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Deloitte Center for Health Solutions
April 29, 2013
Monday memo
Health reform update
This week’s headlines: My take
Implementation update - CMS announces outreach timeline for HIXs - Democratic Senators voice concerns about ACA implementation - Insurers indicate interest in federal exchange participation - Biologics and biosimilars in the ACA - PCORI plans national CER network - CMS will use real-time data to evaluate ACO program - New Part D, DSH regulations expected - Additional 2,000 IRS employees needed for ACA implementation - CMS releases measures and evaluation process for acute and LTCHs - Senator questions Massachusetts waiver for insurance rating requirements - Vote on bill to fund PCIP postponed
Legislative update
- Security and privacy audit results reported; many problems unknown to organizations who are unaware of regulations
- Medicare DME competitive bidding program gets attention - CMS proposes bigger rewards for Medicare fraud tips, denial of providers for
violations - FDA sequester cuts compromise food safety - Fake medicine focus of FDA effort - National drug strategy: continue pain pill addiction efforts, refocus on heroin - Health care-related legislation introduced last week
State update
- State round-up: HIX
- Medicaid expansion update
- State round-up
Industry news - Supreme Court hears oral arguments on patenting genes - Myriad Genetics court ruling puts spotlight on patents - Biotech manufacturers cautious about biosimilar drug market entry - Naming for biosimilars point of tension - Study: declines in U.S. biomedical and health R&D funding threaten global
competition - Autism risk diagnostic test
Quotable
Fact file: spotlight on drugs
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My take
From Paul Keckley, Executive Director, Deloitte Center for Health Solutions
In every organization, managing change is necessary to survival. The same is true for
every sector in health care. Ours is an industry that’s highly regulated, capital dependent,
and labor intensive. Our forces of change are five: they’re formidable…
Clinical innovation…new technologies, new medicines, new methods of treatment,
new models of delivery, and new ways of organizing care teams. To stay in the
game, the standard of care must be evidence-based, deploying the latest tools for
diagnosing and treating medical problems, even before they’re known.
Regulatory scrutiny…new rules, new rule makers, new agencies with new
authority, increased compliance risk, and complexities in navigating between
countries in a global market. The Affordable Care Act (ACA) is one of many laws
that keep the industry on its toes.
Competitive threats…direct competition from incumbents in each sector are
formidable, and innovators in adjacent sectors are forcing incumbents to consider
new value propositions and new ways of engagement.
Consumer demand…new and different expectations of quality, service, and
affordability; expanding role as payer; new ways of defining “health”—including
alternative treatments; and insatiable appetite for data (transparency). They’re
neither patient not patients: they’re consumers at home and abroad!
Economic realities…and all four above must be framed in the context of costs
constraints that threaten margins, drive consolidation, and reward efficiency and
scale.
Each sector of our system faces these: perhaps none more directly than drug
manufacturers.
Encounters with prescription drugs are the most frequent interaction individuals have with
their health system in most countries, including the U.S.—more than visits, tests,
hospitalization, or any other. Medication use is simply a way of life. Last year, almost four
billion prescriptions were written in the U.S.; the majority of American adults have one or
more prescriptions!
Drug manufacturers can rightly claim the major role they’ve played in improving the lives
of whole populations. At home, since 1950, average life expectancy increased from 68.2
to 78.7—largely the result of access to prescription drugs that save lives, help people
manage their medical problem, or in some cases, reverse a condition. Abroad, access to
medications to treat widespread illnesses like malaria and HIV/AIDS are universally
accepted solutions to health problems.
However, it’s an industry in turmoil: patent losses for its blockbusters has slowed revenue
growth for many. The promise of precision medicine vis-à-vis biologics is threatened by
funding cuts that might slow access to promising drugs or curtail basic research funded by
the National Institutes of Health (NIH).
At Vanderbilt, I taught business and medical students about “evidence-based medicine”—
how to assess the limitations and usefulness of Randomized Control Trials (RCTs),
observational studies, and expert opinion. The glossary of terms in that class would bore
even the most saintly in our ranks…“parallel and crossover RCTs, adaptive randomization
(covariate, response adaptive), dichotomous and logistic regression, Kaplan-Meier
estimators, Cox Proportional Hazard Models, specificity ratios, numbers needed to treat
and numbers needed to harm,” and so on. I majored in organic chemistry as an
undergrad, so the notion of large and small molecules still intrigues me, but with 80 new
randomized trials published daily, and new statistical methods for examining clinical data,
I’d be lost today. And practically speaking, with 340 new medicines approved in the U.S.
in the past decade, including 35 just last year, it’s a daily grind to stay current even for
those with time to study each study or U.S. Food and Drug Administration (FDA)
determination.
The drug manufacturing industry—both large and small molecule—is at a tipping point. Its
adaptation to the forces of change is complicated perhaps more than other U.S. health
sectors by virtue of its global scope. Here’s what clear…
Demand is soaring. Since the orphan drug act of 1983, more than 400 drugs have been
approved for conditions that were beyond hope otherwise—like lupus, ALS, and cystic
fibrosis. And new medications to diagnose, treat, or sometimes even cure cancer and
melanoma, heart disease, hepatitis C, HIV/AIDS, malaria, rheumatoid arthritis, and
dementia are now in the market. As a result, utilization will increase in emerging and
developing systems of the world, and in undeveloped systems, medicines will be available
where governments allow.
