Health Care Reform Memo: November 8, 2010 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

With the mid-term election behind us and the 112th Congress up ahead, I have five key observations on what is likely to happen relative to health reform:

1. The Patient Protection and Affordable Care Act (PPACA) certainly was a factor in the mid-term outcome, and it will likely continue to be one of the focus points in political and policy circles as Campaign 2012 begins. It’s a “big deal” and will remain in the news.
2. The promise to repeal and replace is problematic. The Senate is controlled by the Democrats and the White House has veto power so repeal may be difficult. More likely, certain provisions may be challenged in courts, and bi-partisan agreements may be reached on changes that seem “low hanging fruit”, like repealing the reporting provision in PPACA Section 9006 which amends IRS section 6041, the requirements of which are fulfilled by completing a Form 1099.
3. In the weeks ahead, the costs of health care entitlement programs (Medicare and Medicaid) will become a central focus as recommendations from the National Commission on Fiscal Responsibility and Reform are presented to Congress. The potential to reduce costs via PPACA’s delivery system reforms—Accountable Care Organizations (ACOs), value-based purchasing, bundled payments, comparative effectiveness, and medical homes—will be a focus of policy-makers.
4. States will be the frontline as Governors and new legislatures tackle PPACA requirements for health exchanges and insurance plan oversight and increased Medicaid and Children’s Health Insurance Program (CHIP) enrollment without additional federal funding and at a time when state deficits are soaring.
5. On November 30, the current temporary “physician pay fix” expires, cutting physician income by 23.2 percent December 1 and another 6.5 percent January 1. This is unlikely in part because seniors were 24 percent of the mid-term electorate, and they are worried doctors might not be accessible if income cuts are made. A permanent fix to the sustainable growth rate (SGR) physician pay model and liability reform were sought unsuccessfully by the American Medical Association (AMA) in the health reform law. Looking ahead, watch for another temporary fix, increased physician-hospital alignment, and in some communities, independent physician organizations that accelerate competition with local hospitals and plans.

Health reform is more than PPACA; it is a series of legislative and regulatory actions intended to reshape the financing and delivery of care in the U.S. system. Americans are paying attention and have strong opinions—it matters!

Paul Keckley, Ph.D.

Individual mandate passes in Arizona and Oklahoma but fails in Colorado

Tuesday, ballot initiatives in three states, Arizona, Colorado, and Oklahoma, included constitutional challenges to PPACA’s individual mandate provision. Colorado's amendment did not pass, but voters approved the challenges in Arizona and Oklahoma.

CMS issues final rules on provider payments

Tuesday, the Centers for Medicare & Medicaid Services (CMS) published three final rules to update physician, outpatient and ambulatory care provider, and home health agency Medicare payments, as well as clarify and implement PPACA-related provisions.

1. Calendar Year (CY) 2011 Final Physician Payment Rule
   • During CY 2011, CMS will reduce payments to physicians for Medicare Part B services by 24.9 percent.
   • The conversion factor, which determines particular payment rates, was calculated at $25.5217 for 2011, down from $28.3868 as of December 1.
   • CMS will adopt a multiple procedure payment reduction policy for outpatient therapy services furnished by a single provider to a beneficiary on a single date of service.
   Note: In response to the rule, AMA called for a 13-month fix (effective December 1, 2010) to provide time for Congress to permanently fix the physician payment update. In June 2010, legislation was enacted that stopped the 21 percent pay reduction for physicians as required by the SGR and instead increased reimbursements by 2.2 percent through the end of November. Without Congressional action, physician Medicare reimbursements will be reduced by 23 percent on December 1, followed by the 24.9 percent reduction under the CY 2011 rule.
2. CY 2011 Outpatient Prospective Payment System (OPPS) and Ambulatory Service Center (ASC) Payment Rule
   • During CY 2011, CMS will increase Medicare payments for services in outpatient facilities by 2.5 percent ($3.2 billion).
   • CMS projects Medicare payments will total to approximately $39 billion for hospital outpatient departments and $4 billion for ASCs.
   Note: PPACA Section 3401 requires a 0.25 percent reduction to the CY 2011 outpatient department (OPD) fee schedule increase factor, which resulted in a proposed CY 2011 OPPS market basket update of 2.15 percent. The applicable percentage increase for FY 2011 is 2.35 percent, which is the 2.6 percent market basket update, less than the 0.25 percentage point reduction required by PPACA.
3. Calendar Year (CY) 2011 Home Health Prospective Payment System Rule
   • During CY 2011, CMS will decrease Medicare home health payments by 4.89 percent ($960 million).
   • These reductions reflect an updated wage index (a $20 million increase), market basket updates of 1.1 percent (a $210 increase), and case-mix coding adjustments.

