Feature Article
Past Issue
ObamaCare: Who’s Winning, Who’s Losing
The Affordable Care Act’s Likely Winners and Losers.
David J. Gibson, M.D.
Increasing federal spending by over a trillion dollars during the next decade will have profound effects on the health care delivery system here in the United States. This level of spending will generate vast fortunes for some of the existing and emerging vendors, consultants and manufacturers within health care. Others, those concentrated at the patient care level; will experience catastrophic downside risks and consequences. This article explores those entities that will likely be the winners and the losers under health care reform over the next decade.
Introduction:
Health care in the U.S. is an incredibly complex, decentralized industry that will consume over $2.6-trillion of the country’s resources this year. After restaurants and hospitality, health care is now the biggest industry that employs the most people in the United States. It consumes 24 percent of the federal budget. Over the coming decade (2012-2021), the Affordable Care Act (ACA) will increase net federal spending on health care by more than $1.15 trillion. ACA will add between $340 billion and $530 billion to federal deficits over the same period, with accelerating amounts thereafter.
It is be prudent to view the above alarming cost projection with a high degree of skepticism. In the past federal cost projections have been grossly understated. For example in 1967, the House Ways and Means Committee predicted that the new Medicare program, launched the previous year, would cost about $12 billion in 1990. Actual Medicare spending in 1990 was $110 billion—off by nearly a factor of 10. Another example, the Iraq war, cost between 40 and 100 times the original estimates.
The losers
Let us start out by looking at those parties that will likely experience the most dislocating losses because of the ACA’s implementation. It is disconcerting that the losers will concentrate at the patient and actual care delivery levels while the winners will be peripheral players at the vendor, product sales, consultants, manufacturing, insurance company and criminal fund diversion levels within the industry.
The patient / beneficiary
As we discussed in our prior publication, Ten Likely Outcomes from the Affordable Care Act’s Implementation, none of the promised benefits for patients that would result from passage of the ACA are proving to be correct.
· Despite the ACA’s stated goal of 32 million more insured people by 2019 (92% of non-elderly population), the country will likely experience a drop the percent of covered individuals.
· Many currently covered individuals will lose coverage as the cost of their insurance premiums increase dramatically. The cost of their health insurance will rise dramatically (in some markets increases in premiums could double in price with premium rate shock for 2014 according to statements by Aetna, the third-largest private health insurer in the U.S). Most will be facing increases in the neighborhood of 20 to 50 percent.
· Dis-incentives for employers to continue sponsoring employee health plans will result in the employee, and their dependents, obtaining insurance coverage through the massive web based Health Care Exchanges called for in the ACA that at this point looks un-implementable.
· Patients will be required to seek new physicians as their existing doctors become employees of large, generally hospital owned, medical group practices.
· Medicare beneficiaries will face $32 billion in increased Medicare cost sharing (increase Part B deductible for new beneficiaries starting in 2018 (-$2 billion);
· Increase income-related premiums under Medicare Parts B and D ($28 billion) in 2017;
· Establish home health cost-sharing $100 per episode ($350 million) in 2017; and
· Establish a surcharge for Part B premium for beneficiaries with Medigap plans with low-cost sharing requirements ($2.5 billion) in 2017.
· Congress has been warned that if it fails to avert a huge cut in Medicare pay, droves of physicians would quit the program, leaving many seniors in a medical lurch. Military families also would experience less access to care, because their TRICARE coverage is based on the Medicare fee schedule.
The most important dislocation will be the development of a health plan centric vs. a patient centric system payment system. As payments for goods and services are concentrated into a progressively centralized system, the industry that results will be population outcomes rewarded rather than individual patient outcome and satisfaction rewarded. Decision making within the evolving health care system will reflect this new reward system.
Population based rewards will have profound consequences for patients who will find their physicians locked into an “evidence-based medicine” regimen that treats them like mere statistics and confines personal knowledge of them to demographic variables of age, race, and gender (like the Dartmouth Atlas does). In the near future, they will find themselves assigned to an Accountable Care Organization without their knowledge or consent. In population-based medicine, standardization of treatment is by far more important than physician autonomy.
All of this will come as a shock to patients. They generally now interact with health care holistically. They are unique individuals that are fully realized human beings with a complete range of emotions, abilities, resources, and support systems. Experience has shown that these qualities have an enormous influence on outcomes and can only be factored into any treatment plan by a personally involved health care professional with the autonomy to override statistical based best practice protocols. How can a system that views the government and third party payers as the customer treat the patient’s autonomy with respect?
Young People
Young people, as a subset of patient / beneficiaries, are specifically at greater disadvantage under ACA. On average, young people are much healthier than older people are, and consume less health care services. Ordinarily, therefore, young people are much cheaper to insure than older people are. Under free-market conditions—what insurance pros call experience rating—the typical 18-year-old costs one-sixth what it costs to insure the typical 64-year-old. However, ACA requires community rating, which has the potential for doing the most damage to the private insurance market.
Under Federal Health and Human Services (HHS) published community rating standards, ACA requires that insurers only charge three times as much to their costliest beneficiaries as what they charge to their least-costly ones. This requirement will increase the cost of insurance for the young by 75-percent.
