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Health Care Reform Memo: June 21, 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 approves six-month physician fix; House must approve

Friday, the Senate approved a six-month extension of current physician pay avoiding a 21 percent cut that would have been retroactive to June 1 under terms of the sustainable growth rate (SGR) model. Last month, the House approved a 19-month extension but it was shortened in the Senate to six months at a cost of $6.5 billion to be offset by two funding measures also approved:

  1. A provision to allow companies nine years instead of seven to fund defined benefit pension plans, raising $2.7 billion savings over 10 years and
  2. A provision that bans Medicare from adjusting hospital claims for three days prior to admitting a patient saving $4.2 billion over 10 years.

In the Senate agreement, physicians will get a 2.2 percent increase for June through November 2010.

Grandfathering rules for employer-sponsored plans clarified

Last week, the Department of Health and Human Services (HHS) released specifications whereby employer health plans will be “grandfathered” and therefore not subject to certain new regulatory provisions of the Patient Protection and Affordable Care Act (PPACA).

An employer-sponsored health plan will lose its status as a grandfathered health plan if it:

  • Eliminates benefits for a particular diagnosis (for example, treatment of a cancer).
  • Increases certain cost-sharing requirements by more than specified thresholds, including a medical inflation component.
  • Reduces the company’s overall financial contribution by more than 5 percent.

Note: Every self-insured employer should assess their grandfather status immediately. For more information, contact Steve Kraus or Barbara Gniewek.

FDA announces repurposing database

Friday, the Food and Drug Administration’s (FDA’s) Office of Orphan Products Development (OOPD) launched its database of FDA-approved promising compounds and products that might be repurposed toward other uses. The Rare Disease Repurposing Database (RDRD) includes several orphan drugs (drugs deemed to serve 200,000 or fewer patients).

Note: Last week, the FDA also announced the creation of the Postmarketing Drug Safety Evaluations site that provides consumers access to new drug/biologic safety reports including adverse drug events. Since the FDA Amendments Act of 2007, the agency has stepped up efforts in post-market surveillance and transparency efforts targeting consumers.

Health Affairs summarizes key implications of health reform implementation

The June issue of Health Affairs themed “Moving Forward on Health Reform” features a collection of 33 articles and commentaries under key headings:

  • Bending the Curve
  • Coverage and Insurance Reforms
  • Medicaid Expansion and State Roles
  • Delivery and Payment Reforms
  • Large Employers
  • Individual Mandate Controversy
  • Update on Massachusetts

State watch

California: The Supreme Court announced Monday it will hear a case this fall involving the adequacy of medical and dental care for 170,000 inmates in California reviewing an earlier ruling last year by a three-judge panel. The case will be closely watched as it relates to the Eighth Amendment’s ban on cruel and unusual punishment. The earlier panel concluded the root cause of inadequate care was overcrowding and ordered the state to cap the population of its prisons at 137 percent of capacity. If the Supreme Court upholds the earlier ruling, 46,000 prisoners would be released.

Ohio: PPACA requirements for eligible dependent coverage supersede state laws but timing issues are complex. For example, state employees who add adult children under the age of 26 to their health policies will pay about $150 a month for a year. The Ohio dependent law covering adult children as old as 28 takes effect for health policies that renew after July 1, the same date the health insurance policies for state workers renew. This law says employers can offer the coverage but don't have to pay for it. PPACA specifies coverage for adult children as old as 26, for policies that renew after September 23. This law requires employers to pay the same portion of a policy for adult children as they do for other dependents.

Other states: State pension funds are in crisis per “In Budget Crisis, States Take Aim at Pension Costs,” The New York Times, June 20, 2010. States are raising retirement ages (Illinois), changing eligibility requirements (Arizona, Colorado, New Jersey, New York, Missouri, Mississippi), capping lifetime benefits (Illinois) and requiring employee contributions (Virginia).

Note: Medicaid obligations are the fastest growing financial obligation in states consuming 22 percent of the average state’s budget. In an economic downturn, when revenues from taxes are lower, states are forced to make dramatic cuts including eligibility for state Medicaid programs and health benefits for state employees. Historically, a rich retirement package has been a key to state employee retention; current budget shortfalls in state government and increased financial obligations in health care, homeland security and education are likely to require deeper cuts in employee benefits, including retiree health coverage.

“Pay-for-delay” gets attention

Traditionally, drug manufacturers have paid generics manufacturers to delay commercialization of their cheaper drugs. Sen. Herb Kohl (D-Wis.) won Senate Judiciary Committee approval to limit the practice generating $1.8 billion in savings over 10 years per the Congressional Business Office (CBO).

