Health Care Reform Memo: September 6, 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

As often as I can, I hide in Arden, North Carolina to think, study, write, play golf and catch up on sleep. It’s peaceful. Boone’s Corner Grill and Ice Cream Parlor is the community watering hole. Daily specials are $6.25, and they are awesome. It’s packed by locals—most sporting work gear, tattoos, and well-worn hunting caps. It’s one stop shopping—a Shell Station, convenience store, and laundromat attached.

Marlene has worked at Boone’s for eight years. She doesn’t have health insurance nor do the others who work there. She can’t afford the premium—$550/month for the individual plan she once had—and she understands the grill’s owner can’t afford it for her and her co-workers. The exception is Ann, whose husband has “good benefits” at the plant where he works.

Marlene takes her chances with health care. If she’s hurt, she says she’ll go to the hospital. If she’s sick, she’ll pay out of pocket if she has the money or find other alternatives.

Everyone knows everyone at Boone’s. They know their regulars—the ones who lost their jobs and houses, the ones who are sick, and those that struggle to make ends meet.

They don’t understand health reform, economic recovery, the Joint Select Committee on Deficit Reduction, or the debt ceiling. They are strong people with modest needs and resilient attitudes.

According to the Bureau of Labor Statistics (BLS), the U.S. unemployment rate is mired at 9.1 percent with 14 million individuals out of work. Since the downturn started in December 2007, almost seven million have lost jobs. In the same period, health care employment is up one million including 30,000 new hires last month.

In Title Five of the Affordable Care Act (ACA), the strengthening of the U.S. health care workforce is its focus. Among key elements:

• Health Workforce Commission (Sections 5101,10501): establishes a national commission to report to Congress and the Administration on how to align federal health care workforce resources with national needs. Barriers of entering and remaining in primary care careers are high-priority for the Commission.
• State health care workforce development grants (Section 5102): creates competitive grants to enable state partnerships to support innovative approaches to increase the number of skilled health care workers such as health care career pathways for young people and adults.
• Primary care workforce (Sections 5501 – 5508): provides a 10 percent Medicare payment bonus for five years to primary care practitioners and general surgeons practicing in health professional shortage areas starting in 2011 (Section 5501); directs HHS to implement a Medicare payment to reimburse Federally Qualified Health Centers (Section 5502); and increases supply of primary care physicians via residency programs (Sections 5503 – 5508).
• Nursing-related provisions (Sections 5202, 5203, 5208, 5308 – 5311, 5404, 5509, 10501): provides funding for and creates programs such as loan repayment programs to expand nursing education, training, and diversity. Note: in July 29, 2011, the U.S. Department of Health and Human Services (HHS) announced $71.3 million in grants to expand nursing education, training, and diversity.

At a macro-economic level, it’s understandable that health care employment is increasing while other sectors lag: demand for health care services is strong and growing, and our system has thus far absorbed the costs of the industry’s costly technologies, facilities, and educated workforce.

But at a micro level, it’s about people in Arden and elsewhere. The bond shared by America’s 16 million health care workers is caring for people like Marlene. Marlene thinks she should have the same health care coverage members of Congress get. She does not think it’s a matter of who pays; it’s about who cares.

Yesterday was Labor Day. Boone’s was closed, so Marlene got some down time. Today, she’ll be back at it. She’s more concerned that her customers get through their day than the solution to world peace and economic recovery. And she’s confident the health system’s Labor force will do the same for her.

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

Implementation update

Rate reviews rules applicable to association health plans

According to the final rule released last week by HHS, rate review procedures will cover association health plans sold through affinity groups to individuals and small groups.

Note: Section 1003 of the ACA requires HHS to conduct annual reviews of “unreasonable” health insurance rate increases of 10 percent or more for individual and small group plans effective September 1, 2011. The rule applies to 35 million insured but does not apply to “grandfathered” health insurance plans in effect when ACA was enacted in 2010, or plans that are self-funded by employers.

Rate review update

To date, 42 states and DC have used $48 million in grants to help them improve their oversight of proposed rate increases:

• 9 states passed legislation to further enhance rate review.
• 25 states have hired new staff to review rates.
• 33 states have enhanced information technology (IT) capacity to review rates more efficiently.
• 31 states have improved rate filing requirements to improve transparency.

