What Hospitals Need to Assess Now That the Affordable Care Act is Constitutional

Written by on August 31, 2012 in Law & Finance - No comments

From a state’s decision on whether to expand Medicaid coverage to value-based purchasing and implementing a pilot “bundling” payment plan, hospitals nationwide face much uncertainty in the coming months as implementation of the Patient Protection and Affordable Care Act begins.

Now that the United States Supreme Court has found the Patient Protection and Affordable Care Act (“ACA”) constitutional, what are the pressing issues that face hospitals? One aspect of the Supreme Court’s decision adds to the uncertainty surrounding the implementation of the ACA. The Court determined that the Federal government could not penalize those states that chose not to expand their Medicaid program coverage and benefits in accordance with the requirements of the Act. Several state governors already have said they do not intend that their states will participate in the Medicaid expansion. While the Federal government picks up the cost of the Medicaid expansion initially, it is likely that many states, their budgets already stressed by Medicaid expenditures, will give careful consideration about expanding those programs. Moreover, given the Federal budget deficit, there is little likelihood of continuing Federal financial support at a high level. Consequently, until these decisions are made, the number of people in any particular state added to the health insurance rolls through Medicaid will be highly uncertain. If a state does not expand its Medicaid program, there will be fewer people covered by some form of health insurance program, a result not helpful to hospitals.

A second issue of great concern to hospitals is whether the states will implement the health insurance exchanges, which always have been voluntary under the Act. Again, some governors have gone on record saying their states will not implement health insurance exchanges. The Federal government will be doing so if the states do not, but the terms of such Federal insurance exchanges still are not known, and will not be known for some time. This only adds to hospitals’ uncertainty about size of the future insured population and the financial consequences.

The Act requires various activities to be implemented in 2012. One is value-based purchasing, to be implemented in October 2012, for FY 2013, which is designed to reward hospitals for increasing the quality of patient care. Starting in 2013, the value-based purchasing methodology, an extension of existing programs for reporting quality indicators, will cover acute myocardial infarction, heart failure, pneumonia, surgeries and health care associated infections. CMS will set performance standards for each of these categories. Hospitals that exceed the performance standards will be paid additional sums per DRG for the next year and those that do not meet the performance standards will receive a decreased DRG payment for that year. Until the standards are announced, it is impossible for hospitals to assess the likelihood of their successful performance against these criteria. Moreover, implementing these quality goals may increase hospital administrative costs, which could offset any savings for those hospitals that receive additional payments, and will add to the costs for those that receive reduced payments. Hospitals need to quickly integrate these performance standards into their operational/clinical activities.

Another change to be implemented in 2013 is a national pilot program to bundle payments for the three days prior to hospital admission, the hospital admission and 30 days thereafter, to encourage better patient care and fewer readmissions. This means that hospitals, physicians, and post-hospital care providers will have to enter into arrangements for dividing up the payments if they choose to participate in the pilot program. These arrangements will require considerable time and effort to develop, document and implement. We recommend that hospitals participate in this pilot program, as it is likely that this will be a future model for payments.

A major change are new provisions governing nonprofit hospitals’ maintenance of their 501(c)(3) status, including a requirement that they develop a community health needs assessment every three years. These requirements are discussed in more detail in this previous Health Practice alert. The IRS has not provided guidance at this point on how the community health needs assessment should be developed. The ACA includes a requirement that hospitals must have written financial assistance plans under which non-insured patients cannot be charged more than amounts paid by insurers, but then again, the details have not been defined.

The changes discussed above all await clarification resulting from the publication of regulations in final form. Consequently, the hospital industry is faced with considerable uncertainty for at least the next few months until these issues are decided.

Of equal importance are the changes private insurers are making – some in the context of changed government payments – but some because of the imperative from their customers to have covered populations provided better care at a lower cost. Hospitals should consider developing new strategies for working with insurers and other participants in the health care marketplace, as many of these actors already are developing new initiatives.

If you have questions or thoughts about whether and how to participate in any of these initiatives, Saul Ewing’s Health Practice has many years of experience helping clients develop new and innovative programs.

by John B. Reiss, Ph.D., J.D., Saul Ewing, LLP

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