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Health Care Reform Memo: December 10, 2012

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: the hidden costs of health care

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

Let’s face it. Many consumers are quite happy to let someone else pay a higher income tax or pay for their health care. It’s understandable.

In recent days, I’ve seen polls showing the majority favor higher taxes for the “rich”—why is that a surprise? The majority are not “rich”.

And in health care, the same is true. Those without health insurance are quite supportive of universal coverage. And those with employer-sponsored coverage featuring high deductibles and narrower networks of providers favor lower costs and improved service. We all look through the lens of our own circumstances, especially when it comes to health care. And what we pay out-of-pocket seems a key factor in how we view health care.

Tomorrow, we’re releasing “The hidden costs of U.S. health care: Consumer discretionary health care spending”. The findings are profound:

  • Only 40 percent of what’s spent on health care in the average household is covered under a government or private insurance plan; the 13 percent paid “out-of-pocket” is increasing at an alarming rate, and is especially burdensome on lower income households and for seniors on fixed incomes.
  • In 2010, total U.S. health-related expenditures were an estimated $3.2 trillion—23.9 percent higher than reported by the official National Health Expenditures Accounts (NHEA) run by the federal government. This translates to total per capita spending of $10,392.
  • $621 billion in direct and indirect costs is spent for goods and services not captured by the NHEA data. Of this, $492 billion (79 percent) is the imputed value of unpaid supervisory care given to individuals by family of friends—a large and growing category of health cost impacting lower income households hardest.
  • And consumers are spending more on non-traditional health services:  nutritional products/functional foods/supplements, and alternative health are major household expenses—some as a substitute for more costly medications or doctor visits, and some to augment traditional services.

What strikes me about the data is this: what consumers spend on health care out of pocket is an enormous part of household economics. For those without insurance coverage, it’s significant and especially burdensome if they take care of a family member or friend. And for those with insurance, it’s perhaps more burdensome as many do not qualify for government-financed services and face higher premiums, co-pays, and deductibles. It explains why 80 percent of insured adults feel insecure about managing their household health costs long-term, and why many with insurance delay elective care due to out of pocket costs:

  To what extent do you feel your household is financially prepared to handle future health care costs? Percent who delayed following, or decided not to follow, a course of treatment (like having an operation or taking a medication) that was recommended by a doctor/medical professional in the last 12 months
Total 17%
Insured 20%
Uninsured 5%
Direct purchase 23%
Employer-based 20%
Medicare 27% 12%
Medicaid 8%
Other 22% 19%

Source: Deloitte Center for Health Solutions, “2012 U.S. Survey of Health Care Consumers,” 2012

Doctors, hospitals, and health professionals have historically seen consumers as “patients”—incapable of navigating their health care decisions due to the complexities of diagnosis and treatment. There’s some truth to their assessment: most defer to their clinicians for treatment recommendations, but increasingly many seek counsel on their own.

Medical device and drug manufacturers have viewed consumers as “users” dependent on a physician or surrogate to make the purchase on their behalf. And employers and health insurance plans have historically seen consumers as “members” with limited appetite or ability to manage their care and associated costs. Policymakers are conflicted by the myriad of special interests that seek to define the role of a consumer toward their sector’s particular view of what that means.

It’s changing. Consumers are being exposed increasingly to the costs of care and are changing the way they see the world, and how they’re responding. For some, due to out-of-pocket costs, willful use of alternative treatments, willful non-adherence to treatment recommendations, and delayed care are necessary tradeoffs for other household necessities.

For most, what’s being spent out-of-pocket is changing their view of the health care industry, how it performs, and how it should be organized and regulated.

The biggest challenge facing the health system in the new normal is engaging consumers as active participants in the system—not as patients, members, subjects, or ignorant, incapable bystanders. They have skin in the game—their money—and they’ll seek value for what they spend through an increasingly sharper lens.

They’re neither patients nor patient: they are consumers.

Paul Keckely

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

P.S. Join us for a national Dbrief tomorrow at 1pm (EST) where we will look ahead to key stories that will shape the health care landscape in 2013: What’s Around the Corner for Health Care Organizations and Policymakers? And to get a copy of “The hidden costs of U.S. health care: Consumer discretionary health care spending,” visit the Deloitte Center for Health Solutions Website.

Implementation update

IRS releases final rules on medical device tax, PCORI funding; proposed rule on Medicare tax for higher income individuals and employers

Medical device tax: Last Thursday, the IRS released the 69 page final rule on the 2.3 percent medical device excise tax for devices sold in the U.S. per Section 9009 of the Affordable Care Act (ACA). The regulation impacts manufacturers, importers, and producers of taxable medical devices beginning January 1, 2013.  It exempts eyeglasses, contact lenses, and hearing aids from the definition of a taxable medical device.

