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Health Care Reform Memo: March 26, 2012

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: the ACA and the Supreme Court: what is the fate of the individual mandate?

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

On the second anniversary of the Affordable Care Act’s (ACA) passage last week, the storyline shifted to its future, particularly how the U.S. Supreme Court might rule on its centerpiece, the individual mandate. Today through Wednesday, the nine justices will hear six hours of oral arguments having already begun digesting 136 amicus briefs filed in advance. The significance of the time set aside can’t be over-stated: not since the 1966 deliberation of the Voting Rights Act of 1965 has an issue been granted this much time before the country’s highest court. It’s a big deal!

I will not speculate about the outcome of the court’s deliberation—pundits are all over the place on their bets. I have read many of the briefs: I am struck by the artful weaving of logic punctuated by dutiful citations of prior court decisions. The applicability of the federal government’s powers via the Commerce and Necessary and Proper Clauses of the U.S. Constitution to the U.S. health care system will be the fundamental issue—is our health care system a “market” like others or unique?

The justices will answer four questions: is the individual mandate requiring each individual to purchase insurance constitutional? Is the Anti-Injunction Act applicable to ACA? If the individual mandate is ruled unconstitutional, does it invalidate the rest of the law? And does the federal government have the right to force states to expand their Medicaid programs via specified eligibility thresholds and rules? They’ll announce their decisions this June—just in time for the summer campaign season but before major provisions of the law are implemented (i.e. health exchanges, bundled payments, and others).

By far, the most important of these issues is the individual mandate: in Section 1501 of ACA, individual taxpayers are required to have insurance that meets a minimum standard (essential health benefits [EHBs]) or pay a penalty tied to a formula. It’s a concept first promoted and later disavowed by the Heritage Foundation (1989) and adopted by Republican House members (1993) as a means of stabilizing the risks and costs in health insurance coverage across large populations. The idea of a health insurance requirement is not new. At the federal level, it has been a focus of legislative efforts for almost 20 years...

Legislation including health insurance mandates
Date introduced Bill Sponsors/Cosponsors Details
November 1993
Consumer Choice Health Security Act
Sponsor: Representative Clifford Stearns (R-FL)

Democrats: 0
Republicans: 22
  • Required individuals to receive minimum level of health insurance coverage, as defined by federal law
  • Individuals who failed to purchase coverage automatically enrolled into state government equivalent
  •  Failure to prove minimum coverage requirement resulted in loss of personal tax exemption


Consumer Choice Health Security Act
Sponsor: Senator Don Nickles (R-OK)

Democrats: 0
Republicans: 24
Health Equity and Access Reform Today Act of 1993 (S.1770) Sponsor: Senator John Chaffee (R-RI)
Democrats: 3
Republicans: 17
  • Required individuals to purchase health insurance
  • Required employers to offer employer coverage but no requirement to contribute toward premium cost
  • Individuals with religious objections excluded from requirement
January 1994

Comprehensive Family Health Access and Savings Act (H.R. 3918)



Comprehensive Family Health Access and Savings Act
(S. 1807)

Sponsor: Senator Rick Santorum (R-PA)



Sponsor: Senator Phil Gramm (R-TX)

  • Instituted “soft” mandates on both employers and employees
  • Required employers to offer consumer driven health care plans (e.g. medical savings accounts) to employees
January 2007 (Reintroduced January 2009) Healthy Americans Act (S. 334) Sponsor: Senator Ron Wyden (D-OR)
Cosponsors: 17
  • Required adults to have access to coverage under the Americans Private Insurance Plan with exclusions for those who object for religious reasons
  • Instituted penalties for those who do not have health coverage in HAPI or another health plan
September 2009
Patient Protection and Affordable Care Act (H.R. 3590) Sponsor: Representative Charles Rangel (D-NY)
  • Institutes financial penalties for those who do not maintain minimum essential health coverage starting 2014, with exceptions for those who cannot afford coverage, taxpayers with income below the filing threshold, Indian tribes, those who have received a hardship waiver, and those who were not covered for a period of less than three months during the year

At the state level, Massachusetts is the precedent: its legislators approved a law requiring residents to obtain health insurance coverage by July 1, 2007, as long as affordable coverage is available. It also instituted surcharges on employers with 11 or more employees not offering coverage if “free care” is accessed at least five times annually. By contrast, in three states (Missouri, Oklahoma, Arizona), voters have passed referenda precluding enforcement of the ACA individual mandate within their borders, and 26 state attorneys general are among those fighting against it in the Supreme Court now.

