Health Care Reform Memo: August 30, 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.

States face significant challenges implementing PPACA

Last week, the New York State Health Foundation (NYSHealth) released its recommendation for the state’s response to health reform. It likely resonates in other states:

The enormity and complexity of the federal law is daunting for all states, and the need to reconcile New York’s highly evolved regulatory and public coverage infrastructure with the Affordable Care Act (ACA) mandates increases the complexity exponentially. Further, New York, like most states, is in the midst of a severe budgetary crisis that threatens to erode reimbursement rates for providers under existing public coverage programs; limit available resources for necessary infrastructure investments, including information systems; and shrink the very government agencies that will be charged with implementing reform. New leadership at the state’s helm starting in January 2011 will have scarcely three years to design and implement changes necessary to meet federal deadlines. And, these changes will be profound, requiring amendments to state statute, repeal of existing—and issuance of new—health and insurance regulations, the creation of new public and/or private governance entities and the wholesale restructuring of longstanding statewide infrastructure and administrative systems. (Source: “Implementing Federal Health Care Reform: A Roadmap for New York State,” NYSHealth, August 2010)

Consider:

• Medicaid costs are soaring: Total Medicaid enrollment is 58.8 million today, consuming 22 percent of the “average” state budget, increasing to 76 million 2014-2016 as the Patient Protection and Affordable Care Act of 2010 (PPACA) provisions kick in. It is the fastest growing line item in the state government P&L, and especially perplexing in the current downturn as revenues from tax collections decrease. And for every job lost, half end up on Medicaid; the other half uninsured. Total Medicaid spending will double to $670 billion by 2015 from 2007. On average, states pay 37 percent of the costs of Medicaid; the federal government pays the balance, though the formula varies by state. The American Recovery and Reinvestment Act of 2009 (ARRA) stimulus funds ($87 billion, February 2009) and recent emergency funding ($16.1 billion, August 2010) will still leave states short of current obligations.
• Medical problems of Medicaid enrollees are complicated: The medical problems of the Medicaid enrollment are becoming more complex: Consider dual-eligibles (qualify for Medicaid and Medicare) will consume 34 percent of the average state budget for Medicaid by 2019 though less than 10 percent of enrollees (Source: Deloitte Center for Health Solutions). Behavior disorders—mood, anxiety and substance abuse—are more prevalent risk factors in Medicaid, and routine preventive health services delayed or non-existent, resulting in delayed care and otherwise avoidable hospital admissions.
• Enrollment and oversight responsibilities in other state health programs will increase: The Children’s Health Insurance Program (CHIP) enrollment increased 4 million in 2009 to 11 million; workers compensation programs, school and prison health, et al require additional resources, infrastructure and expertise.
• State employee health plans are problematic: Only 4 states fully funded obligations to state retiree employee health benefits in 2008—a looming dilemma, especially in states where state employees are unionized. Retiree health care and other non-pension benefits is a $587 billion long-term liability for state governments, with less than 6 percent of that amount funded as of fiscal year 2008. (Source: Pew Center on the States)

PPACA puts enormous responsibility on states to create health exchanges, oversee new insurance industry regulations, upgrade health care workforce training programs through licensing and medical education and oversee integration of public health programs with local delivery systems and others. And states are major employers, so every element of coverage for employees, dependents and retirees must be revisited to align with PPACA requirements.

Of the “four big bets” in PPACA—Will individuals buy insurance per the mandate? Will employers maintain coverage or pay the penalty and walk away? Will delivery system reforms result in lower costs? Will states be able to deliver on their obligations?—perhaps the fourth is the most daunting.

My take

Every stakeholder—providers, payers, regulators, consumers—including states have to reduce health costs: Cost reduction is simply table stakes. It does not guarantee success or even survival. States, plans, hospitals, pharmaceutical companies, device companies, federal health agencies, et al will be successful to the extent old models, thinking, structures, approaches and barriers to change are set aside for fresh ideas and bold leadership. For states, innovation in medical management, public-private collaboration, leveraging technology and engaging legislators in an honest non-partisan process of health system redesign are imperatives. Health is too important to states to let it be a partisan sideshow.

