We see 2014 as a year of change for the healthcare market. Forces such as the newly implemented health exchanges, the beginning of the penalty phase for quality improvement, and the implementation of the ICD-10 coding system will make a tremendous impact on the practice of medicine.
For the pharmaceutical and device industry, this year brings challenges in adapting not only to domestic health law changes, but also international compliance concerns. With news of GSK's major bribery investigation in China, and their subsequent announcement to stop speaker programs and prescription sales targets, 2014 will see increased globalization in all aspects of the healthcare landscape.
Growth in Prescription Drug Spending?
The Centers for Medicare and Medicaid Services (CMS) recently released their forecast for national health expenditures. Prescription drug spending growth, which was negative in 2012, is projected to accelerate to 5.2% in 2014 (see Table 11).
Projected prescription drug spending growth for 2014 is 5.2 percent (2.9 percentage points higher than growth estimated without the effects of the Affordable Care Act), driven by increases in use of prescription drugs among people who are newly insured or those who move to more generous insurance plans as a result of the premium and cost-sharing subsidies offered by the Affordable Care Act.
For 2015 through 2022, rising drug prices and expected increases in utilization drive faster overall projected average annual growth in prescription drug spending (6.5 percent per year). The generic dispensing rate is anticipated to level off, pushing average prescription drug prices up more rapidly. Faster projected income growth for 2014 through 2016 and the prescribing of drugs earlier in the treatment process as the population ages drive projected faster utilization.
But others are less optimistic. The bungled launch of www.healthcare.gov will go down as a case study in how not to launch a program. Furthermore, many of the spending estimates are based on unrealistic projections of enrollment in the exchanges. Even with less idealistic enrollment projections, however, other considerations suggest the 5.2% increase is a very high estimate.
Significantly, PWC Consulting believes that while insurance mandates of the ACA may lead the previously uninsured population to spend more on prescription drugs, "[a]ny revenue gained from the newly insured population is unlikely to offset the new rebates, discounts, and fees the industry must pay under the ACA." I am going to go out on a limb and predict a more modest 1.2% growth rate in pharmaceutical spending for 2014, which is in line with the increase from 2012 to 2013 (Table 11).
Payment Reform Kicks into High Gear
Quality will take front and center stage during 2014, but it is not entirely clear what "quality" means. Recently, we asked hospital administrators and health experts about the major disrupters expected for 2014. Most are perplexed by the prospect of improving CMS's definition of quality at reduced costs.
What are some of these penalties? Starting January 1, 2014, physician practices will be fined 2% of their Medicare and Medicaid billings for not using electronic prescriptions (eRx) in 2012. Though the program is short lived, it will affect a large number of smaller physician practices. These eRx penalties could foretell additional fines from the Physician Quality Reporting System (PQRS), "Meaningful Use" of Electronic Health Records, and the Value-Based Modifier Program, which, when added up, could be 10% of a physician's billings. Performance in 2014 will affect billings in 2016: physicians who put off getting electronic health records under Meaningful Use will face 2% fines for this year's performance and those who fall below the mean for PQRS will face an additional 2%.
Also, beginning in 2015, payment rates under the Medicare Physician Fee Schedule for groups of 100 or more eligible professionals will be subject to a Value-based Payment Modifier. By 2017, this modifier will be implemented for all physicians. Physicians who do not demonstrate higher quality and lower costs will receive lower payments. Value-Based Purchasing payments are determined by how hospitals scored on various sets of measures, including "patient satisfaction."
Look for physicians to develop a keen interest in these quality-based programs in the coming year, especially as health care providers start to receive fines. We believe education in this arena is very important— it is difficult to hit the target if one does not know what he is supposed to be aiming at. 2014 will be an important year to educate about measures to help physicians and health systems meet their quality goals.
Affordable Care Act Launch
The failed rollout of healthcare.gov was well publicized, as were stories of individual policies being cancelled. In 2014, we will also see companies whose policies do not meet the minimum standards laid out in the Affordable Care Act beginning to receive cancellation notices. This could have a ripple effect in years to come, with fewer employees having their health care covered.
