Deloitte Center for Health Solutions

February 25, 2013

Monday memo

Health reform update

This week’s headlines: My take

Implementation update - Health plans in exchanges get final rules on essential health benefits, actuarial value,

and accreditation - CMS issues final rule on insurance market rate review - Mandatory participation in individual and small group market opposed by industry

groups

Legislative update - Poll: public not well informed about sequestration update - Simpson-Bowles 2.0 - New health care bills introduced - GAO: Potential for fraud in Medicare, Medicaid, FDA high

State update - HHS announces grants to test new models of care delivery

- State round-up: HIX

- Medicaid expansion update

- State round-up

Industry news - HIMSS preview - Hospital community benefits unrelated to profitability - Consortium promotes limitations on unnecessary care in “Choosing Wisely” campaign - FDA designates “breakthrough” status to novel cancer treatment - Administration announces Brain Activity Map - Video games to treat schizophrenia - Global markets: Sanofi India Ltd. focuses on OTC products - Analytics acquisitions - GPOs to focus on technology

Research snapshots

Quotable

Fact file

Subscribe to the Health Care Reform Memo

Deloitte Center for Health Solutions research

Read the blog

Upcoming life sciences and health care Dbriefs webcasts

Deloitte contacts

My take

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

I love golf and I am not very good. I just returned from playing for three days in Hilton

Head with a group of Nashville buddies—an annual event dating back 15 years. We play

Harbour Town Golf Links, where the signature hole is the lighthouse hole, number 18—

long with water on the left and expensive condominiums on the right. It’s a tough hole.

I got the nickname “crash” in this event years ago because my tee ball seemed to find its

way to the windows of the condos more frequently than the fairway intended. But not this

week—I played well and it was the result of one tip from a caddy: alignment.

Regardless of the golf clubs used or ball chosen, the key to a good round of golf for most

of us is alignment—making sure we’re properly positioned to consistently hit the ball in the

direction intended while adjusting for weather and wind.

Alignment is a holy grail of health care in the new normal. The headline announcing Joe

Swedish’s new role caught a few by surprise:

“Wellpoint Inc. named Joseph R. Swedish as its new chief executive, unexpectedly

turning to a hospital industry veteran to lead the second largest U.S. health insurer through the challenging implementation of the health care overhaul.”—Anna Wilde

Matthews and Jon Kemp, “WellPoint Names Hospital Veteran as Insurers CEO,” Wall

Street Journal, February 13, 2013

But here’s my take: his naming is all about alignment. Joe’s the former President and

CEO of Trinity Health System, a Catholic health system based in Livonia, Michigan that

manages 47 acute-care hospitals. He is now the CEO of a health plan that serves more

than 34 million members.

Health plans bring expertise in population care management and infrastructure to manage

risk. Hospitals manage care delivery by working with physicians and technicians to deliver

services that are appropriate while navigating a plethora of rules about safety and fraud

and a complicated system of payments from private and government plans.

Each is a highly regulated sector; each brings competencies usually missing in the other,

except in those organizations where both operate side-by-side as cost centers of a

holding company or large medical group.

Each is dependent long-term on the skills of the other to simultaneously achieve higher

quality and lower cost. And historically, each has had a tough time finding alignment of

incentives with the other achievable.

Hats off to boards that see a future where alignment is central to an organization’s future,

and where leaders are chosen who bring expertise outside a particular sector to the

organization’s c-suite. That WellPoint would look to a hospital professional to lead the

organization is not unprecedented nor should it be surprising. Aetna brought in Jack

Rowe, MD, as its Chairman and CEO from Mount Sinai New York Health in 2000. Blue

Cross of Tennessee tapped Bill Gracey, formerly COO of Lifepoint Hospitals as its CEO

last year and Humana’s CEO Bruce Broussard took the post after a stint at

pharmaceutical distributor McKesson. And there are many others.

The convergence of delivery and payments in fully or virtually integrated health systems

seems inevitable. Some have a head start—Geisinger Health System, Kaiser

Permanente, and Intermountain Healthcare are among the better known. But it takes

alignment and trust.

I have served on boards of three publicly traded health care companies. A director’s role

is three-fold: to set direction for an organization via its strategy, to represent the interests

of the shareholders in a fiduciary role, and to secure and retain competent management.

In alignment, often the difference is management: perspectives and experiences that

trump legacy opinions about the flaws and shortcomings of other sectors and the ability to

bring fresh solutions and sometimes fresh talent. Alignment is not easy, but it no less

necessary, especially now. It takes a board committed to breaking down sector silos that

constrain alignment inside and outside the organization.

The infamous Walter Lippmann once said “when all think alike, no one thinks very much.”

That’s true in every organization, including health care.

I played the lighthouse hole all three days without hitting a condominium or dumping a ball

in Calibogue Sound. I owe it to alignment. But they still call me crash!

PS – There are two big things going on this week: by the end of the week, we’ll know the

results of sequestration and the annual meeting of the Healthcare Information and

Management Systems Society (HIMSS) starts Sunday in New Orleans, LA, themed

appropriately, “Health IT: Right Time. Right Place, It’s On.” Keynoters include former

President Bill Clinton and Scripps Health’s Eric Topol, and the Deloitte Center for Health

Solution’s Senior Advisor, Harry Greenspun, MD, will lead a session opening day

entitled, “Disruption Ahead! Embracing the Changes.”

return to top

Implementation update

Health plans in exchanges get final rules on essential health benefits,

actuarial value, and accreditation Last week, the U.S. Department of Health and Human Services (HHS) released a 149-

page final rule on essential health benefits (EHBs), actuarial value, and accreditation

largely consistent with the earlier proposed rule. Highlights:

EHBs: insurance plans sold to individuals who buy their own coverage and to

employers—except those that self-insure—must include a core package of ten

services (i.e., EHBs). States have the choice of four benefit packages that they can

offer; if the benefit package (i.e., the base benchmark plan) identified does not

cover one of the ten EHBs (i.e., emergency services, hospitalization, mental health

services, etc.), the state can supplement coverage from another approved plan. To

date, 25 states and the District of Columbia have recommended their benchmark

plans, and the remaining 25 adopted the option identified by HHS as the “default”

benchmark plan.

