Health Care Reform Memo: September 26, 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.
From Paul Keckley, Executive Director, Deloitte Center for Health Solutions
Saturday morning, I jogged through the National Mall stopping to read the quotations at the new Martin Luther King Memorial. One struck me particularly “The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.”
He spoke these words in 1963—five years before his untimely death at the hands of James Earl Ray. The $120 million monument sits on four acres at the northwest corner of the Tidal Basin adjacent to the FDR and Lincoln Memorials facing the Jefferson Memorial. Saturday, onlookers were mixed—like America. Young invincibles and seniors, a tour group of school kids from Miami Gardens, Florida, and all manner of humankind.
I was a 10th grader when he spoke these words, a college sophomore when he passed. I played football with blacks and whites, and my Oxford roommate was a black Seventh Day Adventist clergyman from South Africa who’d lived under apartheid. Over time, my belief about race firmed up—prejudice based on the color of one’s skin is wrong.
The debate about health reform has divided us into our tribes. We are inclined to think of its issues from the vista of our biases, experiences, and regrettably, self-interests. Lest we dwell in our differences, there are six core beliefs widely held among Americans per our annual consumer survey since 2008: these seem an appropriate beginning for our national effort to reform the health system.
- The U.S. health system is complicated, fragmented, wasteful, inefficient, and expensive. If you have insurance, it’s possible to get care. If you don’t, it’s harder.
- Every American should have access to health care; we disagree on how. The government has a role.
- Physicians and hospitals should be paid for results, and their results should be transparent.
- Costs must be addressed. It’s unaffordable for most; prices are not understandable nor are estimates of cost accessible.
- Individual responsibility is part of the solution to lower costs: how to change decades of poor health the challenge. And how to balance end of life care with end of life care for those we leave behind.
- Though flawed and frustrating, we prefer a U.S. solution over imported options. The U.S. system is “our” system. We want it fixed, not discarded.
Consensus for its reform is widespread, strong, and intense.
The Civil Rights Act of 1964 was enacted July 2, 1964; it marked a key moment in history, but not the complete or perfect end to discrimination. Likewise, the Patient Protection and Affordable Care Act (ACA) passed March 23, 2010—a step in a long process.
For the health system’s stakeholders, MLK’s words seem appropriate to the moment: ours has been a period of relative comfort and convenience; now ours is the era of challenge and controversy.
Note: Read the Deloitte Center for Health Solutions’ 2011 U.S. and Global Survey of Health Care Consumers surveys.
Paul Keckley, Ph.D., Executive Director, Deloitte Center for Health Solutions
HHS announces $224 million to support home visits for at-risk family programs
Thursday, U.S. Department of Health and Human Services (HHS) Secretary Kathleen Sebelius awarded $224 million to 49 states to fund home visits and other services to at-risk families per Section 2591 of ACA. Under the Maternal, Infant, and Early Childhood Home Visiting (MIECHV) Program grants, states must use 75 percent for at risk program funding and 25 percent to develop innovative new approaches.
Anti-injunction act new wrinkle in constitutionality challenge to ACA – might delay ruling on individual mandate until 2015
The Tax Anti-Injunction Act (AIA) stipulates that, subject to specified exceptions, Americans must have already paid a tax before they may challenge it in court. Earlier this month, the 4th Circuit Court of Appeals ruled that AIA bars it from ruling on the case. Friday, the D.C. Circuit Court of Appeals heard similar arguments. If current challenges to the ACA are ultimately barred by the AIA, then a substantive determination on the constitutional challenges could be delayed until at least 2015.
CMS announces database to collect personal information for ACO participants and providers
Monday, the Centers for Medicare & Medicaid (CMS) announced the development of its system of records (SOR) database to support its shared savings programs – the Medicare Shared Savings Programs, also known as “Accountable Care Organization” (ACO) (ACA Section 3021) and the Pioneer Accountable Care Organization Model. The SOR will contain personally identifiable information (PII) (e.g. Medicare enrollee numbers, social security numbers, and tax identification numbers) for ACO participants and providers. CMS is collecting public comments on the SOR until October 19, 2011, its effective date.
HHS awards rate review
Tuesday, HHS Secretary Kathleen Sebelius announced the second round of rate review grant awards to 28 states, totaling $109 million.
