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Health Care Reform Memo:
April 8, 2013

Deloitte Center for Health Solutions publication


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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: U.S. biopharmaceutical industry 

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

I embarrassed myself Monday night. After a jog on the beach and round of golf in Naples, Florida, I passed out at a reception from dehydration. All I remember is a cold sweat and next hearing my Deloitte colleague Mitch Morris who is a physician, ask “what medications are you taking” as he attended to my recovery.

I’ve re-lived that moment frequently since—my right elbow bore the brunt of my fall so it’s quite sensitive a week later. But I also find myself, once again, thinking through that ordeal as a consumer in the health care system.

Like good doctors do, Mitch instinctively knew he needed information about my prescriptions. It’s the first question I recall as I came to my senses. I remember saying “statin” but little more. After a while, I was feeling better, though no less embarrassed.

Like the advertisement says, life comes at you fast. I was drinking ice water one minute and on the floor the next. My recollection is falling and next Mitch’s inquiry asking about my prescription drug regimen.

For health care industry folks, the drug manufacturing industry is a prominent player—at $320 billion in U.S. sales, it’s 12 percent of the U.S. health care spend and almost half of the total global market.1 It’s a big industry: $49 billion research and development (R&D) investment exploring 2,900 new therapies currently in development.2

For policymakers and public health officials it’s often a perplexing industry with promise and peril: prescription drug abuse could be viewed as an epidemic, especially addictions to pain medications dispensed fairly freely through pill mills. Protection of intellectual property owned by its companies is often problematic in emerging markets where copycats are likely to flourish with government approval. Patent expirations could cut $142 billion from the industry’s revenues through 2015 resulting in a decrease in drug spending for the first time in 20 years.3 And medication non-adherence is costly: estimated to cause up to 10 percent of hospital admissions and 23 percent of nursing home admissions as a direct result.4 Yet, appropriate use of medications—prescribed and dosed accurately— combined with patient adherence is a promising way to reducing costs and improving health.

But for the average Joe, prescription drugs are a way of life, and for some a lifeline. Pharmacies are on every corner—56,000 of them and counting. The industry spends almost $20 billion promoting its products—$5 billion on TV ads that encourage would-be users to “consult your doctor.”5 And online and newsstand tools to assist in smart purchasing are readily accessible like the “Consumer Reports Best Buy Drugs” and others. Perhaps unlike any other industry, in health care, the biopharmaceutical industry is on the frontline of consumerism.

As a student of the health care industry, I can’t imagine a more complicated sector: its market is global; its regulatory framework unique in each; its risks are high; its visibility even higher and demand is soaring. An Internal Revenue Service (IRS) report released last week said it well:

“Many foreign companies have been entering the United States market because of its uncontrolled pricing structure, rapid approval processes, private and public insurance reimbursement policies and government support for basic research. Additionally, the industry enjoys many tax benefits not available in other countries, although the benefits are narrowing.

The tax benefits include Research & Experiment Credit for research conducted in the United States, the IRC 936 Puerto Rican Tax Credit for possession companies, and Orphan Drug Credit for illnesses afflicting two hundred thousand or less patients. Benefits of relocation to the United States include the ability to advertise to both the medical community and direct to consumers in an effort to increase awareness and consumption.”6

The U.S. biopharmaceutical industry is at a tipping point: increased consumerism, increased scrutiny of business relationships and conflicts with investigators, increased rigor in scientific efficacy and effectiveness (including comparative effectiveness research), increased regulation, increased margin pressure, increased costs of development, and increased competition from non-regulated products and marketing channels that require new thinking and bold transformation.

For me, Monday’s embarrassing event reminded me to think afresh about the vital role this industry plays…and to drink more water.

Paul Keckely

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

1 CMS Office of the Actuary; IMS Institute for Healthcare Informatics, "The Use of Medicines in the United States: Review of 2011," April 2012

2 Pharmaceutical Research and Manufacturers Association

3The Impending Patent Cliff: Implications for Pharmacists, Pharmacy Time. February 2012

4Assessing Medication Adherence in the Elderly, Drugs Aging. 2005 

5The Need to Develop Responsible Marketing Practice in the Pharmaceutical Sector, Problems and Perspectives in Management, April 2004.
http://businessperspectives.org/journals_free/ppm/2004/PPM_EN_2004_04_Buckley.pdf;& #160;
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3278148/

6Internal Revenue Service, “Pharmaceutical Industry Overview – Trends,” LMSB-04-0207-010,  April 2013

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Implementation 

Key ACA provisions impacting the medical device and biopharma industries 

In recent weeks, trade groups representing the pharmaceutical and device industries have sought relief from the Affordable Care Act (ACA) mandated excise taxes including the 2.3 percent device excise tax that started January 1, 2013. In the ACA, these “supply chain” sectors are a central focus:

Section Provision Implementation update
6301 Patient Centered Outcomes Research Institute (PCORI)

Established to conduct comparative effectiveness research (CER).

Goal: to help consumers, physicians, and policymakers make informed decisions surrounding medical treatment. Implementation status: 25 awards amounting to $40.7 million have been awarded to conduct CER.

1302 Essential health benefits

Ten statutorily defined categories, including prescription drugs.

Implementation status: final rule issued in February 20, 2013-- requires one drug per class or more if the state benchmark plan requires, whichever is greater.

9009 2.3% medical device tax Implementation status: effective January 1, 2013. Senate voted to repeal during budget resolution process; vote was non-binding. Cost of repealing: $29 billion 2013-2022.
3301 Medicare drug rebate

One-time $250 rebate to Medicare beneficiaries who reach the “donut hole” coverage gap in Medicare Part D implemented June 2010.

