Deloitte Center for Health Solutions

June 24, 2013

Monday memo

Health reform update

This week’s headlines: My take: the new health care normal: increased transparency and public scrutiny

Implementation update - HIX enrollment push starts - GAO: HIXs might not be ready - Senators introduce bill to raise full-time employment threshold - HHS: consumers saved $3.9 billion on insurance premiums in 2012 - Oversight committee subpoenas HHS over CO-OP documents - Hospitals want DSH cuts delayed - CMS extends Pioneer deadline (again)

Legislative update

- Supreme Court rules “pay-to-delay” case can proceed - Committee seeks information about IRS access, handling of personal

health information - Immigration legislation would increase health spending $100 billion - Compounding pharmacy legislation introduced in the House - MACPAC report to Congress - HHS proposal: including medical records in gun background checks

faces opposition from physicians - SGR fix update: Congressional committees look to offsets in post-acute

care sectors - Transparency of Medicare payments sought in bill - @Regulatory update: CMS Medicare Advantage Annual Notice and RADV

Audit Notification

State update

- State round-up: Medicaid

- State round-up: HIX

- Deloitte Center for Health Solutions analysis: number of health insurance

carriers per state: HIX individual market

- State round-up

Industry news - Meeting highlights: AMA House of Delegates in Chicago last week - Pfizer, Takeda case signals alert for at-risk generic launches - MGMA survey: 55% of medical practices not ready for ICD-10 rollout - Moody’s: hospitals seeing volume declines, increased focus on value - NCQA updates medical home certification requirements - Study: $105 billion potential savings from medical adherence

improvement - Public hospital association gets new name

Research snapshots

Quotable

Fact file

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My take: the new health care normal: increased transparency and

public scrutiny

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

June usually means down time in some industries, but in health care, this year is a

notable exception. Just in the past week, we learned…

The Supreme Court will allow legal challenges to a longstanding drug makers’

business practice called “pay-to-delay” in which branded and generic

manufacturers enter into contracts about the timing for generic market entry…

The Government Accountability Office (GAO) released two reports concluding

the state and federally-supported health insurance exchanges (HIXs) might not

be ready this October…

And the American Medical Association’s (AMA) House of Delegates passed a

number of resolutions that evidenced the group’s anxieties about key elements

of the Affordable Care Act (ACA) and concern about implementation of the

new ICD-10 system of coding…

And that’s just last week!

Stepping back, there are a few clear takeaways for everyone involved in this

industry—providers of health services, suppliers of technologies and therapeutic

interventions, and those that finance the system as investors or fiscal intermediaries:

1. The business practices of our industry are increasingly an open book. Deals

between parties will be scrutinized and likely made public. We are a high

profile industry whether we like it or not.

2. The public’s opinion will matter more. Health care is complicated: we learned

that in the debate about health reform and confusion about the ACA. Going

forward, educating consumers will be a vital consideration in our business

practices. Perception and fact sometimes align, but often they don’t. We need

to understand and respond to both.

3. With health care consuming a fourth of federal and state budgets, elected

officials and policymakers will, of necessity, pay closer attention: not just about

expenditures, about everything!

Stay tuned. It’s the new normal.

Note: details about each of the news items mentioned above can be found in this

issue of the Monday Memo.

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Implementation update

HIX enrollment push starts Last Tuesday, Enroll America (EA) started an ad campaign in 18 states to encourage

low income adults to enroll in coverage through the HIXs in October. EA data

showed 78% of the uninsured do not know about HIXs or their eligibility for coverage.

Separately, the administration announced an $8 million project with PR firm Weber

Shandwick to set up a website to support enrollment, estimating 2.7 million “young

invincibles” will sign up in the first year. Other organizations announced parallel

efforts, including Planned Parenthood, Young Invincibles, and Organizing for Action.

(Source: Sandhya Somashhekhar, The Washington Post, “Push is on to promote

health law,” June 19, 2013)

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GAO: HIXs might not be ready Wednesday, the GAO sounded a warning that the HIXs might not be ready to accept

enrollees and verify their eligibility for subsidies on October 1, per the ACA: “Whether

[the government’s] contingency planning will assure the timely and smooth

implementation of the exchanges by October 2013 cannot yet be determined.”

It issued two reports: one for the federal government’s status, since it will support 34

state HIXs, and the second for the 16 states and District of Columbia HIXs. The

Congressional Budget Office (CBO) estimates 2 million will be covered through the

small business HIXs, and 7 million in the individual HIXs

(Source: GAO, “Status of CMS Efforts to Establish Federally Facilitated Health

Insurance Exchanges,” June 2013)

Related: Thursday, Senate Finance Ranking Member Orrin Hatch (R-UT) and eight

other Senators sent a letter to U.S. Department of Health and Human Services

(HHS) Secretary Sebelius requesting details on the HIX Navigator Program, saying

the program lacks appropriate safeguards to protect the privacy of consumers.

Related: a Robert Wood Johnson Foundation analysis of federally-facilitated

exchanges (FFEs) in Michigan, Virginia, and Alabama concluded operational models

will be unique in each state. The two major conclusions of the analysis:

There will be considerable variation in preparedness and effort across the FFE

states.

