Deloitte Center for Health Solutions

February 11, 2013

Monday memo

Health reform update

This week’s headlines: My take

Implementation update - CBO budget and economic outlook—new health care projections:

spending, coverage assumptions, and cost of ACA - Report: IRS did not receive adequate funding to implement ACA - Commission on long-term care appointed - Costs of ACA calculated - Basic health plan implementation delayed to 2015 - Rate review rule in final review at OMB

Legislative/regulatory update

- Permanent SGR fix proposed - CMS proposes rule to reduce regulatory burdens for providers - Tavenner nominated to top CMS post - CMMI announces bundled payment program for kidney dialysis

State update

- CMS guidance to states: Medicaid cost sharing for newly eligible

- State round-up: HIX

- Medicaid expansion update

- State round-up

Industry update - Survey: ACA’s major impact on how larger employers handle part-time

employees - Three updates on information-driven health care

VA and DOD will not use a single EHR system AHRQ, CMS launch EHR for pediatrics Survey: implementation deadlines, infrastructure major

challenges for CIOs - FDA releases guidance on Alzheimer’s trial designs

Research snapshots

- Alzheimer’s projected to triple in U.S. by 2050 - Death rates in acute care decreasing

Quotable

Fact file

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My take

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

State of the health care union

Tomorrow, the President will deliver the State of the Union (SOTU) address

highlighting his goals and legislative priorities for 2013 and beyond. The choice of

Lincoln’s birthdate punctuates the gravity of the nation’s situation due to complicated

world events and enormous fiscal challenges at home.

SOTU is a time-honored tradition of our Republic. Article II, Section 3 of the U.S.

Constitution, requires that the President “shall from time to time give to Congress

information of the State of the Union and recommend to their Consideration such

measures as he shall judge necessary and expedient.” George Washington was first

to give the “Annual Address to Congress” on January 8, 1790, FDR gave it a new

name—“State of the Union”—in 1934, and since 1947 it’s been SOTU officially.

No doubt, economic recovery, jobs, gun control, immigration reform, and national

defense will be prominent themes in the President’s comments tomorrow. And, we

expect, health care!

As an industry, we’re one-fourth of the federal budget, one-fifth of the average

household budget, and approaching one-third of the average state’s budget. One-fifth

of our population lack coverage of any kind, their cost is borne by taxpayers, and

across the nation, care is uneven and highly variable in cost and quality.

In his inaugural address last month, the President called out health care costs in

tandem with deficit reduction as interdependent, trans-generational challenges that

must be addressed:

“We must make the hard choices to reduce the cost of health care and the size of our

deficit. But we reject the belief that America must choose between caring for the

generation that built this country and investing in the generation that will build its

future.”—President Obama, January 21, 2013

It’s about Medicare and Medicaid for sure, but health care is more than these two

programs and its transformation a necessary part of overall economic recovery and

deficit reduction.

Here’s my state of the health care union assessment as the nation addresses the

fiscal cliff, grand bargain, debt ceiling, and continuing resolution in the next eight

weeks:

Factor Key indicators Grade1

Incentives to do the right

things: to reward results,

not volume, and encourage

team-based care delivery

that balances preventive,

chronic, and episodic acute

and long-term care

Financial incentives that reward safety,

outcomes, and efficient delivery of care

that’s evidence-based and appropriate

Rewards, recognition, and penalties

aligned with financial incentives

Balance of full range of health services

in scope: preventive, chronic, acute,

long-term

C+

Anticipated trending to B as

value-based care becomes

mainstream in purchasing

relationships between payers

and providers

Tools to measure and

monitor the right things:

valid and reliable

measures of efficiency,

effectiveness, and value

Online tools that permit individuals and

their care teams to customize diagnosis

and treatments based on unique signs,

symptoms, risk factors, and co-

morbidities

Mobile applications that equip

consumers to engage in treatment

decisions at the point of care, with full

access to their complete medical history

and clinical decision support tools that

provide guidance about accuracy of

diagnosis and appropriateness of

treatments

Standardized forms and procedures for

eligibility, claims adjudication, and

administrative functions across all

private plans including Medicaid and

Medicare

Clinical and cost data that’s structured

for optimal use by individuals to know

what treatment options they have at

what cost to them in teachable

moments when decisions are made

B-

Anticipated trending to B+,

may be reachable when

privacy and security, among

other issues, are settled

Accountability for doing

right things: readily

accessible transparent

measures that recognize

exemplary performance

and underperformance

Transparency of performance: safety,

outcomes, patient/member

experiences, coverage and denial

decisions, scientific support for

innovations, conflicts of interest (plans,

biopharma, device)

Penalties for poor performance

(providers)

Penalties for unhealthy behaviors

(consumers)

Balanced funding for the entire

continuum of care (policy-makers)

