Deloitte Center for Health Solutions

April 22, 2013

Monday memo

Health reform update

This week’s headlines: My take

Implementation update - Study: 25.7 million eligible for Affordable Care Act insurance subsidies - ACA Prevention and Public Health Fund targeted to support HIX enrollment - Analysis: 3.1 million newly covered under ACA adult-dependent mandate,

0.2% cost increase for employers - CMS issued a notice on Early Retiree Reinsurance Program - Major ACA provisions impacting acute hospitals

Legislative update

- Senators propose national drug tracking program - BPC proposes plan for $560 billion health spending cost-containment - Final mental health parity regulations to be released in 2013 - GOP senators challenge health IT implementation efforts - Health IT workgroup to recommend innovation and regulatory efficiency

improvements - Highlights: new health care legislation introduced last week

State update

- State round-up: HIX

- Medicaid expansion update

Industry news - Diagnostics and therapeutics - Health plans and coverage - Delivery system (hospitals, post-acute, physicians, ancillaries, retail health) - Public health and disease surveillance

Research file

- Costs or profitability of hospital complications vary by payer

- Outcomes improve when physicians understand patient perspective

- Tests ordered in hospitals less when costs known to clinician

Quotable

Fact file

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My take

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

Last Monday, the Boston marathon was rattled at 2:50pm by two explosions 12 seconds

apart that sent approximately 170 people to ten area hospitals, killed three, and caused

several people to lose limbs.

Wednesday at 7:50pm in West, Texas, a tiny town was rocked by a fertilizer plant

explosion that sent 200 to six area hospitals killing 14, mostly first responders.

I had intended to focus my comments this week on last week’s Supreme Court arguments

about ownership of genes. That can wait, though incredibly important to our developing

journey toward personalized medicine.

There are 4,973 community hospitals in the U.S: 1,984 are rural, and 3,007 are affiliated

with a multi-hospital system, either investor owned, private or otherwise.1

Unlike any other sector in the health system, the majority of hospitals are required to treat

patients without regard to their ability to pay. It’s fundamental to understanding this sector,

and why Moody’s, among others, has issued five consecutive negative outlooks for not-

for-profit hospitals, noting the combination of sequestration and declining reimbursement

will result in an $11 billion cut to the industry in 2013.

“Hospital” traces its origin to the Latin word “hospes” meaning “stranger, foreigner, or

guest”. It shares the same root with “host, hotel, hospice, hospitality” –an irony in that

most are not inclined to think of themselves as “guests” in today’s hospitals.

They’ve been around since the Middle Ages, first appearing in the Americas in Santo

Domingo (1503), then Mexico (1639), and William Penn’s hospital in Philadelphia (1713).

In those days, and for the next 100 years in the U.S., the hospital was a dispensary, often

associated with care for the poor (almshouses) for those unable to afford care at home.

Today, hospitals are a big business in the U.S.: more than $800 billion of the U.S. $2.7

trillion health spend is in hospitals.2 The acute sector is, by far, the industry’s most capital

intense, labor intense, and regulated, further complicated by fast-changing clinical

innovations requiring new approaches to diagnosis and treatment, and the shift away from

fee-for-service (FFS) to value-based incentives requiring risk sharing with physicians,

post-acute, and ancillary business partners. And utilization rates are soaring as numbers

of seniors grow, especially in areas where utilization rates are highest (Louisiana, West

Virginia and others), forcing investments in added capacity.3

The combination of higher operating costs, lower reimbursement from Medicare and

Medicaid, increased numbers of older, sicker patients, and increased state and federal

regulation is a perfect storm: nonetheless, it’s the sector in health care that’s expected, in

spite of these, to be ready for anything…like West, Texas and Boston!

There’s no doubt hospitals need to become more efficient, operating at Medicare rates or

better. And there’s no question transparency about pricing, outcomes and safety need

attention. In all likelihood, one in four will not survive the sector’s shakeout, and business

pressures will mount.

But last week, the unsung heroes were the doctors, nurses, administrators, emergency

services professionals, fire rescue, clerks, patient transport, grief counselors, home aides,

social workers, clergy, pharmacists, IT staff, and teams of caregivers who stopped

everything to take care of their almost 400 unexpected guests. And no one was denied

care based on income, or color, nation of origin, or circumstance.

Sources:

1American Hospital Association, Fast Facts on U.S. Hospitals, 2011

2“U.S. Not-for-Profit Healthcare Outlook Remains Negative for 2013," Moody’s Investor Services

3The Dartmouth Atlas of Health Care, “Inpatient Days per Medicare Enrollees, by Gender and Type

of Admission,” 2013

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Implementation update

Study: 25.7 million eligible for Affordable Care Act insurance subsidies Per a Families USA report released last week, 25,722,200 people who have incomes

between 0% and 400% of the federal poverty level (FPL) will be eligible for a premium tax

credit to lower the cost of health insurance coverage purchased on a public health

insurance exchange (HIX) beginning in 2014. Forty-four percent of individuals between

0% and 199% will be eligible for premium tax credits and 56% of individuals between

200% and 399% FPL. Note: premium tax credits are projected to cost $350 billion 2014-

2019 per the U.S. Congressional Budget Office.

