Health Care Reform Memo:
June 18, 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.

Breaking news

The Supreme Court announced five rulings this morning; of the 16 remaining, four are focused on the Affordable Care Act (ACA):

  • Is the Anti-Injunction Act of 1867 applicable to ACA, i.e., is the individual mandate a “tax” or penalty?
  • Is the individual mandate a violation of the Commerce Clause of the U.S. Constitution?
  • Is the mandate severable from the balance of the law?
  • Is the ACA requirement that Medicaid eligibility requirement for states at 133 percent of the federal poverty level a usurpation of federal control over states?

These rulings are expected Thursday, June 21 or Monday, June 25. A “special edition” Monday Memo will summarize the court’s rulings when announced.

My take: hear me now, believe me later: Forecasted impacts of the Supreme Court rulings

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

My oldest son, Jason, is fond of prefacing something he thinks prophetic with “hear me now, believe me later”. As suspense builds around the announcement from the Supreme Court either today, Thursday, or next Monday, June 25, here’s my view of what’s ahead:

  • The Court’s rulings will not change the trajectory of health reform. It might alter the course temporarily, but inevitably, the unsustainable costs of the system combined with its value gap will drive its transformation.
  • If the individual mandate is thrown out, as some suspect, state-based alternatives will be put in place quickly lest insurance companies suspend coverage or pass through higher costs in significant premium increases. Employers will accelerate transitions from defined benefit to defined contribution plans, and entrepreneurs will develop private health exchanges that allow customization of risk for individuals and businesses seeking coverage. The $113 billion in employer penalties in the ACA (2012-2022) to fund subsidies for the health exchange eligible enrollees might increase as employers gauge exiting benefits altogether, resulting in “government” becoming the primary channel for coverage for up to 70 percent of the population within ten years, summing exchanges, Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), military health, Federal Employees Health Benefits (FEHB) Program, the Indian Health Service (IHS), Veterans’ Affairs (VA), and other programs.
  • And the public’s expectation for a high-performing, high-tech, high-touch health system that pays for everything and requires little on their part will be ground zero for a new debate likely to be featured in Campaign 2016: can the system be sustained given benign neglect of the role consumers play in its excessive costs? Given studies that indicate health costs are increasingly the result of unhealthy lifestyles, and unhealthy lifestyles more prevalent in under-served, uninsured, economically challenged strata of our society, what combination of sticks and carrots might government and industry use to change the dangerous trajectory? And as Millennials inherit the system’s liabilities and inequities from glaring waste, inefficiency, and supply-driven demand, will they chuck the whole thing in favor of something else? Does health care face an “Arab-spring” of its own as younger generations assume responsibility for its fiscal instability?

Last week, we released our 2012 consumer survey findings; once again, the results paint a sobering picture of what lies ahead, with or without the ACA. Next month, we will release our employer survey: equally sobering. The facts:

  • Consumers do not think the health system performs effectively (see Table A).
  • Consumers blame the industry‘s waste and ineffectiveness on many factors: they get it (see Table B).
  • They want change. And the younger folks are receptive to reforms that older folks and policy-makers are seemingly shy to consider.

I don’t know how or when the Court will issue its rulings. Four of its 21 remaining rulings are central to the future of the U.S. health system—the individual mandate, the scope of the federal government’s control over state Medicaid eligibility, and the applicability of the anti-injunction and severability technicalities.

But as Jason says, hear me now, believe me later: the transformation of the U.S. health system is underway, and consumers along with employers will have the greatest say in how it evolves.

Stay tuned. Chapter one of U.S. health reform will end with the court’s pronouncements. Chapter two starts the day after regardless of its rulings.

Table A: system performance

Table A: system performance

Table B: wastefulness and fraud

Table B: wastefulness and fraud

Paul Keckely

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

Implementation update

Director Larsen leaving CCIIO

Director Steve Larsen is leaving the Center for Consumer Information and Insurance Oversight (CCIIO) in mid-July to join UnitedHealth Group as Executive Vice President at OPTUM. Mike Hash, currently the director of the U.S. Department of Health and Human Services (HHS) Office of Health Reform, who will serve as interim director. CCIIO responsibilities include:

  • Ensuring compliance with new insurance market rules, such as the Patient’s Bill of Rights
  • Helping states review unreasonable rate increases and overseeing new medical loss ratio rules
  • Providing oversight for state-based health insurance exchanges and compiling data for
  • Administering the Consumer Assistance Program, Pre-Existing Condition Insurance Plan, and Early Retiree Reinsurance Program

Note: Larsen’s departure is for personal reasons, but comes at a time when the Supreme Court will announce its rulings this month that will impact state efforts to create health insurance exchanges. If upheld, states must submit plans by the end of the year for their exchange or risk having the federal government develop and operate their exchange.

