Health Care Current Library
This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory and legislative changes.
Health Care Current: August 5, 2014
The Social Security and Medicare Trustees report
This weekly series explores breaking news and developments in the U.S. health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory and legislative changes.
A policy wonk’s delight: The Social Security and Medicare Trustees report
By Sarah Thomas, Research Director, Deloitte Center for Health Solutions, Deloitte Services LP
Over the years I’ve had the privilege of working in health care policy and research in a variety of areas, but in my heart, I am a Medicare payment policy person. Each year a number of reports come out on a more or less regular basis – the president’s budget, the Congressional Budget Office’s (CBO) long-term budget forecast and others. These reports are a policy wonk’s delight and help set the stage for new opportunities and constraints in future payment policy changes.
Most recently the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds, which includes the heads of four government agencies and two public trustees, released their annual report. Each year this report educates Congress and the public about the fiscal health of the Medicare and Social Security programs. True to form, this year’s report contains a few tidbits that ought to keep my fellow policy wonks talking for at least a couple of weeks.
Medicare spending: slow and steady – for now, anyway
This year both the CBO and the Trustees found that Medicare spending is slowing. There were also two additional bits of good news: Part B premiums are not going up, and the program has added some years to its fiscal future (see story below). In my opinion, the phenomenon of slow growth in Medicare spending has been interesting. Some policy experts expected the economy to slow spending growth in the private insurance marketplace. But, what they did not expect to see was the lower spending in Medicare because for years the benefit designs and prevalence of secondary insurance have stayed the same and many people enrolled in Medicare do not work so they are less affected by high rates of unemployment than working people. However, budget estimates expected that the Affordable Care Act (ACA) would help the slowing as the law contains a number of provisions designed to reduce Medicare spending (e.g., reductions in payment to Medicare Advantage plans, hospitals and other health care providers).
One impact of the longer period of fiscal stability for Medicare is that program-wide payment cuts triggered by high spending will be further delayed. The ACA calls for establishing a commission called the Independent Payment Advisory Board (IPAB) that would oversee a process of developing recommendations to Congress to cut Medicare spending in response to high spending in the program. The IPAB has been one of the more divisive policies in the legislative history of the ACA and it has not even been established – much less active – because of the slowdown in Medicare spending.
Future outlook: storm clouds on the horizon
The “good news” from the Trustees about Medicare also came with a caveat – things may be looking up for now, but the long-term trend is worrisome. As a society we should not be complacent. Public Trustee Robert Reichauer said during a briefing last week that in the long term, spending is expected to increase at rates higher than gross domestic product (GDP), and stakeholders should be considering action soon to change that trajectory. The Medicare Payment Advisory Commission has said for years that it would probably be easier – and less disruptive to the health care system – to try to change that trajectory now rather than waiting to take action until the problem gets even bigger down the road.
Several options are evergreen for long-term structural changes in Medicare. These include moving to premium support, changing benefits and coverage (including that of supplemental coverage) to make beneficiaries more cost conscious and raising the eligibility age. Each of these has pros and cons and different levels of impact depending on their design and when they are implemented.
Updated methodology: more treats for the policy wonks
An important change to the methodology in the report is how the Trustees treat physician payment. Until this year, the report’s actuaries have followed the CBO’s precedent in estimating spending given current law. But, after the 17th time that Congress voted to patch the sustainable growth rate, it seems the actuaries have shifted their models to assume that small increases, rather than huge cuts, will be made to payments. As a result, these predictions could lead to more stable estimates for Part B premiums and Medicare Advantage payment rates, both of which flow from the actuaries’ overall spending estimates. If the CBO were to follow this precedent, it could improve the chances of making changes to physician payment policy, which were derailed this year. Because the CBO uses current law as its baseline for estimates, the cost of reversing the physician payment update policy has been estimated to be $150-$200 billion. If the baseline were changed to a forecast based on what Congress is likely to do over time, the cost to reverse this policy could be much more modest or even budget neutral.
