Reg's Blog

The Unraveling of the PPACA

OK readers and requesters, I haven’t gone, as Robert Frost wrote, into the “woods lovely, dark and deep” but I have been preoccupied by work and things familial.  Sadly, energy wanes as one focuses intently on the delicate balance that is juggling a frenetic work schedule, a mile of other professional commitments, travel, and family.  Returning slowly to regularity in life will allow me to re-connect and be once again, more “informationally” fluid.

A major emphasis of my work has been translating health policy into actionable strategies for clients.  Some efforts are rather profound and deep and others are rather functional and tactile.  The latter was the case with the Medicare RUGs III, MDS 3.0, RUGs Hybrid, RUGs IV debacle, partially created by the PPACA and partially due to the lack of foresight on the part of Congress.  In the end, this mess evolved to where it should have been all along – a grouper and an assessment tool that actually matched.  Today, we are simply left gazing forward at what might be once CMS figures out how the RUGs IV payments are flowing and whether providers are using the system correctly.  I fully expect CMS, as they historically have, to go through a series of gyrations to fine tune the payment categories, equating the new system to that which was originally intended – something that is expense neutral (or close to) for the Medicare program.  History being what it is (a reasonably good predictor of future behavior), we saw and lived through a similar dance with previous PPS system versions.

Turning to the title of this post and topically, a question(s) I am asked all too often: What can we expect or not expect to happen next under the current phase-in process of the PPACA?  Following the law as written would provide an answer but clearly, the law as written is unraveling as we move seemingly, day by day.  Consider the following events of recent weeks/months.

• A power-shift in Congress overloaded the House with Republicans and structurally, fiscal conservatives that swept into the majority on a platform of “anti-health care reform and anti-deficit spending”.  As the House fundamentally controls the majority of appropriations and budget policy, funding barriers to continue the roll-out of the PPACA are certain.
• Over 1,000 waivers to certain elements of the PPACA have been granted, with more forthcoming, principally targeted at giving insurers, major corporations (multi-state businesses) and recently, labor unions relief from the mandated coverage limits imposed under the law.  Secondarily, states have sought relief from various Medicaid provisions that came part and parcel with the enhanced FMAP provided under the Stimulus bill (corollary to additional elements required under th PPACA).  From some vantage points, Medicaid may be the 10 ton gorilla in the room when all is said and done regarding the future of the PPACA.
• A series of court cases and resulting decisions have established the framework of a constitutional challenge to the law.  Opinions/decisions affirming constitutionality were rendered by Democratic judicial appointees and opinions/decisions affirming unconstitutionally rendered by Republican judicial appointees.  Clearly, the matter of constitutionality of the key requirement of universal insurance purchase/participation for every American will be settled only by the Supreme Court.  The remaining question is “when”. If the key provision of universal (everyone must) purchase/participation is found unconstitutional, the PPACA is functionally dead.
• Within the past week or so, Secretary Sebelius of HHS publicly went on the “record” in Congressional committee testimony that the financing of the PPACA included effective double-use (double counting) of the projected $500 billion in Medicare savings that is projected within the law.  This, while newsworthy, is not news to anyone who read the CBO scoring, read earlier testimony from Medicare’s Chief Actuary, or fundamentally, could follow basic arithmetic logic and principles.  The Medicare savings argument was flawed when first proffered on so many levels.  First, the savings was phantom money in so much that it required Congress to sustain actual rate cuts while relying on finding and stopping “fraud and abuse” thereby creating savings.  If in fact, the fraud and abuse savings were or are known, a 2,000 page piece of legislation surely wasn’t necessary to end the fraudulent and abusive practices (the same being already illegal) and render the savings.  Similarly, Congress has no known history of sustaining meaningful spending controls on entitlements, particularly Medicare.  Finally, the physician fee-schedule fix was never incorporated into the PPACA or its financial projections regarding Medicare spending – this tally alone evaporates all if not the majority of the projected savings.  Suffice to say, in order to net $500 billion in Medicare savings as foretold by the PPACA and its proponents, a perfect storm unlike any ever seen in Washington would need to occur, not to mention a real current spending reduction of close to $900 billion (adding in the Medicare physician fee schedule “fix” costs of approximately $400 billion as unaccounted spending, netted against the savings to achieve a net savings of $500 billion).  For those who would argue that the physician fee schedule fix won’t cost $400 billion, I humbly reply “do the math”.  Congress continues to avoid this issue in real time by creating temporary patches as the real numbers inclusive of a formulaic change in the law (change away from the sustainable growth algorithm) that prevents significant fee schedule cuts for physicians will require approximately $300 billion in “new” spending.  Add another $100 billion or so for the programs such as outpatient therapies that are tied to the fee schedule and $400 billion is conservatively, a solid figure.  The double-counting occurs as a result of creating the phony $500 billion and using the “dollars” to create new benefits and expanded eligibility levels and programs within the PPACA (primarily Medicaid expansion).  The costs of these new benefits greatly exceeds $500 billion in reality and thus, no savings will occur.
• President Obama during a speech at the National Governor’s Association publicly announced his willingness to offer states greater flexibility and an accelerated date to file alternative plans to meet the PPACA requirements pertaining to exchanges and Medicaid expansion.  In effect, President Obama stated that the law was still a “work in progress” and states could devise their own alternatives, provided the alternatives were as comprehensive and provided the same level of benefits as required under the PPACA.  Until this revelation, states were operating under the premise that PPACA requirements dictating how Medicaid expansion would work, the exchange plan mandates for coverages, etc. were immovable objects, at least until 2014 by when, each state would have incurred enormous costs associated with implementation.  The conclusion: More unraveling about to occur.
• Arizona became the first state in what promises to be a growing list, to apply to the federal government for a waiver allowing 300,000 people to be removed from its Medicaid program (disenrolled).  Arizona, like multiple states, saw its Medicaid enrollment explode due to the economic recession and provisions within the Stimulus Bill which provided enhanced Medicaid matches conditioned upon the creation of certain new programs of benefits and coverages under Medicaid.  The “rub” today is the sunset date of June 30 which ends the enhanced Medicaid funding.  By law, the money goes away but the programs and benefits it funded must be maintained by the state; hence, the need for a waiver. The evaporating Medicaid enhancement exposes the enormity of state Medicaid and other budget deficits – in Arizona, $1.1 billion total deficit and potential savings of $541 million if the waiver is granted (fully half of the state’s deficit).  From a PPACA perspective, the next move in Washington regarding a request such as that from Arizona will be fascinating.  A core element within reform used to achieve the coverage objectives is an expansion of Medicaid.  A waiver granted to Arizona is a virtual submission on the part of Washington that state Medicaid plans and budgets are incapable of meeting the financial requirements concurrent with expansion, absent significant cash infusions from Washington (not wholly provided with the PPACA).  For those of us who closely follow health policy, we’ve warned loudly and frequently that Medicaid as presently configured, is the worst vehicle to use to expand coverage.  The PPACA did nothing to alter the maniacal constructs of Medicaid, its funding, and its bureaucratic programmatic tenets.  It further did nothing to allocate sufficient resources to the states to support expansion thus leaving states to bear an enormous primarily unfunded mandate within their existing and growing, bankrupt Medicaid programs.  Aside from a Supreme Court ruling finding the PPACA universal participation/purchase requirements unconstitutional, the Medicaid issues are a strong and close second that could cause the PPACA to completely unravel.

