Health Care Current: June 17, 2014

How can hospitals ward off commoditization?

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.

How can acute care hospitals ward off commoditization?

Com•mod•i•ty: a good or service whose wide availability typically leads to smaller profit margins and diminishes the importance of factors (as brand name) other than price.1 This definition might fit nicely for computer chips, auto mufflers or corn. But health care? Not so much.

Today, acute care hospitals face commoditization as the U.S. health care system enters an era of emerging business models. These emerging business models are being driven by several factors:

  • Regulation and the shift to accountable care: Players across the system are increasingly moving toward value-based payment and care models. With the Medicare Shared Savings Program (MSSP) and private organizations trying out their own accountable care organizations, successful organizations will likely be those who decrease hospital admissions and readmissions, provide better management of chronic care conditions and lower overall costs of care. Medicaid is also testing new models for long-term care in the home and community through new opportunities created by the Affordable Care Act (ACA).
  • The evolving marketplace: Health care providers are facing declining income and narrowing revenue streams, creating pressure for more coordinated care and new payment systems.
  • Information technology: More than ever, primary care is being delivered in non-traditional settings; monitoring devices, telemedicine, emails and E-visits by physicians are rapidly evolving the settings in which care is provided. While some services can’t be replaced by an application (e.g., bathing), mobile health is increasingly used to strengthen the connection between consumers and providers.
  • Medical advances: Diseases that were large drivers of mortality in previous years are now becoming chronic conditions that are managed across the lifespan. This is a large driver behind the growth in the U.S. population over the age of 65—expected to grow from 12.4 percent in 2000 to 19.6 percent in 2030.2

Now, the ability of a health care organization to achieve a mission – whether the health of a community or financial results – may hinge on its capacity to manage or influence events beyond the acute care stay. It’s because of this that we are seeing many hospital systems on the road to becoming health systems.

Revenue diversification is one key to this transformation. And, post-acute care, whether in a skilled nursing facility or delivered at home, is increasingly being seen as an important instrument to help manage the health of acutely or chronically ill individuals. Well-managed, post-acute care settings can often effectively reduce readmissions and improve the health of people suffering from chronic illnesses in a less expensive setting. More importantly, in well-managed post-acute care settings, patients are provided an opportunity to maintain a higher quality of life with fewer acute exacerbations of their illnesses.

In the old fee-for-service world, many hospitals and insurers viewed the post-acute and home-care sectors as necessary but not strategic. But, with the progressive emergence of alternative payment models where providers take on risk, what happens to patients after they leave the hospital has taken on much greater importance. Continuity of care across the spectrum has now become strategic, and simply discharging patients to unmanaged settings increases the risk of adverse outcomes and financial burden to all the stakeholders—most importantly the patient.

Health care systems are actively figuring out their strategy in this arena; some are creating new alliances and others are buying. Home care, in particular, is still a cottage industry in the U.S., with over 300,000 entities and the top four largest accounting for about 10 percent of revenue.3 This industry could become ripe for consolidation and investment as the aging population and new reimbursement models are expected to accelerate the rapid growth of this sector. And, health care systems that have these types of arrangements in place could become more attractive to health plans as they seek out new strategies for cost containment and higher quality care.

Commoditization is not always a bad thing, as costs can drop dramatically. But with so much quality variation in our health care system, commoditization of acute care might lead to lowering the bar for everyone. As hospital systems morph into true health systems that can manage population health, they could differentiate themselves based on qualitative outcomes and strong financial results. My take is that this will be very difficult if all you manage is the acute care segment.

Email | LinkedIn

P.S. Two recent publications from Deloitte on post-acute and home care can give you additional insight into this trend: Home health care: New opportunities and challenges for care provided inside the home and Going vertical: Post-acute care as an opportunity for growth.

1 Webster’s Dictionary,;
2 Hoover Home Health Care Services Report Summary, available from:, accessed May 14, 2014;
3 IbisWorld, “Home Care Providers in the U.S.,” February 2014

Back to top

My Take

By Mitch Morris
MD, Vice Chairman and National Health Care Provider Lead, Deloitte LLP


Subscribe to receive the Health Care Current via email

Implementation & Adoption

Study: On average, off-marketplace plans are 40 percent more expensive than those offered on new marketplaces

A recent analysis from HealthPocket compares premium prices offered by four insurers outside of the health insurance marketplaces to bronze, silver and gold plans offered on the marketplaces in the most populous city of 39 states. HealthPocket found that on average, bronze, silver and gold plans offered outside of the marketplaces were 40 percent more expensive (higher premiums) than plans on the marketplaces. Additional highlights:

  • Bronze plans: The least expensive non-marketplace bronze plans offered by the four insurers were 45 percent more expensive than the least expensive bronze plans offered under the marketplace and had a 6 percent higher deductible on average. In 36 out of the 39 cities studied, bronze plans were cheaper in the marketplace.
  • Silver plans: On average, the cheapest non-marketplace silver plans offered by the four insurers were 39 percent more expensive than the on-marketplace plans. The marketplaces had cheaper silver plans in 35 of the 39 cities compared to non-marketplace plans.
  • Gold plans: Only two insurers offered gold plans in all of the cities that HealthPocket reviewed; on average, the cheapest off-marketplace plan they offered was 40 percent more expensive than the cheapest on-marketplace plan. The marketplace had cheaper gold plans than those offered outside of the marketplace in 35 out of 39 cities.

To obtain the results, HealthPocket examined premium and deductible costs for the least expensive plans under each metal tier for a plan purchased by a 40-year-old, non-smoker in the most populous city in 39 states. If these carriers enter new markets in 2015, they might have to lower premiums to compete with comparable plans already offered by other insurers on the marketplaces.

(Source: HealthPocket, “Cheapest Plans from Major Off-Exchange Companies Over 40% More Expensive than Cheapest Exchange Plans,” June 5, 2014)

Back to top

Report: Value-based insurance design for specialty drugs may reduce cost-sharing and improve access

This month the National Pharmaceutical Council (NPC) published a report that outlines value-based insurance design (V-BID) tactics that payers and purchasers can deploy to promote patient access to specialty drugs. According to the report, rather than employing high cost-sharing tactics, which NPC argues increases financial burden for consumers and affects health outcomes, insurers should deploy V-BID to align consumer incentives with value driven by clinical nuance. Clinical nuance is a concept that acknowledges that the medical benefits of services vary and depend on factors such as patient characteristics and where care is provided. NPC recommends specific tactics to apply V-BID to specialty drugs:

  • Impose only modest cost-sharing on high-value medications: Payers should end four- and five-tier formulary/benefit designs. Several states have already enacted legislation that bans four- and five-tier designs.
  • Reduce cost-sharing for patients with demonstrated need: When evidence shows that a therapy is essential for good health outcomes, payers and purchasers should consider the patient’s characteristics individually. This would help ensure that those who would benefit most from specialty drugs would have the best access to them.
  • Add “reward the good soldier” or “step-edit with copayment relief” benefits: Patients who do not respond after trying a preferred treatment method could benefit from a V-BID structure through relief from high cost-sharing.
  • Use cost-sharing to encourage patients to select high-value providers and services: Plans can offer lower cost-sharing in order to encourage patients to find high-quality, low-cost providers.

NPC referenced studies that have analyzed the impact of V-BID and have found improvements in patient adherence and health outcomes. NPC acknowledged that insurers could face challenges in moving to a V-BID system, but that ultimately these principles could help to improve quality, decrease waste and foster patient engagement.

Background: Specialty drugs are complex molecular medications that are costly and are often used by patients with serious health conditions, such as rheumatoid arthritis, multiple sclerosis and cancer. Currently, one-fourth of pharmaceutical spending in the commercial insurance market is for specialty drugs. Spending is expected to increase, with some experts predicting half of pharmaceutical spending in the commercial market to be on specialty medications by 2018. To offset high costs for these types of drugs, insurers have passed on some of the costs to patients through formulary and benefit design. The average coinsurance rate for specialty drugs is 30 percent and can go as high as 50 percent.

(Source: Fendrick, A. Mark, Buxbaum, Jason, and Westrich, Kimberly. National Pharmaceutical Council, “Supporting Consumer Access to Specialty Medications through Value-Based Insurance Design,” June, 2014)

Back to top

AHIP proposes solutions to improve customer experience in new marketplaces

Last week, America’s Health Insurance Plans (AHIP) released a report that offers suggestions to improve the consumer experience on the new marketplaces. Acknowledging that efforts for improvement in the new marketplaces should be continuous, the group recommends:

  • Creating a new, lower premium catastrophic plan option in the marketplaces: AHIP believes that a new plan that offers coverage at a lower actuarial value (AV) but still includes essential health benefits, has no lifetime limits and covers preventive health services at zero cost to the consumer could make more affordable options for consumers. It could also bring more families into the marketplace, they argue.
  • Ensuring continuity of care protections: Consumers have expressed concern that, if they choose a new plan during the open enrollment period in the fall while they are undergoing a course of treatment for serious illness, they could lose access to their current provider. According to AHIP, health plans support adding continuity of care protections for a number of conditions (e.g., chemotherapy, radiation therapy and pregnancies in later trimesters).
  • Improving transparency of consumer choices: Health plans want consumers to understand the critical role that physician networks can play in their health care. The report calls on health care providers to notify consumers if they are out-of-network and if that is the case, what their price structure is.

