Health Care Current: March 11, 2014
This weekly series explores breaking news and developments in the U.S. health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory and legislative changes.
By Jason Girzadas, Principal, National Managing Director, Life Sciences & Health Care, Deloitte Consulting LLP
As we approach the four-year anniversary of the Affordable Care Act (ACA), it is time for the health care industry to look up from the hard work of implementation and renew its focus on innovation. Virtually all life sciences and health care organizations have been consumed – financially, managerially and technically – with building underlying core infrastructure in response to multiple regulatory mandates. Massive infrastructure investments in the billions have gone into health insurance exchange (HIX) capabilities for health plans, electronic health record systems for health care providers, reporting transparency capabilities for life sciences firms, and ICD-10 readiness for all commercial and public health care industry stakeholders.
While these have been necessary investments that will likely yield long-term return on investment (ROI), they have also drawn attention away from the need to address a core business problem: the widening chasm between what the mainstream health care establishment is delivering and what consumers are expecting.
According to four years of Deloitte’s consumer surveys, three-in-four consumers give the health care industry a poor report card grade.1 As consumers’ interactions with the banking system, retailers and other service providers continue to evolve with greater personalization, interoperability and responsiveness, they are beginning to expect the same from their health care service experience.
Meanwhile, the disruptive digital health world is flourishing, fueling consumers’ dreams that one day their health care experiences could be seamless, holistic and personalized. Last year, total digital health funding surpassed $1.9 billion—and has more than doubled since 2011.2 Venture funding of digital health is outpacing all other health sectors including bio-tech and devices. Development targets include digital medical devices, wearables and bio-sensing devices and consumer tools for purchasing health care insurance or services. Aiming to meet unmet demands, these point to where future differentiation is likely to arise. Consumers, dissatisfied with today’s health care service experience, are seeing new possibilities for health care in what other industries and new, disruptive players are introducing.
I spoke recently of example scenarios that consumers are beginning to expect out of the health care industry—one is Ned, the 53-year-old man who needs to lower his high-blood pressure and lose 20 pounds and whose wife bought him a new personal fitness monitor for his birthday to encourage him to take care of himself. How does he now meaningfully incorporate this device into his life, involve his doctor in a significant way and, ultimately, sustain his progress toward his goal?
To make the health care experience of tomorrow a reality, leading health care organizations should refocus their attention on innovation with the aim of becoming more consumer-centric, proactive and interconnected. Infrastructure improvements alone won’t bring organizations closer to meeting consumers’ new expectations. Moving closer requires finding ways to meld core infrastructure investments with new, emerging models and capabilities for consumer engagement, personalization and life-event and status management.
The focus of innovative efforts in these areas should be on the important “jobs” that consumers expect the industry to carry out and the innovation opportunities that arise through them. In Ned’s case, there is massive opportunity to increase his physician’s awareness of his device, integrate his new personal fitness data with his clinical record and better align financial and personal incentives.
These “jobs” showcase the importance of several key principles that may require a shift in mindset, including: 1) the importance of accessibility of high-quality comparative performance information by trusted sources, 2) widespread interoperability among the system’s stakeholders, 3) broad-based collaboration across what a consumer defines to be his/her “health value chain,” and 4) high degrees of personalization and integration of information and services across the health and wellness-related aspects of the consumer’s life.
To be sure, mainstream health care organizations are making progress in building consumer-facing capabilities and services. But, the opportunity for differentiation does not yet match the pace of change and investment. With the culmination of large-scale infrastructure investments, management may now have time and investment capital available to drive the changes required. What could this allow organizations to shift their focus toward? Here are just a few ideas:
- Consciously establishing financial and management investment in consumer-related capabilities, initiatives and related efforts
- Developing a deep understanding of target consumer segment(s), including a 360-degree view of consumer needs and the expanded ecosystem
- Aligning a prioritization of the capabilities needed to fulfill the targeted consumer
segment(s) “jobs to be done” and the innovation opportunities that arise from them
- Establishing mechanisms to leverage and collaborate with disruptive innovators in the ecosystem who can accelerate capability development and/or drive differentiated consumer experiences more rapidly
- Creating organizational alignment on the importance and need for a renewed focus on consumer-centric innovations
Over the next 18-24 months, we could see health care organizations shift their focus as they begin to balance their scarce management time and investment capital to accomplish the dual goals of building core capabilities and creating uniquely differentiated consumer-facing experiences. Meeting consumers’ expectations will require the industry to pursue innovation with a purpose. That will require identifying the important “jobs to be done” on behalf of the health care consumer.
