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Comprehensive Healthcare Reform

President Obama’s signature healthcare reform was signed into law March 23, 2010. The Patient Protection and Affordable Care Act (PPACA) passed the Senate on December 24, 2009 by a vote of 60–39, and passed the House of Representatives on March 21, 2010 by a vote of 219–212.

Summary of Major Provisions

Increase in Insured Americans: An additional 32 million Americans are now insured because of the PPACA.

Cost: The Congressional Budget Office estimates that the legislation will have a net cost of $938 billion over ten years, while reducing the deficit by $124 billion during this time period.

Key Provisions in Effect at the One-Year Anniversary

Closing the Donut Hole: Medicare beneficiaries will receive a 50% discount on brand-name prescriptions as the government works to close the Medicare Part D "donut" hole. The discount applies to drugs whose manufacturers have signed agreements with the Centers for Medicare and Medicaid Services; those who don’t will not see their drugs covered by Part D. The "donut hole" refers to a gap in Medicare prescription drug coverage included in the 2003 law that created the program.

Premium Threshold Freeze: The income threshold for income-related Part B premiums will be frozen at FY2010 levels for FY2011 through FY2019. The Part D premium subsidy will be reduced for individuals earning more than $85,000 and couples earning above $170,000.

Medicare Prevention Benefits: Cost-sharing for Medicare-covered preventive services earning an "A" or "B" grade from the U.S. Preventive Services Task Force will be eliminated. Medicare deductibles for colorectal cancer screening tests will also be waived, and Medicare coverage will be authorized for a personalized prevention plan.

Other Key Provisions

Small Business Subsidy: Small employers with no more than 25 employees and average annual wages of less than $50,000 that purchase health insurance for employees will be given a tax credit.

Individual Subsidies: Starting in 2014, taxpayers whose household income is between 100% and 400% of the federal poverty line will received a tax refund for a percentage of the cost of health insurance premiums that have been "qualified" under the standards and regulations created by the Department of Health and Human Services.

Federal Planning Grants for State Exchange Implementation: The Affordable Care Act authorizes State Planning and Establishment Grants to help States establish health insurance Exchanges by 2014, when these exchanges will be mandatory. The federal government has already begun administering these grants.

Medicaid Provider Expansion: As a result of healthcare reform, the Congressional Budget Office estimates an additional 16 million individuals will obtain coverage through Medicaid and CHIP (Children’s Health Insurance Program) by 2019.

Heath Information Technology Incentives - ARRA

The American Recovery and Reinvestment Act (ARRA) provided Medicare and Medicaid payment incentives for hospitals that are "meaningful users" of certified electronic health records (EHRs).  Despite some significant modifications to the Meaningful Use requirements, there are still significant questions as to how many hospitals will become compliant in time to avoid incurring a penalty. In addition, the regulation's narrow definition of an eligible provider would preclude individual campuses of multi-campus hospitals because CMS proposes to distinguish between hospitals through the use of Medicare provider numbers. In many facilities, a single provider number can include multiple campuses of a hospital system. If the Medicare provider number is used to define a hospital, a health care system with multiple hospital sites but only a single Medicare provider number would receive one incentive payment for the entire system. This penalizes hospital systems with only one provider number.

In the 111th Congress, Reps. Zack Space (D-OH) and Michael Burgess (R-TX) introduced H.R. 6072, the "Electronic Health Record Incentives for Multi-campus Hospitals Act," which ensures that payment incentives would be available to all qualified hospitals that are part of larger multi-campus hospital systems sharing a single provider number. Sen. Charles Schumer (D-NY) introduced a companion measure in the Senate. However, these bills failed to make it out of committee. It is expected that Reps. Burgess (R-TX) and Engel (D-NY) will reintroduce a similar bill in the 112th Congress.

Accountable Care Organizations

On March 31, CMS issued the long awaited ACO regulations.  ACOs are designed to encourage doctors, hospitals and other health care providers to better coordinate care for Medicare patients.  ACOs create incentives for health care providers to work together to treat an individual across settings – doctor’s offices, hospitals, and long-term care facilities.  ACOs that can reduce costs will be rewarded for reducing costs through shared savings.

ACOs would be required to enter into a three-year contract. Beneficiaries will be able to seek care from any provider, but would be assigned to a particular ACO based upon where and from whom they obtain primary care.  Shared savings would vary based upon whether the ACO utilizes a “one-sided” or “two sided” option.  An ACO choosing the one-sided option would not be responsible for costs above their expenditure target for the first two years, but would receive a smaller share of the savings achieved.  ACOs that choose the two-sided approach would share in both the savings and risk for losses beginning in the first year.  One-sided ACOs automatically become two-sided ACOs in the third year.

The proposed regulation does not carve out Indirect Medical Education and Disproportionate Share payments.  The proposed regulation does not address how Direct Medical Education payments will be treated.  Requiring teaching hospitals to negotiate with insurers for these specialty payments will place them at a competitive disadvantage because of the added costs of teaching and treating the poor and will provide a competitive advantage to ACOs that do not or minimize utilization of teaching hospitals.

