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Health Care Reform Memo:
May 14, 2012

Deloitte Center for Health Solutions publication

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

My take: primary care medicine: Declining workforce trends over time

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

He had played the sage father to “Princess, Bud, and Kitten” and committed husband to “Margaret” in “Father Knows Best,” a successful primetime TV series that ran from 1954 to 1960. Set in Springfield, Illinois, general insurance agent Jim Anderson dispensed wisdom to his offspring and genuine warmth for his wife. Unflappable. Trusting and trustworthy. Not self-absorbed.

Who better to play “Marcus Welby” in ABC’s weekly prime time line-up set in Santa Monica. In 169 episodes from 1969 to 1976, the affable lead character treated patients young and old alongside his young protégé Steve Kiley (James Brolin), occasionally rounding in Land Memorial Hospital (in real life, St. John Health Center in Santa Monica). Confident. Compassionate. His patient’s advocate no matter the issue at hand.

For many older Americans, Robert Young’s depiction of Marcus Welby is the prototype for primary care—a family physician, trustworthy, accessible, and competent. The show’s producers cast the character as a retired Navy physician and widower. He had regular spats with the younger, brash Dr. Kiley over style and compassion, and sparred with hospital administrators over patient care. The show won Young and Brolin Emmy and Golden Globe Awards and captured the Nielsen ratings in its timeslot consistently in its second season.  

Since the 70’s, however, the pursuit of primary care medicine by American medical students has declined. The legacy of Marcus Welby is perhaps an artifact of a bygone era when generalists were more influential in medicine.

Today, one in four entering medical students (24 percent) intends a career in primary care (Association of American Medical Colleges [AAMC]); only 9 percent end up practicing primary care full-time. Most internists end up specializing; and income disparity between primary care and specialty medicine continues to widen (per Medical Group Management Association [MGMA], 2010 median compensation for primary care was $202,392 vs. specialists at $356,885).

According to the U.S. Bureau of Labor Statistics (BLS), the median compensation for all occupations was $33,840 in 2010, so an argument can be made that primary care compensation is attractive. But among practitioners, the disparity is a hot debate.

Increased access to primary care is a central feature in the Affordable Care Act (ACA): it includes increased pay for primary care providers (PCPs), expansion of medical homes and accountable care models that put population management in control of primary care, and more. See below:

ACA Primary Care Provisions
Section Provision Importance for primary care
1202 Payments to PCPs Increases Medicaid payments to PCPs to at least 100% of Medicare payments in 2013 and 2014 or if greater, 2009 payments using the conversion factor; additional costs to states will be fully funded by the federal government.
Implementation update: final rule issued.
2713 Coverage of preventative health services Requires all new health plans to cover U.S. Preventive Services Task Force (USPSTF)-recommended and other preventive health services.
5501 Expanding access to primary care services and general surgery services Institutes 10% Medicare payment bonus from 2011–2016 to PCPs and general surgeons in primary care shortage areas.
5201 Federally supported student loan funds Funds ease qualifications and decrease non-compliance provisions to improve primary care student loans.
5203 Health care workforce loan repayment programs Establishes a loan repayment program for pediatric subspecialists and providers of mental/behavioral health services working in a health professional shortage area, medically underserved area, or medically underserved population.
5207 Funding for National Health Service Corps (NHSC) Increases and extends the authorization of spending for the NHSC scholarship and loan repayment program for Fiscal Year (FY) 2010–FY2015.
5402 Health professions training for diversity Implementation update: U.S. Department of Health and Human Services (HHS) awarded $9.1 million to medical students (MDs and DOs) in their last year of education if they practice primary care in a health professional shortage area.
5405 Primary Care Extension Program Funds scholarships for disadvantaged students who commit to serving as PCPs in underserved areas and expands loan repayment for faculty in eligible institutions.
Establishes the Primary Care Extension Program to provide support and assistance to educate PCPs.
5502 Medicare payment system for Federally Qualified Health Centers (FQHCs) Establishes a Medicare payment system to reimburse FQHCs for health services; additional Medicare-covered preventive services will be eligible for payment when provided by an FQHC.
5503 Distribution of additional residency positions Residency positions that go unfilled for three consecutive cost reports will be redistributed by HHS Secretary for training PCPs.
Community Health Centers and NHSC Fund Establishes a Community Health Centers and NHSC Fund and increases mandatory funding for community health centers to $11 billion over five years (FY2011–FY2015).
5601 Spending for FQHCs Authorizes additional funding for FQHCs as follows: FY2010 - $2.98B; FY2011 - $3.86B; FY2012 - $4.99B; FY2013 - $6.44B; FY2014 - $7.33B; FY2015 - $8.33B.
5604 Co-locating primary and specialty care in community-based mental health settings Provides award grants and cooperative agreements to entities to establish demonstration projects for coordinated services to special populations through the co-location of primary and specialty care services in community-based mental and behavioral health settings.
3024 Independence at home demonstration program Establishes demonstration program to test a payment incentive and service delivery model that utilizes physician and nurse practitioner directed home-based primary care teams.
4101 School-based health centers Establish a program to award grants to eligible entities to support the operation of school-based health centers that provide primary care services.
5208 Nurse Managed Health Clinics Establishes fund for a practice arrangement, managed by advanced practice nurses, that provides primary care or wellness services to underserved or vulnerable populations; $50 million for the FY2010, sums as necessary for each of the FY2011–FY2014.
5301 Training in family medicine, general internal medicine, general pediatrics, and physician assistantship

