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Health Care Reform Memo: June 7, 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.

Senate likely to pass temporary physician fix today; AMA launches ad campaign

Friday, the House passed HR4213 by a vote of 245-171 providing physicians a 2 percent increase through December 2010 and a 1 percent increase in 2011. The $23 billion fix is likely to be passed by the Senate when it reconvenes today—the ninth time since 2004 a permanent “fix” to the physician payment formula has been set aside in favor of patches. 

Note: Thursday, the American Medical Association began a print ad campaign featuring an airplane taking off with caption “Fixing Medicare-cancelled, U.S. Senate-departed”. It announced it would run ads encouraging a permanent fix to the physician payment model, suggesting access to physicians by Medicare and military health enrollees would be jeopardized if a permanent solution is not found.

State watch

  • Nineteen states opted to go it alone on high risk pools; 29 agreed to terms. $5 billion is available to states to cover the anticipated 200,000 who will be served beginning July 1, 2010 and continuing through December 2013. Non-participating states already have high-risk pools in place and in some cases there is concern that funding would run out, exacerbating state operating deficits.
  • Tennessee Governor Phil Bredesen signed Senate Bill 3154 giving employers and contractors of health care providers (physicians, allied health professionals) the ability to extend health care provider non-compete agreements beyond the six-year limitation in current law. The bill allows indefinite extension of non-competes provided the parties voluntarily enter into agreements.Note: Currently, 23 percent of physicians are “employed” in various models, the most prominent: hospital employment. As physician-hospital integration accelerates, the issues of contracting with physicians, non-compete agreements, purchases of physician-owned ancillaries etc. will be important focus areas for state and federal regulators.
  • Last month, the Massachusetts Department of Insurance denied rate increases for 235 plans, requiring the companies to maintain 2009 premium rates. Most plans are expected to submit new rate increase requests for the three-month period that starts July 1, including Blue Cross Blue Shield of Massachusetts that requested an average 12 percent increase across its individual and group products.
  • In 2010, 370 state bills were introduced to limit access to abortion compared to 350/year in prior years. Eighteen states passed or introduced bills requiring counseling before abortions. Data availability, transparency gains momentum; 12 states passed legislation prohibiting abortion clinics from coercion of women.

(Sources: National Governors Association, National Conference of State Legislators, Guttmacher Institute)

HHS, AHRQ announce data transparency efforts

Thursday, Health and Human Services (HHS) Secretary Kathleen Sebelius announced plans for the Community Health Data Initiative (CHDI), a repository of HHS data useful to software developers to extrapolate government data useful for proprietary applications. The Secretary noted that Google, General Electric, Ingenix, Microsoft and other companies had already taken advantage of CDHI and said that a data warehouse of the most notable innovations using CDHI data would be operational by December.

Last week, the Agency for Healthcare Research and Quality (AHRQ) announced it was offering software (Own Network) to allow states, hospitals and plans access to quality data that can be downloaded into customized websites.

Plans, employers responding to “new normal”

From company press releases:

  • Delta Airlines announced a deal with United HealthGroup subsidiary, Optum Health, to access online medical care for its 10,000 Minneapolis-based employees. Employees will pay for $10 for a 10-minute cyber-visit with a clinician in the NowClinic program.
  • Blue Cross of South Carolina is partnering with Comprehensive Health Services to set up worksite clinics for employers to reduce costs and improve access to non-urgent care and occupational health programs.

Sebelius visits Mayo to spotlight HIT, Midwest market efficiency

Thursday, HHS Secretary Kathleen Sebelius visited Mayo’s Rochester, Minnesota campus to spotlight its use of health information technology (HIT) as a recent recipient of a $12.3 million stimulus grant. Also on the agenda: discussion of the Patient Protection and Affordable Care Act (PPACA) provision that efficient states be rewarded via Medicare adjustments over a three-year period. 