Implementation status: as of March 2011, 3.8 million beneficiaries had received the rebate.

2501 Increased Medicaid drug rebate

23.1% for innovator drugs; 17.1% for blood clotting drugs and pediatric use only; 13% of average manufacturer price per unit for non-innovator drugs.

Implementation status: effective January 1, 2010 and March 23, 2010 for Medicaid managed care plans; 600 drug manufacturers participate in the Medicaid drug rebate program.

7101 Expanded participation in Medicaid 340B program to include children’s hospitals, free-standing cancer hospitals, certain rural hospitals, etc. Implementation status: enrollment of new applicants began June 28, 2010.
7002 Biosimilar biological products: 12 year brand exclusivity Implementation status: effective March 23, 2010.
1101 Closing the “donut hole” (Medicare Part D) – federal subsidies and manufacturer discount for beneficiaries in “donut hole”.

Implementation status: manufacturer discounts effective January 1, 2011; federal subsidies phased in January 1, 2013.

In 2013, beneficiaries pay 47.5% for brand name drugs and 79% for generics; in 2020, 25% for brand-names and 25% for generics.

9008 Annual fee on the pharmaceutical manufacturing or importing certain branded prescription drugs Implementation status: effective 2011; annual payment date: September 30. Applicable taxable amount in 2013: $2.8 billion

Source: ACA, Kaiser Family Foundation, Federal Register, CMS

Note: There remains much confusion about the medical device tax—technical requirements, compliance, and similar ambiguity around issues related to excise taxes on prescription drugs. From April 29 to May 1, 2013, Deloitte Tax is hosting a conference in Dallas, Texas focused on organizational preparedness to bring clarity to medical device excise tax issues and assist life science company preparedness. Additional sessions will cover international tax, transfer pricing, multi-state tax, IRS controversy, and regulatory developments as well as a pre-event "Life Sciences M&A Workshop," focused on buying and selling side transactions. To register click here.

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Report: number of self-insured plans decreased but participant enrollment increased 

Per the ACA, the Secretary of Labor must prepare aggregate annual reports – due on March 23 each year – on self-insured group health plans based on Form 5500 Annual Return/Report of Employee Benefit Plan (“Form 5500”) filings and financial filings of self-insured employers. Deloitte Financial Advisory Services LLP assisted the U.S. Department of Labor (DOL) by preparing the report Self-Insured Health Benefit Plans 2013.

Key findings:

  • From 2001 to 2010, the percentage of plans with a self-insured component (self-insured or mixed-funded) decreased from 56 percent to 48 percent.
  • In the same time period, the percentage of participants in a plan with a self-insured component increased from 75 percent to 83 percent. This paradox appears to be explained by a trend toward less self-insurance among relatively small plans and more self-insurance among relatively large plans.
  • The prevalence of self-insurance generally increased with plan size. For example, 30 percent of plans with 100-199 participants had a self-insured component in 2010, compared with 90 percent of plans with 5,000 or more participants.

Note: for additional information, see Deloitte’s report incorporated in the appendix of the Secretary of Labor’s Report to Congress here. Also available: other Deloitte reports on employer health and pension plans published at the U.S. Department of Labor (DOL) website here or contact. Michael Brien, Director, Deloitte Financial Advisory Services LLP (michaelbrien@deloitte.com) or Caroline Lee, Senior Manager, Deloitte Financial Advisory Services LLP (carollee@deloitte.com).

My take: in the last decade, 10 percent of businesses dropped insurance coverage due to costs. In the next decade, with or without the ACA, 9 percent more, representing 3 percent of the civilian workforce is likely to cease providing coverage (Deloitte Center for Health Solutions’ 2012 Employer Survey).

Our data is consistent with the DOL report—that small- and mid-size companies, including many that are self-insured, are more likely to drop coverage. Notably, in our surveys, these employers are inclined to think that HIXs might be an alternative channel for employees that lose coverage.

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OIG report: information about health insurance plans for consumers on Healthcare.gov website inadequate 

Findings from an HHS Office of the Inspector General (OIG) report released last week showed that data displayed on the Centers for Medicare and Medicaid Services (CMS) Healthcare.gov Plan Finder – the online tool available to consumers to compare health insurance plans required by Section 1103 of the ACA – is inadequate.

Key findings:

  • “Products and plans displayed on Healthcare.gov Plan Finder were not always available or recognized by private insurers’ representatives.”
  • Of plans and products that were available and recognized, “81 percent of data matched the information provided by private insurers’ representatives.”
  • The information displayed may be unclear to consumers.
  • For insurers that did not report detailed pricing and benefit information, CMS did not follow up with insurers:
Health insurance market Number of insurers expected to report pricing and benefit data Number of insurers that did not report pricing and benefit data Percentage of insurers that did not report pricing and  benefit data
Individual Market January 2012 Update 395 84 21%
Small Group Market November 2011 Update 631 45 7%
Totals 1,026 129 13%

Source: Office of Private Health Insurance Submissions to the Healthcare.gov Plan Finder, 2013

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HHS proposes new guidelines for HIX Navigator Program, does not allow insurance companies to provide Navigator services 

Wednesday, HHS released a 63-page proposed rule on the Navigator Program. Highlights:

  • Clarifies that a Navigator or non-Navigator Assister cannot be a health insurance or stop loss insurance issuer, a subsidiary of an insurance issuer, an association that includes members of, or lobbies on behalf of, the insurance industry, or receive any consideration from any health insurance or stop loss insurance issuer in connection with the enrollment of any individuals or employees.
  • Sets conflict-of-interest standards; Navigator entities must submit a written plan to prevent conflicts-of-interest. Note: state-based exchanges would not have to adopt the standards for Navigators unless funded through federal HIX grants.
  • Training standards for require up to 30 hours of training.

