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Health Care Reform Memo: February 27, 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: states: the centerpiece of the ACA

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

In remanding the challenge by California hospitals and doctors back to the 9th Circuit Court Wednesday, the U.S. Supreme Court reminded health industry stakeholders that states play a central role in health care and in the implementation of the Affordable Care Act (ACA). In California, at issue is the state’s proposal to pay providers 10 percent less in its MediCal program to help reduce the state’s burgeoning budget deficit. In many states, governors Blue and Red are examining ways to cut health costs while assuming key roles in the implementation of ACA.

In many respects, states are the centerpiece of ACA. Their role and responsibilities are specified in 49 sections of the law (See Appendix A) requiring major efforts in four areas:

  1. Oversight of changes in the commercial health insurance sector:  ACA seeks to create a competitive market for affordable health insurance by fundamentally changing the insurance plan’s business model: elimination of co-payments for certain services, controls on premium increases, adherence to essential health benefits (EHBs) coverage, elimination of pre-existing conditions for eligibility, and other requirements. And a notable state responsibility is the creation of health insurance exchanges (HIXs) by January 2014 that will oversee a range of qualified health plans (QHPs) accessible to individuals and small groups initially and potentially others later. The state is the primary implementer of ACA changes, impacting the industry’s 400 operators serving more than 170,000,000 individuals and groups.
  2. Connecting health and human services programs to improve access: Throughout ACA, especially Title II, attention is directed to eliminating gaps between those with access and those without. The safety net for those without insurance coverage is traditionally a set of public health and school-based programs, clinics, and safety net hospitals overseen by states. In ACA, states are encouraged to develop innovative programs to reduce redundancy and improve coordination of health services for at-risk populations by “connecting” health programs to human services programs (i.e. public health agencies, community health centers, etc.). And in ACA and the American Recovery and Reinvestment Act (ARRA) of 2009, funding is available to states to upgrade community-based programs and participate in pilot projects to test new ideas.
  3. Aligning health benefits programs for state employees and pensioners with ACA employer-sponsored insurance requirements: States employ 5.3 million full- and part-time workers. ACA requires states, like all employers, to comply with a variety of coverage and benefits structural requirements—EHBs, preventive health services without a co-pay, limits on out of pocket spending by employees and so on. The tricky issue for states is that health benefits for state employees and pensioners have tended to be richer than private sector counter-parts, prompting governors to require co-payments or deductibles where none existed previously.
  4. Managing Medicaid enrollment expansion: By far, the most profound of ACA’s impact on states is expansion of Medicaid enrollment by 12-16 million over the decade. Already, Medicaid consumes 23.6 percent of a state’s budget—second only to elementary and secondary education—and funds from ARRA ($129.7 billion, February 2009) are long gone. Most state Medicaid officials expect shortfalls this year and for the foreseeable future—the result of revenues 7 percent below pre-recession levels, increased enrollment, and increased medical costs. While ACA assures the states 100 percent of funding for new enrollees added in 2014 through 2019, it drops back to 90 percent thereafter leaving a potential shortfall for states with budgets already stretched thin. Some states can expect to spend up to $470 per capita to fund Medicaid program expansion—a hefty price tag with strong political sensitivities on all sides. (See Appendix B)

Being a governor might be the hardest job in politics. Implementing these ACA responsibilities are on a list that includes improvements to public education, homeland security, highways and roads, state patrol and National Guard, and policies around undocumented illegal immigrants—now numbering 11,200,000 nationwide. In this election cycle, 11 gubernatorial races are under way; how the ratio of Blue (21) to Red (29) changes this fall is certainly worth watching. But for the health care industry and most citizens, the state’s role in implementing ACA and managing its health-related responsibilities is unquestionably among the highest priorities each legislature and its executive branch must address.

The solutions to the U.S. health system’s disparity in access, variation in safety and quality, and paralyzing costs can be controlled if state legislators work with the private sector to change the system’s incentives, voters apply pressure for results, and media seek to educate about the complexities and opportunities for improvement in the health system. Meaningful non-partisan education about the health system—how it works, what it does well, where it falls short—for state legislators and the executive branches seems a necessary investment as a start. For many policymakers, views about health care are based on personal experiences rather than a studied understanding of the structure and function of a system that’s highly regulated, capital intense, and labor intense, costing more than $9,000 per capita this year.

That ACA places huge responsibility for its implementation in states is good. They are close to their constituents, and most of the nation’s 7,382 state legislators are part-time. So we have 50 labs for innovation but systemic reform can fall victim to political brinksmanship or political cycles. It’s too important. It’s about fixing a system that’s not sustainable before it crashes under the weight of its self-inflicted wounds. The states are in a great position to find solutions. And in ACA, their role is amplified.

Paul Keckely

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

Implementation update

GAO Recommendation: Medicare beneficiary cost-sharing for preventive health services lacking evidence

Friday, the Government Accountability Office (GAO) released a report recommending that Medicare beneficiaries pay a co-pay if they utilize preventive health services lacking strong evidence of effectiveness (i.e. services graded below A or B by the U.S. Preventive Services Task Force (USPTF): prostate-specific antigen test for men in their mid-70s and osteoporosis screening for women). The report was requested by Senators Max Baucus (D-MT) and Tom Harkin (D-IA)—chairs of the Finance and Health committees, respectively, and Sheldon Whitehouse (R-RI). The Senators also requested a second report examining patterns of preventive health utilization in the pre-Medicare population to determine trends and costs.

