Health Care Reform Memo: October 25, 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

As we head into the last week of this election cycle, health reform has become a wedge issue in congressional and state races. I am struck by the rhetoric used by both sides—government-run health care, Obamacare, death panels, rationing, and so on. Regrettably, they do not lend to better understanding nor lead to solutions. Likewise, those of us in the industry use evocative terms. For instance:

• We use “patients” to reinforce the unique relationship between consumers and providers, carefully reinforcing the superiority of science and physicians over consumer self-care.
• We refer to “waiting times” to manage expectations consenting that our time is more flexible than our caregiver’s.
• We frame insurance as “managed care” somehow separating it from its logical antonym “unmanaged care”.
• We speak of “the health system” without truly understanding it’s the sectors that are not our own.
• And as insiders, we throw around three-letter acronyms ad nauseum—“ACO, HMO, PPO, DRG, IPA”, etc…

Perhaps a blessing of the ongoing health reform debate is that the industry is now top of mind. But to effectively engage individuals, it seems we need to rethink our terminology to seek clarity and improve expectations. “Patients” are neither patient nor patients; they are individuals who make choices with their time or money. “Waiting times” are not excusable if optimizing value is a goal for providers. “Managed care” is a necessary approach to a complex system involving providers and consumers seeking to manage a condition or disease. And understanding the “system” of care should be a national goal taught in every classroom every year.

Words are powerful. In health care, now more than ever, they should be used carefully and precisely to enhance understanding and find solutions.

Paul Keckley, Ph.D.

NAIC approves medical loss ratio recommendation

During a meeting in Orlando, FL last week, the National Association of Insurance Commissioners (NAIC) finalized its methodology for calculating medical loss ratio (MLR) as required by the Patient Protection and Affordable Care Act (PPACA, Section 1001, codified in Section 2718 of the Public Health Service Act). The model language will be delivered to the U.S. Department of Health and Human Services (HHS) where early indications are it will be certified by Secretary Sebelius for implementation January 1, 2011.

Among major elements of the NAIC MLR recommendations:

Costs recommended to be included in medical costs (in addition to direct payments for providers, prescription drugs, long-term care):

• Costs associated with a plan’s outcome measurement and health coaching services that assist consumers in clinical care management
• Costs associated with fraud and abuse surveillance and reporting to the extent there are recoveries

Costs recommended to be included in the premium for purposes of the MLR calculations:

• Federal and state income taxes incurred by plans which relate to providing health care

Costs recommended to be included in administrative costs:

• Brokers and independent agent commissions (NAIC agreed to appoint a task force to study the implications of the provision for health insurers dependent on brokers/independent agents for sales/marketing services)
• Taxes paid on investment income

Other notable provisions:

• Plans must report MLR calculations at the state level; averaging across multiple states/nationally is not permitted.
• Provides for “credibility adjustments” (allowing variance from the MLR requirement where the insurance market might be severely disabled/disappear unless modified) with a defined confidence interval of 50 percent (the smallest plans will be allowed to spend as little as 66 percent of revenue on medical care under certain provisions of the agreement). Note: if a determination is made that the individual market could be destabilized in a state as a result of the MLR requirement, HHS should defer to the analysis and recommendations of that state’s department of insurance.
• The implementation period will be per PPACA requirements: MLR for years 2011 and 2012 will be calculated using only 2011 and 2012 experience; in 2013, the MLR will be calculated using a three year average from plan years 2011-2013.
• It was recommended that rebates paid by plans because MLR thresholds were not reached will be paid to the individual or entity that paid the premium. If an employer collects the rebate, they should be required to distribute it to the enrollee. This decision was deferred to HHS at their request.

HHS Secretary Sebelius believes the recommendations “are reasonable, achievable for insurers, and will help to ensure insurance premiums are, for the most part, supporting health benefits for consumers." Conversely, according to a statement by America’s Health Insurance Plans (AHIP) President and CEO Karen Ignagni, the NAIC proposed rules would “reduce competition, disrupt coverage and threaten patients’ access to health plans’ quality improvement services.”

