Health Care Current: August 18 2015 | Deloitte US | Center for Health Solutions | Life Sciences has been added to your bookmarks.
Health Care Current: August 18, 2015
Building a legacy: Planning for the health system of the future
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
- Implementation & Adoption
- On the Hill & In the Courts
- Around the Country
- Breaking Boundaries
Building a legacy: Planning for the health system of the future
In 2004, Kenneth Freeman was the CEO of Quest Diagnostics, a provider of medical diagnostic testing services. He had taken the company from the brink of bankruptcy to one that was sharply focused on the future of health care. He led the company into new business areas with a focus on “cutting-edge procedures” like genomic testing. In the spring of 2004, BusinessWeek ranked Quest Diagnostics number 34 on its list of corporate America’s 50 best-performing companies.1
Freeman subsequently walked out the door.
But, this was all part of his plan. Freeman believed that “your true legacy as a CEO is what happens to the company after you leave the corner office.”2
Today, many health system CEOs realize that they may step down over the next 10 years, which could be a time of unprecedented change in health care. Payments are shifting toward value over volume, the payer mix is evolving and narrowing profit margins along the way, new technologies are transforming how and when care is delivered, and stakeholders are calling for health care to be more responsive to consumers. Many health system CEOs understand that their successor may be the one to lead the next wave of change and innovation for their health system.
Through a recent survey of 19 large hospital and health system CEOs, Deloitte sought to identify how CEOs are dealing with the pressure and preparing their organization for the future. We detailed findings of this survey in a recent report, “Lens into the future: Health system CEO interviews.” Regardless of their retirement plans, we found that health system CEOs have focused their lens on the future, planning ahead and steering their organization toward success.
Health system CEOs face many challenges in today’s health care environment. Margins are narrowing as government and commercial payers tighten their reins – the number of hospitals with negative operating margins grew from 9.5 percent in 2012 to 14.5 percent in 2013.3 New payment models are shifting the focus from fee-for-service (FFS) to value-based care (VBC), and this is mounting pressure on hospitals and physicians to take on more financial risk for patient care. And, as consumers take on more responsibility for the cost of their care, many are beginning to seek better access, more involvement in care decisions, and improved customer service. Deloitte’s 2015 Survey of US Health Care Consumers found that respondents were most dissatisfied with hospitals’ treatment processes, customer service, and skills/specialization during their most recent overnight stay.4
When Deloitte asked these health system CEOs to describe their vision for 2025, they identified some core issues that they are likely to be focused on moving forward.
Many of the respondents are trying to decide whether to retire within the next five years. These challenges are likely to be a part of that decision.
Ultimately, defining the future is half the battle to succeeding in the future. Regardless of their future within that particular health system, CEOs are working to identify the path forward for their organization. How that path looks will likely differ for each market and health system. As they define their path, they are focused on their biggest needs for 2025: preparing for VBC and identifying the right investments, particularly for VBC-enabling technology.
P.S. Read more about the Deloitte Center for Health Solutions 2015 Survey of US Health System CEOs.
1Kenneth Freeman, Harvard Business Review, “The CEO’s Real Legacy,” November 2004, https://hbr.org/2004/11/the-ceos-real-legacy
3 Beth Kutscher, “Fewer hospitals have positive margins as they face financial squeeze,” Modern Healthcare, June 21, 2014, http://www.modernhealthcare.com/article/20140621/MAGAZINE/306219968/fewer-hospitals-have-positive-margins-as-they-face-financial-squeeze?utm_source=frontpage&utm_medium=newsitem309&utm_campaign=carousel-traffic
4 Deloitte Center for Health Solutions, 2015 Survey of US Health Care Consumers
By Mitch Morris, MD, Vice Chairman, National Health Care Provider Lead, Deloitte LLP
CDC: Overall uninsured rate dropped below 10 percent
The US Centers for Disease Control and Prevention (CDC) National Center for Health Statistics (NCHS) recently found that the US uninsured rate for all ages was 9.2 percent in the first three months of 2015, a 2.3 percentage point decline from 2014. The adult (ages 18 to 64) uninsured rate declined from 16.3 percent in 2014 to 13.0 percent during the first three months of 2015.
