Health Care Current: February 3, 2015

Beyond the buzzword: In pursuit of innovation

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.

Beyond the buzzword: In pursuit of innovation

For 2015, I’m committed to improving my professional responsiveness and personally practicing more mindfulness in my day-to-day activities. So far so good, but it’s only the beginning of February! I’m always looking for ways to improve my chances of success and recently learned of one study that found that people who wrote down their goals achieved 50 percent more of them than those who did not write them down.1

For CEOs and boards of directors of health care organizations who have committed to leveraging innovation to drive organizational performance in 2015, the challenge is similar: How to stay the course toward innovation and increase the probability of real success.

This challenge is made even more complicated by the array of thought-provoking and illuminating industry conferences that occur this time of year that focus on change and disruption – Singularity University’s Exponential Medicine conference, J.P. Morgan’s Healthcare Conference, Health 2.0 and the World Economic Forum confab in Davos. These sessions are educational and inspiring and give health care organizations a wealth of information to consider as they think about their strategies for the coming year.

Leveraging all of the information available in the marketplace can be overwhelming. Despite this, leading health care organizations must find a way to chart their course through unprecedented market uncertainty and consistently execute on innovation.

Unfortunately, “innovation” is a word that has found its way onto many top business buzzwords lists. Despite its possible over- and misuse, CEOs and boards might find it useful to regularly re-center on its full definition. I think my Deloitte colleague and innovation leader, Michael E. Raynor, describes innovation very clearly. Raynor says innovation is “any combination of activities or technologies that breaks existing performance tradeoffs in the attainment of an outcome, in a manner that expands the realm of the possible.”2 Innovation is not just about developing new products and services—it can apply to many aspects of the organization, including partnerships, market positioning, and customer relations.

Too often there is a wide chasm between stating the need or goal to innovate and implementing a process and platform by which to do so. Many of us have experienced the all too common scenario of an executive proclaiming to their team – “Go innovate!” – with nothing to underpin the statement.

For CEOs and boards of health care organizations, taking stock of where an organization is on the innovation journey is important. And while it may not be immediately obvious, it is also something that can be objectively measured. One place to start is by looking at successfully innovative companies.

When doing so, Doblin, a global leader in innovations and part of Deloitte Consulting LLP, found that 92 percent of innovative organizations have instituted a system of innovation built around four key components:

  • Approach: An organization’s method for establishing clear definitions for the work to be done in creating innovations. 
  • Organization: The units that house innovation competency and the connections among those charged with driving innovation within the broader enterprise and the world. 
  • Resources & competencies: The individuals who perform the work; the skills, tools, and training they need to perform that work capably; and the funding and time to fuel the work. 
  • Metrics & incentives: The targets to guide performance, the measures to evaluate progress, and the incentives (monetary and otherwise) to drive supporting behaviors.

In pursuit of innovation: A CEO checklist combines Deloitte’s research and work in the market with health care organizations from all sectors. This series of questions, developed for CEOs and other senior leaders, includes essential components of a credible and broad innovation plan.

Health care organizations that have resolved to be more innovative or to differentiate through innovation can leverage the checklist to objectively evaluate progress, to challenge their teams and to accelerate the path forward.

In the end, the risk of touting the promise of innovation but not truly executing on the vision is one that CEOs and boards cannot afford to take. Progress toward an organization’s innovation goals in 2015 can differentiate the winners from losers – this checklist can be used to identify where CEOs and senior leadership should focus their efforts to ensure they don’t get lost along the way.

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1Dominican University of California, Gail Matthews, “Goals research summary,”
2Deloitte Insights, Michael E. Raynor, “Introducing perspectives on innovation,” April 30, 2013,

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My Take

By Jason Girzadas, Principal, National Managing Director, Life Sciences & Health Care, Deloitte Consulting LLP


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HHS announces efforts to move Medicare from volume to value

In 2014, Medicare paid providers and physicians $362 billion in the traditional, non-Medicare Advantage program. Last week, the U.S. Department of Health and Human Services (HHS) announced that it will accelerate the shift toward payments based on value over volume. HHS aims to have 90 percent of all payments in the traditional program tied to quality and value and 50 percent of all Medicare payments tied to quality or value through alternative payment models such as accountable care organizations (ACO) and bundled payment arrangements by 2018. HHS has adopted a payment taxonomy framework to guide its efforts and measure the outcome. The more advanced categories build alternative payment models into fee-for-service(FFS) arrangements or can even encompass population-based payments.

