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Health Care Reform Memo: November 29, 2010

Deloitte Center for Health Solutions publication

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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

This is the 100^th issue of the Monday Memo dating back to February 2, 2009. At that point, the hot topic was the public option and the President’s desire that a health reform bill be passed before Congress’ summer recess. The House of Representatives appeared to be spearheading the creation of the law; the Senate was nurturing health reform in the relative obscurity of the Finance Committee chaired by Max Baucus (D-MT).

In the world of policy and politics, events matter. The chronology that followed shaped public debate about health reform around several key events:

February 24, 2009: the President addressed a joint session of Congress, announcing health reform as a goal in his first year: “Let there be no doubt: health care reform cannot wait, it must not wait, and it will not wait another year."
June 1, 2009: five major trade groups—American Hospital Association (AHA), America’s Health Insurance Plans (AHIP), American Medical Association (AMA), Advanced Medical Technology Association (AdvaMed), Pharmaceutical Research and Manufacturers of America (PhRMA) presented to the White House commitments to reduce costs by $1.7 trillion, thus bending the cost curve over ten years while protecting the current system.
The August 3 Congressional recess: the recess for Congress became known as “recess roasting” as members held town hall meetings where suggestions of “death panels”, rationing, and restricted choices for seniors prompted emotional resistance to reform from seniors.
October 13, 2009: the Senate version of the reform bill passes the Finance Committee by a vote of 13-9, with Senator Olympia Snowe (R-ME) voting with the Democrats while expressing reservation about its ultimate passage.
November 9, 2009: in a Saturday night session, the House passed its version of the law--Affordable Health Care for America Act (H.R. 3962) by a 220-215 vote with 39 Democrats voting against the law that included the public option and employer mandate.
December 24, 2009: the Senate passed its bill 60-39 after passage in the Senate Finance Committee.
January 15, 2010: outside the White House, Senate Majority Leader Harry Reid (D-NV) announced a concession to labor unions delaying the high-cost health plan tax until 2018 for unionized companies while maintaining a 2014 start date for other employers.
January 19, 2010: four days later, State Senator Scott Brown (R) defeated Massachusetts Attorney General Martha Coakley to win a 41st GOP seat in the Senate, disallowing the super-majority 60 votes Senate Democrats wanted for passage of the reform law.
January 27, 2010: during the State of the Union Address, the President appealed to legislators for a bi-partisan resolve to health reform. The next day followed with a seven-hour, televised bipartisan summit roundtable with 40 members of Congress.
March 20, 2010: the Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation (JCT) released their cost estimate for the proposed Patient Protection and Affordable Care Act (PPACA) estimating that it will produce a net reduction in federal deficits of $143 billion over 2010-2019. About $124 billion of those savings stems from provisions dealing with health care and federal revenues; the other $19 billion results from the education provisions.
March 21, 2010: in a rare Sunday night session, the House passed the Senate bill 219-212 after the White House issued an executive order disallowing expansion of abortion rights in the proposed health reform law.
March 23, 2010: the President signed PPACA and it became the law of the land. The companion set of amendments—the Health Care and Education Reconciliation Act of 2010 (H.R. 4872) passed a week later.
September 23, 2010: from a hardware store in Sterling, Virginia, House Republican leaders released their “Pledge to America”, declaring “repeal and replace” as the goal of their legislative focus.
November 2, 2010, Election Day: the economy and anti-incumbent sentiment dominated returns as House control shifted to the GOP with the Senate Democrats holding a 53-47 edge after losing 6 seats. Health reform was the primary issue for 1 in 5 voters; economic recovery was the vote decider for 3 in 5. (Source: Kaiser Family Foundation, Midterm Election Exit Poll)

There are lessons in the chronology:

Political timetables change fast. Who would have bet the Senate version would be the framework for the law? Who would have imagined a 14-month ordeal?
The final product—the law—is rarely close to its early versions. The public option, liability reforms, elimination of the physician pay formula, the employer mandate, and a high-cost health plan tax that would start in 2014 are not in PPACA.
Every law has flaws. The Medicare Modernization Act’s donut hole for senior prescription drug coverage was eliminated in PPACA. No doubt, there will be similar corrections to PPACA.
So the 200th Monday Memo will likely address amendments to PPACA and corrections necessary to its implementation. It is the law. Its implementation will be the story of the next 100 weeks. Stay tuned.

