Saint Catherine Medical Center in Ashland, PA filed an emergency petition for Chapter 11 bankruptcy on Monday.
The action follows a tumultuous couple of weeks for the medical center. In March an unannounced survey visit by the state Department of Health uncovered serious deficiencies and violations that placed patient health and safety in immediate jeopardy.
As a result, the DOH imposed a ban on new admissions, as well as on surgical services and emergency and outpatient procedures at the 67-bed hospital. In an April 3 letter, the medical center was notified by the Philadelphia office of the Centers for Medicare & Medicaid Services that because of the deficiencies the hospital no longer met the requirements for participation in the federal Medicare program and faces termination of its Medicare agreement.
Liabilities, Assets Unspecified
The financial petition was filed in US Bankruptcy Court in the Middle District of Pennsylvania by John Doran, a Wilkes-Barre, PA attorney with the law firm of Doran & Doran PC. According to attorney Lisa Doran, because of the emergency nature of the filing, information about creditors, liabilities, and assets has not been specified. The law firm hopes to have a creditors list developed by next week.
Doran told HealthLeaders Media that the medical center simply got to the point where it had no patients and could no longer continue to operate.
Saint Catherine Medical Center and Saint Catherine Regional Hospital are operated by Saint Catherine Healthcare, LLC. In March 2012 the three were ordered to pay a $168,760 judgment to Lease Associates. On March 26, PPL Electric Utilities filed a lawsuit against Saint Catherine and five affiliates in county court. No details regarding the claim are available.
Claims for Unpaid Employee Wages
In addition, Philadelphia law firm of Willig Williams & Davidson is representing the American Federation of State, County and Municipal Employees, District Council 89, AFL-CIO in the bankruptcy case. In an e-mail exchange, attorney Amy L Rosenberger explained that the
AFSCME represents about 100 employees at the medical center.
Although the investigation is ongoing, Rosenberger said “there are claims for unpaid employee wages, failure to properly disburse funds withheld through employee payroll deduction (including employee contributions toward healthcare, the 401(k) plan, and union dues), as well as failure to comply with federal law governing mass layoffs of employees.” She added that “it appears that the improper use of employee payroll deductions has been going on for some time, without the employees’ knowledge.” The full extent and value of employee claims is not yet known.
Court Appoints Trustee
Doran explained that because the medical center is “no longer in the position to continue the management” of the facility, it requested that the court appoint a Chapter 11 trustee. William G. Schwab, an attorney from Leighton, was named to that position.
Schwab has several options. He can reorganize the medical center's operation, put it into liquidation, or find a buyer for the facility.
Holli Senior, a spokesperson for the DOH, confirmed that “at this point, the Department of Health has not revoked the license” for Saint Catherine to operate as a healthcare facility. She declined to speculate on future actions.
Efforts to reach a spokesperson for Saint Catherine Medical Center were unsuccessful.
Saint Catherine Medical Center in Ashland, PA faces the wrath of federal and state officials in the wake of a complaint survey, which uncovered serious deficiencies and violations that place patient health and safety in immediate jeopardy.
On Tuesday the medical center was notified by the Centers for Medicare & Medicaid Services that because of the deficiencies the hospital no longer meets the requirements for participation in the federal Medicare program.
In an April 3 letter to Merlyn Knapp, the medical center's CEO, officials in the Philadelphia office of CMS said the Medicare agreement will be terminated by April 19 "if the immediate jeopardy has not been removed by that date."
Admissions Banned
Meanwhile, the Pennsylvania Department of Health has effectively shuttered the Schuylkill County medical center by imposing a ban on new admissions, as well as emergency and outpatient procedures at the 67-bed hospital.
Holli Senior, a spokesperson for the Department of Health, said that although there are no patients at St. Catherine, its license has not been revoked. "It's still able to submit a plan of correction to try and clean up its deficiencies," she told HealthLeaders Media.
Saint Catherine's problems stem from a complaint survey conducted in March on behalf of CMS by the state Department of Public Health. The reason for the survey is unknown, but a complaint survey can originate from several sources, including patients or their families.
Although the survey has not yet been publically released, according to the CMS letter, the deficiencies fall into five broad categories: radiologic services, physical environment, surgical services, compliance with laws, and governing body.
Surgical Services Supplies Lacking
A March 23 letter to Knapp from the state department of health provides some additional insight into the deficiencies. It mentions that the facility lacks the "proper equipment and supplies" to provide surgical services.
