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Health Care Reform Memo:
July 15, 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: Employers—a catalyst for health reform 

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

According to the Centers for Disease Control and Prevention’s (CDC) National Center for Health Statistics “Health Insurance Coverage” report released last month, 84.5 percent of the U.S. population had insurance coverage of some type last year. The percentage of those with private coverage (61 percent) did not change significantly from 2011 to 2012 while those on government sponsored plans increased slightly to 23.5 percent (with 42.1 percent of children under 18 now covered by a government insurance program). The report noted that for some part of the year, 57.7 million U.S. citizens went without coverage.1

Per the U.S. Census Bureau, the vast majority of those with coverage obtain it through their employer: only 9 percent of individuals (27 million) buy health care directly for themselves. And the June Kaiser Family Foundation Tracking Poll found that health insurance remains highly valued in the U.S.: 87 percent of adults say it is “very important” to them personally to have health insurance, 88 percent describe health insurance as “something I need,” and 68 percent say “insurance is worth the money it costs.”2

Thus, the flurry of media attention following the July 2, 2013 U.S. Department of Treasury (DOT) announcements that the employer pay or play provision of the Affordable Care Act (ACA) would be delayed until 2015 is understandable. Employer-sponsored health insurance is a key element in the new law and has been a central fixture in our economy since World War II.

Background: employer-sponsored health insurance plans expanded dramatically as a direct result of wage controls imposed by the federal government during World War II. The labor market was tight and federally imposed wage and price controls prohibited employers from raising wages enough to attract workers. But the War Labor Board declared that fringe benefits including sick leave and health insurance did not count as wages for the purpose of wage controls, so employers increased offers of fringe benefits, especially health care coverage, to attract workers. Between 1940 and 1960, the total number of people enrolled in health insurance plans increased from 20,662,000 to 142,334,000.

Fast forward to today: increasing health costs are a problem to employers who pay 75 percent of family coverage costs and 85 percent of employee coverage costs on average. According to a Kaiser Family Foundation report, premiums for family coverage have increased 78 percent since 2001 vs. 19 percent wage growth and 17 percent inflation. As a result, 44 percent of employers do not provide coverage—an increase of 10 percent since 2000.3 And among companies that provide coverage, they’re making changes in the near term that include:

  • Cuts in retiree benefits
  • Replacement of defined benefits programs with defined contribution plans
  • Negotiation of narrow networks of providers to get more value for dollars spent
  • Increased investment in targeted wellness programs to reduce long-term costs and risks

And in the long term, shifting responsibility to individual employees to manage their health while gauging how the health market will shake out as a result of the ACA.

What’s it mean going forward?

  • It means health care will be a central theme in board rooms and management meetings for employers large and small. But not just costs: how care is delivered and by whom, where waste and inefficiencies are and how the company and its collaborators can influence incentives and policies that drive greater value and accountability from every sector of the system—payers, providers, bio-pharma, device manufacturers and others.
  • It means human resource professionals will become health care experts, moving well beyond benefits management to assess and recommend bold changes linked to the company’s long- term goals for its workforce and competitiveness.
  • And it means employers are paying attention to the ACA with an eye beyond penalties and compliance to their role in shaping the new normal.

The role employers play in health reform has not gotten the attention it perhaps deserved. Much of the attention has been on insurers and providers.

Employers that provide health insurance to their employees and dependents appear to provide the lion’s share of profits in health care. Underpayments in what Medicare, Medicaid and the under-insured pay are passed thru in higher premiums and costs to employers and their employees in companies that provide coverage.

The delay of the employer mandate might have been a wake-up call for a few employers, but most employers are awake and appear poised to step up their role as a catalyst for health reform.

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

PS—Join our Deloitte Dbriefs discussion tomorrow, July 16 on “Consumers, Not Patients: Defining New Methods of Engagement with Health Care.” To register, click here.

1National Health Center for Health Statistics, “Health Insurance Coverage: Early Release of Estimates from the National Health Interview Survey, 2012,” June 2013.
2Kaiser Family Foundation, “Kaiser Health Tracking Poll,” June 2013.  
3Kaiser Family Foundation, “Employer Health Benefits Survey,” June 2007.

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Employer mandate news coverage focused in four areas 

Background: the ACA requires employers with more than 50 full-time employees (those who work at average of 30 or more hours weekly) that do not provide health insurance coverage to pay a penalty and it requires those that do to verify their coverage is consistent with requirements about what benefits are covered and its affordability to their employees. In February, the Congressional Budget Office (CBO) had projected penalties of $5 billion would be paid by employers in 2014.

July 2, the DOT announced it would delay implementing the employer mandate and reporting requirements for insurers until 2015 to allow time for the government to complete its operational preparedness and employers time to adjust benefits accordingly. And the Internal Revenue Service (IRS) issued technical guidance on reporting requirements for employers regarding the one-year delay of the ACA employer mandate to provide affordable health insurance coverage. The House Rules Committee is scheduled to meet Wednesday (July 17, 2013), to vote on the bill to delay the employer mandate reporting requirements for one year and the bill to delay the individual mandate for one year.

Since the announcement, significant media attention has focused on the impact of the delay on employers and related questions about other aspects of the ACA: four major themes seem to have dominated the news since the ruling...

