10 Considerations for Hospitals in the Aftermath of Supreme Court's PPACA Decision

The Supreme Court made a historic decision on June 28 to uphold the Patient Protection and Affordable Care Act. The Court let the individual mandate stand, via Congress' power to tax, but limited lawmakers' ability to withhold funding from states that choose to opt-out of Medicaid expansion.

Healthcare leaders' reactions were mixed. Some leaders embraced healthcare reform's constitutional affirmation; President and CEO of the American Hospital Association Rich Umbdenstock said in a statement the Court's decision to uphold the law provides hospitals with "much-needed clarity to continue on their path toward transformation."

Other healthcare leaders were more lukewarm in their response to the Court's decision. John R. Tongue, MD, president of the American Association of Orthopaedic Surgeons, cautioned providers not to overlook the "administrative burdens within the law that could greatly hinder providers' ability to deliver quality care by infringing upon exam room time."

Regardless of their opinion on the ruling, many hospital leaders are seriously discerning the consequences of it. Here are ten considerations for hospitals given the Court's ruling and ongoing issues with the nation's healthcare system.

1. Plan for an increase in insured patients. One of the selling points of the landmark 2010 healthcare law was a promise to increase coverage for millions of more Americans. Through Medicaid expansion and federal subsidies for health insurance exchanges — online marketplaces where individuals and small business can purchase private health plans — the PPACA funds insurance opportunities for people who previously went without. Thus, hospitals should continue to prepare for more patients with coverage. With millions more patients gaining access to preventive care, the idea is for emergency rooms to be less crowded and for patient throughput to improve.

Initially, an estimated 30 more million Americans were expected to have new coverage by 2014; however, that number has since decreased because of the Supreme Court's decision to allow states to opt-out of whether they want to expand Medicaid coverage to adults who make less than 133 percent above the poverty line, around $31,000 for a family of four.

2. On Medicaid expansion, know where your state stands. If states decide to not take more money from the federal government to expand Medicaid coverage, they may be left with hundreds of thousands of uncovered individuals. And that would mean hospitals and health systems would not receive the added reimbursements anticipated from the Medicaid expansion in their state.

"For providers, this calls into question the potential success of the PPACA's intent to eliminate a large chunk of the uninsured — some 16 million Americans," says healthcare attorney Susan Feigin Harris, JD, a partner in the Baker Hostetler Healthcare Practice Group. "If a provider's state chooses to forgo the expansion, a provider could still be faced with significant numbers of uninsured patients and experience Medicaid payment shortfalls."

The best bet is for hospitals to assess what the Medicaid expansion will mean in their individual state. Some conservative states may decide to opt-out of Medicaid expansion, even though funding called for in the PPACA pays in full for the first few years of states' Medicaid expansions. Republican governors in Louisiana, Texas and other states have already vowed to refuse PPACA funding for Medicaid expansion.

"Indeed, in the 26 states that participated in the federal lawsuit, more than 27 million people have no insurance and many who would have been eligible for Medicaid in 2014 might no longer have that option," says Bruce Siegel, MD, MPH, CEO and president of the National Association of Public Hospitals and Health Systems.

3. Safety net hospitals should prepare for potential Medicaid shortfalls. Anticipating a rise in the number of lower income Americans insured, the PPACA included cuts to disproportionate share hospital funding. Those cuts could be from 25 percent to 50 percent reductions in federal money beginning in 2014.

Safety net hospitals need to prepare for Medicaid cuts. In states that may choose to opt-out of Medicaid expansion, the issue may be more severe.

The hospital industry, in a sense, struck a deal on provider cuts during the drafting of the healthcare law and accepted DSH cuts because it thought the country as a whole would deal with the issue of large number of uninsured. "There are a lot of components in our healthcare system that are extremely important and feeding each other, and there's a domino effect if we take away money from safety net hospitals," Ms. Harris says.

