An in-depth look at how the Affordable Care Act will attempt to cut $1 trillion over the next two decades, and how it will present both obstacles and opportunity for emergency medicine.
It is now widely accepted that the projected spending curves for Medicare are not sustainable. According to a recent White House briefing, the Medicare Trustees have estimated that the trust fund will be exhausted by 2024. Since most of Medicare spending is borrowed, discussions of our rising national debt are becoming, to a large degree, simply a reflection of the same issue, Medicare and Medicaid spending. Simply put, every dollar spent on Medicare above revenues from the program requires more borrowing, and the interest on the borrowed money just keep digging a deeper and deeper deficit hole.
What’s happened so far…
The Affordable Care Act (ACA) purports to trim $200 billion from the national deficit over the next ten years and over $1 trillion in the following decade, but fails to address the failed Sustainable Growth Rate (SGR) formula that calls for a 29.4% reduction in physician reimbursement. Furthermore, the law’s constitutionality has been challenged in many states and U.S. District Courts. The question of whether the individual mandate component of PPACA is constitutional will likely be taken up by the U.S. Supreme Court with a decision by the court sometime next spring.
Despite the reduction in Medicare spending and “savings” projected under PPACA, the United States is still projected to create a deficit of an additional nearly 7 trillion dollars by 2020. It is no surprise then that the administration is proposing additional reductions in Medicare spending, albeit without the media hype and scrutiny of the healthcare reform process.
What’s happening next?
The President has proposed a deficit reduction bill that aims to trim an additional $320 billion from Medicare and Medicaid spending. The White House claims that these are “modest adjustments to strengthen Medicare and Medicaid in a way that does not undermine the fundamental compact they represent to our Nation’s seniors, children, people with disabilities, and low-income families.” These “adjustments” cut $248 billion from Medicare and another $72 billion from Medicaid. (See page 25 for the 38 health savings provisions). Unfortunately, the White House admits that all these savings will only lengthen the lifespan of Medicare by three years.
How much will you pay?
The President has pledged that there will be no cuts in services that are not matched by tax increases on the “wealthiest Americans.” And while very few emergency physicians are counted among the lists of millionaires, most, if not all, will be affected by the tax increases. How much more will you pay?
The ACA increases the employee portion of Medicare tax by 0.9% on all income over $200,000 by a single physician. Since the rate is not indexed to inflation, an annual inflation rate of 2% would make this threshold equivalent to $188,000 in today’s money by the time the law becomes effective in 2013. A typical calculation for a single physician making $250,000 would increase his/her taxes $450/year. There is also a new tax of 3.8% on investment income. In this scenario, a mid career EP with a $500,000 investment portfolio that gained 8.5% would owe an additional $1,615 in capital gains taxes. Under current tax law the rate of taxation on capital gains jumped from 15% to 20%. But if the Bush-era tax cuts are allowed to expire, that rate could jump to 39.6%. Looking at that same mid-career physician, his/her capital gains tax could rise $10,582.
In addition to the current programs for reducing Medicare expenditures and raising revenues, the ACA places immense power in the hands of the newly created Independent Payment Advisory Board (IPAB) to limit the growth in Medicare expenditures, including physician reimbursement. Under previous law, changes to Medicare reimbursement rates were recommended by the Medicare Payment Advisory Commission (MedPAC), but required congress to approve. Under sections 3403 and 10320 of the ACA, the IPAB is required to submit to congress recommendations that will keep Medicare costs within certain target levels. Congress is required to vote on the recommendations, with only super majority amendments, or the IPAB recommendations become law. By law the IPAB cannot ration care, raise revenues or increase Medicare premiums, increase Medicare beneficiary cost sharing, or otherwise restrict benefits. In addition to the above restrictions, hospitals and nursing homes are exempt from cuts for the first five years of the program from 2015-2020. By implication, the IPAB is authorized and tasked with lowering physician fees annually, if not overruled by a super majority of congress. The members of the IPAB are appointed by the President, with recommendations from Senate and House leadership. None of the appointees can be practicing physicians. Under PPACA, the IPAB was given the authority to keep Medicare growth under 1% above GDP, however under the President’s proposed Deficit Reduction Plan, this would now be reduced to just 0.5% above GDP.