Note: Section 1003 of the ACA requires HHS to conduct annual reviews of “unreasonable” health insurance rate increases of 10 percent or more for individual and small group plans effective September 1, 2011. The rule applies to 35 million insured but does not apply to “grandfathered” health insurance plans in effect when ACA was enacted in 2010, or plans that are self-funded by employers.
Constitutional challenge update
Friday, the D.C. Circuit Court of Appeals heard arguments from consumers about whether the individual mandate violates their religious freedom. October 20, the U.S. 8th Circuit Court of Appeals in St. Paul, Minnesota will hear arguments from Missouri’s Lieutenant Governor Peter Kinder (R) about the ACA’s individual mandate and Medicaid coverage expansion.
President Obama $3 trillion deficit reduction proposal: $320 billion cuts to Medicare and Medicaid included
Monday, President Obama released his $3 trillion deficit reduction plan, which included proposed ten-year proposed cuts to Medicare ($248 billion) and Medicaid ($72 billion). Note: these represent a 3 percent reduction in budgeted expenditures for the decade. See breakdown below:
|Proposal||Projected savings over ten years|
|Apply $25 Medicare Part B deductible in 2017, 2019, and 2021 for new beneficiaries.||$1 billion|
|Create $100 per home health episode for episodes with five or more visits not preceded by a hospital or other inpatient post-acute care stay for new beneficiaries starting in 2017.||$0.4 billion|
|Institute Part B premium surcharge equivalent to about 15% of the average Medigap premium for new beneficiaries that purchase Medigap policies with low cost-sharing starting in 2017.||$2.5 billion|
|Reduce Medicare bad debt payments to 25% for eligible providers over three years starting in 2013.||$20 billion|
|Reduce indirect medical education (IME) adjustments by 10% starting in Fiscal Year (FY) 2013.||$9 billion|
|Align Medicare payments to rural providers with the cost of care: 1) end add-on payments for hospitals and physicians in low-population states in 2013; 2) reduce payments to critical access hospitals (CAH) from 101% to 100% of reasonable costs; 3) eliminate CAH designation for those located fewer than ten miles from the nearest hospital.||$6 billion|
|Encourage efficient post-acute care: 1) adjust post-acute provider payments to align with cost of care from 2014 through 2021; 2) reduce differences in payment between inpatient rehabilitation facilities (IRFs) and skilled nursing facilities (SNFs); 3) raise the compliance threshold for IRFs to 75%; 4) reduce SNF payments up to 3% for preventable readmissions starting in FY 2015.||$42 billion|
|Extend Medicaid drug rebates to Medicare to beneficiaries who receive the Medicare Low-Income Subsidy (LIS), starting in 2013.||$135 billion|
|Increase Medicare Parts B and D premiums for higher-income beneficiaries and extend the freeze in income thresholds until 25% of beneficiaries pay the higher premium, starting in 2017.||$20 billion|
|Reduce Independent Payment Advisory Board (IPAB) growth rate target from gross domestic product (GDP) per capita plus 1% to plus 0.5%. IPAB could also consider value-based benefit design and enforcement mechanisms.||Not provided|
|Reduce fraud, waste, and abuse in Medicaid: 1) strengthen third-party liability for Medicaid beneficiary claims; 2) require manufacturers that improperly report items for Medicaid drug coverage to repay states; 3) track high prescribers and users of prescription drugs; 4) enforce Medicaid drug rebate agreements; 5) increase penalties on drug manufacturers for fraudulent non-compliance with Medicaid drug rebate agreements; 6) require drugs to be U.S. Food and Drug Administration (FDA) approved for Medicaid coverage; and 7) prohibit states from using federal funds as the state share of Medicaid or Children’s Health Insurance Plan (CHIP), unless authorized by law.||$110 million|
|Allow states to use a "benchmark" benefits plan for optional populations with income above 133 % of the Federal poverty line (FPL) and consolidate and streamline redundant error rate programs.||Not provided|
|Make ACA State Innovation Waivers available in 2014, three years earlier than under law.||Not provided|
|Delay the effective date for Medicaid provider taxes until 2015.||$26.3 billion|
|Replace federal Medicaid payment formulas for states with a single matching rate specific to each state based on enrollment starting in 2014 that automatically increases if a recession forces enrollment and state costs. Full federal funding for the Medicaid coverage expansion (2014 – 2016) would be preserved.||$14.9 billion|
