The Politics of ReformA National and State Perspective

Steve DicksonPresident/CEO

Stratagem

Today’s discussion:• Quick History of Major Health Care Reforms in Modern America.

• Why Health Care Reform is Needed.

• What the Health Care Reform Act Does.

• Political Reality and the Current Environment.

• Health Care Reform Implementation.

• Will it be Repealed?2

Health Reform Becomes Law

The Patient Protection and Affordable Care Act (PPACA) was signed into law March 23. It was amended by the Health Care & Education Affordability Reconciliation Act, which was signed into law March 30. Together, the legislation:

→ Provides coverage to 32 million uninsured people by 2019.

→ Costs an estimated $940 billion over 10 years (2010-2019).

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Why Was Health Reform Needed?

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Why Health Reform?→ Today, there are 51 million uninsured individuals. That number grows daily.

→ Over the last 10 years, insurance premiums have risen 131%.

→ An average family of four pays more than $13,000 annually in premiums.

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What’s Included in Health Reform?

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Health Reform: Key Elements→ Expanding coverage

→ Reforming the delivery system

→ Financing reform

→ Protecting Medicare & Medicaid payments

→ Building the workforce

→ Wellness and prevention

→ Quality and safety

→ Regulatory oversight & program integrity

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158 million

50 millio

n

25 million

23 million

26 million

Source: Congressional Budget Office

Expanding Coverage to 32 Million

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Coverage: Individual Mandate

→ In 2014, all individuals will be required to obtain coverage or face a penalty.

→ Individuals can purchase coverage from newly created “insurance exchanges.”

→ Federal help for some individuals to pay for insurance.

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“Small companies and individuals who don’t have

insurance through work will be able to purchase

insurance through newly created marketplaces, known

as insurance exchanges, created and regulated by

states.

… Think of it as an Orbitz or Travelocity for health care

plans.”

- USA Today

Coverage: Insurance Exchanges

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Coverage: Large Employers

Large employers (businesses with 50 or more employees) will be fined if their employees purchase health care coverage through new insurance exchanges and receive federal help to pay their premiums.

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Coverage: Small Employers

→ Employers with 10 or fewer employees who earn, on average, less than $25,000 a year can get a 50% tax credit for providing health insurance.

→ Employers with 25 or fewer employees who earn, on average, less than $50,000 can receive a partial tax credit.

Small businesses are eligible for subsidies to offer insurance and will have access to the exchange

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Immediate Insurance ReformsEffective September 23, 2010

→ No cancellation of coverage when someone becomes sick.

→ No lifetime benefit limits or unreasonable annual limits.

→ No pre-existing condition exclusions for children (under 19).

→ Free preventive care (including immunizations for children).

→ Adult children up to age 26 can stay on their parents’ plan.

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Additional Insurance Reforms

Effective September 23, 2010→ Limits insurers’ ability to set premiums based on health status.

→ Provides important administrative simplification.

Effective 2014→ Coverage can’t be denied based on pre-existing conditions.

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Reforming the Delivery SystemCreates new ways to tie payments to quality improvement.

→ Accountable Care Organizations→ Bundling Pilots→ CMS Center for Innovation→ Value-Based Purchasing

→ Geographic Variation→ Medical Homes→ Gainsharing→ Medical Liability Demonstrations

Prohibits physician self-referral to hospitals in which physicians have an ownership interest.

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Source: Congressional Budget Office

Financing Reform

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Hospitals’ “Shared Responsibility”$155 billion over 10 years is mainly achieved through: → Reduced hospital updates

→ Medicare/Medicaid DSH payment reductions

→ Hospital readmissions policy

→ Hospital-acquired conditions

But hospitals will experience reduced uncompensated care and additional revenue/payment for the newly insured.

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Encouraging Quality and SafetyThe law encourages quality and safety by:

→ Establishing a national quality improvement strategy.

→ Creating a public-private institute to analyze the comparative effectiveness of treatments.

→ Creating a patient safety research center to promote best practices.

→ Taking steps to pay for QUALITY rather than VOLUME.“Pay for Reporting” systems for all providers. Value-Based Purchasing pilot systems for many providers.