Actuarial value relevant to health insurance exchanges (HIX, i.e., the amount

the health insurance plan will cover): the actuarial value may vary by two

percentage points (i.e., a silver plan offered on a HIX that was designated to have

an actuarial value level of 70% can have an actuarial value level in the range of

68% to 72%).

Note: the Affordable Care Act (ACA) Section 1302 defines the actuarial value for

qualified health plans (QHPs) as the percentage of medical expenses paid by the

health plan for a standard population. Health plans sold in individual and small

group markets on a HIX can be classified into four tiers of coverage determined by

their actuarial value: bronze (60%), silver (70%), gold (80%), and platinum (90%). In

a bronze plan, the health insurance plan pays for 60% of the costs, and the enrollee

pays for 40% of the covered expenses.

Prescription drugs: the minimum standard should be the number of drugs per

category in the state’s chosen benchmark plan or one drug, whichever is greater.

Dental coverage: more variation in cost-sharing for stand-alone dental plans

(SADPs) offered on a HIX allowed—the “low” plan will have an actuarial value of

70% vs. 75% in the proposed rule. The “high” plan will have an actuarial value of

85%. HHS agreed with commenters that the proposed rule regarding SADPs did not

provide enough variation between plans, thereby limiting consumer choice.

Health plan accreditation: approved accreditation entities include the National

Committee for Quality Assurance (NCQA) and URAC. By the fourth year of

operation, QHPs must be accredited based on local performance.

return to top

CMS issues final rule on insurance market rate review Friday, the Centers for Medicare and Medicaid Services (CMS) published a 145-page final

rule to implement provisions of the ACA related to the health insurance market effective

January 1, 2014. Highlights:

Guaranteed issue (i.e. an individual cannot be denied health coverage based

on a preexisting condition): per ACA Section 1201, guaranteed availability will be

in effect in 2014. Individual market: policies will be made available to individuals

regardless of health status and an individual can enroll during open enrollment

periods. Group market: policies must be made available year-round to individuals

regardless of health status.

Health insurance premiums: the individual and small group markets are not

allowed to increase premiums based on health status, gender, occupation, etc.;

premiums may vary by age, geography, and family size up to a 3:1 ratio (i.e., older

adults can’t pay more than 300% of what younger adults pay); tobacco users may

be charged 150% that of non-users.

Note: variation from the proposed rule, the 3:1 ratio for age can now apply to

individuals “who may be eligible for Medicare based on age (i.e. over age 65), but

still does not apply to individuals less than 21 years of age.

Large employers: if large employers opt to sell coverage on a HIX in 2017, the

same rating rules for individual and small group markets will be applied.

Risk pools: individual and small group health insurers must maintain a single

statewide risk pool for each market. States can choose to merge the individual and

small group risk pools. The goal is to prevent premiums from increasing—the larger

the risk pool, the chance of a highly concentrated sick population is less likely.

return to top

Mandatory participation in individual and small group market opposed by

industry groups In a letter to HHS last week, a health care industry stakeholders group—including

members such as American Osteopathic Association, Federation of American Hospitals,

Healthcare Leadership Council, Pharmaceutical Research and Manufacturers of America,

National Association of Health Underwriters, and National Association of Insurance and

Financial Advisors—requested HHS not mandate health insurance issuers to sell products

in both the individual and small group (i.e., the Small Business Health Insurance Options

Program [SHOP]) markets on a federally-facilitated exchange. According to a news

source, “this [proposed] requirement could have the unintended impact of discouraging

issuers from entering the individual exchange marketplace due to their lack of experience

or capacity in the small group marketplace.” The policy was set forth in the November

2012 proposed rule “Notice of Benefit and Payment Parameters.” The final rule is

expected to be released soon.

Background: the SHOP option is available to small employers (<50 employees with the

option to expand to employers with <100 employees) who are interested in offering

employees health benefits through HIXs beginning in 2014; in 2016, states must expand

eligibility to employers with <100 employees, and in 2017 states have the option to open

the SHOP to larger employers.

My take: the rationale for the objection is the potential adverse impact on health plan

costs and coverage for small employers if required to also carry coverage for individuals.

Individual health plans carry the highest risk and highest administrative costs, so

underwriters that are required to cover both would be forced to reconsider coverage in

states where individual costs were highest. Also, the age banding requirement in the

law—disallowing premiums for the youngest and healthiest to vary no more than a ratio of

1:3 compared to the sickest and oldest—would drive individual premiums for young,

healthy individuals otherwise seeking coverage to levels beyond affordability. My take is

that the industry’s concern on this issue is understandable.

return to top

Legislative update

Poll: public not well informed about sequestration update Background: per the Budget Control Act of 2011, Congress agreed to cut federal

spending by $1.2 trillion over 10 years starting with cuts of $109 billion beginning January

1, 2013 (sequestration)—delayed by Congress to March 1 with a renewed Congressional

Budget Office (CBO) estimate of $85 billion in cuts for the remaining of fiscal year 2013.

The Pew Research poll conducted February 13-18 of 1,504 U.S. adults found:

50% know little or nothing about sequestration

40% think automatic cuts should go into effect, 49% think the cuts should be

delayed, 11% don’t know

31% would blame President Obama if a deal is not reached, 49% would blame

Republicans in Congress

76% think a deal should include tax cuts and spending cuts; nineteen percent

believe tax cuts should not be included in the deal

Obama’s approval rating: 51%; Congressional approval rating: Republican leaders,

25% and Democratic leaders, 37%

return to top

Simpson-Bowles 2.0 Last week, the bi-partisan Simpson-Bowles Commission released an updated plan for

deficit reduction through 2023, proposing a four-step process that includes two steps

already taken.

