Health Care Reform Memo:
April 2, 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: what's to come? Many unknowns: the Supreme Court and the ACA

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

The DC version of March Madness descended on the U.S. Supreme Court last week as its nine justices heard six hours of oral arguments about the Affordable Care Act’s (ACA) constitutionality. In a series of feisty exchanges, counsel for the government and plaintiffs were pushed to test the limits of their positions and consequences intended or not.

Lines for the 154 seats available to spectators started forming last Friday. The 117 seats in the press gallery were jammed with reporters limited to notepads to augment transcripts and audio recordings provided after each session.

It was surreal; the stakes high.

Will all or part of ACA be thrown out—perhaps remanded back to Congress for fixes or a complete do-over? Maybe. And might Congress then default back to the states to handle the health system problems of access, quality, and costs? Perhaps. Or, might the ACA pass GO intact? Also possible.

My take:

  1. No one knows how the court will rule on the four issues it considered. Until June, it’s pure speculation.
  2. The biggest problem in the U.S. system—its cost—will not go away, with or without the ACA. According to the Congressional Budget Office (CBO), average annual health spending will increase 5.8 percent per year through 2020: well above the gross domestic product (GDP), well north of average wages, and well beyond productivity gains. What the ACA seems to do well is improve access to care for up to 32 million lacking coverage. What it might not do as well is bend the cost curve, and health cost containment is perhaps the toughest challenge that most fear to tackle.
  3. Regardless of the court’s ruling, the industry will adapt, but there will be winners and losers. Health plans, hospitals, physicians, manufacturers of drugs and devices, and information technology systems are accustomed to change. But the new normal provides a sobering set of pre-conditions for survival: cost reduction is essential, proof of value necessary. Conventional “turf” delineations no longer apply. New structures, incentives, requirements, and strategies are necessary for survival. And it’s certain that information technologies and consumerism will be foundational replacements for business as usual.

I collect sayings about the future—the “new normals” in life and business. As I listened to the arguments and watched the media buzz last week, a few of my favorites kept coming to mind.

  • It is not ignorance, but ignorance of ignorance, that is the foe of knowledge. Health care is complicated. It is not a system easily condensed to sound bites. The arguments last week underscore its complexity; and the unfortunate pandering that has been the tone for much of the public debate about health reform seems the opposite. For most Americans, knowledge of the U.S. health system is lacking. And regretfully, we are unaware… ignorance of ignorance.
  • The key to life is how you implement Plan B. The future for the U.S. health system is uncertain. We know demand will increase, opinions will be strong, and resources fewer. In health care, like every other industry, change is constant, success is not. But in health care, perhaps unlike others, we tend to default to denial, circle our wagons around stubborn myths, and sometimes shoot in.
  • The seven last words of a dying organization: we never did it that way before. A few dare to lead, and failing is part of the journey. From the new normal, new solutions will emerge with strong value propositions and perhaps new players. In health care, our toughest battles are internal—in our own organizations. Looking from the outside in at our system is perhaps the best seat in the house.

For the next 90 days, suspense about the court’s decisions will mount. Lest anyone miss the point, their conclusions are a big deal to the future of the U.S. health system. But with or without all or part of the ACA, the system’s transformation will continue. Clinical innovation, increased demand, improved accessibility, engaged consumers, transparency around performance, reduced cost, better service, replacing fee-for-service incentives, leveraging information technologies, and changing the system’s focus from sick care to prevention all began before ACA was conceived and will accelerate regardless of its fate.

Paul Keckely

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

Special report: Supreme Court argument about the Affordable Care Act

Monday through Wednesday, the U.S. Supreme Court heard oral argument on the ACA addressing, four major legal challenges to ACA.

Monday, March 26 (90 minutes) –

Key question: is the Anti-Injunction Act (AIA) applicable to ACA?

The arguments in a nutshell: Court appointed lawyer Robert Long argued that the AIA is applicable to the mandate for three reasons: (1) Congress intended the penalty to be assessed and collected in the same way as a tax; (2) Congress provided that penalties are included in taxes for assessment purposes; and (3) the penalty bears the key indicia of a tax. U.S. Solicitor General Donald Verrilli arguing for the federal government and attorney Greg Katsas arguing for the 26 states countered that the penalty is not a tax but a necessary means of pre-payment for services each individual consumes in the health system.

