Health Care Current: July 22, 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 Bill Copeland, Vice Chairman, U.S. Life Sciences & Health Care Leader, Deloitte LLP
Though it has morphed over the years since Plato first wrote the original version of the phrase “Necessity is the mother of invention,” it has been used many times over by academics, researchers and thought leaders. But, as the health care industry stares into the face of high costs as a percent of GDP (at 17 percent and growing) and high spending (at $8,915 per person), it seems that necessity could become the mother of innovation, and quite possibly disruptive innovation, especially as new care and payment models take hold.1
As described in our recent paper, Good for what ails us: The disruptive rise of value-based care, disruptive innovation means developing a new business model—supported by enabling technology—to find new solutions to old problems, and it starts with capturing an economically “unattractive” market segment. Solutions springing out of disruptive innovation create a compelling value proposition and eventually gain broader acceptance in the market, enabling the innovator to unseat incumbents’ offerings and, oftentimes, the incumbents themselves. Given the high costs and unaffordability of health care, disruptive innovations seem likely.
The stories that echo the theme of disruptive innovation have been cited many times over: Netflix to the movie rental market, Southwest to the airline industry, Amazon to the book store industry. And, even though health care spending has been growing for decades, new technologies and new markets created by health care reform have created new focus on the question, “What old health care problems need new solutions?” In my opinion, the time is ripe for solutions that can bring more value out of health care services and products.
So, what are health care’s old problems that need new solutions? What segments of the health care market could be prime targets for disruptive innovation? The possibilities are endless, but a few examples include:
Medicaid enrollees – Medicaid patient rolls are on the rise, with nearly 7 million enrolling from October 2013 – May 2014: Today, physician practices and hospitals that treat Medicaid enrollees can face financial challenges, and Medicaid enrollees sometimes encounter difficulty finding providers who accept Medicaid. Due to their living and employment circumstances, beneficiaries can sometimes be difficult to reach and follow-up with. But, this could change if an innovator comes up with a more cost-effective and convenient clinical model enabled by a robust technology platform that supports the analysis and exchange of eligibility, clinical and financial information for this segment of the market.
Young, healthy individuals – They’re young and healthy now, but as they age they will likely require health care just as much as the rest of the population: Today, for most in the young adult population, the cost of insurance (and the value delivered) is a major concern. But in our recent survey, a majority of young adults who purchased insurance said they did so to avoid paying medical bills and for the peace of mind it gives them.2 New low-cost insurance products that include smaller provider networks and direct distribution channels targeting the unique coverage needs and interests of this segment could go a long way in disrupting how health plans are designed and purchased. For instance, it is conceivable that health plans might one day be sold through Amazon, Facebook or eBay, which are otherwise used for different purposes today.
Chronically ill patients – Expensive and requiring complicated treatment plans, chronically ill patients could be prime for telemedicine’s taking: Today, nearly half of all adults (approximately 117 million) have a chronic condition.3 Innovative models that support convenient, low-cost self-monitoring and disease management could result in better, more cost-efficient care for patients dealing with chronic conditions. Value-based financial models, such as bundled payment approaches, may also have the potential to reduce costs without compromising quality.
People with high deductibles – Individuals in health insurance marketplaces (both public and private) and many people with traditional employer coverage are now in health plan benefit designs that expose them to significant out-of-pocket costs: While tools that help people find providers and high-value services are entering the market, the tools available to the health care industry are not on the same level as those offered by restaurants and hotels, two industries that have been more successful at integrating technology into their service offerings.
In order to take advantage of these potential opportunities, disruptive innovators will likely require capital and may need to take on substantial risk to bring their creative solutions to market. With that, new types of partnerships may be needed to help finance the necessary technologies, capabilities, facilities and services.
Stakeholders across the system should begin to think strategically about how they might benefit from collaborations with innovators who are starting to make moves on the market edges or who are initiating their own potentially disruptive innovation. Current health care market leaders may not feel like they have a mandate to change. But if history is an indicator, the growing number of disruptive innovators may make it difficult to survive if they don’t. It could be better to join in than to lose a seat at the table—for business and the health care system.