|Limit federal Medicare reimbursement for a state’s Medicaid spending on certain durable medical equipment services (DME) to what Medicare would have paid in the same state for the same services.||$4.2 billion|
|Re-base Medicaid formula for supporting hospitals that serve low-income Americans in 2021 with reduced levels of uncompensated care.||$4.1 billion|
|Revise Medicaid income definition, by basing eligibility for exchange premium tax credits and cost sharing reductions, Medicaid, and CHIP on an individual's or family's modified adjusted gross income (MAGI) starting in 2014.||$14.6 billion|
|Reduce funding for the Prevention and Public Health Fund created under ACA Section 4002 while maintaining $13.8 billion for effective, evidence-based activities.||$3.5 billion|
MedPAC releases plan to pay for $200 billion SGR fix
Tuesday, the Medicare Payment Advisory Commission (MedPAC) released draft options to pay for its recommended $200 billion recommendation to permanently fix the Medicare sustainable growth rate (SGR) model used to calculate physician payments. Major elements in the $235 billion ten-year savings/funding package include reduced payments to post-acute care facilities, initiation of co-pays on brand-name and non-preferred drugs for low-income Medicare beneficiaries, reduced payments for laboratory services by 10 percent, and allowing CMS to use the “least costly alternative” policy. Other elements in MedPAC’s suggested funding recommendation:
- Copayments for home health episode (MedPAC, estimated savings: $4 billion/10 years)
- Increase in the compliance threshold for (IRF) to 75 percent (MedPAC, estimated savings: $3 billion over 10 years)
- Use of competitive bidding offset to the DME categories never subject to competitive bidding (MedPAC, estimated savings: $8 billion/10 years)
- Elimination of payment updates (increases) in 2012 for IRF and long-term care hospitals (LTCH) (MedPAC, estimated savings: $1 billion each/10 years)
- Addition of an excise tax to Medigap plans (Congressional Budget Office (CBO), estimated savings: $12 billion/10 years)
- New requirement on manufacturers to provide Medicaid-level rebates for dual eligibles (CBO, estimated savings: $75 billion/10 years)
- Application of the avoidable readmissions penalties to SNFs, home health agencies (HH), LTCHs, and IRFs (MedPAC staff, estimated savings: $4 billion/10 years)
Note: September 15, MedPAC recommended replacing the SGR with ten years of legislated payment updates at cost of $200 billion. Thursday, the American Medical Association (AMA) along with other medical associations sent a letter to the Joint Select Committee on Deficit Reduction asking it to repeal the Medicare SGR. The letter states, “The SGR has escalated the cost of permanent payment reform, from $48 billion in 2005 to nearly $300 billion today. We estimate additional short-term interventions will double the cost to approximately $600 billion by 2016.”
Dual eligibles focus of cost management efforts; managed care solutions encouraged
Wednesday, the Senate Finance Committee held a hearing on improving care, while lowering cost for Medicare-Medicaid dual eligibles. Melanie Bella, Director of HHS's Medicare-Medicaid Coordination Office for duals (per ACA Section 2602) testified that the department’s goal is to get one million of the nine million duals into coordinated care systems by 2012. The department estimates there are currently 100,000 in such programs.
Trade groups ask for continuation of automatic payment updates
Wednesday, the House Ways and Means Health Subcommittee heard testimony from several trade groups about the expiration of Medicare payment updates. The American Hospital Association (AHA), American Ambulance Association (AAA), AMA, and the American Physical Therapy Association (APTA) asked the committee to extend expiring Medicare payment updates (at a cost $2.35 billion per year) for rural hospitals, mental health, independent laboratories, and ambulance drivers.
State Medicaid directors ask for flexibility to accelerate managed Medicaid programs
Thursday, the National Association of Medicaid Directors (NAMD) urged the super committee to allow states greater flexibility in Medicaid by allowing enrollees, including dual eligibles, to be enrolled in managed care programs without first obtaining a waiver or permission from CMS and giving states direct authority to conduct shared savings programs akin to the Medicare accountable care organizations.