Its value proposition is tied directly to its role in care coordination. Medication
management is suboptimal: widespread deployment of e-prescribing across communities
via health information exchanges (HIEs) combined with targeted improvements in
medication adherence by patients are expected to quickly reduce medication errors and
costs. It’s well-documented. And in the context of the ACA, savings from avoidable
readmissions and improved outcomes (via Accountable Care Organizations [ACOs] and
Medical Homes) are inextricably linked to medication management. A new business
model that assumes risk for outcomes and cost reduction, leveraging behavior
modification and incorporating over-the-counter therapies, is part of the puzzle for all but
those medications in orphan classes and specialty pharma. And ironically, the same
premise likely holds true in other developed and emerging markets of the world.
“Shipments and wholesale pricing” will in all likelihood become less important over time as
value-based contracts become mainstream.
Scale is key. The costs of competing in a global market will drive consolidation between
traditional manufacturers and biologics, diagnostics and therapeutics, retail products,
food, and prescription drugs. This industry, perhaps unlike any other in health care, faces
incredible opportunity which can best be navigated by organizations with sizeable risk
tolerance and global vision.
The forces of change impacting drug manufacturers are formidable. Success in their
navigation is a matter of high public interest, since our generation and generations to
come are direct beneficiaries of their success.
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Implementation update
CMS announces outreach timeline for HIXs Enrollment in health insurance exchanges (HIXs) is slated to start October 1, 2013. Last
week, the U.S. Department of Health and Human Services (HHS) released its four-phase
“Consumer Outreach Timeline” plan to increase public awareness about HIX,
emphasizing upcoming activity this summer.
CMS Consumer Outreach Timeline
1 Preparation
(Jan 2012-Sept 2013)
Build the infrastructure and customer service channels
Conduct consumer research
Attend state design reviews and provide support to states
Procurements
Coordinate federal agency workgroup and Federal Advisory Committee Act (FACA)
Technical Assistance with states
2 Basic Education/
Stakeholder Engagement
(Jan 2013-Jan 2014)
Train partners and stakeholders
Build awareness
Provide information on value of insurance, health and financial
literacy, basic program parameters
3 Anticipation/ Get Ready
(Aug 2013-Dec 3024)
Local assistance
Customer service—navigators, website, and care center
4 Act Now/ Enrollment
(Oct 2013-Apr 2014)
Open Enrollment Begins
Major launch effort
Field in action
Background: a recent survey conducted by InsuranceQuotes.com found that 90% of
consumers are unaware of the start date for HIX open enrollment, which begins October
1, 2013.
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Democratic Senators voice concerns about ACA implementation At a meeting last Thursday, hosted by new White House Chief of Staff Denis McDonough,
HHS Secretary Sebelius lunched with Democratic Senators who voiced concerns about
the implementation of ACA. Among items discussed: the status of HIXs support by the
federal government, rate increases by health insurers, small business penalties for not
providing health coverage, and the lack of required coverage for dental insurance in the
ACA. Secretary Sebelius reassured the group their concerns are being addressed and the
ACA will be implemented on schedule.
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Insurers indicate interest in federal exchange participation Last week, the Center for Consumer Information & Insurance Oversight (CCIIO) Director
Gary Cohen reported that 109 insurers have expressed interest in selling qualified health
plans (QHPs) on the federal exchanges.
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Biologics and biosimilars in the ACA
Section Provision Implementation update
7002 Biosimilar biological products: 12-year brand exclusivity
Implementation status: effective March 23, 2010.
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.
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.
3139 Payment for biosimilar biological products
“Add-on payment rate for biosimilar products reimbursement under Medicare Part B at 6% of the average sales price of the brand biological product.” Source: Center for Medicare & Medicaid Services (CMS)
Effective calendar year 2011.
9008
Annual fee on 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
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PCORI plans national CER network PCORI announced it will spend up to $68 million to support the development of an
interoperable network of research networks to increase “the nation's capacity to efficiently
conduct comparative clinical effectiveness research.”
$56 million will go to eight new or existing clinical data research networks for 18
months. Goals include having the networks become capable of implementing
clinical trials and having the capacity to conduct randomized and observational CER
studies using standardized data formats while engaging patients, health systems,
and clinicians in network governance and data use. (Awards for individual projects
are limited to $7 million.)
$12 million will support up to 18 new or existing “patient-powered” research
networks consisting of patients with a single rare or common medical condition
willing to participate in research and report data that can be shared with other
network members. (Awards for individual projects are limited to $1 million.)
Interested organizations must file a letter of intent by June 19 and must complete an
application by September 27. Awards will be announced in December.
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CMS will use real-time data to evaluate ACO program CMS will not delay the pay-for-performance phase of the Pioneer ACO Model
Demonstration as requested by program participants. However, CMS will expedite the
collection of real-time data used to evaluate the ACOs. CMS has indicated that further
guidance will be issued this summer for both the Pioneer ACOs and Medicare Shared
Savings Program.
Background: earlier this month, the ACOs were given until May 31, 2013 to decide
whether they would continue to participate in the Pioneer ACO Model Demonstration. The
deadline—initially April 30—was extended due to concerns from program participants
about the metrics CMS was using to evaluate cost savings and quality of care.
