Deloitte Center for Health Solutions

May 7, 2012

Monday memo

Health reform update

My take

From Paul Keckley, Executive Director, Deloitte Center for Health Solutions

Over the past eight days, my travels took me to New York City, Hartford, Boise, Orlando, Boston,

Dallas, and Jacksonville before weekending in Nashville and returning to DC today. Nine cities, 13

flight legs—all but one with a “big five” air carrier. Eight hotels—all but one part of a national chain.

When I started my career in health services research in 1974, there were 12 “major” carriers; today

eight are gone and the top five fly 79% of the total miles. Most of the casualties are now part of bigger

companies; a few simply went away.

“Big national companies” are a permanent fixture in the American landscape. In most communities, the

grocery stores, shopping centers, retail landscape, banks, and even essential services are operated by

big national/regional chains. I start my day with a tall, dark Starbucks coffee from one of the company’s

10,787 U.S. locations, and get blood work checked (on Coumadin) at one of LabCorp’s 1,500 U.S.

Patient Services Centers bi-weekly. I work for one of the Big Four; in 1987, they were part of the Big

Eight, and as I write weekly, I search references from a search engine that dominates its market.

“Going big” is simply part of our lives.

But health care, by comparison, remains fragmented. As a result:

Hospitals: there are 5,754 general acute hospitals in the U.S., 1,013 are owned by one of the

eight major investor-owned hospital chains.

Medical practices: of the 161,200 medical practices in the U.S., only 1.2% have more than 11

physicians.

Health insurance plans: of 379 operators in the U.S., 34 have more than 1 million enrollees,

and 290 have 250,000 or fewer.

Prescription drugs: the top ten companies account for $352.5 billion in sales, which is 59.40%

of total revenues.

And there are 6,000 medical device companies and 4,000 biotech companies in the U.S.

seeking breakthroughs into the industry’s clinical pathways with new inventions, and a handful

that are successful consistently.

Is “going big” necessary to the industry’s transformation? It would seem so. I spend most of my time

on the road with boards and management teams in health insurance, hospitals, medical device,

biotech, pharmaceutical manufacturers and distributors, and health information technology companies.

Consideration about “go big or get out” via strategic partnerships or merger is on every board’s

agenda. It has to be.

Companies outside health care see its fragmentation as an opportunity: private equity investors are

making big plays in roll-ups. Market leaders in discount retailing, mobile communications, and financial

services are developing special units to roll-out innovative national solutions. In Washington, DC and

state capitals, legislators are taking notice, grappling with legacy rules and regulations that presume

state or local control of a system that’s increasingly national or global.

The Deloitte Center for Health Solutions’ vista is unique—ours is analysis and insight about the

intersection of industry and policy, and across multiple sectors of the health care system rather than

only one. We examine issues and trends that keep policymakers and corporate executives awake at

night using research methods agnostic to our findings but remain intensely committed to the research

process to answer questions objectively without bias. And we spend lots of time understanding the

intended and unintended consequences of trends like consolidation, cost containment, the Affordable

Care Act (ACA), and others.

In my 38-year career in health services research, I’ve not seen a time when the system’s frailty is more

in focus: it is highly regulated, highly labor and capital intense, and unusually sectarian in its

approaches to solutions that would otherwise drive costs down and value up. Each sector thinks the

other is the problem; and each builds its own solutions ambivalent to the impact on others.

As a result, our system is wasteful and relatively unproductive compared to other industries: according

to the Bureau of Labor Statistics, our productivity (output per man hour) last year increased 0.9% while

the overall industry average was 2.7%. Had our industry hit the norm for all industry, the deficit would

be lower and the economy recovering faster. The combination of a fragmented industry structure, poor

productivity, soaring demand, and a sizeable market opportunity is the impetus for its consolidation.

Industry sustainability is achieved through scale, and scale achieved through consolidation and post-

deal execution. And while there will be niche players and “mom and pop” exceptions, the market share

of per capita spending on U.S. health care will increasingly be captured by bigger players—some

traditional, some not.

As a result, the book on U.S. health care in this decade will not be about the ACA, though it will be

prominent chapter; it will be about consolidation that allows a few to gain competitive advantage in

serving the next generations of consumers with new expectations—

The Generation X crowd who adopted big box solutions first, and value consistency and

standardization.

The Millenials who adopted “online boxes” over bricks and sticks, and who value connectivity

and accessibility.

And the “iGeneration” who value “unconstrained connectivity” through social media and value

control of their information and ready access to relevant information.

