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Health Care Reform Memo: July 6, 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.

Deficit reduction key to economic recovery: Commission

At its meeting last week, the White House National Commission on Fiscal Responsibility and Reform heard from Congressional Budget Office (CBO) Director Doug Elmendorf who noted U.S. debt at the end of the year will be 62 percent of GDP, the highest since WWII. He observed, “PPACA made a dent in the spending but it did not substantially diminish the challenge of cost cutting.”

Over the weekend, the Toronto G20 Summit of the world’s most developed economies produced a similar report—that global economic recovery required reduced government spending.

After the meeting, Commission Co-Chair Erskine Bowles observed that entitlements cuts—Medicare, Medicaid and Social Security—are likely. Note: the 18-member group’s recommendations are due December 1. Each party nominated six of its members along with six from the White House. A recommendation must have 14 members in agreement for approval. Additional cuts to Medicare beyond those in PPACA, eligibility changes and premium payments by seniors are likely to be in the group’s recommendations.

“Meaningful use” announcement pending

Perhaps by the end of this week, the Office of the National Coordinator for Health Information Technology (ONC) will announce the Stage One criteria for provider organizations to meet eligibility thresholds for ARRA HiTech stimulus funds. By 2015 when fully deployed, providers will be required to demonstrate meaningful use of electronic health records in three stages, with Stage One considered a major threshold to access federal funding through the stimulus package.

Examples of Stage One measures: (1) 80 percent of prescription orders entered through a computerized provider order entry system (CPOE) and (2) 80 percent of all patients requesting a copy of their electronic record receive it in 48 hours. Hospitals that meet Stage One requirements for a continuous period of 90 days are eligible for funding starting October 1, 2010. The incentive formula is based on an initial $2 million plus $200 per discharge for all discharges between 1,150 and 23,000. Hospitals that achieve Stage One requirements earlier receive a higher payment due to a transition factor used to encourage early adoption.

The percent of hospitals that meet current criteria under the major policy goals per a recent study (New England Journal of Medicine 362:12 March 25, 2010):

  • Improving quality, safety and efficiency (2.5 percent)
  • Improving patient access to care (7.8 percent)
  • Improving care coordination (11.0 percent)
  • Improving public health (14.2 percent)
  • Ensuring privacy and security (NA)

Higher readiness scores are apparent in the data for teaching hospitals, not for profits, New England based organizations and those with more than 400 beds.

2010 Deloitte Center for Health Solutions survey highlights: Consumers are attentive, concerned about costs

  • 23 percent of U.S. adults say they understand how the U.S. health system works
  • 76 percent grade the U.S. system C, D, or F, contrasted to 24 percent who give it A or B
  • 48 percent believe more than 50 percent of expenditures in the U.S. system are wasted
  • 46 percent with insurance say they understand their insurance plan
  • 42 percent favor the individual mandate though 38 percent oppose it
  • 42 percent prefer an employer-sponsored plan over a government-controlled plan (25 percent), all factors being equal
  • 19 percent skipped or delayed care in the past year—four of ten of these due to cost
  • 24 percent feel secure they can manage health costs; 76 percent are uncertain
  • 33 percent have concerns about the privacy and security of their online personal health information

Source: Nationally stratified survey of 4,008 U.S. adults 18 years of age and older January 2010 (Margin of error +/- 1.6 percent at the .95 confidence interval) conducted by the Deloitte Center for Health Solutions

High-risk pools begin operation

High-risk pools in 21 states targeting those unable to obtain health insurance in the commercial market due to pre-existing conditions began accepting applications last Thursday. Federal funds of $5 billion are allocated in PPACA through 2014. The Pre-existing Condition Insurance Plan will cover up 350,000 who will pay between $190 and $900/month, with most ranging from $400-600/month, for coverage. 30 states and the District of Columbia opted not to participate in the federal program fearing funding would be inadequate and their deficits would increase as a result.

Governors seek FMAP extension

Governors from ten states were in Washington Wednesday to request continued funding for their Medicaid programs. Chief executives from Pennsylvania, Michigan, Maryland, New York, Washington, Kansas, Illinois, California, Colorado and Connecticut urged Congress to extend Federal Medicaid Assistance Percentage, or FMAP, scheduled to expire at the end of the year. Note: As a result of PPACA, the federal portion of Medicaid funding increased from 57 percent to 63 percent. States have the balance of the costs. In the stimulus plan (ARRA 2/09), states got $87 billion—a 6.2 percent increase. The governors were in Washington to ask for an additional $24 billion for January through June 2010 to offset costs for the 21 percent increase in Medicaid enrollment experienced since the economic downturn began.

