Health Care Reform Memo: June 6, 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

In the June 1 issue of the Journal of the American Medical Association, CMS (Centers for Medicare & Medicaid Services) Administrator Don Berwick encourages renewed focus on hospital safety in the U.S. health system, announcing a new program, the Partnership for Patients, which aims to reduce preventable injuries by 40 percent and hospital readmissions by 20 percent by 2013. According to CMS, the result of these would be 1.8 million fewer injuries saving $20 billion annually, and 1.6 million fewer readmissions saving $15 billion annually.

He sums up the program well: “The goals are bold, the time frame is aggressive, and the scale is large.”

Here’s what keeps me awake at night: If the U.S. system is plagued by error and safety issues, why are consumers so satisfied with its performance?

Our surveys indicate consumers are content with our system. In the midst of fervent debate about health reform, opinions changed little. Most consumers like their doctors, hospitals and plans if they can afford them, and are confident the drugs they take work well.

But what would happen if the system’s safety, costs and outcomes were understood by consumers? Would the system respond differently? Would consumers demand their hospitals and doctors use electronic medical records to facilitate improved accuracy in diagnosis and appropriateness in treatment plans and less paperwork? Would the methods for coverage and denial decisions by health plans stand the scrutiny of informed consumerism, or the avoidable adverse drug events from poor medication mismanagement be dismissed?

June 21, we will release our 2011 Survey of Health Care Consumers covering 15,000 consumers in 12 countries. Since 2008, we’ve pursued a simple question in our analysis—can consumers navigate the health system appropriately, and if not, what tools and structural incentives are necessary to help them play an active role.

The stakes are high: a health system focused on consumers will no doubt expose its stakeholders to increased pressure to take responsibility for outcomes, improve service, reduce errors and lower costs. It will require re-thinking of its value proposition—is our system worth the $9,200 per capita we spend annually (“The Hidden Costs of Health in the United States”, Deloitte Center for Health Solutions, March 2011). And if no, how do its stakeholders need to respond.

In my career, I’ve heard the analogy of the airline industry’s safety record, and the transparency of FAA investigations into crashes and near misses. Perhaps we need an FHSA—Federal Health Safety Administration—that issues public reports for each community’s crashes and near misses.

The concept of consumerism in health care is dismissed by many who argue the system too complicated for mortal understanding and clinical problems too complex for appropriate self-care management. I challenge those notions. The availability of personal health maps based on customized clinical algorithms embedded in wireless communication devices combined with increased household financial pressures resulting from health costs mean consumerism in health care is no longer a conceptual framework for academic debate. It is central to the future of a reformed system. And efforts like the “Partnership for Patients” lead it further down that path.

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

Implementation update

Constitutional challenges: update

Thursday, the case brought by the Thomas More Law Center was heard by the federal appeals court for the 6th Circuit in Cincinnati. Oral arguments were heard May 10 in the 4th Circuit (Virginia vs. Sebelius, Liberty University vs. Geithner), and Florida vs. HHS involving 25 states is scheduled to be heard June 8, the 11th Circuit. Assuming rulings this summer, it would appear the challenges might be on the Supreme Court docket in its next term starting October 2011 with a ruling in 2012 likely.

Trade groups weigh in on ACO rules

The comment period for the proposed regulations on accountable care organizations (ACOs) (Affordable Care Act (ACA) Section 3022) closes this Wednesday. Major trade groups have notified CMS of these concerns:

• American Hospital Association (AHA): AHA concerns are four: the burden of anti-trust review and associated costs, the risk associated with an ACO’s tax exempt status, how existing physician-hospital joint-ventures that are not Medicare related will be impacted by the ACO rule, and the costs for starting an ACO (AHA estimates between $16 and 27 million).
• America’s Health Insurance Plans (AHIP): Its major concern is the anti-trust safety zone: it believes the 30 percent threshold too high and encouraged a 20 percent threshold to encourage competition among providers.
• American Medical Association (AMA): The AMA’s major concerns are (1) the costs associated with ACO compliance for reporting the 65 quality measures and (2) the costs of setting up the ACO (CMS estimated $1.7 million per ACO; AHA estimates run up to $27 million).

