Health Care Law Reform : Health Care Lawyer & Attorney : McDermott Will & Emery Law Firm : Managed Care, Product Regulations

The Facts 

Both the House health reform bill, H.R. 3962 (Affordable Health Care for America Act), and the Senate health reform bill, H.R. 3590 (Patient Protection and Affordable Care Act), include provisions establishing one or more health insurance marketplaces (exchanges). The exchanges would serve as an organized and transparent marketplace designed to facilitate access to, evaluation of and purchase of qualified health insurance plans by individuals and small businesses. Premium subsidies would be available through the exchange, and benefit packages would be structured in standardized tiers. An exchange would seek to create a large enough risk pool so that competition among insurers would increase not only with respect to pricing but on quality and service aspects as well. Insurance market reforms in both bills would disallow preexisting condition exclusions and impose medical loss ratio requirements. 

There are key differences between the House and Senate proposals. The House bill would create one national exchange overseen by a new federal agency, the Health Choices Administration (HCA), with an opt-out provision for states under certain circumstances. The HCA would oversee the health plans and premiums charged for policies available through the exchange. Under the House bill, the exchange would be the exclusive marketplace for all individual (non-group) policies, other than grandfathered policies. Insurers would be required to bid to participate in the exchange, with the HCA able to negotiate terms before allowing a plan to participate in the exchange. By contrast, the Senate bill provides for each state to establish and administer its own exchange, subject to compliance with minimum federal standards, with federal intervention if a state does not provide an exchange. 

What’s at Stake

The exchanges will be at the crux of revamping the individual and small business markets. Whether there is a single national exchange or separate state exchanges will have significant implications for providers, payors and consumers. The House proposal could offer greater economies of scale and potential efficiencies for products offered across state lines, but would represent a significant shift from how insurance is currently regulated at the state level. The Senate proposal would retain the benefit of the local market knowledge of the states and would preclude an additional layer of federal regulation. 

Steps to Consider

Understand the impact of the exchanges on structure and oversight of the insurance market, evaluate current plans and prepare for refinements needed to transition to new exchanges.

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The Facts

On January 14, 2010, congressional leaders and the White House announced that they had reached a compromise with labor unions to proceed with the excise tax on so-called Cadillac, or high-cost, health plans. The excise tax was included in the Patient Protection and Affordable Care Act (H.R. 3590) passed by the Senate. The provisions of that bill called for a 40 percent excise tax on insurance companies and plan administrators for any employer-sponsored health coverage whose value exceeded $8,500 per year for individuals and $23,000 for families. The tax was to take effect in 2013.

The compromise reached last week with the labor unions dictates that the thresholds for the tax will be slightly higher than in the Senate bill—$8,900 for individuals and $24,000 for families. These threshold levels would be increased based upon age, gender and geography to prevent the tax from disproportionately affecting people in high-cost groups. Additionally, starting in 2015, dental and vision coverage will not contribute to the thresholds. Most importantly for the labor unions and their employers, the new compromise exempts collectively bargained health plans and state and local government employees from the tax until 2018. This exception was made to accommodate for the fact that many unions negotiated better health benefits for their members at the expense of wage increases.

The tax is expected to raise $90 billion in revenue over the next 10 years. By contrast, the original Senate bill would have raised $149 billion over 10 years.

What’s at Stake

Businesses with high-cost health care plans hiring non-union employees would feel the effects as early as 2013 under this compromise proposal. Businesses with collectively bargained health care plans are likely to benefit from the exemption from the excise tax until 2018, which gives unions time to renegotiate their agreements with employers.

Steps to Consider

Businesses should evaluate their health care plans to determine to what extent they will be affected by this tax. Insurers should assess the impact of the tax on the coverage they offer.

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The Facts

The Senate health care bill, the Patient Protection and Affordable Care Act, includes provisions (detailed in Sections 6301 and 6302) establishing a nonprofit corporation, the Patient-Centered Outcomes Research Institute (PCORI). The PCORI will conduct research and disseminate findings with respect to “the relative health outcomes, clinical effectiveness, and appropriateness” of medical treatments, services and items. The PCORI will not be permitted “to mandate coverage, reimbursement, or other policies for any public or private payer.” However, the government may use comparative clinical effectiveness research in coverage decisions “if such use [of the research] is through an iterative and transparent process which includes public comment and considers the effect on subpopulations” and under other constraints.

What’s at Stake

Regardless of whether this particular bill is passed, comparative effectiveness research is likely to become an ever greater part of how government determines whether and what it will choose to reimburse. Companies with a stake in governmental reimbursement will need to be aware of the direction of comparative effectiveness research and be prepared to justify services and products on that basis.

Steps to Consider

• Evaluate whether the products and services you offer have a comparative advantage over other products or services promising the same outcome. 
• Evaluate what the clinical basis is for your comparative advantage, including any effect on subpopulations.
• Keep informed about the direction of the PCORI’s research agenda and initiatives to decide whether your area is under review.
• Be prepared to establish comparative clinical effectiveness if the PCORI’s research does not agree with the results of your own research on your products or services.
• Be prepared to participate in the public comment and review process if the government chooses to use comparative effectiveness in its coverage decisions, as allowed.

