Health Care Reform Memo: October 17, 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.
From Paul Keckley, Executive Director, Deloitte Center for Health Solutions
As we grow older, or move around in our careers, most of us maintain a strong identity to a state where we grew up in or spent our formative years. For me, it’s Tennessee—the Volunteer state known for country music, barbecue, and in health care circles, the birth of investor-owned hospital management companies.
My home state is a case study in health reform: its uninsured rate is 15 percent, compared to 17 percent nationally; unemployment is 9.6 percent versus the U.S. at 9.1 percent currently; and 21 percent live below the poverty line, compared to 20 percent across the country.
Tennessee ranks 48th in “poor physical health days,” 46th in infant mortality, 46th for cancer mortality, and 44th for heart disease. The obesity rate is 32 percent—48th in the U.S.; 22 percent smoke (45th overall); and 10 percent of adults have Type 2 diabetes (43rd nationally). It’s 18th in the nation in access to primary care physicians, costs are lower than most states, utilization rates are near the median, insurance is discounted fee for service, and most are fairly satisfied with Tennessee’s “system” of care. In fact, for the most part, the capitation wave of the 1990’s skipped Tennessee’s payer system, and the escalating alignment of physicians and hospitals in integrated systems nationally seems to be slowly gaining traction in its urban areas.
In the Affordable Care Act (ACA), states are granted enormous responsibility to implement its major initiatives, but each starts from a different place. The five most notable distinctions are:
- Oversight of insurance reforms, premium reviews, and creation of health exchanges
- Changes to state employee health plans to align benefits with essential coverage and eligibility
- Evaluation and upgrading of the health care workforce to increase access to an appropriately trained workforce
- Efforts to weed out fraud and abuse in programs like disability, Medicaid, long-term care, and the Children’s Health Insurance Program (CHIP)
- Management of increased enrollment in Medicaid starting in 2014 when ACA will fund 100 percent of the newly covered
The implementation of ACA is largely dependent on states to successfully meet these obligations. Governors of both political persuasions know the realities.
- Medicaid is the budget buster: enrollment in Medicaid jumped from 42.7 million in 2007 to 50.3 million in June, 2011. At 12 percent of the average state’s budget after accounting for the federal match, spending for Medicaid is already a major factor in the state’s fiscal survival. And a protracted economic recovery is sure to swell enrollment long before new ACA funding begins in 2014 (per ACA, the federal government pays 100 percent of costs for newly insured Medicaid enrollees through 2019, then 90 percent thereafter). Governors face a daily conundrum—what gets squeezed next: teacher pay, road repairs, homeland security, state employee pay, or services for the poor and disabled? Managed Medicaid is part of their solution—72 percent of Medicaid enrollment is already in a managed care program, but the remaining 28 percent are its biggest cost challenges: dual eligibles, transitional care programs and others.
- State employee health costs are problematic: in most states, its employees enjoy benefits that exceed those in its private sector. Changes to state employee and retiree benefits programs face powerful reaction: unions represent 36 percent of public employees versus 7 percent in the private sector, so tension runs high when cuts are proposed.
- There’s no low hanging fruit: most states currently face a fiscal crisis: in FY2012, which began in July for most, state budget shortfalls in 44 states and the District of Columbia (DC) will likely exceed $140 billion after a shortfall of $84 billion in FY2011.
This week, we will release “The Fiscal Impact to States of the ACA: Comprehensive Analysis”, an analysis of the costs for implementing each major element of ACA on a per capita basis. It’s easy to understand why the ACA proponents allowed states so much responsibility; after all, in the all-important Senate Finance Committee that stood between its passage and failure, its 22 Senators hailed from Montana, Arkansas, New York, Minnesota, and Iowa just to name a few.
The diversity of state experiences among members of Congress looms large as they cast votes on economic recovery, implementation of ACA, and the role of the federal government in our lives. After all, Senators are elected statewide, and U.S. House members’ redistricting is carried out by state legislative procedures.
