Peter Orszag laments in the New York Times today about the Democrats’ failure to include more robust malpractice reform in the Affordable Care Act, noting that “what’s needed is a much more aggressive national effort to protect doctors who follow evidence-based guidelines“:

The health care reform act that Congress passed earlier this year included a modest set of state pilot projects, including one in Oregon that is intended to experiment with this approach. But these pilots are small; the project in Oregon, for example, has only $300,000 in financing.

What’s needed is a much more aggressive national effort to protect doctors who follow evidence-based guidelines. That’s the only way that malpractice reform could broadly promote the adoption of best practices. [...]

The health care reform act that Congress passed earlier this year included a modest set of state pilot projects, including one in Oregon that is intended to experiment with this approach. But these pilots are small; the project in Oregon, for example, has only $300,000 in financing.

What’s needed is a much more aggressive national effort to protect doctors who follow evidence-based guidelines. That’s the only way that malpractice reform could broadly promote the adoption of best practices.

Indeed, when I spoke to former Sen. Tom Daschle (D-SD) several weeks ago, he too indicated that malpractice reform was probably a missed opportunity that would have been politically difficult to incorporate into this effort. “I’m actually not surprised, I’m disappointed that we’ve failed to go further on some of these issues. I think the President is a realist, he’s a pragmatist, he needed to ensure that we could bring a bill, maybe not with everything he/we wanted across the line,” Daschle told me. “I think he felt it would be hard to hold Democratic caucuses together moving a bill that went further. Ultimately, I’m confident that it’s going to happen….it was probably a bridge too far in this legislative effort.”

To be clear, malpractice costs make up only a small percentage of national health care expenditures and malpractice reform does not significantly decrease physicians’ anxiety of being sued. But it’s an issue worth tackling, since developing sensible solutions could improve quality and increase the number of physicians. The good news is, as I’ve been chronicling here, HHS is already funding some promising pilot projects that could provide a template for any future legislative efforts.

Jon Walker notices that the American Hospital Association — which had agreed to accept $155 billion in payment reductions over ten years if health reform covered at least 94% of Americans and didn’t include a public option — is now turning against the administration and “spending hundreds of thousands of dollars to help elect Republicans this November.”

On one hand, the news is not too surprising. The industry believes that helping elect Republicans will probably bring about looser regulations and less strenuous spending cuts from the Independent Payment Advisory Board (IPAB), which the GOP has promised to repeal. On the other hand, while all of the health care interest groups won important concessions from the new law, none were more successful than the hospital industry. During the 15 months beginning in January 2009 and ending in March, when Congress passed the Affordable Care Act, hospitals spent approximately $108 million on lobbying and got a lot for their effort.

Here are the cuts they accepted:

- Lowering the annual update rates paid to hospitals.

- Reducing Medicare payments for excessive and preventable readmissions.

- Lowering bonus payments for hospitals who treat the undeserved: Currently the government pays about $45 billion dollars a year in DSH payments to help hospitals afford uncompensated care. Since health care reform will insure 34 million Americans over a 10-year period, the number of ‘uncompensated’ care cases will decrease by as much as 80%, but DSH payments will only be cut by some 15%.

But, as the Tennessee Hospital Association’s (THA) concluded, the above cuts would still allow hospitals to net about $16 billion from reform. “The breakdown estimates that the industry will receive additional money of about $171 billion over those same 10 years as a result of reimbursements for newly insured patients…In other words, the hospitals would give up $155 billion in cost cuts, but take in $171 billion in new money — a net gain of $16 billion. What’s more, the Tennessee association notes that the deal delays most of the industry’s cost givebacks until the second half the agreement’s 10-year year period — well after the hospitals have enjoyed some of the benefits of the new money they’re expecting from expanded insurance coverage.”

“[T]he bond prices and stock prices will tell you that most hospitals are winners, at least in this bill,” Thomas Scully, who ran CMS from 2001 to 2004, explained at a recent roundtable for Health Affairs. “Assuming there are no subsequent bills, hospitals are probably the biggest winners. They got hardly touched and got a lot of new money,” Scully said.

