Health Reform Update - Provider Impact

Health Reform Update

 The third installment of our health reform series focuses on the impact upon health care providers of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (referred to together herein as “PPACA”).

 Health Reform Update – Provider Impact

 The healthcare reform package is composed of two parts, (1) Public Law 111-148 known as the Patient Protection and Affordable Care Act (the "Reform Act") and (2) the House's proposed changes to the Senate bill in Public Law 111-152, known as the Health Care and Education Affordability Reconciliation Act (the "Reconciliation Act") (referred to together herein as "PPACA").  PPACA is projected to provide health insurance coverage to thirty-two (32) million people at an estimated cost of $940 billion over ten years.  In doing so, PPACA will have a vast impact on patients, insurance companies, and health care providers.  PPACA greatly enhanced the fraud and anti-trust laws applicable to health care providers. Those changes will be summarized in a later edition to this whitepaper. Instead, this edition will focus upon measures designed to increase quality and reduce cost under the Medicare and Medicaid programs. These changes will affect health care providers in a variety of ways. A summary of the major changes affecting hospitals and physicians follows.  

A. HOSPITAL IMPACTS

1. Physician Ownership of Hospitals  

PPACA limits the physician ownership of hospitals. The development of new physician-owned hospitals, as well as the expansion of existing ones is targeted under the Stark law by PPACA. Under Stark law, a physician may presently make a referral to a hospital in which he or she has an ownership interest only if the whole hospital exception to Stark is met. PPACA eliminates the whole hospital exception for any physician-owned hospital that does not have a Medicare provider agreement in place on or before December 31, 2010. Additionally, the percentage of physician ownership may not increase for any existing physician-owned hospital, nor may such a facility engage in any expansion in number of operating rooms, procedure rooms, and beds. Physicians will be prohibited by this revised Stark law from referring to a physician-owned hospital in which they have an ownership interest unless the above grandfathering provisions are met.  

2. Accountable Care Organizations 

PPACA shifts the payment trend from payments tied to productivity to incentivizing payment for improving the coordination, quality, and efficiency of health care services. Accountable Care Organizations (ACOs) are one mechanism to achieve this. ACOs seek to control costs and improve quality by making incentive payments to multi-provider integrated delivery systems that meet cost and quality targets. The ACO payment mechanisms are intended to tie incentive provider payments to quality, outcomes, and resource utilization. By January 1, 2012, the Secretary of the Department of Health and Human Services (HHS) must establish a shared savings program for ACOs that will promote accountability for a patient population and coordinate items and services under Medicare A and B.  

To participate in the shared savings program, ACOs must (1) establish a mechanism for shared governance and a formal legal structure; (2) agree to become accountable for quality, cost, and overall care of Medicare fee-for-service beneficiaries assigned to it; and (3) establish clinical and administrative systems promoting evidence-based medicine and patient-centeredness. Providers who participate in an ACO will continue to receive payment under the Medicare fee-for-service program, but will also be eligible to receive incentive payments for shared savings if the ACO meets quality performance standards to be established by the Secretary. 

3. Payment Bundling Pilot 

By January 1, 2013, the Secretary must develop a national, voluntary pilot program to encourage hospitals, doctors, and post-acute care providers to improve patient care and achieve savings for the Medicare program through bundled payment models. The Secretary and the Agency for Healthcare Research and Quality will develop quality measures for the program which is to last for five years, with the potential to expand the program if doing so will improve patient care and reduce spending. 

Entities entitled to participate in the pilot program are those composed of service providers and suppliers, including a hospital, a physician group, a skilled nursing facility, and a home health agency. Payment bundling is the idea that payment should be tied to an entire episode of care instead of separate payments to a particular facility and another to a particular physician. The program will include payment for furnishing the applicable service and other appropriate services such as care coordination, medication reconciliation, discharge planning, transitional care services, and other patient-centered activities as determined by the Secretary.  

4. DSH Payments 

Funding for the Medicaid Disproportionate Share (DSH) Hospital program will be reduced by $17.1 billion between 2014 and 2020. Changes to the DSH payments must reflect a hospital’s cost for uncompensated care. Because the number of uninsured individuals is expected to decrease substantially as a result of PPACA, hospital DSH payments will be reduced to reflect the expected reduction in uncompensated care costs relative to an increase in insured patients.  

The Secretary must determine the best way to implement the cuts in a way that will target states that direct the lowest percentage of DSH allotments to hospitals with high volumes of uninsured and Medicaid inpatients. The 16 states considered “low DSH states” will be reduced by 25%, and all other states will be reduced by 50%. 

5. Value-Based Purchasing Program 

Beginning on or after October 1, 2012, any hospital that meets specific performance-based standards will receive a Medicare value-based purchasing incentive payment. Under this program, a percentage of a hospital’s Medicare payment will be tied to the hospital’s performance based on quality measures related to common and high-cost conditions. Initially, these incentives will be based at least five conditions or procedures including (1) acute myocardial infarction, (2) heart failure, (3) pneumonia, (4) surgeries, and (5) healthcare-associated infections. In 2014, the performance measures will also include efficiency measures, such as Medicare spending per beneficiary.  

Hospitals will be given a performance score, assessing their total performance, and Hospitals that achieve the highest hospital performance scores will receive the largest value-based incentive payments. The value-based incentive payments will be funded by reducing the base DRG payment for all hospitals in a given fiscal year for each discharge by the applicable percentage. The applicable percentage will be 1% in 2013, 1.25% in 2014, 1.5% in 2015, 1.75% in 2016, and 2% in 2017 and succeeding years. Hospitals may be excluded from the value-based program for failure to report quality data, citations for deficiencies posing an immediate threat to health or safety of patients, and not achieving a minimum number of measures or cases for the performance period. 

