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Health Reform in 2013: What's Happened, What's Left & What it Means for Providers

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With just one year remaining before the largest parts of the federal health reform law take effect, 2013 will be a busy year for hospitals as they prepare for the biggest changes in healthcare since Medicare was introduced in 1965.

The Obama administration has embarked on a comprehensive overhaul of the way Americans deliver and pay for healthcare, aiming to make care more affordable through eliminating waste, incentivizing efficiency and requiring more recipients to pay in. It plans to achieve those goals at the cost of the traditional funding mechanisms and levels that providers have come to rely on, which could spell disaster for the unprepared.

Being prepared requires providers to not only know and adapt to what’s coming, but also to be able to explain what has changed to their patients and business partners. The Patient Protection and Affordable Care Act represents enormous upheaval to the healthcare industry's status quo, so here is a recap of what's happened, what's to come, and what hospitals should be doing to ready themselves for the PPACA.

Reform so far

President Barack Obama signed the PPACA into law March 23, 2010, but the lead-up to its passing was a hard-fought battle. There were rumors of "death panels" enabling government-sponsored euthanasia resulting from rationed funding for healthcare. A public health insurance option intended to compete with private insurers was rejected twice. And although the Supreme Court upheld the constitutionality of the law's contentious individual health insurance mandate in June 2012, it struck down the requirement for all states to expand their Medicaid programs, relegating that part of the law as optional for each state.

Much of the law so far has begun to turn the wheels of the health industry in the direction of growing primary care, promoting and protecting consumers' access to coverage and introducing funding models that share payors' risk and gains with providers.

2010 — Expanding access to more people, the 2010 law immediately began to disburse tax credits for small businesses' health plans and rebates to seniors for prescription drugs. Children could no longer be denied coverage due to pre-existing conditions, and some state and federal insurance plans were created for adults with pre-existing conditions who had been uninsured for six months or more. Young adults under 26 not offered insurance from their employer were permitted to stay on their parent's plan.  Anticipating the boost in demand, education assistance was established to attract more primary care nurses and physicians into underserved areas.

Within the health plans themselves, types of preventive care became covered without charging a copay or deductible, and no lifetime limits on hospital stays or other essential benefits can be imposed. More assistance was given to seniors buying Medicare Part D-covered drugs and receiving preventive services, and at the same time the Obama administration added defenses against corruption and unreasonable business practices. Extra funding was pumped into fraud-busting programs to cut unlawful billing of Medicare, Medicaid and CHIP, and into state groups with authority to review or regulate insurance premium increases.

2011 — In 2011, a major limit on insurance companies was imposed that required them to spend at least 80 to 85 percent of premium dollars on healthcare or quality improvement, rather than administrative costs or profits, or else send rebates to customers. Gradual reductions to insurance companies in the Medicare Advantage program began, slowly shrinking the $1,000 bonus paid per beneficiary on average compared with traditional Medicare.

Elderly and disabled beneficiaries gained a wealth of new services designed to decrease the amount of time they spent hospitalized, free preventive care for certain services, assistance designing care plans and coordinating support services when they were discharged from a hospital visit, and freedom for states to use Medicaid funding to pay for cheaper at-home care versus nursing home admittance. Medicare beneficiaries also began to receive a 50 percent discount on Part D-covered brand-name prescription drugs.

Money was granted to public health programs and services to help Americans purchase sensible private insurance. Efforts to build and renovate community health centers gained new financial support, and payments for rural providers went up.

2012 — Last year saw a swath of changes, including the advent of accountable care organizations established in order to design cost-effective approaches to care delivery in exchange for sharing in CMS' savings.

In October 2012, hospitals meeting certain benchmarks for electronic health records became eligible for incentive payments as part of provisions included in the American Reinvestment and Recovery Act. That same month, CMS began its value-based purchasing program, which alters how much it pays hospitals through Medicare depending on its performance on various quality measures including patient satisfaction and hospital readmission rates.

