The Effects of Healthcare Reform on the Healthcare Industry

Since President Obama signed the Affordable Health Care Reform Act on March 23, all Americans, but especially professionals in the healthcare industry, have been wondering: “How will this affect me?” While the specific changes to be imposed by this bill are still being hammered out, one thing is certain: Healthcare is intended to be available and accessible for every American, regardless of income and pre-existing conditions, and more than 30 million people who are currently uninsured will have access to insurance coverage.

Insurance has been the major headline topic associated with healthcare reform, but many additional items of importance are included in the bill that will help improve the quality of healthcare. Some of the expected highlights in both the near and not-too-distant future as the changes are implemented are covered in this article. For instance, how will changes to insurance coverage and reporting be impacted? How might hospital funding be altered? What compliance changes might be needed? And, what changes will occur in the biopharmaceuticals marketplace?

Effects of Reform on Insurance Coverage

A variety of insurance coverage changes are part of the Health Care Reform Act. The Office of Consumer Information and Insurance Oversight (OCIIO) under the Department of Health and Human Services (HHS) is ensuring proper implementation of the new market rules recommended by the National Association of Insurance Commissioners (NAIC), which took effect in September. These rules include medical loss ratios, quality care improvements, ensuring affordable rates and assisting with the implementation of state insurance exchanges.

In July, the government launched a new web portal (www.healthcare.gov) with insurance and participating provider information. The portal’s first educational phase allows consumers to compare insurance programs, find out what is covered and locate network providers. (Those with Medicare are referred to the existing Medicaid website.) The portal also lists information about Medicare and the Children’s Health Insurance Program (CHIP), such as eligibility and a summary of available programs in each state. Information about eligibility requirements, coverage limitations and premium descriptions of state-based high-risk pools, which provide insurance to those with pre-existing conditions who are not presently insured, also is included. However, states are not required to provide high-risk pools, and in those cases, HHS will provide coverage. The next phase of web portal implementation, scheduled to take place in October, will present more detailed information about private insurance options, including cost and functionality comparisons, as well as more information about Medicaid and CHIP.

While patients are presently required to purchase either public or private insurance (or pay a penalty for not doing so), providers are not required to continue seeing existing patients or to take on new patients through the public insurance exchanges. However, there are incentives to encourage doctors to accept new Medicare patients, one of which is a 10 percent Medicare primary care and insurance bonus for underserved areas between 2011 and 2015. If their charges for nursing, home and office visits comprise at least 60 percent of total Medicare charges, family practice physicians and those specializing in pediatrics, geriatrics and internal medicine will receive a 10 percent bonus for those services between 2011-2016.¹

A reduced Medicare payment structure, which was supposed to take place June 1, was put on hold temporarily with the signing of the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010. This act provides a 2.2 percent increase in Medicare payments retroactive from June 1 through Nov. 30, 2010.And,Congress is continuing to work on legislation to “fix” Medicare, which is anticipated to cost about $6.5 billion.²

For 2010, Medicare re-established the “floor” for physician payment geographic differentials, which had expired in 2009. In 2011, the practice expense adjustment will be increased to the national average in Wyoming, Montana, North and South Dakota and Utah. According to the American Medical Association, physicians in 50 states, Puerto Rico and the Virgin Islands will benefit from this adjustment.¹

Medicare’s Physician Quality Reporting Initiative (PQRI) incentive payments have been extended through 2014. These payments will be 1 percent in 2011 and 0.5 percent from 2012 to 2014. Also, physicians who participate in a maintenance certification program will receive an additional 0.5 percent bonus. However, beginning in 2015, physicians who do not participate in the PQRI program will be penalized at a rate of 1.5 percent in 2015 and 2 percent thereafter.¹

Medicaid primary care payment rates will be boosted to match the Medicare rates in 2013 and 2014, and the federal government will cover the entire cost of new Medicaid enrollees from 2014 to 2016. States are encouraged to provide Medicaid insurance to low-income adults who have incomes up to 133 percent below the federal poverty level, or equaling $14,400 for an individual in 2010.Also, primary care physician bonuses for those who accept both Medicare and Medicaid are anticipated, with a new care delivery model that will boost quality and efficiency while maximizing the physician workforce.³

There are some problems associated with the changes in Medicare and Medicaid. Critics say that just two years of Medicaid pay increases will not be sufficient to solve the problem of an influx of new patients with fewer physicians willing to care for them. Poll results were nearly evenly split when primary care physicians were asked if they would see new Medicaid patients if rates were raised to those of Medicare; however, 81 percent said they would take new Medicaid patients if the rates were raised to those of private insurance.⁴

Two other important changes due to healthcare reform are now in effect. First, a pre-existing condition insurance program (PCIP) has been established for those who have been unable to get insurance for six months or more due to a preexisting condition. Second, self-insured group health plans are now required to provide external appeals of an independent third-party reviewer of claim denials related to medical necessity, not just internal review as was previously the case. Fully insured plans regulated by states have long been required to provide external review.

Effects of Reform on Physicians

Physicians also will be affected by healthcare reform. Definitions and methodologies for determining what constitutes clinical services, quality improvement and other non-claims costs for carrying out the medical loss ratio provision will be spelled out by the NAIC. In the meantime, the debate continues on how to translate this new law into detailed rules, and what constitutes quality care and a minimum standard of clinical services.

More concrete, however, is the expectation that physicians will see improved revenue streams and lower overhead from insurance companies. New national rules for this revenue stream are in development and will be implemented between 2013 and 2016. There also is the expectation that paperwork will be simplified.