Comments/questions by justices: the justices’ questions centered on the distinction between treatment of the individual mandate as a tax versus penalty and applicability of the AIA to the issue. Select comments (all quotes are taken directly from court transcripts):

  • Justice Stephen Breyer: “Congress has nowhere used the word ‘tax,’ in reference to the mandate.”
  • Justice Sonia Sotomayor: “Here we have one where the Congress is not denominating it a--as a tax; it's denominating it as a penalty.”
  • Justice Antonin Scalia: “[U]nless it's clear [that the AIA bars court review], courts are not deprived of jurisdiction, and I find it hard to think that this is clear.”
  • Chief Justice John Roberts: “It's a case quite similar to this in which the constitutionality of the Social Security Act was at issue, and the government waived its right to insist upon the application of this [Anti-Injunction] Act.”

The bottom line: the applicability of AIA to ACA seemed to be dismissed by the justices. They do not appear to see the mandate as a tax, therefore nullifying the claim that it (ACA) is a violation of AIA.

Tuesday, March 27 (91 minutes) –

Key question: is the individual mandate constitutional under Congress’ power to regulate commerce?

The arguments in a nutshell: Solicitor Verrilli argued that the mandate is within Congress’ power to regulate commerce, while Paul Clement, former U.S. Solicitor General under former President George W. Bush, argued in opposition for the 26 states. A second line of questioning related to the inevitability of a person’s use of the health system, with some jurists probing whether the mandate was a means of creating a “market” around its use, or otherwise. The uniqueness of health care as a market was the central feature of the sometimes lively discussion—whether it stands alone in jurisprudent oversight or like other industries can be regulated, and if so, by means other than a mandate provision such as is included in ACA.

Comments/questions by justices: Lines of questioning by the jurists were more probative with presumed “conservative” justices focused on limits of Congress’ power if the mandate goes forward and “liberal” justices focused on the universality of the health care system—everyone uses the health care system eventually. Select comments:

  • Justice Breyer: “… [W]e also know here, and we don't like to admit it, that because we are human beings we all suffer from the risk of getting sick. And we also all know that we'll get seriously sick. And we also know that we can't predict when. And we also know that when we do, there will be our fellow taxpayers through the federal government who will pay for this. If we do not buy insurance, we will pay nothing. And that happens with a large number of people in this group of 40 million, none of whom can be picked out in advance. Now, that's quite different from a car situation, and it's different in only this respect. It shows there is a national problem, and it shows there is a national problem that involves money, cost insurance. So if Congress could do this, should there be a disease that strikes the United States and they want every one inoculated even though 10 million will be hurt, it's hard for me to decide why that isn't interstate commerce, even more so where we know it affects everybody.”
  • Justice Sotomayor: “But we don't in car insurance, meaning we tell people, buy car—not we, the States do, although you're going to--I'll ask you the question, do you think that if some States decided not to impose an insurance requirement that the federal government would be without power to legislate and require every individual to buy car insurance?”
  • Justice Samuel Alito: “…could you express your limiting principle as succinctly as you possibly can? Congress can force people to purchase a product where the failure to purchase the product has a substantial effect on interstate commerce, if what? If this is part of a larger regulatory scheme?”
  • Chief Justice Roberts: “…But what I'm concerned about is, once we accept the principle that everybody is in this market [health], I don't see why Congress's power is limited to regulating the method of payment and doesn't include as it does in any other area. What other area have we said Congress can regulate this market but only with respect to prices, but only with respect to means of travel? No. Once you're--once you're in the interstate commerce and can regulate it, pretty much all bets are off.”
    “…seems to me, would be true, say, for the market in emergency services: police, fire, ambulance, roadside assistance, whatever. You don't know when you're going to need it; you're not sure that you will. But the same is true for health care. You don't know if you're going to need a heart transplant or if you ever will. So, there's a market there. In some extent, we all participate in it.” (Verrilli replied: “No, Mr. Chief Justice. [I] think that's different. It's--we--I don't think we think of that as a market. This is a market. This is market regulation. And in addition, you have a situation in this market not only where people enter involuntarily as to when they enter and won't be able to control what they need when they enter but when they--” Roberts followed, “It seems to me that's the same as in my hypothetical. You don't know when you're going to need police assistance. You can't predict the extent to emergency response that you'll need. But when you do, and the government provides it.”)
  • Justice Kennedy: “Assume for the moment that this is unprecedented, this is a step beyond what our cases have allowed the affirmative duty to act to go into commerce. If that is so, do you not have a heavy burden of justification? I understand that we must presume laws are constitutional, but, even so, when you are changing the relation of the individual to the government in this, what we can stipulate is, I think, a unique way, do you not have a heavy burden of justification to show authorization under the Constitution?”
    “And the government tells us that's because the insurance market is unique. And in the next case, it'll say the next market is unique. But I think it is true that if most questions in life are matters of degree, in the insurance and health care world, both markets--stipulate two markets--the young person who is uninsured is uniquely proximately very close to affecting the rates of insurance and the costs of providing medical care in a way that is not true in other industries. That's my concern in the case.”
  • Justice Scalia: “Could you define the market--everybody has to buy food sooner or later, so you define the market as food, therefore, everybody is in the market; therefore, you can make people buy broccoli.”

