Health Care Reform Memo: November 21, 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

Last Monday, I asked my Georgetown health policy grad students to write the one word they’d use to describe the U.S. health system, and then ranked their responses. At the top of their list were “expensive” and “inefficient”. It’s not a surprise.

According to the Office of Management and Budget (OMB), the U.S. wastes approximately $700 billion per year in health care costs due to inefficiency and waste. We spend $360 billion per year in administration of the system—14 percent of the total costs with half in insurance companies and half elsewhere in the system. And these costs do not include care delivered for which there’s no benefit or necessity.

Consumers imagine it’s higher: 51 percent believe that “50 percent or more of health care spending is wasted”, up from 49 percent in 2010 (2011 Deloitte Center for Health Solutions Survey of U.S. Health Consumers). When challenged to identify root causes, 55 percent cite redundant paperwork, 49 percent unhealthy lifestyles not likely to change, 46 percent defensive medicine, 40 percent to lack of provider non-adherence to evidence-based medicine, and 35 percent to end-of-life heroics to keep people alive.

In the Affordable Care Act (ACA), waste is addressed in some key sections:

• Administrative simplification: Section 1104 (administrative simplification) accelerates U.S. Department of Health and Human Services (HHS) adoption of uniform standards and operating rules for the electronic transactions that occur between Health Insurance Portability and Accountability Act (HIPAA)-covered providers and health plans. The provisional goal is to make the health system more efficient by reducing clerical burdens on providers, patients, and health plans. The Centers for Medicare & Medicaid Services (CMS) estimates that administrative simplification will save providers between $7.8 billion to $9.5 billion, and for health plans $5 billion to $5.8 billion over ten years.
• Prescription drug waste: Section 3310 requires Medicare prescription drug (Part D) plans to develop drug dispensing techniques to reduce prescription drug waste in long-term care facilities.
• State programs: Section 6508 requires states to implement fraud, waste, and abuse programs before January 1, 2011.
• Comparative effectiveness: Section 6301 establishes the Patient-Centered Outcomes Research Institute (PCORI) to support comparative effectiveness research. Research can be used to inform coverage decisions. According to the White House, comparative effectiveness can expose wasteful procedures and hospitalizations.

And the government has stepped up its efforts to reduce waste.

On June 13, the President issued an executive order to cut government waste. Last week, OMB announced that HHS cut improper payments by $17.6 billion dollars in 2011 under the President’s Campaign to Cut Waste.

Tuesday CMS announced that it will launch two demonstrations in January 2012 to reduce overall payment errors by $50 billion, cut the Medicare fee-for-service error rate in half, and recover $2 billion in improper payments in 2012:

• Recovery Audit Prepayment Review demonstration: will allow Medicare Recovery Auditors to review claims before they are paid to ensure that providers comply with Medicare payment regulations. Reviews will focus on seven states with high populations of fraud- and error-prone providers (FL, CA, MI, TX, NY, LA, IL) and four states with high claims volumes of short inpatient hospital stays (PA, OH, NC, MO).
• Prior Authorization for Certain Medical Equipment: will require Prior Authorization for certain medical equipment for all Medicare beneficiaries who live in seven states with high populations of fraud- and error-prone providers (CA, FL, IL, MI, NY, NC, and TX).

But in my view, we have a long way to go. There’s significant savings to be achieved in the system by reducing waste. Consider:

• Per UnitedHealth Group’s analysis, $332 billion in administrative costs to the health care system could be saved if information technologies were appropriately utilized to reduce redundancy and paperwork. (Source: “Cost Containment: How Technology Can Simplify Health Care Administration, UnitedHealth, June 2009)
• Per Thomson Reuters, administrative inefficiencies alone account for up to $150 billion annually wasted. (Source: “Where can $700 billion in waste be cut annually from the U.S. Health Care System? Thomas Reuters, October 2009)

Neither of these assumes dramatic changes in practice patterns to reduce overuse of testing and invasive procedures, or even a healthier population. The CMS Office of the Actuary estimates that 15-30 percent of health spending is for treatments and services for which there is no known benefit, but the argument about who determines what is necessary or evidence-based gets dicey.

They begin with a basic premise: appropriate use of technologies that eliminate paperwork and reduce redundancy in treating patients or getting information for payment saves boatloads of money. But reduced waste is not as simple as buying plug-and-play clinical and financial IT systems. Reduced waste leveraging new technologies requires thoughtful, deliberate, and often disruptive changes in how work is done. It’s not a technology problem; it’s a people problem.