Paul Keckely

Paul Keckley, Ph.D.

Thank you

The weekly production of the Monday Memo is made possible by a talented, dependable team of professionals—research support by Cynthia Vasquez, Ellen Rice, and Catherine Amble; specialist reviews by Wally Gregory (Risk), Clint Stretch (Tax), Peter Brown (Federal), and Robert Davis, and Steve Kraus (Human Capital); and logistics managed by Jennifer Bohn, Karen Phillips, Kerry Iseman, Anna Brewster, Susan Tosko, Whitney Smith, Clif Bartley, Raj Pagadala, Amy Bergstrom, Laura Walberg, Laurie Branum, Sowjanya Palakurthy, and many others. Great team. Great teamwork.

MLR regulation announced by HHS

Monday, Secretary Sebelius announced the U.S. Department of Health and Human Services’ (HHS) final rule regarding the PPACA medical loss ratio (MLR) requirements for health insurance plans.

Beginning in 2011, insurance companies must spend at least 80 percent of premium dollars on medical care and quality improvement activities. This figure, known as the MLR, is 85 percent for insurers in the large group market.
Insurers that fail to meet the ratio must pay rebates to consumers by August 1, 2012. The government estimates that up to nine million Americans could be eligible for rebates worth up to $1.4 billion.
"Mini-med" health plans, which have low annual coverage caps, get an exception that will make it easier for them to meet the required ratios.

Note: 34 states have existing minimum MLR guidelines for insurance companies ranging from 50 percent to 85 percent, with most falling between 60 percent and 75 percent. The new MLR calculation methodology will add approximately two to three percent to the “traditional” MLR calculation due to its new regulations. Please see the attached MLR rule summary for more information.

Findings: Deloitte Center for Health Solutions November 2010 Pulse Survey about the health reform law

36 percent of U.S. adults say they are financially prepared to handle future health care costs; 17 percent said they are not prepared, and 47 percent are not sure.
32 percent of U.S. adults grade the U.S. health care system A/B compared to 27 percent who give it a D/F—slight improvement in grading since 2008. Generational differences are clear: younger consumers (Millennials) are more critical than seniors.
Most believe health cost increases are the result of many factors: there is no “dominant” driver of health costs. An unhealthy lifestyle is acknowledged to be a factor, but it lags behind perceived high costs for insurance companies, hospitals, and fraud as root cause of health cost increases.
38 percent said they are “not at all knowledgeable” about the new health reform law (PPACA). Self-assessed knowledge increases with age, income, and education.
59 percent believe PPACA will increase access to insurance for those without coverage; less than half think it will reduce costs.

Note: The Deloitte Center for Health Solutions in Washington, D.C., the health services research arm of Deloitte LLP, commissioned Harris Interactive to conduct, via its Harris Poll National Quorum®, a telephone survey of 1,008 U.S. adults 18 years and older between September 29 and October 4, 2010 to assess consumer awareness and expectations about health reform. The survey results have a sampling error of +/- 3 percentage points at the 95 percent confidence level.

MedPAC recommendation: ACOs should be risk bearing

Accountable care organizations (ACOs) may help correct some of the “undesirable” financial incentives in Medicare's fee-for-service payment system, but the Centers for Medicare & Medicaid Services (CMS) should consider structuring the program so providers share financial risk with Medicare for the cost growth of their patients over an established target, according to the Medicare Payment Advisory Commission (MedPAC).

In a November 22 letter to CMS, MedPAC recommended a two-sided risk model in addition to a bonus-only model in a proposed rule establishing ACOs expected later this year from CMS. MedPAC observed, “the incentives in a bonus-only model for controlling spending are relatively weak and become weaker as the threshold is raised. This will likely be a particular concern to smaller ACOs because they may face higher thresholds. But even larger ACOs may find thresholds discouraging.”

Per MedPAC, ACO metrics could include population-based outcomes measures such as emergency room use, potentially preventable admission rates, in-hospital mortality rates, and patient safety measures, according to the commission.

