PPACA And Amcs: A Case Study

The PPACA and AMCs
Implications of the Patient Protection and Affordable Care Act on Academic Medical Centers

Stewart Clark

University of Arkansas for Medical Sciences

Abstract

The Patient Protection and Affordable Care Act’s holistic implications on Academic Medical Centers (AMCs) are uncertain. However, projections can be made for how the PPACA will affect the clinical departments of a hospital and how legislation will impact subsidized payments to AMCs. Based on figures from the Department of Anesthesiology at UAMS, clinical departments will experience a surplus due to the diminishing population of self-pay patients. The debate over the shifts in volume comprises of two theories.
The first states that AMCs will experience a decrease in volume as patients acquire insurance and seek care from competitors, while the other asserts that AMCs will be overwhelmed with an influx of patients and a physician shortage. However, a decrease in volume is the more likely development. Phasing out of DHS payments, $158 billion dollar cuts from hospital payments nationally, and cuts to gradate medical education payments will also impact AMC’s finances. Academic Medical Centers should focus on cost control and patient retention in order to offset the loss of these payments. Patient retention can be achieved through a marketing campaign focusing on AMC’s social capital associated with treating the underserved populations of the United States. AMCs must also decide whether or not to become Accountable Care Organizations. This would require a restructuring of organizations. Pilot programs have done little to prove the benefits of becoming an ACO, at least in the short term. Forecasting the uncertainty of the PPACA does require a lot of assumptions, but it is necessary in order for AMCs to best position themselves in the healthcare market of the future.

Problem Statement The Patient Protection and Affordable Care Act’s implications will be fully felt by the health care industry in 2014, and the impact of the majority of these implications on academic medical centers are still largely unknown. Few impending impacts are definite, but based on probable assumptions academic medical centers can preform analyses to best prepare themselves for the full effect of this transformational legislation. A better understanding of the impacts of the Affordable Care Act can help prepare academic medical centers to best position themselves in the healthcare market of the future.
Background
The problem academic medical centers (AMCs) face associated with the Affordable Care Act is due to uncertainty of what to actually prepare for. Expansion of access could create as many solutions as it could problems. However, the definite cuts to subsidized payments to ACMs cause immediate concern. Academic medical centers represent a small portion of the nation’s 5,815 American Hospital Association-registered hospitals, with only 131 allopathic medical schools with affiliated hospitals (Feidman, 2013, p. 2). Despite this small number, academic medical centers have an enormous impact on the care of patients in the United States. Most Academic Medical Centers are safety net providers, or providers of last resorts. Therefore most AMC’s payer mixes include a large volume of uninsured, underinsured, and Medicaid patients compared to the other acute care organizations around the country (Morris, 2013). As much as 40% of an ACM’s departmental payer mix can be attributed to Medicaid and self-pay patients (Habenicht 2013). The Patient Protection and Affordable Care Act (PPACA) has the potential to expand health insurance to those that are both uninsured and underinsured. However, when discussing the implications of the new reform on Academic Medical Centers these seemingly beneficial provisions should be analyzed both incrementally and holistically.
The reduction of payments by the CMS to AMCs and the phasing out of DHS payments will undoubtedly cause a significant strain on AMC’s finances. The PPACA will also not be able to cover everyone. 27 million uninsured Americans will still require care from AMCs. Without subsidized payments to make up some of the difference of the costs of these patients, AMCs will have to find a way to pay for them. Two theories of the impact on volume have developed from interpretation of the reform. AMCs could experience a decrease in volume as patients with newly acquired insurance seek care from AMC’s competitors. Opponents of this theory assert that AMCs could experience an increase in the volume of patients and a physician shortage. AMCs also face the decision on whether or not to restructure and become an Accountable Care Organizations. Pilot ACO programs show a loss in the short term, but the long-term benefits in the new health care market are yet to be seen. No large acute care organization participating in early conversion recovered their initial investment within three years, and only 50% qualified for profit sharing with the Medicare Shared Saving Program (Kastor, 2013).

