Health Care Reform Memo: December 5, 2011 Deloitte Center for Health Solutions publication

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

My take

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

I used five different airlines last week to get into and out of six cities, ending the week on a short hop from Houston to Nashville on Southwest Airlines. Ironically, the news of the day was the bankruptcy filing by American Airlines as it seeks to restructure its debt and emerge stronger downstream.

I spend a lot of time on planes. I see differences in the demeanor of flight attendants, the quality of peanuts, and the predictability of on-time arrivals. I am dependent on the industry to provide safe, dependable travel, and the government to oversee its business practices to assure safe operations and fair competition.

Sound familiar? The health care industry is no less vital to the lives of many, and not just those who “travel” its clinics and hospitals. It is central to the commerce in every community employing more than 16 million to support the delivery of care or investigate the science of diagnosis and cure. Like the airline industry, ours is a labor intense, capital intense, and highly regulated collection of organizations large and small that “fly the planes” or support those that do with parts and services.

In 1978, the U.S. airline industry was deregulated. Competition for routes, gates, and access to the latest planes was the goal; the federal government stepped back but not out of the picture. The result: eight of the 12 U.S. airline companies that operated in 1978 no longer operate today as independent carriers (including: Braniff, TWA, Eastern, Pan Am, Western, Northwest, National, and Continental). Furthermore, 18.1 percent of miles flown by U.S. airline companies today are by companies that did not exist when deregulation began, like Southwest. Per Massachusetts Institute of Technology’s (MIT) Airline Data Project, consolidation in the industry has steadily increased: the top five today fly 79 percent of the total miles flown versus 64 percent in 1978.

Consolidation seems a natural response in a competitive market wherein innovation in quality, service, and price-value are critical success factors. Increased consolidation in our industry is already playing out: it’s understandable. Health care is arguably inefficient due to its fragmentation—5,800 hospitals, two-thirds operated independently; 700,000 physicians, 90 percent operating in single-specialty settings; 4,500 bio-pharma companies competing for the next breakthrough in therapeutics; 6,000 device companies, 80 percent with fewer than 200 employees; 400 companies selling electronic health records (EHR) systems; 1,300 health plans; and so on.

Like most Monday’s, I am on a plane this morning. The coffee will not be very good due to the onboard water filtration system. Virtually every seat will be full as the industry shed capacity to reduce costs and compete. I don’t fear ending up in the wrong city because the industry’s technologies would disallow my boarding. And I expect an uneventful outcome—safe landing—because my expectation is the cabin crew, equipment maintenance, and air traffic control system are working collaboratively to get me there though sometimes a bit late. And the cost for travelling will continue to mystify me—seems more about when I fly and where than how far—go figure!

Unlike the airlines, I do not expect to use the health system directly this week. I hope to end the week in Washington, DC without incident, and the air travel industry will have served me well. Should I need the health care industry, my expectation is no less optimistic. Its major actors (doctors, hospitals, allied health professionals), the technologies and facilities they use, and the administrative processes that frame their work will be there, if I need them. Its costs (no less confusing than my airfares), service, and quality are highly variable for those that are prone to explore or feel they have a choice. And it is changing: consolidating, just as the airline industry did, to compete and survive.

My expectations for both industries are similar—positive outcomes without incident. In each, there is huge room for improvements to align price and value and, no doubt, continued consolidation as both industries adjust to their “new normal.” Safe travels! Safe health!

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

Note: This Thursday (December 8^th), industry consolidation will be among the seven themes discussed in Deloitte’s national Dbrief webcast from New York City, U.S. Health Care: What’s in Store for 2012, featuring Andrew Vaz (National Managing Director, Life Sciences & Health Care, Deloitte Consulting LLP), Ken Weixel (National Managing Director, Life Sciences & Health Care, Deloitte & Touche), and Paul Keckley, Ph.D. (Executive Director, Deloitte Center for Health Solutions). For more information, please view the Dbrief website.

