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Perspectives

Taking Washington’s Health Pulse

Health Care Current | February 20, 2018

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

Taking Washington’s health pulse

By Anne Phelps, Principal, US Health Care Regulatory leader, Deloitte & Touche LLP

About this time every year—after the dust from the holidays has finally settled—I start reviewing the list of doctor appointments I need to schedule, including my annual check-up. As I grow older, this list seems to grow longer, and one appointment leads to another. I am never quite done. I sort of feel that way about the health care policy changes going on in Washington right now. Every debate, every legislative change, and every new regulation leads to another. So, before I start the round of calls to my doctors, I thought I’d clear my head first and do the rounds on health policy. It’s check-up time.

Let’s start with Congress and take a temperature check. The Republicans’ attempts last year to repeal and replace the Affordable Care Act through the 2017 budget reconciliation process ultimately did not pass, and the ACA repeal fever cooled off, according to most political thermometers. But Congress pushed ahead to the 2018 budget reconciliation process and passed significant tax legislation. The new tax law zeroed out the ACA’s individual-mandate penalties, further calming the ACA repeal temperature among Republicans.

CR postpones several ACA taxes and fees
As I think about my annual check-up each year, Congress thinks about its annual budget. I think we both tend to procrastinate a bit and take things one step at a time. Congress has been funding the federal government through a series of short term “continuing resolutions” to provide appropriations to the federal government and to make health care policy and other changes. A January 22 continuing resolution delayed several ACA taxes and fees. The so-called “Cadillac tax” on some employer-sponsored plans, which was slated to go into effect in this year, is delayed through 2021. The medical device excise tax is on hold through 2019, and the health insurer fee will be in effect for 2018 but suspended again for 2019.

The February 9 continuing resolution also contained a number of health care provisions. It reauthorizes the Children’s Health Insurance Program (CHIP) until 2027, funds community health centers through 2019, and makes key changes to Medicare Advantage (MA), Accountable Care Organizations, and Medicare Part B payments. It also includes some technical changes to the Medicare Access and CHIP Reauthorization Act (MACRA). A more detailed omnibus spending bill to fund the government for the rest of the fiscal year is expected before March 23rd, when the existing agreement expires. This could be the last “general check-up” appointment for health-related legislation during this Congress. Additional issues that Congress could still take up include oversight of the 340B drug program and payments under Medicare Part B. Some lawmakers have shown some interest in repealing the ACA’s employer mandate and providing further funds to shore up the health insurance markets.

Congress turns attention to regulatory oversight
With most of its annual work nearly done, Congress is beginning to exercise its oversight authority on specific issues of concern. On Valentine’s Day, the House Energy and Commerce Oversight and Investigations Subcommittee held a hearing examining the impact of consolidation on health care. Several members took strong positions on mergers driving some increases in health care costs (see news brief below). The following day, the Health Subcommittee heard testimony from new US Health and Human Services Secretary Alex Azar on HHS oversight practices writ large, with a strong emphasis on health care costs and program integrity. Meanwhile, the Senate Finance Committee is asking the IRS to look at hospitals’ non-profit status. A recent report from the Office of the Inspector General highlighted possible weaknesses in the US Centers for Medicare and Medicaid Services (CMS) oversight of MACRA reporting, which could garner some attention from Congress.

What is on the regulatory exercise regimen?
The executive branch has put several initiatives into motion that have a broad reach across the health sectors. The president’s budget, and a recent report from the White House Council of Economic Advisors, put forth a variety of policies to address pharmaceutical pricing. These include establishing a new Medicaid demonstration that would let states experiment with narrower formularies for determining Medicaid drug coverage as well as changes to the 340B drug discount program. They also address Medicare Part B and Part D drug payments and the Food and Drug Administration’s (FDA) approval processes to encourage innovation and generic competition. The report also addresses consolidation among pharmacy benefits managers and whether this trend might reduce costs for consumers.

Both the report and the president’s budget have ideas that could turn into proposed rules, pilots, or legislation. We will have to keep an eye out on industry reaction and further policy developments before we know whether these will materialize. Some of the ideas have had strong (and bipartisan) reaction in the past.

