Deloitte Center for Health Solutions

November 19, 2012

Monday memo

Health reform update

This week’s headlines: My take

Implementation update - HHS extends health insurance exchange deadline

- Forthcoming federal guidance on the ACA

- Bible-publishing company legal challenge to contraceptive requirement to be heard

- PQRI: physicians face quality reporting penalty

Legislative update - GAO report: CMS fraud prevention system behind schedule, key to replacing “pay and

chase” strategy

- CMS updates Medicare payment rules

- House GOP leaders introduce plan to streamline House oversight of health care legislation

- Health IT safety for consumers focus of attention

- Congressional hearings on meningitis outbreak, intensified attention to compounding center regulatory oversight

State update - State round-up

Industry news - Channel choking strategy extends to shippers

- Study: pay for performance linked to reduced mortality

- Medical device industry pushes for excise tax repeal

- AARP asks Congress to override scheduled SGR cuts while replacing the SGR

- OIG: upcoding prevalent in skilled nursing

- Report: primary care physician workforce needs 2010-2025

- WellStar acquires Center for Health Transformation

- Drug distribution group urges Congress to pass track and trace legislation

- Report: deficit reduction plans should protect seniors

- Organ donation regulators want hospitals to do more to protect kidney donors

- HHS announces first external innovation fellows

- Gene discovered that predicts Alzheimer’s

- FDA publishes data about energy drink risks

- Life after Lipitor: research focuses on protein

Quotable

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My take

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

I don’t know the premises of some hit TV shows because I’ve never seen them, and I’ve

not yet read a Tom Clancy or J.K. Rowling novel—my bad, I wait for the movies. I hear

water-cooler chatter about music stars and TV sitcoms and am clueless. Beyond

occasional sports, my TV viewing is news and public affairs, and my daily “must read” file

always includes the same four daily newspapers, three medical journals, and eight online

health industry daily reports. And I am easily frustrated by the gap between what I should

devour and what I actually consume.

There’s a popular ad that uses the punchy tag, “Life comes at you fast.” That’s probably

where we all are. Fast news cycles. Fast-paced demanding jobs. Fast changing world

events. Even fast changing policies and politics in health care.

Consider, we re-elected President Obama just 13 days ago, and with his administration,

most of the incumbents returning to the 113th Congress next year. But in that period,

we’ve witnessed increased attention to conflicts in the Middle East and at home,

Congressional efforts to address the fiscal cliff, ongoing recovery challenges from

Hurricane Sandy, and the President’s trip to Asia this weekend.

The health care industry is just as frenetic: science comes at us fast—advances in genetic

research brought us new insight about the diagnosis and treatment of Alzheimer’s last

week, and we learned that pharmaceutical companies are looking at a series of protein-

based therapies that will work in tandem with statins to better treat heart disease, our

number one killer. We learned that multi-vitamins might not positively impact healthiness

for some, while confirming that our lives are extended 3.4 years if we exercise at least 2.5

hours weekly. Go figure. In fact, 560 scientific studies were published last week, and

that’s just the ones published in traditional medical journals that cover western medicine.

Policies and rules come at us fast: we received notice from the U.S. Department of Health

and Human Services (HHS) last week about health insurance exchange (HIX) deadline

changes, along with payment adjustments for several outpatient services, and its stepped

up efforts to detect fraud using predictive analytics. And legislators in at least 33 states

grappled with their plans for HIXs and expansion of their Medicaid programs.

And the industry’s changes come at us fast: health insurance plans and hospitals are

competing for the hearts and minds of physicians announcing deals daily, and medical

device and biopharma manufacturers are trying to navigate a path toward value-based

pricing to avert being commodities in the supply chain.

For ordinary people, health care is confusing. Our surveys indicate consumers do not

understand the U.S. health system. We are not inclined to be well-informed unless

confronted in our teachable moments when health care comes at us fast. Open

enrollment for our insurance is one of those—it means we are forced to figure out what

insurance we need and how much it will cost within a short period of time. And when we

or a family member are diagnosed with a new medical problem, it comes at us fast: if life

threatening, nothing else matters. If not, we elect to catch the self-management train or

miss it altogether because our lives are busy.

The equipping of consumers, policymakers, and industry leaders to manage the pace of

change in this industry is perhaps our most significant need. In most communities, health

care means local physicians, local hospitals and facilities, and insurance either obtained

through a public program or employer, if eligible and affordable. But the health care

system is much more, and its pace of change often challenging to incumbent

stakeholders.

Moving from fee-for-service (FFS) to performance-based incentives; equipping consumers

to share in clinical decision-making; leveraging technologies to reduce costs from error,

paperwork, unnecessary care, and fraud; managing population health via teams; and

embracing transparency and accountability in our insurance and delivery systems are

propellants. The pace is quickening.

John Kotter’s monograph in the current issue of the Harvard Business Review—“Big Idea:

Accelerate”—captures the urgent need well: “We can’t keep up with the pace of change,

let alone get ahead of it…The hierarchical structures and organizational processes we

have used for decades to run and improve our enterprises are no longer up to the task of

winning in this faster-changing world…Any company that isn’t rethinking its direction at

least every few years—as well as constantly adjusting to changing contexts—and then

quickly making significant operational changes is putting itself at risk.”

The issues facing the health care industry are coming at all of us fast. And there’s no way

to get out of the way or turn the clock back. Nor should we want to. But it requires our

organizations to reward innovators who “break some glass,” leaders who understand the

future of the industry, and build cultures that welcome new thinking, new partnerships,

and new ways of operating.

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Implementation update

HHS extends health insurance exchange deadline Late last Friday, HHS extended the deadline from November 16 to December 14, 2012 for

states to submit their letter of intent to set up and operate their HIXs by January 1, 2014.

