7
The Information Trading Process: The Case of Medicare Payment Equity

Susan Bartlett Foote

The legislative process sets the direction for health policy, but how do policymakers use information to make decisions? A better understanding of the information trading process will help participants be more effective.

There are three key players in the information trading process. Information producers include the academicians, policy analysts, researchers, and consultants who analyze data, write reports, and contribute to the knowledge base. Information consumers include members of the U.S. Congress and their staffs, who are the recipients of vast amounts of information.

Another key figure is the information agent. Some are paid by private interests, and others are paid by nonprofit public interest organizations. Often maligned as ''special interests" or derided as "mere lobbyists," agents range from operators trying to sell results to those seeking to improve public policy. At their best, information agents help to define the issues, set the agenda, interpret and translate the complex and highly technical knowledge base, and respond to the needs of the legislative consumers. They can serve as conduits from producers to consumers. They can serve as catalysts to



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7 The Information Trading Process: The Case of Medicare Payment Equity Susan Bartlett Foote The legislative process sets the direction for health policy, but how do policymakers use information to make decisions? A better understanding of the information trading process will help participants be more effective. There are three key players in the information trading process. Information producers include the academicians, policy analysts, researchers, and consultants who analyze data, write reports, and contribute to the knowledge base. Information consumers include members of the U.S. Congress and their staffs, who are the recipients of vast amounts of information. Another key figure is the information agent. Some are paid by private interests, and others are paid by nonprofit public interest organizations. Often maligned as ''special interests" or derided as "mere lobbyists," agents range from operators trying to sell results to those seeking to improve public policy. At their best, information agents help to define the issues, set the agenda, interpret and translate the complex and highly technical knowledge base, and respond to the needs of the legislative consumers. They can serve as conduits from producers to consumers. They can serve as catalysts to

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convert policy research into policy results. In the most proactive sense, these players are agents of change. I have played all three roles in the policymaking process: as a producer of information in academia from 1980 to 1990, as a consumer during my tenure as a Robert Wood Johnson Fellow (1990 to 1991), and as a senior legislative assistant for a U.S. Senator (1991 to 1994). I am now a legislative analyst and lobbyist in the private sector. The case study presented here illustrates how an information agent can shape the policymaking process. SUMMARY OF THE POLICY ISSUE In 1965, Congress guaranteed health insurance coverage for retirees and disabled people. Medicare was modeled on the prevailing fee-for-service insurance programs, reflecting the way that health care was delivered at that time. Medicare paid hospitals and providers on a cost-based reimbursement system. Hospitals were paid under the Medicare Trust Fund, called Part A, and physicians were paid under Part B, which was financed through general revenues (42 U.S.C. 401-433). In the mid 1970s, health maintenance organizations (HMOs) began to thrive in some communities as an alternative to fee-for-service. HMOs offer a comprehensive set of benefits through an organized network of providers for a single prepaid premium. In 1982, Congress gave senior citizens an opportunity to choose an alternative to fee-for-service Medicare. The HMO option, called a risk contract, allowed beneficiaries to select a comprehensive, integrated health plan that offered less paperwork, no deductibles, low co-payments, and in many cases, more benefits than the traditional Medicare coverage (42 U.S.C. 401—433). Congress designed a payment formula for the risk contract that was tied to fee-for-service spending. The formula requires that the Health Care Financing Administration (HCFA) total up all the fee-for-service spending in the program and calculate annually the average per capita spending (United States Per Capita Cost) and then, using the same formula, determine separate rates for each of the 3,080 counties in the nation.

