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Health Care Reform Memo: January 14, 2013

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: Update: national health spending in 2011

From Paul Keckley, Executive Director, Deloitte Center for Health Solutions

The big news last week was the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary report for 2011 national health spending: turns out overall spending increased only 3.9 percent. The good news: it’s the third year health spending overall came in under 4 percent vs. the decade prior when annual increases averaged 6 percent or higher. But “3.9 percent” doesn’t tell the full story nor does it make sense if you’re a small business facing double digit premium increases or a provider who’s seen reimbursement shrink. After all, it would seem costs have settled into a predictable range that, with creativity, are manageable—no harm, no foul.

As the famed Paul Harvey was fond of saying, here’s the rest of the story. Most of us with commercial insurance coverage will probably see much more than a 3.9 percent increase. Here’s why…

Cost shifting: Medicare and Medicaid do not pay the full cost for the services their enrollees use: the government sets rates they pay hospitals covering on average 90 percent of cost for Medicare and 89 percent of costs for Medicaid. The difference between cost and collections from Medicare and Medicaid is made up by charging commercially insured folks more i.e., “a hidden tax”. And in most hospitals and clinics, services provided to uninsured “walk-ins” are also factored into their cost shifting model. And since the industry employs more than 16 million (most with health insurance coverage), their utilization is a major part of the overall medical inflation. Health care is both capital and labor intense: these costs are passed through along with cost shifting.

Compliance costs: every sector of the U.S. health industry is passing through, to the extent allowable by market pressures or regulatory constraints, the cost of complying with requirements and new taxes in the Affordable Care Act (ACA). For instance, the cost of providing a set of preventive health services with no co-payment adds 1-2 percent to the average health insurance premium. The costs of participating in a host of pilots—medical homes, episode based payments, value-based purchasing, accountable care—will be passed through by hospitals and doctors in their fee schedules. In the ACA, excise taxes paid by industry – the 2.3 percent medical device tax that started January 1, the $8 billion tax on insurers that starts next year, and others – will be passed through adding to the equation. And hospitals that agreed to $155 billion in Medicare spending cuts over ten years hope to make up some of that by charging commercially insured more. The industry is highly regulated and taxed: these costs are passed through.

Consumption: the technologies we use and the facilities we build are the latest and best. The U.S. consumer expects no less, but the “latest and best” come at a cost. Our health spending is a function of unit costs e.g., an overnight stay in a hospital, a clinic visit, a test, a pill times utilization (the number of people who use them). Policymakers have attempted to manage consumption by attacking unit costs: they reason that by reducing reimbursement for various services (unit costs), overall costs will go down. But not surprisingly, the toxic combination of incentives that reward volume over outcomes, lack of transparency about overtreatment that’s not based on medical necessity, lack of liability reforms that would safe harbor saying no, and expectations by consumers for “more” mean higher costs with no correlation to better outcomes. And with swelling enrollments in Medicare (15 million new enrollees between 2012 and 2021) and Medicaid (up to 29 million new enrollees between 2012 and 2021), utilization will be even higher.

So what does 3.9 percent really mean?

It means premiums for individuals and companies that purchase insurance through commercial insurance companies are likely to be much higher than an increase of 3.9 percent over last year.

It means employers that are self- insured, lacking tight controls on coverage for medically necessary care through a narrow network of providers in tandem with a healthier workforce, will see higher costs.

And it means more of these cost increases will be shifted to consumers: directly through Medicare taxes in the ACA and higher premiums, co-payments, and deductibles if insured, and indirectly through the costs of health that are added by every company to every widget we buy—the latte, the car, the movie ticket…

So the good news is that a 3.9 percent increase is not heart-stopping: it could have been worse. The bad news is the overall economy for the same period improved only 1.3 percent (Gross Domestic Product [GDP] Growth Rate January 2011 to January 2012 per U.S. Department of Treasury) and consumer prices increased 2.9 percent (CPI Bureau of Labor Statistics). As a result, the burden of health costs for 2011 fell disproportionately on individuals and households with health insurance coverage, and their employers who share in its costs.

Lest there be any confusion: the 3.9 percent increase is not a sign health costs are under control nor a basis for what most Americans can expect to pay next year. And clearly, the burden of health costs is shifted most to individual consumers who must grapple with its costs and make deliberate tradeoffs in their purchases of other necessities.

This is not about bad people; it’s a flawed system where its cost must be addressed and its value is in question. The inconvenient truth is that 3.9 percent doesn’t tell the full story of health costs nor does it portend that the health care industry can take a breath from intensified pressure to control its costs and improve its performance. The heat is on. And no sector will escape its intensity.