The Department of Justice and Federal Trade Commission will determine whether an ACO is engaged in anti-competitive activities while meeting the goals of becoming an ACO.  However, there will be a presumption that compliance with CMS’s ACO eligibility criteria will be deemed to be “reasonably likely to be a bona fide arrangement intended to improve the quality, and reduce the costs, of providing medical and other health care services…”  There will be a streamlined 90-day CMS approval process for determining whether a specific ACO raises “significant competitive concerns.” The market share of an ACO participant in the Primary Service Area (PSA) will be a significant factor in determining whether an ACO might be anticompetitive.  Hospitals and ambulatory surgery centers participating in an ACO “must be non-exclusive to the ACO to fall within the safety zone, regardless of PSA share.” Comments on these regulations should be submitted to CMS by May 31.

Federal Deficit

Controlling Federal Spending

The bipartisan Deficit Commission captured the attention of Congress. Currently, Republicans control the House of Representatives and enjoy a rejuvenated minority in the Senate that is intent on getting spending under control. There are 33 senators up for reelection in 2012, 20 of whom represent swing states. Thus, they may feel considerable pressure to regulate spending.

This has already begun to show itself through the $61 billion in cuts in discretionary spending for the FY2011 budget and through Republican threats to block an increase in the debt ceiling over the need for a comprehensive plan to reduce the deficit.

Six senators are currently working to create such a plan. Led by Senator Warner (D-VA) and Senator Chambliss (R-GA), the group includes Senators Durbin (D-IL), Conrad (D-ND), Crapo (R-ID), and Coburn (R-OK). Senators Durbin, Conrad, and Coburn all served together on the Deficit Commission. The group is working to create a blueprint that would be comprised of both spending cuts and revenue enhancements.  One formula widely discussed is $ 2 in program cuts for every one dollar in revenue increases.  The so called “gang of six” (Mark Warner (D-VA), Richard Durbin (D-IL), Kent Conrad (D-ND), Saxby Chambliss (R-GA), Mike Crapo (R-ID), Tom Coburn (R-OK) would impose a cap on overall federal spending which if not reached would result in automatic across the board spending reductions to reach targeted spending levels.

They would reduce spending on entitlement programs such as Medicare, Medicaid, and Social Security, as well as spending on defense.  Taxes would also be part of the agreement. Additionally, 64 senators sent a letter to President Obama demanding he begin to tackle entitlement reform.

Up to this point, considerable efforts have been made by both parties to reach agreements on spending levels for FY 2011.  However, when the FY 2012 budget is up for consideration, areas such as Graduate Medical Educations (GME), Disproportionate Share (DSH), and even National Institutes of Health (NIH) spending will certainly be carefully scrutinized for possible savings.

Representative Paul Ryan’s Budget Proposal

Representative Paul Ryan (R-WI), Chairman of the House Budget Committee, released the Republican’s response to President Obama’s FY2012 budget on April 5th, 2011.

Summary of Major Provisions

• $6.2 trillion in cuts in Government spending over the next decade vs. $5.8 trillion proposed by the President.
• Reducing deficits by $4.4 trillion as compared with the President’s budget.
• The establishment of a cap of on discretionary spending for FY 2012 and enforceable statutory caps going forward for a decade.
• The establishment of a binding 20% of GDP cap on total spending.  Caps on total spending would be enforced by sequester. 
• Reduce federal spending from 24.1% of GDP in FY2011 to 19.9% in FY 2021.
• Reduces spending from the Congressional Budget Office (CBO) base line over the FY2021 –  FY2022 period in:
  • Medicaid by $771 B
  • Medicare by $30 B
  • Preserves the $ 155 B in ACA Medicare cuts to hospitals
  • Affordable Care Act (ACA) by $1.403 trillion  - CBO scores ACA as reducing the debt
• Requires increases in debt levels to be accompanied by spending reductions to levels set in the budget resolution.  If Congress fails to achieve these spending reductions, there would be an across-the-board spending reduction at the end of the year.
• Require mandatory review of mandatory spending programs.

Summary of Medicaid under Rep. Ryan’s Budget

• Cut Medicaid spending by $770 billion over ten years.
• Create a block-grant Medicaid system for the states, indexed for inflation and population growth. 
• Eliminate federally determined program requirements and enrollment criteria.
• Allow states to offer more options for coverage and care.

Summary of Medicare under Rep. Ryan’s Budget

• Medicare would not change for those 55 and older
• Change Medicare’s defined benefit program to a premium support program starting in FY2022 for those currently under 55.  Government would provide a Medicare payment and a list of guaranteed coverage options from which the recipient could choose.
• Provide a higher level of premium support for lower-income beneficiaries and those with greater risks.
• Cap non-economic damages in medical liability lawsuits.
• Require that current-law Medicare savings go to saving Medicare, not financing expanded ACA coverage initiatives.
• Fix the Sustainable Growth Rate (SGR) for ten years.
• Repeals the Independent Payment Advisory Board and the CLASS Act for long term care.

Summary of Health Care Related Taxes under Rep. Ryan’s Budget

• Eliminate the tax on employers who do not provide ACA health insurance to their workers.
• Eliminate the 0.9% surtax on wages and 3.8% surtax on interest, dividends, and capital gains that were imposed to help finance the ACA.