Last October’s executive order required the government to write regulations on three major topics related to health insurance. The Department of Labor has already issued a proposed rule aimed at expanding the availability of association health plans that are not subject to several elements of ACA regulation, and in some instances follow large-group insurance rules. Another rule, which would allow for short-term, limited duration health plans, has cleared review from the Office of Management and Budget (OMB). We are also waiting for a third rule on Health Reimbursement Arrangements (HRAs) that could have sweeping implications for employer-sponsored coverage, especially if Congress nullifies the ACA’s employer mandate, allowing companies to shift toward a defined-contribution model of health coverage.

More regulatory exercises are forthcoming. The administration has demonstrated strong support for payment changes under MACRA, and we expect further rulemaking on aspects of the law such as other-payer advanced alternative payment models. The Medicare Advantage and Part D call letter and advanced notice is now open for public comment (comments due by March 5), with a final rule expected by April 2. Proposed changes include greater latitude on Part D formularies, and allowing MA plans to offer different supplemental benefits to beneficiaries who have certain chronic conditions. The call letter also proposes an end to the requirement that clinicians must enroll in Medicare Part B in order to participate in MA.

Medicaid waivers are another area of exercising regulatory flexibility. Recent CMS guidance clears the way for work requirements for certain beneficiaries, following the approval of such requirements in Kentucky and Indiana Medicaid programs. At least 10 more states have expressed interest, or already have such waivers pending. Some states are now exploring whether CMS would allow lifetime benefit limits to Medicaid beneficiaries in certain circumstances. And Idaho has moved forward with rules that allow health insurers to sell non-ACA compliant plans.

Now that I have completed my annual health policy checkup, I need to step away from the computer and schedule my annual checkup. If you haven’t done so already, I encourage you to do the same!

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In the news

President’s FY 2019 budget request signals health care priorities

Last week, the White House released its 2019 budget proposal, which outlines the administration’s policy priorities for the upcoming fiscal year and officially kicks off the Congressional budget process. The president’s budget is an important articulation of policy goals, even if many budgetary decisions fall to the Congress. The president proposes funding cuts for domestic agencies and social programs while boosting spending for defense, homeland security, and veterans. On health care, the president’s proposed budget emphasizes repealing the Affordable Care Act (ACA), reforming Medicare and Medicaid, addressing drug prices, combating the opioid epidemic, and streamlining federal operations.

Repealing and replacing the ACA
For Medicaid program, the president’s budget calls for a plan, similar to the Graham-Cassidy bill (see the September 19, 2017 Health Care Current) debated in the Senate last year, to restructure financing by imposing spending caps.

For Exchanges, the budget calls for replacing the ACA’s exchange subsidies with block grants to states. The administration estimates this proposal would save $675 billion over the next ten years. The president’s budget also proposes mandatory appropriations to fund cost-sharing reduction (CSR) payments to health plans participating in Exchanges for FY 2018 through the end of calendar year 2019, and to fully fund risk corridor payments (see the November 21, 2017 Health Care Current).

Other proposed changes to the Medicaid program

  • Continue Medicaid disproportionate share payment (DSH) cuts to hospitals
  • Require beneficiaries to prove their immigration status before they can receive benefits
  • Increase copayments for unnecessary emergency department visits
  • Allow states to apply an asset test when determining Medicaid eligibility for non-disabled beneficiaries
  • Make it easier for states to implement and expand managed care

Medicare program changes
The president’s budget proposes to reduce Medicare spending by implementing program and payment policy changes, such as:

  • Reducing Medicare bad-debt payments
  • Eliminating exemptions for site-neutral payments
  • Phasing in the use of encounter data for determining Medicare advantage risk adjustment to payments
  • Expanding bidding for durable medical equipment

Proposals to address prescription drug costs
The president’s budget includes a combination of legislative and regulatory proposals to address prescription drug costs, including:

  • Giving Medicare Part D plans more flexibility in designing their drug formularies and in applying utilization controls
  • Establishing an out-of-pocket spending cap for Medicare Part D beneficiaries
  • Giving Medicare Part D plans greater range for negotiating with drug manufacturers by limiting formularies
  • Requiring Medicare Part D plans to share a portion the manufacturer rebates they receive with beneficiaries
  • Establishing a new Medicaid demonstration that allows up to five states to test establishing drug formularies