Paul Keckely

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

Footnote: a notable study published in 2011 concluded that from 1999 to 2009, two thirds of wage gains for the average American were spent on health cost increases. In an updated study using data for 2010 to 2011, the authors concluded that “although their total monthly compensation grew modestly – about $170 per month – their employer held back an additional $57 per month to cover its share of the rising premium, and the family had to chip in another $51 per month to cover the rest. This left them with only $62 more per month, or roughly $14 per week, to address the rising costs of other goods and services.”

(Sources: Health Affairs, “A Decade Of Health Care Cost Growth Has Wiped Out Real Income Gains For An Average US Family” September 2011; Health Affairs, “Health Costs Eroding Income Gains”, January 2013)

Implementation update

106 new ACOs, CMS announces

Last week, CMS announced 106 new accountable care organizations (ACOs) that will participate in the Medicare Shared Savings Program (Section 3022 of the ACA). To date, 220 ACOs are participating in the three year pilot program targeting $940 million in Medicare savings.

Background: an ACO is a clinically integrated group of clinicians, and in some cases hospitals, that contract with CMS to manage a Medicare population of at least 5,000 enrollees for three years to control health costs and improve quality based on 33 outcome measures. To qualify, an organization must have operational capabilities in population health management and performance measurement, and its members must agree to share financial risk. In some cases, ACOs contract with a commercial health plan as a business partner to provide the required infrastructure and systems support necessary for performance-based contracts.

My take: many provider organizations contracting with CMS for risk-based contracts per Section 3022 of the ACA are doing so based on a belief that ultimately commercial plans and employers will likewise shift risk to them for cost reduction and quality improvements. It’s hard to calibrate when that will occur in each market, but the likelihood is high that it will happen. As a result, whether a provider organization intends to contract for Medicare risk or not, it seems plausible that all will need to amass the core competencies and infrastructure to assume risk in the near future. Our analysis of investment costs for this infrastructure suggests it can be in excess of the $1.7 million estimated by CMS (October, 2011) thus suggesting a make vs. buy decision for most: in some cases, health insurance plans  or other third party partnerships cases might be a worthwhile.

Update: leadership changes important to ACA implementation

Recent announcements regarding key slots important to implementation of the ACA in the White House and various regulatory agencies:

  • U.S. Department of Health and Human Services (HHS) Secretary Kathleen Sebelius announced she is staying for a second term
  • Nancy Ann DeParle is leaving her post as White House Deputy Chief of Staff to lecture at Harvard Law School and join the Brookings Institution.
  • Liz Fowler, top White House aide and deputy director of the Office of Consumer Information and Oversight (OCCIIO) moves to senior position at Johnson and Johnson
  • Joel Ario, director of the Office of Insurance Exchanges at HHS, transitioned to managing director of Manatt Health Solutions
  • Steve Larsen, director of OCCIIO resigned last summer to take a position with UnitedHealth Group, Inc.  

Legislative update

Senators challenge Medicare Part C (MA) and D (prescription drug discount) fraud prevention efforts

Last Thursday, Senators Tom Carper (D-DE), Tom Coburn (R-OK), Max Baucus (D-MT) and Orrin Hatch (R-UT) questioned the effectiveness of anti-waste and fraud-prevention efforts for Medicare based on findings from an Office of Inspector General (OIG) report. The report looked into the oversight contractor responsible for preventing waste and fraud in both Medicare Advantage (MA) and the Medicare prescription drug program. It found that oversight work by the Medicare Drug Integrity Contractor (MEDIC) has seen little success in its efforts to identify waste and fraud.

The OIG report found that 223 investigations by the MEDIC into waste and fraud in the Medicare prescription drug program resulted in referrals to law enforcement, but most were from tips to the fraud hotline—only 21 came from the MEDIC’s predictive analytics effort, which has an annual budget of $14 million.

The OIG report said CMS had not set up a database that would help the MEDIC identify potential fraud recommending it clarify its policies, improve access to data, and enhance monthly workload reporting requirements to improve CMS oversight of the MEDIC's activities.

DEA seeks tighter control over pain medications

The U.S. Drug Enforcement Agency (DEA) is pushing tighter restriction on hydrocodone-based pain medications recommending they be regulated as a Schedule II rather than Schedule III drug. Per the Centers for Disease Control and Prevention (CDC), abuse of painkillers is responsible for 75 percent of overdoses. The DEA made a similar attempt in 2008. Note: emergency room (ER) visits associated with pain medication overdoses doubled from 2006 to 2010 to 115,739. In 2011, physicians wrote 131 million pain medication prescriptions for 47 million U.S. patients. As a Schedule II drug, doctors cannot order refills of a 30 day supply or phone-in prescription refills to a pharmacy. (Source: DEA, CDC, IMS Health)

Background: in recent months, the DEA has sought to stem pain killer abuse in three efforts: 1) increased regulatory scrutiny of drug manufacturers, 2) education efforts aimed at local public health programs, school officials and providers, and 3) “channel choking”—seeking disruption of the supply chain through legal challenges targeting wholesalers and retailers.