So the concept of the mandate is not new. But its context—as the centerpiece of ACA—is unprecedented. The economics of the entire ACA rely on the success of the individual mandate to bring 16 million currently eligible but uninsured Americans into the insurance system. On that promise, the pharmaceutical, medical device, hospital, and commercial health insurance industries conceded a half trillion in excise taxes and payment cuts to fund half of ACA’s ten year costs.

The philosophical dispute around the individual mandate is quite simple: does the federal government have the right under our Constitution to require people to buy health insurance. The arguments on both sides, based on the briefs, boil down to two contrasting points of view:

  • Supporters argue the mandate is necessary because a person who chooses NOT to have insurance coverage nonetheless uses the health system, imposing costs borne by others via hidden taxes (mark-ups by providers) and funding by taxpayers for public programs. The argument is that a decision NOT to purchase/enroll in insurance, when available and affordable, is an act of commerce. The cases of Wickard v. Filburn (1942, wheat production) and Gonzales v. Raich (2005, marijuana growing) are frequently cited as court precedents for this view.
  • Those against argue that allowing the federal government to impose the mandate is a slippery slope leading to limitless government control over personal, perhaps private decisions: can the federal government require citizens to buy cars or force its citizens to eat broccoli? Emotion runs deep in support of this point of view. And those in this camp affirm that the U.S. Constitution grants the federal government limited powers in favor of state’s rights to oversee its citizens, noting court decisions about handgun laws (U.S. v. Lopez, 1995) and women’s rights (U.S. v. Morrison, 2000) as legal grounding.

No one knows how the Supreme Court will rule. It’s open to speculation. And some are hedging their bets—the Government Accountability Office (GAO) outlined nine alternatives to the mandate if struck down (“Expert Views on Approaches to Encourage Voluntary Enrollment,” February 25, 2011) and many policy analysts are encouraging states to consider mandates akin to the 49 states that require auto insurance coverage for all licensed drivers (91 percent of adult population, 210 million impacted) or incentives to employers to enroll eligible employees.

These past few weeks, I‘ve studied the government mandates in the U.S. and elsewhere. Citizens in Switzerland, Japan, and the Netherlands have health insurance mandates, but not everyone buys insurance. In Massachusetts, its mandate has worked well, but 1.4 percent of its citizens are not insured, though many qualify for insurance that costs them nothing.

In the U.S., mandates are rare. There have been only three passed by Congress in its history: the Militia Act of 1792 that required every "free able-bodied white male citizen" between the ages of 18 and 45 to "provide himself" a weapon and ammunition, and the ACA individual mandate. A third—a mandate to pay income tax—was found unconstitutional by the U.S. Supreme Court in 1895, but later ratified in the 16th Amendment to the U.S. Constitution in 1913.

Some consider the requirement that seniors enroll in Medicare or pay a penalty a mandate—the vast majority actually enrolls, but technically it’s not a mandate. And suspense around the individual mandate was heightened last year as four circuit courts weighed in: two concluding it constitutional, a third unconstitutional, and a fourth that determined the federal Anti-Injunction Act prevented the issue from being decided until taxpayers begin paying penalties in 2015.

So the stage is set.

Personally, I think the individual mandate will be upheld because I believe the health care market is different than others: everyone uses the health system. Enrollment in an insurance plan based on a person’s ability to pay seems reasonable and appropriate. But there’s a bigger issue: even if the mandate is deemed unconstitutional, reform of the delivery and financial systems will continue, perhaps at an accelerated pace. The simple reason: the status quo is not sustainable. The system costs too much and delivers less than what it should.

The delivery system is fragmented, expensive, wasteful, and in some cases fraudulent. It’s a sick care system, not a health system. And the payment system is focused on fee for service and volume instead of performance and value—both need dramatic improvement.