HHS releases final regulation on Medicaid payment adjustments for provider-preventable conditions

Wednesday, the U.S. Department of Health and Human Services (HHS) released final regulations implementing ACA Section 2702 that prohibits Medicaid payments to providers for conditions that are reasonably preventable. CMS extended the implementation date from July 1, 2011 (per ACA) to July 1, 2012. The policy is expected to save $35 million ($20 million in federal and $15 million in state funds) from 2011 through 2015. Seventeen states already have policies that prevent Medicaid payments for certain preventable conditions.

Medicaid programs will be prohibited from providing payments to providers for provider preventable conditions (PPCs) which CMS divides into two categories: (1) health care acquired conditions (HCACs) which apply to inpatient hospital settings and include hospital-acquired conditions (HACs) and (2) other provider-preventable conditions (OPPCs) which apply to inpatient and outpatient setting settings and include at a minimum the three Medicare National Coverage Determinations (surgery on the wrong patient, wrong surgery on a patient, and wrong site surgery) and other conditions identified by states.

Reductions in payment will be limited to the amount directly related to the PPC and the resulting treatment. States may reinvest any savings achieved from non-payment of PPCs into provider rate improvements aimed at increasing beneficiary access to care and they must establish provider self-reporting procedures for PPCs in the Medicaid claims process.

Prescription drug excise tax calculation provided by IRS

Last week, the Internal Revenue Service (IRS) published a notice stating that it will send covered entities their 2011 final fee calculation and, if applicable, notification of the final determination regarding error reports by August 24, 2011, instead of August 15, 2011 “to preserve the time needed to give appropriate consideration to the error reports.” IRS provided entities with preliminary calculations on May 16. Note: ACA Section 9008 as amended by Section 1404 instituted an annual fee on covered entities who manufacturer or import branded prescription drugs. The fee is $2.5 billion in 2011; $2.8 billion in 2012 and 2013; $3.0 billion in 2014, 2015, and 2016; $4.0 billion in 2017; $4.1 billion in 2018; and $2.8 billion in 2019 and subsequent years. The non-deductible fee is allocated across the life sciences industry based on market share with reductions for manufacturers with annual branded pharmaceutical sales of less than $400 million.

Note: The impact of ACA on the pharmaceutical industry is significant: Sections 2501-2503 require increased rebates to state Medicaid programs, Sections 2704-2706, 3022-3023 downward pressures on pricing in Medicaid and Medicare bundled payments and value based purchasing programs, Subtitle C and D changes to Medicare Part C and D plans including reduced reimbursement and closure of the Part D donut hole, Section 6301-2 requirements of comparative clinical effectiveness research efforts and PCORI, Sections 7002-7003 changes to biologics oversight and shared savings, and Section 9008 referenced above “annual fee” on manufacturers.

CMS clarifies Medicare Prescription Drug (Part D) enrollee financial responsibility for those in higher income brackets

Friday, CMS sent a memo to Part D sponsors clarifying that the Part D-Income Related Monthly Adjustment Amount (Part D-IRMAA) (i.e. an additional amount that higher income Medicare beneficiaries have to pay in addition to their premiums) applies to all Medicare Part D beneficiaries, including individuals in employer group health plans (EGHPs) that offer drug coverage. CMS states, “Some employer groups are under the mistaken impression that beneficiaries enrolled in EGHPs do not have to pay the Part D-IRMAA and may be discouraging members from paying any assessed amounts. We want to clarify that the Part D-IRMAA is assessed to all beneficiaries with Part D coverage whose incomes exceed the above stated threshold amounts… Failure to pay the Part D-IRMAA will result in the individual’s involuntary disenrollment from their plan and, thus, the loss of drug and health coverage through their Medicare Advantage plan or employer group.”

Note: ACA Section 3308 established the Part D-IRMAA for higher income Medicare Part D beneficiaries. In 2011, the Part D-IRMAA applied to individuals with incomes at or above $85,000 for an individual filer or $170,000 for joint filers. Thresholds will remain the same through 2019 (adjusted annually based on the Consumer Price Index). The additional amount ranges from $12.00 to $69.10. The Congressional Budget Office (CBO) estimates that the provision would save $36 billion over ten years.