FDA issues draft guidance on tamper resistant drugs

Last week, the U.S. Food and Drug Administration (FDA) issued draft guidance significant for narcotic drug manufacturers outlining how drug manufacturers would prove their product contains abuse-deterrent formulations and the labeling claims that the FDA would approve based on evidence provided by the manufacturer. Comments are being solicited from stakeholders, and will be accepted for 60 days.

Background: drug makers have been urging the FDA to discontinue reviews of new drug applications (NDAs) related to their original formulation (non-tamper resistant) citing safety considerations. Narcotic drugs such as opioids have been blamed for the rise in overdose-related deaths over the last several years, with 15,000 occurring per year. The industry is working with regulators to reduce misuse of pain medications.

MedPAC: Congress should increase hospital payments

The Medicare Payment Advisory Commission (MedPAC) voted Thursday to recommend increasing hospital payments by 1 percent in 2014; its recommendation is in addition to the potential automatic 2 percent Medicare cuts under sequestration effective March 2013. MedPac also recommended that ambulatory surgical center update should be eliminated and outpatient dialysis bundled payment rate in 2014 should not be increased.

My take: the acute sector is 31 percent of health spending and faces enormous pressure to cut costs. In the ACA, it agreed to $155 billion in lower payments. In last week’s fiscal cliff agreement, half of the $25.2 billion costs for a one year “doc fix” were cuts to hospitals involving coding changes and cuts to disproportionate share hospital payments. And recent changes (e.g., evaluation and management coding) that neutralize differentials between office and hospital outpatient reimbursement by Medicare suggest deeper cuts in addition to sequester and grand bargain concessions. Radical cost reduction in the acute sector in tandem with revenue growth in a wider portfolio of service offerings is essential to its sustainability. Consolidation, diversification and innovation are requisites in the acute sector’s new normal.

CMS management of meaningful use funding gets attention

Last week, Representative Darrell Issa (R-CA) notified Secretary of HHS Kathleen Sebelius that the Committee on Oversight and Government Reform is investigating the potentially “inadequate” management of the Electronic Health Record (EHR) Incentive Program. Representative Issa stated the $6.6 billion appropriated to the EHR Incentive Program between 2011 and 2016 per the Health Information Technology for Economic Clinical Health (HITECH) Act is being disbursed to providers who may not meet all of the requirements of the program, requesting by January 22:

  • CMS brief the Committee on CMS’s oversight of the program and methodology in selecting program participants
  • Copies of current or previous guidance documents that assist CMS officials in their decision making regarding oversight and participant selection
  • Information on planned audits of the program

Background: since January 2011, 120,000 “eligible health care professionals” and 3,300 hospitals qualified to participate in the EHR Incentive Program and have received incentive payments. Per CMS’s November report, $9.3 billion was disbursed through 2011: $6.1 billion to 3,393 of 4,193 eligible hospitals, and $3.1 billion going to 162,051 of 335,879 eligible physicians and eligible professionals, mostly working in ambulatory care; and $189 million to 11,117 eligible professionals in a few MA programs. The program is run by the Office of the National Coordinator for Health Information Technology (ONC), which was established by the HITECH Act to increase the adoption of health information technology (IT).

CDC: flu reaches epidemic levels in some states

CDC reported the first week of January that the flu outbreak of the 2012-2013 winter season reached epidemic levels: 24 states and New York City were reporting high flu-like illness activity and 16 states were reporting moderate levels—an increase of 9 states from the previous week and 47 states reported widespread geographic flu activity, influenza A (H3N2), 2009 influenza A (H1N1), and influenza B viruses have all been identified in the U.S. during this flu season (only 2 percent were H1N1 cases).

Related: Sanofi, the largest flu vaccine provider in the U.S. reported last week it had sold out of four of the six dosages of Fluzone—the seasonal flu vaccine. The company indicated they are unable increase production of this year’s vaccine because they are beginning to manufacturer flu vaccines for next year. While most vaccines are made through a 60-year old process of growing in fertilized chicken eggs, Novartis recently received regulatory approval from the FDA to sell a cell-based vaccine that requires a less intensive process to develop.

