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Health Care Reform Memo: September 20, 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

Thursday, the U.S. Census Bureau released its annual report: “Income, Poverty, and Health Insurance Coverage in the United States: 2009.” Comparing 2009 to 2008, the report noted that the number of Americans without insurance increased 4.4 million in 2009 to 50.7 million (16.7 percent of the population) and the number living in poverty increase 3.8 million to 43.6 million (1 4.3 percent of the population). Last month, the U.S. Bureau of Economic Analysis (BEA) reported that health costs for 2009 were 16 percent of household discretionary spending, second only to housing (17 percent).

The mid-term election is being widely regarded as a referendum on the U.S. economy. On February 24, 2009, in the President’s first prime-time speech after his inauguration, he challenged Congress to pass legislation that would “reduce costs and cover everyone.” Thirteen months later, the Patient Protection and Affordable Care Act (PPACA) passed. There’s no debate that additional coverage is achieved in the bill: At least 32 million will be insured between 2014 and 2016 as a result of Medicaid expansion and federally subsidized insurance coverage for individuals and small businesses who purchase through health exchanges. By contrast, there’s healthy skepticism about its impact on cost: Will new regulations that change the ways insurance companies operate services reduce costs? Thus far, the answer appears to be no. Regulations add 3.4–9 percent to their costs of operation, and in some cases more, according four plans referenced in a recent article in The Wall Street Journal. And those costs are in addition to underlying medical costs that will increase at least 6 percent this year. The promise of increased transparency of business practices, competition from health exchanges and expansion of risk pools attracting younger, healthier enrollees might in the long-term bend the insurance coverage cost curve. Time will tell.

Will changes to the delivery system result in reduced costs? Maybe. Accountable care organizations, the medical home, bundled payments, value-based purchasing and comparative effectiveness are important concepts; proof they will reduce costs and improve care is to be determined. It’s plausible to believe that alignment of physicians, hospitals and long-term care providers into local integrated delivery systems, a shift from volume to outcomes-based payments and adoption of a national standard of care based on evidence might bend the curve. Time will tell.

So in 43 days, the electorate will weigh in on their leaders at the state and federal levels. Health reform is likely part of the discussion, but the focus will be on the economy and jobs. That health costs contribute to the economic dilemma is clear; what’s not clear to most Americans is how costs can be cut while protecting aspects of the system we defend—choice of physicians and hospitals, employer-sponsorship for the commercially insured, state of the art facilities and “no harm, no foul” access that is blind to self-inflicted health problems and reckless, unhealthy lifestyles.

PPACA includes many elements that MIGHT bend the curve. Its implementation transcends four election cycles—2010, 2012, 2014 and 2016—before results will be evident. That health costs must be less is obvious; how to do it is the unknown. As long as election cycles and public confusion about a complex system are factors, meaningful solutions might be elusive. Time will tell.

Paul Keckely

Paul Keckley, Ph.D.

180 day anniversary this week; status of milestones

Thursday, September 23, is the 180 day anniversary of the passage of PPACA. Included in the legislation are several 180 day milestones—either  9/23/10 or 10/1/10—including:

Provision Section Number Effective Date Status Anticipated Timing
Establish annual premium rate review 1003 9/23/2010 Rule expected 10/1/2010
Expansion of dependent coverage to age 26 1001 (2714) 9/23/2010 Interim Final Rule published  
Prohibit pre-existing condition exclusions for children under age 19 1201 (2704) 9/23/2010 Interim Final Rule published  
Prohibit rescinding coverage except in the case of fraud 1001 (2712) 9/23/2010 Interim Final Rule published  
Prohibit lifetime limits 1001 (2711) 9/23/2010 Interim Final Rule published  
Allow annual limits on the dollar value of coverage as determined by the Secretary 1001 (2711) 9/23/2010 Interim Final Rule published  
Require coverage and eliminate cost-sharing for recommended preventive services 1001 (2713) 9/23/2010 Rule expected 9/2010
Establish internal claims and appeals and external review processes 1001 (2719) 9/23/2010 Interim Final Rule Published  
Prohibit employers from limiting coverage eligibility based on employee salary 1001 (2716) 9/23/2010 Rule expected 9/1/2010
Establish Medicare self-referral disclosure protocol 6409 9/23/2010 Rule expected 11/1/2010
Appointments to the Board of Governors for Patient-Centered Outcomes Research Institute (PCORI) 6301 9/23/2010 Action Expected  9/1/2010
Publish revised definition of average manufacturer price (AMP) 2503 10/1/2010 Rule expected 9/1/2010
Provide temporary adjustment to inpatient hospital payments for certain low-volume hospitals 3125 10/1/2010 Rule expected  
Require collection of hospice data for payment reform 3132 10/1/2010 Rule expected 11/1/2010
Skilled Nursing Facility (SNF) adjustment for productivity improvements  3401 10/1/2010 Rule expected 11/1/2010

Berwick announces goals for CMS

Don Berwick, newly appointed head of the Centers for Medicare and Medicaid Services (CMS), told America’s Health Insurance Plans’ (AHIP) Medicare conference attendees his goals for the agency are:

  1. To run an effective organization
  2. Implement the Affordable Care Act
  3. Help change health care in America, redesigning the delivery system to make sure every person can “count on getting exactly the care they need and want.”

