This site uses cookies to provide you with a more responsive and personalized service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.

Bookmark Email Print this page

Health Care Reform Memo:
May 28, 2013

Deloitte Center for Health Solutions publication


DOWNLOAD  

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: Hospital M&A 

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

Three weeks ago, the Center for Medicare & Medicaid Services (CMS) released data about prices in 3,300 hospitals. The report garnered widespread media attention—understandable since the range in prices was so dramatic.

I started my health care career in high school working at Baroness Erlanger Hospital in Chattanooga—the hospital where I was born. Patients were directed to the lab or pharmacy by following colored tiles on the floors, and the physicians dined alongside the nurses in a functional cafeteria not widely considered fine dining by most.

In those days, there were 7,200 hospitals and the basic math assumed increased demand could be met by building four beds per 1,000 in the population. Margins were predictable: adjustments for Medicare, Medicaid, and the uninsured were not dramatic because prices related to actual costs and the need to price shift was less severe than today. And the hospital and its physicians got paid to do whatever the doctors thought best, based on their judgment and little else.

A lot has changed since 1965 when I started my health care journey. Today, there are 4,973 community hospitals, and most are part of multi-hospital systems. The clinical epicenter for hospital-based care has shifted from inpatient to outpatient. Science has introduced methods dependent on predictive models, nanotechnologies, proteomics, and sophisticated robotics to diagnose and treat. Hospital care is increasingly bifurcated to two patient populations: those requiring the most advanced life saving care teams as a result of accidents or major surgery, and those nearing death. The regulatory climate—punctuated by the Affordable Care Act (ACA)—has advanced bundled payments, avoidable readmissions, medical homes, and accountable care while patients that have insurance are fewer and pay less as a population to the hospital due to negotiated discounts.

According to Modern Healthcare, 569 hospitals changed hands between 2007 and 2012 (Modern Healthcare, January 28, 2013). And in every community, hospitals face a daunting challenge: how to maintain state-of-the-art technology to be clinically competitive; build shared risk operating models with physicians; satisfy the regulatory requirements for compliance with best practices; provide public data about prices, safety, and quality; absorb higher costs for drugs and devices; manage employee expectations even as operating procedures require change; and interact with health insurance plans that want hospitals to share risk in accountable care models.

Not surprisingly, consolidation in the acute sector is proceeding at a fast pace. “Going big or getting out” is a C-suite discussion in many management teams, and the focus of hospital boards.

Today we are releasing a report about 101 transactions in 2007 and 2008 in communities where a hospital was acquired by or merged with another (Hospital Consolidation: Analysis of Acute Sector M&A Activity, Deloitte Center for Health Solutions). In some, the transaction involved acquisition by an investor-owned system; in others, acquisition or merger with another local organization. We sought to understand how, three years after these deals, the financial performance of the acquired hospital changed versus comparative performance in peer groups of hospitals. Not surprisingly, circumstances vary widely, and likewise the financial results. But one thing is clear: consolidation in the sector is likely to continue for the foreseeable future—that should be no surprise: our economy is increasingly dependent on consolidated entities that manage challenging market conditions with scale. Consider:

Four airline companies will likely fly 85 percent of passenger miles in U.S. this fall (Federal Aviation Administration), and 6 percent of banks account for 85 percent of total industry assets (Federal Deposit Insurance Corporation, 2012). In every corner of our economy, a few large companies play a major role in their industries. Relative to other industries that are technologically dependent (i.e., finance, information technology, transportation, defense contracting), the health care industry remains largely fragmented, and as a result, scalable efficiency and innovation is sub-optimized.

Erlanger was a formative experience for me. More than anything, I am reminded that hospitals are the only sector in health care required by law to provide services to patients without regard to their ability to pay. Other sectors do so voluntarily, but only hospitals face that as a legal reality. And the services are significant among the 129.8 million who use the hospital emergency rooms (ERs) annually and the 17.23 million who are admitted (Source: National Hospital Ambulatory Medical Care Survey: 2010).

So while the wide variance in hospital prices is astonishing, and the lack of apparent relationship between hospital actual costs, prices, and outcomes is problematic, it’s important to remember the special role hospitals play in our communities, and in our system of care.