Note: Emory economist Ken Thorpe estimates ten year $125 billion savings could be realized in Medicaid managed care per an America’s Health Insurance Plan (AHIP) sponsored study referenced in the request.
House approves $300 million for pediatrician training program
Tuesday, the House approved legislation to reauthorize the Children’s Hospital Graduate Medical Education (CHGME) program for five years at the current level of $330 million annually. The President’s FY 2012 budget eliminated funding for the program, which is set to expire at the end of FY 2011.
- Monday, Rhode Island Governor Lincoln Chafee (I) issued an executive order to establish the state’s health insurance exchange. Separately, on Tuesday Idaho Governor Butch Otter (R) announced the state will apply for a $30.9 million Level One exchange establishment grant.
- California Governor Jerry Brown (D) approved a bill that would extend a fee on hospitals through 2013 to draw down additional federal funds the state’s Medicaid program. The bill is projected to generate $5.2 billion in higher Medicaid payments to hospitals. The state must receive federal approval before the measure can become a law.
- CMS awarded Hawaii a $10 million grant to improve early detection and self-management of diabetes for Medicaid enrollees and to provide incentives to doctors who provide treatment. The state partnered with the Hawaii Association of Health Plans for the grant request. An estimated 100,000 people in the state have diabetes. (Source: Hawaii Medical Service Association).
AHA to ONC: HIE Stage Two meaningful use standards not feasible
Wednesday, AHA responded to the Office of the National Coordinator for Health Information Technology (ONC) advanced notice of proposed rulemaking challenging the Stage 2 meaningful use requirements: “Inclusion of these standards in the Stage 2 meaningful use regulations would be premature in the absence of systematic evidence that they offer demonstrated benefits that outweigh the costs of implementation and are feasible for use in all care settings. According to AHA, ONC has not thoroughly addressed the relevant policy and implementation issues associated with adoption of the standards. AHA urged ONC to conduct and evaluate pilot tests as recommended by the HIT Standards Committee before additional rulemaking.
Insurers pool data, plan to create not-for-profit data warehouse for public use
Tuesday, four major insurance plans, including Humana and UnitedHealthcare, announced the creation of the Health Care Cost Institute (HCCI) that will pool data from their plans for purposes of research. Per the news release: “Led by Professor Martin Gaynor of Carnegie Mellon University, HCCI is an objective, independent and nonprofit entity that both provides researchers with access to comprehensive data sets of commercial costs and utilization, and conducts its own research. Beginning in 2012, HCCI plans to publish its own ‘scorecards’ and supporting analysis on aggregate trends of healthcare cost and utilization.”
Note: much of the academic research about health costs, practice patterns, and utilization is based on Medicare data. HCCI endeavors to augment Medicare data with data from commercial populations for researchers and public use. A previous effort led by seven health plans called MedUnite, launched in November 2000, failed to get market traction and was purchased in January 2003 by a public company for $10 million. Its database included information on 90 million covered lives and 30,000 physicians.
Report: U.S. needs to take “serious action” to protect leadership in global biomedical industry, protect jobs
Thursday, the Milken Institute released a report calling for lawmakers to protect U.S. leadership in the global biomedical industry. The report states the “U.S. is still the global leader in the biomedical industry, but countries across Europe and Asia are pursuing aggressive plans to close the gap and take the high-value jobs and capital this sector creates.” In the U.S. the biomedical industry accounts for five million jobs in pharmaceuticals, biotech, medical devices, research and testing, and produces 16 percent of the world’s medical device exports and 42 percent of all biotech patent applications. The seven steps recommended included:
- Increase research and development (R&D) tax incentives and make them permanent
- Cut corporate tax rates to match the Organisation for Economic Co-operation and Development (OECD) average
- Enhance support for emerging fields
- Provide adequate resources for the FDA and the National Institutes of Health (NIH)
- Leverage existing strengths in medical devices
- Build human capital
- Promote and expand the role of universities
“In the eighteen months since the president signed the Affordable Care Act into law, health reform has had a tangible effect in the lives of millions of Americans... approximately one million additional young Americans now have insurance coverage due to the Affordable Care Act according to experts. The Patient’s Bill of Rights made it illegal for insurance companies to deny coverage to a child with a pre-existing condition or place a lifetime limit on the care they will provide. Through Affordable Care Act initiatives, 19 million seniors with Medicare have received new free preventive benefits, while efforts to cut fraud and abuse have extended the Medicare Trust Fund by eight years, strengthening the Medicare program.”