In this industry, we employ 16 million folks including more than 1 million added during the current economic downturn. We’re labor intense and often change averse. So, to achieve savings that might go a long way in stemming the health cost spiral for employers and consumers, perhaps changing the way we hire, recruit, and retain the industry’s workforce would be an appropriate place to start? Might the combination of new technologies, refreshed workforce, and re-designed processes be the answer?

It’s easy in this industry to ask for more money. The fact is there’s plenty: it’s just not spent in the right places for the right purposes and with the right regulatory framework. With a purposeful effort to reduce waste supported by the right combination of industry innovation and regulatory rationality, amazing results could be achieved.

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

Implementation update

Supreme Court to hear health reform constitutional challenges; four major decisions anticipated

The U.S. Supreme Court was petitioned six times to hear arguments on ACA. Five petitions came from those challenging the law: the Commonwealth of Virginia, the Thomas More Law Center, Liberty University, the National Federation of Independent Businesses (NFIB), and one petition from the U.S. Department of Justice (DOJ) supporting the law.

Monday it announced it will hear arguments on the 11^th U.S. Circuit Court of Appeals decision (the Florida case filed by 26 state attorneys general and NFIB), scheduling five and half hours for oral arguments in March 2012 on the following issues:

Is the individual mandate a violation of the commerce clause?—The Court will consider whether Congress exceeded its power under the Commerce Clause (Article I of the U.S. Constitution) when enacting the individual mandate. ACA Section 1501 requires individuals to obtain minimum health coverage by January 1, 2014 or pay tax penalties (per Section 1002 of the Health Care and Education Reconciliation Act) in 2015 of the greater of $95 or 1 percent of income in 2014, $325 or 2 percent of income in 2015, and $695 or 2.5 percent of income in 2016 (up to a cap of the national average bronze plan premium). Families will pay half the amount for children up to a cap of $2,250 for the entire family. After 2016, dollar amounts will increase by an annual cost of living adjustment. Exceptions are made for religious reasons, those not lawfully present, and incarcerated individuals. The court will allow one hour for arguments.

Is the individual mandate subject to the terms of the Anti-Injunction Act that would disallow a constitutional challenge until after its implementation? — The Court will consider whether the Anti-Injunction Act (AIA), tax code section 7421(a) bars individuals from suing over ACA’s minimum coverage provision. Under the AIA, a taxpayer may not challenge a tax before personal liability is determined by the Internal Revenue Service (IRS). The court will allow one hour for arguments.

If the individual mandate is not constitutional, is the entire law (ACA) therefore unconstitutional? —If the individual mandate is determined unconstitutional, the Court will consider whether the entire ACA must be invalidated because it cannot be severed from the individual mandate (i.e., whether the law can stand without the mandate). The court will allow 90 minutes for arguments.

Does the ACA give the federal government powers over states that are not constitutional with respect to its Medicaid expansion provisions? — The Court will consider whether the Medicaid expansion is “unconstitutionally coercive”. ACA Section 2001, as amended by Section 10201, requires states to cover all individuals up to 133 percent of the federal poverty level (FPL) or forfeit Medicaid funding starting in January 2014.

Constitutional challenge timeline to date:

Our take: what to watch for next

Arguments are likely to start in March 2012 with a ruling issued in June. Here’s what to watch for:

CLASS Act repeal passes committee vote

The House Energy and Commerce Health Subcommittee voted Tuesday to repeal the Community Living Assistance Services and Supports (CLASS) Act along party lines. The bill, which now goes to the full committee, passed one month after HHS announced October 14 that it could not implement the voluntary, long-term care program in a way that would keep it solvent for 75 years, as required by law.

House unanimously approves “fix” for ACA Medicaid eligibility calculation

Wednesday, the U.S. House of Representatives voted to add retiree benefits to the calculation of modified adjusted gross income (MAGI) used in ACA to determine Medicaid eligibility. The vote was 422 to 0. The provision was included in a bill to repeal the 3 percent withholding requirement for government contractors, which the Senate passed last week.

Senators introduce bill to repeal ACA’s health insurer tax

Wednesday, Senators John Barrasso (R-WY) and Orrin Hatch (R-WY) introduced “The Jobs and Premium Protection Act” to repeal ACA Section 9010 which levies an annual fee on health insurers starting in 2014. Fees are: $8.0 billion in 2014, $11.3 billion in years 2015-2016, $13.9 billion in 2017, and $14.3 billion in 2018. After 2018, the fee equals the amount for the preceding year increased by the rate of premium growth for the preceding calendar year.