The bottom line: the arguments juxtapose the mandate as a breach of personal liberty vs. its use as a necessary means of stabilizing the health care market because it is unique. The government’s case that it is unique was not strong; by contrast, the plaintiff’s case that the mandate might be a breach of liberty seemed to resonate with conservative justices.

Wednesday, March 28 (91 minutes) –

Key question: is the individual mandate severable from the law?

Arguments in a nutshell: Deputy Solicitor General Edwin Kneedler argued that ACA should stand regardless of the mandate, while Clement argued that ACA should be struck down if the mandate is ruled unconstitutional. Court appointed lawyer H. Bartow Farr argued the mandate is severable from the law.

Comments/questions by justices: Comments were wide ranging with questioning centered around the implication of the mandate on other areas of ACA if deemed unconstitutional. Select comments:

  • Justice Sotomayor: “Why shouldn't we let Congress do that, if in fact, the economists prove, some of the economists prove right, that prices will spiral? What's wrong with leaving it to–in the hands of the people who should be fixing this, not us?”
  • Justice Ruth Bader Ginsburg: “Mr. Clement, there is so many things in this Act that are unquestionably okay. I think you would concede that reauthorizing what is the Indian Healthcare Improvement Act changes to long benefits, why make Congress redo those? So why should we say it's a choice between a wrecking operation, which is what you are requesting, or a salvage job. And the more conservative approach would be salvage rather than throwing out everything.”
    “And if Congress doesn't want the provisions that are not infected to stand, Congress can take care of it.”
    “The adverse selection problem, that there would be so fewer people in there, the insurance companies are going to have to raise the premiums. So it’s nice that Congress made it possible for more people to be covered, but the reality is they won’t because they won’t be able to afford the premium…”
  • Justice Scalia: “What--there is no way that this Court's decision is not going to distort the congressional process. Whether we strike it all down or leave some of it in place, the congressional process will never be the same. One way or another, Congress is going to have to reconsider this, and why isn't it better to have them reconsider it--what--what should I say--in toto, rather than having some things already in the law which you have to eliminate before you can move on to consider everything on balance?”
  • Justice Breyer: “I would say the Breast Feeding Act, the getting doctors to serve underserved areas, the biosimilar thing and drug regulation, the CLASS [Community Living Assistance Services and Supports] Act, those have nothing to do with the stuff that we've been talking about yesterday and the day before, okay?”
  • Chief Justice Roberts: “I mean, can you really suggest--I mean, they've cited the Black Lung Benefits Act and those have nothing to do with any of the things we are talking about.”
    “But what if there isn't Medicaid expansion? We've talked about the individual mandate, but does the government have a position on what should happen if the Medicaid expansion is struck down?”
    “So why shouldn't we be concerned about the extent of authority that the government is exercising, simply because they could do something less? We have to analyze the case on the assumption that that power will be exercised, don't we?”
  • Justice Elena Kagan: “But the problem, Mr. Farr, isn't it, that they’re going to a pool of people that will gradually get older and unhealthier. That’s the way the thing works. Once you say that the insurance companies have to cover all of the sick people and all of the old people, the rates climb. More and more young people and healthy people say, why should we participate? We can just get it later when we get sick. So they leave the market, the rates go up further, more people leave the market, and the whole system crashes and burns, becomes unsustainable.”
    “Although the exchanges function perfectly well in Utah where there is no mandate--they function differently, but they function. And the question is always, does Congress want half a loaf? Is half a loaf better than no loaf? And on something like the exchanges it seems to me a perfect example where half a loaf is better than no loaf. The exchanges will do something. They won't do everything that Congress envisioned.” (Clement responded: Well, Justice Kagan, I think there are situations where half a loaf is actually worse.”)

