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CEOs: Now It's Time to Address Affordability

 |  By Philip Betbeze  
   June 29, 2012

Unless you've been watching Euro soccer nonstop, you know that the Supreme Court upheld the key parts of the Affordable Care Act with its historic decision last Thursday. Most people thought what came to pass would have been the least likely outcome given the tone of the arguments before the court back in March.

The ruling seemed to hinge, as many expected, over whether the mandate was a tax or not. That put the administration and its lawyers in a tough bind. Only Chief Justice John Roberts could bail them out of failure. Somewhat surprisingly, he did.

Of course, the administration and congressional supporters of the law had been careful to avoid calling the penalty for not carrying insurance a tax in crafting the legislation (because it wouldn't have passed) and even in their arguments before the court itself. Chief Justice John Roberts bailed them out by calling something that walks like a tax and sounds like a tax, a tax, and therefore Congress has the power to implement it.

Leading up to the decision and immediately after, I had never seen such a rush to give an opinion among healthcare stakeholders in years, if ever. Even the original passage of the Affordable Care Act in 2010 seems to wither in comparison to the hundreds of emails (exclamation point!) and requests to speak with a reporter from vendors, associations, individual hospitals, physician organizations and even non-healthcare related entities.

They all want their opinion to be heard. That's not surprising in itself, but imagine my surprise when I did talk with a few CEOs immediately leading up to and following the decision. It's not that big of a deal, they said, and it won't make a huge difference in their strategic planning.

As for the long period of uncertainty between the announcement that the Court would hear the case challenging the law, it's had little impact on long-term strategic planning, says Catholic Health Partners CEO Michael Connelly.

"Honestly it's had no impact. We think that what needs to happen is fairly clear regardless of the legislation," Connelly says. "We need higher quality care at a lower cost and to design systems with our patients to make that happen. Some reimbursement gymnastics come into play, but the law didn't enact payment reform and wasn't helpful in making financial decisions."

Given attention surrounding the decision on the Affordable Care Act, and yes, the hype associated with such an important decision, hospital and health system CEOs seem happy that the individual mandate was upheld, yet convinced that the most important work remains to be addressed: rising costs.

So if you thought the legislative work surrounding healthcare is over, you're in for a rude awakening.

Connelly says he believes it's good public policy to have an individual mandate, and credits the law's insurance eligibility reform elements as "well done," but he says the most important threats to healthcare and the economy at large have been ignored. In other words, the "affordable" part of the title of the act, which, as I've written about before, is false advertising.

"The most important thing we needed to do, which is changing the payment model—the law didn't do," he says.

Under the pilot programs that have been enacted, such as value-based purchasing rules, ACOs and Medicare reform pilots, "it would take 15 years to change the payment model," says Connelly.

One of the many problems with healthcare costs reflect the lack of coordination of care and the duplication of services that result, in part, from the fact that many healthcare providers bear little to no responsibility for efficiency, even now, said Geisinger Health System President and CEO Glenn Steele, in an interview conducted prior to the Court's decision.

That lack of responsibility is not the case for health systems that include a payer function, such as Geisinger and many other health systems the Obama administration holds up as examples of efficient care delivery.

For its part, Geisinger has made big investments in reducing waste and duplication and increasing transparency. It spends a whopping 4.5% of its annual revenue on maintaining and improving its data warehousing capability, for example. Though a huge number, that investment pays off for institutions like Geisinger, which make up only a fraction of the healthcare provided in the US each year. Other healthcare providers, including physician practices, hospitals and health systems, have little in common with Geisinger, and Steele knows it.

"We're constantly upgrading," he says. "We couldn't do what we do in value re-engineering without having real-time feedback and this capability."

While calling the Court's decision "an important step forward in healthcare reform," speaking of high healthcare costs and the high variability between regions on health spending, Steele says "the fundamentals are the fundamentals and we're in for a long-term attempt to address this."

The decision will have an immediate effect on politics, of course, says Joe Lupica, chairman of Newpoint Healthcare Advisors LLC in Phoenix. First, he says, members of Congress "woke up Thursday to learn that they passed a massive tax, not some Commerce Clause fee," he says. "That's some strong coffee. Expect some action in response."

Particularly expect some action surrounding the Court's decision to limit federal penalties for states that choose not to expand Medicaid eligibility. Lupica says state legislatures will soon be in the crosshairs of scrutiny, because they will be faced with a real choice over whether to accept or reject additional federal funding in return for raising their Medicaid entitlement threshold to 133% of the federal poverty level. They won't, however, have to risk their entire federally appropriated Medicaid budget.

"What was once a ‘Godfather offer you can't refuse,' is now an economic offer for each state to consider," Lupica says. "So, now we have all those state legislatures to watch."

That makes sense to Connelly, who says absent big decisions by state legislators, CHP's seven regional health systems will struggle with how to deal with increased eligibility, which creates problems of its own.

"What's going to happen here is that a million more people in Ohio will be covered under Medicaid while [Medicaid] is still not paying primary care docs enough to take on these patients," he says. "As a result, they'll come to our ERs and we'll spend 3 to 4 times as much to care for them as we should but regulations hamstring us on that."

Connelly suspects a legislative battle will focus on how to modify the health insurance exchange plan to loosen some of the regulations and to accelerate the issue of payment model reform.

"Unless payments change, we can't afford costs of expanded coverage," he says. "There's universal acceptance that we can't afford the cost of healthcare. It's 20% of the economy and it is the primary source of the government's deficit. All know we need to fix the deficit and we can only fix that with Medicare and Medicaid reform."And don't count on the commercial market to significantly drive the change to a more accountable and value-based approach to care, at least based on his experience, Connelly says.

"We don't see the commercial market leading this change. The insurance payers actually do better financially in the old model," says Connelly. "All their systems are set up to pay fee-for-service, and the vast majority of insurers' business is still self-insured so they make their margin off of volume. Getting them to move has not been very successful."

Whether we have reform based on legislative and regulatory action or based on market demand, the healthcare sector still desperately needs to change its approach, says Newpoint's Lupica.

"We still need to move from encounter-based to value-based payment, and to design the network structures, information tools, and cultures to match," he says. "Society's explicit message may just be to bring down costs. But the message, now a scream, may prick our sector to change the way we deliver and manage our care. Our providers may do so to save costs, but a more rational delivery of care may come along with it."

One can only hope.


Philip Betbeze is the senior leadership editor at HealthLeaders.

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