Health Care Reform Memo: May 9, 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

While the world reacted to the death of Osama Bin Laden last week, a major concession was made by lawmakers: both parties conceded that major changes to Medicare would not be on the table as the federal debt approaches the current ceiling May 16. Previously, Rep. Ryan (R-WI) had suggested a transition starting in 2022, from a defined benefit to a defined contribution plan for seniors, but the majority on both sides of the aisle saw any substantive changes to Medicare as a volatile, no-win scenario, given the political realities.

I wonder if we can tackle the obesity epidemic without tackling the food we eat or lack of exercise.

I wonder if we can tackle energy consumption and dependence on foreign oil without significant investment in alternative energy.

I wonder if we can improve literacy without investing in reading programs.

I wonder if we can improve public education without changing the way students are taught in classrooms and what they’re taught at home.

I wonder if we can stabilize state budgets without changing the way Medicaid services are delivered.

I wonder…

In the current federal budget of $3.456 trillion, Medicare expenditures are $452 billion. Adding Medicaid, they total $783 billion – 23 percent of the total federal budget, growing faster than any other category.

Medicare is the elephant in the room for policymakers. Enrollment will increase from 47 million today to 80 million in 2030, and its cost will increase from 5.3 percent gross domestic product (GDP) today to 10.0 percent in 2035 and 19.0 percent by 2082 (Centers for Medicare & Medicaid Services [CMS], Congressional Budget Office [CBO]). It is wildly popular among seniors; enrollee reactions to proposed changes evokes contentious confrontation with lawmakers akin to the August 2009 recess roastings featuring debate about death panels.

So what are the options?

Do nothing. Leave it alone. It’s too hot to handle. Let the next Congress... or next generation, fix it.

Make changes that improve its efficiency without changing eligibility or benefits. That’s been the focus for a decade. Otherwise, its costs would be even higher.

Make fundamental changes: address it as adults. In its current form, it is not sustainable. It must change eligibility and link enrollee financial participation to personal accountability and income. It must pay for evidence-based treatments and deny coverage where evidence of efficacy and effectiveness is weak. It must align provider payments with performance – safety, outcomes, patient satisfaction and require use of clinical information technologies by all. It must increase the age of eligibility and channel enrollees to high-value provider organizations that feature high quality, low cost solutions. And, it must operate within a budget.

No doubt, the debt ceiling will get attention this week: since 1985, Presidents have signed into law 17 permanent and 15 temporary increases in the amount the Treasury is permitted to borrow. On six occasions starting with the Gramm-Rudman anti-deficit law of 1985, it has been tied to bills requiring deficit reduction.

In all likelihood, President Obama will sign the 18th increase. But the elephant in the room will still be there.

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

ACA implementation update

House passes bills to cut funding for health insurance exchanges, school-based clinics

Last week, the House passed two bills that would eliminate funding for the Affordable Care Act (ACA): H.R. 1213, which would repeal funding for health insurance exchanges to save an estimated $14 billion from 2012 through 2021 according to the CBO; and H.R. 1214, which would eliminate funding for school-based health centers, saving an estimated $100 million from 2012 through 2021. Administration officials indicate they would veto H.R. 1214.

Wednesday, the House and Senate each introduced legislation (H.R.1683 and S. 868) to repeal ACA’s Medicaid maintenance of efforts (MOE) requirements. CBO’s preliminary analysis indicates it would save $2.8 billion over the first five years.

Note: ACA Section 2001 requires states to maintain the same income eligibility levels through December 31, 2013 for all adults. This requirement would be extended through September 30, 2019 for children currently enrolled in Medicaid or Children's Health Insurance Program (CHIP).

IRS seeks comment on employer shared responsibility requirements

Tuesday, the U.S. Department of Treasury and Internal Revenue Service (IRS) requested public comment on ACA employer shared responsibility requirements. Starting January 1, 2014, per Section 1513, employers of 50 or more full-time employees that do not offer affordable health coverage may be subject to a financial penalty. In particular, the notice requests comment on approaches employers could use to determine who is a full-time employee. Comments will be accepted until June 17, 2011.

Constitutional challenges update

Wednesday, Florida and 25 other states filed a brief, responding to the U.S. Department of Health and Human Services’ (HHS) arguments to overturn Judge Vinson’s ruling that struck down the entire ACA on the grounds that the individual mandate is unconstitutional and cannot be severed from the law.

