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Health Care Current: October 29, 2013

Health plans: Are you ready to retail?

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.

Health plans: Are you ready to retail?

My Take

By Paul Lambdin, Director, Health Plans, Sector Solution Leader for Retail Services and Health Insurance Exchanges, Deloitte Consulting LLP

 

It’s a challenging time for health plans as the Affordable Care Act (ACA) hits the industry full throttle. The good news in such a sea of market and regulatory changes is that when a beacon emerges on the horizon―something certain, significant and pure―it typically drives focus and positive energy.

Health plans have entered the age of the consumer. And now the overriding question for the industry is, “Are you ready to retail?” Health plans’ business-to-business (B2B) competencies of sales and delivery to group health insurance purchasers (e.g. employers) will remain at the core because those clients control the bulk of opportunity for much of the industry. But it also seems the need for health plans to have a robust business-to-consumer (B2C) toolkit has reached a tipping point.

So, what constitutes this retail megatrend?

The industry has talked about the growth of consumer directed health plans (CDHPs), along with health savings accounts (HSA) and health reimbursement accounts to give consumers “skin in the game,” in employer-sponsored insurance (ESI) for about fifteen years. The number of firms offering high deductible health plans (HDHP) or HSA-qualified HDHPs has grown from 4 percent to 31 percent between 2005 and 2013.1Greater consumer demand for access to information has driven health plans to invest in transparency tools related to the cost of services, as well as tools that enable consumers to better evaluate the best treatment paths and to get a sense of the quality of care that can be expected from providers and/or institutions. CDHP, in many respects, began a movement of consumerism as a fledgling, silo product―one that did not upset insurers’ B2B view of the world and one that could not alter the fundamental investment priorities of the legacy health plans business.

Simultaneous to the CDHP movement, Medicare Advantage (MA) began to drive revenue and profit for many health plans. As the commercial individual market remained relatively small, one can argue that it is in the MA arena―with no employer middle man―that the health plans began to develop B2C chops.

Now we add two more significant phenomena. The first is employers’ interest in defined contribution. The ACA defines a standard for minimum coverage and affordability (based on contributions to employees and dependent children, not spouses) ― raising the question of whether this standard will become the basis for defined contribution. As the private health insurance exchanges (HIXs) gain momentum, we could expect that many consumers will use enrollment and shopping tools to make more appropriate decisions on how to spend their employer contribution. This “new model” targets the heart of the ESI, which remains the principal driver in the health plan business. Whether proactive or defensive, every health plan should have a strategy to address burgeoning interest in the defined contribution / private HIX space.

And last but not least: public HIXs. This new market opportunity, largely comprised of previously uninsured populations, heard the starting gun on October 1 for the inaugural open enrollment season. I’ve been fascinated by the initial reports of consumer reaction to the public exchanges. Some of the discussion has focused on the design of various websites and the understanding of consumers and their preferences, behaviors and desires when it comes to making purchasing decisions. Some websites got it; some not so much. Many consumers use websites to build an understanding and to begin the evaluation of alternatives, so a well-designed website welcomes the consumer to learn and browse while minimizing commitment or hassle. Some individuals will prefer to purchase online, while others will go in person to get advice and gain assistance with the administrative steps before they purchase. Technology glitches can and will eventually be resolved, but the focus should be on delivering the right experience to different segments of the consumer population―one size will not fit all. HIXs and health plans that understand this view of the consumer will likely be the winners.

Estimates of the enrollment for the public HIX market vary widely, but health plans, whether taking an “all in” or “toe in the water” approach, recognize the potential, despite the possible decline in ESI linked to that same potential. Many health plans recognize that this is a pure B2C strategy that demands the ability to understand, reach, enroll and retain what will be an increasingly selective and informed health insurance customer.

So, what’s the recap? Health plans are faced with an imperative to focus on the consumer amidst continued growth of CDHP and MA, momentum gained from private HIXs and the potential play of the individual public HIX market. Most of us can agree with that, so it begs the question, “Are you ready to retail?”

