Health Care Current: March 31, 2015

Health plan alert: Disruptive innovation may be playing in your market

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.

Health plan alert: Disruptive innovation may be playing in your market

Clayton Christensen and Deloitte’s own Michael Raynor have done the research to demonstrate that market leaders can be unseated from their throne by upstarts who serve a niche market largely ignored by the market leaders and build an operating model that – by necessity – finds ways to break the existing constraints to do more with less. As the challengers perfect their models, they move into the market leaders’ most profitable customer segments with a new and more innovative approach that better meets the customer’s unmet needs and ultimately wins the leadership position.

Unfortunately for the market leaders, by the time they realize they are under attack by a formidable competitor it is often too late. Many are not able to replicate the unique and differentiated approach the challengers use to fend off their market share losses.

Health plans are facing new competitive threats from plans sponsored by health systems. Spurred by public health insurance marketplaces that sell to individuals and the move to value-based care, many health systems are developing strategies to start or expand health plans.

While many experienced health plan executives might say they have seen this movie play out to their advantage in the past, I believe things are different this time. This time, the average challenger has an asset base that is large and covers a wide enough geography to provide customers with many points of access that makes the potential market large enough to reach scale. And this time, the health care buyers are the same people they see every day in their offices. The strength of their brand is more dear to the communities they serve than any health plan promise. As the market for Medicare, Medicaid, health insurance marketplaces and small group markets grow and large employer-covered lives shrink, many geographic markets will likely become predominately consumer markets. Advantage: Challengers.

The challengers now have capital reflecting their size and scale and no longer have to serve as many medically indigent patients. The challengers also have the imperative under any scenario to learn how to manage their customer’s health care needs in a way that produces lower cost and better outcomes in a service-oriented manner. This may mean going far beyond the experience in the moment of care to include access and support in their home, office and wherever their need might arise. In the challengers’ assault on the status quo, they are able to break the constraints of fee-for-service and use premium and prepaid revenue to do the right thing at the right time with the right clinical resource in a setting more conducive to their patients’ actual needs and not the health care system’s needs.

These changes are powered by analytical insights derived from access to demographic, clinical, claims and cost data, life style analytics, local practice norms, competitive knowledge of health plan and providers and patient preferences that often only challengers can truly access, analyze and execute. The new operating model changes could ultimately create real, sustainable savings in medical costs and better member retention rates. The savings in medical costs can be shared with customers to create a pricing advantage that market leading health plans who are trying to serve a broader segment of customers may not be able to match without giving up margin.

What is ironic is a health plan’s typical accountable care organization contract offering (will acknowledge that there is no such thing as typical) with an integrated provider system just accelerates the health plan’s soon-to-be-challenger’s business case to launch a health plan with a narrow network. There often isn’t enough margin in the contract – even with the bonus – to invest in the provider infrastructure needed to be successful long term. Data sharing is typically limited between the parties, the payment methodology doesn’t always have strong enough incentives for accountability, the existing clinical models sometimes do not work to improve performance and most of the value that is produced, if any, often goes to the health plan or the employer.

If the market leaders in the health plan industry think that this movie isn’t worth watching because it is another rerun and they feel they know the ending, I would encourage at least someone on the team to ask the airline hub-and-spoke carriers about Southwest, or Blockbuster about Netflix, or maybe someone in the music industry about that computer company who isn’t in the music business, or the newspaper industry about Craigslist. Many may find that the ending isn’t as predictable as they think.

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My Take

By Bill Copeland, Vice Chairman, U.S. Life Sciences & Health Care Leader, Deloitte LLP


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SGR repeal passes the House

Last Thursday, the House of Representatives passed (392-37) H.R. 2, the Medicare Access and Children’s Health Insurance Program (CHIP) Reauthorization Act of 2015 to repeal the sustainable growth rate (SGR) and improve payments to physicians under Medicare. As it may be one of the only substantial health care bills to pass through this Congress and be signed by President Obama, the legislation contains a grab bag of policies and provisions, most of which are meant to help pay for the cost of repealing the SGR—which the Congressional Budget Office (CBO) has estimated to be $141 billion. Major provisions of the bill include:

While the CBO estimates that the bill would add to future deficits relative to current law, it would be less costly than freezing payments to physicians over the next decade. The bill went over to the Senate on Friday, but the Senate deferred taking up the bill until after it returns from recess on April 13. CMS can hold claims for 10 business days, and in the past noted that this has little effect on provider income because most claims are paid between 14 and 29 calendar days after they are submitted. Last week, the White House said that it “supports House passage of H.R. 2 because it would reform the flawed Medicare physician payment system to incentivize quality and value (a proposal called for in the President's Fiscal Year 2016 Budget), would make reforms that could help slow health care cost growth, and would extend other important programs such as health care coverage for children.”

