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Revisiting the key components of the Affordable Care Act

November 27th, 2012

by Jonathan H. Burroughs

Since the U.S. Supreme Court's landmark decision in June and Obama's re-election this month, it is clear, that for at least the next four years, the provisions of the Patient Protection and Affordable Care Act will stand with the exception of the mandate to expand Medicaid to 133 percent of the federal poverty level (FPL) in 2014.

This article outlines the fundamental components of the ACA and the affect they will likely have over the next four years.

I. Insurance Reform

At the heart of this law is insurance reform as, of all the industrialized nations, we have the largest private sector third-party coverage of any healthcare system in the world. This is a historic federalism versus state rights conflict that has defined our nation throughout our entire history and continues to divide us politically, as evidenced in the recent presidential election.


The key components of insurance reform include:

  • Mandate all individuals without qualifying healthcare coverage to purchase insurance with a penalty by 2016 of $695/year or 2.5 percent of household income.
  • Optional expansion of Medicaid by 2014 to 133 percent of FPL with the right of states to opt out without penalty. Federal government will provide 100 percent support that decreases to 90 percent support by 2020.
  • Prohibit insurance carriers from restricting access to coverage based upon pre-existing conditions, healthcare status and gender.
  • Establish state health insurance exchanges by 2014 (rules still pending), through which individuals and small business can purchase health insurance in a more transparent and comparative way.
  • Create consumer operated and oriented plans (CO-Ops), which are member-run health insurance companies licensed by their states to ensure greater access of affordable healthcare coverage by channeling profits to lower premiums, improve benefits and improve the quality of care delivered to its beneficiaries.
  • Create small business health options program (SHOP) exchanges administered by a government or non-profit agency through which individuals and small businesses with up to 100 employees may purchase healthcare coverage.
  • Require each state-run exchange to offer at least two multi-state plans to ensure intra-state competition.
  • Provide premium tax credits and cost savings for Americans to purchase healthcare insurance on a sliding scale up to 400 percent of the FPL.
  • Provide reinsurance support for employers who offer retirees between the ages of 55 and 64 affordable health insurance coverage.
  • Permit states to offer a basic health plan for uninsured individuals with incomes between 133 percent and 200 percent of the FPL.
  • Create a temporary national high-risk pool to provide health insurance coverage to individuals with pre-existing medical conditions for individuals who have been uninsured for at least six months.
  • Permit audit by state insurance commission and U.S. Department of Health & Human Services personnel of insurance carriers that request significant premium increases.

II. Quality Improvement

Utilizing World Health Organization (WHO) or Commonwealth Fund data, the United States has quality metrics that average 37th in the world. This is because our traditional fee-for-service payment methodology does not provide adequate reimbursement for preventive or ambulatory services and over-emphasizes procedures and ancillary testing provided in an inpatient setting.

Thus, we rank high in many critical care and surgical services, but rank low in overall morbidity and mortality rates due our lack of comprehensive horizontally integrated healthcare services that extend far beyond our hospital borders. Parts of the ACA seek to address the quality aspects of this deficit by the following:

  • Support patient safety organizations by providing grants to organizations that demonstrate reduced medical error.
  • Five-year demonstration grants to implement tort reform and reduce defensive testing, which cost Americans >$300 billion/year.
  • Partner with the National Quality Forum and the Agency for Healthcare Research and Quality to create a national quality improvement strategy to improve healthcare outcomes, healthcare delivery and population health.
  • Develop additional quality metrics to be utilized in future pay-for-value reimbursement methodologies.
  • Increase primary care reimbursement by 2014 to 100 percent Medicare rates to support better ambulatory and preventive care.
  • Invest in community health centers to ensure improved access.
  • Provide free preventive screening (with no deductible or co-payment) evaluations for Medicare and Medicaid beneficiaries.
  • Provide support for improved care of seniors with chronic medical conditions, such as diabetes or hypertension.
  • Promote preventive health screenings at all ages.
  • Add residency and training positions for primary care and mid-level practitioner training programs and reduce the number of slots for specialty and sub-specialty training programs.
  • Invest in the National Health Service Corps and loan repayment programs to expand the number of qualified healthcare personnel.
  • Expand patient-centered outcomes research.
  • Establish Community Living Assistance Services and Support (CLASS) to enable individuals with chronic disabilities to remain in their homes and communities longer.
  • Fill the Medicare Prescription Drug (Medicare Part D) "donut hole" to ensure better compliance with evidence-based recommendations.
  • Maintain funding the for Children's Health Insurance Program (CHIP) through at least 2015.
  • Establish a regulatory pathway for Federal Drug Administration consideration of bio-similar versions of previously licensed biologic products.
  • Require greater transparency and oversight of skilled nursing facilities to promote comparative quality and cost data.