6. Hospital Readmission Reduction Program 

Medicare payment for preventable hospital readmissions will be reduced beginning in 2012. Medicare inpatient hospital payments will be reduced on a dollar value basis for each hospital’s percentage of preventable Medicare readmissions measures: heart attack, heart failure, and pneumonia. In 2015, the program will expand to include acute myocardial infarction coronary artery bypass graft, percutaneous transluminal coronary angioplasty, and vascular issues, in addition to others recommended by the Secretary.

 7. Payment Adjustment for Conditions Acquired in Hospitals 

Beginning in 2015, hospitals will be subject to a one percent Medicare payment penalty if they fall within the top twenty-five percent for hospital-acquired conditions determined by a risk-adjusted national average. Before the penalties begin in 2015, the Secretary will provide hospitals with confidential reports regarding their hospital-acquired conditions experience during the applicable period. Information related to hospital-acquired conditions will be available to the public through the Hospital Compare Internet website. 

8. Reduction in Market Basket Update 

The annual Market Basket updates for inpatient hospital services will be reduced, effective immediately. In 2012, these reductions will be further increased by the insertion of a "productivity adjustment," designed to recognize productivity increases in the health care industry over time. The result is that this combination of reductions may result in an annual reduction of less than zero – meaning that payment rates for a given year may actually be less than in the preceding year.  

B. PHYSICIAN IMPACTS 

1. Primary Care Incentives 

PPACA’s insurance mandates hugely increase the number of individuals able to seek health care, which will result in an increased need for primary care providers. To address this need, in calendar years 2011 to 2015, PPACA creates two physician incentive payments to encourage practitioners to enter or remain in the practice of primary care and encourage general surgeons to practice in health shortage areas. Primary care practitioners, who provide “primary care services” as defined in the HCPCS codes, will receive a monthly or quarterly bonus equal to ten percent (10%) of the Medicare rate otherwise paid for such services. In addition, general surgeons who perform major surgical procedures in a designated health shortage area will receive the same incentive for surgery.  

2. In-Office Referral Disclosures

Effective January 1, 2010, PPACA established additional requirements that physicians must meet to qualify for the in-office ancillary services exception to the Stark law for imaging services. The imaging services affected by this change include magnetic resonance imaging, computed tomography, positron emission tomography, and other radiology services designated by the Secretary. Physicians must meet two additional requirements at the time of referral to rely on this exception: (1) the referring physician must provide the patient with written notification that the patient may obtain the services from another provider and (2) the referring physician must provide the patient with a written list of alternative suppliers of that imaging service in the area where the patient resides.

3. Improvements to the Physician Quality Reporting Initiative 

The Physician Quality Reporting Initiative (“PQRI”) is extended until 2014. Physicians who report quality data to Medicare will continue to receive bonus payments through 2014, with bonus levels set at 1% in 2011 and 0.5% in 2012-2014. Beginning in 2014, eligible professionals who do not satisfactorily submit quality information will be subject to a penalty, resulting in reduced rates in 2015. The payment penalty will be equal to 1.5% in 2015, and will increase to 2% in 2016 and subsequent years. Medicare will continue and expand the Physician Feedback Program under which the Secretary uses Medicare claims data to provide physicians with confidential reports regarding their resource use in treating Medicare patients.

4. Health Team/Medical Home Demonstration Project 

PPACA requires the Secretary to establish a program to provide grants to states to facilitate the creation of health teams with a medical home for Medicaid recipients. Health teams must include interdisciplinary, interprofessional team of providers; support patient-centered medical homes; collaborate with local primary care providers to coordinate disease prevention, chronic disease management, transitioning between health care settings, and case management; demonstrate the ability to implement and maintain health information technology to facilitate care among members of the health team; and provide other support necessary for primary care providers to improve quality of care. Grant recipients must present a plan for achieving long-term financial sustainability within three (3) years, and must report various activities to the Secretary. 

5. Value-Based Payment Modifier Under the Physician Fee Schedule 

Medicare payments to physicians and physician groups will be subject to a payment modifier based on the quality and cost of care. Beginning in 2015, the Medicare fee schedule payments will be adjusted based on quality of care furnished compared to costs during a given performance period. The Secretary must publish the specific cost and quality measures by January 1, 2012, and begin implementing the payment modifier though the 2013 physician fee schedule rulemaking process. 

6. Reduction in Technical Component Reimbursement for Certain Imaging Services  

Effective immediately, PPACA calls for changes in the methodology used to calculate Medicaid Part B reimbursement for the technical component of advanced imaging services, including CT and MRI. However, certain low tech imaging, such as ultrasound, x-rays, and electrocardiograms are excluded from this adjustment. 

7. ACOs and Payment Bundling 

Like hospitals, physicians may participate in Accountable Care Organizations ("ACOs") and in bundled payment pilot projects, both of which are described above. 

C. SYSTEMIC IMPACTS 

Last, but certainly not least, is the creation of a new Independent Payment Advisory Board ("IPAB"). This new agency is empowered to recommend reimbursement changes for various segments of the health care industry beginning in 2015. These recommendations are required to be given expedited, fast-track consideration by the Congress, which will have limited options to countermand the IPAB's recommendations. The purpose of the IPAB is ultimately to reduce the per capita rate of growth of Medicare spending if such spending exceeds a targeted growth rate. The IPAB is perhaps the most far-reaching cost control mechanism in PPACA, and may represent a first step towards the implementation of a national health care budget. 

As described in this Alert, PPACA will have a wide-ranging impact on providers. This Alert is intended to summarize how you and your business will be affected.  

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