Deloitte Center for Health Solutions

August 27, 2012

Monday memo

Health reform update

This week’s headlines: My take Implementation update

─ Medicare reforms to be in spotlight at conventions ─ CMS announces participants in primary care management services for Medicare FFS

beneficiaries ─ Administrative simplification final rule issued re: provider identification standardization ─ ICD-10 delayed to October 1, 2014, included in health plan identifier final rule

Legislative update ─ CMS releases final rule for Stage 2 meaningful use ─ Related: AHA urges FCC to modify Internet program to enable meaningful use by rural

hospitals ─ CBO releases budget outlook update, marks down forecast for Medicare spending

State update – Moody’s: states’ decisions on Medicaid expansion not likely to affect credit ratings – State Round-up

Industry update ─ Aetna to acquire Coventry in $7.3 billion deal ─ Retail health: Walmart offers expanded preventive health services ─ U.S. Court of Appeals halts implementation of FDA’s graphic warning labels on cigarettes as

companies win freedom of speech appeal ─ Survey: many Americans make poor choices when choosing health benefits ─ Study: medical residents expect to practice in groups, receive signing bonus

Quotable

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My take

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

Among the most perplexing findings in our consumer surveys is the disappointing perception of the U.S.

health system’s performance relative to ratings in other countries by their respective constituencies.

Why would individuals in France or Switzerland believe their system’s outperforms ours? And given that

the U.S. system spends at least 30% more per capita than any of these countries, how do investments

in a country’s health system relate to the value seen by its citizenry?

Percent of consumers rating their health care system as an “A” or “B”

*Note: 22% of consumers rated the U.S. health system as an “A” or “B” in the 2011 survey. This increase could

indicate the start of an upward trend, but the format of this question changed slightly from previous years—in 2012,

respondents were asked to grade the overall performance of the system after grading specific elements. Perhaps,

after considering those specific elements of the system, respondents came to a more positive assessment than they

might have if asked first to grade overall performance. Data for other countries are from the 2011 Survey of Health

Care Consumers Global Report.

As it turns out, the answer is not so complicated: consumers in countries like the UK are taught early to

understand their system of care; it’s a vital part of their education and a source of national pride. Thus,

the National Health Service was featured by the Brits in the opening ceremony of the Olympics last

month.

The fact is that the U.S. system is not structured to be understood easily nor is it inclined to be

compared to any other. Our system has evolved: it is highly regulated at the state and federal levels,

highly fragmented, expensive and big—one seventh of our economy and one of nine new jobs projected

in the next decade.

It seems to me the perceived and actual value of our system is the big challenge: because many

consumers pay less than 20% of the costs for their care, the total costs for the products and services we

use are unknown. Because we tend to believe whatever a physician suggests without studying

treatment options independently, we tend to assume all care is necessary care. Because there are no

repercussions of unhealthy lifestyles and non-adherence to recommended treatments, we are not

inclined to think our behavior impacts costs. And because we think in terms of anecdotal experiences

with doctors, nurses, hospitals, and insurance plans we use, ours is a uniquely personal view of system

performance that’s circumstantial rather than studied. As a result, “quality” is about bedside manner and

paperwork hassles more so than accuracy of diagnosis and appropriateness of treatments. And costs

and prices are unrelated: what’s charged for a service varies not based on actual costs but on who’s

paying.

Every industry in our economy faces a pivotal moment in time when it must assess its value proposition.

Health care is no exception: is each citizen getting $9,000 per year of value from the system? Is it worth

annual increases of 6% per year for the next decade? Does its performance justify consumption of 19%

of total annual discretionary spending in the average U.S. household? For some, the answer is probably

yes; for the majority, maybe not—especially if other means are available to get the same or better

services cheaper.

The Affordable Care Act (ACA) tackles value head on in several areas: notably, efforts to improve the

performance of medical practitioners, hospitals, long term care providers, insurance plans, and others.

But at the end of the day, the discussion about value that needs to come front and center is this: how

can the U.S. health system better demonstrate its value and secure the confidence of its citizens?

I have spent time in most of the countries where citizens seemingly think their health systems are better.

In our surveys, more than half of the U.S. population think the U.S. system is wasteful (62% indicated

they believe 50-100% of the money spent on health care in the U.S. is wasted), and even those with

insurance fear an unforeseen medical problem could bankrupt them.

It’s ironic the U.S. health system is not at the top of the list. Perhaps it’s because we have failed to make

our case effectively. Or perhaps there’s a gap in what we assume valuable to our customers—

consumers in every stage of life and health, not just those with a medical problem today.

Maybe it’s time for the U.S. health system to make its case for value—hopefully avoiding tendencies to

shun sectors that are deemed less valuable than others. And maybe it’s time for all of us to invest time

in better understanding our system of care, especially since it matters to each of us so personally and

directly.