The Trustees Report also contains actuarial forecasts for the Medicare Advantage (MA) program and projects that MA beneficiaries will grow to 30 percent in 2018. These estimates are more optimistic than earlier ones when policymakers were concerned that the ACA’s MA payment cuts would slow enrollment growth. The CMS demonstration tying MA payments to quality (at levels that exceeded those called for in the ACA) has helped to offset the cuts.
Ultimately it will be really interesting to see whether Medicare spending continues to slow down, and if so, what we can attribute the slow growth to – successful value-based care initiatives or a sea change in perception about the market? A slowdown in the introduction and dispersion of new technology? More people in MA with changes in benefit and network design and care management strategies? To me, these are all interesting questions worth researching and investigating.
Implementation & Adoption
Last week the Social Security and Medicare trustees published the annual overview of the financial and actuarial status of the federal Hospital Insurance (HI) trust fund for Medicare Part A and Supplementary Medical Insurance (SMI) trust fund for Medicare Parts B and D. The report projected Medicare’s financial condition to improve compared to last year’s estimates, but noted that financial challenges remain. Findings of the report include:
Medicare actuarial spending and income: In 2013 total Medicare expenditures were $582.9 billion, and total income was $575.8 billion. The cost per beneficiary remained unchanged for the second year in a row. The trustees estimate expenditures to increase from 3.5 percent of GDP in 2013 to 6.3 percent by 2088.
HI trust fund projections: The trustees expect the HI trust fund to be depleted by 2030, which is four years later than they predicted last year. HI expenditures have exceeded income since 2008 and the trend is expected to continue through 2014. This is due to lower-than-expected spending for most HI services, lower utilization of inpatient services and lower case mix for skilled nursing and home health agencies.
SMI trust fund projections: Because premium and general revenue income for Parts B and D reset annually to cover expected costs and ensure there are reserves for Part B contingencies, the Trustees determined that the SMI trust fund was adequately financed over the next 10 years. Over the next five years, the average growth is expected to be 5.7 percent for Part B and 9.9 percent for Part D. General revenue for the SMI was 1.4 percent of GDP in 2013 and is expected to increase to 3.3 percent by 2088.
While the financial projections for Medicare somewhat improved from last year’s report, the trustees recommend Congress takes immediate steps to help prevent the Medicare trust funds from being depleted. The estimates were based on current law with two exceptions. The trustees did not include in their calculations the automatic payment reductions that would result if the HI trust fund were to be depleted. If the trustees did include these in their calculations, the report might not identify deficits that could exist. Also, the trustees assumed in this year’s projections that Congress will continue to override the scheduled pay cuts to providers under the sustainable growth rate.
(Source: Centers for Medicare and Medicaid Services, “2014 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,” July 28, 2014)
CMS adds 4,100 providers to bundled payments demonstration
Last week CMS announced that the agency will add more than 4,100 providers to phase one of the Medicare Bundled Payments for Care Improvement (BPCI) initiative, a testing program to see if new payment models can lead to high-quality, coordinated care for a lower cost to Medicare. The program will now have more than 6,500 participating providers who can test bundled payment models for 48 medical conditions such as stroke, congestive heart failure, diabetes, knee procedures and many more. The program is organized into four models of care that differ on whether payment is made retrospectively (through a settlement after the care is provided) versus prospectively (in advance of the care) and by what services are covered:
Phase one is the exploratory stage where providers do not share risk in participating. Phase two, for which CMS has more than 240 contracts to date, holds providers accountable to quality and cost measures for episodes of care.
