Health Care Reform Memo: August 29, 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

As the week began, the forecast for Washington, DC did not include the surprise earthquake Tuesday or Hurricane Irene this weekend. Congress is in recess, and the highlight of the week was to be the dedication of the Martin Luther King Jr. Memorial this weekend on the 48^th anniversary of his “I Have a Dream” speech.

Due to inclement weather, officials postponed the Memorial dedication. But throughout the week, I found myself reflecting on the significance of the dedication through the lens of our industry.

African Americans are 13.6 percent of the U.S. population and are disproportionately represented in several categories monitored by public health officials:

• 73 percent of non-Hispanic black children are born to unwed mothers compared to 24 percent in the white population.
• 50 percent of HIV AIDS patients are African American.
• 43 percent of all murder victims are African American—93 percent of these killed by African Americans.
• Black women and men have much higher coronary heart disease (CHD) death rates in the 45–74 age group than women and men of other races. A higher percentage of black women (38 percent) than white women (19 percent) die before age 75 as a result of CHD, as do black men (62 percent) compared to white men (42 percent).
• A higher percentage of black women (39 percent) die of stroke before age 75 compared to white women (17 percent), as do black men (61 percent) compared to white men (31 percent).
• Unemployment is 17 percent among African Americans vs. 8 percent among Caucasians.
• 25 percent of all African Americans live in poverty in compared to 9 percent of all non-Hispanic whites, 12 percent of all Asian Americans, and 23 percent of all Hispanics.

As a result, black Americans have less access to the health system and are underrepresented in clinical trials for new drugs and therapies. Not surprisingly, blacks are among the most skeptical in assessing the performance of the U.S. health system. (Source: Deloitte Center for Health Solutions, 2011 U.S. Survey of Health Care Consumers)

I grew up in Chattanooga, TN in an awkward era. I remember the Presidential campaign of George Wallace in Alabama, the sit in at the Montgomery lunch counter, the Civil Rights marches in Little Rock, Rosa Parks, and the stirring debate about school segregation and busing. I played football against all-black teams, then attended an all-black school as an exchange student my junior year. I worked after school and on weekends at Erlanger Medical Center and watched the underserved slam its emergency room because needed services were not available elsewhere. Racial tension in that era was visceral: civil rights permeated every corner of society. Churches, schools, shopping centers, and neighborhoods were defined by race. Health care was no exception.

So I will be at the dedication when it is rescheduled because it’s about a dream yet to be fulfilled in this country and in this industry. And I am gratified to work for an organization, Deloitte, that puts diversity at the top of its credo as it plays its part in pursuit of that same dream.

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

Implementation update

Bundled payments program announced by CMS

Tuesday, the Centers for Medicare & Medicaid Services (CMS) announced details of its Bundled Payments for Care Improvement Initiative per the Affordable Care Act (ACA) Section 3021. After an episode concludes, total payments by Medicare will be compared to the targeted prices. Providers would then share any savings with Medicare. Providers may participate in one of four models:

• Model 1: hospital services provided to a beneficiary during an acute inpatient stay, where physicians work together to improve care (apply by September 22)
• Model 2: hospital, physician, post-acute provider, and other Medicare-covered services provided during the inpatient stay and during recovery after discharge to the home or another care setting (apply by November 4)
• Model 3: hospital, physician, post-acute provider, and other Medicare-covered services beginning with the initiation of post-acute care services after discharge from an acute inpatient stay (apply by November 4)
• Model 4: inpatient hospital and physician services and related readmissions in which a prospective payment would be sent to the hospital, which would decide how to distribute it among providers (apply by November 4)

Note: episode-based payments are similar to accountable care organizations (ACOs) (ACA Section 3022) in that clinically integrated provider groups are eligible for participation in savings. The notable difference in episode-based payments is a lack of risk on the part of provider participants and the primary focus on acute patient populations. Both require post-acute follow-up and coordination of care, use of evidence-based algorithms, and team based care delivery. ACOs also require data capture on 65 measures of quality.

