Health Care Reform Memo: November 14, 2011 Deloitte Center for Health Solutions publication

The health care reform memos are issued on a weekly basis, highlighting news from the previous week's activities in the administration and implications for the C-suite and various stakeholder groups.

My take 

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

I started playing golf when Jerry Myrick took me to Chattanooga’s Brainerd Municipal Golf Course after school in the 6^th grade in 1960. Little did I realize then I would be hooked on the sport for life.

It’s an individual sport: overcoming nerves and wise shot selection keys to success. To this day, I’ve mastered neither.

I marvel at the professionals who hit delicate downhill putts and execute flop shots with poise. And I laugh at my feeble efforts on both. But perhaps my greatest admiration is for the dignity and integrity built into the game’s official rules: Rules of Golf Effective January 1, 2012 as approved by the United States Golf Association and Royal and Ancient Rules Limited. Since 1894, it has been foundational to the sport with one constant theme evident in each of its 13 updates: knowing the rules is necessary, breaking a rule is wrong. Rules 6, 13, 18, 19, 20, 22, 27, and 28 detail circumstances where a penalty is assessed if a rule is broken. And in most cases, the offender is required to call the penalty on himself/herself. Not knowing the rule is not a defense; if a playing partner observes an infraction and the offender does not call a penalty, loss of a match or removal from the competition is immediate and absolute justice.

In health care, we have rules against cheating. They’re typically referenced as fraud and abuse, and in many cases, lack of appropriate documentation required is at the root of alleged cheating. Nonetheless, whether the result of poor/inadequate documentation or a blatant effort to deceive, it’s breaking the rules. And not knowing the rules is no defense.

In fiscal year (FY) 2010, the U.S. Department of Health and Human Services (HHS) recovered $70.4 billion in overpayments for fraud and abuse:

• Medicare Fee-for Service: $34.3 billion for Medically unnecessary services and insufficient documentation;
• Medicaid: $22.5 billion for insufficient or no documentation provided for conducting medical review and cases that were either ineligible or their eligibility status could not be determined;
• Medicare Advantage: $13.6 billion for insufficient supporting documentation and errors in the transfer of data and payment calculations.

In the Affordable Care Act (ACA), the rules around cheating are stiffened. Consider:

• Section 10606 directs the Sentencing Commission to increase the federal sentencing guidelines for health care fraud offenses by 20-50 percent for crimes that involve more than $1,000,000 in losses.
• Section 6002 requires drugs, devices, biologics, and medical supplies covered under Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP) to report information related to payments and other transfers of value to physicians and teaching hospitals. This information will be made available on a public Web site.
• Section 6101 requires nursing facilities and skilled nursing facilities to report ownership and control relationships.
• Section 6401 provides increased oversight of providers and suppliers participating or enrolling in Medicare, Medicaid, and CHIP, such as mandatory licensure checks.
• Section 6402 provides an additional $350 million to the Health Care Fraud and Abuse Control Account (HCFAC) to fight fraud from FY 2011 through 2020. Also, any provider or supplier that receives an overpayment must report the overpayment and provide written notice of the reason for the overpayment. Failure to do so may result in civil money penalties.
• Section 6403 requires HHS to maintain a national health care fraud and abuse data collection program for reporting certain adverse actions taken against health care providers, suppliers, and practitioners, and submit information on the actions to the National Practitioner Data Bank (NPDB).
• Section 6411 gives HHS new authorities to identify and recover overpayments through the expansion of Recovery Audit Contractors (RACs) to Medicaid, Medicare Advantage, and Part D (the Medicare drug benefit). Providers, suppliers, Medicare Advantage plans, and Part D plans must self-report and return Medicare and Medicaid overpayments within 60 days of identification.

And recently, legislative and enforcement efforts are getting more attention:

• Last week, Senator Bob Corker (R-TN) wrote the Joint Select Committee on Deficit Reduction to support stronger legislation stating, “experts believe fraud is eating up as much as 20 percent of the funds that flow out of Medicare... We could save tens of billions a year by cracking down on criminals who are stealing resources from those in need.”
• In September, HHS announced that its Medicare Fraud Strike Force operation in eight cities had resulted in charges against 91 defendants, including doctors, nurses, and other medical professionals, for Medicare fraud involving approximately $295 million in false billing.
• In June, Senators Tom Carper (D-DE) and Coburn (R-OK) introduced the FAST Act: Fighting Fraud and Abuse to Save Taxpayers’ Dollars, featuring enhanced data capture and sharing across state lines and use of advanced technologies for fraud detection.

