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Health Care Reform Memo: August 27, 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: U.S. health care system costs compared to other leading nations, in the eyes of American consumers

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

Among the most perplexing findings in our consumer surveys is the disappointing perception of the U.S. health system’s performance relative to ratings in other countries by their respective constituencies. Why would individuals in France or Switzerland believe their system’s outperforms ours? And given that the U.S. system spends at least 30 percent more per capita than any of these countries, how do investments in a country’s health system relate to the value seen by its citizenry?

Percent of consumers rating their health care system as an “A” or “B”

Percent of consumers rating their health care system as an “A” or “B”

*Note: 22 percent of consumers rated the U.S. health system as an “A” or “B” in the 2011 survey. This increase could indicate the start of an upward trend, but the format of this question changed slightly from previous years—in 2012, respondents were asked to grade the overall performance of the system after grading specific elements. Perhaps, after considering those specific elements of the system, respondents came to a more positive assessment than they might have if asked first to grade overall performance. Data for other countries are from the 2011 Survey of Health Care Consumers Global Report.

As it turns out, the answer is not so complicated: consumers in countries like the UK are taught early to understand their system of care; it’s a vital part of their education and a source of national pride. Thus, the National Health Service was featured by the Brits in the opening ceremony of the Olympics last month.

The fact is that the U.S. system is not structured to be understood easily nor is it inclined to be compared to any other. Our system has evolved: it is highly regulated at the state and federal levels, highly fragmented, expensive and big—one seventh of our economy and one of nine new jobs projected in the next decade.

It seems to me the perceived and actual value of our system is the big challenge: because many consumers pay less than 20 percent of the costs for their care, the total costs for the products and services we use are unknown. Because we tend to believe whatever a physician suggests without studying treatment options independently, we tend to assume all care is necessary care. Because there are no repercussions of unhealthy lifestyles and non-adherence to recommended treatments, we are not inclined to think our behavior impacts costs. And because we think in terms of anecdotal experiences with doctors, nurses, hospitals, and insurance plans we use, ours is a uniquely personal view of system performance that’s circumstantial rather than studied. As a result, “quality” is about bedside manner and paperwork hassles more so than accuracy of diagnosis and appropriateness of treatments. And costs and prices are unrelated: what’s charged for a service varies not based on actual costs but on who’s paying.

Every industry in our economy faces a pivotal moment in time when it must assess its value proposition. Health care is no exception: is each citizen getting $9,000 per year of value from the system? Is it worth annual increases of 6 percent per year for the next decade? Does its performance justify consumption of 19 percent of total annual discretionary spending in the average U.S. household? For some, the answer is probably yes; for the majority, maybe not—especially if other means are available to get the same or better services cheaper.

The Affordable Care Act (ACA) tackles value head on in several areas: notably, efforts to improve the performance of medical practitioners, hospitals, long term care providers, insurance plans, and others. But at the end of the day, the discussion about value that needs to come front and center is this: how can the U.S. health system better demonstrate its value and secure the confidence of its citizens?

I have spent time in most of the countries where citizens seemingly think their health systems are better. In our surveys, more than half of the U.S. population think the U.S. system is wasteful (62 percent indicated they believe 50-100 percent of the money spent on health care in the U.S. is wasted), and even those with insurance fear an unforeseen medical problem could bankrupt them.

It’s ironic the U.S. health system is not at the top of the list. Perhaps it’s because we have failed to make our case effectively. Or perhaps there’s a gap in what we assume valuable to our customers—consumers in every stage of life and health, not just those with a medical problem today.

Maybe it’s time for the U.S. health system to make its case for value—hopefully avoiding tendencies to shun sectors that are deemed less valuable than others. And maybe it’s time for all of us to invest time in better understanding our system of care, especially since it matters to each of us so personally and directly.

