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Health Care Reform Memo:
June 11, 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: Health care consumerism: The future of health care

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

The biggest challenge facing the health care industry is not its funding: it has enough but fails to use it in the areas where it could produce optimal results. It’s not the discontent of physicians and its skilled workforce: at the end of the day, the skilled professions in health care have richer benefits and higher compensation than almost every other industry on average and embrace the trust of patients. It’s not our flawed incentives that reward volume over value, nor our confusing labyrinth of state and federal regulations. The industry’s biggest challenge is freeing itself from the presumption that patients are incapable of engaging appropriately in their own care and are inept in choosing between providers, plans, drugs, and programs that provide the highest value.

Skepticism about “health care consumerism” is widespread and understandable: physicians believe most consumers are disinterested or not inclined to study treatment options and share decision-making about their care responsibly. Health economists consider the gap between costs and pricing in health care, its flawed incentives, and lack of price transparency problematic. Health insurance plans and employers consider unhealthy lifestyles and non-compliance by consumers a major hurdle but face regulatory barriers to address them aggressively. Medical device and drug manufacturers depend on business models that assume physicians, group purchasing organizations, and pharmacy benefits managers are their customers: less than 1 percent of industry revenues are spent to engage consumers toward brand differentiation and value-based positioning. And state and federal regulations reinforce a notion that consumers are incapable of navigating the system effectively.

Since 2008, the Deloitte Center for Health Solutions has conducted a series of studies to measure consumerism in health care—retail clinic utilization, discretionary spending in U.S. households for health care goods and services, individual insurance market analysis, and others. Tomorrow we will release the 2012 Survey of U.S. Health Consumers based on 4,000 interviews with U.S. adults: the findings suggest a widening gap between the performance and expectations of the U.S. system, especially among Millennials whose ranks outnumber seniors. The majority think the system is wasteful, though they fear the Affordable Care Act (ACA) might make things worse. And affordability is increasingly problematic to consumers, even to those with health insurance. To learn more, please attend tomorrow’s Dbriefs webcast: Consumerism in Health Care: Trends and Implications for Health Industry Stakeholders.

At 19 percent of average household discretionary spending, health care hits every household, though understanding its costs is more complicated compared to others: direct costs for premiums, co-payments, and over-the-counter products are readily accessible as are the Medicare withholdings on pay stubs, but its indirect costs are less obvious though embedded in every purchase we make. And unlike other expenditures, household health care costs vary widely depending on health status, age, or complicating factors that make budgeting for health care at the beginning of a year virtually impossible—even for those with health insurance and who are in good health.

In the aggregate, health cost increases are in line with others: what’s less obvious and more problematic is the complexity of health costs and the fact that they’re virtually unknown to consumers when the services are used. Some key comparisons:

Key comparisons: 2008 2012 % Change
Average wages    $42,2701 $45,2302 7.0%
Average annual family insurance premium3    $12,680 $15,073 18.8%
Average annual individual insurance premium3 $4,704  $5,429  15.4%
Average annual four year college tuition: public, in state $6,5854 $8,2445  25.2%
Average annual four year education: private $25,1434 $28,5005 13.3%
Price per gallon of gasoline $3.496 $3.867 10.6%
Price per dozen eggs   $2.076 $1.837 (11.6%)

May 2008, National Occupational Employment and Wage Estimates, United States
2 May 2011, National Occupational Employment and Wage Estimates, United States
3 Kaiser Family Foundation, Employer Health Benefits Survey, “Average Annual Premiums for Single and Family Coverage, 1999-2011,” September 2011
4 College Board, “Trends in College Pricing,” 2008
5 College Board, “Trends in College Pricing,” 2011
6 Bureau of Labor Statistics, “CPI Detailed Report,” April 2008
7 Bureau of Labor Statistics, “CPI Detailed Report,” April 2012

Regardless of the outcome of the ACA’s U.S. Supreme Court challenges, the realities are…