Value: a critical component of the ACA

Section Provision

Provision

implementation

year

Importance to value

3001

Hospital value-based purchasing program

2012

Hospital value-based purchasing programs will be implemented under which value-based incentive payments are made in a fiscal year to hospitals that meet defined performance standards.

3006

Value-based purchasing program for skilled nursing facilities and home health agencies

2012 A value-based purchasing program for payments under the Medicare program for skilled nursing facilities will be implemented in October 2012.

3007

Value-based payment modifier under the physician fee schedule

2013

“The Secretary shall establish a payment modifier that provides for differential payment to a physician or a group of physicians under the fee schedule established under subsection (b) based upon the quality of care furnished compared to cost (as determined under paragraphs (2) and (3), respectively) during a performance period.”

10301

Value-Based purchasing program for ambulatory surgical centers

2012 A value-based purchasing program for payments under the Medicare program for ambulatory surgical centers will be implemented in October 2012.

1003 Consumer protection

2010

A process for annual review, beginning with the 2010 plan year and subject to subsection (b)(2)(A), of unreasonable increases in premiums for health insurance coverage to “ensure consumers get value for their dollar” was established.

610326 Pay-for performance

2016 ACA includes pilot testing for pay-for-performance for certain Medicare providers. Providers are rewarded for

meeting certain payor objectives, such as increasing quality and patient safety (i.e., enhancing the value of health care services). Must be implemented no later than January 2016.

10329

Developing methodology to assess health plan value

2011

“The Secretary, in consultation with relevant stakeholders including health insurance issuers, health care consumers, employers, health care providers, and other entities determined appropriate by the Secretary, shall develop a methodology to measure health plan value.”

1001 amending section 2713(5)(2)(c) of PHSA

Coverage of preventive health services

2010

“The Secretary may develop guidelines to permit a group health plan and a health insurance issuer offering group or individual health insurance coverage to utilize value-based insurance designs.”

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Implementation update

Medicare reforms to be in spotlight at conventions A major theme in Tampa this week (GOP Convention) and Charlotte the next (Democratic Convention)

will be Medicare reform. A number of proposals will be debated as the solvency of the program that

insures 40 million seniors and 8 million Americans with disabilities is in question.

Over the past five years, the program’s costs have exceeded the overall growth of the economy every

year: Medicare alone spends $536 billion or 3.6% of the U.S. gross domestic product (GDP). Ten

percent of its enrollees represent 63% of the program’s expenditures, and 5% of Medicare patients who

die each year account for 30% of Medicare's costs. With 8,000 Americans turning 65 everyday, demand

will increase with enrollment at 79 million by 2030. The data are compelling; the solutions challenging.

Five year average annual Medicare expenditures Five year average annual consumer price index

Part A (hospital): +3.7%/year Hospital services:+6.5%/year

Part B (physicians): +4.2%/year Medicare care +3.6%/year

Part C (Medicare Advantage): +2.5%/year Professional services: +2.9%/year

Part D (Prescription Drugs): +3.9%/year Prescription Drugs: +3.5%/year

Source: 2012 Medicare Trustees Report

Several proposals will be discussed in addition to elements in the ACA. It’s not a new challenge for

policymakers: in 1999, a Medicare Commission made a series of recommendations that were

subsequently not implemented. And several organizations have offered their views in recent years:

Proposals for Medicare

reform

Proposed

implementation

date of reforms

Key points

“Patient Protection and

Affordable Care Act of

2010”

Implementation:

2010-2015 Provisions include closing the donut hole for Part D (Section

3301), free preventive benefit (Section 4103), the

Independent Payment Advisory Board (IPAB, Sections

10320, 3403), and other delivery system reforms

Total projected net savings: $427.8 billion (2010)

No premium support

Mitt Romney

“Medicare: Preserve it.

Strengthen it.”

-- Medicare beneficiaries can opt to stay in “traditional”

Medicare— if this option is more costly than purchasing

insurance with premium support in the private market,

beneficiaries will pay the difference

High income beneficiaries will pay more in premiums than

low-income beneficiaries

If premiums for the plan chosen are less than support

provided, beneficiaries may use the balance for other out-of-

pocket health expenses

Congressman Paul Ryan:

"The path to prosperity: A

Blueprint for American

Renewal," March 20, 2012

2023 Beneficiaries would receive premium support—a defined

federal contribution to purchase a plan actuarially equivalent

to the services offered under fee-for-service (FFS) Medicare

to purchase health insurance in a Medicare Exchange

Growth in Medicare payments per beneficiary could not

exceed GDP + 0.5%.