The consolidation of our industry has profound implications for its stakeholders…

The notion that “all health care is local” will be displaced by national entities that demonstrate

differential value. Terms like “catchment areas” and “target markets” disappear from our lexicon as

programs and competitors are un-constrained by geography.

The presumption that “members” will choose insurance from finite options selected by their employers

or brokers will give way to online shopping for customized individual insurance programs from a few

trusted national suppliers or government clearinghouses. And the essential construct of “health

insurance” will shift from nominal financial risk to catastrophic risk via high deductible plans and

alternative financing mechanisms.

Bio and pharma will be one industry—biopharma—and convergence with companion diagnostics,

alternative health, functional foods, and over the counter remedies will re-shape. Service offerings, not

supply chain product lines, will be the dominant business model competing with traditional providers

and plans to coordinate care. Personalized medical devices with precision diagnostic bio-monitoring

capability will displace visits and tests otherwise unnecessary.

And the premise that the system is too complex for navigation by mere mortals will be dispelled by a

cadre of mobile technology applications that empower consumers to make choices that suit their

needs, linked to powerful clinical algorithms that match treatment options to risk and cost.

Consolidation in the health care industry is accelerating. Though unwelcome to some, it’s inevitable

and disruptive. It is necessary to the industry’s sustainability, so for most, perhaps not all, “go big” or

“get out” is a reality.

For a complete update on data relating to current health care industry consolidation and factors driving

similar future consolidation, tune in to Deloitte’s Dbriefs Webcast: Health Sciences Consolidation:

Industry's Response to the New Normal, May 8, 1:00 p.m. ET.

Also, the Deloitte Center for Health Solutions will release two briefs soon relating to the subject: “Health Insurance Industry M&A: Balancing post-reform opportunities and challenges” and

“Consolidation in health delivery systems: A focus on providers.”

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This week’s headlines: My take

Implementation update - IRS releases proposed rule for subsidy verification: necessary to participate health

exchange coverage - CCIIO releases risk adjustment guidance - CMS: Medicare beneficiaries saved $837 on prescription drugs - HHS awards $728 million to community health centers

Legislative update

- CMS extends deadline for collecting sunshine data - Senator probes CDC prevention grants - Congress returns from recess: mark up on budget bills continues - Senate Committee on Finance to have roundtable on Medicare physician payments - Senate Committee on Finance announces bipartisan effort to combat waste, fraud - CMS, IRS request information on stop loss insurance - FDA releases rule implementing flexible standards for certifying sterility of biologics

State update

- Republican governors seek repeal of ACA medical device excise tax

- May 1: last day for states to apply for state-specific thresholds for rate reviews

- State round-up

Industry news - AAMC study: 30% increase in med school enrollment anticipated 2012-2016; inadequate to

meet demand - ONC final comments on Stage 2 meaningful use - GOP report: employers might choose to ‘pay, not play’ - CMS posts Medicare per beneficiary spending measure on Hospital Compare website - Family physicians oppose FDA “safe use” proposal - NIH launches initiative to bring together industry and researchers to promote innovation - IOM: FDA post market surveillance inadequate - WSJ article focused on increased use of observational studies in clinical research

Quotable

Fact file

National Health Reform: what now?

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Deloitte Center for Health Solutions research

Deloitte contacts

Implementation update

IRS releases proposed rule for subsidy verification: necessary to participate in health

exchange coverage Monday, per Section 1401 of ACA, the U.S. Internal Revenue Service (IRS) released a proposed rule

requiring the disclosure of tax return information to the U.S. Department of Health and Human

Services (HHS) to verify premium tax credit eligibility for exchange coverage. The rule establishes

regulations that allow tax information to be released in response to written requests from HHS for the

reference tax year of an individual’s application. The IRS is collecting comments on the rule until July

30. IRS is also collecting outlines until July 30, 2012 for topics that may be discussed at an August 31,

2012 public meeting.

Note: in a final rule on the establishment of exchanges and qualified health plans released in March

2012, HHS limited the type of information an individual needs to provide to an exchange for income

verification and allows the exchange to seek information from the IRS through HHS. The regulations

also provide guidance on the eligibility for enrollment in a qualified health plan, advance payments of

the premium tax credit and cost-sharing reductions, and other insurance affordability programs.

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CCIIO releases risk adjustment guidance

Tuesday, the Centers for Medicare & Medicaid Services’ (CMS) Center for Consumer Information and

Insurance Oversight (CCIIO) released guidance on the HHS Risk Insurance program premium

stabilization final rule, formerly known as the standards related to reinsurance, risk corridors, and risk

adjustment rule. CCIIO focused on the intended approach to implement risk adjustment when HHS is

operating the risk adjustment function on behalf of a state. Comments on the guidance will be

accepted during public meetings held May 7-8, 2012.

