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Health Care Reform Memo:
July 9, 2012

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: a patient perspective of health care: a unique industry that impacts everyone

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

My Independence Day came two days early: my physician released me from warfarin! For those of you fortunate not to have experienced its side effects, you are indeed lucky.

On December 20, I had left knee surgery, and then post-operative blood clots that required a daily dose of powerful anticoagulant medication and weekly trips to labs for blood work. Along the way, there were four emergency department visits in NC, CA, TN, and DC to drain blood from a swollen knee—two of the four were among the 700 “Top 100” hospitals in America—go figure, there are 700 “Top 100” hospitals.

My experience is not unique: one in one-thousand adults is treated annually for deep vein thrombosis; 60,000 die.

In this six-month ordeal, I got a fresh view of the U.S. health system as a patient. I learned…

  • Health care workers are great people. The emergency room (ER) staffing, lab technicians, and nurses take their jobs seriously. Working in this industry is a calling!
  • The need for implementing electronic health records (EHRs) and implementing administrative simplification for insurance records is HUGE. Each encounter required duplicative paperwork.
  • My costs far exceed what “explanations of benefit” capture. Out-of-pocket is a major part of the ordeal, and costs for over-the-counter purchases are rarely captured or even estimated when patients start journeys like this.
  • Having insurance matters. My nine-, four-, two- and three-hour waits in hospital ERs could have been longer I suspect. At sign-in, it's the third question after “what’s your name” and “what’s your problem?"
  • And warfarin: the more I studied it, the more I was perplexed. Based on published evidence, it is one of the best therapeutic options to prevent clots, but the side effects are challenging to say the least and the drug’s costly. It’s been around since 1948 and is a standard of care for thromboembolism. It got its name from its discovery at the University of Wisconsin—“WARF” from its funding source, the Wisconsin Alumni Research Foundation, and "arin" linking it to coumarin for anti-thrombolytic use.Like most drugs, the research was funded in U.S. labs and the drug’s users are now global.

So, this week, I resume jogging and I am able to eat food with Vitamin K. My journey through the health system refreshed my view that it’s an industry like no other. Though far from optimal in efficiency and effectiveness, it impacts each of us, interrupting our normal routine, often uninvited.

Like so much in life, we learn from experience. This experience was an advanced degree.

Paul Keckely

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

P.S. Until Justice Roberts publishes his memoirs 20-30 years from now, we’ll not know his thinking about the Affordable Care Act’s (ACA’s) mandate, but no doubt pundits will speculate on all sides of the issue. Having read the 193-page rulings and dissenting views, I have no idea, nor do I wish to speculate. It’s more productive to move on: implementing ACA is now the focus.

Implementation update

Court decision re: optional Medicaid expansion raises questions for states

Prior to the Court’s decision June 28 that the ACA’s Medicaid expansion is optional for states, the assumption had been that states would be required to cover eligible adults up to 133 percent of the federal poverty level (FPL) ($29,700 for a family of four in 2011) adding 17 million eligible to Medicaid enrollment in 2014 (or before 2014 if a state chose to expand early as eight have done) at a cost of $930 billion over ten years.

State legislators and state Medicaid officials are now asking questions to determine how and whether they’ll expand their program. Examples:

  • Need to measure upgrade eligibility systems using modified adjusted gross income (MAGI): does the MAGI test for Medicaid eligibility qualify as part of “expansion” for the purposes of the ruling? And is a state that does not expand Medicaid allowed to keep its current system instead of being required to switch to the new one? (ACA requires states to change how they determine eligibility for Medicaid and Children’s Health Insurance Program [CHIP] to a MAGI-based test to align with income tax-based requirements for determining premium tax credit eligibility, for individuals purchasing private insurance inside the health insurance exchanges [HIXs]. It made additional matching funds available for Medicaid eligibility system upgrades, with a match rate of 90 percent for design and development of new systems. To date, 29 states have received match grants for upgrades to their eligibility systems.)
  • Need to expand in a state with a current low eligibility rate for adults: for pregnant women and children, most state eligibility standards range from 100-300 percent of the FPL, but for working adults, the range is 17 percent (AR) to 206 percent (DC). The question for states with low eligibility thresholds and a likelihood of higher new enrollees: is the added cost worthwhile given funding for the newly expanded population is matched by the federal government at 90 percent after 2019? And if a state chose not to expand, would it otherwise be eligible for a federal subsidy to buy insurance on the health exchange or would it be ineligible because the state chose not to expand?