Who decides how to care for the patient?
In addition to direct cuts in payments for services, there will be more and more emphasis on payments based on “quality” of care provided, under the auspices of the “Value Based Purchasing” mantra. While all of us want better quality of care for our patients, recent programs implemented by Health & Human Services represent a major shift away from physician input on quality and a larger emphasis on the financial bottom line. One such example by CMS is the use of the number of head CTs performed in the atraumatic patient as a measure of quality, irrespective of clinical indications. In the past, CMS was more reliant on the input of non-governmental medical experts, such as the National Quality Forum. But the influence of such bodies is on the wane. Another example is how the state of Washington put an arbitrary cap on the number of non-emergency outpatient visits for Medicaid recipients, and basically ignored the input of medical experts on the definition of an emergency.
Who gets the money?
In the past, as Medicare and Medicaid cut their payments, physicians and hospitals could attempt to make up the difference in negotiating better reimbursements from private insurers. But with private insurers facing 33 million new insured, without the ability to adjust premiums based on previous conditions, while facing the requirement that 85% of their premiums be paid out in reimbursements, it is unlikely that such shifting will be possible.
In addition to competing for fewer dollars (a smaller healthcare dollar pie) while treating more patients, EPs will be competing with other providers for their share of that pie. The implementation of a bundled payment program by CMS will see a single comprehensive payment made to one entity (likely the hospital) for each “episode of care” which will then have to be divided up between the hospital and all physician providers. The average ED visit in 2008 cost $1265, with half of that being the radiologist’s fee. Suppose a bundled fee of 85% of the previous amount or $1,075 was made for an “episode of care” otherwise known as a simple ED visit. If the hospital took half, it could leave the EP and the radiologist to split $536.
How will that work out?
How each EP group does in this bundled payment system will depend on the political and personal clout of the emergency physicians and their group. EPs have not previously been known for their activity at the medical staff level. But that could change. Bundled payments were first introduced by Denton Cooley at the Texas Heart Institute in 1985. The Institute claimed they could do a coronary artery bypass for about one half of what Medicare was paying at that time. Since that time other institutions, such as the Mayo Clinic, have shown that the team approach could save money. Bundled payments forces providers to justify expenditures to other providers who must of necessity give up a portion of their reimbursement. But in every case, the “team” has a leader that determines how the pie is divided. If that person is the hospital CEO, it will become imperative that he/she knows the ED staff and their value to the success of the hospital. It will simply not be possible to do your shift and go home, and expect to be paid appropriately.
This local political savvy will also be needed at the national level. Coalition groups like the Emergency Medicine Action Fund (EMAF) will be working behind the scenes with HHS regulators to shape policy that will hopefully benefit emergency physicians and their patients. It is frustrating to know that so much power over the day-to-day delivery of medical care has been invested in non-physicians. Despite the thousands of pages of legislation of the ACA, much of it is still stated in vague generalities. Over 600 times the law states “The Secretary of Health and Human Services shall...” followed by a general goal. In most cases, the specifics of detail are left to the regulators, the vast majority of whom are not physicians, let alone emergency physicians.
A little reality testing…
All of these efforts to rein in individual medical costs while increasing tax revenues still fail to acknowledge two looming realities. First, by tying the cost of Medicare to the gross domestic product (GDP) instead of services rendered, it ignores the rapid and sustained increase in services that must be rendered as the population increases in size and ages in the foreseeable future. Moreover, it ignores that fact that services rendered might be, at best, the same or increased in a flat or falling GDP.
