a post-election exchange and expansion update

Health Policy Implications

Artia Advisor 2-7-13

States are moving forward at differentiating paces while HHS extends deadlines


Feb. 15, 2013

HHS Has Extended Deadlines

HHS will approve or conditionally approve the state-based exchange blueprints by January 1, 2013. Both declaration letters and blueprints will be accepted on a rolling basis until the final deadline of February 15, 2013.

Even despite these extensions, many state lawmakers remain concerned that these deadlines, in conjunction with the delayed release of guidance and regulation from HHS, are extremely prohibitive in allowing sufficient time to deliberate and choose the most appropriate implementation pathway.

Nov. 6, 2012

Original deadline to select a benchmark plan and declare intent

Dec. 14, 2012 Jan. 1, 2013

HHS to determine if states have complied with the provisions to establish an exchange

Jan. 1, 2014 Jan. 1, 2015

Exchanges must be self-sustaining

Exchanges become operational; Required standards must be in effect

Revised Deadline to submit Exchange Blueprint, Declaration Letter, and Application

Final deadline to submit exchange blueprints


State-based Exchange

State Partnership Exchange

Federally-facilitated Exchange

State operates all exchange activities; however, state may use federal government services for the following activities:

Premium tax credit and cost-sharing reduction

Exemptions

Risk adjustment program

Reinsurance program

State operates activities for:

Plan management

Consumer assistance

Both

HHS operates; however, state may elect to perform or can use federal government services for the following activities:

Reinsurance program

Medicaid and SHIP eligibility - assessment or determination

For those states that elect not to establish an exchange, HHS is required to establish an exchange on behalf of the state or in those states where HHS determines an exchange will not be operational by January 1, 2014.

Qualified health plans (QHPs) which will participate in the exchange markets must include items and services within at least the following 10 categories:

Ambulatory patient services

Rehabilitative and habilitative services

and devices

Prescription drugs Laboratory services

Preventive and wellness services

and chronic disease management

Maternity and newborn care Pediatric services


ImmunosuppressantsImmunosuppressants

AntidepressantsAntidepressants

AntipsychoticsAntipsychotics

AnticonvulsantsAnticonvulsants

AntiretroviralsAntiretrovirals

AntineoplasticsAntineoplasticsPa

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HHS previously indicated that it “does not intend to adopt the protected class of drug policy in Part D” and may consider a proposal that would permit EHB plans to cover only one drug in a particular category or class.

In the proposed rule, HHS referenced comments from various stakeholders such as patient advocacy groups and manufacturers who stated significant concerns that such a policy would not provide comprehensive or sufficient drug coverage

The proposed rule also referenced an Avalere study which showed that many plans are already offering more comprehensive coverage than a “one drug per class” policy


As part of the regulatory process for setting up exchanges and implementing other provisions of the ACA, the Administration is tasked with releasing guidance, or regulations, to states and health plans who are affected by the provisions.

These regulations are issued in the form of proposed rulemaking, a process through which the federal agency (in this case, the Department of Health and Human Services) issues its intended approach towards the provisions of the law in the form of a proposed rule. This is followed by a period for stakeholder comment and agency review of these comments, before HHS releases a final rule.

On November 20, 2012, HHS released a proposed rule which will regulate the provision of minimum coverage of essential health benefits (EHBs) to be offered in plans participating in the individual and small group markets.

Of importance to Salix, this guidance included HHS’s intended approach to defining adequate provision of prescription drugs as one of the ten required EHB’s.


A plan must cover the greater of:

1. One drug in every category and class, or

2. The same number of drugs in each category and class as the EHB-benchmark plan

QHPs will report drug list to the Exchange, an EHB plan operating outside of the Exchange must report its drug list to the state, and a multi-state plan must report its drug list to the Office of Personnel Management (OPM).◦ This reporting will take U.S. Pharmacopeia (USP) reporting

format Drugs must be “chemically distinct,” i.e. cannot offer brand-

name drug and its generic to satisfy requirements HHS proposes that plans “have procedures in place to ensure

that enrollees have access to clinically appropriate drugs that are prescribed by a provider but are not included on the plan’s drug list”


