Avalere Health CEO Dan Mendelson discusses election’s impact on health reform (transcript)

This is the transcript of my recent podcast interview with Avalere Health's Dan Mendelson.David Williams: This is David E. Williams cofounder of MedPharma Partners and author of the Health Business Blog.  I’m speaking today with Dan Mendelson.  He is President and CEO of Avalere Health, a health care business and policy advisory firm.Dan, thanks for your time today.Dan Mendelson:            My pleasure.Williams:            We’re speaking right after the mid-term elections.  How might the election change the course of health reform?Mendelson:            I think it’s going to have a really fundamental effect on the formation of regulations, which is really where health reform is getting done, as well as on the ability of the Republicans to message about the potential for repeal. It’s going to very fundamentally alter the course of reform over the next couple of years.Williams:            You talked about the Republicans messaging about repeal.  There’s certainly been discussion about repeal or “repeal and replace.”  What does that actually mean and is that going to translate into something real after Election Day?Mendelson:            A full-out complete repeal of the law is not realistic and is not going to happen. No one is talking about rescinding the provision of health insurance for 16 million people who are under 133 percent of the poverty level. That is a reality that the Republicans are going to have to understand and come to terms with at some point.Having said that, there is also nobody talking about repealing the various payment cuts that the provider organizations and managed care and the pharmaceutical industry are having to endure over these couple of years.On the flip side there are many provisions of reform that are extremely unpopular with the American people.  First and foremost is the mandate. The mandate has very strong disapproval ratings in national polling. It was even brought up in a couple of ballot initiatives and treated very unfavorably there. So,  these are some of the elements that could be targeted in a more surgical approach to repeal if the House leadership decides it wants to go down that route.Williams:            Critics of health care reform say it is too expensive and also complain about specific provisions like the individual mandate. But if I understand it right, provisions like the mandate are intended to help keep net costs down.Mendelson:            You’re right.  The mandate is the linchpin of the entire bill.  If you get rid of the mandate, the risk pools fall apart, and there are extreme problems. But from a rhetorical standpoint, it’s probably the piece that’s going to make the moderate Democrats in the Senate most uncomfortable voting against if it’s voted on as a separate measure.A broad scale repeal bill is an easier bill to vote against for a moderate Senate Democrat because of the fact that PPACA provides insurance to a lot of low-income individuals.  It has what is, in essence, deficit reduction through having more offsets than it spends.  So, it makes things a lot more complicated.That’s one of the difficult choices that the House leadership is going to face.  The other thing that I would point out is that scoring in the Congressional context is very ephemeral.  You have to understand how the Congressional Budget Office (CBO) is going to think about the scoring of any given provision. The House leadership is going to have to go through multiple iterations with the CBO to make sure that the bills it puts forward do not actually score with a cost, which they will not want from a rhetorical standpoint.Williams:            Shifting away from the very simplistic idea about repealing unpopular things like a mandate or the whole bill, you talked up front about the election having a fundamental effect on the regulations. That’s actually where the wonkish details are being thrashed out and where the real ground battle is going on.  Can you talk a little bit about that?Mendelson:            The most important thing to understand here is that split government entails compromise. When I was in government in the Clinton Administration we had a Democratic Administration and a Republican Congress. The House and the Senate would engage on all regulations that were of interest to them.They would do that through appropriations. In essence, riders would be put on appropriations dictating that the government would not be funded unless we did certain things. In other cases, they engaged on a more casual basis by having important moderate members of Congress call up and engage directly.In the regulations around the Children’s Health Insurance Program and many other programs, regulations were crafted in this way, which was in essence a bipartisan way of doing business.  The Democrats had the pen, but the Republicans were writing the checks. That’s the balance of power as it’s defined and that’s the situation that we’re moving into right now, which does give the Republicans some measure of leverage.The other point of leverage is that the Republicans can now hold hearings. In addition, the Energy and Commerce Committee also has subpoena powers, so if they don’t like what’s going on they can ask political appointees and others to appear at hearings and issue subpoenas for information if they’re having trouble getting what they want.Williams:            You describe the efforts in the Clinton administration as being bipartisan, which implies some degree of cooperation, even though that was a time of impeachment and other nastiness. But have things changed now?  Is it possible to have a bipartisan effort or is it going to be a more like “lawfare” with opponents simply trying to sabotage the bill?Mendelson:            It is a much more fractious environment.  My guess is that the Republican leadership will want to have its cake and eat it too.  In other words, it will want to engage on the regulations and shape them.  