Health Care Reform Memo: August 23, 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.
The most frequent question I am asked as I travel is “who are the winners and losers in the reform bill”. Most often, the questioner seeks a sector-by-sector answer, hoping one stands out as the “victim” of reform.
The answer is not quite so simple. I’ve thought about it a lot. I have methodically read through the bill six times pad and pen in hand. I follow the daily rulemaking, committee hearings etc. to know where winners and losers might be. My conclusions at this point are two:
First, the “bill” is only part of the set of federal and state mandates, rules and regulations that will be written in coming weeks and months, so it is probably too soon to know. The devil is in the detail to follow.
Second, in all likelihood, there will be winners and losers in each sector. Health insurance plans face enormous hurdles in the new normal but many will survive and thrive as the insurance market expands and diversified offerings emerge. Hospitals face incredible challenges: accountable care, physician alignment, bundled payments, Medicare cuts and more while meeting deadlines for ICD-10 and electronic health record adoption. The suppliers to the industry—drug companies, biotech, medical device, durable medical equipment etc.—their customers face declining margins and pressure to cut costs. Long-term care must navigate in a world where their performance is transparent and costs more tightly managed while demand is explosive. And physicians—no fix to the payment formula apparent, no liability reform in the near term, increased transparency and limitations on conflicts of interest, and seemingly every element of PPACA encouraging integration over independence and autonomy.
My take: there’s no way to know for sure yet. Organizations that are adaptive to change, innovative in strategy and execution, and willing to take risk will survive and thrive. Others will fail. Each sector will face new rules, new realities and new challenges resulting from PPACA and its cadre of follow-on rules and regulations. Some organizations will focus exclusively on PPACA; others will consider it alongside increased demand for improved value, better service, lower costs, new solutions and demonstration of quality.
Winners and losers? Hard to say, but safe to say in every sector, there will be both. And it’s prudent to recall that changes of this magnitude in other industries and in health care historically have resulted in a host of new winners. Stay tuned.
Paul Keckley, Ph.D.
Executive Director, Center for Health Solutions
National Commission of Fiscal Responsibility and Reform update
Thursday, the 18-member commission reviewed the latest Congressional Budget Office (CBO) latest deficit forecast -- $1.34 trillion in 2010 and $1.0 trillion for 2011. Per the CBO, in 2014 Social Security will pay out more than it receives from current funding (6.2 percent payroll tax on the first $106,000 of income), tapping its reserve which are projected to run out in 2037, according to Congressional Budget Office estimates.
The commission will report its recommendations to the White House in December. Among possible scenarios closely watched are increasing Social Security and Medicare age eligibility to age 70 over a period of several years; increasing the Social Security tax; additional government spending cuts in programs like Medicaid; and possible benefits reductions. Its goal is to reduce the annual deficit to 3 percent of GDP by 2019 from 10 percent today.
Orszag leaving Office of Management and Budget (OMB) role
Peter R. Orszag, a proponent of health cost containment in the Cabinet as Director of the OMB resigned last month. In his testimony to the Senate (June 16-17, 2008) as CBO Head and in confirmation hearings (January 2009) as OMB nominee, Orszag cited Dartmouth data that 30 percent of health spending is wasted due to inappropriate overuse.
Department of Health and Human Services (HHS) leads government transparency progress
Thursday, the White House released results of its transparency/open government program comparing results in 30 departments and agencies. Federal Chief Technology Officer Aneesh Chopra and Cass R. Sunstein, administrator of the Office of Information and Regulatory Affairs, reported that 18 had made sufficient progress to meet targeted thresholds. Concurrent with the government’s report, an independent scorekeeper, OpentheGovernment.org, reported that 23 of 39 agencies and departments it monitored had met criteria. In both lists, the U.S. Department of Health and Human Services was cited as the most transparent. Note: In Section 1552 of PPACA, HHS was required to publish its plan to be compliant with transparency requirements of the bill within 30 days (by April 23, 2010).
