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Health Care Reform Memo:
March 11, 2013

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: Transparency in health care

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

On page one of USA Today last Friday, the lead story was Peter Eisler’s “What surgeons leave behind costs some patients dearly,” detailing a frequent but little known problem in health care: sponges, needles, and other objects left behind during surgery coded as “retained surgical items” in hospitals. It’s part of a series USA Today Editors call, “When Health Care Makes You Sick.”

“Stuff” gets left behind in surgery 12 times daily in U.S. surgical suites at an average cost of $60,000 each per the Centers for Medicare & Medicaid Services (CMS) (not including malpractice costs that add $150,000 per incident based on a 2009 study published in Surgery). Eisler noted that there’s no national database to capture and monitor these incidents; no requirement that the incidents be reported or transparent, and no requirement that hospitals use sponges and instruments with electronic tracking that would add $8-$12 to each surgical case—only 15 percent of hospitals currently do.

USA Today is not alone in its reporting on industry transparency. A popular 2011 series in The Wall Street Journal, “Secrets of the System,” used Medicare claims data to profile high levels of unnecessary spine surgery and called for public access to the Medicare database protected from scrutiny through a 1979 agreement between the government and the American Medical Association (AMA).

Transparency is a tidal wave in health care. It might be the tsunami. The Affordable Care Act (ACA) requires numerous disclosures (see table in Implementation Update) accompanied in many cases by specific measures by which organizational efforts may be compared (i.e., 33 accountable care organization [ACO] quality and efficiency measures, 17 value-based purchasing measures, and so on).

States are stepping up efforts to disclose prices and quality metrics via licensing and credentialing processes.

Virtually every major health insurance carrier provides online data about how well doctors and hospitals perform, and the National Committee for Quality Assurance (NCQA) is equally vigilant about disclosing metrics about the quality of health plan performance using Healthcare Effectiveness Data and Information Set (HEDIS) measures as a basis for comparison.

And 19 percent of employers with more than 50 employees provide data about the performance of the providers they use (2012 Deloitte Survey of U.S. Employers, Deloitte Center for Health Solutions).

But do these efforts matter? Is anyone paying attention? The answer is yes, but not as some might think.

Consumers pay attention when considering treatment options, especially for diagnoses with dire results like late-stage cancers or rare conditions that do not respond to conventional care, or for routine preventive or elective tests/procedures not fully covered by their insurance.

Physicians and employers pay attention when considering affiliations or inclusion in narrow networks.

And health plans pay attention when determining their contracting strategies or in valuations of health plans they might purchase.

But the fact remains that much about the system remains hidden from public scrutiny, and in many circles, that’s seen as a fundamental flaw.

Central in ACA is the premise of transparency. And the industry’s future is certain to revolve around intensified public scrutiny and perhaps additional regulatory requirements in areas including the following:

  1. Clinical investigations and scientific support: increased transparency about financial relationships between study sponsorships, research methods, failed studies and unpublished findings in support of medical device and bio-pharma studies, and in the efficacy and effectiveness of over-the-counter, nutritionals, and functional foods as therapeutic options.
  2. Financial relationships between hospitals and physicians, and physicians and health plans: estimates are that more than half of physicians are currently integrated into formal relationships with hospitals, and in some markets, health insurance plans are buying practices. Their financial relationships, and documentation of these relationships’ implications on access, costs, safety, and quality will be more visible.
  3. Compensation and profit: the industry’s financial performance, including executive compensation in each sector, operating margins, costs, and terms of access to capital, strategic partnerships/relationships, compensation of physicians who serve in leadership roles, calculations of “community benefit,” and more.
  4. Supply chain costs and business partner relationships: media attention and consumer activism are expected to drive wider disclosures of costs, terms of contract, and contractual relationships between providers and users of technologies, disposables, drugs, and devices; and business relationships are likely to require disclosures of key terms that might induce/discourage fair play.
  5. Safety, outcomes, and user experiences: valid and reliable measures will become more readily accessible to the public, including condition-specific process and outcome measures requiring data capture across acute, post-acute, and ambulatory settings.

What does this mean for our industry?

  • Costs for capturing and reporting data are expected to increase across the system
  • Data elements from outside an organization will be necessary to accurately measure and manage performance: business relationships outside a specific sector that facilitate access to data will be vital
  • Branding strategies and customizable online connectivity to consumers, business partners, and third parties will likely require major investments
  • Pricing strategies will likely change as the relationships between charges/prices and results are made known; “value” will be more the focus; ownership status/affiliations will be secondary
  • And there are likely to be fewer secrets of the system

I used four hospitals in my journey through the health system last year resulting from knee surgery and a post-operative complication. Three of the four were “Top 100” hospitals per their advertising. That puzzled me, until I discovered more than 1,400 hospitals can make the same claim based on which “Top 100” list they choose.

The era of transparency is just starting in health care, buoyed by media appetite to disclose secrets of the system and increased consumer activism in making decisions based on value.

It’s the new normal.

Paul Keckely

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

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Implementation update

Transparency in key ACA provisions

Section Provision Importance to transparency


Effective Rate Review Program
  • Health insurance plans must submit premium rate increases above 10% to the state rate review program or the U.S. Department of Health and Human Services (HHS) for approval. Premium rate increases are made public, which includes a justification for the rate increase and the number of plan participants impacted.
  • 43 states and the District of Columbia are using $44 million in grants provided by HHS to increase oversight of proposed health insurance rate increases.


  • Payment is linked to performance and cost-containment. CMS defined 33 core quality measures based on five domains: the patient/caregiver experience, care coordination/patient safety, preventive health measures, and the delivery of services to at-risk populations. To optimize coordination and return on investment, ACOs must focus on transparency.
    Note: ACOs are groups of providers (i.e., doctors, hospitals, long-term care facilities, etc.) that work together to deliver highly coordinated care. The goal: to provide appropriate care to the right patient at the right time to lower costs and improve outcomes.


Nursing home transparency and accountability
  • Nursing homes are required to report ownership information, which will be made public by March 2013.


Summary of coverage benefits
  • Health plans must provide a summary of coverage benefits in plain language to plan participants.

