Health Care Reform Memo: October 11, 2010 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

Last week, I was in six cities coast to coast, spent 21 hours in the air on nine legs, and arrived more than an hour late on three of the nine flights due to “mechanical” delays. When I arrived at my last stop Saturday, I asked my service representative what accounts for the gap in observed to expected performance. The answer surprised me: “We promise to get you to your destination safely so equipment delays are understandable…and after all, you arrived.”

The response puzzled me: I wondered if the airline industry’s operating philosophy had changed to “no harm no foul” when equipment failures and mechanical delays disrupt passengers and those waiting their arrival? Has the industry concluded we are willing to accept delays and mechanical failures as business as usual?

Health care faces a different challenge as it encounters consumer expectations. U.S. healthcare consumers are intolerant of equipment delays and mechanical failures. We expect the latest technology, accessible physicians, state of the art hospitals, and health insurance that deny no test/treatment we deem useful. Unlike airfares, our pricing is unknown and for the most part our equipment delays and mechanical failures are not known or reported widely. We want world-class health care paid for by someone else, and expect to arrive on time every time. The gaps between evidence and practice, inappropriate and appropriate variation, and costs versus prices seemingly escape consumer attention. For the majority of consumers, value is linked to anecdotal experiences with physicians, hospitals, and plans used, not hard data about prices, quality, outcomes, and service.

The distinction between winners and losers in each sector will ultimately be determined by the value we bring the end user—consumers. The health reform legislation recently passed, and to-be-released rules and regulations necessary to its enactment will likely encounter resistance when they run afoul of consumer expectations.

I expect airplanes to arrive on time. I hold the airline system and its stakeholders responsible to get me where I need to go safely and on time. Likewise, the future of the healthcare industry faces a similar expectation from its consumers: Demonstrable value. Getting there on time will not be easy; the transition from “patient” to “consumer” will be the ultimate reform in the U.S. system.

Paul Keckley, Ph.D.

PPACA state challenges: Update

Constitutional challenges to the Patient Protection and Affordable Care Act (PPACA) underway in 20 states revolve around two areas:

• Does the federal government have the right to impose a mandate requiring consumers to purchase insurance and thereby usurp its authority over individual rights? (the Commerce Clause of the Constitution Article I, Section 8, Clause 3)
• Does the federal government have the right to impose rules and regulations over the health insurance market that usurps its power over states? (the Supremacy clause of the Constitution Article VI, Section 1, Clause 2)

Update on challenges:

• Three states—Arizona, Colorado, Oklahoma—will have ballot initiatives to allow voters to override PPACA November 2. Missouri voters previously voted to override PPACA.
• Five states have approved legislative language and are working through companion bills to enact laws precluding parts of PPACA. Virginia was the first to pass language in its Senate, defining the individual mandate as a usurpation of state powers by the federal government.
• Thursday, the federal judge in Detroit, Michigan’s Circuit Court denied a challenge brought by the Thomas More Law Center challenging the individual mandate. Upcoming rulings from the bench: Virginia (October 18) and Florida (December 16).

HHS guidance on high-risk pool coverage for newborns

Last week, the U.S. Department of Health and Human Services (HHS) published guidance to clarify state questions regarding coverage of health care costs incurred for newborn children under the Pre-Existing Condition Insurance Plan (PCIP) program. Its notice offered the following guidance:

• PCIP programs are permitted to cover health care costs of newborns of mothers who are enrolled in PCIP under the mother’s coverage on a temporary basis.
• PCIP does not include dependent coverage. Newborn coverage under a mother’s policy is limited to no more than 60 calendar days after the birth of the child.

HITECH update

The Health Information Technology for Economic and Clinical Health (HITECH) Act (2009) allocated $27 billion for Medicare and Medicaid incentive payments to hospitals and physicians who demonstrate “meaningful use” of certified electronic health records (EHRs). To obtain funding, providers must use EHRs demonstrating specific functionalities (up to 24 in Stage 1) beginning in 2011 increasing through 2015. After 2015, Medicare payment penalties will apply to non-adherent organizations (there are no Medicaid penalties).

