What keeps health system CEOs up at night? | Deloitte US has been added to your bookmarks.
What keeps health system CEOs up at night?
Health Care Current | August 1, 2017
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.
What keeps health system CEOs up at night?
By Steve Burrill, Vice Chairman, US Health Care Providers Leader, Deloitte LLP
Health care is moving at the speed of light, and for many health system CEOs that requires a need for agility to tackle what’s now and what’s next. We recently surveyed 20 CEOs from large health systems across the country to uncover what’s top of mind and how they are moving forward in an uncertain – and sometimes challenging – market.
While none of the key themes emerging from our interviews around funding, value-based care, talent, and technology have really changed since we last spoke with health system CEOs in 2015, the urgency certainly has. Instead of talking about their 10-year plans like they did two years ago, these CEOs are now concerned with what’s happening now, and what might happen with Medicaid tomorrow. Many top concerns are compounded by uncertainty around the new administration, Congress, and the future direction of federal health care policy.
Top concerns among health system CEOs include:
- Preparing for potentially changing Medicaid reimbursement models and other policy issues
- Implementing population health and value-based care
- Maintaining or improving margins
- Recruiting and retaining top talent, including health care leaders
- Keeping up with evolving technology and cybersecurity risks
- Adapting to changing consumer demands and expectations
I’m not surprised health system CEOs are concerned about policy and federal funding. The debate around health care reform has dominated the news cycle since January. However, despite the uncertain outcome and impact of Congress’s health care reform efforts, there are, what I call, “no regrets” pursuits that health systems and hospitals can consider. These include:
- Integrating business vertically
- Triaging patients to direct them to the appropriate level of care
- Reducing cost and inefficiencies across the system
As we know, health care is changing. For years, there has been little incentive for hospitals to direct patients to – or coordinate with – step-down or other less expensive settings of care. But now that is changing. Government payment models such as those promoted through the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), along with commercial value-based reimbursement agreements, are helping push many hospitals to reconsider their relationships with other health care stakeholders.
Depending on a hospital’s patient population, it might make sense to vertically integrate with other health care partners. This could include payers, post-acute care facilities, and physician practices. If revenues aren’t going to increase, hospitals and health systems may need to think about new revenue streams. An integrated care delivery system can help coordinate care across the continuum and track patients more efficiently.
Another strategy health system leaders could consider would be to implement stronger triaging systems that help direct patients to the most appropriate care setting. If a hospital or health system is vertically integrated, and owns or partners with urgent care clinics and/or physician practices, it can refer patients to those settings rather than providing care in the emergency department (ED), which can cost thousands of dollars per hour to operate. If an increasing number of uninsured patients come to the ED – and hospitals anticipate more uncompensated care – there is likely a financial incentive to actively direct some of these patients to a lower-cost and/or more appropriate care settings.
Though many health systems have looked for efficiencies around the margins of providing care, they now likely need to find greater clinical efficiency. They might need to rethink how care is delivered and at what cost. Generally, reimbursement is not increasing in the government or commercial sectors. As many hospitals continue to take on more risk, it will likely be important to deliver care as efficiently and effectively as possible. Though many health system CEOs have found new revenue streams through the acquisition of physician practices and other hospitals, they might not yet understand how to operate as a system. Hospitals within a health system sometimes continue to operate independently of one another rather than tapping into their synergies.
Though the health care debate is ongoing, and the future of the Medicaid program is unclear, there are strategies that health system CEOs can pursue today. Regardless of what happens with Medicaid, government and commercial payers are likely not interested in paying hospitals more than they already do. Looking for ways to vertically integrate, triage patients, and reduce inefficiencies can help prepare hospitals for a value-based reimbursement system. Health system CEOs should consider how to deliver care to patients in the most cost-effective way possible. The organization leaders that figure this out first will be the ones shaping the future of health care, and those health system CEOs will sleep much more soundly.
In the News
Senate votes down ACA repeal legislation
Early last Friday morning, the Senate narrowly voted down (49-51) the Health Care Freedom Act, a measure that would have repealed provisions of the Affordable Care Act (ACA). The bill would have:
- Repealed the individual mandate
- Repealed the employer mandate for eight years
- Suspended the tax on medical devices from 2018 through 2020
- Increased the allowed contribution amounts to health savings accounts from 2018 through 2020
- Created more flexibility for states to implement 1332 waivers
Three Republican senators joined all 48 Democratic senators to vote against the measure.