Deficit Reduction (2014-2023)

Four-step plan

to deficit

reduction

Step one

Reduce discretionary spending (~$1.85 trillion)

• Impose 10 year caps on discretionary spending (2011)

• Enact immediate reductions in discretionary spending levels

(October 2011-April 2011)

Step two Increase revenue collection and minor additional spending

cuts (~$850 billion)

• Allow upper income tax to expire and make minor cuts in

Medicare provider payments (Jan 2013)

Step three

Enact tax and entitlement reforms (~$2.4 trillion)

• Reduce Medicare and Medicaid spending by improving

provider and beneficiary incentives throughout the health care

system, reducing provider payments, reforming cost-sharing,

increasing premiums for higher earners, adjusting benefits to

account for population aging, reducing drug costs, and getting better value for our health care dollars (February-December

2013)

• Enact comprehensive, pro-growth tax reform that eliminates or

scales back most tax expenditures, with a portion of savings

from tax expenditures dedicated to deficit reduction and the

additional savings used to reduce rates and simplify the tax

code (February-December 2013)

• Strengthen limits on discretionary spending (February-

December 2013)

• Reduce non-health mandatory spending by reforming farm

subsidies, modernizing civilian and military health and

retirement programs, imposing various user fees, reforming

higher education spending, and making other changes

(February-December 2013)

• Adopt chained CPI for indexing and achieve savings from

program integrity (February-December 2013)

Step four

Enact Social Security, Medicare, and highway funding reform

• Require reforms on a separate track to make Social Security

sustainably solvent (2013)

• Require a highway bill to bring transportation spending and revenues in line (2014)

• Require additional reforms of federal health care programs if

necessary to limit the growth of the per beneficiary federal

health commitment to close to gross domestic product (GDP)

growth (2018)

Source: Erskine Bowles and Alan Simpson, “A Bipartisan Path Forward to Securing

America's Future,” February 2013

My take: in its initial version, a ratio of 3:1 for federal spending cuts to new revenues was

proposed with a goal of slowing health spending growth overall to no more than 1% above

the annual GDP. The 2.0 version appears to lower the ratio slightly by changing how

Medicare enrollees pay for coverage (eligibility, premiums, etc.) along with tax reforms

and the use of the chained CPI in Social Security payments. This framework is likely to

serve as the framework for upcoming Congressional debate about the sequester this

week, the continuing resolution to fund federal government operations (March 27), and

the debt ceiling in April.

return to top

New health care bills introduced Representative Ed Whitfield (R-KY) introduced H.R. 800 on February 15, 2013 “to

exclude customary prompt pay discounts from manufacturers to wholesalers from

the average sales price for drugs and biologicals under Medicare.”

Representative Sam Johnson (R-TX) introduced H.R. 781 on February 15, 2013 “to

prohibit Social Security numbers from being displayed on Medicare cards.”

Representative Darrell Issa (R-CA) introduced H.R. 779 on February 15, 2013 to

repeal the ACA and make the federal employee health benefit plan available to non-

federal employees.

Representative Charles Boustany (R-LA) introduced H.R. 763 on February 15, 2013

to repeal the annual fee on health insurance providers enacted by the ACA.

Representative Peter DeFazio (D-OR) introduced H.R. 743 on February 15, 2013

“to restore the application of the federal antitrust laws to the business of health

insurance in order to protect competition and consumers.”

Representative Marsha Blackburn (R-TN) introduced H.R. 762 on February 15,

2013 “to repeal provisions of the [ACA] in order to provide for cooperative governing

of individual health insurance coverage offered in interstate commerce.”

Representative Mike Rogers (R-AK) introduced H.R. 741 on February 15, 2013 “to

develop and implement a plan to provide chiropractic health care services and

benefits for certain new beneficiaries as part of the TRICARE program.”

return to top

GAO: Potential for fraud in Medicare, Medicaid, FDA high Last week, the Government Accountability Office (GAO) released a report detailing the

federal programs where fraud risk is highest:

GAO recommends:

Medicare Ensure the implementation of an effective physician profiling system to help support

use of value-based modifiers.

Develop and implement approaches to identify self-referred claims, reduce payments to recognize efficiencies achieved when the same provider refers and

provides the service, and take steps to ensure the appropriateness of service

provision.

Cancel the current Medicare Advantage (MA) Quality Bonus Demonstration and implement the quality bonus payment provisions in the ACA, as amended; and

improve the accuracy of the adjustment of payments to MA plans for diagnostic

coding differences, such as by using more current data in determining the amount of

the adjustment.

CMS should improve the cost-effectiveness of recovery of payments made improperly because Medicare was the secondary payer in situations involving non-

group health plans, and decrease the reporting burden for non-group health plans

while improving communication with plans’ stakeholders.

Improve the structure and processes related to use of prepayment controls and assess the feasibility of increasing contractors’ incentives for their use, and develop

or finalize schedules and plans for its information technology efforts related to

improper payments and fraud; define quantifiable benefits, measurable performance

targets, and goals for these efforts; and use the targets and goals to determine their

effectiveness.

Provide coverage for preventive services recommended by the Preventive Services Task Force, as appropriate, considering cost-effectiveness and other criteria.

Strengthen oversight of nursing home complaint investigations by improving the reliability of its complaints database and clarifying guidance for its state performance

standards

Use strategic planning to guide and gauge the progress of the Medicare program’s planned efforts to meet the goals of the Five-Star Quality Rating System for nursing

homes.

Medicaid Increased federal oversight of Medicaid’s fiscal and program integrity is needed (i.e.,

CMS oversight of program integrity has been challenged by data systems that do not provide reliable, complete, and timely data). States also have key roles in

reducing improper payments to providers in developing, implementing, and

evaluating the effectiveness of corrective plans to reduce improper payments.

Continue taking steps to improve oversight of Medicaid managed care payment

rate-setting and Medicaid supplemental payments.

