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Health Care Reform Memo: January 25, 2010

A 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 new administration and implications for the C-suite and various stakeholder groups.

Massachusetts elects Brown to Kennedy Senate seat

State Senator Scott Brown’s 52-47 win over Attorney General Martha Coakley left the U.S. Senate Democrats with 59 votes—one shy of the filibuster-proof 60 needed to pass a bill without Republican support. With 11 percent of the state’s voters calling themselves Republicans, the vote reflected strong Brown support from Independent voters in the western suburbs of Boston and central part of the Bay State. What happened? Exit polls (Harris, Move on D.org, The Wall Street Journal, NBC, ABC, Rasmussen, Kaiser) suggest the result was probably the result of many factors:

  1. Concern about the health reform bill in Congress: Massachusetts voters were split on health reform. The majority believed coverage for the uninsured is needed, but divided over pending legislation driving two of three to identify themselves as “independents” in an otherwise “blue” state. Exit polls suggested the majority was concerned about the cost of the bills in the House and Senate, concessions for unions (exemption from the Cadillac taxes until 2018) and the influence of special interests deemed unfair. Notably, in his acceptance speech, Senator Elect Brown called the vote a reflection of the “Independent State of Massachusetts” and vowed to remain open to reform legislation that’s “fair” in Washington DC. Each exit poll concluded health reform was the most important issue in the campaign, and for most independents and virtually all Republicans, concerns outweighed support.
  2. Timing amidst economic challenges and recently announced concessions in the negotiating process: The January 19 election came after weeks of high profile partisan debate and coincided with ongoing closed-door meetings of Democratic legislative leaders seeking compromises to pass a new bill acceptable to both houses. Exit polls suggested voter disgust with the process and concessions presumed to be unfair—extra Medicaid funding for Nebraska and Louisiana; Medicare Advantage premium concessions for Florida seniors; and exemption of labor unions from the Cadillac tax obligation, leaving non-union companies to pay the tax. Among Bay State voters, the union concession timing appeared to be a turning point when announced the Thursday before the Tuesday election. And the backdrop of a troubled economy with pending votes for expansion of the federal debt and slower-than-expected economic recovery was a complicator: polls suggest even those supportive of health reform were concerned about its timing given the economy and unemployment.
  3. The Commonwealth question: “What’s in national reform for us?” Under Republican Governor Mitt Romney, a health reform bill passed the Democratically controlled legislature in 2006 that resulted in 97.4 percent of Massachusetts’ citizens having access to insurance using an individual mandate with subsidies as a key lever. Widely used as a template for national reform, the Commonwealth’s reform included creation of a health insurance exchange, the Connector, an employer mandate and pending changes to provider payments based on performance rather than volume. The House and Senate versions both had similar features, but the subsidies to pay for expanded coverage to 31 million funded through additional taxes and Medicare cuts became the driving issue. Massachusetts voters believed passage of the bills would benefit other states and penalize them. They reasoned states like Texas (25.2 percent uninsured) would be subsidized by Massachusetts’ tax dollars. Thus, the pro-health reform stance of the Coakley campaign seemed at odds with Massachusetts’ self-interest. Note: On an inflation-adjusted basis, spending for Medicaid in Massachusetts increased 163 percent over the past 20 years per an MIT study; contrasted to 44 percent increase in education and 139 percent increase in public safety programs.

From these polls and parallel national tracking polls from the same pollsters, several conclusions may be drawn:

  • Independent voters are gaining momentum in the health reform debate. Disdain for Congress and both parties has increased. Republicans are no stronger than Democrats in espousing health reform solutions.
  • Health reform that increases access to insurance for the uninsured is widely supported; paying for it with increased taxes or other mechanisms is the concern. And with unemployment at a 30-year high and the economic recovery slower than expected, caution is the watchword.
  • Voters are not satisfied with the status quo: they support improved quality, safety and service, increased transparency in prices, and better coordination of care by providers. They want changes to the system; they want problems solved. Affordability is a major and growing concern.
  • The health care system is complex: it lends itself to sound bites and political pandering. The concepts of value-based purchasing, risk pools, accountable care organizations, comparative clinical effectiveness, data exclusivity et al confuse voters. They are tuned in to the system’s maladies; they are ill-informed about potential solutions.
  • The reform bill process to date is viewed as partisan and ineffective. It is viewed as a bout between special interests and partisanship, not about policy and reasonable solutions to the system’s flaws of high costs, variable quality and access insurance for those without.
  • Health reform, while important, is secondary to the economic recovery for most voters. Though improvements are needed and its performance is poor for the majority, the pocketbook issues seem to prevail for most.