Ms. Harris, who counsels a number of children's hospitals, says that many hospital advocates are trying to bring solutions both at the state and federal legislative level. She adds that, on the federal level, the HHS secretary has a fair amount of discretion in how DSH cuts are dispersed, but that, as with everything, the devil is in the details.

She says executives at DSHs and other hospital leaders have important questions to ask, including:

  • If you're state will not expand Medicaid, how much pressure will your hospital or system bring to bear on the state legislature to potentially change the position of the governor?
  • Do you have any impact with respect to DSH reductions? How can you make the argument that in a state without expansion you should not have reductions?
  • What impact will belt tightening in both state and federal government budgets have on provider rate cuts?

The National Association of Public Hospitals and Health Systems has already begun meeting with the White House to discuss what to do about the Medicaid expansion-DSH dilemma.

"We've expressed our concerns to the administration about the looming DSH cuts and asked that the agency's formula for allocating the cuts across states recognize the changing landscape of Medicaid expansion," Dr. Siegel says. "We believe states should target DSH support to the patients and hospitals in greatest need."

4. Cut hospital waste and inefficiency. The call for healthcare reform that brought about the PPACA stems from a trend of rising healthcare costs dating back more than a decade. While healthcare spending nationwide has increased by a less rapid rate over the last two years compared to before the PPACA, healthcare spending is still more than 18 percent of the nation's gross domestic product, and continues to climb. Cutting unnecessary procedures at hospitals or inefficient administrative processes, along with reducing readmissions, are several examples of ways to reduce the rising cost of care.

"Healthcare costs are high and growing too rapidly, and we must become more efficient," says Dr. Paulus, the CEO of Mission Health.

John Toussaint, MD, CEO emeritus of ThedaCare and CEO of the ThedaCare Center for Healthcare Value in Appleton, Wis., says there are three important components of true health reform, two of which were addressed by the PPACA: payment reform and the release of Medicare data to patients.

"The third component is the redesign of healthcare delivery to remove waste and improve quality," he says. "With falling revenues healthcare delivery organizations will have little choice but to become more efficient."

ThedaCare implements a Lean health model that has helped the health system save millions of dollars over time. Hospitals such as Virginia Mason Medical Center in Seattle have implemented similar Lean management styles that borrow from a production system made popular by car manufacturer Toyota. The theory is to weed out inefficient processes at every step of the way, thereby providing a lean, highly valuable end product.

5. Prepare for new healthcare delivery and payment models. Some providers may have been playing the waiting game to see how the Supreme Court would rule on the PPACA before implementing major changes. But the waiting game is over, and many hospitals and health systems are preparing for changes ahead. Many were doing so long before the Court's decision to uphold the healthcare law.

"We are pleased that there is now clarity on the constitutionality of the law," says Ronald A. Paulus, MD, MBA, president and CEO of Ashville, N.C.-based Mission Health. "However, it's important to note that with or without reform the overarching issues are the same."

Dr. Paulus sees four main issues that hospitals, as an integral part of the healthcare system, will need to address moving forward:

  • Inadequate care quality nationally;
  • Soaring healthcare costs;
  • Too many uninsured or underinsured individuals; and
  • Inappropriate incentives "hard-wired" into the system that reward for "more" rather than best outcomes.
Getting to the bottom of systemic healthcare issues was the impetus for the landmark 2010 healthcare law. It contains billions of dollars of funding cuts to providers spread over a decade in exchange for millions of newly insured Americans. The PPACA also encourages value through CMS' Hospital Value-Based Purchasing Program that awards acute-care hospitals for improving quality of care for Medicare patients and funds several programs to test new payment models, such as the Medicare Shared Savings Project and Bundled Payments for Care Improvement.

Some hospitals and health systems started adapting before the Supreme Court ruling and are continuing to advance new care and payment models, including patient-centered medical homes, bundled payment models and accountable care organizations. Private payors, including Aetna, Blue Cross Blue Shield and Cigna, are embracing ACO ventures with hospitals and physician groups. Cigna hopes to set up 100 accountable care initiatives — Cigna's version of ACOs — by the end of 2014.