Report: Health care analytics expected to grow rapidly over the next five years
A report released last week by Research and Markets predicts 25 percent growth of the health care analytics market from 2014-2019. The report attributes the growth in health care analytics to a number of factors:
- Greater adoption of health IT
- Centralized health care mandates increasing globally
- Increased use of predictive and prescriptive analytics
- Investments from venture capital companies
The report also identifies big data in health care, the digitalization of global commerce and a larger number of health technologies as large growth opportunities for health care analytics. Currently North America has the largest penetration of health care analytics. The report attributes this to the ACA, Meaningful Use requirements and the transition to ICD-10. However, the report warns that a lack of health IT specialists and concerns over privacy of patient data could hinder future growth of the analytics market in North America. Europe is the second largest market, but growth has been slow due to economic pressure faced by those countries. Research and Markets defines the health care analytics market as encompassing products, applications, components, mode of delivery and end users.
(Source: Research and Markets, “Healthcare Analytics Global market - Forecast to 2019,” September 2014)
CBO explains how it revised federal health spending projections
Last Monday the CBO posted a blog that contained more information about how it revised its projections of health care spending in the 2014 Long-Term Budget Outlook report (see the July 22, 2014 Health Care Current). CBO now estimates federal spending on major health care programs to reach 8 percent of GDP in 2039. This is 1.6 percentage points lower than the 9.6 percent figure for the same year that the agency projected four years ago in 2010. The revision incorporates changes to Medicare, Medicaid, the Children’s Health Insurance Program (CHIP) and health insurance marketplace subsidies. CBO said the following factors support the revised calculations:
- Policy and other changes in Medicare and Medicaid from 2011-2020: The revised CBO projections reflect the enactment of the ACA in 2010, modifications to the economic outlook during that period and other changes made to reflect information on health care programs’ enrollment, slower heath care spending, the Supreme Court’s ruling against Medicaid expansion and methodology improvements. The revised estimates in federal spending on Medicare and Medicaid decreased projections by approximately $1.1 trillion over 2011-2020.
- Changes in projections of subsidy spending in the marketplace: CBO lowered its projections for growth of premiums in the private health insurance market, which then lowered projected federal spending on subsidies in 2020.
- Changes in long-term federal health care spending growth rate: Lower federal health spending and slower health care spending brought down the long-term growth rate of spending per capita. CBO now uses a growth rate of 1.4 percent compared with 1.7 percent seen from 1985 to 2007.
- Changes in projections between 2009 and 2010: CBO revised its projections between the years of 2009 and 2010 as a result of the enactment of the ACA and changes in methodology.
(Source: Elmendorf, Doug. Congressional Budget Office, “Revisions to CBO’s Projections of Federal Health Care Spending,” July 28, 2014)
Physician and manufacturer groups join in on Sunshine Act complaints
Last Monday a group of physician and manufacturer groups, including the Biotechnology Industry Organization, Pharmaceutical Research and Manufacturers of America and the Medical Group Management Association, sent a letter to CMS Administrator Marilyn Tavenner about the Sunshine Act, highlighting a number of issues and requesting CMS work with the groups to identify solutions. The letter stated concerns that many physicians will not complete the registration process and asked CMS to share the number of physicians who had registered so far. The letter made three main requests:
- Provide context: The data that will be released this fall on the financial relationships will not – the letter says – include appropriate context for consumers to understand the nature of the relationships. A similar concern was raised by physician groups about the Medicare Part B data that were released earlier this year. Congress required CMS to provide context with data from the Sunshine Act, and several stakeholders have offered frameworks for such context, but CMS has yet to outline its approach to providing this context.
- Increase outreach and education to physicians: The letter requested additional educational and outreach support from CMS to help physicians understand what data would be released and when. According to the letter, many physician and industry stakeholders are confused due to last minute updates and conflicting information on the Open Payments website. Some physicians are unaware that they need to register in order to see what information is being posted about them.
- Simplify physician registration: The letter calls for simplifying the registration process as physicians could be deterred from completing the registration process – it says – because it is frustrating.
Physician groups and teaching hospitals began registering in the Open Payments system on July 14 and have until August 27 to review and dispute the data that has been reported in the system. The proposed Physician Fee Schedule for 2015 (released July 3) included additional changes to the Open Payments program (see the July 15, 2014, Health Care Current).
