Health Care Reform Memo: May 11, 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.

$3.6 trillion FY10 budget released: 8 percent increase in Medicare-Medicaid planned

The 1,500 page FY10 budget released Thursday includes $879 billion for health and human services spending, a 7.7 percent increase that includes more money for items such as cancer research and food-safety inspectors. It also includes increased spending for health information technology, preventive health, rural health primary care, training programs for physicians and nurses and fraud surveillance for Medicare.

Medicare and Medicaid programs are budgeted to get an 8 percent increase to $759 billion to serve their 98 million enrollees. Though significant, the increase is less than earlier forecasts based on cuts in prescription drug costs and Medicare Advantage Plan premiums and anticipated savings from reduced unnecessary readmissions to hospitals, episode based payments, competitive bidding for health-care plans, and avoidance of hospital “never events.” These savings were calculated to reduce Medicare outlays by $309 billion over 10 years.

Other FY10 budget highlights include:

19 percent increase in Medicare prescription drug benefit—$53.2 billion in 2010 compared to a 27 percent increase in FY09
Elimination of the sustainable growth rate model for adjusting physician payments; the budget proposes to hold payments flat at a cost of $11.7 billion
Increase of 17 percent for Medicare Fraud Detection to $1.7 billion
No increase for the Centers for Disease Control and Prevention (CDC): its FY10 budget is $6.8 billion vs. $7.1 billion in FY09 (offset by $300 million targeted in the stimulus package)
The National Institutes of Health’s (NIH) budget of $34.1 billion is an increase from FY09 level of $30.2 billion (plus NIH’s additional $10.4 billion in ARRA stimulus package)
19 percent increase to $3.2 billion for the Food and Drug Administration (FDA) to expand food inspection, oversight of biologic generics (The FDA did not receive funding under the stimulus package)
Elimination of, or changes in, a number of health-related human services programs including abstinence education, child welfare, Head Start, and Children and Family Services

Baucus Committee hosts second reform roundtable; the public plan a major focus

Tuesday, the Senate Finance Committee held the second of three public roundtables hearing testimony from academics, health insurance and advocacy organizations about ways to insure 46 million uninsured. In advocating for a “fair and competitive” public plan, Senator Chuck Schumer (D–NY) advised the panel that a public plan could be constructed around individual policies that would pay providers above Medicare rates. Panelists and committee members debated the merits and concerns about a public plan. In addition to several committee members, expressing support were representative of Families USA and the New America Foundation, while conservative members of the panel and representatives of the Blue Cross Blue Shield Association, National Federation of Independent Business, and others expressed concern.

NOTE: the Committee’s deliberation is focused on how to implement a public plan, not whether it should be done. Moderates are concerned it would erode (crowd out) commercial plans. Conservatives believe there are better options and that less government intrusion in insurance markets is needed. Liberals cite growing numbers of uninsured and higher premium costs as evidence the commercial market is not working. The debate about the size, scope, and costs of a public plan is likely to be heated in the next two months as legislators attempt to craft a health reform bill before their August recess. The Obama administration is strongly supportive of a public plan. It makes its case primarily on data suggesting that large numbers of working Americans and small businesses cannot afford health insurance. Others in Congress see insurance market reforms as an alternative to the public plan option. Among reforms considered are regulations to establish a minimal medical loss ratio (MLR) (15 states have MLR regulation), allowing plans to sell across state lines, increased transparency, creation of state-run high risk pools (35 states currently have high-risk pools) for high cost enrollees with major health problems, and others. Some believe shifting the tax credit from employers to individuals would decelerate health costs as consumers would then pressure providers for better care and lower costs. Notwithstanding ERISA (Employee Retirement Income Security Act) regulations, the likelihood of insurance reforms and a public plan is high.