Legislative update

House Energy and Commerce Chair wary of Medicaid block grants and Medicare vouchers

Thursday, House Ways and Means Chair Dave Camp (R-MI) said he does not want to lay down legislative markers—Medicare vouchers, Medicaid block grants—that the Senate will not pass and the President will not sign. Camp identified two areas where compromises are possible: getting rid of the “first dollar” aspect of Medigap and combining Medicare Part A and Part B. He expressed support for funding alternative delivery and payment system projects through the Center for Medicaid and Medicare Innovation (section 3021), that is funded by $10 billion in ACA with the caveat that Congress set its priorities. Note: first dollar coverage via Medigap policies are thought to encourage over-utilization of Medicare services; using Medigap policies for catastrophic expenses is considered the appropriate role they play.

CMS announces new Chief Medical Officer

Today, Patrick Conway assumes the role of Chief Medical Officer (CMO) for CMS where he heads of the Office of Clinical Standards and Quality. He previously served as Director of Medicine and Associate Professor at Cincinnati Children's Hospital, CMO for planning and evaluation at HHS, and White House Fellow at the Agency for Healthcare Research and Quality (AHRQ).

Physician pay fix focus of house committee, new bill

Thursday, the House Energy and Commerce Committee heard recommendations on ways to reform Medicare payments to physicians including bundled payments, quality initiatives (e.g. bonus payment, value based purchasing), Medicare balanced billing, gainsharing models (e.g. accountable care organizations [ACOs]), and tort reform. In response, the American Medical Association (AMA) commented, "there is no one-fits-all payment model that will achieve physicians' and policymakers' objectives for improved care and affordability." The House Ways and Means health subcommittee will hold a hearing on the issue May 12.

Note: Wednesday Representative Tom Price (R-GA) introduced H.R. 1700, which would allow balance billing in Medicare (i.e. paying physicians more than what Medicare pays for the service). Eleven state medical societies, the District of Columbia, and four surgical specialties are supporting the bill. AMA and the American Hospital Association (AHA) both recommended extending the gainsharing demonstration which tests hospitals and physicians shared savings under Medicare fee-for service from improved quality of care and controlling costs.

State watch

CMS proposes new Medicaid rate setting process

April 29, CMS proposed a rule to create a “standardized, transparent process” for states to set Medicaid payment rates. States would collect information on enrollee needs, availability of care and providers, and utilization of services. The rule clarified that states do not need to link payment rates to provider cost.

Round-up

• Hawaii lawmakers passed a bill to establish its health exchange, sending it to the Governor who has 45 days to review the bill. The Democratic Governor is expected to sign the bill.
• The New Hampshire House will consider legislation to return HHS funding to implement its exchange. Republican House Speaker William O'Brien is also pursuing legislation that would require their Democratic Attorney General to join Florida’s multi-state lawsuit against the ACA’s individual mandate.
• Colorado lawmakers passed a health exchange bill, which will be sent to its Democratic Governor who supported the bill.
• Illinois House passed a mental health bill 70-39 requiring private health insurance plans with mental health coverage to cover substance abuse and autism. It would also require mental health coverage to be provided at the same level as physical health services, if provided.
• Louisiana governor Bobby Jindal (R) proposed Monday to hire an outside firm to run the state health insurance program currently overseen by the Office of Group Benefits, which covers 250,000 state employees, dependents, and retirees. Jindal said the change would save $10 million annually and an estimated $150 million upfront payment.
• Thursday, Vermont House approved legislation to implement a single payer health system in the state. The Senate approved the bill Tuesday. Governor Pete Shumlin (D) is expected to sign the bill into law within the next two weeks.
• April 29, Kansas applied for a medical loss ratio (MLR) waiver, asking for a three-year transition period that would require insurers to meet an MLR of 70 percent in 2011, 73 percent in 2012, 76 percent in 2013, and 80 percent by 2014. Maine is the only state to receive an MLR waiver to date for its individual insurance market.
• Florida Governor Rick Scott (R) announced his intent to transition the state’s $15.6 billion Medicaid program into managed care using private plans.