HHS announces $1 billion for “Health Care Innovation Challenge”

Monday, HHS announced it will award up to $1 billion to those who implement “compelling” ideas to improve the delivery and quality of care while lowering costs for people enrolled in Medicare, Medicaid, and Children’s Health Insurance Program (CHIP). The “Health Care Innovation Challenge” will give preference to projects that “rapidly hire, train, and deploy health care workers” and will be administered by the Center for Medicare and Medicaid Innovation (Innovation Center) created under ACA Section 3021. Providers, payers, local government, public-private partnerships, and multi-payer collaboratives can apply for the awards ranging from $1 million to $30 million for a three-year period. Key dates: letter of intent due December 19, 2011, applications due January 27, 2012, and the anticipated award date is March 30, 2012.

CMS announces applications deadline for ACO Advance Payment Model

Friday, CMS announced application deadlines for the new Advance Payment Model for accountable care organizations (ACOs) participating in the ACO Medicare Shared Savings Program (ACA Section 3022). ACOs will receive advance payments recouped from their earned shared savings: for an April 1, 2012 start date, applications will be accepted January 3-February 1, 2012, and for a July 1, 2012 start date, applications will be accepted March 1-30, 2012.

HHS expands website to help small businesses compare health insurance plans

Friday, HHS announced that it expanded its Healthcare.gov website to help small business owners compare the benefits and costs of local health plans. The website will provide insurance products for a given ZIP code and cost and coverage information for small group products.

Legislative update

Supercommittee fails to reach agreement on package; automatic cuts likely

As of this morning, the Joint Select Committee on Deficit Reduction had failed to reach agreement on its $1.2 trillion, ten-year package of spending cuts and revenue enhancements. Per the Budget Control Act of 2011 provision for a sequester, automatic spending cuts of $1.2 trillion  starting  January, 2013 will be implemented with cuts to Medicaid, military benefits and Social Security precluded altogether, and 2 percent cut to Medicare allowed (in addition to schedule cuts resulting from the market basket updates).

Note: The passage of the Budget Control Act of 2011 (August 2, 2011) included language that essentially set aside the expiration date for the Gramm-Rudman-Hollings Balanced Budget Act of 1985 that imposed limits on federal spending. Result: A future Congress may be able to pass a deficit-reduction steps package with a simple (51 vote) majority in the Senate, instead of the usual 60 per Gramm-Rudman.

Schwartz proposal to Supercommittee: fix SGR

Last week, Representative Allyson Schwartz (D-PA) recommended that the Joint Select Committee on Deficit Reduction include repeal of the sustainable growth rate (SGR) in its recommendation to Congress November 23. Her plan would freeze current payment levels for one year starting January 1, 2012 and establish a transition period through 2016 during which the Innovation Center would test new payment models. Payments would be updated annually (2.5 percent for primary care physicians and 0.5 percent for specialists). By October 1, 2015, the Innovation Center would be required to develop four models of compensation for providers to choose from starting in 2016. The American College of Physicians, the American Osteopathic Association, and the American Academy of Family Physicians expressed support for the plan while the American Medical Association (AMA) was cautionary, citing uncertainty about the future payment climate for physicians.

State update

MLR waivers sought by Florida, Michigan

Last week, HHS’s Center for Consumer Information and Insurance Oversight (CCIIO) extended its review for 30 more days of Florida and Michigan’s request for a waiver to the medical loss ratio (MLR) waiver. Florida is seeking an MLR of 65 percent (for insurers) and 70 percent (for health maintenance organizations) through 2014. Michigan seeks an MLR of 65 percent in 2011, 65 percent for 2012, and 75 percent 2013. ACA Section 1001, which requires an MLR of 80 percent for individual plans and 85 percent for large plans starting in 2011. To date, eight states have been granted waivers—the most recent, Georgia.

NGA helps states prepare for health exchanges

The National Governors Association (NGA) on Wednesday named six states selected to participate in NGA retreats to help the states technically prepare for health insurance exchanges: Alabama, Illinois, Kentucky, Nevada, Utah, and Washington.

Industry news

Grace period for 5010 implementation but deadline unchanged

Thursday, CMS announced it will relax enforcement of the January 1, 2012 implementation date for Version 5010 by enacting a 90-day grace period. January 1, 2012 remains the official deadline for the changeover to the Version 5010 standards that also apply to other electronic billing transactions (such as requests for patient eligibility and claims status). The announcement stated that CMS would not enforce penalties due to non-compliance of the 5010 standards by HIPAA-covered entities until March 31, 2012.

