Health Care Reform Memo: October 10, 2011 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

The depth and complexity of Steve Jobs’ life could be a Hollywood screenplay: born to unwed graduate students, adopted by Clara and Paul Jobs at birth, a problem student and admitted misfit, college dropout, and creative force for two mega-companies with global impact. He left college because he was bored. He founded Apple on April Fool’s Day, 1976 with friend Steve Wozniak, and stepped down on Martin Luther King Day, 2011. Seemingly, everything about Jobs was a journey to deeper significance perhaps reflective of his Zen Buddhist faith. He ruled his companies with a passion for detail and fanatic attention to simplicity. Since Wednesday, accolades from the business world have flooded the airwaves with stories of his testiness, genius, and intuitive grasp of frontiers not charted. The headlines evidence his iconic impact—“the magician” (Economist), “the world’s best entrepreneur” (USA Today), and “the secular prophet” (Wall Street Journal), among many.

Perhaps his greatest legacy—the one most reflective of his keen sense of the possible—is the permanent change in our national embrace of his technological innovations. He routinely observed that the magic of his gadgets is rooted in one word—simple. He marched to the beat of possibilities – technology could solve problems consumers might not see today or empower them with tools not comprehended by most. I wonder what the health system would be like had its chief architect been Steve Jobs? My bet is he would have started with a simple problem: consumers need information about their care and costs. They need it real time; they need to calibrate to decisions they make every day; they need tools that make use easy and gadgets accessible. And the process of getting this information should not be laborious nor burdensome.

In our survey of health consumers, notably:

• Only 24 percent of U.S. adults know how our health system operates.
• Only 22 percent grade its performance A or B, contrasted to 37 percent who grade it D or F.
• While 77 percent think the U.S. system has the latest clinical technologies, 51 percent believe more than 50 percent of its spending is wasted.
• 61 percent want access to health information that would help them manage their health more effectively and 80 percent of younger adults want access to their personal health information and say they would change physicians to obtain it.

Might costs be less and outcomes better if the industry’s norm was shaken the way the music industry responded to Jobs’ iTunes and the movie industry with animation? He seemed to challenge conventional thinking:

• A company could be in both the hardware and software business;
• A company could make technology “fun”;
• A company could engage consumers to do things they could not envision.

So when mentioned alongside Einstein, Henry Ford, Alexander Graham Bell, and John D. Rockefeller as industry game-changers, I ponder the possibilities of his inventiveness applied to a health system resistant to change and prone to see simplicity as a threat.

Pancreatic cancer took his life, but his impact in our industry is nowhere near its apex. The “new normal” will forever benefit from his genius and uncanny ability to connect consumers to their needs and wants, even when not comprehended or easily articulated. The gap between consumer needs and wants from our health system and its responsiveness is wide. It is a chasm consumers will ultimately and certainly traverse with the aid of “gadgets” dreamed up by Steve Jobs and a generation of discontents to come.

The challenge for our system is to skate to where the puck will be. The puck’s destination is information technology-driven health care guided by consumer demand. We must skate faster.

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

Implementation update

IOM releases essential health benefits guidance

Friday, the Institute of Medicine (IOM) submitted recommendations to help the U.S. Department of Health and Human Services (HHS) define the essential health benefits (EHB) package, as required by the Affordable Care Act (ACA) section 1302. Recommendations include:

• The initial EHB package should include the scope of benefits and design as provided under a typical small employer plan in today’s market (a silver plan as defined for qualified health plans in health exchanges).
• By May 1, 2012, the HHS Secretary should establish an initial EHB package guided by a national average premium target, defined as what small employers would have paid, on average, in 2014.
• By January 1, 2013, the Secretary should establish a framework for obtaining and analyzing data necessary for monitoring implementation and updating of the EHB.
• States operating their own exchanges should be able to design a variant of the EHB package if certain standards are met.
• HHS should create a framework and infrastructure for collecting data and analyzing implementation of the initial EHB.
• HHS should create a National Benefits Advisory Council to give the Secretary advice on the research plan and on updates to the EHB package.
• HHS should require Part D sponsors submitting prescription drug event records to include prescribers’ National Provider Identifiers, and require pharmacy benefit managers under Part D to report additional financial information to increase transparency.

