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Health Care Reform Memo: September 10, 2012

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.

My take: 10 myths of health reforms

From Paul Keckley, Executive Director, Deloitte Center for Health Solutions

The Charlotte and Tampa conventions are now in the books and the closing stretch of the Campaign 2012 season ahead. In 57 days, we will elect 435 members of the House of Representatives, 33 senators, 11 governors and the president and vice president of the United States.

Walking down Tryon Street Wednesday in Charlotte amidst the banners, campaign paraphernalia, and protesters, I found myself reflecting on the complexity of our elective system: our democracy assures citizens a right to vote if older than 18. It leaves it to states to determine how prisoners and those on probation are to be included, and how the voting processes are to be conducted, but by and large, it’s a nationalized process reinforced thru a variety of follow-on laws (e.g., Voting Rights Act of 1965) and amendments (e.g., 15th Amendment) intended to secure the right to vote. It’s that simple. More than $11 billion will be spent in this election cycle to sway voters, and the stakes for the health care industry are high.

As I listen to speeches and watch the campaigns unfold, I am often frustrated that complex health care issues are disposed of in slogans, pundit talking points, and sound bites. Health care is complex: its issues are complicated and solutions in some cases are not clear. And I bristle at how frequently candidates opine on these issues harkening to what “the American people want…” though no two seem to have the same read on exactly who they are or what they want. To that end, here are my “Top 10 Myths of the Health Reform Debate” as a listener guide for the final run in the Campaign 2012 season:

Myth: Most Americans like our current system. They want the current system protected at all costs.

Fact: The majority of Americans think the current system is inefficient, expensive, and wasteful, and the most satisfied constituents are seniors and those enrolled in the military health system. Our polls say the public wants to see the system fixed, using technologies that reduce paperwork, redundancy, and error, and expand the roles for pharmacists and nurses in the delivery of care.1 And the public is increasingly concerned about its costs.

Myth: Most Americans understand the U.S. system and think it’s better than others.

Fact: Most Americans do not understand our system. They understand the doctors, hospitals, insurance plans, and constellation of public and private health programs they use in their local communities. And only a handful has direct knowledge of systems in other countries. Notably, our polls of consumers in countries like France, Germany, Switzerland, and others reveal their constituents understand their systems more and rate their system more highly than U.S. citizens rate ours.2

Myth: There’s not enough money in the U.S. health system.

Fact: There’s plenty of money in the U.S. system: almost $9,000 per capita.3 But it’s spent in the places where our incentives direct: ours is a high-tech system built around cures and fixes to complicated problems. Incentives to prevent disease are modest; incentives to fix problems later are attractive. And it costs more to fix a problem than to prevent it. Little surprise only 1 in 10 students entering medical school envisions a career in primary care, and developed systems of the world have better preventive health outcomes than the U.S., especially when comparing lower income cohorts across countries. And, ours is not an organized system: it’s a complicated array of highly regulated, capital intense, labor intense sectors—each setting its own rules virtually independent of others. Administrative waste is rampant because integration and coordination across silos is minimal. There’s plenty of money to go around; there’s no agreement on who should get the money or how to re-set the allocations.

Myth: Government health care programs—Medicare and Medicaid—are poorly managed and need overhaul.

Fact: The administrative costs of these programs are less than the administrative costs paid by employers for commercial coverage: 5-6 percent versus 7 percent, respectively.4 That said, the costs of these programs are soaring due to increased enrollments and rising costs for the health services they use. Their overhaul is necessary because the costs are not sustainable due not to the ineptitude of administrators but the realities of demand and medical inflation.

Myth: There is a shortage of primary care physicians.

Fact: If the presumption is that ONLY MDs/DOs are capable of providing primary care to patients and current incentives to treat continue to be based on visits, not results, then the statement’s accurate. But if new incentives for managing health, technologies to enable self-care, and practitioners including nurses, nutritionists, pharmacists, and counselors were allowed to practice to the full extent of their training, there would be no shortage. The myth presumes a reformed system where sick-care and well-care are not appropriately balanced and funded.5

Myth: The major driver of health costs is unhealthy lifestyles, and the Affordable Care Act (ACA) doesn’t address this at all.

Fact: Costs associated with chronic diseases like obesity, diabetes, asthma, and lifestyle choices like drug abuse, smoking, and hang gliding contribute, but other root causes also contribute: incentives to do more tests and procedures instead of only when necessary per the evidence, underlying costs of technologies and facilities that in many cases are driven by financial or competitive opportunities rather than clinical need, and regulatory compliance costs add to the cost spiral.6 It’s not one of these; it’s all of them in tandem. And the ACA has a number of provisions that address lifestyle and chronic challenges—essential health benefits must include programs to address them, the National Quality Strategy for Quality Improvement in Health Care, released by the U.S. Department of Health and Human Services (HHS), must advance innovation in finding new solutions like medical homes and accountable care, and expansion of access to primary care services are three among many new solutions. But the major presumption of ACA relative to lifestyle issues is this: access to health insurance for 32 million newly insured Americans will put a dent in unhealthy lifestyles by taking down a barrier to the system’s providers and programs.

Myth: The ACA does nothing to lower costs.

