With the future of the Affordable Care Act more certain, hospitals and health systems should focus on initiatives that improve the patient experience, enhance population health, and reduce healthcare costs.
At a Glance
Innovative ways in which hospitals are preparing for an era of reform include:
- Developing virtual-care models that enhance access to care
- Entering into joint arrangements with other health systems to form accountable care organizations
- Working internally to improve value, enhance customer satisfaction, and reduce costs
- Promoting the use of standard clinical protocols for certain procedures
- Investing in initiatives designed to reduce readmissions
Despite vigorous legal challenges, last June, the U.S. Supreme Court upheld the constitutionality of the Affordable Care Act (ACA), a little more than two years after it passed Congress. And following a long and contentious campaign, President Obama was elected to a second term in November, thus ending—for all practical purposes—any threat that the ACA will be repealed.
It has been a bumpy ride for healthcare reform from March 2010 to now, and some uneven road still lies ahead. With initial reforms set to begin in 2013, now is a good time to review how we came this far and where we might be headed in the future.
A Brief History of Reform
Reforming our healthcare system has been on the nation’s policy agenda for more than a century. No fewer than nine presidents and one former president have wrestled with the issue in one way or another. Except for wars and taxes, healthcare reform may be the single most recurring major policy topic in the nation’s history.
As the chronology in the sidebar on page 67 shows, a familiar adage should perhaps be amended to read: “Nothing is certain but death, taxes, and controversy over healthcare reform.”
In its latest iteration, the controversy began immediately after the ACA was enacted. At least 28 states challenged the law, including 26 that filed a joint lawsuit. A few introduced or even passed statutes that purported to nullify some or all of the reform law’s provisions. Constant disputation and verbose jangling ensued until June 28, 2012, when a 5-4 majority of the justices ruled that the ACA is a valid exercise of Congress’ taxing power. The only portion of the act that was invalidated was that which allowed the U.S. Department of Health & Human Services to withhold all Medicaid funds from a state that does not expand its Medicaid eligibility standards.
The decision—a complex, confusing, and rather remarkable opinion written by Chief Justice John Roberts—has been called both a “big victory” for ordinary Americans and a “pyrrhic victory” for the administration. (For a range of opinions, see, for example, The New York Times op-ed page, June 29, 2012). Conservatives took solace in the fact that the Supreme Court did not expand the Commerce Clause, and they immediately began to develop talking points for an effort to repeal “Obamacare” in the next Congress. Meanwhile, constitutional law professors combed through 193 pages of opinions to extract material with which to bedazzle law students for years to come.
The practical effect of the case, National Federation of Independent Business v. Sebelius, is that most provisions of the ACA survived, including:
- Elimination of annual and lifetime benefit limitations
- Prevention of policy rescission due to illness
- Coverage of children to age 26 on their parents’ plans
- Guaranteed coverage for children with preexisting conditions
- Preventive services at no cost to Medicare beneficiaries
- Phase-out of the Medicare prescription drug “donut hole”
- Incentives for the development of accountable care organizations (ACOs)
- Reforms of underwriting practices (e.g., medical loss ratio)
- Increased financing for antifraud enforcement
- A ban on physician-owned hospitals
- Changes to the Stark physician self-referral law
- The “individual mandate” to buy insurance or pay a penalty/tax
- A state option to expand Medicaid eligibility and receive federal funds to cover the costs
- Creation of state-based health insurance exchanges
These last two points remain the most problematic for state policymakers.
Where Do We Go from Here?
Comments from hospital executives and health lawyers suggest that the answer to this question is to steer a course toward a healthcare delivery system that pursues the “triple aim” of improving the patient experience (quality and satisfaction), improving the health of populations, and reducing the per-capita cost of health care (Centers for Medicare & Medicaid Services, National Health Expenditure Projections 2010-2020).
With estimates that healthcare costs may reach nearly 20 percent of gross domestic product by 2020, it is clear that the status quo is not sustainable. That’s the bad news. The good news is that market forces were driving many organizations in a better direction already. And numerous healthcare leaders say they have been preparing for value-based payments and similar developments for some time now.