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New Part D, DSH regulations expected In the coming months, expect to see proposed rules from HHS on revisions to Medicare
Part D, and Disproportionate Share Hospital (DSH) payment reductions scheduled to
begin October 2013.
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Additional 2,000 IRS employees needed for ACA implementation During a House Ways and Means Oversight Subcommittee hearing last week, Acting
Commissioner of the U.S. Internal Revenue Service (IRS) Steven Miller indicated
additional employees are needed to staff call centers and to work on information
technologies necessary for operation of HIX. In President Obama’s fiscal year (FY) 2014
budget proposal, 2,000 additional employees were requested for implementation and
operation of tax-related provisions in the ACA.
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CMS releases measures and evaluation process for acute and LTCHs Late Friday, CMS issued a 1,464-page proposed rule updating Medicare payment policies
and rates under the Inpatient Prospective Payment System (IPPS) and Long-Term Care
Hospitals (LTCH) Prospective Payment System (PPS) for FY2014. This proposed rule
would impact 3,400 acute care hospitals, 440 LTCHs, and applies to discharges on or
after October 1, 2013. Comments are accepted until June 25, 2013. Highlights:
Hospital readmission reduction program (ACA Section 3001): revised methodology to
account for planned readmissions for three existing readmissions measures: heart attack,
heart failure, and pneumonia. Two new readmission measures proposed for FY2015:
readmissions for hip/knee arthroplasty and chronic obstructive pulmonary disease.
Measurement of hospital acquired conditions (ACA Section 3008): would be
calculated using claims submitted through the Inpatient Quality Reporting program and
would consist of two domains:
Domain one includes six patient safety indicator measures: pressure ulcer rate;
volume of foreign object left in the body; iatrogenic pneumothorax rate;
postoperative physiologic and metabolic derangement rate; postoperative
pulmonary embolism or deep vein thrombosis rate; and accidental puncture and
laceration rate.
Domain two includes two measures: Central Line-Associated Blood Stream
Infection and Catheter-Associated Urinary Tract Infection.
CMS would determine a hospitals score using the two domains. Note: “Risk factors
such as the patient’s age, gender, comorbidities, and complications would be
considered in the calculation of the measure rates so that hospitals serving a large
proportion of sicker patients would not be unfairly penalized.”
LTCH: five new quality measures for FY2017 and FY2018, including an all-cause
unplanned readmission measure for 30 days post-discharge, facility-wide inpatient
hospital-onset MRSA bacteremia outcome measure, and facility-wide inpatient hospital-onset clostridium difficile infection (CDI) outcome measure. Note: for FY2018 a measure
of the percent of residents experiencing one or more falls with major injury will also apply.
PPS-exempt cancer hospital quality reporting program (ACA Section 3005): one new
measure of surgical site infection for the FY2015, and 13 new measures for FY2016
covering surgical processes of care, patient experience of care, and oncology.
Inpatient Psychiatric Facility Quality Reporting Program (ACA Section 10322): three
new measures for FY2016: alcohol use screening; alcohol and drug use status after
discharge; and follow-up after hospitalization for mental illness.
Hospital value-based purchasing (VBP) program (ACA Section 3001): increases the
applicable reduction to diagnosis-related group (DRG) payment amounts by 1.25%, and
the total estimated amount available for value-based incentive payments to approximately
$1.1 billion:
Three new measures for FY2016, including one new clinical process measure—
influenza immunization—and two new health care-associated infection measures—
Catheter-Associated Urinary Tract Infection and Surgical Site Infection.
New performance standards for achievement of thresholds and benchmarks for
FY2016: “floors” for all eight Hospital Consumer Assessment of Healthcare
Providers and Systems dimensions.
Medicare DSH reduction (ACA Section 3313): CMS projects “the reduction of Medicare
DSH payments and the inclusion of the additional payments will reduce payments overall
by 0.9% as compared to Medicare DSH payments prior to the implementation of Section
3133 (of the ACA).”
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Senator questions Massachusetts waiver for insurance rating requirements Last week Senator Orrin Hatch (R-UT) questioned the Secretary of HHS’ decision to
waive the health insurance rate requirements under Section 1321 of ACA for
Massachusetts only. Hatch deemed it “only reasonable” that HHS offer the same flexibility
to all states, regardless of whether the states had an established HIX before 2010. The
letter requested that HHS provide information on the following: the legal authority to grant
a transition period for rating requirements; whether similar transition periods will be
provided to other states; and why the final rule implementing rate requirements did not
indicate legal authority to provide a phase-in of the rating provisions for states.
Background: under Section 1321 of ACA, HHS has the authority to implement transition
periods for already established exchanges, but these transitional periods do not apply to
the new insurance rating requirements effective January 1, 2014. HHS recently 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. 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.
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Vote on bill to fund PCIP postponed Last week, the U.S. House of Representatives did not vote as scheduled on the Helping
Sick Americans Now Act (H.R. 1549). Introduced by Representative Joseph Pitts (R-PA),
the bill aims to restore solvency of the Pre-existing Conditions Insurance Plans (PCIPs) by
transferring $4 billion from the Prevention and Public Health Fund established by the
ACA. Republicans cancelled the vote once it became clear there was not enough support
to pass the bill. President Obama threatened to veto the Act if passed by Congress, citing
opposition to removing resources from the Prevention and Public Health Fund.