Fact: The ACA includes a complicated set of demonstrations and pilots that “might” bend the curve—avoidable readmission penalties to hospitals, limitations on physician self-referrals and private inurement, increased transparency to equip consumers to understand treatment options and underlying evidence, and others. But its major tenet for cost reduction is often missed: by increasing access to insurance coverage for 32 million, changing incentives from fee-for-service to performance and value, and requiring use of information technologies to improve diagnostic accuracy and reduce error, it fundamentally alters the center of gravity from a paternalistic system in which patients are told what to do, to a consumer-directed system in which individuals bear more responsibility for their own decisions. Therein, cost reduction might be achieved most significantly.7

Myth: Most of the care that’s recommended is necessary. And most of what the system spends is therefore appropriate and unavoidable.

Fact: To be fair, no one knows for sure. The evidence supporting most of what medical professionals do is scant, and as they develop powerful tools for mining clinical data, they’re finding that the more they learn about the intersection of signs, symptoms, risk factors, co-morbidities, and genotypic predictors, the more complicated it gets.

Here’s what we know: where one lives is a determinant of the quality of care received with widespread differences in standards of care comparing communities. Per the Institute of Medicine (IOM), adherence to evidence-based practices by clinicians is highly variable, with as much as 30 percent to be saved if evidence was consistently applied to treatment recommendations and patient management.8 The issue is not defending waste due to unnecessary care, it’s about providing tools—data and information technologies—to clinicians and consumers that are useful in making decisions, and creating an environment based on tools, not rules, where information-driven health is foundational to diagnosis and treatment. It’s about medication adherence—by clinicians that appropriately prescribe and dose, and consumers who take meds as directed. And along the way, liability reform will help. So for accuracy, most of the care is probably necessary but a substantial amount isn’t, and knowing the differences between the two is essential to better health and lower costs.

Myth: The health insurance industry is the problem, and its fate uncertain.

Fact: The health insurance industry is a convenient punching bag for policymakers and campaigns. Its role as protagonist for evidence-based care, narrower high performing networks of providers, transparency about costs and quality, and healthy living would seemingly get accolades, but criticism is more the rule than exception. So amidst the banter, there are two reasons insurance as an industry will thrive in coming years: (1) employers and consumers value financial security resulting from insurance coverage: they want to keep coverage; (2) enrollment in managed care will increase: it’s ironic to “beat up” on insurance when virtually every state is implementing managed Medicaid via private plans and Medicare Part D is wildly popular, and state and federal programs like Medicare and Medicaid will increasingly embrace managed care in their program designs to lower costs and coordinate care better.9 The demise of the industry is a myth. The transformation of the insurance industry is certain. The problem with the health system is not one sector; it is structurally flawed, fragmented, and expensive. It’s not one sector’s fault.

Myth: Health reform is about the future of the ACA.

Fact: The compelling issue about health care is cost. Regardless of the election outcome, policymakers and the industry must grapple with the system’s costs as a priority. At 17.6 percent of the U.S. gross domestic product (GDP), 25 percent of the federal budget, 23 percent of the average state budget, and 19 percent of household discretionary spending, it’s the elephant in the room. The big question in health reform is this: is our system performing at a level that’s commensurate with the value it adds in communities, companies, and households, and if not, how can the value gap be bridged? It’s about cost versus results, perception versus reality, platitude versus pragmatics, theory versus practice, and wants versus needs. It’s not about physician income, offshoring the health care workforce, or political posturing to delay decision-making to get through election cycles. It’s the national discussion we have to have regardless of the ACA.10

So with the conventions behind us and 57 days until elections, no doubt health care will be front and center in advertising and campaign rhetoric. I hope the discussion is fact-based; and I pray our elected officials steer clear of mythology that might cloud meaningful discussion about health reform and the future of the U.S. health system.

Paul Keckely

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

1 Deloitte 2012 Survey of U.S. Health Care Consumers: The performance of the health care system and health care reform, Deloitte Center for Health Solutions, June 2012
2 2011 U.S. and Global Survey of Health Care Consumers, Deloitte Center for Health Solutions, June 2011
3 National Health Expenditure Projections: 2010-2020, U.S. Department of Health and Human; Center study of discretionary spend ; Robert Wood Johnson Foundation, “High and rising health care costs: Demystifying U.S. health care spending”, Oct. 2008; Journal of the American Medical Association
4 “Eliminating Waste in U.S. Healthcare”, March 2012; Congressional Budget Office; “Medicaid Works: A Review of How Public Insurance Protects the Health and Finances of Children and Other Vulnerable Populations, Leighton Ku and Christine Ferguson, June 2011
5 The new health care workforce: Looking around the corner to future talent management, Deloitte Center for Health Solutions with the Bipartisan Policy Center, October 2011
6 Robert Wood Johnson Foundation, “High and rising health care costs: Demystifying U.S. health care spending”, Oct. 2008; Journal of the American Medical Association, “Eliminating Waste in U.S. Healthcare”, Mar. 2012; Congressional Budget Office, “Technological Change and the Growth of Health Care Spending”, Jan. 2008; Centers for Disease Control and Prevention, “Chronic diseases: the power to prevent, the call to control”, 2009; Medicaid Works: A Review of How Public Insurance Protects the Health and Finances of Children and Other Vulnerable Populations, Leighton Ku and Christine Ferguson, June 2011
7 CBO and JCT, Baseline Budget Projections for 2011 and 2012, Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision
Institute of Medicine, The Healthcare Imperative: Lowering Costs and Improving Outcomes, 2010; Philip Ellis, et al, Health Affairs, “Wide Variation In Episode Costs Within A Commercially Insured Population Highlights Potential To Improve The Efficiency Of Care,” September 2012 ; Institute of Medicine, “Best Care at Lower Cost: The Path to Continuously Learning Health Care in America,” September 6, 2012
9 Patient Protection and Affordable Care Act; CBO, Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act , March 2012 and, Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision July 2012; KRC Research, “Seniors’ Opinions About Medicare Rx: Sixth Year Update,” October 2011
10 2012 Deloitte Survey of U.S. Employers, Deloitte Center for Health Solutions, July 2012; Bending the Cost Curve, Deloitte Center for Health Solutions; Deloitte Survey of U.S. Health Consumers

