Health Care Reform Memo: October 31, 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.
From Paul Keckley, Executive Director, Deloitte Center for Health Solutions
As a graduate student in the UK in the early 70’s, I thought little about the novelty of the National Health Service (NHS) or its impact on the health of its citizenry. The war in Vietnam, the U.S. price controls debate, and the emergent discussion of a Euro market were more relevant it seemed.
The NHS was founded in 1948; it took five years for Minister of Health Aneurin Bevan to gain its passage as the country was recovering from World War II. Its intent was simple: to organize care across the British Isles regionally rather than locally; to assure that the medical education and training of health professionals was uniform and evidence based; and to coordinate care seamlessly for its citizens while controlling costs through public funding.
Arguably, the experiment, now 63 years old, is a success for its citizens: Prime Ministers since have not targeted the disassembly of the NHS; most, including the current Cameron administration, have sought to improve its efficiency while protecting its fundamental structure and goals.
It appears to have worked: a comparison to the U.S. system is insightful: its costs per capita are lower, its citizens more satisfied, and its outcomes equivalent to those in the U.S.:
|Health Care spending||
|Public health measures||
|Public v. private health coverage||Covers most through employer-based private coverage (55% of the population in 2010), with cost-sharing for employees; 15% of the population are covered under Medicare, a national public health program for those ages 65+ and for those with certain disabilities; state Medicaid programs for low-income individuals programs covers 16% of the population.||Covers most through a universal health care system managed by the NHS government that provides free services to all UK citizens; 11% of the population has private health insurance.|
|Health care financing||Private coverage funded through employee cost-sharing and employer contributions; Medicare and Medicaid financed through payroll taxes, general revenues and income taxes on certain social security benefits as well as enrollee cost-sharing and state contributions.||National coverage funded mainly by general taxation and national insurance contributions. Most financing comes from business and personal taxation.|
|Evidence-based medicine: PCORI v. NICE||Patient-Centered Outcomes Research Institute (PCORI): 21-member board, with broad range of perspectives and expertise in clinical health services research. Per Affordable Care Act (ACA) Section 6301, the board is tasked with conducting research projects that provide relevant evidence on how diseases, disorders, and other health conditions can effectively and appropriately be prevented, diagnosed, treated, monitored, and managed.||The National Institute of Health and Clinical Excellence (NICE): 12 members from cross-sector backgrounds (e.g., academia, public health, consulting, social policy, Department of Health, physician, audit); NICE provides authoritative guidance on the clinical and cost-effectiveness of new and existing technologies and can refuse to recommend products which believes does not deliver good value for money.|
For more information on global health care systems, download the Deloitte Center for Health Solutions’ 2011 Survey of Health Care Consumers Global Report.
I am in London today for a meeting with the UK member firm’s Centre for Health Solutions team here. Each time I return here, I am reminded that a country’s journey to its health system’s oversight is always a work in process that’s messy, politicized, and imperfect. But each country’s leaders know that the fundamentals of their system must be maintained if a greater good is to be achieved long-term.
A rallying theme in the five year journey resulting in the NHS was “bondage to boundaries”—as powerful special interests fought its creation. In the end, the British Hospital Association, London City Council, British Medical Association, Kings Fund, and others found the greater good more compelling.
The “greater good” in the U.S. system is not well defined at this point. Our “bondage to boundaries” is strong. Each sector often seems intent on self-protection while the costs and complexity of the system frustrate its users.
The NHS is far from perfect. It is not a prototype for U.S. system reform nor is any system in the world a footprint for our own. But NHS represents a point in history when bondage from boundaries was set aside, and it seems to have worked reasonably well for its citizens for 63 years. Perhaps, when the dust of the election campaigns settles, we will find a similar retreat from the boundary bondage.