Implementation update

HHS releases final MLR rules; 64 percent of insurers would meet MLR requirements

Friday, the U.S. Department of Health and Human Services (HHS) released interim final rules for medical loss ratio (MLR) rebates and requirements per Affordable Care Act (ACA) Section 1001. ACA requires large group plans that spend less than 85 percent of premium revenue on clinical services and quality and small group and individual market plans that spend less than 80 percent to provide rebates to enrollees starting in 2012 on or before August 1 of each year. Note: HHS did not exempt agents and brokers from the final MLR calculation despite the National Association of Insurance Commissioner’s (NAIC) recommendation. Key changes:

• Tax free MLR rebates: allows employees in group health plans to receive rebates in a way that is not taxable, instead of insurers sending checks that could be taxed.
• Transparency: proposes that consumers receive a notice, showing not only the rebate amount but also explaining what the insurer’s MLR means regardless of whether there is a rebate, and how the insurer’s MLR has improved under the ACA. Data on mini-med plans (i.e. limited benefit plans) and ex-patriate plans will be publicly posted in spring 2012.
• Calculation changes: allows ICD-10 conversion costs of up to 0.3 percent of an issuer’s earned premium in the relevant state market to be considered quality improvement activities for the 2012 and 2013 MLR reporting years. Also allows an issuer to deduct the higher of either the amount paid in state premium tax or actual community benefit expenditures up to the highest premium tax rate in the state from earned premiums.
• Adjustments for mini-med plans and ex-patriate plans: phases down special circumstances adjustment for mini-med plans down from 1.75 in 2012 to 1.5 in 2013 to 1.25 in 2014. Mini-med plans will be banned due to ACA Section 1001 which prohibits annual limits starting in 2014. The final regulations keep the ex-patriate plan multiplier adjustment at 2.0.

The rules follow a report released Wednesday by the Government Accountability Office (GAO) finding that in 2010 at least 64 percent of insurers covering 77 percent of lives would have met or exceeded the 2011 MLR requirements. The report noted: “A higher percentage of insurers in the large and small group markets met or exceeded the standards compared to those in the individual market. Insurers in the individual market averaged higher non claims expenses, including expenses for brokers’ commissions and fees, than those in other markets. The combined effect of the credibility adjustment and the new components of the PPACA MLR formula resulted in greater increases in average adjusted PPACA MLRs for individual and small group market insurers compared to those in the large group market. The average adjusted PPACA MLRs for individual, small group, and large group market insurers in 2010 were 7.5, 6.5, and 4.8 percent higher, respectively, than the average MLRs for these markets calculated without the credibility adjustment and using the traditional MLR formula. In addition, PPACA required insurers to report MLRs by state, and we found a wide range of reported MLRs for multistate insurers.”

Source: GAO, “Private Health Insurance: Early Indicators Show That Most Insurers Would Have Met or Exceeded New Medical Loss Ratio Standards,” October 31, 2011) Comments on the rule are due February 6, 2012.

House Energy and Commerce Committee votes to repeal CLASS

The House Energy and Commerce Committee advanced legislation to repeal the Community living assistance services and support (CLASS) long-term care insurance program per ACA Section 8002. HHS recently halted implementation of the program which was not actuarially sound. Next, the bill will head to the House floor.

HHS announces contractor to build the federal health insurance exchange

The Center for Consumer Information and Insurance Oversight (CCIIO) selected CGI Federal Inc. to build the federal health insurance exchange per ACA Section 1311. The contract’s estimated total value is $93.7 million over a two-year base with three, one-year option periods.

Medicare releases competitive bidding guidance for medical equipment and supplies

Wednesday, the Centers for Medicare & Medicaid Services (CMS) announced operational details for Round 2 of its Medicare Competitive Bidding Program for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS). CMS also launched a program to help guide suppliers through the competitive bidding process.

Note: ACA Section 3109 expanded DMEPOS with estimated savings of $28 billion years over ten years. DMEPOS’s first phase was implemented for nine product categories in nine areas of the country on January 1, 2011, saving Medicare 35 percent compared to the Medicare payment fee schedule. Round 2 expands the program to 91 additional metropolitan areas. New prices are expected to be effective July 1, 2013. Registration for the Round 2 starts today, and the 60-day supplier bidding period will start late January of 2012.