Certification of EHRs must comply with required technical capabilities for interoperability with other systems, privacy and security of personal health information, interfaces with health data exchanges, and accessibility to de-identified personal health data for profiling provider clinical performance. Last week, the Office of the National Coordinator for Health Information Technology (ONC) announced it had certified four systems for use by providers.

Democratic Senators request Medigap premium oversight

Last week, Senate Majority Leader Harry Reid (D-NV), Senate Finance Committee Chair Max Baucus (D-MT), and Senator John Kerry (D-MA) of the Senate Finance Committee sent a letter to HHS Secretary Kathleen Sebelius requesting protections for seniors who own Medigap supplemental insurance plans from “unnecessary rate increases.” The Senators requested that HHS work with governors and state insurance commissioners to “conduct a study of Medigap trends and costs to provide a benchmark against which proposed rates can be measured.”

GOP House members request analysis of PPACA impact on states

Republican leaders on the House Energy and Commerce Committee asked states to provide data detailing the impact of PPACA on their budgets. Additionally, each state was asked to describe the steps necessary to finance PPACA requirements by October 19.

Report: Ten of 12 PPACA final rules published without comment period

Ten of the 12 final rules published by HHS to implement PPACA are “interim final rules,” and not open to formal public comments or exposure before becoming law per the Congressional Research Service (CRS) report issued last week.

Source: CRS Report, Final Rules Pursuant to the Patient Protection and Affordable Care Act During the First Six Months of Implementation

GAO report: States’ use of additional Medicaid funding

The Government Accountability Office (GAO) studied the deployment of $87 billion in Medicaid funds available to states under the American Recovery and Reinvestment Act of 2009 (ARRA) enacted February 17, 2009, via an increase in the Federal Medical Assistance Percentage (FMAP). The GAO report concluded that nearly all states used their maximum FMAP allocation towards increased enrollment, which grew by 14.2 percent nationally between October 2007 and February 2010. However, 47 states and the District of Columbia expressed concern that their Medicaid programs could not be sustained without additional funding, and 46 states have taken steps to address sustainability, such as introducing taxes on health care providers, or reducing provider payments. Note: In June 2010, subsequent to ARRA funding, Congress passed $16.1 billion in supplemental funding for state Medicaid programs to cover additional costs through 2011. Nonetheless, states are concerned they will be unable to cover enrollee costs in the period before PPACA funding is available in 2014 since Medicaid enrollment grows in proportion to poor economic conditions. The federal government currently provides about 63 percent of funding for Medicaid programs, up from 57 percent prior to ARRA and PPACA.

Source: GAO Report, Increased Medicaid Funds Aided Enrollment Growth, and Most States Reported Taking Steps to Sustain Their Programs

Brokers and agents insurance reforms: Report

Health insurance agents and brokers, collectively called “producers” by insurance companies, provide individuals and small employers assistance in selecting and enrolling in health insurance products. Traditionally, states have regulated the licensing, role, and scope of producer activity; the federal government had no role outside of federal programs such as Medicare Advantage. PPACA (P.L. 111-148) created a limited federal role for the use of producers in health insurance exchanges starting January 1, 2014. The exchanges require the use of an insurance portal to assist enrollees in choosing among comparable plans, thus limiting demand for producers' services. PPACA also includes a minimum medical loss ratio (MLR) provision (80 percent for individual plans; 85 percent for groups), requiring rebates be paid to enrollees if minimum MLR thresholds are not met. This provision may provide an incentive for health insurance companies to reduce their compensation to and/or utilization of producers as they seek to reduce their administrative costs in relation to their medical costs. Note: The National Association of Insurance Commissioners (NAIC) will finalize its recommendation to HHS about the specifics of the MLR provision on October 21 at its Orlando meeting.

Source: CRS Report, Health Insurance Agents and Brokers in the Reformed Health Insurance Market

Workforce study: Transformation of nursing profession necessary

The Institute of Medicine (IOM) and Robert Wood Johnson Foundation (RWJF) released highlights of their two-year analysis of the nursing profession. Per the RWJF Initiative on the Future of Nursing study:

• Nurses should practice to the full extent of their education and training.
• Nurses should achieve higher levels of education and training through an improved education system that promotes seamless academic progression.
• Nurses should be full partners, with physicians and other health care professionals, in redesigning health care in the U.S.
• Effective workforce planning and policy making require better data collection and information infrastructure.

