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Health Care Reform Memo:
April 30, 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 cost containment: What do student loans and preventive health have in common?

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

My head is spinning from the robust give and take in the House of Representatives last week that culminated in the passage of HR 4628, the Interest Rate Reduction Act. It essentially calls for student loan interest rates to stay at 3.4 percent on July 1, 2012 rather than revert back to their original rate of 6.8 percent at a cost to the U.S. Department of the Treasury of $6 billion. To pay for it, the House majority voted 215-195 to cut funding for Preventive and Public Health Fund health services included in the Affordable Care Act (ACA) Section 4002. Next, it goes to the Senate for a vote where pundits expect it will face stiff opposition.

How do student loans relate to preventive health? They don’t directly, but the positioning around this vote illustrates the tough decisions that have to be made, and the complicated mechanisms required in our legislative system. And it punctuates the tough trade-offs elected officials must weigh.

Per ACA, the fund is required to “provide for expanded and sustained national investment in prevention and public health programs to improve health and help restrain the rate of growth in private and public health care costs.” The ACA stipulates that $15 billion is available through the fund between FY2010 and FY2019: $500 million in FY2010, $750 million in FY2011, $1 billion in FY2012, $1.25 billion in FY2013, $1.5 billion in FY2014, and $2 billion in FY2015 and each fiscal year after. To date, $1.25 billion of the fund has been expended; in the February vote to avert the payroll tax increase and to avoid physician pay cuts, Congress approved a $5 billion cut to the same fund on a bipartisan basis.

As it turns out, legislative rules do not require that trade-offs be necessarily related: maybe that’s the problem in reforming health care. Elected officials face a daunting reality: cutting federal spending is essential to maintaining the solvency of our currency. No one wishes the U.S. debt crisis to force default on our sovereign debt—with trillion-plus deficits for four years and a tepid economic recovery, federal spending must be taken seriously.

Likewise, runaway health costs, the epidemic of chronic disease, and the patchwork of public health programs that primarily serve the under-served in our society exacerbate the cost spiral. Cutting health spending is necessary to economic recovery and fiscal stability, but it’s politically risky to be too specific. Legislators of every political persuasion recognize the value in improved population health and preventive care. That’s the not the issue. The issue is trade-offs.

The U.S. health system has enough money: it fails to spend its $9,000 per capita in the right places and in the right ways. The trade-off dilemma is complex:

…the trade-off between investing in programs and services that reduce unnecessary demand for the system like public health and expansion of primary care services, or escalating investments in our highly specialized services and facilities that let us treat the sickest and most fragile better than any system in the world.

…the trade-off between investments in public health programs for kids and end of life heroics for seniors facing eminent death.

…the trade-off between investments in the health system that produces jobs—430,000 since the downturn, 4.2 million in the next decade—vs. efforts to reduce its costs.

I am often puzzled by the trade-off calculus, especially in efforts to improve the efficiency and effectiveness of the health system. After all, there’s plenty of waste in the system where stepped up efforts could produce meaningful savings.


Might we better coordinate end of life care programs that consume 27 percent of Medicare spending in the last year of a person’s life by implementing palliative care aggressively? Might we address runaway costs and abuse in the disability market that consumes 18 percent of Social Security costs? Or innovation in managing the dual eligible population consuming 34 percent of Medicaid funds? Or accelerated deployment of e-prescribing to arrest costs of adverse events? And might a concerted effort to implement administrative simplification pay substantial returns…or liability reforms to arrest defensive medicine…or stepped up fraud surveillance?

Here’s my point: the health system is expensive and cost containment is its Achilles. Maybe we should consider a summit on cost containment where all parties check their agenda at the door and cost reduction is the focus.

Among the weary warriors who say, “been there, done that,” I say thanks. Were it not for those efforts, the health cost spiral might have been worse. But it’s worth another try and time is wasting. Maybe this time, it should start with Joe Six Pack whose household discretionary income is being squeezed by health costs and employers who shoulder the lion’s share of excess costs (especially if they provide health insurance benefits to their employees). And maybe the trade-offs should be clear to all, in language that’s fact-based and distant from partisan bickering.

I believe preventive health is essential to an improved health system—for those with resources to afford it, and for those unable. It is key to lowering health costs long term and to a society that values its citizens. I believe student loans are a valuable investment in our future as an educated society accessible to all. The trade-off is puzzling. It’s complex.

I am confident the per capita costs of U.S. health system can be reduced and the health of our population improved simultaneously if we deliberately address and resolve the trade-offs in a transparent, fact-based manner. There’s too much at stake, and the public needs to understand and weigh in on the trade-offs.

Paul Keckely

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

Implementation update

Medicare trustees, CMS Office of the Actuary conclude ACA extends life of Medicare funds

Monday, the seven member Medicare trustee commission released its annual report projecting that the Medicare Hospital Insurance (HI) Trust Fund (Part A) will run out of money in 2024. It noted that in 2011, the HI Trust Fund’s deficit was $27.7 billion and the ACA is likely to extend its life eight years if implemented.

