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Health Care Reform Memo: May 10, 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 new administration and implications for the C-suite and various stakeholder groups

Digesting PPACA: Key themes for C-suite discussions, my take

I just read the Patient Protection and Affordable Care Act (PPACA) a fourth time. Each time, I see something new; it’s long, complex and comprehensive. On reflection, a few important themes surface that bear consideration:

HHS is the key player: "The Secretary shall…” is mentioned more than 1000 times in the bill. No doubt, its $81.3 billion FY11 operating budget will be stretched thin to manage pilots, demonstration programs, insurance premiums, health insurance exchanges, Medicare premiums, state mandates, etc. And it is playing a lead role in coordinating work across key federal agencies critical to the implementation of reform—CDC, NIH, FDA, CMS and others.

Profits and performance will be in the spotlight: The rule of the realm is transparency. PPACA sets standards for reporting about quality, safety, efficiency and profitability in every sector. It raises the prospect that profits in health care be reasonable. And in implementing PPACA, scrutiny of business practices and compliance with PPACA regulations will be a central focus.

Connectivity and coordination: The “new normal” for local delivery systems requires connecting doctors, hospitals and ancillaries with community health centers, mental health programs, school clinics etc. to bridge the gap between health and human services programs. Information-technologies will be the glue; new structures and newly integrated systems of care the result. And PPACA clearly seeks crosswalks linking primary care and specialty medicine, long-term care providers and acute delivery systems, evidence and practice, and performance and payments.

Insurance and access, great expectations: The bill’s most immediate impact is insurance reforms intended to expand coverage while standardizing benefits to assure quality is not compromised. Regulations around risk-ratings, premiums, pre-existing conditions, health exchanges etc. create a “new normal” for employers and plans that serve 164 million in today’s’ commercial market. The potential that an individual mandate with subsidies plus expansion of Medicaid will increase the ranks of the insured by 32 million is the big bet in the bill. But the provision and funding of health insurance benefits is whole new ballgame; it’s just the first inning.

State-federal collaboration: PPACA is the legacy of the Senate bill (HR3690) that favored the state role in managing reform over stronger federal powers in the House bill passed in November 2009. PPACA creates a litany of state responsibilities at a time when Governors face tough realities—programmatic cuts, layoffs, declining revenues, growing obligations, and voter discontent. How states and federal authorities will share responsibility and accountability for PPACA will be a recurrent theme in coming years. In many ways, it’s uncharted turf.

PPACA is the law of the land. By September 23, many of its initial legislative mandates will be clear and its implementation underway. Like any bill, it will be subject to amendments and modified as circumstances require, but its direction seems clear given reflection of these themes.

Paul Keckley

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

Despite year-long attention to health reform consumers do not understand the health system: Survey results

Following widespread media coverage of health care reform, political debates and legislative initiatives over the past year, consumers still profess to know very little about the health care system in the United States, according to the third annual Deloitte Center for Health Solutions Survey of U.S. Health Care Consumers, released May 4 in Chicago. Less than a quarter (23 percent) of consumers surveyed say they understand how the health care system works, but 76 percent grade the system a “C” or below and nearly half (48 percent) believe that 50 percent or more of health care dollars are wasted. Other findings:

  • More than half (57 percent) of consumers surveyed say they are satisfied with their health plan, yet less than half (46 percent) say they understand their health insurance coverage, and one in four does not know how much they are paying for health insurance.
  • More than 40 percent (42 percent) support government-mandated health insurance, compared to 38 percent who oppose it. However, more consumers (42 percent) would choose an employer-sponsored plan versus the government’s (25 percent), all other factors being equal. Less than half (46 percent) believe the competition from the government would be fair to private insurance plans and one in three consumers believe that the market needs ten or more insurance companies competing to ensure consumer choice.
  • Health costs matter: One in four (24 percent) are confident about managing their future health care costs; 19 percent skipped needed care in the past year—40 percent said costs were the primary factor for the delay.
  • To download results of the 2010 Deloitte survey of U.S. consumers, go to

FDA, HHS, NIH launch regulatory efficiency effort

Last week, heads of three agencies launched a three-year program to facilitate efficiency and seamless cross-regulation in management and oversight of innovation in the life sciences. The Joint Leadership Council will seek to streamline processes for access to basic science (NIH) and regulatory approvals (FDA). One example—the FDA’s Office of Generic Drugs has a backlog of 2,000 abbreviated new drug applications (ANDAs) and 3,000 supplements to review.