The two main reasons for the declining uninsured rate are: increased insurance coverage through Medicaid expansion and the public health insurance exchanges (HIXs). Individuals ages 18 to 64 who live in Medicaid expansion states are less likely to be uninsured. In these states, the adult uninsured rate dropped from 18.4 percent in 2013 to 10.6 percent in the first quarter of 2015. In non-expansion states, the adult uninsured rate declined from 22.7 percent to 16.8 percent during the same period.
In the first quarter of 2015, adults who lived in states with a federal HIX were more likely to be uninsured than individuals who lived in states that ran their own or had a partnership HIX.
The findings are based on results from the CDC’s National Health Interview Survey, which was conducted between January and March 2015. More than 26,000 individuals participated in the survey.
(Source: National Center for Health Statistics, “Health Insurance Coverage: Early Release of Estimates From the National Health Interview Survey, January-March 2015,” August 2015)
Implementation & Adoption
Study: Medicare Advantage enrollees choose plans based on benefits over premiums
A recent study published in the American Journal of Managed Care evaluates how sensitive Medicare Advantage (MA) beneficiaries are to costs and benefits when choosing a plan. The study looked at how beneficiaries choose between MA and traditional FFS Medicare. It also sought to determine how beneficiaries choose among MA plans.
Researchers used data from the Medicare Current Beneficiary Survey, the 2008 Medicare Advantage Bid Pricing Tool, and administrative data from the MA program. The study revealed several trends:
- Beneficiaries base their choice more on benefits, or what health plans choose to do with their rebates (see Background), than premiums. Changes in the premium are not strongly associated with beneficiaries’ decisions to change plans.
- Beneficiaries tend to choose plans with lower cost sharing.
- Beneficiaries are more likely to choose MA over traditional FFS if there are more MA plans available in their area.
Background: MA enrollment has increased substantially. More than 30 percent of Medicare beneficiaries enrolled in MA plans in 2014. Health plans that offer MA plans submit a bid to Medicare based on their estimated costs for services covered under Medicare. CMS compares health plans’ bids to a statutorily set benchmark. If the bid is higher than the benchmark, enrollees pay the additional amount through higher premiums. If the bid is lower than the benchmark, the plan and Medicare split the difference. The plan must use its share to enhance benefits to enrollees, including through reduced premiums for Part B or Part D and lower cost sharing for benefits covered.
(Source: Paul D. Jacobs and Melinda B. Buntin, American Journal of Managed Care, “Determinants of Medicare Plan Choices: Are Beneficiaries More Influenced by Premiums or Benefits?” July 16, 2015)
CMS proposes value-based purchasing in home health
In its recent home health payment rule (see the July 14, 2015 Health Care Current), CMS proposed extending value-based care to the home health industry. If finalized, the pilot program would pay Medicare home health agencies based on quality performance starting January 1, 2016. CMS states three primary goals of the program: 1) provide home health agencies with the incentive to provide better quality care more efficiently; 2) study new quality and efficiency measures in home health; and 3) enhance public reporting processes.
Throughout the seven-year pilot program, CMS would adjust payments to home health agencies by five to eight percent based on quality results. CMS would compare home health agencies with those of similar size in the same state and would compare their results with past performance. CMS proposes to use 24 measures, 15 of which are for outcomes that the industry already measures. CMS would also add four new measures: adverse drug events, health workers with flu vaccination, patients with shingles vaccination, and advanced care planning efforts.
Reaction: Many organizations have raised concerns with this proposal, especially about the potential decrease in payments. CMS will require participation in the value based purchasing program in nine states, while agencies in other states will be unaffected.
Report: Segmentation techniques increasingly used for population health
Last month, The Commonwealth Fund’s review of segmentation approaches in health care found many organizations are investing in ways to find appropriate individuals to target for interventions and care management programs.
