The Patient Protection and Affordable Care Act (PPACA) was signed into law on March 23, 2010 by President Barack Obama. Along with the Health Care and Education Reconciliation Act (HCERA), it represents the momentous transformation of the U.S. health care system. Its main goal is to decrease the amount of uninsured citizens as well as to reduce the overall costs of health care. It is a vastly complex reform that will affect many people in aspects of their health care, costs, and the country. There are many opinions about how this reform will affect the nation, some saying it will make us better off, others saying we will be worse off, and those who do not think it will make a difference. But regardless of these opinions, what the majority does agree on is that these laws may be difficult to understand and that many are not even aware of these changes.
There are many problems that the health care industry is facing. The cost of health care may arguably be the most important factor that people are concerned about. Many think that health care policies and premiums are too expensive. Coupled with the fact that our population is aging, meaning that there will be more elder people with more health problems, health care costs are rapidly growing and take up a huge chunk of the federal budget. There are also many loopholes within the current health care system. Individuals who are looking to buy insurance can be denied based on their pre-existing conditions. Some insurance policies even have a lifetime limit on benefits. What all these examples basically sum up is that the people who are in need of health care the most are those who are also the most unlikely to be insured, or are under insured.
In an attempt to address these issues, the PPACA and Reconciliation Act were established. The Health Care and Education Reconciliation Act was enacted to amend the PPACA. It is divided into two titles, one addressing the health reform and the other addressing student loan reform. It makes changes to some parts of the PPACA. That is why many people commonly refer to the overall health reform as just the PPACA. The most noted change this brings is that it requires almost all citizens to have health care insurance, or to pay a penalty.
Some examples and cases regarding this issue will be discussed later on. The PPACA also considerably expands public insurance as well as funds private insurance coverage. It will close loopholes such as setting life time limits as well as making it illegal to reject coverage for those with pre-existing conditions. In terms of affordability, the PPACA will expand Medicaid to cover low-income families and individuals across the nation. It also aims to cut down and reconstruct Medicare spending, which will be the main focus of this paper.
II. The Impacts of the PPACA and HCERA on Medicare and Health Physicians
The PPACA is made up of 10 titles. I will be discussing selected provisions in Titles II, III, IV, and V regarding Medicare. These include program modifications and payment to Medicare’s fee-for-service program, the Medicare Advantage, prescription drug programs, Medicare’s payment process, changes to address, waste, fraud, and abuse, and other miscellaneous Medicare changes. As for the HCERA, the first title has provisions detailing health care and revenues. Subtitle B of Title I involves provisions that change provisions PPACA relevant to those listed above (Medicare Advantage, fee-for-service, and prescription drug programs). Subtitle D has provisions regarding decreasing fraud, abuse, and waste in Medicare. Subtitle E discuses revenue related provisions such as a provision that changes Medicare tax provision in PPACA.
A. Impacts on Medicare
According to the Congressional Budget Office (CBO), the provisions in PPACA as amended by the HCERA will reduce direct spending by an estimated $390 billion (CRS, 2010). The provisions that are predicted to produce the largest savings include the following: (1) developing an Independent Payment Advisory Board to create changes in Medicare payment rates is presumed to save about $16 billion (2) decreasing Medicare payments to hospitals that aid a vast number of low-income patients, is expected to reduce expenditures by an estimated $22 billion (3) permanent deductions to Medicare’s fee-for-service payment rates (4) changing the high-income adjustment for Part B premiums, and (5) making maximum payment rates in Medicare Advantage closer to spending in fee-for-service Medicare. However, it is critical to note that these are just estimates.
Medicare is made up of four parts that are each accountable for paying for various benefits, dependent on different eligibility criteria. Under traditional Medicare, Part A and Part B services are usually paid by a fee-for-service basis (services supplied to a patient is reimbursed through a separate payment). Part A supplies coverage for skilled nursing facility (SNF) services, inpatient hospital services, hospice care, and home health care, which are subject to some limitations. Provisions that reduce Part A spending make up a large part of the savings related to this legislation through either payment changes or constraining payment updates. PPACA will alter Medicare’s payment updates to Part A hospitals to account for cost savings, which will significantly reduce Medicare spending in the next 10 years.
