Health Care Reform Memo: October 12, 2009

A Deloitte Center for Health Solutions publication

Health Care Reform Memo: October 12, 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.

Senate Finance vote Tuesday; CBO scores it “deficit neutral”

With the Congressional Budget Office (CBO) estimating the Baucus bill’s cost will be $829 billion over ten years with a deficit reduction of $81 billion, its sponsors are optimistic it will garner support from Democrats concerned about its cost as the committee is set to vote this Tuesday. Perhaps more significant, the CBO forecasts its 2019-2028 impact to be a $1.3 trillion reduction in overall health spending.

The President heralded the bill’s fiscal impact in his radio address Saturday reinforcing his dual goals of reducing costs and expanding coverage for the uninsured.

The bill features an individual mandate with a penalty, health insurance cooperatives in lieu of a public option, tax credits for individuals and small businesses to purchase insurance, expansion of Medicaid, regulatory changes to the insurance industry, and payment reforms to providers and hospitals based on performance (quality, efficiency) rather than volume. It also includes a “free-rider” surcharge on employers if their employees receive a tax credit to purchase health insurance through the cooperatives as well as an excise tax on the extent to which employer-provided health benefits exceed certain value thresholds (aka, “Cadillac” plans).

The bill does not include a permanent “fix” to the sustainable growth rate (SGR) method of payment to physicians by Medicare, opting instead to suspend the scheduled 21 percent cut in January 2010 for two years before resuming its scheduled cuts in 2011 (25 percent likely). It would add 30 million to the insured market, leaving an estimated 25 million without coverage.

The Finance bill would be paid for by Medicare cuts ($404B over ten years including $115B cuts to Medicare Advantage Plans), taxes on “Cadillac” plans ($201B over 10 years) and industry fees.

As most pundits have observed, the Senate Finance bill represents the framework with the highest likelihood of passage by 60 Senators (58 Democrats and two Independents). Concessions to Sen. Olympia Snowe (R-ME), including lowering the penalty for individuals not purchasing insurance, might sway her toward alignment with the committee’s 13 Democrats who are likely to vote for its passage, but otherwise a 13-10 party-line vote is expected.

What’s ahead?

Leaders of the Senate’s two major committees with jurisdiction over health – Health Education, Labor and Pensions (HELP) and Finance – will seek to resolve differences in their bills with a goal of a full chamber vote in late October. Senators Tom Harkin (D-IA), Chris Dodd (D-CT), Max Baucus (D-MT), Majority Leader Harry Reid (D-NV) , White House Office of Health Reform leader Nancy Ann DeParle, and White House Chief of Staff Rahm Emanuel have begun deliberations with a goal of passage by year end. A key objective of the group is to avoid reconciliation as a means of Senate passage defaulting to a 51 vote majority instead of 60. Reconciliation measures are limited to budgetary matters and would preclude inclusion of insurance regulatory reforms and others features of a reform bill. NOTE: 35 of the Senate’s 58 Democrats and two Independents are not on either committee so deliberation in the full Senate might include new issues and perspectives.

In the House, negotiations will be intense between the 52 Blue Dog Democrats and the 83 members of the Congressional Progressive Caucus to resolve two major issues in the lower chamber’s bill—the public option and the cost of the Tri Committee’s bill.

Watch for…

The emergence of Tom Harkin in the health debate—a strong proponent for preventive health and supporter of rural health initiatives. Sen. Harkin previously chaired the Senate Agriculture Committee so expect added attention to food safety and nutrition.
Negotiations to include a permanent fix to the SGR physician payment model in the Senate bill (the House bill includes a permanent fix costing $245B over 10 years—a major difference in the Finance bill price tag and the four other committees).
The political impact of the Medicare cuts: Medicare costs will increase from $466B to $931B in 2019.
Efforts by Sen. Chuck Schumer (D-NY) and Jay Rockefeller (D-WV) to keep the public option in the Senate’s bill.
Reactions by members to Friday’s CBO scoring of malpractice reforms (caps on pain and suffering) at $54B over 10 years.
The health status of West Virginia Senator Robert Byrd—the 91 year old has been ailing and missed much of the summer’s deliberations while hospitalized.
Reactions from governors who see increased enrollment of 11-17 million from the bills as budget-busters for states (22 of the 29 Democratic governors sent a letter to the White House and Congressional leaders last week suggesting reforms of Medicaid would result in an unfunded mandate for states).
A proposal by Sen. John Kerry (D-MA), also a member of the Finance Committee, to stiffen penalties for employers who do not provide health insurance coverage to employees and require minimal levels of financial participation.
Efforts to reduce or eliminate “industry fees,” arguing they will be passed through and negatively impact economic recovery: proponents for reducing/eliminating the pharma fee of $2.5B/year already on record are Senators Bob Menendez (D-NJ), Bill Nelson (D-FL) and Tom Carper (D-DE); proponents for reducing/eliminating the medical device fee ($4B/year) include Senators Al Franken (D-MN), Amy Klobuchar (D-MN) and Evan Bayh (D-IN). Regarding clinical labs, industry advocates want to replace the proposed $750M/year fee with cuts to the 1.75 percent reduction from the CPI-U update for 2011-2015 followed by productivity cuts beyond 2015.
Cuts in HB3200 (House Tri Committee) bill to reduce its $239B deficit forecast to align with the White goal of deficit neutrality and a bill not to exceed $900B.
And the White House plan: for weeks, White House officials have referenced the President’s plan—likely to include a public option and insurance reforms, with the possibility for liability reforms and employer mandates and performance-based payments for providers.