IOM summarizes essential health benefits listening tour feedback

ACA Section 1302 stipulates that qualified health plans cover essential health benefits including ambulatory services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative services and devices, laboratory services, preventive and wellness services, chronic disease management, and pediatric services including oral and vision care. Thursday, the Institute of Medicine (IOM) published a summary of the public workshops held this year to get industry and consumer feedback about essential health benefits. HHS requested that IOM recommend the criteria and methods for determining and regularly updating the essential health benefits package. It will release its recommendations later this month. (see IOM.org)

GAO analysis of MLR requirement: plans adjusting business practices to comply, brokers’ commissions being cut

Beginning in 2011, insurers were required to meet minimum medical loss ratio (MLR) requirements or pay rebates to enrollees. Health plans data for 2011 is due June 2012. The Government Accountability Office (GAO) examined MLR data for 2010 provided by the plans to assess what changes plans would make to comply with the MLR requirement of ACA. It concluded:

“Most of the insurers GAO interviewed were reducing brokers’ commissions and making adjustments to premiums, as well as making changes to other business practices, in response to the ACA MLR requirements. Almost all of the insurers said they had decreased or planned to decrease commissions to brokers in an effort to increase their MLRs. Insurers varied on how the ACA MLR requirements might affect their decisions to implement activities to improve health care quality… One insurer said that they have considered exiting the individual market in some states in which they did not expect to meet the ACA MLR requirements, while several other insurers said that the ACA MLR requirements will not affect where they do business.”

Source: “Private Health Insurance Early Experiences Implementing New MLR Requirements,” GAO, July 29, 2011.

AMA urges CMS to reconsider physician enrollment process

Tuesday, the American Medicare Association (AMA) expressed “very significant concerns” with CMS’s Medicare provider enrollment revalidation requirements. Per ACA Section 6401, CMS will send revalidation requests by mail between now and March 23, 2012 to over 1.4 million health professionals (including 750,836 physicians). Those receiving a request have 60 days to revalidate their individual Medicare enrollment records. Physicians who have enrolled on or after March 25, 2011 are exempt.

Legislative update

Select Committee announces first meetings

The Joint Select Committee on Deficit Reduction will hold its first meeting Thursday to handle procedural items, then again Tuesday, September 13 to hear from CBO Director Douglas Elmendorf on “the history and drivers of our nation’s debt and its threats.”

Industry consolidation focus of committee hearing this week

Thursday, the House Ways and Means Health Subcommittee announced that it will examine mergers and acquisitions in the health care industry and their impact on costs at a hearing this week.

CMS finalizes MA, Part D requirements

August 26, CMS finalized several Medicare Advantage (MA) and Part D provisions required by the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), including requirements for prompt payment by prescription drug plan sponsors and compensation for sales agents and brokers. CMS estimates aggregate net savings from the provisions at $520 million for FY 2010 through 2015—most resulting from implementation of prompt payment provisions by prescription drug plans and MA plans.

Notably, the rule strengthens requirements for agents and brokers selling MA and Medicare Prescription Drug plans by limiting their commissions and ensuring that they do not receive rewards if they sell a plan that does not meet an individual’s need and the consumer leaves the plan within the first 90 days. The rule also requires most Private Fee-For-Service (PFFS) plans to have contracts with medical providers (e.g. hospitals and specialists).

The rule also addresses Special Needs Plans (SNPs) which cover individuals eligible for both Medicare and Medicaid. Under the rule, SNPs must be approved by the National Committee for Quality Assurance (NCQA) in 2012 and develop a Model of Care which includes comprehensive assessments (initial and annual) of an individual's health, an individualized plan of care with goals and measurable outcomes, and an interdisciplinary team to manage care.

Nursing homes target select committee with ad campaign to fend off funding cuts

Tuesday, the American Health Care Association (AHCA) and the Alliance for Quality Nursing Home Care announced eight state ad campaigns targeting members of the Joint Select Committee on Deficit Reduction and states where Medicaid funding is at issue. In July, CMS announced a final rule that cut payments to skilled nursing by 11.1 percent for FY12 to offset previous overpayments. The Joint Select Committee might make additional cuts, or if its recommendations fail to win an up vote in Congress, an automatic 2 percent Medicare cut would be applied to nursing homes along with other providers.