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

PS – To access Hospital Consolidation: Analysis of Acute Sector M&A Activity, the report released today by the Deloitte Center for Health Solutions which analyzes 101 hospital transactions in 2007-2008 pre- and post-merger, please click here.

return to top

Implementation 

CMS: states to receive additional funding for Medicaid expansion 

Last week, CMS issued guidance on the enhanced Federal Financial Participation (FFP) program that funds up to 75 percent of operational costs for enrollment and eligibility IT systems and associated operational costs.

Background: “under the Medicaid program, CMS has provided 90 percent federal matching funds for the design and development of new or improved Medicaid eligibility determination systems that states are developing to accommodate the new ACA modified adjusted gross income (MAGI) rules and to coordinate coverage with the Marketplaces. States may also receive 75 percent federal match for maintenance and operations.” (Source: Medicaid.gov, “Affordable Care Act: State Resources FAQ,” April 25, 2013)

return to top

States drop ACA duals program 

Of the 26 states that applied to participate in the CMS Financial Alignment Initiative per ACA, six (TN, NM, AZ, OR, MN, WI) have dropped out or opted for different “customized” plans and nine (WA, MA, CA, NY, IA, MI, HI, MO, VT) have delayed their start dates. 

(Source: Modern Healthcare, “States delaying, dropping controversial dual-eligible pilot program,” May 23, 2013)

return to top

Hobby Lobby challenge to ACA heard in federal court 

Thursday, the U.S. 10th Circuit Court of Appeals in Denver heard the Oklahoma-based company’s argument to be exempted from the ACA provision that requires certain employers to include contraception services in employee health insurance benefit packages, which includes the morning after pill (Hobby Lobby Stores, Inc. v. Sebelius). The company’s lawyers argued that emergency contraception coverage is the same as abortion because it prevents the fertilized egg from implanting in the womb. The lawyers also argued against coverage for intrauterine devices on the same premise. The Department of Justice argued that, by allowing for-profit companies to exempt themselves from requirements that go against their religious beliefs, it would be permission for corporations to impose religious beliefs on employees. A penalty will be assessed by July 1, 2013 if the company does not comply. To date, more than 30 companies have filed similar challenges on religious grounds.

Background: last year, the U.S. Supreme Court denied Hobby Lobby’s appeal to review the 10th Circuit District Court decision. Post-decision, the company announced it will not cover contraceptive services for employees. The 10th Circuit District Court denied Hobby Lobby’s request for an injunction to prevent the company from having to comply with the ACA requirement that certain employers must provide contraceptive services as part of their health coverage. Certain businesses and religious organizations are exempt from the ACA requirement, but the exemption does not apply to for-profit businesses.

return to top

Legislative update 

HHS: 50 percent of eligible physicians, 80 percent of hospitals have adopted EHRs 

Last week, the U.S. Department of Health and Human Services (HHS) announced it has exceeded its 2013 goal for electronic health record (EHR) adoption by eligible providers and hospitals. As of April 30, 2013:

Active registrations Payments
  April 2013 Program to date Unique providers paid to date 2013 program year Unique providers paid to date
Medicare eligible professionals 2,079 263,446 0 191,305
Medicaid eligible professionals 2,366 127,023 1,625 88,903
Hospitals 38 4,371 252 3,880
Total 4,483 394,840 1,877 295,205*

*Includes Medicare Advantage (MA) organizations for eligible professionals (n=11,117)
Source: HHS

return to top

Think tanks propose Medicare enrollees share in savings 

In recent weeks, two reputable think tanks—Brookings’ Engelberg Center for Health Care Reform led by former CMS Commissioner Mark McClellan, and the Bipartisan Policy Center led by former Senate Majority Leader Tom Daschle and former Congressional Budget Office (CBO) Director Alice Rivlin—have issued position papers recommending Medicare allow seniors to participate in “Medicare comprehensive care networks” and share in savings. Notably, the two organizations recommend that MA (Part C) plans bid for coverage in each area, replacement of the sustainable growth rate (SGR) pay formula, elimination of MediGap first dollar coverage, ending the employer tax exemption for benefits coverage, sharing Medicare savings with states, and greater clarity in anti-trust laws to facilitate increased consolidation.