1 U.S. Centers for Medicare & Medicaid Services, “National Health Expenditures Fact Sheet,” 2012, http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NHE-Fact-Sheet.html
2 Deloitte Center for Health Solutions, 2014 Survey of Young Adults and Health Insurance, www.deloitte.com/us/youngadultenrollment
3 Centers for Disease Control and Prevention, “Chronic Diseases and Health Promotion,” 2012, http://www.cdc.gov/chronicdisease/overview/
Poll results from the July 15, 2014 Health Care Current:
Note: answers have been rounded to the nearest whole number
Last week the Congressional Budget Office (CBO) released its annual update of the U.S. federal budget outlook for the next ten years and for the long-term. This year the deficit is roughly 3 percent of U.S. gross domestic product (GDP), the smallest since 2007. CBO anticipates a stronger economy and greater federal spending, keeping the deficit between 2.5-3 percent of GDP through 2018, but then increasing to 4 percent of GDP after 2018. CBO projects that federal spending will increase from 21 percent of GDP in 2013 to 26 percent by 2039 primarily due to three factors:
- Federal spending on health care programs: Spending on Medicare, Medicaid, Children’s Health Insurance Program and the subsidies for the health insurance marketplaces will grow from 4.9 percent to 8 percent of GDP.
- Interest payments: The federal government’s interest payments will grow to 4.5 percent of GDP from the 2 percent average they have been over the last four decades.
- Other: Federal spending on Social Security and other mandatory and discretionary spending will decline to 13.2 percent of GDP from 14.2 percent in 2014.
While CBO’s estimates of future spending on health care as a share of GDP are large, they are lower than previous estimates. In 2009 CBO predicted that federal health spending would be 2.2 percentage points higher in 2035 than the most recent prediction. Furthermore, CBO’s estimates for Medicare spending decreased 2.6 percentage points from the previous projections for 2035. CBO also modeled possible effects on the deficit under different federal spending scenarios. CBO acknowledged that federal health spending can be difficult to model because there are considerable uncertainties. Possible changes in individual health, insurance coverage and health care delivery methods could have significant effects on future spending.
Projected spending in select years under CBO’s extended baseline (percent of GDP)
|Medicare||3.0 percent||3.2 percent||4.6 percent|
|Medicaid, CHIP and marketplace subsidies||1.9 percent||2.7 precent||3.4 percent|
|Total spending||20.4 percent||22.1 percent||25.9 percent|
(Source: Congressional Budget Office, “The 2014 Long-Term Budget Outlook,” July, 2014)
The Agency for Healthcare Research and Quality (AHRQ) released a report that looked at average premiums and employee contributions for employer-sponsored health insurance (ESI) coverage for 2013. Using the most recent data from the Insurance Component of the Medical Expenditure Panel Survey, the report found that national average annual insurance premiums across all types of coverage (single, plus-one and family coverage) increased in 2013 over the previous year. More specific findings include:
- Type of employee coverage: Most often (51.3 percent of the total) individuals with ESI enrolled in single, self-only coverage over employee-plus-one or family coverage (18.9 and 29.8 percent, respectively).
- Health insurance premiums: Health insurance premiums can vary significantly depending on firm size, plan generosity, workforce characteristics, state insurance regulations and local health care costs. On average, employees paid $5,571 per year for single coverage. States with some of the highest premiums included New York and Illinois; states with lower than average premiums included North Carolina and Michigan.
- Employee health coverage premium contribution: Employers do not have to contribute to their employees’ health insurance coverage. While contributions are common, they are not present for 16.6 percent of employees enrolled in single coverage, 6.9 percent enrolled in employee-plus-one coverage and 7.9 percent enrolled in family coverage. On average, employers contributed $1,170 for single coverage plans (21 percent of the average single coverage plan premium).
(Source: Karen E. Davis. Agency for Healthcare Research and Quality, “State Differences in the Cost of Job-Related Health Insurance, 2013,” July 14, 2014)
This month CareFirst released findings from the third year of its patient-centered medical home (PMCH) initiative, finding that costs continued to be lower while quality of care rose. CareFirst’s 1.1 million members covered by the PMCH program receive care from more than 4,000 participating primary care providers. Primary care providers are organized into panels of 5-15 physicians to coordinate care for their members. Those who do well on specified outcome measures can receive awards based on the quality level of the care and the savings they obtain against original projections. The average Outcome Incentive Award in 2013 translates into $25,000-$30,000 in revenue for each primary care provider. In addition:
- Approximately 69 percent of the panels earned Outcome Incentive Awards in 2013 (up from 66 percent in 2012, and 60 percent in 2012).
- 37 percent of the 230 participating panels earned Outcome Incentive Awards during all three years.
For 2013 the cost of care for CareFirst’s PMCH patients was $130 million less than original projections (a savings of 3.2 percent). Savings have grown over time, up from 1.5 percent and 2.7 percent in 2011 and 2012, respectively. In total, the PMCH program has saved CareFirst $267 million. CareFirst attributes the savings to reductions in hospital admissions, hospital days, hospital readmissions and outpatient facility visits.