Study: $1 trillion at stake in Supreme Court decision

The Bloomberg Government study concluded that more than $1 trillion in revenue from 2013-2020 is at stake if the Court strikes down all or part of the law. Four sectors would be impacted most by the reductions:

  • Hospitals—$430 billion or 4.7 percent
  • Drug manufactures—$124 billion or 3.8 percent
  • Home health providers—$94 billion or 11 percent
  • Nursing homes—$87 billion or 5.9 percent

Source: Bloomberg Government Study, June 15, 2012 (

Hospitality, restaurant industry coalition seeks delay in employer penalties

Last week, the Employers for Flexibility in Health Care Coalition representing large employers in the hospitality and restaurant industries submitted an 18-page letter to the U.S. Internal Revenue Service (IRS) and the Centers for Medicare & Medicaid Services (CMS) urging the agencies to issue health care regulations immediately. The coalition expressed concern that formal guidance or rules on the employer shared responsibility requirements have not yet been issued, and sufficient time will not be available for budget and planning processes to occur for full implementation. They also argued that due to regulatory uncertainty, HHS should delay the ACA’s employer penalties until 2016, concluding, “This transition period will help the administration evaluate the impact of the new requirements and deter employers from reactively dropping coverage if it is determined that revisions to the rules are necessary once all of the provisions are effective. Such transition relief could be provided specifically for employers who offer coverage to employees and are working to meet PPACA’s requirements without undermining the intent of the shared responsibility requirements of the law for employers or individuals.”

Note: April 5, 2012, the coalition sent a 36-page letter to the Office of Health Plan Standards and Compliance Assistance Employee Benefits Security Administration requesting standardization and flexible implementation around key provisions impacting the employer health benefits coverage requirements of ACA they deemed problematic given the nature of their workforces, e.g. 90-day waiting period for benefits, etc. (see

Actuaries’ study: potential implications of risk mitigation programs in ACA

The ACA prevents health insurers from denying coverage, excluding individuals from coverage based on pre-existing health conditions, or varying premiums by gender or health status. It also includes three risk mitigation programs to ensure insurers are compensated fairly for risks they bear through the new provisions. The three programs in the ACA include:

  • Section 1341: a transitional reinsurance program that provides additional funds to health plans that enroll individuals with high medical spending. This provision requires the HHS Secretary to establish federal standards for the determination of high-risk individuals, a formula for payment amounts, and the contributions required of insurers, which must total $25 billion over the three years.
  • Section 1342: a three-year transitional risk corridor program, which mitigates risks associated with mispricing premiums when the estimated medical spending of potential enrollees is uncertain. If a plan’s costs (other than administrative costs) exceed 103 percent of total premiums, the Secretary makes payments to the plan to defray the excess. If a plan’s costs (other than administrative costs) are less than 97 percent of total premiums, the plan makes payments to the Secretary. Note: this is intended to mitigate risks between passage of the ACA (3/10) and full implementation of the ACA 1/14).
  • Section 1343: a permanent risk adjustment program that shifts funds from plans that enroll healthy populations to those that enroll less healthy populations. Risk adjustment applies to plans in the individual and small group markets, but not to grandfathered health plans.

The Society of Actuaries analysis of these issued last week concludes:

  • Risk mitigation programs appear to reduce financial risks to health plans. At the same time, overly restrictive premium rate limitations can lead to high federal risk corridor payments.
  • Risk mitigation programs are especially important for plans in states with less restrictive issue and rating rules prior to ACA.
  • Grandfathered plans will reflect a relatively healthier population over time.
  • The individual market is expected to grow rapidly starting in 2014.

(Source: Society of Actuaries, “Design and Implementation Considerations of ACA Risk Mitigation Programs,” 2012).

CMMI announces new ACO funding grants, House Committee inquires

Last week, the Center for Medicare and Medicare Innovation (CMMI) announced a new application cycle starting August, for an additional round of advance payment accountable care organizations (ACOs). After the announcement, the Ways and Means Oversight Subcommittee Chairman Charles Boustany (R-LA) wrote a letter to CMMI requesting information on $123 million in innovation grants to be awarded. The letter requests that CMMI provide copies of applications, describe the application review process and teams, and the names of officials responsible for selecting awardees by June 27, 2012.

