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State health reform runs into dose of reality

By Beth Hawkins | Thursday, April 17, 2008
Two bipartisan commissions, one handpicked by the governor, spent 10 months digging into the nitty-gritty plaguing health care in Minnesota. Their proposed reforms won broad support.

When policymakers call for the formation of a blue-ribbon committee, some read it as a politically palatable way to close the door on a thorny issue. Pity Gov. Tim Pawlenty, then, for appointing a group of experts last year to find a way to make health care in Minnesota more effective, affordable and accessible.

The problem? The two bipartisan commissions spent 10 months digging into the nitty-gritty plaguing health care in Minnesota and issued a series of recommendations that enjoy broad support from businesses, labor unions, health care providers and health insurance companies. In recent days, legislation based on the work passed the state Senate and House of Representatives and was handed to a conference committee for fine-tuning.

The reform’s creators say they can slash health care spending by 20 percent while increasing the quality of care. The plan will cut Minnesota’s uninsured rate in half by 2011, they say, provide coverage to 133,000 people, and reduce costs for middle-income families currently struggling to afford insurance.

Gov. Tim Pawlenty
Gov. Tim Pawlenty

To accomplish this, during the next three years state agencies need to spend some $270 million from the Health Care Access Fund — the same fund the governor proposes to use as part of his plan to erase Minnesota’s nearly $1 billion budget deficit.

All of which means Pawlenty may find himself in the dicey position of vetoing a reform he called for, crafted in part by his hand-picked allies, and supported by numerous members of his own Republican caucus.

"It seemed to meet the criteria the governor had," said Sen. Linda Berglin, DFL-Minneapolis, a driving force behind the reform effort. "That was how it seemed we agreed on it. Now we don’t agree on it."

Roots of reform started with eligibility question

The reform has its roots in a longstanding disagreement between Pawlenty and DFL lawmakers over who should qualify for state-sponsored health coverage. Since 1992, Minnesota hospitals and health care providers have paid a 2 percent tax into the Health Care Access Fund. The money is supposed to fund expanded care, primarily via MinnesotaCare, the state’s insurance program.

At Pawlenty’s request, in recent years lawmakers have increased eligibility guidelines for the program, restricting the number of people who qualify for coverage and, in turn, creating a surplus in the fund. Faced with a budget crisis for fiscal years 2004 and 2005, Pawlenty tapped the account to shore up Minnesota’s general fund. At the same time, thousands of people were bumped off MinnesotaCare — even though many were paying for coverage.

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Meanwhile, the number of uninsured continued to climb, even as Minnesota businesses began complaining to policymakers that the rising cost of insuring employees makes it impossible to compete in the global marketplace. Unchecked, Minnesota’s health care costs are projected to rise to $50 billion by 2013 — to put that in perspective, it’s $15 million more than the general fund.

At the close of last year’s session two brand-new panels, the Legislative Commission on Health Care Access (PDF) and the Governor’s Health Care Transformation Task Force, began holding hearings. In addition to representatives of various branches of state government, the task force included representatives from health plans, provider organizations, organized labor, the Mayo Clinic and large employers.

<strong>State Sen. Linda Berglin</strong>
State Sen. Linda Berglin

Task force members included Medica President and CEO Charles Fazio, General Mills Vice President of Corporate Communications Tom Forsythe, Minute Clinic CEO Michael Howe, Carlson Companies Vice President for Human Resources Charles Montreuil, and the Citizens League’s Sean Kershaw, among others.

“Business has figured out that without a major government public-policy role, this will not happen,” said Peter Benner, a former AFSCME health care negotiator and a member of the panel that crafted the reform.

Maureen Reed, the former medical director of HealthPartners and task force member, agrees. “The state that solves this will not only be the state that cares for its residents, it will be the state that will attract business,” she said.

78 pages of recommendations
The basic bargain, according to Berglin: To the extent it can be proved the quality of care is going up, and could produce savings to offset the cost, lawmakers could extend state coverage to more people. In February, the task force released 78 pages of detailed recommendations (PDF), which served as the basis of slightly different bills authored by Berglin and Reps. Paul Thissen, DFL-Minneapolis, and Tom Huntley, DFL-Duluth.

In late March, the Senate version passed by a two-thirds margin. Following hours of contentious debate, the House last week passed a somewhat narrowed version. A conference committee will iron out the differences before sending the measure to the governor.