HHS Secretary Burwell articulated these goals in an op-ed published in the New England Journal of Medicine last week, highlighting that this is the first time the agency has set a specific goal of this kind. To do this, HHS will use three levers:

  • Incentives: Using Affordable Care Act (ACA) policies and demonstrations and new payment models such as ACOs and bundled payments as guideposts, HHS plans to create and test new payment models, especially those for specialty care (e.g., oncology). 
  • Care delivery reform: HHS will continue building on the success of programs like Partnership for Patients, Transforming Clinical Practice Initiative, health homes in Medicaid and patient-centered medical homes to continue improving how the health care system provides care. 
  • Health information and health IT: Recognizing that information drives good decision making, the agency will also build on efforts it began with the Health Information Technology for Economic and Clinical Health (HITECH) Act. Today, approximately 94 percent of hospitals report using certified electronic health records (EHR). HHS aims to continue this momentum with a focus on interoperability and health IT standards so that patients can access their personal health information and health care providers can make informed clinical decisions.

Related: Shortly after the HHS announcement, a group of health care systems, health plans, consumer groups and policy experts announced the formation of the Health Care Transformation Task Force. The Task Force aims to have 75 percent of their business based on value by 2020. The organizations will work alongside the federal government to increase value-based care (VBC). The Task Force aims to expand beyond the current ACO footprint. They have three main principles to guide the work: honoring patient choice, improving quality measurement and ensuring financial stability.

Analysis: To date, three different health plan and provider segments have had varying degrees of energy, adoption, enthusiasm and commitment to shift from volume to value:

It is important to note that a handful of integrated delivery systems who offer insurance products have been using the value-based model for decades. These players have enjoyed the benefits of their value-based model for some time. Analysts expect that they will see a heightened level of competition given the advancements the segments above will make in the new, value-based environment.

What many organizations have struggled with to this point is how to make the transition to value while still operating in the volume-driven world. The stakes – and penalties – for not aggressively pursuing a value-based strategy could be high. Staying out of the game may not be an option, especially given these recent announcements. “Where can we start?” “Who will be the winners and losers?” “What are the winning strategies?” “How can I best lead our organization through this transformational change?” These questions will likely be asked frequently in c-suites and board rooms as HHS, the Task Force and others accelerate the inevitable drive toward VBC. Speed will be key, as the first-mover market advantage is fully in play in the VBC game.

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Implementation & Adoption

CHIP to expire in September; Arizona experience could predict impact

The Children’s Health Insurance Program (CHIP) covers approximately 8 million children in low-income families whose income is too high to qualify for Medicaid. CHIP was created in 1997 and funding for the program has been extended by Congress twice—most recently through the ACA. The ACA funding extension expires on September 30, 2015. Some analysts have projected that as many as 2.7 million children are at risk of losing their insurance if the program is not extended.

According to a recent analysis by Georgetown University Center for Children and Families, children in Arizona are already seeing what the CHIP expiration could do to children’s health insurance coverage. Starting in 2010, Arizona froze enrollment in CHIP, making it the only state without an active program. Analysts expect that Congress will extend the program; however, if it does not, children receiving coverage through CHIP might have a similar experience to those in Arizona:

  • Loss of CHIP funding could cause many children to lose or have gaps in insurance coverage
  • States might not make up for the loss of federal funds
  • Marketplace coverage may not be affordable (even with premium assistance) and likely would not be as comprehensive

(Source: Burak, Elizabeth Wright, Georgetown University Center for Children and Families, “Children’s Health Coverage in Arizona: A Cautionary Tale for the Future of the Children’s Health Insurance Program (CHIP),” January 15, 2015)

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White House proposes $1.2 billion to combat antibiotic-resistant bacteria

Each year, antibiotic resistance is blamed for nearly 23,000 deaths, and the U.S. Centers for Disease Control and Prevention (CDC) estimate that antibiotic-resistant infections account for $20 billion in excess health care costs and $35 billion in lost productivity. To combat this problem, President Barack Obama proposed to double research and development funding to $1.2 billion. The funding would be distributed among government agencies (e.g., HHS, Departments of Agriculture, Veterans Affairs and Defense) and used to invest in antibiotic development, heightened outbreak surveillance and resistance monitoring.

