Health Care Reform Memo: December 19, 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

Principled debate on substantive policy often falls victim to political maneuvering and sound bite-addicted news cycles. It can be confusing, sometimes comical, and appear irrational at times. And in campaign season, the noise level is amped-up. Medicare reform is a case in point.

Medicare is a costly program: in 2010, $509 billion was spent on the program for seniors 65-plus, expected to increase each year. The combination of demand—76 million baby boomers become eligible in the next 18 years—and annual medical inflation increases of 3 percent for products and services means something has to give. It is 3.7 percent of our overall gross domestic product (GDP) today; it will be 6.7 percent in 20 years.

Reining in Medicare costs while transforming the program is widely acknowledged as a necessary policy focus. Where well-intended policy-makers and pundits part company is how to “fix” Medicare. There is no easy answer.

Some believe raising the eligibility age gradually over time will solve the problem by reducing demand. Some believe raising premiums paid by seniors, especially those who have higher incomes from retirement benefits or those that continue to work would offset costs. And some think the program should encourage competition between the government’s program and private sector plans by allowing seniors to use a vouchers or premium support to buy coverage on an open market. All seem to agree that incentives for providers must change from fee-for-service to value and outcomes, and all believe annual per capita cost increases for the program must be slowed with net increases at slightly above the overall GDP.

I try to study Medicare closely: its fix is probably a combination of these with perhaps additional solutions not on the table currently. But it’s not likely we’ll see consensus due to the toxicity of the current political climate and confusion of consumers.

Polls suggest Americans see flaws in the health system, and even bigger flaws in the political system. Improvements in both are desired, and there’s widespread recognition that “the new normal” requires bold solutions and straight talk. Ironically, our studies suggest Medicare enrollees are the most satisfied with the status quo compared to others with insurance of some sort; and clear differences exist when comparing Medicare solutions preferred by Gen Y to older adults.

On March 16, 1999, the National Bipartisan Commission on the Future of Medicare issued its recommendation featuring premium support to permit seniors to choose from several private plans or continue with traditional Medicare. A central feature of its plan was the creation of the Medicare Board to oversee changes to the program independent of the political process. Seniors were to pay 12 percent of premiums, with provisions to allow low-income seniors a full subsidy. Parts A (hospital) and B (physician) were to be combined, and a new prescription drug feature added with subsidies up to 135 percent of the federal poverty level (FPL). And the government’s Medicare program was required to operate at breakeven while competing with the private sector. Overtime, the rate of Medicare cost growth was estimated to decrease from 7.6 percent annually to 1.5 percent.

I watched the televised hearings from start to finish. The final vote: ten ayes, seven nays. The result: no action.

Fast forward: the situation’s the same though the economic environment more problematic. Maybe the idea of the Medicare Board akin to the Federal Reserve deserves fresh thinking. It was similarly recommended in Tom Daschle’s “Critical: What we can do about the Health Care Crisis” (2008) as a way to advance Medicare reform.

On all sides of the Medicare debate, the intent is honorable. All parties recognize the need to protect health coverage for seniors: it’s regarded a moral imperative in our society. What’s difficult are the particular elements of reform that balance quality, safety, and adherence to evidence-based practice with the solvency of the program and its cost to future generations.

Medicare is too big to fail. It might be too important to be “owned” by the political process, especially now. Whether through a new independent board or statesmen-like deliberation by Congress, it requires urgent attention and honest debate based on facts, not fear, pandering, and political posturing.

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

Implementation update

Congress approves appropriations bill to avert government shutdown; Senate passes payroll tax cut extension

Friday, Congress approved an omnibus appropriations bill to fund federal government operations through September 2012 at a cost of $1.043 trillion. The bill includes two cuts to the Patient Protection and Affordable Care Act (ACA): rescinding $400 million from the Consumer Operated and Oriented Plan (CO-OP) program and cutting $10 million from the Independent Payment Advisory Board (IPAB). It also includes a $700 million cut to U.S. Department of Health and Human Services (HHS) discretionary funding to $69.7 billion for fiscal year (FY) 12. However, the bill increased funding for a few agencies—$241 million for the Centers for Medicare & Medicaid Services (CMS) and $299 million for the National Institutes of Health (NIH).

