Health Care Reform Memo: November 22, 2010
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.
Breaking news 8:30 am EST November 22, 2010: HHS sets medical loss ratio provisions, consistent with NAIC recommendations
PPACA Section 2018 requires health plans to pay at least 80 percent of their premiums for individual and small group plans and 85 percent for larger group plans or pay the difference in rebates to enrollees/employer sponsors. This morning, HHS announced regulations for the calculation and implementation of the provision, also announcing it would exempt certain mini-med plans from the requirement for 2011.
From Paul Keckley, Executive Director, Deloitte Center for Health Solutions
Last week, the Bipartisan Policy Center (BPC) issued its 137-page list of recommendations to reduce the federal deficit. November 10, a draft of the National Commission on Fiscal Responsibility and Reform (NCFRR) circulated. The similarities with respect to health care spending and structural reforms are notable:
|Overall impact: 2012-2020
|Health care spending reductions||$756 billion
Goal: 1 percent above GDP $200 billion
Goal: 1 percent above GDP by 2020
Both include striking changes to health care spending not included in the new health reform law, and both would cut Medicare spending beyond cuts in PPACA itself.
As of December 2009, 46.3 million Americans are covered by Medicare. Seniors are 13 percent of the population; they were 24 percent of the electorate November 2. They wield unusual influence, especially on matters of health care.
Per the Medicare trustee’s report for 2010, “the HI [Hospital Insurance] fund still fails the test of short-range financial adequacy, as projected annual assets drop below projected annual expenditures within 10 years — by 2012. The fund also continues to fail the long range test of close actuarial balance. The projected date of HI Trust Fund exhaustion is 2029, 12 years later than in last year’s report, at which time dedicated revenues would be sufficient to pay 85 percent of HI costs.”
Twenty-seven percent of Medicare’s $509 billion annual expenditure in 2009 was spent in the last year of the patient’s life. It is 13 percent of the federal budget, 22 percent of total health spending in the U.S., 41 percent of home health care, 28 percent of hospital services, 20 percent of physician services, and 21 percent of prescription drug spending. It is THE most important payer in health care. Consider: physician and hospital payments by commercial plans are tied to Medicare rates, and it is funded by payroll deductions at virtually every level of income.
So as the 111th lame duck session concludes its work and the 112th settles in, a fresh look at Medicare prompted by its centrality to deficit reduction and fiscal solvency is timely and necessary.
Should its formula for premiums be changed? Should the age of eligibility be raised? Should enrollees assume more personal responsibility for their care? Should end-of-life care be a central focus? Should more of the burden of its costs be borne by current enrollees lowering future generations’ current financial pressure? Should it permanently ditch its fee-for-serve model in favor of coordinated care? Should premiums be tied to consumption? Should funding be through employer or individual contributions? Should a new pre-Medicare program be created to tackle Boomer health problems sooner? Should state health exchanges be the conduit for management of Medicare plans? Can policy-makers working with the private sector improve its value proposition to current and future enrollees?
My take is this: deficit reduction in not achievable without massive changes to Medicare. It’s not about adjusting the annual pay formula; it’s about starting fresh. It’s not working well, and annual cuts only nibble at the edges of needed reform.
Bipartisan Policy Center deficit reduction recommendation
Last week, the Bipartisan Policy Center published its recommendations. “Restoring America’s Future: Reviving the Economy, Cutting Spending and Debt, and Creating a Simple, Pro Growth Tax System” was authored by its 19-member Debt Reduction Task Force chaired by former New Mexico Senate Budget Committee Chair Pete Domenici and former Office of Management and Budget (OMB) Chairman Alice Rivlin. Notably, cutting health costs by $756 billion and changes in Medicare and Medicaid are prominent in the 137-page report. Highlights relevant to health care:
- Cap the exclusion of employer-provided health benefits in 2018 phased it out over ten years.
- Increase Medicare Part B premiums from 25 to 35 percent of total program costs (over five years).