Repeal IPAB

Repeal Part D expansion under the ACA

All other provisions in ACA remain in tact

Domenici-Rivlin,

Bipartisan Policy Center:

“The Domenici-Rivlin

protect Medicare Act,”

November 1, 2011 and

updated June 15, 2012

2016 Beneficiaries would receive premium support—a defined

federal contribution to purchase a plan actuarially equivalent

to the services offered under FFS Medicare to purchase

health insurance in a Medicare Exchange

If Medicare payments increase beyond GDP + 1% (parts A,

B, and D), Medicare beneficiaries with incomes above 150%

federal poverty line (FPL) will have increased cost-sharing

Wyden-Ryan:

“Guaranteed Choices to

Strengthen Medicare and

Health Security for All:

Bipartisan Options for the

Future,” December 15,

2011

2022 Beneficiaries would receive premium support—a defined

federal contribution to purchase a plan actuarially equivalent

to the services offered under FFS Medicare to purchase

health insurance in a Medicare Exchange

Congress must intervene if Medicare payment exceeds

nominal GDP + 1% per beneficiary; interventions could

include: changes to provider reimbursements, drug

companies, program overhead, and/or means-tested

premiums

Burr-Coburn:

"Seniors Choice Act,"

February 16, 2012

2016 Beneficiaries would receive premium support—a defined

federal contribution to purchase a plan actuarially equivalent

to the services offered under FFS Medicare

Repeal IPAB

No cap to federal spending

S.2196:

"Congressional Health

Care for Seniors Act,"

March 15, 2012

2014 Beneficiaries would receive premium support—a defined

Federal contribution to purchase a plan through Federal

Employee Health Benefits Plan (FEHBP)

If beneficiaries are employed, they would be able to use the

federal contribution to purchase employer-sponsored health

insurance

No cap to federal spending

Simpson-Bowles:

“The Moment of Truth:

Report of the National

Commission on Fiscal

Responsibility and

Reform,” December 1,

2010

2020 Recommends consideration of premium support for

Medicare only if costs grow faster than targets

CATO Institute:

“A Plan to Cut Spending

-- Voucher system

Long term: seniors would rely on health savings accounts

and Balance the Federal

Budget,” April 1, 2011

(HSAs)

Money not spent could be saved

Republican Study

Committee:

“Honest Solutions: Fiscal

Year 2012 Budget,” April 8,

2011

2021 Optional private health insurance

Premium support eventually

Catastrophic coverage mandatory

Dual eligibles would receive a “fully funded account” for out-

of-pocket expenses

Heritage Foundation:

“Saving the American

Dream: The Heritage Plan

to Fix the Debt, Cut

Spending, and Restore

Prosperity,” May 10, 2011

-- Premium support based on weighted average of

participating health plans’ bids on a regional basis (first five

years)

Premium support set at 88% of the lowest cost health plan

that meets requirements

American Enterprise

Institute::

“A Balanced Plan for Fiscal

Stability and Economic

Growth,” May 25, 2011

-- Convert into premium support system over ten years

Subsidies determined based on income and health status

Rivlin-Ryan:

“A Long-Term Plan for

Medicare and Medicaid,”

November 17, 2010

2021 Premium support to purchase insurance in a Medicare

Exchange

Premium support sets at average federal cost per Medicare

beneficiary in 2021

Individuals enrolled in Medicare prior to 2021 would have

the option to stay enrolled in “traditional” Medicare

Sources: Kaiser Family Foundation, “Comparison of Medicare Premium Support Proposals,” 2012; Mitt Romney,

“Medicare: Preserve it. Strengthen it.” 2012; Stuart Butler, Alison Acosta Fraser, and William Beach, Heritage

Foundation, “Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore

Prosperity,” May 2011

My take: the topic of Medicare reform is highly volatile. All parties agree it must be transformed or it

risks insolvency. Disagreement seems strongest about how. A number of proposals have been made,

dating back 13 years, including at least 11 involving premium support or voucher programs. Others have

encouraged combinations of increased enrollee premiums, increased age for eligibility, privatization of

the program, and structural changes that target coordinating care for the elderly to avoid unnecessary

hospitalization costs.

Invariably, legislative changes to the popular program are not dramatic: it’s a popular program seen by

seniors as key to their security in old age. And seniors vote, complicating a politician’s ability to be

candid at times.

It might make sense to convene seniors, their children, and grandchildren to hash it out. It’s not just

about what seniors want; it’s about their needs and expectations, along with future generations. And in

the process, might other levers be considered—accelerating administrative simplification, liability reform,

changing incentives from FFS to value-based performance, increasing transparency about costs and

outcomes, rewarding healthy lifestyles, and making it easy for people to understand treatment options

and risks based on evidence from cradle to grave?