And outside the legislative process, two interesting constitutional questions are getting increased attention---

Questions about the constitutionality of the individual mandate: last week, the Congressional Research Service responded to Sen. Orrin Hatch’s (R-UT) request for guidance affirming the right of the federal government to institute a federal mandate, but other Constitutional scholars do not share the view.
Questions about current laws pertinent to opt-out of Medicare: The District of Columbia District Court is considering a petition that would let seniors opt out of Medicare but retain Social Security benefits (since 1993, the law states a person opting out of Part A surrenders contributions to the Social Security system).

And Governor’s races in two states (Virginia, New Jersey) with elections next month will call attention to Medicaid cost pressures and Washington mandates.

Seniors the most satisfied and secure in their insurance coverage

Seniors are more satisfied with their insurance coverage and less interested in internet-based self-care tools than younger adults. Privacy concerns are significant across all groups, and one in three non-seniors did not follow a treatment regimen due to cost concerns in the last 12 months compared to only one-in-eight seniors.

Measure	U.S.	Seniors	Boomers	Gen X	Gen Y
% who feel they understand how U.S. health system works	26	33	29	23	20
% who grade U.S. system D/F	38	29	41	41	31
% who feel financially prepared for future health costs	24	41	21	18	26
% who feel inadequately insured	9	6	11	9	7
% who understand their primary health coverage	46	59	49	41	30
% satisfied with primary health coverage	52	74	53	42	46
% interest in internet tools to interact with physicians, access medical records, schedule visits, get test results	57	51	61	60	51
% who are highly concerned about the privacy of their medical record information	38	33	46	36	30
% who did not follow a treatment recommendation due to costs in past 12 months	27	12	32	29	32

Source: 2009 Deloitte Survey of U.S. Health Consumers

Fact file

In 2006, the costs per discharge for average hospital acquired infection was $53,918 vs. $8,311 without an infection. Improved safety (i.e. infection controls) and avoidable readmissions (20 percent of Medicare enrollees discharged from a hospital is readmitted with the same diagnosis within 30 days) are a major focus of the five committees’ efforts to reward safety and quality in hospital care.

In 2015 under current law, Medicare will cut payments by 5 percent to doctors who are in the bottom 10 percent for efficiency rankings (use of resources severity adjusted).

In 17 states, one health insurance plan has 50 percent or more of the small business insurance market.

C-suite action items

Each sector must watch the legislative process in coming weeks to understand and develop responses to the following major elements in the health reform bill forthcoming:

Medicare payments and cuts... likely to impact physicians, hospitals, health plans (Medicare Advantage plans), labs, drug companies, and individuals plus resolution of sustainable growth rate payment model (possibility of independent payment board).
Employer insurance mandates… likely tied to payroll or employment headcount...impact not only employers but providers and plans that sell services directly/indirectly; likely to include a surtax on "Cadillac" plans.
Health insurance regulatory changes... likely changes in eligibility, risk ratings, premium setting, and standardization of benefits plus health insurance exchanges will impact commercial plans and self-insured employers.
Medicaid expansion… likely to be at 133 percent of FPL; important to monitor impact on state budgets and mechanisms for deployment of disproportionate share hospital (DSH) payments.
Performance-based payments for providers... likely focused on efficiency and quality including bundled payments to provider organizations (accountable care organizations).
Industry fees targeting plans, labs, devices and drug companies... focus on legislative language to forego/limit pass through mechanisms or otherwise industry recovery mechanisms.
Preventive health and chronic care management... likely to include shift of medical dollars from specialty and acute care to primary care and long-term care providers.

The implications of these major items together with the overall economic recovery will be a major focus of capital market attention. Leaders across all sectors must be cautious in capital deployment as the "dust clears" and be prepared to execute strategies consistent with opportunities resulting from the U.S. reform process.

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. Click here to learn more and register (free; registration required).