Note: NAIC is tasked by PPACA to advise HHS on rate review procedures, health exchanges and ways to effectively share insurance information with consumers. Founded in 1871, NAIC is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and five U.S. territories. In a May report by the Senate Commerce Committee, it was estimated that for 2008, large group plans' average MLR was 86 percent, but the five largest for-profit insurers in this segment averaged 84 percent. In the same analysis, Senate Commerce offered estimates of 82 percent for small group plans (with major for-profits at 80 percent), and 79 percent for individual plans (with major for-profits at 74 percent). However, none of these estimates used the same definitions as those now proposed by the NAIC.

NCQA releases ACO guidance

On Tuesday, the National Committee for Quality Assurance (NCQA) published draft standards for the recognition of Accountable Care Organizations (ACOs). ACOs consist of physician organizations, physician-hospital organizations, and other partnerships/joint ventures that offer patients a multi-disciplinary provider panel designed to improve outcomes and health status. The NCQA’s “ACOs Draft 2011 Criteria Overview” notes that “while ACOs will ultimately be judged based on performance, most potential ACOs do not yet have sufficiently complete data to produce a reasonable number of standardized, reliable, valid measures for comparison and benchmarking. NCQA believes that until meaningful, comparative performance reports are available, ACOs should demonstrate core capabilities critical to improving quality and reducing costs.”

The standards are divided into five categories:

• Program structure operations, access and availability
• Primary care, care management
• Care coordination and transitions
• Patient rights and responsibilities
• Performance reporting

The criteria include:

• Qualifying capabilities an ACO must have to be recognized
• Monitoring criteria (i.e. the performance reporting and benchmarking ACOs) must comply with in areas such as clinical quality, patient experience, and cost measure

PPACA (Section 3022) calls for the creation of ACOs for Medicare enrollees by January 1, 2012; private payers are expected to follow suit.

Berwick outlines goals for Center for Medicare and Medicaid Innovation

On Monday during a forum hosted by the Brookings Institution, Centers for Medicare & Medicaid Services (CMS) Director Don Berwick called the Center for Medicare and Medicaid Innovation (CMI) the “crown jewel” of PPACA, noting it will be “an American trampoline for better care at a lower cost”.

Per PPACA (Section 3021), HHS must establish the CMI by January 2011. Its purpose is to test innovative approaches to improving health care delivery, payment, and quality via demonstration and pilot programs. The law allocates $5 billion in start-up funds and $10 billion over ten years for new demonstration projects and pilot programs, which may be implemented without congressional approval. Among the ideas referenced in Berwick’s comments were innovative approaches to reducing bedsores in hospitals and hospital acquired infections, population-based health improvement for chronic populations, and new models of coordinated care.

Study: transparency of hospital cardiac surgery programs

A research team examined outcome data from 221 hospital cardiac surgery programs across 11 evidence-based performance measures endorsed by the National Quality Forum with the cooperation of the Society of Thoracic Surgeons. The authors noted that media attention and public health (government agencies) action toward outliers/under-performers is necessary to leverage the value of public reporting.

Source: Ferris, T.G. “Public Release of Clinical Outcomes Data: Online CABG Report Cards”. New England Journal of Medicine. October 21, 2010

Grassley urges HHS, FDA to analyze physician prescribing patterns

Friday, ranking Senate Finance Committee member Charles Grassley (R-IA) sent a letter to HHS Secretary Sebelius, asking the agency to investigate overutilization of prescription drugs and related fraud in Medicare and Medicaid and provide findings by December 3, 2010. Grassley noted that HHS must monitor outliers referencing a Florida physician who wrote 97,000 prescriptions in 21 months for mental health drugs for Medicaid patients, an Ohio physician who wrote 102,000 prescriptions in two years and a Texas physician who wrote 14,170 prescriptions for the anti-anxiety drug Xanax in 2009. Last month the Senator requested a U.S. Food and Drug Administration (FDA) investigation of payments to physicians by medical device manufacturers.