CMS announces Medicare coverage for preventive services to reduce obesity

Tuesday, CMS announced that Medicare is adding coverage for preventive services to reduce obesity without cost sharing per ACA Section 1001. Coverage aligns with the Million Hearts initiative led by CMS and the Centers for Disease Control and Prevention (CDC) in partnership with other HHS agencies, communities, health systems, nonprofit organizations, and private sector partners across the U.S. to prevent one million heart attacks and strokes in the next five years. The key intervention is free counseling for Medicare enrollees who are obese.

Legislative update

“SGR fix” not fixed

Medicare physician payments are scheduled to be cut 27.4 percent January 1, 2012 per the sustainable growth rate (SGR) formula. For the 12^th time since 2001, it is likely Congress will circumvent the SGR in favor of a temporary patch. Several ideas were floated last week including a proposal from the House Ways and Means Committee that discussed a one-year payment fix with a 1 percent increase in pay. The Congressional Budget Office (CBO) estimates SGR pay fix options thru 2021 per below:

Note: the cliff mechanism would be used to override the projected 27.4 percent payment reduction in 2012 and would return the payment rate that would have been calculated in the year immediately following the override, adjusted for changes in the targets and payment rates. Under the cliff mechanism, the amount of spending in 2012 under a given payment policy would affect the calculation of the target and update for the following year.

State update

Survey: state revenues below pre-recession levels; Medicaid spending growth above average

Tuesday, the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO), released a survey concluding total state revenues are below pre-recession levels (2007) though states have seen tax collection increases and reduced costs dropping 455,000 employees in the period. Highlights:

• States’ 2012 budgets include $667 billion in general fund expenditures—a 2.9 percent increase from 2011 but below 2008 levels ($687 billion).
• For FY 2011, Medicaid is estimated to account for about 23.6 percent of total spending, the largest portion of total state spending. This represents about an estimated $398.6 billion and an increase of 10.1 percent over FY 2012.
• Medicaid enrollment increased 7.2 percent in FY 2010, 5.5 percent in FY 2011 and is estimated to increase 4 percent in FY 2012, representing a 17.7 percent increase in Medicaid enrollment over three years.
• Most states are cutting Medicaid spending via enrollment changes, stepped-up fraud detection, and managed care.

Source: NGA and NASBO, “Fall 2011 Fiscal Survey of States,” November, 2011.

State roundup

• In , CMS approved an additional 5 percent Medicaid payment cut for health care providers and hospitals in Arizona as part of Governor Jan Brewer’s (R) plan to balance the state’s FY 2012 budget.
• Monday, Indiana and Louisiana were denied requests for waivers to ACA’s MLR requirement by HHS’s CCIIO. Indiana requested an MLR of 65 percent for 2011, 68.75 percent for 2012, and 72.5 percent for 2013. Louisiana requested an MLR of 70 percent in 2011 and 75 percent in 2012. To date CCIIO has approved six MLR requests (Georgia, Iowa, Kentucky, Maine, Nevada, and New Hampshire), denied five (Delaware, Guam, Indiana, Louisiana, and North Dakota), and has yet to act on requests from Florida, Kansas, North Carolina, Oklahoma, Texas, and Wisconsin.
• Tuesday, HHS awarded $220 million in ACA funding through exchange establishment grants to 13 states: Alabama, Arizona, Delaware, Hawaii, Idaho, Iowa, Maine, Michigan, Nebraska, New Mexico, Rhode Island, Tennessee, and Vermont. All states received Level One funding except Rhode Island, the first state to receive Level 2 funding. HHS also extended the application deadline for Level One establishment grants from December 30, 2011 to June 29, 2012. Note: Forty-nine states and D.C. have received planning grants, and 45 states have consulted with consumer advocates and insurance companies. Thirteen states have passed legislation to create an Exchange.
• November 25, Governor Bob McDonnell (R) sent a report to the state legislature on the impact of the ACA on Virginia recommending the state create a “quasi-governmental” health insurance exchange to cover the 520,000 projected eligible people under the oversight of a 11-15 member appointed board.
• Arkansas’s state insurance commissioner announced that its health insurance exchange will be run by the federal government.

