AAPS News January 2013 - The Medicaid Cash Cow

Volume 69, no. 1 January 2013

Physicians are paid a pittance by Medicaid, but this does not mean the program is parsimonious or bankrupt.

Some deplore entities that turn a profit from providing healing and life-saving services, but where is the outrage about using tax revenues intended to care for the poor to create and sustain a hugely profitable cartel that is bankrupting government and squeezing out independent practices and small insurers? Where are the investigative reporters, the inspectors general, and the auditors to follow the flow of funds?

The Role of Medicaid in “Reform”
Medicaid “now plays a vital role in the U.S. health system and a foundational role in health care reform,” writes Sara Rosenbaum, J.D. (NEJM 12/6/12). It is considered so important that it is insulated from sequestration if the U.S. goes over the “fiscal cliff.” If states do not expand it as contemplated in the Affordable Care Act (ACA), “the nation will lose its chance at near-universal health insurance coverage,” Rosenbaum writes. It is claimed that insuring people would cost 50% less per capita through Medicaid than through tax-subsidized state exchanges, presumably owing to the program’s “operational efficiencies,” achieved through “aggressive use of managed care” (ibid.).

Rep. Paul Ryan (R-WI) proposed repealing the ACA expansion and replacing Medicaid with block grants. This, “the most harmful proposal” in Rosenbaum’s view, would achieve nearly $2 trillion in federal savings over 10 years. Part of the savings would come from reduced opportunities for states to game the system.

Medicaid Spending
Medicaid now covers about 60 million persons, nearly 20% of the U.S. population, a number expected to increase to 80 million by 2020 if all states implement ACA. It now consumes an average of 23.5% of state budgets, and in many is the largest single budget item, exceeding even K-12 education. This federal-state program absorbs nearly 20% of the nation’s total $2.6 trillion in health spending: about $459 billion. (There’s a $49 billion discrepancy between state and CMS data for 2009 [NCPA 12/4/12]).

Where does the $0.5 trillion/yr go? The Kaiser Family Foundation http://statehealthfacts.org has extensive data. Nationwide, the percentage going to inpatient hospital is 21%; to physicians, lab, and x-ray, 6%; for prescribed drugs, 6%; and to managed care and health plans, 36%. In Arizona, managed care gets 85%; in Ohio, 53%; and in Vermont, 93% (http://tinyurl.com/c7pa8gl).

And where do the managed-care funds go?

According to AAPS past president Kenneth Christman, M.D., Medicaid managed-care companies make handsome profits and pay hospitals extremely well. “These companies are very secretive, however, and CareSource [of Ohio], for example, refuses to provide any data, in spite of the requirement to do so by open-government laws.”

The Arizona Medicaid program, the Arizona Health Care Cost Containment System (AHCCCS), makes consolidated financial statements available at http://azahcccs.gov/reporting.

Looking at the 2010 Care1st Health Plan combined statement for Arizona and California, revenue was $651 million, expenses for “healthcare services” were $554 million, taxable income was $24 million, and “selling, general and administrative expenses” were $69 million. While it is not known exactly what is included in “healthcare services,” it is clear that $100 million in taxpayer funds went to just one plan for things other than patient care.

Payments to “providers” of course have to cover another layer of administrative and “compliance” costs.

Hospitals and managed-care giants favored ObamaCare and its Medicaid expansion. They intend to “mine for Medicaid gold,” writes Emily Berry (AM News 12/6/10). The ACA puts Medicaid, already increasing by 8.8% per year, on growth hormone, writes Merrill Matthews. Spending is expected to increase to $900 billion by 2020 (Forbes 12/7/12).

As Berry notes, federal law requires states to pay managed-care contractors, but not “providers,” at “actuarially sound” rates. And as Frank Lobb points out, state law provides managed care with bankruptcy protection through the Enrollee Hold Harmless Clause, which permits them to do the work of denying care with impunity (J Amer Phys Surg, fall 2012). Thus, managed care can cash in on the bonanza with little down-side risk.

