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Happy New Year! What’s ahead for us?
Health Care Current | January 9, 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.
Happy New Year! What’s ahead for us?
By Bill Copeland, Vice Chairman, US Life Sciences & Health Care Industry Leader, Deloitte Consulting LLP
Welcome to 2018. As we enter another new year, let’s take a look at how the health care ecosystem might advance. What will be the most powerful drivers of change this year, and how will they impact health care, stakeholders, and consumers? I won’t pretend I have any better lens into the future than you do. My father was an economist and practiced for more than 40 years. He would admit he was going to be wrong in his predictions, but always hoped he would at least be directionally correct.
There is one overriding and powerful force that continues to shape the health care market and the overall economic environment in the US—the privilege of having access to affordable, high-quality health care. Health care costs have been a concern for at least thirty years, but the acute issue for us today is affordability.
In 2016, health care comprised 17.9 percent of our gross domestic product (GDP).1 While we know it can’t exceed 100 percent of the GDP, no one knows exactly how much is too much, and the cost is hitting many households in dramatic ways. Households finance 28.1 percent of the nation’s health care bill—just two tenths of a point less than the federal government.2 In December, the US Centers for Medicare and Medicaid Services (CMS) reported that overall health costs increased an average of 4.3 percent in 2016 from the prior year—more than double the consumer price index (2.1 percent).
GenX is most concerned about health costs
A growing number of people are feeling less secure about their ability to finance future health care costs. According to Deloitte’s 2016 Survey of Health Care Consumers, this discomfort appears to be hitting Generation X the hardest. More than 70 percent of people born between 1965 and 1980 say they are not comfortable with their ability to pay for health care costs. While seniors tend to view themselves as being financially comfortable in general, only 49 percent of seniors say they have the resources to feel comfortable with future health care expenses.
The financial pressure on consumers will likely put greater pressure on health care financing and on care delivery stakeholders. This is likely to prompt constrained margins and maybe even reductions in profitability among the players across the health care ecosystem. As information about health care costs and outcomes become more transparent and available, many savvy consumers will base more of their decisions on value.
Four trends poised to shape health care in 2018
The financiers of health care—government, households, and employers—have different levers to pull when it comes to costs. As a result, we will likely continue to see a variety of approaches in the way spending and purchasing are managed. While each of these purchasers abide by different rules, policies, regulations, and operating models, they are all focused on the same thing: costs and outcomes.
This leads me to believe that the following trends will be highly evident in 2018:
- Convergence of health care sectors: This will likely occur through mergers, partnerships, affiliations, and collaborations as many stakeholders seek to eliminate redundancies, improve fixed-asset efficiencies, match costs to patient clinical needs more effectively, build scale economies, and align incentives across industry sectors.
- Acceleration of value-based payment models: A fundamental shift in the clinical model should gain momentum this year. However, this typically isn’t happening because alternative payment models are required under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Instead, this change will likely occur because taking on risk in exchange for potentially higher payments breaks the constraints of fee-for-service. For providers, the transition to value-based payment offers the potential for greater margins, and it also can greatly enhance their ability to outperform peers as outcome data becomes publicly available.
- Greater emphasis on consumers: The consumer-centric health care imperative will likely continue to take shape this year. Even as health plans and providers become more closely aligned on patient outcomes, they likely won’t experience the full benefits until patients are fully engaged and enlightened.
- More reliance on emerging technology: Enabling technology is a lever that can help health care stakeholders leapfrog the performance boundaries of our current system. Technology that reduces health care costs while expanding access is likely to see rapid adoption this year. These emerging technologies include data analytics, cognitive analysis, artificial intelligence, interoperability, and collaboration tools. Tapping into technology can be essential for the health care system to progress and transform. As an aside, I encourage you to check out our January 17 Dbriefs webcast where we’ll be talking about technology trends for the year ahead and their potential to transform life sciences and health care. This will be the first in a series of webcasts, following our January 17 webcast we’ll be deep diving into the specific technology trends and their applications to the industry. Hope you are able to join us!
To put these four trends in context, I offer this from Microsoft Corporation cofounder Bill Gates: “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10. Don’t let yourself be lulled into inaction.”3 I don’t have to be an economist to be directionally correct about health care costs, and these four trends can offer an opportunity to break the existing constraints that may well allow us to provide greater value at lower costs.
3 The Road Ahead, by Bill Gates, 1995
In the news
2.3 percent medical device tax goes back into effect
The tax on medical devices called for by the Affordable Care Act (ACA) has gone back into effect after a two-year break. Although the tax has been politically unpopular, lawmakers did not vote to eliminate or delay it before the end of the year.
