Perspectives

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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. 

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Perspectives

Health Care Current: May 6, 2014

Updating the M&A playbook: Deepening the bench for a “value game”

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.

Updating the M&A playbook: Deepening the bench for a “value game”

My Take

By Terry Hisey, Vice Chairman and U.S. Life Sciences leader, Deloitte LLP 

 

Sports fans of all kinds know that sometimes to become a championship team, coaches need to take a step back, look at the overall value of the team, and focus in on certain areas to deepen strengths and capabilities. The same could be said for a new trend that appears to be happening in the pharma industry. In recent weeks, the front page news for health care has featured headlines of a wide range of merger and acquisition (M&A) deals that have been announced or proposed. The question now is whether this is the start of a new wave of M&A action. And more importantly, could it have a positive – and potentially game-changing – impact not just on the life sciences sector, but also on the transformation of the health care system from one based on volume to one based on value?

In the last round of heavy M&A activity in the early 2000s, pharma companies were generally merging into large, diversified enterprises. But, these recent deals are different: companies are refining the focus of their business as they scale up within particular areas of specialization and exit others. Instead of trying to compete in several games at once, pharma companies are deepening their benches in key areas to help add strength and the ability to play at an elite level in areas where they believe they can excel.

They’re going about this in various ways; some are acquiring or merging with whole companies while others are buying, selling or trading certain business units. But, the aim is the same: they’re concentrating on becoming superstars in their fields, redirecting investments and resources to build on their strengths and letting go of areas that may hold them back.

Why is this happening?

In the U.S. and globally, health care reforms and market forces are accelerating the transformation from a volume-based to a value-based marketplace. Stakeholders are pressing not only for lower prices, but also for clearer evidence of the value from the health care products they buy. Many providers and consumers want innovation to march forward and deliver new products that offer improved clinical outcomes, safety profiles and cost effectiveness. These customers are looking forward to the day when a complete line of pharmaceutical products is available to address the full spectrum of diagnostic and therapeutic stages in every major disease category.

Striving to meet these market demands – while sustaining a viable return on investment – requires tremendous resources and balance between research and development (R&D), production and commercialization capabilities. The recent M&A activity suggests that some companies are betting it may be easier to strike a profitable balance with a more targeted, specialized business strategy. Focusing on a select set of areas may bring operating synergies, new economies of scale, and cost- and knowledge-sharing across similar projects, all of which may contribute to a more substantial product portfolio, better financial profile and a stronger competitive position.

More importantly: Is this a potential “win-win” for the entire health care system?

The efficiencies that pharma companies could achieve if they put a greater focus on their strengths may have some significant and lasting benefits for payers and product users. Manufacturers may be able to pass some of these cost efficiencies through to customers in the form of lower prices and greater flexibility in contracting, while continuing to invest in R&D efforts to expand product portfolios and extend product lines.

But, the real game-changing play could come from a new capacity to provide deeper expertise regarding expected treatment costs and outcomes for particular patient populations and a better understanding about which products might work best for particular patients: population health at a personalized level. As pharma companies develop deeper expertise around a fuller set of diagnostic and therapeutic approaches for a particular disease category, they are likely to be in a better position to collaborate with providers, health plans and government programs looking for better ways to measure and manage the health care needs of particular patient populations. And, as a result, we could see more partnerships emerge as pharma companies work with health care providers and health plans to exchange access to patient population data.

Additional investment in specific therapeutic areas could give pharma companies the opportunity to get more involved in population health and disease management initiatives. Could we be looking at a future when pharma companies offer access to a portfolio of products for a fixed price that would then be used at the discretion of the purchaser? Purchasers, especially accountable care organizations, might find this arrangement appealing―what is currently a variable cost would become fixed in some sense. Careful consideration would need to go into how financial risk would be shared and how treatment incentives would be affected, but this collaborative effort could move everyone closer to offering truly patient-centric care by focusing on identifying the best medicine for a particular patient from a medicine cabinet stocked with products that deliver high value.