I was in Chattanooga last Thursday. I stopped by the graves of my mom, dad, and brother, and visited Brainerd Municipal Golf Course where I shagged golf balls in exchange for playing time as a kid. It had not changed much, nor the rules of the game against cheating.

In considering potential avenues to economic recovery, job creation, and reform of the health system, an intensified crackdown on cheating is no doubt a likely focus. Whether coding for work not done or overstated, hiding business relationships in the supply chain that improperly pad costs, influencing decisions made by clinicians to treat a certain way that’s not evidence based or necessary, or disguising administrative costs as medical care, it’s a rampant challenge to an industry that’s under intense scrutiny from all sides. And poor documentation is no less a wrong than willful acts of deception; like golf, every player must know the rules and abide thereby.

Fraud and abuse in health care is not the norm, but more widespread than currently captured in government efforts to recover overpayments or penalties. It is an area unlike any other where industry leaders are called on to self-police; failure to know and abide by the rules is a path toward elimination from competition long-term. And cheating the system is a theme that resonates with voters: 62 percent of U.S. adults believe fraud is rampant in health care today and a major source of rising health costs.

As in golf, cheating is wrong. Like golf, the rules around fraud and abuse of the system are complicated. Like golf, it’s about execution and willful acknowledgement by its leaders when rules are broken.

Breaking rules is wrong in golf, in health care, and in life. It’s a theme in the spotlight now more than ever. And inevitably, an ever-brighter light will shine on the health system’s behavior in coming months and years.

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

Implementation update

DC Circuit upholds individual mandate

The U.S. Supreme Court is expected to announce its decision to review the constitutionality of the individual mandate in ACA, either today or following their next conference.
Tuesday, the U.S. Court of Appeals for the District of Columbia Circuit upheld a lower court ruling holding that Congress had authority, under the U.S. Constitution's commerce clause, to pass the individual mandate requiring virtually all citizens to purchase health insurance or pay a penalty. In the majority opinion written George. W. Bush-appointee Judge Laurence H. Silberman, the court said that neither the Constitution nor the Supreme Court precedent supported the position that Congress acted outside the bounds of its constitutional power. It became the second federal appeals court to hold the mandate constitutional.

The Circuit Court also rejected an argument that the tax anti-injunction act (AIA), 26 U.S.C. §7421(a), deprived the court of jurisdiction to decide the merits of the case since claimants had not been harmed to date per AIA, which precludes pre-enforcement lawsuits challenging the collection or assessment of a tax.

Background: to date, federal appeals courts have split on the question of the mandate's constitutionality: the Sixth Circuit holding it valid and the U.S. Court of Appeals for the Eleventh Circuit declaring it unconstitutional. The Fourth Circuit declined to reach the merits. Article I, §8 of the Constitution states: “The Congress shall have Power … To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” “Regulate” was defined in the Sixth and DC circuit opinions as allowing Congress “to require action,” without a limit on Congress's power to regulate people already active in an interstate market.

In Wickard v. Filburn (317 U.S. 111 (1942)), the Supreme Court upheld federal regulations that disallowed farmers from growing wheat for personal consumption, forcing them to buy on the open market to create a “market” for wheat.

The DC Circuit opinion also rejected the challenge that, if Congress could force individuals to buy insurance, it could force them to do anything: “It certainly is an encroachment on individual liberty, but it is no more so than a command that restaurants or hotels are obliged to serve all customers regardless of race, that gravely ill individuals cannot use a substance their doctors described as the only effective palliative for excruciating pain, or that a farmer cannot grow enough wheat to support his family”.

Pioneer ACO update: CMS seeks commitments by November 28

Last week, Politico reported that the Centers for Medicare and Medicaid Services (CMS) is urging potential Pioneer Accountable Care Organizations (ACO) to sign contracts by November 28, according to their sources. Previously, CMS had been seeking commitments by November 18.