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1Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2005-2013, “Among Firms Offering Health Benefits, Percentage That Offer an HDHP/HRA and/or an HSA-Qualified HDHP, 2005-2013,” 2013

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Implementation & Adoption

CMS finalizes QHP calculations in HIX rule

Thursday, the Centers for Medicare and Medicaid Services (CMS) released a 236-page final rule making amendments to 2014 Notice of Benefit and Payment Parameters and finalizing policies on HIX financial integrity and ACA premium stabilization programs (i.e. risk adjustment, reinsurance and risk corridors). It also establishes additional standards for special enrollment periods, survey vendors that may conduct enrollee satisfaction surveys on behalf of qualified health plan (QHP) issuers and issuer participation in a federally-facilitated exchange (FFE). The ruling makes amendments to definitions and standards related to the market reform rules. Most provisions included in the rule are effective beginning January 1, 2014. Highlights:

  • QHP cost-sharing: increases the time period for issuing refunds from 30 days to 45 days after discovery of the error; a QHP issuer may provide the refund by applying the total excess cost sharing paid by or for the enrollee to the enrollee’s portion of the premium for the remainder of the period of enrollment or benefit year until the excess is fully applied, except that the issuer must refund the enrollee within 45 days of an enrollee’s request
  • Reinsurance: clarifies that when the state makes public a summary of the results of an external audit, including any weakness or significant deficiency, it must also make public how it intends to correct the problem as specified by U.S. Department of Health and Human Services (HHS)
  • Risk adjustment method: modifies the Allowable Rating Factor formula to accommodate community-rated states that utilize family tier rating factors; in non-family tier rating states, family policy premiums must be developed by adding up the applicable rates of each individual covered under the policy
  • Default risk adjustment charge: maintains that CMS will not adopt the previously proposed approach to determine per member per month amount used to calculate the default risk charge at this time and may propose that methodology in future rulemaking
  • Advance premium tax credits: increases the time period for notifying the enrollee of the improper application of the advance payment of the premium tax credit and issuing refunds from 30 days to 45 days
  • Exchange program integrity: mandates that a state make public a summary of the results of any external financial audit

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Study shows increase in insurance coverage results in increased outpatient visits

A study published last Tuesday concluded that, while expanding health insurance coverage under the ACA is likely to increase use of outpatient services such as primary care, it may not decrease emergency room (ER) volumes. University of Michigan researchers performed a study using data from the National Ambulatory Medical Care Survey and the National Hospital Ambulatory Medical Care Survey in the years before and after the launch of the Children’s Health Insurance Program (CHIP), concentrating on adolescents aged 11-18 and young adults aged 19-29. The study found that the number of adolescent outpatient clinical visits increased significantly after the implementation of CHIP, while the number of ER visits in the adolescent population remained unchanged. By contrast, for young adults who could not enroll in CHIP, there was no rise in outpatient clinical visits, but rather an increase in the number of ER visits. These results could be a harbinger for what is to come as a result of the Medicaid expansion and the ACA individual mandate, which are effective starting January 1, 2014, as both provisions will provide health insurance coverage to a large portion of the currently uninsured population.

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New legislation intended to repeal SGR garners limited support

The U.S. Senate Finance Committee has drafted legislation to replace the Sustainable Growth Rate (SGR) formula, which sets Medicare provider reimbursement rates for health care services and the Congressional Budget Office (CBO) is currently scoring the Senate version of the bill. CBO previously estimated the cost of a separate SGR replacement bill drafted by the House Energy and Commerce (E&C) Committee to be $175 billion over 10 years. The cost of an SGR replacement is a point of contention for many wavering lawmakers; an alternative option to replacing the formula is freezing current SGR rates which would cost $138 billon according to CBO estimates. Representatives Bill Flores (R-TX) and Dan Maffei (D-NY) are leading the way in gathering support for repealing the SGR by urging fellow House members to sign a letter pledging their support. The letter notes that, according to the American Medical Association, short-term legislative fixes to the current SGR formula have cost a total of $146 billion over the past 10 years; more than repealing and replacing it.

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States receive more grants for HIX

Last Wednesday, CMS announced an additional $146.1 million in HIX grants to five states and the District of Columbia (D.C.). The grants will go mostly towards consumer outreach efforts and technology enhancements.

  • Arkansas: establishment grant level one; $10.6 million
  • Connecticut: establishment grant level two; $20.3 million
  • Idaho: establishment grant level one; $48.5 million
  • Iowa: establishment grant level one; $17.5 million
  • Rhode Island: establishment grant level one; $15.3 million
  • D.C.: establishment grant level one; $34.4 million

Note: “States can choose when to apply for grant funding based on their needs and planned expenditures. States can apply for multi-year funding, known as level two establishment grants. States that are making progress in establishing a Marketplace through a step-by-step approach can apply for funding for each project year, known as level one establishment grants”

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On the Hill & In the Courts

Judge allows ACA lawsuit on subsidies to proceed but denies injunction

Last Tuesday, U.S. District Judge Paul Friedman ruled that he will allow a case challenging the use of subsidies on FFEs (Halbig v. Sebelius), but denied granting a preliminary injunction which would block the use of subsidies while the case proceeds. The plaintiffs, several small businesses and individuals from Virginia, West Virginia, Texas, Missouri, Kansas and Tennessee, contend that the federal tax subsidies were not intended for individuals buying health insurance on federal HIXs and should only apply to states that established their own HIX. They also argue the subsidies are unconstitutional as it would force them to buy health insurance and deny them the low-income exemption that would allow them to forgo health insurance coverage.

