Health Care Current: March 3, 2015

21st Century Cures: Revolutionizing the launch of new therapies

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.

21st Century Cures: Revolutionizing the launch of new therapies

At a House Energy & Commerce Committee 21st Century Cures roundtable, Dr. Francis Collins, Director of the National Institutes of Health, remarked, “We are at risk of losing something which has been one of America’s greatest glories: our success in biomedical research.” While tremendous progress has been made to advance our understanding of disease, there are currently treatments for only 500 of the 7,000 rare diseases.1 Dr. Collins shared his vision for how the U.S. can harness advances in science and technology, including supporting the next generation of talented investigators. He mentioned how energized he was by advances in medical technologies and the promise of personalized medicine. He concluded his remarks by saying, “We can fix this, but it will take the full power of all of you and the recognition that this needs to be […] a high priority for our nation.”2

In reflecting on the work of 21st Century Cures to date, I think about how we as a nation can unite the ecosystem, enhance translational sciences and revolutionize the launch of new therapies. How can we continue to build on opportunities and keep our footing as a global competitor in the area of life sciences innovation? The Energy & Commerce Committee’s 21st Century Cures draft discussion document released in January presented an early vision of a bold blueprint for modernizing the process around discovery, development and delivery of safe, effective therapies (see the February 3 Health Care Current).

The cost of getting new therapies to market has never been higher; the risk of failure for those who take on the risk is great. 21st Century Cures seeks to break through the silos within the research and development chain and throughout the approval and post-marketing stages. Its provisions aim to:

  • Incorporate patient perspectives into the regulatory process and help address their unmet medical needs
  • Build the foundation for 21st century medicine
  • Streamline clinical trials
  • Support continued innovation at our federal public health agencies
  • Modernize medical product regulation

It has been just over a decade since the U.S. Food and Drug Administration (FDA) launched the Critical Path Initiative. This effort was a call to action to modernize the tools necessary to evaluate and make predictions around the safety, effectiveness and manufacturability of medical products. Results from the Orphan Drug Act of 1983 emphasize that legislative changes can also create a huge impact to the ability to get new cures to those who need them most. In 2014, the FDA Office of Orphan Products Development approved more orphan drugs than any year before, according to analysis done by the FDA Law Blog.3 To me, 21st Century Cures represents a similar opportunity that could spur collaboration and biomedical innovation. Ultimately, some of these priorities could improve health care quality and outcomes for Americans.

The E&C Committee members traveled around the country, hosting eight hearings and several roundtables, calling for public comments and listening to patients, providers, industry, researchers, government agencies and policymakers. The multi-stakeholder approach the Committee has taken to inform the 21st Century Cures draft discussion document is testament to the many good ideas and talented individuals focused on the five areas that 21st Century Cures addresses. These voices are captured in the draft discussion document.

In my opinion, one of the most exciting and promising aspects of 21st Century Cures is the precision medicine initiative. Precision medicine involves tailoring medical treatment to the individual characteristics of each patient. It results in an individualized approach that takes into account variability in genes, environment and lifestyle.

The human genome project that began more than two decades ago was a critical breakthrough in medicine. In recent years, it has led to game-changing technological advances, such as the ability to sequence genomes more effectively, advances in imaging and cognitive computing and the ability to aggregate large volumes of data to inform clinical decision making. These have all contributed to more personalized approaches to treatment.

But, the health care industry’s quest to harness genomics and analytics to support researchers and providers so they can discover new ways to get the right treatments to the right patients at the right time is not over. There are still many unknowns about the underlying causes of many serious diseases, what treatments work best for what individuals and why individuals with the same disease can progress at different rates. A focused precision medicine initiative could get us one step closer to finding those answers.

The draft discussion document is the culmination of almost a year of stakeholder engagement, but the task at hand is not over. With so many voices invested in the initiative, the Committee has a challenging road ahead. But, with the demand for value-based care growing, and the U.S. health care system transformation underway, the U.S. appears ready to take on such a challenge. The road ahead involves incorporating the reactions and feedback the Committee receives into the next phase of the legislation, and for some of the provisions and placeholders, incorporating more detailed policies into the final version. Continued discussions on funding sources and federal budget impact will also be forthcoming before the legislation reaches the President’s desk. At this early stage, it is difficult to gauge the financial impact that these proposed ideas may have on government and the health care industry. A key question moving forward is, “What will the return on investment be from these potential recommendations?”

