Health Care Reform Memo:
May 7, 2012

Deloitte Center for Health Solutions publication

The health care reform memos are issued on a weekly basis, highlighting news from the previous week's activities in the administration and implications for the C-suite and various stakeholder groups.

My take: M&A and consolidation in the health care industry

From Paul Keckley, Executive Director, Deloitte Center for Health Solutions

Over the past eight days, my travels took me to New York City, Hartford, Boise, Orlando, Boston, Dallas, and Jacksonville before weekending in Nashville and returning to DC today. Nine cities, 13 flight legs—all but one with a “big five” air carrier. Eight hotels—all but one part of a national chain.

When I started my career in health services research in 1974, there were 12 “major” carriers; today eight are gone and the top five fly 79 percent of the total miles. Most of the casualties are now part of bigger companies; a few simply went away.

“Big national companies” are a permanent fixture in the American landscape. In most communities, the grocery stores, shopping centers, retail landscape, banks, and even essential services are operated by big national/regional chains. I start my day with a tall, dark Starbucks coffee from one of the company’s 10,787 U.S. locations, and get blood work checked (on Coumadin) at one of LabCorp’s 1,500 U.S. Patient Services Centers bi-weekly. I work for one of the Big Four; in 1987, they were part of the Big Eight, and as I write weekly, I search references from a search engine that dominates its market. “Going big” is simply part of our lives.

But health care, by comparison, remains fragmented. As a result:

  • Hospitals: there are 5,754 general acute hospitals in the U.S., 1,013 are owned by one of the eight major investor-owned hospital chains.
  • Medical practices: of the 161,200 medical practices in the U.S., only 1.2 percent have more than 11 physicians.
  • Health insurance plans: of 379 operators in the U.S., 34 have more than 1 million enrollees, and 290 have 250,000 or fewer.
  • Prescription drugs: the top ten companies account for $352.5 billion in sales, which is 59.40 percent of total revenues.
  • And there are 6,000 medical device companies and 4,000 biotech companies in the U.S. seeking breakthroughs into the industry’s clinical pathways with new inventions, and a handful that are successful consistently.

Is “going big” necessary to the industry’s transformation? It would seem so. I spend most of my time on the road with boards and management teams in health insurance, hospitals, medical device, biotech, pharmaceutical manufacturers and distributors, and health information technology companies. Consideration about “go big or get out” via strategic partnerships or merger is on every board’s agenda. It has to be.

Companies outside health care see its fragmentation as an opportunity: private equity investors are making big plays in roll-ups. Market leaders in discount retailing, mobile communications, and financial services are developing special units to roll-out innovative national solutions. In Washington, DC and state capitals, legislators are taking notice, grappling with legacy rules and regulations that presume state or local control of a system that’s increasingly national or global.

The Deloitte Center for Health Solutions’ vista is unique—ours is analysis and insight about the intersection of industry and policy, and across multiple sectors of the health care system rather than only one. We examine issues and trends that keep policymakers and corporate executives awake at night using research methods agnostic to our findings but remain intensely committed to the research process to answer questions objectively without bias. And we spend lots of time understanding the intended and unintended consequences of trends like consolidation, cost containment, the Affordable Care Act (ACA), and others.

In my 38-year career in health services research, I’ve not seen a time when the system’s frailty is more in focus: it is highly regulated, highly labor and capital intense, and unusually sectarian in its approaches to solutions that would otherwise drive costs down and value up. Each sector thinks the other is the problem; and each builds its own solutions ambivalent to the impact on others.

As a result, our system is wasteful and relatively unproductive compared to other industries: according to the Bureau of Labor Statistics, our productivity (output per man hour) last year increased 0.9 percent while the overall industry average was 2.7 percent. Had our industry hit the norm for all industry, the deficit would be lower and the economy recovering faster. The combination of a fragmented industry structure, poor productivity, soaring demand, and a sizeable market opportunity is the impetus for its consolidation.

