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Health Care Reform Memo: February 25, 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: Alignment in health care

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

I love golf and I am not very good. I just returned from playing for three days in Hilton Head with a group of Nashville buddies—an annual event dating back 15 years. We play Harbour Town Golf Links, where the signature hole is the lighthouse hole, number 18—long with water on the left and expensive condominiums on the right. It’s a tough hole.

I got the nickname “crash” in this event years ago because my tee ball seemed to find its way to the windows of the condos more frequently than the fairway intended. But not this week—I played well and it was the result of one tip from a caddy: alignment.

Regardless of the golf clubs used or ball chosen, the key to a good round of golf for most of us is alignment—making sure we’re properly positioned to consistently hit the ball in the direction intended while adjusting for weather and wind.

Alignment is a holy grail of health care in the new normal. The headline announcing Joe Swedish’s new role caught a few by surprise:

“Wellpoint Inc. named Joseph R. Swedish as its new chief executive, unexpectedly turning to a hospital industry veteran to lead the second largest U.S. health insurer through the challenging implementation of the health care overhaul.”—Anna Wilde Matthews and Jon Kemp, “WellPoint Names Hospital Veteran as Insurers CEO,” Wall Street Journal, February 13, 2013

But here’s my take: his naming is all about alignment. Joe’s the former President and CEO of Trinity Health System, a Catholic health system based in Livonia, Michigan that manages 47 acute-care hospitals. He is now the CEO of a health plan that serves more than 34 million members.

Health plans bring expertise in population care management and infrastructure to manage risk. Hospitals manage care delivery by working with physicians and technicians to deliver services that are appropriate while navigating a plethora of rules about safety and fraud and a complicated system of payments from private and government plans.

Each is a highly regulated sector; each brings competencies usually missing in the other, except in those organizations where both operate side-by-side as cost centers of a holding company or large medical group.

Each is dependent long-term on the skills of the other to simultaneously achieve higher quality and lower cost. And historically, each has had a tough time finding alignment of incentives with the other achievable.

Hats off to boards that see a future where alignment is central to an organization’s future, and where leaders are chosen who bring expertise outside a particular sector to the organization’s c-suite. That WellPoint would look to a hospital professional to lead the organization is not unprecedented nor should it be surprising. Aetna brought in Jack Rowe, MD, as its Chairman and CEO from Mount Sinai New York Health in 2000. Blue Cross of Tennessee tapped Bill Gracey, formerly COO of Lifepoint Hospitals as its CEO last year and Humana’s CEO Bruce Broussard took the post after a stint at pharmaceutical distributor McKesson. And there are many others.

The convergence of delivery and payments in fully or virtually integrated health systems seems inevitable. Some have a head start—Geisinger Health System, Kaiser Permanente, and Intermountain Healthcare are among the better known. But it takes alignment and trust.

I have served on boards of three publicly traded health care companies. A director’s role is three-fold: to set direction for an organization via its strategy, to represent the interests of the shareholders in a fiduciary role, and to secure and retain competent management. In alignment, often the difference is management: perspectives and experiences that trump legacy opinions about the flaws and shortcomings of other sectors and the ability to bring fresh solutions and sometimes fresh talent. Alignment is not easy, but it no less necessary, especially now. It takes a board committed to breaking down sector silos that constrain alignment inside and outside the organization.

The infamous Walter Lippmann once said “when all think alike, no one thinks very much.” That’s true in every organization, including health care.

I played the lighthouse hole all three days without hitting a condominium or dumping a ball in Calibogue Sound. I owe it to alignment. But they still call me crash!

Paul Keckely

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

PS – There are two big things going on this week: by the end of the week, we’ll know the results of sequestration and the annual meeting of the Healthcare Information and Management Systems Society (HIMSS) starts Sunday in New Orleans, LA, themed appropriately, “Health IT: Right Time. Right Place, It’s On.” Keynoters include former President Bill Clinton and Scripps Health’s Eric Topol, and the Deloitte Center for Health Solution’s Senior Advisor, Harry Greenspun, MD, will lead a session opening day entitled, “Disruption Ahead! Embracing the Changes.”

Implementation update

Health plans in exchanges get final rules on essential health benefits, actuarial value, and accreditation

Last week, the U.S. Department of Health and Human Services (HHS) released a 149-page final rule on essential health benefits (EHBs), actuarial value, and accreditation largely consistent with the earlier proposed rule. Highlights:

  • EHBs: insurance plans sold to individuals who buy their own coverage and to employers—except those that self-insure—must include a core package of ten services (i.e., EHBs). States have the choice of four benefit packages that they can offer; if the benefit package (i.e., the base benchmark plan) identified does not cover one of the ten EHBs (i.e., emergency services, hospitalization, mental health services, etc.), the state can supplement coverage from another approved plan. To date, 25 states and the District of Columbia have recommended their benchmark plans, and the remaining 25 adopted the option identified by HHS as the “default” benchmark plan.
  • Actuarial value relevant to health insurance exchanges (HIX, i.e., the amount the health insurance plan will cover): the actuarial value may vary by two percentage points (i.e., a silver plan offered on a HIX that was designated to have an actuarial value level of 70 percent can have an actuarial value level in the range of 68 percent to 72 percent).
    Note: the Affordable Care Act (ACA) Section 1302 defines the actuarial value for qualified health plans (QHPs) as the percentage of medical expenses paid by the health plan for a standard population. Health plans sold in individual and small group markets on a HIX can be classified into four tiers of coverage determined by their actuarial value: bronze (60 percent), silver (70 percent), gold (80 percent), and platinum (90 percent). In a bronze plan, the health insurance plan pays for 60 percent of the costs, and the enrollee pays for 40 percent of the covered expenses.
  • Prescription drugs: the minimum standard should be the number of drugs per category in the state’s chosen benchmark plan or one drug, whichever is greater.
  • Dental coverage: more variation in cost-sharing for stand-alone dental plans (SADPs) offered on a HIX allowed—the “low” plan will have an actuarial value of 70 percent vs. 75 percent in the proposed rule. The “high” plan will have an actuarial value of 85 percent. HHS agreed with commenters that the proposed rule regarding SADPs did not provide enough variation between plans, thereby limiting consumer choice.
  • Health plan accreditation: approved accreditation entities include the National Committee for Quality Assurance (NCQA) and URAC. By the fourth year of operation, QHPs must be accredited based on local performance.

