Health Care Reform Memo: August 15, 2011
Deloitte Center for Health Solutions publication
The health care reform memos are issued on a weekly basis, highlighting news from the previous week's activities in the administration and implications for the C-suite and various stakeholder groups.
From Paul Keckley, Executive Director, Deloitte Center for Health Solutions
It’s been 45 months since our economic downturn started and 26 since the recession was declared over. Polls say the public is concerned, frustrated, and confused. What’s the answer to economic recovery, and how does all this relate to the average American who’s trying to pay bills with a median household income of just under $50,000?
The Joint Select Committee on Deficit Reduction faces an enormous challenge. Its task is not about a “grand bargain” between the political parties; it’s about a long-term solution that balances fiscal constraint with economic growth. The realities are these:
- The process will be tough. Making everyone happy is impossible nor should that be the goal. Priorities have to be set, and fiscal policies aligned to invest where needed and others cut. And in a democracy that features bi-annual elections, no recommendation is without political consequence.
- Recovery will be slow. This is the 34th downturn since 1885 per the National Bureau of Economic Research. In the 13 downturns since the Depression (1929), recovery has averaged less than 24 months. The current downturn is the second longest—only the decade-long recovery from the Depression featuring FDR’s New Deal lasted longer. The Committee’s task is to restore our economy over a decade but its decisions will impact investments and programs for generations.
- The health care industry is likely to play a prominent role in the solution. It can’t be limited to “entitlement reforms”. Granted, it added 900,000 employees to its ranks while the rest of the economy lost nine million but at an average cost of $9,000 per capita, it’s not sustainable. It is admittedly inefficient and fragmented. Its incentives reward volume over performance, opinions over evidence, and repair over prevention. So at 17.6 percent of the gross domestic product (GDP) and 25 percent of total federal spending ($990 billion), it is certain to get the attention of the committee.
Final thought: the current economic roller coaster is not Armageddon. These are not the end times. In fact, since 1970, federal spending has averaged 22 percent of the U.S. economy dipping as low as 18 percent in 1966. At 25 percent today, it’s a problem because consumption is down, unemployment up, and federal programs like Medicare Modernization Act, the American Recovery and Reinvestment Act of 2009 (ARRA), the Troubled Asset Relief Program (TARP), and the Affordable Care Act (ACA) are on timers that don’t align with economic cycles, global fiscal pressures, or political ebb and flow.
So everyone should watch the Committee’s work with great interest. Rather than a grand bargain, I am hoping for great insight and statesmanship.
Paul Keckley, Ph.D., Executive Director, Deloitte Center for Health Solutions
Constitutional challenges: 9th, 11th Circuit Courts rule
Friday, two Circuit Courts ruled on ACA challenges:
In the 9th Circuit Court of Appeals, the three-judge panel ruled that a former state lawmaker Steven Baldwin and the Pacific Legal Institute do not have legal standing to challenge ACA. The court didn’t get to the merits of the case, which challenges the constitutionality of the individual mandate.
In the 11th Circuit Court of Appeals, the judges struck down the individual insurance mandate in ACA, but allowed the rest of the law to stand. Thus, it ruled in favor of 26 states that had joined a lawsuit in Pensacola, Fla., but disallowed throwing out the entire law.
In June the 6th Circuit Court of Appeals upheld the law, and the losers in that case filed for permission last month to have their case heard by the Supreme Court. Still waiting are rulings from the 4th Circuit Court of Appeals, which heard oral arguments in May on two different lawsuits challenging ACA.
Note: given differing rulings at the Circuit level, it is likely the Supreme Court will take the case in its fall agenda starting in October with a ruling not likely before 2012.
HHS, IRS publish proposed rules to help states establish health insurance exchanges
Friday, the U.S. Department of Health and Human Services (HHS) published two proposed rules to help states establish the health insurance exchanges required by ACA. The first rule outlines exchange eligibility and employer standards (ACA Section 1311). The second addresses the Medicaid eligibility increase and the proposed enrollment system (ACA Section 2001). The Internal Revenue Service (IRS) also released a proposed rule that provides guidance on premium subsidies for coverage obtained through exchanges (ACA Section 1401). The proposed rules will be published in the Federal Register on August 17. Comments for all rules will be accepted until October 26, 2011.