Responding to a letter sent by the Republican Governor’s Association (RGA) on

Wednesday requesting an extension, HHS Secretary Kathleen Sebelius stated, “while

receiving a letter of intent now will help us [HHS] assist states in finalizing their

application…a state may submit both a letter of intent and an application to operate its

own exchange on December 14, 2012.” Many states had already announced their

decisions earlier in the week, anticipating the previously set November 16 deadline. The

following states have informed HHS of their exchange plans to date:

State-based Exchange Federal Partnership or Federally Facilitated

Exchange

CA, CO, CT, DC, HI, IA, KY, MA, MD, MN, MS, NY, OR, RI, VT, WA

IL, NC, OH, WI, GA, MT, SC,

Note: several state governors made statements announcing they will not operate a state-

based exchange, but declaration letters were not sent to HHS, or not yet available: AL,

MT, ME, NE, IN.

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Forthcoming federal guidance on the ACA HHS has indicated it will provide guidance in coming weeks on these provisions of the

Affordable Care Act (ACA):

Provision and

Section of ACA

Description Upcoming guidance

Essential health

benefits (EHB),

Section 1302

Ten statutorily required EHBs:

ambulatory patient services;

hospitalization; maternity and newborn care; mental health and

HHS has yet to release final

regulations defining EHB, and is

expected to release guidance on plan compliance and parameters for

substance abuse disorder services,

including behavioral health

treatment; prescription drugs;

rehabilitative services and devices;

lab services; preventive wellness and chronic disease management;

and pediatric services, including oral

and vision. Note: to date, at least 26

states and DC have identified a final

or preliminary EHB benchmark plan.

Medicaid benchmarks, including

mental health parity. A proposed rule

was sent to the U.S. Office of

Management and Budget (OMB) last

week on health insurance requirements and the ACA, and is

expected to be released soon. Note:

the last guidance from HHS came in

the form of frequently asked

questions (FAQs) and was released

in February 2012.

HIX, Section 1311 The ACA requires the Secretary of

HHS to define minimum coverage requirements for qualified health

plans (QHPs) that will be offered in

the HIXs.

HHS sent a rule to OMB on the

establishment of exchange program part II, appeals of eligibility

determination and oversight and

financial integrity. This proposed rule

would implement Section 1311 of the

ACA, and will provide guidance for

QHPs, HIX, and will focus on EHBs,

actuarial value, and oversight. The

proposed rule should be released

soon.

Individual mandate,

Section 1501 Amends Section 5000A of Internal

Revenue Service (IRS) code to

require individuals to maintain

minimum essential coverage

beginning in 2014; failure to maintain

coverage will result in a penalty.

The IRS is expected to issue guidance on the individual shared

responsibility payment.

Employer penalties,

Section 1513 Requires midsize and large

employers offering unaffordable

coverage (less than 60% actuarial

value) or no coverage to pay a

penalty.

HHS is expected to define “part-time” and “full-time” workers with

regard to the coverage penalties,

minimum value, and the

methodology for accounting wellness

credits and employer contributions to

health reimbursement accounts

into affordability of insurance

coverage.

Preventive care

services

requirements offered

through group plans,

Section 1001

Group health plans are required to cover preventive benefits with no

cost-sharing, including

contraception.

HHS is expected to release further guidance on how certain religious

employers can avoid the

contraceptive coverage

requirements.

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Bible-publishing company legal challenge to contraceptive requirement to

be heard Section 1001 of the ACA requires that certain preventive services recommended by the

U.S. Centers for Disease Control (CDC), U.S. Health Resources and Services

Administration (HRSA), and U.S. Preventive Services Task Force (USPSTF) be covered

by non-grandfathered group or individual health plans with no cost-sharing, including

contraceptives. A bible-publishing company has challenged the contraceptive requirement

in federal court, and is one of three companies to date to receive a preliminary injunction.

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PQRI: physicians face quality reporting penalty Per ACA Section 3002, Medicare rates are reduced for physicians who do not participate

in the physician quality reporting system. The American Academy of Family Physicians

(AAFP) estimates that participating in the Physician Quality Reporting Initiative (PQRI)

along with meaningful use next year could save a physician $19,000 in avoided penalties.

Successfully reporting quality measures and achieving meaningful use of an electronic

health record (EHR) in 2013 will prevent a doctor’s Medicare rates from being reduced by

3.5% in 2015 for noncompliance.

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Legislative update

GAO report: CMS fraud prevention system behind schedule, key to

replacing “pay and chase” strategy The CMS fraud prevention system (FPS) is behind schedule, per a U.S. Government

Accountability Office (GAO) report released last week. The FPS, which is a predictive

analytics system, has been operating since January 2011, but CMS has not met certain

functionality benchmarks, such as integrating its data collection systems with claims

processing data. Also, CMS has not developed reliable schedules for meeting

functionality or determining effectiveness, but has said they will achieve these goals by

January 2013.

Background: the FPS effort is part of a strategy to replace “pay and chase” methods of

fraud surveillance with sophisticated methods of predicting and interdicting fraudulent

behaviors before payments are made. Section 4241(e) of the Small Business Jobs Act of

2010 requires CMS to report on the use of predictive analytics no later than three months

after the first complete year of implementation and to obtain certification from HHS Office

of Inspector General (OIG) on the actual and projected savings from the use of this

technology. CMS’ use of predictive analytics is an effort to preempt payments to providers

likely to be fraudulent rather than “pay and chase” culprits after payments are made. In

late October, Senators Tom Coburn (R-OK) and Orrin Hatch (R-UT) sent a letter to Acting

CMS Administrator Marilyn Tavenner requesting documentation about the CMS FPS

noting that CMS has missed the deadline for public accounting. Senators Coburn and

Hatch indicated they did not receive a report by the deadline, despite several public

speeches made by CMS officials that indicate more specific details about the FPS are

available.

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CMS updates Medicare payment rules CMS released three notices impacting Medicare Part A and Part B payment policies last

week:

Inpatient Hospital Deductible and Hospital and Extended Care Services

Coinsurance Amounts for calendar year (CY) 2013: the percentage hospital

deductible increase for hospitals paid under the inpatient prospective payment

system (IPPS) is 1.8%, for hospitals excluded from the IPPS it is 2.05%. The

estimated total increase in costs to beneficiaries is over $1 billion due to the

increase in the deductible and coinsurance amounts, and the increase in the

number of deductibles and daily coinsurance amounts paid.