Proposals to combat the opioid epidemic

  • $5 billion in new funding over the next five years for HHS activities to combat the opioid epidemic
  • Expand Medicaid coverage for medication-assisted treatment (MAT)
  • Require states to track opioid prescriptions
  • Establish a scalable pilot program to test Medicare bundled payments test for community-based MAT

Other proposals

  • Shift 340B program benefits to hospitals that provide more charity care than other hospitals
  • Consolidate health care workforce training programs, including converting the Medicare, Medicaid and Children’s graduate medical education (GME) programs into a singular, capped federal grant program
  • Eliminate the Agency for Healthcare Research (AHRQ) and move its functions to the National Institutes of Health (NIH)
  • Eliminate Community Service Block Grants

Funding for veterans’ health care
The president’s budget, if enacted, would increase overall funding for the Veterans Health Administration by nearly 10 percent. Highlights include:

  • $11.9 billion to implement the Veteran Coordinated Access and Rewarding Experiences (CARE) program—a legislative proposal to combine and make permanent programs, which allow veterans to receive medical care outside VA facilities 
  • $8.6 billion for mental health services
  • $1.2 billion to continue implementation of a new electronic medical record (EHR) system to enhance coordination between the VA, Department of Defense and other health care providers
  • $381 million for programs to prevent and treat opioid abuse

Related: Last week, HHS Secretary Alex Azar testified before the House Ways and Means Committee and the Senate Finance Committee at hearings on HHS’ FY2019 Budget request. Azar defended his agency’s proposed spending cuts to Medicare, Medicaid, and other public health programs, and called out that it would increase funding for NIH medical research, FDA regulatory activities, and biodefense. He also emphasized his commitment to bipartisan priorities like addressing the opioid epidemic and advancing value-based care.

Health care M&A has not improved value, economists tell House subcommittee

A recent wave of consolidation among health plans, providers, pharmacy benefit managers, and other stakeholders prompted a February 14 hearing before the House Energy and Commerce Oversight and Investigations Subcommittee. Lawmakers want to know whether consolidation affects consumers’ health care costs for consumers, quality and outcomes.

The subcommittee heard from three economists who agreed that consolidation in health care has generally not benefitted patients. Mergers and acquisitions among hospitals and physician offices can lead to higher health care costs, while consolidation among health plans can result in higher premiums, according to research conducted by one of the witnesses. Another witness noted that few hospitals have fully transitioned from the fee-for-service payment model to value-based care, which rewards value rather than the volume of services provided. He noted that it was easier to gain market power through consolidation than to figure out how to transform business models through disruptive innovation.

Consolidation in the health care sector has been going on for decades. More than 1,400 mergers—involving about 3,000 hospitals—took place between 1998 and 2015, according to a memo released before the hearing. During the hearing, the panelists discussed different potential policy changes that could help strengthen consumer protections around consolidation. These included stronger antitrust enforcement policies, more funding for research on how different kinds of consolidation impact patients and consumers, and revamping the kinds of incentives that drive consolidation.

Related: A joint hospital M&A research project conducted by the Deloitte Center for Health Solutions and the Healthcare Financial Management Association (HFMA) found that health systems have a variety of reasons for pursuing M&A. The study also found that the M&A experience varied a great deal among acquired hospitals. Among a sample of transactions with better outcomes, executives reported spending more time on integration planning and execution than those from transactions that did not meet cost and quality goals. Moreover, we found other positive outcomes associated with M&A, including the ability to make capital investments and achieve cost efficiencies from economies of scale.

11.8 million signed up for 2018 coverage through ACA exchanges

11.8 million people have signed up for 2018 health coverage through ACA insurance exchanges. This number is down 3.7 percent from 2017, according to a report from the National Academy for State Health Policy (NASHP).

Some might have expected enrollment to have declined even more given the administration’s decision to end federal cost-sharing reduction subsidies, and shorter open-enrollment periods for coverage sold through HealthCare.gov and some state-based exchanges. However, some states extended open enrollment, and worked on their marketing and outreach to enroll more residents (see the January 30, 2018 Health Care Current). Covered California, which extended its open-enrollment period until the end of January, reported a 3 percent gain in enrollment.

The NASHP report notes that Washington, DC, Massachusetts, and Vermont reported historic lows in uninsured rates.

