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Health Care Reform Memo: February 15, 2010

A 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 new administration and implications for the C-suite and various stakeholder groups.

February 25 Summit agenda announced

Details of the bipartisan Health Reform Summit in DC were released Friday. The televised event starting at 10 a.m. ET on February 25 will feature remarks by the President and Congressional leaders followed by discussion in four areas: insurance reforms, cost containment, expanding coverage, and economic impact. Among the 40-plus participants will be the chairs and ranking members of five relevant committees in the House and Senate, representatives from the White House Office of Health Reform, Congressional Budget Office and Joint Committee on Taxation, and eight additional members of Congress designated by the party leadership. The White House pledged to post its proposals online by February 21 and requested GOP leaders to follow suit.

State watch

While Congress continues debate about federal reforms, legislators in many states are accelerating reform efforts where Medicaid-related deficits are the major challenge. Some announcements last week:

  • New Jersey approved a pilot program that will let physicians use a single portal and online transaction tools to access eligibility, utilization approvals, lab tests, and payments from the state’s major plans (Aetna, AmeriHealth New Jersey, CIGNA, Horizon Blue Cross Blue Shield of New Jersey, and United Healthcare). Last October, Ohio launched a similar effort sponsored by America’s Health Insurance Plans (AHIP) and Blue Cross Blue Shield Association (BCBSA).
  • Governors are looking beyond the stimulus bill to Medicaid shortfalls. Newly elected Virginia Governor Bob McConnell announced his FY11 budget would face a $390 million annual Medicaid deficit as a result of requirements in the stimulus bill.
  • In Kentucky, legislators are attempting to fill the shortage of 2,200 primary care physicians by considering expanded scope of practice for nurses and expansion of residency programs.
  • Tennessee Governor Phil Bredesen announced a 25 percent staffing cut for the state’s mental health programs to address its budget shortfall. Meanwhile, in a closely watched strategy, the Tennessee Hospital Association asked the state to restore a hospital tax suspended in 1994 when the state implemented its TennCare program to avoid deeper Medicaid cuts. The association calculates that the Governor’s proposed $526 million Medicaid cuts plus federal matching funds (FMAP) would be more burdensome to hospitals than the tax.

Health reforms at the state level are highly likely to be key to Congress’ efforts going forward. Liability reforms (a la Illinois last week), challenges to the individual mandate (Virginia last month) and efforts to allow individuals to direct their own Medicare funds (Texas) will be closely watched. Drug importation (allowed already in six states), universal coverage (in four states), caps on pain and suffering (16 states) and employer mandates will be the foci of attention among others.

Medicaid is particularly a focal point for reform since it is 22 percent of the average state’s budget and matched with federal funding. In the stimulus package and subsequent FY11 budget, $112 billion of federal funds is available to states through September 2011 provided states agree not to cut enrollment or eligibility in the program. Thereafter, states face shortfalls while enrollment is expected to increase. In the 2010 election cycle, 37 Gubernatorial races will be held including 22 open seats. Nineteen are held currently by Democrats, 18 by Republicans.

Economic recovery update: Consumer spending improving, unemployment lagging

Mixed signals from various government reports last week: The White House Council of Economic Advisors released its Economic Report Thursday predicting employment would stay at 9.7 percent for the balance of 2010, improving to 8.2 percent in 2012. The report said 5 percent employment (considered full employment) would be unlikely until after 2019. (Note: The House passed a $154 billion jobs stimulus bill last month; the Senate is debating its bill). The U.S. Department of Labor reported one-fourth of the 8.4 million jobs lost in the downturn would not return. And the U.S. Department of Commerce reported retail sales climbed a moderate 0.5 percent in January from December and anticipates consumer savings will stay between 4 and 7 percent for the foreseeable future. Finally, the White House Office of Management and Budget’s FY11 budget forecasts debt service (interest payments) will increase from 1.4 percent of GDP in FY11 to 3.2 percent in 2020. The bottom line: economic recovery will be slow, consumer spending and employment are not likely to return to pre-downturn levels until after 2015, and government spending and deficits are a major focus of concern to economists. Since federal government spending for Medicare, Medicaid, military health, and federal employees costs more than $900 billion—the second largest item in the budget behind defense—it is likely to be the focus of efforts to cut escalating cost increases.

First Lady launches program to curb childhood obesity

“Let’s Move”, a program aimed at increased exercise and improved nutrition for children was launched last week by the First Lady. Mrs. Obama noted the program would focus on tools for lifelong behavior modification, not quick fix solutions, and called for national attention to the epidemic. In the official White House statement it was noted, “childhood obesity rates in America have tripled, and today, nearly one in three children in America are overweight or obese. One third of all children born in 2000 or later will suffer from diabetes at some point in their lives; many others will face chronic obesity-related health problems like heart disease, high blood pressure, cancer, and asthma. A recent study put the health care costs of obesity-related diseases at $147 billion per year. This epidemic also impacts the nation's security, as obesity is now one of the most common disqualifiers for military service.”

