Perspectives

Health Care Current: December 9, 2014

Optimism in an era of major transformation for global life sciences

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.

Optimism in an era of major transformation for global life sciences

Railroads were a game-changing innovation in the U.S. during the early 1800s. As the industry began to boom, new players joined the game as they rivaled for competitive positioning. The potential seemed limitless.

There were questions and concerns about the new industry’s scope, scale, viability and cost. It was difficult for investors to determine which competitors would succeed and which would fail; investing in these ventures was risky.

One thing was abundantly clear to investors though—it was time to get out of the horse business.

This analogy was raised by a life sciences sector investor and panelist who participated in the recent Financial Times/Deloitte Pharmaceutical and Biotechnology Conference in London. It was also particularly apt given the theme of this year’s conference – Predictions 2020 – which focused on what life sciences could look like in the future.

Deloitte’s annual conference with The Financial Times brings together many of the finest minds and boldest thinkers from the broader life sciences community. Setting the tone for this year’s conference theme was new research from the Deloitte UK Centre for Health Solutions, “Health care and life sciences predictions 2020: A bold future?,” which reveals a series of predictions and projects a vision for the life sciences and health care industry over the next five years. A lot of that prognosticating was about how innovation in life sciences is being transformed.

I had three main takeaways from the conference:

First, the room was generally optimistic for perhaps the first time since Deloitte has been conducting the conference. Our previous conferences have not been particularly optimistic affairs. Top industry leaders and thinkers wrung their hands about the patent cliff, weak pipelines, over regulation, poor industry reputation and the most recent global economic meltdown. However, this year’s conference had a different tone: the patent cliff is largely behind us, pipelines have improved and for the first time in many years, blue skies are visible beyond the clouds of economic doom and gloom, despite some lingering economic worries across Europe and Asia. The traditional industry is feeling pretty good about itself.

This year, the general sense of optimism was coupled with a consensus that the industry is at the cusp of dramatic and important change. An interesting thought was that much of the change will be driven by non-traditional players and new entrants to the industry. This made me ask, as I looked around the room, “which of these folks are in the horse business?”

My second takeaway was that the traditional life sciences industry seems to be in the midst of a major realignment. The volume of mergers and acquisitions in the sector has been staggering; yet there was a perspective that most of these deals were not about consolidation. In fact, the gross market share of the top 10 pharmaceutical companies has barely moved over the last 10 years. Rather, we are seeing companies realign their asset base – in some cases, swapping whole operating units – to focus on core competencies and areas where they believe they could have a competitive advantage.

There was a very real sense that focus is key. The technologies that have been talked about since the genome was cracked finally seem to be coming into their own. For example, use of biomarkers and companion diagnostics, gene expression and targeted therapies and target-based versus phenotypic screening all seem to have entered the common lexicon and become part of “business as usual.” Moreover, these technologies are now much more accessible than they ever have been. Much of the innovation is now coming from smaller players looking at problems from a unique perspective.

Finally, solving problems in health care is attracting many new entrants with non-traditional technologies, significant capital, unique perspectives and a creative approach different from that of the traditional life sciences companies. It seemed obvious to attendees that information technology and analytics techniques will be de rigueur to solving our most challenging health care issues; companies with these competencies are already entering the health care market. It also seemed clear that many other technologies are realizing some of their promise and they could dramatically impact the industry over the next several years. These technologies include nanotechnology, additive manufacturing, regenerative medicine, wearable devices and electroceuticals—just to name a few.

A topic of interest on a number of the panels was aging, perhaps spurred by Aubrey de Grey’s famous quote that the person who will live to 1,000 is alive today.1 This topic captures the imagination of many as it represents one of the quintessential health care “problems.” Significant resources are being directed at aging research – much of it by the non-traditional entrants into life sciences – and de Grey’s quote is not as far-fetched as it seems. The topic further illustrates the apparent optimism in the industry – an industry that is taking on some of the biggest issues out there and has the potential to make real progress against them.

But, it also illustrates the implied threat that was identified at the conference.