Allows the Secretary to make grants to, or enter into contracts with, an accredited public or nonprofit private hospital, school of medicine, or training program to provide financial assistance to students; $125 million for FY2010, and as necessary for FY2011–FY2014.

But all these might not solve the problem of primary care: demand. Most consumers (80 percent) have a primary care relationship, and 87 percent are satisfied with the care they get. But 46 percent of the uninsured and 68 percent of Gen X do not (Deloitte 2011 U.S. Survey of Health Care Consumers). And the answer is not just additional physicians, nurse practitioners and health coaching, and leveraging technologies and incentives to reduce the demand. Regardless of the Supreme Court’s decisions about ACA, the fact remains that traditional models of managing demand for primary care will fall short.

For the 5 percent with complex conditions (i.e., dual eligible and complicated pre-existing conditions), and the 15 percent with chronic conditions that need coaching and lifestyle modification, intensified case management and medical home models will work. But for the vast majority who are in a relative state of healthiness for their age, new models must be applied that reduce unnecessary visits, tests, and procedures; optimize diagnostic accuracy; incent providers and consumers to adhere to evidence-based practices; and reward outcomes.

The solution, in my view, is to break constraints embedded in the way we anticipate and deliver primary care in the U.S. system. It needs fresh thinking. Some thoughts…

Mobile health coaching: smart phones for everyone equipped with personal health information (PHI) linked to medical records and clinical decision support tools that simultaneously convey prompts, alerts, and reminders to consumers and their PCPs is necessary. Of the 4 billion mobile phones sold last year, 1 billion are smart phones—prices are coming down and health care applications up.

Capitation 2.0: health insurance plans offered through employers or purchased individually that require primary care coordination for non-emergency acute admissions and referrals to specialists as standard operating procedure. Yes, capitation, but this time based on evidence-based guidelines for appropriateness rather than premium arbitrage.

Primary care services, not primary care medicine: breaking down scope of practice turf wars between physicians and nurse practitioners. There’s too few of either to go around; the turf battle is sophomoric. Consumers readily trust advance practice nurses and nurse practitioners for uncomplicated care. That means additional funding for nurse faculty, and bolder by-laws in hospitals to allow participation.

And respect: primary care medicine is noble profession. It is foundational to a society’s health and wellness. But the allure of higher income, prestige among peers, and our society’s gravitational tug toward specialization has left primary care medical professionals dispirited and frustrated. The issue for some might be pay disparity; for most, however, it’s the role itself. Its relative lack of respect compared to other medical professions. To teachers, police, fire fighters, and family physicians, pediatricians, general internists, and obstetricians, society owes respect and gratitude for acceptance of a call to serve.

Three of four college grads leave with debt, so medical school debt is not the issue. Nor is the income potential for primary care professionals: it’s substantially higher than most professions. The issue is not pay disparity; it’s redefining primary care in our delivery system and restoring its centrality to its operation.

Marcus Welby did not express frustration about his income nor complain of patient expectations. He embraced his role as a professional care giver, quietly confident in the path he’d chosen.

The solution to primary care is not about money; it’s about a new strategy to equip consumers to care better for themselves, and innovation in how a new primary care workforce is trained, operated, paid, and recognized in our society.


Paul Keckely

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

Implementation update

CMS proposes two-year primary care payment increases

Wednesday, the Centers for Medicare & Medicaid Services (CMS) released a proposed rule setting requirements for Medicaid PCP payments. Per ACA Section 1902, the rule proposes that the minimum Medicaid rate for calendar year (CY) 2013 and 2014 be no less than Medicare rates in effect for those years, or if greater than, the payment rates using the 2009 Medicare physician fee schedule conversion factor. The rate applies to select primary care services provided by physicians with a specialty designation of family medicine, general internal medicine, or pediatric medicine (obstetricians were excluded). The estimated federal cost is $11.7 billion over two years with $525 million projected state savings. CMS will accept comments on the rule until June 10, 2012. The rule also proposes the following:

  • 100 percent federal matching rate for any increase in payment above the amounts that would be due for these services.
  • Eligibility for services paid through Medicaid managed care plans.
  • Updates to regional maximum fees for the administration of pediatric vaccines under the Vaccines for Children program.

