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Health Care Reform Memo: June 28, 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.

Ninety-day anniversary of PPACA signing marked by White House meeting with health plans

Tuesday, the 90-day anniversary of the signing of the Patient Protection and Affordable Care Act (PPACA), the White House hosted executives of 13 health plans and the industry trade group America’s Health Insurance Plans (AHIP). The significance and key takeaways are notable:

  1. The White House chose the health plan sector to commemorate PPACA passage.
  2. The President and Secretary of the U.S. Department of Health and Human Services (HHS) cautioned plans that premium increases would be closely monitored.
  3. The industry countered that underlying medical costs were the root cause of cost increases and premiums requests.

Note: In PPACA, health insurance plans after October 1 must:

  1. Not deny coverage to children under age 19 with pre-existing medical conditions.
  2. Not rescind coverage except in clear cases of fraud.
  3. Not impose lifetime limits on what consumers pay for care.
  4. Not impose annual limits of less than $750,000 increasing to $2 million in 2014 on coverage of essential benefits (i.e., primary and acute care, emergency services and prescription drugs).
  5. Not require prior approval for out of network emergency services.

In the meeting Tuesday, HHS Secretary Kathleen Sebelius told the group that their compliance with new health insurance regulations should not increase premiums more than 1 percent in the short term and result long term in premium reductions as risk pools stabilize and delivery system reforms take effect.

“Grandfathered plans” eligibility criteria outlined

Recently, the Internal Revenue Service (IRS), U.S. Department of Labor (DOL) and HHS issued interim regulations for grandfathered health plans (plans that existed March 23, 2010) sponsored by employers. The new regulations limit employer flexibility in changing health insurance companies, benefits design and employee cost-sharing if they want to maintain grandfathered status. But even grandfathered plans will have to comply with certain new requirements beginning in 2011:

  • Grandfathered plans must offer dependent coverage to children until age 26 (although with special limited relief).
  • Grandfathered plans may not impose pre-existing condition exclusions on children under age 19 (this ban will apply with respect to all enrollees beginning in 2014).
  • Grandfathered plans must not impose annual and lifetime limits on the dollar value of benefits.

In some areas, grandfathered plans are exempt from PPACA requirements. For example, limitations on cost-sharing, provision of preventive health services with no co-payments, nondiscrimination rules for fully insured plans, special appeals procedures and new patient protections. However, a plan could lose its grandfathered status if it:

  • Changed insurance companies on or after March 23, 2010 (even if the benefits are the same).
  • Eliminated all/substantially all coverage (diagnostics/therapeutics) for a specific medical condition/patient population.
  • Increased the fixed-amount and percentage cost-sharing for employees above medical cost inflation. (For amounts other than co-payments, deductibles and out-of-pocket maximums, the fixed-amount may be increased up to medical inflation plus 15 percent.)
  • Decreased the employer contribution for any tier of coverage by more than 5 percent below the contribution rate on March 23, 2010.
  • Changed annual limits.

Finally, the interim rule clarified that retiree-only plans and stand-alone plans for dental/ vision plans are not subject to certain PPACA requirements.

Note: The interim rules were published in the Federal Register on June 17, 2010.

The new regulations are effective June 17, 2010, although employers may modify certain changes made to their plans after March 23, 2010 to retain their grandfathered status. Rules for plans entered into as part of a collective bargaining agreement (CBA) with a union differ depending on whether the plan is insured or self-insured. Self-insured plans are subject to the same rules as non-collectively bargained plans. Insured plans maintained pursuant to a CBA ratified before March 23, 2010 are grandfathered until at least the date of termination of the last CBA relating to the coverage that was in effect on March 23, 2010.

Physician sign-up for Medicare certification by July 6

Physicians who treat Medicare enrollees must enroll in the Centers for Medicare and Medicaid Services’ (CMS) Provider Enrollment, Chain and Ownership System (PECOS) by July 6, 2010 to be paid by CMS. Under PPACA requirements, physicians must complete a two-page certification form if they order lab tests, drugs, prosthetics, orthotics, imaging studies, home health services or make specialist referrals for Medicare enrollees.

