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Health Care Reform Memo: August 16, 2010

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.

Medicaid funding extension passed

Tuesday, the House voted 247-161 to pass legislation that extends the federal match for Medicaid through July 2011. The $16.1 billion appropriation is offset by cuts to other programs, including food stamp programs and limits on foreign tax credits used by multi-national companies. In the stimulus bill (ARRA), states were given $87 billion for FY10-FY11 to shore up obligations to the program. In most states, federal funding is 63 percent or more of total funding for the program.

Health plans announce alignment with meaningful use provisions of HiTech

August 5, executives of several leading health insurance plans announced steps toward aligning provider contracting and payments with key provisions of the HiTech Act encouraging use of electronic health records by hospitals and physicians. WellPoint announced it will use self-reporting by physicians to monitor meaningful use and accept electronic submissions of quality information in 2012. The company also said it will provide financing for electronic health records (HER) use in rural, critical access or medically underserved areas starting in 2011. United HealthGroup announced it will make adjustments to its Physician Advocate and Premium Designation programs to accelerate alignment with meaningful use among other initiatives. Aetna announced it was teaming with IBM to offer an enhanced Collaborative Care Solution a connectivity platform for clinical and administrative data. The announcements were made at the National Press Club in Washington DC.

Medical specialty boards endorse use of EHR in physician profiling

Last week the American Board of Medical Specialties announced it would incorporate tools to promote meaningful use of health IT into its certification programs required of 750,000 practitioners covered in its oversight. One society, the American Academy of Family Practice (AAFP), pushed back noting “…we certainly support health IT adoption, but it has to work within physician practices, not (be) something that's imposed” upon family physicians.

Third circuit ruling closely watched for health benefits handling when companies bankrupt

A closely watched ruling in the Philadelphia’s Third Circuit Court of Appeals last month shed light on retiree health benefits’ responsibilities for companies that seek bankruptcy protection. The court determined that a company that filed for Chapter 11 must follow strict procedures in managing health benefit obligations for its retirees. At stake is clarity around health benefits obligations to retirees.

Federal Trade Commission (FTC) crackdown on medical discount plans

Wednesday, the FTC’s Bureau of Consumer Protection announced stepped-up enforcement in 24 states against sellers of medical discount plans that mislead consumers about network coverage arrangements with doctors and hospitals. To date, 54 lawsuits have been filed.

State watch: Last week

Wednesday, the Presidents of six University of Texas health programs told the Board of Regents that looming shortages of primary care physicians in the state would be exacerbated by the addition of two million people to the Medicaid rolls in the next three years.

In Illinois, results of a four-year study of the usefulness of the medical home model for primary care were released: According to Illinois Health Connect, the state saved $220 million in FY08-FY09.

In Florida, the Florida Medical Association met to consider a motion to sever ties with the national parent organization citing American Medical Association’s (AMA) support of the health reform legislation as the reason.

In Colorado, the Secretary of State certified that the Colorado Health Care Freedom Act had qualified for the November ballot initiative making Colorado “a safe haven” from the Patient Protection and Affordable Care Act (PPACA) individual mandate. The petition was signed by 130,000 Colorado voters and follows Missouri referendum results supporting PPACA repeal 71 percent to 29 percent on August 4. Four other states are likely to have similar initiatives on the November ballot and 20 states have pending legislation that would challenge the right of the federal government to impose PPACA mandates as a violation of state’s rights (the supremacy clause of the constitution) or the commerce clause of the constitution.

Consumer income down in 2009; physician income up

Last week’s report from the U.S. Department of Commerce reported per capita income declined in 223 of 366 metro areas last year, increased in 134, and did not change in nine. Though prices declined 0.2 percent vs. 2008, incomes fell more 1.8 percent in 2009. Average income is $40,757 per capita in the U.S. today, down from $41,930 in 2008. Notably, the major driver of increases in the 134 was government programs (e.g. Social Security payments/public sector employment).