Judge Friedman declared that a ruling on the case would be made by February 15, 2014, the date by which individuals are required to purchase insurance or face a fine under the ACA. There have been several conflicting media reports regarding a possible delay in the final day to enroll in coverage before a fine is assessed, but the Administration has not made any official delay announcement. Similar lawsuits are pending in Oklahoma and Indiana.

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HHS Secretary to testify next week on HIX glitches

HHS Secretary Kathleen Sebelius will testify in front of the House Energy and Commerce (E & C) Committee on Wednesday regarding the ACA enrollment website. Secretary Sebelius declined to testify last week at an E & C Committee hearing that featured contractors for the HHS website, Healthcare.gov. In a hearing announcement last week, the Committee stated the purpose of the hearings is to investigate the “significant system failures” of ACA enrollment since its October 1 launch date, specifically “who is responsible for them and when or if the administration recognized the challenges that lay ahead”.

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New FDA agreement between opioid patients and physicians gets mixed reaction from safety advocates

The U.S. Food and Drug Administration (FDA) is developing a Patient/Prescriber Agreement (PPA) to encourage opioid prescribers to facilitate more conversations with their patients regarding appropriate opioid treatment and will be launched as a pilot later this year. The PPA is part of the FDA’s Safe Usage Initiative (SUI), collaboration between public and private health care organizations and agencies with the goal of reducing preventable harm and increasing safe medication usage. The PPA will be piloted later this year and according to the agency, would include new information that differs from existing patient agreement documents. However, some safety advocates have suggested the FDA focus on amending product labels and updating Risk Evaluation and Mitigation Strategies to promote safety and deter abuse and misuse of opioids. Organizations participating in the agency’s SUI include the U.S. Centers for Disease Control and Prevention, U.S. Department of Veterans Affairs (VA), National Institutes of Health (NIH), Substance Abuse and Mental Health Administration, Center for Plain Language, American College of Physicians, American Society of Anesthesiologists, American Pain Foundation, Federation of State Medical Boards, patient groups and many more.

“Although the FDA’s PPA is not a silver bullet that will solve all the issues conditions that contribute to the devastating prescription drug abuse epidemic in America, it is one step that may prove to be moving the issue in the right direction. The surge of drug abuse and addiction does not have a singular cause and therefore cannot have a single solution, nor can any one segment of the health care community be solely responsible curtailing this epidemic.  

This proposed voluntary program is supported by many federal and state government organizations, as well as, health care organizations and patient advocacy groups. As envisioned, it is intended to encourage conversations between prescribers of abusable controlled substances and their patients. Critics might point out that those physicians who may be overprescribing medications and patients that are “doctor shopping” or looking for prescription drugs to abuse would not participate. While they might be correct about that, heightened awareness by physicians and conversations with their patients might just cause some second thoughts.

The FDA and other federal and state regulatory agencies are expected to do more related to this matter. Making addictive drugs more difficult to obtain through a review of the controlled substance schedule and enhanced use of advanced data analytics of the prescription writing patterns by physicians and prescription filling patterns at pharmacies may also be part of the solution.”―Mike Little, Senior Manager, Financial Advisory, Deloitte FAS LLP

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FDA finalizes mobile medical app guidance

Thursday, FDA released the final version of its medical mobile application (app) guidance, with no notable updates from the draft the agency released at the end of September (see article from October 1, 2013 Health Care Current). An app is considered to be a “medical mobile” app if it is used as an accessory to a regulated medical device, or if it is used to transform a mobile platform into a regulated medical device. The guidance provides clarification concerning the subset of medical mobile apps that are the focus of FDA regulatory oversight and where the agency intends to exercise enforcement discretion (i.e., choose not to enforce FDA requirements) for manufacturers of medical mobile apps that have been determined to be low risk to consumers. These include:

  • Helping patients self-manage their disease or conditions, even if they do not provide specific treatment or treatment suggestions
  • Providing patients with tools to organize and track their health information
  • Providing access to information related to patients’ health conditions or treatments
  • Helping patients document, show, or communicate potential medical conditions to health care providers
  • Automating simple tasks for health care providers
  • Enabling patients or providers to interact with personal health record or electronic health record systems