Senators urge action on Sunshine Law, manufacturer kickbacks

Monday, Senators Chuck Grassley (R-Iowa, Ranking member, Senate Judiciary Committee) and Herb Kohl (D-Wisconsin, Chairman, Senate Special Committee on Aging) asked the Centers for Medicare & Medicaid Services (CMS) to provide new regulations for the Physician Payments Sunshine Act per ACA section 6002, due October 1. The “Sunshine Act” requires device, pharmaceutical, and biologics manufacturers to disclose all payments to physicians, including consulting fees, honoraria, travel, and entertainment expenses, and requires HHS to disclose the identity of the manufacturer, physician, and the drug or device associated with the payment via a public website. It also requires manufacturers and group purchasing organizations (GPOs) to report ownership or investment interests held by physicians or members of their family, and to make that information public.

Note: manufacturers and GPOs are required to start complying with the law by collecting data starting January 1, 2012, and reporting on March 31, 2013. Starting September 30, 2013, the details of these payments must be made available to the public. Violations of the disclosure requirements can result in civil monetary penalties ranging from $1,000 to $100,000.

OIG agenda for FY 2012: provider reimbursement, ACA implementation priorities

Wednesday, the Office of Inspector General (OIG) released its 165-page FY 2012 work plan. Notable areas of focus will be provisions of ACA involving pre-existing condition insurance plans, the early retiree reinsurance program, the health insurance web portal, affordable insurance exchanges, the national background check program, and the Community Living Assistance Services and Supports (CLASS) program. ACA requires the OIG to report annually on the CLASS program with regard to eligibility determination, provision of cash benefits, quality assurance, and protection against waste, fraud, and abuse, and recouping of unpaid and accrued benefits.

Energy and Commerce leader asks for actuarial analysis of CLASS Program

Wednesday, Republican House Energy and Commerce Committee leaders requested HHS to provide the September 28, 2011 actuarial report that supports the viability of the CLASS program.

HHS: Medicare enrollee use of preventive benefits

Thursday, CMS reported that in 2011 year to date, 20.5 million Medicare enrollees reviewed their health status at a free Annual Wellness Visit with no deductible or cost sharing, and 1.8 million received discounts on brand-name drugs in the Medicare Part D “donut hole.” Per CMS, the total value of discounts in the donut hole is “nearly $1 billion through August of this year, with an average savings of $530 per beneficiary.”

Medicare recovery auditors corrected $92 million in improper FY 2010 payments

Per ACA Section 6114, CMS extends the Recovery Audit Contractor (RAC) program to Medicare Parts C and D and requires an annual report to Congress about the effectiveness of the program. In FY 2010, recovery auditors recovered $75 million in Medicare overpayments and returned $17 million in underpayments to providers.

Note: the RAC program is responsible for identifying and recovering improper payments. Section 6114 also extended the RAC program to Medicaid. A final rule on the expansion was published on September 16, and set January 1, 2012 as the implementation date.

CMS extends deadline for Bundled Payments applications

CMS extended the deadline for Model 1 of the Bundled Payments for Care Improvement initiative applications to November 18. Letters of intent and applications for Models 2-4 are due on November 4, 2011 and March 15, 2012, respectively.

Constitutional challenge: circuit court update

Recent activity:

• 6^th circuit (Cincinnati): court ruled 2-1 that law is constitutional June 29
• 11^th circuit (Atlanta): ruled 2-1 the individual mandate is in violation but rest of law can stand August 12
• 4^th circuit (Richmond):challenge thrown out due to standing of the court September 8
• DC Circuit: heard arguments September 23, ruling not released

Legislative update

Physicians focus on Joint Select Committee on Deficit Reduction to fix SGR, repeal IPAB

Liability reform: Monday, a coalition of 99 physician organizations led by the American Medical Association (AMA) sent a letter to the “Super Committee” calling for caps on non-economic damages at $250,000, collateral source rule reform, limitations on the guidelines for cause of action and admissible evidence, enhanced protections for providers of emergency care or those who volunteer, and a more stringent standard for individuals who may qualify as expert witnesses. Per the Congressional Budget Office (CBO), liability reform would save $62.4 billion over ten years.

Independent Payment Advisory Board (IPAB) repeal: Tuesday, Alliance of Specialty Medicine representing 20 medical societies sent a letter urging the Joint Select Committee on Deficit Reduction to repeal the IPAB in ACA because it would “fall disproportionately on physicians”. Providers representing roughly 37 percent of all Medicare payments, including hospitals and hospice care, are exempt from IPAB cuts until 2020. The group argues that physicians would be subject to cuts as early as 2015 while others would not be protected from cuts.

Graduate medical education (GME) funding: 40 physician and hospital groups including the AMA, Association of American Medical Colleges (AAMC), and the American Hospital Association (AHA) urged the committee to “…consider the long-term impact of cutting Medicare’s investment in physician training versus the short-term “savings” that may be obtained. The AAMC and others project a shortage of 91,500 physicians by 2020; by 2025 the shortage will grow to 130,600 physicians.”