ACA advocates assert that younger people should pay more so that older people pay less. However, most young people are at the beginning of their careers. They are starting families, and generally have lower incomes as well as far less savings, than older people do. The results, young people will likely look at community rating as a gross inter-generational wealth transfer mechanism.
If a young person is required to pay $8,000 or more for a health insurance premium that is overpriced by 75-percent or more per year when they rarely use the health care system, the resulting incentive will be to drop coverage. Should young people drop out of the insurance market and thereby skew the risk pool demographics; older Americans will face much higher rather than lower premiums than they would have under the current experience-rated system.
Tax Payers
ACA contains twenty new or higher taxes. Five of the taxes hit for the first time on January 1. In total, for the years 2013-2022, Americans face a net $1 trillion tax hike for the years 2013-2022, according to the Congressional Budget Office.
ACA includes higher taxes for all tax payers who are sick and have medical bills exceeding 7.5% of income. They include higher taxes for families with special needs children who had previously been spending more than $2,500 a year from a Flexible Spending Account. And they will be reflected in higher medical bills for anyone who needs a hip or knee replacement, a pacemaker or any other medical device.
Medicare spending cuts that help pay for covering the uninsured have started to take effect, but they are staggered. The law's main benefit, coverage for 30 million uninsured people, will take a little longer. It does not start until Jan. 1, 2014.
Generating the revenue to pay for ACA was at the heart of the debate in Washington over the “Fiscal Cliff”. Employees are in the cross hairs. Taxing health insurance benefits are now at the top of the loophole closing options. About half of Americans benefit from the tax-free status of employer health insurance. Workers pay no income or payroll taxes on what their employer contributes for health insurance. It's the single biggest tax break allowed by the government, outstripping the mortgage interest deduction, the deduction for charitable giving and other better-known benefits.
If the value of job-based health insurance were taxed like regular income, it would raise nearly $150 billion in revenue in 2013, according to congressional estimates. By comparison, wiping away the mortgage interest deduction would bring in only about $90 billion. If the sequestration debate in Washington turns tax revenue beyond increasing rates, taxing health benefits is the biggest pot of money of all.
It's hard to see how lawmakers can avoid touching health insurance if they want to eliminate loopholes and curtail deductions so as to raise revenue to pay for ACA. Even without touching this loophole, tax increases individuals will face related to ACA’s revenue generation will include:
· Starting January 1, a limit on the amount employees can contribute to tax-free flexible spending accounts (FSA) for medical expenses. FSA’s limits are now set at $2,500 for 2013, and indexed thereafter for inflation.
· Starting Jan. 1, individuals making more than $200,000 per year, and couples making more than $250,000 will face a 0.9 percent Medicare tax increase on wages above those threshold amounts.
· The Congressional Research Service cites a 0.9 % tax on individuals earning over $200k ($250k joint filers) through a Medicare payroll tax, tax on unearned (investment) income, and a medical device tax.
· People who don’t get health insurance. Nearly 6 million people who don’t get health insurance will face tax penalties starting in 2014. The fines are estimated to raise $6.9 billion in 2016. Average penalty in that year: about $1,200.
· Absent legislative action, after 2012 the estate tax will return to pre- Economic Growth and Tax Relief Reconciliation Act of 2001 (the Bush tax cut) rules, with a top rate of 55% and a $1 million exemption
· A 10-percent sales tax on indoor tanning sessions took effect in 2010. This relatively inconsequential personal tax increase is expected to raise $1.5 billion over 10 years. Tanning salons were singled out because of medical evidence that exposure to ultraviolet lights increases the risk of skin cancer. So, in essence this is a behavior modifying sin tax.
· Together all of the above represent the biggest tax increase on individuals in the health care law.
Physicians
We are predicting that practicing physicians will also become big losers under the ACA’s implementation. They have been placed in harm’s way by their own trade associations. The American Medical Association (AMA) and many state medical societies, supported the administration during the debate over ACA, the outcome of the act’s implementation will have a devastating effect on these organizations’ constituent physicians.
Primary care physicians are uniquely vulnerable to the intended and unintended consequences of ACA. For openers, they face peripheralization from their current position within the delivery system.
When the Affordable Care Act’s insurance mandate takes effect in 2014, some 30 million newly covered patients—people generally treated in emergency rooms now—will be shopping for doctors. In addition, the U.S. Census Bureau also projects a 36% rise in Americans eligible for Medicare during the next decade.
That is a problem because the U.S. now has 15,230 fewer primary-care physicians than it needs, according to the U.S. Department of Health and Human Services. Furthermore, in 2010, the Assn. of American Medical Colleges projected a shortage of 130,600 physicians by 2025, with half of the shortfall occurring in primary care specialties.
Thus, expect significant modifications in the scope of practice now reserved to licensed physicians that will accrue to physician extenders – Physician’s Assistants (PAs), Nurse Practitioners (NPs), pharmacists and various home based care givers.
· Eighteen states now allow nurses to deliver primary care without a doctor’s supervision.
· NPs and PAs, now generally independently staff retail clinics (such as MinuteClinics),
· Pharmacists, who work in federal agencies start, stop or adjust medications, order and interpret laboratory tests, and coordinate follow-up care.
· Community aides, without certification training are now delivering largely unsupervised home-based care.
