Health Care Current: January 26, 2016

Why the Cadillac tax should (still) not be ignored

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.

Why the Cadillac tax should (still) not be ignored

In late December 2015, as part of a bill to fund the federal government for 2016, Congress delayed the “Cadillac tax” – the tax on high-cost employer-sponsored coverage–for two years. As a result of the delay, which costs approximately $19.7 billion, the tax will apply in 2020, rather than the original Affordable Care Act (ACA) date of 2018 (see Top regulatory trends for 2016 in Life Sciences and Health Care for more information).

Since the news broke, some organizations have taken the two-year delay as an indication that the tax will never go into effect, that no other equally disruptive policy changes may be enacted to replace it, and that they can pull back from work they had planned to complete in advance of the tax taking effect.

My view is that this may be an unwise direction for many organizations.

Instead, it may be advantageous to spend this extra time more carefully assessing the various scenarios Washington policymakers may consider in the future, as well as the changes occurring in the commercial market as the shift away from more generous employer-sponsored health benefits and movement toward consumer-directed health care continue.

First, a two-year delay does not necessarily mean the Cadillac tax is going away easily. In fact, the delay could compound the impact of the tax on the health care sector when it takes effect in 2020. More organizations’ health benefits packages are projected to exceed the tax’s thresholds ($10,200 for self-only coverage, $27,500 for all other coverage) in 2020 than would have in 2018 because the tax is indexed to CPI and not medical inflation, which is projected to grow at a faster rate. And as time passes, the cost to repeal the tax grows and creates a larger hole in the federal deficit as more plans fall subject to the tax. Further, the Department of the Treasury and Internal Revenue Service may issue regulations on the Cadillac tax in 2016 as the Administration still strongly supports the policy and its inclusion as a central cost-reduction and revenue-raising measure in the ACA. These regulations will outline details that are essential for organizations to comply with the tax requirements and adjust their strategies for the tax’s impact on the health care marketplace.

Organizations would be wise to watch for the emergence of the pending regulations, review them carefully, and have a plan in place on their shelf if, in fact, the tax goes into effect in 2020. The Cadillac tax is unlike other fees and taxes in the ACA that require health plans, providers, and life sciences companies to more simply “foot the bill.” The potential impact of the tax on the overall commercial market and the more than 150 million lives covered in employer-sponsored plans should spur hospitals and other health care providers to keep a close eye on it. Employers who wish to avoid paying the Cadillac tax may have limited options, such as reducing their employee benefit packages, shifting more costs to employees, and eventually even considering exit strategies when the tax hits them in full force. This should give us all pause as we consider the crucial role employers play as a powerful organizer, negotiator, innovator, and financial contributor to the private sector market in the US.

Equally important, even if the tax heads toward further delay or even full repeal, it is not likely to go down without a fight under a new presidential administration and Congress. Despite the current furor over the pros and cons of the Cadillac tax itself, the pressure remains to reduce health care spending overall and increase the affordability of coverage. No matter who controls the White House in 2017 prior to the tax taking effect, we are likely to see new policy proposals emerge that would put other measures in place to accomplish the same goals as the Cadillac tax. This may include new ways to increase the affordability of health benefits and a re-examination of the tax treatment of health care benefits, such as capping the individual exclusion for employer-sponsored benefits, creating a clearer path toward defined contribution models for employers to allow their employees to shop for the coverage of their choosing, and examining potential new tax savings vehicles or credits for individuals.

The bottom line? The take away I see is that all roads are leading toward a greater shift in consumers directly paying for more health care services and exercising greater control over how and where their health care dollars are spent. As my colleague Greg Scott, US Health Plan Sector Leader, Deloitte LLP recently wrote in the December 22, 2015 Health Care Current, “the broad industry trends towards consumerism – characterized by higher consumer cost sharing, enhanced consumer engagement and decision support, and more shifting of purchasing responsibility from employers and other health insurance sponsors to individuals – is increasing the price sensitivity of consumers and influencing their behaviors.”