C-

Uncertain trend line as

medical liability reforms are

missing in current reforms and

individual accountability for

healthier lifestyle not

prominent in current policies

Funding to accommodate

finding and accelerating

access to diagnostics and

therapeutics that allow

discovery of the right

things inside and outside

allopathic models of care

across the population

without regard to insurance

coverage, health status,

ethnicity, or income

Public funding for access to needed

services and basic research to fuel

innovation in the diagnosis and

treatment of medical problems

Private funding for innovations,

research and development, growth

Private funding for elective services

Individual/household funding from

discretionary resources adequate to

health care needs

B+

Anticipated trending to B- as

fiscal pressures are expected

to reduce public resources

allocation, and household

incomes require trade-offs

between health and other

essential services; funding

levels are considered

adequate today, but are

expected to be increasingly

scarce tomorrow

Structure that makes it

efficient to do the right

things without unnecessary

paperwork, regulatory

confusion, and shared

responsibilities for results

Seamlessness in the system of finance

and delivery

Balanced approach to preventive,

chronic, acute, and long-term care

services

Synergy bridging gaps between human

D

Anticipated trending to B as

industry consolidation, clinical

integration, and technologies

for care coordination are

expected to become

services and health

Consistency between state and federal

regulatory/legislative framework

mainstream

Market demand to do the

right things among

consumers, policy-makers,

and industry stakeholders

who set aside

sectarian/provincial

interests to consistently

transform the system of

care

Consumer demand for improved value

Employer demand for improved value

Stakeholder demand for improved value

Bipartisan efforts to balance care and

costs, access, and innovation, public

oversight and private interests

B-

Anticipated trending to B as

growing numbers of

individuals and purchasers are

expected to demand improved

service, transparency, and

payments linked to results

Affordability to provide

goods and services at

prices that are reasonable

and transparent

Price transparency

Understandable relationship between

costs and price

Costs that are aggressively managed to

achieve competitive advantage

Consistent operational focus on radical

cost reduction

D

No near-term trending

obvious; costs and pricing

unrelated; cost and price

transparency suboptimal

The state of the health

care union

Seamless delivery of services and

resources that are evidence-based,

highly valued, and cost effective across

the continuum of care. There is no

“health care union,” it is still a system of

sectarian special interests.

B-

1 The grades included in this assessment are based solely on the author’s knowledge

and experience and are not intended to indicate an objective analysis of the state of

health care in the U.S.

The current debt of the U.S. is approaching 72.5% of our gross domestic product

(GDP)—up from 36% in 2007 and fast-moving toward 77% by the end of the decade

per the U.S. Congressional Budget Office (CBO) report last week. For the current

fiscal year (FY 2013) which ends September 30, the CBO projects a deficit of $845

billion, or 5.3% of GDP—below the peak in 2012 of $1.1 trillion, but the fifth

consecutive year of deficits approaching or above $1 trillion. The report did note that

Medicare and Medicaid increased “only” 3%, however, it is nonetheless daunting

when contrasted to overall GDP—the CBO estimates that Medicare, Medicaid, and

the Children’s Health Insurance Program (CHIP), and other federal health care

subsidies enacted by the Affordable Care Act (ACA) will amount to almost 5% of the

GDP this year and 6.2% in 2023.

So here’s the bottom line: the government is spending more than it can afford if the

economy is to thrive and achieve full employment (95%) and a rate of growth that

rewards innovators and risk takers in the world’s strongest economy. Health care

spending—at 5.7% year-over-year growth for the next decade per the CBO—is a

major contributor to the government’s spending problem. And dollars spent on health

care—whether appropriately or not—compete with dollars for defense, education, and

infrastructure. They’re not secure in a lock box where competing priorities have no

keys. Our system of health has failed to deliver optimal value to its customers—

employers, individuals. The data’s clear:

Note: figures are rounded and may not total; where applicable, ‘don’t know/no opinion’

values are not shown.

Sources:

1. 2012 Deloitte Survey of U.S. Employers: Opinions about the U.S. health

system and plans for employee health benefits, Deloitte Center for Health

Solutions and Deloitte Consulting LLP, June 2012

2. 2012 Survey of Health Care Consumers in the United States, Deloitte Center

for Health Solutions, June 2012

3. Physician perspectives about health care reform and the future of the

medical profession, Deloitte Center for Health Solutions, December 2011

There’s plenty of money in the system, but even more plentiful the strong opinions of

its stakeholders about how it should be spent. And too frequently, each has a view

that’s noticeably assertive about of its own efficiency while pointing fingers at others

portrayed as wasteful or fraudulent.

Let’s have that discussion. Let’s create a national blue ribbon panel to come up with

fresh solutions that the legislative process is unable to tackle due to the realities of

politics and lawmaking. It would include employers, providers (including physicians,

long-term care providers, nurses, and technicians), scientists, device manufacturers,

plans, retailers, food manufacturers, and consumers; its agenda straightforward—to

develop meaningful solutions that can be implemented within the context of the law

(it’s not going away) that accelerate better care at lower cost while building on a

private system favored by the majority of Americans—young and old.

I teach in the health policy program at Georgetown. The students are given the task of

probing a targeted solution focusing on what needs to be done, then how and who. It

impresses me how quickly they identify solutions—their “WHAT.”

But “how” is the students’ greater challenge and what makes the difference in their

grade. Unlike much of the recent debate about reform that pits sector against sector,

the Millennials’ “how” always seem to embrace new technologies and innovative

processes. They progress from WHAT, to HOW, then WHO in that order. Too

frequently in the health reform journey of the past four years, the discussion has

started with WHO and progressed no further.

I believe we’re at the tipping point: it’s worth the effort. It starts with agreement about

“what,” then “how”—“who” comes last. The health care system state of the union is

not strong. It can do better. And we can afford to do no less and we have little time to

waste.

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Implementation update

CBO budget and economic outlook—new health care projections:

spending, coverage assumptions, and cost of ACA Last week, the CBO released its budget and economic outlook for FY 2013 to FY

2023, updating its August 2012 forecast. Highlights:

Health care spending (from CBO unless otherwise noted)

National health expenditures grew at an annual rate of 4.3% in 2012 vs. 3.9%

annually from 2009 to 2011. (Source: Centers for Medicare & Medicaid Services

[CMS])

Medicare spending increased 3%, or $16 billion, in FY 2012—a slower rate of

growth than any seen since 2000. CBO predicts Medicare outlays will increase

4% or $21 billion, in FY 2013 inclusive of a 2% reduction in Medicare spending

per sequestration (unless Congress intervenes).

Health care prices in December 2012 increased 1.7% vs. December 2011—the

lowest year-over-year growth since February 1998. The 12-month moving

average at 2.0% was the lowest since December 1998. (Source: U.S. Bureau of

Labor Statistics [BLS] data, Altarum Institute)

Health care employment increased by 23,000 in January 2013—similar to the

24-month average of 24,000. Totals for 2011-2012 health care jobs added were

598,000. (Source: BLS data, Altarum Institute)

Major health care programs (i.e., Medicare, Medicaid, and CHIP) will represent

6.2% of GDP in 2023, up from 5% in 2013.

A ten-year freeze on the sustainable growth rate (SGR) would raise Medicare

spending by $138 billion, down from the November projection of $243.7 billion.