Background: federally-run and state-based PCIPs suspended enrollment earlier this year
citing high costs associated with the program.
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Legislative update
Security and privacy audit results reported; many problems unknown to
organizations who are unaware of regulations One-third of the 980 problems the HHS’ Office of Civil Rights (OCR) uncovered during its
privacy and data-security audit of 115 health care providers and insurers were violations
unknown to the organizations. “You probably don't know what you don't know,” OCR
Senior Adviser Linda Sanches told compliance officials Tuesday at the Health Care
Compliance Association’s annual Compliance Institute. Of the organizations with
documented problems, data-security issues accounted for 60% of all the findings and
observations, while 30% pertained to data privacy, and 10% related to data-breach
notifications.
Sanches encouraged health care companies to study regulations in the Health
Information Technology for Economic and Clinical Health, or HITECH Act that widen
Health Insurance Portability and Accountability Act (HIPAA) privacy and data-security
protections on patients’ protected health information.
Background: the HITECH Act requires HHS to audit how 3 million “covered entities” in the
U.S. follow the rules on safeguarding patient data and reporting breaches that do occur.
The office selected 61 health care providers, 47 health plans, and seven health care data
“clearinghouses” for inspection, and concluded those reviews in December.
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Medicare DME competitive bidding program gets attention Wednesday, in testimony before the Senate Finance Committee, Acting CMS
Administrator Marilyn Tavenner told committee members the Medicare Durable Medical
Equipment (DME) Competitive Bidding Program is sustainable, CMS provides appropriate
payment for DME products, and CMS has implemented strict procedures on the
information bidders must provide to prove prices are realistic. Senator Johnny Isakson (R-
GA) expressed concern the program would not be sustainable due to the median price
structure, and offering some suppliers prices below their bids. Tavenner countered that
CMS would require the supplier to submit a corrective action plan, suspend the contract or
terminate the contract, and bar the supplier from participating in the program if it cannot
meet expectations promptly.
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CMS proposes bigger rewards for Medicare fraud tips, denial of providers
for violations Last Wednesday, CMS released a proposed rule that would increase rewards paid to
people whose tips on fraud lead CMS to recover Medicare funds, and allowing CMS to
deny providers and suppliers Medicare enrollment when they are affiliated with companies
that owe Medicare money. Highlights:
Potential reward amount would increase from 10% to 15% of the final amount
collected. Maximum reward would increase from $1,000 to $9.9 million.
Deny enrollment or revoke the billing privileges of a provider or supplier if a
managing employee has been convicted of certain felonies.
CMS could revoke billing privileges of providers and suppliers that have a pattern or
practice of billing for services that do not meet Medicare requirements.
Background: CMS began paying rewards in 1998 to individuals who reported tips that led
to the recovery of funds. To date, CMS has recovered approximately $3.5 million as a
result of this program and paid just $16,000 for 18 rewards.
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FDA sequester cuts compromise food safety In a USA Today Editorial Board interview published last Wednesday, FDA Commissioner
Margaret Hamburg said the 18% sequester cuts ($209 million) to the agency’s food safety
surveillance efforts will mean 2,100 fewer inspections and delay implementation of the
2011 Food Safety Modernization Act. Per the Center for Disease Control and Prevention
(CDC), 48 million Americans contract a food-borne illness annually: 3,000 die and
128,000 are hospitalized.
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Fake medicine focus of FDA effort Last week, the FDA announced it was testing a hand held device, the CD-3 developed at
the Agency’s Forensic Chemistry Center in Cincinnati, which can be used to identify
counterfeit medicines. Its initial rollout will be in Ghana and Southeast Asia testing malaria
medicines, since 35% of malaria drugs are substandard and 36% counterfeit in Southeast
Asia and 35% are substandard and 20% counterfeit in Africa. Per the CDC, malaria kills
600,000 annually and 3.3 billion people live in active malaria areas (106 countries).
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National drug strategy: continue pain pill addiction efforts, refocus on
heroin Per the Substance Abuse and Mental Health Services Administration’s (SAMHSA)
National Survey on Drug Abuse and Health analysis, addiction to painkillers fell from 5.3
million to 4.5 million from 2009 to 2011, while heroin addiction increased from 200,000 to
300,000 in the same period. The 2013 National Drug Control Strategy report released
Wednesday indicated that many heroin addicts first became drug dependent using pain
killers (opiates).
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Health care-related legislation introduced last week Senator Pat Roberts (R-KS) introduced legislation (S. 806) to exclude customary
prompt pay discounts from manufacturers to wholesalers from the average sales
price for drugs and biologicals under Medicare.
Representative Steve Israel (D-NY) introduced legislation (H.R. 1661) to establish
cancer patient treatment education under the Medicare program and research to
improve cancer symptom management.
Representative Bill Cassidy (R-LA) introduced legislation (H.R. 1675) to allow health
plans with no deductible for prenatal, labor, and delivery, and postpartum care to be
treated as high-deductible plans with respect to health savings accounts (HSAs).
Representative Emanuel Cleaver (D-MO) introduced legislation (H.R. 1666) to
create a patient-centered quality of care initiative for seriously ill patients.
Representative Tom Price (R-GA) introduced legislation (H.R. 1717) to establish a
market pricing program for DME, prosthetics, orthotics, and supplies under Part B of
the Medicare program.