Also last week, the Center for Medicare and Medicaid (CMS) Office of the Actuary released a report projecting that due to ACA, Medicare would save $200 billion through 2016—primarily the result of reduced premium payments by beneficiaries (beneficiaries enrolled in fee-for service [FFS] will have lower cost-sharing and premiums totaling $59.4 billion through 2016 and $208 billion through 2021).

Note: CMS Office of the Actuary responded to the Senate Budget Committee’s request to outline Medicare’s 75-year unfunded obligation total based on the alternative scenario. In the actuary’s alternative scenario, doctors do not see the scheduled 30 percent payment rate cut per the Medicare sustainable growth rate (SGR) and additional provider cuts per ACA, and projects a $36.9 trillion unfunded obligation over 75 years. This actuarial estimate is $10 trillion more than the trustees’ projections. (Source: 2012 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, April 23, 2012)

GAO recommends canceling Medicare Advantage Quality Bonus Payment Demonstration; HHS Secretary says no

Last week, the Government Accountability Office (GAO) reported to the Senate Finance Committee Republicans recommending that the U.S. Department of Health and Human Services (HHS) cancel the Medicare Advantage (MA) Quality Bonus Payment Demonstration and instead implement the MA quality bonus payment system established under ACA Section 1102. It estimates the $8 billion cost of the demonstration will exceed ACA’s MA payment reductions over its 3-year time period while also rewarding “average performing” plans instead of those with better performance.

Thursday, HHS Secretary Kathleen Sebelius testified before the House Education and the Workforce Committee stating she "has no intention of canceling" the demonstration, stating that the demonstration "makes it clear to plans operating in the private marketplace that quality is important.”

Background: In 2011, MA plans enrolled 11.9 million—about one in four Medicare beneficiaries. The average MA enrollee paid $39 per month in premiums for 2011— $5 less per month than in 2010. Half (52 percent) of all MA enrollees with prescription drug coverage are in a plan that charges no premium beyond the Part B (Medical Insurance) premium required of all Medicare beneficiaries.

ACA Section 1102 aligns MA payments consistent with Medicare FFS spending by linking new benchmarks to a share of FFS spending in each U.S. county and caps payment levels pre ACA. It also provides payment bonuses to plans that achieve above average quality standards using a 5-star rating system: rebates (50 percent to 70 percent) based on a plan’s star ratings plus bonus payments to plans with a 4/ 5 star rating (1.5 percent in 2012, 3 percent in 2013, and 5 percent in 2014 and beyond). The net reduction in MA payments was budgeted to save Medicare $145 billion over nine years and also reduce MA enrollment in 2017 by up to half (compared to what it would have been without ACA’s reforms) and lead to less generous MA benefit packages (CMS Office of the Actuary). In November 2010, CMS announced that it would conduct the MA Quality Bonus Payment Demonstration from 2012-2014 to test other ways to calculate and award payment bonuses. The Demonstration provides bonuses to plans with three star quality rating, accelerates the phasing in of bonuses for plans with a rating of four or five, and increases the size of the bonuses in 2012 and 2013. Per the GAO report, “the goal of the demonstration is to test whether a scaled bonus structure would lead to larger and faster annual quality improvement for plans at various star rating levels compared with what would have occurred under PPACA [Patient Protection and Affordable Care Act].”

Rules update: CMS releases rules for community based care programs, physician identifier requirement

Last week, CMS announced final/proposed rules for various programs required in ACA:

1. Final Rule: Community First Choice (CFC) Program: the rule gives state Medicaid programs additional options for community-based long-term care (LTC) services per ACA Section 2401. Individuals with income at 150 percent or more below the federal poverty level (FPL) who require an institutional level of care are eligible for nursing facility services in home and community-based settings (HCBS) under the state plan. The rule does not finalize the definition of home or community-based “setting” for the plans, however a proposed definition was incorporated in the HCBS proposed rule. Key changes from the final rule include:

  • Waives the annual recertification requirement for individuals with no reasonable expectation of significant change in the participant’s condition;
  • Allows states to meet the face-to-face requirement through the use of other information technology mediums;
  • Requires that the individual chooses the setting they reside in; alternatives are available to the individual;
  • Expands the types of arrangements that may exist under the agency provider model;
  • Includes availability of services to all individuals regardless of the service delivery model; and
  • Requires a majority of the CFC Development and Implementation Council be comprised of individuals with disabilities, elderly individuals, and their representatives.

2. Proposed rule: home and community-based services: the proposed rule amends Medicaid regulations to provide states more flexibility in developing HCBS benefits and implements five-year waivers for coverage of “dual eligibles” (individuals eligible for both Medicaid and Medicare) per Section 2601 of ACA. The rule also proposes that HCBS requirements for the CFC program not include nursing facilities or mental institutions. The additional HCBS benefits for state Medicaid plans are estimated to cost the federal government $80 million, and state governments $60 million in FY2012. CMS proposes states have the following HCBS options:

  • Offer benefits under Medicaid plans with matching federal funds;
  • Provide services that are not budget neutral to institutionalized services;
  • Renew waivers for “dual eligibles” an additional five years; and
  • Make payments to third parties on behalf of practitioners.