As pharma companies take a look at their playbooks and update their game strategies, we’ll have to see how many choose to deepen their benches and specialize in targeted areas. At this moment, all signs are pointing to some exciting moves that may enhance our position around access, quality, and cost and bring us closer to achieving the ultimate goal of improving patient outcomes for a healthier population.

Email | Deloitte.com

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Implementation & Adoption

HIX enrollment for first open enrollment season totaled 8 million; 28 percent young adults

Last Thursday, May 1, the U.S. Department of Health and Human Services (HHS) released health insurance exchange (HIX) enrollment figures through April 19 for the federally-facilitated (FFM) and state-based HIXs. As the Administration reported earlier in April, total enrollment for the open enrollment period through this date reached more than 8 million individuals. Other figures and demographic characteristics of the enrollees changed only slightly from the previous report:

  • Age: 28 percent of enrollees are age 18 to 34. During the last month of open enrollment, the cumulative total of young adults that selected a plan increased 109 percent after March 1 (from 1.1 million to 2.2 million). Enrollment in all other age groups increased 82 percent during the same time period.
  • Gender: 54 percent are female and 46 percent are male.
  • Metal-level selection: Silver-level plans are the most popular, with 65 percent of enrollees selecting these plans. 20 percent of enrollees selected a bronze-level plan.
  • Plan selection with financial assistance: This number increased slightly over the last month of enrollment, reaching 85 percent by the end of the period.
  • Ethnicity: Individuals enrolling in the FFM had the option of reporting race and ethnicity on their enrollment applications; 31.1 percent of the enrollees in the FFM selected “unknown or other” for this category. More highlights:

These numbers varied from state-to-state. For example, Texas (33.6 percent), New Mexico (31.1 percent), Arizona (24.2 percent) and Florida (19.2 percent) had higher rates of Latino enrollment than other non-border states, reflecting the greater prevalence in these states.

  • Insurance coverage at the time of enrollment: Of the 5 million individuals who applied for and selected a plan in the FFM, 13 percent indicated they had coverage at the time of enrollment.

The report indicated that CMS does not have data about how many enrollees have paid premiums yet, but that some insurers are reporting as much as 90 percent of plan enrollees have paid their first month’s premium. Between the state-based and FFM, there were 98 million visits to websites and 33 million calls to call centers throughout open enrollment. In addition to the HIX enrollment, nearly 5 million people have enrolled in Medicaid.

For a snapshot view of the final enrollment data and what uncertainties the health care industry could face, see the infographic: No time to slow down: Looking ahead to 2015 HIX open enrollment

Related: According to the Washington Post, 77,000 families and individuals have applied for exemptions to the individual mandate. As of April 20, more than 43,000 individuals had received exemptions to the mandate, as no applications have been denied. More individuals are likely to be given exemptions, as this number only accounts for 26,000 of the applications. Also, the Robert Wood Johnson Foundation reviewed spending for the HIXs to reveal that the federal government distributed $67 million to states through the FFM and two partnership states for navigator funding. The researchers also found that the state-based HIXs accounted for 50 percent of total consumer assistance funds that were spent, despite only having 31 percent of the uninsured population in these states. State-based HIXs spent more per person than the federal government: $17.15 per uninsured individual in the state HIX compared to $5.42 per uninsured person in the FFMs.

(Sources: HHS “Health Insurance Marketplace: Summary Enrollment Report for the Initial Annual Open Enrollment Period,” May 1, 2014; Polsky, Daniel E., Weiner, Janet, Colameco, Christopher, and Becker, Nora. Leonard Davis Institute of Health Economics and the Robert Wood Johnson Foundation, “Deciphering the Data: State-Based Marketplaces Spent Heavily to Help Enroll Consumers,” April, 2014)

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Administration releases updated spending report; attributes sharp growth in health care spend to increased health insurance coverage