Representative Tim Murphy (R-PA) introduced legislation (H.R. 1713) to establish a
procedure to safeguard the surpluses of the Social Security and Medicare hospital
insurance trust funds.
Representative Michael Burgess (R-TX) introduced legislation (H.R. 1705) to
provide for certain forms of physical therapy under the TRICARE program.
Representative Ted Poe (R-TX) introduced legislation (H.R. 1701) to prohibit the
Secretary of HHS from replacing ICD-9 with ICD-10.
Representative Peter DeFazio (D-OR) introduced legislation (H.R. 1699) to require
that genetically engineered food and foods that contains genetically engineered
ingredients be labeled accordingly. Senator Barbara Boxer (D-CA) introduced
similar legislation in the Senate (S. 809).
Representative Gene Green (D-TX) introduced legislation (H.R. 1698) to provide for
12-month continuous enrollment of individuals under the Medicaid program and
Children's Health Insurance Program (CHIP).
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State update
State round-up: HIX Seventeen states—13 led by Democratic governors, three 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
Source: HHS
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Medicaid expansion update Medicaid expansion is projected to cost the federal government $952 billion between
2013 and 2022 and states $76 billion. (Source: Journal of the American Medical
Association [JAMA], “Medicaid expansion under the Affordable Care Act,” March 27,
2012) To date, 23 states and D.C. have said they will or are in support of expanding their
Medicaid programs; 19 states have indicated they are highly unlikely to expand their
programs:
Announced expansion or likely to expand
Not participating or unlikely to participate
Undecided or undeclared
AR, AZ, CA, CO, CT, DE, DC, HI, IL, MD, MA, MI, MN, MO, NY, NM, ND,NJ, NV, OR, RI, TN, VT, WA
AL, FL, GA, ID, IN, IA, LA, ME, MS, MT, NE, NC, OH, OK, SC, TX, UT, VA, WI
AK, KS, KY, PA, NH, SD, WV, WY
■ Democratic governor ■ Republican governor ■ Independent governor
Source: Kaiser Family Foundation; PoliticoPro, Statereforum
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 April 26, 2013) and is subject to change.
Recent Medicaid announcements:
Florida is among a dozen states still considering plans to expand its Medicaid
program. In February, Governor Rick Scott (R) announced he would support
expansion. In early April, Florida State Senate Republicans devised a plan to
expand coverage by 1 million directing coverage through private plans offered on
the state HIX. Last Thursday, the House rejected the Senate plan, so back to the
drawing board.
Last week, Arkansas Governor Mike Beebe (D) signed the alternative Private
Option Medicaid Plan into law. The state will use Medicaid expansion dollars to buy
private insurance plans on the state’s HIX for low-income residents. The plan is pending CMS approval. Note: CMS recently issued guidance that states opting to
expand Medicaid eligibility through HIXs must show that enrolling Medicaid
beneficiaries in HIX is relatively budget neutral, provide premium support, exempt
certain individuals that would not receive necessary care through the HIX due to
health needs, and offer beneficiaries two choices of health plans with wrap-around
benefits. The guidance also emphasized that these individuals would still be
Medicaid beneficiaries, even when covered by a private insurance plan.
Last week, the Montana legislature voted against legislation to expand Medicaid.
This vote came at the end of the legislative session, which recessed Saturday. The
lawmakers will reconvene in 2015, significantly decreasing the likelihood that the
state will expand its Medicaid program in 2014.
A Senate version of Ohio’s budget did not include plans to expand Medicaid,
despite support from Governor John Kasich (R). Senate President Keith Faber (D)
said lawmakers in support of expansion will begin working on a Medicaid plan that
is separate from the state budget.
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State round-up The Maryland Department of Health and Mental Hygiene introduced a proposal to
cap payments to the state’s 53 hospitals based on overall economic growth: the
state’s gross domestic product (GDP)/capita increased 3.5%/year for the past ten
years whereas hospital revenue per patient grew 6.8%. The change would save
$1.2 billion over three years.
The percentage of California employers who offer health insurance coverage has
declined from 71% to 60% in the past decade. Premiums for employers in the state
have increased 170% within the same time frame, five times California’s inflation
rate. Average monthly premiums for single coverage in California were $545 vs.
$468 nationally, and family coverage was $1,386 in California vs. $1,312 nationally.
Source: California HealthCare Foundation, “California Employer Health Benefits
Survey: Fewer Covered, More Cost,” April 2013.
California lawmakers are proposing legislation to expand primary and preventive
health care coverage to residents regardless of their immigration status. Funding for
the proposed program would come from the estimated $700 million Medicaid
expansion savings. Background: undocumented immigrants are prohibited from
coverage funded through federal ACA dollars; therefore the state would be
responsible for covering 100% of the costs.
A Federal Court of Appeals in Michigan granted a request for the grand jury to
investigate the New England Compounding Center (NECC) linked to the meningitis
outbreak that resulted in 53 deaths and over 700 infected individuals. The Attorney
General requested the warrant to investigate if NECC violated any state laws while
distributing steroids to four of its clinics leading to 19 deaths and 262 infections
within the state.
Maine’s General Assembly introduced a bill that would require all compounding
pharmacies that fill prescriptions for residents of the state to be licensed by Maine.