Medicare Part B Monthly Actuarial Rates, Premium Rate, and Annual Deductible:

beginning January 1, 2013, the standard Part B premium rate will be $104.90, a 5%

increase from the 2012 premium rate. We estimate that this increase will cost

approximately 48.1 million Part B enrollees about $2.4 billion for 2013. For

individuals receiving Social Security benefits, the premium increase will be reduced,

if the increase in the individual’s Social Security benefit due to the cost-of-living

adjustment is less than the increase in the premium, except for beneficiaries who

are required to pay an income-related monthly adjustment amount.

Part A Premiums for CY2013 for the Uninsured Aged and for Certain Disabled

Individuals Who Have Exhausted Other Entitlement: the monthly Part A premium for

these individuals will be $441, the reduced premium for certain individuals will be

$243, a 2% decrease from 2012.

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House GOP leaders introduce plan to streamline House oversight of health

care legislation Last week, Representatives Doc Hastings (R-WA), Reid Ribble (R-WI), and Rob Woodall

(R-GA) sent a letter to their Republican colleagues in the U.S House of Representatives

soliciting support to create a committee that is solely responsible for health care

legislation and oversight. Representatives argue this would be a more effective alternative

to what is currently in place and would help aid the House in making steps to overturn

“Obamacare.”

Note: currently, several committees and subcommittees in the U.S. House of

Representatives have health oversight:

U.S. House of Representatives,

Committee

Health related responsibilities

Committee on the Budget Manages budget process (i.e., budget resolution and hearings on

funding levels for federal agencies)

Committee on Education and

the Workforce ERISA (includes employer-sponsored health plans, voluntary employee

benefits associations, and multi-employer benefits associations)

Committee on Energy and

Commerce Public Health Services Act (includes CDC, National Institutes of Health

[NIH], HRSA, private insurance), U.S. Food and Drug Administration

(FDA) (drugs and devices), Medicaid and Children’s Health Insurance

Program (CHIP), Medicare (parts B, C, and D)

Committee on the Judiciary Antitrust, information technology (IT), and tort liability issues

Homeland Security Committee Emergency preparedness and public health

Committee on Ways and Means Medicare (parts A, B-limited, C, and D), tax legislation

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Health IT safety for consumers focus of attention Representative and Chairwoman of the Subcommittee on Healthcare and Technology

Renee Ellmers (R-NC) sent Secretary of HHS Kathleen Sebelius a letter requesting

information about how HHS will reduce risks associated with health IT for patients. The

request came on the heels of an Institute of Medicine (IOM) report that noted the medical

literature on health IT safety varied and suggested HHS issue a plan to minimize adverse

events associated with health IT. Representative Ellmers is requesting to see the IOM

recommended report or any documents developed by HHS to date.

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Congressional hearings on meningitis outbreak, intensified attention to

compounding center regulatory oversight Wednesday, the U.S. House of Representatives held a hearing to investigate the New

England Compounding Center’s (NECC) role in the recent fungal meningitis outbreak, and

on Thursday, the U.S. Senate Committee on Health, Education, Labor and Pensions

(HELP) released a report on the outbreak and held its own investigative hearing. To date,

the meningitis outbreak has been linked to 32 deaths and 461 infections. Testimony was

heard from the CDC, FDA, Massachusetts Department of Public Health, Tennessee

Department of Public Health, International Academy of Compounding Pharmacy, and the

American Society of Health-System Pharmacists (ASHP). Notably, the Owner and

Director of NECC was present at Wednesday’s House hearing by subpoena request, but

invoked his fifth amendment right to not answer any of the questions asked by the

committee, and did not attend the hearing in the Senate the following day.

FDA Commissioner Margaret Hamburg testified at both hearings, acknowledging the FDA

could have been more timely in their reaction to the violations committed by NECC, but

arguing that the agency’s regulatory powers over compounding pharmacies is “limited,

unclear and contested.” Reacting to this statement, lawmakers including Senator Tom

Harken (D-IA), expressed bipartisan interest in moving forward to fill the regulatory gaps

in this area.

My take: compounding pharmacy oversight is timely and appropriate, given the testimony

that lapses in NECC quality and safety had been recognized by the Massachusetts Board

of Pharmacy dating back to 2002. The larger question is this: how should federal and

state regulators oversee the 56,000 retail pharmacies in a cohesive way that protects the

public while not debilitating the increasingly important role pharmacy plays in providing

therapies and devices useful to consumers and, in some cases, at a lower cost.

Related: ASHP, a membership organization that works on behalf of pharmacists who

practice in hospitals and health systems, testified at Thursday’s hearing stating, “…we

strongly believe that FDA must be provided the resources it needs to perform serious and

meaningful regulatory oversight of entities that are potentially engaged in manufacturing.

Not to do so now will only hinder the agency in implementing legislation.”

(Source: U.S. Senate HELP Committee, “The New England Compounding Center and the

Meningitis Outbreak of 2012: A Failure to Address Risk to the Public Health,” November

15, 2012)

Related: during the U.S. Senate HELP Committee hearing Thursday, FDA Commissioner

Margaret Hamburg invited state officials to a meeting on December 19, 2012 to discuss

federal and state regulation of compounding pharmacies to enhance coordination and

prevent future adverse events.

Related: Representatives Edward Markey (D-MA), Henry Waxman (D-CA), John Dingell

(D-MI), Frank Pallone (D-NJ), Diana DeGette (D-CO), and Anna Eshoo (D-CA) sent a

letter to the Acting Comptroller General of the U.S. Gene Dodaro last week requesting the

GAO investigate the following in light of the recent meningitis outbreak:

What impacts have contracting practices by market participants had on: access to

medical devices and drugs, including an impact on drug shortages?

What market factors contribute to the reliance of hospitals and other health care

providers on compounding pharmacies?

