Impact of Supreme Court’s Health Reform Ruling

June 2012Articles Staying Well Within the Law

The U.S. Supreme Court’s June 28, 2012 ruling upholding most of the Affordable Care Act (the "ACA" or "Obamacare") by a narrow 5-4 margin took many experts by surprise. Chief Justice John Roberts wrote the majority opinion, joined by Justices Ginsburg, Breyer, Sotomayor and Kagan upholding the controversial individual insurance mandate and its associated penalties, not under the Constitution’s commerce clause, but as a legitimate exercise of Congress’ power to tax. Justice Anthony Kennedy, long considered the swing vote, joined Justices Alito, Scalia and Thomas in the primary joint dissent, and Justices Thomas and Ginsberg wrote additional separate opinions clarifying their positions on the law.

In the Court’s only defeat for the Obama administration, the majority scaled back the ACA’s penalties for States that resist the Act’s expansion of Medicaid benefits. Using a constitutional scalpel, seven out of nine justices agreed to strike down only the penalty provision that would have cost noncompliant States all of their current federal Medicaid funds. The additional funding for states that implement the expanded coverage was upheld.

The ruling will undoubtedly impact the 2012 Presidential and Congressional races, and a Romney victory and sufficient GOP gains in Congress could result in rollbacks of some of the more unpopular portions of the ACA, but for now, it is the law of the land. How will the ruling affect healthcare providers in the coming years? A few predictions:

Less uncertainty. The Court’s ruling upholding nearly all of the ACA means that providers will not be in the position of waiting for government agencies to untangle the complexities of a partial invalidation of the law. States who have held off on developing their insurance exchanges will accelerate the process, or else step aside in favor of fallback federal exchanges. Benefits that have already taken effect will not be rescinded or recouped. Popular ACA programs such as the Bundled Payment Initiative and the Shared Savings Program and Pioneer programs for Accountable Care Organizations will continue.

Reimbursement pressure. The ACA may stress the budgets of CMS and state treasuries, which is expected to result in continuing downward pressure on reimbursement under traditional fee-for-service and episode-of-care payment methods. That pressure will accelerate the development of alternative value-based models by both governmental and private payors.

Increased coverage. One of the primary goals of the ACA was to expand coverage to millions of uninsured Americans. As the "shared responsibility" penalty for failure to purchase insurance under the individual mandate is relatively toothless, it is unclear how much of an impact that mandate will have on the amount of uncompensated care that institutional providers and individual practitioners will be required to deliver in coming years. The Court’s Medicaid ruling may also blunt the Act’s impact on reducing the rolls of the uninsured depending on how many States reject the expanded Medicaid coverage and associated federal funds. The development of state insurance exchanges and the various insurance reforms, particularly guaranteed issue and community rating, is hoped to slow and smooth out premium increases and bring the cost of coverage within more family and business budgets. Penalties on employers with 50 or more employees will expand coverage unless businesses elect to pay the penalties as a cheaper alternative to buying coverage.

More consolidation and integration. The value-based reimbursement systems needed to implement the expansion of coverage under the ACA cannot work in a fragmented, cottage-industry style national healthcare system. Sophisticated information technology capabilities for gathering, sharing and particularly analysis of data will be needed to track and improve quality and cost-effectiveness in real time on a large scale. This requires capital and integration, most easily achieved by integrated health systems but also possible under more loosely-knit networks of independent practitioners in ACOs. Small practices and community hospitals will struggle to keep up unless they join forces contractually or via merger with larger players who can provide access to the tools needed to manage costs and quality in a post fee-for-service world.

Tighter fraud rules are here to stay. The ACA added more teeth to the existing fraud and abuse provisions of the Medicare and Medicaid laws. These include an additional $350 million in federal enforcement funding over the next ten years; stepped-up oversight of providers and suppliers participating or enrolling in Medicare, Medicaid, and CHIP; increases in the federal sentencing guidelines for health care fraud offenses for crimes that involve more than $1,000,000 in losses; enhanced data-matching agreements among Federal agencies; increased surety bond requirements for enrollment; expansion of Recovery Audit Contractors (RACs); classification of violations of the Stark physician referral law and Anti-Kickback law as automatic False Claims Act violations subject to whistleblower suits; and mandatory repayment of overpayments within 60 days of identification.

Providers are employers, too. As employers, the impact on providers will depend on the number of workers they employ. Beginning in 2014, employers with more than 50 employees will be subject to penalties if they fail to provide certain minimum benefits. Companies with up to 25 FTE employees and with average annual wages of less than $50,000 may be eligible for tax subsidies toward the cost of premiums. Employers of all sizes will have additional coverage choices through the state insurance exchanges.

Industry Reactions

Provider advocates’ reactions are generally positive but guarded. The American Hospital Association’s President and CEO Rich Umbdenstock said "Today's historic decision lifts a heavy burden from millions of Americans who need access to health coverage." Jeremy Lazarus, M.D., President of the American Medical Association, praised the expanded coverage, the prohibition of coverage denials due to pre-existing conditions and lifetime caps on insurance, the expansion of dependent coverage through age 26, expanded research funding and coverage for prevention and wellness care and the preservation of the American system of both private and public insurers. Glen Stream, MD, MBI, President, American Academy of Family Physicians said "The Affordable Care Act provides a foundation for reforming our health care system, but much work still lies ahead including a permanent replacement for the Sustainable Growth Rate formula and meaningful medical liability reform."

The future of health reform now moves from the Supreme Court to the court of public opinion as both parties are expected to cast the November election as a referendum on the still highly-divisive legislation.