Reactions: “There is growing bipartisan support in Congress to repeal the medical device tax, and MDMA remains committed to working with elected officials to fix a policy that was a bad idea when it passed, and is proving to be more harmful than imagined to our economy and patient care as it gets closer to implementation.”— Mark Leahey, President and CEO of the Medical Device Manufacturers Association (MDMA)

“The excise tax is on the medical device manufacturers and importers, [who] will now have access to 30 million new customers due to the health care law.” — Sabrina Siddiqui, spokesperson for the Treasury Department

Background: the medical device industry opposes the tax, which is expected to bring in $29 billion between 2013 and 2022 according to a Joint Committee on Taxation analysis. It is based on company revenues rather than profits, so the industry believes it will hurt the sector’s job growth and innovation, and add costs that are passed through to consumers. It is also unclear how dual use products, like latex, used for medical and non-medical purposes will be taxed. The U.S. House of Representatives voted in June to repeal the device tax, but the outlook in the U.S. Senate is less favorable. Eight hundred medical device manufacturers sent signed letters to U.S. Senate leaders encouraging repeal, citing an industry estimate it would reduce the sector’s workforce by 43,000.

Fees on health plans for PCORI trust fund: a final rule relating to fees on health insurance policies and self-insured plans for the Patient Centered Outcomes Research Trust Fund was issued last Wednesday, which will support the Patient Centered Outcomes Research Institute (PCORI) established by the ACA to conduct comparative effectiveness research.  

Background: PCORI was authorized by Congress per Section 6301 of the ACA and was appropriated funding by Congress through 2019 to conduct comparative effectiveness research. Beginning in fiscal year (FY) 2013 PCORI will be funded by general federal funds and an annual fee placed on insurers— $1per Medicare, private health, and self-insured plan participant, totaling $320 million. Beginning in FY 2014, funding will increase to $650 million per year when the annual fee increases to $2 per individual. In FY 2010, PCORI’s budget was $10 million, in FY 2011 it was $50 million, and in FY 2012 it was $150 million; all from general funds.

My take: the health insurance industry faces a new $8 billion excise tax starting in 2014 which increases to $14.3 billion annually in 2018. The Congressional Budget Office (CBO) reported the excise tax will “largely be passed through to consumers in the form of higher premiums.” An analysis by Oliver Wyman estimates that this tax “will increase premiums in the insured market on average by 1.9 percent to 2.3 percent in 2014,” and by 2023 “will increase premiums 2.8 percent to 3.7 percent.” In addition, the industry faces constraints on premium increases above 10 percent, required coverage for those with pre-existing conditions, and coverage of “essential health benefits” (EHB). Understandably, premiums will increase: the questions are two—how much, and how will premium increases impact affordability? Will an unintended consequence be fewer insured when increased access was the goal of the ACA?

Additional Medicare Tax: a proposed rule was released last Wednesday to provide guidance to employers and individuals on the implementation of the Additional Medicare Tax per Section 9015 of the ACA, which requires an additional Medicare tax to be withheld on high-income earners (individuals making more than $200,000 in a calendar year) effective in taxable years after December 31, 2012. The additional rate for employees is 0.9 percent.

Background: Medicare Part A, which covers hospital insurance, is partially funded through income taxes paid by employers, employees, and self-employed individuals. Currently, both the employer and employee are taxed at 1.45 percent; self-employed individuals pay 2.9 percent. The increase in tax rate for high-income earners will not increase the tax rate paid by employers.

HHS: donut hole savings $677 per beneficiary in 2012

Last week, the U.S. Department for Health and Human Services (HHS) reported that savings associated with implementing Section 1101 of the ACA—the provision that closes the drug coverage gap (i.e., the donut hole) for Medicare beneficiaries—saved seniors $5 billion on prescription drugs. The on average per person savings in 2012 was $677.

Background: in 2010, $259 billion was spent on prescription drugs (8 percent of total health expenditures). The average annual percent change in prescription drug spending from 2006 to 2007 was 5.3 percent vs. 1.2 percent from 2009 to 2010. Contributing to slower growth was a 4 percent decline in out-of-pocket spending on prescription drugs.

(Source: Deloitte Center for Health Solutions, “The hidden costs of U.S. health care: Consumer discretionary health care spending,” December 11, 2012)

CMS CIO: ACA data requires major expansion of storage capacity, consolidation of data centers

Centers for Medicare & Medicaid Services’ (CMS) Chief Information Officer Tony Trenkle reported its Medicare data storage will increase from 370 terabytes to 700 terabytes, and for Medicaid it will increase from 30 terabytes to 100 terabytes by 2015. The effort will require the creation of a virtual data center reducing CMS’ 80 current data centers to six to eight. CMS will accelerate its IT infrastructure activity in 2013 to accommodate data management requirements in 2014 for health insurance exchanges and ACOs, specifically targeting:

  • Identity management to conduct identity proofing and issue credentials for when providers or other users connect with the agency’s 175 applications
  • Enterprise portal, tied with identity management, to have a single face to the health care industry for services (e.g., registration and reporting)
  • Master data management to track payments and relationships across multiple payment programs
  • A business rules engine that defines and applies policies and calculations to determine who gets what and how much under the various payment programs (e.g., dual Medicare and Medicaid eligible and patient-centered medical homes)

(Source: Government HealthIT, “CMS readies IT, analytics for waves of health reform data,” November 29, 2012)

DOL reports to Congress on self-insured plans

Do self-insured plans offer less costly coverage than fully-insured plans? And if so, are their lower costs the result of lower overhead or the denial of claims and more limited coverage? These questions are the basis for the Department of Labor’s (DOL) second annual report to HHS about self-insured plans released last week. Using information reported on the Form 5500 Annual Return/Report of Employee Benefit Plans, the DOL reported:

  • In 2009, more than 50,000 health plans filed a Form 5500, an increase of 7 percent from 2008: 14,832 self-insured health plans with a total of 24 million participants, 6,286 “mixed-insured” (i.e., both self-insured and fully-insured characteristics) health plans with a total of 26 million participants, and 29,098 fully-insured health plans with a total of 24 million participants.
  • Of the more than 50,000 private sector, employer-sponsored group health employee benefit plans that filed a 2009 Form 5500, 80 percent offered other welfare benefits in addition to health benefits (such as dental, vision, life, disability, etc.). Fourteen percent of these plans have “mixed-insured” health benefits; 61 percent have fully-insured health benefits; and the remaining 25 percent have self-insured health benefits.
  • In 2009, premiums per capita by type of plan: self-insured, $250; mixed-insured, $1,658; and fully-insured, $4,833

(Source: DOL, “Group Health Plans Report: Abstract of 2009 Form 5550 Annual Reports Reflecting Statistical Year Filings,” December 2012)

Background: per Section 1253 of the ACA, the DOL must submit an annual report to Congress on self-insured plans, including plan types, number of participants, benefits offered, funding arrangements, and data from financial filings for self-insured employers. Many self-insured plans do not file 5500 forms; therefore, the report is not reflective of the entire self-insured market. Also, many provisions of the ACA applicable to commercial health plans and employers do not apply to grandfathered self-insured plans:

ACA provisions from Sections 1302, 1001 and 1201 not applicable to grandfathered, self-insured plans
Requires coverage for preventive services with no cost-sharing*
Prohibition on discrimination in favor of highly compensated individuals
Requires quality of care reporting*
Requires reporting of medical loss ratio and provision of rebates
Requires internal and external appeals processes*
Patient protections*
Annual rate review
Imposes adjusted community rating rules
Imposes guaranteed issue requirements
Imposes guaranteed renewability requirements
Prohibits discrimination based on health factors*
Prohibits discrimination against medical providers*
Requires coverage for essential health benefits
Limits out-of-pocket spending
Limits cost-sharing
Requires coverage for clinical trials for qualified individuals*

*applicable to non-grandfathered, self-insured health plans
Note: this is list is not meant to be all-inclusive
Source: ACA and Congressional Research Service analysis

CMS releases interim final rule on EHR incentive program

CMS and Office of the National Coordinator (ONC) released an interim final rule revising the Medicare and Medicaid Electronic Health Record (EHR) Incentive Programs. The rule adds an alternative measure for the Stage 2 meaningful use objective for hospitals to provide structured electronic laboratory results to ambulatory providers, and replaces the Data Element Catalog and Quality Reporting Document Architecture Category III EHR certification standards with newer versions.

Background: Stage 2 requirements will be effective in 2014, and last week, the ONC for Health Information Technology Policy Committee (HITPC) released guidance about its stage 3 meaningful use requirements that will be effective beginning 2016.

Legislative update

Fiscal cliff negotiations, grand  bargain center stage in DC; opening proposals reflect spending cuts in health programs

The focus of legislative activity in the first week of the lame duck session of Congress was the fiscal cliff and contrasting proposals from the White House and the GOP U.S. House of Representatives for long-term deficit reduction. Cuts to slow spending increases in major health programs are key elements in each proposal:

Focus White House Proposal House GOP Proposal
  • Increase premiums by 15% under Medicare Part B (medical insurance) and D (prescription drugs) for higher income beneficiaries
  • Freeze high-income thresholds at current levels until 25% of Part B and D beneficiaries are subject to increased premiums
  • Increase Part B premiums by $25 for new beneficiaries in 2017, 2019, 2021
  • Add a co-pay of $100 for each home health episode
  • Add a Medicare Part B premium surcharge for beneficiaries who purchase Medigap plans
  • Delaying the eligibility age from 65 to 67, beginning in a decade1, increased Medicare costs for higher-income beneficiaries2
  • For workers under the age of 55, beginning in 2023 they would be given the choice of private plans on a Medicare Exchange*
  • High-income means testing thresholds for Parts B and D*
  • Apply Medicaid rebates to dual eligibles for outpatient drugs covered under Part D
  • Phase down the Medicaid provider tax threshold from the current law level of 6% in 2014, to 4.5% in 2015, 4% in 2016, and 3.5% in 2017 and beyond
  • Limit Federal reimbursement for a state’s Medicaid spending on certain durable medical equipment services to what Medicare would have paid in the same state for the same services
  • Compute 2021 state disproportionate share hospital (DSH) allotments based on states’ actual 2020 DSH allotments
  • Remove ACA-sanctioned Medicaid expansions and block grant the program, allowing the federal government to give set grant amounts to states for providing coverage3
Other health care  programs
  • Military health system: increasing fees on some enrollees in the Tricare health care plan4
  • Payroll tax: extending the holiday on the payroll tax
  • Prohibit pay for delay: authorize the Federal Trade Commission to stop companies from entering into anti-competitive deals, “pay for delay,” that prevent the production of generic drugs and biologics
  • Length of exclusivity on brand name biologics: limit award of exclusivity to biologic manufacturers to 7 years, down from 12
  • Social Security: reduce deficits by $200 billion over 10 years by replacing the current inflation adjustment for Social Security and income tax brackets with a less generous "chained CPI" that, on average, is 0.3 percentage points less than the current measure. Doing so would reduce Social Security cost-of-living increases and cause a greater portion of taxpayer income to be taxed at higher rates5
  • Payroll tax: allowing the payroll tax holiday to expire at the end of the year*

Contained in the Obama Administration’s FY2013 Budget Proposal
*Contained in the House-passed FY2013 Budget Resolution
1 Huff Post Politics, “Fiscal Cliff 2012: Obama Administration Takes Tough Line with GOP,” December 2012
2 CNBC, “How the Obama and Republican Fiscal Cliff Plans Differ,” December 2012
3 Yahoo News, “Could Medicaid Benefits Get Pushed Off the Fiscal Cliff?” December 2012
4 CNBC, “How the Obama and Republican Fiscal Cliff Plans Differ,” December 2012
5 CNBC, “How the Obama and Republican Fiscal Cliff Plans Differ,” December 2012

My take: the fiscal cliff is part of the long-term deficit reduction and economic recovery journey our country is on. There are two realities for our industry: 1-slower annual growth of federal and state spending for health care programs like Medicare and Medicaid, and 2- reduced consumption of medical goods (i.e., drugs, devices, and over-the counter remedies) and services (i.e., doctors, hospitals, long-term care) must be on the table. To economists, cost = volume x price. Historically, policymakers have focused on price—fee schedules for services provided by physicians and hospitals, and unit prices for services. To effectively reduce health costs, both elements of the equation must be addressed: volume is just as important as unit prices. Reducing demand for unnecessary services or reducing demand for services where an alternative treatment or therapy works just as well at a lower cost is key. Reducing volume without compromising safety and quality is achievable, but requires radical restructuring of incentives for providers and engaged consumers to take charge of their health.

Related: upcoming deadlines in budget negotiations

  • December 18, 2012: last date for new bills in Congress (adjournment scheduled December 21, 2012)
  • January 1, 2013: new tax rates and spending cuts start
  • January 2, 2013: $110 billion in fiscal cliff cuts start
  • January, 2013: fiscal debt ceiling hit ($16,394 billion)
  • March 27, 2013: funding of federal government expires
  • August 1, 2013: White House recommended date for tax reform

(Source: The Wall Street Journal, “Despite the Name, Drop Not So Steep,” December 3, 2012)

Medical groups oppose cuts to primary care to pay for one year SGR fix

The American Academy of Family Physicians, American College of Physicians, American Academy of Pediatrics and 38 other professional societies sent a letter to Congress Friday opposing a proposal to pay for suspending the scheduled 26.5 percent Medicare payment cuts by cutting Medicaid primary-care pay increases. The groups also expressed opposition to across-the-board sequestration-driven pay cuts to reduce funding for graduate medical education physician-training programs and the National Health Services Corps that funds placement of doctors in underserved areas.

Note: per the U.S. Congressional Budget Office (CBO), a one year fix to the SGR will cost $25.2 billion over 10 years. Proposals to offset the one-year delay from the office of House Speaker John Boehner (R-OH) included a $15 billion cut in a coming temporary boost of Medicaid primary-care physician pay, and $8 billion from cutting hospital evaluation and management payments.