The rules are intended to increase access to affordable coverage by creating a coordinated enrollment system for health insurance exchanges, premium credits, and Medicaid/Children’s Health Insurance Program (CHIP). Highlights of the proposed rules:
1. Eligibility determination and enrollment system
- The rule proposes to create a system that would allow exchanges, following state-established Medicaid rules, to conduct eligibility determinations for Medicaid and advance payment of premium tax credits. The system would also facilitate enrollment into the appropriate insurance affordability program (e.g. Medicaid and CHIP) and allows individuals to apply online, in person, by mail, or by phone through one simplified streamlined application.
2. Medicaid eligibility
- Eligibility categories would be collapsed into four primary groups: children, pregnant women, parents, and the new adult group. Per ACA, the rule would expand Medicaid to cover all adults with incomes up to 133 percent of the federal poverty level (FPL).
- New federal matching rates would provide 100 percent federal funding for newly eligible individuals for three calendar years (2014 – 2016), reduced to 90 percent in 2020, where it will remain indefinitely. The rule also allows states to access federal funding for newly eligible individuals using either statistical sampling or survey data using Modified Adjusted Gross Income (MAGI). (Note: MAGI rules do not count a portion of Social Security as income for Medicaid purposes, which could lead to higher state Medicaid costs)
- Eligibility verification rules would be modernized to rely primarily on electronic data when available, and provide states flexibility to determine the data sources they will rely on. The rule also proposes that the federal government will perform some of the data matches for states (e.g. with Social Security and Homeland Security), further relieving states’ administrative burden.
3. Premium subsidies for coverage obtained through the exchange
- The premium tax credit would be available to individuals and families with incomes between 100 percent and 400 percent of the FPL. (The Congressional Budget Office (CBO) estimates that the premium tax credit will help 20 million Americans afford health insurance).
- To be eligible for the premium tax credit, individuals must be enrolled in a qualified health plan, legally present in the U.S., not incarcerated, and ineligible for other qualifying coverage, such as Medicare, Medicaid, or affordable employer-sponsored coverage (i.e. individual premium does not exceed 9.5 percent of household income).The credit would equal the difference between the premium and the individual/family expected contribution. The expected contribution is a specified percentage of the taxpayer’s household income: from two percent of income for families at 100 percent FPL to 9.5 percent of income for families at 400 percent FPL.
- The credit is advanceable, with advance payments made directly to the insurance company. The advance payments are then reconciled against the amount of the actual premium tax credit.
Note: states are required to obtain federal authorization to set up their exchanges by January 1, 2013 and begin operations January 1, 2014. For health plans, evaluating the risks and opportunities to participate is largely based on the specific requirements each state may make for qualified health plans.
The Joint Select Committee on Deficit Reduction: health-related interests and activity
The committee is tasked with recommending $1.5 trillion or more in budget savings over ten years by November 23, 2011 for an up or down vote by Congress on or before December 23, 2011. Members of the committee named last week have a wide range of health-related legislative activity (note: position statements obtained from member websites):
Health Care Legislative Activity/Position Statements
Co-chair: Senator Patty Murray (WA)
Senate HELP committee;
Democratic Senatorial Campaign Committee chairwoman
Senator Max Baucus (MT)
Senate Finance Committee chairman
Senator John Kerry (MA)
Senate Finance Committee
Representative James Clyburn (SC)
Representative Xavier Becerra (CA)
Ways and Means Social Security subcommittee;
House Democratic Caucus vice chairman
Representative Chris Van Hollen (MD)
House Budget Committee
Previous policy positions
Co-chair: Representative Jeb Hensarling (TX)
House Republican Conference chairman
Senator Jon Kyl (AZ)
Senator Pat Toomey (PA)
Senate Budget Committee
Senator Rob Portman (OH)
Former Director of the Office of Management and Budget (OMB)
Representative Dave Camp (MI)
Ways and Means Committee chairman
Representative Fred Upton (MI)
Energy and Commerce chairman
HHS announces $28.8 million for community health centers
Tuesday, HHS awarded $28.8 million in ACA grants to 67 community health centers. The grants will help establish new health service delivery sites to care for an additional 286,000 patients.