Note: in ACA Sections 4104-4106, co-payments for preventive health services graded A/B by the USPTF are required for all health plans without a co-pay or other cost-sharing mechanism.

Study: elimination of individual mandate reduces coverage

RAND Corporation researchers concluded that eliminating the individual mandate would reduce coverage from 27 million to 15 million and would increase an individual's cost of buying insurance through new exchanges by 2.4-9.3 percent. By 2016, total health insurance spending by individuals and employers will increase by $35 billion to $1.493 trillion with the mandate, compared to $1.458 trillion with no mandate, the study said. (Source: RAND Corporation, “The Effect of the Affordable Care Act on Enrollment and Premiums, With and Without the Individual Mandate,” February 16, 2012)

Supreme Court schedules 30 additional minutes to hear arguments on Anti-Injunction Act

Tuesday, the U.S. Supreme Court expanded its time allocated to oral arguments about ACA, adding a half hour on the applicability of the Anti-Injunction Act (AIA) to ACA. Six hours of oral arguments from March 26-28 are scheduled with a decision expected in June:

  • Anti-Injunction Act: 90 minutes
  •  Individual mandate: 120 minutes
  •  Severability: 90 minutes
  •  Medicaid: 60 minutes

Note: AIA prevents individuals from suing over a tax until the tax has been paid. The individual mandate is effective 2014, thus individuals would not start paying the penalty for not obtaining health insurance until after 2015. The federal government, states, and those opposing the law all filed briefs asking the Supreme Court to determine whether AIA applies to the law. Also, requests to televise the oral arguments have been made by news organizations but no decision has been made to date.

House Energy and Commerce health subcommittee to mark up IPAB repeal bill

Wednesday, the House Energy and Commerce health subcommittee will mark up a bill to repeal the Independent Payment Advisory Board (IPAB). Per ACA Sections 3403 and 10320, beginning January 1, 2014, the 15-member board will make recommendations to Congress on how to reduce the rate of growth in Medicare costs without adversely impacting coverage or quality. IPAB's recommendations will take effect unless Congress passes legislation to achieve the same level of spending. The bill, sponsored by Representative Phil Roe (R-TN) has 224 co-sponsors, including 16 Democrats.

Note: May 2011, a coalition of business groups sent a letter in support of the bill to Representative Roe that included: American Osteopathic Association, International Franchise Association, National Association of Manufacturers, National Retail Federation, and the U.S. Chamber of Commerce.

HHS releases bulletin re: calculations for the actuarial value for qualified health plans sold through exchanges

Friday, HHS released a bulletin providing information and about its approach to defining the actuarial value for QHPs and other non-grandfathered coverage in the individual and small group markets per ACA Section 1302.

Note: actuarial value measures the percent of expected health care costs a plan will cover and is based on cost-sharing provisions for a set of benefits. Per the guidance, it is expected to be used by consumers to compare QHPs and non-grandfathered individual and small group market plans with different cost-sharing designs.

PCIP program costs expected to double in 2013

Thursday, the administration released its forecast of costs for the ACA Pre-Existing Condition Insurance Plan (PCIP) risk insurance program (Section 1101) predicting it will double over prior estimates. Medical costs for the 50,000 Americans currently enrolled in the program are expected to average $28,994 in 2012—double the November 2010 estimates by GAO. PCIP expires in 2014.

CMS releases final rule for state innovation waivers

Tuesday, the Centers for Medicare and Medicaid Services (CMS) and the U.S. Department of Treasury (DOT) released a final rule altering the application, review, and reporting process for Waivers for State Innovation. Per ACA Section 1332 states may apply for a waiver up to five years from requirements relating to QHPs, HIXs, cost-sharing reductions, tax credits, the individual mandate, and shared responsibility for employers (i.e. employer requirement to provide or share in the cost of providing health coverage for employees). The final rule establishes a process for states to submit initial applications for a State Innovation Waiver including processes for public notice and comment and standards for post-award reporting and monitoring.

Note: states may apply for waivers starting January 1, 2017. States with approved waivers must demonstrate that their plan provides at least the same level as comprehensive coverage that would have been provided under ACA, is at least as affordable as the coverage under ACA, covers at least as many residents that would have been covered under ACA, and will not increase the federal deficit. The administration supports bipartisan legislation from Senators Ron Wyden (D-OR) and Scott Brown (R-MA) to move up the effective date from 2017 to 2014.

CMS releases final rule on Medicaid and CHIP Section 1115 waiver demonstrations

Wednesday, CMS released a final rule establishing greater transparency and public awareness for demonstrations approved under Section 1115 of the Social Security Act (SSA) relating to Medicaid and the Children’s Health Insurance Program (CHIP) as required under ACA Section 10201(i) and dual eligible financial arrangements being tested by the HHS’s Medicare-Medicaid Coordination Office per ACA Section 2602.

CMS has invited state Medicaid and CHIP agencies to participate in an all-state call Tuesday, February 28, 2012, from 3-4pm ET to discuss the rule which becomes effective April 27, 2012.