PS – for more about scenarios that reflect what today’s health care consumers expect the industry to be capable of addressing, see my recent blog post here.
1 Deloitte Center for Health Solutions, 2013 Survey of Health Care Consumers
2 Rock Health, Digital Health Funding: A Year in Review, 2013
Poll results from March 4 Health Care Current:
Note: answers have been rounded to the nearest whole number
Last week, the White House Administration released its budget proposal for fiscal year (FY) 2015, totaling $3.9 trillion. Areas that have been under the greatest focus include infrastructure spending, expansion of the earned-income tax credit, a $56 billion “financial crisis responsibility fee” on banks and 28 percent caps on the amount of charitable deductions high-income individuals can take. Notably, the proposal did not include a change to the formula—the chained consumer price index—for computing cost-of-living adjustments in Social Security.
U.S. Department of Health and Human Services (HHS): HHS’s budget totals $1 trillion in outlays, with $77.1 billion in discretionary budget authority (a $1.3 billion reduction from FY2014). This includes $629 million in support of the HIX for information technology, outreach, in-person assistance and call center operations. HHS would see an investment of $14.6 billion over 10 years to train new health care providers, including $5.3 billion over that period to train 13,000 new residents and $3.9 billion to place 15,000 providers in high-need areas through the National Health Service Corps. Additional budgetary proposals for HHS sub-agencies include:
- Centers for Disease Control and Prevention (CDC): includes $45 million to train epidemiologists and expand the capacity of public health emergency management for the Global Health Security Agenda (see March 4 Health Care Current) and would double funding to $30 million for an antibiotic resistance program. The overall budget, however, would see a 6 percent cut, from $7.17 billion to $6.67 billion, from the FY2014 budget authority.
- Centers for Medicare and Medicaid Services (CMS): includes $897.3 billion in mandatory and discretionary outlays, an increase of $54.3 billion over FY2014. Included in this are $407.2 billion of savings for the Medicare program over 10 years, reimbursement reductions and designation changes for critical access hospitals and a reduction of $30.8 billion over 10 years in Medicare payments to providers when enrollees fail to pay for services.
- Food and Drug Administration (FDA): includes an 8 percent ($358 million) increase over FY2014 for the agency. This includes new food safety funding and $25 million for FDA oversight of compounding pharmacies.
- National Institutes of Health (NIH): includes an increase of $211 million, a 0.7 percent increase over FY2014, for the agency. This could cover an estimated 34,000 project grants, including more than 9,000 new and competing awards.
U.S. Department of Veteran’s Affairs (VA): the budget proposal includes $65.3 billion in discretionary funding for the VA. Included in this is $893 million in funding for three health information technology projects (telehealth, including home health monitoring and remote care; updates to the electronic health record system; and the Virtual Lifetime Electronic Record project).
Other: the proposal also restructures the U.S. Postal Service’s health care prefunding requirement, payments that are used to finance future retirees’ health care, by deferring fixed payments due for health care in 2014 and half of the payments due in 2015 and 2016.
Reactions: the health care industry’s response to the budget proposal has largely focused on decreased funding in several areas:
- Providers: citing cuts to Medicare and Medicaid, the American Hospital Association stated, “The budget blueprint released today fails to appreciate the changes hospitals are now implementing.” Responding to reduced disproportionate share hospital payments included in the proposal, America’s Essential Hospitals stated that “many who would benefit from the president's tax proposals are among those likely to access care at hospitals that rely on Medicaid disproportionate share hospital payments — payments the president's budget would cut by an additional $3.2 billion.”
