The biggest story in healthcare as winter turned to spring was the passage of reform legislation by both houses of Congress.
There was much partisan noise during the debate preceding the final vote on the Patient Protection and Affordable Care Act, but now that debate has ended and the bill has become law, it’s time for healthcare providers to focus on how the legislation affects them.
One of the most trenchant criticisms of the healthcare legislation was that it does not do enough to control the escalation of long-term costs – that it is only health insurance reform, rather than reform focused on the delivery system.
While that criticism is generally accurate, it is clear from the nature of the Congressional debate in the year preceding the March vote that sweeping delivery system reform was not in the cards. The Obama administration got what it could, given the Republican opposition’s unwillingness to compromise on any substantive issue, and while the legislation is not enough to head off a long-term financial crisis for U.S. healthcare, it is a necessary first step.
Some aspects of the legislation are particularly worth noting.
Starting in 2015, we’ll finally see a MedPAC-like commission that will have Medicare rate-setting authority. It won’t impact hospitals until 2019, but the new commission will still save almost $15 billion over 10 years.
The new legislation also implements value-based purchasing, reduces payments for high volumes of hospital-acquired conditions and readmissions, and establishes pilot programs to test bundled payments, accountable care organizations and medical homes.
Beginning in 2014, Medicare and Medicaid DSH payments are to be reduced by approximately $37 billion over 10 years, and Medicaid access will be expanded to 133 percent of the federal poverty level, using a revised definition of income. This will increase the number of patients covered by Medicaid to 16 million.
And of course, there are the insurance mandates, which are to take effect in 2016.
While this legislation is a starting point, I fear that Congress will almost certainly have to revisit healthcare reform in another decade – or even earlier – as costs continue to spiral out of control.
Sadly, evidence indicates that financial conditions may not improve significantly for healthcare providers even in the near term.
In a recent conference call with reporters, Martin Arrick, managing director of Standard & Poor’s not-for-profit healthcare group, said the current stabilization of the healthcare sector may only be temporary.
Arrick said that while there has been a rebound in providers’ unrestricted cash and investments from the lows of March 2009, they remain below their peaks of the past two years.
He expects the weak economy to continue squeezing the operating margins of non-profit healthcare providers, even as organizational leaders implement cost-containment programs.
“The single biggest issue is payer mix and how it is changing,” Arrick said, noting that the transformations in payer mix many hospitals have seen during the recession may last much longer than originally suspected.
Persistently high unemployment and declining state Medicaid reimbursement will put great strains on hospital margins, Arrick warned, but the expansion of insurance coverage in the new healthcare legislation will ultimately help those hospitals with greater uncompensated care burdens.
Unfortunately, overall volumes still aren’t growing, as patients defer elective procedures.
“Many providers say we need to find out how to provide better quality with less reimbursement,” Arrick said.
Issues often overlooked by the media, such as the decreasing availability and increasing expense of bank liquidity, continue to harm not-for-profit healthcare providers. Arrick envisions conditions growing worse, predicting that the “credit quality gap” will widen between the “haves” and the “have-nots.”
Sadly, the current healthcare legislation may not be bold enough to save those “have-not” providers. If that’s the case, we’re very likely going to be doing this all over again in 2020.