A key beneficiary of ACA is hospital operator HCA Holdings, which is aggressively buying up physicians’ practices. Performance of the acute-hospital industry group moved in lock-step with Obama’s ratings in the polls. Full implementation of ACA in 2014 is expected to increase hospital earnings by 15% to 20% (Investor’s Business Daily 10/12/12).

ObamaCare End Game: Medicaid for All
“Insurance and pharmaceutical companies, both major backers of ObamaCare, do well from Medicaid expansion,” writes AAPS director Richard Amerling, M.D. “But the major beneficiaries are hospitals and health workers, and their union, 1199/SEIU. Obama’s close association with SEIU and its boss, Andy Stern, is well documented, as is the massive campaign aid provided to him by this union.”

The losers will be patients. “Medicaid is a fiscal and humanitarian disaster,” Amerling states.


“Free” Federal Money

Reform advocates are incredulous that states would turn down the bait of more “free” federal money. For example, Philadelphia attorney Stephen Gold urged Oklahoma Governor Mary Fallin to reconsider her decision not to expand Medicaid: “If the state agrees to expand its program, then by 2019 Oklahoma will get more than $13.4 billion in federal funds in return for spending $789 million in state dollars. A ratio of 13,400 to 789 is a terrific rate of return on state funds and a great federal financial stimulus” (http://tinyurl.com/d6vbagc).

What this looks like on a balance sheet, writes AAPS director G. Keith Smith, M.D., is that first the state takes $789 million from Oklahoma taxpayers, and then the federal government takes $13.4 billion from taxpayers in Oklahoma and other states, to give to the Oklahoma Health Authority: a great deal for the tax taker, which administers Medicaid. “Getting more money in the pockets of corporate healthcare was the entire purpose of ObamaCare.”


Medicaid Notes

“Woodwork Effect.” There is no additional federal funding for the already eligible persons—about 25% of the uninsured—who have not signed up. As many as 48% of Louisianans are eligible. If they go to the exchange to comply with the individual mandate, they may find the “free” option of Medicaid, with an expedited enrollment process, and states will have to pay up to half of their costs. States are not allowed to tighten eligibility requirements (NPR 7/11/12).

“Crowd-out Effect.” Employers may drop basic coverage for low-income workers or shift them to part-time, making them Medicaid-eligible. Wal-mart, the nation’s largest employer, plans to take that step (Matthews, op. cit.)

All-or-Nothing Expansion. Some states would like to increase eligibility somewhat, but they will get no additional federal funding unless they expand eligibility to fully 133% of the federal poverty level, HHS announced after months of delay (Huff Post Business 12/11/12).

Items Not Covered If Prescriber Not Enrolled. Medicaid beneficiaries will receive no reimbursement for drugs or supplies unless the prescriber is enrolled and his provider identification number is on the claim, under ACA regulations.


The Death Pathway

Top Democrat strategist and donor Steven Rattner, who served as Obama’s lead auto-industry advisor, wrote: “We need death panels…. Well, maybe not...exactly” (NY Times 9/16/12, http://tinyurl.com/d6ur78a). The British National Health Service has something even better: the Liverpool “Care” Pathway.

The LCP involves withdrawing nutrition and hydration from patients believed to be near the end of life. At many hospitals, more than half the patients who died were on the LCP, and at least £12.4 million has been paid to trusts for hitting targets in its use (http://tinyurl.com/dx2n2ra). Half the patients on the LCP, about 57,000 per year, are never told (http://tinyurl.com/cu4mfwa). It is now being used on sick babies, who may take 10 days to shrivel up and die (http://tinyurl.com/d4vdumc).


Inadvertent Deaths in NHS

Patients having major surgery are four times more likely to die in a British than in an American hospital; seriously ill patients are seven times more likely to die, owing largely to a shortage of specialists and lack of intensive care beds (Townhall.com 10/21/12).

Even without the LCP, 43 patients starved to death, and 111 died of thirst on NHS hospital wards last year, according to the Office of National Statistics. Spot checks by NHS regulators found that half of 100 hospitals were failing basic standards on treating the elderly with dignity and seeing that they were properly fed (http://tinyurl.com/8hq4y2b).