"Until you can provide the department with evidence that the operating room equipment has been properly inspected, there is sufficient equipment, and there are adequate supplies, the ban on admissions also applies to your surgical services department."
Financial Problems Suspected
A media release from the department of health notes that "the medical center does not have the means to obtain the proper equipment and supplies for surgical, outpatient and emergency services."
The release also notes that the admission ban doesn't apply to the medical center's long-term care facility, where about 30 patients reside. It goes on to say, however, that as a "precautionary measure due to the financial ties between the two entities" the department of health has asked St. Catherine to accept "the appointment of a temporary manager of the long-term facility" to provide consultation and operational recommendations.
Instead, the facility is now working with the Department of Health to move the residents to other long-term care facilities.
Saint Catherine Medical Center and Saint Catherine Regional Hospital are operated by Saint Catherine Healthcare, LLC. In March 2012 the three were ordered to pay a $168,760 judgment to Lease Associates. On March 26, PPL Electric Utilities filed a lawsuit against Saint Catherine and five affiliates in county court. No details regarding the claim are available.
Efforts to reach Merlyn Knapp, who has been CEO of the medical center only since Feb 26, were unsuccessful Thursday.
If the Affordable Care Act is fully or partially nullified by the US Supreme Court, for-profit hospital operators will face a credit-negative situation as costs increase and profit margins shrink, according to a special comment report from Moody's Investors Service.
That could be detrimental to the credit position of for-profit, acute-care hospital operators such as Community Health Systems, HCA, and Tenet Healthcare Corp., which could find themselves with less cash flow available to reduce debt.
"If the law is fully or partially repealed, for-profit hospital operators' costs of treating patients unable to pay their bills would rise, and limit operators' revenue growth and profit margins, and constrain cash flow," explains Dean Diaz, a Moody's vice president-senior credit officer and author of the report. "Bad debt expense already averages over 10% of revenue of our rated for-profit hospital operators."
In terms of the interest of for-profit hospital operators the complete elimination of the entire ACA is slightly more preferable than simply severing the individual mandate from the ACA, which would put more pressure on for-profit hospital operators. "Without the mandate the number of uninsured patients will likely expand and there won't be a large enough pool of insured patients to help offset those treatment costs," Diaz told HealthLeaders Media.
According to the report "many parts of the law are tied to the assumption that the individual mandate will lead to an increase in the number of individuals with health insurance." Removing only the mandate creates questions about how some remaining provisions of the healthcare law will affect for-profit hospital operators.
The report notes that for-profit hospital operators have already begun to pay for healthcare reform through reductions in annual Medicare market basket increases and the healthcare law itself schedules additional reductions, such as cuts in disproportionate share payments and productivity adjustments. The reductions are among the hospital industry's concessions to help cover the cost of healthcare reform initiatives.
Diaz explains that if the healthcare law remains intact without the individual mandate then the cuts would continue to be implemented, offsetting a portion of the growth in Medicare reimbursement expected through annual market basket increases.
"Given our expectation that the elimination of the individual mandate would increase bad debt expense, this development could be a double hit to the for-profit hospital operators," says the report.
If the healthcare law is repealed, Diaz says the cuts wouldn't be implemented and for-profit hospital operators could see full market basket increases again. However, he expects any increase in reimbursement rates to be offset by the negative effect of the continued rise in uncompensated care costs on for-profit hospital operators' profit margins.
It's also unclear whether the for-profit hospital operators will see a return on the investments and strategies related to healthcare reform that they have put in place. Diaz says the efficiencies related to electronic medical records and enhanced clinical systems should translate indirectly into financial gains.
While the investments for-profit hospital operators are making now could reduce their profit margins in the next year or two, the report concludes that the "increased spending will benefit them in the longer term and provide competitive advantages over other hospitals."
Diaz is less sure about the benefits of employing physicians and acquiring physician groups. Those investments, he says, are motivated by the creation of accountable care organizations and new payment models such as bundled payments and "may take a longer time" to produce a return. Still, the physician practices will "continue to provide the for-profit hospital operators a means of maintaining patient volumes within their systems even if the healthcare law is repealed," says the report.
HealthLeaders Media released in January a survey of hospital administrators that revealed that 59% of the respondents have a high interest in acquiring physician groups and 56% of healthcare leaders have a specific team dedicated to hospital-physician practice acquisition.
Despite its shortcomings, the demise of the full ACA "would create an even greater sense of uncertainty" for for-profit operators because healthcare reform would once again "be open to any number of proposals," says the report.