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

California legislature passes bills to create health exchange

Wednesday, California legislators passed bills authorizing the creation of the health exchange ahead of the PPACA deadline of January 1, 2014. The California plan, supported by Governor Schwarzenegger (R-CA), will offer four insurance options (plus a catastrophic plan for adults under age 30) and link eligible California citizens to federal subsidies. It will be governed by an independent board of gubernatorial and legislative appointees with the power to selectively choose plans allowed to market services through the exchange. Massachusetts and Utah are the only two states that operate exchanges currently. University of California, Berkeley researchers estimate 4.6 million Californians will purchase through the exchange, including 2.4 million who receive subsidies through PPACA.

Physicians challenge plan profiling

Earlier this month, the American Medical Association (AMA) and 47 state societies sent letters to health plans in 47 states challenging the accuracy of physician profiling reports used to tier providers based on costs. Citing two RAND studies published in peer reviewed journals (March 2010, New England Journal of Medicine; May 2010, Annals of Internal Medicine), the physician organizations noted that 22 percent of physicians were misclassified by the plans.

Stem cell research halted

In August 2001, President Bush ordered stem cell research to be limited to existing lines; in March 2009, President Obama reversed the order resulting in 75 additional lines for researchers. Wednesday, an injunction by U.S. District Judge Royce Lamberth brought current expansion efforts to a halt citing current practice violates federal law that prohibits federal funding for embryonic research whereby an embryo is destroyed.

Commerce report: Economic indicators worrisome

The U.S. Department of Commerce reported last week that the four-week average for jobless claims hit its highest point since November 2009—473,000 for the last week of the period.

Insurance brokers threatened in PPACA?

At the National Association of Insurance Commissioners’ (NAIC) meeting last week in Seattle, 25 commissioners sponsored a resolution that protects “the indispensable role that licensed insurance professionals play in serving consumers." Agent and broker commissions make up 5 to 20 percent of premiums. Under PPACA (Section 2718), beginning in January, plans sold to individuals and small groups must spend 80 percent of premiums on actual medical care; 85 percent for large group plans. Plans that spend less will be required to send rebates to customers. The bill also requires states to provide navigators to educate consumers on plan options and assist in their selection once their health exchanges are up and operating January 2014. National Association of Health Underwriters (NAHU), which represents agents and brokers, is lobbying for continued inclusion of agents in legislation, arguing they educate individuals and companies. Department of Health and Human Services (HHS) leaders counter that navigators will be the primary educators for exchanges, therefore negating the value of brokers in exchange-based transactions.

Privacy and security recommendation pulled by HHS Secretary

Per terms of ARRA, the Secretary of HHS is obligated to recommend standards for protection of privacy and security of personal health information, balancing benefits and risks associated with sharing of personal health information. In May, she proposed a standard that defined breach as “a significant risk of financial, reputational or other harm to the individual” and required insurers, hospitals, physicians, et al to conduct a risk assessment. Last week, at the urging of the White House, HHS Secretary Sebelius pulled her initial recommendation—back to the drawing board.

Ad campaigns for, against PPACA increasing

Health reform will weigh heavily in Campaign 2010 if recent announcements by major advocacy groups are indicative:

• Proponents of PPACA announcing advertising plans include the Health Information Campaign, Service Employees International Union (SEIU), Health Care for America Now (HCAN)
• Opponent groups announcing plans include Crossroads GPS, Americans for Tax Reform (ATR)

In addition, several health trade industry groups have announced plans to increase advertising around the specific provisions of the bill, including AMA, American Heart Association, American Cancer Society Cancer Action Network (ACS CAN), American Hospital Association (AHA), Pharmaceutical Research and Manufacturers of America (PhRMA), America’s Health Insurance Plans (AHIP) and others.