- Life sciences: the Pharmaceutical Research and Manufacturers of America (PhRMA) disagrees with proposals to make changes to the Medicare Part D program stating, “Rather than embracing this rare, successful program, the President’s budget unproductively pushes, yet again, previously rejected proposals that would hurt, not bolster, the program.”
- Medical researchers: the Federation of American Societies for Experimental Biology, a biomedical research advocacy group, stated in response to the budget for NIH that “fundamentally, it does not bring [them] back to where [they] need to be.” The proposed funding for NIH does not bring its budget back up to pre-sequestration levels.
Note: for more information about revenue provisions and tax incentives that have not appeared in prior Obama administration budget proposals, read latest Tax News & Views newsletter from Deloitte Tax LLP.
Last Tuesday, researchers from RAND Corporation released their review of published studies that evaluated the impact of value-based purchasing (VBP) programs and 129 VBP initiatives. Overall, the researchers found that many VBP studies have been “inconclusive”—some have shown modest cost and quality improvements, while others showed no substantial improvements. The review focused on three types of VBP models: pay for performance, accountable care organizations and bundled payments.
The researchers suggest that much of the research done on VBP to date has not parsed out intervention effects that occurred as a result of the program from other trends and changes that are occurring in the health care industry. The researchers conclude that, despite the level of experimentation that has occurred with VBP programs over the past decade, “we still know very little about how best to design and implement VBP programs to achieve stated goals and what constitutes a successful program.” Common study weaknesses the researchers found in their review of programs include a lack of comparison groups not exposed to an intervention, comparisons of provider populations that differed substantially from treatment groups and failure to concede that other factors may have contributed to the results that were found.
Finally, the researchers offer three recommendations to improve VBP initiatives:
- Develop a national VBP strategy: HHS should form a work group comprised of representatives from government, private and public-sector stakeholders, to outline VBP goals and define success within the programs
- Develop a well-defined, coordinated research strategy: beginning with a systematic collection of program design and context variables, evaluation work should be compiled from the various initiatives
- Create a strategy and process for developing adequate performance measures: allowing VBP performance measures to focus on patient outcomes, appropriateness of services and quality across settings would help to ensure greater success of future programs
Analysis: VBP programs play an important role in helping provider organizations who are trying to shift away from the old fee-for-service world to payments that are more value-based. It may not be surprising that this study drew inconclusive results from the various VBP programs: one of the biggest unknowns, and one of the most difficult aspects to truly identify and measure, is what types of intervention mechanisms each provider organization is actually employing in conjunction with those programs. The VBP programs, or any payment model for that matter, would most likely be successful if also built around an integrated care program that purposefully manages the population to deliver on the quality and cost measures built within those VBP programs. Aligning a provider organization’s payment models with the care management programs and the overall strategic direction of that organization provides the most likely scenario for the VBP program to be successful. The fact that this study found inconclusive results should not be seen as an indication that the VBP programs are not working, but rather that there is more work to be done to help ensure their success going forward.
According to a new analysis by Avalere Health, from October 2013 through January 2014 an estimated 2.4 to 3.5 million individuals enrolled in the Medicaid program as a result of the ACA. The analysis also estimates that approximately 1.3 to 1.7 million individuals enrolled in Medicaid during the month of January alone.* Using comparison data from enrollment for July through September 2013, the three months prior to the 2014 open enrollment season, the analysis indicates that the ACA has led to an overall increase in Medicaid applications. This was found to be true even in states that chose to not expand their Medicaid program.
On average, Medicaid applications have increased 27 percent since open enrollment, and states that expanded Medicaid saw a 41 percent increase in applications during the same time period. To determine actual sign-up rates, Avalere Health compared reported data on new enrollment, including those that were newly eligible under the ACA and those who were previously eligible but had not enrolled and compared them to the summer 2013 enrollment numbers. The analysis excluded Medicaid renewals from the estimates.
