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Health Care Reform Memo: October 4, 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.

My take

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

Two weeks ago, the National Center for Economic Research advised the recession officially ended June 2009. Tuesday, the U.S. Bureau of the Census released its 2009 update reporting comparisons to 2008: Median household income down 2.9 percent, housing costs up 3 percent and out-of-pocket health costs approaching 16 percent of total discretionary income. Arguably, the linkage between health costs and the economic recovery is complicated but significant.

Historically, health cost containment has been problematic. Insured U.S. consumers prefer paying only 14-25 percent of the total bill and want wide selection of physicians, hospitals, and coverage options. Pollsters say reducing the federal deficit and government spending is the nation’s top priority, but cuts to Medicare and Medicaid prompt visceral reactions from enrollees.

The next 29 days until the mid-term will be ripe for public debate about the role and scope of the government in the U.S. health system. Cutting health costs seems popular to some; how to do it is the challenge.

The route to systemic, sustainable cuts in the rate of health costs that do not compromise the quality and safety of care is challenging at best. Administrative simplification, leveraging information technologies to reduce paperwork and waste, aggressive efforts to reduce fraud, and liability reforms are important first steps, but long-term solutions require policies and incentives that align desired outcomes with spending by individuals and government. Getting there will be tough: it’s not popular to suggest unhealthy lifestyles lead to more health care services and ultimately more costs, or volume-based incentives may play a part in unnecessary tests, procedures and costs. Those solutions might be on the table in 30 days; for the time being, it’s not likely the crosswalk between economic recovery and health cost containment will be discussed adequately or understood well.

Paul Keckely

Paul Keckley, Ph.D.

FDA increases oversight of investigational drugs

Last week, the Food and Drug Administration (FDA) issued a new rule targeting enhanced scrutiny of investigational drugs and medical products during clinical trials.

The new rule requires companies sponsoring new drugs or medical products to report information about safety issues to the FDA within 15 days after they become aware. Effective March 28, 2011, the rule modifies the way drug companies report side effects/adverse reactions.

Update: Child-only policies

In response to decisions by several insurers to drop child-only plans, HHS issued guidance last week on actions insurers might consider to continue offering such plans, i.e. open enrollment periods are allowed, child-only premiums based on health status, imposition of a surcharge on individuals who drop coverage and reapply. HHS indicated it welcomed state legislation requiring companies who provide family policies to offer the same to children. Note: Colorado mandated an emergency open enrollment period through October 31 for plans offering child-only policies. In Kentucky, the five biggest insurers in the state were ordered to a hearing October 13 to discuss child-only policies.

CMS issues guidance on Medicaid drug rebates

In a letter to State Medicaid Directors, the Centers for Medicare and Medicaid Services (CMS) provided guidance on changes to Medicaid drug rebates implemented through the Patient Protection and Affordable Care Act (PPACA). Notably, CMS reconsidered its previous instructions calculating the amount due to the federal government. Previously, CMS had planned to offset the full eight percent increase in drug rebates (from 15.1 percent to 23.1 percent). CMS now plans to calculate the offset as follows:

If the difference between average manufacturers’ price (AMP) and best price (BP) is less than or equal to 15.1 percent of AMP, then CMS plans to offset the full eight percent of AMP (the difference between 23.1 percent of AMP and 15.1 percent of AMP).
If the difference between AMP and BP is greater than 15.1 percent of AMP, but less than 23.1 percent of AMP, then CMS plans to offset the difference between 23.1 percent of AMP and AMP minus BP.
If the difference between AMP and BP is greater than or equal to 23.1 percent of AMP, then CMS will not take any offset amount.

CMS Innovation Center leader named

Rick Gilfillan, former President and CEO of Geisinger Health Plan and head of CMS’s value-based purchasing program, was named Acting Director of the CMS Center for Medicare and Medicaid Innovation. PPACA appropriates $10 billion over ten years to the center to develop new models for care delivery to help improve quality and reduce costs.