Improve the criteria and methods used to ensure the budget neutrality of Medicaid

demonstrations (GAO recommend Congress take action to move this

recommendation along).

U.S. Food and Drug

Administration

(FDA)

Strengthen its Drug Shortage Program by assessing program resources, systematically tracking data on shortages, considering the availability of medically

necessary drugs as a strategic priority, and developing relevant results-oriented

performance metrics to gauge the agency’s response to shortages;

Improve oversight of medical device recalls by routinely assessing information on

device recalls, clarifying procedures for conducting recalls, developing criteria for evaluating the effectiveness of recalls, and documenting the agency’s basis for

terminating individual recalls.

Implement the Safe Medical Devices Act of 1990.

Conduct more inspections of foreign establishments manufacturing medical products for the U.S. market and utilize new authority to take a risk-based approach

in selecting foreign drug establishments to ensure that they are inspected at a

frequency comparable to domestic establishments with similar characteristics.

Emphasize the importance of timely medical product reviews, particularly for medical devices; and track applications to market medical products for children.

Source: Source: GAO, “High-risk series: An update,” February 2013

Background: Medicare is a high-risk program “because its complexity and susceptibility

to improper payments, added to its size, have led to serious management challenges.” In

2012, Medicare spent $555 billion, but reported improper payments over $44 billion—

almost 8%.

Medicaid is a high-risk program “due to its size, growth, diversity of programs, and

concerns about the adequacy of fiscal oversight, which is necessary to prevent

inappropriate program spending.” Medicaid will add up to 7 million to its enrollment in

2014 as states have the option to expand Medicaid to 133% of the federal poverty level

(FPL) per the ACA.

FDA programs are a high risk area because “rapid changes in science and technology,

globalization, unpredictable public health crises, an increasing workload, and the

continuing need to monitor the safety of thousands of marketed medical products have

strained the agency’s resources. FDA was facing a variety of difficulties that threatened to

compromise its ability to protect the public health.”

(Source: GAO, “High-risk series: An Update,” February 2013)

Related: last week, the Office of the Inspector General (OIG) released its findings from

reviews of 147 CMS audit reports finding it collected 81% of Medicaid overpayments as of

December 2012. OIG recommendations:

Collect the outstanding amount in overpayments

Review and address delays in resolving OIG audit recommendations and promptly

pursue corrective actions

Maintain adequate documentation to support the collection of overpayments

Educate the states about their responsibility to report overpayments and how to do

so

Reaction: CMS agreed with the second, third, and fourth recommendations, but noted that

the amount outstanding ($226 million) remains because “states disagreed or did not

voluntarily return the recommended finding amounts.”

return to top

State update

HHS announces grants to test new models of care delivery Thursday, HHS announced initial grants to Arkansas, Maine, Massachusetts,

Minnesota, Oregon, and Vermont to test new models of care (i.e. accountable care

organizations and multi-payer payment initiatives). A total of 25 states are expected to

participate in the nearly $300 million federally-funded program.

return to top

State round-up: HIX In its February 2013-2023 budget and economic outlook, the CBO added $32 billion

(2013-2022) to its estimate of costs for subsidies through health exchanges based on its

conclusion that 7 million fewer will have employer-sponsored coverage versus its August

estimate of 4 million. Therefore, it estimates exchange enrollment will be 500,000 higher,

reaching 26 million by 2022.

17 states—13 led by Democratic Governors, three led by Republicans and one

Independent—and the Democratic mayor of D.C. have announced plans to operate state-

based exchanges. Seven states—four led by Democratic Governors and three led by

Republicans—will participate in a partnership exchange with HHS. The remaining 26

states will default to a federally-facilitated exchange. To date, establishment grant awards

have been issued to 37 states and D.C.

State-based exchange State-partnership exchange Undecided/Federally-facilitated

exchange

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

MD, MN, NM, NV, NY, OR, RI,

UT, VT, WA

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

ME, MO, MS, MT, NC, ND, NE,

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

VA, WI, WY

Source: HHS

return to top

Medicaid expansion update 24 states and D.C. have said they will expand their Medicaid programs; 16 states have

indicated they are highly unlikely to expand their program:

Announced expansion or likely

to expand

Not participating or highly

unlikely to participate

Undecided or undeclared

AR, AZ, CA, CO, CT, DE,

DC, FL, HI, IL, MD, MA, MI,

MN, MO, MT, NY, NM, ND, NV, OH, OR, RI, VT, WA

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

MS, NE, NC, OK, SC, TX,

UT, VA, WI

AK, KS, KY, PA, NH, NJ, SD,

TN, WV, WY

Source: Kaiser Family Foundation

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

opt in or out of participation at any time. This chart was compiled using publically available

information (as of February 20, 2013) and is subject to change.

Other recent announcements:

Wisconsin Governor Scott Walker (R) rejected the expansion of Medicaid

proposing an alternative expansion via BadgerCare, the state’s public insurance

program for low-income residents. The Journal Sentinel of Milwaukee estimated

that to fully implement the federal expansion through 2020 it would cost the state

$67 million more than to keep the state’s current program in place vs. Governor

Walker’s plan, which would cost the state $320 million.

California Governor Jerry Brown (D) submitted a 63-page recommendation list

regarding the impending expansion on the state’s Medicaid program to the

California General Assembly requesting the federal government pay the allotted

sum before the state implements the expansion.

Florida will expand its Medicaid eligibility per the ACA for three years. Republican

Governor Rick Scott made the decision due to the state’s strict qualifications for

Medicaid and large uninsured population.

Virginia House and Senate budget conferees have reached an unofficial

agreement on Medicaid expansion. According to the Washington Post, “this

comprise worked out by conferees would allow a ten member conference

committee to authorize the expansion once the reforms are implemented.”

return to top

State round-up Goldwater Institute, a conservative Arizona nonprofit, asked the 9th Circuit Court of

Appeals to overturn a lower court’s decision against the Independent Payment

Advisory Board (IPAB). In December, the lower court refused to hear the challenges

made by Goldwater Institute. The group claims that IPAB violates a constitutional

right to medical autonomy and that the federal law conflicts with a state law

regarding an individual mandate.