Impact of CBO update on the ACA (from CBO)

Changes in coverage assumptions:

Medicaid and CHIP: 12 million will be added to the program by 2022—an

increase of 1 million from August 2012 baseline projections but below original

16 million projected in March 2010 before Supreme Court ruling that expansion

is optional for states (results in lower Medicaid outlays by federal government of

$93 billion)

Employment-based: 7 million fewer will be covered by an employer in 2022 vs.

4 million less projected in August 2012

Health insurance exchanges (HIXs): 25 to 26 million will be enrolled in the HIXs

by 2022 vs. 24 million projected in August 2012 (results in increased subsidies

through HIXs of $32 billion)

Uninsured: 27 million will gain health insurance by 2022, down from 30 million

projected in August 2012

Changes in revenues associated with ACA:

Revenues from penalties: net cost of the ACA provisions: $1.165 trillion

between 2013 and 2022—same as the August 2012 baseline estimate

Penalty payment changes: penalty payments by employers projected to be $13

billion higher than 2012 baseline estimates, and penalty payments by

individuals projected to be $10 billion lower

Revenues from excise taxes: the excise tax on high premium health insurance

plans is projected to be $9 billion less than 2012 baseline estimates

10-year effect on the federal deficit, FYs 2013-2022 (billions of dollars)

ACA provision

August

2012

February

2013 Difference

Medicaid and CHIP outlays $ 643 $ 550 $ (93)

Exchange subsidies $ 1,015 $ 1,047 $ 32

Small-employer tax credits $ 22 $ 23 $ 1

Gross cost of provisions $ 1,680 $ 1,620 $ (60)

Penalty payments by uninsured individuals $ (55) $ (45) $ 10

Penalty payments by employers $ (117) $ (130) $ (13)

Excise tax on high premium insurance plans $ (111) $ (102) $ 9

Other effects on tax revenues and outlays $ (231) $ (178) $ 53

Net cost of coverage provisions $ 1,165 $ 1,165 $ -

(Source: CBO, “The Budget and Economic Outlook: Fiscal Years 2013 to 2023,”

Table A-2, February 2013)

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Report: IRS did not receive adequate funding to implement ACA According to a recent report from the U.S. Department of Treasury (DOT) Inspector

General for Tax Administration, the U.S. Internal Revenue Service (IRS) did not

receive adequate funding from the U.S. Department of Health and Human Services

(HHS) to pay for the additional full-time employees needed to implement the ACA.

The FY 2013 IRS budget included no additional workers vs. the 856 full-time

employees (FTEs) funded by HHS dedicated to the ACA implementation in FY 2012.

Other findings:

The IRS FY 2012 budget totaled $11.8 billion, which is a 2.1% decrease from

FY 2011—second consecutive budget reduction.

The total IRS workforce fell 9% (5,000 employees) from FY 2010 to FY 2012.

40% of IRS employees will be retirement eligible by FY 2017; more than a third

of its senior management and nearly 20% of nonexecutive managers are

currently eligible for retirement.

Background: more than 40 provisions of the ACA pertain to IRS relating to tax

reporting responsibilities, intermediaries (i.e., employers and insurers who help

administer), and administrators (i.e., HHS, other federal agencies, and states). The

FY 2012 budget request for IRS included $473 million and more than 1,200 FTE staff

for ACA implementation.

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Commission on long-term care appointed In the American Taxpayer Relief Act (ATRA) of 2012 (H.R. 8), the fiscal cliff deal

passed January 1, 2013, the Community Living Assistance Services and Support

(CLASS) Act (Sections 8001 and 8002 of the ACA) was replaced with a new 15-

member Commission on Long-Term Care tasked to create a national plan to address

long-term care services in the U.S. Three Commissioners were to be appointed by

President Obama and 12 by the House and Senate (50/50 Republican/Democrat

appointees made by leadership). President Obama, U.S. Senate Minority Leader

Mitch McConnell (R-KY), and U.S. House Majority Leader John Boehner (R-OH) have

not yet announced nominations.

U.S. Senate Majority Leader Harry Reid (D-NV) nominated Judy Feder,

Georgetown Professor; Laphonza Butler, Service Employees International

Union (SEIU) United Long-Term Care Workers’ Union President; and Javaid

Anwar, M.D., Nevada.

U.S. House of Representative’s Minority Leader Nancy Pelosi (D-CA)

nominated Bruce Allen Chernof, M.D., SCAN Foundation; Judith Stein, Center

for Medicare Advocacy, Inc.; George Vradenburg, Alzheimer’s activist.

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Costs of ACA calculated Last week, staff from the U.S. House Ways and Means, Education and the Workforce,

and Energy and Commerce committees released a 16-page report outlining costs

associated with ACA implementation in 157 areas. Per the 16-page “ObamaCare

Burden Tracker” the total burden associated is 127.6 million hours. Highlights:

Credit for small employer health insurance premiums: 40.2 million hours. Note:

per the ACA, certain small employers are eligible to receive tax credits to

supplement the cost of health insurance premiums.

340B drug pricing program forms: 14,504 hours. Note: the ACA expanded the

340B drug pricing program to make more safety-net providers eligible for drug

discounts.

Application for coverage in the pre-existing condition insurance plan: 59,833

hours. Note: the ACA created a program for individuals who could not access

health insurance because of a pre-existing condition. The program serves as a

gap until 2014 insurance market regulations go into effect that prohibit health

insurance issuers from discriminating against individuals based on health

status.

Background: the hours cited in the tracker were collected from the OMB website; by

law, agencies must calculate the paper burden associated with certain regulations

impacting providers, administrators, consumers, etc.

(Source: House Ways and Means, Energy and Commerce, Education and Welfare

Committees’ “ObamaCare Burden Tracker,” released February 6, 2013)

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Basic health plan implementation delayed to 2015 Last week, CMS announced the implementation of basic health program (BHP) will be

delayed until January 2015—one year after its original start date. Reasoning: states

have enough on their plates beginning January 1, 2014 and CMS expects there to be

a learning curve in 2014 that will inform the BHP federal regulatory process and

state’s decisions about whether to participate in the BHP.

