Witnesses call for interoperability of medical records, standardizing preauthorization rules, reducing 'severity adjustments'; Warren says 'Medicare For All' would lower costs

On July 31, the Senate Health, Education, Labor and Pensions (HELP) Committee held a hearing on "Reducing Health Care Costs: Decreasing Administrative Spending." It was the third in a series of hearings the committee has held on reducing health care costs. Materials from the hearing are posted here. The witnesses were:

— Becky Hultberg, President and CEO, Alaska State Hospital & Nursing Home Association, Anchorage, AK

— Matt Eyles, President and CEO, America's Health Insurance Plans (AHIP), Washington, D.C.

— David M. Cutler, Ph.D., Otto Eckstein Professor of Applied Economics at Harvard University, Cambridge, MA

— Robert A. Book, Ph.D., Health Care and Economic Adviser at the American Action Forum, Washington, D.C.

In his opening statement, committee Chairman Lamar Alexander (R-TN) said that at the previous hearing, "Dr. Brent James testified that a minimum of 30% and as much as 50% of all health care spending is waste … and nobody really disagreed with his estimate." Alexander said administrative costs are much higher in United States than in other countries. He noted that a previous witness had testified that such costs accounted for 8% of all health care spending in the U.S., or about $264 billion, compared with only 1% to 3% for other countries, and "the federal government is clearly at fault for some of this burden." Although the federal government since 2011 has spent $38 billion requiring doctors and hospitals to install electronic health records systems, including paying doctors and hospitals to buy those systems and penalizing doctors who did not comply with federal requirements, "electronic health records systems have ended up being something physicians too often dread, rather than a tool that's useful."

Alexander cited the example of an East Tennessee family physician who is required to have an electronic health records system because he sees Medicare and Medicaid patients, so must pay a monthly maintenance fee to a health records company as well as pay for periodic upgrades, "but he still is not able to see the electronic health record of a patient discharged from the hospital across the street," because they don't use the same software. To make the systems interoperable, he would have to pay $300 per month to the health records company for each of the 88 doctors and nurses in his practice. Alexander quoted figures from the American Hospital Association indicating "there are 629 different regulatory requirements from four different federal agencies that doctors, hospitals and other health care providers have to comply with," ranging from credentialing doctors and nurses to participate in Medicare to HIPAA privacy laws to rules on signs posted in the office. The average community hospital needs 23 full-time employees just to keep up with Medicare's "Conditions of Participation," he said. Alexander said he was glad to see that CMS Administrator Seema Verma recently proposed streamlining many of the agency's reporting requirements.

In her statement, Ranking Member Patty Murray (D-WA) said there are opportunities to help reduce health care costs by reducing complexity, while maintaining quality and safety for patients. She said the current administrative system is fragmented, with different federal, state and private protocols in areas like billing and measuring quality of care. But Murray said the Trump Administration is instead "pursuing a path of health care sabotage" with ideas that will make this problem worse. She said the Office of Management and Budget (OMB) is reviewing a plan that will "do even more to let insurance companies offer junk plans that not only undermine important protections for people with pre-existing conditions, but also ignore requirements that insurers spend most of their money on patients, not on excessive administrative costs or executive bonuses." Murray said an analysis had shown that the most popular short-term plans "spend, on average, half of their revenue on things that have nothing to do with customers' health care needs." Murray said that "from day one, President Trump has focused on rolling back families' health care and protections for pre-existing conditions, even though people across the country have utterly rejected that backwards agenda," so the president "decided to sabotage health care from the Oval Office instead," by cutting spending on programs that help people understand their health care options and get covered; making it easier for insurers to sell "junk insurance that dodges patient protections," and abandoning patients in the court of law "by having his Justice Department take the highly unusual step of refusing to defend pre-existing condition protections in court." She said many are now concerned that the president's Supreme Court nominee, Brett Kavanaugh, will "strike down health care for millions of Americans." Murray said she hoped that Republicans will "come back to the table to work with us on legislation that can bring down health care costs."