HHS launches website July 1 to help consumers choose insurance plans

This Thursday, will go live offering consumers links to information about insurance plans, with a phase two enhancement in October to include comparative quality and pricing information.

Note: The lead article in the June 24, 2010 New England Journal of Medicine – “Transparency at the Food and Drug Administration” (Asamoah, Sharfstein) – details the agency’s plans to provide consumers information about drug testing and surveillance efforts. In PPACA, transparency of prices, quality and satisfaction for plans and providers are a key theme.

Physician pay: House approves six-month extension; CMS offers guidance on 2011 physician fee schedule from Medicare

Thursday, the U.S. House of Representatives, by a vote of 417 to 1, approved the Senate’s bill to increase physician payments 2.2 percent for June-November, 2010 at a cost of $6.4 billion offset by other spending cuts, avoiding a 21 percent cut retroactive to June 1. The delay in a permanent fix was disappointing to the American Medical Association (AMA) and the focus of a series of ads started by American Academy of Family Physicians (AARP) suggesting a permanent fix to physician payments would be necessary or Medicare enrollees might face physician shortages.

Friday, CMS issued guidance on physician payments for 2011 “Medicare Program; Payment Policies Under the Physician Fee Schedule and Other Revisions to Part B for CY 2011,” a 1,250-page document outlining proposed changes to the professional and technical components of physician payments by Medicare . Physicians would receive a 6.1 percent cut to their Medicare payments starting January 1, 2011 under a proposed rule issued by CMS. That reduction is in addition to a projected 23.5 percent cut that is scheduled to take effect December 1, 2010. The 60-day comment period ends August 24, 2010.

Note: Physician pay and government encroachment on the profession will be a major focus of debate in the 2010 political season: PPACA includes targeted reductions in physician income over time via decreased annual Medicare payments; restrictions/new regulations on physician ownership in hospitals, imaging facilities and other ancillary services they own and use; expansion of funding to primary care and mid-level programs thus shifting funds from specialists and increased transparency about safety, efficacy and effectiveness, pricing and satisfaction. In addition, physicians face requirements to implement electronic health records (EHRs) by 2015 or see additional Medicare payment cuts, and the likelihood that health plans will ask for steeper discounts in coming negotiations.

Two scenarios seem to be playing out in many communities:

  1. Physicians are aligning with health systems to create accountable care organizations (ACOs) via a variety of employment/contractual models of integration or
  2. Physicians are consolidating into larger multispecialty groups to develop more comprehensive services and contract directly with employers and Medicare.

Utah becomes 30th state to opt out of the federal high risk pool program

In PPACA, states are eligible to tap a $5 billion one-time allocation for creation of high risk pools that would provide coverage for an additional 200,000 nationwide. For most states, the strings attached were the problem: The states would have ongoing responsibility for funding the program after the federal funds run out, and most calculated the ongoing costs would add to their deficits. Thursday, one month after the original deadline for notification to HHS, Utah Governor Gary Herbert (R-UT) announced that his state joined 29 others and the District of Columbia in concluding federal funding was inadequate.

ONC issues final rule for certification of EHR technology

Last week, the Office of the National Coordinator for Health Information Technology (ONC) issued its final rule on the temporary certification of complete EHR technology and EHR modules (EHR Technology). This sets the stage for doctors and hospitals to purchase/implement EHR strategies and receive incentive payments available through the HITECH Act—up to $44,000 per physician and millions for hospitals based on size and discharge volume.

Global health diplomacy key feature in FY11 budget

The Obama administration selected eight countries to serve as “learning labs” for global health diplomacy efforts targeting maternal and child health preventable diseases.

The President included $9.6 billion in the FY11 budget, up from $8.8 billion for FY10—$7 billion is for the U.S. President's Emergency Plan for AIDS Relief (PEPFAR), up from $6.8 billion in FY10 and $2.3 in FY04 when launched by President George W. Bush.

Q and A

Q: What if a company disagrees and wants to dispute the findings of a centralized comparative effectiveness researcher’s finding? Is there a method to lodge such disputes and subsequently arbitrate them?