Business groups seek clarity on ACA implementation issues

Immediately after the Supreme Court issued its rulings, employers who sponsor health insurance plans for their employees began seeking additional information on provisions of ACA that will affect their businesses:

Starting in 2014, employers with 50 or more full-time employees that do not offer health care coverage must pay a fee if any full-time employee receives premium assistance through a HIX ($2,000 multiplied by the total number of full-time employees minus 30, as the first 30 employees are exempt). Employers who offer health care coverage must pay the lesser of: $3,000 for each full-time employee who receives premium assistance through an exchange or $2,000 per full-time employee (minus 30).

Other key 2013 requirements for employers:

  • Adjustments to limits on Flexible Spending Account (FSA) programs
  • Increase in individual hospital insurance tax by 3.8 percent on unearned income
  • Increase in employee Medicare payroll tax by 0.9 percent on unearned income
  • Medical expense deduction floor increases to 10 percent
  • Cap on insurer’s tax deductions for compensation
  • Elimination of deduction for Part D Drug subsidy
  • And others

Reactions from employer groups include:

American Benefits Council: “Employers have had two straightforward goals for health care reform over the past two years since the law was enacted. First and foremost, employers want reforms to lead to lower costs and higher health care quality. We must not let up for a moment on the urgency of pursuing the valuable provisions of the law that aim to reduce unnecessary errors in our health care system, reward proven performance and make health care information more transparent for both consumers and purchasers. And second, employers need timely, practical and flexible guidance interpreting the law so they can continue to meet their compliance obligations.” (Source: News release: “With constitutional challenge resolved, employers set sights on 2014 obligations,” June 28, 2012)

Business Roundtable: “…Congress should refrain from any immediate action in response to the Supreme Court ruling. With the health care law now upheld, policymakers should first carefully analyze and understand the implications of the ruling, and engage in an open dialogue with the American people about the best way to move forward. As CEOs whose companies provide health care coverage to nearly 40 million Americans, we stand ready to work with Congress and the White House. Meanwhile, Business Roundtable member companies will continue to provide employer‐sponsored health insurance coverage to their employees and families.” (Source: News release: “Business Roundtable Responds to Supreme Court Ruling on Affordable Care Act,” June 28, 2012)

National Federation of Independent Business (NFIB): “We are concerned about the precedent that this will set in Congress’ ability to mandate other aspects of our lives, but we will move forward from today to continue to fight, harder than ever, for real health-care reform for our membership. Under PPACA [the Patient Protection and Affordable Care Act], small-business owners are going to face an onslaught of taxes and mandates, resulting in job loss and closed businesses. We will continue to fight for the repeal of PPACA in the halls of Congress; only with PPACA’s full repeal will Congress have the ability to go back to the drawing board to craft real reform that makes reducing costs a number one priority. The power and control of health care decisions should be in the hands of the consumer, not the government.” (Source: News release, “Supreme Court Ruling Limits Freedom, Strengthens Government,” June 28, 2012)

National Retail Federation (NRF): “NRF worked closely with lawmakers throughout the debate with the hopes that bipartisan reform would help make coverage more accessible and affordable. The law that emerged in 2010 was a controversial and partisan measure riddled with punitive mandates and penalties that were as unreasonable as they were unworkable. Although the Court upheld the law’s constitutionality, many problems remain: it penalizes employers too much; it doesn’t do enough to reduce the cost of health care; and it is unreasonably complicated and difficult to implement and administer. This law will have a dramatic, negative impact on every employer and employee in the United States and further constrain job creation and economic growth. NRF will redouble our efforts to repeal the law while we continue to work, in good faith, with regulators to smooth implementation for retailers and businesses alike.” (Source: News release, “Retailers Dismayed By Supreme Court Decision,” June 28, 2012)

Note: join the July 24 Dbrief — Health Cost Management and Health Benefits Plans: What Are Employers Planning?—to hear the results of a Deloitte 2012 employer survey and learn about how employers are adapting to ACA and cost containment efforts.