CMS issues final rule on insurance market rate review

Friday, the Centers for Medicare and Medicaid Services (CMS) published a 145-page final rule to implement provisions of the ACA related to the health insurance market effective January 1, 2014. Highlights:

  • Guaranteed issue (i.e. an individual cannot be denied health coverage based on a preexisting condition): per ACA Section 1201, guaranteed availability will be in effect in 2014. Individual market: policies will be made available to individuals regardless of health status and an individual can enroll during open enrollment periods. Group market: policies must be made available year-round to individuals regardless of health status.
  • Health insurance premiums: the individual and small group markets are not allowed to increase premiums based on health status, gender, occupation, etc.; premiums may vary by age, geography, and family size up to a 3:1 ratio (i.e., older adults can’t pay more than 300 percent of what younger adults pay); tobacco users may be charged 150 percent that of non-users.
    Note: variation from the proposed rule, the 3:1 ratio for age can now apply to individuals “who may be eligible for Medicare based on age (i.e. over age 65), but still does not apply to individuals less than 21 years of age.
  • Large employers: if large employers opt to sell coverage on a HIX in 2017, the same rating rules for individual and small group markets will be applied.
  • Risk pools: individual and small group health insurers must maintain a single statewide risk pool for each market. States can choose to merge the individual and small group risk pools. The goal is to prevent premiums from increasing—the larger the risk pool, the chance of a highly concentrated sick population is less likely.

Mandatory participation in individual and small group market opposed by industry groups

In a letter to HHS last week, a health care industry stakeholders group—including members such as American Osteopathic Association, Federation of American Hospitals, Healthcare Leadership Council, Pharmaceutical Research and Manufacturers of America, National Association of Health Underwriters, and National Association of Insurance and Financial Advisors—requested HHS not mandate health insurance issuers to sell products in both the individual and small group (i.e., the Small Business Health Insurance Options Program [SHOP]) markets on a federally-facilitated exchange. According to a news source, “this [proposed] requirement could have the unintended impact of discouraging issuers from entering the individual exchange marketplace due to their lack of experience or capacity in the small group marketplace.” The policy was set forth in the November 2012 proposed rule “Notice of Benefit and Payment Parameters.” The final rule is expected to be released soon.

Background: the SHOP option is available to small employers (<50 employees with the option to expand to employers with <100 employees) who are interested in offering employees health benefits through HIXs beginning in 2014; in 2016, states must expand eligibility to employers with <100 employees, and in 2017 states have the option to open the SHOP to larger employers.

My take: the rationale for the objection is the potential adverse impact on health plan costs and coverage for small employers if required to also carry coverage for individuals. Individual health plans carry the highest risk and highest administrative costs, so underwriters that are required to cover both would be forced to reconsider coverage in states where individual costs were highest. Also, the age banding requirement in the law—disallowing premiums for the youngest and healthiest to vary no more than a ratio of 1:3 compared to the sickest and oldest—would drive individual premiums for young, healthy individuals otherwise seeking coverage to levels beyond affordability. My take is that the industry’s concern on this issue is understandable.

Legislative update

Poll: public not well informed about sequestration update

Background: per the Budget Control Act of 2011, Congress agreed to cut federal spending by $1.2 trillion over 10 years starting with cuts of $109 billion beginning January 1, 2013 (sequestration)—delayed by Congress to March 1 with a renewed Congressional Budget Office (CBO) estimate of $85 billion in cuts for the remaining of fiscal year 2013.

The Pew Research poll conducted February 13-18 of 1,504 U.S. adults found:

  • 50 percent know little or nothing about sequestration
  • 40 percent think automatic cuts should go into effect, 49 percent think the cuts should be delayed, 11 percent don’t know
  • 31 percent would blame President Obama if a deal is not reached, 49 percent would blame Republicans in Congress
  • 76 percent think a deal should include tax cuts and spending cuts; nineteen percent believe tax cuts should not be included in the deal
  • Obama’s approval rating: 51 percent; Congressional approval rating: Republican leaders, 25 percent and Democratic leaders, 37 percent

Simpson-Bowles 2.0

Last week, the bi-partisan Simpson-Bowles Commission released an updated plan for deficit reduction through 2023, proposing a four-step process that includes two steps already taken.