  1. Under what authority is the delay by the Treasury allowed? Responding to a challenge from House Energy and Commerce Chairman, Fred Upton and other Republicans last Tuesday, Assistant Secretary for Tax Policy Mark Mazur wrote: “The notice [allowing the delay] is an exercise of the Treasury Department's longstanding administrative authority to grant transition relief when implementing new legislation like the ACA. Administrative authority is granted by section 7805(a) of the Internal Revenue Code."
    A key issue: can substantive changes like this be made, or is it a violation compromising the rest of the ACA law?

  2. What will employers do? Simply put, most employers and business trade groups have expressed support for the delay, citing relief that it gives them another year to prepare for the coverage and reporting requirements of the mandate and to structure their benefits accordingly. And in certain industries where the employer penalties are more problematic—industries dominated by smaller employers that do not provide coverage—efforts are also being made to modify the law raising the lower thresholds to companies with more than 100 employees and changing the definition of “full-time” to 40 hours weekly.
    Note: while the rule delayed employer reporting about their coverage, it did not delay the penalty for non-affordability—to be exempt from the penalties, the coverage must not cost more than 9.5 percent of an employee's income and it must cover at least 60 percent of medical claims.
    A key issue: how many employers will be impacted by the penalty and will the final reporting requirements be such that they can be implemented by employers?

  3. How is the individual mandate impacted? The ACA’s mandate requires that individuals be enrolled in “minimum essential coverage,” or obtain an exemption, or pay a tax penalty for not obtaining health insurance starting January, 2014. Section 6055 of the Act requires that starting in 2015, insurers and employers that sponsor self-insured plans report to the IRS information identifying each person provided minimum essential coverage during the preceding year. Per the ACA, individuals must self-attest on their tax return that they have insurance or not, later verified by the Section 6055 requirement for employers and insurers. On July 2, 2013, the DOT said it will release formal guidance on the reporting requirements for both insurers and employers later this summer. Because employers will not be reporting key information to the IRS on the health coverage they offer to full-time employees until 2015 per the delay, some speculate the individual mandate cannot be enforced during that time.
    A key issue: given the delay of the employer mandate, can the individual mandate be implemented since the two are connected for a large part of the population?

  4. How will the employer delay impact the opening of state health insurance exchanges (HIXs)? In 76 days, health exchanges are to open for business. In 34 states, the federal government will play a lead or supporting role and in the others, the state will operate its own. The Centers for Medicare and Medicaid Services (CMS) rule requires employers fill out a 12-page “Application for Health Coverage & Help Paying Costs” when requested to do so by employees who are applying for advance premium tax credits (APTCs) to buy health insurance in the exchanges, so employers will be necessarily linked to the exchanges.
    A key issue: given enrollment is limited to individuals and small employers initially and many individuals will be eligible for subsidies based on their income, lacking employer reporting, how will income be verified? Can self-reporting by the individual be a valid and reliable basis for determining eligibility for enrollment and subsidization?

My take: our surveys of employers indicate they are somewhat familiar with the law, mostly the mandate and penalties for non-coverage or affordability, but unaware of many other elements of the law. The ACA puts significant requirements on employer-sponsored coverage, much already in effect:

Key provisions affecting Employer-Sponsored Health Care in the ACA (ESHC)
Currently in effect Not yet in effect
No lifetime dollar limits with respect to coverage for essential health benefits Employer Shared Responsibility payments required for large employers that fail to offer minimum essential coverage (that meets an affordability and minimum value standard) to all full-time employees (effective January 1, 2015)
Employees’ children must remain eligible for coverage until age 26 40% excise tax on “high-value” coverage for employees, imposed on insurers and plan administrators (effective January 1, 2018)
No preexisting condition exclusions for enrollees less than 19 years old  
Mandatory coverage of certain preventive health services without cost-sharing  
No reimbursement of over-the-counter medications by health flexible spending arrangements (FSAs) or health reimbursement arrangements (HRAs) unless obtained with a prescription  
Mandatory coverage of certain women’s preventive health services (including contraception) without cost-sharing  
Mandatory distribution of uniform Summary of Benefits and Coverage to enrollees and potential enrollees  
Health FSA salary reduction contributions capped at $2,500 per year  

The “pay or play” provision of the ACA is one of the changes in its implementation: the delay of the deadline for each state’s filing of its exchange blueprint last November and the substantial changes from the proposed final rule for the Medicare Shared Savings Plan (accountable care) are among the most significant. In each case, the U.S. Department of Health and Human Services (HHS) indicated the changes/delays were made in response to feedback from key stakeholders.

The employer delay got widespread support from the insurers and employers and was criticized by hospitals and other provider groups because it delays increasing the numbers covered with insurance. So it’s only speculation about the ultimate impact of the delay, but one thing is certain—the implementation of the ACA is an enormous challenge spanning six years (2010-2016) before all its pieces are in place.

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CMS final rule on navigators released 

On July 12, CMS released a final rule on the navigators—people who will help consumers find the appropriate insurance coverage option under the ACA (Section 1311).