SCOTUS will not hear case disputing federal funding for stem cell research

Last Monday, the U.S. Supreme Court denied review of Sherley v. Sebelius, which is a case that questions the constitutionality of the Obama administration’s use of federal funds on stem cell research. In 2009, President Obama signed an Executive Order stating the National Institutes of Health (NIH) “may support and conduct responsible, scientifically worthy human stem cell research, including human embryonic stem cell research, to the extent permitted by law.” Since 2009, NIH has expanded funding of research using embryos that were created for reproductive purposes and are no longer needed.

FCC: $400 million for rural health telemedicine

Last week, Federal Communications Commission (FCC) Chairman, Julius Genachoswki announced $400 million in annual funding for high-speed communication links to rural area health care providers. The new Healthcare Connect Fund will be used to enhance and increase the use of telemedicine care—linking urban health care providers to those in rural areas. Applications for the project will be accepted starting this summer. Also, the FCC announced the launch of a three year $50 million per year skilled nursing facilities program. Beginning in 2014, FCC will begin the pilot to determine how best to support broadband connectivity to these types of facilities.

Health legislation introduced as the 113th Congress convenes

January 4, 2013 the following bills were introduced in the U.S. House of  Representatives:

  • Representative Michele Bachmann (R-MN) introduced H.R. 162 that would amend Section 1932 of the Social Security Act to require independent audits and actuarial services under Medicaid managed care programs.
  • Representative Diane Black (R-TN) introduced H.R. 217 that would amend Title X of the Public Health Service Act to prohibit family planning grants from being awarded to any entity that performs abortions.
  • Representative Gene Green (D-TX) introduced H.R. 172 that would amend Title XXI of the Social Security Act to require 12-month continuous coverage under the State Children's Health Insurance Program (S-CHIP).

State update

NGA: Medicaid spending up 10 percent last year; health care states’ number one cost problem

In its State of the States address last week, the National Governors Association (NGA) announced that governors have cut $337 billion from their states’ budgets through streamlining/discontinuing programs and cited health care as the most costly budget item for states— noting that average state spending for Medicaid increased 10 percent in 2011. NGA Chair, Governor Jack Markell (D-DE) and Vice Chair, Governor Mary Fallin (R-OK) highlighted four points that governors have asked President Obama to remember when addressing the “grand bargain”:

  • Reform at the federal level should produce savings for both federal and state governments;
  • Deficit reduction should not be produced by putting costs on states or imposing unfunded mandates;
  • The federal government should allow the states flexibility to create efficiencies and achieve results; and
  • Maintenance of effort provisions should not be imposed by Congress on the states as a condition of funding.

My take: relative to health care reform and the ACA, states are grappling with two issues—how to set up and operate their health insurance exchanges (HIXs) and whether they should expand their Medicaid programs; they will do so at a point when 44 are still “under water” in long term pension obligations, and as state legislators are pressuring for improvements in education and infrastructure improvements. Notably, at the federal level, both major ACA items above are likely to get attention from Congress and are likely topics in the forthcoming “grand bargain” debate:

  • HIX: since the federal government will be managing, in full or partnership, should it ramp up a robust organization, and how should it scale its support efforts? Will the federal government’s role require additional funding as part of a “grand bargain”?
  • Medicaid: should the Medicaid program be a federal program akin to Medicare, thus relieving states of its financial obligations altogether?

EHB plans in states

Per HHS guidance, states were encouraged to specify their essential health benefit (EHB) base-benchmark plans prior to October 1, 2012 and meet a final deadline by December 26, 2012 for plan years 2014 and 2015. States could choose one of the following as their base-benchmark plan:

  • One of the three largest small group plans in the state by enrollment; one of the three largest state employee health plans by enrollment; one of the three largest federal employee health benefits plan (FEHBP) options by enrollment; or the largest HMO plan offered in the state’s commercial market by enrollment.
  • Default plan for states that didn’t elect a benchmark plan: small group plan with the largest enrollment in the state.
  • For oral and pediatric benefits, states could choose to adopt the Federal Dental and Vision Program (FEDVIP) or S-CHIP if the oral and dental benefits were not included the benchmark plan selected.

Here’s where states stand:

Small Group Market Largest HMO State employee plan National FEHBP Default


Pediatric vision: FEDVIP Pediatric vision: S-CHIP Pediatric vision: included


Pediatric oral: FEDVIP Pediatric oral: S-CHIP Pediatric oral: included

Source: State Reforum

Background: per the ACA, EHBs (10 categories of coverage) must be covered by a qualified health plan (QHP) offered on a health insurance exchange (HIX) and by certain health insurance plans in the group or individual markets. QHPs must provide an EHB benchmark package modeled after a state’s EHB benchmark plan. The state will use the base-benchmark plan to define the final EHB benchmark plan that will be used as the floor for QHPs and insurers providing benefit packages off the HIX as a basis for health plans to calibrate their coverage and compliance (Section 1302 of the ACA and subsequent proposed rules).