Industry sustainability is achieved through scale, and scale achieved through consolidation and post-deal execution. And while there will be niche players and “mom and pop” exceptions, the market share of per capita spending on U.S. health care will increasingly be captured by bigger players—some traditional, some not.

As a result, the book on U.S. health care in this decade will not be about the ACA, though it will be prominent chapter; it will be about consolidation that allows a few to gain competitive advantage in serving the next generations of consumers with new expectations—

  • The Generation X crowd who adopted big box solutions first, and value consistency and standardization.
  • The Millenials who adopted “online boxes” over bricks and sticks, and who value connectivity and accessibility.
  • And the “iGeneration” who value “unconstrained connectivity” through social media and value control of their information and ready access to relevant information.

The consolidation of our industry has profound implications for its stakeholders…

The notion that “all health care is local” will be displaced by national entities that demonstrate differential value. Terms like “catchment areas” and “target markets” disappear from our lexicon as programs and competitors are un-constrained by geography.

The presumption that “members” will choose insurance from finite options selected by their employers or brokers will give way to online shopping for customized individual insurance programs from a few trusted national suppliers or government clearinghouses. And the essential construct of “health insurance” will shift from nominal financial risk to catastrophic risk via high deductible plans and alternative financing mechanisms.

Bio and pharma will be one industry—biopharma—and convergence with companion diagnostics, alternative health, functional foods, and over the counter remedies will re-shape. Service offerings, not supply chain product lines, will be the dominant business model competing with traditional providers and plans to coordinate care. Personalized medical devices with precision diagnostic bio-monitoring capability will displace visits and tests otherwise unnecessary.

And the premise that the system is too complex for navigation by mere mortals will be dispelled by a cadre of mobile technology applications that empower consumers to make choices that suit their needs, linked to powerful clinical algorithms that match treatment options to risk and cost.

Consolidation in the health care industry is accelerating. Though unwelcome to some, it’s inevitable and disruptive. It is necessary to the industry’s sustainability, so for most, perhaps not all, “go big” or “get out” is a reality.

For a complete update on data relating to current health care industry consolidation and factors driving similar future consolidation, tune in to Deloitte’s Dbriefs Webcast: Health Sciences Consolidation: Industry's Response to the New Normal, May 8, 1:00 p.m. ET.

Also, the Deloitte Center for Health Solutions will release two briefs soon relating to the subject: “Health Insurance Industry M&A: Balancing post-reform opportunities and challenges” and “Consolidation in health delivery systems: A focus on providers.”

Paul Keckely

Paul Keckley, Ph.D., Executive Director, Deloitte Center for Health Solutions

Implementation update

IRS releases proposed rule for subsidy verification: necessary to participate in health exchange coverage

Monday, per Section 1401 of ACA, the U.S. Internal Revenue Service (IRS) released a proposed rule requiring the disclosure of tax return information to the U.S. Department of Health and Human Services (HHS) to verify premium tax credit eligibility for exchange coverage. The rule establishes regulations that allow tax information to be released in response to written requests from HHS for the reference tax year of an individual’s application. The IRS is collecting comments on the rule until July 30. IRS is also collecting outlines until July 30, 2012 for topics that may be discussed at an August 31, 2012 public meeting.

Note: in a final rule on the establishment of exchanges and qualified health plans released in March 2012, HHS limited the type of information an individual needs to provide to an exchange for income verification and allows the exchange to seek information from the IRS through HHS. The regulations also provide guidance on the eligibility for enrollment in a qualified health plan, advance payments of the premium tax credit and cost-sharing reductions, and other insurance affordability programs.

CCIIO releases risk adjustment guidance

Tuesday, the Centers for Medicare & Medicaid Services’ (CMS) Center for Consumer Information and Insurance Oversight (CCIIO) released guidance on the HHS Risk Insurance program premium stabilization final rule, formerly known as the standards related to reinsurance, risk corridors, and risk adjustment rule. CCIIO focused on the intended approach to implement risk adjustment when HHS is operating the risk adjustment function on behalf of a state. Comments on the guidance will be accepted during public meetings held May 7-8, 2012.

