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Health Care Reform Memo: March 28, 2011

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 

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

Last Wednesday in DC, I jogged past the Newseum’s daily display of the front pages of American newspapers. Only one of the 47 on display, the Nashville Tennessean, carried a headline about the one year anniversary of the passage of the Patient Protection and Affordable Care Act (PPACA). The uprising in Libya, Japan’s turmoil, and Elizabeth Taylor’s passing dominated most; an occasional state or local headline was the rare exception.

Since the January 8 shooting of Gabby Giffords (D-AZ) in Tucson, the news has been dominated by regime changes and civil discord in the Middle East, the natural disaster in Japan, and government spending in the U.S. Perhaps it’s understandable that health reform isn’t a front page item anymore, but regrettably so for me.

Polls suggest the country is divided about PPACA. The majority of Americans like certain elements—elimination of pre-existing conditions and promises of lower insurance premiums at the top of the list along with increased transparency and performance-based payments to providers—and they believe health costs must come down while those lacking insurance are served. However, they are split on how to implement changes, and the debate leading to PPACA’s passage a year ago does not seem to have provided a path to resolving major differences that seem intractable at this point.

Campaign 2012 is underway already: it complicates the public’s understanding about health reform, since it’s much easier to argue via sound bite than engage in informed discussion.

So on its anniversary, here’s my take:

  1. Health reform is necessary. It should be a national priority—to lower costs, increase access, and improve quality via payment and delivery system changes is necessary to economic recovery and social stability in the U.S. The status quo is flawed and not sustainable.
  2. PPACA is complicated and comprehensive, and it’s the law. I have read it carefully eight times. It includes key principles on which there is widespread agreement—payments should be based on value, not volume; providers should take risks for quality and cost effectiveness and results be accountable and transparent; and insurance should be more accessible to expand the risk pool. However, like every law, it is flawed—I would like more focus on personal accountability, quicker adoption of evidence as the standard for coverage, and incentives for industry-government collaboration to fix problems. But it is the law and serves as a framework for health system changes that can contribute to the economic recovery without compromising quality.
  3. The industry should lead. Many would say we are not inclined to “heal ourselves” harboring sector rivalries to garner favor among our respective constituencies. Partisan rancor in politics is rivaled in our industry where each sector is aggressive about pointing to the flaws of others. The public’s understanding of health reform and the path to a transformed system can’t be built unless sector partisanship is set aside via collaboration and shared risk.

I was disappointed that only one of those 47 newspapers noted the anniversary of PPACA, not because it’s a perfect law, but because it suggests health reform might not be newsworthy. I hope not. There’s too much at stake.

Paul Keckely

Paul Keckley, Ph.D.

Implementation update

HHS publishes the National Strategy for Quality Improvement in Health Care

Monday, the U.S. Department of Health and Human Services (HHS) released the National Strategy for Quality Improvement in Health Care (National Quality Strategy). PPACA Section 3011 requires the Secretary to “establish and update annually a national strategy to improve health care services delivery, patient health outcomes, and population health.” The six priorities in the report are:

  • Making care safer by reducing harm caused in the delivery of care.
  • Ensuring that care engages each person and family as partners.
  • Promoting effective communication and coordination of care.
  • Promoting the most effective prevention and treatment practices for the leading causes of mortality, starting with cardiovascular disease.
  • Working with communities to promote wide use of best practices to enable healthy living.
  • Making quality care more affordable for individuals, families, employers, and governments by developing and spreading new health care delivery models.

Update: Center for Medicare and Medicaid Innovation

The Centers for Medicare & Medicaid Services (CMS) re-launched the website for the Center for Medicare and Medicaid Innovation (Innovation Center), Per PPACA Section 3021, the website provides details about funding opportunities to research, develop, test, and expand innovative payment and delivery arrangements that improve the quality and cost effectiveness of the Medicaid, Medicare, and Children’s Health Insurance Program (CHIP).

CMS releases guidance on HRAs

Tuesday, the Centers for Disease Control and Prevention (CDC) provided guidance to CMS on health risk assessments (HRAs) included in the new annual wellness visit for Medicare beneficiaries. PPACA Section 4103 requires Medicare to cover, without cost to beneficiaries, an annual wellness visit that includes an HRA and a customized wellness or personal prevention plan starting in January 1, 2011. The CDC recommended that the HRA process be kept simple, straightforward, easily implementable, meaningful to practitioners and patients, and not burdensome.