Physician income: In 2009, 76 percent of all specialties saw an average 3.4 percent increase in compensation—3.8 percent for primary care, 2.4 percent for medical specialists, 3.8 percent for surgical specialists. The biggest increases were pulmonary disease 10.37 percent, dermatology 7 percent, urology 6.36 percent, family medicine 5.67 percent, hypertension and nephrology 5.54 percent, and cardiac and thoracic surgery 5.12 percent. Per the American Medical Group Association (AMGA), an increase in productivity (RVUs) of 1.2 percent overall (flat for primary care, +3.0 percent for surgical specialties, +2.7 percent for medical specialties) accounts for the increases along with a 2.5 percent increase in gross charges and non-clinical revenue gains from hospitals. (Source: AMGA’s 2010 Medical Group Compensation and Financial Survey) Note: the Medical Inflation Rate is factored in these data.

Medical credit care “kickbacks” focus of NY Attorney General

Monday, NY Attorney General Cuomo announced an investigation into physician and hospital business practices involving the use of health-care credit cards. The investigation involves fees paid by providers to card issuers and rebates to providers based on patient enrollment/use. Calling the practice a “kickback arrangement”, the Attorney General said the cash flow advantage of credit card use, i.e. providers are paid in 48 hours vs. 90 days or longer for other methods, creates an incentive for providers to promote the cards’ use. "Doctors and dentists may also avoid negotiations with patients over prices of services by simply telling them to put their bill on a medical credit card 'even when these are patients who might otherwise qualify for charity care” he said. The announcement referenced a Consumer Reports estimate the medical credit care industry could be $150 billion in 2015.

Q & A

Q: Wasn’t administrative simplification a part of reform? What happened?

A: Administrative simplification is covered in Section 2715 of the bill: essentially, it mandates that the Secretary of Health and Human Services (HHS) develop standardized approaches that health insurers will be required to use in explaining policies and coverage decisions. For instance, standards must be “no longer than four pages long in 12 point font using understandable language” describing co-pays, exceptions, limitations on coverage, etc. The bill stipulates that HHS build a website for this information along with other resources useful to consumers in understanding their policies, directs that the health insurance industry adopt these standards in enrollment processes on or before March 23, 2012 or pay a penalty of $1,000 per eligible enrollee.

Note: A United HealthGroup analysis showed that $37 billion/year could be saved by the U.S. system if uniform standards and processes were used by all plans thus eliminating redundant/inefficient business office costs in provider settings. Section 2715 addresses only the mandates for insurance plans to use a standard approach but does not address broader administrative simplification opportunities that would streamline use of insurance by consumers, employers and providers. So Section 2715 is only as start. HHS is well on its way to creating the website referenced in Sections 1103 and 2715, announcing in June it had begun making information available about health plans on www.HealthCare.gov.

Q: What is the “innovation center” scope of responsibility? Where will it focus?

A: Section 3201 of PPACA authorizes the creation of The Center for Medicare and Medicaid Innovation (CMI), one of the bill’s many new agencies, commissions, and boards. Its focus is to test innovative ways to reduce costs and improve quality for Medicare and Medicaid. If a new approach is promising, the HHS Secretary is authorized to expand the programs without Congressional approval. CMI is charged with starting programs before January 1, 2011 and report results starting 18 months later. Its funding is $5 billion for FY 2010 and $10 billion (total) for FY 2011-2019, subject to annual reviews and appropriations but not subject to “paygo” rules. CMI will operate under the Centers for Medicare & Medicaid Services (CMS) as an internal work group. Based on its latitude and the authority given HHS to implement its programs without authorization, it is likely a key driver of recommended changes in Medicare and Medicaid payment and delivery system changes.

Section 3201 lists 18 programs that might qualify but does not limit the list; desired goals included in the authorization are:

Coordination of health care services across treatment settings
Reduction of preventable hospitalizations
Prevention of hospital readmissions
Reduction of emergency room visits
Improvement in quality and health outcomes
Improvement in the efficiency of care
Reduction in the cost of health care services
Achievement of beneficiary and family-caregiver satisfaction.

