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Health Care Reform Memo: February 1, 2010

A Deloitte Center for Health Solutions publication

CBO report, State of the Union highlight link between economic recovery and health care

Tuesday, the Congressional Budget Office (CBO) released its 2010 forecast: the deficit will be $1.35 trillion — 9.2 percent of the GDP down slightly from 9.9 percent in 2009. In testimony before various legislative panels last week, CBO Director Doug Elmendorf testified that economic recovery would be slower than anticipated: revenues will be down in 2010 to 14.9 percent of GDP following 14.8 percent in 2009 — down from a historic average of 18.1 percent due to lower revenues from taxes and fees paid the government. Unemployment recovery to 5 percent--considered full employment—would not be likely before 2014, and per CBO analysis, government spending will be 24.1 percent of the GDP in 2010 and 24.3 percent in 2011 — above the modern average of 20.1 percent (includes 6 percent increase for Medicare).

Wednesday night, President Obama delivered his first State of the Union Address emphasizing jobs and economic recovery as his focus in 2010. He referenced health care 25 minutes into the speech, ending the passage below by noting that controlling health costs is necessary to economic recovery.

Now let’s be clear – I did not choose to tackle this issue to get some legislative victory under my belt. And by now it should be fairly obvious that I didn’t take on health care because it was good politics.

I took on health care because of the stories I’ve heard from Americans with pre-existing conditions whose lives depend on getting coverage; patients who’ve been denied coverage; and families – even those with insurance – who are just one illness away from financial ruin.

After nearly a century of trying, we are closer than ever to bringing more security to the lives of so many Americans. The approach we’ve taken would protect every American from the worst practices of the insurance industry. It would give small businesses and uninsured Americans a chance to choose an affordable health care plan in a competitive market. It would require every insurance plan to cover preventive care.

Our approach would preserve the right of Americans who have insurance to keep their doctor and their plan. It would reduce costs and premiums for millions of families and businesses. And according to the Congressional Budget Office – the independent organization that both parties have cited as the official scorekeeper for Congress – our approach would bring down the deficit by as much as $1 trillion over the next two decades.

Still, this is a complex issue, and the longer it was debated, the more skeptical people became. I take my share of the blame for not explaining it more clearly to the American people. And I know that with all the lobbying and horse-trading, this process left most Americans wondering what’s in it for them.

But I also know this problem is not going away. By the time I’m finished speaking tonight, more Americans will have lost their health insurance. Millions will lose it this year. Our deficit will grow. Premiums will go up. Patients will be denied the care they need. Small business owners will continue to drop coverage altogether. I will not walk away from these Americans, and neither should the people in this chamber.

As temperatures cool, I want everyone to take another look at the plan we’ve proposed. There’s a reason why many doctors, nurses, and health care experts who know our system best consider this approach a vast improvement over the status quo. But if anyone from either party has a better approach that will bring down premiums, bring down the deficit, cover the uninsured, strengthen Medicare for seniors, and stop insurance company abuses, let me know. Here’s what I ask of Congress, though: Do not walk away from reform. Not now. Not when we are so close. Let us find a way to come together and finish the job for the American people

-President Barack Obama State of the Union address, Wednesday, January 27, 2010

Update: health reform legislation in 2010

The Massachusetts’ Senate upset win by Republican Scott Brown (Jan 19) over heavily favored State Attorney General Martha Coakley changed the math for the Democrats and the overall tone of the health reform debate last week. Moderate Democratic Senators suggested it called for a slow-down in the process. Liberal Democratic Senators called for renewed attention to fast track the bill before Senator Brown is seated. Some upper chamber Democrats offered hope the House might pass the Senate’s bill (12/24/09) after it is stripped of its special concessions — (Nebraska Medicaid concession, union concessions about the Cadillac tax, Florida Part C cut waiver, and others).

At this point, no one knows for sure what’s next. The House might reconsider the Senate bill with promises that legislation could be introduced later to add features it deems most important. The process might evolve from one bill to several bills — an a la carte approach — considered less risky in an election year. A bipartisan fresh start might begin, or nothing might happen at all. Stay tuned.