Subtitle D

Health insurance exchanges (HIX)
  • Streamlined enrollment and price transparency
  • Consumer education
  • Structured appeals processes


Physician payment transparency program
  • Requires manufacturers of drugs, devices, and certain medical supplies to report payments to physicians or teaching hospitals.
  • Requires manufacturers and group purchasing organizations (GPOs) to disclose physician ownership or investment interests to CMS and the creation of a publicly accessible database documenting all payments or gifts from drug and device companies to doctors and health care organizations.


Hospital value-based purchasing program; value-based purchasing program for skilled nursing facilities, home health agencies, and ambulatory surgical centers (ASCs); value-based payment modifier under the physician fee schedule
  • Value-based incentive payments are made to hospitals based on 13 measures (i.e., patient experience and care, percent of heart failure patients given discharge instructions, etc.). Value-based incentive payments will also be applied to skilled nursing facilities, home health agencies, and ASCs that meet defined performance standards. These provisions require increased transparency surrounding delivery of care and reporting.
  • CMS will differentiate payments to physicians based on quality of care delivered. Requires increased transparency surrounding delivery of care and reporting.


Pay-for-performance for certain Medicare providers
  • Providers are rewarded for meeting certain payer objectives, such as increasing quality and patient safety. Requires increased transparency surrounding delivery of care.


Health Care Fraud and Abuse Account
  • Increases funding for HCFAC—$10 million annually (FY 2011-FY 2020).


Physician Self-Referral Disclosure
  • Requires physicians to disclose self-referrals for certain imaging services (i.e., MRI, CT, PET scans, etc.).


Self-referral disclosure protocol (i.e., the Stark Law)
  • Requires health care providers and suppliers to disclose an actual or potential violation of the Federal Physician Self-Referral Law.


Recovery Audit Contractor (RAC) Program
  • Expands authority of the RAC program to identify improper payments to Medicaid and Medicare providers.


Developing methodology to assess health plan value
  • HHS will measure health plan “value,” incorporating input from relevant stakeholders (i.e., health insurance issuers, health care consumers, employers, health care providers, etc.)

Sources: ACA; HHS

Tavenner: enrollment push this summer

A major enrollment push for the HIXs and Medicaid expansion will occur after July, per Acting CMS Administrator Marilyn Tavenner, speaking to the Federation of American Hospitals conference Tuesday.

CMS issues guidance on health plan certification requirements for HIXs

Last week, CMS released a 57-page draft guidance on the proposed certification process whereby health insurance plans may offer products through state-partnership or federally-facilitated HIXs. Highlights:

  • Essential community providers (ECPs): CMS defined its approach to determine whether health insurance plans sufficiently include ECPs for the 2014 coverage year. Per Section 1303 of the ACA, health plans must provide access to ECPs in order to be certified to operate on a HIX.
  • Benefit design review: before certifying health plans to operate on a federally facilitated HIX, CMS will conduct an “outlier analysis” to ensure that a health plan’s benefit design does not discriminate against individuals with significant health needs. “Identification as an outlier does not necessarily indicate that a health plan benefit design is discriminatory; rather, CMS will use the outlier analysis to target health plans for more in-depth reviews.” CMS will conduct analyses on specific health benefits in 2014: inpatient hospital stays, inpatient mental/behavioral stays, specialist visits, pregnancy newborn care, specific conditions including behavioral health conditions, such as mental health disorders and substance abuse, and prescription drugs.
  • Rate review: CMS will not duplicate rate review processes already in place at the state level, such as the Effective Rate Review Program enacted by Section 1003 of the ACA, but will work with states to identify rates that are relatively high or low compared to other qualified health plans (QHPs) in the same rating area.
  • Stand-alone dental plans: substantial guidance is proposed on the certification process for stand-alone dental plans. CMS and states participating in a state-partnership exchange will use the QHP certification process, with necessary adjustments, to certify stand-alone dental plans.

Legislative update

CMS releases 2013 HIT goals

In tandem with last week’s HIMSS meeting in New Orleans, CMS and the Office of the National Coordinator (ONC) for Health Information Technology (HIT) released the 2013 HIT agenda. Goals:

  • Ensure, by the end of 2013, 50 percent of physician offices will adopt electronic health records (EHRs) and 80 percent of eligible hospitals will receive meaningful use incentive payments.
  • Enhance Medicare beneficiaries’ access to electronic health information through the Blue Button initiative. The Blue Button initiative allows Medicare beneficiaries to access full medical records online.
  • Implement Meaningful Use Stage 2.
  • Ensure integrity of HIX programs (i.e., through continuing to conduct medical reviews and issuing Comparative Billing reports that identify providers).
  • Ensure that electronic exchange across providers is possible. Last week, CMS and ONC also released a request for information, which seeks input from stakeholders on a variety of policies that address interoperability.

GAO report: MA plans received $3.2-$5.1 billion in overpayments

Last Monday, the U.S. Government Accountability Office (GAO) released its proposed Medicare Advantage (MA) reimbursement rates based on data from 2010, 2011, and 2012 plan years:

  • MA plans were reimbursed between $3.2 billion and $5.1 billion more than traditional Medicare between 2010 and 2012.
  • Risk scores for MA plans are higher than traditional Medicare: 4.2 percent higher in 2010, 4.6 percent to 5.3 percent higher in 2011, and 4.9 percent to 6.4 percent higher in 2012.
  • In 2013, CMS will continue to use the same risk adjustment score (3.4 percent) for MA plans, but will use newer data—according to CMS this will help equalize reimbursement rates between MA and traditional Medicare.

Background: CMS reimburses MA plans based on a risk score (a relative measure of expected health care for each beneficiary) adjusted for health status and demographic characteristics. In 2010, the GAO reported that CMS reimbursed MA plans at a higher rate than Medicare fee-for-service (FFS) plans due to a difference in diagnostic coding that caused the risk scores for MA plans to be higher. The GAO subsequently directed CMS to adjust for the differences in coding. In January 2012, the GAO reported that CMS’ risk adjustment score (3.4 percent) had not sufficiently reduced the amount of excess payments to MA plans.

