In the last issue of Business Lexington, this series examined how tax policy, health insurance reform and an expanded Medicaid were the law’s primary tools to broaden health insurance coverage and make it more affordable under the Affordable Care Act (ACA). For many, however, questions remain in terms of how the ACA will stimulate changes in the delivery of health care and how it will coordinate those changes with prevention and wellness.
Perhaps the least discussed but most significant change that the ACA (often referred to as “Obamacare”) will bring is the innovation of “accountable care,” driven through Medicare payment reform. Accountable care could touch everyone as it replicates throughout the health-care economy. Essentially, it ensures that medical providers are compensated not merely for the quantity of patient encounters they have, but for the quality of care they provide — a payment reform that transitions from “fee for service” to “fee for value.”
The ACA brings another important change in expanding and aligning tax rules for health insurance and employee health plans to foster prevention and wellness initiatives. Currently, typical wellness initiatives are offered mostly by larger employer plans, but after 2014, insurers and plans of all sizes will have even greater incentives to “reward” healthy behaviors and efforts to maintain wellness.
The brave new world
of accountable care
The ACA could have a profound effect on American health care through Medicare payment reform, intended to spur accountable care. Under its provisions, Medicare is currently offering incentive payments to medical providers if they coordinate their delivery of patient care to reduce fragmented and inefficient services. These incentives encourage providers to work in collaborative teams centered on patient needs and efficient use of resources.
The ACA does not mandate accountable care but encourages it by permitting providers and hospitals to form what’s called accountable care organizations (ACOs) to share in savings achieved for Medicare. To earn incentive payments, ACOs must agree to serve and be responsible for the health of 5,000 or more Medicare patients and must create cost savings for Medicare without sacrificing quality.
While ACOs are an innovation of the ACA specific to Medicare, many commercial health plans are already following its lead and mimicking this payment reform. Commercial insurance and employer plans negotiate contracts with providers and hospitals to care for covered individuals. As commercial plans start contracting more frequently to bring ACOs into their provider networks on “fee for value” payment terms akin to Medicare, accountable care will begin to touch more and more Americans.
Why ACOs are important
Research shows that ACOs provide patients better health at a cheaper cost. As a result, market forces are likely to propel their growth. Recent government reports and industry surveys bear this out, showing that ACOs are already on a steep growth trajectory. And, several ACOs have already formed, or are forming, here in Kentucky. Competitive pressures could push their growth as prevention and wellness initiatives get rolled into health-plan designs, aligning “rewards” for individuals to maintain personal health with incentives for ACOs to maintain their patients’ health.
How can ACOs improve health and save costs at the same time? ACOs are formed with primary care providers at their center. Family doctors, internists and pediatricians are all primary-care physicians whose services include both prevention and treatment and are generally less expensive than specialists and hospitals. Medicare assigns a patient population to the primary care physicians within an ACO and calculates a baseline of expected costs from historical data for all providers to serve that population. If the ACO cares for the population at a cost less than the expected baseline, Medicare shares the difference as “savings” with the ACO in incentive payment. If the ACO sacrifices patient care or health outcomes to achieve the savings, the incentive is reduced or forfeited altogether. Accountability for patient care thus becomes an integral part of how an ACO earns an incentive.
This pay-for-value innovation embraces free-market incentives. There’s no government bureaucrat dictating how or why a patient should receive a particular treatment — and certainly no “death panels.” Instead, doctors and hospitals are free to administer whatever treatment they deem appropriate, but within an ACO, they are now incentivized to provide patient care with an emphasis on prevention and wellness, and to choose treatment modalities consistent with both improved health outcomes and cost savings.
The growth of ACOs does have a potential downside: too much consolidation. Because ACOs will reduce unnecessary and expensive services through care coordination, they are likely to reduce costly hospitalizations and inappropriate use of emergency rooms. Recognizing this, hospitals have already begun to buy up medical practices so that ACOs include hospital-employed physicians. This has become a consistent trend nationwide.
The trend does pose the risk of overconsolidation in some places, which can lead to anti-competitive or antitrust concerns. Furthermore, ACOs dominated by hospital-employed physicians might be less willing or able to consider treatment alternatives outside costly hospital settings. Either of these could thwart the promise of cost savings.
These risks exist because the ACA does not in fact “take over” health care. Free-market actors may choose to be anti-competitive or make costly, inefficient decisions. Nothing in the ACA prevents this. Cognizant of these risks, however, the Obama administration has ramped up regulatory enforcement of fair competition and health-care fraud and abuse laws to minimize the potential downside as health-care markets adjust to the brave new world of accountable care.
Emphasis on prevention
and wellness
The ACA also targets prevention and wellness to drive improved health and less costly medical interventions. Research has long shown that the longer a disease or medical condition goes undiagnosed or untreated, the less successful and more costly the eventual medical intervention will be. Prevention is therefore the best way to maintain optimal health at the lowest cost. Recently, the Health and Human Services Department (HHS) proposed regulations that expand and define how health plans, on a non-discriminatory basis, may offer financial “rewards” to individuals to maintain health and become healthier.
The ACA will eliminate the current “discriminatory” practice of health insurers excluding pre-existing conditions and charging higher premiums based on an individual’s health condition. This form of “discrimination” is not necessarily mean-spirited; the present health insurance market simply knows of no better way to compete than to avoid the unhealthiest individuals and seek to insure only the healthiest people.
In 2014, though, this will change. The ACA’s insurance market reforms will go into effect, and insurers will no longer be able to compete for only the healthiest people. Instead, competition will occur in other ways, and one way is foreshadowed in the recently released HHS regulations regarding prevention and wellness.
Under the proposed regulations, health insurance offered both in exchanges and employee health plans may offer financial “rewards” up to as much as 30 percent of the cost of premiums if covered persons take steps to maintain or improve their health. While there’s no requirement to offer rewards, the potential to save on medical claims is likely to attract entrepreneurial insurers and plans that want to motivate covered individuals to become healthier. Market competition may very well develop based on which insurer or plan offers the best rewards. And, instead of competing to insure only the healthiest people, insurers could actually start competing over how to get people to take care of themselves.
The Affordable Care Act is here to stay. It brings historic change to America’s health-care system. However, as this article series has discussed, to say it “takes over” health care, or socializes medicine, is inaccurate. In truth, the law looks to free-market capitalism to motivate improvements in the overall health of Americans, at an affordable cost.
Douglas L. McSwain is a partner at the law firm of Wyatt, Tarrant & Combs, LLP. He advises and litigates for clients related to health care, employment, trade, regulatory and constitutional law.