Do drug shortages drive hospitals and other health care providers to rely more

heavily on purchases of drugs, including sterile injectable medications, from

compounding pharmacies?

What is known about the impact Group Purchasing Organization (GPO)

administrative fees have had on generic drug makers’ financial condition, their

ability to maintain and upgrade plant equipment, and their ability to conduct quality

control?

Do the incentives in the current GPO model lead to inflated prices for drugs and

devices? What is known about the competitive and budgetary impacts on both

hospitals and the Medicare program that could result from eliminating the GPO safe

harbor exemption from the Medicare anti-kickback statute?

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State update

State round-up

A new immigration law in Georgia requiring all residents, regardless of birthplace,

to prove their citizenship and/or legal residency as they renew professional licenses

is causing many health care workers in the state to lose their license to practice.

The Georgia Deputy Secretary of State has indicated that with too few staff to

process the paperwork, the workload has become too much and health

professionals are losing their licenses as a result. The Director of Georgia’s medical

board estimates that up to 1,300 doctors and other medical practitioners have lost

licenses as a result of this law—some as a result of not submitting the new

paperwork, others as a result of the backed up applications that have yet to be

processed. To date, no undocumented immigrants have been discovered through

the new document requirements.

While Governor Dennis Daugaard (R) has yet to make a decision on the expansion of South Dakota's Medicaid program, physicians and hospitals in the state are

urging the Governor to expand the program. Not expanding the state’s Medicaid

program will leave approximately 48,000 residents of the state uninsured, according

to the South Dakota Association of Health Care Organizations—mostly adults

without children. Governor Daugaard has stated he is conducting a cost study to

determine whether the state can afford to expand and doesn’t expect to make

changes to the Medicaid program until 2015 or 2016.

Responding to a Los Angeles Times investigation into accidental deaths from

prescription drugs in four southern California counties last week, state Senator

Curren Price Jr. (D-Los Angeles) introduced legislation that would require all

coroners in the state to report prescription drug deaths to the Medical Board of California. The Los Angeles Times found that more than 3,700 deaths in the four

counties involved prescription drugs, and in 1,762 cases (47%), drugs that had

been prescribed to the patients were the sole cause or a contributing cause of

death. In addition, the report identified 71 physicians in the area who had prescribed

drugs to three or more patients who later overdosed and died.

Wednesday, the Ohio House Health and Aging Committee approved a bill that will

put in place a ranking system for funding family planning with Planned Parenthood

at the bottom of the list. The bill will now be voted on by the full state House. Note:

Ohio is one of ten states seeking to decrease funding for Planned Parenthood.

Wednesday, Mississippi Governor Phil Bryant (R) filed a budget for fiscal year (FY)

2014 that recommends Medicaid receives $878.4 million that covers 750,000 state

residents. In addition to recommending more than $40 million less than the Division

of Medicaid requested, Governor Bryant stated that “expanding Medicaid will cost

the State of Mississippi money that it does not have.”

TBD Colorado, a nonprofit advisory board created by Governor John Hickenlooper

(D), is pushing for older adults and individuals with disabilities in the state to receive

quality home health care. The program is designed to keep individuals out of

nursing homes and give them better access to home- and community-based

services. Nearly 91% of those Coloradans surveyed support the legislation.

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Industry news

Channel choking strategy extends to shippers The Drug Enforcement Agency (DEA) and the Department of Justice (DOJ) sent

subpoenas to UPS and Federal Express four years ago regarding illegal drug sales from

online pharmacies and are now moving forward with the investigation. The government’s

pursuit also extends to drug distributors and retail pharmacy chains intended to interdict

the supply of opioids to addicts costing 15,000 deaths last year.

My take: channel choking (i.e., going after drug manufacturers, distributors, and shippers)

is a strategy intended to affect costs associated with pain medication addiction and pill

mills that cater to these consumers. The key question for policymakers is this: is the best

strategy for addressing the problem channel choking, or a crackdown on the prescribers

who profit most from the practice? Channel choking might have the unintended

consequence of adding costs to manufacturing and distribution costs without addressing

the root cause: inappropriate prescribing.

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Study: pay for performance linked to reduced mortality A New England Journal of Medicine (NEJM) study on a pay for performance program

used in 24 UK hospitals concluded that that pay for performance significantly reduced

mortality for patients admitted for pneumonia, heart failure, or acute myocardial infarction.

Researchers looked at patient data 18 months prior to and after the implementation of pay

for performance using a difference-in-differences regression analysis. (Source: Sutton et

al, NEJM, “Reduced Mortality with Hospital Pay for Performance in England,” 367:19,

November 8, 2012)

Background: per Section 3001 of the ACA, after October 1, 2012 hospitals will be

reimbursed based on certain quality measures through the Medicare Hospital Value-

based Purchasing program. Reimbursements will be made based on whether a hospital

meets or exceeds the performance standards established.

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Medical device industry pushes for excise tax repeal As post-election deficit reduction negotiations began on Capitol Hill last week, the medical

device industry again urged Congress to repeal the 2.3% excise tax on medical devices

scheduled to take effect January 1, 2013 per Section 9009 of the ACA. Over 800 medical

device technology organizations wrote to Senate majority leaders asking them to

reconsider the excise tax in the current lame duck session, as they believe it will

negatively affect patient care, innovation, and substantially increase the costs of health

care. According to the industry groups, the tax is already having an adverse impact on

research, development investment, and job creation, which will only worsen if the tax is

implemented.