Paul Keckely

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

Value: a critical component of the ACA

Section Provision Provision implementation year Importance to value
3001 Hospital value-based purchasing program 2012 Hospital value-based purchasing programs will be implemented under which value-based incentive payments are made in a fiscal year to hospitals that meet defined performance standards.
3006 Value-based purchasing program for skilled nursing facilities and home health agencies 2012 A value-based purchasing program for payments under the Medicare program for skilled nursing facilities will be implemented in October 2012.
3007 Value-based payment modifier under the physician fee schedule 2013 “The Secretary shall establish a payment modifier that provides for differential payment to a physician or a group of physicians under the fee schedule established under subsection (b) based upon the quality of care furnished compared to cost (as determined under paragraphs (2) and (3), respectively) during a performance period.”
10301 Value-Based purchasing program for ambulatory surgical centers 2012 A value-based purchasing program for payments under the Medicare program for ambulatory surgical centers will be implemented in October 2012.
1003 Consumer protection 2010 A process for annual review, beginning with the 2010 plan year and subject to subsection (b)(2)(A), of unreasonable increases in premiums for health insurance coverage to “ensure consumers get value for their dollar” was established.
610326 Pay-for performance 2016 ACA includes pilot testing for pay-for-performance for certain Medicare providers. Providers are rewarded for meeting certain payor objectives, such as increasing quality and patient safety (i.e., enhancing the value of health care services). Must be implemented no later than January 2016.
10329 Developing methodology to assess health plan value 2011 “The Secretary, in consultation with relevant stakeholders including health insurance issuers, health care consumers, employers, health care providers, and other entities determined appropriate by the Secretary, shall develop a methodology to measure health plan value.”
1001 amending section 2713(5)(2)(c) of PHSA Coverage of preventive health services 2010  “The Secretary may develop guidelines to permit a group health plan and a health insurance issuer offering group or individual health insurance coverage to utilize value-based insurance designs.”

Implementation update

Medicare reforms to be in spotlight at conventions

A major theme in Tampa this week (GOP Convention) and Charlotte the next (Democratic Convention) will be Medicare reform. A number of proposals will be debated as the solvency of the program that insures 40 million seniors and 8 million Americans with disabilities is in question.

Over the past five years, the program’s costs have exceeded the overall growth of the economy every year: Medicare alone spends $536 billion or 3.6 percent of the U.S. gross domestic product (GDP). Ten percent of its enrollees represent 63 percent of the program’s expenditures, and 5 percent of Medicare patients who die each year account for 30 percent of Medicare's costs. With 8,000 Americans turning 65 everyday, demand will increase with enrollment at 79 million by 2030. The data are compelling; the solutions challenging.

Five year average annual Medicare expenditures Five year average annual consumer price index
Part A (hospital): +3.7%/year Hospital services:+6.5%/year
Part B (physicians): +4.2%/year Medicare care +3.6%/year
Part C (Medicare Advantage): +2.5%/year Professional services: +2.9%/year
Part D (Prescription Drugs): +3.9%/year Prescription Drugs: +3.5%/year

Source: 2012 Medicare Trustees Report

Several proposals will be discussed in addition to elements in the ACA. It’s not a new challenge for policymakers: in 1999, a Medicare Commission made a series of recommendations that were subsequently not implemented. And several organizations have offered their views in recent years:

Proposals for Medicare reform Proposed implementation date of reforms Key Points
“Patient Protection and Affordable Care Act of 2010” Implementation: 2010-2015
  • Provisions include closing the donut hole for Part D (Section 3301), free preventive benefit (Section 4103), the Independent Payment Advisory Board (IPAB, Sections 10320, 3403), and other delivery system reforms
  • Total projected net savings: $427.8 billion (2010)
  • No premium support
Mitt Romney
“Medicare: Preserve it. Strengthen it.”
  • Medicare beneficiaries can opt to stay in “traditional” Medicare— if this option is more costly than purchasing insurance with premium support in the private market, beneficiaries will pay the difference
  • High income beneficiaries will pay more in premiums than low-income beneficiaries
  • If premiums for the plan chosen are less than support provided, beneficiaries may use the balance for other out-of-pocket health expenses
Congressman Paul Ryan:
"The path to prosperity:  A Blueprint for American Renewal," March 20, 2012
  • Beneficiaries would receive premium support—a defined federal contribution to purchase a plan actuarially equivalent to the services offered under fee-for-service (FFS) Medicare to purchase health insurance in a Medicare Exchange
  • Growth in Medicare payments per beneficiary could not exceed GDP + 0.5%
  • Repeal IPAB
  • Repeal Part D expansion under the ACA
  • All other provisions in ACA remain in tact
Domenici-Rivlin, Bipartisan Policy Center:
“The Domenici-Rivlin protect Medicare Act,” November 1, 2011 and updated June 15, 2012
  • Beneficiaries would receive premium support—a defined federal contribution to purchase a plan actuarially equivalent to the services offered under FFS Medicare to purchase health insurance in a Medicare Exchange
  • If Medicare payments increase beyond GDP + 1% (parts A, B, and D), Medicare beneficiaries with incomes above 150% federal poverty line (FPL) will have increased cost-sharing
“Guaranteed Choices to Strengthen Medicare and Health Security for All:  
Bipartisan Options for the Future,” December 15, 2011
  • Beneficiaries would receive premium support—a defined federal contribution to purchase a plan actuarially equivalent to the services offered under FFS Medicare to purchase health insurance in a Medicare Exchange
  • Congress must intervene if Medicare payment exceeds nominal GDP + 1% per beneficiary; interventions could include: changes to provider reimbursements, drug companies, program overhead, and/or means-tested premiums
"Seniors Choice Act," February 16, 2012
  • Beneficiaries would receive premium support—a defined federal contribution to purchase a plan actuarially equivalent to the services offered under FFS Medicare
  • Repeal IPAB
  • No cap to federal spending
CATO Institute:
“A Plan to Cut Spending and Balance the Federal Budget,” April 1, 2011
  • Voucher system
  • Long term: seniors would rely on health savings accounts (HSAs)
  • Money not spent could be saved
Republican Study Committee:
“Honest Solutions: Fiscal Year 2012 Budget,” April 8, 2011
  • Optional private health insurance
  • Premium support eventually
  • Catastrophic coverage mandatory
  • Dual eligibles would receive a “fully funded account” for out-of-pocket expenses
Heritage Foundation:
“Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity,” May 10, 2011
  • Premium support based on weighted average of participating health plans’ bids on a regional basis (first five years)
  • Premium support set at 88% of the lowest cost health plan that meets requirements
American Enterprise Institute:
“A Balanced Plan for Fiscal Stability and Economic Growth,” May 25, 2011
  • Convert into premium support system over ten years
  • Subsidies determined based on income and health status
“A Long-Term Plan for Medicare and Medicaid,” November 17, 2010
  • Premium support to purchase insurance in a Medicare Exchange
  • Premium support sets at average federal cost per Medicare beneficiary in 2021
  • Individuals enrolled in Medicare prior to 2021 would have the option to stay enrolled in “traditional” Medicare

Sources: Kaiser Family Foundation, “Comparison of Medicare Premium Support Proposals,” 2012;  Mitt Romney, “Medicare: Preserve it. Strengthen it.” 2012; Stuart Butler, Alison Acosta Fraser, and William Beach, Heritage Foundation, “Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity,” May 2011

My take: the topic of Medicare reform is highly volatile. All parties agree it must be transformed or it risks insolvency. Disagreement seems strongest about how. A number of proposals have been made, dating back 13 years, including at least 11 involving premium support or voucher programs. Others have encouraged combinations of increased enrollee premiums, increased age for eligibility, privatization of the program, and structural changes that target coordinating care for the elderly to avoid unnecessary hospitalization costs.

Invariably, legislative changes to the popular program are not dramatic: it’s a popular program seen by seniors as key to their security in old age. And seniors vote, complicating a politician’s ability to be candid at times.

It might make sense to convene seniors, their children, and grandchildren to hash it out. It’s not just about what seniors want; it’s about their needs and expectations, along with future generations. And in the process, might other levers be considered—accelerating administrative simplification, liability reform, changing incentives from FFS to value-based performance, increasing transparency about costs and outcomes, rewarding healthy lifestyles, and making it easy for people to understand treatment options and risks based on evidence from cradle to grave?

Regardless of what happens in Tampa or Charlotte, it’s a discussion we need to have and a bold solution needs to be found. And the generations most impacted need to be directly involved.

Medicare costs can be reduced, the program’s solvency permanently settled, and the quality and safety of the health care services accessible to its enrollees demonstrably improved: it’s possible. The data are compelling about the waste, fraud, and suboptimal care rampant in the program. But it might require those most impacted—seniors, their children, and grandchildren—to be engaged directly in understanding the fact base and plotting a new course that takes advantage of the program’s strengths and fixes its notable flaws. Too much is at stake otherwise.

CMS announces participants in primary care management services for Medicare FFS beneficiaries

Wednesday, the Centers for Medicare & Medicaid Services (CMS) announced the selection of 500 primary care practices representing 2,000 providers in seven states (Arkansas, Colorado, New Jersey, Oregon, New York, Ohio, Kentucky, and Oklahoma) who will participate in a new partnership with CMS, state Medicaid agencies, commercial health plans, and self-insured employers. Under the Comprehensive Primary Care Initiative—a four-year program administered by the CMS Innovation Center—CMS will pay a set care management fee ($20 on average) per beneficiary per month to primary care practices to support coordinated care management services for Medicare FFS beneficiaries.

