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Health Care Reform Memo:
July 22, 2013

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.

My take: Three reasons why accountable care organizations are not likely to go away 

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

There are more than 450 “accountable care organizations” (ACOs) in various stages of development or operation today. ACOs are among the most significant elements of the Affordable Care Act (ACA), directly impacting how doctors, hospitals and allied health professionals relate to each other and to payers—health insurers, employers, Medicaid and Medicare.

According to the Centers for Medicare and Medicaid Services (CMS), ACOs “are groups of doctors, hospitals and other health care providers, who come together voluntarily to give coordinated high quality care to their Medicare patients. The goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors.”

ACOs were not a new idea in 2010 when they were included in the ACA. Elliott Fisher, Director of the Center for Health Policy Research at Dartmouth Medical School coined the term in 2006 in discussions with the Medicare Payment Advisory Commission. But before that, the concept of “risk-based contracting with groups of doctors and hospitals” had been around:

  • In the 1970s, Health Maintenance Organizations (HMO) contracted with providers through staff, group and Independent Practice Association models.
  • In the 1990s as capitation gained momentum, it was the central feature in a new sector that emerged—physician practice management—that premised its value proposition around the notion that larger, organized groups of physicians with the infrastructure and access to capital could successfully take performance risk and manage their own financial destiny sans subordination to a hospital or health plan.
  • In the Medicare Prescription Drug Improvement and Modernization Act of 2003, the precursor to the ACO was included—the Medicare Physician Group Practice Demonstration and the Medicare Health Care Quality Demonstration, testing the viability of risk-based contracts as a replacement for fee-for-service (FFS) Medicare.

Given these precedents, in 2010, ACOs were included in Sections 3021 and 3022 of the ACA alongside bundled payments, medical homes, increased transparency about quality and prices and restrictions on physician self-referral, reflecting intent to fundamentally change how care is delivered and paid for.

Since the ACA’s passage, CMS has made several waves of announcements regarding ACO participation, including  the announcement of 32 ACOs in December 2011, 27 in April 2012, 87 in July 2012 and 106 in January 2013—all focused on managing Medicare populations. And more than 200 others have been established to target other populations—direct contracts with larger employers including the hospital’s employees, Medicaid and commercial members. No one knows for sure how many non-Medicare ACOs there are, but it’s clear the numbers are increasing. Last week, CMS announced mixed results for the first year of the Pioneer program (2012): of the 32 in the pilot, nine have indicated they’ll discontinue their participation citing risk and most did not achieve the savings targets originally anticipated. And the non-Medicare ACO efforts are just starting, so time will tell.

Type Features Number of ACOs
Medicare Shared Savings Program (MSSP, ACA Section 3022)
  • At least 75% control of ACO’s governing body by providers
  • 3-year agreement with Medicare
  • 2 models:
    One-sided model: ACO receives up to 50% savings and takes risk for losses in year three only
    Two-sided model: ACO receives up to 60% savings and takes risk for losses in years 1-3
  • 3.2 million assigned beneficiaries in 47 states
Pioneer ACO (ACA Section 3021)
  • Health care organizations and providers that have experience in population-based payment models (with same standards as MSSP)
  • Typically integrated health systems that operate a health plan and have the infrastructure to manage risk
Advanced Payment ACOs (ACA Section 3021)
  • CMS provides upfront monthly capital based on expected shared savings for smaller ACOs
  • Targeted to partnerships between physician-based and rural providers to invest into their care coordination infrastructures
Private ACOs
  • Clinically integrated groups of physicians, hospitals and business partners (often health insurance plans) that contract with Medicaid or commercial plans on a risk basis

ACOs aren’t likely to fade from prominence in health care reform anytime soon for three reasons:

  1. FFS payments are a vestige of the past. Policymakers, employers and economists agree: they contribute to unnecessary costs and will be replaced by an approach that links payments to doctors and hospitals to achievable quality and cost aims. In plans sponsored by Medicare, Medicaid, employers, individuals and commercial health plans, FFS will likely be replaced.
  2. Health insurance plans are building an important new market in providing ACO services to providers. Not a week passes that a health insurer isn’t announcing an agreement with an ACO. Differentiating ACO capabilities and an approach to sharing risk with providers are central to a plan’s strategy.
  3. Hospitals and doctors recognize reality: per capita health care spending will shrink, FFS is going away and sophisticated actuarial modeling and analytic capabilities are necessary to navigate risk. So for physicians and hospitals, it’s not a matter of what to do, but how and with whom.

Looking ahead, it seems to me ACOs are here to stay, but their maturity will be an important story to follow. The key questions for the doctors and hospitals are straightforward:

To manage risk for a population, what skills and technologies are needed? For capabilities missing in the organization, is it better to contract out or partner with an entity that will share the upside and downside fairly, or to develop them internally? As the transition from FFS to “capitation 2.0” plays out, how should the ACO’s actions be timed so as to optimize revenues and protect shrinking margins? As payers seek to be partners, who will own the data and make the important calls about quality, safety and efficiency? And as doctors and hospitals examine their costs and allocation of capital, how will budgets, credentialing and operations change as the reality of accountable care sets in?