Related fact: Prevalence of obesity — a body mass index (BMI) of more than 30 considered obese and 32.2 percent of men and 35.5 percent of women are in this range. (Source: Journal of the American Medical Association, January 20, 2010 (303:3) 235-241)

Note: Preventive health is a theme in health reform legislation currently pending. For seniors, the Medicare Improvement for Patients Act of 2008 authorized Medicare to cover 14 preventive services approved by the U.S. Preventive Services Task Force. However, screening and counseling for obesity is included only for seniors with kidney disease or type II diabetes. A series of bills is likely in coming months to strengthen legislation around preventive health for children as part of an overall reform effort.

Mental health parity update

The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 requires employer group health plans that provide mental health and substance use disorder benefits to ensure those benefits are not subject to more restrictive financial and treatment limitations than the plans’ medical and surgical benefits. The new parity rules are far more comprehensive than the mental health parity requirements that had been in effect since the late 1990s. Parity with respect to deductibles, co-pays, limits on the number of office visits, etc. is now required, effective for plan years beginning on or after October 3rd, 2009. In recently passed House and Senate reform bills, expansion of mental health is prominent, especially in under-served populations.

PhRMA’s Tauzin steps down

Billy Tauzin, President of the Pharmaceutical Research and Manufacturers of America (PhRMA) and former U.S. congressman from Louisiana, announced his retirement effective June 30th. Tauzin negotiated agreements with the White House to fund the $80 billion gap in the “donut” (Medicare Modernization Act) to preclude other industry cuts and importation of drugs.

$975 million IT cooperative agreements announced

Friday, the Obama administration announced $975 million cooperative agreements to help states and health care providers adopt health information technology through 2014. $750 million will be available through HHS for states, hospitals and physicians, and $225 million through the Department of Labor to train 15,000 people in job skills needed to support careers in information technology and other high growth health related fields.

Pay for performance results mixed: Rand study

Researchers compared 14 clinical measures for groups that contracted with PacifiCare’s pay for performance (P4P) program to groups in the Pacific Northwest that had no P4P agreements. After matching for patient severity and other factors, the researchers concluded P4P efforts were marginally effective:

“Despite the popularity of pay-for-performance among health policy makers and private insurers as a tool for improving quality of care, there is little empirical basis for its effectiveness. We use data from published performance reports of physician medical groups contracting with a large network HMO to compare clinical quality before and after the implementation of P4P, relative to a control group. We consider the effect of P4P on both rewarded and unrewarded dimensions of quality. In the end, we fail to find evidence that a large P4P initiative either resulted in major improvement in quality or notable disruption in care.” 

-Source: Can you get what you pay for? Pay-for-performance and the quality of health care providers” Kathleen J. Mullen, Richard G. Frank and Meredith B. Rosenthal

Note: Performance-based payments in form of bundled payments or other incentives are a key feature in reform legislation passed by the House and Senate. It is likely Medicare will accelerate use of incentives to reward performance by physicians and hospitals, though the methodologies, timeframes and metrics used to assess “success” are a debate ongoing.


“America cannot return to fiscal health without tackling entitlements.” 

-Source: The Economist February 5, 2010 p.14

“The extremely aggressive timeline in the ARRA stimulus package places enormous pressure on health care practitioners and their organizations to rapidly implement EHRs.” 

-Source: Shachak, Aviv and Jadad, A.R., “Electronic Health Records in the Age of Social Networks and Global Telecommunications” Journal of the American Medical Association February 3, 2010 303: 5 (451)

Fact file

  • 21 percent jump in the number of patients served nationally at health centers between midyear 2008 and midyear 2009 (Source: U.S. Dept of Health and Human Services)
  • H1N1 update: 14,160 deaths worldwide, 2,328 in U.S. including 248 children (Source: CDC)
  • Enrollment in commercial health plans dropped 2.3 percent in the first six months of 2009—a decrease of 2.7 million enrollees (Source: AM Best)
  • Senate retirements in 2010: 14 (nine Democrats, five Republicans)
  • Loss of revenues to government from taxes and fees in FY09 resulting from economic downturn: $250 billion—major contributor to FY10 deficit forecast of $1.349 trillion (10 percent of revenues) (Source: Congressional Budget Office)
  • $450 million—total spending for health reform advocacy and advertising (Source: Center for Responsible Politics)
  • Biomedical research funding increased from $75.5 billion in 2003 to $101.1 in 2008. 58 percent of funding for the period 2003-2007 was industry R&D (Source: “Funding for U.S. Biomedical Research 2003-2008” Journal of the American Medical Association January 13, 2010-Vol 303. No.2)

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