Fraud detection emphasis increasing

Fraud investigations are up 85 percent in the first eight months of 2011 because of intensified enforcement per the non-partisan Transactional Records Access Clearinghouse (TRAC). TRAC found 903 prosecutions for 2011—a 24 percent increase over the total for all of FY 2010 (731). CBO estimates collections from fraud surveillance will be 4.9 billion over ten years.

Industry news

UnitedHealth group acquires California medical group; plans developing strategic collaboration agreements with providers

Last week, UnitedHealth’s Optum health services arm announced the acquisition of Irvine, CA based Monarch HealthCare, a 2,300-member physician group. Previously, Optum had assumed operational responsibility for AppleCare Medical Group and the Memorial HealthCare Independent Practice Association in CA. In the news release, Optum indicated Monarch will not be an exclusive provider to United insurance enrollees.

Note: several health plans announced recent deals with providers including Humana and Concentra (Addison TX), Highmark-West Penn Allegheny Health System (Western PA), and WellPoint-CareMore Health Group (Southern CA). In parallel, hospital-physician alignment activity seems to be accelerating: according the Medical Group Management Association (MGMA), almost half of physicians are now aligned with a hospital or health plan.

FDA releases draft of industry user fees reauthorization

Last Thursday, the Food and Drug Administration (FDA) released a draft of the agreement with industry for the reauthorization of the Prescription Drug User Fee Act (PDUFA) reauthorized in 2007 under the FDA Amendments Act and set to expire in September 2012. New legislation is required for FDA to continue collecting user fees from drug companies with its final recommendations due to Congress in January 2012 to extend FDA funding 2013 – 2017.

Note: user fees pay for FDA's Center for Drug Evaluation and Research (CDER) and the Center for Biologics Evaluation and Research (CBER). In its announcement, the FDA said it will establish a review process for all New Molecular Entity New Drug Applications (NME NDAs) and original Biologics License Applications (BLAs). According to the draft, the process will “promote greater transparency and improve communication between the FDA review team and the applicant…and improve the efficiency and effectiveness of the first cycle review process and decrease the number of review cycles necessary for approval, ensuring that patients have timely access to safe, effective, and high quality new drugs and biologics.” Other priorities mentioned are measures to reduce medication errors related to look-alike and sound-alike proprietary names, modernization of the drug safety system, and techniques to standardize risk evaluation and mitigation strategies (REMS). The agreement increases drug user fees by $100 million over five years.

Health care employment trends and projections: BLS outlook

Study: EHR use increases accuracy of diagnosis, effectiveness of treatment planning

Cleveland Clinic researchers analyzed data from 27,207 Type II diabetes patients seen in 569 primary care practices from 2007 – 2010. Results: “In unadjusted analyses, between July 2009 and June 2010, 50.9 percent of patients at electronic health record (EHR) sites, as compared with 6.6 percent of patients at paper-based sites, received care for diabetes that met all four standards, representing a difference of 44.3  percent. EHR sites showed higher achievement on all components of the composite standard for care. For diabetes outcomes, 43.7 percent of patients at EHR sites and 15.7 percent of those at paper-based sites had outcomes that met at least four of the five standards, a difference of 28.0 percent.”

Source: Cebul et al “Electronic Health Records and Quality of Diabetes Care,” New England Journal of Medicine August 31, 2011.

CMS releases rule amending e-prescribing incentive program, alignment with meaningful use

Wednesday, CMS released a final rule amending the Medicare e-prescribing incentive program to encourage doctors and health care professionals to successfully adopt and use e-prescribing technology while aligning it with the Health Information Technology for Economic and Clinical Health (HITECH) Act meaningful use requirements for certified electronic medical records use.

Note: MIPPA established the Medicare e-prescribing incentive program allowing eligible providers to earn incentives based on electronic prescribing activities starting in 2009 and penalties starting in 2012 if they do not meet electronic prescribing thresholds. The current standard is that physicians electronically send at least ten prescriptions in the first six months of 2011 to avoid penalties in 2012, and send 25 prescriptions electronically in 2012 to avoid penalties in 2013.The meaningful use program requires that certified EHRs have electronic prescribing capabilities.