So all eyes in the health and government arenas will be on the Supreme Court this week while others anticipate the Final Four. Regardless of its outcome, the health system will be transformed. The individual mandate may or may not be a critical ingredient in its transformation.

Paul Keckely

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

Implementation update

HHS highlights ACA results at two year anniversary

On the second anniversary of passage of the Affordable Care Act last week, the U.S. Department of Health and Human Services (HHS) released a report highlighting its impact:

Access to care
  • 54 million received private health coverage for preventive services (e.g. wellness visits, cancer screenings) without cost sharing.
    Note: HHS predicted that group premiums would increase by an average 1.5% in 2011, however premiums increased by an estimated 0.4% in 2011.
  • 2.5 million young adults up to age 26 received coverage between September 2010 and June 2011.
    Note: HHS projected that about 1.2 million young adults would receive coverage and that the average premium in the group market would increase by 0.7% premium, however premiums have increased by 0.9% (Commonwealth Fund).
  • 105 million no longer have a lifetime dollar limit on many health benefits. Annual dollar limits are set at increasingly higher amounts until January 1, 2014 when most plans issued or renewed are prohibited from instituting annual dollar limits.
    Note: HHS predicted that that premiums would not increase over 0.75% in the group market; premiums have increased 0.5% in 2011 (Commonwealth Fund).
  • About 50,000 with pre-existing conditions obtained coverage through the temporary Pre-Existing Condition Insurance Plan for high-risk enrollees.
    Note: HHS expected to cover between 200,000 – 400,000 enrollees, much more than the 50,000 covered. The program has been allocated $5 billion through 2013; the cost through 2011 has been $618 million.
  • More than 32.5 million Medicare enrollees received one or more free preventive services, including the new Annual Wellness Visit.
  • Health insurers, who have to meet the medical loss ratio (MLR) provision requiring plans to spend at least 80% of an enrollee’s premium dollar on health care coverage or pay consumers’ rebates, now cover 76 million.Note: plans will report data in June showing if they met the MLR requirement; those that do not meet the threshold must pay rebates, unless they are in one of eight states that have temporary MLR waivers.
  • Participation in the National Health Service Corps (NHSC) has increased almost 300% over the past three years, reaching over 10,000. In 2011, NHSC provided services to about 10.5 million patients, up from 3.7 million in 2008.
  • 360,000 small employers have received tax credits to provide coverage to about two million workers.Note: HHS predicted that more than four million employers would be eligible. As of November 2011, 309,000 firms received $435 million in tax credits; the Congressional Budget Office (CBO) predicted the program to cost $6 billion through September 2011.
  • The Early Retiree Reinsurance Program (ERRP) has provided $5 billion in reinsurance payments to employers to help them provide coverage with reduced premiums or cost sharing to at least 19 million early retirees and their families.
    Note: CBO predicted that the program would cost $3.8 billion through 2011 ($5 billion total through 2013).
  • ACA saved about $14.8 billion for physicians, other health care providers, and health plans by simplifying rules for health plan eligibility and health care claims and $2.4 to $3.6 billion by transitioning the billing system from a paper system to electronic billing.
  • The Center for Medicare & Medicaid Innovation (Innovation Center) has 17 initiatives (e.g. bundled payments, Partnership for Patients) involving over 50,000 health care providers to test new Medicare and Medicaid reforms in all 50 states. This includes the initiative to improve patient safety.
  • 32 “Pioneer” Accountable Care Organizations (ACOs) are up and running with savings expected up to $1.1 billion over the next five years.
  • $500 million in funds has been allocated in 2010, $750 million in 2011, and $1 billion in 2012 from the Prevention Fund to support local and state public health programs and public health infrastructure.
  • Community health centers have increased the total number of those served by 2.4 million annually and added more than 18,600 new full-time positions since 2009.
  • Almost $110 million has been provided to support school-based health centers.
  • 5.1 million enrollees saved more than $3.2 billion on prescription drugs; 103,000 enrollees in the donut hole saved approximately $93 million due to a one-time $250 rebate check to seniors who hit the “donut hole” coverage gap in 2010 and a 50% discount on brand-name drugs in the donut hole in 2011.
  • The average person with Medicare will save approximately $4,200, and those with high drug costs will save up to $16,000 from 2011 to 2021.
Funding to states
  • Over $154 million in grants have been provided to 47 states and DC to help them implement or improve their rate review activities.
    Note: HHS has allocated $250 million to states for their rate review processes.
  • 33 States, including D.C., are on their to running their own Exchanges, having received at total of nearly $670 million in Exchange Establishment Grants
  • Seven non-profits planning to provide coverage in eight states have been awarded more than $638 million in loans to establish Consumer Operated and Oriented Plans (CO-OP).