Under PPACA (Title III Subtitle A Section 3001), beginning for discharges on October 1, 2012 hospitals will acquire value-based incentive payments from Medicare. The first year of the value based purchasing (VBP) program will aim at collecting data and assessing performance. Starting in 2013, adjustments to hospital payments will be made based on performance by the VBP program. There will also be VBP standards established (i.e. levels of improvement and accomplishments), as well as a method for assessing how hospitals perform. Hospitals with the highest score will obtain the biggest VBP payments. Those that meet or go beyond the standards are able to receive an increased DRG payment for each discharge within the year. However, to provide for these VBP incentive payments the DRG payments will be reduced by a certain percentage: 1.0% in 2013; 1.25% in 2014; 1.5% in 2015; 1.75% in 2016; and 2.0% in 2017.
An alternate choice to receive covered benefits would be Medicare Advantage (MA). Private health plans are paid a per person amount to supply all Medicare-covered benefits to those who enroll in the plan under MA. The payments made to MA plans are decided by comparing the maximum amount Medicare will pay for benefits with a plan’s cost of providing those required benefits. If the plan’s cost is below the maximum, then it is paid the cost plus a rebate equal to 75% of the difference to the maximum.
But if the plan’s cost is above the maximum, then it is paid and must also charge the enrollee the difference between the cost and the maximum. PPACA modifies how the maximum payment is decided. Beginning in 2012, it will implement benchmarks (maximum amount Medicare will pay for benefits) calculated as a percentage of per capita FFS Medicare spending. It will also increase benchmarks depending on the quality of the plan. Those with a high quality rating will get an increase in their benchmark while new plans or those with lesser enrollments may also qualify to get an increase. PPACA will also vary the plan rebates based on quality with new rebates set from 50% to 70%.
In regards to changes affecting Medicare’s prescription drug benefits, the health reform makes a few changes to the Medicare Part D program. PPACA increases the premiums held by higher income enrollees. The income standards are set to be at the same manner and level as that in Part B. Beginning in 2011, those enrolled in Part D will have a 50% discount for drugs during the coverage gap. In extension, HCERA will supply a rebate of $250 to those who enter the gap in 2010. Hopefully this phases out the “donut hole” (coverage gap) by slowly lessening the cost-sharing and coverage gap for generic and brand name drugs.
Medicare’s finances are operated through two trust funds, the Hospital Insurance (HI) and the Supplementary Medical Insurance (SMI) trust fund. The main provider of income to the HI fund, which pays for Medicare Part A, is the payroll taxes paid by employers and employees. Medicare Part B and D are funded by general revenues and monthly premiums. In addition to all the previous provisions addressing Medicare’s financial issues, there is another precautionary step being taken. The PPACA has a provision to establish an Independent Payment Advisory Board with the goal of decreasing Medicare spending.
B. Impacts on Physicians
The PPACA and HCERA make various changes to the Medicare program, which in turn affects physicians and how they practice. Some of these provisions have clear consequences, such as immediately changing physician reimbursement, while others have indirect influences on how physicians may practice in the future by modifying the incentives to improve the delivery and quality of care.
PPACA broadens the Medicare Physician Quality and Reporting Initiative (PQRI) incentive payments though 2014 and administers a penalty for those who fail to report quality measures starting in 2015. It also supplies for a further bonus to physicians who meet the requirements of an assessment program, such as the Maintenance of Certification Program, while penalizes the physicians who fail to meet those standards in the future. Under Section 3002 of Title III, Medicare claims data will be used to provide reports to physicians that measure resources used to provide care for Medicare beneficiaries.
Under Section 3007 of Title III, the Secretary of HHS is obliged to create and administer a separate payment modifier to the Medicare physician fee schedule. This payment should be based on the relative cost and quality of the care provided by physicians. The quality of care should be assessed based on risk-adjusted measure of quality determined by the Secretary. Costs are also assessed based on measures determined by the Secretary. Risk factors such as ethnicity, demographic, socioeconomic characteristics, and health status should be taken into account. By January 1, 2012 these explicit measures of cost and quality, along with implementation dates of the adjusted payments should be published.