Note: the regulation gives the general public more input and awareness on how states change their Medicaid programs and CHIP, while also encouraging states to quickly develop and test new delivery models. Section 1115 allows the Secretary of HHS to waive selected provisions of SSA to allow states to test new delivery and payment models for Medicaid and CHIP. Thirty states and D.C. have one or more Section 1115 waivers. These waivers allow states to make changes in eligibility, benefits, cost sharing, and provider payments. Demonstrations under Section 1115 waivers are used to contain Medicaid costs while improving access to care such as by expanding Medicaid eligibility to higher income levels and to more eligibility groups (e.g. childless adults) and by providing coverage for optional benefits such as dental coverage and to coordinated care programs often through managed care and medical home models.

CMS awards $638,677,300 to seven non-profits to launch CO-OPs

Tuesday, CMS announced it awarded $638,677,300 in low and no-interest loans to seven non-profits to establish Consumer Oriented and Operated Plans (CO-OPs)—consumer-governed health insurance plans, per ACA Section 1322. Recipients include Freelancers CO-OP of Oregon, New Mexico Health Connections, Montana Health Cooperative, Midwest Members Health, Common Ground Healthcare Cooperative, Freelancers CO-OP of New Jersey, and Freelancers Health Service Corporation.

Note: the average loan is expected to total $15 million for start-up costs and $100 million for state insurance reserve requirements, with start-up loans being required to be repaid in five years and solvency loans paid back within 15 years. HHS predicts about a 40 percent default rate for the loans. Loan recipients also face strict monitoring, audits, and reporting requirements for their loan repayment period plus ten years. CMS will provide more CO-OP funding throughout 2012.  In 2011, Congress cut funding for CO-OPs from $6 billion to $3.4 billion. Starting January 1, 2014, CO-OPs will offer health plans through HIXs. CO-OPs must meet state and federal standards for qualified health plans to sell coverage through HIXs and the State’s Small Business Health Option Programs (SHOP Exchanges).

HHS awards $229 million in ACA funding to ten states to establish HIXs

Wednesday, HHS awarded ten states $229 million funding through Exchange Establishment grants per ACA Section 1311. To date, $610 million has been awarded to 33 states and D.C. for Level One grants, with one state, Rhode Island, receiving a Level Two Exchange Establishment grant, to establish HIXs which will facilitate the purchasing of health insurance coverage for the individual and small group markets starting January 1, 2014. States will be fully financially responsible for operating HIXs in 2015. CMS will award Exchange Establishment grants through 2014.

Legislative update

CMS releases Stage 2 meaningful use rule

Thursday, CMS released its proposed rule covering Stage 2 criteria that eligible professionals (EPs) (i.e. physicians), hospitals, and critical access hospitals (CAHs) must meet to qualify for incentive payments under the Medicare and Medicaid Incentive payment program per the Health Information Technology for Economic and Clinical Health (HITECH) Act and to avoid payment reductions starting in 2015. CMS also proposed changes to Stage 1 and to extend Stage 1 so that providers have an additional year for implementation of Stage 2 criteria. Per the July 28, 2010 rule, any provider who first attested to Stage 1 criteria in 2011 would have to start using Stage 2 criteria in 2013. This proposed rule delays the onset of those Stage 2 criteria for those providers until 2014. Highlights:

  • Stage 2 reporting of measures: requires EPs to report 12 clinical quality measures (CQMs) and eligible hospitals and CAHs to report 24 CQMs. CMS proposes aligning Stage 2 CQMs with the existing Physician Quality Reporting System (PQRS), the Medicare Shared Savings Program for accountable care organizations (ACOs), the National Council for Quality Assurance (NCQA) for medical home accreditation, measures under the Children’s Health Insurance Program Reauthorization Act (CHIPRA), and quality measures for Medicaid-eligible adults (per ACA Section 2701) for EPs, and with the Inpatient Quality Reporting (IQR) and the Joint Commission’s hospital quality measures for eligible hospitals and CAHs. The rule also outlines a process for reporting measures electronically beyond the first year of Stage 1.
  • Core and menu criteria: EPs must meet or qualify for an exclusion to 17 core objectives and three of five menu objectives and eligible hospitals and CAHs must meet or qualify for an exclusion to 16 core objectives and two of four menu objectives.
  • Changes to Stage 1:
    • Changes the denominator of computerized provider order entry (CPOE) (Stage 1 optional, Stage 2 required)
    • Changes the age limitations for vital signs (Stage 1 optional, Stage 2 required)
    • Replaces the “exchange of key clinical information” core objective from Stage 1 with a “transitions of care” core objective that requires electronic exchange of summary of care documents in Stage 2 (effective Stage 2)
    • Replaces “provide patients with an electronic copy of their health information” objective with a “view online, download and transmit” core objective (effective Stage 2)
  • Leadership role of specialists: includes new objectives that recognize the leadership of specialists in deploying meaningful use (MU) of health information technology (IT) to include: imaging results and information accessible through certified EHR technology and the ability to identify and report cancer and other specific cases to a specialized registry.
  • Payment adjustment timeline: Medicare EPs or hospitals can demonstrate MU in 2013 to avoid payment reductions in 2015. Any Medicare provider that first demonstrates MU in 2014 would avoid the penalty if they meet the attestation requirement by July 3, 2014 (eligible hospitals) or October 3, 2014 (EPs). Exceptions to the payment reductions would be due to lack of internet access or barriers to obtaining IT infrastructure, a time-limited exception for newly practicing EPs who would not otherwise be able to avoid payment adjustments, and unforeseen circumstances like natural disasters to be evaluated on a case-by-case basis.
  • Comments: CMS seeks comments on the rule until May 7 on areas including:  
    • The 125 potential measures for EPs and 49 potential measures for eligible hospitals and CAHs listed in the rule. CMS states that they will only adopt a handful of measures
    • Mechanisms for electronic CQM reporting
    • Extending state flexibility as described for Stage 2 of MU and whether this is still a useful tool for state Medicaid agencies

Note: in 2011, 176,000 providers registered for the first stage of MU. CMS has disbursed $3.2 billion in incentive payments to physicians and hospitals to encourage participation.