“One-Health,” part of the initiative, would combine surveillance efforts in the environment and in human and veterinary health. Programs like the National Healthcare Safety Network, the Emerging Infections Program, the National Antimicrobial Resistance Monitoring System and the National Animal Health Monitoring System already track and monitor human and animal pathogens and could better share information.

The government aims to reduce the incidence of four bacterial infections over the next five years. Specific goals include reducing the rate of multi-drug resistant Salmonella infections by 25 percent and carbapenem-resistant Enterobacteriaceae infections by 60 percent. The Obama administration has made it a priority to reduce antibiotic-resistant bacteria. In 2014, the President signed an executive order to initiate federal action and released a strategic action plan.

(Source: Office of the Press Secretary, The White House, “Fact Sheet: President’s 2016 budget proposes historic investment to combat antibiotic –resistant bacteria to protect public health”, January 27, 2015)

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Study: Higher Medicaid payments to physicians improved appointment availability

Earlier this month, the ACA’s policy that increased payments to physicians in Medicaid to Medicare levels expired, leaving states to decide whether to fund payments at these levels. Researchers from the University of Pennsylvania and the Urban Institute found that during the period when higher Medicaid payments were in effect, new Medicaid patients had an easier time getting appointments than before. Wait times did not change, however.

The researchers gathered the information by posing as either individuals with private insurance or individuals with Medicaid seeking “new patient” appointments in ten states. They looked at two time periods: November 2012 through March 2013 and May 2014 through July 2014. On average, availability of primary care appointments for new patients with Medicaid rose from 58.7 percent to 66.4 percent (7.7 percentage points). The researchers also found that physicians practicing in states with the largest pay increases were more likely to offer appointments to new Medicaid patients.

(Source: Polsky, Daniel, Richards, Michael, Basseyn, Simon, Wissoker, Douglas, Kenney, Genevieve M., Zuckerman, Stephen, Rhodes, Karen V., The New England Journal of Medicine “Appointment Availability after Increases in Medicaid Payments for Primary Care” January, 2015)

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Upton releases discussion draft for 21st Century Cures

Since April 2014, the House Energy and Commerce (E&C) Committee’s 21st Century Cures initiative has solicited comments from stakeholders, held eight Health Subcommittee hearings and discussed pressing issues at more than a dozen roundtables with the committee and representatives. Last week, these efforts came to a head when E&C Chairman Fred Upton released a discussion draft bill, the 21st Century Cures Act. The draft legislation centers on five goals:

The legislation has a broad scope, addressing many agencies and programs. The legislation includes changes to Medicare such as expanding telemedicine services in Medicare Parts A and B and the coverage with evidence policy, which is one route for manufacturers and developers to obtain Medicare coverage for their products.

The draft also includes a placeholder for President Obama’s Precision Medicine program, which the administration announced last week. The Obama administration requests $215 million for the National Institutes of Health (NIH), FDA, and Office of the National Coordinator for Health Information Technology (ONC) to help information flow between providers and genome sequencing labs. This program builds on the success of the $400 million genome sequencing program – the Human Genome Project. According to the White House Office of Science and Technology Policy, the first priorities are to learn more about the influence of genetics on cancer and use the results to develop new treatments.

Chairman Upton released the document without backing from Democrats in the committee, but the co-chair, Representative Dianna DeGette stated that she believes the committee can reach a bipartisan consensus on the effort. Representative Upton and others aim to send a final bill to the White House by the end of 2015. Last week, Senators Lamar Alexander and Richard Burr released a report that runs parallel and complementary to the House’s 21st Century Cures effort.