FDA issues new plan to analyze risks and benefits of new drugs

Thursday, U.S. Food and Drug Administration (FDA) released a proposed five-year plan for implementing a new benefit-risk assessment when reviewing new drug approvals. Highlights:

Decision Factor CBO projected federal spending
Severity and treatment options The severity of the condition that the product is intended to treat and other therapies available to treat the condition.
Benefit The results of the clinical trials and the clinical meaning of primary and secondary endpoints, as well as appropriate analyses of subpopulations.
Risk The adequacy of the safety database, the severity and reversibility of adverse events, and the potential for mishandling the drug after it enters the market. Other factors that may be relevant include nonclinical pharmacology and toxicology data; clinical pharmacology, chemistry, manufacturing, and controls.
Risk management The efforts to avoid the identified safety concerns, or ensure that the drug is directed to patients with an acceptable risk level.

The agency will gradually implement the framework by using the following timetable:

  • FY 2014 and FY 2015: new molecular entity, and original biologics license applications
  • FY 2016: efficacy supplements for new/expanded indications
  • FY 2017: all original new drug applications (NDAs)

Background: Section X of the Prescription Drug User Fee Act (PDUFA) instructs FDA to addresses the development of a five-year plan that describes the agency’s approach to develop and implement a structured benefit-risk framework in its human drug and biologic review process. Additionally, Section 905 of the Food and Drug Administration Safety and Innovation Act (FDASIA), requires FDA to implement the structured framework to ensure a standardized approach to decision making, communicate of the benefits and risks of new drugs during the review process, and enhance the transparency of regulatory review. The FDA has 60 days to decide whether to file it so that it can be reviewed. An NDA is the formal step a drug manufacturer takes to ask that the FDA consider approving it for marketing in the U.S. An NDA includes all animal and human data and analyses of the data, as well as information about how the drug behaves in the body and how it is manufactured. In accordance with PDUFA, FDA expects to review and act on at least 90 percent of NDAs for standard drugs no later than ten months after the applications are received.

Report: VA transmitted sensitive personal data on unsecured networks

The U.S. Department of Veteran Affairs (VA) Office of Inspector General (OIG) confirmed reports last week that the agency had been transmitting sensitive data, including personally identifiable information, over an unencrypted telecommunications carrier network. The OIG recommends that the assistant secretary for information and technology identify the VA networks transmitting sensitive data over the unencrypted carrier networks and implement configuration controls to ensure encryption of such data. Findings and recommendations:

  • VA has not implemented technical configuration controls to ensure encryption of sensitive data despite VA and federal information security requirements
  • Office of Information and Technology (OIT) personnel disclosed that VA typically transferred unencrypted sensitive data, such as EHRs and internal Internet protocol addresses, among certain VA medical centers and Community Based Outpatient Clinics using an unencrypted telecommunications carrier network
  • OIT management acknowledged this practice and formally accepted the security risk of potentially losing or misusing the sensitive data

Background: in May 2012, complainant contacted the OIG with information that unencrypted data was being transmitted among various VA medical center networks using a local telecommunications carrier network. The VA Midwest Health Care Network, also known as the Veterans Integrated Service Network (VISN) 23 within the Veterans Health Administration, serves more than 400,000 veterans.

(Source: U.S. Dept. of Veteran Affairs, “Review of Alleged Transmission of Sensitive VA Data Over Internet Connections,” March 2013)

House Republicans pass bill to avoid government shutdown

Wednesday, the U.S. House of Representatives passed (267-151) the Department of Defense, Military Construction and Veterans Affairs, and Full-Year Continuing Appropriations Act, 2013 (H.R. 933) along party lines primarily with Republicans supporting the measure in the majority. The legislation maintains federal funding at current levels including the majority of defense funding and other military activities impacted by sequestration.

Direct implications for health care:

  • Increases funding for military health programs (including medical research)
  • Authorizes the FDA to access user fees collected in FY 2013, which were set at FY 2012 levels per the Continuing Resolution passed in 2012—a difference of $40 million. Note: user fees contribute $1.6 billion to the agency’s budget this year, and were subject to sequestration cuts of 5 percent.
  • Denies the Office of Management and Budget’s (OMB) request to Congress for an additional $949 million for HIX implementation and $567 million for programs such as the Health Care Fraud and Abuse Account (Section 6402 of the ACA).

Note: by March 27, 2013, to avoid a government shutdown, Congress must pass a spending bill to authorize federal spending for the remainder of FY 2013.

Senators request report on prescription drug abuse prevention

Monday, a group of bipartisan Senators asked the U.S. Government Accountability Office (GAO) to survey industry stakeholders about ways to enhance collaboration across sectors on prescription drug abuse prevention activities. The Senators—Barbara Boxer (D-CA), Tom Coburn (R-OK), Diane Feinstein (D-CA), Lamar Alexander (R-TN), Richard Burr (R-NC), Michael Enzi (R-WY), Tom Harkin (D-IA), and John Rockefeller (D-WV)—requested input from HHS, U.S. Drug Enforcement Agency, Office of National Drug Control Policy, patient groups, pharmacists, behavioral health providers, wholesale drug distributers, etc.

Background: in 2002, Congress appropriated funding to the U.S. Department of Justice to support the Prescription Drug Monitoring Program (PDMP) to help states prevent and detect the sale and abuse of pharmaceutical controlled substances (i.e., anti-depressants, pain killers, drugs for attention deficit disorders). Per the National Conference of State Legislatures, 43 states have passed legislation to enable PDMPs to help prescribers and pharmacies track who is writing and filling prescriptions for controlled substances. A sample of notable state efforts:

State CBO projected federal spending
  • State-wide database to identify physicians who have suspicious prescribing customs: CURES
  • .Lawmakers proposed legislation to cover a $9.6 million upgrade CURES, which involves new taxes and fees.
  • According to Attorney General Kamala Harris, CURES is “on life support” due to $70 million budget cuts to the California Department of Justice. CURES is currently run by one full-time employee with a $400,000 budget.
  • The Pennsylvania Accountability Monitoring System, a provision in House Bill 317, will help doctors and pharmacists identify “odd” prescriptions patterns. House Bill 317 will be put to a vote on March 12, 2013.
  • The only state without a law for a prescription-monitoring program. Efforts to develop a program exist; however, a lawmaker opposing the issue, citing privacy reasons, wants to put the bill to a popular vote.
  • A prescription-monitoring program will begin on June 1, 2013.
  • Although a system is in place, approximately two-thirds of physicians do not participate.