I have studied the health care system for 35 years. I lived through the HMO era of the 1970s and the first capitation era of the 1990s. I believe capitation 2.0 is ahead, but will be different this time. Powerful tools that allow tracking of quality and costs based on real-time access to clinical and financial data will be important engines in driving accountable care. And employers and consumers will have a more direct role in how appropriate care is defined, provided and paid for.

ACOs are not a fad: they’ll be a permanent fixture in the new normal, though their implementation is likely to be bumpy and, in some cases, results uncertain.

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

PS – Deloitte and the Center for Health Solutions have published a number of studies and reports about ACOs including…

Paul Keckley & Michelle Hoffman, “Accountable Care Organizations: A new model for sustainable innovation,” 2010

Jennifer Radin, Robert Williams, MD, Tiffany McDowell, Sonal Kathuria, “Who’s Delivering Accountable Care?” Deloitte Consulting, 2012

Health Care Reform Memo: June 17, 2013: An update on ACOs

Health Care Reform Memo: April 11, 2011: Accountable care organizations Q&A

"Medicare "Accountable Care Organizations" Shared Savings Program - New Section 1899 of Title XVIII, Preliminary Questions & Answers". Centers for Medicare and Medicaid Services. Retrieved January 10, 2010
CMS, “Guide to Quality Performance Scoring Methods for Accountable Care Organizations, November 2012,
DCHS, “Health Care Reform Memo,” April 11, 2011,  
CMS Innovation Center, “Advanced Payment ACO Model,”
CMS, Innovation Center, “Advanced Payment Accountable Care Organization Model: General Fact Sheet,” January 10, 2013,
CMS Innovation Center, “Pioneer ACO Model,”
CMS, Innovation Center, “Pioneer Accountable Care Organization Model: General Fact Sheet,” September 12, 2012,
Leavitt Partners, Engelburg Center for Health Reform estimates

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Implementation update 

Pioneer ACO update: mixed results in 2012 

32 organizations participated in Phase One of the Pioneer ACO Program based on their expertise in risk-based population health management, accepting a higher level of risk in their Medicare contract in exchange for greater potential upside in shared savings. Last Wednesday, CMS announced results for year one:

  • “Costs for the more than 669,000 beneficiaries aligned to Pioneer ACOs grew by only 0.3 percent in 2012 where as costs for similar beneficiaries grew by 0.8 percent in the same period.”
  • 14 of the 32 (41 percent) achieved gross savings of $87.6 million in 2012 and saved $33 million to the Medicare Trust Funds.
  • Two had losses of $4 million and seven did not achieve savings.
  • “All 32 Pioneer ACOs successfully reported quality measures and achieved the maximum reporting rate for the first performance year, with all earning incentive payments for their reporting accomplishments.”
  • Nine of the 32 have indicated they will not participate in Phase Two of the Pioneer program: seven indicated they will apply to the Medicare Shared Savings Program (Section 3022 ACA) and two will exit the program.

(Source: CMS, “Pioneer Accountable Care Organizations Succeed in Improving Care, Lowering Costs,” July 16, 2013)

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White House promotes lower insurance premiums in exchanges, MLR rebates 

According to a report issued by the U.S. Department of Health and Human Services (HHS) Thursday, monthly individual health insurance premiums for the lowest cost silver plan will be $321 on average—$70/month less than the $391 per-member-per-month premium estimate based on data from ten states that have released their premium data: Rhode Island, Virginia, California, Colorado, New Mexico, New York, Ohio, Oregon, Vermont, Washington and Washington, D.C. For smaller employers that might participate in the health insurance exchanges (HIXs), based on six states’ data, premiums will be 18 percent less for the lowest cost silver plan they would purchase in the private market. Premiums for lower earners without insurance may be further offset by tax credits (people four times the federal poverty level, about $93,000 for a family of four).

Note: the smaller premiums highlighted in the report are in comparison to Congressional Budget Office (CBO) projections of what consumers would pay in 2014, not what they are paying today.

(Source: Skopec & Kronick, “Market Competition Works: Proposed Silver Premiums in the 2014 Individual and Small Group Markets Are Nearly 20 percent Lower than Expected,” HHS, 2013)

Related: during a press conference, the President highlighted that health insurers must pay rebates of about $500 million to 8.5 million consumers by August 1 for not meeting the medical loss ratio (MLR) requirement (80 percent for individual plans) in 2012, averaging about $100 per family. Response from America’s Health Insurance Plans: “To help put the $500 million in MLR rebates in perspective, the ACA’s new health insurance tax alone will increase premiums by $8 billion next year, increasing an average family’s premium by more than $350 in 2014.”