Indoor tanning services tax started last week

Thursday, a new 10 percent tax has been imposed on indoor tanning services under the PPACA. Per the National Federation of Independent Business and the International Franchise Association, the tax will hit 18,000 small businesses. Per the Joint Committee on Taxation, the tax will raise $2.7 billion (2010-2019). Note: Industry data suggest about 30 million Americans used a tanning salon at least once in 2009—70 percent of whom were women between the ages of 16 and 29. The tax will add $1.70 to the average $17 per visit currently charged consumers. The rationale for the tax is the same as taxes for cigarettes, as tanning services use is associated with a higher risk of skin cancer according to the International Agency for Research on Cancer.

Independent Payment Advisory Board timetable

Independent Payment Advisory Board (IPAB) is authorized under Section 3403 and is responsible for setting Medicare payment rates for providers starting in 2014, and in 2019 for hospitals (including general acute, children, psychiatric). Per the CBO, IPAB will reduce Medicare spending by $28 billion 2015-2019. Its timeline is critical:

4/30/2013 CMS issues spending target—the basis for IPAB deliberation
1/15/2014 IPAB report to Congress on payment rates
3/1/2014 The independent Medicare Payment Advisory Commission (MedPAC) issues its analysis of the IPAB rates
8/15/2014 Unless overridden by Congress, IPAB rates are implemented
2019 First year IPAB rates may be applied to hospitals

Q and A

Q: How is graduate medical education treated in PPACA?

A: Essentially, the current funding mechanism for GME stays in place for the time being, with additional funding in provisions of PPACA for expansion of the workforce in targeted specialties, e.g. pediatrics, internal medicine, and in training programs innovation. Consider:

PPACA Sec. 5203 (755) states that the Secretary of HHS “agrees to make payments on the principal and interest of undergraduate, graduate, or graduate medical education loans of professionals” who “agree to provide pediatric medical subspecialty, pediatric surgical specialty, or child and adolescent mental and behavioral health care in an area with a shortage of the specified pediatric subspecialty that has a sufficient pediatric population to support such pediatric subspecialty.”

Annual payments shall not exceed $35,000 “for a period of not more than three years during the qualified health professional’s participation in an accredited pediatric medical subspecialty, pediatric surgical specialty, or child and adolescent mental health subspecialty residency or fellowship; or employment as a pediatric medical subspecialist, pediatric surgical specialist, or child and adolescent mental health professional serving an area or population.”

Under Section 5508 (340H) PPACA states that the Secretary of HHS shall make payments to “qualified teaching health centers that are listed as sponsoring institutions by the relevant accrediting body for expansion of existing or establishment of new approved graduate medical residency training programs.” The amounts payable to approved programs include direct and indirect expense amounts for “a number of such resident positions that is greater than the base level of primary care resident positions.”

Direct costs for a fiscal year are equal to the product of “the updated national per resident amount for direct graduate medical education” and “the average number of full-time equivalent residents in the teaching health center’s graduate approved medical residency training programs.” Indirect costs for a fiscal year are “equal to an appointment determined appropriate by the Secretary” based on evaluating “indirect training costs relative to supporting a primary care residency program in qualified teaching health centers” and ensuring that these costs, including direct costs, do not exceed the capped amount.

Notably, before completing the evaluation of indirect costs, the Secretary may make interim payments to qualified teaching centers for indirect expenses based on an estimate. Total program payments shall not exceed $230 million for fiscal years 2011 through 2015. Moreover, the provisions under this section are in addition to any payments under the Social Security Act, “shall not be taken into account in applying the limitation on the number of total full-time equivalent residents,” and “shall not include the time in which a resident is counted toward full-time equivalency by a hospital.” Final areas to note, the Secretary may audit a program for overpayments and qualified teaching centers must submit an annual report regarding their programs.

Other relevant sections of PPACA that address medical education include:

  • Sec. 5203. Health Care Workforce Loan Repayment Programs.
  • Sec. 5316. Demonstration Grants for Family Nurse Practitioner Training Programs.
  • Sec. 5504. Counting Resident Time in Nonprovider Settings.
  • Sec. 5506. Preservation of Resident Cap Positions from Closed Hospitals.

Q: What is being allocated in terms of Pell Grants for nursing students?

A: Pell Grants are not explicitly stated, but grants will be allocated in “such sums as necessary for fiscal years 2010-2014.”

Q: Is there a 0.25 percent reduction in Medicare inpatient, outpatient, inpatient rehabilitation facility and psychiatric hospital payments effective 7/1/10 in the provisions?

A: Yes, there will be a 0.25 percent reduction from 2010-2011 and a 0.2 percent reduction from 2012-2019.

Q: How is home health impacted by PPACA?