Dems: allow Medicare to purchase drugs directly from manufacturers

Thursday, 72 House Democrats sent a letter to the Super Committee to include Medicare Part D negotiations in its deficit reduction plan. The letter referenced a 2008 report by the United States House of Representatives Committee on Oversight and Government Reform that said Medicare could save Part D $156 billion over ten years if Medicare is allowed to contract directly with drug manufacturers.

Note: in the Medicare Modernization Act (2003), purchases of prescription in the Part D program were limited to private companies offering enrollees the benefit. The average Medicare enrollee in Part D has 28 health plan options.

State update

• Arizona applied for a $29.8 million health insurance exchange establishment grant. Last September, the state received a planning grant just under $1 million. Sixteen states and the District of Columbia have already received establishment grants.
• Missouri launched a statewide initiative to educate 4,600 Missourians for health care jobs. The program is supported by a $20 million grant from the U.S. Department of Labor (DOL).
• The American College of Emergency Physicians filed a lawsuit against Washington over a plan to limit Medicaid coverage of emergency room visits for non-emergency care to three visits per year.
• Monday, Utah started accepting applications for its Medicaid Electronic Health Records (EHR) Incentive Program. Physician offices can receive up to $63,750 and hospitals can receive between $350,000 and $4 million in incentive payments for adopting EHRs.
• Oklahoma and Kansas governors returned Early Innovator Grants — worth $54 million and $31 million.

Industry news

GAO: enrollee “doctor shopping” costs Part D $150 million

The U.S. Government Accountability Office (GAO) reported Tuesday that enrollees in the Medicare Part D “prescription drug” program used “doctor shopping” to defraud the program of $150 million in 2008.

Note: doctor shopping is the practice of getting the same prescription from multiple providers. In 2008, 170,000 Medicare Part D beneficiaries received the same prescription from five or more providers. Roughly 71 percent of enrollees were eligible for Medicare Part D coverage through a disability.

HIT jobs initiative announced

A new initiative from the American Health Information Management Association (AHIMA) seeks to create at least 40,000 health information management jobs to build and maintain electronic health records. Under a demonstration program, AHIMA will work with the HHS Office of Minority Health and North Shore Medical Labs to bring health IT to 100 small-practice physicians in underserved communities in Alabama, Mississippi, and North Carolina. The second project is a legislative push for federal approval of employer tax credits for providing health information management (HIM) training to new and current HIM workers.

Survey: HIT use by physicians improves accuracy

Physicians believe that diagnostic accuracy improves if technology with embedded clinical decision support tools are used per a survey of 6,400 physicians released last week by Quantum. Key findings of the study include:

• 47 percent encounter diagnostic errors (e.g., missed, late, or wrong diagnoses) at their practice at least monthly.
• 64 percent said that up to 10 percent of misdiagnoses have directly resulted in patient harm.
• 96 percent believe diagnostic errors are preventable at least some of the time.

Clinicians indicated the top five diagnoses at greatest risk for misdiagnosis are pulmonary embolism, bipolar disorder, appendicitis, breast cancer, myocardial infarction.

CMS proposal: eliminate under-performing Part C plans; additional reporting requirements for PBMs

Monday, CMS proposed changes to the 2013 Medicare Advantage and the Part D prescription drug plans programs, including termination of poor performers (three star plans or lower for three prior years) and expanding drug coverage to benzodiazepines and barbiturates.

Prescriptions dispensed on or after January 1, 2013, for barbiturates when used for treatment of epilepsy, cancer, or a chronic mental health disorder, as well as benzodiazepines would have to be covered. The proposed rule also requires pharmacy benefit managers (PBMs) to report additional financial information to improve data collection and tracking, assist in the identification of prescribers of Part D medications, and assist law enforcement in the conducting of investigations when there is suspected fraud associated with a prescription drug claim.

Another Part D issue addressed in the proposed change is the independence of long-term care (LTC) pharmacies – ensuring that pharmacists’ decisions are objective and unbiased. CMS is considering a new requirement that LTC consultant pharmacists be independent of any affiliations with the LTC facilities' LTC pharmacies, pharmaceutical manufacturers, and distributors.