Special feature

Health care platforms coming out of the national conventions

The platforms of the two parties reinforced prominent themes in the campaigns:

  • The Democratic National Committee (DNC) platform follows the ACA closely with added emphasis on women’s and children’s health issues and increased funding to increase access to health insurance and providers for those without.
  • The Republican National Committee (RNC) platform reinforced the role of private health insurance plans as options in a Medicare premium support program (similar to Part C and Part D already implemented) and state flexibility in managing Medicaid and dual eligible populations.
                          DNC Health care platform RNC Health care platform
Access to health services or insurance
  • Supports a system where health insurance companies do not have “unchecked power” to cancel health policies, deny coverage, or charge women more than men.
  • Committed to eliminating disparities in health and will continue to make sure families have access to mental health and substance abuse services.
  • Opposes efforts to block grant Medicaid or cuts to the program that would lead to no or significantly less health care for enrollees.
  • Supports increased access to health care for low-income Puerto Ricans.
  • Supports investment in community health centers.
  • Supports access to affordable family planning services and continued funding for Planned Parenthood.
  • Supports evidence-based and age-appropriate sex education.
  • Supports a woman’s decision to have a child by providing affordable health care and ensuring the availability of and access to prenatal and postnatal care, including adoption programs.
  • Supports Roe v. Wade and a woman’s right to make decisions regarding her pregnancy, including a safe and legal abortion, regardless of ability to pay; opposes any and all efforts to weaken or undermine that right.
  • Supports the passage of the Healthy Families Act, broadening the Family and Medical Leave Act, and partnering with states to move toward paid leave.
  • Supports wounded warriors, mental health, and the well-being of our military families and veterans.
  • Supports women’s access to health care; the ACA is ending health insurance discrimination against women, and provides women with free access to preventive care, including prenatal screenings, mammograms, cervical cancer screening, breast-feeding supports, and contraception.
  • Supports the end of tax discrimination against the individual purchase of insurance, and to allow consumers to purchase insurance across state lines.
  • Promotes non-discrimination of individuals with preexisting conditions who maintain continuous insurance coverage.
  • Proposes block-granting Medicaid to the states through premium supports or a refundable tax credit, allowing non-disabled adults and children to be moved into private health insurance of their choice.
  • Promotes the right of individual choice in senior care.
  • Supports empowering individuals and small businesses to form purchasing pools in order to expand coverage to the uninsured.
  • Supports the ability of all organizations to provide, purchase, or enroll in healthcare coverage consistent with their religious, moral, or ethical convictions without discrimination or penalty.
  • Supports keeping federal funds from being used in mandatory or universal mental health, psychiatric, or socioemotional screening programs.
  • Supports making veteran’s medicine the gold standard for mental health care, and advancements in prosthetics, and treatment of trauma.
Reduce costs
  • Opposes any efforts to privatize or “voucherize” Medicare.
  • Supports Medicare reforms in the ACA; demonstrations, pilots, limits on self-referral, penalties for safety/quality lapses, etc.
  • Supports increased fraud surveillance in the Medicare program.
  • Supports closing the gap in prescription drug coverage known as the “doughnut hole.”
  • Supports small business in their effort to provide health insurance coverage to employees through tax credits thru exchanges (Small Business Health Options Program [SHOP]).
  • Supports a transition to a premium-support program for Medicare, with an income adjusted contribution toward a private health plan of the enrollee’s choice (option for those age 55 or younger).
  • Supports block granting Medicaid and other payments to the states.
  • Supports limiting federal requirements on both private insurance and Medicaid.
  • Supports moving Medicaid and Medicare away from a defined-benefit entitlement model to a defined contribution model.
  • Proposes to assist all patients, including those with pre-existing conditions, through reinsurance and risk adjustment.
  • Supports individual responsibility to live healthy lifestyles and focus on preventative health services to reduce demand of health services.
  • Supports price transparency to achieve a free market in healthcare and ensure competition, so consumers will know the actual cost of treatments before they undergo them and be less likely to over-utilize services.
  • Supports tort reform to cap non-economic damages in medical malpractice lawsuits.
  • Supports “co-insurance” products and alternatives to “fee for service,” Health Savings Accounts, and Health Reimbursement Accounts.
  • Supports private sector to ratings of competing insurance plans versus government-run rating system.
Quality and safety
  • Supports increased access to primary care.
  • Supports investment in public health infrastructure—ensuring responses to emergencies and support community-based efforts to prevent disease.
  • Supports the president’s National HIV/AIDS Strategy which calls for reducing HIV incidence, increasing access to care, optimizing health outcomes, and reducing HIV-related health disparities.
  • Supports embryonic stem cell research and the president’s Executive Order repealing the restrictions on embryonic stem cell research and passage of the Christopher and Dana Reeves Paralysis Act, the first piece of comprehensive legislation aimed at improving the lives of Americans living with paralysis.
  • Supports programs to protect against elder abuse, and ensure that quality care is provided across the care continuum from home to nursing home to hospice.
  • Supports federal investment in health care delivery systems and solutions “creating innovative means to provide greater, more cost-effective access to high quality healthcare.”
  • Supports investment in basic and applied biomedical research, especially the neuroscience research that may hold great potential for dealing with diseases and disorders such as autism, and Alzheimer’s and Parkinson’s diseases.
  • Supports technology enhancements for medical health records and data systems while affirming “patient privacy and ownership of health information.”
  • Supports abstinence education.
  • Supports stem-cell research that “now offers the greatest hope for many afflictions” using adult stem cells, umbilical cord blood, and cells reprogrammed into pluripotent stem cells–without the destruction of embryonic human life. Opposition to embryonic stem cell research.
  • Supports state flexibility to manage dual eligibles.