Industry news

HHS announces delay to Stage 2 meaningful use

Thursday, HHS announced that it intends to delay Stage 2 meaningful use attestation for physicians and hospitals that adopt EHRs under the Medicare and Medicaid EHR Incentive Programs per the Health Information Technology for Economic and Clinical Health (HITECH) Act. “…HHS intends to allow doctors and hospitals to adopt health IT this year, without meeting the new standards until 2014. Specifically, HHS intends to propose such an extension in the Stage 2 meaningful use Notice of Proposed Rulemaking (NPRM), which is scheduled to be published in February 2012”. The final rule is expected June 2012.

Background: three stages for meaningful use standards were included in HITECH (2009). Each eligible professional or hospital enters the program at the lowest stage and rises through an “escalator” of stages:

• Stage 1 (2011 and 2012) sets the baseline for electronic data capture and information sharing.
• Stage 2 (originally 2013, delayed to 2014) expands upon the Stage 1 criteria to encourage the use of health for structured exchanges of quality improvement data including electronic transmission of orders entered using computerized provider order entry (CPOE) and the electronic transmission of diagnostic test results.
• Stage 3 (expected to be implemented in 2015) will focus on promoting improvements in quality, safety, and efficiency leading to improved health outcomes via structured clinical decision support tools for providers and consumers.

Key facts per HHS:

• Over 135,000 providers have registered for a Medicare or Medicaid EHR Incentive Payment as of October 31, 2011, indicating their intent to adopt and meaningfully use EHRs, and over $1.2 billion in EHR incentive payments have been made through the end of October.
• Medicare has paid over $119 million in EHR incentives to eligible doctors and hospitals for meaningful use of EHRs.
• Medicaid has paid over $230 million in EHR incentives to eligible doctors, nurse practitioners, certified nurse-midwives, dentists, physician assistants, and hospitals for having adopted or meaningfully used EHRs.
• Medicare and Medicaid combined have paid over $880 million in EHR incentives to hospitals eligible for both incentive payments for having adopted or meaningfully used EHRs.
• 52 percent of office-based physicians report that they intend to take advantage of incentives provided through the Medicare and Medicaid EHR Incentive Programs. (Source: National Center for Health Statistics, National Ambulatory Medicare Care Survey, November 30, 2011)
• The percentage of physicians who have adopted EHRs in their practice has doubled from 17 to 34 percent between 2008 and 2011, with the percent of primary care doctors using this technology nearly doubling from 20 to 39 percent. (Source: National Center for Health Statistics, National Ambulatory Medicare Care Survey, November 30, 2011)

Note: HITECH authorized $27 billion over ten years (i.e. between about $44,000 and $63,750 per physician and up to $2 million per hospital) to support EHR adoption.

For more information, please contact: Mitch Morris, M.D., National Leader, Health Information Technology, Deloitte Consulting LLP.

ONC final rule finalizes processes for consequences for EHR accreditors’ misconduct

November 25, Office of the National Coordinator for Health Information Technology (ONC) released its rule for the removal the of accredited EHR vendors committing false, fraudulent, or abusive activities that affect the permanent certification program and for “failing to timely or adequately correct a performance violation.” A vendor will have up to 30 days to respond to ONC about a noncompliance notification. The regulations are effective December 27, 2011.

Note: In June, ONC selected the American National Standards Institute (ANSI) as the only ONC-AA.

Medicare open enrollment ends this week

Medicare open enrollment ends this Wednesday, December 7, 2011. In an announcement released November 28, CMS states, “…as beneficiaries look over their available plan options, they will see better value in the Medicare Advantage (Part C) and Prescription Drug (Part D) plan benefits…On average, Medicare Advantage premiums will be 4 percent lower in 2012 than in 2011.” Beneficiaries in the Medicare prescription drug coverage gap (i.e. “donut hole”) will continue to receive 50 percent discounts on covered brand name drugs per ACA Section 3301.

President announces $50 million in new funding to combat AIDs

Thursday, on World AIDS Day, the President announced that HHS will provide $35 million to the Health Resources and Services Administration (HRSA) to support state AIDS Drug Assistance Programs. The CDC estimates that 34 percent of HIV/AIDS patients do not receive consistent care and only 28 percent of HIV/AIDS patients have their HIV under control.