MedPAC to Congress: freeze primary care payments, cut specialists 17 percent

Thursday, MedPAC adopted a plan for Congressional approval to repeal the Medicare sustainable growth rate (SGR) formula and to pay for the repeal by freezing primary care payments for ten years and reducing payments to specialists by 17 percent. The payment cuts would save about $100 billion. Another $225 billion in savings would come from offsets from changes to drug payments, higher beneficiary cost sharing, and other smaller offsets. AMA and AHA oppose MedPAC’s plan.

Deadline for first wave of meaningful use grants

Monday was the last day physicians and eligible professionals could start their 90-day reporting period for the Medicare EHR incentive program. Providers must use certified EHRs in a “meaningful way” for 90 consecutive days in order to receive an incentive payment in 2011. As of August 31, 90,650 hospitals and physicians have registered for the Medicare and Medicaid EHR incentive programs. CMS has disbursed $652 million for the year to date in 27 states.

Studies: dual eligibles care fragmented, changes in oversight, quality measurement required

Monday, a Robert Wood Johnson Foundation (RWJF) report “Refocusing Responsibility for Dual Eligibles: Why Medicare Should Take the Lead” recommended that dual eligibles become the responsibility of Medicare. According to the report, “80 percent [$256.6 billion] of the $319.5 billion estimated as spent on dual eligibles in 2011 are federal dollars, with more than two-thirds coming through Medicare.” Key recommendations in its report:

• Aggressive oversight and “pay for performance” in Medicare Special Needs Plans (SNPs)
• Emphasis on dual eligibles, especially those using long-term supports and services, in ACA-authorized Medicare payment and delivery reforms
• Skilled nursing facility (SNF) payment policies to prevent unnecessary hospitalizations for nursing home residents

Tuesday, the National Quality Forum released a study concluding the quality associated with dual eligible programs is inconsistent. The report, submitted to HHS by the Measure Applications Partnership (MAP) suggests five measures be used to assess the program: quality of life, care coordination, screening and assessment, mental health and substance abuse, and structural measures.

Note: dual eligibles include 15 percent of Medicaid enrollees but account for 39 percent of all Medicaid expenditures. In Medicare, dual eligibles account for 16 percent of enrollees and 27 percent of program expenditures. (Source: HHS)

FDA announces efforts to encourage personalized medicine

Wednesday, the FDA released its plan to streamline the regulatory process and increase support for developments of personalized medicine. Noted in the report:

• The agency will provide guidance to manufacturers on how to design clinical trials for co-developing companion diagnostics.
• FDA will assist in screening drug impacts, including assessing biomarkers earlier.
• The agency will focus on improved consistency in the device review process, the 510(k) clearance process, and the administration-wide assessment of burdensome policies.

New programs for small business and young entrepreneurs will be developed in concert with the Small Business Administration.

Senate Finance investigates fraud in home health

Last week, Senate Finance Committee Chairman Max Baucus (D-MT) and senior Finance Committee member Chuck Grassley (R-IA) released a report indicating that the four largest for-profit home health companies encouraged therapists to “target the most profitable number of therapy visits, even when patient need may not have required such visits”. The report concluded that CMS should remove therapy episodes from the home health prospective payment system (PPS).

FDA and CMS launch “parallel review” pilot program

Friday, the FDA and CMS launched a “parallel review” pilot program to concurrently review medical devices for FDA approval and Medicare coverage. FDA and CMS anticipate that parallel review will foster innovation in medical device development and increase the efficiency of the review processes for both agencies. The program is effective November 10, 2011.

Quotable

“Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your inner voice, heart and intuition. They somehow already know what you truly want to become… Don’t settle. It’s only by saying no that you can concentrate on the things that are really important.”

– Steve Jobs, Stanford Commencement, June 12, 2005

“Steve Jobs tuned the apple, the symbol of fallen humankind, into a religious icon for true believers in technology. But can salvation be downloaded?” 

– Anne Crouch, “The Secular Prophet” Wall Street Journal, October 8, 2011

“His real genius was seizing on existing concepts, simplifying and perfecting them, and then putting them forward at the right moment.” 