Note: per Section 1343 of the ACA, states, or HHS on behalf of a state, must operate a risk adjustment

program that includes all non-grandfathered plans in the individual and small group market both inside

and outside of the exchange market. The risk adjustment program is intended to reduce or eliminate

premium differences between plans based solely on expectations of favorable or unfavorable risk

selection, or choices by higher risk enrollees in the individual and small group markets.

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CMS: Medicare beneficiaries saved $837 on prescription drugs

Monday, CMS released data indicating Medicare beneficiaries saved $3.4 billion on prescription drugs

since 2010. January through March 2012, 220,000 eligible beneficiaries saved $837 on average.

Note: ACA Section 3301 seeks to gradually close the Medicare Part D (prescription plan) coverage

gap or “donut hole” for both generic and brand name drugs and biological products from January 1,

2011 until 2020 when the donut hole is closed. Beneficiaries who entered the donut hole in 2010

received a one-time $250 rebate; in 2011 they received a 50% discount on covered brand name drugs

and 7% for generic drugs; and in 2012 generic drug coverage increased to 14% for drugs in the donut

hole.

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HHS awards $728 million to community health centers

Tuesday, HHS Secretary Sebelius announced that $728 million in ACA funding had been awarded to

community health centers for 398 renovation and construction projects to help facilities serve 860,000

patients and create jobs. This funding is part of a series of capital investments per ACA Section 10503

which provides $9.5 billion for five years (FY2011-2015) to expand services and $1.5 billion for

construction and renovation projects at community health centers.

Note: community health centers provide primary care to more than 20 million patients at 8,500 delivery

sites serving primarily low-income and “underserved” populations. Per investments from ACA and the

American Recovery and Reinvestment Act (ARRA), community health centers will accommodate 3

million additional patients. Since 2010, ACA has supported 190 construction and renovation projects at

existing health centers and the creation of 67 new health centers sites. Over the next two years, ACA

will also support over 485 new health center construction and renovation projects and the creation of

245 centers. Since the beginning of 2009, employment at community health centers has increased

15%. (Source: HHS News Release, “Health care law helps community health centers build, renovate

facilities, serve more patients,” May 1, 2012)

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Legislative update

CMS extends deadline for collecting sunshine data Last week, CMS announced it had extended the deadline for collecting pertinent data required in the

‘Sunshine Act’ until January 1, 2013 and indicated its final rule will not be published until later this

year.

Per the Physician Payments Sunshine Provision of ACA (Section 6002), drug and device

manufacturers and group practicing organizations were to start collecting data January 1, 2012 with

public reporting by September 30, 2013. Penalties for violations range from $1,000 to $100,000.

Note: this is the second instance in which CMS delayed implementing the Sunshine Act reporting

requirement. (For more information about the Sunshine Act provision and its risk to provider

organizations, contact Seth Whitelaw, Michael Delone, or Jeremy Perisho)

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Senator probes CDC prevention grants

Tuesday, Senator Susan Collins (R-ME) sent a letter to HHS Secretary Sebelius requesting an

explanation of the possible impropriety regarding several Centers for Disease Control and Prevention

(CDC) grants that “appear to have been used to fund programs that may seek to change state and

local laws, in violation of federal law.” The letter specifically questions CDC’s guidance for the

Communities Putting Prevention to Work (CPPW) initiative and policies related to food labeling,

vending machines, and fast food establishment zoning.

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Congress returns from recess: mark up on budget bills continues

Today, the House Committee on the Budget meets to compile Republican-backed reconciliation bills

into one reconciliation package. The Republicans’ budget plan directed six authorizing committees to

mark up legislation to reduce spending by $261 billion from 2012 through 2022. The committee will

also mark up H.R. 4966, The Sequester Replacement Act and The Sequester Replacement

Reconciliation Act of 2012.

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Senate Committee on Finance to have roundtable on Medicare physician payments

Thursday, May 10, the Senate Committee on Finance will have a roundtable discussion titled:

“Medicare Physician Payments: Understanding the Past so We Can Envision the Future.” Former

administrators of CMS and its predecessor, the Health Care Financing Administration, will participate

including, Gail Wilensky, Bruce Vladeck, Thomas Scully, and Mark McClellan.