(Source: Families USA, “Help is at Hand: New health insurance tax credits for

Americans,” April 2013).

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ACA Prevention and Public Health Fund targeted to support HIX enrollment

and PCIPs According to Congressional Quarterly, the U.S. Department of Health and Human

Services (HHS) may transfer $454 million from the Prevention and Public Health Fund to

help support HIX enrollment efforts scheduled to start in October 2013. This will directly

impact the U.S. Centers for Disease Control and Prevention (CDC) and the Substance

Abuse and Mental Health Services Administration fiscal year (FY) 2013 prevention and

public health programs. HHS will use its “transfer authority” to make these changes to the

FY 2013 budget.

Related: last week, Joseph Pitts (R-PA) introduced H.R. 1549 that would transfer $4

billion from the Prevention and Public Health Fund to the Pre-existing Conditions

Insurance Plans (PCIP) to help ensure its solvency and allow the program to re-open

enrollment through January 2014. Federally-run and state-based PCIPs suspended

enrollment earlier this year citing high costs associated with the program. A vote is

scheduled in the House this Wednesday.

Background: the Prevention and Public Health Fund was allocated $1 billion per Section

4001 of the Affordable Care Act (ACA). The Fund was subject to sequestration,

decreasing amount to $949 million. PCIPs were enacted by Section 1001 of the ACA as a

temporary high-risk insurance program scheduled to run through January 2014, after

which health insurance market reforms preventing discrimination on the basis of pre-

existing conditions will go into effect. $5 billion was allocated to PCIP per the ACA in

2010. Over 100,000 individuals are currently enrolled in PCIPs.

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Analysis: 3.1 million newly covered under ACA adult-dependent mandate,

0.2% cost increase for employers

The ACA (Section 1001) requires employers to extend insurance coverage for eligible

dependents of employees up to the age of 26. The Employee Benefit Research Institute

report found:

3.1 million gained insurance coverage as a result of the provision

31% of employers enrolled adult dependent children with larger employers being

more likely to do so when compared to smaller employers

Health care spending increased by $2 million (0.2%) for large employers

Average spending among the young adult dependents was $2,866 (15%) higher

than in the comparison group

Young adult dependents were more inclined to pursue care related to mental

health, substance abuse and pregnancy; they also preferred retail pharmacies

versus mail-order; there was no significant difference in prescriptions by

therapeutic class

(Source: Employee Benefit Research Institute, “Mental Health, Substance Abuse, and

Pregnancy: Health Spending Following the PPACA Adult-Dependent Mandate,” April

2013)

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CMS issued a notice on Early Retiree Reinsurance Program Last week, CMS issued a notice about the termination dates for the Early Retiree

Reinsurance Program (ERRP). Per Section 1102 of the ACA, the ERRP was enacted

June 21, 2010 to subsidize the cost for employers providing early retirees and their

dependents health care insurance coverage until January 1, 2014.

Background: $5 billion was allocated to ERRP per the ACA; sponsors are reimbursed for

claims between $15,000 and $90,000. As of February 2012, 19.1 million individuals were

enrolled in ERRP.

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Major ACA provisions impacting acute hospitals Section Provision Implementation status

Additional requirements for

charitable hospitals

(Section 9007)

Establishes new requirements

including periodic community needs

assessments and financial

assistance policies -- $50,000 per year penalty for failure to meet

requirements.

Requirement is applied to taxable

year in March 2012

CMS issued a final rule in May

2012

Payment adjustment for health care- acquired

conditions

(Section 1201)

Prohibits Medicaid reimbursement for certain hospital-acquired

infections

Program was applied to payments for discharge occurring after

October 2012

Counting resident time in

non-provider settings

(Section 5504)

Modifies when hospitals can

receive indirect medical education

(IME) and direct graduate medical

education (DGME) funding for

residents who train in non-provider

settings.

Implemented July 2011

August 2012, CMS issued a final

rule determining a hospital’s full-

time equivalent resident cap for the

purpose of DGME and IME

payments

Accountable Care

Organizations (ACOs)

(Section 3022 and 3021)

Rewards Medicare ACOs that

improve quality of care while

containing costs.

Medicare Shared Savings Program:

One-sided risk model: sharing beginning at savings of 2%

Two-Sided Risk Model: sharing

from first dollar

Pioneer Model: tests a shared

savings and shared losses payment

arrangement with higher levels of

reward and risk than in the Shared

Savings Program

Established January 2012

CMS defined 33 core quality

measures based on five domains:

the patient/caregiver experience,

care coordination/patient safety, preventive health measures, and

the delivery of services to at-risk

populations

Over 250 ACOs participating in the

Medicare Shared Savings Program

serving 4 million beneficiaries: 32

Pioneer ACOs serving 860,000

beneficiaries

Hospital readmissions

reduction program

(Section 3025)

Adjusts payments for hospitals paid

under the inpatient prospective

payment system, based on the

dollar value of the hospital’s

percentage of potentially preventable conditions

Implemented FY2012

August 2012, CMS published a final

rule on the methodology: the

readmissions adjustment factor for

FY 2013 is the higher of the ratio (payments for excess

readmissions/payments for all

discharges) or a 1% reduction

As of December 2012, 2,217

hospitals were penalized; of those

hospitals, 307 will receive the

maximum penalty of a 1% reduction

in Medicare’s regular payments

Temporary improvements

to the Medicare inpatient

hospital payment

adjustment for low-volume

hospitals

(Section 3125)

