The ACA is making medical debt a little less red

Medical debt is falling thanks to higher insurance rates under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), according to a study by the National Bureau of Economic Research (NBER). The study estimates that the medical debt held by people with new Medicaid coverage fell between $600 and $1000 each year since 2014. Additionally, the study determined that the ACA’s Medicaid expansions resulted in beneficial financial impacts that extend beyond the use of and access to health care.


The financial impacts of not having health insurance can be severe. According to data from the Medical Expenditure Panel Survey (MEPS), the annual cost of inpatient care for a person aged 18 to 64 who was hospitalized in 2012 was approximately $15,000 and the annual cost of all types of care for that person for the year was $25,000. Thus, it is hardly surprising that those without insurance are more likely to have difficulty paying, become delinquent on, and be contacted by a collection agency regarding their medical bills. The study cited data suggesting that when an uninsured individual is hospitalized, that individual doubles their likelihood of bankruptcy and experiences other hardships like reduced access to credit.


Using credit-reporting data for a large sample of individuals, the NBER compared individuals living in Medicaid expansion states with individuals that live in states that have not expanded Medicaid. The study relied on Federal Reserve Bank of New York Consumer Credit Panel/Equifax (CCP) data to measure financial outcomes of individuals in the population between the ages of 19-64. The study used data from 2010 through 2015—four years of pre-Medicaid-expansion data and two years of post-expansion data. Demographic information was acquired based upon zip code data.


The study found that Medicaid expansion significantly reduced the amount of debt in third-party collections among those individuals that live in zip codes containing the most poor and uninsured individuals. The study primarily looked at individuals earning less than $16,000 a year. The NBER estimated that reductions in collection amounts in 2014 were between $51 and $85. The overall impact of debt reduction fell between $600 and $1000. Although the impact is positive, it is not complete in terms of health care related debt or hardship elimination. A Kaiser Family Foundation survey identified that, even with the passage of the ACA, one in five Americans still struggle to pay their medical bills.

Other impacts

Medical debt and its impact on financial security is an important measure of success for the ACA. The significance stems in part from the fact that the impacts of Medical debt go beyond health. Medical debt can force people to rely on savings, cut back on other necessities (including other health care expenditures), and fall behind on other payments (car, rent, etc.), any and all of which can put employment at jeopardy. Medical debt is often both a symptom of and a factor leading towards other financial hardships.  The ACA’s positive impact at reducing those hardships is, at least for those with medical debt, a good sign. Additionally, the reduction of medical debt is yet another reason for non-expansion states to consider expansion of their Medicaid programs.

$330M hospice payment rate increase in 2017

Hospices would see a proposed 2 percent increase in their payments for fiscal year (FY) 2017, amounting to a $330 million increase over FY 2016 numbers, along with changes to the hospice quality reporting program. In an advance release of a Proposed rule set to publish in the Federal Register on April 28, 2016, CMS shared its plan to update the hospice wage index, payment rates, and cap amount for FY 2017. The proposed 2 percent hospice payment update for FY 2017 is based on an estimated 2.8 percent inpatient hospital market basket update, reduced by a 0.5 percent productivity adjustment and by a 0.3 percent point adjustment set by the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148).

The Proposed rule would also address the hospice quality reporting program, which was established by ACA sec. 3004(c), including the addition of new quality measures. CMS would solicit feedback on an enhanced data collection tool and a plan to publicly display quality measures and other hospice data beginning in the middle of 2017. The Proposed rule would update hospice monitoring data analysis and provides discussion about ongoing monitoring efforts. Starting in FY 2014, hospices that fail to meet quality reporting requirements receive a 2 percent reduction to their payments.

Public reporting of hospice information via a Health Compare website will be available some time in calendar year 2017.

Payment cap update

In the FY 2016 Hospice Wage Index and Payment Rate Update Final rule (see Hospice 2016 rate update will bring $160M payment increase, Health Law Daily, August 6, 2015), CMS implemented changes that updated the hospice payment update by percentage rather than using the consumer price index for urban consumers. As required by Soc. Sec. Act sec. 1814(i)(2)(B)(ii), the hospice cap amount for the 2017 cap year will be $28,377.17, which is equal to the 2016 cap amount ($27,820.75) updated by the FY 2017 hospice payment update percentage of 2.0 percent.

