Health Care Current: October 20, 2015

Why health care providers should take heed of the Cadillac tax

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory and legislative changes.

Why health care providers should take heed of the Cadillac tax

Since the passage of the Affordable Care Act (ACA), I have talked to many companies about the law and its new employer mandate, reporting requirements, and tax provisions that affect companies who offer employer-sponsored benefits. During that time, most of the attention has been focused on the coverage expansion – companies stretching their existing health budgets to comply with the employer mandate and the use of federal dollars to expand coverage through the Exchanges and Medicaid.

Now, the so-called “Cadillac tax” appears to be on track to dwarf much of the prior discussions in the employer community. But it should not stop there. The potential impact of the tax on the overall commercial market and the more than 150 million lives covered in employer-sponsored plans should spur hospitals and all health care providers to sit up and take notice. The Cadillac tax is emerging as an important financial consideration for providers as it begins to put downward pressure on health care spending and reshape employers’ approaches to employee benefits.

The Cadillac tax was included in the ACA to help pay for the health coverage expansion and control the growth of health care costs in the private health insurance market by removing incentives for employers to offer more robust health benefits. Beginning in 2018, employers could face a 40 percent non-deductible excise tax if the value of health benefits offered to their employees exceeds certain premium thresholds ($10,200 for self-only coverage, $27,500 for all other coverage). While Congressional lawmakers have introduced four bills to repeal the tax, the Joint Committee on Taxation estimates that it would cost $91 billion to repeal it and none of the bills include provisions to replace that revenue (see the October 6, 2015 Health Care Current).

As the tax starts to impact employers, many may employ strategies to reduce premiums and limit employee benefits and choices to avoid incurring the tax. In fact, Deloitte’s 2015 Survey of US Employers found that most employers expect the Cadillac tax to influence their benefits strategy. Over time, because the premium thresholds are not indexed to medical inflation, even employer-sponsored health coverage that meets the ACA’s standards for affordability and minimum value is projected to incur the excise tax. As the tax hits more and more standard plans, employers may be faced with a difficult choice: pay the growing Cadillac tax on the benefits they offer or pay the arguably smaller tax under the current employer mandate. Either way, these changes will affect individuals in private employer-sponsored plans who have not felt significant disruption in their employer plans or benefit packages to date.

None of this may be news, as policymakers, economists, and even presidential candidates have begun to beat the drum about the tax and its future impact on employers. But what is covered less is what impact this tax will have on hospitals and health care providers.

The bottom line is that the excise tax could significantly affect the market for health care services and products. It will present a strong incentive for employers to redesign their health benefits packages and move toward less generous health coverage to delay incurring the Cadillac tax for as long as possible. Employers will be trying to hold premiums down and control the administrative complexity of compliance with the Cadillac tax. As they do that, hospitals, health plans, and life sciences companies will need to consider the potential impact the Cadillac tax may have on projected utilization of their services, demand for products, and revenue from previously more generous commercial payers.

These changes to employer-sponsored health plans will require health care providers to re-evaluate their revenue cycle management. Provider organizations will see more patients with higher deductibles and less generous benefits who are self-paying a greater share of health care costs. Pressure to hold premiums for employee benefits below the excise tax thresholds could also lead to greater adoption of narrower networks and care and utilization management. Some employers might seek to negotiate and contract directly with health care providers for certain services if they think it can improve their bargaining position. Health care providers that also operate health plans could face excise tax liabilities for providing employer-sponsored benefits packages that exceed the excise tax thresholds.

An August 2015 Health Affairs article authored by several economists and actuaries at the US Centers for Medicare & Medicaid Services (CMS) also held some important conclusions. Health care spending is expected to grow and the uninsured population will continue to decrease, which are all good signs for providers. But, these changes could be modest as the prevalence of insurance plans with greater cost sharing and the impact of Medicare payment updates in government programs set in. Indeed, they state, “The increased availability of private health insurance plans with high cost-sharing requirements, however, is expected to have continued to restrain the use of hospital services among enrollees.”1 Similarly, the effects of high-deductible health plans will restrain utilization for physician and clinical services. These factors should be taken into account by providers to understand and assess their future revenue risk.

