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Health Care Reform Memo: January 3, 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 seven C's to watch in 2012

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

My favorite read over the holiday break was Jim Collins’ Great by Choice: Uncertainty, Chaos, and Luck—Why Some Thrive Despite Them All based on his assessment of seven companies culled from a dataset of 20,400 companies that achieved extraordinary success from 1972 – 2002. The bottom line: successful organizations do not thrive on chaos; they thrive IN chaos because they are nimble, adaptive, objective, and well led. Chaos is an apt description for health care in 2012. The Seven C’s to watch in the next 12 months:

  1. Campaigns: who will win? It’s election year! How the results play out for the White House, Congress and in the states will have major impact on health care. At every level, implementation of the Affordable Care Act (ACA) will be a central theme:
      Current Composition Race in 2012 As it relates to ACA, watch for
    White House
    • President Obama (D)
    7 Republican contenders, others Efforts to repeal, modify, and curtail funding for ACA
    U.S. Senate
    • 51 Democrats
    • 47 Republicans
    • 2 Independents

    Note: both Independents caucus with the Democrats

    33 open seats (23 held by Democrat incumbents, 10 held by Republican incumbents) Filibuster proof total of 60 by either party would shape debate; majority party determines committee appointments and legislative agenda
    U.S. House of Representatives
    • 195 Democrats
    • 242 Republicans (one open seat)
    435 seats

    Majority party control in House defines committee appointments and legislative agenda

    Note: The House passed a bill to repeal ACA 245-189 last winter.

    Gubernatorial Race in States
    • 20 Democrats
    • 29 Republicans
    • 1 Independent
    11 races Implementation of health exchanges; Medicaid and CHIP enrollment, state fiscal strength, regarding: pension obligations, discretionary spending
  2. Clarity: what’s the answer? My top five in 2012 are:

    Supreme Court decisions about ACA: four issues to be argued in March and decisions expected to be announced by June: individual mandate, Anti-Injunction Act applicability, lawfulness of federal requirement to cover all individuals under Medicaid at 133 percent of the federal poverty level (FPL), and severability of the entire law.

    Health exchanges: will states implement exchanges in lieu of having the federal government implement them on their behalf? And will the states have the infrastructure, funding and operational skill set to manage the insurance industry as a stepped up level per the ACA (i.e. as it relates to premium oversight? Essential health benefits?) And is a consumer operated and oriented plan (CO-OP) in the cards for a few states?

    Pay for delay: the Federal Trade Commission (FTC) will likely wade through the Paragraph IV issues of the Hatch Waxman Act and develop a framework for allowing generic manufacturers access to markets that are competitive without infringing on the intellectual property rights of branded manufacturers while continuing to void “pay for delay” arrangements between pharma and generic manufacturers.

    Sustainable Growth Rate (SGR): the SGR made sense in 1997 when introduced as part of the Balanced Budget Amendment. But does cutting fees to doctors to offset overall spending make sense (especially when physicians increase volume to offset unit cost increases)? And is the overall GDP the right baseline to which global physician budgets should be calibrated? The fact is: Congress has set aside the SGR 16 times in favor of avoiding scheduled cuts including six patches in the last 12 months. This year, a permanent fix tied to medical inflation and demand rather than the overall GDP is likely with implementation delayed until after 2013. All acknowledge the formula is archaic; no one wants to add $300 billion to the deficit to fix it.

    Sequester budget for 2013: per the Budget Control Act of 2011, the Medicare budget in 2013 will be cut 2 percent ($10.8 billion). The real story in the sequester is not health care: it’s defense. Since 2008, defense spending increased 10 percent while Medicare increased 37 percent, education spending increased 70 percent, and food stamps increased 100 percent. At 4 percent of GDP levels, some regard the nation’s security at risk if additional cuts to defense are made.

    And if I added five more: clarity about the U.S. Food and Drug Administration’s (FDA) response to the Institute of Medicine’s (IOM) recommendation (July 2011) that 510(k) approvals be thrown out; clarity about the intersection of the Patient Centered Outcome Research Institute’s (PCORI) role in advancing comparative effectiveness research; clarity on the specifics of essential health benefits given the IOM’s recommendation (October 2011) that they follow a small employer (silver) model; clarity about what might replace the Community Living Assistance Services and Supports (CLASS) Act given its deletion from ACA; and clarity around the private-inurement and self-referral protections in accountable care organizations (and increasingly integrated delivery systems. I could go on!