Note: in Thursday’s New York Times article “Study Used to Support Cuts in Health Costs is Faulted as Overstated”, Dartmouth Atlas was challenged: “The real differences in costs between Houston and Bismarck ND may result less from how doctors work than from how patients live… Neither patients’ health nor differences in prices are fully considered by the Dartmouth Atlas.” In PPACA, “efficient markets” are eligible for higher funding from Medicare proportionate to less efficient markets, so the data upon which “efficient markets” is defined is likely to be a key focus in coming weeks.

Donut hole payments to consumers in Part D

Drug manufacturers have asked the Centers for Medicare and Medicaid Services (CMS) to change the PPACA provision requiring them to reimburse seniors within 15 days for their purchase of brand name drugs in the “donut hole”. The companies have asked it be extended to 60 days so appropriate verification can be done.

Key players in insurance industry oversight named

The four key players in the new Office of Consumer Information and Insurance Oversight (OCIIO):

  • Jay Angoff, Director: former Missouri insurance commissioner and most recently head of the insurance litigation department in the Washington law firm Mehri & Skalet. As Missouri's insurance commissioner in the 1990s, he required Blue Cross of Missouri to create a $400 million foundation in order to convert to a for-profit entity.
  • Steve Larsen: former Maryland insurance commissioner (1997-2003) will handle oversight responsibility in OCIIO. He previously worked at AmeriGroup (Medicaid managed care company, Virginia Beach) and as Maryland Public Service Commissioner. He is credited with blocking the sale of Maryland’s CareFirst Blue Cross Blue Shield to WellPoint in his tenure.
  • Karen Pollitz: former research director in Georgetown University’s Health Policy Institute, will lead efforts in OCIIO’s consumer support division responsible for creating online tools for consumer selection of plans, prices, etc. Her academic research focused on health insurance premium pricing in the individual and small group markets.
  • Richard Popper: former Maryland insurance high-risk pool program administrator, will manage OCIIO’s insurance program division overseeing state and federal efforts to create high-risk pools in states.

ONC releases $30 million for 2 additional Beacon grants

May 26, the Office of the National Coordinator for Health Information Technology (ONC) released an additional $30.3 million to support two additional Beacon Community grants. Previously, it announced 15 awards totaling $220 million for community-based efforts to use information technology to improve population based health and reduce costs:

  • Community Services Council of Tulsa, $12.04 million
  • Delta Health Alliance in Mississippi, $14.67 million
  • Eastern Maine Healthcare Systems, $12.75 million
  • Geisinger Clinic in Danville, Penn., $16.07 million
  • HealthInsight in Salt Lake City, Utah, $15.79 million
  • Indiana Health Information Exchange in Indianapolis, $16.01 million
  • Inland Northwest Health Services in Spokane, Wash., $15.7 million
  • Louisiana Public Health Institute in New Orleans, $13.53 million
  • Mayo Clinic Rochester in Minnesota, $12.28 million
  • Rhode Island Quality Institute, $15.91 million
  • Rocky Mountain Health Maintenance Organization in Grand Junction, Colo., $11.88 million
  • Southern Piedmont Community Care Plan in Concord, N.C., $15.91 million
  • The Regents of the University of California-San Diego, $15.28 million
  • University of Hawaii at Hilo, $16.09 million
  • Western New York Clinical Information Exchange in Buffalo, $16.09 million

Q and A

Q: What is the role of the Patient-Centered Outcomes Research Institute (PCORI)? How will it work?

A: Section 6301 of PPACA authorized the creation of the Patient-Centered Outcomes Research Institute (PCORI), a nonprofit corporation. Its purpose is “to assist patients, clinicians, purchasers, and policy-makers in making informed health decisions by advancing the quality and relevance of evidence concerning the manner in which diseases, disorders, and other health conditions can effectively and appropriately be prevented, diagnosed, treated, monitored, and managed through research and evidence synthesis that considers variations in patient subpopulations, and the dissemination of research findings with respect to the relative health outcomes, clinical effectiveness, and appropriateness of medical treatments, services, and items.”