The Cadillac tax may prove to be one of the biggest game changers under the ACA. It is expected to have wide reaching impact on millions of lives in the private coverage market. In addition, it may require providers to consider key strategic issues across their entire organization. As employers, it will require them to examine their own philosophy as a care provider offering generous health benefits to their employees. As health care providers, it will affect their commercial revenue, pricing considerations, and engagement with consumers. The Cadillac tax requires providers to take all of this under consideration well ahead of when the first tax bills are due.

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Source: 1Sean Keehan, et al, Health Affairs, “National Health Expenditure Projections, 2014–24: Spending Growth Faster Than Recent Trends,” July 2015

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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My Take

By Anne Phelps, Principal, US Health Care Regulatory Leader, Deloitte & Touche LLP


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HHS makes updates to platform to improve consumer experience

The US Department of Health and Human Services (HHS) has improved, the site that allows individuals to shop for coverage on the health insurance exchanges (HIX). The changes come shortly before the start of open enrollment on November 1, 2015 and are intended to enhance consumer experience for visitors seeking new coverage or looking to switch plans.

The new platform will allow site visitors to search health plans to see which doctors, prescription drugs, and preferred hospitals they cover. HHS created the tool to allow consumers to choose a plan that is tailored to their specific needs, especially as insurers attempt to keep costs down through narrow benefits and provider networks. Patients often must pay for most if not all costs incurred out of their network and drug costs may increase if there is high cost sharing or their drugs are on a higher tier. This tool could help patients see their potential out-of-pockets costs without having to search individual plan websites.

The website also has a new cost-comparison tool. The site will prompt consumers to enter projected medical use on a low, medium, high scale. Consumers will then be able to put their age, sex, income, and ZIP code into the tool to help estimate spending. The tool provides estimated out-of-pocket costs, such as premiums and deductibles, taking into account any reductions from subsidy qualifications.

Analysis: After the first two open enrollment periods, many health care consumers remained uninsured. The exchanges have improved access to care, but affordability and lack of access to information remain a problem. Deloitte’s 2015 Survey of US Health Care Consumers found that HIX consumers tend to compare plans, providers, and services on price but show interest in quality measures, too. Multiple purchasing channels, more reliable information sources, better decision support, and further development of online resources and digital technologies may help HIX enrollees become well-informed health insurance purchasers and more fully engaged health care consumers. Advancements related to communication and plan design may help enroll individuals who remain uninsured.

Related: Last week, HHS projected approximately 10 million people will have coverage through the exchanges at the end of next year. As of June 2015, approximately 9.9 million individuals had paid their premiums, and HHS expects approximately 9.1 million to be enrolled at the end of 2015. This is in contrast to the Congressional Budget Office’s estimate earlier this year that 21 million people would enroll in exchange coverage by the end of 2016. The administration is focusing on keeping those who are currently signed up enrolled in coverage.

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Implementation & Adoption

Study: 49 percent of uninsured are eligible for HIX or Medicaid coverage

The Kaiser Family Foundation released a report last week estimating that nearly half (49 percent) of the remaining uninsured are eligible for coverage under Medicaid or qualify for subsidies in the exchanges. Despite substantial gains in the insured population, more than 32 million individuals remain uninsured. The 2016 open enrollment period is a substantial opportunity to increase coverage.

Uninsured numbers differ by state. Forty percent of the nonelderly individuals in Medicaid expansion states are eligible for coverage. In states that did not expand Medicaid eligibility, only 13 percent could enroll in Medicaid. Ten percent (3.1 million individuals) of the uninsured fall into the coverage gap—they live in states that have not expanded Medicaid and they don’t qualify for help paying for premiums in the exchanges. The ACA required all states to expand Medicaid eligibility, but the Supreme Court made it optional in a 2012 court case. This created the coverage gap in non-expansion states for individuals who have incomes between 100 percent and 138 percent of the federal poverty level (FPL).