Background: the BHP was enacted by Section 1311 of the ACA and will allow states

to administer a public health insurance program for individuals between 133% and

200% of the federal poverty level (FPL) who would otherwise be eligible to purchase

health insurance coverage through a HIX. States will receive 95% of the federal

subsidy that the individual would have received if they had purchased coverage

through a HIX. Proponents of the program believe that the BHP will reduce the cost of

insurance for low-income uninsured individuals; opponents argue that the BHP will

undermine the HIX market.

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Rate review rule in final review at OMB The U.S. Office of Management and Budget (OMB) is reviewing a final rule from HHS

that will provide guidance on provisions in the ACA related to the health insurance

market, including amendments to the requirements for states to operate rate review

programs.

Background: the rate review program was enacted by Section 1001 of the ACA and

implemented in 2011 to monitor health insurance premium rate increases above 10%.

If the rate of increase is greater than 10%, the health insurance issuer must seek

approval from the state in which the plan is being administered or from HHS if the

state does not have a rate review program in place. According to HHS, nine states

have passed legislation to enhance rate review, 17 states have proposed rate review

legislation, and 40 states have enhanced consumer protections.

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Legislative/regulatory update

Permanent SGR fix proposed Wednesday, Representatives Allyson Schwartz (D-PA) and Joe Heck (R-NV)

introduced the Medicare Physician Payment Innovation Act (H.R. 574) to change the

way Medicare providers are paid by eliminating the SGR system and replacing it with a new payment delivery model. (Note: similar legislation was introduced last year but

was not passed.) Thursday, House Republicans also released their proposal to repeal

the SGR.

Background: the ACA cuts Medicare spending $716 billion for FY 2010 to FY 2019.

As part of ATRA, Congress canceled a 26.5% Medicare pay cut for doctors scheduled

to be implemented January 1 and replaced it with a one-year payment freeze. CBO

said the legislation sets up a 25% cut in January 2014, unless lawmakers again

intervene. In last Tuesday’s CBO update, the cost of Medicare pay cuts to physicians

was lowered from $243.7 billion to $138 billion for FY 2013 though FY 2023. It said its

lower cost estimate is primarily due to lower spending for physicians’ services in

recent years with Medicare spending increasing at 3% in FY 2012—the lowest annual

rate since 2000.

The net result of the decrease: opportunistic legislative proposals to permanently fix

the SGR:

Concept

SGR Repeal and Reform proposal, by

House Ways & Means and Energy &

Commerce Committees1

Medicare Physician Payment

Innovation Act (H.R. 574), introduced

by Representatives Allyson Schwartz

(D-PA) and Joe Heck (R-NV)2

Repeal the SGR Fully repeal, eliminating the 25% rate cut

to physicians in 2014 and any future cuts

called for under the formula

Proposal includes three phases of

reform:

Phase I: repeal SGR and provide a

period of predictable, statutorily-

defined payment rates

Phase II: reform Medicare’s fee-for-service (FFS) payment system to

better reflect the quality of care

provided

Phase III: further reform Medicare’s FFS payment system to also account

for the efficiency of care provided

Fully repeal, eliminating $300 billion debt

to the Medicare program

Includes 5-year transition period to

replace scheduled cuts before the new

payment system is in place in 2018

Replacement

formula

Establishes a period of payment rates

that are predictable and statutorily-

defined

Provides positive annual payment

updates of 0.5%

Years 2014 to 2017, provides 2.5%

annual increase for primary care,

prevention, and care coordination

services provided by clinicians for whom 60% of their Medicare allowable charges

are for those same services

Reimbursement Provides options from which physicians

can choose to fit their practice

Requires CMS to issue a menu of no

fewer than four health care delivery and

payment model options by October 1,

2016

CMS will also be allowed to select from

models in development outside of the

agency

Measures Allows physicians to determine clinically

meaningful quality and efficiency

measures

Provides two options for physicians who

demonstrate a commitment to quality

and efficiency to participate in a new

alternative FFS system; physicians must

either:

1. Adhere to list of cost, quality, and

outcome measures defined in

conjunction with medical societies

2. Be exceptional clinicians who

demonstrate achievements as

measured by the Value-Based

Modifier relative to their peers

Incentives Rewards physicians in the program who

deliver high-quality and efficient care

Beginning January 1, 2018, physicians

who practice within an approved model

will be able to earn higher

reimbursements for achieving gains in

quality, effectiveness, and gains

Those who remain in the traditional FFS

model will be subject to reduced updates in both primary and non-primary care

services

Oversight Requires CMS to provide timely

feedback and data to physicians

Directs the Secretary of the HHS to

update payments between 1% and the

Medicare Economic Index (MEI) annually

beginning 2023

Sources: 1Overview of SGR Repeal and Reform Proposal

2Medicare Physician Payment Act of 2012

My take: as noted in prior Monday Memos, the SGR is a fundamentally flawed

method of payment for physicians, and as such deserves re-thinking and a fresh start.

But the discussion should not be limited to physicians only: the health care workforce

supply-demand imbalance is particularly acute in primary care. To address the

shortage, expansion of scope of practice for nurse practitioners and advanced

practice nurses; inclusion of dental, nutritional, and psychological care; expanded use

of technologies that facilitate coordination and patient monitoring; and a precise focus

on consumer self-care should be added to the discussion. It’s not just about physician

pay; it’s about the care and caring processes of health care professionals working in

tandem with consumers.

For more information about the SGR, download Understanding the SGR: Analyzing

the “Doc Fix” from the Deloitte Center for Health Solutions.

In addition to the SGR, other health care legislative activities last week:

Medical device: Representative Erik Paulsen (R-MN) introduced the Protect

Medical Innovation Act (H.R. 523) to repeal the 2.3% excise tax on medical

devices that went into effect January 1, 2013 per the ACA.

Medicaid: Representative Gerry Connolly (D-VA) introduced H.R. 467 to

redistribute federal funds declined by states opting out of Medicaid expansion

(Section 2001 of the ACA) to states choosing to provide those Medicaid

benefits.