3. Final rule: physician unique identifier: Tuesday, per Section 6402 of ACA, CMS released a final rule that institutes stronger standards for physician ordering and certifying of medical services, equipment, and supplies. It requires all providers and suppliers to include their unique identification number (i.e. the National Provider Identifier [NPI]) on applications to enroll in Medicare and Medicaid and on all claims submitted for reimbursement and requires that all prescriptions include an NPI for prescribing physicians. The standards allow CMS and states to link specific claims, ordering activity, and prescriptions to certified physicians or eligible professionals to check for potential fraudulent ordering activity, saving taxpayers an estimated $1.6 billion over ten years. The rule is effective June 26, 2012.

Awards for dual eligibles demonstration program announced

Thursday, CMS announced 16 organizations that will participate in the Independence At Home Demonstration program per ACA Section 3024. Under the program, primary care practices led by physicians or nurse practitioners will evaluate the effectiveness of delivering primary care services in a home setting in improving care for beneficiaries with multiple chronic conditions and reducing costs. The demonstration will take place from June 1, 2012 until May 31, 2015.

Background: starting October 1, 2012 states may provide home and community-based attendant services and supports under their state plan per ACA Section 2401. States will receive a 6 percent increase in federal matching payments for Medicaid spending related to this option. Per ACA Section 2601 of ACA, CMS may authorize a five-year duration for certain demonstration projects or Medicaid Section 1115, 1915 (b), (c), or (d) waivers that involve dual eligibles.

Preventive health funding cut vs. student loan interest rate: focus of House legislation

Friday, the GOP-led U.S. House of Representatives passed HR 4628 (215–195) along party lines to keep student loan rates at 3.4 percent rather than reverting to their original 6.8 percent rate to be paid for by repealing the Prevention and Public Health Fund created under ACA Section 4002. It was the culmination of a week of point-counterpoint posturing by leaders in both parties. The bill next goes to the Senate where it is likely to face opposition.

Background: Per ACA Section 4002, $15 billion over ten years was authorized for awards to states to fund prevention and public health programs including training the public health workforce; operational improvements effectiveness and efficiency of public health programs; new programs to address behavioral health, obesity, tobacco use, HIV/AIDS prevention, and vaccination efforts; and others. HHS has already awarded $1.25 billion; the balance of the fund is un-allocated. February 22, 2012, Congress passed legislation that cut the fund by $5 billion over ten years as part of its “pay-go” package to extend the payroll tax cut and set aside the SGR physician pay cuts until December 2012. In the president’s FY2013 budget proposal (February 2012), an additional $4 billion was proposed to be cut.

Note: the student loan program allows college students to borrow funds for school and pay them back starting six months after graduation at a set interest rate. 76 percent of college students graduate with debt; 7.4 million use the federal loan program; the average student borrows $4,226. The difference in interest payments for most students with loans at 6.8 percent vs. 3.4 percent is $1,000.

PCORI research agenda focuses on consumer engagement

Wednesday, the Patient Centered Outcomes and Research Institute (PCORI) board voted to focus its research agenda to the following areas: patient engagement and transparency; patients with multiple chronic conditions; patients with rare diseases; improving health care systems through care coordination, access to care, and the role of practice settings and allied health professionals; and health literacy importance. PCORI will release its National Priorities and Research agenda voted on in the next public meeting on May 21. The Board also approved $30 million to fund 50 pilot projects addressing patient engagement methods in research dissemination.

Bulletin, notice for employer premium subsidies released

Health exchange premium tax credit eligibility calculation:

  • The Center for Consumer Information and Insurance Oversight (CCIIO) outlined its proposed framework to verify access to employer-sponsored coverage for the purposes of determining eligibility for advanced premium tax credits through exchanges. It anticipates full implementation will take two years starting in 2014 when health insurance exchanges go live. The agency will provide a standardized way for employees and employers to voluntarily collect employer-sponsored coverage information for an exchange application. “The purpose of this bulletin is to request comment from the public on a proposed interim strategy and potential regulatory approach for verification of an applicant’s access to qualifying coverage in an employer-sponsored plan under Section 1411 of the Affordable Care Act.” (Source: Center for Consumer Information and Insurance Oversight, “Verification of Access to Employer-Sponsored Coverage Bulletin,” April 26, 2012)

Minimum value of employer coverage calculation:

  • The Internal Revenue Service (IRS) released proposed methods to determine minimum value of employer sponsored coverage. Under ACA, an employer’s plan doesn’t pass the minimum value test if “the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs.” IRS proposed three ways it could calculate if an employer’s offer of insurance precludes an employee from being eligible for a premium tax credit. The first method for figuring out minimum value would be through the HHS and Treasury actuarial value (AV) calculator. Another option is coming up with checklists that determine that the employer plans meet the law’s minimum value standard. Finally, plans with features that couldn’t be determined by an AV calculator could be certified by an actuary. (Source: IRS, “Minimum Value of an Employer-Sponsored Health Plan,” Notice 2012-31, April 26, 2012)