Note: per Section 1343 of the ACA, states, or HHS on behalf of a state, must operate a risk adjustment program that includes all non-grandfathered plans in the individual and small group market both inside and outside of the exchange market. The risk adjustment program is intended to reduce or eliminate premium differences between plans based solely on expectations of favorable or unfavorable risk selection, or choices by higher risk enrollees in the individual and small group markets.

CMS: Medicare beneficiaries saved $837 on prescription drugs

Monday, CMS released data indicating Medicare beneficiaries saved $3.4 billion on prescription drugs since 2010. January through March 2012, 220,000 eligible beneficiaries saved $837 on average.

Note: ACA Section 3301 seeks to gradually close the Medicare Part D (prescription plan) coverage gap or “donut hole” for both generic and brand name drugs and biological products from January 1, 2011 until 2020 when the donut hole is closed. Beneficiaries who entered the donut hole in 2010 received a one-time $250 rebate; in 2011 they received a 50 percent discount on covered brand name drugs and 7 percent for generic drugs; and in 2012 generic drug coverage increased to 14 percent for drugs in the donut hole.

HHS awards $728 million to community health centers

Tuesday, HHS Secretary Sebelius announced that $728 million in ACA funding had been awarded to community health centers for 398 renovation and construction projects to help facilities serve 860,000 patients and create jobs. This funding is part of a series of capital investments per ACA Section 10503 which provides $9.5 billion for five years (FY2011-2015) to expand services and $1.5 billion for construction and renovation projects at community health centers.

Note: community health centers provide primary care to more than 20 million patients at 8,500 delivery sites serving primarily low-income and “underserved” populations. Per investments from ACA and the American Recovery and Reinvestment Act (ARRA), community health centers will accommodate 3 million additional patients. Since 2010, ACA has supported 190 construction and renovation projects at existing health centers and the creation of 67 new health centers sites. Over the next two years, ACA will also support over 485 new health center construction and renovation projects and the creation of 245 centers. Since the beginning of 2009, employment at community health centers has increased 15 percent. (Source: HHS News Release, “Health care law helps community health centers build, renovate facilities, serve more patients,” May 1, 2012)

Legislative update

CMS extends deadline for collecting sunshine data

Last week, CMS announced it had extended the deadline for collecting pertinent data required in the ‘Sunshine Act’ until January 1, 2013 and indicated its final rule will not be published until later this year.

Per the Physician Payments Sunshine Provision of ACA (Section 6002), drug and device manufacturers and group practicing organizations were to start collecting data January 1, 2012 with public reporting by September 30, 2013. Penalties for violations range from $1,000 to $100,000.

Note: this is the second instance in which CMS delayed implementing the Sunshine Act reporting requirement. (For more information about the Sunshine Act provision and its risk to provider organizations, contact Seth Whitelaw, Michael Delone, or Jeremy Perisho)

Senator probes CDC prevention grants

Tuesday, Senator Susan Collins (R-ME) sent a letter to HHS Secretary Sebelius requesting an explanation of the possible impropriety regarding several Centers for Disease Control and Prevention (CDC) grants that “appear to have been used to fund programs that may seek to change state and local laws, in violation of federal law.” The letter specifically questions CDC’s guidance for the Communities Putting Prevention to Work (CPPW) initiative and policies related to food labeling, vending machines, and fast food establishment zoning.

Congress returns from recess: mark up on budget bills continues

Today, the House Committee on the Budget meets to compile Republican-backed reconciliation bills into one reconciliation package. The Republicans’ budget plan directed six authorizing committees to mark up legislation to reduce spending by $261 billion from 2012 through 2022. The committee will also mark up H.R. 4966, The Sequester Replacement Act and The Sequester Replacement Reconciliation Act of 2012.