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Implementation & Adoption

CMS issues draft rules for Stage 3 of Meaningful Use

Earlier this month, CMS issued a proposed rule on Stage 3 of the Meaningful Use (MU) program. Stage 3 is the final stage of the program. CMS proposes to require all eligible hospitals and health care professionals to meet Stage 3 objectives by 2018, regardless of their prior participation. All eligible hospitals and professionals would have to use an entire calendar year of data to meet the Stage 3 requirements beginning in 2018. The regulation would synchronize the reporting periods for MU with other CMS quality programs. The proposed rule continues to phase in provider electronic submission of clinical quality measure (CQM) data, requiring all eligible hospitals and professionals to submit CQMs electronically by 2018.

The proposed rule outlines eight core objectives of Stage 3:

Reaction: Several industry groups responded to the proposed rule immediately after it was published. The College of Healthcare Information Management Executives (CHIME) is pleased with the flexibility that CMS has proposed to build into Stage 3 of the program, but is still evaluating the implications the rest of the rule may have on hospitals and professionals. CHIME is not clear on implications of the proposal to move all eligible hospitals and professionals into Stage 3 by 2018, but acknowledged this could simplify and streamline the program in the long term. The American Hospital Association (AHA) is less positive about the proposed changes, stating that it believes CMS continues to make policies for the future while not addressing problems in the program today. AHA urged CMS to be flexible on 2015 attestation, reducing the reporting year from 365 days to 90 days to fulfill the Medicare and Medicaid Electronic Health Record (EHR) Incentive Program requirements (see the February 3, 2015 Health Care Current).

Related: On the same day, the Office of the National Coordinator for Health Information Technology (ONC) issued a notice of proposed rulemaking to create a new edition of certification criteria for EHRs and to modify the ONC Health IT Certification Program. The 2015 edition of certification criteria would set the minimum requirements that an EHR would need to meet MU specifications. It also would allow flexibility to certify health IT products for additional provider settings, such as long-term post-acute care and behavioral health providers. The rule is meant to support the ONC’s efforts around interoperability, including those proposed in the Shared Nationwide Interoperability Roadmap (see the February 10, 2015 Health Care Current). While Stage 3 will be the last MU stage, ongoing and new certification criteria are likely in the future.

Analysis: The road to the final proposed stage of MU has had some criticism and controversy. The proposed Stage 3 rules take steps to alleviate some of the administrative burden associated with attesting to Stages 1 and 2. Stage 3 provides a balanced approach to raising the bar for technology to improve care delivery while maintaining achievable targets for many providers. This is important given that Stage 3 will become the standard in 2018. As the MU program shifts from bonuses to penalties, many critics have argued that the program will not be remembered for having pushed the boundaries of health care to the cutting edge but more for accelerating the journey toward greater adoption of health IT. For example, the MU program has not had a strong focus on interoperability, which is why the ONC has provided the roadmap. It also has minimal requirements around clinical decision support. This is an area of technology that has great potential to drive change in health care through supplementing providers’ knowledge and ability pull in leading practices.

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Analysis: Health data for more than 120 million people has been breached since 2009

According to a database maintained by the Office of Civil Rights at the U.S. Department of Health and Human Services (HHS), more than 120 million Americans have had their personal health information compromised through electronic breaches since 2009:

To counter the increasing number and scope of the health information breaches, the health care industry and government have formed the National Health Information Sharing and Analysis Center (NH-ISC). This effort is one of several from the Department of Homeland Security and related intelligence and law enforcement agencies that work with private health care organizations to share data about current threats and forensics on attackers. NH-ISC members include health care providers and government agencies across the nation, and the organization works to prepare for and respond to breaches and hacks of health information.

In addition, two states have passed laws this year that are intended to protect health information. Both laws make the company that was attacked responsible for notifying the consumers whose data was compromised. Federal regulations under the Health Insurance Portability and Accountability Act (HIPAA) do not require encryption of health information, but more states are considering mandating encryption. Only two states, Massachusetts and (as of this year) New Jersey, now require encryption of health care data. New Jersey’s regulation, signed into law in January 2015, requires encryption of all personal information. Personal information includes anything with a patient’s name, Social Security number or items linked to their Social Security number such as address, state identification documents or identifiable health information. The state also requires health care organizations to add additional security to computer systems beyond passwords.