Related: This initiative is one of many across the U.S. In January the Patient-Centered Primary Care Collaborative released results from a compilation of studies to find that the PCMH model reduced cost of care and hospital visits while it improved population health. To read more about the study, see the January 21, 2014, Health Care Current. In addition, earlier this year the National Committee for Quality Assurance (NCQA) released updated standards required to receive NCQA PCMH recognition. The new standards place greater emphasis on team-based care, care management, quality improvements aligned to the “triple aim,” integration of behavioral health and sustained transformation. For more on the quality standards for NCQA’s PCMH recognition, see the March 18, 2014, Health Care Current.
Analysis: CareFirst’s program is somewhat different in the degree to which it gives support for participating practices and the amount of rewards tied to performance; many initiatives have much smaller bonuses. The health plan puts small practices together in teams to support each other, shares data with the practice, and provides care coordination nurses. CareFirst’s success in achieving meaningful outcomes in reduced hospital use is impressive and shows the strong influence that good primary care can have on overall health care system performance.
(Source: CareFirst, “2013 PCMH Program Performance Report,” July 10, 2014)
A new report by the Robert Wood Johnson Foundation and athenahealth published last Tuesday found that most providers (except pediatricians) saw a decrease in new patient volumes in 2014 compared to 2013. Using data from ACAView, which loads information from participating medical practices into a cloud-based ambulatory care software platform, athenahealth based its findings on real-time data on patient characteristics, clinical activities and practice economics. Most providers saw lower new patient visit rates in 2014 over 2013:
athenahealth said that the lower rates could be due to patients visiting emergency departments instead of physicians’ offices, a delay in patients finding physicians and scheduling appointments and/or the severe weather during the beginning of the year in some areas of the country. The report compared the experiences of practices in states with greater enrollment in their insurance marketplaces with practices in states with lower enrollment and found that coverage expansion did not lead to an increase in new patients. Compared with the previous year, new patient visit rates in high-enrollment states decreased slightly more than those for low-enrollment states. Similar results were seen among states that did and did not expand Medicaid.
(Source: Robert Wood Johnson Foundation and athenahealth, “First Observations Around the Affordable Care Act,” July 14, 2014)
Last week the U.S. Food and Drug Administration’s (FDA) Chief Health Informatics Officer Taha Kass-Hout announced that the agency has launched an application programing interface (API) that allows researchers and developers to gain access to data from the Recall Enterprise System (RES). RES contains information on food, drugs and medical devices that are recalled off the market due to labeling or health and safety issues. The API dataset provides insight and trends into safety in the marketplace, including each product recalled since 2004 and will allow researchers and developers interested in recall enforcement data to obtain the information from one portal. Recent examples of recalls have included food products missing information from the label and medications that did not follow lab testing requirements. Since its launch, a developer has used the technology to create another website that allows users to submit queries on the data. In the announcement Kass-Hout warns that the technology and information cannot be used for clinical purposes.
Background: The recall database is the second dataset released by the FDA following the debut of openFDA, a site the agency created to enhance transparency and access to FDA public data and to highlight public and private sector-run projects using the data.
The Centers for Medicare and Medicaid Services (CMS) recently updated a set of frequently asked questions (FAQ) that pertain to reporting for Meaningful Use of electronic health records (EHRs). The HIMSS Electronic Health Record Association (EHRA) claims that in this update CMS revised the reporting period for certain Stage 2 measures without providing any broader notification to providers. The updated FAQ articulates restrictions on what patient visits can be used for calculating certain measures. Prior to the update, organizations wishing to attest to Meaningful Use could include all patient visits that were completed before the date of the attestation. The updated FAQ says that organizations cannot use data on patients that were seen before the start of the reporting year. In response to the change, EHRA has asked CMS to either rescind the revision made to the FAQ or to give a detailed explanation and rationale to the revision.
CMS is urging providers to register in the Open Payment system, the verification system used for drug and medical device manufacturers to report payments under the Physician Payment Sunshine Act, as soon as possible. CMS warned physicians and teaching hospitals that the registration process may take some time for processing and encouraged the groups to sign up before the 45-day period ends. Registration is voluntary; however, providers must register in order to be able to review and dispute data reported about them by manufacturers and applicable group purchasing organizations (GPOs). Physicians and teaching hospitals have limited time to dispute data before it goes public on September 30, 2014. The payment review and dispute process began last week (July 14), and ends on August 27.