Kathleen Casey-Kirschling filed for early retirement on October 15th becoming, by virtue of her birth at one second after midnight January 1, 1946, the first of over 80 million baby boomers to retire. While everyone recognizes that Medicare costs are rising in total, many still fail to recognize this as a function of population and not rising fees. In 1950 there were 16 workers paying into Social Security for every one drawing benefits. Now it’s 3.3 to one, and will soon be 2:1.
What else could be done….
Another reality is that expectations of patients, particularly as reflected in medical negligence claims, will likely not change, even as the healthcare system is reformed. Many feel that simple changes in how medical negligence is determined could have huge benefits as it starts to tame the cost of defensive medicine. But others feel that while medical liability reform is desperately needed, it is only one part of an overall effort to trim costs while maintaining quality.
Each player fights for his own turf. The politicians pander to their political base, insurance and drug companies fight to maximize profits, insured patients demand more services for less cost, and physicians struggle to maintain their current compensation – all the while lawyers and the media feed off the carrion. Each party is looking for a single solution to be had at the expense of some other part of the equation.
Clearly, the current system is unsustainable, and everyone in the system won’t be a “winner” as the fundamentals of healthcare delivery evolve over the next decade.
Fundamental changes will have to occur. Insured patients will have to bear a larger responsibility for their health and the cost of their care. To do so they will require reliable sources of information so that they can make informed decisions about what is most cost effective within their desire for health care. Insurance companies will have to compete on a level playing field against the maximum number of competitors to gain the maximum efficiencies. Providers will have to prove to patients, other providers and regulators that their services are effective and cost efficient. The medical tort reform system will need to be improved to reduce the direct legal costs and the cost of defensive medicine.
What to do now….
There should be no delusion that all the changes coming will be easy or simple. Change will come and will create opportunities for emergency physicians to improve our practice and protect our ability to care for our patients. Change must come with engagement of emergency physicians in the process.
While there are several different ways for EPs to make a difference, the two most important will be making a conscious effort to build relationships and a willingness to keep an open mind as to what our role in the overall healthcare delivery system will be in the future. Although it has been said that “all politics is local,” there will be “political” decisions coming at the local, state, and national level over the next few years that will change our practice for decades to come. EPs must “get in the game” and take a leadership role in shaping the future of healthcare delivery. There is no other group of physicians that better understands how the system works – or more importantly how it doesn’t. The future of the emergency medicine depends on us.
What to Expect in the Next year
38 Ways the ACA plans to reduce costs
1) Medicare currently reimburses providers 70% of bad debt. That will reduce to 25% (starting in 2013)
Savings: $10 billion/decade
2) “Better align GME with actual costs of patient care” i.e. pay teaching hospitals 10% less (starting 2013)
Savings: $9 billion/decade
3) “Better align payments to rural providers i.e. no more add ons for remote hospitals starting 2013.
Savings: $2 billion/decade
4) Lower payments to Critical Access Hospitals from 101% of reasonable costs to 100% and eliminate the designation altogether for hospitals within 10 miles of another hospital.
Savings: $4 billion/decade
5) Medicare Payment Advisory Commission has determined that Medicare pays too much for skilled nursing, long term, inpatient rehab and home health. Payments will be gradually “realigned” starting in 2014.
Savings: $32 billion/decade
6) Equalize payments for post acute care for certain conditions ie knee and hip replacement, hip fractures, pulmonary diseases.
Savings: $4 billion/decade
7) Since Intensive Rehab Facilities are compensated at a higher rate, they will have to prove that 75% of the patients, up from 60%, meet the criteria for INF.
Savings: $3 billion/decade
8) Penalize skilled nursing facilities with lower reimbursement for high readmissions.
