In our final post of the series, we’ll cover the implications of the SCOTUS decision on health care industry sectors, including providers and service providers.
Providers – Hospitals
Lynn suggested that the panelists start with the hospital industry first. Mark said that he thinks this is a segmented analysis also. For those systems that have already resolved to take steps to deal with value-based purchasing and accountable care environments with their governmental and commercial customers, the SCOTUS decision is likely to be seen as affirming the activities of their boards to date and their initial efforts. For individual hospitals that have not yet designed a strategic plan with value-based purchasing and other accountable-based assumptions baked into that plan, the decision is likely to propel them to get to work in designing such a plan.
Mark said that in many provider contexts, part of the decision-making process, as Stuart alluded to, is likely to include an assessment as to whether their current configuration in terms of the scope of their services, their access to capital, and their market position is sufficient in order to take these next steps. Some will have concerns that the financial or human capital demands of the competition will require, as Stuart indicated, a merger, an acquisition or some form of joint venture. Others will want additional resources and market presence to be in a position to participate in the coordinating care risk models coming down, made available by the government.
More and more providers of all types – not simply hospital systems – are going to be looking for opportunities to avoid being price takers relative to the new populations and to participate meaningfully in the arbitrage that is available to those who are able to manage care costs to below expected levels, whether those costs are denominated at the population level or at a discharge-related bundled level. Providers will be watching the long-term growth of exchanges to see whether they are successful enough to cause the erosion of employer-sponsored coverages. To the degree that they do, providers may face a degrading of rates, because they will have given rates to qualified health plans on the exchanges that might be closer to governmental rates than commercial rates. And that, too, needs to be baked into the strategic plan.
Lynn said she’s been asked several times about this whole issue, and when the state creates the exchange, and they’re looking at the essential health benefits package, is it possible that one of the best ways to keep the premium affordable is to have the state play a role, perhaps with a cap but not a floor, of what would be the allowable for the participating providers inside those health plans? And when does competition become rate-settings – it’s a very hairline distinction sometimes. Lynn said to those in the audience who are in the provider space that she strongly encourages them to stay attuned to the activities related to the creation of these exchanges at the state level.
Some audience members had asked where to go to find out who’s running the exchanges, and Lynn suggested that the governors’ offices of every state would be a starting point, because not every state is having the exchanges being implemented necessarily by their insurance departments. Because some states have not yet implemented the exchanges, it’s still somewhere in the governor’s office.
Lynn said that the other place is the Kaiser Family Foundation website – they’re tracking this state by state and the site has a lot of very good information.
Lynn asked if anyone had any additional comments about hospitals, and added that one other thing is on the bond-rating issue for the not-for-profits. Moody’s came out with their own report recently, and there’s a whole issue about whether hospitals are going to be “winners” under health reform. Lynn said that we won’t know that until there is really more under implementation.
Providers – Physicians
The panelists then moved on to discuss physicians. Lynn said that they’d talked a little bit about the Medicare fee schedule, the fee shortage, physician extenders, and that there’s a chance that some of the reimbursements, at least in the Medicare fee-for-service, will go down. She asked the panelists to comment on whether there are other issues around the physician side – for example, will malpractice reform get any kind of traction in the next Congress? Are there things that can happen that will implicate the physicians?
Bill answered that malpractice reform will be on the table whenever they deal with the fiscal cliff, at the end of the year, when they basically try to figure out how to deal with the $8 trillion amount that will evaporate on January 1st through the Bush tax cuts, etc. The debt ceiling will be coming closely thereafter. So the issue is how much can they score from malpractice reform, and that’s an issue that we don’t know the answer to. But if the number would be a savings for Medicare or Medicaid, it has a likelihood, he thinks, of being included.
Stuart added that the hard part is that the thing you’re really scoring is defensive medicine, which is very hard to score. Lynn said that we have the same issue with preventative care, and whether the Congressional budget office was giving appropriate credit. Bill said that he believes preventative care is easier to score, especially when dealing with diabetes management and other things. It seems to have an enormous cost effect for Medicare and Medicaid, and the dual eligibles. So Bill thinks that there will be battles around those numbers, trying to come up with them.
He went back to hospitals for a moment, saying that he thinks they’ll all benefit – though it won’t be uniform – because the uncompensated care is going to go down dramatically. Ultimately, it’s going to be easier for them to figure out what their budgets will look like and how they go about doing that. It will happen for physicians too, to some extent.
Providers – Home Care
Lynn asked the panelists to say a few words about home care, and things happening outside of the hospital setting. Stuart said that from a fraud enforcement standpoint, that has been the sector that’s really been under the gun and is really unpopular in Congress. It’s not unilateral, but home health, post-acute care generally has been the subject of all too many cases, so there will certainly be a hard look at it from the regulatory side, as well as a certain unfriendliness that has to be overcome within the Congress. But, he added, that from where he’s looking, that’s one sector that will be under the microscope.
Mark commented that back to Bill’s urging that we think ahead to the hard work that the new Congress or the lame duck session is going to deal with on the budgetary matters, one would wonder, when they look for other big fixes, is there anything to be done in post-acute? Do they extend in some massive way the DOGs for post-acute, give hospitals vast responsibilities for post-acute, and look at that as a way to achieve savings that would score well? He thinks that given the unpopularity of, as Stuart said, the sector on the hill, that would be something to watch out for.
Bill sees an opportunity for those hospital systems that have post-acute care. But if the risk is home health care, and other post-acute right now risk having a meat cleaver taken to that part of the budget, the people who are doing it very effectively are going to have to figure out how to make the case that they should be exempted from the cuts. So he would urge people to think about that.