Senator wants health IT regulated as medical device

Sen. Chuck Grassley (R-IA) announced last week his intent to ask the FDA to regulate health information technologies that provide clinical decision support to providers as a medical device under the FDA’s Center for Device and Radiological Health. Among other requirements, Senator Grassley would require IT vendors to report adverse drug events and related signals of safety or quality derived through the use of these technologies.

IRS guidance on coverage of eligible dependents under 27 years of age

On April 27, the IRS issued guidance (Notice 2010-38) on the tax treatment of health coverage provided under an employer plan to an employee’s children up to age 27.

The recently enacted PPACA and the Health Care and Education Reconciliation Act of 2010 (HCERA) amended various sections of the tax code effective March 30, 2010, to exclude from an employee’s gross income employer-provided health benefits covering the employee’s child who has not attained age 27 as of the end of the taxable year. Notice 2010-38 emphasizes that the child’s age as of the end of the taxable year is the only test applicable for exclusion; any other test such as residency or support related to an eligible child – does not apply.

The notice states that the IRS’s intents to retroactively amend various regulations governing employer provided health benefits including an amendment to the cafeteria plan “change in status” rules to include becoming newly eligible beyond the date on which the child otherwise would have lost coverage.

Most significantly for employers, Notice 2010-38 states that cafeteria plans need not be amended immediately in order for employees to begin making pre-tax salary reduction contributions for accident or health benefits for children under age 27 as long as a retroactive amendment is made no later than December 31, 2010.

Euro watch: U.K., German systems offer insight about reforms

In the U.K., the Thursday parliamentary elections produced no clear winner with Conservative leader David Cameron unable to get a needed majority over Labour and Liberal Democrats. Notable, improvements in the National Health Service (NHS) proved a pivotal campaign theme: incumbent PM Brown favored continuation of the NHS’s focus on improved service while challengers called for increased innovation in primary care trusts and a smaller role for central government.

In Germany, the Health Minister called for an overhaul of the 130-year-old Bismarck system to emphasize increased use of information technology to reduce unnecessary spending.

And an important process unfolding: the 27-member European Union’s European Medicine’s Agency is stepping up efforts to create a Euro-wide technology assessment/comparative effectiveness program that mirrors the U.K.’s National Institute for Health and Clinical Excellence (NICE) and others.

Note: the second biggest market for medical devices, pharmaceuticals and biotech in the world is Europe. Of late, governments have been challenged by the economic downturn forcing consideration of changes to their health systems.

Deficit reduction commission starts work: Entitlements key focus

Last week, the President’s Deficit Reduction Commission began its work reviewing forecasts for economic recovery to 2019. President Obama charged the group to leave no stone un-turned in reducing annual debt to 3 percent of the GDP from 10 percent today. The combination of the stimulus bill and the three-year freeze on non-discretionary spending is expected to bring the debt down to 5 percent by 2015. The commission’s task is to identify ways to reduce annual deficits for the balance of the decade with a combination of new taxes and spending cuts. The 18 member group will make its recommendations December 1 and is expected to include targeted cuts in entitlement programs—Medicare, Medicaid, and Social Security. Only recommendations agreed to by 14 of its 18 members will be included in its final report

Breaking news: Bennett ousted in Utah Republican caucus

Saturday, 18-year Senate veteran Bob Bennett (R-UT) was eliminated in the Utah GOP Senate primary race by a vote of the 3,500 caucus attendees. Pundits noted his co-sponsorship of the 2007 Wyden-Bennett health reform bill that featured elimination of the employer tax credit replaced by consumer-directed care and support of the TARP bailout were among reasons for the anti-incumbent results.