  1. To reduce health costs and improve the effectiveness of the U.S. health system, consumers must be engaged to play a more direct role. Consumer passivity is costly: not filling prescriptions and taking medications as directed, not managing chronic conditions that result in acute events, not scrutinizing treatment recommendations to discern what’s necessary care and what’s not, not considering costs associated with treatment options, and the performance of local providers are fundamental gaps.
  2. Policymakers and industry stakeholders must agree on a fundamental framework for transitioning from “patient to consumer.” Industry-led efforts to increase transparency, leverage clinical information technologies, engage through social media, expand access through scope of practice and alternative channels, and standardized administrative processes to streamline service are necessary and underway. They must be complemented by public policies at the state and federal levels that encourage innovation in consumerism and discourage frivolous challenges. Privacy and security issues must be resolved. Administrative simplification across private insurance and government health plans achieved. And evidence-based standards of care that are understandable and actionable to consumers made available to simplify and enable consumers to engage directly.

The U.S. health system’s biggest challenge is to transition its operational framework to a consumer market: it is necessary to reduce its costs, improve access, and sustain its quality and safety. And it is only achievable through a coherent, purposeful, collaborative strategy engaging industry and policymakers that presumes the transition necessary and urgent.

My dad was an opera singer. He was also quite shy. He despised arrogance and self-promotion. His harshest criticism was reserved for individuals who “believe their own publicity.”

In health care, as it relates to the role of consumers, we have believed our own publicity. We have much to do, and little time to do it.

They are no longer “patients” nor are they “patient.” They are consumers.

Paul Keckely

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

Implementation update

House votes to repeal medical device tax, White House will veto

Thursday, the bill to repeal the medical device tax (H.R. 436, Health Care Cost Reduction Act of 2012) passed in the House (270-146), with 37 Democrats voting with the Republican members. Days prior to the vote, the White House issued a statement indicating it will veto the bill which would repeal the 2.3 percent excise tax on the sale of medical devices by the manufacturer or importer per ACA Section 9009 that would have produced $29.1 billion. Note: an override of a Presidential veto would require a two-thirds majority in both houses of Congress: 290 votes in the House and 67 votes in the Senate.

Reaction: “The medical device industry, like others, will benefit from an additional 30 million potential consumers who will gain health coverage under the Affordable Care Act starting in 2014. This excise tax is one of several designed so that industries that gain from the coverage expansion will help offset the cost of that expansion.”—The White House Office of Management and Budget, June 6, 2012

Note: a study by the American Action Forum released Monday concluded the medical device tax could cost 14,500 to 47,000 jobs with stronger impact on smaller companies’ revenue—91 percent of the 16,000 medical device companies are small to medium size firms. The report also concluded the tax threatens U.S. innovation leadership, which has already been on the decline: since 2008, the medical device industry has seen an annual 5 percent decline in the number of active companies. (Source: American Action Forum, “The Economic Impact of the Medical Device Excise Tax,” June 4, 2012)

In addition to the medical device tax, other industry taxes/concessions were made to fund the ACA on the premise that the individual mandate would expand coverage and result in additional revenues: 1) Commercial health insurance companies: $6 billion annual fee starting in 2014 increasing to $8 billion annually, 40 percent excise tax on “Cadillac” insurance policies amounting to $32 billion effective in 2018 (applicable to insurance companies as well as employers); 2) Pharmaceutical manufacturers: $80 billion over ten years to fill the Medicare Part D (prescription drug) donut hole, annual fee on manufacturers of branded drugs—$27 billion over ten years starting in 2011; and 3) Hospitals and long-term care providers: payment reductions of $155 billion over ten years.

HHS announces additional funding for Consumer Assistance Programs to assist in access, complaint resolution with insurance companies

Thursday, the U.S. Department of Health and Human Services (HHS) announced additional funding for the Consumer Assistance Programs (CAPs), per Section 1002 of ACA. CAPs provide services to consumers to help locate coverage or file appeals against health plans. CAPs are responsible also for tracking consumer complaints in an effort to identify problems and develop solutions. In October 2010, HHS awarded CAP grants to 35 states, the District of Columbia, and four territories. Last week, along with the funding announcement, HHS released a report with preliminary findings from the previous awardees:

  • Grantees provided direct assistance to more than 200,000 consumers, and outreach to “hundreds of thousands more.”
  • Grantees recovered more than $8 million in direct savings for consumers and “millions of dollars more in unquantifiable savings from better coverage.”
  • Greater than 75 percent of closed cases by CAPs were resolved in favor of the consumer.

