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Health Care Reform Memo: January 28, 2013

Deloitte Center for Health Solutions publication

The health care reform memos are issued on a weekly basis, highlighting news from the previous week's activities in the administration and implications for the C-suite and various stakeholder groups.

My take: The role of small business in health care

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

It’s hard to run a business—any business, especially health care businesses.

A medical practice, a hospital, a health plan, a drug company, a device manufacturer, a lab, a home care agency, and more—large or small, public or private, investor owned or not, local or global—they’re all heath care businesses, and they’re hard to run.

What makes health care businesses uniquely challenging is the complexity of the industry—its ever expanding science and technology, its complicated and fragmented structure, and the labyrinth of state and federal regulations that encircle its operation. Its businesses are capital intense and its 16 million person workforce diverse and growing. Demand is shifting from old models to new solutions in the design, financing, and delivery of its products and services. And it is an industry that’s growing—18 percent of the gross domestic product (GDP), with spending in the U.S. anticipated to increase 5.7 percent annually for the next decade.1

The U.S. health care industry is big, but it’s composed mostly of small businesses: 87 percent of employers in the industry employ fewer than 100 employees.2 Consider: 63 percent (6,180) of life sciences companies, 87 percent (24,404) of medical device companies, 87 percent (1,049,745) of provider companies, and 64 percent (3,425) of health insurers are small businesses.

No doubt, health care was well represented in Davos last week, but the industry’s small companies weren’t among the 2,655 invitees that discussed “resilient dynamism.” They’re busy raising capital, recruiting employees, and meeting potential partners and customers. And they’re watching the ever-changing landscape of Washington, DC, calibrating plans to a calendar that’s full in the coming weeks…

  • February 12: State of the Union Address outlining President Obama’s goals for the country
  • February 15: deadline for state leaders to elect to partner with the feds to operate a health insurance exchange (HIX)
  • March 1: sequester cuts kick in including 8 percent reductions in federal spending
  • March 27: Congressional deadline for a continuing resolution to fund government operations and avoid its shutdown
  • And by May 19: the debt ceiling suspension is expected to be lifted based on passage of a Senate budget that includes spending cuts

My perspective on small businesses in health care is shaped by personal experiences. I started four companies—three sold to larger companies. I was chairman of a public company that acquired small dental practices, replacing the management team and converting its debt to equity as the practice management sector faced investor pushback. And I have served as an independent director on three investor-owned health care boards that routinely evaluated acquisitions of small businesses to accelerate growth or acquire talent.

Small businesses in health care don’t get much notoriety. They can’t afford the big consulting firms and compete for talent against the bigger companies that can pay more. Their CEOs are also the company’s chief strategist and salesman. The hours are long, the recognition missing, and the pace frenetic, placing stress on personal health and family stability.

So in some circles, “small business” and “the health care industry” are not thought to be synonymous but in reality they are. So as this industry seeks its voice in the important discussion of long-term deficit reduction and economic recovery, perhaps its strength should be gauged not just by the accomplishments of its elite global mega-companies but as well by the promising and passionate innovations of its small businesses that will forever be its foundation.

Paul Keckely

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

PS – this week, we will release a piece that focuses on consolidation among health insurance plans—Unlocking value in health plan M&A: Sometimes the deals don’t deliver. The U.S. health insurance industry is comprised of 5,312 health insurance carriers nationwide—some investor-owned, some provider-owned, and some not for profit or publicly owned.3 This analysis looks at recent transactions among the investor-owned plans—the value created for shareholders and stakeholders from the time of the transaction through three years post deal. Watch for it.

1Congressional Budget Office (CBO)
2Hoovers, D&B Global Information File Inventory, January 2013
3Hoovers

Implementation update

Deadline for notification of employees about HIX options extended

Last week, the Center for Consumer Information and Insurance Oversight (CCIIO) issued a notice extending the deadline for employers to notify their employees about the availability of health insurance offered through the HIXs. Employers now have until later this year to notify employees, versus the original notification deadline of March 1— the intent is to have notifications coincide with open enrollment in October 2013. This decision was made by the U.S. Department of Labor citing the need to allow employers additional time to comply.