In a recent webinar, HFMA President and CEO Joseph J. Fifer, FHFMA, CPA, noted that insurance products are being developed that anticipate the ACA’s health insurance exchanges. “We should be working on our payer contracts to anticipate the exchanges taking effect,” Fifer said. “And commercial contracts should be aligned as closely as possible with government contracts so that the value metrics and key contractual terms are consistent.”
Illustrative of these efforts on the commercial side are reports that major insurers like Cigna and Aetna are developing versions of ACOs, as envisioned by the ACA (“Cigna Plans Aggressive Expansion for ACO-like Program,” Health Leaders Media, Aug. 9, 2012). These partnerships between insurers and providers are intended to improve quality, contain costs, and improve patient satisfaction.
What Providers Are Doing to Prepare
Interviews with provider executives point to efforts to develop ACOs and ACO-like entities on the provider side, as well. For example, Glenn Fosdick, president of Nebraska Medical Center in Omaha, points out that for more than two years, his facility has been offering an ACO-like arrangement in a joint project with Methodist Health System.
“We knew there were going to be market-driven changes regardless of the outcome of the Supreme Court decision,” says Fosdick. “Reimbursement couldn’t continue the way it had been structured, so we had to plan to reduce costs while maintaining or improving quality.” Nebraska Medical Center has done so by aligning physician and hospital interests for the betterment of both.
“Physicians are concerned about costs and quality too, and they understand the pressures on the payment system,” Fosdick says.
Michael M. Allen, CFO and treasurer of Winona Health Services in Minnesota, agrees. “We have been preparing for reform—whether through
regulation or the market—so that our organization will be ready when it happens,” Allen says. “We’re working to help our communities understand the implications of reform, and we’re working internally to improve value, add customer satisfaction, and reduce costs. We’re doing this to be prepared for whatever the regulatory scenario happens to be.”
Daniel W. Varga, MD, chief clinical officer for KentuckyOne Health, is accountable for the clinical aspects of his system’s ACO, among other responsibilities. He points out that each state’s situation is unique. “The problems in Kentucky revolve around poverty and the incidence of obesity, cancer, and cardiac disease,” Varga says. “This is a poor state, and when you couple that with access issues, a physician shortage, and a large uninsured population, the challenge for providers is serious.”
Half of Kentucky’s counties are underserved by physicians, and some counties have none at all; meanwhile, the state’s uninsured population totals more than 600,000. If the state decides to opt in to Medicaid expansion, it will need a new access model, Varga says. KentuckyOne has developed a community-based “virtual-care model” that uses physician assistants, nurse practitioners, dietitians, and other nonphysician providers who are linked through telecommunications to physicians within the larger system. “This technology enables us to increase access and provide care locally,” he says.
In Nebraska, the challenge is not so much poverty as it is access issues, due to the distances involved. “One of the quality issues we face is to reduce the number of hospital readmissions,” Fosdick said. “When the patient has to travel 100 miles or more to get to a hospital, readmission is a real issue for patient satisfaction.”
Both Fosdick and Varga promote the use of standard clinical protocols for certain procedures, and both see management of a population’s health as the key paradigm shift. “Global capitation is a long way off for us, but what we learn in the interim will help us when it finally comes,” says Vargas.
In a message introducing a 2010 HFMA report on payment reform, Integration in a Reform Environment: Strategies for Success, former HFMA President and CEO Richard L. Clarke writes, “Physician integration will be critical to hospitals’ ability to drive evidence-based improvements in quality of care, reduce costs, and protect an organization’s financial viability.” The report lists seven key competencies that should be addressed in achieving this goal:
- Market awareness
- Goal setting
- Appropriate structures
- Physicians as leaders/champions
- Technology/data sharing
- Compensation and incentives
- Engagement/cultural blending
These competencies remain valid and are reflected in the approaches undertaken by the organizations discussed previously.