I love to cross things off of my to-do list. And as William James once famously said, “nothing is so fatiguing as the eternal hanging on of an uncompleted task.” The debate and implications of the Cadillac tax have not gone away and should still remain high on the to-do list. Smart organizations are prepping for the regulations, analyzing the upcoming various policy scenarios that the elections will bring, and most importantly, preparing for the ongoing trends occurring in the markets that require new ways to engage more fully with health care customers and patients.

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My Take

By Anne Phelps, Deloitte Risk and Financial Advisory principal, US Health Care Regulatory Leader, Deloitte & Touche LLP


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MedPAC votes to reduce Medicare Part B drug payments to 340B hospitals

Earlier this month, members of the Medicare Payment Advisory Commission (MedPAC) voted (13-3) to reduce Medicare Part B drug payments to hospitals that participate in the 340B program. Through that program, hospitals receive significant discounts from manufacturers on outpatient drugs. Currently, Medicare payments to hospitals for Part B drugs do not account for the difference in price, so 340B hospitals receive higher payments despite spending less on those drugs. Hospitals are supposed to apply the amount that exceeds the price toward patient services.

The commissioners voted to reduce Part B payments to 340B hospitals by 10 percent of the average sales price. The savings—approximately $300 million—would go to the Medicare-funded uncompensated care pool.

Analysis: The 340B Drug Discount Program was created in 1992 and requires drug manufacturers to provide outpatient drugs to eligible health care organizations/covered entities at significantly reduced prices.

America’s Essential Hospitals spoke out against the recommendation, saying that MedPAC did not adequately review how this change would impact 340B hospitals and their patients. It also said that it is unclear what impact this would have on the 340B program changes proposed by the Health Resources and Services Administration (HRSA).

Over the past several years, Congress, the Administration, and health care stakeholders have been attempting to balance the 340B program’s goals of providing drug discounts to entities that serve lower income populations, while limiting the expansion of the program. As explained in the Deloitte Center for Regulatory Strategies’ Top regulatory trends for 2016 in life sciences and health care, after releasing long-awaited draft guidance in August 2015, the Administration has said it will provide final updated guidance on the requirements of the 340B drug pricing program by September 2016. The changes include new restrictions on entity eligibility, drug eligibility, and patient eligibility.

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Implementation & Adoption

Survey: People are willing to share personal data if they receive something in return

The Pew Research Center surveyed 461 adults last year to better understand consumers’ privacy and information sharing preferences. The survey found that certain conditions influence how individuals feel about sharing personal information or permitting surveillance. For example, the surveyed respondents were more likely say they would share information in return for something of perceived value.

The researchers presented several scenarios to survey respondents. According to the results, many people are more comfortable with disclosing personal information through office surveillance cameras and patient records than allowing a smart thermostat to monitor ways people move around their houses to help on energy bills.

Data breaches are a concern for many people, and many also want to avoid overabundance of unsolicited communication from third-parties that receive their personal information. Under the health care scenario, 20 percent of the participants indicated their openness to participate would depend on the website’s level of security. Adults between the ages of 18 and 49 indicated they are hesitant to allow access to their health information on a website because of previous encounters with data breaches. However, Pew Research has found that over the last two years, Americans have become more comfortable with allowing organizations to store and share their medical information digitally.

(Source: Lee Rainie & Maeve Duggan, Pew Research Center, “Privacy and Information Sharing,” January 14, 2016)

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Study finds that many clinical research results are unavailable to the public

A recent policy brief from Health Affairs and the Robert Wood Johnson Foundation (RWJF) analyzes clinical research to find that results from almost half of all completed clinical trials have not been published. Moreover, a large percentage of trials conducted by drug companies for US Food and Drug Administration (FDA) approval are not available in databases or through published literature.

Numerous policies have been formed to help address reporting biases–biases found in publications that are selective, delayed, or contain misleading data–that surface from clinical trials. The review found that clinical studies with positive results are twice as likely to be reported compared with studies with negative results. Collectively, these biases can lead to waste of biomedical research resources, including data and funding. A 2009 analysis estimated that 85 percent of research funds went to studies with limited distribution. As a result, details about a drug’s efficacy, risks, and benefits may not be made public.