IOM recommends standards for clinical practice guidelines and comparative effectiveness

Per Congressional request in the Medicare Improvement for Patients and Providers Act of 2008, the Institute of Medicine (IOM) released recommendations for standards to enhance the quality and reliability of clinical practice and comparative effectiveness. The IOM recommends eight standards to ensure the objectivity and transparency in guideline development to be overseen by the Agency for Healthcare Research and Quality (AHRQ) and 21 standards to ensure objectivity and comprehensive methodological rigor in reviews of clinical evidence about diagnostics and therapeutics.

Legislative update

Report: impact of small business tax credits for health insurance coverage

Tuesday, Democratic members of the House Small Business Committee released an analysis of the effects of the small business health insurance tax credit on employers’ health insurance costs and anticipated coverage. Using data from the 2010 Kaiser Health Benefit Survey, key findings were the following:

  • There are 6.7 million companies with 16.6 million workers eligible for the tax credit providing up to $40 billion in tax relief.
  • The tax credit will reduce the cost of health care coverage to 2003 levels.
  • Credits will reduce annual out-of-pocket costs for each employee’s health insurance costs by $3,500.
  • A firm with ten employees could decrease their cost of health insurance by $35,000 annually because of the credit.
  • There are 650,000 companies that began offering coverage in 2010 that were not offering coverage in 2009.
  • Between 2009 and 2010, coverage rates grew from 46 percent to 59 percent after the tax credit was made available.

“If a small business claimed the full credit in 2010, they saw their average health insurance premiums drop below that of 2003 premium levels. A firm would see the effective price go from $9,860 to $6,352—when accounting for the impact of the credit. The price of healthcare would essentially drop 35.6 percent between 2009 and 2010.”

Source: “Analysis of the Small Business Health Insurance Tax Credit and Effects on Coverage,” Committee on Small Business Democrats U.S. House of Representatives, March 22, 2011.

Note: Per PPACA Section 1421, the small business health insurance tax credit is up to 35 percent of a small business' premium costs in 2010 (25 percent for tax-exempt employers).On January 1, 2014, the tax credit increases to 50 percent (35 percent for tax-exempt employers). Eligibility for the full credit depends upon the annual average wage of employees. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate. A qualifying employer must have less than the equivalent of 25 full-time workers. For example, an employer with fewer than 50 half-time workers may be eligible. A qualifying employer must pay average annual wages below $50,000.

Funding for ERRP

Wednesday, the House Energy and Commerce Committee Republicans issued a memo citing Center for Consumer Information and Insurance Oversight (CCIIO) estimates that the $5 billion in funds for the Early Retiree Reinsurance Program (ERRP) will run out in 2012, two years earlier than anticipated. The majority of funding is expected to benefit government entities and organizations, based on trends in 2010 reimbursements.

Note: per Section 1102 of PPACA, ERRP provides reimbursement to assist participating employment-based plans with the cost of providing health benefits to eligible retirees. PPACA appropriates $5 billion to the program.

ONC Strategic Plan released

Friday, the Office of the National Coordinator for Health Information Technology (ONC) released the Federal Health IT Strategic Plan: 2011–2015. In addition to the Health Information Technology for Economic and Clinical Health (HITECH) Act initiatives for “meaningful use” of electronic health records (EHRs), new initiatives include:

  • Developing health information exchange (HIE) strategies that support HIE entities, health data and information exchanges.
  • Integrating health information technology (IT) into the annual National Health Care Quality Strategy and Plan required by PPACA.
  • Strengthening data protections to improve privacy and security of health information, including discussing investments in an education and outreach strategy to increase the provider community's and the public's understanding of electronic health information, how their information can be used, and their privacy and security rights under the Health Insurance Portability and Accountability Act’s (HIPAA’s) privacy and security rules.
  • Empowering individuals with access to electronic health information through tools that facilitate patient-centered care.
  • Developing a path for building a “learning health system” that can aggregate, analyze, and leverage health information to improve clinical knowledge transfer across populations.

