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Health Care Reform Memo: November 1, 2010

Deloitte Center for Health Solutions publication

My take 

From Paul Keckley, Executive Director, Deloitte Center for Health Solutions

Tuesday is Election Day, capping a bi-annual season that has drawn unusual attention to health reform at the national level. When concluded, voters will elect 6,118 state legislators, 37 governors, 435 Congressional Representatives, and 36 Senators.

More than $3.3 billion will have been spent in this election cycle per the Campaign Media Analysis Group. No doubt, pundits will opine to changes ahead resulting from the vote, but at the end of the day, the health system will still be 17 percent of the U.S. GDP, 23 percent of the federal budget, 21 percent of the state budget, 16 percent of household discretionary spending, and the most significant driver of innovation in our economy (Sources: Urban Institute, Congressional Budget Office, National Governors Association, U.S. Department of Commerce).

So, with the election behind, perhaps a meaningful discussion about ways to transform the system should resume. It’s not about who’s right or wrong; it’s about the system of care that is foundational to our society and essential to our economic recovery. It’s about reducing its costs without compromising quality. It’s about enhancing its strengths but acknowledging and correcting its flaws. It’s not about bad people; it’s about a flawed system. Let the discussion resume about health system transformation.

Paul Keckely

Paul Keckley, Ph.D.

Policy change: genes ineligible for patent protection

Friday, the Department of Justice (DOJ) filed a friend of the court brief concluding that human and other genes should not be eligible for patents because they are part of nature.

Per the brief, “We acknowledge that this conclusion is contrary to the longstanding practice of the Patent and Trademark Office, as well as the practice of the National Institutes of Health and other government agencies that have in the past sought and obtained patents for isolated genomic DNA.”

The Patent and Trademark Office has not responded yet. If it chooses to follow the DOJ directive, it will likely dampen biotech company plans for diagnostic tests, drugs, and personalized medicine. Previously, the Patent Office has sided with industry proponents issuing thousands of patents on genes of various organisms covering 20 percent of human genes.

In the DOJ filing, as part of a challenge to commercial use of diagnostic testing built around a company’s patents for BRCA1 and BRCA2 genes for women at risk of breast or ovarian cancer, the government took the position that the isolation of a gene, without further alteration or manipulation, does not change its nature.

Note: in the 2010 Patient Protection and Affordable Care Act (PPACA) Section 7002, a 12-year period of exclusivity was given to biotech companies for bio-similars.

HHS announces competitive grants for state health information exchanges

Friday, the U.S. Department of Health and Human Services (HHS) announced funding opportunities for two-year “Early Innovator” grants for up to five states to design and implement the information technology (IT) infrastructure needed to operate health insurance exchanges. Grants will be awarded to states that “demonstrate leadership in developing cutting-edge and cost effective consumer-based technologies and models for insurance eligibility and enrollment for Exchanges”. The grants will be awarded by February 15, 2011.

OIG study: payment for drugs under hospital payment system

A study released last week by the Office of Inspector General (OIG) of the Hospital Outpatient Prospective Payment System (PPS) concluded that Medicare drug payments were on average 31 percent higher than acquisition costs for 340B hospitals and one percent higher for non-340B hospitals. For non-340B hospitals, about half of drugs were reimbursed above acquisition costs, and the other half were reimbursed between 0.6 and 11 percent below cost.

HHS announces funding for community health centers

Tuesday, HHS announced $3.9 million in PPACA funding for Family-to-Family Health Information Centers, non-profit organizations focused on children with special health care needs. PPACA Section 5507 extends funding up to $5 million for the centers from 2010 through 2012.

Also on Tuesday, HHS announced availability of up to $335 million for existing community health centers to increase access to primary and preventive services per PPACA Section 10503, as amended by Section 2303 of the 2010 Health Care and Education Reconciliation Act. Additional funding for community health centers is significant in PPACA and the 2009 American Recovery and Reinvestment Act (ARRA, the stimulus bill) between 2011 and 2015, with $9.5 billion for creating new centers in medically underserved areas and expanding preventive and primary health care services and $1.5 billion for construction and renovation.

House Committee releases data on Part D rebate checks

Monday, the House Energy and Commerce Committee released a district-by-district overview of the number of individuals receiving Medicare Part D “donut hole” rebate checks, as a result of PPACA Section 1101. As of October 1, over 1.7 million beneficiaries received checks. Under the new law, beneficiaries who hit the “donut hole” in 2010 will receive a $250 rebate check. Beginning in January 2011, beneficiaries will receive a 50 percent discount on brand-name drugs in the “donut hole”. By 2019, the Part D “donut hole” will be completely closed.

MGMA reports: medical practice revenues, electronic health record financial benefits

Monday, at its annual conference in New Orleans, the Medical Group Management Association (MGMA) released two studies:

  • Median total medical revenue for independent (non-hospital or integrated delivery system [IDS] owned) multispecialty practice was $798,608 per full-time-equivalent (FTE) physician, versus $448,597 per FTE physician in hospital or IDS-owned practices.
  • Specialist physicians practicing at multispecialty hospital-owned practices earned almost 20 percent less in total compensation than those in multispecialty practices not owned by hospitals.
  • Primary care physicians (PCPs) practicing in non-hospital or IDS-owned multispecialty practices had median total compensation earnings of $179,688, while hospital or IDS-owned multispecialty practices had a median total compensation of $192,116.

Source: MGMA Cost Survey for Integrated Delivery System Practices: 2010 Report Based on 2009 Data.