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Through a series of subsequent steps, HCFA derives what is known as the average adjusted per capita cost (AAPCC). The AAPCC reflects various demographic adjusters and includes Medicare Part A and Part B spending. The participating HMO risk contractors are paid 95 percent of the AAPCC. Although the formula sounds rational in theory, in practice it has led to quite startling inequities in AAPCCs from county to county. For example, in 1995, the lowest AAPCC was $177 per beneficiary per month in Fall Rivers, South Dakota, whereas it was $647 in the Bronx, New York (Health Care Financing Administration, 1996, pp. 21-22). The primary force behind this variation is utilization patterns which are tied to the underlying capacity in the community. The work of John Wennberg at Dartmouth has demonstrated quite convincingly that the number of specialists and the number of hospital beds determines utilization in the fee-for-service system. Economists refer to this as supply-induced demand (Wennberg, 1996). The formula has led to three distinct market types, two of which are characterized by below-average payment and one of which is characterized by above-average payments. The first type of market consists of rural areas, which are traditionally underserved and where fewer doctors and hospitals are readily available. Low capacity means low utilization, leading to low AAPCCs. Virtually no HMO risk plans are available in areas classified as rural. This is true even where there is HMO penetration in commercial markets in those same areas (Serrato et al., 1995). The second type is the efficient, highly penetrated markets like Portland, Oregon; Seattle, Washington; and Minneapolis, Minnesota. Market changes have led to reductions in bed capacity per 1,000 population, more efficient use of physician resources, and price competition in the commercial side of the market. As the fee-for-service system has had to compete with managed care plans, practice styles change and utilization decreases. As a result, in these market areas the AAPCC, tied to the fee-for-service side of the ledger, is below average. In 1995, Hennepin County (Minneapolis) received $362 per beneficiary per month, and King County (Seattle) received $377—both well below the 1995 average of $400 (Health

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FIGURE 7.1Medicare managed care enrollment by payment rate. SOURCE: HCFA, 1996. Care Financing Administration, 1996, pp. 16 and 35). Figure 7.1 illustrates how risk contract enrollment reflects the payment rates available in each county. The third type is the high-capacity markets like Miami, Florida; Philadelphia, Pennsylvania; New York, New York; and Los Angeles, California. In these markets, fee-for-service utilization is sky high, and the consequence is very high AAPCCs. The 1995 rates were $615 for Miami, $625 for Philadelphia, and $646 for New York City. (Medicare supports graduate medical education through direct and indirect spending. On average, graduate medical education [GME] was responsible for 1.8 percent of Medicare spending in 1991. New York's GME share of spending was the largest, at 3.5 percent. High GME inflates the per capita totals, raising the HMO payment [Ashby et al., 1996].) The inequity in payment has several striking effects. Because HMOs receive 95 percent of the county AAPCC, the payment rate in some areas is much higher than the costs needed to provide the standard Medicare package. Under the Medicare program, the plans

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can either return the excess to the government or use it to provide additional benefits beyond those mandated in the program. In many of the markets with high payments, additional benefits now include unlimited prescription drug coverage, no additional premiums, free hearing aids, dental care, and a wide range of preventive services like exercise classes and nutrition counseling. In efficient markets that offer HMOs, fewer additional desirable benefits are available, additional premiums are higher, and it is often a struggle for the HMO to break even. There is no incentive for health plans to enter the rural or adjacent rural markets. Figure 7.2 illustrates how resources reflect the availability of additional benefits and lower premiums. The policy problem has several dimensions. The system is inequitable for senior citizens who have all paid in at a uniform rate during their working lives (2.9 percent of payroll earnings), because their choices and their benefits are an accident of where they happen to retire. There is also a budgetary issue, because Medicare FIGURE 7.2 Benefit inequity and Medicare average adjusted per capita cost payments. *The extra benefit packages offered by HMOs often vary, even within a single county. The benefits listed here are samples of standard extra benefits available in a given county. **The vertical line denotes the national average government contribution ($40/month; $5,200/year). Open bar: government contribution; shaded bar: additional senior premium.