Sources: Susan Jaffe, Kaiser Family Foundation, “Scorecard: What the Health Law Has Delivered, or Not,” March 23, 2012; White House, “Affordable Care Act: The New Health Care Law at Two Years,” March 2012

Innovation Center seeks applicants for hospital- nursing collaboration

The Innovation Center, per ACA Sections 3021 and 5509, seeks applications for the Graduate Nurse Education Demonstration for five hospitals to collaborate with nursing schools to train advanced practice registered nurses. Half of clinical training must occur in non-hospital settings located in the community. The Centers for Medicare & Medicaid  Services (CMS) will provide up to $200 million total, allocating up to $50 million annually between 2012 and 2015. Funding will support training costs, administration, implementation, monitoring, and evaluation costs. Funding will be calculated on a per-student basis. Applications are due May 21, 2012.

Federal agencies seek comment about proposed changes to coverage for women’s preventive health services including contraception

Seeking to resolve recent legislative tension around required contraception coverage in religiously-affiliated employers, HHS and the U.S. Departments of Labor (DOL) and Treasury (DOT) announced plans to amend regulations per ACA Section 1001 and Section 2713 of the Public Health Services Act (PHSA). The amendments would provide other ways to meet the coverage requirements when health coverage is provided by a religious organization based on the draft proposals announced February 10, 2012. HHS, DOL, and DOT seek comments on the proposal until June 19, 2012.

Legislative update

House budget committee passes Ryan plan; spending reduced to 2008 levels key feature

Wednesday, the House of Representatives Budget Committee passed (19-18) the “The Path to Prosperity: A Blueprint for American Renewal” authored by its Chairman Paul Ryan (R-WI). The plan features spending cuts to pre-2008 levels that are maintained for five years and reduces the six current tax brackets to two with the top individual rate going from 35 percent to 25 percent. CBO estimates that the plan would raise revenues from 15.5 percent gross domestic product (GDP) in 2011 to 19 percent in both 2030 and 2050, and spending (mandatory and discretionary) would decrease from 12.5 percent of GDP in 2011 to 5.75 percent in 2030 and 3.25 percent in 2050. Health care related highlights:

Area Highlights CBO estimates
  • Increases eligibility by two months annually starting in 2023, reaching age 67 in 2034.
  • Provides premium supports (i.e. vouchers) with the amount based on income level. Vouchers would increase at GDP+1%.
  • For those who turn 65 in 2023 or later, or those who would otherwise become eligible for the program in 2023 or later, total spending would be set at $7,500 (in 2023 dollars) for each new 65-year-old beneficiary on a full-year-equivalent basis.
  • Increases Medicare spending from 3.25% GDP in 2011 to 4.25% in 2030, 4.75% in 2050. This is lower than projected spending growth of 6.5% of GDP by 2050 under current law.
  • By 2030, 39% of Medicare beneficiaries would be subject to the spending constraints1 established for the program rising to 91% by 2050.
  • Increases real (inflation-adjusted) spending for new enrollees in Medicare in coming decades but at a much slower rate than under current law. By 2050, spending for new enrollees under the plan would be 35% below spending under current law.
  • Converts federal share of Medicaid spending into block grant indexed for inflation and population growth.
  • Constrains Medicaid cost trajectory by $810 billion over ten years.
  • Decreases Medicaid and Child Health Insurance Program (CHIP) spending from 2% GDP in 2011 to 1.25% in 2030 reaching 1% in 2050.
  • Decreases federal Medicaid and CHIP spending relative to GDP in the next decades, versus increasing spending sharply under current law. By 2050, spending would be 76% lower than under current law.
ACA repeal
  • Repeals ACA and exchange subsidies saving roughly $808 billion over ten years.
  • Repeals Independent Payment Advisory Board (IPAB) per ACA Section 3403.