(Source: “Quick Facts about Health Care Reform and Premiums Posted on July 18, 2013 by AHIPCoverageAdmin”)

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Hobby Lobby wins exemption from contraception coverage requirement 

Friday, a federal judge issued a preliminary injunction exempting the Oklahoma-based craft stores from the ACA requirement to offer contraception coverage in its employee health plans or face a fine. The preliminary injunction extends an earlier, temporary delay granted by the same judge. The Department of Justice has until October 1 to appeal.

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HHS awards $12 million to increase primary care training 

Friday, HHS Secretary Kathleen Sebelius announced $12 million in ACA funding to support primary care residency programs in 32 Teaching Health Centers, expanding to 21 states to train 300 plus residents during the 2013-2014 academic year—double the number of residents trained in 2012-2013. “Residents will be trained in family and internal medicine, pediatrics, obstetrics and gynecology, psychiatry and general and pediatric dentistry.”

(Source: HHS, “HHS awards $12 million to help Teaching Health Centers train primary care providers,” July 19, 2013)

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CMS releases mobile apps to stimulate transparency in financial relationships between drug and device manufacturers and providers 

CMS launched free mobile device applications Friday as part of the OPEN PAYMENTS program (Physician Payments Sunshine Act) to assist consumers in tracking financial relationships between doctors, hospitals, drug and device manufacturers and others in the industry.

Background: the Physician Payments Sunshine Act requires that information is reported annually to CMS by key industry sectors:

  1. Manufacturers of covered drugs, devices, biologics and medical supplies must report payments or other transfers of value to physicians and teaching hospitals
  2. Manufacturers and group purchasing organizations must report ownership or investment interests held by physicians or their immediate family members
  3. GPOs (group purchasing organizations) must report payments or other transfers of value made to physician owners or investors if they held ownership or an investment interest at any point during the reporting year

Reporting begins on August 1, 2013 and goes through March 31, 2014 and CMS will release the data publicly by September 30, 2014.

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Legislative update 

SGR fix update: bipartisan bill proposes 5-year phasing from FFS to performance based payments to doctors 

Thursday, a bipartisan group of House members released an updated draft of the House Energy and Commerce Committee legislation to replace the sustainable growth rate (SGR) formula. Today, the Health Subcommittee will mark up the bill with a full committee vote anticipated before the August recess. The draft proposal would repeal the SGR and would…

  • Update Medicare payments to physicians by 0.5 percent annually from 2014 through 2018 while transitioning to the new payment system.
  • Encourage the establishment of medical homes by providing a payment channel to reimburse for care provided to patients with complex chronic conditions requiring collaboration from multiple physicians.
  • Cut Medicare physician reimbursements by 5 percent for providers who do not submit required data on quality requirements.
  • Offer providers a choice to participate in alternative payment models that emphasize providing quality and efficient care.

Related: last Monday, the Government Accountability Office (GAO) issued a report concluding that “across the major provider specialties that refer beneficiaries for anatomic pathology services, self-referring providers generally referred more anatomic pathology services on average than other providers of the same specialty treating similar numbers of Medicare patients.” The report estimated that the increased number of tests and procedures cost Medicare $69 million in 2010 for 918,000 treatments that would not have occurred otherwise.

My take: at least four proposals to change the SGR have been considered in the Committee to date and one feature is central in each: a change in the mechanism by which physicians are paid from FFS to performance-based payments. What’s not decided are the specific mechanisms for defining and measuring “quality” and “performance,” the timeframe for implementing the change, increased funding in primary care and how to pay for the fix, estimated to be $139.1 billion.

While physicians are united in their desire to do away with the SGR, they are fearful of changes that might slow or reduce Medicare payments in some specialties. Historically, physicians in certain sub-specialties responded to cuts by limiting Medicare enrollee access to their practice, increasing the volume of tests, procedures and visits they do and cost-shifting to commercial payers (patients with employer-sponsored coverage or an individual policy that pays above Medicare rates). But these adjustments are also being scrutinized: transparency about how physician adherence to evidence-based practices and their outcomes are key features in the ACA and lower annual payment increases from commercial payers, Medicare and Medicaid seem certain. So the fix to the SGR will no doubt prompt continued change in the medical landscape, prompting many physicians to align with a larger organization, innovate in their practices, or adapt otherwise. It’s understandable that physicians are apprehensive about the future: the possible displacement of the SGR might prompt a new set of fears and concerns in the medical community.