PCORI releases draft methodology report

The Patient-Centered Outcomes Research Institute (PCORI) released a preliminary draft methodology to provide standards for conducting comparative effectiveness research, per Section 6301 of ACA. The Methodology Committee report outlined 60 standards to guide comparative effectiveness research. Applicants responding to the PCORI funding announcements issued in May are encouraged to use the draft to develop a research plan (See Monday Memo, May 29, 2012).

Note: the final draft report will not be complete prior to the July 31, 2012 application deadline; applications meeting the report’s standards will not be required for the first funding cycle. The Committee’s formal comment period will begin in July and a revised version of the report will be delivered to PCORI’s Board of Governors in November.

ACA causes colleges to raise premiums, drop options

The ACA requires that payout caps for college health insurance plans must be at least $100,000 for the 2012-2013 academic year; most (60 percent) schools have coverage of $50,000 or less. To comply, college officials expect to raise insurance premiums or drop insurance plans altogether. In 2008, 7 percent (600,000) of students age 18-23 purchased health insurance through a college health plan. As a result, many schools will be forced either to raise premiums (up to four times the original amount) or stop offering coverage all together.

Legislative update

CBO sees health spending doubling as share of GDP in 25 years

Last Tuesday, the Congressional Budget Office (CBO) released its annual long-term budget outlook report, projecting that the federal debt in 2012 will exceed 70 percent of the U.S. gross domestic product (GDP)—the highest percentage since the 1940’s, increasing to 90 percent by 2022. Combined spending on health care and Social Security will increase from the 10 percent of GDP to 16 percent in the next 25 years—equivalent to $850 billion today.

The report also highlights that federal subsidies will cover a declining share of premiums over time. The major assumptions in the forecast:

  • Federal spending on health care will increase from 5.4 percent of GDP to 10.4 percent over the next 25 years
  • The Sustainable Growth Rate formula is not fixed
  • Tax collections continue at 18 percent of GDP

CMS creates new office to manage health data, facilitate transition to value-based purchasing

Last week, the Centers for Medicare & Medicaid Services (CMS) announced the creation of the Office of Information Products and Data Analysis to coordinate development, management, use, and dissemination of data necessary to modernize CMS’s data systems and policies and facilitate its oversight of the industry’s transition from fee-for-service to value-based purchasing. The announcement came during last week’s third annual Health Data Initiative Forum hosted by the Institute of Medicine and HHS.

GOP proposes Medicaid provider tax reductions to offset increased federal revenue from student loan interest rate increase

To offset expected increased federal revenue when student loan rates revert to their original 6.8 percent rate from the temporary 3.4 percent rate on July 1, House Republicans proposed phasing the threshold on Medicaid provider taxes down from 6 percent to 5.5 percent of provider revenue starting in 2013. States would collect less money from providers, and would have less for their Medicaid contributions, and in turn the federal government would decrease its share of funds given to states. The proposal is opposed by groups including the National Association of Public Hospitals and Health Systems, the American Health Care Association, and the National Center for Assisted Living who fear cuts to states’ Medicaid deficits will increase along with bad debt resulting from high numbers of uninsured.

June issue of Health Affairs special focus: dual eligibles

There are nine million dual eligibles in the U.S.—individuals who qualify for both Medicaid and Medicare due to their income level and medical conditions. Costs for the dual eligibles coverage vary widely by state: New York spent 2.7 times more per dual eligible than did Georgia ($43,587 vs. $16,309). Likewise, federal participation varies widely ranging from 50 percent to 65 percent of program costs across states.