This past August, the Physician Payment Sunshine provision of the Affordable Care Act was fully implemented. Applicable manufacturers (pharmaceutical, biologic and device manufacturers and distributors) will report all payments and transfers of value to physicians and teaching hospitals to the Centers for Medicare and Medicaid Services (CMS). The first report is due on March 31st to CMS. Sometime this coming summer physicians will be able to review their data that was submitted by companies. By October 1, 2014 the database will be fully open to the public.
During the past few months of 2013, we have reported on CMS's webinars, designed to give manufacturers time to get comfortable with the technical aspects of the Open Payments website. CMS has chosen the same vendor for the Open Payments platform as healthcare.gov, so it will be interesting to see whether the rollout for the Sunshine Act avoids the problems that dogged the health care marketplace.
ACOs and the Landscape of Healthcare
In late December, the Department of Health and Human Services (HHS) announced the addition of 123 new Accountable Care Organizations (ACOs). This brings the total to over 360 separate organizations participating in the Medicare Shares Savings programs, with around 6,000,000 covered patients.
ACOs are groups of doctors, hospitals, and other health care providers, who come together to give coordinated high quality care to their Medicare patients. According to CMS, the "goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors." HHS also announced the release of an RFI for a next generation shared savings (ACO) program.
2014 will see continued growth in the ACO marketplace with private payors joining in on this effort, looking for ways to save money and deliver higher quality healthcare. Many ACO's have used this program to take advantage of consolidation, as there is an antitrust exemption provided to healthcare organizations setting up ACO's.
Whole cities are being divided up by regional health systems each claiming a piece of land. The trend to buy physician practices and the consolidation of health systems in a market place will continue and even accelerate in 2014. As recent examples, ADP acquired AdvancedMD and McKesson acquired Med3000.
We expect top companies to make key strategic purchases to accelerate growth and increase their market share. This is especially true with fines coming into play for not meeting certain quality measures or meaningful use of electronic medical records. Smaller practices may be forced to sell to larger entities just to keep their billings current.
ICD-10: The Coming Tsunami
This is the issue very few are addressing. On October 1, 2014 all of the International Classification of Disease (ICD) codes will change. The ICD was developed by the World Health Organization and serves as the codes healthcare providers around the world use to bill for diagnosis and procedures. The change is intended to create more detailed public health records, providing a more effective means of tracking health patterns and outbreaks of sickness.
As we previously reported, the U.S. remains one of the few developed countries that has not transitioned to ICD-10 or a clinical modification. ICD-9, which was implemented in the U.S. in 1979, is an antiquated code set that no longer adequately meets the challenges of a 21st century healthcare system. The ICD-9 codes used to report medical diagnoses and inpatient procedures will be replaced by the ICD-10 codes for services provided on October 1, 2014. ICD-10 classifications are the foundation for critical national healthcare initiatives such as meaningful use, value-based purchasing, payment reform, quality and quality reporting, and patient and population safety.
Some medical industry groups fear the costs and potential added complications could be extremely burdensome. The conversion from ICD-9 to ICD-10 is not a simple program upgrade. The number of codes jumps almost 10x, from 16,000 codes in ICD-9 to 155,000 codes in ICD-10, and the codes are drastically more complex in ICD-10. This represents a significant change for medical professionals. Accurate coding is key to timely and accurate reimbursement for services rendered, and more codes creates concern about more mistakes.
According to Capital New York, the U.S. Department of Health and Human Services estimates the updates will cost the industry $1.64 billion. The estimate includes $357 million for staff training, $572 million in lost productivity and $713 million for system changes. The federal government, and proponents of the new system, argue the greater precision found in the new codes will lead to as much as $4 billion worth of savings over the next decade.
At least in the short-term, though, it is tough to argue with those concerned with the update. HHS has announced they will be doing no end-to-end testing—experimenting with all the possible scenarios, allowing the physician practices and hospitals to submit bills with the codes in advance, and determining what the re-imbursement rate will look like, or even if those codes will be reimbursed. A related concern is that the transition to ICD-10 on the company level is a gigantic task. Providers should consider having at least one person assigned to lead this changeover—an individual or group of individuals personally responsible to oversee the implementation. Furthermore, changing the coding will have direct effects on quality research as many studies utilize existing codes. With no clear conversion path, quality studies may be set back by several years due to this transition.