Retailers want changes to definition of full-time employee

July 2, the Retail Industry Leaders Association (RILA) sent a letter to the U.S. Department of Health and Human Services (HHS) requesting a change in the definition of “full-time employee” for purposes of complying with the ACA’s requirement that a full-time employee should work an average 30 hours per week, and allows employers a three-month “look-back” period when determining hours. The trade group seeks a 12-month look-back, to accommodate seasonal workers. RILA and other employer groups, including the Employers for Flexibility in Health Care Coalition, are also urging the administration to create a transition period until 2016 during which time employers working in good faith to comply with regulations would not be penalized.

Taxing authority, funding for ACA in Ways and Means, finance committees this week

Tomorrow, the House Ways and Means Committee will discuss the implications of the Supreme Court’s ruling that the individual mandate is constitutional as a tax as it relates to Congress’ authority to impose new taxes. This week, in the Financial Services and General Government Appropriations Act, a bill that would prohibit the Internal Revenue Service (IRS) from receiving any money from HHS to implement the ACA will be debated. The Administration has requested an additional $1 billion for the IRS to implement ACA, H.R. 6020 would prevent new funding.

Legislative update

House Budget Committee approves “Sequestration Transparency Act”

Last Wednesday, the House Budget Committee voted 30-0 to approve H.R. 5872 the “Sequestration Transparency Act” requiring the President to submit a detailed report to Congress on the across-the-board sequestration triggered under the Budget Control Act of 2011.

Under the bill, the President would be required to submit a detailed report to Congress, within 30 days of the bill’s enactment, providing…

  • An estimate of the sequestration percentages and amounts that will be needed, for each category of discretionary appropriations and direct spending, to achieve the required level of deficit reduction;
  • An identification of each discretionary appropriations account and direct spending account that will be sequestered, and estimates of the expected reductions at the program, project, and activity level; and
  • An identification of all discretionary appropriations accounts and all direct spending accounts that will be exempt from the sequestration.

Note: the Budget Control Act established a Joint Select Committee on Deficit Reduction that was charged with developing deficit reduction recommendations by November 23, 2011. It failed to approve recommendations triggering the sequester which calls for $1.2 trillion in deficit reduction spending cuts starting January 1, 2013 across most categories of federal spending, including Medicare (2 percent cut not including Medicaid, military benefits, and Social Security).

HHS announces $971 million for public health emergency preparedness

Monday, HHS announced grants to states for improving preparedness and health outcomes for a wide range of public health threats: $352 million for the Hospital Preparedness Program cooperative agreement “to improve surge capacity and enhance community and hospital preparedness for public health emergencies” and $619 million to the Public Health Emergency Preparedness cooperative agreement through the Centers for Disease Control and Prevention (CDC).

Portable devices bill introduced

Last Thursday, Senator Al Franken (D-MN) introduced the “Protect Our Health Privacy Act of 2012” (S. 3351), to protect health information carried on portable devices, requiring it to be encrypted. The bill includes provisions to:

  • Require health providers to encrypt portable devices that store health information: requires all covered entities to encrypt portable devices that store protected health information (PHI). Current law requires covered entities (e.g., health providers, insurers, clearinghouses) to report violations of PHI if the data breached were not encrypted.
  • Restrict business associates’ use of PHI: requires business associate agreements to include a provision limiting their use of PHI to those activities for which they are expressly contracted. Current law requires covered entities to use business associate agreements, but does not clarify this point.
  • Improve Congressional oversight: requires HHS and Department of Justice (DOJ) to report additional information to Congress about the information they receive regarding privacy breaches and their enforcement activities.
  • Ensure patient safety: the bill would require HHS to adopt the recommendation made by the Institute of Medicine (IOM) to collect information from vendors and consumers of health information technology (IT) about any adverse health events that occur as a result of the use of health IT.

