Health Care Reform Memo: November 7, 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

The Joint Select Committee’s recommendation for deficit reduction will soon be public. Its task is daunting: to recommend a package of spending cuts and new revenues that reduce the deficit by at least $1.5 trillion over ten years that a majority of members in both houses of Congress will approve December 23^rd. Many doubt it’s possible; meanwhile outside experts are challenging the Super Committee further with a package approaching $4 trillion to fend off longer term concerns about our country’s fiscal stability.

Economic recovery and deficit reduction are global issues. As the G20 leaders convened in France last week, the economies in Greece, Italy, and Portugal faced insolvency. And the world’s fastest growing economy, China, shows signs of slowing from its blistering 9 percent annual growth while inflation worries its policymakers. The global market for U.S. goods and services is directly impacted by global fiscal and monetary policy which further complicates the efforts of the Super Committee.

While walking from a Fleet Street watering hole in London Wednesday, my son Jason observed there appeared fewer “rotund” people in the UK than in the U.S. At meetings with government health officials in the UK and Switzerland during the week, the same topic was prominent. Seems every system is puzzled by the path to better health that might reduce long-term demand for its health services and constrain government spending for other purposes.

Jason is right; the U.S. doesn’t compare favorably to other countries. Comparisons of the three countries I visited last week confirm his observation:

(Source: World Health Organization, Global Health Observatory)

Unhealthy living is costly: up to $226 billion annually in direct costs, per the Center for Disease Control and Prevention (CDC) and even higher if lapses in chronic care management that result in acute events are added, which some calculate at 70 percent of total health spending. Unhealthy living drives costs higher and threatens economic recovery just as certainly as any other category of government spending. No one disagrees it’s a root cause of runaway health costs, but almost no one agrees on how to fix it.

Consumers get it. They’re voting on healthy living with their pocketbook investing $700 per capita on a wide range of products and services to improve their health sans doctors, hospitals, and prescriptions. But the uptake is uneven: better health is simply unaffordable to certain groups in our society.

(Source: Results from the Deloitte Center for Health Solutions’ 2011 Survey of Health Care Consumers: Focus on wellness programs)

Perhaps purposely, the Affordable Care Act’s (ACA) focus on healthy living is indirect: it targets the elimination of barriers to access that lend to health disparities rather than a head on encounter with consumer resistance to lifestyle changes. Among key provisions are:

• New programs to improve development and coordination of wellness and healthy living (including public health) programs between state and federal programs (prominent in Section IV of ACA)
• Development of national standards for wellness and preventive health as part of U.S. Department of Health and Human Services’ (HHS) national quality strategy and health plan oversight (including Medicare and Medicaid programs)
• Changes in insurance coverage for preventative health via elimination of co-payments for specified preventive health services
• Expanded research about the effectiveness of programs via investments in the Agency for Healthcare Research and Quality (AHRQ), the Center for Medicaid and Medicare Innovation, and others
• Increased access to primary care services via incentives for coordination or primary care (accountable care, medical homes, and others), expansion of residency programs, and overall health care workforce training programs to leverage team based care and technologies to reduce costs and facilitate the shift away from visit-based treatment models (prominent in Section V of ACA)

Does ACA force the issue of healthy living and personal accountability directly? Arguably, no. Rather, it sets the stage for a national debate about whether and how to transition our system from a “sick-care” to “well-care” system by putting in place programs and policies that reduce issues of uneven access and increase coordination of efforts underway already.

The U.S. downturn began in December, 2007; our government forecasts a 1.6 percent GDP growth this year and 2.5 percent next year. The deficit will likely exceed $1.4 trillion in 2011—the third year in a row for trillion-plus red ink. In parallel, health costs will increase 6 percent, slightly above the pace of the prior two years, and employer premiums for health insurance will be 7–17 percent higher next year depending on the size and scope of coverage. No doubt, the role health costs play in our recovery will not escape the Super Committee’s attention.

My recommendation to the Super Committee: create a bold plan for health and wellness in the U.S. Invest in healthy living using sticks and carrots to change behaviors. The combination worked to reduce smoking somewhat; perhaps it’s time to attack others on the growing list of unhealthy behaviors causing an epidemic in our country. Perhaps the industry should concede; there’s plenty being spent in the system already. It’s simply not being spent in the right areas.

