Health Care Current: February 4, 2014

Medicaid and its possible recipes for expansion

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.

There's more than one way to cook an egg: Medicaid and its possible recipes for expansion

On the weekends, when I have a few extra minutes to spend on my morning breakfast, one of my favorite things to do is try my hand at new recipes. While many people have their favorites, I like finding new ways to incorporate eggs into my diet. And, as any good cook knows, there are many different ways to cook an egg—scrambled hard with bacon, over-easy and paired with Hollandaise sauce or even fried and topped with cheese and salsa.

It seems the states have a similar concept in mind when considering the different possibilities for Medicaid expansion. And, some of these states are considering the unique levers which they can pull to improve health outcomes and encourage greater self-sufficiency through the program. While the Affordable Care Act (ACA) defined one way that states could expand their Medicaid program to reach a greater percent of the population, several states are attempting unique approaches to the Medicaid expansion equation.

Specifically, three states—Arkansas, Iowa and Pennsylvania—have submitted alternative Medicaid expansion plans. These states have proposed using federal funding to allow Medicaid-eligible individuals to purchase plans on health insurance exchanges (HIXs). Individuals in these states would be in traditional plans with other folks who are commercially shopping.

This could help people down the path to improved health and greater self-sufficiency by allowing them to retain the same plan but pay different premiums as their financial circumstances change. For example, in some cases, an individual who is at 125 percent of the federal poverty level (FPL) shops on the exchange could receive a full subsidy through Medicaid, then, when they move to 150 percent of the FPL, they could use that same plan and get an advanced premium tax credit. Finally, when they move to 400 percent of the FPL they would pay the full premium.

Another recipe for Medicaid expansion comes with states factoring personal accountability into their programs. In these cases, states are attempting to encourage behavior change among enrollees and to shift their mindset to a more primary care/preventative care model. Through the addition of cost-sharing, health savings accounts and other personal accountability requirements—either work- or wellness-based—states are hoping to attract greater participation among Medicaid enrollees.

Ideally, those who actively participate in an accountability-based program would have better health outcomes and, as a result, states would see lower costs in their program. If some enrollees in these states don’t follow the lead, eventually, might the Centers for Medicare and Medicaid Services (CMS) be persuaded to allow a state to drop coverage for those individuals? While this would require a change in legislation, it’s not outside the realm of what other governmental programs require of their participants; many government financial assistance programs require employment searches as a condition of continued enrollment and receipt of benefits.

Key questions out of these new approaches are likely to be: once new enrollees have health insurance, will their traditional behaviors change? Can enrollees be persuaded to take their medications as prescribed, stop going to the emergency department for minor ailments and begin exercising and eating better?

If not, states will continue to face financial challenges. They may not be able to change the end result: poor health care outcomes that increase hospital usage. As these states try their hand at new approaches to the Medicaid program, the rest of the country will be watching to see the final results—will any of these states find a new recipe for success?

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P.S. – For more background on Medicaid expansion, the states that have submitted alternative expansion plans to CMS for approval and activity surrounding the health insurance exchanges, visit the Mapping out health care reform: Activity in the states page.

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My Take

By Jessica Blume, Vice Chairman, U.S. Public Sector Leader, Deloitte LLP



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Implementation & Adoption

CMS delays 'two-midnight' rule until after Sept. 30

Last Friday evening, CMS announced that it would delay the implementation of the inpatient hospital admission and medical review criteria, known as the “two-midnight” rule, until after September 30, 2014. Under the new rule and as was included in the fiscal year (FY) 2014 Hospital Inpatient Prospective Payment System (IPPS) rule, costs for a Medicare patient requiring a two-night hospital stay and admitted as an inpatient will be covered under Medicare Part A.

Conversely, if a Medicare patient needs treatment that requires less than a two-night hospital stay, they will be billed as an outpatient and their costs would be covered under Medicare Part B. Providers argued that there had not been enough time to fully evaluate the new policies, incorporate them into their hospital procedures and inform patients of the changes. In January 2014, Representative Jim Gerlach (R-PA), along with 68 co-sponsors, introduced a bill into the House to delay the bill until FY2015. Medicare administrative contractors (MAC) and recovery auditors were originally set to enforce the new rules for claims beginning on October 1, 2013, but after much opposition from hospital groups and members of Congress, CMS delayed the rule until March 31, 2014. According to the latest announcement, MACs will be permitted to review short stays and deny payment if a stay is found not to be a medical necessity; but they will not conduct post-payment patient reviews of inpatient hospital claims under the two-midnight rule until after September 30, 2014. For more information on the two-midnight rule, see the October 1, 2013 Health Care Current.

