Health Care Reform Memo: July 25, 2011
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.
From Paul Keckley, Executive Director, Deloitte Center for Health Solutions
Yesterday, with my colleagues from Germany, Japan, China, and the U.S., I climbed the Great Wall near Beijing in the People’s Republic of China capping a week of meetings with health industry operators, clinicians, government officials, entrepreneurs, and investors. The eighth wonder of the world is aptly named, and it’s “greatness” is not dissimilar to the challenges facing the health system in the world’s second biggest economy serving 1.3 billion.
Ironically, the challenges facing our respective systems are eerily similar:
- Demanding demography: aging, population growth, and income disparity
- Compelling geography: two thirds of Chinese live in rural areas, where like the U.S., access is an issue
- Disease prevalence: like the U.S., chronic diseases are the system’s major stress factors
- Volume-based incentives: Chinese providers get paid more for writing prescriptions; in the U.S., tests, procedures, and utilization drives costs
- Transparency: access to useful information about of costs, outcomes, and treatment options is challenging
- Infrastructure: clinical information system utilization is low though acknowledged to improve care and reduce error
- Government role: in both the U.S. and China, governmental policy is the impetus for health system changes; the role of state (provincial) control vs. federal (central government) is hotly debated
- Funding: there are pressures on the Chinese and American government for economic growth; and in both, health care expenditures are higher than other categories
But the starting points could not be further apart:
|Population||308 million (2010)||1.318 billion (2010)|
|Economic conditions||Gross domestic product (GDP):+ 2.7 percent (2011), +3.5 percent (2012)
Current inflation rate: 3.6 percent
|GDP: +9.0 percent (2011), +9.5 percent (2012)
Current inflation rate: 6.7 percent
|Health status||Life expectancy: 79
Immunizations: 92 percent of 1 year olds
Obese adults: 31 percent
Adults with heart disease: 33 percent
Immunizations: 94 percent of 1 year olds
Obese adults: 5 percent
Adults with heart disease: 20 percent
|Health care spending||17.6 percent of GDP
22.3 percent of government spending
|4.3 percent of GDP
10.3 percent of total government spending
|Provider access||5,800 hospitals (3.1 per 1,000 people)
793,648 physicians (27 per 100,000 people)
|20,800 hospitals (3.3 per 1,000 people)
1,905, 408 (14 per 100,000 people)
|Insurance coverage||84 percent insured (55 percent private, 29 percent government)||93 percent covered under three major state sponsored insurance programs|
|Public opinion||17 percent of adults grade the system “A” or “B” vs. 37 percent who grade it “D” or “F”
23 percent feel they are adequately prepared to handle their future health costs
|30 percent of adults grade the system “A” or “B” vs. 22 percent who grade it “D” or “F”
35 percent think they are prepared to handle their future health costs
Ironically though, the U.S. Affordable Care Act (ACA) and China’s 12th Five Year Plan have common elements:
|Focus||U.S. ACA and HITECH||China 12th Five Year Plan|
|Increase access to insurance||Insure up to 32 million by 2020 using a combination of expanded Medicaid eligibility (138 percent of the federal poverty level [FPL]) and health exchanges to create state-run insurance markets for individuals and small employers; 94 percent coverage anticipated||Insure up to 1.2 billion (93 percent of the population using combination of state-operated insurance programs requiring individuals to pay a small portion of premiums based on income|
|Integration of the delivery system||Consolidation of providers across the continuum to improve care coordination; connectivity using electronic health records (EHRs) to improve accuracy, reduce error and avoid redundancy in care delivery; incentives to encourage shared-accountability (e.g. medical homes, accountable care organizations [ACOs], bundled payments, value-based purchasing, avoidable readmissions, and increased transparency for outcomes); and workforce modernization to deliver information-driven health services||Modernization of the 8,000 tier 1 and 2 hospitals; connectivity of providers EHRs; and stabilization of the health care workforce through government policies|
|Funding||$939 billion over ten years (ACA) plus $27 billion in Health Information Technology for Economic and Clinical Health (HITECH) Act for EHR adoption (2011-2015)||$125 billion (USD)|
|Cost constraints targeted||Inappropriate utilization (tests, procedures) and misapplication of evidence to practice (facilitated by Patient-Centered Outcomes Research Institute [PCORI])||
Over-utilization of prescription drugs
Can China effectively transform its health system? It’s too soon to know. Government officials and investors are confident, but the enormity of the challenge cannot be overstated.