White House: ACA tripled NHSC, adds nurses

Monday, the White House released a report detailing how ACA and the American Recovery and Reinvestment Act (ARRA) tripled the number of PCPs between 2009 and 2011 by investing $1.5 billion over five years in the NHSC program. In addition, the report estimates various provisions of ACA will continue to increase the number of practicing nurses throughout the nation.

  • Since 2009, a 20 percent increase in the number of nurses practicing in community health centers—3,000 new positions, 800 in advanced practice.
  • Section 5208 of ACA created a $50 million grant to support the Nurse-Managed Health Clinics program—projected to train 900 nurses to serve 94,000 patients.
  • Section 4002 of ACA, the Prevention and Public Health Fund, supports the training of 600 new nurse practitioners and nurse midwives by 2015.

Note: as of February, the BLS reported the Registered Nursing workforce is the top occupation in terms of job growth through 2020. The number of employed nurses will grow 25 percent by 2020 and the number of expected job openings by that year will be 1.2 million. According to the American Association of Colleges of Nursing (AACN), this is due to a number of factors such as the aging of the population and the number of nursing colleges and universities struggling to expand enrollment numbers to meet demand.

Final rule on MLR reporting requirements for insurers; required to notify enrollees of anticipated rebate

CMS issued a final rule to implement the medical loss ratio (MLR) for health insurers establishing a basic notice requirement for issuers in the group and individual markets that meet or exceed the applicable MLR standard in the 2011 reporting year. Insurers who do not meet the standard required for coverage in 2011 will be required to send a letter telling consumers how much in rebates they will receive. HHS Secretary Sebelius posted a template letter on the HHS HealthCare Blog Friday.

Note: per Section 1001 of ACA, health insurers are required to report publicly the ratio of the incurred loss (or incurred claims) plus the loss adjustment expense to earned premiums, including the percentage of total premium revenue that is expended on clinical services. Insurers are required to refund each enrollee the amount by which premium revenue expended by the health insurer for non-claims costs exceeds 20 percent in the group market and 25 percent in the individual market, in the insurers who did not meet the standard for coverage provided. Insurers are required to send rebates no later than August 1, 2012. CMS estimates insurers will provide $1.3 billion in rebates to 15.8 million individuals.

CCIIO holds public meeting on risk adjustment methodology

Monday and Tuesday, CMS’ Center for Consumer Information and Insurance Oversight (CCIIO) held public meetings to receive comments on risk adjustment one week after releasing guidance on the HHS Risk Insurance program premium stabilization final rule.

IRS final comments on medical device excise tax

Per ACA Section 9009, the U.S. Internal Revenue Service (IRS) received final comments on proposed medical device excise tax rules published February 7, 2012. Final regulations are expected later this year. Reactions to the proposed rule:

  • Hospital associations: a joint comment letter from the American Hospital Association (AHA), the Federation of American Hospitals (FAH), the Catholic Health Association of the United States (CHA), the Healthcare Supply Chain Association (HSCA), and the Association for Healthcare Resource & Materials Management (AHRMM) states that the IRS “should implement the device tax in a manner that recognizes the `shared responsibility’ commitment from key health care stakeholders, including medical device companies, to bring forward…national health reform through passage of the [ACA].” The associations also highlight several times throughout the letter the hospital sector’s ACA contribution of $155 billion in concessions over ten years, largely through reductions in Medicare reimbursements as its component of “shared responsibility.” The letter asks the IRS to prevent medical device companies from “[sidestepping] their ACA financial contribution by passing the tax to their customers, including hospitals.” Another concern of the hospitals is that ACA may permit device companies to deduct the tax from their income for federal tax purposes, and would provide a financial benefit to the companies if they are able to pass along the tax. The letter also urged the IRS to define the terms ”manufacturer,” “importer,” and “use” to exclude activities regarding packaging and sterilizing devices for use in surgery kits to avoid improper treatment of hospitals and other health care providers as “manufacturers” or “importers,” and also the potential for double taxation of certain devices.
  • Advanced Medical Technology Association (AdvaMed): in a 22-page letter, AdvaMed urges both the IRS and the U.S. Department of Treasury (DOT) to “instruct its agents to be reasonable in their audit of this issue and mindful of the data limitations which [medical device companies] face,” and that IRS acknowledge “the challenges [the] industry faces in complying with the complex constructive pricing rules.” The association requested that the tax should exempt all devices given away or used as demonstrations, evaluation products, loaned devices, testing, development, and replacement parts or donations. AdvaMed’s concerns included: the guidance resulting in multiple taxation of the same device or phantom income, the need for modifications to manufacturers’ business models, and ability of the guidance to conform to generally accepted accounting principles. The letter recommends that constructive price be applied with flexibility to data limitations and existing principles, and determination of who is the “manufacturer” and what is a “sale” should vary by company on a device-by-device basis.