The bottom line: the feisty exchanges between justices and counsel provided no clarity around severability. The elements of ACA viewed favorably by some justices suggest the mandate is severable from the balance of ACA, while the theme of “Congress’ role” frequently referenced suggests some justices might lean toward remanding the entire law to the legislative branch for a do-over. Odds are severability will applied; though the mandate might be thrown out, other elements of ACA will likely be kept so as not to de-stabilize the market.

Wednesday, March 28 (84 minutes) –

Key question: does the federal government have the right to force states to expand their Medicaid programs via specified eligibility thresholds and rules?

Arguments in a nutshell: Solicitor Verrilli argued that the Medicaid coverage expansion is not coercive to states while Clement argued that the expansion coerces states into expanding their Medicaid programs. Deputy Solicitor General Edwin Kneedler argued the Medicaid expansion could stand without the rest of ACA being enacted.

Select comments:

  • Justice Kagan: “…that really reduces to the question of why is a big gift from the federal government a matter of coercion? In other words, the federal government is here saying, we are giving you a boatload of money. There are no--there’s no matching funds requirement, there are no extraneous conditions attached to it, it's just a boatload of federal money for you to take and spend on poor people's health care. It doesn't sound coercive to me...”
  • Justice Breyer: “I want to know where this idea came from that should state X say, “I don’t want the new money,” that the secretary would or could cut off the old money?”
  • Justice Alito: “Let's say Congress says this to the States… we know your expenditures on education are a huge financial burden, so we are going to take that completely off your shoulders. We are going to impose a special Federal education tax which will raise exactly the same amount of money as all of the States now spend on education; and then we are going to give you a grant that is equal to what you spent on education last year… but of course, if you take it, it's going to have some conditions because we are going to set rules on teacher tenure, on collective bargaining, on curriculum, on textbooks, class size, school calendar and many other things. So take it or leave it…would that be the point where financial inducement turns into coercion?”

The bottom line: the authority of the federal government to direct state programs for the states is not in the constitution. However, its precedents in areas such as Medicaid supported by Congressional authorization seem to suggest the government has the right to set a standard as it did in voting rights and matters of interstate commerce. Given that states may seek waivers (e.g., Section 1115 waivers) in lieu of specific requirements of current Medicaid funding outside ACA, and given that in areas of ACA where waivers for medical loss ratios (MLR), etc. are allowed, it seems unlikely the Medicaid eligibility threshold will be thrown out.

What’s next:

A ruling is expected in June. Regardless of the court’s decisions, big questions face stakeholders. Each must be addressed regardless of the outcome:


  • How should states manage increasing Medicaid enrollment and its associated costs effectively?
  • How should state employee benefits be structured to align better with private sector benefits, reduce long-term state fiscal pressures, and engage employees in better health?
  • How should states regulate the insurance industry—e.g., regulation of health insurance exchanges including private exchanges, premium oversight, solvency and liquidity requirements for plans, and affordability? Might an individual/employer mandate be necessary to stabilizing the insurance markets in a state?
  • How should the health industry’s capacity—technology, beds, workforce—be optimally configured to provide choice while lowering unit costs? Should the delivery systems in a state be loosely regulated and or managed more tightly?

Federal government:

  • How should the federal government manage and fund its health obligations—e.g., Medicare, Medicaid, Child Health Insurance Program (CHIP), military health, federal employee health, and special programs in schools, prisons, and on Indian reservations? What changes are necessary to ensure their sustainability?
  • How should the government encourage innovation in the U.S. health system? How might its current regulatory and tax framework be modified to encourage risk taking by companies and investors?
  • How should the federal government encourage competition and efficiency in the health system?
  • How should federal regulation and policies discourage waste, fraud, and abuse of the system?
  • How should regulators accelerate adoption of electronic health records in concert with personal health records to drive information driven health care?
  • How should federal policy improve access to needed health services for the society considering its income, education, health status, and ethnic disparity?
  • How should public health programs be integrated with local delivery systems to enhance continuity of care and reduce duplication of services?
  • How should the supply, licensing, competencies, scope of practice, and incomes of physicians, nurses, and allied health professionals be regulated—if at all?
  • How should the employer’s tax deductibility for health benefits costs be squared with its post-tax treatment by individuals in the insurance market?


  • Within their industry, what is the value of subsidized health benefits for employees, retirees and dependents? If benefits are necessary, how should a company or industry transition from defined benefit to defined contribution appropriately to sustain a readily accessible workforce?
  • How should companies use sticks and carrots to reward appropriate behavior by employees?
  • How should a company limit its health costs optimally?
  • How should a company leverage its influence at the state, local and federal levels to obtain more value from the system’s stakeholders?