What does it mean for key industry groups and observers? My take…

“The cost of health care eats up more and more of our savings each year, yet we keep delaying reform. This is a cost that now causes a bankruptcy in America every 30 seconds. By the end of the year, it could cause 1.5 million Americans to lose their homes. In the last eight years, premiums have grown four times faster than wages. And in each of these years, one million more Americans have lost their health insurance. It is one of the major reasons why small businesses close their doors and corporations ship jobs overseas. And it's one of the largest and fastest growing parts of our budget. Given these facts, we can no longer afford to put health care reform on hold. We can't afford to do it. It's time.” 

– President Obama, February 24, 2009 speech to Joint Session of Congress

Confusion about the future path of health reform legislation in an election year is understandable and appropriate. For 11 months, five congressional committees heard thousands of hours of testimony and staff scoured facts and statistics into the wee hours. However, the complexity of the system was underestimated and the chilling reality of 10.2 percent unemployment and mounting federal debt was a low hanging cloud.

President offered hope that the system could address three flaws: uneven access to insurance, high costs, and variable quality and safety. He noted the efforts of predecessors dating to FDR whose universal coverage proposal failed in 1939 while the country was still recovering from the depression.

Among the many themes coming from the health care reform discussions and debates, some of the mostly widely reported were:

  • The public recognizes problems in the system; they simply don’t understand the solutions amidst the political banter and partisan bickering.
  • The public wants to protect its choices: government control of decisions about which doctors, hospitals, and plans they choose is “un-American”.
  • The public is increasingly frustrated with the value gap in the system. They want lower costs, improved service and better value for the dollar spent in health care. They want information about their treatment options when they are confronted with a new diagnosis or a new method of care is introduced. They want to be able to compare the benefits and safety of comparable drugs, surgical and diagnostic approaches. They want price transparency from hospitals, doctors, insurance, drugs and devices. They want providers to use technology that eliminates paperwork, facilitates access to personal health records and eliminates the need for useless tests and visits. They suspect industry insiders benefit when patients don’t. They imagine the uninsured get care anyway, whether delayed or otherwise.
  • They want health reform that’s focused on solving the problems and protecting what works well, and they doubt government is able to do it.

For industry stakeholders, given the economic circumstance and year-long effort toward health reform, the implications are clear:

Transparency is essential: Consumers want information they currently can’t get. They are increasingly impatient with providers that resist efforts to share information and plans that make understanding benefits difficult. They want to compare their choices when it’s their time to make a decision: they reason that other industries have transitioned to accessible tools for comparing price, quality and service; why not health care? Web-based tools, social media, personalized algorithms for self-care guidance, mobile technologies, regional data sharing, care coordination must be in the mix: mass customization is the bridge to enhanced value.—Source: Deloitte Center for Health Solutions 2009 Consumer Survey, Pulse Surveys

Cost reductions in health care are inevitable: The slow recovery and mounting federal debt mean taxpayers and companies face higher taxes and in some cases reduced services from government. Medicare cuts—higher than currently budgeted— appear to be inevitable to Part C plans, to physicians and hospitals, prescription drugs, devices and others. States continue to struggle more with increased Medicaid and SCHIP obligations and will likely require significant changes to medical management programs that reduce costs while maintaining clinical quality. Pressure for operating cost reductions and careful planning will be constant and intense in the next 2-3 years in all sectors. And consumers will continue to experiment with medical tourism, retail medicine, high deductible individual insurance, alternative medicine and self-care to avoid out of pocket costs and protect their discretionary income.

“Profit with purpose”: Continued interest by regulators and the public alike suggest newfound attention to “profits” in health care. Executive compensation is an easy target. Less understood are capital requirements for innovation and R&D; costs of capital; reserve requirements, incurred but not reported; or write-offs for bad debt and charity. The engine of innovation in the US health system is fueled by access to capital: to every stakeholder, effective deployment of capital, efficiency in operating the enterprise, and balancing public good with shareholder interests must get renewed attention. And efforts of America’s health care industry to serve less fortunate whether in Haiti or "Anytown" USA will be on display.

Health reform is likely to continue, though in what form no one can be certain. What is certain is the theme of health care reform will not go away. We are now simply seeing it transition to Health Reform 2.0.

