Health Care Reform Memo: October 5, 2009

A Deloitte Center for Health Solutions publication

Health Care Reform Memo: October 5, 2009 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.

President links health reform to economic recovery in weekly address

President Obama used Saturday’s radio address to build support for a health reform bill calling it “critical for the economy”. The President focused his remarks on the affordability of health insurance for small businesses as a factor in job growth, noting they pay 18 percent more for the same insurance policies big businesses offer, thus hurting their ability to provide insurance and hire employees.

Finance committee marathon hearings end: what’s next? First-hand observations

At 2 a.m. Friday morning after seven grueling days of debate, the Senate Finance Committee turned over its amended bill to the Congressional Budget Office for scoring hoping to vote this Tuesday. With 564 amendments to consider, the Chairman methodically worked the group through each major section with vigorous exchanges occasionally punctuating the otherwise laborious process. Having watched live/replay the deliberations, key takeaways are these:

Partisanship and positioning

Senators John Kyl (R-AZ) and John Cornyn (R-TX) echoed previous GOP positions throughout, challenging virtually every amendment based on concern that the price tag is too high, the timing bad due to economic uncertainty, and bigger government a likely result.
Senators Rockefeller (D-WV) and Schumer (D-NY) voiced positions of the left, suggesting at times issues like the public option not currently in the Baucus bill would find their way to the final bill, and regularly challenging the committee to be reflective about the uninsured and poor who lack insurance.
Senator Kent Conrad (D-ND) advanced fiscal restraint throughout the proceedings, citing budget deficits and delayed economic recovery as necessary constraints for a massive health reform bill.
Senator Olympia Snowe (R-ME) captured pundit attention at every vote as the lone suspected defection from the ten Republican votes in the Committee. On most issues, she stayed with the party; in one significant break with her colleagues, she voted with the Democrats to reduce the penalties and delay them until 2014 for those not purchasing insurance via the individual mandate.
Senator Max Baucus (D-MT) managed the committee, deftly balancing opposing views with occasional flashes of humor and parliamentary order. Seemingly content to debate each amendment in full view, the Chair injected a consistent theme at key intervals—his goal of a bill that will get 60 votes in the Senate.
The Senate Finance staff—maybe the unsung heroes of the process! As each amendment was considered, staff routinely responded to committee member requests for data underlying assertions in the bill. As each nightly deliberation ended after 10pm, the staff convened to prepare for the opening gavel at 9:30am the next day. Sleep deprivation must be a job requirement for the team!

What’s in the final Senate Finance version?

Individual mandates with penalties beginning in 2014 for individuals and families that do not have insurance, and subsidies up to 300 percent of the federal poverty level to assist in purchasing
Insurance industry reforms—waivers of pre-existing condition, narrowed risk banding and increased transparency, and a health insurance exchange accessible to small businesses and uninsured Americans
Expansion of Medicaid eligibility to 133 percent of the federal poverty level, with the federal government picking up 77-95 percent of the cost for the newly enrolled—estimated to be 17 million
Employer pay or play mandate—though not a mandate per se, a strong incentive to encourage businesses above 100 employees to purchase insurance or pay a penalty
Not-for-profit co-operatives—locally run, enrollee governed health insurance co-ops that will get government seed funds to create lower priced insurance options
Physician transparency—significant increased access to data profiling variance in practice patterns and quality differentials between providers
Bundled payments for hospitals—episode based payments for major Medicare events encouraging physicians and hospitals to pay closer attention to care coordination and post-discharge complications
And funding by reducing Medicare payments, taxing Cadillac plans and imposing fees on industry (which admittedly the Committee acknowledged would likely be passed through)

What’s next?

The Senate Finance Committee will vote on its bill once the Congressional Budget Office (CBO) offers its price tag assessment (likely to be above $800 billion—an increase from its earlier assessment at $770 billion)—possibly as early as Tuesday.
Then the Senate Health Education, Labor, and Pensions bill will be merged with the Senate Finance bill per a specially appointed committee by Majority Leader Reid (D-NV) with a goal of putting a bill before the full Senate by the end of October. While a filibuster-proof 60 vote bill from the Senate is notably the goal for many, many believe it will be passed with 51-55 votes as a few key Democratic moderates vote against. NOTE: Senator Reid announced last week the Senate would forego its Columbus Day recess the week of 10/12 to debate the health bill.
In October, a parallel process in the House will lead to a vote on its Tri Committee bill that will once-again feature drama about defections from 52 “Blue Dog” Democrats who fear the public option and prefer a bill under $800 billion.
As the two houses deliberate and vote, the process might stretch into November. Then a special committee of representatives from both chambers will be appointed to reconcile differences in the bills, craft a single bill for confirmation in their respective chambers, and then get the President’s signature before year end.