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spending at current levels cannot be sustained within the confines of the current program (Federal Hospital Insurance Trust Fund, 1996). If Medicare reductions are necessary, how will they be made within this highly variable payment program? SETTING THE AGENDA The inevitability of Medicare reform hit the national stage in January 1995 following the Republican victories in the U.S. Congress in the 1994 election. The new Speaker of the House, Newt Gingrich, spoke of Medicare reform as part of a balanced budget initiative as soon as he was sworn in. He promised dramatic reductions in Medicare growth as an essential ingredient to sound fiscal budget policy (Gingrich, 1995). A component of the Republican rhetoric was also the expansion of choices within the Medicare program. The Republican members supported moving beneficiaries into the private health plan marketplace and talked of paying a fixed amount for those plans. In the early discussions, all references to payments were based on average spending per capita. There was no mention of and little awareness of the current payment inequities on which these reforms would be overlaid. Health plans had been living uneasily with the AAPCC formula for years. Plans in markets with low payments limited enrollment growth in some cases and held on to slim margins. The problem increased in magnitude with time, because as some markets became more efficient, they fell farther and farther below the average. Few members of Congress were aware of the problem. On the Finance Committee, Senators David Durenberger of Minnesota and Robert Packwood of Oregon had been sensitive to the issue. Durenberger had introduced a Medicare choice bill during the health reform debate of the 1993-1994 period, but the Clinton Administration had been focused on the private market, and little attention was paid to the effort (U.S. Congress, Senate, 1994). Thus, the larger issue of Medicare reform was squarely on the agenda. The issue of inequity in payment to current risk contractors and to the alternatives promoted by Republicans was not, however.

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There were a number of significant barriers to getting the inequity issue on the agenda. The first was the resistance of the national trade associations to the issue of regional inequities. Trade associations are constantly courting their members in order to enhance their power and resources in Washington, D.C. Regional inequities divide members, and most national associations try to avoid these issues at all costs. In this case, the financial stakes were immense for some health plan interests whose growth strategies were tied to the vast revenues available in markets offering high payments (Penshorn and Johnson, 1995). The plans in these areas have considerable resources and political power. Because it is difficult to oppose equity and fairness, it served their interests to keep the issue under wraps. Their dominance in areas like California, Florida, and Texas meant that many political leaders would be pressured not to address this issue. The status quo, with double-digit increases in payments being routine, seemed too good to undo. Finally, the complexity and technical nature of the issue made it difficult to explain. Members and staffs were overwhelmed with issues in the early months of 1995. Recall that at that time Medicare, Medicaid, tax cuts, regulatory reform, and welfare were all on the congressional plate simultaneously. In addition, there were 74 new members. Most of them had no background in Medicare policy and could not be expected to concern themselves with "details" that they could not readily understand. OVERCOMING BARRIERS To get the issue of Medicare payment equity on the agenda, two essential steps had to be taken. First, a base of stakeholders had to be built, and second, the story had to be told. Both steps were taken simultaneously throughout the summer and fall of 1995. Building Stakeholders The original stakeholders were the three risk contractors in the state of Minnesota. They included Allina Health System, Health-

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Partners, and Blue Cross and Blue Shield of Minnesota. Although they are fierce competitors in the Minnesota HMO marketplace, all three agreed that the problem needed to be solved. The immediate concern was that the cuts being discussed would be imposed across the board without acknowledging the unequal payment rates. The goal was to educate members of Congress about the problem and then help shape solutions that would address the issue. The Fairness in Medicare Coalition was born. However, Minnesota companies had trouble being heard. Their trade group, Group Health Association (recently renamed American Association of Health Plans), did not want to raise the issue directly. The Minnesota congressional delegation was not strong. The retirement of Dave Durenberger left them without a voice on the Finance Committee in the Senate. On the House side, Jim Ramstad was a new member of the Ways and Means Committee but not on the Health Subcommittee. Martin Sabo, a Democrat, had lost his seat as chairman of the Budget Committee and was now only the ranking member in a House full of partisan Republicans in the majority for the first time in decades. Clearly, a base that included organizations from other states needed to be built. Initially, only other HMO risk contractors were approached and several from the Northwest (Oregon and Washington) were attracted to the coalition. Feelers were put out to plans in New England, Salt Lake City, and Milwaukee. The real boost in the stakeholder base occurred when several state hospital associations saw the importance of the issue to their long-term future. Hospitals were quite concerned about the proposed reductions in the fee-for-service Medicare system, particularly in the context of growing movement toward capitated, managed care systems in the commercial markets. To compete in changing markets, many hospitals knew that they needed to be players in integrated systems of care. Access to the Medicare market is essential, especially in rural areas, where Medicare beneficiaries make up a large percentage of the population. Because the Republican plan included new choices in addition to traditional HMOs, many hospitals saw reform as an opportunity for them as well. However, the payment rate problem meant that many hospitals in