Pharmaceuticals: Representative Bill Keating (D-MA) introduced H.R. 486 to

incentivize the development of abuse-deterrent drugs. Senator Amy Klobuchar

(D-MN) introduced S. 214 to prohibit brand name drug companies from

compensating generic drug companies to delay entry of a generic drug into the

market, known as “pay-for-delay.” Representative David McKinley (R-WV)

introduced the Patients’ Access to Treatments Act of 2013 (H.R. 460) to limit

cost-sharing requirements applied to prescription drugs in a specialty drug tier

to the dollar amount associated with prescription drugs in a non-preferred brand

drug tier.

Medicare: Representative Alan Grayson (D-FL) introduced H.R. 500 to allow

any citizen or permanent resident of the U.S. to buy into Medicare.

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CMS proposes rule to reduce regulatory burdens for providers Last week, CMS issued a proposed rule to eliminate “excessively burdensome,

obsolete, or unnecessary” regulations placed on providers participating in Medicare.

This rule would impact Ambulatory Surgical Centers (ASCs), Critical Access Hospitals

(CAHs), transplant centers, etc. Highlights:

To be eligible to provide radiology services, ASCs would no longer be subject to

the requirements of full hospitals

Qualified dietitians would be eligible to order patient diets in a hospital setting

Transplant centers would no longer have to report certain types of data to CMS,

as CMS receives the information from other sources

CAHs would no longer be required to develop patient care policies with

members of the community ( i.e., non-staff members)

Background: President Obama issued an Executive Order requiring all federal

agencies to conduct retrospective reviews of existing regulations to determine which

regulations are no longer necessary.

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Tavenner nominated to top CMS post Friday, the White House re-nominated Marilyn Tavenner to be administrator of CMS.

The move was expected, as Tavenner’s nomination expired at the end of the last

Congress.

My take: a number of trade associations—the American Medical Association (AMA),

Federation of American Hospitals (FAH), American Hospital Association (AHA), and

others—quickly affirmed her nomination. I suspect she will be confirmed by the

Senate.

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CMMI announces bundled payment program for kidney dialysis Last week, the Center for Medicare and Medicaid Innovation (CMMI) began accepting

applications from Medicare providers to participate in a new shared savings program

to treat end-stage renal disease (ESRD). The program would run from 2013 to 2016.

Letters of intent will be accepted until March 15 and applications until May 1.

Background: through the Comprehensive ESRD Care Model, CMMI seeks to identify

ways to improve the coordination and quality of care for beneficiaries in this

population, while lowering total per-capita expenditures to the Medicare program.

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State update

CMS guidance to states: Medicaid cost sharing for newly eligible

Last Wednesday, CMS clarified how increased federal matching rates would apply to

Medicaid expansion populations starting in 2014 and how Medicaid expansion applies

to pregnant women.

Background: ACA allows states, beginning in 2014, to extend Medicaid coverage to

single adults younger than 64 with income of up to 133% of the FPL (effectively 138%

because of a 5% income disregard allowed in ACA). In Medicaid expansion, two types

of increased federal medical assistance percentages (FMAPs) will be available to

states:

1. A “newly eligible FMAP” will be available to states that decide to participate in

Medicaid expansion. This FMAP will cover all state expansion costs (100%

match) from 2014 through 2016; provide a 95% match in 2017; 94% match in

2018; 93% match in 2019; and 90% match in 2020 and beyond.

2. “Expansion state FMAP”: before Congress enacted ACA in March 2010, some

states had already expanded their Medicaid coverage to adults with higher

incomes. For Medicaid enrollees that fell in this group, CMS said another FMAP

(“expansion state FMAP”) will be available: the regular (non-newly eligible)

FMAP rate increased by a “transition percentage,” which will result in a lower

FMAP than the newly eligible FMAP. The transition percentage will increase

gradually, however, so that by 2019 it will equal the newly eligible FMAP.

A key feature of the Medicaid expansion in the ACA was the eligibility of childless,

non-pregnant adults. The CMS guidance also addressed whether states need to track

women enrolled in the Medicaid expansion group who become pregnant. Per CMS

guidance, if a woman indicates on an initial application that she is pregnant, she

would be enrolled in a state's pre-existing Medicaid coverage as a pregnant woman

rather than in the newly eligible group. States are not required to track the pregnancy

status of women already enrolled in the newly eligible group.

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State round-up: HIX States that do not plan to operate their own exchange must submit their plans to

operate a state-partnership exchange by February 15, 2013 or default to a federally-

facilitated exchange. To date, 17 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:

State-based exchange State-partnership

exchange

Undecided/Federally-

facilitated exchange

CA, CO, CT, DC, HI, ID, KY,

MA, MD, MN, NM, NV, NY,

OR, RI, UT, VT, WA

AR, DE, IA, IL, MI, NC, WV AK, AL, AZ, FL, GA, IN, LA, KS,

ME, MO, MS, MT, ND, NE, NH,

NJ, OH, OK, PA, SC, SD, TN, TX,

VA, WI, WY

Note: updated February 10, 2013.

Mississippi will not implement a state-based exchange. CMS officially denied the state's proposal Friday because the state's application was not signed by Governor Phil Bryant (R). In a letter to the state, Gary Cohen, Director of the Center for Consumer Information & Insurance Oversight (CCIIO), encourages Mississippi to submit an application on February 15, 2013 to participate in a state-partnership exchange.

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Medicaid expansion update Twenty-three states and D.C. have said they will expand or are in support of

expanding their Medicaid programs; 15 states have indicated they are highly unlikely

to expand their program:

Announced or Governor

in support of expansion

Not participating or

highly unlikely to

participate

Undecided or undeclared

AR, AZ, CA, CO, CT, DC,

DE, HI, IL, MA, MD, MI,

MN, MO, MT, ND, NH, NM,

NV, OH, OR, RI, VT, WA

AL, GA, IA, ID, IN, LA, ME,

MS, NE, OK, SC, SD, TX,

UT, VA

AK, FL, KS, KY, PA, NC,

NJ, NY, TN, WI, WV, WY

Sources: PoliticoPro, February 10, 2013 and State Reform, February 7, 2013

Note: states do not have a deadline to make a decision on Medicaid expansion and

may opt in or out of participation at any time. This chart was compiled using publicly

available information (as of February 10, 2013) and is subject to change.

