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Health Care Reform Memo: January 23, 2012

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: U.S. health care system: unnecessarily fragmented and high costs

From Paul Keckley, Executive Director, Deloitte Center for Health Solutions

It’s been 34 days since my knee surgery and subsequent clotting complication. I’ve used two hospitals in two states, three labs to draw blood to monitor my coagulation, and countless hours online trying to figure out my propensity for further complications that might lie ahead.

To date, I have received bills totaling $12,712 from the surgeons, anesthesiologists, and hospital #1 for the initial procedure December 20; none from the series of events that started December 29, when I collapsed. And in the process, I’ve incurred out-of-pocket costs to date of $1,502, with more to come I’m sure.

There’s nothing like using “the system” to see its notable achievements and unfortunate shortcomings. My circumstance is relatively minor compared to others facing vexing health problems or caring for others. I am lucky to be able to afford my health care and fortunate to have relatively good health. So each of us starts from a different place, deeply personal, in assessing the system of care. My current medical journey reminds me that we are far from operating a system of care. I wonder:

  • My medical records should have been shared between the hospital #1 and hospital #2 and by the care teams. They weren’t.
  • My Warfarin directive from hospital #2 should have been informed by a thorough understanding of my medical history and query about my use of over-the counter remedies, nutrients, and vitamins. It wasn’t. 
  • My care teams should have been consistent in their directives: the PharmD and emergency room docs offered strikingly different assessments, and the hand-off by attending nurses was handled poorly in my eight hour extended stay in the hospital #2’s emergency room.

And the costs associated with my care in all these settings should be more understandable. They’re not. The endless flow of statements, bills, and explanation of benefits (EOB) I am now receiving is confusing, and it appears they will dribble in over the next month or longer. I ponder:

  • Why is it virtually impossible to understand an “explanation of benefit”, especially when the math doesn’t compute?
  • Why are my out-of-pocket costs for medications more than my out-of-pocket for hospitals and physicians?
  • Why was a relatively minor surgical procedure so expensive? It took only minutes.
  • And why, 34 days after the events unfolded, am I lacking some bills from hospital #1 and am in receipt of none from hospital #2? I know 99 percent of claims to third parties are filed electronically within days. Why is the consumer last to know?

This week, a bipartisan joint conference committee in Congress will take up extension of the payroll tax in tandem with a fix for physician payments (Sustainable Growth Rate [SGR]) and extension of unemployment benefits. And the bigger discussion in DC for weeks to come will be about deficit reduction, economic recovery, and government spending.

It seems clear that health costs contribute to the fiscal problem facing the U.S. For the past three decades, health costs have increased at 2.1 percent above the average annual GDP. In 2010, inflation increased. Combining Medicare, the federal portion spent for Medicaid, military health, and coverage for federal employees, health spending at the federal level is almost 25 percent of all spending. According to the U.S. Bureau of Labor Statistics’ Consumer Price Index, released last week, hospital prices increased 5.8 percent in 2011 vs. a 7.6 percent increase in 2010; physician increases were 2.7 percent after increasing 3.4percent the prior year. In the same period, the overall inflation rate increased 3.16 percent in 2011 vs. 1.64 percent in 2010, and the consumer price index increased 3.0 percent in 2011 vs. 1.5 percent in 2010.

Most people like me simply meander through stacks of bills, statements, and EOBs and then give up. I am fortunate to be among the 84 percent with some form of insurance coverage, and I have studied the system for 40 years. But my medical excursion these days reminds me how far we are from a “system” where appropriate evidence-based care is readily accessible and verifiable, redundant paperwork aggressively reduced, costs and their relationship to prices is easily obtained and comprehendible, and essential medical information is shared among providers to optimize care and avoid error.

“Systemness” is achievable but lacking. Amazing we can put humans on the moon, but we can’t explain medical costs or share medical information effectively in an industry that represents 18 percent of our overall GDP employing 16 million and consuming 19.8 percent of U.S. household discretionary spending.

We have a long way to go to improve the U.S. system. And cost reduction seems to be an obvious priority if it is to be accessible to our children and grandchildren.

I am keeping a diary about my experience: one set of notes about the quality of medical care and the other about costs. Hopefully, weeks from now, I can close the chapter on the experience, and my data will show a clear relationship between costs and value. Stay tuned.