Consumer group seeks new FDA regulations on generic labeling

Tuesday, the consumer advocacy group Public Citizen filed a petition to the FDA stating that the agency “should revise its regulations to allow generic drug manufacturers to update product labeling to warn patients about risks associated with their drugs.” The petition follows a June 2011 U.S. Supreme Court ruling (PLIVA vs. Mensing) stating that individuals cannot sue generic drug manufacturers for inadequate label warnings. The high court used FDA regulations as the basis for its decision. FDA regulations prohibit generic manufacturers from updating labeling to indicate potential risk previously not mentioned in the labeling, unlike brand-name drug manufacturers who can update their drug labels with warnings before receiving FDA approval.

Note: as of 2010, approximately 77 percent of drug prescriptions were filled with generic drugs rather than brand-name drugs.

AHA challenge: CMS hospital reporting requirements breach of ACA

Tuesday, the American Hospital Association (AHA) sent a 14-page letter to CMS detailing breaches by the federal agency of the ACA. AHA’s concerns include the failure to give hospitals at least a year to test new quality measures, including one related to hospital infections.

Central Pennsylvania urology group consolidation anti-trust challenge settlement reached

In Central PA, five urology groups merged in 2005 to create a 13-physician group that controls 84 percent of the market in a three county area. The PA Attorney General sued under the Sherman and Clayton Anti-Trust Acts to limit the group’s market dominance in contracting with health plans and referrals to the group’s imaging and prostate cancer centers. In the September 1 decision (Pennsylvania vs. Urology of Central Pennsylvania Inc., M.D. Pa., No. 11-cv-1625-JE), the medical group made no admission of liability and accepted key provisions intended to mitigate anti-competitive and constraint of trade business practices including:

• Health plan contracting: requires binding arbitration by an independent three-judge panel if health plan negotiations result in an increase in fees above a designated threshold. When UCPA negotiates with a health plan accounting for 15 percent or more of its patient volume, the settlement precludes a most-favored-nation clause that inures to the benefit of UCPA or the health plan.
• Self-referrals: agreement that the medical group may not require its physicians to refer service operated by the group or a health plan or patient to purchase radiation oncology or CT imaging services from the group’s centers.
• Patient disclosures: requires the group to inform patients needing radiation/CT imaging about the availability of the alternative centers from non-group providers within a 20-mile radius and provide patients an estimate the costs the patient and the patient's health plan will pay to the group for the services.
• Settlement fees: under terms of the consent order, UCPA will pay $100,000 to reimburse the Pennsylvania attorney general's office in pursuing the case and pay $100,000 to fund prescription drugs to treat urological diseases for people without prescription drug insurance coverage.

Note: physician consolidation in larger single specialty groups is an emergent trend among specialists. As hospitals and health systems implement clinical integration to qualify for episode-based payments, shared savings programs, with Medicare and other ACA authorized program and efforts to align incentives between primary care physicians and specialists, will be challenging.

State news

GOP Governors Public Policy Committee: significant flexibility for Medicaid required

Tuesday, the Republican Governors Public Policy Committee (RGPPC) Health Taskforce released a report, “A New Medicaid: A Flexible, Innovative and Accountable Future,” calling for repeal of the ACA and replacing it with “market-based, common sense reforms to our health care system.” Other recommendations in the report were repeal maintenance of effort requirements, amending the definitions of income to count child support payments, and reversing the use of modified adjusted gross income (MAGI) for eligibility.

State round-up

• Colorado’s Department of Health Care Policy and Financing program will reduce Medicaid eligibility for childless adults to 10 percent of the federal poverty level (FPL). The state originally expanded its program to all childless adults with incomes up to 100 percent FPL. However, officials underestimated both the cost and number of eligible residents. Because covering all of the state's 49,511 childless adults who qualify would cost $770 million, the Department will cap the number of enrollees to 10,000. The coverage will cost an estimated $190 million over two years.
• Kansas officials announced the state will not implement a health insurance exchange until the U.S. Supreme Court decides whether the ACA is constitutional.
• Alaska announced it would develop an exchange but use its own funding rather than accept federal funding. Alaska is the 12^th state to indicate its plan to operate its own exchange.

