Health Care Reform Memo: October 18, 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

Viva Chile! While 33 miners emerged from a Fenix 2 capsule 70 days after going to work 2,300 feet below ground, more than four billion worldwide watched the 22-hour drama unfold. It is a story with a happy ending—triumph over tragedy.

The 33 miners were brought to safety by a cross-functional, international team of professionals intensely focused on the mission and equipped with state-of-the-art technology to safely and effectively save the lives of the men. Reflecting on last week’s success, I find myself imagining a similar rescue mission for the U.S. health system. It is broken. Costs are high. Quality is variable. Access is uneven. And solutions are so deeply politicized and confusing that most consumers are fatigued by the health reform debate.

Our health system has notable strengths: The latest technologies, a well-trained workforce, and state of the art facilities. The U.S. funds 70 percent of the world’s research that successfully produce therapies. We train doctors and nurses who return to undeveloped systems of care as leaders. Despite its strengths, the system needs rescue.

In my view, changing incentives to reward performance, not volume; aligning coverage with evidence-based practices; increasing accountability for individual health decisions; and accelerating industry-government collaboration to achieve administrative simplification and eliminate waste, fraud, and abuse in the system would be cornerstones of the rescue mission. There is plenty of money in the system, but its investment in the right areas is a perplexing disconnect.

Like the miners, Americans are dependent on inter-disciplinary teams and modern technologies to save lives. And like Chile last week, Americans hope for triumph over tragedy in rescuing the U.S. health system.

Paul Keckley, Ph.D.

Florida judge: States’ lawsuit against PPACA to move forward

Thursday, U.S. District Court Judge Roger Vinson ruled that two major areas of the Patient Protection and Affordable Care Act (PPACA) merit consideration by the court on constitutional grounds: The individual mandate requiring individuals to purchase health insurance or pay a penalty and the Medicaid expansion that is potentially costly to states.

The suit in the Northern District of Florida was filed by Republican attorneys general from 16 states, governors from four states, the National Federation of Independent Business, and two individual taxpayers. The defendants are the U.S. Department of Health and Human Services (HHS), Department of Treasury, Department of Labor, and their respective secretaries. Vinson scheduled a summary judgment hearing on the suit for December 16, where both sides will make arguments on the merits of their case. Ultimately, the challenges are likely to end up in the U.S. Supreme Court.

NAIC update: MLR determination

Wednesday, the National Association of Insurance Commissioners (NAIC) sent a letter to HHS Secretary Kathleen Sebelius encouraging flexibility in administering the medical loss ratio (MLR) rule, cautioning that “improper or overly strident application of the MLR and rebate program could threaten the solvency of insurers or significantly reduce competition in some insurance markets.”

The MLR requirements—80 percent for individual plans and 85 percent for groups—take effect January 1, 2011, with rebates to be issued in 2012 to the extent an insurer’s 2011 payouts fall short of the standards.

States such as Maine, Iowa, and South Carolina have asked for longer phase-in periods. NAIC also recommended that “expatriate and international polices” sold to people living abroad who return to the U.S. periodically be exempt from the MLR standard due to the unusually high administrative costs associated with these plans.

EMR use results in increased error capture: Study

Over a 5-month period in 2008 and 2009, 26 doctors who used electronic medical records in their practices at two hospitals reported 217 side effects to regulators, compared with no reports in the same group in the previous year. Pfizer sponsored the study, which was conducted at Boston's Brigham & Women's Hospital and Massachusetts General Hospital. Note: In previous studies, the use of computerized provider order entry systems (CPOE) in hospital patient care units had similar results. The use of health information technologies (HIT) to assist caregivers in clinical decision support results in higher rate of error capture versus self-reported methods that do not rely on HIT use.

Source: Linder, J.A., et al. Secondary Use of Electronic Health Record Data: Spontaneous Triggered Adverse Drug Event Reporting. Pharmacoepidemiology and Drug Safety.

ONC commissions IOM study on HIT safety

Last week, The Office of the National Coordinator for Health Information Technology (ONC) awarded a $989,000 contract to the Institute of Medicine (IOM) to conduct a one-year study of the safety of HIT systems. Per the ONC's Health IT Buzz blog, the study will:

• Identify approaches to promote the safety-enhancing features of HIT while protecting patients from any safety problems associated with HIT and preventing HIT-related patient safety problems before they occur;
• Identify approaches for surveillance and reporting activities to bring about rapid detection and correction of patient safety problems;
• Address the potential roles of private sector entities such as accrediting and certification bodies as well as patient safety organizations and professional and trade associations; and
• Examine existing authorities and potential roles for key federal agencies, including the Food and Drug Administration (FDA), the Agency for Healthcare Research and Quality (AHRQ), and the Centers for Medicare & Medicaid Services (CMS).

SGR repeal targeted in bill

Sen. Blanche Lincoln (D-AR) introduced a bill last week designed to preserve the access to physicians for rural Medicare patients and simultaneously repeal the sustainable growth rate (SGR) model for physician payments. The SGR formula links Medicare reimbursement to physicians to changes in the overall gross domestic product (GDP). The proposed legislation, “Medicare Rural Physician Recruitment and Retention Act of 2010”, would base physician pay on a measure of regionally-adjusted inflation in physician practice costs called the Medicare Economic Index (MEI) instead of overall economic conditions—a change long advocated by the American Medical Association (AMA). It would also increase the number of medical-residency training slots supported by Medicare by 15 percent.

