Fixing health care’s affordability crisis – Let’s win this one for the Gipper!

Health Care Current | June 6, 2017

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

Fixing health care’s affordability crisis – Let’s win this one for the Gipper!

By Bill Copeland, Vice Chairman, US Life Sciences & Health Care Industry Leader, Deloitte LLP

As of last week, my youngest daughter has her driver’s license, and we are now in the market for a car. Grace knows that, while she will be driving the car, I am the one paying for it. That gives me some special rights to set spending limits, and require certain performance elements – such as safety, practicality, and the model’s maintenance record – be included in the purchase decision. My daughter is more concerned about color, “cuteness,” and how her vehicle will compare to others in the high school parking lot. Grace’s mother thinks in terms of precedent and what we did or did not do for the other five kids when they started to drive.

For me, turning this scenario into a win-win-win situation will be a significant challenge. But given that this is the last time I will be car shopping with a high schooler, I have decided that I must win-win-win this one for the Gipper. (Sorry, I am a Notre Dame alumnus.) Similarly, Congress appears to be facing insurmountable odds in its efforts to fix the US health care system. It is possible to win this one, too. But we should first understand the math of health care.

The math of health care
I believe the Senate is energized now that the AHCA has passed the House of Representatives. It is the Senate’s turn to either pass it, suggest changes through a conference, or write and pass their own version. My colleague, Anne Phelps recently walked through the possible scenarios this bill could take (see the May 9, 2017 Health Care Current).

In my experience, few people understand something I call “the math of health care.” Instead, they tend to focus on health insurance premiums, or are preoccupied with the rules of health care financing. I think the same is happening around the health care policy agenda.

We all know health care is complicated. And while it varies by health plan, about 85 percent or more of each premium dollar is spent on health care.1 The cost of that care is determined by the number of services provided to the patient multiplied by the price of those services. To calculate a premium, the services are categorized (e.g., hospital admissions, outpatient services, physician and professional services, labs, drugs, home health, rehabilitation, and behavior), and the number of expected services is estimated for the population. The number of services in each category is multiplied by the average cost in each category, which equals the total cost.

The headline here is that the US – as compared to the other industrialized nations – is fairly efficient in terms of the number of health care services provided to our population. However, we are significantly pricier for almost every type of service category, which causes our overall health care spending to be significantly greater than most other countries.2

It may be possible to lower our health care costs and defy the historical trend of cost increases. To do it, I believe we should reduce our reliance on the fee-for-service (FFS) reimbursement system, which does not reward health care providers for the quality of services they provide, nor the adoption of a team-based approach. In addition, the FFS system can inhibit the adoption of technology that could help the health system provide more care for less cost. The FFS reimbursement model is based upon the idea of face-to-face interactions with the patient, which might have been appropriate at the time the rule was defined. In today’s world, however, the reimbursement rules can actually constrain the number of potential touchpoints for chronic care when we should be using technology and virtual visits to increase access.

Chronic care accounts for more than 80 percent of the total health care cost, according to the Centers for Disease Control and Prevention (CDC) (see our recent analysis Beyond the acute episode: Can retail clinics create value in chronic care?).3 A leading clinical model for chronic care is a comprehensive, multi-faceted strategy with a team and a structured-treatment approach. We have health care professionals who can provide needed services in person, but some of those services can also be provided virtually and with a team. The FFS model was not designed to accommodate this type of approach.

Ironically, health care financing started out as a prepaid fixed-payment system offered by physicians as a packaged deal. That means the precedent is there, and Congress has the pen to exercise its privilege as the financier and change the terms and conditions of the existing system. We can deploy new technology and innovation to provide more value for less cost. If successful, it could be a win for all citizens, patients, employers, and health care providers. Ultimately the goal would be to offer a greater number of touchpoints for the chronically ill, with much lower costs per service.

Federal, state, and local governments account for nearly half (46 percent) of the health care spending in this country,4 which is financed through taxpayers. Congress may want to consider asserting its rights as the financier to specify, encourage, enable, and facilitate the reduced reliance on FFS and replace it with prepaid reimbursement for health care services. This would better align the incentives to provide more care for less cost. This is the health care math we should be focusing on to deal with and fix the affordability crisis we face.