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CMS: ACOs generate millions in savings during first year of operation

Last Thursday, CMS announced interim financial results for Accountable Care Organizations (ACOs) participating in the Medicare Shared Savings Program (MSSP) under the ACA. The findings show that 54 of the 114 ACOs that joined Medicare ACO programs in 2012 during the first wave had lower health care spending than originally projected. Of those 54 ACOs, 29 produced shared savings of more than $126 million and generated an additional $128 million in net savings for the Medicare Trust Funds during the first year of operation. While CMS reported large savings for 29 ACOs, the rest failed to either meet targets or reduce spending marginally. ACOs are designed to achieve savings over several years and according to CMS, the first year numbers show that health care savings are on track. Despite overall mixed results, more ACOs have entered the program since 2012, with participation now totaling more than 340.

Jonathan Blum, CMS Principal Deputy Administrator, stated that the performance so far has increased official’s confidence in ACOs and that “the first year was largely expected to be one that required investment and reorganization among ACOs to save money in later years”. Some ACOs did not see savings in the first year, but according to Jonathan Blum, CMS has “built the ACO program for long-term savings.” ACO providers must meet quality performance targets to share in any savings produced and are required to report quality data annually.

Reaction: “Achieving even marginal success as a new ACO requires much more time, resources and change than many organizations can muster in a 12-month period. The successes thus far demonstrate that results gained through effective population health management can be profound, provided you pay attention to the details. And, there are so many details to get right: organizational design, payment/incentive model design, network adequacy and optimization, care model/coordination design, physician and practice transformation, training, coaching and monitoring…just to name a few. Along with the details come many risks: incomplete data, fragmented care delivery, physician resistance, inadequate resources, inexperienced talent and cultural challenges.

The U.S. health care system’s quest for value is a long journey that will take committed stakeholders, institutional focus, extensive resources and unprecedented behavioral change. This news suggests that many ACOs can be encouraged by the fact that fundamentally, the accountable care model can work—if the organizations get the details right.” — Scott Kolesar, Principal & National Value-Based Care Practice Leader, Deloitte Consulting LLP

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DOJ: Medicare fraud taskforce recovers $3.8 billion in 2013

Last week, the U.S. Department of Justice (DOJ) announced that the Medicare Fraud Strike Force (MFSF) set a new record for prosecution of crimes against government health care programs during FY2013. According to the DOJ release, last year the task force recovered nearly $3.8 billion through approximately 137 cases filed, charged 345 individuals, obtained 234 guilty pleas and gained a total of 46 jury trial convictions. The MFSF, established in 2007, has aided in the recovery of more than $5.5 billion. Recent reports indicate that for every dollar spent jointly by the DOJ and the U.S. Department of Health and Human Services (HHS) in fighting fraud, an average of $8 is returned to the federal government. The MFSF operates under the supervision of the Criminal Division and U.S. Attorney’s Offices and consists of coordinated teams of investigators and prosecutors, including the DOJ, HHS and the U.S. Federal Bureau of Investigation. With cost being a significant focus of health care reform, the government, as the nation’s largest health care payor, remains focused on targeting fraud and abuse in the system. Researchers estimate that around 7 percent of national health expenditure is wasted due to fraud and abuse.

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HIX successfully transferring Medicaid applications to half of state Medicaid agencies

On a stakeholder call held last week, CMS told insurers that half of the 36 federally-facilitated HIXs can now successfully transfer Medicaid applications to state Medicaid agencies. During the beginning of open enrollment, technical glitches prevented the website from submitting electronic transfers to state Medicaid agencies and caused serious concerns for both insurers and state agencies. In late November, CMS created a temporary workaround sending states a flat file containing basic information on Medicaid applicants; however, only five states received waivers from CMS to use the flat files to enroll applicants.

Electronic transfers include inbound transfers in which state Medicaid agencies send applicant information to HIXs and outbound transfers in which HIXs sends applicant information to state agencies. The two-way transfer system is part of the ACA’s “no wrong door” strategy to ensure that applicants can determine their eligibility and enrollment through both state agencies and HIX platforms. According to information obtained by InsideHealthPolicy, 18 states are currently able to conduct inbound transfers, while 16 states are able to receive applications through outbound transfers. It is unclear when all 36 states will have full transfer capabilities through all HIXs.

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Report: PCORI urged to amplify CER funding

A recent analysis conducted by the Center for American Progress (CAP) concluded that the Patient-Centered Outcomes Research Institute (PCORI) is falling short on its mission to fund comparative effectiveness research (CER). The CAP report found that less than 40 percent of PCORI’s funding is going toward CER of prevention, diagnosis and treatment options. CAP also notes that PCORI, the independent non-profit organization created under the ACA in 2010, has funded very few studies on pharmaceuticals and has yet to fund CER studies of medical devices.

