Health Care Current: July 26 2016 | Deloitte US | Center for Health Solutions | Life Sciences has been added to your bookmarks.
Health Care Current: July 26, 2016
Evolving drug policy: Working toward a solution
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
- Implementation & Adoption
- On the Hill & In the Courts
- Around the Country
- Breaking Boundaries
Evolving drug policy: Working toward a solution
Many aspects of health care are up for debate today. What will the future of health care financing look like? What role should consumers play in their own health care? How can we continue to manage drug prices while guaranteeing that consumers continue to have access to life-saving treatments and biopharma companies continue to have a business case for investing in innovative research and development (R&D)?
This last question has proved to be one of the more involved debates of the day. And, it is one of the reasons why the debate around prescription drug prices has once again moved to the forefront.
Although a relatively small share of total health care spending, prescription drug spending increased 12.2 percent to $297.7 billion in 2014, faster than the 2.4 percent growth in 2013.1 Specialty drugs, which are often biologics that require special handling and monitoring and are used to treat chronic, serious, or life-threatening diseases, are increasingly contributing to total drug expenditures.2 Many of these drugs are for rare conditions or cancer subtypes targeting a specific genetic mutation, so they may not target a large population. In these cases, there are sometimes few, if any, lower-cost options, resulting in little competition.
Prices across drug classes often reflect the high cost of R&D, not just to bring a drug to market, but to bring future therapies to market, as well. Prescription drugs can lower the total cost of health spending by preventing expensive complications and hospitalizations, and many Americans rely on these therapies to improve their health and enhance their quality of life. Whether caused by more patients gaining access to health care, an aging population, or the introduction of innovative but costly new products, few in health care can debate that now is an important time to lead discussions around drug prices in the US.
To date, no one solution has emerged as a cure-all for every stakeholder. However, a recent Deloitte Center for Health Solutions report, Getting to value: What policies are on the table to manage drug prices?, describes three key policies that stakeholders are debating currently.
These policies for getting better value in health care all have unanswered questions, including: How can the industry gain consensus on how to determine value? How should partnerships between biopharma companies and providers or health plans be approached? And what can be done to address access challenges for patients?
And, of course, we cannot ignore one question that is fundamental to this debate: What is the price of a drug? It’s a complicated question with no straightforward answer. Indeed, the term “drug price” is not always agreed upon. While the drug pricing debate often centers on the initial US launch price (i.e., the list price), actual paid prices vary within different payers and distribution channels across the US health care system and over time.
What we do know is that complex negotiations between biopharma companies and payers (government, health plans, and pharmacy benefit managers) through new pricing mechanisms such as risk-sharing and outcomes-based agreements will likely become increasingly common, especially as the transformation to value-based care accelerates.
For biopharma companies attempting to navigate the ever-evolving landscape of drug pricing policy, prioritizing ongoing conversations around data availability, transparency, and integration will likely be critical to survival. Success may also depend on how well biopharma companies engage with health plans and health care providers to develop value-based contracts for new and existing products. Finally, grounding conversations about value-based contracting with health care stakeholders in real-world success and measures may help these companies through the ever-evolving drug pricing debate.
Dr. Patrick Conway, Deputy Administrator for Innovation & Quality, and US Centers for Medicare and Medicaid Services (CMS) Chief Medical Officer accurately described the sentiment that many stakeholders involved in this debate have had to date in his recent testimony on the Hill when he said, “There are no easy answers to these multifaceted challenges, but there is a significant benefit to all of us of working together to find a solution.”3
1 Centers for Medicare and Medicaid Services, “NHE Fact Sheet,” 2015.
2 In 2014, less than 1 percent of all prescriptions were written for specialty drugs, yet they accounted for approximately 32 percent of total drug expenditures (Pew Charitable Trusts, Fact sheet on specialty drugs and health care costs, November 16, 2015).
3 Patrick Conway, comments made at Senate Finance Committee hearing on the Medicare Part B Demonstration
By Greg Reh, Principal and Life Sciences Sector Leader, Deloitte & Touche LLP
CMS report on Medicare Advantage and MACRA describes statutory barriers to incentives to plans
Most of the ways that CMS identified to encourage Medicare Advantage (MA) health plans to increase the use of alternative payment models (APMs) in MA would likely require legislative or regulatory changes. This is one of the main findings that came out of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) requirement for CMS to explore the feasibility of applying APMs to the MA program and send a report to Congress on the results.
