Health Care Current: May 13, 2014

States’ roles in the value-based care revolution

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.

States’ roles in the value-based care revolution

In their book “The Solution Revolution,” William D. Eggers and Paul Macmillan describe the growing trend of public and private convergence. Working together, partnerships between the two are starting to “trade solutions instead of dollars to fill the gap between what government can provide and what citizens need.”1

This type of collaboration is being emulated through the State Innovation Models (SIM) initiative, which the Innovation Center at the Centers for Medicare and Medicaid Services (CMS) created and funded with more than $300 million.2 With the help of SIM grants, states are working to build on and develop new payer-provider relationships and are altering payment mechanisms to improve quality of care, reduce costs and achieve better health outcomes.

These public-private initiatives hold great potential for system transformation, raising the question: Can the move to value-based care happen without involvement from the states?

Twenty-five states are more than a year into designing, pre-testing, or testing their State Health Care Innovation Plans (SHIP). Many states are using SIM grants to move forward with value-based care initiatives. True to form, each is pursuing its own combination of strategies. Their strategies are far-reaching, running the gamut of value-based purchasing arrangements also being developed in the private sector and Medicare: accountable care organizations, performance/outcome-based payment systems, shared savings/risk arrangements and bundled payment arrangements, as well as patient-centered medical homes and population-based care.

Through these initiatives, states are primarily focused on enrollees in Medicaid and the Children’s Health Insurance Program (CHIP). But, as required by the grants, they must also incorporate strategies so they impact 80 percent of their residents within five years. The more commercial payers who sign on to these models, the greater the potential reach.

Many states recognize that as payers (for Medicaid and state employees) and regulators, they hold considerable leverage to improve the value of care for all state residents. And, they could be in a good position to:

Establish public-private, multi-payer/multi-provider partnerships to test innovative value-based care and payment models. Historical market dynamics often pit providers and health plans against each other. States (especially their governors) could drive consensus among the relevant stakeholders and achieve long-term, sustainable change in a delivery system centered on outcomes and value.

Collect, integrate and analyze the data needed to target initiatives and measure value. States – particularly those with all payer claims databases – can use data to understand where to target interventions and to evaluate their success or need for midterm correction. These databases have the potential to support risk adjustment and the related analytics capabilities that are needed to identify population outcomes and quality and cost patterns – the foundations of many value-based care and payment models.

However, in moving forward, it’s likely these initiatives could face some uncertainties and challenges:

  • Relationship management: It is no easy task to bring multiple stakeholders with competing interests to the same table. This is especially true when trying to alter already established relationships such as those with patients and transactions via new payment models. But, that’s just what states are trying to do―will it work?
  • Funding: So far, CMS has invested nearly $300 million in federal grant assistance to this initiative. However, the second round of funding has yet to be announced. Continuation or planned expansion may not be an option for all states if federal funding is scaled back in the midst of competing investment priorities.
  • Plan development and testing: Navigating the requirements of the complex design and testing grants can be challenging. A strong, evidence-based evaluation component to determine which initiatives should be successfully imported or more broadly adopted will be a key to success moving forward.

So, can we move to value-based care without the involvement of states? Many health plans and providers are pursuing value-based care models on their own. But, the collaborative public-private efforts of some states could be more effective at reaching system transformation. States – especially their governors – are often leaders of reform. Without their leadership, reform could continue on a fragmented basis, unable to reach critical mass.

SIM grants are helping states work with payers and providers to move toward improved quality of care and better health outcomes, as well as shared savings and lower overall costs for everyone. As Eggers and Macmillan argue in their book, government alone can’t handle some of the biggest challenges facing society; public-private partnerships that watch for and build on early wins and successes may have the greatest success in moving health care to a value-based system.

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1 William Eggers and Paul Macmillan, “The Solution Revolution,” Harvard Business Press, September 17, 2013;
2 CMS, “State Innovation Models Initiative: General Information,”

State Innovation Models Initiative

Note: Grants awarded in February 2013. Source: CMS, State Innovation Models Initiative: General Information,

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My Take

By Jessica Blume, Vice Chairman, U.S. Public Sector Leader, Deloitte LLP 



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Implementation & Adoption

Gallup survey: uninsured rate drops to 13.4 percent, the lowest recorded

Last Monday, Gallup and Healthways released survey results finding that the U.S. uninsured rate dropped to 13.4 percent in April. The rate declined from 15 percent in March and has been the lowest recorded since the group began tracking insurance coverage in 2008. The uninsured rate peaked at 18 percent in the third quarter of 2013 but has continued to decline since then. Hispanics are the most likely among any ethnicity to be uninsured.