Note: the practices were chosen based on several factors: use of health information technology (IT), ability to demonstrate recognition of advanced primary care delivery by leading clinical societies, service to patients covered by participating payers, efforts to transform their practice and improve their activities, and diversity of geography, practice size, and ownership structure.

Administrative simplification final rule issued re: provider identification standardization

Friday, the U.S. Department of Health and Human Services (HHS), per Section 1104 of ACA, released a 208-page final rule requiring insurers to use a standard unique identifier for capturing and reporting information about enrollees.

Background: when health care providers bill health plans, plans use identifiers that do not have a standard format. In some cases the identifiers are unique to each plan. This can cause provider payments to be delayed due to misrouted or rejected transactions or difficulty in determining a patient’s eligibility. The final rule makes a final proposed one-year delay in the compliance date for the use of new codes that classify diseases and health problems from October 1, 2013 to October 1, 2014.

According to HHS, this is the fourth administrative simplification regulation released through the ACA. Previous regulations include:

  • July 8, 2011: HHS adopted operating rules for two electronic health care transactions making it easier for health care providers to determine patient eligibility and claim status once submitted to insurers—estimated savings of up to $12 billion over ten years.
  • January 10, 2012: HHS adopted standards for electronic funds transfers (EFT) and remittance advice transaction between health care plans and providers—estimated savings of up to $4.6 billion over ten years.
  • August 10, 2012: HHS published an interim final rule that adopted operating rules for the EFT and electronic remittance advice transaction—estimated savings of up to $4.5 billion over ten years.

ICD-10 delayed to October 1, 2014, included in health plan identifier final rule

As proposed in April, HHS finalized a one-year delay in the compliance deadline for the conversion to the International Classification of Diseases Tenth Revision (ICD-10) code sets, moving the compliance deadline to October 1, 2014. HHS determined the extra time would allow healthcare organizations, especially smaller organizations, adequate time for the changeover.

The notice was included in in the health plan identifier final rule.

Legislative update

CMS releases final rule for Stage 2 meaningful use

Thursday, CMS released the final rule for Stage 2 of the Medicare and Medicaid EHR Incentive Programs and a final rule on the Standards, Implementation Specifications and Certification for Electronic Health Record Technology specifying specific criteria for practitioners and organizations that wish to comply with Stage Two requirements starting in 2014:

Key takeaways from the Stage 2 final rule are as follows:

  • CMS modified the patient engagement threshold, previously set at 10 percent, to 5 percent in response to provider concerns that they would not be able to meet the threshold.
  • Any Medicare eligible provider or hospital that demonstrates meaningful use in 2013 will avoid payment adjustment in 2015.
  • The “exchange of key clinical information” core objective from Stage 1 was replaced by a “transitions of care” core objective.
  • The “provide patients with an electronic copy of their health information” core objective was replaced with an “electronic/online access” core objective.
  • Two new core objectives were added: “use secure electronic messaging to communicate with patients on relevant health information” and “automatically track medications from order to administration using assistive technologies in conjunction with an electronic medication record.”
  • Summary of care documents, whereby a provider would be required to send a summary of care record for transitions of care referrals, was reduced to a threshold of 50 percent—previously 65 percent.
  • The electronic transmission of summary of care documents for transition of care referrals was finalized at 10 percent.
  • CMS is requiring at least one instance of exchange with a provider using electronic health record (EHR) technology designed by a different EHR vendor or with a CMS-designated test EHR.
  • Eligible providers must report on nine out of 64 total clinical quality measures (CQMs).
  • Eligible hospitals and CAHs must report on 16 of 29 total CQMs.
  • All providers must select CQMs from three of the six key health policy domains:
    • Patient and family engagement
    • Patient safety
    • Care coordination
    • Population and public health
    • Efficient use of health care resources
    • Clinical processes/effectiveness

Background: per the Health Information Technology for Economic and Clinical Health (HITECH) Act, providers and hospitals can qualify for Medicare or Medicaid incentive payments if they adopt and meaningfully use certified EHRs. Stage 1 required eligible providers including physicians, community hospitals, and critical access hospitals (CAHs) to collect data electronically and provide patients with electronic copies of their health information.