Lynn said that obviously with the expansion of Medicaid, there could be opportunities in the post-acute area to strengthen the receivables, when they also had uncompensated care as well. Stuart said that part of the answer might lay in what a lot of states are facing, which is how do they deal with their part of things. Big states and small states alike are approaching this looking hard for examples at Medicaid managed care. Fitting these things into a defined benefit, with a cap population and capped payment systems offers a lot of potential opportunity, as there are attempts to meet this economic necessity.
Lynn said that they wanted to finish by talking a few minutes about service providers – those companies that sell to providers, payors, and manufacturers, like the financial service industry. In particular, she wanted to focus on health IT – are they part of the winners? Are they in the background? She also wanted to address IT related to the health exchanges – who is going to coordinate the Medicare eligibility, and at the same time, figure out if they have the subsidies and tax credits?
Mark said that operative exchanges will look to private sector outsourcing solutions to form those IT backbones, so that is certainly a positive sign for the sector. Challenges of care management, which are going to be redoubled as we look for savings in both Medicare and Medicaid populations, will bode well for those who support the deployment of care management protocols among various payors. And to Lynn’s final point, Mark said that Congress has shown its willingness over the last couple of years to pay attention to privacy and security. So while there are positive signs in terms of the strength of the sector, the sector is going to have to invest in state of the art privacy and security, take the time to do thorough risk assessments, and have controls that speak to what those risk assessments show, in order to be trusted with the roles that they’re going to have an opportunity to play.
Lynn shared three client alerts that support the webinar’s contents:
- US Supreme Court’s Ruling on the Affordable Care Act – what does it mean?
- 10 Things Providers Should Know About the Health Insurance Exchange Final Rule
- No Change in the 10 Percent Federal Rate Review Threshold
Questions & Answers
The panelists ended with a series of questions and answers. Lynn said that there was one fundamental question about the SCOTUS decision, where she doesn’t think there’s a real clear answer because she thinks the administration probably has some flexibility. The question is what if a state decides they don’t want to expand this year, but they will expand in two years? Or what if a state does expand, and then decides later that they don’t want to? Is this new Medicaid expansion based on the SCOTUS decision really a new federal program, and can it be treated like that?
Stuart answered, saying it was an interesting question. The first question is the easy one, the second one is the hard one. Can a state opt into the new Medicaid level, the enhanced Medicaid, if you will, later on? This doesn’t have anything to do with the law – it has to do with the enforcement of the law and policy. The answer is going to be clearly yes – and there’s a failsafe of course, if the states decides never to opt in. The government can come in and there are people within the federal government who relish that opportunity.
Lynn asked whether the federal government can expand Medicaid without the state’s permission, and Stuart said that they cannot. But in terms of states opting in later, as was suggested earlier, he expects that the administration is going to work with the states and that there’s going to be a delay period, both for Medicaid and for the exchanges.
The second question is trickier – can the state enter and then opt out? What does that have to do with the litigation? It’s hard to say. Stuart said let’s suppose that a state opts in. A contract then takes place – you’ve got a grant, and it has a life, and so during the period of time for that, that’s going to be defined. But what if the state doesn’t like it? Can they go back to the status quo ante? can it go back to diminished Medicaid, pre-ACA? Stuart’s answer was “who in the world knows.” Lynn commented that there might be a change in the administration at the state level, or the federal government might change it from 100 or 90% matching to 75 or even 50/50%, which is more the norm in the current Medicaid program. Her question again, she keeps asking herself what would she do if she were a governor and inherited a state Medicaid expansion, where the assumptions that were there at the time she entered are no longer correct.
Stuart said it is a good and tricky question, and you can stop the music because the court has told you that the power of Congress can’t be used in a punitive way. So if there are later expansions, it changes. If there are material changes, you can stop at some point. The question is, can you go backwards, and that will be an open question and a really interesting one if any state attempts to do it.
Lynn said that the other question that came up again and again throughout the webinar is how do we know if the penalty is strong enough? What if a state or the federal government were to add more incentive? So much of the Supreme Court’s decision on constitutionality rested on the fact that it was a dollar amount that seemed to be acceptable, and not coercive for purposes of the choice of whether to buy the health insurance or pay the tax. Would a federal law that starts to add more incentives start to cross the line on constitutionality once again?
Stuart answered that the largest issue, he thinks, is going to be defined by one of the smaller ones – that is what is the essential health benefit going to look like? What are going to be the in-fact cost tensions between this? When you’re talking about the part of the population that is potentially subject to the mandate – remember that many people thought you were talking about indigent people, but you’re not. Many of them are quite well off – they’re young people who make choices to spend their money otherwise.
With Medicaid eligibility rising to 133% of the poverty level, it moves up this level of people who are outside of Medicaid in terms of their income. So there will be a lot of give and take on that. And it may be that the penalty will be low enough that these young people will continue to decide not to buy health insurance. On the other hand, if the essential health benefits are narrow enough and there are a lot of reasons why it makes economic and policy sense, then there will be some level of coverage that covers you that should be pretty affordable. We need to see what that is.
In closing, Lynn said that when she joined the firm, they were in the midst of health reform – the President was Nixon, and they were creating federally qualified HMOs, which accountable care is a lot of deja vu in that respect. What she’s learned over the years is that health reform is just a process, not an outcome. So you need to maintain your sense of humor and perspective, and know that demographics matter. Lynn thanked everyone for their interest and questions.