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Cost Containment and the Patient Protection and Affordable Care Act. Innovation, Business & Law Colloquium: Health Care Reform Act David Orentlicher, MD, JD Visiting Professor of Law University of Iowa College of Law September 23, 2010. On one hand.

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Cost containment and the patient protection and affordable care act l.jpg

Cost Containment and the Patient Protection and Affordable Care Act

Innovation, Business & Law Colloquium:

Health Care Reform Act

David Orentlicher, MD, JD

Visiting Professor of Law

University of Iowa College of Law

September 23, 2010


On one hand l.jpg
On one hand Care Act

  • The legislation “puts into place virtually every cost-control reform proposed by physicians, economists, and health policy experts.”

    • Orszag & Emanuel (2010)


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On the other hand Care Act

  • "The job of figuring how to cover uninsured people used up all the political oxygen that was available. They didn't have the energy for costs."

    • Alan Sager, quoted by McClatchy-Tribune News Service, April 1, 2010


Cost containment l.jpg
Cost containment Care Act

  • Outline of today’s class

    • The cost problem

    • Is PPACA the solution?

    • If not, how else might we contain costs?

    • What constraints does the law place on cost containment strategies?


Cost containment5 l.jpg
Cost containment Care Act

  • Outline of today’s class

    • The cost problem

    • Is PPACA the solution?

    • If not, how else might we contain costs?

    • What constraints does the law place on cost containment strategies?


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The highest spending country Care Act

  • Health care spending in economically-advanced democracies

    US $7,290/capita 16% of GDP

    Switzerland 61% of US 67% of US

    Canada 53% of US 63% of US

    Germany 49% of US 65% of US

    Japan 35% of US 51% of US

    New Zealand 34% of US 57% of US

    • OECD Health Data 2009 (2007 data except 2006 for Japan)



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Total expenditure as % GDP Care Act

OECD, 2006


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The cost problem Care Act

What do we get for our money?


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Inadequate return on our health care $ Care Act

  • US health system is less efficient than systems in:

    • Spain, France, Germany, Austria, Italy

    • UK, Denmark, Norway

    • Japan, China, Australia

    • Canada, Mexico, Colombia, Venezuela

      • Evans, et al. 2001

  • US patients treated in higher-cost communities have similar outcomes to US patients in lower-cost communities

    • Gawande 2009



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Total Care Actpreventable years of life lost per 100,000 pop.

OECD, 2006


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Quality of care Care Act

  • Breast cancer, 5-year survival rate

    • US-90.5%, Canada-87.1%, Japan-86.1%, France-82.8%, UK -77.9%

  • Colon cancer, 5-year survival rate

    • Japan-67.3%, US-65.5%, Canada-60.7%, France-57.1%, UK-50.7%

  • Asthma hospitalization rate (per 100,000 pop.)

    • US-120, UK-75, Japan-58, France-43, Canada-18

  • Diabetes hospitalization rate (per 100,000 pop.)

    • US-57, UK-32, Canada-23, Germany-14, Italy-11


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Inadequate return on our health care $ Care Act

Not because we’re less healthy


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% of pop. daily tobacco smokers Care Act

OECD, 2006



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% of pop. 65 years or older Care Act

OECD, 2006


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% of pop. 19 years or younger Care Act

OECD, 2006


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Obesity rates Care Act


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Overall effect of health status Care Act

  • Americans overall are less healthy, but this is only a small part of our higher health care costs

    • McKinsey & Company study found that “disease burden” adds $25 billion in health care costs for treatment of disease (out of $2.5 trillion in health care spending)



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Higher prices in US Care Act

  • Costs are higher in US in large part because prices for health care services are higher

    • Single-payer systems can bargain more effectively with doctors, hospitals and pharmaceutical companies

      • Can also have enforceable spending targets via “all-payer regulation” (Oberlander and White 2009)

    • Higher ratio of specialists to primary care physicians in US

      • Probably reflects high ratio of specialist pay to primary care pay (Vladeck 2010)

      • High costs of medical education also may be important (Peterson and Burton 2007)


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Greater use of surgical procedures and expensive diagnostic tests

  • More procedures to treat blocked coronary arteries (twice OECD avg.), more knee replacements (50% above OCED avg.), and more cesarean sections (25% above OECD avg.)