Currently, medical care generally has coordination, continuity communication and accountability generally under a primary care physician’s leadership. To spin off care delivery into a desperate network of various licensed and unlicensed caregivers represents a new increased risk paradigm for health care delivery that most patients will find foreign.
Reduced reimbursement for physician services is now a reality in Medicare and will soon become generalized as private health insurance companies base their reimbursements on Medicare fee schedules. Congress passed the Balanced Budget Act of 1997 in an effort to reduce budget deficits. Part of this law included the Sustainable Growth Rate (SGR) for Medicare payments to doctors under Medicare Part B. Each year since 2002, the statutory method for determining the annual updates to SGR system, has resulted in a reduction in the reimbursement rates.
Recognizing the destabilization effect that these cuts would impose upon Medicare and the resulting political fallout, Congress has passed a series of bills that has overridden the SGR called for cuts each year since 2002. The just completed “Fiscal Cliff” resolution continued this pattern of avoidance by extending the cut prevention for an additional year. The cost for cost for delaying this 26.5 percent payment cut for Medicare physician’s payment by one year will be approximately $30 billion.
However, this issues does not go away. At best, it delays the cuts by only one year. While seniors will see no changes in their benefits Medicare providers will face $11 billion in cuts through the end of the government’s fiscal year on Sept. 30. For doctors who take Medicare patients, that would be an additional 2 percent reduction on top of the 26.5 percent scheduled Medicare payment cut, if it is not “fixed” by then.
The American Academy of Family Physicians (AAFP) calculates that if the SGR reduction takes effect, the average family physician stands to lose $27,000 in Medicare revenue next year. The loss for a 3-physician practice would be $80,000. Those estimates do not include possible reductions by private insurers, which typically peg their rates to Medicare's
In reality, all of the $245-billion in SGR savings referenced above are already spent the projected $700 billion plus savings built into the ACA’s cost saving projections with the primary purpose being to finance the called for growth in Medicaid.
Physicians have three contracting options with Medicare next year
The most drastic measure available to physicians in the Medicare reimbursement crisis is changing their status in the program in 2013. The program gives them an opportunity every year to choose one of three contractual options for the coming year. The deadline for making the choice is December 31.
The three options consist of Medicare participation, Medicare nonparticipation and private contracting with seniors, which represents dropping out of the program entirely.
Physicians who choose participation accept Medicare's allowed charge for a particular service as payment in full for all Medicare patients. This is called taking assignment on Medicare claims.
Nonparticipation means that physicians take assignment on a claim-by-claim basis. If they choose not to take assignment, they can bill the patient within limits for more than Medicare pays.
In private contracting, a physician bills the patient directly, and neither one can receive any reimbursement from Medicare. Physicians who opt out of the program this way must wait 2 years before rejoining it as either a participating or nonparticipating provider.
Physicians can anticipate further loss of autonomy in the future under ACA. Hospitals now directly employ about 20% of practicing physicians, according to the American Hospital Assn. With declining levels of reimbursement, increasing office costs for information systems such as electronic medical records and coordinated efforts to limit independent physicians from contracted provider panels, the number of physicians who are self-employed will continue to decline. Now more than 60% of physicians younger than 40 are employed by a hospital, physician group practices or other corporate entities.
The cost resulting from the AMA’s support for ACA is now becoming apparent. The AMA has a valuable contract[1] which it negotiated in 1997 originally with the Health Care Financing Administration (HCFA). HCFA’s successor is the Centers for Medicare & Medicaid Services (CMS) which is now the contracting party. The contract calls for CMS to use the AMA’s primary asset, the Current Procedural Terminology (CPT) Coding system in reporting physicians' services under Medicare and Medicaid rather than substitute the use of CPT Codes with the non-proprietary and Medicare derived Healthcare Common Procedure Coding System (HCPCS).
CPT Codes are the registered trademark of the AMA and represents one of the organization’s primary proprietary assets.. The organization reported total income of $273.8-million in 2010 with royalties for their CPT Code product contributing $72-million, which does not include affiliated publishing royalties. The AMA’S CPT Codes define all services and procedures in the Medicare & Medicaid fee-for-service billing process.
This income stream gave the Obama Administration leverage in extracting the AMA’s support for the ACA during the deliberative process. The Administration threatened substituting the CPT Codes with the Medicare derived Healthcare Common Procedure Coding System (HCPCS) non-proprietary system and the AMA chose to protect their proprietary CPT asset over the objections of the majority of their physician membership.
Now practicing physicians are facing the consequences of organized medicine’s pecuniary self-interest. They are facing catastrophic reductions in their reimbursement levels (an over 30% reduction under Sustainable Growth Rate (SGR) mandated cuts for Medicare payments to doctors under Medicare Part B), loss of autonomy and re definition of their leadership role in the evolving health care system. In addition, physician practices are facing a projected $590 million in penalties for not meeting EMR “meaningful use” criteria starting in 2020. These penalties will further drive the closure of physician owned practices with physician consolidation into hospital owned groups.
Further, the AMA generated pyric consequences are becoming apparent as the CPT Codes are becoming progressively marginalized with the rise of bundled service and outcomes based reimbursement.
Hospitals
Hospitals are also in a precarious position as a direct result of the leadership of their trade association, American Hospital Association (AHA), the national organization that represents nearly 5,000 hospitals, chose to support the enactment of the ACA. The reasoning behind this decision was complex.