2010 Medicare Trustee Report released
The annual Social Security Trustee Report was released last Monday concluding that Medicare spending increases will slow considerably to 5.3 percent compared to the 6.8 in prior years, increasing up to 60 percent by 2040. It forecasts the hospital trust fund will be solvent through 2029 if the provisions of the health reform bill are implemented per the Patient Protection and Affordable Care Act (PPACA). Note: The Centers for Medicare & Medicaid Services (CMS) Office of the Actuary’s footnotes to this report offer important insight about key assumptions built into the Trustee’s model, including overall economic recovery and slower Medicare spending resulting from PPACA’s mandates.
HHS releases funds to states for premium review oversight
Last week, 45 states and the District of Columbia received grants of $1 million each to create mechanisms for review of health insurance premiums per requirements in PPACA. Most will use the money to assess current data requirements, actuarial support needs and regulatory compliance procedures. HHS Secretary Sebelius noted, “States that have no authority to disapprove or even review rates are now seeking authority to do both, and states that have traditionally kept data on rates non-public are making that information public". Alaska, Georgia, Iowa, Minnesota and Wyoming did not apply. Note: 15 states and the District of Columbia currently have no oversight mechanisms in place.
Avastin review: Case study in comparative effectiveness
July 20, a Food and Drug Administration (FDA) advisory committee voted 12 to 1 to recommend that Avastin (bevacizumab) be pulled off the market. The Avastin review process is getting attention as a case study in the complexity of regulatory oversight and pending health reform legislation involving comparative clinical effectiveness research. Background: Avastin received approval for use under the FDA’s accelerated approval process in 2008 for use in breast cancer treatment. Up to 17,500 women face newly diagnosed metastatic breast cancer treatments annually. It was already approved for use as a first or second line treatment for kidney, colon and lung cancer, so the FDA used its accelerated approval procedure since it offered a promising novel therapy for an at-risk population. Numerous studies with somewhat conflicting results were reviewed: some concluded its toxicity and side effects (blood clots, heart failure) mitigate its value; other studies found its benefits outweighed its risks. Its molecular property is considered novel—it essentially blocks blood flow to a tumor thus reducing growth. It offered the potential to extend life two to five months, so accelerated approval was granted pending additional studies of its safety and efficacy. Avastin is an expensive drug: $8,000/month with a global market of $5.4 billion. Of 90 drugs approved by the FDA under its accelerated approval process since 2001, only one was taken off the shelf. The FDA is not required to follow the recommendation of the advisory panel but the agency is expected to concur when it issues its final ruling on or before Sept. 17. In PPACA, the Patient Centered Outcome Research Institute (PCORI) will likely weigh in on the drug’s efficacy and effectiveness, tapping into the clinical database of cumulated trials and derivative data from accumulated medical records via the HiTech provisions for widespread use of electronic medical records that facilitate extrapolation of patient data into searchable databases. And while the FDA and PCORI are precluded from considering costs in assessing Avastin and other therapeutics, pharmaceutical and biotech industry leaders fear costs will factor into approvals over time. Thus, the provisions of PPACA creating the PCORI (Section 6301) and Comparative Effectiveness Research Trust Fund (Section 6302) will likely encounter challenging scenario’s like Avastin as more data is available and increased transparency for patients increases public awareness.
Study: Physician ownership correlates to higher use; focus of PPACA limitations, provisions
Analysis over a five-year period comparing physician owner vs. non-owner volume of orthopedic inpatient and outpatient surgical cases found that ownership correlates to a significant increase in volume. 54-129 percent increase for carpal tunnel repair, 33-100 percent increase for rotator cuff, and 27-78 percent increase for arthroscopy. The Georgetown research team concluded: The consistent finding of higher use rates by physician owners across time clearly suggests that financial incentives linked to ownership of either specialty hospitals or ambulatory surgery centers influence physicians' practice patterns. (Source: Mitchell et al, Archives of Surgery. 2010;145(8):732-738. doi:10.1001/archsurg.2010.149)
Note: In PPACA, conflicts of interest of physicians and elements of their training and performance are a key theme. Consider: Physician-owned hospitals are precluded from expansion after March 23, 2010, increased transparency requirements for imaging centers and related conflict in interest provisions.