And Saturday, the Senate signed off on a two-month extension of the payroll tax that also included a two-month reprieve for physicians who would have been subject to a 27.4 percent pay cut per the sustainable growth rate (SGR) formula as well as reimbursement raises for ambulance services, mental health reimbursements, the Qualifying Individual (QI) program, the outpatient “hold harmless” provision, and transitional medical assistance, which provides Medicaid benefits for low-income families who are transitioning from welfare to work. To pay for these, increased fees will be charged for various government-sponsored programs like Fannie Mae and others—the only area where Democrats and Republicans could agree, thus negating a longer-term agreement. The deal reached Friday also requires the Administration to approve/reject a permit to begin construction of the Canada-Texas Keystone XL oil pipeline. Next—the House will take up the extension this week.

HHS issues essential health benefits bulletin

Friday, HHS issued an informational bulletin to provide guidance to states in defining “essential health benefits” (EHB) for evaluating health plan compliance with ACA.

Background: per ACA Section 1302, all health insurance plans must provide coverage for “essential health benefits” in ten categories: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services (including behavioral health treatment), prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, pediatric services (including oral and vision care).

New guidance: A state must choose a health insurance plan as its baseline for assuring that all plans provide essential health benefits coverage to its enrollees. The baseline plan should represent a small employer package with all ten categories of EHB included selected from.

• 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 plan options by enrollment
• The largest HMO plan offered in the state’s commercial market by enrollment

A state can modify coverage within each of the ten categories so long as the value of coverage in that category is not reduced. If a state selects a plan that does not cover all ten categories of care, it will have the option to examine other benchmark insurance plans, including the Federal Employee Health Benefits Plan, to determine the type of benefits that will be included in the EHB package.

The guidance addressed only coverage, not cost sharing, such as deductibles, copayments, and coinsurance, which will be covered in subsequent bulletins.

Note: the bulletin is not a rule or typical guidance document, but HHS is still encouraging public comment (due by January 31, 2012). Cost-sharing features will be developed in separate rules.

HHS announces funding for new hospital patient safety program under CMMI

Wednesday, HHS announced $218 million for 26 Hospital Engagement Networks under the Center for Medicare & Medicaid Innovation (CMMI) per ACA Section 3021 to facilitate improvements in patient safety and reduce hospital acquired conditions.

CMS announces Pioneer ACOs recipients

Pioneer accountable care organizations (ACOs) involve a two-sided risk model with higher levels of savings and risk than under the Medicare Shared Savings program (ACA Section 3022). Typically, clinically integrated provider organizations with experience in population health management and risk contracting were targeted by the Pioneer program, which will be overseen by CMMI.

FDA investigates impact of drug promotion

Per ACA Section 3507, the HHS Secretary must assess the impact of drug promotional materials on decisions by physicians and consumers and recommend policy changes. Last week, the U.S. Food and Drug Administration (FDA) released a draft report, “Quantitative Summary of the Benefits and Risks of Prescription Drugs: A Literature Review”, and is seeking comment before February 13.

Legislative update

Legislative overrides of the SGR

Friday’s override of the SGR in favor of a two-month extension is the 16^th extension since 2002, usually bundled with other legislation or continuing resolutions including five extensions in 2010.