Final rules for new insurance industry regulations – CO-OP plans, MLR – at OMB on final review

The final rule governing Consumer Owned and Oriented Plans (CO-OPs), a non-profit health insurance plan that states may create to stimulate competition in insurance markets, is now at the Office of Management and Budget (OMB).

Also, the rule governing definition of medical loss ratio (MLR) rule is being reviewed by OMB. It is expected to include the minimum thresholds (80 percent individual/85 percent small group) that will apply to mini-med and expatriate health plans.

IRS: fewer small businesses received health coverage tax credit than expected

Monday, the Treasury Inspector General for Tax Administration (TIGTA) reported the number of small business claims for the tax credit (per ACA Section 1421) is low: as of mid-May 2011, 228,000 taxpayers of 4.4 million eligible claimed the credit totaling more than $278 million. The Congressional Budget Office (CBO) estimated the credit will cost $37 billion over ten years and budgeted a $2 billion outlay for Tax Year 2010. The Internal Revenue Service (IRS) will conduct focus groups to determine why the claim rate was low.

Senate approves “fix” for ACA Medicaid eligibility calculation

Thursday, the Senate voted to add retiree benefits to the calculation of modified adjusted gross income (MAGI) used in ACA to determine Medicaid eligibility. The vote was 95 to 0. Next, the bill will be reviewed in the House.

Legislative update

FDA warning to retailers about sale of tobacco products to minors

Last week, the U.S. Food and Drug Administration (FDA) sent letters to 1,200 retailers warning against the sale of tobacco products to kids, after conducting more than 27,500 inspections. In a related matter, a federal court Monday blocked the FDA’s implementation of a new graphic cigarette warning labels concluding that it violated cigarette manufacturers’ their First Amendment speech rights if required to use the nine new warning graphics in June effective September of 2012.

Senators introduce legislation to improve programs for seniors and caregivers

Tuesday, Senators Barbara Mikulski (D-MD) and Herb Kohl (D-WI) introduced the Strengthening
Services for America's Seniors Act legislation “to improve existing Older Americans Act (OAA) programs by ensuring family caregivers receive the support and services they need, strengthening the long-term care ombudsman program, and creating better referral and reporting systems for legal assistance programs.”

• 14 percent of U.S. adults say they have responsibility to provide constant care for a family member. (source: Deloitte Center for Health Solutions “2011 Survey of Health Care Consumers in the United States”)
• Forty-four million U.S. adults provide care to older relatives and close friends. (source: National Alliance for Caregiving and AARP, “Caregiver identification study”, February 1, 2001)
• The value of unpaid supervisory care in 2009 was $199 billion (source: Deloitte Center for Health Solutions and Deloitte Center for Financial Services, “The Hidden costs of U.S. health care for consumers: A comprehensive analysis,” March 2011).

CBO pay-to-delay by drug manufacturers would save $4.8 billion

Thursday, the CBO said the proposed Preserve Access to Affordable Generics Act will accelerate the availability of generic drugs and reduce prescription drugs spending by $4.8 billion from 2012 to 2021. The law restricts settlements of patent infringement between manufacturers of brand name and generic drugs that delay generic entry into the market Its sponsors – Senator Herb Kohl (D-WI) and Chuck Grassley (R-IA) asked the Joint Select Committee on Deficit Reduction to include the bill in its deficit reduction plan. The Pharmaceutical Research and Manufacturers of America (PhRMA) and the Generic Pharmaceutical Association (GPhA) oppose the legislation.

Medicare to cover new preventive services to reduce cardiovascular disease

Tuesday, CMS announced Medicare is adding coverage for preventive services to reduce cardiovascular disease by covering one face-to-face visit annually with a primary care practitioner (e.g., screenings for hypertension, nutritional counseling). The expanded coverage is part of CMS’s and the Centers for Disease Control and Prevention’s (CDC) Million Hearts initiative, a public-private partnership to prevent one million heart attacks and strokes in the next five years.

State update

State insurance commissioners want flexibility in health exchange roles

Monday, the National Association of Insurance Commissioners (NAIC) sent a letter to HHS requesting increased flexibility in the administration of health insurance exchanges. NAIC wants HHS to allow states to determine which elements of the five core functions they will perform to ensure coordination and integration of regulatory processes. It also recommended that HHS allow states that establish exchanges the option of having the federal government perform some functions (e.g., information technology, subsidy eligibility, and administration functions).