Paul Keckley, Ph.D., Executive Director, Deloitte Center for Health Solutions
Legal challenges to ACA: U.S. Supreme Court announcement soon, trade groups weigh in
November 11, the U.S. Supreme Court will meet in private session and are expected to decide which of the five cases it will hear on expediting its review of the constitutional challenges to ACA. The Supreme Court is expected to report its decision November 14.
Also last week, America's Health Insurance Plans (AHIP) asked the Supreme Court to address whether the law is severable from the mandate (i.e. can stand without the mandate). AHIP did not take a position on the law. Six hospital groups—the American Hospital Association (AHA), the Federation of American Hospitals (FAH), the Association of American Medical Colleges (AAMC), the Catholic Health Association (CHA), the National Association of Children’s Hospitals (NACH), and the National Association of Public Hospitals and Health Systems (NAPH)—also asked the Court to rule on the ACA stating a “prompt review will resolve business uncertainty, allow uncontroversial ACA provisions to move forward, and begin addressing the crisis of uninsurance.”
HHS announces Advanced Primary Care Practice demonstration
Monday, the U.S. Department of Health and Human Services (HHS) announced the Advanced Primary Care Practice demonstration through which 500 community health centers in 44 states will receive about $42 million over three years. The demonstration will work to improve the coordination and quality of care delivered to Medicare beneficiaries November 1, 2011 through October 31, 2014. Participating centers will receive a monthly fee for each Medicare beneficiary that receives primary care services. The Centers for Medicare & Medicaid Services (CMS) Center for Medicare and Medicaid Innovation (Innovation Center) will conduct an independent evaluation of the demonstration to assess the project’s impact on hospital admission rates; emergency department visits rates; and access, quality, and cost of care provided to Medicare beneficiaries. The evaluation will also assess whether the demonstration was cost effective.
Study: elimination of mandate reduces newly insured by 7.8 million and increases premiums 12.6 percent
Wednesday, the Lewin Group released a study concluding that the elimination of the individual mandate in ACA by the Supreme Court would result in 23 million people getting coverage who were previously uninsured (7.8 million fewer people who would gain coverage with the mandate) and a 12.6 percent increase in health insurance premiums. CBO estimated that 16 million people would lose coverage and premiums would increase 15 percent to 20 percent. Gruber's figures were 24 million and 27 percent, respectively.
Note: The Lewin Group is a wholly owned subsidiary of United Healthcare. (Sources: Sheils et al, “Without the Individual Mandate, the Affordable Care Act Would Still Cover 23 Million; Premiums Would Rise Less Than Predicted,” Health Affairs Vol. 30, No. 10 (October 2011); Congressional Budget Office (CBO), “Effects of eliminating the individual mandate to obtain health insurance” (June 16 2010); Gruber, J., “Health care reform without the individual mandate,” Center for American Progress (February 9, 2011).
House votes to eliminate withholding for providers
Thursday, the House voted 405-16 against withholding 3 percent of provider payments by Medicare beginning in 2013. The costs of eliminating withholding is $11 billion over 10 years and is expected to be offset by reductions to the Medicaid expansion under the ACA.
House approves “fix” for Medicaid modification to ACA Medicaid eligibility
Thursday, the House voted to add retiree benefits to the calculation of Modified Adjusted Gross Income (MAGI) used in ACA to determine Medicaid eligibility. The vote was 262-157. According to the CBO, enacting the legislation to include those benefits as income in considering Medicaid eligibility will save $3 billion (2012–2016) and $13 billion (2012–2021).
Healthy People 2010 misses targets on obesity and health disparities
The final review by the Centers for Disease Control and Prevention (CDC) of the Health People 2010 goals found that targets were met for 23 percent of its 733 objectives; on 24 percent, results were negative. Key findings:
- In 2006–2007, life expectancy for the total population was 77.8 years, an increase from 76.8 years in 2000–2001.
- Death rates declined for many cause-specific mortality objectives including: female breast cancer, colorectal cancer, prostate cancer, coronary heart disease, stroke, cardiovascular disease and diabetes-related deaths among persons with diabetes, and HIV.