Regardless of what happens in Tampa or Charlotte, it’s a discussion we need to have and a bold

solution needs to be found. And the generations most impacted need to be directly involved.

Medicare costs can be reduced, the program’s solvency permanently settled, and the quality and safety

of the health care services accessible to its enrollees demonstrably improved: it’s possible. The data are

compelling about the waste, fraud, and suboptimal care rampant in the program. But it might require

those most impacted—seniors, their children, and grandchildren—to be engaged directly in

understanding the fact base and plotting a new course that takes advantage of the program’s strengths

and fixes its notable flaws. Too much is at stake otherwise.

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CMS announces participants in primary care management services for Medicare FFS

beneficiaries

Wednesday, the Centers for Medicare & Medicaid Services (CMS) announced the selection of 500

primary care practices representing 2,000 providers in seven states (Arkansas, Colorado, New Jersey,

Oregon, New York, Ohio, Kentucky, and Oklahoma) who will participate in a new partnership with CMS,

state Medicaid agencies, commercial health plans, and self-insured employers. Under the

Comprehensive Primary Care Initiative—a four-year program administered by the CMS Innovation

Center—CMS will pay a set care management fee ($20 on average) per beneficiary per month to

primary care practices to support coordinated care management services for Medicare FFS

beneficiaries.

Note: the practices were chosen based on several factors: use of health information technology (IT),

ability to demonstrate recognition of advanced primary care delivery by leading clinical societies, service

to patients covered by participating payers, efforts to transform their practice and improve their activities,

and diversity of geography, practice size, and ownership structure.

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Administrative simplification final rule issued re: provider identification standardization

Friday, the U.S. Department of Health and Human Services (HHS), per Section 1104 of ACA, released a

208-page final rule requiring insurers to use a standard unique identifier for capturing and reporting

information about enrollees.

Background: when health care providers bill health plans, plans use identifiers that do not have a

standard format. In some cases the identifiers are unique to each plan. This can cause provider

payments to be delayed due to misrouted or rejected transactions or difficulty in determining a patient’s

eligibility. The final rule makes a final proposed one-year delay in the compliance date for the use of new

codes that classify diseases and health problems from October 1, 2013 to October 1, 2014.

According to HHS, this is the fourth administrative simplification regulation released through the ACA.

Previous regulations include:

July 8, 2011: HHS adopted operating rules for two electronic health care transactions making it

easier for health care providers to determine patient eligibility and claim status once submitted

to insurers—estimated savings of up to $12 billion over ten years.

January 10, 2012: HHS adopted standards for electronic funds transfers (EFT) and remittance

advice transaction between health care plans and providers—estimated savings of up to $4.6

billion over ten years.

August 10, 2012: HHS published an interim final rule that adopted operating rules for the EFT

and electronic remittance advice transaction—estimated savings of up to $4.5 billion over ten

years.

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ICD-10 delayed to October 1, 2014, included in health plan identifier final rule

As proposed in April, HHS finalized a one-year delay in the compliance deadline for the conversion to

the International Classification of Diseases Tenth Revision (ICD-10) code sets, moving the compliance

deadline to October 1, 2014. HHS determined the extra time would allow healthcare organizations,

especially smaller organizations, adequate time for the changeover.

The notice was included in in the health plan identifier final rule.

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Legislative update

CMS releases final rule for Stage 2 meaningful use Thursday, CMS released the final rule for Stage 2 of the Medicare and Medicaid EHR Incentive

Programs and a final rule on the Standards, Implementation Specifications and Certification for

Electronic Health Record Technology specifying specific criteria for practitioners and organizations that

wish to comply with Stage Two requirements starting in 2014:

Key takeaways from the Stage 2 final rule are as follows:

CMS modified the patient engagement threshold, previously set at 10%, to 5% in response to

provider concerns that they would not be able to meet the threshold.

Any Medicare eligible provider or hospital that demonstrates meaningful use in 2013 will avoid

payment adjustment in 2015.

The “exchange of key clinical information” core objective from Stage 1 was replaced by a

“transitions of care” core objective.

The “provide patients with an electronic copy of their health information” core objective was

replaced with an “electronic/online access” core objective.

Two new core objectives were added: “use secure electronic messaging to communicate with

patients on relevant health information” and “automatically track medications from order to

administration using assistive technologies in conjunction with an electronic medication record.”

Summary of care documents, whereby a provider would be required to send a summary of care

record for transitions of care referrals, was reduced to a threshold of 50%—previously 65%.

The electronic transmission of summary of care documents for transition of care referrals was

finalized at 10%.

CMS is requiring at least one instance of exchange with a provider using electronic health

record (EHR) technology designed by a different EHR vendor or with a CMS-designated test

EHR.

