During our 2012 Annual Meeting in May, we were fortunate to have an excellent presentation from a panel of health care law experts from Epstein Becker & Green. First up, we had Lynn Shapiro Snyder, who spoke about health reform at the federal and state levels, as well as private parties achieving health reform.
Lynn has a long background in the healthcare field, and has been with Epstein Becker & Green almost since it was founded. She began by saying that many people think of "healthcare" as being about doctors and hospitals. But it's also pharmaceutical companies, private equity firms, and banks - because, for all of us, healthcare and life sciences represent such a major portion of our economy.
Lynn focused on three universal concepts - access, quality and cost. In our health reform in the United State, our frame of reference is different from that of many other countries. In those countries, they have a single payer system, and when that doesn't address the middle class and upper middle class demands, a private sector evolves - either in the form of private hospitals, private insurance, etc. - on the delivery side.
However, in the US, our healthcare system was based on a tax code accident during World War II, which was an employer-based system, where one dollar going towards health benefits was a full dollar of benefits. If it was wages, it would have been subject to federal income tax. So our health insurance has been an employer-based system, and when there were populations that had no employer, such as senior citizens or poor people, we created entitlement programs for them, where our government is the payer. The US government is currently the largest payer of health care benefits in the world.
Part of that is not only because of the inefficient way we do it, but also because the US has a baby boomer population that is just hitting 65 years old. When the Medicare statute was passed in 1965, the life expectancy of a woman was 71, and of a man was 70. At that time, 65 was considered "end of life." Once you create an entitlement program, to get through the "dishwasher cycle," as Lynn called it, of your legislature and change it to say 67 or 69 instead is an unbelievable political achievement. She said that if she'd even said that years ago in Washington, she would have been ostracized. But now, the possibility of raising the age to 67 is being discussed rationally.
Lynn commented that an example of this "tsunami of our economy" is that two years ago, we had 500,000 new 65 year olds. One year ago, it was 1.3 million new 65 year olds, and this year it will be 1.7 million new 65 year olds. This number goes up at a 45-degree angle for the next 20 years, and the US is just not prepared. So the true theme is cost, quality and access in austerity.
Lynn went into some detail about the US's health reform, saying that our providers, payers and Congress cut a deal a few years ago, known as the Patient Protection and Affordable Care Act (PPACA). This act took into account that out of our 380 million residents, 50 million of those are uninsured, which is embarrassing and inefficient. This act proposes to get 32 million of them into the system.
To get them in, hospitals, doctors, health insurance and drug companies came to an agreement that they would put up the money, either through cuts in Medicare and Medicaid, new rebates from drug companies, or a new tax on medical devices. This would raise the money to require people to buy health insurance, and if they can't afford it, provide tax credits to subsidize it.
Lynn said that what's interesting about the legislation is that it passed by only one vote, it's very controversial, and it went through Congress in a funny way - it didn't go through the normal dishwasher cycle, because Scott Brown in Massachusetts took a seat in the Senate and so two pieces of legislation were put together.
17 states have challenged the constitutionality of this, and it's currently in the Supreme Court, which Stuart Gerson will talk more about. Lynn added that Doug Hastings would be talking about how much of the transformation is happening anyway, because of IT and businesses understanding that the days of getting paid per click are over for doctors, hospitals and drug and medical device companies.
So there is uncertainty. Clients are asking whether they should spend their money now and do a deal, or whether they should wait until the Supreme Court rules. A couple of states are ahead of the curve, like Massachusetts, where Mitt Romney was governor and created reform at the state level. There would be no legal issue about mandating health insurance at the state level, because virtually every state would see that as an appropriate exercise of its police power. The real issue is that the US was started as a country of 13 states, and our federal government is supposed to have limited powers.
Lynn said there are states that have not done anything to prepare for January 1, 2014, which is when everything is supposed to go live. At that time, there will be state exchanges and a lot of coordination, and the US also has a new department of federal insurance, which we never had before since health insurance was always a state-regulated function.
However, there are other states that are really moving forward. Lynn cited an interesting statistic that over 50% of the 32 million reside in only six states. But we have 50 states, so that means that little states like Vermont will have to go through all of the federal rules for 65,000 people, while California has almost 7 million.