Deficit Reduction (2014-2023)
Four-step plan to deficit reduction Step one

Reduce discretionary spending (~$1.85 trillion)

  • Impose 10 year caps on discretionary spending (2011)
  • Enact immediate reductions in discretionary spending levels (October 2011-April 2011)
Step two

Increase revenue collection and minor additional spending cuts (~$850 billion)

  • Allow upper income tax to expire and make minor cuts in Medicare provider payments (Jan 2013)
Step three

Enact tax and entitlement reforms (~$2.4 trillion)

  • Reduce Medicare and Medicaid spending by improving provider and beneficiary incentives throughout the health care system, reducing provider payments, reforming cost-sharing, increasing premiums for higher earners, adjusting benefits to account for population aging, reducing drug costs, and getting better value for our health care dollars (February-December 2013)
  • Enact comprehensive, pro-growth tax reform that eliminates or scales back most tax expenditures, with a portion of savings from tax expenditures dedicated to deficit reduction and the additional savings used to reduce rates and simplify the tax code (February-December 2013)
  • Strengthen limits on discretionary spending (February-December 2013)
  • Reduce non-health mandatory spending by reforming farm subsidies, modernizing civilian and military health and retirement programs, imposing various user fees, reforming higher education spending, and making other changes (February-December 2013)
    Adopt chained CPI for indexing and achieve savings from program integrity (February-December 2013)
Step four

Enact Social Security, Medicare, and highway funding reform

  • Require reforms on a separate track to make Social Security sustainably solvent (2013)
  • Require a highway bill to bring transportation spending and revenues in line (2014)
  • Require additional reforms of federal health care programs if necessary to limit the growth of the per beneficiary federal health commitment to close to gross domestic product (GDP) growth (2018)

Source: Erskine Bowles and Alan Simpson, “A Bipartisan Path Forward to Securing America's Future,” February 2013

My take: in its initial version, a ratio of 3:1 for federal spending cuts to new revenues was proposed with a goal of slowing health spending growth overall to no more than 1 percent above the annual GDP. The 2.0 version appears to lower the ratio slightly by changing how Medicare enrollees pay for coverage (eligibility, premiums, etc.) along with tax reforms and the use of the chained CPI in Social Security payments. This framework is likely to serve as the framework for upcoming Congressional debate about the sequester this week, the continuing resolution to fund federal government operations (March 27), and the debt ceiling in April.

New health care bills introduced

  • Representative Ed Whitfield (R-KY) introduced H.R. 800 on February 15, 2013 “to exclude customary prompt pay discounts from manufacturers to wholesalers from the average sales price for drugs and biologicals under Medicare.”
  • Representative Sam Johnson (R-TX) introduced H.R. 781 on February 15, 2013 “to prohibit Social Security numbers from being displayed on Medicare cards.”
  • Representative Darrell Issa (R-CA) introduced H.R. 779 on February 15, 2013 to repeal the ACA and make the federal employee health benefit plan available to non-federal employees.
  • Representative Charles Boustany (R-LA) introduced H.R. 763 on February 15, 2013 to repeal the annual fee on health insurance providers enacted by the ACA.
  • Representative Peter DeFazio (D-OR) introduced H.R. 743 on February 15, 2013 “to restore the application of the federal antitrust laws to the business of health insurance in order to protect competition and consumers.”
  • Representative Marsha Blackburn (R-TN) introduced H.R. 762 on February 15, 2013 “to repeal provisions of the [ACA] in order to provide for cooperative governing of individual health insurance coverage offered in interstate commerce.”
  • Representative Mike Rogers (R-AK) introduced H.R. 741 on February 15, 2013 “to develop and implement a plan to provide chiropractic health care services and benefits for certain new beneficiaries as part of the TRICARE program.”

GAO: Potential for fraud in Medicare, Medicaid, FDA high

Last week, the Government Accountability Office (GAO) released a report detailing the federal programs where fraud risk is highest:

GAO recommends:

  • Ensure the implementation of an effective physician profiling system to help support use of value-based modifiers.
  • Develop and implement approaches to identify self-referred claims, reduce payments to recognize efficiencies achieved when the same provider refers and provides the service, and take steps to ensure the appropriateness of service provision.
  • Cancel the current Medicare Advantage (MA) Quality Bonus Demonstration and implement the quality bonus payment provisions in the ACA, as amended; and improve the accuracy of the adjustment of payments to MA plans for diagnostic coding differences, such as by using more current data in determining the amount of the adjustment.
  • CMS should improve the cost-effectiveness of recovery of payments made improperly because Medicare was the secondary payer in situations involving non-group health plans, and decrease the reporting burden for non-group health plans while improving communication with plans’ stakeholders.
  • Improve the structure and processes related to use of prepayment controls and assess the feasibility of increasing contractors’ incentives for their use, and develop or finalize schedules and plans for its information technology efforts related to improper payments and fraud; define quantifiable benefits, measurable performance targets, and goals for these efforts; and use the targets and goals to determine their effectiveness.
  • Provide coverage for preventive services recommended by the Preventive Services Task Force, as appropriate, considering cost-effectiveness and other criteria.
  • Strengthen oversight of nursing home complaint investigations by improving the reliability of its complaints database and clarifying guidance for its state performance standards
  • Use strategic planning to guide and gauge the progress of the Medicare program’s planned efforts to meet the goals of the Five-Star Quality Rating System for nursing homes.
  • Increased federal oversight of Medicaid’s fiscal and program integrity is needed (i.e., CMS oversight of program integrity has been challenged by data systems that do not provide reliable, complete, and timely data). States also have key roles in reducing improper payments to providers in developing, implementing, and evaluating the effectiveness of corrective plans to reduce improper payments.
  • Continue taking steps to improve oversight of Medicaid managed care payment rate-setting and Medicaid supplemental payments.
  • Improve the criteria and methods used to ensure the budget neutrality of Medicaid demonstrations (GAO recommend Congress take action to move this recommendation along).
U.S. Food and Drug Administration (FDA)
  • Strengthen its Drug Shortage Program by assessing program resources, systematically tracking data on shortages, considering the availability of medically necessary drugs as a strategic priority, and developing relevant results-oriented performance metrics to gauge the agency’s response to shortages;
  • Improve oversight of medical device recalls by routinely assessing information on device recalls, clarifying procedures for conducting recalls, developing criteria for evaluating the effectiveness of recalls, and documenting the agency’s basis for terminating individual recalls.
  • Implement the Safe Medical Devices Act of 1990.
  • Conduct more inspections of foreign establishments manufacturing medical products for the U.S. market and utilize new authority to take a risk-based approach in selecting foreign drug establishments to ensure that they are inspected at a frequency comparable to domestic establishments with similar characteristics.
  • Emphasize the importance of timely medical product reviews, particularly for medical devices; and track applications to market medical products for children.

