Deloitte Center for Health Solutions

September 24, 2012

Monday memo

Health reform update

This week’s headlines: My take

Implementation update - Sequestration and the Affordable Care Act: looking ahead

- Study: unexpected cost-sharing under ACA’s prevention benefit

- PCORI: $96 million for clinical effectiveness research projects

- Senate Special Committee on Aging examines Medicare fraud in use of motorized

wheelchairs

Legislative update - Bipartisan Policy Center: health care cost drivers

- Congress passes Continuing Resolution for FY2013 - Congressional activity on health bills in the final week before recess

- DOL grants $500 million for HIT workforce training

- HHS hiring, compensation constraints sought in House legislation

- Senators searching for middle ground on deficit reduction

State update - Health insurance exchange update

- Medicaid expansion update

- State round-up

Industry news - CMS: Medicare Advantage enrollment, premiums in 2013

- Wal-Mart and HumanaVitality partner for healthy eating initiative

- Study: upcoding costs Medicare $11 billion

- Hospitals oppose changes to non-emergency coding payment caps

- UnitedHealth joins the Dow; health care prominent

- Study: health information exchanges struggle to prove ROI

Quotable

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My take

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

I flew from West Palm Beach, Florida to Las Vegas, Nevada Tuesday sitting beside

Arlene—an 87 year old grandmother recently widowed and traveling alone for a two week

getaway to the casinos. She explained that Texas Hold ‘Em was her favorite poker game,

but occasionally she plays Blackjack and the 25 cent slots when she’s bored. She proudly

noted her sons encourage her gambling boondoggles: she reasoned she lives alone,

enjoys her independence and they know she loves to gamble but limits her losses. And I

learned all this before the plane took off.

Arlene volunteered she was a pro-choice Republican—I didn’t ask. She noticed my

reading included the New England Journal of Medicine and observed I must be in health

care. And without hesitation, she then offered her view on Medicare and what’s ailing the

health system.

To Arlene, it is simple: any change to Medicare is bad. “They” can save it by simply

reducing fraud, raising the age of eligibility and then, instead of giving money to other

countries, keep it at home.

She meticulously explained details of her knee replacement—it only cost her $300

dollars—and the gall bladder surgery one of her girl-friends had, which cost $38. She

insisted she was not a member of AARP because it sells “too much stuff”, and admitted

her suspicion that Medicare would probably run out of money before her children and

grandchildren in Virginia were eligible. She said she hated Obamacare, but admitted she

didn’t know much about what’s in it.

Health issues are deeply personal historically and usually discussed discreetly within a

close circle of friends. That has changed in the past three years since health reform took

center stage in the national debate. And increasingly, opinions about how well the system

performs and necessary changes have been marked by polarizing rhetoric on all sides of

issues.

What struck me about Arlene was her quick wit, strong opinions and the salience of health

care to her independence and happiness. She had thought about Medicare and knew it

had to change. She understood younger folks were paying into a system that might not be

there for them one day, and she knew she was lucky to have it.

I asked how Medicare related to other priorities of the government, like defense and

education. She didn’t bite: they’re all important.

I asked about which programs might be cut to allow for Medicare to continue. She didn’t

know. She reminded me the U.S. spends more than it takes in, and that fraud and waste

are the real problem in government and in health care. She said all the doctors she knows

make “millions” so she didn’t understand their complaints, and she had not heard of

“sequestration”—suspected it was a plan to lock Congress in a penalty box so they’d start

acting like adults.

I learned a lot listening to Arlene. She relates to the health care system in a deeply

personal way like we all do. She said she’s lucky to be healthy: it’s what allows her get to

Atlantic City and Vegas for fun, and she’s a regular she quickly noted.

When we arrived in Las Vegas, I asked if I could help get her to her hotel. She insisted

she was OK because she needed her wheelchair to get from place to place, and preferred

to take her time. And she confided that one of the hotels where she’d be staying was

sending a car to pick her up.

So with 43 days until the election, and ten days to the first debate, it’s clear the issue of

health reform is going to get more attention. It is included as one of the six domestic

agenda items for first debate in Denver but that’s only 15 minutes to discuss an industry

that’s almost 18% of the U.S. gross domestic product (GDP) and 26.7% of the federal

budget. I wish an entire hour could be invested in discussing an industry that’s so relevant

to each of us.

I offered to call Arlene from time to time to see how she is doing and glean her thinking

about health care. She told me not to call because she doesn’t answer unless it’s one of

her gambling buddies or a family member. But she asked for my number in case she has

questions.