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The overarching strategic umbrella of healthcare reform

Cuts to Existing FFS System• Market basket reductions• DHS cuts• Nonpayment for anything

preventable or unnecessary

Cuts to Existing FFS System• Market basket reductions• DHS cuts• Nonpayment for anything

preventable or unnecessary

Disrupt Existing System• Bundled Payments• Innovation Center • Demonstrations• ACOs

Disrupt Existing System• Bundled Payments• Innovation Center • Demonstrations• ACOs

Track 1

Track 2

Jan Feb March April May June July Aug Sep Oct Nov Dec

Hospital value-based purchasing (Proposed)

1/7/11

Program integrity -additional provider

screening (Final)

1/21/11

Annual inpatient update

+ Readmission reduction program

(Proposed )

Medicaid HACs

(Proposed)

State Innovation –

Review & approval process

(Proposed)

Exchange(Proposed)

Annual Inpatient update +

Readmission reduction program

(Final

Transparency reports (PPSA) (Procedures)

Target dates for release of proposed and final regulations in 2011 implementing provisions of the Affordable Care Act (these are fluid and

likely to move)

Long-term and CLASS

Act(Proposed)

Uniform explanation of

benefits, coverage, definitions (Proposed)

Accountable care

organizations(Final)

Regulations implementing reform: 2011

Hospital value-based purchasing

(Final)

Annual outpatient

update(Proposed)

Annual outpatient

update(Final)

Accountable care

organizations(Proposed)

Future state• Winners and losers

• Accountability & transparency

• People-centered primary care

• E-health and other innovations

• New focus on population health and social determinants

• Risk-based, value-driven reimbursement (P4P)

• Cost reductions

• Quality across the continuum and focus on transitions

• Smaller hospitals with more intensive care

• New roles of public and private sector (partnerships?)

Intensivecare

Non-Acute/specialty care

Primary & preventative care

TODAY1766

Intensive care

Non-Acute/specialty care

Primary & preventative care

TOMORROW

Health Reform: Key Dates→ Begins reductions in Medicaid & Medicare DSH

→ Provides 100% federal budget for cost of coverage for those who are “newly eligible” for Medicaid through 2016.

→ Federal funding declines to 95% of coverage cost in 2017, 94% in 2018 and 90% in 2019

→ Begins state-based health benefits exchanges, through which individuals and small businesses with up to 100 employees can purchase coverage

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Health Reform: Key Dates

→ Begins individual mandate for health insurance

→ Sets up an independent payment advisory board to recommend to Congress ways of reducing Medicaid spending − PPS hospitals are exempt.

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Benefits of ReformThe law:

→ Expands coverage to 32 million people.

→ Builds on employer-based insurance system.

→ Initiates major insurance reforms.

→ Sets in motion future payment and delivery system reforms.

→ Increases the focus on wellness and prevention.

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The Environment: Trepidation • 9% Unemployment• 2010: Federal Spending 24% of GDP (highest since WWII)

– Tax revenues 15% of GDP• 2001 Debt: 33% of GDP; 2010 Debt = 62% of GDP• If We Remain on the Current Course:

– Deficit remains high through decade and debt will increase to 90% of GDP by 2020.

– 2025: All Federal Revenues will Only Cover Interest Payments, Medicare, Medicaid, Social Security

– 2035: Debt will Outstrip Entire Economy

The Big Deficit Driver is Healthcare, Even w/o Reform26

Election implications

• 2012 • Jobs and deficit • Healthcare focus: costs

– Transparency– Pay for value (not volume); Test and scale: Innovation Center

• Implementation, oversight & investigations• Coverage expansion?• Republicans well positioned; another historic election?

– 2012 Senate (23D/10R); Redistricting (195 R; 49 D;92 split;92 Comm), economy, jobs, Tea Party

– Open seats: Bingaman (NM); Ensign, R-NV); Lieberman (CT), Conrad (ND), Kyl (AZ), Hutchinson (TX), Webb (VA); Akaka (HI) – (5Ds – 3Rs)

• 2013

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We are not going back to the way things were.Best to proceed as though no change has occurred.

Presidential reelection and unemployment

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Senate Total Members: 100Needed for Majority: 51 Total Number of Democrats: 51 (Plus 2 Independents who caucus with them).

Total Number of Republicans: 47 

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Largest State Budget Shortfalls on Record

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*Reported to dateSource: Center on Budget and Policy Priorities survey, revised December 2010.

• Implications: Maintenance of effort/state flexibility debate• Provider tax limitations ($18.7/10 years)• Long terms financial stains on state budgets

Questions?

Steve DicksonPresident/CEO

Stratagem