Note: the National Governors Association (NGA) previously notified HHS of its similar desire for flexibility. The comment period for state health insurance exchanges ended October 31; a final rule is pending.

State roundup

• Tuesday, Georgia became the eighth state to be granted a waiver to ACA’s MLR of 80 percent for the individual market (per ACA Section 1001). HHS’s Center for Consumer Information & Insurance Oversight (CCIIO) determined a MLR of 70 percent in 2011 and 75 percent in 2012, and will require the statutory 80 percent MLR in 2013 and beyond. Georgia requested a MLR of 65 percent in 2011, 70 percent in 2012, and 75 percent in 2013.
• Thursday, a court ruling temporarily halted Washington from implementing new rules to limit Medicaid coverage of emergency room visits for non-emergency care (estimated savings $33 million). The state plans to revise their plan, with Health Care Authority Director Doug Porter stating, “We remain under a legislative mandate to implement this limit and contribute savings to help relieve the state's extreme financial crisis." The American College of Emergency Physicians sued the state over the plan.
• In Ohio’s general election, voters approved a state constitutional amendment to exempt citizens from the ACA’s individual mandate requirement and its associated tax penalties. Voters repealed a law (SB5) that imposed limits on public employees’ collective bargaining rights.
• Mississippi voters defeated a “personhood” amendment (Proposition 626) that would have defined life as beginning at fertilization.

Industry news

Survey: Medicare payment cuts to nursing homes will lead to 6 percent workforce reduction

37 percent of skilled nursing facility (SNF) administrators say they will cut 20,000 positions as a result of the 11.1 percent Medicare cut effective October 1 per a survey sponsored by Alliance for Quality Nursing Home Care. (Source: Avalere Health LLC, “Skilled Nursing Facility Response to FY 2012 Medicare Payment Reductions: Survey Results”, November 7, 2011)

IOM recommends new agency to regulate health IT and patient safety

Tuesday, the Institute of Medicine (IOM) report “Health IT and Patient Safety: Building Safer Systems for Better Care” recommended the establishment of a new independent federal agency similar to the National Transportation Safety Board to investigate patient safety associated with health IT. The new agency would monitor data and publicly report results of these activities.

Note: HHS had earlier suggested the FDA oversee health IT regulation and compliance activity but industry and professional groups are oppose the proposal.

Other IOM recommendations: requiring all health IT vendors to publicly list their products with the Office of the National Coordinator for Health IT (ONC) beginning with electronic health records (EHRs) certified for the meaningful use program; requiring EHR suppliers to remove “hold harmless” clauses from their sales contracts, and having HHS publically report on the progress of health IT safety annually, starting in 2012.

CMS survey: 72 percent perceive Medicaid to be good, 20 percent find enrollment process hard

Tuesday, CMS released a survey on low-income parents (below 250 percent of the federal poverty level (FPL) measuring attitudes about Medicaid and CHIP concluding that parents are uninformed about the implications of ACA on their circumstances. Among key findings:

• 71 percent of parents perceive their state CHIP program to be very or somewhat good; 72 percent perceive Medicaid to be very or somewhat good.
• Affordability is the top reason cited by parents (50 percent) for children being uninsured. (19 percent of children who currently have coverage through Medicaid, CHIP, or an employer were uninsured at some point in the past 12 months)
• 20 percent of parents who have had a child enrolled in Medicaid/CHIP say the enrollment process was difficult; of those currently without children in Medicaid/CHIP, 51 percent think enrolling their child in Medicaid or CHIP will be difficult.

Note: ACA includes several provisions to improve Medicaid and CHIP enrollment processes (e.g., sections 1413, 2201, 2202). Also, in April, CMS announced that it will pay 90 percent of the cost to states to upgrade their Medicaid IT enrollment systems. (Source: Ketchum and Lake Research Partners, conducted for CMS by “Informing CHIP and Medicaid Outreach and Education” November 2011)

NFIB study: health insurance premium tax will cut up to 249,000 jobs

Tuesday, the National Federation of Independent Business (NFIB), which represents small businesses, released a report concluding the health insurance premium tax for insurance plans (ACA Section 9010) will reduce private sector employment by 125,000- 249,000 in 2021, representing losses of $18 -$30 billion in sales due to lower consumption.

