Health Care Reform Memo: March 1, 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.
Breaking news: President’s plan
The White House indicates it will release an updated version of the President’s plan this week incorporating ideas from Thursday’s Summit on Health Care. Expansion of liability reform pilot programs, administrative simplification and increased fraud surveillance, mechanisms to integrate cross-state insurance purchases for consumers with state-run health exchanges, are expected to be included.
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The failure of the Summit to produce substantive bipartisan results may lead to a reconciliation vote on a scaled back bill. Reconciliation, a procedural process dating back to 1974, has been used 21 times to fast track legislation traditionally limited to spending and tax matters. The tax cuts ushered through Congress in the prior administration were passed by reconciliation. In the Senate, the Byrd provision limits reconciliation to budgetary items only—regulatory reforms in the insurance industry could not be addressed through reconciliation. It would limit debate on the bill to 20 hours, though amendments can be added. A reconciliation process would begin in the House of Representatives and ultimately fall within the legislative oversight of the Senate Budget Committee chaired by Sen. Kent Conrad (D-ND).
Reflections: The February 25 Health Care Reform Summit—My take
In the President’s Saturday address, and Sen. Tom Coburn’s Republican response, the theme of a bipartisan reform bill crafted with a civil tone was prominent. From there, after mention of areas of agreement—insurance reforms, small business assistance for jobs and health coverage, efficiency gains administrative simplification, aggressive pursuit of fraud—the differences between proponents and opposition to a reform bill are apparent:
Proponents seeks a bill that increases access through expansion of Medicaid and subsidized individual and small group coverage, regulates insurance practices aggressively, creates state-run health exchanges aligned with federal standards for essential benefits and premium constraints, and controls costs through payment and delivery system reforms.
Opponents favor attention to costs via liability reforms, interstate competition for insurance companies, expansion of consumer-directed health plans, increased transparency and elimination of the employer tax deduction offset by individual tax credits.
The complexity of the system was the focus of the seven-hour guided discussion: in most cases, campaign rhetoric was set aside in favor of discussion about ways to reduce cost and increase access during a tough economic period.
Notably, delivery system reforms that would accelerate coordination of care, increase adherence to evidence-based practices, reduce inappropriate variation and overuse, reduce costs and improve outcomes were not a focus of discussion. Nor did the 40 panelists seem fixed on the complex regulatory climate in which industry stakeholders compete adding costs and diminishing global competitiveness. Perhaps these and others will be the focus of Summit Two.
Reactions predictably have been mixed: each side declaring itself the “winner”. For sure, the scripted questions of panelists disguised deep understanding of the issues, but the seven-hour “made for TV” event was instructive even if the outcome is strengthening of differences and discord by opposing views.
Paul Keckley, Executive Director, Center for Health Solutions
House passes bill to eliminate health insurance antitrust exemption
Thursday, the House of Representatives overwhelmingly passed the Health Insurance Industry Fair Competition Act (HR 4626), which would eliminate antitrust exemptions for health insurance companies by a 406-19 vote. The bill’s sponsors indicated the 400 mergers among health insurers in the past 14 years had resulted in substantial consolidation among plans, thus mitigating protections against price fixing and anti-competitive business practices granted in the McCarran-Ferguson Act of 1945. A companion bill in the Senate, S1681, is still in committee.
“If we don’t put in place the infrastructure that these bills provide in order to help reduce costs over the long term, there’s nothing else in the budget that’s going to matter because, ultimately, health care costs will overwhelm the federal budget.”
- Peter Orszag, Director, Office of Management and Budget to Politico, Monday, 2/22/10
“Republicans should stop crying over reconciliation as if it’s never been done before. The Contract with America was done with reconciliation (1995). Tax cuts done with reconciliation (2001). Medicare done with reconciliation (2003).”
-Senate Majority Leader Harry Reid, February 23, 2010
“Regulating premiums won’t do anything to reduce the soaring costs of medical care. This would be like capping the prices automakers can charge consumers but letting the steel, rubber and technology manufacturers charge the automakers whatever they want.”
-Karen Ignagni, Wall Street Journal, February 23, 2010
“So the parties walked out of Blair House almost exactly the way they walked in—completely at odds over the best way to fix the health insurance system.”