As reported in the latest Reg Pulse blog, Senate Majority Leader Mitch McConnell and Speaker of the House Paul Ryan have not indicated how they will proceed on legislation related to the ACA. But other health care items remain on the agenda. For example, the Senate is poised to take up the House-passed reauthorization of the user fee agreements to help fund operations at the Food and Drug Administration (FDA), and legislation is needed to reauthorize the Children’s Health Insurance Program (CHIP). Both the FDA user fee agreements and the current CHIP authorization expire September 30, 2017, the same date that funding for the federal government expires.
In the meantime, health plans may focus on concerns about the individual health insurance market, especially what position the administration will take on payment of cost-sharing reduction subsidies (CSRs) to health plans offering products through the exchanges. Health plans are facing an August 16, 2017 deadline to set their final rates for the 2018 benefit year on the exchanges. States have until September 27, 2017, to review plans’ rates and submit final approved rates to the US Centers for Medicare and Medicaid Services (CMS). Open enrollment for the 2018 benefit year will begin November 1, 2017, and run through December 15, 2017.
Very few national commercial health plans are on ACA exchanges now
Offerings from national commercial health insurers will represent only 2 percent of plans on the public insurance exchanges in 2018, according to a recent Robert Wood Johnson Foundation analysis. In addition, about 20 counties in two states do not have a commitment from any health plan to sell exchange-based coverage for the 2018 plan year. However, the researchers expect state regulators will encourage plans to cover those regions.
The researchers also evaluated several larger trends for the exchange market. They concluded that:
- Roughly 45 percent of all counties will have just one insurer, up from about 30 percent in 2017
- About 25 percent of people live in counties that will have only one insurer, up from 20 percent in 2017
- Approximately 25 percent of counties will have three or more insurers, down from 31 percent in 2017
- About half of people live in counties that will have three or more insurers, down from 60 percent in 2017
While some national health plans are pulling out of these exchanges for 2018, participation from provider-sponsored plans, regional plans, Medicaid managed care organizations, and Blue Cross and Blue Shield plans has increased. For some of these groups, financial results have slowly improved. Generally, these organizations are locally based.
(Source: K. Hempstead, “Marketplace Pulse: Bare County Jamboree: Most counties will probably have at least two exchange insurers in 2018,” Robert Wood Johnson Foundation, July 2017)
FDA, FTC chiefs address antitrust concerns in House Judiciary hearing
On July 27, 2017, the House Judiciary Committee held a hearing to discuss antitrust issues in the FDA approval process. The discussion centered on the Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act of 2017.
During testimony, FDA Commissioner Scott Gottlieb, along with the Federal Trade Commission (FTC) Competition Bureau’s Acting Director Markus Meier, identified five key barriers to coming to market that generic product manufacturers could face in the regulatory process:
- Limited access to branded drugs: To receive approval for a generic drug, generic manufacturers must be able to demonstrate bioequivalency, or that their product is structurally identical to the reference product. If generic product manufacturers are unable to access sufficient amounts of branded products to sample, the approval process can be delayed. The CREATES Act would allow generic drug sponsors to seek judicial intervention if it is unable to acquire enough of a reference product to conduct bioequivalency studies.
- Risk evaluation and mitigation strategies (REMS): Through REMS, the FDA can place limits on how and where drugs can be dispensed to ensure patient safety with products that are considered high-risk, or that have the potential to be dangerous. Manufacturers create REMS programs that are then reviewed and approved by the FDA. The strategies can include requiring pharmacy certification, prescriber training, or patient monitoring. Through REMS, some branded product manufacturers can deny sale of their products to generic manufacturers for testing purposes. The CREATES Act would allow the FDA to approve alternative safety protocols, which might allow for generic product sponsors to receive branded samples outside of the general safety standards.
- The citizen petition process: Under this process, external stakeholders can request that the FDA halt or amend an approval to address a specific concern. The FDA must address all citizen petitions before approving an application and many citizen petitions can slow down the regulatory approval process. While citizen petitions can raise relevant safety issues, branded product manufacturers can also use the process to delay the sale of generic products. The FTC is aiming to establish that scientifically unsupported citizen petitions violate the Sherman Antitrust Act because they could be using a governmental process to create or maintain a monopoly.
- The Unapproved Drug Initiative: Drugs approved prior to 1962, when the FDA began scientific testing to establish safety and efficacy, were grandfathered into the market. In 2006, the FDA launched the Unapproved Drug Initiative to conduct the research necessary to approve these drugs. These drugs have three years of market exclusivity under the Hatch-Waxman Act even though they are not technically new drugs. Gottlieb requested congressional support to review possible strategies to close this loophole.