    • Increase in outpatient surgery centers very important

  • More MRI exams (more than twice OECD avg.) and more CT exams (more than twice OECD avg.)

    • OECD Health Data 2009 and Peterson and Burton 2007


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Structural contributors to high costs tests

  • Insurance => Price-insensitive consumers

    • If treatment costs $100 and yields a “value” of $75, it shouldn’t be provided—but if the patient only pays $25 and receives the $75 value, it will be worth it to the patient

    • Americans pay more total dollars out of pocket, but we generally pay a smaller percentage of our health care costs out of pocket (i.e., through deductibles and co-payments) (premium payments are not included)

      • France-8%, US-13%, Germany-13%, Canada-15%, Japan-17%, Switzerland-32% (Peterson and Burton 2007)


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Structural contributors to high costs tests

  • Fee-for-service reimbursement => Quality-insensitive physicians and hospitals

    • When physicians and hospitals are paid more to do more, regardless of outcome, they’ll do more

      • Especially when they lose money on higher quality care (Urbina 2006)

    • Example of clinic that switched from salary to commission on fees generated and doctors scheduled more appointments and ordered more blood tests and x-rays (Hemenway 1990)


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Cost containment tests

  • Outline of today’s class

    • The cost problem

    • Is PPACA the solution?

    • If not, how else might we contain costs?

    • What constraints does the law place on cost containment strategies?


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PPACA and cost control tests

Many different provisions designed to contain costs

Serious question whether they really address the cost problem—PPACA doesn’t take on the major drivers of higher costs other than to some extent through demonstration projects


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Permanent reductions in Medicare reimbursement rates tests(§ 3401)

  • Applies to hospitals, nursing homes and other facilities

  • Every year, payment rates are adjusted to reflect increases in the operating costs of health care facilities

    • The increases have been calculated from a “market basket” of goods and services that the facilities purchase (with reductions for failure to file quality data and other “technical” adjustments)

    • Under PPACA, a productivity adjustment will be made based on economy-wide productivity gains (which are greater than in health care)—there also will be a ten-year further reduction in the update percentage (0.10 to 0.75 percent per year)

  • Estimated savings = $196 billion


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Permanent reductions in Medicare reimbursement rates tests(§ 3401)

Note that PPACA provisions reflect a mix of policy and politics—see the annual reductions in update percentages:

2010 0.25% 2015 0.20%

2011 0.25% 2016 0.20%

2012 0.10% 2017 0.75%

2013 0.10% 2018 0.75%

2014 0.30% 2019 0.75%

After 2019, IMAB recommendations due to kick in


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Reduction in payment rates for testsMedicare Advantage program (§ 3201)

Medicare Advantage is an option for Medicare recipients to enroll in a private health care plan rather than choosing traditional, fee-for-service Medicare (Part C of Medicare)

While the idea was to provide a more-efficient, lower-cost option, Medicare Advantage plans have turned out to be more expensive (up to 150% of traditional Medicare)

The low-hanging fruit of cost savings

Estimated savings = $135 billion


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Part B Medicare premium calculation for high-income recipients (§ 3402)

Part B of Medicare covers physician fees, laboratory fees and other outpatient services

Most Medicare recipients pay 25 percent of the Part B premium; currently, higher income recipients pay between 35 and 80 percent of the Part B premium.

PPACA freezes the income thresholds for higher-income premiums at 2010 levels for ten years before resuming annual adjustments for inflation.

Estimated savings = $25 billion


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Reduction in disproportionate share hospital (DSH) payments (§ 3133 )

DSH payments are made to hospitals that treat a disproportionate share of low-income patients

Originally introduced to compensate hospitals for higher costs of treating low-income patients; now justified as a way to maintain access to care for low-income patients

Estimated savings = $22 billion


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Independent Medicare Advisory Board (IMAB) ( (§ 3403)

  • IMAB will develop proposals to keep Medicare spending within statutory targets, and proposals will automatically take effect unless Congress adopts substitute provisions

    • Proposals may not ration health care, raise costs to recipients, restrict benefits or modify eligibility criteria

    • IMAB also will provide Congress with recommendations for slowing the growth of health care spending in the private sector.