Note: one in 16 individuals in the U.S. receives primary care from HHS Health Resources and Service Administration (HRSA)-funded clinics. The clinics employ 9,500 physicians and over 6,300nurse practitioners, physician assistants, and certified nurse midwives.
CMS seeks state applicants for Medicaid Emergency Psychiatric Demonstration
Tuesday, the Centers for Medicare & Medicaid Services (CMS) announced a new three-year Medicaid Emergency Psychiatric Demonstration (ACA Section 2707) providing up to $75 million to participants for Medicaid payments made to private psychiatric hospitals with 17 or more beds for inpatient emergency psychiatric care to Medicaid enrollees aged 21 to 64. Such payments are currently prohibited under Medicaid.
HHS awards $185 million to 13 states to develop health insurance exchanges
Friday, HHS awarded over $185 million to the District of Columbia and the following states to help develop health insurance exchanges: California, Illinois, Kentucky, Maryland, Minnesota, Mississippi, Missouri, Nevada, New York, North Carolina, Oregon, and West Virginia.
Note: previously on May 23, 2011 HHS awarded funding for health insurance exchanges to Indiana, Rhode Island, and Washington.
Dual eligibles fact sheet
- Sixty-one percent of the 9.9 million dual eligibles (people who are eligible for both Medicare and Medicaid) are over age 65.
- Dual eligibles are 40 percent of the Medicaid budget: 70 percent goes to long term care, 20 percent to acute, nine percent to Medicare premiums, and one percent to prescription drugs.
- Fifty-five percent have incomes less than $10,000 (versus six percent of other Medicare enrollees)
- Fifty-four percent have a cognitive impairment, 41 percent are disabled, and 15 percent reside in a long-term care facility.
- Forty-four percent had at least one emergency room visit in 2006, 29 percent had at least one inpatient stay, 13 percent had one or more home care visits—all double the average for other Medicare enrollees.
- In 2005, dual eligibles had 958,837 hospitalizations with an average length of stay of 6.7 days and average cost of $8,167: 40 percent were not necessary or could have been avoided.
Sources: CMS, the Medicare Payment Advisory Commission (MedPAC)
- Vermont could save eight percent of health costs from administrative simplification and consolidation and five percent from reduced fraud. (Source: Act 128, State of Vermont “Health System Reform Design Final Report” February 20, 2011)
- Gov. Sam Brownback (R) returned the Kansas Early Innovator Grant ($31 million) to HHS.
- Tuesday, the South Carolina Budget and Control Board voted to increase health insurance premiums by 4.5 percent for public employees and state retirees.
- Wednesday, an Arizona County Superior Court judge approved Governor Jan Brewer’s (R) plan to exclude childless adults and certain parents from the state’s Medicaid program; Medicaid currently does not require states to cover such individuals. According to state Medicaid officials, the change would affect about 17,000 people in the first month, and about 135,000 over the course of a year.
- Federal officials approved a monthly premium of $381 for the federally funded, state-managed Connecticut Pre-Existing Condition Insurance Plan (PCIP). The flat rate premium reduces costs by as much as 57 percent for older beneficiaries but raises rates for people 45 and younger.
Quality measures for Medicaid-eligible adults released
Wednesday, an advisory panel for the Agency for Healthcare Research and Quality (AHRQ) approved a draft set of 24 health quality measures to be used by CMS to assess the quality of care for state Medicaid programs.