Source: Congressional Research Service, “Medicare physician payment updates and the sustainable growth rate (SGR) system”, November 30, 2011 based on CMS data

Democrat coalition releases principles for innovation in the U.S. health care system

Monday, the 48-member New Democrat coalition co-chaired by Representatives Allyson Y. Schwartz (D-PA) and Kurt Schrader (D-OR) released its principles to support innovation in the U.S. health care system. Principles include:

• Structure Medicare payments to reward quality and value while reducing costs: gradually phase out the SGR and provide physicians a transition period to adapt to a new payment and delivery model. Also have the CMMI test and CMS deploy alternative delivery and payment models (e.g., ACOs, bundled payments, medical homes, global payments, partial risk-adjusted capitation, multi-payor options) to the fee-for service model made available to providers in the near future.
• Facilitate cooperation between public and private sectors to increase efficiency and improve care: allow multi-payer demonstrations that have shown progress to expand these practices to traditional Medicare fee-for-service beneficiaries and allow private payers to invest in infrastructure for smaller practices seeking to create or participate in innovative delivery models. Also, coordinate with public and private sectors to identify consistent standards and improve consistency in data collection, quality reporting, and analysis across Medicare shared savings programs.
• Modernize the FDA approval process to foster innovation, growth through competition, and access: ensure that the FDA has the funding, Congressional support, and resources to carry out its mission and keep up with a rapidly changing industry defined by complex science. Engage industry stakeholders to better assess the cost of the drug approval process and ensure that user fees are being spent to advance safe and effective products to the market. Also, build on successful practices through FDA's 510(k) approval process, and support new avenues of timely drug reviews of innovative products, and establish more explicit and transparent guidelines for drug and device manufacturers.
• Promote widespread adoption of interoperable health IT systems across health care settings: foster a health information technology (IT) marketplace where small provider practices and hospitals can invest in and become meaningful users of health IT systems. Also ensure that meaningful use standards are not strictly focused on inputs, but also focused on outcomes and provide incentives to Regional Extension Centers to find providers who need guidance on becoming meaningful users of electronic health records (EHRs).

Note: current laws via ACA (3/10) or the Health Information Technology for Economic and Clinical Health Act (HITECH) (2/09) appear to address the four goals. The coalition appears to want protection of delivery system reforms for which funding might be in jeopardy as a result of budgetary pressures.

Bill to extend stay of foreign-born physicians introduced

Monday, Senators Kent Conrad (D-ND) and Jerry Moran (R-KS) introduced a bill (S.179) to permanently extend the “State 30 program” that permits U.S. trained foreign-born doctors to remain in the U.S. longer if they practice in rural and underserved communities for at least three years. The program, started in 1994, has brought 9,000 doctors to rural and underserved communities across 50 states.

State update

State roundup

Colorado legislators voted Thursday to apply for $18 million federal grant to establish a health insurance exchange, noting the current application gives the state more flexibility to implement the exchange. Separately, the state concluded it will need an additional 83 to 141 primary care providers (i.e., physicians, nurse practitioners, physician assistants) to provide care for the additional 510,000 individuals who will become insured under the ACA’s coverage expansion provisions (e.g., Medicaid coverage expansion, health insurance exchanges) in 2014 per a study by the Colorado Health Institute (CHI).

Thursday, HHS denied Florida’s medical loss ratio (MLR) waiver request concluding there was insufficient evidence that an MLR requirement of 80 percent would destabilize Florida’s individual health insurance market. Florida had requested a phase-in of the MLR: 68 percent in 2011, 72 percent in 2012, and 76 percent in 2013.

Note: 17 states have sought MLR adjustments. CMS has granted waivers to Georgia, Iowa, Kentucky, Maine, New Hampshire, and Nevada; denied waivers for Delaware, Florida, Indiana, Louisiana, and North Dakota; and waiver decisions for Kansas, Michigan, Oklahoma, and Texas are pending. North Carolina and Wisconsin are waiting to hear if their applications are complete so the review process can begin.

Industry news

Study: physicians concerned about future of medical practice, unintended results of ACA

In 2011, the Deloitte Center for Health Solutions conducted a survey with a nationally representative sample of 500 physicians stratified by location, specialty, and practice setting. Among key findings of the first report:

• The majority of doctors (73 percent) are not optimistic about the future of medicine and believe (69 percent) that the “best and brightest” who might consider a career in medicine will think otherwise.
• 27 percent believe ACA is likely to reduce costs by increasing efficiency, and 33 percent feel it is likely to decrease disparities.
• 80 percent believe it is likely that access to primary care providers will decrease as demand from newly insured in ACA increases.
• Surgical specialists (57 percent) are much more likely to support ACA repeal compared to primary-care providers (38 percent) and non-surgical specialists (34 percent).
• There is a disparity among generations: 59 percent of 50 to 59 year-olds feel ACA is a step in the wrong direction while only 36 percent of 25 to 39 year-olds share this sentiment.