  3. Compliance: play or pay? Every stakeholder in the U.S. health system is obligated to make changes in their operating models in compliance with ACA and related mandates or suffer consequences. Plans must determine how they’ll play as qualified health plans in exchanges; modify their business office operations to utilize ICD-10 for coding; deal with a myriad of requirements involving essential health benefits, coverage, etc.; and operate Part C plans within major cuts from Medicare. Health systems must adapt to lower payments from Medicare, higher costs from suppliers, physician alignment, bundled payments and increased penalties for safety and quality gaps. And life science companies—bio, pharma, device—must wade through the minefield between payers and providers to avoid being caught in the cross fire. And all of these groups face new excise taxes or reimbursement cuts on the promise that large numbers of previously uninsured will be insured, maybe in 2014 or later.

  4. Compression: where’s the money? Operating margins for smaller health plans, acute and long-term care providers (especially home care and skilled nursing care facilitates), academic medicine, safety net hospitals, primary care providers, and Medicare Advantage Plans (Part C) will be lower. Dependence on outside capital and diversification of service offerings will stretch management and test board resolve. Doing more with less is old hat. Radical cost reduction is table stakes. And scalability is key: organizations in all sectors must increase revenues significantly. Bigger is better.

  5. Coverage: who’s in, who’s not? According to America’s Health Insurance Plans (AHIP), employers face 7-17 percent increases in insurance premiums for 2012. Some will drop coverage altogether. Some will shrink benefits. Some will watch carefully the effectiveness of states in setting up health exchanges and calculate an exit IF and WHEN they deem it a competitive advantage. A major story in 2012 will be the staging of health benefits strategies by employers who are increasingly resentful of the system’s inability to control costs, improve health, eliminate paperwork, and manage patients seamlessly.

  6. Consolidation: who’s with me? The U.S. health industry is composed of a few big players in most sectors and also lots of smaller players. Margin pressures mean fewer players will survive; there will be winners and losers in every sector. Watch for physician-hospital integration; consolidation among commercial health plans; acquisition of physician organizations by plans; strategic combinations of pharmaceutical and bio-tech manufacturers; acquisitions of companion diagnostics by biotech and private equity-backed “disruptive innovators” who bring new solutions; and new channels and new value-propositions to employers and consumers. Some sectors will see their business models fundamentally change including: prescription benefit managers (PBMs), group purchasing organizations (GPOs), home health, and chronic care managers. Some will see huge demand at lower margins. And all will face the glare of increased regulatory oversight and purchaser demand for value.

  7. Consumerism: how do we define value? December 20, I had my second knee surgery in a decade and experienced the health care system as a consumer; nine days later I was in the hospital 300 miles from home—the result of a blood clot in the same leg. In the long term, Warfarin will be part of my daily regimen. In the short term, the experience deepened my belief that we have a long way to go in this system to make it consumer-friendly. Consider: the hospital lacked an inter-operative clinical information system that could access my medical history at home. The shift change during my eight hour emergency department experience was not seamless—they were slammed, staff pulled in too many directions. My instructions at discharge were inconsistent—the doctor, nurses, and pharmacist advised different paths; the pharmaceutical manufacturer inserts yet another; and the online sites I consulted provided no greater clarity. And beyond the $100 co-pay last Thursday when I was admitted, I am clueless as to the costs associated with the services I received. Seems to me we have a long way to go in this industry to make it consumer-friendly. I saw it firsthand last week. The intentions and efforts of my caregivers are noble: I do not challenge their integrity or competence. I simply wish the “system” could perform better. I suspect that would go a long way in enhancing its perceived value.

Paul Keckely

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

Implementation update

Highlights of ACA implementation

Major ACA 2011 implementation milestones, looking back:

Month Section Description
January 6001/ 1106 Prohibition on physician-owned hospitals: prohibits physician-owned hospitals that do not have a provider agreement prior to December 31, 2010, from participating in Medicare.
January 1001/ 10101

MLR rebate requirements effective: ACA’s medical loss ratio (MLR) requiring large group plans that spend less than 85% and small group and individual plans that spend less than 80% of premium revenue on clinical services and quality to pay rebates became effective. Plans will start paying rebates in 2012.

Note: December, the U.S. Department of Health and Human Services (HHS) published final regulations on MLR requirements.