return to top

State fraud units can use federal funds for Medicaid data mining 

On May 16, the HHS Office of Inspector General (OIG) issued a final rule authorizing states to use Medicaid federal matching funds to analyze Medicaid claims data for the purpose of fraud detection under specified circumstances. “Starting in June, state Medicaid fraud control units (MFCUs) [typically under state Attorneys General] can use federal funding for Medicaid data mining, which should offer states analytic tools at the same time that Medicaid is being expanded in more than 20 states.”

Per the final rule, three requirements must be met: “MFCUs and state Medicaid agencies must ‘fully coordinate the MFCUs’ use of data mining and the identification of possible provider fraud’; MFCUs must also confirm their results with state Medicaid agencies and check to make sure any evidence of improper billing or fraud isn’t related to policy changes in reimbursement or documentation that weren’t taken into account; and MFCU staff have to be trained in data and statistical analysis and state Medicaid policy.” (Source: Government HealthIT, “OIG Lets State Medicaid Fraud Units Use Federal Funds for Analytics,” May 20, 2013)

My take: scrutiny of fraud by regulators is likely to increase as agencies employ sophisticated analytic tools to identify violators. The major transition will be from “pay and chase” to “profile, prove, and prosecute” using data. Organizations across the entire spectrum of health care financing and delivery will be on the radar.

return to top

SGR status 

A fix to the SGR physician pay formula is getting legislative attention. When the CBO lowered its cost estimate from $245 billion to $138.3 billion in February 2013 (now estimated to cost $139 billion), a number of proposals were released on how to repeal and replace the SGR. Each has included two features: a transition from fee-for-service (FFS) to performance-based payments for all physicians, and higher rates for evaluation and management (E/M) services usually provided by primary care clinicians accompanied by lowering payments to specialists (E/M accounted for 30.4 percent of Part B spending in 2010 per HHS OIG). In a Senate Finance Committee hearing May 14, physician representatives asked for five years to make the transition from FFS to performance; other witnesses encouraged a faster transition arguing that FFS payments contribute to excessive costs and unnecessary care.

Note: the House Energy and Commerce Committee will hold a recess-meeting on the SGR fix today at 11:00 a.m.

My take: a fix to the SGR is long overdue, but to the chagrin of many physicians, its replacement signals a shift in payments from FFS to performance, wherein a physician’s clinical competence will be in full view.

return to top

Lawmakers propose alternative for calculating medical practice cost differences 

A bipartisan group of 21 House members is asking CMS to change the way it calculates the geographic pricing cost index (GPCI) for physicians. At issue: the source of data used to calculate GPCI. (Source: Health Policy News State, “Inside CMS May 23, 2013”)

Background: GPCI and Relative Value Units (RVUs) are used to determine allowable payments for medical procedures. GPCIs include Cost of Living, Malpractice, and Practice Cost/Expense, categories that allow Medicare to adjust reimbursement rates to take into account factors related to region and practice. The lawmakers suggested use of data from the Medical Group Management Association (MGMA) or an alternative to the GCPI methodology, which they believe is flawed because costs for office staff, rent, and other overhead is not accurate in the GCPI model. The lawmakers requested that the spread between the biggest increase in payments and the biggest decrease be reduced by 10 percent each year for the next four years until the spread from highest to lowest is 60 percent of where it currently stands. 

return to top

Legislation to allow FDA to access user fees explored 

Representative Sam Farr (D-CA), ranking member of the House Food and Drug Administration (FDA) appropriations subcommittee, is trying to produce a bill that would let the FDA access the $85 million in user fees collected from drug companies in a way that would not subject the funds to automatic budget cuts (the Budget Control Act of 2011 “Sequestration”). The funds are currently sitting in the Department of Treasury and can’t be touched. For the FDA to access the user fees, cuts would have to be made elsewhere in the agency’s budget to keep it under caps set by the Budget Control Act. (Source: Inside Health Policy, “Key Democrat Seeks to Offset Cost of Freeing Sequestered FDA User Fees,” May 24, 2013)

return to top

Compounding pharmacy, track and trace legislation advance in Senate 

Last week, the Senate Committee on Health, Education, Labor & Pensions (HELP) voted to combine two pieces of legislation: the Drug Supply Chain Security Act (S. 957) introduced by Senator Michael Bennet (D-CO), and the Pharmaceutical Compounding Quality and Accountability Act (S 959) introduced by Senator Tom Harkin (D-IA). A vote on the combined legislation is expected in June.

