Rough Waters Ahead: Navigating Health Reform and the Future of Health Care John F. Duval CEO, Medical College of Virginia Hospitals July 10, 2012

Agenda • The law and its parts • What’s  popular, what’s  controversial • The promise and key disconnects

– Costs – Employer behavior – Workforce adequacy – Safety Net – Impact on academic centers

• The Supremes • The fall out

– States’  option

• Stay tuned • What will change no matter what

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What is good about the health care

delivery system?

John’s  List • Robust medical community, well represented by specialties • Strong & dedicated allied health workforce • Best education system in the world across all disciplines • Cutting edge technologies & pharmaceuticals • Strong research basis • Social safety net • Modern physical plant • Improving transparency & accountability • Improving quality & safety • Major economic engine, frequently largest employer

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What is not good about the

health care delivery system?

John’s  List • Current costs and growth rate are economically not sustainable • ≈ 50 million uninsured • Racial / economic / geographic disparities in access to care • Unnecessary variations in amount / quality of care provided and some care

is not evidence based • Quality and safety accountability improving, but still too opaque • Economic incentives between provider and insurer communities not

aligned • Regulatory structure / licensure laws result in inefficient use of workforce • Sickness as opposed to wellness focused • High administrative overhead is wasteful • Education costs of healthcare workforce are borne by providers and

government payors

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• Most comprehensive change in healthcare finance since 1964 Medicare & Medicaid legislation

• Reforms the actuarial financing model for health services in the United States

• Improves access to care for most citizens and reduces the number of uninsured

• Reins in unpopular insurance industry practices • Increases quality and safety of health care • Improves transparency of health and insurance

information • And much, much more

Patient Protection and Affordable Care Act (PPACA): Signed into Law March 23, 2010

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Details of the Law • Individual Mandate – Requires U.S. citizens and legal residents to have health insurance or pay a tax penalty --

(Penalties equal $95 in 2014, $325 in 2015, $695 in 2016)

• Expansion of Medicaid – Expands Medicaid coverage to all non-Medicare eligible individuals under age 65 with

incomes up to 133% of federal poverty level (FPL) – States that participate will receive 100% federal financing phased down to 90% federal

financing by 2020

• Health Insurance Exchanges – Creates state-based health insurance exchanges through which individuals and businesses

with up to 100 employees can purchase qualified coverage – Establishes four benefit tiers covering 60% (Bronze), 70% (Silver), 80% (Gold), and 90%

(Platinum) of the benefits cost of the plan – Creates an essential benefits standard, including coverage for: emergency services, hospital

services, physician services, prescription drugs, preventative services, and mental health/substance abuse

7 Source: Kaiser Family Foundation: Summary of New Health Reform Law (Link: http://www.kff.org/healthreform/upload/8061.pdf)

Details of the Law • Subsidies – Provides premium credits and cost-sharing subsidies to U.S. citizens and legal immigrants up

to 400% of the FPL (e.g. 4 person household = $92,200) – Provides tax credits to certain employers

• Employer Requirements – Employers with 50+ full-time employees not offering coverage assessed a $2,000 penalty

• Changes to Private Insurance – Provides dependent coverage for children up to age 26 – Prohibits health plans from placing lifetime and annual limits on the dollar value of coverage – Prohibits pre-existing condition exclusions

• New Care and Payment Models – Develops pilot programs to test new care models including Accountable Care Organizations,

patient-centered medical homes, bundled payment schemes, and others

• Investments – Allocates resources to workforce development, trauma centers, innovation, and other areas

Source: Kaiser Family Foundation: Summary of New Health Reform Law (Link: http://www.kff.org/healthreform/upload/8061.pdf) 8

How is PPACA Paid For? • Imposed tax penalties for individuals who opt out and large

employers who do not provide health insurance to employees • For individuals earning greater than $200,000 and couples earning

greater than $250,000: – Increased Medicare tax rate – Imposed tax on unearned/investment income

• Imposed taxes on health insurance sector and pharmaceutical and medical device manufacturers

9 Source: Kaiser Family Foundation: Summary of New Health Reform Law (Link: http://www.kff.org/healthreform/upload/8061.pdf)

