Healthcare Reform: Two Years Gone, Now What's on the Horizon?

President Barack Obama signed the landmark healthcare reform bill, the Patient Protection and Affordable Care Act, into law in March 2010, and now here we are, two years later, trying to absorb the ramifications of the past and prepare for the future.

It's not easy to remember or grasp every section of the bill — the 974-page piece of legislation (pdf) is not your typical light reading. However, it's important to look back and reflect on how the healthcare environment has changed in the past two years and to see the new initiatives and challenges that lie ahead.

What has transpired
When the PPACA became law on March 23, 2010, immediate changes took place within healthcare. For example, starting in September 2010, young adults were allowed to stay on their parents' health plans until they turn 26 years old. The PPACA also instituted an option for states to offer health plans for those with pre-existing conditions who were turned down by other health insurers. While these provisions helped the national healthcare system at large, they did not have monumental impacts on how hospitals and health systems went about their business.

Last year saw more substantive change, both for the general American populace as well as for the hospital and health system sector. In 2011, the PPACA enforced the medical loss ratio, which required health insurers to spend 80 to 85 percent (depending on their market) of premium dollars on medical care as opposed to administrative costs and profits. If insurers do not spend the required amount, they must send rebates to consumers. The MLR requirement has led to a new era of stringent price negotiating and managed care reimbursement talks between hospitals and health insurers.

Pauline Rosenau, PhD, professor of management, policy and community health at the University of Texas School of Public Health in Houston, has written extensively on healthcare reform. She says the regulation of commercial payors was a big step in helping advance the U.S. healthcare system to that of other countries. "The biggest element is the increased regulation of the insurance agencies," Dr. Rosenau says. "It's new to the United States, but this level of regulation is common to other industrialized nations around the world."

Primary care physicians and general surgeons also benefited from the PPACA, as they received reimbursement increases of 10 percent from Medicare in an effort to emphasize preventive care. Other major measures of the PPACA that have come to fruition include:

•    Pharmaceutical companies must provide a 50 percent discount on all name-brand prescription drugs to Medicare beneficiaries who fall in the Part D drug plan coverage gap, or the "doughnut hole." The Department of Health and Human Services estimated that Medicare beneficiaries who fell in the doughnut hole saved a combined $2.1 billion on prescription drug costs in 2011.

•    Medicare Part C plans, which are the privatized health plans known as Medicare Advantage, can no longer raise cost-sharing requirements for certain benefits. Additionally, MA payments and premiums will be set at increasingly smaller percentages than traditional fee-for-service Medicare plans.

•    Medicare enrollees can now receive certain preventive services, such as annual check-ups, for free without co-payments.

Jeffrey Steinberg, MD, CEO of Weiss Memorial Hospital in Chicago, says what has actually been enacted so far is only the tip of the iceberg, as the U.S. healthcare system is just beginning a wholesale change to value-based care. "Right now, we are in a fee-for-service world," Dr. Steinberg says. "It's a world where the more we do, the more hospitals and physicians make. But that's changing. There are a lot of innovation models from CMS, and we're at the front end of the changes."

Those models include accountable care organizations, shared savings programs, bundled payments, readmissions reductions and an overall shift toward accentuating primary and preventive care, which are going to be a bigger part of 2012. "What I see happening globally is that there's a realization in the industry there are things that need to happen to take care of patients in the community," says Jay Fathi, MD, director of community health at Swedish Medical Center in Seattle. "That hasn't been reimbursed before. We're going to start rewarding systems for things that haven't been done optimally in the past."

However, the PPACA hit a major speed bump in October 2011 when HHS Secretary Kathleen Sebelius and the rest of the Obama administration agreed to terminate part of the law: The Community Living Assistance Services and Supports Act, which would have been a long-term care insurance program that provided cash benefits to adults who became disabled. Although the CLASS Act would not have impacted acute-care hospitals much, it was an ominous sign that the healthcare reform law may have to fight bigger challenges down the road.

Finally, the two biggest — and most controversial — components of the healthcare law that made ripples in 2011 actually won't go into effect until 2014: the individual mandate in which most Americans will be required to buy health insurance through their employer or health insurance exchanges and the expansion of the Medicaid program. The Supreme Court decided last year it will hear and discuss the constitutionality of those two provisions in 2012 after a maelstrom of criticism and lawsuits swept the country, which will make this year even more important for the hospital and healthcare industry.

What 2012 means
Healthcare reform is coming to a fork in the road this year. Either it will move on unimpeded, or it will hit figurative blows to the head from the judicial and political systems. There are four main components surrounding the healthcare law that will define 2012.