Eligible providers must report on nine out of 64 total clinical quality measures (CQMs).

Eligible hospitals and CAHs must report on 16 of 29 total CQMs.

All providers must select CQMs from three of the six key health policy domains:

o Patient and family engagement

o Patient safety

o Care coordination

o Population and public health

o Efficient use of health care resources

o Clinical processes/effectiveness

Background: per the Health Information Technology for Economic and Clinical Health (HITECH) Act,

providers and hospitals can qualify for Medicare or Medicaid incentive payments if they adopt and

meaningfully use certified EHRs. Stage 1 required eligible providers including physicians, community

hospitals, and critical access hospitals (CAHs) to collect data electronically and provide patients with

electronic copies of their health information.

Reactions: “Stage 2 puts a greater emphasis on using health IT to improve and monitor care in real

time at the point of care in hope that the patient's information will move with the patient. Among other

challenges, patient access to their health information from the electronic health record is an important

difference from Stage 1 to Stage 2 and maybe one of the most challenging objectives that the health

care industry will have to meet. Almost across the board, the clinical quality measure expectations have

been increased, putting greater emphasis on using the technology to demonstrate and measure that safety is being enhanced and quality of care is improving over time.”—Harry Greenspun, M.D., Senior

Advisor, Deloitte Center for Health Solutions, Washington DC

“Overall, we're pleased that they have removed the administrative burden on eligible professionals on

allowing groups to report batch information for certain measures. They've decreased the thresholds for

some meaningful-use requirements, in particular: providing online access for the patient to get a hold of their medical records.”—Robert Tennant, Senior Policy Advisor, MGMA-ACMPE

“We were happy to see CMS acknowledge and continue to make efforts to align meaningful-use quality

reporting requirements with other quality reporting programs to reduce duplication and reporting burden. Having the ability to kill two birds with one stone is more efficient and reduces cost.”—Allison Viola,

Senior Director of Federal Relations, American Health Information Management Association (AHIMA)

“While we appreciate that CMS has allowed for a shorter meaningful-use reporting period for 2014, we

are disappointed that this rule sets an unrealistic date by which hospitals must achieve the initial

meaningful-use requirements to avoid penalties. In addition, CMS complicated the reporting of clinical quality measures and added to the meaningful-use objectives, creating significant new burdens.”—Linda

Fishman, Senior Vice President of Public Policy Analysis and Development, American Hospital

Association (AHA)

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Related: AHA urges FCC to modify Internet program to enable meaningful use by rural

hospitals Last week, AHA sent a letter to the Federal Communications Commission (FCC) suggesting changes to

the six-year-old Rural Health Care Pilot Program—a program aimed to provide an infrastructure for

letting rural health care providers build networks to connect them to their urban counterparts. The letter

suggested the FCC proceed quickly with a final rule on the program and suggested the program’s

application and reporting requirements be simplified to increase participation. “While 29% of urban

hospitals had adopted at least a basic EHR by fall 2011, only 19% of rural hospitals had done so.

Similarly, the Government Accountability Office recently reported that in 2011 acute care hospitals were

more than twice as likely as critical access hospitals to have been awarded a Medicare incentive

payment for successfully meeting the federal criteria for meaningful use of an EHR.”

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CBO releases budget outlook update, marks down forecast for Medicare spending Last week, the Congressional Budget Office (CBO) released its latest budget outlook update projecting

that the budget deficit in fiscal year (FY) 2012 will be $1.1 trillion (7.3% of GDP). Federal debt held by

the public will reach 73% of GDP by the end of the fiscal year—the highest level since 1950 and double

what it was at the end of 2007 (36% of GDP). The CBO projects the economic recovery to continue at a

modest pace for the remainder of 2012 with real GDP increasing at an annual rate of about 2.25% in the

second half of the year (compared to 1.75% in the first half).

CBO Baseline CBO Alternative Scenario

Unemployment 2013 9.1% 8.0%

Unemployment 2022 5.3% 5.3%

GDP 2013 -0.5% 1.7%

GDP 2022 2.3% 2.1%

Note: the CBO baseline assumes Bush tax cuts expire, sequester cuts are implemented, Medicare sustainable

growth rate (SGR) cuts for physicians are made, and unemployment benefits extensions expire; the alternative

scenario assumes the tax cuts are extended, sequester cuts to Medicare are suspended; Bush tax cuts and payroll

tax reductions expire.

In its report, CBO outlined the various policy changes that are due to occur in January 2013 under the

current law that will have the largest impact on the budget and economy:

Provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of

2010;

Reductions in Medicare’s payment rates for physician services that are scheduled to take effect;

Automatic enforcement procedures established through the Budget Control Act of 2011 to

restrain discretionary and mandatory spending; and

Extensions of emergency unemployment benefits and a reduction of 2% points in the payroll tax

for Social Security are set to expire.