PPACA: What is Popular? • Extends insurance coverage to 32 million people • Allows parents to cover children up to the age of 26 under their

private insurance plans • Eliminates lifetime dollar limits on benefits imposed by most

medical plans • Prevents medical plans from denying insurance and benefits based

on preexisting conditions • Limits the amount insurers spend on administrative costs versus

medical costs (Medical Loss Ratio) • Provides more transparency with publically reported metrics

related to quality, safety, and patient outcomes

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• Mandates individuals have health insurance by 2014 or pay a penalty • Expands Medicaid coverage to residents with incomes up to 133% of the

federal poverty level (FPL) – Federal government will cover all costs for this group starting in 2014 and

will phase down to 90% by 2020 • Role of the States

– Health Insurance Exchanges – Medicaid Expansion

• Requires some employers with 50+ employees who do not offer health insurance to pay a penalty

• Significantly reduces Medicaid and Medicare Disproportionate Share Hospital (DSH) allocations

• New taxes on Individuals, health insurance sector, and manufacturers of pharmaceuticals and medical devices

PPACA: What is Controversial?

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PPACA:  What  the  Law  Doesn’t  Cover • PPACA does not adequately address important issues facing

the health delivery system including: – Impending physician and nursing shortages – Rapidly escalating costs and their cause within our hospitals and

health systems – Large variations in medical practice observed across the nation – Financing of graduate medical education / other workforce

issues – Foreign national population – Costs of those who opt out

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Program Costs

Murphy’s  Law  of  health  care  legislation:

“If it can cost more than the highest available official estimate,  it  probably  will.”  

Senate Joint Economic Commission

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Will They Be Right?

• Coverage expansions cost $938 billion over 10 years

• Federal deficit reduced by $124 billion over 10 years

Source: Kaiser Family Foundation, 2011 16

A  Lesson  from  History…

Program (Estimate Year) Original estimate Actual cost

Medicare Part A (1965) $9b/1990 $67b/1990

All of Medicare (1967) $12b/1990 $110b/1990

ESRD program (1972) $100m/1974 $229m/1974

Medicaid DSH (1987) < $1b/1992 $17b/1992

Mcare Home Care (1988) $4b/1993 $10b/1993 Source: Senate Joint Economic Committee, 7/31/09

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Employer Behavior

Employer Behavior • Penalty for large employer not offering coverage if one

employee receives credit toward exchange = $2,000 • What does annual premium cost the employer? $4,000-6,000 • What will employers do?

• According to McKinsey & Company survey, “30  percent of employers will definitely or probably stop offering employer sponsored insurance in the years  after  2014”

• What does that mean for employer-sponsored insurance? The cost of exchange credits?

• What does it mean for access to health care providers?

21 Source: McKinsey & Company, “How  US  health  care  reform  will affect employee benefits “  (June  2011,  McKinsey  Quarterly)

Workforce

Health Care Labor Force • Projected shortages BEFORE health care reform • Reform makes some efforts to begin addressing

shortages

BUT • The law covers 32 million new patients nationally and

approximately 1 million in Virginia • That  may  not  add  up…

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Will There Be Enough Doctors? • Pockets of physician shortages now • 40%  of  practicing  physicians  ≥  age  55 • In Virginia, a recent survey showed one-third were  ≥  age  55  and  10%  ≥  age  65

• How many more will we need? – E.g., currently 6,830 geriatricians nationally

• That  is  only  1  for  every  1,900  seniors  ≥  age  75 • IOM indicates 36,000 needed by 2030

Sources: Alliance for Health Reform, 2011; Virginia DHP, 2009; Institute of Medicine, 2008

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What About Other Health Professionals?

• 33%  of  nursing  workforce  ≥  age  50 – More than half of these plan to retire within 10

years • Will an improved economy reduce supply? • Nursing shortage projected to grow to 260,000 RNs by 2025

Source: Alliance for Health Reform, 2011

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What other health professionals may be needed?

• Physical/occupational therapists • Pharmacists • Medical technologists • Clinical psychologists • Dieticians • Rehabilitation counselors • Medical coders • Health information technicians

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Impact on Academic Medical Centers (AMC) • Costs for post-graduate medical training programs are rapidly

escalating due to: – Escalating stipends for trainees – Increased salary demands of faculty – Additional resources needed to meet increased regulatory requirements

• Even with these growing costs, some AMCs continue to expand residency programs despite a 15 year freeze on federal support for residency training positions

• However, training programs will no longer be able to fund these additional slots because of reimbursement changes

• With a looming physician shortage, AMCs will have extreme difficulty meeting the growing demand for primary care doctors and specialists

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The Supremes

After several rulings and appeals at the Federal Court level, the Supreme Court of the United States heard oral arguments from March 26-28, 2012 and issued its opinion on June 28, 2012

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The Four Questions Before the Supreme Court

1. Anti-Injunction Act – Does the Anti-Injunction Act require that the Supreme Court wait to render a

decision on the case until after a tax was actually levied?