The scene outside the Supreme Court last week was a lively and peaceful exercise in civil expression. The scene inside the courtroom was lively in its own right. Consider Justice Antonin Scalia's line of reasoning likening healthcare to food in what has come to be called the 'broccoli mandate.'
It's easy to get distracted by soundbites surrounding complex topics. But while the nation's attention was largely on the spectacle, healthcare industry researchers were hard at work assessing the potential effect of the individual mandate on health insurance and premiums.
Two studies show that the individual mandate and penalties for noncompliance would directly affect only a small number of Americans, that government subsidies will enable most of the affected to cover their health insurance costs, and that without the mandate, government spending will actually increase by $10 billion.
This isn't information the Supreme Court justices will consider as they work toward a decision, but from a dollar and cents standpoint, these studies seem to make the case for the economic value of the individual mandate.
The studies also point to a significant problem for the individual mandate: True analysis of its value involves a dizzying array of statistics. In the court of public opinion, it's much easier to object to the individual mandate with a simple soundbite about the 'government takeover' of healthcare. Here are two scenarios and supporting stats reflecting the analyses by the Urban Institute and RAND.
Scenario 1: Individual Mandate Upheld
According to an Urban Institute analysis, about 8% of the total population, or 26.3 million uninsured Americans will be required to get health insurance coverage or pay a penalty. With the individual mandate in place, here's how the study breaks that number down:
About 8.1 million will be eligible for free or close to free health insurance through Medicaid or CHIP and can avoid mandate penalties if they exercise those options.
Another 10.9 million will be eligible to purchase subsidized nongroup coverage through health insurance exchanges (HIX) to meet the coverage requirements.
That leaves only 7.3 million or 3% of the total population that will be required to purchase insurance, but would not qualify for Medicaid or any subsidies under the ACA.
The catch is that is that although only a relatively small number would be affected by keeping the individual mandate requirement, "the overall benefit to the population would be large," explained the Urban Institute's Linda J. Blumberg in a press statement.
"Insurance markets would be more stable and the premiums for insurance that people buy themselves would be 10% to 20% lower than without a mandate."
Scenario 2: Individual Mandate Struck Down
Meanwhile, a computer modeling study from RAND examined how the lack of an individual mandate would affect the number of people insured, premium costs in health insurance exchanges, and government spending on health coverage. Among the findings:
Fewer people would be insured without the mandate. Under the ACA, with the individual mandate an estimated 252.2 million Americans will have health insurance coverage in 2016. Without the mandate, that number drops to 239.7 million.
The effect on premiums would be minimal. Assuming that HIX survive, the lack of an individual mandate will have only a marginal affect on the cost of policies purchased through HIX. Taking into account the age of enrollees, it's estimated that premiums will increase by only 2.4%.
That's good news for HIX. According to the report, the premium increases will not be enough to "trigger catastrophic failure of the exchanges" because many enrollees will perceive "little or no change in their contribution even when premiums increase." That will reduce the chance of a "large scale exodus from the market."
The relative stability of the individual exchange market reflects federal exchange subsidies, which would keep some of the so-called young invincible in the market, and rate banding, which would provide some premium price stability even if older, sicker enrollees outnumber the younger, healthier members.
The increase in total government spending would be modest. Without the individual mandate total government spending would increase by what the report terms is a "modest" $10 billion. The increase would be driven by higher premiums, the loss of revenue from mandate penalties, and increased spending on medical care for the uninsured.
Taxpayer spending for newly insured individuals would increase. Without subsidies and other incentives, many of the uninsured would forego health insurance coverage, which would more than double government spending per newly insured individual from $3,659 to $7,468.
That's because without the individual mandate, fewer young and healthy individuals would purchase insurance. That means more of the newly insured would tend to be sicker and require more federal subsidies.
Taken together, the Urban Institute and RAND studies provide a good picture of how far-reaching the individual mandate really is. The Supreme Court may flip the switch on the individual mandate (and possibly) the ACA as early as June. All of us will live with the financial burden of that decision for years to come.
After three days, the Supreme Court arguments have ended and now we must wait until June or July to learn whether the entire Patient Protection and Affordable Care Act will be struck down, whether the individual mandate will be declared unconstitutional, and if the Medicaid program will be allowed to expand to include millions of potential enrollees.
Unsurprisingly, the court appears divided along ideological lines. Ultimately, the votes of Chief Justice John Roberts and Justice Anthony Kennedy appear to be in play. The court's liberal arm —Justices Sonia Sotomayor, Elena Kagan, Stephen Breyer, and Ruth Bader Ginsburg—are expected to uphold the individual mandate and PPACA. On the conservative side, Justices Antonin Scalia, Samuel Alito, and Clarence Thomas are expected to vote to overturn the individual mandate.