January 9003 Changes to Health Savings Accounts, Flexible Spending Accounts, and Health Reimbursement Arrangements (HRAs): eliminated reimbursements for over-the counter medications from Health (HSAs), Flexible Spending Accounts (FSAs), and Health Reimbursement Arrangements (HRAs) starting in 2011.
January 4103/ 4104 Prohibits cost-sharing on Medicare preventive services: ACA Section 4104 eliminated copayments for preventive service recommended with a grade of A or B by the U.S. Preventive Services Task Force starting in 2011. Section 4103 provided full Medicare coverage for an annual wellness visit and personalized prevention plan services which include a comprehensive health risk assessment starting in 2011.
March 3011 National strategy on health care quality: HHS released a report to Congress outlining initial plans to implement the National Quality Strategy. The report was due January 1, 2011. Initial implementation of the strategy started in 2011. The strategy has six priorities: (1) Making care safer by reducing harm caused in the delivery of care; (2) Ensuring that each person and family is engaged as partners in their care; (3)Promoting effective communication and coordination of care; (4) Promoting the most effective prevention and treatment practices for the leading causes of mortality, starting with cardiovascular disease; (5) Working with communities to promote wide use of best practices to enable healthy living; (6) Making quality care more affordable for individuals, families, employers, and governments by developing and spreading new health care delivery models.
April 9006 Repeal expanded 1099 reporting requirements: the President signed into law bipartisan legislation repealing Section 9006 which would have required businesses to send 1099 forms for all purchases of goods and services over $600 annually.
May 6301 Executive director appointed to PCORI: Joe Selby, M.D., M.P.H., was appointed the first executive director of PCORI. Selby is a family physician, clinical epidemiologist and health services researcher who joined from Kaiser Permanente, Northern California, as director of the Division of Research.
May 3001 Hospital value-based purchasing regulations: Center for Medicare & Medicaid Services (CMS) released final regulations on the hospital value-based (VBP) incentive program; incentive payments will be for hospital discharges starting October 1, 2012. Payments will be funded by reducing base operating diagnostic-related group (DRG) payments for each discharge by 1% in Fiscal Year (FY) 2013, increasing to 2% by FY 2017. For FY 2013 CMS adopted 13 measures from the Hospital Inpatient Quality Reporting (IQR) Program to capture clinical process of care (12 measures) and the patient experience (1 measure).
July 1311

Health insurance exchange regulations: HHS released proposed regulations on health insurance exchanges (HIX) which are entities intended to provide an organized health insurance marketplace for individuals and small employers to purchase affordable health insurance coverage. States must have HIXs operational by 2014; states that choose not to establish exchanges will have their exchanges operated by the federal government.

Note: August 12, 2011, 13 states and D.C. were awarded over $185 million dollars in Exchange Establishment grants. Three states, Indiana, Rhode Island and Washington, were awarded grants on May 23, 2011. February 16, HHS announced that Kansas, Maryland, New York, Oklahoma, Oregon, Wisconsin, and a multi-state consortium led by the University of Massachusetts Medical School will receive approximately $241 million total in Early Innovator grants.

August 9008/ 1404 Annual fees for pharmaceutical manufacturers: the U.S. Internal Revenue Service (IRS) released temporary regulations which created annual fees payable starting in 2011 for certain manufacturers and importers of brand-name pharmaceuticals. November 4, 2011, the IRS issued guidance for the 2012 fee year. Fees are: 2011: $2.5 billion; 2012 and 2013: $2.8 billion; 2014 – 2016: $3 billion; 2017: $4 billion; 2018: $4.1 billion; 2019 and thereafter: $2.8 billion.
August 3021

Medicaid bundled payment initiative: the Center for Medicare and Medicaid Innovation (Innovation Center) started accepting applications for the Medicaid bundled payment initiative. The initiative allows providers to select from four models: (Models 1 – 3 involve a retrospective bundled payment arrangement) and Model 4 would pay providers prospectively. Final applications for Model 1 were due November 18, 2011 and for Models 2-4 are March 15, 2012.

Note: this program is separate from ACA Section 3023 which requires HHS to establish National Pilot Program on Payment Bundling by January 1, 2013 for Medicare providers.

October 8002 Halting CLASS implementation: HHS recommended halting implementation of the CLASS program—a voluntary self-funded public insurance program for long-term care services. HHS Secretary Kathleen Sebelius stated “I do not see a path to move forward with CLASS at this time” and that “the current market does not offer viable options for those unable to access private long-term care”. The recommendations align with a report from HHS’s Assistant Secretary for Planning and Evaluation (ASPE) which concluded that individuals would most likely not be able to recoup their paid premiums.
October 3022/ 3021

ACO regulations and initiatives: CMS released final regulations for the Medicare Shared Savings program which allows health care providers to share risk to improve outcomes, enhance patient experience and satisfaction, reduce costs, and reduce errors. The program includes 33 measures to capture: (1) patient and care giver experience, (2) care coordination and patient safety, (4) preventive health, and (5) at-risk populations.

