Health Care Current: August 26, 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
Professor and economist Irving Fischer once stated, “Stock prices have reached what looks like a permanently high plateau.” While on the surface this phrase might seem fairly trivial, it has actually been burnt into many history books. Why? Because it was 1929 and Professor Fischer said this just before the stock market crashed and the country plummeted into the Great Depression.
In my travels and conversations with our life sciences and health care clients, I hear a multitude of future strategies – frequently aimed at the 2020 timeframe – from leaders who are trying to predict the future of health care. Some prominent examples of these “future visions” include:
- The empowered consumer: Consumers will be “empowered” and carry high-deductible insurance plans; they will be personally responsible for navigating the world of health care equipped with enabling tools and information
- The perfectly managed (and paid for) population: Our health system will be defined by large and, mostly virtually integrated, care systems/teams that are paid (accountable) for actively managing the health of a population
- The big data panacea: The future world will be transformed by massive databases compiled from all sources that will be curated and analyzed to unlock insights that create breakthrough innovations that will improve costs and improve quality and safety
- The seamless and unending technological network: The future will be defined by ubiquitous mobile and social technologies that allow for the virtualization of care and massive changes (improvements) in service levels and personalization
- The iron fist of government: Regulatory pressures by federal and state bodies will continue to build, and more control will be wrestled away from the private sector
- The weakened fist of government: Heightened budget pressures will limit the ability of government to sustain its current role in health care overall; as such, we will see governments increasingly backing away from health care funding and providing care
- The personalized medicine scenario: Life sciences and med-tech organizations will lead the transformation of the industry to one where personalized medicine is a widespread reality
- The status quo scenario: Change occurs on the fringes, costs meander and the system only makes incremental improvements with the current industry stakeholders generally holding their positions
Do you recognize these visions of the future? While on the surface these predictions may not seem too far-fetched, I often think back to Professor Fischer and am reminded that no one can accurately predict the future.
So why try to do so now?
The trap that I see many leaders and organizations fall into is that they too frequently attempt to define a single, cohesive future vision despite the proliferation of trends and industry dynamics. The predictions are often linear – based on a single world view – and can create a false goal for a company and waste the time of management teams and boards of directors.
So what’s the alternative? Executives should develop a future strategy centered on scenario planning. In a world of increasing complexity and rapid change, the goal should be to identify several plausible scenarios (alternative future worlds) and identify the strategies that are core across all of them—no matter which world view plays out and turns into reality. It’s not about debating which one future vision is best or more likely.
Scenario planning also allows management teams and boards to identify important elements of a strategy that are contingent on a particular world view or vision materializing. This separation of “core” and “contingent” elements of a strategy can bring tremendous clarity, focus and alignment, as well as improve the efficiency of leadership teams who often get bogged down in strategy development initiatives.
Instead of endless debates using precious time to settle on a single world view, leaders can take an alternative approach, defining the plausible future worlds – which can and likely will include favorable and unfavorable scenarios – like the ones mentioned above.
Once organizations define the array of plausible future visions, then they can go about the important – and demanding – work of determining where they will compete and how they will win across a multitude of these scenarios.
In case you’re wondering, things did not turn out well for Professor Fischer. Economic experts say he lost his credibility after the great crash of ’29. Lesson learned? As life sciences and health care companies look to 2020, they should consider preparing for alternative plausible futures and aligning around those strategies that will be critical no matter how the future plays out. It might work better than trying to define and predict the future – and ending up in the history books.
P.S. The Health Care Current will take a break for the Labor Day holiday. There will be no issue on September 2, 2014.
Poll results from the August 19, 2014 Health Care Current:
Note: answers have been rounded to the nearest whole number
In July the Treasury Inspector General for Tax Administration (TIGTA) sent the Internal Revenue Service (IRS) a final report on its review of the implementation of the medical device tax through the Affordable Care Act (ACA). Since July 1, 2013 manufacturers, producers and importers of medical devices have been required to file IRS Form 720 and pay the 2.3 percent excise tax on medical devices. TIGTA’s review discovered the following implementation issues:
- Applicable manufacturers: The IRS does not have a streamlined way of determining the complete population of medical device manufacturers that are required to file the form and pay the tax. Exemptions and other safe harbors keep some manufacturers that are registered with the FDA from having to pay the tax. In 2013 the IRS examined data from the FDA, finding that only 4,500 to 7,800 of the 16,370 businesses with registered medical devices sell devices that are taxable.