House Blue Dog Coalition asks CMS to simplify regulations on home health certifications

Wednesday, 20 moderate Democrats from the House Blue Dog Coalition and the Task Force on Oversight and Regulatory Review sent a letter to CMS Administrator Don Berwick asking CMS to revise its regulations on ACA Section 6407 that requires physicians to have face-to-face encounters with individuals to certify them for home health services, effective April 1, 2011. CMS’s regulations require providers to sign a second attestation that includes the date of the face-to-face encounter and provides information about the individual’s medical condition. The Blue Dogs along with long term care industry trade groups argued that the ACA requirement is “duplicative of existing requirements” and “puts proper reimbursement at risk”.

State watch

Medicaid cuts prominent in state FY12 budgets

Per the National Governors Association: for FY 2012, 33 states have proposed reducing provider payment rates, 16 states have proposed freezing provider rates, 25 states will limit benefits, 32 states will step up program integrity efforts, 27 will limit prescription drug spending, 21 will increase instituting enrollee copayments, 12 will increase provider taxes/fees (ten did so in 2011).

In FY 2011, provider payment cuts are planned or were implemented in 24 states, and 15 states froze or plan to freeze rates.

Insurance exchange oversight: update from CMS

Tuesday, CMS issued guidance to assist states as they implement health IT systems for health insurance exchanges mandated under ACA (Section 1311). Per the 15-page guidance, exchange IT systems must “achieve a high degree of interoperability… We envision a streamlined, secure, and interactive customer experience that will maximize automation and real-time adjudication while protecting privacy and personally identifiable information… We want most individuals to be able to complete their online application and receive a program placement quickly, for example, 15 to 20 minutes.”

Note: Per ACA, the exchanges must be up and running by Jan. 1, 2014 serving as a one-stop, online marketplace where uninsured and employees of small businesses can compare and select from a variety of health insurance plans. States will be responsible for creating a data services hub that supports verification of citizenship and income status and support applicants with a call center/online chat customer service operation.

Legislative actions

Wednesday, Colorado Governor John Hickenlooper (D) signed a bill establishing the state’s health insurance exchange making Colorado the eighth state to establish an exchange. The other states are California, Maryland, North Dakota, Virginia, Vermont, Washington, and West Virginia. Two exchange bills await signing from Governors in Hawaii and Illinois.

Wednesday, Illinois state legislature passed the Illinois Health Benefits Act, which would establish the Illinois Health Benefits Exchange. The legislation is expected to be signed by Governor Pat Quinn (D).

Thursday, Alabama Governor Robert Bentley (R) issued an executive order establishing the Alabama Heath Exchange Commission to make recommendations to the Governor during the exchange planning process. Exchange legislation is in the Alabama state legislature is not expected to be passed.

May 27, Indiana Insurance Commissioner Stephen Robertson notified HHS asking the department to “recognize that the Indiana Department of Insurance has an established rate review program for the individual and small group markets.” ACA Section 1003 provides $250 million in funding to states from 2010 until 2014 help review and approve premium rate increases.

Wednesday the California Medicaid program—Medi-Cal—began requiring the state’s 380,000 seniors and disabled to enroll in the Medi-Cal managed care plan.

Thursday, Florida Governor Rick Scott (R) signed legislation to shift Medicaid patients into Medicaid managed care plans. The legislation allows managed care plans and hospital networks to bid on contracts to provide care for 11 different regions and requires managed care plans to repay profits over five percent to the state. HHS is expected to approve the legislation through a waiver by June 30.

Industry news

New CMS rule: Medicare data accessible

Friday, CMS proposed a new rule that would allow qualified organizations to purchase Medicare Part A, B, and D claims data to produce public reports profiling provider and supplier performance.

The rule calls for organizations to share profiling reports with providers and suppliers before they're released in an effort and requires publicly released reports include only aggregated information precluding patient-specific release.

