Health Care Current: March 10, 2015

King v. Burwell: Will the Supreme Court decision spur states to action?

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.

King v. Burwell: Will the Supreme Court decision spur states to action?

Last week, the U.S. Supreme Court heard arguments in King v. Burwell, the case that challenges an important coverage provision of the Affordable Care Act (ACA). The major issue that the Supreme Court will determine is whether the Internal Revenue Service (IRS) has the authority to make federal tax credits available to individuals who purchase coverage through the federally facilitated Exchanges (FFEs), or what the U.S. Department of Health and Human Services (HHS) refers to as “marketplaces.” If the Supreme Court invalidates the IRS rule, millions of Americans who live in the 34 states that elected not to run their own Exchanges and who are receiving tax credits through the FFEs would lose these subsidies (see more in the story below).

Last week, the justices presented key exploratory questions during the arguments: What was the federal statutory model after which the ACA was designed to establish national insurance rules and provide federal assistance to states? Does the ACA tie states' hands – in either a coercive or cooperative way – to receiving federal assistance only if they establish an insurance Exchange? Is it like Medicaid or the Clean Air Act?

While others struggle with these questions, one thing struck me as I reviewed the Court transcript and read the myriad of articles and opinions covering the case. I would argue – and many have overlooked as time passed – that the precursor to the ACA was the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

In 1996, I was a young staffer working on Capitol Hill with Senators Nancy Kassebaum and Ted Kennedy as they crafted the details of one of the most significant federal laws at that time to create national health insurance market rules. In the final legislation, HIPAA relied on both the states and the federal government to enforce the standards around the availability and portability of health insurance coverage.1 If a state failed to pass enacting legislation or enforce the HIPAA provisions, the Secretary of HHS was instructed under the law to step in and enforce the provisions. This scenario became known as the “federal fallback rules.” HIPAA amended the Public Health Service Act, the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code to set insurance standards and enforcement procedures for the individual and group markets. As of 2012, at least 9 states and the District of Columbia relied on the federal fallback approach to enforce the HIPAA standards.2

Long before I was aware of the King v Burwell case, I thought that HIPAA was the precursor to the ACA. The structure of the laws are similar, they amend the same statutes and there are options provided for states, including the option to pass enacting legislation or “fallback” to the federal government. There is clearly one important difference: in establishing new insurance market rules, and in an effort to expand coverage under the ACA, Congress provided advanced premium assistance tax credits to help individuals purchase Exchange coverage.

In some ways, trying to look back now to surmise Congress’ intent to use coercion or cooperation with states and trying to guess which way the Supreme Court will rule are fruitless exercises for anyone who does not sit on the Supreme Court.

Either way, in my view, the decision by the Supreme Court should be a catalyst for action. If the Court strikes down the availability of tax credits in the FFEs, the structure of the law will remain in place and states will still have the option to move forward or not. If the Supreme Court upholds the credits in the FFEs, many states may interpret that as nearly a final word on the permanence of the law, decide to take the ACA back into their own hands and work toward establishing their own state-based Exchanges.

Some states have begun conversations with their legislatures about moving forward. Others are waiting to see how the Supreme Court rules. Establishing a state-based Exchange may invite budget and political battles in many states. But, there are also opportunities for states that step in now and build Exchanges or coverage models that best suit their needs while applying the lessons others have learned from the past five years of ACA implementation.

With HIPAA on my mind, I always thought the Democratic architects of the ACA intended for states to establish their own Exchanges. I doubt many thought so many states would decline to do that. Many Republicans have expressed the view that states should govern their own insurance markets as they chose to do under HIPAA.

Health care stakeholders need certainty and want to see individuals obtain coverage. The Supreme Court may not only be the final arbiter on the law’s standing, but it may also be the catalyst that moves the debate and the resolution forward. Ultimately, I think the most pressing question is: Will the Supreme Court decision spur states to action?

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1 Bryan Atchinson and Daniel Fox, Health Affairs, “The Politics Of The Health Insurance Portability And
Accountability Act,” 1997,
2 Kaiser Family Foundation, “Non-group coverage rules for HIPAA eligible individuals,” 2012,

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My Take

By Anne Phelps, Principal, U.S. Health Care Regulatory Leader, Deloitte & Touche LLP


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Supreme Court hears oral arguments on King v. Burwell

Last week, the U.S. Supreme Court heard oral arguments on King v. Burwell. The main issue is whether the millions of people living in 34 states will continue to have financial assistance to pay their premiums; if they don’t, many of them may decide to drop coverage. The final decision is expected by June 2015, but after last week’s arguments, many analysts believe it will be a tight decision.