If you don’t know the story of George Gipp, he was an amazing athlete who went to Notre Dame to play baseball. Knute Rockne, the school’s football coach, recruited Gipp to play football, which he did for four years. Records that Gipp set for passing, rushing, interceptions, and punt returns stood for decades. Some sports historians suggest he might have been the greatest college football player of all time. But Gipp died December 14, 1920, at the age of 25, from a Streptococcal throat infection. He also probably had pneumonia from sleeping outside his dorm room because he missed the curfew and couldn’t get inside. Antibiotics were not readily available. On his deathbed, Gipp is purported to have told Rockne that when the team is getting beat, to ask the boys “to go in there with all they’ve got and win just one for the Gipper.” That’s exactly what the coach did, and the speech inspired the Fighting Irish to win against a previously undefeated team.5

Similarly, I intend to defy insurmountable odds and make my daughter, her mother, and myself happy with this upcoming car purchase. I’m also convinced that we can beat the odds in transforming the health care system. We can’t let the affordability crisis prevent people from receiving the care they need. We have a great health care system. While the FFS system made sense at one time, we need a new system that allows us to continue to improve our system and realign the incentives like we once had in place. Now let’s get in there and win it for the Gipper.

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1 National Association of Insurance Commissioners, Medical Loss Ratio
2 How does health spending in the U.S. compare to other countries? Kaiser Family Foundation, May 22, 2017
3 Chronic Disease Prevention and Health Promotions, Centers for Disease Control and Prevention
4 CMS, National Health Expenditures, 2015,

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In the News

CBO: AHCA would increase uninsured population, decrease federal deficit

The AHCA has the potential to increase the uninsured population by 23 million by 2026, according to an analysis from the Congressional Budget Office (CBO). The analysis, which looked at the version of the AHCA passed by the House of Representatives on May 4, 2017, estimated the bill would reduce the cumulative federal deficit by $119 billion by 2026 (see the Deloitte RegPulse Blog House-passed health care bill would increase uninsured population by 23 million in 2026, nonpartisan analysis projects).

The CBO analysis takes into account four amendments that were added to the bill after an earlier version (see the May 9, 2017 Health Care Current). Notably, compared with the earlier analysis, the current analysis projects $32 billion less in savings and 1 million fewer uninsured individuals.

The Senate is now marking up the AHCA. Because Congress is using the reconciliation process to advance the bill, rather than the regular legislative process, the Senate Budget Committee has primary authority for working on the bill. The budget reconciliation process only requires a simple majority, 51 votes, in the Senate, rather than the 60 votes required for the usual legislative process. Senate leaders have not yet set a date for a full Senate floor vote.

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FDA Commissioner lifts hiring freeze, outlines priorities before lawmakers

At a recent hearing before the House Appropriations Committee, newly confirmed US Food and Drug Administration Commissioner Scott Gottlieb announced the end of the FDA’s hiring freeze. He made the announcement during a hearing on the FDA’s budget request for fiscal year (FY) 2018 before the Appropriations’ Subcommittee on Agriculture, Rural Development, FDA and Related Agencies. Dr. Gottlieb committed to sharing his plan for streamlining the agency and reducing costs by the end of June.

During the hearing, Dr. Gottlieb said his three priorities for the FDA are to:

  1. Increase competition in the life sciences industries by reviewing and enforcing intellectual property (IP) timelines
  2. Review and improve the agency’s pathway for approving generic versions of complex drugs or products to bring them to market in a timely fashion, which is expected to increase patient access to less expensive medicines
  3. Decrease the backlog of submitted approval applications – including completely eliminating the backlog of applications for generic versions of existing products

Related: The administration’s proposed FY 2018 budget would provide the FDA with $4.9 billion for staff salaries and other operations. The proposal states that $3.1 billion of this is to come from user fees paid by the life sciences industry, and $1.8 billion from the budget’s authority, a $939 million decrease in budgetary funding. The budget proposes offsetting cuts by renegotiating more than $700 million in user fees.

The Prescription Drug User Fee Act (PDUFA) – and its accompanying amendments for medical devices (MDUFA), generic drugs (GDUFA), and biologic products (BsUFA) – are up for reauthorization. The latest version of the agreements under consideration in the House and Senate would not raise user fees to the level proposed by the budget. The FDA and life sciences industry negotiate PDUFA every five years and send the result to lawmakers for approval. The latest agreement expires in September 2017.

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To balance budget, administration proposes cutting health care programs

The new administration released its first comprehensive budget proposal which includes proposed cuts to Medicaid, Medicare and other health care programs. The President’s 2018 Budget proposal seeks to balance the budget and eliminate the annual budget deficit within 10 years. Generally, the President’s Budget is reflective of the administration’s health care priorities: reducing federal spending and federal oversight, transferring responsibility to the states, and working more closely with private industry.