Source: 2012 Republican National Convention Platform, 2012 Democratic National Convention Platform

Implementation update

IRS provides guidance to employers on shared responsibility requirement

Last week, the U.S. Internal Revenue Service (IRS) issued a notice describing safe harbor methods employers may use to determine which employees are treated as full-time employees for purpose of the shared employer responsibility provisions per Section 4980H of the Internal Revenue Code amended by Section 1513 of the ACA. In its notice, the IRS:

  • Expands the safe harbor method described in a previous notice to provide employers the option to use a look-back measurement period of up to 12 months to determine whether new variable hour employees or seasonal employees are full-time employees, without being subject to a payment under Section 4980H.
  • Provides employers the option to use specified administrative periods for ongoing employees.
  • Facilitates a transition for new employees from the determination method the employer chooses to use for them to the determination method the employer chooses to use for ongoing employees.
  • Permits employers of ongoing employees to use measurement and stability periods of up to 12 months.
  • Clarifies that an employer that maintains a group health plan that meets certain requirements will not be subject to an assessable payment for failing to offer coverage to the employee for the initial three months of employment for new employees who are reasonably expected to work full-time.
  • Clarifies that for all employees, an employer will not be subject to an assessable payment for an employee if the coverage offered to that employee was affordable based on the employee’s Form W-2 wages reported in Box 1 (often referred to as the affordability safe harbor).

Guidance on 90-day waiting period limitation for employee health coverage issued

Last week, the Center for Consumer Information and Insurance Oversight (CCIIO), in coordination with HHS, the U.S. Department of Labor, and the U.S. Department of the Treasury, issued guidance to group health plans and insurance issuers offering group health insurance coverage. The guidance includes several examples to illustrate how the “design to avoid compliance with the 90-day waiting period limitation” standard applies to various plan eligibility conditions. Comments on the guidance will be accepted until September 30, 2012. Also noted in the guidance:

  • Eligibility based solely on the lapse of a time period cannot exceed 90 days
  • A plan issuer will not be penalized if an employee opts to take more than 90 days to decide to enroll in the plan offered

Background: per Section 2708 of the Public Health Service Act, amended by Section 1201 of the ACA, for plan years beginning on or after January 1, 2014, “a group health plan or health insurance issuer offering group health insurance coverage shall not apply any waiting period that exceeds 90 days.”

ACA civil rights protections apply to individuals who are transgender

The HHS Office of Civil Rights responded to a letter of inquiry from the National Center for Lesbian Rights affirming that Section 1557 of the ACA sex discrimination prohibition also applies to gender identity, including protection for individuals who do not conform to stereotypical notions of masculinity or femininity.

Background: Section 1557 prohibits the discrimination, the denial of benefits, or the exclusion of participation in any health program or activity, any part of which is receiving federal financial assistance, including credits, subsidies, or contracts of insurance, or under any program or activity that is administered by an executive agency or any entity established under Title I of the ACA or its amendments based on sex, race, color, national origin, age, or disability. It does not require health plans to adopt additional services or coverage; however, more and more employers are beginning to cover procedures to meet the needs of individuals who are transgender.