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House passes bills to delay employer mandate, individual mandate 

Last Wednesday, the House passed two ACA implementation bills:

  • H.R. 2667 which would delay the employer mandate requirements until 2015 as the Department of Treasury recently announced (passed 264-161)
  • H.R. 2668 which would delay the individual mandate until 2015 (passed 251-174)

Background: July 2, the U.S. Department of the Treasury said it would not enforce the employer mandate in 2014 due to lack of operational infrastructure necessary to manage employer reporting compliance. Before the delays could become law, the Senate would need to pass companion legislation and the President would need to sign the law. The White House said it would veto the individual mandate delay, noting that it is fundamental to expanded coverage. And in response to the House vote on the individual mandate, Treasury Department official Mark Iwry, senior adviser to the secretary of the Treasury and deputy assistant secretary for retirement and health policy, testified at a Health Subcommittee panel that delaying the Affordable Care Act's requirement that individuals purchase health insurance would make guaranteed issue provisions of the law unworkable.

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House Ways and Means releases Medicare reform draft 

Friday afternoon, the House Ways and Means Committee released for comment a discussion draft of three major changes to Medicare to slow its cost increases: (1) reducing premium subsides for wealthier seniors in Medicare Parts B & D; (2) increasing the annual Medicare Part B deductible; and (3) establishing a home health co-pay.

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Bipartisan bill exempts FDA user fees from sequester 

According to a House bill introduced last Thursday, the U.S. Food and Drug Administration (FDA) annual industry user fees that fund its reviews of drugs and medical devices would be protected from the sequester. The “FDA Safety Over Sequestration (SOS) Act,” sponsored by Representatives Leonard Lance (R-NJ), Anna Eshoo (D-CA), Doris Matsui (D-CA) and Mike Rogers (R-MI), would restore $85 million in annual user fees paid by drug and device companies to the FDA in 2013 and $1 billion over five years. They represent 35 percent of the FDA’s total budget.

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OMB: 340B drug discount program final rule after two years 

The Office of Management and Budget (OMB) completed its review of the much-anticipated 340B drug discount program, proposed by Health Resources and Services Administration (HRSA) in 2011. According to the regulation summary, the final rule “provides clarity on orphan drug exclusions for covered entities under the 340B Program.”

The issue: the program has become a point of contention between drug manufacturers and providers due to allegations that some hospitals are selling the discounted drugs to patients covered by Medicare and private insurers. The program is intended to support the cost of treating low-income and uninsured patients. Both hospitals and pharmaceutical companies have urged HRSA to reform the program.

Background: the 340B Drug Pricing Program requires drug manufacturers to provide outpatient drugs to eligible health care organizations/covered entities at significantly reduced prices. Eligible health care organizations/covered entities are defined in statute and include HRSA-supported health centers and look-alikes, Ryan White clinics and State AIDS Drug Assistance programs, Medicare/Medicaid Disproportionate Share Hospitals, children’s hospitals and other safety net providers. Drug manufacturers have been concerned provider organizations have taken unwarranted advantage of the 340B program; providers respond they’re authorized under the 340B program. The new guidance seeks to clarify eligibility.

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State update 

Report: managed care programs for dual eligibles vary in approach 

The Kaiser Family Foundation analysis of six states where managed care programs are used with each state’s dual eligible population found some similarities but also major differences:

  • Five states were approved to offer a capitated model—California, Illinois, Massachusetts, Ohio and Virginia—receiving payments from CMS for Medicare services and the state for Medicaid services.
  • Massachusetts focuses on beneficiaries dually eligible for Medicare and Medicare who are younger than 65; the remainder include duals of all ages.
  • Washington is focused only on high cost/high risk beneficiaries and on July 1 launched a managed FFS model in which providers receive FFS reimbursement for both Medicare- and Medicaid-covered services and beneficiaries are enrolled in a health home network that integrates care.

(Source: “Financial Alignment Demonstrations for Dual Eligible Beneficiaries Compared: States with Memoranda of Understanding Approved by CMS,” Kaiser Family Foundation Commission on Medicaid and the Uninsured, July 2013.)

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HIX update 

16 states—12 led by Democratic governors, 3 by Republicans and one Independent—and the Democratic mayor of D.C. have announced plans to operate state-based exchanges. Seven states—five led by Democratic governors and two led by Republicans—will participate in state-partnership exchanges. The remaining 27 states will default to a federally-facilitated exchange.*

State-based exchange State- partnership exchange Federally- facilitated exchange
CA, CO, CT, DC, HI, ID**, KY, MA, MD, MN, NM**, NV, NY, OR, RI, VT, WA AR, DE, IA, IL, NH, MI, WV AK, AL, AZ, FL, GA, IN, LA, KS, ME, MO, MS, MT, NC, ND, NE, NJ, OH, OK, PA, SC, SD, TN, TX, UT*, VA, WI, WY

Democratic Governor Republican Governor Independent Governor

*UT: individual market will be a federally-facilitated exchange; small business health options program (SHOP) will be a state-based.

**NM and ID: federal government will help run the individual market. States will continue to maintain plan management and consumer assistance functions; HHS will operate the information technology systems. SHOPs will be state-based.