- Low number of returns: TIGTA found that the previous estimates for the number of forms to be filed and the amount of taxes to be paid were much higher than the IRS has actually seen. As of June 2013, 5,107 forms were filed with the IRS, accounting for $913.4 million in taxes. The IRS previously estimated this time period would produce $1.2 billion in taxes from 9,000 to 15,600 forms.
- Understated and overstated amounts on forms: TIGTA found 276 forms either overstated (225) or understated (51) tax amounts owed to the IRS for a total of $117.8 million in discrepancy.
- Lack of systematic review of paper-filed forms: While the IRS rejects e-filed forms that have listed incorrect amounts for the medical device tax, there is no control in place for paper-filed forms.
- Erroneous tax assessments during a relief period: TIGTA found that the IRS “erroneously assessed” 219 penalties for failure to deposit, totaling $706,753, during the quarters that ended March 31 and June 30, 2013, which had been designated as a penalty-relief period.
TIGTA recommended that the IRS refine its compliance strategy for the medical device tax and review the 276 returns with incorrect amounts filed. The IRS agreed with TIGTA’s recommendations and will work to improve its strategies and processes.
(Source: TIGTA, “The Affordable Care Act: An Improved Strategy Is Needed to Ensure Accurate Reporting and Payment of the Medical Device Excise Tax,” July 17, 2014)
The American Academy of Actuaries released a report last week that found that the U.S. spends significantly more on diabetes than other developed countries. In 2010, diabetes expenditures accounted for 11.6 percent of all global spending on health care and averaged $700 per person. The U.S. spends significantly more per person on diabetes (see below) and contributes more than half (53 percent) of total global spending on diabetes, reaching $197.8 billion in 2010.
Key diabetes measures by country
|Country||Mean diabetes-related expenditure per person||Percent of health expenditures on diabetes||2011 diabetes prevalence rate (percent)||2030 projected diabetes prevalence rate (percent)|
Source: American Academy of Actuaries, “Curbing the High Cost of Diabetes,” August 2014
The number of adults diagnosed with diabetes has doubled over the last 30 years primarily due to population growth and aging. In addition to reporting rates of diabetes, the report projects that rates of diabetes will increase in all of the above countries. Some countries will experience higher rates of growth than others. For example Singapore is projected to see prevalence grow from 11.1 percent to 15.5 percent by 2030, whereas prevalence in South Africa is expected to grow from 6.5 percent to 7.2 percent during the same time period. The report noted that prevention programs can help reduce the growing prevalence rates. Prevention directed at children, public and private prevention programs, screening for type II diabetes and World Diabetes Day (declared by the UN to be November 14) could help alleviate the increasing rates of diabetes prevalence worldwide.
(Source: American Academy of Actuaries, “Curbing the high cost of diabetes,” August 2014
TechnologyAdvice recently surveyed 430 patients who had seen their primary care physician within the last year to determine their interaction with and opinion toward electronic health records (EHR). Many EHRs now allow physicians to interact with patients through technology such as patient portals; disseminating test results and scheduling appointments online are common uses of this type of technology. The survey returned the following results:
- Awareness among patients of patient portals: Nearly 40 percent of the respondents indicate they do not know whether their primary care physician offers patient portals and 11 percent say their physician does not provide a patient portal for them to use.
- Preferred technology for scheduling appointments: Half (50.2 percent) of the respondents prefer to schedule appointments over the phone, while only one quarter prefer to do so online. Younger people are more likely to prefer using online scheduling: 63.6 percent of individuals age 18-24 prefer to use online scheduling, compared with 20 percent of older adults (age 65+).
- Physician follow-up after a visit: Nearly half (47.9 percent) of physicians do not follow up with patients after their visit, and only 9 percent of physicians follow up with patients online. Patients prefer to be contacted over the phone (42.9 percent) versus over email (25.1 percent) or online (13.6 percent).
The implications of this survey could suggest challenges for physicians attempting to attest to Meaningful Use Stage 2, which requires that at least 5 percent of patients seen during the reporting period “view, download, or transmit to a third party their health information.”