Flashback: a Marxist View of HMOs and PPS

According to David Himmelstein and Steffie Woolhandler of Harvard, “The history of health care’s emergence as a capitalist industry reads like a modern textbook of Marxist economics.” Medicine evolved from a cottage industry to one dominated by hospital administrators, corporate executives, and insurance bureaucrats. There was the rapid proliferation of health maintenance organizations and other forms of prospective payment systems, including Medicare’s DRGs (diagnosis related groups). By 1982, Hospital Corporation of America had revenues of $3.5 billion. Physicians have been “proletarianized,” converted into highly paid foremen in a medical factory. The problem, these authors say, is private accumulation of capital and retention of profit. Canada, with public control, has “assured access to care, preserved clinical freedom, and constrained costs by...rationalizing health resource (capital) allocation” (Ann Intern Med 9/15/1988).

In an accompanying editorial, Bernard Bloom and William Kissick write: “Medicare and Medicaid transformed a cottage industry into the ‘New Medical-Industrial Complex.’” Also, “Marxism has withstood the test of time.” Since the “market theory of Adam Smith” contributes some insights, they call for a “new unified theory” comparable to the one sought by Einstein.


The Endangered American Beast of Burden

Craig Cantoni points out that there are 112 million private-sector workers in the U.S., who must carry 22 million government workers, 66 million welfare recipients, and 62 million Social Security and Medicare recipients. At least 20% of the private-sector workers are in jobs that would not exist without the regulatory state. That leaves only 89 million workers to generate private wealth to carry everyone else; one such worker must carry 1.9 government dependents, along with the children. What will we do when the beast of burden collapses?


AAPS Calendar

Feb 1-2. AAPS v TMB hearing; regional meeting, Austin, TX.

Sept 25-28, 2013. 70th annual meeting, Denver, CO.

ACTION OF THE MONTH

As states are deciding whether to expand Medicaid as Congress expects under ACA, help us inform them about doctors’ reaction. Survey is at: https://aaps.wufoo.com/forms/z7w6m7/.


Medi-Cal Cuts Upheld in 9th Circuit

Just as 2 million additional persons may become eligible for Medicaid under ACA’s expansion, the California legislature and Gov. Jerry Brown approved a 10% cut in pay to doctors, hospitals, and pharmacists. This is expected to achieve $600 million in savings, as California faces a $1.9 billion budget deficit. The cuts would apply retroactively to June 1, 2011.

“If this decision stands, it will not only destroy the Medicaid program in California, but it will destroy the Obamacare program for millions of Americans, who are now being shoved into the Medicaid program under the [ACA],” stated attorney Lynn Carman. “They will not be able to obtain quality healthcare.”

In a 3-to-0 ruling the 9th Circuit Court of Appeals overturned a lower court ruling that stayed the cuts in Managed Pharmacy Care v. Sebelius. Plaintiffs plan to ask for a rehearing en banc.

In his opinion, Judge Stephen A. Trott writes that Congress had expressly delegated the power to approve Medicaid rate reductions to the Secretary of Health and Human Services (HHS), and she had lawfully exercised that discretion. She is not required to use any particular methodology, such as weighing the costs of providing service, but only to determine “reasonably” that reimbursement rates are adequate to enlist enough providers.

Judge Trott noted that “the definition of ‘cost’ is not as free from ambiguity as the Plaintiffs would have us believe.” A “whole host of intangibles come into play” in setting prices.

The Judge rejected the Takings Clause argument. Participation in Medicaid is voluntary. Therefore, “plaintiffs do not possess a property interest in continued participation in Medicare, Medicaid, or the federally-funded state health care programs.”


Free Speech Applies to Off-Label Drug Use

The 2nd Circuit Court of Appeals overturned the conviction of pharmaceutical detailer Alfred Caronia for “conspiracy to introduce a misbranded drug into interstate commerce” by promoting off-label use of Xyrem in a conversation with a doctor who was a wired government informant (WSJ 12/3/12).