(Source: HHS)

  • Six states (California, Massachusetts, New Jersey, New York, Rhode Island and Vermont) and D.C. have opted not to charge smokers higher insurance premiums on their HIXs. Under the ACA, insurers may charge smokers 50 percent higher premiums than nonsmokers for new policies sold to individuals and small employer groups. HHS gave states the ability to reduce or eliminate the rate variations for smokers. Critics of the surcharge believe increasing premiums will not discourage smoking and may instead prevent smokers, who disproportionately have lower incomes, from purchasing health insurance.
  • Insurance rates in New York in 2014 will be at least 50 percent lower on average than the rates currently available. The state’s HIX will offer plans from 17 different issuers. Nearly 2.6 million people are currently uninsured in the state and officials expect 615,000 individuals to buy health insurance through the exchange in the next few years. It is estimated that once the New York HIX opens on October 1, individuals who currently pay $1,000 per month for insurance coverage will be able to purchase coverage for as low as $308 per month and with the availability of federal subsidies for lower income individuals, the monthly costs could decrease even more.
  • Last Friday, Missouri Governor Jay Nixon (D) signed a bill (S.B. 262) into law that will require health insurance navigators to receive state licenses before helping consumers shop for health plans on the state’s federally-facilitated exchange. HHS has released guidance and a rule regarding navigators, requiring them to pass a 30-hour training course and exam, but no state regulatory framework was previously established for navigators. Federal government grants will help states hire these counselors to assist consumers purchase insurance through the exchange and determine eligibility for tax credits or Medicaid. Some officials are concerned that these certification requirements could delay preparedness for open enrollment on October 1st and may violate the ACA. But, proponents believe this will help protect residents by making sure accurate information is provided to consumers and will help prevent fraud (navigators have access to consumer tax records and other personal information).

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Medicaid expansion update 

23 states and DC have said they will or are likely to expand their Medicaid programs; 24 states have indicated they will not expand their programs in 2014:

Expected to expand Medicaid Will not expand Maybe

Democratic Governor Republican Governor Independent Governor

(Sources: NASHP. Updated June 27, 2013)

  • Last Monday, New Mexico Governor Susana Martinez (R) and the state Human Services Department announced that Medicaid recipients will face co-pays and tracking of medical services for some treatments. Managed care organizations will contract with the state to track medical and behavioral health among beneficiaries. Some of the proposed co-pays: $3-50 co-pay for emergency room use as routine medical care and $3 co-pay for brand name drug use when a generic is available. Medicaid eligibility and reimbursement rates will not change from this policy. New Mexico will implement these changes when the state’s Medicaid program is expanded next year.

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State round-up 

  • According to the New York Federal Reserve survey, 25 percent of New York manufacturers expect to change health plans as a result of ACA implementation. Additional findings:
    • 11 percent of firms are in the process of or are planning to cut back or drop health insurance while another 11 percent of firms reported plan to provide more comprehensive health insurance.
    • 75 percent of firms have made minimal or no changes in their workforces.
    • 65 percent of firms do not anticipate workforce changes over the next year.
    • More than 85 percent of manufacturers believe their health insurance costs will increase as a result of the ACA.
    • More than 80 percent of manufacturers said wage, salary and retirement benefits will not change. However, 30 percent of those respondents reported that reductions in other employee benefits are likely and 39 percent reported price increases for customers are likely.
      (Source: Federal Reserve Bank of New York, “Empire State Manufacturing Survey”, July 2013)
  • Insurers will have to rebate Florida consumers $54 million in compliance with the MLR provision in the ACA requiring insurers of large group plans to spend 85 percent of premiums paid by consumers on medical care (rather than administrative costs or profit) and 80 percent of premiums for individual and small group plans. Rebates, which must be paid by August 1, represent a decrease of 50 percent from last year. Of the $54 million in Florida rebates, individuals and families received nearly $40 million and employers in the small group market account for about $13 million. In Florida, the largest rebate payment from one insurer will total $20 million. Nationally, rebates from the medical loss ratio rule totaled $1.1 billion in 2011 and decreased to $504 million in 2012.
  • Legislation (S.B. 42) signed last Monday by Delaware Governor Jack A. Markell (D) requires insurers that sell Medicare supplement policies to make them available to people younger than 65 who are Medicare-eligible because of a disability, including end-stage renal disease provided the individual applying for coverage does so during the first six months after enrolling in Medicare Part B or within six months after the effective date of the bill, whichever is later. The law applies to individual and group Medicare supplement contracts issued or renewed after Jan. 1, 2014. The law allows for “reasonable” variation in premiums based on whether the applicant qualifies for Medicare because of age or because of disability and requires insurers to establish separate rating pools for the individual market, those with end-stage renal disease and people with all other disabilities.