(Source: National Academy for State Health Policy, “State Health Insurance Marketplace Enrollment (Plan Selections) 2017 and 2018,” February 13, 2018)

Public workshop promotes recommendations for improving safety of opioid use

Stakeholders across the US health care system are trying to understand and respond to growing rates of opioid misuse, addiction, and overdose. On February 15, the Duke-Margolis Center for Health Policy held a public workshop to bring a diverse group of participants together to discuss leading practices and strategies to ensure that opioids are safely and appropriately prescribed. The group also identified potential strategies to define and track meaningful outcomes, improve prescriber decision-making tools, and support health systems and health plans in finding evidence for what works for patients. Throughout the day-long session, some common themes emerged:

  • Stakeholders need better data collection methods and more real-time integrated data: both pharmacy and medical data should be linked to the Prescription Drug Monitoring Programs (PDMP) for each state. This is challenging given that each state has different systems and processes—in most states, PDMPs remain fragmented. Ideally, stakeholders also would have data from the patient (such as patient satisfaction data) to create a full, holistic view.
  • Outcome measures, and what success looks like, is not clear: A major recurring question of the day was, what outcome measures are we driving toward and how can we collect data to get to there? Collecting and integrating data is important, but panelists agreed that data should inform actionable strategies. The goal is to have more evidence-based tools available to help educate patients, clinicians, and providers about chronic-pain management and access to drugs, and guide shared decision-making.
  • Leading practices do exist: Panelists discussed the use of team-based approaches, practical decision-support tools, and how to maximize the role of pharmacists. Some integrated health systems are able to provide their pharmacists will full access to the full electronic medical record. However, many smaller, less integrated systems are unable to share these data. If pharmacists had more complete information about the patient, they could be more a part of the primary care team. Pharmacists could then use their skills to help the team and the patient. 

Prior to the session, Duke-Margolis released a white paper, Strategies for Promoting the Safe Use and Appropriate Prescribing of Prescription Opioids.

In California, researchers find a shrinking pool of behavioral health professionals

Many Californians lack needed access to behavioral health specialists, a trend likely to continue, according to a report from the Healthforce Center at the University of California, San Francisco.

Using data from the US Census Bureau, the US Department of Education, the California Employment Development Department, and licensure records, researchers evaluated the wage, demographic, and geographic distribution of behavioral health providers within the state. They found that certain regions within the state—namely, the Inland Empire and the San Joaquin Valley—have few behavioral health providers relative to population. Some of the areas with the lowest provider ratios also have no relevant residency or doctoral programs. Furthermore, 45 percent of psychiatrists and 37 percent of psychologists in the state are over 60 years old, and may be approaching retirement.

The report also notes that lack of insurance keeps many people from accessing mental health care. Moreover, many mental health providers do not accept certain types of insurance. 77 percent of California psychiatrists accept private health insurance. The numbers are lower for public insurance, with 55 percent accepting Medicare, and 46 percent accepting Medi-Cal (California’s version of Medicaid).

The authors made several recommendations, one of which was to increase the number of behavioral health providers in underserved regions of the state, including through virtual training programs.

(Source: “California’s Current and Future Behavioral Health Workforce,” Janet Coffman, Timothy Bates, Igor Geyn, and Joanne Spetz, University of California—San Francisco, February 2018)

Medicaid work requirement bill passes in Virginia House

The Virginia House of Delegates passed a bill directing the state’s Medicaid agency to submit an 1115 waiver request to require certain able-bodied beneficiaries to work.

The bill passed by a 14-vote margin on February 13, with most Republicans and a few Democrats voting for it. The bill must now pass in the state Senate, and then be signed by Governor Ralph Northam (D). After that, the state would need to submit a waiver to CMS, which the agency would need to approve.

The bill, if enacted, could lead to a future Medicaid expansion in the state. Some Republican lawmakers who previously opposed expanding Medicaid have indicated that they would vote for expansion if the state had work requirements. Northam, a Democrat, strongly supports Medicaid expansion.

North Carolina Governor Roy Cooper (D) is considering a similar compromise. In a pending Medicaid waiver submitted last November, his administration asked CMS for permission to add work requirements to the Medicaid expansion population, if the state legislature passes its Carolina Cares bill.

Health care spending is expected to grow dramatically between now and 2026

Spending on health care is expected to increase across the board through 2026, according to a report published by the CMS actuaries last week.

