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MCARE abatement stuck in stalemate

POS President Jon B. Tucker, M.D.
POS President Jon B. Tucker, M.D.

By Jeffrey Barg

This is shaping up to be a pivotal year in the political struggle for health care in Pennsylvania. Two separate measures designed to facilitate Pennsylvanians’ access to health care have been tied together in what has been described alternatively as blackmail, coalition building, and just plain fairness. Whatever the description and however this political brinksmanship eventually turns out, the connection of medical liability premium subsidies to health insurance expansion has led to a political impasse, which could cost Pa. health care providers billions of dollars over the next ten years and severely impair efforts to recruit physicians to the state for years to come.

We examine how we arrived at this impasse and the prospects for getting out of it.

CAP Funding Quandary

At the start of Gov. Ed Rendell’s second term in January 2007, he proposed a comprehensive package of health reforms under the title of “Prescription for Pennsylvania.” The various proposals that required new legislation were put into a single bill, House Bill 700. With different stakeholders and interest groups opposing different parts of the legislation, HB 700 was divided into separate pieces of legislation, some of which had enough support to gain passage, while other parts remained embroiled in political conflict. Rendell’s universal health insurance proposal called Cover All Pennsylvanians (CAP) faced substantial opposition.

At the center of CAP was state-supported, affordable basic health insurance for uninsured adults and small businesses offered through private insurance companies. The coverage would be subsidized for Pennsylvanians earning less than 300 percent of the federal poverty level; those earning over 300 percent of poverty could purchase CAP at cost. Employers that had not provided coverage for their employees could buy into CAP if they have 50 or fewer employers and if these employees earned less than the state average wage. Employers that did not offer health coverage would be assessed a three percent payroll tax.

The three percent employer tax was opposed by business groups and legislators who told Rendell that they could not pass it, according to Rosemarie B. Greco, director of the Governor’s Office of Health Care Reform. In November, 2007, Rendell proposed four alternative funding approaches to the legislature as a means to break the impasse.

Retention Account Surplus

Up until this point, legislation to continue the MCARE (Medical Care Availability and Reduction of Error) abatement, a medical liability insurance subsidy for physicians and other health care providers, was moving on a totally separate track. Funded primarily by a 25-cents-per-pack tax increase on cigarettes and 10 cents per automobile ticket, the abatement has provided nearly $1 billion in MCARE payment relief to Pennsylvania health care providers since 2003. The MCARE Abatement Program was established in 2004 to cover 2003 and 2004. The program was then extended one year at a time for 2005, 2006 and 2007.

The 25-cents-per-pack tax revenue and 10 cents per automobile ticket is dedicated to the Health Care Provider Retention Account. The account is used to make up for shortages in the MCARE Fund due to abatement of MCARE surcharges that would otherwise have been made by Pa. physicians and other providers. Because MCARE payouts in malpractice lawsuits declined by 50 percent over the past five years, a $440 million surplus developed in the Retention Account.

A contest between physicians and hospitals was waged in the Republican-controlled Senate in October of 2007 over how to spend the Retention Account surplus. The Pennsylvania Orthopaedic Society lobbied to have the surplus dedicated entirely to retiring the $2 billion unfunded MCARE Fund liability as part of legislation to extend the MCARE abatement to 2008. The hospitals won. On October 30th, the Senate approved a one-year extension of the MCARE abatement along with the following allocation of the Retention Account surplus: 50 percent for reducing the unfunded liability; 25 percent for reducing hospital-acquired infections; and 25 percent for funding electronic medical records.


With no resolution of the CAP funding query in sight, Rendell held a press conference on December 4th in which he proposed using half of the Retention Account surplus instead of the payroll tax as part of a funding package for CAP. In addition, cigarette taxes would be raised 10 cents a pack and smokeless tobacco and cigars would be taxed for the first time. If legislators failed to approve CAP, Rendell would prevent the MCARE abatement from being extended to 2008.

Rep. Scott Boyd (R-Lancaster) accused Rendell of “governing by blackmail,” reported the Pittsburgh Tribune Review. “Disrupting a program designed to retain and attract doctors is a very poor policy choice when we are deeply concerned about health care access and quality,” Sen. Gib Armstrong (R-Lancaster), chairman of the Senate Appropriations Committee, said in a statement.

In a December 21 letter to Pa. health care providers, Rendell argued that because of significant improvement in the state’s medical malpractice climate, there are sufficient funds in the Retention Account to continue the MCARE abatement program for an additional 10 years and provide significant funding for CAP. The letter noted that while health care providers would start receiving their MCARE assessments in the next few weeks, no payments would be due before March 31, 2008. With their help, the letter exhorts, the extension of the MCARE abatement and coverage for the uninsured could be secured before the due date.

PA ABC Replaces CAP

In March, the House Democrats amended Senate Bill 1137, the legislation extending the MCARE abatement that was approved in October by the Senate, with sweeteners for everyone. For physicians and other health care providers, not only would it extend the MCARE abatement for another year; it would gradually increase the abatement level to 100 percent for all physicians (it has been 50 percent for most physicians) and extended it for ten more years. It also would phase out the MCARE Fund altogether over ten years, gradually transferring all of physicians’ malpractice coverage to the private insurance market, and would dedicate state tax revenues to retiring its $1.8 billion unfunded liability.

The amendments to SB 1137 also included a scaled down version of CAP, now called Pennsylvania Access to Basic Care (PA ABC). Eligibility for state subsidized premiums was dropped from 300 percent to 200 percent of the federal poverty level. Under CAP, all uninsured adults earning over 300 percent of the federal poverty level could buy into the program at cost, whereas under PA ABC, only uninsured adults earning between 200 percent and 300 percent of poverty are permitted to buy-in, unless they meet certain other requirements such as a pre-existing condition that prevents them from gaining coverage otherwise.