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Senate Committee on Finance announces bipartisan effort to combat waste, fraud

Wednesday, Senate Committee on Finance ranking member Orrin Hatch (R-UT) and Chairman Max

Baucus (D-MT), along with Senators Tom Coburn (R-OK), Ron Wyden (D-OR), Chuck Grassley (R-

IA), and Tom Carper (D-DE) sent an open letter to the members of the health care community seeking

input about solutions to payment reform and fraud and abuse enforcement efforts of the Medicare and

Medicaid programs. The Senate Finance Committee has jurisdiction over the two programs, and has

invited various stakeholders to submit whitepapers on the subject. Submissions are due by June 29,

2012.

The letter was released the same day as approximately 100 individuals were arrested on charges of

Medicare fraud—50 in South Florida—where recent “pill mills” have been targeted for inappropriate

dispensing of pain medications. Authorities with HHS and the Federal Bureau of Investigation (FBI)

targeted mental health clinics, home health care agencies, and physical therapy services. The arrests

marked the third major arrest for Medicare fraud under the current administration.

Note: according to the Government Accountability Office (GAO), Medicare and Medicaid are at higher

risk than other programs for fraud, waste, and abuse. Estimates of fraud and misspending vary from

$20 to $100 billion.

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CMS, IRS request information on stop loss insurance

Wednesday, CMS and the IRS released a joint request for information on the use of stop loss

insurance for group health plans and plan sponsors. The request focuses on the prevalence and

consequences of stop loss insurance at low attachment points. The U.S. Department of Labor (DOL)

will accept comments until July 2, 2012.

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FDA releases rule implementing flexible standards for certifying sterility of biologics

Thursday, the FDA released a final rule for manufacturers of biological produces (e.g., vaccines and

gene therapies) intended to provide “…greater flexibility, as appropriate, and [encourage] use of the

most appropriate and state-of-the-art test methods for assuring the safety of biological products.” The

rule is in response to a 2011 executive order from the President to streamline regulations. Among

several changes, the rule eliminates specified methods for determining sterility, allowing

manufacturers to use more advanced methods for determining sterility.

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State update

Republican governors seek repeal of ACA medical device excise tax Five Republican governors sent a letter to Speaker John Boehner (R-OH), Majority Leader Harry Reid,

D-NV), and Minority Leaders Nancy Pelosi (D-CA), and Mitch McConnell (R-KY), asking repeal of ACA

Section 9009 that places a 2.3% excise tax on medical devices starting in 2013. The governors stated

that “the U.S. annually exports $5.4 billion more medical technology than we import and accounts for

[40%] of the global medical technology market” and that the tax could “harm U.S. global

competitiveness, stunt medical innovation, and result in the loss of tens of thousands of jobs.” The

governors of Indiana, Wisconsin, South Carolina, Pennsylvania and Virginia sent the letters.

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May 1: last day for states to apply for state-specific thresholds for rate reviews Tuesday was the deadline for states to submit requests to HHS for state-specific premium increase

thresholds that trigger rate reviews. Per section 1001 of ACA, starting September 1, 2012, they may

establish their own minimum premium increase that requires a review, based on the state’s premium

trends, health care costs, and other factors. HHS established a premium increase of at least 10% as

the trigger for a rate review for the first year of the program per ACA Section 1001.

Note: Alaska is the only state to ask HHS for an increase in the threshold—to 17%—citing higher than

average costs. HHS will accept comments on the request until May 15, 2012.

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State round-up Kansas is seeking CMS approval for a Medicaid waiver that would transition the state’s

$2.9 billion Medicaid program to a managed care program run by three private

organizations starting January 1, 2013. CMS has promised to delay including long-term

care services for individuals with disabilities in the overhaul until January 1, 2014. Also last

week, Kansas lawmakers passed a bill allowing pharmacists to withhold certain drugs they

believe might lead to abortion. The bill waits signing by Governor Sam Brownback (R). Four

states—Arkansas, Georgia, Mississippi and South Dakota—have laws that allow

pharmacists to refuse to fill prescriptions for emergency contraceptives.

Last Monday, Massachusetts officials approved a third quarter average premium rate

increase of 1.2% for the small group insurance market for policies effective or renewed

from July 1 through September 30, 2012. The Massachusetts House released a payment

and delivery system reform bill that would limit cost growth to about 3% annually. Expected

savings is $160 billion over 15 years.

Last week, a Texas U.S. District Court judge granted a preliminary injunction to eight

Planned Parenthood organizations in a lawsuit to block a state rule which prevents them

from receiving funds through the Texas Women’s Health Program, effective September 1,

2012. Tuesday, the U.S. Fifth Circuit Court of Appeals reversed the lower court ruling,

allowing the state to enforce its ban on Planned Parenthood from the state program. Friday,

the Court of Appeals judge reversed his decision and chose to let stand the lower court

preliminary injunction.