(Source: “California bill seeks drug-database upgrade: States wrestling with how to harness technology to curb ‘doctor shopping’,” FierceHealthIT, March 5, 2013)

Congress asks FDA for mobile medical device apps guidance

Last week, members of the House Energy and Commerce Committee asked FDA Commissioner Margaret Hamburg about the agency’s oversight of mobile medical device apps, requesting answers to the following questions by March 15:

  • When will the FDA issue final or updated guidance on its oversight approach for mobile medical apps designed for use on smartphones?
  • Has the FDA discussed, prepared, or analyzed the effect of the medical device tax on smartphones?
  • Will the actual use of a smartphone, tablet, or app be a factor in whether the FDA chooses to regulate the device or application as a medical device? Has it been a factor in any analysis by FDA already completed?
  • How many mobile medical apps have sought approval from the FDA before entering the market? What was the processing time for each of these apps? How many mobile medical apps have been subject to oversight by the FDA after introduction to the market?
  • How many apps have either been changed or removed from the market by FDA oversight, and why?

Medical disaster bill pending signature by President

Last Monday, the House of Representatives passed a medical disaster and emergency response bill, a measure already passed unanimously by the Senate, sending it to the President for approval. The bill (H.R. 307) reauthorizes certain programs under the Public Health Service (PHS) Act, which include Project Bioshield Act and the Pandemic and All-Hazards Preparedness Act.

Background: Project Bioshield Act, introduced in 2003, allowed the government to prepare for chemical, biological, nuclear, or radiological attacks over a ten-year period. The Pandemic and All-Hazards Preparedness Act allows the federal government, in cases of emergency, to assume responsibility for emergency public health and medical responses. It also created the Strategic National Stockpile for vaccinations. The act was originally created in 2002 and must be revised and assessed every four years.

Dental therapists to address shortage of dental care

Per the Pew Center on the States, 40 million Americans reside in areas with a shortage of dentists. And costs for individuals without dental care are high since preventable dental conditions were the reason for 830,590 visits to the emergency room (ER) in 2009, a 16 percent increase from 2006. Two states—Alaska’s Native Tribal Health Consortium and Minnesota—have authorized dental therapists to provide coverage in under-served populations. And legislators in Connecticut, Kansas, Maine, Missouri, New Hampshire, New Mexico, North Dakota, Ohio, Vermont, and Washington are considering measures this year.

My take: the role dental therapists might play in the delivery of dental care is part of the larger theme of the role mid-levels play in improving access to health services. Advanced practice nurses and nurse practitioners who provide primary care services, nurse anesthetists who manage less intense operating room cases, master’s trained counselors in lieu of Ph.D. psychologists, optometrists vs. ophthalmologists, and others are domains where scope of practice issues conflict with vested interests and professional turf battles. These scope of practice issues will be a major theme in appropriately staffing the future health care workforce per Section V of the ACA.

Think tank proposes option for extending eligibility age for Medicare

The Urban Institute-Robert Wood Johnson Foundation proposes to raise the Medicare eligibility age to 67 while allowing those 65- and 66-year-olds the option of buying in, on a sliding scale. Low income people would pay less than they do today. “Middle- and high-income individuals would pay the full actuarially fair premium for their age cohort. … The lowest-income individuals would have access to Medicare at no cost with full cost-sharing subsidies.” The health law subsidy scale could be adapted to calculate premiums for people between 138 percent and 400 percent of the federal poverty level (FPL). (Some people in that age bracket may still get insurance on the job or elsewhere.) The report also includes means testing, payment reform, and catastrophic caps designed to reduce reliance on Medigap.

New health care bills introduced last week

  • Senator Al Franken (D-MN) introduced the Medicare Diabetes Prevention Act of 2013 (S. 452) to establish a diabetes prevention program for Medicare beneficiaries.
  • Senator Robert Mendez (D-NJ) introduced the Coordination of Pro Bono Medically Recommended Dental Care Act (S. 466) to establish grants for dentists who provide low-income individuals with dental care services.
  • Representative James Sensenbrenner (R-WI) introduced the Religious Freedom Tax Repeal Act of 2013 (H.R. 973) to exempt health insurers from excise tax or penalties if an employer adopts a group health plan that excludes certain health benefits on the basis of religious belief or moral conviction.
  • Representative Ron Kind (D-WI) introduced the Personal Health Investment Today Act of 2013 (H.R. 956) to treat expenses for certain physical activities, fitness, and exercise as medical care for tax purposes.
  • Representative Tom Price (R-GA) introduced the Medical Practice Freedom Act of 2013 (H.R. 969) to prohibit states from requiring a health care provider to participate in any health plan as a condition of licensure.
  • Representative Rick Larsen (D-WA) introduced the Women Veterans and Other Health Care Improvements Act of 2013 (H.R. 958) to expand reproductive assistance provided to severely wounded, ill, or injured veterans and their spouses.

State update

State round-up: HIX

Last week, HHS Secretary Kathleen Sebelius conditionally approved state-partnership applications for the following states: Iowa, Michigan, New Hampshire, and West Virginia. To date, 24 states and the District of Columbia have received conditional approval to operate a state-based or state-partnership exchange.

State-based exchange State-partnership exchange Federally-facilitated exchange

Democratic  ■ Republican ■ Independent
Source: HHS

Other HIX announcements:

  • D.C. approved a two-year transition plan for the small group market—new entrants to the small group market will participate on the HIX beginning January 1, 2014, currently insured small businesses will transition to the HIX over a two-year period, and all health plans sold off the HIX during the transition period must comply with HIX insurance market regulations. Additionally, the Executive Director of the D.C. Health Benefit Exchange Board recommended the Department of Health Care Financing propose a “buy-in program” for undocumented residents above 200 percent of the FPL. Background: D.C. has received conditional approval to operate its state-based exchange. In 2012, the D.C. Health Benefit Exchange Board voted to merge the individual and small group markets.
  • Thursday, the Minnesota state Senate passed an exchange bill, 37-28, after a 12-hour debate. The bill already cleared the state House.