2. Constitutionality of Individual Mandate – Is  the  individual  mandate  constitutional  under  Congress’  authority  to  regulate  

interstate commerce?

3. Constitutionality of Medicaid Expansion – Is it constitutional to compel states to participate in the Medicaid expansion

by threatening to remove existing federal Medicaid funds if they do not participate in the expansion?

4. Severability – If the individual mandate is not deemed constitutional, is this provision

severable from the rest of PPACA, or should the entire bill be struck down?

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The Opinion of the Court 1. Anti-Injunction Act – NOT APPLICABLE

– The Supreme Court declined to apply the Anti-Injunction Act and wait to hear arguments until taxes are actually levied in 2014

2. Constitutionality of Individual Mandate – UPHELD – The Court did not uphold that the individual mandate was justified

under the Commerce Clause because it compels new commercial activity rather than regulate existing commercial activity

– However, the Supreme Court defined the individual mandate as a tax  and  deemed  this  provision  constitutional  based  on  Congress’  power to levy and collect taxes

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The Opinion of the Court 3. Constitutionality of Medicaid Expansion – UPHELD WITH

LIMITATION – The Court deemed the Medicaid expansion constitutional with the

stipulation that the federal government cannot withhold existing Medicaid funding from states if they choose not to participate in the expansion

4. Severability – NOT ADDRESSED – The individual mandate was upheld, so the question of whether the

rest of the law remains constitutional was no longer relevant

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What does the ruling mean? • Implementation of PPACA Continues – States must continue developing Health Insurance Exchanges – Hospitals, Health Systems, and Physicians must prepare for influx of newly covered

lives into the health delivery system and the financial ramifications of PPACA

• States can opt out of the Medicaid expansion – This  curtails  the  legislation’s  intent  of  extending  health  insurance  coverage  to  32  

million individuals – In states that opt out, some individuals between 100%-133% of federal poverty

level may be eligible for federal subsidies to purchase insurance through exchanges – However, individuals below 100% of the federal poverty level are not eligible for

these subsidies – Most  individuals  under  133%  of  the  federal  poverty  level  will  avoid  paying  “tax”  

penalty due to affordability exemption

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Policy Issues for State Medicaid Expansion Opt In • Long-term cost • Long-term support (Workforce, etc.) • Long-term benefits of reduced uninsured population

Opt Out • Cost of larger uninsured population • Federal leverage – What sticks still remain? • Lost dollars to state • Tax exportation

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Stay Tuned

• What we don’t  know • Critical disconnects • What is happening in spite of reform

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What  About  What  We  Don’t  Know?

The  Secretary  Shall…

Source: Congressional Quarterly Weekly, 4/5/10

He  Wasn’t  Discussing  Reform,  But… “There  are  things  we  

know that we know. There are known unknowns. That is to say there are things that we now know we don't know. But there are also unknown unknowns. There are things we do not know we don't know.”  D. Rumsfeld

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Critical Disconnects

• Cost estimates?

• Economic impact

• Employer reaction to exchanges

• Access to providers

• Graduate medical / other Education

• Implementation unknowns

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Other Critical Disconnects • Payment alignment with delivery goals • Regulatory barriers to new delivery models • Tort reform • Medicaid/Medicare requirements / provider cuts

/ Disproportionate Share Hospital payments • Undocumented foreign nationals • Personal responsibility • And  more…

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Dealing with the Disconnects • Health reform is a fluid process

– Officials at the federal and state level will continue to tweak provisions of the law on a yearly basis

– New legislation will be passed incrementally to resolve the disconnects and improve the overall health care system

• Health provider community must inform this fluid process – Hospital executives, physicians, nurses, and other health

professionals must advocate for necessary changes – Input from these experts will inform the policy process and help

tie up the loose ends of PPACA

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Ongoing efforts, even before (in spite of) reform

• Quality improvement • Increased safety • Greater efficiency • More transparency • Coordinated care • Healthier populations • Integrated providers

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The Great Unknown