Kaiser report: $1.3 billion MLR rebates due to enrollees; AHIP estimates ACA compliance adds 2-4 percent to premiums

Per ACA Section 1001 which amended Section 2718 of the Public Health Service Act, starting in 2011, insurance plans are required to pay out a minimum percentage of premium dollars towards health care expenses and quality improvement activities: the medical loss ratio is 80 percent for individual policies and small group plans, 85 percent for large group plans. Based on data submitted by each state analyzed by Kaiser Family Foundation, insurance companies are expected to rebate $1.3 billion by this August—$541 million in the large employer market to 19 percent of the market, $377 million in the small business market to 28 percent of small group sponsors, and $426 million for individuals representing 31 percent of the individual market (86 percent in Oklahoma and 92 percent in Texas). Rebates in the group market (average $72-76) will be sent to employers, and in some cases be passed on to employees as well. Rebates in the individual market (average $127 each) may be paid directly to enrollees or applied against future premiums. (Source: Kaiser Family Foundation, “Insurer Rebates under the Medical Loss Ratio: 2012 Estimates,” April 2012)

Note: a Goldman Sachs analysis by analyst Matthew Borsch put the rebate total at $1.2 billion estimating Aetna would pay out $177 million based on $11 billion in premiums, UnitedHealth $307 million on $28.8 billion and a third $94 million on $33.2 billion.

Reaction: “The new medical loss ratio requirement…does nothing to address the real driver of premium increases: the underlying cost of medical care.  Given the inherently unpredictable nature of health care costs, it is not surprising that some health plans expect to pay rebates to consumers in certain markets. However, the coverage disruptions and other unintended consequences of imposing a new arbitrary federal cap on health plan administrative costs are likely to outweigh any benefit these rebates will provide to consumers.  Moreover, the taxes, benefit mandates, and other regulations included in the health care reform law will cause premium increases that far exceed the value of prospective rebates.  For example, a technical analysis by Oliver Wyman estimates that the new health insurance tax included in the ACA “will increase premiums in the insured market on average by 1.9 percent to 2.3 percent in 2014,” and by 2023 “will increase premiums 2.8 percent to 3.7 percent. Health plans are leading the way on delivery system reform and investing in quality improvement initiatives to ensure consumers are getting the best value for their health care dollar.  The MLR regulation could turn-back-the-clock on these quality enhancing programs as well as fraud prevention initiatives while potentially inhibiting the next generation of delivery system reforms.”—America’s Health Insurance Plans, “Statement on Medical Loss Ratio Requirement,” April 26, 2012

CMS expects 28 states to participate in dual eligibles demo, allows states to delay implementation

Last week CMS announced it expects 28 states to take part in the dual eligible demonstration program as a result of its decision to delay state proposals until May 31. It anticipates 19 states will pursue a capitated model, six a FFS model and two a combination. Open enrollment begins in October and states must be able to serve beneficiaries by January 1, 2013 unless CMS grants delayed implementation.

The CMS letter to state Medicaid directors noted that the demonstration would be open to any state “that demonstrates it can meet the established standards and conditions and would be ready to implement its proposed demonstration by the end of 2012.”

Report: overpaid subsidies for insurance coverage would save $44 billion if re-captured but increase uninsured

The Joint Committee on Taxation analysis presented last week to the House Ways and Means Committee concluded that health insurance premium tax credits overpaid to enrollees would save $44 billion over ten years, but also result in 350,000 fewer insured.

Legislative update

Last week on the hill: activities of key health care oversight committees

Congressional committee Health activity
House Appropriations Committee

Wednesday: Marked up proposed funding allocations for 12 appropriations subcommittees that total the $1.028 trillion approved in the House Budget Resolution last month; appropriations for subcommittees focusing on health care related issues:

  • Agriculture: $19.405 billion
  • Commerce/Justice/Science: $51.131 billion
  • Energy and Water Development: $32.098 billion
  • Financial Services and General Government: $21.150 billion
  • Labor, Health and Human Services: $150.002 billion (Note: about $6 billion [4%] lower than the current allocation)
  • Military Construction/Veterans Affairs: $71.747 billion
  • State/Foreign Operations: $40.132 billion
House Budget Committee

Wednesday: Held a hearing titled “Replacing the Sequester” featuring testimony from Daniel I. Werfel (Controller at the Office of Management and Budget [OMB]) and Susan A. Polling (Deputy General Counsel at GAO). The sequester went into effect under the Budget Control Act (BCA), after Congress failed to reach an agreement on a $1.2 trillion ten-year deficit plan. The sequester is estimated to reduce Medicare spending by $4.6 billion in across-the-board reductions in 2013 and would gradually increase to $13.7 billion in 2021, and lower to $6.6 billion in reductions in 2022; the estimated total impact of the sequester on Medicare is $122.9 billion (CBO, March 2012)

Note: OMB sent a letter to GAO stating that the BCA’s sequester does not apply to health care programs administered by the U.S. Department of Veterans Affairs (VA), with potentially only the VA’s administrative expenses subject to reductions. Also, Tuesday at the American Enterprise Institute CMS Actuary Rick Foster gave a “rough estimate” that a congressional override of the sequester would take one year off the Medicare Hospital Insurance Trust Fund. The Medicare Trustees predict the funding to run out in 2024.