According to CMS, the rule applies to federally facilitated marketplaces [HIXs] and to state partnership marketplaces; state-based marketplaces have the option of using the rule or developing their own. “The rule identifies training, conflict-of-interest standards and standards for serving people with limited English language proficiency, as well as people with disabilities.”

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Final rule on eligibility in Medicaid, CHIP and exchange coverage released 

On July 5, CMS released the final rule for eligibility in the Medicaid, Children’s Health Insurance Program (CHIP) and HIX. It estimates the provisions will likely result in savings of $465 million over five years, including $280 million in cost savings to the federal government and $185 million in savings to states by coordinating efforts between states and the federal government via the rule. Excerpts in final rule:

  • Coordination of Appeals of Eligibility Determinations: provides options for a coordinated appeals process between the Marketplace [HIX], Medicaid and CHIP and establishes that state Medicaid agencies may delegate the authority to conduct Medicaid fair hearings to the Marketplace, provided that certain standards that protect Medicaid applicants and beneficiaries are met.
  • Notices: “notices to applicants, enrollees and beneficiaries must include clear and accurate information about eligibility for all insurance affordability programs (including Medicaid, CHIP and premium tax credits and cost-sharing reductions to help pay for health insurance coverage through the Marketplace) and establishes that electronic notices will be available from the Marketplace starting on October 1, 2013 and from state Medicaid and CHIP agencies no later than January 1, 2015”.
  • Medicaid Benefits: “states have flexibility under section 1937 of the Social Security Act to design benefit packages “benchmarked” to commercial products” assuring that the ten categories of Essential Health Benefits (EHBs) specified in the ACA are provided. The final rule provides guidance on the design and uses of these benefit plans (now known as Alternative Benefit Plans) and their coverage of EHBs for the new adult group beginning January 1, 2014.”
  • Medicaid Cost Sharing: “permits states to establish higher cost sharing for prescription drugs, for non-emergency use of the emergency department and updates the maximum allowable cost-sharing levels to consolidate provisions… and creates one streamlined set of rules for all Medicaid premiums and cost sharing while clarifying that the limit on out-of-pocket costs will continue to ensure that coverage remains affordable for the lowest income Americans.”
  • Open Enrollment: “establishes that Medicaid and CHIP agencies will begin accepting the single streamlined application during the initial open enrollment period to help facilitate a coordinated transition to new coverage that will become available in Medicaid and through the Marketplace in 2014. Between October 1, 2013 and January 1, 2014, state Medicaid and CHIP agencies will determine eligibility for coverage that will begin in 2014 and accept electronic account transfers from the Marketplace. During this three month period, states will also be expected to make timely Medicaid and CHIP eligibility determinations with respect to eligibility under the current (2013) rules, but have flexibility in how they will manage these responsibilities.”
  • Verification of Employer-Sponsored Coverage: “individuals who are enrolled in employer-sponsored coverage or eligible for employer-sponsored coverage that meets affordability and minimum value standards are ineligible to receive advance payments of the premium tax credit or cost-sharing reductions through the Marketplace. This final rule includes details on the procedures for the Marketplace to verify access to employer-sponsored coverage, which was proposed based on extensive consultation with employers and other stakeholders.”
  • Presumptive Eligibility: “permits hospitals to make presumptive eligibility determinations (this option is available to hospitals, regardless of whether the state has elected presumptive eligibility as a state plan option). The rule also finalizes policies related to determining presumptive eligibility for other populations.”

Related: Last Tuesday (July 9), members of the House Committee on Energy and Commerce requested more information from HHS Secretary Kathleen Sebellius regarding the rule, which will allow state-based HIXs to accept certain attestations of income if applicants cannot verify their income. Representatives are concerned the rule leaves room for insufficient oversight of eligibility by allowing self-reported household income.

(Source: Final Rule for Strengthening Medicaid, The Children’s Health Insurance Program and The New Health Insurance Marketplace, July 5, 2013)

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Public opinions about ACA are mixed 

According to a Rasmussen Reports telephone survey conducting July 6-7, 55 percent of “likely voters” view the ACA unfavorably, with 39 percent viewing it favorably. For political surveys, Rasmussen Reports uses census bureau data and a series of screening questions to determine “likely voters.” The July results are consistent with their survey from May, showing that American’s opinions towards the ACA remain unchanged. Additionally, the survey found that voters who dislike the ACA hold stronger opinions than those who favor the law—42 percent responded very unfavorable and 15 percent responded very favorable. Survey respondents totaled 1,000.

Note: in polls by other organizations (e.g., Kaiser, Deloitte Center for Health Solutions), the public is split on the overall favorability of the ACA, but specific elements i.e. elimination of pre-existing conditions, limits on insurance premium increases, poll favorably. The majority of the population seems to have concern about the bulkiness of the reform effort, but seems inclined toward changes that create more affordable and accessible insurance coverage. Last week, the Campaign Analysis Group reported that advertising opponents of the ACA have outspent proponents five to one since its passage in March 2010 ($385 million to $78 million). It estimates spending for advertising about the ACA will exceed $1 billion by 2015.

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HHS awards $150 million to health centers for enrollment assistance 

On July 10, HHS announced $150 million in grants to 1,159 health centers to support ACA enrollment efforts. Health centers in all 50 states were selected to receive grants and together the centers serve more than 21 million patients annually. The grants will assist the centers in hiring 2,900 outreach and eligibility workers.