Other hospitals decided to take a wait and see attitude to hospital reform following the signing of the 2010 healthcare law. However, the waiting game may be ending.

"Those systems are getting off the sidelines," says Sanjay Saxena, MD, partner in Booz & Company's North American Health Practice. "I think all systems are moving forward on health reforms because it's really hard to be a system stuck in the middle anymore."

As payment models shift, more physicians are entering into hospital employment or closer alignment structures with health systems. A recent Merritt Hawkins survey on physician employment predicts that as many as 75 percent of newly hired physicians will be hospital employees by 2015.

6. Evaluate your hospital's ability to take on new risks. Hospitals are entering into new relationships with payors, patients and the government as a result of healthcare reform. They are accepting more risk and responsibility for the outcome of the care they provide. Some hospitals may be considering Consumer Operated and Oriented Plans, funded by the PPACA. The law defines these CO-OPs as non-profit insurance companies. They are intended to be competitive models to traditional health insurance companies, says William C. Mohlenbrock, MD, the chief medical officer of Verras.

"Hospitals and physicians are consumers and can therefore integrate themselves and form a provider-sponsored CO-OPs," Dr. Mohlenbrock wrote in a recent Becker's Hospital Review article.

CO-OPs are meant to produce high-quality care while containing costs. "CO-OPs will facilitate these outcomes by aligning physicians' and hospitals' incentives to improve quality outcomes and share savings — when their utilization of medical resources is appropriate and efficient," Dr. Mohlenbrock adds.

The federal government has allocated $3.8 billion to provide start-up funding for CO-OPs; organizations need to submit requests to HHS for consideration and applications are being accepted through the end of the year. Starting January 2014, consumers will be able to purchase health insurance from approved CO-OPs. So far, 17 CO-OPs have been awarded $1.3 billion to plan for implementation.

Some health systems may be looking into offering coverage for patients with the caveat that those patients seek care at hospitals within their system. Boston-based Steward Health Care is doing this with its Community Choice plan. Steward has purchased a number of community-based hospitals, and rolled out a third-party administered health plan in 2011 for small businesses in Massachusetts. Premiums are less, but patients on the plan are limited, by-and-large, to hospitals in Steward's network.

Meanwhile, health plans are continuing to move more aggressively into care delivery. Insurers have set up accountable care arrangements nationwide with hospitals and physician groups. Health plans moving into care delivery will likely continue to include virtual integration as well as joint ventures, and will likely establish future partnerships with larger health systems, according to Dr. Saxena.

7. Embrace health information exchange and health IT solutions. Many hospitals and health systems are already implementing robust health information exchanges that help improve care coordination for patient populations.

The degree of integration between providers in a health information exchange may depend on the amount of ongoing collaboration between them, says Micky Tripathi, CEO and president of the Massachusetts eHealth Collaborative. For example, a community hospital in an HIE may not need to have the same level of integration with a regional medical center as it needs to have with a large primary care practice referrer in its own community.

However, improving health information exchange can help small community hospitals and large health systems alike further coordinate care, mitigate risks and, ideally, improve outcomes — all while curbing the cost of care. Coordinating care and trimming rising costs may be the only way for some hospitals to realistically survive.

Ken Perez, director of healthcare policy and senior vice president of marketing at MedeAnalytics, says it's in a hospital's best interest to embrace health information exchange because of payor demands.

"In the new healthcare world, both CMS and commercial payors are going to press for more performance management and not less," Mr. Perez says.

8. Keep close tabs on what happens to the Medicare sustainable growth rate. Besides the many provisions and details in the PPACA, there are several other important legislative issues hospital leaders will likely want to keep on their radar. If Congress does not act by Dec. 31, 2012 to repeal or delay the sustainable growth rate — the formula used to adjust Medicare physician payment rates — physicians will bear a reduction in their Medicare payments that has been variously estimated at 27 to 30.9 percent. This steep cut in Medicare payments could put some medical professionals out of practice.