Medicaid expansion update

Thursday, Gary Cohen, the director of the U.S. Center for Consumer Information and Insurance Oversight (CCIIO), told reporters that a number of states have inquired about mechanisms whereby the newly expanded Medicaid enrollment might be channeled to health plans on state HIXs. States have the option of expanding their Medicaid programs to cover everyone earning about one-third more than the FPL—about $31,322 for a family of four this year.

Twenty-five states and D.C. have said they will or are in support of expanding their Medicaid programs; 16 states have indicated they are highly unlikely to expand their program:

Announced or Governor in support of expansion Not participating or highly unlikely to participate Undecided or undeclared

Democratic  ■ Republican ■ Independent
Source: Kaiser Family Foundation

Note: states do not have a deadline to make a decision on Medicaid expansion and may opt in or out of participation at any time. This chart was compiled using publicly available information (as of March 3, 2013) and is subject to change.

Recent Medicaid announcements:

  • Last week, Governor Terry Branstad (R) announced that Iowa would not participate in ACA Medicaid expansion, and unveiled his own expansion plan. The proposal would allow people above 100 percent of FPL to enroll in the state’s HIX, Healthy Iowa Care, and receive tax credits to subsidize the cost of purchasing coverage.

State round-up

  • Analysis of the Massachusetts eHealth Collaborative reveals that the 49 participating community practices will see a negative average return on investment (ROI) after five years. The average loss was calculated to be $43,743 per physician; 27 percent may see a positive ROI, and 14 percent would have achieved a positive ROI had they received federal implementation grants.

Industry news

Recap: HIMSS13 in New Orleans

HIMSS13 closed its five-day run at New Orleans’ Morial Convention Center with 34,696 total attendees, 13,985 professional attendees, and 1,158 exhibiting companies. At the meeting, the trade group released results of two studies:

  • Survey of 500 physicians, pharmacists, and nurses: 70 percent believe HIT is beneficial in providing care efficiently and managing daily caseloads; 83 percent believe it plays a key support role in care process improvement.
  • 24th Annual HIMSS Leadership Survey of 298 hospital IT professionals: 68 percent have qualified for Meaningful Use Stage 1; 75 percent say they will qualify for Stage 2 by 2014; 87 percent expect to complete their conversion to ICD-10 by October 2014; 21 percent are concerned that they won’t be able to secure the IT staff needed to successfully achieve their IT objectives; and 51 percent reported their organization participates in at least one health information exchange (HIE) in their area

Reaction: “HIMSS is no longer a group gathered at basecamp listening to tales of those who returning from the HIT summit. Rather, it is a cycling race—there are strong teams who lead, a vast peloton following, and casualties left behind. Discussions at HIMSS are now about how to get to the finish line faster, with analytics the next hill to climb.”—Harry Greenspun, M.D., Senior Advisor, Health Care Transformation and Technology, Deloitte Center for Health Solutions

Study: MA cuts could result in 11 percent decrease in enrollment

In February, CMS proposed a 1.5 percent pay cut to MA (Part C) plans based on a coding intensity adjustment. The analysis, based on earlier studies by Oliver Wyman, estimated the impact on MA premiums, including the 1.5 percent cut and the also impact of the health insurance premium tax (excise tax) that starts next year concluding an 11 percent decrease in enrollment and an average loss of benefits valued at $2,200 per enrollee, compared with an estimate of what would have been the case if the health care law hadn’t been enacted (American Action Forum). Note: the GAO released a report last week that said if CMS made GAO-recommended changes to the coding intensity adjustment, it would save $3.2 billion to $5.1 billion from 2010 to 2012.

Chamber of Commerce encourages members to oppose tax on insurance plans

Invitation to March 6 webinar hosted by the U.S. Chamber of Commerce:

“To Members of the Employee Benefits and Labor Relations Committees:
Please join the United States Chamber of Commerce and health policy experts for a webinar “What is the Health Insurance Tax? A Tax on Coverage” on how this new tax on health insurance will inevitably burden employers, consumers and state and federal budgets. The initial $8 billion tax in 2014 will increase to $14.8 billion by 2018 and continue to increase in future years.”

AHIP study: Medicaid managed care plans provides higher quality care, better value for taxpayers

Medicaid managed care plans are enhancing patients’ quality of life, improving health outcomes, and providing better value for beneficiaries per a report America’s Health Insurance Plans (AHIP) released last week. Highlights:

  • In 2011, approximately 29 million people—more than half of all Medicaid beneficiaries—were enrolled in a Medicaid health plan.
  • From 2010-2011, enrollment in Medicaid health plans grew at nearly twice the rate of total Medicaid enrollment (9 percent compared to 4.6 percent).
  • A Pennsylvania health plan comprehensive foster care outreach program increased the proportion of foster children receiving annual well-child visits by 48 percent.
  • Patients in Louisville, Kentucky saved an estimated 30 percent in medical transportation costs as a result of a new, more effective 911 call center first created with a health plan grant that has since become a permanent city program.
  • A Minnesota health plan increased the proportion of dually eligible beneficiaries independently in the community from 40 percent to 71 percent in six years as a result of comprehensive support from care coordinators who assist them with all of the medical, social, and behavioral health services they need.

(Source: AHIP, “Innovations in Medicaid Managed Care,” March 2013)

Coalition proposes tax on sugary drinks

The National Coalition on Health Care (NCHC) released a proposal to tax sugary beverages (i.e., soda, sports drinks, energy drinks) vis-à-vis a penny-per-ounce excise tax on any beverage that has caloric sweetener. Highlights:

  • Sugary drinks account for nearly 50 percent of the added sugar consumed by Americans.
  • More than any other food type, sugary drinks contribute to increased risk for obesity, diabetes, and other serious health problems in both adults and children.
  • Thirty-four states and D.C. currently have a sales tax on added-sugar drinks of 1 percent-7 percent of the purchase price, but research indicates this is not enough to decrease consumption.
  • Excise taxes would be more effective in discouraging consumers from buying sugary beverages than sales taxes; since excise taxes are not linked to the price of the drink, it would prevent consumers from buying cheaper brands with an equal or higher quantity of added sugar.
  • Consumers would be more likely to see the higher price of the sugar-sweetened beverage once manufacturers include the cost of the tax in the base sale price; in order to avoid a sharp price increase, manufactures would have to decrease the amount of caloric sweetener added to the beverage.