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Industry news 

CMS update: use of EHRs by clinicians 

Wednesday, the CMS released new data about utilization of electronic health records (EHRs) in medical practices and hospitals since the EHR Incentive Programs (Medicare, Medicaid) began in 2011:

  • “More than 190 million electronic prescriptions have been sent by doctors, physician’s assistants and other health care providers using EHRs, reducing the chances of medication errors.”
  • “Health care professionals sent 4.6 million patients an electronic copy of their health information from their EHRs.”
  • “More than 13 million reminders about appointments, required tests, or check-ups were sent to patients using EHRs.”
  • “Providers have checked drug and medication interactions to ensure patient safety more than 40 million times through the use of EHRs.”
  • “Providers shared more than 4.3 million care summaries with other providers when patients moved between care settings resulting in better outcomes for their patients.”

    (Source: CMS “Data show electronic health records empower patients and equip doctors,” July 17, 2013)

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Survey: health information exchanges struggling for sustainability 

The research team surveyed 119 operational health information exchanges (HIEs) finding…

  • 30 percent of hospitals and 10 percent of ambulatory practices now participate in an HIE
  • 74 percent of HIE efforts are struggling to develop a sustainable business model

“Our findings suggest that despite progress, there is a substantial risk that many current efforts to promote health information exchange will fail when public funds supporting these initiatives are depleted.”

(Source: Adler, Milstein, Bates and Jha, “Operational Health Information Exchanges Show Substantial Growth, But Long-Term Funding Remains A Concern,” Health Affairs, July 2013)

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KLAS ACO report 

Based on interviews with 14 provider organizations representing 21 contractual relationships (ACOs) between plans and providers, Aetna was cited as the most effective provider of ACO services to provider organizations.

(Source: KLAS Research, “'Transformational Partner' for Providers Accountable Care Payers: Partners in a Changing Paradigm," July 10)

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Survey: ACOs using remote monitoring 

A survey of ACO organizations found:

  • 51 percent of ACO organizations have deployed, or are evaluating remote patient monitoring (RPM) technology to address readmissions, chronic care management and coordination
  • 71 percent have concerns about integrating RPM technology with existing clinical care processes and clinical information systems
  • 58 percent expressed concern that RPM technology does not provide adequate support for clinical analytics and decision support tools

(Source: Spyglass Consulting Group “Trends in Remote Patient Monitoring 2013”, July 8, 2013)

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FDA examining clinical lab testing oversight 

Traditional diagnostic tests are regulated through the FDA’s oversight for safety and effectiveness, but some tests developed and used by clinical labs (laboratory-developed tests) did not undergo the same review process since their use was considered “local.” But with rapid consolidation of the lab testing sector, the FDA is being encouraged to exercise its oversight at the urging of the Cancer Leadership Council that believes some laboratory-developed cancer tests may have resulted in patient harm.

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AMA, JCAHO target overuse of treatments to reduce costs 

A report with recommendations from the 2012 National Summit on Overuse released July 8 encourages measures to reduce overuse of transfusion of red blood cells, the use of antibiotics for viral upper respiratory infections, early elective deliveries, tympanostomy tubes for middle ear effusion of brief duration and elective percutaneous coronary intervention. The report noted that an estimated $1 billion is spent each year on unnecessary antibiotic prescriptions for upper respiratory infections in adults.

(Source: American Medical Association's Convened Physician Consortium for Performance Improvement and the Joint Commission, July 8, 2013)

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Hospital transparency: readmission data for PCI added to CMS Hospital Compare 

Data revealing patient readmission rates within 30 days of undergoing percutaneous coronary intervention (PCI) are now publicly available through Medicare's Hospital Compare website. PCI—stenting and angioplasty—is widely used to open narrowed or blocked arteries: more than 600,000 are performed annually in the U.S. and as many as one in seven PCI patients are readmitted to a hospital within 30 days after the procedure, according to CMS.

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Research snapshots 

PCPs accept new Medicaid enrollees but wide variation by state: what’s the future for primary care? 

Background: per the ACA, primary care physicians (PCPs) providing services to Medicaid patients in some states will receive higher payments in 2013 and 2014 and “payments for some services will increase to match Medicare rates.”

Methodology: using data from the 2011-2012 National Ambulatory Medical Care Survey Electronic Medical Records Supplement, the baseline rates of acceptance of new Medicaid patients among office-based physicians by specialty and practice type were calculated by the researchers on a state-by-state and aggregate basis for office-based physicians in internal medicine, pediatrics and general and family medicine.

Key findings: 33 percent of PCPs did not accept new Medicaid patients in 2011-12, ranging from a low of 8.9 percent in Minnesota to 54 percent in New Jersey. PCPs in New Jersey, California, Alabama and Missouri were less likely than the national average to accept new Medicaid patients in 2011-12.

(Source: Decker, SL, “Two-Thirds Of Primary Care Physicians Accepted New Medicaid Patients In 2011–12: A Baseline To Measure Future Acceptance Rates,” Health Affairs, July 2013)

My take: given declining numbers of primary care clinicians and the likelihood that demand for these services will increase as a result of coverage expansion in the ACA, access to and the delivery of primary care services remains a major unknown in health care reform. Policymakers and industry leaders must innovate how primary care services can be better leveraged using mid-level practitioners, technologies that support guided self-care management by individuals and population health management strategies that are rewarded as team-based incentives. The opportunity exists for breakthrough innovation in the design and delivery of primary care.

