Health Care Reform Memo: September 19, 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

His breakout role as Jim Anderson in 203 episodes of “Father Knows Best” made Robert Young a natural for the new series, “Marcus Welby, MD”. From 1969 to 1976, Robert Young’s portrayal of “Marcus Welby, MD” fit the bill: a family physician with an unfettered demeanor—wise, warm, caring, respectful, and adored by his patients. The primetime transformation from Midwestern insurance agent Anderson to west coast clinician fit Young’s persona perfectly; he looked and acted the parts naturally.

Its 169 weekly episodes often featured Welby’s young protégé, Dr. Steve Kiley (played by James Brolin), revealing a stark contrast between older and wiser vs. young and brash. To punctuate the generational divide, the opening credits showed Welby in his comfortable sedan and Kiley on a motorcycle, as if to say the two couldn’t be further apart.

Set in Santa Monica, California, the show’s creators rounded out the central cast with Consuelo Lopez (played by Elena Verdugo) who served as office manager, greeter, life coach to young Dr. Kiley, and best friend to every patient entering the practice.

The impact of Marcus Welby, MD on our culture was strong as were its TV contemporaries—Dr. Kildare, Ben Casey, and others. But what made Welby unique was its portrayal of primary care medicine. For many, it remains the ideal. In reality, primary care medicine today bears faint resemblance to Marcus Welby, MD, though patients and consumers seem to wish otherwise.

Primary care medicine is an endangered species. It’s understandable:

• Primary care physicians are paid substantially less than specialists.
• Primary care medicine is frowned on in certain academic settings as a career choice.
• While demand for primary care services is increasing, its supply is not keeping pace.

The majority of consumers “say” they have a primary care relationship (see chart below from Deloitte 2011 Survey of U.S. Health Consumers) but one-fourth don’t, and the economic downturn has resulted in fewer visits for routine care.

Notably, attention is being paid once again to primary care. New schools of medicine are opening focused on primary care training. Retail clinics and advanced practice nursing programs are expanding access to qualified providers. Community health centers are getting much-needed funding for upgrades and expansion. And the pay differential is being addressed partially through the proposed changes to the sustainable growth rate (SGR) and the central role primary care plays in accountable care and medical homes. But is it enough?

At the center of developed health systems of the world is a dependence on primary care to manage health problems before they are acute and to coordinate with other caregivers’ patient risk factors and co-morbidities to allay disease progression. That central role is not mirrored in the U.S. system.

Marcus Welby, MD is an important part of our pop culture. It conjures “the good ole days” for practitioners and patients alike. But the best days for primary care may be ahead. Information technologies that enhance patient connectivity and enhance self-care are readily available. Health plans and government programs are encouraging primary care’s role as gatekeeper. The centricity of primary care in newly forming integrated systems with specialty medicine, acute, and long-term care providers is encouraging. And consumers are becoming mindful that it is, after all, essential to health.

I was an organic chemistry major in college with a goal of medicine. The strong, positive image of Marcus Welby, MD was never far from my career track, nor far today.

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

Note: today, the Deloitte Center for Health Solutions released a new issue entitled Primary Care: Today and Tomorrow. To download, please click here.

Implementation update

ACA primary care provisions

In the Affordable Care Act (ACA), primary care is a central feature:

Constitutional challenge update: Pennsylvania District Court rules the individual mandate unconstitutional

Tuesday, a Pennsylvania District Court Judge ruled that Congress cannot “…invoke its Commerce Clause power to compel individuals to buy insurance as a condition of lawful citizenship or residency.” The ruling follows a ruling by the U.S. Court of Appeals for the Fourth Circuit (Richmond) that found that it lacked jurisdiction to hear challenges to ACA’s individual mandate.