To access the first report from this survey entitled “Physicians’ Perspectives about Health Care Reform and the Future of the Medical Profession”, please click here.

Report: FDA increasingly dependent on states for food inspection oversight

Wednesday, HHS’s inspector general released a report indicating that more than half of the FDA’s 2009 food manufacturing plant inspections were conducted by state officials—up from 42 percent from 2005. In the 41 states where the FDA authorized 2,170 state inspections by 419 inspectors in 2009, eight had not completed 10 percent or more of their inspections, and 130 inspections had not begun. Inadequate oversight by the FDA was cited as a major issue attributed by the agency to its limited funding.

Report: harm to medical research subjects requires government action

Thursday, the 208-page “Presidential Commission for the Study of Bioethical Issues” was released encouraging improved protection for subjects used in federally funded studies.

AHRQ launches online resource to help providers with EHR implementation

Wednesday, the Agency for Healthcare Research and Quality (AHRQ) released a free online resource, “Guide to Reducing Unintended Consequences of Electronic Health Records”, to help physicians and hospitals troubleshoot problems with EHRs and get information on using EHRs.

HHS recovers $2.9 billion in health care fraud in FY2011 using advanced analytics

Tuesday, the Vice President Biden and the Department of Justice announced that the U.S. Department of Justice (DOJ) recovered over $5.6 billion in fraud in 2011, including $2.9 billion for health care fraud. In the news conference, officials noted that expanded use of Medicare Fraud Strike Forces using advanced Medicare data analytics tools recovered $7 for every dollar spent on this effort.

USDA provides $30 million funding for telehealth services in rural areas

The U.S. Department of Agriculture (USDA) will provide over $30 million to 34 states through its Distance Learning and Telemedicine Program for 100 distance learning and telemedicine projects.

CMS announces results for a value-based purchasing for dialysis services; 30 percent miss targeted threshold for quality

Thursday, CMS released the first results of a new federal value-based purchasing program for dialysis facilities that treat end-stage renal disease (ESRD) patients. 70 percent of the facilities evaluated will not receive a payment reduction; the remaining 30 percent will receive reductions ranging from 0.5 percent to 2 percent, depending on their final performance score.

Quotable

“We can’t ignore the need to fundamentally reform Medicare and we need to do it sooner rather than later. If we thought it was difficult to address reform two years ago during BBA, imagine how much harder it’s going to be if we wait until 2008 or 2009 when the baby boom generation is on the verge of retiring—at that time they will represent nearly a quarter of the population.”

 —U.S. Sen. John Breaux (D-LA), Chairman, National Bipartisan Commission on the Future of Medicare March 16, 1999

“Amid enormous pressure to cut costs, improve care and prepare for changes tied to the federal health-care overhaul, major players in the industry are staking out new ground, often blurring the lines between businesses that have traditionally been separate… Such shifts have been gathering force for a while, but the economic downturn has accelerated the push for efficiency. The federal legislation, which creates new health-insurance marketplaces and requires most people to carry coverage, may unleash additional demand for health care once it fully takes effect in 2014. Even if the Supreme Court unwinds part of the law, the changes occurring now aren't likely to stop because the pressure to reduce the price of health coverage won't go away.”

 —Anna Wilde Matthews, Wall Street Journal, “The Future of U.S. Health Care: What Is a Hospital? An Insurer? Even a Doctor? All the Lines in the Industry Are Starting to Blur”, December 12, 2011

“Waiting until the last week of the legislative session to address a problem that Congress knew was looming all year is not the way to conduct our nation’s business… Patients and physicians legitimately fear that Congress will repeat the failure of 2010 when they missed multiple deadlines and Medicare bills went unpaid... A permanent solution is the long overdue, fiscally responsible approach.”