A recent estimate of a one-cent per ounce tax on sweetened beverages could produce $150 billion over ten years—above the projected $138 billion cost of repealing the sustainable growth rate (SGR).

(Source: NCHC, “Understanding the Case for Taxing Sugar-Sweetened Beverages,” February 2013)

Study: hospitals feel brunt of state Medicaid cost containment efforts

In FY 2012, states froze Medicaid payments to hospitals in 23 states and reduced payments in 16 states. By comparison, nursing homes freezes were imposed in 16 states and reduced in 12 states. (Source: Kaiser Commission on Medicaid and the Uninsured, October 2012)

FDA rejects hot flash medications

In two unusually strong votes (12-2 and 10-4), outside advisors to the FDA disapproved clearance for two medications for post-menopausal women determining the drugs offered only marginal benefit vs. currently available treatments.

Pfizer gets extension of patent for Celebrex

Pfizer was granted an 18-month extension to December 2, 2015 for the painkiller by the U.S. Patent and Trademark Office last week for treatment of “osteoarthritis and other approved conditions” with celecoxib, its active ingredient.

FDA initiates surprise inspections of compounding pharmacies

The FDA began conducting “surprise” safety inspections of compounding pharmacies February 19 in response to the meningitis outbreak associated with the New England Compounding Center that killed 48 people and made 666 people sick. Due to budgetary restrictions, the FDA is only targeting facilities that are “high risk.” To date, the agency has conducted inspections in 11 states finding 39 safety deficiencies across four facilities, and plans to target 30 additional facilities over the next two months.

Physician payment reform recommendations released

Last week, the National Commission on Physician Payment Reform—chaired by University of California Professor Steven Schroeder and former Senate Majority Leader Bill Frist (R-TN)—issued the following recommendations to reduce health care costs and improve quality of care:

Principles to guide payment reform Recommendation for reform The Commission's explanation of its  recommendations
Payment reform should decrease rate of growth in total per capita expenditures and improve efficiency, effectiveness, and quality of care delivery systems.
  • Over time, payers eliminate stand-alone FFS payment to medical practices.

The U.S. spends 17.9% of its gross domestic product (GDP) on health care or $8,000 per person annually, due the current payment system.
  • The transition to an approach based on quality and value starts with the testing of new models of care and incorporating them into increasing numbers of practices, with the goal of broad adoption by the end of the decade.

Changing the system requires time; the Commission estimates five years. The current system causes number of problems and encourages negative behavior.
Payment reform should encourage the routine delivery of evidence-based care and discourage inappropriate care.
  • FFS will remain an important mode of payment, even as the nation shifts to fixed payment models, it will be necessary to continue recalibrating FFS payments.

Payments to physicians must reward behavior that improves quality, care coordination, and cost-effectiveness vs. improper care that does not add benefits to the patient.
  • Insurers should increase the value placed on preventive health and wellness care (evaluation and management codes), while freezing payment rates on procedural diagnosis codes, which cause incentives for, overuse.

Time spent on services performed under evaluation and management codes receive lower reimbursement rates than time spent on procedure codes, demonstrating a focus on reactive care instead of preventive and wellness care.
Payment reform should encourage care and manage those with severe medical problems, multiple social support needs and those who are traditionally medically disadvantaged.
  • The payment mechanism for physicians should be transparent, and reimburse physicians roughly equally for equivalent services regardless of setting.

Per a 2012 Medicare Payment Advisory Commission (MedPAC) report, there was an 80% increase in payment rates for a visit in an outpatient facility vs. freestanding office.
  • FFS contracts should include a component of quality -based performance reimbursement, sufficient to motivate substantial behavior change.

Pilot programs initiated by UnitedHealthcare and WellPoint have shown a significant lower complication rate with overarching positive results.
Recalibrating physician reimbursements should be done by considering total medical expenses. Supplementation of incomes of physicians with high proportion of evaluation and management services can come from a reduction in the utilization of marginal, harmful, ineffective, or unnecessary medical or other services.
  • Changes in FFS reimbursement encourage methods for the practices to form virtual relationships and thereby share resources to achieve higher care.


Many FFS models do not reimburse care that is not delivered in person. Remote communication proves to be an effective tool in improving health outcomes.
  • As the nation moves toward services that pay physicians through fixed payments, initial payment reforms must focus on areas where potential ways for cost savings and better quality.

The transition period towards fixed payments should begin with people that have multiple chronic conditions, since they have the largest potential for improved quality health and cost savings.
Payment reform should be transparent to patients and the public. Interested patients should have access to easily understood summary- level information about how physicians are paid.
  • Measures should be put into place to safeguard access to quality care, assess the adequacy of risk-adjustment indicators, and promote strong physician commitment to patients.

A physician’s commitment to his or her patient has traditionally been and remains paramount.
  • The SGR adjustment should be eliminated.

SGR is a short-term answer by setting a spending cap without considering volume and price of service, but does not adhere to a long-term solution.
Payment reform should reward patient- centered comprehensive care that includes management of transitions between sites of care and among providers of care.
  • Medicare should not cut just physician payments, but look for savings from reductions in inappropriate utilization of Medicare services.

The $138 billion dollars needed to eliminate SGR can be down by eliminating overutilization of medical services.

  • The Relative Value Scale Update Committee (RUC) should continue to make changes to become more representative of the medical profession as a whole and to make its decision making transparent.

RUC overvalues procedural and technological specialties and undervalues cognitive specialties.

(Source: Report of the National Commission on Physician Payment Reform, March 2013)

Research snapshots

New industry and peer-reviewed studies of note to health system transformers…

Study shows price transparency an issue for hospitals

Objective: to examine whether pricing information for a common elective surgical procedure, total hip arthroplasty (THA) is readily available from hospitals.

Methodology: researchers randomly selected two hospitals from each state (plus Washington, D.C.) that perform THA, as well as 20 top-ranked orthopedic hospitals according to U.S. News and World Report rankings. Using a standardized script, they contacted each hospital requesting the lowest complete “bundled price” (i.e., hospital and physician fees) for an elective THA for a patient without insurance paying out-of-pocket.

