PPACA Whips Up Uncertainty for Hospitals

Undoubtedly the Patient Protection and Affordable Care Act is providing for interesting times now for healthcare delivery in the United States. At this point, calling it a blessing or a curse would be guesswork.

Supporters of the PPACA cannot deny that implementation of the sweeping reforms will be a daunting task that may, ultimately, fail. Many critics of "Obamacare," however, have provided no realistic alternatives to bending an unsustainable healthcare cost curve beyond vaguely worded demands for vouchers, block grants, and buying health insurance across state lines.

One reason why the American Hospital Association and other hospital groups supported the PPACA was because of its pledge to expand health insurance to tens of millions of people now uncovered, including dependent children age 26 or younger. But as Moody's Healthcare Quarterly pointed out this month, that new revenue source for not-for-profit hospitals will be offset by Medicare reductions of $150 billion over the next 10 years, along with an additional $14 billion in Medicaid disproportionate share payments.

In addition, PPACA imposes new payment models that include lower reimbursements for hospitals with high readmissions and low patient satisfaction scores, and the effect of those is still unknown.

A study in the Archives of Internal Medicine estimates that safety net hospitals will take an additional hit on reimbursements because Medicaid patients tend to distrust the healthcare system and that distrust is reflected in their lower patient satisfaction scores.

Private payers will follow the government's lead and suffer less tolerance for cost-shifting, preventable errors and other quality issues.

As a result, Moody's deemed "credit neutral" the U.S. Supreme Court's ruling in June that PPACA is constitutional. The rating agency said the high court's decision would have no effect on a negative outlook for the not-for-profit hospital sector.

"Furthermore, significant uncertainty remains over the future of U.S. healthcare policy given the size of the federal budget deficit, which has increased since the passage of PPACA in April 2010," Moody's said. "For not-for-profit hospitals, which account for the vast majority of American hospitals, this uncertainty continues to heighten credit risk in an already pressured operating environment."

Causing more uncertainty for not-for-profit hospitals was the Supreme Court's concurrent ruling last month that removed penalties for states that refused to expand their Medicaid programs under PPACA. So far, the governors of Florida, Louisiana, Texas, South Carolina, and Mississippi have said they will opt out, and the governors of five other states have signaled that they are leaning that way.

"I stand proudly with the growing chorus of governors who reject the Obamacare power grab," Texas Gov. Rick Perry said this month in a letter to Health and Human Services Secretary Kathleen Sebelius. "Neither a 'state' exchange nor the expansion of Medicaid under this program would result in better 'patient protection' or in more 'affordable care.' They would only make Texas a mere appendage of the federal government when it comes to healthcare."

It's worth noting the grandstanding hyperbole in these election-year pledges to reject billions of dollars in federal money. Observers have noted that much of this opposition will quietly melt away after the polls close in November.

"It's easy to say right now, 'no, no, no, Obamacare is an abomination and Medicaid is dysfunctional,'" John Holahan, the director of the health policy center at the nonpartisan Urban Institute, told CBS News. "Long-term, it's an awful lot of money to give up and the hospitals need it and the managed health care plans need it… I think eventually they will figure out a way to say yes."

That may be true. But how much comfort can hospital executives in Texas and in her like-minded sister states take from assurances that their governors will "eventually" fold on the issue? How can anyone draw up a budget or offer with confidence projections for financial performance amid so much uncertainty?   

At the same time that the PPACA provides a set of great challenges for hospitals, they are also struggling with other mandates such as the cost and complications associated with implementing meaningful use of electronic medical records and switching to ICD-10 diagnostic and procedural codes.

Ultimately, hospital leaders in the next decade will face some of the greatest challenges in U.S. healthcare history as they attempt to implement the sweeping reforms of PPACA and other mandates while maintaining financial viability in an era of lower reimbursements.

Outside of a war zone it is hard to imagine a more fluid, uncertain, yet rigorous set of metrics and demands that have to be met.