- Between 1997 and 2008, the proportion of adults engaging in regular moderate or vigorous physical activity remained stable at 32 percent.
- Based on directly measured weight and height, between 1988–1994 and 2005–2008 the proportion of adults aged 20 years and over who were obese rose by 47.8 percent, from 23 percent to 34 percent (age adjusted), moving away from the 2010 target of 15 percent. During the same period, obesity in children and adolescents aged 6–19 years increased by 63.6 percent, from 11 percent to 18 percent, moving away from the 2010 target of 5 percent.
- The suicide rate increased by 7.6 percent between 1999 and 2007, from 10.5 to 11.3 per 100,000 population (age adjusted), moving away from the 2010 target of 4.8 per 100,000.
- Effective January 1, 2012, Missouri’s Medicaid program will provide new health home services for enrollees with chronic conditions. The state’s community mental health centers will serve as the central source of care for patients with chronic mental illness, substance abuse disorders, and other chronic conditions coordinating primary, acute, behavioral health (mental health and substance use), and long-term services and support for the enrollees. Per ACA Section 2703, states with approved proposals can receive enhanced 90 percent federal matching funds to support such activities for two years of the program.
- Thursday, CMS approved California’s proposal to cut Medicaid provider payments by 10 percent but exempted doctors treating children. CMS did not make a decision on whether the state could increase enrollee co-payments. Separately, the California Pharmacists Association (CPhA) warned CMS that the state’s proposed 15 percent reduction in Medicaid prescription payments would lead 72 percent of its members to drop out of the program. According to CPhA, the proposed cuts would force 43 percent of its members to close their pharmacies.
- The Washington, DC health reform implementation task force completed its exchange study recommending that it establish an exchange as a quasi-governmental or independent District agency, with an executive director and 15-member board. The exchange board would be required to consult stakeholders on significant decisions (e.g. whether the exchange should actively negotiate with health plans).
- Maryland released a request for proposals to build the information technology (IT) infrastructure for the state’s exchange, Medicaid, and Children’s Health Insurance Program (CHIP) enrollment. The infrastructure must be developed and tested by spring 2013. Proposals are due December 5.
- Wisconsin applied for a medical loss ratio (MLR) waiver, asking for a three-year transition period that would require insurers to meet an MLR of 71 percent in 2011, 74 percent in 2012, 77 percent in 2013, and 80 percent by 2014.
Note: per ACA Section 2718, plans must spend 80 percent of individual enrollee premiums on medical costs and 85 percent for group coverage. To date, HHS has granted MLR waivers to five states for the individual market and rejected three applications.
- Colorado's average premiums will increase 9.4 percent per the state’s department of insurance. Lockton Benefit Group, which conducts the Colorado report, noted increases of 14.4 percent hikes in 2011 and 11.8 percent in 2010, not to mention 19 percent and 18 percent hits in 2003 and 2004.
Medicare announces premiums, deductibles, and cost-sharing amounts for Parts A, B, C, D
Thursday, CMS announced Medicare cost-sharing amounts starting January 1, 2012:
- Medicare Part A (inpatient hospital, skilled nursing facility, and some home health care): monthly premiums will be $451 for 2012, an increase of $1 from 2011. The Part A deductible paid by enrollees when admitted as a hospital inpatient will be $1,156 in 2012, an increase of $24 from 2011. The daily coinsurance amounts for extended stays will be $289 for the 61st – 90th day of hospitalization in a benefit period, $578 for lifetime reserve days, and $144.50 for the 21st – 100th day of extended care services in a skilled nursing facility in a benefit period.
Note: About 99 percent of Medicare beneficiaries do not pay a premium since they or their spouses have at least 40 quarters of Medicare-covered employment (i.e. they had a job where they paid taxes into the Medicare program). The Medicare Part A monthly premium rate is $248, the same amount for 2011, for those with between 30–39 quarters of Medicare-covered employment.