Employer update: Retiree reinsurance, nursing mothers provisions

Wednesday, The Department of Health and Human Services issued interim final regulations to implement the temporary $5 billion early retiree reinsurance program authorized by the Patient Protection and Affordable Care Act. The purpose of the Program is to encourage employers still providing health benefits to early retirees to continue doing so at least through the end of 2013, when the Program is scheduled to end. The Program will reimburse participating sponsors for a portion of the cost of providing health benefits to early retirees, their spouses, surviving spouses, and dependents. The reimbursement amount will be 80 percent of total claims incurred by an “early retiree” within a specific corridor during a plan year. The corridor of reimbursable expenses will be total claims exceeding $15,000 (the “cost threshold”) but less than $90,000 (the “cost limit”) for the plan year. The cost threshold and cost limit will be adjusted using the Medical Care Component of CPI-U for plan years starting on or after October 1, 2011. Applications for funding will be taken starting June 1, 2010.

PPACA Section 4207 amends the Fair Labor Standards Act (FLSA) to require employers to provide a “reasonable break time” for mothers to express milk for a nursing child up to one year old. This provision is effective immediately. The amendment to FLSA also requires employers to provide a space for employees to express milk. This space must be “shielded from view and free from intrusion from coworkers and the public,” and it must be a place “other than a bathroom.” The provision does not define the term “reasonable break time.” It also does not expressly limit the number of breaks that can be taken per day for this purpose, or the duration of each break.

For more information about employer implications, contact Steve Kraus.

PPACA provides $1 billion to fund clinical research

The Therapeutic Discovery Project Credit is available to qualified companies performing research aimed at new therapies designed to diagnose, prevent or treat acute and chronic diseases and conditions. Companies having 250 or fewer employees may apply for this tax credit or elect a cash grant for 50 percent of 2009 and 2010 research expenditures. Application procedures and more guidance about the program are expected from the government on or before May 21, 2010.

For more information, contact David Green.

Q and A

Q: We’ve heard about value-based purchasing programs in the bill. What are they and how do they work?

A: Value-based purchasing programs (VBP) are a key feature of the bill and extend to virtually every sector in the delivery system.

PPACA specifies that starting in 2013, hospitals will be eligible to receive incentive payments for efficiency and quality gains in handling of patients with acute myocardial infarction, heart failure, pneumonia, surgeries, and health-care associated infections. (This is separate from avoidable readmissions covered elsewhere in PPACA). The funding mechanism calls for the Secretary of Health and Human Services to reduce diagnosis-related group (DRG) payments for all hospitals, whether or not they are eligible for an incentive payment, starting with a 1 percent reduction in 2013 and incrementally increasing to a 2 percent reduction by 2017 and subsequent years. The funds are then awarded hospitals that meet or exceed the quality& efficiency performance measures on a sliding scale. Hospitals with lower volumes e.g. critical access hospitals, will qualify for a parallel program to begin within two years. PPACA also calls for value-based purchasing programs to be implemented for Skilled Nursing Facilities (SNFs), Homes Health Agencies (HHAs) and Ambulatory Surgery Centers (ASCs). HHS is directed to submit its plans to Congress by January 1, 2011 for ASCs and October 1 2011 for HHAs and SNFs.

A physician/physician group value-based purchasing program is also included in PPACA. The Secretary is required to submit its plan by January 1, 2012 specifying measures of quality and cost to be used and the method, whereby physician payments will be modified based on performance. It will rollout to physicians starting January 2015 but the bill calls for a website (Physician Compare) to be set-up by January 1, 2011 that provides basic information about physician participation in the Physician Quality Reporting Initiative and related information.