“The release of the Stage 2 proposed rule marks the next stage in the journey that the ONC and the industry will take together. While in parts it is prescriptive, in others it explicitly solicits feedback. Stage 1 displayed that ONC listened carefully to real world concerns and continues to engage stakeholders in an effort to make the rules more actionable and practical. The most important action the industry needs to take is to study the rule and weigh in via comments to CMS.”

 —Harry Greenspun, MD, Senior Advisor, Technology and Transformation, Deloitte Center for Health Solutions, Washington, DC

HIMSS Report: EHR certification rule released

Amidst the flurry of activity in Las Vegas, Nevada last week, 30,000 conferees heard the latest about the “Health Information Technology: New and Revised Standards, Implementation Specifications, and Certification Criteria for Electronic Health Record Technology,” proposed rule.

Regarding the proposed certification rule from the Office of the National Coordinator (ONC), federal health IT officials said that 40 percent of current certification requirements remain unchanged in the proposed rule. However, some provisions were redefined to allow for greater flexibility, clearer definitions of Certified EHR Technology (CEHRT) and its requirements, continued focus on making progress to increased interoperability requirements, and a reduction in regulatory burdens. Definitions for basic EHR certification requirements proposed for all providers by 2014 include:

  • Base EHR: eligible professionals, hospitals, and critical access hospitals must have EHR technology with capabilities certified to meet the definition of Base EHR
  • Core functionality: those same providers must have an EHR technology with capabilities certified for the MU core set objectives and measures for the stage of MU they seek to achieve unless the provider can meet an exclusion
  • MU Menu: those providers would only need to have EHR technology with capabilities certified for the MU menu set of objectives and measures for the stage of MU they seek to achieve

GAO: Medicare Advantage Plans overpaid $1.2-$3.1 billion in 2010

A February 17 GAO study concluded overpayments to Medicare Part C plans were the result of inadequate risk adjustment, though it did not conclude that plans had been fraudulent in their risk scoring and adjustment methodologies.

SGR not fixed; MedPAC recommendations for funding

Last October, the Medicare Payment Advisory Committee (MedPAC) voted 15-2 to replace the sustainable growth rate (SGR) with a “predictable 10 year path of legislated fee schedule updates” suggesting funding through cuts over the next ten years from:

  • Specialists (5.9 percent for three years and frozen for seven years)
  •  Pharmaceutical companies: $75 billion
  • Post-acute care facilities: $45 billion
  •  Acute hospitals: $25 billion
  •  Clinical laboratories: $10 billion
  • Durable medical equipment manufacturers: $13 billion
  •  Health insurance companies: $13 billion

Two surgeons voted against the proposal and the American Medical Association (AMA) is also opposed.

Note: the SGR formula was implemented in 1998 to link physician payments to annual adjustments tied to per capita growth in the gross domestic product (GDP), growth in the numbers of Medicare Part B enrollees, changes in physician fees, and changes in laws or regulations. The actual expenditures on physician services are compared to the target expenditures and adjusted to achieve a balance over time. In 2002, for the first time, physician prices were reduced 4.2 percent; from 2003 forward, Congress has intervened to prevent SGR-mandated reductions. The over-budget vs. under-budget results vary by specialty: cardiologists 2003-2009 have overshot 79 percent while general surgeons undershot by 106 percent.

State round-up

Last week, the U.S. Supreme Court refused to hear the case brought by California hospitals and physicians who are suing the state’s Medicaid program (MediCal) challenging pay cuts as much as 10 percent, arguing payments are inadequate to sustain quality and access for beneficiaries. The case was remanded back to the 9th Circuit Court.

Background: the 9th U.S. Court of Appeals previously sided with providers and issued injunctions blocking the state from making the changes. In the meantime, CMS approved some of the state’s amendments and the state withdrew most of the others. In a 5-4 vote, justices voted to send the case back to the state noting that the central issue is the appropriateness of the state’s actions, not the federal laws over state actions. Writing for the majority, Justice Breyer wrote, “the providers and beneficiaries continue to believe that the reductions violate the federal provision the agency's view to the contrary notwithstanding.” He was joined by Justices Kennedy, Ginsburg, Sotomayor, and Kagan, while Chief Justice Roberts and Justices Scalia, Thomas, and Alito dissented.

Contraception requirement challenged by states: Thursday, seven states (Florida, Nebraska, Michigan, Ohio, Oklahoma, South Carolina, and Texas) joined a lawsuit filed by several Catholic institutions against ACA’s contraceptive coverage requirement asserting it violates the First Amendment and the Religious Freedom Restoration Act.