On the one hand, expanding health insurance coverage addressed the issue of uncompensated care. On the other, ACA is designed as a managed care, health plan paradigm under which hospitals have profited in the past. Under managed care, hospitals have successfully consolidated into regional oligopolies that dictate service pricing to health insurance companies. They successfully lobbied Medicare to advantageously reimburse technical fees for hospital owned diagnostic and therapeutic facilities at the expense of those owned by physicians. They were empowered to build vertical delivery systems that dominated both Part A (in-patient institutional) and Part B (out-patient mostly professional) Medicare reimbursements.
So supporting ACA’s passage seemed to be advantageous to the hospitals goal of becoming the corporate center for health care delivery with regional hegemony while ACA would mitigate the liability of uncompensated care.
Unfortunately, the above AHA beneficial assumptions are now facing the harsh realities associated with ACA’s implementation. Hospitals are being forced to place big bets on the future the ACA will ostensibly deliver.
· Hospitals are now further consolidating. We are witnessing consolidation of community hospitals into regional systems and regional systems into multi-state entities.
· Hospitals are betting that by merging into larger and larger systems they will experience advantages from scale (information technology, contracting, and purchasing) and increased efficiency to their business model performance). History does not support this assumption.
· The shift away from fee-for-service payments and towards capitations and bundled payments has many hospitals straddling two very different environments with very different reward systems.
· They are also betting big on an evolving pay-for-performance (P4P) reimbursement methodology. Medicare is already moving toward a P4P business model. It is highly likely that the insurance products offered within the HIE market will likewise move to the P4P reimbursement model where on a population basis, provider performance will be based upon outcomes rather than resource utilization.
ü The fatal liability buried within this bet involves the assumption that improved P4P will generate increased levels of reimbursement that will justify the capital costs of creating the business model infrastructure.
ü Acquiring physician practices, creating captured medical groups and developing Accountable Care Organizations (ACOs), purchasing expensive information systems such as electronic medical records will require a return on investment. At this point, it appears highly unlikely that such a return will be realized in the future.
· The core problem with realizing a return on investment is the increasing levels of uncertainty hospitals face as it relates to their core assumptions within their business model. These assumptions challenges include:
ü Of the $716 billion in Medicare savings projected under ACA’s enactment, the majority of the cuts will come from reductions in how much Medicare reimburses hospitals.
ü ACA changed how Medicare calculates what hospitals get reimbursed for various services with progressive lowering of their rates over time. For example, Hospitals face:
ü Penalties for unnecessary hospital readmissions (Medicare will now not pay the costs of re-admissions)., and hospital acquired conditions (bedsores, complications from extended use of catheters, and injuries caused by falls, etc.),
ü Bundled Part A & Part B payments for serving patients with End Stage Renal Disease (ESRD),
ü Starting Oct. 1, 2012, Medicare reimbursements have been reduced by 1%. That money goes into an incentive pool to ostensibly reward hospitals that score well on a value-based-purchasing program. Hospital reimbursements can be penalized an additional 1% if their Medicare 30-day readmission rates above the national average. In theory, hospitals that perform poorly in both measures could lose up to 2 percent of their Medicare reimbursements through Aug. 31, 2013, when a new formula takes effect.
ü The uncertainty of $5 billion in Medicare promised support over the next ten years for developing Accountable Care Organizations may be cut during current budget negotiations in Washington.
ü The establishment of an Independent Payment Advisory Board (IPAB) that is tasked with reducing Medicare costs by almost $24 billion by 2019 – most of these savings will be coming from high tech hospital based treatment episodes.
ü “Safety net” hospitals that now see more uninsured patients will face a 5-percent reduction in reimbursement.
ü 
Teaching hospitals will see a $10-billion reduction over the next 10-years in support for Medicare Indirect Medical Education (IME) starting in 2014.
ü Rural and small community hospitals will lose $2 billion in reimbursement funding during this same time-period.
ü Hospitals will also lose $36 billion in Medicare funding starting in 2013 that previously reimbursed hospitals for Medicare patients’ failure to pay their required share of co-insurance and co-payment costs (bad debt).
ü Post-Acute Providers, many of which are hospital owned, will experience $63 billion in reduced payments via various policies to skilled nursing facilities (SNFs), long-term care hospitals, inpatient rehabilitation facilities (IRFs), and home health agencies by cutting payment rates from 2013 through 2022
ü If the federal government negotiations fail to avoid the “fiscal cliff,” the hospital industry faces an automatic 2-percent reduction in Medicare reimbursement under sequestration beginning in January of 2013.
ü Going forward beyond the above called for in the ACA, the Presidents 2013 budget calls for an additional $268 billion in Medicare provider cuts and $51 billion in Medicaid cuts. The Administration’s budget offers alternatives to the across-the-board sequestration cuts, in an effort to shield entitlements, required under current law to begin January 1, 2013.
· Compounding all of the above destabilizing effects for hospitals, within the “Fiscal Cliff” fix just signed into law hospitals are going to pay for this one-year physician reimbursement reduction extension discussed in the previous section. Medicare will reduce hospital payments in two ways. First, it will cut $10.5 billion from projected Medicare hospital payments over 10 years for inpatient or overnight care through a downward adjustment in annual base payment increases. The measure will also would reduce Medicaid disproportionate share payments to hospitals by an additional $4.2 billion over the next decade. These cuts are on top of those made to hospitals as part of the 2010 health care law.