Health plans

Blue Shield of California withdraws application for rate increases

Wednesday, Blue Shield of California withdrew its application to the state for rate increases for its individual products noting independent review justification due to increased medical costs. In its withdrawal, Blue Shield chairman, president, and Chief Executive Office (CEO) Bruce Bodaken noted the decision would cost Blue Shield of California $35-40 million in 2011, and “by agreeing not to raise rates this year, we are hoping to make coverage more affordable for our members during tough economic times.”

CMS launches database to monitor consumer feedback about health plans

Last week, CMS announced plans to develop a health insurance database to collect, track, and store information from consumers about the performance of health insurance plans. The database will help CMS identify potential concerns about compliance from health plans. HHS received 906 consumer inquiries as of February 15, 2011, and consumer inquiries continue to come at a rate of 30 to 35 inquiries per week. To date, the HHS Hotline receives, on average, 400 calls per month pertaining to PPACA.

Health exchange enrollment: Kaiser study

A Kaiser Family Foundation study released last week that analyzes the 24 million people (estimated by the CBO [Congressional Budget Office]) who will be enrolled in health exchanges by 2019. The Kaiser study identified the following characteristics for the 24 million people:

  • 16 million individuals who would otherwise be uninsured
  • 3.5 million individuals who would lose their employer-based insurance
  • 1.5 million individuals who previously had employment-based coverage but whose financial contribution for such coverage exceeds 9.5 percent of their total family income
  • 1 million individuals who would otherwise purchase non-group policies
  • 2 million adults above 138 percent of the federal poverty level (FPL) who lose their Medicaid coverage

The analysis, based on 2007 Medical Expenditure Survey (MEPS) data, concludes enrollees will be relatively older, less educated, lower income, and more racially diverse than privately-insured populations.

Source: “A Profile of Health Insurance Exchange Enrollee,” Kaiser Family Foundation, March 2011.


ACO: investment analysis

Because the intent of health reform included lowering health costs in the Medicare program, Section 3022 of PPACA requires the Secretary of HHS to establish the Medicare Shared Savings Program by January 1, 2012 via accountable care organizations (ACOs). The focus of ACOs is identical to an earlier CMS program, the Physician Group Practice (PGP) Demonstration, which was implemented in 2005 and featured a bonus based on shared savings in lieu of fee for services payments.

In a recent investment analysis on ACOs, researchers examined data from the PGP Demonstration from 2005 to 2010. The ten participating groups invested $1.7 million, on average, for infrastructure in the first year. The research team reported, “with a five-year time horizon and the mean investment per PGP provider [$737], the required margin to break even is 13 percent. However, the current Medicare Shared Savings Program anticipates a minimum performance period of only three years. According to our analysis of the data from the PGP Demonstration, an ACO making the mean initial investment of $1.7 million will require the unlikely margin of 20 percent for the three-year period envisioned by CMS.”

Source: “The ACO Model — A Three-Year Financial Loss?,” New England Journal of Medicine, March 23, 2011.

Note: in PPACA, ACOs are among several programs intended to shift payments by Medicare and Medicaid from volume to performance. Others include the medical home model, episode-based payments, value-based purchasing for hospitals, avoidable readmissions for hospitals, and the Physician Quality Reporting Initiative. The alignment of physician and hospital interests in these programs is a major result of PPACA. We believe commercial health plans are likely to adopt similar methods of payment thus accelerating the need for alignment around clinical and financial risk sharing arrangements.

CMS: provider fee for participation in Medicare, Medicaid, and CHIP set

Tuesday, CMS announced institutional providers and suppliers, excluding physicians and non-physician practitioners, must pay a $505 fee to enroll or re-enroll in Medicare, Medicaid, and CHIP for calendar year (CY) 2011, beginning March 25 through the end of the year. The money will be used for program integrity efforts including the screening of applicants for the program. The fee, required under PPACA, applies to any new institutions (nursing homes, hospitals, etc.) or those that are re-enrolling, re-validating, or adding a new practice location.