AHIP elects new chairman of the board

America’s Health Insurance Plans (AHIP) Board of Directors elected Eric H. Schultz, president and CEO of Harvard Pilgrim Health Care Inc., as its new chairman. He succeeds Vicki Gregg, CEO of Blue Cross Blue Shield of Tennessee.

Quotable

“America’s elderly are victims of a crime spree so expansive that on an annual basis exceeds the value of all the cocaine smuggled in to North America. The crime is Medicare fraud, and it is conservatively considered to be a $50 billion industry… At a time when the federal government is borrowing 40 cents on every dollar, it’s hard to overstate the need for a reform solution… As the Super Committee looks for serious solutions to save taxpayer money and bring down our $14 trillion debt, they should take an earnest look at this solution — both saving taxpayer money and strengthening Medicare. We’re at a crossroads in this country... Stopping Medicare fraud won’t be the cure-all of our country’s fiscal woes, but it would be a commonsense bipartisan solution to save taxpayers billions and help strengthen Medicare. ”

—U.S. Rep. Peter Roskam (R-IL), Chief Deputy Whip of the House of Representatives, “We must put an end to Medicare fraud,” Miami Herald, November 9, 2011

“Medicare fraud is not new. But for many years our resources weren't keeping up with the problem. The data were out of reach and the technology in place had become a liability. For criminals looking to get rich, Medicare's electronic payment system was once an easy target. In the fight against fraud today, it's quickly becoming one of our own greatest weapons.”

—Peter Budetti, Deputy Administrator and Director for CMS’s Center for Program Integrity, “Medicare fraud: Obama administration brings enforcement into the 21st century [Blowback], LA Times, August 26, 2011

Fact file

• Hospital employment update: 5.4 million currently employed in 2011—almost one third of the 16.3 million employed in the U.S. health system and 84,000 higher in last 12 months. Budget Control Act of 2011 provisions may reduce hospital employment 194,000. (Sources: American Hospital Association (AHA), Bureau of Labor Statistics, Tripp Umbach)
• 72 percent of health care fraud is committed by medical providers (e.g., health professionals, facilities, and ser¬vice, equipment, and prescription drug suppliers), 10 percent by consumers and the rest by others, including insurers and their employees. (Source: National Conference of State Legislatures, “Combatting Health Care Fraud,” September 2010)
• Fraud and abuse account for 3-10 percent of Medicaid payments nationwide; the average state recovery rate is 0.09 percent. (Source: National Conference of State Legislatures, “Combatting Health Care Fraud,” September 2010)
• Medicaid received 45 percent in prescription drug rebates, while Medicare Part D recouped 19 percent. (Source: HHS Office of Inspector General)
• Medicare RACs rejected $63 million in claims where the service was medically necessary but provided in the wrong setting during the second quarter of 2011; $226 million in denied claims have been reported since the first quarter of 2010. (Source: AHA, Exploring the Impact of the RAC Program on Hospitals Nationwide, August 29, 2011)
• Health spending increased 5.2 percent in September compared to September 2010; health prices for its goods was up 2.1 percent compared to September 2010. (Source: Altarum Institute Center for Sustainable Health Spending, November 2011)
• Offices of physicians added 12,000 jobs in October, down from the 45,000 jobs created by the sector in September. (Source: U.S. Department of Labor)
• 49.1 million Americans are poor based on a new revised formula to calculate the number of poor American exceeding the 46.2 million (15.1 percent) officially reported in September. (Source: Census Bureau)
• The number of uninsured adults reached 17.3 percent in the third quarter of 2011, up from 14.4 percent in the third quarter 2008. Americans with employer coverage declined to 44.5 percent in the third quarter of 2011 from 49 percent in third quarter 2008. (Source: Gallup, “Employer-Based Health Insurance Continues to Trend Down”, November 11, 2011)
• Employer-sponsored health cost savings initiatives for large employers, survey results:
  • $1.60 - $4 for every dollar invested in an on-site clinic
  • $3.27 for each dollar spent for a wellness program
  • 10 percent when becoming self-insured
  • 5 - 20 percent through cooperative purchasing if governments consolidate their purchasing with other employers (Source: Government Finance Officers Association, Colonial Life, “Containing Health Care Costs,” November 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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