Health Care Reform Memo: October 24, 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
The health care industry is unusual—heavily regulated at the federal and state levels, highly dependent on capital for modern buildings and new technologies for patient care, and labor intense; it employs almost 16 million.
Most of its workforce supports doctors and nurses who deliver front-line care to patients. It’s people like “Willis”.
As a teen, I worked with Willis in Central Sterile Supply at Erlanger Medical Center in Chattanooga, TN. She taught me how to clean protoscopes and bed pans and assemble bed frames for burn victims and broken limbs. Everyone knew Willis—no one ever called her by her first name (Ruth).
Through high school and college, I spent summers in the emergency room, operating room, central sterile supply, and intensive care unit (ICU) at Erlanger. My jobs were understandably modest—I counted the numbers of absorbent tissues used in surgery to be sure none were left after the incision was closed. I helped emergency medical services get patient information while others attended to medical needs. And in the ICU, I made sure patient families knew where to eat or sleep in the wee hours. But of all those experiences, I may have learned most from Willis.
There was sparse recognition for Willis and her peers. No special parking areas. No special places to eat. No pictures in the hallway unless THE winner of a service award was among thousands of her peers in the ranks of the support team. Yet their jobs are essential and they comprise the majority in the health care workforce.
The healthcare industry is about jobs and people. Its employment increased from 8.7 percent of the U.S. workforce in 1998 to 10.5 percent in 2008 (15.8 million) and will be 11.9 percent in 2018 (19.8 million)—a 23 percent increase versus 9 percent for all other industries.
According to the Bureau of Labor Statistics (BLS), in the next decade, increases in its white and blue collar employment will accelerate at rates above any other industries. Consider:
- Registered nurses to increase 22.2 percent
- Licensed practice and licensed vocational nurses to increase 20.7 percent
- Home health aides to increase 50 percent
- Nursing aids, orderlies, and attendants to increase 18.8 percent
- Personal and home care aides to increase 46 percent
- Physicians to increase 21.8 percent
Title Five of the Affordable Care Act (ACA), calls for the strengthening of the U.S. health care workforce. Among key elements:
- Health Workforce Commission (Sections 5101, 10501): establishes a national commission to report to Congress and the Administration on how to align federal health care workforce resources with national needs. Barriers of entering and remaining in primary care careers are the Commission’s highest priority.
- State health care workforce development grants (Section 5102): creates competitive grants to enable state partnerships to support innovative approaches to increase the number of skilled health care workers such as health care career pathways for young people and adults.
- Primary care workforce (Sections 5501 – 5508): provides a 10 percent Medicare payment bonus for five years to primary care practitioners and general surgeons practicing in health professional shortage areas starting in 2011 (Section 5501); directs the Department of Health and Human Services (HHS) to implement a Medicare payment to reimburse Federally Qualified Health Centers (FQHC) (Section 5502); and increases supply of primary care physicians via residency programs (Sections 5503 – 5508).
- Nursing-related provisions (Sections 5202, 5203, 5208, 5308 – 5311, 5404, 5509, 10501): provides funding for and creates programs such as loan repayment programs to expand nursing education, training, and diversity. Note: in July 29, 2011, the HHS announced $71.3 million in grants to expand nursing education, training, and diversity.
Appropriately, ACA tackles the skilled professions in the scope of its challenge to retrain the health care workforce. It’s not a new theme. Physicians and nurses in training programs are now taught concepts of team-based care, use of information technologies to enhance diagnosis and treatment planning, improved listening skills with patients, and recognition of ethnic and lifestyle differences in patients necessary for accuracy in their care. Physicians are also learning that their personalities and patient interactions have substantial impact on outcomes, patient adherence, lawsuits, and costs.
Along the way, these efforts will touch the millions like Willis who play key support roles in the system. They are faceless to many, but essential to all who share in the pursuit of quality, affordable, accessible health care services.
I learned about the art and science of medical care watching the nurses and physicians; I learned about the way the system operates shadowing Willis.
Paul Keckley, Ph.D., Executive Director, Deloitte Center for Health Solutions
Note: last Monday, the Bipartisan Policy Center, in collaboration with the Deloitte Center for Health Solutions, released “The Complexities of National Health Care Workforce Planning”. It describes a national challenge to assess the future of its workforce per ACA Title Five, considering new incentives, new technologies, new roles for consumers, and compelling demands on the system. To download, visit Bipartisan Policy Center.
