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Health Care Reform Memo: May 23, 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

Monday, the Patient Centered Outcome Research Institute (PCORI) Board of Directors named Kaiser’s Joe Selby, MD, executive director. The fanfare was subdued in my view given the importance PCORI will play and its prominence among elements of the Affordable Care Act (ACA) that repeal enthusiasts are focused on.

Per ACA Section 6301, PCORI is an independent non-government organization created to help patients, clinicians, purchasers, and policy makers “make better informed health decisions” by commissioning clinical research and providing mechanisms so consumers can understand treatment choices based on evidence. It is governed by a 21-person board—19 appointed by the Government Accounting Office (GAO) to six-year terms starting September 23, 2010 plus the Directors of the Agency for Health Care Research and Quality (AHRQ) and the National Institutes of Health (NIH). In addition, a 15-person Methodology Committee will advise about methods whereby traditional and non-traditional studies of diagnostics and therapeutics will be considered.

Arguably, the most contentious feature of health reform is the notion that access to diagnostic tests, surgery, medications and self-care treatments will be guided through other than a physician recommendation. For more than 100 years, the U.S. system has operated on a simple assumption-- a physician’s judgment supersedes all others in determining what’s best for patients. In the heat of the reform debate, the American Medical Association’s (AMA’s) theme was “nothing between the doctor and me”, reinforcing its strong belief that physicians alone should determine treatment options for patients.

Physicians are professionals. The vast majority make recommendations based solely on their assessment of what’s best for patients. But the results of this system are mixed: most physician recommendations do no harm to patients and result in improved health. But often, the opinions of physicians vary widely when suggesting treatment options for patients. RAND researchers found adherence to evidence-based practices varied widely for 30 routine medical problems and on average physicians followed evidence only 55 percent of the time. And John Wennberg and his Dartmouth colleagues determined that as much as 30 percent of health spending could be saved if practitioners practiced per the evidence instead of their professional preferences.

So the challenge for Dr. Selby and the PCORI board is enormous. Can a suitable methodology be developed and PCORI guidance provided that encourages innovation and sustains research and development investments by the device, biotech, and pharmaceutical companies? Can mechanisms be developed to equip consumers to make educated decisions about the treatment options they have in teachable moments even when challenged by their provider? Will coverage decisions and the national quality strategy from the U.S. Department of Health and Human Services (HHS) incorporate PCORI recommendations in such a way as to improve population health equitably and appropriately? Will PCORI’s recommendations facilitate the development of robust clinical knowledge management tools that are embedded in wireless devices and medical records to prompt physicians and patients about their treatment options based on up-to-date clinical research? And will politicians on all sides of the health reform debate concede to the notion that “nothing between my doctor and me” is intellectually at odds with common sense showing that access to the evidence shared by clinicians and patients is the optimal path to better care?

I believe PCORI’s role vital to the future of the U.S. health delivery system. Cancer is public enemy #1. For years, pharmaceutical and biotech companies have sought to develop drugs that either kill tumors outright with chemotherapy, block mutated genes that fuel cancer growth, or re-program DNA that turns cells cancerous. I wonder how PCORI will advance research about a cure for cancer or other vexing human maladies—depression, dementia, autism, and others.

I wonder how information technologies embedded in wireless devices and electronic medical records that draw from cloud-based data repositories will enable physicians and consumers to share data and make clinical decisions together.

And I wonder how PCORI will lead the U.S. system from opinion-based medicine to information-driven health care.

Today, 75 randomized controlled studies will be published in the world. Today, most patients will benefit from decisions recommended by their clinician but some will be harmed because the evidence of what works best is not considered.

PCORI is the entity that will play the lead role in transitioning the U.S. health system to evidence-based care. It deserves careful scrutiny—the stakes are high. I want evidence between my doctor and me.

Paul Keckely

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

Implementation update

Comparative effectiveness research board names Selby director

Monday, PCORI announced Joe V. Selby, M.D., M.P.H., as the organization's first executive director. Per ACA Section 6301, Selby will identify strategic issues and opportunities for PCORI and implement programs authorized by its Board of Governors. He is a family physician, clinical epidemiologist, and served 13 years as director of the research division at Kaiser Permanente, Northern California.