- “Pay-for-delay” agreements: Brand drug manufacturers will pay generic manufacturers to delay the marketing of their product for a period of time in attempt to halt or avoid patent-infringement litigation. According to Meier, combating pay-for-delay agreements is a FTC priority. He and Gottlieb requested congressional support to consider more effective strategies to combat these agreements.
CMS proposes methodology for implementing Medicaid DSH cuts
On July 27, 2017, CMS released a proposed rule outlining its methodology for implementing the annual Medicaid Disproportionate Share Hospital (DSH) allotment reductions called for in law for fiscal year (FY) 2018. The rule would modify the formula established by the 2013 final rule to reduce the impact of DSH reductions on states with the highest uninsured rates.
Background: The Medicaid law requires states to make DSH payments to hospitals that care for a high proportion of low-income patients. DSH payments are intended to help offset the uncompensated costs of treating uninsured and publically insured patients. The ACA cut federal funding for DSH payments, anticipating that states would expand their Medicaid programs and reduce the number of uninsured people seeking medical care. The ACA originally called for $18 billion in Medicaid DSH cuts beginning in FY 2014. However, legislation delayed those cuts until 2018. The schedule of reductions to federal Medicaid DSH allotments is as follows:
- $2 billion in FY 2018
- $3 billion in FY 2019
- $4 billion in FY 2020
- $5 billion in FY 2021
- $6 billion in FY 2022
- $7 billion in FY 2023
- $8 billion in FY 2024
- $8 billion in FY 2025
The law requires the Secretary of the US Department of Health and Human Services to design and implement the specific DSH formula through the regulatory process.
SAMHSA estimates nearly 1 in 5 US adults experiences mental illness
In 2014, an estimated 43.7 million US adults (18.4 percent of the adult population) reported experiencing mental illness, according to a new report from the Substance Abuse and Mental Health Services Administration (SAMHSA).
Though the prevalence of adults with mental illness ranges widely across states, many people with mental illness are in every state. The report estimates that the percent of adults who said they had some sort of mental illness ranged from 15.8 percent in New Jersey to 22.7 percent in Oregon. SAMHSA also estimates that between 2012 and 2014, four states (California, Maine, North Carolina, and Rhode Island) experienced a statistically significant increase in reported mental illness compared with earlier years (between 2010 and 2012). The remaining 46 states and the District of Columbia experienced no change.
Background: Researchers compared findings from the 2012-2014 and 2010-2012 National Survey on Drug Use and Health (NSDUH) surveys. The findings are based on responses from 142,000 adults. SAMHSA included tables and maps to help state policymakers quickly visualize where additional efforts to address mental illness are needed. The report does not discuss specific factors that contributed to the variation.
(Source: Rachel N. Lipari, et al., “State and sub-state estimates of any mental illness from the 2012–2014 national surveys on drug use and health,” SAMHSA, July 2017)
ACA increased coverage among workers in some occupations
Roughly 14.7 million workers and their families gained health insurance coverage during the first six years of the ACA, according to the Robert Wood Johnson Foundation. Based on US Census Bureau data, researchers determined that 9.5 million workers under the age of 65 – and 5.2 million of their family members – gained health insurance between 2010 and 2015.
Researchers found that people in occupations that typically have low offer rates and low earnings before the ACA saw greater coverage gains after the law’s implementation. For example, workers in occupations where less than 70 percent of workers had health insurance in 2010 – such as farming, food service, and construction – had a 13.4 percentage point increase in coverage by 2015.
The number of insured workers and families increased in all states, but the greatest health insurance coverage gains occurred in Medicaid expansion states: 6.02 million workers and 3.21 million family members gained health insurance coverage in those states. In non-expansion states, 3.5 million workers and 1.94 million family members gained insurance coverage. Lastly, states that had the lowest coverage levels in 2010 saw the greatest coverage increases among workers and their families.
Related: A recent study in the Annals of Emergency Medicine found that the number of ED visits in Maryland remained largely unchanged during the six quarters after Medicaid expansion went into effect. The percent of ED visits covered by Medicaid increased from 23.3 percent before expansion to 28.9 percent post-expansion, and the percent of ED visits among the uninsured declined from 16.3 percent to 10.4 percent. Across all states, the number of ED visits covered by Medicaid increased 8.8 percentage points and the number of uninsured ED visits decreased by 5.3 percentage points.