Massachusetts health reform results: researchers at the University of Minnesota and Harvard University analyzed changes since the passage of the Massachusetts health reform law, “An Act Providing Access to Affordable, Quality, Accountable Health Care,” (a.k.a. Chapter 58) passed in 2006:

  • Coverage: non-elderly uninsured decreased from 11.4 percent  in 2006 to 5.8 percent in 2010
  •  Employer sponsorship: employer-sponsored coverage for non-elderly increased from 64.4 percent to 68 percent of total
  • Public support: public opposition to reform increased 17.9 percent in 2006 to 26.9 percent in 2010
  •  Increased utilization: primary care (+4.7 percent), preventive health services (+5.9 percent), specialists (+3.7 percent), and dental care (+5.0 percent)
  • Decreased utilization: hospital emergency rooms (-5.0 percent)
  • Affordability: percent of adults reporting “high levels of out of pocket spending—10 percent more of family income” was 9.8 percent in 2006 vs. 6.1 percent in 2010
  • Health status: percent reporting their health is good/very good—59.7 percent in 2006 vs. 64.9 percent in 2010
  • Costs: average employee contribution toward their insurance saw “no statistically significant difference” from 2006 to 2010

A federal court in Washington state struck down a state law requiring pharmacists to dispense emergency contraception.

Medical loss ratio (MLR) waiver petitions: federal health officials approved North Carolinas one year adjustment and turned Wisconsin’s down.

Oklahoma’s Joint Committee on the Federal Health Care Law recommended that the state set up a small business HIX similar to Utah’s HIX model. The committee recommends transitioning Insure Oklahoma—a public-private partnership program that insures 31,465 individuals ineligible for Medicaid—from the Oklahoma Health Care Authority into a public trust. In 2009, 18 percent of Oklahoma’s population (658,862 individuals) were uninsured and about 20 percent of Oklahomans are currently on Medicaid, with a total per member cost of $4,595.

Monday, Delaware announced that its acute care hospitals and skilled nursing facilities are participating in a health information exchange (HIE)—Delaware Health Information Network (DHIN). Also, 86 percent of health care providers are participating in the HIE. May 2007, Delaware launched the first statewide operational HIE to provide direct electronic exchange of health information and longitudinal community health records compiled in one database.

Maine Governor Paul LePage’s (R-ME) proposed FY2013 budget includes a $221 million cut to Medicaid (MaineCare) and a decrease in Medicaid’s coverage rate to align with the national average. In FY2009, Maine’s average Medicaid per-enrollee expense was $1,890, 61 percent higher than the national average of $1,173 per person and Maine had the fifth highest Medicaid coverage rate with 27.8 percent compared to the national average of 21 percent. If Maine's enrollment was at the 21 percent national rate, the state would have about 90,000 fewer people enrolled in Medicaid, bringing enrollment down to 276,000.

Note: Maine has the sixth-lowest uninsured rate in the country at 10 percent, which is attributed to Maine’s comprehensive Medicaid coverage.

Wednesday, Illinois Governor Pat Quinn (D) unveiled his $33.8 billion budget to the state legislature including a $2.7 billion cut from the Medicaid program. Illinois faces a $9 billion debt that is expected to increase to $34.8 billion in 2017 barring changes to spending especially for pension and Medicaid expenses.

Oregon’s House and Senate passed the “Zoomcare bill” legislation to allow the clinic chain’s physician assistants to dispense prescriptions. The change is effective in June if enacted by the Governor John Kitzhaber (D) and will be limited to bottled, non-narcotic medications. A contract will be created with a licensed pharmacist, and all physician assistants will be required to complete training created by the Oregon Medical Board and the Board of Pharmacy before being allowed to dispense prescriptions.

Industry news

California individual premiums to increase 8 percent to 14 percent this year

Proposed premium increases for California‘s individual coverage will increase 8-14 percent in 2012 based on analysis of the filings of the three biggest plans covering 1.3 million individual policyholders (2.2 million total individual plans in California). Underlying medical costs increased 3.9 percent last year. The California Department of Managed Care will review the requests.

CMS:  Medicare Advantage growth anticipated, new audit procedures announced

Last Friday, CMS said the national per capita growth percentage, a key factor in determining Medicare Advantage (MA) rates, will increase 2.47 percent in 2013, the largest increase in four years, suggesting a “strong Medicare Advantage landscape.”

Note: the national per capita growth percentage measures the estimated growth in per capita expenditures for Medicare beneficiaries and is a component in determining MA benchmarks. The advance notice also included the annual updates to the Medicare Part D defined standard benefit. The deductible will increase from $320 to $325, the initial coverage limit from $2,930 to $2,970, and the out-of-pocket threshold from $4,700 to $4,750. Most financial analysts had anticipated a 2-4 percent cut. The advance notice must be issued 45 days before the final rates are announced. The final 2013 rate announcement and call letter will be published April 2.

Related news:  Friday, CMS launched a new initiative wherein it will audit MA contracts to reduce payment errors and to recover an estimated $370 million in overpayments for the first audit year. To receive risk-adjusted payments, MA organizations submit data to CMS to receive risk-adjusted payments. CMS is required to annually audit these data per the Improper Payments Elimination and Recovery Act (IPERA) of 2010.

