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Legislature Adjourns for Governor's Veto Period

The 2010 Kentucky General Assembly adjourned Thursday, April 1, 2010 to allow Governor Beshear to consider bills passed thus far and determine whether any of that legislation warrants his veto. Visit the KMA Action Center to learn about the issues KMA is tracking.

Since legislators left Frankfort without passing the 2010-2012 biennial budget, this "veto period" will also provide an opportunity for informal negotiations on budgetary sticking points. Formal action during the last two days of the session was originally intended to relate to the possible override of gubernatorial vetoes, but with a number of high profile bills still awaiting final action and the budget in doubt, April 14 and 15 could be action packed. In any case, legislators must adjourn the 2010 General Assembly no later than midnight on April 15.

Putting possible fireworks on the last days aside, KMA State Legislative Chairman Preston P. Nunnelley, MD, says he is pleased with the preliminary results of the session. He said, "Considering that the practice of medicine was under attack throughout the 2010 legislature, I think we had a good session. KMA physician efforts stopped scope expansions of any consequence, accomplished a couple of House of Delegates' objectives, and set a peg for future sessions by previewing legislative initiatives concerning health insurance reform."

Dr. Nunnelley complimented physicians for their willingness to call legislators on key issues during the session. However, he also noted that other groups, especially Advanced Registered Nurse Practitioners, had mounted an extremely aggressive and organized grassroots effort. KMA will need to do the same. "We fully anticipate spending the summer and fall organizing at the local level, raising money for Kentucky Physicians PAC, and supporting those candidates who are pro-medicine. For now, however, we must concentrate on the final days of the 2010 Kentucky General Assembly to ensure nothing adverse to patients and the practice of medicine passes; that a few remaining KMA initiatives are passed; and that funding for state programs, like Medicaid and medical schools, is maintained."

It's unclear whether the budget impasse will be resolved when legislators return on April 14. Just remember, their business is not limited to that subject and they can consider other bills. KMA will keep you posted on any developments and provide an overview of the budget, if one is passed. If the General Assembly does not pass a budget before April 15, they may return for a special session that must conclude before the close of the fiscal year on June 30.

Looking Hard For Health Care Reform Winners

Jim Oberweis, The Oberweis Report, 04.05.10, 01:10 PM EDT

Some industries will benefit from health care reform while others will be left feeling sick.

On March 21 the House passed the Patient Protection and Affordable Care Act, along with the Health Care and Education Tax Credits Reconciliation Act. The combination of the two bills permitted the Senate to pass its changes to the health care legislation with only 51 votes, rather than a 60-vote super-majority. This massive legislation will fundamentally change the American health care system and who pays for it. While providing health care to 32 million uninsured Americans, the cost of that coverage will be very substantial.

The affluent will foot the bill. To finance the reform, the bill includes a 0.9% incremental payroll tax on earned income in excess of $200,000 for individuals and $250,000 for families. In addition, the act imposes a tax of 3.8% on unearned investment income for individuals with adjusted gross income above $200,000 and $250,000 for families. These new taxes are effective beginning in 2013. If you believe, as we do, that Congress will permit the Bush tax cuts to expire in 2010, you should expect the highest ordinary income bracket to go from 35% to 39.6% in 2011.

Dividend tax rates will also go up. Qualified dividends, which today are taxed at a maximum rate of 15%, will be taxable at ordinary income rates (which could mean that dividends presently taxed at 15% will be taxed at 39.6% plus 3.8% for Medicare, for a total of 43.4%, in 2013). Capital gains tax rates will go from 15% today to 20% in 2011 to 23.8% in 2013.

Note that expiration of the Bush tax cuts could be legislatively changed but somehow we doubt it. Washington isn't exactly flush with cash these days. In short, while the exact details could change, affluent investors can safely bet that their tax burden is about to increase and, in some cases, skyrocket.

The tax changes are kind to investors in tax-exempt municipal bonds, which appear to have escaped the 3.8% Medicare tax. Dividend-paying stocks appear to be most egregiously affected between the Bush tax cut expiration and the Medicare tax. Small-cap growth stocks, such as those followed by The Oberweis Report, don't typically pay dividends but would still be subject to the increase in capital gains taxes.