America’s Health Insurance Plans (AHIP) responds to public plan proposals

Wednesday, AHIP President Karen Ignani testified before the Senate Finance Committee offering to end the practice of charging female enrollees more for comparable coverage provided males. In November, it announced it would end the practice of using pre-existing conditions—regardless of illness or disability—in determining eligibility, and in March, willingness to cease charging higher premiums for sicker enrollees. Ignani pledged to work with Congress and agreed to cooperate further in expected increased regulation of health plans.

Data

Of the 46 million without health insurance in the U.S., 25 million have full or part-time jobs. Of these, 63 percent (16.8 million) work for companies with fewer than 100 employees. The share of small companies offering health benefits dropped from 68 percent in 2000 to 62 percent in 2008 while the average price of premiums doubled.

Jobless rate for April less than anticipated; unemployment at 8.9 percent

Tuesday, the Bureau of Labor Statistics (BLS) announced April job losses of 539,000, slightly less than forecast. The economy has shed 5.7 million jobs since the recession began in December 2007 – 2.7 million in 2009. At 8.9 percent, unemployment is at its highest since 1983. In its release, the BLS noted health care was the only sector with employment gains – adding 17,000 jobs in April. Since the downturn, health care employment has increased 193,000.

May 7 New England Journal of Medicine (NEJM) features comparative effectiveness

Wednesday, the NEJM published three articles supportive of the administration’s push to apply a comparative effectiveness model to coverage decisions for enrollees in Medicare and Medicaid. Meanwhile, coalitions to caution against comparative effectiveness are being formed, e.g., Partnership to Improve Patient Care led by former NY Democratic Congressman Tony Coelho, an effort by the American Medical Association and others. The major “sticking points” in the debate will be:

How will the government’s assessment of a treatment (surgical, diagnostic, therapeutic) account accurately for the relative strengths and unique features of each option? How will side by side comparisons be done? Through what mechanism will evidence be validated and systematically reviewed?
Will comparisons be about relative effectiveness, or also include cost comparisons? How will costs be calculated?
How will the comparative effectiveness program be used in determining payments to providers?
And how will its use in the U.S. system impact innovation in diagnostics and therapeutics?

The Council on Comparative Effectiveness Research is holding hearings around the country to assess industry and citizen views with a goal of recommending a framework in June.

Primary care residency expansion sought in new bill

Wednesday, Senators Reid (D-NV), Schumer (D-NY) and Nelson (D-FL) introduced a bill to fund a 15 percent increase in residency programs for preventive health, primary care and community health centers.

Massachusetts health plans recommend payment reform

This month, a Massachusetts commission will recommend to Gov. Deval Patrick (D-Mass.) a major change in provider payments. Physicians and hospitals are currently paid based on the volume of work they do. The Commission will ask the legislature to replace it with a bundled payment model for each patient that covers the person's care for an entire year. Massachusetts would be the first state to broadly adopt such a system and is closely watched by the administration’s health reform team.

NOTE: Previously, Massachusetts enacted an individual mandate accompanied by an employer pay or play mandate resulting in budget shortfalls by 98 percent coverage.

C-suite action items – scenario planning will be key

Health plan C-suites should consider scenarios in which commercial markets shrink and enrollment in a public plan range from 25 to 50 million over five years.
Hospitals C-suites should model cuts to Medicare, increased bad debt from individual insurance policy-holders and operation under an episode-based payment model.
Life science organizations should assume increased growth of generics and operation under a comparative effectiveness model in 5-7 years.
And all leadership teams should regularly brief managers and trustees about health reform and its potential impact on the organization.

Join us – May 27 at 2 p.m. EDT for a Dbriefs webcast on ‘Health Care Reform: What’s Been Done and What Lies Ahead’

On May 27 at 2 p.m. EDT, join us for a 1-hour Webinar to discuss: the status of ARRA investments and how monies have been deployed; what’s ahead in terms of health reform; key legislative and regulatory changes; and recent activities within key House and Senate committees. Short and long-term implications to plans, providers, life sciences companies, and government stakeholders will be explored. Register (free; registration required) to attend.