The 2.3 percent tax, which went into effect in 2013, affects devices such as artificial joints, stents, catheters, and pacemakers. At the time, the tax was projected to raise $30 billion dollars over 10 years. In 2017, the Congressional Budget Office said repealing the tax would cost $19.6 billion over ten years. Supporters of the tax contend that it helped to pay for covering the cost of expanding health insurance coverage to millions of Americans, thereby increasing their ability to pay for needed medical devices. Opponents of the tax, including the medical device industry, argue that the additional cost has forced some manufacturers to cut jobs.
The medical device industry has asked Congress to repeal the tax and for the administration to have the Internal Revenue Service provide administrative relief, such as waiving late fees for taxes.
Administration proposes rules that would implement executive order on association health plans
In October, the president signed an executive order directing regulators to consider—within 60 days—existing regulations regarding the formation of association health plans (see the October 24, 2017 Health Care Current). Last week, the US Department of Labor proposed new rules that would exempt certain small businesses and trade groups who purchase health insurance together from many of the Affordable Care Act (ACA) regulations and requirements (see the RegPulse blog on the implications of association health plans).
Specifically, if implemented, the proposed rule would expand the definition of “employer” to include associations that band together for the sole purpose of purchasing health insurance for employees. The rule would loosen rules that limit groups from qualifying as associations because of geography or industry. Under the proposal, more groups or associations would be able to offer coverage outside of ACA exchanges that would not be subject to certain ACA requirements such as the essential health benefits package. Regulators note that the changes are part of a larger effort to increase competition and expand access to lower-premium health coverage options. Association health plans would not be exempt from the ACA rule that prevents plans from charging people more or denying coverage based on pre-existing conditions. Additionally, state regulators would still have the authority to instate their own rules on association plans.
Proponents say that expanding association health plans would increase choices and competition for small employers, which could bring down health insurance costs. Some insurers already offer similar products. UnitedHealth Group, for example, has roughly 300,000 members enrolled in such plans now.
However, the National Association of Insurance Commissioners (NAIC) warns that the change could harm consumers because health plans will not have to comply with some ACA rules such coverage of essential health benefits. Some state regulators also worry that fewer healthy individuals would purchase coverage through the exchanges, undermining health insurance markets and prompting some health plans to exit.
Judge allows $1.6 billion in cuts to 340B Program to go forward
A federal judge has ruled that payment reductions to the Medicare 340B Program can go into effect January 1. Siding with the US Department of Health and Human Services (HHS), the judge dismissed a lawsuit brought by hospital industry groups. He said that the hospital groups have to act through the HHS administrative process before the judicial system, and that he had no authority to stop the cuts.
The Medicare 340B Program allows hospitals that serve a large number of low-income patients to purchase drugs at discounted rates. CMS’s outpatient payment rule for 2018 changed the formula for the program, reducing those payments by $1.6 billion beginning January 1, 2018 (see the November 21, 2017 Health Care Current). CMS based the decision on a Medicare Payment and Advisory Commission (MedPAC) recommendation.
The American Hospital Association, the Association of American Medical Colleges, and America’s Essential Hospitals filed the lawsuit to stop the change. The industry groups say the cuts will reduce the numbers of patients hospitals can treat. They are seeking legislative changes to the 340B Program, and intend to announce strategies soon.
Consumer uptake of telehealth is limited, but satisfaction is high among users
Despite the potential benefits of telehealth, most American health care consumers have not tried to access health care services remotely, a new report from telemedicine company Avizia, Inc., found.
The report, “Closing the Telehealth Gap,” found that 58 percent of surveyed consumers have not used telehealth services, and only 18 percent of patients say they regularly use telehealth services. However, the patients who have used telehealth view it very favorably, citing convenience, faster service, reduced travel costs, and better access to specialists as some of the benefits.
Among the 82 percent of consumers that do not use telehealth, nearly half said they are more comfortable speaking to doctors in-person. This concern was even more pronounced for psychiatry, a specialty for which providers see considerable potential in telehealth. Nearly three-quarters of survey respondents said they would prefer in-person psychiatric services to video conferences.
Researchers also surveyed physicians and other clinicians and found that the majority of them think telehealth will increase access and improve outcomes. They also said that cost and reimbursement issues have prevented them fully using the technology.
Stroke is the top use case for telehealth, clinicians say, and telehealth use in neurology overall has increased between 2016 and 2017, the report says. Behavioral health was the second most-cited use case.
Finally, the report found that telehealth has the potential to extend the reach of specialists to communities where care options are limited or non-existent, and to reach people who have limited mobility or transportation-related barriers—especially as the aging Baby Boomer generation ages. The report notes that additional federal support is needed to adequately expand telehealth.
Related: The findings aligned with Deloitte’s 2016 Survey of US Health Care Consumers which found that consumers are open to telehealth. About half of surveyed consumers, whether they have a chronic condition or not, say they would use telemedicine for post-acute care or chronic condition monitoring. However, consumers seem less interested in using telemedicine for acute conditions such as sore throats, rashes, or minor injuries.