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states where low payments predominated knew that without AAPCC reform, the Medicare choices concept would never be a reality for them. By the end of 1995, the Fairness in Medicare Coalition, which had begun with three Minnesota HMOs, included state hospital associations, regional hospital systems, traditional HMOs, several Blue Cross and Blue Shield plans, the Association of Family Physicians, and the Rural Referral Center Coalition. With a presence in more than 20 states as diverse as Hawaii, Maine, Iowa, and Arkansas, the coalition developed the ability to work with many members of Congress. In addition, because constituents are voters, in order for the coalition to be heard, it was much more potent to speak for constituents and to articulate why the policy issue is relevant to each member's district or state. In this case, the role of the information agent was pivotal to the creation of the stakeholder group. Without stakeholders, there was no vehicle for policy reform, and there were no well-paved roads to bring the diverse stakeholder organizations together. The national associations were disinterested, mildly supportive, or actively hostile, and the environment pitted the hospitals against the insurers and the urban centers against the rural areas. It was crucial that the problem be clearly identified, then the organizations that would become committed to the goal could be recruited. Developing the Message At the same time that the base was being built, the coalition was also faced with crafting a message. There was little understanding of the issue among most of the members. Committee staffers varied in their level of interest. Some were unresponsive to the goal, for reasons that appear to be based partly on misinformation, partly because it presented another divisive issue, partly because of concern about the potentially negatively affected insurance and HMO plans in areas with high payments, and partly on policy grounds—that is, concerns about market disruption, when high payment rates would be reduced, and when low payments would be increased. The coalition galvanized into action following a hearing in the

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House Budget Committee in March, 1995. James Ehlen, the medical director at Allina Health System, was invited as a witness on HMOs in Medicare. Ehlen testified about the inequity and how it created barriers to growth of choices in the program (Ehlen, 1995). The new committee chairman, John Kasich, was intrigued. At the conclusion of the hearing, Kasich approached Ehlen and asked if Ehlen had any written material on this problem of payment inequity. The coalition had nothing to give Kasich. The coalition set to work developing a clear statement of the problem and why it needed to be fixed. It drafted a statement of principles and a concept paper to clarify its position. The first essential task, however, was to define and describe the problem and get the issue on the table. The information producers provided plenty with which to work. There were data from HCFA, the Prospective Payment Assessment Commission, and the Prospective Payment Review Commission. John Wennberg's work provided the conceptual underpinning to the coalition's arguments. However, the case had not been made in the political context of the U.S. Congress in a manner that would be accessible and catch the attention of the members, which is key to affecting the policymaking process. The information must be timely, accessible, and relevant to the context in which the issue is being debated. In essence, the work must be translated in order to be used. Presented with a technically complex issue in this environment, the coalition hit upon a potent weapon—maps. The coalition developed maps of selected states, with each county color coded on the basis of its place above or below the average. The coalition started with a handful of key states and gradually invested in a complete set. The maps were a sensation. Each member saw the counties in his or her district and immediately grasped the concept of equity. Once the members were engaged, it was easier to try to explain the reasons for the problem and the implications for constituents. Members of the coalition managed to be tapped as witnesses in the Ways and Means Committee and the Finance Committee in July 1995. The exercise of writing testimony helped refine the message and tell the story in increasingly coherent terms. The coalition worked hard to demystify the mysterious AAPCC and get to the