CMS approved Wisconsin’s request to implement changes to its BadgerCare Plus

Medicaid program to contain costs. Changes include: instituting higher monthly premiums

for certain adults age 19 and older, requiring enrollees to report within ten days if their

income goes over the eligibility threshold, and prohibiting access to the program for

children if the parent or guardian has access to employer sponsored coverage. The state’s

Medicaid program’s projected deficit is about $128 million through June 2013.

CMS announced Thursday a $1.9 billon award to Oregon to implement a Medicaid

accountable care organization as part of a demonstration program to create coordinated

care organizations in the state's Medicaid program. The state estimates it will save $11

billion over ten years. Governor John Kitzhaber (D) called the demonstration a "defining

moment for health care transformation."

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Industry news

AAMC study: 30% increase in med school enrollment anticipated 2012-2016;

inadequate to meet demand The leading trade group for academic medicine, the American Association of Medical Colleges

(AAMC), released survey results from 129 of 134 medical schools:

First-year medical school enrollment will increase 29.6% in the 14-year period from the 2002-

2003 school year to the 2016-2017 school year, bringing total enrollment total to 21,376—

slightly under the 30% increase that AAMC had hoped to see by 2015 to address a pending

physician shortage.

AAMC estimates a shortage of 90,000 primary-care and specialty physicians by 2020.

More than half (58%) of the increase will come from 125 schools accredited as of 2002. New

schools accredited after 2002 will account for 25% of the growth, according to the AAMC. The

rest (17%) will come from schools in the process of accreditation.

(Source: 2011 Medical School Enrollment Survey, AAMC)

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ONC final comments on Stage 2 meaningful use CMS received final comments about proposed Stage 2 meaningful use rule published March 7, 2012.

A final rule is expected later this year. GAO also released a report with recommendations for the

meaningful use. Reactions to the proposed rule by key trade groups include:

American Hospital Association (AHA): In a 68-page comment letter, AHA states that over

80% of hospitals have not achieved Stage 1 due to market factors (e.g., increasing costs),

limited vendor capacity, and a widening digital divide—resulting in large and urban hospitals

achieving much higher rates of adoption than smaller rural facilitates. AHA is concerned about

the implementation of the penalty phase, proposed timing and staging for Stage 2, the

measures and objectives for Stage 2, and the reporting of clinical quality measures through

electronic health records (EHRs). One of these objectives is the new requirement that allows

patients to view, download, and transmit their medical records from the Internet, which AHA

states “…is not feasible as proposed, raises significant security issues and goes well beyond

current technical capacity.”

College of Healthcare Information Management Executives (CHIME): CHIME, which

represents over 1,450 chief information officers (CIOs) and other health information executive

managers, stated that although they agree with a “great deal” of the proposed changes

including extending Stage 1 to 2013, they are concerned that further delay may be needed.

CHIME states, “While a great deal of our membership will do everything within their power to

get ready for Stage 2 in the months between the final rule and October 1, 2013, we foresee

significant challenges in getting (what will hopefully be) one hundred thousand, or more,

providers upgraded and tested in the months between the first 2014 certified EHRs and FY/CY

2014.” CHIME recommends that CMS allow physicians and hospitals to show meaningful use

through a 90-day EHR reporting period for their first payment year in Stage 2, as is currently

done for Stage 1.

Chairwomen of the House Small Business Committee, Representative Renee Ellmers:

Representative Ellmers (R-NC), Chairwomen of the House Small Business Committee and its

subcommittee on health care and technology, asked CMS to allow “hardship exemptions” from

payment reductions associated with noncompliance of the EHR adoptions for small practices

with five or fewer physicians and for physicians ages 60 and over who are nearing retirement.

GAO: GAO also released a report with four recommendations to CMS to improve the process

of verifying whether providers met the Medicare and Medicaid EHR programs’ requirements

and therefore qualified for incentive payments. Recommendations include:

o “…CMS should establish time frames for expeditiously implementing an evaluation of

the effectiveness of the agency’s audit strategy for the Medicare EHR program.”

o “…CMS should evaluate the extent to which the agency should conduct more

verifications on a prepayment basis when determining whether providers meet

Medicare EHR program’s reporting requirements.”

o “…CMS should collect the additional information from Medicare providers during

attestation.”

o “…CMS should offer states the option of having CMS collect meaningful use

attestations from Medicaid providers on their behalf.”