Analysis: Provider groups have raised many concerns similar to those of life sciences—pharmaceutical and medical device—companies. The goal of this program is to shed light into the practice of life sciences companies making payments to providers. While some argue that this practice has negative consequences on the health care industry (e.g., overprescribing of certain drugs, skewing results of patient studies), many in the industry also see this as a necessary component of high-quality care. Providers need to participate in research programs in order for life sciences companies to create better products and to factor patient outcomes and experiences into the development process. Life sciences companies have also expressed concern with the process; for example, companies have to register their data in the aggregate, which is often owned by foreign parent entities who have had trouble registering, as the process targeted U.S.-based firms. Ultimately, stakeholders on either side of the argument could benefit from having a better understanding of what level of interaction between providers and life sciences companies is appropriate. The January 28, 2014 Health Care Current explored the topic of CMS’s most recent move toward transparency in allowing physician reimbursement data to be released on a case-by-case basis. Read more here.
On the Hill & In the Courts
Last Thursday CMS issued a final rule implementing Section 212 of the Protecting Access to Medicare Act of 2014 and setting the final date for conversion to ICD-10 as October 1, 2015. It also requires organizations to continue using the ICD-9 codes and guidelines through September 30, 2015. In the final rule, CMS acknowledged that many stakeholders in the industry were “actively preparing to transition” to the new code set and that many organizations had “invested time and resources in system upgrades, testing, training and undertaking the necessary changes to workflow processes.” CMS estimates that the cost of this one-year delay in the transition to ICD-10 will cost entities covered by the Health Insurance Portability and Accountability Act (HIPAA) anywhere from $1.1-6.8 billion. In addition, CMS says that the delay in ICD-10 implementation “will affect a substantial number of small entities” but in general smaller entities will benefit from the additional time to transition to ICD-10 and the delay will not have a significant economic impact on them. Lastly, CMS said that a majority of stakeholders indicated that they had spent significant time and resources to prepare and felt confident about meeting the original compliance date of October 1, 2014. This rule is final and there will be no comment period.
Related: The Protecting Access to Medicare Act of 2014 provision that delayed the implementation came as a surprise to many stakeholders across the health care system. According to a survey of 1,250 health care professionals during the April 2, 2014 “What’s next for ICD-10?” Live from the Center webinar, 59 percent of respondents expected to either lose momentum or get off track as a result of the ICD-10 delay; only 11 percent expected to see no impact on their business. For more information, view the “ICD-10 Delay: How is the industry reacting?” infographic and the My Take from the April 1, 2014 Health Care Current, “ICD-10: Dealing with uncertainty when the stakes are high.”
Congress passes bill to make improvements to VA health care
Last week lawmakers in the House of Representatives and Senate voted to approve a bill to improve veterans’ access to health care through the U.S. Department of Veteran’s Affairs (VA). The bill includes $16.3 billion to support veterans seeking health care in and out of the VA. Specific provisions of the bill include:
- Assessing the VA’s scheduling system for appointments: The bill requires the Secretary of the VA to assess the process that the VA medical facilities use for scheduling appointments, the productivity and staffing of each facility in the system and how the VA purchases, distributes and uses pharmaceutical, medical and surgical supplies.
- Training and hiring of new staff: The bill requires the Secretary of the VA to identify the top five shortage areas in staffing across the VA. It then authorizes the Secretary to recruit and hire health care providers to fill those areas and authorizes scholarships for applicants who are pursuing a career in one of the five shortage areas.
- Enhancing access to non-VA providers: The bill allows veterans to seek care from non-VA providers, including federally qualified health centers and providers who contract under the Medicare program, Department of Defense and the Indian Health Service, under certain conditions (e.g., excessive wait times, residing greater than 40 miles from the nearest facility).
- Improving technology around telemedicine: The bill requires the Secretary to “improve the access of veterans to telemedicine” through mobile vet centers. The mobile vet centers will be required to have the ability to use telemedicine technologies.