Among the witnesses, Becky Hultberg, president and CEO of the Alaska State Hospital & Nursing Home Association, said her organization appreciated recent work done by CMS to address regulatory burdens, such as the "Meaningful Measures" initiative, and changes to the Promoting Interoperability Program. "But given the volume and complexity of new and existing federal regulation and the pace of regulatory change, more work remains to be done," she said. "Close to 24,000 pages of hospital and post-acute care federal regulations were published in 2016 alone. Hospitals, health systems and post-acute care providers must comply with 629 discrete regulatory requirements across nine domains, spending $39 billion annually in administrative activities related to regulatory compliance." Hultberg said the Requirements of Participation (RoPs) for skilled nursing facilities issued in October 2016 had an implementation cost estimated at $831 million, with annual costs of compliance exceeding $735 million, or nearly $100,000 per building.

She said voluntary partnerships between CMS and providers to improve quality, such as the Partnership for Patients and the American Health Care Association's Quality Initiative, are producing "significant, measurable improvements in patient care," but federal requirements should be better aligned and applied within and across federal agencies and programs, with "clear, concise guidelines and reasonable timelines for the implementation of new rules." Examples of such rules Hultberg cited include Medicare Conditions of Participation (CoP) for hospitals; the Promoting Interoperability Program; the Stark Law and civil monetary penalties; and reforms in post-acute care. On the Stark rule, Hultberg said "Congress, CMS and the Office of the Inspector General should revisit the Stark Law and other requirements aimed at combating fraud to provide the flexibility necessary to support coordinated, high-quality, high-value care. … Congress should create a safe harbor under the anti-kickback statute to protect clinical integration arrangements so that physicians and hospitals can collaborate to improve care and eliminate compensation from the Stark Law to return its focus to governing ownership arrangements."

Matt Eyles, President and CEO of America's Health Insurance Plans (AHIP), said CMS should reduce the fees it charges carriers to participate on the federal Affordable Care Act exchanges after it made deep cuts in the ACA's outreach-marketing budget. "CMS continues to collect a 3.5% user fee from issuers participating in the federal exchange while simultaneously reducing the functions of CMS to support healthcare.gov, including reducing the outreach, education and marketing budget for healthcare.gov," Eyles said. He added that marketing and outreach activities should be given high priority to continue attracting new customers: "Every American deserves access to comprehensive, affordable coverage choices without regard to pre-existing conditions that help to improve their health and financial security." Eyles also called for additional openness in those fees. "Transparency into the total amount of user fees collected and their use will allow health plans and other federally-facilitated marketplace business partners to better collaborate with the Center for Consumer Information and Insurance Oversight on how to improve FFM efficiency," he said. Among other proposals, Eyles also recommended: moving away from paper transactions; achieving interoperability among different computer systems to support quality measurement and to improve health care quality; and creating parity in privacy laws for all physical and behavioral health conditions. He also suggested that CMS should rescind regulations implementing the health plan identifier (HPID).

David Cutler, an economics professor at Harvard University, said the structure of the health system often pits insurance carriers against providers: "Administrative costs are a form of economic 'arms race' … Pushed by businesses and individuals to reduce spending, insurers introduce requirements that providers must fulfill before they can get paid. In response to new rules, providers hire additional personnel to maximize the amount they are reimbursed. … The net effect is a spiral of cascading administrative costs on both sides of the market, with no benefit to patients and no net benefit to insurers or providers." Cutler's recommendations included: reducing severity adjustments when patients present for treatment; standardizing pre-authorization requirements; and integrating medical record and billing systems. Cutler said Congress should require HHS to develop and implement a plan to reduce administrative costs in health care by 50% within five years.

Robert Book, an expert at the American Action Forum in Washington, D.C., said many researchers and policymakers "misunderstand the drivers of administrative costs. Most studies express administrative costs as a percentage of direct health care costs, an approach which necessarily misleads the reader. Administrative costs must be expressed as a dollar amount for each unit that causes those costs to increase. For example, the administrative costs of operating a health plan — whether a nonprofit or for-profit insurance plan or a government program — is better expressed on a per-enrollee basis. Administrative costs for providers should be expressed in terms of an appropriate measure of units of care delivered. Furthermore, when comparing vastly different entities — such as health plans in different countries — one has to be very careful to make sure that like figures are being compared."