  • Estimated savings = $16 billion by 2020, more substantial after that (assuming it works)


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Independent Medicare Advisory Board (IMAB) ( (§ 3403)

  • Concerns about IMAB

    • Will IMAB focus on short-term fixes rather than long-term changes that really can “bend the cost curve?”

    • Will Congress bypass the IMAB process and authorize increases in funding through independent legislation?

    • Are the limitations on the kinds of proposals that IMAB can develop too restrictive?

    • Will cuts in reimbursement reduce patient access to physicians?


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Patient-Centered Outcomes (Research Institute (§ 6301)

  • Created to promote comparative-effectiveness research (CER)

    • Research that evaluates and compares the patient health outcomes and benefits of two or more medical treatments or services

  • Responsibilities include

    • Setting priorities for CER and funding CER studies

    • Analyzing data from CER studies and reporting to the public on the significance of the study results


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Patient-Centered Outcomes (Research Institute (§ 6301)

  • The Institute may not recommend coverage changes or other policies based on its analyses, but

  • Medicare and Medicaid may consider the Institute’s analyses in determining coverage policies as long as:

    • No denial of coverage “solely on the basis of” CER

    • Coverage decisions do not treat the lives of elderly, disabled or terminally ill individuals as having lower value


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Can the CER institute become our NICE? (

  • NICE evaluates the cost-effectiveness of medical therapies and approves those that are sufficiently cost-effective for Britain’s National Health Service

    • Treatments are cost-effective if they provide 1 QALY for no more than £20,000 (now $31,250)

    • Sometime, NICE approves treatments up to £30,000 ($46,900) per QALY

    • Rarely, NICE approves treatments beyond £30,000 per QALY

  • NICE has approval authority, while the CER institute can only issue reports


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What’s a “good” buy? (

“Expensive” more than $100,000/QALY

“Reasonable” $50,000/QALY

(UK upper limit ~ $47,000)

“Very Efficient” less than $25,000/QALY

Most writers use $50-100,000 as upper limit of good value, but public preferences suggest upper limit over $200,000.

Hirth RA, et al., Medical Decision Making. 2000;20:332-342


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Some sample QALYs (2002 dollars) (Harvard Public Health Review (Fall 2004)

  • < $0 (If the cost per QALY is less than zero, the intervention actually saves money)Flu vaccine for the elderly

  • Under $10,000Beta-blocker drugs post-heart attack in high-risk patients

  • $10,000 to $20,000Combination antiretroviral therapy for certain patients infected with the AIDS virus

  • $15,000 to $20,000

    Colonoscopy every five to 10 years for women age 50 and up

  • $20,000 to $50,000Antihypertensive medications in adults age 35-64 with high blood pressure but no coronary heart disease

    Lung transplant in UK (Anyanwu AC et al.J ThoracCardiovascSurg2002;123:411-420)

  • $50,000-$100,000Dialysis for patients with end-stage kidney disease

    Antibiotic prophylaxis during dental procedures for persons at moderate to high risk of bacterial endocarditis ($88,000) (Med Decis Making. 2005;25(3):308-20)

  • Over $500,000CT and MRI scans for kids with headache and an intermediate risk of brain tumor


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Condition/Treatment (

Cost per QALY

Treatment for Erectile Dysfunction

$6,400/QALY

*Physician Counseling for Smoking

$7,200/QALY

Total Hip Replacement

$9,900/QALY

*Outreach for Flu and Pneumonia

$13,000/QALY

Treatment of Major Depression

$20,000/QALY

Gastric Bypass Surgery

$20,000/QALY

Treatment for Osteoporosis

$38,000/QALY

*Screening For Colon Cancer

$40,000/QALY

Implantable Cardioverter Defibrillator

$75,000/QALY

Lung-Volume Reduction Surgery

$98,000/QALY

Tight Control of Diabetes

$154,000/QALY

*Treating Elevated Cholesterol ( + 1 risk factor)

$200,000/QALY

Resuscitation After Cardiac Arrest

$270,000/QALY

Left Ventricular Assist Device

$900,000/QALY

COST/QALY: Selected Medicare services


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Cost of treatment for metastatic colon cancer ((Schrag D. NEJM. 2004;351:317-319)


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Examining the cost and cost-effectiveness of adding bevacizumab (Avastin) to chemo in metastatic colon cancer

  • Randomized trial compared chemotherapy alone vs. chemotherapy + bevacizumab

  • Bevacizumab regimen prolonged median survival from 15.6 to 20.3 months (p<0.001)

  • Cost of extra 4.7 months?