State governors might have the toughest job in America. Tennessee’s Governor Bill Haslam (R) and his peers, both Democrats and Republicans, face uphill battles to keep their states afloat while administering federal requirements like those in ACA and others. All hope for the best: that these investments and programmatic changes will be worth the effort.
And all know the realities:
States start from different places; starting points matter
Each state’s circumstance with respect to expanded access is different, some have already generous Medicaid eligibility thresholds, some a somewhat relatively healthy economy, and the vast majority face significant fiscal crisis. Only one state—Vermont—does not require a balanced budget to operate its state’s fiscal matters.
|Economic and health coverage indicators||Number of states|
|8 – 10%||20|
(Average rate from 2009-2010)
|8 – 10%||6|
|11% – 15%||25|
|Medicaid enrollment before ACA Medicaid coverage expansion
(% of population enrolled in the state, 2010)
|10 – 14%||21|
|15% – 25%||26|
|Medicaid enrollment projected after ACA Medicaid coverage expansion
(% of population enrolled in the state, 2019)
|10 – 14%||1|
|15% – 25%||9|
|Reduction in uninsured adults below 133% FPL
(% reduction in 2019 due to ACA Medicaid expansion)
|25% – 50%||27|
Notes: number of states includes DC; reduction in uninsured adults shows the percent reduction of uninsured adults below 133 percent of the federal poverty level (FPL) due to the ACA’s Medicaid expansion.
Sources: U.S. Department of Labor, Bureau of Labor Statistics; U.S. Census Bureau, Current Population Survey; Kaiser Family Foundation/Urban Institute, “Medicaid Coverage and Spending in Health Reform: National and State by State Results for Adults at or Below 133 percent FPL”
Opinions of the health system vary by state; public opinion about health reform impacts how effectively it can be implemented
Our data suggest that opinions about the performance and efficiency of U.S. health system vary from state to state:
- Pennsylvanians rate the U.S. health system more favorably than Northeast neighbors New York and Massachusetts. The Quaker state rates its system lowest along with Wisconsin and California.
- Access is a more sensitive issue to New Yorkers and Californians compared to others. The rate of uninsured seems to be partially related to a state’s uninsured population: the uninsured rate is 14 percent in New York and 19 percent in California, but is a lesser concern in Massachusetts where the rate is 3 percent and in Texas where 26 percent are uninsured.
- However, variance by state is modest when assessing perceptions of the system’s wastefulness. Oddly, Pennsylvanians, who rate the system higher than most also rated its wastefulness highest.
|Consumer Opinions on the U.S. Health Care System in Key States|
|Give the health care system a favorable of “A” or “B”||22%||19%||23%||19%||31%||23%||21%||18%|
|Give a favorable grade of “A” or “B” on access to services in the health care system||48%||42%||48%||43%||52%||50%||51%||50%|
|Feel unsatisfied with the performance of the health care system||28%||32%||28%||24%||22%||30%||30%||23%|
|Believe that 50% or more of health care system spending is wasted||51%||53%||49%||51%||55%||52%||46%||48%|
Source: 2011 Deloitte Survey of US Health Consumers
Given variability in public opinion about health reform, state legislative leaders face unique challenges in addressing health reforms, especially when juxtaposed with educational and homeland security, transportation, and other pressing issues.
States are already implementing ACA; the train has left the station
Most states are in the process of evaluating how they will address health exchanges, and most are challenging elements of ACA:
|State actions related to ACA||Number of states|
|States that passed or intend to pass health exchange legislation||21|
|States that proposed legislation challenging the ACA||45|
|States that passed legislation challenging the ACA||17|
|States that passed legislation to establish or support a single payer option||2|
|States that proposed medical liability legislation||42|
|States with certificate of need (CON) programs||36|
|States with Medicaid 1115 demonstration waivers||31|
|States that have expressed interest in working with the Centers for Medicare & Medicaid Services (CMS) on dual eligible pilot program||37|
Notes: number of states includes D.C.