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Managing high-cost Medicare enrollee utilization represents modest opportunity for savings unless accompanied by other market innovations 

Background: managing high cost populations wherein interventions to prevent acute events is a major concern to policymakers and industry leaders. This research team studied data from 1,114,469 Medicare FFS enrollees for the period of 2009-2010 to characterize and quantify the opportunity.

Key findings:

  • “The 10 percent of Medicare patients in the highest-cost group (decile) were older, more often male, more often black and had more comorbid illnesses than non–high-cost patients”
  • 32.9 percent of total ED costs were incurred by high-cost patients—41.0 percent of these potentially preventable compared with 42.6 percent among non–high-cost patients
  • High-cost patients accounted for 79.0 percent of inpatient costs, 9.6 percent due to preventable hospitalizations
  • “16.8 percent of costs within the non–high-cost group were due to preventable hospitalizations”
  • “Regions with high primary care physician supply had higher preventable spending for high-cost patients”

Research team conclusion: “Among a sample of patients in the top decile of Medicare spending in 2010, only a small percentage of costs appeared to be related to preventable ED visits and hospitalizations. The ability to lower costs for these patients through better outpatient care may be limited.”

(Source: Joynt et al, “Contribution of Preventable Acute Care Spending to Total Spending for High-Cost Medicare Patients,” Journal of the American Medical Association, 2013;309, June 24, 2013 (24):2572-2578)

My take: the researchers’ approach to the data analysis in this study—structured around a gap analysis comparing the highest 10 percent to the lowest—was solid and the researcher’s conclusion is justifiable based on the data used. But a large scale observational study like this does not encompass innovations in the design and delivery of services to the high cost population—incentives to providers to better coordinate care, use of technologies for better diagnosis and treatment, leveraging of case management and population health techniques to change behaviors and improve outcomes and so on. I suspect the potential preventable savings are dramatically higher than these results indicate.

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“…yesterday, despite all the evidence that the law is working the way it was supposed to for middle-class Americans, Republicans in the House of Representatives voted for nearly the 40th time to dismantle it. We’ve got a lot of problems in this country and there’s a lot of work that Congress needs to do: get a farm bill passed, get immigration reform done, make sure we’ve got a budget in place that invests in our children and our future.  And yet, instead we’re refighting these old battles.”

—President Obama, July 18, responding to the House vote to delay employer, individual mandates

“…the movement to value-based, coordinated care for patients is an evolutionary process. Programs like the ACO initiatives will take many years to mature…These medical groups will continue to invest in improvements in care processes and infrastructure that will provide patients with better health outcomes, an enhanced care experience and lower costs well into the future.”

—American Medical Group Association Chief Executive Officer Doug Fisher, July 16. Note: 25 AMGA members are among the 32 Pioneer ACO participants

“…the strategic model of disruptive innovation we’ve all become comfortable with has a blind spot. It assumes that disrupters start with a lower-priced, inferior alternative that chips away at the least profitable segments, giving an incumbent business time to start a skunkworks and develop its own next-generation products...perhaps the biggest challenge to incumbents is that big-bang innovations come out of left field, combining existing technologies that don’t even seem related to your offerings to achieve a dramatically better value proposition. Big bang disruptors may not even see you as a competition. They don’t share your approach to solving customer needs. And they’re not sizing up your product line and figuring out ways to offer slightly better price or performance with hopes of gaining a short term advantage. Usually they’re tossing something shiny in the direction of your customers, hoping to attract them to a business that’s completely different than yours.”

—Larry Downes, Paul Nunes, “Big Bang Disruption,” Harvard Business Review, March 2013

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Fact file: special focus on “accountable care” 

  • Characteristics of the 220 Medicare Shared Savings Program ACOs (Section 3022):

    Locality, Payment Options, Structure
Population density Number of ACOs Percent of total ACOs
High (85-100 percent in metro areas) 161 73%
Low (0-40 percent in metro areas) 16 7%
Mixed (40-85 percent in metro areas) 43 20%
Total 220 -
Payment characteristics
Track 1 (one-sided) 215 98%
Track 2 (two-sided) 5 2%
Advance Payment (CMMI Initiative) 36 16%
Interim Payment 17 8%
Total 220 -
ACO reported composition*
Networks of individual practices 121 55%
Group practices 90 41%
Hospital/professional partnerships 66 30%
Hospital employing ACO professionals 44 20%
Federally qualified health center 15 7%
Rural health clinic 11 5%
Critical access hospital 4 2%
Total 220 -

*Multiple responses may apply to an ACO. (Source: CMS, “Fast Facts: All Medicare Shared Savings Program ACOs,” March 2013, )