Note: CMS notes that the estimate is a projection, and recovery amounts may vary based on audit findings. From FY2010 to FY2011, CMS reduced the payment error rate for the MA program by three percentage points (from 14.1 percent to 11 percent). The final audit methodology announced Friday for the Risk Adjustment Data Validation (RADV) program aims to further reduce the MA error rate beyond the previous audit results.

“Our view is that the initial rate release is unlikely to materially alter the upward growth trajectory of the Medicare Advantage market. If the April 2 final release follows the trend we’ve seen in recent years, the rate may deteriorate somewhat versus this initial rate. Under any plausible scenario, Medicare Advantage products will remain substantially richer than traditional fee-for-service—and prompt a growing proportion of beneficiaries to choose a managed care plan.”

 —Greg Scott, Partner, Deloitte Consulting specializing in MA health plans

AMA, AT&T partner in physician portal

Tuesday, AMA and AT&T announced a partnership that will combine the association’s online physician portal, Amagine, with the AT&T Healthcare Community Online. Details of the collaboration were not disclosed. (Source: American Medical Association, “AMA and AT&T Combine Care Management Platforms to Improve Collaboration Among Caregivers Nationwide,” February 21, 2012)

Health care information management executives urge HHS to set consistent ICD-10 timeline

Tuesday, the College of Healthcare Information Management Executives (CHIME) sent a letter to HHS Secretary Kathleen Sebelius urging HHS “to move quickly and decisively” to determine a compliance date for ICD-10. The group asks for the same compliance date across industry, but stated, “If HHS insists on staggered compliance dates, we believe that payers should have a date set in advance of doctors and hospitals.”

FDA announces it’s working with manufactures to address cancer drug shortages

Tuesday, the White House announced that the U.S. Food and Drug Administration (FDA) is working with drug manufacturers to address the shortage of methotrexate, a drug to treat childhood leukemia and will allow temporary importation of a drug to replace Doxil, a cancer drug on the shortage list.

Note: Senators Amy Klobuchar (D-MN), Bob Casey (D-PA), and Susan Collins (R-ME) recently introduced an amendment—Preserving Access to Life Saving Medications Act—to require all drug manufacturers to report anticipated shortages of critical drugs to the FDA six months in advance. Those that do not report shortages would face strict fines.

PhRMA to HHS: proposed sunshine payment rule goes beyond ACA’s scope

Pharmaceutical Research and Manufacturers of America (PhRMA) commented on HHS’s proposed Physician Payment Sunshine rule per ACA Section 6002. PhRMA stated, “We are concerned that some of the definitions proposed inappropriately expand the rule beyond the scope of the statute.”

Note: the Physician Payment Sunshine Act expands transparency of the financial relationships between physicians, teaching hospitals, covered medical devices and supplies, and drug and biological manufacturers. The rule establishes: (1) requirements for processing and reporting payments to physicians and teaching hospitals by pharmaceutical, device, and biological and medical supply manufacturers; (2) guidelines for reporting ownership or investment interests in manufacturers and group purchasing organizations that are held by physicians and their immediate family members; and (3) information on payments or other transfers to physician owners or investors. (Source: National Law Review, “CMS’s Proposed “Sunshine” Regulations: Implications for Research,” February 21, 2012)

Study: prescription drug spending variation driven by cost of drugs prescribed, not volume

RAND Corporation, Dartmouth College, and University of Pittsburgh researchers analyzed 2008 Medicare data for prescription drug costs and prescribing patterns for 4.7 million beneficiaries across hospital regions. Mean adjusted per capita spending ranged from $2,413 to $3,008 with 76 percent of the variation attributable to the cost per prescription. The study concluded, “regional variation in Medicare Part D spending results largely from differences in the costs of drugs selected rather than prescription volume. A reduction in branded-drug use in some regions through modification of Part D plan benefits might lower costs without reducing quality of care.” (Source: Donohue et al, “Sources of Regional Variation in Medicare Part D Drug Spending” New England Journal of Medicine (366:6), February 9, 2012)

Study: correlation between primary care access and patient outcomes

Dartmouth College researchers examined the quantity and composition of primary care services concluding “the benefits of the primary care workforce are from the amount of ambulatory clinical care provided, rather than the number of primary care physicians locally available.” (Source: Chang et al, “Primary Care Physician Workforce and Medicare Beneficiaries Health Outcomes,” JAMA 305: 20, May 25, 2011)

White House FY2013 Budget Proposal eliminates disparity between inpatient rehab and SNF—part of effort to standardize reimbursement based on what is done, not where

The President’s FY2013 budget released February 13 would align payments for inpatient rehabilitation facilities (IRFS) with skilled nursing facilities (SNFs) to reduce discrepancies for specified conditions to be identified by the Secretary of HHS (e.g. hips and knees).

Note: this is among recent efforts in Washington, DC to eliminate discrepancies in payments based on facility setting and reimburse based on the unit of care and its underlying costs. Last month, MedPAC recommended that evaluation and management (E&M) codes be standardized whether inpatient or outpatient. We anticipate a similar set of guidelines for surgical procedures and diagnostic tests.


“From program inception, the cost of Medicaid has generally increased at a significantly faster pace than the U.S. economy…This growth pattern is not unique to Medicaid. Costs for virtually every form of health insurance, public and private, have increased rapidly, reflecting growth in the number of insured persons, wage increases and price inflation in the medical sector, provision of a greater number of medical services, and the development of new, better, more complex, and generally more expensive services. Together, these cost factors have increased at a faster rate than the number of workers, general inflation, and productivity underlying economic growth. Determining how to optimally balance our collective demand for the best possible health care with our not-unlimited ability to fund such care through private and public efforts represents one of the most challenging policy dilemmas facing the Nation.”