Even as many of the attendees seemed to believe that the innovation and new models being talked about for the last decade are finally at the cusp of realization, many also wondered whether the traditional pharmaceuticals players had the imagination and creativity to take this on. Glances were exchanged across the room as attendees tried to determine which of their neighbors were still in the horse business and which had moved on.

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PS. I encourage you to check out our new forecast of emerging trends, “Health care and life sciences predictions 2020: A bold future?” It helped set the tone for the conference and give it a perspective on the future.

Source: 1Aubrey de Gray, TED, “A roadmap to end aging,” July 2005,
http://www.ted.com/talks/aubrey_de_grey_says_we_can_avoid_aging?language=en

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My Take

By Reynold W. (Pete) Mooney, Deloitte Touche Tohmatsu Limited (DTTL) Global Managing Director, Life Sciences and Health Care

 

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HHS: More than 765,000 consumers have selected plans on HealthCare.gov

Last week, the U.S. Department of Health and Human Services (HHS) released its second week of updates on plan selections in the federally-facilitated health insurance marketplace (FFM). As of November 28, more than 765,000 individuals had selected a plan through HealthCare.gov, the website for the FFM. This includes the 303,010 individuals who selected plans in the second week of open enrollment, November 22-28. Following the pattern set by the prior week, approximately half of plan selections were made by new consumers and the other half by consumers renewing their coverage on the FFM. HHS has indicated that in order to increase transparency in the second open enrollment period it will release enrollment figures weekly.

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Implementation & Adoption

CMS releases 2013 National Health Expenditure report; spending growth at 50-year low

Continuing a five-year trend, health care spending in the U.S. grew at its lowest rate since 1960, according to an analysis by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) released last week by Health Affairs. Health care spending rose in 2013 at an estimated rate of 3.6 percent, lower than the 2012 rate of 4.1 percent. Health care’s overall share of the national economy remained steady at 17.4 percent. Spending growth on some services decreased, but spending on retail prescription drugs and on Medicaid grew more quickly than increases seen in 2012:

Medicaid spending, now at $449.4 billion, accelerated to 6.1 percent in part due to an increase in provider reimbursement rates mandated by the Affordable Care Act (ACA). The 2013 growth rate of spending on retail prescription drugs quintupled over 2012 to $271.1 billion due largely to increased utilization; higher spending on specialty medications also contributed to this growth. The patent cliff added to the growth as 2012 rates were considerably low due to the number of drugs that lost their patent and became available in generic form.

Background: What does this mean for spending in 2014, the year when many ACA provisions were implemented? Indicators are mixed. Quarterly estimates so far have put health spending growth still below 4 percent, but major hospital chains have reported better profit margins and fewer uninsured patients. Experts are also unclear about what spending rates might look like in the future. Some have predicted that the high cost-sharing in new health plans such as those in the marketplaces could help keep spending growth down. But spending growth could return after the economy fully recovers from the 2008-2009 recession.

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NAMD urges CMS for dual eligible and D-SNPs changes

In a letter to CMS, the National Association of Medicaid Directors (NAMD) expressed states’ interest in improving programs to provide integrated approaches to payment and coverage for people with both Medicare and Medicaid, also known as the dual eligible population. More than two-thirds of state Medicaid directors have reported that their state is “planning, implementing or actively working” to improve long-term services and support programs. Some are improving their dual eligible demonstrations and Medicare Advantage Dual Eligible Special Needs Plan (D-SNPs). To help advance the coordination of care of dual eligibles, NAMD offered the following recommendations to CMS:

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HHS: 1.3 million fewer HACs from 2010-2013, estimated savings of $12 billion

Last week, HHS published preliminary estimates on hospital-acquired conditions (HACs) – injuries, infections or accidents sustained by a patient during their time in a hospital – from 2010 through 2013. Hospitals had 17 percent fewer HACs in 2013 than in 2010. Compared with 2010 levels, approximately 800,000 fewer HACs occurred in 2013, saving $8 billion that year. Looking at the three-year period, hospitals avoided 1.3 million HACs, saving $12 billion. The report also suggests that the decline in the rate of HACs accelerated over the last several years. Several types of HACs contributed to the savings, but nearly half of the HAC reductions occurred through improvements in adverse drug events.