A: The Patient Protection and Affordable Care Act (PPACA) contains several provisions that will impact home health agencies, most notably language around the new program, the CLASS Act—an insurance program covering long term care. Key provisions include:

  • Section 3006: Secretary of HHS is tasked with developing a plan to implement a value-based purchasing program for payments under the Medicare program for home health agencies
  • Section 3131: Beginning in 2013, the Secretary of HHS will rebase the home health prospective payment amount taking into consideration changes in the number of visits in an episode, the mix of services in an episode, the level of intensity of services in an episode, the average cost of providing care per episode, and other factors that the Secretary considers to be relevant
  • Secretary may also consider standing agencies, between for-profit and nonprofit agencies, and between the resource costs of urban and rural agencies
  • Section 3143 ensures PPACA will not result in a reduction of home health benefits guaranteed by Title XVIII
  • Section 6407 requires a face-to-face encounter with patient before physicians may certify eligibility for home health services under Medicare
  • Section 8001 establishes a voluntary insurance program for purchasing Community Living Assistance Services and Support (CLASS) in 2017 that allows individuals who meet eligibility criteria to receive a daily cash benefit ($50/day) for the purchase of non-medical services so that they may remain independent and in their community


Last Tuesday, the Deloitte Center for Health Solutions hosted a group of medical staff leaders from ten health systems to discuss physician alignment issues and challenges. Among the notable comments (used with permission):

“Where we are heading here is unknown. We know we’re heading west. Money is our core organizing principle. We know we have to create a more purposeful solution, more value, less fragmented.” 

 – Source: Mark Werner, MD, President of Carilion Clinic Physicians and Executive Vice President and Chief Medical Officer for Carilion Clinic, June 29, 2010

“We live in two different worlds. It’s not going to be around docs, hospitals…it will be around health coaches and what people do for themselves.” 

 – Source: Ken Abrams, Senior Vice-President, Clinical Operations/Chief Quality Officer and Associate Chief Medical Officer, North Shore-LIJ Health System June 29, 2010

“The focus cannot be on hospitals. The focus must be on a new structure where physicians and hospitals can cooperate, collaborate and coordinate care for communities. Trust is still a major issue.” 

 – Source: Robert B. Williams, MD, MIS, National Medical Leader, Deloitte LSHC Consulting, June 29, 2010

“The mergers helped companies amass potent sales and marketing teams, but saddled their R&D with innovation-stifling bureaucracy. As a result, big pharma has brought relatively few new drugs to market over the past ten years… Now the future of the industry’s homegrown R&D is on the line.”

 – Source: “Glaxo Tries Biotech Model to Spur Drug Innovation” Wall Street Journal, July 1, 2010

Fact file

  • Private sector job growth: June 2010 plus 83,000 down from March-April averages of 200,000. Unemployment is 9.5 percent. (Source: U.S. Department of Labor July 2, 2010 report)
  • Economic outlook: GDP will grow at 2.5 percent for balance of 2010, down from 3.0 percent in first half. (Source: Poll of economists at UBS Securities Conference Friday, July 2, 2010)
  • $292 billion: U.S. spending on prescription drugs in 2009. (Source: Medco Health Solutions)
  • Nine state legislatures have approved cuts to government employee pension programs to reduce spending. (Source: National Association of State Retirement Administrators)
  • Banks announcing expansion adult long term care programs last month: Wells Fargo “elder services” expansion from 30 to 67 markets, Bessemer Trust “health advisory services” and Northern Trust “family dynamics”. (Source: Bloomberg News Service)
  • Global market for mobile health devices—$4.4 billion in 2013, up from $300 M today. (Source: ABI Research)
  • Number of public companies shrinking as a result of the economy: 9,100 in 2000 vs. 6,450 in 2009. (Source: Wharton Research Services)
  • 27 percent of heart failure patients are readmitted within 30 days; focus of PPACA incentives for avoidable readmissions. Upon discharge from the hospital, 49 percent are sent home compared to 61 percent sent home in 1995. (Source: Journal of the American Medical Association July 2, 2010)
  • Index of consumer confidence: 52.9 in June 2010 vs. 62.7 in May. (Source: Conference Board)
  • 21 percent of all patents were awarded in health care in 2009, second only to information technology (37 percent) and above energy (13 percent). (Source: Claymore Securities)
  • “Mom at home with kids, dad at work”—17 percent of total U.S. households. (Source: U.S. Bureau of Labor Statistics)
National health reform: What now?




National health reform: What now?

National health reform is here. The health reform bills (HR3590 and HR4872) are now law and will trigger sweeping changes and disruptions – some rather quickly and some over many years. The industry is asking, “What now?” At Deloitte, we continue to explore and debate the key questions facing the industry, and we look forward to helping our clients find and implement the right answers for their organizations. To learn more, visit today.

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