I hope she calls. I learned a lot from her and I know Arlene is paying attention to the

national discussion about health reform and Medicare. But she’ll be listening for ways

other programs can be cut so it’s left alone. Arlene has health reform figured out: fix the

rest of government and leave Medicare alone. I wish it was that simple, but for Arlene, it

is.

P.S. Last week, the Deloitte Center for Health Solutions published a new Issue Brief on Medicaid,

examining challenges to improve care quality and reduce costs: State Medicaid Program

Management: Update and Considerations.

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Implementation update

Sequestration and the Affordable Care Act: looking ahead Per the Budget Control Act of 2011, $1.2 trillion in additional spending cuts, including

$109 billion in 2013, will be cut from federal spending starting January 1, 2013. In some

cases, the spending cut is a reduction in the previous rate of growth for a particular area

of spending, in others, it’s elimination of a program, or sharp reductions in spending.

Based on a variety of sources, here are the cuts to Affordable Care Act (ACA)-related

programs likely to be included in the sequester unless stopped by Congress:

The potential impact of sequestration on major programs/provisions in the ACA for fiscal

year (FY) 2013:

Major programs/provisions

Congressional Budget Office

(CBO) projected federal

spending

Sequestration cuts,

FY2013

Medicaid and Child Health

Insurance (CHIP) Outlays $642 billion

1 (FY2012-2022) Exempt

Exchange subsidiesa, high risk

poolsb, premium review

activitiesc, loans to CO-OP plans

d,

risk adjustment and transitional

reinsurancee, and grants to states

for the establishment of

exchangesf

$1,017 billion1 (FY2012-2022) $66 million

f

Small business health insurance

tax creditg

$23 billion1 (FY2012-2022) $10 million

4

Prevention and Public Health

Fundh

$16 billion2 (FY2012-2021) $76 million

5

Increase in Health Care Fraud and

Abuse Control Accounti

$100 million3 (FY2011-2020) $78 million

1CBO projected 11 year effect on federal deficit, by fiscal year 2012-2022 (July 2012)

2CBO projected 10 year effect on federal deficit, by fiscal year 2012-2021 (April 2011)

3Total amount appropriated by Congress in ACA: $10 million for fiscal years 2011-2020

4Payment where small business health insurance tax credit exceeds liability for tax

5Department management

aACA Sections 1401, 1402, 1411, 1412, 1414, and 1415;

bACA Sections 1101 and 1102;

cACA Sections 1401,

1402, 1411, 1412, 1414, 1415; dACA Section 1322;

eACA Sections 1341, 1342, 1343;

fACA Section 1311;

gACA

Section 1421; hACA Section 4002;

iACA Section 6402

Sources: CBO, Estimates for the Insurance Coverage Provisions of the ACA Updated for the Recent Supreme Court Decision, July 2012; CBO, Cost Estimate H.R. 1217 A Bill to Repeal the Prevention and Public Health

Fund, April 2011; The "Patient Protection And Affordable Care Act ('PPACA')”, March 2010; and OMB,

Sequestration Update Report to the President and Congress for Fiscal Year 2013, August 2012.

Sequestration assumes the following taxes expire at the end of the year:

Tax provision to expire December 31, 2012

Estimated 2013

revenue due to

expiration

Reduced income tax rates (25%, 28%, 33%, 35%) $35.1 billion

Expanded 10% income tax bracket $30.7 billion

Reduced rate on capital gains and dividends $21 billion

Itemized deduction and personal exemption phase-

out $5.4 billion

Estate and gift tax provisions $4.6 billion

Joint filers’ 15% bracket and standard deduction $4.3 billion

Child credit at $1000 $4.1 billion

American Opportunity tax credit $2.6 billion

Education provisions $360 million

Earned income tax credit modifications $65 million

Child credit refundable threshold to $3,000 $7 million

Other provisions $78 million

Total $108.4 billion

Source: The Joint Committee on Taxation, List of Expiring Federal Tax Provisions 2011-2022

Sequestration will cut 2% ($11.1 billion) from Medicare provider pay because such pay is

non-discretionary. There will be no cuts to benefits, and as shown above, Medicaid is

shielded entirely, the Administration said.