NAIC wants states to maintain primary oversight role in HIXs

Last week, the National Association of Insurance Commissioners (NAIC) announced former Nebraska Senator Ben Nelson as its new CEO. In its announcement, the organization emphasized its focus on retaining authority as the Affordable Care Act (ACA) is implemented. Speaking at a media briefing Tuesday, Nelson said development of the new HIXs will have an impact on state-based regulation.

“There’s a division of opinion and positions within the NAIC, and the NAIC has been able to navigate very carefully through these differences of opinion. Uniformity is desirable in some cases...and not desirable in others.”— Ben Nelson, CEO, NAIC

Legislative update

House passes debt ceiling suspension

Last week, the U.S. House of Representatives passed a bill that suspends the debt ceiling for three months, to May 19. It calls for the House to develop a deficit reduction plan in the next three months that will balance the federal budget in ten years and implement the cuts required in sequestration starting March 1 or alternately equivalent cuts ($109 billion in 2013).

FDA panel votes to recommend painkillers move to more restrictive classification

Friday, “after two days of testimony from clinical and regulatory experts, a Federal drug safety panel voted 19-10 to recommend that products containing hydrocodone—a category that includes Vicodin―should be reclassified as Schedule II controlled substances, along with other narcotic painkillers such as oxycodone. Hydrocodone products are currently in Schedule III.” If approved, as is expected, the reclassification would limit how doctors prescribe pills and also subject retail pharmacists to more stringent handling and storage rules.

(Source: Wall Street Journal, FDA panel recommends new restrictions on painkiller,” January 25, 2013)

Background: painkillers are “analgesics” (derived from Greek αν - "without" and άλγος - "pain") that work in various ways on the peripheral and central nervous systems. They are distinct from anesthetics, which reversibly eliminate sensation, and include paracetamol (known in the U.S. as acetaminophen or simply APAP), the non-steroidal anti-inflammatory drugs (NSAIDs) such as the salicylates, and opioid drugs such as morphine and opium.

Opiates were used by Assyrians, Babylonians, Egyptians, and Sumerians about 3400 B.C. and in 5th century B.C. Greece by Hippocrates in combination with salacin from willow bark—the precursor of aspirin created by German chemist, Felix Hoffman, in 1897. In 1889, Karl Morner, a German scientist, discovered that acetaminophen is made by the human body as it metabolized phenacetin, a French painkiller discovery. And in the twentieth century, NSAIDS were discovered by U.S. chemist Tsung-Ying Shen in the 1960s and the COX-2 inhibitors by U.S. professor W. L. Xie and colleagues in 1991.

Per the Centers for Disease Control and Prevention (CDC), 16,500 died of painkiller overdose in 2010—the last year complete data is available. On average, 47 million patients were given prescriptions for hydrocodone in 2011 (U.S. Food and Drug Administration, FDA). And Americans use 99 percent of the world's hydrocodone supply. (Sources: Wall Street Journal, FDA panel recommends new restrictions on painkiller,” January 25, 2013; Opiates.com, “Prescription Painkillers: History”)

Fiscal cliff concession for kidney dialysis drugs revisited

Wednesday, Representative Peter Welch (D-VT) introduced legislation that would repeal a provision in H.R. 8, the “American Taxpayer Relief Act of 2012” passed January 1 (the fiscal cliff bill) that exempted kidney dialysis drugs from Medicare bundled payments for an additional two years (to 2016).

Background: in 2008, Congress passed legislation requiring Medicare to pay a single bundled payment for dialysis treatment and related medications starting in 2011. Certain oral drugs were excluded from the requirement for two years. H.R. 8 included a provision that precluded the exclusions for two additional years estimated by the CBO to cost Medicare $500 million. A Government Accountability Office (GAO) report released in 2011 found that including oral-only end-stage renal disease (ERSD) drugs in the bundle would remove financial incentives under the payment system to use certain drugs over others, and could improve access to these drugs for certain beneficiaries, such as those who currently lack separate prescription drug coverage for these drugs. However, the report recommended that Centers for Medicare & Medicaid Services (CMS) assess the extent to which the bundled payment for dialysis care would be sufficient to cover an efficient dialysis organization’s costs to provide such care before implementing this expanded bundled payment.