Health insurance plan premium oversight rule published

Thursday, HHS published a final rule regarding the disclosure and review of “unreasonable premium increases” required by Section 2794 of the Public Health Service Act, added by ACA Section 1003. The rule stipulates:

Beginning September 1, 2011, insurers seeking rate increases of ten percent or more for non-grandfathered plans in the individual and small group markets will be required to publicly disclose and justify the proposed increases.
Beginning September 1, 2012, a state-specific threshold will be set for disclosure of rate increases. HHS will work with states to develop the thresholds using state-specific cost data and trends.
States with effective rate review systems will analyze proposed increases to determine if they are reasonable. HHS will conduct the reviews for states that lack the resources or authority to do thorough actuarial reviews. HHS expects the majority of states to be able to conduct reviews.
HHS will publish consumer-friendly forms that insurers must use to propose rate increases and to inform consumers about the proposed rate increases.
Information on the outcome of all reviews, including the justification provided by insurers for rate increases determined to be unreasonable, will be posted on the HHS website. Health plans will also have to justify increases on their own websites.

HHS seeks comments on its intention to apply the rule to coverage sold through associations, which are sometimes exempt from state oversight.

Note: to date, 43 states and the District of Columbia are using $44 million in grants provided by HHS to help improve their oversight of proposed health insurance rate increases. These grants are part of $250 million that ACA makes available to states to take action against insurers seeking unreasonable rate hikes.

HHS drafting regulations on 340B drug program

Friday, HHS released a notice of proposed rulemaking for exclusions for certain orphan drugs covered under 340B program. This is the first in a series of regulations that will outline requirements in the 340B Program. ACA section 7101 extends participation in the 340B program to children’s hospitals, cancer hospitals, critical access hospitals, sole community hospitals, and rural referral centers, and exempts orphan drugs from required discounts for new 340B entities.

Note: section 340B of the Public Health Service Act requires manufacturers participating in Medicaid to sell covered outpatient drugs to covered entities at a discounted price. The purpose of the 340B program is to permit covered entities ‘‘to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”

CBO: repealing IPAB to cost $2.4 billion

Friday, the Congressional Budget Office (CBO) estimated that changing the Medicare Independent Payment Board (IPAB) mechanism would increase Medicare spending by $2.4 billion from 2018 through 2021. Republican lawmakers introduced legislation (S. 668 and H.R. 452) to repeal IPAB. American Hospital Association (AHA) supports such legislation.

Note: per ACA Section 3403, IPAB will provide recommendations to reduce Medicare cost growth in particular years where the projected per capita growth rate for Medicare spending per beneficiary exceeds a target growth (based on inflation [2015 to 2019] or the economy [2020 and beyond]). Congress cannot override IPAB recommendations unless it enacts alternate legislation that achieves the same spending target via a different mechanism and passes the alternative in a fast-track legislative process set forth in ACA.

Legislative update

Marketing guidelines for Medicare Advantage, Part D issued

Medicare Advantage (MA) and prescription drug plans (PDPs) must effectively communicate that their “star” performance ratings are only for the current year and may change in the future per Centers for Medicare & Medicaid Services (CMS) marketing guidelines issued last Friday.

The guidelines restrict where sales agents may market to the common areas of health care settings, such as hospital or nursing home cafeterias, community or recreational rooms, and conference rooms; and in these settings, their activities are limited to education rather than enrollment.

Note: H.R. 3962, “Affordable Health Care for America Act of 2009,” as passed by the House of Representatives on November 7, 2009 authorized payments to Medicare Advantage (Part C) plans by CMS based on a five star rating system reflective of their overall quality and performance. The average plan scored 3.27; only 23 percent of Part C plans scored above four stars.

Medicare EHR incentive payments expected soon

According to CMS, Medicare electronic health record (EHR) incentive payments were sent out last week. CMS states, “Providers who have successfully attested to having met meaningful use, and who have met all the other program requirements, can expect to receive their 2011 incentive payments soon.” Payments are based on 75 percent of their total Medicare allowed charges submitted no later than two months after the end of the 2011 calendar year. Maximum allowed charges for a 2011 incentive payment is $24,000; the maximum incentive payment for the first year of participation is $18,000. Payments will not be made to an eligible provider (EP) until the EP meets the $24,000 threshold in allowed Medicare charges. Incentive payments to eligible hospitals and critical access hospitals are based on several of factors, starting with a $2 million base payment.