Note: endorsing organizations for this bill include Center for Democracy and Technology, National Partnership for Women and Families, National Consumer Law Center, Consumer Action, NAACP, and National Association of Consumer Advocates.

State update

Republican Governors balk at Medicaid expansion option

From official statements issued after the Supreme Court ruling June 28:

  • Governor Rick Scott (R-FL): “We’re not going to implement Obamacare in Florida. We’re not going to expand Medicaid. We’re not going to do the exchange. Because what this does is raise the cost of health care for all Floridians. It just doesn’t work.”
  • Governor Terry Branstad (R-IA): “State after state is going to say no. It appears this federal blackmail to the states is not going to be permitted—I think that’s good.”
  • Governor Rick Perry (R-TX): “Obamacare is bad for the economy, bad for health care, bad for freedom….we citizens must take action at every level of government and demand real reform.”
  • Lieutenant Governor Tate Reeves (R-MS): “Mississippi taxpayers simply cannot afford that cost, so our state is not inclined to drastically expand Medicaid.”
  • Governor Nikki Haley (R-SC): “South Carolina will NOT expand Medicaid, or participate in any health exchanges. We will not support President Obama’s tax increase or job killing agenda. I WILL do everything I can to get Mitt Romney elected and work to strengthen our Senate so that we can repeal this un-American policy aimed at moving our country in the wrong direction.”

Intentions re: HIXs: breaking news from last week

  • Alaska: Governor Sean Parnell (R) has refused all federal funding for an exchange, and announced the decisions on the exchange and Medicaid expansion are likely “months” away.
  • Florida: Governor Rick Scott (R) still says his state will not implement an exchange nor expand its Medicaid program, but it will create a small business exchange, known as Florida Health Choices. (The state has signed a nine-year, $68 million contract to administer the online marketplace.)
  • Indiana: Governor Mitch Daniels (R) issued an executive order last year to authorize an exchange, though to-date no commitment has been made. His post-Supreme Court statement cautioned that the exchange could cost the state $50 to $65 million.
  • Michigan: Governor Rick Snyder (R) announced the state was looking into the federal partnership model.
  • New Mexico: the state’s exchange advisory board held its inaugural meeting and announced its intent to develop an exchange.
  • Virginia: Governor Bob McDonnell (R) told reporters his preference for a state-based exchange, but he wants more detail on the federal exchange.

Industry update

FDA: Senate approves PDUFA reauthorization, device identifier system announced

June 26, by a vote of 92 to 4, the Senate approved the final version of S. 3187, the “Food and Drug Administration Safety and Innovation Act,” after its House passage June 20 by voice vote.

The legislation covers…

  • Industry fees: authorization for industry user fees that support the U.S. Food and Drug Administration’s (FDA’s) systems for reviewing and approving applications for prescription drugs, medical devices, generic drugs, and biosimilar products;
  • FDA goals: timely review of drug applications, increased interaction between drug sponsors and the FDA during the review process;
  • FDA oversight of supply chain: strengthens the FDA’s authority to oversee the pharmaceutical supply chain via expanded registration requirements for entities involved in manufacturing, preparing, compounding, or processing drugs;
  • Drug shortages: provides mechanism for FDA to mitigate drug shortages, including reporting requirements for manufacturers of drugs that are life-supporting or used to treat or prevent a debilitating disease or condition;
  • Post-market surveillance for devices: extends the “Sentinel” post-market risk identification and evaluation system to include medical devices creating incentives for the development of drugs for treating life-threatening conditions.