The incidence rate for ERSD has increased each year from 1980 to 2000, and has stabilized in the last decade. African Americans are three times more likely to have ESRD than Caucasians and Asians. Currently, 871,000 are being treated for ESRD in the U.S.

Hatch proposes changes to sustain Medicare

Thursday, Senate Finance Committee ranking member Orrin Hatch (R-UT) proposed five changes to Medicare and Medicaid that could be adopted as part of a bi-partisan deficit reduction package:

  1. Raise Medicare's eligibility age from 65 to 67, increasing it each year by two months until it reaches 67 in 12 years.
  2. Require $500 deductibles in MediGap health plans to reduce utilization.
  3. Require Medicare beneficiary cost sharing be combined into a single annual deductible for both Medicare Part A and Part B.
  4. Establish a uniform coinsurance rate for amounts above the deductible, and implement an annual catastrophic cap to financially protect older adults in cases of serious health events.
  5. Include provisions that allow private health plans to compete with fee-for-service Medicare via competitive bidding based on a standardized set of required benefits defined by CMS.

Regarding Medicaid, Hatch recommended limiting the amount of federal dollars spent for each Medicaid beneficiary, or a per-capita-cap on spending.

DEA: marijuana a dangerous drug

Two states—Washington and Colorado—approved recreational use of marijuana in November, and 16 states have laws for its medicinal use. A federal appeals court last Tuesday ruled in favor of the U.S. Drug Enforcement Agency (DEA) that marijuana is a dangerous drug in the same class as LSD and heroin citing that the agency’s position was “eminently reasonable.”

Background: the DEA was established in 1973 by an Executive Order in the Nixon administration. In 2002, marijuana advocates petitioned the DEA to revise its classification, which was denied in 2006 per guidance from U.S. Department of Health and Human Services (HHS), leading to the lawsuit against the DEA.

Study: VA overpayments for veterans’ disabilities

Inspections by the Office of Inspector General (OIG) in Veterans Affairs (VA) based on data from 42 regional VA offices over past two years concluded that the VA overpaid 12,800 vets $943 million from 1993 to 2009. The VA OIG estimates an additional $1.1 billion will be overpaid through 2016—most linked to condition improvements that not adequately monitored by the VA for which reduced payments should have been made.

Medicare overpayments

Per reports by the HHS Office of the Inspector General (OIG) released last week, Medicare improperly paid $120 million for services delivered to illegal immigrants and inmates between 2009 and 2011. The HHS OIG concluded CMS paid claims before it had received info from the Social Security Administration about immigration or incarceration status. But when CMS data systems had the right information, “CMS’s controls were adequate to prevent payment for Medicare services,” the report concluded. In its formal response to the reports, CMS said it would try to get back the money in the future, but it admitted the money already spent may be gone forever.

Comparative effectiveness limitations sought in bill

Friday, Senator Pat Roberts (R-KS) introduced a bill to block HHS from using comparative effectiveness research (CER) data to deny or delay coverage of a service under a federal health plan (i.e. Medicare, military health, federal employee health plan). The bill would also require the Secretary of HHS to ensure that any CER supported by the federal government accounts for differences in outcomes in individuals as well as advancements in personalized medicine.

Background: CER involves the direct comparison of existing interventions to determine which work best for which patients (outcomes: effectiveness) and which pose the greatest benefits and harms (safety and efficacy: numbers needed to treat, numbers needed to harm, relative and absolute risk reduction). The core question of CER is which treatment works best, for whom (patient population characteristics signs, symptoms, risk factors, co-morbidities), and under what circumstances.

The Institute of Medicine (IOM) committee has defined CER as “the generation and synthesis of evidence that compares the benefits and harms of alternative methods to prevent, diagnose, treat, and monitor a clinical condition or to improve the delivery of care. The purpose of CER is to assist consumers, clinicians, purchasers, and policy makers to make informed decisions that will improve health care at both the individual and population levels.”

