Honorable Mentions in Healthcare Reform

This article is the third in a three-part series dedicated to taking an objective and detailed look at one of the most consequential pieces of healthcare legislation in the 21st century. The series will address several components of the bill as well as provide history and context where relevant. This third article will discuss other important measures introduced by the bill that were not within the scope of the first two articles.

COVERAGE FOR DEPENDENTS

The ACA includes a provision requiring insurance companies to cover the dependents of policy holders until the age of 26. The purpose of this provision was to make insurance accessible to students and individuals working to establish themselves in a long-term career. Allowing these individuals to remain on their parents’ insurance until the age of 26 increases these individuals’ spending power and ability to make important investments in their future. Such investments include pursuing higher education, obtaining specialty training, making investments in a home, or putting money away for retirement. These investments will pay dividends to society in the long term.

ESSENTIAL HEALTH BENEFITS

The Affordable Care Act also sought to set standards for minimum care levels to be provided by insurers selling plans on the exchange. Essential health benefits include services such as maternity care, preventative care, ambulatory services, and chronic disease management. These services, in part, are aimed at addressing the United States’ poor performance on basic health statistics. Ranked against all other OECD countries, the United states ranks 29th in infant mortality rates and 26th in life expectancy.[i] While you are more likely to survive an extreme health event in the United States such as heart attack, stroke, or breast cancer, you are far more likely to be hospitalized for avoidable health events related to limited access to preventative care.

Under the list of essential health benefits required of insurers selling on the healthcare exchange, are services related to substance abuse disorder treatment. The US opioid crisis, while not a new phenomenon, is an escalating issue that continues to present considerable economic headwinds. Studies have continued to report on the crisis’ impact to the country’s economic outlook. Substance abuse treatment is one of the important measures that will be needed to head off the escalating crisis.

The Affordable Care Act not only requires exchange market place insurers to cover substance abuse treatment, but it also sought to address the issue through the expansion of Medicaid. For more information on Medicaid expansion see article one of the series.

CHARITABLE CARE

Around 79 percent of the 5,534 registered hospitals in the United States operate as nonprofits. Nonprofit hospitals benefit from federal and state tax exemptions. They also have the ability to issue tax exempt bonds as a form of financing. As with most tax exemptions, the underlying premise is that the money not spent on taxes will go towards providing services the government would otherwise have to pay for. In this case, nonprofit hospitals benefiting from tax exempt status are expected to provide charitable care as part of their operations. However, upon further examination, it was found that most nonprofits had nearly identical margins to those of their for-profit peers. It was also found that for-profit hospitals were doing as much or more in charitable care.

To qualify for tax exempt status, prior to the ACA, hospitals needed to do little more than claim they met the IRS’s vague “community benefit” standard.[ii] After the ACA, the volume of charitable care that must be provided to qualify for tax exempt status remained relatively unspecific. Nevertheless, the law did require organizations to publish full documentation of charitable care they provided in their IRS filing documents.

The law also established four additional standards for tax exemption including:

• Annual community health needs assessment with an accompanying implementation strategy
• Documented financial assistance policy for emergency and medically necessary care
• Compliance with a law stipulating that patients eligible for financial assistance could not be charged more than the rates that would be billed to Medicare
• Compliance with specified billing and collections requirements

MEDICAL DEVICE TAX

In many ways the medical device industry benefits from a level of anonymity not afforded to insurers, hospitals, and physicians. As the industry remains largely insulated from pricing pressures, the cost of medical devices has continued to soar and consume an ever more significant percentage of American healthcare expenditures. Most patients have little knowledge of (and virtually no choice in) the brand of device they use. Likewise, public insurance programs have little insight or negotiating power when it comes to the brands and price points of devices utilized by plan beneficiaries. Ultimately hospitals bill the Medicare or Medicaid the cost of the device plus a standard markup. The chain of third parties involved in the medical device supply chain makes price negotiation virtually impossible.

As the current system gives Medicare little ability to negotiate on price, drafters of the ACA opted for a 2.3 percent excise tax on device manufacturers (negotiated down from the originally proposed 5 percent). The tax was considered an exchange for the large number of new patients that would be able to afford medical devices under the new law. In fact, in 2013 (the year the tax was put into effect) the medical device industry was still able to maintain its 2012 four percent revenue growth rate.