AMA launches ad campaign for liability reform

Last week, the AMA launched a campaign in support of H.R. 5: The Health Act of 2011, which would put limits on pain and suffering for claimants. In its ads, the AMA cites the following data from 2009:

Sixty-four percent of medical liability claims were dropped, withdrawn or dismissed
Eighty-eight percent of tried medical liability claims were won by the physician
$54 billion—the CBO estimate of federal deficit reduction over a ten-year period if liability reform is enacted

The ads say: “We all pay the price for our broken medical liability system. The current medical liability system fails both patients and physicians—it hurts the quality of patient care and costs the nation billions. For the health of America, we need medical liability reform now.

Note: Medical liability reform was in the earlier House-passed health reform bill but left out of ACA.

State watch

Medicaid expansion costs: CBO

The total incremental costs for Medicaid expansion via ACA (additional 16 million enrollees) will be $60 billion through 2021 per CBO calculations, but $70 billion per Bloomberg Government’s analysis. The highest per capita cost increases will be in Arizona ($1,605), Delaware ($1,394), Utah ($1,340), Louisiana ($1,084) and Texas ($694), largely due to required coverage for eligible adults up to 133 percent of the federal poverty level.

States will offer $70 billion in tax incentives this year to attract industry and jobs, per University of Missouri St. Louis researcher Ken Thomas.

Nine more states and Guam apply for medical loss ratio waivers

Nine more states and Guam have applied to HHS to allow individual insurance plans to spend less than 80 percent of health insurance premiums on medical claims and quality improvements as required under the health care reform law.

The latest request came from Indiana, asking allowance for individual insurance plans to spend 65 percent, 68.75 percent, 72.5 percent76.25 percent, and 80 percent in 2011, 2012, 2013, 2014, and 2015; Delaware requested an adjustment, which was received by HHS May 12, reducing the medical loss ratio to 65 percent, 70 percent, and 75 percent in 2011, 2012, and 2013.

In addition to Guam, other requests were filed by Kansas, Louisiana, Iowa, North Dakota, Florida, Georgia, and Kentucky.

Regional exchange center update

Per the HITECH Act, regional exchange centers (RECs) offer technical assistance, guidance, and information on best practices to support health care providers’ efforts to become meaningful users of EHRs. Eventually, 70 regional centers will be set up serving at least 100,000 primary care providers. Currently there are currently 62 RECs operating having received $677 million in funding to date.

Quotable

“Folks have said we set the bar a little too high and we feel that’s okay. We know that this is a proposed rule and that the goal is to take our best shot and then work with the industry, work with interested parties to figure out what the best approach is… Are we asking too much or are we asking things that make sense if you think about us moving from a siloed, fragmented, unsustainable, financially out-of-control healthcare system to a safe, seamless, coordinated care system that’s patient, people, family-centered? Are we on the right road with what we have established?”

– Richard Gilfillan, acting director of the Center for Medicare and Medicaid Innovation at CMS, at Commonwealth Fund May 13, 2011

“The United States has no purpose. That is perhaps its greatest achievement. America's founding document, its Declaration of Independence, allows that a state exists only to secure life, liberty, and the pursuit of happiness. That's it. There's a curious lack of ambition in those words. The United States was not founded for the greater glory of anything, or as the necessary outcome of history, but for the freedom to collect figurines, to join a clogging troupe, to take a road trip. Yet these words, which carry no ideology whatsoever, are the ones that keep winning.”