HHS lowers premiums to encourage enrollment in Pre-Existing Condition Insurance Plan

Tuesday, HHS announced its plan to reduce premiums for federal-administered Pre-Existing Condition Insurance Plan (PCIP) by up to 40 percent in 18 states and ease eligibility requirements in 23 states and the District of Columbia. Starting July 1, 2011, individuals applying for coverage can provide a letter from a physician, physician assistant, or nurse practitioner dated within the past 12 months stating that they have or, at any time in the past, had a medical condition, disability, or illness instead of using a health insurance coverage denial letter. HHS also sent letters to the 27 state operated PCIPs about opportunities to modify their current PCIP premiums. ACA Section 1101 provides five billion dollars in funding for the program, which ends in 2014 when health insurance exchanges are operational. From November 2010 to March 2011, enrollment in all PCIPs rose 129 percent to more than 18,000 Americans enrolled.

Antibiotic resistance, development focus of new legislation

The Generating Antibiotic Incentives Now (GAIN) Act sponsored by Rep. Phil Gingrey (R-GA) was introduced last month to allow manufacturers of antibiotics an extra five years patent protection and streamline the FDA approval process to facilitate increased production.

The Strategies to Address Antimicrobial Resistance (STARR) Act was also introduced by Rep. Jim Matheson (D-UT) to authorize a special task force in HHS to study antibiotic resistance in the U.S.

Hepatitis drug approved, second in recent months

The U.S. Food and Drug Administration (FDA) approved Vertex Pharmaceutical’s Incivek last week, the second approval following Merck’s Victrelis targeting the viral disease that results in inflammation of the liver for 3.2 million patients.

IOM recommends revisions to calculating labor costs used to determine Medicare provider payments

Last week, the Institute of Medicine (IOM) released a report on improving accuracy in Medicare payments, focusing on the geographic payment adjustment as called for under the Affordable Health Care for America Act (i.e. the precursor bill to ACA). It recommended changes including:

• Using a single source of wage and benefit data from the Bureau of Labor Statistics (BLS)
• Changing to one set of payment areas and labor markets
• Expanding the range of occupations included in the index calculations
• Developing a new source of data on the cost of office rent and applying the hospital wage index for facilities other than acute-care hospitals

Hospitals groups are concerned that BLS data does not capture factors that impacts cost accurately, including pension, benefit and overtime costs, and differences in hospitals' wage costs.

Note: IOM’s policy recommendations do not impact total Medicare spending because federal law requires geographic adjustments to be budget neutral. The current system of geographic adjustment for hospitals uses 441 labor markets to define payment areas, and hospitals are classified according to their location in 365 metropolitan statistical areas with the balance of nonmetropolitan counties combined into “rest-of-state” areas. The geographic adjustment system for physician payment uses 89 payments areas, some of which include large metropolitan areas, while 34 are statewide with combinations of metropolitan and nonmetropolitan areas.

FDA official defends device approval process, says European device approval process will not work in U.S.

Thursday, the head of the FDA's medical device division, Jeffrey Shuren, told the House Oversight and Government Reform Committee that the European model for approving medical devices would not work for the United States because the EU standards are lax on proof of effectiveness.

Shuren acknowledged industry criticism about FDA becoming more risk averse, and dismissed the idea that overly burdensome regulations are to blame.

In his written testimony, Shuren noted, “The FDA recognizes that it can do a better job at managing its premarket review programs. We know that medical device development is expensive. And we agree that, in many areas, insufficient clarity, consistency, and predictability on our part contributes to those expenses. The best way to improve the device approvals process is to make the U.S. process the “gold standard we should stand behind”.

Energy and Commerce Health Subcommittee leaders send letter to MedPAC regarding payment cuts to diagnostic imaging services

Last week, Energy and Commerce Subcommittee Chair Rep. Joe Pitts (R-PA) and Vice-Chair Frank Pallone (D-NJ) sent a letter to MedPAC requesting that scheduled imaging payment cuts be allowed to go into effect before new restrictions are considered. The chairmen stated that Medicare spending for advanced imaging services was cut by 19.2 percent (13.2 percent for overall imaging) in 2007 compared to previous years due to payment changes from the Deficit Reduction Act (DRA) and that Medicare reimbursement was reduced by $1.7 billion in the first year of DRA s implementation (Source: GAO). MedPAC issues its annual payment recommendations in March and June reports.