NY Lieutenant Governor calls for major changes to state’s Medicaid program

In his report, New York Lt. Governor Ravitch (D) made four recommendations to reduce the forecast 18 percent annual increase:

“Establish an independent commission to advise Executive and Legislative branches on rate-setting issues and a Center on Medicaid Innovation to develop new models of payment and service delivery.
Consolidate administrative authority over Medicaid under the State Medicaid Director, rather than at counties.
Address costs pressures outside of Medicaid, such as medical malpractice reform and prevention efforts.
Pursue federal action on issues where New York is disproportionately burdened, such as increasing federal share of FMAP or improving coordination for dual-eligibles.”

CBO report: Use of generic drugs in Part D spending

According to the Congressional Budget Office (CBO), in 2007 one billion Part D prescriptions were filled: 65 percent were generic, five percent multiple-source brand-name drugs, and 30 percent single-source brand-name drugs. Generics accounted for 25 percent of total prescription drug costs. CBO estimates generic drug substitution represented a savings of $33 billion to Medicare. The report also noted that had all multiple-source brand-name drugs been filled with generics, an additional $900 million would have been saved, and potential savings from promoting therapeutic substitution could be $4 billion in 2007.

Study: States to cut Medicaid benefits and reduce doctor payments

In 2010, 20 states limited benefit coverage—double from the number of states in 2009.
In 2010, 39 states trimmed or froze payments for doctors and hospitals, up from 33 in 2009.
In 2011, 14 states plan to cut benefits and 37 to restrict fees in 2011.

Source: Kaiser Survey of State Medicaid Directors

HHS launches Insurance Finder website

Friday, HHS announced its web tool – Insurance Finder – is fully operational. It allows consumers to compare information about 4,400 individual and family health plans including monthly premium estimates, maximum out-of-pocket expense, deductibles, covered services, plan denial percentages, and percentage of plan applications that pay a premium above the base price.

Health insurance exchanges: Update

NAIC publishes draft legislation for comment
Monday, the National Association of Insurance Commissioners (NAIC) published its draft model legislation to assist states in establishing insurance exchanges by January, 2014. Under PPACA and the NAIC draft legislation, a state may establish an exchange within or outside of state government or a combination of the two. NAIC will accept comments until October 6.

HHS awards grants to assess data requirements
Thursday, HHS awarded $1 million grants to 48 states and DC to assist in preparation for health exchanges infrastructure. The initial funds will be used to assess information and data requirements in each state.

California accelerates exchange timetable
Thursday, Gov. Arnold Schwarzenegger (R) signed two bills that will make California the first state to establish a health insurance exchange per PPACA (Utah, Massachusetts had exchanges pre-PPACA). The exchange will create a web-based insurance plan marketplace for residents, offering standardized and detailed information about available plans, as well as a toll-free hotline to help consumers understand their options. Approximately 8.3 million Californians are expected to be eligible for coverage through the exchange. The program is expected to bring as much as $10 billion in subsidies for the state over ten years. An independent, five-member board will oversee the California exchange with responsibility for naming insurers that will participate, eligibility, and enrollment processes.

Congressional Research Service report: Can state exchanges prohibit plan participation?
According to the Congressional Research Service (CRS) analysis of PPACA, a state exchange could deny participation by every plan submitting certification if the exchange were to determine that every plan is not in the “interest of plan participation.” However, CRS analysts concluded the HHS Secretary could use her authority to prevent such a scenario.

Workforce update

HHS primary care workforce funding
HHS announced $253 million in grants to expand and improve the current primary care workforce, and an additional $67 million to support low-income individuals entering the workforce. The majority of the funding will support primary care residency expansions. Grants will also support physician assistant training, advanced nursing education, nurse-managed health clinics, state health workforce development, and personal and home care aide state training.

AAMC forecast: physician shortages; workforce commission named
The Association of American Medical Colleges (AAMC) estimates a shortage of 45,000 primary care physicians and 46,000 surgeons and medical specialists in the next decade. It anticipates one-third of practicing physicians will retire by 2020.

National Health Care Workforce Commission named
The 15 appointees to the National Health Care Workforce Commission were named by the Government Accountability Office (GAO) Thursday. PPACA requires the GAO to appoint the Commission members for three-year terms, but staggered terms are mandated for the first 15 members appointed in September 2010.