ACO update: 65 operating today, anticipated growth

Key takeaways from last week’s ACO Summit in Washington, DC:

  • There are currently 65 fee-for-service organizations among the three ACO initiatives -- Pioneer ACO demonstration, Shared Savings Program and the physician practice group demonstration programs—the number is expected to double by the end of year.
  • CMS will begin a third cohort in January—participants will be announced after July 1.
  • ACOs have shown a 38 percent increase in the past six months—221 partnerships in 45 states and the District of Columbia, up from 160 ACOs in 40 states in November 2011. Hospitals were more involved as sponsoring organizations, growing from 99 to 118 ACOs as the primary backers.

Source: Jonathan Blum, CMS Medicare chief Jonathan Blum, June 7 at the ACO Summit, Washington DC; Leavitt Partners, “Growth and Dispersion of Accountable Care Organizations: June 2012 Update”

Note: section 3022 of the ACA, the Medicare Shared Savings program, authorizes CMS to enroll accountable care organizations that are appropriately “clinically integrated” the opportunity to manage Medicare fee-for-service panels and participate in savings if quality thresholds are met for 33 core measures. The second program, Pioneer ACOs, is intended for organizations with advance population health risk management expertise.

Senate Committee rejects amendment to disallow use of Preventive Health Fund for advertising benefits of ACA

Last Thursday, the Senate Appropriations Committee rejected an amendment by Sen. John Hoeven (R-ND) to block HHS from using the Prevention and Public Health Fund to advertise the ACA. The amendment failed 14-16 along party lines.

Note: the Prevention and Public Health Fund was created as a part of ACA (Section IV). It stipulates that $15 billion will be available through the Fund between FY2010 and FY2019, and $2 billion every year thereafter. During the first five years of the Fund’s existence, the yearly amounts gradually increase to $2 billion per year ($500 million in FY2010, $750 million in FY2011, $1 billion in FY2012, $1.25 billion in FY2013, $1.5 billion in FY2014, and $2 billion in FY2015).

By law, the Fund must be used “to provide for expanded and sustained national investment in prevention and public health programs to improve health and help restrain the rate of growth in private and public health care costs.”

CMS: 14 million Medicare beneficiaries receive preventive services

Last Monday, CMS reported that 14 million Medicare enrollees with at least one preventive service during the first five months of 2012 and 32.5 million enrollees in 2011 received one or more preventive service without any out-of-pocket payment as a result of Sections 4103, 4104, and 4105 of ACA. To date, 1.1 million Medicare beneficiaries have received their annual wellness visit. Prior to enactment of these provisions, beneficiaries shared the cost of many preventive services such as cancer screenings. (Source: CMS,

Legislative update

Health spending growth projected to average 5.7 percent annually through 2021

New estimates released last week from the Office of the Actuary at CMS project that aggregate health care spending in the U.S. will increase at an average annual rate of 5.7 percent for 2011-2021, 0.9 percent faster than the expected growth in the gross domestic product (GDP). The health care share of GDP by 2021 is projected to rise to 19.6 percent, from its 2010 level of 17.9 percent. By 2021, government spending at all levels for health care is projected to reach 50 percent of total national health expenditures, with the federal government accounting for approximately two-thirds of that share. Spending increased 3.9 percent in 2011, 3.9 percent in 2010, and 3.8 percent in 2009—a historic low.

The major effects of ACA—coverage expansions, private health insurance premium increases—are expected to be felt most acutely in 2014 with an expected increase of 7.4 percent (vs. 5.3 percent without the law), with notable increases in spending on physician services and prescription drugs by the newly insured. For 2015-2021, the average increase will be 6.2 percent. During the 2010-2021 period, ACA is projected to cut the number of uninsured individuals by 30 million, add 0.1 percentage point to the annual growth rate in health care spending, and add $478 billion to cumulative health spending. For the five-year period immediately after the insurance exchanges, Medicaid expansions, and other major provisions in the reform law are implemented, however, health care spending growth is expected to be trimmed by 0.1 percentage point.

Source: “National Health Expenditure Projections: Modest Annual Growth Until Coverage Expands and Economic Growth Accelerates,” CMS, June 12, 2012 (scheduled to appear in the July issue of the journal Health Affairs).