Related: states that have announced hiring of advertising/PR firms to assist in recruiting “young invincibles” to enroll in individual insurance plans offered through HIXs: Colorado, Nevada, Hawaii.

State round-up: Medicaid expansion

As of January 10, 2013, 18 states and the District of Columbia will expand, 12 states will not participate or are highly unlikely to participate, and 20 states are undecided/undeclared:

Participating Not participating or highly unlikely to participate Undecided or undeclared

Source: Politico Pro, Medicaid Watch, January 11, 2013; Advisory Board, Where the states stand, January 10, 2013

Note: states do not have a deadline to make a decision on Medicaid expansion and may opt in or out of participation at any time. This chart was compiled using publically available information (as of January 10) and is subject to change.

Other recent announcements:

  • Florida’s Agency for Health Care Administration (AHCA) introduced a new plan for reimbursing hospitals that treat Medicaid enrollees using a “diagnosis-related group model” to adjust payments based on the type and severity of patient illnesses. If all goes according to plan, the new payment system will be implemented in July 2013.
  • On January 7, CMS informed Maine that the state may make some eligibility reductions to its Medicaid program – including eliminating its optional group of parents and caretakers and allowing the state to reduce its income eligibility standard for certain individuals from 150 percent FPL to 133 percent FPL – without breaking the maintenance of effort (MOE) provision in the ACA. Note: the MOE provision currently prevents states from reducing eligibility standards prior to the law’s full implementation in 2014.

State round-up:

  • A state court denied a preliminary injunction to Planned Parenthood in its case against Texas to prevent it from being barred from the state-run Women's Health Program.
  • Massachusetts’s Governor Deval Patrick (D) proposed legislation to increase regulation of compounding pharmacies to prevent public health incidents similar to the recent meningitis outbreak that caused 656 people in 19 states to become ill, including 39 fatalities. Provisions include strict licensing requirements, protection for whistleblowers, a reorganization of the state’s pharmacy board, and monetary penalties for rule breakers.

Industry news

U.S. health care spending increased 3.9 percent in 2011 – third consecutive year in 2011

Per CMS’s Chief Actuary, last Monday, total national health expenditures were $2.7 trillion or $8,680 per person in 2011 accounting for 17.9 percent of GDP. By category, physician and clinical services increased 4.3 percent to $436 billion, hospital care increased 4.3 percent to $850.6 billion, prescription drugs increased 2.9 percent to $263 billion, and durable medical equipment 5.3 percent.

  • The hospital spending increase was lower than 2010 (+4.9 percent) and 2009 (+6.7 percent).
  • Notable in the data: specialty pharma costs were up almost 20 percent for the year vs. branded drugs (+.4 percent). New drugs on market less than two years doubled. Drug spending averaged 7.8 percent annual growth 2000-2010.
  • Private insurance coverage increased .5 percent reversing a 3 year decline. (Employer sponsored coverage dropped 8 million from 2005 to 2011 and Medicaid enrollment increased 12 million in same period).
  • Insurance premiums increased 3.8 percent.
  • Out of pocket spending increased 2.8 percent vs. 2.1 percent in 2010 (averaged 4.7 percent per year from 2002-2008).
  • Health spending grew more than 5 percent annually from 1961 to 2007 (including double digit annual increases from 1966 to 1984, and 1988 to 1990).
  • Health care spending is projected to increase 7.4 percent to 18.2 percent of GDP in 2014.

(Source: Health Affairs, “National Health Spending In 2011: Overall Growth Remains Low, But Some Payers And Services Show Signs Of Acceleration,” January 2013; CMS, “Growth in Medicare Spending per Beneficiary Continues to Hit Historic Lows,” January 7, 2013)

Related: FY12 Medicare spending per beneficiary increased .4 percent

Per CMS, in fiscal year (FY) 2012, Medicare spending per beneficiary increased .4 percent; the percent increase in GDP per capita was 3.4 percent in FY2012. Per the U.S. Congressional Budget Office and the CMS Office of the Actuary, between 2013 and 2022, Medicare spending per capita is projected to decrease by 1 percent annually through restraining the rate of growth of reimbursements to MA health plans and reimbursement cuts to providers, increased effectiveness of fraud and abuse activities, and the adoption of value based payments.  Per CBO estimates, Medicare spending per beneficiary will remain relatively constant with anticipated growth of GDP. If the sustainable growth rate (SGR) is reset at 2011 levels using GDP + 1 percent targets, Medicare spending per beneficiary between 2013 and 2022 will decrease .3 percentage points in excess of GDP; no SGR fix will result in a decrease of .8 percentage points in excess of GDP.