According to the Gallup/Healthways analysis, these declines coincide with the increased insurance coverage through the health insurance exchanges (HIXs). The HIX open enrollment season closed on March 31, but the deadline was extended to April 15 for some individuals. Gallup noted that the newly insured may not pay their premiums, which could mean that the uninsured rates may remain steady until 2015.

(Source: Gallup and Healthways. Gallup-Healthways Well-Being Index, “U.S. Uninsured Rate Drops to 13.4 percent,” May 5, 2014)

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HIMSS survey: 85 percent of RECs plan to remain open after federal funds expire

Results from the Healthcare Information and Management Systems Society (HIMSS) Regional Extension Center Survey found that 85 percent of Regional Extension Centers (RECs) that responded intend to remain open after this year, despite the fact that federal funding for RECs is expiring soon. According to the results:

  • 92 percent of RECs are focusing on achieving financial stability; 5 percent were out of funding when the survey was fielded.
  • 72 percent have applied for no-cost extensions of the federal funds from the Office of the National Coordinator for Health IT that will allow the RECs to use the remainder of their budgets for specific reasons.
  • 50 percent said they were creating partnerships with other organizations within their service area.
  • 50 percent reported receiving state funding to continue operating.

The majority of the respondents said that they helped more than 100 physician offices achieve Meaningful Use (MU) Stage 1, and almost half said they helped at least 20 hospitals qualify for MU Stage 1.

Background: RECs were created through funding from the American Recovery and Reinvestment Act of 2009 to help health care providers achieve MU. Approximately $688 million in federal funding was provided to create the 62 RECs that help more than 147,000 providers. Of the 147,000 providers enrolled in a REC, more than 124,000 have an electronic health record (EHR) system and more than 70,000 have demonstrated MU. To date, the program’s goals of enrolling 100,000 providers to receive assistance and subsequently assisting 100,000 with going live with an EHR have been surpassed, and the program has achieved 85 percent of its goal to help 100,000 providers demonstrate MU.

(Source: Healthcare Information and Management Systems Society (HIMSS), “2014 HIMSS Regional Extension Center Survey,” April, 2014)

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MU update: few hospitals and providers have attested to Stage 2

During a May 6 presentation, an official from the Office of eHealth Standards and Services from CMS reported on the status of MU Stage 2 attestation among hospitals and physicians. According to the official, seven months into the reporting period (began October 1, 2013), four hospitals have attested to MU Stage 2. In addition, 50 physicians and other eligible professionals have achieved MU Stage 2 four months into their reporting period (began January 1, 2014). Under the MU Medicare and Medicaid EHR Incentive programs, financial incentives are given to hospitals and providers who meet adoption stages. Qualified hospitals and providers have at least two years, depending on when they commenced the program, to complete Stage 1 before starting Stage 2. CMS recently extended the timeline for Stage 2 adoption to 2016; stage 3 will not begin until 2017. As of January, eligible hospitals and providers have received more than $22.9 billion in EHR incentive payments through the program.

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Study: vertical integration and its effect on hospital prices

The most recent edition of Health Affairs includes a study that examines the relationship between vertical integration of physicians (i.e., hospitals owning or contracting with physician practices), prices and spending in hospitals. Since 2002, the number of physician practices that hospitals own has more than doubled. This trend can improve quality and efficiency, or it can negatively affect health care consumers as hospitals and providers can more easily raise their prices. However, this trend has not been examined empirically, the authors argue. The researchers outlined several trends their analysis:

  • Fully integrated organizations (hospitals in which the physician practice is wholly owned) make up the largest share of the different contractual relationships that exist at 35.6 percent. This has grown from 23.3 percent in 2001.
  • Fully integrated organizations were associated with hospital price increases, but in some circumstances, lower rates of hospital admissions.
  • The other three forms of vertical integration had no significant effect on pricing. These include closed physician-hospital organizations in which hospitals contract with certain physicians on measures of cost and quality; open physician-hospital organizations in which contracts are open to all physicians in a practice who wish to participate; and independent practice associations that are nonexclusive arrangements where hospitals assist physicians with a small set of services such as contracting with health plans.

(Source: Laurence C. Baker, M. Kate Bundorf and Daniel P. Kessler, Health Affairs, “Vertical Integration: Hospital Ownership Of Physician Practices Is Associated With Higher Prices And Spending,” May 2014)

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Study: targeted oncology therapy sales grew to 46 percent of global sales

Last week, IMS Health released Innovation in Cancer Care and Implications for Health Systems, a review of trends in oncology drugs and cancer treatments. While annual growth of spending on cancer drugs has slowed, from 14.2 percent in 2003-2008 to 5.4 percent over the last five years, the growth in targeted therapies increased from 11 percent to 46 percent of total global sales last year. Further, the average cost of a branded oncology drug is $10,000 per month—twice that of a decade ago. The pricing is more exaggerated in the U.S. as compared to major European markets due to the different health care system structures that dominate the markets. In addition, the health care delivery system has influenced the site of care for cancer treatment: treatments that must be infused or injected by a specialty physician are paid more than treatments that can be given by physicians in their offices. As a result, the growth in hospital outpatient facilities and accountable care organizations expanding their presence in oncology practice have attributed to these rising costs.