New York Governor Andrew Cuomo (D) is writing legislation that would allow

women late-term abortions. The current state law restricts abortions after 24 weeks

unless the woman’s life is at risk, which is superseded by the U.S. Supreme Court

ruling in Roe v. Wade. Governor Cuomo is pursuing legislation to ensure that if Roe

v. Wade is overturned, that women will have access to abortion services in the

state. The outcome of this legislation remains unknown.

Michigan State Senate passed a bill with no opposition concerning insurance

coverage for services provided via telemedicine.

California’s tobacco prevention campaign saved the state $134 billion in health

costs according to a study published in science journal PLOS ONE. For every dollar

spent on aggressive campaign tactics, such as television commercials and tobacco

cessation programs, health care costs lowered by about $56.

Colorado is developing rules to govern its growing “marijuana tourism” industry

since the passage in November of a law permitting 1 ounce possession. It has

appointed a legislative task force to study selling pot to non-residents.

return to top

Industry news

HIMSS preview The Healthcare Information Management Systems Society’s annual meeting in New

Orleans, LA starts Sunday and goes through March 7. This year’s meeting centers around

the theme, “Health IT: Right time. Right place. It’s on.” And includes keynote speakers

such as former President Bill Clinton and Scripps Health’s Eric Topol. Deloitte will also

have a booth throughout the conference.

Harry Greenspun, MD, Senior Advisor, Health Care Transformation & Technology,

Deloitte Center for Health Solutions will speak on Sunday, March 3: Disruption Ahead!

Embracing the Changes. The session will provide a new spin on the themes that were

presented throughout the program and explore where the future will take us. Objectives of

the session include:

Describe, from a technology perspective, where the industry is now and where

the industry is going

Identify, from a people perspective, what the industry needs now and what it will

need in the future

Discuss new innovations, disruptive technologies, etc. that the profession should

be prepared for

return to top

Hospital community benefits unrelated to profitability After a review of 2,500 tax records, Modern Healthcare found hospitals whose marginal

revenue is negative spend the same amount on free or discounted care as extremely

profitable hospitals. According to investigators, the inequality results from little regulation

on how much free or discounted care a hospital must provide to qualify for tax subsides.

In 2010, the median total expenses on charity care amounted to 1.7%, up from 1.5% in

2009. The total median amount went from $1.2 million in 2009 to $1.3 million.

My take: the concept of the community benefit has been widely debated dating to the

1980s when taxes paid by investor owned hospitals were pitted against community

benefits expensed in not-for-profit hospital settings. The Senate Finance Committee in

2007 proposed legislation that would set at least 5% spending of the hospital’s revenue

on free or discounted care, and some states, such as Texas, require hospitals to spend a

certain percent of spending on charity care. This is an ongoing debate that needs

resolution based on objective criteria for defining and measuring “community benefit”

regardless of ownership status. It is uniquely sensitive in the acute sector, but reflects a

broader effort by policymakers to make the industry more transparent about safety,

efficiency, profitability, and patient experiences.

return to top

Consortium promotes limitations on unnecessary care in “Choosing

Wisely” campaign The American Board of Internal Medicine Foundation announced its new advocacy effort

put forth by 17 societies around 90 recommendations that would reduce unnecessary

care and in some potential harm. Examples: unnecessary C sections, CT scans, and MRI

tests for low back pain. The group seeks to call attention to tests, drugs, and procedures

that increase cost as much as 20% for which there is little or no evidence to support

efficacy or effectiveness.

return to top

FDA designates “breakthrough” status to novel cancer treatment The FDA gave "breakthrough therapy designation” to a third experimental drug—Janssen

Research & Development, LLC received approval for its cancer therapy treatment for

patients with relapsed or refractory mantle cell lymphoma and Waldenstrom's

macroglobulinemia (a rare non-Hodgkin lymphoma). Vertex Pharmaceuticals was granted

the first two breakthrough therapy designations last month for a monotherapy and

combination regimen for cystic fibrosis patients with rare mutations.

Background: under the FDA Safety and Innovation Act of 2012, a sponsor (i.e.,

manufacturer) of a drug may request for an expedited review of such drug if the drug

alone, or in combination with one or more other drugs, is developed to treat a serious or

life-threatening disease or condition and preliminary clinical evidence indicates that the

drug may demonstrate substantial improvement over existing therapies. No later than 60

days after the request is submitted, FDA must make a determination to either grant or

deny the request for breakthrough therapy designation.

return to top

Administration announces Brain Activity Map The Brain Activity Map initiative is a government-led effort to find improved treatments for

neurological issues by mapping out the path of neurons and synapses in the brain.

Research could target disorders such as autism, schizophrenia, and epileptic seizures.

Note: President Obama mentioned this initiative in the State of the Union address

February 12, 2013. Exact funding from the federal government has not yet been specified;

however, the research is expected to last a minimum of 15 years.

return to top

Video games to treat schizophrenia Posit Science is developing a video game to treat schizophrenia focused on the concept

of brain training which aims to help individuals with schizophrenia distinguish expectation

from outcome. Scientists hypothesize that brain training video games could help treat

dementia as well. The company will seek FDA approval.

Background: almost 2.5 million Americans (1.1% of total population) suffer from the

disease—a “group of brain disorders in which people interpret reality abnormally.” Onset

of the disease is seen during teen years or early adulthood.

return to top

Global markets: Sanofi India Ltd. focuses on OTC products Sanofi India Ltd. will introduce at least ten over-the-counter (OTC) products in India over

the next five years. Its goal is to target 4% market share, announcing the release of

Combiflam Plus—an OTC medication for headaches—earlier this month. The consumer

health market in India is growing; consumers are focused on wellness, fitness, and

supplements, according to Bloomberg News.

return to top

Analytics acquisitions UnitedHealth Group’s acquisition of Humedica—a Boston-based clinical analytics firm

affiliated with the American Medical Group Association—was announced last month.