(Source: TechnologyAdvice, “How Patients Want To Communicate With Their Physician,” 2014)
Last Tuesday the Bureau of Labor Statistics (BLS) released the monthly consumer price index (CPI) summary report, which found that the CPI for all urban consumers increased only 0.1 percent. The report also looked at growth in the CPI for the health care industry to find:
- Prices for medical care commodities grew only 0.3 percent in the month of July. The growth over the previous year for medical care commodities – which includes drugs and other medical devices – was 3 percent.
- The price index for prescription drugs grew 0.5 percent in the month of July.
- Prices for medical care services grew more slowly in July, at 0.1 percent for a 2.5 percent growth over the year.
- Prices for hospital services grew 0.4 percent while those for physicians’ services declined 0.2 percent over the time period.
Background: CPI measures how prices for goods and services that households purchase change over time. The measures are based on prices for common goods and services, including “charges for doctors’ and dentists’ services and drugs.”
Related: Earlier in August Health Affairs published a study that estimates 70 percent of the decline in health care spending from 2007 to 2011 is a result of the economic slowdown. Many health care experts have debated whether the slow spending growth in health care can be attributed to the ACA and provisions that aim to keep spending and cost in health care low. For more information on the study, see the August 12, 2014 Health Care Current.
Last week Halbig et al. sent a letter to the U.S. Court of Appeals for the D.C. Circuit opposing the administration’s request to hear Halbig v. Burwell en banc (with the full bench of the Court). In their letter, Halbig et al. argue that at this point, the uncertainty surrounding this case is “not tenable” and only the U.S. Supreme Court can “lift that doubt.” In addition, the group argues that an en banc review should be used rarely and in exceptional cases. Further, the group notes that rehearings are “a waste of resources [and] could actually harm the public” in cases that have national implications and so likely to go to the Supreme Court. The group cites concerns that until this issue is resolved, the millions of health insurance exchange enrollees that are receiving subsidies through the federally-facilitated marketplace (FFM) remain uncertain about the future of their subsidies.
Background: In July the U.S. Court of Appeals for the D.C. Circuit issued a 2-1 opinion on Halbig v. Burwell, ruling that federal subsidies issued through the FFM are unlawful. The majority opinion in the case ruled that the IRS cannot provide tax subsidies to individuals who purchase qualified health plans through the FFM and found that the section of the ACA in question “plainly distinguishes exchanges established by states from those established by the federal government.” The administration requested the en banc review after the Court ruled against the availability of subsidies in the FFM. For more background on the original case, and a similar court case, King v. Burwell, see the July 29, 2014 Health Care Current
The Connecticut Department of Insurance surveyed major carriers to find that as of June 30, more than 167,000 people had policies in the individual market. This is a 55 percent increase from November 2013 when approximately 108,000 residents were covered through policies in the individual market. The growth is consistent with reports from the state’s marketplace, Access Health CT, which found that 52 percent of the first-year enrollees were previously uninsured. As a result of the growth in membership, carriers have also seen increased demand for their customer service departments. The Connecticut Department of Insurance reported that more than 60,000 individuals who purchased insurance in the individual market have insurance policies that are not in compliance with the ACA market reforms. In November 2013 the Centers for Medicare & Medicaid Services (CMS) issued a transitional policy that extended the exemption from market reform provisions (e.g., guaranteed issue, renewability) for non-grandfathered policies in the small group and individual markets. This exemption ends on October 1 and more than 50,000 individuals in that group will no longer have access to those plans (the 10,000 who will remain under their old policies are in grandfathered plans that are exempt from the market reforms until insurers stop carrying those plans).
A recent brief from the Commonwealth Fund analyzes the Arkansas Health Care Payment Improvement Initiative (AHPCII), which began in 2011 to address health care delivery and payment issues in the state. In 2010 state officials in Arkansas faced many challenges in their health care system, including large projected deficits ($400 million), high chronic disease rates (50 percent of the population had at least one), a fragmented provider community (60 percent worked in practices with five or fewer physicians) and high uninsured rates. The AHCPII was created to address these concerns systematically. The reform initiative was centered on three programs:
- Patient-centered medical home (PCMH): AHCPII implemented two PCMH initiatives in the state through Medicare and Medicaid. As of December 2013 more than 600 providers were participating in the Medicaid PCMH and they provided care to 250,000 Medicaid enrollees.