In Section 6301 of the ACA, the Patient-Centered Outcomes Research Institute (PCORI) was established to conduct CER, but is prohibited from using cost per Quality Adjusted Life Year (QALY) and other cost metrics in its assessment: “The Secretary shall not develop or employ a dollars-per-quality adjusted life year (or similar measure that discounts the value of a life because of an individual’s disability) as a threshold to establish what type of health care is cost effective or recommended.”

My take: CER is among the least understood and potentially most useful outcomes of the ACA. The possibility that treatment option comparisons with their outcomes and complications for “people like me” are accessible to consumers through smartphones also linked to their medical records is transformative.

State update

State priority poll: HIX, health insurance costs top list of public concerns

A January 2013 poll of 1,300 adults measured the public’s perception of state priorities. Results:

  • HIXs: 55 percent believe creating a HIX should be a top priority vs. 5 percent a low priority.
  • Insurance premiums regulation: 67 percent polled believe increasing state regulation of health insurance premiums should be a top or important priority vs. 20 percent a low priority
  • Medicaid expansion: 65 percent support Medicaid expansion as a top or important priority vs. 21 percent a low priority
  • Family planning services: 46 percent believe that limiting women’s access to family planning and other reproductive health services should be a top or important priority; 39 percent believe it should not be done.

(Harvard School of Public Health Kaiser Family Foundation, “The public’s health care agenda for the 113th Congress,” January 2013)

Related: the American Cancer Society Cancer Action Network surveyed 5,968 voters in seven states (Florida, Iowa, Kentucky, Michigan, New Jersey, New Mexico, and Texas) to gauge attitudes about accepting federal funds to expand Medicaid to 133 percent of the federal poverty level (FPL) per the ACA. Overall, 55 percent want their state to accept federal funding to expand Medicaid. Differences noted:

  • 64 percent in Kentucky and New Jersey favor vs. 49 percent in Texas
  • 80 percent of Democrats favor in all states
  • 32 percent of Republicans in Texas and 45 percent in Kentucky favor

(American Cancer Society Cancer Action Network, “A look at voters’ attitudes toward accepting federal funds to broaden access to health coverage through Medicaid,” January 2013)

HIX update

To date, 18 states—12 led by Democratic Governors, five led by Republicans and one Independent—and the Democratic mayor of District of Columbia have announced plans to operate state-based exchanges:

State-based exchange State-partnership exchange Undecided/Federally-facilitated exchange
CA, CO, CT, DC, HI, ID, KY, MA, MD, MN, MS, NM, NV, NY, OR, RI, UT, VT, WA AR, DE, IA, IL, MI, NC, WV AK, AL, AZ, FL, GA, IN, LA, KS, ME, MO, MT, ND, NE, NH, NJ, OH, OK, PA, SC, SD, TN, TX, VA, WI, WY

Note: updated as of January 4, 2012.

Sources: Kaiser Family Foundation, National Association of State Health Policy: State Reform, and Politico Pro.

State announcements…

  • State Senator Julie Denton (R-KY), Chairwoman of the Senate Committee on Health and Welfare, has introduced a bill that would prevent Kentucky from managing its own exchange.
    Background: Kentucky Governor Steve Beshear (D) issued an Executive Order establishing a state run HIX last July and the state has received conditional approval from HHS to proceed with establishing their HIX.
  • California is recruiting retail stores to help enroll consumers in its HIX, “Covered California.” Various options are being explored to leverage the retail market, including placing messages about the HIX on store bags and receipts.
  • Legislation was introduced by Michigan lawmakers to transition Blue Cross Blue Shield (BCBS) of Michigan from its current status as the state’s insurer of last resort to a nonprofit mutual entity, but there is uncertainty regarding whether the insurance products will be ready in time to be approved for sale on the state’s HIX by the March 31, 2013 deadline. BCBS of Michigan is the state’s largest insurer.

Medicaid expansion update

20 states and the District of Columbia have said they’ll expand Medicaid; 14 states will not or are highly unlikely to expand their program:

Announced expansion Not participating or highly unlikely to participate Undecided or undeclared
AR, AZ, CA, CO, CT, DE, DC, HI, IL, MD, MA, MN, MO, MT, NM, ND, NV, OR, RI, VT, WA AL, GA, ID, IA, LA, ME, MS, NE, OK, SC, SD, TX, UT, VA AK, IN, KS, KY, MI, OH, PA, NC, NH, NJ, NY, TN, WI, WV, FL, WY

Source: Politico Pro, Medicaid Watch, January 18, 2013; Advisory Board, “Where the states stand,” January 15, 2013.