“Stage 2 puts a greater emphasis on using health IT to improve and monitor care in real time at the point of care in hope that the patient's information will move with the patient. Among other challenges, patient access to their health information from the electronic health record is an important difference from Stage 1 to Stage 2 and maybe one of the most challenging objectives that the health care industry will have to meet. Almost across the board, the clinical quality measure expectations have been increased, putting greater emphasis on using the technology to demonstrate and measure that safety is being enhanced and quality of care is improving over time.”

—Harry Greenspun, M.D., Senior Advisor, Deloitte Center for Health Solutions, Washington DC

“Overall, we're pleased that they have removed the administrative burden on eligible professionals on allowing groups to report batch information for certain measures. They've decreased the thresholds for some meaningful-use requirements, in particular: providing online access for the patient to get a hold of their medical records.”

—Robert Tennant, Senior Policy Advisor, MGMA-ACMPE

“We were happy to see CMS acknowledge and continue to make efforts to align meaningful-use quality reporting requirements with other quality reporting programs to reduce duplication and reporting burden. Having the ability to kill two birds with one stone is more efficient and reduces cost.”

—Allison Viola, Senior Director of Federal Relations, American Health Information Management Association (AHIMA)

“While we appreciate that CMS has allowed for a shorter meaningful-use reporting period for 2014, we are disappointed that this rule sets an unrealistic date by which hospitals must achieve the initial meaningful-use requirements to avoid penalties. In addition, CMS complicated the reporting of clinical quality measures and added to the meaningful-use objectives, creating significant new burdens.”

—Linda Fishman, Senior Vice President of Public Policy Analysis and Development, American Hospital Association (AHA)

Related: AHA urges FCC to modify Internet program to enable meaningful use by rural hospitals

Last week, AHA sent a letter to the Federal Communications Commission (FCC) suggesting changes to the six-year-old Rural Health Care Pilot Program—a program aimed to provide an infrastructure for letting rural health care providers build networks to connect them to their urban counterparts. The letter suggested the FCC proceed quickly with a final rule on the program and suggested the program’s application and reporting requirements be simplified to increase participation. “While 29 percent of urban hospitals had adopted at least a basic EHR by fall 2011, only 19 percent of rural hospitals had done so. Similarly, the Government Accountability Office recently reported that in 2011 acute care hospitals were more than twice as likely as critical access hospitals to have been awarded a Medicare incentive payment for successfully meeting the federal criteria for meaningful use of an EHR.”

CBO releases budget outlook update, marks down forecast for Medicare spending

Last week, the Congressional Budget Office (CBO) released its latest budget outlook update projecting that the budget deficit in fiscal year (FY) 2012 will be $1.1 trillion (7.3 percent of GDP). Federal debt held by the public will reach 73 percent of GDP by the end of the fiscal year—the highest level since 1950 and double what it was at the end of 2007 (36 percent of GDP). The CBO projects the economic recovery to continue at a modest pace for the remainder of 2012 with real GDP increasing at an annual rate of about 2.25 percent in the second half of the year (compared to 1.75 percent in the first half).

  CBO Baseline CBO Alternative Scenario
Unemployment 2013  9.1 % 8.0 %
Unemployment 2022 5.3 % 5.3 %
GDP 2013 -0.5 % 1.7 %
GDP 2022 2.3 % 2.1 %

Note: the CBO baseline assumes Bush tax cuts expire, sequester cuts are implemented, Medicare sustainable growth rate (SGR) cuts for physicians are made, and unemployment benefits extensions expire; the alternative scenario assumes the tax cuts are extended, sequester cuts to Medicare are suspended; Bush tax cuts and payroll tax reductions expire.

In its report, CBO outlined the various policy changes that are due to occur in January 2013 under the current law that will have the largest impact on the budget and economy:

  • Provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010;
  • Reductions in Medicare’s payment rates for physician services that are scheduled to take effect;
  • Automatic enforcement procedures established through the Budget Control Act of 2011 to restrain discretionary and mandatory spending; and
  • Extensions of emergency unemployment benefits and a reduction of 2 percent points in the payroll tax for Social Security are set to expire.