House Education and Workforce Committee Thursday: Secretary of HHS Kathleen Sebelius testified before Committee on HHS’s FY2013 budget. The Budget request totals $940.9 billion in spending and proposes $76.7 billion in discretionary budget authority. CMS requested an additional $1 billion for ACA implementation including health insurance exchanges (HIXs). Also at the hearing, Sebelius stated that HHS will continue implementing the Quality Bonus Payment Demonstration.
House Energy and Commerce Committee

Wednesday: Approved legislation estimated to save $115 billion/10 years through cuts to ACA including: repealing the Prevention and Public Health Fund, eliminating funding for Consumer Operated and Oriented Plans (CO-OPs) (per ACA Section 1322) and grants to states to help establish HIXs (per ACA Section 1311 and 1002), and repealing Medicaid maintenance of effort requirements which require states to maintain Medicaid and Children’s Health Insurance Program (CHIP) eligibility levels through December 31, 2013 for adults and September 30, 2019 for children (with certain exemptions for certain eligibility groups and states facing major budget deficits).

The committee also voted along party lines to include an amendment that repeals federal bonus payments to states that identify and then enroll children and young adults in Medicaid and CHIP programs, with estimated savings of about $400 million over ten years. The package is not expected to be taken up by the Senate.

Note: Tuesday, chairman of the Energy and Commerce Oversight and Investigations Subcommittee Representative Cliff Stearns (R-FL) announced the investigation of ACA funding for the health insurance CO-OPs and whether loans were given to groups that met the statutory requirements for the CO-OP program. HHS has provided $845 million in start-up and solvency loans to ten CO-OPs. ACA Section 1322 appropriates up to $6 billion for the CO-OP program.

House Judiciary Committee

Wednesday: Approved a draft medical malpractice reform measure (16-14) along party lines. The legislation would reduce federal spending by $39.7 billion/10 years by capping non-economic damages at $250,000, limiting attorneys’ fees, and instituting a statute of limitations for filing health care lawsuits.

Note: the House previously passed malpractice reform in March in a bill that also repealed the Independent Payment Advisory Board (IPAB). The bill has not been passed in the Senate.

House Ways and Means Committee

Wednesday: The Committee’s Oversight subcommittee held a hearing related to ACA Section 9003 which prohibits the purchasing of over-the-counter medication that is not prescribed from flexible spending arrangements (FSAs) and health savings accounts (HSAs).

Friday: The Committee held a hearing on premium support systems with testimony from economy and health policy experts Alice Rivlin and Henry J. Aaron at Brookings Institution, Joseph R. Antos at American Enterprise Institute, and Senior Counsel from Patton Boggs LLP.

House Oversight and Government Reform Committee Wednesday: Held a hearing on Medicaid fraud with testimony from Senator Chuck Grassley (R-IA), Representative Michele Bachmann (R-MN), and CMS Medicaid Director Cindy Mann. The Committee also released a report highlighting Medicaid fraud in Minnesota, Texas, and New York.
Senate Appropriations Committee Thursday: Approved the U.S. Food and Drug Administration (FDA) FY2013 funding bill, which would increase funding by $22 million from last year's funding level and by $12.5 million from the president’s FY2013 budget request for implementing the Food Safety Modernization Act.
Senate Health, Education, Labor and Pensions Committee Tuesday: Approved bipartisan legislation to reauthorize FDA user fees for prescription drugs and medical devices for five years and to create user fee programs for generics and biosimilars (i.e. generic drugs).
Senate Judiciary Committee Wednesday: Completed draft language for medical liability reform reconciliation provisions.
Senate Committee on Veterans’ Affairs

Wednesday: Heard testimony on veterans’ access to mental health care from the Deputy Undersecretary of Veterans Affairs at the Veterans Health Administration (VHA) along with other VHA and U.S. Department of Veterans Affairs officials.

Democratic Congressional primaries in PA viewed as referenda on ACA vote

Tuesday’s Democratic primary election in Pennsylvania saw two incumbents, Jason Altmire and Tim Holden, who voted against the ACA defeated by challengers who ran campaigns supportive of ACA. Reporting by prominent electronic and print media attributed the vote to sentiments about ACA.

State update

State round-up

  • Illinois Governor Pat Quinn (D) proposed raising cigarette taxes $1 per pack to increase revenue over $330 million per year to be used to fund the state’s Medicaid program. The state’s tax at $0.98 per pack ranks 32nd in the country, with Massachusetts’ being the highest at $2.51 per pack.
  • New York launched the “New York Digital Health Accelerator” (NYDHA), a $4.2 million program to encourage innovation related to health information technology (IT). The program is intended to create 1,500 new jobs over five years within the state. NYDHA’s goal is to make New York the center of the growing health IT industry. Companies have until June 1, 2012 to apply; twelve companies will be chosen.