– Brad Stone, “The Return” Bloomberg Business Week, October 8, 2011

Fact file

• Health care industry added 22,500 jobs per month during last 12 months—total of 305,900 jobs including 74,000 in hospitals. (Source: Bureau of Labor Statistics)
• Total government employment: 14.6 million—1.9 million in civil service, 770,000 postal workers, 1.44 million military, 7.6 million contractors, 2.9 million grantees. (Source: Paul Light, New York University)
• Total federal government contracts: $538 billion in FY 2010—37 percent increase over 2005; top grant agency: HHS $368.6 billion, second: Transportation $51.6 billion. (Source: OMB)
• Managed Medicaid: of Medicaid's 54 million beneficiaries in 2010, 50 percent were enrolled in a managed care plan, 16 percent were in a primary care case management program, and 34 percent in Medicaid fee-for-service. (Source: Kaiser Family Foundation and Health Management Associates)
• 69 percent of adults somewhat or strongly oppose raising the Medicare eligibility age to 67; 27 percent somewhat or strongly favor. (Source: September 2011 Employee Benefit Research Institute, Mathew Greenwald & Associates)
• In 2008, those with adjusted gross income above $1M paid an average tax of 23.3 percent; those between $500K and $1M 24.1 percent, 200-500K 19.6 percent, 100-200K 12.7 percent, 50-100K 8.9 percent, 30-50K 7.2 percent. (Source: IRS)
• Flu vaccine sales: 166 million doses available this season vs. 157 million last season; 41 percent of adults and 50 percent of kids got vaccines last year; retailers accounted for 20 percent of flu shots. (Source: CDC)
• Companies have 2T cash on hand, dividends up year to date 18 percent. (Source: Kiplinger)
• 2012 average health care premium rate will increase 7 percent vs. 7.5 percent in 2011 and 6.9 percent in 2010. Average employee premium is projected to be $10,475 in 2012, up from $9,792 in 2011, and $9,111 in 2010. Employees’ contribution will be $2,306 (22 percent) of the total health care premium in 2012 – up from $2,084 (21.3 percent) in 2011 and $1,952 (21.4 percent) in 2010. Average employee out-of-pocket costs (e.g., copayments, coinsurance, and deductibles) are projected to be $2,275 in 2012, compared to $2,007 in 2011 and $1,691 in 2010. (Source: Aon Hewitt)
• 73 percent of consumers say they “always or often” ask their doctor explain why they need a test, and 67 percent said they ask doctors about risks or side effects from medicine. (Source: 2011 Health Confidence Survey. The Employee Benefit Research Institute and Mathew Greenwald & Associates)
• U.S. unemployment remained at 9.1 percent in September; 103,000 jobs were added. However, the health care industry continued to grow adding 44,000 jobs last month. (Source: DOL)
• 48.5 percent, of the population lived in a household that received some type of government benefit in the first quarter of 2010. (Source: U.S. Census Bureau)
• Almost 20.5 million Medicare beneficiaries reviewed their health status at a free Annual Wellness Visit or received other preventive services with no deductible or cost sharing in 2011. (Source: HHS)
• Between July 2010 and June 2011, 55 percent of all local health departments reduced or eliminated at least one program, 11 percent entirely eliminated at least one program. (Source: National Association of County and City Health Officials, Local Health Department Job Losses and Program Cuts: Findings from July 2011 Survey)
• Consumer confidence in their ability to access and pay for health care services increased one point from August to a score of 98 on the Thomson Reuters Consumer Healthcare Sentiment Index. (Source: Thomson Reuters Sentiment Index based on the Thomson Reuters PULSE™ Healthcare Survey, September 30, 2011)
• From 1998 to 2007, breast cancer death rates in 36 states in the U.S. significantly declined, but they remained flat for 14 states: Alabama, Alaska, Arkansas, Hawaii, Louisiana, Mississippi, Missouri, Montana, New Mexico, Oklahoma, South Dakota, Utah, Vermont, and Wyoming. The decrease in mortality rates was slower for women living in poor areas. (Source: Carol DeSantis et al. “Breast cancer statistics, 2011,” CA: A Cancer Journal for Clinicians, Journal for the American Cancer Society, October 3, 2011)
• The overall grade for palliative care providers in the U.S. in 2011 is a “B”, up from a “C” in 2008. More than 80 percent of hospitals provide palliative care services. (Center to Advance Palliative Care and National Palliative Care Research Center, “America’s Care of Serious Illness: A State-by-State Report Card on Access to Palliative Care in Our Nation’s Hospitals”, October 5, 2011)
• Non-recommended clinical activities at primary care offices and ambulatory service centers (e.g., outpatient facilities) cost $6.76 billion in 2009. Prescribing brand instead of generic statins accounted for the largest share of costs at $5.8 billion annually. (Source: Minal S. Kale, et al. "Top 5 Lists Top $5 Billion,” Archives of Internal Medicine, October 1, 2011)
• Physician clinical decisions affect approximately 90 percent of each health care dollar spent. (Source: Elayne J. Heisler and Amanda K. Sarata, “Physician Supply and the Patient Protection and Affordable Care Act”, Congressional Research Service, September 26, 2011)

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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