2013 — Beginning this year, funding changes to Medicaid will reimburse primary physicians at Medicare rates through 2014. The federal government will also increase funding to states that craft Medicaid programs with better benefits for preventive care. And a national pilot program to promote bundled payment models has gone into effect, which would allow providers to take on risks and profit potential from efficient use of Medicare funds.

Coming soon

There's more to come from the law, especially next year in 2014.  That's when nearly all adults and children must obtain health insurance or pay a fine, which will be the greater of 1 percent of income or $95 per adult ($285 for a family) next year but will balloon to the greater of 2.5 percent of income or $695 ($2,085 per family) by 2016. Penalties for much wealthier families can grow as high as the average basic-level government-approved health plan's annual premiums. Employers of more than 50 full-time workers will need to offer minimum essential coverage or pay a fine for each eligible worker above a threshold who is not offered coverage.

Each state will have an online health insurance marketplace, referred to as an exchange, that will offer qualified private plans for individuals and small businesses, and screen customers to see if they are eligible for subsidies, tax credits or Medicaid. Enrollment for these begins in October this year, with coverage going live Jan. 1, 2014. All but a few Republican states have shunned the idea of running their own exchanges, opting instead for the federal government to take on the job. Supporters say the marketplaces increase competition and will benefit consumers, thus creating less need for government insurance programs.

One of the most hotly contested features of the PPACA, even today, began to receive funding in 2011. The Independent Payment Advisory Board, an appointed panel of healthcare experts, will be charged with making binding cost-cutting plans for Medicare payments beginning in 2015 that Congress can override only through new legislation that achieves the same level of savings. Republicans have vowed to eliminate the IPAB, and even some Democrats have raised an eyebrow at the concept.

Originally, the law intended for all states to be required to expand Medicaid to more poor and childless adults at 133 percent of federal poverty line. But when the Supreme Court nixed that mandate, the Obama administration fell back on incentivizing states to volunteer to expand Medicaid with a guaranteed three years during which the increased cost of the expansion will be covered entirely by the federal government. After that, states will only contribute 10 percent of the extra cost.

Medicare disproportionate shares hospital payments, the lifeblood of some critical access and safety-net hospitals, will plummet 75 percent in October, but they’ll be offset by larger payments based on a hospital’s proportion of uninsured served and uncompensated care provided.

What hospitals can do to get ready

It's going to take strong hospital leadership to weather what could either be a windfall or a typhoon. Following is some advice from healthcare leaders and experts for how to prepare for the flood of changes and regulations.

Expect upfront costs. The law's goal is to lower healthcare costs over the long term, but in the short term, most will feel the changes in their checkbooks. Doug Fenstermaker, a former hospital CFO now serving as managing director and vice president of healthcare at Atlanta-based Warbird Consulting Partners, says he's skeptical of significant savings for providers in the near future, because the cost of implementing the law has a lot of upfront cost.

"It is hard to tell whether the PPACA will result in a lower amount of GDP being consumed by healthcare and if costs will actually decline. In the short-term, that is not at all likely, as investments in infrastructure to make it all work will skyrocket," he says.

While the law aims to improve coordination in the delivery of care and better use of ramped up technology to lower costs, the initial capital cost of that infrastructure will take time to be paid off.

Preserve margins with more savings, not more revenue. Bundled payments, Medicare Advantage and shared savings programs with CMS and private insurers can be lucrative for health systems, especially if fewer patients are uninsured. True, that may bring a flood of new patients, says Aurelio Fernandez, executive vice president and chief operating officer of Memorial Healthcare System in Hollywood, Fla., but political instability in his state and the country alike means he's not counting on seeing revenues rise.

"I'm not basing our future on the ability of generating [additional] revenues, but on having cost-efficiency," Mr. Fernandez says.

Back in 2011, he says Memorial's leaders did a study and learned its cost structure was too high. So in 2012, he says they embarked on a cost reduction initiative that looked at contractual arrangements, staff reductions and eliminating unnecessary services through partnerships. They set a system-wide cost reduction goal of 5 percent, in excess of $75 million, by the end of their fiscal year which ends this April. So far they've reached 85 percent of that goal, even after realizing costs to implement their electronic health records system this year.

