A whole new world awaits

Hospital industry leaders in witnessing the historic passage of the Senate’s healthcare overhaul bill know that the way they do business in the healthcare marketplace may be about to rapidly change.

As the House and Senate move to confer on the respective differences on their healthcare reform packages early this year (See story below), providers are gearing up for the likelihood that the government plans a major revamp in how it pays and evaluates hospitals for care under federal programs.

Any health reform bill is bound to generate a great deal of regulatory activity. Many changes in payment policy are likely to take place—and will be implemented quickly, said Don May, vice president for policy with the American Hospital Association. Some of these changes could be discussed, proposed and implemented as soon as 2011, he said.

In looking at the Senate bill alone, the $871 billion Patient Protection and Affordable Care Act, approved early on Christmas Eve in a historic 60-39 vote, would greatly restructure the roughly $2.5 trillion per year healthcare sector in just over a decade’s time. Much of this restructuring involves payment reform.

President Barack Obama and Democratic members of Congress praised the Senate vote. “We are now incredibly close to making health insurance reform a reality in this country,” Obama said after the vote.

The Senate legislation, as an example, would create a pilot hospital value-based purchasing program in 2013, where a percentage of reimbursement would be tied to performance. If successful, it could be expanded. Inpatient rehabilitation facilities and long-term-care hospitals will also move toward such a system. The bill is loaded with other pilot programs and system studies. Under one, hospitals in 2013 could volunteer to receive payments for an entire episode of care rather than under the piecemeal inpatient prospective payment system, or IPPS. The bundled payment system will also be expanded to other provider types as well.

The bill creates a so-called “Independent Payment Advisory Board,” which would hold sway over Medicare payment formulas. The board would make annual recommendations to the president, Congress and private organizations on actions they can take to improve quality and constrain the rate of cost growth. Its Medicare recommendations are nonbinding in years where Medicare growth is below the targeted growth rate. The board will develop its first recommendations in 2013 for implementation two year later.

Hospitals also face new penalties. In 2012, for instance, hospitals would see their reimbursement cut for certain types of readmissions.

The bill also aims to boost health insurance coverage. The Senate’s package is expected to extend coverage to 31 million Americans who currently go without it. Much of the cost of extended coverage would come from reductions in federal dollars to the Medicare and Medicaid programs. The bill reduces the

annual updates to Medicare’s payment rates for most fee-for-service sectors, except physicians, by about $186 billion over 10 years. Additionally, the bill will effectively gut the Medicare Advantage program, moving participating plans to a form of competitive bidding, resulting in about a $118 billion cut. Even so, it will leave another 23 million nonelderly residents without insurance.

Larry Gage, president of the National Association of Public Hospitals and Health Systems and a healthcare lawyer who is a partner with the law firm Ropes & Gray in Washington, is concerned that the Senate bill, as passed, “will fall short of expectations in terms of coverage expansions.” While the House bill aims to cover 96% of all Americans, the Senate’s mark is lower, at 94%. “That’s a difference of several million people,” he said—and those are uninsured individuals who are likely to seek care at the safety net hospitals that Gage represents.

The bill essentially requires all legal residents to buy insurance, offering billions of dollars in federal subsidies to help offset the cost. It also expands Medicaid to individuals making less than 133% of the federal poverty level. Those who don’t purchase insurance would face penalties.

While there is no mandate for employers to offer coverage, firms with more than 50 workers that do not offer coverage would be subject to a penalty of $750 for each full-time worker if any of those workers get subsidized coverage through a government-regulated insurance exchange where the Office of Personnel Management, which oversees the federal employees’ health-benefits program, will oversee two national or multistate plans. Under the bill, the exchange would include private health plans and could include two national or multistate plans operated under contract with an office that already oversees selected federal health plans.

The Senate bill also reduces disproportionate share hospital reimbursement by nearly $44 billion over 10 years, Gage said.

Insurance companies would have to accept all individuals regardless of pre-existing conditions beginning in 2014 and could not vary premiums to reflect differences in enrollees’ health.

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