(Source: Rachel Garfield, Anthony Damico, Cynthia Cox, Gary Claxton, and Larry Levitt, Kaiser Family Foundation, “New Estimates of Eligibility for ACA Coverage among the Uninsured,” October 13, 2015)

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Most doctors say Medicare Chronic Care Management program is benefiting their patients

A recent Smartlink Mobile survey of physicians who treat Medicare patients found that 84 percent believe the new Chronic Care Management (CCM) program is benefitting their patients. While 70 percent indicated they do not fully understand how the program works, the researchers estimate that more than 80 percent of physicians will be participating in the program by the third quarter of next year.

Since January 1, 2015, Medicare has been paying primary care physicians for care coordination to patients with multiple chronic conditions. Participating primary care physicians earn $40.36 per month for each qualifying patient. The policy was finalized in the final 2015 Physician Fee Schedule released on October 31, 2014.

Most physicians do not report having staffing challenges in meeting the demands of the program. Sixty-five percent of the respondents currently participating in the CCM program said that they have enough staff to handle the patient demand. However, other challenges are:

CMS estimated that approximately 70 percent (35 million) of Medicare beneficiaries would be eligible for the CCM program. However, it has received only 100,000 reimbursement requests from physicians since the program began. While practices face hurdles to reaching greater adoption of the program, it could increase their revenue. One study estimated that practices could gain an extra $77,295 in one year if they worked with registered nurses and other staff to conduct wellness visits and manage the other parts of the program. Analysts believe the two major reasons why providers are not using the program are: beneficiaries have to pay a copay for it, separate from what they pay physicians for regular visits, and the code is relatively new, so many physicians may not understand it yet.

Background: Historically, Medicare has not paid for non-face-to-face services. This new payment is for coordinating care with specialists without requiring physicians to directly interact with patients in a clinical setting. Examples of services that are included under the coordination fee are check-ins over the phone and helping avoid negative treatment interactions. To qualify, primary care physicians must make and regularly revisit a care plan for the patient, coordinate with other health care professionals that are treating the patient, and provide medication management.

(Source: Smartlink Mobile, “Market Research Report: CMS Chronic Care Management Program,” 2015)

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Study: High deductibles may only reduce costs, not affect consumer behavior

A new National Bureau of Economic Research (NBER) working paper found that high health insurance deductibles help reduce costs, but may not prompt consumers to shop for lower cost services. The analysis, which evaluated utilization patterns in a large, self-insured employee plan, found that introducing high deductibles after providing free health care led to significant cost savings (between 11.8 and 13.8 percent) for the employer. However, consumers did not purchase less costly services. Instead, they used fewer services overall.

Researchers looked at three utilization patterns that can lower costs: consumers shopping for lower cost providers, reductions in utilization, and consumers substituting high-cost procedures for low-cost ones. They found that the cost savings were almost entirely due to reductions in utilization. Instead of finding lower cost substitutions for the services they needed or shifting to lower cost providers, consumers still used high-cost services, but just reduced how many they used.

Lower use of services were both for potentially valuable services (e.g. preventive services) and potentially wasteful services. The study found that even the sickest consumers reduced their use of services until they reached their deductible. Once they reached their deductible, they increased utilization again. According to these results, high deductibles may deter patients from getting care they really need.

On average, patients spent nearly 15 percent less. From 2012 to 2013, average per-patient spending fell from $5,222.60 to $4,446.08. From 2012 to 2014, the highest cost savings came from lower ER and drug spending:

(Source: Zarek C. Brot-Goldberg, Amitabh Chandra, Benjamin R. Handel, and Jonathan T. Kolstad, NBER, “What does a deductible do? The impact of cost-sharing on health care prices, quantities, and spending dynamics,” October 2015)

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MedPAC discusses SGR replacement models for physician pay

Last week, the Medicare Payment Advisory Committee (MedPAC) discussed potential challenges CMS may face implementing two new physician payment programs established by the Medicare Access and CHIP Reauthorization Act (MACRA). The legislation, passed in April 2015, repealed the sustainable growth rate (SGR) formula and established two new value-based payment systems for physicians: alternative payment models (APMs) and the merit-based incentive payment system (MIPS). MIPS will be the default system, but clinicians participating in an APM can opt out of MIPS. Both go into effect in 2019.

