Health Care Reform Memo: August 24, 2009

A Deloitte Center for Health Solutions publication

Health Care Reform Memo: August 24, 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.

CBO to release update Tuesday showing deficit higher than earlier forecast; key factor in health reform

Aligning its forecasts with private analyst viewpoints, the Congressional Budget Office (CBO) will release its updated estimate of a projected $9.1 trillion deficit thru 2019—an increase from its February forecast of $7.1 trillion. The CBO concluded its earlier assumptions about the economic recovery were overly optimistic: it had anticipated -1.2 percent GDP for 2009; first quarter GDP was actually -6.4 percent so year-end GDP is not likely to be as positive as forecast. Consumer spending, housing starts, and employment gains are lagging earlier estimates.

NOTE: In most tracking polls, support for health reform is tempered by concern about its cost. Moderates in the House and Senate are guarded in support of a bill that would increase the deficit, and the White House has said its bill should be deficit neutral. The major debate about health reform in the next few weeks will be its cost.

The Senate HELP, House Tri Committee bill, and early versions of the anticipated Senate Finance bill suggest reform will cost $800 billion to $1.2 trillion over 10 years.

President Obama promotes health reform; White House seeks to diffuse emotion and sharpen messaging

Before leaving for his week-long vacation to Martha’s Vineyard, the White House used last week to sharpen its messaging about health reform and attempt to temper public sentiment it concedes is surprising in tone. In a forum with religious leaders, a call-in show moderated by a conservative Philadelphia talk show host Michael Smerconish, e-mail communications to its grassroots support organization “Organizing for America”, and Saturday’s radio address, the White House messaging was consistent:

Health reform is a priority and the White House is committed to a bill’s passage in 2009.
The goals of the bill are to reduce cost, protect consumers from insurance abuses, provide affordable coverage to uninsured Americans, and not add to the deficit.
The public option is preferable as a means to affordable coverage but the White House is receptive to alternatives that achieve the goals.
Misinformation about health reform is the result of calculated efforts by groups who are threatened by reforms or otherwise “in bed” with key industry groups.
The House bill (HR 3200) is not the reform bill: it is one of several that will contribute to the final bill

Flex account limits might impact dental, over-the-counter purchases

Currently, many employers offer flexible spending accounts (FSAs) to allow employees to purchase health services/goods such as eyeglasses, orthodontics, over-the-counter medicines, dental care and alternative therapies. In some, the deductible may be up to $5,000. In the Senate HELP health reform proposal, consideration is being given to limiting FSAs to $2,000. More to come.

Grassley-Baucus relationship: not an odd couple after all

As the Senate Finance Committee faces pressure to produce its bill, the leadership of Senators Chuck Grassley (R-IA) and Max Baucus (D-MT) looms large as a critical factor in its delivery of a bipartisan solution to reduce costs and cover the uninsured. The two have much in common: both are occasional mavericks in their parties (Grassley did not support Bush tax cuts; Baucus voted for the Medicare Modernization Act). Both are veteran legislators (Grassley has served four terms; Baucus is in his fifth), and the two respect each other—they’ve met weekly for eight years and have traded the Chairman’s gavel for the Senate Finance Committee four times in this decade. The two have agreed to present a bill to the full committee by September 15. Note: of the six senators leading the Senate Finance Committee’s effort to craft a bill—Conrad (D-ND), Enzi (R-WY), Grassley (R-IA), Baucus (D-MT), Snowe (R-ME), Bingaman (D-NM)—only Grassley is up for re-election in 2010.

Reconciliation route likely: Democratic Senate moderates key

Members of the Senate’s Democratic leadership last week suggested a 51-vote “win” in the Senate might realistically be the route to passage of a bill in the Senate, in lieu of a more desirable 60 vote majority. Several moderate Democratic Senators are cautious in their support of early versions of reform bills that include a public option and a price tag above $1 trillion. If attrition of these votes is indicated after the Senate Finance bill is introduced next month, the implication would be reconciliation as the route to passage of a bill in the upper chamber. However, reconciliation—a procedural maneuver—would mean (1) increased acrimony between the parties; (2) certain provisions in the bill that require budgetary support would be delayed i.e. the public option, funding for health insurance exchanges, etc.; and (3) the reform process would be the centerpiece in the 2010 and 2012 election cycles.

Individual mandate might face constitutional challenge

Many consider an individual mandate a certainty in the eventual health reform bill. Some constitutional scholars indicate it might be a problem, citing case law (U.S. v Lopez, U.S. v Morris) suggesting the Constitution limits Congress’s role in non-economic interstate commerce matters. A court challenge to an individual mandate might be a by-product of the reform bill.

CMS 2010 pay proposal: primary care increases, specialists cuts

CMS has proposed a 6 to 10 percent increase for targeted primary care services but reduced payments to most specialists. E.g. cardiologists would see a cut of more than 20 percent for electrocardiograms and 12 percent for stent procedures. As health reform bills consider expansion of preventive health and medical home demonstration projects, access to primary care services will be an issue. Of 26,000 medical grads annually, only 6,500 will enter primary care. The current shortage is 16,000 and is projected to grow to 25,000 in the next five years. As previously uninsured populations get access to coverage, the nexus will be primary care. Reformers will necessarily consider solutions that (1) expand scope of practice for nurse practitioners and advanced practice nurses, (2) expand the National Health Service Corps, including waivers of medical school debt for medical students who serve shorter terms in targeted communities, (3) add codices to permit non-conventional practitioners i.e. psychologists, nutritionists, homeopaths to serve certain primary care populations, and (4) change graduate medical education to strengthen the curriculum and pipeline for future primary care professionals.