The proposal would also create a new type of license for compounding pharmacies,
replace two pharmacists with a physician and nurse on the state Board of
Pharmacy, and annually require board members to disclose conflict of interests. Note: according to the National Conference of State Legislatures (NCSL), at least
ten states have proposed tighter restrictions on compounding pharmacies following
the meningitis outbreak linked to the NECC.
The Minnesota House approved (69-64) a proposal to increase taxes on alcohol
sales for the first time in about 25 years. The alcohol tax is part of a larger package
that will increase state tax revenue by $2.6 million.
A New York City official is proposing that the minimum age to purchase cigarettes
be raised from 18 to 21 years old. The initiative, proposed by Health Commissioner
Dr. Thomas Farley and City Council speaker Christine Quinn, would need approval
by the City Council and to be signed by Mayor Michael Bloomberg to be finalized. If
approved, individuals between 18 and 21 would still be able to possess or smoke
cigarettes, and New York City would be the first city in the U.S. to increase the
minimum age to buy cigarettes.
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Industry news
Supreme Court hears oral arguments on patenting genes On Monday, April 15, the U.S. Supreme Court heard oral arguments in a potentially
historic case that could have a significant impact on the biologic and life sciences
industries. The issue: can human genes be patented? Medical researchers and cancer
groups are challenging the patents on two genes, arguing that genes themselves are
made in nature, and should not be considered intellectual property even if a company has
discovered a way to isolate them. An opinion is expected from the Supreme Court in June
2013.
Background: two genes, BRCA1 and BRCA2, with mutations linked to an increased risk of
breast and ovarian cancers, were isolated and patented in 1996, providing exclusive
control over the genes once they are removed from the body and from human cells. The
U.S. Court of Appeals for the Federal Circuit has twice upheld the gene patents.
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Myriad Genetics court ruling puts spotlight on patents From Monday Memo: January 14, 2013
The U.S. Court of Appeals for the Federal Circuit, which hears patent cases, has ruled in
favor of Myriad Genetics, Inc. on two previous challenges. But in the last few years, the
Supreme Court has shown a tendency to loosen patent protections in the life sciences,
most recently in a March 2012 case involving a blood test for determining the right drug
dosage for certain autoimmune diseases.
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Biotech manufacturers cautious about biosimilar drug market entry From Monday Memo: March 4, 2013
Biotech manufacturers have delayed or halted many biosimilarity efforts due to patent
protections, legal action by branded drug manufacturers, difficulty replicating drugs, and
outstanding FDA regulations for the sale of biologics. The FDA recently issued three draft
guidance documents to assist biosimilar manufacturers, but as of January 2013, it had
received only 13 applications from companies planning to conduct clinical trials. Recent
reports have also highlighted a new source of concern to the biotech industry: 13 state
legislatures (Arizona, Arkansas, Colorado, Florida, Indiana, Maryland, Massachusetts,
North Dakota, Oregon, Pennsylvania, Texas, Virginia, and Washington) are considering
bills to allow interchangeable biosimilar substitution by pharmacies and prescribing
physicians.
Background: according to the FDA, a biosimilar “is a biological product that is highly
similar to a U.S.-licensed reference biological product notwithstanding minor differences in
clinically inactive components, and for which there are no clinically meaningful differences
between the biological product and the reference product in terms of the safety, purity,
and potency of the product.” Section 7002 of the ACA established an abbreviated
licensure pathway for biological products that are demonstrated to be “biosimilar” to or
“interchangeable” with an FDA-licensed biological product. Under this new law, a
biological product may be demonstrated to be “biosimilar” if data show that, among other
things, the product is “highly similar” to an already-approved biological product.
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Naming for biosimilars point of tension From Monday Memo: July 23, 2012
Drug industry groups are telling the FDA that pharmacy concerns about information
technology systems’ ability to process unique naming schemes for biosimilars are
“misplaced.” Pharmacy groups have said there could be safety issues associated with
having separate names for a biosimilar and its reference product, and support tracking
biosimilars by their National Drug Code as opposed to a unique name. The innovator drug
industry has lobbied FDA to require separate names as it implements the health reform
law’s biosimilars approval pathway. However, generic drug makers say such a policy
would stifle interchangeability of products and have pushed for biosimilars and their
reference product to have the same name. Late last month, Pharmaceutical Research
and Manufacturers of America (PhRMA) and the Biotechnology Industry Organization
(BIO) sent a letter to the FDA reasserting their position that unique naming is key to
monitoring the safety of biosimilars. They further countered pharmacy concerns about
information technology—citing a letter sent in May by the American Pharmacists
Association, National Association of Chain Drug Stores, and National Community
Pharmacists Association—and said concerns about information technology are
“misplaced.”