Two years ago when Congress narrowly passed PPACA the Obama administration expected opposition to the bill to dissolve once Americans became familiar with the bill. Strong support for the bill has never materialized, although specific aspects of the law are popular, according to Kaiser Family Foundation tracking polls. For example, closing the donut hole for Medicare recipients is well received while the individual mandate has generally scored very low with survey respondents.
A roller coaster ride of federal court decisions
PPACA began winding through the court system almost immediately after it was passed in March 2010. The first sign of trouble came in August 2010 when a district court in the Eastern District of Virginia declined federal government's motion to dismiss. That set the ACA on a roller coaster ride of federal court decisions with some supporting the individual mandate and others ruling it unconstitutional. In November 2011 the Supreme Court agreed to review the case.
In eight hours of oral arguments over three days five lawyers debated four key issues: jurisdiction, the individual mandate, "severability" (whether the individual mandate severable from PPACA), and the expansion of Medicaid eligibility.
Every question, nuance, and inflection of the justices during oral arguments has been parsed by observers and pundits in an effort to discern how the court might ultimately rule. While that's all very interesting, attorney Thomas Barker says the oral arguments will have little effect on the ultimate outcome. "If their minds aren't already made up then they get made up based on the briefs filed by the parties and maybe the amicus briefs but not what happens at oral arguments."
Barker, who specializes in healthcare and is partner in the Washington, DC office of Foley Hoag, says he began the week thinking that the individual mandate would be upheld, but admits that he's not as sure now.
"I had the sense that the court would be reluctant to choose this case as the limit for how far the commerce clause power can go. I was skeptical that would happen, but Justice Kennedy seemed to put that in play."
A question of commerce
In one of his first questions, Justice Kennedy asked if the government could force someone into commerce in order to regulate them under the commerce clause." That could be the distinction, Barker explains, between this case and Wickard vs. Filburn, which is the case the government is relying on for the mandate.
That New Deal case tested the powers of Congress to regulate the grain market and keep grain prices in check by limiting the amount of grain that could be produced by any one farmer. Filburn, an Ohio farmer, contended that he could grow as much grain as he wanted because he was using the excess for his family. In that case the court ruled that activity constitutes commerce even if the activity doesn't have an impact on interstate commerce.
For PPACA the administration is arguing that inactivity—not purchasing health insurance—falls under the same ruling because people who don't purchase health insurance make it more difficult and costly for those who do. Solicitor General David Verrilli argued that "what is being regulated is the method of financing the purchase of healthcare. That itself is an economic activity with substantial effects on interstate commerce."
In reviewing the transcript, Verrilli seemed to struggle with this argument as Justice Scalia and Chief Justice Roberts asked if the government could require the purchase of cell phones and even broccoli under the commerce clause.
Justice Ginsburg stepped in to clarify the point. "I thought a major, major point of your argument was that the people who don't participate in this market are making it much more expensive for the people who do. They will get services that they can't afford at the point when they need them, and the result is that everybody else's premiums get raised. So, it's not your free choice just to do something for yourself. What you do is going to affect others, affect them in a major way."
Barker expects the Supreme Court to rule that it has jurisdiction over the case and to uphold the Medicaid expansion. He believes the individual mandate will be ruled unconstitutional and that the mandate will be ruled either completely severable or the severability will be limited to insurance rating reform.
If the individual mandate is ruled unconstitutional, Barker says there are alternatives to consider, including taxing the uninsured and limiting health insurance enrollment periods for the individual market.
The debate over severability was equally troubling for the administration. In answering a question from Justice Ginsburg about salvaging portions of PPACA if the individual mandate is rules unconstitutional, Paul Clement, who argued that the PPACA should be thrown out if the individual mandate is eliminated, explained that "the provisions that have constitutional difficulties or are tied at the hip to those provisions that have the constitutional difficulty are the very heart of this act. And then if you look at how they are textually interconnected to the exchanges, which are then connected to the tax credits, which are also connected to the employer mandates, which is also connected to some of the revenue offsets, which is also connected to Medicaid. If you follow that through what you end up with at the end of that process is just sort of a hollow shell."
Reconsideration
Justice Scalia suggested that it would be better to have Congress reconsider the entire act rather than on a piecemeal basis. "One way or another, Congress is going to have to reconsider this, and why isn't it better to have them reconsider it—what should I say—in toto, rather than having some things already in the law which you have to eliminate before you can move on to consider everything on balance?"