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Study: unexpected cost-sharing under ACA’s prevention benefit Last week, the Kaiser Family Foundation, American Cancer Society, and National

Colorectal Cancer Roundtable released a study focused on unexpected cost sharing for

patients who undergo colorectal cancer screening. Unexpected cost sharing was found to

occur when:

A polyp is detected and removed during a screening colonoscopy

A colonoscopy is performed as part of a two-step screen process following a

positive stool blood test

The individual is at increased risk for colorectal cancer and may receive earlier or

more frequent screening compared with average risk adults

(Source: Kaiser Family Foundation, “Coverage of Colonoscopies Under the Affordable

Care Act’s Prevention Benefit,” September 2012)

Background: Title IV of the ACA addresses chronic disease prevention and public health.

Specifically, Section 4003 calls for the “development of a task force to review scientific

evidence related to the effectiveness, appropriateness, and cost-effectiveness of clinical

preventive services for the purpose of developing recommendations for the health care

community, and updating previous clinical preventive recommendations, to be published

in the Guide to Clinical Preventive Services, for individuals and organizations delivering

clinical services.” Section 1001 of the ACA, which amends Section 2713 of the Public

Health Service Act, requires all plans to cover certain preventive services without any

cost-sharing. Section 2713 took effect for new plans beginning on or after September 23,

2010.

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PCORI: $96 million for clinical effectiveness research projects Last week, the Patient-Centered Outcomes Research Institute (PCORI) announced $96

million in its second cycle of PCORI funding for comparative clinical effectiveness

research. The National Priorities for Research Agenda, which outlines the priorities for

PCORI, includes five research areas for this funding cycle’s funding announcements:

assessment of prevention, diagnosis, and treatment options; improving health care

systems; communication and dissemination; addressing disparities; and accelerating

patient-centered and methodological research. Four of the five priorities were addressed

this funding cycle. Funding announcements for the fifth priority—accelerating patient-

centered and methodological research—will be released later this year. The first funding

cycle was in May 2012.

Background: PCORI is a private, nonprofit entity governed by a public-private sector

board that was established by Section 6301 of the ACA and is tasked with developing

priorities for comparative outcomes research.

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Senate Special Committee on Aging examines Medicare fraud in use of

motorized wheelchairs Last week, the Senate Special Committee on Aging held a hearing on Medicare fraud

related to the use of power mobility devices (PMDs) focused particularly on seven states

where fraud is prevalent. PMDs are covered by Medicare Part B benefit when a Medicare

beneficiary has significant difficulty participating in daily life activities due to a mobility

limitation that cannot be resolved with a cane, walker, or manual wheelchair.

Background: Section 6402 of the ACA increased funding for the Health Care Fraud and

Abuse Control Account by $100 million over 10 years. Section 6402 also requires

Medicare and Medicaid Integrity Program contractors to provide the Secretary of the U.S.

Department of Health and Human Services (HHS) and the Inspector General with

“performance statistics, including the number and amount of overpayments recovered, the

number of fraud referrals, and the return on investment of such activities by the entity.”

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Legislative update

Bipartisan Policy Center: health care cost drivers Last week, the Bipartisan Policy Center’s Health Care Cost Containment Initiative

released a report focused on unsustainable cost growth in the U.S. health care system.

The report highlights 15 major drivers of cost the initiative will prioritize and issue

recommendations for developing effective cost-containment strategies in early 2013:

Cost drivers Bipartisan Policy Center analysis

Fee-for-service (FFS)

reimbursement Incentive to generate income by performing more tests and procedures

is exacerbated by having the costs typically paid by third party insurance,

masking the true cost to consumers

Fragmentation in care

delivery Lack of care coordination often leads to overtreatment, medical errors,

duplicative tests costing between $158-226 billion annually

Administrative burden on

providers, payers and

patients

Fragmented payment and delivery leads to higher administrative

burdens, raising provider/payer costs and consuming physician and

patient time. Administrative costs in the U.S. are estimated to between

$156-183 billion annually

Population aging, rising

rates of chronic disease

and co-morbidities, as well

as lifestyle factors

Over the next 25 years population aging will be responsible for 52% of

the growth in spending on major federal health program; 84% of U.S.