Note: the data might suggest the Swiss and English are healthier than us. Yanks and their health systems’ officials might relate that to the unique features in each, but all three face the same reality: reducing health costs is a major challenge, and getting citizens to live healthier is a major part of the solution.

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

Implementation update

Justice Department asks Supreme Court to delay hearing of Virginia lawsuit

Thursday, the U.S. Department of Justice (DOJ) asked the U.S. Supreme Court to delay its review of Virginia’s lawsuit that challenges the constitutionality of the ACA until after it reviews a similar lawsuit brought by 26 states. To date, the Supreme Court has been asked to review six legal challenges to the ACA and its individual mandate.

CLASS repeal bill introduced, blocked in Senate

Wednesday, Senator John Thune (R-SD) introduced a bill to repeal the Community Living Assistance Services and Supports (CLASS) program—a voluntary self-funded public insurance program for long-term care services (per ACA Section 8002). Senator Jay Rockefeller (D-WV) successfully blocked the effort.

Note: the Congressional Budget Office (CBO) notified congressional staff members the repeal of the CLASS program would have no budgetary impact.

GAO analysis: ACA early retiree program status and funding outlook for FY 2012

A Government Accountability Office (GAO) study released last week concluded that the Center for Consumer Information and Insurance Oversight (CCIIO) approved 6,078 plan sponsors to participate in the Early Retiree Reinsurance Program (ERRP). ACA Section 1102 provided $5 billion to reimburse participating employer-based health plans to cover a portion of the costs for early retirees—individuals age 55 and older who are not eligible for Medicare. From June 1, 2010 (when the program began) through June 30, 2011, CCIIO approved more than $2.7 billion in reimbursements to plan sponsors for eligible health costs for early retirees, representing almost 54 percent of the total amount appropriated. The largest share went to government entities. HHS projects that ERRP funding will be expended by the end of fiscal year (FY) 2012—before the official end date for the program (January 1, 2014).

HHS provides survey standards to capture disparities information

Monday, HHS published its final standards for the collection and reporting health care information based on race, ethnicity, sex, primary language, and disability status in order to “…highlight disparities in health status and target interventions to reduce these disparities”. Per ACA Section 4302, the new standards apply to all new or newly revised HHS-sponsored health surveys.

Legislative update

Super Committee update: bipartisan members of Congress and commission leaders encourage bigger cuts to spending

Tuesday, the Super Committee heard testimony from leaders of two bi-partisan deficit reduction commissions whose reports were circulated last year: the White House appointed National Commission on Fiscal Responsibility and Reform led by Erskine Bowles and Senator Alan Simpson (R-WY), and the Bipartisan Policy Center’s Debt Reduction Task Force chaired by Senator Pete Domenici (R-NM) and Alice Rivlin. Both groups encouraged “boldness” as the Committee continues its deliberation about ways to cut the deficit by at least $1.5 trillion over ten years (in addition to the August 2011 agreement to cut $1 billion). Bowles suggested a $2.6 trillion deficit reduction plan that would cut $600 billion from health care programs, increase revenue by $900 billion, reduce annual discretionary spending by $300 billion, save $400 billion in interest payments, and generate $200 billion by changing the calculation of the consumer price index (CPI).

Wednesday, 100 bipartisan Representatives sent a letter to the Super Committee urging it to target $4 trillion in deficit reduction. And Friday, 160 House members of both parties signed a letter urging the Super Committee to reject any proposals to tax employer-sponsored health care benefits.

Note: each of these commissions concluded health costs should target GDP growth plus 1 percent as a long term growth target for health spending, raise the eligibility age for Medicare enrollees, cut Medicare payments to providers over time, and eliminate/limit employer tax breaks for health insurance costs.

State update

Governors want flexibility in health exchange set-up operations and assistance in IT implementation

Wednesday, the National Governors Association (NGA) expressed its concern about the proposed rule for health exchanges (published July 15^th) noting that states would have to “cede” operations traditionally managed by states (e.g. Medicaid eligibility), regardless of the exchange model they implement (i.e. state-based, state-federal partnership model, or federal exchange model). NGA’s objections are: the rule precludes states from obtaining funding to establish new state exchange functions after 2012, locks states into an “all-or-nothing” approach, limits the state’s operating role, and inadequately allows for changes necessary to the exchange’s long term sustainability and effectiveness. NGA recommended that the federal government give states the option of assigning functions where they have little or no current operational role (e.g. determination of eligibility and appeals for tax credits) and requested federal assistance in pre-certifying information technology (IT) products and services that meet ACA requirements possibly useful to exchange operations.