Background: according to the FDA, a biosimilar “is a biological product that is highly
similar to a U.S.-licensed reference biological product notwithstanding minor differences in
clinically inactive components, and for which there are no clinically meaningful differences
between the biological product and the reference product in terms of the safety, purity,
and potency of the product.” Unlike small molecule drugs, biologics exhibit high molecular
complexity and are sensitive to changes in manufacturing processes. Follow-on
manufacturers do not have access to the originator’s molecular clone and original cell
bank, or the exact fermentation and purification process. As a result, copies of biologics
might perform differently than the original branded version of the product—explaining
scant approvals to date in the U.S. The global market for prescription drugs is estimated
to reach $1.1 trillion by 2015, increasing at a compound average growth rate (CAGR) of 3-
6%. IMS Health estimates that sales of biosimilars are expected to reach $1.9-2.6 billion
by 2015. (Source: PharmaTech, “Biosimilars: Market Weaknesses and Strengths,” July
11, 2012)
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Study: declines in U.S. biomedical and health R&D funding threaten global
competition From Monday Memo: October 29, 2012
A Research!America analysis of biomedical and health research and development (R&D)
spending in the U.S. revealed that R&D declined 3% ($4 billion) in FY2011, the first
spending decline since 2002. The report noted that much of this decline comes from the
expiration of $10.4 billion in funding designated to NIH by the American Recovery and
Reinvestment Act (ARRA). Per the report, sequestration might threaten the nation’s
biomedical and health research capacity and ability to compete globally by reducing
federal biomedical and health research funding by 8-10%. Notable findings:
Federal funding for research declined 14% in FY2011, totaling $39.5 billion in 2011
Overall industry investment in R&D increased 1.4% from 2010, $77.6 billion in 2011
Pharmaceutical industry investment in R&D increased 3% from 2010, $38.5 billion
in 2011
Biotechnology investment in R&D declined 3% ($800 billion) from 2010, $29.2
billion in 2011
Medical device industry investment in R&D increased 7.4% from 2010, $9.8 billion
in 2011
(Source: Research!America, “2011 U.S. Investment in Health Research,” October 2012)
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Autism risk diagnostic test Yale researchers discovered that abnormal folds in the placenta can indicate the risk of a
future sibling of a child with autism (siblings are nine times more likely to have autism)
with 90% accuracy. The finding is based on a longitudinal study that followed siblings of
217 autistic kids. Currently, 2% of newborns are identified with autism disorder, up from
one in 5,000 in 1975. (Source: Walker et al, “Trophoblast Inclusions Are Significantly
Increased in the Placentas of Children in Families at Risk for Autism, Biological
Psychiatry, April 26, 2013)
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Quotable “In 2011, U.S. health care spending grew 3.9% to reach $2.7 trillion, marking the third
consecutive year of relatively slow growth. Growth in national health spending closely
tracked growth in nominal GDP in 2010 and 2011, and health spending as a share of
GDP remained stable from 2009 through 2011, at 17.9%. Even as growth in spending at
the national level has remained stable, personal health care spending growth accelerated
in 2011 (from 3.7% to 4.1%), in part because of faster growth in spending for prescription
drugs and physician and clinical services. There were also divergent trends in spending
growth in 2011 depending on the payment source: Medicaid spending growth slowed,
while growth in Medicare, private health insurance, and out-of-pocket spending
accelerated. Overall, there was relatively slow growth in incomes, jobs, and GDP in 2011,
which raises questions about whether U.S. health care spending will rebound over the
next few years as it typically has after past economic downturns.”—Hartman et al,
“National Health Spending In 2011: Overall Growth Remains Low, But Some Payers And
Services Show Signs Of Acceleration,” Health Affairs, January 2013
“If your insurance has ever stopped covering a prescription drug, or you don’t have
coverage at all, you know how quickly costs can mount. Americans spent on average
$758 out-of-pocket for medication in 2012, according to a recent Consumer Reports
national telephone poll. And in our survey of 1,130 people who regularly took prescription
drugs—the insured and uninsured—12% spent more than $1,200 last year. Our advice if
you’re looking to reduce out-of-pocket drug costs: shop around.”—“Same generic drug,
many prices,” Consumer Reports, May 2013
“The United States spends considerably more per capita on prescription drugs than other
countries in the Organization for Economic Cooperation and Development (OECD)…We
found that depending on how prices were weighted for volume across the countries,
brand-name prescription drug prices were 5-198% higher in the United States than in the
other countries in all three study years. (A limitation is that many negotiated price
discounts obtained in the United States may not be fully reflected in the results of this
study.) A contributor to higher U.S. per capita drug spending is faster uptake of new and
more expensive prescription drugs in the United States relative to other countries. In
contrast, the other OECD countries employed mechanisms such as health technology
assessment and restrictions on patients’ eligibility for new prescription drugs, and they
required strict evidence of the value of new drugs. Similarly, U.S. health care decision
makers could consider requiring pharmaceutical manufacturers to provide more evidence
about the value of new drugs in relation to the cost and negotiating prices accordingly.”—
Kanavos et al, “Higher U.S. Branded Drug Prices And Spending Compared To Other
Countries May Stem Partly From Quick Uptake Of New Drugs,” Health Affairs, April 2013
“For state officials, a key appeal of these cases is that they generally don’t have to prove
that a drug maker’s marketing caused any specific injuries or harm. They need only
convince a judge that a drug’s promotion was deceptive in some way. What’s more, the
awards can be high because some states assess thousands of dollars in penalties per
violation, which can add up.”—Peter Loftus “States Take Drug Makers to Court over
Marketing,” The Wall Street Journal, April 24, 2013
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Fact file: spotlight on drugs National health expenditures: average annual growth from prior year:
(Source: Hartman et al, “National Health Spending In 2011: Overall Growth
Remains Low, But Some Payers And Services Show Signs Of Acceleration,”
Health Affairs, January 2013)
Average annual growth (%) from prior year
1990 2000 2010
Total National Expenditures 11.0 6.6 3.9
Hospital care 9.6% 5.2 4.9
Professional Services 12.4 6.5 3.2
Prescription Drugs 12.8 11.6 0.4
GDP per capita 6.6 4.4 3.2
Retail sales: (Source: National Association of Chain Drug Stores)
2000 2010
Total prescriptions 2.9 billion 3.7 billion
Mail order 146 million 264 million
% generic 42.4% 71.2%
% branded 57.6% 28.8%
Average price: generic $19.33 $44.14
Average price: branded $65.29 $166.61
Prescription drug overdose: 1.2 million emergency room visits, 15,000
deaths/year. (Source: National Council for Substance Abuse)
Retail prices: based on analysis of 514 widely used drugs relative to overall
inflation rate. (Source: AARP Public Policy Institute, “Trends in Retail Pricing of
Prescription Drugs: 2005-2009,” March 2012)
General Inflation Rate Retail Drug Price Increase
2005 +3.4% +3.3%
2006 +3.2 +2.4
2007 +2.9 +2.4
2008 +3.8 +4.7
2009 -0.3 +4.8
R&D spending among drug manufacturers: 20.7% of domestic sales. (Source:
PhRMA, “2013 Biopharmaceutical Research Industry Profile,” April 2013)
- 2012 $48.5 billion (est.)