Background: the track and trace legislation would establish a system that would eventually be able to trace drug distribution to the “unit level”—individual bottle of pills or vial of drug dispensed. The Pharmaceutical Compounding Quality and Accountability Act would allow the FDA to regulate certain compounding drug manufacturers, which is currently outside the purview of the FDA’s authority. For more information about the Senate track and trace bill, see the May 20 issue of the Monday Memo on Health Care Reform.

return to top

Senator proposes blocking ICD-10 implementation 

On May 16, 2013 Senator Tom Coburn (R-OK), a physician, introduced the Cutting Costly Codes Act of 2013, proposing that HHS be prohibited from replacing ICD-9 with ICD-10 by October 1, 2014. Co-sponsors in the Senate include optometrist John Boozman (R-AR), John Barrasso (R-WY), and Rand Paul (R-KY). The same bill was introduced in the House of Representatives last month by Representative Ted Poe (R-TX).

“Senator Coburn cited a 2008 report funded by the American Medical Association, MGMA-ACMPE, and others that concluded that the cost of implementing ICD-10 could be as high as $83,000 for a three-physician practice and as much as $2.7 million for a large practice with 100 doctors.” (Source: Modern Healthcare, “Lawmakers’ bills keep spotlight on ICD-10 debate,” May 20, 2013)

Background: ICD-10 is the 10th revision of the International Statistical Classification of Diseases and Related Health Problems (ICD), a classification system authorized by the World Health Organization (WHO) that allows consistency in describing diseases, signs and symptoms, risk factors, and co-morbidities across multiple countries. October 1, 2014, the ICD-9 code sets used to report medical diagnoses and inpatient procedures will be replaced by ICD-10 code sets for everyone covered by the Health Insurance Portability and Accountability Act (HIPAA). The change does not affect Current Procedural Terminology (CPT) coding for outpatient procedures and physician services. The ICD-10 code sets are in two categories: ICD-10-CM codes with digits increasing from three- to five-digit numbers to three- to seven-digit numbers, and ICD-10-PCS (for inpatient hospitals) that replaces ICD-9’s four numeric digits with seven alphanumeric characters.

The code set allows more than 14,400 different codes and permits the tracking of many new diagnoses. The codes can be expanded to over 16,000 codes by using optional sub-classifications. The detail reported by ICD can be further increased, with a simplified multi-axial approach, by using codes meant to be reported in a separate data field.

Work on ICD-10 began in 1983 and was completed in 1992.

return to top

Health care-related legislation introduced last week 

  • Representative Jackie Speier (D-CA) introduced legislation (H.R. 2058) proposing to improve outcomes in children diagnosed with cancer through research.
  • Representative Kevin Brady (R-TX) introduced legislation (H.R. 2053) proposing to apply budget neutrality on a state-specific basis when calculating the Medicare hospital wage index floor for non-rural areas.
  • Representative Phil Roe (R-TN) introduced legislation (H.R. 2055) proposing to award a prize and contract for the development of a fully-integrated EHR program for use by the U.S. Department of Defense and the U.S. Department of Veterans Affairs (VA).
  • Senator Brian Schatz (D-HI) introduced legislation (S. 989) proposing to eliminate the prerequisite of direct appropriations relating to collecting health data and to modify standards for measuring sexual orientation and gender identity.
  • Representative Kevin Brady (R-TX) introduced legislation (H.R. 2073) proposing to establish an interagency coordinating committee on pulmonary hypertension.
  • Representative Gus Bilirakis (R-FL) introduced legislation (H.R. 2063) proposing to improve health care services provided to veterans of World War II at VA facilities.
  • Senator Al Franken (D-MN) introduced legislation (S. 998) proposing to establish a Home Care Consumer Bill of Rights and to establish State Home Care Ombudsman Programs.

return to top

State update 

State round-up: HIX 

Seventeen 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—five led by Democratic governors and two led by Republicans—will participate in state-partnership exchanges. The remaining 26 states will default to a federally-facilitated exchange.