It is likely a lame duck session will consider another temporary fix to physician pay after the November election. A permanent fix to the SGR would require the government to record a $300 billion additional deficit resulting from over-payments to physicians since 2004.

Inpatient Hospital Payment Rates for FY2011 (effective October 1, 2010)

Under the 2011 IPPS Rule, rates to acute care hospitals will include a 2.6 percent increase over 2010 to account for inflation, reduced by 0.25 percent as required by PPACA, effectively setting the market basket increase at 2.35 percent. Hospitals that fail to report specified quality data (55 measures required under the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU)) receive only a 0.35 percent increase, resulting in a 2.0 percent decrease in payments to those hospitals. With the increase of 2.35 percent and the documentation and coding reduction of 2.9 percent, acute hospital payments under the 2011 IPPS Rule will experience an overall 0.4 percent reduction from the rates for similar services in 2010.

IRS Delays Reporting of Group Health Plan Cost on W-2

Tuesday, the Internal Revenue Service (IRS) released Notice 2010-69, providing a one-year delay in the PPACA requirement to report the cost of coverage under an employer-sponsored group health plan on Form W-2 (Section 9002). The notice acknowledged the delay was necessary to allow employers adequate time to change payroll systems and processes in compliance with the new PPACA requirement.

The IRS also issued a draft W-2 Form for 2011, which would allow employers to voluntarily provide information about the employee health benefits cost. The IRS stated it plans to publish additional guidance on this requirement later this year.

Note: On a separate requirement, beginning in 2012, Section 9006 of PPACA requires all businesses to report all payments and purchases involving any taxable entity totaling $600 or more in a calendar year, regardless of the payee's corporate status or whether the payments were made for merchandise or other property.

HHS guidance to insurance companies about child-only health

In a letter to NAIC last week, HHS Secretary Sebelius outlined practices related to the issuance of child-only policies that are not prohibited by PPACA. Practices include allowing:

• Issuers in the individual market to determine the number and length of open enrollment periods for children under 19 (as well as those for families and adults), consistent with state law;
• Rates to be adjusted for health status as permitted by state law (Note: PPACA prohibits health status rating for all new insurance plans starting in 2014);
• The imposition of a surcharge for dropping coverage and subsequently reapplying for it if permitted by state law;
• The implementation of rules, consistent with state law, to help prevent employers from encouraging workers to enroll children in child-only policies instead of employer-sponsored insurance; and
• The sale of “child-only” policies that are self-sustaining and separate from closed “child-only” books of business if permitted by state law.

Note: PPACA requires plans that write child-only policies for children under 19 years of age to do so without regard to pre-existing conditions. Given the uncertainty about costs of coverage, some insurance companies have announced intent to exit child-only markets in certain states.

HHS awards community health center grants

HHS awarded $727 million to 143 community health centers to address construction and renovation needs and expand access to quality health care. The funds are the first in a series of grants made available to community health centers under PPACA. The new law provides a total of $11 billion for community health center infrastructure. This is in addition to the more than $2 billion invested in the American Recovery and Reinvestment Act (ARRA).

Administration launches the web-based personal health data tool for VA, Medicare

The Administration announced the launch of Blue Button for Veterans and Medicare beneficiaries. The ‘Blue Button’ is a web-based portal enabling individuals to manage their personal health information and provide access to health care providers, caregivers, and others they trust.

House Committee publishes results of insurance denials

The House Energy and Commerce Committee published findings of two investigations of coverage denials in the individual health plan market. From 2007 through 2009, the four largest for-profit health insurance companies denied coverage to more than 651,000 people based on their prior medical history—a 46 percent increase over the prior three-year period.

DOD electronic health record initiative evaluation

The Government Accountability Office (GAO) released its assessment of the Department of Defense’s (DOD) $2 billion electronic health record system initiative (Armed Forces Health Longitudinal Technology Application). The report, released last week, concluded that the implementation had not achieved optimal results due planning and technical issues that might have been avoided.

Q and A

Q: Does the guidance on accountable care organizations (ACOs) issued by the Department of Justice (DOJ) and HHS address anti-trust considerations?

A: Yes. The DOJ in concert with HHS provide the following guidance:

• ACOs should not be developed "for the primary purpose of joint negotiation or amassing market power to raise prices."
• Multiple ACOs should exist in each market, possibly through "a minimum efficient scale" with appropriate limits ACO participation by participants.
• Multiple arrangements are appropriate including integrated health systems, physician groups, and partnerships with health plans adequate to “assume high levels of risk."

Q: How will the value based purchasing (VBP) program work?

PPACA Sec. 3001 establishes a VBP program for acute hospitals paid under the inpatient prospective payment system for discharges occurring on or after October 1, 2012 (fiscal year (FY) 2013). Starting in FY 2013, hospital payments will be adjusted based on the individual hospital’s efficiency performance in five patient populations: Acute myocardial infarction (AMI), heart failure, pneumonia, surgeries, and health care-associated infections.

