Health Care Reform Memo: August 22, 2011 Deloitte Center for Health Solutions publication

The health care reform memos are issued on a weekly basis, highlighting news from the previous week's activities in the administration and implications for the C-suite and various stakeholder groups.

My take 

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

Last week, my daughter graduated from the Vanderbilt School of Nursing’s Advanced Practice Nursing (APN) program. Erin joins the ranks of the nation’s 266,000 APNs who will work in settings across the spectrum—retail health, employer clinics, hospitals, long-term care facilities, private practices, and in public health.

As I mingled with her peers, their optimism struck me. They are not obsessed with health reform, the stock market meltdown, or the world’s economic uncertainty. They do not expect to be wealthy nor do they think it is an appropriate fixation for any health professional. It’s about care for people, not patients. It’s hard work, frustrating when people act irresponsibly and rewarding when reflected as a purposeful career.

According to the American Academy of Medical Colleges (AAMC), the physician shortage will be 63,000 by 2015 and 91,000 by 2020. In the same timeframe, the Congressional Budget Office (CBO) expects health costs to increase at least 5.8 percent per year outpacing the gross domestic product (GDP) by two percent annually. Per the Affordable Care Act (ACA), at least 32 million previously uninsured will obtain health insurance coverage leaving 25 million without coverage.

The reality is that the unsustainable costs of and increased demand for health care will drive systemic changes in the industry to balance efficiency and effectiveness. The health care workforce—15 million strong—will be pressured to do more with less and find ways to innovate. The epicenter of care will shift from facilities to homes, payment will change from fee-for-service (FFS) to value, therapies will transition from population-based blockbusters to personalized medicine, and decision-making about treatments will leverage information technologies involving physicians, nurses, health coaches, and consumers as accountable care teams.

Regrettably, tension about scope of practice and professional turf battles will continue, if not accelerate. Physicians believe they are best equipped to manage patient care and act as patient advocates; nurses want a meaningful role at the table and increased autonomy as health professionals. Both harbor strong beliefs in their untapped capacity to do better things for patients if given latitude by limitations beyond their control. And consumers will pressure for both increased collaboration and more transparency about their performance.

Like physicians, America’s 2.7 million nurses are reconsidering their career choice. Per the Institute of Medicine’s (IOM) The Future of Nursing: Leading Change, Advancing Health, the profession’s 30 percent dropout rate for first year nurses and 12 percent vacancy rate is a danger to the system’s viability.

Professional societies of every stripe will offer solutions to these workforce challenges and likely focus more on competing gilds than innovation among their own. The politics of health care workforce re-design have always defaulted to “I’m OK, you’re not” when imagining its solutions.

But for this weekend, I am satisfied knowing that young, smart kids with the right motives are entering the ranks of health professionals. These kids will likely not engage in a boisterous debate about health reform, economic recovery, and deficit reduction. They will be busy taking care of people. They are counting on policymakers and industry leaders to think rationally and selflessly as the industry transforms itself.

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

Implementation update

IRS releases branded prescription drug fee regulations

Monday, the Internal Revenue Service (IRS) released proposed regulations on the annual branded prescription drug fee for drug manufacturers and importers enacted under ACA Section 9008. The regulations generally follow previous IRS guidance on the fee explaining how the fee is calculated and notice of the preliminary fee calculation, a dispute resolution process to allow covered entities to submit error reports relating to the preliminary fee calculation, and a notice of the final fee calculation. The regulations also address how to pay the fee, how the fee is treated for tax purposes, and how to make refund claims.

Note: per ACA, the aggregate sector fee is $2.5 billion for 2011, $2.8 billion for 2012 and 2013, $3 billion for 2014-2016, $4 billion for 2017, $4.1 billion for 2018, and $2.8 billion for 2019 and years thereafter. For additional information, see Deloitte Tax News and Views.

Proposed guidance for summary of benefits disclosures released

Last week, the U.S. Department of Health and Human Services (HHS), the IRS, and the Department of Labor (DOL) issued proposed standards for group health plans and health insurance issuers on compiling and providing a summary of benefits and coverage (SBC) as required by Section 2715 of the Public Health Service (PHS) Act, added by ACA Section 1001. The proposed regulations address who provides an SBC, who receives an SBC, and when and how plans will provide an SBC. Additionally, the regulations include a proposed uniform glossary to help in making the disclosures. Along with the proposed regulations, the agencies separately published a proposed SBC template, instructions, sample language, and a guide for coverage example calculations to help in making the disclosures. Comments on the material are due by October 21, 2011.

Legislative update

OMB: FY 2013 federal agency budget requests should be at least five percent below 2011 discretionary funding

Last week, the Director of the Office of Management and Budget (OMB) sent a letter to federal agency and department heads providing guidance on fiscal year (FY) 2013 budget requests. The letter states, “unless your agency has been given explicit direction otherwise by OMB, your overall agency request for 2013 should be at least five percent below your 2011 enacted discretionary appropriation…your 2013 budget submission should also identify additional discretionary funding reductions that would bring your request…at least ten percent below your 2011 enacted discretionary appropriation.”