The CBO marked down its forecast for Medicare spending, but also noted spending on Medicare and Medicaid is expected to grow faster than the economy, reaching an expected 14.4 percent of GDP by 2022. According to CBO Director Douglas Elmendorf, the agency has marked down Medicare spending projections for 2019 for the last three years by about $100 billion due to program specific factors. Elmendorf ascribed the slower growth to such factors as the weakened economy, slower growth in spending on medications, health care delivery restructuring, changes in the way providers are being paid by both Medicare and private insurers, and individual and household consumers spending more out-of-pocket on medical services.

CBO estimates federal spending for mandatory health care programs will fall by $27 billion this year (around 3 percent) primarily due to a $22 billion reduction in federal spending for Medicaid. Spending for Medicare in 2012 is expected to be lower than in 2011 by $9 billion largely due to $15 billion in payments being made in FY2011 rather than 2012 because the first day of FY2012 fell on a weekend. Without this shift, Medicare outlays would be up by nearly 4 percent this year. (Source: Congressional Budget Office, “An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022,” August 2012)

State update

Moody’s: states’ decisions on Medicaid expansion not likely to affect credit ratings

Tuesday, Moody’s Investors Service announced that individual credit ratings of states will not be affected by a state’s decision to participate in the Medicaid expansion—Section 2001 of the ACA. Instead, the Senior Vice President of Moody’s, Kenneth Kurtz stated: “the extent of any effects on ratings will depend on how states respond to underlying cost drivers, including any new federal actions.”

Note: average annual growth in Medicaid has remained stable in most states and below national health spending trends. According to Kaiser Family Foundation, average annual growth in Medicaid spending: 1990-2001: 10.9 percent, 2001-2004: 9.4 percent, 2004-2007: 3.6 percent, 2007-2010: 6.8 percent. (Source: Kaiser Family Foundation, Average Annual Growth in Medicaid Spending, FY1990 - FY2010)

State Round-up

  • The U.S. Court of Appeals for the 5th Circuit ruled that Texas can prevent tax dollars from funding any organization that provides abortion—overturning a federal district court ruling that would have blocked Texas from enforcing the state law.
  • California, Connecticut, Hawaii, Iowa, Maryland, Nevada, New York, and Vermont have received new grants to help support the establishment of health insurance exchanges (HIX). California, Hawaii, Iowa, and New York received a Level One grant, with awards as high as $194.5 million in the case of California. Connecticut, Maryland, Nevada, and Vermont received Level Two funding with awards between $50 and $100 million.
  • Massachusetts Governor Deval Patrick (D) signed into law a bill aimed at reducing prescription drug abuse by placing strict regulations on doctors and pharmacists and requiring all losses or theft to be reported.
  • Nevada is moving forward with HIX implementation, signing a contract last week with Xerox State Healthcare for $72 million to set up IT infrastructure.
  • Kentucky Governor Steve Beshear’s (D) executive order authorizing a state-operated HIX has been delayed by the legislature’s Interim Joint Committee on Health and Welfare. Representative Tom Burch (D), co-chairman of the committee, stated that even if the committee votes against the executive order, the governor has the authority to override it. The committee called by voice-vote a special hearing in September in order to vote on the executive order within 60 days.
  • Maryland hospitals and regulators are discussing a proposal from the Maryland Hospital Association that shifts costs to private payers by raising the rates they pay to hospitals by 7 percent over three years, and giving discounts to Medicare and Medicaid beneficiaries. The plan would raise charges for commercial insurers and their enrollees by approximately $350 million per year and make the price of a typical hospital admission about $900 more, on top of health care inflation.

Industry update

Aetna to acquire Coventry in $7.3 billion deal

Monday, Aetna announced it will acquire Coventry Health Care expanding the company's enrollment in Medicaid and Medicare. According to the announcement, the deal is valued at $7.3 billion and will add 4 million enrollees in Medicaid and 1.5 million enrollees in Medicare Part D.

Retail health: Walmart offers expanded preventive health services

Walmart announced Thursday its intent to provide ten immunizations recommended by the U.S. Centers for Disease Control and Prevention (CDC) at its 2,700 U.S. stores starting this week. The health-and-wellness business represented 11 percent of the company’s $264.2 billion U.S. sales in the last fiscal year. In 2010, the company implemented a Medicare prescription drug plan with Humana.