Ohio Governor John Kasich (R) included Medicaid expansion funding in his budget proposal released last week. The Governor has requested the Obama administration allow his state to provide coverage via the subsidized exchange market for the highest income portion of the eligible population, 100% to 133% of the FPL. Expansion of the program is expected to provide insurance for an additional 456,000 Ohioans and generate a $1.4 billion net gain for the state budget by 2022.

Wednesday, Governor of Michigan, Rick Snyder (R) announced his support for Medicaid expansion.

Friday, the Florida Hospital Association released a poll of 600 registered voters finding that that more than six of ten Florida voters support the expansion of Medicaid eligibility in the state.

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State round-up Mississippi House members passed legislation allowing insurers to

compensate specialists who use telemedicine to provide long-distance consultation to rural doctors.

Texas recovered $1.01 billion in Medicaid fraud over the past ten years; 60% was returned to the federal government.

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Industry update

Survey: ACA’s major impact on how larger employers handle part-time

employees The ADP Research Institute survey of larger employers (companies with 1,000 or

more employees) concluded that the ACA will have the biggest impact on how

employers structure health care benefits for part-time employees. Findings:

Part-time employees make up 23% of the total workforce; 15% of these part-time employees are eligible for benefits with slightly more than half (53%) choosing to participate.

68% of the total full-time workforce is covered by their employers’ health plan vs. 8% of part-time employees.

Purchasing behavior is significantly different among part-time workers who are single vs. married. Single employees make up 52% of the part-time associates who are eligible for benefits. Only 46% of those, however, elect health coverage.

Very large employers (>5,000 lives) paid 14% less for coverage on average than employers with 1,000 to 2,499 lives.

Employers in manufacturing incurred health premiums that were 13% higher than average. Professional services and health care and social assistance industries also incurred health premiums well above average. By contrast, the accommodation and food services industry reported premiums 25% lower than the average.

(Source: ADP Research Institute, “ADP’s 2012 Study of Large Employer Health

Benefits: Benchmarks for Companies with 1,000+ Employees,” 2013)

My take: in our 2012 Survey of U.S. Employers, cost was the major issue. Most

employers were not clear on how the ACA reduces health costs, and unfamiliar with

its elements that move the delivery system’s incentives away from FFS to value. Most

want to keep coverage for their employees: 9% (representing 3% of the civilian work

force) said they would consider dropping coverage in the next one to three years. But

they also express strong interest in the potential role HIXs might play as a channel for

coverage. For more information, download the 2012 Deloitte Survey of U.S.

Employers: Opinions about the U.S. health care system and plans for employee health benefits from the Deloitte Center for Health Solutions.

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Three updates on information-driven health care

VA and DOD will not use a single EHR system The U.S. Department of Veteran Affairs (VA) and U.S. Department of Defense (DOD)

announced last week they would not pursue a plan to create a single integrated

electronic health record (EHR) system, estimated to cost between $1.4 and $5.2

billion, and will focus on a more affordable immediate solution to share health data.

Background: in October 2012, the U.S. Government Accountability Office (GAO)

released a report concluding that collaboration in the provision of health care services

between the DOD and VA was ineffective, and recommended that the departments

develop performance measures related to access, quality, and costs; implement

information technologies to enhance administrative and clinical coordination; and

address policy and workforce barriers hindering collaboration. The VA and the DOD

serve over 15 million individuals (including 1.1 million who receive care from both

departments), approximately 100 hospitals, and 1,000 clinics.

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AHRQ, CMS launch EHR for pediatrics Last week, the Agency for Healthcare Research and Quality (AHRQ) and CMS

announced a new EHR format for processing health information about children—an

EHR format that tracks child-specific data elements and recommendations including:

prenatal and newborn screening tests, vaccines, growth data, special needs, and

child abuse reporting. The proposed EHR format provides guidance on structures that

permit interoperable exchange of data, including data collected in school-based,

primary, and inpatient care settings. Pennsylvania and North Carolina will participate

in a pilot demonstration to test the format, and CMS plans to integrate the format into

future EHR Standards and Meaningful Use certification requirements.

Background: the 2009 Children’s Health Insurance Program Reauthorization Act

(CHIPRA) authorized the children’s EHR format to improve care for children,

especially those enrolled in Medicaid and CHIP. The format is designed for EHR

developers and providers who wish to augment existing systems with additional

features or to build new EHR systems.

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Survey: implementation deadlines, infrastructure major challenges for

CIOs A survey of 100 CIOs in provider settings concluded that network security issues,

infrastructure upgrades, and Meaningful Use implementation top their list of concerns:

56% were “somewhat confident” in their ability to prevent a privacy or security breach on their network

76% of respondents are planning to upgrade their network infrastructure in the next two years

24% reported using cloud-based computing, much lower than other industries

17% believe mobile health (mHealth) will have a significant impact on the health care industry

80% of respondents agree that EHR-based systems will improve patient care

More than 60% suggested that EHR and Meaningful Use mandates are a “good idea” to support better quality patient care

(Source: Level 3 Communications, “CIO Outlook on Healthcare IT for 2013,” February

2013)

Note: next week the Center for Health Solutions will release “Health System Chief

Information Officers: juggling responsibilities, managing expectations, building the

future.” In this study, Senior Advisor for Health Care Transformation and Technology

Harry Greenspun, M.D., explores the issues that keep CIOs awake at night, looking at

both near- and long-term issues and challenges ahead.

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FDA releases guidance on Alzheimer’s trial designs The U.S. Food and Drug Administration (FDA) issued draft guidance for

pharmaceutical manufacturers who plan to develop drugs for treatment of early stage

Alzheimer’s, outlining clinical outcome measures for various stages, potential

strategies for demonstrating clinical efficacy, and how disease modification might be

demonstrated for these populations. Comments will be accepted until April 9, 2013.

