Health Care Reform Memo: September 27, 2010
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.
From Paul Keckley, Executive Director, Deloitte Center for Health Solutions
It was an eventful week; health care reform resumed center stage.
Monday, ranking legislators on the Senate Finance and Aging Committees sent letters to several national health insurance plans challenging recent premium increases. The same day, the National Bureau of Economic Research issued its assessment that the economic downturn officially ended June 2009 while noting a slower-than-expected recovery.
Wednesday, the President met 24 constituents in Paul and Frances Brayshaw’s backyard to discuss the health reform bill’s coverage expansion. The same day, new Council of Economic Advisors Chair Austan Goolsbee met with 18 CEOs convened by the Business Roundtable at the Newseum to discuss reform while the President was meeting with 30 state insurance commissioners in the White House to discuss state-responsibilities in the Patient Protection and Affordable Care Act (PPACA).
Thursday, House Republicans presented their “Pledge to America” from Tarp Lumber Company in Sterling, Virginia, promising to “repeal and replace” the health reform bill during live coverage of the President’s United Nations address. The same day, the New England Journal of Medicine published an international study challenging the cost effectiveness of screening mammography that grabbed national headlines in the context of PPACA’s new requirements for preventive health coverage.
And Friday, the Food and Drug Administration (FDA) announced restrictions on the use of Type II diabetes drug Avandia, signaling its intensified focus on drug safety.
A full week, and with 36 days to the election, more to follow.
Health care is complex. Most consumers do not understand our $2.5 trillion system, defaulting to personal experiences rather than data and facts. As a result, health reform is prone to strong opinions, misinformation from all sides, and emotions run high.
The President and his team sought to “reduce costs and cover everyone” circa his February 24, 2009 speech to Congress. The intended and unintended results of PPACA and companion legislation are to be determined. No one knows for sure. What is sure is that health reform will be center stage as voters elect 435 members of the House, 37 Senators, 37 Governors and 6,100 state legislators in five weeks. Stay tuned.
Senators request premium information from major plans
Monday, the five largest plans based on enrollment—WellPoint, United, Aetna, Health Care Services Corp., and CIGNA—received a letter from Senate Finance Committee Chairman Max Baucus (D-MT) and Senate Commerce Committee Chairman Jay Rockefeller (D-WV), requesting calculations behind their 2011 premium increases.
The letter referenced “radically increased profits and reserves" in 2009 that were "clear indicators that insurance companies would not have to significantly increase rates for the next year." Noting double-digit increases in 2010, the duo said, “This is irresponsible and unacceptable but is not, unfortunately, surprising. If an insurer thinks it can continue to impose double-digit premium increases, while providing fewer health benefits and enjoying record surpluses, it is again mistaken."
In reply, America's Health Insurance Plans (AHIP) spokesperson Robert Zirkelbach said, "political attacks won't do anything to make coverage more affordable for working families and small businesses that are struggling in a slow economy.”
MLR proposed draft submitted Friday
PPACA (Section 2718) requires insurers to maintain an 80 percent medical loss ratio (MLR) for individual and small group plans, and 85 percent for larger groups. “Not later than 12/31/2010, and subject to the certification of the Secretary, the National Association of Insurance Commissioners (NAIC) shall establish uniform definitions of clinical services and activities that improve health care quality and standardized methodologies for calculating measures of such activities, including definitions of which activities qualify.”
Friday, NAIC released its draft proposal on MLR rules for consideration by the U.S. Department of Health and Human Services (HHS). The proposed rule would allow insurers to:
- Include spending on wellness programs and health care hotlines as expenses, if the focus is on improving the quality of care;
- Exclude nearly all federal and state taxes from their MLR calculations, except federal income taxes on investment income and capital gains.