- Medicare Part B (physician services): the standard monthly premium amount will be $99.90 in 2012, $15.50 less than the 2011 premium of $115.40. Beneficiaries that have to pay an income-related monthly adjustment may have to pay a total monthly premium of about 35 percent, 50 percent, 65 percent, or 80 percent of the total Part B coverage cost. The Part B deductible for 2012 is $140.00 for all Part B enrollees.
Note: most Medicare beneficiaries paid $96.40 per month because they were held harmless in 2011; for these individuals the 2012 premium is a $3.50 increase. Separately, in 2012, Social Security monthly payments to enrollees will increase by 3.6 percent. According to CMS, the payment increase will be enough, on average, to cover the $3.50 increase in the Part B premium.
- Medicare Part C: Medicare Advantage (MA) (private Medicare plans): MA premiums will be 4 percent lower in 2012 than in 2011 and plans project enrollment to increase 10 percent; 99.7 percent of Medicare enrollees will have the same access to a MA plans and their benefit as those in 2011.
- Medicare Part D (prescription drugs): the estimated average total Part D premium is $38; this includes a $30 estimated average amount for basic coverage and an $8 estimated average for supplemental coverage.
FDA prescription drug user fees recommendation to Congress January 15
The U.S. Food and Drug Administration (FDA) will send its reauthorization plan for the Prescription Drug User Fee Act (PDUFA) to Congress by January 15, 2011, according to Theresa Mullin, Director of the FDA Office of Planning and Informatics. Under PDUFA, the FDA collects prescription drug user fees from life science companies that produce certain human drug and biological products; funds are used for the FDA’s drug approval process. PDUFA expires September 2012. The reauthorization of PDUFA would be effective Fiscal Year (FY) 2013 – FY 2017.
Note: since some of the FDA’s funding is through the annual appropriations process that’s part of the deficit reduction process underway, most anticipate the FDA will increase industry user fees for its funding.
GAO recommends health care costs transparency
A recent Government Accountability Office (GAO) report concluded that health care and legal issues make it difficult for consumers to obtain price information for health care services they receive, especially estimates of complete costs. Health factors include difficulty of predicting health care services in advance, billing from multiple providers and differences in insurance benefit structures (e.g. cost-sharing). Legal factors include contractual agreements between insurance companies and providers which may prohibit sharing of negotiated rates with the insurer’s members on their price transparency initiatives’ websites and concerns among providers and insurers with sharing negotiated rates due to privacy and antitrust laws. GAO recommended HHS determine the feasibility of making estimates of the complete costs of health care services available to consumers and identify next steps, where appropriate. (Source: “Meaningful Price Information Is Difficult for Consumers to Obtain Prior to Receiving,” GAO)
FTC report: industry reached 28 pay for delay settlements in 2011
A Federal Trade Commission (FTC) report finds that the pharmaceutical industry made 28 pay for delay legal settlements between brand and generic companies in FY 2011; down from 31 in FY 2010. The final settlements provided compensation to the generic manufacturer and restricted their ability to market their product by an average of 17 months. The agreements involve 25 different branded pharmaceutical products with total annual U.S. sales of more than $9 billion.
CDC launches Preventing Infections in Cancer Patients program
Tuesday, the CDC launched a program to reduce the risk of developing infection rates among cancer patients who receive chemotherapy and radiation treatment in outpatient oncology facilitates. The program, which is voluntary to providers, will promote adherence to hand-hygiene guidelines, sterile techniques for preparing and administering medications, and safe-injection practices. The program also includes a website to help patients, providers, and caretakers prevent the risk of infection.
Note: studies show 10 percent of cancer patients receiving chemotherapy treatment are hospitalized due to infection, and every two hours a patient dies from this complication.