Background: the 2011 National Alzheimer's Project Act established a National Plan

for Alzheimer's disease and related dementias (ADRD). With input from a public-

private Advisory Council on Alzheimer's Research, Care and Services, it provides

recommendations to HHS for priority actions to expand, coordinate, and condense

programs to improve the health outcomes of people with ADRD and reduce the

financial burden of these conditions on those with the diseases, their families, and

society. It is projected the Alzheimer’s population will triple to 13.8 million in the next

40 years (see research summary below).

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

Alzheimer’s projected to triple in U.S. by 2050 Objective: “To provide updated estimates of Alzheimer disease (AD) dementia

prevalence in the U.S. from 2010 through 2050.”

Methodology: “Probabilities of AD dementia incidence were calculated from a

longitudinal, population-based study including substantial numbers of both black and

white participants. Incidence probabilities for single year of age, race, and level of

education were calculated using weighted logistic regression and AD dementia

diagnosis from 2,577 detailed clinical evaluations of 1,913 people obtained from

stratified random samples of previously disease-free individuals in a population of

10,800. These were combined with U.S. mortality, education, and new U.S. Census

Bureau estimates of current and future population to estimate current and future

numbers of people with AD dementia in the U.S.”

Key findings: “In 2010, there were 4.7 million individuals aged 65 years or older with

AD dementia, 0.7 million were between 65 and 74 years, 2.3 million were between 75

and 84 years, and 1.8 million were 85 years or older. The total number of people with

AD dementia in 2050 is projected to be 13.8 million, with 7 million aged 85 years or

older. The number of people in the U.S. with AD dementia will increase dramatically in

the next 40 years unless preventive measures are developed.”

(Source: Hebert, et al, American Academy of Neurology, “Alzheimer disease in the

United States [2010-2050] estimated using the 2010 census,” February 6, 2013)

My take: among the most challenging issues in our society is the balance of caring for

our seniors while addressing coming younger generations. Advances in the diagnosis

and treatment of dementia will no doubt be a key focus, as will hospice care that’s still

used less than half the time at the time of death. (A recent study found that 42% of

Medicare patients were using hospice care at the time of death in 2009—up from 22%

in 2000.) Medicare already spends 27% of its budget in the last year of a senior’s life,

so it’s time for a national discussion about care and caring for seniors and their

children and grandchildren. It’s not just about the seniors themselves.

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Death rates in acute care decreasing Objective: “To describe changes in site of death, place of care, and health care

transitions between 2000, 2005, and 2009.”

Methodology: “A retrospective cohort study of a random 20% sample of FFS

Medicare beneficiaries, aged 66 years and older, who died in 2000 (n = 270,202),

2005 (n = 291,819), or 2009 (n = 286,282). A multivariable regression model

examined outcomes in 2000 and 2009 after adjustment for sociodemographic

characteristics. Based on billing data, patients were classified as having a medical

diagnosis of cancer, chronic obstructive pulmonary disease, or dementia in the last

180 days of life.”

Key findings: “Among Medicare beneficiaries who died in 2000 and 2005 compared

with 2009, a lower proportion died in an acute care hospital, although both ICU use

and the rate of health care transitions increased in the last month of life. The

proportion of deaths in acute care hospitals decreased from 32.6% to 26.9% to 24.6%

respectively. However, intensive care unit (ICU) use in the last month of life increased

from 24.3% to 26.3% to 29.2%. Hospice use at the time of death increased from

21.6% to 32.3% to 42.2%, with 28.4% using a hospice for 3 days or less in 2009. Of

these late hospice referrals, 40.3% were preceded by hospitalization with an ICU stay.

The mean number of health care transitions in the last 90 days of life increased from

2.1 to 2.8 to 3.1 per decedent .The percentage of patients experiencing transitions in

the last 3 days of life increased from 10.3% to 12.4% to 14.2%.”

(Source: Teno et al, “Change in end-of-life care for Medicare beneficiaries site of

death, place of care, and health care transitions in 2000, 2005, and 2009,” JAMA,

February, 2013)

My take: end of life care is a sensitive subject in today’s social and political

environment. The ACA did not address end of life care directly, other than through the

CLASS Act provision that’s been taken out. A discussion about long-term care

inclusive of end of life is a necessary part of health reform and timely.

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Quotable “While some people will find registering for health insurance as easy as booking a

flight online, vast numbers who are confused by the myriad choices will need to sit

down with someone who can walk them through the process. Enter the navigators, an

enormous new workforce of helpers required under the law (ACA). In large measure,

the success of the law and its overriding aim of making sure that virtually all

Americans have health insurance depends on these people. But the challenge of

hiring and paying for a new class of workers is immense and is one of the most

pressing issues as the Obama administration and state governments implement the

law.”—N.C. Aizenman, The Washington Post, “For insurance exchanges, states need

navigators,” February 6, 2013

“If you ask me to describe the rising philosophy of the day, I’d say it is data-ism. We

now have the ability to gather huge amounts of data. This ability seems to carry with it

certain cultural assumptions—that everything that can be measured should be

measured; that data is a transparent and reliable lens that allows us to filter out

emotionalism and ideology; that data will help us do remarkable things—like foretell

the future….In sum, the data revolution is giving us wonderful ways to understand the

present and the past. Will it transform our ability to predict and make decisions about the future? We’ll see.”—David Brooks, The New York Times, “The Philosophy of

Data,” February 5, 2013

“At this level of debt relative to our GDP, our country would be incurring costs and

bearing risks of a sort that we have not had in our history except for a few years

around the end of the second World War. At the same time, bringing debt down

relative to GDP requires reductions in services that we are getting from the government, or higher taxes paid to the government.”—Douglas Elmendorf, Director,

CBO, February 5, 2013

“[Conservatives warn that] the IPAB (Independent Payment Advisory Board) is really

a `death panel’ that will sit in judgment over Americans’ health claims, denying costly

care to the old and weak...Sounds scary. Except the IPAB doesn’t have anything

close to that power. The law (ACA) says it (IPAB) has no authority to ration care or cut

benefits for Medicare recipients. It can’t touch reimbursements to hospitals until 2020.

