A New Congress, Medicare Site Neutral Payments, and More

Last week, members of the 119th Congress took the oath of office with Republicans choosing Mike Johnson as House Speaker and John Thune as Senate Majority Leader. Paragon is poised to help Congress tackle key health care challenges, including:

• Reducing the rising and unsustainable costs of government programs
• Fixing the low quality of Affordable Care Act (ACA) plans
• Ending federal discrimination against the most vulnerable Medicaid recipients
• Achieving efficiencies and flexibilities in Medicare Advantage
• Enacting payment reforms like Medicare site neutral payments
• Reforming the tax code’s treatment of health care and insurance
• Restructuring public health agencies like the Centers for Disease Control and Prevention
• Effectively incorporating artificial intelligence in health care
• Improving the regulatory process, and much more.

The challenges are significant, but so is the opportunity for reforming government and empowering patients over the next two years.

Policy Brief on Site Neutral Policy

This week, Paragon is releasing a new policy brief by Joe Albanese that examines the prospects for site neutral payment reforms in Medicare this year.

Paragon has endorsed site neutrality in Medicare as a commonsense way to put federal health programs on a more stable footing and address the rising cost of hospital services to patients and taxpayers. As our event with former HHS Secretaries Alex Azar and Kathleen Sebelius last summer demonstrated, having Medicare pay the same rate for the same services regardless of whether they take place in a hospital or physician office is a sensible, bipartisan policy reform. Given Republicans’ narrow control of Congress, this makes site neutrality a promising avenue for reducing government spending.

Translating ideas into legislative text is always difficult, particularly given the pushback that lawmakers can expect to receive from the powerful hospital lobby. As a result, there are now a variety of proposals being discussed – from incremental efforts to remove exceptions to current site neutrality policies (such as the Lower Costs, More Transparency Act passed by the House in the previous Congress) to more far-reaching plans that attempt to assuage concerns about rural hospitals (including a new policy framework from Senators Bill Cassidy and Maggie Hassan).

Joe’s brief evaluates the proposals and posits several principles to help lawmakers navigate approaches to Medicare site neutrality:

1. Simplify payment policy by eliminating differentials and not creating new exemptions, such as by carving out certain providers from the reform.
2. Equalize payments by lowering, not raising, existing rates.
3. Policies to support rural providers should avoid unintended consequences. For example, policymakers should not tolerate harmful payment differentials, create excessively complex incentive structures, or expand existing distortionary policies, such as cost-based payment methods.
4. Policymakers should not direct an excessive level of site neutrality savings to new Medicare spending, given the program’s large fiscal challenges. They should make new hospital spending temporary and subject to evaluation and should not assume that preserving hospital-centric models of care is the best approach.
5. Site neutrality should apply to health programs where the government already sets payment rates but should not dictate private market rates.

Site neutrality is a commonsense way to reduce costs to patients and taxpayers and to reduce distortions from government payment policy, but policymakers should allow for a flexibility of approaches in the private market. Enacting site neutrality should also not preclude future improvements to the accuracy of health care prices that align them with the value of care.

Lack of Health Benefits from Health Insurance

So much of federal health policy focuses on factors that don’t make much of a difference for health, and this is particularly true for the focus on expanding the number of people with health insurance. In an extremely important recent paper, Dr. Joel Zinberg and Liam Sigaud review the evidence and explain why health insurance affects health much less than most people expect. From the executive summary:

There are multiple reasons why insurance coverage has so little effect on health. Public insurance expansions such as those within the Affordable Care Act (ACA) often substitute public insurance for private insurance or replace previously uncompensated care with care that is covered by insurance. In addition, many government insurance programs provide limited access to services and focus on low-benefit care. Health care in general has only a modest impact on health: Estimates suggest it contributes no more than 10-20 percent to determining health outcomes. Some care may actually decrease health by exposing patients to medical errors or to over-diagnoses and misdiagnoses. We conclude that individuals’ health behaviors and medical innovation are far more important contributors to health than insurance coverage.

I highly recommend a recent DC EKG podcast where Joel explains what he and Liam found.

Don’t Believe CMS’s Medicaid Improper Payment Rate

Every November, the Centers for Medicare and Medicaid Services (CMS) puts out an improper payment report for federal health programs. CMS reported an improper payment rate in Medicaid of 5.1 percent—but this percentage is pure fiction. Put somewhat differently, CMS’s Medicaid improper payment rates are worthless. During the COVID-19 public health emergency, CMS stopped reviewing state eligibility determinations as it required states to maintain coverage for years regardless of eligibility. And improper eligibility is by far the number one driver of improper payments made by states in Medicaid. This followed years of lax improper payment tracking during the implementation of Obamacare’s Medicaid expansion.

In a 2022 Paragon policy brief, Joe Albanese and I explained the issue:

CMS stopped eligibility reviews as part of its overall audits from 2014 to 2017, so the reported Medicaid payments for those years (found in the 2015 through 2020 reports) do not reflect true improper payment estimates. When it restarted eligibility reviews in 2018, there was a huge increase in reported improper payments (from a $36 billion in the 2018 report to $57 billion in the 2019 report), even though only one-third of states had eligibility reviews accounted for in the 2019 report. The 2020 report showed a further surge in Medicaid improper payments (up to $86 billion) as a second third of the states were reviewed for eligibility. Those states, like the first third reviewed, consistently failed to properly determine eligibility for the program. The 2021 report did not fully assess eligibility in the final third of states, citing complications with using federal tax information for income verification. Despite this, Medicaid improper payments still rose to $99 billion in that report.

A previous Paragon Pic (below) displayed the growth in improper payments, which soared with Obamacare’s Medicaid expansion.

As the past reports where CMS conducted real audits show, true Medicaid improper payments likely exceed $100 billion per year. There are enormous problems with eligibility determinations, with a main problem being states improperly categorizing enrollees as Obamacare expansion enrollees to garner greater federal reimbursement. It is paramount that the incoming Trump administration preserve the Medicaid program for those who truly need it and take steps to ensure proper eligibility for the program.

All the best,

Brian Blase
President
Paragon Health Institute