Background: in July 2012, the Congressional Budget Office (CBO) projected that repeal of

the excise tax on manufacturers and importers of certain medical devices would reduce

federal revenues by $29 billion between 2012 and 2022. (Source: CBO, “Estimated

Budgetary Effects of Repealing the Affordable Care Act,” July 2012)

The tax—equal to 2.3% of the sale price—is imposed on the sale of any taxable medical

device by the manufacturer, producer, or importer of such device. A taxable medical

device is any device defined in Section 201(h) of the Federal Food, Drug, and Cosmetic

Act, intended for humans. The excise tax does not apply to eyeglasses, contact lenses,

hearing aids, and any other medical device determined by the Secretary to be of a type

that is generally purchased by the general public at retail for individual use. The Secretary

may determine that a specific medical device is exempt under the provision if the device is

generally sold at retail establishments (including over the Internet) to individuals for their

personal use. The exemption for such items is not limited by device class as defined in

Section 513 of the Federal Food, Drug, and Cosmetic Act. Items purchased by the

general public at retail for individual use could include Class I items, such as certain

bandages and tipped applicators; Class II items, such as certain pregnancy test kits and

diabetes testing supplies; and Class III items, such as certain denture adhesives and

snake bite kits. It is anticipated that the Secretary will publish a list of medical device

classifications that are of a type generally purchased by the general public at retail for

individual use.

For more information about the device excise tax, please see the following report:

Medical device excise tax—Are you ready?

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AARP asks Congress to override scheduled SGR cuts while replacing the

SGR Last week, AARP, in alliance with AAFP, American College of Physicians, American

Geriatrics Society, Center for Medicare Advocacy, Inc., and Medicare Rights Center sent

a letter to Congress urging House and Senate committee members to postpone the 27%

reduction in Medicare provider payments scheduled to take effect January 1, 2013 due to

the scheduled Sustainable Growth Rate (SGR) adjustment. The letter expressed their

concerns that the pay cuts would harm access to care for older adults and individuals with

disabilities. The groups asked that Congress repeal the SGR, and pass the longest

possible legislative “fix” while developing a new payment mechanism.

Note: setting aside the SGR will cost $9 billion which, added to previous SGR set-asides,

brings the accrued liability to $310 billion. It is highly likely Congress will approve another

set aside, the 14th since 2003, and pay for it by changing coding for hospital outpatient

services to be the same as ambulatory coding for the same tests and procedures.

My take: the SGR is not working. Congress will not cut physician pay, so a permanent fix

to a Medicare physician compensation formula is necessary that balances access to a

physician workforce and competencies required. That formula would benefit from input

from purchasers and consumers, should consider the role of technologies and incentives

that will change from FFS to value, and should include consideration of the roles of mid-

level professionals who are allowed to practice at the highest level of their training.

For more information about the SGR, please see the Deloitte Center for Health Solutions

publication, Understanding the SGR: Analyzing the “Doc Fix”.

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OIG: upcoding prevalent in skilled nursing The HHS OIG released a study based on a medical record review of skilled nursing

facilities’ (SNF) reimbursement claims concluding that 25% of all claims in 2009 were

made in error resulting in $1.5 billion in inappropriate Medicare payments. According to

the report, 20.3% of SNF claims were upcoded, 2.5% of claims were downcoded, and

2.1% did not meet Medicare coverage requirements. In addition, SNFs misreported

therapy on 30% of claims, and information on the Minimum Data Set (MDS) used to

assess a beneficiary’s clinical condition, functional status, and expected and actual use of

services on 47% of all claims. CMS agreed with all of the following HHS OIG

recommendations:

Increase and expand reviews of SNF claims

Use the FPS to identify SNFs that are billing for higher paying resource utilization

groups

Monitor compliance with new therapy assessments

Change the current method for determining how much therapy is needed to ensure

appropriate payments

Improve the accuracy of MDS items

Follow up on the SNFs that billed in error

Background: SNFs provide skilled nursing care, rehabilitation services, and other services

to Medicare beneficiaries who meet certain conditions. In FY2012, Medicare paid $32.2

billion for SNF services. In its 2007 and 2011 reports to Congress, the Medicare Payment

Advisory Commission (MedPAC) raised concerns about SNFs improperly billing for

therapy to obtain additional payments, and that the payment system “encourages SNFs to

furnish therapy, even when it is of little or no benefit.”

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Report: primary care physician workforce needs 2010-2025 Per the Agency for Health Care Research and Quality (AHRQ) funded study, primary care

provider utilization is projected to increase from 462 million in 2008 to 565 million in 2025.

Due to population growth, aging, and ACA insurance coverage expansion provisions

researchers estimate that the U.S. will need almost 52,000 additional primary care

physicians—a 3% increase—by 2025. The report concluded that population growth would

be the most significant driver of increased utilization (33,000 additional physicians),

followed by population aging (10,000 additional physicians), and insurance expansion

(more than 8,000 additional physicians).

(Source: Annals of Family Medicine, “Projecting U.S. Primary Care Physician Workforce

Needs: 2010-2025,” November/December 2012)

My take: traditional models forecasting demand for medical professionals fail to

adequately account for three trends that mitigate findings based on prior utilization: 1)

incentives to manage population health using technologies and allied health professionals

are inadequately considered, 2) the emergent role of consumers in self-care using

devices and over-the-counter therapies is not adequately factored, and 3) the role and

scope of allied health professionals in traditional and alternative health roles is under-

reported. Therefore, we believe the shortage of primary care services is substantial, but it

does not necessarily result in a shortage of physicians per se. For more information, the

Deloitte Center for Health Solutions publication Primary Care: Today and Tomorrow

outlines solutions to the primary care shortage using new business models, new

incentives, and accelerated use of ITs that shift the epicenter of primary care from

providers to consumers.