MA health plans are able, but not required, to incorporate APMs into their payment arrangements with health care providers. CMS pays MA health plans population-based payments linked to cost and quality, but CMS says that these incentives do not necessarily reach health care clinicians or other providers. The MA program and applicable statutes enable health plans to drive the adoption of APMs within provider contracts. Those contracts reflect private negotiations of payment and reward structures. But, the noninterference clause of the Social Security Act prohibits CMS from influencing these arrangements – whether through financial or non-financial (e.g., regulatory relief) incentives.
CMS spoke with some of the largest MA health plans and several smaller organizations to understand how they approach value-based arrangements or APMs in their provider contracts. The findings were similar to those of “Unlocking the potential of value-based care in Medicare Advantage,” which was conducted by the Deloitte Center for Health Solutions in December 2015:
- Many health plans are experimenting with alternative payment contracts in MA
- Most of health plans’ value-based care (VBC) strategies are strongly aligned across commercial and MA lines of business. However, MA is different due to the high per-member/per-month costs and disease burden in that population.
- Aspects of the MA program that help health plans optimize revenue (e.g., quality bonuses and risk adjustment) are important drivers of VBC strategy in MA.
CMS concluded that legislative changes would likely be required for CMS to create incentives – financial or non-financial – for health plans to adopt APMs in MA contracts. CMS could explore pilot programs using its authority under 1115A waivers. An example of a pilot CMS is currently running under this authority is the Value-Based Insurance Design program. CMS may consider creating additional pilots and testing different models in this way.
(Source: CMS, “Report to Congress: Alternative Payment Models & Medicare Advantage,” July 2016)
Implementation & Adoption
Almost half of health plans had losses in the individual market in 2013 and 2014
Forty-seven percent of health plans in the individual market in 2014 (the first year of exchanges) lost money that year and the year before, according to a recent analysis by The Commonwealth Fund. Researchers analyzed premium rates and medical loss ratio data for health plans in the individual market to determine how companies performed year over year in this market.
The researchers also compared claims projections, including health plans’ expectations for reinsurance payments, to actual experience. Health plan actuaries had little information when they priced premiums for the first year of the exchanges, so the results, unsurprisingly, show that many health plans needed to revisit their approach for 2015.
Health plans underestimated medical claims for 2014; claims were 5.7 percent higher on average ($429 vs. $406 per member per month [PMPM]). However, some health plans underestimated their claims more than others. The quartile of health plans with the highest claims underestimated their costs by 35 percent on average whereas the quartile of health plans that had the lowest medical claims underestimated their costs by only 4 percent. Health plans also underestimated how much they would receive in reinsurance payments from the federal government. On average, payments were nearly 50 percent higher than expected ($43 vs. $29 PMPM). When these were factored in, net medical claims were only 2.4 percent higher on average ($9 PMPM) than originally projected for 2014.
(Source: The Commonwealth Fund, “How Has the Affordable Care Act Affected Health Insurers' Financial Performance?” July 20, 2016)
Report: More hospitals allow patients to complete transactions online
Results from the 2015 American Hospital Association (AHA) Information Technology Supplement survey indicate that hospitals are increasingly investing in health information technology that allows them to engage with patients. Many hospitals offer patients access to medical records online, the ability to complete health care-related tasks online, and to communicate online with physicians. This allows patients to easily interact with their physicians and engage more in their care. The electronic health record (EHR) Meaningful Use program (MU), policies under MACRA, and other federal incentive programs have helped to increase patient access to their health data.