The 2017 cap year will start on October 1, 2016, and end on September 30, 2017, as the FY 2016 Final rule had set the alignment of the cap accounting year with the federal fiscal year beginning in 2017.

Quality measures and data collection

Two new quality measures are proposed for FY 2017. The first measure—Hospice Visits When Death is Imminent—would assess hospice staff visits to patient and caregivers in the last week of life. The second measure—Hospice and Palliative Care Composite Process Measure—would assess the percentage of hospice patients who received care consistent with the guidelines. The second measure would be based on measures from the seven currently submitted under the Hospice quality reporting program (QRP).

CMS would enhance the current hospice data collection tool to be more in line with other post-acute care settings. The data collection would be a comprehensive patient assessment tool, rather than the current chart abstraction tool. According to the agency, hospices could use the data as a foundation for valid and reliable information for patient assessment, care planning, and service delivery. The expectation is that there would be greater accuracy in quality reporting, reduction to provider burdens, assurance for hospices fulfilling conditions of participation, and higher quality patient care. CMS also believes that with the data collection tool, future payment determinations could be made.

Additional ACA impact

The Hospice Consumer Assessment of Healthcare Providers and Systems (Hospice CAHPS®) Survey is a component of the Hospice QRP required under the ACA. The Proposed rule provides detailed description of the Hospice CAHPS® Survey, including the model of survey implementation, the survey respondents, eligibility criteria for the sample, and the languages in which the survey is offered, as well as participation requirements for FY 2019 and 2020. Public display of the survey results will not occur until CMS has collected at least four quarters of data. CMS expects public display of the data to occur during CY 2017 at the CAHPS® HOSPICE Survey website.

Lawmakers’, hospitals’ wish upon star ratings temporarily granted

To the approval of lawmakers and various hospital and medical school associations, CMS delayed its intended April 21, 2016, release of overall hospital quality star ratings on its Hospital Compare website until at least July 2016. The delay is partly attributable to efforts raising concerns about whether the involved methodology for star ratings provided a fair, accurate, and meaningful representation of hospital performance. The lawmakers and associations noted that a number of the quality measures that are the ratings’ foundation impact teaching hospitals that treat low socioeconomic status patients, more complex patients, and perform various complicated surgeries. In addition to delaying the star ratings, the regularly scheduled update of data on individual Hospital Compare measures will be delayed until May 4, 2016.

CMS believes that star ratings spotlight excellence in health care quality and make it easier for consumers to use the information on the Hospital Compare website (see Care to compare? Hospital five-star rating system now available, Health Law Daily, April 16, 2015). This is consistent with the call for transparent, easily understood, and widely available public reporting found in the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). The ratings also support using quality measures as a key driver of health care system improvement.


Lawmakers had weighed in on the matter a few days earlier, urging CMS to delay the release and reevaluate its methodology. In a letter to CMS Acting Administrator Andy Slavitt, 60 Senators and 225 Representatives stated concerns that the hospital star ratings, in their current form, could unfairly mask quality or overweigh patient experience measures, which in turn would not help subsequent consumers make well-informed decisions about hospital choices.

It was noted that CMS had provided insufficient details regarding the methodology used to determine the star ratings, and that the agency had not provided hospitals with the data used to derive the ratings. Hospitals did not have the data to replicate or evaluate CMS’ work to determine whether the methodology was fair or accurate.

In addition, the American Hospital Association (AHA), Association of American Medical Colleges, America’s Essential Hospitals, and Federation of American Hospitals stressed the importance of appropriately adjusting for socioeconomic status and patient complexity in the star ratings. The associations noted that CMS had previously considered socioeconomic factors for Medicare Advantage and Medicare Part D programs. For instance, the Medicare Payment Advisory Commission (MedPAC) reported and recommended improvements for outpatient and inpatient facilities to further the ACA push to reevaluate the fee-for-service system drawbacks of rewarding quantity rather than quality of health care services (see MedPAC recommends Medicare reform in 2015 report to Congress, Health Law Daily, March 18, 2015). Both the lawmakers and the AHA asked CMS to incorporate the socioeconomic status on quality measures into future star ratings.