Source: National Conference of State Legislatures, Kaiser Family Foundation
And there are few precedents to watch so the path ahead is somewhat uncharted; a comparison of Massachusetts’ Reform and ACA might be instructive but the goals were not the same
A notable health reform effort led by then Governor Mitt Romney (R), with the support of the Democrat-controlled legislature, was the 2006 Massachusetts law that has reduced the state’s uninsured from 8 percent to 3 percent. Its intent was to increase access; whereas the ACA had two goals per the administration—to reduce costs and increase access (White House, February 24, 2009). Comparisons of the two reflect notable differences in intent and scope:
|ACA||Massachusetts reform law|
Increase access: make insurance more accessible and affordable for all individuals
Reduce costs: pay for quality instead of volume of care
Increase access: make insurance more accessible and affordable for all individuals
|Payment and delivery reform||
Budgets in 49 of the 50 states (Vermont the exception) must be balanced by state laws. The intended and unintended consequences of major laws like ACA impact people directly and uniquely in every state. Ultimately, it’s up to states to implement health reform, improve it, or replace it with something better. And no doubt, Tennessee, my home state, will be in the mix somewhere.
Paul Keckley, Ph.D., Executive Director, Deloitte Center for Health Solutions
HHS recommends suspension of the CLASS program
Friday, U.S. Department of Health and Human Services (HHS) recommended suspension of the Community Living Assistance Services and Supports (CLASS) program—a voluntary self-funded public insurance program for long-term care services (per ACA section 8002). HHS Secretary Kathleen Sebelius notified Congressional leaders that “I do not see a path to move forward with CLASS at this time.”
Note: suspension of the CLASS program requires amending ACA, and would mean that the $72 billion revenues anticipated over ten years from its premiums would be subtracted from the ACA funding calculus.
Constitutional challenge update
Last week, Liberty University asked the U.S. Supreme Court to hear its case challenging the ACA. This is the only case which asks the high court to examine the Anti-Injunction Act (AIA) and individual and the employer mandate. Last month, the 4th Circuit Court of Appeals (Richmond) ruled that the AIA prevented it from reviewing the case before the penalty for buying insurance is effective in 2014. The high court has also been petitioned to hear three other cases: one filed by 26 states, one by Virginia, and another by the Thomas More Law Center in Michigan.
Note: the significance of the AIA challenge is timing: the AIA requires that a case not be brought until actual harm is realized. Thus, plaintiffs challenging the constitutionality of the individual mandate that starts in 2014 would not be eligible to sue until after 2015. The effect—the law with the individual mandate intact would proceed, with the lawsuit about its violation following its implementation.
HHS awards $900 million to expand primary care workforce
Wednesday, HHS announced the National Health Service Corps (NHSC) awarded $900 million in scholarships and loan repayment grants to expand the primary care workforce to under-served communities. Funding was provided through the NHSC Loan Repayment Program ($253 million per Health Information Technology for Economic and Clinical Health [HITECH]) and The NHSC Scholarship Program ($46 million per ACA Section 5207).
Note: currently, 10,000 NHSC funded providers in the NHSC provide care to 10.5 million patients; 90 percent stay in these communities after their obligation to NHSC is fulfilled.
ACO Pioneer program participants announcement this week
This week, CMS will announce the health systems selected for the ACO Pioneer program, according to groups that have been notified that their applications have been accepted. The final ACO rule (ACA Section 3022) is expected to be published by November.
Essential health benefits update
Two weeks ago, the Institute of Medicine (IOM) announced its recommended scheme for aligning exchange-based health plans for individuals and small groups with “essential health benefits” covering ten broad clinical categories.
Note: the IOM used a typical small employer health plan as its barometer for “affordability” (a “silver” plan, per ACA Section 1302) and emphasized evidence-based medicine as the basis for appropriateness. HHS will hold an essential health benefits listening session on October 25 for employers and health plan representatives.