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The Facts

Both the House health reform bill, H.R. 3962 (Affordable Health Care for America Act), and the Senate version (Patient Protection and Affordable Care Act), include provisions (House Section 1301 and Senate Section 3022) establishing Accountable Care Organizations (ACOs).  ACOs are provider-centric organizations focused on the costs and quality of care received by a designated population of patients over time.  ACOs can consist of vertically and horizontally positioned providers, including physician groups and hospitals.  In its most basic concept, although paid on a fee-for-service basis, ACOs that meet quality-of-care targets and reduce the aggregate costs of care rendered to their patient population relative to a spending benchmark are rewarded with a share of the savings they achieve for the Medicare program.

What’s at Stake

Regardless of whether health reform legislation is passed, providers will be increasingly challenged to adopt operating models through which they are responsible and accountable for the quality, cost and overall care of a defined population of patients.  Emphasis will be placed on clinical processes and outcomes, the patient care experience and utilization.

Steps to Consider

• Evaluate why and assess those actions necessary to migrate from a financially driven model to a clinically integrated driven model if you previously operated a Physician Hospital Organization (PHO) that did not succeed. 
• Evaluate investments in infrastructure and redesigned care processes for high quality and efficient service delivery.
• Establish appropriate committees to explore and evaluate adoption of clinical best practices.
• Bolster capabilities to capture and report on quality measures.
• Coordinate with other providers to facilitate the sharing of effective strategies on quality improvement, care coordination and efficiency.
• Assess hospital-physician relationships and your ability to promote and sustain quality based initiatives.

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The Facts

On November 18, 2009, Senate Majority Leader Harry Reid of Nevada put forth the Democrats’ health reform plan, the Patient Protection and Affordable Care Act.  The more than 2,000 page bill was crafted by merging, tweaking and augmenting health reform legislation approved by the Senate Finance Committee in October and the Senate Committee on Health, Education, Labor and Pensions in July.  Set forth below are some of the bill’s principal provisions. 

• Requires most legal residents to obtain health insurance or pay a penalty of $95 in 2014, $350 in 2015 and $750 in 2016
• Imposes a $750 per employee penalty on firms with more than 50 workers that do not offer coverage if any of the firm’s employees obtain subsidized coverage through the new health insurance exchange 
• Requires coverage of prevention and wellness benefits and exempts these benefits from deductibles and other cost-sharing requirements
• Implements insurance market reforms including disallowing lifetime and annual limits and prohibiting preexisting condition exclusions
• Substantially reduces the growth of Medicare payment rates for many services (as compared to growth rates under current law)
• Creates a new independent Medicare advisory board, which could recommend payment reductions
• Seeks to promote the quality and efficiency of health care by linking payment to better quality outcomes
• Imposes a 40 percent excise tax on employer-sponsored health insurance with annual premiums above $8,500 for single coverage and $23,000 for family coverage 
• Imposes annual flat fees of $2.3 billion on the pharmaceutical manufacturing sector, $2 billion on the medical device manufacturing sector and $6.7 billion on the health insurance sector
• Imposes a 5 percent excise tax on voluntary cosmetic surgical and medical procedures
• Increases the Medicare payroll tax rate from 1.45 percent to 1.95 percent on individuals earning over $200,000 and couples earning more than $250,000
• Sets up health insurance exchanges through which approximately 25 million people are estimated to purchase health insurance coverage
• Creates a new public plan – the Community Health Insurance Option (states could opt out, and the government would negotiate payment rates with providers)

What’s at Stake

Given the sweeping nature of the bill, every aspect of health care in the United States would be affected.

Steps to Consider

• Carefully evaluate the impact of the provisions. 
• Assess the cost of compliance with the new provisions. 
• Examine ongoing business decisions in light of the direction health reform is taking.
• Consider working to impact the shape of health reform legislation.

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The Facts

The Senate’s Patient Protection and Affordable Care Act mirrors the Senate Finance Committee’s proposal to modify local Medicare Advantage (MA) Plan payments by moving to an enrollment-weighted average competitive bidding system.

Currently, local benchmarks reflect Adjusted Community Rate for each county, as updated annually over the past several years.  To calculate Plan payments, MA Organizations annually submit bids for their plan benefit packages that are compared to the benchmark for the county/counties in the Plan’s service area. 

Under the Senate bill, by CY 2015, benchmarks would equal enrollment-weighted averages of local MA Plan bids for the service area.  A ceiling would be established in each area so that local benchmarks could not exceed the levels that would have existed under current law.

What’s at Stake

The Senate proposal is markedly different from H.R. 3962, which would phase in benchmarks equal to the adjusted average per capita cost estimate payable under traditional Fee-For-Service Medicare.  Importantly, the House bill would initiate the transition beginning with the 2011 benefit year, as compared to the Senate proposal, which would initiate the transition with the 2012 benefit year.

Steps to Consider

The Senate bill is estimated to reduce MA Plan payments by $118 billion between 2010 and 2019, the traditional 10-year cost estimate period.  The Congressional Budget Office estimates that H.R. 3962 would reduce MA Plan payments by $170 billion in the same period.

In anticipation of these reforms, MA Organizations should begin to analyze their plan benefit packages, provider payment arrangements and member populations, and to discern the extent to which they can modify operations and/or develop and implement new initiatives.

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