The CBO marked down its forecast for Medicare spending, but also noted spending on Medicare and

Medicaid is expected to grow faster than the economy, reaching an expected 14.4% of GDP by 2022.

According to CBO Director Douglas Elmendorf, the agency has marked down Medicare spending

projections for 2019 for the last three years by about $100 billion due to program specific factors.

Elmendorf ascribed the slower growth to such factors as the weakened economy, slower growth in

spending on medications, health care delivery restructuring, changes in the way providers are being

paid by both Medicare and private insurers, and individual and household consumers spending more

out-of-pocket on medical services.

CBO estimates federal spending for mandatory health care programs will fall by $27 billion this year

(around 3%) primarily due to a $22 billion reduction in federal spending for Medicaid. Spending for

Medicare in 2012 is expected to be lower than in 2011 by $9 billion largely due to $15 billion in

payments being made in FY2011 rather than 2012 because the first day of FY2012 fell on a weekend. Without this shift, Medicare outlays would be up by nearly 4% this year. (Source: Congressional Budget

Office, “An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022,” August 2012)

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State update

Moody’s: states’ decisions on Medicaid expansion not likely to affect credit ratings Tuesday, Moody’s Investors Service announced that individual credit ratings of states will not be

affected by a state’s decision to participate in the Medicaid expansion—Section 2001 of the ACA.

Instead, the Senior Vice President of Moody’s, Kenneth Kurtz stated: “the extent of any effects on

ratings will depend on how states respond to underlying cost drivers, including any new federal actions.”

Note: average annual growth in Medicaid has remained stable in most states and below national health

spending trends. According to Kaiser Family Foundation, average annual growth in Medicaid spending:

1990-2001: 10.9%, 2001-2004: 9.4%, 2004-2007: 3.6%, 2007-2010: 6.8%. (Source: Kaiser Family

Foundation, Average Annual Growth in Medicaid Spending, FY1990 - FY2010)

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State Round-up The U.S. Court of Appeals for the 5th Circuit ruled that Texas can prevent tax dollars from

funding any organization that provides abortion—overturning a federal district court ruling that

would have blocked Texas from enforcing the state law.

California, Connecticut, Hawaii, Iowa, Maryland, Nevada, New York, and Vermont have

received new grants to help support the establishment of health insurance exchanges (HIX).

California, Hawaii, Iowa, and New York received a Level One grant, with awards as high as

$194.5 million in the case of California. Connecticut, Maryland, Nevada, and Vermont received

Level Two funding with awards between $50 and $100 million.

Massachusetts Governor Deval Patrick (D) signed into law a bill aimed at reducing prescription

drug abuse by placing strict regulations on doctors and pharmacists and requiring all losses or

theft to be reported.

Nevada is moving forward with HIX implementation, signing a contract last week with Xerox

State Healthcare for $72 million to set up IT infrastructure.

Kentucky Governor Steve Beshear’s (D) executive order authorizing a state-operated HIX has

been delayed by the legislature’s Interim Joint Committee on Health and Welfare.

Representative Tom Burch (D), co-chairman of the committee, stated that even if the committee

votes against the executive order, the governor has the authority to override it. The committee

called by voice-vote a special hearing in September in order to vote on the executive order

within 60 days.

Maryland hospitals and regulators are discussing a proposal from the Maryland Hospital

Association that shifts costs to private payers by raising the rates they pay to hospitals by 7%

over three years, and giving discounts to Medicare and Medicaid beneficiaries. The plan would

raise charges for commercial insurers and their enrollees by approximately $350 million per

year and make the price of a typical hospital admission about $900 more, on top of health care

inflation.

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Industry update

Aetna to acquire Coventry in $7.3 billion deal Monday, Aetna announced it will acquire Coventry Health Care expanding the company's enrollment in

Medicaid and Medicare. According to the announcement, the deal is valued at $7.3 billion and will add 4

million enrollees in Medicaid and 1.5 million enrollees in Medicare Part D.

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Retail health: Walmart offers expanded preventive health services Walmart announced Thursday its intent to provide ten immunizations recommended by the U.S. Centers

for Disease Control and Prevention (CDC) at its 2,700 U.S. stores starting this week. The health-and-

wellness business represented 11% of the company’s $264.2 billion U.S. sales in the last fiscal year. In

2010, the company implemented a Medicare prescription drug plan with Humana.