Reaction: The report elicited responses from both consumer advocates and drug industry stakeholders. Both worry that the catastrophic coverage plan that AHIP proposed could create cost problems for individuals who suffer from chronic conditions. Both Families USA and the National Health Council reacted to the report, arguing that premiums are not the only costs that individuals face—high deductibles and out-of-pocket costs are a great concern for moderate income individuals and families.

Back to top

On the Hill & In the Courts

CMS approves employee choice delay in 18 federally-facilitated SHOP marketplaces

Last Tuesday the Centers for Medicare & Medicaid Services (CMS) approved requests from 18 states to delay until 2016 the employee choice feature in their Small Business Health Options Program (SHOP) marketplace. The employee choice feature gives small business workers the flexibility to choose from any health plan at the metal level their employer chooses rather than letting business owners choose a plan for them. Last month the U.S. Department of Health & Human Services (HHS) gave state insurance commissioners the option to submit a request for employee choice to be delayed by one year in their SHOP marketplaces. The 18 commissioners concluded that implementing the provision would cause insurers to raise prices and would not be in the best interest of consumers. According to HHS, delaying implementation will give states time to learn from other SHOP marketplaces and better prepare for 2016.

Background: 32 states are operating federally-facilitated SHOPs, and HHS allowed all of them to delay the employee choice provision for 2014. After the additional allowance from HHS last month, the other 14 states with federally-facilitated SHOPs that did not offer employee choice this year did not request a delay. Those 14 states will implement the provision starting in 2015. According to CMS, including the state-based SHOP marketplaces, about two-thirds of Americans live in states that will offer employee choice in the SHOP starting in 2015.

Reaction: The Small Business Majority, a national organization that supports 28 million small businesses, reviewed letters from the states that requested the delay and argued that most of them did not meet the minimum standards required by CMS. The group also believes that there is no legal basis for the delay because the ACA requires this feature to be in the SHOP marketplaces. In a press statement released last week, they argued that this could put small businesses at a competitive disadvantage because they will not be able to offer their employees a choice of health plans.

Back to top

Industry groups send Secretary Burwell letters requesting removal of barriers to telehealth reimbursement

Last Monday two industry groups sent letters to the new HHS Secretary Sylvia Burwell to urge the federal government to remove telehealth reimbursement barriers. Under the MSSP, accountable care organizations (ACOs) cannot be reimbursed for connected-care services unless they are performed at a limited number of sites in rural areas. The letters urge the Secretary to request comments when HHS releases the Notice of Proposed Rulemaking for the MSSP on the use of telehealth and remote-monitoring technologies by ACOs. The groups also asked Burwell to use HHS’s existing authority to waive restrictions in section 1834(m) of the Social Security Act on Medicare reimbursement for connected care services for MSSP ACO providers. The groups expressed other concerns with the oversight and use of telehealth including:

  • Medicare pays for some Medicare Part B services provided by telehealth systems to beneficiaries that can reach an “originating site” in a rural physician shortage area or a county outside of a Metropolitan Statistical Area (MSA)
  • Medicare does not cover store-and-forward services like transferring of medical images
  • Medicare does not cover telehealth services that originate from a beneficiary’s home

Background: The letters were sent by several organizations including the Alliance for Connected Care – which includes telehealth vendors and advocates such as WellPoint, Verizon, Walgreens, American Heart Association and the Patient and Provider Group Advisory Board – and the American Telemedicine Association along with the Healthcare Information Management and Systems Society (HIMSS) and others. A consistent theme is that the reimbursement limitations for telehealth services not only hinder innovation aimed at improving patient health, but they also affect Medicare beneficiaries living outside of rural areas who may have limited access to providers.

Related: Last week the American Medical Association voted to approve a list of principles that it believes support the coverage and payment of telehealth services. The group believes that telehealth services should be paid for under the following circumstances:

  • The physician-patient relationship has been established prior to provision of the services.
  • State licensure and medical practice laws are followed by physicians and/or other health care workers using telehealth.
  • Physicians and other health care workers are licensed in the state where the patient receives services.
  • Patients have access to the licensure and board-certification qualifications of the physician or health care worker providing telehealth services.
  • Telehealth service providers coordinate the patient’s care with their medical home or other physicians already treating the patient.

