Healthcare costs unsustainable for patients, employers and government programs
With a much anticipated vote, the Supreme Court released its much awaited opinion on the Affordable Care Act on June 28, 2012. Chief Justice John Roberts announced the majority ruling of 5-to-4 of the Court that the ACA was upheld and the individual mandate deemed constitutional. With the ruling, the High Court upheld the individual mandate under Congress’ power to tax, rather than its ability to regulate commerce. This lynchpin of the ACA requires all Americans to have insurance by 2014 or be penalized.
Of significance to providers, the Court also limited the Medicaid expansion provision of the ACA, but did not invalidate it. The exception that gave the federal government power to terminate states’ Medicaid funds for failure to adopt the ACA’s Medicaid expansion requirements is narrowly written in the majority’s finding, noting that the federal government does not have the authority to withhold states’ existing Medicaid funding. The opinion of the Court is that states may choose whether to participate in the expansion of eligibility; if a state chooses against Medicaid expansion, the state can continue to receive traditional Medicaid program funding.
Almost immediately after the High Court’s ruling, the President and Democratic Congressional leaders made public appearances, claiming victory for what has become the biggest reworked health system since the creation of Medicare in the 1960’s. Meanwhile, Republicans in Congress and the Republican presidential candidate Mitt Romney have pledged repeal if the Republican Party takes control of the White House and Congress after the 2012 election year.
Despite the excitement, political rhetoric, and anticipation surrounding the Supreme Court’s decision, many have missed the fact that the healthcare industry has already begun a transformation that will continue regardless of constitutionality or repeal or replacement of the ACA. That’s because the word of the day is “unsustainable.” The cost of healthcare is simply unsustainable for patients, for employers, and, of course, for government programs such as Medicare and Medicaid.
Several signature healthcare systems have already begun to move to a new delivery care model. The model is based upon clinical integration, focused on efficiency and outcomes. Fee-for-service, utilization and productivity are beginning to fade into the background much the same as cost-based reimbursement did back in the early 1980’s. Why? It’s simple – the federal deficit.
The federal government’s growing penchant for spending will inevitability impact current payments to providers. It should be noted that the U.S. debt is higher when compared to the European nations facing the current financial crisis. Therefore, the future survival of the U.S. will depend upon reductions in projected spending, including payment reductions. Mandatory programs (e.g., Medicare and Medicaid) when combined with Social Security, comprise approximately 55 percent of the federal budget. The U.S. is the only major industrialized country that does not limit what proportion of the federal budget is allocated to healthcare programs. This will change as the federal government faces continued deficits.
One important factor not pointed out in many reports on the individual mandate is the subject of accountability. Until patients (i.e., consumers of healthcare services) are personally more accountable for their own health, the cost of healthcare will not decrease significantly. Future reforms in the healthcare industry will look to healthcare access that provides coverage for preventive and wellness benefits. Many employers recognize this and are implementing progressive plans that reward employees through lower premiums for taking control of their own health.
The federal system will move to one centered around patient health outcomes and cost savings, rather than the volume of medical services provided. ACOs, one of the new acronyms of the ACA and a throwback to the HMO days where patient population management was critical, are currently being piloted in many areas. Providers should be closely aware of efforts to reduce the cost of the delivery of care, as payers – regardless of affiliation – will move to paying less or bundling payments around an episode of care. The days of shifting costs to the commercial or non-government payers are diminishing.
Regardless of the future of the Affordable Care Act, the basic relationships and delivery model among hospitals, physicians, insurers and patients are changing dramatically. Further economic and clinical alignment will occur, but increasingly based upon data transparency, practice protocols, and variation through evidence-based medicine, with shared accountability for population outcomes. Efficiency and clinical effectiveness will soon replace productivity and utilization.
Gregory D. Anderson, CPA/ABV, CVA, and David A. Williams, CPA, MPH, FHFMA, are partners in HORNE LLP’s healthcare division. Anderson is the author of the recently published book “The Financial Professional’s Guide to Healthcare Reform.” Williams is the director healthcare reimbursement and advisory services. HORNE is one of the largest accounting and business advisory firms in the Southeast dedicated to the healthcare industry. For more information, visit www.horne-llp.com.