Senate Committee on Finance to have roundtable on Medicare physician payments

Thursday, May 10, the Senate Committee on Finance will have a roundtable discussion titled: “Medicare Physician Payments: Understanding the Past so We Can Envision the Future.” Former administrators of CMS and its predecessor, the Health Care Financing Administration, will participate including, Gail Wilensky, Bruce Vladeck, Thomas Scully, and Mark McClellan.

Senate Committee on Finance announces bipartisan effort to combat waste, fraud

Wednesday, Senate Committee on Finance ranking member Orrin Hatch (R-UT) and Chairman Max Baucus (D-MT), along with Senators Tom Coburn (R-OK), Ron Wyden (D-OR), Chuck Grassley (R-IA), and Tom Carper (D-DE) sent an open letter to the members of the health care community seeking input about solutions to payment reform and fraud and abuse enforcement efforts of the Medicare and Medicaid programs. The Senate Finance Committee has jurisdiction over the two programs, and has invited various stakeholders to submit whitepapers on the subject. Submissions are due by June 29, 2012.

The letter was released the same day as approximately 100 individuals were arrested on charges of Medicare fraud—50 in South Florida—where recent “pill mills” have been targeted for inappropriate dispensing of pain medications. Authorities with HHS and the Federal Bureau of Investigation (FBI) targeted mental health clinics, home health care agencies, and physical therapy services. The arrests marked the third major arrest for Medicare fraud under the current administration.

Note: according to the Government Accountability Office (GAO), Medicare and Medicaid are at higher risk than other programs for fraud, waste, and abuse. Estimates of fraud and misspending vary from $20 to $100 billion.

CMS, IRS request information on stop loss insurance

Wednesday, CMS and the IRS released a joint request for information on the use of stop loss insurance for group health plans and plan sponsors. The request focuses on the prevalence and consequences of stop loss insurance at low attachment points. The U.S. Department of Labor (DOL) will accept comments until July 2, 2012.

FDA releases rule implementing flexible standards for certifying sterility of biologics

Thursday, the FDA released a final rule for manufacturers of biological produces (e.g., vaccines and gene therapies) intended to provide “…greater flexibility, as appropriate, and [encourage] use of the most appropriate and state-of-the-art test methods for assuring the safety of biological products.” The rule is in response to a 2011 executive order from the President to streamline regulations. Among several changes, the rule eliminates specified methods for determining sterility, allowing manufacturers to use more advanced methods for determining sterility.

State update

Republican governors seek repeal of ACA medical device excise tax

Five Republican governors sent a letter to Speaker John Boehner (R-OH), Majority Leader Harry Reid, D-NV), and Minority Leaders Nancy Pelosi (D-CA), and Mitch McConnell (R-KY), asking repeal of ACA Section 9009 that places a 2.3 percent excise tax on medical devices starting in 2013. The governors stated that “the U.S. annually exports $5.4 billion more medical technology than we import and accounts for [40 percent] of the global medical technology market” and that the tax could “harm U.S. global competitiveness, stunt medical innovation, and result in the loss of tens of thousands of jobs.” The governors of Indiana, Wisconsin, South Carolina, Pennsylvania and Virginia sent the letters.

May 1: last day for states to apply for state-specific thresholds for rate reviews

Tuesday was the deadline for states to submit requests to HHS for state-specific premium increase thresholds that trigger rate reviews. Per section 1001 of ACA, starting September 1, 2012, they may establish their own minimum premium increase that requires a review, based on the state’s premium trends, health care costs, and other factors. HHS established a premium increase of at least 10 percent as the trigger for a rate review for the first year of the program per ACA Section 1001.

Note: Alaska is the only state to ask HHS for an increase in the threshold—to 17 percent—citing higher than average costs. HHS will accept comments on the request until May 15, 2012.