Instead, it’s expected to find savings by eliminating fraud and reducing payments to

private insurance companies that work with Medicare and prescription drug

providers…”—Devin Leonard, Bloomberg Business Week, “The Boring Awful Life of a

Death Panelist,” January 27, 2013

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Fact file OTC flu season sales: for week ended January 26, 2013, sales of over-the-

counter products to treat upper respiratory illness increased 24% to $189.1

million vs. $152.4 million a year earlier; sales of cold and flu medicines

increased 42%, sales of drops and sprays 31% and cold medication 23%. (Source: The Wall Street Journal, “Flu is Tonic for Drugstore Sales,” February

6, 2013)

Restaurants and obesity: restaurants that increased lower calorie servings

experienced a 5.5% increase in same store sales based on data from 21 fast

food and sit down restaurant chains monitored 2006-2011. (Source: The Wall

Street Journal, “Low-Cal Items Fuel Restaurant Sales,” February 7, 2013)

2012 Congressional vote: Democrats won the popular vote by 1.4 million in

House races, and Republicans won control of the House by 234-201. (Source:

The New York Times, “The Great Gerrymander of 2012,” February 10, 2013)

College graduation: 52% of students with a Bachelor of Arts/Bachelor of

Science are in jobs requiring a degree or higher; 37% a high school degree,

and 11% some college. (Source: John J. Heldrich Center for Workforce

Development, May 2011)

Smoking and mental illness: people with mental illnesses are 70% more

likely to smoke than those without; 36.1% of adults with mental health

disorders smoke vs. 21.4% without a mental health disorder; adults with mental

health issues smoke one-third of all cigarettes in the U.S.; 46 million adults

have a mental illness—20% of population. (Sources: CDC; Substance Abuse

and Mental Health Administration; “Vital Signs: Current Cigarette Smoking

Among Adults Aged ≥ 18 Years with Mental Illness–United States, 2009-2011,”

February 5, 2013)

Retail health insurance: Florida Blue operates 11 retail sites in

malls/shopping areas. (Source: The New York Times, “Health Insurance

Companies Get in Shape for 2014,” February 1, 2013)

Retirement happiness: major factors in happiness—physical health 55%,

financial independence 23%, other factors 22%. (Source: ING survey of 1011

adults 18 and older)

Anxiety by age group: 39% of Millennials (age 18-33) say their stress level is

up this year over last—the highest age cohort. The average stress level for all

adults is 4.9 on a 10-point scale: 20% of Americans report extreme stress, and

44% moderate; 63% tried to reduce their level of stress in the last year, top stressors are money (69%), work (65%) and economy (61%). (Source:

American Psychological Association survey of 2020 adults 18+ in 2012)

Alzheimer’s: the numbers of Alzheimer’s patients will triple by 2050 from 4.7

million to 13.8 million: 1 in 3 adults older than 85 (7 million), 1 in 6 75-84 (5.4

million) and 1 in 77 65-74 (1.3 million). (Source: Neurology, February 6, 2013,

based on analysis of 10,802 Chicago residents from 1993-2011) Note: the

population 65+ will double between 2010 and 2050 from 40.3 million to 88.5

million)

U.S. birth rate: 2.07 vs. replacement rate of 2.1—falling since 1980; China

1.64, Japan 1.32, Germany 1.36, France 1.97, India 2.73, Russia 1.44.

(Source: United Nations)

Snack foods in schools: $2.3 billion spent annually. (Source: National

Academy of Sciences)

Physician social networking: 82% of physicians interact with other

physicians via social networking; only 8% use it to engage with patients.

(Source: The Wall Street Journal, “Should Doctors and Patients be Facebook

Friends,” February 4, 2013)

Long-term care insurance: average age of individual buyers was 59 years in

2010, down from 68 years in 1990. (Source: AHIP)

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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: Health System Chief Information Officers: Juggling responsibilities, managing

expectations, building the future

Currently available: Unlocking value in health plan M&A: Sometimes the deals don’t deliver—

January 2013. Available online at www.deloitte.com/us/2013planconsolidation

2012 Survey of U.S. Health Care Consumers: Segmentation INFOBrief—

January 2013. Available online at www.deloitte.com/us/2012segmentation

Deloitte 2012 Survey of U.S. Health Care Consumers: supplemental reports—

December 2012. Access a library of resources including an INFOBrief series, an

infographic, and a Five-Year Look Back report. Available online at

www.deloitte.com/us/consumerstudies

The hidden costs of U.S. health care: Consumer discretionary health care

spending—December 2012. Available online at

www.deloitte.com/us/2012hiddencosts

mHealth in an mWorld: How mobile technology is transforming health care—

December 2012. Available online at www.deloitte.com/us/mobileandtechnology

Understanding the SGR: Analyzing the “Doc Fix”—October 2012. Available

online at www.deloitte.com/us/2012sustainablegrowth

Impact of Health Care Reform on Insurance Coverage: Projection Scenarios

Over 10 Years – Update 2012—October 2012. Available online at

www.deloitte.com/us/2012coveragemodel

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Read the blog

To stay up-to-date, check out the Center for Health Solutions’ blog: A view from the Center—where policy, innovation, and industry meet

http://blogs.deloitte.com/centerforhealthsolutions/

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Upcoming life sciences and health care Dbrief webcasts Anticipating tomorrow's complex issues and new strategies is a challenge. Stay fresh

with Dbriefs – live webcasts that give you valuable insights on important

developments affecting your business.

February 14: Operating at Medicare Rates: Sink or Swim?

March 19: New Regulations, Roles, Relationships: How Might Organizations

Respond?

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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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(jblume@deloitte.com)

Bill Copeland, U.S. Life Sciences and Health Care National Industry Leader, Deloitte

LLP (bcopeland@deloitte.com)

Jason Girzadas, National Managing Director, Life Sciences & Health Care, Deloitte

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)

Rick Wald, Director, Human Capital, Deloitte Consulting LLP (rwald@deloitte.com)

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