Expands the program providing an

adjustment to inpatient hospital

payments for certain low volume

hospitals

Expanded the program for certain

hospitals through FY 2012

Protection for frontier

States

(Section 10324)

Established hospital wage index

and geographic practice expense floors for hospitals in frontier states

Implemented FY2011

Revision of certain market

basket updates and incorporation of

productivity improvements

into market basket updates

(Section 3401)

Incorporates a productivity

adjustment into the market basket update for hospitals and

implements additional market

basket reductions for certain

providers

Implemented for inpatient hospitals,

rehabilitation facilities, psychiatric hospitals and outpatient hospitals in

2012 and 2013

Implemented for long- term

hospitals in 2011, 2012 and

2013;home health providers in

2013,hospice providers in 2013

through 2019

Extension of the Medicare-

dependent hospital (MDH)

program

(Section 3124)

Extends the MDH hospital program

by ones year

Extended the program by one year

through October 2012

Hospital value- based

purchasing program

(Section 3001)

Establishes a Medicare hospital

value-based purchasing program;

hospitals reimbursed on set of core

quality measures; maximum

amount +/- 1% in Medicare payments.

.

CMS issued a final rule on the

value based incentive payments in

June 2011

Implemented FY2013; payments

are based on processes of care (70% on 12 measures ex: heart

failure patients given discharge

instructions and patient experience

(30%)

The maximum amount a hospital

could gain or lose was 1 percent of

its regular Medicare payments.

Penalty increases to +/- 2% in October 2013

As of December 2012 1,557 were

rewarded and 1,427 others saw a

reduction in payment

National pilot program on

payment bundling

(Section 3023)

Develops a national voluntary

program encouraging hospitals,

doctors and post-acute care

providers to improve patient care

and achieve Medicare program

savings

The Secretary of HHS released a

national pilot program in January

2013

Implemented 2013 through 2016

By January 2016, the Secretary of

HHS must submit a plan to

Congress to expand the pilot

program if doing so will improve

patient care and reduce spending

Transparency reports and

reporting of physician

ownership or investment interest

(Section 6002)

Requires drug, device, biological

and medical supply manufactures

to report transfers of value made to a physician, medical practice, and

hospital

Effective April 9, 2013

Organizations must begin to collect

required data on August 1, 2013

Drug, device, biological and medical

supply manufactures that provide

payment to hospitals must disclose

any relevant material to the

Secretary of HHS on March 31,

2014 and every subsequent year

following

Limitation on Medicare

exception to the prohibition

on certain physician

referrals for hospitals

(Section 6001)

Prohibits physician-owned hospitals

that do not have a provider

agreement prior to December 31,

2010.

Effective December 2010

Disproportionate share

hospital (DSH) payments

(Section 2551)

Reduces payments based on the

percent of the population uninsured

and the amount of uncompensated

care provided

Medicaid DSH payments reduced

quarterly beginning in FY 2014

President Obama recommended in

his FY 2014 budget proposal to delay payment reductions until

2015.

Payment adjustment for

conditions acquired in hospitals

(Section 3008)

Penalties for hospital inquired

infections – Medicare reimbursement reduced by 1%

Begins FY2015 for hospitals in the

top 25th percentile of rates of

hospital acquired conditions

January 2012, the Secretary of HHS

submitted a report to Congress on

the appropriateness of establishing

a health care acquitted condition

policy

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Legislative update

Senators propose national drug tracking program Friday, Senators Tom Harkin (D-IA), Lamar Alexander (R-TN), the leaders of the Health,

Education, Labor and Pensions (HELP) Committee, and Senators Michael Bennett (D-

CO) and Richard Burr (R-NC) released proposed legislation “that would set up a tracking

system that requires manufacturers, wholesale distributors, and others in the drug supply

chain to supply transaction information when there is a change in ownership and require

the [U.S. Food and Drug Administration (FDA)] to keep a public database of wholesale

distributors.”

(Source: Politico Pro, “Key Senators outline drug tracking plan,” April 19, 2013).

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BPC proposes plan for $560 billion health spending cost-containment Thursday, the Bipartisan Policy Center (BPC) released its plan to save $560 billion in

health care spending through 2022, including $300 billion from Medicare and a

sustainable growth rate (SGR) fix that would freeze physician FFS payments for ten

years.

Key recommendations in the plan:

Improve and enhance Medicare to incent quality and care coordination including

limitations on MediGap coverage, creation of a Medicare Network program

(improved ACO framework), expansion of the bundled payment and durable

medical equipment competitive bidding programs, reduction of waste and fraud in

traditional Medicare FFS, and reductions and repurposing of indirect medical education payments. Note: BPC recommends an annual per capita cap on

Medicare payments at gross domestic product (GDP) plus 0.5% beginning in

2020 and by 2016 a structure applicable to 17% of enrollees whose premiums

would be tied directly to their income.