Regionality of participation

Region Number of ACOs Number of assigned beneficiaries Percent of Medicare population
1: Boston (CT, ME, MA, NH, RI, VT) 28 371,631 14.6%
2: New York (NJ, NY, PR, VI) 29 398,881 7.6%
3: Philadelphia (DE, DC, MD, PA, VA, WV) 21 188,475 3.7%
4: Atlanta (AL, FL, GA, KY, MS, NC, SC, TN) 68 657,599 6.2%
5: Chicago (IL, IN, MI, MN, OH, WI) 39 674,402 7.9%
6: Dallas (AR, LA, NM, OK, TX) 21 204,186 3.7%
7: Kansas City (IA, KS, MO, NE) 11 187,442 8.0%
8: Denver (CO, MT, ND, SD, UT, WY) 4 31,766 2.1%
9: San Francisco (AZ, CA, HI, NV) 26 222,038 3.3%
10: Seattle (AK, ID, OR, WA) 4 64,816 3.2%
Counties with less than 1% of an ACO’s assigned beneficiaries   242,004  
Total 220 3,243,240 6.5%

*An ACO may be in multiple regions. (Source: CMS, “Fast Facts: All Medicare Shared Savings Program ACOs,” March 2013,


MSSP enrollee clinical risk variation

Demographics Values for individual ACOs
Minimum Median Maximum
ERSD 0.3% 1.0% 3.8%
Disabled 8.5% 16.5% 49.3%
Aged dual eligible 0.3% 5.0% 76.8%
Aged non-dual eligible 12.9% 76.5% 88.9%
Male 35.1% 41.8% 48.2%
Female 51.8% 58.2% 64.9%
Age less than 65 8.9% 17.2% 51.0%
Age 65-74 26.9% 40.4% 52.4%
Age 75-84 13.0% 28.4% 37.7%
Age 85+ 4.1% 12.9% 24.1%
ACO risk profile (average risk scores by demographic category) Values for individual ACOs
Minimum Median Maximum
ESRD risk (ESRD scale, 1.0 average) 0.96 1.08 1.24
Disabled risk (non-ESRD scale, 1.0 average) 0.78 1.11 1.62
Aged dual eligible risk (non-ESRD scale, 1.0 average) 1.08 1.53 1.98
Aged non-dual eligible (non ESRD scale, 1.0 average) 0.77 1.05 1.46
Benchmark (historical per capita annual expenditures)
Benchmark 2012 starts (2011 dollars and risk) 7,256 9,785 17,236
Benchmark 2013 starts (2012 dollars and risk) 4,981 10,030 20,522
Utilization (per thousand assigned beneficiaries unless otherwise noted)
Hospitalizations 226 370 737
Emergency department visits 287 692 1,448
Emergency department visits with hospitalization 34 248 537
CT events 243 673 1,044
MRI events 86 272 523
Ambulance events 229 805 3,851
Primary care service visits total (per assigned beneficiary) 6.6 9.9 22.3
ACO primary care service visits (per assigned beneficiary) 3.4 5.2 11.0
Percent primary care charges in ACO 46.6% 65.9% 93.5%

(Source: CMS, “Fast Facts: All Medicare Shared Savings Program ACOs,” March 2013,

  • Opinions about ACOs:
    Physician assessment of ACOs vs. other features in the ACA: most think ACOs will not be successful in lowering costs or improving care
    % Responding Very Successful/Successful Total PCP Surgical Specialist Non-surgical Specialist Other
    Introduction of performance reporting and benchmarking 37% 34% 38% 37% 35%
    Better identification and closer management of high-risk patients 28% 36% 23% 28% 31%
    Improving population health through increased prevention activities 21% 26% 17% 21% 24%
    Use of lower cost treatment settings and providers 21% 27% 22% 19% 21%
    Reduction of preventable admissions 18% 21% 14% 18% 24%
    Physician agreement or support through pay-for-performance and shared-savings/bonuses 18% 22% 15% 16% 27%
    Reduction of unnecessary testing 16% 17% 15% 16% 22%
    Reduction of unnecessary visits to the ER 16% 19% 15% 15% 18%
    Reduction of medical errors 15% 17% 10% 16% 21%
    Achieving lower administrative costs 15% 15% 14% 14% 18%
    ACOs will improve outcomes while decreasing costs 12% 14% 9% 11% 17%

    (Source: Deloitte Center for Health Solutions, 2013 Survey of US Physicians)

Physician interest in practicing in an shared risk environment: the majority of physicians do not think risk-sharing is in their best interest

(Source: Deloitte Center for Health Solutions, 2013 Survey of U.S. Physicians)

Employer familiarity with ACOs and other features of the ACA: only one in 5 employers is familiar with the ACO concept

(Source: Deloitte Center for Health Solutions, 2012 Survey of U.S. Employers)

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