The June issue of Health Affairs is focused on studies of dual eligibles programs that improve care and manage costs:

  • Observational stays study: found that there has been a 34 percent increase in Medicare patients placed “under observation” in hospitals for evaluation/short-term treatment vs. admitted as inpatients from 2007-2009. (Source: Zhanlian Feng, Brad Wright, and Vincent Mor, Health Affairs, “Sharp Rise In Medicare Enrollees Being Held In Hospitals For Observation Raises Concerns About Causes And Consequences,” June 2012)
  • Care coordination study: identifies six practices used by care coordinators that can reduce hospitalizations of dual eligibles through incorporation into medical homes, accountable care organizations (ACOs), and other policy initiatives. (Source: Randall S. Brown, Deborah Peikes, Greg Peterson, Jennifer Schore, and Carol M. Razafindrakoto, Health Affairs, “Six Features Of Medicare Coordinated Care Demonstration Programs That Cut Hospital Admissions Of High-Risk Patients,” June 2012)
  • Home and community-based services study: found that a gradual shift in Medicaid spending on long-term care from institutional to home- and community-based services saves states money and allows more people to receive long-term care. An additional study found that users of Medicaid home- and community-based services are especially vulnerable to avoidable hospital admissions, resulting in unnecessary federal spending. (Sources: H. Stephen Kaye, Health Affairs, “Gradual Rebalancing Of Medicaid Long-Term Services And Supports Saves Money And Serves More People, Statistical Model Shows,” June 2012; R. Tamara Konetzka, Sarita L. Karon, and D.E.B. Potter, Health Affairs, “Users Of Medicaid Home And Community-Based Services Are Especially Vulnerable To Costly Avoidable Hospital Admissions,” June 2012) 
  • Coordinated Care Demonstration study: found that a Coordinated Care Demonstration in Washington state was able to reduce hospitalizations and spending through a more localized approach. (Source: Deborah Peikes, Greg Peterson, Randall S. Brown, Sandy Graff, and John P. Lynch, Health Affairs, “How Changes In Washington University’s Medicare Coordinated Care Demonstration Pilot Ultimately Achieved Savings,” June 2012)
  • Acute Care for Elders study: found shorter hospital stays and reduced costs under the model, emphasizing collaboration and interdisciplinary care. (Source: Deborah E. Barnes, et al, Health Affairs, “Acute Care For Elders Units Produced Shorter Hospital Stays At Lower Cost While Maintaining Patients’ Functional Status,” June 2012)
  • Patient- and family-centered decision making study: found collaborative decision making improved care for patients with advanced illness, but increased costs unresolved. (Source: Bruce C. Vladeck and Erin Westphal, Health Affairs, “Dignity-Driven Decision Making: A Compelling Strategy For Improving Care For People With Advanced Illness,” June 2012)

Note: in the May issue of Health Affairs, researchers from the Dartmouth Institute for Health Policy and Clinical Practice concluded “some states may be spending too little for Medicaid, meaning that some patients needs are not being met, or some states may be spending too much, meaning that more services are being provided than needed. Such inefficiency exposes patients to unnecessary risk, drives up costs unnecessarily, and highlights large potential gains arising from improved care coordination for dual eligible.”—Bubolz et al, Health Affairs, “State Spending on Dual Eligibles under Age 65 shows variations, evidence of cost shifting from Medicaid to Medicare,” May 2012, 939-945.

Bill to expand Medicare Advantage, Medigap eligibility introduced

Thursday, Senator John Kerry (D-MA) introduced a bill that would extend Medicare Advantage (MA) and supplemental Medigap policies to all Medicare beneficiaries, including individuals with disabilities and patients of any age in end-stage renal failure. Currently, only individuals over the age of 65 cannot be refused coverage or charged higher premiums for coverage under Medigap policies.

Additionally, the bill allows individuals enrolled in MA plans guaranteed issue rights if they wish to switch into traditional Medicare after a premium increase or change in benefits and provides assistance to dual eligibles if they lose Medicaid coverage and need to purchase supplemental benefits under Medicare.

Note: 29 states have passed policies of “guaranteed issue” for all beneficiaries. MA plans enroll 12.8 million seniors—up from 11.7 million in 2011, and premiums decreased by 7 percent from $33.97 to $31.54 over the same period.