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

State announcements:

  • Last week Arizona Governor Jan Brewer (R) released a plan to fund the state’s portion of Medicaid expansion through a new stand-alone tax on hospitals. Thirty-nine states currently use similar provider taxes to cover Medicaid expenses.
  • By the start of 2013, 46 states and the District of Columbia submitted or received approval for federal funds to enhance their Medicaid enrollment systems and 42 states had begun upgrading their information technology (IT) infrastructure. Utah, Michigan, and Pennsylvania have not yet applied for federal support.
    Background
    : CMS is provides a temporary 90 percent federal match to upgrade Medicaid enrollment systems.
  • Louisiana’s Department of Health and Hospitals announced it will continue to cover hospice care under its Medicaid program—initially the state planned to stop coverage on February 1.

State round-up

  • Vermont’s single payer plan, expected to launch in 2017, will cost $3.5 billion including $1.6 billion from state funding according to a report released Thursday.
  • Illinois, Kansas, Missouri, and Nebraska are using the Direct Project Platform developed by the Office of the National Coordinator for Health Information Technology (ONC) that allows for health information exchange of letters, lab results, patient care summaries, and secure messaging across state lines.
  • California Senate president pro tem Darrell Steinberg (D) met with President Obama to request $10 billion to expand mental health programs nationwide. Eight years ago, California voters approved a referendum raising $1 billion annually through a 1 percent surtax on earned income above $1 million earmarked for early intervention and treatment.

Industry news

MedPAC: reinsurance premium increases examined

Individual reinsurance premiums increased 84 percent from 2007-2012—the fastest growing element of Medicare Part D premiums. When a beneficiary is over the catastrophic threshold, 80 percent is paid by the federal government (i.e., reinsurance), 15 percent by plans, and 5 percent by seniors. (Source: MedPAC, “Status report on Part D,” January 11, 2013)

Moody’s: outlook remains negative for not-for-profit hospitals

Charitable hospitals will continue to see positive revenue growth in 2013, but the rate of growth will decline according to Moody’s Investor Services. Its 2013 outlook predicts that federal cuts to medical spending and limited reimbursement increases from health insurers will contribute to the slow growth rate; while slow economic recovery and high unemployment levels will stifle the demand for health care services. Favorable hospital performance was noted as one of the most positive developments for non-profit hospitals, along with strategic decisions by hospital boards and management (i.e. mergers, affiliations, and other forms market of collaboration) which will likely improve operating performance over time. (Source: Moody’s Investor Services, “Moody's: Outlook for US not-for-profit hospitals remains negative for 2013,” January 22, 2013)

Deals and consolidation

  • Three of the ten biggest acquisitions of venture backed companies in 2012 were in health care: Fresenius ($1.7 billion) acquired a dialysis care clinic company, Ascend Health Corp acquisition by Universal Health Services ($500 million) and Elevation Pharmaceuticals acquisition by Sunovian Pharmaceuticals ($430 million). (Source: Dow Jones Venture Source)
  • Allergan, Inc., a multispecialty health care company, will acquire MAP Pharmaceuticals, Inc. They announced in a press release last week that “they have entered into a definitive merger agreement whereby Allergan will acquire 100 percent of the shares of MAP Pharmaceuticals for a price of $25.00 per share. MAP Pharmaceuticals is a biopharmaceutical company focused on developing and commercializing new therapies in Neurology, including LEVADEX®, an orally inhaled drug for the potential acute treatment of migraine in adults. LEVADEX® is currently under review with the FDA.” (Source: Allergan press release, “Allergan, Inc. to Acquire MAP Pharmaceuticals, Inc.”)

Research snapshots

New industry and peer-reviewed studies of note to health system transformers…

Physician likelihood to prescribe brand-name drugs at consumer request

Objective: to determine if physicians change their prescribing pattern as a result of patient influence

Methodology: a national survey of 3,500 randomly sampled physicians in seven specialties: “of 3,500 physicians in the original sample, 2,938 were eligible for the survey (others were ineligible because they were on leave, not actively practicing, practicing in a non-sampled specialty, out of the country, or deceased). Of the remaining eligible physicians, 1,891 participated in the survey, representing a 64 percent overall response rate.”