Total U.S.

professionals Degree and education Clinical training

Total years

education and

training

Physicians:

Medical

Doctors (MDs)

and Doctors

of Osteopathic

Medicine

(DOs)

661,400 Requires 4 years

undergraduate (B.A. or

B.S.) degree with

pertinent science

coursework; 4 years

medical school

Residency training

is required to

practice clinically,

typically 3 to 7

years; may be

followed by

fellowship of 1 to 3 years to further

specialize

11-18 years,

depending on

residency and

fellowship

Nurse practitioner

(NP)

140,000 Requires registered nurse (RN) training

(through bachelors or

associate degree), and

NP master’s degree (2

years) or doctorate (4

years); national board

certification by area of

specialty through state

nursing boards

Advanced clinical training is part of

RN and NP

education

programs; no

additional clinical

requirements after

certification

4-6 years

Physician

Assistant (PA) 74,800 Accredited PA

educational programs

include certificate

programs and master’s,

bachelor’s, and

associate degrees; all

require at least 2 years,

and admissions

requirements vary; many students have

B.A.s prior to entering;

all graduates must pass

the Physician Assistant

National Certifying

Examination to practice

Some clinical

training is included

in PA educational

programs;

additional education

is possible after

attaining

certification but is

not required

4-6 years

Pharmacist 269,900 2 years of professional

study, usually at a

college or university, are

required to pursue a

degree, followed by 4

years of a Pharm.D. program

Pharm.D. studies

include some

clinical training; 1 to

2 year residency

and fellowship

programs are available but not

required

6-10 years,

depending on

undergraduate

degree

fulfillment,

residency, and fellowship

Source: Deloitte Center for Health Solutions, Primary Care: Today and Tomorrow,

September 2011

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WellStar acquires Center for Health Transformation Wednesday, WellStar Health System announced that it had acquired the rights of the

Center for Health Transformation (CHT), a think tank established by former U.S. House of

Representatives Speaker Newt Gingrich (R-GA) in 2003. According to the press

statement, CHT will operate as an independent, invitation-only, non-partisan entity with

funding provided by a membership of 20 non-competing, not-for-profit health systems,

which will evaluate best transformational and innovative practices aimed at delivering

higher quality health care at lower costs. WellStar’s senior vice president for medical

management and Chief Health Innovation Officer, Dr. Robin Wilson, was been named

executive director of the CHT.

Background: Speaker Gingrich divested himself from CHT in May 2011 to bid for the

Republican presidential nomination. CHT filed for Chapter 7 bankruptcy in April 2012, with

estimated liabilities of $1 million to $10 million and 50 to 90 creditors. CHT generated $59

million in revenues over nine years from more than 300 drug manufacturers, health

insurers, and hospitals paying as much as $200,000 in annual dues.

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Drug distribution group urges Congress to pass track and trace legislation The Pharmaceutical Distribution Security Alliance (PDSA), a coalition representing the

pharmaceutical, distribution, and manufacturing stakeholders that advocated for the

prescription drug “track and trace” legislation released a statement supporting the

bipartisan draft recently released by the Senate HELP Committee. “The PDSA remains

hopeful lawmakers will build on these many months of hard work and enact into law

supply chain legislation that provides American consumers with a single, uniform national

system, one that can be modified over time as technologies evolve and that provides

meaningful protections and safeguards for patients on day one.”

Background: “track and trace” language was included in the re-authorization of the

Prescription Drug User Fee Act (PDUFA) of 2012 this summer, but was removed due to

industry opposition. Many manufacturers oppose the use of individual identifiers that

require tracking of single packages of drugs but favor tracking at the lot level. A federal

track and trace system would allow the FDA to track a drug from its origination, through

the manufacturing process, to the point of sale.

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Report: deficit reduction plans should protect seniors Tuesday, the Center for American Progress (CAP), released “The Senior Protection Plan,”

a 40-page deficit reduction proposal outlining $385 billion in health care savings, and

generating up to $100 billion in revenues over the next ten years. Using estimates from

the CBO and the MedPAC, CAP recommended the following proposals to protect

Medicare, senior citizens, and to achieve a fair and balanced debt-reduction package:

Enhance competition based on price and quality

Increase transparency of price and quality information

Reform health care delivery to provide better care at lower cost

Repeal the SGR mechanism

Reform graduate medical education and the workforce

Reform Medicare premiums and cost-sharing

Reduce drug costs

Bring Medicare payments into line with actual costs

Cut administrative costs and improper payments

Reduce the costs of defensive medicine

Reform the tax treatment of health insurance

Promote better health

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Organ donation regulators want hospitals to do more to protect kidney

donors At a Board of Directors meeting held last week, the Organ Procurement and

Transplantation Network (OPTN) and the United Network for Organ Sharing (UNOS)

updated policies to specify a minimum set of required tests and procedures for the

medical and psychosocial evaluation of potential kidney donors, requirements for

informed consent for the donation procedure, and the role of an independent donor

advocate. The Board also approved new reporting policies requiring transplant programs

to provide status and clinical information for 80% of living kidney donor and common

laboratory test results for 70% of living kidney donors for up to two years post-donation.

OPTN/UNOS are currently in the process of updating similar policies for liver donors.

Background: in 2009, 16,830 patients on the UNOS waiting list underwent kidney

transplant. The rate of living kidney donations increased by 7%, and was highest for

patients aged 35 to 49 years, and lowest for those aged 0 to 17 years. There are currently

94,450 in the U.S. on the waiting list for kidney transplants.

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HHS announces first external innovation fellows

Tuesday, HHS Secretary Kathleen Sebelius announced the first six individuals selected

for the external Innovation Fellows Program. These fellows were chosen from more than

100 applicants, and will be paired with internal HHS innovation fellows to use their private

sector expertise to address complex problems in health care. HHS developed the

following four high-priority projects, which the external fellows will be assigned to for six

months to a year:

Accelerating clinical quality measures for the ACA

Fellow: Mindy Hangsleben, Innovator in Lean Methodology, Portland, Oregon

Designing the infrastructure for Medicaid and CHIP eligibility

Fellows: Zachery Jiwa, Health Care Technology Executive, Baton Rouge,

Louisiana; Chris Lunt, entrepreneur, San Francisco, California

Building health resilience technology to withstand natural disasters

Fellow: Frank Sanborn, eCommerce Technologist, Seattle, Washington

Devising electronic tracking and transport of the nation’s organ transplant system

Fellows: David Cartier, IT Supply Chain, Roswell, Georgia; Clive Hohberger,

Applied Physicist and Barcode RFID Expert, Chicago, Illinois

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Gene discovered that predicts Alzheimer’s Iceland researchers discovered a variant of TREM2, a gene found more often in

Alzheimer’s patients, then replicated the study in the U.S., Germany, Norway, and the

Netherlands. Alzheimer’s affects 5.2 million in the U.S.