Hospitals are also protected from cuts under IPAB through 2019 — but as their latest political manoeuvrings suggest, that still wasn’t good enough. After all, why tolerate any cuts — no matter how far into the future — when you there is a good chance that you can help elect a party that will make them all go away?

Politico’s Sarah Kliff and Jennifer Haberkorn are reporting that after six months of deliberations, the National Association of Insurance Commissioners (NAIC) have approved model regulations governing the all-important medical-loss ratio provisions of the Affordable Care Act. These regulations require insurers that don’t spend 80% to 85% of their premium dollars on health care to send refunds to their customers. The percentages are calculated from a ratio of “health expenditures” to other expenses and since reform became law, insurers have pressured the NAIC to include certain administrative expenses as medical costs, exclude all federal taxes from their revenue (the denominator in the MLR ratio), and allow insurers to aggregate the ratio across plans and markets — all in an effort to make it easier for the industry to meet the MLR requirements without actually spending more on health care.

The NAIC had already issued draft regulations which ignored many of these arguments, but in the days and moments leading up to the final vote, “Commissioners offered four ultimately unsuccessful, amendments: to remove brokers fees from the calculation and to aggregate spending calculations nationally rather than at the state level and two amendments related to giving insurers credits to help them reach the spending levels.” Despite the least minute activity and intense lobbying, “the proposed regulation moved forward unchanged”:

- TAXES: NAIC rejected the Congressional Committee chair’s statement that they only meant to allow issuers to deduct those taxes that are specifically related to the Affordable Care Act. It ruled that issuers can exclude all federal taxes but those on investment income.

- DEFINING HEALTH COSTS: NAIC rejected insurers’ suggestion that services like anti-fraud and “utilization review” be included in the definition of “medical expenses,” included other services that have not been traditionally classified as “medical,” and required issuers to substantiate why certain services improve care quality.

- AGGREGATION: Insures wanted the NAIC to calculate their MLRs across different units and markets. This would have allowed insures to group their plans together to mask the low MLRs of some of their plans. The draft guidelines would require issuers to break them down and account for the MLRs separately at every business unit in every state, preventing them from obscuring some low MLR plans.

- BROKER FEES: “The commissioners did approve a motion to appoint a subgroup to work with HHS on how to deal with issues related to broker and agent compensation. This compensation is currently categorized as an administrative expense; agent trade groups have pushed for their fees to be taken out of the calculation altogether. Brokers are nervous that their role will be greatly diminished if their fees are categorized as administrative spending.”

- CREDIBILITY ADJUSTMENTS: These address the normal statistical fluctuations that affect smaller and newer plans. In order to adjust for this, the NAIC considered introducing credibility adjustments based upon the size of an insurer’s business. The NAIC rejected moving from a 50% to a 80% confidence level on credibility adjustments, which would have given insurers a big break and made it easier for companies to meet the MLR.

The model regulation will now be delivered to Health and Human Services (HHS) for certification by the Secretary and consumer advocates I spoke too are fairly happy with the rule. “We are very proud of the NAIC this morning. Congress asked them to do a job and they did it with openness, integrity, and dignity,” W & L Law School Professor Timothy Jost emailed me in a statement. “Although we did not get everything we wanted in the MLR rule as consumers, we think the rule is fair, workable, and faithful to the law.” HHS Secretary Kathleen Sebelius has also issued a positive statement. “These recommendations are reasonable, achievable for insurers and will help to ensure insurance premiums are, for the most part, supporting health benefits for consumers,” she said. “Not only do they ensure consumers receive better value for their health care dollar, they recognize special circumstances in different markets to preserve market stability and employee coverage as we transition to the new marketplace in 2014. ”

However, HHS has already indicated that it would likely issue wavers to mini-med plans and other insurance plans that would be unable to meet the new requirements because of the way they are structured.