Overuse of imaging studies challenged in California
Wednesday, California Gov. Arnold Schwarzenegger (R) signed a bill requiring hospitals and clinics to record radiation doses for CT scans and to report any overdoses to patients and their doctors. Radiation and complications compromising patient safety have been a recent focus of Food and Drug Administration (FDA) investigation. The FDA currently regulates radiation equipment, but each state is responsible for how those machines are used and who is qualified to use them. Eight states allow technologists to perform medical imaging other than mammographies with no credentials or educational requirements.

Q and A

Q: How does health reform impact hospital quality measures and reporting?

A: Since 2007, hospitals have received payment reductions (two percent of the market basket update) for failing to report quality measures. Under PPACA, hospitals will be subject to payment reductions for failing to meet quality measure outcomes (Sec. 3001). In addition, new requirements and changes to existing programs are prominent in PPACA:

Value-based purchasing: Hospitals may face significant reductions in reimbursements based on value-based purchasing (VBP) provisions of PPACA. An analysis of hospital performance (VHA Inc. 2010) estimated that hospitals receive a national median VBP score of 53, when hospitals will likely need scores higher than 70 to receive the VBP payment incentive. The study also calculated that hospitals would face an average VBP revenue risk of $888,812 in 2012 and $6.67 million over five years. The median VBP risk is $250,415 for 2012 and $1.88 million over five years.

Physician Quality Reporting Initiative (PQRI) – Sec. 3002 extends through 2014, payments for physicians who successfully report quality measures under PQRI. It also creates an appeal and feedback process for PQRI participants and allows physicians to participate who completed a qualified Maintenance of Certification program with their specialty board of medicine. Beginning in 2014, physicians not participating in PQRI will have their Medicare payments reduced. Sec. 10327 provides an additional 0.5 percent Medicare payment bonus to physicians who successfully report quality measures to CMS through the new Maintenance of Certification program and eliminates the MA Regional Plan Stabilization Fund.

National strategy – Sec. 3002 requires the Secretary to establish and update annually a national strategy to improve the delivery of health care services, patient health outcomes, and population health. A Federal health care quality internet website must be established by January 1, 2011. Limitations on use of comparative effectiveness data apply to the development of the National Strategy for Quality Improvement (Sec. 10302).

Interagency Working Group on Health Care Quality – Sec. 3012 requires the President to convene a Working Group on Health Care Quality comprised of Federal agencies to collaborate on developing and disseminating quality initiatives consistent with the national strategy.

Quality measure development – Sec. 3013 provides $75 million over five years for the development of quality measures (consistent with the national strategy) at the Agency for Healthcare Research and Quality (AHRQ) and CMS. As amended by Section 10303, the Secretary of HHS is required to develop and publicly report on patient outcomes measures.

Quality measurement – Sec. 3014 provides $20 million for the endorsement and utilization of endorsed quality and efficiency measures by the Secretary of HHS for use in Medicare, providing quality performance information to the public, and in health care programs.

Data collection and public reporting – Sec. 3015 requires the Secretary of HHS to collect and aggregate consistent data on quality and resource use measures from information systems. The data must cover a broad span of populations, providers, and geographic locations, over time. It will be used to implement public reporting on performance information. HHS will make this data available to the public. As amended by Section 10305, the Secretary of HHS must develop a plan to collect and report quality measures. Funds will be appropriate as need for FY2010-2014. HHS may also award grants or contracts for this purpose.

Independent Payment Advisory Board – Sec. 3403 creates an independent, 15-member Payment Advisory Board that will propose to Congress ways reduce excess cost growth and improve quality for Medicare beneficiaries. In years when Medicare costs are projected to be unsustainable, the Board’s proposals will take effect unless Congress passes an alternative measure that achieves equivalent savings. Congress can consider an alternative provision on a fast-track basis. As amended by Section 10320, the Board is required to make annual recommendations to the President, Congress, and private entities on actions they can take to improve quality and control the rate of cost growth in the private sector. Beginning in 2020, the Board’s binding recommendations to Congress are limited to only every-other-year if the growth in overall health spending exceeds growth in Medicare spending.

Q: How will PPACA impact specialty insurance programs (i.e. travel insurance)?