Lawmakers have introduced legislation that aims to reduce reporting biases, improve data transparency, and facilitate effective clinical data sharing. For example, the 21st Century Cures Act, passed by the House in July 2015, would require the National Institutes of Health (NIH) to standardize data stored at, which is where many clinical trials must be registered. It would also aim to empower the public to use the database and enhance communication among databases and other forms of health information technology.

Finally, it would direct the FDA and NIH to build a data repository of all US Department of Health and Human Services (HHS) approved clinical trials that can be used for additional research. HHS would evaluate the pilot program’s effectiveness after seven years before it can be incorporated into the research infrastructure. It will assess the program’s ability to allow for meaningful research without compromising patients’ privacy rights. Many drug companies have efforts underway to share trial data more broadly. Finally, some of the major trade groups for pharmaceutical manufacturers in the US and Europe have developed principles for sharing clinical trial data and actively encourage members to participate in such initiatives.

(Source: Elizabeth Richardson, Health Affairs, “Transparency in Clinical Research,” January 14, 2016)

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MedPAC discusses drug prices and ways to curb growth

Growth in brand name drug prices more than offset the effect of lower generic drug prices in 2013, according to a recent MedPAC analysis. MedPAC attributes the growth in drug prices to fewer patent expirations, sharp increases in a few generic drug prices, high-priced biologics and specialty drugs coming out of the drug pipeline, and high launch prices for therapies that treat common conditions.

Although some Medicare Advantage plans raised their premiums more than 20 percent in recent years, average premiums for Part D plans have remained stable at about $30 per month since 2009. MedPAC staff attributes the relative stability of average Part D plan premiums to three factors:

MedPAC commissioners recently evaluated policies to curb rising drug costs, discussing ways to strengthen incentives to control spending of high-cost beneficiaries, a growing share of whom reached the out-of-pocket spending threshold in 2013. In the future, MedPAC aims to draft policy recommendations that give health plans more flexibility to manage costs and protect beneficiaries against high out-of-pocket costs. It will also revisit a previous recommendation that would charge copays to low-income subsidy Medicare beneficiaries. MedPAC will discuss relevant policy options at a public meeting later this spring.

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Survey finds that many ACOs see interoperability and integrating specialty care data as key issues

Premier and eHealth Initiative, a non-profit health IT organization, recently surveyed 68 accountable care organizations (ACOs) and found that interoperability between health IT systems for providers and physicians outside of the ACO is a top challenge for many of the organizations. Integration of specialty-care data was also a key concern for many.

Nearly 80 percent of the surveyed organizations have complex data-sharing agreements, supported by new interfaces to gather data from external providers. However, close to 70 percent of the surveyed participants have difficulty integrating specialty-care data. The data sharing issue surfaced mostly with specialist practices because they do not have incentives to integrate their data. In addition, ACOs report having a difficult time connecting with providers that did not receive federal incentive payments for implementing electronic health records (EHRs), including behavioral health, long-term, post-acute, and hospice care providers.

Key survey findings:

Related: In Integrating specialty care into accountable care organizations: Perspectives from the field, Deloitte interviewed leaders at eight ACOs and found two major trends among ACOs attempting to integrate specialists into their care models. As Sarah Thomas, Research Director, Deloitte Center for Health Solutions, Deloitte LLP discussed in the January 19, 2016 Health Care Current, many organizations are trying to help primary care physicians understand the practice patterns of specialist physicians, but few are trying influence how specialists practice medicine.

Many experts say that ACOs should be doing more to influence cost and quality in specialty care. They recognize that because specialists are so influential in driving health care spending, ACOs will need to influence the way they provide care. Today, research suggests that progress on this front is slow, but in the future, data on costs and quality and new payment methods are likely to be as important for specialists as they have become for primary care physicians.

(Source: Premier, “The Evolving Nature of Accountable Care,” 2015)

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CMS eliminates certain special enrollment periods and outlines ways it will strengthen enforcement

One week after announcing that it would take action to strengthen the federal health insurance exchange (see the January 19, 2016 Health Care Current), the US Centers for Medicare and Medicaid Services (CMS) is eliminating certain special enrollment periods (SEPs) and increasing enforcement of the rules around them. SEPs allow people to enroll in exchange plans outside of the annual open enrollment period and exist to allow individuals who lose their health insurance or experience a major life event to obtain health insurance.