1Per CBO, the restraints “could lead to reduced access to health care; diminished quality of care for Medicare beneficiaries; greater efficiency of health care delivery; less investment in new, high-cost technologies; or some combination of those outcomes.”

Note: the House is expected to pass the Ryan budget this week, largely along party lines. It is not expected to be passed in the Senate.

House passes IPAB repeal and medical malpractice reform

Thursday, the House voted (223-181) for H.R. 5, the Protecting Access to Health Care (PATH) Act, which would repeal IPAB and overhaul the medical malpractice system with seven Democrats voting for the measure, and ten Republicans voting against it. The bill is not expected to be passed in the Senate.

Medicare Advantage risk adjustment, interest income targeted as offset for SGR fix

Thursday, Representative Pete Stark (D-CA) introduced legislation, the Medicare Advantage Program Integrity Act (MAPI) requiring a change to Medicare Advantage (MA) plans’ risk adjustment methodology and delayed payments to MA plans so that the federal government earns interest on the cash flow.

In January, GAO found CMS could have saved between $1.2 billion to $3.1 billion in payments to MA plans in 2010. MAPI would increase the 2014 adjustment factor 1.3 percent from the 2010 levels and increase it yearly until 2019, when the adjustment rate would be at least 7.1 percent higher than 2010.

Note: an Office of the Inspector General report concluded that in 2007, MA organizations held funds for approximately 46 days. If CMS had delayed those prepayments like the Federal Employee Health Benefits program by the same 46 days, the Medicare Part A and Part B trust funds could have earned approximately $450 million in interest in 2007.

State update

Newly-enrolled Medicaid eligibility methodology being tested in ten states

CMS's final rule last week about ACA’s Medicaid expansion did not finalize an earlier proposal to give states three options to identify newly eligible beneficiaries for the purposes to claim a higher federal matching rate (100 percent of the cost for newly eligible beneficiaries 2014 through 2016, 95 percent in 2017-2019, and 90 percent for 2020 and beyond).

Cindy Mann, director of the Center for Medicaid and CHIP Services says the agency expects to issue a separate rule later this year on the methodologies after pilot testing conducted by RAND Corporation in ten states (Arizona, California, Indiana, New Hampshire, Nebraska, New York, Oregon, Virginia, Tennessee, and West Virginia) concludes.

HHS releases health insurance rate review results

Per ACA Section 1003, HHS released its reviews of proposed health insurance premium increases ranging from 10 percent to 24 percent in nine states (Arizona, Idaho, Louisiana, Missouri, Montana, Nebraska, Virginia, Wisconsin, and Wyoming).

HHS also published a report finding that in the fourth quarter of 2011, states reported that premium increases declined by 4.5 percent and plans in Texas, Kentucky, Nevada, and Indiana are reporting fewer rate increase requests for over 10 percent. States including California, New York, and Oregon are reporting lower rate increase requests in recent months.

Note: as of March 10, 2012, analyses of 186 10 percent+ rate increases for plans covering 1.3 million people were posted on

Improved coordination of uninsured children sought

March 15, the Medicaid and CHIP Payment and Access Commission (MACPAC) released “Report to the Congress on Medicaid and CHIP” finding that children in Medicaid or CHIP had better access to care compared to uninsured children and comparable access to care compared to children with employer sponsored insurance (controlling for income, health status, and socioeconomic factors). The report encouraged states to adopt a number of administrative changes to programs with special focus on children with disabilities, increased fraud detection, quality measurement, and use of information technologies for care management. (Source: Medicaid and CHIP Payment and Access Commission (MACPAC), “Report to the Congress on Medicaid and CHIP,” March 2012)

Note: MACPAC was established under the Children’s Health Insurance Program Reauthorization Act of 2009 (CHIPRA P.L. 111-3) and was expanded under ACA Section 2801. MACPAC is tasked with reviewing state and federal Medicaid and CHIP access and payment policies and making recommendations to Congress, the HHS Secretary, and the states on a wide range of issues affecting Medicaid and CHIP populations, including health care reform. In FY2011, Medicaid covered about 70 million people, over a fifth of the U.S. population, costing $432 billion while CHIP covered eight million children spending $12 billion