Note: Version 5010 is a set of rules governing how computers exchange health care billing data with each other. All "covered entities" under HIPAA—claims clearinghouses, physicians, hospitals, and insurers—must switch their billing software from the current set of HIPAA transaction standards (Version 4010) to Version 5010 which allows the use of the new International Classification of Diseases, 10th revision (ICD-10) diagnostic and inpatient procedure codes that are mandatory on October 1, 2013. Also included in the Version 5010 mandate are NCPDP D.0, and NCPDP 3.0, which impact pharmacy benefit transactions and Medicare Subrogation standards.

AMA proposes ICD-10 delay, include physicians in state exchange governance, and to support virtual medical IDs

Tuesday, the AMA voted at its semi-annual policy meeting to adopt a policy to advocate for a delay of the October 1, 2013 implementation date of the ICD-10 medical coding system, stating the projected costs of converting to ICD-10 will cost a three-physician practice $84,000 and $285,000 for a ten-physician group. Delegates adopted new policies to support the inclusion of actively practicing physicians and patients in the governing structures of health insurance exchange and the developing systems that allow for real-time patient eligibility information. It also adopted a policy to encourage the availability of portable medical identification alert systems for patients.

Note: it is not likely ICD-10 will be delayed per CMS officials.

ONC: 100,000 primary care providers use EHRs

Thursday, HHS’s Office for the National Coordinator for Health Information Technology (ONC) announced that over 100,000 primary care providers are using certified electronic health records (EHRs), representing about one-third of primary care physicians in the U.S. The providers worked with their Regional Extension Center (REC) to participate in the Medicare and Medicaid EHR Incentive Programs in order to achieve “meaningful use” of health information technology.

CMS seeks comment on Medicaid Information Technology Architecture

Tuesday, CMS announced that it is accepting comments on the Medicaid Information Technology Architecture (MITA) Framework, Draft Version 3.0, until December 16, 2011. MITA provides a national framework for improved systems development and health care management to facilitate Medicaid administration and integrate newer technologies such as cloud computing, etc. Draft Version 3.0 considers legislative requirements in the Health Information Technology for Economic and Clinical Health (HITECH) Act, the Children’s Health Insurance Program Reauthorization Act (CHIPRA), and the ACA.

CMS clarifies rules for physician-owned hospitals

The CMS final rule on Hospital Outpatient and Ambulatory Surgery Center payments includes additional guidance specific to physician-owned hospitals:

• Physician-owned hospitals must not “discriminate against beneficiaries of federal healthcare programs” or “permit physicians practicing at the hospital to discriminate against such beneficiaries,” It also specifies that any permitted bed capacity increases must not result in a hospital increasing its number of licensed operating rooms, procedure rooms, and beds by 200 percent.
• Hospitals including physician-owned must “ conspicuously” post notices if a facility does not have a physician on site 24 hours a day, seven days a week. Medical residents would qualify as “physicians.”
• Inpatients and outpatients who receive observation services, surgery, or services involving anesthesia must be given written notice that a hospital may not have a physician on-site 24 hours a day, and that this notification must be followed by a signed acknowledgment from the patient of this fact.

Study: use of EHRs improves outcomes

Harvard researchers concluded that hospitals that use a computerized medical-information tool to help doctors make clinical decisions at the point of care have better patient outcomes than those who don't. The research team compared clinical results from records in 1,017 hospitals that use EHRs to 2,305 hospitals that did not have the technology between 2004-2006. Use of an electronic system was an independent predictor of reduced mortality, shorter hospital length of stay, and performance on widely used hospital quality metrics. (Source: Isaac et al “Use of Up-to-Date and Outcomes in US Hospitals” Journal of Hospital Medicine, November 16, 2011).

FDA suspends use of Avastin for breast cancer

Friday, the FDA withdrew approval of Avastin for treatment of breast cancer five months after its Advisory Committee advised it be pulled. Citing adverse risks from side effects, the U.S. Food and Drug Administration (FDA) allowed its continued use for lung, kidney, and colon cancer, and said physicians will have the flexibility to prescribe it for breast cancer patients as an off-label use, though insurance companies may choose not to pay for its cost which can run up to $50,000 for a year’s treatment.

Note: Deliberation about Avastin, a biologic antibody designed to interrupt the blood supply to a tumor to retard its growth, began in 2008 when the FDA approved it for metastatic breast cancer after a study in the New England Journal of Medicine showed that patients who took it in combination with chemotherapy survived six more months longer than those using chemo only. Notably, it was the first medicine to be okayed under an accelerated approval program that allowed it to be used while researchers gathered additional data to clarify its safety and efficacy and, at the time, its decision was controversial: an FDA advisory panel had voted against the drug in a 5-4 decision a few months earlier. Two subsequent studies showed that Avastin slowed tumor growth significantly in breast cancer patients but did not extend survival. The FDA then moved to withdraw Avastin's approval for breast cancer patients in December 2010. Avastin’s three-year review process is illustrative of the risk associated with a biologic’s market entry through FDA’s review processes—three years with conditional approval, okayed for continued use with lung, kidney, and colon patients, but disallowed for breast cancer.