CER funding is a critical component of the ACA to evaluate health outcomes, clinical effectiveness, risks and benefits of two or more medical interventions. CER aims to provide evidence-based information to improve the efficiency of the health care system. In its report, CAP urges PCORI to amplify their funding to 80 percent going toward CER of prevention, diagnosis and treatment by FY2016 and also invest in CER studies that:

  • Address important gaps in evidence on treatments for common and high-cost conditions
  • Produce actionable results in one to three years
  • Synthesize existing CER studies

Response: On January 24, 2014, PCORI Executive Director Joe Selby released a statement in response to CAP’s report. “Our primary focus is funding comparative CER, studies that compare multiple care options. But more research by itself is not likely to improve clinical decision-making. That’s why our mandate, as outlined in our authorizing legislation, is not just to fund high-quality CER and evidence synthesis, but also to share the results in ways that are relevant and useful to patients, clinicians and others… We’re also charged with improving the methods used in conducting those studies and enhancing our nation’s capacity to do such research. We appreciate the Center for American Progress’ interest in and support of our mission, as we do feedback and input from our stakeholders across the health care community.

But we disagree with CAP’s estimate of the proportion of our research portfolio that is focused on CER. We’ve invested nearly $500 million in research to date… about 62 percent of the primary research studies our Board had approved or awarded have focused on CER, with the rest spread across infrastructure (18 percent), methods (11 percent) and communication and dissemination research (8 percent).” PCORI also noted that their CER investment will significantly increase once their pragmatic studies initiative launches this month.

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Study: HIXs may offer better deals to those with cancelled health plans

A new study released by the Robert Wood Johnson Foundation suggests that most individuals whose non-group health insurance plans were cancelled due to non-compliance with the ACA may find coverage at comparable or lower rates with higher actuarial values through the HIX market. The study analyzed the cheapest bronze-level plans and the silver plans in each state in which subsidies were available. The study focused on an estimated 7.6 million non-group enrollees who are adult, legal residents with incomes high enough that they would not be eligible for Medicaid expansion under the ACA. Key findings:

  • For individuals who qualify for subsidies, it would be difficult to obtain premiums lower than those offered on HIXs when compared to non-compliant ACA plans; HIX plans also cover essential health benefits and cap out-of-pocket costs, benefits that were not offered in cancelled plans.
  • For the premiums of cancelled policies to be lower than those of HIXs, the benefits would have to be more limited or the cost-sharing requirements would have to be higher or the individuals would have to be benefiting substantially from medical underwriting.
  • Consumers that end up paying higher premiums than their previous plans will come out ahead financially when accounting for their previous out-of-pocket expenses.
  • Individuals exposed to the highest unsubsidized premiums on HIXs are the 19.5 percent of adults age 55 to 64 with incomes above 400 percent of the FPL.

Researchers noted that it is difficult to directly compare the premiums that individuals were paying prior to the ACA with the premiums available under the ACA since data collection on a sufficient scale is impractical.

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On the Hill & In the Courts

CBO estimates that SGR replacement bill will cost $121 billion

The Congressional Budget Office (CBO) reported that replacing the Medicare Sustainable Growth Rate (SGR) physician payment formula with the proposed House Ways and Means Committee bill will cost an estimated $121 billion over the span of a decade. The bill, which incorporates three years of 0.5 percent payment cuts, would cost more than the CBO’s prior estimate of an SGR bill freezing pay rates costing $116.5 billion and less than the House Energy and Commerce Committee’s version which includes a 1 percent pay increase scored at $146 billion.

The CBO also officially scored the Senate Finance Committee’s SGR replacement bill containing proposed physician payment freezes. The physician payment provision of the Committee’s bill was scored at $111.5 billion; the entire bill will cost an estimated $150.4 billion after the bill’s other provisions are incorporated.

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Supreme Court allows nuns temporary relief from contraceptive coverage during lawsuit

The U.S. Supreme Court recently granted an injunction that provides temporary reprieve to the Little Sisters of the Poor, a Roman Catholic sect of nuns who operate nursing homes, from providing employer-sponsored contraceptive coverage under the ACA while their lawsuit against the federal government is being considered.

The injunction will stand until the lawsuit is heard by the 10th U.S. Circuit Court of Appeals in Denver. Until then, the exemption allows the nuns and two other religious non-profit organizations to offer employees health plans that do not include coverage of contraceptives, provided they file their own paperwork with HHS stating their religious affiliation and objections to the contraceptive coverage mandate.

Previously, the Administration announced that religious organizations were exempt from this provision of the ACA, but, in conjunction, they were required to fill out a form that would allow a third party company to provide the employees with contraceptive coverage.