    • $101,500 (assuming $5,000 per month for bevacizumab)

    • $259,149 per year of life gained (not quality adjusted)

      • NICE decided not to recommend for NHS coverage


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Examining the cost and cost-effectiveness of adding bevacizumab (Avastin) to chemo in advanced non-small cell lung cancer

  • Randomized trial compared chemotherapy alone vs. chemotherapy + bevacizumab

  • Bevacizumab regimen prolonged median survival from 10.2 to 12.5 months (p=0.007)

  • Cost of extra 2.3 months?

    • $66,270-$80,343

    • $345,762 per year of life gained (assuming $66,270 cost)

      • Grusenmeyer PA, Gralla RJ. J. Clin. Oncology. 2006;24(18S):6057.


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Can the CER institute become our NICE? bevacizumab (Avastin) to chemo in advanced non-small cell lung cancer

  • Cost-effectiveness decisions are controversial

    • Prohibited under PPACA from being used as sole basis for denying coverage in federal programs (§6301)

    • Oregon Health Care Plan

      • Ended up with fairly generous “basic” coverage

    • Mammography screening guidelines in 2009 (even though cost wasn’t a factor)

      • US Preventive Services Task Force recommended that routine screening begin at age 50 instead of age 40

    • The “tragic choices” problem (Orentlicher 2010)

      • It’s difficult to make life-and-death decisions openly


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PPACA demonstration projects bevacizumab (Avastin) to chemo in advanced non-small cell lung cancer

  • Bundled payments for hospital care and for the month following discharge (capitation lite) (§2704 and §3023)

  • Capitation payments instead of fee-for-service reimbursement (§2705)

  • Incentives for doctors and hospitals to form accountable care organizations (financial rewards for higher quality and/or lower cost care) (§2706 and §3022)

    • Will integrated systems exploit market power to maintain revenues rather than to introduce efficiencies and reduce costs?


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Quality-adjusted payments under PPACA bevacizumab (Avastin) to chemo in advanced non-small cell lung cancer

Incentive payments to hospitals that meet specified performance standards (§3001)

Adjustments to physician reimbursement based on quality and cost of care provided (§3001)

Expansion of reports to physicians that indicate how their use of resources in patient care compares to use by other physicians (§3003)

Lower payments to hospitals with high numbers of patients who become sicker because of their hospital care (§3008)

Lower payments to hospitals that have excessive numbers of patients readmitted to the hospital after discharge (§3025)


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Quality-adjusted payments bevacizumab (Avastin) to chemo in advanced non-small cell lung cancer

  • Pay for performance so far has a mixed track record

    • It’s difficult to assess quality of care—did a patient do well because of or despite the doctor’s intervention?

    • Often, process-based measures are used, but those need continual updating

    • Impact has been modest to date


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Tax on high-cost health plans ( bevacizumab (Avastin) to chemo in advanced non-small cell lung cancer§9001)

Starts in 2018

Imposes a 40 percent tax to the extent that the value of coverage exceeds a threshold amount

The threshold starts at $10,200 for individuals and $27,500 for families (which is about double the average cost for health care coverage)

The threshold amount is adjusted upward for health care cost inflation and higher costs of the individual’s risk pool

Estimated revenues = $32 billion in 2018 and 2019


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Concerns about the “Cadillac” tax bevacizumab (Avastin) to chemo in advanced non-small cell lung cancer

  • High costs of high-cost health plans may reflect health status of the workforce and health care costs of the community rather than the richness of the benefits

    • Gabel, et al. 2010

  • Reducing tax subsidies for health care insurance may have a regressive effect (i.e., the higher taxes may represent a higher percentage of income for lower-income persons)

    • Himmelstein & Woolhandler 2009; Gabel, et al. 2010


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The bottom line under PPACA bevacizumab (Avastin) to chemo in advanced non-small cell lung cancer

  • Between 2009 and 2019, health care spending is projected to increase 0.2% as a result of PPACA

  • But—

    • Health care coverage is projected to increase by 32.5 million

    • After the big increase in spending in 2014 for the newly insured, health care spending is projected to grow by 6.7% rather than 6.8% between 2015 and 2019

      • Sisko, et al. 2010

  • Of course, these are projections that may or may not come to fruition


Cost containment52 l.jpg
Cost containment bevacizumab (Avastin) to chemo in advanced non-small cell lung cancer

  • Outline of today’s class

    • The cost problem

    • Is PPACA the solution?