1. Supreme Court ruling. When it comes down to it, nothing will be more important to the healthcare industry than the Supreme Court's constitutional ruling of the PPACA. It is expected the Supreme Court will issue a decision by the end of June.

The individual mandate requiring most people to obtain health coverage and the expansion of Medicaid are the main policies at the center of the debate. The Supreme Court can rule in several different ways. It can strike down the entire law, which would send the healthcare industry into a legislative chaos of sorts after two years of implementation. It could also rule that only the two provisions in question are unconstitutional, but the rest of the law may stand. This could still create a stir as removing those provisions could water down the impact of the PPACA, Dr. Rosenau says.

The Supreme Court could also say the challenge of the individual mandate and Medicaid expansion cannot be heard because it has not yet gone into effect, thus not causing any damages. "There is a loophole in consideration: You can't really sue for damages unless you've actually suffered damages," Dr. Rosenau says. "Until you've started requiring people to buy insurance, you may not be able to bring the case to the Supreme Court."

Regardless of what the Supreme Court decides, the mere uncertainty around the law is enough to give hospital executives and all others in healthcare an unsettling feeling, Dr. Steinberg says. Additionally, Dr. Rosenau says these legislative challenges are hindering hospitals and their main goals: providing healthcare. "If I'm a hospital administrator, I'd be staying up all night pulling at my hair because no one knows for sure if [the PPACA] is going to be ruled as constitutional or not," Dr. Rosenau says. "This is not good for hospitals or insurers or any other healthcare provider because you want to get on with the business of providing healthcare with the lowest costs and best outcomes, and it's a major vulnerability for those who expect an increase in access."

2. Provisions that are rolling out. Before getting too caught up in the ramifications of a Supreme Court ruling, the healthcare industry still has to be prepared for the full implementation of the PPACA. There are several provisions rolling out this year, and there are three in particular that have the potential to restructure how hospitals operate.

•    Accountable care organizations. One of the most highly advertised policies of the PPACA that aims to help hospitals, physicians and other providers improve quality while reducing costs is the Medicare Shared Savings Program. This program went into effect Jan. 1 and established the parameters of what an ACO looks like and how it could be the future model for care management and reimbursement. However, because the program is barely off the ground, there is still uncertainty as to what this component of the PPACA will look like down the road. "ACOs are like unicorns," Dr. Fathi says. "You know what they look like, but you've never seen one before."

A related program is the Pioneer ACO initiative. Under this five-year initiative, Medicare will reward experienced groups of hospitals, primary care physicians, specialists and others to provide better, more coordinated care for Medicare beneficiaries. The first performance period of the Pioneer ACO program began Jan. 1, and there are 32 healthcare organizations that are giving it a go.

•    Bundled payments. The Bundled Payments for Care Improvement initiative, which got under way last year, aims to reimburse healthcare providers a lump sum on the expected costs for the spectrum of a patient's care. Participants in these models would be paid for their services under the original Medicare fee-for-service system but at a negotiated discount. Then, total payments would be compared with the target price at the end of the patient's episode of care, and those providers would share any of those savings with Medicare.

There are three models that will be highlighted in 2012, and applications for Models 2, 3 and 4 are due to CMS by no later than March 15. In Model 2, bundled payments include the inpatient stay as well as post-acute care, and the hospital decides the scope of DRGs to be included. Model 3 focuses only on post-acute care, while Model 4 focuses only on the inpatient stay. Model 4 is different from the others because it involves prospective payments, which are when hospitals agree to a price upfront on a particular DRG, and CMS pays that specific bundled price to the hospital. Models 2 and 3 are retrospective payments, where hospitals receive the usual fee-for-service payment, but there is a retrospective comparison with the previously determined target price.

•    Value-based purchasing. Starting Oct. 1, 2012 (fiscal year 2013), Section 3001 of the healthcare law establishes the hospital Value-Based Purchasing Program for Medicare. The VBP Program will distribute an estimated $850 million in incentives to hospitals based on their overall performance on a set of quality measures, such as clinical processes of care and patient satisfaction from the Hospital Consumer Assessment of Healthcare Providers and Systems survey. Examples of the care processes included in the measures are how quickly heart attack patients receive potentially life-saving surgery on their arteries and how often patients with heart failure get proper discharge instructions.

From there, hospitals will be scored based on their performance on each measure compared with other hospitals, and higher scores lead to incentive payments. Hospitals will still receive regular payments for providing care to Medicare patients based on the Medicare Inpatient Prospective Payment System, but those payments will decrease by 1 percent across the board starting in FY 2013 to fund the new value-based payments.