Background: per Section 1311 of the ACA, Navigator Programs are intended to provide “fair and impartial information to consumers about health insurance, the Exchange, qualified health plans, and insurance affordability programs including premium tax credits, Medicaid and the Children’s Health Insurance Program (CHIP); and will provide referrals to consumer assistance programs (CAP) and health insurance ombudsmen for enrollees with grievances, complaints, or questions about their health plan or coverage."

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Legislative update 

President to release budget Wednesday 

In advance of the President’s budget release this Wednesday, the White House released talking points late Friday outlining its key themes including $400 billion in health spending cuts, additional deficit reduction by $1.8 trillion over ten years, expansion of a Pre-K program for four year olds paid for by increased tobacco taxes, taxing IRA and investment accounts above $3 million.

Note: HHS Secretary Kathleen Sebelius will testify at the House Ways and Means hearing on the President's budget for HHS Friday at 9 a.m. addressing its impact on health programs and the ACA.

My take: entitlement reforms—Social Security and Medicare especially—will be center stage in coming budget deliberations. Among the major topics: changing the cost-of-living calculation used to set Social Security payments to a “chained CPI formula (savings $390 billion/10 years), raising the age of Medicare eligibility gradually from 65-67 (savings $120 billion/10 years), changing subsidies and adjusting premiums that wealthier seniors pay ($58 billion), and combining premiums for Parts A and B (savings $110 billion/10 years); and fixing the sustainable growth rate (SGR) (one time cost of $138 billion) as part of the deal. Reductions in funding required in the ACA will no doubt be discussed, but there’s no way to know the result at this point—more to come.

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SGR fix proposed in House Committee 

Last Wednesday, Chairmen of the House Energy and Commerce Fred Upton, (R-MI) and Ways and Means Dave Camp, (R-MI) committees along with their respective health subcommittee chairs, Joe Pitts (R-PA) and Kevin Brady (R-TX) issued a revised proposal to replace the SGR model used to determine Medicare payments to physicians.

Their proposal links physician pay to performance in three categories: quality measure scores endorsed by consensus-based organizations like the National Quality Forum, quality improvement from the previous year's score, and “executing clinical improvement activities.” It also mandates that physicians get timely feedback on their performance and the development of an appeals process for reconsideration of a quality score.

Quality scores would include four categories: clinical care; safety; care coordination; and patient and caregiver experience.

Background: instituted as part of the 1997 Balanced Budget Act, the SGR links physician fees to U.S. gross domestic product, and includes a “clawback” provision whereby Medicare fees to physicians are cut if spending exceeded a targeted amount in the previous year. In 2002, the formula resulted in a 4.8 percent pay cut, but Congress set aside the model accruing a liability to the Medicare fund. And on 14 occasions since, the SGR cuts were suspended by Congress accruing a $245 billion liability. Recent interest in replacing the SGR has gained momentum as a result of the CBO revised estimate on February 5, 2013 that lowered the ten year cost of its repeal for ten years to $138 billion—40 percent lower than the $245 billion projection released in August, 2012. Per the SGR, a 24.4 percent Medicare pay cut is scheduled to go in effect on January 1, 2014, unless Congress repeals the SGR or approves another temporary patch.

Note: For more information about the SGR, download the report Understanding the SGR: Analyzing the “Doc Fix” from the Deloitte Center for Health Solutions.

My take: as part of the upcoming budget process, it appears replacement of the SGR is increasingly likely. And the proposal to link physician pay to valid and reliable measures by which physician performance is gauged sensible. There are, however, two elements of physician performance that should also be included: measures of cost effectiveness/efficiency whereby physicians encourage use of lower cost treatments where clinical evidence support their use, and an alternative methodology for scoring for team-based medical care delivery (in lieu of individual physician performance scoring) since patient outcomes are the result of care teams and many physicians are already employed in team-based models.

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Senate Finance Committee schedules hearing on Tavenner 

Tomorrow, the U.S. Senate Finance Committee will hold a confirmation hearing for CMS Acting Administrator Marilyn Tavenner. CMS Has not had a confirmed Administrator since Mark McClellan left the agency in 2006. Prior to Tavenner holding the position, Dr. Don Berwick served as Interim Administrator of CMS as a result of a Recess Appointment by President Obama in July 2010. Dr. Berwick stepped down in December 2011.

Background: CMS operates the Medicaid and Medicare programs in addition to CHIP and the Center for Consumer Information and Insurance Oversight (CCIIO) to implement insurance related provisions of ACA; with an operating budget of $3,820,112 and employs 4,477 individuals nationwide. Before coming to CMS, Tavenner was served for four years as the Commonwealth of Virginia’s Secretary of Health and Human Resources in the administration of former Governor Tim Kaine, and served as President of Outpatient Services for the Hospital Corporation of American Group prior to working for the state of Virginia.