The same might be said for the U.S.—our challenge is enormous. All stakeholders agree change is necessary but few agree on the specifics. Inevitably, opportunities for investors spark innovation in times of uncertainty, and in both systems, implicitly government officials look to the private sector to participate actively.
The Great Wall made a permanent impression on me—how the southern Chinese could engineer such an imposing barrier to thwart their Mongolian adversaries escapes me. The enormity of challenges to our respective health systems is no less “great”.
Paul Keckley, Ph.D., Executive Director, Deloitte Center for Health Solutions
HHS publishes proposed rule on ACA CO-OPs
Last Monday, the U.S. Department of Health and Human Services (HHS) published a proposed rule to set standards for establishing the Consumer Oriented and Operated Plan (CO-OP) program as required by the ACA, Section 1322. Highlights:
- A CO-OP is a private, nonprofit organization that will offer qualified health plans (QHPs) through the health insurance exchanges beginning on January 1, 2014; CO-OPs will be subject to the same market rules as other health insurers.
- CO-OP members must elect the board of directors, a majority of whom must be enrolled in the CO-OP health plan.
- CO-OP profits must be used to lower premiums, improve health benefits and quality of care, expand enrollment, or otherwise contribute to the stability of coverage for members.
HHS will offer $3.8 billion to states for start-up costs (to be repaid in five years), loans to enable financially viable CO-OPs to meet state insurance solvency, and reserve requirements (to be repaid in 15 years with interest) and require at least one CO-OP in every state.
Senate bills prevent early retirees from becoming Medicaid eligible
Last week, Senators Mike Enzi (R-WY) and Ben Nelson (D-NE) each introduced legislation to change the calculation of Modified Adjusted Gross Income (MAGI) used under ACA to determine Medicaid eligibility to prevent middle class early retirees from becoming eligible under the ACA Medicaid expansion. Nelson’s bill would require any savings generated to go towards deficit reduction.
NCOIL supports exempting agent and broker fees in new MLR rules
In a July 17 press release, the National Conference of Insurance Legislators (NCOIL) announced its support for pending federal legislation that would amend new medical loss ratio (MLR) rules established by the ACA. The legislation, the Access to Professional Health Insurance Advisors Act, would exempt health insurance agent and broker fees from MLR calculations.
IOM recommendation: coverage for contraceptives, women’s preventive services
Thursday, the Institute of Medicine (IOM) released recommendations for preventive health services for women that health plans must cover without a co-payment or cost sharing per ACA Section 2713. Services recommended for coverage include:
- Screening for gestational diabetes
- Human papillomavirus (HPV) testing as part of cervical cancer screening for women over 30
- Counseling on sexually transmitted infections
- Counseling and screening for HIV
- Contraceptive methods and counseling to prevent unintended pregnancies
- Lactation counseling and equipment to promote breast-feeding
- Screening and counseling to detect and prevent interpersonal and domestic violence
- Yearly well-woman preventive care visits to obtain recommended preventive services
CMS proposes Medicare Coverage for depression screening
Tuesday, Centers for Medicare & Medicaid Services (CMS) proposed that Medicare cover annual screening for depression for Medicare beneficiaries in primary care settings that have at a minimum staff-assisted depression care support (e.g. nurse or physician assistant who can advise the physician of screening results and facilitate referrals to mental health treatment).
Note: one in six adults 65 and older has depression. ACA Section 2713 requires all plans to cover preventive services and immunizations recommended by the U.S. Preventive Services Task Force.
Debt ceiling negotiations and ACA
Late Breaking News: as of 8 am EDT today, budget negotiations continued with no resolution announced.
By late Saturday, a two-stage deal appears to be in the works: Phase One would be an immediate increase in the debt ceiling of $1 trillion offset by spending cuts of $1 trillion over 10 years. Phase Two would be spending cuts of $3 trillion over ten years to be determined by a new bipartisan committee in Congress. Implications for ACA and health reform: in Phase One, no immediate effect; in Phase Two, changes to Medicare, Medicaid, and potentially other elements of ACA reforms could be included in proposed cuts. Other proposals brought forward include:
Back to Black plan: Senator Tom Coburn (R-OK) released a ten-year deficit reduction plan, Back to Black, aimed at reducing the deficit by $9 trillion over ten years. The 614-page report would reduce Medicare and Medicaid spending by over $2.6 trillion.