CMS issues final payment rules for skilled nursing, inpatient rehab and inpatient psychiatric facilities
Last Thursday CMS released final rules for payment policies in skilled nursing, inpatient rehabilitation and inpatient psychiatric facilities. These rules finalize many changes that were proposed in May (see May 6, 2014, Health Care Current). Significant components of the final rules include:
- Skilled nursing facilities: Aggregate payments for these facilities will increase by $750 million (2.0 percent) over last year. This finalizes the payment increase that was proposed in May.
- Inpatient rehabilitation facilities: Aggregate payments to these facilities will increase next year by $180 million (2.4 percent) compared to 2014 rates. This is 0.2 percent higher than what was proposed in May.
- Inpatient psychiatric facilities: The payment rate update for next year will be 2.1 percent. CMS is increasing the federal per diem base rate to $728.31 from $713.19 for this year. Quality measures for inpatient psychiatric facilities from October 1, 2012 through March 31, 2013 will now be featured on Hospital Compare.
Related: On Thursday CMS also announced that average premiums for Medicare Part D were expected to increase by $1, to an average of $32 per month. This follows the trend of the last four years wherein the average premium for Part D has remained around $30 to $31 per month. Medicare’s annual open enrollment period begins October 15 and runs through December 7.
U.S. Circuit Court of Appeals in D.C. rules ACA as constitutional
Last week a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit ruled that the ACA was constitutional and not in violation of the Origination Clause of the Constitution. The Origination Clause requires bills for raising revenue (i.e., taxes) to originate in the House. The plaintiff in the case, Matt Sissel, argued that the ACA was in violation of this constitutional clause because a majority of the ACA was written in the Senate. The Court disagreed and ruled that the provision that raises revenue, the shared responsibility requirement, was not the primary focus of the law, and therefore is not subject to the Constitution’s Origination Clause. The Court acknowledged that the shared responsibility requirement does raise significant revenue—potentially $4 billion annually by 2017—but that this revenue is “a by-product” of the primary goal to increase participation in the health insurance market. In addition, the Court argues that if the shared responsibility provision is successful, that the government will see less revenue as fewer penalty payments would be made as a result. The U.S. Supreme Court has historically held the Origination Clause in the strictest sense of the term, stating that “revenue bills are those that levy taxes in the strict sense of the word, and are not bills for other purposes which may incidentally create revenue.”
Background: In September 2009 the House of Representatives passed the Service Members Home Ownership Tax Act. This bill was taken up by the Senate and replaced with the provisions and final bill that would become the Patient Protection and Affordable Care Act of 2010. The suit was brought by the Pacific Legal Foundation on behalf of Sissel, but the judges noted that process of transferring the bill from the House to the Senate is a fairly common procedure and that no one objected to the transfer at the time.
Around the Country
Survey: state-based marketplaces need more time to spend federal funding
Politico recently conducted a survey on the 15 states that are running their own health insurance marketplace and found that many states need more time to use their federal grants. Federal funding for the state-based marketplaces (SBM) to plan and construct their marketplaces must be spent by the end of the calendar year. But several state officials say that due to continued shifts in technical requirements and demands from the ACA, some major components of their SBM remain unfinished. Most (11 of the 15) states running SBMs would like to use funds through 2015. Four have already applied to do so, including Rhode Island, Minnesota, Hawaii, and Kentucky. CMS has not indicated whether or not the agency will grant the extensions to these states, but did indicate to Politico that the federal government often extends federal grants over time if they do not require additional funding and the states’ request is not uncommon or unique to SBMs.
Background: The ACA has given more than $4.7 billion dollars in federal funds to states to help them construct SBMs. This funding included grants for early innovators, planning, and two levels of establishment grants. Fifteen states received planning, level one and level two establishment grants to set up the operation of their SBMs.