Consumer assistance functions (navigation, enrollment, et al) represent a

bigger challenge than oversight of plans.

Background: 33 states are expected to have federal involvement in establishing and

operating HIXs—19 as formal FFEs, seven partnership FFEs, and seven FFEs with

states responsible for plan management. In Michigan, the state will be responsible

for plan management and some aspects of consumer assistance; in Virginia, the

state will take on plan management responsibilities; and in Alabama, the feds will be

responsible for all plan management and consumer assistance duties. Plan

management duties for an HIX include: establishing standards for the issuers selling

plans in the HIXs and communicating standards to insurers; receiving and reviewing

data from insurers’ to ensure compliance with standards; ongoing monitoring of

insurer compliance; and conducting appropriate review and analysis of market data

on prices and products both inside and outside of HIXs to prevent adverse selection.

Reaction: Bill Copeland, U.S. Life Sciences and Health Care National Industry

Leader, Deloitte LLP: the uncertainty about the HIXs coupled with requirements of

the law to comply with guaranteed issue, minimum medical loss ratio (MLR)

requirements, and the new excise tax that starts next year are problematic to health

insurance plans. Their costs of compliance have risen sharply as a result, prompting

premium increases and pushback from smaller employers and, in some states,

legislators. The impact on smaller plans may be even more significant. While all are

adapting, some will find it more difficult and seek strategic partnerships, while others

will diversify their product offerings and gain strength as the U.S. insurance market

continues to consolidate. Innovation and growth to achieve sustainability is table

stakes for all plans, especially challenging in the uncharted waters of health reform.

Nonetheless, their prospect for the future is bright: managing care that’s coordinated

well and affordable is the core business of insurance plans. Though the ways it’s

done are likely to change, demand for affordable, well-coordinated care will continue

to increase.

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Senators introduce bill to raise full-time employment threshold In the ACA, employers with 50 or more full-time employees—defined as those

averaging 30 or more hours weekly—must provide affordable health insurance

coverage to employees or pay a penalty. Wednesday, Senators Susan Collins (R-

ME) and Joe Donnelly (D-IN) introduced a bill to raise the full-time work threshold to

40 hours a week. Their bill also asks President Barack Obama to delay the employer

penalty for failing to offer affordable health coverage beyond January 1, when it’s

scheduled to take effect.

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HHS: consumers saved $3.9 billion on insurance premiums in 2012 Thursday, HHS announced that 77.8 million consumers saved $3.4 billion up-front on

their premiums and received $500 million in rebates—8.5 million enrollees are due to

receive an average rebate of around $100 per family. In 2011, premium savings and

rebates totaled $1.9 billion.

Per the ACA, insurance companies that do not meet the minimum MLR standards

must notify members about the new rule and how much the rebate might be.

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Oversight committee subpoenas HHS over CO-OP documents After receiving no response to requests from HHS to provide documents regarding

the ACA Consumer Oriented and Operated Plan (CO-OP) program, the House

Committee on Oversight and Government Reform issued a subpoena last week

requiring HHS to turn over documents. Committee Republicans are requesting the

release of documents about each CO-OP applicant’s sustainability, and any

communication among HHS employees, contractors, and Obama administration

employees about the applicant’s viability. For more information regarding concerns

about sustainability of CO-OPs, see the June 17, 3013 Monday Memo.

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Hospitals want DSH cuts delayed Friday, the four major hospital trade groups—American Hospital Association, the

Association of American Medical Colleges, the Catholic Health Association of the

United States, and the Federation of American Hospitals—sent a letter to Capitol Hill

supporting a delay in scheduled reductions in the Medicare and Medicaid

Disproportionate Share Hospital (DSH) programs. Their rationale: “The Supreme

Court’s decision on Medicaid expansion and subsequent uncertainty regarding the

uptake in insurance coverage have reduced the estimate of those who will receive

health care coverage to 25 million individuals, rather than the initial projection of 32

million covered lives. As a result, hospitals treating disproportionate shares of these

patients will see their payments reduced in ways unintended by policymakers.”

Background: DSH payment cuts are scheduled to reduce Medicaid payments by

$18.1 million in fiscal year (FY) 2014, and Medicare payments by a total of $22 billion

over ten years. Initially the Centers for Medicare & Medicaid Services (CMS) will

reduce Medicare DSH payments by 75% in FY2014, and increase payments based

on the percent of the population uninsured and the amount of uncompensated care.

For Medicaid, states with a lower percentage of their population uninsured will

receive a 50% reduction, and states with a larger percentage of uninsured will

receive a 25% reduction.

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CMS extends Pioneer deadline (again) Last week, CMS announced it was extending the deadline to July 15 for decisions by

Pioneer accountable care organization (ACO) participants to stay in the program.

The original deadline was April 30, then May 31. The issue: Pioneer participants

believe the measures used to assess first-year performance results—savings,

patient experiences, quality—are flawed and cost too much to collect and report.

Background: the 32 Pioneer ACO participants include physician-led organizations

and health systems, urban and rural organizations that serve 860,000 beneficiaries

in 18 states. Most already had risk-based contracting experience, either through their

own plans or in partnerships with Medicare or private payers. The basic premise of

all ACO programs is the same: if an ACO achieves savings while hitting quality

targets, it receives higher reimbursement from Medicare; if it does not meet the

targets, it is held “accountable” through reduced reimbursement. For more

information on Pioneer ACOs, see the June 17, 3013 Monday Memo.