Key findings: “two specific forms of industry relationships were associated with significant differences in the percentage of physicians who acquiesced to patient demands. More than a third who have free food and/or beverages in the workplace honored patient requests sometimes or often compared with those who do not have free food and beverages (39 percent vs. 33 percent; P = .003). Similar significant differences were found among those receiving drug samples (40 percent vs. 31 percent; P = .005). Also, physicians who sometimes or often met with industry representatives to stay up to date were significantly more likely to comply with patients' demands than those who did not (40 percent vs. 34 percent; P = .007).” Other findings…

  • Years in practice: 43 percent of physicians practicing for 30 years or more “sometimes or often” accommodated demands for brand-name drugs compared with 31 percent physicians in practice for ten years or less.
  • Specialty: physicians in internal medicine were more likely to comply with requests for brand name prescriptions (50 percent) compared to cardiology (44 percent), anesthesiology (26 percent), general surgery (20 percent), and pediatrics (17 percent).
  • Practice setting: 46 percent working primarily in solo or two-person practices reported “sometimes or often” complying with patient requests for brand name prescriptions requests compared to 35 percent of physicians working in a hospital or medical school setting.
  • Drug samples: 40 percent receiving drug samples reported “sometimes or often” complying with patient requests for brand name prescriptions vs. 31 percent of physicians not receiving drug samples.

(Source: Campbell et al, “Physician Acquiescence to Patient Demands for Brand-Name Drugs: Results of a National Survey of Physicians,” JAMA Internal Medicine, January 2013)

My take:  the key takeaway is that consumers’ influence on physician prescribing patterns is significant, especially among younger practitioners. Stakeholders must acclimate to systems that engage consumers (i.e., social media, online self-guidance tools) and direct to consumer information about evidence-based, lowest cost treatment options. While addressing consumer expectations and demands, the industry must be sensitive to increased public attention to inducements and regulations associated.

Usefulness of electronic health records in quality measurement

Objective: “the federal Electronic Health Record Incentive Program (meaningful use) requires electronic reporting of quality from electronic health records, beginning in 2014. Whether electronic reports of quality are accurate is unclear.” The researchers sought to measure the accuracy of electronic reporting compared with manual review.

Methodology: “cross-sectional study in a federally qualified health center with a commercially available electronic health records. All adult patients eligible in 2008 for 12 quality measures (using eight unique denominators) were identified electronically. 150 were randomly sampled per denominator, yielding 1,154 unique patients.”

Key focus: receipt of recommended care, assessed by both electronic reporting and manual review. Sensitivity, specificity, positive and negative predictive values, positive and negative likelihood ratios, and absolute rates of recommended care were measured.

Key findings: “sensitivity of electronic reporting ranged from 46 percent to 98 percent per measure. Specificity ranged from 62 percent to 97 percent, positive predictive value from 57 percent to 97 percent, and negative predictive value from 32 percent to 99 percent. Positive likelihood ratios ranged from 2.34 to 24.25 and negative likelihood ratios from 0.02 to 0.61. Differences between electronic reporting and manual review were statistically significant for 3 measures: Electronic reporting underestimated the absolute rate of recommended care for 2 measures (appropriate asthma medication [38 percent vs. 77 percent; P < 0.001] and pneumococcal vaccination [27 percent vs. 48 percent; P < 0.001]) and overestimated care for 1 measure (cholesterol control in patients with diabetes [57 percent vs. 37 percent; P = 0.001]).”

My take: the key takeaway is that electronic capture of performance measures must be constantly reviewed, updated and tested against manual chart abstracted data to be appropriate to performance-based payments and report cards on physician performance. Wide measure-by-measure variation in accuracy threatens the validity of electronic reporting. If variation is not addressed, financial incentives intended to reward high quality may not be given to the highest-quality providers.