ACO final rule released; reaction from providers positive
Thursday, the Centers for Medicare & Medicaid Services (CMS) released the final regulations for the Medicare Shared Savings accountable care organization (ACO) program along with regulations from HHS’s Office of Inspector General (OIG) and a policy statement from the Federal Trade Commission (FTC) and U.S. Department of Justice (DOJ) addressing anti-trust issues for ACOs. The changes from the initial proposed rule (April 7, 2011) suggest CMS responded to provider concerns about the costs and risks associated with ACO participation by making changes that enhance the program’s attractiveness. CMS will start accepting applications for the program shortly after January 1, 2012 and provide two application periods for the first year of the program. Applications will be accepted for to two start dates: April 1, 2012 or July 1, 2012. All ACOs that start in 2012 will have agreement periods ending at the end of 2015.Specifically, the final rule:
- Reduced the numbers of quality measures necessary to reporting from 65 to 33, thus reducing compliance costs
- Clarified the anti-trust provisions of federal oversight, eliminating the mandatory DOJ review for ACOs with high market dominance
- Lowered the risk thresholds ACOs may take in the two models to encourage higher participation and shelter the ACO somewhat from financial losses (participants in the one sided model may not be exposed to risk for the entire three-year period contrary to the proposed rule wherein they assumed risk in Year 3). A limited shared savings split of up to 50 percent in the one-sided model and up to 60 percent in the two-sided model, but share on first dollar for all ACOs in both models after meeting the minimum savings rate
- Modified the mechanism whereby Medicare beneficiaries are assigned to ACOs by assigning them at the beginning of the year instead of year end and allowing for adjustments along the way if the primary provider relationship changes due to a medical condition
- Allows Community health centers and rural health clinics to develop/lead ACOs (not included in original proposal)
- Relaxed the timetable for start-up of ACOs with groups allowed to apply throughout 2012
- Provides physician-owned and rural providers early access to some of the expected savings -- $170 million – to fund ACO start-up costs
CMS will accept applications starting January 1, 2012 for three year program participation ending in 2015.
Note: often, government is criticized for “not listening”. The final rule seems a clear indication CMS officials listened and responded to the market. For a complete summary, see the Monday Memo Special Edition “Final ACO Rule” attachment.
CBO: CLASS program repeal will not impact budget
Last Monday, the Congressional Budget Office (CBO) sent a memo to congressional staff members noting that the repeal of the Community Living Assistance Services and Supports (CLASS) program—a voluntary self-funded public insurance program for long-term care services (per ACA section 8002)—would have no budgetary impact. When HHS made its intent to repeal the CLASS Act in ACA known last week, it was assumed the reduction of revenues from ACA associated with premiums paid by CLASS enrollees ($72 billion from 2014-2019) would lower funding for ACA originally sought. The CBO indicates the elimination of CLASS from ACA will not require an adjustment for lower revenues.
Separately, the House Energy and Commerce Committee will hold hearing, ‘CLASS Canceled: An Unsustainable Program and Its Consequences for the Nation’s Deficit,’ this Wednesday.
CMS offers program Innovation Advisors
Monday, CMS asked for applications for a new program, the Innovation Advisors program, that will train 200 clinicians, allied health professionals, health administrators to develop new delivery models useful to improvements in Medicare, Medicaid and CHIP programs. CMS will accept applications through November 15. Visit CMS Innovation Center for additional information.
Update: Legal challenges to ACA
Tuesday, the 26 states that challenged the ACA, State of Florida v. HHS, asked the U.S. Supreme Court to decide whether the individual mandate is constitutional and if the ACA is severable from the individual mandate; and to consider whether the Anti-Injunction Act (AIA) applies if it is inclined to do so. The AIA prevents individuals from suing over a tax until the tax has been paid. The individual mandate is effective 2014, thus individuals would not start paying the penalty for not obtaining health insurance until after 2015.
Also Tuesday, the DOJ asked the court to review the constitutionality of ACA and its severability. The DOJ did not ask the Court to review whether ACA’s Medicaid expansion and employer requirements are constitutional.
Thursday, Missouri Lieutenant Governor Peter Kinder (R) asked the 8th Circuit Court of Appeals to overturn a lower court ruling that prohibits Missouri residents from challenging the ACA’s individual mandate.
CMS announces new procedures to streamline hospital regulatory compliance
Tuesday, CMS released three rules estimated to save $1.1 billion annually by reducing regulatory burdens for hospitals, without reducing payments:
- Governance of multi-hospital systems: updates hospital “conditions of participation (i.e. quality and safety standards that hospitals must follow to participate in the Medicare and Medicaid) by allowing hospitals to have a single, interdisciplinary care plan and one governing body to oversee multiple hospitals in a single health system. (estimated savings: $900 million/year)
- Elimination of duplicative programs: includes more than two dozen proposals to identify and eliminate duplicative/conflicting regulations for providers and suppliers (e.g. hospitals, ambulatory surgical centers (ASCs), end-stage renal disease (ESRD) facilities, and durable medical equipment suppliers); Examples: updating e-prescribing technical requirements so Medicare prescription drug plans can meet standards, eliminating Medicare requirement that automatically deactivates a provider or supplier who has not submitted a claim for 12 consecutive months. (estimated savings: $200 million/year)
- Patient notification for ambulatory surgical centers: Allows ASCs to provide the patient, the patient’s representative, or the patient’s surrogate with patient rights information before the start of the surgical procedure vs. the previous requirement of notification to the patient only.( expected savings $50 million/year)
Drug importation bill rejected in Senate; trade associations weigh in on safety concerns
Thursday, the Senate rejected a proposal to allow drug importation from Canada by a 45-55 vote. Its sponsor, Senator David Vitter (D-LA) had exempted biologics and controlled substances from the bill which drew opposition from pharmacies and drug safety advocates. Vitter's proposal originated from a 2007 homeland security spending bill that allowed individuals to bring a 90-day supply of medications into the country from Canada. His amendment aimed to prevent the Food and Drug Administration (FDA) from targeting individuals that bring FDA-approved drugs into the U.S. from Canada, including through internet and mail orders.