House approves a measure to require the FDA to use “hard science”

Tuesday, the House Appropriations Committee approved an amendment to the FDA spending bill that would require the FDA to base guidance and regulations “intended to restrict the use of a substance or a compound” on “hard science.” The amendment was proposed by Rep. Denny Rehberg (R-MT) and is opposed by the Committee’s democrats. Last week, an FDA spending bill passed that reduces the FDA’s budget by 11.5 percent (or $285 million) from fiscal 2011 levels and by 20 percent from the president's request.

HITECH update

Thursday, the House Small Business Healthcare and Technology Subcommittee heard testimony from practicing physicians who said despite the $63,750 six year federal incentive for electronic health record (EHR) adoption, the overall costs and lengthy installation times required are deterrents to adoption.

EHR adoption increasing: ONC

Currently 24.9 percent of office-based care physicians (and 29.6 percent of primary care physicians) have adopted at least a “basic” electronic medical record. 15.1 percent of acute non-federal hospitals use a “basic” EHR—up 29 percent from 11.7 percent in 2009. (Source: National Center for Health Statistics)

As of May, there are six Office of the National Coordinator for Health Information Technology (ONC) authorized certification and testing entities that have certified 465 ambulatory EHR systems and 253 inpatient EHR systems. (Source: Office of the National Coordinator for Health Information Technology)

CMS seeks comments on the Physician Quality Reporting System electronic health record measures

CMS is accepting comments on proposed HER measure specifications for the Physician Quality Reporting System (formerly Physician Quality Reporting Initiative [PQRI]) for 2012 and future years. At this time, the measures are not intended for use in the EHR Incentive Program enacted under the Health Information Technology for Economic and Clinical Health (HITECH), which amended the American Recovery and Reinvestment Act (ARRA). Comments are accepted until June 30, 2011. Note: there is a clear crosswalk between data collected in “meaningful use” and PQRI reporting requirements in ACA.

ONC publishes proposed regulations for ONC-Approved Accreditors participating in the Permanent Certification Program for Health IT

Tuesday, ONC published a proposed rule establishing processes for ONC-Approved Accreditors (ONC-AA) participating in the Permanent Certification Program for Health Information Technology. The rule explains ONC-AAs responsibilities, provides ways to remove or take action against ONC-AAs that engage in fraud, misconduct, or fail to perform their responsibilities satisfactorily, and recommends ways to address ONC-Authorized Certification Body (ONC-ACBs) when the ONC-AA’s organization changes.

Note: January 2011, ONC published final regulations establishing a permanent EHR certification program set to begin in 2012. Per the rule, ONC will select one organization, an ONC-AA, to accredit organizations seeking to become health IT certification body. After an entity is accredited by the ONC-AA, it can apply to become an ONC-authorized certification body.

CMS releases Exchange/Medicaid IT Guidance 2.0

Tuesday, CMS released “Exchange/Medicaid IT Guidance 2.0” to support the use of health IT in exchanges, Medicaid and Children's Health Insurance Program (CHIP). Version 2.0 establishes a framework and approach for developing IT systems related to the Early Innovator IT Cooperative Agreement awards issued to seven applicant states and state consortia (Kansas, Maryland, New York, Oklahoma, Oregon, Wisconsin, and a multi-state consortium led by the University of Massachusetts Medical School) on February 26, 2011 and the Final Rule on Federal Funding for Medicaid Eligibility Determination and Enrollment Activities published on April 19, 2011. HHS plans to create a centralized data verification hub to check citizenship, immigration, and tax status for applicants to the exchanges, Medicaid, and CHIP.

Quotable

“The administration plans to establish “Medicare spending per beneficiary” as a new measure of hospital performance, just like the mortality rate for heart attack patients and the infection rate for surgery patients. Hospitals could be held accountable not only for the cost of the care they provide, but also for the cost of services performed by doctors and other health care providers in the 90 days after a Medicare patient leaves the hospital. This plan has drawn fire from hospitals, which say they have little control over services provided after a patient’s discharge — and, in many cases, do not even know about them. More generally, they are apprehensive about Medicare’s plans to reward and penalize hospitals based on untested measures of efficiency that include spending per beneficiary.”