Will a bill pass?

The odds are good. The Democrats have the numbers, but the slow recovery of the economy and the concerns of moderates in the party are likely to temper a bill that might otherwise be more pervasive in its impact. The net result will likely be a bill that reduces uninsured to fewer than 20-25 million over 5 years (6-7 percent), regulates the insurance industry more aggressively, gradually shifts incentives to providers from volume to outcomes, and increases efforts in transparency, fraud detection and the use of information technology to coordinate care and reduce inefficiency. Will it slow the rate of health costs (bend the curve) to less than 5 percent? Possibly but not without additional delivery system reforms that are not a major feature of the current bills.

Fact file

Medicare Part D premiums will increase 11 percent in 2010 to an average of $38.85/month for beneficiaries who stay with current plans (up 50 percent since program began in 2006). In addition, 61 percent of plans will require enrollees to meet a deductible before coverage begins (42 percent in 2006) and 80 percent will have a gap (the donut hole) as enrollees hit $2,600 in annual drug costs up to $6,100 (versus 75 percent of plans in 2006). (Centers for Medicare and Medicaid Services)

Unemployment increased to 9.8 percent in September as 263,000 lost employment. “Health care remained a rare bright spot, adding 19,000 jobs in September, but construction jobs slipped by 64,000, manufacturing declined by 51,000 and retail lost 39,000 jobs.” 5.4 million have been without jobs for more than six months.

Underemployment (people whose hours were cut) reached 17 percent—highest since 1983. While hourly wages increased 2.5 percent for the hourly workforce, weekly earnings increased 0.7 percent, as employers cut working hours to an average 33 hour work week. (Bureau of Labor Statistics)

FEHP premium increases 8.8 percent for 2010—Federal employees enrolled in the Federal Employees Health Benefits Program will pay an average $5.98 for individual coverage and $12.87 for family coverage per pay check in 2010, according to a release Tuesday by the Office of Personnel Management (OPM). The increase compares to a 7.9 percent jump in 2009 and a 2.9 percent increase in 2008, according to OPM.

White House considers extension of stimulus safety net provision to sustain economic recovery

So-called “safety net” provisions of the stimulus bill (ARRA 2/17/09) might be extended as the economic recovery seems to be slower than anticipated. Extension of the first-time home buyers program and COBRA benefits participation are on the list of items that would have expired December 31, 2009. 60 percent of the stimulus is yet not spent or contractually obligated but extension of the safety net provision will likely drive the stimulus package costs to $900 billion—$113 billion more than originally approved. NOTE: The health reform debate in both houses will be impacted by fiscal moderates who prefer a lower cost reform bill in light of slower-than-expected economic recovery resulting from the forecast for a $1.56 trillion deficit in 2009.

FDA to review Menaflex decision: spotlight on device review process and increased oversight

Last week, the Food and Drug Administration (FDA) announced it will review its decision to fast-track approval of a knee-repair device acknowledging pressure from New Jersey’s Congressional delegation might have influenced its decision to approve Menaflex application—a knee stabilizer used for torn meniscus developed by ReGen Biologics Inc. of Hackensack, N.J. The company had applied for approval under a fast-track procedure based on “substantial equivalence” to others already on the market thus not requiring proof of safety and efficacy. The FDA’s scientific reviewers found that other devices were not equivalent but the company obtained approval as a result of unusual influence of the NJ congressional delegation and circumvented its usual procedures. The FDA announced it will review the Menaflex decision and is revising its internal procedures to ensure that decisions are properly documented and follow standard protocol. It has asked the Institute of Medicine to review the process by which medical devices are approved. NOTE: Overhaul of the FDA is a major focus of several congressional panels as food safety, tobacco regulation, post-market surveillance of drugs, and biologic generics top its expanded oversight agenda.

Quotable

"There is no doubt that the U.S. health care system suffers from widespread inappropriate variation and waste. Solving this problem, however, requires collaboration and statesmanlike leadership. Comparative effectiveness, when appropriately implemented by policy-makers and industry stakeholders, has the potential to be an engine for renewed innovation in the design and delivery of evidence-based care—one that holds the promise of improved care and reduced costs for Americans."