Healthcare Attorneys’ Views on Reform
Healthcare attorneys generally agree with these recommendations regarding competencies that should be developed for success under reform. For example, in a recent report, the firm McDermott Will & Emery recommends forming an ACO or similar organization “capable of managing … patients’ healthcare needs in a high-quality and cost-effective manner” (The Patient Protection and Affordable Care Act: The Supreme Court Decision, July 19, 2012). “[It is] time to get off the sidelines and into the game,” the firm advises.
According to the firm’s report, “The most successful integrated care organizations will continue to make substantial investments in information technology and other managed care infrastructure, are already at or will attain sufficient size to be able to bear financial risk and spread the costs of such investments, and, if contracting with Medicare as a Shared Savings Program or Pioneer ACO, will use the applicable regulatory waivers to federal fraud and abuse laws so as to properly align financial incentives among participating providers.” The firm adds that hospitals without the necessary resources to accomplish these objectives should consider collaborating with a larger system, if antitrust standards permit.
Similarly, healthcare attorney Alan Goldberg of McLean, Va., says the time for action by hospitals and health systems is now. “It’s obvious that change is occurring and that to delay preparations for reform would be a disaster,” he says. “[Hospitals] can’t stand in place; they must proactively and deliberately prepare to deal with these changes.”
Goldberg points out that today’s hospitals will not survive if they cannot treat the uninsured. If a state refuses to expand Medicaid or even reduces eligibility, patients may be left without such coverage and may be ineligible for subsidies to afford a health insurance exchange. “How hospitals come up with the money to serve these patients is going to be critical,” Goldberg says.
One approach hospitals might consider is to refinance tax-exempt bonds. “Bond rates are low now,” Goldberg observes. “You can remind the lenders that in effect they own the property and that hospital buildings don’t convert well to other uses. It’s in the bond holders’ interest to help you survive.” He adds, “It’s a good time to have friends across the table in the banks and also in the state capital.”
A note of caution comes from antitrust attorneys, however. The Federal Trade Commission (FTC), chief enforcement agency for the federal antitrust laws, continues its efforts to block hospital mergers and, by implication, any significant combination or cooperation between competitors. A significant hospital antitrust case out of Georgia was argued before the Supreme Court on Nov. 26, 2012, and is expected to be decided later this year (Lang, T., and Brenneman, D., “Recent FTC Hospital Merger Challenges: An Update,” Antitrust Health Care Chronicle, September 2012). And a proposed merger in northern Illinois was abandoned last April due to pressure from regulators (FTC v. OSF Healthcare Sys., 852 F. Supp. 2d 1069 [N.D. Ill. 2012]).
Attorneys from Morgan, Lewis & Bockius in Washington, D.C., note that these cases demonstrate the challenges facing hospitals in the current economic and political environment: “Despite tough economic conditions and a regulatory climate that arguably favors strategic alliances … the FTC and courts do not appear receptive to permitting hospital mergers in concentrated markets”(Lang, T., and Brenneman, D., “Recent FTC Hospital Merger Challenges: An Update,” Antitrust Health Care Chronicle, September 2012). The same caution applies to other types of agreements between competitors—which could potentially include the formation of ACOs. Antitrust principles should always be considered when such transactions are in the works.
How States Are Preparing for the Inevitable
As market forces influence systemic change from the bottom up, states are preparing for implementation whether they like it or not. Even though the election is over, political pressures, as usual, make this a messy process, and the situation is in a constant state of flux. This is especially true in regard to health insurance exchanges and Medicaid expansion.