Per the Center for Responsive Politics, since its passage six months ago, opponents to PPACA have outspent supporters in advertising 4:1. Given reports from Congressional leaders that an immigration reform bill and cap and trade are not likely to be on the legislative calendar after Labor Day, pollsters indicate two issues will frame the November elections: Economic recovery (jobs) and health reform.

New tobacco cessation counseling available to seniors

Wednesday, the White House announced expansion of its smoking cessation program covering two counseling sessions annually (a session can involve four visits) for Medicare enrollees who wish to stop smoking. Previously, Medicare paid for tobacco-related counseling only for beneficiaries who suffered from a tobacco-related disease. Of the 46 million Americans who smoke, 4.5 million are seniors older than age 65, per HHS. The CDC estimates tobacco use causes one of five deaths in the U.S. each year.

College and university health programs endangered in PPACA?

Last week, leaders of the American Council of Education (ACE) and 12 other societies sent a letter to Secretary Sebelius requesting reconsideration of PPACA provisions that would limit their ability to offer low-cost, limited benefit health insurance plans to students. Among concerns are provisions requiring plans spend at least 80 percent on medical costs and provisions eliminating annual coverage caps. In HHS’ reply, the Department noted that PPACA provisions requiring coverage of eligible dependents up to 26 years of age on parents’ plans would mitigate a portion of the need. Per the Government Accounting Office (GAO) analysis (2008), half of colleges offer student insurance plans; 80 percent of college students have some form of health insurance, including 7 percent who bought their own policies/purchased a school-based plan.

Q & A

Q: How do we know what our potential financial risk might be for avoidable readmissions?

A: It can be confusing but here’s a start: Per Section 3025 of PPACA, effective October 1, 2012, payments to Medicare Prospective Payment System (PPS) hospitals (not including critical access hospitals) will be reduced based on each hospital’s ratio of payments for actual risk-adjusted readmissions to payments for expected risk-adjusted readmissions (observed to expected ratio, O:E). In states where a comparable program is already in place that achieves the same cost and quality results, the Secretary of HHS may exempt hospitals under section 1814(b)(3) [i.e., Maryland], if the state submits an annual report with its results.

Which hospitals? The reduction applies only to base diagnosis-related group (DRG) payments, excluding adjustments for indirect medical education (IME), disproportionate share (DSH), outliers, low-volume hospitals and additional payments made due to status as a sole community hospital or Medicare-dependent small rural hospital. In fiscal years 2013 and 2014, the reduction cannot exceed 1 percent and 2 percent, respectively. For FY 2015 and subsequent years, the reduction is limited to 3 percent.

What measures? Risk adjusted O:E must be calculated using standardized measures approved by the National Quality Forum (NQF), Section 1890(a). Excluded in the calculation are readmissions that are unrelated to the prior discharge (i.e., a planned readmission or transfer to another applicable hospital). The time period from discharge to readmission will be specified by the Secretary unless an NQF-endorsed readmission timeframe measure has already been set by NQF. Example: Under the NQF-endorsed measures relating to heart attack, heart failure and pneumonia, the period currently is 30 days.

Which conditions? In FY 2013 (starting October 1, 2012), the policy will apply to readmissions in three patient populations using NQF-endorsed measures: Heart attack, heart failure and pneumonia. In FY 2015, four additional patient populations will be added by the Secretary.

Public reporting? PPACA prohibits an administrative or judicial review of matters relating to the pertaining readmissions policy. It requires public disclosure of hospital-specific readmission rates on the Hospital Compare website; requires hospitals to review and correct information before its release; requires hospitals to report sufficient information as requested and specified by the Secretary, including all-patient readmission rates; and allows individual hospital data to be submitted by a state or third party.

Help to hospitals that under-perform? Finally, by no later than March 23, 2012, PPACA requires the Secretary to establish a quality improvement program under the Public Health Service Act (PHS Act) to help eligible hospitals (those with high O:E ratios) improve readmission rates through the patient safety organizations (as defined in section 921(4) of the PHS Act).