AHRQ publishes report on preventable hospitalizations

Last week, the Agency for Healthcare Research and Quality (AHRQ) published its findings about preventable hospitalizations for acute and chronic conditions in 2008. The findings include:

• In 2008, one out of every ten hospital stays was potentially preventable.
• Potentially preventable acute conditions accounted for 3.9 percent of all hospital stays, and potentially preventable chronic conditions accounted for 6.2 percent.
• The majority (60 percent) of potentially preventable hospital stays were for patients age 65 and older.
• Potentially preventable stays for acute conditions made up 3.4 percent of all urban hospital stays and 7.0 percent of all rural hospital stays.
• Hospital stays for patients living in the poorest communities were more likely to be potentially preventable (11.7 percent) than were stays for patients living in the wealthiest communities (8.1 percent).
• Nearly 10 percent of all uninsured stays were for potentially preventable conditions, compared to 5.4 percent for privately insured or Medicaid-covered stays.
• Males were more likely than females to be hospitalized for potentially preventable chronic conditions (6.8 percent of male stays, 5.8 percent of female stays) and less likely to be hospitalized for potentially preventable acute conditions (3.6 percent of male stays, 4.0 percent of female stays).

Source: AHRQ, November 2010

Therapeutic discovery grants announced

Wednesday, Secretary of the Treasury Tim Geithner and the Secretary of Health and Human Services (HHS) Kathleen Sebelius joined the National Institutes of Health (NIH) Director Dr. Francis Collins to announce the recipients of the $1 billion in therapeutic discovery project credits and grants created by PPACA. Of the 4,606 applicants, awards were given to 2,923 small biotechnology companies in 47 states and the District of Columbia.

The therapeutic discovery project program is targeted to projects that show significant potential to produce new therapies, address unmet medical needs, reduce the long-term growth of health care costs, or advance the goal of curing cancer within the next 30 years. The allocation of the credit also reflects which projects show the greatest potential to create and sustain high-quality, high-paying jobs in the United States and to advance our competitiveness in the fields of life, biological, and medical sciences.

Note: The credit covers up to 50 percent of the cost of qualifying biomedical research and is only available to firms with fewer than 250 employees. To provide an immediate boost to U.S. biomedical research and the small businesses that conduct it, the credit is effective for investments made in 2009 and 2010. Firms could opt to receive a grant instead of a tax credit, so start-ups that are not yet profitable can benefit as well. For more information about the grant program, contact David Green.

California Medicaid waiver approved

Tuesday, HHS approved California’s federal Section 1115 Medicaid waiver, extending the state’s waiver five years and costing $10 billion in federal funding for Medi-Cal. The state’s $18 billion, five-year Section 1115 waiver expired in August.

HHS analysis: PPACA saves $3,500 for Medicare beneficiaries

According to an HHS analysis released last week, the average per-beneficiary savings for Medicare fee-for-service enrollees will be more than $3,500 over the next ten years. Savings will be even higher – as much as $12,300 over the next ten years – for seniors and people with disabilities who have high prescription drug costs.

Medicaid RAC deadline for states announced

Friday, CMS released a proposed rule that would require states to establish Medicaid Recovery Audit Contractor (RAC) programs by December 31 and be fully operational by April 1, 2011. The proposed rule, to be published in the November 10 Federal Register, would implement Medicaid RAC provisions contained within PPACA. Comments are due from states and third parties by January 10, 2011.

Note: According to the proposed rule, Medicaid RAC programs, administered by each state, will be modeled after the Medicare RAC program to audit Medicaid claims, identify underpayments and overpayments, and recover overpayments. States will receive a portion of their recovery. CMS estimates a recovery of $80 million in fiscal year (FY) 2011, $170 million in FY 2012, $250 million in FY 2013, $310 million in FY 2014, and $330 million in FY 2015.

Medicare Part A and Part B premium changes announced

Friday, CMS announced premium changes for Part A (hospitals) and Part B (doctors). The Part A inpatient deductible will be $1,132 in 2011, an increase of $32 from the $1,100 deductible in 2010. The Part A deductible is paid by the beneficiary for the first 60 days of inpatient hospital, skilled nursing facility, and some home health care. Beneficiaries pay an additional $283 per day for days 61 through 90 in 2011, and $566 per day for hospital stays beyond the 90th day in a benefit period.

The Medicare Part B monthly premium will be $115.40 in 2011, a $4.90 increase (or 4.4 percent) over the 2010 premium. However, the majority of Medicare beneficiaries will continue to pay the same $96.40 premium amount they have paid since 2008 due to the “hold harmless” provision in their Social Security Benefit.