III. Payment Cuts

We spend approximately 18.4 percent of our gross domestic product (GDP) on healthcare, which is almost double that of any other industrialized nation. Part A of the Medicare Trust Fund is due to go bankrupt in 2017. Thus, the following cuts are included in the ACA:

  • Reduce market basket updates for productivity reimbursement by $112.6 billion over the 10-year period (2010-2019).
  • Reduce Medicare disproportionate share hospital (DSH) payments by $22.1 billion over 10 years beginning in 2014.
  • Increase Medicare payroll taxes from 2.9 percent to 3.8 percent (shared between employer and employee).
  • Create Independent Payment Advisory Board to reduce Medicare reimbursement by at least $14.7 billion over the next 10 years.
  • Reduce medical and surgical specialty reimbursement by 6 percent a year over the next three years.
  • Reduce over-payment to Medicare Advantage Plans (Medicare Part C) by up to 14 percent on average.
  • Crack down on fraud, abuse, and waste by expanding federal support for healthcare recovery auditors (RACs).
  • Implement a fee on carriers that offer high-cost health insurance plans by 2018 to encourage the creation of more cost-effective plans.
  • Increase user fees for durable medical equipment and medical device companies.
  • Increase tax penalties on non-qualified distributions of healthcare savings accounts (HSAs) and capping federal savings account (FSA) contributions to $2,500 in 2013.
  • Increase penalty for failure to report hospital quality data to 2 percent of annual payment update.
  • Increase penalty for hospital-acquired conditions to 1 percent of Medicare/Medicaid reimbursement by 2015.
  • Increase penalty for failure to meet core/patient safety measures and Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey scores to 2 percent of Medicare/Medicaid reimbursement by 2016.
  • Increase penalty for preventable readmissions to 3 percent of Medicare/Medicaid reimbursement by 2016.
  • Increase penalty for failure to satisfy meaningful use criteria to 5 percent of Medicare/Medicaid reimbursement by 2018.

IV. Healthcare Reform

The need to offer higher healthcare quality and service at lower costs requires incentives for innovative delivery systems and new ways of working with fewer resources. Thus, the ACA encourages the following innovative models through the creation of "shared savings" programs that reward organizations that achieve pre-defined quality metrics at lower costs and other pay-for-value reimbursement methodologies:

  • Accountable care organizations (ACOs) to provide coverage for at least 5,000 Medicare beneficiaries through a more integrated delivery system to create at-risk payments based upon shared savings or shared losses.
  • Patient-centered medical homes (PCMHs) to provide more horizontally integrated primary care by utilizing nurse navigators, patient registries, home health services and telemonitoring techniques to reduce preventable readmissions and overall costs.
  • Bundled-payment programs (e.g., orthopedics and cardiology acute care episode) to create incentives to provide capitated reimbursement (cost per covered life per month) for a defined bundled service.
  • Transition Medicare/Medicaid reimbursement from pay-for-volume to pay-for-value methodology that will combine a base capitated payment with incentives for higher quality/safety/service and lower costs.

The ACA is a complex law that combines systemic, payment and insurance reforms with a greater focus on optimizing quality and reducing costs. Its complexity is magnified by the incremental ways in which the law takes effect each year, subject to administrative regulations by HHS and the inevitable political winds that pit those for and against public versus private markets and federal versus state control to either accelerate or decelerate the implementation process.

Either way, healthcare is both an economic and quality challenge in the guise of a political conflict that must be addressed over the coming decade through both the ACA and the subsequent healthcare reform laws that follow.

Jonathan H. Burroughs, MD, MBA, FACHE, FACPE is a certified physician executive and a fellow of the American College of Physician Executives. He is president and CEO of The Burroughs Healthcare Consulting Network and works with some of the nation's top healthcare consulting organizations to provide "best practice" solutions and training to healthcare organizations.


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