(Kern et al, “Accuracy of Electronically Reported “Meaningful Use” Clinical Quality Measures: A Cross-sectional Study” Annals of Internal Medicine, January 2013)

IPOs result in lower impact of innovation due to brain drain

Objective: to compare the impact of a company’s going public on their innovation versus remaining private.

Methodology: analysis of patent data from U.S. technology companies that went public (1,488) or filed an initial public offering (IPO) application (323) between 1976 and 2009 – restricting “the sample to firms with at least one successful patent application in the period of three years before and five years after the IPO filing… Overall, the sample consisted of 39,306 granted patents of IPO firms and 4,835 granted patents from withdrawn firms.”

“Using a data set consisting of innovative firms that filed for an IPO, I compare the long-run innovation of firms that completed their filing and went public with that of firms that withdrew their filing and remained private. I use NASDAQ fluctuations during the book-building period as a source of exogenous variation that affects IPO completion but is unlikely to affect long-run innovation.”—Shai Bernstein, Stanford Graduate School of Business

Key finding: while the overall number of patents did not change post IPO, the value of the patents in IPO transaction was lower in value as measured by how often original patents were cited in subsequent patent filings. Researchers concluded a brain drain—innovators leave the company.

“The quality of internal innovation of public firms declines by 50 percent relative to firms that remained private, measured by standard patent-based metrics. Public firms experience both an exodus of skilled inventors and a decline in productivity among remaining inventors. However, access to public equity markets allows firms to partially offset the decline in internally generated innovation by attracting new human capital and purchasing externally generated innovations through mergers and acquisitions.”

(Source: Bernstein, Shai “Abstract: Does Going Public Affect Innovation?” October 14, 2012)

My take: innovation and growth are imperative for health care organizations in the new normal. Cutting costs is no guarantee of survival regardless of the sector. Bold leaders see the future, imagine new revenue sources, and pursue growth. All too often, health care innovation is marginalized by a “not invented here” mentality that makes insiders comfortable and outsiders permanently unwelcome. The brain drain is not limited to companies that go public; it is indigenous to health care where keeping the peace is often more important to career progression than insight, competence, and performance.

Quotable

“We, the people, still believe that every citizen deserves a basic measure of security and dignity.  We must make the hard choices to reduce the cost of health care and the size of our deficit.  But we reject the belief that America must choose between caring for the generation that built this country and investing in the generation that will build its future. For we remember the lessons of our past, when twilight years were spent in poverty and parents of a child with a disability had nowhere to turn. We do not believe that in this country freedom is reserved for the lucky, or happiness for the few.  We recognize that no matter how responsibly we live our lives, any one of us at any time may face a job loss, or a sudden illness, or a home swept away in a terrible storm. The commitments we make to each other through Medicare and Medicaid and Social Security, these things do not sap our initiative, they strengthen us.”

President Barack Obama, Inaugural Address, January 21, 2013

“Both parties say the government needs to do more to reduce the deficit, but they remain far apart on how to do that… White House officials remain opposed to many of the structural changes to Medicare and Social Security that Republicans have proposed, and President Barack Obama wants tax increases to be part of any agreement.”

Damian Paletta & Janet Hook, Wall Street Journal, “Obama would accept StopGap Debt Extension,” January 23, 2013

“Health plans resembling the HMOs of old may be poised to make a comeback in online insurance markets slated to open this fall under the health law. Such plans, which sharply limit a consumer's choice of doctors or hospitals, fell into disfavor in the 1980s and 1990s because of their restrictions. But the plans—which have already reappeared among employers looking to slow rising premiums—are expected to play a prominent role in the exchanges, where individuals and small businesses will shop for coverage starting October 1.”

―Julie Appleby, Kaiser Health News, “Like Bikinis, HMOs can be too skimpy,” USA Today, January 23, 2013

"We have seen how comparative effectiveness research works in Canada and the United Kingdom, and it is the patient that ends up paying the price for increased government intervention in the doctor patient relationship. Americans do not want the federal government limiting their treatment options and deciding what is best for them, they want to be informed and work with their doctor to decide the best treatment for them."

Senator Pat Roberts (R-KS), “Senator Roberts Introduces Bill to Protect Patients from Rationing,” January 25, 2013

“We did not find an effect on total or cause-specific mortality from general health checks in adult populations unselected for risk factors or disease… for the causes of death most likely to be influenced by health checks, cardiovascular mortality and cancer mortality, there were no reductions either.”