State watch

HHS awards grants for CHIP outreach efforts

Thursday, HHS announced $40 million in grants to 39 states, community health centers, and school-based organizations to identify and enroll children eligible for Medicaid and the Children’s Health Insurance Program (CHIP). The two-year grants are authorized under the Children’s Health Insurance Program Reauthorization Act (CHIPRA) of 2009.

Note: a report released by the Robert Wood Johnson Foundation and Urban Institute found that the number of children eligible for Medicaid and CHIP increased by an estimated 2.5 million nationwide between 2008 and 2009. Rates of participation also increased, from 82.1 to 84.8 percent nationally.

HHS announced ACA grants to strengthen state and local health departments

Monday, HHS announced $49 million in grants to improve the quality of care and infrastructure at state and local health departments. HHS awarded $35.8 million from the Prevention and Public Health Fund (created under ACA Section 4002) and $3.8 million from the Centers for Disease Control and Prevention (CDC) to increase epidemiology, laboratory, and health information systems capacity at health departments in all 50 states, two territories, and the six largest local jurisdictions. The funding is double the spending for the same programs in 2010.

State round-up

The Maryland Health Benefit Exchange board selected Rebecca Pearce to lead its exchange. Pearce has worked for Kaiser Permanente as the director of benefit exception administration since 2008.

Industry news

Study: physician medical liability exposure

The risk of being sued for malpractice in any given year ranges from 2.6 percent for psychiatrists to 19.1 percent for neurosurgeons. Over a lifetime, the majority of physicians across all specialties can expect to face at least one lawsuit according to an analysis of American Medical Association (AMA) data. Other highlights of the study:

• Physicians in five least-sued specialties—psychiatry, pediatrics, family medicine, and dermatology—have a 75 percent chance of being sued by age 65. vs. physicians in the five most-sued specialties—neurosurgery, thoracic cardiovascular surgery, general surgery, orthopedic surgery, and plastic surgery—who have a 99 percent chance.
• On a yearly basis, 7.4 percent of all physicians have a malpractice claim: 22 percent of these claims lead to a payment by the physician. Through age 65, physicians in the low-risk specialties run a 19 percent risk of facing a suit that pays off for the plaintiff, compared to 71 percent risk for the high-risk specialties.
• The size of average payments ranged from $117,832 for dermatologists to $520,923 for pediatricians. However, payment variability and the risk of the specialty are not related. For example, neurosurgeons are roughly six times more likely to face a malpractice suit than pediatricians are, but their average payment of $344,811 is substantially lower.

(Source: Anupam B. Jena, M.D., Ph.D., Seth Seabury, Ph.D., Darius Lakdawalla, Ph.D., and Amitabh Chandra, Ph.D., “Malpractice Risk According to Physician Specialty”, New England Journal of Medicine, 2011; 365:629-63)

Telemedicine use in rural health necessary to reduce cost: CMMI analysis

During the July 27 American Telemedicine Association (ATA) first annual policy summit, the Centers for Medicare & Medicaid Services (CMS) Center for Medicare and Medicaid Innovation Director Richard Gilfillan noted that increased use of telemedicine, self-care hotlines, and home care guidelines reduced costs by 20 percent in rural settings.

Note: the ATA predicts five million newly insured individuals will be in rural settings.

Advanced business analytics used to identify “drug repositioning” opportunities

Stanford researchers used a sophisticated business analytics model to compare 164 classes of drugs contrasting drugged and non-drugged tissue samples to identify changes in the genetic response opposite the progression of the disease. Its data pointed to several potential new applications (purposes) for use by existing drugs used for other diseases, thus offering pharmaceutical companies a different pathway to identifying and developing drugs from compounds that are FDA-approved. The study was published Wednesday in Science Translational Medicine.

OIG: drug rebates reduce Medicaid and Medicare spending

A report by the Office of the Inspector General (OIG) of HHS found that prescription drug rebates reduce costs for both Medicare Part D and Medicaid, although higher Medicaid drug rebates lead to lower costs in Medicaid compared to Medicare Part D. The study found that in 2009 although Medicare Part D sponsors and state Medicaid agencies paid pharmacies similar amounts for the 100 brand-name drugs reviewed in the study, the Medicaid unit rebate amount for brand-name drugs was higher than Part D unit rebate amount. As a result, Medicaid collected nearly two-thirds as much as Part D in rebates for the drugs ($2.9 billion vs. $4.5 billion), although spending was about one-fourth than Part D spending ($6.4 billion vs. $24 billion). In 2009, Medicaid rebates also reduced spending for the drugs under review by 45 percent (from $6.4 billion to $3.5 billion), while rebates reduced Part D spending by 19 percent (from $24 billion to $19.5 billion).