Note: the EHR meaningful use programs for Medicaid and Medicare were enacted under ARRA as

amended by Health Information Technology for Economic and Clinical Health (HITECH) of 2009. The

programs provide payment incentives to hospitals and physician practices for demonstrating

meaningful use of EHRs. Providers face a 1% Medicare payment penalty for noncompliance starting

2015, with penalties increased each year thereafter to a maximum of 5%. Under the program,

hospitals are eligible for payments up to $11.5 million if they demonstrate that they used EHRs in a

meaningful way as defined under the law and in CMS issued rules. As of April, CMS has paid $5 billion

to 93,650 hospitals and physicians in EHR incentive payments. 73,000 of 521,000 eligible physicians

and 2,500 of 5,011 eligible hospitals are at Stage 2 readiness per the Office of the National

Coordinator, March 31, 2012.

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GOP report: employers might choose to ‘pay, not play’ The House of Representatives Ways and Means Committee released a report Tuesday concluding

that the ACA employer “pay or play” provision will encourage employers to pay the penalty and drop

coverage. The committee surveyed 71 Fortune 100 companies, and found the group would save $28.6

billion in 2014 by eliminating health insurance coverage, and paying the $2,000 penalty per full-time

employee instead. The report says 84% of the responding employers expect their future health care

costs will increase at rates that are greater than those they’ve experienced over the past five years.

Note: ACA Section 1513 requires employers with 50 or more full-time employees that do not offer

health insurance coverage and have at least one full-time employee receiving a premium assistance

tax credit going towards coverage in the exchange to pay $2,000 per full-time employee. In 2014, the

monthly penalty assessed to employers who do not offer coverage will be equal to the number of full-

time employees minus 30 multiplied by 1/12 of $2,000 for any applicable month. After 2014, the

penalty payment amount would be indexed by a premium adjustment percentage for the calendar

year.

In the Congressional Budget Office (CBO) analysis of ACA, it anticipated 4 million might lose

coverage; in the Deloitte Center for Health Solutions’ analysis (The impact of health reform on

insurance coverage: Projection scenarios over 10 years), we concluded a scenario exists where

up to 65 million people could lose employer-sponsored coverage if costs are high, state health

exchanges operational, and in certain industries—light manufacturing, retail, transportation,

restaurant—competition for talent does not require benefits coverage. It is our conclusion that small-

and mid-sized companies under 2,500 employers are the most likely to exit. The net impact of the loss

of employer-sponsored insurance in the system is profound—increased enrollment in individual

insurance plans sold in exchanges, increased enrollment in Medicaid, and increased bad debt for

those who go without coverage and unable to pay their bills.

(Sources: House Ways and Means Committee, “Broken Promise: Why ObamaCare Will Force

Americans to Lose the Health Care Coverage They Have and Like,” May 1, 2012)

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CMS posts Medicare per beneficiary spending measure on Hospital Compare website This month, CMS began posting data on the "cost per Medicare beneficiary" measure on its Hospital

Compare website for acute care hospitals. The data shows a wide variation (3 to 1) in costs throughout

the U.S. Individuals may obtain data from the website to compare risk-adjusted scores for about 3,375

hospitals for an "episode of care” (i.e., timeframe ranging three days before an admission to 30 days

after discharge).

Note: per ACA Section 3001, the “cost per Medicare beneficiary” measure will account for 20% of a

hospital’s Medicare value based purchasing score used to determine payment incentives for

discharges starting October 1, 2014. Website: www.hospitalcompare.hhs.gov

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Family physicians oppose FDA “safe use” proposal Tuesday, the American Academy of Family Physicians (AAFP) sent a letter to the FDA opposing a

proposal to expand drug products that could be considered nonprescription and thus sold over-the-

counter.

Note: FDA sought public comment on a new model that would approve certain prescription drugs for

nonprescription or over-the-counter use, under conditions of safe use. These conditions of safe use

would be specific to the drug product and might require sale in certain pre-defined health care settings,

such as a pharmacy.

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NIH launches initiative to bring together industry and researchers to promote

innovation

Thursday, the National Institutes of Health (NIH) announced a new initiative “that will match

researchers with a selection of pharmaceutical industry compounds to help scientists explore new

treatments for patients.” The initiative, Discovering New Therapeutic Uses for Existing Molecules, will

provide funding to researchers to test more than 20 compounds from industry partners for their

effectiveness against various diseases and conditions. The researchers will study compounds that

have already cleared the key steps in the development process, including testing for safety for

humans. NIH's National Center for Advancing Translational Sciences (NCATS) is partnering with

Pfizer, Eli Lilly and Company, and a third company who made dozens of their compounds and related

data available for the initiative’s pilot phase. The President’s FY2013 budget proposal includes $575

million for NCATS; $20 million of this would go towards supporting research grants up to three years

during the pre-clinical and clinical feasibility studies.