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Meaningful use update: bill to exempt solo practices and physicians nearing retirement; request for safe harbor guidance 

Prior to Congress breaking for March recess, Representative Diane Black (R-TN) introduced the Electronic Health Records Improvement Act (H.R. 1331) to exempt solo practitioners and physicians within three years of retirement from meaningful use requirements. If passed, the bill would exempt penalties (i.e. 1 percent reduction in Medicare reimbursements) for failing to meet meaningful use requirements by 2015. The Electronic Health Record (EHR) Incentive Program has paid 234,065 participating organizations to-date, amounting to $12.7 billion since 2011. Program participants: 264,292 eligible Medicare eligible professionals, 120,002 Medicaid eligible professionals and 4,299 eligible hospitals.

Also, Representative Jim McDermott (D-WA) asked HHS Chief Counsel to the Inspector General Greg Demske to renew safe harbors that protect EHR equipment and software donations under the federal Anti-Kickback Statute and Physician Self-Referral laws. When these exceptions expire, hospital systems can no longer provide a subsidy to a physician for EHRs if it has a direct or indirect financial relationship with that entity. For hospitals that are already in subsidy agreements, all donations of items and services must occur on or before December 31, 2013.

Background: in 1972, the Anti-Kickback Statute makes it illegal for providers to “knowingly and willfully” accept remuneration or bribes in order to generate revenue from federal health programs (i.e. Medicare and Medicaid). The Physician Self-Referral law (i.e. Stark law) is a civil statute enacted in 1989 outlawing physician referrals of a patient covered in a federal health program (Medicare, Medicaid, CHIP, et al) to an entity (laboratories, testing centers, etc.) in which the physician has a vested interest, such as ownership or a compensation arrangement. To help promote the use of health information technology, safe harbors within the Anti-Kickback and Physician Self-Referral laws were enacted.

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District court rules in favor of emergency contraception coverage without age restriction 

Friday, District Judge Edward R. Korman (Eastern District of NY) ruled that the U.S. Food and Drug Administration (FDA) must make emergency contraception available over-the-counter with no age restrictions concluding HHS had “failed to offer a coherent justification for denying the over-the-counter sale of levonorgestrel-based emergency contraceptives to the overwhelming majority of women of all ages who may have need for those drugs and who are capable of understanding their correct use.” The White House and HHS had advocated for restrictions requiring women under 17 to have a prescription for contraception. The Department of Justice said it would review the District Judge’s ruling after the announcement.

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State update 

State HIX update 

17 states—12 led by Democratic Governors, four led by Republicans, and one Independent—and the Democratic mayor of D.C. have announced plans to operate state-based exchanges. Seven states—four led by Democratic Governors and three led by Republicans—will participate in state-partnership exchanges with HHS. The remaining 26 states will default to a federally-facilitated exchange.

State-based exchange State-partnership exchange Undecided/Federally-facilitated exchange
CA, CO, CT, DC, HI, ID, KY, MA, MD, MN, NM, NV, NY, OR, RI, UT, VT, WA AR,DE, IA, IL, MI, NH, WV AK,AL, AZ, FL, GA, IN, KS, LA, ME, MO, MS, MT, NC, ND, NE, NJ, OH, OK, PA, SC, SD, TN, TX, VA, WI, WY

Democratic  ■ Republican ■ Independent
Source: HHS, State Health Insurance Marketplaces, as of April 7, 2013.

Recent HIX announcements:

  • Maine, South Dakota, and Virginia have joined Kansas, Montana, Nebraska and Ohio as states that will play a role in the federally facilitated exchanges (FFE). CCIIO approved the states to review the health plans sold on the FFE. This is similar to the “plan management” option provided to states operating a state-partnership exchange.
  • HHS granted Massachusetts a three-year transition period to phase out their current insurance rating factors; in order to meet the standards under Section 1321 of the ACA. Rating requirements were not initially included in the transition period approved by Congress. However, HHS concluded, “there is a relationship between the rating requirements and the operational concerns that Congress envisioned when it enacted the transition period.” Health insurance issuers in the state must be in compliance by January 1, 2016.
  • After a five month review by the Connecticut Insurance Department (CID), the Consumer-Operated and Oriented Plan (CO-OP) for health insurance, HealthyCT, was approved for licensure and will operate on the state’s HIX, Access Healthy CT. HealthyCT is a non-profit consumer-oriented organization; any profits from the program will be utilized to maintain or lower premiums and/or improve benefits. The HIX will open in the fall and coverage will take effect January 1, 2014.

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Medicaid expansion update 

25 states and D.C. have said they will, or are in support of expanding, their Medicaid programs in 2014; 17 states have indicated they are highly unlikely to expand their program:

Announced expansion or likely to expand Not participating or unlikely to participatee Undecided or undeclared
 AR, AZ, CA, CO, CT, DC, DE, HI, IL, MA, MD, MI, MN, MO, MT, ND, NM, NJ, NV, NY, OH, OR, RI, TN,VT, WA AL, FL, GA, IA, ID, IN, LA, ME, MS, NC, NE, OK, SC, TX, UT, VA, WI AK, KS, KY, NH, PA, SD, WV, WY

Democratic  ■ Republican ■ Independent
Source: Kaiser Family Foundation; Politico; State Reforum as of April 7, 2013.

Note: states do not have a deadline to make a decision on Medicaid expansion and may opt in or out of participation at any time. This chart was compiled using publicly available information (as of March 30, 2013) and is subject to change.

