Rich Umbdenstock has led the American Hospital Association as its president and CEO since 2007. He assumed the role with the understanding that a major period of upheaval for the industry was likely, and he embraced the challenge and opportunity.
During his tenure, he helped guide the AHA's involvement in federal healthcare reform efforts — and the organization's support of what eventually became the Patient Protection and Affordable Care Act of 2010.
Five years ago, the AHA supported health care reform and its efforts to expand coverage to tens of millions of uninsured Americans. The financial and societal benefits of fewer uninsured Americans was something the AHA and other national hospital associations felt strongly about — so strongly, in fact, that hospitals agreed to $155 billion in CMS payment cuts over 10 years. The economics then added up: More paying customers would make up for money lost through reimbursement cuts.
Today, the math is less clear. The sequester — brought on by the Budget Control Act of 2011 and which went into effect on Jan. 1, 2013 — resulted in an additional 2 percent across-the-board cuts to CMS reimbursement rates that were never anticipated by the hospitals at the time they agreed to reform-related cuts.
A substantial chunk of coverage was lost when the Supreme Court made Medicaid expansion optional for states in its landmark June 2012 ruling. Add on to that a one-year delay of mandated employer-sponsored coverage (for businesses with more than 50 employees), and the number of newly insured that hospitals were banking on to offset their lost revenue has gone down substantially.
"After the bill was passed, as the numbers were crunched, the number of expected new enrollees went down [from what was estimated when the legislation was in draft form]," explains Mr. Umbdenstock. "As the Supreme Court made its decision, the numbers went down again. As various states decided to expand or not expand — and a significant number not expanding — the numbers went down. As the administration decided to delay the employer mandate, the numbers went down. All I know is that the cuts continue at the original rate, but the coverage estimate has been slipping."
And we've seen the impact in hospitals that have struggled to adjust. Hospitals announce new layoffs almost daily, some overtly blaming them on reform- and sequestration-related cuts.
Has all of this changed the AHA's support for healthcare reform? No, says Mr. Umbdenstock, at least not its fundamental element of expanded coverage. The shift toward individual responsibility, rather than leaving hospitals to deal with the financial difficulties of providing costly care to uninsured individuals who are not likely to be able to pay for it, is an important change and one the AHA will continue to support. That said, Mr. Umbdenstock is worried about the unequal pacing of hospital cuts and increased coverage.
Below, Mr. Umbdenstock discusses this challenge, and other issues that will impact hospitals as they enter 2014 — the year in which the most transformative elements of the PPACA will take effect.
Question: The PPACA was passed in 2010, and a lot has happened since then in terms of changes to the original legislation and rollout of various rules to enact the law. How has the law's implementation thus far affected hospitals, in terms of the financial or operational impact?
Rich Umbdenstock: The fundamental pillar of our support for the bill was that it was going to provide coverage to tens of millions of Americans, and we agreed to forgo some amount of future payments to fund a lot of that coverage. A major challenge then has been to remind policymakers of that connection between those payment reductions and that increase in coverage. Because if it's all cuts and no expansion of coverage, that's the worst possible outcome for hospitals. The relationship between the payment reductions and coverage has been one of the biggest concerns.
Just on the practical side, one of the biggest challenges is just the complexity of the bill. We knew that given the scope of issues that were being addressed in this bill, we knew that the implementation and roll out would be significant. It's been a real challenge for the Association and our members to keep up with the stream of regulations for comment, the final versions, implementation dates and possible penalties under various performance programs and so on.
Q: As you mentioned, the AHA supported healthcare reform prior to its passing in 2010. How, if at all, has this support changed now that more specific rules enacting the law have been released?
RU: We supported the bill, and like other situations we're in all the time, original pieces of legislation are bound to be strong in some areas and lacking in others, so it's always part of the process to think about what changes need to be made going forward.
Our fundamental support for healthcare reform overall has not changed. There's an awful lot of reform going on in the private sector absent the ACA. Before the ACA was passed, there was a significant amount of integration across parts of the system that was already occurring. Hospitals were already starting to take on more financial risk; lack of payments for never events was starting to happen; it was clear that readmissions would no longer be paid for in as broad a fashion as they had been; and hospitals had already been seeking ways to improve quality, to improve outcomes, to improve efficiency and to help lead the public reporting phenomenon.
[The PPACA] wasn't totally new ground in that sense, so we remain supportive; we keep working down those tracks, trying to keep up with the changes that are coming out as a result of specific provisions of the Affordable Care Act. If and when people decide to open up the bill and make changes, we'll be ready with our suggestions. But, at the moment, we remain supportive of the fundamental notion that you have to cover everybody and you have to change the delivery system and drive a lot of that through the payment system changes.