III. Regulations & Implementation
With such significant changes and provisions being made, there should be a way to keep track of how each is being regulated and implemented. I will discuss the regulations, time limits, and effective dates on how each are being done so by year.
The first changes of 2010 start with Medicare provider rates. This includes reductions in the annual market basket updates for hospital services. Currently, there have been productivity adjustments added to market basket update in 2012. The Centers for Medicare and Medicaid Services (CMS) have issued these updates for varying provider types starting in August 2010. The implementation of the Medicare Beneficiary drug rebate, which supplies a $250 rebate to those in the Part D coverage gap, started January 1, 2010. In May 2010, the CMS published a brochure containing information about the coverage gap in Medicare Part D. As of March 22, 2011, about 3.8 million people have received the $250 rebate (HHS, 2011). As for closing the Medicare drug coverage gap, on December 17, 2010 CMS sent a letter to pharmaceutical companies addressing guidelines to the Medicare Coverage Gap Discount Program. This program became effective on January 1, 2011.
Moving onto provisions implemented in 2011, Medicare payments for primary care will provide a 10% bonus payment for services. It will also provide the same bonus to general surgeons working in areas with a shortage of health professionals. This is being implemented starting in January 1, 2011 through December 2015. As for the MA payment changes, they will restructure payment to private plans and prohibit higher cost-sharing requirements. This has been in effect since January 1, 2011. The CMS issued a notice to MA plans in April 2010 addressing the freeze in 2011 payment rates at 2010 levels. A Medicare Independent Payment Advisory Board made up of 15 individuals to arrange proposals and recommendations to decrease the per capita rate of growth in spending if it exceeds targeted rates was planned to be established. On October 1, 2011, funding was made available and the first proposals are due January 15, 2014.
In 2012, the second part of the MA plan payments, which reduce rebates paid and provide bonuses to high quality plans, went into effect on January 1, 2012. On February 28, 2012 the CMS sent out a letter to MA plans addressing the payment rates for 2012. Fraud and abuse prevention was also implemented on January 1, 2012. It establishes procedures for screening and reporting those who participate in Medicare. On March 23, 2011 CMS issued a notice addressing the fee that providers would have to pay to fund the screenings. Later on in the year, on October 1, 2012 Medicare value based purchasing was put into effect. This creates a program to pay hospitals based on their quality of performance.
This coming year in 2013, there will be a few provisions to come into effect starting off the new year. On January 1, 2013 the Medicare tax increase (increases the Medicare Part A tax rate on wages by 0.9% on incomes of $200,000), Medicare bundle payment pilot program (program to create and assess payments for certain services), and the latter part of the prescription drug coverage gap (reducing coinsurance) will be put into effect.
As for 2014, the last of the Medicare provisions will be implemented. The Medicare Advantage plan loss ratios are mandated to be no less than 85%; this will begin at the start of the year on January 1, 2014. The second implementation for that year will be Medicare payments for hospital-acquired infections; it will decrease payments to those hospitals for their hospital-aquired conditions by 1% and this process will continue onto 2015.
IV. Cases Challenging PPACA
When the PPACA and HCERA were signed into law, many people opposed and sued claiming that the reform was unconstitutional for a number of reasons. The most controversial was the mandate that require most citizens to obtain health insurance coverage, and if failing to do so would have to pay a penalty in the form of an individual tax. Another debated provision was the expansion of the Medicaid program to cover even more individuals, such as those with low income. All of these separate cases were then merged into a single case, The National Federation of Independent Business v. Sebelius, 567 U.S. (2012).
When ruled, it was a momentous Supreme Court decision in which the Court maintained Congress’s authority to enact the provisions of the Affordable Care Act and the Reconciliation Act. In December 2011, it was announced that there would be a 6 hour oral argumentation heard by the Court over a time span of three days beginning on March 26, 2012 and ending on March 28, 2012 discussing varying debatable topics of these provisions. By a vote of 5 to 4, the Court maintained the Individual Mandate aspect of the PPACA as a binding exercise of Congress’s authority to lay and collect taxes. The critical characterization of this financial penalty as a tax is what passed the mandate as constitutional.
