Health Care Reform Memo: April 18, 2011 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

I was a 10^th grader at Tyner High School in Chattanooga, Tennessee when the Medicare program was signed into law July 30, 1965 in Independence, Missouri by President Lyndon B. Johnson. Seating next to President Johnson was Harry S. Truman who had first proposed the program in 1945. President Truman and Mrs. Truman were the first two of its 19.1 million enrollees that year.

Like my peers, I paid no attention. Tyner Ram football, my Corvair Monza, and my girlfriend were more important. I was 15. I neither remember a national debate about government run health care nor did I care.

Today, Medicare is a $524 billion program—15 percent of the overall federal budget. It’s a lightning rod—seniors want it protected at all costs, and politicians want it protected to protect their jobs.

It is complicated:

• Eligibility: Generally, legal residents of the U.S for at least five continuous years who are above 65 years of age and who paid Medicare taxes for ten or more years are eligible plus certain groups of disabled adults and those being treated for special problems (e.g. end-stage renal disease [ESRD], amyotrophic lateral sclerosis [ALS]).
• Funding: it is financed by part of the payroll taxes collected by the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act (SECA) of 1954. Employees and their employers share the 2.9 percent cost; the self-employed pay the 2.9 percent contribution themselves. And starting in 2013 per the Patient Protection and Affordable Care Act (PPACA), the 2.9 percent hospital insurance tax increases to 3.8 percent for individuals earning over $200,000 or jointly filing couples making in excess of $250,000. In addition, enrollees pay premiums.
• Coverage: Medicare Part A covers hospital and convalescent care and is mandatory; Part B covers physicians and outpatient services not covered under Part A and is voluntary (a lifetime penalty of 10 percent per year is imposed if a Medicare enrollee opts out of Part B); Part C includes Medicare Choice (circa 1997) and Medicare Advantage (circa 2003) insurance plans featuring bundling of Parts A and B, and Part D (the prescription drug discount program signed into law by another Texas President December 8, 2003 that took effect January 1, 2006).

Historically, Medicare costs have doubled every four years. Looking ahead, the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary forecasts insolvency of the Medicare Hospital Trust Fund by 2019 resulting from the compounding impact of fewer workers paying premiums (3.9 workers per enrollee shrinking to 2.4 per enrollee in 2030) and underlying medical inflation estimated at seven percent annually for the next decade.

And it is popular:

• Medicare enrollees like the program. They fear its demise. The Deloitte Center for Health Solutions polls show clear generational differences in overall satisfaction with the system and their insurance coverage, with seniors its strongest defenders:
  

  	Gen Y	Gen X	Boomers	Seniors
  Grade the overall performance of the U.S health system A or B	25%	20%	24%	32%
  Grade the overall performance of the U.S health system D or F	28%	38%	38%	31%
  Very satisfied with current health insurance (8-10 on scale of 10)	40%	43%	53%	68%

• When evaluating the system’s overall performance, enrollees in Medicare and military health are the most likely to think the system performs well compared to those insured in other programs:

  Insurance Status	A or B Grade	D or F Grade
  Military	37%	19%
  Medicate	30%	33%
  From employer	25%	31%
  Direct purchase	23%	39%
  Medicaid	22%	38%
  Uninsured	15%
  Children's Health Insurance Program (CHIP)	9%

So it’s not surprising that the current budget debate hinges largely on how a program started 46 years ago can be changed to maintain its popularity while realistically reducing its costs.

Back then, I didn’t notice. Too busy. But today’s youth might be more attuned. So as the budget discussion proceeds in coming weeks, a thoughtful, candid assessment of Medicare’s future should be front and center. It obviously matters to its 46.6 million current enrollees, but perhaps even more for 10^th graders.

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

FY2012 Budget Proposals

Wednesday, President Obama presented his proposed fiscal year (FY) 2012 budget. The prior week, House Budget Committee Chairman Paul Ryan (R-WI) presented his budget which subsequently passed the House of Representatives last week. The two are the basis for comparison in the current debate about government spending, health reform, deficit reduction, and economic recovery.

PPACA implementation update

Federal government to reimburse states for Medicaid determination and enrollment activities

Thursday, CMS released a final rule on federal funding for Medicaid eligibility determination and enrollment activities. Under the rule, states may receive a 90 percent federal matching rate to help design, develop, install, or enhance eligibility determination computer systems through December 31, 2015. From 2016 and beyond, states may to continue to receive a 75 percent federal match rate to maintain and operate the new systems. Prior to this rule, only a 50 percent matching rate was available for state eligibility determination systems.