Cut, Cap, and Balance Act of 2011: House Republicans proposed and passed the Cut, Cap, and Balance Act of 2011 (234 to 190) aimed at reducing federal spending by $111 billion in fiscal year (FY) 2012. Friday, the Senate effectively voted (51 to 46) against the bill, by passing a procedural motion to table the bill.
Gang of Six plan: Tuesday, six senators known as the “Gang of Six” (Mark Warner [D-VA], Dick Durbin [D-IL] Kent Conrad [D-ND], Saxby Chambliss [R-GA], Mike Crapo [R-ID], Tom Coburn [R-OK] and Olympia Snowe [R-ME]) released their bipartisan deficit reduction plan. This plan would reduce the federal deficit by $3.6 – $3.7 trillion over ten years under the Congressional Budget Office’s (CBO) March 2011 baseline or $4.5 – $4.65 trillion under the original fiscal commission baseline (which used the President’s 2011 budget request as the starting point for discretionary). The Senate Finance Committee would be required to replace the Medicare sustainable growth rate (SGR) formula ($298 billion) and fully offset the cost with health savings. It also repeals the voluntary, self-funded public long-term care insurance program known as the community living assistance services and support (CLASS) program created under ACA Section 8002.
Note: the Gang of Six plan resembles the Bowles-Simpson Commission recommendation closely.
Senator moves to halt SSN display on Medicare cards
Monday, Senator Kirsten Gillibrand, (D-NY) introduced the Social Security Number (SSN) Protection Act, to reduce the incidence of identity theft among Medicare card holders by prohibiting the display of SSN on Medicare cards and communications. Thirty-three states already have similar measures.
Bill to encourage generic drug use in Medicaid introduced
July 15, Senators Scott Brown (R-MA), John McCain (R-AZ), and Ron Wyden (D-OR) proposed legislation that would permit a state to receive additional federal Medicaid matching funding for increased generic drug utilization for FY 2012, 2013, and 2014.
OIG analysis: Medicaid EHR incentive compliance is lacking
Per the American Recovery and Reinvestment Act (ARRA), which established the EHR incentive program, states are responsible for overseeing their EHR incentive programs and ensuring the integrity of incentive payments.
The HHS Office of Inspector General (OIG) reviewed 13 of the 14 states with approved Medicaid EHR incentive program plans as of January 14, 2011. Results: 12 of the 13 states did not plan to verify all the eligibility requirements for incentive payments tied to the adoption of EHRs: “for certain eligibility requirements, states do not currently collect the data they need to conduct complete verifications. Further, not many states reported plans to start collecting all the necessary data because the effort would be resource intensive and logistically impractical for most states.”
Note: as of June 30, 2011, the 13 states received over $166 million in incentive payments.
July 15, Illinois became the thirteenth state to sign a health insurance exchange bill into law.
Idaho Governor Butch Otter (R) approved ten waivers to allow state agencies to accept $18.9 million in ACA grants, despite having signed an executive order to block implementation of the ACA. Half of the approved waivers were from the Department of Health and Welfare, which runs Medicaid and other health programs.
Texas Governor Rick Perry (R) signed to law S.B. 7, a law that will formally ask for a Medicaid block grant, defund Planned Parenthood and other abortion providers, enter into a health care compact with other states, and implement co-payments for non-emergency visits to hospital emergency rooms.
Friday, North Dakota became the first state to have its MLR waiver request denied by HHS. HHS did not find that the application of an 80 percent MLR standard will lead to destabilization of the state’s individual market. Separately, HHS approved MLR waivers for Iowa and Kentucky.
Florida lawmakers rejected a $50 million child abuse prevention funds available through the ACA Section 2951.
Bipartisan letter focuses on hospital payment cuts
The American Hospital Association (AHA) has signatures from 219 House members and 45 senators encouraging CMS to reconsider $6 billion in hospital payment cuts in the inpatient prospective payment system proposed rule.
Note: CMS proposes to reduce payment to inpatient acute care hospitals by 0.5 percent ($498 million) in FY 2012: a 1.5 percent hospital payment update (projected 2.8 percent increase for hospital cost inflation, reduced by a productivity adjustment of 1.2 percent and an additional 0.1 percent as required under ACA Section 3401); 1.1 percent update due to litigation (Cape Cod Hospital vs. Sebelius); and 3.15 percent reduction to adjust for document and coding errors. Hospitals also have to participate in the voluntary Inpatient Quality Reporting (IQR) program. Hospitals not reporting or that do not meet program requirements are projected to have their payments reduced by five percent, instead of increased by the 1.5 percent payment update.