State-based exchange State- partnership exchange 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, NH, MI, WV AK, AL, AZ, FL, GA, IN, LA, KS, ME, MO, MS, MT, NC, ND, NE, NJ, OH, OK, PA, SC, SD, TN, TX, VA, WI, WY

Democratic Governor Republican Governor Independent Governor

*Utah’s individual market will be a federally-facilitated Exchange; small business health option program (SHOP) will be a state-based
Source: HHS

  • Last week, Colorado and California posted health insurance issuers’ proposed premium rates for health insurance exchange (HIX) plans. Before rates are finalized, each state will conduct reviews to ensure ACA requirements are being met.
    • In Colorado, 11 health insurance issuers operating 250 plans are seeking to operate on its state-based exchange. (Source: Kaiser Health News)
    • In California, 13 health insurance issuers are expected to offer plans on its state-based exchange. Last week, the state issued an 86-page report listing the 13 health plans’ benefits, in-network providers, geographic regions, etc. Note: initially, 33 issuers applied, but all but 13 have since opted out for a variety of reasons.
  • New Mexico and Idaho are asking the federal government to help with the implementation and operation of their state-based exchanges through 2014. Specifically, both states requested assistance with operationalizing their computer systems in time for open enrollment. CMS has indicated that the agency will help with implementation and operation, but still considers both exchanges to be state-based.

return to top

Medicaid expansion update 

To date, 27 states and D.C. have said they will or are in support of expanding their Medicaid programs; 20 states have indicated they are unlikely to expand their programs in 2014:

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

Democratic Governor Republican Governor Independent Governor

Sources: NASHP, PoliticoPro, Kaiser Family Foundation. Updated May 27, 2013.

  • On average, 62 percent of residents in Alabama, Georgia, Louisiana, Mississippi, and South Carolina are in favor of expansion. (Source: Kaiser Health News)
  • Last week, Maine Governor Paul LePage (R) vetoed a Senate bill linking the state’s repayment of $484 million owed to 39 hospitals in the state to Medicaid expansion. The Governor stated the debt repayment and the Medicaid expansion are separate issues and indicated his administration is negotiating with CMS about the expansion.
  • Last week, Iowa Governor Terry Branstad (R) announced an agreement with state legislators to expand the Medicaid program: the state will expand traditional Medicaid for residents earning up to 100 percent of the federal poverty level (FPL) and seek approval to provide premium assistance to residents between 101 percent and 133 percent of the FPL to purchase health insurance on the state-partnership exchange.

return to top

State round-up 

  • Last week, Virginia and CMS announced that they will collaborate on a new demonstration project for 78,600 dual eligible (individuals eligible for both Medicare and Medicaid).
  • Last week, thousands of hospital workers in California went on strike. The issue: union concerns with staffing levels, pension changes, and patient safety. The union represents 13,000 workers.
  • Minnesota lawmakers “agreed to create a bridge to the federal BHP [Basic Health Plan] by extending its MinnesotaCare, a program covering low-income adults…The feds already provides a 50 percent match for MinnesotaCare.” Minnesota Department of Human Services Commissioner Lucinda Jesson told reporters MinnesotaCare affords the state better continuity of affordable coverage for low-income individuals who still earn too much to qualify for Medicaid. (Source: PoliticoPro, “Minnesota Forging Ahead on BHP,” May 23, 2013)

return to top

Industry news 

Insurers announce exchange participation on state-by-state basis 

Since last month, several major public insurers have told investors they will participate in state exchanges on a selective basis: Aetna (April 30) will participate in 14 and a “small handful” of SHOP exchanges, Humana (May 1) in 14 states where it has significant network strength. Previously, United announced plans to proceed selectively as well. Note: these announcements were on the heels of the May 3 deadline for plans to submit applications to CMS for participation in exchanges.