HHS releases funding for National Health Service Corps Loan Repayment Program

Last Monday, HHS announced a new application cycle for the National Health Service Corps (NHSC) Loan Repayment Program. The NHSC program provides up to $60,000 for student loan repayment for primary care medical, nursing, dental and mental health clinicians in exchange for providing two years of care in medically underserved areas. PPACA (Sec. 5207) increases and extends the authorization of appropriations for the NHSC program from 2010 to 2015. This year’s program, which provides $290 million in PPACA funding, will focus on the primary health care workforce shortages.

CMS updates: Pre-Existing Condition Insurance Plan enrollment, dual eligible accounting

Friday, CMS requested a three-year extension of the request for information on the Pre-Existing Condition Insurance Plan (PCIP) enrollment application. PPACA (Sec. 1101) establishes a temporary high risk health insurance pool program, named the PCIP. CMS will use the form to obtain information from potential eligible individuals applying for coverage in the PCIP. CMS says the extension will help assure that PCIP programs are established timely and effectively.

Also on Friday, CMS requested an emergency review by Office of Budget and Management (OMB) for the collection of information on practice models for dual eligibles (individuals eligible for both Medicaid and Medicare) and Medicare beneficiaries with serious chronic conditions. PPACA (Sec. 2602) established the Federal Coordinated Health Care Office (FCHCO) to integrate benefits under Medicare and Medicaid and improve federal and state coordination for dual eligible individuals. CMS contracted two vendors to analyze variations in patterns of care and best practices for duals and other Medicare beneficiaries with complex health needs.

HHS announces $8 million PPACA funding for community health centers

Friday, HHS announced $8 million in PPACA funding for existing Community Health Centers Cooperative Agreements. The grants will provide assistance and support the use of health information technology for support community health centers. Community health centers provide care such as primary and preventative care for almost 19 million individuals, about 40 percent of who lack coverage. Over the next five years, PPACA will provide $11 billion in funding for the operation, expansion, and construction of community health centers nationwide.

Hospital groups offer recommendations on value-based purchasing

In anticipation of CMS’ final rule on value-based purchasing (VBP), several acute trade associations (AHA, Association of American Colleges (AAMC), Catholic Health Association (CHA), Federation of American Hospitals (FAH), National Association of Public Hospitals and Health Systems, and Premier, Inc.) posted recommendations about its implementation, quality measures, minimum case threshold, and incentive payments, suggesting:

CMS should include quality measures based on their ability to improve outcomes, not the level at which hospitals currently succeed at them (e.g., avoiding “topped out” measures).
Hospital-acquired condition (HAC) measures in FY 2011 Inpatient Payment rule should not be used in VBP program in its current format.
Performance scores could be weighted by “opportunities to provide care,” to account for unique patient mix.
Lump-sum payment of VBP incentives is preferable to attaching a portion of the payment to each discharge. CMS should estimate incentives based on projected discharges and provide 80 percent at the beginning of the year and the remainder during an end-of-year reconciliation.

Economic recovery update

November 2-3, the Federal Reserve Open Market Committee officials downgraded their outlook for the U.S. economy projecting the jobless rate would exceed 8 percent through 2013. It estimates unemployment, now at 9.6 percent, will be between 8.9 percent and 9.1 percent at the end of 2011, between 7.7 percent and 8.2 percent in 2012, and between 6.9 percent and 7.4 percent in 2013. It forecast 2.5 percent GDP growth in 2010.

The Commerce Department reported corporate after-tax earnings rose by 3.2 percent in the third quarter, compared to the second quarter's gain of 0.9 percent. Year-over-year, profits were 28.2 percent higher, as companies increased sales while keeping labor costs down.

Florida ruling closely watched

On November 19, six hospital associations led by the AHA, representing most U.S. hospitals, filed an amicus brief in support of the federal health care law, as part of a case pending in a federal court in Florida (Florida v. HHS).

To date, 21 amici briefs supporting both sides have been filed in the litigation before Judge Roger Vinson in the U.S. District Court for the Northern District of Florida: ten briefs supporting PPACA and the federal government's motion for summary judgment, four by groups of health care providers and nonprofits involved in health issues, three supporting the plaintiffs' motion for summary judgment, two by governors of states that did not join the suit, and one each by a constitutional issues nonprofit and a social issues nonprofit.