The Senate Appropriations Committee approved a manager's amendment to the Labor, Health and Human Services funding bill that includes several health care provisions. One proposed by Sen. Mike Johanns (R-NE) requires the HHS Secretary to publish details of the money CMS spends on the HIXs from 2010 through fiscal year (FY) 2015. Another provision proposed by Sen. John Boozman (R-AR) states that the health care exchanges should verify annual household or individual income before making premium tax credits available.

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Court challenge dismissed 

The Fourth Circuit Court of Appeals dismissed the lawsuit brought by Liberty University challenging the individual and employer mandates of the health care reform law. Liberty officials plan an appeal to the Supreme Court.

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Legislative update 

White House projects higher health care spending for Medicaid, lower overall deficit due to improving economy 

The White House released the FY14 mid-session review budget update revising projections to account for changes since the budget released in April. Highlights:

  • Over the next decade, spending on Medicaid will likely be $123 billion more than previously projected. “The increase stems primarily from higher projected benefit payments in 2013, resulting in higher benefit projections over the 10-year period, partially offset by projected decreases in medical inflation and in the anticipated costs of the [ACA] Medicaid expansion.”
  • The 2013 deficit is now projected to be $759 billion; $214 billion lower than the $973 billion deficit projected in the Budget.
  • The 2013 deficit is now projected to equal 4.7 percent of gross domestic product (GDP), down from the 6 percent previously projected.
  • Projected outlays for Medicare decreased by $2 billion in 2013, while spending will likely increase by $31 billion over the next 10 years.  

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CMS releases updates to payment rules for hospital outpatient and physician services 

Last Monday (July 8), CMS released three proposed rules updating payment fees and policies for calendar year 2014:

Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System Policy Changes and Payment Rates

  • Updates OPPS market basket by 1.8 percent
  • OPPS payments are projected to increase by 9.5 percent ($4.37 billion)
  • Medicare payments to ASCs are projected to increase by 3.5 percent ($133 million)
  • Consumer price index for all urban consumers (CPI-U) update of 1.4 percent to account for inflation
  • Five new measures added to the Hospital Outpatient Quality Reporting (OQR) Program including: influenza vaccination coverage among  health care personnel; complications within 30 days of cataract surgery requiring additional surgical procedures; appropriate follow-up for normal colonoscopy in average-risk patients; colonoscopy interval for patients with a history of adenomatous polyps; improvement in patient’s visual function within 90 days following cataract surgery.

Medicare Physician Fee Schedule

  • Does not include any provisions on the physician fee schedule update or Sustainable Growth Rate (SGR)
  • Makes a separate payment to physicians for managing select Medicare patients’ chronic care needs beginning in 2015
  • Adds payment for non-face-to-face complex chronic care management services for Medicare beneficiaries who have multiple, significant chronic conditions (two or more)
  • Modifies regulations describing eligible telehealth originating sites to include health professional shortage areas

Physician Quality Programs and the Value Based Payment Modifier

  • Adds 47 new individual measures and three measures groups to the Physician Quality Reporting System (PQRS) and eliminates several claims-based measures to encourage reporting via registry and electronic health record (EHR)-based reporting mechanisms
  • Increases the number of measures that must be reported via the claims and registry-based reporting mechanisms from three to nine
  • Changes the threshold for reporting individual measures via registry to require that eligible professionals report on 50 percent of applicable patients rather than 80 percent

CMS is accepting comments on the proposed rules until Sept. 6, 2013 and will respond to them in final rules with comment period on or around November 1, 2013.

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Senate appropriations subcommittee approves spending bill fully funding ACA implementation, rejects cuts to HIX, IPAB in full committee votes 

Last Thursday (July 11), the Senate Appropriations Committee passed a FY2014 draft spending bill providing $164.3 billion in discretionary funds for the Labor, Health and Human Services and Education Departments, representing a 25 percent higher allocation than the expected House appropriations value ($121.8 billion) and a $7.8 billion increase from 2013 levels. The Senate bill fully funds implementation of the ACA, including $5.2 billion for CMS program management and specifically, $640 million for health care fraud and abuse control.

Additionally, allocation for the National Institutes of Health (NIH) is $31 billion, $1 billion for the Prevention and Public Health Fund and $290 million for Community Transformation Grants that incentives anti-obesity and anti-smoking campaigns. The Committee rejected (14-16 vote) an amendment that would defund HIXs if any one exchange is not able to accept applications on Oct. 1, 2013 and an amendment that would defund the ACA’s Independent Payment Advisory Board, by a tie vote of 15-15.

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SGR update: Energy and Commerce latest proposal 

Before adjourning for the July 4 holiday, the House Energy and Commerce Committee circulated its latest SGR draft bill to replace the Medicare SGR physician payment formula. Key elements:

  • Allows medical groups decide whether to measure the performance of their physicians individually or at the group level
  • Gives CMS responsibility for approving quality measures recommended by the professional societies
  • Creates a process in the Center for Medicare and Medicaid Innovation (CMMI) for "alternative pay models" in lieu of a modified fee-for-service system
  • Gives a consensus-based organization outside CMS (a non-government organization like the National Quality Forum (NQF)) responsibility for testing alternative models to pay physicians as demonstrations Note: NQF validates quality measures, but historically has not been engaged in testing alternative payment models.