Reform tax policy and clarify consolidation rules to encourage greater efficiency

and competition by placing a limit on the employer tax exemption (replacing the

“Cadillac” tax), elimination of the fully insured health plan tax with a paid claims

tax, and regulatory changes that encourage development of integrated delivery

systems by reducing federal anti-trust barriers.

Prioritize quality, prevention, and wellness including improvements to the quality

reporting system.

Incentivize and empower states to improve care and constrain costs through

delivery, payment, workforce, and liability reform.

(Source: BPC, “A Bipartisan Rx for Patient-Centered Care and System-Wide Cost

Containment”, April 2013)

My take: the BPC’s recommendations are a bold move toward structural reforms of

Medicare. Missing are similarly bold recommendations about Medicaid, the role of

consumers in becoming more accountable for their own health and health costs, and

provider adherence to evidence-based practices that account for 20% of avoidable costs

per the Institute of Medicine (IOM) and Dartmouth Atlas. Policymakers are keen to reform

Medicare—that’s understandable and appropriate, but the rest of health care market and

its financial pressures require consideration beyond changes to structural changes to

employer-sponsored coverage.

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Final mental health parity regulations to be released in 2013 Last week in testimony before the U.S. House Energy and Commerce health

subcommittee, HHS Secretary Sebelius said the final mental health parity regulations

would be released before the end of 2013.

Background: Mental Health Parity and Addiction Equity Act of 2008 requires medical and

mental health benefits to be provided at parity―requiring insurance plans to cover

physical and mental health benefits at the same level. To date, HHS has not issued a final

regulation, but has issued interim guidance to support implementation.

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GOP senators challenge health IT implementation efforts Last week, GOP senators released a 27-page white paper citing concerns with the

Administration’s implementation of health information technologies (IT) stating “while

promoting the use of health IT is a laudable goal, a growing body of objective analysis and

empirical data suggests the program needs to be recalibrated to be effective. Congress

and the administration need to work together to ‘reboot’ the program to accomplish the

aims of meaningful use and interoperability and ensure appropriate stewardship of

taxpayer dollars in the process.” Key areas of concern noted in the paper:

No clear guidelines toward interoperability

Health IT increasing health care costs and not helping to control costs

No program oversight

Patient privacy and security risks

Concerns about cost in the long run, specifically federally incentivized health care

technology

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Health IT workgroup to recommend innovation and regulatory efficiency

improvements Last week, HHS and the Federal Communications Commission (FCC) announced their

appointees to a new workgroup that will focus on innovation in health IT, including mobile

medical applications. The workgroup’s first meeting is April 29 and its recommendations

to the Health IT Policy Committee, which advises the Office of the National Coordinator for Health IT (ONC), are expected this summer.

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Highlights: new health care legislation introduced last week:

Senator Charles Schumer (D-NY) introduced legislation (S.728) to extend

employer-sponsored health insurance tax benefits applicable to employees’

spouses and dependents to other eligible beneficiaries of employees.

Senator Tom Coburn (R-OK) introduced a resolution (S. Res 97) stating that the

FDA should encourage the use of abuse-deterrent formulations of drugs.

Representative Bill Huizenga (R-MI) introduced H.R. 1552 to allow the transfer of

required minimum distributions from a retirement plan to a health savings

account.

Representative Chris Collins (R-NY) introduced H.R. 1558 to lower health

premiums and increase choice for small businesses.

Representative Henry Waxman (D-CA) introduced H.R. 1588 to require drug

manufacturers to provide drug rebates for drugs dispensed to low-income

individuals under the Medicare prescription drug benefit program.

Senator Jay Rockefeller (D-WV) introduced the Medicare Drugs Savings Act (S

740).

Senator Barbara Boxer (D-CA) introduced S. 739 to establish direct care

registered nurse-to-patient staffing ratio requirements in hospitals.

Senator Kirsten Gillibrand (D-NY) introduced S.723 to revise the medical and

evaluation criteria for determining disability in a person diagnosed with

Huntington's disease and to waive the 24-month waiting period for Medicare

eligibility for individuals disabled by the disease.

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State update

State round-up: HIX Seventeen states—13 led by Democratic Governors, three led by Republicans, and one

Independent—and the Democratic mayor of D.C. have announced plans to operate state-

based exchanges. Seven states—five led by Democratic Governors and two led by

Republicans—will participate in state-partnership exchanges. The remaining 26 states will

default to a federally-facilitated exchange.

State-based exchange State-partnership exchange Federally-facilitated exchange

CA, CO, CT, DC, HI, ID, KY, MA,

MD, MN, NM, NV, NY, OR, RI,

UT, VT, WA

AR, DE, IA, IL, NH, MI, WV AK, AL, AZ, FL, GA, IN, LA, KS,

ME, MO, MS, MT, NC, ND, NE,

NJ, OH, OK, PA, SC, SD, TN, TX,

VA, WI, WY

■ Democratic governor ■ Republican governor ■ Independent governor

Source: HHS

Recent HIX announcements:

To date, CMS has spent $393.7 million on federally-facilitated exchange

establishment and the federal data services hub. In FY 2010: $4.2 million; FY 2011:

$112.7 million; FY 2012: $248.4 million; and FY 2013: $28.4 million.

Maryland will delay the Small Business Health Options Program (SHOP) – the small

group market for small employers on the HIX – open enrollment from October 1,

2013 to January 1, 2014.