Last week, the Bureau of Economic Analysis released data that indicates that health care spending grew 5.6 percent in the last quarter of 2013 and 9.9 percent during the first quarter of 2014. This is despite the fact that U.S. gross domestic product grew 0.1 percent during the first quarter. While health care saw large growth during the first quarter of the year, consumer spending on food and accommodations fell for the first time in four years, possibly explaining the slow growth overall. The Administration has attributed this and the sharp increase in utilities spending to the “unusually severe winter weather” the U.S. saw over the first three months of 2014. In addition, the Administration attributes the large growth in health care spending to greater use of health care services by those who gained insurance coverage during the first quarter, and posits that this spending increase will stop once coverage stabilizes at a new level. Health care prices grew more slowly at 0.5 percent during the first quarter.

(Source: U.S. Department of Commerce, Bureau of Economic Analysis. “National Economic Accounts,” April, 2014. http://www.bea.gov/national/txt/dpga.txt)

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Federation of State Medical Boards adopts new guidelines for appropriate use of telemedicine

Last month, the Federation of State Medical Boards (FSMB) Appropriate Regulation of Telemedicine (SMART) Workgroup approved new guidelines for use of telemedicine in patient care. While these guidelines were approved by FSMB, they may be adopted as is, modified, or not adopted by the 70 state and territorial state medical licensing boards. Of note:

  • Establishing the physician-patient relationship: Physicians should establish and maintain a physician-patient relationship throughout the course of using telemedicine for care. This includes verifying and authenticating the location and identity of the patient, disclosing his or her identity and credentials to the patient, and obtaining consent from the patient. According to the guidelines, physicians have not satisfied the physician-patient relationship if the patient has not been identified. Lastly, if appropriate, a patient should have the freedom to select the physician from which he or she receives care via telemedicine services.
  • Continuity of care: With relative ease, patients should be able to seek follow-up care or information from the physician from which they received care via telemedicine services.
  • Privacy and security of patient records: Physicians should meet or exceed any requirements from state or federal entities regarding the use and treatment of medical and health information. This includes applicable provisions of the Health Insurance Portability and Accountability Act (HIPAA) and the Standards for Privacy of Individually Identifiable Health Information issued by HHS.

The guidelines also include a definition of telemedicine, which FSMB indicates does not include audio-only, telephone, email/instant messaging or fax conversations. According to the report, telemedicine typically involves the use of secure videoconferencing or “store and forward” technology where a conversation is recorded via video and sent to the patient.

Reaction: The American Telemedicine Association issued comments to the proposed guidelines on April 22, requesting several updates be made. The group has concerns with the definition of telemedicine not including phone or email consultations and the licensure language, as it could prohibit state medical boards from entering relationships with states or regions and is in conflict with federal policy for treating members of the military.

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Study: top 10 conditions contribute to most readmissions and related hospital costs regardless of payer

The Agency for Healthcare Research and Quality (AHRQ) released a statistical brief this last month that examined hospital readmissions in the Medicare and Medicaid populations. Researchers reviewed the top medical conditions that contributed to the most number of readmissions. Highlights include:

In 2011, approximately 3.3 million adults in the U.S. were readmitted to hospitals within 30 days of their original admission, and total readmissions accounted for $41.3 billion in hospital costs. Of all readmissions, 55.9 percent were in the Medicare program, 20.6 percent in Medicaid, 18.6 percent in the private insurance market and 4.9 percent in the uninsured market. The study estimates are based on a readmissions analysis from the Healthcare Cost and Utilization Project (HCUP) State Inpatient Databases (SID), which accounts for readmissions data in 18 states.