Source: Source: GAO, “High-risk series: An update,” February 2013

Background: Medicare is a high-risk program “because its complexity and susceptibility to improper payments, added to its size, have led to serious management challenges.” In 2012, Medicare spent $555 billion, but reported improper payments over $44 billion—almost 8 percent.

Medicaid is a high-risk program “due to its size, growth, diversity of programs, and concerns about the adequacy of fiscal oversight, which is necessary to prevent inappropriate program spending.” Medicaid will add up to 7 million to its enrollment in 2014 as states have the option to expand Medicaid to 133 percent of the federal poverty level (FPL) per the ACA.

FDA programs are a high risk area because “rapid changes in science and technology, globalization, unpredictable public health crises, an increasing workload, and the continuing need to monitor the safety of thousands of marketed medical products have strained the agency’s resources. FDA was facing a variety of difficulties that threatened to compromise its ability to protect the public health.”

(Source: GAO, “High-risk series: An Update,” February 2013)

Related: last week, the Office of the Inspector General (OIG) released its findings from reviews of 147 CMS audit reports finding it collected 81 percent of Medicaid overpayments as of December 2012. OIG recommendations:

  • Collect the outstanding amount in overpayments
  • Review and address delays in resolving OIG audit recommendations and promptly pursue corrective actions
  • Maintain adequate documentation to support the collection of overpayments
  • Educate the states about their responsibility to report overpayments and how to do so

Reaction: CMS agreed with the second, third, and fourth recommendations, but noted that the amount outstanding ($226 million) remains because “states disagreed or did not voluntarily return the recommended finding amounts.”

State update

HHS announces grants to test new models of care delivery

Thursday, HHS announced initial grants to Arkansas, Maine, Massachusetts, Minnesota, Oregon, and Vermont to test new models of care (i.e. accountable care organizations and multi-payer payment initiatives). A total of 25 states are expected to participate in the nearly $300 million federally-funded program.

State round-up: HIX

In its February 2013-2023 budget and economic outlook, the CBO added $32 billion (2013-2022) to its estimate of costs for subsidies through health exchanges based on its conclusion that 7 million fewer will have employer-sponsored coverage versus its August estimate of 4 million. Therefore, it estimates exchange enrollment will be 500,000 higher, reaching 26 million by 2022.

17 states—12 led by Democratic Governors, four led by Republicans and one Independent—and the Democratic mayor of D.C. have announced plans to operate state-based exchanges. Seven states—four led by Democratic Governors and three led by Republicans—will participate in a partnership exchange with HHS. The remaining 26 states will default to a federally-facilitated exchange. To date, establishment grant awards have been issued to 37 states and D.C.

State-based exchange State-partnership exchange Federally-facilitated exchange

Source: HHS

Medicaid expansion update

24 states and D.C. have said they will expand their Medicaid programs; 16 states have indicated they are highly unlikely to expand their program:

Announced or Governor in support of expansion Not participating or highly unlikely to participate Undecided or undeclared

Source: Kaiser Family Foundation

Note: states do not have a deadline to make a decision on Medicaid expansion and may opt in or out of participation at any time. This chart was compiled using publically available information (as of February 20, 2013) and is subject to change.

Other recent announcements:

  • Wisconsin Governor Scott Walker (R) rejected the expansion of Medicaid proposing an alternative expansion via BadgerCare, the state’s public insurance program for low-income residents. The Journal Sentinel of Milwaukee estimated that to fully implement the federal expansion through 2020 it would cost the state $67 million more than to keep the state’s current program in place vs. Governor Walker’s plan, which would cost the state $320 million.
  • California Governor Jerry Brown (D) submitted a 63-page recommendation list regarding the impending expansion on the state’s Medicaid program to the California General Assembly requesting the federal government pay the allotted sum before the state implements the expansion.
  • Florida will expand its Medicaid eligibility per the ACA for three years. Republican Governor Rick Scott made the decision due to the state’s strict qualifications for Medicaid and large uninsured population.
  • Virginia House and Senate budget conferees have reached an unofficial agreement on Medicaid expansion. According to the Washington Post, “this comprise worked out by conferees would allow a ten member conference committee to authorize the expansion once the reforms are implemented.”