  • After five years of electronic health record (EHR) use, practices not owned by hospitals or an IDS improved their operating margin 10.1 percent.
  • Non-hospital or IDS-owned practices reported $49,916 higher total medical revenue after operating cost per FTE than practices with paper medical records. These practices had greater expenses ($105,591 per FTE physician), but had greater median revenue ($178,907 per FTE physician) than practices using paper medical records.

Source: MGMA Electronic Health Records Impacts on Revenue, Costs, and Staffing: 2010 Report Based on 2009 Data.

California seeks five-year Medicaid waiver

On October 20, California Governor Arnold Schwarzenegger (R) signed legislation to extend the state's federal Section 1115 Medicaid waiver for five years resulting in $10 billion in federal funding for Medi-Cal. The state’s $18 billion, five-year Section 1115 waiver expired in August.

The five-year pending Section 1115 waiver includes proposals to provide health care to more of the state's low-income residents than currently qualify for Medi-Cal as a stopgap measure until the federal health care overhaul takes full effect in 2014. The waiver would shift elderly Californians, children with disabilities, and some poor residents to managed care programs from the fee-for-service model. The waiver would also fund Federally-Qualified Health Centers and Rural Health Clinics on a per-visit, fixed-rate payment system.

Section 1115 of the Social Security Act gives HHS broad authority to approve state-run projects that are “intended to demonstrate and evaluate a policy or approach that has not been demonstrated on a widespread basis”.

State run high risk pools: update

This year, every state is required by PPACA to create a separate, federally-funded Pre-Existing Condition Insurance Programs (PCIP) for those whose pre-existing medical conditions make them uninsurable. State officials can elect to run the pools themselves or allow the same company that runs the Federal Employees Health Benefits (FEHB) Program to operate them. Thirty-five states already had high-risk pools, and some are collaborating with organizations to supplement $5 billion in federal funding available through PPACA to bring down premiums for the population, since for most, paying “the commercial equivalent cost of coverage” is beyond reach.

Report: physicians dislike payment system, generalists prefer bundled payments

The Archives of Internal Medicine released findings from a national survey of physicians' opinions about reimbursement. Authors concluded that physicians are dissatisfied with and have little consensus about Medicare reimbursement policies. Findings included:

  • 78.4 percent of physicians believe some Medicare procedure reimbursements are too high, while others are reimbursed at insufficient rates to cover costs
  • Quality incentives are preferred by 49.1 percent of physicians, followed by shifting payments (favored by 41.6 percent), and bundling (17.2 percent)
  • Bundled payments were more commonly supported by generalists than by other specialists; support for increasing pay for generalists was high at 79.8 percent, but only 39.1 percent supported offsetting the increase with a three percent reduction in specialist reimbursement

Source: Archives of Internal Medicine, Physicians’ Opinions About Reforming Reimbursement, Results of a National Survey.


“Every day millions of patients are being treated, and the lessons from their experiences are lost because there is no systematic effort to learn from them…In medical school you never thought, Gee, how will the system affect me? The lesson of medical school was that you are a singular crusader. It’s about how the individual operates. If you are lucky a smart nurse would tell you if you were about to do something really dumb.”

 – Harlan Krumholz, MD, Yale clinician and medical researcher, in a September 27, 2010 interview with Forbes

Fact file

  • Sixty-five percent of doctors who changed jobs in 2009 moved into a hospital-owned practice and 49 percent of medical residents were hired by hospitals. (Source: MGMA Physician Placement Starting Salary Survey: 2010 Report Based on 2009 Data)
  • Forty percent of private cardiology groups are currently integrating with hospitals or merging with other practices. (Source: American College of Cardiology)
  • Estimated annual benefit of electronic health record use in a 300-bed hospital: $1,976,000 to $10,020,000. (Source: Classen et al., “EMRs in the Fourth Stage: The Future of Electronic Medical Records Based on Experience at Intermountain Health Care.” Journal of Health Information Management, Summer 2007)
  • Nine percent of U.S. adult consumers say they “delayed following a course of treatment (such as having an operation or taking a medication) recommended by a doctor/medical professional” in the past 12 months; 8 percent say they “decided not to follow a course of treatment (such as having an operation or taking a medication) that was recommended by a doctor/medical professional” in the same period. (Source: 2010 U.S. Survey of Health Care Consumers, Deloitte Center for Health Solutions)
  • Between 1994 and 2000, 3,100 of 5,800 non-federal hospitals changed ownership. (Source: The Lewin Group)
  • Fifty-three percent are "very concerned" or "somewhat concerned" about having the money to make their monthly rent or mortgage payment. Worries are the most intense among those with lower incomes and among African Americans. (Source: Washington Post Poll, October 27, 2010)
  • Claims filed for Medicare A and B annually: $1.25 billion in 2009. (Source: Centers for Medicare and Medicaid Services [CMS])
  • EHR adoption by physicians increased from January 2010 (36.1 percent) to October 2010 (38.7 percent). Physician specialties with the highest adoption rates are radiology (59.9 percent), pathology (59.8 percent), aerospace medicine (59.5 percent), dialysis (59.3 percent), and emergency medicine (57.6 percent). Most common applications are electronic patient notes (28.4 percent), electronic labs/x-rays (27.3 percent), and e-prescribing (25.9 percent). (Source: SK&A Physician Survey 2010)
  • Seventeen percent of adults with cell phones use their phone for health or medical information; 9 percent with cell phones have mobile software applications (apps) that helped them manage their health records. (Source: Pew Internet Research)

Regulatory resources

Below please find a list of recent health reform-related regulatory activities and actions.

Monday, 10/25
Tuesday, 10/26
Wednesday, 10/27
Thursday, 10/28
National health reform: What now?




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 today.

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