-Politico Friday, February 26, 2010
Health costs increased 5.7 percent in 2009; forecast spending growth highest in 40 years
Health care spending hit 17.3 percent of the GDP of the U.S. at the end of 2009—up from 16.2 percent in 2008. While the overall economy shrank 1.1 percent in 2009, costs increased 5.7 percent overall, 8.7 percent in government programs (Medicare, Medicaid) and 2.8 percent for private businesses. The federal budget assumes health costs will increase at 6.1 percent annually with GDP growth forecast at 4.4 percent annual growth through the end of the decade.
Source: “US Health Spending Projections Through 2019: The Recession’s Impact Continues” Health Affairs, February 4, 2010)
Moody’s downgrades not-for-profit (NFP) acute sector
Moody’s Investor Service issued a negative outlook for the NFP acute hospital sector to credit markets and equity investors last week, citing the weakness of the economy, increased bad debt, uncertainty about health reform, declining operating margins and the likelihood of Medicare cuts as its rationale.
State-led reforms continue
In at least 31 states, efforts are underway to block individual mandates that might be part of the health reform bill, a la “Health Care Freedom Acts”.
In much-watched Massachusetts, Gov. Patrick introduced legislation to limit insurance premium growth to no more than the overall rate of medical cost inflation (3.2 percent in MA).
On the heels of last week’s meeting of the National Governors Association in NY, several governors announced changes to their Medicaid programs to contain costs and limit deficits. Examples:
- Nevada Gov. Jim Gibbons is proposing cuts for eyeglasses, adult day care, hearing aids and dentures to make up $881M gap.
- Kansas Gov. Mark Parkinson is proposing provider payments cuts of 10 percent.
- Georgia Gov. Sonny Perdue is proposing cuts to optional benefits, a 1.6 percent tax on hospital and managed care revenues and cut to providers 2 percent to make up a $680 million shortfall.
- Tennessee Gov. Phil Bredesen proposed a 9 percent cut to the TennCare budget and $10,000 cap on inpatient hospital services for non-pregnant adults.
Note: Medicaid enrollment is forecast to increase 42 percent through 2011 while the privately insured market enrollment will shrink 1.1 percent annually in the same time frame. Between the stimulus bill (ARRA 2009) and the proposed FY11 budget, states are eligible to get $112 billion in additional funds to offset Medicaid losses.
Streamline review process involves FDA, NIH collaboration; potential boon to biotech, device markets
Last week, The Food and Drug Administration (FDA) and National Institutes of Health (NIH) launched a joint initiative to accelerate the process of moving potential therapies and treatments from research to market. The effort is part of the FDA’s overhaul to align better with basic research managed through the NIH and streamline its review process using standardized tools. Note: the synergies with deployment of electronic health records that require “meaningful use” inclusive of data access and transparency in the stimulus plan (ARRA 2/09) contribute to the potential for clinical trial datasets more conducive to streamlining. And the sequencing of the human genome promises to spark massive growth in the personalized therapeutics and advancement in nanotechnology will spark opportunities in the medical device markets—both dependent on FDA and NIH effectiveness.
Physician fix update
Signaling a potential short-term band-aid to the scheduled 21 percent cut physicians face today per the sustainable growth rate formula, the Centers for Medicaid and Medicare (CMS) instructed contractors to hold claims on Medicare physician payments for the first ten business days of March to allow a temporary bill to pass. Note: each year since 2004, Congress has approved annual adjustments while accruing a $247 billion liability. In the President’s proposed FY11 budget, a $371 billion unfunded charge is included that would fix the model but add to the deficit.
Senate Finance to hear testimony from health insurance officials about premium increases
Wednesday, HHS Secretary Kathleen Sebelius has invited leaders of UnitedHealth Group Inc., WellPoint Inc., Aetna Inc., Health Care Service Corp., and CIGNA Healthcare to testify about proposed rate increases.