Still unknown: how long the transition period should be, net costs of implementation and how overall physician compensation would be impacted.

Note: the Energy & Commerce health subcommittee is expected to mark up the SGR bill on July 19, 2013 followed by a full committee markup on July 31, 2013.

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State update 

HIX update 

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

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

Democratic Governor Republican Governor Independent Governor

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

**NM & ID: federal government will help run the individual market. States will continue to maintain plan management and consumer assistance functions; HHS will operate the IT system. SHOP will be state-based.
(Source: HHS)

  • Tuesday, HHS awarded $198 million in HIX grants to six states: Colorado - $116 million, Nevada - $9 million, New Mexico - $18.6 million, Vermont - $42.7 million, Virginia - $1.2 million and West Virginia - $10 million. Colorado was the only state to receive a multi-year grant.
  • In Oregon, a $2.9 million ad campaign for Cover Oregon, the state’s HIX, launched on July 8, 2013. The ads attempt to spread the word about Cover Oregon without drawing attention to the ACA. Ads feature local musicians and target various demographics throughout the state. Both Oregon and Washington are looking to place ads on coffee cups and portable restrooms in order to reach the uninsured. While in Connecticut, campaigns include flying “get covered” banners from airplanes across the state beaches and establishing retail stores for consumers to receive in-person assistance with purchasing health insurance. Colorado also launched a $1.1 million ad campaign in May. Note: a Gallup poll from June 2013 found that 56 percent of the uninsured were not aware of the ACA’s mandate to buy health insurance by 2014. Estimates suggest that by 2015 nearly $1 billion will likely be spent by both advocates and opponents advertising the ACA.
  • Vermont residents will pay on average around $400 a month for an individual “silver” plan in Vermont’s HIX, state regulators announced last week. Blue Cross Blue Shield of Vermont and MVP Health are the only two insurers selling on Vermont’s exchange in 2014. Blue Cross’s average silver plan will cost individuals about $395 per month, a 4.3 percent reduction from the insurer’s proposed rate. MVP’s average silver plan costs about $410 per month, a 5.3 percent cut from the proposed rate. The average premiums do not account for federal subsidies.
  • Enroll America launched its Florida health reform outreach campaign on July 10, 2013. The education campaign included a training session for 25 newly hired state organizers. The organization plans to hold thousands of seminars throughout Florida to explain the health reform guidelines and how individuals can purchase health insurance on the federally-facilitated exchange that will open October 1, 2013.

Related: the CMS provides milestones for states wanting to transition from federal partnership in 2014 to state run in 2015.

Last Wednesday (July 10), CMS provided deadlines to states that have indicated interest in operating their own exchanges in 2015:

  • June 3, 2013 develop a preliminary coordination strategy with other state agencies
  • July 1, 2013 initiate stakeholder consultation sessions
  • Aug. 1, 2013 issue an RFP for the exchange's IT platform and determine whether the state wants to operate reinsurance or risk adjustment
  • Oct. 15, 2013 develop a strategy for reaching out to stakeholders and potential enrollees and establish a board and governance structure
  • Nov. 15, 2013 states wanting to completely run their exchanges in 2015 should select their systems integrator and choose their exchange IT platform
  • Nov. 18, 2013 states wanting to have a state-based or partnership exchange in 2015 must submit their declaration letter and "blueprint" applications to CMS for approval
  • Jan. 1, 2014 HHS is supposed to issue approval or conditional approval determinations for 2015
  • Between Jan. 1, 2013 and May 30, 2013, the exchanges should alert insurers to changes in the qualified health plan application submission process

To date, state officials in Illinois, Iowa have announced plans for the transition. Other federal partnership states—Michigan, New Hampshire, Delaware have also expressed interest.

Note: CMS announced it will likely complete "design reviews" with states interested in running their own exchanges starting this summer through spring of 2014 and says it will award exchange establishment grant funding through Dec. 31, 2014 to support a transition and state-based exchange build.

Related: study finds state legislative preparedness for insurance oversight varies widely.

Among the major elements of the ACA is increased oversight of the private insurance industry starting in 2014 including the end of pre-existing conditions, changes, disallowances of waiting periods for employer-sponsored insurance, controls on premium increases and the implementation of HIX intended to create competition in insurance markets.