Though many companies in other industries, such as retail, consumer products, and the financial sector, have used advanced segmentation techniques to tailor their services and products, it is relatively new in health care. Segmentation techniques can help organizations identify and subsequently tailor services to high-risk populations, often much better than traditional risk assessment capabilities allow. Prominent examples of health systems and health plans include:
Related: Through our annual survey of US health care consumers, the Deloitte Center for Health Solutions has segmented health care consumers into six categories. The “content and compliant” (22 percent) and “sick and savvy” (14 percent) tend to behave like “patients,” not particularly inclined to challenge recommendations. The “casual and cautious” (34 percent) are simply not engaged because they don’t see the need. The other three segments show characteristics of activism, which is often disruptive to systems that are more comfortable with patients than consumers. “Out and about” (9 percent) actively seek and use alternative, non-Western medicine, often without the knowledge of their clinicians. “Online and onboard” (17 percent) use online tools and mobile applications to assess providers and compare treatment options and provider competence. Finally, the “shop and save” (4 percent) is the value purchaser and is not content with paying more than necessary under any non-emergency scenario.
This segmentation technique provides insights into consumers’ behaviors and attitude. This is helpful information in an environment where health care is moving rapidly toward patient-centered care, which is premised on individuals becoming more active participants in managing their health care.
(Source: Martha Hostetter, The Commonwealth Fund, “In Focus: Segmenting Populations to Tailor Services, Improve Care,” June 2015)
CMS delays 'two-midnight' rule enforcement
Last week, CMS extended the enforcement delay for the controversial two-midnight rule through December 31, 2015. Under the two-midnight rule, CMS pays for inpatient admissions through Medicare Part A for a hospital stay that exceeds two midnights. Hospital stays shorter than two midnights must be billed as outpatient care. Beginning January 1, 2016, Medicare may deny payments for inpatient stays that do not meet the two-midnight rule. The extension comes after Congress delayed the policy for six months (until September 30) in the sustainable growth rate repeal package.
In July, CMS proposed to modify how it will audit and review admission decisions. CMS proposes to replace Medicare Administrative Contractors with Quality Improvement Organizations (QIOs) for medical reviews involving short inpatient admission determinations. Beginning October 1, QIOs would determine the appropriateness of inpatient admissions. QIO reviews would emphasize provider and hospital education related to Part A inpatient payment policies. Recovery audit contractors (RACs) would only review decisions made by hospitals that consistently violate Medicare policies.
Background: Hospitals are paid differently based on the setting in which they provide care. Inpatient stays are reimbursed through Medicare Part A, and Medicare Part B pays for outpatient care. CMS instated the two-midnight policy to reduce inappropriate inpatient stays. The type of stay also affects patient cost sharing; if a patient goes from outpatient observation status into a skilled nursing facility, Medicare may not pay for those services. In July, CMS proposed reviewing inpatient stays shorter than two midnights on a case-by-case basis. Stays longer than two midnights would still be considered inpatient care.
On the Hill and In the Courts
House lawmakers introduce draft “Innovation Box” legislation
Last month, two members of the House Ways and Means Committee, Representatives Charles Boustany and Richard Neal, introduced a draft of the Innovation Promotion Act of 2015, which would amend the Internal Revenue Code to encourage US corporations to keep their research and development (R&D) activities in the US.
The legislation would create a patent box, or “innovation box,” which would reduce the effective tax rates on income generated from patents and certain other types of intellectual property. If the legislation passes, the US would join a growing number of other countries that use similar mechanisms to encourage R&D within their borders.
The bill would allow corporations to deduct a percentage of the income generated from the sale, lease, or license of products (but not services) that contain specified intellectual property. The draft provides that the deduction equals 71 percent of qualifying income, which in turn works out to a tax rate of 10.15 percent. However, it is unlikely that any company would be able to take the 71 percent deduction on all of the income generated by a product that contained intellectual property, as a complex formula that measures domestic R&D spending as a share of overall business expenses over the last five years reduces the amount of income to which the 71 percent deduction applies. Note also that as drafted, the measure would apply only to corporations but not to pass-through businesses.
Analysis: Proponents of the innovation box legislation argue that the policy would create incentives for companies to perform more R&D in the US, which could help keep the US a competitive location for high-tech companies and the jobs they support in many fields, including pharmaceutical, biotech, and medtech. Opponents believe it may unfairly discriminate against certain corporations, especially those that depend on income from sales of services and software as a service.