Commercial health plans:

  • How should plans adapt products and services to increased demand by employers, government (Medicaid, Medicare, CHIP), and individuals for improved value and cost management? What new services are part of the solution?
  • How should plans appropriately interact with hospitals, physicians, and other providers to facilitate appropriate care delivered in the most efficient and cost effective ways?
  • How should plans equip consumers and employers to make better health decisions?
  • Hospitals, physicians, and other providers?
  • How should the delivery system be organized to optimize safe, affordable, and effective care?
  • How should its workforce be trained for a future wherein consumers are equipped to make judgments based on costs and quality of treatment options they readily understand?
  • How should inappropriate variation and non-adherence to evidence-based practice be reduced?
  • How should errors be eliminated?
  • How should waste, fraud, and abuse of the system be reduced?

Drug, medical device, and consumer health products manufacturers:

  • How should regulatory and market demand for clinical research, comparative effectiveness, transparency, cost management, and precision medicine be balanced between domestic and global interests of the company? Is the U.S. market still a growth market?
  • How should new methods of clinical research be applied to accelerate attention to promising compounds?
  • How should manufacturers influence consumer and provider preference and use for specifically products and services?
  • How should device manufacturers adapt to increased regulatory scrutiny of group purchasing organizations (GPOs) and new requirements for clinical research to support commercial equivalence?
  • How should pharmacy benefits managers (PBMs) be organized to optimize transparency in business relationships between manufacturers and plan sponsors?
  • How should over the counters, nutraceuticals, etc. be mainstreamed as a substitute treatment with prescribed therapies to optimize use?

Implementation update

Study: guaranteed issue, community-ratings lead to erosion of individual insurance market

A new study commissioned by America’s Health Insurance Plans (AHIP) concludes that in the eight states that had guaranteed issue and/or community rating requirements in 1992-1993 (Kentucky, Maine, Massachusetts, New Hampshire, New Jersey, New York, Vermont, and Washington), the individual market eroded over time, and costs were higher for individual enrollees. In Kentucky and Vermont, the laws have been repealed. In Washington, Maine, and New Jersey, relaxed rules were enacted. (Source: “The Impact of Guaranteed Issue and Community Rating on the Individual Insurance Market” Milliman, March 26, 2012)

Innovation Center delays award date for Health Care Innovation Challenge

Monday, the Center for Medicare and Medicaid Innovation (Innovation Center) created per ACA Section 3021 announced it is delaying its award date for Health Care Innovation Challenge initiative by several weeks to ensure adequate time to review the large number of applicants. Under the Challenge, the U.S. Department of Health and Human Services (HHS) will provide up to $1 billion to those who implement “compelling” ideas to improve the delivery and quality of care while lowering costs for Medicare, Medicaid, and CHIP enrollees. The Challenge will support projects that “rapidly hire, train, and deploy health care workers.” The Innovation Center received 3,000 applications from clinicians, information technology entrepreneurs, medical suppliers, health centers, hospitals, and community-based organizations. The original award date was March 30, 2012. No word yet on the revised date.

Note: the Innovation Center will not determine second round funding recipients until the first round of awardees have been announced.

Legislative update

House passes FY2013 budget authored by Rep. Ryan

Thursday, the House approved (228-191) Budget Committee Chairman Paul Ryan’s (R-WI) fiscal year (FY) 2013 plan which would change Medicaid to a block grant program and Medicare to a premium support program while raising eligibility age to 67. The vote was largely along party lines; no Democrats voted in favor while ten Republicans voted against the budget.

Note: Ryan’s plan would establish discretionary spending caps and a Medicare exchange to facilitate the purchasing of Medicare traditional fee-for-service coverage and private Medicare coverage approved by the federal government. Federal subsidies would be capped at GDP +0.5 percent. Medicaid would be converted into a block grant indexed for inflation and population growth. ACA would be repealed and the Medicare sequester per the Budget Control Act would be replaced with an alternative proposal from the House Ways & Means and Energy & Commerce committees that would save $150 billion over ten years.

Alternative budget proposals fail in the House

Two alternatives to the Ryan budget failed in the House Thursday:

The House voted against (382-38) legislation introduced by Representatives Jim Cooper (D-TN) and Steven LaTourette (R-OH) modeled similarly to the Simpson-Bowles plan that proposed to reduce the deficit by $4 trillion over ten years with two-thirds of the savings from spending cuts and one-third of savings from tax increases.