    • If not, how else might we contain costs?

    • What constraints does the law place on cost containment strategies?


Cost containment strategies l.jpg
Cost containment strategies bevacizumab (Avastin) to chemo in advanced non-small cell lung cancer

  • If main drivers of high costs are physician incentives to provide excessive care and patient incentives to demand excessive care, we should employ policy changes to remove these incentives

  • Changes in physician incentives

    • Salary or capitation for physicians (combined with quality measures to avoid under-provision of care)—could increase physician pay and still lower overall costs

      • Capitation would address problem of too many prescriptions for expensive drugs—CER institute important here too

    • Limits on hospital beds, surgical suites, MRI scanners and other facilities


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Financial incentives for patients? bevacizumab (Avastin) to chemo in advanced non-small cell lung cancer

  • If people are not sufficiently sensitive to costs because of insurance, should we use health savings accounts or other mechanisms to give patients more skin in the game?

    • Raising out-of-pocket costs reduces patient demand for care, but

      • Patients do not always distinguish between necessary and unnecessary care

      • Caps on out-of-pocket costs prevent patient sensitivity to costs of high-cost services (e.g., heart surgery, cancer chemotherapy)

        • Buntin et al. 2006


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VA Reengineering Strategy bevacizumab (Avastin) to chemo in advanced non-small cell lung cancer

  • Define and set practice standards that have been shown to result in better patient outcomes (including elimination of wasteful hospital and pharmacy spending)

  • Monitor performance and measure outcomes (with both internal and external oversight)

  • Reward good performance and manage under-performance

  • Optimize use of technology (electronic records, reminders)

  • Promote patient safety initiatives to reduce medical error


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Cost containment bevacizumab (Avastin) to chemo in advanced non-small cell lung cancer

  • Outline of today’s class

    • The cost problem

    • Is PPACA the solution?

    • If not, how else might we contain costs?

    • What constraints does the law place on cost containment strategies?


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Legal constraints on cost bevacizumab (Avastin) to chemo in advanced non-small cell lung cancercontainment strategies

  • Legal constraints may exist when physicians make decisions on the basis of costs on a case-by-case basis (as with the closure of ICU beds in the Singer study) and take the patient’s poor prognosis into account—the disparate treatment problem

    • University Hospital, Glanz, Baby K, and Causey

  • Legal constraints also may exist when cost containment policies are adopted that have a greater effect on persons who are sicker—the disparate impact problem

    • Alexander


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Protection for the disabled against discrimination--disparate treatment

  • In University Hospital , doctors and parents decided against surgery for a newborn thought to have a severe and permanent neurologic disability

    • The US argued that this involved discrimination on the basis of disability (in violation of §504 of the Rehabilitation Act)—other children with normal neurologic development would have received the surgery

    • But what’s the relevant comparison? You have to treat similar people similarly, but you don’t have to treat different people similarly. In other words, was the withholding of surgery based on relevant or irrelevant differences between Baby Jane Doe and other infants?


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Protection for the disabled against discrimination--disparate treatment

  • The University Hospital court rejected the §504 claim on three grounds:

    • Congress did not intend §504 to apply to medical treatment decisions (pp.136-137 of HCLE excerpt)

    • The problem that was being treated was related to the disabling condition—the disability gave rise to the need for treatment—thus, the disability was not an irrelevant factor (pp.135-136 of HCLE excerpt)

    • The hospital was willing to perform the surgery if the parents agreed (p.137 of HCLE excerpt)


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Protection for the disabled against discrimination--disparate treatment

  • Glanz took a different--and more sensible--approach to the §504 question than did University Hospital.