(Source: U.S. House Committee on Energy and Commerce, “The 21st Century Cures Discussion Document White Paper,” January 27, 2015)

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On the Hill & In the Courts

ONC targets interoperability by 2017

Last week, the ONC laid out a roadmap for reaching interoperability that goes beyond technological changes alone. The ONC aims for providers and individuals to have the capability to “send, receive, find and use a common set of electronic clinical information at the nationwide level by the end of 2017.” The roadmap calls for four actions in the short term:

  • Establish a governance framework for interoperability that includes “overarching rules of the road” and involves a public/private process for implementation
  • Improve standards and guidance so they are “scalable, high performing and simple”
  • Use policy and funding levers to create incentives to use common technical standards to share health information technology
  • Protect privacy and security while helping health care organizations understand and abide by Health Insurance Portability and Accountability Act (HIPAA) rules

Analysis: Interoperability is a patient safety issue above all else. An estimated 8-14 percent of medical records have information attributed to the wrong patient. Achieving goals in accountable and coordinated care depends in part on the ability to have interoperable systems that help get the right care to the right patient at the right time. The focus of the last several years has been on accelerating the adoption of EHR systems. However, systems developers and providers need a business case and nonmonetary incentives to promote a “culture of interoperability” among vendors, payers, clinicians and other stakeholders.

(Source: ONC, “Connecting Health and Care for the Nation A Shared Nationwide Interoperability Roadmap,” January 2015)

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CMS to modify Meaningful Use requirements

On January 29, the U.S. Centers for Medicare and Medicaid (CMS) indicated in a blog post that it will update the Medicare and Medicaid EHR Incentive Program regulations this spring. CMS aims to reduce the administrative burden on providers without diluting the program’s goals. The rule will address several issues:

  • Reducing complexity
  • Lessening the reporting burden on providers
  • Realigning hospital EHR reporting periods to the calendar year to allow more time and better align with other CMS programs

CMS clarified that this announcement is not part of the Stage 3 proposed rule that is anticipated to be released in March. The Stage 3 proposed rule will focus on Meaningful Use requirements for 2017 and later.

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CBO finds that ACA costs could be lower than originally projected, but public debt will rise

Last week, the Congressional Budget Office (CBO) published its latest budget and economic outlook for 2015 through 2025. Outlays from the federal government are expected to increase from 20 percent of gross domestic product (GDP) this year to 22 percent by 2025. The aging of the Baby Boomer population, the cost of premium tax credits for individuals in the health insurance marketplaces, increasing health care costs and rising interest rates will all contribute to greater spending in Social Security, Medicare and Medicaid. The budget deficit is expected to reach $1.1 trillion by 2025:

CBO’s latest estimates reflect recent data from the ACA’s insurance coverage provisions. The first CBO estimates, published in March 2010, projected that these provisions would cost the federal government $710 billion from 2015 through 2019. This latest projection revised that down to $571 billion for the same time period, a 20 percent decrease. Changes reflected in the latest estimates include: The Supreme Court ruling that Medicaid expansion was optional for the states, slower health care spending growth (in 2013, spending grew only 3.6 percent over 2012) and lower spending on premiums subsidies in the health insurance marketplaces and lower Medicaid spending per beneficiary. CBO also lowered its estimates of the number of people who will receive insurance coverage through the ACA by 2024:

(Source: Congressional Budget Office, “The Budget and Economic Outlook: 2015 to 2025,” January 26, 2015)

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CMS approves Indiana’s alternate Medicaid expansion program, HIP 2.0

Governor Mike Pence of Indiana announced Tuesday that CMS approved the state’s Section 1115 waiver for Medicaid expansion—Healthy Indiana Plan (HIP) 2.0. HIP 2.0 amends the state’s current and traditional Medicaid program, Healthy Indiana Plan, or HIP. The program will expand Medicaid coverage to individuals age 19-64 with incomes up to 138 percent of the federal poverty level (FPL), and will increase coverage to 350,000 Indiana residents who are currently uninsured. The plan includes two programs:

  • HIP Plus: All individuals will be enrolled onto HIP Plus. In order to maintain eligibility for HIP Plus beneficiaries must contribute to a Personal Wellness and Responsibility (POWER) account, which operates similarly to a health savings account. HIP Plus includes vision and dental coverage as well as essential health benefits.
  • HIP Basic: Individuals that earn less than 100 percent of the FPL ($11,670 annually for an individual) and do not contribute to a POWER account will be placed in the HIP Basic plan. HIP Basic is a limited benefit plan that still meets the essential benefits.

Consistent with Indiana’s goal of promoting personal accountability and empowering individuals to take personal responsibility for their health, the program requires individuals to pay a co-pay when they use emergency services for non-emergent needs. Coverage will begin on February 1, 2015.