It also voted against (163-262) the Democrats’ budget framework that would have created a five- or ten-year deficit-neutral Medicare improvement fund with Overseas Contingency Operations money used to pay for a permanent fix to the Medicare physician payment formula and replace it with new payment models and would have reduced the deficit to below 3 percent of GDP by 2015.

Ways and Means Health Subcommittee holds hearings on employer penalty

Thursday, Representative Pete Stark (D-CA) introduced legislation, the Medicare Advantage Program Integrity Act (MAPI) requiring a change to Medicare Advantage (MA) plans’ risk adjustment methodology and delayed payments to MA plans so that the federal government earns interest on the cash flow.

Note: an Office of the Inspector General report concluded that in 2007, MA organizations held funds for approximately 46 days. If CMS had delayed those prepayments like the Federal Employee Health Benefits program by the same 46 days, the Medicare Part A and Part B trust funds could have earned approximately $450 million in interest in 2007.

Senators introduce legislation to expedite FDA approval process

Monday, Senators Michael Bennet (D-CO), Orrin Hatch (R-UT), and Richard Burr (R-NC) introduced the “Advancing Breakthrough Therapies for Patients Act,” which would expedite the approval of breakthrough drugs. The breakthrough designation would apply to therapies that treat serious or life-threatening diseases. The legislation also calls on the Food and Drug Administration (FDA) to hold meetings, interact with the product’s sponsor, and consider smaller or alternative designs for clinical trials for drugs that have strong clinical evidence of improvement with treatments.

Senate Health Committee holds hearing on FDA drug and device user fees

Thursday, the Senate Committee on Health, Education, Labor, & Pensions held a hearing on the FDA user fee agreements supported by the industry on brand-name and generic drugs, medical devices, and biosimilars. FDA drug and device centers directors, representatives from major medical product trade associations (e.g., Pharmaceutical Research and Manufacturers of America [PhRMA], Biotechnology Industry Organization [BIO], Generic Pharmaceutical Association [GPhA], Advanced Medical Technology Association [AdvaMed]), the Pew Charitable Trusts, and a safety advocate testified. These agreements are set to be authorized by Congress this year.

Note: a bipartisan group of senators is proposing to amend the user fee legislation that would require drug makers to warn the FDA at least six months in advance of an anticipated drug shortage of a critical drug, which FDA has endorsed.

State update

CMS funds new CO-OPs

Thursday, HHS awarded funding to three Consumer Oriented and Operated Plan (CO-OPs) in Maine, Oregon and South Carolina, completing round one of ACA funding for CO-OPs. CO-OPs will be able to offer qualified health plans through health insurance exchanges (HIX) starting January 1, 2014 and offer health coverage outside the HIX. Additional awards will be announced on a rolling basis throughout the year.

Note: per ACA Section 1322, ACA offers low-interest loans to nonprofit consumer-governed health insurance plans (i.e., CO-OPs) for start-up and operational costs. HHS has awarded $845,012,408 to ten nonprofits to setup CO-OPs offering care in ten states.

State round-up

Alabama Governor Robert Bentley (R) and Colorado Governor John Hickenlooper (D) will lead the National Governor’s Association’s (NGA) Prescription Drug Abuse Reduction Policy Academy to support strategic planning aimed at reducing prescription drug abuse. NGA will work with seven state teams of senior-level policymakers to examine issues such as prescription drug monitoring programs, privacy safeguards, information exchange barriers between retail pharmacies, and illicit access points such as online pharmacies.

Washington Governor Chris Gregoire (D) signed into law a bill establishing rules for health plans that will participate in the state’s HIX expected to be operational by January 1, 2014. Under the law, the state will use its largest small group insurance plan (silver level) as a benchmark for determining its essential health benefits.

Monday, Maryland’s Senate and House of Delegates approved two companion bills supporting the Benefit Exchange Act of 2012 which implements rules for the state’s HIX. The full chamber is expected to pass the Act which would implement recommendations from an advisory committee to include outlining the types of health and dental plans that can be offered in HIXs, allowing the HIX to use an active purchasing model following the first two years to reduce costs, and allowing Navigator Programs to conduct outreach and to help consumers enroll. The bill is supported by Governor Martin O’Malley (D).