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IOM: FDA post market surveillance inadequate Tuesday, the Institute of Medicine (IOM) released an evaluation of the FDA’s scientific and ethical

methods of conducting safety studies for approved drugs concluding that its current approach to drug

oversight in the post market setting is insufficient and does not assess the benefits and risks of a

drug’s consistently over its life cycle. The IOM recommended that the FDA adopt a comprehensive

and publicly available regulatory framework that is standardized across all drugs, yet flexible enough to

adapt to regulatory decisions. While the FDA acknowledges the importance of enabling the public to

monitor drug safety issues, it also notes that the IOM’s recommendations would be challenging to

implement. (Source: Institute of Medicine, “Ethical and Scientific Issues in Studying the Safety of

Approved Drugs,” May 1, 2012)

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WSJ article focused on increased use of observational studies in clinical research Thursday, the Wall Street Journal page one story examined the role of observational studies in clinical

research concluding their use is proliferating and potentially problematic. Observational studies by

clinical researchers use analytic tools to examine cause-effect relationships or correlations in large

clinical databases in lieu of more rigorous randomized trials. From 1990 to 2000, 79,619 observational

studies were published; 185 (0.23%) of these were retracted due to erroneous findings. From 2001-

2011, 263,557 observational studies were published; 881 were retracted (0.33%). (Source: Wall Street

Journal, “Analytical Trend Troubles Scientists,” May 3, 2012)

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Quotable “We believe federal efforts would be strengthened by input from members across the health care

community—providers, payers, health plans, contractors, non-profit entities, consumers, data analytics

entities, governmental partners, and patients. Drawing on the collective wisdom and accumulated

insights of thousands of professionals and individual experiences could offer a fresh perspective and

potentially identify solutions that may have been overlooked or underutilized.”—Senate Finance

Committee, Letter to Members of the Health Care Community, May 2, 2012

“It is hard to tell, and the answer may be inconclusive. The main reason: Each analysis applied a

different methodology and neither was based on original, proprietary data. Instead, both were so-

called observational studies, in which scientists often use fast computers, statistical software and large

medical data sets to analyze information collected previously by others. From there, they look for correlations, such as whether a drug may trigger a worrisome side effect.”—Wall Street Journal,

“Analytical Trend Troubles Scientists,” May 3, 2012

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Fact file

Seven million in the U.S. use prescription pain medications for non-prescribed purposes; 1.5

million are addicted; 1,000 die annually. The U.S. Senate is considering limits on physician owned pain clinics; 48 states have prescription drug monitoring programs in place. (Source: U.S.

Drug Enforcement Agency)

2011 Medicaid fraud detection: returned $8.39 per dollar cost. (Source: Office of the Inspector

General, “State Medicaid Fraud Control Units Fiscal Year 2011 Grant Expenditures And

Statistics”)

Medicare spending October 2011 thru March 2012: up 3% ($6 billion); Medicaid spending

dropped 16% ($24 billion) because matching funds expired. The federal government will have a

deficit of $777 billion in first half of 2012 while revenues will be $46 billion higher. (Source: HHS)

First quarter gross domestic product (GDP) up 2.2%, vs. 3% in the fourth quarter of 2011—

slowed growth after 11 quarters of growth. First 11 quarters of Reagan recovery were at 6.1%.

Consumer spending is up 2.9% but corporate spending down 2.1%. Real disposable income

increased 0.4%—up 0.6% in last 12 months. Federal spending is down 3.1% in the first quarter.

U.S. GDP has grown by $600 billion but debt by $1.3 trillion in the last 12 months. (Source: U.S.

Department of Commerce)

Economy and job growth: in April, the unemployment rate remained at 8.1% with 115,000 jobs

added. The health care sector added 19,000 jobs, adding most—15,000 jobs—to the ambulatory

health care industry including home health care, outpatient care centers, and physicians’ offices. Hospitals added 4,000 jobs. (Source: U.S. Department of Labor, Bureau of Labor Statistics)

Obesity costs and incidence: $190 billion in annual health costs is due to obesity. The incidence of obesity in the U.S. has increased from 13% to 34% over the past 50 years. (Source: Michael

O’Grady and James Capretta, “Assessing the Economics of Obesity and Obesity Interventions

Campaign to End Obesity,” March 2012)

Premature births: 1 in 10 (15 million) babies are born prematurely worldwide. In the U.S. 12% of

births are premature, ranking us 54th in the world behind countries such as Kuwait, Cambodia,

