Albert Einstein knew

Health Care Current | August 15, 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.

My Take

Albert Einstein knew

By Bill Copeland, Vice Chairman, US Life Sciences & Health Care Industry Leader, Deloitte LLP

After months of congressional efforts to repeal and replace the Affordable Care Act (ACA), it appears we now have an opportunity for a broad and much needed dialogue about our system of health care financing – as well as new clinical delivery models. The acute health care affordability crisis we now face has never been more challenging.

In the US, households now fund 27 percent of the total health care tab. Federal and state governments finance 29 percent and 17 percent, respectively, and employers contribute 26 percent.1 Health care cost increases are forcing each of these groups to make tough choices about what they need to give up to pay for health care. We likely have to make changes if we are going to create sustainable improvement in health care. We may no longer simply cut provider payments, restrict eligibility for government programs, or shift greater financial burden to employers and employees. And we can’t ask providers – who already foot the bill for uncompensated care – to help their patients deal with escalating out-of-pocket costs.

Albert Einstein is often credited with saying, “insanity is doing the same thing over and over again and expecting a different outcome.” It seems such an understanding is desperately needed in health care. The clinical delivery system in the United States has fundamentally used the same basic operating model for the last 100 years, primarily because we continue to rely on the fee-for-service (FFS) payment methodology, which is based on face-to-face interactions between a patient and a doctor.

Why do we spend more and get less?

While the FFS model might have worked fine during the 20th century, we are in the middle of 2017, and this archaic system could benefit from change. The US spends more money on health care per capita than all other industrialized countries, but often ranks near the bottom for several measures of health.2

Our health care costs aren’t higher because we over utilize services, but rather because our cost per service is much higher.3 The way to reduce unit costs could be to help care providers boost their productivity. We could do that by moving some care to lower-cost settings. We could reduce professional costs through a team-based approach that incorporates lower-cost clinical resources, and we can provide effective care through virtual options such as telemedicine, phone and email.

Einstein is also credited with saying that we cannot solve our problems with the same thinking we used to create them.

The journey of care transformation

I see many opportunities for improvement along patients’ collective experience of care. Chronic care management is one area where we could see immediate results. As you likely know, 5 percent of the total population accounts for half of health care spending in this country.4 And the vast majority of this spending is for patients who have a chronic condition – diabetes, congestive heart failure, chronic obstructive pulmonary disease, or asthma – that is manageable, but not curable.5

Unfortunately for those patients, and for the long-term financial well-being of our economy, the FFS payment methodology was not designed for chronic care delivery models, and does not adequately, or effectively, align the needs of patients to the services that can be provided cost-effectively. To be paid under the FFS model, the doctor – not a nurse, or technician, or team member – has to lay hands on the patient. That methodology limits access and services that can meet the needs of chronically ill patients, and it actually constrains innovation.

Some organizations are innovating advanced chronic care delivery models using teams that patients can access in person, or virtually. Apps and collaboration platforms also exist to integrate and engage the patient and family members in one place. Moreover, many providers are relying on remote monitoring devices, such as wearables, that can provide important information about a condition without requiring the patient to travel to an office to meet with a doctor.

But to make this model work, the provider needs to be reimbursed each month – based on a bundle or prepaid lump sum – that covers all of the costs. Such prepaid and risk-sharing payment models should not be constrained by the rules and limitations of the FFS model. Clinical models focused on chronic care, and supported by the incentives of prepaid and risk-based payment, provide greater access for patients, and can produce better outcomes at a lower cost. This result is what I define as innovation – more value for less cost and lower complexity.

As we embark on this transformative journey of care, the science of innovation can move us toward a new model through which we can achieve better outcomes at lower costs. Innovation at its core requires these three imperatives to create value:

  1. Leveraging enabling technology to create new capabilities
  2. Redesigning the operating model to take advantage of new capabilities
  3. Breaking the constraints of the old system that restrict adoption

The science of innovation may be the cure for an ailing health care system, which we can resuscitate right now by focusing on the largest opportunity – chronic care management.