Hospitals with the highest scores on the performance standards will receive the largest VBP payment incentives. Hospitals that meet performance standards will have their base operating diagnosis related groups (DRG) payment amount (adjusted for outliers, indirect medical education, disproportionate share funding and volume) increased by a value-based incentive payment amount.

The total amount available for VBP incentive payments for all hospitals for a fiscal year will equal the total amount of all reduced Medicare payments for all hospitals. These reductions will apply to all hospitals. The applicable percentages are as follows:

• FY 2013: 1.0 percent
• FY 2014: 1.25 percent
• FY 2015: 1.5 percent
• FY 2016: 1.75 percent
• FY 2017 and beyond: 2.0 percent

Quotable

“In this order, I have not attempted to determine whether the line between constitutional and extra-constitutional government has been crossed. That will be decided on the basis of the parties’ expected motions for summary judgment, when I will have the benefit of additional argument and all evidence in the record that may bear on the outstanding issues. I am only saying that (with respect to two of the particular causes of action discussed above) the plaintiffs have at least stated a plausible claim that the line has been crossed.”

 – U.S. Federal Circuit Court Judge Roger Vinson on Thursday announcing his decision to allow claimants against PPACA to bring their case to court

“State budgets are and will continue to be strained, so therefore it is critical that [HHS] planning and establishment grants fully cover the costs of implementing the exchanges. Otherwise, states may have no other choice but to default to the federal option.”

 – Letter from the National Governors Association to the Secretary of HHS, October 4

“The legal structure for accountable care organizations should demonstrate cooperation without corruption, aggregation without hegemony and synergy without collusion.”

 – Don Berwick, CMS Director, October 6, on a conference call with industry leaders explaining regulatory oversight of ACOs

Fact file

• Medicare per capita spending for beneficiaries living in nursing homes, assisted-living centers and other long-term care facilities totaled $14,538 in 2006—more than twice the average for all other beneficiaries that year. (Source: Kaiser Family Foundation)
• Between now and 2013, 31,000 to 72,000 uninsured children with pre-existing conditions will gain coverage due to the pre-existing condition exclusion provision; 90,000 insured children will get coverage for pre-existing conditions that have previously been excluded from coverage. (Source: HHS)
• Malpractice claims against hospitals: 44,000 claims in 2009 costing hospitals $8.6 billion. Obstetrics makes up $1.4 billion of the total. (Source: American Society for Healthcare Risk Management)
• Life expectancy at birth for ethnic groups: Hispanics 80.6 years, Caucasians 78.1, African Americans 77.7 years. Note: Researchers refer to the Hispanic paradox wherein its population has lower income and receives less care than Whites but a longer lifespan. (Source: Center for Disease Control and Prevention)
• American-Armenian fraud bust: $160 million in bogus Medicare claims dating back to 2006 for 118 nonexistent clinics in California, Ohio, New Mexico and Georgia. (Source: U.S. DOJ announcement, October 14)
• Malpractice insurance premiums for internists, general surgeons, and obstetrician/gynecologists in 2010 decreased 0.5 percent following a 2.5 percent decline in 2009 and 4 percent in 2008. Of all rates in 2010, 67 percent of physicians saw no change from 2009 premiums. 19 percent decreased, and 14 percent increased. (Source: Medical Liability Monitor)
• The Center for Medicare and Medicaid Innovation, created by PPACA, will approve and oversee grants to programs that offer novel ways to slow medical spending that has grown annually almost six percent on average since 2005. Under PPACA, the center received $5 million in initial funding in FY 2010, and is scheduled to get the additional money from FY 2011 until FY 2019. That budget will be used to reduce spending growth for Medicare through physician and hospital pilot programs. (Source: PPACA, Section 3021)
• No increase in Social Security benefits in 2011—the second year in a row without an increase for 58 million retirees and disabled Americans covered by the program. President Obama has asked congress to pass a one-time “economic recovery payment” of $250 to recipients of the benefits. (Source: U.S. Social Security Administration announcement last week noting inflation was low thus not warranting an increase)
• Drug abandonment (i.e. patients who do not pick up or purchase a prescription after it is filled) is up 55 percent in the second quarter of 2010, compared to second quarter 2006. One in ten filled prescriptions for brand-name drugs were abandoned in the second quarter of 2010, an increase of 88 percent the past four years. Generic drug abandonment was also high in the second quarter of 2010. (Source: Wolters Kluwer Pharma Solutions)
• In 2008, the average charge for the top five percent of hospital stays was $192,000 compared to $20,800 for the average charge of the bottom 95 percent of stays. The five most common principal diagnoses in the top five percent of stays were: Septicemia, coronary atherosclerosis, acute myocardial infarction, complication of device, implant or graft, and respiratory failure. Patients with the most costly hospital stays had far more severe illnesses. (Source: AHRQ)
• Medical consumer price index (CPI) increased significantly in September 2010, compared to 0.1 percent increase across all items. Medical care commodities increased 0.3 percent and medical care services 0.8 percent. (Source: U.S. Department of Commerce)

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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