Paul Keckely

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

Implementation update

States push for details of federal exchanges

January 11, officials from seven states—UT, TN, KY, ME, NM, VA, and ND—sent a letter to the U.S.Department of Health and Human Services (HHS) requesting detailed information by June on the specifications of a federally-run exchange, including governance, consumer functions, eligibility, and financial management. Per the Affordable Care Act (ACA) Section 1311, HHS must determine by January 1, 2013 if a state will have a “fully operational exchange” by January, 1 2014, which would require operations beginning Oct. 1, 2013 to support the first open enrollment period. HHS also proposed allowing states to receive conditional approval if they cannot demonstrate readiness.

House Ways and Means passes CLASS Act repeal bill

Wednesday, the House Ways and Means Committee approved a bill to repeal the Community Living Assistance Services and Support (CLASS) Act per ACA Section 8002 by a vote (23 to 13) with only one Democrat voting with the Committee’s 22 Republicans. The bill is expected to be considered on the House floor in February. Last November, the House Energy and Commerce Committee approved a similar bill to repeal the CLASS Act.

Note: The CLASS Act establishes a national, government run long term care insurance program financed by premiums paid by consumers into an insurance pool overseen by a government trust. Concerns by opponents: the potential it might become an entitlement program that might increase the federal deficit if underfunded.

Hospital groups urge fix to Medicare formula preferential to Massachusetts

Thursday, 19 state hospital associations sent a letter to the White House stating “the PPACA provision (Section 3141) permitted the Commonwealth of Massachusetts to manipulate the federal Medicare program, reaping an estimated $367 million annually from the other 49 states and unfairly favoring one state’s hospitals and Medicare beneficiaries to the detriment of others.” The group contends the measure cost states $3.5 billion over the next ten years if left unchanged.

Note: Section 3141 is titled “Application of budget neutrality on a national basis in the calculation of the Medicare hospital wage index floor.” Starting Oct. 1, 2010, “the provision require[d] application of budget neutrality associated with the effect of the imputed rural and rural floor to be applied on a national, rather than State-specific basis through a uniform, national adjustment to the area wage index.”

PCORI research agenda release expected today

The Patient Centered Outcomes and Research Institute (PCORI) established by the ACA Section 6301 to support comparative effective research is expected to release its draft research agenda and national priorities January 23. Additional coverage will be included in the January 30 Monday Memo.

HHS gives several religious employers another year to cover FDA-approved contraceptives

Friday, HHS announced that it will not expand the exemption for several religious employers from providing health care coverage of contraceptives approved by the U.S. Food and Drug Administration (FDA) per the interim final rule released August 2011. However, Secretary of HHS Kathleen Sebelius stated in a press release that “nonprofit employers who, based on religious beliefs, do not currently provide contraceptive coverage in their insurance plan, will be provided an additional year, until August 1, 2013, to comply with the new law.”

Legislative update

House votes against President’s request to raise federal debt limit

Wednesday, the U.S. House of Representatives voted against the President Obama’s request to raise the federal debt limit $1.2 trillion.

Note: August 2, 2011, Congress passed the Budget Control Act of 2011 that allows the expansion of the debt ceiling to be accompanied by spending cuts of $1.2 trillion (the sequester).

Nursing home cuts proposed for 2014

Friday, January 13, Medicare Payment Advisory Commission (MedPAC) approved recommendations that eliminate the market basket update for nursing homes—a pay cut at least by 4 percent starting in 2014. The industry is somewhat supportive of the advisors' call to reduce pay for skilled nursing facilities with relatively high risk-adjusted re-hospitalization rates for Medicare-covered stays.

Campaign 2012 health platforms

The Deloitte Center for Health Solutions is the research arm of the Deloitte health care and government practice supporting analyses of trends and issues relevant to policymakers, industry leaders, and interested parties. Our studies are funded by Deloitte; we accept no outside income, and each study is available on our website. We are non-partisan, and we do not lobby; rather, we conduct rigorous studies using surveys, forecasts, expert opinion, and economic modeling to answer questions and gauge cause-effect relationships, intended/unintended consequences, and related outcomes. Throughout the election cycle, we will summarize proposals from major candidates in state and federal campaigns taking a neutral position about the advisability and effectiveness of each.

GOP Presidential candidate health platforms

In an analysis of health care platforms of the four GOP candidates’ websites current to January 23, 2011, there are many similarities:

  • All indicate the intent to repeal ACA and do not support the individual mandate in ACA
  • All favor allowing the purchase of insurance across state lines (permitted via health care choice compacts in Section 1333)
  •  All believe in liability reform, increased use of information technology to reduce costs, increased use of private insurance options for Medicare enrollees, and increased latitude for states to manage their own Medicaid programs.