NAIC recommendation: multi-state plans must follow same rules as other plans

Aug. 10, state insurance regulators (the National Association of Insurance Commissioners [NAIC]) urged federal officials to require multi-state insurance plans to operate under the same rules as other plans sold through insurance exchanges to avert their possible competitive advantage over local plans. Section 1334 of the ACA requires the Office of Personnel Management (OPM) to contract with at least two health plans—known as multi-state qualified health plans—to offer through each state's insurance exchange.

Constitutional challenges: 8th Circuit Court plans to hear oral arguments

Tuesday, the 8^th Circuit Court of Appeals announced it will hear arguments the week of October 17, 2011 from Missouri’s lawsuit against the ACA on its individual mandate and Medicaid expansion. Missouri Lieutenant Governor Peter Kinder (R) filed the lawsuit. A previous district court ruled in April that Kinder does not have standing to suit. Over 20 attorneys general and 150 local lawmakers have filed briefs to support the suit while 11 states filed briefs against it.

CBO budget update: recovery slower than earlier anticipated

Wednesday, the Congressional Budget Office (CBO) reported that the U.S. will add $3.49 trillion in cumulative deficits over ten years. Its analysis said that the current 9.1 percent unemployment rate will decrease to 8.5 percent in the fourth quarter of 2012, and gross domestic product (GDP) will grow by an annual rate of 2.4 percent this year and 2.6  percent in 2012.

Legislative update

Key dates for Joint Select Committee on Deficit Reduction

The 12-person bipartisan committee’s agenda for the next three months:

• By August 16, 2011: Congressional leaders must appoint the 12 members of the Joint Select Committee on Deficit Reduction (Select Committee).
• By October 14, 2011: Congressional Committees must report deficit reduction recommendations to the Select Committee for its consideration.
• By November 23, 2011: the Select Committee must produce detailed legislation to achieve at least $1.5 trillion in additional deficit reduction and budget savings for FY 2012 to FY 2021.
• By December 23, 2011: the House and Senate must vote on the Select Committee’s legislation without amendments; a simple majority vote will be required in both the House and Senate.
• If a bill does not become law by January 15, 2012, the Director of the Office of Management and Budget (OMB) must make cuts to defense and non-defense programs of $1.2 trillion in savings over ten years (a reduction of 8 percent from projected spending levels). Social Security payments, Medicare premiums and copayments, certain low-income programs, and military pay are exempt from these across-the-board cuts. Medicare cuts can come from provider payments and are capped at 2 percent of the annual cost of the Medicare program.

Funding in several elements of ACA might be scrutinized by the Select Committee as it develops its recommendations for $1.5 trillion in budget savings and deficit reduction including:

• School Based Health Centers (Section 4101): $50 million in FY 2013
• Patient Centered Outcomes Research Trust Fund: a total of $1.05 billion between 2013 and 2019 Cost-sharing Subsidies (Section 1402), approximately $111 billion from 2014 – 2021
• Rate Review Grants (Section 1003): funds from the initial $250 million that remain available in 2014
• Health Insurance Cooperatives (Section 1322): $3.8 billion
• Health Insurance Exchange Administrative Grants (Section 1311): unspecified amounts in FY 2013 and FY 2014

Note: the Select Committee is composed of six Republican and six Democrats. One heads the Democratic Senatorial Campaign Committee; one chaired the GOP Club for Growth; four sat on the Bowles-Simpson Deficit Reduction Commission; and none of the Senate’s bipartisan “Gang of Six.”

Transition Medicare to a voucher program: BPC recommendation to the Select Committee

The Bipartisan Policy Center’s (BPC) Debt Reduction Task Force Co-Chairs, former Republican Senator Pete Domenici (NM) and Clinton administration OMB Director Alice Rivlin, wrote to the Select Committee to consider its recommendation to transition Medicare to a voucher program. BPC’s 137-page report issued February 27, 2011 proposed to change Medicare to a premium support program starting in 2018 limiting growth in per-beneficiary federal support by using federal subsidies for seniors to shop for their own private insurance.

State legislators ask for flexibility in developing exchanges

To date, 11 states have indicated their intent to setup their own exchange. Recent guidance about health insurance exchanges (July 11, 2011) defines the minimum functions an exchange must perform and proposed a partnership approach between HHS and states in their development. Last week, the National Conference of State Legislators (NCSL) requested that HHS modify the proposed rule's partnership by establishing a more permanent bifurcation of responsibilities of the exchange (instead of it just being temporary). The source interpreted the proposed exchange rule's description of the partnership as temporary, though the regulatory language is unclear.