Note: per PPACA Section 2001, most Americans with incomes up to 133 percent of the federal poverty level (FPL) will be eligible for Medicaid in 2014.

1099 repeal passed

April 5^th, the Senate voted 87-12 to amend PPACA, eliminating the 1099 reporting provision (Section 9006) that required expenditures in excess of $600 per year to any vendor be reported to the Internal Revenue Service (IRS). Thursday (April 14^th), President Obama signed the legislation (H.R. 4) into law.

Note: the repeal of the 1099 reporting provision reduced revenues anticipated in PPACA by $24.7 billion. The 1099 provision is the second PPACA provision to be repealed. The first repeal, repeal of the Free Choice Vouchers provisions of PPACA, and the Internal Revenue Code Section 139D (enacted March 23, 2010) were included in the continuing resolution for the FY11 budget also passed last Thursday.

New advisory chair for National Prevention, Health Promotion and Public Health Council

Monday, the U.S. Surgeon General named Jeffrey Levi, Ph.D, chair of the Advisory Group on Prevention, Health Promotion, and Integrative and Public Health (Advisory Group). He is professor of health policy at George Washington University School of Public Health and associate editor of the American Journal of Public Health.

Note: PPACA Section 4001 established the interagency National Prevention, Health Promotion, and Public Health Council (National Prevention Council). The Advisory Group will advise the National Prevention Council on chronic disease prevention and management, integrative health care practices, and health promotion.

IRS reviewing community benefit activities of tax-exempt hospitals

April 6^th, the IRS began its reviews of community benefit activities of tax-exempt hospitals, which per PPACA (Section 9007) must be performed every three years. The IRS will not notify hospitals under review, nor is it likely to contact them for additional information. Hospitals may be referred for complete examination based on results of the review.

Constitutional challenges: update

Dates set for circuit court proceedings

May 10: U.S. Court of Appeals for the 4^th Circuit (Mid Atlantic) will hear district appeals for Liberty University vs. Geithner (November 30, 2010, individual mandate was upheld) and Virginia vs. Sebelius (December 13, 2010, individual mandate ruled unconstitutional)

June 1: U.S. Court of Appeals for the 6th Circuit (Midwest) will hear arguments for Thomas More Law Center vs. Obama (October 2, 2010, individual mandate upheld)

June 8: U.S. Court of Appeals for the 11^th Circuit (Southeast) will hear arguments for Florida vs. U.S. Department of Health and Human Services (HHS) that the individual mandate is not constitutional and the lack of severability clause invalidates the entire law.

Note: The focus of circuit court appeals will be (1) commerce clause of the Constitution—is health insurance an interstate market?—and (2) necessary and proper clause—is a mandate to purchase insurance necessary to an overall market’s stability? Given these dates, it is highly likely that PPACA-related cases will be in the Supreme Court by early 2012.

Legislative update

Meaningful use attestation starts today

Today marks the official start date for health care providers to begin using the CMS attestation system to verify they are meaningful users of certified electronic health records (EHRs). To qualify for the payment, they must begin their 90-day reporting period required for Stage One of meaningful use on time.

Note: some may see benefit in waiting until 2012 to reduce risks: the penalty for waiting is not getting funding in 2011 vs. the potential upside is allowing eligible hospitals (EHs) and eligible professionals (EPs) to learn from early entrants and thus be better prepared for Stage Two milestones expected soon.

House, Senate approve spending bill to fund government through September

Thursday, the House (260-167) and Senate (81-19) passed a continuing resolution (H.R. 1473) that funds the government through FY 2011 and includes health care program cuts. As part of the agreement, Republicans agreed to drop policy riders attached to an earlier House-passed version of the continuing resolution (H.R. 1) that would have defunded PPACA and eliminated federal funding for Planned Parenthood. The major changes impacting health care programs in the continuing resolution were:

• Cut funding for the Title X family planning program by $17 million to $300 million and for community health care centers by $600 million to $1.6 billion
• Cut $3.5 billion from a performance bonus fund that rewards states for enrolling children in Medicaid
• Increased U.S. Food and Drug Administration (FDA) funding by $107 million to annual budget of $2.5 billion
• Eliminated from PPACA the Free Choice Voucher Program, which allowed certain employees (up to 400 percent of the FPL who pay more than 8 percent but not more than 9.8 percent of their household income) to convert tax-free employer contributions into a “free choice voucher” to help buy coverage through insurance exchanges starting 2014
• Cut funding from $6 billion to $3.8 billion for the Consumer Operated and Oriented Plan (CO-OP) Program, a program intended to fund creation of nonprofit health insurance plans in the individual and small group markets
• Eliminated federal funding for abortions in the District of Columbia
• Requires increased accountability on the PPACA’s Implementation and Costs including several reports to be submitted to Congress in the next 60-90 days including:
  1. Contract and costs: within 90 days of enactment, the Comptroller General will be required to submit a report on the costs and process of implementing the PPACA, including a list of the contracts, the names of contractors, and the amount of money expended on each contract entered into by HHS and other federal departments and agencies
  2. Mini-med waivers: within 60 days of enactment, the Comptroller General will be required to submit the results of an audit of the requests for waiver of the annual limit requirements of the PPACA. See Weekly Update 11-05 (February 4, 2011) for a discussion of the waivers. Under the PPACA, for plan years beginning on or after September 23, 2010, the lowest permitted annual limit a group health plan can impose on the total dollar value of essential health benefits is $750,000 and for plan years beginning after September 23, 2011, the lowest permitted annual limit is $1.25 million. A one-year administrative waiver of the requirement is available upon a showing to HHS that compliance will significantly decrease access to benefits or significantly increase premiums paid by those currently covered under the plan. For 2011, at least 733 applicants obtained a waiver (for at least one plan) according to a report released by the HHS.
  3. Projected premium impact on employer plans: within 90 days of enactment, the CMS Chief Actuary will be required to submit a report estimating the effect, over the ten-year period beginning with 2014, of the PPACA’s guaranteed issue, guaranteed renewal, and community rating requirements on premiums for individuals and families with employer-sponsored health insurance.
  4. Comparative effectiveness expenditures: within 60 days of enactment, the Comptroller General will be required to submit the results of an audit of expenditures made for comparative effectiveness research through funds provided under the PPACA or the American Recovery and Reinvestment Act of 2009 (ARRA) to the Agency for Healthcare Research and Quality (AHRQ), the National Institutes of Health (NIH), or any other agency within HHS.

CBO estimate of savings for eliminating parts of PPACA

Last week, CBO released saving estimates (2011-2021) of pending bills that would eliminate or change parts of PPACA.

Note: Wednesday, the U.S. House of Representatives passed H.R. 1217 (236-183), which would eliminate the $18 Billion Fund. The bill awaits passage in the Senate, though President Obama announced he would veto.

Access to Medicare data to profile physician earnings from Medicare focus of new legislation

Last Thursday, Senators Ron Wyden (D-OR) and Chuck Grassley (R-IA) introduced the Medicare Data Access for Transparency and Accountability Act (DATA Act) to overturn the 1979 law precluding public access to Medicare records revealing physician earnings from the $524 billion government program. The DATA Act, which removes Medicare information from the protection it has enjoyed under the Freedom of Information Act (FOIA), also requires Medicare information to be available at no cost to the public and assures that patient-specific information remains confidential. The American Medical Association (AMA) opposes the DATA Act: “Medicare claims data alone cannot identify quality care, and the public release of Medicare claims data, without the complete medical record and due process, would often be misleading, inaccurate and disruptive to the patients’ longstanding relationships with physicians.”

ONC names new National Coordinator

The Office of the National Coordinator for Health Information Technology (ONC) named Farzad Mostashari, MD as National Coordinator, replacing David Blumenthal. Montashari previously served as the Deputy National Coordinator for Programs and Policy at ONC and will oversee recommendations for Stage Two meaningful use of EHRs.

State watch

CMS proposes to expand home and community based waiver demonstration

Thursday, CMS released a proposed rule that would allow states to target three groups in a single home and community-based services (HCBS) waiver demonstration. Currently, states must serve one target group per waiver. Highlights include:

• Three target groups: aged or disabled, persons with developmental disabilities, and those with mental illness
• HCBS setting: HCBS cannot be located on the campus of a facility that provides institutional treatment or custodial care or in housing complexes designed expressly for persons with disabilities
• “Person-centered” plans: individuals can design their own person-centered services (e.g. personal care) and supports (e.g. respite services for caregivers)

Dual eligible grants to 15 states

Thursday, HHS announced $1 million grants to15 states (California, Colorado, Connecticut, Massachusetts, Michigan, Minnesota, New York, North Carolina, Oklahoma, Oregon, South Carolina, Tennessee, Vermont, Washington, and Wisconsin) to design more efficient primary, acute, behavioral, and long-term care services for their dual eligible populations (seniors and younger people with disabilities eligible for both Medicare and Medicaid).

Note: There are nine million dual eligibles in the U.S. representing nine percent of total enrollment in the two programs costing $300 billion: for Medicare, dual eligibles represent 16 percent of enrollees and 27 percent of spending, and for Medicaid they make up 15 percent of enrollees and 39 percent of costs. Per PPACA, in 2014 Medicaid eligibility will expand to people earning up to 133 percent of the federal poverty level, thus adding up to 16 million people to the program.

