Health Care Reform Memo: November 2, 2009 A 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 new administration and implications for the C-suite and various stakeholder groups.

House bill presented Thursday — public option not tied to Medicare +5 percent a notable change

In presenting the new House Bill (building on Tri Committee’s HB3200 voted out of the Committee in July), House Democrats offered a glimpse of the anticipated points of debate as it is goes to the floor this week.

The bill excludes the $247B “physician fix” reducing its price tag below the President’s $900B expectation and a public option that permits HHS’ negotiation with providers over rates instead of the Medicare-based payment earlier proposed.

In its current form, it is reported to be deficit neutral as a result of additional industry fees and productivity updates added to the formula for hospital/nursing facility market basket updates. A snapshot compared to the Senate bills:

Some interesting features of the House bill:

• $173B 10 year savings from increased productivity was added to the market basket update calculations in HB for hospitals, nursing facilities and other facilities (Senate Bill has similar language with savings forecast of $155B over 10 years).
• House bill cuts payments to drug companies $140B versus $80B in Senate Bill and lets the Secretary of Health and Human Services (HHS) negotiate directly with drug companies for Medicare reversing provision in Medicare Modernization Act (12/03). It also mandates rebates of $60B to seniors eligible for Medicare and Medicaid. But the bill also permits a 12 year period of data exclusivity for biotech drugs—thus keeping generic competition at bay for several years (many House Energy and Commerce Committee members had wanted a five year exclusivity period). The bill also phases out completely the gap (the donut hole) in Medicare prescription drug coverage (MMA) by 2019.
• Insurance industry reforms/regulatory changes are significant: No denial of coverage based on pre-existing conditions. No higher premiums allowed for pre-existing conditions or gender. Limits on higher premiums based on age and insurers will be required to spend 85 percent of premiums on actual costs to insure, or pay rebates if less than that 85 percent is spent. It also eliminates exemption from antitrust laws covering market allocation, price fixing and bid rigging and gives the Federal Trade Commission (FTC) authority to investigate the industry’s trade and marketing practices.
• The threshold for the House bill’s 5.4 percent surtax on individuals ($500,000 modified adjusted gross income) and families ($1,000,000 modified adjusted gross income) is not indexed for inflation; thus as compensation increases, additional tax filers will pay the tax. Currently, about 0.3 percent of filers, or about half a million returns would be affected.
• Health insurance exchanges would begin in 2013. Individuals on COBRA would be permitted to stay in their COBRA policy until the exchanges are up and running. Subsidies for individuals and families up to 400 percent of the federal poverty level (FPL) and small businesses up to ten employees would be available on a sliding scale. States could opt out of the federal exchange by developing their own if they comply with federal regulations; and large employers are not precluded from the exchange after several years. BENEFITS PACKAGE: A committee would recommend a so-called essential benefits package including preventive services; out-of pocket costs would be capped. The new benefit package would be the basic benefit package offered in the exchange.
• Federal funding for Medicaid expansion: The federal government will pay 100 percent of costs for expanded Medicaid enrollment in 2013 and 2014; and 91 percent thereafter.

Monday: Grassley requests information from HIT industry about business practices

Chuck Grassley (R-IA), Ranking Minority leader of the Senate Budget Committee released a letter to ten HIT companies requesting records of provider “complaints/ concerns” related to contractual provisions that place increased legal responsibility on them for errors and information about gag orders used by the companies to preclude disclosure of “system flaws and software defects”.

Blumenthal: $564M for states to form health information exchanges

Speaking to reporters last week, Office of the National Coordinator for Health Information Technology (ONC) Director David Blumenthal indicated he felt the Congressional Budget Office’s (CBO) scoring of $12 billion savings from the stimulus plan’s investment of $21 billion in health information technology was low. A major role in achieving higher savings, he believes, is the application of community/statewide health insurance exchange (HIE) efforts to which a $564 million is set aside. “Patients are suffering because necessary information is not available at the point of care. With robust health information exchange, there can be improved quality of care and improved care coordination. Today, the average 65-year-old with five chronic conditions has 14 doctors and is on multiple medications.”