Ethiopia, and Rwanda. Malawi, Congo, and Comoros are ranked among the highest in rates of

premature births with more than 15 premature births per 100 births. (Source: March of Dimes,

“Estimated National Rates of Preterm Birth in 2010)

EHR adoption: the percentage of hospitals with any type of EHR system increased from 15% to

26% from 2010 to 2011; those with comprehensive systems from 3.6% to 8.7%; and those able

to meet criteria for meaningful use in at least one unit (18.4%) and across clinical units (11.2%)

rose in 2011. (Source: Catherine DesRoches, et al, Health Affairs, “Small, Nonteaching, And

Rural Hospitals Continue To Be Slow In Adopting Electronic Health Record Systems,” April

2012)

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National health reform: what now?

National health reform is here. The health reform bills (HR3590 and HR4872)

are law and triggering sweeping changes and disruptions – some rather

quickly and some over many years. The industry is asking, “What now?” At

Deloitte, we continue to explore and debate the key questions facing the

industry, and we look forward to helping our clients find and implement the

right answers for their organizations. To learn more, visit

www.deloitte.com/us/healthreform/whatnow today.

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Subscribe to the Health Care Reform Memo

Health Care Reform Memo — The weekly Health Care Reform Memo is available for subscription.

Please visit www.deloitte.com/us/healthmemos/subscribe. First, confirm your sector(s) of interest.

Then, select the Health Care Reform Memo as one of your Email Newsletters (under Health Sciences

and Government). return to top

Upcoming life sciences and health care Dbrief webcasts Anticipating tomorrow's complex issues and new strategies is a challenge. Stay fresh with Dbriefs –

live webcasts that give you valuable insights on important developments affecting your business.

May 8, 1:00 PM ET: Health Sciences Consolidation: Industry's Response to the New

Normal

June 12, 1:00 PM ET: Consumerism in Health Care: Trends and Implications for Health Industry Stakeholders

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Deloitte Center for Health Solutions research

Coming soon: Value-based Pricing for Prescription Medications

State Medicaid Program Management: Update

The Voice of the Hospital C-Suite: Responding to the “New Normal”

Health Insurance Industry M&A: Balancing post-reform opportunities and challenges

Consolidation in health delivery systems: A focus on providers

Currently available: The new health care workforce: Looking around the corner to future talent management —

March 2012. Available online at www.deloitte.com/us/healthcaretalentmanagement

Supervisory Care: Key costs, trends, and strategic implications —February 2012. Available

online at www.deloitte.com/us/supervisorycare

Physician Perspectives about Health Information Technology —February 2012. Available online

at www.deloitte.com/us/PhysicianPerspectivesAboutHIT

Engaging Health Care Consumers Through Information Technologies —February 2012. Available

online at www.deloitte.com/us/ConsumersandIT

What’s Next? Perspectives of Health Technology Officers” —February 2012. Available online at

http://www.deloitte.com/us/perspectivesofhealthtechofficers

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Deloitte contacts Paul H. Keckley, Ph.D., Executive Director, Deloitte Center for Health Solutions

(pkeckley@deloitte.com)

Harry Greenspun, M.D., Senior Advisor, Health Care Transformation and Technology, Deloitte

Center for Health Solutions (hgreenspun@deloitte.com)

Jessica Blume, U.S. Public Sector National Industry Leader, Deloitte LLP (jblume@deloitte.com)

Bill Copeland, U.S. Life Sciences and Health Care National Industry Leader, Deloitte LLP

(bcopeland@deloitte.com)

Steve Kraus, Principal, Human Capital, Deloitte Consulting LLP (stkraus@deloitte.com)

Mitch Morris, M.D., National Leader, Health Information Technology, Deloitte Consulting LLP

(mitchmorris@deloitte.com)

Clint Stretch, Managing Principal, Tax Policy, Deloitte Tax LLP (cstretch@deloitte.com)

Andrew Vaz, National Managing Director, Life Sciences & Health Care, Deloitte Consulting LLP

(anvaz@deloitte.com)

George Serafin, Managing Director, Health Sciences Governance Regulatory & Risk Strategies,

Deloitte, LLP (gserafin@deloitte.com)

To receive email alerts when new research is published by the Deloitte Center for Health Solutions,

please register at www.deloitte.com/centerforhealthsolutions/subscribe.

To access Center research online, please visit www.deloitte.com/centerforhealthsolutions.

To arrange a briefing for your team, contact Jennifer Bohn (jebohn@deloitte.com).

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