—CMS actuaries, 2010 Actuarial Report on the Financial Outlook for Medicaid, December 2010

“For EHRs and PHRs to become effective tools for clinicians and patients, they must merge into an all-in-one record, in which each party has control over updating a separate part. Moreover, for technology to play a truly integral role in health care, less expensive and more nimble systems must be created to integrate with larger systems, in the context of cloud computing, where each access point is like an on-ramp to an information super highway”

Wang & Huang, “Integrating Technology into Health Care: What will it Take?” JAMA 307:6, February 8, 2012

Fact file

  • Annual growth in per capita health care cost changes by sector in 2011 vs. 2010: commercial insurance plans (+7.11 percent), Medicare (+2.51 percent), hospital services (+4.99 percent), and professional services (+5.34 percent). (Source: S&P Healthcare Economic Indices, February 16, 2012)
  • From 1997-2006, the Medicare obese population increased from 21 percent to 29 percent. Annual increases in health care per-enrollee expenses were: $122 for normal-weight enrollees; $230 for overweight enrollees; and $271 for obese enrollees. (Source: Dawn Alley, et al. “Changes in the Association Between Body Mass Index and Medicare Costs, 1997-2006,” Archives of Internal Medicine, 2012;172(3):277-278, February 13, 2012)
  • Out of 700 providers surveyed, 42 percent currently use EHR or electronic medical record (EMR) systems; 39 percent have no plans to implement stage one of MU of EHRs. (Source: IVANS Inc., “2012 Healthcare Provider Survey,” February 2012)
  • 25.9 percent of low-wage workers in 2012 had health insurance through employers compared to 42.9 percent in 1979. In 2010, 40 percent of low-wage employees did not have access to health insurance compared to 16 percent in 1979. (Source: John Schmitt, “Health-insurance coverage for low-wage workers, 1979-2010 and beyond,” the Center for Economic and Policy Research, February 2010)
  • 8 percent of adults with income greater than $75,000 chose not to purchase health insurance in 2010. “Free riders” including the 8 percent and others cost the health system $62 billion in 2009. (Source: Davaas-Walt et al, “Income, Poverty and Health Insurance Coverage in the U.S.: 2010” U.S. Census Bureau, December 1, 2011)
  • U.S. hospitals had a median operating margin of 3.13 percent in 2009 (data extrapolated from 2010-2011 filings). (Source: American Hospital Association)
  • 90 million Americans lack literacy skills “needed to understand and act on health information” including 53 percent of the uninsured; 88 percent cannot calculate their employee share of health insurance costs. (Sources: Institute of Medicine Health Literacy, “A Prescription to End Confusion,” Washington DC: National Academies Press, 2004;  National Center for Health Statistics, “The Health Literacy of America’s Adults: Results from the 2003 National Assessment of Adult Literacy,” Washington DC: Department of Education, 2006)
  • Medicare margins: -5.0 percent in 2009, -7.0 percent in 2011; 61 percent of hospitals lose money on Medicare. (Sources: Medicare Payment Advisory Commission Report to Congress, March 2011; American Hospital Association)