State round-up

  • Kansas is seeking CMS approval for a Medicaid waiver that would transition the state’s $2.9 billion Medicaid program to a managed care program run by three private organizations starting January 1, 2013. CMS has promised to delay including long-term care services for individuals with disabilities in the overhaul until January 1, 2014. Also last week, Kansas lawmakers passed a bill allowing pharmacists to withhold certain drugs they believe might lead to abortion. The bill waits signing by Governor Sam Brownback (R). Four states—Arkansas, Georgia, Mississippi and South Dakota—have laws that allow pharmacists to refuse to fill prescriptions for emergency contraceptives.
  • Last Monday, Massachusetts officials approved a third quarter average premium rate increase of 1.2 percent for the small group insurance market for policies effective or renewed from July 1 through September 30, 2012. The Massachusetts House released a payment and delivery system reform bill that would limit cost growth to about 3 percent annually. Expected savings is $160 billion over 15 years.
  • Last week, a Texas U.S. District Court judge granted a preliminary injunction to eight Planned Parenthood organizations in a lawsuit to block a state rule which prevents them from receiving funds through the Texas Women’s Health Program, effective September 1, 2012. Tuesday, the U.S. Fifth Circuit Court of Appeals reversed the lower court ruling, allowing the state to enforce its ban on Planned Parenthood from the state program. Friday, the Court of Appeals judge reversed his decision and chose to let stand the lower court preliminary injunction.
  • CMS approved Wisconsin’s request to implement changes to its BadgerCare Plus Medicaid program to contain costs. Changes include: instituting higher monthly premiums for certain adults age 19 and older, requiring enrollees to report within ten days if their income goes over the eligibility threshold, and prohibiting access to the program for children if the parent or guardian has access to employer sponsored coverage. The state’s Medicaid program’s projected deficit is about $128 million through June 2013.
  • CMS announced Thursday a $1.9 billon award to Oregon to implement a Medicaid accountable care organization as part of a demonstration program to create coordinated care organizations in the state's Medicaid program. The state estimates it will save $11 billion over ten years. Governor John Kitzhaber (D) called the demonstration a "defining moment for health care transformation.

Industry news

AAMC study: 30 percent increase in med school enrollment anticipated 2012-2016; inadequate to meet demand

The leading trade group for academic medicine, the American Association of Medical Colleges (AAMC), released survey results from 129 of 134 medical schools:

  • First-year medical school enrollment will increase 29.6 percent in the 14-year period from the 2002-2003 school year to the 2016-2017 school year, bringing total enrollment total to 21,376—slightly under the 30 percent increase that AAMC had hoped to see by 2015 to address a pending physician shortage.
  • AAMC estimates a shortage of 90,000 primary-care and specialty physicians by 2020.
  • More than half (58 percent) of the increase will come from 125 schools accredited as of 2002. New schools accredited after 2002 will account for 25 percent of the growth, according to the AAMC. The rest (17 percent) will come from schools in the process of accreditation.

(Source: 2011 Medical School Enrollment Survey, AAMC)

ONC final comments on Stage 2 meaningful use

CMS received final comments about proposed Stage 2 meaningful use rule published March 7, 2012. A final rule is expected later this year. GAO also released a report with recommendations for the meaningful use. Reactions to the proposed rule by key trade groups include:

  • American Hospital Association (AHA): In a 68-page comment letter, AHA states that over 80 percent of hospitals have not achieved Stage 1 due to market factors (e.g., increasing costs), limited vendor capacity, and a widening digital divide—resulting in large and urban hospitals achieving much higher rates of adoption than smaller rural facilitates. AHA is concerned about the implementation of the penalty phase, proposed timing and staging for Stage 2, the measures and objectives for Stage 2, and the reporting of clinical quality measures through electronic health records (EHRs). One of these objectives is the new requirement that allows patients to view, download, and transmit their medical records from the Internet, which AHA states “…is not feasible as proposed, raises significant security issues and goes well beyond current technical capacity.”
  • College of Healthcare Information Management Executives (CHIME): CHIME, which represents over 1,450 chief information officers (CIOs) and other health information executive managers, stated that although they agree with a “great deal” of the proposed changes including extending Stage 1 to 2013, they are concerned that further delay may be needed. CHIME states, “While a great deal of our membership will do everything within their power to get ready for Stage 2 in the months between the final rule and October 1, 2013, we foresee significant challenges in getting (what will hopefully be) one hundred thousand, or more, providers upgraded and tested in the months between the first 2014 certified EHRs and FY/CY 2014.” CHIME recommends that CMS allow physicians and hospitals to show meaningful use through a 90-day EHR reporting period for their first payment year in Stage 2, as is currently done for Stage 1.
  • Chairwomen of the House Small Business Committee, Representative Renee Ellmers: Representative Ellmers (R-NC), Chairwomen of the House Small Business Committee and its subcommittee on health care and technology, asked CMS to allow “hardship exemptions” from payment reductions associated with noncompliance of the EHR adoptions for small practices with five or fewer physicians and for physicians ages 60 and over who are nearing retirement.
  • GAO: GAO also released a report with four recommendations to CMS to improve the process of verifying whether providers met the Medicare and Medicaid EHR programs’ requirements and therefore qualified for incentive payments. Recommendations include:
    • “…CMS should establish time frames for expeditiously implementing an evaluation of the effectiveness of the agency’s audit strategy for the Medicare EHR program.”
    • “…CMS should evaluate the extent to which the agency should conduct more verifications on a prepayment basis when determining whether providers meet Medicare EHR program’s reporting requirements.”
    • “…CMS should collect the additional information from Medicare providers during attestation.
    •  “…CMS should offer states the option of having CMS collect meaningful use attestations from Medicaid providers on their behalf.”

Note: the EHR meaningful use programs for Medicaid and Medicare were enacted under ARRA as amended by Health Information Technology for Economic and Clinical Health (HITECH) of 2009. The programs provide payment incentives to hospitals and physician practices for demonstrating meaningful use of EHRs. Providers face a 1 percent Medicare payment penalty for noncompliance starting 2015, with penalties increased each year thereafter to a maximum of 5 percent. Under the program, hospitals are eligible for payments up to $11.5 million if they demonstrate that they used EHRs in a meaningful way as defined under the law and in CMS issued rules. As of April, CMS has paid $5 billion to 93,650 hospitals and physicians in EHR incentive payments. 73,000 of 521,000 eligible physicians and 2,500 of 5,011 eligible hospitals are at Stage 2 readiness per the Office of the National Coordinator, March 31, 2012.

GOP report: employers might choose to ‘pay, not play’

The House of Representatives Ways and Means Committee released a report Tuesday concluding that the ACA employer “pay or play” provision will encourage employers to pay the penalty and drop coverage. The committee surveyed 71 Fortune 100 companies, and found the group would save $28.6 billion in 2014 by eliminating health insurance coverage, and paying the $2,000 penalty per full-time employee instead. The report says 84 percent of the responding employers expect their future health care costs will increase at rates that are greater than those they’ve experienced over the past five years.

Note: ACA Section 1513 requires employers with 50 or more full-time employees that do not offer health insurance coverage and have at least one full-time employee receiving a premium assistance tax credit going towards coverage in the exchange to pay $2,000 per full-time employee. In 2014, the monthly penalty assessed to employers who do not offer coverage will be equal to the number of full-time employees minus 30 multiplied by 1/12 of $2,000 for any applicable month. After 2014, the penalty payment amount would be indexed by a premium adjustment percentage for the calendar year.

In the Congressional Budget Office (CBO) analysis of ACA, it anticipated 4 million might lose coverage; in the Deloitte Center for Health Solutions’ analysis (The impact of health reform on insurance coverage: Projection scenarios over 10 years), we concluded a scenario exists where up to 65 million people could lose employer-sponsored coverage if costs are high, state health exchanges operational, and in certain industries—light manufacturing, retail, transportation, restaurant—competition for talent does not require benefits coverage. It is our conclusion that small- and mid-sized companies under 2,500 employers are the most likely to exit. The net impact of the loss of employer-sponsored insurance in the system is profound—increased enrollment in individual insurance plans sold in exchanges, increased enrollment in Medicaid, and increased bad debt for those who go without coverage and unable to pay their bills.