That argument worries Gerald F. Kominski, PhD, director of the UCLA Center for Health Policy Research. "We don't have a bipartisan solution to the problem. If we return to the status quo, we'll face a crisis."
Justine Handelman, vice president of legislative and regulatory policy for the Blue Cross Blue Shield Association, explains that the loss of the individual mandate would require that other reforms be severed from PPACA, including the guarantee issue provision, pre-existing condition exclusions, and the use of an adjusted community rating system.
Handelman notes that studies of eight states that enacted guaranteed issue and community ratings without individual mandates showed higher premiums, coverage disruptions, and fewer choices for consumers.
The Blue Cross Blue Shield Association filed an amicus brief in support of severing the individual mandate from PPACA if the mandate is ruled unconstitutional.
When the Republican Party reclaimed the House majority after the 2010 elections, one of its first acts was to repeal the entire Patient Protection and Affordable Care Act. The bill was sent to Democratic-majority Senate, where it still sits with no action planned.
House Republicans then decided to aim their healthcare reform ire at the Independent Payment Advisory Board (IPAB). Over the course of just a few months, IPAB shifted from a little-known board tucked somewhere away somewhere in the behemoth PPACA to a household word.
Last week, after six hours of debate and two hours of procedural rulings, the House voted, more or less along party lines, to eliminate the IPAB. As with most political issues, there are winners and losers in the great IPAB debate. Here's a look:
Toss-up (but leaning loser): Independent Advisory Payment Board
Although the Senate is not expected to follow House action and vote to eliminate the IPAB, some damage has been done. Yes, IPAB will remain the law of the land, but recruiting 15 members for the board just got a lot more difficult. The original idea was that the great minds of healthcare will come together and, if needed, make the tough financial decisions required to strengthen Medicare. To remain unencumbered by outside influences, board members will be required to forgo research projects, consulting, and the Washington party circuit to devote themselves to the task at hand. Even if PPACA survives the current Supreme Court challenge, it's likely that IPAB will remain a sore point and could be under constant pressure to be eliminated or changed.
Toss-up: Medicare
It's great that Medicare sustainability is being talked about and ideas are being put on the table. But does anyone really think that Congress is ready to act? IPAB is a backstop in case Medicare costs get out of hand. Our elected officials can't continue to fret about Medicare's future while they decline to implement any reimbursement reductions. As it stands now, the sustainable growth rate (SGR) formula remains in place and there doesn't seem to be any agreement in Congress about what to do next. The IPAB, if it survives, will force Congress to act—although even that decision is years away.
Winner: Republicans
Republicans in the House effectively framed the IPAB debate as their effort to defend seniors from a rationing board. This presents a strong campaign opportunity to appeal to Medicare beneficiaries, and it will be top of mind for senior voters. Did I mention that Republicans equate IPAB with a rationing board? That's their story and they're sticking to it.
Loser: Democrats
The Democrats simply cannot cook their arguments down to simple sound bites. Much of the IPAB debate has consisted of Republicans using the term "rationing board" and the Democrats providing long-winded explanations of why IPAB is not a rationing board. Of course, Democrats used the term "rationing board" multiple times in the process.
Loser: Bipartisanship
The original effort to repeal the section of PPACA that creates IPAB had 232 co-sponsors, including 17 Democrats. Much was made of this wonderful bipartisan effort until House Republicans unexpectedly decided to link medical malpractice and IPAB into a single bill. That caused problems for Democrats, who typically oppose tort reform. In the final vote, only seven Democrats actually supported the combined bill. Political pundits have suggested that Republicans never really wanted Democrats to vote with them because they see IPAB as an important GOP campaign issue that would be muddied by Democratic support.
Loser: Rep. Allyson Schwartz (D-PA)
Rep. Schwartz is a Democrat from a relatively safe district in Pennsylvania. She supported PPACA but was one of the first Democrats to support the elimination of IPAB from the bill. She has been very vocal in her support for the Republican position, speaking against IPAB in various House committee meetings, and even penning an opposition op-ed for USA Today.
Still, she has her limits. When House Republicans added med-mal to the IPAB bill, Rep. Schwartz put her foot down and issued a statement asking them to "set aside political showmanship and bring a clean bill to repeal IPAB to the floor for a vote … Linking this bill to tort reform—an unrelated, divisive, and partisan issue—is bringing what was once a bipartisan effort to a screeching halt. I urge the Rules Committee to reject this offset." That didn't happen, and Schwartz cast her vote against the IPAB repeal.