U.S. Court of Appeals halts implementation of FDA’s graphic warning labels on cigarettes as companies win freedom of speech appeal

Last week the implementation of the U.S. Food and Drug Administration’s (FDA) cigarette warning label requirements under the Family Smoking Prevention and Tobacco Control Act of 2009—requiring 50 percent of the front and rear panels of cigarette packages and 20 percent of the area of each cigarette advertisement to be covered with graphic warning labels—was set aside by the District of Columbia U.S. Court of Appeals. Five tobacco companies challenged the Act in 2011 in district court, claiming the warning labels violated their First Amendment right. The Appeals Court found the FDA did not present enough data to show its graphic warning label requirement directly advanced its objective to reduce smoking rates, thereby ruling in favor of the tobacco companies.

Survey: many Americans make poor choices when choosing health benefits

According to a recent survey of more than 2,000 consumers, many employees are unaware of their benefit options, and many employers fall short on educating workers about benefits options. The survey found that 56 percent of employees estimate they waste up to $750 as a result of mistakes made with insurance benefits elections. One in four respondents (24 percent) believe they selected the wrong level of insurance coverage or benefits options they didn't need, and 16 percent felt confident they had not made mistakes during the enrollment process.

Per the survey, employees expressed concern about their ability to pay for rising health care costs. Almost half (43 percent) of employees surveyed identified rising out-of-pocket medical expenses and health insurance costs as a concern and 38 percent employees indicated they are very or extremely concerned about the possibility of an unanticipated medical expense.

Note: the 2012 Deloitte Survey of U.S. Health Care Consumers found that 17 percent of all consumers indicated they are prepared ( percent answering 8, 9, or 10 on a 10-point scale) financially to handle future health care costs, while 32 percent indicated they are not prepared ( percent answering 1, 2, or 3 on a 10-point scale).Those feeling most secure were seniors in Medicare; those with commercial coverage or Medicaid were less secure.

Per the Public Health Service Act (PHSA) Section 2715, amended by ACA Section 1001(5), health insurers and health plans are required to provide a uniform summary of benefits which will provide consumers with a concise document detailing, in plain language, simple and consistent information about health plan benefits and coverage. It must summarize the key features of the plan or coverage, such as the covered benefits, cost-sharing provisions, and coverage limitations and exceptions. People will receive the summary when shopping for coverage, enrolling in coverage, at each new plan year, and within seven business days of requesting a copy from their health insurance issuer or group health plan.

Study: medical residents expect to practice in groups, receive signing bonus

Decision-making factors from the 2012 graduating class of medical residents:

  • 46 percent expect to join a group practice; 29 percent said a hospital practice was most preferred
  • 95 percent of respondents said suburban communities are their first or second choice for a practice location; 84 percent selected a metropolitan community in their top-two preferred locations; 32 percent would not consider a rural area
  • 75 percent expect a sign-on bonus
  • 68 percent preferred to receive compensation in the form of a salary with a production incentive.
  • 51 percent began interviewing before December 2011—by the end of March 2012, 41  percent had signed contracts
  • 67 percent said their job selection is dependent on the interests of their spouse, significant other or family member; 24 percent have a spouse or significant other who is also a physician

(Source: Cejka Search, “Residents and Fellows Survey,” August 2012)


“Allowing healthcare costs to soar at unsustainable levels and allowing America to fall behind on key indicators of care quality and access is not a political victory for either side of the aisle. Assigning blame along partisan lines gets us nowhere. A healthy population, a happy and productive workforce, and affordable healthcare are vital to the future of our nation. Unless we are willing to work together to transform our healthcare system for the better, these essential goals will remain out of our reach.”

—Tom Daschle and Bill Frist, The Hill, “Need for Affordable Care Cuts Across Party Lines,” August 1, 2012

“Big drug makers have been reassuring investors: Don't worry about top-selling medicines going off patent. Growth in developing markets, like China and India, will help replace the revenue lost. Turns out there is a different message emerging within these companies: Not so fast. Slowing economic growth, intense local competition and governments' efforts to control health-care costs and bolster homegrown firms have damped the prospects for the top drug makers in so-called emerging markets. And that threatens the lofty sales goals baked into many pharmaceutical stocks.”

—Jonathan Rockoff, Wall Street Journal, “Big Drug Makers Struggle to Grow in Emerging Markets,” August 19, 2012

“The popular old-age health insurance plan is on a financially unsustainable course. Medicare's payroll tax and premiums that beneficiaries pay cover barely half the program's costs, and as Baby Boomers retire, things will get worse. The tab is projected to rise rapidly: 7.6 percent a year for the doctor-care part of Medicare and 8.8 percent for the program's prescription drug benefit, for example. The economy, a rough proxy for the nation's ability to afford this, is growing less than 2 percent a year, leaving a huge gap.”