- Since December 2007, the economy has lost 8.2 million jobs; health care has seen a net increase of 600,000 employees. (Source: U.S. Bureau of Labor Statistics)
- The average workload for physicians from 1997 to 2008 decreased 7.2 percent from 54.9 hours per week to 51.0 hours per week—9.8 percent decrease for residents, 5.7 percent decrease for non-resident physicians, and 4.0 percent for hospital-based physicians. (Source: Staiger et al “Trends in the Work Hours of Physicians in the United States” JAMA February 24, 2010 Vol. 303, No.8)
- Real GDP grew 3.1 percent/year from 1970 to 2000, then 1.9 percent in the last decade. Meanwhile, health costs are budgeted to increased 5.7 percent through 2009 while GDP contracted 1.1 percent. (Source: National Bureau of Economic Research)
- Public spending on health care will be 50.7 percent of the total in 2012 vs. 38.5 percent for the private sector and 10.7 percent out of pocket. (Source: CMS)
- 24 percent of homeowners are under water on their mortgages. (Source: U.S. Department of Housing and Urban Development)
- Readmission rates to hospitals for Medicare enrollees: 20 percent within 30 days, 34 percent within 90 days. Higher for medical discharges (67 percent) vs. surgical (51 percent) overall. (Source: Jencks et al, Rehospitalizations among Patients in the Medicare Fee for Service Program, New England Journal of Medicine 2009; 360 (14): 1418-1428)
- The result of 400 health insurance company mergers over the past 12 years has resulted in 70 percent of the markets in 24 states being controlled by one or two plans. (Source: Health Affairs February 26, 2010 report of study sponsored by American Medical Association)
- Pharmaceutical company advertising for 2009: $5.8 billion, down 1.3 percent from 2009. (Source: Kanor Media)
• Electronic health record (EHR) use by physicians: Fully functional 6.3 percent in 2009 vs. 4.4 percent in 2008; basic systems—43.9 percent in 2009 vs. 41.3 percent in 2008. (Source: National Ambulatory Medical Care Survey, December 2009)
- Medicaid pays 72 percent of Medicare rates (66 percent for primary care). (Source: Health Affairs April 2009)
• Uninsureds: 13.7 million in households earning less than $25,000 and 14.9 million in households between $25,000 and $50,000 income—62 percent of the total uninsured. (Source: CMS, 2009
- Medicare spending breakdown: 2008 of total $444 billion: Hospitals ($211B or 48 percent), Physicians ($103B or 23 percent), Prescription Drugs ($52B or 12 percent), and Nursing Homes ($26B or 6 percent). (Source: CMS)
- Health care research spending: 4.5 percent of total health expenditures for biomedical research, and 0.1 percent for health services research. Note: R&D spending grew at 7.8 percent/year from 1994 to 2003, then decreased to 3.4 percent from 2003 to 2007. (Source: National Institutes of Health)
- The U.S. economy will expand 3.0-3.5 percent in 2010 and 3.5-4.5 percent in 2011. Unemployment rate will fall to 7 percent by the end of 2012. (Source: Fed Chairman Ben Bernanke, Wednesday, February 24, 2010)
In Thursday’s Summit, the value of health information technology (HIT) to reduce costs and improve care was not mentioned. Only an anecdotal reference by Sen. Budget Chairman Kent Conrad (D-ND) opining to the challenge of managing his father-in-laws regimen of 16 drugs reflected a connection between HIT and solutions. Significantly, he noted a physician reduced the numbers of meds to eight and told him many of the scripts were contributing to the patient’s failing health.
A second theme also framed the value proposition for HIT in an obtuse way: that administrative costs in health care are high and fraud detection efforts modest struck a rare bipartisan chorus, though not tied to IT investments per se.
In Atlanta today, thousands will converge on the Georgia World Congress Center for the “Super Bowl” of health information technology—the annual meeting of the Healthcare Information Management Systems Society (HIMSS).
Against a backdrop of health reform, a difficult economy, tepid investor interest in traditional brick and stick sectors and growing antagonism toward health plans, vendors will show their wares to potential customers and forge strategic partnerships to accelerate growth.
Consumers see the value of IT partially. They believe paperwork is redundant and many diagnostic tests unnecessary. They use the internet routinely for travel and banking, but are puzzled they cannot access their medical information or get a reply online from a physician. They do not fully appreciate the scope of clinical IT to improve accuracy in diagnoses and appropriateness in treatment recommendations, and they haven’t a clue what the stimulus package means relative to adoption of electronic medical records.