Note: per ACA Section 9009, a medical device excise tax was imposed on the sale of certain medical devices under Section 4191 of the IRS Code. On February 3, 2012, the IRS issued proposed regulations addressing the tax. This provision adds a 2.3 percent tax on medical devices beginning January 1, 2013, intended to raise up to $20 billion in revenues over ten years. Exempt products include exports, components for further manufacture, eyeglasses, contact lenses, hearing aids, and other medical devices generally purchased by the general public at retail for individual use (the “retail exemption”) as prescribed by the Secretary of the Treasury.

First group of Health Care Innovation Awards announced

Tuesday, HHS Secretary Sebelius announced $122.6 million in ACA funding has been awarded to 26 organizations as wave one of Health Innovation awards. The projects are estimated to reduce health care spending by $254 million over the next three years. The funding for the awards is part of the President’s “We Can’t Wait” initiative which provides $2 billion to entrepreneurs to enhance innovation and create more jobs. The second group of awardees will be announced next month.

On a related note, Monday, Marilyn Tavenner, acting administrator of CMS, sent a 66-page reply to questions from Senators Orrin Hatch (R-UT), Mike Enzi (R-WY), and Tom Coburn (R-OK) probing the activities of the Center for Medicare and Medicaid Innovation (Innovation Center).

She noted it had obligated $365 million of its $10 billion appropriation per Section 3021 of ACA in FY2011–FY2012. In addition, the agency spent $58 million from other sources of funding. The staff of the Innovation Center includes 154 full-time equivalents, 118 of which are paid through funding from ACA.

HHS releases ACA funding for school-based health center construction projects

Wednesday, HHS announced $75 million for the construction and renovation of school-based health centers per ACA Section 4101. The funds are available as part of the $200 billion designated through the School-Based Health Center Capital (SBHCC) program. The centers enable children with acute or chronic illnesses to receive proper care while in school, and promote the overall health and wellness of children and adolescents through health screenings and disease prevention activities.

CMS extends deadline for Graduate Nurse Education Demonstration applications

Friday, CMS announced it had extended the application deadline for hospitals to participate in the Graduate Nurse Education Demonstrations. Under the Demonstrations, CMS will provide $200 million total to up to five hospitals that train advanced practice registered nurses (APRNs), per Section 5509 of ACA. In order to be considered, participating hospitals will be required to partner with at least two community-based care settings (e.g., FQHCs, Rural Health Clinics) and conduct at least half of the trainings in those settings.

Note: according to the Agency for Healthcare Research and Quality (AHRQ), APRNs encompass certified nurse-midwives, certified registered nurse anesthetists, clinical nurse specialists, and nurse practitioners. An estimated 8.3 percent of the registered nurse population is prepared to practice in at least one advanced practice role.

CO-OP funding questioned

In a letter to HHS Secretary Sebelius last week, Senate Republicans expressed doubt that $3.8 billion in funding for CO-OPs from HHS would succeed in lowering costs. “HHS may be seriously underestimating the financial risk that these new entities pose to the Federal Treasury,” Senators Mike Enzi (R-WY), Orrin Hatch (R-UT), and Tom Coburn (R-OK) and Representatives Denny Rehberg (R-MT) and Charles Boustany (R-LA) wrote. Eleven not-for-profit health plans in ten states have received $845 million from the fund to date.

Legislative update

CMS issues final rules to streamline hospital participation in Medicare and Medicaid

Thursday, the CMS released two final rules to streamline requirements for hospital participation in Medicare and Medicaid. The rules are estimated to save $1.14 billion annually by reducing burdensome, obsolete, or other requirements in addition to standardizing processes in the following areas:

  • Allow one governing body to oversee multiple hospitals in a multi-hospital system
  • Include other practitioners as “medical staff” to be eligible for hospital privileges
  • Allow an optional program for patient/support person on self-administration of appropriate medications
  • Eliminate the requirement that critical access hospitals (CAHs) must furnish diagnostic and therapeutic services, laboratory services, radiology services, and emergency procedures directly by CAH staff
  • Allow drugs and biologics to be prepared and administered on the orders of practitioners (other than a doctor)
  • Eliminate the requirement for non-physician personnel to have special training in administering blood transfusions and intravenous medications
  • Streamline programs in e-prescribing, Organ Procurement Organizations (OPOs) definitions and governing bodies
  • Re-enrollment bar for providers and suppliers
  • Ambulatory Surgical Centers (ASC) Emergency Equipment

Note: in January 2011, the President issued Executive Order 13563, “Improving Regulation and Regulatory Review.” Per Section 6 of the executive order, federal agencies must identify rules that may be “outmoded, ineffective, insufficient, or excessively burdensome, and [must] modify, streamline, expand, or repeal them in accordance with what has been learned.” In accordance with the executive order, the Secretary of HHS published on May 18, 2011 a preliminary plan for retrospective review of existing rules.