State Structure of Exchange

Contracting Type of Exchange

Governance

California Quasi-governmental

Active Purchaser 5-member Board

Colorado Quasi-governmental

Clearinghouse 12-member Board

Connecticut Quasi-governmental


District of Colombia Quasi-governmental


Hawaii Non-Profit Clearinghouse 15-member Board*

Maryland Quasi-governmental

To be decided by the Board of Directors

9-member board

Massachusetts Quasi-governmental

Active purchaser 11-member Board

Nevada Quasi-governmental

Not addressed in legislation

10-member Board

Oregon Quasi-governmental


Rhode Island Operated by State Active Purchaser 13-member Board

Vermont Operated by State Active Purchaser 5-member Board

Washington Quasi-governmental

Not addressed in legislation

11-member Board*Description of Hawaii’s Interim Board, which will be replaced on June 30, 2012. The ultimate Board of Directors will include eleven members.**Although Utah’s exchange doesn’t have a formal governing board, the state has created an executive steering committee to advise exchange staff on operations and transparency issues and a Defined Contribution Risk Adjuster Board to manage risk sharing mechanisms.


In light of the Supreme Court ruling, many states will opt out or delay expansion


States now have more options regarding how they will expand their Medicaid population. States may have the option of applying the expansion to sub-populations within their existing Medicaid program, while others are choosing not to participate altogether.

CBO has estimated that 6 million less individuals will receive coverage in 2014 as states opt-out of Medicaid expansion. CBO projects that 3 million of these will likely fall into exchanges while the other 3 million will be left uninsured.

17 million = Medicaid Expansion

Pre-SCOTUS

3M eligible for exchange

subsidies

30 million= Total Uninsured Post-

SCOTUS

3M uninsured

3M


The Supreme Court Ruling:

The Commerce Clause The Necessary and Proper Clause The Tax and Spending Clause

“Congress shall have power to regulate

Commerce with foreign Nations, and among

the several States, and with the Indian tribes”

“Congress shall have power to make all Laws which shall be

necessary and proper for carrying into Execution the foregoing Powers”

“Congress shall have Power to lay and collect Taxes, Duties,

Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States”

Unconstitutional Unconstitutional ConstitutionalThe Individual Mandate Moves Forward

The penalty will be calculated as the greater of either: 1. a percentage of the “applicable income,” defined as the amount by which an individual’s household income exceeds the applicable filing threshold for the applicable tax year, or

2. a flat dollar amount assessed on each taxpayer and any dependents

The Congressional Budget Office’s ten-year estimate of tax revenue generated from the individual mandate:

$117 billion


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MA plans may look to vendors for savings by restructuring formularies or cost-sharing.

MA plans may look to vendors for savings by restructuring formularies or cost-sharing.

Source: Kaiser Family Foundation, Medicare Advantage 2012 Data Spotlight: Enrollment Market Update http://www.kff.org/medicare/upload/8323.pdf

Medicare Advantage Enrollment has grown by 10% in 2012 (~27% of Medicare population)

The MA program continues to be a popular government funded program despite recent activity by Democrats to modify the program.

The new five-star rating system by CMS uses benchmarks and quality measures to rate plan performance.

MA plans may find mechanisms to save money while continuing to meet program requirements.


HHS and CMS’s renewed focus on value-based purchasing and quality


HHS: Essential Health Benefits Ruleproposed rule filed Friday, November 9

This regulation will offer further guidance regarding minimum benefits that plans offered in the health insurance exchanges must cover in 2013.

HHS: Definitions of Part-time and Full-time Workers

HHS must define part-time and full-time workers to guide eligibility standards for subsidized coverage in the newly established exchange market

HHS: Actuarial Value This regulation will finalize the regulatory approach that HHS will use to define actuarial value (AV) for coverage in the individual and small group markets

HHS: Rate disclosure and reviewEvery premium rate increase in the individual and small group market greater than 10% will be reviewed

HHS: Navigator Final guidance will define the role and parameters of Navigators, who will facilitate enrollment in exchanges

HHS: SHOP Exchanges

Federal rules will provide a framework for Small Business Health Options (SHOP) Exchanges, including options for how employers can provide contributions toward employee coverage that meet standards for small business tax credits

IRS: Exchange subsidiesIRS proposed that subsidies will be provided to eligible workers who choose to participate in either a state or federally-facilitated exchange. Congressional intent of this provision has been disputed

IRS: Medical Device TaxProviders are awaiting regulations on how the tax, which is scheduled to take effect in 2013, will be applied

FDA: Unique Device IdentifierCongress passed legislation in 2007 directing the FDA to develop regulations establishing a unique device identification (UDI) system for medical devices

17

Following Obama’s re-election, federal agencies are expected to issue the following regulations and guidance to facilitate implementation of Affordable Care Act (ACA) provisions:


Implementation Timeline

2.3 percent excise tax on medical devices effective January 1, 2013

Current Status

New tax expected to raise $29 billion over ten years Applies to all U.S. device sales except: eyeglasses, contact

lenses, hearings aids, and other retail sales. No exemption for Class I devices No small business exemptions Tax deductible

Implications

All device manufacturers will be required to pay the excise tax

Unlike the pharmaceutical tax, this tax is not based upon market share therefore small to mid size device manufacturers will likely experience the most significant impact of this provision

On June 7, 2012 the House passed H.R. 436, the Health Care Cost Reduction Act of 2012 by a vote of 270-146. There were 37 House

Democrats who supported the measure.33 Republican Senators have signed on to a similar repeal bill, S. 17, by

Sen. Orrin Hatch (R-UT).


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Value-based purchasing (VBP) programs reflect CMS Triple Aim

Value-based purchasing (VBP) programs reflect CMS Triple Aim

Value-based purchasing links provider payments to quality measures and performance by healthcare providers.

This form of payment is designed to hold providers accountable for both cost and quality.

The ACA establishes a value-based purchasing program in Medicare for hospitals and requires the development of similar programs for skilled nursing facilities, home health agencies, and ambulatory surgical centers, and the testing of pilot programs for other providers

Payment Bundling National Pilot Project

Under the ACA, HHS is required to establish a national, voluntary pilot program for integrated care of Medicare beneficiaries with “applicable conditions” around a hospitalization

Hospital Value-Based Purchasing Program

The Hospital Value-Based Purchasing Program will pay approximately 3,500 hospitals across the country for inpatient acute care services based on care quality


Established through the ACA as a non-governmental not for profit governed by a 21-member Board of Governors.

Identify research priorities and establish a research project agenda. Carry out research (either in-house or via public and private partnership).

Leads comparative effectiveness research (CER) for HHS. Established U.S. Preventive Services Task Force. Defines quality indicators (QIs) to measure healthcare quality based on

based on hospital inpatient data. Sponsors, conducts, and disseminates research to improve the quality of

healthcare services and help patients make more.

Manages accreditation of health plans (Medicaid Managed Care, Medicare Advantage, Federal Employee, and private plans), physician programs, and medical groups.

Administers the Healthcare Effectiveness Data and Information Sets (HEDIS), a tool used by health plans to measure performance on dimensions of care.

HEDIS contributes to CMS’ Medicare Advantage Five-star Rating System.

Founded in 1990 as a nonprofit to develop uniform standards for utilization reviews.

Accredits many types of healthcare organizations, including medical management organizations (disease/case management, call centers, independent review organizations), health plans, hospitals and health websites.

Some states recognize URAC accreditation to meet state regulatory requirements; some require it.

Each accreditation program has a separate cycle for revisions, and interested parties must contact URAC regarding proposed revisions to standards.

Draft standards are always open to public comment.


Although each of these organizations have a distinct direction and focus there are some overlaps in responsibility and organizational structure. Prior to the enactment of the ACA; AHRQ was responsible for CER, moving forward PCORI will lead this function for the private public partnership while AHRQ will continue to serve as the governmental organization for CER and quality

Similarly URAC and NCQA both accredit health plans and want to play a role in at the governmental level in certifying the QHPs. NCQA has also expressed interest in accrediting ACOs

NQF governs the quality benchmarking process and will continue to work with NCQA and physician groups to create new quality metrics.

Ultimately, organizations such as AHRQ and PCORI will lead efforts to collect clinical data while URAC, NCQA, and NQF will leverage that data to create quality standards, measurements, and benchmarks that will drive the definition of value and set new parameters for provider reimbursement models.


These policy drivers will work together to influence the health care

delivery system and life sciences companies


The number of consumers potentially affected by these reforms is significant, and the window of action for stakeholders will not

remain open for long.


Imperative for Reducing U.S.