The MCARE abatement provisions of the bill did not come without strings, however. In order to qualify for the abatement, providers must (1) accept patients within the PA ABC and CHIP programs; (2) pay all their state taxes; and (3) complete a course on drug economics.

The House passed the measure on March 17 with some Republican support. Rendell sent another letter to Pa. health care providers on March 27 extolling the virtues of the legislation and asking for their support in gaining passage in the Senate. He notes at the end of the letter that since the March 31 deadline will not be met, providers will now be required to pay their unabated MCARE assessments for 2008 and that they will get refunds if the legislation gains final adoption.

Last ditch efforts to pass a single-year abatement extension in the House failed, though it probably would have been vetoed by the governor even if it had passed. As March ended, physicians and other health care providers lost their MCARE abatement. The connection between MCARE abatement and efforts to extend health insurance to more Pennsylvanians became more than just political leverage; it became a costly, tangible reality.

Getting ABC Right

Physicians and hospitals have been working with the Rendell administration and legislators to improve SB 1137. The Pennsylvania Orthopaedic Society (POS) has been generally supportive of SB 1137, with orthopedic surgeons having more to lose than most other specialties if the abatement program ends. As POS President Jon B. Tucker, M.D., states in his April 23rd letter to Pa. senators: “Since 2003, Pennsylvania’s nearly 1000 orthopaedic surgeons have received nearly $112 million in MCARE abatement.” Later in the letter, Tucker diplomatically writes: “If the state government is intent on using MCARE surplus revenues for purposes other than abatement and retirement of the MCARE Fund, … POS prefers the legislation as passed by the House with certain reservations.” POS then requests the following amendments:

· Guarantee that state revenues are committed to provide abatement as well as annual MCARE Fund obligations (claims and operating expenses) before other programs receive funding.

· Provide that adequate funds are reserved to retire the MCARE Fund completely.

· Require health insurance contractors to compensate physicians at reimbursement rates that are fair and reasonable.

· Ensure that health insurance contractors promptly pay physician claims and that physicians actually receive any required co-payments from PA ABC participants.

While POS has accepted the connection between MCARE and the health insurance expansion, the Pennsylvania Medical Society (PMS) and the Hospital & Healthsystem Association of Pennsylvania (HAP) have not. In response to a question about the connection, Tucker said: “What is good for the goose, is good for the gander. What is good for Pennsylvania should be good for physicians.” The PMS website as of May 16th states: “The governor’s office continues to link MCARE abatement extension and phase-out to a plan to expand health insurance coverage for the uninsured and underinsured. The Pennsylvania Medical Society strongly supports expanded health insurance coverage but believes that these issues should be considered separately.” PMS President Peter S. Lund, M.D., responded to the issue, however, by saying that perhaps it is an appropriate quid pro quo.

PMS is also concerned that SB 1137 does not adequately address funding for PA ABC, does not legislate a guaranteed funding stream to pay off the unfunded liability, and ties MCARE abatement to participation in PA ABC. While PMS has long supported increases in tobacco taxes, Lund said, these taxes do not constitute a stable revenue stream since they are intended to reduce tobacco consumption. Money for retiring MCARE must be locked up so that it cannot be used for any other purpose, Lund said. The requirement that physicians participate in PA ABC in order to qualify for an MCARE abatement would enable carriers to reimburse physicians at unreasonably low rates, Lund said.

There is no equivocation in HAP’s opposition to connecting MCARE to health insurance expansion. The two issues need to be separated, said Paula A. Bussard, HAP’s Senior Vice President, Policy and Regulatory Services. The MCARE proposal is close to workable, Bussard said. While further conversation is needed on the uninsured, according to Bussard, it is more workable than CAP. Both can be addressed and advanced through the legislature, she said.

Bussard emphasized that addressing MCARE is essential to the state’s ability to recruit physicians and avoid physician shortages. Retirement of the MCARE Fund should be done with an accurate and sustainable funding source, she said. Linking abatement to participation in PA ABC would impede fair negotiations with insurance carriers, she added. HAP also believes that there should be different insurance options offered, she said. One size does not fit all. Healthy 20 to 35-year-olds do not need the same breadth of benefits as older people do.

HAP also believes that some technical adjustments should be made to the MCARE phase-out. Instead of transferring $50,000 of responsibility from the MCARE Fund to the private market each year for ten years, it would be better to transfer $100,000 every other year, said James M. Redmond, HAP’s Senior Vice President, Legislative Services. And when you get close to the end, he added, you are better off making a big jump rather than a gradual step. Once you get to $800,000 responsibility in the private market, the next step should be $1 million, he said.

The Rendell administration and House Democrats have shown some receptivity to these concerns. Governor’s Office of Health Care Reform Director Rosemarie B. Greco said that they are open to a lock box mechanism for funds dedicated to retiring the MCARE Fund. There also is an openness to setting minimum reimbursement levels. In fact, reimbursement levels set at 85 percent of Medicare for physicians and 105 percent of Medicare for hospitals were originally in the PA ABC legislation and were taken out at the request of health care providers, according to Rick Speese, executive director of the House Insurance Committee. Greco said that some sort of disproportionate care payment could be made to providers who see a high percentage of PA ABC patients.

Speese said that House Democrats are willing to negotiate these and other points once they get something passed by the Senate and attempt to reconcile the differences between House and Senate versions.

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