CDC committee recommends HPV vaccine for boys
Tuesday, the CDC Advisory Committee on Immunization Practices recommended routine vaccination of males ages 11 and 12 to prevent the human papillomavirus (HPV) and anal cancer and vaccination for males ages 13 to 21 who do not receive the vaccination at the targeted age range of 11 to 12. The CDC currently recommends the vaccination for females ages 11 and 12 and females up to age 26 who did not receive the vaccination at the targeted ages of 11 and 12.
Note: the cost of the drug is $108 per dose in public programs and about $130 in the private sector according to Anne Schuchat, Director of CDC’s National Center for Immunization and Respiratory Diseases. About 20 million Americans are currently infected with HPV and about 700 people die annually from anal cancer, with more than 5,000 cases are reported yearly.
White House urges community health centers to hire veterans
Tuesday, the White House launched the “The Community Health Center Veterans Hiring Challenge” asking Community Health Centers to hire 8,000 veterans—approximately one veteran per health center site—over the next three years. The White House stated that HHS; the U.S. Departments of Defense (DOD), Labor (DOL), and Veterans Affairs (VA); and the National Association of Community Health Centers (NACHC) will work together to connect veterans to clinics’ job openings. ACA provides about $11 billion through 2015 for jobs and operations at community health centers.
“We are most sincere in saying we have suspended implementation. I do not want to send a mixed message by saying we are continuing to work on CLASS when we are not.”
– Kathy Greenlee, HHS Assistant Secretary for Aging, October 26 at the joint hearing of the House Energy and Commerce subcommittees on health and oversight
“The health insurance industry cannot meaningfully predict whether, if the mandate were to be struck down, its business operations should be reformulated to comply with an Act in which the mandate would be severed completely from the Act (as the Eleventh Circuit held), or partially severed (as two district courts have held), or is inseverable and the entire statute falls (as one district court has held).Definitive resolution of these issues is a matter of vital importance to the health care industry.”
– Amicus brief filed by AHIP, October 26, 2011, arguing for expeditious resolution of constitutional challenges to the individual mandate in ACA
“This bill takes bold steps to contain health care costs. By putting an end to cost shifting from the uninsured and from the Medicaid program, businesses and individuals will no longer bear the cost of others’ health care. This bill places critical health care cost and quality information in the hands of businesses and consumers. By creating cost and quality transparency, individuals will make more informed decisions.”
– Governor Mitt Romney’s (MA) letter to legislature on passage of Massachusetts Health Reform legislation
“With all respect, your decisions really need to be mostly made by the beginning of November if you want to have real legislation and a cost estimate from CBO to go with that before you get to Thanksgiving.”
– Doug Elmendorf, CBO Director, October 25 to the Joint Select Committee on Deficit Reduction
- Overall view of the ACA: 51 percent unfavorable, 34 percent favorable, and 15 percent mixed feelings (Source: Kaiser Family Foundation Poll Oct 13-18, 2011)
- Dual eligibles (9.2 million) are 16 percent of Medicare enrollees and 27 percent of its spending; 15 percent of Medicaid enrollees and 39 percent of its spending (Source: CMS)
- 3nd quarter 2011 U.S. economy grew 2.5 percent but when adjusted for inflation and taxes, personal disposable income shrank 1.7 percent, the biggest drop since the third quarter of 2009. Even so, consumer spending jumped 2.4 percent while the savings rate fell a percentage point to 4.1 percent, (Source: U.S. Department of Commerce)
- 9 percent of Americans are happy with Congress's job performance, the lowest since 1977; 11 percent of Republicans approve of how Congress is doing, and 10 percent of Democrats and 9 percent of independents give Capitol Hill a favorable rating. (Source: CBS News/New York Times poll October 25, 2011 poll of 1,650 conducted Oct. 19 to Oct. 24 with a margin of error of plus or minus 2 percentage points).