Track your performance. The sharp drop in Medicare DSH funding will be a blow to systems like Dignity Health. The San Francisco-based organization's Vice President of External and Government Relations Wade Rose says since Dignity Health is among California's largest providers of Medicare services, the cuts will be a challenging obstacle. He and his system's leaders support the law overall, but he acknowledges that expectations are quite high on providers to fix inefficiencies that are easy to identify but difficult to improve because of changes that must be systemically implemented. "The reality on the ground can be very different than the elegant logic of the bill," Mr. Rose says.

In response, his team is gathering and analyzing copious amounts of data to learn where they can be more efficient, from speeding up imaging test results to designing a nurse's station to maximize productivity, and tracking the impact of these changes on performance.

Mr. Rose says that's why this law might be more successful than efforts of the past — he says 95 percent of the bill has to do with delivery system change, rather than mere funding changes.

Look beyond a hospital's four walls. Some of the greatest cost inefficiencies occur after elderly patients leave providers' care. Not following physicians' orders after being discharged from the hospital can lead to higher readmissions, which the health reform law now penalizes through lower reimbursement rates. As a result, many hospitals have focused much of their efforts into transitioning seniors from the hospital to the home, helping them help themselves stay healthy.

Nathan Anspach, CEO of Phoenix-based John C. Lincoln Health Network's accountable care organization, says his organization's solution was to collaborate with physicians, clinicians and pharmacists within the ACO to design a systemwide formulary plan. "We see a pretty significant dollar savings," he says.

"We're all about the 5 to 60 rule — 5 percent of our members will use 60 percent of the resources of our ACO," Mr. Anspach says. He and his team have addressed that with greater attention on patients with chronic conditions like congestive heart failure and diabetes.

Keep patients satisfied. Among other metrics, hospitals have begun to see patient satisfaction account for a rise or deduction of up to 1 percent in their Medicare reimbursements. In an era where providers' margins are shrinking for a number of reasons, hospitals can hold on to what's theirs with a focus on patient experience, says Kristin Baird, a registered nurse and CEO of Baird Group, a Fort Atkinson, Wis.-based healthcare consulting firm.

"Patient satisfaction, once seen as fluffy or soft, is now an important measure that cannot and should not be ignored," Ms. Baird says. "Consumer Assessment of Healthcare Providers and Systems surveys have leveled the playing field and give the consumer a voice along with other important outcomes. Healthcare organizations recognize now, more than ever, that providing good service directly impacts the bottom line. That realization has not been so clear before."

Partner to absorb risk. It's no secret that hospitals are employing more physicians, and that trend of employing or contracting with physicians is likely to continue, says Adam Powell, PhD, a health economist and president of Boston-based healthcare consulting firm Payer+Provider Syndicate.

"In 2013, I expect to see acceleration in the wave of payor-provider integration and hospital consolidation that began in 2012. The recent merger between Baylor Health Care System and Scott & White Healthcare is but one example of how integrated delivery systems are expanding by merging with hospital systems. Hospitals are increasingly being asked to own their risk, and merging with payors and integrated delivery systems provides them the know-how to do so," Dr. Powell says. "Providers are hoping that mergers will provide them with both more leverage in negotiating with payors and economies of scale that will enable them to lower their costs."

As scrutiny builds over unnecessary inpatient care, Mr. Fenstermaker says hospital systems are likely to divest specialties that aren't core to the business in favor of integrating those services with other systems. For this reason, he says he expects rural hospitals will begin to operate more like ambulatory care clinics and transfer more patients to larger hospitals' specialty centers.

The current number of primary care physicians will struggle to meet the anticipated demand brought on by the newly insured, so Mr. Fenstermaker predicts the industry will rely more heavily on physician assistants, practical nurses and technology to compensate for the physician shortage.

More Articles on the Patient Protection and Affordable Care Act:

17 Healthcare Niches — Observations for 2013
Unwavering Commitment to Internal Improvement Embedded in Hospitals' DNA
Sept/Oct 2012 Issue of Becker's Hospital Review

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