- Increase rebates from pharmaceutical companies for Part D prescription drug program.
- Modernize Medicare’s benefits package, including the co-payment structure.
- Bundle Medicare’s payments for post-acute care to reduce costs.
- Use managed care in all states to aged Supplementary Security Income (SSI) beneficiaries.
- Reduce annual per-beneficiary cost growth by one percent by 2018.
- Change the shared financing arrangement (FMAP) between the federal and state governments.
- Reform medical malpractice laws: caps for non-economic damages, safe harbors.
- Reduce long-term healthcare spending to treat obesity-related illnesses by imposing an excise tax on the manufacturers and importation of beverages sweetened with sugar or high-fructose corn syrup.
- Permanently fix the sustainable growth rate (SGR) mechanism.
Rep. Paul Ryan, Alice Rivlin propose voucher system for Medicare and Medicaid
Wednesday, Rep. Paul Ryan (R-WI) and Alice Rivlin, former director of the Congressional Budget Office (CBO) and OMB, released a plan to reform Medicare and Medicaid payment through a voucher system beginning in 2021. The proposal, which also includes repealing the Community Living Assistance Services and Support (CLASS) Act and medical malpractice reform, would reduce the budget deficit by $280 billion by 2020 according to the CBO.
- Those who become Medicare eligible beginning in 2021 would receive a voucher based on average cost per enrollee in 2012, annually adjusted for GDP growth per capita plus one percentage point. The eligibility age would increase by two months every year, until 2032 when it reaches 67.
- Cost-sharing, beginning in 2013, would include a single $600 deductible for Parts A and B, and 20 percent coinsurance after the deductible. It would also establish a catastrophic cap of $6,000.
- Medigap would include a $500 deductible and a catastrophic cap of $2,750. It would reduce cost-sharing between the deductible and catastrophic cap by 50 percent of Medicare rates.
- Medicaid would be funded as a block grant to states beginning in 2013 and would grow according to GDP per capita plus one percentage point.
- Dual eligibles would receive annual contributions to a new federal savings account beginning with $6,600 in 2012, to grow at the rate of GDP per capita plus one percentage point, instead of assistance from Medicaid.
HIMSS releases preliminary data on hospitals meeting meaningful use requirements
Monday, Healthcare Information and Management Systems Society (HIMSS) Analytics released data showing that almost one quarter (22 percent) of participating hospitals have the capability to meet ten or more of the required core measures in the meaningful use (MU) Stage 1 requirements. Other key findings include:
- 34 percent of respondents have the capability to achieve between five and nine of the core measures for MU
- 40 percent indicated they have the capability to meet five or more of the menu items for MU
OIG report: one in seven Medicare enrollees discharged are harmed by hospital care
Tuesday, the Office of Inspector General (OIG) reported that about one in seven hospitalized Medicare beneficiaries, or 13.5 percent, experienced harm as a result of an adverse event during hospital stays. The report was based on a nationally representative sample of 780 Medicare beneficiaries discharged from acute care hospitals during October 2008. Other findings include:
- 13.5 percent of Medicare beneficiaries experienced events during their hospital stays that resulted in temporary harm
- 44 percent of adverse and temporary harm events were clearly or likely preventable
- Hospital care associated with adverse and temporary harm events cost Medicare an estimated $324 million in October 2008
The OIG recommended that the U.S. Department of Health & Human Services (HHS) lead national efforts to reduce adverse events in hospitals, citing PPACA (Section 3501). PPACA enacts a national strategy to improve health care quality where HHS is to identify areas in the delivery of health care services that have the potential for rapid improvement in the quality and efficiency of patient care. PPACA also enacts several other provisions that could address adverse events, including the hospital readmissions and hospital acquired conditions policies.