U.S. Department of Commerce economic outlook update: Slow recovery, health costs, interest on debt driving federal spending up faster than overall economy

The gross domestic product (GDP) for September was up 3.5 percent but consumer spending fell 0.5 percent from August, the U.S. Department of Commerce (DOC) said Friday. In its release, the DOC said health care spending and increased interest payments on the national debt were driving overall cost increases. The CBO projects outlays for Medicare and Medicaid will be almost 2 percent higher than the GDP in 2019 compared to 2008, even after accounting for the initial cost savings included in the President’s budget plan. By 2019, the DOC estimates that federal spending on Medicare and Medicaid will exceed the entire defense budget, and total annual spending on health care will be higher than expenditures on all domestic discretionary programs and Social Security.

The only category of federal spending that will rise more than health care is interest payments on the national debt. Of course, the size of future interest payments is in large part a product of the size of future deficits.

Small business focus of White House reform push

Citing an 18 percent differential in health premiums comparing what small business pay above larger businesses for the same products in a Thursday speech to small business owners, the President said his health bill would provide tax credits for 3.6 million companies to buy insurance at a 25 percent premium reduction through the health insurance exchange.

Benjamin confirmed

Alabama primary care physician Dr. Regina Benjamin was confirmed as surgeon general Thursday by voice vote replacing Dr. Donald Weaver who had served on an interim basis. Benjamin had been president of the Alabama Medical Association and received several prestigious awards in her public health career.

Hopkins study: 17,000 children died as result of lack of insurance

In the Journal of Public Health study, the correlation between insurance status and hospital mortality was analyzed. Researchers found that uninsured children were 1.6 times more likely to die than children who had insurance. Currently, 7.3 million children under 18 lack insurance—down from a high in 1987 due to expansion of the SCHIP program overseen by states.

CDC swine flu update

The CDC estimates that between 1.8 million and 5.7 million Americans were infected from April to July, resulting in 9,000- 21,000 hospitalizations. Citing its challenges in capturing adequate data to accurately size the pandemic, the CDC estimates that confirmed cases (43,700) represents only 2 percent of actual numbers of the infected. To date, H1N1 has claimed 800 lives including more than 100 children.

Snapshot

Each week the Monday Memo will feature a special focus area to provide deeper background on topics related to health policy issues.

2009 Deloitte Survey of Global Health Consumers – report coming soon Surveys of 10,305 adults in Germany, Switzerland, France, United Kingdom, Canada, and United States were conducted in October and November 2008 (U.S. and Canada) and July 2009 (Germany, Switzerland, France and the U.K.). Results indicate citizens in Switzerland and France are significantly more satisfied with their system than others. Canadians appear to be least satisfied compared to others.

Understanding of national health care systems varied among respondents to the 2009 Global, Canadian, and U.S. consumer surveys. 37 percent of French adults and 36 percent of Canadian adults reported “complete understanding” of their health care system compared to the U.K. (27 percent), the U.S. (27 percent), Switzerland (23 percent), and Germany (22 percent).

55 percent of French and Swiss residents rated their health system as excellent — higher than Canada and significantly above grades for the U.S., U.K. and Germany. U.S. survey conducted by Deloitte LLP Canadian survey conducted by Deloitte Canada Global surveys conducted by Deloitte Touche Tomatsu

C-suite action items

All:

• Maintain close scrutiny of House and Senate deliberations as bills unfold
• Develop and play-out planning scenarios reflecting the potential changes resulting from health reform

Life sciences organizations (devices, pharma, biotech)

• Evaluate portfolio and assess risk tolerance given likely changes in regulatory oversight and changes in FDA review processes
• Assess impact of biosimilars exclusivity provisions in reform bills
• Evaluate how industry fees will be shared by trade organizations, integrated into pricing
• Monitor comparative clinical effectiveness deliberations

Health insurance companies

• Monitor new regulations in health reform bills
• Assess state-level strategic relationships where opt out opportunities might exist
• Develop product design alternatives with varied scenarios from post-reform
• Monitor public and employer reputation: assess strength of relationships and trust

Employers

• Assess pay or play scenario’s impact on benefits design

Providers (hospitals, allied health professionals, ambulatory providers)

• Assess impact of episode based payments on clinical and operating models
• Expedite plans for accelerated cost reductions
• Assess potential for integration of local delivery system: physicians, long term care

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