Tuesday, Marguerite Salazar, HHS regional director, told a Montana audience that HHS is developing a new model giving states more flexibility and less federal oversight. State agencies are being invited to Washington, DC next month to discuss it.

Insurance annual fee challenged by AHIP, NFIB

America's Health Insurance Plans (AHIP) and the National Federation of Independent Business (NFIB) are challenging the industry fee on health insurance plans that starts in 2014 noting that plans would pass through the fees in higher premiums for small businesses and individuals. Per Section 9010 of the ACA, the fee is expected to raise $8 billion in 2014, $11.3 billion in 2015 and 2016, $13.9 billion in 2017, and $14.3 billion in 2018. Starting in 2019, the fee increases annually in proportion to the rate of premium growth.

Note: the NFIB along with 35 other organizations including the National Retail Federation, National Community Pharmacists Association, and others are part of the “Stop The HIT” – HIT stands for Health Insurance Tax – “on Small Business” Coalition.

CMS announces plan to streamline regulations for hospitals

Wednesday, HHS released details of its plan to streamline compliance with government regulations impacting hospitals. The rules expected in September would: 1) “improve patient care and outcomes and reduce system costs by removing obsolete or burdensome requirements” with savings up to $600 million annually and $3 billion over five years and 2) change Medicare and Medicaid regulations to “increase the ability of health care professionals to devote resources to improving patient care by eliminating or reducing requirements that impede quality patient care or divert activities away from providing high quality patient care” with savings up to $200 million.

State watch

HHS awards $137 million to states to boost prevention and public health

Thursday, HHS awarded up to $137 million in grants to states to strengthen the public health infrastructure and provide jobs in core areas of public health. Most of these grant dollars come from the Prevention and Public Health Fund created by the ACA; additional support came from the Substance Abuse and Mental Health Services Administration (SAMHSA).

GAO: PCIP costs, enrollment lower than expected in states

A Government Accountability Office (GAO) analysis found enrollment and costs for Pre-Existing Conditions Insurance Plans (PCIPs) have been lower than expected. The ACA (Section 1101) provides $5 billion for a temporary high-risk insurance program to run through 2014, after which health exchanges and Medicaid expansion will take effect. The initial projected average monthly enrollment in 2010 was 71,500 for state-run PCIPs and about 78,000 for the federally run PCIPs; actual enrollment (as of April 30, 2011) was 15,800 in the state-run PCIPs and about 5,700 in the federally run PCIP. GAO reported that PCIPs had tapped 2 percent of the $5 billion in provided funding allocation by March 2011.

Note: 27 states operate run their own PCIPs, 23 states and DC run PCIPs operated by HHS.

State round-up

• Monday, Idaho Governor C.L. "Butch" Otter told state lawmakers that the state needs to apply for a $40 million exchange-planning grant by September 30.
• Wednesday, the 9^th Circuit Court of Appeals ruled that imposing mandatory copayments for Arizona’s Medicaid program violates federal law. The copayments, which ranged from $4 to $30, were instituted in November 2010 and affected over 200,000 individuals.
• A three-year campaign to reduce hospital-related infections in California hospitals saved an $11 million since its launch in January 2010. Under the initiative, 160 hospitals aim to reduce an estimated 200,000 hospital-related infections that cost the state $600 million annually. So far, the initiative has reduced ventilator-associated pneumonia by 41 percent, urinary tract infections by 24 percent, and blood poisoning by 11 percent.
• The California Health Benefit Exchange Board unanimously approved appointment of Innovation Center Deputy Director Peter V. Lee as executive director. Lee will leave CMS and begin work on October 17. Note: Lee had previously served as Director of the Pacific Business Group on Health prior to joining CMS.
• Nebraska Medicaid refunded nearly $169,000 to HHS after an audit found improper billing for housecleaning, hospital care, and personal services.
• New York recouped $2.3 million from Medicaid overpayments after an audit found errors in the state health department's computer payment system.

