax will be levied on insurance companies and plan administrators for any health coverage plan to the extent that the annual premium exceeds $10,200 for single coverage and $27,500 for family coverage.

Health-Related Accounts & Reimbursements – The Reconciliation Act postpones the changes related to flexible saving account limits. The amount of salary reduction that can be deducted under a flexible saving account is decreased to $2,500 beginning in tax years after 2012.

Photo used under creative commons license by Speaker Pelosi.

Related Posts:

• Healthcare Reform Legislation: Overview of Facts
• Upcoming Changes for Individuals due to Healthcare Reform
• Upcoming Changes for Businesses due to Healthcare Reform

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On March 23rd, President Obama signed into law the Patient Protection and Affordable Care Act (the "Act").  Though this Act has been signed into law, a second piece of legislation, the Reconciliation Agreement ("Agreement"), continues to be debated at this time.  If signed, the Agreement could alter some aspects of the Act as detailed below.

In summary, the Act imposes penalties on businesses that do not provide health coverage, adds credits for small businesses that do provide coverage, and changes some reporting and compliance items.

Penalties

After December 31, 2013, employers that either do not provide health coverage or offer unaffordable coverage and have at least 50 full-time employees could be subject to a penalty of $750 per full-time employee, as an inducement for employers to provide health coverage.  This penalty will only apply if an employee becomes entitled to a tax credit (as described in the March 24th summary), meaning they otherwise have coverage on the individual market or through a health insurance exchange.

If an employer does offer health coverage and an employee obtains a tax credit, the penalty is increased to $3,000 for each employee that obtained the credit, but in no case more than the company would have paid if it did not offer insurance coverage.

Possible changes from the Reconciliation Agreement, if passed, would exclude the first 30 employees from the penalty calculation, but increase the penalty to $2,000 per full-time employee on employers that do not offer insurance coverage.

Small Business Health Coverage

Small businesses that make contributions towards employee health benefits will be eligible for a credit that offsets a portion of the cost of coverage.  To qualify, the business must have no more than 25 full-time employees, provide qualifying medical coverage and pay average annual wages of less than $50,000 per employee.  For years 2010 through 2013, the credit is equal to 35% of the lesser of the employer’s non-elective contributions for premiums paid for coverage or the average premium for the small group market in the employer state.  This credit is effective for amounts paid after December 31, 2009 with the credit increasing to 50% in 2014.

Reporting and Compliance Changes

The Act adds a requirement for employers related to Form W-2 reporting.  The value of employer-sponsored health benefits must be disclosed on Forms W-2 for years beginning after December 31, 2010.
 
Also, the Act extends the filing of Forms 1099 to include services provided by corporations, where before corporations have been exempt from reporting, and to include amounts paid for property in addition to services. These changes are effective for amounts paid after December 31, 2011.
 
Please note that the Reconciliation Agreement items described above have not been signed into law by the President at this time and are subject to change.  If you would like more information on this new legislation, please contact Doug Yoakley or Heather Martin at (800) 270-9629.

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On March 23rd, President Obama signed into law the Patient Protection and Affordable Care Act.  Though this Act has been signed into law, a second piece of legislation, the Reconciliation Agreement, continues to be debated at this time.  If signed, the Agreement could alter some aspects of the Act as detailed below.

In summary, the Act requires that most individuals obtain health insurance, provides a refundable healthcare premium tax credit (to help affordability), and increases the adoption credit, but adds limits on health-related accounts and reimbursements and increases the threshold for claiming medical expenses as an itemized deduction.  A large portion of revenue raised to offset the cost of the Act will come from an additional Medicare tax on higher-income individuals.   

Medicare Tax Changes

Effective for wages paid after December 31, 2012, the Act imposes an additional 0.9% Medicare payroll tax on earnings and wages exceeding $200,000 ($250,000 for individuals filing jointly), thus raising the rate from 1.45% to 2.35%.

In addition, the Reconciliation Agreement proposes an additional Medicare tax on unearned income for tax years beginning after December 31, 2012.  If the Agreement is passed, an additional 3.8% surtax will be imposed on interest, dividends, capital gains, annuities, royalties, and rents from passive activities that exceed the earning thresholds mentioned above.

Health Insurance Requirement

Under the Act, beginning in 2014, most individuals will be required to obtain minimum essential health insurance coverage or pay an annual penalty.  “Minimum essential coverage” includes coverage under an employer plan, governmental plan, or any plan offered on the individual market.  To encourage individuals to obtain coverage, the Act includes a number of provisions intended to increase the availability and affordability of coverage. 

The penalty will be phased in starting in 2014 and will reach the greater of $750 or 2% of income by the year 2016, with a cap of $2,250 per family.  Exceptions to the penalty include individuals in transition between plans and low-income individuals.  If passed, the Reconciliation Agreement would slightly decrease this penalty structure.

Refundable Healthcare Premium Tax Credit

For tax years after 2013, the Act provides a refundable tax credit to individuals who purchase healthcare coverage on the individual market or through the newly-established health insurance exchanges.  This credit is available to those with income ranging from 100 – 400% of the poverty line ($43,420 for an individual or $88,200 for a family of four).  Some advance payments of this credit will be provided to help individuals pay for coverage.

Health-Related Accounts and Reimbursements

For tax years after 2010, the Act limits medical reimbursements from FSAs, HSAs, HRAs and MSAs to prescribed medicines, drugs and insulin, thereby eliminating over-the-counter medication (unless prescribed by a doctor).  The Act also increases penalties on non-qualified distributions from HSAs and Archer MSAs (from 10-15%) to 20% for tax years after 2010. 

The itemized deduction threshold for deducting un-reimbursed medical expenses will increase from 7.5% to 10% of the taxpayer’s adjusted gross income for tax years beginning after December 31, 2012.  For taxpayers over the age of 65, the threshold remains at 7.5%.

The Act also limits the amount of salary reductions that can be deducted under a flexible savings account to $2,500 beginning in years after 2010.  The Reconciliation Agreement would postpone the flexible savings limit to years beginning after December 31, 2012. 

Adoption Credit

The Act increases the child adoption tax credit and adoption assistance exclusion from $12,070 to $13,170, extends the credit through 2011, and makes the credit refundable.

 
Please note that the Reconciliation Agreement items described above have not been signed into law by the President at this time and are subject to change. 
 

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