Albert Einstein knew that logic will get you from point A to point B…but, "imagination will take you everywhere.”6

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1 US Centers for Medicare and Medicaid, National Health Expenditures, 2015 Highlights
2 OECD Health Statistics, 2017,
3 The Commonwealth Fund, October, 2015,
5 Centers for Disease Control and Prevention,
6 Smithsonian magazine, February, 1979


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In the News

Large employer health care benefits to cost more than $14,000 per employee

Costs for employer-sponsored health insurance will likely increase by an average of 5 percent in 2018, according to a recent survey of large employers conducted by the National Business Group on Health. These employers now pay an average of 70 percent of coverage costs, while employees pay the remaining 30 percent of the estimated $14,156 total.

Some steps employers are taking to limit health insurance cost growth include:

  • Increasing use of telemedicine: 96 percent of respondents said they plan to make telehealth services available to employees.
  • Opening on-site health centers for employees: 54 percent of the large employers intend to offer onsite or near-site health centers next year.
  • Using accountable care organizations (ACOs): A fifth of employers surveyed said they expect to encourage ACO participation.
  • Participating in value-based insurance and benefit design: Under these models, employees might receive premium discounts for taking steps to improve chronic conditions.

Background: The survey was of 148 employers, two thirds of which were FORTUNE 500 or Global FORTUNE 500 companies.

(Source: National Business Group, “Large Employers’ 2018 Health Care Strategy and Plan Design Survey,” August 2017)

Survey finds practices with more non-physician providers increase profits

A key factor in physician practice profitability is the use of support staff and non-physician providers, such as nurse practitioners and physician assistants, according to results of a recent survey from the Medical Group Management Association.

Researchers found that physician practice operating expenses increased at nearly the same rate as revenue between 2015 and 2016. However, physician practices that had a higher non-physician-provider-to-physician ratio – defined as 0.41 or more non-physician providers per full-time equivalent (FTE) physician – had greater net revenue when compared to practices that had fewer non-physician providers – defined as 0.20 or fewer non-physicians providers per FTE physician. The study also found that physician practices with more support staff per physician had greater net revenue and increased productivity.

Few patients shop for care and compare costs

Price transparency tools might not encourage consumers to shop for care, according to a pair of studies recently published in Health Affairs. Despite the increased availability of price data and growing awareness of health care costs, few patients actually seek out price information or use available price transparency tools.

A nationally representative survey of 2,996 nonelderly adults who received care in the past year found that only 13 percent sought information about expected out-of-pocket costs, and only 3 percent compared costs across providers. Though the majority of respondents said that price shopping was important, they still were not doing it.

A different study of a large insured population found that providing a price transparency tool for shoppable services – labs, office visits, and imaging – did not decrease spending on those services. In the first 15 months, only 12 percent of employees who could use the tool actually did.

Together, these studies suggest that simply offering a price transparency tool or cost information is not enough to decrease costs or encourage shopping. The authors said that common barriers included difficulty in acquiring price information and consumers not wanting to disrupt existing relationships with their physicians and other providers.

(Source: Ateev Mehrota, et al, “Americans support price shopping for health care, but few actually seek out price information,” Health Affairs, August 2017; Sunita Desai et al, “Offering a price transparency tool did not reduce overall spending among California public employees and retirees,” Health Affairs, August 2017)

Study finds lower competition in generic drug markets

The number of generic-drug suppliers has decreased over time, according to a recent study by the National Bureau of Economic Research. The researchers found that 40 percent of markets had only one manufacturer, with the average market having four. They noted increased demand for low cost drugs after implementation of the ACA as a possible incentive for suppliers to exit the market. Additionally, higher user fees may have created barriers for new entrants into the market, according to the researchers.

The researchers found that prices were increasing over time, though prices were not as high as researchers would have expected given the small number of suppliers in many markets. They noted that more research should be done to explain these lower-than-expected prices.

Background: Researchers used data from QuintilesIMS’s National Sales Perspectives database between the fourth quarter of 2004 and the third quarter of 2016 to examine market trends.

Related: On average, the price of generic drugs dropped 2.4 percent last year. However, consumers might not be benefiting from these changes, according to a recent analysis from the New York Times and ProPublica. Many consumers have fixed co-pays for generic drugs regardless of the cost. Additionally, retail prices for generics vary widely. However, GoodRx, a website that tracks drug prices, says consumers can usually find a lower price than retail prices or co-pays by shopping around and finding discounts.