FDA releases guidance for medical device premarket review of benefits-risk assessment

Monday, the FDA released industry draft guidance listing factors to consider when determining benefit-risk during premarket review of medical devices to “improve the predictability, consistency, and transparency of the premarket review process.” Factors include measures for effectiveness, measures and safety of devices, degree of certainty of the benefits and risks, characterization of the disease, patient tolerance for risk, availability of alternative treatments or diagnostics, risk mitigation, and novelty of technology. FDA will accept comments on the guidance until November 14, 2011.

HHS announces initiatives to improve access to physicians and health IT in rural communities

Tuesday, HHS announced initiatives to improve access to physicians in rural communities. The initiatives include HHS guidance to help critical access hospitals (hospitals with 25 beds or fewer) access the National Health Service Corps loan repayment program for physician recruitment and a new initiative to allow rural hospitals and providers to participate in capital loan programs to purchase software and hardware for health IT.

Report: SNF Medicare payments reduced by $79 billion under recent regulations

A report by Avalere finds that CMS FY 2012 Medicare payment regulation for skilled nursing facilities (SNFs) could reduce Medicare payments to SNFs by $79 billion over ten years. The $79 billion includes $60 billion in estimated reductions from the 12.6 percent resource utilization group (RUG) recalibration/parity adjustment and $19 billion in payments decreases due to group therapy and reporting changes. The study also finds that ten states will experience the greatest reduction in economic activity under the FY 2012 rule: California, Florida, Texas, New York, Illinois, Ohio, New Jersey, Pennsylvania, Massachusetts, and Michigan. The Alliance for Quality Nursing Home Care funded the study.

Quotable

“Our country owes more than $14 trillion. We borrow $3.01 billion every day. We borrow 39 cents for every buck we spend. Anyone who says with a straight face that we are going to get rid of debt like that and not touch revenue, defense spending, Medicaid, Medicare and address the solvency of Social Security is either goofy or a radio talk show host…I’m a real live, real conservative Republican…Many conservatives quote Ronald Reagan...He raised taxes 11 times in his eight years. He did it to make this country run. Reagan was a master of compromise.”

 – Alan Simpson, Co Chair, National Commission on Fiscal Responsibility and Reform, Bloomberg Businessweek, August 4, 2011

“The biggest problem with health care isn’t with insurance or politics. It’s that we’re measuring the wrong things the wrong way”

 – Kaplan R.S., Porter M.E. “How to Solve the Cost Crisis in Health Care” Harvard Business Review September 2011

“Tax policy after 2012 is a large part of what the election of 2012 is going to be about.”

 – Clint Stretch, National Tax Policy Leader, Deloitte Tax, Forbes, August 22, 2011

Fact file

• Fifteen states waived the CMS requirement that APN anesthesiologists be required to have physician supervision when administering sedation to a patient. Issues are prescribing and direct payment. (Source: CMS)
• Fifteen minutes of daily exercise can add three years to an individual’s life. (Source: The Lancet, August 16, 2011)
• Health care revenue rose 5.6 percent in the year ending in June, almost two percent slower than the prior year. (Source: Standard & Poor’s Healthcare Economic Indices)
• Seventy-eight percent of the U.S. population has access to the internet including 53 percent of those older than 65: nine percent use it for searching for information about physicians, six percent for getting their lab results (Source: Thomson Reuters; 2010 Deloitte Pulse Survey)
• The mark-up price of shortage drugs average around 650 percent of the normal value. (Source: Premier Healthcare Alliance)
• Forty-two percent of U.S. small employers offered medical insurance in 2009 vs. 47 percent in 2000. Premiums for small employers increased 82 percent in the same period. (Source: The Economist August 14, 2011)
• Employers project employee health benefit costs will increase 7.2 percent next year; nearly two-thirds expect to increase employee share of premiums. (Source: National Business Group on Health survey)
• The worldwide market for cloud computing services is $89.4 billion in 2011; health care represents 4.1 percent of the total. (Source: Gartner)
• While total spending for home health increased 123 percent from 2000 to 2009 to $18.9 billion. FFS users of home health services increased 27 percent and the numbers of visits increased 47 percent. (Source: Medicare Payment Commission Report to Congress, 2011)
• Expected cost increases in 2014 resulting from ACA implementation: prescription drug coverage: 5.14 percent, physician services 5.8 percent, and hospitals 6.2 percent. (Source: CMS Office of the Actuary)
• Employment decreased 300,000 in the pharmaceutical industry in the past decade. (Source: Bureau of Labor Statistics)
• Projected health care spending in 2020: federal government (31 percent), state and local government (18 percent), private insurance/employers (25 percent) and consumers (26 percent). (Source: CMS data in Health Affairs July 28, 2011)
• Lobbying revenue for the first half of 2011: $1.65 billion—an 8.5 percent decrease from the same period in 2010. (Source: Center for Responsive Politics)
• Military health benefits cover 2.2 million Americans through TRICARE; average annual premium costs: $470, total cost to federal budget: $53 billion. (Source: CMS)
• In 2009, 237,000 tax filers had income of $1 million or higher and paid $178 billion in taxes vs. 390,000 in 2007 that paid $309 billion in taxes. (Source: IRS Statistics of Income 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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