In light of the proposal AdvaMed (the medical device industry’s main lobbying group) jumped into action protesting senators on both sides of the aisle. In 2014 medical device manufacturers spent $32.8 million in lobbying for the repeal of the tax.[iii] The Center for Responsible Politics identified $5.7 million in political contributions extended on behalf of medical device companies to candidates during the 2013–2014 campaign cycle.[iv] Campaign contributions benefited democrats and republicans alike. Primary targets included senators in home states where the medical device industry is especially prominent. Particularly outspoken opponents of the bill include Orrin Hatch (R-UT), Mitch McConnell (R-KY), Elizabeth Warren (D-MA), Al Franken (D-MN), and Amy Klobuchar (D-MN).

The industry’s protesting and lobbying efforts were ultimately successful. The tax did make its way into the final bill and was put into effect in 2013. In 2015, the provision was postponed for fiscal years 2016 and 2017. The tax was then set to go into effect January 1st, 2018 but was postponed for an additional two years under the 2018 spending deal. The tax was then officially repealed in July 2018.

AGE BAND

In tandem with regulations preventing underwriting and price discrimination against individuals with preexisting conditions, the law also prevented insurance companies from charging the elderly considerably more than the young. Prior to the ACA insurers were generally limited to charging the elderly no more than five times what they charged to younger beneficiaries. Under the ACA the 5:1 ratio was reduced to 3:1.

In the article, Reviving Rural Economies, the author addressed the impact of repealing this provision especially as it applies to older rural residents. The author points out that these individuals would be particularly affected as insurance premiums in rural areas are generally more expensive due to limited competition and smaller risk pools. Increasing the scale at which insurance providers could charge these individuals more would make already expensive insurance unattainable.[v]

COMPARATIVE EFFECTIVENESS RESEARCH

Comparative effectiveness research is an area largely foreign to most participants in the US healthcare system. Pharmaceutical manufacturers need only prove new medications are effective when compared to a placebo. Medical device manufacturers and surgeons infrequently need to submit any evidence that the good or service being provided is effective. New surgical techniques may never undergo any type of effectiveness testing. In the current environment there is no agency that functions to protect patients from harmful or ineffective operations.

This research is crucial not only for doctors to make informed care decisions, but the lack of such information makes it very difficult for consumers to make informed contributions to their care. Insurance agencies have almost no insight into what prescriptions, procedures, or devices provide the greatest benefit for the amount paid.

Other countries have made comparative effectiveness research a critical part of their healthcare system. Agencies are put in place to arm individuals with the information to make the best decision based on price and expected outcomes. In the United States research to prove the cost benefit relationship across medical alternatives is largely non-existent. Any research that is done is typically sponsored by special interest groups. Studies initiated by these groups are generally funded with the intent of achieving a preset outcome.

Comparative effectiveness research provisions in the ACA were the subject of a considerable amount of lobbying efforts. For this reason, the provisions that did make it into the bill were considerably watered down. The bill organized and provisioned funds for the Patient Centered Outcomes Research Institute (PCORI). The organization was tasked with sponsoring grants to unbiased institutions to conduct studies that are made available to the public.

Lobbying efforts to repeal the ACA ultimately resulted in the organization having next to no ability to run studies that effectively address costs. Under the bill Medicare was prohibited from making any coverage decisions based on studies published by the board. There was also no method to claw back FDA approval if studies proved devices or pharmaceuticals to be without benefit.[vi]

After passing, the organization faced further headwinds as subsequent spending bills did a great deal to defund the agency. In an effort to avoid public scrutiny the organization largely avoided conducting any studies that would be met with pushback from major lobbying or special interest groups. Only 3 percent of studies conducted pertain to pharmaceuticals and no studies pertain to expensive medical devices. Only 12 percent of the PCORI’s studies conducted address the key issues identified by the Institute of Medicine as issues that could significantly address costs and patient outcomes.[vii]

PUSHING BACK ON THE PAY FOR SERVICE MODEL

Many of the ACA programs focused on addressing healthcare costs were more experiments than actual solutions. One largely unaddressed yet significant driver of escalating costs within the American healthcare system lies in its fee for service model. This model gives little guarantee to consumers what they will be charged for, if it will be in network, and how it will be coded before being sent off to the insurance provider.