The Commonwealth Fund surveyed each state to determine their state of readiness finding:

  • One state passed new legislation to cover all provisions and ten others and the District of Columbia passed new legislation or issued a new regulation on at least one protection
  • 19 states have updated their laws to allow them to enforce specific ACA requirements
  • 22 states indicated do not have the legislative authority to implement the ACA provisions
  • In six states—TX, OK, MO, WY, AL, AZ—the federal government will oversee all provisions of the ACA relative to insurance oversight

(Source: Katie Keith, Kevin W. Lucia and Sabrina Corlette “Implementing the Affordable Care Act: State Action on the 2014 Market Reforms” February 1, 2013)

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Medicaid expansion update 

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

Expected to expand Medicaid Will not expand Maybe

Democratic Governor Republican Governor Independent Governor

(Sources: NASHP. Updated June 27, 2013)

  • Although the Missouri Legislature adjourned in May without expanding Medicaid, three interim committees were appointed to draft Medicaid reform proposals. Suggestions from these committees may be drafted into legislation for consideration in January 2014. Governor Jay Nixon (D) supported Medicaid expansion in the state, which would have added 260,000 people to the state’s existing 873,400 Medicaid enrollees.
  • Before the July 4, 2013 holiday, the Pennsylvania House and Senate passed legislation excluding language that would have allowed the state to expand its Medicaid program under the ACA. Some members of the Pennsylvania legislature plan to reintroduce Medicaid expansion legislation this fall.
  • The Michigan Senate adjourned July 3, 2013 without approving Medicaid expansion legislation.

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State round-up 

  • The Massachusetts proposed state budget, still awaiting Governor Deval Patrick’s (D) approval, includes $40 million for disproportionate share hospitals (DSH). The Senate budget recommended taking these funds from the new Health Policy Commission, but the approved budget will take the $40 million from casino revenues and boosts to Medicaid spending. Note: hospitals that bill at least 63 percent of medical charges to public health insurance plans, such as Medicaid and Medicare, are considered DSH in the state.
  • Oregon new Coordinated Care Organizations (CCOs) initiative encourages those who consistently seek treatment from the Emergency Department (ED) to instead see office-based physicians to reduce health care costs. The CCOs are able to track frequent ED visitors and assist Medicaid patients in scheduling doctor appointments, understanding doctor’s orders, medication instructions and coordinating transportation to medical treatments such as dialysis. The federal government granted Oregon nearly $1.9 billion over five years to reduce the medical inflation rate by 2 percent.

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Industry news 

Hospitals, Blues call for no more ICD-10 delays 

Last week, officials from the American Hospital Association and Blue Cross Blue Shield Association sent letters to Congress encouraging no further delays in ICD-10 implementation from the current Oct. 1, 2014 deadline. The groups wrote: “Health plans and hospitals already have spent a considerable amount of time and resources in preparing the groundwork for ICD-10, establishing transition plans and training staff. Any delay in implementation threatens to increase costs, as investments already made will not be fully leveraged and may need to be duplicated.”

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Health care M&A strong in second quarter 

According to Renaissance Capital LLC, merger and acquisition (M&A) activity in the second quarter, 2013, was the weakest since the third quarter 2009: $543.9 billion, or down 13 percent from the prior year. Health care deals for the quarter were $59.4 billion, down 6.4 percent—stronger than most sectors overall.

Related: in 2013, two-thirds of biotech IPOs had venture capital firms participating in the initial public offering (IPO)—down only slightly from last year, when 91 percent of IPOs had such buying power and reversing a long slide in biotech returns for venture capitalists.  

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CMS analysis: Part D preferred networks offer lower drug prices for two-thirds of usage 

On Wednesday (July 3), CMS released its analysis of Part D (prescription drug) claims data from 13 plans concluding in about a third of cases, drug prices were unexpectedly higher in preferred networks than in other pharmacies, but lower for the rest. It found five of the 13 Part D plans had higher prices within the preferred network than other options and one in which generics prices were higher in the preferred network than in the non-preferred one.

Background: Pharmaceutical Care Management Association (PCMA) says the analysis bolsters its stance that preferred networks lead to lower prices, but the National Community Pharmacists Association says the findings highlight that preferred networks are not necessarily lowering Medicare costs and have in some cases been deceptively marketed as cost-savers. PCMA has estimated that preferred networks, if expanded to Medicaid, could save the government $33.4 billion over 10 years.

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Study: “Managed Medicaid” widely variable 

30 million are currently covered by managed Medicaid contracts between states and private contractors in 36 states. Of $435 billion spent on Medicaid by states and the federal government in 2012, $108 billion was paid to private plans. Per the study by the Urban Institute (July 2012), widespread variation was found in state oversight (i.e.: 17 of the 36 require plans be credentialed by a national standards organization and network adequacy ranges from 750 patients per primary care physician in Michigan to 2500 in Tennessee).

(Source: The Urban Institute, “Medicaid and CHIP Risk-Based Managed Care in 20 States,” July 2012)

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Fraud: 70 percent rule in heart-stent cases 

Per CMS, since 2011, courts have found three doctors guilty of fraud based on the 70 percent rule under which Medicare's regulators say a patient's artery must be at least 70 percent blocked to justify using a stent. In each case, investigators examined medical records finding evidence of the occlusion under 70 percent, later altered in claims submissions to Medicare.

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Transparency: drug companies required to disclose doctor payments 

Starting in 2016, all members of the European Federation of Pharmaceutical Industries and Association (EFPIA) must disclose payments made in 2015 by 2016 revealing names of health care professionals and associations that have received payments, the amounts and the types of relationships on their websites or on a common website, EFPIA said. Last year, the Association of the British Pharmaceutical Industry began publishing aggregate totals of payments made last year to health care professionals.