Industry news

CMS expands Medicare DME bidding program

CMS recently announced its next steps to expand the Medicare competitive bidding program for durable medical equipment (DME) aimed at saving $28 billion over ten years. The program uses competitions between suppliers to set lower payment rates for certain medical equipment and supplies. CMS implemented the first phase of the program for nine product categories in nine areas of the country on January 1, 2011. As required by law, CMS will conduct the second phase of the program for a similar set of products in 91 major metropolitan areas starting this fall; new prices will be effective July 1, 2013.

ONC seeks public comments on its plan to reduce health IT disparities

Wednesday, the Office of the National Coordinator for Health Information Technology (ONC) requested comments on its plan to reduce health information technology (IT) disparities. The Health IT Disparities Workgroup, comprised of staff from HHS and co-chaired by ONC and the Office of Minority Health (OMH), is developing a federal plan to reduce health IT disparities with a draft set of strategies and tactics aligned with the five goals of the Federal Health IT Strategic Plan released March 25, 2011. The five goals are:

1. Achieve adoption and information exchange through meaningful use of health IT
2. Improve care, improve population health, and reduce health care costs through the use of health IT
3. Inspire confidence and trust in health IT
4. Empower individuals with health IT to improve their health and the health care system
5. Achieve rapid learning and technological advancement

CMS ends EHR demonstration early

August 1, CMS announced that it will end its planned five-year Electronic Health Records (EHR) Demonstration, established prior to the Health Information Technology for Economic and Clinical Health (HITECH) Act in the American Recovery and Reinvestment Act of 2009 (ARRA), due to low participation. Most of the 412 practices initially participating dropped out to focus on meeting HITECH requirements. In the demo’s first year, about 12 percent of the participants dropped out, and 45 percent were not eligible for incentive payments under the program. In the second year, additional practices stopped participating as reporting requirements became stricter.

AMGA: group practices report higher operating losses

Results of the American Medical Group Association’s (AMGA) 2011 Medical Group Compensation and Financial Survey:

• 69 percent of specialties experienced compensation increases in 2010, but every geographic region suffered operating losses: primary care specialties: 2.6 percent; surgical specialties: 3.8 percent; other medical specialties: 2.4 percent.
• Regionally, only groups in the Western U.S. were near breaking-even (-$27 per physician). Average losses by region per physician in 2010: Eastern: -$1,597; Southern: - $1,870; and Northern -$10,669.

Targeted therapy for skin cancer gets accelerated approval from FDA

The U.S. Food and Drug Administration (FDA) granted Vemurafenib, a targeted therapy taken orally that shrinks tumors for skin cancer patients with a genotype receptive to its formula, accelerated approval. Manufacturers Roche and Daiichi Sankyo submitted the therapy in May under the FDA’s accelerated approval process and had expected a decision in October. However, the agency responded faster than anticipated noting it was enthusiastic about drugs that paired with genetic tests, a new class of drugs for cancer therapy.

Note: Venurafenib will be sold under the name Zelboraf by Roche’ Genetech unit. Of the 70,000 new cases of melanoma diagnosed each year, 10,000 are metastatic—they spread to other organs and traditionally require surgery—and 5,000 have the mutant BRAF V600E protein that is responsive to the drug.

Quotable

“In our capacity as co-chairmen, we are engaging in serious discussions to determine what set of rules will govern the committee’s operation, examining a schedule of potential meetings and exploring how to build a committee staff that will help us achieve success. Additionally, most of the committee members are reviewing the deficit reduction work that many others have engaged in over the past several years. We are confident that most Americans will agree that when building an organization from the ground-up with a short time-table for success, it’s important to get it right the first time.
We are excited that committee members and staff from both sides of the aisle are eager to engage one another as we begin our work. We encourage our colleagues to participate in active and useful dialogue across the aisle and among our respective caucuses as we continue to work through this process.”

 – Senator Patty Murray (D-WA) and Representative Jeb Hensarling (R-TX), co-chairmen of the Joint Select Committee on Deficit Reduction, August 24 statement

“Rigorous experimental research is needed to inform health policy. Just as well-designed clinical trials advance clinical care, well-designed audit studies—the scientific name for mystery shopper techniques—are a powerful tool for understanding the experiences of patients as they seek needed health care.”