Representatives propose expansion of dental services to Medicare, Medicaid, VA beneficiaries to be paid by Wall Street fees on trading

Thursday, Senator Bernie Sanders (I-VT) and Representative Elijah Cummings (D-MD) introduced a bill to authorize dental care services for Medicare, Medicaid, and Department of Veterans Affairs (VA) beneficiaries. The expanded care, at an annual cost of $25 billion, would be paid for through a fee of 2.5 cents for every $100 of non-consumer financial trading on Wall Street, such as the sales of stocks and bonds—making the bill budget neutral, according to its authors. The bill would also go to support increased funding for other services including:

  • Oral health services in health clinics and community health centers
  • School-based dental services
  • Mobile dental services to reach rural populations
  • A grant program to match funds for clinics with individuals who use emergency departments for dental problems and care
  • National Health Service Corps scholarships to recruit dentists and dental therapists and hygienists to serve lower income individuals

Note: preventive dentistry is known to improve detection of gastro-intestinal disorders and in some cases has been correlated to cancer detection. It is typically not part of a standard employee benefit plan, but it is likely to be included among essential health services being considered by HHS.

Physician reentry bill proposed to bring docs in primary care back from retirement

Representative John Sarbanes (D-MD) introduced the Physician Reentry Demonstration Program Act aimed at combating the expected primary care physician shortage by creating a reentry program to encourage physicians from retirement or extended leave of two or more years into primary care practice at hospitals, health centers, nonprofits, and states. Funding would be used to pay for physician salaries, training, credentialing fees, scholarships, and loan repayments.

Note: much of the ACA addresses mechanisms to increase access to primary care services including increasing medical residencies, increasing compensation for practices that treat large numbers of Medicaid enrollees, expansion of community health centers, and others.

Scrutiny of “rouge” online pharmacies sought

Senator Dianne Feinstein (D-CA) and Representative Bill Cassidy (R-LA), sponsors of the Online Pharmacy Safety Act, wrote a letter to House and Senate chairmen to urge inclusion of the measure in the newly agreed U.S. Food and Drug Administration (FDA) Prescription Drug User Fee Act (PDUFA). The bill would create a federal registry of legitimate pharmacy websites while eliminating the “rouge” ones and require the Government Accountability Office (GAO) to conduct a study of illegitimate pharmaceutical companies selling prescription drugs over the Internet.

Note: The American Telemedicine Association and the American Medical Association are opposed to earlier versions of bill. Both are concerned that the “valid prescription” definition would restrict legitimate telehealth service providers by preventing them from prescribing low-risk medications.

State update

Study: Supreme Court decision impacts 14 states that have made investments already

“We do not know what the Supreme Court will decide about the Affordable Care Act, but we do know that changes to the ACA’s coverage provisions would have a major impact on states already active in implementing the law. Would active states be able to overcome the loss of key provisions? That depends on the Richter Scale magnitude of the ground shift set off by the Court’s decision. For the purposes of this analysis, we have identified 14 states as actively implementing the health reform law: Alabama, Connecticut, California, District of Columbia, Hawaii, Kentucky, Maryland, Massachusetts, Nevada, New Mexico, New York, Oregon, Rhode Island, and Vermont.  They are considered active because they have completed at least five of seven progress criteria based on exchange development, insurance reforms, the Medicaid expansion, and public sharing of implementation information.”—Sonya Schwartz, Health Affairs Blog, “Can Active States Endure A Ground Shift? Implications Of The Supreme Court’s Health Reform Decision,” June 4, 2014

Obesity efforts in Michigan, New York City

Monday, the Michigan Department of Community Health released its 60-page plan to combat obesity calling for $18 million investment to curtail obesity; one-third of Michigan adults and 12 percent of adolescents are obese. The plan calls on Michiganders to focus on healthy diet, regular exercise, an annual doctor's check-up and tobacco avoidance resulting in reduction in body mass index, blood pressure, cholesterol and blood sugar levels.