 – “Medicare Plan for Payments Irks Hospital” New York Times May 30, 2011

“…Unfortunately, Americans too often do not receive care that they need, or they receive care that causes harm. Care can be delivered too late or without full consideration of a patient's preferences and values. Many times, our system of health care distributes services inefficiently and unevenly across populations. Some Americans receive worse care than other Americans. These disparities may be due to differences in access to care, provider biases, poor provider-patient communication, and poor health literacy.”

 – National Healthcare Quality and Disparities Reports 2010, Agency for Health Care Research and Quality

Fact file

• Adults with a college degree are four times less likely to report being in fair or poor health than adults with a high school diploma. Example: type 2 diabetes incidence: 6.4 percent versus 13.2 percent. (Source: CDC 2011)
• Obesity incidence increased 1.1 percent in 2008 versus 2007, adding 2.4 million adults. (Source: CDC)
• In 2008, among 28 million inpatients treated in U.S. hospitals, 6.3 million injuries occurred including 1.5 million from medical error; seven percent of admissions resulting in an injury costing $19.5 billion, 2,500 deaths and ten million days of work lost. (Source: Clark et al, “The Top 10 Most Frequent Medical Errors” Society of Actuaries analysis September, 2010)
• Unemployment in May, 2011: 9.1 percent—up from 9.0 percent in April. (Source: U.S. Department of Labor)
• A ten percent increase babies born in hospitals using EHRs could reduce infant deaths by 16 per 100,000 live births in the U.S., or 6,400 annually with full EHR use. (Source: Journal of Political Economy)
• Five billion mobile phone subscriptions are in effect globally. Tuesday, the World Health Organization (WHO) International Agency for Research on Cancer re-classified radiofrequency electromagnetic fields such as those used in cell phones as a possible human carcinogen. (Source: WHO)
• State spending will increase 2.6 percent next year after increasing 5.2 percent this year. Twenty-four states in FY 2011 have implemented or are planning Medicaid payment reductions. (Source: National Governors’ Association)
• At some point in 2010, 68 million Americans were enrolled in Medicaid; costs were $406 billion for acute and long-term care. (Source: Iglehart “Medicaid at the Crossroads” New England Journal of Medicine, April 28, 2011)
• Low literacy is prevalent among one in three Medicare enrollees directly accounting for five percent of Medicare costs. (Source: AHRQ)
• 90 percent of adverse events in hospitals are missed by traditional methods of reporting. (Source: AHRQ study in Health Affairs, April 2011)
• In 2010, 1.1 million men had cosmetic surgery—plus two percent over 2009. By comparison, procedures for women increased five percent. (Source: American Society of Plastic Surgeons)
• 2.6 million Medicare patients discharged from hospitals are readmitted annually within 30 days, costing $30 billion annually. (Source: Partnership for Patients, HHS May 2011)
• By 2050, average EU retirement age will increase 1.6 years for men and 2.5 years for women to 65, while life expectancy will increase three years for men and three and a half for women. (Source: The Economist, “Hiring Grandpa”, April 7, 2011)
• The U.S. invests 2.4 percent of its GDP in infrastructure (water, electrical grid, transportation) versus five percent in Europe and nine percent in China. (Source: Congressional Budget Office, OECD)
• U.S. economic growth in last 12 months for the Global 200: +3 percent versus +12 percent for Global 200 investments in emerging markets. For the average company in the list, 26 percent of sales are global; the world GDP grew +5 percent in 2010. (Source: Standard and Poor’s analysis of its Global 200 companies)
• Mortality rates down for cancer (11-19 percent) and up for cardiac surgery (up to 36 percent): use of registries, adherence to safety and guidelines root causes. (Source: Finks et al, New England Journal of Medicine, June 2, 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.

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.

Stay Connected

    E-mail |      RSS ( What is RSS?) |     Twitter