All in all, with the exception of the period around World War II, periods of rising tax rates have tended to correlate with periods of below-average GDP growth. Not shockingly, periods of lower GDP growth have also tended to correlate with less favorable returns in the stock market. That's not an encouraging signpost.

While not often mentioned, we believe perhaps the biggest victims will be American corporations that have large workforces of low-wage labor. For example, think about restaurant chains. It appears to us that they will be forced to buy health care for their employees. That cost will not be immaterial relative to their overall employment cost. We believe that the health care bill could cause stock valuations of retailers to decline in the months to come, all else being equal.

Drug makers, both branded and generic, stand out as winners. The pharmaceutical industry will get 32 million newly insured pill buyers. While partially offset by $80 billion in savings and rebates over a 10-year period courtesy of big pharma, drug makers will emerge as net beneficiaries. While some have hinted that the act will hurt generic companies, we believe they will actually benefit, particularly as the government is forced to clamp down on costs over time. The bill also includes a generic path for biologics, although the 12-year brand name period of exclusivity was longer than the five to six years hoped for by generic manufacturers.

Hospitals will benefit from a larger pool of insured patients, though the benefit will be partially offset by lower government reimbursement rates for Medicare and Medicaid. Companies like Medicaid fraud finder HMS Holdings ( HMSY - news -people ) and Medicaid health plan administrator Centene (CNC - news - people ) will benefit from an increase in the ranks of Medicare and Medicaid.

Losers on the bill include health insurers, private Medicare plans and indoor tanning salons (tanning salons will be subject to a 10% tax).

Political changes create dislocations in industries that smaller companies are well positioned to exploit. By carefully watching changes in tax rates and changes in the health care landscape, investors can best position to profit from the reform.

How the Passage of Federal Health System Reform Legislation Impacts Your Practice

On March 23, President Obama signed the Patient Protection and Affordable Care Act (H.R. 3590) into law. A number of key provisions in the new law may have an immediate impact on your practice and your patients, while others have a much longer time frame before they will take effect.

Medicare payment changes

Although Congress will address the flawed sustainable growth rate formula in separate legislation later this year, H.R. 3590 includes a number of payment improvements for physicians that, combined, will result in immediate and significant Medicare payment increases for many physicians.

• 10 percent incentive payments for primary care physicians. All physicians in family medicine, internal medicine, geriatrics and pediatrics whose Medicare charges for office, nursing facility and home visits comprise at least 60 percent of their total Medicare charges will be eligible for a 10 percent bonus payment for these services from 2011–16.

• 10 percent incentive payments for general surgeons performing major surgery in health professional shortage areas. All general surgeons who perform major procedures (with a 10- or 90-day global service period) in a health professional shortage area will be eligible for a 10 percent bonus payment for these services from 2011–16.

• 5 percent incentive payment for mental health services. For 2010, Medicare will increase payment for psychotherapy services by 5 percent.

• Geographic payment differentials. The national average “floor” on Medicare’s geographic payment adjustment (commonly known as the GPCI) for physician work expired at the end of 2009. The law re-establishes that floor in 2010. In 2010 and 2011, Medicare will also reduce the GPCI adjustment for physician practice expenses in rural and low-cost areas. And, beginning in 2011, the practice expense GPCI adjustment will be brought up to the national average for “frontier” states (Montana, North Dakota, South Dakota, Utah and Wyoming). Physicians in 56 localities in 42 states, Puerto Rico and the Virgin Islands will benefit from these geographic payment adjustments.

• Medicare quality reporting incentive payments extended. Incentive payments of 1 percent in 2011 and 0.5 percent from 2012–2014 will continue for voluntary participation in Medicare’s Physician Quality Reporting Initiative (PQRI). An additional 0.5 percent incentive payment will be made to physicians who participate in a qualified Maintenance of Certification Program (quality practice-based learning programs through specialty boards). Following the practice now in place for hospitals, beginning in 2015 physician payments will be reduced if they do not successfully participate in the PQRI program. In 2015, the penalty will be 1.5 percent; in subsequent years it will be 2.0 percent.

