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Health Care Reform Memo: January 11, 2010

A 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 new administration and implications for the C-suite and various stakeholder groups.

Update: House-Senate bill reconciliation process

The media spotlight this week will likely be on the first of nine scheduled hearings of the Financial Crisis Inquiry Commission and continued coverage of airport security measures in the aftermath of the Christmas day capture of terror suspect Abdulmutallab, Democratic leaders in the House and Senate plan meetings this week to accelerate reconciliation of the two bills employing a rarely-used tactic to fast-track a bill’s passage. The House will amend the Senate bill (December 24, 2009), vote to pass that version in the House, then the Senate will vote on the House-amended version of the original.

The Senate returns to DC this week; committee staff and House Democratic leaders began meetings last week to resolve 50 differences in the bills. Public statements by House leaders suggests some important concessions toward features in the Senate bill passed December 24:

  • Willingness of the House Democrats to forego a public option in exchange for adjustments to the subsidies formula (individuals/families up to 400 percent of the FPL (federal poverty level) that would benefit middle households in the 150-300 percent FPL eligibility band and tighter restrictions on insurance companies
  • Willingness of House Democrats to include a “Cadillac plan” excise tax in the funding formula for the reform bill (generating $132-149 billion) provided threshold limits exempt certain worker groups awarded benefits in lieu of wage increases in prior years (the Senate bill already exempted communications workers, firefighters, police and mine workers)

Negotiations around five key issues will be the focus: (1) restrictions on federal funding for abortion via the subsidies and insurance reforms, (2) the choice of taxes on higher-income individuals between an income tax increase or increased Medicare withholding, (3) regulatory oversight of the health insurance exchange, with the House favoring federal control vs. Senate language that deems states responsibility, (4) the creation of an Independent Medicare Advisory Commission to set rates for physician and hospital payments—included in the Senate bill, and (5) the advisability of the employer mandate—a feature of the House bill.

Likely attention will also be on the “Cornhusker Concession”—an agreement in the Senate bill that provided Nebraska permanent funding for costs associated with expansion of the state’s Medicaid enrollment beginning 2013. At least 14 states have indicated they will challenge the concessions: pundits believe a compromise possibly expanding federal funding to other states might result.

The timing and amount of subsidies for eligible individuals/families up to 400 percent of the federal poverty level remains a major difference in the bills: the House includes $602 billion in subsidies 2013-2019, the Senate $436 billion 2014-2019. The House bill’s Medicaid eligibility limit of 150 percent is higher than 133 percent in the Senate version—most expect 133 percent to be in the final legislation with expansion and subsidies beginning 2013.


“We will reconcile this legislation in a way that is a AAA rating — affordability for the middle class, accountability for the insurance companies and accessibility to many more people in our country to quality, affordable health care.”

-- Speaker of the House Nancy Pelosi (D-CA) speaking to reporters after White House meeting on the health reform bill process Wednesday)

“If we can induce hospitals and health plans to improve efficiency and not just cut costs, then health costs in the United States will come down and outcomes will improve. Although it is necessary to confront the trade-off between cost and outcome at the margin, we can have our cake and eat it too if we induce inefficient providers to adopt cost-effective health practices instead of cost-ineffective ones.”

-- Source: Milton C. Weinstein, Ph.D., and Jonathan A. Skinner, Ph.D “Comparative Effectiveness and Health Care Spending — Implications for Reform” New England Journal of Medicine January 6, 2010

CMS report Tuesday: 2008 health costs up to $7,681 per person, slower spending in private sector offset by dramatic increase in federal spending on health care

Reflective of the overall economic downturn, health costs for 2008 were up 4.4 percent over 2007 (compared to 6 percent in 2007) but federal spending for Medicare and Medicaid was up 10.4 percent compared to a 6.6 percent increase in 2007—the highest year over year increase in federal health spending in 20 years. Total spending—$2.338 trillion—increased to 16.2 percent of the U.S. GDP from 15.9 in 2007 Notably, federal spending for Medicare, Medicaid, military health, and others now represents 36 percent of the federal budget, up from 28 percent in 2007.

Year over year spending increases by category reflect the impact of the recession:

Select categories 2007 2008 % Change 2007-2008
Hospital (bil) $687.60 $718.40 4.5
Physicians/clinical professionals other than dental $472.60 $496.20 5
Prescription drugs $226.80 $234.10 3.2
Program administration/net insurance administrative costs $158.40 $159.60 0.7
Government & public health programs $64.80 $69.40 7.1

Source: Centers for Medicare and Medicaid Services,

Health reform: AMA lays out strategy for 2010

The American Medical Association’s 2010 Strategic Plan lays out five areas where it will focus its efforts: (1) Access to Care: increased coverage for the uninsured should be accompanied by increased access to physicians, (2) Quality of care: in addition to increased use of information technology, the AMA will promote increased use of its Physician Consortium for Performance Improvement measures as valid and reliable measures for gauging quality, (3) Cost of Care: liability reforms and mechanisms to prevent disintermediation of the physician-patient relationships are the focus, (4) Prevention and Wellness: fair payments to physicians at the center of efforts to enhance access to preventive health services, and (5) Payment Models: elimination of the sustainable growth rate payment model for physicians. 