HHS releases guidance to states on electronic health care transactions, administrative simplification

Wednesday, HHS’s Center for Medicaid and CHIP Services released guidance to states per ACA Section 1104 which addresses administrative simplification of electronic transactions between providers and health plans governed under the Health Insurance Portability and Accountability Act (HIPAA). Highlights:

  • Requirements in the operating rules not adopted by HHS: HHS did not adopt the Committee on Operating Rules for Information Exchange (CORE) certification used to test operating rules and the requirements related to the use of the acknowledgement standards. Although these standards can be used on a voluntary basis, HHS encourages states to test operating rules during the implementation planning. HHS is expected to publish a rule to adopt acknowledgement standards in the future.
  • Gap analysis: Medicaid agencies must conduct a gap analysis to determine if operational changes are necessary to meet the operating rules and to provide newly required information. States must also assess their Medicaid information technology (IT) infrastructure to identify if hardware or software modifications are needed to comply with these requirements and the January 1, 2013 operating rule compliance date.
  • Additional federal funding: states can receive additional federal funding if they change their Medicaid IT infrastructure to meet these operating rules and meet seven standards and conditions specified by CMS regulations (Federal Register, Vol. 76, No. 75, dated April 19, 2011). Ninety percent Federal Financial Participation (FFP) is available for the design, development, and implementation of the Medicaid management information system (MMIS), and/or the state’s eligibility and enrollment system that meet ACA requirements. States can receive 75 percent FFP if they continue operations of the Medicaid system. States must submit an Advanced Planning Document to CMS for review and approval to receive funding.

Note: July 8, 2011, HHS published an Interim Final Rule implementing ACA Sections 1173 and 1104 which provided operating rules for the adopted standard transactions for eligibility for health plan and claim status transactions effective January 1, 2013. HHS will publish several additional regulations adopting operating rules for each of the transactions adopted under HIPAA in the next several years. HHS also encourages states to obtain operating rules from the Council for Affordable Quality Healthcare (CAQH) CORE web site at and to contact CAQH CORE staff with technical questions and guidance.

State round-up

Hawaii’s Senate is holding confirmation hearings on 11 Hawaii Health Insurance Exchange Board nominees. The State House Consumer Protection and Commerce Committee amended a bill that would only allow insurers to serve as advisers unlike prohibitions in other states.

Monday, Maryland launched a marketing campaign to increase the number of applications for its high-risk temporary Maryland Health Insurance Plan (MHIP) through a marketing campaign funded by the federal government.

Indiana and Utah became the fifth and sixth states to approve the “health care compact” becoming the first states to do so in 2012. Note: Texas, Georgia, Louisiana, and Oklahoma were the first states to approve the compact. Legislation has been introduced in 13 other states.

A study of Colorado’s 300 biopharmaceutical companies found that the industry employ approximately 5,400 people with average yearly income of $93,000. In 2008, estimated investments to the state were $379.9 million and the industry provided over $10 billion in products and services.

Industry news

Supreme Court ruling tightens patent laws for diagnostic testing

In a unanimous decision announced last week, the U.S. Supreme Court ruled that diagnostic testing companies may not patent processes used in commercial diagnostic testing that essentially reflect “laws of nature.” In its ruling, the court concluded that companies must do more to receive patent protection. The $4 billion molecular diagnostics industry is hard hit by the court’s ruling, which challenges many patents held by inventors in the sector. In the opinion, Justice Stephen Breyer likened current patent law akin to awarding a patent to an inventor for the principle of buoyancy instead of a novel boat design applying the principle.

Representatives focus on medical device recall oversight, cite flaws in process

Thursday, Representative Edward Markey (D-MA) released a report questioning the U.S. Food and Drug Administration’s (FDA) device review process for recalled devices that are similar to previously approved devices.