It is unclear whether the draft unveiled by Representatives Boustany and Neal will be enacted. As drafted, it is expected to result in substantial revenue loss for the federal government relative to current law (though it has not yet been scored by the non-partisan staff at the Joint Committee on Taxation). Moreover, lawmakers may be under pressure to expand the innovation box further by allowing the deduction to be taken for income from the provision of services and also to make it available to non-corporate businesses.
Finally, it is important to note that Congress is not expected to consider this measure on its own. Rather, if it is passed, it would likely be as part of a broader international tax reform plan that Ways and Means Committee Chairman Paul Ryan is expected to unveil in the coming months. Ryan has indicated he aims to pass such legislation in 2015 to help pay for a long-term highway construction plan.
For more details on the Boustany-Neal draft, as well as the outlook for the broader international tax reform debate, see Deloitte Tax LLP’s July 30, 2015 US Tax Alert.
CMS delays release of risk corridors estimates
Last week, CMS announced that it would delay publishing estimates for the risk corridors program. CMS originally said it would publish this information on August 14. In the announcement, CMS said that there are “significant” discrepancies in the data that organizations submitted. However, it also noted that nearly all qualified health plans (QHP) submitted their data on time. The deadline for submission was July 31. CMS is delaying the publication of the data to work through data discrepancies and will work with any QHP that must resubmit data to CMS.
This news comes only a few months after a review of health plans’ balance sheets from 2014 indicated that the risk corridor program may be underfunded (see the May 12, 2015 Health Care Current). Standard & Poor’s (S&P) Rating Services reviewed publicly available balance sheets from the National Association of Insurance Commissioner’s annual statutory filings and the Securities and Exchange Commission’s 10K filings to find that 14 percent of health plans are expecting to pay into the program, while 30 percent are expecting to receive payments from the program.
Last spring, CMS explained through Q&A guidance how the agency plans to keep the program budget-neutral. CMS clarified that if the risk corridor payments are insufficient for 2014, payments for that year will be reduced “pro rata” to make up for the shortfall. CMS will use collections from 2015 to pay off the shortfall for 2014 before any payments for this year are made. However, many health plans remain concerned that the administration may not have the funds required to cover potential losses. While large health plans may have the capital to withstand losses, many smaller health plans and Consumer Operated and Oriented Plans may depend on these payments.
Related: Last week, CMS also announced that health plans that wish to appeal risk adjustment and reinsurance payments must submit a request by August 29. Reasons for an appeal include processing, mathematical, and methodology issues. Plans can appeal CMS calculations for tax credits, cost-sharing reductions, and user fee charges. On average, health plans will receive 20 percent more than they projected for 2014. The higher payments are mainly due to CMS’s increase in the co-insurance payments from 80 to 100 percent for 2014. The three premium stabilization programs – reinsurance, risk adjustment and risk corridors – were designed to help health plans navigate the initial years of the health insurance exchanges (see the July 21, 2015 Health Care Current for more information).
Report: State reimbursement, rules, and definitions for telehealth differ around the US
A recent study by the Center for Connected Health Policy found telehealth and telemedicine policies vary, from what is paid for to the definitions of the services. Forty-eight states and Washington, DC define telehealth and/or telemedicine through laws or Medicaid policies, but no two are the same. Some states distinguish between the terms “telemedicine” and “telehealth,” while others do not.
States have flexibility to set their own telehealth policies for Medicaid as long as the policy meets federal standards set by CMS. Many states choose to follow Medicare’s definition of telehealth for their Medicaid policy. Traditional FFS Medicare pays for services furnished by a physician or practitioner via a telecommunications system. Medicare pays mainly for services provided in rural or underserved areas.
Forty-seven state Medicaid programs pay for some services provided via live video, but the services, providers, and populations vary. For example, Idaho limits reimbursement to certain mental health and developmental disability services. California pays for a wide variety of medical specialty services. Many states only pay for services in particular geographic areas, which is also true for Medicare. Key findings include:
Analysis: With the growth of technology and video streaming services, telemedicine use is increasing. However, variation in laws and regulations governing reimbursement for telehealth services may confuse providers. The report found that 42 states introduced more than 200 telehealth-related bills in 2015.
(Source: Center for Connected Health Policy, “State Telehealth Laws and Medicaid Program Policies A Comprehensive Scan of the 50 States and District of Columbia,” July 2015.)
