Health Care Reform Memo: September 12, 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

This morning, we released the latest in our surveys of public opinion about health reform. The results are alarming but no less consistent with our previous surveys dating back to 2008.

• Most survey respondents do not understand our health system: opinions, ratings, reactions, and polling results are based on personal experiences with local physicians, hospitals, and health plans rather than on a view of its structure and underlying principles.
• Most believe the U.S. health care system is confusing, wasteful, under-performing, and in need of major change to improve its value for services delivered. However, comparison to “something better” is not easy since alternative systems are not readily known.
• The survey respondents think the health reform process of the past 2 years will improve access to health services for some, but other benefits are unclear.

As a result, opinions vary widely depending on personal circumstances—they’re strong and intractable.

As a policy-maker creating laws, or employer changing health benefits, this is the essence of the challenge. We should not be surprised. The U.S. system is perfectly designed to get the results it is getting, as it is based on an 80-year old model built on simple operating principles: doctors make clinical decisions for us. Employers choose our insurance options. If we fail to live healthy lives or do dangerous things, the system will take care of us—no harm, no foul. If the diagnosis is wrong, we’ll not know for sure. And if we face imminent, irreversible mortality, we expect heroic end-of-life technologies and caregiving to extend life a few days, regardless of cost.

Friday I had the opportunity to participate in a 4-hour panel answering questions from the leadership team of a major health system. Other panelists were former U.S. Health and Human Services (HHS) and Utah Governor Mike Leavitt, former Centers for Medicare & Medicaid (CMS) Director Mark McClellan, and former Office of the National Coordinator for Health Information Technology (ONC) Director David Blumenthal. Each of these gentlemen is a lifelong student of the U.S. health system; each is widely respected and justly so. I was struck by the scope of questions, the inescapable tension between cost management and quality improvement, and the complexity of solutions discussed. And the monumental challenge of making it understandable to consumers (that the system prefers to call “patients” or “enrollees”).

Near the end, Secretary Leavitt framed an analogy: U.S. consumers are accustomed to using taxis (and a few, limos) to access health services. Might the masses be ready to consider buses as their mode of health transport? No.

Our data suggests most consumers are ill equipped and not inclined to ride a bus, and think everyone’s taxi should be new and clean. Might that change? Perhaps. Information technologies that improve coordination, reduce error, reduce paperwork, and increase shared decision-making between caregivers and consumers are the fuel that will drive the bus. The larger question is who will drive.

Employers might be the driver. They, along with the 160 million with whom they share insurance coverage, seem to be in the driver’s seat. They see the system’s inefficiencies and appear poised to transition their benefits from defined benefits to defined contribution, if they choose to provide benefits at all.

The federal government is a driver. Its 100 million passengers are transported through Medicare, Medicaid, military health, prison health, and federal employees’ benefits plans. And for 50 million without a driver, the bus stop isn’t convenient nor are routes navigable.

So the public’s view of health reform is mixed. The need for reform is widely supported, but the methods of reform varied widely depending on individual beliefs informed by personal experiences. For sure, the public’s not ready to board a bus. We want upkeep on our taxi service so long as it doesn’t raise fares, reduce operating hours, and takes us anywhere we want to go when we want to go.

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

Implementation update

Fourth Circuit finds it lacks jurisdiction to hear challenges to health reform law

Thursday, the U.S. Court of Appeals for the Fourth Circuit (Richmond) announced that it was unable to adjudicate the challenge (Liberty University Inc. v. Geithner, 4^th Cir., No. 10-2347, 9/8/11) brought about the constitutionality of the individual mandate due to the tax anti-injunction act (AIA) that stripped it of jurisdiction

By declaring that it did not have jurisdiction in either case, the Fourth Circuit set aside the key issue of the constitutionality of the individual mandate as it relates to the commerce clause of the Constitution. Note: The U.S. 6^th Court of Appeals in late June held that Congress had authority through its commerce clause power to enact the controversial provision. The U.S. 11^th Court of Appeals Circuit ruled the provision constitutionally invalid, thereby creating a circuit split.

Affordable Care Act year one results: Medicare enrollee use of discount drugs, preventive health services

Thursday, CMS reported savings from the Affordable Care Act (ACA) discounts on brand-name drugs in the Medicare Part D “donut hole” coverage gap and free preventive care (ACA Sections 1101 and 4104). According to the report:

• As of July, 1.28 million beneficiaries have received discounts on brand-name drugs; discounts totaled $660 million.
• Beneficiaries who have received the discount have saved an average of $517 this year.
• 55.6 percent of beneficiaries received 1 or more free preventive services this year, through the end of August.
• 1.3 million beneficiaries received the new Annual Wellness Visit.

