Health Care Reform Memo: July 6, 2009

A Deloitte Center for Health Solutions publication

Health Care Reform Memo: July 6, 2009 The health care reform memos are issued on a weekly basis, highlighting news from the previous week's activities in the new administration and implications for the C-suite and various stakeholder groups.

Quiet week as reform proposals await markups; Baucus bill anticipated week of July 6

With many members home for the long holiday weekend, committee staff and chief sponsors of major health reform bills spent the week trying to get their costs below $1 trillion.

Funding health reform is delicate: bill sponsors want costs not to exceed $1 trillion and large numbers of the 45.6 million uninsured to be covered. In addition, the White House said it wants cuts of $2 trillion from forecast spending for 2009-2019 to reduce CAGR health costs from 6.2 percent to 4.7 percent. Committee staff are focused on bills that derive one-third of funding from new revenues (taxes) and two-thirds from savings in the system.

The Senate Finance Committee (Baucus) bill is arguably the most anticipated because it has bipartisan authorship— Sens. Max Baucus (D-MT), Charles Grassley (R-IA), Orrin Hatch (R-UT), Jeff Bingaman (D-NM), Kent Conrad (D-ND), Olympia Snowe (R-ME), and Mike Enzi (R-WY). In the past two weeks, the influential chairman has solicited input from Senate colleagues to find middle ground on the two most controversial issues of reform—the public plan and the costs of reform.

Last week, Sen. Ron Wyden (D-OR) recommended a simplified funding mechanism in the Baucus bill—elimination of the current tax exclusion for employer-sponsored health benefits plus taxation above a fixed standard tax deduction for all American whose benefits are considered “rich”. The deduction would be $17,240 for families and $6,800 for individuals—above that, individuals would pay income taxes for the benefit. Wyden estimated that 35.5 million people would receive a tax cut under his proposal, while 29 million people would pay higher taxes.

Meanwhile, sponsors of the Kennedy bill (Affordable Health Choices Act) introduced June 17 continued revisions intended to increase its coverage from 16 million uninsured and reduce its costs (CBO estimated $1.2 trillion). 200 amendments have been proposed by Senate HELP committee members and on Thursday its price tag was lowered to $611 billion by reducing the subsidies for lower income individuals who would be required to purchase insurance via an individual mandate.

NOTE: A key element in the Kennedy proposal is an employer mandate: employers with 25 or more workers would be required to provide health insurance coverage or pay the government an annual fee of $750 for each full-time worker and $375 for each part-timer. The government would pay the start-up costs for the public insurance option as a loan to be repaid, and premiums would be set up so the option was ultimately self-sufficient. In so doing, bill sponsors believe it would compete fairly with private plans and offer an alternative to consumers.

Unemployment higher than expected; economic recovery linked to health care cost containment a White House theme

Thursday, the Bureau of Labor Statistics reported June unemployment increased to 9.5 percent based on a loss of 467,000 jobs—100,000 more than expected. In its report, the “bright spot” was health care where 21,000 new jobs had been created. The 22 month recession is expected to end in September, but its lingering effects will continue into 2010. Wednesday, in a Virginia town hall meeting focused exclusively on health reform, the President reinforced the connection between economic recovery and health cost containment noting the need to reduce $2 trillion in costs over the next decade. He re-stated his commitment to a public plan option “to keep the insurance plans honest”, adherence to evidence-based practices to reduce inappropriate over-use, incentive changes to encourage coordination of care, and more emphasis on prevention.

6,300 new H1N1 cases in U.S. last week, pandemic anticipated

While attention to health reform bills and associated costs might be page one, a notable report from the CDC last week suggests H1N1 might grab headlines in the fall as cooler temperatures invite faster spread of the virus. Public health officials are preparing for a pandemic: 600 million doses of vaccine are being produced—two doses for everyone vaccinated. To date, CDC estimates are that 1,000,000 Americans have had the disease and 127 have died. Officials are closely monitoring the progression of H1N1 in Australia, Chile and Argentina to observe the virus’ resistance to antiviral drugs.

NOTE: pandemic preparedness may be a major story in the fall.

Wal-Mart announces support for employer mandate

Tuesday, Wal-Mart—the nation’s largest private employer with 1.4 million employees-- announced its support for an employer mandate. The letter to the White House was signed by Wal-Mart CEO Mike Duke, along with Center for American Progress leader John Podesta and Service Employees International Union (SEIU) President Andy Stern. Among opponents to employer mandates are the National Retail Federation, the U.S. Chamber of Commerce, National Federation of Independent Business and others. 52 percent of Wal-Mart's 1.4 million U.S. employees are covered by company-provided insurance, up from 46.2 percent three years ago. The retail industry average is 45 percent, according to a 2008 Kaiser Family Foundation study.

Council, IOM reports provide priorities for comparative effectiveness effort

In the stimulus package (America’s Recovery and Reinvestment Act, 2009) $1.1 billion was designated to develop a comparative effectiveness research (CER) program that would be a road map for determining how best to incorporate evidence into practice while reducing inappropriate variation. Two weeks ago, Senators Max Baucus (D-MT) and Kent Conrad (D-ND) introduced a bill to create the Institute for Comparative Effectiveness Research to implement and oversee the program.