CMS’s Innovation Center established two other Medicare Accountable Care Organization (ACO) initiatives: The Pioneer ACO model targeted towards large organizations with experience in shared savings programs and the Advanced Payment ACO Model which allows organizations participating in the Shared Savings Program to receive an advance on the shared savings they are expected to earn.

Note: December 19, CMS announced that 32 organizations will participate in the Pioneer ACO program targeted towards large organizations with experience in shared savings programs.

December 7001-7003

Pathway to approve biosimilars: ACA includes the Biologics Price Competition and Innovation Act of 2009 (BPCI Act) which creates an abbreviated FDA approval pathway for biosimilar products. December, FDA published and solicited recommendations for the user fee program for biosimilar biological products for FYs 2013 – 2017.

Recommendations included four fees: Biosimilar Product Development Fees (BPD), the marketing application fee, the establishment fee, and the product fee. Per the recommendations, under the program the FDA would be required to have available and allocate at least $20 million, adjusted for inflation, in non-user fee money for biosimilars review activities. The FDA is to revise the recommendations as needed send them to Congress by January 15, 2012.

December 1102 CMS halts payments for claims for Early Retiree Reinsurance Program: HHS announced that it will deny payments for claims for the Early Retiree Reinsurance Program (ERRP) incurred after December 31, 2011, based on the projected amount of remaining funding. CMS may announce approval of reimbursement request for claims occurred after December 31, 2011, if circumstances related to the availability of ERRP funding change.
December 1302 Essential health benefits bulletin: HHS issued an informational bulletin to provide guidance to states in defining “essential health benefits” (EHB) for evaluating health plan compliance with ACA. Per ACA Section 1302 all health insurance plans must provide coverage for “essential health benefits” in ten categories: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services (including behavioral health treatment), prescription drugs, rehabilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, pediatric services (including oral and vision care). Noticeably, the bulletin was not a rule nor a typical guidance document; HHS is accepting public comments on the bulletin by January 31, 2012.

What to watch in 2012:

Month Section Description
January 1102 MA benchmarks: reduces Medicare Advantage (MA) benchmarks relative to current levels. Benchmarks will vary from 95% of Medicare spending in high-cost areas to 115% of Medicare spending in low-cost areas, with benchmarks increased by five percentage points in all areas for high-quality plans, starting January 1.
March 1001 Summary of benefits and coverage: requires group health plans, employers, and health insurers to provide a uniform summary of benefits and coverage explanation prior to enrollment or re-enrollment by March 23.
March 1506/ 10106; 2001

U.S. Supreme Court hears arguments on ACA to include:

  • March 26: whether Anti-Injunction Act (AIA) bars individuals from suing over ACA’s minimum coverage provision. Under the AIA, a taxpayer may not challenge a tax before personal liability is determined by the IRS.
  • March 27: whether the individual mandate per ACA Section 1501/10106 (which requires individuals to have essential health insurance coverage starting January 1, 2014) is Constitutional under the Commerce Clause.
  • March 28: whether the law is severable from the individual mandate and whether the Medicaid coverage expansion per ACA Section 2001 is “unconstitutionally coercive.”
April 3022 ACOs become operational under the Shared Savings Program: first set of ACOs become operational under the Medicare Shared Savings Program on April 1. ACOs can also opt for a July 1, 2012 start date. All ACOs that start in 2012 will have agreement periods ending at the end of 2015.
June NA Supreme Court ruling on ACA expected.
July 2702 Medicaid payments prohibited for provider-preventable conditions: Medicaid will no longer pay providers for preventable conditions. This provision was effective July 1, 2011, but CMS will delay enforcement until July 1, 2012.
August 1001 MLR rebates: plans that do not meet MLR requirements will have to pay consumers rebates by August 1 each year.
October 3001 Hospital VBP program effective: Medicare will start tying Medicare payments for inpatient hospitals to performance on quality measures for hospital discharges on or after October 1, 2012 (FY 2013).
October 3025 Medicare reduces payments for hospital readmissions: CMS will reduce Medicare payments for inpatient hospitals for preventable hospital readmissions starting October 1, 2012. CMS plans to release requirements in the future regulations.