Bill to repeal SGR, paid for by reductions in defense spending

Wednesday, Representatives Allyson Schwartz (D-PA) and Joe Heck (R-NV) introduced the Medicare Physician Payment Innovation Act of 2012 which would amend title 18 part B of the Social Security Act by repealing the sustainable growth rate (SGR)—eliminating the $300 billion debt to the Medicare program. This offset would be paid for by savings from reductions in military operations in Iraq and Afghanistan. “It is time to end SGR and create a clear pathway to new reimbursement models that will treat physicians fairly, improve patient outcomes, and reduce costs in Medicare by changing the way we pay physicians to incentivize timely, evidence-based, coordinated care for Medicare beneficiaries. Payment reforms that reimburse clinicians on the basis of efficiency, quality, and patient outcomes are essential to slowing the rate of growth in health care spending while ensuring access to services.” Additional changes include:

  • Stabilize the current payment system by maintaining FY2012 payment levels through December 31, 2013, and replacing scheduled cuts with a transition period before new payment mechanisms are instated in 2018.
  • Provide a 2.5 percent annual increase from 2014–2017 for primary care, and care coordination services provided by clinicians for whom 60 percent of their Medicare allowable charges are for those same services.
  • Discourage use of traditional fee-for-service (FFS) models by reducing updates to primary and non-primary care services: -2 percent in 2019, -3 percent in 2020, -4 percent in 2021, and -5 percent in 2022 and incentivizing new CMS-approved health care delivery models by continuing stable reimbursements with opportunities to gain higher reimbursements.

Note: the Balanced Budget Act of 1997 created the SGR formula in an attempt to control spending in the Medicare program. It has systematically been set aside by Congress since 2004 resulting in accrued liability of $300 billion from “overpayments” it otherwise required in its original enabling legislation.

House committee passes incentives for antibiotics manufacturers

Thursday, the House Committee on Energy and Commerce unanimously passed a draft U.S. Food and Drug Administration (FDA) user fee bill providing incentives to antibiotic drug developers, including five years of extra patent protection from generic drug manufactures. The incentives would be available to all antibiotic manufacturers, unlike in the Senate Health, Education, Labor and Pensions (HELP) committee’s user fee bill, which specifies only antibiotics that treat “serious or life-threatening” conditions would qualify. The bill is expected to go to the full House for vote before June.

House GOP passes reconciliation bill to cut spending in lieu of military cuts; certain ACA funding provisions targeted along with others

Thursday, the House of Representatives voted (218-199) to pass the Sequester Replacement Reconciliation Act—with 16 Republican representatives voting against it and no Democratic representatives voting in favor. The bill replaces cuts in military and defense spending with cuts to health care and other safety net programs:

  1. Safety net programs: eliminates loopholes in the food stamp program, ceasing payments to individuals ineligible to work in the U.S. from the Child Tax Credit, and requiring repayment of overpayments received due to provisions of the ACA.
  2. Bailout and “slush” funds: eliminates bailout funds of the 2010 Dodd-Frank financial overhaul, ends housing bailouts, reforms the National Flood Insurance Program to increase financial accountability, and defunds the Prevention and Public Health Fund.
  3. Excess spending: repeals automatic spending increases for the food stamp program, defunds the CO-OP provisions of ACA, and repeals Section 1322 of ACA that allows HHS to spend “such sums as necessary” to assist states in implementing the law.
  4. Federal employees and administration: removes power from the Consumer Financial Protection Bureau and Office of Financial Research to set individual budgets, requires federal employees to contribute a higher share to retirement benefits, and removes provision that allows federal employees a special benefit for retiring early.
  5. Reduction of waste: repeals the Social Services Block grant, eliminates 50/50 cost-sharing for food stamp employment training program, reforms the medical liability system, and removes incentives for states to add enrollees to Medicaid program.

Note: the Congressional Budget Office (CBO) expects the bill to reduce spending by $237.8 billion over ten years, if implemented as is. Senate Majority Leader Harry Reid (D-NV) released a statement rejecting the bill and the White House Administration has threatened to veto the bill if passed.