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U.S. Court of Appeals halts implementation of FDA’s graphic warning labels on

cigarettes as companies win freedom of speech appeal Last week the implementation of the U.S. Food and Drug Administration’s (FDA) cigarette warning label

requirements under the Family Smoking Prevention and Tobacco Control Act of 2009—requiring 50% of

the front and rear panels of cigarette packages and 20% of the area of each cigarette advertisement to

be covered with graphic warning labels—was set aside by the District of Columbia U.S. Court of

Appeals. Five tobacco companies challenged the Act in 2011 in district court, claiming the warning

labels violated their First Amendment right. The Appeals Court found the FDA did not present enough

data to show its graphic warning label requirement directly advanced its objective to reduce smoking

rates, thereby ruling in favor of the tobacco companies.

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Survey: many Americans make poor choices when choosing health benefits According to a recent survey of more than 2,000 consumers, many employees are unaware of their

benefit options, and many employers fall short on educating workers about benefits options. The survey

found that 56% of employees estimate they waste up to $750 as a result of mistakes made with

insurance benefits elections. One in four respondents (24%) believe they selected the wrong level of

insurance coverage or benefits options they didn't need, and 16% felt confident they had not made

mistakes during the enrollment process.

Per the survey, employees expressed concern about their ability to pay for rising health care costs.

Almost half (43%) of employees surveyed identified rising out-of-pocket medical expenses and health

insurance costs as a concern and 38% employees indicated they are very or extremely concerned about

the possibility of an unanticipated medical expense.

Note: the 2012 Deloitte Survey of U.S. Health Care Consumers found that 17% of all consumers

indicated they are prepared (% answering 8, 9, or 10 on a 10-point scale) financially to handle future

health care costs, while 32% indicated they are not prepared (% answering 1, 2, or 3 on a 10-point

scale).Those feeling most secure were seniors in Medicare; those with commercial coverage or

Medicaid were less secure.

Per the Public Health Service Act (PHSA) Section 2715, amended by ACA Section 1001(5), health

insurers and health plans are required to provide a uniform summary of benefits which will provide

consumers with a concise document detailing, in plain language, simple and consistent information

about health plan benefits and coverage. It must summarize the key features of the plan or coverage,

such as the covered benefits, cost-sharing provisions, and coverage limitations and exceptions. People

will receive the summary when shopping for coverage, enrolling in coverage, at each new plan year, and

within seven business days of requesting a copy from their health insurance issuer or group health plan.

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Study: medical residents expect to practice in groups, receive signing bonus Decision-making factors from the 2012 graduating class of medical residents:

46% expect to join a group practice; 29% said a hospital practice was most preferred

95% of respondents said suburban communities are their first or second choice for a practice

location; 84% selected a metropolitan community in their top-two preferred locations; 32%

would not consider a rural area

75% expect a sign-on bonus

68% preferred to receive compensation in the form of a salary with a production incentive.

51% began interviewing before December 2011—by the end of March 2012, 41 % had signed

contracts

67% said their job selection is dependent on the interests of their spouse, significant other or

family member; 24% have a spouse or significant other who is also a physician

(Source: Cejka Search, “Residents and Fellows Survey,” August 2012)

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Quotable “Allowing healthcare costs to soar at unsustainable levels and allowing America to fall behind on key

indicators of care quality and access is not a political victory for either side of the aisle. Assigning blame

along partisan lines gets us nowhere. A healthy population, a happy and productive workforce, and

affordable healthcare are vital to the future of our nation. Unless we are willing to work together to transform our healthcare system for the better, these essential goals will remain out of our reach.”—Tom

Daschle and Bill Frist, The Hill, “Need for Affordable Care Cuts Across Party Lines,” August 1, 2012

“Big drug makers have been reassuring investors: Don't worry about top-selling medicines going off

patent. Growth in developing markets, like China and India, will help replace the revenue lost. Turns out

there is a different message emerging within these companies: Not so fast. Slowing economic growth,

intense local competition and governments' efforts to control health-care costs and bolster homegrown

firms have damped the prospects for the top drug makers in so-called emerging markets. And that

threatens the lofty sales goals baked into many pharmaceutical stocks.”—Jonathan Rockoff, Wall Street

Journal, “Big Drug Makers Struggle to Grow in Emerging Markets,” August 19, 2012

“The popular old-age health insurance plan is on a financially unsustainable course. Medicare's payroll

tax and premiums that beneficiaries pay cover barely half the program's costs, and as Baby Boomers

retire, things will get worse. The tab is projected to rise rapidly: 7.6% a year for the doctor-care part of

Medicare and 8.8% for the program's prescription drug benefit, for example. The economy, a rough proxy for the nation's ability to afford this, is growing less than 2% a year, leaving a huge gap.”—USA