Berwick was appointed CMS Administrator July 7 during the Senate’s 11-day recess per terms of Article II, Section 2 of the U.S. Constitution: “The President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session.” Due to appointment under this provision, his term ends in December 2011.

Federal workshop on ACOs announced

The Federal Trade Commission (FTC), CMS, Office of the Inspector General (OIG) and U.S. Department of Health and Human Services (HHS) will host a public workshop Tuesday, October 5, 2010, 9:00 a.m.– 4:30 p.m. regarding legal issues related to Accountable Care Organizations (ACOs). The workshop will focus on three areas:

  • How the variety of possible ACO structures in different health care markets could affect the prices and the quality of health care delivered to privately insured consumers, as well as to Medicare and Medicaid beneficiaries.
  • Whether, and if so how, the requirements of the law could or should be addressed in the regulations that CMS is developing for the Medicare Shared Savings Program.
  • Whether, and if so to what extent, any safe harbors, exceptions, exemptions or waivers from the law may be warranted.


Kaiser study: State Medicaid agency director survey

Key findings include:

  1. The recession continues to impact state Medicaid programs.
  2. Medicaid agencies are preparing for a key role in health care reform implementation.
  3. Across states Medicaid agencies, fiscal, administrative and provider capacity to accomplish health reform is a serious concern.
  4. Planning for the Medicaid expansion and coordinating eligibility with state insurance exchanges must begin now to be ready for implementation in 2014.
  5. Medicaid directors’ interest in new options, innovations and demonstration programs included in the health reform law is high.

(Source: Kaiser Family Foundation—

MedPAC comments on Home Health Proposed Rule

The Medicare Payment Advisory Commission (MedPAC) expressed concern with CMS’ implementation of two PPACA provisions:

  1. The requirement that the physician must have a prior face-to-face visit with the beneficiary before certifying the need for home health
  2. The requirement concerning hospice re-certifications.

(Source: MedPAC— HH edits final.pdf)

Q & A

Q: How will health reform or other regulations impact industry funding of continuing medical education (CME) programs?

A: Beginning March 31, 2013, PPACA requires drug and device manufacturers to electronically submit annual reports to the HHS Secretary describing payments and other transfers of value to physicians or teaching hospitals in the previous calendar year.

  • Manufacturers are not required to report information for payments less than $10, unless the aggregate amount is greater than $100 for the calendar year.
  • Report must include the name, business address and physician specialty and National Provider Identifier (if applicable) of the recipient, as well as the amount, date, form and nature of payments.
  • Secretary must deliver an annual report to Congress by April 1, beginning in 2013.
  • Information will be posted online beginning September 30, 2013, and updated annually on June 30.

Until then, industry-sponsored efforts to police conflicts of interest and increase transparency are the basis for CME-related interactions between by providers and manufacturers.

Most academic medical centers (AMCs) have established regulations of their own. 

Example: University of California, San Francisco (UCSF) School of Medicine

  • Commercial support for educational programs must be free of actual or perceived conflict of interest.
  • All educational programs within the School of Medicine must abide by the Standards for Commercial Support established by the Accreditation Council for Continuing Medical Education (ACCME).
  • All funds provided by industry or an industry representative to support educational programs must be given the University as an unrestricted grant. The funds can be provided to the Department, Program or Division, but cannot be given to an individual faculty member, student or staff.
  • No gifts may be accepted in exchange for listening to a lecture or presentation by a representative of a commercial entity that produces health care or medical goods and services.
  • Vendors may provide educational activities on a UCSF site only if they are requested to do so by the department chair or designee.
  • These requirements do not apply to meetings governed by ACCME Standards or meetings of professional societies and other professional organizations that may receive partial industry support.


Example: Harvard Medical School (HMS)

  • Following a transition period, sponsorship by a single health care corporation (pharmaceutical, medical/dental device or supply or other biomedical company) of any HMS/ Harvard School of Dental Medicine (HSDM) accredited CME shall be prohibited.
  • Industry support shall be acceptable if:
    • Funding is provided for a specific course/program in conjunction with one or more other industry sponsors in a relatively equitable way, with no one sponsor accounting for more than 50 percent of a particular course budget or
    • Money is contributed to a Dean’s Fund for CME, which shall be established by HMS/HSDM to support programs aimed at advancing strategic objectives in CME as determined by the HMS/HSDM Departments of CME.


In June 2010, the Association of American Medical Colleges (AAMC) issued guidance on ways AMCs can identify, evaluate and disclose conflicts of interest in clinical care. Its report recommended AMCs should:

  • Evaluate their compensation systems in order to determine whether the bases for compensation and reward adversely influence physician behavior and conflict with the best interest of patients.
  • Establish mechanisms to identify physician-industry financial relationships, evaluate their potential for biasing the clinical practice and eliminate, limit or manage those that appear to represent a risk of bias.
  • Explicitly address conflicts of interest in clinical care that could result from financial relationships with industry involving products used in the treatment of patients, or from personal financial interests of their officials.
  • Disclose industry ties of their physicians to patient communities to manage actual and perceived conflicts of interest in clinical care.  Efforts should be made to use uniform standards and definitions.
  • Involve patient communities in determining the manner in which financial relationships of its physicians and of the institution itself should be made available to patients.


