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Health Care Reform Memo: July 26, 2010

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.

OMB forecast: $1.47 trillion deficit in FY10

Friday, the Office of Management and Budget (OMB) released its forecast for FY10, ending September 30, and FY11. The forecast deficit will be $1.47 trillion in FY10 and $1.42 trillion in FY11 per the agency. Unemployment will be 9.5 percent in FY10, 9.1 percent in FY11 and 8 percent in 2012. At 10 percent of gross domestic product (GDP) currently, the report indicates federal debt can achieve the goal of 3 percent of GDP at the end of the decade based on current spending and revenue assumptions. Note: A special White House Commission on deficit reduction will make its recommendations in December. Likely areas of focus will be entitlement cuts (Medicare, Medicaid, Social Security) and streamlining of government operations.

NAIC plays key role in insurance reform implementation

Under the Patient Protection and Affordable Care Act (PPACA), the National Association of Insurance Commissioners (NAIC) is required to submit recommendations to the Secretary of Health and Human Services (HHS) in 10 major areas of insurance industry reform. On its agenda are mechanisms to define medical loss ratios (MLRs), methods for defining reasonable premiums and standardization of coverage and enrollment, among others. NAIC is composed of each state’s top insurance official; in 11 states, it is an elected position. HHS Secretary Kathleen Sebelius served as NAIC Chairman while serving as Kansas’ top insurance official in 2001, and Jay Angoff, Director of the Office of Consumer Information and Insurance Oversight in HHS, was a member of NAIC while serving as Maryland’s commissioner.

Senate approves unemployment extension; federal funding in addition to state funds

Tuesday, the Senate passed legislation to extend unemployment benefits for 2.5 million Americans as part of a $34 billion spending bill. Benefits will be extended up to a total of 99 weeks for hardest hit workers including 26 weeks of aid provided by states.

In-office imaging rule proposed last week

In Section 6003 of PPACA, physicians who provide in-office magnetic resonance imaging (MRI), computed tomography (CT) or positron emission tomography (PET) scans under the office ancillary services exception of the Stark law must inform a patient in writing at the time of the referral about alternative providers where the test can be performed in the immediate area. Last week, the Centers for Medicare and Medicaid Services (CMS) released its proposed rule open for comments until August 24, 2010.

The proposed rule indicates new disclosure requirements would start January 1, 2011, apply to MRI, CT and PET tests initially, require language that is understandable to patients and require consumers to be given at list 10 freestanding non-hospital-based providers within a 25 mile radius of the referring physician’s office. If there are not 10 options, all local alternatives for the imaging test must be made known to the patient in writing.

FDA examines direct-to-consumer genetics testing; new regulations anticipated

Today and tomorrow, the Food and Drug Administration (FDA) is hosting a first-ever public hearing to evaluate the safety and accuracy of direct-to-consumer genetic tests considered “high risk” by the agency. More to come.

Consumer financial protection agency might impact health care

Wednesday’s passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act included creation of the new Bureau of Consumer Financial Protection that will have a $500 million budget to regulate financial transactions involving mortgage lenders, payday loans and student loans. A possible focus will be transactions involving health care providers who use loan agreements for elective procedures or to collect co-payments.

Q and A

Q: Is there anything in the bill about improvements in the quality of care of physicians? How does the PQRI program fit in?

A: Yes, it builds on an existing program – the Physician Quality Reporting Initiative (PQRI) implemented in 2007 by the Tax Relief and Health Care Act of the Medicare Improvements and Extension Act of 2006 (MIEA-TRHCA). In essence, physicians who voluntarily report quality measures under Medicare Part B are eligible for bonuses set at 1.5 percent of Medicare Part B total allowed charges (2007-2008), 2.0 percent (2009) and 0.5 percent (2011-2014). In 2015, physicians who do not report will pay a penalty payment equal to a percentage of their Medicare allowable charges – 1.5 percent (2015) and 2.0 percent (2016 and beyond). The metrics used in the PQRI program expand each year; and in 2010, group practices were allowed to participate in lieu of individual reporting.

In PPACA, additional incentive payments are authorized through 2014: 1 percent of 2011 Medicare Part B total allowable charges and 0.5 percent 2012-2014. However, in 2015, physicians who do not report will be penalized 1.5 percent of their allowable Medicare charges, increasing to 2 percent in 2016 and thereafter.

In essence, PPACA uses PQRI as a carrot for “voluntary” physician participation through 2014, and a stick thereafter. And in parallel, meaningful use provisions of the Health Information Technology for Economic and Clinical Health (HITECH) Act (February 17, 2009) that provide grants for use of electronic health records (EHRs) in medical practices impose penalties for non-adoption of EHRs starting after 2015, so physician quality reporting is a central theme in PPACA via these parallel requirements.

Q: How will the states and the federal government monitor insurance premiums?

A: In Section 1003 of PPACA, the mechanics of premium oversight are detailed. The Office of Consumer Information and Insurance Oversight in HHS under Jay Angoff will oversee the process that requires every state to justify any annual premium increase to HHS. $250 million is allocated for states to create mechanisms with $51 million ($1 million per state and the District of Columbia) available already. To get a grant, a state must detail its plan for the review and approval or denial of premium requests, including creation of “[Medical Reimbursement Data Centers] at academic or other nonprofit institutions to collect medical reimbursement information from health insurance issuers, to analyze and organize such information, and to make such information available to such issuers, health care providers, health researchers, health care policy makers, and the general public.” Notably, states are required to enact these provisions in 2010, so for most states, efforts are underway.