– “Why Bin Laden Lost” Bloomberg BusinessWeek May 9-15, 2011

Fact file

Hospital prices will be up 5.4 percent in 2011; inflation will increase two percent and consumer prices will increase three percent. (Source: U.S. Department of Commerce)
The Medicare Hospital Trust Fund (Part A) spent $247.9 billion in 2010, $32.3 billion more than receipts through taxes and other receipts. (Source: Medicare Trustees' Report, U.S. Department of the Treasury)
Since 1985, Congress has raised the debt ceiling 32 times including 15 temporary increases. (Source: Congressional Quarterly)
Forty percent of all pregnancies are unplanned: highest rate is Mississippi (69/1,000 women ages 18-44), lowest New Hampshire (36/1,000). (Source: Bixby Center for Global Reproductive Health, University of California-San Francisco)
Twenty-six percent of front-line workers in nursing homes and 37 percent of those employed by home care agencies are uninsured. (Source: Paraprofessional Healthcare Institute)
Fast food industry sales 2011: $168 billion—70 percent through drive-thru windows. (Source: National Restaurant Association)
Uninsured families pay about 12 percent of their hospital bills in full; families above 400 percent of the federal poverty level ($88,000/year for a family of four) pay 37 percent of their hospital bill in full. The net impact: $49 billion uncollected by hospitals. (Source: HHS May 10, 2011)
$26 billion spent on online advertising last year including $450 million via mobile devices. (Source: Magna Global)
In 39 states, voters elect judges who will rule on state employee pension challenges, etc. (Source: Bloomberg May 22, 2011)
Research and development investments in the U.S.: 2.5 percent of GDP; unchanged since 1990. (Source: Federal Reserve)
Backlog of disability cases: 730,000. Note: The disability program covers 18 million people and costs $113 billion of the $800 billion Social Security program. (Source: Social Security Administration)
Changing demography: 30 percent of American adults have never been married—highest since World War II. (Source: U.S. Bureau of the Census)
Opinions about health reform: 27 percent favor keeping the individual mandate versus 67 percent who oppose; 50 percent prefer maintaining Medicare in its current form versus 46 percent who favor privatizing Medicare via commercial health plans. (Source: Kaiser Family Foundation survey of 1202 adults, March 8-13, 2011)
Fourteen percent of the two million nursing home patients over the age of 65 received at least one antipsychotic drug during the first six months of 2007; 83 percent of these were “off label” for conditions other than schizophrenia/bipolar indications at a cost of $116 million to Medicare. Twenty-two percent of drugs prescribed were deemed unnecessary. (Source: Office of the Inspector General, HHS)
In 2008, 124.9 million visited a hospital emergency room; 3.45 million of these from nursing homes. Use of emergency rooms increased 23 percent faster than population growth from 1997 to 2007. (Source: AHRQ)
The economy will increase 2.8 percent in 2011, up from 1.8 percent last year per survey of 59 economists. (Source: Bloomberg May 16, 2011)
Federal Medicaid spending under the GOP plan would fall 35 percent below current projections by 2022 and 49 percent below by 2030. (Source: CBO)
This year’s report from PwC’s Health Research Institute reports the medical cost trend will increase from 8 percent in 2011 to 8.5 percent in 2012. (Source: PwC’s Health Research Institute, “Behind the numbers”)
Eighty-six percent of health care plans worry that providers won't be ready by the October 2013 compliance date to submit claims using ICD-10 codes. Nine percent have begun testing provider submitted data. That compares with a 75 percent rate of payers worried about provider progress in a survey taken during the third quarter of 2010. As of February, 2011, with 11 months until the Health Insurance Portability and Accountability Act (HIPAA) 5010 transactions deadline, 47 percent of surveyed payers have built or mapped 4010 to 5010 files and nine percent have completed 5010 trading partner testing. (Source: Gantry Group)
The market for EMR systems will grow at 15.1 percent annually for the next five years, but that growth could hinge upon the creation of more user-friendly systems, i.e. font size, frame size, number of keystrokes for entry. (Source: Kalorama Information)
A ten percent increase in hospital use of basic electronic records would save 16 babies for every 100,000 live births, the study found. A complete national transition to electronic records would save an estimated 6,400 infants each year in the U.S. Each year 18,000 babies die in the U.S. within 28 days of birth. That places the U.S. 43rd worldwide in infant mortality rate—on par with nations such as Slovakia and Montenegro and behind most of the European Union. (Source: Miller et al., Journal of Political Economy)

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.