OECD: U.S. performs well on cancer care and screenings; not on hospital readmissions

The Organization for Economic Cooperation Development (OECD) released its sixth edition of “Health at a Glance” comparing health care quality and treatment measures for 34 developed countries plus Brazil, China, India, Indonesia, the Russian Federation, and South Africa. Notable comparative findings for 2009:

Source: OECD, “Health at a Glance”, November 23, 2011

Study: Medicare disease management pilot results suboptimal

Based on analysis of results from eight companies that participated in the Medicare Health Support Pilot Program launched in 2005 involving 242,417 Medicare enrollees in eight communities. Study design:

• Each company was paid a monthly per member fee to provide nurse call centers, and health coaches for higher risk enrollees. Companies failing to achieve established targets were required to return a portion of the fees.
• The analyses were based on comparisons of the intervention group with a control group using a trailing 12 month baseline for 40 “process of care” measures. Beneficiary participation ranged from 75-96 percent (average 85 percent). Average contact: every 80 days (every 2.7 months).
• Conclusion: “in this large study, commercial disease management programs using nurse based call centers achieved only modest improvements in quality of care measures and no demonstrable reduction in the utilization of acute care or costs of care.”

Source: McCall et al, “Results of the Medicare Health Support Disease Management Pilot Program,” New England Journal of Medicine, November 3, 2011, Vol. 365, No.18

Study: variation in use of in-office testing and correlation to billing

Increased health services research attention is being given to practice variation. A recent study used logistical regressions to assess the association of physician billing and the use of stress testing (after adjusting for patient severity and other risk factors) for 17, 847 patients from November 2004 to June 2007. Conclusion: nuclear stress testing and stress echocardiography testing following revascularization was more frequent (four times higher) among patients treated by physicians who billed for technical and professional fees than those who billed the professional fee only.

Source: Shah et al, “Association between Physician Billing and Cardiac Stress Testing Patterns following Coronary Revascularization,” Journal of the American Medical Association, November 9, 2011, Vol. 306, No.18)

Quotable

“The biggest problem in health care isn’t with insurance or politics. It’s that we’re measuring the wrong things the wrong way…There is almost a complete lack of understanding of how much it costs to deliver patient care, much less how these costs compare with outcomes achieved…making matters worse, participants in the health system do not even agree on what they mean by costs.”

— Kaplan and Porter, “How to Solve the Cost Crisis in Health Care,” Harvard Business Review, September 2011

“The genomic revolution is under way, and some therapies, particularly in oncology, can be individualized with genetic characterization to maximize outcomes. House staff are better rested, but their attending physicians are more anxious, as the fundamentals have taken a back seat and the histories of complicated patients seem to be left in the dust. The components of what we used to call comprehensive, multi-disciplinary team care seem to be replaced by only those services that are allowed or reimbursed…It is clear something has to change to facilitate patient care and address physicians’ helplessness to perform our jobs to the best of our ability. Complaining has not helped, and individual coping mechanisms are not always productive. We can change our attitude, change the system, or change the assumptions and conceptual framework behind the system. ..as with other problems, if we as physicians band together to address it, the solution may be far easier than expected.”

— Roxanne Young, Associate Editor, Journal of the American Medical Association, “A Piece of My Mind,” November 2, 2011, (Vol. 306, No. 17)