“Perhaps the only consistent thing about Britain’s socialized health care system is that it is in a perpetual state of flux, its structure constantly changing as governments search for the elusive formula that will deliver the best care for the cheapest price while costs and demand escalate.”

 – Source: “Britain Plans to Decentralize Health Care,” The New York Times, July 24, 2010. Article details how $30 billion of administrative costs will be taken out of the National Health Service system and $125 billion of the $160 billion annual budget will be controlled through primary care, who will pay hospitals and specialists.

“States don’t have a chance of getting their houses in order unless they tackle unaffordably generous pension and health-care benefits for public employees…States need to set up a mechanism that will tame their own worst instincts—that is, prevent them from caving in to special interests and overspending once the crisis eases.”

 – Source: “Commentary: States of Crisis,” Bloomberg Businessweek, July 19-25, 2010

“As you continue to be deluged by letters, comments, and analyses from the insurance industry, I ask you to recall that the purpose of the new medical loss ratio law is to give the citizens and businesses of your states the health care coverage they pay for and deserve.”

 – Source: Letter from Sen. John D. Rockefeller IV (D-WV) to the NAIC, July 20, 2010

“Investors worry that margins may be squeezed from new minimums on what companies must spend on medical costs. The changes also may force some players, especially smaller plans, to exit markets. The outlook remains hazy because the industry is awaiting key details of how insurers must calculate these minimum ‘medical loss ratios,’ which is the percentage of premium dollars used for patient care. Health plans that fail to spend enough on medical expenses will have to provide customer rebates.”

 – Source: “Health Overhaul Concerns May Eclipse Strong Managed-Care 2Q,” The Wall Street Journal, July 20, 2010

Fact file

  • 40 percent of unemployed have been out of work more than 6 months. (Source: Bureau of Labor Statistics)
  • Additional savings achievable via substitution of generics for branded drugs in state Medicaid programs: $271 million or 1.2 percent of Medicaid’s total drug spend of $21.8 billion. (Source: American Enterprise Institute study “Overspending on Multisource Drugs in Medicaid” released Wednesday, July 21, 2010)
  • Venture funded investments that result in initial public offerings (IPOs): 263 in 2000, 86 in 2007, 26 YTD in 2010. (Source: Thomson Reuters)
    Note: IPOs for health care and life science companies are the leading category. For example, venture investments in biotechnology increased 31 percent in the first half of 2010 compared to first half of 2009 to $2.1 billion—highest of any category. (Source: MedVentures annual conference last week) However, gains for venture fund investors are highly variable: Median annualized ROI for 1999 to 2007 range: +.3 percent to -7.7 percent.
  • 1.5 million personal bankruptcy filings for last 12 months ending March 31, 2010—up 250 percent since 2007. (Source: Administrative Office of the U.S. Courts)
    Note: Half are related to medical debt.
  • HIV-AIDS deemed an urban epidemic based on prevalence (2.1 percent of population) in inner cities. (Source: Centers for Disease Control and Prevention)
  • 27 percent of the companies offered defined benefit pensions in 2010 compared with 48 percent in 2006; 14 percent will likely reduce these plans in the next 12 months. (Source: Society of Human Resource Management)
  • Optimal difference in out-of-pocket costs to consumers to encourage use of generics vs. branded medications: $25.50. (Source: “Setting Prices for Generic Medications: A Survey of Patients’ Perceptions,” American Journal of Pharmacy Benefits, Vol. 2, No. 1, p.33-38, February 2010)
    Note: Current average differential in out-of-pocket is $13.30. Optimal differential varies somewhat by class—for example, back pain medications have a lower threshold than antidepressants.
  • First half of 2010 lobbying expenditures: American Medical Association (AMA) – $14.8 million, #4 overall; Pharmaceutical Research and Manufacturers of America (PhRMA) – $11.7 million, #6 overall; American Hospital Association (AHA) – $8.0 million, #16 overall. (Source: Lobbying Disclosure Act Report to Congress)
  • $1.9 billion would have been refunded in 2009 by the six largest for-profit health insurance companies had PPACA rules regarding MLR been in effect. (Source: Oppenheimer & Co)
  • Evidence-based medicine? Misdiagnosis/discrepancies in treatment of noninvasive breast cancer (ductal carcinoma in situ) based on case reviews of 597 cases: 141 discrepancies (24 percent) and 27 misdiagnosis (4 percent). (Source: College of American Pathologists’ study, 2008)
  • Blues plans held $855 per member in reserves in 2009, up from $395 per member in 2001. (Source: Consumers Union study released July 22, 2010)
  • End of life care rankings linked to access to hospice care and caregiver legislation: U.K. #1, U.S. #9. (Source: Economist Intelligence Unit analysis of 40 countries, July 2010)
  • 2009 Survey of Employers: 14 percent use "high-performance" health provider networks, up 2 percent from 2008. (Source: Marsh & McLennan Co. study reported last week)
    Note: The AMA sent letters to major insurers last week objecting to plan use of claims data to profile physicians citing a New England Journal of Medicine study (March 2010) that reported incorrect information about 22 percent of physicians profiled based on claims data from 4 plans.
National health reform: What now?




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 today.

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