I share the optimism of Dr. Collins that the U.S. can build on its past successes and prioritize biomedical innovation. I think the U.S. is ready to build upon the power of data, analytics, genomics and advances in care and collaborative research. Much of the groundwork has been laid through collaboration and consensus building to help meet the goal of bolstering global competitiveness and achieving improved health care quality and outcomes for Americans.

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Join me on March 10 to continue the conversation on improving health outcomes on the Deloitte Dbriefs webcast: Improving health outcomes: The future of medical research and development

1 21st Century Cures Discussion Document, 
2 Energy and Commerce Committee, 21st Century Cures Roundtable, May 6, 2014: 
FDA Law Blog, “The 2014 Numbers Are In: FDA’s Orphan Drug Program Shatters Records,” February 15, 2015

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My Take

By Terri Cooper, PhD, Principal, Federal Health Sector Leader, Deloitte Consulting LLP


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IRS releases guidance on “Cadillac tax”

Last week, the Internal Revenue Service (IRS) released a request for comments and a notice of intent to develop regulatory guidance on the Affordable Care Act’s (ACA) tax on high cost employer-sponsored health coverage—frequently referred to as the “Cadillac tax.” The main purpose of the notice is to describe potential approaches to defining what types of coverage will be taxed, determining premium costs and factoring in such items as age and gender adjustments. The IRS and Treasury will accept comments until May 15.

The Cadillac tax begins in 2018 when the IRS will impose a 40 percent excise tax on premium amounts above the threshold amounts of $10,200 for individual coverage and $27,500 for family coverage. After 2018, the IRS will adjust the premium thresholds using the consumer price index. The tax would apply to many types of employer-sponsored coverage, including:

  • Health flexible spending accounts (FSA)
  • Archer medical spending accounts (MSA)
  • Health spending accounts (HSA)
  • Coverage provided by government plans, including federal and state governments
  • Coverage for on-site medical clinics
  • Retiree coverage
  • Multiemployer plans

Coverage for military personnel and their families and long-term care would be excluded from the calculation. The notice states that the IRS and Treasury may exclude de minimis medical care given to employees in on-site clinics.

The notice requests comments and provides a number of calculations that employers may be able to use to determine the cost of applicable coverage.

Response: In the guidance, the IRS requested comments about a special allowance for certain occupation categories, including unions. Shortly after the guidance was released, Senators Orrin Hatch and Chuck Grassley sent a letter to the Treasury Secretary Jack Lew requesting more information about the effect of the guidance on unionized workers. The lawmakers asked Secretary Lew to respond to the letter with information on how many of the occupation categories are for jobs commonly performed by unionized workers, whether the administration has considered expanding organized labor protections to all U.S. citizens and whether there are any plans to delay or modify the Cadillac tax.

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Implementation & Adoption

CMS: End-to-end testing results suggest the industry is ready for ICD-10

More than 660 health care providers and billing companies submitted 15,000 test claims to the Centers for Medicare & Medicaid Services (CMS) during its first round of end-to-end testing. During the testing period, 81 percent of claims were accepted. Only 3 percent of claims were rejected due to an invalid ICD-10 submission. According to CMS, 16 percent of claims were rejected for reasons other than ICD-10 errors. CMS Administrator, Marilyn Tavenner said that the “successful week of testing continues to put us on course for successful implementation of this important initiative that better reflects modern practice of medicine by October 1, 2015.”

Some groups are concerned, however, that the organizations that participated in this round of testing were better prepared than the average organization billing CMS. The 660 organizations volunteered for this round of testing.