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Legislative update

Supreme Court rules “pay-to-delay” case can proceed In a 5-3 decision Monday, the Supreme Court ruled that the 11

th Circuit Court was

wrong in refusing to hear a case (FTC v. Actavis) brought by the Federal Trade

Commission (FTC) against pharmaceutical manufacturers alleging the industry

practice of paying generic manufacturers to delay introducing competing drugs

violated antitrust laws.(sometimes called “pay-to-delay”). Justice Stephen Breyer,

who wrote the majority opinion, said: “Payment for staying out of the market keeps

prices at patentee-set levels and divides the benefit between the patentee and

challenger, while the consumer loses.”

The FTC says pay-to-delay costs consumers $3.5 billion annually. In its statement,

FTC Chairman Edith Ramirez noted: “The Supreme Court’s decision is a significant

victory for American consumers, American taxpayers, and free markets. The court

has made it clear that pay-for-delay agreements between brand and generic drug

companies are subject to antitrust scrutiny, and it has rejected the attempt by

branded and generic companies to effectively immunize these agreements from

antitrust laws.” The Supreme Court rejected the pharmaceutical industry’s main

defense—that as long as settlements brought generics to market before the brand

drug’s patent expires, generic and brand name drugs should be free to negotiate

deals. But the court’s decision leaves it up to lower courts to decide whether each

deal violates antitrust law.

My take: the Supreme Court’s decision in policy circles is being described as a win

for the FTC, which had encountered challenges in bringing legal proceedings against

some “pay-to-delay” deals. Understandably, brand name drug makers and generics,

otherwise natural rivals, are disappointed with the result since it leaves in jeopardy

their current agreements. What’s clear is this: business arrangements in health

care—between drug and device manufacturers and plans or providers, even

contractual relationships between manufacturers and pharmacy benefit managers

(PBMs) and group purchasing organizations (GPOs) or relationships with clinical

investigators—are fair game for regulators in our increasingly transparency-driven

industry. The health care industry’s “standard operating procedures” and “core

strategies” are now subject to a level of scrutiny that is unprecedented. Growth

strategies for innovators are certain to be tempered by calculation of the risk-return

algebra in this regulatory climate.

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Committee seeks information about IRS access, handling of personal

health information On June 11, the House Committee on Energy and Commerce Panel requested

information about a San Diego lawsuit against the Internal Revenue Service (IRS)

alleging that it improperly obtained access to 60 million personal medical records.

Republican members of the Committee want more detail on how the IRS will handle

confidential medical information.

Background: the IRS’ tasks relative to the ACA include collecting information from

employers and insurers, determining who qualifies for Medicaid subsidies, and

enforcing penalties for individuals who do not purchase insurance and employers

who do not provide affordable options. (Source: CNN Money, “IRS Role in

Obamacare,” May 28, 2013)

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Immigration legislation would increase health spending $100 billion Last Tuesday, the CBO released its analysis of the Border Security, Economic

Opportunity, and Immigration Modernization Act (S. 744) estimating, between 2014

and 2023, federal HIX subsidies will increase $82.3 billion, Medicaid and Children’s

Health Insurance Program (CHIP) spending by $29.3 billion, and Medicare spending

by $.8 billion by increasing the number of people who would be eligible to receive

Medicaid or CHIP benefits for emergency conditions.

Background: S. 744 was introduced by Senator Chuck Schumer (D-NY) April 16,

2013, containing provisions that would increase the number of lawful permanent

residents (LPRs—“ foreign born individuals who have received permission to live and

work in the U.S permanently”), nonimmigrants, and authorized residents. S. 744

permits access to federal HIX subsidies for certain groups of nonimmigrants and

LPRs. Noncitizens that are lawfully present in the U.S. are currently eligible for HIX

subsidies. Also, currently, states may “provide full Medicaid and CHIP benefits to

certain groups of LPRs and other legal residents…By increasing the number of LPRs

and other legal residents, S.744 would increase the number of people who would be

eligible to receive either full Medicaid or CHIP benefits or Medicaid coverage for

treatment of emergency conditions.”

(Source: CBO, “Cost Estimate: The Border Security, Economic Opportunity, and

Immigration Modernization Act (S. 744),” June 18, 2013)

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Compounding pharmacy legislation introduced in the House June 14, Representative Morgan Griffith (R-VA) released draft legislation to address

instances in which a compounded drug can be administered or produced and the

type of oversight necessary to prevent public health outbreaks caused by

contaminated compounded drugs. Highlights:

Pharmacists would be permitted to compound drugs for an individual as long

as the individual presented a prescription from a licensed provider or the

pharmacist had a long-standing relationship with the prescribing physician and

the individual or patient.

Drugs may be compounded for a non-patient specific purchase order, but a

prescription must be filed within one week of a provider administering the drug

in a physician’s office.

While the U.S. Food and Drug Administration (FDA) would not be given unique

authority over certain compounding manufacturers, as proposed by the Senate

Committee on Health, Education, Labor & Pensions (HELP), the role of state

and federal regulators would be clarified.