Senate Appropriations Committee approves 20 percent increase in CMS operating budget for implementation of ACA

Thursday, the Senate Appropriations Committee approved (16-14) the Labor, HHS, Education, and Related Agencies Appropriations Subcommittee FY13 budget for CMS that provides a 20 percent increase to its operating budget to implement the ACA. The bill provides $158.8 billion in discretionary funding (1.9 percent increase), including $3.2 billion for CMS—a $500 million increase over FY12. Targeted CMS increases include childcare and Head Start, disabilities and preventive health expansion, among others. It also includes $71 billion for HHS, up from $69.6 billion (+2.0 percent) last year, $100 million increase for the National Institutes of Health (NIH), $558 million for childhood immunizations, and $610 million for health care fraud and abuse control in CMS.

The appropriations committee rejected (14-16) an amendment from Senator Richard Shelby (R-AL) that would have prohibited HHS from hiring any new employees to carry out ACA initiatives, as well as an amendment by Senator John Hoeven (R-ND) to block HHS from using the Prevention and Public Health Fund to advertise the ACA.

Subcommittee Chairman Senator Tom Harkin (D-IA) stated after the bill passed 10-7 on party lines, “I recognize that funding for the Affordable Care Act is a big stumbling block for the other side. But it’s the law. So I have a responsibility as chairman of this subcommittee to ensure that HHS has the funding it needs to implement the law.” Ranking Member Senator Richard Shelby (R-AL) responded in disagreement, “It is illogical to pour money into programs that may be ruled unconstitutional should the Supreme Court decide to overturn Obamacare. I cannot support a bill that provides billions of discretionary dollars to further fund a massive government expansion that will devastate our federal budget and have catastrophic effects on our current health care system.” “Summary: Fiscal Year 2013 Labor, Health and Human Services, and Education, and Related Agencies Appropriations Bill” subcommittee mark June 12, 2012.

House committee requests information on health IT safety

Last week, Chairwoman of the House Small Business Subcommittee on Health and Technology, Representative Renee Ellmers (R-NC), wrote a letter to HHS seeking information on the agency’s plan to address the patient safety risks associated with the use of health information technology (IT), such as electronic prescription equipment. She expressed concern that the cost to purchase and maintain health IT systems, staff training and downtime, and requirements for meaningful use contribute to patient injuries and deaths. The letter requests that HHS provide a detailed list of all health IT-related errors that involve medication doses, failure to detect a fatal illness, and treatment delays due to human-computer interactions, in addition to details on how HHS will track health IT-related incidents, members of the health IT safety council, and any related internal reports or investigations.

Note: in 2011, the Institute of Medicine (IOM) released a report calling for greater health IT oversight by the public and private sectors. The report examined a broad range of health information technologies, including electronic health records, secure patient portals, and health information exchanges, and recommended HHS publish a plan within 12 months to minimize patient safety risks associated with health IT and report annually on the progress being made thereafter. (Source: IOM, “Health IT and Patient Safety: Building Safer Systems for Better Care’, November 2011)

GOP senator challenges administration for advising against cancer test

In a Houston Chronicle op-ed last week, last week Senator Kay Bailey Hutchison (R-TX) challenged the U.S. Preventive Services Task Force (USPSTF) decision to recommend men forego the prostate-specific antigen (PSA) test for prostate cancer screening. Senator Hutchison criticized the administration for giving the task force expanded powers and stated, “The PSA is not perfect, in part because it does not differentiate between malignant and benign cells. But it is undeniable that it has saved lives. Before the test was available, 80 percent of men diagnosed with prostate cancer were already in advanced stages; today, that number has dropped to 20 percent and the death rate has declined significantly. Not only has the PSA saved thousands of lives, early detection has saved countless men from the pain and discomfort of cancer treatment. Rather than discounting the test wholesale, we should be directing our scientific efforts towards refining and improving the test.”

Note: prostate cancer is the most common cause of death from cancer for men 75 and older and is rarely found in men under the age of 40. Risk factors that can compound men’s chances of developing prostate cancer include being older, African American, having a family history of the disease, and being overweight or obese. There are two ACA considerations: in ACA, the Secretary of Health is required to review recommendations of the USPTF in determining appropriate preventive health programs for which commercial insurance and employer-sponsored plans must cover—most without a co-payment. And in ACA, the creation of the Patient Centered Outcomes Research Institute (PCORI) is intended to validate the relative efficacy and value for diagnostic and screening test as part of its overall comparative effectiveness research program, paying close attention to ethnic and socio-economic disparities in the findings of USPTF and other deliberative bodies.