California physicians can challenge Medicare payments

The 9th U.S. Circuit Court of Appeals ruled that seven California counties can continue their lawsuit claiming that Medicare is underpaying California physicians by 10 to 25 percent in urban areas because HHS has not adjusted payments for geographical differences in the cost of providing care. The case was dismissed in 2009 by a federal trial court; however, the Court of Appeals (although dismissing some parts of the case) ruled that the counties could continue their lawsuit on the basis that the government’s lack of action may violate their Constitutional equal protection rights.

GAO report finds HHS ads did not violate law

According to a U.S. Government Accountability Office (GAO) report published Tuesday, HHS estimates it spent approximately $1 million to produce and broadcast each of its three advertisements on PPACA’s changes to the Medicare program. The report concluded that the advertisements did not violate the publicity or propaganda prohibition. Prior to the release of the report, House Republicans asked HHS Secretary Sebelius to provide details on the agency’s spending on health reform advertising by October 22.

OIG reports: fraud and abuse training in medical schools

The Office of Inspector General (OIG) conducted a survey of all 132 accredited medical schools, accredited osteopathic schools, and institutions offering physician residency and fellowship programs on Medicare and Medicaid fraud and abuse training. Findings include:

• Despite lack of a Federal requirement, 44 percent of medical schools reported providing instruction to students on Medicare and Medicaid fraud and abuse laws in 2010.
• Two-thirds of institutions offering residency and fellowship programs reported instructing participants on compliance with Medicare and Medicaid fraud and abuse in 2010.

Joint Commission to accredit medical homes

Monday, the Joint Commission announced a new program to accredit patient centered medical homes—a method of delivering care that rewards primary care practices for population-based health improvement leveraging a multi-disciplinary team model. The Joint Commission standards will be published March 2011, and on-site surveys are slated to begin by July 2011. Medical home pilots are expanded in PPACA (Section 3502). For more information about the medical home model, please click here.

Physician survey results: impact of CER

Per PPACA Section 6301, the use of comparative effectiveness research (CER) to assess relative effectiveness of treatments is authorized under the auspices of the newly created Patient Centered Outcomes Research Institute. A recent survey of physicians provides a context for understanding physician reaction to CER:

• 56.5 percent of physicians believe national guidelines should be developed to influence clinical practice
• 77.8 percent believe guidelines should rely on CER
• 55.2 percent believe that CER would improve the quality of care

However, 65.7 percent also agreed that "comparative effectiveness data will be used to restrict my freedom to choose treatments for my patients." Physicians most prone to apprehension were osteopathic physicians, surgical and medical specialists, physicians who owned their own practices, and physicians in the south.

Source: Keyhani, S., et al. “Physician Views on the Use of Comparative Effectiveness Research: A National Survey”. Annals of Internal Medicine. October 19, 2010.

Health information exchanges: HHS gives guidance about patients’ privacy

On Monday the HHS issued recommendations to providers on how to communicate to patients about the use of their information in a health information exchange (HIE). Two provider scenarios were considered by the HHS Privacy and Security Tiger Team:

• Information about patients is conveyed to a third party (plan/lab/pharmacy) by the provider
• The electronic health record used in the practice is shared within an integrated health network

As patients sign in for office visits, providers should supply patients with short, easy-to-understand notices of how their information will be used and protected when it is exchanged. The guidance is that 90 percent of patients should be able to understand the policies pertinent to use of personal health information.

According to Paul Egerman, co-chair of the Privacy and Security Tiger Team, the HHS recommendation is intended to allow providers to “balance the need to give patients complete information on how their information is shared while providing information in a form that is manageable for patients to read and understand”. The team is currently evaluating methods of digital credentialing of providers and related technical and administrative standards to accelerate use of electronic health records (EHRs) and HIEs.