Related: last Wednesday the FDA announced a Unique Device Identifier (UDI) system proposed rule for certain implantable devices. The proposed UDI rule outlines a seven-year timeframe for devices to come into compliance with UDI requirements, starting with high risk class III devices within one year of the final rule and ending with some requirements for class I devices in seven years. FDA and industry stakeholders will utilize the UDI system to improve recalls, track adverse events, and improve supply chain efficiency. The bill accelerates timing, first for approvals for implantable, life-saving, and life-sustaining devices, requiring these devices to come into compliance within two years. Class II implantable devices, such as some hip implants and heart valves, would also come onto the system sooner.

AHIP recommends increased focus on fraud

Last week, America’s Health Insurance Plans (AHIP) submitted recommendations to the Senate Finance Committee on how to combat waste, fraud, and abuse in the Medicare and Medicaid programs. Four recommendations were made:

  • Structure and plan focus: creation of structures that are effective at each step of the process—to deter fraud before it is committed, to identify fraud when committed, and to remedy fraud after committed—and to treat health plans’ fraud prevention initiatives under the medical loss ratio (MLR) regulations.
  • Inclusion of overuse in scope: focusing anti-fraud efforts on key areas of cost, quality, and safety, plus protection of patients from unnecessary services or procedures.
  • Dynamic process: adapting fraud fighting strategies and tactics to keep pace with the rapidly evolving schemes of those who commit fraud; and
  • Information sharing: utilizing all effective tools to fight fraud and collaborative structures that include health plans in information sharing.

Meaningful Use update

According to the Center for Medicare & Medicaid Services (CMS), as of June 19, 2012, it has surpassed its 2012 goal for the EHR adoption and use. Stats as of May 2012:

  • More than 110,000 Eligible Professionals (EPs) and over 2,400 Eligible Hospitals (EHs) have been paid by the Medicare and Medicaid EHR Incentive Programs
  • 48 percent of all EHs and Critical Access Hospitals (CAHs) in the U.S. have received an incentive payment for adopting, implementing, upgrading, or meaningfully using an EHR
  • One out of every five Medicare and Medicaid EPs in the U.S. have received an incentive payment for adopting, implementing, upgrading, or meaningfully using an EHR
  • $5.7 billion in EHR Incentive Program payments have been made

More than $3 billion in Medicare EHR Incentive Program payments were made between May 2011 (when the first payments were released) and the end of May 2012, and $2.6 billion in Medicaid EHR Incentive Program payments were made between January 2011 (when the first states launched their programs) and the end of May 2012.

Upcoming deadlines:

  • Summer (August/September 2012): final Stage 2 Rules are expected to come out.
  • July 3, 2012: last day for EHs to begin 90-day reporting period to demonstrate meaningful use for the Medicare EHR Incentive Program for Fiscal Year (FY) 2012 (reporting year).
  • September 30, 2012: last day of the federal fiscal year. Reporting year ends for EHs and CAHs.
  • October 3, 2012: last day for EPs to begin their 90-day reporting period for calendar year (CY) 2012 for the Medicare EHR Incentive Program to receive maximum Medicare incentives.
  • November 30, 2012: last day for EHs and CAHs to register and attest to receive an Incentive Payment for FY 2012 under the Medicare EHR Incentive Program.
  • December 31, 2012: reporting year ends for EPs.
  • February 28, 2013: last day for EPs to register and attest to receive an Incentive Payment for CY 2012.

CMS proposes increases in end-stage renal payments, encourages bundled payments

Monday, CMS issued a proposed rule that would increase payment rates 3.1 percent for the 5,600 end-stage renal disease (ESRD) facilities paid through the ESRD prospective payment system (PPS) for CY 2013. The proposed rule would also strengthen incentives for improved quality care and better outcomes through improvements to the ESRD Quality Incentive Program. Scores on measures in the Quality Incentive Program during the CY 2013 would be tied to payments for CY 2015.

Note: the ESRD PPS and Quality Incentive Program were mandated by the Medicare Improvements for Patients and Providers Act of 2008. The new bundled PPS is intended to improve efficiency and reduce waste from overuse of items and services while the Quality Incentive Program is meant to continue improvement in the quality of care that is provided to ESRD patients in the Medicare program.