State update

CMS grants $300 million for Medicaid long-term care program enhancements in four states

Wednesday, CMS announced grants of $295.6 million for “enhanced” Medicaid funding to Iowa, Georgia, Mississippi, and Missouri under the Balancing Incentives program, per Section 10202 of ACA. The program allows states to increase access to non-institutional long-term services and for the development of tools to help consumers assess long-term care quality. To participate in the program, states must have spent less than 50 percent of their total Medicaid medical assistance expenditures on non-institutionally based long-term services and supports in FY09.

Study: state Medicaid spending to increase 3.9 percent in 2013

State Medicaid spending is forecast to increase 3.9 percent in fiscal year 2013, which starts July 1 for most states—down from 20.4 percent the previous year, as states no longer received extra money from the federal government because of the stimulus law, the American Recovery and Reconstruction Act (ARRA). The Medicaid spending growth rate will likely outpace the growth of overall general fund expenditures, and, during the past ten years, Medicaid growth has exceeded the increases in all other categories of state spending. (Sources: “Fiscal Survey of the States” June 12, 2012 National Governors Association, National Association of State Budget Officers)

State actions on insurance, health insurance exchanges

To date, 15 states and the District of Columbia have indicated they intend to set up a state-run health insurance exchange per Section 1311 of ACA, while 17 others have no plans per the Center on Budget and Policy Priorities. Announcements last week:

  • Monday, the Rhode Island House of Representatives approved legislation to bring the state's health insurance laws in compliance with President Obama's federal health care law regarding medical loss ratios, essential health benefits, etc.
  • Tuesday, Hawaii Governor Neil Abercrombie issued a “declaration letter” to CCIIO verifying that Hawaii is establishing a state-certified health insurance exchange, the Hawaii Health Connector. “Hawaii is actively pursuing the establishment of a State-Based Exchange through the Connector.” The establishment of the Connector meets the provisions of ACA. The letter ensures Hawaii’s exchange will be locally controlled rather than federally operated.
  • Delaware announced it will utilize the federal partnership exchange offered by HHS as a result of its small population. Delaware officials have been meeting with other small states to discuss concerns on making exchanges financially sustainable. Only 35,000 people are projected to enter the state’s exchange in 2014, rising to no more than 50,000 to 60,000 people by 2019. The state will handle health plan management, in-person consumer assistance, the navigator program, and education and outreach efforts of the exchange while the federal government will be responsible for eligibility and enrollment.
  • Georgia will begin allowing out-of-state health plans to sell insurance to residents on July 1, however, no insurance companies have applied to participate. The bill’s sponsor, Representative Matt Ramsey (R-GA), believes that insurers have yet to shown interest due to uncertainty surrounding the U.S. Supreme Court’s decision regarding the ACA.

State oversight of health markets

The average state spends 26 percent of its operating budget for its health care activity, mainly for Medicaid and CHIP programs, and state employee health benefits. In addition, states oversee licensing for health professionals, management of public health programs, regulation of commercial insurance, and more. Among announcements last week:

  • New York legislators unanimously approved a bill requiring physicians to issue electronic prescriptions within three years. The state health department will publish regulations by December 31, 2012 for electronic prescriptions including narcotics, steroids, and opioid analgesics like hydrocodone. The bill also requires pharmacists to report filling painkiller prescriptions to a database in “real time” with patient and prescriber names, and physicians to check patient records before writing new prescriptions. Health officials will be permitted to disclose drug registry information with the attorney general's Medicaid Fraud Control Unit and medical examiners. In addition, the legislation will allow for the reclassification of drugs for tighter restrictions. Governor Andrew Cuomo (D) has publicly promised to sign the bill into law.
    Note: the New York State Department of Health currently collects pharmacy prescription information every 30 to 45 days for the state registry, but pharmacists are not permitted to check these records.
  • The Massachusetts Senate unanimously passed legislation that would require the state Department of Public Health to establish minimum standards for facilities with dementia care units. Current law allows nursing homes to advertise specialized Alzheimer’s and dementia care units, even though workers may not have specialty training. The House approved the bill last month.
  • Iowa's state employees will be required to pay 20 percent of their health care costs under a demand Gov. Terry Branstad will make during union negotiations this year costing state workers $46.3 million a year. Most state employees currently pay nothing in health care premiums.

Industry news

Three national insurers announce plans to maintain ACA provisions regardless of Supreme Court outcome

Last week, UnitedHealth, Aetna, and Humana announced they will continue to maintain popular benefits of ACA regardless of the U.S. Supreme Court decisions later this month. The three will continue to offer coverage for dependent’s until age 26 and require no copayments for certain preventive services. Note: per the Health Research and Education Trust, in 2011, provisions for compliance with ACA added 1.5 percent to health insurance premium costs against overall premium cost increases averaging 9 percent.