Source: CMS, “Growth in Medicare Spending per Beneficiary Continues to Hit Historic Lows,” January 7, 2013 

Report: U.S. fares worse than peer countries in health outcomes

The U.S. population has worse health outcomes than its “peer” countries (Australia, Austria, Canada, Denmark, Finland, France, Germany, Italy, Japan, Norway, Portugal, Spain, Sweden, Switzerland, and the Netherlands) in nine domains: adverse birth outcomes, injuries and homicides, adolescent pregnancy and sexually transmitted diseases, HIV and AIDS, drug related mortality, obesity and diabetes, heart disease, chronic lung disease, and disability, according to data compiled by the National Research Council and Institutes of Medicine. Highlights:

  • Life expectancy for U.S. men is 75.64 (rank 17th with Switzerland highest at 79.33) and U.S. women is 80.78 ranked 16th (with Japan highest at 85.98). Note: obesity, smoking, alcohol consumption, substance abuse, lower seatbelt use and poverty rates were noted as contributing factors.
  • “Americans are less likely to smoke and may drink less heavily than their counterparts in peer countries, but they consume more calories per capita, abuse more prescription and illicit drugs, and are less likely to fasten seatbelts, have more traffic accidents involving alcohol, and own more firearms than their peer countries.”
  • “Individual behaviors may contribute to overall health disadvantage, but studies show that even Americans with healthy behaviors, for example, those who are not obese or don’t smoke, appear to have higher disease rates than peers in other countries.”

(Source: National Research Council and Institute of Medicine, “US Health in International Perspective: Shorter Lives, Poorer Health,” January 2013)

NY hospitals to link physicians pay to performance

In a page one article in Saturday’s New York Times, the head of New York Hospitals and Health Corporation (NYHHC) Alan Aviles announced the 11-hospital system’s proposal to tie physicians’ income in part on patient outcomes and cost containment goals. The proposal involves bonuses of up to $59 million over three years for 3,300 physicians amounting to 2.5 percent of salaries. Thirteen performance metrics including avoidable readmissions and physician communication effectiveness, among others. NYHHC is the nation’s largest public health system serving one million in its emergency rooms annually.

(Source: Hartocollis “New York Ties Doctor’s Pay to Care Issues: Public Health System Plans Incentives” New York Times January 12, 2013)

Study: spending on alternative health increased 6 percent

Researchers found that between 2002 and 2008 national health spending on complementary and alternative medicine (CAM) providers was $8.6 billion representing less than 1 percent of total health spending, but the number of individuals who saw a CAM provider increased by 6 percent to 16.1 million in 2008. Notable findings:

  • Visits to acupuncturists increased 16 percent.
  • National health spending on chiropractic services increased 11 percent and the cost of services increased from $447 to $582 per user.
  • Spending on services for acupuncture, massage therapy, and other CAM services remained constant.

(Source: Health Affairs, “US Spending on Complementary and Alternative Medicine During 2002-08 Plateaued, Suggesting Role In Reformed Health System,” January 2013)

My take: CAM utilization and economic impact is under-reported because consumers define “alternative health” more broadly than the research captures. In Deloitte’s consumer surveys dating to 2008, 8-10 percent of consumers identified themselves as users of alternative health services including a wide variety of mind-body and other techniques (e.g., yoga) in their assessment. Per the National Committee for Complementary and Alternative Medicine, more than 130 modalities of alternative health are delivered in the U.S. including many thru non-licensed providers and over the counter retail health. For insights on out-of-pocket spending on CAM, read the recent Deloitte Center for Health Solutions publications: “The hidden costs of U.S. health care: Consumer discretionary health care spending” and “2012 U.S. survey health care consumers.”

RAND commentary: health IT results disappointing

Projections for the adoption, utilization and cost-savings associated with health IT implementation have not been realized, according to RAND researchers. Cost-savings analyses conducted by RAND in 2005 suggested health IT would save the industry $81 billion annually, and since 2005, health IT utilization has increased, but patient outcomes haven’t drastically improved. While not directly correlated to slow adoption or ineffective health IT systems, annual aggregate health care expenditures have grown by .8 trillion in the past seven years, from $2 trillion to $2.8 trillion. Researchers claim the cost-savings did not materialize due to “sluggish adoption of health IT systems, coupled with the choice of systems that are neither interoperable nor easy to use; and the failure of health care providers and institutions to reengineer care processes to reap the full benefits of health IT.” Researchers recommend health IT systems be redesigned to be user friendly and interoperable, and put the onus on providers to embrace the advantages of health IT.