The Partnership for Safe Medicines which includes a the Pharmaceutical Research and Manufacturers of America (PhRMA) and other trade groups sent letters to senators highlighting their safety concerns, including the FDA's inability to assure the safety of products. It urged Congress to focus on creating drug safety controls—likely part of the prescription drug user fee reauthorization (PDUFA) next year.
The Partnership’s letter stated: “Drug importation advocates believe that drugs purchased from countries such as Canada and the United Kingdom are safe because of their strict health regulations. Unfortunately, this is simply not true. There is a lack of regulation for products trans-shipped through 'safe' countries such as Canada and the United Kingdom.”
Lawmakers encourage 12-year biologics exclusivity
Last week, a bipartisan group of 50 lawmakers urged President Obama to maintain data exclusivity at 12 years for biologics, as established by ACA Section 7002. The President proposed reducing the exclusivity period to seven years in his deficit-reduction proposal last month. According to CBO, cutting the period down to seven years could save the federal government $3.5 billion over ten years.
House Committee examines effectiveness of FDA medical device oversight
October 14, the House Energy and Commerce Committee challenged the effectiveness of the FDA in its oversight of the medical device industry approval process. According to the Congressional Research Service, overall medical device review process funding increased from $275 million to $368 million from fiscal year (FY) 2008 to FY2010 (Source: Medical Device User Fees and User Fee Acts, April 26, 2010). A study by the California Healthcare Institute found the average review time for products approved under the 510(k) pathway increased by 43 percent and the average review times for premarket approval applications (PMAs) increased 75 percent (Source: Competitiveness and Regulations: The FDA and the Future of America’s Biomedical Industry, February 2011). The committee chair, Dave Camp (R-MI) concluded the FDA’s performance relative to device oversight was not an issue of adequate funding.
“We have been able to fine tune and improve the rules for a range of stakeholders, providers and patients.”
– Dr. Donald Berwick, CMS administrator, October 20, 2011 on announcement of ACO Final Rule
“The United States has led the global medical device industry for decades. This leadership has brought hundreds of thousands of high-paying jobs to our country and life-saving, life-improving devices to our nation’s patients. U.S. medical device-related employment totals over two million jobs, and these are good, rewarding jobs as employees in the device industry earn an average of $60,000 per year. Unfortunately, our nation’s medical device leadership is under threat. The threat comes from Food and Drug Administration’s (FDA) unpredictable, inconsistent, and non-transparent regulation of medical devices. The current regulatory environment created by FDA has forced some device companies to cut American jobs and move overseas. It also has hurt American patients because the approvals of life-saving and life-improving treatments have been delayed or denied. Finally, it has harmed American innovation as venture capitalists and other investors no longer view U.S. device companies as good, reliable investments.”
– Letter from 50 Members of Congress to House Energy and Commerce Committee October 14, 2011 “Ten Bills to Fix FDA’s Medical Device Regulation: Saving American Jobs and Saving American Patients”
- In the period from 2008 through 2018, health care industry employment is projected to grow by nearly 23 percent, compared to about 9 percent for all other employment sectors, with over three million new jobs. (Source: BLS)
- Employment of health practitioners and in technical health care occupations is expected to increase by 21.4 percent; 1.6 million new health care jobs between 2008 and 2018. (Source: BLS)
- In 2008, primary care physicians had total median annual compensation of $186,044; physicians practicing in medical specialties had total median annual compensation of $339,738. (Source: BLS)
- In 2008, the U.S. medical device industry directly employed 422,778; workers paid $24.6 billion in compensation and shipped $135.9 billion worth of products. (Source: The Lewin Group)
- Top five health care hourly-wage jobs, May 2010:
|Industry||Employment||Percent of industry employment||Hourly mean wage||Annual mean wage|
|Offices of Dentists||330||0.04||Wage is equal to or greater than $80/hour or $166,400/year||Wage is equal to or greater than $80 /hour or $166,400/year|
|Medical and Diagnostic Laboratories||4,580||2.00||$110.74||$230,340|
|Offices of Physicians||149,030||6.45||$100.97||$210,020|
|Other Ambulatory Health Care Services||740||0.30||$100.11||$208,230|
|Outpatient Care Centers||10,080||1.70||$99.22||$206,370|
- Physicians and nurses per 1000: international comparisons
Source: OECD Health Data 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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