State update

Study: access to primary, preventive health declining in most states

Tuesday, the Urban Institute released a study concluding that access to health care for adults in the U.S. has declined over the last ten years, particularly among the uninsured population. Using Centers for Disease Control and Prevention (CDC) Behavioral Risk Factor Surveillance System (BRFSS) data, the Institute looked at state-level measures of access and utilization from 2000 to 2010. Findings varied across states:

Access changes for adults 2000—2010 States
States with higher than average increase in share with unmet needs due to cost (U.S. average change 6%) AL, FL, GA, IL, IN, LA, MI, MS, NE, NC, OK, RI, TN, TX, WA
States with higher than average decrease in share who had a routine checkup (U.S. average change -5.1%) AL, AK, AZ, AR, CO, FL, HI, IL, IN, KY, ME, MI, MO, MT, NE, NV, NM, NY, ND, OH, OK, OR, PA, SC, TX, VT, WA
States with higher than average decrease in share who had a dental visit (U.S. average -3.9%) AL, AR, DE, FL, IL, KY, LA, ME, MI, MS, MT, NE, NV, OH, OK, SC, TN, TX, VA, WI

Source: Urban Institute, “Virtually Every State Experienced Deteriorating Access to Care for Adults over the Past Decade,” May 2012.

In 39 states, access declined among at least two of the three measures; 20 states saw access decline in all three measures. State-level changes were more pronounced among the uninsured. Among uninsured residents, 27 states saw an increase in unmet needs, 34 states saw a decline in routine checkups, and 27 states had decreased access to dental visits.

State round-up

  • Last week New Jersey Governor Chris Christie (R) vetoed S. 1319, the New Jersey Health Benefit Exchange Act, that would have implemented a state health insurance exchange (HIX). Christie stated the bill would have “[imposed] unnecessary obligations upon the State's taxpayers...Because it is not known whether the Affordable Care Act will remain, in whole or in part, it would be imprudent for New Jersey to create an exchange at this moment in time before critical threshold issues are decided with finality by the Court.” Note: the bill passed through the state legislature in March 2012 and the state will continue to use the $7.7 million grant from HHS to study and plan for an exchange in the state.
  • Massachusetts House of Representatives introduced legislation Friday to reduce state spending $160 billion over 15 years by limiting cost growth to 3 percent a year. The proposal would also create an electronic health record (EHR) system accessible to consumers and providers by 2017, impose a 180-day “cooling-off period” before aggrieved patients can sue for malpractice, and push providers away from FFS payments. Also, lawmakers in the state Senate released a bill Wednesday that requires publicly funded insurance plans—including the state's Medicaid program—to curb FFS payments by July 2014 and adopt new payment methodologies that offer doctors financial incentives to keep patients healthy. Private insurers, who cover the bulk of Massachusetts residents, would be exempt from the requirement, although some have embraced alternative payment methods in recent years.

Industry news

“Must have” health care providers in networks drives higher costs due to negotiating leverage with plans

A study released last week found that a driver of health care cost is providers with high negotiating power in payment rates from insurance companies. So called “must have” hospital systems and health care provider groups must be included by health plans in certain networks due to their attractiveness to employers and consumers. The study found that leverage power over health plans are based on the following tiers:

  • Must haves: the top tier, those who have substantial leverage over prices and related contract terms and conditions.
  • Second tier: those hospitals and providers who offer unique services such as organ transplantation.
  • Third tier: stand-alone, community hospitals with little leverage and bargaining power over health plans related to contract terms and conditions. These hospitals generally accept rates near those of Medicare.

Note: safety net hospitals generally have little negotiating power over health plans, most giving a small percentage of care to privately insured patients—unless they have a Level 1 Trauma Center or a highly specialized service offered to the entire community.

Study: hospital readmissions linked to HAIs

According to a new study, reducing health care-associated infections (HAIs) could help reduce readmission levels in hospitals. The study followed 136,000 patients over eight years and reviewed the cases of patients that were readmitted within one year of discharge and that tested positive for methicillin-resistant Staphylococcus aureus (MRSA), vancomycin-resistant enterococci (VRE), or Clostridium difficile (C. difficile). Over 4,700 patients tested positive for MRSA, VRE, or C. difficile and were 40 percent more likely to be readmitted to the hospital within a year and 60 percent more likely to be readmitted within 30 days. (Source: The Society for Healthcare Epidemiology of America, “Expensive hospital readmissions linked to health care-associated infections,” May 4, 2012.)