Appendix A: State responsibilities in Affordable Care Act

Title II, Section 2001 States must maintain eligibility standards, methods, administrative procedures for the lowest income populations—Medicaid and CHIP (effective 3/23/10) and starting January 1, 2014, adopt standard eligibility at 133% of the federal poverty level (FPL) for all individuals under 65, including children 6-18, pregnant women, and adults without dependent children
Title II, Section 2003 Requires states to provide wrap around benefits and premium assistance to Medicaid beneficiaries who are offered employer-sponsored coverage (starting Jan 1, 2014)
Title II, Section 2401 Establishes mechanism whereby states can offer community-based programs for Medicaid beneficiaries with disabilities—the Community First Choice Option (starting October 1, 2011)
Title II, Section 2402 Expands mechanisms for states to provide home and community-based services (HCBS) in lieu of waivers
Title II, Section 2403 Extends the Money Follows the Person Re-balancing Demonstration through 2016
Title II, Section 2405 Provides additional funding to expand the State Aging and Disability Resources Centers through 2016
Title II, Section 2951 Appropriates $1.5 billon to states for 2010-2014 to fund home visits for maternal and child health families in at at-risk neighborhoods
Title II, Section 2953 Sets aside $75 million for state sponsored abstinence and contraception education programs (states can receive minimum grants of $250,000) for 2010-2014
Title II, Section 2601 Creates five year period for dual eligible demonstration projects
Title II, Section 2602 Requires HHS to establish a Federal Coordinated Health Care Office (CHCO) in CMS by March 1, 2010 to improve coordination of federal-state dual eligible programs
Title II, Section 2501 Requires states to obtain rebate increases for prescription drugs from 15.1% to 23.1% used in the Medicaid program
Title VI, Section 6508 Requires states to implement fraud, waste, and abuse programs by January 1, 2011 as part of Medicaid Integrity program
Title II, Section 10202 Provides incentive for Medicaid programs to shift enrollees from nursing homes into supervised home care and community-based settings
Title II, Section 2101 Requires states to maintain current income eligibility for participation in the Children’s Health Insurance Program (CHIP) through September 30, 2015 and increases (23%) payments above the federal match rates for FY2016 thru FY2019
Title I, Section 1101 Requires states to establish high risk pools for individuals uninsured for at least the last six months starting March 23, 2010
Title I, Section 1311 Requires states to implement health insurance exchanges for individuals and small employers starting January 1, 2014
Title I, Section 1341 Requires states to create a transitional reinsurance program for individuals and small groups to operate 2014-2016
Title I, Section 1331 Allows states to contract with commercial health plans to provide coverage for individuals between 133 and 200% of FPL via tax credits starting January 1, 2014
Title I, Section 1332 Provides for states to seek waivers for up to five years for qualified health plans starting in 2017 provided levels of coverage are achieved and basic benefits included
Title I, Section 1302 Requires states to start up an office for consumer insurance information to assist in purchase decisions and monitor complaints (starting March 23, 2010)
Title I, Section 1003 Requires states to establish a mechanism for annual reviews of insurance premiums, and requires increases of 10% or higher to be reviewed by HHS
Title I, Section 1561 Requires health IT enabled solutions for interoperability of eligibility and enrollment in health plans
Title II, Section 2201 Requires enrollment in state health exchange based qualified health plans through a state-run website starting January 1, 2014
Title II, Section 2551 Reduced Medicaid disproportionate share (DSH) payments from $18.1 billion to $14.1 billion (FY2014-FY2020)
Title II, Section 2601 Creates Medicaid waivers for dual eligible demonstration programs for up to five years
Title II, Section 2701 Requires HHS to develop set of quality measures for adult care to be incorporated in Medicaid programs
Title II, Section 2702 Prohibits Medicaid payments for healthcare acquired conditions
Title II, Section 2703 Provides pilot funding for states to implement/test Medicaid medical homes starting January 1, 2011
Title II, Section 2704 Establishes Medicaid bundled payment demonstration projects for eight states starting January 1, 2012 thru December 31, 2016
Title II, Section 2705 Establishes mechanism for pilots in five states to convert safety net hospitals from fee for service to capitated payment models (March 23, 2010 thru December 31, 2012)
Title II, Section 2706 Provides funding for Medicaid pediatric accountable care pilots starting January 1, 2012 thru December 31, 2016
Title II, Section 2707 Establishes three year pilot for Medicaid emergency psychiatric treatment programs starting January 1, 2011 thru December 31, 2015
Title II, Section 3505 Reauthorized trauma care system with additional funding to states for safety net programs (March 23, 2010-December 31, 2015)
Title X, Section 10607 Funds ($50 million) state-led demonstration pilots to medical liability and tort reform with focus on medical error transparency and dispute resolution
Title V, Section 5102 Funds workforce planning efforts to increase the number of skilled workers in the health care work force (requires 25% state match)
Title V, Section 5103 States required to assess and report data on adequacy of the primary care workforce (2010-2014)
Title V, Section 5206 Funds scholarships for allied health professionals and public health workers
Title V, Section 5313 Authorizes HHS to fund state efforts to promote healthy lifestyles in under-served areas 2010-2014
Title V, Section 5405 States to develop Primary Care Extension programs (2011-2014)
Title V, Section 5603 Reauthorized Wakefield Emergency Medical Services for Children program
Title V, Section 5604 Authorizes and funds co-location of primary and specialty care services in community-health centers
Title II, Section 2951 Funding for maternal-child health home visit programs
Title II, Section 2953 Funds Personal Responsibility Education Grants to states up to $75 million/year FY2011-FY2014 targeting teenage pregnancy and sexually transmitted diseases
Title II, Section 2954 Funds $50 million/year FY2011-FY2014 for abstinence education
Title IV, Section 4106 Requires adherence to recommended preventive health services for Medicaid enrollees starting January 1, 2013
Title IV, Section 4108 Incentives for Medicaid chronic care programs (January 1, 2011 thru January 1, 2016)
Title IV, Section 4201 Awards community transformation grants to encourage lower incidence of chronic disease (2010-2014)
Title IV, Section 4204 Authorizes state to purchase vaccines under Centers for Disease Control and Prevention contracts (2010-2014)
Title IV, Section 4306 Funding for childhood obesity programs (2010-2014)

Appendix B: State costs of implementing the Affordable Care Act

Estimated per person net fiscal impact to states due to ACA (undiscounted 2011–2020)1,2,3
Categories Scenarios
(in millions)
Advantageous Conservative Disruptive

Coverage expansion:

  • Medicaid expanded enrollment and benefits
  • CHIP enrollment
  • New state coverage
$(186) $41



  • Administrative personnel
  • Medicaid IT systems
  • HIX systems
$31 $31


Benefit redesign and industry fees:

  • State employees
$2 $5


Optional opportunities:

  • Other state programs
$(169) $(64)


Premium taxes4 $3 $3


Total $(318) $17 $470

1Source: Deloitte Center for Health Solutions analysis, Deloitte’s Health Reform Impact Model, and ACA Provision Mapping Tool: 2011–2020.
2Not all numbers add due to rounding.
3Cost (+) or Saving (-).
4Premium taxes slightly reduced, despite increased coverage in market, due to a shift toward administrative services only contracts which are not subject to state premium taxes.

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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