Note: for more information on the compounding drug legislation passed by the

Senate HELP Committee earlier this year, see the May 28, 2013 Monday Memo.

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MACPAC report to Congress Last week, the Medicaid and CHIP Payment and Access Commission (MACPAC)

issued a report to Congress, providing analysis and data on issues related to

Medicaid and CHIP. Highlights of the report:

In July 2011, 50% of all Medicaid enrollees were covered by comprehensive

risk-based plans and an additional 16% were covered by primary care case

management (PCCM) programs.

Participation in comprehensive risk-based managed care plans was lowest

among the aged (12%) and the disabled (29%) and highest among non-

disabled adults (47%) and children (62%).

Of individuals dually enrolled in Medicaid and Medicare, 12% were enrolled in

a Medicaid comprehensive risk-based managed care plan in FY2010.

(Source: MACPAC, “June 2013 Report to the Congress on Medicaid and CHIP,”

June 14, 2013)

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HHS proposal: including medical records in gun background checks

faces opposition from physicians The amendment to the federal privacy rule proposed by HHS last week would allow

state mental health officials to transmit medical records of anyone declared mentally

unfit by a court to the National Instant Criminal Background Check System run by the

Federal Bureau of Investigation (FBI). In opposition, the National Association of State

Mental Health Program Directors believes the change would not solve the problem,

and physician groups oppose it based on the potential it might erode confidence in

the physician-patient relationship.

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SGR fix update: Congressional committees look to offsets in post-acute

care sectors Senate Finance and House Ways & Means Committee staff have asked trade

groups representing the post-acute sectors to recommend mechanisms wherein they

can help offset the cost of fixing the sustainable growth rate (SGR). The letter asked:

“Please provide information and ideas on the types of long-term PAC [post-acute

care] reforms that will help advance the goal of improving patient quality of care and

improving care transitions, while rationalizing payment systems and improving

program efficiency.”

Background: the Medicare Payment Advisory Commission reported that, since 2000,

post-acute spending has more than doubled and per-person spending has risen

90%. Recent policy proposals have focused on site-neutral pay and policies to

reduce readmissions as near-term solutions.

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Transparency of Medicare payments sought in bill Tuesday, Senators Ron Wyden (D-OR) and Chuck Grassley (R-IA) reintroduced the

Medicare Data Access for Transparency and Accountability Act, which would create

a public, searchable Medicare payment database.

Since the 1970s, Medicare claims data has been off limits to the public, but a federal

judge in Florida recently ruled in favor of Dow Jones to allow public access to claims

data through a Freedom of Information Act request. Senators Wyden and Grassley

want the data to be available at no charge on an easily accessible website.

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@Regulatory update: CMS Medicare Advantage Annual Notice and

RADV Audit Notification 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.

Two Health Plan Management System (HPMS) memos released by CMS inform

Medicare Advantage (MA) and Medicare Prescription Drug (Part D) Plans about

upcoming financial challenges in the MA and Part D programs. In this issue of @Regulatory, summaries of the memos are provided and potential financial impacts

are discussed.

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State update

State round-up: Medicaid To date, 27 states and DC 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 expansion 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,

PA, SC, SD, TN, TX, VA,

WI

KS, UT, WY

■ Democratic governor ■ Republican governor ■ Independent governor

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

Last Monday, Maine Governor Paul LePage (R) vetoed a bill to expand the

Medicaid program for the second time expressing concern that the state will

end up bearing the financial costs of expansion that would insure 70,000

additional enrollees.

The Michigan Senate formally adjourned Friday for the summer without voting

on the House bill accepting Medicaid expansion, which Governor Rick Snyder

(R) supports.

Mississippi’s Attorney General Jim Hood stated that Governor Phil Bryant (R)

does not have the authority to use an executive order to run the Medicaid

program, unless authorized by the state’s legislature. The issue: although

Hood’s opinion is nonbinding, the state legislature must renew the Medicaid

program before it expires on June 30, 2013 in order for the program to

continue. Some lawmakers want the legislature to agree on Medicaid

expansion before reauthorizing the program, while others refuse to call a vote

until after the program has been renewed.

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State round-up: HIX Seventeen states—12 led by Democratic governors, 4 led by Republicans, and one

Independent—and the Democratic mayor of DC 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 FFE; the Small Business Health Options Program

(SHOP) will be a state-based.

Source: HHS

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Deloitte Center for Health Solutions analysis: number of health

insurance carriers per state: HIX individual market

Notes:

Unless otherwise noted, data represents number of applicants based on qualified health plan

(QHP) or rate filing submissions. These are subject to changes and approval by federal or state

regulators.

For unlisted states, filing deadlines have not passed or data is not public.

MN, NE are based on number of carriers on individual and small group combined, split not public /

unclear.

AK, NE are based on number of carriers on individual as of June 7, 2013, filing deadlines not yet

passed.

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State round-up Wednesday, CMS voided 30 durable medical equipment (DME) competitive

bidding contracts involving 98 contractors in Tennessee, concluding the

suppliers were not properly licensed in the state and did not have a physical

location in Tennessee. Tennessee and Maryland were the only states where

complications with state licenses were found.