Q: President Obama campaigned with the intent to introduce healthcare reform legislation. After he was elected, when or how did the AHA first begin to develop its response to these efforts?
RU: We started actually in 2006 because we assumed healthcare reform would be a major debate topic in the presidential election, just given the pressures around cost and some of the need for reform in the system. So, we started building a reform framework at our January 2006 board retreat so that we'd be ready post-election. It became our mantra that healthcare reform needed to be comprehensive and balanced. We identified five areas where reform should focus (Editor's note: See sidebar for a list of each of the five areas of focus). Addressing any one of which would be insufficient to truly reform the system.
We felt that everybody really needed to participate from their respective position in the system in order for reform to truly work. It couldn't all be on the backs of hospitals and physicians. Individuals were going to have to make changes, purchasers were going to have to make changes, and the government should make a lot of changes to help improve the system. So those were our original goals, but first and foremost definitely a focus on coverage.
Q: When the Act was passed and signed into law in 2010, what was the AHA most excited about? Most worried about?
RU: Certainly the coverage expansion, and that potential was tops. We were pleased to see significant insurance reforms in there. We were supportive of delivery system reforms and the willingness to experiment or do demonstration projects around things like accountable care organizations, bundling, medical homes, gainsharing and so on.
I think it's also telling those delivery system payment reforms were done on a test basis because nobody really knew at the time, and I would argue today we're still not sure, exactly the form of payment system and form of performance incentives we want going forward, or more practically how to get from the fee-for-service system to a new payment system. So we were very much supportive of those delivery system experiments and demonstrations.
The bill did a lot of other things that we thought were important. One of which was to move, at least temporarily, Medicaid payment rates for primary care physicians to Medicare payment levels. That was important. Comparative effectiveness research we thought was very important. We also supported the bill's emphasis on wellness and prevention.
We were also very pleased that certain things didn't happen in the bill. We were supportive of the fact that there was no public option, and that as these exchanges or marketplaces roll out, providers will have the opportunity to negotiate those payment rates. [We were pleased] those payments weren't set at the low levels Medicare and Medicaid currently pay providers.
We were also cognizant that not everybody got everything they wanted. We had a much more explicit connection between the payment reductions and the coverage ramp ups in the original agreement we had with the Senate finance committee. But, that explicit connection went away during the rewrites of the bill, and today we find ourselves with this uncertainty about coverage as the cuts keep rolling.
Since then we've had to make a lot of adjustments. There have been other cuts that have occurred on top of this, so that's made life both difficult and disappointing in many ways, people have tried to put hospitals into the IPAB structure, for example, after we already agreed to payment reductions, so there have been a lot of bumps along the road.
Q: 2014 is a big year for ObamaCare. The individual mandate will go into effect and in order to help individuals obtain coverage, insurance marketplaces will launch, and, in some states, Medicaid coverage will expand. What do these three major changes mean for hospitals? What should hospitals be doing now to ensure they are ready for these changes?
RU: Well certainly we understand our role and want to play a prominent role in helping identify those who can benefit from the new coverage, help inform them what's available, and what their options are, and help them get enrolled. Every day, even prior to this new coverage, hospitals have played this role as people have presented for service and talked with our financial departments about what sources of payment might be available.
We've also got to continue to focus on improvement in quality and safety and decreases in cost. I think we're seeing significant improvements in quality and safety. Infection rates are coming down, readmissions rates are coming down, early elective deliveries are being eliminated, and all of that is starting to show up also on the cost side. I think we're making a significant contribution to the rate of reduction in the annual increase in health care costs, so that's going to continue.
One would expect the plans in the exchanges — nobody knows yet — but one would expect plans in the exchanges to drive a pretty hard bargain in terms of being part of the delivery network in those plans, so, again, you want your quality high and your costs as low as possible. As a result, we have to continue to work on the value equation.
And then lastly we really need to continue the efforts that are underway at the community level to connect the various sites and levels of care to more of a coordinated system, whether that's done virtually or whether that's done in a controlled or owned system sense.
One of our biggest challenges is to get the freedom to make those changes, particularly on the integration side. There remain a lot of laws and regulations, Stark provisions, civil monetary penalty provisions, antitrust provisions and so on that make it very difficult to integrate the system. We understand why those things were put in under a fee-for-service system, but if we're going to get to a coordinated system of care, and one where providers and practitioners are going to be incented to work more closely together, we have got to rethink those barriers. That's a significant area that we've tried to work on for years, and we're just going to have to keep trying.
I'm amazed every day at how well members are adjusting and how hard they're working and the successes they're making but I know they feel incredibly challenged to get this work done and they do fear a significant rise in demand come Jan. 1st or next year, but they're working hard to make sure they're in the best position to manage that on the behalf of the patients and community.