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

HHS likely to expand transparency, performance-based payments with/without reform bill

Several items in the reform bills were extensions of existing Medicare programs to shift payments to providers based on performance and to increase transparency of hospital and physician performance—costs, outcomes, satisfaction, adherence to evidence-based practices, disclosure of conflicts of interest about ownership of surgical, diagnostic and hospital services and others. In the bills, the power to modify or expand these programs was at the discretion of the Secretary of Health and Human Services. For example, penalties to hospitals that do not manage readmissions appropriately were in both bills – House (5 percent penalty) Senate (3 percent penalty). The HHS Secretary was given wide latitude to expand the program to include additional discharge categories or the payment model so long as it stayed within budgetary constraints. This trend – including expansion of transparency and disclosure requirements, increased attention to avoidable readmissions and error, and possible moratorium on physician owned hospitals, and increased regulatory oversight of physician owned diagnostic and surgical facilities to assure referrals by physician-owners are not preferential to commercially insured patients and overuse is within expected limits of evidence-based practices, is highly likely to continue.

House Republican retreat features feisty exchange about health reform; GOP proposals presented

Thursday-Saturday, House Republicans convened in Baltimore for the 180-member group’s semi-annual retreat with President Obama as its guest speaker Friday covered by CNN live. House GOP advocates queried the President about the cost of the current bills and exclusion of elements the group felt necessary to lower costs — malpractice reform, allowing insurance companies to compete cross state lines, and expansion of consumer-directed health care using tax credits. The President told the group he was receptive to its ideas but encouraged attention to improved coverage for the uninsured and delivery system reforms that would improve coordination of care and improved outcomes. In one notable testy exchange, the President called for an end to divisive rhetoric by both parties that is seemingly intent on political posturing and lacking fact in favor of meaningful discussion and compromise. He cautioned that the group’s aversion to reform a la “the party of no” could be problematic politically if it did not propose comprehensive solutions to the dual problems of reducing costs and increasing access for the uninsured.

House Energy and Commerce Committee to push for transparency in deals with industry groups

This week, the House Energy and Commerce Committee will consider a proposal by Rep. Mike Burgess (R-TX) and Committee Chairman Henry Waxman (D-CA) requiring disclosure of White House " negotiations with health care interest groups," leading up to the passage of bills in the Senate and House last year. Agreements with the Pharmaceutical Research and Manufacturers of America (PhRMA), American Hospital Association (AHA), America’s Health Insurance Plans (AHIP) and others targeting $2 trillion savings over ten years are the focus of the sponsors’ interest.

HITECH update: CCHIT to begin EHR certification starting February 12; Beacon community applications due

A key step in HITECH’s goal of widespread adoption of certified electronic health records by hospitals and physicians is the certification process. Last month, the office of the national coordinator (ONC) released 176-page specification brief to guide vendor eligibility, but to date the entity designated to "test and certify" the platforms has not been named. Last week, the Certification Commission for Health Information Technology (CCHIT) announced it would begin taking applications Feb. 12 from health IT vendors while awaiting word that it would be the sole or among the oversight entities named. Note: CCHIT played a similar role under the prior HHS administration but to date has curiously not been deemed the certifier for the expanded effort.

Meanwhile, Beacon community applications from provider organizations and local community partners are due this week: grants of up to $20 million over 36 months will be awarded 15 applicants who demonstrate capability in deployment of community-wide e-Health solutions. Key considerations in the selection process will be potential replicability to other communities and anticipated results from IT deployment—improved coordination of care, increased access by underserved populations, reduction of ethnic disparity, reduced costs and improved safety.

Fact file

  • The fragmentation of the U.S. health care industry: 340,650 different establishments including 8,600 medical device companies, 1,300 health insurance companies, 5,800 non-federal hospitals, and so on; 36 percent of physicians practice in 1/2 physician practices. (Source: U.S. Bureau of the Census, Deloitte Center for Health Solutions analytics)
  • Word count from President Obama’s state of the Union speech Wednesday night:
    • “jobs” 29
    • “taxes” 21
    • “debt/deficit” 19
    • “economy” 17
    • “recover/recovery” 10
    • “health care” 8
    • “health insurance” 3 (Source: Wall Street Journal Jan 28, 2010).

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