(Source: Closing the Telehealth Gap, Avizia, Inc., December 2017)
Vermont allocates $620 million for its largest ACO
Vermont’s Green Mountain Care Board unanimously approved a $620 million budget for the state’s largest accountable care organization (ACO), OneCare Vermont, last month. The ACO includes 10 hospitals and hundreds of physicians who receive a fixed monthly payment based on the number of patients they see.
OneCare Vermont was formed by the University of Vermont Medical Center and Dartmouth-Hitchcock in 2012 under the Medicare Shared Savings Program (MSSP). Primary care clinicians receive $3.25 per patient per month, and an additional $15 to $25 for each of the sickest patients they see. Beginning this month, OneCare Vermont is expected to provide coverage to one in five Vermonters.
The budget includes about $600 million for patient care, $12.5 million for operating expenses, and $7.5 million for pilot projects to support the state’s health system.
CMS halts state Medicaid delivery system reform funding
CMS will no longer provide states with funding for their Medicaid delivery system reform efforts under the Designated State Health Programs (DSHPs).
In a letter last month, CMS Deputy Administrator Brian Neale said that many states have failed to contribute funding to these programs, and are instead relying only on federal dollars. Additionally, not all DSHP funding has gone to programs that directly relate to delivery system reform.
CMS has provided states with federal matching funds for these efforts, through Section 1115 waivers, since 2005. CMS will fund existing DSHPs until the waivers expire, but it will not fund DSHPs under new waivers or extension proposals. The agency will work with states to find alternative funding options if they have a pending 1115 proposals that seeks DSHP funding.
Payment updates could boost MA plans’ risk-adjustment scores and payments
CMS released the first part of its Medicare Advantage (MA) risk adjustment updates for 2019—the system will start adjusting for substance abuse, mental health, and kidney disease conditions—as called for by the 21st Century Cures Act. The agency is also introducing a risk adjustment model, called the Payment Condition Count model, which it estimates would increase federal MA payments by 1.1 percent. This model would create risk scores using the number of specified conditions each beneficiary has.
The agency also announced that it will rely less on encounter data than originally proposed, which will increase payments to health plans. CMS will hold encounter data to making up 25 percent in the formula, in response to insurer concerns. CMS adjusts its payments to MA plans to take into account the risk for higher costs, paying more for beneficiaries with health conditions, and less for beneficiaries without them.
CMS is accepting comments on the proposal through March 2, 2018.
Related: CMS will be evaluating MA plan networks every three years starting in 2019. Prior to the recent policy update, CMS has evaluated networks only when companies renewed their status or applied to participate in the program. The agency will also conduct immediate reviews if beneficiaries report problems, or under other special circumstances.
CMS cited consistency in oversight in making the change, and the Government Accountability Office had found that CMS needed to improve oversight of MA plan network adequacy. In response, insurance associations called for a triennial review of large plans only, which CMS rejected.
New tests have potential to detect cancer easier, sooner
The tissue biopsy—a procedure that involves collecting cells to examine under a microscope for cancer detection—is a typical diagnostic test used for patients where cancer is suspected. The tissue biopsy allows practitioners to determine if cancer is present, the type of cancer it is, and help them determine the stage of the cancer to guide prognosis and treatment. The main drawback to biopsies is that they are invasive, painful, and costly. These drawbacks make it difficult to use tissue biopsies to track tumors over time. Researchers around the country are exploring liquid biopsies, which are a way to analyze tumor material in fluids such as blood, urine, or saliva.
Scientists have long known that tumors shed molecules and cells into bodily fluids. In recent years, they have been able to analyze these molecules and cells for some information about the tumor. Much of the research is focusing on analyzing tumor DNA in blood, which is known as circulating tumor DNA. Several liquid biopsy tests that use this method are in clinical development. The research has much potential, but the science is still evolving. Many scientists would like to see more evidence that the test works.
Liquid biopsies that use circulating tumor DNA might be able to detect cancer at an early stage, when treatment can be most successful. Some research shows that these kind of tests can detect cancer in blood samples months before diagnosis using traditional methods such as imaging. One drawback is the higher number of false-positive test results. Another is the potential for the test to detect early-stage tumors that may not grow or may grow so slowly that they would never cause harm, since over-treating tumors can be harmful.
The National Cancer Institute (NCI) supports an initiative to advance the development and testing of liquid biopsy technologies. It is working to create a public-private partnership to bring multi-disciplinary teams together to advance the field.
Even as researchers consider using liquid biopsies for cancer detection, they also are interested in their potential for use in precision medicine. Researchers are working to identify molecular characteristics unique to an individual’s cancer. Early studies show that liquid biopsies have zeroed in on circulating tumor DNA mutations that could potentially be useful in determining optimal treatment.