Preceding this landmark case there were many previous hearings held, all having similar conflicting opinions. The Eleventh Circuit was also dealing with arguments in relative cases challenging PPACA. While it was assumed that the Fourth Circuit, which had heard oral arguments before the Eleventh Circuit, would issue a decision on PPACA first, the Eleventh Circuit was actually the second to issue its opinion, on August 12, 2011. In Florida ex rel. Bondi v. U.S. Department of Health & Human Services (2011) the plaintiffs of the case were two private individuals, the National Federation of Independent Business, and 26 individual states.
The Eleventh Circuit then published a 300-plus page opinion finding by a 2:1 majority that the Individual Mandate (requiring health insurance coverage) is unconstitutional, and thus created a split of authority between the two Circuits. The Eleventh Circuit heard this appeal from the United States District Court for the Northern District of Florida, which saw the Individual Mandate to be an unconstitutional exercise of Congress’s authority. The district court also found that the Individual Mandate was not applicable to the rest of the PPACA, meaning that the whole act was invalid. The plaintiffs in the district court case also debated that the PPACA’s expansion of Medicaid was unconstitutional, but the district court granted the government judgment on that issue and the Eleventh Circuit agreed to that court’s decision.
These two cases show how divided opinions can be and how difficult it was and is to pass a health reform law. Opinions are still divided, concerning many aspects such as the Medicaid expansion, the Commerce Clause, and the Necessary and Proper Clause. On the issue of Medicaid expansion, no one, single opinion had the support of the majority of the Justices. Also, on the issue of if the Individual Mandate was within the authority of Congress under the Commerce Clause and the Necessary and Proper Clause, again there was no single opinion that was supported by the majority of the Court. Despite all these controversies, and even though the act has passed, there are still those who are continuing to pursue litigation in order to repeal and defeat the PPACA.
Medicare spending has been increasing much more rapidly compared to the general economy, and this definitely raises concerns about Medicare’s long-term sustainability. The provisions in the Affordable Care Act and the Reconciliation Act were established to decrease Medicare program costs by about $390 billion over the following 10 years through modifications in payments to various providers, by leveling payment rates between fee-for-service Medicare and Medicare Advantage, and by boosting efficiencies of how health services are delivered and paid for. Overall, the PPACA and HCERA are momentous pieces of legislation that will restructure the future of the U.S. health care system. It is still unclear of how well these provisions have been implemented, with some still having yet to be so.
The main concern is probably how well costs will be contained or reduced. With all of these new taxes, hopefully the reform will actually reduce the federal deficit over the next ten years that these provisions are being implemented. There is still much work to be done within the next few years, to see how this reform works out. Many people are glad that it has passed and support this reform as well as encourage it to be expanded, while others oppose the reform arguing that it creates too much government involvement in the issue.
But since it has passed and is enacted in the present, people should make use of what is being provided. Some are not even aware of the changes in the health care industry and are oblivious to how they are being affected. That is why it is important to stay informed and make decisions, after all this is what directly affects your future.
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Affordable Care Act. Letter to the Honorable Evan Bayh. Congressional Budget Office, Washington, DC. Retrieved November 3, 2012 from: http://www.cbo.gov/doc.cfm?index=10781. Kaizer, J. (2010). Implementation Timeline. Health Reform Source. Retrieved November 5, 2012 from: http://healthreform.kff.org/timeline.aspx Hilgers, David W. (February 2012) Physicians post-PPACA: not going bust at the healthcare buffet. The Health Lawyer, Vol. 24. Retrieved November 4, 2012 from: http://www.americanbar.org/content/dam/aba/publishing/health_lawyer/health_mo_premium_hl_healthlawyer_v24_2403 Pozgar, George D. (2009). Legal essentials of health care administration. Missisauga, Ontario: Jones and Bartlett Publishers, Michael Brown. National Federation of Independent Business v. Sebelius, Secretary of Health & Human Services
567 U.S. (2012) No. 11-393 Argued March 26-28, 2012 – Decided June 28, 2012 Florida ex rel. Bondi v. U.S. Department of Health a& Human Services, 780 F.Supp. 2d. 1256 (N.D. Fla. 2011), order clarified by 780 F.Supp. 2d. 1307. (N.D. Fla. 2011).