The case will determine whether the language “Exchange established by the state” in the ACA applies to the federally facilitated marketplaces (FFM) as well as the state-based marketplaces (SBM). There could be several implications if the Court decides against the government in this case. However, the most significant implication is likely to be that the advance premium tax credits, or premium subsidies, would not flow to individuals that reside in states where the federal government operates a marketplace.

Michael Carvin, attorney for the plaintiffs, and Solicitor General Donald Verrilli argued the case before the Supreme Court justices on Wednesday, March 4. Throughout the proceedings, the justices focused their questions on several important areas:

1Cornell University Law School, Legal Information Institute, Constitutional Avoidance,

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Implementation & Adoption

FDA approves first biosimilar product in the U.S.

On Friday, the U.S. Food and Drug Administration (FDA) approved Sandoz’s Zarxio (Filgrastim-sndz), a biosimilar product to the reference product Neupogen® (Filgrastim), by Amgen Inc. The FDA accepted the application for the biosimilar version of the drug in July 2014. It is now the first drug to be reviewed and approved under the 351(k) biosimilar pathway created by the Biologics Price Competition and Innovation Act of 2009 (BPCI), which is part of the ACA. In approving Zarxio, the FDA said that the product can be prescribed by health care professionals for the same indications as the reference product.

The FDA also said that it has designated a “placeholder nonproprietary name” for the product: Filgrastim-sndz. The agency has yet to decide on a comprehensive naming policy for biosimilars and said in its announcement that this “should not be viewed as reflective of the agency’s decision” in this area. The FDA intends to issue draft guidance on this topic “in the near future.”

Background: The BPCI established an expedited pathway for FDA licensure of biological products that are biosimilar to products already approved on the market. According to the FDA, biosimilarity is defined as “highly similar to the reference product notwithstanding minor differences in clinically inactive components; and there are no clinically meaningful differences between the biological product and the reference product in terms of the safety, purity and potency of the product.” In early December 2014, Sandoz announced that evidence from the Phase III clinical trial indicated that the drug “demonstrated similarity” to Amgen’s Neupogen®. Sandoz has sold the biosimilar version of Filgrastim in European markets since 2009. In January 2015, the FDA Oncologic Drugs Advisory Committee (ODAC) voted unanimously (14-0) to approve the biosimilar version of Filgrastim. In recommending that the FDA approve the drug, ODAC found that the biosimilar has no significant clinical difference from the biologic product it will compete with.

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Study: Most pharmacists surveyed say they would be confident substituting interchangeable biosimilars with their reference products if they share nonproprietary names

A recent study published in the Journal of Managed Care & Specialty Pharmacy revealed that nearly 75 percent of surveyed pharmacists would feel confident or very confident substituting an interchangeable biosimilar with its reference product if they shared the same international nonproprietary name (INN). This share dropped to only 25.3 percent when asked about products with different nonproprietary names:

Data were collected from 93 pharmacists in order to gain a better understanding of their comfort in substituting interchangeable biosimilars. The study also looked at the influence of various naming conventions on pharmacists’ behaviors. While more than half of the respondents expressed a high level of familiarity with biosimilars, only 50.6 percent were equally familiar with interchangeable biosimilars.

Background: The World Health Organization established global names, or INNs, for substances in order to prevent confusion from having different product names in different countries. Proponents of using single INNs for biosimilars argue that it will minimize confusion and promote the substitution of interchangeable biosimilars. Opponents counter that prescribers may inappropriately substitute non-interchangeable products due to lack of clarity.

(Source: Fernandez-Lopez, Sara, Zazzaz, Denise, Bashir, Mohamed, McLaughlin, Trent, Journal of Managed Care and Specialty Pharmacy, “Assessment of Pharmacists’ Views on Biosimilar Naming Conventions”, March 2015)

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Study finds inconsistencies among national hospital rating systems

Four major national hospital rating systems do not always agree on which of the U.S. hospitals perform well against their peers, according to a study published in the March issue of Health Affairs. Researchers analyzed hospital ratings systems that released hospital scores in 2012 and 2013: U.S. News & World Report's Best Hospitals, HealthGrades' America's 100 Best Hospitals, Leapfrog's Hospital Safety Score and Consumer Reports' Health Safety Score. They found that no hospital ranked as a high performer by all four ratings organizations:

Only 10 percent of the 844 hospitals that received high ratings by one system were similarly recognized by any other rating system. None of the hospitals received a low performance rating by the three organizations that show low performance.

Researchers attribute the inconsistencies to the ratings systems’ different methods and focus. For instance, two systems focus on safety measures but their definitions of safety differ. Another organization focuses on quality. The fourth organization only reviews hospitals that specialize in complex conditions and procedures.