It will do so through the appropriations process on the one hand and, then, on the other hand, it will be positioning for the 2012 election through legislation that is unlikely to get passed. In a nutshell, that’s what we’re going to be facing over the next couple of years.Williams:            I saw something yesterday on the New Republic website that said Obama was actually pretty calm through all of this.  How does he have to be thinking?  What are his opportunities to maneuver here?Mendelson:            He has a major decision to make, which is whether he wants to give anything on reform. I could see a rational course of action where he would give a little bit in order to show there is somebody listening. There are some provisions of the law that are truly onerous that frankly he didn’t want to have in the bill to begin with. One example is the provision that requires businesses to report expenses; those are items that could very easily be put up as a compromise.He could also decide to be a little bit more expansive, to make some kind of compromise on medical malpractice or one of the other issues that is of great concern to the Republicans.  So, there are places that he can go to offer up some compromise without fundamentally throwing away the most important provisions of the bill. But he will have to calibrate and figure out how far he would want to go on that.Another option is to stick with what he passed in the first place and say that it doesn’t hold together unless the whole thing is preserved. He could push in a really aggressive and partisan way down that path. That’s why he was elected and he gets paid the big bucks while the rest of us get to speculate on what he’s thinking.I don’t know which path he’ll choose.Williams:            Since health reform was passed, businesses have had at least some certainty on where things were headed and could plan for implementation, whether or not they agreed with the law.How do the election results change how the various stakeholders have to think about what they do?  Does it put everything on hold?  Do they continue along as they were?  What should people do?Mendelson:            Everyone looking at this understands that the reform effort is not going to be repealed completely because of the fact that the President has the veto.  Anything that goes above or below the line that is defined by the President --whether it’s an absolute line or more of a relativistic line-- is going to get vetoed.I think it is fair to say that most of those providing services in the Medicaid space are continuing along under the assumption that people under 133 percent of the poverty level are going to be covered.  I think it’s also fair to say that pharmaceutical companies, medical device manufacturers and others are going to proceed under the assumption that they’re going to have to pay the taxes that were assessed by the Congress.The place where there is a fair amount of uncertainty is in the exchanges and the mandate. Reasonable observers are caveating that a little bit, both as a result of the lawsuits and the increased leverage of the US Congress.There are a couple other trends that are furthered by reform that are proceeding rapidly and not going to be interrupted.  For example, I do expect that the Center for Medicare and Medicaid Innovation is going to continue aggressively down pathways to fund Accountable Care Organizations and other types of delivery system reform that can save money for the Medicare program. That has to be bipartisan and I expect it to be bipartisan.  Likewise, evidence generation and the whole focus on getting information to providers and consumers about what works and what doesn’t work in medical technology, I also expect that to be bipartisan and to continue.So, most of what is set in motion by reform will continue. There is probably the least amount of certainty in the area of what happens to higher income people who are mandated to purchase insurance under the exchange.Williams:            Another thing that’s been going on is periodic automatic cuts in Medicare reimbursement for physicians. Another big cut is due to go into effect in December, which is something the lame duck Congress might act on.  Can you give me a perspective on what’s going to happen in the near term and over the next couple years?Mendelson:            This has been a perennial problem. There is a trigger in the bill that will reduce physician payments if the volume goes above a certain standard. As a result, there have been proposed payment reductions pretty much every year. And every year the physicians have to come in and lobby against those payment reductions. Every year it goes down to the wire. And every year, by force of outstanding lobbying, as well as probably a few campaign contributions, the execution is stayed and payment returns back to level.The problem is that fixing this payment irregularity is hugely expensive.  The problem originates from the 1997 Balanced Budget Act, and fixing it is not something that has been palatable to prior Administrations and I don’t think it’s going to be palatable in this environment either.  You’re talking about an environment now where, if anything, cost control is more important.  So, they are going to be unwilling or reluctant to take on things that are expensive without offsetting the costs, and it’s hard to find those offsets.So at this point I would expect to see more of the same, but perhaps even in less extended intervals where the payment reductions are just stayed on a three month or six month basis and the physicians have to come back in and lobby.This frankly saddens me a lot. The physicians have had to spend so much time dealing with this financial problem that they have not been able to deploy their resources to focus on more important things like quality, changing the payment system, and devising a more sustainable model for how physicians should be employed in the Medicare system.  It’s unfortunate that they’ve been pushed into this defensive posture.Williams:            I’ve been speaking about the mid-term elections with Dan Mendelson, president and CEO of Avalere Health. Dan, thanks for your time.Mendelson:            It’s my pleasure.