- 11.2 million illegal immigrants (Source: U.S. Bureau of the Census)
- 10 most expensive states for family coverage 2010 (Source: Kaiser Family Foundation):
- IL: $15,703
- DE: $15,671
- DC: $15,206
- NH: $15,204
- FL: $15,032
- CT: $14,888
- RI: $14,812
- NY: $14,730
- MA: $14,606
- ME: $14,576
- Entitlement spending: 10 percent of GDP in 2010, 12 percent in 2021, 15 percent in 2035, 17 percent in 2050 (Source: CBO)
- $103 billion sent to states to fund Medicaid obligations January – June, 2011. State spending for management of Medicaid has increased 29 percent in FY 2011. (Source: U.S. Department of HHS)
- 5 percent of small business owners (out of 604 surveyed) cited the ACA as the biggest problem facing them today. (Source: Gallup Poll)
- Total applicants to medical school increased 2.8 percent over last year to 43,919; first time applicants increased 2.6 percent to 32,654 and female applicants increased 3.3 percent to 15,953. First-year enrollees increased 3 percent to 19,230. (Association of American Medical Colleges)
- Total market revenue for electronic health records (EHRs) is expected to reach $6.5 billion in 2012, increasing more than six times from the $973.2 million posted in 2009 (Source: Frost & Sullivan, October 14, 2011)
- 26 percent of Chief Information Officers (CIOs) said their organizations have qualified to receive Health Information Technology for Economic and Clinical Health (HITECH) Act funding for the use of electronic health records (EHRs); 93 percent predicted that their organizations are able qualify for Stage 1 of the Medicare and Medicaid EHR Incentive program. Note: respondents represented 656 hospitals: 553 multi-hospital systems and 103 stand-alone hospitals (Source: The College of Healthcare Information Management Executives)
- 83 percent of metropolitan health insurance markets in the continental 48 states are “highly concentrated” with a “significant absence” of health insurance competition. (Source: American Medical Association, [AMA], “Competition in Health Insurance: A Comprehensive Study of U.S. Markets, 2011 update”, October 2011)
- Of the approximately $41.6 billion in drug expenditures claimed by 14 Medicaid state agencies, $258,791,245 ($166,579,985 federal share) were unallowable or potentially unallowable (e.g. not listed on the quarterly drug tapes, terminated drugs, less-than-effective drugs, inadequately supported drug expenditures). (Source: HHS Office of Inspector General)
- 3,702 medical equipment companies had their Medicare licenses revoked in “fraud hotspots” throughout the U.S. between 2006 and 2009; about 37 percent of those companies were back in business within days or months due to relaxed appeals process. (Source: Kelli Kennedy/AP, “Medicare yanks licenses, gives them right back,” October 16, 2011)
- From 2007 to 2009, U.S. health system performance did not improve compared to other countries: across 42 performance indicators from 2007 to 2009, U.S. achieved a score of 64 out of a possible 100, when comparing national rates with domestic and international benchmarks. (Source: Commonwealth Foundation, “Why Not the Best? Results from the National Scorecard on U.S. Health System Performance, 2011,” October 18, 2011)
- Unadjusted hospital mortality rates from 2008 to 2010 across 18 diagnoses and procedures increased 13 percent; patients have a 73 percent lower chance of dying at the highest-rated hospitals compared to the lower rated hospitals in the U.S. (Source: HealthGrades, “2011 Healthcare Consumerism and Hospital Quality in America,” October 2011)
- 88 percent of Medicare Part D beneficiaries are satisfied with the program; 70 percent say they are better off now than before they had Medicare prescription drug coverage. (Source: KRC Research/Medicare Today, “Seniors’ Opinions About Medicare Rx: Sixth Year Update,” October 11, 2011)
- The cost of excessive drinking was $224 billion—or $1.90 per drink—in 2006, the latest year for which researchers said complete data was available. (Source: CDC)
- Hospital admissions for seniors with heart failure decreased 29.5 percent percent over ten years. (Source: Journal of the AMA, October 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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