The 30-member subcommittee of AHRQ's National Advisory Council selected from 54 measures to focus metrics in five areas: prevention and health promotion, management of acute conditions, management of chronic conditions, family experiences of care, and availability of services.
Examples: flu shots for adults ages 50-64, cervical cancer screening, lipid screening among diabetics, adherence to anti-psychotics for schizophrenics, initiation and engagement of alcohol and other drug dependence treatment, and postpartum visits from 21 to 56 days after delivery. A final core set of quality measures will be issued by January 1, 2012, Section 3014 of ACA.
Perceived adequacy of insurance coverage (Deloitte 2011 Survey of U.S. Health Consumers)
Those covered by employer-sponsored health plans and the military are more secure in the adequacy of their insurance coverage than others. Medicaid enrollees are the least confident in their coverage.
Moody’s: nonprofit hospitals revenue growth lowest in 20 years
Based on analysis of 401 hospital financial records, Moody’s concluded revenue growth at four percent for 2010 was the lowest in the rating firm’s history of acute sector analysis. In its report Wednesday, it indicated hospital admission rates dropped 0.4 percent and one on five hospitals is operating in the red. Note: hospital mergers are on a record pace: in 2010, 72 deals were completed; in 2011 year to date, 56 deals have been done, per Irving Levin Associates.
EHR incentives deadlines
November 30, 2011 is the last day for hospitals and critical access hospitals that are eligible for the electronic health record (EHR) program to register and attest to receive an Incentive Payment for FY 2011. Note: incentive payments began May 2011. For physicians, February 29, 2012 is the last day to apply and attest for Incentive Payments for CY 2011. (Source: ONC)
Physician groups challenge reporting requirements
August 8, 81 physician organizations including the American Medical Association challenged the proposed federal public reporting rule under ACA (Section 10332) in a 13-page letter to Don Berwick, Director of CMS. “Programs must be designed so that appropriate and accurate information is available to patients to enable them to make educated decisions about their healthcare needs.” The organizations urge CMS to ensure that the information is reliable and that physicians have the opportunity to review their data and appeal errors. The AMA also suggested that CMS standardize the process for developing public reports and the type of information they will include, not for Medicare, and for private insurance data.
Controversy over the accuracy of risk adjustments used in publicly reported quality data about physicians has been an issue since officials in New York, Massachusetts, New Jersey, Pennsylvania, and California began requiring the public reporting of outcomes by hospitals and by physicians for surgeries for coronary artery bypass grafts.
Physician group demonstration results
Monday, CMS reported that seven of the ten physician groups that participated in CMS's Physician Group Practice (PGP) demonstration that began in 2005 achieved benchmarks on all 32 performance measures in the fifth year of the project. All ten of the groups are now participating in the PGP Transition Demonstration, a two-year supplement to the original demonstration program. Per CMS, the program saved Medicare $36.2 million after bonuses to the groups.
Study: retractions of scientific studies increasing
Of 742 studies retracted from scientific journals between 2000 and 2010, 74 percent were for error, and 26 percent for fraud. Retractions related to fraud increased 700 percent from 2004 to 2009, and up 200 percent for error. The lag time for retraction increased from 5.25 months in 2000 to 31.62 months for 179 retractions in 2009. (Based on Thomson Reuters Web of Science by Grant Steen et al Journal of Medical Ethics, December, 2010)
ONC releases metadata guidance, part of stage 2 meaningful use
The Office of the National Coordinator for Health IT (ONC) released a proposed rule on the use of existing metadata standards to support electronic health information exchange and to get feedback on the experience from the organizations that applied the standards, for possible inclusion in stage 2 of meaningful use effective in 2013. The use of metadata—elements that describe data—is considered key to organizing data across a variety of sources into information through health information exchanges. ONC published its guidance in the August 9 Federal Register; the public will have 45 days, or until September 23, to comment.