Key findings: “Nine top-ranked hospitals (45 percent) and 10 non–top-ranked hospitals (10 percent) were able to provide a complete bundled price. {The researchers} were able to obtain a complete price estimate from an additional 3 top-ranked hospitals (15 percent) and 54 non-top-ranked hospitals (53 percent) by contacting the hospital and physician separately. The range of complete prices was wide for both top-ranked ($12,500-$105,000) and non–top-ranked hospitals ($11,100-$125,798).” The authors concluded that it was difficult to obtain price information for THA, and that wide variation in the quoted prices was observed.

(Source: Jamie Rosenthal, et al, “Availability of Consumer Prices From U.S. Hospitals for a Common Surgical Procedure,” JAMA Intern Med, March 2013)

My take: hospital pricing is tricky since much about a patient’s risks and complications might not be known before a price is estimated, but that’s no excuse for not providing guidance via examples of costs based on a certain set of common signs, symptoms, risk factors, and co-morbidities.

EHR alerts to physicians often overlooked, information overload cited

Objective: to examine the “sociotechnical” predictors of missed test results in the setting of EHR-based alerts.

Methodology: researchers conducted a cross-sectional survey of VA primary care practitioners (PCPs); representing multiple complex facets of EHR-based test result notification to examine perceptions of EHR notification software, its ease of use, content of alerts PCPs received, EHR usability, and their impact of practice workflow.

Key findings: “Of 5001 PCPs invited, 2590 (51.8 percent) responded, the median number of daily received was 63; 86.9 percent perceived the quantity excessive, and 69.6 percent said they were not manageable. Over half (55.6 percent) reported that the EHR notification system as currently implemented made it possible for practitioners to miss test results. Almost a third (29.8 percent) reported having personally missed results that led to care delays.” Study data suggests that PCPs using comprehensive EHRs are vulnerable to information overload, which might lead them to miss important information—an association between usability and patient safety in the context of missed results.

(Source: Hardeep Singh, et al, “Information Overload and Missed Test Results in Electronic Health Record–Based Settings,” JAMA Intern Med, March 2013)

My take: the result is not a surprise: an effective care management model in which the EHR system is effectively integrated in team-based work flow shared by nurses and health coaches is key. It’s not about how the physician relates to the alerts; it’s about how the team responds.


“`Big data’—the vast quantity of information now available thanks to the internet, and which can be manipulated in ways never before possible—is becoming a backbone of corporate performance and economic growth. Yet its value isn’t well understood…The value of information captured today is increasingly in the myriad of secondary uses to which it is put—not just the primary purpose for which it is collected. …Big data poses a challenge to companies, as the Internet did a decade ago. In some cases, older firms are better positioned because they already have the data. Yet to reap these rewards, this data needs to be treated as an economic asset. If not, we are condemned to confirm the old quip that a cynic knows the price of everything and value of nothing.”

—Kenneth Cukler and Viktor Mayer-Schonbeger, The Wall Street Journal, “The financial bonanza of Big Data,” March 8, 2013

“Cars are one of the most expensive things most people ever buy, so today’s auto buyers have easy access to information on quality, reliability, and price. Empowered consumers can keep the prices of cars down and quality up. On the other hand, shopping for another one of the most expensive things most people ever buy—health care procedures such as colonoscopies or hip replacements—just doesn’t work. Prices are shrouded in secrecy. People with typical employer insurance have little incentive to look for a good deal. Insurers negotiate prices with providers. The uninsured, meanwhile, can face outlandish prices no matter where they turn, and they have almost no leverage.

This dysfunctional system works fine for providers and insurers, but the disconnect between consumers and providers creates a situation that is driving up health costs—and insurance premiums—at a rapid unsustainable pace...

Big hospitals and insurers worry that divulging prices could erode their competitive edge. But the money they make from hiding charges and discouraging comparison shopping comes from the pockets of patients, taxpayers, and employers. That’s not the way markets are supposed to work.”

—USA Today Opinion, “Our View: Lift the shroud over health care pricing,” March 6, 2013

“Properly harnessed, the right data can indeed be an organization’s new oil. But it is important not to lose sight of two fundamental points. First, the analytic initiatives ultimately do not begin with data; they begin with clearly articulated problems to be addressed and opportunities to be pursued. Second, more data does not guarantee better decisions. But the right data—properly analyzed and acted upon—often does. Organizations that lose sight of these principles risk experiencing big data not as the new oil, but as the new turmoil.”

—Guszcza et al, Deloitte Review, “Too Big to Ignore: When does Big Data provide Big Value?” Issue 12, 2013

“If [a de-funding amendment] gets onto the bill ... I will vote for a continuing resolution, even if it’s temporary, because it does something permanent and that is de-fund this health care bill, this ObamaCare bill that is going to be an absolute disaster for the American economy.”

—Senator Marco Rubio (R-FL), joining Senators Ted Cruz (R-TX) and Mike Lee (R-UT), March 7, 2013

“More than a dozen times a day, doctors sew up patients with sponges and other surgical objects mistakenly left inside. It’s a deadly, yet easily avoidable, phenomenon.”

—Peter Eisler, USA Today (Page one headline and feature story), “What surgeons leave behind,” March 8, 2013