 

Partnership for Patients, an HHS program, encourages idea sharing across 3,700 hospitals to encourage patient safety improvements. Private insurers also helped drive better quality care delivery. Despite the improvements, there is still opportunity to reduce HACs. In 2013, approximately 121 patients per 1,000 discharges experienced HAC-related injuries during their hospital stay.

Related: Last week, researchers from the Harvard School of Public Health published survey results that found nearly one in four individuals in Massachusetts have personally experienced a preventable medical error in the last five years. Nearly half of those incidents caused serious health consequences for individuals, and most (75 percent) errors occurred during a hospital stay. Respondents place more blame on individual nurses and physicians responsible for their care (52 percent) than the hospital or clinic where they sought care (33 percent).

(Source: HHS, Agency for Healthcare Research and Quality, “Interim update on 2013 annual hospital-acquired condition rate and estimates of cost savings and deaths averted from 2010 to 2013” December 2014; Harvard School of Public Health, “The Public’s Views on Medical Error in Massachusetts,” December 2014)

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GAO: Three insurers in 37 states control 80 percent of the health insurance market

Last week, the Government Accountability Office (GAO) released findings on market competition and concentration in the health insurance marketplace from 2010 to 2013, finding that a small number of health plans controlled the majority of the individual, small group and large group insurance markets in the U.S. GAO found that three health plans controlled about 80 percent of each of the three market segments in at least 37 states. The market share controlled by these companies did not change significantly from 2010 to 2013, except for a slight increase in the individual market. However, the geographic footprint of the three health plans increased across each of the markets during this time period:

These data precede implementation of health insurance marketplaces and do not capture any resulting market changes.

(Source: U.S. Government Accountability Office, “Private Health Insurance: Concentration of Enrollees Among Individual, Small Group, and Large Group Insurers from 2010 through 2013,” December 1, 2014)

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CMS proposes updates to Medicare Shared Savings Program

Last week, CMS published a proposed rule that would make changes to the Medicare Shared Savings Program (MSSP) for accountable care organizations (ACO). CMS proposed the following changes to the MSSP:

Background: More than 330 ACOs with at least 125,000 Medicare clinicians are in the Shared Savings Program. Those organizations provide care to approximately 4.9 million Medicare beneficiaries, though those individuals are free to seek care elsewhere. Earlier this fall, CMS estimated that the MSSP and Pioneer ACOs saved the government more than $373 million. At a Brookings Institution event this fall, regulators, policy experts and provider groups – including commercial and Medicare ACOs – convened to discuss some of the most pressing issues facing these organizations. Several of the changes proposed in this rule address concerns from provider groups, especially around beneficiary assignment. A chief complaint of many MSSP ACOs has been that beneficiaries are not “locked in” to one ACO and can seek care from any Medicare provider. This feature has made it difficult for participating organizations to track their ACO population and could also affect financial and performance results. During the event, some ACOs and other stakeholders called for CMS to build into the program enhanced patient engagement, stronger payment incentives, greater transparency between CMS and provider groups and additional emphasis on beneficiary education. The changes to requirements for Track 1 were proposed after two-thirds of ACOs indicated they would leave the program if CMS required them to participate in shared losses as well as savings.

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On the Hill & In the Courts

CMS finalizes Medicaid DSH policy on definition of “uninsured”

Late last month, CMS issued a final rule that updates the definition of “uninsured” for the purposes of calculating disproportionate share hospital (DSH) payments. Medicaid pays additional amounts to DSH hospitals who treat high volumes of Medicaid-eligible and uninsured patients. In 2008, CMS defined “uninsured” as an individual “who [has] no health insurance (or other source of third party coverage) for the services furnished during the year.” Since then, some states, several members of Congress and other stakeholders have expressed concern that the definition differed from that used for other purposes, which could reduce funding for hospitals and states because some individuals who had been treated would not be included in the definition. For example, an individual with insurance coverage that did not cover a particular service or benefit would not be counted as uninsured and would be left out of the DSH calculation, reducing funding to offset the costs of uncompensated care.