FDA proposes oversight for mobile medical applications
Tuesday, the U.S. Food and Drug Administration (FDA) released draft guidance for oversight of mobile medical applications (apps) accepting comments until October 19, 2011. The guidance requires manufacturers of a small subset of mobile apps, defined in the guidance, to meet requirements associated with the app’s device classification. The defined subset of mobile apps includes those that:
- Are used as an accessory to a medical device already regulated by the FDA (e.g. apps that allow health care professionals to make specific diagnoses by viewing a medical image from a picture archive and communication system [PACS] image on a smart phone or mobile tablet)
- Transform a mobile platform into a regulated medical device by using attachments, sensors or other devices (e.g. apps that turn a smartphone into an electrocardiogram [ECG] machine to detect abnormal heart rhythms or heart attacks).
Manufacturers may choose to register, list, and seek approval or clearance for these mobile apps with the FDA.
Note: according to Research2Guidance 2010, 500 million smart phone users worldwide will be using a health care application by 2015. A mobile medical app, like other medical devices, may be classified as class I (general controls), class II (special controls in addition to general controls), or class III (premarket approval).
Health groups form new coalition to focus on health care disparities
Monday, five hospital groups announced the “Equity of Care” coalition to eliminate health care disparities and improve quality of care for minorities through collection of race, ethnicity and language data, increased cultural competency training, and increased diversity in governance and leadership. The coalition includes the Association of American Medical Colleges (AAMC), American College of Healthcare Executives (ACHE), AHA, Catholic Health Association of the United States (CHA), and National Association of Public Hospitals and Health Systems (NAPH).
Note: racial and ethnic minorities represent 34 percent of the U.S. population today and are projected to be 54 percent in 2042 (Source: U.S. Census Bureau).
Study: drug prices five years after Medicare Part D
The Intercontinental Marketing Services (IMS) Institute for Healthcare Informatics study concluded that the average costs for drugs frequently used by Medicare prescription drug (Part D) beneficiaries declined since the implementation of the program in 2006. Between January 2006 and December 2010, for the top ten therapeutic classes, Part D drug costs decreased by over a third, from $1.50 to $1.00. The study projects that drug costs will decline by 57 percent from 2006 to 2015, reaching $0.65 by the end of 2015.
Note: CBO recently estimates Part D spending is 41 percent lower than their initial ten-year estimate. (Source: Murray L. Aitken, Ernst R. Berndt, “Medicare Part D at Age Five: What Has Happened to Seniors’ Prescription Drug Prices?,” IMS Institute for Healthcare Informatics, July 11).
Bipartisan group of senators to President: stop Medicare payment cuts for imaging services
Wednesday, six senators (Lamar Alexander [R-TN], Scott P. Brown [R-MA], Maria Cantwell [D-WA] John Kerry [D-MA], Herb Kohl [D-WI], Dave Vitter [R-LA], and Ron Wyden [D-OR]), sent a letter to President Obama asking him to reject calls for ongoing deeper cuts to Medicare payments for imaging services and to work with them “…to enact alternative reforms that ensure each patient receives appropriate access to imaging when necessary.” The senators stated that medical imaging payments “…have been cut seven separate times since 2006, with many payments being reduced to less than half their 2006 levels as cuts continue to be implemented through 2013” causing physicians to hold on to their older equipment longer, resulting in patients having fewer access to testing.
“Our findings provide some evidence for zoning restrictions on fast food restaurants within three km of low-income residents but suggest that increased access to food stores may require complementary or alternative strategies to promote dietary behavior change.”
– Janne Boone-Heinonen et al, “Fast Food Restaurants and Food Stores: Longitudinal Associations With Diet in Young to Middle-aged Adults: the CARDIA Study” Arch Intern Med. 2011;171(13):1162-1170.
“The federal government lacks a comprehensive body of research evaluating the effects of state policies and practices on access to care, and no administration has ever issued comprehensive recommendations aimed at guiding and encouraging improvements in access.”
– Sara Rosenbaum "Medicaid and Access to Health Care--A Proposal for Continued Inaction," New England Journal of Medicine, July 14, 2011.