ONC: consumer engagement a priority
Tuesday, ONC announced plans to increase efforts to educate consumers about the value and use of electronic health records this fall. Lygeia Ricciardi, ONC’s senior policy advisor for consumer e-health, told the Consumer Consortium on eHealth, a group of 180 organizations aligned with the National eHealth Collaborative that ONC plans several events Note: Under meaningful use, patients can receive an electronic copy of their information within three days of their request. In recommendations for stage 2, patients are allowed to view and download their information online.
GAO report: Medicare feedback to physicians inadequate
Last week, the Government Accountability Office (GAO) recommended that CMS improve its process for giving feedback to physicians about their Medicare spending per the Medicare Improvements for Patients and Providers Act of 2008.The GAO performance audit conducted June 2010 through August 2011 found that most physicians were not receiving the reports after the CMS applied methodological screening criteria for determining which doctors are appropriate to receive the feedback and most physicians did not read their reports.
Lawmaker asks HHS to study costs and benefits of health IT
Thursday, Representative Renee Ellmers (R-NC) sent a letter to HHS Secretary Kathleen Sebelius, requesting a study on the benefits and costs of health information technology (HIT). Ellmers, chairwoman of the Small Business Subcommittee on Healthcare and Technology, noted that during a June committee hearing, "physicians testified that the cost to purchase and maintain a health IT system, in addition to staff training and downtime during the transition to health IT, are significant burdens for small practices.” Ellmers also cited a Journal of the American Medical Association study that found that 12 percent of computer-generated prescriptions were erroneous.
CMS: two million eligible for the Medicare Low-Income Subsidy program but not enrolled
Tuesday, CMS announced that an estimated two million low-income Medicare beneficiaries are eligible for the Low-Income Subsidy (LIS) program, but are not enrolled. Under the program, their drugs could cost less than $2.50 for generic drugs and $6.30 for brand name drugs. To qualify, Medicare enrollees must have annual incomes less than $16,335 (or $22,065 for married couples) and have resources (e.g. bank accounts, stocks, bonds) limited to $12,640 (or $25,260 for married couples).
CBO: children’s hospital GME would cost $1.57 billion
Tuesday, the CBO estimated that the Children’s Hospital GME Support Reauthorization Act of 2011, which would reauthorize children’s hospital GME, would cost $248 million in 2012 and $1.57 billion between 2012 and 2016. From 2012 through 2016, the legislation would authorize $110 million annually for direct costs of GME in children’s hospitals and $220 million annually for indirect costs of GME programs.
“The U.S. debt crisis has put a fire under the government's efforts to slow growth in health care spending. The Centers for Medicare & Medicaid Services estimates that Medicare costs currently amount to roughly $556 billion (or 3.6 percent of GDP), up from $247 billion (or 2.6 percent of GDP) under the elder care program just 10 years ago. While some of the increase resulted from the adoption of the Part D prescription drug benefit in 2006, most of the expansion stems from rising medical costs and an aging population.
This new urgency to constrain Medicare expenditure growth follows a $155 billion reduction in Medicare payments to hospitals over 10 years mandated under the Affordable Care Act of 2010. Most recently, Medicare announced an 11 percent reimbursement cut for skilled nursing facilities beginning this coming October. Furthermore, the Joint Committee of Congress created under the Budget Control Act passed last week can cut Medicare reimbursement. If the joint committee fails to cut the deficit by its mandated $1.2 trillion, automatic spending cuts could be triggered and Medicare providers would face reimbursement cuts capped at 2 percent beginning in 2013.
Uncertainty about third-party reimbursement is an ongoing risk that Standard & Poor's Ratings Services factors into its ratings on health care providers… while Medicare reimbursement exposure is not the sole factor we consider when making our risk assessments, we characterize the business risk profiles of most rated health care service companies that derive 30 percent or more of their revenues from Medicare as ‘vulnerable’ or ‘weak’.”