Source: American Medical News, December 14, 2009

Cardiologist file suit to challenge payment rates

December 29, the American College of Cardiology (ACC) filed a complaint against Health and Human Services (HHS) Secretary Kathleen Sebelius in the U.S. District Court for the Southern District of Florida over "unlawful adoption" of Medicare payment rates for cardiology services in 2010. The suit alleges that payment rates for cardiology services on the 2010 Medicare Physician Fee Schedule (MPFS) used an invalid physician practice information based on a survey of 55 practices ACC says did not accurately represent its membership. 
NOTE: the physician payment formula “fix” is not in either the House or Senate bill. AMA wants the “sustainable growth rate” formula thrown out in lieu of a new formula that accounts for time spent by physicians in diagnosing and treating patients. It opposes language in the Senate bill that would create an independent commission to set payment rates for physicians and hospitals.

High value hospitals focus of reform, but methodology in question

Throughout the health reform debate, proponents of value-based purchasing have pointed to data from the Dartmouth Atlas to demonstrate wide variation in hospital costs for Medicare patients, with Midwestern hospitals generally faring better than others. A recent MedPAC study refuted the hypothesis finding that environmental factors—crime rates, poverty, health status, others mitigate the differences. It also found teaching hospitals were disproportionately disadvantaged in the value indexing process since additional costs for medical education of residents and allied health professionals were not calibrated in the Dartmouth formula.

Value-based purchasing of hospital services is likely to be in the reform legislation. A payment modifier based on an individual hospital’s efficiency or a market’s overall efficiency is probable in the bill. It will likely be left to the Institute of Medicine to recommend a methodology that accommodates the dispute while promoting use of higher value acute services.

Reactions to “meaningful use” rules vary in initial comment period

The Centers for Medicare and Medicaid Services and the Office of the National Coordinator for Health Information Technology release their initial roadmap for “meaningful use” of electronic health records on December 30 for a 60-day comment period. Key stakeholder groups weighed in last week:

  • “Unreasonable thresholds for CPOE and eligibility verification, first year attestation and ability to provide patients access to electronic records problematic” (Medical Group Management Association)
  • "Serious concerns that the new rules severely limit hospitals' ability to access federal financing for health information technology that is used to improve patient care and do not recognize previous efforts of hospitals to use technology in error reduction and improved safety” (American Hospital Association)
  • Concerns about “extraneous requirements that would delay successful adoption and reasonable reporting requirements" (American Medical Association)
  • “Does not contain important criteria to provide patients control of their personal health information” (Patient Privacy Rights)
  • “Includes all the highly mature constructs that are deployable in 2011 without overburdening the industry." (Electronic Records Institute)
  • "There is much more to applaud than criticize. We now have clarity of what technology functions constitute a qualified electronic health record, we now have a multi-year road map of future expectations, and we have certainty about many of the standards necessary to support practitioners’ ability to improve patient care." (Healthcare Information and Management Systems Society)

Action item: Health information exchange opportunity announced by Office of the National Coordinator (ONC); provider organizations, state government

ONC issued a request for proposals for its State Health Information Exchange (State HIE) Technical Assistance (TA) Program. Proposals are due January 22, 2010. The TA Program provides consistent coordination and direction for general planning, governance, finance, technical infrastructure, business and technical operations, legal/policy, Nationwide Health Information Network (NHIN), meaningful use and grants management to State HIE Cooperative Agreement awardees who will be supporting providers. Grants allow providers to access newly developed statewide HIE capability in concert with other ARRA funded programs, for example: HTRIC, Beacon Community Program and Regional Extension Centers.

Illinois legislation landmark: denied claims reviewed by independent physician

A legal precedent was set last week as Illinois Governor Pat Quinn signed HR 3923 into law, ensuring that denied health insurance claims can be reviewed by a qualified, independent doctor. Under current state law, only HMO enrollees have the right. House Bill 3923 extends the right to all Illinois residents with health insurance coverage.

Medicare Modernization Act—Case study in how markets work

MIT economists Jon Gruber and Jason Abaluck evaluated data from about 2.7 million enrollees in the Part D “Prescription Drug Plan” and found the average consumer had more than 40 choices from which to choose, and in 70 percent of the selections, a cheaper plan was available instead of the one they chose. They concluded consumers with adequate tools make rational decisions reflecting their preferences and needs, and the private insurance market’s response to the Part D opportunity resulted in a 12 percent decrease in drug costs.
NOTE: The Congressional Budget Office's original 10-year price tag was $640 billion over 10 years; the program’s actual costs are $410 billion.