Note: ACA creates other programs and initiatives effective in 2012, but HHS has not released any guidance or regulations on implementing them, therefore we do not know exactly when in 2012 they will be implemented. Programs include: the Pediatric ACO demonstration (Section 2706), the Medicaid hospital and physician state payment demonstration in up to eight states (Section 2704), and the Innovation Center’s Medicaid bundled payment initiative (not under the law, but created under the Innovation Center’s mandate per Section 3021).

Attached to this week’s Monday Memo is a timeline of key health reform provisions taking effect from 2010 – 2018.

AHRQ studies how to engage consumers in comparative effectiveness research

The Agency for Health Care Research and Quality (AHRQ) is spending $4.6 million over two years to as part of the Community Forum Project to gauge how to optimize the value of comparative effectiveness research to consumers. The AHRQ studies will assess five methods of consumer engagement per its announcement last week.

Pioneer ACO grants announced

December 19, HHS notified 32 provider organizations that they are recipients of Pioneer ACO awards selected from 80 applicants. Criteria for inclusion were demonstrated capability and infrastructure for clinical integration and risk-based contracting with payers and intent to leverage the Pioneer ACO model to commercial payers in their markets. The Pioneer ACO program will be overseen by the Innovation Center in HHS which estimates its savings could be up to $1.1 billion over five years based on management of 860,000 Medicare beneficiaries (up from earlier HHS estimates of $430 million over three years).

Note: a major thrust for the Pioneer ACO oversight in HHS will be expanded use with other local payers: successful awardees ensured that up to half of their income will come from similar private-payer models. Also, the 32 successful applicants were from 20 states with five in Massachusetts, four in California, and three in Michigan. 23 of the 32 are closely affiliated with a sponsoring acute health system, independent physician organizations.

Independence at home guidelines released

December 19, 2011, HHS released guidelines on the Independence at Home demonstration, an ACA program that encourages home care for expensive Medicare beneficiaries with multiple chronic conditions. HHS is seeking applicants that provide services to at least 200 qualifying beneficiaries during each demonstration year. The program was supposed to launch January 1, 2012, but HHS is taking applications for 45 days.

Early Retiree Reinsurance Program ends

Per ACA Section 1102, the Early Retiree Reinsurance Program (ERRP) was established to give employers an incentive to maintain insurance coverage for retirees between the ages of 55 and 65. It has paid out $4.5 billion of its $5 billion appropriated. The last day to submit claims for any of the remaining funds was December 31, 2011.

Legislative update

Two month SGR fix included in pay roll tax legislation

December 23, the President signed payroll tax cut legislation (H.R. 3765) that also cancels for two months a scheduled 27.4 percent Medicare reimbursement cut for physicians. The bill keeps the employee payroll tax at 4.2 percent and also extends unemployment insurance benefits and the physician payment provision.

Military health IT funding approved but requires alignment with overall health IT standards

In the passage of the multi-agency omnibus appropriation bill passed last Saturday, Congress funded the $1.4 billion Military Health System's information technology (IT) plan but restricted outlays to its next-generation electronic health record system (EHR Way Ahead). MHS is allowed to spend only 10 percent of funds until the secretary reports to Congress that MHS has developed an architecture that is cost-effective and interoperable. In addition, the secretary's report must define the role of the Department of Defense (DOD) and Department of Veterans Affairs’ (VA) Interagency Program Office in developing a joint EHR the two departments agreed on this May. The omnibus appropriations act also included $3.1 billion information technology budget for the Veterans Affairs Department in 2012, $50 million below the amount VA requested in January.

Physician performance data from federal government restricted

HHS imposed new rules this fall restricting how researchers and reporters can use anonymous information the government keeps in the database where Practitioner No. 222117 (infamous doctor whose medical license has been revoked in 20 states)  resides—along with more than 196,000 other doctors with malpractice or discipline issues. Before anyone can download the data from an HHS website, they now must agree not to combine it with any other information that would let them to zero in on a doctor’s identity.

PolitiFact: health care ‘lie of the year’ designation third year in a row

For the third consecutive year, a health care claim has won the PolitiFact designation as “lie of the year”. In 2009, the winner was the GOP charge that the Democrats' health care plan included "death panels." In 2010, it was that the GOP claim that the ACA was a "government takeover of health care” In 2011, PolitiFact chose the Democratic claim about GOP efforts to "end Medicare" as we know it when referencing the possibility of private options starting in 2022 for enrollees not interested in continuing with the federal program.