In essence, PCORI is the entity that will implement the national comparative effectiveness research (CER) program using existing studies (systematic reviews) and initiating studies of its own (primary research) where the evidence is weak or contradictory. It is authorized to contract with federal agencies (National Institutes of Health (NIH), AHRQ, etc.), academic medical centers, and private clinical research companies.

CMS is not obligated to follow the recommendations of PCORI nor required to cover/reimburse/set provider payments on the basis of its suggestions. However, the Office of Knowledge Transfer in AHRQ will be responsible for reporting to Congress annually and dissemination of all PCORI findings within 90 days of completion of each investigation/study.

The PCORI will be governed by a 21-member board: 19 appointed by the Comptroller General of the United States, each serving six-year terms on a rotating basis, with representation from providers (four physicians, one hospital, one nurse, one integrative health provider), pharmaceutical/device/diagnostic companies (three), plans/self insured payers (three), health quality expert (one), federal/state agencies (two) and consumers (three).

PCORI is funded through the creation of the Patient-Centered Outcomes Research Trust Fund (PCORTF), that will receive monies from the Medicare Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds; and transfers from health insurance and self insured health plans ($1/member). The PCORI budget is $10 million in FY 2010 increasing to $150 million by FY 2013. After FY 2019, funding ends.

Q: How do tax credits for small businesses work?

A: Small businesses that cover at least 50 percent of premium costs for employee insurance premiums are eligible for tax credits up to 35 percent of the costs of the premiums increasing to 50 percent generally beginning in 2014. In addition, small not-for-profit organizations may qualify under similar terms for up to 25 percent credit increasing to 35 percent generally beginning in 2014. Between 1.8 million and 4 million businesses are eligible for the credit. 

Note: in 20 states, additional tax credits are available to small businesses.


“Whether America’s current troubles will eventually be seen as terminal or fleeting has not yet been determined. In the effort, we will be wise to remember other gloomy periods and the bursts of energy and creativity that followed.” 

 – Source: H.W. Brands, “Life After Death,” Forbes, May 24, 2010.

“There is little evidence to support the widely held view, shaped by the Dartmouth researchers, that the nation’s best hospitals tend to be among the least expensive.”

 – Source: “Study Used to Support Cuts in Health Costs is Faulted as Overstated,” New York Times, Thursday, June 3, 2010.