Industry news

CMS recommends FY2013 payment increase of .9 percent for acute, 1.9 percent for long term care hospitals

Tuesday, CMS released a proposed rule updating Medicare payments for inpatient hospitals paid under the inpatient prospective payment system (IPPS) and long-term care hospitals (LTCH). The rules propose policies for several ACA provisions including the Hospital Value-Based Purchasing (VBP) and the Hospital Readmissions Reduction Programs per ACA Sections 3001 and 3025. CMS will collect comments on the proposed rule until June 25, 2012, and respond to all comments in a final rule released by August 1, 2012. Highlights include:

Inpatient acute hospitals:

  • Payments: predicts total Medicare payments to acute inpatient hospitals to increase by $175 million reflecting a 2.3 percent payment rate increase for FY2013. The increase accounts for inflation, improvements in productivity, a statutory adjustment factor, and hospital documentation and coding adjustments. Medicare’s operating payments to acute care hospitals are projected to increase 0.9 percent in FY2013.
  • Additional measures for value-based purchasing, CMMI: proposes to add a Medicare spending per beneficiary measure to the Hospital VBP Program for payments starting in FY2015. The measure would include all payments for inpatient (Part A) and physician services (Part B) accounting for geographic payment adjustments and other payment factors from three days prior to an inpatient hospital admission through 30 days after the discharge with certain exclusions. The measure would be risk-adjusted for age and severity of illness. CMS also proposes a central line-associated bloodstream infection measure to support the Center for Medicare & Medicaid Innovation (CMMI) (per ACA Section 3021) Partnership for Patients initiative per ACA Section 3021.
    Note: the Hospital VBP Program begins in 2013 to adjust payments made to hospitals based on how well they meet or improve performance on quality measures. The payment changes are to take effect in 2015.
  • Measures for perinatal and readmissions inpatient quality reporting program added: proposes to add measures for perinatal care and readmissions including overall readmissions, readmissions relating to hip and knee replacement procedures, and use of surgery checklists designed to reduce errors. It also proposes to include a survey measure to assess the quality of patients’ care transitions to the Hospital Consumer Assessment of Healthcare Providers and Systems measures.
  • Avoidable hospital readmissions methodology guidance: proposes methodology and payment adjustment factors for readmissions related to heart attack, heart failure, and pneumonia per ACA Section 3025, which reduces payments to hospitals with high readmission rates associated with the three conditions for discharges on or after October 1, 2012.

Long-term care hospitals:

  • Payments: LTCH payments are predicted to increase by $100 million (1.9 percent) in FY2013. The rule proposes to update LTCH payment rates by 2.1 percent. However, CMS proposes to reduce the 2.1 percent by approximately 1.3 percent (first year of a proposed three-year phase-in) reducing the update to 0.8 percent reflecting the “one-time” budget neutrality adjustment for discharges on or after December 29, 2012. Also proposes to reduce Medicare payments for very short stays in LTCHs to IPPS comparable diem amount payment option for discharges starting December 29, 2012.
  • Quality reporting: proposes measures to be included in the LTCH quality reporting program for FY2015 and FY2016 payment determinations and creates programs and quality measure reporting for psychiatric hospitals paid under the Inpatient Psychiatric Facility Prospective Payment System and PPS-exempt cancer hospitals. Also proposes reporting requirements for the ambulatory surgical center quality reporting program.
  • Medicare, Medicaid, and SCHIP (State Children's Health Insurance Program) Extension Act Moratorium: the statutory moratorium on the creation of new LTCHs and satellite facilities (per the Medicare, Medicaid, and SCHIP Extension Act of 2007 and ACA Sections 3106 and 10312) will expire at the end of 2012. Also, proposes a one-year extension of the existing moratorium on the 25 percent threshold policy, pending results of an initiative to re-define the role of LTCHs in the Medicare program.

Reaction: “We are deeply disappointed that CMS has proposed new coding cuts in the proposed IPPS rule…Their actions show a lack of understanding over the reality that hospitals care for patients with complicated medical needs.”—President and CEO Rich Umbdenstock, American Hospital Association, April 25, 2012

Reaction: "IME support is critical to the ability of the nation's teaching hospitals to train doctors, nurses and first responders. At a time when the nation needs to increase its investment in physician training to avert a serious shortage, we urge CMS to reconsider these proposed cuts to teaching hospitals and the communities they serve.”—CEO Darrell Kirch, Association of American Medical Colleges, April 26, 2012

Analysis: tax treatment of over the counter medications as a medical expense

Section 9003 of ACA provides that any exclusion from income for such reimbursement or use of HSA funds only applies to the cost of over-the-counter medicine if the medicine is prescribed by a physician.

Expenses for medical care, not compensated for by insurance or otherwise, are deductible by an individual under the rules relating to itemized deductions to the extent the expenses exceed 7.5 percent (10 percent for years after 2012) of adjusted gross income (“AGI”). In 2010, $16.9 billion was spent on over the counter drugs: cough and cold remedies (24 percent), pain analgesics (14 percent), heartburn medicines (8 percent), toothpaste (8 percent).