Background: On October 1, 2015 all claims submitted to payers – whether commercial health plans, Medicare or Medicaid – from U.S. providers must use ICD-10 codes to be reimbursed. CMS is conducting the testing in preparation for the October implementation. The testing allows providers and CMS to identify issues in claims processing ahead of time so they can be fixed before the transition happens. Many providers intentionally include errors in their testing claims to ensure that errors are identified and claims are rejected – this is known as negative testing. CMS will conduct two additional testing weeks in April and July before the transition occurs.

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PCORI awards $64.1 million to five clinical studies

The Patient-Centered Outcomes Research Institute (PCORI) has awarded $64.1 million to support five clinical studies. PCORI was created by the ACA as a non-profit entity, charged with comparing the effectiveness of therapies for particular conditions. The grants range from $7.75 million to $14.5 million and will support clinical studies on cancer, cardiovascular disease and muscular and skeletal disorders.

Analysis: As PCORI continues to fund research, the public may want to know whether the investment in PCORI’s research is producing results and delivering on its value proposition. Additional questions may include: Is the research meeting the goal of incorporating the patient’s perspective? Are PCORI’s funded projects scalable beyond the research populations and geographies? Are patients’ differences (disease, race, ethnicity, psychosocial issues, etc.) reflected in personalizing the research? Will PCORI need to broaden its focus from comparative clinical effectiveness to also include cost effectiveness research in light of our country’s health care cost conundrum? A major focus of the ACA was driving better value for our country’s health care investments. PCORI was established to bring focus to comparative clinical effectiveness to foster the patient’s perspective in optimizing patient outcomes.

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More than 4 million FFM enrollees are new to the marketplaces

Between November 15, 2014 and February 22, 2015, more than 8.8 million consumers enrolled in plans offered in the federally facilitated marketplaces (FFM). The U.S. Department of Health and Human Services (HHS) detailed these figures in its latest update on FFM enrollment. More than 4 million of the consumers who purchased coverage on the FFMs were new to the marketplace:

HHS found that more than 2.2 million consumers (25 percent of the 8.8 million) who enrolled in 2014 returned to the FFM to shop for coverage. More than half (54 percent) chose a new plan for their 2015 coverage, and the remainder actively chose to stay with their current plan. During week 14 (February 15 through 22) more than 40,000 individuals purchased coverage in plans offered though the FFMs.

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American Academy of Actuaries comment on potential implications of King v. Burwell

The American Academy of Actuaries recently asked HHS Secretary Burwell to address a possible ruling against the government in King v. Burwell. The Academy pressed HHS to develop ways to mitigate the impact if subsidies to low- and moderate-income consumers in the FFMs are struck down by the U.S. Supreme Court. Without tax credits, many may find their insurance premiums to be unaffordable. This may cause adverse selection where unhealthy consumers keep their insurance while the healthy drop out. The group referenced studies that suggest ending FFM subsidies could force insurers to raise premiums by anywhere from 35 to 45 percent in order to stay solvent. The Academy had two suggestions:

  • Allow health plans to file “contingency” rates: Most insurers are required to file 2016 premiums by May 15, before the Supreme Court is expected to make a decision in the case. HHS could allow insurers to submit two premium rate filings: The usual premium and a fallback premium in the event that the court bars FFM consumers from receiving tax credits.
  • Allow health plans to submit new rate filings after the ruling: Health plans could revise 2016 premiums and submit new ones after the May 15 deadline if premiums are struck down in the 37 states with FFMs.

The Supreme Court will hear oral arguments in King v. Burwell tomorrow, March 4. The Court is expected to issue a ruling on the case by June. Consumers of the states and the District of Columbia that established state-run marketplaces would not be affected by the ruling.

Related: Last week, Secretary Burwell wrote in a letter to Republican lawmakers that HHS knows of no administrative actions that could “undo the massive damage to our health care system that would be caused by an adverse decision.” As such, Burwell said that she was unaware of any contingency plans HHS has in place in the event the Supreme Court rules against the government in this case.

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On the Hill & In the Courts

CDC: Reports half a million C. difficile infections in 2011; calls for improved antibiotic use

According to the Centers for Disease Control and Prevention (CDC), Clostridium difficile (C. difficile) caused half a million infections in the U.S. in 2011. Approximately 29,000 individuals who were infected with C. difficile died within 30 days of the initial diagnosis, and nearly half of those deaths were directly attributed to the infection.