HHS requests input about Basic Health Program serving lower income, non-Medicaid eligible enrollees

Friday, HHS announced it will accept public comment to help in the development of the upcoming proposed rule on the Basic Health Program. Per ACA Section 1331, the program allows states to contract—through a competitive process that includes negotiation of premiums, cost-sharing, and benefits—with standard health plans for individuals who are not eligible for Medicaid and have income below 200 percent of the federal poverty level (FPL).

HHS announces funding for community health centers

Friday, HHS announced $700 million in grants from ACA to help improve community health centers: $600 million to existing health centers for longer-term projects to expand their facilities, hire more employees, and $100 million to existing health centers to address immediate facility needs. Note: according to HHS, since 2009, health centers have added more than 18,600 new full-time positions.

Senators ask GAO to review prevention fund awards

Last week, Senators Orrin Hatch (R-UT) and Tom Coburn (R-OK) sent a letter to the Government Accountability Office (GAO) asking for a review of the ACA $15 billion Prevention and Public Health Fund. The Senators want GAO to examine how HHS selects and evaluates grant recipients, whether there were any biases in the distribution of the awards, how HHS determines if the awards will improve public health, and how much of the funding was distributed in fiscal years (FY) 2010 and 2011.

Legislative update

Joint Select Committee begins work

Thursday, the Joint Select Committee on Deficit Reduction held its first meeting. “This committee must be primarily about the business of saving and reforming social safety net programs that are not only failing many beneficiaries but going broke at the same time,” Rep. Jeb Hensarling (R-Texas), committee co-chairmen, said in his opening statement. “It's past time to quit spending money we don't have.” Co-chair Sen. Patty Murray, (D-WA), said there is “broad agreement among us that economic growth and job creation are the best ways to reduce the deficit and debt. We certainly have some real differences regarding how to achieve that.”

Note: The panel is charged with coming up with an additional $1.5 trillion in deficit reduction over 10 years. Failing to do so would trigger across-the-board spending cuts effective January 2012, including a 2 percent cut to Medicare. The panel is to report its ideas, with legislative language, no later than November 23 and send it to the floor of the House and Senate for passage before December 23.

Wednesday, House Democratic legislative aides circulated a 13-page summary of health care savings options that might be considered based on prior work by several committees and non-government agencies:

Senate appropriates $50 million increase to FDA FY12 budget

Wednesday, the Senate appropriations panel cleared the FY 2012 U.S. Food and Drug Administration (FDA) budget bill that provides the agency $2.497 billion – a $50 million increase from its FY11 budget earmarked to implement the new Food Safety Modernization Act, which requires increased inspections and oversight of foreign and domestic food manufacturing facilities. The panel’s report also encouraged the continued collaboration between FDA and CMS.

Senate committee approves funding for pediatrician training program

Wednesday, the Senate Committee on Health, Education, Labor and Pensions (HELP) approved S. 958, legislation to reauthorize the Children’s Hospital Graduate Medical Education (CHGME) Program for 5 years at the current level of $330 million annually. The President’s FY 2012 budget eliminated funding for the program, which is set to expire at the end of FY 2011.

State update

Health exchange update

21 states intend or have passed health exchange legislation; 11 have said they will not pass legislation or host an exchange; 18 are in limbo.

State-by-state scorecard on long term care posted

Thursday, AARP, the Commonwealth Fund, and the SCAN Foundation published a report card comparing state performance across 4 key dimensions for long-term services and system performance: (1) affordability and access, (2) choice of setting and provider, (3) quality of life and quality of care, and (4) support for family caregivers. The highest ranked states were Minnesota, Washington, Oregon, Hawaii, Wisconsin, Iowa, Colorado, and Maine. (For additional details, visit www.longtermscorecard.org).

MLR waiver requests

Oklahoma applied for a medical loss ratio (MLR) waiver requesting a gradual increase of the MLR for individual and small-group rates to 65 percent this year, 70 percent in 2012, and 75 percent in 2013. Separately, North Carolina is asking for a 72 percent requirement in the individual market this year, 74 percent in 2012, and 76 percent in 2013. Per ACA Section 2718, plans must spend 80 percent of individual enrollee premiums on medical costs and 85 percent for group coverage.