· All of the above add considerable uncertainty to every hospital’s revenue cycle as well as the institution’s long-term financial liability.
It is worth noting that ACA does not address demand for services. The act rolls back payment rates for hospitals and insurers. However, it does not change the scope of benefits that patients now enjoy. From a political perspective, beneficiaries vote, hospitals do not.
It is important to understand that hospitals are in a uniquely vulnerable financial position and are ill equipped to handle disruptions in reimbursements from Medicare and Medicaid. One fourth of the hospitals are now operating at a loss and many that are not face a severe cash crunch. They face the likelihood of insolvency at each pay period. Much of this has been precipitated by the fact that hospitals were caught flat-footed when the private insurance market moved toward high deductible health plan (HDHP) designs over the past few years. Hospitals have traditionally cost shifted the under delivery cost reimbursement by Medicare and Medicaid to the private health insurance market.
As the following graph demonstrates, HDHPs now constitute over 20-percent of the market and are growing each year at the market expense of managed care products. The typical institution experienced immediate increases in their uncollectable aged patient receivables as a direct result. Thus, the institution’s ability to absorb unexpected reductions in revenue from any or all of the above is limited.
The various bond-rating agencies are now beginning to issue warnings as a result. Assuming likely outcomes, hospitals are in harm’s way for catastrophic consequences resulting from ACA’s implementation.
The problem with the hospitals’ bet is that there will not be a return on investment that warrants the capital costs the hospitals are now incurring. Population based medicine does not generate a return on investment by leveraging advantages from scale. Rather it rewards preferentially selecting low case mix patients and deselecting those that are high. Like it or not, a reimbursement system that does not pay for high case mix patients will inevitably lead to an underwriting process for admission that avoids institutional exposure to high resource utilizing patients.
The Winners
A recently published study examined the savings projected during the enactment of the ACA that justified its passage involved reducing fraud, inefficiency associated waste and abuse within the current health care delivery system. To address these issues, the ACA mandates massive investments in information technology, delivery system restructuring and third party payment infrastructure redesign. As a result, most of the winners within this process will be product manufacturers, vendors and insurance companies that facilitate the health system’s redesign rather than the providers that actually deliver health care services to patients. The following summarizes the likely big winners in the health care reform process now underway.
Electronic Medical Record Companies
The drive to convert medical data to digital format has resulted in the spending of billions of taxpayer funds over the past four years. Unfortunately, most of this mandated investment is being spent on EMRs that are not yet ready, either operationally or from a security perspective, for deployment.
EMR companies have been profiting from taxpayer money under this administration dating back to the Health Information Technology for Economic and Clinical Health (HITECH) Act, enacted as part of the American Recovery and Reinvestment Act of 2009. The HITECH Act included billions of dollars in government incentives for medical providers that transition from paper records to EMRs.
The ACA represents an extension of this taxpayer funding for Information Technology (IT) goods and services. ACA included two primary mandates relating to IT. The first involved electronic Medical Records (EMRs). The second mandated that the federal and state governments establish new electronic systems for enrolling individuals who will purchase insurance in Health Insurance-based Exchanges (HIE) starting in 2014 (see the details in the next section).
The ACA calls for distributing $27 billion to implement Meaningful Use EHR incentive program, based on published rules for Stage 2 and early recommendations for Stage 3. The leading EHR systems are written in the Massachusetts General Hospital Utility Multi-Programming System (MUMPS) language that represents 1960s technology. Meaningful Use also relies on outdated standards such as version 2.x of Health Level Seven International's messaging standards rather than the more recent version 3.
Not one of the currently available EMR products is fully interoperable. The EMRs on the market are all provider rather than patient centric in that they are not integrated with personal health records (PHRs). Rather the current systems primarily focus on documentation to justify reimbursement.
Rather than reducing costs, these systems are enabling up coding and are driving inflation within the system. An investigative report issued on September 15, 2012, by the nonprofit Center for Public Integrity reported that medical professionals have increased their billings to the Medicare program by at least $11 billion over the last ten years. The use of more remunerative billing codes “may be accelerating in part because of increased use of electronic health records, which make it easy to create detailed patient files with just a few mouse clicks
Furthermore, it is now clear that the EMR systems being deployed lack the security to protect the patient’s clinical and identity information. The HHS inspector general is rightly concerned about the security of electronic medical records after two recent government reports found many security lapses and potential problems with electronic medical records. The second audit examined computer security at seven large hospitals in different states and found 151 security vulnerabilities The auditors classified 4 out of 5 of the weaknesses uncovered as “high impact,” meaning they could result in costly losses, even injury and death
Despite the problems relating to EMRs, we are predicting that the EMR vendors will continue to enjoy massive taxpayer funded growth over the next 5-years. This makes the EMR developers and manufacturers clear winners within ACA’s implementation.
Health Care Insurance Exchange Consultants and Vendors
Despite a projected cost of more than $150 billion over five years to develop a nationally interoperable system, including equipping physicians with standardized IT systems, the task of implementing and managing Health Insurance Exchanges (HIEs) is not feasible from a logistical, patient privacy, operational and technical perspective. Twenty-seven states have already said they will not participate while only 17 have committed to doing the work on their own. Six have requested a “hybrid” federal-state model. That means HHS will probably be responsible for fallback federal exchanges in full or in part in as many as 33 states.