Heritage outlines three steps to Medicaid reform

The Heritage Foundation released an outline last week of recommendations for Medicaid reform, with an ultimate goal of moving “families out of the failing program and into more popular health insurance options.” It recommends the program be restructured into a patient-centered model, giving families more control over their care and allowing them to obtain services tailored to their personal needs. The group’s three steps include:

  1. Repealing ACA: sufficiently address the current problems of the program.
  2. Putting the program on a budget: setting an aggregate federal spending cap on Medicaid as well as other major programs.
  3. Setting core policy objectives: mainstreaming the non-disabled out of Medicaid and into premium support, moving low income older adults into a coordinated care model.

(Source: Nina Owcharenko, The Heritage Foundation, “Medicaid Reform: More than a Block Grant Is Needed,” May 4, 2012.)

CDC, IOM focus on obesity in “Weight of the Nation” campaign

Last week, the CDC held its “Weight of the Nation” obesity conference as part of a multi-pronged project with the National Institutes of Health (NIH) to explore how obesity is impacting the nation’s health care system. At the conference, CDC released its obesity forecast estimating that by 2030, 42 percent of adults will be obese and 11 percent will be severely obese. CDC also projected that if obesity were to remain at 2010 levels, the combined savings in medical expenditures over the next two decades would be $549.5 billion.

The Institute of Medicine (IOM) Food and Nutrition Board also released a report concluding that 33 percent of U.S. adults are obese today, at a cost of $190.2 billion annually, almost 21 percent of health care spending. The report examined 800 prevention recommendations and provided implementation strategies for the five most important over the next decade. IOM’s recommendations to government, food, and health care industries leaders include:

  • Promotion of physical activity as a priority by increasing access and opportunities.
  • Concerted effort to reduce unhealthy food and beverage and increase healthier options at competitive prices.
  • Transform the environment with messages about physical activity, food, and nutrition.
  • Increase support for achieving better population health and obesity prevention.
  • Make schools a focal point for obesity prevention.

The “Weight of the Nation” project will release four documentary films including one on HBO tonight, a television series, 14 short films, a social media campaign, a companion book, and a nationwide community-based outreach campaign.

Study: nurse aides ease burden on PCPs

A study released Monday concluded that the use of “Grand-aides” could reduce congestion in primary care practices and emergency departments (EDs) while cutting costs. “Grand-aides” are health care professionals operating under the direct supervision of nurses, trained to conduct telephone consultations or make primary care home visits to patients. They must obtain state certification and complete 180 hours of curriculum; a typical salary for an aide is $25,000 annually. The study conducted pilot tests in two pediatric Medicaid settings: a Houston, Texas clinic and a Harrisonburg, Virginia ED. The report estimated that the pilot program prevented 62 percent of drop-in visits at the Houston clinic and would have eliminated 74 percent of ED visits at the Virginia site. The cost of the program was estimated at $16.88 per encounter compared with current Medicaid payments of $200 and $175 per visit respectively. (Source: “Innovation Profile: A New Corps of Trained Grand-Aides Has the Potential to Extend Reach of Primary Care Workforce and Save Money,” Arthur Garson, Jr., et al., Health Affairs, May 2012, 31:51016-1021.)

FDA advisory committee recommends new HIV prevention drug

Thursday, an advisory panel to the FDA voted (19-3) to recommend that Truvada, a drug used since 2004 for treatment of patients who have contracted human immunodeficiency virus (HIV), be used for prevention of HIV in certain populations. In a series of votes, the panel recommended the drug be used daily by individuals at high risk of contracting the infection.

Note: the FDA is not required to follow the recommendations of its expert panels. Truvada is currently used for the treatment of HIV; approval of this recommendation would mean it could be marketed as a drug for the prevention of infection. Groups have also issued concern over the cost of the drug at approximately $1,200 per month. An estimated 1.2 in the U.S. million have HIV.

Study: ED wait times vary widely; penalties for poor performance being implemented by CMS

The times for the 74 hospitals included in the CMS study varied widely: for the first measure (ED-1)—the median time between when a patient enters the ED door until they leave the ED for an inpatient bed—range from 387 minutes to 52 minutes. (At a best-practice hospital, median time is four hours; 18 of the 74 hospitals posted median times of four hours or longer.)

Times for the second metric in the database (ED-2)—the median time between the moment an ED doctor decides to admit a patient to an inpatient bed and the time the patient actually left the ED for that bed—ranged from 170 minutes to no minutes.

Reporting for all hospitals, based on a 2 percent pay-for-performance incentive, began January 1, 2012, along with a third wait time measure (ED-3) for patients treated and released, and eventually, for determination of payment.


“In the words of Don Berwick, former administrator of CMS, ‘how can health care be transformed so physicians behave as guests in the lives of patients, instead of hosts in the care system?’”