The rule would also require insurers to account for MLRs separately at each individual business unit in every state. NAIC will accept comments until October 4 and make any final changes to the draft based on the comments. Commissioners hope to finalize at a meeting on October 21. A final HHS rule is expected mid-November. The rule does not address a proposed phase-in that several NAIC members requested. Note: Insurance commissioners in Iowa and Maine have petitioned HHS for a waiver from MLR requirements citing fear insurers will stop writing policies in their states. In Maine, the current MLR threshold for individual policies is 65 percent.
HHS clarifies grandfathered, self-insured rules
Last week, HHS provided guidance to help health insurance plans comply with the new requirements under PPACA. Issues clarified include:
- Maintaining grandfathered status in the group market;
- Complying with the external review requirement as a self-insured plan;
- Complying with minimum payment standards for out-of-network emergency services in a state where balanced billing is prohibited.
FDA and CMS consider parallel review process; crosswalk among federal health agencies a key focus
Reflecting continued efforts to facilitate collaboration between the FDA, the National Institutes of Health (NIH), the Centers for Medicare & Medicaid Services (CMS), and other federal health agencies, the FDA and CMS announced a pilot program that would allow their agencies to concurrently review premarket, FDA-regulated medical products. The agencies seek comments on what products would be appropriate for parallel review, what procedures should be developed, how the process should be implemented, and other issues related to the effective operation of the process. Comments are due by December 16.
MACPAC hosts inaugural briefings
Thursday and Friday, the Medicaid and Children's Health Insurance Program (CHIP) Payment and Access Commission (MACPAC) held the first of planned monthly meetings to update industry stakeholders about current PPACA implementation activity.
CMS priorities: Cindy Mann, CMS Deputy Administrator and Director of CMS and Center for Medicaid, CHIP and Survey & Certification (CMCS), discussed its four priorities of CMCS and underscored the critical component of data collection. Among major IT dependent challenges will be enrollment of all eligible beneficiaries.
Medicaid and states: Alan Weil, Executive Director of the National Academy for State Health Policy, enumerated ten priorities for Medicaid that states “have to get right” to ensure successful implementation of reform. These priorities were largely similar to the themes of other sessions—data management and standardization, quality and efficiency measures, and system capacity.
Data and evaluation priorities at the Office of the Assistant Secretary for Planning and Evaluation (ASPE) and the U.S. Government Accountability Office (GAO): Richard Kronick, Deputy Assistant Secretary, Office of Health Policy at ASPE, discussed Medicaid and CHIP-related evaluation projects including creation of a Medicaid atlas of health care similar to the Dartmouth Atlas to gauge variation in practice patterns and costs. Note: This fall GAO will publish a 50 state review of Medicaid and the Recovery Act.
For a transcript of the meeting, visit http://www.macpac.gov/transcript-september-2010-meeting.
Administrative simplification: Update
In Section 1104 of PPACA, administrative simplification of all processes involved in transactions related to the Health Insurance Portability and Accountability Act (HIPAA) is authorized, using its “established multi-stakeholder consensus-based process including health plans, health care providers, vendors, other standard development organizations, and relevant federal agencies”. The new rules are to be adopted no later than July 1, 2011, and implemented not later than January 1, 2013.
The Congressional Budget Office (CBO) estimated net savings from “admin simp” of $11.4 billion over ten years: $7.1B saved by Medicaid and $4.3B saved through standardization of health exchange-based insurance programs. But other studies indicate savings could be substantially more. Consider:
A 2009 UnitedHealth Group report estimated that the health care system could save about $332 billion over ten years based on the following assumptions:
- Required use of common technology and information standards, with enhanced interoperability and connectivity ($225B/10 years)
- Use of advanced system-wide techniques to improve payment speed and accuracy ($88B/10 years)
- Streamlined provider credentialing, privileging, and quality designation processes ($19B/10 years)
(Source: June 2009, UnitedHealth Group, Health Care Cost Containment–How Technology Can Cut Red Tape and Simplify Health Care Administration)
American Medical Association (AMA): Cost estimates of inefficient health care claims processing, payment, and reconciliation are between $21 and $210 billion annually based on analytics from PNC Bank and RAND.