Bill Copeland, National Health Industry Practice Leader, Deloitte: “Health insurance plans had to make major changes to their offerings within 180 days of passage of the Affordable Care Act while simultaneously looking ahead at the long-term implications of health insurance exchanges, the individual mandate and employer penalties. These announcements illustrate the ever-changing dynamics of this sector as it navigates in a complex regulated environment while continuing to serve its customers—individuals, employers, states, and federal plans.”

America’s Health Insurance Plans (AHIP) President and CEO Karen Ignagni: “Health plans’ top priorities are providing peace of mind and continuity of coverage to their beneficiaries. No matter what the Supreme Court decides, individuals and families should rest assured that their current coverage will remain in effect. While every health plan will make its own decision, many will maintain important patient protections, including the new rescissions standard. In addition, consumers and employers will continue to have the option of purchasing coverage that includes many of the benefits they have today, such as allowing dependent children to stay on their parents’ policies until age 26. Health plans also will continue to lead on delivery system reforms that promote prevention and wellness, help patients and physicians manage chronic disease, and reward quality care.”

Ethan Rome, Executive Director, Health Care for America Now, Huffington Post, “Don't Be Fooled By the Big Insurance Companies,” June 12, 2012: “What the insurance companies didn't say – and what they won't do – is the real story. They aren't saying they will stop discriminating against people with pre-existing conditions as the law requires beginning in 2014. That would be a big deal, because that part of the law will stop 129 million people with chronic conditions like diabetes, high blood pressure and asthma from being over-charged or being denied coverage. They also have not offered to keep covering children with pre-existing conditions – a provision which has already taken effect and insurers have fought.”

Study: employer wellness investments modest

Employers on average spend 2 percent of their total health care dollars annually on wellness programs Per Section 10408 of ACA, $200 million is authorized for workplace wellness grants to small businesses though the funds were not appropriated. The administration has taken $10 million from the controversial Prevention and Public Health Fund to attempt to portion out some money to small employers. However, it's unclear if large employers will make similar investments on their own. (Source: National Business Group on Health)

Medicare Advantage enrollment up, premiums down

Medicare Part C (Medicare Advantage) plan enrollment increased 10 percent last year to 13.1 million seniors (27 percent of total Medicare enrollment) while the average monthly charge fell $4 to $35—down from $44 in 2010. ACA cuts to the program were projected to save $136 billion over ten years. (Sources: Kaiser Family Foundation, Congressional Budget Office)

CalPERS to raise health care premiums 9.6 percent

The California Public Employees' Retirement System (CalPERS) plans to raise its health insurance premiums to its 1.3 million members by an average of 9.6 percent—more than twice the rate hike that took effect for this year.

FDA delays decision on HIV-prevention drug

Last week, the U.S. Food and Drug Administration (FDA) announced it would delay by three months the decision to approve or deny a drug for the prevention of human immunodeficiency virus (HIV). The FDA’s decision had been expected last Friday, but the agency decided to delay the decision to give time for review of the new plan from manufacturers to limit the risks to healthy individuals taking the new drug. According to Gilead Sciences, the drug, when taken daily, reduces the risk of infection by more than 90 percent. The FDA will now make its decision by September 14.

AMA House of Delegates this week

Support for a Medicare premium support program will be a major item for consideration in this week’s House of Delegates. The American Medical Association’s (AMA) Council on Medical Service, which recommends policy for the organization, unanimously agreed to withdraw an earlier recommendation to back a premium support model for Medicare. The AMA version would have had premium support coexist with traditional Medicare. Other priorities for AMA: replacement of the sustainable growth rate formula for physician payments, and malpractice reform.

Genetic mapping completed

Wednesday, the NIH announced completion of its $173 million project to use genetic mapping to understand bacteria that contribute to infections—micro-organisms that outnumber human cells 10:1. (Source: Nature, 242 research subjects, five years, 80 research organizations)

Note: NIH funding for basic research leading to genotypically associated disease recognition is key to the development of personalized therapeutics.