State round-up

  • Goldwater Institute, a conservative Arizona nonprofit, asked the 9th Circuit Court of Appeals to overturn a lower court’s decision against the Independent Payment Advisory Board (IPAB). In December, the lower court refused to hear the challenges made by Goldwater Institute. The group claims that IPAB violates a constitutional right to medical autonomy and that the federal law conflicts with a state law regarding an individual mandate.
  • New York Governor Andrew Cuomo (D) is writing legislation that would allow women late-term abortions. The current state law restricts abortions after 24 weeks unless the woman’s life is at risk, which is superseded by the U.S. Supreme Court ruling in Roe v. Wade. Governor Cuomo is pursuing legislation to ensure that if Roe v. Wade is overturned, that women will have access to abortion services in the state. The outcome of this legislation remains unknown.
  • Michigan State Senate passed a bill with no opposition concerning insurance coverage for services provided via telemedicine.
  • California’s tobacco prevention campaign saved the state $134 billion in health costs according to a study published in science journal PLOS ONE. For every dollar spent on aggressive campaign tactics, such as television commercials and tobacco cessation programs, health care costs lowered by about $56.
  • Colorado is developing rules to govern its growing “marijuana tourism” industry since the passage in November of a law permitting 1 ounce possession. It has appointed a legislative task force to study selling pot to non-residents.

Industry news

HIMSS preview

The Healthcare Information Management Systems Society’s annual meeting in New Orleans, LA starts Sunday and goes through March 7. This year’s meeting centers around the theme, “Health IT: Right time. Right place. It’s on.” And includes keynote speakers such as former President Bill Clinton and Scripps Health’s Eric Topol. Deloitte will also have a booth throughout the conference.

Harry Greenspun, MD, Senior Advisor, Health Care Transformation & Technology, Deloitte Center for Health Solutions will speak on Sunday, March 3: Disruption Ahead! Embracing the Changes. The session will provide a new spin on the themes that were presented throughout the program and explore where the future will take us. Objectives of the session include:

  • Describe, from a technology perspective, where the industry is now and where the industry is going
  • Identify, from a people perspective, what the industry needs now and what it will need in the future
  • Discuss new innovations, disruptive technologies, etc. that the profession should be prepared for

Hospital community benefits unrelated to profitability

After a review of 2,500 tax records, Modern Healthcare found hospitals whose marginal revenue is negative spend the same amount on free or discounted care as extremely profitable hospitals. According to investigators, the inequality results from little regulation on how much free or discounted care a hospital must provide to qualify for tax subsides. In 2010, the median total expenses on charity care amounted to 1.7 percent, up from 1.5 percent in 2009. The total median amount went from $1.2 million in 2009 to $1.3 million.

My take: the concept of the community benefit has been widely debated dating to the 1980s when taxes paid by investor owned hospitals were pitted against community benefits expensed in not-for-profit hospital settings. The Senate Finance Committee in 2007 proposed legislation that would set at least 5 percent spending of the hospital’s revenue on free or discounted care, and some states, such as Texas, require hospitals to spend a certain percent of spending on charity care. This is an ongoing debate that needs resolution based on objective criteria for defining and measuring “community benefit” regardless of ownership status. It is uniquely sensitive in the acute sector, but reflects a broader effort by policymakers to make the industry more transparent about safety, efficiency, profitability, and patient experiences.

Consortium promotes limitations on unnecessary care in “Choosing Wisely” campaign

The American Board of Internal Medicine Foundation announced its new advocacy effort put forth by 17 societies around 90 recommendations that would reduce unnecessary care and in some potential harm. Examples: unnecessary C sections, CT scans, and MRI tests for low back pain. The group seeks to call attention to tests, drugs, and procedures that increase cost as much as 20 percent for which there is little or no evidence to support efficacy or effectiveness.

FDA designates “breakthrough” status to novel cancer treatment

The FDA gave "breakthrough therapy designation” to a third experimental drug—Janssen Research & Development, LLC received approval for its cancer therapy treatment for patients with relapsed or refractory mantle cell lymphoma and Waldenstrom's macroglobulinemia (a rare non-Hodgkin lymphoma). Vertex Pharmaceuticals was granted the first two breakthrough therapy designations last month for a monotherapy and combination regimen for cystic fibrosis patients with rare mutations.

Background: under the FDA Safety and Innovation Act of 2012, a sponsor (i.e., manufacturer) of a drug may request for an expedited review of such drug if the drug alone, or in combination with one or more other drugs, is developed to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies. No later than 60 days after the request is submitted, FDA must make a determination to either grant or deny the request for breakthrough therapy designation.

Administration announces Brain Activity Map

The Brain Activity Map initiative is a government-led effort to find improved treatments for neurological issues by mapping out the path of neurons and synapses in the brain. Research could target disorders such as autism, schizophrenia, and epileptic seizures.

Note: President Obama mentioned this initiative in the State of the Union address February 12, 2013. Exact funding from the federal government has not yet been specified; however, the research is expected to last a minimum of 15 years.

Video games to treat schizophrenia

Posit Science is developing a video game to treat schizophrenia focused on the concept of brain training which aims to help individuals with schizophrenia distinguish expectation from outcome. Scientists hypothesize that brain training video games could help treat dementia as well. The company will seek FDA approval.

Background: almost 2.5 million Americans (1.1 percent of total population) suffer from the disease—a “group of brain disorders in which people interpret reality abnormally.” Onset of the disease is seen during teen years or early adulthood.