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Medicaid expansion update Medicaid expansion is projected to cost the federal government $952 billion between

2013 and 2022 and states $76 billion. (Source: JAMA, “Medicaid expansion under the

Affordable Care Act,” March 27, 2012). To date, 26 states and D.C. have said they will or

are in support of expanding their Medicaid programs; 17 states have indicated they are

highly unlikely to expand their programs:

Announced expansion or

likely to expand

Not participating or unlikely to

participate

Undecided or undeclared

AR, AZ, CA, CO, CT, DE,

DC, HI, IL, MD, MA, MI, MN,

MO, MT, NY, NM, ND,NJ,

NV, OH, OR, RI, TN, VT, WA

AL, FL, GA, ID, IN, IA, LA,

ME, MS, NE, NC, OK, SC,

TX, UT, VA, WI

AK, KS, KY, PA, NH, SD, WV,

WY

■ Democratic governor ■ Republican governor ■ Independent governor

Source: Kaiser Family Foundation; PoliticoPro, Statereforum

Note: states do not have a deadline to make a decision on Medicaid expansion and may

opt in or out of participation at any time. This chart was compiled using publicly available

information (as of April 21, 2013) and is subject to change.

Recent Medicaid announcements:

A Florida House panel approved a Medicaid expansion plan that would cost $237

million annually to provide health insurance coverage to 115,700 low-income

residents. Parents, caretakers, and disabled adults below 100% of FPL would

receive $2,000 per year to purchase health insurance coverage and would be

required to pay a $25 per month deductible.

A Louisiana House bill (532) that would allow hospitals to deposit money into a

"stabilization fund" to increase the state’s federal Medicaid matching funds without

using tax dollars advanced last week. The fund is expected to provide $170 million

in additional Medicaid dollars for participating hospitals. The bill will need a two-

thirds vote by the legislature, followed by a majority during the general election on

November 4, 2014 before it can be enacted. Thirty-nine other states have similar

funding programs.

Legislators in Arkansas have approved the Medicaid expansion alternative plan,

which intends to utilize federal funding to purchase private insurance for low-income

residents. Governor Mike Beebe (D-AR) and Republicans who are in control of the

Legislature provided support for the plans. Final approval will need to be obtained

from the White House in order to move forward. If the plan is approved, Arkansas

would be given the funds for Medicaid expansion; the state would use the money to

purchase private insurance for 250,000 low-income residents earning less than

$15,415 per year.

Last week, legislation was introduced in the Nebraska legislature to expand

Medicaid. The proposed legislation includes a sunset provision that would allow

lawmakers to reevaluate expansion when the federal match decreases to 90% --

this amendment was approved (30-12). It’s still unclear as to whether the state will

expand.

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Industry news

Diagnostics and therapeutics:

FDA to take closer look at compounders In a hearing before the U.S. House Energy and Commerce Committee last

Tuesday, FDA Commissioner Margaret Hamburg said the agency had been

constrained in its oversight of compounding pharmacies fearing litigation and asked

for stronger legal authority to intensify its efforts. She testified there are 28,000

compounders in the U.S. including 3,000 that produce injectables—the source of

the tainted injections that killed 50 people and infected 680 with spinal meningitis.

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Health plans and coverage:

OIG: pre-paying Part D drug plans costs Medicare $111 million

annually Last week, the HHS Office of Inspector General (OIG) released a report analyzing

52 Medicare Part D plans and 706 Medicare Advantage (MA) plans in calendar year

2009. Key findings:

Medicare loses $111 million a year by pre-paying Part D and MA health plans and

could have saved an $5.3 million by requiring Part D plans to reduce their revenue

requirements in their bid proposals to account for anticipated investment income

that the plans earned over the same 20 days.

OIG recommendations: CMS should pursue legislation to adjust the timing of

Medicare’s prepayments to Part D plans to account for the time that these plans

invest Medicare funds before paying pharmacy claims, or adopt regulations

requiring Part D plans to reduce their revenue requirements in their bid proposals to

consider anticipated investment income.

Background: under the Medicare Prescription Drug, Improvement, and

Modernization Act of 2003, CMS makes advance capitated payments

(prepayments) to Part D plans for each enrollee at the beginning of each month.

Part D plans may invest these Medicare funds in interest-accumulating ways until

the funds are needed to pay for drug costs and administrative services. Currently,

no law prohibits the plans from keeping the additional revenue from the interest

earned on Federal funds. Part D plans are required to submit bid proposals annually

containing their anticipated revenue requirements for providing drug coverage under

each of their plans for the upcoming year.

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Delivery system (hospitals, post-acute, physicians, ancillaries, retail health):

Hospital groups to discuss coding using EHRs with ONC On May 3, CMS and the ONC for Health Information Technology will hold a meeting

with the American Hospital Association, National Association of Public Hospitals

and Health Systems, Federation of American Hospitals, and the American Medical

Association to discuss appropriate coding when using electronic health records

(EHRs).

Background: in September 2012, HHS Secretary Kathleen Sebelius and U.S.

Attorney General Eric Holder issued a letter to major hospital associations, calling

attention to the use of electronic systems to duplicate records in order to increase

payments. The letter warned that early reports have indicated that providers may be

committing fraud by “upcoding” the severity of patients’ conditions for their own

profit.