Study: DSH payment reductions put safety net hospitals at risk

Per Section 2551 of ACA, which sets reductions in the Medicaid disproportionate share (DSH) payments to hospitals, “could put many safety net hospitals in financial turmoil”. DSH payments will be reduced by a total of $18 billion from 2014 to 2020. Today, DSH payments total around $11.5 billion—the reduction assumes that the number of uninsured that will decrease over the next decade will make up for these lost revenues. (Source: National Association of Public Hospitals)

Note: Section 3133 of PPACA includes provisions to initially cut Medicare DSH payments by 75 percent beginning in federal fiscal year 2014. These reductions are anticipated to total $22.1 billion over ten years based on Medicare Payment Advisory Commission (MedPAC)'s findings that only 25 percent of hospitals' Medicare DSH payments are actually justified by the cost of providing care to indigent patients. The law also mandates that specified portions of these savings will result in additional payments to providers based on a realigned payment system of better allocated reimbursement of their remaining uncompensated care costs.

Section 2551 of PPACA includes provisions to cut Medicaid DSH payments by $14 billion over ten years, also beginning in fiscal year 2014. These Medicaid DSH allotment reductions will not be tied directly to increases in levels of insurance coverage. Rather, they will be based on the state's number of uninsured and how the state treats hospitals with high Medicaid and uncompensated care volumes.

Drug companies seek revisions to PDUFA to protect, generic manufacturers resist

The Generic Pharmaceutical Association, AARP, and 16 other trade groups are at odds with major pharmaceutical manufacturers who want to strip out a provision of the Senate’s Prescription Drug User Fee Act (PDUFA) bill that would give generic companies quicker access to samples of brand name drugs. Background: the FDA can impose Risk Evaluation and Mitigation Strategies (REMS) on certain drugs with special risks. About 86 drugs are in the REMS program now, and the requirements range from additional safety instructions to providers to very stringent restrictions on who can gain access to the drugs at all.

Committee report: increase oversight of drug supply chain

Senator Jay Rockefeller (D-WV) and Representative Elijah Cummings (D-MD) issued a letter to House and Senate leaders reporting the findings of their six-month drug shortage investigation. The report highlights “gray market” distribution supply networks in which rogue companies buy, sell, and transfer drugs, marking up prices at each stage. The letter encourages Congress to consider whether legislative proposals to modify the current federal law on pharmaceutical supply chain security would adequately address the identified risks.

Note: in May, Representative Cummings introduced the Gray Market Drug Reform and Transparency Act of 2012, which would prohibit wholesalers from purchasing prescription drugs from pharmacies and enhance information and transparency regarding drug wholesalers engaged in interstate commerce.

Study: use of imaging tests doubles, concern for radiation exposure increasing

The use of diagnostic imaging in the U.S. doubled from 1996 to 2010 and were similar for those with Medicare, private fee for service and HMO coverage. In the 15-year study period, enrollees underwent a total of 30.9 million imaging examinations—1.18 tests per person per year; annual increases were highest computed tomography (CT), magnetic resonance imaging (MRI), nuclear medicine, and ultrasound: CT examinations, (+7.8 percent annually), MRI (+10 percent) and ultrasound (+3.9 percent). The study also found that that increased utilization of CT scans resulted in an increase in enrollee exposure to radiation—the percent of enrollees who received high (>20-50 mSv) or very high (>50 mSv) radiation exposure during a given year nearly doubled. The researchers concluded that the increase in imaging utilization was driven improvements to technology that have led to expansion of clinical applications, patient- and physician-generated demand, defensive medical practices, and medical uncertainty. (Source: Smith-Bindman, Rebecca et al, Journal of American Medical Association, “Use of Diagnostic Imaging Studies and Associated Radiation Exposure for Patients Enrolled in Large Integrated Health Care Systems, 1996-2010”, June 2012)

Hospitals ask CMS to retract inclusion of medical staff on governing board

The American Hospital Association (AHA), the National Association of Public Hospitals and Health Systems, and the Association of American Medical Colleges (AAMC) wrote letters to CMS in response to the hospital and critical access hospital (CAH) Medicare & Medicaid Conditions of Participation final rule published in May (see Monday Memo, May 14, 2012), expressing concern about a new requirement that a hospital governing body must include a member or members of the hospital’s medical staff. They argue that investor-owned hospitals have the right and responsibility of the investors to select members who govern the organization and that many public hospitals that directly elect board members would not be able to meet the new requirement. The letters also claim that CMS’s inclusion of these policy changes only in the final rule violates the federal Administrative Procedure Act, which promotes public participation in the rulemaking process to facilitate more informed agency decision making by establishing notice and comment procedures.


“Those who know don’t talk. And those who talk don’t know.”