Questions

Johnny Isakson (R-GA) noted that Cutler had said he thought it was possible to reduce administrative expenses by 50% within five years, and asked what is the largest single change that would need to be made. Cutler cited three steps: 1) simplifying the complexity of coding for patients; 2) standardizing preauthorization requirements; and 3) electronic integration of medical records and billing systems. Isakson mentioned that the medical data systems Cerner and Epic are not totally interoperable, which adds tremendously to costs. He said that as chairman of the Veterans Affairs Committee, he had just gone through a process of making the Veterans Administration's software interoperable with that of the Defense Department, and had just signed "one of the largest contracts in the history of the DoD" to acquire Cerner and merge all veterans' and defense health records into one system. He asked how many procedures require pre-authorization. Cutler said this was not limited to surgeries but extended throughout medicine: surgeries, radiology; testing; minor procedures. "The issue is that there are so many different pre-authorization policies [among insurers] that it's virtually impossible to keep up with them" and that within the same insurers, different employers often have "customized" pre-authorization requirements, Cutler said.

Ranking Member Murray noted thatin April, AHIP had commented on CMS's proposal to expand the availability of "junk" short-term plans. Quoting, she said AHIP was "concerned that substantially expanding access to short-term, limited duration insurance will negatively impact conditions in the individual health insurance market, exacerbating problems with access to affordable, comprehensive coverage," because such plans are "offered to consumers only after submitting information about their health status or prior conditions." Murray said that one of the problems with the Trump Administration's "sabotage" of the health care system is the paperwork burden it will impose on patients and families. Eyles said the types of questions that short-term plans will ask consumers will vary from one company to another. He said such plans should only be short-term and non-renewable, "with clear disclosures so there's no confusion as to what policy a consumer is buying." Murray said she is worried that such short-term plans will also impose new burdens on providers that will be passed on to patients. She asked if patients typically need to pay more out-of-pocket if they have a short-term plan. Cutler told her the typical answer is yes, because such policies won't cover as many procedures or cover them as generously: "Many times they will have limitations on medications or services they might access, in which case they have to spend more of their resources figuring out where to direct the patient." Murray also got Cutler to say that higher rates of out-of-pocket costs for patients increase the amount of time that providers such as hospitals spend on bill collection, as well as the rates of uncompensated care for hospitals.

Todd Young (R-IN) asked if there are actions Congress can take to encourage payers and providers to avoid an escalating "arms race" and whether federal payers like Medicare and Medicaid are part of the problem. Cutler pointed to the complexity of the coding that insurers require from providers before paying a higher amount. He said eliminating such "severity adjustments" would make sense. He also proposed, again, standardizing pre-authorization requirements and integrating billing and medical records systems, saying the federal government would have to be "uniquely involved" in those efforts. In terms of federal payers, Cutler said Medicare probably has fewer paperwork requirements than Medicaid, mostly because Medicare has fewer preauthorization requirements (with the exception of private insurers in Medicare Advantage), whereas in Medicaid, "patients churn a lot from one type of system to another." Young then asked if it would require new legislation or regulation to allow providers to share in savings from "severity-neutral compensation." Cutler said agreements among individual insurers could be done privately but for the change to have a real effect, it would have to be done across the health care system, which necessarily entails action by the government.

Maggie Hassan (D-NH) said she is the parent of a child with complex medical needs rising from cerebral palsy. She asked what the health care system can do to reduce administrative burdens for patients and their families. Hultberg told her there needs to be better alignment among private and federal payers around preauthorization and billing. Eyles cited the need for "a truly interoperable system" that can be accessed electronically at any time, which would require the government to align and simplify standards. Cutler said the states have made advances in improving interoperability "in terms of the ownership of the record and your right to access the records everywhere."