The survey found that in 2015, 92 percent of hospitals offered medical records online, compared with 89 percent in 2014 and 43 percent in 2013. Moreover, an increasing number of hospitals are allowing patients to download information from their medical record and request changes to their medical record. The report also looked at whether hospitals have systems that give patients ability to complete everyday medical tasks (e.g., pay bills, schedule appointments, refill prescriptions) online. Some routine tasks that are regularly offered online include:
(Source: American Hospital Association, “Individuals’ ability to electronically access their hospital medical records, perform key tasks is growing,” TrendWatch, July 2016)
Study: Medicaid expansion positively impacts many hospitals
A recent Georgetown University Health Policy Institute study compared the impact of Medicaid expansion on hospitals and clinics in expansion and non-expansion states and found that health care systems in expansion states fared better on average. The results of the study are consistent with previous research: expansion states have seen lower uninsured rates, increased access to care, and reduced uncompensated care at safety net institutions.
The researchers interviewed senior executives at hospital systems and federally qualified health centers (FQHCs) and found that Medicaid expansion has had a positive impact on most hospitals and clinics. Medicaid expansion has led to a decrease in uncompensated care and an increase in institutional financial security, new community efforts to integrate and improve care, and new programs to expand access to specialists.
Specific benefits they identified are:
(Source: Adam Searing & Jack Hoadley, “Beyond the Reduction in Uncompensated Care: Medicaid Expansion Is Having a Positive Impact on Safety Net Hospitals and Clinics,” Georgetown' University’s Health Policy Institute, and Center for Children and Families, June 2016)
MedPAC: Medicare Advantage enrollment has grown, and Medicare pays for nearly half of home health and hospice services
The Medicare Payment Advisory Commission (MedPAC) published a new data book that tracks trends and statistics in Medicare spending and enrollment. According to the report, Medicare was the largest single purchaser of health care in 2014, accounting for 23 percent, or $580 billion, of all health care spending in the US. Health care spending growth, as a percentage of the gross domestic product, has slowed recently. However, MedPAC cited that the Medicare Trustee recently projected that the Hospital Insurance (HI) trust fund, which funds Medicare Part A, will become insolvent between 2022 and 2030 (see the June 28, 2016 Health Care Current).
The concentration of Medicare spending is shifting away from Part A and into MA and other benefits. Between 2006 and 2014, MA enrollment increased 129 percent. Accordingly, spending on MA enrollees grew from 16 percent to 26 percent of total Medicare spending from 2006 to 2014.
The number of beneficiaries using home health care has increased steadily: 2.5 million Medicare enrollees used home health services in 2002, and this grew 36 percent to 3.4 million beneficiaries by 2014. Home health and hospice care spending accounted for only 6 percent of health care total spending in 2014; Medicare paid for 42 percent of home health and hospice services that year.
(Source: The Medicare Payment Advisory Committee, “June 2016 Data Book: Health Care Spending and the Medicare Program” July 15, 2016)
On the Hill & In the Courts
Senate introduces bill to amend meaningful use criteria
The Senate Health, Education, Labor & Pensions (HELP) and Finance committees recently introduced legislation aimed at reducing administrative burden for providers – both clinicians and hospitals – under the meaningful use (MU) program. The draft legislation, called the Electronic Health Record (EHR) Regulatory Relief Act, proposes to scale back reporting requirements in line with feedback from providers and other health care organizations.
The EHR Regulatory Relief Act intends to provide more flexibility to providers in the first year of the new reporting requirements by:
When Congress passed MACRA, addressing clinician payment, it included the MU program as part of the new Merit-based Incentive Payment System (MIPS). CMS renamed MU Advancing Care Information and with that removed the “all-or-nothing” approach that requires clinicians to report 100 percent of metrics. However, hospitals still report under the MU program and must meet 100 percent of MU measures to be eligible for financial incentives.
Supporters of the draft legislation, such as the American Medical Association and the Medical Group Management Association, say that it will help providers focus on improving patient care rather than on administrative tasks, which is a key goal of MACRA and health care delivery transformation. The American Hospital Association also has said that MU for hospitals and the EHR reporting under MIPS for clinicians should be more aligned.
FDA publishes goals for the sixth iteration of PDUFA
Last week, the US Food and Drug Administration (FDA) published performance and procedure goals for the Prescription Drug User Fee Act (PDUFA), now in its sixth version. PDUFA V is set to expire in September 2017. PDUFA VI will set pharmaceutical industry fee schedules for fiscal years (FY) 2018-2022 and establish the FDA’s responsibilities for timely and comprehensive pharmaceutical review. The publication, while not legally binding, outlines how the FDA will collaborate with pharmaceutical firms and patient advocates to boost new drug development. It describes procedures and sets time limits for applications, trial, and review for new pharmaceuticals. PDUFA VI is expected to be reauthorized by Congress this October.