Related: in February, CMS reported that an estimated 8.9 million individuals had been determined eligible for Medicaid and an additional 1.2 million had been determined eligible through HealthCare.gov. However, critics have cited that these numbers included individuals who were determined eligible through laws made prior to the ACA and groups that were not affected by ACA changes in the law. This analysis attempts to control for individuals who would have enrolled in Medicaid absent ACA changes in the law and individuals who completed eligibility renewals in some states. For the most recent numbers from CMS, see the March 4, 2014 Health Care Current.
*Lower and upper bound estimates were calculated using two sets of assumptions for applications that were assessed/determined by the HIXs.
Study: state participation in health care reform initiatives has little effect on insurer competition in HIXs plans
Last week, the Urban Institute released analysis that found that states with state-based HIXs had no more competition among health plans than those with federally-facilitated HIXs. The study compared two sets of states: five states that were particularly aggressive toward implementation and adoption, and three states that had limited or no participation in reform efforts. Specifically, researchers focused analysis on how these different sets of states encouraged insurer participation in HIXs, the number of insurers that participated and what premiums are available for plans at the silver level. According to the researchers, most of the states examined in the study have 10-11 insurers operating in the HIX; one state in the study has 17.
The researchers note that one of the goals of the ACA is to create price competition among health insurers, but does not force insurers to participate in the HIXs to support that effort. According to the study, “This flexibility, paired with strong incentives to compete for market share, appears to have encouraged insurers to participate in the [HIXs] in robust numbers in both [state-based HIX] states and [federally-facilitated HIX] states.”
On Monday (March 10), CMS sent a letter to lawmakers to announce the agency would not be moving forward with some of its proposed changes to the Medicare Part D program at this time. Specifically, CMS will put the following proposals on hold
- Lifting the protected class definition on three drug classes
- Changing Medicare Part D requirements around plan participation in preferred pharmacy networks
- Reducing the number of plans Part D sponsors may offer
- Clarifying the non-interference provisions
CMS announced the proposed changes in January and accepted comments until March 7. Recently, more than 200 organizations sent a letter to CMS to voice opposition to the changes, citing that, if CMS allowed the above changes to move forward, they could reduce choices for beneficiaries, impose a large cost burden and create uncertainty for health care organizations that are preparing for the 2015 plan year (see February 25, 2014 Health Care Current). CMS plans to continue finalizing the proposed rules around consumer protections, anti-fraud provisions and transparency.
Last Wednesday, the Obama Administration announced it would allow insurers in the individual and small group markets to continue selling health plans that do not meet standards required by the ACA until 2017. This decision extends a similar one made by the Administration in November 2013 to allow individuals to keep their plans through the end of this year. While this announcement came from the Administration, states and health plans can decide whether they want to continue offering such plans through the extended period. After the November 2013 announcement, approximately half of the states allowed insurers to continue offering these types of plans to consumers. However, many health care insurers have ceased offering these plans in an effort to enhance enrollment in HIX plans.
The Administration outlined this change through the 2015 Notice of Benefits and Payment Parameters. The Administration also announced that the ACA’s temporary risk corridors program would be implemented to ensure the program is budget neutral and that the annual open enrollment period for 2015 would begin on November 15, 2014 and run through February 15, 2015.
Reaction: state officials have expressed concern over this announcement, arguing that it could confuse both consumers and regulators. North Dakota Insurance Commissioner and President of the National Association of Insurance Commissioners stated, “While we appreciate that this delay only applies to renewals and not new sales, thus limiting its adverse impact on the marketplace, it still has the potential to create confusion surrounding available options for health insurance and uncertainty in the restructured marketplace. This decision allows different rules for different policies which threaten to undermine the new marketplace. Creating two tiers of plans — the compliant and non-compliant — could result in higher premiums overall and market disruptions in 2015 and beyond.”