 – Rhodes “Taking the Mystery out of Mystery Shopper Studies,” New England Journal of Medicine, August 11, 2011

“Although it may seem obvious that charging higher premiums for smoking (or high body-mass index, cholesterol, or blood pressure) would encourage people to modify their habits to lower their premiums, evidence that differential premiums change health care behavior is scant…
Although employers and payers increasingly see personal accountability as fair and as an important aspect of effective health care reform, many people would end up paying higher premiums for behaviors and outcomes that may not be completely under their control…The effectiveness of incentive programs depends critically on how the incentives are timed, distributed and framed, and several factors might make insurance-premium adjustments, the most common implementation mechanism, less effective than other approaches.”

 – Volpp et al, “Redesigning Employee Health Incentives—Lessons from Behavioral Economics,” New England Journal of Medicine, August 4, 2011

“You cannot script innovation. You cannot boil it down to a code of best practices. Because it is unpredictable and the opportunities in science do not match the opportunities in markets.”

 – Bernard Munos, former FDA and pharmaceutical industry research and development leader in “Rallying Pharma’s Rebels,” Forbes, August 22, 2011

“This economic mandate represents a wholly novel and potentially unbounded assertion of congressional authority.”

 – 2:1 majority opinion in Atlanta Federal Circuit Court on the individual mandate constitutional challenge

Fact file

• Current enrollment in government programs (in millions) (Source: HHS.gov):
  • Medicare (46.5)
  • Medicaid (50.5)
  • Social Security (52)
  • Supplemental Security Income (SSI) (5.5)
  • Unemployment insurance (7.5)
  • Food stamps (44.6)
• In 2009, 75 percent of small molecule prescriptions in the U.S. were for generics. The approval of a generic drug results in 77 percent average savings within one year. (Source: Kozlowski et al, New England Journal of Medicine)
• Some employers are requiring patients to pay a percentage of the cost for specialty drugs (25 – 33 percent or more) — rather than a flat dollar co-payment. Survey show that 13 – 17 percent of employers have added a specialty category to their drug benefits, and more are likely to adopt them given that more than 600 specialty drugs are in development. (Source: Kaiser Health News)
• Hospital emergency room visits totaled 124 million in 2008, a 31 percent increase since 1997; the average wait time for treatment is 33 minutes, up from 22 minutes in the same period. Medicaid recipients use emergency rooms three times as much as people with private insurance and twice as much as people with no health insurance. (Source: Centers for Disease Control and Prevention [CDC])
• In 2005, 44 percent of heart attack patients were getting treated within the recommended 90 minutes; by 2010, that had increased to 91 percent, with 70 percent treated in less than 75 minutes. Median door to balloon (D2B) time decreased from 96 to 64 minutes. (Source: Krumholtz et al, “Circulation”)
• In 2006, West Virginia had the highest obesity rate (32.2 percent), and Colorado the lowest (18.5 percent). By 2010, no state had a prevalence of obesity less than 20 percent. Health care costs would be between 7 – 11 percent lower in the absence of obesity. (Source: CDC, Agency for Healthcare Research and Quality [AHRQ])
• Average physician compensation rates for 2010 (Source: Medical Group Management Association's "Physician Compensation and Production Survey: 2011 Report Based on 2010 Data"):
  • Neurological: $767,627
  • Cardiovascular-Pediatric: $762,846
  • Neurological-Pediatric: $643,188
  • Cardiovascular: $560,659
  • Pediatric: $475,645
  • Thoracic (Primary): $473,927
  • Bariatric: $456,266
  • Vascular (Primary): $446,730
  • Plastic and Reconstruction: $433,510
  • Trauma: $432,155
  • Oral: $408,409
  • Colon and Rectal: $407,273
  • Transplant: $379,387
  • General: $368,108
  • Oncology: $359,694
  • Breast: $324,295
• About 15 million working-age adults lost health benefits from 2008 to 2010. Of these individuals: 52 percent skipped a recommended medical treatment or follow-up test; 50 percent did not get specialist or other physician care when needed; 47 percent did not fill a prescription in the past year, citing cost as the reason. (Source: The Commonwealth Fund, August 24, 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.

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