Last week, Connecticut’s Judiciary Committee passed legislation to change a 2005 law that forces people who want to sue health care providers to get an opinion from a “similar” provider supporting their malpractice allegations before they can file their lawsuits. If plaintiffs don't submit such an opinion with their lawsuits, or the opinion doesn't meet the requirements, judges can dismiss the cases before the merits are even heard. The legislation changes "similar" health care providers to "qualified" health care providers and gives plaintiffs 60 days to fix problems with the opinions after being ordered to by a judge.

Industry news

CMS releases final MITA Version 3.0

Last week, the Centers for Medicare & Medicaid Services (CMS) released the final Medicaid Information Technology Architecture (MITA) Framework, Version 3.0, which includes cloud computing and newer technologies required in ACA. Version 3.0 also adds new framework to help states prepare Self Assessment and Advanced Planning Documents to obtain federal funding for information technology (IT) system costs.

Note: MITA is an initiative by CMS to modernize Medicaid Information Technology systems and processes to enhance standardization, efficiency, and data sharing across the health system.

Study: no long-term benefits in pay for pay for performance programs

Wednesday, the New England Journal of Medicine reported on CMS’s six year Premier Hospital Quality Incentive Demonstration (HQID) program. Based on composite 30-day mortality scores for Premier and non-Premier hospitals (12.33 percent and 12.4 percent), the authors concluded “We found the effects of pay for performance on mortality did not differ significantly among conditions for which outcomes were explicitly linked to incentives (acute myocardial infarction and CABG [coronary artery bypass graft]) and among conditions not linked to incentives (congestive heart failure and pneumonia)… expectations of improved outcomes for programs modeled after Premier HQID should therefore remain modest.” (Source: Jha et al, “The Long-Term Effect of Premier Pay for Performance on Patient Outcomes,” The New England Journal of Medicine March 2012)

Note: ACA Section 10326 requires CMS to pilot pay for performance programs for certain Medicare providers including inpatient psychiatric hospitals, long-term care hospitals, and certain cancer hospitals. The Innovation Center is also likely to test such reforms.

Retailers support legislation to repeal ACA employer auto-enrollment provision

Monday, 45 employers and trade association representatives including the Retail Industry Leaders Association sent a letter to Representative Frank Guinta (R-NH) in support of H.R. 2206, the “Auto Enroll Repeal Act” which would repeal Section 1511 of ACA which requires large employers (200 or more employees) to automatically enroll full-time employees into a health plan.

Note: the U.S. Departments of Labor and Treasury and HHS indicated in technical guidance released in February that they do not expect to issue regulatory guidance in time to implement the provision in 2014.

GAO: FDA device review delays problematic

Thursday, the Government Accountability Office (GAO) released a report finding that although the FDA met most of its performance goals, reviews of medical devices are taking longer. The GAO found the review time and time to final decision for original and expedited device applications were highly variable and have increased in recent years. The average time to final decision for original pre-market approval increased from 462 days for FY2003 to 627 days for FY2008, and from FY2005 through FY2010 the average time to final decision for 510(k) s increased 61 percent, from 100 days to 161 days.

Study: academic faculty compensation varies widely

Wednesday, the Medical Group Management Association (MGMA) released a survey about physician compensation in academic settings, noting significant variation by region and academic departments.

Examples: (1) General pediatrics median salaries range from $139,410 in the Southern region to $157,289 in the Eastern region. (2) Specialty care department chairs earned $506,200 compared to primary care department chairs earning $282,296. (Source: Medical Group Management Association – American College of Medical Practice Executives (MGMA-ACMPE), “Academic Practice Compensation and Production Survey for Faculty and Management: 2012 Report Based on 2011 Data,” March 2012)

AMA sends recommendations to CMS regarding upcoming payment incentives

Thursday, the American Medical Association (AMA) along with state and national medical specialty societies sent a letter to CMS expressing concern over the “imminent storm” that will come with the implementation of ACA related programs including the e-prescribing program, physician quality reporting system, and electronic health record program.

Note: previously, via the Physician Quality Reporting Initiative (PQRI), payments to physicians ($6.6 million last year) were for voluntarily reporting information regardless of outcomes, e.g., for participation in PQRI and the Medicare electronic prescribing programs. In the future, payments will be tied to performance and penalties assessed on under-performers. Organized medicine objects to performance-based measures outside control of physicians, citing adverse selection issues, and believes penalties will discourage physicians from participating.