C. difficile has become the most common microbial cause of health-care associated infections (HAI). The CDC estimates that it costs acute care facilities $4.8 billion each year. The CDC reports improvements in hospitals’ control of this problem but that the issue persists for nursing facilities. More than 100,000 cases of the infection are reported in nursing facilities every year. Patients who take antibiotics are most at risk for developing C. difficile infections. Broad-spectrum antibiotics change the balance of bacteria in the gut and may suppress the beneficial bacteria that function to protect against infection. This can cause patients to get sick from C. difficile from contaminated surfaces or from another person.

To combat the increasing rate of C. difficile infections, the CDC says the health care system should focus on infection control and improving how antibiotics are used. More than 50 percent of prescribed antibiotics are estimated to be unnecessary, as health care professionals too often prescribe them for conditions caused by viruses (e.g., colds, upper respiratory infections). The CDC recently estimated that a 30 percent decrease in the number of antibiotic prescriptions in hospitals could reduce deadly infections by more than 25 percent in hospital and recently discharged patients.

A study published in the January issue of the journal Nature highlights an innovative new strategy for producing antibiotics: extracting drug components from the bacteria that live in dirt. The new drug developed from this method is called Teixobactin, and studies in mice show that it can treat serious infections with no side effects and in a way that may make it less likely to lose its effectiveness against antibiotic-resistant bacteria (read more in the February 10, 2015 Health Care Current).

(Source: CDC, “Nearly half a million Americans suffered from Clostridium difficile infections in a single year,” February 25, 2015)

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House Energy & Commerce lawmakers push back on MA cuts

In response to the recent CMS proposal to reduce Medicare Advantage (MA) payment rates by 0.9 percent in 2016, lawmakers sent a letter to President Obama articulating their concerns. The letter came from leaders in the House Energy and Commerce and Ways and Means committees and Senate Committee on Finance. The letter warned that vulnerable MA beneficiaries would be disproportionately harmed by the proposed cuts and suggests that up to 7 million beneficiaries could be at risk for losing coverage through their plans by 2017. The lawmakers urged the administration not to finalize the proposal and encouraged the administration to work with Congress to stabilize the MA program.

Background: On February 20, CMS proposed changes to MA and Part D in the 2016 call letter. CMS proposed to cut MA rates by 0.9 percent in 2016. However, CMS projects growth in plans’ risk scores would make the overall rate change a net growth of 1.05 percent. This is higher than the final rate changes for 2015, which amounted to a net increase of 0.4 percent. CMS also proposed revisions to other areas of the program (see the February 24, 2015 Health Care Current).

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Study: California ACOs show growth and success

California’s accountable care organizations (ACOs) are associated with statistically higher patient satisfaction scores according to recent research. The University of California, Berkeley School of Public Health also found that California ACOs had equivalent or higher quality of care when compared to their non-ACO counterparts. The researchers analyzed survey and performance data of California ACOs in addition to other findings on California and nationwide ACOs. Patient experience scores were based on measures such as timely care, communication, staff helpfulness and care coordination. Although the differences in scores were relatively small, ACOs performed better than non-ACOs in every category. The researchers found that six factors are associated with successful ACOs:

Background: With 67 ACOs in operation, California has more ACOs than any other state. There has been marked growth in the central parts of the state within the past two years. If these growth trends continue, researchers estimate that 1.3 million Californians will be under the care of an ACO by February 2016. California ACOs typically offer more services and are more experienced with payment reform than ACOs located in other states. Several factors may have created a fertile environment for ACOs – the presence of Kaiser Permanente, California’s growth in managed care in the 1990s and the early and extensive participation of medical groups in pay-for-performance payment models.