Life sciences update

Study: awareness of comparative effectiveness research high, preparation widely varied

The National Pharmaceutical Council surveyed clinical investigators, government officials, insurers and health plans, employers, human resources specialists, and health care trade association representatives about preparedness efforts for comparative effectiveness research (CER). Per the study, major findings:

• Stakeholders are aware of CER
• Actions toward preparing for CER have been minimal to date and vary widely
• Most believe CER will have modest impact on quality improvement in health care
• Most are cautiously optimistic tools for CER development and use will result from the legislative process

Note: The American Recovery and Reinvestment Act of 2009 (“stimulus bill”) created the Federal Coordinating Council for Comparative Effectiveness Research (FCCCER) to coordinate comparative effectiveness research across the Federal government. $1.1 billion was allocated to the Office of the Secretary for CER. The FCCCER was subsequently replaced by the Patient-Centered Outcomes Research Institute (PCORI), established by ACA in 2010.Statistical findings show that patients in the highest-spending regions of the country receive 60 percent more health services than those in the lowest-spending regions, “yet this additional care is not associated with improved outcomes." (Fisher et al, Dartmouth Institute for Health Policy and Clinical Practice, 2003)

Court reverses stem cell ruling; allows funding for stem cell research

Last week, the U.S. Court of Appeals for the District of Columbia ruled 2-1 to overturn a 2010 decision and allow the federal government to fund research using human embryonic stem cells. Congress has prevented federal funds from supporting research in which human embryos are destroyed since 1996. The National Institutes of Health (NIH) spent $1.4 billion on embryonic and non-embryonic stem-cell research in 2010.

Stakeholders comment on FDA direct-to-consumer genetic tests

Last week, the Food and Drug Administration (FDA) heard comments about direct to consumer (DTC) genetic tests from medical organizations, providers, universities, and manufacturers. Highlights:

• Laboratories and medical professionals believe DTC tests could confuse consumers, leading to inappropriate decision making.
• The American Clinical Laboratories Association (ACLA) commented, “…some consumers could be confused and frightened because they may have limited understanding of the meaning or real significance of the test results.”
• The AMA commented that decisions require careful consideration of both the screening results and other factors, and that it is important for a physician or other genetics professional to ensure that patients are well-informed before making decisions.
• Colleges and universities are more supportive of DTC genetic testing than other stakeholders.

FTC releases report on pay to delay activity

Tuesday, the Federal Trade Commission (FTC) released findings that “pharmaceutical companies struck an unprecedented number of deals in Fiscal Year (FY) 2010 in which the manufacturers of branded products paid potential generic rivals and generic companies to defer the introduction of lower-cost medicines for American consumers”. “Pay to delay” deals increased 60 percent from 19 in FY 2009 to 31 in FY 2010. The agreements in the latest FY involved 22 different brand-name pharmaceutical products with combined annual U.S. sales of about $9.3 billion.

Military health

GAO report: weaknesses in policies and oversight of Medical supplies and equipment pose risk to veterans’ safety

Tuesday, the Government Accountability Office (GAO) released a report finding that the U.S. Department of Veterans Affairs (VA) “tracking and reprocessing requirements are inadequate to help ensure the safety of veterans who receive care at VA medical centers.”

Study: excluding Medicare eligibles from the military health plan could save $104 million

CBO estimates the government could save $104 million (2012 to 2021) by excluding Medicare eligible individuals from the Uniformed Services Family Health Plan (USFHP). CBO’s analysis indicates that it costs the government more to provide care through the USFHP than through other federal health programs. The President’s FY 2012 budget proposal allows individuals currently enrolled in USFHP to remain in the program for as long as they choose; individuals who enroll after 2011 would be required to leave the USFHP once they reach age 65. Such individuals would receive care through Medicare and TRICARE.

Note: USFHP consists of six nonprofit health maintenance organizations (HMOs) which enter into agreements with the Department of Defense (DoD) to provide care to beneficiaries in the military health system. About 110,000 individuals are enrolled in USFHP plans.

Provider update

CMS simplifies hospital use of telemedicine

Monday, CMS implemented changes that simplify the process hospitals and critical access hospitals (CAH) use to credential and grant privileges to physicians and practitioners who provide care through telemedicine.