Back to top

Around the Country

Report: Minnesota’s uninsured population has declined by 40.6 percent since open enrollment

Last week the University of Minnesota’s State Health Access Data Assistance Center (SHADAC) published a report that found that the state’s uninsured population dropped 40.6 percent from September 30, 2013, to May 1, 2014. Prior to the opening of the marketplaces, 445,000 individuals (8.2 percent of the population) were uninsured. This fell to approximately 264,500 individuals (4.9 percent) by May 1, 2014. To assess the insurance coverage impact of the ACA at a state level, researchers compiled private and public payer data from a number of sources. Researchers concluded that the main drivers leading to the drop of the uninsured included:

  • State health insurance programs: Minnesota’s Medicaid program (Medical Assistance) and MinnesotaCare, another state program that offers sliding scale premiums based on income, enrolled more than 155,000 residents, increasing 20.6 percent during the timeframe.
  • Non-group insurance market: The non-group market grew by about 36,000, a 12.5 percent increase, which was due to increased enrollment on the state’s marketplace, MNSure. This growth also includes direct purchase (off-marketplace) enrollment numbers.

The researchers found that the fastest enrollment growth in Minnesota occurred in the public health insurance market. This was not a surprising finding given that two-thirds of the state’s uninsured population in 2013 was estimated to be eligible for public coverage.

(Source: State Health Access Data Assistance Center (SHADAC), “Early Impact of the Affordable Care Act on Health Insurance Coverage in Minnesota,” June, 2014)

Back to top

Massachusetts health insurance coverage increases by 3.9 percent, nearing universal coverage

A Center for Health Information and Analysis (CHIA) report released last week tallied public and private health insurance enrollment trends in Massachusetts. The analysis found that from December 2013 to March 2014, insurance enrollment increased by 215,795 residents, a 3.9 percent increase. While commercial enrollment decreased by 0.2 percent, enrollment in state public programs increased by 19 percent, with coverage now reaching 5.75 million residents. The reported data is not intended to be used to calculate the uninsured rate in Massachusetts, but CHIA noted that approximately 3.9 percent of residents were uninsured in 2012. The number of new enrollees (215,795) would represent approximately 3.2 percent of the state’s population. Therefore, the increase in coverage may indicate that Massachusetts is close to achieving universal coverage—a 0 percent uninsured rate.

Following the ACA, in an effort to increase insurance rates in the state, Massachusetts created MassHealth Transitional Coverage, a public coverage expansion program used to enroll residents who are awaiting eligibility determination for subsidized coverage. Of the 215,795 individuals who enrolled from December to March, the program accounted for over 167,000 enrollees who were awaiting final eligibility.

(Source: Center for Health Information and Analysis (CHIA), “Massachusetts Health Care Coverage: Enrollment Trends,” June, 2014) 

Back to top

Breaking Boundaries

Harvard hospitals pilot Google Glass app that share physician’s point of view

Developers at Remedy and clinicians at Harvard have partnered to test a new Google Glass app for physicians, Beam™. Beam™, which allows off-site specialists to send information such as pictures, videos and texts to an attending physician, is being tested in a 30-day pilot study at three Harvard hospitals for use during night shifts. The app will allow clinicians to provide visual video feed for consultation, while focusing on the care of the patient. Through the study, researchers hope to gauge how the Google Glass system changes functions and tasks for health care providers, while measuring patient perception and adoption rates on the provider side. App developers are targeting residents, medical students, general practitioners, nurses and physician assistants to launch the use of the app. The app is set up on its own server and requires user identification, making it secure to use in a health care environment.

Back to top

New device can identify aggressive cancer cells that lead to metastasis

A new microfluidic device invented by Cornell University cancer researchers is able to isolate the most aggressive cancer cells and look at the phenotype, or behavior, of individual cells. Current cancer cell screenings search for molecular biomarkers of metastatic cells that are expressed by a large number of cancer cells, a process that Cornell researchers say can miss subtle differences from small subpopulations of the most aggressive cells. This new device can capture and screen for the metastatic cells that lead to the worst part of the disease; it uses side channels to wash out cells that are less aggressive and herds the more aggressive cells into a separate channel. In addition to targeting aggressive cancer cells, researchers believe this device could also be used for tissue engineering, inflammation and wound healing.

Back to top

Did you find this useful?