Note: TREM2 is only the second gene to be discovered related to Alzheimer’s, which has

no known cure. When the gene mutates, people have a three to five times higher

likelihood of Alzheimer’s than otherwise. In recent years, the ability to diagnose

Alzheimer’s has leapt ahead of treatments. For instance, a new technology that shows

plaques in the brain, which went on the market in June, is now available in 300 U.S.

hospitals (UCL Institute of Neurology led the study in the UK).

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FDA publishes data about energy drink risks Thursday, the FDA issued a press release announcing its continued investigation of the

adverse consequences associated with energy drinks, which are regulated as dietary

supplements by the FDA. The agency examined filings against three companies whose

products had been alleged to be associated with 18 deaths dating back to 2004 and

published these results at the end of October. Per the Substance Abuse and Mental

Health Services Administration (SAMHSA), emergency room visits involving consumption

of energy drinks increased to 12,000 last year.

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Life after Lipitor: research focuses on protein Researchers in several pharmaceutical companies are investigating a protein, PCSK9,

which interferes with the body’s ability to clear LDL (the bad cholesterol) that preliminary

studies show might reduce heart disease up to 50% if used in tandem with a statin.

Note: 71 million Americans have high LDL (Source: CDC).

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Quotable

“Whenever I hear, as often I do these days, that informed health care consumers can fix

our health care system by shopping around, I remember my own paralysis, mistakes and

inability to find the information I needed. While choice may be great, negotiating through it

is daunting and it seems unlikely to remedy what ails our health care system.”—Dahlia K.

Remler, The Washington Post, “A $60,000 Dilemma: Facing Brain Surgery, a Health

Economist with a Ph.D. finds it Difficult to Navigate the Maze of Insurance Coverage,”

November 6, 2012

“The story of how the promising therapy (Hepatitis C) got stalled despite positive research

illustrates a little acknowledged truism in the pharmaceutical industry: sometimes drugs

die not because they don’t work or are unsafe, but because they don’t make business sense.”—Jonathan D. Rockoff, The Wall Street Journal, “Hepatitis C Drug Derailed by

Deal,” November 15, 2012

“Hundreds of nursing homes overcharge Medicare every year for so-called skilled

services adding $1.5 billion in annual costs to the program, according to a federal report

release Tuesday. About one-fourth of Medicare bills from facilities examined in the report

were incorrect. The majority of these claims involved so-called upcoding, where a nursing

home or other provider inflates the cost of its bill to Medicare by claiming more intensive

services were done than actually performed. In other cases, nursing homes provided treatments that were inappropriate,”—Thomas Burton, The Wall Street Journal, “Nursing

Homes Said to Overbill U.S.,” November 13, 2012

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Fact file Health care as an issue priority in next term: ranking of issue by key groups:

All Americans Democrats Republicans

Take major steps to restore a strong

economy/job market 1 1 1

Take major steps to ensure long-term

stability of Social Security and

Medicare

3 2 4

Make major cuts in federal spending 5 9 3

(Source: USA Today/Gallup Poll of 1,009 U.S. adults, November 9-12, 2012,

margin of error +/-3%)

Election results at state level: 30 Republican governors were elected November

6, the highest number since 2000. Legislatures: Democrats hold the majority in 19

legislatures, up from 15 in 2000; Republicans control both chambers in 26 states.

Control in three states is split between the parties, the fewest to be split since

1944. (Source: National Conference of State Legislatures)

Fiscal cliff: slightly more than half of Americans, 51%, anticipate leaders in

Washington will be unable to reach an agreement to avoid the approaching fiscal

cliff, compared to 38% who believe the sides will find a solution. If the two parties

cannot reach a deal, 53% of those polled would hold congressional Republicans at

fault while only 29% would blame President Obama. (Source: Pew Research

Center for the People & the Press, “Broad Concerns about ‘Fiscal Cliff’

Consequences,” November 2012)

Presidential election results: President Obama held a narrow advantage over

Governor Romney among voters who said the health care reform law was a major

factor in their vote, 47% to 46%. But the President held much stronger support

among voters who viewed health care as their top issue; 75% to 24% margin. Post-

election the percentage of Americans hoping to see the ACA completely repealed

reached an all-time low of 33%. (Source: Kaiser Family Foundation)

Antibiotics: 79% of U.S. adults understand they may be endangering their own

health by unnecessarily taking antibiotics. However, 47% recognized that doing so

could also potentially harm others by exposing them to the risk of antibiotic-

resistant bacteria. In addition, 36% mistakenly view antibiotics as effective treatment for common viral infections like the cold and flu. (Source: Pew Research)

Readmission rates: heart failure patients treated by cardiologists were found to be

readmitted far less often compared to patients attended to by a hospitalist, 16% vs.

27.1%. Total average costs for cardiologist treated heart failure patients were

$2,109 higher than the costs incurred by hospitalist patients. (Source: Minneapolis

Heart Institute Foundation, “HF Patient Treated by a Cardiologist, Rather than

Hospitalist, Have Fewer Readmissions,” November 6, 2012)

Medical homes: since 2006, 25 states have advanced efforts to utilize patient-

centered medical homes by implementing or revising related payment systems for

primary care providers. (Source: Health Affairs, “About Half of the States are

Implementing Patient Centered Medical Homes for their Medicaid Populations,”

November 2012)

Diabetes: all 50 U.S. states, the District of Columbia, and Puerto Rico observed

significant growth in their rates of diagnosed diabetes during the period from 1995

to 2010; 42 states saw their diagnoses increase 50% or more while 18 states grew

by more than 100%. Oklahoma (226%), Kentucky (158%), Georgia (145%),

Alabama (140%), and Washington (135%) experienced the largest increases.

(Source: CDC)

Smoke-free cities: according to the CDC, 30 of the nation’s 50 largest cities now

enforce comprehensive smoke-free laws, covering roughly half of the total U.S.

population. In 2000, San Jose, CA was the only major city with such an ordinance.