Stage 2 meaningful use deadline: policy committee update

Tuesday, the Meaningful Use Workgroup of the Health IT Policy Committee (a Federal Advisory Committee) met to discuss industry concerns about Stage 2 implementation. The ONC Director of Meaningful Use, Joshua Seidman, Ph.D., acknowledged that the proposed timeline does not allow sufficient time for development, testing, and release of new functionalities, distribution of upgrades, and training of users. Workgroup chair Paul Tang, M.D., suggested options for Stage 2 of continued 90-day progress reporting periods or alternately a delay of Stage 2 until a defined percentage of providers is achieved for Stage 1 meaningful use.

Note: the workgroup will meet several more times this spring with the goal of having the whole Health IT Policy Committee approve its Stage 2 recommendations in early June. Consideration that the deadlines for implementation of EHRs that achieve Stage 1 and Stage 2 might be postponed is not high. The Stage 1 and 2 deadlines will likely remain in place, with specific metrics that qualify for Stage 2 meaningful use still in development.

GAO report: including certain oral-only ESRD drugs in payment bundles for dialysis providers

Last week, the Government Accountability Office (GAO) reported to Congress recommendations about payment adequacy for certain oral drugs included in payment bundles for dialysis providers.

Note: Medicare purchases a bundle of dialysis-related services using a single payment for most individuals with end-stage renal disease (ESRD). In 2014, CMS plans to include oral-only ESRD drugs in this bundled payment program. Currently, Medicare generally pays for these drugs only if the individual has Medicare Part D drug coverage.

State watch

  • The National Conference of State Legislatures (NCSL) launched its online database to track the actions of state legislatures related to some of the major provisions PPACA. To date, more than 600 state legislative actions have been catalogued (see
  • Friday, Peter Budetti, director of the Center for Program Integrity at CMS, published a final rule about the implementation of Section 6402(h) regarding suspension of payments pending an investigation of a credible allegation of fraud in the Medicaid program. Whole or partial suspension of payments to Medicaid providers will be authorized per seven conditions covered in the memo. Source: “Affordable Care Act Program Integrity Provisions – Guidance to States – Section 6402(h)(2) – Suspension of Medicaid Payments Based Upon Pending Investigations of Credible Allegations of Fraud” CPI-B 11-0.
  • Last week, the Washington Health Technology Assessment Board, composed of 11 physicians, concluded that evidence is inadequate to support subcutaneous blood glucose monitoring for children and adolescent diabetics voting 10-1 against its use but 11-0 in favor of coverage for test strips instead. Created in 2006 to evaluate quality and costs for interventions for the state’s 750,000 enrollees in Medicaid, state employee health plan and prison populations, it has recommended against coverage for pediatric bariatric surgery, virtual colonoscopy, lumbar fusion back surgery, arthroscopic knee surgery, and spinal cord stimulation among others. Its decision saved the state $31 million in 2010.
  • Last week, Iowa insurance commissioner, Susan Voss, applied for a medical loss ratio (MLR) waiver, asking for a three-year transition period that would require insurers to meet an MLR of 60 percent in 2011, 70 percent in 2012, 75 percent in 2013, and 80 percent by 2014. Maine has already been approved for a MLR waiver; Florida, Georgia, Nevada, Kentucky, North Dakota, and New Hampshire have sought MLR waivers and are awaiting approval from CCIIO.
  • The Vermont House of Representatives passed a bill (92-49) that allows the state to establish a single-payer system in 2014. The bill still has to pass the Senate. Under PPACA Section 1332, states may apply for a waiver from specified PPACA requirements beginning in 2017 so long as they demonstrate that they will cover at least as many residents with coverage that is at least as comprehensive and affordable as prescribed under federal law.


“[On implementation of EHRs] For an average five-physician practice, implementation cost an estimated $162,000, with $85,500 in maintenance expenses during the first year. We estimate the implementation team and practice implementation team needed 611 hours on average to prepare for and implement the electronic health record system, and that end users—physicians, clinical staff, and non clinical staff—needed 134 hours per physician, on average, to prepare for use of the record system in clinical encounters.”

 – Fleming et al, “The Financial and Non Financial Costs of Implementing Electronic Health Records in Primary Care Practices,” Health Affairs, March 2011 30:3, p. 481-488.