PCORI seeks input for research proposals
The Patient-Centered Outcomes Research Institute (PCORI) seeks “patients, scientists, and other stakeholders” to be merit reviewers for its pilot projects grants program. PCORI Executive Director Joe Selby stated: “We are inviting patients and other stakeholders who are not usually represented in scientific review groups to serve as reviewers of the pilot projects grants applications. Working side-by-side with scientific reviewers on review committees, these individuals will add insights that help ensure the research we fund reflects the interests and views of patients, while remaining scientifically rigorous.”
Note: PCORI, established under ACA Section 6301, is tasked with implementing the comparative effectiveness research program. It is composed of 19 appointed members who serve a six-year term.
Joint Select Committee hears budget savings suggestions from legislative leaders, key stakeholders
Friday was the last day for Congressional committees to submit ideas to the super-committee for budget savings as it prepares its recommendation to Congress November 23. Industry groups also submitted suggestions amidst calls for the committee to open it meetings to the public and media. Notable submissions last week:
|Democratic Ranking Members of House Committees||
|Senate Finance Committee Republicans||
|Senate Small Business Committee||
|Senate Health Committee on Health, Education, Labor and Pensions||
|Hospitals and large health systems (including American Hospital Association [AHA], Premier Healthcare Alliance and VHA Inc.)||
- Wednesday, two New Jersey state Assembly panels approved higher rates for 2012 health plans for coverage of all state employees, municipal workers, and public school teachers and staff. Rates will increase by an average of 9 percent for active state employees and by 3 percent for retirees.
- Wyoming Governor Matt Mead (R) endorsed the state’s insurance exchange steering committee recommendations.
- California Governor Jerry Brown (D) signed into law the Telehealth Advancement Act of 2011, which increases access to healthcare in rural areas through expanded use of telehealth services.
SAMHSA awards grants to behavioral providers for health IT
Tuesday, the Substance Abuse and Mental Health Services Administration (SAMHSA) awarded 29 new grants, totaling to $25 million over three years, to expand the use of health information technology (IT) and improve access and coordination of the treatment of mental and substance use disorders especially for those in remote areas or in underserved populations. Grantees may receive up to $280,000 annually over three years.
Dual-eligibles plan proposed by AHIP
Wednesday, America's Health Insurance Plans (AHIP) published recommendations for integrating Medicare and Medicaid benefits for dual-eligible beneficiaries to improve the quality and cost-effectiveness of their care. It recommends three options for states to move toward “seamless coverage for dually eligible beneficiaries”:
- Improved coordination under fee-for-service (FFS) with health plan collaboration: does not integrate benefits or payment streams for the Medicare and Medicaid programs, but provides a foundation for the more integrated models.
- Combining health plans with FFS: two models proposed—one combines Medicare dual eligible special needs plans (SNPs), the other combines Medicaid health plans with Medicare FFS.
- Establishing capitated models: three models proposed—states integrate dual eligible SNPs and Medicaid managed care; states and CMS enter into a single contract that coordinates requirements under both programs as well as federal and state oversight roles; new fully integrated duals program with a combined benefit package, single appeals process, and federal/state sharing of savings.
Note: dual eligible enrollees (nine million) represent 15 percent of Medicaid enrollees and 38 percent of its costs. In recent weeks, some lawmakers have encouraged consideration of Medicare taking over management of the dual eligible programs for states.
Congress approves free trade legislation
Wednesday, Congress approved free trade legislation with Panama and South Korea. Supporters state that it will improve U.S. competitiveness in the global market. The U.S. Chamber of Commerce, Pharmaceutical Research and Manufacturers of America (PhRMA), and the Advanced Medical Technology (AdvaMed) support the agreements. The American Health Quality Association (AHQA), expressed concern about the legislation’s $300 million Medicare savings resulting from regionalization of Medicare Quality Improvement Organizations (QIO) oversight previously overseen by states and other changes to QIOs.
Medicare open enrollment started Saturday
Wednesday, HHS Secretary Sebelius announced Medicare’s open enrollment period started Saturday, October 15 and will continue through December 7. HHS officials held 150 events in the days leading up to Medicare’s Open Enrollment Period to inform and educate people with Medicare.