(Source: Hines, Anika L., Barrett, Marguerite L., Jiang, H. Joanna, and Steiner, Claudia A. Healthcare Cost and Utilization Project (HCUP), “Conditions with the Largest Number of Adult Hospital Readmissions by Payer, 2011,” April 2014)

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On the Hill & In the Courts

CMS issues a collection of proposed payment rules

Last week, CMS released a collection of proposed rules that make updates to Medicare payment rates for inpatient prospective payment system (IPPS), long-term care hospitals prospective payment system (LTCH PPS), skilled nursing facilities, inpatient rehabilitation facilities, inpatient psychiatric hospital facilities and hospice facilities. Of note:

  • Proposed changes to IPPS payment rates: The IPPS payment rates would be increased by 1.3 percent. The rule also proposes making updates to labor market areas to account for population shifts in the market and conforming to changes that were made in the Protecting Access to Medicare Act of 2014 (extending temporary changes to low-volume hospital payment adjustments for an extra year and extending the Medicare Dependent Hospital program through March 31, 2015).
  • Proposed changes to LTCH PPS payment rates: CMS is proposing to increase payments for LTCH by 0.8 percent. The proposal also includes changes that would affect the 25-percent patient threshold policy.
  • Skilled nursing facilities: These facilities would see an increase of 2 percent in their Medicare payments, amounting to approximately $750 million in additional payments.
  • Inpatient rehabilitation facilities: These facilities would see a 2.2 percent increase in payments from Medicare ($160 million).
  • Psychiatric hospitals: Inpatient facilities would receive approximately a 2 percent increase in their 2015 payments—2.1 percent for those in urban areas and 1.9 percent for those in rural areas over 2014 payments. This amounts to approximately $100 million more than the 2014 fiscal year for the 1,626 facilities that serve patients.
  • Hospice facilities: CMS would increase payments to these facilities by 1.3 percent ($230 million) for fiscal year 2015.

CMS also proposed updated measures and financial incentives for the Hospital-Acquired Condition Reduction Program, Hospital Value-Based Purchasing Program and Hospital Readmissions Reduction Program. In addition, it includes proposed changes to the measures used in the Hospital Inpatient Quality (IQR) Program and aligning reporting and submission timelines for clinical quality measures for the Medicare Electronic Health Record Incentive Program with the IQR Program.

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ICD-10 deadline set for October 1, 2015

Thursday evening, CMS issued a statement in reaction to the delay of the ICD-10 deadline. In the statement, CMS indicated that HHS will release an interim final rule “in the near future” that will update the compliance date for ICD-10 to October 1, 2015. In addition, the rule will require HIPAA-covered entities to use the ICD-9 code set through the end of September 2015. The IPPS rule included language indicating that the new deadline for compliance was set at October 1, 2015. CMS did not issue a statement until the next day clarifying that this was the final deadline the agency would enact.

Related: According to a survey of 1,250 health care professionals during the “What’s next for ICD-10?” Live from the Center webinar, 59 percent of respondents expect to either lose momentum or get off track as a result of the ICD-10 delay; only 11 percent expect to see no impact on their business. For more information on the results of the survey, 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.

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Around the Country

Kentucky, South Dakota extend non-compliant health insurance plans

In the last two weeks, Kentucky and South Dakota approved policies that will allow plans that are not compliant with ACA standards to continue offering health insurance policies in their respective states. Non-compliant plans are not required to enforce key ACA provisions, including essential health benefits. In South Dakota, the State Division of Insurance will allow insurers to renew existing non-compliant plans on or before October 1, 2016 for individuals and group plans with 51 to 100 employees. According to state officials, allowing insurers to renew their existing plans will benefit more than 83,000 individuals and yield $70 million dollars in savings over two years. Similarly, the Kentucky Department of Insurance will allow non-compliant policies to be extended through October 1, 2017 rather than the original deadline of October 1, 2016. Insurers have until May 5 to notify the state that if they are extending policies.