Medical Group Management Association (MGMA): 2010 proposed administrative simplification initiatives (based on PPACA)
- Passage and implementation of a national health plan identifier program ($8.8B/10 years)
- Passage and use of a national electronic claim attachment program ($9.4B/10 years)
- Implementation of a standardized machine-readable patient ID card ($22.2B/10 years)
Healthcare Administrative Simplification Coalition (HASC): A ten percent optimization of administrative processes and technologies would save the U.S. health care system approximately $57B annually. HASC 2009 recommendations include:
- Simplify practitioner credentialing
- Improve the health care insurance eligibility process
- Standardize machine-readable health identification cards
- Standardize prior authorization processes
On June 1, 2009, leaders of five major trade associations—AHIP, the American Hospital Association (AHA), the AMA, the Pharmaceutical Research and Manufacturers of America (PhRMA), and the Advanced Medical Technology Association (AdvaMed)—sent a letter to President Obama indicating potential ten year savings of $500-$700B through administrative simplification. Though included in the law, the potential for its impact on cost savings in the CBO scoring varies vastly from other studies as noted. Our view: Administrative simplification is an opportunity for industry stakeholders and the government to advance a common sense solution where every stakeholder wins—simpler forms, lower costs for billing, credit and collection by doctors and hospitals, less paperwork, and so on. Compared to the complexity of comparative effectiveness, clinical integration, public options, insurance industry overhaul, etc., this one seems simple.
IRS requests comments about health plan executive compensation
Last week, the Internal Revenue Service (IRS) requested comments concerning the application of rules prohibiting insured group health plans from discriminating in favor of highly compensated individuals (Section 9014). Comments are due by November 4.
HHS publishes rule on waste, fraud and abuse
Last Monday, HHS published a proposed rule to prevent fraud, waste, and abuse in Medicare, Medicaid, and CHIP, as mandated through PPACA (Section 10606). The rule will:
- Establish the requirements for suspending payments to providers and suppliers based on credible allegations of fraud.
- Establish the authority for imposing a temporary moratorium on enrollment on providers and suppliers when necessary.
- Strengthen and build on current provider enrollment and screening procedures. Includes additional screening requirements for certain providers, such as unannounced site checks and criminal background checks.
- Outline requirements for states to terminate providers from Medicaid and CHIP when they have been terminated by Medicare or by another state Medicaid program or CHIP.
- Solicit input on how to best structure and develop provider compliance programs.
Claims appeal process revisited, grace period extended
Federal agencies will apply a grace period to comply with several of the internal claims appeals process requirements until July 1, 2011. During the grace period, the Department of Labor and the IRS will not take any enforcement action against a group health plan, and HHS against a self-funded non-governmental health plan, that is working to implement the new standards, but does not have them in place. The standards that the agencies will not immediately enforce include:
- The timeframe for making urgent care claims decisions
- Providing notices in a culturally and linguistically appropriate manner
- Requiring broader content and specificity in notices
GAO announces PCORI board members
GAO announced the appointment of 19 members to the Board of Governors for the new Patient-Centered Outcomes Research Institute (PCORI) per Section 6301 of PPACA. The Director of the Agency for Healthcare Research and Quality (AHRQ) and the Director of the NIH, or their designees, will also serve. The 19 appointees include representatives of medicine, nursing, drug companies and others as well as consumer representation per the required composition in the law. For a complete list and brief biography of the board members, visit: http://www.gao.gov/press/pcori2010sep23.html.
HHS seeks comments on quality improvement priorities
HHS welcomes comments and suggestions on all aspects of the proposed structure, principles, conceptualization, and specific details of the National Quality Strategy and Plan. Comments are due by October 15. The initial National Health Care Quality Strategy and Plan is due to Congress by January 1, 2011 (per Section 3011), and must include provisions for agency-specific plans and benchmarks, coordination among agencies, strategies to align public and private payers, and alignment with meaningful use of health information technology.