ONC, Health 2.0 launch “popHealth Tool Development Challenge”
The Office of the National Coordinator for Health Information Technology (ONC) and the Health 2.0 entrepreneurial organization launched the popHealth Tool Development Challenge. Under the challenge, developers will create applications that use the popHealth open source framework, existing functionality, standards, and sample datasets to improve patient care and provide greater insight into patient populations. popHealth is an open source software that automates reporting of the Stage 1 Meaningful Use clinical quality measures.
Senate introduces legislation to streamline FDA oversight of medical devices
Thursday, Senators Amy Klobuchar (D-MN), Richard Burr (R-NC) and Michael Bennet (D-CO) introduced the Medical Device Regulatory Improvement Act, to streamline the Food and Drug Administration (FDA) regulation of medical devices. The legislation clarifies the FDA pre-market approval process, revises definitions of conflicts of interest, and reviews the Center for Devices & Radiological Health management and regulatory processes. AdvaMed supports the legislation.
“The federal government lacks a comprehensive body of research evaluating the effect of state policies and practices on access to care, and no administration has ever issued comprehensive recommendations aimed at guiding and encouraging improvements in care.”
– Sara Rosenbaum “Medicaid and Access to Health Care—A Proposal for Continued Inaction?”, New England Journal of Medicine, July 14, 2011
“Most Americans with private insurance are still horrified by thoughts of health management organizations and prefer to pay fees for each medical service. For the poor, managed care is becoming the norm”
– “Health Care: A New Prescription for the Poor”, The Economist, October 8, 2011
- In 2011, 78 percent of first-year residents received 50 or more job solicitations during the course of their training; and 47 percent received 100 or more job solicitations; 32 percent of first-year residents prefer to be employed by a hospital. (Source: Merritt Hawkins & Associates, “Hawkins' 2011 Survey of Final-Year Medical Residents,” October 6, 2011)
- Electronic health records (EHR) incentive program payments: $25 million to 1,400 eligible providers and $61 million to 30 dually eligible hospitals, as of September 2011. (Source: CMS, 2010)
- 18 percent of seniors who are eligible for Medicare understand the government’s Medicare Star Quality Ratings system; 2 percent know their health plan’s rating. (Source: Kaiser Permanente, Harris Interactive, October 10, 2011)
- 43 percent of Americans indicate that their financial situation is worse than it was a year ago. Almost one-third (31 percent) have economized on health care consultations, and 28 percent have figured out ways to reduce spending on prescriptions and medication. (Source: Euro RSCG Worldwide, October 7, 2011)
- Of the 135 non-cancer orphan drugs approved from the passage of the Orphan Drug Act in 1983 through the end of June 2010, 45 medicines received conventional approval supported by two trials, 32 were given administrative flexibility through formal FDA processes (e.g. accelerated approval) and 58 received case-by-case flexibility. (Source: National Organization for Rare Disorders, October 2011)
- U.S. Postal Service (USPS) pays about $7.3 billion annually for employee health coverage provided through the Federal Employee Health Benefits Program (FEHBP). USPS Post Master Patrick R. Donahoe estimates that USPS could save 10 percent in health care costs under their own separate health care system. (Source: “Health care is making the postmaster general angry,” Washington Post, October 10, 2011)
- U.S. skilled nursing facilities (SNFs) improved in nine out of ten quality measures since 2010 led by improvements in all short-stay measures (e.g. patient delirium and pain and pressure ulcers), and (i.e. physical restraint) long-stay measure (e.g. pain, urinary tract infections and activities of daily living). (Source: Alliance for Quality Nursing Home Care and the American Health Care Association)
- Tanning salon tax collection July 1, 2010-March 30, 2011: $54.4 million versus projected $150 million in ACA. Reason for shortfall: 10,300 standalone tanning operators versus 25,000 originally projected. (Source: Internal Revenue Service [IRS])
- GDP forecast: 1.5 percent in 2011, 2012 2.3 percent and 2.7 percent in 2013; unemployment at 8.2 percent in 2013. (Source: “Bleak News for Americans' Income,” Wall Street Journal, October 14, 2011)
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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