Winner: The American Medical Association
The AMA scored a twofer, with the House voting its way on medical malpractice as well as IPAB. In a press release touting the vote, the AMA echoed the common complaint that the IPAB panel "would have too little accountability and the power to make indiscriminate cuts that adversely affect access to healthcare for patients." But the AMA still gives PPACA a thumbs up. The group was an early supporter of PPACA, just not for the parts that involve cuts to the physician payment formula.
Winner: 60 Plus Association
Billing itself as the "conservative alternative" to the AARP, 60 Plus earmarked $3.5 million for anti-IPAB media buys in five states where Democratic senators are vulnerable. Pat Boone, the aging crooner and the group's national spokesperson, tied each senator to IPAB—no small feat since the actual repeal vote was in the House—and asked residents to urge the senators to "support real Medicare reform and protect our seniors." The ad will probably help put IPAB in play for the upcoming election season and increases the media profile of the 60 Plus Association.
Thursday's House vote to eliminate the Independent Payment Advisory Board, or IPAB as it is commonly known, provides Republicans and some Democrats with symbolic bragging rights and not much more. There's very little likelihood that the Democrat-controlled Senate, which is home to some of IPAB's biggest boosters, will even take up the issue during this legislative session.
That means IPAB, which is part of the massive Patient Protection and Affordable Care Act, remains the law of land…for now.
IPAB is the cost-cutting board empowered by PPACA to analyze the drivers of Medicare cost growth and recommend policies to control that growth.
IPAB membership
The President, in concert with Congressional leaders, will appoint 15 individual IPAB members who must be confirmed by the Senate. IPAB members will serve six years and make about $165,000 annually. The legislation mentions expertise in things like health finance and economics, actuarial science, and health facility management. Among the membership requirements: employers, physicians, consumers, and experts in prescription drug benefits.
It will be a full-time job, with members expected to keep up with healthcare cost trends, utilization numbers, patient access to care, and quality issues so they can step in when needed to make proposals to rein in Medicare cost.
There have been media reports that President Obama has reviewed some candidates for the IPAB board, but the administration is playing it close to the vest with public information about potential candidates. The board is supposed to be in place in 2013.
Timothy Jost, a law school professor at Washington & Lee University who has studied IPAB, tells HealthLeaders Media that he hasn't seen any movement toward putting IPAB in place. Noting that IPAB members won't be able to do research or consult during their six-year terms, he says, "I can't imagine anyone signing up for it."
How IPAB will work
Supporters see IPAB as similar to Medicare Payment Advisory Commission (MedPAC) but with the power to actually implement what it thinks needs to be done. IPAB recommendations to reduce Medicare costs will be put in place unless Congress votes to block them and comes up with equivalent cost-cutting measures.
In reducing costs, there are a lot of things IPAB can't do, such as raise Medicare revenues or premiums, increase Medicare beneficiary cost-sharing (including deductibles, coinsurance, and copayments), or restrict or reduce benefits. Critics contend that the only thing left for IPAB to regulate is some provider reimbursements, which could limit access to care. Hospitals are exempt from IPAB until 2020.
The board will look at Medicare costs through the lens of inflation as well as the gross domestic product.
There's a chance that IPAB won't kick into gear for a while. The Congressional Budget Office estimated in 2011 that, based on Medicare spending trends, it could be a decade before any IPAB action is needed.
What happens next?
Republicans in the House effectively framed the IPAB debate as their effort to defend seniors from a rationing board. They may have a good campaign issue to appeal to Medicare beneficiaries. Although the Senate is unlikely to take any IPAB action, the issue will be top of mind for senior voters.
Still, the Department of Health and Human Services has proven itself adept at implementing the ACA despite its critics. Look for HHS to continue to press for IPAB.
In a vote primarily along party lines, the House of Representatives voted Thursday to repeal the portion of the Patient Protection and Affordable Care Act that would have created the Independent Payment Advisory Board.
By a 223-181 vote the House approved HR 5 (the Help Efficient, Accessible, Low-cost, Timely Healthcare (HEALTH) Act of 2011) with four amendments:
to eliminate the findings and purpose of the bill,
to extend liability coverage to on-call and emergency room physicians under the Public Health Service Act,
to amend the McCarran-Ferguson Act to apply antitrust laws to the business of health insurance, and
to grant limited civil liability protection to health professionals that volunteer at federally declared disaster sites
Republicans (and some Democrats) have been vocal opponents of the independent board, which would be empowered by the ACA to analyze the drivers of Medicare cost growth and recommend to Congress policies to control those costs, if spending exceeds a targeted growth rate. The common complaints were that the unelected board usurped the powers of Congress to govern and that the board would have the power to ration healthcare.