MedPAC staff raised a number of potential issues that will need to be solved before the MIPS and APM models take effect. For MIPS, it may be difficult to measure individual physician performance. Most physicians would likely look average because many quality and resource measures are not reliable at the individual clinician level. MIPS may only be able to identify persistent outliers. MedPAC also said that the program could place additional burden on providers as it seeks to streamline three current quality reporting programs – the Physician Quality Reporting System (PQRS), EHR Incentive Program, and Physician Value-Based Modifier – into one payment adjustment. Too many measures could be overly burdensome for physicians.

MedPAC also discussed the uncertainty surrounding how the APMs will be defined. Eligible providers will receive additional payments if they participate in an eligible APM, but MACRA only established requirements for eligible APMs, not which APMs would apply (e.g., models in the Innovation Center, Medicare Shared Savings program, demonstrations).

MedPAC discussed possibilities and challenges of the spending for which APMs should be held responsible. The goal for CMS will be to reduce the complexity of tracking how to align clinicians and beneficiaries to one APM and to build in strong incentives to improve care coordination and quality and control spending. MedPAC looked at three options for aligning spending to an APM:

The commissioners assessed the three options to find providers accountable for all Part A and B spending would have the strongest incentives to improve care coordination and quality and control costs. This option would also make it easiest to attribute patients to one APM. Finally, one of the commissioners questioned whether the complexity of the APM and MIPS initiatives might drive physicians to Medicare Advantage.

Related: MACRA left it to CMS, through the regulatory process, to determine how to implement the policies. Last month, the agency asked for stakeholder input through a Request for Information (see the October 6, 2015 Health Care Current). The Government Accountability Office (GAO) will also advise CMS on how to set up the two payment system paths. It formed the Physician-Focused Payment Model Technical Advisory Committee, which will be made up of eleven industry, think tank, and academic members. The committee will represent a range of stakeholder perspectives to help CMS draft regulations on MACRA implementation.

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On the Hill & In the Courts

CMS to send reinsurance payments to exchange plans early

Earlier this month, CMS announced it would send partial reinsurance payments to health plans participating in the exchanges in March 2016, earlier than previously planned. The ACA established the reinsurance program as one of the three premium stabilization programs that aim to protect health plans from losses and consumers from high premiums during the first three years of the health insurance exchanges.

CMS said that that there are several reasons for sending the payments to health plans early.

  • There are surplus reinsurance funds from 2014, and these will be available for 2015 payments.
  • Health plans have more experience submitting their claims to the CMS server.

For 2015, CMS will make early payments to health plans at a 25 percent coinsurance rate. CMS will make the final payments later in 2016. CMS earlier said it would give at a 50 percent coinsurance rate but will announce the final coinsurance rate for 2015 in late 2016.

This comes after CMS announced in June that it would pay health plans 100 percent of the claims amounts above $45,000 and below $250,000 for 2014. HHS said that it collected $8.7 billion for the reinsurance program in 2014 from health plans. HHS expects to collect approximately $1 billion more from health plans through November. For 2014, reinsurance collections exceeded health plans’ requests for payments, so HHS increased the amount paid out (see the June 23, 2015 Health Care Current).

Background: For the reinsurance program in the individual exchange market, all insurers pay a per-member-per-month (PMPM) contribution to the reinsurance pool. The pool is distributed through reinsurers to plans on the individual market based on their claims as of April following the end of the plan year.

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Report outlines issues facing Medicare Part B premiums

Lawmakers are paying increasingly close attention to the projected Part B premium hikes that could take effect in 2016. The Congressional Research Service (CRS) recently released a report to inform Congress of these issues and explore potential congressional action to mitigate the impact on beneficiaries.

Medicare Part B premiums pay for 25 percent of the costs for Part B services, so premiums and deductibles rise with program costs. But, there is a provision that ensures most Part B beneficiaries (70 percent) only pay increases in Part B premiums if there are increases in Social Security benefits through cost-of-living adjustments (COLA). There is no COLA for Social Security this year because inflation levels are low. The remaining 30 percent – new enrollees, high-income beneficiaries, and enrollees who do not receive a Social Security check – are not protected by the provision. These enrollees will have to pay more to make up the difference (see the September 15, 2015 Health Care Current).