National Center for Quality Assurance starts ACO accreditation

Last week, the National Committee for Quality Assurance (NCQA) initiated its accrediting for ACOs by evaluating organizations in seven domains: (1) ACO structure and operations; (2) access to needed providers (3) patient-centered primary care, (4) care management,(5) care coordination and transitions, (6) patient rights and responsibilities, and (7) performance reporting and quality improvement.

CDC hospital antibiotic tracking system

Monday, the Centers for Disease Control and Prevention (CDC) announced that it is launching an antibiotic tracking for hospitals to monitor antibiotic use electronically as part of its National Healthcare Safety Network covering 4,800 hospitals.

Quotable

“The majority of the initiatives that would pay for reform will come from cutting waste, fraud, and abuse within existing government health programs; ending big subsidies to insurance companies; and increasing efficiency with such steps as coordinating care and streamlining paperwork.”

—WhiteHouse.gov, Frequently Asked Questions about Health Insurance Reform, accessed November 17, 2011

“We are pleased the Court has agreed to hear this case. We know the ACA is constitutional and are confident the Supreme Court will agree.”

—White House communications director Dan Pfeiffer tweet Monday, November 14, 2011

“Estimates suggest that as much as $700 billion a year in health care costs do not improve health outcomes. They occur because we pay for more care rather than better care. We need to be moving towards a system in which doctors and hospitals have incentives to provide the care that makes you better, rather than the care that just results in more tests and more days in [the] hospital.”

—Peter Orszag, director of the OMB, May 2009 interview with NPR

“Given a choice, 47 percent of Americans favor repealing the 2010 Patient Protection and Affordable Care Act, while 42 percent want it kept in place. Views on this issue are highly partisan, with Republicans strongly in favor of repeal and the large majority of Democrats wanting the law kept in place.”

—Gallup, November 17, 2011

Fact file

• 44 percent of families live in middle-income communities today vs. 65 percent in 1970. (Source: Russell Sage Foundation Study released November 16, 2011)
• Dual eligibles cost state and federal governments a combined $300 billion annually: they comprise 16 percent of Medicare's enrollees but account for 27 percent of its spending; 15 percent of Medicaid beneficiaries and 39 percent of its spending. Currently, dual eligibles enrolled in managed care are 12 percent; America’s Health Insurance Plans (AHIP) estimates savings of up to $125 billion if the entire population was enrolled. (Source: Centers for Medicare and Medicaid Services, AHIP)
• 9 percent of employers with 500 or more employers and 4 percent with more than 5,000 might end health coverage after 2014 when health exchanges are operational. (Source: The Mercer National Survey of Employer-Sponsored Health Plans)
• The portion of U.S. health care costs covered by insurers and Medicare rose 5.75 percent in September from a year earlier, part of a five-month climb that began in April. (Source: Standard & Poor's Healthcare Economic November 17, 2011).
• Electronic billing and credentialing could save the U.S. health care system $32 billion a year. (Source: David Cutler, cited by Ezekiel J. Emanuel in “Billions Wasted on Billing Washington Post”, New York Times, November 12, 2011)
• Employers’ use of financial rewards in health management programs increased by 50 percent between 2009 and 2011. By 2012, four in five companies plan to offer some type of financial reward to individuals who participate in their health management programs. Use of penalties increased from 8 percent to 19 percent from 2009 to 2011 and is expected to reach 38 percent in 2012; 12 percent of U.S. employers currently reward (or penalize) based on outcomes (e.g., target body mass index [BMI] or cholesterol levels), an additional 16 percent are planning this approach for 2012. (Source: Towers Watson/National Business Group, Staying@Work survey, October 25, 2011)
• The EHR software market will increase more than 12 percent through 2016 to $8.3 billion. (Source: Millennium Research Group, U.S. Markets for Electronic Medical Records 2012, November 9, 2011)
• Copays for preferred brand-name drugs will increase next year by an average 40 percent and for non-preferred brands by 30 percent. (Source: Avalere Health LLC., November 16, 2011)
• From 2003 to 2010, total premiums for family coverage increased 50 percent across the U.S. and employee annual share of premi¬ums increased by 63 percent across the U.S. (Source: Commonwealth Fund, “Realizing Health Reform’s Potential, State Trends in Premiums and Deductibles, 2003–2010: The Need for Action to Address Rising Costs,” November 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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