(Source: Ernst Berndt, Rena Conti, and Stephen Murphy, The landscape of US generic prescription drug markets, 2004-2016, National Bureau of Economic Research, July 2017; Charles Ornstein and Katie Thomas, “Generic Drug Prices Are Falling, but Are Consumers Benefiting?” New York Times, August 8, 2017)

Administration declares opioid crisis a national emergency

On August 10, the administration announced it would declare the opioid crisis an official national emergency. This declaration will allow the federal government to pay for additional treatment and provide first responders with naloxone – a medication that blocks or reverses the effects of opioids.

The move follows recommendations from a commission on the opioid crisis chaired by New Jersey Governor Chris Christie (see the August 8, 2017 Health Care Current).

Payments might not influence prescription patterns

Higher payments from manufacturers were not associated with more prescriptions among physicians who prescribed two cancer medications, according to a study published in the journal Cancer. The study shines new light on the debate over the possibility that industry payments influence doctors’ prescribing patterns.

The study authors analyzed two US Centers for Medicare and Medicaid Services (CMS) databases to assess the prescribing patters of clinicians who received industry payments and/or prescribed the two cancer medications. They found no statistical association between the level of industry payments and the number of prescriptions.

Background: The Physician Payments Sunshine Act – passed in 2010 as part of the ACA – requires medical product manufacturers to disclose any payments made to physicians or teaching hospitals. CMS began collecting data in August 2013, and has published aggregated reports since 2014.

(Source: Bandari J, et al, ‘The lack of a relationship between physician payments from drug manufacturers and Medicare claims for abiraterone and enzalutamide’. Cancer, July 27 2017)

States prepare for possible loss of CHIP funding

States are preparing for the expiration of federal funding for the Children’s Health Insurance Program (CHIP) if Congress does not act to extend it, according to the National Academy for State Health Policy (NASHP). The funding is set to expire October 1.

States manage CHIP programs in various ways: CHIP can be run separately, together with Medicaid, or as a hybrid of the two. States also have different rules about how to respond to a lapse in federal funding and have different notice requirements, including whether and when they are required to send termination notices. States are preparing for a loss of funding by:

  • Moving children to plans sold on exchanges, or to Medicaid, in states where the CHIP and Medicaid programs are separate
  • Planning administrative responses, such as how to notify families and providers
  • Dismantling CHIP upon expiration of federal funds

State laws and regulations make contingency planning difficult. Moreover, many states have already set their budgets for the next year and included federal CHIP funding in their calculations. Officials want to avoid sending out notices too soon in case Congress extends the program. But as CHIP begins running out of funding, states want to alert families to changes in coverage. According to NASHP, 30 states and the District of Columbia will exhaust federal funds by March 2018 or sooner.

(Source: Maureen Hensley-Quinn, and Anita Cardwell, “State CHIP changes are coming soon,” National Association for State Health Policy, August 2017)

CMS renews Florida Medicaid waiver application

CMS approved a Florida Section 1115 Medicaid waiver, which will renew the state’s capitated Medicaid managed care program and authorize $1.5 billion in federal funding annually for a separate low-income pool (LIP) for an additional five years. The LIP provides funding for hospitals and other facilities that provide health care for low-income uninsured Floridians. However, it does not expand Medicaid or other insurance coverage (see the April 18, 2017 Health Care Current).

The previous administration did not support expansion of the LIP because Florida did not expand Medicaid under the ACA. However, the new administration said that the additional funding will support providers who serve low-income Florida residents and will increase the number of Medicaid providers participating in managed care. Through the waiver, Florida seeks to move all Medicaid beneficiaries to managed care.

Federal court rules the government owes Molina $52M in risk-corridor payments

A federal court judge ruled that the federal government owes Molina Healthcare, Inc. $52 million in risk-corridor payments. Risk-corridor payments were established by the ACA to offset health plan spending in case they spent more on higher cost enrollees than expected (see the Deloitte analysis, The 10 percent problem: Future health insurance marketplace premium increases likely to reach double digits). The judge disagreed with the argument that budget-neutral rules added to the fiscal year 2015 and 2016 appropriations packages prevented the federal government from making the payments in full.