Some distinctions:

  • Gingrich: use of health and wellness incentives and investing in R&D to expedite medical breakthroughs as a national priority
  • Paul: opposition to taxpayer supported development of a national database of personal health information
  • Romney: provisions to allow individuals and small business to form purchasing pools to lower insurance costs
  • Santorum: phasing out of Medicare replaced by private market option
  Newt Gingrich Ron Paul Mitt Romney Rick Santorum
Approach to Repealing the ACA Replace ACA with “Patient Power” plan to save lives and money Repeal ACA, end individual mandate that requires all Americans to obtain government-approved health insurance Issue waivers to all 50 states, call on Congress to repeal ACA and make health care “like a market” Replace ACA with market-driven, patient-centered alternatives to increase access and affordability
Medicare Reforms Create additional choices in Medicare by giving seniors the option to choose a more personal system in the private sector with greater options for better care Eliminate Medicare eventually; allow states to provide health care to seniors Give beneficiaries a generous defined contribution or “premium support;” allow for freedom to choose between private plans and traditional Medicare Privatize Medicare, giving qualified recipients federal money to purchase health coverage (strong supporter of Representative Paul Ryan’s (R-WI) plan)
Medicaid Reforms Allow states to customize programs; enact grants similar to 1996 welfare reform Eliminate Medicaid eventually; allow states to provide health care Establish block-grants to expand health care access to low-income Americans Establish block-grants to ensure states can implement solutions to address unique needs
Other Insurance Industry Reforms Allow for insurance purchase across state lines to increase price competition in the industry; extend HSAs throughout health care system Allow for insurance purchase across state lines; make all Americans eligible for HSAs Allow for insurance purchase across state lines, free from state benefit requirements; strengthen HSAs, permit funds to be used for health insurance premiums Allow for insurance purchase across state lines; strengthen HSAs coupled with high deductible insurance plans
Tax Deduction or Credit for Buying Insurance Allow the choice of a generous tax credit or ability to deduct the value of insurance to a certain amount Allow tax credits and deductions for all medical expenses Expand tax deductions to include not only employers but also individuals Allow for purchase of health insurance with pre-tax dollars, including a refundable tax-credit for the purchase of health coverage
Malpractice Reform Strive to end “junk” lawsuits Provide tax credit for “negative outcomes” insurance purchased before treatment Cap non-economic damages, provide innovation grants for medical liability reforms Enact meaningful medical liability reform, incentivize state reforms
FDA Speed up medical breakthroughs by reforming FDA Reform FDA, eliminate interference with American’s knowledge of and access to supplements, alternative treatments Not mentioned in proposal Not mentioned on website
Personal Health Information (PHI) and Health IT Move from paper-based to electronic system (helping reduce health care fraud) Prohibit use of taxpayer funds for national database of PHI Not mentioned in proposal Increase use of electronic health records and health care literacy
Public Health, Wellness, and Prevention Reward health and wellness by giving health plans, employers, Medicare, and Medicaid more latitude to design benefits to encourage, reward healthy behavior Exempt those with terminal illness from employee portion of payroll taxes while ill; gradually end government involvement in promoting wellness programs Provide states with resources to improve access to care for chronically ill Not mentioned on website

GOP primary process, delegate count

In Tampa, FL in August, 2,286 delegates are expected to attend the Republican National Convention (RNC): 1,783 delegates will be pledged to certain candidates through states’ primary and caucus rules, and 503 unpledged delegates who are not bound to a state’s rules. To win the GOP presidential nomination, a candidate must have a simple majority of votes (1,144 delegates). Through South Carolina’s vote Saturday, 80 delegates have been designated.

State update

Survey: all but two states expanded or maintained Medicaid eligibility last year

Wednesday, the Kaiser Family Foundation released a survey conducted with researchers from Georgetown University Center for Children and Families concluding that all but two states maintained or expanded their Medicaid income eligibility levels last year. Among findings in 2011:

  • Two states reduced Medicaid eligibility for low-income adults through limited exceptions to the ACA maintenance of eligibility requirement. ACA Section 2001 maintenance of effort (MOE) provision requires states to maintain the same Medicaid income eligibility levels for adults until January 1, 2014 and for children in Medicaid and the Children’s Health Insurance Program (CHIP) until October 1, 2019.
  • 11 adopted targeted eligibility expansions, mostly for children. Three states increased coverage for low-income adults.
  • 25 states increased the efficiency of their enrollment and renewal practices, often by advancing technology. Twenty-nine states launched major system improvement projects to use new federal funding to improve and eligibility and systems and modernize enrollment processes.

