Health Care Reform Memo:
August 26, 2013

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: the U.S. health care system: a mosaic of businesses and organizations 

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

Growing up, a movie was a rare treat. My favorites are vivid memories earmarking my journey through life thus far—

Ten Commandments, The Parent Trap and The Sound of Music—epics of my childhood.

MASH and Animal House—the college years, social unrest and challenges to our national invincibility in Vietnam.

Saving Private Ryan, Gladiator, Chariots of Fire, The Jazz Singer, Patch Adams and The Patriot—lives lived with meaning and purpose, though at a high personal price.

And I’ll add The Butler to my list. Directed by Lee Daniels, it chronicles the life of Cecil Gaines who served eight presidents as a butler in the White House. The portrayals by Forest Whitaker and Oprah Winfrey are impressive. But what makes The Butler powerful is the story—a black man born in slavery, whose dignity as a White House butler spanning five decades serves as the backdrop reminder of our troublesome grappling with the issue of race.

Wednesday, President Obama will speak from the same spot at the Lincoln Memorial where Martin Luther King Jr. delivered his “I Have a Dream” speech 50 years ago. And we’ll be reminded that ours is increasingly a pluralistic society—a mosaic of races and creeds that must learn to live together for the common good and purpose.

The same is needed in health care: we are a collective of businesses and organizations whose impact reaches far and wide. We discover the world’s most promising medicines and latest technologies. We educate many accomplished caregivers and scientists. But we are an industry prone to tolerate our shortcomings and prefer incremental change.

It’s understandable: health care system transformation for the greater good is threatening to some and hard work for all.

Cecil Gaines never stopped learning about himself—the good and not so good. He quietly studied his conflicting worlds—at home, in the White House and in his community—to inform his actions. And he changed his mind when the dissonance in those worlds required him to act.

Our health care world is as dissonant as Cecil’s. Our system works for those with insurance coverage but not so well if without. We have the latest and best technologies but little understanding among patients of when and how they’re most useful, or their costs. And our changes are slow.

The Affordable Care Act (ACA) is but one chapter in the history of the U.S. health care industry. Others will be written. And the authors will likely be those leaders who see our industry’s challenges through the long-range lens of history. Like the butler’s story, our journey will be difficult, but no less necessary.

Paul Keckely

P.S. One of my greatest sources of pride is to be part of an organization—Deloitte—that puts diversity and tolerance at the apex of its values.

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Implementation update 

IRS releases proposed rules for small business exchange tax credits 

Last week, the U.S. Internal Revenue Service (IRS) released a 56-page proposed rule for the ACA’s small-business tax credit for employers with 25 or less full-time equivalent (FTE) employees purchasing health coverage through a Small Business Health Options Program (SHOP) exchange.

  • For 2014, the maximum credit will increase to 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers.
  • Employee’s hours of service for a year include hours for which the employee is paid, or entitled to payment, for the performance of duties for the employer during the employer’s taxable year (including hours for paid for vacation, holiday, illness, incapacity including disability, layoff, jury duty, military duty, or leave of absence).
  • Hours of service do not include the hours of seasonal employees who work for less than 120 days a year.
  • General business credit is claimed on an eligible small employer’s annual income tax return and offsets an employer’s actual tax liability for the year.
  • The Internal Revenue Service (IRS) will accept comments on the proposed rule until November 22, 2013.

Background: an eligible “small employer” is an employer with no more than 25 FTEs for the taxable year, whose employees have average annual wages of less than $50,000 per FTE (as adjusted for inflation for years after December 31, 2013), with employee coverage that requires the employer to pay at least 50 percent of the premium cost of a qualified health plan (QHP) offered to employees through a SHOP Exchange.

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Rand Corporation: impact of employer mandate delay 

Last week, Rand Corporation released its study on the effects of the July 2013 IRS decision to delay the ACA employer health insurance mandate requirements by one year. Key findings:

  • 300,000 fewer individuals (0.2 percent of the population) will have access to insurance in 2014
  • 1,000 fewer employers (0.02 percent) will opt not to offer health insurance
  • Federal revenues will be $11 billion less as a result of delayed penalties/fines of employers that would have been assessed to employers for not providing coverage

(Source: Rand Corporation, “Delaying the Employer Mandate: Small Change in the Short Term, Big Cost in the Long Run,” August 2013)

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Gallup: opinions mixed about ACA 

According to a Gallup poll conducted between August 17-18, 2013, more Americans disapprove (49 percent) than approve (41 percent) of the ACA. Other findings:

  • More Americans have “no opinion” of the law now (11 percent) compared to June (4 percent). Less than a quarter believe the ACA will improve their family’s health care situation.
  • 12 percent mentioned not being familiar with the ACA at all.
  • Those who said they were very familiar or somewhat familiar with the law, were more likely to disapprove than approve.
  • 36 percent of young adults (ages 18-34) were “not too familiar” or “not familiar” with the ACA, compared to the 28 percent of middle-aged Americans and 26 percent of those 55 and older. Approval levels across all three age groups were similar.