PDUFA VI will likely continue many of the programs piloted under PDUFA V and develop new ones. Industry leaders, patient advocates, and policy makers, including FDA Deputy Commissioner Dr. Robert Califf, aim to include more real world evidence (RWE) into regulatory decision making. PDUFA V included pilot programs for collecting meaningful patient and caregiver input on pharmaceutical uses, effectiveness, and relative risk. PDUFA VI will incorporate the first agency guidance on standardizing RWE terminology as well as data collection methods, reporting, and analysis. The FDA says it intends to publish draft guidance for the inclusion of RWE in regulatory submissions by FY2021.
In a departure from prior PDUFA authorizations, the FDA included hiring goals in PDUFA VI. Rapid innovation in biologics and combination products has created a strong demand for new and more talent at the agency. The agency says this investment in infrastructure will improve quality and timeliness of reviews by enabling comprehensive review teams to establish surrogate endpoints and conduct consultations with companies early in the approval pathway. Additional checkpoints will make the review process more transparent for applicants, and they will have more resources available to map a path to approval through the agency.
Many in the pharmaceutical industry, including the Pharmaceutical Research and Manufacturers of America (PhRMA) and Biotechnology Innovation Organization (BIO), support this first step in PDUFA reauthorization. The FDA is expected to publish similar goals for biosimilar drugs, generics, and medical devices in time for Congress to vote on reauthorization by October 2017.
Study: Increased appointment availability for newly eligible Medicaid enrollees in Michigan
A “secret shopper” study found that Medicaid expansion in Michigan has not reduced appointment availability for consumers. According to the study, after Michigan expanded Medicaid, appointment availability increased, Medicaid beneficiaries had more appointments with non-physician providers, and the average wait time remained stable. These results were unexpected, especially as the survey was conducted after a two-year payment increase to Medicaid primary care providers authorized by the Affordable Care Act (ACA) (and subsidized by the federal government) had expired. That policy was intended to improve access, so access might have decreased when it expired.
Researchers compared changes in appointment availability in 295 clinics in Michigan before and one year after the state expanded Medicaid. Key findings include:
- Appointment availability for new Medicaid patients increased from 49 percent (pre-expansion) to 55 percent (post-expansion).
- Wait times for new Medicaid patients remained stable over the course of a year. The median patient wait time was approximately two weeks, and researchers saw no significant difference between wait times for new Medicaid patients and new privately insurance patients.
- Researchers credited some of the increase in appointment availability to the availability of non-physician providers (e.g., nurse practitioners, physician assistants). Before Medicaid expansion, Medicaid enrollees saw non-physician providers 8 percent of the time. This increased to 21 percent after expansion.
Background: In 2013, Michigan obtained a Section 1115 waiver to implement its “Healthy Michigan Plan.” The state provides Medicaid coverage to eligible adults who earn up to 138 percent of the federal poverty level (FPL) through managed care organizations. Through the agreement with CMS, Michigan requires all beneficiaries to make monthly payments into a health savings account based on their average copayments for services. It also requires beneficiaries who earn 100-138 percent of the FPL to make income-based monthly premium contributions to health savings accounts (up to 2 percent of income). The amount enrollees have to pay can be reduced if they meet targets for healthy behavior.
(Source: Renuka Tipirneni et al, American Journal of Managed Care, “Primary care appointment availability and nonphysician providers one year after Medicaid expansion,” June 2016)
Around the Country
CMS publishes guidance for states using value-based purchasing contracts for drugs
As value-based purchasing (VBP) contracts for drugs have become more popular among payers, CMS released guidance for drug manufacturers and state Medicaid agencies on how VBP arrangements could affect the Medicaid Drug Rebate Program.