AHA: Medicare and Medicaid payment rules complex and duplicative

Last week, the American Hospital Association (AHA) sent a letter to Senate Finance Committee members complaining of duplicative audits from CMS program integrity contractors. In its letter, AHA made several recommendations, including:

  • Eliminating the overlap and duplication that exists in current program integrity oversight
  • Limiting the discretion over treatment decisions now exercised by many governmental auditors and DOJ attorneys by establishing clear payment policies that underscore the central role of the treating physician in hospital admissions
  • Improving current proposals to facilitate hospitals’ return of overpayments that result from mistakes

Note: according to the AHA RACTrac survey, 55 percent of hospitals spent more than $10,000 in the first quarter of 2012 to manage the Recovery Audit Contractor process; 34 percent spent more than $25,000.


“To meet patient needs in the current market, hospitals have traditionally focused their efforts on caring for the individuals and personalizing care for each person admitted to their facility. …However external forces to simultaneously reduce cost, improve quality, and implement value-based payment programs command that organizations examine how to manage the health of their patient populations to improve outcomes.”

—“Managing Population Health: The Role of the Hospital,” AHA, April 2012

“Standard & Poor’s Rating Services expects ratings for 2012 on the U.S. for-profit health care sector to be stable. Our view reflects adequate or better liquidity for a majority of issuers, bolstering credit quality in the face of ongoing reimbursement pressures and sluggish demand for many products and services.”

— Standard & Poor’s analysis of 151 for-profit issuers, May 15, 2012

Fact file

Context: health costs now exceed wages, inflation

  • Self-insured plans: the number of filers declined from 45 percent in 2001 to 42 percent in 2009, though the number of plan participants increased from 64 percent to 73 percent in the same period. (Source: Form 5500 filings from the U.S. Department of Labor)
  • Medicare gap and enrollee depression: the Medicare Part D prescription drug “donut hole” is associated with reductions in the use of antidepressants, heart failure medications, and antidiabetics. Relative to the comparison group, the no-coverage group reduced their monthly antidepressant prescriptions by 12.1 percent from the pregap level, heart failure drugs by 12.9 percent, and antidiabetics by 13.4 percent. Enrollees with generic drug coverage in the gap reduced their monthly antidepressant prescriptions by 6.9 percent. (Source: Yuting Zhang, et al, Archives of General Psychiatry, “Effects of Medicare Part D Coverage Gap on Medication and Medical Treatment Among Elderly Beneficiaries With Depression,” July 2012)
  • Care coordination: two-thirds of health care leaders see transparency as improving quality of care, 72 percent are entering collaborative care relationships, and 63 percent say they have no plans to engage in a shared savings program, such as a risk-sharing cost-reduction tactic. (Source: HealthLeaders Media, “Economics of Better Care Survey,” June 2012)
  • Public opinion about Supreme Court decision: 50 percent of Americans agree with the Court’s decision, while 49 percent disagree; 52 percent favor all or most of the law, while 47 percent oppose most or all of the law; mandate: 48 percent favor the mandate, 51 percent oppose; mandate or tax: 60 percent call the mandate a tax, while 39 percent indicate they do not believe it is a tax. (Source: CNN/ORC International Poll, July 2, 2012)
  • November election: according to a recent poll, one-third of Republican voters are more likely to vote in November due to the rulings of the Supreme Court versus the 18 percent of Democrats who say the same; 56 percent of all Americans want the nation to move to other issues, but 69 percent of Republicans hope efforts to repeal the law will continue. (Source: Kaiser Family Foundation, “Early Reaction to Supreme Court Decision on the ACA,” June 28-30, 2012)
  • Hospital Pension funding: median pension coverage for not-for-profit hospitals and health systems increased to 78.6 percent in 2011 from 71.7 percent in 2010. (Source: Standard & Poor’s RatingsDirect, “U.S. Not-for-Profit Health Care Sector’s Pension Funding Rose in 2011, But The Gap is Still Wide,” April 2, 2012)
National health reform: What now?

National health reform: What now?

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