Nationally, CMS projects that health care costs will increase an average of 5.5 percent per year between 2017 and 2026. By 2026, health care costs will make up 19.7 percent of the gross domestic product (GDP), up from 17.9 percent today. Higher premiums, costlier medical goods and services, and more expensive prescription drugs will contribute to this increase.

Of all payers, Medicare will likely experience the most spending growth over the next several years. Medicare spending is expected to grow by an average of 7.4 percent a year due to increased enrollment—as more baby boomers age into the program—and increased use of services. Meanwhile, CMS actuaries expect Medicaid and private insurance spending to grow more slowly than in recent years.

While health care spending is expected to increase, the insured rate is expected to drop, from 91.1 percent in 2016 to 89.3 percent in 2026. CMS attributes this expected trend to the repeal of the ACA’s individual mandate penalty and a decrease in the offering and take-up of employer-sponsored insurance.

Breaking Boundaries

Innovations in preparing older patients for surgery may improve outcomes

Serious complications after surgery, including death, grow more common as patients age. Innovative hospitals are investing in strategies to prepare older patients for surgery to reduce potential complications.

Duke University Medical Center, the University of California-San Francisco (UCSF) Medical Center, and Michigan Medicine are now intervening in the weeks leading up to surgery by prescribing exercise, encouraging a healthy diet, and trying to minimize anxiety and stress, among other initiatives. Research from Duke’s POSH (Perioperative Optimization of Senior Health) initiative show that early interventions pre-surgery can lead to better outcomes. Compared to a control group, participants in POSH spent less time in the hospital (four days versus six days), were less likely to be readmitted within 30 days of surgery (8 percent vs. 18 percent), and were more likely to go home without the need for home health care (62 percent vs. 51 percent). POSH patients also had slightly fewer complications.

POSH brings together surgeons, geriatricians, anesthesiologists, and social workers to engage older patients and their families. Seniors referred by surgeons attend one to two brief appointments at the hospital prior to surgery and receive a personalized comprehensive assessment focused on their needs (e.g., functional limitations, mobility, cognition, medications, nutrition, and existing medical conditions). The support system that patients have at home from family or other caregivers also factors into the assessment. The program is patient-focused—with the care team aiming to get an understanding of what the individual patient’s goals are, in terms of recovery, and educating them on what to expect. Patients are expected to leave the program, and the surgery, with a clear and tailored to-do list based on their assessments.

Michigan Medicine offers a similar program that focuses on four objectives before surgery: walking more, getting lungs ready through breathing exercises, eating well, and relaxing. Participants receive daily text reminders and can log their progress through a patient portal in the hospital’s electronic health record. UCSF’s Surgery Wellness program for older adults also has a multi-disciplinary approach that includes pre-surgery consultations and an action plan. The hospital is also working to develop an app to help older adults prepare for surgery.

(Source: “A Push to Get Older Adults in Better Shape for Surgery,” Judith Graham, Kaiser Health News, January 2018)

Related: Deloitte’s recent paper, Navigating bundled payments: Strategies to reduce costs and improve health care, discusses strategies hospitals and health plans are using to reduce readmissions and improve care coordination. Health systems that participate in bundled payments—a method of paying for health care in which one price is set for a package, or bundle, of services that previously would have been paid for separately—are often highly motivated to achieve improved health outcomes and reduce unnecessary costs. Many of the programs highlighted in the paper align with the innovative programs being implemented at Duke, Michigan, and UCSF.

The strategies identified in the paper include:

  • Preparing patients for surgery by helping them understand and manage expectations; and advising them about diet, physical activity, stress management, and tobacco cessation. 
  • Investing in care coordinators to track and periodically contact patients after hospital discharge. Care coordinators can assist with medication reconciliation, educate patients about symptoms to monitor, and encourage follow-up with their physicians.
  • Hiring community health workers rather than relying entirely on nurses to help patients and meet care coordination goals.
  • Striving for prompt scheduling with community physicians and outpatient rehabilitation services to improve outcomes, and relying on pharmacists to support medication reconciliation and underscore the importance of adherence.
  • Using analytics to identify patients with the constellation of comorbidities and other health and support issues that put them at the greatest risk for readmissions.
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