(Source: Health Affairs, “What It Will Take To Achieve The As-Yet-Unfulfilled Promises of Health Information Technology,” January 2013)

Study: GME redistribution fails to increase primary and rural health care providers

Researchers found 456 hospitals reported reduced graduate medical education (GME) caps as a result of the GME redistribution of almost 3,000 residency positions per the 2003 Medicare Prescription Drug, Improvement, and Modernization Act. Of 304 hospitals that received additional positions as a result of redistribution, 12 (3 percent) were rural hospitals. Since 2003, the relative growth of specialty training vs. primary care has doubled.

Background: the federal government spends approximately $13 billion each year on GME—training that follows medical school such as internships, residencies and fellowships. Federal funding for GME comes through support from Medicare ($9.7 billion to teaching hospitals in 2009), Medicaid ($3.18 billion, 2008), and the U.S. Department of Veterans Affairs ($800 million, 2008). The intent of the redistribution program was to increase access to primary care residencies.

(Source: Health Affairs, “The Redistribution Of Graduate Medical Education Positions In 2005 Failed To Boost Primary Care or Rural Training,“ January 2013)

Report: malpractice system inefficient—physicians spend years with open, unresolved claims

Researchers found the typical physician spends an average of 50.7 months over a 40-year career addressing unresolved, open malpractice claims—11 percent of their career. Key findings:

  • Plastic surgery, orthopedic surgery, anesthesiology, and internal medicine are specialties with the highest number of claims malpractice claims.
  • The mean time to resolution of a claim was 20.3 months and the mean time from the date of the incident to filing of the claim was 22.8 months; for an average claim it took 43 months to resolve after the incident.
  • The most common injury severity reported was fatalities and permanent injuries (63.2 percent).
  • Claims data were evenly distributed across the time periods examined, suggesting a flat rate of claims throughout recent years.

(Source: Health Affairs, “On Average, Physicians Spend Nearly 11 Percent Of Their 40-Year Careers With An Open, Unresolved Malpractice Claim,” January 2013)

Hospital staffing up 1.1 percent in 2011

In 2011, per the American Hospital Association, 4,900 non-profit U.S. hospitals full-time staff increased 1.1 percent and registered and licensed practical nurses increased 1.6 percent to 1.07 million nationwide (down from 2.5 percent and 4.6 percent in 2010 and 2009, respectively). Note: per the US Bureau of Labor Statistics, the economy gained 1.9 million jobs in 2012; 398,000 in health care.

UK: private sector contracting with National Health Services draws attention

Virgin Care, a unit of Virgin Group best known for its record and airline companies, is in the third year of a deal to provide podiatry and dermatology services to the National Health Services (NHS). “Like most western countries, Britain is grappling with soaring health care costs and a yawning budget deficit, forcing the NHS to find ways to cut costs. The previous Labor government began outsourcing some healthcare services to private companies in mid-2000’s in what it described as an attempt to save money and improve services. The process has accelerated under the current Conservative-led government, which this year passed legislation opening the door wider to the private sector. The NHS said private sector contractors performed 4.3 percent of the elective hospital procedures it provided in 2012.”

(Source: Jeanne Whalen “In U.K., Branson Stirs Health Furor,” Wall Street Journal December 27, 2012 page b1)

Nurse unions announce formal affiliation

Last week, the National Union of Healthcare Workers (85,000 nurses) and California Nurses Association joined forces. Currently, 85,000 health care workers including nurses are represented by SEIU. Note: 18 percent (487,205) nurses in the U.S. belong to unions.

Myriad Genetics court ruling puts spotlight on patents

The U.S. Court of Appeals for the Federal Circuit, which hears patent cases, has ruled in favor of Myriad Genetics, Inc. on two previous challenges. But in the last few years, the Supreme Court has shown a tendency to loosen patent protections in the life sciences, most recently last March in a case involving a blood test for determining the right drug dosage for certain autoimmune diseases.


“One of the largest uncertainties concerns elements of the fiscal cliff that were postponed or left out of the recently enacted American Taxpayer Relief Act of 2012. The Relief Act only postponed scheduled spending cuts that would have reduced federal grants to states. Fundamental entitlement and tax reform also were not addressed, and no action was taken to increase the federal debt limit. If the debt limit is not increased soon, disruptions in federal funding or in capital markets could greatly impact state operations. Until these issues are resolved, states will not be able to make fully informed fiscal plans to address the needs of their citizens.”