The budget proposes saving $627 billion to the federal government over the next 10 years by restructuring Medicaid financing, ending enhanced federal matching funds for the Children’s Health Insurance Program (CHIP), and improving medical liability laws. These cuts are in addition to the estimated $834 billion cut to Medicaid funding under the AHCA. The budget does not propose structural changes to Medicare; however cuts to the Medicaid program may impact the 11 million individuals dually enrolled in Medicare and Medicaid. The budget also proposes cutting or eliminating other public health programs including CDC block grants, Substance Abuse and Mental Health Services Agency (SAMHSA) mental health care block grants, and Health Resources and Services Administration (HRSA) health care workforce training and rural health initiatives. The administration has proposed increasing funding for the Department of Veterans Affairs, including $2.9 billion for the Choice program which allows vets to receive care outside of the VA.

Key changes to US Department of Health and Human Services (HHS) Budget from fiscal year 2017 (FY17) include:

Supreme Court removes one barrier to prescription drug importation

Last week the US Supreme Court overturned a lower court decision and ruled that American companies’ patent rights expire upon sale of the product. This decision could potentially allow prescription drugs to be purchased abroad, imported, and resold in the US.

Lexmark International, which makes toner cartridges for printers, argued that patent laws could be used to limit how other companies use the cartridges after purchasing. The court disagreed and ruled that the patent rights are “exhausted” after the patent holder sells the product. While not directly tied to prescription drugs, the case Impression Products, Inc. v. Lexmark International, Inc, creates a precedent that could make it easier to reimport drugs.

Though the FDA has strict labeling rules and other regulatory requirements that products would still need to meet, the decision prevents manufacturers from using patent protections to block drug reimportation. The Biotechnology Industry Organization (BIO) and other industry groups spoke out against the decision saying that it could lead to “grey” market goods in the US and reduce incentives for innovation.

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HHS announces $70 million in grant funding to fight the opioid epidemic

Last week, HHS announced $70 million in grants to help address opioid abuse, with $28 million for medication-assisted treatment. The grant funding was authorized under the Comprehensive Addiction and Recovery Act of 2016 (CARA) – legislation that targets prevention and treatment measures for opioid use disorders (see the July 19, 2016 Health Care Current).

According to the agency, opioid overdoses caused more than 33,000 deaths in 2015 and reducing opioid abuse is a top health care priority. It outlined a five-part strategy to combat the crisis, emphasizing both addiction prevention and recovery, which includes:

  • Strengthening public health surveillance and epidemiological tracking of affected areas
  • Advancing the practice of non-medical or alternative pain-management techniques to reduce the number of people exposed to potentially-addictive medications
  • Improving access to treatment and recovery services for those already using opioids
  • Targeting availability and distribution of overdose-reversing drugs, such as naloxone
  • Supporting research into the development of opioids with abuse-deterrent formulas for harm reduction and research into addiction as a disease.

The new grant funding is in addition to the $5.9 million for two other CARA programs, the “State Pilot Grant Program for Treatment for Pregnant and Postpartum Women,” and the “Building Communities of Recovery” program, which supports long-term recovery resources.

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Individual market premiums increased 105 percent between 2013 and 2017

Monthly premiums in public exchanges run by the federal government have doubled since 2013, according to the HHS Office of the Assistant Secretary for Planning and Evaluation (ASPE). ASPE analyzed premium increases since the Affordable Care Act (ACA) went into effect, comparing 2013 and 2017 premiums.

For the 39 states that use, the average monthly premium increased from $232 in 2013 to $476 in 2017 – a 105 percent increase. New Jersey’s average monthly premium increase was the lowest (12 percent), and Alabama’s was the highest (222 percent). Overall, three states had an average monthly premium increase of more than 200 percent.

The data sources for the years varied. Medical Loss Ratio (MLR) data on premiums in the individual market is only available from 2013 to 2015 and CMS Multidimensional Information and Data Analytics System (MIDAS) data, which applies only to exchange premiums, is available starting in 2014. Additionally, premium increases are only comparable among states using and not available for insurance policies sold through state-based exchanges.

(Source: HHS, “Individual Market Premium Changes: 2013 – 2017,” May 23, 2017)

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Demand for primary care physicians’ services totals $70 billion

The demand for primary care services exceeds the supply of primary care physicians, according to a white paper from the CBO. In 2013, the demand for primary care physicians’ services totaled $70 billion, a 15.5 percent ($9 billion) increase since 2003.

The CBO projects that primary care physicians’ services will increase by an additional 18 percent ($83 billion) by 2023. Population growth accounts for about half of the projected growth. Increase in demand likely will come from gains in health insurance coverage (2.1 percent), a rapidly aging population (3.2 percent) and growth in volume and intensity of primary care services (4.0 percent).