Legislative update

Expanded mental health services for veterans and service members authorized by Executive Order

Last week, President Obama issued an Executive Order to expand mental health services for service members, veterans, and their families to address increasing rates of suicide and post-traumatic distress disorder (PTSD) in the military. The Executive Order encourages the U.S. Department of Veterans Affairs (VA), HHS, and the U.S. Department of Defense to collaborate to expand capacity for mental health programs and services. Specifically, the order calls for:

  • Increased capacity of the Veterans Crisis Line by 50 percent by December 2012 to ensure that veterans have timely access—including by telephone, text, or online chat, to qualified—caring responders who can help address immediate crises and direct veterans to appropriate care
  • Development and implementation of a 12-month national suicide prevention campaign focused on connecting veterans and service members to mental health services
  • Evaluation of all existing mental health and substance abuse prevention, education, and outreach programs across the military services and the Defense Health Program to identify the key program areas that produce the greatest impact on quality and outcomes, and rank programs within each of these program areas using metrics that assess their effectiveness
  • Enhanced partnerships between the VA and community providers
  • Increased use of peer-to-peer counselors—by December 2013, the Secretary of the VA must hire and train 800 peer-to-peer counselors to empower veterans to support other veterans and help meet mental health care needs
  • Improved research and development
  • Establishment of a Military and Veterans Mental Health Interagency

State update

HHS collaborating with states in education about health exchanges

Last week HHS began hosting conference calls by region to discuss “strategies to educate the uninsured, under-insured and small businesses about expanded coverage options” and to update stakeholders on the latest implementation information regarding health insurance exchanges (HIXs).

State round-up

  • Tuesday, Standard and Poor’s (S&P) announced that Massachusetts's latest health reform legislation could harm providers' credit ratings. The press release stated that ratings will likely remain stable for the next year and half, but over a longer period providers could be at a disadvantage if they are unable to cut costs deeply or quickly enough to meet the law's requirements. S&P believes the law may compress the operating margins of the state's health care providers, although not all possible effects are clear.
    Background: on August 6, 2012, Governor Deval Patrick (D-MA) signed a cost containment bill into law requiring health care providers across Massachusetts to limit spending increases to a rate no greater than the gross state product (GSP) through 2017 and at half a percentage point below the GSP for the following years or face a $500,000 penalty.
  • Georgia launched a telemedicine initiative to increase access to health care providers in rural provider shortage areas. Ware County, a rural community in Georgia, has installed videoconferencing equipment in all of its schools so approximately 5,800 students may have access to physicians remotely. While rural communities have been using telemedicine for some time, with the ACA’s impending expansion of health insurance coverage in 2014, Georgia is one of a few states pro-actively exploring teleconferencing technology to help ensure newly insured individuals have access to health care.
  • California legislators endorsed a Kaiser small group health maintenance organization (HMO) plan as the state’s essential health benefit benchmark.
  • The District of Columbia submitted to HHS a letter of declaration stating its intention to operate its health exchange. The exchange board also met last week to discuss proposals to consolidate the District’s small business and individual markets into one exchange.
  • The California Health Care Foundation released a report examining the state’s transition of Medicaid beneficiaries from FFS models to managed care. The report recommended that states allow more than seven months to implement the transition, develop outreach, engagement, and care management strategies for specific populations, and conduct extensive outreach to high-volume providers. Findings from the report include:
  • Beneficiaries “experienced anxiety due to confusion and concern over whether or not they would still be able to see their current primary care physician, specialists and mental health providers” as well as those who provided their prescriptions and medical equipment, according to providers, advocates and others who had contact with them.”
  • Many had trouble understanding the complex written materials they received, and fewer than half of the health plans offered individual counseling or support to beneficiaries by telephone.
  • Health plans reported out-of-date contact information for many beneficiaries and said they had difficulty recruiting FFS providers to their networks.
  • While most health plans reported they trained staff to work with beneficiaries to provide “information, support and care coordination,” stakeholders said this service should have been offered earlier in the transition period to managed care, rather than once beneficiaries were enrolled in a plan and needed medical care.
    Background: on November 1, 2010 the Centers for Medicare & Medicaid Services (CMS) approved the state’s “Bridge to Reform” Social Security Administration Section 1115 waiver, authorizing the state to expand mandatory managed care for seniors and people with disabilities. Per Section 2602 of ACA, the Federal Coordinated Health Care Office was created to oversee demonstration projects to find better care models. Twenty-six states—including California—have submitted proposals.
  • The state attorney general of Maine, on behalf of Governor Paul LePage (R), filed a motion for the First Circuit Court of Appeals to review “the failure” of (CMS) to act upon the state’s request for a Medicaid amendment.
    Background: on August 1, 2012, Maine filed the amendment and requested that CMS expedite its review and approve the plan by September 1, 2012. On August 31, CMS issued a letter to the state indicating that it would not provide an expedited response to the amendment plan. The proposed program cuts are projected to cut almost $20 billion from the state’s Medicaid expenses.

Industry update

Study: hospital-acquired urinary tract infection data inaccurate

A study by University of Michigan researchers found that most hospital reported data used by Medicare to determine non-payment of catheter-associated hospital-acquired urinary tract infections (CAUTIs) was inaccurate. A statewide analysis found that for all adult hospital stays in Michigan in 2009, eliminating payment for this infection decreased hospital pay for 25 hospital stays (0.003 percent of all stays). In 2009, 2.6 percent of hospital-acquired UTIs were described as CAUTIs, and hospitals requested payment for non-CAUTIs as secondary diagnoses for 10.3 percent of all discharges. According to researchers, the findings suggest that billing data is inaccurate for comparing hospitals by their catheter-associated UTI rates, and hospitals that report accurately in claims data will be unfairly penalized because their reported rates will be higher.