(Source: Shortell, Stephen M., Scheffler, Richard M., Kessell, Eric R., Fulton, Brent D., “Accountable care organizations in California: Promise and performance”, February 2015)

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Around the Country

E&C committee offers solution to CHIP funding expiration

The House Energy and Commerce Committee released a discussion draft to extend funding for the Children’s Health Insurance Program (CHIP). CHIP was last renewed by Congress in 2009 and that authorization expires on September 30, 2015. The proposal would fund CHIP for an unspecified period of time and make several changes to the program:

The committee’s proposal would leave the current formula for funding allotment intact. Some Republican lawmakers predict that the final measure for extending CHIP funds will be attached to a permanent fix to the Medicare Sustainable Growth Rate (SGR) fix, following a short-term SGR fix of a few months.

Related: The National Governor’s Association recently sent a letter to the Senate Committee on Finance and House Energy and Commerce Committee urging Congress to continue funding for CHIP. The letter cited research from the Kaiser Family Foundation that found the uninsured rate has dropped significantly since 1997, when CHIP was established. Only 7 percent of U.S. children were uninsured in 2012, compared with 14 percent in 1997. The National Academy for State Health Policy surveyed state CHIP directors to find that most believe Congress will renew the program before it expires in September 2015.

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Innovative population health strategy improves health outcomes, reduces costs

An important tenet of value-based care is reducing costs through decreasing the use of high cost services while maintaining high quality care. In the U.S., 5 percent of the population accounts for almost half (49 percent) of total health care costs. The process of identifying patients who are high utilizers of the health care system is known as “hot-spotting.” Hot-spotting was introduced to the health care mainstream by The New Yorker article featuring the work of Dr. Jeffrey Brenner in 2011. It is a population health analysis that applies analytics to data to identify patients who are high utilizers of the health care system and provides them with services to improve health outcomes and reduce spending.

In 2012, Deloitte began collaborating with the Navy Bureau of Medicine (BUMED) within the Military Health System to design a population health pilot program using analytics to identify high utilizers. BUMED’s population health program with Deloitte was piloted at the Naval Medical Center San Diego (NMCSD) and is based on the hypothesis that tertiary prevention may create savings for the health care system and deliver long-term benefits for participants. Tertiary prevention focuses on helping chronically-ill patients or patients with complex health issues manage their condition so they avoid repeat hospital admissions and emergency room visits.

Deloitte worked closely with more than 50 stakeholders to collect business requirements, engineer enhanced care-management processes, train staff and develop the hot-spotter algorithm used to identify the most appropriate patients for tertiary prevention care. This algorithm sorted more than 30 million patient records to filter and predict high utilizers of health care within the San Diego military beneficiary population. Another component of the program is the Ambulatory and Intensive Care Unit (AICU) Patient Scorecard, which provides case managers with patient-level results on 26 measures. The scorecard is an important example of an industry-specific “innovative concept” for the Military Health System. Typically, only facility-level or provider-level performance is analyzed. The case managers used the data to identify appropriate interventions and track patients’ progress in managing their conditions.

The San Diego pilot program provided tertiary prevention care to 397 patients within the first 18 months. In 2014, BUMED won the Military Health System Innovation Award for achieving:

  • 40 percent reduction in total costs ($8.7 million per year)
  • 23 percent reduction in ER use (824 fewer visits per year)
  • 30 percent reduction in inpatient admissions (219 fewer admissions per year)

Deloitte supported the implementation of this pilot, known as the Integrated Health Community Initiative (IHCI) in partnership with the client, Cmdr. Sunny Ramchandani. Cmdr. Ramchandani is the medical director for the health care business directorate and the IHCI director. According to Cmdr. Ramchandani, “this model moves beneficiaries from healthcare to health by carefully analyzing and segmenting a given population, optimizing current healthcare assets to activate targeted beneficiaries, and integrating existing community/social services with healthcare delivery.”

In the next phase of the program, NMCSD is re-investing the cost-savings from the pilot to expand primary and secondary prevention services, including wellness initiatives. NMCSD will distribute fitness tools and apps and train care navigators to serve as a liaison between the community and the health care delivery system. Deloitte and NMCSD are focusing on lessons learned and strategies to expand impact.

For more information on this program, contact Roger Foxhall or Jonathan Fegler.

(Source: The High Concentration of U.S. Health Care Expenditures: Research in Action, Issue 19. June 2006. Agency for Healthcare Research and Quality, Rockville, MD)

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Breaking Boundaries

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