SGR Repeal: Thank God Almighty we may be free at last
The current problem can be traced back to the 1997 deficit reduction law that called for setting Medicare physician payment rates through a formula based on economic growth and known as the "sustainable growth rate" (SGR). For the first few years, Medicare expenditures did not exceed the target, and doctors received modest pay increases. But in 2002 doctors received close to a 5% pay cut. Every year since, Congress has staved off the scheduled cuts through various "doc fixes," which only deferred the problem and increased the fix needed the next time.
Burried within this repeal is the Medicare Access for Transparency and Accountability Act, this act would require medicare to publish all sorts of medicare payment data on healthcare providers available in a publically available and searchable database. The problem with this is that this data could easily be taken out of context and used against physicians for proceedures that are new or newly tested or as a database for malpractice tort claims.
Now, for the first time in memory, there is a real bipartisan report for a repeal. On December 26, 2013, President Obama signed into law the Pathway for SGR Reform Act of 2013. Despite this being another short term fix for physicians who treat Medicare patients, preventing the SGR-scheduled 20.1% payment reduction from taking effect on January 1, 2014, the Act gives Congress three months to finalize a permanent solution. The Act will incorporate accountable care and value-based reimbursements for an industry shifting to patient-centered care. The Pathway for SGR Reform's bonuses and penalties for performance measures will be integrated into Medicare payments on a larger scale, with payments and penalties fluctuating up to 1% for high and low performers.
Enforcement Goes Global
The GSK scandal in China reinforces that implementing compliance is now very much a global operation. Companies can no longer afford to give autonomy to their country affiliates. Look for increased action in global compliance, especially the Foreign Corrupt Practices Act and UK Bribery laws coming in to clean up and fine companies who have found trouble in local markets.
Furthermore, as arguably a ripple effect from the bribery investigation in China, GSK's decision to stop paying healthcare professionals for speaking engagements and for attendance at medical conferences is unprecedented, and will send ripples throughout the industry. This is the first time a company on a global level has discontinued the practice of paying physicians to speak about their products.
Also, look for countries to announce laws similar to the Physician Payment Sunshine Act or the French Sunshine Act. We reported in November that the Association of the British Pharmaceutical Industry (ABPI) agreed to amend the ABPI Code of Practice for the Pharmaceutical Industry to require increased disclosure of payments within the healthcare community. The ABPI released a statement highlighting the importance of greater transparency in the relationships between the pharmaceutical industry and healthcare professionals. It is likely that other European countries will look more closely at how they regulate relationships between the pharmaceutical industry and healthcare professionals.
In mid-December, the US Supreme Court rejected an appeal from Pfizer, letting stand a First Circuit ruling that the drug company improperly marketed Neurontin to Kaiser. The Court's denial means that Pfizer has to pay Kaiser $142 million in damages for violating the Racketeer Influenced and Corrupt Organizations (RICO) Act. This case is one of only a handful of off-label promotion cases involving the RICO Act, a law traditionally used to combat organized crime. Most remarkable about the case was the amount of attenuation the court used. They found that Kaiser could rely on aggregate data showing a link between Pfizer's promotional spending for unapproved uses and the number of off-label prescriptions written. No doctors were interviewed to testify as to whether the improper marketing actually caused them to prescribe Neurontin for off-label purposes. The absence of a causal connection requirement is unprecedented.
Pharmaceutical companies should be concerned about RICO claims after this ruling. Drug manufacturers could face an increased threat of liability in connection with their marketing practices due to the First Circuit's willingness to consider generalized means of proof, such as statistical analyses. This also opens the door for third-party payors, including insurers and HMOs, to recover for the financial harm caused by misleading drug marketing. While RICO action traditionally has been brought by patients claiming physical injury from drugs prescribed as a result of misleading drug marketing, the First Circuit opens the door to many companies like Kaiser.
Look for older settlements to be brought back up and used against pharmaceutical and device companies in the course of the year.
There is a lot of change in store for 2014 in the healthcare arena. Despite the challenges listed above, the changing landscape is an exciting one to be a part of. Technological advancements and increased globalization could pave the way for more efficient, better care. In periods of change, leadership is a great asset and we encourage all those reading this article to see this as a tremendous opportunity. When we look back a year from now we may be saying there was never a greater time to be in healthcare.
Happy New Year!!!!