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Study: health status in assisted living population A new report from the National Center for Health Statistics found 733,000 people

currently reside in assisted living facilities. 82% of these have one or more of three

conditions: dementia, heart disease or elevated blood pressure, and 9% have all

three.

(Source: The New York Times, “For the Elderly, Diseases that Overlap,” April 15,

2013)

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Physician-owned hospitals performing well under ACA quality

programs 122 of 161 (76%) physician-owned hospitals are receiving Medicare reimbursement

bonuses, while 74% of non-physician-owned hospitals are paying fines due to

quality requirements established by the ACA (e.g., the value based purchasing

program). Physician-owned hospitals will receive 0.21% more per Medicare patient

through September 2013; non-physician-owned hospitals will lose 0.3% per

Medicare patient on average. Furthermore, 90% of the hospitals receiving the

largest bonuses are physician-owned. Note: Section 6001 of the ACA prohibits new

physician owned hospitals from being constructed or expanded unless extenuating

circumstances apply.

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HITRUST outlines priorities in fight against cyber threats The HITRUST Cybersecurity Working Group security alliance released a five page

proposed guidance outlining the 50 highest cyber security priorities for protecting

the health care industry from cyber-attacks. Top priorities include: access control

policies, cryptography, isolating sensitive material, and developing a reporting

system for breaches.

Background: HITRUST’s Cybersecurity Working Group was established after an

Executive Order issued by President Obama in February 2013 outlined a framework

to increase national efforts fighting cyber threats. Public comments will be accepted

until May 15, and final guidelines will be discussed at the HITRUST annual meeting

on May 22.

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340B challenge issued to Georgia hospital Last Thursday, Senate Judiciary Ranking Member Chuck Grassley (R-IA) and

Representative Bill Cassidy (R-LA) asked Columbus Regional Healthcare System

for information about its use of the 340B federal discount prescription drug program.

The issue: are hospitals obtaining drugs under the discount program to reduce their

drug supply chain costs?

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@Regulatory update: preparing for 340B drug discount audits Note: @Regulatory is a feature in the Monday Memo, providing the latest

regulatory developments affecting life sciences and health care organizations. To

access the @Regulatory newsletter, visit the website here.

The 340B Drug Discount Program has experienced significant growth and

increased usage by both hospitals and contract pharmacies. Following the

Government Accountability Office’s (GAO) first report on 340B, issued in September

2011 and mandated by the ACA, the Health Resources and Services Administration

(HRSA) has taken a more active oversight role in determining program integrity.

This issue of @Regulatory presents important considerations and next steps for

compliance with 340B program requirements.

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Public health and disease surveillance:

CDC: contaminated food infections increasing The CDC concluded that bacterial infections from contaminated food increased 3%

in 2012 including 25% increase in Vibrio bacteria found in raw oysters and

undercooked shellfish. Forty-eight million people get sick from contaminated food annually.

(Source: The Wall Street Journal, “Food linked infections rose last year,” April 18,

2013)

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Pandemic detection In 1996, early detection took 167 days; in 2009, 23 days. (Source: CNN, “Ending

pandemics: how close are we?” April 2013)

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Research file

Costs or profitability of hospital complications vary by payer Citation: “Relationship Between Occurrence of Surgical Complications and Hospital

Finances” Sunil Eappen, MD; Bennett H. Lane, MS; Barry Rosenberg, MD, MBA; Stuart

A. Lipsitz, ScD; David Sadoff, BA; Dave Matheson, JD, MBA; William R. Berry, MD, MPA,

MPH; Mark Lester, MD, MBA; Atul A. Gawande, MD, MPH JAMA. 2013;309(15):1599-

1606. doi:10.1001/jama.2013.2773.

Objective: “to determine the relationship between major surgical complications and per-

encounter hospital costs and revenues by payer type.”

Methodology: “retrospective analysis of administrative data for all inpatient surgical

discharges during 2010 from Texas Health Resources (THR) (12-hospital system)

categorized by principal procedure and occurrence of one or more postsurgical complications, using International Classification of Diseases, Ninth Revision, diagnosis

and procedure codes. Nine common surgical procedures and ten major complications

across four payer types were analyzed. Hospital costs and revenue at discharge were

obtained from hospital accounting systems and classified by payer type. Hospital costs,

revenues, and contribution margin were compared for patients with and without surgical

complications according to payer type.”

Results: “of 34,256 surgical discharges, 1,820 patients experienced one or more

postsurgical complications. Compared with absence of complications, complications were

associated with a $39,017 higher contribution margin per patient with private insurance

($55,953 vs. $16,936) and a $1,749 higher contribution margin per patient with Medicare

($3,629 vs. $1,880). For this hospital system in which private insurers covered 40% of

patients (13,544), Medicare covered 45% (15,406), Medicaid covered 4% (1,336), and

self-payment covered 6% (2,202), occurrence of complications was associated with an

$8,084 higher contribution margin per patient ($15,726 vs. $7,642) and with a $7,435

lower per-patient total margin ($1,013 vs. −$6,422).”