health care dollars and 99% of Medicare spending are attributable to

those with chronic disease

Advances in medical

technology Unnecessary utilization of new technology where a less costly treatment

would be equally effective drives health care spending

Tax treatment of health

insurance Employer-sponsored insurance tax exclusion generally subsidizes

individuals at higher incomes more than individuals at lower incomes;

represents $250 billion in annual revenue loss to the U.S. Treasury

Insurance benefit design Incentivizes employers to offer generous benefit designs and lower

patient cost-sharing, which, in turn, encourage higher care utilization;

similar design in Medicare due to limits on out-of-pocket costs

Lack of transparency about

cost and quality, limited

data to inform consumer

choice

Lack of a uniform, widely-accepted standard for evaluating the

effectiveness of medical treatments and technologies; consumers lack

information about the price of medical services

Cultural biases that

influence care utilization Culture tends to favor medical interventions that have the potential to

prolong life/ improve function, even when the chances for success are

very low, and cost of treatment is high

Changing trends in health

care market consolidation

and competition for

providers and insurers

Excessive concentration of either providers or insurers in a single market

can impact competitive price negotiation and potentially limit consumer

choice

High unit prices of medical

services Buyers in the system are numerous and their leverage is constrained by

consumer desire for broad provider choice

The health care legal and

regulatory environment,

including current medical

malpractice and fraud and

abuse laws

Regulatory system is structured to support the FFS model, more difficult

for providers and payers to implement more cost-effective systems of

care; inefficient medical malpractice system encourages the practice of

“defensive medicine”

Structure and supply of the

health professional

workforce, including scope

of practice restrictions,

trends in clinical

specialization, and patient

access to providers

Professionals not performing the work that reflects the fullest extent of

their education and training; physician oversight of work that can be

performed by nurse practitioners, physician assistants, and pharmacists

increase total costs without additional benefit to patients; lack of

accessible primary care professionals drives patients to seek out

specialists or drive patients to the emergency department

Source: Bipartisan Policy Center, “What Is Driving U.S. Health Care Spending? America’s Unsustainable Health

Care Cost Growth,” September 20, 2012

My take: regardless of the election outcome, health cost containment will be the central

story in health care in 2013. The Deloitte Center for Health Solutions is actively engaged

with the Bipartisan Policy Center in analyses and is supportive of its efforts.

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Congress passes Continuing Resolution for FY2013 Last Wednesday, the U.S. House of Representatives passed the Continuing

Appropriations Resolution (CR) 2013, which was passed by the U.S. Senate late Saturday

night. The CR is meant only to provide for the operation of the government through March

27, 2013. The CR requires agencies, including HHS, to submit a spending, expenditure,

or operating plan to Congress reflecting CR funding levels, and if sequestration is ordered

by the President per Section 251A of the Balanced Budget and Emergency Deficit Control

Act of 1985, agencies will be required to submit a revised spending, expenditure, or

operating plan that reflects sequestration funding levels within 30 days of enactment.

Under the CR, funding levels will maintain government operations at a level that will avoid

furloughs and the Office of Management and Budget (OMB) will be required to submit a

report monthly during the CR period to ensure each federal agency has met spending

requirements.

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Congressional activity on health bills in the final week before recess Last week, Congress recessed until after the November 6, 2012 election addressing

several health bills in its last week:

Representatives Fred Upton (R-MI) and Henry Waxman (D-CA) introduced the

FDA User Fee Corrections Act of 2012 to amend U.S. Food and Drug

Administration (FDA) drug user fees to allow the FDA to collect all of the generic

drug user fees authorized in the FDA Safety and Innovation Act (FDASIA) through

an amendment to current FDA statute as opposed to amending the CR to fund

government operations through March, 2013. (The generic drug industry urged

lawmakers to appropriate the new user fee program after the House-passed CR

excluded a provision that would have allowed for the collection of all the fees

associated with newly enacted user fee programs for generic drugs and

biosimilars). Current statutory language enables FDA to collect a one-time, $50

million generic backlog fee, which would allow the agency to get the program

started, but it would not allow the agency to collect fees associated with

abbreviated new drug applications, prior approval supplements, or facilities and

drug master files.

The House passed Veteran Emergency Medical Technician Support Act (H.R.

4124) to expedite the process for veterans to become emergency medical

technicians; Taking Essential Steps for Testing Act (H.R. 6118) to ease sanctions

on laboratory proficiency tests; the National Pediatric Research Network Act (H.R.

6163) to promote research on rare pediatric diseases; and the Pancreatic Cancer

Research and Education Act (H.R. 733) to promote recalcitrant cancer research. In

addition, a separate bill was introduced in the Senate by the Health, Education,

Labor, and Pensions Committee on recalcitrant cancer and laboratory proficiency

testing (S. 3391).

Senator John Kerry (D-MA) introduced the Medicaid Information Technology to

Enhance Community Health (MITECH) Act (S. 3539) to expand eligibility of

certified electronic health-record (EHR) technology incentive payments to include

qualified safety net clinics serving low-income patients.