October employment report: stuck at 9.6 percent

Friday, the Bureau of Labor Statistics announced that 151,000 jobs were added in October leaving unemployment at 9.6 percent and 14.8 million people jobless. In October, governments cut 8,000 jobs, after eliminating 148,000 positions in September (primarily Census takers) while private companies added 159,000 jobs compared to a gain of 107,000 in September. The biggest gains last month were positions in education and health services (53,000), retail (28,000), and temporary help services (34,900). According to the Brookings Institute’s Hamilton Project, at 228,000 new jobs monthly, it will take 12 years to close the gap between available jobs and workers.

Quotable

“Here is an old tradition badly in need of return: You have to earn your way into politics. You should go have a life, build a string of accomplishments, then enter public service. And you need actual talent: You have to be able to bring people in and along. You can't just bully them, you can't just assert and taunt, you have to be able to persuade. Americans don't want, as their representatives, people who seem empty or crazy. They'll vote no on that. It's not just the message, it's the messenger.”

 – Peggy Noonan, “Americans Vote for Maturity,” Wall Street Journal Friday, November 5, 2010

“Some Republican candidates who won last night who feel very strongly about it … but as I said before, though, I think we'd be misreading the election if we thought that the American people want to see us for the next two years relitigate arguments that we had over the last two years. Now if the Republicans have ideas for how to improve our health-care system, if they want to suggest modifications that would deliver faster and more effective reform to a health-care system that, you know, has been wildly expensive for too many families and businesses and certainly for our federal government, I'm happy to consider some of those ideas. So there are going to be examples where I think, you know, we can tweak and make improvements on the progress that we've made… That's true for any significant piece of legislation. But I don't think that if you ask the American people, should we stop trying to close the doughnut hole that will help senior citizens get prescription drugs, should we go back to a situation where people with pre-existing conditions can't get health insurance, should we allow insurance companies to drop your coverage when you get sick, even though you had been paying premiums, I don't think that you'd have a strong vote for people saying, you know, those are provisions I want to eliminate.”

 – President Obama to reporters, November 3, 2010

“We can and should propose and vote on straight repeal repeatedly… denying funds for implementation.”

 – Senate Minority Leader Mitch McConnell (R-KY), November 4, 2010 speech at the Heritage Foundation, Washington, DC

“We will do everything we can to try to repeal this bill, and replace it with commonsense reforms that will bring down the cost of health insurance.”

 – House Minority Leader John A. Boehner (R-OH), November 3, 2010

Fact file

Update: November mid-term election 2010 results:

• The GOP controls both house of state legislatures in 26 of 50 states. In 16 of these, the Governor is a Republican. (Source: National Conference of State Legislators)
• The GOP gained 680 state legislative seats: higher than the 472 seats in 1994 and 628 seats in 1974. This is the highest percentage of GOP representation in state legislatures since 1928. (Source: American Legislative Exchange Council)
• 55 of 99 state legislative bodies are GOP controlled (Nebraska has a unicameral system); in 19 states, the GOP controls both houses. (Source: CNN, Bureau of National Affairs)
• The GOP will control redistricting in 195 districts; Democrats will control redistricting in 65 districts; and 86 districts will be decided by bi-partisan commissions. (Source: CQ Health)
• In 17 states the GOP controls both houses of the legislature, and the Governor is a Republican. (Source: Republican National Committee)
• In 11 states, the Commissioner of the Department of Insurance (responsible for implementation of health insurance exchanges and credentialing of insurance plans) is elected or appointed by a special commission. In 39 states, the Governor appoints the commissioner. (Source: National Association of Insurance Commissioners)
• The GOP gain (+60) in the House second largest in history; the largest net gain (+80) was in 1938 during in FDR’s first mid-term as post-depression unemployment stood at 14.3 percent (down from a Depression high of 19 percent). (Source: Washington Post)
• 19,000 new provider applications are submitted to HHS monthly. (Source: Department of Justice Friday, November 5)
• The U.S. market for healthcare IT is $33.9 billion this year, and it is estimated to grow 24 percent between 2010-2014. (Source: IDC)
• 74 percent of Medicare payment suspensions in 2007 and 2008 exhibited “questionable billing patterns” indicative of fraud, and 63 percent of suspensions were supported by information from patients or other providers. (Source: Office of the Inspector General)
• 62 percent of pre-retirees ages 50-64 are not confident that they are saving enough to handle health care costs in retirement. (Source: Society of Actuaries)
• 23.5 percent of high schools offer food from fast food restaurants. (Source: Centers for Disease Control and Prevention)

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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