Recent Medicaid announcements:

  • The Indiana state legislature supports expanding Medicaid through the Healthy Indiana Plan (HIP) currently available to low-income individuals ineligible for Medicaid. Governor Mike Pence (R) is in support of expansion through HIP only if federal funding is received in the form of block grants, which the most recent House amended bill does not require.
    Note: CMS will need to approve the final proposal before the state can move forward with expansion.
  • The Montana state Senate approved (26-24) the expansion of its Medicaid program to low income working individuals. A similar House bill failed to get out of committee when a forced vote motion did not pass.
  • Last Thursday, the Tea Party affiliated Americans for Prosperity (AFP) notified GOP governors of its opposition to a compromise on Medicaid that would use expansion dollars to fund subsidies for new enrollees to buy private coverage through state-run HIX. Republican Governors in Tennessee, Arkansas, Pennsylvania, Florida, Arkansas, Missouri, Nebraska and Louisiana have indicated interest in the proposal.

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State round-up 

Other breaking news from states…

  • California challenge to hospital tax exemption: proposed legislation (AB 975) would prevent most charitable hospitals from receiving tax exemptions. The bill is supported by the California Nurses Association and is opposed by the hospital industry stakeholders. Currently, not-for-profit hospitals must provide three year community needs assessments to show that tax exemptions are being used appropriately.
  • CO-OPs approvals in 11 states: last week, the National Association of State Health Cooperatives (NASHCO) announced that ten CO-OPs have received approval from state insurance regulators to operate in 11 state markets in addition to 24 that had received grants before Congress cut $2.3 billion as part of the year-end fiscal cliff deal.
    Background: per ACA Section 1322 CO-OPs, private nonprofit health insurers will offer coverage on and off of HIXs in the small-group market, which generally serves companies or organizations with fewer than 100 full-time employees, and in the individual market. CO-OPs are required to be ready for open enrollment beginning October 1, 2013 and start offering coverage in 2014.
  • Dual eligible managed care focus in states: the AARP Public Policy Institute surveyed officials in 50 states about efforts to manage costs for dual eligibles finding 34 moving toward integration of the two programs—Medicare and Medicaid and implementation of managed care models as a vehicle for cost containment and medical management. The “duals” are older, lower income adults eligible for both Medicare and Medicaid—10.4 million eligible for both programs and 7.4 million for full eligibility. (Source: AARP Public Policy Institute, “Two-Thirds of States Integrating Medicare and Medicaid Services for Dual Eligibles”, April 2013)

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Industry news 

Cuts to Medicare advantage plans set aside; Part D rates announced 

Monday, CMS announced Medicare Advantage (MA) plans will receive a +3.3 percent payment adjustment in fiscal year (FY) 2014 based on the assumption that Congress will override the SGR, resulting in a zero percent change for the 2014 physician fee schedule. Note: in 2012, 27 percent of Medicare beneficiaries were enrolled in MA plans.

CMS also modified the Part D (prescription drug benefit) parameters, finalizing the following for FY 2014:

  2012 2013
Standard Benefit
Deductible $320 $325
Initial Coverage Limit $2,930 $2,970
Out-of-Pocket Threshold $4,700 $4,750
Total Covered Part D Spending at Out-of-Pocket Threshold for Non- Applicable Beneficiaries $6,657.50 $6,733.75
Estimated Total Covered Part D Spending at Out-of-Pocket Threshold for Applicable Beneficiaries $6,730.39 $6,954.52
Minimum Cost-Sharing in Catastrophic Coverage Portion of the Benefit

Generic/Preferred Multi-Source Drug

$2.60 $2.62

Other

$6.50 $6.60
Full Subsidy-Full Benefit Dual Eligible (FBDE) Individuals
Deductible $0.00 $0.00
Copayments for Institutionalized Beneficiaries $0.00 $0.00
Copayments for Beneficiaries Receiving Home and Community-Based Services $0.00 $0.00
Maximum Copayments for Non-Institutionalized Beneficiaries

Up to or at 100% FPL

Up to Out-of-Pocket Threshold

$1.10 $1.15

Generic/Preferred Multi-Source Drug

$3.30 $3.50

Other

$0.00 $0.00

Over 100% FPL

Up to Out-of-Pocket Threshold

Generic/Preferred Multi-Source Drug

$2.60 $2.65

Other

$6.50 $6.60

Above Out-of-Pocket Threshold

$0.00 $0.00
Full Subsidy-Non-FBDE Individuals
Eligible for QMB/SLMB/QI, SS1 or applied and income at or below 135% FPL and resources ≤ $6,940 (individuals) or ≤ $10,410 (couples)

Deductible

$0.00 $0.00
Maximum Copayments up to Out-of-Pocket Threshold

Generic/Preferred Multi-Source Drug

$2.60 $2.65

Other

$6.50 $6.60
Maximum copayments above Out-of-Pocket Threshold $0.00 $0.00
Partial Subsidy
Applied and income below 150% FPL and resources below $11,570 (individuals) or $23,120 (couple)

Deductible

$65.00 $66.00

Coinsurance up to Out-of-Pocket Threshold

15% 15%
Maximum Copayments above Out-of-Pocket Threshold

Generic/Preferred Multi-Source Drug

$2.60 $2.65

Other

$6.50 $6.60
Retiree Drug Subsidy Amounts

Cost Threshold

$320 $325

Cost Limit

$6,500 $6,600

Sources: http://online.wsj.com/article/Medicare advantage
http://www.medpac.gov/documents/Mar13_entirereport.pdf
http://www.cms.gov/Medicare/HealthPlans/MedicareAdvtgSpecRateStats.pdf

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Medical testing labs see growth but margin erosion; Medicare cost-sharing accelerates sector pressure 

The U.S. medical testing industry is growing: it’s a $48 billion sector and growing rapidly. But it faces a challenge similar to the acute and long term care sectors: increased demand, but declining margins resulting from lower Medicare and Medicaid reimbursement. Compounding the issue, competition from newer channels—point of care testing that allow in-office testing, mail order genetic tests and routine lab work, and new cost sharing requirements for Medicare enrollees likely to increase bad debt and cause operational challenges.