Savings: $2 billion/decade
9) Currently drug companies rebate to the govt. Medicare would get the same rebate as Medicaid
Savings: $135 billion/decade
10) CMS audits of payments for specified conditions (validation audits) will be extrapolated to the entire Medicare Advantage Contract the following year
Savings: $2.3 billion/decade
11)Reducing improper payments i.e. increasing scrutiny of providers using high risk banking arrangements, allowing civil penalties against providers who do not update enrollment data, create a Medicare claims ordering system to validate physicians orders for certain services.
Savings: $1 billion/decade
12) Penalties for failure to adopt EHR
Savings: $500 million/decade
13) Pay less for advanced imaging. (Beginning 2013)
Savings: $400 million/decade
14) Require prior authorization for advanced imaging
Savings: $900 million/decade
15) Increase premiums by 15% (starting 2017) for up to 24% of recipients
Savings: $20 billion/decade
16) $25 increase in deductible (beginning 2017) for Part B, $25 increase in 2019, and 2021. Current and near retirees excluded
Savings $1 billion/decade
17) Home health copayment of $100/visit for new beneficiarys after 2017
Savings: $400 million/decade
18) Part B premium surcharge for beneficiaries purchasing first dollar Medigap coverage, equal to 15% of Medigap premium; current and near retirees exempt
Savings: $2.5 billion/decade
19) Lower the target growth rate of IPAB mandate from 1% to 0.5%.
20) Reduce the Medicaid provider tax threshold. States tax providers, then use the money to match federal money, thus increasing their return from the feds. This will be gradually eliminated starting at the current 6% and down to 3.5% in 2017.
21) Simplified Medicaid and CHIP matching rate that has automatic increases in recession. (begins 2017)
Savings: $14.9 billion/decade
22) Limited medicaid reimbursement for durable medical equipment (DME) though competitive bidding.
Savings: Medicare program $17 billion/decade; Medicare beneficiaries $11 billion/decade. Medicaid $4.2 billion/decade
23) Get more for Medicaid from third parties such as insured non-custodial parents and liability settlements.
Savings: $1.3 billion/decade
24) Rebase Medicaid Disproportionate Share payments to hospitals serving the poor. Since patients will have insurance, the hospital doesn’t need these supplemental payments. ACA reduces DSH payments by $18.1 billion through 2020.
Savings: $4.1 billion/decade
25) Amend the modified adjusted gross income of patients to reflect total SSI benefits, not just the taxable portion.
Savings: $14.1 billion/decade
26) Require manufacturers to rebate to the govt any amounts that Medicaid covered due to “improper reporting”.
27) Track high prescribers looking for waste, fraud, abuse. Vague.
28) Enforce Medicaid drug rebate agreements through audits.
29) Increase penalties for fraudulent non-compliance with drug rebate programs by manufacturers.
30) Require drugs to be properly listed with the FDA to receive Medicaid coverage. This is already required but inconsistently enforced. This would expand to Medicaid.
31) Prohibit States from using Federal funds to match State share of Medicaid and CHIP.
32) Streamline and coordinate federal oversight of state medicaid programs by alleviating state program integrity reporting.
33) Prohibit drug companies from entering into agreements that would delay generics getting to markets.
Savings: $2.7 billion/decade
34) Reduce brand name exclusivity for drugs from 12 years to 7.
Savings: $3.5 billion/decade
35) Negotiate directly with drug manufacturers for Federal Health Benefit program.
Savings: $1.6 billion/decade
36) Scale back on Prevention and Public Health Fund.
Savings: $3.5 billion/decade
37) Increase State Innovation Waivers would allow states to opt out of federal plan.
38) Increase funding to HHS by $400 million/year.
Savings: -$4 billion/decade
Amount the United States spent on health care in 2010
$200B >> $1T
ACA is supposed to reduce deficit by $200 billion over ten years and 1 trillion over the ten years after that. That said, the ACA Medicare Trustees estimate the trust fund will exhaust in 2024.
The length of time ACA is expected to extend Medicare solvency.
ACA assumes that the SGR will be fixed in a “fiscally responsible way”
Number of people on Medicaid