The medical malpractice portion of HR 5 limits punitive and non-economic damages (so-called pain and suffering) to $250,000 and limits contingency fees to a set percent of the damage recovery.
At best the vote is symbolic. It is unlikely that the Democratic-controlled Senate will even consider a repeal of IPAB or malpractice tort reform for that matter.
Sen. John Cornyn (R-TX) introduced in February the Healthcare Bureaucrats Elimination Act (S 2118) to repeal IPAB. The bill has 22 Republican co-sponsors and no Democratic co-sponsors.
Academic medical centers, those bastions of clinical care, medical research, and medical education, face a number of challenges as healthcare reform becomes more ingrained in the delivery of medical care.
Of course, AMCs have always conducted business in a challenging environment, but the difference now is that a lot of things are happening all at once, explains Alicia Harkness, principal at PwC's Health Research Institute. An effort to learn how academic medical centers are coping with the changes resulted in a PwC study: The Future of Academic Medical Centers: Strategies to Avoid a Margin Meltdown.
According to the study, AMCs have performed well financially in the past largely due to a carefully choreographed mix of revenue that has enabled the clinical work of hospitals and physicians to subsidize research and education. But thanks to the Patient Protection and Affordable Care Act, change is brewing on both policy and political levels that will require academic medical centers to rethink their funding, the value of their brands, and their organizational alignments.
The analysis is based on interviews with thought leaders and executives representing healthcare providers, payers, and professional associations. Survey results are based on responses from an online survey of academic medical center leaders and 1,000 healthcare consumers.
Funding
According to PwC, 10% of traditional AMC revenue could be cut due to external funding threats, such as lower indirect medical education (IME) funds and reduced disproportionate share hospital (DSH) payments. With operating margins that average 5%, some AMCs may see their profit margins disappear altogether, the report says.
About 70% of AMC leaders responding to the PwC survey identified as a revenue threat the potential reduction in IME funds. The president's budget proposal includes a 10% reduction in IME by 2013. Harkness says IME isn't the largest bucket in terms of dollar amounts, but AMCs recognize that IME funding is an easy target for policy makers who often contend that it isn't directly related to patient care.
In 2014 PPACA will begin reducing DSH payments. The first-year aggregate reduction of $500 million will grow to $4 billion in 2020. Some 61% of AMC leaders recognize this as a revenue threat. Also in 2014 millions of uninsured will migrate to private insurance or Medicaid. That means Medicaid revenues will increase and AMCs will need to attract their share of the newly insured patients to make up for declining DSH payments.
Brand Breakdown
Academic medical center brands are a conundrum. Although AMCs are among the most recognized and powerful in healthcare they often do not fare well in quality ratings. The report noted that when the Joint Commission ranked the top quality performers of 2010 few major AMCs were among the more than 400 hospitals ranked.
Harkness says she was surprised that only 49% of AMC leaders felt that not meeting new quality standards was a threat to their organization, especially since healthcare reform strengthens the link between quality standards and reimbursements. "AMCs will need to rely on more than past reputation," cautions the report.
Charges associated with care delivered by AMCs are also worrisome. AMCs may be perceived to be high-cost providers in an accountable care environment focused on lowering costs. Only 22% of consumers survey said they would pay more to be treated at an AMC.
Organizational Alignments
The highly decentralized governance structure of AMCs makes it difficult to respond to current and future challenges in the healthcare environment, the report suggests. AMC leaders responded less favorably to initiatives that required significant cultural changes to their governance structure.
Only 11% of leaders were considering consolidating departments to streamline operations, for example. However, 74% were willing to embark on the less-impactful cultural change of integrating IT systems.
The report suggests five strategies to help academic medical centers strategically rework the way they operate:
1. Build the brand by holding faculty accountable for cost and quality. Well-entrenched faculty and organizational structures make it difficult to address costs and quality. AMCs must place an equal focus on reforming organizational structure and improving quality outcomes.
2. Become part of the larger healthcare community network. AMCs have tended to be independent organizations, but healthcare reform encourages partnering with high-quality, low-cost providers such as community hospitals. Some 59% of consumers surveyed said they were likely to seek medical treatment at a community hospital affiliated with an AMC.
3. Leverage technology to extend reach and effectiveness. Some 69% of AMC leaders said they are likely to adopt extended services such as online collaborative classrooms, simulation technology, and telemedicine.
