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Health Care Reform Memo: March 15, 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 new administration and implications for the C-suite and various stakeholder groups.

Update: Pending health reform bill(s) await votes

Friday, The White House announced the President would delay a planned visit to Indonesia and Australia to March 21 anticipating passage of at least the first stage of the health reform bill. And last week, the President voiced optimism while speaking in St. Louis and Philadelphia that a bill would pass by the March 29 Congressional recess.

A possible scenario is a two step process:

Step one: The House will vote this week on passage of the Senate bill (HR3590) approved by the Senate on December 24. The Senate bill would become law when signed by the President. Note: HR3590 features several insurance industry regulations (guaranteed issue, elimination of lifetime limits, etc.), expansion of Medicaid eligibility to 133 percent of the federal poverty level (FPL), elimination of the Part D “donut hole” for seniors, an individual mandate with subsidies to assist lower income consumers with incomes up to 400 percent of the FPL, penalties for small employers whose employees use federal subsidies to purchase insurance through state-run health exchanges, expansion of pilots to accelerate bundled payments and performance-based incentives to providers, and an independent board to manage Medicare spending. The bill costs $875 billion funded through increased Medicare withhold for upper-income consumers, new industry fees and taxes (health plans, medical device companies, drug companies, clinical labs, etc.), and $389 billion Medicare cuts among others. According to the Congressional Budget Office (CBO), the Senate bill would reduce the deficit by $118 billion (2010-2019) and increase insurance coverage for 31 million, leaving 25 million without insurance in 2019.

Step two: A second bill incorporating changes to the Senate bill would then be passed in the House by a simple majority, then in the Senate using reconciliation to pass with a simple majority. Note: the second bill is likely to include provisions deemed problematic in the Senate bill, i.e. elimination of concessions (examples: Medicaid funding deals for Nebraska, and Louisiana, Connecticut medical school, Florida waiver of Part C cuts; Cadillac tax exemptions, possibly others). To increase the likelihood of passage, the second bill will also likely include a provision to expand Pell Grant funding for low-income students while ending government payments to private, commercial student lenders, saving $67-87 billion. Last September, the House passed the Student Aid and Fiscal Responsibility Act by a vote of 253-171 but the Senate has not acted on the bill. Democratic congressional leaders believe the addition of the student loan provision with HR3590 revisions in the second bill will enhance the likelihood majorities in both houses can be reached. The Pell Grant program provides loans to eight million students currently.

Physician fix: Update

Tuesday, the Senate passed the American Workers, State and Business Relief Act by vote of 66-34. The bill authorizes $150 billion/10 years for job growth especially targeting small businesses. Senate Max Baucus (D-MT) proposed an amendment that would delay the scheduled 21.2 percent Medicare payment cut for physicians from March 1 until September 30. Note: the sustainable growth rate (SGR) formula links Part B Medicare reimbursement to the gross domestic product leading to scheduled cuts annually that have been set aside annually since 2004, building an accrued deficit of $247 billion. In November, the House voted 243 to 183 to replace the formula; the Senate voted to defer the matter and has taken no action, presumably opting for appointment of a commission to change the Medicare payment models for hospitals and physicians.

Safety of long-term care a focus of Senate

Tuesday, Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Minority member Charles Grassley (R-IA) asked the General Accountability Office (GAO) to investigate safety in the 400 long-term care hospitals that treat Medicare patients for an average of 25 days or more. Among areas of specific focus are quality and safety violations, staff retention and patient monitoring. A CMS report indicated long-term care hospital violations are double those of general acute facilities. Note: the long-term care hospital industry treats 200,000 patients a year (130,000 Medicare) at a projected cost of $4.8 billion to the government, up from $400 million in 1993.

GAO report: National debt growing concern

Last week, the Government Accounting Office (GAO) released a report indicating debt held by the public will exceed 100 percent of GDP by 2019. The GAO forecasts that 93 cents of every dollar of federal revenue will be spent on the entitlement programs (Medicare, Medicaid, Social Security) and net interest costs by 2020. In tandem, the Bipartisan Policy Center’s Debt Reduction Task Force chaired by former Senate Budget Committee Chairman Pete V. Domenici (R-NM) and Dr. Alice Rivlin, former Clinton Budget Director, CBO Director and Vice-Chair of the Fed, began work to recommend federal spending controls that would reduce the annual deficit to 3 percent of the GDP by 2019 from 10 percent today.

State led reforms

Efforts in states relevant to national health reform efforts continue. Examples:

  • Action is underway to expand scope of practice for nurse practitioners in Ohio, Georgia, Kentucky, Ohio (expansion of community health centers and preventive health are key features in the Senate bill)
  • In Massachusetts, insurers requested premium increases up to 32 percent premium increases for the individual and small group markets to accommodate increased demand resulting from the state’s reform plan. Insurance reforms are a significant focus of legislation: the President has proposed that the federal government play an expanded role in oversight of insurance premiums. Currently, 27 states require prior approval for insurance premium increases and in 12 rates require filing with the state in advance. (National Association of Insurance Commissioners)


“When is the right time? If not now, when? If not us, who? We can’t have a system that works better for the insurance companies than it does for the American people.”

– President Obama, March 8, 2010 speech at Arcadia University

“The single most important thing that we can do is to move the incentive system for providers –hospitals and doctors– away from paying for more stuff. The problem is that we currently do not know exactly how to design that system.”

– Peter Orzsag, Business Week March 8, 2010

“Most consumers of health care are largely insulated from paying for health care services they use, health care is generally perceived as unlimited free good, wants and needs become insatiable when care is believed to be free.”

– Roger Battistella Health Care Turning Point: Why Single Payer Won’t Work (MIT Press, 2010)

“Darwin would say that these legislative events are part of the health care environment and that those that will thrive must adapt.”

– Steve Helmsley, CEO United Healthgroup, December Investor Day

Fact file

  • Federal spending as percent of total federal budget: 1980=12.1 percent, 1990=15.5 percent, 2000=23.4 percent, 2010=25.4 percent (does not include state and local government health costs) (Source: U.S. Department of Health and Human Services)
  • Nine percent of the U.S. 40 million discharges from hospitals required home health care—the fastest growing category of health spending with cumulative growth of 55 percent from 1997 to 2007 (Source: Agency for Healthcare Research and Quality)
  • The number of cosmetic-surgery procedures in the U.S. decreased 2 percent in 2009 to 1.5 million (Source: American Society for Aesthetic Plastic Surgery study released Thursday)
  • 13.2 percent of the U.S. population live below the federal poverty level -- $11,201 for individuals/$21,834 for family of four in 2008 (Source: U.S. Department of the Census)
  • Median income of nurse practitioners in the U.S. is $83,293 vs. median for family medicine, $160,586 (Source: American Nurses Association)
  • Eight million government employees including members of Congress are covered under the Federal Employee Health Benefits Program (FEHP). 4.9 million of these purchase coverage under the Blue Cross and Blue Shield Service Benefit Plan with premiums ranging from $100 for individuals to $400 for family coverage covering 87 percent of their total costs. (Note: insurance plans provided through health exchanges would be required to fund a minimum of 70 percent of health costs) (Source: Government Accounting Office)
  • Up for election in 2010: House: 435 (25 open seats; currently 256 D and 176 R); Senate: 37 (ten open seats, currently 57 D, 41 R, 2 I); Governors: 37 (22 open seats; 26 D, 24 R)
  • Pharmaceutical industry employment in the U.S.: increasing 6.1 percent from 289,000 to 307,000 over next ten years

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