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Teaching Hospital Update - November 10-14, 2008


Email Alert

By Reesa N. Benkoff*

November 14, 2008

Baucus to Release Detailed Universal Healthcare Plan

This Wednesday, November 12, Senate Finance Committee Chair Max Baucus planned to release a detailed universal health coverage plan that is "broadly compatible" with the proposal of President-Elect Barack Obama.

Under the plan, employers of a certain size would be required to offer health insurance for workers or pay into a federal insurance fund. Tax credits would be available for small businesses that provide health coverage and to individuals and families who purchase insurance in the private market. A national health insurance exchange--similar to one proposed by Obama--would be established to allow consumers to compare and purchase policies from a menu of private plans, as well as a new public plan similar to Medicare. Insurers would be prohibited from denying coverage or charging different premiums based on pre-existing health conditions. In addition, Baucus' plan would permit people ages 55 to 64 who do not have access to public or group coverage to buy into Medicare. Also, Medicaid would be available to everyone with incomes below the federal poverty level. Further, the State Children's Health Insurance Program (SCHIP) would be expanded to cover all uninsured children in families with incomes of up to 250% of the poverty level. The plan eventually would require all U.S. residents to obtain health coverage and would provide subsidies for those who could not otherwise afford it.

The 104-page plan titled, Call to Action, Health Reform 2009, would aim to have every U.S. resident covered within 10 years. Baucus suggested that the plan could be funded by reducing waste and fraud, emphasizing prevention, and utilizing comparative-effectiveness research. In the short term, he proposes cutting payments to private insurers participating in the Medicare Advantage program to provide some funding. The plan does not specify how large or small a company would have to be to fall under the rules, nor does it include a total cost estimate. The plan states,
[f]or those who do not obtain coverage, a penalty "would be enforced, possibly through the tax system.

In the plan Baucus wrote, "I believe--very strongly--that every American has a right to high-quality healthcare . . . and I believe Americans cannot wait any longer." He plans to hold meetings next week with leaders of both parties in the Finance Committee and the Senate Health, Education, Labor, and Pensions Committee. In addition to Baucus' proposed plan, Senator Edward Kennedy is also working on a health proposal and intends to have legislation drafted by Inauguration Day. A bill sponsored by Senators Ron Wyden and Robert Bennett has support from eight Democratic and nine Republican members.

Kaiser Daily Health Policy Report, Baucus To Release Detailed Universal Healthcare Plan Today, Henry J. Kaiser Fam. Fdn. (Nov. 12, 2008).

CMS Plans to Revise Medical Coding System

CMS plans to revise the medical coding system that physicians and hospitals use to bill health insurers--a move that many healthcare providers and health insurers support but that could initially increase difficulty for consumers and their doctors.

The revised system, called ICD-10, will increase the number of codes used to define various diagnoses and medical procedures by almost ten times to a total of 155,000 codes in an effort to account for the large number of medical advances that occur annually. The revised system will increase the number of codes used to define diagnoses to 68,000 from 13,000 and the number used to define medical procedures to 87,000 from 3,000.

According to CMS, the current system--which the U.S. adopted in the 1960s--is based on a framework developed by the World Health Organization and lacks space to expand, an issue that required the agency to group some new medical procedures with unrelated diagnoses. CMS, which proposed the revised system in August, hopes to have the system implemented fully within the next three years. CMS estimates that adoption of the revised system will cost the healthcare industry $1.64 billion over 15 years.

Some have suggested the revised system--which will allow physicians to include more details on patient medical records--might give a boost to efforts by government and industry to encourage the adoption of a nationwide electronic medical-information system. CMS officials also said that the revised system will help with efforts to track outbreaks of new diseases. However, some healthcare industry officials have raised concerns that the revised system will result in increased billing errors. CMS projects that the revised system will increase billing errors by as much as 10% initially.

Kaiser Daily Health Policy Report, CMS Plans To Revise Medical Coding System, Henry J. Kaiser Fam. Fdn. (Nov. 11, 2008).

Hospitals Cut Jobs to Stay Afloat in a Declining Economy

Hospitals across the country have laid off more than 1,200 employees over the past month, contributing to the country's highest unemployment rate since 1994. U.S. unemployment figures hit 240,000 during October, a month that saw nearly daily reports of hospital layoffs--mostly among non-clinical employees.

Most cited a poor economy and lagging reimbursement rates for the cuts. But some are making pre-emptive strikes. For example, the University of Pittsburgh Medical Center laid off 500 employees this week as a "precautionary measure," with administrators predicting a steady downturn in patient volume in the coming months. Some suggest the problems have been brewing for some time and will only get worse until Congress addresses inadequate Medicare and Medicaid reimbursement rates.