"These are fairly basic initiatives," Dr. Fathi says. "It's giving patients good education about congestive heart failure diagnoses, who to follow up with, where to get prescriptions, basic things. This is not about high-tech implantable devices — it's making sure people have the basics they need to stay well. There hasn't been a financial incentive to do these things in the past, but now with ACOs and bundled payments, there is. And that's a good thing."

However, part of the problem with these initiatives is combining the value-based desires of the future while still maintaining a solid revenue stream in the current fee-for-service system. "We're in a very tricky place right now because you want to be innovating and experimenting, but at the same time, you have to look at the current system," Dr. Fathi says. "Of course, we're all trying to maximize revenues. You have to straddle a fine line."

3. State legislative decisions. The PPACA gives states several freedoms in how they want to implement certain parts of the law — these include high-risk pools, Medicaid eligibility and, most notably, the creation of the health insurance exchanges and the right to design the benefits package for the various health plans that will be offered in the exchanges. David K. Jones, a PhD candidate within the University of Michigan Department of Health Management and Policy and the Department of Political Science, recently wrote in the New England Journal of Medicine that these 2012 state sessions are so important because they are the last chances for states to control their fate. For example, if states do not establish health insurance exchange guidelines by January 2013, the federal government will step in and create the exchanges.  

4. The presidential election. The 2012 presidential election is still relatively far away (Nov. 6), but the buzz surrounding it has already dominated the airwaves. President Obama will face off against one of four contending Republican candidates — Newt Gingrich, Ron Paul, Mitt Romney and Rick Santorum — and much of the GOP rhetoric has decried a full repeal of the PPACA should they take the presidency. However, Dr. Rosenau says regardless of who wins the election, the odds of a repeal are slim. If President Obama is re-elected, the law would obviously stay enacted, but even a Republican presidential victory would not doom the healthcare law because a consensus would still be needed in the other branches of Congress. "The chance of a full repeal is very, very low," Dr. Rosenau says. "It doesn't mean it couldn't be amended, but I do believe the Supreme Court's considerations are much more likely to lead to substantial change than what happens after the election."

What the future holds
While 2012 will decide the fate of the health law, 2014 and beyond will dictate how effective these changes will actually be.

By 2014, most people will be required to have some form of healthcare coverage through the individual mandate. However, due to gaps and loopholes in the PPACA, there would still be about 26 million uninsured people if the mandate stands. Dr. Steinberg says the concept of providing more access to care is a no-brainer, but the problem remains in how everything will be funded. "I agree every patient must have insurance and equal access to care," Dr. Steinberg says. "That's just a human right. That's our responsibility to deliver it. How we pay for that care, though, is changing radically."

Dr. Rosenau says if the healthcare system is looking for a source of funding, it should look to cut billing and administrative costs, which waste an estimated $360 billion per year. The PPACA will institute new standards for electronic funds transfer in healthcare, and this is expected to save up to $4.5 billion. However, hospitals and health systems will have to do more on their own. "Administrative costs are where the U.S. [healthcare system] is different from other countries," Dr. Rosenau says. "It's a lot of pushing paper, and that spends a lot of money. That's the place to look for really easy cuts. If I'm a hospital administrator, that's the first place I'd look."

However, there is more to healthcare reform than only the PPACA, Dr. Fathi says. He notes most people think of the federal legislation when the phrase "healthcare reform" is used colloquially, but for hospitals and other organizations, healthcare reform is and has been an ongoing process. "There are market-driven reforms and system improvements that are kind of taking place as a parallel process," Dr. Fathi says. "People like to talk about the healthcare legislation, and acknowledging that is important. But there is a healthcare system improvement occurring in real time that is independent of the legislation process."

Whether the PPACA, ACOs and every other acronym stays as part of federal healthcare legislation is murky, but one item remains fairly evident: The days of the regular, volume-based, inpatient acute-care hospital are winding down. "Theoretically at least, less will be uninsured and more will have insurance through the exchanges, but hopefully they will also be getting preventive care," Dr. Fathi says. "The poor, the uninsured — everyone needs follow-up and preventive care and stabilization to stay out of the hospital. It's easier to go into the ER, and a lot of patients don't have a disincentive to go in there. Our system needs to right itself to offer more robust access to primary care for everybody."

Related Articles on Healthcare Reform:

Chuck Lauer: This is the Worst Time for Healthcare CEO Paralysis

Supreme Court to Hear Healthcare Reform Arguments March 26-28

12 Challenges and Opportunities for Hospitals in 2012

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