Global markets: Sanofi India Ltd. focuses on OTC products

Sanofi India Ltd. will introduce at least ten over-the-counter (OTC) products in India over the next five years. Its goal is to target 4 percent market share, announcing the release of Combiflam Plus—an OTC medication for headaches—earlier this month. The consumer health market in India is growing; consumers are focused on wellness, fitness, and supplements, according to Bloomberg News.

Analytics acquisitions

UnitedHealth Group’s acquisition of Humedica—a Boston-based clinical analytics firm affiliated with the American Medical Group Association—was announced last month.

My take: in recent months, the acquisition of analytics capabilities by major health care companies has picked up as stakeholders seek to monetize the value of data that’s unstructured or otherwise not used optimally. Deloitte Consulting acquired Recombinant earlier this year. The transition from fee-for-service to value-based purchasing in health care wherein individuals with high deductible insurance plans will drive purchases means data (information) about which tests, procedures and drugs work best, and their costs, will be necessary for organizations to compete.

GPOs to focus on technology

In its seventh annual "Report to the Public," issued last week, the Healthcare Group Purchasing Industry Initiative (HGPII) concluded that the highest priorities for group purchasing organizations (GPOs) priorities are innovative technologies, maintaining high ethical standards, and business practices that promote transparency in the bidding process and compliance.

Background: HGPII organization is an “independent, voluntary organization” that was founded in 2005 as a non-profit organization by the chief executives of those health care GPOs "who thought the industry should do more collectively to demonstrate a strong commitment to ethical values. HGPII promotes the development and improvement of accountability standards, business practices and ethics to its customers, vendors and the public to help create higher industry standards for quality and value.”

Source: PR Newswire, “Comprehensive Review Of Group Purchasing Industry Business Practices Finds Commitment To Transparency, Innovation And High Ethical Standards,” February 15, 2013

Research snapshots

New industry and peer-reviewed studies of note to health system transformers…

Hysterectomies: robotic technology increases costs but does not improve outcomes

Background: “Although robotically assisted hysterectomy for benign gynecologic conditions has been reported, little is known about the incorporation of the procedure into practice, its complication profile, or its costs compared with other routes of hysterectomy.”

Objective: “To analyze the uptake of robotically assisted hysterectomy, to determine the association between use of robotic surgery and rates of abdominal and laparoscopic hysterectomy, and to compare the in-house complications of robotically assisted hysterectomy vs. abdominal and laparoscopic procedures.”

Methodology: “Cohort study of 264,758 women who underwent hysterectomy for benign gynecologic disorders at 441 hospitals across the United States from 2007 to 2010.”

Key findings: “Use of robotically assisted hysterectomy increased from 0.5 percent in 2007 to 9.5 percent of all hysterectomies in 2010. During the same time period, laparoscopic hysterectomy rates increased from 24.3 percent to 30.5 percent. Three years after the first robotic procedure at hospitals where robotically assisted hysterectomy was performed, robotically assisted hysterectomy accounted for 22.4 percent of all hysterectomies. The rates of abdominal hysterectomy decreased both in hospitals where robotic-assisted hysterectomy was performed as well as in those where it was not performed. In a propensity score–matched analysis, the overall complication rates were similar for robotic-assisted and laparoscopic hysterectomy). Although patients who underwent a robotic-assisted hysterectomy were less likely to have a length of stay longer than 2 days transfusion requirements and the rate of discharge to a nursing facility were similar. Total costs associated with robotically assisted hysterectomy were $2189 more per case than for laparoscopic hysterectomy.”

(Source: Jason Wright, Cande Ananth, Sharyn Lewin, William Burke, Yu-Shiang Lu, Alfred Neugut, Thomas J. Herzog, and Dawn L. Hershman, “Robotically Assisted vs Laparoscopic Hysterectomy Among Women With Benign Gynecologic Disease,” Journal of the American Medical Association, February 20, 2013)

My take: new technologies are widely adopted in health care settings, adding to costs. From a policy perspective, issues include the appropriate use of technology, and balance between costs and incremental value to patient care. The jury’s still out on how best to manage the combination of demand factors—competition between hospitals and physicians, expectations of consumers for the “latest and best” to allocate technologies appropriately and efficiently.

Medicare costs for breast cancer screening above $1 billion, high regional variation

Background: “Little is known about the cost to Medicare of breast cancer screening or whether regional-level screening expenditures are associated with cancer stage at diagnosis or treatment costs, particularly because newer breast cancer screening technologies, like digital mammography and computer-aided detection (CAD), have diffused into the care of older women.”

Methodology: “Using the linked Surveillance, Epidemiology, and End Results–Medicare database, we identified 137,274 women ages 66 to 100 years who had not had breast cancer and assessed the cost to fee-for-service Medicare of breast cancer screening and workup during 2006 to 2007. For women who developed cancer, we calculated initial treatment cost. We then assessed screening-related cost at the Hospital Referral Region (HRR) level and evaluated the association between regional expenditures and workup test utilization, cancer incidence, and treatment costs.”

Key findings: “In the United States, the annual costs to fee-for-service Medicare for breast cancer screening-related procedures (comprising screening plus workup) and treatment expenditures were $1.08 billion and $1.36 billion, respectively. For women 75 years or older, annual screening-related expenditures exceeded $410 million. Age-standardized screening-related cost per beneficiary varied more than 2-fold across regions (from $42 to $107 per beneficiary); digital screening mammography and CAD accounted for 65 percent of the difference in screening-related cost between HRRs in the highest and lowest quartiles of cost. Women residing in HRRs with high screening costs were more likely to be diagnosed as having early-stage cancer (incidence rate ratio, 1.78 [95 percent CI, 1.40-2.26]). There was no significant difference in the cost of initial cancer treatment per beneficiary between the highest and lowest screening cost HRRs ($151 vs $115; P = .20).”