Background: the Deficit Reduction Act of 2005 requires a quality adjustment in Medicare Severity Diagnosis Related Group payments for certain hospital-acquired conditions. For discharges occurring on or after October 1, 2008, hospitals do not receive the higher payment for cases when one of the selected conditions is acquired during hospitalization—including UTIs in patients after bladder catheters are placed.

(Source: Jennifer Meddings, et al, Annals of Internal Medicine, “Effect of Nonpayment for Hospital-Acquired, Catheter-Associated Urinary Tract Infection: A Statewide Analysis,” September 2012)

FDA approves new orphan drug for cancer patients

Last week, the U.S. Food and Drug Administration (FDA) approved a Pfizer manufactured drug, Bosulif, to treat chronic myelogenous leukemia (CML)—a disease that is most prevalent among older adults. In 2012, it is estimated 5,430 men and women will be diagnosed with CML. Bosulif is recommended for use in patients with chronic, accelerated, or blast phase Philadelphia chromosome-positive CML who have not responded well to other therapies.

Study: silent heart attacks common, may predict risk of death

Silent heart attacks are more frequent than previous studies have reported, especially in older adults with diabetes according to a study conducted by the National Heart, Lung, and Blood Institute, the National Institute on Aging, and the Icelandic Heart Association. Of 1,000 study participants between the ages of 67 and 93, 21 percent with diabetes and 14 percent without diabetes were found to have had silent heart attacks, compared to 11 percent with diabetes and 9 percent without diabetes who had recognized heart attacks. Researchers also found that magnetic resonance imaging (MRI) is more effective than electrocardiography (ECG) at identifying "silent" heart attacks. Those identified by cardiac MRI were associated with a higher risk of mortality than those identified by ECG; however, participants who had either form of heart attack were significantly more likely to die than those who had neither. The study also found that even though people with silent heart attacks displayed many cardiovascular risk factors associated with recognized heart attacks (i.e., high blood pressure and evidence of atherosclerosis) 36 percent who had a silent heart attack were taking medications such as statins or aspirin compared with 73 percent of survivors of recognized heart attacks.

Note: according to the Centers for Disease Control and Prevention (CDC), heart disease is the leading cause of death for both men and women. Heart disease caused almost 25 percent of deaths—almost one in every four—in the U.S. in 2008. More than half of the deaths due to heart disease in 2008 were in men.

(Source: Andrew Arai, National Institutes of Health, “Silent heart attacks are common and predict risk of death, MRI diagnosis shows,” September 2012)

Study: consumer satisfaction slightly higher among enrollees with traditional plans compared to high deductible plans

A survey released last week indicates that traditional plan enrollees were more likely than those with a consumer-directed health plan (CDHP), or high deductible health plan (HDHP) to be extremely or very satisfied with their overall plan from 2006 to 2011. In 2011, 57 percent of traditional plan enrollees were extremely or very satisfied with their overall health plan (down from 60 percent in 2010), compared with 46 percent (up from 43 percent in 2010) of CDHP enrollees and 37 percent of HDHP enrollees (up from 34 percent in 2010). Other notable findings include:

  • 41 percent of traditional plan respondents were more likely to be either extremely or very satisfied with out-of-pocket costs for health care services other than for prescription drugs, while 16 percent of HDHP enrollees and 24 percent of CDHP participants were extremely or very satisfied
  • 13 percent of CDHP enrollees were extremely or very satisfied with their ability to get doctor appointments, compared with 68 percent among traditional plan enrollees
  • 49 percent of traditional plan enrollees were extremely or very likely to recommend to recommend their health plan to friends or co-workers and to stay with their current health plans if they had the opportunity to switch plans their plan compared with 41 percent of CDHP enrollees, and 29 percent of HDHP enrollees

(Source: Employee Benefit Research Institute, “Satisfaction With Health Coverage and Care: Findings from the 2011 EBRI/MGA Consumer Engagement in Health Care Survey”, August 2012)

Study: wide variation across markets in quality, costs

A recent analysis of nearly 250,000 U.S. physicians serving commercially insured patients nationwide concluded that episode costs for selected set of common chronic conditions varied at a far greater rate than major medical procedures (15-fold vs. 2.5-fold) across markets. Researchers also reviewed data on quality and efficiency patterns and found that among physicians meeting quality and efficiency benchmarks costs for episodes of care were on average 14 percent lower than among others. Although some markets experienced a much higher variation in episode costs than others, there was no correlation between average episode costs and measured quality across markets. The study concluded that “changing incentives through payment reforms could help to improve performance, but providers are at different stages of readiness for such reforms and thus will often need support in order to succeed”. Notable findings:

  • Median costs for treatment generally fell in the range of $350–$650, but median costs for diabetes were substantially higher ($1,103)
  • For major procedures, the variation in episode costs across markets was somewhat larger in percentage terms and much larger in dollar terms than the variation for chronic conditions
  • Arthroscopic knee surgery with ligament repair was $2,990 in low-variation areas compared to $8,163 in high-variation areas, or nearly three times more variable
  • For common chronic conditions across different geographical regions average costs in low-cost markets were typically 15–20 percent below the median, while average costs in high-cost markets were about 15–20 percent above the median