Justice Ruth Bader Ginsburg speaking at the American Constitution Society in Washington DC, June 15, 2012

“We protect the freedom of religion because we think it is wrong to coerce belief. Thomas More's story shows what can happen when those protections break down.”

John Garvey, president of Catholic University, Wednesday, June 13, 2012 U.S. Conference of Catholic Bishops in Atlanta discussing Catholic lawsuit against ACA contraception coverage requirement

“You know, regardless of what they do, it’s going to be up to the next president whether to repeal or replace Obamacare, or to replace Obamacare. I intend to do both...”

Mitt Romney, Orlando, June 12, 2012

“This morning, Mitt Romney promised that if he’s elected, insurance companies will be able to discriminate against Americans with pre-existing conditions, charge women higher premiums than they charge men for the same coverage and kick young adults off their parents’ plans when they graduate high school or college.”

Obama campaign, June 12, 2012

Fact file

  • Health care prices: in April 2012, up 1.9 percent compared with April 2011—above a 14-year low of 1.8 percent recorded in February 2012. (Source: Altarum Institute’s Health Sector Economic Indicators)
  • Health employment: increased by 33,000 jobs in May 2012 of 69,000 private sector jobs added for the month. (Source: Bureau of Labor Statistics)
  • Health status of uninsured: unemployed Americans are less likely to practice good health habits than are those who are employed, scoring a 59.1 on the organization’s Healthy Behaviors Index, while those employed full-time or voluntarily part-time scored 62.9. (Source: Gallup)
  • Primary care: by 2015, workplace clinics will serve 10 percent of the American population under the age of 65. Employers save $1.60 to $4 for every dollar they invest in a worksite clinic. (Sources: Fuld & Co survey of Fortune 500 employers, Government Finance Officers Association)
  • Supply driven or demand driven: the number of ultrasound examinations doubled, the number of CTs tripled, and the number of magnetic resonance imaging scans quadrupled from 1996 to 2010. The rates of utilization were the same for Health Maintenance Organizations (HMOs) and traditional fee-for-service payment models. (Source: Journal of the American Medical Association)
  • Academic research compensation: even after adjustment for differences in specialty, academic rank, leadership positions, publications, and research time, there remained an absolute difference of $13,399 per year between the sexes. Before adjustment, the overall average salary for men was $200,433 or 16.3 percent higher than women, whose average salary was $167,669 (P=0.001). (Source: Journal of the American Medical Association, June 13, 2012)
  • Small employer health insurance tax credit: 170,000 small business employers claimed the tax credit in 2010—fewer than the 1.4 to 4 million estimated to be eligible for the credit. The cost of these claimed credits was $468 million, and most employers were limited to partial percentage credits because of the average wage or full-time equivalent requirements. 28,000 employers claimed the full credit percentage. One factor limiting the credit’s use is the fact that most small employers do not offer health insurance. (Source: Government Accountability Office, “Factors Contributing to Low Use and Complexity,” May 2012)
  • Physician hospital call coverage compensation: in 2011, 43 percent of family physicians, internists, pediatricians, and obstetrician-gynecologists received compensation for hospital call coverage—up from 39 percent in 2010. Median daily compensation for primary care physicians was $234 ($100 for family physicians who do not deliver infants). 80 percent of surgical specialists surgeons were paid with neurosurgeons highest at $1,740 per day. (Source: Medical Group Management Association, “Medical Directorship and On-Call Compensation Survey: 2012 Report Based on 2011 Data,” 2012)
  • Employer-sponsored insurance: 86 percent say they will continue or are likely to continue to provide employer-sponsored health insurance in 2014; 1 percent of the respondents indicated they would not provide health insurance to their employees in 2014 and would direct them to the health exchanges to find coverage. (Source: International Foundation of Employee Benefit Plans, 2012)
  • Massachusetts health care costs: 14 percent of sick adults in the state indicated they were unable to get health care they needed—7 of 10 indicated financial reasons as the cause. (Source: Harvard School of Public Health, “Poll: Many Sick Americans Experience Significant Financial Problems And Report Their Care Is Not Well-Managed,” May 2012)
  • Self-employed cost of health care coverage: 85 percent of respondents to a recent survey indicated that rising health coverage costs have been detrimental to them, their families, and their businesses over the past three years. Even if the ACA lowers their costs, more than 65 percent of the self-employed and businesses with ten employees or fewer aren’t sure if they’ll provide health coverage. (Source: National Association for the Self-Employed, “Access to Health Coverage and Attitudes on Health Reform: A Self-Employed Perspective,” June 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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