My take: What’s ahead for labs? The possibilities include: 1) innovation in the scope of services offered; 2) alternative channels through which they’re commercialized and 3) continued consolidation as the industry sees thinner margins. As a key element in the supply chain sector, the sector will be exposed to market forces like transparency, consumerism, value-based design, etc. that require changes in the operating model, while also facing competition from new entrants with deep pockets from their non-traditional sponsors. Having been a frequent user of labs the past year, it’s also incumbent that operators seek a differentiated strategy by delivering a unique value proposition to customers—consumers, employers, hospitals and clinicians—lest they become commodities.

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Small business survey: ACA the major concern 

The U.S. Chamber of Commerce survey of 1,332 c-suite executives in companies with fewer than 500 employees conducted last month found:

  • “Requirements of the health care law are now the biggest concern for small businesses, having bumped economic uncertainty from the top spot which it has held for the last two years.”
  • 77 percent say the health care law will make coverage for their employees more expensive, and 71 percent say the law makes it harder for them to hire more employees.
  • 32 percent of small businesses plan to reduce hiring as a result of the employer mandate and 31 percent will cut back hours to reduce the number of full time employees.

(Source: Q1 U.S. Chamber of Commerce Small Business Outlook Survey conducted online March 14 – 26 by Harris Interactive. 1,332 Small Business Executives–defined as executive level position in a company with fewer than 500 employees and annual revenue less than $25 million–were surveyed)

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Generic drug makers challenge abuse deterrent requirements as anti-competitive 

According to the Generic Pharmaceutical Association (GPhA), requiring generic drug makers to adopt abuse deterrent properties of their branded counterparts "would effectively shield branded opioids from generic competition." GPhA cited lack of scientific evidence that abuse deterrent formulations prevent drug abuse.

(Source: InsideHealthPolicy, “Generic Drugmakers: Abuse Deterrent Requirements Are Anti- Competitive)

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IOM analysis: Medicare spending variation influenced largely by long-term care utilization 

Geographic variation in Medicare spending is strongly influenced by the utilization of post- acute care, especially home health and skilled nursing per the Institute of Medicine (IOM) report released last week. The March 28, 2013 report concluded that as much as 40 percent of Medicare spending variation is due to over-use/misuse of home care, skilled nursing and related long-term care services. This spending variation is higher than acute and physician services.

Note: for more information on geographic variation see April 1, 2013 Health Reform Monday Memo.

(Source: IOM, “Interim Report of the Committee on Geographic Variation in Health Care Spending and Promotion of High-Value Health Care: Preliminary Committee Observations,”  March 2013)

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India Supreme Court strikes down cancer drug patent 

Last Monday, India's Supreme Court denied Novartis patent protection for Glivec, a major cancer drug. Public health advocates were in support of the court’s decision citing concerns of the ability for developing countries to produce affordable generic drugs. The pharmaceutical industry opposed the ruling, arguing that it discourages future investment in innovative drug developments and recognition of intellectual property rights. Indian pharmaceutical company Cipia manufactures a generic version of the cancer drug for 10 percent of branded drugs original price according to reports.

Industry reaction: “PhRMA is very disappointed with the Indian Supreme Court’s decision to deny a patent on Glivec. This decision marks yet another example of the deteriorating innovation environment in India. Innovation is critical in meeting unmet needs of patients and is particularly relevant in the context of changing healthcare systems. In order to solve the real health challenges of India’s patients, it is critically important that India promote a policy environment that supports continued research and development of new medicines for the health of patients in India and worldwide. Protecting intellectual property is fundamental to the discovery of new medicines. The research-based pharmaceutical industry is committed to working closely with the Indian Government and other stakeholders to find appropriate solutions to this challenge.”—Pharmaceutical Research and Manufacturers of America (PhRMA), “PhRMA Statement on India Supreme Court Decision on Glivec,” April 1, 2013

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Study: dementia costs $215 billion 

RAND researchers concluded that 15 percent of the population older than 71, or 3.8 million people, have dementia, and estimate it will increase to 9.1 million by 2040. Direct costs were $109 billion for facility and professional services in 2010 vs. $102 billion for heart disease and $77 billion for cancer per the report. Indirect costs for caregiving services provided by family members or friends added $50-106 billion dependent on the method used to calculate the value of these services. Each case of dementia costs $41,000 to $56,000 per year.

(Source: M.D. Hurd, P. Martorell, A. Delavande, K.J. Mullen, and K.M. Langa “Monetary Costs of Dementia in the United States” New England Journal of Medicine April 4, 2013 Vol. 368 No. 14)

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Research snapshots 

New industry and peer-reviewed studies of note to health system transformers…

Mortality rates for Medicare beneficiaries in critical access hospitals higher than in non CAH settings 

Citation: Karen Joynt, “Mortality Rates for Medicare Beneficiaries Admitted to Critical Access and Non Critical Access Hospitals, 2002-2010”, Journal of American Medical Association, April 2013

Objective: “to evaluate trends in mortality for patients receiving care at critical access hospitals (CAHs) providing inpatient care to individuals living in rural communities, and compare these trends with those for patients receiving care at non-CAHs.”