However, the plaintiffs had refused to fill out the documentation, contesting that a third party paying for and providing contraceptive coverage violated their conscience. In March, the Supreme Court will hear oral arguments from two cases challenging the legality of the ACA’s requirement for employers who provide group health insurance plans to provide coverage for contraceptives. For more information regarding the ACA challenge see December 3, 2013 Health Care Current.

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Around the Country

Medicaid expansion could save Virginia $1 billion through 2022

According to new estimates released last week, the expansion of Virginia’s Medicaid program would save the state more than originally anticipated. Last Tuesday, Virginia Secretary of Health and Human Resources, William A. Hazel Jr. and state Medicaid officials appeared before a Senate Finance Committee to present new analysis that an estimated $1 billion in savings over the next nine years could be achieved if Virginia opted to expand Medicaid. The new analysis had significantly different findings from one conducted last year that projected savings of $137.5 million through 2022.

The expected cost of covering the nearly 250,000 uninsured Virginians through Medicaid expansion decreased from $1.3 billion according to a report in 2012 to $933 million from this year through 2022. A majority of the cost savings are a result of new evidence from other states that show uninsured enrollees are expected to be healthier and much less costly than other beneficiaries currently enrolled in the program. Furthermore, the analysis also anticipates a significant increase in savings in state funds provided to hospitals for uncompensated care of the uninsured, from $637 million to $1.1 billion. Despite the new analysis, there remains a major division between state legislators pushing for expansion and opponents who are concerned that the federal government may reduce its share of Medicaid match funding for new enrollees in the future.

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Final negotiation talks needed to expedite approval of NY’s $10 billion Medicaid waiver

New York Governor Andrew Cuomo (D) is seeking immediate approval of a pending $10 billion Medicaid waiver adjustment that would allow funds to be used for more primary and alternative care in order to reduce avoidable hospitalizations. The waiver aims to change the way health care is delivered to low-income communities in New York. The application was filed 18 months ago with HHS and since then has undergone negotiations and revisions due to disagreements on how the funds should be used.

The state recently revised its request after HHS concluded that funds could not be used for capital investment, rent subsidies for high-needs patients with mental and physical health issues, regional planning grants, evaluation projects or information technology, among others. According to Governor Cuomo, nearly half of the 227 hospitals in the state are financially distressed and of those, three located in Brooklyn are currently at risk of closing. A delay in the approval of the waiver will further strain hospitals. HHS Secretary Kathleen Sebelius responded to Governor Cuomo’s request in a letter, stating that “a potential agreement” was being drafted but additional meetings are needed to address outstanding issues in order to expedite the process. It was further noted that the waiver was not to be used in place of state and local funding for hospitals.

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Breaking Boundaries

New technology delivers vaccine through patch needle injection

Australian-based company Vaxxas may have found an alternative to the use of needles for vaccination through development of a device known as Nanopatch. This small, square-like patch, used with the aid of an applicator, holds thousands of tiny projections that function with the skin’s immune system. When applied, the projections breach the outer layer of the skin, releasing the vaccine.

The new technology has the potential to improve the delivery of care and effectiveness by reducing a patient’s anxiety and fear, as well as the potential risk of needle injury. The patch could also solve syringe and needle problems with temperature stability. The Nanopatch bypasses the need for a cold chain, a distribution method required to prevent temperature damage in conventional vaccines, since the device uses a dry vaccine that can be stored at 23 degrees Celsius for more than a year without any loss of activity or effectiveness. This is viewed as an improvement for vaccine delivery, especially in developing regions where the requirements for securing cold chains are difficult to uphold and in tropical areas where maintaining ideal temperatures for long periods of time is a challenge.

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Researchers discover alternative method for producing stem cells

A new development from the Brigham and Women's Hospital in Boston and Japan’s Riken Centre for Developmental Biology may enable the production of stem cells in a cheaper, faster and safer manner. Scientists discovered that exposing mice blood cells to an acidic environment shocked the blood cells and transformed them into stem cells known as STAP (stimulus triggered acquisition of pluripotency) cells. This scientific breakthrough in the creation of STAP cells demonstrates that these cells can be transformed without using manipulated DNA or embryonic stem cells, methods with ethical and safety concerns. Researchers are now testing this new method on human blood cells to determine if similar outcomes are achievable. Stem cells can change into various body tissues and regenerate any part of the body; thus, stem cell research is of significant importance in the medical field.

Regenerative tests are currently being conducted on curative procedures using stem cells for diseases of the eyes, heart and brain. However, these traditional research processes can take several months and come with a high cost. The new development is being praised by regenerative medicine experts as a potential game changer because of the expectation of a relatively quick turnaround and cost efficiency.

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