(Source: Cheney, Kyle and Wheaton, Sarah. Politico, “States want more time on ACA funds,” July 25, 2014)
Report: California health insurance premiums rose sharply between 2013 and 2014
A report from the California Insurance Commissioner, Dave Jones, found that premiums in California between 2013 and 2014 increased sharply. According to the report average premium increases ranged from 22 to 88 percent from 2013 to 2014, although increases varied by demographic factors. State officials have said that they expect increases to continue because the state cannot control premium rates set by insurance companies. California state officials and lawmakers are trying to garner support for Proposition 45, a state ballot initiative that, if supported by the public, would require insurers to justify premium rate increases and provide authority to the state’s insurance commissioner to veto hikes the agency deems to be unjustified. On Thursday, two days after the Commissioner’s report was released, Covered California, the state’s insurance marketplace, released the premium rate increases for 2015. Next year the average increase that consumers will see in California will be 4.2 percent, but some consumers could see rate decreases as much as 8.5 percent below last year. Ten insurance carriers that participated in the state’s marketplace last year will participate again this year.
Related: The Kaiser Family Foundation re-surveyed Californians to determine how insurance coverage had changed among residents in the state. The new survey findings estimated that, of California’s previously uninsured population, 58 percent (3.4 million) obtained health insurance throughout the open enrollment period. Most often the newly insured population gained coverage through Medi-Cal, the state’s Medicaid program (25 percent of newly insured), and 9 percent of the newly insured gained coverage through the state’s marketplace.
(Source: DiJulio, Bianca, Firth, Jamie, Levitt, Larry, Claxton, Gary, Garfield, Rachel, and Brodie, Mollyann. Kaiser Family Foundation, “Where are California’s Uninsured Now? Wave 2 of the Kaiser Family Foundation California Longitudinal Panel Survey, July 30, 2014; California Department of Insurance, “Analysis of 2014 Individual Market Health Insurance Rates Compared to Rates in 2013,” July 28, 2014)
Developers making smart contact lenses to monitor blood-glucose levels
Novartis and Google are working together to develop a smart contact lens designed to monitor blood-glucose levels while also correcting vision. Currently individuals have to rely on a finger prick test to monitor blood-glucose levels. The smart lens method is more accurate and less invasive. The lens is equipped with a tiny sensor that will analyze the amount of glucose in tears and then relay this information through an antenna. It also has the ability to wirelessly transmit the information to an app on a mobile device. Tears also contain a biomarker, lacryglobin, for breast, colon, lung, prostate and ovarian cancers. Measuring the lacryglobin levels could help to monitor patients in remission. Ultimately this type of technology could help individuals better manage their own health and prevent disease through early detection.
Google wearables to add to planned bioinformatics database
Google will soon start analyzing people’s health through biomarkers found in urine, blood, saliva and tears as part of its Baseline Study Initiative. The Wall Street Journal reported that 175 study participants will wear Google's experimental wearable devices, including its smart contact lens for monitoring glucose levels being developed with Novartis, and will have their biological, molecular and genetic information analyzed. This initial study will be followed by a larger study of thousands of people run in collaboration with Duke and Stanford universities. The goal of the project is to help researchers identify biomarkers to detect diseases such as heart disease and cancer much earlier. According to the article, Stanford and Duke medical schools will monitor and control the use of the anonymized data, it will not be shared with insurance companies and it will be made available to third-party researchers. A team at Google X – the same unit responsible for innovations like the driverless car and the smart contact lens – is running the project.
Anticipating tomorrow's complex issues and new strategies is a challenge. Take the lead with Dbriefs—live webcasts that give you valuable insights on important developments affecting your business. Dbriefs offers live webcasts featuring practical knowledge from Deloitte specialists.
Life at Deloitte
People make Deloitte one of the best places to work. What’s great about the people? That’s an easy answer. They are exceptional. Each person is unique and valued for that, among the best and brightest in the business, and takes pride in his or her achievements and the success of others.