“…disruptions often don’t just foretell the loss of market share by market leads; they foretell their demise. In fact, it is the rare organization that survives multiple disruptive waves. What these survivors have in common is that they not only recognize disruption as a normal part of evolution, they also actively pursue the disruption themselves, by setting up independent centers to develop and test new products, services, and entire business models – places the legacy organization can migrate to over time.”

—Andrew Garman, National Center for Healthcare Leadership, “Navigating the next wave of healthcare disruption,” March 28, 2012

Fact file

  • Seven out of the ten top selling drugs will be specialty drugs by 2016—as compared to three in ten in 2010; four companies are responsible for 65 percent of revenues from pharmacy-dispensed specialty drugs. (Source: Adam Fein, Drug Channels, “7 Reasons Why Specialty Drug Dispensing Will Boom,” March 28, 2012)
  • One in 88 children in the U.S. has been diagnosed with autism spectrum disorder (ASD). Incidence rates vary by region: 1 in 210 children in Alabama compared with 1 in 47 in Utah. 11 percent of 8 year olds have ASD, a 23 percent increase from previous data reported in 2009. (Source: CDC, “Prevalence of Autism Spectrum Disorders – Autism and Developmental Disabilities Monitoring Network, 14 Sites, United States, 2008,” March 2012)
    Note: the Centers for Disease Control and Prevention (CDC) believe the increase is due to improved diagnosis.
  • Heart failure treatment costs $29 billion annually: patients with a high 30-day readmission rate cost $2,000 per day per patient. A recent study found a one-page, 27-item checklist reduced readmission rates among heart failure patients from 20 percent to 2 percent—a finding that remained consistently lower six months after discharge. (Source: American College of Cardiology, “Decreased Readmissions and Improved Quality of Care with Use of Inexpensive Checklist in Heart Failure,” March 2012)
  • The average age of nurses in the U.S. is 50. Most nurses retire between 55 and 58 suggesting 1.2 million nursing jobs will be available over the next decade. (Sources: Christina Orlovsky,, “Hospitals Set Sights on Recruiting and Retaining Retired or Retiring Nurses,” 2006; Joan Hurwitz & Adam Sachs, American Nurses Association, “ANA President to Congress: Better Funding Needed to Address RN Shortage,” March 28, 2012)
  • Medical device industry economic impact: 1.9 million jobs annually, totaling $113 billion in personal income, and $382 billion to the national economy. (Source: Battelle Technology Partnership Practice, “The Economic Impact of the U.S. Advanced Medical Technology Industry,” March 2012)
  • Single person households: In 1950 4 million lived alone (9 percent of total households); in 2011 33 million (28 percent of households) are single persons. (Source: U.S. Census Bureau)
  • Current Medicaid cost sharing (federal medical assistance percentages [FMAP]): the average state receives 57 percent of Medicaid funding from the federal government. The range is from 50 percent (in 14 states) to 73.43 percent. (Source: CMS)
  • Price comparisons (U.S. dollars)
  Argentina Canada France Germany India Switzerland U.S.
Angiogram 665 35 204 245 320 212 798
CT scan: abdomen 98 122 141 354 148 425 584
CT scan: head 78 122 141 272 43  319  510
CT scan: pelvis 64 122 141 354 89 319 522
MRI 116  -- 281 599 138  903 1,080
Costs/hospital per day 380  -- 655  632 236 690 3,949
Costs/hospital stay 1,473  -- 3,396 5,004  -- 4,566 15,734
Total hospital + physician costs: normal delivery 1,291  3,195 2,536 2,157 1,967 8,495 9,280
Total hospital + physician costs: C section 1,640  5,980 4,625 3,441 2,164 12,318 14,374
Total facility + physician costs: cataract surgery 597 2,358 1,356 2,514  885 5,310 3,748
Total facility + physician costs: appendectomy 1,030 5,606 3,164 3,093  254 5,840 13,003
Total hospital + physician costs: hip replacement 3,589 16,945 11,353 11,418 4,308 17,521 38,017
Total hospital + physician costs: CABG 9,319 40,954 16,140 16,578 4,525 25,486 67,583
Total facility + physician costs: angioplasty 2,972 10,060 5,857 6,189 2,557 12,212 26,524
Routine physician office visit 9 30 23 40 16 64 89
Drug prices: Nexium 19 36 23 56 3 69 193
Drug prices:  Plavix 51 74 49 109  68 61 163
Health spending as % of GDP 9.5% 11.4% 11.8% 11.6% 4.2%  11.4% 17.4%

Sources: International Federation of Health Plans; Organisation for Economic Co-operation and Development

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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