Quotable

“The federal rate review process offers an unprecedented level of scrutiny and transparency to health insurance rate increases. Since 1999, the cost of health insurance has skyrocketed 131 percent for a family of four. A central principle behind the ACA is we have to reduce health insurance inflation for families and businesses. The new rules will shine a light on proposed double-digit increases in health insurance rates. Even in those areas in states where it is not yet possible to deny or reduce a rate increase, we believe the power of transparency and review will be a force for change for the benefit of consumers and individuals and small businesses. Faced with the possibility that a rate increase will be publicly highlighted, insurers will take special care to ensure that the rate is reasonable and based on reasonable assumptions.”

 – Steve Larson, Director of Center for Consumer Information and Insurance Oversight (CCIIO), HHS, September 1, 2011

“I don’t know what HIPAA stands for, but I believe in it and practice it.”

 – Peyton Manning, Indianapolis Colts quarterback, responding to a reporter’s question about his recovery from neck surgery

“The number of unemployed persons, at 14.0 million, was essentially unchanged in August, and the unemployment rate held at 9.1 percent. The rate has shown little change since April. The number of long-term unemployed (those jobless for 27 weeks and over) was about unchanged at 6.0 million in August and accounted for 42.9 percent of the unemployed. The labor force rose to 153.6 million in August. Both the civilian labor force participation rate, at 64.0 percent, and the employment-population ratio, at 58.2 percent, were little changed. Health care employment rose by 30,000 in August. Ambulatory health care services and hospitals added 18,000 and 8,000 jobs, respectively. Over the past 12 months, health care employment has grown by 306,000.”

 – U.S. BLS, September 2, 2011

“Congress and the administration cannot continue to simply shift the cost of the Medicaid program onto states in an effort to proclaim federal deficit reduction. As governors, we believe there is an opportunity to reduce Medicaid costs for both states and the federal government while improving the quality of the program overall.”

 – RGPPC Health Taskforce, “A New Medicaid: A Flexible, Innovative and Accountable Future,” August 29, 2011

“The work of the Joint Committee is critical to achieving fiscal sustainability. What is more, the Committee’s already difficult task will be made even more challenging by the fact that its recommendations will need to take into consideration the current economic climate… In sum, economic growth and job creation, while positive, have not been strong enough to bring down the unemployment rate to an acceptable level.”

 – Office of Management and Budget (OMB), FY 2012 Mid-session Review, September 1, 2011

Fact file

• 27 percent of people with employer-sponsored coverage would accept a more restricted list of doctors and hospitals in their networks. Less than a third of those polled were willing to pay more for brand name drugs or pay higher deductibles in return for lower premiums. (Source: Kaiser Family Foundation)
• Of the 81 million Boomers (born between 1946 to 1964), a third are obese and an additional 36 percent are overweight. (Source: Associated Press-LifeGoesStrong.com poll Tuesday, August 30, 2011)
• Of the 138 health plans in the U.S. with at least 100,000 medical enrollees, 84 or 61 percent are nonprofit. Of the 203,203,306 total medical enrollees in these 138 health plans, 97,931,924 or 48 percent are in nonprofit health plans. (Source: Alliance for Advancing Non Profit Health Care)
• Half of the U.S. population drink a sugared beverage daily averaging 200 calories. (Source: National Center for Health Statistics)
• Cost shifting to private insurance from Medicare and Medicaid increases health insurance premiums by $1,788 per year for families—10 percent of total premiums. (Source: Milliman)
• 47 percent of uninsured Americans do not expect to be affected at all by the ACA, either positively or negatively. Three in ten (31 percent) say it will help them get health care, but 14 percent expect to be hurt by the law, mainly because they worry they will be required to buy coverage they cannot afford. (Source: Kaiser Family Foundation ,“Kaiser Health Tracking Poll,” August 2011)
• Medicaid managed care industry revenues: $90 billion in 2010 (Source: Citigroup Global Markets Inc, “TMG Health Webinar: View from Wall Street – The Outlook for Medicaid & Medicare,” August 23, 2011)
• The global telemedicine market growth forecast: 19 percent, mainly to growth Europe. (Source: Technavio, “Global Telemedicine market 2010–2014,” August 15, 2011)
• OMB’s mid-session review for FY 2012 projects that the 2011 deficit will be $1.316 trillion, 20 percent lower than their estimate of $1.645 trillion in February. (Source: OMB, FY 2012 Mid-session Review, September 1, 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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