Consolidated Omnibus Budget Reconciliation Act (COBRA) gap
In the stimulus bill (ARRA 2009), people who lost jobs as a result of the economy were eligible for assistance in continuing their health insurance through their employer receiving up to 65 percent subsidy to help pay the premium. COBRA requires employers to continue coverage for former employees up to 18 months if they pay the entire premiums plus a 2 percent administrative fee. The subsidy program ended May 31, leaving newly unemployed without eligibility for the benefit. With economic recovery lagging and unemployment at 9.5 percent, new unemployeds do not have access to the COBRA subsidy program.
Q & A
Q: Can a physician organization be an accountable care organization (ACO) independent of a hospital?
A: Yes. Section 3022 says “physician groups, hospitals, nurse practitioners and physician assistants, and others” that are clinically integrated and able to meet quality and efficiency targets are eligible. Notably, HHS is empowered to use partial capitation as a method of paying ACOs, so in all likelihood, an ACO would be at risk for some portion of hospital (Part A), professional (Part B) and prescription drug costs (Part D). At the Secretary’s discretion, the $4.9 billion allocated to the program starting October 1, 2012 may be directed to integrated systems of care. Therefore, an ACO would need access to capital/core competence via outsourcing or collaboration to manage clinical and administrative data related to adherence to evidence-based treatment guidelines and cost-efficiency targets. Partnerships with hospitals or health insurance plans would be likely if a physician organization pursued an ACO independently IF the medical group did not already have infrastructure necessary to manage under capitation already in place.
Q: How does the reform bill deal with long-term care?
A: At a high level, the most significant elements of the bill relative to long-term care are:
- The requirement that the Secretary of HHS develop a national strategy for health care quality improvement that addresses coordination, quality and efficiency of care across the continuum for submission to Congress by October 1, 2011. It includes recommended measures to be used to evaluate the effectiveness and efficiency of the system’s performance (Sections 3013, 3014) and a methodology for facilitating interagency cooperation among all relevant federal programs, bureaus and departments (Section 3012).
- The creation of the CMS Medicare and Medicaid Payment Innovation Center (Section 3021) that will spend $1.3 billion starting October 1, 2011 for demonstrations/pilots that facilitate improvements in delivery system performance “across the continuum”.
- Extension of current Medicare, Medicaid and State Children's Health Insurance Program (SCHIP) payment models for long-term care hospitals for two years through October 1, 2012 (Section 3106).
- Changes to the method for payments for home care visits starting FY2014 with a forecast savings of $39.7 billion (Section 3131).
- Elimination of the Medicare Part D prescription drug “doughnut hole” by 2019 (Section 3301) with a variety of subsidies/administrative changes useful in improving access to drugs for seniors, at risk populations, dual eligibles, etc. (Sections 3302-3314).
- Requirement that skilled nursing facilities implement Version 4 of the Resource Utilization Groups (“RUG-IV”) by October 1, 2011 (Section 10325). Note: The industry has requested an amendment to delay its implementation by one year.
- And most notably, Title VIII of the bill that creates a national voluntary long-term care insurance program via the Community Living Assistance Services and Support (CLASS) Act originally introduced by the late Senator Ted Kennedy. It features automatic enrollment unless a person opts out (individuals pay a premium immediately and, after five years, those with functional limitations have the option of receiving a cash benefit of around $50 a day that can be used to offset the cost of long-term care services). Thus, $70.2 billion in new revenues were included in PPACA calculations as a result of the CLASS Act inclusion.
- The role long-term care will play is pivotal in the overall framework of health reform. The impetus for delivery system reforms is that care be better coordinated across the continuum, payments be made based on performance not volume, costs be justified, efficiency be rewarded and clinical processes evidence-based. Not surprisingly, long-term care is frequently referenced in the legislation:
- In Title II of the bill, a number of changes are made to Medicaid, Medicare and SCHIP programs including provisions to enhance access to hospice care for Medicaid children (Section 2302), the Community First Choice Option and state-level enhancements that facilitates access to home and long-term care facility services for lower income Medicaid eligibles (Section 2401-2405), and creation of the new Federal Coordinated Health Care Office (CHCO) in CMS to facilitate improved coordination of care for dual eligibles (Section 2602).