"Comparative effectiveness research is the conduct and synthesis of research comparing the benefits and harms of different interventions and strategies to prevent, diagnose, treat and monitor health conditions in 'real world' settings. The purpose of this research is to improve health outcomes by developing and disseminating evidence based information to patients, clinicians, and other decision makers, responding to their expressed needs, about which interventions are most effective for which patients under specific circumstances."

Meeting its June 30 deadline (stipulated in ARRA), the Federal Coordinating Council for Comparative Effectiveness Research led by AHRQ Director Carolyn Clancy and Counselor to the Office of the Secretary of HHS, Neera Tanden, reported its recommendations about the approach HHS should take to implement a comparative effectiveness program—its scope, priorities, and structure. The 15-member council of federal agency officials was tasked to assist federal agencies in coordinating and comparing the effectiveness of health services research with a goal of reducing $700 billion in costs over 10 years by determining what goes into health care spending that does not necessarily improve individual health care or provide quality health care. Highlights of its report include:

Research should focus on the needs of priority populations such as racial and ethnic minorities, persons with disabilities, persons with multiple chronic conditions, the elderly, and children.
Research should be in specific high impact health areas, such as medical and assistive devices, surgical procedures, behavioral interventions, and prevention.
Investments should be made in data infrastructure to link current data sources to help answer CER questions.

Also Tuesday, The Institute of Medicine issued a list of 100 research priorities from 2600 suggested, covering therapeutics, surgical and device interests. High prevalent chronic conditions like back pain, obesity, and rheumatoid arthritis are prominent in Initial National Priorities for Comparative Effectiveness Research. In its evaluation, costs were not a factor in its prioritization scheme. The IOM report also recommends funding priorities for research in key areas like the effectiveness of the medical home model and preventive health programs—topics prominent in many health reform proposals.

A major focus of the IOM report is the recommendation to Congress to sustain the CER effort. Key areas cited include: collaboration among federal agencies, the creation of data repositories for clinical and administrative input, building informatics workforce training programs, and promoting widespread use of comparative effectiveness by clinicians, plans and consumers.

Fact file

Figure 1: Trust in sources of information about the effectiveness and safety of treatments

Medical associations/societies (e.g., American Medical Association, American Cancer Society, etc.)	51
Academic medical centers/teaching hospitals	50
Community hospitals	31
U.S. Department of Health and Human Services	31
State Departments of Health and Human Services	28
Pharmacies	28
U.S. Food and Drug Administration (FDA)	27
Independent health-related websites (e.g. WebMD)	26
Health insurance companies/health plans	13
Pharmaceutical, biotech, or medical device/product manufacturers	11
Employers (e.g., health benefits office)	10

*Total respondents = 4,001
Source: Deloitte’s 2009 Survey of Health Care Consumers, available online at www.deloitte.com/us/2009consumersurvey

C-Suite Action Items

Hospitals and physicians-- The certainty of Medicare cuts and likelihood of episode-based payments suggest re-evaluation of clinical program priorities to conserve capital while pursuing models of physician-hospital integration that optimize efficiency and outcomes. Medical staff leaders, hospital trustees and senior management must begin the process of determining how to (1) strip unnecessary costs from the supply chain, (2) optimize current payments from payers, and (3) prioritize capital investments with information technologies and physician integration as major necessities over “bricks and sticks." In addition, not-for-profit hospitals are likely to face increased scrutiny for executive compensation and community benefits (beyond Form 990 disclosures).

Employers-- Benefits design and cost containment efforts should be flexible until such time as health reform bills result in clarity about the public option and tax exclusion. While the bill is anticipated in the fall, likely changes would occur sometime after providing adequate adjustment time.

Health plans-- Insurance companies must address likely cuts in Medicare Part C premiums, increased scrutiny from state regulators seeking transparency in operating results-- profitability, medical loss ratios, coverage and denial management procedures, executive compensation, et al. Continued efforts supportive of administrative simplification (led by AHIP) will be key to the posturing of plans in coming weeks as the net savings ($700 billion) from standardization of transactions across all plans will result in significant savings to hospitals, doctors and consumers.

NOTE: Administrative simplification is a huge net improvement resulting from health reform; plans will bear the brunt of its costs though benefits will be shared throughout the system.

Pharmaceutical, medical device and biotechnology companies-- The likelihood a health reform bill will include a comparative effectiveness program is high. As a result, innovation and R&D efforts might be stifled somewhat by risk aversion. Global opportunities, strategic collaboration and combination therapies will take on added importance due to the uncertainties of the reform bill and shorter commercial life cycle of biologics before becoming generics (seven years).

Join us – July 14 at 2 p.m. EDT for a Deloitte Dbriefs Webcast on “Comparative Effectiveness: A Compelling Approach to Cost Control and Quality Improvement”

Join us for a 1-hour webinar to discuss: different models of comparative effectiveness used in developed health systems; realities of implementing comparative effectiveness in the U.S., including the status of health reform efforts to advance comparative effectiveness; and implications for plans, providers, life science organizations, and government. Click here to learn more and register (free; registration required).