Other sectors are also targeted for VBP programs starting January 1, 2016--psychiatric hospitals, long-term care hospitals, rehabilitation hospitals, PPS-exempt cancer hospitals, and hospice programs.

Key takeaways for all stakeholders about these value-based purchasing programs:

1—The VBP programs in each sector are budget neutral: organizations that perform best will receive bonuses from under-performers who see cuts.

2—The programs are driven by Medicare: commercial plans and state Medicaid programs might follow suit

3—The data (quality, efficiency) from these programs will be public: it is intended to be transparent.

4—Every organization will be impacted: opting out means lower payments.

Q: Bundled payments: what does it mean?

A: Starting January 2012, PPACA authorizes pilot programs focused around a hospitalization of a Medicare enrollee covering acute, post-acute and related ancillary services. The Secretary of HHS is authorized to choose ten medical conditions where funds will be targeted. In parallel, PPACA also authorizes funding in eight states for episode-based (bundled) payment pilots for Medicaid hospitalization.


“Making the legislation a success requires not only that it survive but also that it be effectively implemented. Although the bill runs to more than 2,000 pages, much remains to be decided. The legislation tasks federal or state officials with writing regulations, making appointments, and giving precise meaning to many terms. Many of these actions will provoke controversy.... Far from having ended, the war to make health care reform an enduring success has just begun. Winning that war will require administrative determination and imagination and as much political resolve as was needed to pass the legislation.” 

– Henry J. Aaron and Robert D. Reischauer, “The War Isn’t Over,” New England Journal of Medicine, Health Care Reform Center, March 24, 2010

Fact file

  • Career earnings differential between a primary care physician and specialists: $3.5 million (Source: ACGME). Note: At its meeting this month, ACGME recommended an increase of 40 percent compensation for primary care physicians to raise their median compensation to 70 percent of specialists’ income.
  • 11 percent of total assets under professional management in the U.S. ($2.7 trillion) are in socially responsible corporations. Three states—MD, CA, VT—have laws designating companies that pursue purposeful profit as “benefit corporations” or “flexible purpose corporations” to encourage corporate social responsibility. (Source: Bloomberg)
  • Among 8-18 year olds in the U.S., media consumption (TV, music, online, video games) is 458 minutes daily. The fastest growing category—online—500 percent increase in utilization since 1999. (Source: Kaplan Research)
  • Disruptive innovation: 27 percent of groceries are now purchased in big box discount retail stores. (Source: U.S. Census of Retail Trade)
  • Unemployment for April: 9.9 percent as economy added 290,000 jobs including 100,000 for the Census Bureau. (Source: Bureau of Labor Statistics)
  • Total budget deficits for FY10 in states: $196 billion. Note: 22 percent of average state budget is health care obligation to Medicaid, etc. (Source: National Conference of State Legislators, Deloitte Center for Health Solutions)
  • With the successes of Avastin, Herceptin and Rituxan among others, the numbers of gene therapy studies worldwide has tripled since 2008—from 116 to 354. (Source: Global Industry Analysis)
  • 74 percent of workers do not get influenza vaccines and half do not receive preventive screenings for colon cancer and similar diagnostics per a telephone survey of 160,000 adults under 65 by the Centers for Disease Control and Prevention. Insurance status matters: 35 percent of insured females in households making less than $15,000 per year forgo recommended breast cancer screenings compared to only 19.6 percent in households making greater than $50,000. Similar disparities were seen along race and education lines. (Source: May-June, American Journal of Health Promotion)
  • $3.5 billion—the amount drug companies paid to generic manufacturers in 2009 to delay/keep generics off the market. (Source: Federal Trade Commission)
  • The average American is 23 pounds overweight. Obesity in the U.S. has increased six-fold since 1960. (Source: Centers for Disease Control and Prevention)
  • 50th anniversary of the birth control pill: on May 9, 1969, the Food and Drug Administration approved Enovid. Today, 8 of 10 women 18-44 use birth control medications. (Source: Food and Drug Administration)
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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