- In Title III, PPACA sets forth provisions for improved quality in long-term care including increased quality reporting requirements for long-term care hospitals, rehab hospitals and hospice programs (Section 3004 specifies the measures be defined by Oct 1, 2012 and reported starting October 1, 2013), requires Medicare to create a value-based purchasing program for skilled nursing facilities “effective on enactment” and report results to Congress October 1, 2011 (Section 3006), includes long-term care in provisions for episode-based payments to health systems starting October 1, 2013 (Section 3023), provides funds for a pilot program testing independence at home models (Section 3024), creates the Medicare Community Care Transition Program to fund 2011-2015 interventions in at-risk populations for the purpose of avoiding readmissions to hospitals (Section 3026), increases scope of practice for physician assistants in skilled nursing facilities (Section 3108), establishes a three-year Medicare Hospice Concurrent Care demonstration program to assess models of hospice care improvement (Section 3140), and extends current Medicare Advantage provisions for Special Needs Plans payments through 2013 (Section 3205).
- In Title IV, Medicare enrollees including those in long-term care programs are granted appropriate preventive health services and an annual wellness visit without a co-pay/deductible (Sections 4103-4104).
- In Title V, permits resident hours spent in long-term care and other non-hospital settings to count toward residency requirements (Section 5504).
- In Title VI, increased requirements for public reporting of ownership and conflicts of interest involving owners and referral sources to long-term care providers (Section 6101), alerts skilled nursing facilities that within two years additional accountability standards for quality and safety are forthcoming for which they will be accountable (Section 6102), requires the Secretary of HHS to create the Nursing Home Compare website to provide the public access to information about criminal violations of employees, complaints and all readily available state data (Section 6103 “effective on enactment”), and several operational requirements targeting improved patient safety, workforce training and transparency (Sections 6104-6201).
Historically, the various sectors of the long-term care industry have operated relatively independent of other sectors. The new normal in health reform suggests long-term care services will be mainstreamed into local and regional delivery systems integrating medical management and administrative processes to demonstrate better care, lower costs, and improved consumer experiences.
“Odd as the notion might sound, before health reform became so polarizing, an insurance mandate was a conservative value—an alternative that preserved private insurance rather than resorting to a government run system like Medicare.”
– Source: “If you have to buy health insurance, what will you get?” USA Today editorial, August 17, 2010
“On the policy front, the president signed the most recent stimulus bill to spend $26 billion to help the states avoid more layoffs. The Joint Committee on Taxation issued a study that rationalizes the coming rate increases on top earners if the Bush tax cuts are allowed to expire. This finding contradicts much of the economic literature, some of which was written by Christina Romer, the soon-to-depart Chair of the Council of Economic Advisors.”
– Source: Deloitte Weekly Economic Update, August 17, 2010. Note: the $26 billion included $16.1 billion for state Medicaid programs
- 21 states have no reserve funding for their employee health obligations. (Source: Pew Center on the States)
- 27 states provide free contraceptive and reproductive health services to low income women who do not qualify for Medicaid services because they earn above the state’s income eligibility threshold. In many states, women are eligible up to 250 percent of the federal poverty level (FPL). In 2014, eligibility for all state Medicaid programs will increase to 133 percent of the FPL with increased enrollment estimated at 16 million in between 2014 and 2019. (Source: Congressional Budget Office, National Conference of State Legislators)
- Kids who are youngest in their kindergarten class are 60 percent more likely to be diagnosed as hyperactive or attention-deficit hyperactivity disorder (ADHD). (Source: Journal of Health Economics)
- Total military compensation including health benefits, housing, enlistment bonuses, hazardous duty pay etc.: $122,263/soldier. Base compensation: $70,168/soldier. Military pay increased 84 percent from 2000-2009 vs. 37 percent for federal civilian employees and 9 percent for private sector employees. 16 of the 20 metropolitan areas with the highest population growth had major military facilities. (Source: U.S. Bureau of the Census, Bureau of Economic Analysis)
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.
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