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heart of the matter. The coalition received a number of comments from staff and members who said that after reading the testimony they understood the issue of AAPCC for the first time. Being a witness gave the organization, even one as fresh to the scene as the Fairness in Medicare Coalition, visibility among the trade press and the key members of Congress. In the fall of 1995, the coalition presented its case to the four leaders of the House Rural Health Care Caucus. Democrats included Charles Stenholm of Texas and and Glenn Pochard of Illinois and Republicans Pat Roberts of Kansas and Steve Gunderson of Wisconsin. The rural health care caucus provided the coalition with champions in the House who were willing to stand firm when the drafting process began. Although the Republicans proceeded on a fully partisan basis, members of the coalition continued to meet with rural Democrats, some of whom were working on the alternative ''Blue Dog" budget bill. On the Senate side, a meeting with Republican Senator Charles Grassley of Iowa was arranged. He immediately understood the importance of the issue to his constituents. It mattered that the Iowa Health and Hospital Systems organization was a coalition member. Once Grassley was on board, he was a tireless champion in the Finance Committee. The Finance Committee staff was accessible because the chairman, Senator Robert Packwood, understood the issue from the Oregon perspective. They knew that fair payment was a key to reforming the Medicare program. Designing Solutions As the drafting began and a deal was being negotiated, the coalition had to remain flexible. The process was extremely fluid as drafts and concepts were in virtual negotiation during October and November. The coalition did not want to be wedded to a single solution. There were many ways to address the problem, but specifics had to relate to the final overall Medicare reform principles. Would they choose a competitive pricing model, would they continue to administer prices tied to AAPCC with modifications, or would they decouple from the fee-for-service system? Would nor-

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malization of rates be accomplished through variable growth rate percentages or blended rates? What about graduate medical education? Indirect medical education (IME)? Disproportionate share hospital (DSH) payments? The coalition developed a set of principles by which to measure and evaluate payment solutions. The three principles were as follows: (1) decouple the capitated payment from the fee-for-service market, (2) establish either directly or indirectly a minimum payment floor for all counties, and (3) reduce the payment variation over time and move toward a national norm. Legitimate variations based on input costs, illness, or other demographic factors could be accommodated. As an information agent, the coalition's evaluations were provided on demand to staffers interested in protecting their boss's interests but without the technical tools to decipher proposals. When the fur began to fly, the coalition was ever present with tools for the staffers to use. Flexibility paid off. The House and the Senate both included mechanisms to begin to resolve the inequity, but each body used very different methodologies to get there. The coalition worked closely with both bodies in an effort to ensure that the provisions were consistent with the principles, regardless of how they got there. The final bill, the Balanced Budget Act of 1995, contained all the principles that the coalition had advocated. Although the bill did not move as far or as fast as the coalition had wanted, the coalition considered the result a major victory. The issue, unknown only months before, had a cadre of dedicated champions in both houses of Congress and was addressed in the bill. Because the issue is regional and is based on principles, not politics, the coalition moved quickly to revive its relations with Democrats who had been sitting on the sidelines. Coalition staff worked closely with Democrats in both the House and the Senate to ensure that their alternatives also addressed the issue. Although President Clinton vetoed the Balanced Budget Act and killed the Medicare reform process for the year, his 1997 budget proposal contained all the essential elements that the coalition had advocated.