An additional complication not generally appreciated, the administration’s congressional allies botched the drafting of the HIE aspect of the health care overhaul. As enacted, ACA does not empower federal exchanges to distribute taxpayer-funded subsidies to individuals. Only state-based exchanges are empowered to distribute the subsidies. HHS projects that Americans will spend $23 billion in federal subsidies through the exchanges in 2014. Most of these subsidies are currently at risk given the above.
The only option facing the federal government will be to contract under lucrative terms with large numbers of consultants and vendors from the private sector to approach a project of this magnitude.
Massive spending of taxpayer funds opens the door to political manipulation and crony capitalism. Do you remember the Emergency Economic Stabilization Act of 2008, the Troubled Asset Relief Program (TARP) Government Motors, and Solendra? Crony capitalism will be alive and thriving under ACA.
We anticipate that the various contractors and subcontractors that develop and thereafter manage the HIEs across the states will enjoy massive spending by the federal government that in the end will not work but will make the contractors and their investor’s incredibly wealthy.
Medical device manufacturers and sales
Medical devise worldwide sales for 2011 are estimated to be more $300 billion with the U.S. being the largest market. The U.S. medical devices industry is growing due to aging Baby Boomers, unmet medical needs, and increasing incidences of lifestyle diseases like cardiovascular, hypertension, obesity, and diabetes as longevity increases.
Direct to consumer (DTC) advertising by device manufacturers is on the rise. One cannot listen to the news on cable television without seeing an endless series of advertisements for monitoring devices, self-lubricating catheters and self-powered wheelchairs. In 2005, medical device makers spent $116-million on DTC advertising. During the past 3 years, device makers have substantially increased their spending on DTC ad campaigns. Some have borrowed from the consumer-product model by hiring celebrities to tout their devices.
Medicare now spends more than $10 billion a year providing beneficiaries with medical equipment. Medical devices represent an area that has been rife with fraud throughout all medical entitlement programs. Court records document that unscrupulous suppliers have sold beneficiaries items they may not need and successfully bill the cost to Medicare.
As an example, a just released Inspector general’s report found that Medicare paid $919 on average for back braces that cost suppliers an average of $191 each. The report found promotional materials generated by the manufacturer and targeted at attending physicians described how they could make an added $350 to $650 for each Medicare patient who qualifies for a brace. Medicare paid for more than 121,000 of the braces in 2011, compared with fewer than 49,000 in 2008. The $96 million that Medicare spent on back braces in 2011 was a small sliver of its total spending, but that amount had more than doubled in just three years, up from $36 million in 2008, the report said.
With ACA’s anticipated delivery of 32 million more insured people by 2019 and with the growth of DTC generated demand we are predicting a profitable future for device manufacturers, wholesalers and retailers. Physicians, lacking the time or the incentive to change the industry’s DTC generated demand for the various products will simply authorize the product’s purchase by third parties.. Thus, it is safe to predict that device manufacturers, wholesalers and retailers will be big winners as a result of ACA.
Pharmaceutical Companies
Pharmaceutical manufacturers are eagerly awaiting the implementation of the ACA. Spending in the U.S. for prescription drugs was $259.1 billion in 2010. Revenue is projected to double over the next decade. The current rate of growth has slowed from the highs of the 1990s and early 2000s to a more modest rate, but revenue is expected to increase sharply in 2014 after the implementation of the Affordable Care Act (ACA) as demonstrated in the accompanying graph.[2]
Growth trends are strong for the industry. The number of medicines being prescribed has increased: from 1999 to 2011 with the number of prescriptions increasing by 43% (from 2.8 billion to 4 billion), outpacing U.S. population growth of 9%.
It is projected that ACA will add $1.5-trillion in new taxpayer funding to the health care system over the next 12-years. Pharmaceuticals now consume 10-percent of health care spending in the U.S. Thus, the ACA will provide for an incremental expansion of coverage that should result in $150-billion, a 10% increase in revenues for pharmaceutical companies. The bulk of new patients will come in 2016 through the Medicaid channel.
The above projected increase in revenue does not factor in the effect of direct-to-consumer advertising (DTCA). To drive demand for pharmaceutical products beyond current spending percentages, the manufacturers are actively engaged in DTCA. The United States is one of only two developed countries that allow DTCA of prescription drugs. (The other country is New Zealand). By 1999, the average American experienced nine prescription drug advertisements on television every day. The number of television ads increased 40-fold between 1994 and 2000." The following table provides an historical perspective on DTC spending. The table demonstrates that the pharmaceutical manufacturers invest preferentially in DTCA over physician education and new product research and development.
Prescription Drug Promotion and Research and Development, 1997-2005.
|
Year
|
Spending on DTC advertising
|
Spending on promotion to physicians
|
Retail value of samples
|
Research & Development
|
|
Total percentage increase, 1997-2005
|
296.4
|
86.0
|
162.4
|
103.3
|
(All figures in $Billions)
(Source: U.S. Government Accountability Office, Prescription Drugs: Improvements Needed in FDA's Oversight of Direct-to-Consumer Advertising', GAO report Number GAO-07-54, December 14, 2006
With no additional investments in new products, the pharmaceutical manufactures anticipate increases in revenue from taxpayer funding while they drive demand through DTCA. It is easy to project that pharmaceutical manufacturers will be winners under ACA.