Analysis: Numerous news outlets have already described 2015 as the “year of the health care hack.” Hackers steal health information through means ranging from theft of devices, unauthorized access, discarded files or papers or attacks on network servers. The value of health care data on the black market is increasingly higher than financial data, as scammers and hackers can use information about individuals’ physical characteristics to steal identities. In the March 17, 2015 Health Care Current, Dr. Harry Greenspun explained that the future of health care depends on the secure flow of information, and now in the era of EHRs and clinical data warehouses, consumers’ confidence in the security of their data continues be shaken. He explained that there are several important things to consider as the health care industry sits on the cusp of the big data era: Health data concerns differ from those for other types of data and privacy preferences fall along a continuum and vary within individuals depending on the topic. As a result, the industry has a communication challenge. Privacy is an extraordinarily complex and highly personal issue that sits at the intersection of science, law, ethics and technology. Organizations wishing to address consumers’ concerns should consider establishing an approach that addresses the pervasiveness of cyber risk and is secure, vigilant and resilient.

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Public-private Health Care Payment Learning and Action Network has more than 2,800 partners

Last week, HHS announced that many organizations are supporting the Health Care Payment Learning and Action Network. More than 2,800 health plans, health care providers, states, employers and other partners have joined the initiative to date. The partners who have signed on include Blue Shield of California, Cigna, Caesars, HCSC, Humana, Kaiser Permanente, Rite Aid and the states of Colorado, Delaware, Maine, Massachusetts, New York, Rhode Island and Washington. The Obama Administration kicked off the inaugural meeting last week as HHS Secretary Burwell reconfirmed the agency’s commitment to tying 50 percent of payments to quality and value through alternative payments in Medicare by 2018 (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.

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CDC: The uninsured rate has declined since 2013

The National Center for Health Statistics at the Centers for Disease Control and Prevention (CDC) published early releases of data from the National Health Interview Survey from last year, which captures information on health insurance coverage across the country as of September 2014. The survey found that the rate of uninsured Americans dropped markedly since 2013. Slightly more than 14 percent of all Americans were uninsured in 2005, but that has declined to 11.9 percent as of 2014.

The survey also collects data on coverage rates by region, age and source of coverage (public or private). The uninsured rate among children under 17 years of age is much lower than the general population, and more children are covered via public health plans such as Medicaid or CHIP. The survey also indicates that persistent regional disparities in health plan coverage remain: the Midwest and Northeast have much higher rates of health coverage than the West or especially the South:

Researchers also reported that the uninsured rate was much lower in states that chose to expand Medicaid than in non-expansion states. Among the under-65 population, the uninsured rate decreased since 2013 by 3.4 percentage points to 11.5 percent in Medicaid expansion states. Among non-expansion states, the rate also decreased, but only by 2.1 percentage points to 16.3 percent.

(Source: Martinez, Michael E. and Cohen, Robin A., “Health Insurance Coverage: Early Release of Estimates from the National Health Interview Survey, January—September 2014,” National Center for Health Statistics, March 2015)

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OIG: 25 unimplemented recommendations

The HHS Office of the Inspector General (OIG) has published a compendium of recommendations for CMS that have gone unimplemented. OIG completes audits and evaluations that result in recommendations for agencies. These recommendations normally require legislative, regulatory and/or administrative actions in order to be corrected, but gaps in funding or workforce resources often prevent agencies or Congress from taking the actions to fulfill recommendations. Specifically, OIG identified 25 unimplemented recommendations that could save money and/or improve quality in HHS programs if they were implemented. They fall into 11 major categories:

Related: Deloitte’s Advanced Analytics and Modeling practice, a market-leading consulting and advanced analytics practice, recently analyzed 40,000-plus recommendations made by the Government Accountability Office (GAO) to federal agencies from 1983 through 2014. The goal was to assess GAO’s effectiveness as a change agent in government and to understand what areas GAO tends to focus on. Using text analytics, a process of obtaining meaningful insights from large compendiums of documents using a computer, Accountability quantified derived answers to a key set of questions from the 25+ years of recommendations.

Most interesting is that, while the GAO recommendations were found to be an effective way of driving targeted change within agencies (GAO’s recommendations have an 81 percent success rate across all agencies and topics), repeated examination in one particular area does not improve implementation rates. In other words, an agency seems no more likely to implement a recommendation in the “information systems” category whether it receives 100 or 500 recommendations in that category. When taking a closer look at the success rate of HHS in completing GAO recommendations over time, the researchers computed that the agency’s average success score is 74.2 percent, with 1990 having the highest success score and 2002 having the lowest:

See the Accountability quantified dashboard for more information on HHS and other agencies.