–“Reducing costs, protecting consumers: The Affordable Care Act on the one year anniversary of the Patient’s Bill of Rights”, September 23, 2011, HHS
“The 9 million Medicare-Medicaid enrollees accounted for approximately $120 billion in combined Medicaid Federal and State spending in 2007 – almost twice as much as Medicaid spent on all 29 million children it covered in that year. While spending on Medicare-Medicaid enrollees varies by State, it accounts for more than 40 percent of all combined Federal and State Medicaid spending in 26 States. These numbers demonstrate the critical need to build, sustain and strengthen Federal-State partnerships by improving care coordination for this population.”
–Melanie Bella, Director of the Medicare-Medicaid Coordination Office, testimony September 21, Senate Finance Committee hearing on dual-eligible beneficiaries
- Medical practices decreased operating expenses 2.2 percent in 2010, since 2001 general operating costs have increased almost 53 percent to $252,629, exceeding gains in revenue over the decade. (Source: Medical Group Management Association, “Cost Survey for Multispecialty Practices: 2011 Report Based on 2010 Data” September 2011)
- The average cost of employee health coverage is expected to rise 5.4 percent in 2012. (Source: early responses to Mercer’s National Survey of Employer-Sponsored Health Plans 2011)
- 92 percent of health systems anticipate developing an accountable care model but most are waiting on final guidance from HHS before implementing their programs. (Source: Survey of 200 health systems by Beacon Partners)
- Global telehealth market to exceed $1 billion by 2016; increase to $6 billion in 2020. (Source: InMedica, IMS Research, September 15, 2011)
- Three quarters (74 percent) of U.S. adults use online health care information; 39 percent of adults have searched online for health information, up from 32 percent in 2010 and 22 percent in 2009. (Source: Harris Interactive, September 15, 2011)
- One million adults age 19-25 have obtained health insurance coverage since ACA insurance market reforms were implemented. In the first quarter of 2011: 69.6 percent today vs. 66.1 percent in 2010. (Source: the Centers for Disease Control and Prevention (CDC) National Center for Health Statistics (NCHS), September 2011)
- Young adults age 18 to 25 without health insurance decreased to 24.2 percent in the second quarter of 2011 from 28 percent third quarter last year. (Source: Gallup, September 21, 2011)
- Competition from an authorized generic drug during the 180-day exclusivity period are associated with generic prices that are 4 percent to 8 percent lower and wholesale generic prices that are 7 percent to 14 percent lower than prices without authorized generic competition. (Source: Federal Trade Commission, “Authorized Generic Drugs: Short-Term Effects and Long-Term Impact”, August 2011)
- Authorized generic drugs have a substantial effect on the revenues of competing, generic firms during the 180-day exclusivity period: they reduce the first-filer generic’s revenues by 40 percent to 52 percent, on average. Revenues of the first-filer generic manufacturer in the 30 months following exclusivity are between 53 percent and 62 percent lower when facing competition from an authorized generic drug. (Source: Federal Trade Commission, “Authorized Generic Drugs: Short-Term Effects and Long-Term Impact”, August 2011)
- Top ten regions in the U.S. for biotech patent applications and percent of applications among all global applications, 2004-2006: San Jose-San Francisco-Oakland (5.5 percent), Boston-Worcester-Manchester (5.2 percent), New York-Newark-Bridgeport (4 percent), Washington-Baltimore-Northern Virginia 3.0 percent, San Diego-Carlsbad-San Marcos (2.9 percent), Los Angeles-Long Beach-Riverside (2.2 percent), Philadelphia-Camden-Vineland (2.2 percent). (Source: Milken Institute analysis of OECD, Patent and REGPAT databases (2009) and EPO Worldwide Statistical Patent Database (2008), September 22, 2011)
- 15 percent of health care executives are very familiar and 62 percent are somewhat familiar with ACOs; 92 percent are either in development or in the pre-planning stages for their own ACO. (Source: Beacon Partners, “Accountable Care Organization Readiness Study”, September 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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