My take: in recent months, the acquisition of analytics capabilities by major health care

companies has picked up as stakeholders seek to monetize the value of data that’s

unstructured or otherwise not used optimally. Deloitte Consulting acquired Recombinant

earlier this year. The transition from fee-for-service to value-based purchasing in health

care wherein individuals with high deductible insurance plans will drive purchases means

data (information) about which tests, procedures and drugs work best, and their costs, will

be necessary for organizations to compete.

return to top

GPOs to focus on technology

In its seventh annual "Report to the Public," issued last week, the Healthcare Group

Purchasing Industry Initiative (HGPII) concluded that the highest priorities for group

purchasing organizations (GPOs) priorities are innovative technologies, maintaining high

ethical standards, and business practices that promote transparency in the bidding

process and compliance.

Background: HGPII organization is an “independent, voluntary organization” that was

founded in 2005 as a non-profit organization by the chief executives of those health care

GPOs "who thought the industry should do more collectively to demonstrate a strong

commitment to ethical values. HGPII promotes the development and improvement of

accountability standards, business practices and ethics to its customers, vendors and the

public to help create higher industry standards for quality and value.”

Source: PR Newswire, “Comprehensive Review Of Group Purchasing Industry Business

Practices Finds Commitment To Transparency, Innovation And High Ethical Standards,”

February 15, 2013

return to top

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

Hysterectomies: robotic technology increases costs but does not improve

outcomes Background: “Although robotically assisted hysterectomy for benign gynecologic

conditions has been reported, little is known about the incorporation of the procedure into

practice, its complication profile, or its costs compared with other routes of hysterectomy.”

Objective: “To analyze the uptake of robotically assisted hysterectomy, to determine the

association between use of robotic surgery and rates of abdominal and laparoscopic

hysterectomy, and to compare the in-house complications of robotically assisted

hysterectomy vs. abdominal and laparoscopic procedures.”

Methodology: “Cohort study of 264,758 women who underwent hysterectomy for benign

gynecologic disorders at 441 hospitals across the United States from 2007 to 2010.”

Key findings: “Use of robotically assisted hysterectomy increased from 0.5% in 2007 to

9.5% of all hysterectomies in 2010. During the same time period, laparoscopic

hysterectomy rates increased from 24.3% to 30.5%. Three years after the first robotic

procedure at hospitals where robotically assisted hysterectomy was performed, robotically

assisted hysterectomy accounted for 22.4% of all hysterectomies. The rates of abdominal

hysterectomy decreased both in hospitals where robotic-assisted hysterectomy was

performed as well as in those where it was not performed. In a propensity score–matched

analysis, the overall complication rates were similar for robotic-assisted and laparoscopic

hysterectomy). Although patients who underwent a robotic-assisted hysterectomy were

less likely to have a length of stay longer than 2 days transfusion requirements and the

rate of discharge to a nursing facility were similar. Total costs associated with robotically

assisted hysterectomy were $2189 more per case than for laparoscopic hysterectomy.”

(Source: Jason Wright, Cande Ananth, Sharyn Lewin, William Burke, Yu-Shiang Lu, Alfred

Neugut, Thomas J. Herzog, and Dawn L. Hershman, “Robotically Assisted vs

Laparoscopic Hysterectomy Among Women With Benign Gynecologic Disease,” Journal

of the American Medical Association, February 20, 2013)

My take: new technologies are widely adopted in health care settings, adding to costs.

From a policy perspective, issues include the appropriate use of technology, and balance

between costs and incremental value to patient care. The jury’s still out on how best to

manage the combination of demand factors—competition between hospitals and

physicians, expectations of consumers for the “latest and best” to allocate technologies

appropriately and efficiently.

return to top

Medicare costs for breast cancer screening above $1 billion, high regional

variation Background: “Little is known about the cost to Medicare of breast cancer screening or

whether regional-level screening expenditures are associated with cancer stage at

diagnosis or treatment costs, particularly because newer breast cancer screening

technologies, like digital mammography and computer-aided detection (CAD), have

diffused into the care of older women.”

Methodology: “Using the linked Surveillance, Epidemiology, and End Results–Medicare

database, we identified 137,274 women ages 66 to 100 years who had not had breast

cancer and assessed the cost to fee-for-service Medicare of breast cancer screening and

workup during 2006 to 2007. For women who developed cancer, we calculated initial

treatment cost. We then assessed screening-related cost at the Hospital Referral Region

(HRR) level and evaluated the association between regional expenditures and workup

test utilization, cancer incidence, and treatment costs.”

Key findings: “In the United States, the annual costs to fee-for-service Medicare for

breast cancer screening-related procedures (comprising screening plus workup) and

treatment expenditures were $1.08 billion and $1.36 billion, respectively. For women 75

years or older, annual screening-related expenditures exceeded $410 million. Age-

standardized screening-related cost per beneficiary varied more than 2-fold across

regions (from $42 to $107 per beneficiary); digital screening mammography and CAD

accounted for 65% of the difference in screening-related cost between HRRs in the

highest and lowest quartiles of cost. Women residing in HRRs with high screening costs

were more likely to be diagnosed as having early-stage cancer (incidence rate ratio, 1.78

[95% CI, 1.40-2.26]). There was no significant difference in the cost of initial cancer

treatment per beneficiary between the highest and lowest screening cost HRRs ($151 vs

$115; P = .20).”