MLR waiver update, innovation waivers

PPACA allows states to request a waiver for the 80 percent (individual) and 85 percent (group) medical loss ratio (MLR) requirement, if the threshold destabilizes the state’s insurance market. March 8, Maine was granted the first waiver. States that have applied for and are in the process of applying for a waiver include: New Hampshire, Nevada, Kentucky, Iowa, North Dakota, Georgia, and Florida.

Also, March 14, HHS released guidance about implementation of State Innovation Waivers (PPACA Section 1332) that allows states to use mechanisms other than health insurance exchanges to achieve a competitive insurance market and higher levels of affordable coverage.

State-led health reform update

• The California health insurance exchange launched its website, available at healthexchange.ca.gov. The exchange board will hold its inaugural meeting April 20^th.
• Maryland Governor Martin O’Malley signed legislation creating a health exchange (S.B. 182) on Tuesday, making Maryland the third state with exchange legislation behind California and West Virginia.
• Florida hospitals in Miami-Dade and Broward counties could lose up to $470 million under Florida Senate proposals to cut Medicaid and the Medically Needy program. A House proposal would cut $98 million from the same programs. Development of a Florida prescription drug tracking database will resume after a contract challenge was dismissed in March.
• Wednesday, a Michigan Senate committee approved a plan to require public employees to pay at least 20 percent of their health insurance premiums.
• Thursday, HHS granted New Jersey a Medicaid waiver allowing the state to cover 57,000 uninsured residents immediately and 10,000 more by 2013.

Industry actions

Imaging coalition opposes prior-authorization for potentially over-used imaging services

Monday, the Imaging e-Ordering Coalition—a coalition of companies that sell, manufacture, or use electronic tools to help physicians decide when to use imaging services—challenged the Medicare Payment Advisory Commission (MedPAC) recommendations to require physicians to obtain prior authorization for imaging services. MedPAC agreed to recommend to Congress that physicians be required to get prior approval from Medicare for imaging services if they have ordered substantially more advanced services (e.g. magnetic resonance imaging and CT scans) than other physicians. Per MedPAC, draft recommendation on advanced imaging scans could save $50 million in its first year and almost $1 billion over five years.

AdvaMed issues statement on FDA medical device labeling

The Advanced Medical Technology Association(AdvaMed)—which represents manufacturers of medical devices, diagnostic products, and health information systems—issued a statement in response to an April 7^th FDA meeting on medical device labeling: “we are concerned that making medical device labeling broadly available via an on-line repository may inadvertently lead to public confusion, as many device labels contain technical or complex information intended for hospitals or practitioners and may not be clearly understandable to the lay audience. We also question whether such a repository advances public health and are concerned whether the significant FDA resources needed to maintain it are justified.”

Leading industry groups launch website

Monday, the Choice and Competition Coalition launched a website to encourage development of policies and public awareness about health insurance exchanges that will be operated by states beginning 2014, available at choiceandcompetitioncoalition.org. Ten trade associations are sponsoring the site.

Quotable

“Our country is facing a choice. We can either cut care or change how health care does its work. I'm not for cutting. I'm for changing.”

 – Don Berwick, CMS Administrator to American Hospital Association (AHA) Annual Meeting April 11, 2011, Washington, DC.

“Under a block grant, Medicaid funding would not be responsive to changing program needs like recessions, health care inflation, epidemics, or disasters; it would be difficult to allocate funds equitably across states, and coverage would not be guaranteed. It is also unclear what state requirements would be in place to maintain accountability for federal dollars. While some argue that spending is too high, Medicaid spending growth on a per capita basis over the last decade was (4.6 percent) slower than the rate of growth in private insurance premiums (7.7 percent).”

 – “Implications of Federal Block Grant Program for Medicaid” Kaiser Family Foundation April 2011.

“Among America’s 3 year olds, a revolution is afoot. Children of that age are turning the country’s demography on its head. According to the Census Bureau, a majority of them are now from groups normally considered minorities, chiefly Hispanics and blacks. ..whites still constitute a slender majority, 54 percent of those under 18, and a larger one, 64 percent of the population as a whole. But America’s transformation into a much browner, more suburban, more Southern and western place is rapid and relentless.”

 – “Minority Report,” The Economist, April 2, 2011.

