3 Hospital Leaders Discuss Unintended Consequences of the Affordable Care Act

At the Becker's Hospital Review Annual Meeting in Chicago on May 17, Ed Lovern, executive vice president and chief administrative officer of Atlanta-based Piedmont Healthcare, Andrea Price, CEO of the Mercy Northern Region in Toledo, and Ken Hanover, CEO of Beverly, Mass.-based Northeast Health System, discussed the unintended consequences from the Patient Protection and Affordable Care Act.

Chuck Lauer, former publisher of Modern Healthcare, moderated the conversation. Here are three key questions and the leaders' responses.  

Question: What are unintended consequences you have seen so far?

Mr. Hanover: In 2006, the state essentially made healthcare available to everyone in the carnival. Today, costs have risen around gross state product plus two percent. Legislature has said, 'No, that's not good enough.' Today the Senate passed a bill that will, in essence, reduce [hospitals'] overall trend line from GSP plus two-percent to GSP minus 0.5-percent between now and 2017. Now that's a fascinating, fascinating piece of legislation. When you look at what has happened in terms of insurance legislation, those big double-digit rating increases that we used to hunger for? No, those are gone. We basically get increases now that are approximately the rate of inflation and the general economy. What we've had to do is move aggressively against our cost structure.

What's driving the change are the commercial payors. Part of the legislation that will pass in early June will basically eliminate fee-for-service payments in Massachusetts over the next several years. You will be paid a rate gross state product plus two, and all the other earnings you generate are based on performance. Gone are the days when you can use leverage with payors to get higher rates. The Attorney General did a study that found the reason some hospitals make more than others has nothing to do with performance. It has to do with ownership, and that's the wrong reason.

My final comment is this has resulted in dramatic increase in inpatient and ancillary services. You can only imagine how income for private payors has swelled. What you'll see is providers will aggressively move to restructure themselves and insurers will provide opportunities for those providers to earn incentives based on quality and efficiency, but the vast majority of the benefit will continue to go to the payors.

Ms. Price: The Federal Trade Commission has been in our backyard. I think that has been the majority of the talk going around locally and nationally. Many of you may be aware that a report came out with the finding that in 2011 there where 86 hospital mergers. Now the FTC is coming out and saying, no, if you do that we'll stop you. It's like one branch of the government doesn't talk to the other branch.

Mr. Lovern: Atlanta is a different market in some ways with its reputation. It's a little sleepier in the South. What we've seen most recently is that the competition and consolidation has heated up. Some of the longtime hospitals that had great reputations have since affiliated. We're worried about our next round of negotiations with payors. I think it's interesting to hear, not to reference Ken's age, but people who have been in this industry for years –– there is really an acceptance now that this is going to happen. When I came out of school, people thought the Clinton administration was going to reshape the industry. I've been impressed with, throughout the country, there is an acceptance now that the industry is going to change. Regardless of what happens with Supreme Court, we're going to see real change in the marketplace going forward.

Q: What are your thoughts on accountable care organizations?

KH: It's kind of like a unicorn where every one has heard about it but no one has seen one. I think there's no question that the concept behind ACOs makes a lot of sense to the provider community. It's a better way of managing care and the resources behind that care. I've mentioned this to some of you that my struggle is this –– in the 1990s, many hospital providers, got into the HMO business, which is related to ACO business. By the turn of the decade, they were almost all out of it. Managed care and care delivery had different goals. Now, when I heard about providers talk about getting into the ACO business, I don't think they've thought it out that well. They'll need a lot less hospital services in a global environment than existed in a fee-for-service environment. The ACO is going to have to be the head of the dog, not the hospital.

AP: In Toledo, there's a large group called Toledo Clinic. What we're doing is starting with the medical center homes. ACOs, there's a lot of infrastructure you need in order to do that, so we're starting with a patient-centered medical home and trying to get NCQA-certified. I think there will be a major change in healthcare industry, and it can either be done to us or we can take leadership and develop what that should be in the future.

It'll be interesting to see if the outcome is the same in Massachusetts or whether costs can really go down. I think the most difficult thing for us at this time is we feel we're living in two worlds. We're trying to live in value-based reimbursement while still working in fee-for-service. One of the positive outcomes is the clinical integration in more closely working with physicians. Sometimes we think these unintended consequences are all negative, but sometimes they can be positive. The physician community is turning out for the better.

EL: One of our consultants has said the best thing that can happen is your competitor opens an ACO. For-profits are moving slow for a reason. I think there's a lot of concern about a population moving in and out of your network, and the lag in payments you'll get for reaching incentives. It has a lot of great concepts, but to go first and try it out? We're going to take our time. We're moving forward with efforts like medical homes which, on a smaller scale with less risk, let us try some new things in the marketplace. Not only does it set you up for payment arrangements in the future, but it's the way physicians want to practice medicine.

Q: Do you think healthcare reform bill was a good thing?

EL: I think it was a flawed bill, but I think it has put us on a path where things are really going to happen. This is an interesting situation where my CEO Tim Stack, who is 60 and basically said he has five years left, is embracing the concept of becoming a system of change –– even though it's not the typical organization a CEO would want to ride out their career. I think the market will move faster than the law, anyway.

AP: I think it was courageous, what [Pres. Obama] did. I do think our industry needs to be reformed. I agree that regardless of the outcome with the Supreme Court, one thing is that people need to have access to insurance so they feel a right to seek healthcare rather than waiting until the last minute to get care. We see those patients all the time because they feel they can't show some type of card, and they don't seek services.

KH: If you ask the question from the perspective of the consumer, it's a good thing. If you think about the ACA, listen to some of the things it does from the consumer perspective. But you have to balance that around these issues: the ACA will add to the deficit, increase taxes and cost a lot of money. The people at the brunt of that will be the physicians.

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