Note: Markey and Representatives Henry Waxman (D-CA), Jan Schakowsky (D-IL), and Rosa DeLauro (D-CT) recently introduced the Safety of Untested and New Devices (SOUND Devices) Act to recalls. The Advanced Medical Technology Association (AdvaMed) opposes the legislation stating that the FDA already has the regulatory power to address the issue while the FDA supports the legislation. An FDA spokesperson told Politico Pro, “on average, the agency clears 28 devices a year that cite a predicate known to be recalled. A device is five times as likely to be recalled with a design flaw if it is based on a [earlier device] that was itself pulled for safety problems.”

Federal appeals court upholds graphic warnings requirement on cigarette packaging

Monday, the 6th Circuit Court of Appeals upheld a 2009 law requiring graphic cigarette warning labels. The court agreed with a Kentucky district court’s decision in 2010. Additionally the court ruled to prohibit companies from claiming that the FDA increases the safety of these products, however struck down the requirement that the labels only be printed in black and white.

Note: last month, a federal court in Washington, DC ruled the requirement violated the First Amendment of the U.S. Constitution. Oral arguments will be heard April 10.

JOBS Act passes, helps emerging companies conserve capital

Last week, the Senate passed (73-26) H.R. 3606, the Jumpstart Our Business Startups (JOBS) Act. The JOBS Act makes it easier for emerging companies including those in biotechnology and medical device manufacturing to access capital.

The JOBS Act creates an “on-ramp” to the public market allowing five years of relief from Sarbanes-Oxley (SOX) Section 404(b) requirements so that early stage companies can conserve capital and focus on business model refinement and growth. Per the U.S. Securities and Exchange Commission (SEC), this relief will save companies up to $2 million per year. In addition, the legislation would:

  • Expand the eligibility requirements of SEC Regulation A to include companies conducting direct public offerings of up to $50 million;
  • Increase the limit that requires private companies to register with the SEC from 500 to 2,000 shareholders; and
  • Require the SEC to revise Rule 506 of Regulation D to permit general solicitation in direct public offerings, broadening the investor base.

Medicare Pharmacy Transparency and Fair Auditing Act introduced, lessens PBM audit of retail pharmacies in Part D insurance plans

Tuesday, Representative Cathy Rodgers (R-WA) introduced legislation to limit pharmacy benefits manager (PBM) access to audit retail pharmacy prescription records in Medicare Part D prescription drugs plans. The bill requires plans to provide insight to pharmacies about the maximum allowable cost, reimbursement standards, and updated pricing information weekly. The National Community Pharmacists Association supports the legislation; the Pharmaceutical Care Management Association is opposed.

Berwick joins Center for American Progress

Friday, the Center for American Progress (CAP) announced that former CMS Administrator Donald Berwick will join as a senior fellow. Berwick, 65, is a pediatrician, having served as professor of health policy and management at the Harvard School of Public Health, a staff member at Children’s Hospital Medical Center in Boston, and member of the Institute of Medicine.

CAP is a think tank established in 2003 by John Podesta, a former chief of staff to President Bill Clinton. Other CAP scholars include Dr. Ezekiel Emmanuel, a bioethicist and former senior adviser in the Obama administration, and former U.S. Senate Majority Leader Tom Daschle (D-SD).

Study: Racial bias influences physician communication with patients

In a cross-sectional study of 40 primary care clinicians and 269 patients in urban community-based practices, physician input about general race bias, and race and compliance stereotyping were tested with two implicit association tests and related them to audiotape measures of visit communication and patient ratings.

According to the study, “among Black patients, general race bias was associated with more clinician verbal dominance, lower patient positive affect, and poorer ratings of interpersonal care; race and compliance stereotyping was associated with longer visits, slower speech, less patient centeredness, and poorer ratings of interpersonal care. Among White patients, bias was associated with more verbal dominance and better ratings of interpersonal care; race and compliance stereotyping was associated with less verbal dominance, shorter visits, faster speech, more patient centeredness, higher clinician positive affect, and lower ratings of some aspects of interpersonal care.”(Source: Cooper et al, American Journal of Public Health, “The Associations of Clinicians’ Implicit Attitudes About Race With Medical Visit Communication and Patient Ratings of Interpersonal Care,” March 15, 2012)


“The six hours the court will devote to arguments is a testament to the case’s importance. The last time the court heard longer arguments in a politically charged case was in 1966, over the Voting Rights Act, a crowning achievement of the civil rights movement.