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Without reform, the 1996 payment rates were implemented, further exacerbating the inequities. Figure 7.3 illustrates how the system and the potential for reform lost ground in 1996. As long as the methodology remains unchanged, there will be problems of unfairness in the program and Medicare's fiscal problems will remain unresolved. LESSONS LEARNED The effort described here remains a work in progress. However, some lessons can be derived from the experience to date. First, policymaking is a process. The process takes place within a political context. The context is shaped by larger political events (like elections), ideologies, and themes that characterize and define certain periods and by personalities. Despite some earnest efforts, this is not a process that can be modeled through the use of economic assumptions, or any other assumptions for that matter. As a result, anyone who wants to participate or influence the process must have an acute sense of the context in which the issues may be raised, debated, and resolved. Second, the three players that were identified at the outset—the producers, the consumers, and the agents—remain key. It is possible that one player can assume more than one role, but all roles are essential in the mix. For example, an agent can also be a producer, and a consumer can also be an agent. A highly informed and motivated consumer can bypass the agent and acquire knowledge directly from the producers. How can those who are concerned about good policy outcomes (that is, legislative and regulatory outcomes that reflect a set of agreed upon principles and goals) ensure the best results possible? In my view, the outcomes are only as good as the inputs in the process. In short, gold in, gold out. Trash in, trash out. In this sense, dangers abound. Information producers must safeguard at all costs the integrity of their analyses. Some perceive the experts as being available at a price; that is, whoever buys the study buys the results. When the marketplace of ideas is dominated by the highest bidder, the process is compromised and so, too, are the results. The pro-

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FIGURE 7.3 Annual Medicare payment increases, the gap widens. NOTE: These numbers are based on aged populations only. SOURCE: HCFA, 1996.

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ducer community must protect its integrity and the public's confidence in its information. The agents also have significant responsibilities that are honored mostly in the breach. If truth is lost in the translation, the agents subvert the information trading process. When interest groups and their agents seek only short-term fixes and not improved policy outcomes, the greater good is sacrificed. When the producers allow that to occur and when the consumers passively accept the one-page quick-fix packages of some agents, everybody is a loser. This situation is exacerbated by the limited resources that now constrain the policy process. The consumers are a constantly changing target. Elections bring new players, often with little background in public policy. The anti-incumbent, antipolitician mentality rewards candidates who have little exposure to public service or policymaking. It is hard to keep talented, well-trained, policy-oriented staff when they face low pay, long hours, and an increasingly partisan political atmosphere. This makes information consumers vulnerable to the manipulative producer and to the agents with a quick-fix message. The experience of the Fairness in Medicare Coalition illustrates the best of the process of policymaking. The coalition's goal was first to educate and inform because it believed that an educated member would become an advocate. The coalition accurately translated data and research sources. It worked with researchers to help fill in the information gaps and to respond to research without a strong base in the literature and the data. Most importantly, the coalition articulated a set of policy principles to guide it and its supporters in the analysis of reform proposals. The coalition sought support on the basis of those principles and then worked with the experts to help design solutions that met the demands of the consumers. The coalition respected the process and its need for good, timely, and helpful information and hopes that it will ultimately prevail.

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REFERENCES Ashby, J., K. Fisher, B. Gage, S. Guterman, D. Kelley, A. Lynch, and J. Pettengill. 1996. State Variation in the Resource Costs of Treating Aged Medicare Beneficiaries. Washington, D.C.: Prospective Payment Assessment Commission. Ehlen, J. 1995. Private Sector Solutions to Medicare. Testimony before the U.S. House Budget Committee, Washington, D.C., March 21. Federal Hospital Insurance Trust Fund. 1996. Annual Report. Washington, D.C.: Federal Hospital Insurance Trust Fund. Gingrich, N., 1995. All of us together must totally remake the federal government. Excerpt of speech. Washington Post, p. A12, April 8. Health Care Financing Administration. 1996. AAPCC Ratebook. Washington, D.C.: Health Care Financing Administration. Penshorn, J., and R. W. Johnson. 1995. The Managed Care Marketplace. Minneapolis, Minn.: Piper Jaffray. Serrato, C., R. Brown, and J. Bergeron. 1995. Why do so few HMOs offer Medicare risk plans in rural areas? Baltimore, Md.: Health Care Financing Review 17(Fall):85-97. U. S. Congress, Senate. 1994. Committee on Labor and Human Resources. Medicare Choice Act of 1994. S. Rept. 1996. 103d Cong., 2d sess. Wennberg, J. 1996. The Dartmouth Atlas of Health Care. Chicago: American Hospital Publishing, Inc.