House Doctors Caucus requests two year SGR fix

Wednesday December 21, 19 of the 21 member House Republican Doctors Caucus sent a letter to Congressional leaders requesting a two-year Sustainable Growth Rate patch.

Note: the Doctors Caucus includes members of the GOP House who are physicians, dentists, psychologists and allied health professionals. It is chaired by Representative Phil Gingrey, M.D. (R-TN) and Representative Tim Murphey, Ph.D., (R-PA).

Data center consolidation announced

Tuesday, December 20, the White House announced plans to consolidate at least 1200 of the 3,100 federal data centers by 2015, per its federal Chief Information Officer Steven VanRoekel. The reduction is anticipated to save $5 billion overall through the consolidation.

ONC announced online resource to track EHR adoption, implementation

Wednesday, December 21, the Office of the National Coordinator for Health IT (ONC) announced plans to create an online dashboard to monitor the adoption of EHRs through its grants to states and provider organizations ONC will provide data about the comparative performance of 62 regional health IT extension centers as well as data about adoption by hospitals, physicians and other grantees. ONC will also make publicly available de-identified data from the records, such as health IT adoption estimates at the state and national level. The database effort will target office-based providers who are participating in the EHR incentive payment programs, regardless of whether they are receiving implementation assistance through a regional extension center.

Home care workers’ compensation focus of White House legislative effort

Last month, the White House announced support for legislation to provide minimum wage and overtime pay protections for the 2 million home are workers eliminating a 37 year old exemption to the Fair Labor Standards Act. Home care workers earn $8.50-$12/hr compared to the minimum wage of $7.25/hr; 92 percent are female—30 percent African American, 12 percent Hispanic. 40 percent of these workers rely on Medicaid ad food stamps. Note: 22 states do not include home care workers under wage and hour laws. Per CMS, 6 million Americans require home care increasing to 12 million by 2030. The provision would increase federal outlays for the program (Medicare-Medicaid combined) by $169 million/yr—an increase of 0.06 percent to 0.29 percent of total federal outlays for home care.

State update

States initiate chronic care coordination efforts, connecting public health and local providers

Tuesday, December 20, the National Governors Association (NGA) announced that Colorado, Minnesota, Oregon, and Pennsylvania were selected to participate in a new learning collaborative on integrating chronic disease prevention services.

State public health officials will create community networks of public health agencies and local providers to promote physical activity and better nutrition, smoking cessation, screenings for cancer and diabetes and blood pressure and asthma control. Each state is incentivized to find alternative funding mechanisms to sustain these programs post-implementation.

Note: per NGA, chronic disease is a major contributor to rising health care costs accounting for 84 percent of health care spending. A recent study of 242,417 patients followed in 8 commercial disease management programs as part of the Medicare Health Support Pilot Program (2003) concluded “commercial disease management programs using nurse-based call centers achieved only modest improvements in quality of care measures, with no demonstrable reduction in the utilization of acute care or costs of care”. (McCall et al “Results of the Medicare Health Support Disease Management Pilot Program” New England Journal of Medicine 365:18 (November 3, 2011 p. 1704).

CHIP enrollment bonuses awarded

Wednesday, December 28, HHS announced awards of $296 million in performance bonus payments to 23 states for enrolling eligible children in health coverage. Since its reauthorization in 2009, CHIP program enrollment has increased 1.2 million. The 23 states include Alabama, Alaska, Colorado, Connecticut, Georgia, Idaho, Illinois, Iowa, Kansas, Louisiana, Maryland, Michigan, Montana, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oregon, South Carolina, Virginia, Washington, and Wisconsin.

Massachusetts waiver

December 19, CMS approved Massachusetts’ 1115 Medicaid waiver through June 30, 2014 including an additional $5.7 billion to restructure its Safety Net Care Pool. In an unrelated announcement, the Patrick Administration announced it is considering changes to a 2009 law that prohibits pharmaceutical companies and medical device manufacturers from providing “entertainment or recreational items of any value,” such as sports tickets; cash payments; “complimentary items” such as pens, mugs or gift cards; grants and scholarships in exchange for a promise to prescribe certain drugs or use certain devices; or any other prohibited “kickback.” Drug and device companies may only provide meals to doctors inside the hospitals or offices where they work and requires companies to annually disclose “any fee, payment, subsidy or other economic benefit with a value of at least $50” provided to doctors, hospitals, nursing home workers, insurers or other “health care practitioners.”