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Study: Hospital employment of physicians tied to increased costs, site neutral payments likely to change acquisitions valuations 

The online survey of 468 American College of Physician Executives (ACPE) members found 31.8 percent said costs go up when a group or practice is acquired by a hospital or health system; 16 percent said costs stay mostly the same; and 4.7 percent said costs go down.

In its news release, the ACPE noted how its results matched the findings of a recent Medicare Payment Advisory Commission report, which noted that many hospitals and systems bill Medicare at a higher rate when outpatient services are delivered in a hospital setting. The report said Medicare could save $900 million a year if 66 ambulatory payment areas were billed under a “site-neutral” policy.

Note: “site neutral” payment by Medicare is getting increased attention: a March 2012 MedPAC report estimated that $2 billion could be saved annually by 2020 if evaluation and management office visit payment rates were paid the same whether they occurred in a hospital or a doctor's office and noted that in 2011, Medicare paid 80 percent more for a 15-minute office visit in a hospital outpatient department than for a comparable visit in a freestanding doctor's office. As a result, the valuations used by hospitals in acquiring practices are likely to be factors in site neutrality and, in some cases, lower valuations.

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Employee financial security linked to health care needs 

Key findings of a “2013 Workplace Benefits Report,” based on a survey of more than 1,000 employees who are 401(k) plan participants:

  • 65 percent of 401(k) plan participants are “not financially well” (derived from a financial wellness score that consists of ratings from 0 points to 10 points based on employee answers to 10 components including the ability to maintain a good standard of living, save enough for retirement and confidence in the ability to afford their health care-related payments, considering an employer’s health plan)
  • 90 percent “feel some degree of stress about their financial wellness,” even when participating in retirement and health care plans at work. Among those who are concerned about their financial wellness, the report discloses these findings:
    • 85 percent of plan participants report they are not saving enough for retirement
    • 76 percent think that suffering a health-related financial crisis that resulted in three months without pay would be a problem. And 26 percent say it would represent a major crisis.
    • 75 percent do not believe they are in control of their financial situation
    • 68 percent do not feel they can afford a good standard of living for their families
    • 63 percent do not feel secure with employment at their existing firms

(Source: Kevin Crain, Head of Institutional Retirement & Benefit Services for Bank of America Merrill Lynch, “2013 Workplace Benefits Report: Employees’ Views on Achieving Financial Wellness.”)

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RWJF Report: Four Key Findings on EHR Adoption 

Last Monday, a report highlighting the status of health information technology in the United States was released. Key findings:

  • Overall EHR adoption: In 2012, 44 percent of all hospitals had a basic EHR system, up from 17 percent in 2011 and triple the 2010 adoption rate. Large, major teaching, private non-profit hospitals in urban areas were the most likely to have an EHR system.
  • Meaningful use: In 2012, 42 percent of hospitals achieved all 14 core functionalities of Stage 1 Meaningful Use, up from 4 percent in 2010. Additionally, 68 percent of hospitals met at least 11 of the 16 core functionalities for Stage 2 Meaningful Use.
  • EHR adoption at rural, small hospitals: While smaller and rural hospitals were less likely to have an EHR system, these hospitals are adopting EHRs at a faster rate than their larger, urban counterparts. The proportion of rural hospitals with an EHR increased 257 percent since 2010.
  • EHR adoption overseas: Both high-income countries and middle income countries, such as China and Brazil, are making large investments in EHR systems. Countries like India and South Korea are expected to begin investing in EHR systems as well.

(Source: Robert Wood Johnson Foundation, “RWJF Report: 4 Key Findings on EHR Adoption.” July 8, 2013)

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CMS reported meaningful use attrition by doctors 

Last Tuesday (July 9), CMS reported that 10,000 health care providers abandoned the “Meaningful Use (MU)” program between 2011 and 2012, many because they felt the program was too complicated and time-consuming. These health care providers collected an initial $18,000 incentive payment from CMS and attested to adopting an electronic health record in 2011, but did not seek another payment the following year.

Of the 195,337 Medicare providers who have attempted to attest to meeting the requirements of Stage 1 of the MU program, all but 213 have done so successfully, according to CMS data. All 3,046 hospitals who have attested to meeting the requirements of the program have done so successfully. CMS surveyed health care providers who left the MU program and discovered half of them did so for a variety of reasons, including:

  • did not fit their medical specialty
  • expense
  • dissatisfaction with EHR vendor
  • failure to meet objectives for Stage 1
  • complexity

The other half of health care providers who left the MU program either retired, moved to a practice that does not have an EHR, or failed to a meet the program's deadlines.

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New branding for ONC Certified EHRs 

EHR products certified under the Office of the National Coordinator for Health Information Technology's certification program can now be labeled with a new mark that identifies them as having met the 2014 Edition Standards and Certification Criteria.

ONC unveiled the mark last Wednesday (July 10) saying it gives providers and hospitals purchasing EHRs for use in the Medicare and Medicaid Electronic Health Record Incentive programs assurance the products meet necessary requirements. Eligible professionals and hospitals must use EHR products certified by ONC-Approved Certification Bodies to meet MU program criteria.

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Research snapshots 

Theme: variation

Utilization rates in Medicare Advantage somewhat lower than in fee-for-service but wide variance between markets 

Citation: “Geographic Variation in Cardiovascular Procedure Use Among Medicare Fee-for-Service vs. Medicare Advantage Beneficiaries,” Daniel D. Matlock et al, Journal of the American Medical Association, June 24, 2013 (24).