The final rule addresses these concerns. Effective December 31, 2014, CMS’s use of the term “uninsured” for the purpose of calculating hospitals’ DSH payments will now be applied on a service-specific basis and not based only on whether the individual has an insurance policy.

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AHA urges FDA to apply cybersecurity standards to medtech device makers

Recently, the American Hospital Association (AHA) sent a letter urging the U.S. Food and Drug Administration (FDA) to issue stronger medical device regulations on cybersecurity for manufacturers. Medical devices have helped increase connectivity in health care, which has led to improved efficiencies and greater innovation. However, their use has also introduced data vulnerabilities that put both patients and institutions at risk. Because hospitals are connecting medical devices with their information systems, new avenues for cybersecurity attacks may be exploited, which raises the need for greater security protections. Specifically, the AHA recommended that the FDA:

  • Make cybersecurity guidelines and standards scalable: The National Institute of Standards and Technology’s (NIST) guidance and standards should be usable by smaller providers. AHA has worked to raise awareness by sharing cybersecurity guides with hospitals and health systems, but insists that smaller providers, particularly physician offices and rural hospitals, do not have the right resources to implement NIST cybersecurity standards. 
  • Hold device manufacturers accountable for cybersecurity: Medical devices are vulnerable to cyber attacks, and the AHA recommends that manufacturers address cybersecurity for their own products by updating and patching devices – whether new or old – as soon as threats are identified. 
  • Minimize risk by manufacturers: Hospitals face significant financial penalties for data breaches and must safeguard patient medical data and their reputation as a trusted entity. Because of the significant financial loss that may result from data breaches, AHA recommends that the FDA consider national and international standards that could be used to engage manufacturers in cybersecurity information-sharing activities and address issues with legacy devices.  

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Wyoming releases SHARE Plan, the state’s alternative to Medicaid expansion

Late last month, the Wyoming Department of Health released the Strategy for Health, Access, Responsibility and Employment (SHARE) Plan, an alternative strategy for expanding Medicaid coverage to low-income residents. If approved, the SHARE Plan would enroll roughly 17,600 individuals who earn up to 138 percent of federal poverty level (FPL) in alternative Medicaid plans. Of those, two-thirds are estimated to fall in the “coverage gap,” meaning they are currently ineligible for subsidies to purchase coverage through the health insurance marketplace and do not qualify for Medicaid. The plan includes the following strategies:

  • Support the health care system: 94 to 99 percent of Wyoming providers participate in the Medicaid program, and the plan would pay these providers to furnish services to new enrollees. This would provide financial support to providers with uncompensated care losses. 
  • Improve access to health care: New enrollees would have access to the ACA-mandated essential health benefits package. 
  • Greater personal responsibility: The SHARE Plan includes two programs for the expansion population. Participants that earn between 101-138 percent of the FPL would pay monthly premiums for benefits. People with lower incomes – below 100 percent of the FPL – would not pay a monthly premium. Both groups would be responsible for copayments for certain services.
  • Provide employment services: The SHARE Plan would connect new Medicaid enrollees to employment services through the Department of Workforce Services.

The plan must be approved by the state legislature, Wyoming Governor Matt Mead and CMS before individuals can begin enrolling.

(Source: Wyoming Department of Health, “The SHARE Plan: Wyoming’s Strategy for Health, Access, Responsibility, and Employment,” November 26, 2014)

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Around the Country

Healthy Utah plan details unveiled; would expand Medicaid coverage to 95,000 individuals

Last Thursday, Utah Governor Gary Herbert unveiled details of Healthy Utah, the state’s three-year pilot program to expand Medicaid to low income Utahns currently ineligible for coverage. The plan would provide premium assistance for individuals to purchase plans in the health insurance marketplace. Utah opted out of Medicaid expansion under the ACA, leaving some uninsured Utahns in the “coverage gap” because they earn too much to qualify for Medicaid and do not make enough to receive federal subsidies through the marketplace. In Utah, this includes adults with children who earn between 49 to 100 percent of the FPL and childless adults who earn below 100 percent of the FPL.