Fact file

• U.S. unemployment decreased to 8.6 percent in November from 9 percent in October. Employment continued to increase in the retail trade, leisure and hospitality, professional and business services, and health care industry. Government employment continued to decrease. (Source: U.S. Department of Labor (DOL), Bureau of Labor Statistics (BLS), December 1, 2011)
• In 2010, 50 percent of U.S. adults sought information about a personal health issue from sources other than their doctors, down from 56 percent in 2007. Sources include: internet; books, magazines, newspapers; friends or relatives; and TV or radio among other sources. (Source: Ha T. Tu, Center for Studying Health System Change, “Surprising Decline in Consumers Seeking Health Information,” November 2011)
• The Medicare donut hole decreased 40 percent from $1,504 to $901 for those who hit the coverage Medicare prescription drug coverage gap. (Source: Medicare's Office of the Actuary analysis, reported by Ricardo Alonso-Zaldivar, Associated Press, “AP Newsbreak: Medicare’s drug coverage gap shrinks,” November 27, 2011)
• 44 percent of Americans have an unfavorable view of ACA vs. 37 percent with a favorable view. ACA’s most favorable element: the requirement that health plans provide summary of benefits (per Section 2715) viewed favorably by 84 percent. (Source: Kaiser Family Foundation, Kaiser Health Tracking Poll, November 2011)
• Uninsured children decreased nationally from 6.9 million in 2008 to 5.9 million in 2010. (Source: Georgetown University Center for Children and Families, “Despite Economic Challenges, Progress Continues: Children’s Health Insurance Coverage in the United States from 2008-2010”, November 29, 2011)
• Enrollment in the Medicare Advantage (MA) plans increased by about 6 percent—from 7.9 million to 8.4 million beneficiaries—from April 2010 through April 2011. The number of MA plans decreased from 2,307 to 1,964, due primarily to a decrease in private fee-for service (PFFS) plan offerings. The average monthly premium for beneficiaries in MA plans decreased by about 14 percent from $28 in 2010 to $24 in 2011. (Source: GAO, “Medicare Advantage, Enrollment Increased from 2010 to 2011 while Premiums Decreased and Benefit Packages Were Stable,” October 2011)
• 57 percent of physicians say their practice uses EHRs in some capacity other than for billing, up from 51 percent in 2010. 52 percent say their practice plans to apply for federal EHR incentive payments, up from 41 percent in 2010. (Source: National Center for Health Statistics)
• 443,000 annual deaths were due to smoking at a cost of $96 billion in direct medical expenses and $97 billion in lost productivity. 19.3 percent (45.3M) of U.S. adults smoke: 78.2 percent daily—21.5 percent men, 17.3 percent women. Prevalence decreases with education and income. (Source: National Health Interview Surveys 2005-2010)
• Average length of stay in U.S. hospital: 3.29 days in 2011 vs. 3.25 in 2010 and 3.70 in 2006. (Source: Thomson Reuters)
• Employer sponsored insurance for 2010: family premiums increased 9 percent vs. 2009 to $15,073; single coverage increased 8 percent to $5,429. (Source: Survey of 2,000 employers by Kaiser Family Foundation and Health Research and Education Trust)
• $70.4 billion in improper payments from government health care programs in 2010: Medicare fee for service ($34.3 billion), Medicaid ($22.5 billion), and Medicare Advantage ($13.6 billion). (Source: Government Accounting Office GAO-11-318SP page 205)
• Medical school applications: increased 2.6 percent in 2011 to 32,654. (Source: AAMC)
• Emergency Room visits up 10 percent over 2009 vs. 2008 to 136 million. (Source: American College of Emergency Physicians)
• 65 percent of U.S. Food and Drug Administration (FDA) clinical trials occurred outside U.S. in 2008; regulated products are 10 percent of U.S. imports in 2010: $184 billion of FDA regulated foreign imports into U.S. (Source: FDA)
• 13 percent of health costs due to medication non adherence at a cost of $290 billion per year. (Source: New England Healthcare Institute, “Thinking Outside the Pillbox: A System Wide Approach to Improving Medication Adherence for Chronic Disease,” August 2009)
• Medicare operating margins for hospitals: -7 percent in 2011 vs. -5 percent in 2009; 61 percent of hospitals operate at a loss on Medicare. Hospital merger activity January – September 2011: 132 hospitals involved in 71 deals valued at at $6.9 billion. (Sources: Medicare Payment Advisory Commission (MedPAC), Healthcare M & A Monthly)

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.

Subscribe to the Health Care Reform Memo

Health Care Reform Memo —The weekly Health Care Reform Memo is available for subscription. Please visit www.deloitte.com/us/healthmemos/subscribe. 

• Step 1, confirm your sector(s) of interest. 
• Step 2, select the Health Care Reform Memo as one of your subscriptions.