Healthcare Spending

1. The U.S. System is unsustainably expensive• $8,000 per capita cost• 40% higher than every other country in the world• Cost growth 3X GDP• Old, sick baby boomers coming• Without change, the system will go bankrupt

2. ACA actually increases cost pressures• Expansion of coverage• MLR floors• Fewer levers to drive selection of lower-cost members

3. Private sector experiments are working• Investments in HIT are driven by incentives supported by

government• Integrated systems—Kaiser, Intermountain, Geisinger—have

shown traction on getting better quality for less cost the system will go bankrupt

4. The largest payers in the system – the state and federal governments- are out of money• Protracted economic slowdown, draining state and federal

coffers• Public sentiment is more hostile; large public indebtednes

system will go bankrupt Artia Advisor 2-7-13

Issue Drivers % of Revenue Impact

Shift to value/increasing role of providers

20% of payments flowing through channel

50% of those at risk with no response

10%

Diminished economic viability for payers

Potential of 8% rebates increase in private market (non-provider – 40%)

3%

Health insurance goes retail

Risk of non-response to exclusions from formulary

2% - 3%

States/exchanges Accelerated use of generics, exclusion from coverage

2% - 3%

Health Information Liquidity

Allowing others to disseminate information about generic use with no response

1% - 2%

Total 18% - 21%Artia Advisor 2-7-13

Physician Value-Based Payment: Initial Performance Period for determining payment modifiers begins

Physician Value-Based Payment: Initial Performance Period for determining payment modifiers begins

‘13

Bundling: Establishes a national voluntary pilot program starting with 10 conditions to bundle

payment for episodes of care delivered by disparate providers, such as hospitals, physicians, long-term

care, and post-acute providers

Bundling: Establishes a national voluntary pilot program starting with 10 conditions to bundle

payment for episodes of care delivered by disparate providers, such as hospitals, physicians, long-term

care, and post-acute providers

Hospitals: Start date for 11

cancer hospitals to report on

quality measures, as established by

the Secretary

Hospitals: Start date for 11

cancer hospitals to report on

quality measures, as established by

the Secretary

Reimbursement: Start date for state requirement to pay primary care physicians who provide Medicaid

patients certain services (evaluations, management, and immunizations) at a rate equal or greater to the

current Medicare rate

Reimbursement: Start date for state requirement to pay primary care physicians who provide Medicaid

patients certain services (evaluations, management, and immunizations) at a rate equal or greater to the

current Medicare rate States: Deadline for

HHS to provide regulations for states to allow health insurers to sell products

across state lines

States: Deadline for

HHS to provide regulations for states to allow health insurers to sell products

across state lines

Payment Methods: Deadline for the Secretary to establish a pilot program seeking alternative payment methods for Medicare based on quality and efficiency

of care

Payment Methods: Deadline for the Secretary to establish a pilot program seeking alternative payment methods for Medicare based on quality and efficiency

of care

Pharmaceuticals: Annual industry tax on brand-name pharmaceutical manufacturers increases to

$2.8 billion

Pharmaceuticals: Annual industry tax on brand-name pharmaceutical manufacturers increases to

$2.8 billion

‘14

Individual Mandate: Individuals are required to purchase qualified health insurance or pay a fine or a percentage of taxable household

income, whichever is greater (changes to fine and % in subsequent years)

Individual Mandate: Individuals are required to purchase qualified health insurance or pay a fine or a percentage of taxable household

income, whichever is greater (changes to fine and % in subsequent years)

Essential Benefits: As defined by law and the Secretary, all exchange plans must cover an

“essential health benefits package”

Essential Benefits: As defined by law and the Secretary, all exchange plans must cover an

“essential health benefits package”

Exchange: Exchange plans must offer at least one “silver” and “gold” plan to cover 70% and

80% of projected expenses for enrollees. Companies selling those plans may also offer a

“bronze (60%) and “platinum” plans (90%0. These plans must be sold at the some price in

or outside the exchange.

Exchange: Exchange plans must offer at least one “silver” and “gold” plan to cover 70% and

80% of projected expenses for enrollees. Companies selling those plans may also offer a

“bronze (60%) and “platinum” plans (90%0. These plans must be sold at the some price in

or outside the exchange.

Exchange: Exchange plans must consider all enrollees as part of a single risk pool

Exchange: Exchange plans must consider all enrollees as part of a single risk pool

Insurers: $8 billion industry tax levied on health insurers (increase in subsequent years)

Insurers: $8 billion industry tax levied on health insurers (increase in subsequent years)

Pharmaceuticals: Deadline for the Secretary to disseminate regulations to

standardize prescription drug information formats (3/23)

Pharmaceuticals: Deadline for the Secretary to disseminate regulations to

standardize prescription drug information formats (3/23)