Insurance Companies
Medicaid is rapidly converting from its traditional any-willing-provider fee-for-service delivery system to private HMO delivery systems, often without the consent of the beneficiaries. Medicaid's enrollment totals nearly 47 million, according to the Kaiser Family Foundation, roughly 60 million, or one in five Americans, receive coverage at some point during the year. The share of Medicaid enrollees in managed care plans rose from 56 percent to 71 percent in the past 10 years, according to Kaiser.
The ACA raises the federal income limit for Medicaid eligibility to 133 percent of the poverty level and broadens the type of enrollees to include adults who have no children. The changes will add 15 million Americans to Medicaid, according to estimates by the Congressional Budget Office, which will boost enrollment by about 30 percent. These enrollment gains will have a corresponding 30 percent boost to earnings for the private Medicaid HMO companies.
Although the full opportunity is several years away, investors appear to be seizing on it, as shares of insurers that specialize in Medicaid sharply outpaced the rest of the industry’s financial performance. For example, Centene Corp (CNC.N) rose more than 30 percent, and Amerigroup Corp (AGP.N) gained more than 20 percent. Fellow Medicaid specialists Molina Healthcare (MOH.N) and WellCare Health Plans Inc (WCG.N) also outperformed any other health care related investment.
We are placing these Medicaid HMO insurance companies, with their potential for growth and increased margins firmly in the winner’s column under ACA.
Fraudsters
By far the biggest winners under ACA’s health care reform will be criminals. They have no fixed costs and bill using identity theft for products and services that are either not needed or never delivered. Both Medicare and Medicaid, since their inception during the mid-1960s, have proven to be a magnet for fraudulent diversion of funding to criminals.
Fraudulent activity will increase with Medicaid’s mandated expansion, Medicare’s demographically driven growth and the opportunity for identity theft that results from EMR deployment.
As discussed above, Medicaid will increase by 15 million, which represents a 30-percent increase in the program’s size. The U.S. Census Bureau also projects a 36-percent rise in Americans eligible for Medicare during the next decade. The EMR enables identity theft on a massive scale that precludes accurate projections as to the increased incidence of fraud that will result.
The Government Accountability Office estimates that fraud consumes close to 10% of annual program spending for both Medicare and Medicaid. Independent investigators suggest the rate is 20% or even 30% but their reports have never been published do to confidentiality agreements required by the various states.
The following table estimates the current amount of fund diversion from each program and total federal spending using the above percentage estimates. In addition, the table projects the increased level of fraud that will occur from 2014 forward with the growth of Medicaid under ACA and Medicare’s demographic growth.
Roughly calculating the potential diversion of taxpayer funding for $1.274-trillion in 2010 spending on health care entitlements, the range of possible diversion goes from a low of $127-billion at the GAO’s estimated 10-percent diversion rate to a high of $382.2-billion at the private external audit rate of 30-percent.
|
Total spending
|
GAO 10% estimate
|
20% estimate
|
30% estimate
|
|
Medicare
|
$.520
|
$.052
|
$.104
|
$.156
|
|
Medicaid
|
$.416
|
$.041
|
$.083
|
$.124
|
|
Other
|
$.338
|
$.033
|
$.067
|
$.1014
|
|
Current Total
|
$1.274
|
$127.4
|
$254.8
|
$.3822
|
|
Demographic growth in the Medicare and ACA growth in Medicaid Programs**
|
|
Medicare 36% growth over decade
|
$.7072
|
$.07072
|
$.14144
|
$.21216
|
|
Medicaid 30% growth in 2014
|
$.5408
|
$.05408
|
$.10816
|
$.16224
|
|
Post ACA Total
|
$1.586
|
$.1586
|
$.3172
|
$.4758
|
|
Post ACA Medicaid growth
|
$.1248
|
$.01248
|
$.02496
|
$.03744
|
|
Medicare growth
|
$.1872
|
$.01872
|
$.03744
|
$.05616
|
|
($trillions)
|
|
* Kaiser Family Foundation 2010 spending data
|
|
** Assumes no growth in Other programs
|
The increased funding for Medicaid with be approximately $540-billion and the demographically driven increase within Medicare will be $707.2-billion. That generates a $1.58-trillion in increased spending for these programs and gives the fraudsters an opportunity to increase fund diversion, using current estimates at a low of $158-billion to a high of $475.8-billion in additional fund diversion.
Beyond program growth, the insertion of EMRs provides fraudsters a powerful tool to enhance their fund diversion activities. Fraudsters covet health care records, since they contain identifiers such as names, birth dates and Social Security numbers that can be used to construct a false identity or send Medicare bogus bills. EMRs are known empowerment tools for criminals.
According to the HIPAA records, nearly 21 million Americans have had their EMRs stolen or lost since 2009. The largest single theft was from TRICARE, the Defense Department's civilian healthcare program for Armed Forces members, retirees, and their dependents. In 2011, 4.9 million TRICARE members' EMRs entered into the public sphere after one of their subcontractors lost a cache of back-up tapes. The tapes contained sensitive personal data such as clinical notes, laboratory test results, and prescriptions.