“[On government role] The state has woefully lagged behind the private sector. Catching up is not just a case of nuts and bolts productivity improvements but of liberal principle: too often an institution that, at least in a democracy was supposed to be the people’s servant has become their master. But nobody should expect that to be easy. The vested interests opposing change are huge: the state’s growth has been encouraged by the right as well as the left, by favour seeking companies as well as public sector unions, by voters as well as bureaucrats.”

 – “Taming Leviathan,” The Economist, March 19, 2011.

“Randomized control trials are designed to find average results over large groups of people, but doctors do not treat averages. They care for individuals, and what works for the typical patient may not work for you or your diabetic child.”

 – “The Pro-Diabetes Board,” The Wall Street Journal, March 18, 2011.

Fact file

  • In 2009, the total U.S. health care expenditures were $2.83 trillion including $363 billion* in consumer expenditures not usually included in government reporting. Total discretionary costs for health care (direct and indirect) totaled $1,892 per capita in 2009. This consisted of $904.25 on NHEA items and $987.73 on items additional to the NHEA.
    *Note: the $363 billion is inclusive of estimates of Complementary and Alternative Medicine [CAM], the extent and composition of which is not well established. If certain categories of CAM are excluded, the figure is $358 billion. (Source: “The hidden costs of U.S. health care for consumers: A comprehensive analysis,” Deloitte Center for Health Solutions, March 2011)
  • Total Medicaid additional funding to states from federal government via stimulus law (American Recovery and Reinvestment Act of 2009 [ARRA]) and fiscal year (FY) 2010 annual appropriations: 2009: $32,760,865; through August 20, 2010: $42,251,679,459. (Source: CMS)
  • The percentage of people who rated their health as excellent or very good decreased from 66 percent in 2010 from 69 percent in 1997—a surprise to the CDC noting in the same period obesity increased from 19 percent to 28 percent and diabetes from five percent to eight percent. In a related Columbia University study of New York women released last week, 18 percent of obese women accurately described their weight while 76 percent said “overweight.” (Source: CDC, Columbia University Medical Center)
  • As of October 2010, there were 638,661 office-based physicians practice in the U.S. Total impact: the office-based physician industry supported $1.4 trillion in total economic activity and 4 million jobs. (Source: American Medical Association [AMA] Masterfile data, October 2010)
  • As a result of the 50 percent discount on certain brand-name drugs in the “donut hole,” 48,000 Medicare beneficiaries have saved an average of $800 on prescription drugs. Savings averaged $1,175 for the 11,000 enrollees who already hit this year’s prescription drug out-of-pocket maximum. (Source: HHS)
  • Eighty-five percent of U.S. adults say they would not use social media or instant messaging channels for medical communication if their doctors offered it. Respondents were more favorable toward conferring with their doctor via e-mail (52 percent), online appointment setting (56 percent), online access to their medical records (50 percent), and online bill payment (48 percent). (Source: Capstrat Public Policy Polling, March 2011)
  • Forty-six percent of adults think PPACA is a “good thing” and 44 percent a “bad thing,” compared to 49 percent and 40 percent one year ago. (Source: Gallup)
  • President Obama’s FY 2012 budget will result in $9.5 trillion in deficits by 2022. The deficit for FY11 will be $1.43 trillion, $25 billion more than CBO forecasted earlier this year. (Source: CBO)
  • Of the 804 small business owners surveyed in California, 57 percent were unfamiliar with the small business tax credits they can claim in 2010 to offset health care costs, and 62 percent have not heard of health insurance exchanges. (Source: Pacific Community Ventures, “Findings from a Survey of 800 Small Business Owners in California,” March 2011)
  • The number of patients using community health centers will nearly double from the current 23 million to about 40 million and could achieve $63 billion in annual savings by 2015. (Source: National Association of Community Health Centers)
  • Average wholesale drug prices increase for prescription drugs in 2010: 6.9 percent, the biggest annual increase since 2000. Rebates to health plans averaged 14.3 percent, up from 8.4 percent in 2002. (Source: Barclays Capital analysis of top 130 brand name drugs, Sector and Sovereign Research)
  • Law school applications down 11.5 percent in 2011 to 66,876, lowest since 2001. The average law student will graduate with $100,000 in debt. By comparison, business school applications are down 1.8 percent. (Source: Law School Admission Council Inc., ABA)
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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