The above notwithstanding, the PPACA gives us a glimpse into the future of health policy and ultimately, health care financing and delivery in the U.S.  Regardless of whether the law survives in whole or in part, certain elements I believe, are new realities and I have counseled clients to begin to plan accordingly.

• Money is an issue and the goal of the PPACA while inherently flawed in the form finished, was to slow the growth of entitlement spending and “bend the cost curve”.  This need or goal is pressing for the U.S. as entitlement spending cannot be sustained at is present level.  This simply means that Medicare and Medicaid are fundamentally and completely exhausted (financially and programmatically).  Regardless of form and resultant policy, reimbursement levels will remain fundamentally flat to trending down – no other way for them to go unless new tax revenues are allocated to each program (not feasible).  Kicking the issue down the road as Washington and states have done is no longer an option as the “road” has ended or its end is clearly in sight.  The best providers can hope for is flat reimbursement with a recognition on the part of legislators that greater flexibility from overbearing regulations is needed to help offset the revenue loss (if I can’t pay you more I can at least make it cheaper for you to operate).
• Greater emphasis will be placed on finding and eliminating waste and fraud – already happening but ramped up to an even higher level.  Realize that Medicaid and Medicare are self-wasting disasters by design in terms of how modern health care is delivered and financed but vigilance and enforcement is feel-good activity; results often are minimal in comparison to costs to obtain the results.  Providers thus will contend with more questions, more rules for disclosure, more reporting, more probes and more audits.  Clearly, the costs borne by providers to monitor and justify their billing practices to Medicare and Medicaid will rise.
• Infrastructure investments in terms of technology will rise as providers will need to justify more directly, their care vs. their bills.  Simultaneous (or at least proximal), PPACA provisions and other federal provisions regarding privacy, electronic billing, health information exchanges, etc., will not evaporate entirely.  Providers will need to be able to communicate across functions and across related and unrelated provider organizations, patient information, quality measures, and care information (treatments plans, history, orders, etc.).
• Terms and concepts brought forth under the PPACA such as Accountable Care Organizations, Competitive Bidding and Bundled Payments are here to stay, regardless of the life or death of the PPACA.  They make too much sense intuitively even if the same translates poorly in federal policy.  Organizations that take the “conceptual elements and goals” of things like Accountable Care Organizations and begin to develop programs and structural changes in “how” they do business will be far better off than those who believe that these concepts will die as the PPACA continues to unravel.  A future where reimbursement is more closely tied to outcomes and penalties for events such as avoidable re-hospitalization, repeat hospitalizations, avoidable institutional infections, etc. is virtually certain.
• A renewed focus on primary and community based medical care, prevention, and chronic care management is forthcoming – soon.  Philosophically, although wrongly implemented and structured, the PPACA was Washington’s politicized attempt to create this focus.  There is solid logic behind such a focus as diminution in each of these areas (or in some cases, failure to fully launch) directly correlate to rapidly rising health costs (and correspondingly high rates of expensive, preventable chronic illness such as diabetes, obesity, heart disease, etc.).  Even Washington knows that ultimately, funding and enhanced payment for better primary, community and chronic disease care is necessary and smart.  The problem is, as has always been the case with policy elements measured in the billions or trillions of expenditures, politics gets in the way of functionality – hence the PPACA.

March 9, 2011 Posted by Reg Hislop III | Policy and Politics - Federal | Budget, CMS, Congress, Health Care Reform, Industry Outlook, Medicaid, PPS, Senate, Strategy, Trends, Washington | Leave a Comment