– “The Deficit Remedy Could Be Toxic For U.S. Health Care Companies” Standard and Poor’s Global Credit Portal, August 9, 2011
“…Last week, we reached an agreement that will make historic cuts to defense and domestic spending. But there’s not much further we can cut in either of those categories. What we need to do now is combine those spending cuts with two additional steps: tax reform that will ask those who can afford it to pay their fair share and modest adjustments to health care programs like Medicare… So it’s not a lack of plans or policies that’s the problem here. It’s a lack of political will in Washington. It’s the insistence on drawing lines in the sand, a refusal to put what’s best for the country ahead of self-interest or party or ideology. And that’s what we need to change…”
– President Obama, August 8, 2011
“The NHS is the closest thing Britain has to a national religion….Pointing out flaws in a nation’s religion will seldom win you friends. But sometimes it takes a Reformation to save a church”
– “Saving Britain’s health service” The Economist, June 18, 2011
- EHR users say they measure their success through reporting and tracking health care outcomes (64 percent) and error reduction (62 percent), but those who have yet to purchase EHR technology responded they would measure EHR success through increased revenue (74 percent) followed by reporting and tracking health care outcomes (60 percent). (Source: Survey by Sage Healthcare, August 2011)
- By 2050, life expectancy in the OECD countries will increase three years for men and 3.5 years for women, while the official retirement ages will increase 1.6 years for men and 2.5 years for women. (Source: OECD)
- Medicare costs for hospice care have increased more than any other health care sector: from 2005 through 2009, Medicare spending on hospice care rose 70 percent to $4.31 billion. For-profit companies continue to gain a larger share of the end-of-life medical market: for-profit hospices were paid 29 percent more per beneficiary than non-profit hospices. Medicare pays for 84 percent of all hospice patients. Medicare paid hospices that operated out of nursing facilities in excess of $3,000 more per beneficiary on average than it paid other hospices. Medicare pays a $143 daily flat rate for hospice patients, but they must be expected to live less than six months. MedPAC found 44 percent of patients transferred back to traditional care from hospices exceeded the six-month spending cap. That suggests "above-cap hospices may be admitting patients before they meet the hospice-eligibility criteria," it said in its 2011 report to Congress. (Source: CMS August 8, 2011)
- Community health centers in North Carolina are 56-62 percent less costly to operate than private primary-care health care settings. (Source: “Bending the Cost Curve in North Carolina” George Washington University School of Public Health and Health Services, August 9, 2011)
- Children with public health insurance are 22 percent less likely to receive comprehensive primary care than those covered by private insurance. Approximately one-third of all children in the U.S. are covered by some form of public health insurance such as Medicaid and CHIP. (Source: Academic Pediatrics, University of Michigan Medical School shows that American Academy of Pediatrics)
- Twenty-five percent of diabetics go undiagnosed: routine dental checkups can help identify diabetic or prediabetic individuals so they can be referred to a physician for care, researchers said. Caveat: The study included the results of only one fasting-glucose test; abnormal tests should be repeated to rule out lab error. (Source: Journal of Dental Research)
- The average per-person premium in 2010 ranged in cost from $136 per month in Alabama to $400 per month in Vermont and Massachusetts. The average across all states was $215 per member per month. (Source: Kaiser Family Foundation, “Mapping Premium Variation in the Individual Market”)
• Thirty percent of Medicare fee-for-service trading partners (e.g. providers, health plans, clearinghouses) are ready to process version 5010 transactions. (Source: CMS, August 5, 2011, based on June 15 CMS national version 5010 testing day)
- Health care spending increased from 16.3 percent to 18.1 percent of the U.S. GDP from December 2007 to June 2011. (Source: Altarum Institute, August 2011)
- In 2009, of the 382 major metropolitan statistics areas in the U.S., Ogden-Clearfield, Utah had the lowest spending for the commercially insured individuals at $2,623 per person and Anderson, Indiana had the highest spending for the commercially insured at $7,231 per person. (Source: Thomson Reuters, July, 2011)
- Sixty-one percent of current Medicaid enrollees reported excellent or very good health, compared with 51 percent of the low-income uninsured. (Source: Avalere Health)
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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