Mental health related emergency department (ED) visits in North Carolina are

double the national average, per a study by the University of North Carolina

School of Medicine. In 2010, 9.3% of all ED visitors reported a mental health

problem as a top complaint (compared to 5% nationally), and were more than

twice as likely to be admitted to the hospital. Of those patients reporting mental

health issues in the ED, 61% complained of stress, anxiety, or depression.

According to the report, higher mental health complaints in North Carolina’s

EDs may be attributed to the lack of community-based services and continuity

of care. Many mental health organizations have gone out of business in the

state, leaving EDs as one of the only options for mental health care.

(Source: Centers for Disease Control and Prevention [CDC], “Emergency

Department Visits by Patients with Mental Health Disorders—North Carolina,

2008-2010,” MMWR 62(23);469-472)

Last Tuesday, New York authorities reached a $1 million settlement with a

Brooklyn home health agency accused of using unqualified health aides. The

agency hired workers with false training certificates to care for elderly and

disabled clients and submitted false claims to Medicaid from 2005 to 2007.

Active Purchaser (Pre-Selection by State)

Active Purchaser (Post-Selection by State)

Clearinghouse or Other Model

Legend

New York’s Medicaid program requires state-licensed training for all home

health aides.

In Oregon, legislation (HB 3160) is being considered in the state Senate,

which allows citizens to sue insurance companies for not paying claims

promptly, refusing authorization of medical procedures, and denying coverage

for losses or medical bills. The House passed the bill in April, but it is unlikely

to pass in the state Senate due to an unpopular provision allowing third-party

defendants to sue an insurance company, even if they are not the policyholder.

A similar Senate bill (SB 414) passed on Wednesday, June 19, which would

allow the Insurance Division of the Department of Consumer and Business

Services director to seek restitution for consumers. Currently, the division can

only revoke the business license of an insurance company but cannot order it

to pay restitution to a consumer. Oregon insurance companies are currently

exempt from the state’s Unlawful Trade Practices Act of 1971.

June 14, Texas Governor Rick Perry (R) signed into law legislation (SB 1106)

that provides transparency in generic drug maximum allowable costs (MACs)

for Medicaid plans by requiring PBMs to use drugs rated “A” or “B” by the FDA

for their list of reimbursable drugs, and to provide pharmacists information

about the sources that were used to determine the ingredient costs for drugs.

The bill, which will take effect September 1, requires PBMs to update these

lists once a week; pharmacists will now have the ability to challenge drug

prices, with a mandatory response by the PBM within 15 days.

The issue: managed care organizations contract with PBMs to determine

which pharmacy benefits will be covered, as well as the reimbursement levels

for pharmacies, but this data is not made available to the pharmacy. PBMs

also determine drug payments based on ingredients and dispensing costs. In

March 2012, Texas expanded managed care statewide. Subsequently the

average dispensing fee for Medicaid prescriptions dropped from $7.13 to $1.53

and pharmacists received $12.7 million less in the first month after the switch.

Some states are encouraging seniors to purchase or use their life insurance to

pay for long-term care as a means to decreasing the cost of Medicaid for the

state. Texas Governor Rick Perry (R) signed a bill last Friday giving state

Medicaid officials the authority to tell beneficiaries that they have the option to

sell their life-insurance policies to a third-party administrator, who would then

use the policy to pay for health care of their choice. According to The Wall

Street Journal, similar legislation is pending in New York, California, Florida,

Kentucky, Louisiana, Maine, and New Jersey, with most of the bills requiring

that the funds be set aside into a separate account to be used only for the

beneficiaries’ long-term care.

(Source: Greene, Kelly, The Wall Street Journal, “States Ease Use of Life

Policies for Elder Care,” June 16, 2013)

State-sponsored price transparency websites: researchers at the University of

Michigan found the number of state-sponsored websites increased from ten in

2002 to 62 as of early 2012. Highlights:

o 73% of sites reported inpatient care prices for medical conditions, and

71% reported surgery pricing

o Outpatient care: 37% reported diagnostic and screening procedures,

23% radiologic studies, 15% prescription drugs, and 10% laboratory

tests

o 47% of sites were set up by the state; 39% by hospitals

(Source: Kullgren, Jeffrey, et al., Journal of the American Medical Association,

“A Census of State Health Care Price Transparency Websites,” June 2013)

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Industry news

Meeting highlights: AMA House of Delegates in Chicago last week ACA and SGR: a resolution to develop a policy statement on health care reform was

approved, including statements on repealing and replacing the Medicare SGR

physician payment formula; repealing and replacing the Independent Payment

Advisory Board (IPAB); supporting medical savings accounts (MSAs) and Medicare

“private contracting” (in which a patient could contract with a doctor to pay above

Medicare’s set fee with the patient responsible for costs above Medicare

reimbursement); and a provision to “immediately direct sufficient funds toward a

multi-pronged campaign to accomplish these goals.” A clause in the resolution

calling for the AMA to publicly withdraw its support of the ACA if the federal

government fails to act on these issues was not approved.

Obesity as a disease: the AMA House of Delegates officially recognized obesity as

a disease, to encourage physicians to pay more attention to the condition and

insurers to pay for treatments. Two new obesity drugs have entered the market in the

last year.