And the last time the Supreme Court ruled that a major piece of economic legislation was beyond Congressional power to regulate commerce was in 1936, when the court struck down minimum-wage and maximum-hour requirements in the coal industry.”

 — Adam Liptak, New York Times, “Health Care Act Offers Roberts a Signature Case,” March 11, 2012

“If you're tired of the other side throwing around that word like it's an insult, then join me in sending a message that we're proud of it. Let everyone know: ‘I like Obamacare.’

What's not to like? Obamacare means you won't have to pay out of pocket for preventive care like cancer screenings and birth control, insurance companies can no longer drop people when they get sick or refuse coverage for ‘pre-existing conditions,’ and women won't have to pay more just for being women.

The bottom line is, the more people know about health care reform, the more they like it. So make sure your friends and family know that Obamacare is something to be proud of — and worth fighting for. Say you like Obamacare today.” 

— Jim Messina, Campaign Manager, Obama for America, E-mail to supporters, “I like Obamacare,” March 23, 2012

“Forcing health plans to compete against each other is the best way to achieve high-quality coverage at the lowest cost, and implementing these reforms in Medicare can have the effect of lowering health-care costs for everyone. This is the key to increasing access and affordability while preventing government debt from threatening the health security of seniors and the economic security of all Americans.”

 — Representative Pau Ryan (R-WI), House Budget Committee Hearing on Path to Prosperity Republican Budget Proposal, March 19, 2012

Fact file

  • 2011 health prices: hospital prices +2.1 percent in 2011 vs. 2.9 percent in 2010; commercial health plan prices +3.2 percent in 2011 vs. +4.7 percent in 2010; Medicare prices +1.2 percent in 2011 vs. -4 percent in 2010; consumer price index +3.2 percent in 2011. (Source: Bureau of Labor Statistics)
  • Analysis of President’s FY2013 budget: A ten year freeze on the physician pay (2013-2022) will cost $271 billion—not $429 billion in the President’s budget and $316 billion per CBO’s previous estimate. The President’s budget would cut $276 billion from Medicare and $66 billion from Medicaid. (Source: CBO, March 2012)
  • 15 states ran surpluses in 2011 vs. ten in 2010. (Source: National Association of State Budget Officers)
  • 2011 investments in biotechs reached $3.92 billion, compared to the peak of $6.17 billion in 2007. (Source: Wall Street Journal, “Biotech Funding Gets Harder to Find,” March 16, 2012)
  • 2011 funding from the National Institutes of Health (NIH) created 484,939 jobs and produced $69.190 billion in new economic activity across the country; Fifteen states added 10,000 or more jobs: CA, FL, GA, IL, MD, MA, MI, MN, NY, NC, OH, PA, TN, TX, & WA. (Source: Everett Ehrlich, “An Economic Engine NIH Research, Employment, and the Future of the Medical Innovation Sector,” United for Medical Research, March 2012)
  • In 2016, the global telemedicine market will increase to $27.3 billion vs. $11.6 billion in 2011. (Source: Information Week, “Global Telemedicine Market Headed For $27 Billion,” March 21, 2012)
  • 12 percent of consumers are “proficient” about health care, 53 percent partial, 21 percent basic, and 14 percent below basic. (Koh et al, Health Affairs, “New Federal Policy Initiatives To Boost Health Literacy Can Help The Nation Move Beyond The Cycle Of Costly ‘Crisis Care,’” February 2012)
  • The 136 amicus briefs filed to challenge ACA would stack two feet high and cost from $3.4 million to $7.8 million to produce. The average amicus brief cost ranges from $25,000 to $50,000. This amount is a third more than the previous record holder. (Source: Reuters, “Friends line up for Obamacare Supreme Court challenge,” March 18, 2012)
  • 80 of 5,929 bills introduced in Congress became law in 2011. (Source: Center for Responsible Government)
  • Physician compensation trends:
  2006 2010 Change 2006-2010
Primary Care Physicians

Gross charges1












Gross charges1











1 Gross charges refer to those after insurance discounts.

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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