The House Energy and Commerce Committee approved H.R. 1206, the Access to

Professional Health Insurance Advisors Act, which would exclude broker

commissions from the medical loss ratio requirement (MLR) in the ACA.

Note: 34 consumer groups wrote a letter to the Committee to discourage H.R. 1206

on the grounds that the MLR rule is causing insurers to lower premiums and a lack

of evidence that consumers have difficulty finding agents/ brokers to assist in their

insurance transactions.

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DOL grants $500 million for HIT workforce training The Department of Labor (DOL) announced $500 million in grant funding to 300

community colleges and universities through the Trade Adjustment Assistance

Community College and Career Training (TAACCCT) initiative to develop and expand

health information technology (HIT) workforce training programs, especially in rural areas.

Background: in 2009, the American Recovery and Reinvestment Act amended the Trade

Act of 1974 to authorize the TAACCCT Grant Program. In 2010, the Health Care and

Education Reconciliation Act, included $2 billion over four years to fund the TAACCCT

program, which provides community colleges and other eligible institutions of higher

education with funds to expand and improve their ability to deliver education and career

training programs that can be completed in two years or less and prepare program

participants for employment in high-wage, high-skill occupations.

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HHS hiring, compensation constraints sought in House legislation Last Friday, the U.S. House Energy and Commerce health subcommittee held a hearing

on HHS’ hiring and compensation practices: “Title 42 – A Review of Special Hiring

Authorities.” Noting its need for flexibility to attract top scientists, GOP lawmakers said

practices should be limited and transparent.

The HHS Employee Compensation Reform Act of 2012, introduced by Representative

Joe Barton (R-TX), would place a 5% cap on the number of specialists (individuals hired

at salaries above the pay limit for federal employees). It allows HHS to hire under Title 42

of the Public Health Service Act capping salaries at 150% of the annual rate of pay for

level I of the executive schedule, requires annual reporting to Congress, and allows 50

employees to be paid without regard to compensation limits.

Note: A recent GAO report found that 1,461 HHS Title 42 employees earn more than

$155,500. The report also found that HHS' use of its special hiring authorities under Title

42 increased by 25% from 2006-2010, including a 54% increase at FDA.

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Senators searching for middle ground on deficit reduction

Last week, Senator Dick Durbin (D-IL) told Inside Health Policy that “any honest plan for

deficit reduction puts everything on the table.” Senator Durbin and seven other senators

are working on a deficit reduction deal. Other senators include: Kent Conrad (D-ND), Mark

Warner (D-VA), Saxby Chambliss (R-GA), Mike Crapo (R-ID), Tom Coburn (R-OK), Mike

Johanns (R-NE), and Mike Bennet (D-CO). Senator Durbin did not mention specific health

care sector cuts; however, last year’s “Gang of Six” proposal requested that the Senate

Finance Committee find $200 billion in savings and fix and fully offset the Medicare

physician formula, known as the Sustainable Growth Rate (SGR).

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State update

Health insurance exchange update To date, 13 states and the District of Columbia have notified HHS they intend to set up a

health insurance exchange (HIX) on their own and seven have notified HHS they will not

be setting up an HIX.

Upcoming deadlines: the exchange blueprint is due on or before November 16, 2012. If

states submit their exchange model declaration by October 22, 2012 they will be eligible

for technical assistance and guidance from the Centers for Medicare & Medicaid Services

(CMS) on how to complete the exchange blueprint. HHS suggests that states select

essential health benefits benchmark plans prior to October 1, 2012.

Background: Section 1311 of ACA establishes state HIXs as regulated, online

marketplaces for individual and small group coverage.

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Medicaid expansion update To date, 12 states and the District of Columbia have indicated they will expand their

Medicaid program’s eligibility threshold to 133% of the federal poverty level (FPL), six

states indicated they will not expand.

Background: Section 2001 of the ACA expands Medicaid to 133% (plus a 5% income

disregard) of FPL for most individuals under age 65. On June 28, 2012 the U.S. Supreme

Court ruled that states may reject ACA’s Medicaid expansion without losing all of their

federal Medicaid funding. Since the Supreme Court ruling, CMS has indicated there is no

deadline for states to notify CMS of their intent to expand and many states are still in the

process of deciding whether to expand coverage in 2014.

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State round-up Oklahoma Attorney General Scott Pruitt amended a lawsuit filed on the state’s

behalf in federal court, contesting the ACA’s constitutionality under the Commerce

Clause and whether the federal government holds the authority to mandate

individuals to purchase health insurance. The updated lawsuit takes into

consideration the U.S. Supreme Court’s June 28, 2012 ruling and now raises the

complaint that because the Court deemed the ACA’s mandate a tax, it no longer

conflicts with Oklahoma’s constitutional provision that no law can force participation

in the health care system.