A: There will be a 45- to 60-day public comment period where, among other things, the public may comment on the “release of draft findings with respect to systematic reviews of existing research and evidence.” Additionally, "The Institute shall support forums to increase public awareness and obtain and incorporate public input and feedback through media (such as an Internet website) on research priorities, research findings, and other duties, activities, or processes the Institute determines appropriate." Last, "the Institute shall make available to the public and disclose…information contained in research findings; the process and methods for the conduct of research…and research protocols…concurrent with the release of research findings."

There is no discussion beyond the above statements on how to file disputes.

Q: Will children who have a pre-existing condition and have been uninsured for at least six months be able to get insurance through high risk pools?

A: The legislation does not explicitly deny children access to this high risk health insurance pool program.

Q: Are the Medicare Disproportionate Share DSH payment reductions going to take the form of formula changes to the DSH calculation? If so, has there been any indication how this would be achieved?

A: Yes, refer to Section 3133 of PPACA. For 2015 and beyond, there will be a 25 percent reduction in payments, but there will be an additional payment determined by the product of three factors related to the hospital’s share of uninsured under age 65 and other factors. The bottom line on DSH payments: There will be cuts, but through the annual appropriations process, targeted funding might be available if the economy recovers and under-served populations face difficulties accessing hospitals and physicians.

Q: What is the sustainable growth rate (SGR) model that’s the focus of physician concern?

A: Since January 1, 1992, Medicare has paid for physician services under Section 1848 of the Social Security Act, “Payment for Physicians' Services.” It requires that payments be based on national standards adjusted to local costs called relative value units (RVUs) that include three major elements: Cognitive and technical elements of physician work done by physicians, practice expenses (PE) and malpractice costs. Before the establishment of the resource-based relative value system, Medicare payment for physicians' services was based on “reasonable and customary charges.”

RVUs are converted to a Medicare fee schedule calculated by CMS’ Office of the Actuary (OACT):

Payment = [(RVU work x GPCI work) + (RVU PE x GPCI PE) + (RVU malpractice x GPCI malpractice)] x CF.

Note: GPCI = geographic practice cost index; CF = conversion factor.

The significance of the RVU based model used by Medicare is that commercial health insurance plans and state Medicaid payment rates to physicians use Medicare rates as a baseline for their payment to physicians: Medicaid typically pays less than Medicare, and commercial plans typically higher.


“They want to go back to the system we had before… I refuse to go back…We've got to make sure that this new law is not being used as an excuse to simply drive up costs.” 

– Source: President Obama at meeting in the White House East Room with representatives of 13 health plans and AHIP, June 22, 2010

“I applaud California for its decision to shine more light on skyrocketing insurance rates and demand more accountability after uncovering that a second insurer used faulty math to try to justify exorbitant health insurance premium increases. As President Obama has said, Americans across the country have been at the mercy of insurers for far too long when it comes to premiums and prices. Finally, the power is shifting back to consumers thanks to the strong actions on the part of the states, and new protections and accountability under the Affordable Care Act. As we work to turn this new law into reality for families everywhere, we will continue working closely with the states, providing them with more resources to hold insurers accountable and get the American people the quality, affordable health insurance they deserve.” 

– Source: Statement from Secretary Sebelius upon news that Aetna had withdrawn its application for individual premium increases in California due to calculation errors, June 24, 2010

“We expect this investment will approximately double the number of people seen in health centers. It will enable us to serve about 20 million patients over five years.” 

– Source: Mary K. Wakefield, administrator of the Health Resources and Services Administration, referencing the $11 billion in PPACA set aside for doubling of community health centers and $250 million allocated for additional physicians and nurses, June 21, 2010

“The bill retroactively, illegitimately and irrationally burdens plaintiffs’ private property.” 