Doctors who participate in state-based exchange-funded insurance programs also can expect closer scrutiny and greater requirements for compliance under the new healthcare reform law, as well as the False Claims Act enacted in 2009. The Health Care Reform Act requires the development and maintenance of a compliance program in order to participate in state-based exchanges, and the HHS together with its Office of Inspector General (HHS-OIG) will establish the program requirements, along with the timeline for implementation. Previously, compliance guidance provided by HHS-OIG had not been mandatory.

Compliance requirements include written standards and procedures for the office, as well as training and monitoring programs of compliance-related issues. Those who report potential violations of the requirements can remain anonymous, and disciplinary actions must be clearly defined for violators. More information on compliance can be found at the HHS-OIG website at oig.hhs.gov/fraud/complianceguidance.asp.In addition, a helpful checklist and excerpt from a keynote address delivered by Daniel R. Levinson, Inspector General for the Department of Health and Human Services, at the Health Care Compliance Association’s Annual Compliance Institute on April 19, can be found at oig.hhs.gov/testimony/docs/Qs_for_compliance _professionals.pdf.

The establishment of electronic health records (EHR) also is part of healthcare reform. The Health Information Technology for Economic and Clinical Health Act (HITECH Act) alloted nearly $80 million for the adoption and use of health information technology (HIT). 5 The “certified EHR technology” that qualifies for financial incentives must meet the criteria established by the Office of the National Coordinator for Health Information (ONC) and must be used in a “meaningful” way, as defined by the Centers for Medicare and Medicaid Services (CMS). However, many critical comments of an earlier draft said the “meaningful use” requirements were too severe and “all or nothing,” which has resulted in a three-staged approach for implementation of meaningful use.

In stage I, the capturing of health information into a structured format that allows for tracking of conditions and the communication of care is required. In this stage, the establishment of functionalities that will allow for future improvements is stressed. In stage II, a more rigorous exchange of health information in the “most structured format possible,” such as the use of computerized provider order entry (CPOE) and the electronic transmission of diagnostic testing results are required. More rigorous electronic prescribing and laboratory testing are expected. Stage III will focus on quality improvements of the systems. CMS admits in its final ruling that the requirements for meaningful use are “ambitious” with the current state of technology and standards of care, but it anticipates that the evolution of improvements will keep pace.⁶

Incentives to providers for a Medicare fee-for-service program who demonstrate the use of certified EHRs in a meaningful way will be paid out beginning in 2011. Those who have not demonstrated a meaningful use of certified EHR technology by 2015 will receive only 99 percent of their fees for professional services. And, the percentage will be reduced by 1 percent each year thereafter that meaningful use is not demonstrated. Similar incentives and penalties also will be imposed on hospitals that do not demonstrate meaningful use.

Providers receiving Medicaid payments must demonstrate meaningful use by 2016 in order to receive any incentive payments in 2017, and they also must meet the criteria each year after 2016 to continue eligibility to receive incentive payments. The same is true for Medicaid-eligible hospitals. Participation in a Medicare Fee-for-Service and Medicaid Advantage programs cannot receive duplicate incentives where meaningful use of EHRs are concerned. However, should a provider leave one practice for another, they can continue to receive payments as long as they maintain meaningful use of a certified EHR.

Effects of Reform on Hospitals

Because there is concern that doctor-owned hospitals may choose healthier patients over unhealthy ones, the new law prohibits new physician-owned hospitals from participating in Medicare and it limits the expansions of existing doctor-owned hospitals. The goal is to prevent any suggestion of impropriety or conflict of interest. According to the American Medical Association’s David Glendinning, “Advocates of the hospitals say the provision is a poison pill for their industry and will decrease patients’ options for specialized, high-quality care.”³

Another new change amends the “in-office ancillary service” exception to the federal Stark Law, which governs physician self-referral for Medicare and Medicaid patients. This amendment requires physician-owned hospitals that refer patients for MRI, CT and PET services within the doctor’s group to provide a list of alternative provider locations in the area as well.⁷

Yet another change involves pricing. While 41 states require hospitals to report their charges publicly, three separate pieces of legislation promoting transparency propose that hospitals and physicians disclose their prices, and one piece of legislation even proposes the disclosure of wholesale and retail prices for services and products. Because some states already require prescription drug information be public, if this legislation is approved, insurance providers also will be required to list all payments and copays (some companies already do this for common procedures).

However, critics argue that price and quality cannot be separated. That being said, without a good measurement of quality in healthcare, it is difficult for patients to differentiate services and providers. The real key to transparency, critics argue, is linking quality and fees. The CMS already posts Medicare rates and quality information for 35 procedures.⁸

Effects of Reform on Biopharmaceuticals

Many individual market insurance plans previously did not offer pharmaceutical coverage. However, the essential benefits package in the new healthcare plan stipulates that all fully insured plans must include pharmaceutical coverage. Yet, there does not appear to be any special insurance provisions for patients who rely on high-cost plasma medications, because all carriers will be required to accept these individuals, spreading their risk over the broader population. If these treatments are included in the essential benefits package, then all policyholders would have access to coverage of these treatments.

The healthcare reform law did give a boost to small biomedical firms with the congressional approval of the Therapeutic Discovery Tax Credit. This tax credit awards firms in support of new research and the creation of new therapies that target unmet medical needs, while advancing the goal of curing cancer and creating greater competitiveness for the U.S. in the international biomedical marketplace. The credit is worth up to $5 billion per firm, or up to 50 percent of the qualifying investment. Companies that are awarded the tax credit also may choose to receive a grant in lieu of the tax credit. The application period ended July 21 and the announcement of firms awarded the credit are expected to be announced in October.

Navigating Healthcare Reform

Healthcare reform will continue to be an evolving topic as policies and procedures are determined and the deadline for requirements fall into place. Through diligence in planning and preparation for the necessary changes, those in the healthcare industry will be better able to navigate the changing healthcare requirements.