Two Wyoming health care entities have won grants of $22 million from the Center

for Medicare & Medicaid Innovation to be used to implement patient-centered

medical homes, virtual pharmacists, and registered nurse care transition coaches,

and improve access to specialists and mental health services through the use of

technology.

Kansas’s Health Information Exchange (KHIE) board has elected to disband in

order to reduce costs. The Department of Health and Environment will take on the

duties of the board. KHIE is currently an independent, quasi-public body, and the

board is expected to cost around $400,000 annually vs. $54,000 a year if the state

department assumes the board’s responsibilities. The board had difficulty recruiting

providers to pay user fees to cover its operating costs after its grant from the Office

of the National Coordinator for Health Information Technology (ONC) expires in

2013.

According to the Indiana Family and Social Services Administration, the state’s

Medicaid costs could increase by $600 million over the next seven years when the

ACA’s individual mandate requirement goes into effect. This increased spending

would be necessary irrespective of the state’s pending decision regarding whether

to expand Medicaid under the ACA.

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Industry news

CMS: Medicare Advantage enrollment, premiums in 2013

Medicare Advantage (MA) enrollment will increase 11% within the next year according to

CMS projections released Wednesday. The average MA plan premium will be $32.59 in

2013—a $1.47 increase from 2012. CMS also projects that most Medicare beneficiaries

(99.6%) will have access to a MA plan, with plan choice increasing by 7% in 2013.

Reaction: “We remain concerned that the benefits and coverage Medicare Advantage

beneficiaries rely on today could be put at risk as the health care reform law’s

unprecedented $200 billion in cuts to the program are phased in and a new premium tax

begins in 2014. As the payment cuts and new taxes take effect, Medicare health plans will

continue to do everything they can to preserve benefits and keep coverage as affordable

as possible for the millions of seniors and people with disabilities they serve. However,

given the size and scope of these cuts, Medicare beneficiaries are likely to face higher

costs and coverage disruptions in the coming years.”—Karen Ignagni, President and

CEO, America’s Health Insurance Plans

Background: an MA plan (Part C) is a type of Medicare health plan offered by a private

insurance company that contracts with Medicare to provide Part A (hospital), Part B

(physician), and prescription drug benefits. MA plans include health maintenance

organizations, preferred provider organizations, private fee-for-service plans, special

needs plans, and Medicare medical savings account plans. In 2011, 25% of Medicare

enrollees were enrolled in a Part C plan.

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Wal-Mart and HumanaVitality partner for healthy eating initiative Last week, Wal-Mart announced a new healthy eating initiative to be launched this fall

partnering with HumanaVitality to provide consumers a grading system for food sold in

Wal-Mart stores. Certain foods that pass a “rigorous, two step nutrition criteria process”

will be stamped with a “great for you” icon that will indicate to shoppers that the food

product is a healthy purchase, and HumanaVitality members will be eligible for a 5%

savings on these products. The objective of this program is to increase affordability of

healthy food options to improve health outcomes and reduce health care spending in the

U.S.

Note: national health expenditures comprise 18% of the U.S. GDP in 2012.

Background: children and adolescents consume an average of 3,387 mg/day of sodium,

and 37% are overweight or obese. Each 1,000 mg higher daily sodium intake was

associated with about 1 mm Hg higher systolic blood pressure overall and about 1.5 mm

Hg higher in overweight or obese children. Thirty-one percent of adults and 18% of kids

are obese in the U.S. (Source: Centers for Disease Control and Prevention, “Sodium

Intake and Blood Pressure Among US Children and Adolescents, September 2012)

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Study: upcoding costs Medicare $11 billion A recent study by the Center for Public Integrity found physicians billed Medicare for

“longer and more complex office visits.” The study included a 5% sample of Medicare

patients and their claims submitted by 400,000 medical practitioners and 7,000 hospitals

and clinics. Study findings include:

The higher codes for routine office visits were not supported by increased time or

patient complexity cost: $6.6 billion over the decade.

From 1999 through 2008, the number of doctors who billed at least half of their

office visits at one of the two most expensive codes doubled to at least 17,000

practitioners. Those who quit using the two least expensive codes rose 63%

(13,000 in 2008).