Source: Kaiser Family Foundation, “Performing under pressure: annual findings of a 50-state survey of eligibility, enrollment, renewal, and cost-sharing policies in Medicaid and CHIP, 2011-2012,” January 2012.

State round-up

Wisconsin Governor Scott Walker (R) announced that the state will stop development of its health insurance exchange stating, “I have directed the Department of Health Services to notify the federal government that we will discontinue any development on a health exchange and that Wisconsin will turn down funding from the Early Innovator Grant program.”

Ohio is seeking comment about a proposal to create a single dual-eligible care program, the Integrated Care Delivery System, for 190,000 Ohioans who are eligible for both Medicare and Medicaid. The program would assign each beneficiary to a care manager, make periodic home visits with enrollees, review hospital admissions and nursing home placements, and maintain a centralized record for each beneficiary. 

Note: there are seven million dual eligibles in the U.S. On average, costs are 60 percent higher per capita for these compared to others covered in the programs. In ACA (Section 2602) the Medicare-Medicaid Coordination Office was established to facilitate better coordination of care for dual-eligibles.

A federal judge blocked California from reducing in-home supportive care services to low-income disabled and elderly residents by $100 million. In 2012, California is predicted to spend $1.5 billion on this program for 434,000 residents. California currently holds a $9.2 billion deficit.

New York Governor Andrew Cuomo (D) announced his fiscal year (FY) 2012 budget Tuesday including a health insurance exchange proposal, measures to curtail Medicaid spending by phasing in managed care, and cuts to the state’s Early Intervention program ($99 million over five years). The Governor also proposed that executive compensation for non-profit agencies and for-profit agencies doing business with the state be capped at $199,000 and “at least 85 percent of every public dollar will be spent on direct services, not administration.”

Industry news

OMB is reviewing proposed rule on stage 2 meaningful use

Thursday, the proposed rule on stage 2 meaningful use of electronic health records (EHR) under Center for Medicare & Medicaid Services (CMS) Medicare and Medicaid EHR Incentive Program was sent to the Office of Management and Budget (OMB) for review, the last step before a rule is publicly released. The rule’s abstract states:

“The final rule that established the initial set of standards, implementation specifications, and certification criteria was published in the Federal Register on July 28, 2010. The initial set represented the first round of an incremental approach to adopting future sets of standards, implementation specifications, and certification criteria to enhance EHR interoperability, functionality, and utility. Under the authority provided by section 3004 of the Public Health Service Act (PHSA), this notice of proposed rulemaking would propose that the Secretary adopt revisions to the initial set as well as new standards, implementation specifications and certification criteria. The proposed new and revised standards, implementation specifications, and certification criteria would establish the technical capabilities that certified EHR technology would need to include to support  meaningful use under the CMS Medicare and Medicaid EHR Incentive Programs.”

Note: As of October, $952 million in the Health Information Technology for Economic and Clinical Health (HITECH) Act stimulus funding had been distributed to 857 hospitals, and $287 million dispersed to 14,500 office-based physicians. According to the American Medical Association (AMA), in 2011, 34 percent of office-based physicians had adopted a “basic” EHR, up from 25 percent in 2010.  According to the American Hospital Association (AHA), 15 percent of non-federal hospitals had adopted a basic EHR in 2010 vs. 11 percent in 2009.

CBO: disease management, value-based purchasing pilots did not reduce costs

Wednesday, the CBO released an issue brief that reviewed the outcomes of six disease management and four value-based purchasing pilots concluding that they did not reduce federal spending on Medicare.

  • Disease management and care coordination programs: “Spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to the participating organizations were considered.” Demonstrations where care managers had substantial direct interaction with physicians and significant in-person interaction with patients were more likely to reduce Medicare spending than other programs, but on average these programs did not achieve sufficient savings to offset their fees.
  • Value-based payment demonstrations: results were mixed. One of the four demonstrations reduced Medicare spending by 10 percent through bundled payments that covered all hospital and physician services for heart bypass surgeries. Other value-based payment demonstrations appeared to have little or no Medicare savings.

Source: CBO, “Lessons from Medicare’s Demonstration Projects on Disease Management, Care Coordination, and Value-Based Payment,” January 2012.