Fact file

  • Costs of post-operative infections: $19,840/case and 11 percent are fatal within 90 days. (Source: Journal of Health Services Research “Impact of Medical Errors on 90 Day Costs and Outcomes,” AHRQ funded study for 2008 data)
  • Drug market update: Sales for drugs +5.1 percent in 2009 vs. +1.8 percent in 2008; drug store chains and online UP while independent pharmacies DOWN; generics UP 5.9 percent and branded UP 7.6 percent; the U.S. market will grow at 3-6 percent through 2014 while emerging markets (the BRIC countries (Brazil, Russia, India, and China), Venezuela, Mexico) will grow 14-16 percent. (Source: IMS Health)
  • May unemployment report: mixed results. Overall employment was up 431,000 but only 41,000 of these jobs were in the private sector (most were census taker jobs that end in July). Analysts had predicted 540,000 new jobs so the employment news coupled with economic instability in the Euro are thought to have contributed to the Dow drop of 3.32 percent Friday. U.S. unemployment is at 9.7 percent, down from 9.9 percent in April. (Source: U.S. Department of Labor, U.S. Department of Commerce)
  • Multispecialty groups’ quality and efficiency: Researchers studied 741,448 patient records of Medicare enrollees in 22 markets covering a two-year period, concluding large multispecialty group practices improved the quality of care by 5 percent to 15 percent at a 3.6 percent ($272) lower annual cost per patient. They concluded that if all physicians performed at this level, Medicare could yield $15 billion a year in savings. (Source: W. Weeks, D. Gottlieb, D. Nyweide, J. Sutherland, J. Bynum, L. Casalino, R. Gillies, S. Shortell, and E. Fisher, “Higher Health Care Quality and Bigger Savings Found at Large Multispecialty Medical Groups,” Health Affairs, May 2010)
  • 268 million daily users of Google; eight major upgrades to platform since founding in 1998; $23.7 billion revenues in 2009. (Source: Bloomberg Business Week)
  • Blue Cross plans data for 2009: of 23 not-for-profit Blue Cross plans reporting:
    ― range of Medical Loss Ratio (MLR): 76.29 percent (BC-SC) to 98.16 percent (Capital BC);
    ― range of admin expense ratio: 4.82 percent (BC-MA) to 11.45 percent (AR-BC);
    ― net margin: -20.76 percent (Capital BC) to 3.73 percent (BC-SC).
    Note: Data is for one year; might not reflect long-term trends due to state regulatory compliance regarding premiums, solvency requirements, etc. (Source: AIS Key Financial Indicators for Health Plans, 2009)
  • 20.6 percent of Americans smoke (46 million)—less among white collar 14.6 percent; 82 percent of office buildings ban smoking. (Source: American Cancer Society, CDC)
  • The 15 most costly conditions account for more than 80 percent of the total cost of all chronic illnesses: diabetes, coronary artery disease, hypertension, dyslipidemia, obesity, cancer, asthma, arthritis, allergies, sinusitis, heart failure, chronic obstructive pulmonary disease, chronic kidney disease, depression and back pain. (Source: “Health, absence, disability and presenteeism cost estimates of certain physical and mental health conditions affecting US employers”, Journal of Occupational and Environmental Medicine 46 (2004): 398-412; Loeppke, et al., ibid.; Sean Sullivan)
  • Physician compensation: “A recent simulation of physician compensation showed that if all payers used the Medicare fee schedule, physicians would earn an average of $240,000, with cardiologists earning $450,000, and radiologists $390,000. These compensation levels are poor only in comparison to what some physicians can get from commercial payers and directly from patients (current actual compensation for these physicians is $273,000, $483,000, and $488,000, respectively); the problem lies with providers’ growing market power over the prices negotiated with commercial insurers.” (Source: Berenson R, Zuckerman S, Stockley K, Nath R, Gans D, Hammons T. “What if all physician services were paid under the Medicare fee schedule? An analysis using medical group management association data”. Washington, DC: Medicare Payment Review Commission, March 2010. May 24, 2010)
  • Increased obesity correlates to increased Cesarean sections: Very obese women (body mass index of 35 or higher), are three to four times more likely to deliver their first baby by Cesarean section. Babies born to obese women are nearly three times more likely to die within the first month of birth than women of normal weight, and obese women are almost twice as likely to have a stillbirth. Hospitals costs for larger equipment, complications and staff occupational health costs are increasing as direct result. (Source: The Consortium on Safe Labor, National Institutes of Health)
  • U.S. consumers perceive themselves to be healthy even though they are not: 88 percent of adults consider themselves in “excellent / very good health” even though 54 percent have one or more chronic conditions and 47 percent take three or more prescriptions daily. (Source: 2010 Deloitte Survey of US Health Consumers, Deloitte Center for Health Solutions)
  • Tax burden in U.S. vs. the Organization for Economic Co-operation and Development (OECD) countries: the U.S. total tax burden (state and local taxes, payroll taxes, federal income taxes) as a percent of GDP is 28 percent--fifth lowest among the 30 developed systems of the world. Denmark and France are highest (50 percent, 46 percent) while Mexico is lowest (20 percent). (Source: OECD)
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.

Please see below the attached Health Care Reform Issue Brief #1, entitled “Extension of dependent coverage to age 26: Smart first steps” prepared by Deloitte’s Employer Health Care Solutions and Washington Rewards Policy Center of Excellence.

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