More than 25 similar cases are pending. Judges seem to be split on the issue. Another judge in the US Federal Claims Court rejected a case brought forward by Maine Community Health Options saying that the federal government did not owe the payments because Congress limited appropriations to the program. However, the judge who ruled in the Molina case also ruled in February that the federal government owed Moda Health $214 million in risk-corridor payments. The federal government is appealing the ruling.

ONC will transition health IT certification to private sector

Over the next five years, the Office of the National Coordinator for Health Information Technology (ONC) will transition its certification programs to the private sector. ONC tests HIT platforms to encourage “interoperability,” or the ability to connect appropriately with other software, and to verify that software can create functional data.

ONC cites the potential for greater efficiency by using private-sector certifications to help expand and improve testing capabilities. In June, ONC approved the first industry certification test by National Committee for Quality Assurance (NCQA) to evaluate health IT quality measures as an alternative to the ONC certifications. NCQA intends to apply to become an authorized certification entity.

(Source: Julia Adler-Milstein and Ashish Jha, “HITECH Act Drove Large Gains In Hospital Electronic Health Record Adoption,” Health Affairs, August 2017)

Breaking Boundaries

Targeted cancer therapies are the next frontier of treatment, but room to innovate and improve chemotherapy in the mean time

It is exciting to learn about new discoveries and breakthroughs in cancer treatment. Certainly the research community has made great strides in both prevention and treatment. The field of immunotherapy is striving to make the patient’s immune system fight back against cancer cells. Researchers have found that combining drugs with different targets can have positive results, and potentially lead to improved mortality or improved quality of life for some patients. Computer models can help predict the best combinations for individual patients. The National Cancer Institute (NCI) is phasing out more traditional cancer studies that involve only chemotherapy drugs and is focusing increasingly on targeted therapies.

Chemotherapy has been around since early in the 20th century. Through the years, there have been developments to improve chemotherapy and reduce the side effects. While chemotherapy is designed to kill fast-growing cancer cells, more targeted therapies hone in on specific weaknesses within the cancer cells. Even as scientists work on the next generation of treatments, many physicians today are still relying on chemotherapy, which is generally effective at destroying cancer cells.

Recognizing that chemotherapy is not going to disappear overnight, some researchers are focusing on improving the treatments. Researchers from the Ottawa Hospital Regional Cancer Centre in Ontario have built a model with the goal of helping reduce the nausea and vomiting that some chemotherapy patients experience. The model incorporates eight risk factors that accurately predict a patient’s likelihood for experiencing grade 2 or higher chemotherapy-induced nausea and vomiting on a cycle-by-cycle basis. The researchers based the model on data from 1,198 patients who collectively underwent more than 4,000 chemotherapy cycles.

Using the data, the researchers identified the eight risk factors associated with grade 2 or worse nausea and vomiting during the first five days of chemotherapy, and developed a risk score for each patient. The model can help reduce overtreatment of patients who may not need as much medication to treat side effects. It also has the potential to be an important tool for optimizing treatments for patients who do experience nausea and vomiting.

Analysis: According to NCI, an estimated 39 percent of Americans will be diagnosed with cancer at some point in their lives. The global incidence of cancer is expected to increase by 70 percent over the next 20 years. To help cure cancer, health care stakeholders will need to leverage new innovations and new relationships. Treatments, research and development, regulation, data integration, devices, support systems, and payment systems are all rapidly evolving to tackle cancer.

To accelerate progress in the field of cancer research and catalyze breakthroughs, we need to tackle the problem from every possible angle through:

  • Cognitive technology to replace human intervention in identification of leading treatment options for patients
  • Clinical trial matching to help find the right clinical trials for patients
  • Ecosystem network development and tools to enable data sharing and access across providers
  • Informatics and data access to support and enable research efforts
  • Crowdsourcing to leverage the power of the crowd to tap into on-demand insights and an open talent model
  • Value-based care and payment models to enhance adoption of tomorrow’s cures today
  • Precision medicine to target treatment to positively responding patients and to reduce adverse events
  • Translational medicine to connect discovery, development, and delivery processes in the R&D value chain

(Source: G. Granitsaris et al, The development of a prediction tool to identify cancer patients at high risk for chemotherapy-induced nausea and vomiting, Annals of Oncology, June 2017)

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