Around the Country
Report reviews HIX re-enrollment strategies in six states
A recent report by Georgetown University's Center for Health Insurance Reforms, with funding from the Robert Wood Johnson Foundation (RWJF) and the Urban Institute, studied six states to identify effective strategies to improve the HIX enrollment process. The researchers focused on how states’ approaches to re-enrollment affected enrollees’ renewal decisions in 2015.
Among the key findings:
The researchers evaluated the re-enrollment process for California, Kentucky, Rhode Island, Washington, Maryland, and Colorado. Four of the states (California, Kentucky, Colorado, and Washington) had passive re-enrollment (enrollees who did not re-enroll actively were re-enrolled in their current plan or one close to it), while Maryland and Rhode Island required enrollees to actively renew their coverage. Retention varied: Kentucky retained the most at 97 percent, and Colorado retained the least at 67 percent (Colorado only accounted for enrollees that paid their first premium).
Related: As discussed in the August 11, 2015 Health Care Current, findings from Deloitte’s 2015 Survey of US Health Care Consumers demonstrate that HIXs are transforming the individual insurance market. Many HIX customers are actively engaging in the buying process. As Georgetown’s Center for Health Insurance Reforms study also suggests, Deloitte’s survey found that HIX consumers are more price conscious than consumers with employer coverage.
Deloitte’s survey findings suggest that multiple purchasing channels, more reliable information sources, better decision support, and further development of online resources and digital technologies could help fulfill the promise of these new marketplaces for health insurance coverage.
(Source: Sandy Ahn, Jack Hoadley, and Sabrina Corlette, “Six State Experiences with Marketplace Renewals: A Look Back and a Glimpse Forward,” Georgetown University's Center for Health Insurance Reforms, July 2015).
Experiments show growing potential for drones
A recent proof-of-concept study out of Johns Hopkins University School of Medicine showed that a drone can safely deliver blood specimens. Despite a shaky takeoff and bumpy landing, the drone did not damage the blood samples it delivered to a site an hour away.
In the experiment, researchers packaged blood samples from 56 healthy adult patients as if they were infectious disease samples and loaded half of the samples into a hobby-sized drone. The drone carried the samples in a mile loop and stayed in the air for several minutes, before being driven back to the lab, tested, and compared to samples that were flown. The tests showed that the process of flying in a drone did not damage samples.
To date, there has not been much rigorous research into the impact of drone transport on medial specimens or how drone transport might affect fragile platelets. Researchers will follow this study with a pilot study with real patients in clinical settings. The researchers are also interested in testing drone delivery of other medications and vaccines.
In related news, the first government-approved drone delivery of medicines in the US occurred in rural Virginia last month. A drone flew medications and other medical supplies to a pop-up clinic in Wise County, Virginia. The clinic is open one weekend a year and during that weekend it serves around 3,000 patients. The clinic is about 90 minutes from other clinics. The drone made the delivery in significantly less time, although it had to overcome several other logistical hurdles. The journey started in a county in southwest Virginia where the medications were flown in a remotely operated NASA aircraft with a safety pilot on board. After the NASA aircraft landed at the Wise County airport, a hexacopter drone operator flew the supplies less than a mile to the health clinic. It took three trips to deliver all of the packages. Despite these hurdles, experts said that studies like this could increase the public’s trust and further refine drone technology.
Analysis: Drones may increase access to medical care. Poor access to medical care can lead to poor patient outcomes and increased mortality. Drones may offer a less expensive, faster, and more efficient method to get to hard-to-reach patients in rural areas, areas hit by a disaster, or remote areas in other countries.
The Federal Aviation Administration (FAA) regulates most of the laws involving drones. Current regulations do not allow commercial drone delivery beyond special exceptions such as the one granted for this demonstration and other deliveries for health and safety purposes. In 2012, Congress required the FAA to integrate drones into the national airspace system by September 30, 2015. The FAA is working to achieve integration in the midst of rapid innovation in the technology. As drone technology becomes more widespread and cost-effective, many researchers behind these types of experiments are hoping they may revolutionize access to medical care and provide aid in humanitarian crises in the US and beyond.