ONC issues temporary “meaningful use certification” specifications

Friday, the Office for the National Coordinator for Health Information Technology (ONC) released temporary certification program specifications whereby an organization may be an ONC-Authorized Testing and Certification Body (ONC-ATCB) and thus authorized by the National Coordinator to perform the testing and certification of Complete Electronic Health Records (EHRs) and/or EHR Modules. The temporary certification program will sunset on December 31, 2011.

Note: Certification of EHR systems is required in the HITECH stimulus act. Previously, the Certification Commission for Health IT (CCHIT) was the sole certification agency. This provision opens the door to other certification organizations to accelerate “meaningful use” of EHRs to reduce costs, errors and improve efficiency and outcome.

Q and A

Q: Assuming Congress passes legislation for the "doc fix" this year and the next several years, how does that affect CBO estimates that the PPACA reduces (or increases) the deficit in the first decade and, for that matter, in its second decade? (Source: Charles Kolodkin, Executive Director, Enterprise Risk and Insurance, The Cleveland Clinic)

A: The mission of the CBO (founded in 1974, FY10 budget of $45.2 million) is to provide the Congress with “objective, nonpartisan, and timely analyses to aid in economic and budgetary decisions on the wide array of programs covered by the federal budget.”

By law, CBO is required to produce a cost estimate and mandate statement for legislation providing for new budget authority, outlays or revenues. Each cost estimate must include:

  1. The potential impact on spending subject to appropriation (also known as discretionary spending)
  2. Any impact on mandatory spending (also known as direct spending) and
  3. Any impact on federal revenues (incorporating estimates by the Joint Committee on Taxation for legislation that would change the federal tax code).

The accuracy of CBO forecasts is often the focus of debate. By statute, CBO’s baseline projections estimate the direction of federal spending and revenues under current law. (CBO sometimes presents an alternative baseline that reflects current policy or modifications to the current law baseline that assume some changes in the direction of current policy.) The baseline serves as a neutral benchmark that lawmakers can use to measure the effects of proposed changes to spending and taxes. Historically, its two- and five-year forecasts have been consistent with private sector analytics, adding face validity to its processes. Like private industry forecasts, longer term forecasts are less dependable, so for students of economic forecasting, the underlying assumptions are the focus of analysis. Currently, CBO maintains a 2050 forecast (see: Long-Term Budget Outlook) as well as a 100-year outlook for Social Security.

The CBO’s regimen is to use readily available peer-reviewed analytic models to arrive at its forecasts. It works independently across agencies and bureaus--for example, Office of Management and Budget (OMB), Centers for Medicare and Medicaid Services (CMS) Office of the Actuary and others--and has an outside advisory council of 20 economists.

In FY09, CBO released 420 estimates of legislative impact (usually as a letter to a member of Congress), 33 studies, nine briefs, 11 Monthly Budget Reviews, 38 letters, eight presentations, five white papers and testified before Congress 17 times.

The staff of 250 is led by Douglas W. Elmendorf who serves as CBO Director via joint appointment from the Majority Leaders of both Houses of Congress until January 3, 2011.

With regard to the health reform bill, CBO's forecast of its financial impact (March 19, 2010) was calculated through 2019, per terms of Congressional rules that required spending to be matched by revenues through the first decade of the legislation.

With regard to the physician fix, as we go to press (June 21), no action has been taken toward a permanent fix. Earlier estimates (April 2010) indicate a $267 billion charge would be taken if the SGR model was thrown out and the treasury made “whole” for overpayments since 2004 when the SGR model was set aside in favor of temporary fixes. The current proposal, a six-month extension, will be the ninth temporary fix passed since 2004 and the fourth in 2010. The charge would add to the FY10 deficit of $1.5 trillion and is therefore politically sensitive.

Therefore, the CBO’s analysis of PPACA (March 2010) indicating a surplus of $138 billion assumed the SGR would be enforced and physicians would see a 21 percent cut starting in FY10. The likelihood it will be enforced is low; therefore, the CBO is expected to restate the impact of PPACA in subsequent reports.


“I realize that simply kicking these cuts down the road another year is not a long-term solution to this problem…[For years] I have said that a system where doctors are left to wonder if they'll get fairly reimbursed makes absolutely no sense.
I am committed to permanently reforming this Medicare formula in a way that balances fiscal responsibility with the responsibility we have to doctors and seniors… [Specifically, this will be done through] significant steps to slow the growth of Medicare costs through health insurance reform [and by eliminating at least half of the waste, fraud and abuse in the health care system by 2012.]” 

– Source: President Obama’s Weekly Radio Address, June 12, 2010

“The impact of your Administration's new regulations governing the treatment of existing health plans is deeply disturbing. As a direct result of these new rules, 87 million Americans – or 51 percent of those with employer-provided health care – will be forced out of their current coverage, with small businesses being the most adversely impacted.” 