(Source: Gallup, “Americans Still Wary of, Not Too Familiar With, Health Law,” August 22, 2013)

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HHS promotes coverage for young invincibles 

Last Tuesday, U.S. Department of Health and Human Services (HHS) Secretary Kathleen Sebelius, in collaboration with the non-profit organization Young Invincibles, announced the “Health Young America” video contest to inform young people about health insurance options under the ACA. Young people can also use the site to join web chats or call 1-800-318-2596 toll free to get help from a trained customer service representative.

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IRS launches ACA tax website 

Last Thursday, the IRS launched a website featuring information about ACA tax-related provisions, providing public information about premium tax credits, employer mandates and tax exemption for insurance companies:

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Update: PCORI to award $300 million for research 

Last week, the Patient-Centered Outcomes Research Institute (PCORI) announced it will award $300 million in funding before the end of this year, bringing total grants awards in 2013 to $418 million. Some funding will be targeted to high priority areas where research about ethnic disparity in diagnosis and treatment is the focus (e.g., treatment options for African Americans and Hispanics with severe or uncontrolled asthma). $100 million will support efforts to improve the methods for conducting comparative effectiveness research and $68 million for clinical data and “patient-powered” research networks.

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House committee seeks IRS background files on employer mandate delay 

House Energy and Commerce Committee Republicans have requested the Department of the Treasury Secretary, Jack Lew, turn over additional documentation by September 6 about the agency’s decision last month to delay the employer mandate. The points of inquiry: did the Treasury have the constitutional authority to delay the mandate and were other federal agencies consulted in the decision process.

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80 GOP House, 14 GOP Senators pledge vote against funding of the ACA 

Last week, 80 House Republicans signed a letter urging House leadership to defund the ACA in upcoming spending bills. In the Senate, 14 GOP members have announced support for a similar effort to defund the ACA led by Mike Lee (R-UT) and Ted Cruz (R-TX).

Note: a GOP-sponsored survey of 1,000 registered voters conducted July 31-August 1 by David Winston found 71 percent oppose a government shutdown over ACA funding including 53 percent of Republicans. Key findings in the poll:

  • Republican men favored a shutdown by a 48 percent to 44 percent margin compared to Republican women opposed, 61 percent to 29 percent.
  • Among Republicans who called themselves conservative, those who said they are very conservative favored shut down by 63 percent to 27 percent, while those who said they are somewhat conservative opposed shut down by 62 percent to 31 percent. Overall, Republicans who call themselves conservative were evenly split on the issue, 46 percent to 46 percent.
  • Conservative Republicans are 19 percent of the entire electorate. Of these, 9 percent call themselves very conservative and 10 percent say they are somewhat conservative.
  • Among people who say at this point that they plan to vote for the Republican candidate in 2014—regardless of who it is—51 percent said they opposed a shutdown, while 40  percent favored it.

(Source: Byron York, “GOP poll finds strong opposition to government shutdown,” Washington Examiner, August 22, 2013)

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Legislative update 

FDA considers ban on online sales of electronic cigarettes 

The U.S. Food and Drug Administration (FDA) is considering stopping online sales of electronic cigarettes, according to the Wall Street Journal. The agency has been in talks with industry stakeholders and plans to release an official proposal in October. According to recent estimates, e-cigarettes are expected to reach $1 billion in sales this year.

(Source: Stephen Drill, Wall Street Journal, “FDA Discusses Banning Online Sales of E-Cigarettes,” August 23, 2013)

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State update 

Voter registration during HIX enrollment focus of debate 

Policy experts are debating whether or not to offer voter registration alongside health insurance exchange (HIX) enrollment―an issue that could to end up in litigation. Section 7 of the National Voter Registration Act of 1993 states that voter registration must be offered at “any government agency providing public assistance, including health insurance coverage.” However, Congressional Republicans and some states disagree, contending it is inappropriate to register voters simultaneously. Additional resources and mandatory training for state HIX staff, volunteers and navigators, may be necessary to ensure voter registration requirements are met; putting states in an even tighter time crunch for the October 1 open enrollment deadline. California, New York and Vermont have opted to offer voter registration as part of their HIX enrollment.