Medicaid payment changes

Separate legislation, the Health Care Education Affordability Reconciliation Act (H.R. 4872), still pending at press time, would raise Medicaid payments to family medicine physicians, general internists and pediatricians for evaluation and management services and immunizations to at least Medicare rates in 2013 and 2014. The legislation also provides 100 percent federal funding for the incremental costs to states of meeting this requirement.

Administrative simplification

Beginning in 2010, national rules will be developed and implemented between 2013 and 2016 to standardize and streamline health insurance claims processing requirements. Physicians should benefit from the changes because it will be easier to track claims and, in many cases, should improve physician revenue cycles and lower overhead costs.

Employer requirement to offer coverage

Employers with more than 50 employees with at least one full-time employee who receives a premium tax credit are required to offer health insurance coverage to their employees or be assessed a range in fees, effective in 2014. Employers with 50 employees or less, who represent the vast majority of physician practices are exempt from this requirement. A range of small business tax credits for employers contributing at least 50 percent of the costs of coverage for their employees will also be established, with credits phasing out as firm size and average employee wages increase.

Medical liability protection and grants

The Secretary of Health and Human Services (HHS) is authorized to award five-year demonstration grants to states to develop, implement and evaluate alternative medical liability reform initiatives, such as health courts and early offer programs, beginning in 2011. Medical liability protections under the Federal Tort Claims Act will be extended to officers, governing board members, employees and contractors of free clinics.

Preventive and screening benefit expansions

Beginning in 2010, Medicaid will be required to cover tobacco cessation services for pregnant women. In 2011, cost-sharing for proven preventive services will be eliminated in Medicare and Medicaid. Medicare payments for certain preventive services will be increased to 100 percent of payment schedule rates (that is, co-payments will be eliminated), and incentives will be available to encourage Medicare and Medicaid beneficiaries to complete behavior modification programs.

In the private sector, beginning in 2010, health plans will be required to provide a minimum level of coverage without cost-sharing for preventive services such as immunizations, preventive care for infants, children and adolescents, and additional preventive care and screenings for women.

Medicare prescription drug coverage

Medicare patients whose prescription expenses reach the so-called Medicare Part D coverage “doughnut hole” ($2,700 to $6,150) in 2010 will receive a $250 rebate. During the next 10 years, the beneficiary co-insurance rate for this coverage gap will be narrowed in phases from the current 100 percent to 25 percent in 2020.

Electronic prescriptions reduce errors sevenfold

Clinicians using an electronic system to write prescriptions were seven times less likely to make errors than those writing prescriptions by hand.

To evaluate the effects of e-prescribing on medication safety, researchers looked at prescriptions written by clinicians at 12 community practices in the Hudson Valley region of New York. The authors compared the number and severity of prescription errors between 15 clinicians who adopted e-prescribing and 15 who continued to write prescriptions by hand. The study was published online Feb. 26 by the Journal of General Internal Medicine.

Researchers conducted a prospective, non-randomized study using pre-post design of 15 clinicians who adopted e-prescribing with concurrent controls of 15 paper-based clinicians from September 2005 through June 2007. Authors reviewed 3,684 paper-based prescriptions at the start of the study and 3,848 paper-based and electronic prescriptions at one year of follow-up.

For e-prescribing adopters, error rates decreased nearly sevenfold, from 42.5 per 100 prescriptions (95% CI, 36.7 to 49.3) at baseline to 6.6 per 100 prescriptions (95% CI, 5.1 to 8.3) one year after adoption (P<0.001). For non-adopters, error rates remained at 37.3 per 100 prescriptions (95% CI, 27.6 to 50.2) at baseline and 38.4 per 100 prescriptions (95% CI, 27.4 to 53.9) at one year (P=0.54). Examples included incomplete directions and prescribing a medication but omitting the quantity. A small number of errors were more serious, such as prescribing incorrect dosages. Although most errors would not seriously harm patients, they'd likely result in callbacks and lost time.

E-prescribing completely eliminated illegibility errors (87.6 per 100 prescriptions at baseline for e-prescribing adopters, 0 at one year).

All the practices that adopted e-prescribing received technical assistance from a health information technology service provider. The study noted that, without extensive technical support, it is difficult for practices to implement e-prescribing.

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