Highlights: federal workshop on ACOs

On October 5, the U.S. Federal Trade Commission (FTC), the Centers for Medicare and Medicaid Services (CMS) and the OIG hosted a workshop on regulatory issues for ACOs. Section 3022 of PPACA directs the HHS Secretary to establish a shared savings program for providers participating in ACOs no later than January 1, 2012. ACOs that meet certain quality performance benchmarks will be eligible for shared savings payments from CMS. Key takeaways from the workshop:

• The initial goal of the ACO program is to manage outcomes, not volume of Medicare enrollees managed.
• The government agencies said they are exploring additional safe harbors, exceptions or waivers that could shield ACOs from the purview of current self-referral laws.
• CMS plans to issue guidance before the end of 2010.

HIT workforce training: update

On October 12, the Office of the National Coordinator for Health Information Technology (ONC) Coordinator David Blumenthal posted guidance on the $84 million allocated for the Health Information Technology (IT) Workforce Development Program focused on four initiatives:

1. Community college non-degree training programs
2. Development of high-quality educational materials
3. A competency exam program to evaluate trainee knowledge and skills
4. University-based training programs for highly specialized health IT

The goal is to produce 10,500 health care IT workers annually per ONC, reducing the shortage by 85 percent.

Q and A

Q: When do avoidable readmissions penalties start for hospitals?

A: PPACA Sec. 3008 institutes a 1 percent payment reduction penalty for inpatient hospitals in the top 25th percentile for hospital acquired conditions (HACs), i.e. hospital acquired pneumonia, etc. Starting for discharges in fiscal year (FY) 2015 (October 1, 2014), acute inpatient hospitals in the top quartile of national, risk-adjusted HAC rates for an applicable period in a FY will receive 99 percent of their Medicare reimbursement for all discharges. (Acute inpatient hospitals paid under the Maryland state Medicare program will be exempt if a similar state program achieves the same or improved patient outcomes and cost savings). Between FY2015 and FY2019, Medicare expects to save $7.1 billion as a result of hospital penalties.

Q: Employers that do not offer coverage to full-time employees, or that offer “inadequate” or “unaffordable” coverage to full-time employees, may be subject to penalties under PPACA. Does changing the penalty require new legislation or can the HHS change it?

A: Starting in 2014, section 4980H of the Internal Revenue Code (PPACA Section 1513) will impose different penalties on employers that do not offer coverage to “full-time employees” (i.e., those working at least 30 hours per week) and have at least one employee receiving a premium tax credit or cost-sharing reduction, and employers that offer coverage but still have at least one full-time employee receiving the tax credit or cost sharing reduction. If an employer offers coverage to a full-time employee, s/he can qualify for the tax credit or cost sharing reduction only if the coverage is not adequate (i.e., has an actuarial value of less than 60 percent) or is too expensive (i.e., the employee would have to contribute more than 9.5 percent of his or her household income to participate in the employer’s plan). The IRS will administer this penalty. To date, Congress has not considered legislation to repeal, modify or delay the penalty.

As reported last week, the IRS has delayed until 2012, information reporting related to the provision of health coverage.

Q: How "creatively" are some of the states thinking about the exchanges? For example, are some states considering allowing the sale of a broader range of products such as life insurance on the exchanges?

A: By law (PPACA, Section 1311) an exchange cannot offer any health plan that is not a qualified health plan. PPACA requires qualified health plans to be certified by an exchange, provide the “essential health benefits package”, be offered by licensed insurers that offer at least one qualified health plan at the silver and gold levels, and meet the new market requirements. Note: a health insurance plan or employer is not precluded from offering other insurance programs to enrollees outside the exchange for health insurance coverage.