Industry news

FDA issues guidance on off label drug and device use, responds to consumer demand

Tuesday, December 27, the FDA issued draft guidelines that permit drug and device manufacturers to provide information on off-label uses if the request from a provider or consumer is unsolicited (i.e. not initiated in any form by the drug or device maker or distributor itself).

Per the FDA, off-label uses or treatment regimens "may be important therapeutic options and may even constitute a medically recognized standard of care." The draft guidance was issued due to increased consumer demand for information about treatment options in "a truthful, non-misleading, and accurate manner."

The agency issued recommendations to manufacturers:

  • Response information should be limited to the requestor and treated as private, one-on-one communication. Information should be limited to the scope of the initial question.
  • Information should be "truthful, non-misleading, accurate, and balanced."
  • Information should be scientific in nature.
  • Information should be generated "by medical or scientific personnel independent from sales or marketing departments."
  • Information should be accompanied by several documents, including a statement notifying the recipient that FDA has not approved the product for the specific off-label use.
  • The responding firm should maintain required records, including any follow-up questions from the requestor.
  • A firm should respond only to a request about its own named product and is not solely about a competitor's product.
  • The firm's response "should be limited to providing [its] contact information and should not include any off-label information."
  • Those responding on behalf of the firm should clearly disclose their specific involvement with that firm.
  • Responses "should not be promotional in nature or tone."

Manufacturers and interested parties have 90 days to comment to the FDA on this guidance.

Health plans digesting MLR final rules

December 7, HHS published its final rules about how the MLR requirement of ACA (1001) is to be calculated with respect to mini-med plans, costs of coverage for offshore (ex-pats) and broker commissions. Note: administrative costs are required to be no more than 15 percent of premium revenue in the group insurance market and 20 percent in the individual and small group market. Notably, the final rule:

  • Phased out the multiplier used to calculate mini-med medical costs (2x actual medical costs) over 3 years but keeps in place the multiplier (2.0) for ex-pat coverage. (Note: administrative costs for covering employees offshore are higher)
  • Revised how rebates may be issued in the group market i.e. plan sponsors must notify enrollees of rebates if the MLR threshold is not achieved and use proceeds directly to benefit enrollees (allows rebate to be sent to plan sponsor instead of each enrollee).
  • Allows certain ICD-10 implementation costs to be included as a clinical expense in 2012 and 2013 capping the medical cost component at 0.3 percent of the plan’s earned premiums.
  • Disallows agent and broker compensation and fraud prevention activities to be excluded from administrative costs despite opposition from the National Association of Insurance Commissioners (NAIC).

Per ACA Section 1304, a small group employer is defined as 1-100 employees and large group more than 100 employees. States may continue to classify an employer with up to 50 employees as a small employer until 2016.

False Claims Act ineffective in stemming off label marketing activity: study

The False Claims Act does not effectively limit off-label marketing by drug manufacturers per a Harvard study. The U.S. Department of Justice (DOJ) has stepped up efforts to limit off-label marketing of drugs under new programs like BadAds launched in May 2011 that has collected 328 reports from providers and consumers about possible violations. (Source: Kesselheim, "False Claims Act Prosecution Did Not Deter Off-Label Drug Use in the Case of Neurontin,” Health Affairs).

AHA requests simplification of conditions of participation

Thursday, December 16, the American Hospital Association (AHA) submitted a letter to CMS urging it to consider additional revisions to its proposed Medicare and Medicaid Conditions of Participation released in October, including eliminating the need for every hospital in a system to have its own governing body, revising language to make clear that multi-hospital systems may have a single medical staff, and expanding the types of practitioners who may oversee medical staff to include doctors of podiatry.


“This study grabbed us because of our own persistent angst and gnawing sense of vulnerability in a world that feels increasingly disordered. Yet some companies and leaders navigate this type of world exceptionally well. They don’t merely react; they create. They don’t merely survive; they prevail. They don’t merely succeed; they thrive. They build great enterprises that can endure. We do not believe that chaos, uncertainty, and instability are good; companies, leaders, organizations, and societies do not thrive on chaos. But they can thrive in chaos.”