Operating Rules: Deadline for the Secretary to adopt standardized operating rules for insurers

around health claims, enrollment/disenrollment, plan premium payments, and referral certification

and authorization transactions

Operating Rules: Deadline for the Secretary to adopt standardized operating rules for insurers

around health claims, enrollment/disenrollment, plan premium payments, and referral certification

and authorization transactions

Medicare Advantage: Deadline for private plans that participate in Medicare Advantage

to begin spending at least 85% of plan revenue on medical costs

Medicare Advantage: Deadline for private plans that participate in Medicare Advantage

to begin spending at least 85% of plan revenue on medical costs

Payment Reform

Health Information Technology

Delivery System Reform

Taxes/Fees

Cuts to Hospitals: Secretary must reduce the annual

inflation update to Medicare payments for outpatient

hospitals by 0.3%

Cuts to Hospitals: Secretary must reduce the annual

inflation update to Medicare payments for outpatient

hospitals by 0.3%

IPAB: Deadline for 15-member Independent Payment Advisory

Board to develop recommendations to reduce

payment spending, to be submitted to Congress and the

President (1/15)

IPAB: Deadline for 15-member Independent Payment Advisory

Board to develop recommendations to reduce

payment spending, to be submitted to Congress and the

President (1/15)

Expansion: States must expand eligibility to all individuals under

64 with family incomes at or below 133% FPL; newly eligibles

will be funded by the federal government through 2016

Expansion: States must expand eligibility to all individuals under

64 with family incomes at or below 133% FPL; newly eligibles

will be funded by the federal government through 2016

Exchanges: Deadlines for

states wishing to establish

partnership Exchange to

submit blueprints to HHS

Exchanges: Deadlines for

states wishing to establish

partnership Exchange to

submit blueprints to HHS

CMMI: Deadline for the Secretary to report to

Congress on the activities of CMMI

CMMI: Deadline for the Secretary to report to

Congress on the activities of CMMI

Exchanges: Deadline for states to declare

intention to establish a state-based exchange and submit blueprint

(12/14)

Exchanges: Deadline for states to declare

intention to establish a state-based exchange and submit blueprint

(12/14)


‘15 ‘16 ‘17 ‘18 ‘19

Exchange: Deadline for state exchanges to be self-sustaining and

not rely on federal subsidies

Exchange: Deadline for state exchanges to be self-sustaining and

not rely on federal subsidies

Cost-Sharing: Deadline for Medigap Part C and Part F plans to implement

cost-sharing standards requiring nominal cost-sharing to encourage the appropriate use of physician services

Cost-Sharing: Deadline for Medigap Part C and Part F plans to implement

cost-sharing standards requiring nominal cost-sharing to encourage the appropriate use of physician services

Spending: Start date for the Secretary to begin implementing

cuts in Medicare spending, as

recommended by IPAB, unless Congress enacts legislation to

block implementation

Spending: Start date for the Secretary to begin implementing

cuts in Medicare spending, as

recommended by IPAB, unless Congress enacts legislation to

block implementation

Pharmaceuticals: Annual industry tax on

brand-name pharmaceutical manufacturers

increases to $3 billion




Employers: Start date for states to allow employers with 101+ employees to

purchase insurance through the exchange

Employers: Start date for states to allow employers with 101+ employees to

purchase insurance through the exchange







Cuts to Hospitals: Start date for the Secretary to

reduce the annual inflation update to

Medicare payments for outpatient hospital

services by 0.75% for 2017-2019

Cuts to Hospitals: Start date for the Secretary to

reduce the annual inflation update to

Medicare payments for outpatient hospital

services by 0.75% for 2017-2019

Eligibility: Start date for states to begin

paying a percentage of the cost of Medicaid coverage for newly

eligibles; the federal taxpayer will pay the remainder of the cost

(percentage changes in subsequent years)

Eligibility: Start date for states to begin

paying a percentage of the cost of Medicaid coverage for newly

eligibles; the federal taxpayer will pay the remainder of the cost

(percentage changes in subsequent years)

Pharmaceuticals: Annual industry tax

on brand-name pharmaceutical manufacturers

reduced to $2.8 billion (2019 and

beyond)

Pharmaceuticals: Annual industry tax

on brand-name pharmaceutical manufacturers

reduced to $2.8 billion (2019 and

beyond)

Insurers: For 2019 and subsequent

years, industry tax will be indexed to

the rate of premium growth of the prior

year

Insurers: For 2019 and subsequent

years, industry tax will be indexed to

the rate of premium growth of the prior

year

Payment Reform

Health Information Technology

Delivery System Reform

Taxes/Fees



increases to $4.1 billion



increases to $4.1 billion


a post-election exchange and expansion update

Documents

exchange activities

deadlines artia advisor

determinationartia advisor

class policyartia advisor

exchange markets

extended deadlines hhs

federal government services

following activities