The rise in hospital physician independent contractors and third-party diagnostic organizations have done a great deal to exacerbate the issue. The coding systems used in the United States are incredibly complex. They make itemized billing a specialization in the medical field. Entire consulting organizations exist to assist physicians and hospitals in maximizing profits by exploiting the complexity of the coding system. The system often renders patients helpless in negotiating bills.

Bundled payment alternatives have been presented as a solution to the problem. That is, a single price for a health event like pregnancy or surgery. This not only makes setting reimbursements easier, it also incentivizes healthcare providers to minimize costs and reduce chances of expensive complications. Under this model the incentive for providers to offer ancillary, unnecessary services would be reduced. A single price would empower consumers to make informed cost versus quality assessments.

Pilot programs incentivizing such approaches were included in the final version of the bill, but were not given the teeth necessary to make much difference. The ACA included reforms supporting experimental payment and service delivery pilot programs. It also established of the Centers for Medicare and Medicaid Services Innovation Center (which introduced the Bundled Payments for Care Improvement initiative).

Among the list of initiatives to push back on the fee for service model was the concept of Accountable Care Organizations (ACO). An ACO model is defined as group of healthcare providers that are paid a flat rate by an insurance provider to keep an individual healthy. Bonuses are paid to organizations that stay under budget and penalties are owed by those who go over budget. Advance payments were made available to fund start up costs needed to establish the infrastructure required to effectively implement the ACO model.

In concept, the network would be incentivized to provide the preventative and quality care necessary to avoid serious health events. Doctors would collaborate to treat illnesses rather than health events. Under the model physicians would take on some of the risk born by individuals and insurance agencies. They would now be subject to issues related to itemized billing and lack of negotiating power.

While results were varied, the ACO program has largely failed to catch on. The vague definition in the bill did not establish the required composition of such organizations. Without the appropriate stakeholders, it is extremely difficult to exert leverage on sources of cost. In a world where medical devices can cost as much as a small house, where unnecessary diagnostic tests are the norm, and where hospitals are not typically part of the ACO network, it has been near impossible for participating physicians to exert the pressure necessary to maintain costs. Furthermore, participating physicians generally lacked the technology, infrastructure, and knowledge to navigate the landscape.

CONCLUSION

This three-part review of the Affordable Care Act is in no way a summary of all initiatives enacted under the legislation. The series only begins to touch on the storied past of American healthcare. To understand the full context of the provisions included, and the ramifications since passing, would require a deeper look into the policy that has come before and after the bill. It would require a more significant look into macro and microeconomic data. It would require delving into the stories of individuals who have continued to have their lives impacted by the American healthcare system.

As has hopefully become evident over the course of the series, the Affordable Care Act contains numerous interdependent efforts that work together to achieve desired outcomes. The bill made important progress in many key areas. Simultaneously, it has also fallen short in a number of significant ways. Further focus is certainly needed to address costs and corruption. This focus should build upon the progress made under the ACA in providing access and protecting patients.

The current strategy of piecemeal dismantling of will have serious ramifications. To dismantle provisions of the bill without an understanding of what was accomplished and what continues to go wrong will have social and economic consequences. These consequences will write a legacy we as a country do not want to espouse.

References

[i] OECD (2017), Health at a Glance 2017: OECD Indicators, OECD Publishing, Paris. http://dx.doi.org/10.1787/health_glance-2017-en

[ii] https://www.healthaffairs.org/do/10.1377/hpb20160225.954803/full/

[iii] https://www.opensecrets.org/news/2015/01/repeal-of-medical-device-tax-more-likely-with-friends-across-party-lines/

[iv] https://www.brookings.edu/opinions/5-questions-about-the-medical-device-tax-and-its-potential-for-repeal/

[v] Greenblatt, A. (2017, March 31). Reviving rural economies. CQ researcher, 27, 265–288. Retrieved from http://library.cqpress.com/

[vi] Rosenthal, E. (2018). An American sickness: How healthcare became big business and how you can take it back. New York: Penguin Books.

[vii] Brill, S. (2015). America’s Bitter Pill: Money, Politics, Backroom Deals, and the Fight to Fix Our Broken Healthcare System. Random House.