NCQA announces organizations that seek ACO accreditation

The National Committee for Quality Assurance (NCQA) announced the first six provider-based organizations to seek accreditation from NCQA’s accountable care organization (ACO) accreditation program launched in November 2011. These organizations were given the early-adopter designation allowing NCQA to survey them on their ACO capabilities between March 1 and December 31, 2012. The organizations include: Billings Clinic in Billings, MT; Children’s Hospital of Philadelphia in Philadelphia, PA; an organization in Middletown, NY; Essentia Health in Duluth, MN; HealthPartners in Minneapolis, MN; and Kelsey-Seybold Clinic in Houston, TX.

Note: NCQA ACO accreditation is not required to participate in the Medicare Shared Savings Program or other ACO programs under the ACA. However its accreditation is used by organizations that seek to apply to the Medicare Shared Savings program per ACA Section 3022.

Study: Medicare Advantage Plans that offer fitness options attract healthier enrollees

A study focused on enrollment and disenrollment data for Part C plans concluded that plans offering fitness memberships “may attract and retain a healthier subgroup of the Medicare population.” Prescription drug and vision benefits were associated with attractiveness for less healthy seniors to a Part C plan, while hearing and dental features attracted a wider range of enrollees.

Source: Cooper et al, “Fitness Memberships and Favorable Selection in Medicare Advantage Plans,” New England Journal of Medicine 366:2, January 12, 2012.


“The new year begins precariously. The global economy vacillates between signs of recovery and omens of collapse. Businesses seem paralyzed…The world needs invention and daring now more than ever. Now is the time for audacity, not austerity.”

— “List of Audacious Ideas for Solving the World’s Problems,” Harvard Business Review, January-February 2012, p. 49-64.

“Demonstrations aimed at reducing spending and increasing quality of care face significant challenges in overcoming the incentives inherent in Medicare’s fee-for-service payment system, which rewards providers for delivering more care but does not pay them for coordinating with other providers, and in the nation’s decentralized health care delivery system, which does not facilitate communication or coordination among providers. The results of those Medicare demonstrations suggest that substantial changes to payment and delivery systems will probably be necessary for programs involving disease management and care coordination or value-based payment to significantly reduce spending and either maintain or improve the quality of care provided to patients.”

— CBO, “Lessons from Medicare’s Demonstration Projects on Disease Management, Care Coordination, and Value-Based Payment,” January 2012.

Fact file

  • Obesity in the U.S.: 35 percent in 2010; overweight 65 percent. Cost in U.S.: $200 billion. (Source: CDC)
  • Medicaid enrollment increased 6 million since the economic downturn to 55 million and cost $400.7 billion in 2010 (the largest health insurance plan in the U.S.). Funding is $270 billion from the federal government, and $129.8 by states and local governments. Spending will increase 20.3 percent as a result of ACA expansion (2014 – 2016). Eighteen states have reduced or restricted Medicaid benefits.(Source: Keehan et al “National Health Spending Projections through 2020” Health Affairs 2011:30)
  • Variation across 17 countries for 30 day re-admission rates after myocardial infarction (severity adjusted) ranged from 7.7 percent to 14.5 percent with a median of 9.9 percent. The U.S. rate had the highest readmission rate (14.5 percent) and lowest length of stay (3 days) in the study. (Source: Kociol et al “International Variation in and Factors Associated with Hospital Readmission after Myocardial Infarction” Journal of the American Medical Association 307, No 1 January 4, 2012)
  • Forecast: ten year savings of $3 billion through the use of "comparative effectiveness" research. (Source: Kaiser Family Foundation, “New Group to Set Priorities for Medical Effectiveness Research,” January 16, 2012)
  • 73 percent of the 255.3 million people with health coverage in 2010 were in private insurance arrangements. (Source: Larry Levitt and Gary Claxton, “Betting on Private Insurers,” Kaiser Family Foundation, January 19, 2012)
  • 81 percent of health care providers use mobile devices to collect, keep, and distribute personal health information; 49 percent say they do not secure their mobile devices. (Ponemon Institute, “Study on Patient Privacy and Data Security,” December 2011)
  • 194,000 jobs will be lost due to 2 percent Medicare cuts per the Budget Control Act of 2011 sequestration 2013. (Source: American Hospital Association [AHA], January 19, 2012)
  • In 2011, three of the six most significant data breaches occurred in health care organizations. (Source: Privacy Rights Clearinghouse, December 2011)
  • 277 physician owned hospitals in the U.S. (Source: Physician Hospitals of America)
National health reform: What now?




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 today.

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