The US has an unevenness and it's very controversial, and our economy is very fragile right now. People think that it's bouncing back, but a lot of money came out of Washington - not only for the banks and TARP, and not only for HITECH, which was to support IT in our health system. Every other day, she has an email going out announcing another grant or set of funds going out to the states to support health reform implementation. It has created an opportunity to perhaps stabilize employment at the state level in some areas, as health reform implementation was a key part of stabilizing the jobs there.
So at the federal level, the US has a new federal law that requires people to buy insurance, and there are a bunch of things in the statute to reform the way that we provide healthcare. One of EBG's recent projects was with a Japanese company that has a US subsidiary - they're not sure whether the Japanese company's activities in paying doctors will be subject to US regulation because the statute has a sunshine provision, which says that anything of value given to doctors now has to be on an internet site that is monitored by the federal government of the United States. There are ambiguities in the statute, about what applies and what doesn't.
Lynn said that while she's not sure whether it will remain the law of the land, in her life, it's the current law. So she's helping some clients implement it, and for others, she's helping them decide. She said she recently bumped into the CEO of the largest health insurance company in the US, who said she has six plans ready to go for July 1st, waiting to see what the Supreme Court says, and she's not sure which of the six implementations they'll rely on.
Food & Drug Administration
Lynn also talked about the Food and Drug Administration (FDA), which is well known around the world. They recently set up shop in China and India, because for good manufacturing companies, a lot of activities are happening outside of the US. A lot of our pharmaceutical and medical device companies don't want to maintain the overhead of the research, development and manufacturing, but instead, want to be nimble sales people and outsource to these other companies, most of which are based outside the US.
EBG added FDA capabilities back in the 90's, and also has a subsidiary of scientists in the engineering space, so when they do due diligence of pharmaceutical companies and clinical research organizations, they are full-service around the entire panoply of health care regulatory risks for those companies. They also have former medical directors of managed care plans, who help them create dossiers for new drugs and devices.
These are global companies and activities, but the US healthcare market is considered the "golden goose." Lynn joked that over the next twenty years or so, it might become more yellow than gold, but it has been disproportionately the place to get returns on investment as all the other countries are the single purchaser of some of the drugs and devices, and create less of a competitive market.
Lynn commented on the state level as well, mentioning Massachusetts again in particular. She said they are two years ahead of the rest of the country in terms of health reform implementation, and in fact, the federal law was modeled after that. She said that two days previously, the health insurance companies in Massachusetts had announced that their earnings had dropped significantly - for example, a company that had $7 million in earnings a year ago now has $500,000, though they're the same size, etc.
So the insurance companies are saying that while health reform addresses access and quality, it doesn't really address cost. So in the state legislature, they're talking about some kind of global payment mechanism so that hospitals and doctors have to come to some global payment, a sub-capitation of some kind. EBG watches Massachusetts and shares information with their clients about what it means, and how they can pay for performance, instead of pay-per-click.
Lynn said that the last thing she wanted to mention on the private payer side were some interesting projects that they're working on. They have several coalitions around innovation. For iPhones, Droids, etc, there are apps that can help people with healthcare issues, such as taking medications. The FDA believes that once you make a claim that something is healthcare related, it is a medical device.
So EBG created an industry-wide coalition with Verizon, Intel and others on connected health, and they're working to educate the FDA on how to regulate a healthcare app, so that it doesn't have to have clinical trials and it's not a barrier to the innovation, but still addresses the issues of consumer protection, quality, etc.
The other one is software that coaches doctors, nurses, etc. to see if they've done all of the tests they should, and done them correctly. It has decision modules in it for evidence-based medicine. The question becomes, what should be the FDA approval for that? It's how do you take the software and trust it to help the doctors. Lynn said that she's already been involved in two fraud investigations that she's defending, where the FBI agents considered these software to be boondoggles, just to order more tests, rather than a quality initiative to make sure that doctors are providing consistent care based on evidence-based medicine.
Before handing the floor over to Doug, Lynn finished up by saying that it's an exciting time to be a healthcare lawyer, and that having healthcare reform in the Supreme Court is the Stanley Cup of health law.