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CMS signs agreement to manage, protect data flow between states and federal agencies 

Last Tuesday, the Centers for Medicare and Medicaid Services (CMS) entered into a Computer Matching Agreement (CMA) with state-based entities to set procedures for accessing CMS’s federal Data Hub (HUB), used to determine eligibility of insurance affordability programs. The CMA requires any suspected data breaches to be reported to the Center for Consumer Information and Insurance Oversight State Officer within one hour of the suspected breach, who will notify other federal agency data sources involved. States must also notify the Internal Revenue Service (IRS) Office of Safeguards, the Treasury Inspector General for Tax Administration and the office of the appropriate Special Agent-in-Charge within 24 hours of the suspected data breach.

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USA Today analysis: disciplinary actions by state medical boards against physicians fall short 

USA Today looked at data from the National Practitioner Data Bank, a federal database of incidents of physician malpractice and patient endangerment finding that state medical boards failed to take disciplinary action against more than half of doctors who had their hospital privileges suspended. Almost 250 cases involved "an immediate threat to health and safety" and 120 who were "unable to practice safely," including substance abuse problems.

(Source: USA Today, “Thousands of doctors practicing despite errors, misconduct,” August 20, 2013)

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HIX update 

16 states—12 led by Democratic governors, three led by Republicans and one Independent—and the Democratic mayor of D.C. have announced plans to operate state-based exchanges. Seven states—five led by Democratic governors and two led by Republicans—will participate in state-partnership exchanges. The remaining 27 states will default to a federally-facilitated exchange.*

State-based exchange State- partnership exchange Federally- facilitated exchange
CA, CO, CT, DC, HI, ID**, KY, MA, MD, MN, NM**, NV, NY, OR, RI, VT, WA AR, DE, IA, IL, NH, MI, WV AK, AL, AZ, FL, GA, IN, LA, KS, ME, MO, MS, MT, NC, ND, NE, NJ, OH, OK, PA, SC, SD, TN, TX, UT*, VA, WI, WY

Democratic Governor Republican Governor Independent Governor

*UT: individual market will be a federally-facilitated exchange; small business health options program (SHOP) will be a state-based.

**NM & ID: federal government will help run the individual market. States will continue to maintain plan management and consumer assistance functions; HHS will operate the IT system. SHOP will be state-based.

(Source: HHS)

  • Last week, California state officials announced a back-up plan if its HIX infrastructure isn’t ready October 1. “If the system is not ready, the exchange would at first use an ‘aided enrollment’ in which counselors help California residents sign up over the phone or in person.” The delay would be similar to a move by Oregon to put off online enrollment in its HIX while technical kinks are ironed out.

    Related: the California Endowment announced a $9.2 million, three-year grant to help educate low-income Californians about their health insurance options. Endowment funding will be awarded to the Health Consumer Alliance, which provides legal aid to poor Californians.

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Medicaid expansion update 

To date, 23 states and DC have said they will or are likely to expand their Medicaid programs; 24 states have indicated they will not expand their programs in 2014:

Expected to expand Medicaid Will not expand Maybe

Democratic Governor Republican Governor Independent Governor

(Sources: NASHP and Kaiser Family Foundation. Updated as of July 1, 2013)

  • Friday, Iowa Governor Terry Branstad (R) formally submitted a Medicaid expansion waiver to CMS, requesting an expedited approval as the state’s current waiver is set to expire at the end of the year. The plan would expand coverage to all individuals earning up to 138 percent of the federal poverty level.

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State round-up 

  • Texas legislators approved Senate Bill 1175 to establish a program facilitating the reuse of durable medical equipment (DME) to Medicaid recipients. The reused equipment must meet applicable standards and Medicaid recipient participation in the program is voluntary. In 2012, Texas spent $781.5 million on Medicaid DME. Also, the Perry Administration is preparing a formal application to capture funds from the Community First Choice program—an ACA-created plan to help states deliver better quality services in the community for long-term care patients.
  • The California State Assembly passed Senate Bill 21 requesting The School of Medicine at the University of California, Riverside (UCR) to use recently acquired funds ($15 million) to address southern California’s need for more primary care physicians.

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Industry update 

Moody's outlook for hospital reimbursement problematic 

“The modest increase next year in reimbursement rates for inpatient services in hospitals is not enough to address the rates of rising hospital costs and is a credit negative for not-for-profit hospitals,” per Moody's Investors Service. In early August, CMS announced the rate for acute hospitals would increase by 0.7 percent in 2014 vs. 2.8 percent increase in 2013. Hospital costs are expected to grow by 2.5 percent next year.