(Source: CDC)

Bundled payments and post-acute costs: Medicare spends more in the 90 days

after hospitalization than it spends for the initial hospitalization; for patients

admitted with chronic illnesses, such as congestive heart failure, post-acute care

spending can average twice the cost of the initial hospital stay, and 90-day

readmission rates can exceed 40%. (Source: RTI International, “Post-Acute Care

Episodes: expanded analytic file data,” Report to the Assistant Secretary of

Planning and Evaluation,” June 2011)

Tax deduction elimination math 2013-2022: capping deductions at $50,000

raises $749 billion, caps at $25,000 raises $1.286 trillion, caps at $17,000 raises

$1.747 trillion. (Source: Tax Policy Center)

Preventive health: one in five hospitalized patients smokes during a hospital stay

(Source: Archives of Internal Medicine); physicians are 28% less likely to screen for

high blood pressure in college age adults than those older than 60 (Source:

University of Wisconsin School of Public Health); Americans who get 2.5 hours of

exercise/week live 3.4 years longer than those that don’t (Source: PLoS Medicine).

Operating performance considered by venture investors: 47% of venture-

backed firms are providing operational metrics along with financial reports, up from

26% in 2011. (Source: Wilson Sonsini Goodrich and Rosati)

Election night viewing: 66.8 million watched election night results vs. 71.5 million

in 2008; $952 million was spent on 1.4 million TV ads in 2012 vs. $652 million on

1.2 million ads in 2008; Twitter followers of President Obama: 23 million in 2012 vs. 100,000 in 2008. (Source: The New York Times, November 8, 2012)

Small business: of 27 million small businesses, 25% have only one employee, 8%

reach 20 employees in 10 years; 75% do not seek to grow; 6.3% of small

businesses contributed all net new jobs in the economy between 1994 and 2008—10.8 million jobs. (Source: Aaron Chatterji, Duke University Fuqua School of

Business; Brookings Papers on Economic Policy, Fall 2011; Small Business

Administration)

Administrative costs: the average U.S. physician spends: 43 minutes daily

interacting with health plans about coverage or authorizations costing $29,000 per

physician per year, three hours annually submitting credentialing information to 18

different organizations (with staff spending an additional 20 hours); total

administrative costs of the system are $361 billion annually. (Sources: Yong at el,

“The healthcare Imperative: Lowering costs and improving outcomes,” National

Academy Press 2010; Pope, “The Cost of Administrative Complexity:

Administrative intricacies add no value to healthcare,” MGMA 2004: 4:36-41)

Student achievement in suburbia: comparison between countries: of American

15-year-olds with at least one college-educated parent, 42% are proficient in math

vs. 75% in Shanghai and 50% in Canada. The Harvard research team concluded

the gross domestic product (GDP) would be $1 trillion stronger if the U.S. was at

Canada’s level of achievement. (Source: Program for International Student

Assessment)

Meaningful use: Medicare and Medicaid EHR payments totaled $8.36 billion at

the end of October 2012; 165,800 eligible physicians and hospitals are recipients to

date. In October, $645 million was disbursed to eligible hospitals and physicians:

$435 million through Medicare, and $210 million through Medicaid. (Source:

Government HealthIT, “Medicare, Medicaid EHR meaningful use payments

surpass $8B in October,” November 2012)

Federal tax receipts as percent of U.S. GDP in 2012: 15.8%—lowest since 2001

(20.6%). (Source: CBO)

Network TV viewing: percent watching live prime time down to 77% in 2012; 23%

of prime time viewing is on delayed basis (38% for young adults)—overall TV

viewing down 9% among young adults. (Source: Nielsen)

White House 2013 Budget: increased taxes for families above $250,000 and

individuals above $200,000—deficit reduction of $1.4 trillion over 10 years:

reinstate the limitation on itemized deductions, $122 billion; reinstate the personal

exemption phase-out, $41 billion; reinstate the 36% and 39.6% rates, $442 billion;

tax qualified dividends as ordinary income, $206 billion; tax net long-term capital

gains at a 20% rate, $36 billion. (Source: OMB, “Fiscal Year 2013 Budget of the

U.S. Government,” February 2012)

Federal Deficits: CBO, U.S. Department of the Treasury

2007 2008 2009 2010 2011 2012

Receipts 2568 2524 2105 2163 2302 2449

Outlays 2729 2983 3518 3456 3599 3538

Deficit 161 459 1413 1293 1297 1089

% GDP -1.2% -3.2% -10,1% -9.0% -8.7% -7.0%

Note: for FY2012, tax revenue increased 6.4% including individual tax revenues up

26% ($233 billion), 4% decrease in defense spending, 24% decrease in jobless

benefits, and 8.9% decrease in Medicaid spending.

College debt: fastest growing population of student loan debt—adults older than

60—total of $45 billion in debt. (Source: Federal Reserve)

Mobile health apps: 247 million worldwide will download a health app in 2012;

one in five claims to treat a disease; of 331 therapeutic applications, 43% used cell

phone sound for treatments. (Source: Research2Guidance)

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Coming soon: 2012 Survey of U.S. Health Care Consumers – INFOBrief series and Five-year report

Currently available: 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

State Medicaid Program Management: Update and considerations—September 2012.

Available online at www.deloitte.com/us/2012statemedicaid

Meeting the Challenge: Maximizing the value of employer-sponsored health care—

August 2012. Available online at www.deloitte.com/us/meetingthechallenge

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

and plans for employee health benefits—July 2012. Available online at

www.deloitte.com/us/2012employersurvey

Deloitte 2012 Survey of U.S. Health Care Consumers: The performance of the health

care system and health care reform—June 2012. Available online at

www.deloitte.com/us/2012consumerism

Health Care Reform: Center Stage 2012 Perspectives from consumers, physicians

and employers—June 2012. Available online at

www.deloitte.com/us/healthcarecenterstage2012

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Deloitte contacts

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(pkeckley@deloitte.com)

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Consulting LLP (jgirzadas@deloitte.com)

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

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LLP (mitchmorris@deloitte.com)

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

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