For example, some state governors are adamantly opposed to health insurance exchanges. Rick Perry, the Republican governor of Texas, is quoted as saying that “Obamacare” is “another federal power grab” and that he will neither implement a state exchange nor opt to expand his state’s Medicaid program (“Rick Perry: ‘Another Federal Power Grab,’” USA Today, Nov. 18, 2012). California, on the other hand, is moving ahead to do both (Goodnough, A., “California Tries to Guide the Way on Health Law,” The New York Times, Sept. 14, 2012). Then there are those like Arizona Governor Jan Brewer, a Republican, who, although sharply critical of the ACA, are working quietly behind the scenes to prepare because they realize that if a state does not have its own exchange, the law requires the federal government to operate one for the state (Goodnough, A., “Liking It or Not, States Prepare for Health Law,” The New York Times, Sept. 23, 2012). Florida’s governor, Rick Scott, a Republican, also has changed his tune, saying he would be willing to build a state-based exchange if it doesn’t increase costs or require a raise in the state’s taxes (Galewitz, P., “Florida Gov. Rick Scott Ready to Negotiate State Exchange,” Kaiser Health News, Nov. 16, 2012).
As of November 19, the Kaiser Family Foundation reported that 18 states had committed to creating their own exchanges; six were planning to “partner” with the federal government to do so; 11 were undecided; and the remainder would default to the federal exchange (“Kaiser State Health Facts,” Kaiser Family Foundation, [search on state health exchanges], retrieved Nov. 21, 2012). But these numbers seem to change almost daily, and because many states were on the fence, the Obama Administration extended to Dec. 14 the deadline for states to make a decision.
Similarly, it is nearly impossible to count the number of states saying “yes” or “no” to Medicaid expansion. Conservative politicos are caught in a dilemma: Although many are philosophically opposed to anything related to the ACA, they realize that federal funds will subsidize 100 percent of the cost of Medicaid expansion in the first three years and at least 90 percent after that. Their low-income constituents and many health industry leaders support expansion.
Readers who want to keep score on these issues can set a “Google Alert” for health insurance exchanges or Medicaid expansion, or both, to receive daily or weekly summaries of news reports relating to these issues.
Story Line of Reform Continues
Health system reform is a serial melodrama, having been on the public policy stage for 100 years. NFIB v. Sebelius and the recent presidential election were just two scenes in the current act. Various other subplots will no doubt unfold in the coming months, especially as deficit-reduction talks progress. There are many actors in this cast; the story line is evolving; and it will be some time before the final curtain falls. Until it does (if ever), market forces will continue to augur for greater collaboration and integration across the care continuum, and states and the federal government will continue to struggle with how to decrease the number of uninsured Americans and reduce the costs of health care.
That old “bull moose” Teddy Roosevelt is probably looking on with his toothy grin in wonderment that we are still struggling with these issues.
J. Stuart Showalter, JD,is a contributing editor to HFMA’s Legal & Regulatory Forum and author of The Law of Healthcare Administration (firstname.lastname@example.org).
The Road to ACA: A Chronology of Healthcare Reform Initiatives in the United States
- 1912: Former President Theodore Roosevelt, running on the “Bull Moose Party” platform, calls for universal health care. He loses to Woodrow Wilson.
- 1930s: Various reforms are proposed during the New Deal era, but groups like the American Medical Association object, so the Social Security Act passes without a healthcare provision.
- 1945: President Truman proposes national health insurance, but the Korean War and fears of communism force him to abandon the effort.;
- 1960: Senator John Kennedy makes health care a campaign issue. Although elected to the presidency, his time in office is too brief for him to carry through with his plans for health care.
- 1965: Lyndon Johnson takes up the call and stewards (some say ramrods) Medicare and Medicaid through Congress.
- 1974: President Nixon proposes a comprehensive health insurance plan; he might have succeeded but for the Watergate scandal and his eventual resignation.
- 1980s: Ronald Reagan signs COBRA and the Catastrophic Health Care Act of 1988, but after seniors revolt, the latter is repealed the following year.
- 1993: President Clinton’s massive overhaul plan fails, but uninsured children gain coverage through the State Children’s Health Insurance Program.
- 2003: President George W. Bush persuades Congress to add prescription drug coverage, now known as Medicare Part D.
- 2010: President Obama’s ACA passes Congress.
Publication Date: Tuesday, January 01, 2013