Analysis: this delay prolongs the need for insurers to maintain two sets of plans (compliant and non-compliant), which could complicate the operating environment. In some cases, health plans maintain these non-compliant plans on different administrative platforms—platforms that were scheduled to sunset according to the original deadlines (or where vendor arrangements were planned to be terminated). In effect, the change delays plans that insurers may have had to migrate members to compliant plans, complicating the conversation with consumers for two more years and adding potential expenses. A significant implication this also has is the need to attract individuals from the uninsured population. Based on preliminary data, enrollment by those who were previously uninsured has been lower than expected, even for those eligible for substantial subsidies. Many will be looking at the success of the exchanges in attracting the previously uninsured—and plans should consider more robust and novel means to “crack the code” to meet enrollment goals.
Last Tuesday, the Congressional Budget Office (CBO) released updated cost and coverage estimates for health insurance enrollment in the U.S. The updated estimates suggest that the coverage provisions of the ACA will cost $1,487 billion from 2015-2024, $9 billion less last year’s projected estimates. The report notes that the net cost estimates are almost entirely due to lower spending on subsidies for the HIX and an increase in Medicaid spending.
Despite an increase in health insurance coverage overall, 31 million Americans under age 65 will remain uninsured in the U.S. Forty-five percent of that 31 million, however, will have access to coverage and will choose not to purchase it, 30 percent will be comprised of unauthorized immigrants and 20 percent will be Medicaid-eligible but not enrolled in the program. These new projections reflect conditions as of early December 2013, and do not reflect CBO’s latest economic projections, most recent HIX enrollment data, updates to the number of plans offered under HIX or any administrative action taken more recently.
Late Friday, CMS released the final rule and payment bulletin to establish the basic health program (BHP). Scheduled to begin on January 1, 2015, the BHP will provide health insurance coverage for low-income individuals, especially targeted at those who do not qualify for Medicaid but whose income does not exceed 200 percent of the federal poverty level (FPL). The final rule states that health plans participating in the program must certify that there will be an adequate geographic distribution of providers available to enrollees using Medicaid managed care or marketplace rules to make the determination. In addition, states must offer at least two standard health plans through the BHP, but can request an exemption to this rule if necessary.
Background: the BHP was modeled after a program established in Washington state in 1987 through the Health Care Access Act. The program aimed to provide health care coverage to childless adults whose incomes were below 200 percent of the federal poverty level, but were not eligible for Medicaid.
On behalf of the insurance industry, America’s Health Insurance Plans (AHIP) sent comments to CMS in response to the agency’s draft letter to issuers in the federally-facilitated HIX. Primarily, insurers are concerned that CMS continues to evolve requirements around qualified health plans (QHPs) even as the application process approaches. Insurers are requesting that CMS extend until 2015 its prior agreement to not impose civil monetary penalties or decertification for non-compliance efforts within the first benefit year. Similarly, AHIP requests that rulemaking adjustments from CMS only be considered once a stable and operating system is achieved. AHIP states that stabilizing federally-facilitated HIXs as much as possible for 2015 is critical due to the number of problems that still exist with the enrollment process, although enrollment numbers through HealthCare.gov are rising.
Note: on February 4, CMS released a draft letter to issuers in the federally-facilitated HIX containing operational and technical guidance. CMS accepted comments on the draft letter through February 25. For the 2015 plan year, QHP applications will be available from May 26 through June 27, 2014.
Last Tuesday, Arkansas lawmakers voted 76-24 to approve the state’s alternative Medicaid expansion plan, the Arkansas Health Care Independence Program (private option). After four attempts to pass the legislation to continue running the state’s private option, the legislature obtained the three-fourths majority required to pass spending legislation in the state. Arkansas has enrolled more than 100,000 qualified low-income residents earning below 133 percent of the FPL since it was implemented on October 1, 2013. Under the private option, Arkansas provides new Medicaid enrollees premium assistance to purchase qualified health plans (QHPs) through HIX. Previously, the House had failed to reach a compromise on the budget and failed to obtain three-fourths of the votes needed to pass. To reach a compromise, a number of amendments were made to the proposal, including a ban on using state funds for the promotion and advertisement of the private option plan.