The 41 page Joint Committee on Taxation report explains deduction rules for various insurance programs (e.g., HSAs, traditional employer coverage, and others). (Source: Joint Committee on Taxation, Subcommittee on Oversight of the House Committee on Ways and Means, “Present Law and Background Relating to the Tax Treatment of the Cost of Over-the-Counter Medicine as a Medical Care Expense,” April 23, 2012)

AHRQ analysis: health care disparities in 2011

The Agency for Healthcare Research and Quality (AHRQ) released its annual health disparities report concluding, “the gap between best possible care and that which is routinely delivered remains substantial across the Nation.” AHRQ used 250 quality measures from 34 databases in its analysis.


  • Access to care: Americans reported barriers to care 20 percent of the time (on average), ranging from 3 percent of people indicating they were unable to get or had to delay obtaining prescription medications to 57 percent of people saying their usual provider did not have office hours on weekends or nights.
    Note: The Deloitte Center for Health Solutions’ 2011 Survey of Health Care Consumers in the United States found that one in four (25 percent) consumers skipped seeing a doctor when sick or injured.
  • Chronic care received: people received preventive services 60 percent of the time (on average), appropriate acute care services 80 percent of the time, and recommended chronic disease management services 70 percent of the time. Wide variation existed among the types of services received: 95 percent of hospital patients with pneumonia received their initial antibiotic dose within six hours of hospital arrival, however only 9 percent of patients who needed treatment for an alcohol problem received treatment at a specialty facility.
  • Age, race disparities: adults age 65 and over received worse care than adults ages 18-44 for 39 percent of the measures. Among races: Blacks received worse care than Whites for 41 percent of quality measures, Asians and American Indians and Alaska Natives (AI/ANs) received worse care than Whites for about 30 percent of quality measures, and Hispanics received worse care than non-Hispanic Whites for 39 percent of measures. Poor individuals received worse care than high-income individuals for 47 percent of the measures.
  • Improvements in care: 60 percent of the measures tracked showed improvement, the median rate of change was 2.5 percent per year. There was improvement among all race and age groups and in 47 percent of income groups in the measures.

(Source: AHRQ, “The National Healthcare Disparities Report,” April 2012)

ACP recommends Medicare reforms to cut federal spending

The American College of Physicians (ACP) recently released a position paper on proposed Medicare reforms targeting cost reduction with particular caution about efforts to shift Medicare from a defined benefit to defined contribution program. It recommends the federal government:

  • Accelerate adoption of the patient-centered medical home model;
  • Test a premium support option (in lieu of a defined contribution model);
  • Increase Medicare premiums for wealthier beneficiaries;
  • Combine Medicare Parts A and B with a single deductible;
  • Congress amend the authority of IPAB; and
  • Medicare provide palliative and hospice services.

Note: ACP represents general internal medicine 132,000 physicians, medical students and residents. (Source: American College of Physicians, “Reforming Medicare in the Age of Deficit Reduction,” April 2012)

GAO analysis: Medicare fraud detection, prevention improving

Monday, the U.S. Senate released a GAO report on the ways Medicare is working to curtail fraud in the system. Highlights:

  • Access to timely information about provider activity challenging: claims to Medicare are screened through the Provider Enrollment, Chain, and Ownership System (PECOS) to check against provider and supplier information maintained in the system and is designed to prevent payments to improper or fraudulent providers and suppliers who are ineligible to receive Medicare payments. These edits are dependent on information in PECOS being up to date and accurate—which is dependent on factors such as the frequency with which contractors update information and other limitations. The editing process is challenging to maintain daily (e.g., the Social Security Administration’s Death Master File is updated monthly, creating an interval between a provider’s death and when information can be updated into PECOS).
  • New provider, supplier screening procedures helpful: CMS has implemented several new procedures to screen new provider and supplier enrollment and has put in place new measures that strengthen current practices since ACA’s passage. For example, CMS will begin screening according to risk of fraud, waste, and abuse by categories of providers and suppliers. A new application fee has also been added for some types of providers. CMS also released a rule that requires all providers and suppliers to include their NPI on enrollment applications and claims. Lastly, two new Medicare contractors were added: an automated screening contractor and a site visit contractor.

Note: in 2011, over 1.5 million health providers and suppliers of medical equipment were enrolled in Medicare. HHS estimates that in 2011 the agency made improper payments of about $29 billion in the FFS program. (Source: GAO, “Medicare Program Integrity: CMS Continues Efforts to Strengthen the Screening of Providers and Suppliers,” April 2012)

Study: specialty drug costs increase 14-20 percent

Spending on specialty drugs used to treat cancers and chronic conditions including multiple sclerosis increased 14-20 percent annually in recent years and will be higher over the next decade. A significant share of these drugs are clinician-administered and therefore covered under the medical benefit rather than the pharmacy benefit (thereby subject to markups by physicians). Some insurers introduced higher cost-sharing for the drugs. Federal law gives the complex, protein-based biologic drugs 12 years of market exclusivity, compared to seven years for name-brand prescription drugs. The authors suggest reducing biologic exclusivity to seven years. (Source: Center for Studying Health System Change, “Limited Options to Manage Specialty Drug Spending,” April 26, 2012)

Note: in 2010, specialty pharma costs increased 17.4 percent and were used with 1 percent of patients.