Methods: “researcher conducted a retrospective observational study using Medicare fee-for- service (FFS) data for 1,902,586 patients with acute myocardial infarctions, 4,488,269 with congestive heart failure, and 3,891,074 patients with pneumonia admitted to acute care hospitals with between 2002 and 2010.”

Results: “accounting for differences in patient, hospital, and community characteristics, CAHs had mortality rates comparable with those of non-CAHs in 2002; 12.8 percent vs. 13.0 percent. Between 2002 and 2010, mortality rates increased 0.1 percent per year in CAHs but decreased 0.2 percent per year in non-CAHs, for an annual difference in change of 0.3 percent. Thus, by 2010, CAHs had higher mortality rates compared with non-CAHs (13.3 percent vs. 11.4 percent). The patterns were similar when each individual condition was examined separately. Comparing CAHs with other small, rural hospitals, similar patterns were found.”

Key Findings: “among Medicare beneficiaries with acute myocardial infarction, congestive heart failure, or pneumonia, 30-day mortality rates increased for those admitted to CAHs, compared with those admitted to other acute care hospitals.”

My take: given changes in the technologies necessary to promote the safest and most effective care, clinical innovations that require expensive infrastructure, massive investments in team- based care coordination, and declining reimbursements from Medicare, one might ask what the role of CAHs are in the acute system of care. No doubt, CAH is an important sector, especially in rural communities where jobs are important, but transformational change in the delivery system seems to suggest a re-thinking of the appropriate role of CAH.

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Coverage expansion for children and impact on pediatrician workload 

Citation: He, Fang, White, Chapin, “The Effect of the Children’s Health Insurance Program on Pediatricians’ Work Hours” Medicare & Medicaid Research Review 2013.

Objective: “study examines changes in physicians’ work hours in response to a coverage expansion.”

Methodology/data: “We use as a natural experiment the Children’s Health Insurance Program (CHIP)… The magnitude of the CHIP expansion varied across states and over time, allowing its effects to be identified using a state-year fixed effects model. We focus on pediatricians, and we measure their self-reported work hours using multiple waves (pre- and post-CHIP) of the physician survey component of the Community Tracking Study. To address endogeneity concerns, we instrument for CHIP enrollment using key program features (income eligibility cutoffs and waiting times).”

Key Finding: “We find a large negative relationship between the magnitude of a state's CHIP expansion and trends in pediatricians' work hours. This relationship could be due to key supply-side features of CHIP, including relatively low provider reimbursements and heavy use of managed care tools.”

My take: physicians adapt, especially pediatricians who are among the most skillful of the medical professions. They’ve been on the front line of adaptation because their clientele— parents, kids, public health programs, etc. necessitated it. They were first to propose the now-popular medical home model, first to encourage the use of electronic medical records (along with family medicine) and first to leverage nurses and health coaches in their practices— necessary to taking care of patients and parents after hours and in-between scheduled visits. The findings underscore the adaptive behavior of the profession. No surprise.

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Quotable 

“When you feel pressure to follow that path, use our research to make the case that by and large, companies don’t become truly great by reducing costs or assets; they earn their way to greatness. Exceptional companies often, even typically, accept higher costs as the price of excellence. In fact, many of them have developed quite a taste for spending and investment. These organizations put significant resources, over long periods of time, into creating nonprice value and generating higher revenue. Point out that when successful companies are led astray by the seeming certainties of short-run cost cutting or disinvestment, they are more likely to destroy what they most want to enhance.”

—Michael Raynor and Mumtaz Ahmed “Three Simple Rules for Making a Company Great” Harvard Business Review, April 2013.

“Fees in the private health care sector have been jealously guarded trade secrets among insurers and providers of health care. True, some health insurers now provide their insured members with “cost estimates,” by provider and by major procedure, of what the procedures rendered by a particular providers might cost patients out of pocket, but not full prices. I have found the site for that purpose on my insurance policy very difficult and cumbersome to navigate... It is truly remarkable that few state governments have made any effort to provide their residents with greater price transparency in health care, as well they could and should. A report on March 18, “Report Card on State Price Transparency Laws” by the Catalyst for Payment Reform and the Health Care Incentives Improvement Institute gives 29 states the failing grade of F on this score, including New York and New Jersey. Another 6 earned a D, barely passing. Only Massachusetts and New Hampshire earned an A. With so much carefully guarded and government-shielded opacity on health care prices, it should be no surprise that prices for health care vary as much as they do in the United States, even within small regions and for the same health insurer. It will not change until citizens make it an issue in political campaigns.”

—Uwe E. Reinhardt, “U.S. Health Care Prices Are the Elephant in the Room” New York Times Blog , March 29, 2013