The CBO suggests:

  • Increasing the supply of services provided by primary care physicians by boosting salaries, implementing payment and delivery models that encourage collaboration, and expanding telehealth.
  • Increasing the supply of primary care services provided by physician assistants and nurse practitioners or at retail clinics.

Increasing the supply of services can be done with or without federal government intervention. For example, telehealth use in areas with few primary care physicians can increase access to primary care services without federal government intervention. Additionally, allowing nurse practitioners and/or physician assistants to provide more of the care that physicians now deliver could also increase the total supply of primary care services with or without federal policy change.

(Source: Duchovny et al. “Projecting demand for the services of primary care doctors,” CBO, May 2017)

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ECRI Institute issues resource to protect hospitals from ransomware attacks

In light of the recent WannaCry ransomware attacks (see the May 23, 2017 Health Care Current), ECRI Institute, a nonprofit organization focused on the safety of medical devices, released guidance to help protect medical device systems from ransomware. The guidance was developed specifically for medical device systems as opposed to general hospital systems.

Medical device systems are more prone to ransomware attacks if they use an older version of Windows OS or have not been updated with the latest clinical-use security patches.

Breaking Boundaries

Telehealth policy moves forward

Last month, the Senate Finance Committee passed a bipartisan bill aimed at strengthening and improving health care outcomes for chronically ill Medicare beneficiaries. The committee unanimously approved the Creating High-Quality Results and Outcomes Necessary to Improve Chronic (CHRONIC) Care Act of 2017 in a 26-0 vote on May 19 (see the May 22, 2017 Center for Health Solutions’ blog by Ryan Haggerty). The legislation would allow Medicare Advantage plans to develop benefits specific to chronic conditions including cancer, diabetes, and Alzheimer’s disease; and would promote the use of telehealth to allow more chronically ill Medicare beneficiaries to receive care at home.

Specific telehealth provisions include allowing:

  • Medicare to pay for remote stroke diagnosis and treatment;
  • Accountable Care Organizations to provide telemedicine; and
  • Medicare Advantage plans to offer telemedicine as a supplemental benefit, as well as pay for home dialysis treatment at home through telemedicine.

A preliminary CBO report estimates that the four telemedicine-related sections of the bill would increase Medicare spending by $150 million over a decade. Concerns that telehealth may increase costs have stalled similar telehealth initiatives in the past. The movement of this bill could signal that there is strong interest in advancing telehealth policy for the chronic care population.

Related: A study published in this month’s Annals of Family Medicine showed that patients who use telehealth as part of their primary care visits are satisfied, and would be interested in continuing telehealth visits as an alternative to in-person visits. The team from Thomas Jefferson University Hospital analyzed data from in-depth qualitative interviews of a small sample of patients (19 adults) after video visits with their primary care clinician. The team found that all patients reported overall satisfaction with the video visits, and most were interested in continuing to see their primary care clinician via video visit. They reported that convenience and decreased costs were the main benefits. Some of the patients also reported feeling more comfortable during the visit, and preferred being in their own supportive environment if they received news about serious health issues. However, some participants cited concerns, including lack of privacy (if they were at work) and lack of ability to receive a physical examination.

Deloitte’s 2016 Survey of US Health Care Consumers found that consumers are open to telehealth. About half of surveyed consumers, whether they had a chronic condition or not, said they would use telemedicine for post-acute care or chronic condition monitoring. Consumers seem less interested in using telemedicine for acute conditions such as sore throats, rashes, and minor injuries. About one-third of surveyed consumers said they had no concerns about using telemedicine. However, 43 percent were concerned about quality of care being lower than if they saw a clinician in person, while 35 percent had privacy and security concerns.

Analysis: An aging population, increasing chronic illness and the importance of self-care, accelerating health costs, regulatory reform, and new payment models are driving interest and growth in telehealth. Some recent studies show that telehealth visits are associated with lower costs than traditional in-office visits and could save money in Medicare. However, some policy analysts say that increased access to telehealth could increase costs in a fee-for-service system.

Until recently, Congress has been slow to move on telehealth. Over the years, many bills have been in the works without passage. Congress did, however, pass the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), which included policies that could encourage greater use of telehealth. MACRA may increase telehealth adoption by both clinicians in Alternative Payment Models (APMs) and those remaining in traditional FFS. Telehealth will likely be a useful tool under MACRA because providers will be required to extend their reach beyond the office setting as they aim for more holistic, quality care that avoids costly and unnecessary services. Additionally, MACRA encourages organizations to enter into new payment and delivery models, which should promote collaboration between health plans and hospitals around telehealth and other technology-based patient services.

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