(Source: Cary P. Gross, Jessica B. Long, Joseph S. Ross, Maysa M. Abu-Khalaf, Rong

Wang, Brigid K. Killelea, Heather T. Gold, Anees B. Chagpar, and Xiaomei Ma, “The cost

of breast cancer screening in Medicare population,” JAMA Internal Medicine February 11,

2013)

My take: like prostrate testing and others, the value of diagnostic testing must be clearly

articulated to consumers, especially as more take on first dollar responsibility for their

health via high deductible insurance plans. In screening mammography, the costs are

allocated across larger numbers who undergo the test, while benefitting the very few

whose diagnosis is positive. In these cases, the full costs of diagnostic tests might be

borne by individuals who, when running short of money, might forego otherwise useful

tests. It’s a discussion we must have as a system—a policy of assuring that appropriate

diagnostic tests are readily accessible as insurance plans and employers push financial

risk to individuals and families for routine preventive health.

return to top

Quotable “The ACOs are in effect latter-day health-maintenance organizations—doctors, hospitals

and other health-care providers grouped together to provide coordinated care. The ACOs

assume financial responsibility for the cost and quality of the care they deliver, making

them accountable to patients. With President Obama's re-election making it certain that

the Affordable Care Act will begin taking full effect next year, the number of ACOs will

continue to increase. We believe that many of them will not succeed. The ACO concept is

based on assumptions about personal and economic behavior—by doctors, patients and

others—that aren't realistic. Health-care providers are spending hundreds of millions of

dollars to build the technology and infrastructure necessary to establish ACOs. But the

country isn't likely to get the improvements in cost, quality and access that it so

desperately needs.”—Christainsen, Flier, & Vijayaraghavan,”The Coming Failure of

ACOs,” Wall Street Journal, February 19, 2013

“The first reason states should opt out of the expansion is its bad welfare policy. While

typically considered a health-care program, Medicaid is also America's largest means-

tested welfare program. A core principle of welfare policy should be that able-bodied, non-

elderly adults receive public assistance only if they are working, preparing for work or

actively seeking work. There is no such requirement in the Medicaid expansion. In fact,

82% of the individuals eligible for coverage under the expansion are working-age adults

without dependent children. To expand welfare-like benefits with no work or behavioral

requirements to a population of primarily young, childless adults is simply a prescription for achieving Western European levels of social and economic atrophy.”—Ed Haislmaier,

Senior Research Fellow, Heritage Foundation, quoted in Wall Street Journal, “Should

states opt out of the health law’s Medicaid expansion?” February 18, 2013

“Instead of asking whether states should opt out of the Medicaid expansion, the better

question is this: Why would a state want to leave poor adults out of health reform in the

first place? Medicaid is the best coverage solution for impoverished Americans... it is cost-

efficient. According to the Congressional Budget Office, Medicaid coverage costs 50%

less on average than private insurance; it provides comprehensive coverage and extra

protection against out-of-pocket costs, a key consideration for the poor; coverage is

funded as a direct government benefit rather than tax credits, the way health-care

exchanges will work. This is key for workers whose incomes fall below the federal income-

tax filing threshold; and it has a long track record of effectiveness…Opting out will leave a

state's most vulnerable citizens without a pathway to coverage and do nothing to reduce

the financial burden of uncompensated care. Moreover, in 2014, steep cuts in federal

direct hospital funding will begin. In expansion states, the cuts will be more than offset by

the federal funds for Medicaid. States that opt out, meanwhile, will lose funding and gain nothing in return.”—Sara Rosenbaum, Professor, The George Washington University

School of Public Health and Health Services, quoted in Wall Street Journal, “Should

states opt out of the health law’s Medicaid expansion?” February 18, 2013

return to top

Fact file ACO coverage: 52% of U.S. patients live in primary care service areas served by

the 259 Medicare ACOs vs. 45% last August. Additionally, 28% live in areas served

by two or more ACOs, up from 17% in August. Together, ACOs cover 37-43 million

Medicare and non-Medicare patients. (Source: Oliver Wyman analysis)

Employer-based health insurance: Per a Gallup survey of 353,563 U.S. adults

age 18 and older conducted January 1-December 31, 2012. Percentage with

employer-based health insurance among various groups:

% Coverage

Demographics 2008 2009 2010 2011 2012

Change,

2012 vs.

2008

$90,000 + per year 72% 72.1% 71.2% 70.4% 69.2% -2.8%

$36,000-$89,999 per year 65.6% 63.9% 61.1% 58.7% 56.7% -8.9%

Aged 26-64 61.6% 59% 58.1% 56.7% 56.3% -5.3%

White 50.7% 48.5% 47.3% 45.9% 45.8% -4.9%

Male 50.7% 48.5% 47.3% 45.9% 45.8% -4.9%

Total 49.2% 46.8% 45.8% 44.6% 44.5% -4.7%

Female 47.8% 45.2% 44.4% 43.4% 43.3% -4.5%

Black 44.5% 39.9% 38.8% 38.1% 37.3% -7.2%

Aged 18-25 33.3% 31.9% 31.1% 31.1% 32.4% -0.9%

Hispanic 34.1% 31% 31% 28.3% 29% -5.1%

Less than $36,000 per

year 26.8% 25.9% 24.7% 23.7% 22.7% -5.9%

Aged 65+ 12.4% 11.4% 11.8% 11.9% 11.8% -0.6%

(Source: Gallup, “Fewer Americans Getting Health Insurance From Employer,”

February 22, 2013)

Online: 30 billion pieces of content are shared on Facebook every month; more

than 60 billion intelligent devices exist in the world today and that is expected to

rise to more than 200 billion by 2015; 40% projected growth in data volume every year. (Source: Deloitte, “Data: A growing problem,” 2012)

mHealth: 6 billion mobile phones in use today representing 87% of the world’s

population; 1.2 billion mobile Web users in the world today, representing 17% of

the world’s population; 13,600 apps in the Apple iTunes store related to health

care, 40,000 estimated mobile health apps across multiple platforms, 247 million

people have downloaded a health app. (Source: Deloitte Center for Health

Solutions, “mHealth in an mWorld,” 2012)

Medicare budget: the updated 2013 projection of Medicare spending from 2011 to

2020 is $511 billion less than originally predicted in 2010. (Source: The

Washington Post, “Graph of the day: The incredible shrinking Medicare budget,”

February 20, 2013)

Electronic claims: 96% of health insurance claims were submitted electronically in

2011. (Source: iHealthBeat, “What Percentage of Health Insurance Claims Were

Filed by Paper or Electronic Processes?” February 20, 2013)

Wellness programs: 18% of large employers offer incentives to maintain health,

42% offer onsite yoga; 38% web-based portal with activity tracking; 35% onsite

Weight Watchers program; 31% social networking opportunities; 11% mobile apps for activity tracking; 28% offer other incentives. (Source: The Wall Street Journal,

“Should Employees Get Insurance Discounts for Completing Wellness Programs?”