State roundup

• Tuesday, the California Hospital Association (CHA) filed a lawsuit to prevent the Centers for Medicare & Medicaid Services (CMS)-approved Medicaid cuts of 10 percent to providers (doctors treating children are exempted). CHA is made up of almost 450 hospitals.
• Minnesota Governor Mark Dayton (D) appointed two new health care panels: one to develop proposals to improve medical care, cut costs, and reduce health disparities among state residents; the other will help establish the state’s health insurance exchange.
• Vermont, the only state to pass legislation to create a single-payer health system, released a report analyzing the costs of the proposed system finding that without state health reform, health costs will increase from $4.7 billion to $10 billion, from 2009 to 2019—an average of about 7 percent annually. The proposed single payer system would save between $550 million (5.5 percent) to $1.8 billion (18.3 percent) in 2020. (Source: Vermont Legislative Joint Fiscal Office and the Department of Banking, Insurance, Securities and Health Care Administration, with assistance from Policy Integrity, LLC., “Costs of Vermont’s Health Care System Comparison of Baseline and Reformed System,” November, 2011)
• Nebraska: about 205,000 Nebraskans (11.5 percent, compared to 16.7 percent nationally) are uninsured, most of them between 18-34 years old. Last week, the Governor‘s office released a study indicating its exchange would cost between $61 million and $87 million and employ 34 full-time employees. Per ACA, by January 1, 2015, the exchange must be able to financially stand on its own with a projected cost of $17.5 million annually by 2016 paid for by user fees to the insurers and consumers.

Industry news

White House Executive Order to reduce drug shortages

Monday, the President signed an Executive Order directing the U.S. Food and Drug Administration (FDA) and DOJ to take action to reduce and prevent drug shortages, protect consumers, and prevent price gouging. Accompanying the Executive Order were reports from HHS’s Assistant Secretary of Planning and Evaluation (ASPE) and the FDA. The FDA’s report outlined steps to address drug shortages: (1) notify drug manufacturers reminding them of their legal responsibility to report the discontinuation of certain drugs to the FDA and encourage companies to voluntarily notify the FDA about potential prescription drug shortages in cases where notification is not currently required and (2) increase staffing resources for the drug shortages program to address its increased workload. ASPE’s report discussed the drug shortage problem:

• The number of reported drug shortages annually has tripled from 61 in 2005 to 178 in 2010.
• Of the 127 studied shortages in 2010-11, 80 percent involved drugs delivered to patients by sterile injection, including oncology drugs, antibiotics, and electrolyte/nutrition drugs.
• The leading reasons for the reported shortages were problems at the manufacturing facility (43 percent), delays in manufacturing or shipping (15 percent), and active pharmaceutical ingredient shortages (10 percent).
• Manufacturing quality problems that have resulted in shortages can be serious, including findings of glass shards, metal filings, and fungal or other contamination in products meant for injection into patients.
• Sterile injectable drugs have unique manufacturing and market features which make shortages of these products more likely to occur and harder to prevent or mitigate.

CMS releases final Medicare payment rules for providers

Last week CMS released the final Medicare payment regulations for providers effective January 1, 2012. The rules implement ACA provisions including market basket updates and productivity adjustments (per ACA 3401); a new quality reporting program for ambulatory surgical centers (ASCs) (per ACA Section 3006); and changes to the hospital value based purchasing (VBP) program (per ACA Section 3001) and the Medicare and Medicaid electronic health records (EHR) Incentive Programs. Still unknown is whether Medicare payments for physician services will be reduced, if at all, as called for under the Medicare Sustainable Growth Rate (SGR). Congress has until December 31, 2011 to pass legislation to avert the cuts.

ONC extends temporary EHR certification program to summer 2012

The Office of the National Coordinator for Health IT (ONC) extended the Temporary Certification Program to align with the effective date of the final rule on Stage 2 Meaningful Use under the Medicare and Medicaid EHR Programs to the summer 2012, the expected time of the rule’s release.