“Although the U.S. and British systems differ markedly, some policy experts in both countries see improving value propositions as one solution to the conundrum of skyrocketing costs and limited resources. The U.S. ACA rejects Britain’s National Health Service model with its global budgeting and public acceptance of prioritization and consideration of costs. Nevertheless, the British experience may carry important implications for U.S. health reform. NICE history and the British government’s new turn demonstrate that as a political if not a moral matter, the value of health care cannot be defined solely in terms of comparative clinical effectiveness or health outcomes. But clearly it is hard politically and technically to define value, even for an organization that has pioneered approaches to expanding the meaning of value in health care. As Britain’s value based pricing proposal unfolds, the U.S. would do well to watch carefully how the “burden of illness” and “wider societal benefits” come to affect pharmaceutical pricing, decision-making, and sources of influence over the interpretation of societal.”

 – Faden et al. “Determining the Value of Drugs-The Evolving British Experience” New England Journal of Medicine, 364:14, April 7, 2011.

“This insurance will help pay for care in hospitals, in skilled nursing homes, or in the home. And under a separate plan it will help meet the fees of the doctors.

Now here is how the plan will affect you.

During your working years, the people of America--you--will contribute through the social security program a small amount each payday for hospital insurance protection. For example, the average worker in 1966 will contribute about $1.50 per month. The employer will contribute a similar amount. And this will provide the funds to pay up to 90 days of hospital care for each illness, plus diagnostic care, and up to 100 home health visits after you are 65. And beginning in 1967, you will also be covered for up to 100 days of care in a skilled nursing home after a period of hospital care.

And under a separate plan, when you are 65--that the Congress originated itself, in its own good judgment--you may be covered for medical and surgical fees whether you are in or out of the hospital. You will pay $3 per month after you are 65 and your Government will contribute an equal amount.

The benefits under the law are as varied and broad as the marvelous modern medicine itself. If it has a few defects—such as the method of payment of certain specialists—then I am confident those can be quickly remedied and I hope they will be.”

 – President Lyndon Baines Johnson, July 30, 1965 signing of H.R. 6675 creating the Medicare and Medicaid programs.

Fact file

• Twenty-four percent of U.S. adults grade the U.S. health system A or B, 64 percent C or D and 12 percent F. (Source: The 2010 Deloitte U.S. Consumer Survey, Deloitte Center for Health Solutions)
• Hospital care as a percent of total health spending: 33 percent in 2009 from 43 percent in 1980. (Source: AHA Trendwatch)
• Almost 900 therapies for the treatment, diagnosis, or prevention of cancer are currently in development, more than doubling the number of therapies in development six years ago. (Source: PhRMA)
• ICD-9 to ICD-10 complexity increase: diagnostic codes increase from 14,000 to 68,000; procedure codes increase from 4,000 to 72,000. (Source: AMA)
• Medication non-adherence contributes to between 33 and 69 percent of medication-related hospital admissions and 23 percent of all nursing home admissions representing potential savings of $290 billion annually. Fifty percent of the 1.8 billion prescriptions written annually in the U.S. are taken incorrectly accounting for $177 billion in direct and indirect costs and $47 billion on drug related hospitalizations. (Source: New England Health Institute)
• The U.S. health care sector added 36,600 jobs in March, or 17 percent of the total 216,000 nonfarm jobs added that month. (Source: Bureau of Labor Statistics[BLS])
• Over the past decade, the U.S. population grew 9.7 percent to 309 million; minorities accounted for 92 percent of that growth. Hispanics increased 43 percent to 51 million, Asians increased 43 percent to 15 million, and blacks increased 11 percent to 112 million. (Source: U.S. Census Bureau)
• S & P (Standard & Poor’s) 500 Health Care Index up 1.8 percent LTM vs. S&P 500 up 11 percent. (Source: Standard & Poor’s)
• Chinese pharmaceutical market will grow 20 percent annually next five years to a $90 billion market in 2014; two to three percent of big pharmaceutical earnings per share (EPS) in 2010; sales channel is to hospitals (80 percent). The U.S. is a $300 billion market, and Japan is a $90 billion market. (Source: Cowen Group)
• Thirty-four percent of adults 65 and over have at least one impairment that limits activities of daily living (ADL). There are more than 19,000 devices to assist with ADLs on market, and wheelchairs alone represent a $1.33 billion market. (Source: Center for Technology and Aging)
• Projected savings from medical liability reform: $54 billion over ten years—a reduction of 0.5 percent; interstate purchasing of insurance: savings $7.4 billion over ten years; expanded use of health savings accounts: $300 million increased costs, and reduced federal revenue. (Source: CBO)
• As of 2010, 79.2 million Americans are under the age of 18, up 1.9 million from 2000. The number of non-Hispanic Caucasians decreased in 44 states and in 86 of the largest 100 markets. In 23 states, minorities are more than 40 percent of the population. (Source: U.S. Census Bureau)

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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