Physician pay cut avoided, 31-day extension passed in Senate
Thursday, by unanimous consent, the Senate passed the "Physician Payment and Therapy Relief Act of 2010," avoiding a scheduled 23.2 percent cut in Medicare pay for doctors beginning December 1 by extending current levels (+2.2 percent increase from 2009) through December 31, 2010. If the House approves the language, the cost of the one-month postponement will be $1 billion over ten years paid for by a reduction in the amount paid to outpatient therapy providers who perform multiple services on the same day. The temporary measure also avoided a scheduled cut to TriCare providers who are paid per the SGR model.
Senate Finance Committee Chairman Max Baucus (D-MT) and ranking Minority member Charles Grassley (R-IA) announced their intent to bring legislation forward by year end to avoid an additional cut of 6.5 percent in January.
Note: the SGR model for setting physician pay was instituted in 1997 to align total Medicare outlays for medical care with overall inflation and medical costs. It has been set aside by Congress 11 prior times since 2004 resulting in a mounting line-item deficit of almost $300 billion. When or if Congress “fixes” the formula, the overpayments to physicians accumulated since 2004 will be added to the deficit. The American Medical Association (AMA) wanted a 13-month extension of the "doc fix" that would protect physicians from a Medicare pay cut until 2012, costing $15 billion.
There is widespread agreement the SGR formula is flawed but consensus around an appropriate payment methodology that balances costs of services and quality, accounts for variation in local practice costs, balances cognitive and technical elements of medical care, and appropriately compensate physicians in all specialties is widely debated. Starting in 2014, the Independent Payment Advisory Board will assume control of physician payments.
FDA tackles menthol cigarettes, food safety gets attention
Thursday, the U.S. Food and Drug Administration’s (FDA) 12-member Tobacco Products Scientific Advisory Committee held hearings in its evaluation of menthol-flavored cigarettes. The panel consists of nine doctors, scientists and public health experts as well as three non-voting representatives of the tobacco industry. The committee has until next March to report its menthol findings to the U.S. Secretary of HHS. The controversy centers on research indicating children are heavy users of menthol cigarettes: 45 percent of smokers aged 12 to 17 use them, and 83 percent among African American adult smokers prefer them (Source: 2009 National Survey on Drug Use and Health).
And late Thursday, the Senate failed to pass a bill proposed by Sen. Tom Harkin (D-IA) to expand the powers of the FDA to oversee food safety. Last month, the FDA began action to shut down Estrella Cheese Creamery after tests found listeria in its cheese. (Listeria is a bacteria harmful to the young, seniors, and pregnant women). The owner, artisan cheesemaker Kelli Estrella, refused to agree to a broad recall of her cheeses. Artisan cheesemakers make cheese by hand in small batches using raw milk that is not pasteurized to kill bacteria (raw-milk cheeses must be aged 60 days to make them safer). There are 34 in Washington state and 48 in Vermont. A vote in the House is expected after Thanksgiving on the long-awaited legislation.
ONC Tiger Team proposes provider authentication for health data exchanges Wednesday, the Privacy and
Security Tiger Team working under Office of the National Coordinator for Health IT (ONC) issued guidance relative to organizational participation in health data exchanges. All organizations involved in health data exchange should have digital credentials, such as electronic certificates. The team proposed authentication policies for the direct electronic exchange of health records between providers, where sender and receiver are most likely known to each other, using its Nationwide Health Information Network (NHIN) Direct project—a set of standards and services that enables providers to share data securely through the internet. Authentication, a key to privacy and security, is critical when transactions involve any patient risk or the potential exposure personal health information.
Integrated systems report: GAO
Tuesday, the U.S. Government Accountability Office (GAO) issued a 33-page report profiling 15 integrated delivery systems (IDS) responding to a request from Sen. Tom Harkin (D-IA), Chairman of the Senate Committee on Health, Education, Labor, & Pensions, and Rep. Henry Waxman (D-CA), Chairman of the House Committee on Energy and Commerce. Among notable findings:
- No two IDSs are alike. Some employ physicians and operate their own health insurance plans as a core strategy; others do not.