Today, “Medicare’s Problems arrive on Center Stage,” August 20, 2012

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Fact file Drug sales in emerging markets: predicted to grow by $157 billion over the next five years,

increasing to $345 billion or about one third of the global drug spending. (Source: Jonathan Rockoff,

Wall Street Journal, “Big Drug Makers Struggle to Grow in Emerging Markets,” August 19, 2012)

Average Medicare Advantage bid: the second lowest bid in 2009 was 9% below Medicare FFS on

average; average Medicare costs $717 per person per month. (Source: Zirui Song, David Cutler and

Michael Chernew, Journal of the American Medical Association, “Potential Consequences of

Reforming Medicare Into a Competitive Bidding System,” August 2012)

Overbilling in community mental health centers (CMHCs): 90% of fraud in CMHCs occurs in

states that do not require CMHCs to be licensed or certified; represents $200 million in

“questionable billing” issues. (Source: HHS Office of Inspector General, “Questionable Billing By

Community Mental Health Centers,” August 20, 2012)

Medicaid dental fraud: Texas spent $1.4 billion on orthodontics and dental procedures in Medicaid

program in 2011—highest in the U.S. 3.3 million of the states’ 26.4 million residents are covered by

Medicaid. Since 2007, the state has operated under an agreement with the federal government that

required it to spend more on dental care. Since 2006, payments from Medicaid to dentists and orthodontists have increased 400%. (Source: Nathan Koppel, Wall Street Journal, “Texas Drills

Down on Medicaid Dental Fraud,” August 19, 2012)

Medicare Part D “donut hole” study: of 9,383 participating seniors who had extra financial support

to pay for medications while in the drug coverage gap, 112 died. And, 135 seniors with no extra

financial support in the drug coverage gap died. Per the study,, the difference is not statistically

significant and could be tied to chance. These results were similar to rates for heart problems such

as heart attack, stroke, and heart failure. (Source: Polinksi, et al, American Geriatrics Society,

“Association Between the Part D Coverage Gap and Adverse Health Outcomes,” August 2012)

Dental health: 130 million in the U.S. lack dental insurance; in 2009, dental problems were the

primary diagnosis for more than 830,000 visits to emergency departments—16% more than in 2006.

(Source: Pew Children’s Dental Campaign)

Prescription drug savings through Medicare: according to HHS, 5.4 million seniors and

individuals with disabilities have saved $4.1 billion on prescription drugs as result of provisions

through ACA. From January to July, nearly 18 million Medicare Part A beneficiaries received at least

one preventive service at no cost to them. (Source: HHS, “People with Medicare save more than

$4.1 billion on prescription drugs,” August 20, 2012)

Consumer concern about medical mistakes: 73% of those polled say they are either “very

concerned” or “somewhat concerned” about medical mistakes; 30% indicated that they or one of

their family members or friends have experienced a medical mistake (e.g., being given the wrong

medication, dosage, treatment) and 21% indicated they had previously been misdiagnosed by their physician. (Source: Wolters Kluwer Health, “Quarterly Poll: Medical Mistakes,” August 15, 2012)

Physician burnout: In a study of more than 7,000 physicians, 46% reported at least one symptom

of burnout; this varied substantially by specialty with the highest among certain physicians: those

who practice in family medicine, general internal medicine, and emergency medicine. Compared

with their adult counterparts, physicians are more likely to have symptoms of burnout (38% vs. 28%)

and tend to be dissatisfied with their work-life balance (40% vs. 23%). (Source: Shanafelt, et al,

Archives of Internal Medicine, “Burnout and Satisfaction with Work-Life Balance Among US

Physicians Relative to the General US Population,” August 2012)

Patients seeking primary care services from specialists: researchers have found that more than

40% of patient visits for primary care services were through a specialty physician’s office. This has

not changed significantly from 1999 (41%) to 2007 (41.2%). Common symptoms and diseases comprised 33.8% of specialist visits in 1999, and fell to 28.8% in 2007. (Source: Kale, Federman, &

Ross, Archives of Internal Medicine, “Visits for Primary Care Services to Primary Care and Specialty

Care Physicians, 1999 and 2007,” August 2012)

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Deloitte Center for Health Solutions research

Coming soon:

2012 Survey of U.S. Health Care Consumers – INFOBrief series

2012 Survey of U.S. Health Care Consumers – Five-year report

State Medicaid Program Management: Update and considerations

Currently available: 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

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September 20, 1:00 PM ET: Medicaid: What’s Its Future?

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Deloitte contacts

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

(pkeckley@deloitte.com)

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

for Health Solutions (hgreenspun@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)

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

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

(mitchmorris@deloitte.com)

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

(jgirzadas@deloitte.com)

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

Deloitte & Touche LLP (gserafin@deloitte.com)

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