Last week, New York City Mayor Michael Bloomberg announced a ban on super-sized (above 16 ounces) sugary drinks sold in the city.

CMS encourages collaborative audits of Medicaid, seeks to improve coordination and increase collection of overpayments

Last week, CMS issued a statement encouraging states and Medicaid Integrity Contractors (MICs) to collaborate in audits based on analysis of fiscal year (FY) 2011 results—the third year of the Medicaid audit program. In FY2011, 1,663 audits were completed in 44 states returning $15 million in overpayments according to the Director of the Medicaid Integrity Group, Angela Brice-Smith. The collaboration goal is to have MICs audit 80 percent of Medicaid spending in collaboration with the states going forward.

Note: an Office of the Inspector General (OIG) report last month concluded the MIC program was underperforming, was a poor return on investment, and was hindered by incomplete data. OIG encouragedCMS focus on more collaborative audits because they allow increased access to more comprehensive state data.

CMS announces 45 insurers to sign up for Comprehensive Primary Care initiative

Wednesday, CMS announced that 45 insurers in seven states have signed up for the Comprehensive Primary Care (CPC) initiative to begin providing higher payments to primary care practices that offer improved coordination of care for those with more severe health needs. Insurers in Arkansas, Colorado, New Jersey, New York, Ohio, Kentucky, Oklahoma, and Oregon will participate in the program.

State round-up

  • Two Consumer Operated and Oriented Plans (CO-OPs) in Arizona and Connecticut were awarded grants last week by HHS totaling $93 million and $75 million, respectively. To date, a total of 14 nonprofits in 14 states have been awarded more than $1.1 billion in funding to establish CO-OPs: Iowa, Nebraska, Maine, Montana, Michigan, Nevada, New Jersey, New Mexico, New York, Oregon, South Carolina, and Wisconsin.
  • Wisconsin officials are in a dispute with CMS regarding the renewal of federal funding the state’s long-term care program, Family Care. Wisconsin placed an enrollment cap on the program in July 2011 and 6,000 residents were placed on the waitlist by August. In March 2012, CMS put a stop to the enrollment cap but the state has not yet reimbursed individuals eligible for Family Care services who paid for services out-of-pocket. Wisconsin’s Department of Health Services argued the cap “temporarily slowed” enrollment but enrollees eventually became eligible and received services therefore reimbursement is not necessary.
  • Georgia officials and providers are studying the use of for-profit companies to manage the state’s Medicaid program that costs the state $21 million per day for its 1.7 million enrollees.
  • Massachusetts is providing citizens ratings of 500 primary care physicians in cooperation with Consumer Reports based on data from 64,000 patient surveys conducted by Massachusetts Health Quality Partners.
  • New Hampshire's Medicaid program is currently being scrutinized by CMS following complaints from hospitals that its payment rate is adversely impacting access to physician services, inpatient and outpatient psychological services, and hospital-related home health. CMS issued a letter to the state requesting they provide data on access levels for physician services, inpatient and outpatient services, and rate structures services within the next 30 days.
  • New Mexico has voluntarily withdrawn its application to CMS seeking permission to redesign its Medicaid program.
  • California state legislators are working to pass a bill that would require many provisions of ACA to become permanent in the state including coverage of pre-existing conditions, limitations on how insurers set premiums based on age, geography, and family size, and prohibiting insurers from using health status, medical condition, claims experience, and genetic information to base individuals’ coverage and costs. Insurers in the state are pushing to add a requirement that individuals are mandated to purchase coverage. The California Association of Health Plans stated, “Disconnecting the requirement to join the insurance pool from the duty to sell insurance at the same price, doesn't work.”
  • New York Governor Andrew Cuomo (D) announced last week that the state will ask for a Medicaid 1115 waiver to invest up to $10 billion of the $17.1 billion/five year savings anticipated from its Medicaid Redesign Team (MRT). The MRT initiatives adopted by the state legislature last year achieved savings through provider pay cuts and shifting the most costly and complex patients into Medicaid managed care. A release from the Governor’s office said that state spending would have grown by $2.3 billion in FY2011-2012 alone, had it not been for the reforms.