Compounding pharmacy law introduced

Wednesday, Representatives Rosa DeLauro (D-CT) and Nita Lowey (D-NY) introduced “The Supporting Access to Formulated and Effective Compounded Drugs Act” that would require compounding pharmacies to register with the U.S. Food and Drug Administration (FDA), establish an FDA database to track compounding pharmacy activity, increase consumer awareness about compounded products, establish labeling requirements, and set minimum production standards through FDA guidance. The bill is the second compounding pharmacy legislation introduced in Congress following the outbreak of fungal meningitis, the first from Representative Ed Markey (D-MA) in November 2012.

Related: Friday, U.S. House Energy and Commerce Committee Chairman Fred Upton (R-MI) and ranking member Representative Henry Waxman (D-CA) sent a letter to the International Academy of Compounding Pharmacists, asking the group to answer for reports that it has worked with pharmacies to impede FDA regulation in the past. In particular, the bipartisan pair of legislators wants to know about any interaction the association had with New England Compounding Center (NECC).

Note: the U.S. Centers for Disease Control (CDC) has reported 541 cases and 36 deaths from the recent fungal meningitis outbreak linked to steroid injections produced by the NECC.

State update

State round-up: health insurance exchanges

Health exchange update: As of Friday, 18 states and DC have established or declared intent to establish state-operated exchanges, 26 states have said they will not establish state-operated exchanges, and 6 are undecided. Note: this Friday, blueprints from states intending to operate their own exchanges are due.  

State-based Exchange Federal-Partnership or Federally-Facilitated Exchange Undecided

Announcements last week:

  • Thursday, New Jersey Governor Chris Christie (R) vetoed legislation that would have established its health insurance exchange (HIX) citing concerns about costs in federally facilitated or partnership exchanges but leaving open reconsideration when additional information is available.

State round-up: Medicaid expansion

Medicaid expansion update: As of Friday, 10 states have reported they will not expand their program; 14 states and DC will expand, and 26 states are undecided/undeclared.

Participating in Medicaid expansion Not participating Medicaid expansion Undecided/Undeclared

Note: states do not have a deadline to make a decision on Medicaid expansion and may opt in or out of participation at any time

Recent announcements:

  • Tuesday South Dakota Governor Dennis Daugaard (R) announced that his proposed budget for the FY 2014 will not include funds to expand Medicaid coverage to 133 percent of the federal poverty level per Section 2001 of the ACA. The Governor estimates an additional 48,000 citizens would have become eligible under the new expanded rules.
  • Wednesday, North Dakota Governor Jack Dalrymple (R) released the executive budget for the state, which did not include funding for expanding Medicaid eligibility in the state. His spokesperson indicated this does not mean the state will not expand the program stating: “It wasn’t part of the budget address because we’re feeling that the legislature will be taking up that issue. The Governor’s not opposed to making sure people get the health care they need, of course.”

State round-up:

  • On Tuesday, the Oklahoma Supreme Court struck down two state abortion laws as unconstitutional, citing standards imposed by the 1992 U.S. Supreme Court case Planned Parenthood v. Casey. The overturned laws would have expanded the rules for doctors prescribing pregnancy-ending drugs and required ultrasound scans for all women seeking abortions. Supporters of the laws are considering appealing the decision.
  • In a motion filed last Monday, the Obama Administration sought to dismiss a complaint filed on behalf of Oklahoma regarding the federal premium tax credits, stating: “Oklahoma lacks standing to sue the federal government to deprive its residents of the benefits of federal law. Its complaint accordingly should be dismissed for lack of jurisdiction.” In short, the administration argues, the state does not have the right to challenge such a provision because it is neither a citizen subject to the individual mandate or employer responsibility, nor is it eligible for tax subsidies.

    Note: Oklahoma Attorney General Scott Pruitt filed the lawsuit in September after amending its original lawsuit against the individual mandate in 2011. The lawsuit argued that the subsidies included in Section 1401 of the ACA were not meant to go to those who buy insurance through a federally-facilitated-exchange. The Administration has countered the lawsuit, writing rules that allow consumers to receive subsidies regardless of what type of HIX their state sets up.

Industry news

Study: high deductible insurance users delay care due to out-of-pocket costs

A survey of California enrollees in high deductible health insurance plans found 18.6 percent delayed or avoided a preventive office visit because of cost, even though preventive care was completely covered. The authors said that 82 percent of respondents did not understand that their health insurance plan exempted preventive office visits from deductibles and co-pays.

(Source: Reed et al., “In Consumer-Directed Health Plans, A Majority Of Patients Were Unaware Of Free Or Low-Cost Preventive Care,” Health Affairs, December 2012)

Supreme Court to hear case on “pay-for-delay”

Friday, the U.S. Supreme Court accepted a petition review of three cases on the “pay-for-delay” business practice in the pharmaceutical industry whereby a brand-name drug manufacturer holding a patent pays a prospective generic manufacturer to delay entry of its generic product into the market. The Court will determine if the practice violates federal antitrust laws. Justice Samuel Alito recused himself from the Court’s decision to hear the cases.