(Source: Philip Ellis, et al, Health Affairs, “Wide Variation In Episode Costs Within A Commercially Insured Population Highlights Potential To Improve The Efficiency Of Care,” September 2012)

IOM: better use of technology needed to reduce cost

Last week, the IOM Committee on the Learning Health Care System in America released a report exploring the challenges to health care today, providing recommendations for creating a continuously learning healthcare system. The committee identified three major imperatives for change: the rising complexity of modern health care, unsustainable cost increases, and outcomes below the system’s potential. According to the report around 30 percent of health spending in 2009—roughly $750 billion—was wasted on unnecessary services, excessive administrative costs, fraud, and other problems, and costs of the system's current inefficiency underscore the urgent need for a system wide transformation. The committee recommendations include:

  • Improve the capacity to capture clinical, care delivery process, and financial data for better care, system improvement, and the generation of new knowledge
  • Accelerate integration of the best clinical knowledge into care decisions
  • Involve patients and families in decisions regarding health and health care, tailored to fit their preferences
  • Promote community-clinical partnerships and services aimed at managing and improving health at the community level
  • Continuously improve health care operations to reduce waste, streamline care delivery, and focus on activities that improve patient health
  • Improve coordination and communication within and across organizations
  • Structure payment to reward continuous learning and improvement in the provision of best care at lower cost
  • Increase transparency on health care system performance
  • Expand commitment to the goals of a continuously learning health care system

(Source: Institute of Medicine, “Best Care at Lower Cost: The Path to Continuously Learning Health Care in America,” September 6, 2012)


“If a party is saying they’re not going to touch Medicare, what they’re saying is, they’re going to allow it to go broke.”

—Senator John Kyl (R-AZ), August 30, 2012

“Ladies and gentleman, it’s just that simple: We are for Medicare; they are for Vouchercare.”

—Vice President Joe Biden, September 3, 2012

“The president's approach to Medicare, which was supported by AARP—extended Medicare solvency for eight years. The savings all came from waste and fraud and subsidies that shouldn't have been going to the insurance companies, not a dime came from Medicare beneficiaries. The Romney/Ryan approach is voucherized Medicare. So when you run out of vouchers, seniors are going to be on their own… So I think on the question, in Florida and Ohio and other states of who do you trust to protect Medicare and who do you trust as we reduce our deficit to get the savings from the system, not putting it on the backs of Medicare beneficiaries, we think that's a debate we're well positioned to have, to execute and to win.”

—David Plouffe, Senior Advisor to President Obama, ABC, “This Week,” September 2, 2012

"A voucher system would do little to control the growth of health care costs, but it would shift their burden onto Medicare beneficiaries in the form of higher premiums and reduced care. Cost-shifting should not be confused with cost containment…the evidence has confirmed that competition among private insurance plans would not yield Medicare savings without harming beneficiaries. To achieve this goal, enforceable payment and cost-containment reforms like those in the Affordable Care Act are necessary."

—Laura D'Andrea Tyson, New York Times, "Evidence vs. Ideology in the Medicare Debate," August 24, 2012

Fact file

Funding sources in the ACA:

Provision Description 10-year revenue estimate Effective date
Individual mandate (Section 1501) Penalty of the greater of $695 or 2.5% of income per adult in the household for individuals who fail to obtain adequate coverage. Tax phases in beginning at the greater of $95 or 1% of income in 2014, reaching $695 or 2.5% of income in 2016 (indexed for inflation thereafter)
Exclusion for employer-provided health care for adult children up to age 26
$27 billion Tax years beginning after Dec. 31, 2013
Employer mandate (Section 1401, 1402)

Employers with at least 50 full-time employees are subject to nondeductible fees if they:

  • Do not offer coverage to employees (fee is $2,000 per employee, minus the first 30 employees)
  • Offer coverage but have at least one full-time employee receiving premium assistance tax credit (lesser of $3,000 for each employee receiving a tax credit or $750 for each full-time employee)
$52 billion Tax years beginning after Dec. 31, 2013
Medicare tax increases (Earned income, Section 9015) Additional 0.9% hospital insurance tax on wages over $200,000 ($250,000 for joint filers) $86.8 billion Tax years beginning after Dec. 31, 2012
Medicare tax increases (Unearned income, Section 1402 Budget Reconciliation Act) 3.8% Medicare contribution levied on certain unearned income of individuals with AGI over $200,000 ($250,000 for joint filers) $123.4 billion Tax years beginning after Dec. 31, 2012
Excise tax on ‘Cadillac’ group health plans (Section 4980I) 40% nondeductible excise tax for insurer on employer-sponsored insurance in excess of $10,200 for individuals ($27,500 for families), indexed for inflation
Premium thresholds for retirees and high-risk professions are increased by $1,650 for individuals ($3,450 for families)
$32 billion Tax years beginning after Dec. 31, 2017
Fee on health insurance providers (Section 9010) $8 billion for 2014, $11.3 billion for 2015 and 2016, $13.9 billion for 2017, and $14.3 billion for 2018; allocated to taxpayers based on net premiums for U.S. health risks $60.1 billion Calendar years beginning after Dec. 31, 2013
Fee on branded drug manufacturers and importers (Section 9008) $2.5 billion for 2011, $2.8 billion for 2012 and 2013, $3 billion for 2014 through 2016, $4 billion for 2017, $4.1 billion for 2018, and $2.8 billion for 2019 and thereafter; Includes joint and several liability $27 billion Calendar years beginning after Dec. 31, 2010
Excise tax on medical devices (Section 9009) 2.3% excise tax on manufacturers and importers of certain medical devices $20 billion Calendar years beginning after Dec. 31, 2012
Itemized deduction for medical expenses (Section 9013) Raise floor for itemized deduction for medical expenses to 10% of modified adjusted gross income (AGI) (from 7.5%); retain 7.5% floor for individuals (and their spouses) over age 65 $15.2 billion Tax years beginning after Dec. 31, 2012; provision for individuals over age 65 expires Dec. 31, 2016
Health flexible spending accounts (FSA, Section 9005) Limit annual salary-reduction contributions to health flexible spending arrangements in cafeteria plans to $2,500, indexed for inflation after 2013 $13 billion Tax years beginning after Dec. 31, 2012
Excise tax on indoor tanning services (Section 10907) Impose 10% excise tax on indoor tanning services $2.7 billion Services provided on or after July 1, 2010
Definition of ‘medical expenses’ for employer-provided health coverage (Section 1302) Conform definition of medical expenses for purposes of health flexible spending arrangements, health reimbursements, health savings accounts, and Archer Medical Savings Accounts to the definition for the itemized deduction $5.0 billion Expenses incurred after Dec. 31, 2010
Comparative Effectiveness Research Trust Fund (Section 9511) Impose fee on insured and self-insured health plans to finance patient-centered outcomes research trust fund $2.6 billion Effective for policies and plans for portion of policies or plan years beginning on or after Oct. 1, 2012
Medicare Part D subsidy (Section 9010) Eliminate deduction for expenses allocable to Part D subsidy $4.5 billion Tax years beginning after Dec. 31, 2012
Health savings account distribution (Section 9004) Increase penalty for nonqualified distributions from health savings accounts to 20% $1.4 billion Distributions made during tax years beginning after Dec. 31, 2010
Executive compensation limits for health insurance Providers (Section 9014) Limit deduction on taxable year remuneration to officers, employees, directors, and service providers of covered health insurance providers to $500,000 $600 million Remuneration paid in taxable years beginning after 2012, for services performed after 2009
Special deduction for Blue Cross Blue Shield Organizations (Section 9016) Limit special deduction for organizations under section 833 in the case of organizations with a low medical loss ratio $400 million Tax years beginning after Dec. 31, 2009
Tax treatment of ‘black liquor’ (Section 40(b)(6) IRS Code) Make ‘black liquor’ ineligible for the cellulosic biofuel producer credit $23.6 billion Fuel sold or used after Dec. 31, 2009
Information reporting (Section 9006) Mandatory Form 1099 reporting for payments made to a corporation totaling $600 or more in a calendar year $17.1 billion Payments made after Dec. 31, 2011
Economic substance (Section 1409 Budget Reconciliation Act) 40% liability penalty on tax understatements attributable to undisclosed noneconomic substance transactions (20% if adequately disclosed) $4.5 billion Transactions entered into after date of enactment
Charitable (Nonprofit) hospitals (Section 9007) Additional compliance and reporting requirements on section 501(c)(3) hospitals Negligible Taxable years beginning after date of enactment
Veterans health care (Section 9011) Study and report on effect of the bill on veterans’ health care Negligible Study and report on effect of the bill on veterans’ health care
Indian health benefits (Section 9021) Provide income exclusion for specified Indian health benefits Loss of less than $50 million For health benefits and coverage provided after date of enactment
Cafeteria plan nondiscrimination safe harbor (Section 9005) Simplify cafeteria plan nondiscrimination safe harbor for certain small employers Negligible Tax years beginning after Dec. 31, 2010
Qualifying therapeutic discovery credit (Section 9023) 50% credit for qualified investment in a qualifying therapeutic discovery project of an eligible taxpayer Loss of $900 million For amounts paid or incurred after Dec. 31, 2008 to Dec. 31, 2010
State loan repayment tax relief for health professionals (Section 10909) Provide exclusion from gross income for assistance provided to participants in state student loan repayment programs for certain health professionals Loss of $100 million For taxable years beginning after Dec. 31, 2008
Modifications to adoption credit (Section 10909) Make adoption credit refundable, increase credit amount, and extend through 2011 Loss of $1.2 billion For taxable years beginning after Dec. 31, 2009

Sources: Deloitte, “Prescription for change ‘filled’ Tax provisions in the Patient Protection and Affordable Care Act”, March 2010, Patient Protection and Affordable Care Act; CBO, Joint Committee on Taxation, ‘Estimated Revenue Effects of the “Reconciliation Act of 2010,” As amended in Combination with the Revenue Effects of H.R. 3590, The “Patient Protection and Affordable Care Act (PPACA), March 2012.

National health reform: What now?

National health reform: What now?

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