Industry news

OIG: FDA should do better job resolving disputes about medical device approvals

OIG released recommended ways to resolve disagreements at the FDA Center for Devices and Radiological Health (CDRH). It found that 36 internal scientific disputes over medical device reviews occurred in CDRH from 2008 to 2010—one-third ended in resolution that led to devices being approved for market. The report observed that many FDA reviewers had not yet been trained on formal procedures for dispute resolution adopted by the FDA in October 2009. OIG recommended that the FDA clearly define its requirements for documenting and resolving scientific disagreements, train all reviewers and managers on the new policies and procedures, and more clearly assign accountability for the content submitted disagreements.

Pharmacy groups fight against amendment to FDA user fee bill that would classify pain meds as controlled substances

Five pharmacy groups sent a letter to Senator Joe Manchin (D-WV) in response to his amendment to the PDUFA bill which would move all drugs that contain hydrocodone into Schedule II of the Controlled Substances Act—drugs which have high potential for abuse and must be accompanied by an original prescription from a physician each time the drug is dispensed. Drugs in this category must also be stored in a safe and pharmacies must complete inventories on a regular basis.

Pharmacy groups including the American Pharmacists Association, Food Marketing Institute, International Academy of Compounding Pharmacists, National Association of Chain Drug Stores, and National Community Pharmacists Association sent a letter stating, “We understand the concerns about diversion and abuse of these products and we share these concerns. Nevertheless, moving all of these hydrocodone products to Schedule II will result in significant barriers for patients who have a legitimate need for these products and it will result in adding to the nation’s health care costs with no assurance of a reduction in diversion and abuse. There are better strategies to address this issue and we pledge to work with you and other policy makers to develop these viable alternative proposals. Thank you for considering our views.”

CMS: EHR incentive program registrations down, MU payments exceed $5 billion

As of April, total meaningful use (MU) payouts to hospitals and eligible professionals in the Medicare and Medicaid electronic health record (EHR) programs have exceeded $5 billion, though the number of new registrants for the programs has dropped among eligible professionals for the last two months, according to CMS. To date, 3,500 hospitals have registered for one or both of the programs and registrations of eligible professionals totals over 238,000.

Bipartisan Policy Center releases recommendations on health and obesity

According to a new report from the Bipartisan Policy Center, U.S. spending on health care does not match the actual needs of individuals to be healthy. What makes individuals healthy, according to the report: 10 percent access to care, 20 percent genetics, 20 percent environment, and 50 percent healthy behavior, whereas nationally 88 percent is spent on medical services, 4 percent on healthy behavior, and 8 percent on other services. The report proposes policy changes to create community-based programs that align with the root causes of obesity. (Source: Bipartisan Policy Center, “Lots to Lose: How America’s Health and Obesity Crisis Threatens our Economic Future,” June 2012.)

White House blog: insurers to issue rebates this summer

In a blog post last week, White House Deputy Chief of Staff Nancy-Ann DeParle highlighted the medical loss ratio (MLR) rule that will require insurers to spend at least 80 percent of premium dollars collected on medical care, reducing the amount spent on administrative costs. As a result, policyholders will see refunds including:

  • 223,000 individual policy holders in Tennessee will receive a total of $29.5 million
  • More than $36 million in refunds will go to 110,000 individuals and small businesses in Arizona
  • Two insurance companies in California will send over $50 million in rebates to nearly 1 million of their customers in the state

WellPoint bids to acquire contact lens retailer

Monday, WellPoint Inc., the Indianapolis-based health insurance company announced plans to buy a large contact lens retailer in a deal that gives it entrée into a direct-to-consumer business with strong growth potential (per Ken Goulet, WellPoint's President of commercial and specialty companies). The dealer fills orders for several brands of contact lens by phone, internet, mail, or fax and sells eye glasses through its website and a partnership with Wal-Mart Stores Inc., the world's largest retailer.

The contact dealer has about 3.3 million customers. WellPoint is the second largest health plan in the U.S. behind UnitedHealth Group with 33.7 million enrollees in 14 states.