Background: in October 2012, the Solicitor General’s Office, on behalf of the Federal Trade Commission, filed a petition with the Supreme Court asking it to review a ruling made by the Eleventh Circuit Court of Appeals. In the Second, Eleventh, and Federal Circuits, “pay-for-delay” was upheld based on the federal antitrust laws as long as they do not exclude competition beyond the scope of the patent. In July 2012, the Third Circuit Court of Appeals opinion held that “pay-for-delay” must be viewed through the lens of antitrust law with “the patent holder bearing the burden of showing that the payment ‘was for a purpose other than delayed entry’ or ‘offers some pro-competitive benefit.’”

Survey: employers pursue wellness strategies

The national survey of HR executives found:

  • 87 percent of organizations believe worksite initiatives are very or somewhat beneficial
  • 70 percent believe that larger investments in wellness help curb health care costs
  • Top wellness program interests are obesity (52 percent), stress/mental health (51 percent), and lack of exercise/fitness (51 percent)
  • 55 percent say they have already initiated worksite wellness initiatives
  • 84 percent of employers place high value on measuring ROI related to wellness but only 42 percent of those with wellness initiatives in place actually do it
  • Those who have not begun worksite wellness programs are most worried about cost (65 percent), low potential participation (59 percent), and lack of time necessary to implement a wellness initiative (54 percent)

(Source: The State of Worksite Wellness in America, Alliance for a Healthier Minnesota, “2012 National Survey,” 2012)

Mental-disorder diagnosis criteria updated

The American Psychiatric Association Board of Trustees approved the fifth edition of the Diagnostic and Statistical Manual of Mental Disorders (DSM-5), the first major update since DSM-4 in 1994. Notable changes:

  • Autistic disorder, Asperger’s disorder, childhood disintegrative disorder, and pervasive developmental disorder (not otherwise specified) are combined into the diagnosis of autism spectrum disorder
  • Binge eating disorder will be moved from the appendix to the disorders section to better represent the symptoms and behaviors of people with this condition
  • Disruptive mood dysregulation disorder will be included in DSM-5 to diagnose children who exhibit persistent irritability and frequent episodes of behavior outbursts three or more times a week for more than a year
  • Excoriation (skin-picking) disorder is new to DSM-5 and will be included in the Obsessive-Compulsive and Related Disorders
  • Posttraumatic stress disorder (PTSD) will be included in a new chapter in DSM-5 on Trauma and Stressor-Related Disorders, with more attention to the behavioral symptoms

Survey: nearly 40 percent of physicians using EHRs

According to the CDC National Center for Health Statistics, 40 percent of office-based physicians have adopted the use of basic EHRs, a 6 percent increase from 2011 and 18 percent increase from 2009. Key findings:

  • Two in three indicated they either intended to or had already applied for the Medicare or Medicaid incentives under the EHR incentive payment program
  • Highest EHR adoption rates: Wisconsin = 70.6 percent, Minnesota = 66.7 percent, North Dakota = 63.2 percent, and Massachusetts = 61.8 percent
  • Lowest EHR adoption rates: District of Columbia = 22.4 percent, Louisiana = 25 percent, New Jersey = 26.9 percent, and Kentucky = 27.2 percent

Note: a basic electronic medical record/EHR system was defined as a system that has all of the following functionalities: patient history and demographics, patient problem lists, physician clinical notes, comprehensive list of patients’ medications and allergies, computerized orders for prescriptions, and ability to view laboratory and imaging results electronically.

OIG files lawsuit against SNF for overbilling

Last week, the HHS Office of Inspector General (OIG) filed a complaint against Life Care Centers of America Inc., a skilled nursing facility (SNF), in the U.S. District Court of Eastern Tennessee to recover millions of dollars in fraudulent Medicare and TRICARE payments. OIG alleges that beginning in 2006 the nursing home operator used a systematic scheme to maximize the number of days it billed to Medicare and TRICARE at the highest level, claiming skilled rehabilitative services were provided even when the services were not medically reasonable or necessary. The complaint also alleges that scheme was initiated by corporate executives who placed pressure on the therapists employed by Life Care Centers for America Inc. In 2008, the company billed 68 percent of its Medicare rehabilitation days at the highest level, nearly twice the nationwide average of 35 percent among all skilled nursing facilities.

Related: in FY2012 the U.S. Department of Justice (DOJ) received a record $4.9 billion in settlements and judgments from civil cases filed under the False Claims Act — $1.7 billion more than FY2011. Recoveries for health care fraud, reached over $3 billion for the first time in a single fiscal year, while housing and mortgage fraud accounted for $1.4 billion in recoveries. (Source: DOJ)

Background: in November 2012 OIG released an investigational report, finding that 25 percent of all SNF claims in 2009 were made in error resulting in $1.5 billion in inappropriate Medicare payments. According to the report, 20 percent of SNF claims were up-coded, 2.5 percent of claims were down-coded, and 2.1 percent did not meet Medicare coverage requirements. Under the False Claims Act, any individual knowingly presenting or causing a false/fraudulent claim for payment or approval; or knowingly making, using, or causing a false record or statement to be made is liable to the federal government for three times the amount of damages which the government sustains plus a civil penalty of $5,500 to $11,000 per violation.