 —American Medical Association President Peter W. Carmel said in a statement Saturday, December 17. (Note: in 2010, the SGR was set aside by Congress five times)

“Under the Affordable Care Act, consumers and small businesses can be confident that the insurance plans they choose and purchase will cover a comprehensive and affordable set of health services. Our approach will protect consumers and give states the flexibility to design coverage options that meet their unique needs.”

 —HHS Secretary Kathleen Sebelius, December 16, 2011

Fact file

• Changes in insurance since economic downturn began in 4Q 2007:

(Source: HHS, Deloitte Center for Health Solutions Insurance Coverage analysis)

• Medicaid income thresholds: at 133 percent of FPL per the ACA—$14,484 (single) and $29,726 (family of four). (Source: CMS)
• Cloud-computing update: 58 percent of hospitals are considering cloud computing for data storage; 35 percent have project plans, 60 percent perceive cost savings the major benefit. (Source: KLAS)
• Productivity below forecast levels; output per man hour increased 3.4 percent from 1997 to 2003 The difference means the overall GDP will be $17 trillion in 2016 vs. $19.3 trillion based on historic rates. (Source: Congressional Budget Office, Department of Labor)
• Mobile data will increase 26 times 2010-2015; one third will move thru Wi-Fi networks (unlicensed spectrum). (Source: Cisco)
• In the first three quarters of 2011, there were 71 hospital mergers, compared with 53 in first three quarters in 2012—highest since 2001. (Source: Anna Wilde Matthews, Wall Street Journal, “The Future of U.S. Health Care: What Is a Hospital? An Insurer? Even a Doctor? All the Lines in the Industry Are Starting to Blur”, December 12, 2011)
• In 2011, 7 percent of the population (8.4 million adults ages 21-64) was enrolled in a consumer-driven health plan (CDHP), up from 5 percent in 2010. Enrollment in high-deductible health plans (HDHP) was 16 percent (19.3 million adults), up from 14 percent percent in 2010. (Source: Paul Fronstin, Employee Benefit Research Institute, “Findings From the 2011 EBRI/MGA Consumer Engagement in Health Care Survey”, December 2011)
• 34 percent of physicians have an EHR system that meets the criteria for a “basic system” under the HITECH Act. The Congressional Budget Office estimates that 90 percent percent of physicians will have implemented health IT by 2019. (Source: Chun-Ju Hsiao et al, “Centers for Disease Control, National Center for Health Statistics (NCHS), “Electronic Health Record Systems and Intent to Apply for Meaningful Use Incentives Among Office-based Physician Practices: United States, 2001–2011)
• 55 percent of technicians who monitor bypass machinery use their cell phones during surgery; 40 percent acknowledge it is unsafe. (Source: Survey of 439 medical technicians, Smith et al, “2010 Survey on cell phone use while performing cardiopulmonary bypass”, Perfusion September 2011 26: 375-380)
• Consumers rate nurses higher for honesty and ethical standards (84 percent) compared to pharmacists (73 percent) and physicians (70 percent). (Source: Jeffrey M. Jones, Gallup, Inc. “Record 64 percent Rate Honesty, Ethics of Members of Congress Low”, December 12, 2011)
• 2.5 million adults between the ages of 19 to 25 have obtained health insurance coverage since September 23, 2010, when ACA required plans to extend dependent coverage to young adults. (Source: National Center for Health Statistics, Centers for Disease Control and Prevention)
• Drug shortages in hospitals: drug shortages reached 178 in 2010 due to manufacturing problems: highest in oncology drugs, antibiotics, and nutritional classes. (Source: Food and Drug Administration)

Holiday note: Health Care Reform Memo

In observance of the upcoming holidays, there will be no Health Care Reform Memo on Monday, December 26. Publication of the next Health Care Reform Memo will be on Tuesday, January 3.

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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