—USA Today, “Medicare’s Problems arrive on Center Stage,” August 20, 2012

Fact file

  • Drug sales in emerging markets: predicted to grow by $157 billion over the next five years, increasing to $345 billion or about one third of the global drug spending. (Source: Jonathan Rockoff, Wall Street Journal, “Big Drug Makers Struggle to Grow in Emerging Markets,” August 19, 2012)
  • Average Medicare Advantage bid: the second lowest bid in 2009 was 9 percent below Medicare FFS on average; average Medicare costs $717 per person per month. (Source: Zirui Song, David Cutler and Michael Chernew, Journal of the American Medical Association, “Potential Consequences of Reforming Medicare Into a Competitive Bidding System,” August 2012)
  • Overbilling in community mental health centers (CMHCs): 90 percent of fraud in CMHCs occurs in states that do not require CMHCs to be licensed or certified; represents $200 million in “questionable billing” issues. (Source: HHS Office of Inspector General, “Questionable Billing By Community Mental Health Centers,” August 20, 2012)
  • Medicaid dental fraud: Texas spent $1.4 billion on orthodontics and dental procedures in Medicaid program in 2011—highest in the U.S. 3.3 million of the states’ 26.4 million residents are covered by Medicaid. Since 2007, the state has operated under an agreement with the federal government that required it to spend more on dental care. Since 2006, payments from Medicaid to dentists and orthodontists have increased 400 percent. (Source: Nathan Koppel, Wall Street Journal, “Texas Drills Down on Medicaid Dental Fraud,” August 19, 2012)
  • Medicare Part D “donut hole” study: of 9,383 participating seniors who had extra financial support to pay for medications while in the drug coverage gap, 112 died. And, 135 seniors with no extra financial support in the drug coverage gap died. Per the study,, the difference is not statistically significant and could be tied to chance. These results were similar to rates for heart problems such as heart attack, stroke, and heart failure. (Source: Polinksi, et al, American Geriatrics Society, “Association Between the Part D Coverage Gap and Adverse Health Outcomes,” August 2012)
  • Dental health: 130 million in the U.S. lack dental insurance; in 2009, dental problems were the primary diagnosis for more than 830,000 visits to emergency departments—16 percent more than in 2006. (Source: Pew Children’s Dental Campaign)
  • Prescription drug savings through Medicare: according to HHS, 5.4 million seniors and individuals with disabilities have saved $4.1 billion on prescription drugs as result of provisions through ACA. From January to July, nearly 18 million Medicare Part A beneficiaries received at least one preventive service at no cost to them. (Source: HHS, “People with Medicare save more than $4.1 billion on prescription drugs,” August 20, 2012)
  • Consumer concern about medical mistakes: 73 percent of those polled say they are either “very concerned” or “somewhat concerned” about medical mistakes; 30 percent indicated that they or one of their family members or friends have experienced a medical mistake (e.g., being given the wrong medication, dosage, treatment) and 21 percent indicated they had previously been misdiagnosed by their physician. (Source: Wolters Kluwer Health, “Quarterly Poll: Medical Mistakes,” August 15, 2012)
  • Physician burnout: In a study of more than 7,000 physicians, 46 percent reported at least one symptom of burnout; this varied substantially by specialty with the highest among certain physicians: those who practice in family medicine, general internal medicine, and emergency medicine. Compared with their adult counterparts, physicians are more likely to have symptoms of burnout (38 percent vs. 28 percent) and tend to be dissatisfied with their work-life balance (40 percent vs. 23 percent). (Source: Shanafelt, et al, Archives of Internal Medicine, “Burnout and Satisfaction with Work-Life Balance Among US Physicians Relative to the General US Population,” August 2012)
  • Patients seeking primary care services from specialists: researchers have found that more than 40 percent of patient visits for primary care services were through a specialty physician’s office. This has not changed significantly from 1999 (41 percent) to 2007 (41.2 percent). Common symptoms and diseases comprised 33.8 percent of specialist visits in 1999, and fell to 28.8 percent in 2007. (Source: Kale, Federman, & Ross, Archives of Internal Medicine, “Visits for Primary Care Services to Primary Care and Specialty Care Physicians, 1999 and 2007,” August 2012)
National health reform: What now?

National health reform: What now?

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