The guidance comes in response to concerns from manufacturers that Medicaid best price might limit their flexibility to develop value-based contracts with payers. Manufacturers charge state Medicaid programs a “best price” for drugs based on prices they charge to other payers. 600 drug manufacturers participate in the Medicaid drug rebate program, where they provide rebates for most of their covered outpatient drugs as long as Medicaid covers them. In the guidance, CMS said that many manufacturers have been concerned that providing lower prices and additional services through VBP agreements to other payers would lower the best price calculation and increase their rebate obligations to states.
CMS emphasized that best price calculations must include all prices – applicable discounts, rebates, and other transactions that adjust prices either directly or indirectly. The agency went on to say that the impact of VBP arrangements will differ depending on the specifics of the VBP arrangement. While the agency did not provide specifics on what types of agreements would affect the calculations, it recommended that manufacturers consult statute and regulations to determine the best price when negotiating arrangements with payers. CMS says manufacturers can submit questions or comments to the agency, which offered to consult with manufacturers about specific arrangements.
Analysis: Some policy analysts say that the guidance does not offer much more clarity than before, saying that CMS did not provide specifics on what types of payment arrangements would affect best price and rebate calculations. However, based on questions and issues submitted, CMS says it plans to generalize lessons learned and produce additional guidance.
Recent studies show advancements in home health
Recently, a slate of studies on the effectiveness of home health programs have been in the news. With the shift from volume to value and emerging technologies that enable remote monitoring, home health is poised for growth in the coming years. According to the US Census Bureau, the 65 year and older population will increase at five times the rate of the rest of the population until 2040. Baby Boomers are even more inclined than previous generations to remain at home when they need chronic or long-term care.
At the University of Missouri, a research team is using two different types of mobility sensors to monitor seniors for trending health concerns. The first is radar sensors that measure daily activities in older adults at the university’s independent living community. The radar can sense walking speed and determine if a senior has a fall risk. This team has also developed sensors that are placed underneath a mattress to measure cardiac and breathing activity during sleep. Both sensors are non-invasive and do not require the individuals to wear monitoring devices.
The two programs are part of the University’s decade-long initiative to help older adults age at home. The radar study produced data that shows how declines in walking speed can determine fall risks, while the mattress sensor allowed researchers to collect data on sleeping patterns, which when trended over time can detect early signs of illness.
Lee Memorial Health System in Florida is also exploring home health capabilities and demonstrating a positive return-on-investment. The health system has more than 1,400 beds across four acute care hospitals, a rehabilitation hospital, and a children's hospital. Investments in clinical staff such as nurses, nursing aides, social workers, and physical, occupational, and speech therapists, along with telehealth technologies, have been offset by reduced readmissions. The health system is reporting a drop in readmissions from 15.9 percent in fiscal year 2015 to 14.9 percent in fiscal year 2016.
Finally, CMS has been piloting strategies for effective home care services and programs as part of its Medicare Independence at Home pilot. This pilot brings back the physician house call of a bygone era, with modern enhancements that may improve health and reduce costs. Housecall Providers of Portland, Oregon had been operating at a loss, but last year, saved Medicare an average of almost $13,600 per patient in the pilot. Its share of the savings was $1.2 million. MedStar Washington Hospital Center in Washington, D.C. was able to save an average of $12,000 per patient through the program. Medicare reported overall savings of $25 million in the pilot’s first year. From that money, nine practices earned bonuses totaling nearly $12 million.
Analysis: This research is an example of how consumer demand is shaping the future of health care. Deloitte’s recent report, “Technology-enabled home health: Are consumers ready?” presented findings from focus groups that aimed to better understand consumer expectations and preferences for receiving health care services in the home. In general, consumers appear optimistic: the benefits of technology-enabled home health far outweigh the risks, and many are eager to try it. For the unwell, home health technology can help manage their conditions and slow disease progression. For many caregivers, it can offer peace of mind. For the healthy, it can provide the tools and support to maintain healthy behaviors.
Consumers do have some concerns, one being that they do not want the personal nature of health care to be compromised, and do not want technology to interfere with the physician-patient relationship. As more care moves to self-care, many consumers want to have influence and control over their own care and health information. They expect to learn about new technologies and to be actively involved – as patients or caregivers – in deciding which technologies are used for their care, how they are used, and what data will be disclosed and shared.
(Source: CMS, “Independence at home demonstration,” 2016)