Note: Title V of PPACA includes a number of provisions that expand the role and scope of nursing in the U.S. health care workforce.

Source: RWJF and IOM Report, The Future of Nursing Leading Change, Advancing Health

Physician-owned hospitals file suit against PPACA

Physician Hospitals of America and Texas Spine & Joint Hospital filed a federal lawsuit in Texas challenging the constitutionality of the PPACA physician-ownership regulations. Note: Title VI, Sections 6001-6003 in PPACA includes provisions specific to physician ownership interests including limitations and required disclosures to patients.

Update: Early retiree program participation

HHS added 1,000 companies to its Early Retiree Benefit Program (ERBP) established under PPACA, bringing the number to 3,000. Funding for the $5 billion program ends in 2014.

School health clinics funding

HHS announced $100 million in PPACA funding for construction and renovation of school-based health centers. The Health Resources and Services Administration's School-Based Health Center Capital program will award 200 grants for fiscal year (FY) 2011.

Quotable

“These decisions viewed in the aggregate have clear and direct impacts on health care providers, taxpayers and the insured population who ultimately pay for the care provided to those who go without insurance.”

 – Federal Circuit Court (Detroit) Judge George C. Steech, October 7, in denying the petition brought by the Thomas More Law Center that the individual mandate is a violation of constitutional rights and usurpation of federal authority over states

“Too many people thought ‘I paid my taxes—the state will look after everything.’ But citizenship isn’t a transaction in which you put your taxes in and get your services out. It’s a relationship—you’re part of something bigger than you.”

 – U.K. Prime Minister David Cameron Wednesday to Conservative Party Conference

Fact file

• 30 “mini-med” waivers granted to employers/health insurance companies to date. (Source: White House Office of Health Reform)
• Early voter turnout in the 2010 election cycle is 50 percent higher than in the 2006 mid-term cycle based on 13 states where early voting is already underway. Eventually, 33 states and the District of Columbia will have early voting. (Source: Center for Responsive Politics)
• 119 million doses of flu vaccine have been distributed in the United States, 30 million more than were distributed in 2009. (Source: Centers for Disease Control and Prevention)
• The average Medicare beneficiary will have a choice of 33 Part D prescription drug plans in 2011, despite a 30 percent reduction in the total number of stand-alone plans available nationwide. Premiums will increase 10 percent to $40.72 per month in 2011 if beneficiaries stay in their 2010 plans. (Source: Kaiser Family Foundation)
• Federal health care spending will increase to 19.6 percent of the total federal budget by 2019 with PPACA resulting in a $251.3 billion savings. Included in its calculation is a reduction in physician pay per the sustainable growth rate (SGR) model. (Source: Centers for Medicare & Medicaid Services (CMS) Office of the Actuary)
• Families receiving welfare checks increased 50 percent, families living in poverty increased 400,000, and Medicaid enrollment increased 13 percent between the start of the recession (December 2007) and this spring. (Source: U.S. Bureau of the Census)
• From 1993 to 2008, the proportion of smokers among U.S. adults declined 18.5 percent whereas the proportion of obese people increased 85 percent. (Source: “Trends in Quality-Adjusted Life-Years Lost Contributed by Smoking and Obesity”)
• Hospital layoffs: As of August 2010, 8,687 hospital employees lost jobs; a total of 12,349 is anticipated by December 2010, the second-highest annual loss since 2000. (Source: U.S. Bureau of Labor Statistics)
• Federal employee health premiums to increase in 2011 by 7.2 percent, compared to the projected 1.4 percent increase in average wages. (Source: Federal Employee Health Benefits Program)
• State solvency: In 2010, 46 states have experienced budget shortfalls; in FY 2011 state shortfalls will reach estimated $100 billion after accounting for ARRA stimulus funds and $140 billion in FY2012. (Source: Center on Budget and Policy Priorities)

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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