- Health costs: up 7.4 percent for private insurance and 2.6 percent for Medicare for one-year period ending in May.(Source: S&P Healthcare Economic Commercial Index)
- One-third of baby boomers are obese vs. a quarter of younger and older adults. Sixty percent of baby boomers said they are dieting, 25 percent say they engage in physical activity 4-5 times weekly, and 37 percent say they never engage in strength training to prevent muscle loss. (Source: Associated Press-LifeGoesStrong.com survey of 1,416 adults July, 2011)
- The medical home model improved medication adherence from 36 percent to 57 percent for heart disease patients prescribed statins. (Source: Joint Commission Journal on Quality and Patient Safety study of 10,000 people July 2011)
- The average return on investment for nonprofit health care organizations in FY 2010 was 10.9 percent, down from 18.8 percent in FY 2009 but improved from FY 2008 (–21.2 percent). Operating margins were four percent for organizations with more than 500 beds vs 2.3 percent for those with fewer beds. (Source: 2011 Commonfund Benchmarks Study Healthcare Organizations Report)
- Sixty-three percent of U.S. hospitals now have palliative teams (1,568 teams nationwide, up from just 658 in 2000. (Source: Center to Advance Palliative Care [CAPC])
- Integrated system employee compensation: median base salaries will increase three percent in 2011 vs. 2.4 percent in 2010 Independent hospitals (i.e. those not affiliated with systems) reported median base salary increases of 2.3 percent in 2011. (Source: HayGroup, July 14 2011)
- Health care workforce: the health care industry workforce is expected to grow by 24 percent, or four million new jobs from 2008 to 2018. Home health aides and personal and home care are expected to have the largest increase with 460,900 and 375,800 new jobs. Half of the 20 fastest growing occupations in the U.S. are in the health care industry. (Source: U.S. Department of Labor [DOL], Bureau of Labor Statistics)
- Health care mergers and acquisitions (M&A) increased six percent from first quarter 2011 (229 transactions) to second quarter 2011 (243 deals). Assets totaling $73.5 billion changed hands up 44 percent from the $51.1 billion spent in the first quarter of 2011. (Source: Levin Associates, July 14 2011)
- Sixty-eight percent of 341 primary care and multispecialty practices surveyed say they are transforming their practices or becoming a patient-centered medical home. (Source: Medical Group Management Association [MGMA], July 2011)
- Physician compensation: in 2010, 18 of 23 specialties had increases above the Bureau of Labor Statistics' 2010 Consumer Price Index (CPI); five were at or below the CPI (noninvasive cardiology, dermatology, pediatrics, hospitalists, and pathologists). By comparison, only five specialties had average increases above the 2.7 percent rate of inflation in 2009; eight specialties saw their compensation fall. In 2008, 11 specialties saw average compensation increases below the year's 3.8 percent inflation rate, while three specialties saw decreases. In 2010, orthopedic surgeons (average compensation of $497,776) and invasive cardiologists ($467,808) finished first and second in the survey, and pediatricians ($191,455) and family physicians ($190,396) finished second to last and last. (Source: MGMA)
- Public opinion about U.S. and Chinese health systems in 2011: (Source: surveys of 4,000 American adults and 1,000 Chinese adults in May 2011,Deloitte Center for Health Solutions, “2011 Survey of Health Care Consumers Global Report.”)
|Percent who give their health care system a grade of “A” or “B”||22 percent||30 percent|
|Percent who are satisfied with the performance of the health care system||16 percent||21 percent|
|Percent who give the health care system a grade of “A” or “B” for medical innovation such as new treatments or services||67 percent||43 percent|
|Percent who give the health care system a grade of “A” or “B” for up-to-date technology||
|Percent who give the health care system a grade of “D” or “F” for wait times for service||28 percent||45 percent|
|Percent who give the health care system a grade of “D” or “F” for access to services such as availability and convenience||16 percent||27 percent|
|Percent of consumers who self-rated their overall health status as excellent/very good (ratings of 1 or 2)||61 percent||26 percent|
|Percent who used vitamins and supplements and are interested in functional foods chosen specifically for perceived health benefits||82 percent||71 percent|
|Percent “very likely” to use cell phone PDA to monitor personal health||19 percent||47 percent|
|Percent who used social networking sites for health related purposes in the past year||11 percent||63 percent|
|Percent who maintain a personal health/medical record (PHR) using a computer program or website||11 percent||31 percent|
|Percent who looked online for treatment options or a particular treatment||45 percent||43 percent|
|Percent who treated a health problem with an alternative approach or natural therapy (e.g., acupuncture, chiropractic, homeopathic, naturopathic, bio-electric therapies) in the past year||18 percent||
|Percent who consulted an herbalist, homeopath, chiropractor, or other alternative health care practitioner or advisor in the past year||13 percent||42 percent|
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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