Note: more than 30 lawsuits have been filed related to the ACA, most challenging the individual mandate. The DC Circuit Court of Appeals court will hear arguments on the ACA on September 23. In June, the 6th U.S. Circuit Court of Appeals (Cincinnati) upheld the constitutionality of the insurance requirement now being appealed to the Supreme Court by the plaintiff, the Thomas More Law Center of Ann Arbor, Mich. In all likelihood, the challenges will end up in the Supreme Court, which does not convene until October, with a hearing in early 2012

CMS releases final rule implementing the Medicaid RAC Program

Wednesday, the Centers for Medicare & Medicaid Services (CMS) released a final rule implementing the Medicaid Recovery Audit Contractor (RAC) Program created under ACA Section 6411. The rule provides guidance to states on federal and state funding of start-up, operation, and maintenance costs of Medicaid RACs and the methodology for state payments to Medicaid RACs. HHS estimates savings of $2.1 billion over five years, $900 million of which will be returned to states. The new program is based on the Medicare RAC program, which recouped almost $670 million as of September 14, increasing taxpayer dollars recovered by nearly 800 percent, compared to 2010.

GOP seeks repeal of CLASS Act in ACA

The Community Living Assistance Services and Supports (CLASS) program (ACA Section 8002) is a voluntary, self-funded, long-term care insurance program: individuals pay a premium for five years and thereafter receive a permanent disability benefit. Because of timing of its implementation, the Congressional Budget Office (CBO) only included the premiums in its scoring of CLASS, without any offsetting program costs because benefits do not begin until after 2019. Thursday, the Repeal CLASS Working Group, made up of Republican House members, released a report challenging the solvency of CLASS challenging the veracity of HHS as it sought CLASS inclusion in ACA.

Note: CBO projected that CLASS would reduce the federal budget deficit by $87 billion through 2021, but by 2030, the program would be paying out more than it would be taking in.

Legislative update

President Obama proposes America’s Job Act

Last week, the President announced his desire to see the American Job Bill passed to reduce unemployment as the economy recovers. If passed, the $447 billion proposal will be the third stimulus package since 2008: $152 billion in February 2008 and the American Recovery and Reconstruction Act (ARRA) stimulus package ($840 billion) in February 2009. The proposed law would add $450 billion to the budget deficit over the next 18 months and includes three major components: $250 billion in tax cuts (employer and individual), $100 billion in infrastructure spending, and $100 billion in direct aid.

Note: during the downturn, the health care industry added 900,000 jobs while the rest of the economy lost seven million. The current downturn is the second longest in the nation’s history only exceeded by the Depression whose recovery spanned a decade (1929-1939). Consensus among economists is a one in three chance of a double-dip recession, and per the CBO (Tuesday, September 13), 2012 unemployment hovering at 9 percent with gross domestic product (GDP) at 2.5 percent.

Select Committee begins work, impact on health care spending considered in first meeting

According to the CBO, the health care sector would face smaller cuts from spending if the across-the-board cuts are triggered in January 2013 versus possible cuts in the Joint Select Committee’s $1.5 trillion budget savings proposal. Medicare would face a 2 percent cut to providers across the board—about $123 billion from 2013 to 2021; Medicaid cuts are excluded entirely. Therefore, federal health care cuts would be slightly more than 10 percent of the minimum $1.2 trillion in new savings required by the Budget Control Act of 2011 though they account for 21 percent of the federal budget in 2010. The next public meeting is September 22, 2011.

Committee notes from the September 13 meeting: Committee member Senator Jon Kyl (R-AZ) encouraged other members to consider “administrative savings” from reducing fraud and abuse in Medicare, Medicaid, and Social Security, totaling $125 billion in 2010. Improper payments to Medicare and Medicaid totaled about $70 billion in FY 2010, per the Government Accountability Office (GAO) July report. CBO Director Doug Elmendorf told the committee it would need their recommendations by early November to allow time for scoring.

Note: the committee's new website is DeficitReduction.gov.

MedPAC recommendation: eliminate SGR, freeze payments to PCPs, cut payments to others 18 percent

Last week, MedPAC suggested its method for fixing the SGR formula: replace the Medicare SGR with ten years of legislated fee schedule updates at a cost of $200 billion, compared with the $300 billion cost of freezing payments at current payment levels. The SGR fix would be paid for by offsets of $235 billion distributed among health care sectors and beneficiaries (through greater cost-sharing) as follows: drug manufacturers (32 percent), post-acute care providers (21 percent), beneficiaries (14 percent), hospitals (11 percent), labs (9 percent), durable medical equipment manufacturers (6 percent), and Medicare Advantage (MA) plans (5 percent).