- Care coordination using clinical protocols and use of clinical information technologies (especially computerized physician order entry (CPOE), e-prescribing, telehealth) are a significant focus of IDS investments and management focus.
- Physician employment is a significant and growing feature in most IDSs.
- Connectivity with community-based health resources, i.e. school clinics, Federally Qualified Health Clinics, etc. are a key element of population health management and care coordination for IDSs.
- Clinical models that integrate mental health and primary care medicine are a key focus of community-based services targeting under-insured populations.
- Challenges facing most IDSs include funding for most care coordination efforts, creation of a collaborative culture with physicians and implementation of information technologies efficiently and effectively.
Source: “Health Care Delivery: Features of Integrated Systems Support Patient Care Strategies and Access to Care, but Systems Face Challenges”, Government Accounting Office, November 16, 2010. (www.gao.gov)
Departments of HHS, Labor, and Treasury amend grandfathered rule
Last week, HHS and Departments of Labor and the Treasury issued an amendment to the interim final regulation on grandfathered health plans published last June. The amendment allows employers (group plans) to change insurance carriers or enter into a new contract or policy with an existing carrier without losing grandfathered status, so long as the structure of the coverage does not violate one of the other rules for maintaining grandfathered plan status. The employer must provide a summary of the new policy to employees. The Departments expect that the amendment will result in a small increase in the number of plans retaining their grandfathered status relative to the estimates made in the June regulation.
Previously, only self-funded plans were allowed to change third-party administrators without losing grandfathered status. A change of issuers in the individual market will still result in the loss of grandfathered status. The new rule was published in the November 17 Federal Register (75 Fed. Reg. 70114).
Note: Under the Patient Protection and Affordability Care Act (PPACA), health plans in effect as of March 23, 2010 are considered to be grandfathered health plans. Grandfathered plans are exempt from a subset of the health insurance reform provisions. The table below outlines the provisions that will apply to grandfathered plans.
|PPACA Provision||Application to Grandfathered Plans|
Sen. Baucus introduces bill to repeal income 1099 reporting requirements for small businesses
Monday, November 15, Sen. Max Baucus (D-MT), Chairman of the Senate Finance Committee, introduced a bill to repeal PPACA section 9006 which expanded tax information reporting requirements to require reporting of payments made to corporations. The provision was written to keep taxes low by providing the IRS more tools to ensure all owed taxes were paid. However, following the enactment of PPCA, business owners expressed concern that the provision would place too large of a paperwork burden.
Sens. Wyden, Brown propose state innovation waivers
Thursday, Sens. Ron Wyden (D-OR) and Scott Brown (R-MA) introduced legislation that would move up the implementation date of the waiver for state innovation created by PPACA (Section 1332) from 2017 to 2014. Under the provision, states can apply for a waiver from some of the PPACA requirements—including the individual mandate, employer penalty for not providing coverage, and structure of the health insurance exchange—as long as states can demonstrate that they will cover at least as many residents with coverage that is at least as comprehensive and affordable as prescribed under federal law.
Center for Medicare and Medicaid Innovation officially established, medical home initiatives announced
Wednesday, the Centers for Medicare & Medicaid Services (CMS) formally established the new Center for Medicare and Medicaid Innovation (CMMI), created by PPACA (Section 3021). CMMI will identify, evaluate, and disseminate new models for delivering care and paying providers designed to improve quality while reducing costs. CMMI will consult with a diverse group of stakeholders to obtain input on its mission and planned work, including federal agencies, hospitals, physicians, payers, states, employers, and others.
CMS also announced three initiatives to test the medical home model:
- Multi-Payer Advanced Primary Care Practice Demonstration: Medicare will join ongoing multi-payer, state-based demonstrations in eight states: Maine, Vermont, Rhode Island, New York, Pennsylvania, North Carolina, Michigan, and Minnesota.