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RWJF report advocates for patient safety and quality policy to prevent diagnosis error

Last month, the Robert Wood Johnson Foundation released a report exploring the impact of diagnosis errors on disability and death. Defined in the report as a wrong, missed or delayed diagnosis, diagnosis errors impact an estimated 12 million individuals in the U.S annually. According to the authors, medical misdiagnosis can be caused by three main errors: cognitive bias (the breakdown of cognitive functioning leading to mistakes by clinicians), system errors (processes, procedures, handoffs, communication, etc. are all areas that could cause these errors) and no fault (this accounts for 10 percent, and most commonly means a patient has uncommon or rare symptoms or disease). The report suggests policy initiatives to reduce diagnosis errors should include:

  • Enhanced research promoting particular causes of diagnosis errors and improving systems for preventing error and harm
  • Improved obligations on behalf of participants in Medicare such as hospitals and other facilities; organizations participating in the Medicare Shared Saving Program could also provide best practices
  • Expanded efforts through the Partnership for Patients initiative, which relies on health professionals, employers, patients, advocates and private and government payers as partners; patient safety organizations should also be reviewed and assessed for effectiveness
  • Follow-up and feedback from patients
  • Improvements to electronic health records so that up-coding occurs less often
  • Payment, medical education and fundamental medical malpractice reform

Related: Approximately 12 million U.S. adults are estimated to be affected by outpatient diagnostic errors, according to an observational study of clinic-based populations that examined doctor’s visits in three previous studies and combined the data together to look for diagnostic errors. This equates to at least one in every 20 U.S. adults.

(Sources: Bereson R., Updadhyay D., and Kaye D. Robert Wood Johnson Foundation, “Placing Diagnosis Errors on the Policy Agenda,” April, 2014; Singh, Hardeep, Meyer, Ashley N.D., and Thomas, Eric J. BMJ Quality & Safety, “The Frequency of Diagnostic Errors in Outpatient Care: Estimations from Three Large Observational Studies Involving U.S. Adult Populations,” April 17, 2014)

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Washington issues provider network adequacy standards for insurers in the state

Washington State Insurance Commissioner Mike Kreidler announced a new rule that requires health insurers offering coverage both inside and outside of the state-based HIX to meet certain provider network standards. The Office of the Insurance Commissioner will evaluate networks when health plans are filed and changes are made to ensure that the plans:

  • Provide an “adequate” number of providers and facilities that could provide services covered by a plan without “unreasonable delay”
  • Allow access to care “within the closest reasonable proximity of the enrollee in a timely manner appropriate for the enrollee's health needs.”
  • Include an adequate number and type of essential community providers (as listed on the CMS Non-Exhaustive List of Essential Community Providers) for medically-underserved or low-income individuals

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Breaking Boundaries

CDC program targets DNA sequencing to identify deadly bacteria and virus outbreaks

In order to find and stop deadly infectious disease outbreaks in the U.S., scientists are now using DNA sequencing to identify deadly bacteria and viruses, including foodborne illnesses. Genome sequencing and mapping have been staples in medical research, but the Centers for Disease Control and Prevention (CDC) is beginning to use advanced molecular technologies routinely in public health laboratories, enabling effective and faster identification and prevention of infectious disease outbreaks. The program, the Advanced Molecular Detection (AMD) and Response to Infectious Disease Outbreaks, was first granted $30 million during FY2014; the FY2015 President’s budget included a $30 million request in budget authority to continue funding. The initial target for AMD is listeria, the third leading cause of death from major foodborne germs in the U.S. that affects approximately 1,600 individuals annually. By using genome sequencing at the national and state level, the CDC hopes to help solve outbreaks faster. This is the first time DNA sequencing technologies will be used for routine disease surveillance with the goal of improving public health.

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Boston Children’s Hospital uses predictive modeling system to assess patient risk in the ICU

The Boston Children’s Hospital is using predictive analytics to help with patient care in its intensive care unit (ICU). The system forecasts changes in a patient’s condition and allows practitioners to catch issues before they worsen. The Stability Index, developed in partnership with Etiometry, uses predictive modeling by leveraging mathematical equations to quickly analyze a set of data to then project an outcome. It takes in clinical data from dozens of hospital monitors that track heart and respiratory rates and other vital signs to assess potential medical risks. The Stability Index’s information is then transferred to computer screens that physicians at the hospital use for risk assessment in the cardiac ICU. This visualization software, T3 (Tracking, Trajectory and Triggering), allows physicians to see a single view of the patient’s vital signs, instead of having to look across many different monitors and screens.

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