The constitutionality of the individual mandate is at the heart of the legal challenge. In an October 14 ruling, Vinson allowed the plaintiffs' claims that the minimum coverage provision and the expansion of state Medicaid programs were both unconstitutional to go forward, finding both plausible because they were based on supportable legal grounds and sufficient factual allegations to withstand summary dismissal.

Fact file

13 percent of family physicians and 15 percent of osteopathic physicians did not participate in Medicare last year. (Sources: American Academy of Family Physicians, American Osteopathic Association)
17 percent of physicians (31 percent of primary care physicians) restrict the number of Medicare patients in their practice. (Source: American Medical Association survey of 9,000 physicians)
1.4 million Americans are covered under mini-med plans. (Source: AHIP)
25.2 percent of U.S. hospitals (982) are for-profit—up 31 percent since 1999. (Source: AHA)
Next year, senior citizens currently affected by the Part D coverage gap will get, on average, an additional $553 of benefits. (Source: HHS report on Medicare Beneficiary Savings and the Affordable Care Act)
Of the $42 million that 122 health-sector PACs gave to congressional candidates this cycle, 58 percent went to Democrats and 41 percent to Republicans, according to the nonprofit Center for Responsive Politics. (Source: Kaiser Health News)
HHS estimated that up to nine million Americans could be eligible for MLR rebates, starting in 2012, worth up to $1.4 billion. The average rebate for people who buy coverage directly from an insurer, as opposed to receiving coverage through a large employer, could total about $164. (Source: HHS Factsheet on MLR)
A study of lower- and higher-income families on high deductible health plans (HDHPs, with deductibles over $2,000): lower income families were more likely to forego or delay care (57 percent) compared to higher income families (42 percent). The study found no differences in plan understanding between family groups, and did not differentiate between foregone care of little and great benefit. (Source: Kullgren, et al. November 22, 2010. “Health Care Use and Decision Making Among Lower-Income Families in High-Deductible Health Plans.” Archives of Internal Medicine. Vol. 170:21.)
Between 1997 and 2007, the annual number of emergency department visits increased by 23 percent. Of the 124.9 million emergency room visits in 2008, three out of four were treated and released and 18.5 percent were admitted. Injuries accounted for 22.7 percent of all visits, 6.7 percent were due to chronic illness, and 48.6 percent due to both acute and chronic conditions. Other findings include: women were 26 percent more likely to seek emergency care than men; individuals in low income areas were 90 percent more likely to seek emergency care; individuals in rural areas were 39 percent more likely than people in urban areas. (Source: Agency for Healthcare Research and Quality. November 2010. Statistical Brief #100)
In the past five years, employee health costs have increased 47 percent while wages have increased 18 percent. (Source: U.S. Bureau of Labor Statistics)
Primary care daily workload: 18 patients visits, 24 telephone calls a day to patients, specialists and others, 12 drug prescriptions, 20 laboratory report reviews, 14 consultation reports from specialists, 11 X-ray exams reports, and 17 e-mail outbound regarding test results, consulting with other doctors, or advising patients. (Source: Baron, R. April 2010. “What's Keeping Us So Busy in Primary Care? A Snapshot from One Practice.” New England Journal of Medicine.)
18 percent of patients are harmed by medical care, some more than once, and 63.1 percent of injuries were judged to be preventable. Most of the problems were temporary and treatable, but some were serious, and a few — 2.4 percent — caused or contributed to a patient’s death, the study found. (Source: Landrigan, C.P, et al. November 25, 2010. “Temporal Trends in Rates of Patient Harm Resulting from Medical Care.” New England Journal of Medicine.)
Two U.S. House of Representatives members announced they will not accept federally financed health insurance: Representative-elect Bobby Schilling of Illinois and Mike Kelly of Pennsylvania. (Source: Politico)
52 percent of American adults will have diabetes or pre-diabetes and accounting for 10 percent of health care spending ($500 billion per year) by 2020. (Source: United Health Center for Health Reform and Modernization. November 2010. “The United States of Diabetes: Challenges and opportunities in the decade ahead.” Working Paper #5)

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.