Shifting biosimilar costs away from Part D beneficiaries

Biosimilars are expected to be priced lower than existing biologics, and therefore reduce costs for consumers and payers. Because of Medicare Part D policies, however, beneficiaries may actually pay more out-of-pocket for the biosimilar than the higher-cost, innovator reference biologic. This may discourage use of biosimilars, reducing overall savings to the Part D program. Avalere Health has studied this issue and released a report suggesting two ways to reduce patient costs for biosimilars: (1) requiring manufacturer discounts for biosimilars, consistent with current law for branded drugs; and (2) creating a biosimilar tier that would reduce beneficiary costs for the biosimilar to the same level as the reference product.


The Biologics Price Competition and Innovation Act (BPCIA), enacted as Title VII of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), created a “biosimilar pathway” for the FDA to approve both biosimilars and interchangeable biologics. Section 7002 of the ACA sets forth the approval pathway for these biosimilar biological products.

Because of the high cost sharing to Medicare Part D beneficiaries in the coverage gap (donut hole), section 3301 of the ACA included a provision to begin closing the gap by gradually reducing beneficiary cost-sharing to 25 percent by 2020. Beneficiaries reach the coverage gap once they incur a certain amount of total drug spending. In 2016, the coverage gap begins after a beneficiary has incurred $3,310 in total drug costs. While in the coverage gap, the beneficiary pays 100 percent of their prescription drug costs until they reach the catastrophic coverage limit of $4,850. Once a beneficiary reaches the catastrophic coverage limit, they pay $2.95 for a generic drug and $7.40 for brand name drug or 5 percent of the cost of the drug, whichever is greater.

Another part of the effort to reduce cost sharing in the coverage gap is the Coverage Gap Discount Program (CGDP), which requires manufacturers to provide a 50 percent discount on brand drugs dispensed during the coverage gap. Both the manufacturer’s 50 percent discount and the beneficiary’s out-of-pocket costs count toward true out-of-pocket costs (TrOOP). Once the beneficiary reaches the TrOOP cost of $4,850 in 2016, he or she enters the catastrophic phase and exits the coverage gap.

The CGDP, however, does not apply to generic drugs or biosimilars in the coverage gap. Therefore, in 2016, Part D beneficiaries are responsible for 58 percent of costs associated with generic and biosimilar medications in the coverage gap and the Part D plan is responsible for all remaining spending in the gap. And because there are no other stakeholders contributing to the TrOOP of the Part D beneficiary, this can lead to patients paying more for a biosimilar product than for the innovator biologic product.

Avalere study

The Avalere study illustrated the cost sharing differences between a reference product and its biosimilar by comparing a Part D beneficiary that takes an innovator biologic medication with another beneficiary taking the biosimilar. The study assumed that the Part D innovator biologic had an annual treatment cost of $30,000 and the biosimilar was discounted by 25 percent. The Avalere study found that a Part D beneficiary will pay approximately $1,536 more per year in out-of-pocket costs for the lower-cost biosimilar product than for the reference product.

Policy options

To avoid this Part D cost-sharing problem for biosimilars, Avalere suggests two policy options, both of which would require legislation:

  • Create a biosimilar coverage gap discount: Changing the statutory language to direct biosimilar manufacturers to pay 50 percent of drug costs in the coverage gap would result in lower out-of-pocket costs for patients, as well as additional savings to the federal government. The additional manufacturer contribution would also count towards beneficiaries’ TrOOP threshold, allowing beneficiaries to reach the catastrophic phase more quickly. With the additional contribution from biosimilar manufacturers, the program costs in the coverage gap would also be reduced.
  • Create a biosimilar tier: Although biosimilars are generally less expensive than innovator biologics, Avalere believes that they will usually be subject to the same cost sharing applied to innovator products on the specialty tier. If Part D plans were required to create a “biosimilar tier,” that would lower patient cost-sharing for a biosimilar because the total out-of-pocket costs would not exceed those for the reference product. This would result in the Part D benefit paying more to cover the lower cost sharing associated with a “biosimilar tier.”


According to Avalere, both policy options would result in savings to patients and overall savings to the Part D system. Under the first policy, requiring manufacturers to pay coverage gap discounts for biosimilars would shift the costs away from the government, patients, and health plans to manufacturers. Under the second policy, creating a separate biosimilar tier would shift costs to health plans and the federal government, as patient cost sharing would be reduced.