(Source: Cary P. Gross, Jessica B. Long, Joseph S. Ross, Maysa M. Abu-Khalaf, Rong Wang, Brigid K. Killelea, Heather T. Gold, Anees B. Chagpar, and Xiaomei Ma, “The cost of breast cancer screening in Medicare population,” JAMA Internal Medicine February 11, 2013)

My take: like prostrate testing and others, the value of diagnostic testing must be clearly articulated to consumers, especially as more take on first dollar responsibility for their health via high deductible insurance plans. In screening mammography, the costs are allocated across larger numbers who undergo the test, while benefitting the very few whose diagnosis is positive. In these cases, the full costs of diagnostic tests might be borne by individuals who, when running short of money, might forego otherwise useful tests. It’s a discussion we must have as a system—a policy of assuring that appropriate diagnostic tests are readily accessible as insurance plans and employers push financial risk to individuals and families for routine preventive health.


“The ACOs are in effect latter-day health-maintenance organizations—doctors, hospitals and other health-care providers grouped together to provide coordinated care. The ACOs assume financial responsibility for the cost and quality of the care they deliver, making them accountable to patients. With President Obama's re-election making it certain that the Affordable Care Act will begin taking full effect next year, the number of ACOs will continue to increase. We believe that many of them will not succeed. The ACO concept is based on assumptions about personal and economic behavior—by doctors, patients and others—that aren't realistic. Health-care providers are spending hundreds of millions of dollars to build the technology and infrastructure necessary to establish ACOs. But the country isn't likely to get the improvements in cost, quality and access that it so desperately needs.”

—Christainsen, Flier, & Vijayaraghavan,”The Coming Failure of ACOs,” Wall Street Journal, February 19, 2013

“The first reason states should opt out of the expansion is its bad welfare policy. While typically considered a health-care program, Medicaid is also America's largest means-tested welfare program. A core principle of welfare policy should be that able-bodied, non-elderly adults receive public assistance only if they are working, preparing for work or actively seeking work. There is no such requirement in the Medicaid expansion. In fact, 82 percent of the individuals eligible for coverage under the expansion are working-age adults without dependent children. To expand welfare-like benefits with no work or behavioral requirements to a population of primarily young, childless adults is simply a prescription for achieving Western European levels of social and economic atrophy.”

—Ed Haislmaier, Senior Research Fellow, Heritage Foundation, quoted in Wall Street Journal, “Should states opt out of the health law’s Medicaid expansion?” February 18, 2013

“Instead of asking whether states should opt out of the Medicaid expansion, the better question is this: Why would a state want to leave poor adults out of health reform in the first place? Medicaid is the best coverage solution for impoverished Americans... it is cost-efficient. According to the Congressional Budget Office, Medicaid coverage costs 50 percent less on average than private insurance; it provides comprehensive coverage and extra protection against out-of-pocket costs, a key consideration for the poor; coverage is funded as a direct government benefit rather than tax credits, the way health-care exchanges will work. This is key for workers whose incomes fall below the federal income-tax filing threshold; and it has a long track record of effectiveness…Opting out will leave a state's most vulnerable citizens without a pathway to coverage and do nothing to reduce the financial burden of uncompensated care. Moreover, in 2014, steep cuts in federal direct hospital funding will begin. In expansion states, the cuts will be more than offset by the federal funds for Medicaid. States that opt out, meanwhile, will lose funding and gain nothing in return.”

—Sara Rosenbaum, Professor, The George Washington University School of Public Health and Health Services, quoted in Wall Street Journal, “Should states opt out of the health law’s Medicaid expansion?” February 18, 2013