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Around the Country

Illinois hospitals reduce adverse events and infections

A new report from the Illinois Hospital Association (IHA) found that 200 Illinois hospitals (95 percent of the state’s hospitals) had reductions in seven out of 10 patient harm categories, preventing 843 instances of patient harm in 2012 and saving $1.8 million compared to the previous year. The highest return on investment was in preventing central line-associated bloodstream infections, saving $7.3 million from 2012 through the first quarter of 2013. The report also noted that even though readmission rates remained constant at 13.8 percent between 2011 and 2012, Illinois hospitals improved their nationwide ranking in overall average readmission penalties, moving from 45th to 40th place. IHA analyzed the following areas for patient harm reduction that often result in readmissions: pressure ulcers, ventilator-associated pneumonia, infant delivery complications, patient falls, central line-associated bloodstream infections, catheter-associated urinary tract infections, surgical-site infections, adverse drug events.

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Ohio decision of Medicaid expansion now pending

The Controlling Board of Ohio voted (5-2) to approve the expansion of the state’s Medicaid program with the support of Governor John Kasich (R-OH), after the expansion failed to gain approval from the state legislature. The legality of the board’s approval of the Medicaid expansion is being questioned by majority legislature in the House, claiming that the board’s power to approve is against the Ohio Constitution and statutory law. A lawsuit is expected from opponents challenging the board’s vote. If the board’s decision is upheld, Ohio would become the 26th state (including D.C.) to participate in the expansion, making 300,000 residents of the state’s uninsured individuals eligible for Medicaid on January 1st.

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Oregon hospital pilots a program that coordinates psychologists and primary care visits

The St. Charles Health System in Bend, Oregon recently launched a pilot program that coordinates Medicaid beneficiaries’ primary care doctor visits with a psychologist to occur in the same visit. The program is based on the association between physical and mental health and attempts to treat both simultaneously. The pilot also aims to reduce the stigma associated with seeing a mental health provider and to decrease the barriers that exist after a primary care physician’s referral to a psychologist, prevent patients from delaying mental health care attention needed. Roughly 400 Medicaid patients have been treated by mental health providers at St. Charles over the past two years, saving an average of $850 per patient annually. Several other health systems in Oregon, in addition to Massachusetts and Colorado, are testing this approach.

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Breaking Boundaries

Illinois and Michigan collaborate to create a cloud-based Medicaid Management Information System

Illinois and Michigan are the first two states to form a partnership to share a cloud-based information technology (IT) system to replace their current Medicaid IT system, saving both states millions of dollars. This collaboration, known as the Illinois Michigan Program Alliance for Core Technology (IMPACT) project, is the first Medicaid management information system (MMIS) where two states will utilize the same system for separate Medicaid programs while operation costs are split evenly. Under the agreement, the cloud-based MMIS will be maintained by Michigan, saving Illinois $10 million upfront and roughly $57 million over the next five years. The federal government, which is funding 90 percent of the system’s cost, will also benefit by saving $76 million in startup costs and another $196 million in operating costs over a five year span. The first phase of implementation will begin in March 2014 and the system is scheduled to be fully functioning by the end of 2015. This collaboration has opened doors for other states to create regional or centralized MMIS models.

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NSF awards multi-year grants to health care robot projects

Friday, the National Science Foundation (NSF), in partnership with the NIH, U.S. Department of Agriculture and NASA announced the second round of funding awards made through the National Robotics Initiative (NRI). NSF will provide $38 million in funds to 30 new projects to advance the use of robotics in several industries. The following notable health care projects will receive a total of $2.4 million over the next five years:

  • Co-Robotic Navigation Aid for the Visually Impaired: development of a co-robotic cane for the visually impaired with enhanced navigation capabilities and that can relay critical information about the environment to its user. The cane would use visual computer images to recognize indoor structures such as stairways and doors and detect obstacles.
  • MRI-Guided Co-Robotic Active Catheter: development of a co-robotic catheter that uses robotic planning strategies to compensate for physiological movements of the heart and blood and that can be used while a patient undergoes an image testing. The catheter aims to increase the accuracy and repeatability of atrial fibrillation procedures.
  • Novel Platform for Rapid Exploration of Robotic Ankle Exoskeleton Control: development of an experimental platform for an assistive ankle robot to be used in patients recovering from stroke. The platform will allow researchers to test robotic control methods and to compare them based on measurable physiological outcomes.

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Paul Lambdin

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Director | Life Sciences & Health Care

Paul Lambdin is the Insurance Exchanges and Retail...More

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