A notable feature of the advisory group’s recommendation is its encouragement of physician participation in accountable care organizations (ACOs) noting the “current fee for service payment system is inherently flawed—it rewards volume growth, penalizes providers who constrain unnecessary spending, and provides no accountability for care quality”. Another feature is the recommendation that physicians be allowed to balance bill Medicare enrollees up to 30 percent of the total charge. (Source: “Moving Forward from the Sustainable Growth Rate Model” MedPAC September 15, 2011)

Senate Democrats encourage delivery system reforms to cut cost, protect system

Friday, 12 Democratic Senators sent a letter to the White House encouraging it to pursue “$700 billion in health care savings without harming the quality of care” citing the Council of Economic Advisors analysis. The group is asking the White House to pursue $42 billion in annual savings due to delivery system inefficiency and ineffectiveness instead of cuts to Medicare enrollee benefits.

HHS funds community health center upgrades

Monday, HHS awarded $8.5 million in ACA funding to 85 community health centers located in 15 of the 17 Beacon Communities to support the adoption of health information technology (IT). The Office of the National Coordinator for Health Information Technology (ONC) provides funds to Beacon Communities to strengthen their health IT infrastructure and exchange capabilities.

Thursday, HHS awarded $10 million to help 129 organizations nationwide become community health centers. The Health Center Planning Grants administered by HHS’s Health Resources and Service Administration (HRSA) will distribute the funds.

Note: since 2009, health centers have added more than 18,600 new full-time positions and in 2010, they employed more than 131,000 staff. Funding has come from the stimulus bill (ARRA) and ACA. Community health centers are considered the primary care safety net for under-served populations.

Upcoming congressional hearings

The Senate Finance Committee will hold a hearing this Wednesday on improving care, while lowering the cost for Medicare-Medicaid dual eligibles. The House Ways and Means health subcommittee will also hold a hearing September 21, focusing on certain expiring Medicare provider payment provisions and the impact these provisions have on health care providers.

State update

MLR waivers, managed Medicaid

• Delaware’s request for an MLR adjustment was rejected by the Center for Consumer Information and Insurance Oversight (CCIIO) September 15, making it the only other state besides North Dakota to have its application denied. It wanted a three-year phase-in of the MLR requirement, but CCIIO found the state’s individual insurance market would not be destabilized without a waiver. Two of the state’s insurers in the individual market would have to pay rebates but CCIIO said the companies are profitable anyway.
• Wednesday, Texas received federal approval to expand Medicaid managed care across the state and create funding pools to finance hospital infrastructure and quality improvement programs.

HRSA funds Regional Telehealth Resource Center grants

Last week, HRSA awarded Regional Telehealth Resource Center grants of $1 million each to three organizations to establish telehealth resource centers in Maine, Indiana, and Virginia. There three centers will join the current nine telehealth centers connecting rural and urban providers throughout the U.S. The centers to be establishes are:

• The Mid-Atlantic Telehealth Resource Center serving the District of Columbia, Virginia, Delaware, Kentucky, Maryland, North Carolina, and West Virginia
• The Northeast Telehealth Resource Center, serving the six New England states and New York
• Upper Midwest Telehealth Resource Center serving Indiana, Illinois, Ohio, and Michigan

Industry news

CCIIO: MLR rule causing health plans to reduce premium increases

Thursday, Director of CCIIO, Steve Larson, testified before the House Energy and Commerce Health Subcommittee on MLR requirements. Larson noted that MLR regulation is causing health insurers to slow the rate of premium growth or even cut premiums, and that up to nine million Americans will receive rebates from insurance companies in 2012 totaling up to $1.4 billion. The hearing was on H.R. 2077, a Republican bill that would repeal the MLR provision from the ACA.

Note: under ACA, consumers start getting rebates in 2012 from insurers that did not meet the MLR standard in 2011.