– Source: Senator Orrin Hatch (R-UT), letter to White House in response to announcements of new regulations of health plans, June 14, 2010

“[The] ‘genome bubble’ has long since popped. And not only has there been no pharmacopeia, but some experts say the Human Genome Project might have at least temporarily bogged down the drug industry with information overload.” 

– Source: “The Genome at 10 – Awaiting the Genome Payoff,” second of two-article series in The New York Times, June 15, 2010, covering slow progress being made in genetically-engineered drug development since first begun in 1993

Fact file

  • 97 percent of physicians currently see Medicare patients; 17 percent say they will restrict their Medicare patient populations as a result of proposed payment cuts, including 31 percent in primary care physicians. (Sources:, American Medical Association survey May 2010)
  • $98 billion in “improper payments” to providers and plans by Medicare and Medicaid in 2009, a 37.5 percent increase over 2008. Note: Improper payments includes fraudulent payments, overpayments due to error, et al. (Source: Office of the Inspector General)
  • Health plan claims processing accuracy based on study of 2 million electronic submissions—100 percent. (Source: American Medical Association study released last week)
  • When chemotherapist fees are cut by Medicare, they increase the numbers of patients and treatment volumes to compensate. In a retrospective review of 222,478 lung cancer patients, the incidence of chemotherapy treatment increased from 16.5 percent to 18.9 percent within a month of the cuts in Medicare payment rates to clinicians in 2003. (Source: Health Affairs online, June 17, 2010)
  • 58 percent of new college graduates that were employed one year after graduation received employer-sponsored health insurance. (Source: eHealthInsurance survey, March 2010)
  • Education industry update: 60 percent of districts will increase class sizes in 2010-2011 and cut 275,000 jobs to accommodate state and local budget cuts. Federal funding is 10 percent of average local education funding vs. 57 percent for federal funding of state Medicaid programs. (Source: CMS, American Association of School Administrators)
  • $1.1 trillion (2010-2023) could be saved if improved methods of medication management and case management techniques were used for Medicare enrollees. Note: Medicare enrollment will increase from 45 million in 2008 to 80 million in 2030. (Source: Quarterly Review, Milken Institute, June 2010)
  • 10 percent of labels for FDA-approved drugs contain pharmacogenomic information. (Source: FDA)
  • In 2020, at least 100,000 additional physicians will be needed in the workplace above the 1.1 million projected by the federal government in 2020 under the health care overhaul. A major finding of the study is that mid-career physicians are not as productive as younger counterparts resulting in a shortage. (Source: Trends in US Physician Work Hours—Reply, Douglas O. Staiger, David I. Auerbach, and Peter I. Buerhaus, JAMA. 2010;303(22):2250-2251.
  • The 13 member Dietary Guidelines Advisory Committee released its recommendations Wednesday for improved nutrition last week pursuant to Congressional review. Major changes include: A reduction from 2,300 to 1,500 milligrams of sodium/day, less intake of meat and a limit on saturated fat to 7 percent of total caloric intake. (Source: U.S. Department of Agriculture, HHS)
  • 1.8 million Americans make 3.5 million medical and dental visits to free clinics each year. The average operating budget of a clinic was $287,810. Funding came from a number of sources, including charitable donations (90.6 percent), civic groups (66.8 percent), churches (66.3 percent), foundations (65.1 percent) and corporations (55.1 percent). Of the clinics included in the study, 58.7 percent received no government funding, Darnell reported. (Source: Study of 764 clinics that provide free care, Free Clinics in the United States: A Nationwide Survey, Julie S. Darnell, Arch Intern Med. 2010;170(11):946-953.)
  • 3.5 million retirees under the age of 65 are currently covered by employer-sponsored health insurance. Under the reform legislation, companies, unions and health insurance plans can tap the $5 billion fund for reimbursement up to 80 percent of the insurance premium for pre-Medicare retirees 55-64 who have claims between $15,000 and $90,000. (Source: Bridge Years Health Coalition)
  • Hundreds of acute care hospitals with psychiatric inpatient units may face federal review to recover an estimated $1.7 million the facilities were overpaid because of incorrect coding. (Source: Office of Inspector General, June 2010)
  • Current scope of National Institutes of Health (NIH) Clinical and Translational Sciences Award program: 46 grantees in 26 states plus Mark O. Hatfield Clinical Research Center, Bethesda MD, the country's largest research hospital. (Source: NIH, June 2010)
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 the attached Health Care Reform Issue Brief #3, entitled “Mandatory coverage of preventive services: Smart first steps for employers” prepared by Deloitte’s Employer Health Care Solutions and Washington Rewards Policy Center of Excellence.

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