MedPAC recommends 1 percent payment increase for hospitals

Thursday, the Medicare Payment Advisory Commission (MedPAC) released a draft recommendation supporting a 1 percent increase in payments to inpatient and outpatient hospitals for FY 2014—less than the 1.8 percent increase scheduled for inpatient hospital payments, and a 2 percent increase scheduled for outpatient payments.

Note: Medicare hospital spending in 2011 totaled $158 billion, $117 billion for inpatient services, and $41 billion for outpatient services. Between 2010 and 2011 per capita payments for inpatient service decreased by 1 percent, while per capita outpatient services increased by 9 percent. (Source: MedPAC)

FDA labeling requirement for tobacco manufacturers deemed a first amendment violation in appeals court

Wednesday, the U.S. Court of Appeals for the District of Columbia denied an appeal from the DOJ for a rehearing on whether the FDA’s requirement to place designed labels on the side of cigarette packages is constitutional; in August 2012, the Court ruled that the FDA requirement violated tobacco company’s first amendment right to commercial free speech.

Background: the law would require color warning labels that cover 50 percent of the cigarette pack front and back panels and the top 20 percent of print advertisements. Previously, the U.S. Appeals Court for the 6th Circuit found these warnings to be constitutional.

Note: the CDC estimates approximately 45 million U.S. adults smoke cigarettes. Cigarette smoking is the lead cause of preventable deaths in the U.S. Cigarette warning labels currently have text warnings by the U.S. Surgeon General, but have not been changed in 25 years in the U.S.

Study: administrative costs (overhead) in individual insurance market down; up slightly in group market

Last week, the Commonwealth Fund released its analysis of health plan administrative costs finding:

  • Changes in total overhead in the individual group market decreased $560 million, and increased in the small group and large group markets by $36 million and $174 million, respectively. The combined decrease in overhead across all markets was $350 million.
  • The change in medical loss ratio (MLR) varied in the state large group markets, from + 2.9 percent in Nevada to -4.2 percent in Hawaii. The change in administrative expenses per member, as well as profit per member, also varied: administrative expenses decreased by $311 per member in Nevada and increased by $63 in Arkansas, with profits varying from $358 in Rhode Island to a decrease in $118 in Alaska.
  • The change in MLR varied in the state small group markets as well, from + 6.4 percent in Nebraska to - 6.9 percent in New Hampshire. The change in administrative expenses per member, as well as profit per member, also varied: administrative expenses decreased by $182 in Nevada and increased by $149 in Alaska, with profits varying from $339 in Alaska to a decrease in $143 in Virginia.
  • Health plans in the both the large and small group markets reduced administrative costs substantially in 2011 ($785 million and $200 million, respectively)

(Source: The Commonwealth Fund, “Insurers’ Responses to Regulation of Medical Loss Ratios,” November 2012)

Study: consumer protections in Medicare Advantage dual-eligible programs vary widely across states

In the past two years, CMS has taken 546 compliance actions against Medicare Advantage (MA) organizations on issues related to consumer protections of importance to dual-eligible beneficiaries through use of notices, warning letters, and requests for corrective action plans (CAP). In addition, 22 enforcement actions against MA organizations have been taken: 17 civil money penalties and five suspensions of MA enrollment and marketing activity. States also took compliance actions with Medicaid managed care organizations; during the same period, Arizona, California, and Minnesota required managed care plans to undertake 91 CAPs. The majority of problems related to plans' appeals and grievances processes.

Background: dual-eligible beneficiaries include 9.9 million low-income seniors and individuals with disabilities enrolled in Medicare and Medicaid representing 39 percent of Medicaid spending and 31 percent of Medicare.

(Source: GAO, “Consumer Protection Requirements Affecting Dual-Eligible Beneficiaries Vary across Programs, Payment Systems, and States,” December, 2012)

Mobile health used widely by clinicians

Per a HIMSS report released last week:

  • 93 percent of physicians use mobile health technology in their day-to-day activities
  • 80 percent use it to provide patient care
  • Nearly one in four have EHR systems that capture clinical information from mobile devices
  • 36 percent allow patients to access information and health records using a mobile device

(Source: HIMSS, “2nd Annual HIMMS Mobile Technology Survey,” December 2012)


“Fighting Democrats to a draw on Medicare—including the fact that Republicans retained comfortable control of the House—may well be seen one day as a moment in American politics, when ‘Mediscare’ attacks finally lost their potency.”