Background: 28.9% of U.S. adults and 16% of adolescents were obese in 2012, per

the CDC vs. 28.7% in 2011 and 19.4% in 1997. Recognition of obesity as a disease

has long been debated. The Obesity Society issued its support for classifying obesity

as a disease in 2008. The IRS said that obesity treatments qualify for tax deductions.

In 2004, Medicare removed language from its coverage manual saying obesity was

not a disease. But Medicare Part D, the prescription drug benefit, disallows weight

loss drugs along with drugs for hair growth and erectile dysfunction. The AMA vote

went against the recommendations of the Council on Science and Public Health,

which said obesity should not be considered a disease because the measure usually

used to define obesity (body mass index) is flawed.

Related: Wednesday, a bipartisan group of House and Senate lawmakers introduced

a bill requiring Medicare to cover weight loss drugs. The VA and 20 state Medicaid

programs already cover FDA-approved weight loss drugs.

Compounding, energy drinks, hydrocodone, biosimilar policies: the AMA

House of Delegates voted to support increased FDA oversight of drug compounding,

back a ban on the marketing of energy drinks to children, advocate for hydrocodone

combination products not to be rescheduled, and re-examine emerging biosimilar

issues. With regard to drug compounding, the delegates adopted a new policy

recommending that traditional compounding pharmacies be subject to state board of

pharmacy oversight and encouraging all state boards of pharmacy to reference

sterile compounding quality standards, including, but not limited to, those in the U.S.

Pharmacopeia, as the standard for sterile compounding in their state—a policy being

pushed by the National Association of Boards of Pharmacy.

Maintenance of certification: the AMA House of Delegates voted 275-192 against

a proposal backed by the American Board of Medical Specialties that recommends

physician competence be ascertained via a continuous maintenance of certification

(MOC) process, replacing current requirements that physicians be certified every six

to ten years. Delegates approved the hiring an independent third party to assess the

effects of MOC on the physician workforce, physicians’ practice costs, patient

outcomes, patient safety, and patient access and consider alternate MOC efforts.

The Federation of State Medical Boards proposed an additional recertification

program, maintenance of the licensure program, as well as the American

Osteopathic Association’s Continuous Certification process.

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Pfizer, Takeda case signals alert for at-risk generic launches At issue in last week’s $2.15 billion verdict award to Pfizer and Takeda from Teva

and Sun Pharmaceuticals is a practice called “at risk” generics, whereby a generic

manufacturer releases a drug before patent protection challenges by the branded

owner have been exhausted. At risk launches are legal if a generic company gets

permission from the FDA after a 30-month delay.

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MGMA survey: 55% of medical practices not ready for ICD-10 rollout A survey of 1,200 office-based practitioners released last week by the Medical Group

Management Association (MGMA) found widespread concern about the rollout of

ICD-10 by October 1, 2014. Key findings:

70% were “very concerned” about expected loss of clinician productivity and

67% were very concerned about loss of coder productivity.

71% responded that, to accommodate ICD-10, their electronic health record

(EHR) systems either were upgraded or still need to be upgraded, will need to

be replaced, or they are unsure.

60% said their systems will need to be upgraded (MGMA puts costs at

$10,000/physician).

0.6% said testing was complete with EHRs for ICD-10 compliance and 42%

responded that they didn't know when they might test their systems.

(Source: MGMA, “Legislative and Executive Advocacy Response Network (LEARN),

ICD-10 Implementation Study,” June 2013)

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Moody’s: hospitals seeing volume declines, increased focus on value Monday at the Healthcare Financial Management Association (HFMA) National

Institute, Lisa Goldstein, associate managing director for Moody’s Investor Service,

told health care finance professionals that hospitals are seeing 5-12% volume

declines. She encouraged the largely provider audience to focus on four goals in

their pursuit of value:

Achieve breakeven performance with Medicare rates.

Build scale through nontraditional methods.

Improve the patient experience.

Cultivate informed leadership.

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NCQA updates medical home certification requirements The National Committee for Quality Assurance (NCQA) is seeking comments on

proposed revisions to its patient-centered medical home recognition program

standards, raising the number of elements that apply to pediatric practices,

integrating behavioral health care into primary care, and increasing alignment with

Stage 2 Meaningful Use health information technology (HIT) requirements.

Examples: increasing access through “nontraditional types of clinical encounters,”

such as structured e-visits, group visits, and scheduled telephone encounters; having

more than 5% of patients view their electronic health information, with the ability to

download or transmit it to a third party; and having more than 20% of patients record

their family medical history into a structured and searchable electronic record

system.

Background: the NCQA has recognized 5,730 practices as medical homes since

2008 and will take public comments through July 22.

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Study: $105 billion potential savings from medical adherence

improvement The IMS Institute for Healthcare Informatics analysis released last week found

medication non-adherence comprised the largest avoidable cost category, with an

estimated cost of $105 billion in 2012. The study reported that cost was a primary

driver of non-adherence, with patient’s lack of information about long-term effects of

certain diseases and fear of a drug's side effects also contributing.

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Public hospital association gets new name Thursday, the National Association of Public Hospitals and Health Systems

announced its new name: America’s Essential Hospitals. The group has more than

200 members, predominantly safety net hospitals.