– Source: Lawsuit filed in U.S. District Court against HHS by the 20-bed Spine and Joint Hospital in Tyler, Texas, challenging Sect. 6001 of PPACA that limits growth and physician ownership of the 262 physician owned hospitals in U.S. after December 2010

Fact file

  • State revenue forecast for FY 2011: +3.6 percent to $496 billion (8 percent below 2008 revenues). (Source: National Association of State Budget Officers)
  • Tax credits in PPACA to purchase insurance 2014-2019: $450 billion for individuals, $37 billion for small businesses. (Source: Congressional Budget Office)
  • 23 percent of adults under 200 percent of the federal poverty level (FPL) exercise “regularly” vs. 35 percent above 200 percent of FPL. (Source: Centers for Disease Control and Prevention)
  • Shortness of stature (less than 5’5” for men, 5’0” for women) correlated to higher heart attack risk, based on meta-analysis of 57 studies. (Source: European Heart Journal)
  • Total health care industry workforce: 13.7 million including 4.7 million in hospitals. Hospital employment down 1 percent in 2009 while physician office employment up 2 percent. (Source: Bureau of Labor Statistics)
  • Early U.S. Census outlook for 2010: 309 million population, gain of 69 seats in Congress for the Sunbelt states, led by new seats in TX-12, FL-11, CA-10, AZ-5 and GA-5. (Sources: US Bureau of the Census, Politico)
  • Mean hours worked per week adjusted for vacation, paid sick/personal leave for 2006-2008: Medical residents-59.3, non-resident physicians-49.6, lawyers-44.9, engineers-43.0, and registered nurses-37.3. (Source: Trends in the Work Hours of Physicians in the United States, Staiger et al., JAMA. 2010; 303: 747-753.)
  • Congressional turnover in 2010 election cycle update: 20 House members (9 Republican, 11 Democrat) and 10 Senators (5 R, 5 D) are retiring this year. In addition, 9 House members (3 R, 6 D) and 5 Senators (1 R, 4 D) were beaten in primaries or resigned. Thus, total turnover: 29 in House, 15 in Senate. (Source: Roll Call)
  • 49 percent of employers expect workers on vacation to check in, and 19 percent of workers cancelled or postponed vacations due to work. (Source: Expedia Research)
  • Infection rates in hospitals—State averages for infection ratio: Lowest 0.27 (VT) to highest 1.30 (MD). (Source: The CDC’s National Healthcare Safety Network)
  • 99 percent of the 313 health insurance markets in the U.S. are “highly concentrated.” (Source: HealthLeaders-InterStudy)
  • 57 percent of adult men and 74 percent of adult women visited a physician in the last 12 months. (Source: Agency for Healthcare Research and Quality)
  • Community health centers update: PPACA $12.5 billion funding assumes growth of centers to 8,000 by 2015 under 1,200 grantees, and expansion of physician/allied health workforce by 15,000. (Source: Health Resources and Services Administration)
  • 81 percent of the U.S. 275 million cell phone users say they talk or text while driving resulting in 1.6 million accidents. Note: 39 states have laws restricting cell phone use while driving. (Source: National Safety Council)
  • Palliative care programs used appropriately save $2,600 per discharge, saving an average 300-bed hospital $1.3 million per year. (Source: National Palliative Care Research Center)
  • Standard of care for treatment of a patient in the hospital’s emergency room (ER) with an emergent problem: Under 14 minutes; Average for U.S. hospitals: 37 minutes. (Source: Government Accounting Office, 2009)
  • Global per capita consumption 2007 to 2009: +34 percent in emerging markets vs. +27 percent in the U.S. Note: Many drug, biotech and device companies are accelerating emerging market strategies. (Source: JP Morgan Chase)
  • Federal debt as percentage of gross domestic product (GDP): 93 percent. (Source: Office of Management and Budget)
  • Average costs for ER visits for conditions treatable in retail clinic setting: $441 vs. $52 for convenient care, but only 6 percent of retail clinic treatable visits are seen in the lower cost setting. Example: Bronchitis treatment costs $646 for ER visit vs. $54 for a retail clinic visit. (Source: Study by 14 Blue Cross and Blue Shield Plans, via its research subsidiary HealthCore, Inc.)

Independence Day Holiday: Health Care Reform Memo

Please note, in observance of the Independence Day holiday, publication of the next Health Care Reform Memo will be on Tuesday, July 6.

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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