My take: first, kudos to THR leaders for participating in this study. It’s exactly the right

thing to do for this industry. That the occurrence of postsurgical complications was

associated with a hospital contribution margin for Medicare and commercially insured and

lower for Medicaid and who self-paid is not a surprise… Depending on payer mix, many

hospitals have the potential for adverse near-term financial consequences for decreasing

postsurgical complications. And every hospital recovers higher reimbursement from

commercially insured patients to offset lower, below cost reimbursement from Medicaid

and the uninsured.

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Outcomes improve when physicians understand patient perspective Citation: “Patient-Centered Decision Making and Health Care Outcomes: An

Observational Study” Saul J. Weiner, MD; Alan Schwartz, PhD; Gunjan Sharma, PhD;

Amy Binns-Calvey, BA; Naomi Ashley, BA; Brendan Kelly, BA; Amit Dayal, MD; Sonal Patel, MD; Frances M. Weaver, PhD; and Ilene Harris, PhD Ann Intern Med. 16 April

2013;158(8):573-579

Objective: patient-centered decision making (PCDM) involves a clinician’s purposeful

capture of clinically relevant information about a patient’s circumstances as a basis for

formulating a contextually appropriate care plan. This study sought to measure whether

“encounters in which PCDM occurs are followed by improved health care outcomes

compared with encounters where there is inattention to patient context.”

Methodology: “774 patient encounters with 139 residents” in “internal medicine clinics

and two Veterans Affairs facilities” were recorded, then “medical records of these

encounters screened for “contextual red flags,” such as deteriorating self-management of

a chronic condition, that could reflect such underlying contextual factors as competing

responsibilities or loss of social support. When a contextual factor was identified, either as

a result of physician questioning or because a patient volunteered information, physicians

were scored on the basis of whether they adapted the care plan to it."

Results: “among 548 contextual red flags, 208 contextual factors were confirmed, either

when physicians probed or patients volunteered information. Physician attention to

contextual factors (both probing for them and addressing them in care plans) varied

according to the presenting contextual red flags. Outcome data were available for 157

contextual factors, of which PCDM was found to address 96. Of these, health care

outcomes improved in 68 (71%), compared with 28 (46%) of the 61 that were not

addressed by PCDM.”

Conclusion: attention to patient needs and circumstances when planning care is

associated with improved health care outcomes.

My take: physicians will say they lack the time to adequately listen to patients, but that’s

no excuse. Purposeful efforts by care teams, including physicians, to capture the most

salient dimensions of a person’s (not “patient”) circumstance using communication

techniques and online tools in advance or and after visits is necessary to more accuracy

in diagnosis, appropriateness in treatment plans, outcomes and safety. As individuals

become more directly responsible for their care and its costs, they will seek providers who

use these tools and techniques.

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Tests ordered in hospitals less when costs known to clinician Citation: “Impact of Providing Fee Data on Laboratory Test Ordering A Controlled Clinical

Trial”, Leonard S. Feldman, MD; Hasan M. Shihab, MBChB, MPH; David Thiemann, MD;

Hsin-Chieh Yeh, PhD; Margaret Ardolino, RN, MS; Steven Mandell, MS; Daniel J.

Brotman, MD; JAMA Intern Med. 2013;():1-6.

Objective: to determine whether making a clinician aware of the cost of a diagnostic test

before ordering might change ordering patterns.

Methodology: a controlled clinical trial using the “computerized provider order entry

system at The Johns Hopkins Hospital... 61 diagnostic laboratory tests were randomly

assigned to an “active” arm (fee displayed) or to a control arm (fee not displayed). Metrics

analyzed were changes in the total number of orders placed, the frequency of ordered

tests (per patient-day), and total charges associated with the orders according to the time

period (baseline vs. intervention period) and by study group (active test vs. control).”

Results: “rates of test ordering were reduced from 3.72 tests per patient-day in the

baseline period to 3.40 tests per patient-day in the intervention period (8.59% decrease).

For control arm tests, ordering increased from 1.15 to 1.22 tests per patient-day from the baseline period to the intervention period… Presenting fee data to providers at the time of

order entry resulted in a modest decrease in test ordering. Adoption of this intervention

may reduce the number of inappropriately ordered diagnostic tests.”

My take: to reduce costs without compromising outcomes and safety, it is necessary that

clinicians have access to information about costs that their patients will bear in following

recommended treatments. Heretofore, clinicians have been trained to think only of clinical

implications; they must now include costs in their professional role.

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Quotable “If the administration implements it correctly, millions more Americans will gain access to

health care next year as a result of the law…I am concerned that not every state,

including Montana, will have an insurance marketplace established in time. I want to hear

how the money requested in the budget would be used to ensure these marketplaces will be ready to go on day one.”—Senator Max Baucus (D-MT), Senate Finance Committee

Hearing, April 17, 2013

“WSJ Question: How much do doctors still rely on paper?

