ACA’s Changes to Medicaid and Medicare Could Drastically Alter the Practice and Financing of Medicine

By: Neil Issar, Vanderbilt Law School-

The Patient Protection and Affordable Care Act (ACA) incentivizes adoption of a model in which healthcare providers reduce costs by shifting to value-based reimbursement, such that delivery of the highest quality outcomes at the lowest possible cost becomes the public standard.

One of the ACA’s most significant efforts to control costs is the creation of the Independent Payment Advisory Board (IPAB), an entity housed within the executive branch of government and consisting of 15 full-time members appointed by the President and confirmed by Senate. The creation of the IPAB has been trumpeted as a critical mechanism for slowing increases in healthcare spending, but it is also controversial due to concerns about its unrestricted power and its potential to arbitrarily limit patient access to necessary care.

Beginning in 2015, if healthcare expenditure growth exceeds set targets, the IPAB will make obligatory recommendations to cut spending in Medicare. The recommendations made by the IPAB will then be sent to Congress, and if Congress does not agree with the recommendations, it must pass alternative cuts of the same proportion within a narrow time frame. If Congress does not move to pass legislation, the Secretary of the Department of Health and Human Services is legally required to implement the IPAB’s recommendations.

The IPAB’s lack of public accountability and its intention to curb Medicare spending have been points of concern. For example, if the IPAB recommends reducing physician reimbursement rates to decrease Medicare expenditures, it could create a sizeable gap between private rates and Medicare rates, possibly driving physicians out of Medicare and exacerbating the access problem. This could be especially alarming for surgeons, and the American Academy of Orthopaedic Surgeons (AAOS), for example, is concerned about the impact that IPAB-directed cuts will have on patient access to musculoskeletal care and about the ability of the Board to focus on long-term delivery system reforms due to the yearly spending targets that must be met.

While the IPAB’s methods are limited by other ACA provisions, including restrictions on rationing of healthcare, raising costs of beneficiaries, modifying eligibility criteria, or cutting payments to hospitals or hospices before 2020, orthopaedic surgeons and other specialists are concerned about drastic changes to their clinical practices as the first of IPAB’s recommendations are produced in 2014, with implementation to start in 2015.

The ACA also includes provisions to reduce payments under the Medicare and Medicaid Disproportionate Share Hospital (DSH) programs beginning in 2014. These programs, which pay out approximately $22 billion every year, partially reimburse many hospitals for otherwise uncompensated care provided to low-income and uninsured patients. The reductions are based on the premise that the ACA’s expansion of coverage should significantly reduce the number of uninsured Americans, which, in turn, should result in a substantial decrease in the uncompensated care provided at acute care hospitals.

Scheduled reductions to the Medicaid DSH program will total $18.1 billion between 2014 and 2020, with additional laws extending DSH reductions to 2021 and 2022. Conversely, reductions to the Medicare DSH program will be determined by a new statutory formula that begins with a 75% decrease from current levels and then reimburses funds on the basis of the percentage decreases in states’ uninsured rates. Under this formula, a hospital in a state that sees its uninsured rate decrease by 50%, for example, could see a reduction of over a third of its Medicare DSH payments.

Without further amendments to health reform laws, DSH reductions could create considerable financial deficits for hospitals in states that forgo the ACA’s Medicaid expansion. This is especially troublesome for physicians that treat many uninsured and low-income patients. In addition, a coverage gap will remain in many such states, as the insurance exchanges created by the ACA were intended to serve patients who have incomes greater than 100% of federal poverty level (FPL) (since patients making less would be eligible for Medicaid under the law’s expanded eligibility criteria). States opting out of Medicaid expansion could thereby have many patients with incomes less than 100% of FPL uncovered by Medicaid and simultaneously ineligible to purchase discounted insurance through the exchanges. These patients would remain uninsured and become the primary beneficiaries of uncompensated hospital care.

In other words, hospitals in non-expansion states could face an alarming decline in DSH funding despite seeing little or no change in the amount of uncompensated care provided, which would directly affect the clinical practice of physicians responsible for the provision of this care.

Overall, the ACA marks the beginning of a shift from producer-centered, volume-driven payment models to patient-centered, outcomes-driven models. This goes hand-in-hand with an increased focus on decreasing healthcare costs while improving the quality and value of care. Healthcare spending continues to outpace economic growth and is expected to account for 25% of the US economy in less than two decades. By comparison, in 2010, other OECD nations spent on average about 9.3% of their GDP on healthcare. This will only be exacerbated by the ACA’s expansion of coverage unless physicians embrace the law’s changes to their clinical practice while simultaneously attempting to reduce expenditures and maintain high-quality patient care.

Neil Issar resides in Nashville, Tennessee, and is a student at the Vanderbilt School of Law. He is expected to graduate in the summer of 2016. He attended McGill University prior to law school, earning a B.Sc in 2010. He is the co-President of the Health Law Society, a Vanderbilt Law School Chancellor’s Scholar, and Deans Scholar.