Related: Earlier this month CMS proposed updates to the Open Payments program, proposing to remove the exemption for continuing medical education from the program. For more information, see the July 15, 2014, Health Care Current.
The West Virginia Department of Health and Human Resources Bureau for Medical Services, with the help of CMS, has launched a Health Homes Initiative. The first health home will provide behavioral health support to Medicaid enrollees with chronic conditions and will receive enhanced federal funding for services provided through the program. Providers will be expected to coordinate care around patients’ medical conditions and medications. This initiative builds on the Patient-Centered Medical Home and reimburses for services that were previously excluded, such as care management, health promotion, transitional care, and referrals to community services. Providers participating in the initiative will receive a 90% match from the federal government for the first eight quarters of the program and must use health information technology. The initiative is being launched in six targeted counties known for high prevalence of behavioral disorders. People in these counties will receive regular assessments for mental and physical health and coordinated care services. As of early 2014, CMS has approved state plan amendments for health homes to Medicaid programs in 13 states, and two other states have submitted plans for approval.
According to the Urban Institute’s latest Health Reform Monitoring Survey published last Tuesday, the number of uninsured adults age 18 to 64 is highest in states that opted out of Medicaid expansion. The results found that non-expansion states accounted for 60.6 percent of the national uninsured population in June 2014, up from 49.7 percent in September 2013. To date 25 states have expanded their Medicaid programs* to cover individuals with incomes up to 138 percent of the federal poverty level. In states that expanded Medicaid, Urban Institute estimates that 71 percent of the uninsured population qualify for some kind of financial assistance. In states that have not expanded their program, Urban Institute estimates that 44 percent of the uninsured population qualifies for financial assistance. The findings suggest that as state efforts to expand Medicaid under the Affordable Care Act (ACA) continue, the uninsured will become increasingly more concentrated in states that opt out of expansion.
*Note: The State Medicaid programs: Map of expansion by state tracks the states that have made the decision to expand their Medicaid programs, whether through the ACA or via alternative mechanisms. Two states (Pennsylvania and New Hampshire) have decided to expand their programs through an alternative plan, but have not received approval from CMS.
(Source: Kenney, Genevieve M., Shartzer, Adele, Long, Sharon K, Zuckerman, Stephen, Wissoker, Douglas, Karpman, Michael, and Anderson, Nathaniel. Urban Institute Health Reform Monitoring Survey (HRMS), “ QuickTake: States not expanding Medicaid under the ACA Account for 60 percent of the Nation’s Uninsured in June 2014,” July 15, 2014)
Xenex Disinfection Services in San Antonio has been testing a new device that uses ultraviolet C rays to kill bacteria in hospital rooms. To reduce the high number of patients afflicted with health care-associated infections, the technology uses bulbs filled with xenon gas to emit light that is 25,000 times brighter than sunlight. This technology, which costs $76,000 a unit, takes 15 minutes to disinfect a hospital room of “superbug” bacteria such as methicillin-resistant Staphylococcus aureus and C. difficile. The device resembles a light saber and is easily transported to different wings of a medical facility. Microbial resistance is considered one of the largest problems hospitals face in keeping patients safe from attaining an infection within the medical facility. In 2011 the Centers for Disease Control and Prevention (CDC) estimated that 721,800 infections nationwide were related to hospital environments. After it introduced the new device into their operations, University of Pittsburgh Medical Center Passavant had just six surgical-site infections out of the 1,508 surgeries that were performed in June 2014.
Researchers at Columbia University have discovered that deactivating a single gene in human gastrointestinal cells can cause the cells to become insulin producing. In patients with diabetes, insulin is either not produced or is not used by the body properly. Insulin regulates the body’s blood sugar levels and is released in response to high blood glucose levels. Researchers identified that metabolic regulation, FOXO1, can be turned off to allow the cells to begin producing insulin. However, the FOXO1-inhibited cells are insulin-immunoreactive, requiring an external stimulus of insulin in order to produce more insulin. The researchers said that treatment would require a chemical to be injected to trigger the inactivation of the FOXO1 geneDiabetes research to this point has been largely focused on turning undifferentiated embryonic or stem cells into pancreatic beta-cells that produce insulin. The researchers believe that they could be one or two years away from producing a compound for clinical trials.
(Source: Bouchi, R. et al. Nature Communications, 5. “FOXO1 inhibition yields functional insulin-producing cells in human gut organoid cultures,” June 30, 2014)