    • In Glanz, a doctor refused to perform ear surgery on a patient because of an HIV infection, which was the patient’s disabling condition.

    • According to the doctor, the disability compromised the patient’s ability to benefit from treatment—the HIV infection raised the patient’s risk of infection from the surgery

  • According to the court, ability to benefit from treatment was a relevant consideration—leaving the question open as to how much of a consideration


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Protection for the disabled against discrimination--disparate treatment

Baby K and Causey illustrate concerns that discriminatory treatment decisions may arise under the guise of “futility” claims by doctors or hospitals

In a futility case, the doctor or hospital argues that there is insufficient benefit from treatment for the patient (medicine has nothing to offer)

But in many cases, the real concern is the costs of care


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Protection for the disabled against discrimination--disparate treatment

  • In Baby K, a hospital did not want to ventilate an anencephalic child (but it was willing to provide artificial nutrition and hydration to the child)

    • The court invoked EMTALA which requires stabilizing treatment in all emergencies

    • The court observed that the hospital would have ventilated other children with similar breathing difficulties

      • Note the contrast with University Hospital—Baby K’s breathing difficulties were related to her anencephaly just as Baby Jane Doe’s need for surgery was related to her disability


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Protection for the disabled against discrimination--disparate treatment

  • In Causey, a hospital withdrew dialysis and ventilation from a comatose woman with a 1-5% chance of regaining consciousness and a life expectancy of up to two years.

    • The court rejected the concept of futility on the ground that it entails non-medical, value judgments

    • Rather, the court held that doctors can withhold treatment when it is not part of the medical profession’s standard of care (p.632 of HCLE excerpt)

      • Note the contrast with the Baby K court, which rejected a defense based on the professional standard of care


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Protection for the disabled against discrimination--disparate treatment

  • Putting all of the cases together, we end up with a majority of courts deferring to medical judgment, especially if there is evidence that the decision is based on the patient’s diminished ability to benefit from treatment (Glanz)

    • Also, courts are more deferential when hospitals implement decisions and are then sued rather than asking the court to approve the denial of care in advance


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Protection for the disabled against discrimination--disparate impact

  • Alexander gave a green light to across-the-board coverage restrictions that have a disparate impact on persons with disabilities

    • In Alexander, Tennessee capped hospitalization for Medicaid recipients at 14 days per year

    • Disparate impact because only 7.8% of non-disabled persons who were hospitalized needed more than 14 days, while 27.4% of disabled persons who were hospitalized needed more than 14 days

    • Plaintiffs argued that the disparate impact was gratuitous—only ten states imposed such limits


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Protection for the disabled against discrimination--disparate impact

  • The Supreme Court held (in a unanimous decision authored by Justice Thurgood Marshall) that

    • §504 protects against some instances of disparate impact discrimination

    • Persons with disabilities must be provided “meaningful access” to the services offered

    • Tennessee’s durational limit provides meaningful access—14 days of hospitalization is sufficient for 95% of disabled recipients of Medicaid

    • Court greatly concerned with administrative burden and feasibility of requiring Medicaid to avoid disparate impacts


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Protection for the disabled against discrimination--disparate impact

  • After Alexander, it’s difficult to imagine successful challenges to cost containment strategies on the basis of their disparate impacts

    • Especially if meaningful access is interpreted with respect to health care generally rather than the specific health care service (e.g., cancer chemotherapy if coverage for a very expensive drug is denied)


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Legal constraints on cost containment discrimination--disparate impact

The case law indicates that political constraints are much more important than legal constraints


What is a qaly l.jpg

Major stroke discrimination--disparate impact

Recurrent stroke

Studying for a law school exam

What is a QALY?

0

1

Perfect

health

Dead


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OECD discrimination--disparate impact

  • Organisation for Economic Co-operation and Development (www.oecd.org). The 33 member countries include:

    • U.S., Canada, Mexico, Chile

    • Denmark, Norway, Sweden, Finland

    • U.K., France, Germany, Netherlands, Switzerland

    • Portugal, Spain, Italy, Greece, Turkey, Israel

    • Hungary, Czech Republic, Slovak Republic, Slovenia, Poland

    • Japan, Korea

    • Australia, New Zealand


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