Health IT week declared

President Obama declared last week Health IT Week coinciding with an HHS announcement of new rules to allow patients to get their test results directly from the lab and clarification of rules to allow providers to give medical records to patients under HIPAA, Secretary Sebelius noted. “Given the fact that health care is one of the fastest growing fields in the United States and around the world, we believe health information technology could be a major job creator for years to come.”

OIG: fraudulent billing in physician practices

Friday, the Office of the Inspector General (OIG) announced Medicare overpaid physicians $28.8 million in 2008 and 2009 for ambulatory and outpatient services performed in hospitals instead of doctors' offices. Under Medicare, the entity that provides the space for a medical procedure is compensated for its overhead costs. Physicians, or their independent billing agency, can increase Medicare income by claiming to have provided space for the services that were actually done at hospitals or freestanding ambulatory surgery centers. OIG auditors found more than one million Medicare claims for which both hospitals and physicians were paid for providing facility space for the same procedure on the same day for the same patients in 2008 and 2009.

CBO: removing pay-to-delay by drug manufacturers would reduce costs

In a letter to be sent Thursday, Federal Trade Commission (FTC) chairman Jon Leibowitz asked the Joint Select Committee to stop brand-name drug makers from paying their competitors to keep generic drugs off the market citing CBO data estimating federal savings of $2.7 billion over ten years.

Stage Two meaningful use improves outcomes: study

RAND Researchers examined data from 2,543 hospitals responding to the 2007 American Hospital Association Information Technology Supplement. The survey assessed levels of computerized physician order entry (CPOE) use for medication orders and compared those with 30-day mortality rates from the CMS Hospital Compare database for heart attack, heart failure, and pneumonia using a simulation model. Results found that a 26 percent threshold—deemed by RAND to be "a level of use comparable to the 30 percent threshold required for Stage 1 meaningful use"—would result in 1.2 percent fewer deaths from heart failure and heart attack among hospitalized Medicare beneficiaries. Use of CPOE for 60 percent of medication orders—the level that federal policy experts recommend as a Stage 2 meaningful-use criterion—"was more consistently associated with lower mortality…and could result in 2.1 percent fewer deaths" for heart attack and heart failure but not pneumonia. (Source: "Today's 'Meaningful Use' Standard for Medication Orders by Hospitals May Save Few Lives; Later Stages May Do More," Health Affairs, September 16, 2011)

HHS: Medicare Advantage premiums will decrease 4 percent, enrollment increases by 10 percent in 2011

Thursday, HHS announced that MA premiums on average will be 4 percent lower in 2012 than in 2011, and plans project enrollment to increase by 10 percent. Almost all Medicare enrollees (99.7 percent) will continue to have access to a MA plan with benefits remaining consistent with those offered in 2011.

Note: for the first time, in 2012 CMS will provide financial rewards to MA plans with high quality scores, under its Five-Star rating methodology. CMS is allowing Five-Star MA and prescription drug plans to continuously market and enroll beneficiaries throughout the year, as an additional incentive for high quality performance.

President Obama signs patent reform bill; announces NIH center to promote drug development

Friday President Obama signed into law “The America Invents Act” that transitions the U.S. patent system from a “first to invent” to a “first to file” system. The law gives the U.S. Patent and Trademark Office (USPTO) resources to reduce patent application waiting times including reducing its backlog by 75,000 and provide new ways to avoid litigation regarding patent validity.

The President also announced a new National Institutes of Health (NIH) Center—the National Center for Advancing Translational Sciences—created to promote drug development by helping manufacturers reduce the time and costs needed to develop drugs and by helping startup companies commercialize biomedical inventions.

HHS launches public-private sector initiative to prevent heart attacks and strokes

Tuesday, HHS launched a public-private sector initiative, Million Hearts, to prevent one million heart attacks and strokes over the next five years. Million Hearts aims to empower individuals to make healthy choices and improve care for individuals who do need treatment by promoting a targeted focus to on the “ABCS”: Aspirin for people at risk, Blood pressure control, Cholesterol management, and Smoking cessation.