return to top

@Regulatory update: The cloud in life sciences—a regulatory perspective 

Note: @Regulatory is a feature in the Monday Memo, providing the latest regulatory, legislative, and other public policy developments affecting life sciences and health care organizations. To access the @Regulatory newsletter, visit the website here.
Cloud computing technology has revolutionized the way information and supporting systems are being architected, implemented, and deployed. In this issue of @Regulatory, some of the regulatory risks and challenges facing the life sciences industry, how to apply a risk-based approach to help mitigate these risks when implementing a secure cloud environment, and what to consider when moving towards a GxP cloud solution are discussed.

return to top

New coalition promoting medication adherence 

A group of primary care providers, drug companies, and patient advocates has launched an advocacy campaign around medication adherence on the heels of a CBO analysis that showed Medicare enrollee costs are lower when seniors take their medications as directed. The new coalition hopes to expand the role of pharmacists and primary care physicians in medical home and accountable care models and provide incentives for Part D prescription drug plans to invest in medication adherence programs for seniors.

Related: According to the CBO, “patients' willingness or ability to stick to prescription regimens could reduce Medicare spending on medical services by 0.5 percent for every 1 percent increase in prescriptions that seniors take to the pharmacy and fill.” (Source: Modern Healthcare, “Clinicians often poor at predicting medication adherence,” May 21, 2013) The New England Healthcare Institute estimates $290 billion in annual costs could be saved for unnecessary hospitalization and doctor visits resulting from medication non-adherence. A variety of new technologies are being tested to enhance medication adherence: Proteus Digital Health’s digestible sensors in medications to track metabolism of drug; Mango Health’s mobile application to allow adherent drug users to get points toward merchandise; RxAnte—a drug analytics platform that predicts non-adherent patients; and AdhereTec—an automated sensor bottle, among others.

My take: more than half of the U.S. adult population uses prescription medications, but fewer than one in three take medications as directed. Medication non-adherence can be willful (the result of a personal decision to not take the medication as directed, or in some cases the result of costs), or unwillful (due to forgetfulness or inability to get prescriptions filled). It’s even more difficult when patients are taking multiple medications, or when the recommendation is for a protracted period of weeks or longer. The opportunity to enhance adherence is huge and the stakes are high.

return to top

HIT oversight challenging to medical device manufacturers 

Medical device manufacturers are working with the Office of the National Coordinator for Health Information Technology (ONC) and the FDA to assure that the anticipated recommendations from the FDA’s Safety and Innovation Act’s work group don’t stifle innovation in device manufacturing due to cumbersome IT data capture, technology, and reporting requirements.

return to top

American Benefits Council seeks clarity on ACA employer reporting requirement 

Sections 6055 and 6056 of the ACA require that insurance issuers—government, employers, insurance companies—that sponsor self-insured plans report data to the Internal Revenue Service (IRS) every January starting January 1, 2015. Employers must start capturing the data January 1, 2014 to report. The American Benefits Council is asking the IRS to provide clarity about the reporting requirements in ACA that employers inform their employees about coverage options on HIXs by October 1, 2013. New employees must be informed of HIX coverage within 14 days of hiring.

return to top

Certified medical home experts recognized by NCQA 

Physicians, nurses, social workers, psychologists, administrators, consultants, and naturopaths were among the first 112 who passed the National Committee for Quality Assurance (NCQA) exam as Certified Patient-Centered Medical Home content experts. The NCQA medical home program was started in 2008. It has certified 5,600 practices as successful in implementing the medical homes. NCQA launched the medical home content expert program in January 2013. Participants needed to attend two seminars and pass an exam to become certified. The graduates were from 29 states: 52% had ten or more years’ experience with health care quality or NCQA recognition and accreditation programs, 50% had master's degrees or higher, and 14% had a Ph.D. or a medical or law degree. (Source: Modern Physician, “Varied group of 112 completes NCQA’s training as medical home experts,” May 24, 2013)