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KFF: Medicare Advantage enrollment at an all-time high of 16 million

In April, the Congressional Budget Office (CBO) updated its projections to account for the latest growth in Medicare Advantage (MA) beneficiaries. CBO predicts that by 2020, MA will have 22 million enrollees—double the number that was projected after the ACA was passed. In a recent brief, the Kaiser Family Foundation examined the state of MA enrollment and discussed the effect ACA cuts have had so far on the program. MA was projected to see lower enrollment with these cuts. The ACA phases in the payment reductions over six years, and the brief highlighted the effects among counties in the U.S. Highlights include:

  • 54 percent of counties’ reductions in MA payments were phased-in over two years beginning in 2012, and this phase has been completed.
  • 24 percent of counties’ payment reductions are being phased-in over four years and will be completed in 2015.
  • 22 percent of counties’ payment reductions will be phased-in over six years and will be completed by 2017.

Experts predicted that the payment reductions would cause many health plans to pull out of the MA program and/or enrollees might see a reduction in benefits and an increase in premiums. However, according to Kaiser, on average MA beneficiaries have 18 plans to choose from and premiums have declined from $44 per month to $35 per month from 2010-2014.

(Source: Tricia Neuman and Getchen Jacobson, Kaiser Family Foundation, “Medicare Advantage: Take Another Look,” May 7, 2014)

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On the Hill & In the Courts

Insurance industry submits comments on CMS proposal to make risk corridor program budget neutral

In late April Blue Cross Blue Shield Association (BCBSA) and America’s Health Insurance Plans (AHIP) submitted comments to the proposed CMS rule to implement the risk corridors program in a budget-neutral way. In the Patient Protection and Affordable Care Act: Exchange and Insurance Market Standards for 2015 and Beyond proposed rule, CMS indicated that the agency intends to implement the risk corridor program as budget neutral, and thus will make upward and downward adjustments to the program’s parameters as necessary. In reaction to this proposal, BCBSA submitted comments to the agency requesting that it reconsider this condition and implement the program as it was originally designed. According to the comment letter from BCBSA, in filing their rates with the agency, most health plans relied on the 2014 Benefit and Payment Parameter final rule. Last year’s final rule noted that the program is not required to be implemented in a budget-neutral way. While BCBSA disagrees with this proposal, the group gave CMS support in its proposal to increase the administrative cost ceiling maximum to 22 percent and the profit margin floor to 5 percent next year.

Meanwhile, AHIP submitted comments to the proposed rule expressing similar sentiments. AHIP argued that other programs that use similar risk corridors programs, such as Medicare Part D, are not implemented in a budget-neutral way, so this program should follow these precedents. The organization believes that this proposal runs contrary to the statutory requirements of the risk corridors program under the Affordable Care Act (ACA), and similarly to BCBSA, notes that health plans used last year’s guidance to set the second year of rate filing. According to the group, this ultimately could lead to higher premiums in future years, as health plans may not be able to factor in the program’s impact when they file future rates. Lastly, AHIP agrees with BCBSA in that the group supports raising the administrative cost ceiling and profit margin floor to the proposed levels.

Note: For more information on the risk corridors program and the CMS proposal to implement the program in a budget-neutral way, see the April 29, 2014 Health Care Current.

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Proposed rule would require employers to inform laid-off employees about HIX coverage options

On Friday, May 2, the U.S. Department of Labor and Employee Benefits Security Administration released a proposed rule amending the notice requirements of the health care continuation coverage provisions. The regulation would require employers to notify laid-off employees about HIX coverage options available to them as an alternative to employer-sponsored insurance. Through the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), employees that lose health insurance coverage as a result of being laid-off have the option to remain on their plan and pay full premium cost. This includes both the portion they were previously paying as well as the portion paid by the employer. Individuals who have had a change in their employment status are able to enroll in coverage through the HIX during special enrollment periods, along with other special cases such as marriage, divorce, birth of a child, and significant change in income.