Note: 38 million people wear contact lenses and 140 million people wear eye glasses in the U.S. Notably, collaboration across industry sectors is increasing. Recent announcements of agreements between UnitedHealth Group, Monarch (medical group), and others suggest new models, structures, and market strategies are likely.


“If lawmakers continued certain policies that have been in place for a number of years or modified some provisions of current law that might be difficult to sustain for a long period, the increase in spending on health care programs and Social Security would be even larger. Absent substantial increases in federal revenues, such growth in outlays would result in greater debt burdens than the United States has ever experienced.”

Congressional Budget Office, “The 2012 Long-Term Budget Outlook,” June 2012

We still remain confident and optimistic that this change within the law was well within the purview of Congress. Having said that, we’ll be ready for court contingencies. What we’re doing right now is just working as hard as we possibly can to get ready for 2014. … We think it’s the best preparation to anticipate that the law is fully constitutional.”

HHS Secretary Kathleen Sebelius, White House Town Hall Meeting, June 7, 2012

Fact file

  • Palliative care: 63 percent of hospitals have palliative teams, with a total of 1,568 programs recorded vs. 658 palliative programs in 2000. (Source: Center to Advance Palliative Care)
  • Supreme Court ruling: two-thirds of Americans polled by the New York Times and CBS News last week hope the Supreme Court will overturn some or all of ACA. Only 24 percent indicated they hoped the entire law would be kept in place while 41 percent hope the entire law is struck down, and 27 percent hope to see the individual mandate overturned. Responses varied by political affiliation and educational attainment. (Source: New York Times, “The Supreme Court and the Health Care Law,” June 7, 2012)
  • Employer-sponsored benefits: according to a new survey of large companies, 70 percent said they will offer high-deductible insurance plans by 2013 along with accounts that allow patients to purchase medical services with pretax dollars. One-fifth of the respondents indicated that by 2013, high deductible plans would be the only option they offer. (Source: Towers Watson, “Performance in an Era of Uncertainty,” 2012)
  • Observation stays: hospitals are increasingly placing Medicare patients on “observation status” in an effort to treat, but not technically admit the patients. During 2007-2009, the ratio of observation to inpatient admissions increased 34 percent—going from an average of 86.9 to 116.6 observation stays for every 1,000 inpatient admissions. (Source: Zhanlian Feng, Brad Wright, and Vincent Mor, “Sharp Rise In Medicare Enrollees Being Held In Hospitals For Observation Raises Concerns About Causes And Consequences,” Health Affairs, June 2012)
  • RAC denials increase: the average hospital appealed more than 80 recovery audit contractor (RAC) payment denials. During the first quarter of 2012, hospitals have seen over 50,000 automated denials while the total up to quarter four of last year was 38,000. Complex denials went up over 50 percent from 81,000 to 124,000 from the end of 2011 through the first quarter of 2012. The top reason RACs have denied claims since 2010 has been on the basis of medical necessity—65 percent were for one-day stays found to be in the wrong setting. (Source: American Hospital Association, RACTrac Survey)
  • Hospital report cards: the Leapfrog Group released a new hospital grading system that ranks over 2,600 hospitals across the country. The possible grades hospitals can receive range from A, B, C, D, and F: 729 hospitals received an “A” grade (27 percent), 679 a “B” (25 percent), and 1,111 a “C” (42 percent); 132 were scored “Grade Pending”. (Source: The Leapfrog Group)
  • Health information exchanges (HIEs): 80 percent of hospitals and 97 percent of physicians are not currently participating in HIEs. 85 percent of hospital executives indicated their plans were mainly a result of the industry’s move toward ACOs and new methods of reimbursement. (Source: Black Book Rankings, “Healthcare Information Technology,” 2012)
  • Public opinion about ACA: A CNN/ORC International poll released Friday showed that 51 percent of Americans say they oppose the health law and 43 percent say they favor it. Of those who oppose the law, one in six say they oppose it because it doesn’t go far enough, according to CNN. The poll is generally in line with a similar CNN poll in March. (Source: CNN June 8, 2012)
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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