— Dan Senor and Peter Wehner, “The Death of Mediscare,” Wall Street Journal, November 30, 2012

“Already 18 states have decided to leave their exchanges to the federal government, choosing a slippery slope toward precisely what liberal Democrats want: a federally controlled health care system that would be the first step toward European-style, single-payer health care. Conservatives have an obligation to keep this from happening. Setting up state-based exchanges is an important piece of defense…. States can, and should, control their destinies by deciding how their exchanges will function, which private insurance companies can participate, and what kind of insurance coverage will be offered. They should use their political leverage — the administration desperately wants them to sign on to Medicaid expansions — to pare back the regulations and unrealistic timetables that would govern a state exchange. This is the kind of local decision-making that works best for businesses, workers, and taxpayers.” 

— Douglas Holtz Eakin, “Yes to Exchanges,” National Review December, 6, 2012

Fact file

  • Economy: in 2012, the U.S. economy grew 2.7 percent in 3Q vs. 1.3 percent in 2Q; consumer spending, changes in inventories, federal government spending, and residential investment contributed positively. (Source: U.S. Department of Commerce)
  • Flu vaccinations: 83.4 percent of hospital workers received flu vaccinations in 2012, rising from 77.8 percent last year. The 2012 vaccination rates among the overall health care workforce (62.9 percent) and the general public (37 percent) remained roughly the same as in 2011. (Source: CDC)
  • Fiscal cliff: among 1,003 adults surveyed, 40 percent believe the President and Congressional Republicans will avoid the fiscal cliff. If no agreement is reached, 53 percent would blame Republicans more, 27 percent would blame the President more, 12 percent would hold them equally responsible. Opinion is unchanged compared to early November. (Source: Pew Research Center)
  • EHB coverage variation: the percentage of prescription drugs covered by state EHB benchmark plans range from 45 percent to 99 percent. Virginia, Arizona, and Maine are among the states offering the most thorough coverage. (Source: Avalere, “EHB Benchmark Formularies Vary Greatly State to State,” November 2012)
  • Birth control coverage: the majority of Americans believe free birth control coverage should be provided to employees by businesses (63 percent), non-profit organizations (56 percent), and religious schools, hospitals, and charities (53 percent) irrespective of the employer’s ethical preferences. (Source: LifeWay Research)
  • Federal budget deficit: among 1,002 adults surveyed, 48 percent believe Congress should allow the tax cuts on income above $250,000 to expire while sustaining current cuts on income below that mark; 40 percent favor increasing the age of eligibility for Medicare and 30 percent support reducing annual increases in Social Security benefits. (Source: AP-GfK Poll)
  • November jobs report: the U.S. economy added 146,000 new jobs in November, including 20,000 in health care: hospitals (+8,000), nursing care facilities (+5,000), physician offices (+1,700—total 2.45 million, an increase of 0.1 percent). For the 12 months ending in November, physician-office employment increased by 65,700 jobs, or 2.8 percent. The industry has far added an average of 26,000 jobs per month in 2012. (Source: U.S. Bureau of Labor Statistics)
  • Sleeplessness: one in five Americans show signs of sleep deprivation, which is linked to Alzheimer’s and diabetes. (Source: American Academy of Sleep Medicine)
  • College costs: the average four-year degree costs $90,000 for tuition, room and board—up 70 percent since 2000 and 700 percent since 1980; two of three students finish their degree with $26,000 average debt; average costs of a year: $22,092 in 2011 vs. $12,922 in 2001. (Source: USA Today, “Editorial: $10k college degrees are on to something,” December, 2012)
  • Birthrate: annual births per women ages 15 to 44 dropped 8 percent to 64/1,000 in the U.S. from 2007 to 2010 from high of 112.7/1,000 in 1957; rate for U.S. born women dropped 6 percent to 58.9/1,000 vs. 14 percent drop for non-U.S. born women to 87.8/1,000. (Source: Pew Center, “U.S. Birth Rate Falls to a Record Low; Decline Greatest Is Among Immigrants,” November 2012)
  • Election results analysis: Romney-Ryan carried adults 65 plus 58 percent to 41 percent vs. McCain-Palin 49 percent to 51 percent. (Source: National Election Pool)
  • Child life specialists: 4,000 child life specialists in hospitals earning $40,000-$60,000/year not reimbursed by health plans. (Source: Children’s Hospital Association)
  • Medical imaging investment: in the past year, the average capital investment required for a new MRI system increased 35 percent to $1.95 million. The cost of portable ultrasound systems also increased by 30 percent. (Source: Modern Healthcare, “MRI system prices rise 35 percent, index finds,” November 2012)
National health reform: What now?

National health reform: What now?

At Deloitte, we continue to explore and debate the key questions facing 
the industry, and we look forward to helping our clients find and implement 
the right answers for their organizations. To learn more, visit today.

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