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.

Former CMS Administrators Call for a 5 Year Suspension of SGR Updates

Two former CMS Administrators voiced support for a 5 year suspension of the sustainable growth rate (SGR) formula used to update the payment rate for physicians who provide services to Medicare beneficiaries at an Alliance for Health Reform Briefing held on January 24, 2014.   Mark McClellan, MD, PhD, and CMS Administrator from 2004 to 2006,  suggested that a five  year suspension of the SGR would be a better solution than the 10 year suspensions proposed in current legislation.  Gail Wilensky, PhD. who was CMS’ administrator from 1990 to 1992, agreed.  “You could do the first steps of what all that legislation does, which is provide a known piece of stability for several years and put in place some specific activities to try to move forward with performance metrics,” said Wilensky.   Both thought that this suspension would shift the focus of the debate away from the negative cuts the SGR system requires and towards evaluating payment systems that reward value and quality.

Value-Based Payments

Their main concern was that the proposals for a 10-year break from the SGR would cost in the neighborhood on $150  billion according to a Congressional Budget Office Report.  McClellan thought that if that cost were cut in half the legislation might get more support. In addition,  both thought that the five year time frame would be sufficient to get results from and analysis of  a variety of different payment models being tested across the country.

The real problem with the physician reimbursement system is not so much the SGR formula, but the fact that it is based on payment for services. Gail Wilensky said, “the relative values scales as it exists with billings for some eight to 9000 different codes, rewards volume rather than value.”  Stu Guterman, Vice President of Medicare and Cost Control at the Commonwealth Fund, which co-sponsored the briefing  said, “One of the problems is that the [SGR] formula cuts payment rates across the board, no matter how appropriate or inappropriate the service is and no matter what kind of physician is providing a service and how effective they are.” All three thought that simply suspending the SGR was not enough and that the physician reimbursement system needs to be moved from fee-for-service structure to one that pays for value and quality of care.

The SGR

The SGR was designed as a mechanism for adjusting the total growth in spending on physician services.  The SGR is linked to changes in the U.S. gross domestic product. It is based on a formula at Soc. Sec. Act sec. 1848 (f)(2) that includes the following factors; (1) the estimated weighted average percentage increase in the fees for all physicians’ services; (2) the estimated percentage change in the average number of Part B beneficiaries from the previous year; (3) the estimated percentage growth in the real per capita GDP from the previous year; and (4) the estimated percentage change in expenditures for all physicians’ services that are attributable to changes in laws and regulations. The result being that in 2002, and every year since, the SGR has produced a negative update, or a reduction in spending on physician services from the previous year.  “The problem being,” said Guterman, “is as spending continues to exceed the target that is set under the formula, the formula produces large cuts in fees.”

Both Wilensky and McClellan noted several different payment methodologies for physicians from medical homes to accountable care organizations and a variety of other models that are being tested.  Both felt that it was too early in the process to come up with a payment system that would replace the fee-for-service system, but that by repealing the SGR for a five year period the focus of the debate would be taken off the annual cut to the physician fee system and focused on developing a physician reimbursement system based on value of care provided.

 

Top Health Wolters Kluwer Law & Business Posts of 2013

We wish everyone a happy end to 2013. Health Wolters Kluwer Law & Business will resume our regular posting schedule on Thursday, January 2nd. In the meantime, these were our top posts for 2013:

Our top page was Kusserow’s Corner followed by Net News and the  Resource Center.

The Medicare and Medicaid Guide—Highlights of All Explanations (White Paper)

Medicare is the single largest purchaser of health care in the United States, accounting for 23 percent ($522 billion) of the $2.3 trillion spent on health care in 2011, according to the Medicare Payment Advisory Commission. In 2012, Medicare covered 50.7 million people: 42.1 million aged 65 and older, and 8.5 million disabled, according to the 2013 Medicare Trustees Report. In 2011, Medicare paid for 27 percent of all hospital care, 23 percent of physician services, 44 percent of home health services, 25 percent of nursing home care, 20 percent of durable medical equipment, and 24 percent of prescription drugs.

Medicaid provides coverage for 58 million people, and accounts for 16 percent of all health care spending. With the expansion of Medicaid eligibility provided under the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), Medicaid spending will continue to grow.

According to the Congressional Budget Office, the share of gross domestic product (GDP) devoted to federal health care spending will almost double in the next 25 years, from 4.6 percent of GDP in 2013 to 8 percent of GDP in 2038. With one-third of the U.S. population receiving health coverage through either Medicare or Medicaid, it will continue to be important for health care providers and practitioners, the legal and business advisors who support them, the legislators who pass laws amending the programs, and the administrators who regulate the programs, to stay on top of changes in the programs.

The Medicare and Medicaid Guide has been published since 1969. Available both in print and online, the Guide offers daily updates of new laws, regulations, court decisions, administrative decisions, and other guidance about these two health programs, in addition to over 500 explanations about how these programs work. The explanations cover all areas of both programs – who is eligible to get coverage; who is eligible to provide coverage; what types of services are covered; how the programs are financed and administered; how the government monitors fraud and abuse in the programs; just to name a few subject areas.

Wolters Kluwer editors have prepared a white paper which includes summaries of each explanation section of the Medicare and Medicaid Guide. It is designed as a supplement to what current subscribers of the Guide already receive with their subscriptions, but it can also be used as an introduction to the product for non-customers.

The complexity of the Medicare and Medicaid programs is often commented upon by judges when they write decisions based on the programs’ laws, regulations and other guidance. This overview highlights the complexity, but also provides a hint at the breadth of coverage in this product.