Mortality linked to culture, clinical processes

Study: the 30-day mortality rates for heart-attack patients comparing the top five percent and bottom five percent of hospitals (from CMS’s Hospital Compare) found that the organizational culture supportive of clinical quality improvements and adherence to evidence-based practices the key difference. “The presence of physician champions and empowered nursing staff, pharmacist involvement in patient care, and high qualification standards for all staff” were notable differences. (Source: Curry et al, “What Distinguishes Top-Performing Hospitals in Acute Myocardial Infarction Mortality Rates?: A Qualitative Study” Ann Intern Med March 15, 2011 154:384-39)

HITECH update

ONC extends comment period on the Federal Health IT Strategic Plan to May 6

The Office of the National Coordinator for Health Information Technology (ONC) extended the comment period on the federal health IT strategic plan to last Wednesday. Public comments were due April 22, but stakeholders asked for an extended deadline.

Study: stronger business case for HIT-enabled medication management needed

AHRQ reviewed 428 research articles about health IT (HIT) used to assist in the medication management process (MMIT). Most studies showed that HIT moderately or substantially improved medication management, but studies lacked consistency. The authors stated, “we found little data on the effects of forms of medications, conformity, standards and open-source status. Much descriptive literature discusses implementation issues but little strong evidence exists.”

Note: Hospitals and ambulatory clinics were well-represented in the literature with less emphasis on long-term care facilities, communities, homes, and nonhospital pharmacies.

Quotable

“There will be instances where hospitals are very heavy handed in the way that they try to create their network. Those cases will fail. They might well qualify as an ACO but they will not produce the results that they're looking for. Strong-arming relationships generally are not effective relationships for care coordination. In our best conception of an ACO, there is a very strong primary care base and the ACO, to be effective, is going to have to value that primary care base. Under CMS' proposed rule, ACOs participating in health reform's Shared Savings Program must include hospitals because seven of the 65 quality measures are reported by hospitals.”

 – Hoangmai Pham, Director, the Center for Medicare and Medicaid Innovation, CMS Wednesday, May 4, speaking to Association of American Medical Colleges conference in DC.

“A replacement for the SGR [sustainable growth rate] should not be another one-size-fits-all formula. Rather, replacing the SGR should involve transitioning to a new generation of payment models that reward physicians and hospitals for keeping patients healthy, managing chronic conditions in a way that avoids hospitalizations, and, when acute care episodes occur, delivering high quality care with efficient use of resources. We envision physicians choosing from a menu of payment models, selecting ones that best address their patients’ needs, specialty, practice type, capabilities and community.”

 – AMA, statement for the House Energy and Commerce Committee’s hearing on Medicare physician payments.

Fact file

• Average cost for starting an ACO: $1,755,250. (Source: CBO)
• The population of the world population will reach seven billion in October, 12 years after reaching six billion. Long term, it will reach nine billion in the middle of the century and 10.1 billion by the year 2100. Fastest increase: Africa will triple from one billion today to 3.6 billion by 2100. (Source: United Nations)
• Over 600,000 young adults under 26 joined their parents’ plans in the first quarter of 2011, faster growth than predicted under HHS’s estimate of 1.2 million by end of 2011. (Source: Kaiser Health News)
• 24 percent of young adults 18-26 were uninsured in the first four months of 2011, compared to 28 percent in 2010. (Source: Gallup)
• Health costs for children: $1,468 annually; cost for children with diabetes: $9,061 annually—$9,333 with insulin and $5,683 with oral medications. (Source: Centers for Disease Control and Prevention)
• Almost 97 percent of emergency physicians treated patients on a daily basis referred to them by primary care doctors. More than 80 percent of emergency physicians reported that emergency visits are increasing in their emergency departments. (Source: American College of Emergency Physicians poll of 1,768 respondents conducted March 3 through March 11, 2011)
• From 2009 to 2010, AMA’s membership decreased by almost 5.3 percent to 215,854 members (as of December 2010). Membership in 2009 was 228,000. (Source: AMA demographic characteristic reports)
• Enrollment into the HHS-created temporary high-risk pool (Pre-Existing Condition Insurance Plan [PCIP]) increased by about 50 percent to 18,000 since the last quarterly report. (Source: HHS)
• Fifty-one percent of new drugs had comparative efficacy data at time of FDA approval between 2000 and 2010; 70 percent after excluding orphan drugs and drugs for conditions with no alternative treatment. (Source: JAMA)
• Individuals born in 1957 would need $182,000 by the time they retire at 65 to pay the additional costs imposed by the Republican Medicare plan if they live to 84. (Source: Center for Economic and Policy Research)
• Poor childhood health caused by environmental factors (e.g. air pollution and exposure to toxic chemicals) cost the U.S. $76.6 billion in 2008. (Source: Health Affairs)

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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