Deloitte’s analysis of emergency room use under the ACA looked ED utilization (ER visits per 100 population) before and after the ACA. Researchers found that the growth in ED visits has generally been slower in Medicaid expansion states than in non-expansion states. In Medicaid expansion states, ED visits increased in the first year following the expansion, but stabilized or even slightly decreased two-to-three years after expansion.
(Sources: Garrett et al., “Workers gaining health insurance coverage under the ACA,” Robert Wood Johnson Foundation; Klein et al., “The effect of Medicaid expansion on utilization in Maryland emergency departments,” Ann Emergency Med, 2017; Nikpay et al., “Effect of the ACA Medicaid expansion on ED visits: Evidence from state-level ED databases,” Ann of Emergency Med, 2017)
Indiana asks CMS to let it incorporate work requirement into Medicaid
Indiana Governor Eric Holcomb recently sent a waiver application for the state’s Medicaid program, the Healthy Indiana Plan (HIP) 2.0, for CMS to approve. The amendment seeks several changes to the program, authorized under a section 1115 waiver, and to extend the program through January 31, 2021.
The amendment includes Medicaid work requirements. To participate in the HIP 2.0 program, able-bodied low-income adult Medicaid beneficiaries would be required to either: work at least 20 hours a week, be enrolled in either an academic program or vocational training at least part time, or participate in the HIP 2.0’s Gateway to Work program. Gateway to Work is a program available to all HIP 2.0 members that connects them to job training and employment services. An expanded Gateway to Work program would also offer support and assistance for members to seek treatment for substance use disorders.
Other proposals included in the waiver amendment would:
- Readjust the eligibility formula to ensure that disabled Medicaid beneficiaries will not lose program eligibility if their family caregiver has an increase in income.
- Increases payment rates for the Medicaid Rehabilitation Option, which provides community-based mental health rehabilitation services.
Background: HIP 2.0 was created in 2015, and breaks the Medicaid population into two main groups: the medically frail or disabled, and low-income able-bodied populations. While medically frail or disabled beneficiaries continue to receive traditional Medicaid services, the low-income able-bodied population is encouraged to stay engaged in their health care through financial incentives, health accounts, and targeted communications. The program was designed by CMS Administrator Seema Verma and was enacted by former Indiana Governor Mike Pence.
Missouri establishes prescription drug monitoring program by executive order
Missouri Governor Eric Greitens issued an executive order, bypassing legislative approval, to create a statewide prescription drug-monitoring program. Missouri is the last state to implement a statewide database for its drug-monitoring program after it failed to pass the state legislature on numerous occasions.
In Missouri, half of overdose deaths involve opioid prescriptions. The statewide database will analyze prescriber and pharmacy prescription and dispensing data to help identify opioid prescription misuse. The state will partner with pharmacy benefit management organizations to help monitor controlled substance prescriptions.
Massachusetts proposes premium stabilization for comment
Massachusetts has posted its proposed State Innovation Waiver for public comment. The Commonwealth is seeking to stabilize the individual health insurance market by:
- Using a premium stabilization fund in lieu of cost-sharing reduction payments
- Reviving a state employer-shared responsibility program in place of the federal employer mandate
- Establishing a way for Massachusetts employers to allow non-benefits eligible employees to purchase their own non-group plans through public exchanges with pre-tax dollars
- Allowing the Commonwealth to administer the federal small-business health care tax credit
- Continuing the use of select state-specific rating factors beyond plan year 2018
- Evaluating future risk adjustment processes in the Commonwealth
The six proposed requests will be available for public comment through August 25, 2017. The waiver, if approved, would go into effect in 2018.
MedPAC: Medicare was 22 percent of all health care spending in 2015
The Medicare Payment Advisory Committee (MedPAC) released a new data book examining health care spending and the Medicare program. While private health care spending makes up a higher share of total spending than Medicare (35 percent and 22 percent, respectively), Medicare is the largest single purchaser of health care in the US. The report shows increased spending on managed care and on Part D drugs, and decreased spending on inpatient hospital services and physician payments.
Spending: Medicare’s annual per-beneficiary spending growth has fallen from 7 percent in the 2000s to 1 percent in 2015, but it is projected to rise in future years. The data book cites increasing enrollment, due to the aging baby boomer population, and the increasing cost of medical services. The Medicare Trustees projecting that program spending will rise from 3.5 percent to 5.5 percent of GDP between 2015 and 2035.