Only 9 percent are “online and onboard” (Deloitte Survey of U.S. Health Consumers) using tools to self-navigate, but the number is large and growing, especially among Gen X and Gen Y consumers eager to take charge of their health care.
Looking at HIMSS offerings this week, a number of “Big Shifts” will be obvious:
From data to information: There’s no shortage of data in health care—3,000 drugs; 1,000 distinct lab tests; 20,000 medical journals; 5,800 hospitals; 660,000 office-based physicians; 1,300 health insurance companies, and so on. Watch for solutions to data overload from big players like Google, Oracle, IBM, SAP and others that bridge the gap from data to information.
From lag time to real time: Lagging indicators and dashboards that capture and sort historic trends will give way to tools that provide synchronous information with artificial intelligence to inform actions immediately. Watch for electronic health records that immediately integrate signs, symptoms, risk factors and co-morbidities using natural language input in customizable treatment plans with predictable risks and outcomes.
From physician management to evidence-based clinical teams: Scenario: Real-time information about a patient at home or in the office shared with a team of professionals fixed on improved outcomes and enhanced customization of care. Watch for applications that facilitate shared decision making among care teams incorporating beliefs and value of consumers.
From population-based health to personalized medicine: The personalized medicine market struggles because it costs $1.2 billion to bring a product with arguably better efficacy to market. But access to global datasets and improvements in basic and applied research methods (Bayesian analytics, adaptive clinical trials, etc.) will accelerate access to personalized therapeutics and companion diagnostics. Watch for innovations in access to and management of clinical data capabilities, with new partnerships crafted between innovators in the life sciences and front line providers.
From private networks to communities of care: Organizational control of information is likely to give way to communities of shared information, whether through efforts in health exchanges or informal networks stimulated by shared use. Watch for acceleration of open sourcing, cloud computing, and info-mavens that fast track seemingly inflexible and fragmented applications into seamless connectivity. And the phenomenon of social media use by consumers dwarfs other direct to consumer channels in impacting their engagement.
From patient-focused to consumer-centric: The U.S. health system is in many ways mired in a patient-centric model that presumes health care clinical decisions too complicated for Joe Public to understand and costs too complex to calculate at the time of a transaction. Watch for consumers taking control of their information, demanding real time solutions through their mobile devices, linked to their care team, and aligned with their definition of value.
The federal government will spend $70 billion in 2010 for its information technology. The administration brought on the first Chief Technology Officer in the country’s history, and the Office of the National Coordinator has made great strides to bring health care information technology into the mainstream of its operations.
- Consumer demand: Most (53 percent) depend on their physician to make their decisions and are complacent. And loss of control of personal health information remains a strong concern. The acceleration of IT in health care is largely dependent on end-users who demand it in “their” system. While there’s merit in BTC efforts, BTC for industry stakeholders is probably worthwhile.
- Physician resistance: Fearing loss of professional autonomy and “cookbook” medicine, many physicians decry the value of information and promote eminence-based care over evidence-based approaches. Some notable physician organizations (AAFP, ACP, AAMC, etc.) have stepped forward to encourage peers to adopt information-aided health management as the new normal in medical care. But for many, the pushback is significant.
- Incentive alignment: Doing more instead of doing right things explains historic aversion to information-driven care. If consumers don’t demand it and physicians fear it, why should payers require it? Medicare and private insurers should be at the forefront of IT adoption efforts. Incentives for performance-based payments should be presuming use of clinical and administrative IT solutions. A “tools, not rules” approach is optimal, and relentless collaboration among payers necessary to facilitate provider response.
- Regulatory streamlining: Regulatory barriers remain. They can be remedied if the value proposition of IT is fully appreciated by lawmakers and the public engaged effectively in the debate.
- IT industry leadership: In many ways, the health IT industry mirrors the fragmentation and messiness of the U.S. health market. At last year’s HIMSS, 47 first-time vendors offered their electronic health record solution. Opportunities for cost-reduction, care improvement, and coordination of care abound: the industry must be more effective in making its case.
As health reform dominates the news and the industry struggles with issues of sustainability and scalability, IT is not the solution. It is the bridge to the solution, a means not an end.
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