(Source: Jaimy Lee, ModernHealthcare, “Reform Update: PCORI to award $300 million for research,” August 21, 2013)

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Survey: employers concerned about cost, interest in wellness and private exchanges significant 

Highlights of the Towers Watson survey of 420 mid-sized and large companies representing 8.7 million in the U.S. workforce:

  • Employers believe health care costs will increase by 5.2 percent in 2014 over 2013’s costs, down from an expected 5.9 percent increase in 2013. Projected 2014 per employee total cost is $12,769, compared to $12,136 in 2013.
  • Nearly three quarters believe health care reform will drive up the cost of providing health care to their employees.
  • 98 percent plan to keep their active medical plans for 2014 and 2015.
  • 82 percent agreed that coverage is and will continue to be “an important part of their employee value proposition.”
  • Approximately 70 percent agreed they “have a stronger commitment to improving employee health because of health care reform”
  • 10 percent of employers plan to cut back on pre-retiree coverage, increasing to 38 percent in 2015.
  • 88 percent lack confidence in state HIXs in 2014 and 61 percent felt the state exchanges wouldn’t be working well in 2015. Private exchanges were preferred as a viable alternative in 2014 by 37 percent and by 57 percent by 2015.
  • 60 percent of employers report that the “Cadillac tax” will be an important factor in framing health care strategies over the next two years.

(Source: Wall Street Journal, “Health Care Reform Heightens Employers' Strategic Plans for Health Care Benefits,” August 21, 2013; Dan Cook, BenefitsPro, “Large employers committed to health coverage,” August 21, 2013)

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MGMA, HIMSS caution against unfair penalties in Stage 2 meaningful use implementation 

Friday, two influential trade groups issued statements cautioning HHS about Stage 2 implementation of the Meaningful Use program because providers will not be ready and penalties for circumstances beyond their control would be unfair. The Medical Group Management Association (MGMA) is asking HHS to give providers more time to attest to Stage 2 and the American Hospital Association (AHA) and American Medical Association (AMA) want HHS to delay the start date for Stage 2. The vendor trade group Healthcare Information Management and Systems Society (HIMSS) urged HHS to start Stage 2 on schedule but to push back the attestation period to April 2015 and June 2015 to give providers a longer time to show they are successfully using the certified medical record technology.

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Critical access hospitals get support from senators 

Last week, 20 senators sent a letter to the Senate Finance Committee defending critical access hospitals (CAHs) in the aftermath of an Office of the Inspector General’s (OIG) report that said two-thirds of the CAHs did not qualify for the designation costing Medicare $449 million in 2011. (See the Monday Memo from August 19 for additional background on the OIG’s CAH recommendation.)

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Nursing Homes concerned about value-based purchasing, bundled payments 

Last week, officials of the American Health Care Association (AHCA) representing post-acute providers issued a response to a letter sent by the House Ways and Means and Senate Finance Committees, stating their members could support value-based purchasing and bundled payments, but first more research is needed and on-going demonstration projects need to be modified.

Background: Ways and Means and Finance Committees are looking for sources of funding to offset the Sustainable Growth Rate (SGR) formula fix ($139 billion). AHCA discouraged cuts from post-acute providers as a means of funding the SGR.

AHCA is urging Congress to consider its site neutral payment proposal, which it estimates could save $15 billion to $20 billion over 10 years. AHCA's plan would group beneficiaries by clinical conditions and severity and payments would be the same regardless of where beneficiaries are treated.

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Private exchange enrollment update 

A study by Accenture predicts that enrollment in private exchanges will be 1 million in 2014 and surpass HIX enrollment by 10 million members in 2018.

Background: there are two private HIX models: single-carrier and multi-carrier. The employer selects the carrier and the employee selects from among the benefit plans offered by that carrier. The multi-carrier model allows an employee to select from among several carriers and benefit plans.

(Source: Margaret Dick Tocknell, HealthLeadersMedia, “Private HIX Pose Challenge to Public Health Insurance Exchanges,” August 15, 2013)

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Device reporting changes increase burden on manufacturers 

Medical device adverse event reporting requirements will likely increase under draft guidance released last month requiring manufacturers to notify the FDA when their products have caused or could cause serious injury or death to patients, including problems associated with device malfunctions. Under the old system, companies were required to report all malfunctions over a two-year period after the device first caused or contributed to a death or serious injury. In the current draft guidance, the FDA removed the two-year time frame and requires firms to file and receive an exemption to cease reporting related to previous device incidents. Further, contract manufacturers will now have to seek an exemption from the reporting requirements, whereas previously the contract manufacturer and the specification developer/distributor would enter into an agreement about which firm would do the reporting. Foreign manufacturers will also have to get an exemption if the importer files a report.