- Federally Qualified Health Center (FQHC) Advanced Primary Care Practice Demonstration: The demonstration, conducted by CMMI in up to 500 FQHCs, will provide patient-centered, coordinated care to approximately 195,000 people with Medicare.
- State Medicaid health homes: A new state plan option under which Medicaid enrollees with at least two chronic conditions, one chronic condition and the risk of developing a second, or one serious and persistent mental health condition could designate a provider as a "health home." Note: this is implemented by PPACA Section 2703.
Additional information on CMMI and the initiatives is available at: www.innovations.cms.gov.
AMA: 13 Principles for ACOs
At its semi-annual policymaking meeting November 10, the AMA endorsed 13 guiding principles for the development and operation of accountable care organizations (ACOs) (PPACA Section 3022, “Medicare Shared Savings Program”), emphasizing flexibility in design, primary focus on patient safety and quality, voluntary participation by physicians and physicians as leaders of ACOs as core principles. A key focus of AMA has been relaxation of self-referral and antitrust laws as they relate to ACOs, and the potential for a safe harbor to protect physicians in ACO arrangements. October 5, HHS Office of Inspector General and the Federal Trade Commission received input on the application and enforcement of the antitrust laws, physician self-referral prohibition, federal anti-kickback statute, and civil monetary penalty law to the possible ACO structures under health reform and provided initial guidance.
Note: CMS is developing “initial rulemaking” for ACOs per the Federal Register November 17 and is “seeking additional information” (public comments accepted through December 3), on policies or standards should be considered to ensure that groups of solo and small practice providers have the opportunity to actively participate.
The election of write-in candidate Sen. Lisa Murkowski in Alaska Wednesday (the only Senate write-in since 1954) means the Senate will be split 53 Democrats, 47 GOP in 2012. Results of five House races are pending with GOP holding a 240-190 majority over Democrats.
New House leaders announced Wednesday:
|Majority Leadership (Republicans)||Minority Leadership (Democrats)|
|Rep. John Beohner (OH), Speaker of the House||Rep. Nancy Pelosi (CA), Minority Leader|
|Rep. Eric Cantor (VA), Majority Leader||Rep. Steny Hoyer (MD), Minority Whip|
|Rep. Kevin McCarthy (CA), Majority Whip||Rep. James Clyburn (SC), Assistant Leader|
HHS announces high risk pool plan options for 2011
Last week, HHS announced health plan choices for individuals enrolling in the Pre-existing Condition Insurance Plan (PCIP) program for 2011 in 23 states and the District of Columbia that elected to participate in the federally funded program. The temporary program was intended to provide uninsured individuals with pre-existing medical conditions access to affordable coverage from January 1, 2011 January 1, 2014 when state-run health exchanges will be operational.
Beginning in 2011, eligible individuals will be able to choose from three PCIP plan options:
- Standard Plan: The current 2010 Standard Plan has a single, combined medical and pharmacy deductible of $2,500. The 2011 Standard Plan will have two separate deductibles – a $2,000 medical deductible and a $500 drug deductible. According to HHS, the 2011 Standard Plan will offer premiums that are 20 percent lower than premiums for the 2010 Standard Plan.
- Extended Plan: The Extended Plan will have a $1,000 medical deductible and a $250 drug deductible. According to HHS, the premiums for the 2011 Extended Plan will be slightly higher than 2010 premium levels.
- Health Savings Account Option: The Health Savings Account (HSA) Option will have a $2,500 deductible. According to HHS, the premiums for the 2011 HSA Option will be 16 percent lower than 2010 premiums.
Families may enroll eligible children up to age 18 in PCIP at child-only rates.
Note: many states chose not to participate in the program citing inadequate federal funding and the likelihood costs would exacerbate fiscal problems in states
“Our goal is to defund, repeal and replace the government takeover of health care and adopt a patient-centered approach.”