Footnote: Senator Brown was supported by Governor Romney and voted for the Massachusetts’ health reform legislation. He believes health reform is needed at the national level and vowed to support appropriate legislation.

What’s next?

The immediate option was for House approval of the Senate bill passed December 24—a move that would have meant House Democrats would accept Cadillac taxes as a funding mechanism and forego the public opinion. House Speaker Pelosi announced Thursday that the lower chamber does not have enough votes to support the Senate bill, so the remaining options are four:

  1. Start over: The House and Senate can begin to craft a new bill that accommodates concessions to moderates and Republicans—a direction President Obama conceded made sense in post-election remarks Wednesday to ABC News. He also said in The New York Times on Friday that a cooling off period may be necessary. “The White House said Mr. Obama wanted to let the dust settle” and it seems that Pelosi agrees that they are in no rush.
  2. A la carte reforms: Key elements of the bills could be introduced via separate legislation more narrowly focused, e.g. a bill to require insurance companies to forego pre-existing conditions and lifetime limits, a bill to expand Medicaid eligibility to 133-150 percent of the federal poverty level with federal subsidies, a bill to impose an individual mandate, and possibly others. Each would run its course through committee structures and be crafted with bi-partisan sponsors to increase likelihood of passage. (Note: Key elements of reform are already in other bills i.e. the stimulus bill includes incentives and penalties for EHR adoption, COBRA and child welfare expansion was passed separately, and overhaul of the FDA was initiated as part of the omnibus legislation passed in March). The a la carte option would provide for health reforms not in either of the bills—the physician payment fix, liability reform, etc.—as well as important focus on elements that require special attention—medical education, global medical diplomacy, personal accountability for health, disproportionate share payments and others. It might tackle the issue of uninsured using carrots—subsidies—without the stick—mandates. And so on.
  3. Special commission: A respite to the partisan bickering would be the appointment of an independent, non-partisan Presidential Commission of knowledgeable industry leaders to identify system reforms and legislative paths to implementation. The commission would have binding authority: it would report its recommendations to the Congress after the 2010 elections and its recommendations would be binding unless overridden by a super-majority in both houses in 2011. Its recommendations would begin to be implemented in 2012. Meanwhile, Congress would focus on the economic recovery and job creation.
  4. Reconciliation: Reconciliation is a procedural strategy that Democratic legislative leaders could use to obtain a simple majority in both Houses to pass a “skinny” bill limited to budgetary elements of health reform. The House would vote on the current Senate bill with assurances provisions such as insurance reforms could be added later. Though Speaker Pelosi stated it was not likely the Senate bill would pass the House, getting 218 votes for the bill would mean 39 Democrats would vote against the bill against their majority—hard to say how it would play out. In the Senate, a 51 vote majority could pass under reconciliation, with speculation about which moderate Democrats might vote with the Republicans against the bill. Reconciliation remains a possibility.

What does it mean for now? Our take...

For voters and the public, it’s hard to know which path legislators and the White House might choose. No doubt, the daily feed of health reform news will subside somewhat but the story will not quickly go away since the public remains concerned about the issue. In the meantime:

  • For physicians, hospitals and allied health professionals, the likely result will be pressure to cut costs and transform operations as employers, plans and consumers seek greater value, improved coordination, and increased transparency for prices, outcomes and conflicts of interest. Likely cuts to Medicare and Medicaid will separate winners and losers as capital markets and commercial payers choose high quality, low cost options and reward technology-enabled innovations that deliver higher value.
  • For life sciences organizations — medical device manufacturers, biotechnology companies, pharmaceutical companies, over the counter therapeutic manufacturers and others — the path to reform will be ambiguous in the U.S., so risk aversion in deployment of capital, targeted investments in core and non-core businesses, global opportunities and collaboration, scalability of operations and innovation in development will likely be central concerns. The transition from blockbusters to personalized therapeutics and companion diagnostics will continue to drive businesses, and timely access to rich clinical data sets will be central to commercialization success.
  • For commercial health insurance companies, the pressure to transform to a retail, consumer-focused portfolio of services while leveraging infrastructure to support higher enrollment, diversification, new channels and increased regulatory scrutiny are certain. Mergers, acquisitions and strategic collaboration will likely increase. Gainsharing arrangements with providers, consumers, supply chain members and employers will also likely increase. And consumer demand that accommodates self-care demands and financial risks for Gen X-Gen Y will likely be a focus for innovation and differentiation. It was also not lost on the health plan industry that they will likely need to cut their administrative costs.
  • For state and federal health agencies and regulatory leaders, systemic change to the financing and delivery of health care services in the U.S. is complex. An informed citizenry is essential to its improvement. The legislative process is cumbersome and prone to incremental solutions and suboptimal results. The voter voice across all partisan labels and philosophies seems in sync regarding the need for substantial change to lower its costs, improve its performance, enhance its transparency, and improve its value. The performance of government agencies directly and indirectly engaged should be no less responsive. Fresh approaches in the oversight process are required; leveraging information technologies to improve efficiency and effectiveness, expanded public-private collaboration, and intense focus on consumer education and accountability is essential. Government spending for health care is 36 percent of the current federal budget: it must play a leadership role based on an objective grasp of its fundamental strengths and liabilities. Transformation of the U.S. health system requires transformational leadership and effective execution from its regulatory and legislative structure.
  • For consumers (voters, patients, caregivers, the health care workforce, observers), the health reform debate of 2009 was round one. Enter Health Reform 2.0 — the year ahead is likely to mean more attention to the system’s flaws by its stakeholders, and greater responsiveness to the needs of its most important constituents -- consumers.

Consumerism in California takes center stage: New rules for HMOs, universal coverage legislation introduced

Wednesday, the state’s 39 HMOs faced new regulations requiring that the 21 million members seeking primary care be seen within no more than ten days and specialists in no more than 15 days, or face fines. Current wait times in major Californian metropolitan areas range from 24 to 59 days. This is the first bill of its kind in the country.

Thursday, State Senator Max Leno introduced legislation requiring the state to provide universal coverage to its 36 million citizens including 6.5 million lacking coverage.

Hospital’s incentive for physicians EHR adoption gets attention

The North Shore Long Island Jewish Health System will pay physicians up to $40,000 each if they agree to share data with the health system. The physician is also eligible for grants available through the stimulus package (ARRA) of $44,000 per physician.

Source: “Accelerating the Use of Electronic Health Records in Physician Practices” New England Journal of Medicine (362:3, January 21, 2010).

Quotable

“As I travel around the state, one thing is clear. The people do not want this trillion dollar health reform bill that will hurt businesses and raise health costs for everyone…We will not have any closed door meetings and backroom deals…We need to start fresh. We can do better.” 

-U.S. Senator-elect Scott Brown (R-MA), January 19, 2010 acceptance speech

"The health insurance companies are taking advantage of people. We know that we have to have some form of cost containment because if we don't, then our budgets are going to blow up. And we know that small businesses are going to need help so that they can provide health insurance for their families. Those are the core, some of the core elements of this bill."

-President Obama, Wednesday, January 20, 2010 commenting to ABC News about Massachusetts Senate election results

“The best health care is the least health care that we need. The best hospital is empty, not full.”

-Don Berwick, Institute for Health Improvement “Radical Surgery” Business Week, January 18, 2010

"We are going to keep on working to get this done—with Democrats, I hope with Republicans, anybody who's willing to step up."

-President Obama speech, Elyria, Ohio, Friday, January 22, 2010

Fact file

  • 70 of the 306 U.S. hospital regions are served by high value hospitals (low costs relative to national norms, higher quality) — Source: Institute for Healthcare Improvement
  • Union membership in the private sector dropped 10 percent in 2009 to 834,000 members (7.2 percent of the private workforce). By contrast, membership in public sector workforce increased slightly resulting in an overall unionization of 12.2 percent of the U.S. workforce — Source: U.S. Dept of Labor Report January 18, 2010
  • Patent expirations offering opportunities for generics means pharma company will be at risk for $128 billion of lost revenues 2010-2012 — almost 13 percent of U.S. revenues — Source: PhRMA
  • 37 percent of patients in hospitals are attended by hospitalists currently. Note: the use of hospitalists to coordinate care increased coordination of care with attending physicians, improves patient outcomes and coordination and reduces costs — Source: AHA

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