The FDA guidance also implies that a surgical team's error in choosing a device could result in a report and a report should be filed if an alarm alerts a user to a malfunction but the health care provider intervenes before the device can harm a patient. The draft guidance also suggests manufacturers may need to investigate adverse events identified in scientific articles and other publications.

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Co-pays for home health increase costs: trade group 

In comments to the Senate Finance and House Ways & Means Committees, the National Association for Home Care and Hospice (NAHC) says home health co-payments do not reduce Medicare spending. Instead, the industry recommends fraud-and-abuse fighting measures, such as strengthening Medicare provider eligibility standards.

NAHC cited a 2009 Avalere study that found the early use of home health was associated with a $1.71 billion reduction in Medicare post-hospital spending from 2005 to 2006 and 24,000 fewer hospital readmissions resulting in $216 million reduction in Medicare costs.

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“I love nurses…one of the keys to reducing our health care costs overall is recognizing the incredible value of advanced practice nurses and giving them more responsibilities because there’s a lot of stuff they can do in a way that, frankly, is cheaper than having a doctor do it, but the outcomes are just as good.”

—President Obama speaking of the ACA at Binghamton University in New York Thursday, August 22, 2013

“Our large, employment-based insurance system has historically been propped up by tax subsidies that make it cheaper than directly purchasing individual insurance. For the lower-middle-income population, the ACA reverses this distortion, potentially shifting the inequity in the opposite direction. Group coverage has some merits: when managed by a well-run, attentive benefits department, it can be less administratively costly than individual insurance, better tailored to workers' needs and less prone to adverse selection. Economically, it would be ideal to offer equal subsidies regardless of how a person obtains qualified coverage, creating efficient choices between individual and group coverage. Perhaps the current threat to the employer mandate and target efficiency will induce us to confront the full fiscal cost of fair subsidies. Making subsidies available on a uniform basis at each income level would ideally lead to better choices of insurance products, less heated political rhetoric and an opportunity to focus on other pressing problems in our health care system.”

—Mark V. Pauly and Adam A. Leive, “The Unanticipated Consequences of Postponing the Employer Mandate,” New England Journal of Medicine, August 22, 2013

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Fact file 

  • ACO update: of the 488 ACOs in the U.S., 253 (52 percent) have contracts with CMS (ACA Section 3022, Medicare Shared Savings Program). (Source: Leavitt Partners report, "Growth and Dispersion of Accountable Care Organizations: August 2013 Update”)
  • Physician acceptance of Medicare patients: the number of physicians accepting new Medicare patients increased by 3 percent between 2007 and 2012 and is higher than the number of physicians accepting new private insurance patients per an HHS report. (Source: HHS Office of the Assistant Secretary for Planning and Evaluation)
  • Global health care IT outsourcing market: forecast to grow at a compound annual growth rate (CAGR) of 7.6 percent, to $50.4 billion by 2018 from $35 billion in 2013: 72 percent, of the current global health care IT outsourcing is in North America and will reach $36 billion by 2018 from $25 billion in 2013. Asia-Pacific and rest of the world are expected to register CAGRs of 8.1 percent and 7.8 percent (2013 to 2018) respectively, followed by North America at 7.6 percent and Europe at 7.2 percent. (Source: Markets and Markets Research)
  • Premiums increases 2013 vs. 2012: family premiums increased 4 percent in 2013 — same as in 2012 and individual premiums increased 5 percent vs. 3 percent in 2012. (Source: Kaiser Family Foundation, “2013 Employer Health Benefits Survey”)
  • Health care cost trend: health care prices increased 1.1 percent from July 2012 to July 2013―the lowest recorded growth rate since 1990. National health care expenditures increased 4.3 percent in June and 4.1 percent from January to June 2013―slightly higher than the historically low rate recorded in 2009. Health care spending as a part of gross domestic product (GDP) decreased from 18 percent to an average of 17.4 percent. (Source: Altarum Institute’s Center for Sustainable Health Spending, Health Sector Economic Indicators, August 2013)
  • U.S. physicians trained in family medicine: more than 67 percent of family medicine residents graduated from U.S. allopathic or osteopathic medical schools this year vs. 58 percent in 2009. (Source: American Academy of Family Physicians)

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