The Healthy Utah plan would expand coverage to 95,000 individuals during the first year of enrollment; 63,000 earn below 100 percent of the FPL ($11,670) and 32,000 earn up to 133 percent of the FPL ($15,521). The Healthy Utah plan would add:

  • Cost-sharing: All eligible adults would pay copayments, but only individuals who earn between 101 to 133 percent of the FPL would pay premiums. Cost-sharing amounts differ based on income, and the average individual who earns 133 percent of the FPL would pay $580 in copays and premiums annually. 
  • Copays for emergency visits: The plan would implement copays to reduce inappropriate use of the emergency department. Individuals would pay a $50 copay for nonemergency use of the emergency department, an amount that is 625 percent higher than what is currently allowed under federal rules.
  • Work benefits: Unemployed Medicaid enrollees who are able to work would automatically be enrolled into a program intended to help beneficiaries build skills to secure jobs. Utah would consider delaying or withholding benefits if beneficiaries did not participate. 
  • Incentives for healthy behavior: During the first year, new Medicaid enrollees who use tobacco and want to quit would receive free assistance through the anti-tobacco program. During the second and third years, the program would provide other incentives to individuals to maintain healthy weight, reduce cholesterol and control blood pressure.

The Healthy Utah plan is estimated to yield a total of $12.7 million in savings during fiscal year 2016 and $10.1 million by fiscal year 2018. The HHS Secretary sent a letter to confirm that the program “appears to be a plan she could approve,” but the plan still faces several approval steps from the state legislature and CMS. In Utah, a recent poll suggested that 67 percent of state voters support the plan.

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Kiosks in the grocery store increase access to care

The Cleveland Clinic recently began offering patients virtual appointments for minor illnesses in high-tech, walk-in kiosks in grocery stores. The kiosks are offered through a partnership Cleveland Clinic has with two Marc’s locations in Ohio and with HealthSpot, a company that offers private, interactive computer/video-based virtual appointments with medical providers. Patients age 14 and older with sore throats, coughs, fevers and other ailments who use the kiosks will be able to have a virtual visit with physicians or nurse practitioners and can then purchase chicken soup, over-the-counter medications or pick up a prescription at the store or in the pharmacy. The Cleveland Clinic also has HealthSpot stations at two of its family health centers.

The HealthSpot kiosk is a private 8-by-5-foot station, equipped with a chair and a desktop with a touch screen and video screen that allows patients to talk in real-time to a remote clinician. It is staffed by a medical attendant from the Cleveland Clinic who assists patients with the built-in stethoscope, thermometer, blood pressure cuff, scale and other devices and sanitizes the kiosk between patients. Clinicians can also write prescriptions remotely via HealthSpot.

Like an urgent care center, the Cleveland Clinic Marc's HealthSpot offers hours that may be more convenient than a traditional physician office, such as evenings and weekends. Several health insurance companies currently cover the telehealth sessions like a regular office visit. Patients can also pay out of pocket for the visit; the cost is $49.

Related: A recent Deloitte paper, Moving Beyond the Pill: Increasing Consumer Engagement through Retail Pharmacy Services, outlines the opportunities presented to retail pharmacies due to the increase in demand for value-based health care combined with the primary care physician shortage. Retail pharmacies are expanding their services beyond basic prescription dispensing. More Americans have health insurance coverage and yet have high out-of-pocket costs, so the demand for low cost, high quality and accessible health care is increasing. Forthcoming results of Deloitte’s 2014 Survey of U.S. Physicians show that 93 percent of physicians believe that convenience and affordability drive consumer use of retail health clinics, and 90 percent of physicians believe that retail health clinics will continue to expand their scope of service offerings.

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Breaking Boundaries

 

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