“The Impact of Comparative Effectiveness on U.S. Healthcare Providers,” Healthcare Financial Management Association, October 2009, John T. Bigalke, FHFMA, CPA, is vice chairman and U.S. industry leader, Health Sciences & Government, Deloitte LLP

Special report: Swine flu pandemic preparedness

While attention is on health reform, the swine flu is a major item as its pandemic impact is assessed. A telephone survey of 1,000 U.S. adults conducted September 10-13 by the Deloitte Center for Health Solutions suggested consumers are aware of the swine flu potential but not inclined to act urgently to protect themselves. Key findings are:

Perceptions of swine flu

Most of Americans surveyed (52 percent) do not believe the H1N1 virus, or swine flu, will have a major impact in the U.S., compared to 44 percent who believe it will.
Men (58 percent) are more likely than women (46 percent) to believe the virus will not have a major impact.
Nearly half (48 percent) of women believe that the virus will have a major impact in the U.S.
The uninsured (60 percent) and African American respondents (71 percent) are more likely to believe the swine flu will have a major impact in the U.S.
Respondents in the Northeast (58 percent) and West (56 percent) are more likely to believe the swine flu will not have a major impact in the U.S., compared to 49 percent of respondents in the South and 45 percent of respondents in the North Central region who say it will have a major impact.

Plans for vaccination

More than half of respondents (53 percent) say they plan to get vaccinated, compared with 41 percent who say they will not be vaccinated.
The majority of respondents (79 percent) say they know the symptoms of the virus and where to get vaccinated (78 percent).
Significantly less of the uninsured population surveyed are aware of the symptoms (68 percent) of swine flu or where to get vaccinated (57 percent), and less plan to get vaccinated (49 percent).
Respondents who are underinsured, or have inadequate insurance, are even less likely to plan to get vaccinated than the uninsured (46 percent compared with 49 percent).
Respondents 55 to 64 and respondents 65 and older, are more likely to know where to get vaccinated (86 percent and 83 percent, respectively) compared to respondents 18 to 34 (73 percent); 35 to 44 (79 percent); and 45-54 (72 percent).
Respondents 55 to 64 and respondents 65 and older, are also more likely to plan to get vaccinated (61 percent and 61 percent, respectively) compared to respondents 18 to 34 (52 percent); 35 to 44 (42 percent); and 45-54 (51 percent).
African Americans are more likely to plan to get vaccinated (62 percent) compared to Caucasians (51 percent) and Hispanics (55 percent).
Hispanic respondents surveyed are less likely to know where to get vaccinated (67 percent) compared with Caucasians (80 percent) and African Americans (77 percent) surveyed.
Respondents in the South and Northeast region are slightly more likely to get vaccinated (56 percent and 54 percent respectively) compared to those in the North Central or West (49 percent and 50 percent respectively) who plan to do so.

Swine Flu Contingency Plans at Work or School

Approximately half (49 percent) of the respondents surveyed say they have a plan where they work or go to school to handle the H1N1 virus.
Only 34 percent of the uninsured have such a plan.
Respondents in the North East (46 percent) and the North Central (49 percent) regions are more likely to not have a plan to handle the H1N1 virus at work or school compared with respondents in the South (50 percent) and West (54 percent) who say they have such a plan.

Survey Methodology

The Deloitte Center for Health Solutions commissioned Harris Interactive to conduct a nationally representative telephone survey of 1,010 U.S. adults 18 years-old and older from Sept. 10 -13 to gauge consumers’ opinions about the H1N1 virus, or swine flu. Data were weighted to be representative of the total U.S. adult population on the basis of age, sex, geographic region and race. The survey has a sampling error of + or – 3.1 percent at the 95 percent confidence level. Learn more about the survey.

C-suite action items

Key questions in the reform bill process will become the focus in each stakeholder’s attention. Management teams and trustees should consider:

How might Medicare cuts, likely to be the source of more than 50 percent of the funding for a reform bill, impact operations?
How will delivery system structural issues—episode-based payments, medical home pilot program expansion, transparency of physician performance—change the way care is designed and delivered?
How will increased scrutiny of “profits” in healthcare be assessed in each sector? How will executive compensation, community benefit and ownership status be considered/treated in legislation?
How will the economic recovery and capital markets respond to health reform? Will merger acquisition activity spike as capital is harder-to-come-by at manageable costs?
How will innovation in technology and life sciences be advantaged or discouraged in reforms? How will research and development risks be rationalized in the post-reform bill environment?
What is the implication of increased government in coverage and payment for Medicaid, SCHIP and new government programs?
What are the intended and unintended consequences of the bill as it emerges from the legislative process in coming weeks? What scenarios are most likely?

Join us Tuesday, October 20 at 2pm ET for a 90-minute Webcast on “Health Care Reform: What the Latest Developments Mean for Your Organization”

With a number of health care reform proposals on the table and a significant level of debate about what the ultimate reform package will include, no one can predict the final outcome of negotiations in Washington. What will last-minute developments reveal? We'll discuss:

Recent activities within key House and Senate Committees and the major proposals under consideration.
Potential roadblocks to adoption.
Likely short-and long-term implications for key stakeholders, including health care providers, health plans, life sciences companies, employers, consumers, and government stakeholders.

Join us for the latest pulse check on health care reform. Learn more and register (free; registration required).