(Sources: House Ways and Means Committee, “Broken Promise: Why ObamaCare Will Force Americans to Lose the Health Care Coverage They Have and Like,” May 1, 2012)

CMS posts Medicare per beneficiary spending measure on Hospital Compare website

This month, CMS began posting data on the "cost per Medicare beneficiary" measure on its Hospital Compare website for acute care hospitals. The data shows a wide variation (3 to 1) in costs throughout the U.S. Individuals may obtain data from the website to compare risk-adjusted scores for about 3,375 hospitals for an "episode of care” (i.e., timeframe ranging three days before an admission to 30 days after discharge).

Note: per ACA Section 3001, the “cost per Medicare beneficiary” measure will account for 20 percent of a hospital’s Medicare value based purchasing score used to determine payment incentives for discharges starting October 1, 2014. Website:

Family physicians oppose FDA “safe use” proposal

Tuesday, the American Academy of Family Physicians (AAFP) sent a letter to the FDA opposing a proposal to expand drug products that could be considered nonprescription and thus sold over-the-counter.

Note: FDA sought public comment on a new model that would approve certain prescription drugs for nonprescription or over-the-counter use, under conditions of safe use. These conditions of safe use would be specific to the drug product and might require sale in certain pre-defined health care settings, such as a pharmacy.

NIH launches initiative to bring together industry and researchers to promote innovation

Thursday, the National Institutes of Health (NIH) announced a new initiative “that will match researchers with a selection of pharmaceutical industry compounds to help scientists explore new treatments for patients.” The initiative, Discovering New Therapeutic Uses for Existing Molecules, will provide funding to researchers to test more than 20 compounds from industry partners for their effectiveness against various diseases and conditions. The researchers will study compounds that have already cleared the key steps in the development process, including testing for safety for humans. NIH's National Center for Advancing Translational Sciences (NCATS) is partnering with Pfizer, Eli Lilly and Company, and a third company who made dozens of their compounds and related data available for the initiative’s pilot phase. The President’s FY2013 budget proposal includes $575 million for NCATS; $20 million of this would go towards supporting research grants up to three years during the pre-clinical and clinical feasibility studies.

IOM: FDA post market surveillance inadequate

Tuesday, the Institute of Medicine (IOM) released an evaluation of the FDA’s scientific and ethical methods of conducting safety studies for approved drugs concluding that its current approach to drug oversight in the post market setting is insufficient and does not assess the benefits and risks of a drug’s consistently over its life cycle. The IOM recommended that the FDA adopt a comprehensive and publicly available regulatory framework that is standardized across all drugs, yet flexible enough to adapt to regulatory decisions. While the FDA acknowledges the importance of enabling the public to monitor drug safety issues, it also notes that the IOM’s recommendations would be challenging to implement. (Source: Institute of Medicine, “Ethical and Scientific Issues in Studying the Safety of Approved Drugs,” May 1, 2012)

WSJ article focused on increased use of observational studies in clinical research

Thursday, the Wall Street Journal page one story examined the role of observational studies in clinical research concluding their use is proliferating and potentially problematic. Observational studies by clinical researchers use analytic tools to examine cause-effect relationships or correlations in large clinical databases in lieu of more rigorous randomized trials. From 1990 to 2000, 79,619 observational studies were published; 185 (0.23 percent) of these were retracted due to erroneous findings. From 2001-2011, 263,557 observational studies were published; 881 were retracted (0.33 percent). (Source: Wall Street Journal, “Analytical Trend Troubles Scientists,” May 3, 2012)


“We believe federal efforts would be strengthened by input from members across the health care community—providers, payers, health plans, contractors, non-profit entities, consumers, data analytics entities, governmental partners, and patients. Drawing on the collective wisdom and accumulated insights of thousands of professionals and individual experiences could offer a fresh perspective and potentially identify solutions that may have been overlooked or underutilized.”