Insurers end child-only policies
With concerns of market instability and unprofitability, several insurers will no longer write child-only policies. Anthem will stop writing new policies this month, while Aetna will leave the market in 26 states and DC beginning October 1. CIGNA, Humana, and several Blue Cross Blue Shield (BCBS) plans have already stopped writing new policies. Child-only plans make up approximately ten percent of single-coverage individual plans sold.
Medicare Advantage premiums projected to decrease
Medicare Advantage premiums are projected to drop one percent in 2011 and increase enrollment by five percent. The drop was attributed to tougher negotiations with insurers by White House officials per news reports.
NJ to establish medical home demo
A recently enacted New Jersey law directs the state’s Medicaid program to establish a three-year medical home demonstration program. New Jersey Medicaid will restructure its payment system to support primary care providers that support care coordination through multi-disciplinary teams. The new payment system will also reward quality and improved patient outcomes.
“We offer a plan to repeal and replace the government takeover of health care with common sense solutions focused on lowering costs and protecting American jobs. We will enact real medical liability reform; allow Americans to purchase health coverage across state lines; empower small businesses with greater purchasing power; and create new incentives to save for future health needs. We will protect the doctor-patient relationship, and ensure that those with pre-existing conditions gain access to the coverage they need…The American people wanted one thing out of health reform: lower costs… We have a plan to do just that… We will fight efforts to fund the costly new health care law.”
–Source: Republican House of Representatives, “A Pledge to America”, Thursday, September 23, 2010 (www.Pledge.GOP.gov)
“Our biggest challenge is really getting through some of the misinformation and getting people to focus on how this law really impacts them and their families. It’s much easier to do a sound bite about negative, erroneous information than to answer a question about someone’s health condition and how he or she might be benefited by the act. It doesn’t lend itself quickly to sound bites.”
–Source: HHS Secretary Kathleen Sebelius, Politico, September 21, 2010
- Medical care consumer price index (CPI) dropped 0.1 percent in July 2010, but increased 0.2 percent in August for both medical care commodities and services (Source: U.S. Bureau of Commerce)
- HealthCare.gov website launched July 1—1.5 million hits to date (Source: HHS)
- Employers' premiums for family coverage increased by three percent in 2010 (Source: Kaiser Family Foundation 2010 Employer Health Benefits Survey)
- Performance-based payments to physicians widespread: Used by 63 percent of hospitals for employed physicians, 92 percent group practices with members (Source: Hay Group Physician Compensation Survey)
- Physician employment by hospitals: Over the next 12 to 36 months, 74 percent of hospital leaders plan to employ a greater number of physicians (Source: HealthLeaders Intelligence Report, Physician Alignment in an Era of Change, September 22, 2010)
- Study: The insurance premium tax credit in PPACA (Section 1401) will benefit 28.6 million Americans in purchasing health insurance; the value of the credit is estimated at $110.1 billion during the first year, 2014. Two-thirds (65.6 percent) of those getting credit will be individuals under 200 percent of the federal poverty level ($44,100 for a family of four in 2010). 95 percent are employed full time; half work for small businesses with fewer than 100 employees. (Source: Lower Taxes, Lower Premiums: The New Health Insurance Tax Credit, Families USA September, 2010). Note: The tax credits are based on a sliding scale based on annual income; the dollars from the credit go directly to the health plan into which they enroll.
- Uninsured 2010: 51 million people in the United States had no insurance in 2009, up from 46 million in 2008 (Source U.S. Census Bureau, September 20, 2010)
- More than one in three diabetes patients skip doses or fail to take their insulin as prescribed (Source: Global Attitudes of Patients and Physicians in Insulin Therapy (GAPPTM), Novo Nordisk). The global survey was conducted in eight countries and had almost 3,000 respondents.
National health reform: What now?
National health reform is here. The health reform bills (HR3590 and HR4872) are now law and will trigger sweeping changes and disruptions – some rather quickly and some over many years. The industry is asking, “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 www.deloitte.com/us/healthreform/whatnow today.
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