Industry news

AHA study: Medicare cuts could reduce health sector jobs

According to a report released Friday by the American Hospital Association (AHA), the health care sector could lose more than 194,000 jobs over 10 years if the Joint Select Committee on Deficit Reduction fails to find a compromise on spending cuts and the 2 percent across-the-board cuts go into effect. Per the report, the 2 percent cuts translate to a projected cut of $41 billion over the next 10 years for hospitals. (Source: American Hospital Association, The Negative Economic Impact of Cuts to Hospital Funding: Potential Jobs Lost)

AdvaMed study: ACA device tax could reduce jobs

Thursday, the Advanced Medical Technology Association (AdvaMed) released a study that estimates the 2.3 percent annual medical device tax would result in 43,000 jobs lost in the industry. “Under reasonable assumptions, the tax could result in job losses in excess of 43,000 and employment compensation losses in excess of $3.5 billion… Under the tax, U.S. manufacturers will be more likely to close plants in the United States and replace them with plants in foreign countries.” The tax, required under ACA Section 9009, will take effect in 2013 and is expected to raise $20 billion between 2013 and 2019. (Source: Furchtgott-Roth, D. and Furchtgott-Roth, H. “Employment Effects of the New Excise Tax on the Medical Device Industry” September 2011)

Senate passes major patent reform bill

Thursday, the Senate approved Leahy-Smith America Invents Act (H.R. 1249), legislation that changes the U.S. patent system to a first-inventor-to-file standard for patent approval. It creates a post-grant review system to disallow bad patents, and helps the Patent and Trademark Office (PTO) address the backlog of patent applications. Note: the U.S. PTO faces a backlog of about 750,000 applications.

Medicare fraud task force collects $295 million in false billings

Friday, Attorney General Eric Holder and HHS Secretary Kathleen Sebelius announced that the Medicare Fraud Strike Force charged 91 medical professionals for their alleged participation in Medicare fraud involving approximately $295 million in false claims. The joint Department of Justice-HHS Medicare Fraud Strike Force is “a multi-agency team of federal, state, and local investigators designed to combat Medicare fraud through the use of Medicare data analysis techniques and an increased focus on community policing.”

Quotable

“With an aging population and rising health care costs, we are spending too fast to sustain the program... We have to reform Medicare to strengthen it. I reject the argument that says for the economy to grow, we have to roll back protections that ban hidden fees by credit card companies, or rules that keep our kids from being exposed to mercury, or laws that prevent the health insurance industry from shortchanging patients.” 

– President Obama September 8 in address to Joint Session of Congress

“The high cost of health care is the most urgent problem the United States faces in its health care system. Our costs are too high—unsustainably high for our country and the value is too low. The problems of cost and the problems of quality are connected.”

 – Don Berwick, Thursday, September 8

“The U.S. is in danger of reaching a generational tipping point at which older Americans have the clout to vote themselves benefits that sap the strength of the younger generation—benefits that can never be replaced.”

 – The Economist, August 7, 2011

“There has been a lot of research on the impact of hospital market consolidation on prices paid by private payers. The overwhelming finding in the literature is that consolidation leads to higher prices.”

 – Martin Gaynor, Professor of economics and health policy at Carnegie Mellon University, at September 9 House Ways and Means health subcommittee hearing on consolidation in the health care industry

Fact file

• 77 percent of physicians surveyed do not believe the American Medical Association’s (AMA) policy positions represent their views. (Source: Jackson & Coker, Survey: Physician Opinions of the AMA, September 2011)
• Of 16,028 respondents, 73 percent of providers said they were satisfied or very satisfied with the services provided by their Medicare contractor; 13 percent said they were dissatisfied or very dissatisfied. (Source: CMS 2011 Medicare Contractor Provider Satisfaction Survey)
• Every dollar spent by a hospital supports about $2.30 of additional business activity. Hospitals support 1 of 9 jobs in the U.S. and over $2.2 trillion in economic activity. (Source: AHA, Economic Contribution of Hospitals Often Overlooked)
• Election day November 2012: 23 Senate seats held by Democrats will be up for grabs vs. 14 currently held by Republicans. (Source: Politico)
• Physicians in the U.S. spend $80,000 per year and 21 hours per week dealing with payers vs. $20,000 per year and 2 hours weekly in Canada. (Source: “US Physician Practices Versus Canadians: Spending Nearly Four Times As Much Money Interacting With Payer”, Health Affairs August 2011)
• 17 percent of the US population believes the U.S. federal government has the consent of the governed vs. 69 percent who do not. (Source: Rasmussen Poll)
• In second quarter 2011, 12.9 percent of mortgages are 30 days or longer overdue, impacting 6.3 million households—up from 12.8 percent in first quarter 2011. (Source: Mortgage Bankers Association)
• Drugs representing U.S. annual revenues of $139 billion today go off patent within the next 5 years. (Source: PhRMA)

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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