Note: cardiovascular disease costs $444 billion annually in medical costs and lost productivity in Americans; treatment for heart disease and stroke account for about $1 of every $6 spent in the U.S.

Quotable

“Unless changes are made, the amount of money needed by the federal government to meet its entitlement program obligations will rise “well above the amount of revenue the federal government has collected in the past. The aging of the population and health care cost increases have changed the backdrop of budget decisions in a major way…Spending on Social Security and government health programs is projected to increase to 12.2 percent of gross domestic product in 2021 under current law CBO projects that about half of spending for major health care programs in 2021 will go to people over age 65, with another quarter going to the blind and disabled, with the remaining quarter going to able-bodied nonelderly people.”

 – Doug Elmendorf, CBO Director to Joint Select Committee on Deficit Reduction, September 13, 2011

“A lot of people I don’t see for four, five months. I ask what’s happened and they say ‘I lost my insurance’ what I try to tell them is that until our relationship is severed by either you or me, I’m your doctor.”

 – Dr. Eric Ramos, “Doctors go to bat for uninsured,” USA Today, September 13, 2011

Fact file

• U.S. health care spending share of the gross domestic product (GDP) reached an all-time high of 18.2 percent in June 2011, an increase of 5.1 percent relative to July 2010. (Source: Altarum Institute, September 2011 Health Sector Economic Indicators Reports)
• Insured people reporting an unmet medical need declined by more than a quarter—from 6.2 percent to 4.5 percent—between 2007 and 2010. (Source: Center for Studying Health System Change, August 2011)
• 94.8 percent of medical students surveyed at ten large medical schools believe that the current U.S. health care system needs to be reformed; 31.4 percent believed the ACA will improve health care quality, while 20.9 percent disagreed and 47.7 percent were unsure if quality will be improved. (Source: “Healthcare Reform and the Next Generation: United States Medical Student Attitudes toward the Patient Protection and Affordable Care Act,” Public Library of Science journal, September 2011)
• Two-thirds of Medicaid beneficiaries nationally are enrolled in comprehensive managed care programs, including risk-based managed care organizations (MCO) and primary care case management programs (PCCM). Only three states (Alaska, New Hampshire, and Wyoming) reported that they did not have any Medicaid managed care as of October 2010. (Source: Kaiser Family Foundation, “Profile of Medicaid Managed Care Programs in 2010: Findings from a 50-State Survey,” September 13, 2011)
• As of August 2011, there are 90,650 Medicare and Medicaid Electronic Health Record incentive participants; $652.2 million payments have been distributed. (Source: CMS, September 14, 2011)
• The number of uninsured increased from 49 million to 49.9 million in 2010. The percentage without coverage (16.3 percent) was not statistically different from the rate in 2009. (Source: 2010 U.S. Census)
• Economic forecast: GDP in 2011 will be +1.3 percent, +2.5 percent in 2012; unemployment at 9 percent for 2011; social security will be 4.8 percent of the GDP in 2011, 5.4 percent in 2021. (Source: Doug Elmendorf, CBO Director testimony September 13, 2011)
• Consumer prices for August 2011: hospital prices +0.6 percent, vs. +0.5 percent in July; physician services +0.2 percent in August vs. +0.1 percent in July. For last 12 months, hospital prices increased 7 percent vs. 6.9 percent a year ago; physician prices increased 2.5 percent vs. 3.2 percent a year ago. (Source: Bureau of Labor Statistics [BLS])
• About 44 percent of unemployed workers have gone without paychecks for six months or longer. In the past 50 years, the number had never past 26 percent in the past 50 years. (Source: Richmond Federal Reserve Bank)
• Hospital readmissions in New York cost $3.7 billion per year. 15 percent of all initial hospital stays resulted in a readmission within 30 days, a figure that translates to nearly 274,000 additional hospital stays. (Source: New York State Health Foundation)
• Military health costs are expected to reach $52.5 billion in 2012, up from $19 billion in 2001. (Source: Pentagon)
• In March 2011, medical care benefits were available to 69 percent of private industry workers, compared with 87 percent among state and local government workers. (Source: BLS)

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

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