One suggestion to provide some relief for beneficiaries is to modify or eliminate the Part B late enrollment penalty. It requires beneficiaries who do not sign up when first eligible, or who drop coverage and sign up again later, to pay a fine proportional to standard premiums. Even those protected from premium increases in years where there is no COLA must pay these penalties. Proposals to change or remove this penalty do not address the rising premiums, but they could provide some financial relief to a growing number of beneficiaries subject to the penalty.

The report also addresses congressional proposals that include increases in beneficiary cost sharing or reductions in benefits in order to reduce federal deficits. The researchers cautioned against these types of proposals for a number of reasons:

  • Medicare beneficiaries may not be able to absorb cost-sharing increases if they are low income or have few assets
  • Medicare beneficiaries are already responsible for large out-of-pocket expenditures (both health and non-health related)
  • High-income beneficiaries may become less willing to participate in Medicare Part B should their premiums continue to increase
  • Medicaid, which provides Part B premium assistance to dual eligibles, becomes more financially strained as premiums increase

Related: Part B premium growth was also the topic of a panel organized by the National Coalition on Health Care last week. The panel discussed potential solutions to the premium increases observed in recent years. One solution could be to grant CMS more authority in how much of Part B costs has to come from premiums. This could limit the impact on beneficiaries in a single year while a more permanent solution is created. Some panelists also suggested removing the “hold-harmless” provision that exempts 70 percent from premium increases in years where there is no COLA. Another possibility would be to set the premium increase at 13 percent for the 30 percent of people who must pay an increase, which is what it would be if all Part B beneficiaries were subject to an increase. The 2015 open enrollment period for Medicare began on October 15 and runs through December 7.

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California adopts biosimilar substitution compromise embraced by industry

Joining a number of other states, California Governor Jerry Brown signed Senate Bill 671, which allows pharmacists to substitute interchangeable biosimilars without informing the physician prescribing the drug before the change. This embraces language agreed to by brand-name and generic manufacturers. Washington, Utah, Texas, Tennessee, North Carolina, Louisiana, Illinois, Georgia, Colorado and Puerto Rico have all passed legislation based on the same language from the Biotechnology Industry Organization (BIO) and Generic Pharmaceuticals Association (GPhA), trade groups representing the biologic and biosimilars industries.

These state rules will go into effect only once FDA approves interchangeable biosimilar products. To date, no manufacturer has submitted an interchangeable biosimilar application. As discussed in the June 2, 2015 Health Care Current, states have jurisdiction over whether pharmacists can substitute biosimilars and whether or not to inform patients and doctors. Prior to the advent of biosimilars, at least 14 states and Puerto Rico required pharmacists to substitute a generic version of a drug if all prescription requirements were met.

Eight of the states had already passed or adopted substitution laws prior to the compromise language. Most state laws require physician or patient notification, which the GPhA opposes. Policies governing biosimilar use likely will continue to be an issue to watch moving forward.

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Around the Country

Congress proposes to allow VA doctors to deliver telehealth across state lines

Newly proposed legislation in the Senate, which mirrors a House bill, would allow providers to practice across state lines for telehealth services that are delivered in the home. Currently, the US Department of Veterans Affairs (VA) allows telemedicine services to be delivered across state lines if the patient and physician are both at a VA facility.

In 2014, VA telehealth utilization increased 18 percent. The VA provided care through telehealth programs to 690,000 veterans, approximately 12 percent of the overall veteran population, and accounting for more than two million visits. Half of these individuals live in remote areas, so Congress has introduced these bills in an effort to expand access to telehealth services.

Analysis: Telehealth is a connected health initiative (others include secure messaging, personal health records, mobile health, etc.) that providers and health systems around the country are using to improve continuity of care. Forty-five percent of respondents to Deloitte’s 2014 Survey of US Physicians said they believe one potential benefit of mHealth technologies is providing remote support (e.g., telemedicine/telehealth) to patients or other providers.

Many others are interested in increasing use of telehealth services. As mentioned in the May 19, 2015 Health Care Current, the most recent 21st Century Cures bill includes telehealth provisions that would require CMS to report on Center for Medicare and Medicaid Innovation models and projects that are examining the use of telehealth services, send Congress information on how telehealth may improve care quality and efficiency for dual eligibles, and identify services that might be suitable for telehealth.