Medicare Advantage: In 2017, 18.5 million (or 32 percent of the total) beneficiaries are in Medicare Advantage (MA). MA beneficiaries have an average of 10 plan options from which to choose – one more than in 2015. On average, MA plans have a 3.75 star rating from CMS, with health maintenance organization-based MA plans most likely to be four- and five-star plans.
Drug spending: Total Part B drug spending (both the Medicare program and beneficiary contributions) totaled $25.7 billion in 2015, a 13.3 percent increase from 2014. Part B drug spending has increased more rapidly for drugs furnished by hospital outpatient departments (HOPDs) than those administered by physicians. Between 2009 and 2015, Part B drug spending grew at an average rate of 15.8 percent per year for HOPDs, and 6.4 percent for physicians. The report credits the increase in spending to both the increased cost of drugs and their increased use.
Background: MedPAC produces data books annually to supplement its bi-annual reports to Congress. The data books provide information and analyses on the Medicare program, including total spending, by-site spending, beneficiary demographics, quality of care, and access to care.
(Source: A Data Book: Health Spending and the Medicare Program, MedPAC, June 2017)
Needed: Next generation strategies around prevention and healthy behaviors
That smoking or being obese is associated with poor health outcomes is not exactly breaking news. But last week, Health Affairs featured a study that for the first time looks at the extent to which risky behaviors (smoking, having a poor diet, being physically inactive, and drinking excessive amounts of alcohol) collectively impact the health and life expectancy of the US population, and what improvements in health might be gained through healthy behaviors.
Researchers used data from the Health and Retirement Study to look at the overall health of people age 50 and older who had healthy behaviors – they never smoked, were not obese, and consumed alcohol moderately (defined as 14 or fewer drinks a week for men and seven or fewer drinks a week for women). Compared to the US population as a whole, these “healthy” adults had a life expectancy at age 50 that was seven years longer than the rest of the population. They also experienced more years of disability-free living – up to six years.
The sample consisted of 14,804 respondents who were between the ages of 50 and 74 in 1998. Deaths and transitions across disability states were modeled during the period from 2000 to 2012.
Findings: Remaining life expectancy at age 50 was 27.7 years for all men and 31.4 years for all women – or a life expectancy of 77.7 years for men and 81.4 years for women. The study showed that women spent 5.8 years of life disabled, compared to 4.0 years for men. For both men and women, obesity had a small effect on overall life expectancy and a more substantial effect on disability-free life expectancy. Being obese shortened disability-free life expectancy by 2.3 years for men and 4.8 years for women. People who were not obese also spent less time disabled compared to obese people. Men and women who had never smoked had a substantially longer overall and disability-free life expectancy and lived longer with a disability, compared to people who had smoked. Compared to heavy drinkers and people who didn’t drink, or drank less than the moderate definition from above, moderate drinkers had longer overall and disability-free life expectancies.
Compared to all men and women, respectively, non-obese men and women who never smoked, as well as non-obese men and women who never smoked and who were moderate drinkers, live longer. They also live more years free of disability. By contrast, obese men and women who had ever smoked and were not moderate drinkers had significantly shorter life expectancies – both overall and disability-free – compared to all men and women.
As described in the chart, the differences are even greater between the populations with the best and the worst profiles. The example the researchers used to illustrate this is of a 50-year-old woman who has never smoked, is not obese, and drinks moderately – she is expected to live until she’s almost eighty-nine, roughly twelve years longer than a 50-year-old obese woman who never smoked and does not drink moderately. For men, the difference in life expectancy between these two categories is slightly more than eleven years.
Analysis: The population with healthy behaviors the researchers examined in this study are considered a vanguard population – a group that exhibit exceptionally favorable health. The authors state that to their knowledge such a population with multiple healthy behaviors has not been studied. They also note that the population is socioeconomically diverse and draws broadly from diverse racial/ethnic groups.
Compared to the 1970s, our daily lives look very different today thanks to the internet, smartphones, social media, and other technological innovations. However, we have not improved health behaviors very much. By ages 50–59, nearly 80 percent of US adults have either smoked, been obese, or both – a level that has remained surprisingly stable since the 1970s (as smoking rates have fallen in some populations, obesity has greatly increased). This study has the potential to inform policymakers and health researchers about the impact a combination of healthy behaviors can have on mortality and disability.
An important step moving forward will be to find more effective ways to reduce obesity, poor diet, and excessive drinking using the same types of strategies that worked to reduce smoking rates.
(Source: Neil Mehta and Mikko Myrskyla, “The population health benefits of a healthy lifestyle: Life expectancy increased and onset of disability delayed,” Health Affairs, July 2017)