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Fact file 

  • About prescription drugs…
    Spending by dispensing location (in billions)
      2007 2008 2009 2010 2011
    Total U.S. Prescription Market $281 $286 $301 $309 $320
    Retail Channels $199 $204 $215 $219 $227
        Chain Stores $96 $100 $105 $108 $113
        Mail Service $44 $47 $51 $52 $55
        Independent $38 $37 $37 $38 $38
    Food Stores $22 $20 $21 $21 $22
    Institutional Channels $81 $82 $86 $89 $93
        Clinics $33 $33 $35 $37 $38
        Non-Federal Hospitals $26 $27 $28 $28 $28
        Long-Term Care $13 $14 $14 $15 $15
        Federal Facilities $4 $4 $4 $4 $4
        Other $5 $5 $5 $6 $7
    Source: IMS Health, "The Use of Medicines in the United States: Review of 2011,” April 2012
  • Payment source for prescription drugs:
    Dispensing by payment type (in millions)
      2007 2008 2009 2010 2011
    Total U.S. Prescription Market $3,825 $3,866 $3,949 $3,993 $4,024
        Cash $415 $319 $305 $274 $258
        Medicaid $261 $273 $296 $337 $326
        Commercial Third-Party $2,444 $2,489 $2,530 $2,513 $2,547
        Medicare Part D $705 $785 $818 $870 $893
    Source: IMS Health, " The Use of Medicines in the United States: Review of 2011”, April 2012
  • Opinions about drugs: physicians and consumers
    Based on what you know, how much influence does each of the following have on overall health care system costs? Consumer response Physician response
    Prescription drugs
    Major Influence 48% 57%
    Minor Influence 30% 37%
    No Influence 9% 4%
    Not Sure 13% 1%
    New Technologies and equipment (e.g. medical technologies and electronic health record systems)
    Major Influence 36% 49%
    Minor Influence 36% 43%
    No Influence 11% 7%
    Not Sure 17% 1%
    Source: Deloitte Center for Health Solutions 2013 Survey of Physicians; 2012 Survey of Consumers
  • Physician perception of the value of drugs

    Physician perception of the value of drugs

    Source: Deloitte Center for Health Solutions 2013 Survey of Physicians
  • More about prescription drugs…
    • Retail pricing: average annual retail price increase for drugs used by Medicare enrollees 2005-2009: +4.8 percent vs. overall inflation -.3 percent (Source: Rx Price Watch Report, based on AARP Public Policy Institute analysis of 514 drugs commonly used by Medicare enrollees March 2012)
    • 2012 specialty pharma: impacting less than 2 percent of the general population accounted for 24.5 percent of the U.S. total drug costs (Source: FDA, HHS)
    • Prescription drug abuse: 3 percent of the population said they abused prescription drugs in the past month, an increase from 2.8 percent of the population in 2009. (Source: National Institute for Drug Abuse)
    • FDA approvals of New Molecular Entities: 18 in 2007, 24 in 2008, 26 in 2009, 21 in 2010, 30 in 2011, 39 in 2012. (Source: FDA)
    • Medication adherence: 75 percent of adults are non-adherent in one or more ways at an estimated to cost of $100 billion annually; average adherence rate (the degree to which patients correctly follow prescription instructions) for medicines taken only once daily is nearly 80 percent compared to about 50 percent for treatments taken 4 times a day. 50 percent of chronically ill patients) fail to adhere to, or comply with physician prescribed treatment regimens. (PhRMA) Non adherence is responsible for 23 percent of nursing home admissions (Cost $31.3 billion / 380,000 patients) and.10 percent of hospital admissions (Cost $15.2 billion / 3.5 million patients). (Source: Schering Report IX the Forgetful Patient: The High Cost of Improper Patient Compliance and the National Council for Patient Information and Education)
  • Employment report: overall job growth for March was 88,000 vs. 236,000 in February; health care job growth was 23,000 vs. 24,300 in February (ambulatory services 15,000; 8,000 hospitals); unemployment remained at 7.6 percent (Source: US Bureau of Labor Statistics Monthly Jobs Report released April 5, 2013)
  • Medical resident match day: 99.4 percent of the 29,171 medical residency slots were filled this year vs. 98.5 percent in 2012. Note: the NRMP's Main Residency Match is a two-part process: the NRMP aligns the rank order lists of applicants and residency program directors using an algorithm. “This year, only 1,041 positions were unfilled, and 939 were placed in the Match Week Supplemental Offer and Acceptance Program for unfilled residency positions.” (Source: National Residency Matching Program April 5, 2013)
  • Consumer spending on vitamins: $23 billion spent on vitamins, minerals and supplements in the past year; growing at an annual rate of 5-7 percent. (Sources: Consumer Health Products Association; Wall Street Journal, “With Top Lines Drooping, Firms Reach for Vitamins,” March 31, 2013)
  • Medicaid enrollee health status: 36 percent say they smoke (17 percent points above adult average); 26 percent say they had trouble paying for health care services within the past year; 34 percent are obese and 22 percent are being treated for depression and 24 percent for high blood pressure (Source: Gallup poll of 28,000 interviews between Jan. 3 and March 1, come with a 4 percent margin of error and Gallup Wellbeing, “Preventable Chronic Conditions Plague Medicaid Population,” April 4, 2013)
  • Public health funding: 29 states decreased their public health budgets from FY2011 to FY2012; per capita state spending on public health decreased from $33.71 to $27.40 between 2008- 2012 fiscal years—a $1.9 billion cut when inflation adjusted. (Source: Trust for America’s Health, “Investing in America’s Health: A State-by-State Look at Public Health Funding and Key Health Facts,” April 2013)
  • Medical technologies and physicians: seven in 10 physicians believe that physician-led, peer review of new medical technologies (covering both efficacy and value) followed by use of evidence-based guidelines (six in 10 physicians) are the leading best practices in the selection and purchase of medical technologies; six in 10 physicians rank doctors as being the personnel with the greatest influence on medical technology purchasing decisions currently and in the next three to five years. (Source: DCHS 2013 Survey of Physicians)

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Subscribe to the health care reform memo 

Health care reform memo — The weekly health care reform memo is available for subscription. Please visit www.deloitte.com/us /healthmemos/subscibe.

  • Step 1, confirm your sector(s) of interest.
  • Step 2, select the health care reform memo as one of your subscriptions.

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