Tina Smith (D-TN) said Minnesota has been a national leader in reducing administrative costs through its Health Care Administrative Simplification Initiative, which has launched reforms to standardize and automate transactions. She asked Cutler how state-level initiatives inform what the federal system could do. Cutler agreed that Minnesota has made progress as well as Utah: "They show concrete savings" and satisfaction among providers, but also "reach a limit in what they can do" because they cannot change Medicare or the ERISA employer market, which is not regulated by the states. Smith said her constituents have complained about the burdens placed on them by insurers' preauthorization requirements. She asked if Eyles would support standardizing preauthorization protocols, as Cutler had proposed. Eyles said it was important to consider which populations this would apply to, such as Medicare or Medicaid, but "there are elements that could be standardized" with the help of the Council for Affordable Quality Healthcare (CAQH). When Smith asked where the resistance is to standardizing preauthorization requirements, Cutler said "reluctance" is a better term than "resistance" because insurers have customized and implemented their own systems and are confronted by the cost of changing what they have already done.

Bill Cassidy (R-LA) said there was some "cognitive dissonance" in what he had heard because of the high amount of federal regulations imposed by agencies and the fact that physicians have cited medical records as their "leading cause of burnout." To say that doctors are enamored of electronic records sounds like "a parallel reality," Cassidy said. He mentioned a bill he is sponsoring with Maria Cantwell (D-WA) that would promote "direct primary care" arrangements backed up by a catastrophic policy, in which patients pay a monthly fee to their primary care doctor without other copays. Book said he would want to know what percentage of the health care system would be affected by such a plan, because "the real dollars are going into very sick patients needing specialty care."

Elizabeth Warren (D-MA) said she wanted to focus on how much private insurers spend on administration compared with public programs like Medicare. She said the 2018 Medicare trustees report found that Medicare's administrative costs are $8.1 billion, or between 1% and 2% of overall expenditures, whereas such costs among private insurers "seem to range between 10% and 12%, depending on who you ask, who paid for the study and what data you're using." But some argue that Medicare beneficiaries have higher medical costs than younger people who have private coverage, "which makes administrative costs look artificially small as a share of Medicare costs, so we should use dollar amounts instead." She noted that Book had written a study saying Medicare spends more on administrative costs per beneficiary than private insurers. Warren said Book's study argued that Medicare's costs should include "all the ways that other parts of the government supposedly subsidizes Medicare" by keeping records, writing laws, collecting IRS revenue, maintaining buildings and paying congressional salaries. Those costs should be "re-labeled" as administrative costs, Book argued, according to Warner. Book said he was trying to do an "apples-to-apples comparison" between government and private costs. But Warren said his approach "doesn't have any credibility at all — this is just a game to inflate the numbers."

Turning to Eyles, Warren said the five largest private insurers reported roughly $20 billion in profit last year. She asked how that compares with the profits the federal government makes on Medicare and Medicaid. When Eyles said he couldn't say, Warren said, "it compares to zero" because the government does not profit from either program. "When giant, for-profit companies divide up who gets what out of the premium dollars that they rake in, they never forget to set aside a few billion dollars for themselves, and I think that's why it's time to crack down on the shady practices insurance companies use to juice their profits at the expense of families that are struggling to get by," Warren said. "And I think it's time to ramp up the fight for Medicare For All, so that everyone is covered, no one goes broke because of a medical bill, and we start treating health care like the basic human right that it is — not like a profit center for multibillion-dollar corporations."

Before yielding his time to Sen. Cassidy, Tim Scott (R-SC) said that having spent 30 years in the insurance industry, "I think we should appreciate the overall cost that the government bears for every single program we have — when we spend $4 trillion as a government bringing in $3 trillion [in revenue], the taxpayers are losing the elasticity in their paychecks, because their money's going to Washington for programs that could perhaps be better provided through the private sector."

Replying to Sen. Warren, Sen. Cassidy said several outside groups such as the Mercatus Center, the liberal Urban Institute and the Tax Policy Center had estimated that Medicare For All would increase federal budget commitments by around $32.6 trillion over the first 10 years, and even if corporate and individual taxes were doubled, "it still would not be enough to pay for everything."

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