4. Become an information hub. Some 65% of AMC leaders said their institutions will collaborate with other research institutes or medical centers to share electronic health records and to share data to enhance scientific discovery.
5. Align the research pipeline with clinical and business strategies. AMCs are redirecting their research dollars. Around 62% of AMC leaders indicated that coordinating translational research will be a high priority over the next five years.
It won't be an easy transition. Harkness notes that while academic medical centers haven't really needed to change over the years, the delivery of healthcare is more complex now and "the opportunity is there to leverage their platform to change."
For the past three years Blue Shield of California and hospitals that are part of the Hospital Association of Southern California (HASC) have taken an extraordinary step to resolve claims denial issues—they've shared information!
That might seem like a no-brainer. But the rule has been (and still is in most circles) that health plans don‘t share very much information about claims processing with hospitals. For years the two suffered more or less in silence as unresolved claims ping ponged between hospitals and Blue Shield.
Eventually the two sides began talking about their mutual frustration with the inefficiencies in the claims process. From those discussions Blue Shield developed its Partnership in Operational Excellence and Transparency program. POET is a web-based analytics portal that consolidates claims data on password-protected dashboard to provide 36 months of claims data, including cycle time, submission details, denial percentages, and appeals information to 175 participating hospitals.
The payer-provider combo has reduced claims denials from 22.8% to 17.4%, cut the claims cycle time from 31.9 days to 28.1 days, and increased the electronic transmission of data from 85.2% to 90.3%.
The program has produced about $8 million in administrative savings for hospitals so far according to Kenny Deng, senior director, provider relations and operations for Blue Shield. Savings are related to the lower labor costs per completed claim, faster claims payments to the hospitals, and a reduction in the number of resubmitted claims.
On a per-episode basis the labor costs associated with a claim returned for additional information is $30; for a technical denial (eligibility issues, for example) it's $75; and for a clinical denial, including authorization disputes, it's $175.
Deng estimates that if more payers and providers addressed their inefficient claims process that saving could top $80 million in the California market alone and $800 million nationally. On a national level a PricewaterhouseCoopers study notes that $1.2 trillion is wasted in the U.S. health system each year with inefficient claims processing accounting for $210 billion of that waste.
Savings aside, the best part of the process says Deng is the relationship that is developing between Blue Shield and the hospitals. The two meet quarterly to review the claims data stream, identify the root cause of any lingering claims issues, and to work through solutions without finger pointing. "There's trust there," Deng explains.
George Mack, vice president of payer/provider and member relations for the Hospital Association of Southern California, calls the POET program a "major step forward" in driving out waste in the claims process. He is speaking with other payers about adopting a POET-like system and expects to have another payer adopt the effort sometime this year.
Participating in POET requires the infrastructure to handle electronic data streams. But sometimes the real challenge is getting a hospital to understand the value of the data and properly use the reports. Mack says that's where the HASC collaboration helps.
"We can talk to other hospitals and explain that POET is an opportunity to get faster, accelerated cash by identifying the root causes of claims denials." He explains that POET is a "process deep dive" down at the revenue cycle level and is an opportunity to work directly with the hospital staff in the trenches working and analyzing the claims. The deep dive is "like digging for gold," he says. "The gold is there. We just need to get down into the mine to find it."
While POET can be implemented with existing claims and IT personnel, Deng says the most important component is the support of senior hospital executives. He mentioned one hospital that had 59% of its processed claims denied in 2011. The hospital receives POET information and is in talks to join, but isn't officially part of the program yet.
The case represents the necessity of making sure everyone gets the information they need to be comfortable with the program. The frustration, says Deng, is that some of the hospital's claims problems are likely easily fixed.
For example, in one case, using an incorrect format accounted for 15% of the claims denied. Health plan use different types of formats for different claims, and while it sounds complicated, Deng says it's just an educational process of matching health plans, claims, and formats.
Dan Martinez, director for patient financial services at Mission Hospital Medical Center in Mission Viejo, says that once the system is up and running, it takes about an hour each month to review the claims denial data and identify trends.
Among Mission's cost savers: It reduced its cycle time for claims by 70% by clarifying documentation requirements and shifting from paper claims to electronic submissions.
For its part, Blue Shield and has just announced a collaboration with the Hospital Council of Northern and Central California, which will add about 160 hospitals to the POET system. Blue Shield is also piloting the process with 30 physician groups.
The process is part of an effort to "break down silos," explains Martinez. "A lot of claims problems are because hospitals and payers "just speak different languages."