- 2011 $48.6 billion
- 2010 $50.7 billion
- 2009 $46.4 billion
- 2008 $47.4 billion
- 2007 $47.9 billion
- 2006 $43.4 billion
- 2005 $39.9 billion
- 2000 $26.0 billion
- 1990 $8.4 billion
- 1980 $2.0 billion
Average cost to develop a drug (including the cost of failures): early 2000s =
$1.2 billion, late 1990s = $800 million, mid 1980s = $320 million, 1970s = $140 million. (Source: PhRMA, “2013 Biopharmaceutical Research Industry Profile,”
April 2013)
Medicines in development: global development in 2011 = 5,400 compounds,
U.S. development in 2013 = 3,400, an increase of 40% since 2005; potential first-
in-class medicines in clinical development = 70%. (Source: PhRMA, “2013
Biopharmaceutical Research Industry Profile,” April 2013)
Specialty medicine: forecast of U.S. spend: $114.7 billion on specialty
medications—mostly biologics—in 2014, $4 out of every $10 the country spends
on prescription drugs will be spent on these complex medications used by 2% of
the population; half of this spend will occur in the pharmacy benefit, the rest in the medical benefit. (Source: Express Scripts)
Spending on biosimilars: from $14 million in 2006 (0.02% of total $93 billion
biologics market) to $693 million in 2011 (0.4% of $157 billion biologics market) to $4-6 billion by 2016 (2% of total $210 billion biologics market). (Source: IMS
Health)
Therapeutic focus of biologics: (in billions)
(Source: IMS Health, “Shaping the biosimilars opportunity: A global perspective on
the evolving biosimilars landscape,” December 2011)
Biologics Markets—Global:
(Source: IMS Health, “Shaping the biosimilars opportunity: A global perspective on
the evolving biosimilars landscape,” December 2011)
Consumer opinions of drugs: (Source: Deloitte Center for Health Solutions, 2012
U.S. Survey of Health Care Consumers)
- 14% of prescription medication users switched medications in the past year
because “the drug was not working” (42%) or side effects (30%); 34% switched
to generics for cost reasons
- Consumer confidence in prescription medications is high: 88% believe they
understand how their meds work, 87% say they understand the risks and side
effects, and 86% are confident their medication is effective (vs. 77% in 2011,
75% in 2010, and 75% in 2009)
- 80% say they always take prescription medications as directed on the label;
67% say they “almost always” follow their doctor’s treatment plan
Medicare Part D: 32 million Medicare enrollees are enrolled in a Part D
Prescription Drug Plan in 2013; the average enrollee has a choice of 31 plans of
1,031 offered—unchanged from 2012. (Source: Kaiser Family Foundation)
U.S. generics market: from 2008 to 2012, generic drugs as a percentage of
scripts filled increased from 50% to 77%; sales of generics increased from $50
billion (68% of total drug revenues) to $60 billion (74% of total). (Source: BMI
United States Pharmaceuticals and Healthcare Report Q2 2013)
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Coming soon:
Physician Survey 2013: HIT Report
Hospital consolidation: What happens, what’s ahead?
Currently available: Breaking Constraints: Can incentives change consumer health choices?—March
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2013 Survey of U.S. Physicians: Physician perspectives about health care reform
and the future of the medical profession—March 2013. Available online at www.deloitte.com/us/2013physiciansurvey
Health System Chief Information Officers: Juggling responsibilities, managing
expectations, building the future—February 2013. Available online at www.deloitte.com/us/2013CIOstudy
Unlocking value in health plan M&A: Sometimes the deals don’t deliver—January 2013. Available online at www.deloitte.com/us/2013planconsolidation
Deloitte 2012 Survey of U.S. Health Care Consumers—December 2012. Access a
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Deloitte contacts
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Jason Girzadas, National Managing Director, Life Sciences & Health Care, Deloitte
Consulting LLP ([email protected])
Harry Greenspun, M.D., Senior Advisor, Health Care Transformation and Technology,
Deloitte Center for Health Solutions ([email protected])
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LLP ([email protected])
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Strategies, Deloitte & Touche LLP ([email protected])
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