—Senate Finance Committee, Letter to Members of the Health Care Community, May 2, 2012

“It is hard to tell, and the answer may be inconclusive. The main reason: Each analysis applied a different methodology and neither was based on original, proprietary data. Instead, both were so-called observational studies, in which scientists often use fast computers, statistical software and large medical data sets to analyze information collected previously by others. From there, they look for correlations, such as whether a drug may trigger a worrisome side effect.”

—Wall Street Journal, “Analytical Trend Troubles Scientists,” May 3, 2012

Fact file

  • Seven million in the U.S. use prescription pain medications for non-prescribed purposes; 1.5 million are addicted; 1,000 die annually. The U.S. Senate is considering limits on physician owned pain clinics; 48 states have prescription drug monitoring programs in place. (Source: U.S. Drug Enforcement Agency)
  • 2011 Medicaid fraud detection: returned $8.39 per dollar cost. (Source: Office of the Inspector General, “State Medicaid Fraud Control Units Fiscal Year 2011 Grant Expenditures And Statistics”)
  • Medicare spending October 2011 thru March 2012: up 3 percent ($6 billion); Medicaid spending dropped 16 percent ($24 billion) because matching funds expired. The federal government will have a deficit of $777 billion in first half of 2012 while revenues will be $46 billion higher. (Source: HHS)
  • First quarter gross domestic product (GDP) up 2.2 percent, vs. 3 percent in the fourth quarter of 2011—slowed growth after 11 quarters of growth. First 11 quarters of Reagan recovery were at 6.1 percent. Consumer spending is up 2.9 percent but corporate spending down 2.1 percent. Real disposable income increased 0.4 percent—up 0.6 percent in last 12 months. Federal spending is down 3.1 percent in the first quarter. U.S. GDP has grown by $600 billion but debt by $1.3 trillion in the last 12 months. (Source: U.S. Department of Commerce)
  • Economy and job growth: in April, the unemployment rate remained at 8.1 percent with 115,000 jobs added. The health care sector added 19,000 jobs, adding most—15,000 jobs—to the ambulatory health care industry including home health care, outpatient care centers, and physicians’ offices. Hospitals added 4,000 jobs. (Source: U.S. Department of Labor, Bureau of Labor Statistics)
  • Obesity costs and incidence: $190 billion in annual health costs is due to obesity. The incidence of obesity in the U.S. has increased from 13 percent to 34 percent over the past 50 years. (Source: Michael O’Grady and James Capretta, “Assessing the Economics of Obesity and Obesity Interventions Campaign to End Obesity,” March 2012)
  • Premature births: 1 in 10 (15 million) babies are born prematurely worldwide. In the U.S. 12 percent of births are premature, ranking us 54th in the world behind countries such as Kuwait, Cambodia, Ethiopia, and Rwanda. Malawi, Congo, and Comoros are ranked among the highest in rates of premature births with more than 15 premature births per 100 births. (Source: March of Dimes, “Estimated National Rates of Preterm Birth in 2010)
  • EHR adoption: the percentage of hospitals with any type of EHR system increased from 15 percent to 26 percent from 2010 to 2011; those with comprehensive systems from 3.6 percent to 8.7 percent; and those able to meet criteria for meaningful use in at least one unit (18.4 percent) and across clinical units (11.2 percent) rose in 2011. (Source: Catherine DesRoches, et al, Health Affairs, “Small, Nonteaching, And Rural Hospitals Continue To Be Slow In Adopting Electronic Health Record Systems,” April 2012)
National health reform: What now?




National health reform: What now?

National health reform is here. The health reform bills (HR3590 and HR4872) are now law and will trigger sweeping changes and disruptions – some rather quickly and some over many years. The industry is asking, “What now?” At Deloitte, we continue to explore and debate the key questions facing the industry, and we look forward to helping our clients find and implement the right answers for their organizations. To learn more, visit today.

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