FDA device tagging system announced

The FDA is proposing that each device carry a unique device identifier (UDI) number, and that capability be created to analyze hospital and insurance data to spot faulty devices. Recent attention to defibrillator problems sparked renewed interest in the effort.

Note: FDA funding will be a focus on upcoming FY2013 budget planning. The agency is expected to request a substantial increase in appropriations to fund increased efforts in device oversight and post-market surveillance of prescription drugs.


“Unfortunately, Americans too often do not receive care that they need, or they receive care that causes harm. Care can be delivered too late or without full consideration of a patient’s preferences and values. Many times, our system of health care distributes services inefficiently and unevenly across populations. Some Americans receive worse care than other Americans. These disparities may be due to differences in access to care, provider biases, poor provider-patient communication, or poor health literacy.”

Agency for Healthcare Research and Quality, “National Healthcare Disparities Report,” 2011

“Hospital patients waiting in an emergency room or convalescing after surgery are being confronted by an unexpected visitor: a debt collector…”

New York Times, “Debt Collector Is Faulted for Tough Tactics in Hospitals,” April 24, 2012

Fact file

  • In 2012: Social Security will take in $507 billion in taxes and pay out $640 billion in benefits. The current trust fund has $2.7 trillion in assets—and will be exhausted in 2032. 18 percent of the fund is spent on disability payments. (Source: HHS)
  • Medical costs resulting from assault cost the U.S. $38 billion. Analysis of 42 public datasets: poverty rates and educational achievement are strongly associated with peacefulness at the state level: Maine highest and Louisiana the lowest. (Source: Institute for Economics and Peace)
  • Between 36 million and 122 million adults reported medical conditions that could result in a health insurer restricting coverage. (Source: Government Accountability Office, “Private Health Insurance: Estimates of Individuals with Pre-Existing Conditions Range from 36 Million to 122 Million,” March 2012)
  • Initial public offerings (IPOs) have averaged 19 percent above their opening price on first day of trading—highest average first day since 2000. (Source: Renaissance Capital)
  • University of Chicago researchers looked at cancer care in the U.S. and in ten European countries from 1983 to 1999 finding that for most cancers, U.S. patients lived longer than Europeans after diagnosis—11.1 years (U.S.) vs. 9.3 years (Europe). When translated to dollars using a “statistical life” methodology, the 1.8 year difference costs $598 billion—an average of $61,000 per cancer patient. The value of these survival gains was highest for prostate cancer ($627 billion) and breast cancer ($173 billion), the findings indicated. (Source: Thomas Philipson, et al, “An Analysis Of Whether Higher Health Care Spending In The United States Versus Europe Is ‘Worth It’ In The Case Of Cancer,” Health Affairs, April 2012)
  • Smoking cessation: smoking could be cut 44 percent in 20 years if World Health Organization’s recommendations were followed—enact comprehensive smoke-free laws; help tobacco users quit; ban all tobacco advertising, promotion and sponsorships; implement graphic health warnings on tobacco products; and raise the price of tobacco products by significantly increasing tobacco taxes. (Source: Tobacco Control, World Health Organization)
  • Spending on specialty drugs has increased from 14 percent to 20 percent in recent years and accounts for 12-16 percent of commercial prescription drug spending. The monthly spending per patient for a specialty drug typically exceeds $1,200. (Source: Ha Tu and Divya Samuel, Center for Studying Health System Change, “Limited Options to Manage Specialty Drug Spending,” April 2012)
  • Seniors poll: 7  percent of seniors report they have access to all of the critical medical services (annual medication review, falls risk assessment and history, depression screening, referral to community-based health resources, and discussion of their ability to perform routine daily tasks and activities without help). The majority (76 percent) received less than half, and 52 percent reported receiving none or only one of the services. (Source: The John A. Hartford Foundation, “How Does It Feel? The Older Adult Health Care Experience,” 2012)
  • Employers offering health care coverage and employees obtaining coverage decreased from 70 percent in 1997 to 67.5 percent in 2010. In 2010, 57 percent of U.S. employees received health insurance from their employers—down 3 percent from 1997. (Source: Employee Benefit Research Institute, “Employment-Based Health Benefits: Trends in Access and Coverage, 1997-2010,” April 2012)
  • Painkillers were used inappropriately by 70 percent of Americans in 2010; frequent or chronic users were more likely to get the drug from doctors or buy them. (Source: Office of Drug Control Policy, April 25, 2012)
  • Median annual doctor’s pay ranges from $156,000 for pediatricians to $315,000 for orthopedic surgeons and radiologists. (Source: Medscape, “Physician Compensation Report 2012,” 2012)
  • Between 36 and 122 million U.S. adults report having a pre-existing condition, reporting hypertension most frequently. (Source: GAO, “Private Health Insurance Estimates of Individuals with Pre-existing Conditions Range from 36 Million to 122 Million,” March 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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