Pawlenty could not be reached for comment, but late last month his spokesman told reporters he had never supported the bill and would consider vetoing it if lawmakers went ahead with planned votes.
DFLers, however, characterized the governor’s position as an about-face. Legislators worked around all of Pawlenty’s parameters, said Berglin.
Pawlenty praised the task force’s recommendations when they were released in early February, although he opposed provisions increasing the cigarette tax and requiring all Minnesotans to have insurance if parts of the scheme failed. (The bills’ authors removed the tobacco tax, and the universal insurance provision was trimmed from the House version.)

Two things underlie virtually all of the reform’s provisions. The first is that 80 percent of health care dollars are spent on just 20 percent of Minnesotans, many of whom suffer from chronic ailments such as heart disease and diabetes but can’t afford insurance. The second: Hospitals and clinics have no incentive to prevent illness in the first place because providers are paid per procedure.

Making sure the chronically ill get preventive care is a huge opportunity for savings, according to Reed. “Right now, as good as our clinics are in Minnesota, a person with diabetes has an 11 percent chance of getting the best care,” said Reed. “Imagine you owned an airline that flew to Phoenix. If people’s chances of getting to Phoenix were 11 percent, your airline would be out of business real quickly.”

To that end, the reform would create “health care homes,” clinics or doctors who would be paid a fee to coordinate care for people with expensive ongoing conditions. It also dedicates $100 million over three years to public health campaigns to lower rates of obesity, smoking, and alcohol and drug abuse.

Major overhaul proposed for paying providers

More significant, task force members say, are major changes in the way health care providers are paid. The details run on for pages, but the gist is that providers will decide on prices, which they will make public. This information will be juxtaposed against benchmarks evaluating the quality of the provider’s care.

Hospitals and clinics will bid to care for groups of patients; those whose scores suggest they deliver the best value will be reimbursed a premium. Patients who choose providers with lower scores will pay the difference. 

To critics, the plan smacks of “capitation,” an experiment in cost containment from the early 1990s. Doctors got a budget for each patient in their practice; whatever they didn’t spend by the end of the year they got to keep. The practice was largely abandoned when it became clear people didn’t get enough treatment.

State Rep. Tom Emmer
State Rep. Tom Emmer

Rep. Tom Emmer, R-Delano, takes it one step further, insisting the plan will lead to rationing. Consumers will no longer be able to choose procedures that aren’t deemed “clinically effective,” he warns. “How would you like to be that 65-year-old man from St. Cloud who needs a procedure they don’t think is effective?”

Task force members say the difference with this reform is that clinics and hospitals will have to estimate up front what they believe it will cost to care for a particular group of patients each year, but will still be paid for every procedure.

“Every time someone presents to the hospital, it’s a reimbursable event,” said Benner. “If the number of events exceeds [standards], the rate of reimbursement is lower.” Conversely, reimbursement will be higher for providers who manage to limit the amount of care patients need.

Safeguards to prevent gaming of system
Similarly, there are safeguards that Reed says will eliminate “cherry picking and lemon-dropping” — attempts to game the system by providing care only to healthy people.

According to state Department of Health calculations, the changes to the payment system could reduce health care spending by $2.3 billion by fiscal year 2011. Most of the savings created would go to subsidies to keep the cost of care for families below caps set out in the bill.

Minnesotans with incomes below 300 percent of federal poverty level, or $62,000 for a family of four, will spend no more than 6 percent of their gross income on care. Families below 400 percent, or $83,000 for four, will spend a maximum of 8 percent, or $6,700. Subsidies will be available both to people in state insurance programs and who are eligible for employer-subsidized coverage but can’t afford it on their own.

Emmer and other lawmakers who voted against the bill were critical of the eligibility guidelines, too. “A family earning $80,000 would qualify? That’s not what these programs were intended for,” he said. “It’s a huge step toward socialized medicine when you increase eligibility to 400 percent of poverty.

“All middle-class families should be competing in the marketplace,” he said.

The middle class can’t compete in the marketplace, Benner counters. “Ten or 20 years ago, the affordability issue was clearly not what it is today,” he said. “The affordability problem for ‘poor people’ was not one that affected working people or middle-class people. Clearly, that has changed.”

Minnesota isn’t the only state facing a health care crisis, noted Reed, the task force member and former HealthPartners medical director. But it could be the first to propose a solution that simultaneously addresses all three elements she says need reforming: cost, quality and affordability. “People are worried they can’t get the care they need,” she said, “and they’re worried that if they can get it, they can’t afford it.”

“The governor has said for some time it’s not OK to be spending this much on health care and have this range of outcomes,” Berglin added. “I’m not going to walk away just because he did.”

Beth Hawkins, a former reporter and editor for City Pages, can be reached at bhawkins [at] minnpost [dot] com.