Xyrem (sodium oxybate) is approved for treatment of cataplexy and narcolepsy in adults. It is used off-label to treat children, and to treat adults with fibromyalgia, schizophrenia, chronic fatigue syndrome, and severe cluster headaches. A schedule III controlled substance, it is known to be abused as a “date rape” drug.

The federal trial court held that constraining marketing was one of the few mechanisms the government had to ensure that manufacturers did not circumvent FDA proof-of-efficacy requirements by applying only for approval for a limited use, then marketing widely for other uses.

Caronia argued that his truthful, non-misleading promotions were an exercise of his right to free speech.

The Court was persuaded by the argument that the FDA permits unfettered prescribing, but then refuses to allow the free flow of information that would permit full vetting of the uses, limitations, and adverse effects of a drug.

The 2011 case Sorrell v IMS Health, in which the U.S. Supreme Court held that the pharmaceutical industry’s use of data mining may be protected by the First Amendment, is considered a precursor case. “The question now is whether a host of other…regulations can withstand such...scrutiny” (NEJM 12/12/12).


Medicare Fraud Updates

The Medicare Fraud Strike Force will be expanding to more cities. In the past 5 years, it has garnered 105 convictions and 917 guilty pleas. The conviction rate is 95%, and the average prison sentence is 4 years. The time from opening an investigation to indictment has been trimmed from 3–5 years to 90 days. Prosecutors are dispensing with grand juries and expert witnesses. Some cases involve questions of medical necessity.

CMS is pushing forward with its automated provider screening (APS) system, and expects to complete enrollment information revalidation for all Medicare providers and suppliers by March 2015. The predictive modeling system called the fraud prevention system (FPS) is monitoring 4.5 million claims per day.

Medical identity theft is a growing problem. CMS is currently aware of 1,775 compromised Medicare provider numbers, and 226,629 Medicare beneficiary numbers. One method is for a fraudster to call a provider, saying he’s from Medicare, to acquire numbers. Or fraudsters can exploit weaknesses in electronic health records security. Most EHRs use two types of routers to transmit information, which is not encrypted (Bureau of National Affairs Health Care Fraud Report 11/28/12).


Challenges to “Contraception” Mandate

Archdiocese of New York. District Court Judge Brian Cogan decided to allow the Archdiocese’s challenge to the HHS mandate to purchase insurance covering contraception, sterilization, and abortifacients to proceed. The Obama Administration attempted to have it thrown out because of the “temporary safe harbor” provision. The Archdiocese could face $200 million in fines and penalties. Citizens are not required to accept assurances from the government that it will take ameliorative action if it makes a misstep, the Judge said (IBD 12/13/12).

Injunction granted in Michigan, denied in Missouri. District Judge Robert H. Cleland in Detroit granted a temporary injunction against penalizing Weingartz Supply Company, while District Judge Carol Jackson in St. Louis rejected a similar challenge (and has been overruled). The Obama Administration claims a compelling government interest in the mandate on grounds of promoting public health and “gender equality.” Sterilization and “emergency contraception” such as ella and Plan B One-Step are included in the “preventive care and screenings” that employers are required to provide at no cost (NY Times 11/5/12).

Eighth Circuit grants injunction, overturning lower court. The case brought by O’Brien Industrial Holdings is the first to win a victory against the mandate in an appeals court. The American Center for Law and Justice (ACLJ) argues that employers must be able to operate their businesses in accord with their own moral values, not the government’s (LifeNews.com 11/28/12).


British Columbia Nurses Win Flu Shot Battle

The B.C. Nurses Union won a 1-year reprieve on government policy to get a flu vaccine or wear a mask. “Given the scientific evidence questioning the effectiveness of the flu shot, it’s disturbing [that]...people...determined to force healthcare workers to take it are so closely tied to vaccine manufacturers,” said union president Debra McPherson (http://tinyurl.com/ca5uehb).


Correspondence

New York Medicaid Bilks Feds, Patients. New York State has been overbilling Medicaid for 20 years, and HHS has known about it since 2007, yet allowed it to continue. The state was shoring up its chronic budget deficits with $15 billion in excess billing for housing developmentally disabled patients: $1.9 million per disabled patient in 2011, up from $1.5 million in 2009 (http://tinyurl.com/cegtzbp). What was the state’s punishment? An 8% increase in Medicaid funds as part of the “stimulus package”!