- Dick Armey, Chairman, FreedomWorks, former Republican House Majority Leader on expectations for 112th Congress’ legislative priority
“The industry is grappling with how to get policies into the hands of middle-class families more cost-effectively. Sales of life policies to individuals are down 45 percent since the mid-1980s. Deloitte says insurers could save $125 per applicant by eliminating many conventional medical requirements. Under Deloitte's predictive model, the cost to achieve similar results would be $5, Deloitte says. The total underwriting costs for a policy range from $250 to $1,000, insurers say.
Making the approach feasible is a trove of new information being assembled by giant data-collection firms. These companies sort details of online and offline purchases to help categorize people as runners or hikers, dieters or couch potatoes.”
- “Insurers Test Data Profiles to Identify Risky Client” Wall Street Journal November 19, 2010
“At more than 3 million in number, nurses make up the single largest segment of the health care work force. They also spend the greatest amount of time in delivering patient care as a profession. Nurses therefore have valuable insights and unique abilities to contribute as partners with other health care professionals in improving the quality and safety of care as envisioned in the Affordable Care Act (ACA) enacted this year.
Nurses should be fully engaged with other health professionals and assume leadership roles in redesigning care in the United States. To ensure its members are well-prepared, the profession should institute residency training for nurses, increase the percentage of nurses who attain a bachelor's degree to 80 percent by 2020, and double the number who pursue doctorates. Furthermore, regulatory and institutional obstacles -- including limits on nurses' scope of practice -- should be removed so that the health system can reap the full benefit of nurses' training, skills, and knowledge in patient care.”
- “The Future of Nursing: Leading Change, Advancing Health.” Committee on the Robert Wood Johnson Foundation Initiative on the Future of Nursing, at the Institute of Medicine; Institute of Medicine
“With a shortage of both physicians and nurses and millions more insured Americans, health care professionals will need to continue working together to meet the surge in demand for health care. A physician-led team approach to care—with each member of the team playing the role they are educated and trained to play—helps ensure patients get high quality care and value for their health care spending… The AMA is committed to expanding the health care workforce so patients have access to the care they need when they need it. With a shortage of both nurses and physicians, increasing the responsibility of nurses is not the answer to the physician shortage.”
- “AMA Responds to IOM Report on Future of Nursing” October 5, 2010
- Of the $813.7 billion authorized in the American Reconstruction and Recovery Act (stimulus bill) February 17, 2009, $541.6 billion (67 percent) has been paid out and 84 percent is obligated under the legislation. Status of major health care items:
- Health facilities infrastructure, National Institutes of Health (NIH): $22.4 billion authorized, $22.2 billion obligated, $12.6 billion spent
- Medicaid commitments to states: $89 billion authorized, $86.9 billion obligated, $74.9 billion spent
- Health information technology: $17.6 billion authorized, $0 obligated, $0 spent
(Source: CBO Report October 29, 2010)
- Medicare Advantage Part C update: cuts to Part C plans in PPACA--$140 billion (2011-2019); $51 billion estimated premium revenue in 2010 to $37 billion in the next few years recovering to $51 billion/year by 2018 (Source: Goldman Sachs)
Note: open enrollment for Medicare enrollees choosing between traditional Medicare or a Part C plan began November 15 and continues through December 31, 2010.
- Average inpatient hospital payment rates of four large national insurers range from 147 percent of Medicare in Miami to 210 percent in San Francisco (Source: Center for Studying Health Systems Change (HSC) analysis of eight health care markets: Cleveland; Indianapolis; Los Angeles; Miami; Milwaukee; Richmond, Va.; San Francisco; and rural Wisconsin)
- The payment error rate in the Medicare fee-for-service program in 2010 is 10.5 percent accounting for $34.3 billion in estimated improper claims payments. This is a decrease from 2009, where the error rate was 12.4 percent, or $35.4 billion in improper payments. (Source: CMS)
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.
Subscribe to the Health Care Reform Memo
- Step 1, confirm your sector(s) of interest.
- Step 2, select the Health Care Reform Memo as one of your subscriptions.