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Around the Country

Study: growth in personal health spending on children surpasses older adult spending

Using data from the CMS Office of the Actuary, researchers presented a review of health care spending by age and gender from 2002 through 2010. In 2010, total U.S. spending on personal health care reached $2.2 trillion, reaching more than $7,000 per person annually. Researchers found differences between specific age groups and genders:

  • Females: While they comprise a little more than 50 percent of the population, they account for 56 percent of spending at $7,860 per person annually.
  • Males: The male population spends 25 percent less per capita than females at $6,313 per person, but this differential has decreased since 2004 when it was 29 percent. Prescription drug spending among older men increased more quickly than it did in women due to a longer life expectancy than before and drug spending for heart disease, prostate care and leukemia.
  • Older adults: Individuals age 65 and older spend, on average, $18,424 per person. This has grown 4.1 percent annually on average since 2002 when it was $13,345.
  • Children: Personal health care spending on children is approximately one-fifth that of older adults at $3,628. However, growth in spending among this population surpassed that of older adults, increasing 5.5 percent annually on average from 2002 to 2010.

According to the authors, there are three major causes behind the changes in personal health spending:

  • Medicare Part D was fully implemented starting in 2006, causing prescription drug spending to increase from $3.4 billion in 2004 to $39.6 billion in 2006.
  • During the recession, job loss and unemployment caused more individuals to become eligible for Medicaid (enrollment increased by 7.5 million during the period) and to lose health private health insurance (11 million fewer individuals had private coverage at the end of 2010).
  • The Baby Boomer population was in the older working adults group of ages 45 to 64 and saw spending grow 7.6 percent from 2002 to 2010.

(Source: David Lassman, Micah Hartman, Benjamin Washington, Kimberly Andrews, and Aaron Catlin, Health Affairs, “US Health Spending Trends By Age And Gender: Selected Years 2002–10,” May 2014)

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BCBSA: consumer interest in multi-state plan program is “significant”

Last Wednesday, the BCBSA submitted written testimony to the House Subcommittee on Oversight and Investigations indicating that as of April 1, 283,783 individuals had enrolled in the organization’s Multi-State Plan (MSP) Program. Similar to other plans offered in the HIXs, the MSP enrollment period ran from October 1, 2013 through March 2014, and plans became effective on January 1, 2014, for those who had enrolled by the end of 2013. The ACA authorized the U.S. Office of Personnel Management (OPM) to contract with two insurers to phase-in health plans over four years through the HIXs. In the individual market, MSP plans must be available in 60 percent of the states (31 out of 50) by this year and 70 percent by 2015 and reach 100 percent by 2017. According to OPM, the MSP program exists to help drive competition in the marketplace and ensure that individuals have access to high-quality health plans. More than 150 plans are offered by BCBSA through the MSP program across 30 states and the District of Columbia. Residents in different states have varying levels of access to plans: In states such as Alaska (36) and Pennsylvania (12), many plans are offered, but most states have fewer than five plan options to choose from. Residents in at least three states would only have access to one type of insurance plan if the MSP program did not exist. The MSP plans meet essential health benefits benchmarks, as they are qualified health plans.

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Breaking Boundaries

Mayo Clinic launches mHealth app to provide consumers with concierge medicine

Mayo Clinic has launched a subscription-based health app that offers real-time, 24/7 health care support to consumers. The program, Better, is used on smartphones and includes:

  • Real-time video communication with Mayo Clinic’s nurses
  • Access to the Clinic’s database for personal, tailored health information
  • A “symptom checker” that includes the consumer’s health history

The Mayo Clinic hopes that the app will provide a powerful avenue for consumers to connect with health care providers at the Clinic from the ease of their home. The concierge medicine app complies with the federal health regulations regarding privacy of personal health information.

Related: According to the 2013 Deloitte Survey of U.S. Health Care Consumers, 10 percent of health care consumers have downloaded an app to track their health using a mobile device. Further, 62 percent indicate they would be comfortable with addressing a health concern through an email or text with their health care provider. For more on consumers’ use of mobile health, view, the infographic, “mHealth: A check-up on consumer use.”

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NIH offers grant awards for mHealth development

In late April, the National Institutes of Health (NIH) issued a call for submission for examples of mobile health (mHealth) technology usage for grant awards of up to $500,000. According to the announcement, the awards will go to support mHealth tools that help improve communication between patients and providers, adherence to treatment regimens and chronic disease self-management. In addition, the announcement encourages organizations focused on interventions that utilize comparative effectiveness analysis to apply and indicates that funding will be particularly targeted at studying use among underserved populations. Eligible organizations include higher education institutions, nonprofits, small businesses, government entities and more. When scoring the applicants, the reviewers will be looking for interventions that aim to “shift current research or clinical practice paradigms by utilizing novel theoretical concepts, approaches or methodologies, instrumentation, or interventions.” The grants will come out of two specific branches of the NIH: the National Institute of Nursing Research and the National Institute of Biomedical Imaging and Bioengineering.

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