Every year since 2003, Congress has temporarily bypassed the SGR to ensure there would be no cuts to physician Medicare payments. The current CMS administration wants to repeal the SGR altogether, which would cost more than $300 billion but eliminate the need for Congress to pass temporary fixes every year.

The American Medical Association and the Medical Group Management Association-American College of Medical Professional Executives have offered several alternatives to the current SGR. Those include rewarding physicians for efficiency and quality, developing new payment models that share savings and training physicians to encourage Medicare beneficiaries to seek high-value healthcare.  

"The only problem is that almost everybody who has put forth a legislative solution has failed to present truly credible funding sources for a long-term fix," Mr. Perez says. "The elephant in the room — the problem with reform of Medicare’s physician payment system — is figuring out how to fund it. Ninety-five percent of the current conversation is focused on how payment reform should work, but people are not addressing the federal funding issue, which is a huge problem given our nation’s worsening debt crisis."

According to the Congressional Budget Office, a 10-year freeze of the current Medicare physician fee schedule rates would cost $316 billion. Some of the recommendations for long-term Medicare physician payment reform could cost as much as $400 billion in that time period, according to Mr. Perez.   

9. Follow what Congress does regarding sequestration cuts. Remember the debt ceiling deal from last summer? While it may not be linked to the PPACA, it's something hospital leaders should watch very closely as the calendar inches toward 2013, according to Mr. Perez.

Included in the Budget Control Act of 2011 is a two percent across-the-board cut to Medicare provider payments, scheduled to kick in January 2013. The Medicare cut will remain at two percent through 2021, while the percentage cuts in other programs will gradually sink, according to the Center on Budget and Policy Priorities.

Hospitals may need to brace for taking a disproportionate share of the sequestration cuts to Medicare, Mr. Perez warns.

"The law doesn't micromanage the cuts down to the level of how to divide the slice of the Medicare pie: It simply says that total Medicare spending will contract by two percent, with the cuts limited to payments to providers, over the next decade," Mr. Perez says. "[The Budget Control Act] does not say the cuts will be distributed equally across physicians, hospitals, long-term care facilities, and other providers."

He said hospitals may be viewed as more monolithic and large, and therefore somehow better able to withstand cuts in Medicare reimbursement. "But the reality is they will feel the financial pain just as much as smaller entities," he says.

10. Know that healthcare reforms could change after the November elections. If GOP candidate Mitt Romney wins the presidency in November and if Republicans gain ground in Congressional elections, there's a chance the Patient Protection and Affordable Care Act would be scrapped through legislative actions in 2013. This may put hospital leaders in a tough position.

"For hospitals, there's revenue to protect and money to be made in pursuing the healthcare delivery reforms in the PPACA," Mr. Perez says. However, he adds that "swirling around this temporary bubble is the potential for legislative repeal."

These three events would need to unfold for Republicans to have a true chance to ax President Obama's landmark health reform law:

  • Mitt Romney would need to be elected president.
  • Republicans would need at least 50 seats in the Senate, meaning they achieve a net gain of a minimum of three seats in November.
  • Republicans would need to retain their majority in the House of Representatives, or have enough Democrats on board for a repeal of the healthcare law.

Because the Supreme Court has called the individual mandate a tax, some contend that Congress could nix certain key provisions of the healthcare law—including the individual mandate, the creation of insurance exchanges, and Medicare and Medicaid funding measures, and possibly others—through budget reconciliation.

"Hospitals should be aware that it is plausible the law could be repealed come January," Mr. Perez says.

More Articles Related to Hospitals and the PPACA:

PPACA Upheld: 8 Issues Hospitals Should Keep in Mind Moving Forward
6 Key Issues Facing Healthcare in the Second Half of 2012
Florida, Wisconsin, Louisiana, Other States May Refuse Medicaid Expansion Under PPACA

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