In 2010, Medicare paid for more than six million more visits at the second highest

pay rate than the year before. That upsurge cost Medicare more than $1 billion,

government records show.

7,500 physicians billed the two top paying codes for three out of four office visits in

2008, a sharp rise from the numbers of doctors who did so at the start of the

decade. 750 doctors billed the two highest-paying codes exclusively for office

visits, some for as long as seven years.

The most lucrative codes are billed two to three times more often in some cities

than in others, costly variations government officials said they could not explain or

justify. In some instances, higher billing rates appear to be associated with use of

electronic medical records and billing software.

Changes in billing patterns vary sharply by market i.e. Milwaukee, Phoenix, and

Salt Lake had the highest increases in use of the two highest codes vs. decreases

in New York City and Los Angeles.

(Source: The Center for Public Integrity, How Doctors and Hospitals Have Collected

Billions in Questionable Medicare Fees, September 2012)

Background: in May 2012, the HHS Office of the Inspector General (OIG) released a

report indicating Medicare payments for evaluation and management—visits with

beneficiaries by physicians to assess and manage a patient’s health—rose from $22.7

billion to $33.5 billion between 2001 and 2010. According to this report, Medicare

evaluation and management services have been “vulnerable to fraud and abuse.” Per

Florida Medical Association v. Department of Health (1979), HHS is barred from publicly

releasing doctors’ names and Medicare reimbursements.

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Hospitals oppose changes to non-emergency coding payment caps Last week, five hospital associations—American Hospital Association, the Federation of

American Hospitals, Association of American Medical Colleges, Catholic Health

Association of the United States, and National Association of Public Hospitals and Health

Systems—sent a letter to Congress to voice concerns regarding a proposed policy to “cap

total payment for non-emergency department evaluation and management services at the

rate paid to physicians for providing services in their offices.” Hospitals are concerned that

this policy will “undermine the ability of hospitals to adequately fund their emergency

stand-by capacity” and suggest that this policy would reduce hospital payments by 71%

for 10 of the most common outpatient services. (Source: America’s Hospitals and Health

Systems, Letter to Congress, September 12, 2012)

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UnitedHealth joins the Dow; health care prominent Effective today, UnitedHealth Group Inc. is replacing Kraft Foods in the Dow Jones

industrial average, the elite group of 30 companies that many investors use as a gauge of

the stock market. UnitedHealth's inclusion reflects its growth into the largest publicly

traded company in Minnesota, with revenue exceeding $100 billion.

Note: this is likely to draw increased attention to health care as media and economists

analyze the U.S. economy. In the 30 Dow companies, health care is prominent: Merck,

Pfizer and Johnson and Johnson are included, in addition to notable multi-national

companies with major verticals in health care including Intel, Microsoft, and Wal-Mart.

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Study: health information exchanges struggle to prove ROI Last Tuesday, Perspectives in Health Information Management published a study

revealing:

50% of surveyed health information exchange (HIE) executives say they use or

plan to use return on investment (ROI) metrics to measure the impact of their

exchanges. Responses were received from 21 HIEs of which 18 met the survey

criteria of exchanging data as of January 1, 2010.

Nine of the 18 reported using metrics for quality improvement (e.g., clinical

outcomes, preventive measures, readmissions, vaccination rates, diabetes

management, and cancer screening).

More than half of the organizations target reduction in duplicative tests or

procedures, improved communication among providers, and improved health

outcomes to measure the impact on ROI.

Ten of 18 respondents said that based on the performance of their own HIE, they

believed that HIEs show positive ROI, while eight respondents (44%) felt more

evidence was needed to make such a determination. Two respondents who

believed HIEs show positive ROI stated that they have not used metrics to

calculate ROI but are in the process of developing ROI metrics. Seventeen

believed that HIEs improve quality of care.

(Source: Perspectives in Health Information Management, Health Information Exchange:

Metrics to Address Quality of Care and Return on Investment, September 2012)

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Quotable “Every medical home must have a physician serving as a leader who brings the highest

level of training and preparation to guide the integrated, multi-disciplinary team.” —

Primary Care for the 21st Century: Ensuring a Quality, Physician-led Team for Every

Patient,” American Academy of Family Physicians, September 18, 2012

“We need death panels. Well maybe not death panels exactly, but unless we start

allocating health care resources more prudently, rationing by its proper name, the

exploding cost of Medicare will swamp the federal budget.”—Steven Rattner, New York

Times, “Beyond Obamacare,” September, 16, 2012

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Fact file Household net worth: median net worth in households declined nearly 38.8%

from 2007-2010 to $77,300. (Source: Federal Reserve)