In another example, the exposure to foreign hackers of the records of more than three quarters of a million Utah Medicaid and Children's Health Insurance Program beneficiaries could become a watershed event in the history of healthcare information technology.
In recent years, federal prosecutors have broken up criminal gangs based in Armenia and Ukraine running massive Medicare and insurance-fraud schemes, The records stolen from Utah are likely to be used in medical frauds, and if that happens, fictitious records based on those frauds “are going to proliferate through health information exchanges and public health databases.”
Given CMS’s demonstrated inability to protect either the Medicare or the Medicaid programs; and given the anticipated explosive growth each program will experience over the next decade; criminals will enjoy a license to steal into the foreseeable future as they accelerate their fund diversion from these two entitlement programs.
Conclusion
The following table summarizes the winners and the losers under ACA. It also attempts to project a rough estimate as to the amount of gains and losses each participant in the system can expect after ACA’s implementation starting in January 2013.
| |
Medicare
|
Medicaid
|
Private Insurance
|
|
The losers
|
|
Patients
|
$32 billion in increased Medicare cost sharing; $28 billion in increase income-related premiums under Medicare Parts B; $350 million home health cost-sharing at $100 per episode
|
30 million uninsured people with either Medicaid or subsidized private insurance with no capacity within the system for them to access the health care delivery system.
|
40-100% increases in private insurance premiums
|
|
Hospitals
|
36% growth over decade with reimbursement below the cost of service delivery. Plus an estimated $500-billion in reduced payments and penalties
|
30% growth in beneficiaries that Medicaid reimburses far below the cost for delivering health care services.
|
Private insurance fee schedules pegged at a percent of Medicare marks the end of cross subsidization from private to entitlement reimbursement.
|
|
Doctors
|
Similar growth in Medicare beneficiaries with below service deliver cost plus and estimated $200-billion in penalties and reduced rates of reimbursement.
|
30-million new insured patients reimbursed at below cost of service rates and no capacity to absorb the volume.
|
Private insurance fee schedules pegged at a percent of Medicare marks the end of cross subsidization from private to entitlement reimbursement.
|
|
The winners
|
|
EMR Vendors
|
Health care reform will deliver between $50 - $60 Billion in tax payer funding for ERM products
|
Additional reimbursement incentives from private insurers for HER conversion
|
|
HIE Consultants and vendors
|
Health care reform has already budgeted over $150-billion to development and support of the HIE with the eventual spending likely to be much higher. This figure does not include insider profits realized from crony capitalism.
|
The same consultants and vendors are pushing for a private health insurance exchange
|
|
Medical device manufacturers
|
Medicare now spends $10 billion a year providing beneficiaries with medical equipment. With a 36% growth in Medicare and a 30% growth in Medicaid, expect an overall doubling in growth ($10-billion) in taxpayer spending for medical devices
|
No foreseeable change in current spending.
|
|
Pharmaceutical companies
|
$150-billion in new tax-payer funded spending for pharmaceuticals
|
No foreseeable change in current spending.
|
|
HMO Insurance companies
|
36% boost in earnings for the private Medicare HMO companies
|
30 percent boost to earnings for the private Medicaid HMO companies
|
|
|
Fraudsters
|
Between $158.6-billion and $475.8-billion in tax payer funding diverted to fraudsters each year from government entitlement programs. These estimates do not include the likely increase in identity theft that will occur with deployment of EMRs throughout the health care system.
|
No foreseeable change in current diversion of funding to criminal activity.
|
It requires an incredibly inexperienced group of arrogant, ideology committed wonks to design and implement a Rube Goldberg like reformed health care delivery system such as is called for within the ACA and then impose it nationally rather than introduce it cautiously in demonstration projects. The reform process will waste billions of dollars on technology that is not ready for deployment. It will destabilize the entire delivery system and it rewards unessential peripheral players including criminals that divert taxpayer funding for their nefarious gain. When this effort fails, it will be national rather than demonstration size in scope and it will have long lasting catastrophic results that will cripple America’s health care system.
It is reasonable to assume that ACA is not about improving health care at all. Rather, the revanchists now making policy in Washington are taking a big political risk. The problem with going big and shooting for a new collectivist Zeitgeist, is that it had better work. This over reach to restructure the complex $2.4-trillion American health care system using untested concepts is not going to work.
As currently designed, ACA’s health care reform penalizes patients and those entities that provide care for them while it rewards peripheral players that have no responsibility or accountability for delivering health care services. Furthermore, given the fragile economic status of most health care providers, particularly hospitals, interruptions in payment cycles stemming from the ACA penalties and reforms could quickly result in bankruptcy for a high percentage of providers both professional and institutional that make up the backbone of America’s health care delivery system.
David Gibson is the CEO of the Fraud Prevention Institute, a policy organization dedicated to preventing fraudulent diversion of public funding from public health entitlement programs.
Contact davidjgibson@fraudpreventioninstitute.org.
[1] The first clause of which states that “HCFA shall adopt and use [the AMA's] CPT-4 in connection with HCPCS, for the purpose of reporting physicians' services under Medicare and Medicaid. HCFA agrees not to use any other system of procedure nomenclature in HCPCS for reporting physicians' services.”
[2] Note: 2000-2009 shows average annual growth in that period.
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