Issue: “Little is known about how different financial incentives between Medicare Advantage and Medicare fee-for-service (FFS) reimbursement structures influence use of cardiovascular procedures.”

Methodology: Cross-sectional study of 878,339 Medicare Advantage beneficiaries and 5,013,650 Medicare Fee for Service beneficiaries for 2003-2007 comparing rates of coronary angiography, percutaneous coronary intervention (PCI) and coronary artery bypass graft (CABG) surgery across 32 hospital referral regions in 12 states. Main outcome measures: Rates of coronary angiography, PCI and CABG surgery.

Key findings: Medicare Advantage patients had lower age, sex, race and income-adjusted procedure rates per 1000 person-years for angiography, no significant differences between Medicare Advantage and Medicare FFS patients in the rates per 1000 person-years of urgent angiography. Procedure rates varied widely across hospital referral regions among Medicare Advantage and Medicare FFS patients. “Although Medicare beneficiaries enrolled in capitated Medicare Advantage programs had lower angiography and PCI procedure rates than those enrolled in Medicare FFS, the degree of geographic variation in procedure rates was substantial among Medicare Advantage beneficiaries and was similar in magnitude to that observed among Medicare FFS beneficiaries.”

My take: geographic practice variation is one factor in examining costs in health care; another is the structure of the incentives under which providers deliver services. This study supports two well-known issues—where you live is a predictor of the standard of care applied and the type of plan you’re enrolled in determines how much is done. It’s a theme that will likely get more attention in coming years.

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Variation in bundled payments must consider local market costs and practice patterns 

Citation: “Geographic Variations in the Cost of Treating Condition-Specific Episodes of Care among Medicare Patients,” James D. Reschovsky et al, July 5, 2013 Health Services Research, July 5, 2013.
Issue: “Measurement of geographic variations in treatment costs for specific conditions taking into consideration the consistency of patterns across conditions and how service mix and population health factors are associated with condition-specific and total area costs.”

Methodology: “Medicare claims for 1.5 million elderly beneficiaries from 60 community tracking study (CTS) sites who received services from 5,500 CTS Physician Survey respondents during 2004–2006. Episodes of care for 10 costly and common conditions were formed using Episode Treatment Group grouper software. Episode and total annual costs were calculated, adjusted for price, patient demographics and comorbidities. We correlated episode costs across sites and examined whether episode service mix and patient health were associated with condition-specific and total per-beneficiary costs.”

Key findings: “Adjusted episode costs varied from 34 percent to 68 percent between the most and least expensive site quintiles. Area mean costs were only weakly correlated across conditions. Hospitalization rates, surgery rates and specialist involvement were associated with site episode costs, but local population health indicators were most related to site total per-beneficiary costs.”

Conclusions: Population health appears to drive local per-beneficiary Medicare costs, whereas local practice patterns likely influence condition-specific episode costs. Reforms should be flexible to address local conditions and practice patterns.

My take: similar to the citation above, geography plays a role in the standard of care received along with differences in the patient populations served. Here’s the deal: as big data is applied to health care, popular myths may be challenged—“all health care is local” and “do what the doctors say” will likely come under increased scrutiny.

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“First, we are cutting red tape and simplifying the reporting process. … Second, we are giving businesses more time to comply. In our ongoing discussions with businesses we have heard that you need the time to get this right. We are listening.”

—Valerie Jarrett, White House Blog, “We’re Listening to Businesses about the Health Care Law,” July 2, 2013

“The vanguard in each case is mostly young students or relative newcomers to the white collar workforce who have outgrown the fearful conformity of their parents’ generation. With their economic wants more or less satisfied, they now crave a voice and respect. In this social-media century, they are mobilized largely by Facebook and Twitter, networks of tweeps, circumventing an intimidated mainstream press.”

—Bill Keller “The Revolt of the Rising Class” New York Times Editorial July 1, 2013

“Childbirth in the United Sates is uniquely expensive and maternity and newborn care constitutes the single biggest category of hospital payouts for most commercial insurers and state Medicaid programs. The cumulative cost of approximately 4,000,000 annual births is well over $50 billion. And though maternity care is far less costly in other developed countries than it does in the United States, studies show that their citizens do not have access to less care or high tech care during pregnancy than Americans….Those payment incentives also mean that American women with normal pregnancies tend to get more of everything, necessary or not, from blood tests to ultrasound scans.”

—Elisabeth Rosenthal “American Way of Birth, Costliest in the World” New York Times, July 1, 2013

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Fact file: focus employer sponsored health insurance 

Employer Changes in Benefits Strategies

What changes do you anticipate making to your benefits strategy in the next 3-5 years?

(Source: Deloitte Center for Health Solutions 2012 Survey of US Employers)

  • Unemployment: for June, the economy added 195,000 jobs; unemployment unchanged, at 7.6 percent
    (Source: U.S. Department of Labor)

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Subscribe to the health care reform memo 

Health care reform memo — The weekly health care reform memo is available for subscription. Please visit /healthmemos/subscibe.

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