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

Unauthorized immigrants account for 1.4% of U.S. medical spending Nebraska researchers concluded unauthorized immigrants have lower health care

expenditures compared to legal residents, naturalized citizens, and U.S. natives. For

the 2000-2009 period: U.S. natives accounted for $1 trillion in average annual health

care spending. Costs for immigrants averaged $96.7 billion and $15.4 billion of that

total (or 15.9%) was for unauthorized immigrants. Key findings:

7.9% of unauthorized immigrants had health care spending from public

sources, averaging $140 per person per year vs. 30.1% of U.S. natives had

health care spending from public sources, with an average of $1,385 per

person per year. Average ED expenditures for unauthorized immigrants were

$54 per year, compared to $138 per year for U.S. natives.

5.9% of unauthorized immigrants received care that providers are not

reimbursed for compared to 2.8% of U.S. natives in the same category.

Researchers suggested this is due to fewer unauthorized immigrants who have

insurance

(Source: Health Affairs Blog, “Unauthorized Immigrants Account for Only 1.4 Percent

Of U.S. Medical Spending,” June 12, 2013)

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Quotable “Tens of thousands of times each year, patients are wheeled into the nation’s

operating rooms for surgery that isn’t necessary…Some fall victim to predators who

enrich themselves by bilking insurers for operations that are not medically justified.

Even more turn to doctors who simply lack the competence or training to recognize

when a surgical procedure can be avoided, either because the medical facts don’t

warrant it or because there are non-surgical treatments that would better serve the

patient.

The scope and the toll of the problem are enormous, yet it remains largely hidden.

Public attention has been limited to a few sensational cases, typically involving

doctors who put cardiac stents in patients who didn’t need them.

In fact, unnecessary surgeries might account for 10-20% of all operations in some

specialties, including a wide range of cardiac procedures—not only stents, but also

angioplasty and pacemaker implants—as well as many spinal surgeries. Knee

replacements, hysterectomies, and cesarean sections are among the other surgical

procedures performed more often than needed, according to a review of in-depth

studies and data generated by both government and academic sources..”—Peter

Eisler and Barbara Hansen, USA Today, “Under the knife for nothing,” June 20, 2013

“[There] is the urgent need to reform and modernize our entitlement programs—

primarily Social Security, Medicare, and Medicaid. These are safety net programs

that we have enacted as a compassionate society to care for the elderly in

retirement, for people with disabilities, and for those who cannot afford health

insurance on their own….

Without federal spending reform—driven primarily by entitlement costs—interest

payments on our national debt will reach almost $1 trillion per year by 2023 and

explode well beyond that—not if, but when, interest rates get back to normal

levels….

We must have a vigorous debate on how to fix these programs, but before we can do

that, Americans must first recognize that there is a problem.

The evidence clearly shows that the programs as we know them today cannot

survive without reform and modernization. Yet according to public opinion polls, most

Americans are not yet prepared to accept this reality.”—address by R. Bruce Josten,

Executive Vice President of Government Affairs, U.S. Chamber of Commerce, “10

Truths About America’s Entitlement Programs,” June 19, 2013

“Medicare is portrayed as getting the best deal from the system because Medicare

pays less per service. But remember how the system works. Who’s to say Medicare

doesn’t pay less per procedure because it’s being billed for many more procedures,

because that’s how providers are allowed to maximize their revenues from the payer

known as Medicare?

In fact, plenty of evidence suggests this is exactly how Medicare operates. And

Congress understands as much, hence the 25% cut in physician reimbursement it

keeps threatening to impose is informed partly by expectations that physicians could

maintain their incomes by charging for more services.”—Editorial: Holman Jenkins,

The Wall Street Journal, “The Young Won’t Buy ObamaCare,” June 19, 2013

“There are popular and valuable aspects to the workplace-wellness mania, such as

on-site gyms, corporate sports teams, healthy cafeteria food and free nicotine

patches. But take out those components that don’t need or benefit from government

incentives or regulation and here’s what’s left: employers paying workers to fill out

anonymous forms about their health, facilitated by human resources departments

reliant on vendors and brokers to concoct math to justify these programs…all in the

name of preventing medical events that vendors don’t track.”—Editorial: Al Lewis and

Vik Khanna, The Wall Street Journal, “Here Comes ObamaCare’s `Workplace

Wellness’,” June 21, 2013

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Fact file College education: 33% of adults ages 25-29 had a bachelor’s degree in

2012 vs. 25% in 1995 and 22% in 1975. (Source: Digest of Education

Statistics, National Center for Education Statistics, “2012 Digest Tables,

Chapter 1: Table 9,” 2012)

Ratio of active workers to Medicare beneficiaries: 4.5:1 (1965), 3.3:1

(2011) 2.3:1 (2030). (Sources: Heritage Foundation, “The number of workers

per Medicare beneficiary is falling,” May 2012; CMS, “Medicare Trustees

Report,” June 2012)

Medicare and Medicaid spending forecast: Medicare spending is forecasted

to increase from $592 billion in 2013 to $1.0 trillion in 2023; Medicaid spending

increased from $72 billion in 1990 to $400 billion in 2010, of which $40 billion

and $271 billion, respectively, were federal dollars. (Sources: CBO, “The

Budget and Economic Outlook: Fiscal Years 2013 to 2023,” February 2013;