Fact file

  • ACO coverage: 52 percent of U.S. patients live in primary care service areas served by the 259 Medicare ACOs vs. 45 percent last August. Additionally, 28 percent live in areas served by two or more ACOs, up from 17 percent in August. Together, ACOs cover 37-43 million Medicare and non-Medicare patients. (Source: Oliver Wyman analysis)
  • Employer-based health insurance: Per a Gallup survey of 353,563 U.S. adults age 18 and older conducted January 1-December 31, 2012. Percentage with employer-based health insurance among various groups:
      % Coverage
    Demographics 2008 2009 2010 2011 2012 Change 2012 vs. 2008
    $90,000 + per year 72% 72.1% 71.2% 70.4% 69.2% -2.8%
    $36,000-$89,999 per year 65.6% 63.9% 61.1% 58.7% 56.7% -8.9%
    Aged 26-64 61.6% 59% 58.1% 56.7% 56.3% -5.3%
    White 52.2% 50.3% 49.2% 49.2% 48.6% -3.6%
    Male 50.7% 48.5% 47.3% 45.9% 45.8% -4.9%
    Total 49.2% 46.8% 45.8% 44.6% 44.5% -4.7%
    Female 47.8% 45.2% 44.4% 43.4% 43.3% -4.5%
    Black 44.5% 39.9% 38.8% 38.1% 37.3% -7.2%
    Aged 18-25 33.3% 31.9% 31.1% 31.1% 32.4% -0.9%
    Hispanic 34.1% 31% 31% 28.3% 29% -5.1%
    Less than $36,000 per year 28.6% 25.9% 24.7% 23.7% 22.7% -5.9%
    Aged 65+ 12.4% 11.4% 11.8% 11.9% 11.8% -0.6%
    (Source: Gallup, “Fewer Americans Getting Health Insurance From Employer,” February 22, 2013)
  • Online: 30 billion pieces of content are shared on Facebook every month; more than 60 billion intelligent devices exist in the world today and that is expected to rise to more than 200 billion by 2015; 40 percent projected growth in data volume every year. (Source: Deloitte, “Data: A growing problem,” 2012)
  • mHealth: 6 billion mobile phones in use today representing 87 percent of the world’s population; 1.2 billion mobile Web users in the world today, representing 17 percent of the world’s population; 13,600 apps in the Apple iTunes store related to health care, 40,000 estimated mobile health apps across multiple platforms, 247 million people have downloaded a health app. (Source: Deloitte Center for Health Solutions, “mHealth in an mWorld,” 2012)
  • Medicare budget: the updated 2013 projection of Medicare spending from 2011 to 2020 is $511 billion less than originally predicted in 2010. (Source: The Washington Post, “Graph of the day: The incredible shrinking Medicare budget,” February 20, 2013)
  • Electronic claims: 96 percent of health insurance claims were submitted electronically in 2011. (Source: iHealthBeat, “What Percentage of Health Insurance Claims Were Filed by Paper or Electronic Processes?” February 20, 2013)
  • Wellness programs: 18 percent of large employers offer incentives to maintain health, 42 percent offer onsite yoga; 38 percent web-based portal with activity tracking; 35 percent onsite Weight Watchers program; 31 percent social networking opportunities; 11 percent mobile apps for activity tracking; 28 percent offer other incentives. (Source: The Wall Street Journal, “Should Employees Get Insurance Discounts for Completing Wellness Programs?” February 18, 2013)
  • Telemedicine in underserved areas: 10 million patients across the U.S. utilize telemedicine. (Source: Bloomberg Businessweek, “For Abortion Pills, You Must ‘See’ Your Doctor,” February 14, 2013)
  • Caffeine research: researchers found a direct correlation between increased coffee consumption and decreased risk of mortality. (Source: Mary Ann Liebert, Inc., Publishers, “Is There a Link Between Coffee Drinking and Mortality?” February 19, 2013)
  • 24-hour resident shifts: if working a 24 hour shift, medical residents are 60 percent more likely to prick themselves with needles and two times as likely to get into a car accident on the way home. (Source: The Wall Street Journal, “Should Medical Residents Be Required to Work Shorter Shifts?” February 18, 2013)
  • Preventing injury: there is a 52 percent higher possibility of sustaining an injury for students who commute to school by walking, running, or biking rather than by other modes of transportation. (Source: The Wall Street Journal, “Music Ability Helps Reading,” February 18, 2013)
  • Overdosing: 75 percent of pharmaceutical drug overdoses in 2010 entailed the use of oxycodone, hydrocodone and methadone, all forms of opioid analgesics. (Source: Centers for Disease Control and Prevention, “Press Release: Opioids drive continued increase in drug overdose deaths,” February 20, 2013)
  • Global health: The global fertility rate has dropped from 4.7 children per female 18-44 years of age in 1970 to 2.5 in 2011, and births to women under 20 has dropped 20 percent. In 71 of 196 countries, fertility rates are below 2 children per woman up from 26 of 187 countries in 1980. (Source: Charles Kenny, Bloomberg Businessweek, “An Aging Population May Be What the World Needs,” February 7, 2013)
  • Unemployment: the rate of short-term unemployment—those without jobs for 6 months or less—is 4.9 percent of the labor force, 0.7 percent above the average rate from 2001 to 2007; the long-term unemployment is 3 percent—triple the rate for the same period. (Source: Peter Coy, Bloomberg Government, “The U.S. Long-Term Unemployment Crisis Stumps Economists,” February 7, 2013)
  • Hospital value based purchasing: 30 percent of scoring for hospital value-based purchasing program premised on the patient experience; hospital revenue could fluctuate by 4 percent depending on quality scores—plus or minus 2 percent of their standard Medicare rate by 2017. (Source: Becker’s Hospital Review, “How will value-based purchasing impact internal audits?” February 13, 2013)
  • Caloric intake among children (1999-2010): children took in fewer in calories 2012 than 2010: boys ate 7 percent fewer calories, down to 2,100/day, and girls’ consumption dropped 4 percent to 1,755; researchers surprised that the decline was highest in consumption of fast food—down 11.3 percent. (Source: New York Times, “Children in U.S. are eating fewer calories, study finds,” February 21, 2013)
  • Birth rates for women age 15-19: rates in rural areas of the U.S. were 43 per 1,000 vs. 33 per 1,000 in urban areas. (Source: National Campaign to Prevent Teen Pregnancy, “Teen Childbearing in America,” January 2013)
  • Military health: The Department of Veterans Affairs has treated 866,000 of the 1.6 million soldiers who have served since 9/11 for post-traumatic stress disorder (PTSD); 50,000 of those cases were newly diagnosed in 2012. The final quarter of last year saw 16,531 cases, or 184 per day. (Source: Gregg Zoroya, USA Today, “Ailing veterans turn to charities in record numbers,” February 21, 2013)

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