- Health homes: Health homes are an extension of the medical home concept, focusing on chronically ill patients who need the most care. Providers receive a per member per month fee to manage the care of these complex cases, and the program will be rolled out in three waves: adults with developmental disabilities, individuals in need of long-term services and support and individuals who have severe mental illness.
- Episode-based payments: Arkansas developed a new outpatient payment method – a retrospective, episode-based fee that goes to a principal accountable provider. The program started with paying for three health care conditions using these episodes of care statewide and found better adherence to evidence-based care protocols, fewer unnecessary procedures and a reduction in costs.
The AHCPII is an initiative in a state with unique structure—Arkansas is dominated by two health plans (who collectively represent 80 percent of the commercial market), and the state passed Medicaid expansion through the Private Option, expanding insurance coverage to 170,000 individuals as of July 2014. With the goal of making episode-based payments the primary mode of reimbursement by 2017, Arkansas has relied on the following to implement the AHCPII:
- Leadership at the state level: The governor made payment and delivery system reform a priority for the state.
- Stakeholder participation: State officials engaged with providers, payers and other key stakeholders early and on a regular basis throughout the implementation.
- Addressing problems: Stakeholders identified, agreed on and resolved problems throughout the process.
- Pragmatic reforms: The AHCPII aimed to reform the Arkansas health care system, but did so within the context of the current delivery system and did not “uproot” the current system.
- Use of state levers: The two insurance companies in the state are both local. Arkansas also worked with large self-insured employers to implement programmatic changes and required all participating qualified health plans in the marketplace to engage in value-based purchasing efforts.
- Expanded coverage: The Private Option that Arkansas implemented through Medicaid helped to decrease uninsured rates dramatically across the state.
- Funding: AHCPII had funding from the private and public sector to implement the reform initiatives and programs. Other states could benefit from the $730 million available through the State Innovation Model grants and Delivery System Reform Improvement Payment Program waivers.
(Source: The Commonwealth Fund, “Arkansas: A Leading Laboratory for Health Care Payment and Delivery System Reform,” August 2014)
Intel and the Michael J. Fox Foundation for Parkinson’s Research are partnering on a study that will pull patterns from data collected through wearables, including smartwatches, to help researchers better understand and treat Parkinson’s disease. The smartwatches detect walking, running, and particularly critical for individuals with Parkinson’s disease, can detect tremors. Parkinson’s disease is a progressive neurodegenerative disease that affects movement and cognitive ability.
The data will be stored in an open platform for researchers to gain insight into patients and their movements and to examine trends and effects of different drugs in a more sophisticated way than relying on patient reports at doctor’s appointments.
Intel is also planning to release a mobile app for patients with Parkinson’s disease to track their own symptoms, medications and eating and sleeping patterns. Through the use of these devices, researchers will have access to a much larger population of patients from all over the country, rather than having to rely on data from clinical trials that may exclude patients in remote areas.
The study will expand upon a pilot study Intel and the Foundation conducted earlier this year to evaluate the usability and accuracy of wearables for tracking patient data. The study compared data from 16 patients with Parkinson’s disease to nine patients in a control group.
Analysis: The My Take in the July 1, 2014 Health Care Current explored the topic of biosensing wearables and outlined what it might take to make these devices indispensable to both consumers and health care providers. A strong rationale and a clearer path to return-on-investment, device validity and reliability and a strong evidence base are critical to advancing the use of wearables.
This partnership is an example of taking wearables for fitness and applying them to monitor more complex health conditions. The usability and accuracy study could shed light on whether wearables are a good tool for this purpose. Deloitte’s forthcoming 2014 Survey of U.S. Physicians reveals that 38 percent of physicians say that “monitoring patients’ conditions and adherence” is a potential benefit of mobile health (mHealth). Physicians are more likely to see the benefit of mHealth in accessing clinical information and researching diseases if programs like the Intel/Michael J. Fox Foundation work. More than half of consumers (62 percent) are interested in using self-monitoring devices to check on their conditions, and report the information to their doctors electronically, according to Deloitte’s 2013 Survey of U.S. Health Care Consumers.