American Hospital Association, “Ensuring A Healthier Tomorrow,” March 12,

2013)

Premiums versus payments: the average couple will receive $387,000 in

lifetime Medicare benefits yet they pay $122,000 in Medicare taxes. (Source:

American Hospital Association, “Ensuring A Healthier Tomorrow,” March 12,

2013)

Medicare beneficiaries, costs, and chronic conditions:

Number of chronic

conditions

Percentage of

beneficiaries

Percentage of total

Medicare spending

0-1 32% 7%

2-3 32% 19%

4-5 23% 28%

6+ 14% 46%

(Source: CMS, “Chronic Conditions Among Medicare Beneficiaries,

Chartbook: 2012”)

Hospitals falls: between 700,000 to 1 million hospital falls occur annually or

0.562 per 1,000 discharges; 30-51% result in an injury; 22% are age 74 and

older; some are serious adding 6.72 days to average length of stay and

$13,000 to costs. (Sources: CMS Hospital Compare, AHRQ, JCAHO)

Premium increases: individual policies for adults ages 21-29 may increase up

to 42% and adults ages 30-39 may see a 31% increase. (Source: Karlson, C.

and Giesa, K., Contingencies, “Age Band Compression Under Health Reform,”

January 2013)

Health care compliance risk: health care compliance was rated an important

issue by 45% of corporate chief counsel; settlements with the health care

industry were $7.2 billion; health care companies spent $5.72 billion on legal

advice for health care regulatory matters. (Source: Association of Corporate

Counsel, “Chief Legal Officers 2013 Survey,” January 2013)

Medical marijuana: 18 states and DC have legalized medical marijuana as of

June 13. (Source: National Conference of State Legislatures, “State Medical

Marijuana Laws,” May 2013)

Physician employment by a hospital: 26% in 2013 vs. 20% in 2012.

(Source: Jackson Healthcare survey of 3456 physicians polled between March

7 and April 1, 2013)

Mobile health: one-third of U.S. adults who are online are “very” or

“extremely” interested in using smartphones or tablets to ask their doctors

questions, make appointments, or get medical test results; 47% are “somewhat

confident” exchanges of personal health information is secure vs. 40% who are “not very” or “not at all” confident. (Source: Harris Interactive online survey of

2,050 Americans ages 18 and older, conducted May 22-24, 2013)

Opinions about ACA: terminology matters: according to a telephone poll of

1,505 people in the U.S. ages 18 and older: 73% of Democrats said they have

a favorable opinion of “Obamacare” vs. 58% of Democrats said they have a

favorable opinion of the “health reform law.” Republicans had an 86%

unfavorable opinion of “Obamacare” vs. a 76% unfavorable opinion of the

“health reform law.” Overall, 25% of those surveyed said they had “no opinion”

on the “health reform law,” and just 11% felt the same about “Obamacare.” (Source: Kaiser Health Tracking Poll, June 2013, conducted June 4-9, 2013)

Primary care distribution: the U.S. has 80 primary care physicians per

100,000 people ranging from an average of 68 in rural areas to 84 in urban

areas. To provide a primary care physician for every 2,000 Americans—a

commonly used threshold—the U.S. needs an additional 2,670 rural physicians

and an additional 3,970 urban physicians. (Source: Robert Graham Center for

Policy Studies in Family Medicine and Primary Care) Note: the analysis does

not consider primary care provided by nurse practitioners or retail clinics in its

analysis.

Physician interaction with pharmaceutical companies: in 2011, $15.7

billion was spent by drug makers on face-to-face sales and promotional

activities targeting physicians. (Source: PhRMA) Note: starting August 1, drug

makers must report every gift/transaction with physicians with a value of $10

or more, and it will eventually become public record. Physicians will have the

opportunity to review what is reported about them in the second quarter of

next year, and the reports will be made public on September 30, 2014.

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Deloitte Center for Health Solutions research To learn more about recent Deloitte thought leadership, please visit Deloitte

University Press at www.DUPress.com.

Coming soon: Consumer Attitudes about Health Reform and the Affordable Care Act: 2009-2013

Currently available: Hospital Consolidation: Analysis of Acute Sector M&A Activity—May 2013.

Available online at www.deloitte.com/us/2013hospitalconsolidation

Physician adoption of health information technology: Implications for medical

practice leaders and business partners—May 2013. Available online at

www.deloitte.com/us/2013physiciansurveyHIT

Breaking Constraints: Can incentives change consumer health choices?—

March 2013. Available online at http://dupress.com/articles/breaking-

constraints/?coll=3024

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 return to top

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Deloitte contacts

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

(pkeckley@deloitte.com)

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Deloitte LLP (bcopeland@deloitte.com)

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Consulting LLP (jgirzadas@deloitte.com)

Harry Greenspun, M.D., Senior Advisor, Health Care Transformation and

Technology, Deloitte Center for Health Solutions (hgreenspun@deloitte.com)

Mitch Morris, M.D., National Leader, Health Information Technology, Deloitte

Consulting LLP (mitchmorris@deloitte.com)

George Serafin, Managing Director, Health Sciences Governance Regulatory &

Risk Strategies, Deloitte & Touche LLP (gserafin@deloitte.com)

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