Congress says that the excess payments will now end.

In another illegal billing scam, up to 16,000 nursing home residents were cheated out of insurance copayments, deductibles, and other costs when the state began charging them twice for the same service. After a 21-year legal battle, during which most of the original plaintiffs died, the state agreed to pay plaintiffs or surviving family members $11 million. Attorney Henry W. Killeen III said it was the most shocking case he had ever dealt with. He believes that “the state knew what it did was wrong but did it anyway” (http://tinyurl.com/cpqt4vu).
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY


Medicaid “Losses.” Medicaid typically pays “not show a profit” hospitals three times as much for a surgical procedure as private insurers pay our surgery center. Say the private insurer pays us $1,000. Medicaid pays the hospital $1,500 for the same procedure. The disproportionate share padding adds $1,000. Then the “provider tax” (for which Oklahoma hospitals lobbied!) kicks in another $500 (see http://tinyurl.com/bz6n92o).

Wasn’t one of the main reasons for the Unaffordable Care Act to guarantee payment to “struggling” hospitals so they wouldn’t shift costs to private payers to cover these “losses”?
G. Keith Smith, M.D., Oklahoma City, OK - Surgery Center of Oklahoma


EHR Turned 5-Year-Old into Drinker. With electronic health records, thoroughness and honesty are being discarded. On a daily basis, I am getting referral notes created with automatic templates that are inaccurate. A note from an ENT consult on a 5-year-old asthmatic reads “drinks alcohol occasionally and is contemplative about quitting”—likely from the social history on the ENT’s previous patient. Now this sweet little girl has this on her permanent record. Her parents’ insurance premiums could go up for reasons unknown to them. When my daughter broke her pinky, she saw a PA who did not even have a stethoscope. Yet the note recorded a full physical examination (for which the insurer was charged). A mistake, or fraud? Many more of these mistakes are happening as doctors “right click” instead of writing notes.

The doctor is buried in an avalanche of data, with no way to know what is factual, and what is template-generated. Yet anything in the record could be used against him.
Juliette Madrigal-Dersch, M.D., President, AAPS


Costs and Premiums. According to the Health Care Cost Institute, the direct cost per person under employer-sponsored plans increased from $4,349 in 2010 to $4,547 in 2011. Reportedly, the cost per Medicare senior is $6,600 per year. Then why should an employer pay $15,000 or more per person in premiums, and why should I be paying $15,000 in after-tax dollars per year for Medicare premiums and supplements for my wife and me (http://tinyurl.com/b6kykzh)?
Stanley Feld, M.D., Dallas, TX


Doctor Harassed for Off-label Use Commits Suicide. In United States v. Caronia, a drug salesman refused to plead guilty on a charge related to promotion of an off-label use of a drug, and his conviction has been overturned [see p 3]. A physician who successfully used the drug off-label and did paid promotional speaking tours for it pleaded guilty to a misdemeanor on the advice of his attorney. The FDA barred him from Medicaid, and he lost his medical license. After 5 years of torment following his 2006 indictment, psychiatrist Peter Gleason hanged himself. Five months after his death, the Florida Department of Health filed a complaint against him (http://tinyurl.com/7prmvvj). The recent court ruling was a great victory for the drug salesman but too late for the despondent doctor.
Liz Kamenar, M.D., Mountaintop, PA


Does the U.S. Spend More and Get Less? The assertion that we spend much more, for mediocre outcomes, is constantly repeated and seldom questioned. But the reverse may be true. Spending calculations multiply artificial prices times quantity, so the real number is uncertain. Other countries are even better than we are at shifting and hiding costs. And formal accounting does not include the cost of rationing. In Greece, people spend almost as much on bribes and other “informal” payments as on formal costs. As to outcomes, if we remove outcomes on which doctors have little effect (e.g., car crashes and violent crime), U.S. life expectancy moves from #19 to #1 (http://tinyurl.com/bch9wft).
John Goodman, Ph.D., National Center for Policy Analysis