Krogsbøll, Jørgensen, Larsen, & Gøtzsche, “General health checks in adults for reducing morbidity and mortality from disease: Cochrane systematic review and meta-analysis,” BMJ, November 2012

Fact file

  • Childhood ADHD: 4.9 percent of children ages 5-11 are diagnosed with Attention Deficit Hyperactivity Disorder (ADHD). Diagnosis rates increased between 2001 and 2010, to 5.6 percent from 4.7 percent for Caucasians, 4.1 percent from 2.6 percent for African Americans, and 2.5 percent from 1.7 percent for Hispanics. (Source: Getahun, et. al, “Recent Trends in Childhood Attention-Deficit/Hyperactivity Disorder,” JAMA Pediatrics, January 2013)
  • Avoidable readmissions: 20 percent of Medicare enrollees are readmitted in 30 days. Avoidable readmissions cost Medicare $26 billion annually. A 5.7 percent reduction in 30-day readmission rates for 14 communities was achieved in national care improvement project. (Sources: CMS, Vaduganathan, et. al, “Thirty-Day Readmissions: The Clock is Ticking,” JAMA, January 2013; Brock, et. al, “Association Between Quality Improvement for Care Transitions in Communities and Rehospitalizations Among Medicare Beneficiaries,” JAMA, January 2013)
  • Medicare eligibility age: “when Medicare was created in 1965, the average life expectancy was 70 years;” in 2009 it stood at 78 years. Currently, 41 percent of Medicare beneficiaries are 75 years and older and account for 50 percent of total spending in the program.” (Source: Senator Orrin Hatch (R-UT), January 24, 2013)
  • 2014 election cycle: 33 Senate seats up for re-election (20 Democrat seats including seven in states Obama lost). (Source: Cook Political Report)
  • Psychiatric care access: “the risk of violent behavior drops 15-fold for people who receive treatment for psychosis as opposed to those who do not.” (Source: Thomas Insel, Director of the National Institute of Mental Health, January 24, 2013)
  • Abortions: percent of women by age group who had abortions in 2008: Under 20 (17.6 percent), 20-24 (33.4 percent), 25-29 (24.4 percent), 30-34 (13.5 percent), 35-29 (8.2 percent), 40 and older (2.9 percent). (Source: Guttmacher Institute)
  • Insomnia: affects 40.6 million (30 percent) in civilian workforce, 9 percent say they fall asleep in meetings; $63.2 billion annual costs for U.S. companies who lose 7.8 days of productivity. Workers waste 8.4 minutes online checking email or popular culture sites for every hour of lost sleep—an example of what researchers term “presenteeism.” (Source: SLEEP, Journal of Applied Psychology, CDC, National Sleep Foundation)
  • Deficit reduction poll: 65 percent of Americans want quick federal action to reduce the deficit but 58 percent want no reductions in funding for Medicare or Social Security. (Source: KFF/Robert Wood Johnson Foundation/Harvard School of Public Health)
  • Vaccine delays: 54 percent of babies born in the U.S. are late receiving at least one recommended vaccine. (Source: Glanz, et. al, “A Population-Based Cohort Study of Undervaccination in 8 Managed Care Organizations Across the United States,” JAMA Pediatrics, January 2013)
  • Union membership: unions lost 400,000 members in 2012—2.8 percent drop with half from public sector; union membership is 11.3 percent of the civilian workforce, down from 11.8 percent in 2011—the biggest decline in six years and lowest level since WWII. Public sector union membership is 35.9 percent, down from 37 percent in 2011 vs. private sector drop to 6.6 percent from 6.9 percent. (Source: Wall Street Journal, “Organized labor loses members,” January 23, 2013)
  • College graduation rates: survey of 193,000 college freshmen: 83.4 percent expect to graduate in four years but 40.6 percent actually do. Federal data: 38 percent of freshmen finish in four years and 58 percent in six. (Source: USA Today, “Survey: college selection often relies on cost,” January 24, 2013)
National health reform: What now?

National health reform: 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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