Median household income 2011: real median household income fell between

2010 and 2011, decreasing by 1.3% from $51,144 to $50,502. (Source: Census

Bureau, Household Income for States: 2010 and 2011, September 2012)

Military health costs: contract obligations for health care firms more than tripled

between 2001 and 2011: in 2001, it spent $2.3 billion on contracts to health care service providers vs. $9.5 billion in 2011. (Source: Tricare Management Agency,

Department of Defense)

Hospital readmissions: 2 million Medicare enrollees are readmitted to hospitals

within 30 days at a cost of $17.5 billion; 19% of discharges. (Source: CMS)

Medical training: 31% of 348 general surgery residents in six California medical

schools required additional studies or attendance at conferences or had to repeat a

clinical year; another 15% of the residents in the study cohort were lost to attrition. (Source: Archives of Surgery, General Surgery Resident Remediation and Attrition:

A Multi-institutional Study, September 2012)

Hospital RAC audits: RACTrac survey shows that claims denials from Recovery

Audit Contractors (RAC) increased by 21% compared with the first quarter of 2012. (Source: American Hospital Association September 18, 2012)

Consumer-driven health plans (CDHPs): 58% of employers offered CDHPs in

2011—the second most popular health benefits option for the first time. (Source:

Aon Hewitt, “2012 Health Care Survey: Better Health. Bette Results,” September

2012).

Forecast for 2013 economy: consumer spending will increase 3.5% and the

economy will grow at 2.5-3.0%. (Source: Moody’s Analytics)

2011 federal program costs: Social Security ($725 billion); Medicare ($483.6

billion); Medicaid ($275 billion); veterans’ medical care ($50.1 billion); food and

nutrition assistance ($103 billion); federal employees’ retirement and insurance ($181.4 billion); and unemployment ($119 billion). (Source: Congressional Budget

Office)

Voter turnout: 61.6% in 2008, 60.1% in 2004, and 54.2% in 2000; range from

77.8% in Minnesota to 48.8% Hawaii. Education, household income predictive:

51.9% turnout for household income of less than $20,000 vs. 79.8% for households

at $100,000 or more. (Source: George Mason University’s United States Election

Project)

Hospital quality and safety: 620 (18%) of The Joint Commission recognized

hospitals achieved top performance status—up 53% from 2011. Across 45

accountability measures, including pneumonia care, heart-failure care, and

inpatient psychiatric services, the hospitals provided an evidence-based practice

95 times out of 100 opportunities. Of the top performers, 244 hospitals achieved

this rating for the second year in a row. (Source: The Joint Commission, “The Joint

Commission’s Annual Report on Quality and Safety,” September 2012)

Uninsured: 48.6 million in 2011, or 15.7% of U.S. population vs. 49.9 million

(16.3%) in 2010. (Source: Census Bureau September 19, 2012)

Obesity: 36% of adult population (2010) projected to increase to 50% in 2030;

highest rate in Mississippi (37%) and lowest in Colorado (21%). Estimates of costs

range from $147-210 billion per year. (Source: CDC September 19, 2012; National

Heart Forum)

Federal tax returns: Number of tax returns not eligible for federal income taxes:

39.9% (2007), 50.8% (2008), 50.8% (2009), 49.5% (2010), 46.4% (2011).

Breakdown of the 46.4%: 28.3% pay payroll taxes but qualify for deductions that

preclude a federal tax liability, 10.3% are elderly and covered under Social

Security, 6.9% are non-elderly with income under $20,000, and “other” are less

than 1%. (Source: Tax Policy Center)

Suicides in the military: 260 in 2011 to date vs. 160 in 2001—increases annually.

(Source: U.S. Department of Defense)

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Health Care Reform Memo — The weekly Health Care Reform Memo is available for

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your sector(s) of interest. Then, select the Health Care Reform Memo as one of your

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Deloitte Center for Health Solutions research

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

Currently available: 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

A look around the corner: Health care CEOs’ perspectives on the future—July 2012.

Available online at www.deloitte.com/us/healthcareceoperspectives

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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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.

October 9: State Health Insurance Exchanges: Where Are We and What Lies Ahead?

November 13: Market Forces at Work: Life Sciences Implications of Changes in Health

Care Delivery, Access, and Coverage

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Deloitte contacts

Jessica Blume, U.S. Public Sector National Industry Leader, Deloitte LLP

(jblume@deloitte.com)

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(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)

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(pkeckley@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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