Note: Arkansas’s private option was the first to be approved by the HHS. Their approach has been a model for other states looking into private alternatives to the ACA’s Medicaid expansion, and Governor Mike Beebe was asked about the plan by other governors at the recent National Governor’s Association winter meeting. Pennsylvania’s proposal to CMS for alternative expansion is pending; although just last week, Governor Tom Corbett sent a letter to HHS Secretary, Kathleen Sebelius changing the requirement for beneficiaries of the alternative plan to participate in an employment program to a voluntary, one-year pilot program that would offer reduced premiums to those who sign up. Other states such as Tennessee and Virginia are considering alternative plans, as well. For more information on Medicaid expansion and alternative plans, see Mapping out health care reform: Activity in the states.
Last Thursday, New Hampshire Senate lawmakers voted 18-5 to pass an alternative Medicaid expansion plan that would give health insurance coverage to an estimated 50,000 adults using federal funds provided through the ACA. The plan would provide premium assistance to low-income adults that earn below 138 percent of the FPL (approximately $15,900 for a single person). Coverage would be expanded in two phases:
- Phase 1 would cover an estimated 12,000 adults under age 65 through a program that would subsidize employer-based coverage
- Phase 2 would cover a second group of about 38,000 adults under age 65 through the existing Medicaid managed care program starting in July of this year
Beginning in 2016, qualified adults receiving coverage under Phase 1 and 2 would then transition into qualified health plans (QHPs) through the HIX, which would only last a year. The program would terminate in 2016 when the federal Medicaid contribution drops below 100 percent for new enrollees. State senate lawmakers say the program would continue if ACA Medicaid contribution is reauthorized to remain 100 percent.
Background: the bill is expected to pass the House and has support from New Hampshire Governor Maggie Hassan. If the bill is signed into law, New Hampshire will have to obtain federal waiver approval for each step of the plan before the state can move forward.
The Workgroup for Electronic Data Interchange (WEDI) and the Electronic Healthcare Network Accreditation Commission (ENHAC) announced that they would collaborate to create a Practice Management System Accreditation Program (PMSAP). The objective of the partnership is to provide a complete review of Practice Management Systems (PMS) vendors in the fields of privacy, security, key operational functions and mandated standards and operating rules. In doing so, PMSAP will evaluate health information, current gaps, technical performance in privacy, security, HIPAA and ACA requirements of business processes and resource management. Through this partnership, the industry strives to establish a shared baseline that all PMS vendors can meet. Since there are more than 400 PMS vendors (that work closely with providers) that conduct tasks such as administration and clinical functions, a third party review could help stakeholders verify the ability of vendors to meet industry standards.
Analysis: this new program fills an important void, as there is currently no third-party review mechanism for practice management vendors and their ability to meet privacy, security and ICD-10 standards. Also included in this program is the ability to test HIPAA 5010 compliance and administrative simplification rules, which also fills a major niche in the marketplace. While this program fulfills an important benchmark to measure, there are concerns that mandates and testing may start to limit product innovation and usability over time. There is concern that this program could lower interest in vendors’ developing unique features or functions that are not easy to test or do not fit the mold of the “common” practice management system. As with many things in health care, one of the keys to future success will be balancing standards with innovation.
A laboratory test for genes encoding human leukocyte antigen molecules was developed by immongenetics experts at the Children’s Hospital of Philadelphia. Using sequencing technology from Illumina, experts were able to type complex proteins, which are crucial for immune function. This test enhances transplantation outcomes by refining donor compatibility assessments and expediting the donor selection process from bone marrow registries. This new disruptive and innovative test replaces the old testing processes with a single test that provides the highest resolution possible. The previous testing process had multiple tests and yielded indefinite and partial results, increasing time and cost resources. Test results were verified and validated by comparing results from previously sequenced data from over 300 samples. The new test will allow for a streamlined typing procedure for bone marrow and stem cell registries, thus determining donor compatibility for transplant more quickly. This new test also advances the research in multiple fields such as infectious diseases, immunological disease and pharmacogenomics.