A: As written, PPACA does not address specialty insurance products. Future regulation or sub-regulatory guidance could clarify how, if at all, such products will be addressed under the new law. We’ll be sure to keep you posted on the changes to this particular market.

Quotable

“Too many people in our country are not reaching their full potential for health because of preventable conditions. Moreover, Americans receive only half of the preventative services that are recommended—a finding that highlights the national need for improved health promotion. The 2010 Affordable Care Act responds to this real need with a vibrant emphasis on disease prevention.”

–Howard K. Koh, M.D., M.P.H., and Kathleen G. Sebelius, M.P.A. “Promoting Prevention through the Affordable Care Act”, New England Journal of Medicine 363:14 (September 30, 2010). Note: the article includes a summary of the 28 PPACA sections related to preventive health.

“In the past, scale hasn’t mattered. But with administrative costs getting the focus, we would have to grow significantly to stay in the (individual insurance market) business.”

–Dan Houston, President, Principal Insurance Retirement, Insurance and Financial Services, Wall Street Journal September 30, 2010, referencing Principal’s announcement it would exit the individual insurance market. Principal’s 840,000 individual members will be served by UnitedHealth Group as they expire per the announcement.

“We will be a fast second.”

– SVP Human Resources in Fortune 500 company referencing the possibility the company would exit health benefits altogether after 2017.

Fact file

47 physicians are on ballots for Congressional races and 15 are running for re-election. (Source: AMPAC)
3.7 million new Medicaid enrollees in 2009 bring total enrolled to 48.5 million. Nine states had enrollment growth of 15 percent or more. (Source: U.S. Bureau of the Census)
Number of physicians registered on twitterdoctors.net: 1,300. (Source: American Medical Association)
National Nurses United, the largest nurses union in the U.S. will begin a $200,000 ad campaign against Nevada Republican Senate nominee Sharon Angle today based on the candidate’s opinions that Medicare and Social Security should be privatized. Ms. Angle is running against Senate Democratic Leader Harry Reid in a closely watched race. (Source: NNU news release Sunday, October 3, 2010)
Early voting is underway in seven states already; begins in 17 others within two weeks. (Source: Politico)
Number of U.S. medical offices with one or more physicians: 227,575. (Source: AMA)
Best selling class of drugs in U.S.: Anti-psychotics $14.6 billion in 2009 revenues. More than a half-million youth and one-quarter of nursing-home residents use them. (Source: PhRMA, IMG Health)
State and local government increased tax revenues 1.7 percent in the second quarter of 2010. Corporate income taxes increased 18.3 percent, sales taxes +5.0 percent, property taxes +3.3 percent and individual income taxes unchanged. (Source: National Association of State Budget Officers)
Employer insurance premiums forecast: Employer premiums $9,821 in 2011 compared to $9,028 in 2010; employee premium contributions increase 12.4 percent to $2,209 in 2011; out-of-pocket costs increase 12.5 percent to $2,177 in 2011. Cities expected to experience higher-than-average rate increases include: San Diego, CA; Los Angeles, CA; Newark, NJ; Philadelphia, PA, and Tampa, FL. (Source: Hewitt Associates)
In its earnings release last week, Walgreens reported it increased its health professionals’ workforce 10,000 to 26,000 in the last year in anticipation of flu shot season. Note: Walgreens’ 7,561 stores’ had revenue growth of 8.1 percent; 66 percent from prescription drug dispensing. (Source: Walgreens)
The pharmaceutical industry spent $50 billion on research and development in 2008—a 2.6 percent increase from 2007. The increase was well below the average annual growth from the past 30 years (almost 9 percent). (Source: CBO, Pharmaceutical R&D and the Evolving Market for Prescription Drugs October, 2009, http://www.cbo.gov/ftpdocs/106xx/doc10681/10-26-DrugR&D.pdf)
U.S. manufacturers pay $2.38 an hour for health benefits, while U.S. major trading partners pay $0.96 an hour on average. (Source: New American Foundation, May 2008 http://www.newamerica.net/files/Employer percent20Burden percent20- percent20issue percent20brief.pdf)

National health reform: What now?

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