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Around the Country

Marketplace update: More than 9.5 million have enrolled in plans

Last week, HHS announced that enrollment in the health insurance marketplaces – both federally facilitated (FFM) and state-based (SBM) – has reached more than 9.5 million—meeting the HHS projection for 2015 open enrollment. This includes individuals that actively re-enrolled in plans as well as those who chose to automatically re-enroll in their same plan from 2014. Most of the enrollees (7.1 million) are in states that use the FFM. The FFM enrollee population from the first two months this year differs somewhat from the first four months of last year, but has similarities in certain areas:

  • 42 percent are new enrollees for 2015; they were not in a marketplace plan in November 2014
  • 26 percent are ages 18 to 34 and 35 percent are ages 0 to 34 compared with last year where 25 percent were ages 18 to 34 and 30 percent are ages 0 to 34
  • 70 percent have selected a silver-level plan (approximately 30 percent of expenses are paid out of the consumer’s pocket), up from 65 percent in 2014
  • 10 percent of enrollees are Latino, up from 7 percent during the first four months of 2014 open enrollment

Analysis: Many plans are expecting a final rush as consumers approach the enrollment deadline. This happened last year when 3.8 million individuals enrolled in marketplace plans during the last month. Many plans are hoping that younger, healthier enrollees join before the deadline. Many navigators, nonprofit groups and agencies are working to increase enrollment with hard-to-reach and/or reluctant population segments. As enrollment grows, plans could be looking into these national figures to understand each market (geographic and population-based) better. Effective strategies for increasing enrollment in the Latino population, for example, could help plans learn and export best practices to other markets.

The health insurance marketplaces remain tale of “micro-market to micro-market.” Overall, enrollment rates can be helpful, but marketplace dynamics vary by state and population. Rating, level of competition, level of public outreach and the characteristics and numbers of the eligible population vary dramatically by each market and contribute to diverse results. Analyses may need to go beyond the national numbers to local geographies and populations to gain the real insights. Moreover, health plans and other stakeholders are closely watching the results to gauge whether consumer retention stays consistent year over year. If the marketplaces prove to be “sticky” for health plans, the business could be more attractive to health plans, ultimately helping to drive greater interest and commitment to the market.

(Source: HHS, “Open Enrollment Week 10: January 17, 2015 — January 23, 2015,” January 28, 2015)

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Implantable device to treat obesity gets FDA approval

The FDA recently approved an implantable device that treats obesity by curbing the appetite through blocking communication between the stomach and the brain using electrical signals. The Maestro Rechargeable System, made by EnteroMedics Inc., sends these electrical signals to the nerves that help control digestion leading to reduced hunger pangs and prolonged feelings of fullness. The implant is the first FDA-approved obesity device since 2007.

The device is approved in adults 18 and older who have a body-mass index of 35 to 45 and at least one other comorbid condition related to obesity, such as type 2 diabetes. The device was approved for use in people who have tried and failed in the previous five years to lose weight with a traditional weight loss program in order to qualify for the device.

In the company’s most recent clinical trial, patients in the treatment group lost an average of 25 percent excess weight at the end of one year. In an analysis of the treatment group data, about half of the patients lost at least 20 percent of their excess weight, and nearly 40 percent lost at least 25 percent of their excess weight. Patients with the device appeared to sustain the weight loss out to 18 months, whereas the placebo group regained about 40 percent of their weight. As part of the approval, EnteroMedics must conduct a post-approval study that will follow at least 100 patients for five years and collect additional safety and effectiveness data.

Obesity is a major public health problem in the U.S. and globally, and is associated with an increased risk of heart disease, stroke, type 2 diabetes and certain cancers. Recent statistics from the CDC show that more than one-third of all U.S. adults are obese, and the estimated annual medical cost of obesity in the U.S. was $147 billion in 2008 U.S. dollars.

Analysis: Developing effective treatments for obesity has been challenging for life sciences companies. This device is the first to be approved in several years. Other devices aimed at treating obesity are in the pipeline. Since bariatric surgery became more widely available after CMS began covering it for certain patients in 2006, physicians and public health experts have had mixed views about surgical approaches to obesity. Some physicians may wait until more data comes out on the long term effectiveness before recommending an invasive option, others might view the new treatments as a viable therapy for their patients who are unable to lose weight through diet and exercise alone.

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Breaking Boundaries

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