(Source: Austin, J. Matthew, Jha, Ashish K., Romano, Patrick S., Singer, Sara J., Vogus, Timothy, J., Wachter, Robert M., Pronovost, Peter, J., Health Affairs, “National Hospital Ratings Systems Share Few Common Scores and May Generate Confusion Instead of Clarity”, March 2015)

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AAMC projects a more than 90,000 physician shortage by 2025

The American Association of Medical Colleges (AAMC) projects the doctor shortage will grow over the next decade, according to a report published this month. They estimate demographic and policy changes will lead to a total shortage of approximately 90,400 physicians by 2025:

  • For primary care physicians, the projected shortfall is between 12,500 and 31,100 by 2025.
  • The bigger shortfall is for specialists. Their projected shortfall is between 28,200 to 63,700 by 2025.

The AAMC projects that the increasing health needs of an aging population and the ACA’s insurance coverage expansion will outweigh the modest increase in supply of physicians. AAMC expects little impact on demand for physician services from changes to delivery systems, such as accountable care organizations (ACO) and patient-centered medical homes. The AAMC has asked Congress for funding to increase the number of residency slots available to train physicians.

Despite these findings, the researchers said that this prediction is lower than previously predicted in 2010. These earlier estimates projected a shortfall of 130,600 physicians in 2025. The change is largely due to the U.S. Census Bureau’s revision of the projected population in 2025 and a projected increase in medical school graduates.

Related: Results from a Commonwealth Fund study suggest that there will be an adequate supply of physicians and outpatient hospital services for the increased demand in health care services. Growth in health care utilization, due in part to the ACA, will result in a 3.8 percent increase in primary care visits nationally. Hospital outpatient departments are projected to see an average increase of approximately 2.6 percent across the U.S. While utilization trends vary by state, these variations are not necessarily linked with delays in access. The researchers said they are confident in the health care system’s ability to absorb the increases in utilization and identify ways to implement care efficiently. For example, practices may incorporate technology into practice, pool physicians and work with non-physician clinical staff.

(Source: Dall, Tim, West, Terry, Chakrabarti, Ritashree, & Iacobucci, Will, IHS Inc., “The Complexities of Physician Supply and Demand: Projections from 2013 to 2025,” prepared for Association of American Medical Colleges, March 2015)

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CMS releases 2015 results of Value-Based Payment Modifier program

CMS announced results from the 2015 Physician Feedback Program, also known as the Value-Based Payment Modifier (VM) program. CMS assessed participating organizations on their 2013 performance on quality and cost measures. Organizations with higher quality and lower costs will receive larger Medicare payments for the next year, and those with higher costs and lower quality will have cuts in Medicare payments. Approximately 1,200 medical groups with more than 100 eligible providers participated in the 2015 VM program. Only 127 groups chose be scored this year:

While groups had the option to be evaluated this year, it will become mandatory next year. CMS modeled how payment would have been affected if the new system were in place this year. For the organizations that would be subject to quality tiering:

  • Most groups (453) would have seen no adjustment
  • 31 groups would receive a bonus of 1 percent
  • No groups would have achieved the 2 percent bonus
  • 45 groups would receive a 0.5 percent cut
  • 20 groups would receive a payment cut of 1 percent

Analysis: The ACA established the VM program as a way to create a pay-for-performance system for individual physicians in the Medicare fee-for-service program. It is one of several CMS initiatives that counts towards the HHS goal to have 85 percent of all fee-for-service Medicare payments tied to quality or value by 2016 and 90 percent by 2018. Penalties and bonuses for both VM and related programs will increase by the end of the decade. CMS’s estimates that many groups would have had payment cuts if they had participated this year. This statement signals that many practices may not be ready for the increasing focus on pay-for-performance in new health care models.

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On the Hill & In the Courts

CMS: Health Care Payment Learning and Action Network to support HHS value-based care goals

On March 25, 2015, CMS will kick off the Health Care Payment Learning and Action Network, a forum for stakeholders across the health care industry to discuss and pioneer alternative payment models in both public and private insurance plans. The network was first announced in January as part of a larger HHS campaign to increase the role of alternative payment models such as ACOs in Medicare. It will serve as a forum for stakeholders – from insurers to consumer advocates – to discuss the transition to alternate payment models.

HHS Secretary Burwell announced goals for HHS to move payments toward value last month (see the February 3, 2015 Health Care Current). The network will agree on measurements of progress toward these goals. CMS will also work through the network to reach agreement with stakeholders on major issues concerning ACOs, such as beneficiary attribution, financial models, benchmarking and quality and performance measurement. CMS plans at least one full meeting each year, along with additional webinars and discussions. The American Medical Association has already announced plans to participate.