My take: patient-centered medical homes, accountable care organizations, and episode-based payments have one key element in common: they revolve around the effectiveness of physicians, nurses, and health professionals in managing care together, sharing risk for clinical and financial results. While the term “medical home” can be confusing, the fundamental notion that primary care providers, including pharmacists, are foundational to improving health and reducing costs is undisputable.

return to top

Psychiatric manual controversial  

The 5th edition of the American Psychiatric Associations Diagnostic and Statistical Manual of Mental Disorders (DSM-5) is the first update in 13 years and covers 160 disorders. It is drawing critics from all sides: some say it left too many medical problems out (e.g., Asperger’s Syndrome, sexual addiction, and others), that it is not significantly different from DSM-4. In a recent blog, National Institute of Mental Health (NIMH) Director Tom Insel called the DSM-5 “a dictionary, creating a set of labels and defining each…Patients with mental disorders deserve better…Mental disorders are biological disorders involving brain circuits...” Wall Street Journal writer Shirley Wang summarized the debate well on May 18, 2013: “The marked disagreement over the DSM revision underscores the broader challenge in mental health: how to develop better ways to diagnose and treat conditions that are based on subjective symptoms with relatively limited tools and insight into the abnormalities in the brain.” 

My take: the demand for mental health services is significant and growing. Stress, mood, and addictive behaviors are more prevalent in our society than most medical problems. But the industry’s effectiveness to accommodate demand has been thwarted not by funding, but by self-inflicted confusion. Turf battles between therapists and counselors and psychiatrists have waged for years. And stigma attached to mental health disorders is still real, encouraging employers to assure that “Employee Assistance Programs” operate at arms-length to protect patient confidentiality. The need is for better coordinated mental health services mainstreamed with traditional physical medicine. But the providers must first look to themselves to substantially reduce the confusion and present a solid value proposition sure to be welcomed in our fast-paced society.

return to top

Actavis to acquire Warner Chilcott in $8.5 billion transaction 

Last Tuesday, Actavis agreed to purchase Warner Chilcott PLC in a stock-for-stock transaction valued at approximately $8.5 billion, telling investors the combination would accelerate global growth efforts in Russia and China and broaden its clinical offerings in new therapeutic classes. The deal is targeted to close at the end of the year, with combined revenues of $11 billion which would make it the third largest U.S. pharmaceutical company.

return to top

Quotable 

“Employers are increasingly recognizing they may be able to avoid certain penalties under the federal health law by offering very limited plans that can lack key benefits such as hospital coverage. Benefits advisors and insurance brokers—bucking a commonly held expectation that the law would broadly enrich benefits—are pitching these low-benefit plans around the country. They cover minimal requirements such as preventive services, but often very little more.”

—Christopher Weaver and Anna Wilde Mathews, The Wall Street Journal, “Employers Eye Bare-Bones Health Plans Under New Law,” May 20, 2013

“PCORI already begins its work with one arm tied behind its back. The law creating the agency stipulated that none of its findings could be used to determine Medicare payment policy. They can be considered along with other evidence. And then there is the law’s requirement for stakeholder boards to set PCORI research priorities. They must include representatives of researchers, clinicians, patients, providers, insurers, employers, and industry. The interests of these groups are not the same. Priority setting by stakeholder boards could turn into a prescription for steering clear of the most controversial, and therefore most significant questions….There is no shortage of drug ad device firms, specialty hospitals and medical specialty societies with a vested interest in leaving certain questions unasked or muddying waters with methodological quibbles. They shouldn’t be allowed to hijack or soften the agenda."