Recently, many insurance companies have expressed concern about the many qualifying life events and lax enforcement. Further, many say that the more than 30 SEPs have led to instability in the market and allowed many consumers to sign up for coverage only after they got sick (with some dropping their plan soon after they received the care they needed).

To increase the stability of the federal exchanges and ensure that they remain attractive for insurers and consumers, CMS is eliminating six special enrollment periods, clarifying eligibility requirements, and stepping up enforcement to prevent fraud.

CMS will issue guidance in the coming weeks on additional strategies it will use to enhance program integrity. It is unclear what the penalties will be for applicants who intentionally provide false information, but CMS emphasized in its notice that individuals must provide accurate information to the exchanges. The agency also stressed that with fewer SEPs available, individuals should enroll during the open enrollment period, which ends January 31, 2016.

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On the Hill & In the Courts

FDA’s draft guidance on cybersecurity for medical devices outlines key components of risk mitigation programs

Earlier this month, the FDA issued draft cybersecurity guidelines for medical devices after they are approved and are in the market. Previous guidance has addressed steps that manufacturers should take to ensure premarket that medical devices have strong cybersecurity protections, but this new guidance would require that those protections extend into the full life of medical devices.

The guidance describes the components the FDA considers to be necessary for a complete and comprehensive cybersecurity risk management program:

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CMS provides resource for states seeking Medicaid systems updates

CMS recently launched a site to support states' efforts to upgrade their Medicaid eligibility and enrollment systems. Many states want to improve their member experience, enhance administrative efficiencies, and reduce costs. The new site aims to help states achieve these goals.

According to iHealthBeat, roughly 25 percent of states want to modernize their Medicaid technology systems. The new site will combine Medicaid procurement sites and open proposals for state Medicaid IT to allow stakeholders to review guidance documents for new systems certifications. It will also allow vendors to identify systems that could use upgrades.

Analysis: Improvements in eligibility and enrollment systems may allow states to enroll members in coverage more quickly and efficiently, regardless of whether they are in managed care or fee-for-service. The new site and tools provided by CMS may help states think “out-of-the-box” and identify ways they can leverage existing assets and streamline current processes.

In December 2015, CMS permanently extended a 90 percent federal match for investments in Medicaid systems as a part of its effort to improve eligibility and enrollment systems. CMS invests roughly $5 billion into state Medicaid information technology annually to support these efforts. Since states began expanding Medicare two years ago, 13.5 million new people have enrolled in Medicaid or CHIP coverage. Today, the programs jointly provide insurance to nearly 72 million people.

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Around the Country

Study finds that state Medicaid policy may influence telemedicine utilization in Medicare

State Medicaid telemedicine policies may influence Medicare beneficiaries’ use of those services, according to recent study published in Telemedicine and e-Health. The study looked at how Medicare beneficiaries’ utilization of telemedicine services changed in states that expanded telemedicine coverage in Medicaid or implemented commercial telemedicine parity laws.

Researchers looked at Medicare claims data from 2011-2013 in Illinois where Medicaid telemedicine coverage was expanded in 2012. They found that telemedicine use among Medicare enrollees grew 173 percent from 2011 to 2012. Additionally, Medicare telemedicine use in Michigan increased 118 percent from 2012 to 2013 after the state enacted telemedicine parity laws for commercial payers. As a control, researchers looked at telemedicine use in Medicare for the same period in surrounding states (with no significant policy changes) and though utilization varied, there were no discernible patterns.

Background: In general, CMS considers telemedicine to be a cost-effective alternative to traditional face-to-face health care services. Since 2000, Medicare’s telemedicine reimbursement and policies have changed very little. However, states can decide whether or not cover telemedicine for Medicaid enrollees, what types of services to cover, where in the state it can be covered, how it is provided, what types of providers can receive reimbursed, and how much to reimburse for telemedicine services as long as such payments do not exceed federal upper limits. States also can require commercial plans to cover telemedicine services because commercial insurance markets are mostly regulated at the state level.