Sebelius announces health security strategy

Thursday, HHS Secretary Kathleen Sebelius announced the nation's first health security strategy focused on preparedness during a large-scale emergency in key areas: developing and maintaining the workforce needed for national health security; incorporating post-incident health recovery into planning and response; working with cross-border and global partners to enhance national, continental and global health security; and promoting an effective countermeasures enterprise—a process to develop, buy and distribute medical countermeasures. Leveraging the emergent health care information technology infrastructure (health information exchanges, provider EHR adoption, etc.) is a notable linkage in the plan.

My Take: Delivery system reforms equal to insurance industry reforms in impact

Some have observed that health insurance industry reforms in pending bills are the primary focus, with delivery system reforms substantially less disruptive and unnecessarily delayed. On closer reading, delivery system reforms rival insurance reforms as dual foci. Consider these directives in both bills.

  • Payments to hospitals, physicians and other delivery system sectors will increasingly be paid based on outcomes, safety and cost effectiveness. The transition from volume-based to results-based payments will be a dramatic shift
  • Appropriateness of care will be defined in the context of nationalized standards and guidelines that are evidence-based; the community standard and physician judgment will be augmented by clinical decision support technologies and widespread transparency about “what works best”, “what is appropriate” and “how much it costs”
  • Increased investment in preventive and long-term care with increased attention to primary care, community clinics and human services programs (not a strong focus in most hospital-medical staff plans)
  • And price pressures by the government and private insurance plans will be compounded by increasing savvy, price conscious consumers armed with comparative data and high-deductible individual insurance programs.

A key concept in delivery system reform is bundled payments to accountable care organizations (ACO). Presumably, an organized group of providers would qualify as an ACO, contract with Medicare for bundled payments, report results and share in savings if quality and cost improvements achieved goals. It’s not a new idea.

From 1991 to 1996, Medicare tested bundled payments for cardiac bypass surgery at seven sites in seven cities: it was a successful in improving outcomes and lowering costs by $50 million. From 1993 to 1996, Medicare tested bundling for cataract surgery at four sites in three cities saving $500,000.

The notion of “bundled payments” is simple: the challenge for the delivery system is in execution. How should measures be defined and calibrated to account for optimal safety and outcome improvements while achieving lower costs simultaneously? Who will determine what’s measured, over what period of time? And how will doctors, hospitals, allied health professionals and even vendors in the supply chain be aligned to share savings equitably?

Beyond bundled payments, increased funding of primary care might peril specialty payments. The mandated migration to ICD-10 compliance in 2013 comes at the same time as deployment of electronic health records encouraged in the stimulus plan. The medical home model is set to expand pitting primary care clinicians against specialists, and pent-up demand for primary care services will likely provoke increased competition from innovators that offer a value proposition that challenges the status quo—like retail clinics, distance medicine, medical tourism and others.

Conflicts between physicians and hospitals are chronic. In coming years, tension is likely to accelerate as physicians and hospitals face Medicare cuts, comparative clinical effectiveness becomes institutionalized, employers and plans pressure for improved performance and lower costs, and consumers become savvy purchasers.

So as the reform train rolls down the track to passage, it’s appropriate to conclude that insurance industry reforms are both eminent and significant. It’s equally accurate to conclude they are no less so for providers.

Paul Keckley

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

Fact file

  • Enrollment in private health insurance decreased to 195.4 million in 2008 from 196.4 million in 2007 due unemployment increases
  • The average visit to a primary care physician increased from 18 to 20.8 minutes from 1997 to 2005 (study of 46,250 office visits by adult patients, National Center for Health Statistics)
  • U.S. health spending grew 4.4 percent in 2008 to $2.3 trillion, the slowest annual rate of increase since federal tracking efforts began in 1960, but higher than the GDP (+2.6 percent) and private insurance premiums (+ 3.1 percent)
  • FDA approvals for 2009: 26 new drugs vs. 25 in 2009; seven of the new approvals were biotech—up from two in 2007 and four in 2008
  • Congressional retirement announcements to date looking toward 2010 election cycle: 24 House (14 Republican, 10 Democrat), 10 Senate (six Republican, four Democrat)
  • Personal bankruptcy filings were 1.41 million in 2009, up 32 percent from 2008—half the involuntary filings were the result of health care debt (source: National Bankruptcy Research Center)
  • Bureau of Labor Statistics Report: 3,000,000 new jobs will be added by the health care industry 2010-2019 including 600,000 additional nurses with median income (2010) of $62,500
  • $200 million spent to date on advocacy advertising about health reform: $95 million pro-reform, $86 million anti-reform and $25 million for “other” (source: Campaign Media Analysis Group)
  • 85,000—the numbers of newly unemployed in December 2009 (Bureau of Labor Statistics)

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