AHIP: ACA annual fees on insurers will increase premiums up to 3.7 percent by 2023

A study commissioned by America’s Health Insurance Plans (AHIP), released Monday, projects that health insurers tax on health plans will increase premiums in the fully insured coverage markets by an average 1.9 percent to 2.3 percent in 2014 and increase from 2.8 percent to 3.7 percent by 2023.

Note: ACA Section 9010 institutes an annual fee on the health insurance sector of $8.0 billion in 2014, $11.3 billion in 2015-2016, $13.9 billion in 2017, and $14.3 billion in 2018. After 2018, the annual fee is equal to the amount for the preceding year increased by the rate of premium growth for the preceding calendar year. (Source: Chris Carlson, Oliver Wyman, Marsh & McLennan Companies, “Estimated premium impacts of annual fees assessed on health insurance plans,” October 31, 2011)

HHS OIG analysis: states, CMS missed opportunities in hospital patient safety programs, need for state-federal collaboration

Tuesday, HHS’s Office of Inspector General (OIG) released an assessment of the regulatory interaction between states and CMS in managing hospital patient safety efforts concluding that improved coordination is necessary.

FDA approved 35 new drugs last year

The FDA approved 35 new drugs in FY 2011—the second highest number of approval this decade (surpassed only by 2009 when 37 drugs were approved). Among the new drugs were the first drug for Hodgkin's lymphoma in 30 years, the first new drug for lupus in 50 years, two drugs for hepatitis C, and a drug for late-stage prostate cancer. Twenty-four of the 35 were approved in the U.S. before other authorities had approved them. (Source: FDA, “FY 2011 Innovative Drug Approvals,” November 2011)

Quotable

“Health is the first requisite after morality.”

– Thomas Jefferson letter to Peter Carr (Jefferson’s nephew), 1787

“America’s health care system is neither healthy, caring nor a system.”

– Walter Cronkite “Borderline Medicine,” PBS Special, 1990

“The retirement age for younger workers should be increased slowly to keep up with increases in longevity. And Social Security benefits for higher income recipients should grow at a slower rate than for those with lower incomes. Tomorrow's Medicare should give beneficiaries a generous defined contribution and allow them to choose between private plans and traditional Medicare. And lower-income future retirees should receive the most assistance. I believe that competition will improve Medicare and the coverage that seniors receive.”

– Governor Mitt Romney, Editorial, USA Today, November 3, 2011

“Unfortunately, time is not on our side and we truly can no longer afford to wait. Washington needs to enact a fiscal plan NOW – not next year, not after the next election, but now. Continuing to kick the can down the road by enacting short-term, temporary fixes is bad policy, and doesn’t change the fact that we will have to make these difficult choices no matter what – be it now or in the future, when our debt holders force us to take action….. Our great Nation’s fiscal house is now made out of straw and any significant blow – an oil shock, a collapse in Europe – can blow our house down.”

– Erskine Bowles and Senator Alan Simpson (R-WY), former co-chairs of the President's bipartisan National Commission on Fiscal Responsibility and Reform, Testimony to the Joint Select Committee on Deficit Reduction, November 1, 2011

Fact file

• The unemployment rate decreased to 9 percent in October from 9.1 percent in September based on the addition of 80,000 jobs. (Source: Department of Labor)
• Prescription painkiller overdoses killed 15,000 people in the U.S. in 2008, three times the 4,000 people killed in 1999. (Source: CDC)
• Employer-sponsored insurance coverage for full-time working young adult decreased 12.8 percent for those ages 18 to 24 and 8.5 percent for those ages 25 to 34. (Source: Demos and Young Invincibles, “The State of Young America,” November 2, 2011)
• The number of hospitals ready to meet Stage 1 Meaningful Use increased from 25 percent to 41 percent from February to September. (Source: Healthcare Information and Management Systems Society (HIMSS), “Summary of Meaningful Use Readiness,” November 1, 2011)
• 443,000 die each year as a result of smoking-related illness, costing the U.S $96 billion annually in direct medical costs and $97 billion annually in lost productivity. (Sources: CDC, Journal of the American Medical Association, November 2, 2011)

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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