— Governor Jack Markell (D-DE) Chair and Governor Mary Fallin (R-OK), Vice Chair, NGA, State of the States Address, January 9, 2013

“The more coverage you have, the more services you use ... when you get as many as 30 million more people with coverage, you would expect them to use many more services and you would expect a higher cost. There is a growing amount of evidence that healthcare providers are getting it - getting that the future can't be the same way as the past.”

Richard Foster, Chief Actuary at CMS on release of 2011 health care spending

“The U.S. economy is recovering slowly from the financial heart attack it suffered in 2008. Like a middle aged man walking to his doctors, it now asks: When will I feel like myself again? Will I ever get back to normal? Will it end soon?’ Things are getting better. The U.S. economy has been growing since the middle of 2009, something that can’t be said of the euro zone, the U.K., or Japan. Yet it still has a long way to go. Economic physicians are not sure when, if ever, it will be vigorous as it was before. It probably won’t be this year.”

— David Wessel, “Checking the Economy’s Pulse,” Wall Street Journal, January 2, 2013

Fact file

  • Dental coverage: 130 million in U.S. have no dental insurance, 17 million children go without dental care annually, and 830,000 ER visits were the result of preventable dental problems—up 16 percent since 2006. (Source: USA Today, “Dental therapies aim to fill dental-care gap,” January 2, 2013). Related: Kellogg Foundation studied the effectiveness of mid-levels—advanced dental therapists who get 2,000 hours of training that can do extractions; the 157,000 member American Dental Association opposed expansion of the program. (Source: Dental Access in America, Senate Testimony)
  • Airline safety: on average 2.9 billion passengers in 2012—up 5.5 percent over 2011. One fatal accident per 2.5 million flights. (Source: Wall Street Journal, “Flying is Safest Since Dawn of Jet Age,” December 28, 2012; AVweb, December 31 2012)
  • Higher education costs: total debt at public four year universities tripled from 2002 to 2011 to $88 billion (Source: Wall Street Journal, “Deans List: Hiring Spree Fattens College Bureaucracy—And Tuition,” December 28, 2012)
  • Heart disease incidence variation: median for all states-3.7 percent, highest West Virginia, 6.2 percent; lowest Washington, DC, 2.2 percent. (Source: Truven Health Analytics)
  • Fake medicines: cancer drugs were eighth among top ten classes vs. not making list at all five years ago. (Source: Wall Street Journal, “Counterfeit Cancer Medicines Multiply,” December 31, 2012)
  • Physical education: 39 percent of college curricula required physical education in 2010—down about 70 percent since 1980. (Source: USA Today, “Colleges’ Physical Education Requirements Fade Away,” January 9, 2013)
  • Mandatory workplace drug testing: incidence for pre-test is up to 1.8 percent from 1.5 percent in 2009; of these, 24.6 percent are amphetamines, 3.1 percent oxycodone. (Source: Quest Diagnostics)
  • Obesity poll: in a survey of 1,011 American adults, 75 percent view being overweight or obese as an “extremely or very serious health problem.” Only heart disease (78 percent) and diabetes (70 percent) were recognized by a majority of the public as serious impacts of being overweight or obese, while high blood pressure (21 percent), arthritis (14 percent), stroke (10 percent), death (8 percent), and cancer (7 percent) were largely unidentified. (Source: AP-NORC Center for Public Affairs Research)
  • Preschool obesity: the rate of obesity among low-income preschoolers declined slightly from 15.2 percent in 2003 to 14.9 percent in 2010. (Source: CDC)
  • College tanning: in a survey of 576 college students, those that watched reality TV beauty shows were more likely to both use tanning lamps (12.9 percent vs. 3.7 percent) and tan outdoors (43.3 percent vs. 28.7 percent). (Source: Fogel and Krauszl, Journal of the American Academy of Dermatology, “Watching reality television beauty shows is associated with tanning lamp use and outdoor tanning among college students,” December 2012)
  • Young adult coverage: the number of individuals ages 19-25 covered by health insurance rose 6.7 percent from September 2010 to September 2011. (Source: Sommers, et. al, Health Affairs, “The Affordable Care Act Has Led to Significant Gains in Health Insurance and Access to Care For Young Adults,” December 2012)
  • Pediatric resident debt: debt among pediatric residents increased 34 percent between 2006 and 2010 from $104,000 to $139,000. (Source: Frintner, et. al, Pediatrics, “Pediatric Resident Debt and Career Intentions,” January 2013)
  • Cancer mortality: overall U.S. cancer death rates declined 1.5 percent annually from 2000 to 2009. (Source: National Cancer Institute)
National health reform: What now?

National health reform: What now?

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