Quotable

“Our thought experiment shows how the economics of dropping existing coverage is about to become very attractive to many employers, both public and private. By 2014, there will be a mini-industry of consultants knocking on employers' doors to explain the new opportunity. And in the years after 2014, the economics just keep getting better.
The consequence of these generous subsidies will be that America's health reform may well drive many more people than projected out of employer-sponsored insurance and into the heavily subsidized federal system. Perhaps this is a miscalculation by the Congress, perhaps not. One principle of game theory is to think like your opponent; another is that there's always a larger game… My state of Tennessee could reduce costs by over $146 million using the legislated mechanics of health reform to transfer coverage to the federal government.”

 – Phil Bredesen (D-TN), Governor of Tennessee, former health industry executive. “ObamaCare's Incentive to Drop Insurance”, Wall Street Journal editorial, October 21, 2010

“The expanded capabilities of our data exchange will help accelerate the shift from paper-based to electronic-based medical records, and in the process help speed patient diagnoses and drive productivity and cost efficiency throughout the U.S. healthcare system.”

 – Peter Tippett, Vice President of Technology and Innovation, Verizon Business announcing the company’s cloud-based Verizon Medical Data Exchange expansion

“Currently available information on the Hospital Compare Web site will not help patients identify hospitals with better outcomes for high-risk surgery. CMS needs to identify higher leverage process measures and devote greater attention to profiling hospitals based on outcomes to improve public reporting and pay-for-performance efforts.”

 – Nicholas, L.H., et al. “Hospital Process Compliance and Surgical Outcomes in Medicare Beneficiaries”. Archives of Surgery. 2010; 145(10):999-1004.

Fact file

• Unemployment rates unchanged in most states in September: 23 states and Washington, D.C., experienced decreases in jobless rates, increases in 11 states, and unchanged in 16. (Source: U.S. Department of Labor, October 23 release)
• U.S. EHR market: $1.3 billion 2009, $2.6 billion 2012 forecast. Note: 2008 NEJM study: only 4 percent of physicians have fully functional EHR. (Source: Frost & Sullivan, August 2010)
• Of the ten most profitable hospitals in the U.S in 2009, five are operated by not-for-profit sponsors, five by for-profit. (Source: American Hospital Directory, American Hospital Association)
• Mid-term election spending for 2010 totals approximately $3 billion, $300 million above 2008. (Source: Center for Responsive Politics)
• Ethnicity of U.S. first year medical students: White-58 percent, Asian-20 percent, Hispanic-8 percent, Black-6 percent, multiracial-3 percent, and other-5 percent. (Source: Association of American Medical Colleges)
• Employee financial participation in their health coverage costs increased $482 last year (an increase of 14 percent) to $4,000 per year. (Source: Health Research and Education Trust)
• Seven hundred fifty-six physicians operate “retainer-based arrangements”. (Source: National Opinion Research Center at the University of Chicago)
• Medical error cost: $19.5 billion annually; $17 billion due to increased medical costs, $1.4 billion to increased mortality, and $1.4 billion in lost productivity. (Source: Society of Actuaries)
• Though 83 percent of Tea Party supporters favor repeal of PPACA, some provisions are popular including elimination of pre-existing condition as basis for insurance company coverage (57 percent), addition of prescription drug benefits for seniors (52 percent), and state-run high risk pools for people with major health problems (53 percent). (Source: Bloomberg National Poll, Bloomberg BusinessWeek, October 18-24, 2010)
• Total unfunded liabilities to state and local government employee pension funds: $3 trillion. State and local governments paid $3.04 per hour toward employee retirement in 2007 compared to $0.92 paid by private sector employers. (Source: University of Rochester-Northwestern University study)
• Federal Government IT spending five-year forecast: 2.8 percent annual increase from $79.6 billion in FY 2011 to $91.3 in FY 2016 versus 3.6 percent annual increases in private sector from $42.8 billion in 2011 to $50.9 billion in 2016. Note: HHS and the Treasury department are projected to have the highest increases, with five-year growth rates of 5.8 and 4.8 percent respectively. (Source: GAO)
• Seventeen percent ($168 billion) of U.S. health care costs are due to obesity in 2009, up 9 percent from $147 billion in 2008. (Source: National Bureau of Economic Research)

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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