The Pharmaceutical Research and Manufacturers of America’s (PhRMA) 2009 voluntary code on relationships with U.S. health care professionals also includes guidance about support for CME:

  • A company should separate its CME grant-making functions from its sales and marketing departments.
  • Any financial support should be given to the CME provider, which, in turn, can use the money to reduce the overall CME registration fee for all participants.
  • Financial support should not be offered for the costs of travel, lodging or other personal expenses of non-faculty health care professionals attending CME.

(Source: Marketing Code 2008.pdf)

Future Legislation/Regulation: Legislation or regulations specifically addressing industry funding CME is not expected any time soon. However, the new federal manufacturer payment transparency requirements may lead to stricter limitations on industry funding (see Other Issues to Consider for more information).

Implications for Manufacturers: With the release of the AAMC report, as well as the recent attention drawn onto the industry-health care provider financial relationship, AMCs will likely continue to enforce policies that regulate their interactions with manufacturers. Because most, if not all, AMCs have existing conflict of interest policies, how well they enforce the policies will be scrutinized.

Other Issues to Consider: PPACA places emphasis on physician self-referral and transparency, so efforts to disclose financial relationships should be stepped up in light of Congressional intent that a firewall be built between commercial interests and decisions about patient care made by clinicians.


“I urge lower costs without harming a hair on any patient's head….It's a stark, clear reality. Our health-care system, in its current form, is not up to that job. We cannot, with our current system of care, give Americans the care that they need and want and deserve.”

 – Source: Don Berwick, Administrator, CMS, September 13, 2010 speaking to AHIP’s Medicare and Medicaid Conferences

“This is the first time in memory that an entire decade has produced essentially no economic growth for the typical American household.”

  – Source: Harvard economist Lawrence Katz commenting on the Census report

“For the first time in the history of humanity, people over the age of 65 will soon outnumber the numbers of children under 5.”

 – Source: Economist Intelligence Unit analysis “Quality of Death” Index comparing access and costs for hospice care services in 40 countries, July 2010

“Physician-owned hospitals and other entities have found themselves in a situation where they cannot grow because of those (PPACA) regulatory changes, and they are looking for alternatives.”

 – Source: Trey Crabb, Modern Healthcare, September 6, 2010

Fact file

  • 18 percent of pharmaceutical industry revenues invested in research—down from 20 percent from 2001-2007. At the same time, the cost to bring a new drug to market hit an all-time high of $2 billion at a time when patents are expiring—loss of $80 billion in past 5 years, and $100 billion in next 5 years. (Source: PhRMA)
  • Decline in personal income 2007-2009—4.2 percent—wiping out income gains since 1999. (Source: Harvard economist Lawrence Katz)
  • From 2008 to 2009, the number of people with health insurance decreased 1.5 million (253.6 million in 2009 from 255.1 million in 2008)—the first year the percentage insured decreased since 1987. Of these, the number covered by private health insurance decreased to 194.5 million from 201.0 million in 2008 while the number covered by government health insurance increased to 93.2 million in 2009 from 87.4 million in 2008. For 2009, the distribution of the insured: 63.9 percent private insurance vs. 66.7 percent in 2008; government insured 30.6 percent vs. 29.0 percent in 2008. Government insurance programs include 47.9 million covered by Medicaid, 43.4 million covered by Medicare. (Source: U.S. Census Bureau)
  • 1,100 federally funded community health centers provided primary health care to 17.1 million people from medically under served populations in 2008. (Source: Geiger Gibson/RCHN Community Health Foundation Research Collaborative at the George Washington University School of Public Health and Health Services)
  • Employer health care costs for active employees will increase 8.2 percent in 2011, to $10,730 per employee per year. In the past five years, employee contributions have outpaced pay increases by 33 percent. Fifty-nine percent of employers intend to make moderate or significant structural changes to health benefits and 43 percent say they will reconsider long-term benefit strategy in 2011. (Source:  Towers Watson)
  • Fifty-three percent of employers plan changes to their benefit plans despite the uncertainty of PPACA, 19 percent are scaling back changes they planned to make and an equal number are making no changes. (Source: National Business Group on Health)
  • By 2020, people age 65 and older will comprise 15.5 percent of the U.S. population, up from 13 percent today. It projects that 18 percent of drivers on American highways will be seniors. (Source: World Bank) 
  • Median expected investment return for 100 U.S. public pension plans for 2010: 8 percent, the same level as 2001. Among public pension plans, average expected return is 7.8 percent, among S&P: 8 percent. Note: Public pension plans earned an average of  9.3 percent annually for 25 years but only 3.9 percent for the past 10 years, putting pressure on state and local governments to cut budgets or increase taxes to fund employee health and retirement obligations. (Source: National Association of State Retirement Administrators)
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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