 —Jim Collins, Great by Choice: Uncertainty, Chaos, and Luck—Why Some Thrive Despite them All

“In most companies, the hierarchy is neither natural nor dynamic. Leaders don’t emerge from below; they are appointed from above. Maddeningly, key jobs often go to the most politically astute rather than the most competent. Further, because power is vested in positions, it doesn’t automatically flow from those who are less capable to those who are more so. All too often, managers don’t lose their power until they’re fired. Until then, they keep mucking things up.”

 —Gary Hamil, “The Big Idea: First, Let’s Fire all the Managers,” Harvard Business Review, December 2011

“The shift away from employer-provided health insurance will be vastly greater than expected and will make sense for many companies and lower income workers alike. Overall, 30 percent of employers will definitely or probably stop offering ESI in the years after 2014.”

 —Singhai et al, “How U.S. Health Care Reform will Affect Employee Benefits,” McKinsey Quarterly 2011

“The Pioneer ACO Model was designed specifically for organizations with experience offering coordinated, patient-centered care, and operating in ACO-like arrangements. The selected organizations were chosen for their significant experience offering this type of quality care to their patients, along with other criteria listed in the Request for Applications (RFA) document available at” 

— December 19, 2011 Pioneer ACO Award Notification from HHS

“The challenge or the opportunity we have is that never before has the science and our knowledge been riper for exploitation. For most of our industry’s existence—since the Civil War, it was akin to feeling your way around a dark room and trying to make sense of what’s what. Suddenly the lights are on and we can see, aha: in a cell, this pathway and that pathway both contribute to, say, tumor formation. Not only is there ongoing revolution in genetics and systems biology, we increasingly have the tools to make use of this basic research and commercialize it.”

 — John Lechleiter, CEO, Eli Lilly, Wall Street Journal “The BioMedical Century,” November 20, 2011

Fact file

  • Federal fraud recoveries under the False Claims Act was $3 billion (most of it health care fraud) for the FY that ended Sept. 30, The vast majority of the funds were recovered under whistle-blower cases and those increased to 638, from fewer than 400 in much of the previous decade. Additionally about $400 million was recovered by states as part of these cases. (Source: Department of Justice, December 19, 2011)
  • Disability claims: Social Security Disability Insurance paid $124 billion in 2010, up from $55 billion in 2001. The backlog of pending appeals was 771, 318 (as of September 2011). Over 3.2 million people are trying to enter the Social Security Disability Program. (Source: Social Security Administration)
  • Impact of sequester: 7.8 percent cut to domestic programs, 10 percent cut to defense, 2 percent cut to Medicare with a net impact of $68 billion in 2013 (still an $83 billion increase in discretionary spending by 2021). Since 2008, the defense budget has increased by 10 percent, Medicare increased by 37 percent, non- defense discretionary spending increased by 24 percent, education increased by 70 percent, and food stamps increased by 100 percent. (Source: Congressional Budget Office)
  • 1999-2009: 43 percent increase in emergency room visits, 27 percent decrease in number of emergency doctors in hospitals. 13-27 percent can be seen in alternative settings, and there currently 1,341 retail clinics in the U.S. (Source: RAND, Merchant Medicine)
  • Global R&D spending will increase 5.2 percent in 2012 to $1.4 trillion: +2.1 percent to $436 billion in U.S., +3.5 percent to $338 billion in EU, +8.6 percent in Asia to $514 billion. The U.S. share of total R&D spending will decrease from 33 percent to 31 percent (2010-2012). (Source: Battelle Memorial Institute)
  • 21 percent Americans is in a family that had problems paying medical bills in 2010, up from 15.1 percent in 2003. (Source: Center for Studying Health System Change)
  • Life expectancy and aging: in the 27 nation European Union, the numbers of working age adults (18-64) will drop from 305 million in 2010 to 285 million in 2030 while the number of 65+ will increase from 87 million to 142 million in same period. In the 34 nation Organization of Economic and Community Development (OECD), by 2050 the average retirement age will reach 65, but life expectancy will increase 3 years in the same period. (Source: OECD)
  • A 2010 survey of 1,651 intensive care unit (ICU) physicians and nurses in 82 European and Israeli ICU units found clinicians they believe they provide inappropriate care for 27 percent of patients: most (89 percent) of these instances involve providing too much care that’s not helpful to patient outcomes "Perceived inappropriateness of care was less common in ICUs in which physicians and nurses had a degree of job autonomy, an acceptable workload, and a high level of interdisciplinary collaboration and decision making.” (Source: Piers et al, JAMA, December 28, 2011, 306:2694-2703, 2725-2726)
National health reform: What now?




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 today.

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