Earlier, CMS reversed its proposed $2 billion cut to inpatient prospective payments and $380 million reduced indirect medical education capital cuts, concluding it would increase payments to acute providers 2.1 percent more based on its inflation-adjusted forecast.

Health information technology grants announced; Blumenthal role expanded

Wednesday, the U.S. Department of Health and Human Services (HHS) announced the first two in a series of Health Information Technology for Economic and Clinical Health Act (HITECH) priority grant programs to accelerate the meaningful use of interoperable electronic health records. The initial grants are $598 million for regional health extension centers (70 awards from $1-30 million) and $564 for state planning and implementation of health information exchanges (50 grants from $4-40 million). Both awards cover four year projects, require matching funds, and have start dates of January 15, 2010.

To oversee the current and anticipated grant programs, HHS Secretary Kathleen Sebelius delegated administrative responsibility to David Blumenthal, MD, National Coordinator for Health Information Technology for Sections 3011-3017, Subtitle B of the HITECH Act that cover:

3011: funding for development of standards for certification of EHRs and development of best practices to support secure nationwide exchange of data
3012: health IT technical implementation assistance supportive of research and regional extension centers
3013: state grants to promote health IT
3014: grants to states and Indian tribes for loan programs to facilitate EHR adoption
3015: demonstration programs to integrate IT into clinical education
3016: increased access/use of IT professionals in health care
3017: analysis of the overall effectiveness of grant and loan programs

States hit hard even after stimulus funding for Medicaid

The combination of a bad economy that slowed tax collections and soaring health costs in Medicaid and social services programs left states with a combined $215 billion shortfall in 2008. In the stimulus package “American Recovery and Reinvestment Act”, $87 billion is targeted to help states with Medicaid shortfalls, but the consensus is health reform will likely include federally mandated eligibility of 133 percent of the federal poverty level (FPL), increasing Medicaid enrollment. Efforts to enroll the 12 million uninsured who are already eligible for SCHIP or Medicaid will increase state obligations and cause fiscal turmoil. California, Nevada, New York, Washington and Kentucky had record deficits last year

BusinessWeek: “Why Insurers are Winning” in Health Reform

The cover story by writers Terhune and Epstein in last week’s issues of BusinessWeek (8/17) chronicled efforts of the health insurance industry, concluding “the carriers have succeeded in redefining the terms of the reform debate that no matter what specifics emerge in the voluminous bill Congress may send to President Obama this fall, the insurance industry will emerge more profitable.” The article profiles United Healthcare’s efforts to assist lawmakers in defining areas of savings from use of information technology and its health coaching programs for seniors.

Appointment: Tobacco czar named

The Food and Drug Administration (FDA) named Lawrence Deyton, former Department of Veterans Affairs’ chief public health officer to head the agency's new tobacco division. He previously worked in the National Institutes of Health (NIH) and the House Subcommittee on Health and the Environment.

Senate Finance Special Committee on Aging requests information from GPOs

Senators Chuck Grassley (R-IA), Herb Kohl (D-WI), and Bill Nelson (D-FL) sent a letter to the seven largest group purchasing organizations (GPOs), requesting information about the business practices in the $60 billion sector. There appear to be two foci of interest: the potential of anti-competitive business practices of GPOs that might favor larger manufacturers/suppliers over smaller ones, and contractual relationships between hospitals and GPOs that might point toward possible cost savings.

Waxman requests executive compensation detail from insurance companies

Considered by some a purposeful move to strengthen insurance reform measures in health reform, House Energy and Commerce Chairman Henry Waxman sent requests to 50 health insurance companies last week to provide the committee information about the compensation for all officers/managers earning above $500,000 last year. No word on industry response.

Fact file:

Of the 45.7 million uninsured in the U.S. in 2008, 12 million were eligible for a government-sponsored insurance program (Medicaid, SCHIP) and 10 million are illegal immigrants (4.4 million of these undocumented). (Kaiser Family Foundation)
27.8 million uninsured work full/part-time: 16.8 million of these work for businesses under 100 employees (Employee Benefit Research Institute)
62 percent of small businesses (fewer than 100 employees) provide health insurance benefits: they pay 18 percent more per worker for the same policy that larger businesses pay (Council of Economic Advisors)
At the current rate of health expenditure growth, health costs will increase from 16.9 percent of U.S. GDP in 2009 to 18.5 percent in 2014 (CMS)
In the last 10 years, insurance premiums have increased 120 percent versus cumulative inflation (+44 percent) and wages (+29 percent). Since 2006, employee benefits have stayed steady at 19 percent of total worker compensation (U.S. Bureau of Health Statistics)

C-Suite action items

Transparency of business practices and conflicts of interest involving each key stakeholder and its supply chain, capital sources and advocacy efforts will be a persistent theme in coming weeks. Attention to regulatory compliance, tightened risk management and related aspects of operations should be heightened.
Consolidation in the hospital industry appears certain as Medicare cuts loom a major source of funding for health reform. In addition, physician-hospital integration will likely intensify as physician cuts (especially specialists) seek employment agreements and guaranteed compensation.
Plans likewise should anticipate consolidation: as Medicare cuts payments to providers and Part C plans, smaller plans could lack adequate capital to survive increased regulatory oversight and lower margins. In addition, plans should consider the construction of a “basic benefit” floor benefits package attractive to employers based on lower premium costs with minimum 30 percent participation by employees.
Employers should revisit benefits design to assess optimal accountability of employees/dependents for healthy living/preventive health while evaluating value-based models with insurers.
All stakeholders should provide routine briefings to employees and directors about health reform: it changes by the day!