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Kaiser Family Foundation releases its annual 50-state Medicaid budget survey

Last week, the Kaiser Family Foundation released three reports that highlight findings from the organization’s annual survey of Medicaid directors in all 50 states. One report focused on cost and enrollment trends. Overall Medicaid spending grew 13.9 percent in fiscal year 2015. In states that opted to expand Medicaid eligibility under the ACA, enrollment increased by 18 percent and spending grew by 17.7 percent. Newly eligible individuals under expansion have yet to cost states more, but states will have a growing portion of these costs as their share of the program costs increases to 10 percent in 2020.

A second report provided an in depth look at various policy changes in Medicaid programs, focusing on managed care and delivery system reforms, in all 50 states. It highlighted that all states but three have some form of comprehensive managed care, and even those three have policies in place to coordinate care. This year also continues a trend away from a primary care case management (PCCM) system toward managed care organizations (MCOs). Five more states have ended their PCCM programs bringing the total number of states with PCCMs to 19, while 39 states now have MCOs. States are also engaging in significant delivery system reforms. A total of 37 states over the past two years implemented new or expanded delivery system reform initiatives, including patient-centered medical homes (PCMHs), programs to improve care for dual eligibles, and accountable care organizations (ACOs).

Lastly, Kaiser Family Foundation released a report that provides an in-depth look of changes to the Medicaid program in three states. Because states operate under tight financial guidelines and usually are required to balance their budgets, it is important to consider Medicaid policy changes in the larger context of state budgets.

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HHS launches disaster preparedness resource system

The HHS Office of the Assistant Secretary for Preparedness and Response (ASPR) recently launched the Technical Resources, Assistance Center, and Information Exchange (TRACIE), the nation’s first comprehensive system of resources developed to help communities and emergency preparedness professionals better prepare for and deal with health-related issues related to disasters. Resources include educational materials, a help-line, technical assistance center, and other tools to facilitate the sharing of best practices based on real-life experiences in responding to and recovering from disasters.

ASPR worked with a network of experts and stakeholders around the country to develop TRACIE. It is designed to serve the emergency preparedness and response needs of federal, state, and local officials. TRACIE’s technical resources include a library of subject matter expert-reviewed topic collections and materials highlighting real-life tools and experiences tailored for different audiences. The library is continually updated and resources include user ratings and comments, which can be used to help select the best resource for a particular need.

TRACIE’s assistance center can be accessed through a toll-free number, email, and online. It enables state, tribal, local, and territorial officials to communicate with subject matter experts for technical assistance and consultations on a wide range of topics and provides trainings. Technical assistance topics include pediatric preparedness resources, crisis standards of care, tools to assess the readiness of hospitals and health care coalition for emergencies, lessons learned about delivering dialysis care during disasters, and more.

TRACIE also includes an information exchange forum that allows health care emergency preparedness stakeholders to discuss, collaborate, and share information about pending and actual health threats and promising practices. Users also can exchange templates, plans, and other materials through the forum. Registration is free, and access is restricted to those involved in health care system preparedness.

Analysis: ASPR’s 2014 strategic plan set out to fully modernize responses and tap into emerging trends in technology and communication to help communities become more resilient with better planning for disasters. TRACIE’s information exchange forum allows health care professionals involved in emergency response to communicate in real-time. The use of crowdsourcing has shown to improve disaster response in recent US emergencies, including Hurricane Sandy. Real-time updates from the Red Cross, FEMA, and other municipal agencies helped create an interactive crisis map with links to Facebook, Twitter, text, or email to connect those in need with evacuation centers and emergency shelters, gas stations that had fuel for back-up generators, etc.

ASPR TRACIE is the result of collaboration among local, state, and federal government agencies, regional health-care coalitions, academia, and partners from the private sector and nongovernmental organizations. This tool is an example of how public private partnerships are helping the US health care system striving to optimize data collection and share information to become a more intelligent, responsive, and adaptable system.

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Breaking Boundaries

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