— “Authoritarian Physicians And Patients’ Fear Of Being Labeled ‘Difficult’ Among Key Obstacles To Shared Decision Making,” Health Affairs, May 2012

“The health care revolution will be an `outside in’ thing driven by consumers with smart phones. Sequence your DNA for $200, put in on a social network and let high powered analytics quantify your health risks and offer solutions. Scan your moles with an iPad camera and e-mail to a dermatologist.”

—Rich Karlgaard, “The 4 percent Solution: America Needs Growth,” Forbes, May 7, 2012

“Politicians and pundits say this is the best system in the world…but it’s not a great place to be sick if you are poor and uninsured and want consistent basic care.”

—Otis Webb Brawley, Chief Medical Officer, American Cancer Society, “How We Do Harm: A Doctor Breaks Ranks About Being Sick in America,” St. Martin’s Press, 2012

“Rather than pursuing a comprehensive, balanced deficit reduction package to replace the sequester, H.R. 5652 undermines the intent of the BCA to bring both sides to compromise by proposing a short-term, one-sided solution. This approach sharply undermines critical domestic priorities, such as efforts to prevent hunger and support low-income families and communities; to expand health care access and implement the Affordable Care Act; to protect consumers and implement the Wall Street Reform Act; and to support homeowners struggling to stay in their homes. The Administration strongly opposes both the principles of this approach and specific legislative proposals included in the bill. If the President is presented with H.R. 5652, his senior advisors would recommend that he veto the bill.”

—Executive Office of the President, Office of Management and Budget, Statement of Administration Policy, H.R. 5652–Sequester Replacement Reconciliation Act of 2012, May 9, 2012

“I think that what we’re doing very clearly is realigning the incentives so that you’re rewarded for quality care, not more care. That’s a lesson that has to go nationwide if we’re going to control costs. It puts the patient in the driver’s seat.”

—Representative Steven Walsh, state legislator in Massachusetts, author of bill to cap health costs at 3 percent annually

Fact file

  • Retirement health care costs: the typical health care costs for a couple retiring this year is estimated at $240,000—4 percent higher than for last year’s retirees. (Source: Mark Jewell, Bloomberg Businessweek, “Retired couples may need $240,000 for health care,” May 9, 2012)
  • Physicians slow to take up accountable care organization (ACO) structure: only 3 percent of physicians are currently participating in ACOs and another 5 percent indicate they plan to become involved in the next year; 52 percent believe ACOs will cause a decline income. (Source: Medscape, “Changes Coming With Healthcare Reform Worry Physicians”)
  • If obesity rates were cut 1 percent per year over the next 20 years, we would see a cut in health care costs by $85 million. If they stayed at current levels (instead of increasing by 33 percent as projected), $550 billion would be saved over the same time period. (Source: Eric Finkelstein, et al, American Journal of Preventive Medicine, “Obesity and Severe Obesity Forecasts Through 2030,” May 2012)
  • The U.S. economy has had an average of 3.3 percent gross domestic product (GDP) growth since World War 2, but also 11 recessions. In the last half-century, government spending has increased from 19 percent of GDP to 21 percent under President Bush 43 and 24 percent under President Obama. (Source: CBO)
  • World’s Mothers Report: the U.S. is the 25th best country of 165 using measures of mother’s and child’s wellbeing. Norway was #1. (Source: State of the World’s Mothers report, Save the Children Foundation)
  • Home health is one of the top five most lucrative franchises in the U.S.: median franchise fee is $66K, gross margins are 30 percent plus, average first year revenues $248K. (Source: Franchise Business Review)
  • Home values: projected to decline 4 percent in all but 50 of the 384 metropolitan areas examined; ten are projected to drop 7.5 percent or more, with the largest decrease at 12.2 percent. (Source: Fiserv Case-Schiller)
  • Tulane Medical Center Study: patient no-shows/same day cancellations were 6.7 percent of outpatient surgeries in 2009 each year. (Source: Anesthesiology News)
  • Physician fee schedule recommendations: CMS agreed with the American Medical Association’s Specialty Society Relative Value Scale Update Committee (commonly known as “the RUC”) 87.4 percent of the time when determining physician work values were inaccurate. (Source: Columbia University’s Mailman School of Public Health in New York, the University of Illinois at Chicago, and University of California at Los Angeles analyzed the CMS’ decisions on updating physician work values between 1994 and 2010 and found that the agency accepted 2,419 out of 2,768 work value recommendations the RUC proposed)
National health reform: What now?




National health reform: What now?

National health reform is here. The health reform bills (HR3590 and HR4872) are now law and will trigger sweeping changes and disruptions – some rather quickly and some over many years. The industry is asking, “What now?” At Deloitte, we continue to explore and debate the key questions facing the industry, and we look forward to helping our clients find and implement the right answers for their organizations. To learn more, visit today.

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