February 18, 2013)

Telemedicine in underserved areas: 10 million patients across the U.S. utilize

telemedicine. (Source: Bloomberg Businessweek, “For Abortion Pills, You Must

‘See’ Your Doctor,” February 14, 2013)

Caffeine research: researchers found a direct correlation between increased

coffee consumption and decreased risk of mortality. (Source: Mary Ann Liebert,

Inc., Publishers, “Is There a Link Between Coffee Drinking and Mortality?” February

19, 2013)

24-hour resident shifts: if working a 24 hour shift, medical residents are 60%

more likely to prick themselves with needles and two times as likely to get into a

car accident on the way home. (Source: The Wall Street Journal, “Should Medical

Residents Be Required to Work Shorter Shifts?” February 18, 2013)

Preventing injury: there is a 52% higher possibility of sustaining an injury for

students who commute to school by walking, running, or biking rather than by other

modes of transportation. (Source: The Wall Street Journal, “Music Ability Helps

Reading,” February 18, 2013)

Overdosing: 75% of pharmaceutical drug overdoses in 2010 entailed the use of

oxycodone, hydrocodone and methadone, all forms of opioid analgesics. (Source:

Centers for Disease Control and Prevention, “Press Release: Opioids drive

continued increase in drug overdose deaths,” February 20, 2013)

Global health: The global fertility rate has dropped from 4.7 children per female

18-44 years of age in 1970 to 2.5 in 2011, and births to women under 20 has

dropped 20%. In 71 of 196 countries, fertility rates are below 2 children per woman

up from 26 of 187 countries in 1980. (Source: Charles Kenny, Bloomberg

Businessweek, “An Aging Population May Be What the World Needs,” February 7,

2013)

Unemployment: the rate of short-term unemployment—those without jobs for 6

months or less—is 4.9% of the labor force, 0.7% above the average rate from 2001

to 2007; the long-term unemployment is 3%—triple the rate for the same period. (Source: Peter Coy, Bloomberg Government, “The U.S. Long-Term Unemployment

Crisis Stumps Economists,” February 7, 2013)

Hospital value based purchasing: 30% of scoring for hospital value-based

purchasing program premised on the patient experience; hospital revenue could

fluctuate by 4% depending on quality scores—plus or minus 2% of their standard

Medicare rate by 2017. (Source: Becker’s Hospital Review, “How will value-based

purchasing impact internal audits?” February 13, 2013)

Caloric intake among children (1999-2010): children took in fewer in calories

2012 than 2010: boys ate 7% fewer calories, down to 2,100/day, and girls’

consumption dropped 4% to 1,755; researchers surprised that the decline was

highest in consumption of fast food—down 11.3%. (Source: New York Times,

“Children in U.S. are eating fewer calories, study finds,” February 21, 2013)

Birth rates for women age 15-19: rates in rural areas of the U.S. were 43 per

1,000 vs. 33 per 1,000 in urban areas. (Source: National Campaign to Prevent

Teen Pregnancy, “Teen Childbearing in America,” January 2013)

Military health: The Department of Veterans Affairs has treated 866,000 of the 1.6

million soldiers who have served since 9/11 for post-traumatic stress disorder

(PTSD); 50,000 of those cases were newly diagnosed in 2012. The final quarter of

last year saw 16,531 cases, or 184 per day. (Source: Gregg Zoroya, USA Today,

“Ailing veterans turn to charities in record numbers,” February 21, 2013)

return to top

Subscribe to the Health Care Reform Memo

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

subscription. Please visit www.deloitte.com/us/healthmemos/subscribe. First, confirm

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

Email Newsletters (under Health Sciences). return to top

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

Press at www.DUPress.com.

Coming soon: Employees’ worksite wellness programs and incentives – a review of the literature

Hospital consolidation: What happens, what’s ahead?

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

Health System Chief Information Officers: Juggling responsibilities, managing

expectations, building the future—February 2013. Available online at

www.deloitte.com/us/2013CIOstudy

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

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

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

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

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

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

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

www.deloitte.com/us/consumerstudies

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

spending—December 2012. Available online at

www.deloitte.com/us/2012hiddencosts

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

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

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

at www.deloitte.com/us/2012sustainablegrowth

Impact of Health Care Reform on Insurance Coverage: Projection Scenarios Over 10

Years – Update 2012—October 2012. Available online at

www.deloitte.com/us/2012coveragemodel

return to top

Read the blog

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

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

return to top

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.

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

return to top

Deloitte contacts

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

(pkeckley@deloitte.com)

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

(jblume@deloitte.com)

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

(bcopeland@deloitte.com)

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

Consulting LLP (jgirzadas@deloitte.com)

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

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

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

LLP (mitchmorris@deloitte.com)

George Serafin, Managing Director, Health Sciences Governance Regulatory & Risk

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

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

To receive email alerts when new research is published by the Deloitte Center for Health

Solutions, please register at www.deloitte.com/centerforhealthsolutions/subscribe.

To access Center research online, please visit www.deloitte.com/centerforhealthsolutions.

To arrange a briefing for your team, contact Jennifer Bohn (jebohn@deloitte.com).

return to top

Deloitte.com | Security | Legal | Privacy

30 Rockefeller Plaza New York, NY 10112-0015 United States

About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Disclaimer This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

Copyright © 2013 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited

To unsubscribe, reply to this message and add “Unsubscribe” in the subject line.