—Merrill Goozner, Modern Healthcare, “PCORI in the Hot Seat,” April 27, 2013

return to top

Fact file 

  • Hospital landscape: (Source: AHA Facts, 2013)
Total number of all U.S. registered hospitals 5,724 100 percent
Number of U.S. community hospitals 4,973
86.88 %
Number of nongovernmental not-for-profit community hospitals 2,903 58.38 %
Number of investor- owned (for profit) community hospitals 1,025
20.61 %
Number of state and local government community hospitals 1,045
21.01 %
Number of federal government hospitals 208 3.63 %
Number of nonfederal psychiatric hospitals 421 7.35 %
Number of nonfederal long-term care hospitals 112 1.96 %
Number of hospital units of institutions (prison hospitals, college infirmaries, etc.) 10 0.17 %
Total expenses for all U.S. registered hospitals $773,546,800,000 -
  • Share of spending on hospital care by various factors: 2006-2010: (Source: AHA, 2012)
    Factors    Percent of spending Key Components Percent
    Costs of goods and services purchased 63.1 % Wages & salaries/ employee benefits 35 %
    Prescription drugs 7 %
    Professional fees 5 %
    All other 17 %
    Change in number of services provided 29 % Population growth 7 %
    Use rates 22 %
    Intensity and other 8 %    
    Total 100 %    
  • System affiliated hospitals: 2,930 in 2012 vs. 2,535 in 2007. (Source: AHA)
  • Percentage of hospitals offering “non- hospital” services 2000-2010: (Source: AHA, “Trends in Hospital Financing,” 2010)

  • Hospital prices: unadjusted inpatient hospital prices per admission grew by 8.2 percent per year from 2008 to 2010 for the commercially insured population (under age 65 years) due to increased intensity per admission; intensity-adjusted price increases ranged from 6.2 percent to 6.8 percent annually in the 2008-2010 period and varied considerably across admission types, states, and localities. (Source: MarketScan)
  • Hospital employee health status: though hospital employees are two years younger than the general workforce, they are sicker and more costly: 41 percent are at risk/struggling or in crisis vs. 30 percent in the general workforce; diagnosis rates are higher for asthma (45.3 percent vs. 40.3 percent), depression (62.3 percent vs. 51.8 percent), and overweight (16.4 percent vs. 11.2 percent); and annual health costs of $5,828 are 9 percent higher than average workforce. (Source: Truven Health MarketScan 2012)
  • Employer sponsored coverage: in 2011, of employers with 50 or fewer employees, 57 percent offered health insurance coverage; of employers with 51 to 100 employees, 92 percent offered health insurance coverage; and of employers with more than 100 employees, 97 percent offered health insurance coverage. (Source: 2011 Employer Benefits Survey, Kaiser Family Foundation)
  • End of life costs for Medicare: Medicare spends 22.3 percent of its total hospital expenditures on 6.6 percent of seniors (1.6 million) who died within one year. (Source: CMS)
  • Millenials frugal: affluent Millenials—18- to 34-year olds with assets between $50K and $250K—have $55K saved (Source: Merrill Edge); half expect to rely on public funding in retirement, down from 63 percent in 2011; of workers 21-29 years of age eligible for 401K plans, 91 percent participate if they earn more than $50K/year and 70 percent below $50K. (Source: Prudential)
  • Employee shared responsibility penalty: if an employer health plan costs an employee more than 9.5 percent of his/her MAGI (wages), the employer is penalized $3,000 if the employee receives a federal subsidy to purchases coverage through the exchange. Currently, 1 percent of employees would pay more than 9.5 percent. (Source: ADP)
  • Increase in primary care providers in Medicare 2009-2011: advanced practice nursing/physician assistants: 20,615; non-primary care specialties: 15,575; primary care specialties: 8,229. (Source: MedPAC Report to Congress, March 2013)
  • Retail clinics: 1,425 operating in 2013 vs. 1,200 in 2010 and 89 in 2005. (Source: Convenient Care Association)
  • Seniors health spending: 27 percent of a senior’s Social Security check was spent on physicians and drugs in 2011. (Source: Rosemary Gibson, “Medicare Meltdown”)
  • CAHs and HIT: of the 1,328 critical access hospitals (CAHs) in the U.S., 37 percent have achieved Stage One Meaningful Use vs. 54 percent of non-CAHs. (Source: ONC Report, February 28, 2013)
  • HIT global market expansion: the global HIT applications market will grow at a compound rate of 7 percent annually through 2017, from $40.4 billion in 2012 to $56.7 billion by 2017. (Source: Research and Markets)

return to top

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.

return to top

Related links

Share this page

Email this Send to LinkedIn Send to Facebook Tweet this More sharing options

Stay connected