(Source: Jonathan Neufeld, Charles Doarn, and Aly Reem, Telemedicine and e-Health, “State Policies Influence Medicare Telemedicine Utilization,” January 2016)

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GAO finds spending on managed care varies across the US

Federal spending on Medicaid managed care increased from $27 billion to $107 billion from fiscal year (FY) 2004 to FY 2014. The recent report from the Government Accountability Office (GAO) also found that Medicaid managed care represented 38 percent of total federal Medicaid spending in FY 2014.

Senator Ron Wyden and Representative Frank Pallone Jr. asked the GAO to look at managed care expenditures and state oversight of Medicaid managed care. The report found considerable variation across eight states in total and average per beneficiary payments to managed care organizations (MCOs) in 2014. For example, total payments ranged from $1.3 billion in Louisiana to $18.2 billion in California, and average payments per beneficiary ranged from about $2,800 in California to about $5,180 in Pennsylvania.

GAO also looked at whether MCOs are adhering to state-set minimum medical loss ratios (MLRs). Five of the eight states require MCOs to meet annual MLRs, which range from 83 to 85 percentage. In those states, all MCOs were above the state required minimums. Draft federal guidance that came out last year would set a standard MLR of 85 percent for Medicaid managed care plans. This would require managed care plans to spend no more than 15 percent of the premium dollars that they received on administration and profit. The rest would need to go to medical care. These regulations are expected to be finalized later this year.

Background: Managed care in Medicaid – where states contract with MCOs to cover benefits – has increased with larger Medicaid enrollment. More people with complex health needs are being moved into managed care arrangements. States have flexibility, within broad federal parameters, to design and implement their Medicaid programs and therefore play a critical role in overseeing managed care. For this analysis, GAO selected eight geographically diverse states that use managed care to cover a portion of their Medicaid population. GAO reviewed state payment data and contracts with MCOs and interviewed state officials to complete the analysis.

(Source: GAO “Medicaid managed care: Trends in Federal spending and state oversight of costs and enrollment,” January, 2016)

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Awareness and education growing around personalized medicine

Starting last week, Vanderbilt University Medical Center (VUMC) began offering a free open online course on personalized medicine. The course came about because of the exponential increase in knowledge and understanding of the concepts of personalized medicine that has taken place in the last decade.

NIH describes personalized medicine as the evolution from the “one-size-fits-all” approach to prescribing medications of the past to today’s awareness that genetic variations can cause different patients to respond in different ways to the same medication. Insights in personalized medicine and targeted therapies over the last decade have led to more accurate dosing of some medications based on a person’s genetic profile, new, more targeted drugs, and the potential to improve health care in the future, when physicians will be able to prescribe the right dose of the right medicine for more people.

Though the target audience is physicians who have been out of training for five or more years, the course is free of charge to anyone in the world with an internet connection. Health professionals and the general public are encouraged to participate.

VUMC created a program called PREDICT (Pharmacogenomic Resource for Enhanced Decisions in Care & Treatment), which uses prospective genetic testing to guide drug selection and dosing and lower patients’ risk of adverse drug reactions. Last year, Vanderbilt received a five-year grant from the federal government to develop strategies to predict patient response to drugs. The new course will take advantage of the work VUMC has done to date and will present brief primers in genetics and mechanisms underlying drug response variability. Students will learn principles of how genetics are being used to refine diagnoses and to personalize treatment in rare and common diseases from a series of case studies. The course will also cover ethical and operational issues around how to implement large-scale genomic sequencing in clinical practice. Major objectives of the course include:

  • How genetic variants can contribute to human disease susceptibility
  • How to choose among drug therapies based on genetic factors
  • Understanding that the functional consequences of the vast majority of genetic variants discovered by modern sequencing are widely unknown

Analysis: Last week, the NIH announced it will spend $280 million over the next four years to support several genome sequencing and analysis centers to better understand the genomics basis for both common and rare diseases with the goal of improved diagnostic and treatment tools. The NIH also aims to enroll a research cohort of one million or more Americans into the Precision Medicine Initiative Cohort Program to expand knowledge of precision medicine approaches. As these initiatives gain momentum, it will be increasingly important for the public and clinicians to understand the potential for personalized medicine to improve health and health care.

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Breaking Boundaries

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