Q: How are small businesses impacted by PPACA? What does it mean in terms of providing insurance to employees?

A: PPACA requires businesses with 50 or more employees to provide health insurance or pay $2,000 per full-time worker if any employee obtains refundable health care premium tax credits through the health insurance exchanges; the first 30 employees are exempt. Businesses with fewer than 50 employees face no new insurance requirements. In 2014, a company with less than ten employees is eligible to purchase insurance through the health exchanges.

Q: Are executive compensation deductibility limitations only applicable to health insurance companies or to others?

A: In PPACA, the executive compensation rule applies only to health insurance company personnel in plans where at least 25 percent of the provider’s gross premium income is derived from health insurance plans that meet the minimum creditable coverage requirements of the Act. The maximum deduction is $500,000 per “applicable individual” defined as all officers, employees, directors, and other workers or service providers (such as non-employee independent contractors) performing services for or on behalf of a covered health insurance provider. Exemptions for performance-based pay, stock options, cash bonuses, and tax-deferred compensation were eliminated. The limitation will apply to compensation paid beginning in 2013, but will also applies to deferred compensation earned beginning in 2010. Per the Joint Committee on Taxation, the provision will increase revenues $600 million 2013-2019.

Quotable

“The recovery has slowed in recent months. And the pace of economic recovery is likely to be more modest in the near term than had been anticipated.”

– Source: Federal Open Market Committee, Tuesday

“This is a team sport. It’s clear that the sustainability of this effort (adoption of electronic health records) has to come from the private sector.”

– Source: David Blumenthal, M.D., National Coordinator for Health IT, last week Brandeis University's Health Industry Forum

“…putting Medicare and Medicaid recipients in private insurance plans that could cost the government less but potentially offer fewer benefits; gradually raising the retirement age to 70; and reducing future Social Security benefits for wealthy retirees.”

– Source: Representative Paul Ryan, R-WI

“Medicare is a thorny problem; Social Security, by comparison, is a cinch. More worrisome than either is the hyperpartisan atmosphere in Washington.”

– Source: “The Latest on Medicare and Social Security”, New York Times August 10, 2010

“The study found that price differences were strongly correlated to market leverage – the dominance of a hospital or doctor group relative to other providers within the same geographic region. The study emphasized that these large price differences are not correlated to any of the following four factors: quality of care; sickness of population served or complexity of services; extent to which provider cares for a large portion of patients on Medicare or Medicaid; and whether a provider is an academic teaching or research facility.”

– Source: “A bitter health care pill” Boston Globe August 10 report on statewide analysis of health costs and variation in Massachusetts

Fact file

Average losses in first mid-term election for incumbent party in power: 28 seats in the House, four in the Senate. (Source: Politico)
19 states currently have prior approval for granting insurance company premium increases. (Source: AHIP)
13 percent increase in emergency room visits after implementation of Massachusetts individual mandate and universal coverage plan in 2006; 97 percent of the population currently insured. (Source: Massachusetts State Department of Health)
2,000 mobile clinics now operate primarily in underserved areas providing care at $117 per visit compared to $923 for a hospital emergency room visit. (Source: Harvard Medical School)
16 percent of all adolescents ages 12 to 21 are without any form of public or private insurance coverage. (Source: Kaiser Family Foundation)
Annual cost of medical errors including direct medical costs and lost productivity: $19.5 billion annually resulting in 2,500 avoidable deaths, 1.5 million measurable errors and 10 million lost days of work. Bed sores, post-operative infections, device defects were the leading causes of error. (Source: Society of Actuaries study released last week)
The 0.4 percent reduction in inpatient hospital rates for FY11 (starts October 1, 2010) announced by Medicare July 30 will result in $440 million cuts to acute providers. (Source: Moody’s) Note: Medicare is 42 percent of the acute sector’s revenues.
One in five Americans visited the emergency room in 2007; Medicaid enrollees are the heaviest users—15.3 percent make two or more visits per year. The uninsured use the emergency room for non-emergency visits at the same rate as those private insured. (Source: National Center for Health Statistics)

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.