Hospitals are struggling because Medicare has not kept up with inflation for years, and Medicaid has never covered the costs of care. In the past, hospitals could manage as long as patient volumes grew; however, this is no longer the case. By most accounts, patient volume is starting to lag, particularly for profitable procedures such as elective surgeries. It appears that co-payments on pricey procedures, such as knee or hip replacements, are simply out of reach for patients in this economy. Further, private practice physicians could exacerbate the problem. Feeling their own economic downturn, physicians might begin requesting payments for services they previously donated�such as covering late-night emergency department shifts.

Emily Walker, Hospitals Cut Jobs to Stay Afloat in a Declining Economy, MedPage Today (Nov. 7, 2008).

CMS Issues Revised Compensation Guidelines for Medicare Sales Agents

This Monday, November 10, CMS revised its guidelines for compensation for health insurance agents and brokers who market Medicare Advantage (MA) and Medicare prescription drug benefit plans. In September, CMS issued new rules governing insurance companies, agents, and brokers regarding the marketing of Medicare prescription drug plans and MA plans. The rules stipulated--among other things--that commission for sales agents would be required to conform to a structure used in other parts of the insurance industry. First-year commission for a new customer could not exceed 200% of the commission for the next five years, in order to remove the incentive for agents to "churn" beneficiaries between different plans each year.

However, because the regulations had just begun to take effect, some plans increased commissions in order to lock them in for the next five years. The House Ways and Means Subcommittee on Health Chair, Pete Stark, in a letter to CMS, wrote that insurers were "gaming" the new regulations by raising commissions to levels "that far exceed any previous year's commissions."

The new guidelines revise those from September by stating that agents and brokers should receive compensation that reflects fair-market value based on previous commissions, adjusted for inflation for similar products in the same geographic area. In addition, compensation for policy renewals must be exactly half of the compensation paid for that beneficiary in the initial year of the six-year compensation cycle established in the September rules. Agents and brokers who enroll beneficiaries in plans that do not meet their needs should receive reduced compensation, according to the new principles.

The new rules also place similar compensation limits on Field Marketing Organizations (FMOs)--local or national companies that employ agents or brokers to assist plans in marketing and selling their Medicare products. Before the compensation is disbursed, FMOs would be required to submit to CMS their compensation structures for the previous three years plus the compensation structure they are implementing for 2009. That information also must be provided to agents, brokers, or other third parties under contract to market the FMO's plans. Future rate or structure changes could not take effect without prior CMS approval.

CMS is accepting comments on the changes until December 15, 2008.

Kaiser Daily Health Policy Report, CMS Issues Revised Compensation Guidelines for Medicare Sales Agents, Henry J. Kaiser Fam. Fdn.
(Nov. 11, 2008).

Feds Snag $1.12 Billion in Healthcare Cases

The Justice Department secured $1.12 billion in fiscal year 2008 from settlements and judgments from healthcare organizations alleged to have defrauded the government. The figure is down from $1.53 billion reported for the previous year. Healthcare cases accounted for 84% of the total of $1.34 billion the department secured through fraud and False Claims Act actions--most of which were initiated by whistle-blowers.

In some of the biggest cases of 2008:

  • Merck & Co. agreed to pay the federal government $361.5 million to resolve allegations involving Medicaid rebates and Pepcid discounts for hospitals;
  • Cephalon agreed to pay $258 million to resolve alleged marketing of off-label uses for three of its drugs; and
  • Amerigroup agreed to pay $225 million to end a case in which its Medicaid HMO in Illinois was alleged to have turned away or discouraged enrollment by pregnant women and other high-cost patients.

Nearly 60% of the 2008 healthcare total comes from pharmaceutical manufacturers and retailers. Organizations entering settlements typically assert in the agreements that the decision does not reflect an admission of liability or wrongdoing.


In any event, the totals from year to year are not directly comparable. The 2008 Amerigroup settlement, for example, replaces a judgment against the company that the Justice Department hailed in 2007; an agreement was reached in order to end the company's appeal. The department's biggest healthcare haul was $2.3 billion in 2006, a year that included a $920 million global settlement by Tenet Healthcare Corp.

Gregg Blesch, Feds snag $1.12 Billion in Healthcare Cases, Modern Healthcare's Daily Dose (Nov. 10, 2008) (note: registration is required to view this content).


*We would like to thank Reesa N. Benkoff, Esquire (Hall Render Killian Heath & Lyman PLLC, Troy, MI) for providing this week's Teaching Hospital Update.


AHLA Teaching Hospital Updates are intended to provide quick summaries of cutting-edge issues of interest to teaching hospitals and their counsel. Additional information and more in-depth coverage on these topics may be available from AHLA Health Lawyers Weekly and appropriate AHLA Practice Groups.

Member benefit educational opportunity:
Teleconference on immigration law (December 5, 2008).

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