(Source: HHS OIG, “Compendium of unimplemented recommendations,” March 2015)

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On the Hill & In the Courts

FDA establishes drug safety research priorities

The U.S. Food and Drug Administration (FDA) outlined seven research priorities related to drug safety in a report released on March 19. The report was authored by the agency’s Safety Research Interest Group (SRIG) and was intended to increase both internal and external collaboration and to gain necessary resources to improve drug safety. The priorities were established using research categories from a 2011 report from the FDA’s Center for Drug Evaluation and Research (CDER). The seven research needs as they pertain to drug safety are summarized below:

(Source: CDER SRIG, “Assessing CDER’s Drug-Safety Related Regulatory Science Needs and Identifying Priorities”, March 2015)

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Maryland hospitals see gains in patient safety

Maryland has a unique agreement with the federal government to help move hospital revenue toward services based on value and quality. The all-payer model agreement that was reached allows Maryland, the Maryland Hospital Association and hospitals across the state to work together toward common quality improvement goals. Since the agreement began, hospitals in the state have improved in several of the target areas:

(Source: Maryland Hospital Association, “Report on quality in Maryland’s Hospitals,” 2014)

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Around the Country

Report: Health policy issues continue to top governor agendas

The National Academy for State Health Policy (NASHP) reported on U.S. governors’ agendas and goals for health policy. Last year, nearly three quarters of states held elections for the governor’s seat, and NASHP assessed the content of forty-four governors’ State of the State or inaugural addresses to uncover themes in state leaders’ plans across the country:

  • Medicaid policy: Fourteen governors spoke on the question of Medicaid expansion. Several pointed out that taxes from their state are going to Medicaid expansion programs in other states and that they favor expanding Medicaid both to reduce the burden on hospitals in caring for uninsured patients and to bring economic benefits to their state. However, in Mississippi, the governor emphasized his opposition to expansion and advocated for restoring DSH payments.
  • Mental health: More than half of the governors spoke on improving access to mental or behavioral health to advance treatment of mental illness and fight addictions. 
  • Health insurance marketplaces: Governors in Hawaii and Massachusetts spoke to the challenges of their state marketplaces, while Idaho’s governor touted the state’s marketplace as a model of effectiveness.

Related: Kentucky’s governor touted the economic benefits expansion of Medicaid has brought to the Bluegrass State, benefits highlighted in a Deloitte study released in February. The February 24, 2015 Health Care Current covered the study, which estimated that Kentucky’s decision to expand Medicaid will benefit the state economy by $30.1 billion over the next seven years.

(Source: NASHP, “The State of State Health Policy: Governors’ State of the State Addresses,” February 17, 2015)

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The promise of low-cost bionic limbs

The viral video of Robert Downey, Jr. (“Iron Man”) giving a young boy a bionic arm has gotten almost nine million views in less than then two weeks. While Iron Man is able to perform superhero feats thanks to expensive technology, the emerging science of 3D printing is enabling lower-cost solutions for bionic limbs because of organizations like Limbitless Solutions. The company is a nonprofit, volunteer-driven organization of engineers and inventors who are working to develop 3D printed bionic arms for children.

“Bionic” refers to an interaction between a technology and a person. The company’s designs are defined as bionic because they are controlled directly by the person with the help of electromyography (EMG) pads that evaluate and record the electrical activity produced by the muscles and provide a direct control and interface for the arms.

Children’s constant growth makes it costly to fit them with prosthetic limbs. Limbitless Solutions specializes in developing custom-made 3D printed bionic limbs for children with any type of amputation for a fraction of the cost. The website explains that all of the materials to create the arm, except for the 3D printer, can be purchased online. These include the motors, the circuit board and the EMG sensors.

To make an arm, a child is first measured, and the model of the arm is then scaled. Minor tweaks to the design may be necessary to accommodate the child, and then the arm is printed. The pieces are assembled and the electronics are wired together. The child is fitted with the arm and an appropriate socket, and the EMG sensors are calibrated. The company wants the technology to be open source, and has instructions for assembling the arms on its website.

Analysis: Prosthetic devices tend to be considered high-cost items. This technology is a low-cost solution currently serving a small part of the market, with potential to expand into a larger market. The broader demand for prosthetics and orthotics is growing as rising rates of diabetes result in amputations, and the aging population is increasing the demand for hip and knee replacements.

As companies like Limbitless Solutions and others feature these promising stories, the American Orthotic and Prosthetic Association (AOPA) recently released a statement emphasizing the importance of ensuring patients have access to trained, licensed and accredited health professionals who can offer patient-centered care, and the importance of patient access to regulated devices that meet safety and efficacy standards. The AOPA also noted the excitement and potential around these emerging 3D technologies that hold promising new options for patients.

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Breaking Boundaries

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