The reduction in payments by Medicare to hospitals as a result of the program is $7.1 billion (FY 2013-FY 2019), assuming the additional conditions added are equal to risks and baseline calculations for the first three.

Quotable

“…despite the clear benefits of health IT, only two in ten doctors and one in ten hospitals use even a basic electronic record system. That means patients spend too much time filling out the same form over and over. And doctors spend too much time writing down medical histories, tracking down x-rays and repeating expensive tests. Health care providers may agree with the benefits of electronic health records. But they’ve also believed that adopting them was too difficult and expensive.”

 – Source: Secretary Kathleen Sebelius, Kaiser Health News, August 26, 2010

“…retail clinics’ role in the system may be evolving in the face of insurance expansions under the Patient Protection and Affordable Care Act, the growing shortage of primary care physicians, and the increased use of health information technology. Over time, these changes will create new opportunities for health policies at the federal and state levels to influence both how retail clinics function and the ways in which their care is integrated with that of other providers.”

 – Source: “Policy Implications of the Use of Retail Clinics,” RAND Corporation, conducted for the Department of Health and Human Services, August 2010

Note: The Deloitte Center for Health Solutions “Survey of Health Care Consumers” (2009 and 2010) and “Retail clinics: Update and implications” studies are cited frequently in this analysis.

“Act fast out of respect for the patient, but in the end base your drug-approval decisions on the science for the very same reason.”

 – Source: USA Today, editorial re: Food and Drug Administration (FDA) panel recommendation to pull Avastin that had been approved via the agency’s accelerated approval process, August 24, 2010

Fact file

• Personal consumption expenditures by major category: Health care cost is the second biggest category, biggest increase during downturn. (Source: Bureau of Economic Analysis, U.S. Department of Commerce)

  	2000	2007	2009	Q2 2010
  Housing and utilities	17.55%	17.90%	18.76%	18.34%
  Health care	13.45%	14.94%	16.23%	16.26%
  Food and beverages (including outside the home)	13.87%	13.56%	13.82%	13.81%
  Transportation	3.84%	3.13%	2.90%	2.92%

• 7.1 percent—the average state investment in non-pension benefits for state employees. (Source: National Governors Association)
• Hospital prices up 6.9 percent over the last 12 months (vs. 7.1 percent in prior year); physician prices up 0.4 percent over last 12 months (vs. up 3.4 percent in prior period); overall CPI. (Source: U.S. Department of Commerce, August 2010)
• 27 million Americans have disabilities that limit their work; unemployment among the disabled was 16.4 percent in July 2010. (Source: U.S. Department of Labor study released last week)
• Medicare payments for imaging (CT, PET, MRI): $12.1 billion after cuts (2009), $13.7 billion (2006); $6.6 billion (2000). (Source: Centers for Medicare and Medicaid Services)
• Approved preventive health services that must be offered without co-payments/deductibles per PPACA: 45. (Source: U.S. Department of Health and Human Services; U.S. Preventive Services Task Force A and B Guidelines)
• New prescription drug markets: 17 “pharmerging markets” had total sales of $126 billion for prescription drugs in 2009, up from $42.7 billion in 2000. (Source: IMS Health)
• 2.23 million New Yorkers—85 percent of the non-elderly uninsured in the state—will have access to insurance via the New York state health exchange. (Source: “Implementing Federal Health Care Reform: A Roadmap for New York State,” NYSHealth, August 2010)
• Fraud and waste: 7.8 percent of $308 billion Medicare expenditures in FY 2009. (Source: Centers for Medicare and Medicaid Services, National Health Care Anti-Fraud Association)
  Note: In his FY 2011 budget, the President requested an additional $250 million to intensify fraud and waste actions in 20 cities.
• Governors’ races November 2: 37 states will elect governors—in 13, the incumbent is running; 24 will be filled by newcomers to the executive office of the state. (Source: National Governors Association)

Labor Day Holiday: Health Care Reform Memo

Please note, in observance of the Labor Day holiday, publication of the next Health Care Reform Memo will be on Tuesday, September 7.

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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