Jonathan Bush: It’s 2013 and the average doctor is getting 1100 faxes a month.”— “Updating Doctors’ Offices via Cloud Services” Wall Street Journal Interview with

Jonathan Bush, CEO, AthenaHealth April 17, 2013

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Fact file Medicare per capita inpatient utilization: 1.58 admissions per capita U.S.

average; 0.85 (Hawaii) to 2.07 (West Virginia)

(Source: The Dartmouth Atlas of Health Care, “Inpatient Days per Medicare

Enrollees, by Gender and Type of Admission,” 2013)

Medicare utilization: days per 1,000 enrollees: U.S. average: 315.9 days,

lowest: 135.4 (Hawaii) vs. highest 400.8 (Kentucky)

(Source: The Dartmouth Atlas of Health Care, “Inpatient Days per Medicare

Enrollees, by Gender and Type of Admission,” 2013)

Consumer views of hospitals by generation (Deloitte Center for Health

Solutions’ 2012 Survey of US Health Consumers)

Operating costs for community hospitals: 1980 2000 2011

Private insurance 41.8% 38.7% 34.6%

Medicare 34.6% 38.3% 39.3%

Medicaid 9.6% 12.8% 16.3%

Other government 6.1% 1.4% 1.8%

Uncompensated care 5.1% 6.0% 5.9%

Non patient care costs 2.7% 2.8% 2.1%

(Source: Avalere analysis for American Hospital Association Annual Survey data

2011, for community hospitals, Chart 4.5)

Leading Top 100 Hospital Report Cards Top 100 Hospital

Source

Methodology # of

Hospitals

Truven Health

Analytics

Note: Solucient

used to put out

the 100 top

hospitals list –

this is now done by Truven,

formerly the

Healthcare

Business of

Thompson

Reuters

Utilizes the 100 Top Hospitals National Balanced Scorecard:

consists of 10 measures, distributed across four domains — quality, efficiency, finance, and consumer assessment of

care — and uses only publicly available data

Hospitals are measured against peers of similar size and

teaching status

A database of short-term, acute-care, nonfederal U.S. hospitals that treat a broad spectrum of patients. The

primary data sources are the Medicare Provider Analysis

and Review (MedPAR) dataset and the Medicare Cost

Report. We use the five most recent years of data available

— for this year’s studies, federal fiscal years 2006–2010.

Database

study group

of nearly

3,000

hospitals

U.S. News Best

Hospitals U.S News ranks the top hospitals in 16 different specialties

from Cancer to Urology. For 12 of the 16 specialties, the

rankings are based on an extensive analysis that combines

measures of performance in three primary dimensions of

health care: structure, process, and outcomes. Rankings in

the other four specialties are based on hospital reputation as

determined by a physician survey

All community hospitals included in the AHA universe are automatically considered for ranking

Outcomes performance relies mostly on survival, i.e. risk-adjusted mortality. These data come from the Medicare

Provider Analysis and Review (MedPAR) database

maintained by CMS

To be eligible initially, hospitals must meet at least one of

the following requirements: to be a teaching hospital, to be affiliated with a medical school, to have at least 200 beds, or

to have at least 100 beds plus four or more of eight key

medical technologies

4,793

hospitals

that ranked

in at least

one of 16

specialties

Becker's Hospital

Review

To develop this list, the Becker's Hospital Review editorial

team accepted nominations, conducted research and

considered other reputable hospital ranking sources such as U.S. News & World Report, Thomson Reuters 100 Top

Hospitals, HealthGrades, Magnet Recognition by the

American Nurses Credentialing Center and Malcolm

Baldrige National Quality Award recipients

Not listed

HealthGrades Using 12 years of Medicare data and 150 million patient

hospitalization records, for 26 different diagnoses and

procedures, HealthGrades has identified America’s 50 and 100 Best Hospitals based on their consistent clinical

1,478

outcomes over time.

Quality measures were based on risk‐adjusted mortality and inhospital complications across 26 of the most common

diagnoses and procedures in the Medicare population

America’s 50 and 100 Best Hospitals are located in 88 cities in 25 states. The majority of America’s 50 and 100 Best

Hospitals are non‐profit (87%), 7% are for profit, and 6% are

government owned. America’s 50 and 100 Best Hospitals

range from 100 beds to more than 500, with 45% having less than 350 beds and 55% having more than 350 beds.

Uncompensated care: increased by 82% ($21.6 to $39.3 billion) from 2000 to

2010. (Source: AHA, “Prepared to care “Annual Survey, 1990-2010 data for

community hospitals)

Emergency room visits: 43% urgent (should be seen in 15-20 minutes); 32%

semi-urgent (should be seen in 61-120 minutes); 10% emergent (should be seen

less than 15 minutes); 7% non-urgent (should be seen in 121 minutes to 24 hours); 5.6% no triage/unknown; 1% immediate. (Source: The Centers for Disease Control

and Prevention, “National Hospital Ambulatory Medicare Care Survey: 2010

Emergency Department Summary”)

Teaching hospitals: admissions increased 50% in twenty years (1990 to 2010);

doctors in training increased by 10% over the same time period. (Source: The New

York Times, “The impossible workload for doctors in training,” April 18, 2013)

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Coming soon: Physician Survey 2013: HIT Report

Hospital consolidation: What happens, what’s ahead?

Currently available: Breaking Constraints: Can incentives change consumer health choices?—March 2013. Available online at http://dupress.com/articles/breaking-constraints/?coll=3024

2013 Survey of U.S. Physicians: Physician perspectives about health care reform and the future of the medical profession—March 2013. Available online at

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