Fact file

  • Employer-driven transparency: percentage of employers currently providing transparency around costs and outcomes for local physicians and hospitals as a core strategy to reduce or manage health care costs. (Source: 2012 Deloitte Survey of U.S. Employers, Deloitte Center for Health Solutions, July 2012)
    Total 19%
    101-999 employees 17%
    Nondefense discretionary 20%
    1,000-2,499 employees 29%
    2,500 employees 37%
  • February employment report: of the 236,000 jobs added in February, 32,000 (13.6 percent) were in health care services—substantially above 13,000 added in January. Ambulatory health care services added 13,700, hospitals added 8,900, and home health care added 6,100. The U.S. Bureau of Labor Statistics (BLS) reported unemployment at a four-year low of 7.7 percent in February. (Source: BLS, March 8, 2013)
  • Physician signing bonuses: average signing bonus for physicians decreased from $24,800 in 2007-2008 and 2008-2009 to $23,388 in 2011-2012; average relocation allowance decreased by $400 between 2010 and 2011. Homes. (Source: Merritt Hawkins)
  • Angry doctors: 3 percent-5 percent of physicians engage in angry and disruptive behaviors, often directed at hospital staff. According to a survey of 842 hospital administrators regarding disruptive and angry behaviors by doctors: 71 percent reported monthly occurrences; 11 percent noted daily disruptive behavior; 99 percent felt that this type of behavior had a negative effect on patient care; and 21 percent believed patient harm was a result. (Source: American College of Physician Executives; The Washington Post, “How to curb out-of-control doctors,” March 4, 2013)
  • Consumer borrowing: increased 2.4 percent in 4Q 2012—highest quarterly increase since 2008; improvements in household values drove most growth—plus $450 billion net equity improvement in quarter. (Source: Federal Reserve)
  • Mobile health: 800,000 mobile apps in Apple’s apps store; 80 generated more than $1M in revenue in Q4 2012. (Source: Ben Fox Rubin, The Wall Street Journal, “Few New App Ideas, Even Fewer Hits,” March 8, 2013) People spend two hours/day on mobile apps: 43 percent on games, 23 percent social networking, 10 percent entertainment, 10 percent utilities, 2 percent productivity, 2 percent news, 7 percent other. (Source: Flurry Analytics, November 2012)
  • Veterinary medicine: salaries have decreased 13 percent from 2000-2010 to average $45,575 (inflation adjusted); vet school tuition has increased 35 percent to $63,000/year; no shortages anticipated in 2024 despite increase in number of pets. (Sources: Association of American Veterinary Medical Colleges, American Veterinary Medical Association)
  • C-sections: range of Caesarean section (C-section) rates at hospitals is 7 percent to 70 percent of deliveries; average is 33 percent of all births in 2011 vs. 21 percent in 1996. (Source: Health Affairs examination of 800,000 deliveries in 593 hospitals)
  • Gun violence and Medicaid costs: in 1992, medical care costs for fatal gunshot: $14,500 ($3 billion for 171,800 deaths and injuries) vs. $28,700 in 2010 ($3.2 billion for 105,177 death and injuries); Medicaid covers 28 percent of hospital admissions for firearms injuries, 37 percent of hospital days, and 42 percent of total costs. (Source: Pacific Institute for Research and Evaluation)
  • Federal employee and military benefits costs: 9 percent of GDP in 2023; 38 percent of total federal budget, up 25 percent in 40 years. (Source: Congressional Budget Office [CBO])
  • College funding from states: state and local financing for higher education decreased 7 percent to $81.2 billion in 2012; 47 percent of college funding now from student tuition and fees, up from 23 percent in 1987. (Source: State Higher Education Executive Officers Association)
  • Mobile devices: as of January 2013, time spent per day per adult: 88 minutes; 62 percent of full-time workers own a smart phone vs. 48 percent May 2011; 33 percent own a tablet vs. 12 percent in May 2011. (Source: eMarketer)
  • Online adults: 18-29 year olds (97 percent), 30-49 (91 percent), 50-64 (77 percent), 65+ (53 percent). (Source: Pew Research Center)
  • Employer-sponsored insurance: employees contribute 42 percent more for health plan coverage than they did five years ago, compared to a 32 percent increase for employers. The total employee cost share (including premiums and out-of-pocket costs) increased from 34 percent in 2011 to 37 percent in 2013; employers expect average total costs for active employees to reach $12,136 in 2013, up 5.1 percent from $11,457 in 2012. (Source: Towers Watson, “Towers Watson/NBGH Employer Survey on Purchasing Value in Health Care,” March 2013)
  • Life Span: the average life span for babies born today: 81 years for girls, 76 for boys. This five-year difference has become smaller than previously reported, indicating that length of life for men and women is not increasing at the same rate. (Source: David Kindig, “Even As Mortality Fell In Most U.S. Counties, Female Mortality Nonetheless Rose In 42.8 Percent Of Counties From 1992 To 2006,” Health Affairs, March 2013)
  • Energy drinks: 20,000 emergency room visits in 2012 could be attributed to energy drink consumption, which is double the number of visits in 2007. Energy drinks have the same amount of sugar as two to three regular-sized candy bars, as well as approximately 240 mg of caffeine (six- to seven-times the caffeine in a soda; two- to three-times the caffeine in an 8 oz. coffee). (Source: U.S. Substance Abuse & Mental Health Services Administration, “Update on Emergency Department Visits Involving Energy Drinks: A Continuing Public Health Concern,” January 2013)
  • Exercise and sleep: 56 percent-67 percent of vigorous, moderate, and light exercisers vs. 39 percent of those who did not exercise reported sleeping well the night before the survey; 76 percent-83 percent of exercisers vs. 56 percent of non-exercisers reported good nights of sleep for two weeks prior to the survey. (Source: National Sleep Foundation, “National Sleep Foundation Poll Finds Exercise Key to Good Sleep,” March 4, 2013)
  • AD/HD findings: of 232 AD/HD-diagnosed children born between 1976 and 1982: now, 29 percent still have AD/HD; 81 percent also have a secondary psychiatric disorder; 47 percent who no longer have AD/HD have another psychiatric disorder. (Source: William Barbersi, “Mortality, ADHD, and Psychosocial Adversity in Adults With Childhood ADHD: A Prospective Study” Pediatrics, March 2013)
  • Generic drugs: with the sale of generic drugs, spending has decreased on many common treatments for the first time in the last two decades; this reduction is counteracted by an increase in specialty drug spending, resulting in a total spending increase of 2.7 percent in 2012. (Source: Reuters, “Generics brought down common drug prices in 2012: Express Scripts,” March 5, 2013)
  • School food and drink regulations: new regulations for snacks and drinks in schools, which involve limits to serving sizes and calories, will come with a $127 million cost and paperwork that is expected to take 926,000 hours, according to a report from the American Action Forum. (Source: Fox News, “Regulation Nation: New federal rules for school food will cost millions, group says,” March 5, 2013)
  • American diet: every year, the typical American consumes 33 lbs. of cheese and 70 lbs. of sugar; experts suggest that this tendency has caused the obesity epidemic and health risks seen in the U.S. today. (Source: CNN Health, “Our obsession with sugar, salt and fat,” March 1, 2013)

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