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KHN report: Safety-net hospital margins up in many states regardless of Medicaid expansion status

Profit margins for many safety-net hospitals in some of the largest states that chose not to expand Medicaid under the ACA grew in 2014, according to a report from Kaiser Health News (KHN). KHN reviewed financial reports from about one dozen hospitals in seven states, mostly in the South. Margins for almost all of them increased substantially in 2014, which is the first year of expanded coverage under the ACA.

The hospitals mostly attributed their financial health to the ACA’s insurance coverage expansion and the improving economy. Even without Medicaid expansion in these states, more consumers have private insurance than before, and the healthier economy means that more patients are able to pay their bills. However, many hospital officials are concerned that this trend may not continue as disproportionate share hospital payments continue to be reduced as part of a requirement of the ACA.

(Source: Phil Galewitz, Kaiser Health News, “No Medicaid Expansion? No Problem For Many Safety-Net Hospital Profits,” March 4, 2015)

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Around the Country

Report: Financing mechanisms to integrate health and social services

A recent Commonwealth Fund and Center for Health Care Strategies study examined ways states are integrating comprehensive social services into Medicaid. While Medicaid already requires coverage of certain services (e.g., transport to medical appointments and case management), states have developed a variety of ways to fund social services. Approaches range from grants that can be used for pilot projects, to “braided” federal and (multiple agency) state funding for fully operational programs:

Blended financing refers to combining revenue from different sources – for example, federal and state Medicaid funds – into one pool so that the funds are indistinguishable. Braided financing maintains different pools for different sources that fund Medicaid. Both methods can prove effective, but the researchers discovered that blended funding tends to be more flexible and seamless and minimize administrative burdens. Despite this, blended financing tends to be less common because grants require states to track and report how money is spent from the different sources.

Increasingly, research suggests that factors outside of medical care are linked to health outcomes. Integrating social services into Medicaid services for low-income people intends to boost overall health of the population and potentially reduce spending on preventable health costs.

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Smartphone accessory can perform high tech lab diagnostics

Researchers at Columbia University’s Columbia Engineering have developed a low-cost smartphone accessory, called a “dongle,” that can perform much like a lab-based blood test to detect three infectious disease markers from a finger prick. The device detects disease markers for HIV antibody, treponemal-specific antibody for syphilis, and non-treponemal antibody for active syphilis infection. It marks the first time that a full laboratory-quality immunoassay has been performed on a smartphone accessory.

The dongle replicates the functions of a lab-based blood test to perform the necessary testing. The system was recently piloted by health care workers in Rwanda who tested blood samples obtained via a finger prick from 96 patients. The patients were either enrolled in prevention-of-mother-to-child-transmission clinics or voluntary counseling and testing centers.

The dongle was designed to be small and light and to achieve low power consumption, which is required in places that do not have constant access to electricity. A “one-push vacuum” eliminates the need for a power-consuming electrical pump. The team also incorporated an innovation that eliminates the need for a battery by using the audio jack to transmit power and data. Because audio jacks are standardized among smartphones, the dongle can be attached to any compatible smart device in a plug-and-play manner. Not only is the system durable, it requires little training: during the field testing in Rwanda, health care workers had 30 minutes of training.

The study, published in the February issue of Science Translational Medicine, shows that health care workers using the device were able to obtain diagnostic results in 15 minutes, with sensitivity that rivals the gold standard of laboratory-based testing that is currently used. Patient preference for the dongle was 97 percent compared with laboratory-based tests.

The goal of the dongle is to detect disease early and ultimately reduce deaths. The team is exploring ways to bring this product to market in developing countries, as well as potential uses in the U.S. The smartphone attachment is estimated to cost $34, while the laboratory diagnostic equipment typically costs $18,450.

Analysis: Smartphone-based laboratory and diagnostic equipment are poised to transform health care in the developing world. At the same time, they raise complex medical and ethical issues. Affordable, portable testing for HIV and other diseases could revolutionize public health efforts in Africa and beyond, presuming the results are accurate. In the developed world, the prospect of consumers having direct access to medical and genomic testing elicits both applause and concern. Consumer education and privacy protections will need to be in place to both assure that consumers use the information appropriately and with confidence. For example, it is important to ensure that consumers are counseled about the results and recommended actions. Privacy and security concerns will also continue to shape discussions around mobile and connected health.

(Source: Laksanasopin T et al, “A smartphone dongle for diagnosis of infectious diseases at the point of care,” Science of Translational Medicine, February 4, 2015)

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Breaking Boundaries

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