Working Diagnosis Academic medical centers face tough decisions about how to forecast for the uncertain change that surrounds the Patient Protection and Affordable Care Act. Planning for definite impending effects, for now, seems to be the most beneficial and impactful thing AMCs can do. However, uncertainty should not prevent AMCs from preforming assumption-based analysis to aid in decision-making processes.
Method of Analysis The amount of content available for this topic was very limited due to the uncertainty surrounding the issue, and how recent of an issue it is. Secondary research was conducted by searching for literature using an assortment of keywords, terms, and phrases. Keyword and phrase searches for literature included: The Patient Protection and Affordable Care Act, impacts, academic medical centers, preparing for change in, academic medical centers, legislative effects on academic medical centers, and Medicaid expansion, impacts academic medical centers. PubMed, Medline, and GoogleScholar all yielded literature on these topics. Primary research was also preformed. Personal interviews were conducted with the administrator of the Department of Anesthesiology at the University of Arkansas for Medical Sciences, Coleen Habenicht, and health finance professor Dr. Michael Morris. The results were adequate, but very limited. There was a significant amount of conflicting evidence about the projections for the changes in volume associated with the PPACA, and the benefit of a facility becoming an accountable care organization. To keep information as relevant as possible, and since the ACA has only been around since 2010, all sources used were generated in the years 2012 and 2013. No specific model or theory was used for this analysis. Review of conflicting evidence and projecting future decision making processes were the focus of this topic. Literature Review The largest, and most obvious, effect of the Patient Protection and Affordable Care Act is the expansion of Medicaid, and the emergence of the insurance exchange marketplace. This expansion has the potential to cover the 20% of Americans that are currently without health insurance, or who are self-insured (Taylor, 2013). However, fee-for service Medicaid is not a good payer for professional services (Manchikanti, 2013, p. 5).
To compare the payment rates of Medicaid to other insurers I have chosen to use figures from the Department of Anesthesiology at the University of Arkansas for Medical Sciences for the year 2013.
The only 10 months of information was provided, but was then weighted to cover a full year. The University of Arkansas is a hospital of last resorts and the academic medical center for the state of Arkansas. The projections for this department will translate into rough projections for the hospital as a whole (Habenicht, 2013). For each unit of anesthesia Medicaid pays $20.67 of the charged amount of $80. The amount paid by Medicaid is statistically significantly lower than the amount paid by Blue Cross at $38.66/unit, commercial insurance at $44.47/unit, workers compensation at $33.58/unit, and PPOs at $37.32/unit. However, the rate for guarantor, or self-pay, is a minuscule $5.74 with a collection rate of only 7.18% (Habenicht, 2013). These figures represent the uninsured portion of the department of Anesthesiology’s payer mix. Despite the low payments by Medicare, $20.67 is a statistically significant increase from $5.74 paid by the average uninsured patient. In order to project the impact of the PPACA on the payer mix, and the overall effect on the finances of the department, this analysis will operate on four likely assumptions. The first assumption is that Medicaid Enhanced programs will pay $20 per unit of anesthesia. The second assumption is that $15 additional dollars per
unit of anesthesia can be added for patients converting to the exchange marketplace. The third assumption is a $30 increase per unit for the guarantor patient population as these patients newly acquire insurance. The fourth assumption is that AMCs will retain 80% of its patients as they acquire new forms of insurance under the provisions of the PPACA (Habenicht, 2013). The total projected gains/loses from Medicaid Enhanced for the year 2014 is calculated by subtracting the amount lost from patients leaving Medicaid to enter the exchange (units of anesthesia used by Medicaid patients x $20 x 80%) from the gains generated from patients newly covered by the exchange (units of anesthesia used by exchange patients x 15 x 80%). The total loss for the year 2014 for Medicaid Enhanced/Exchange patients is ($350,822.03). The next step is to calculate the projected gains from the guarantor, or self-pay, population as they acquire insurance (units of anesthesia used by guarantor patients x 30 x 80%). The projected gains from the guarantor population acquiring insurance are $1,495,967.85. The total effects from the PPACA on the department of anesthesiology would then be calculated by subtracting the losses attributed to Medicaid from the gains from the guarantor population acquiring insurance; this results in a surplus of $1,145,145.83 (Habenicht, 2013). The largest assumption previously stated is that AMCs will retain 80% of their patients. These figures were also generated with no self-pay units remaining. Although the PPACA seeks to provide near universal coverage, some will still be left uninsured (Habenicht, 2013). While this population is small, it does lead to and inflation of the projected surplus. Medicaid and self-pay patients are often forced through AMC’s doors. Now that they will soon have a choice on where to acquire care, AMCs could experience a significant decrease in volume (Morris, 2013). Opponents of this theory argue that healthcare reform will overwhelm the capacity of AMCs. Expansion of Medicare and an increase in the number of privately insured patients could cause a sudden increase in volume. Proponents of this theory also assert that a sudden increase in patients coupled with a physician shortage will severely stress the capacity of AMCs (Friedman, 2013).
While analysis of a single clinical department can help to project how the PPACA will affect AMCs as a whole, there are provisions of the PPACA that will not affect clinical departments while impacting hospitals and Universities. Under the new legislation the Centers for Medicare and Medicaid Services (CMS) will reduce payments to hospitals by $158 billion over ten years to help cover the cost of the newly insured (Taylor, 2013). Most importantly for Academic Medical Centers, Disproportionate Share Hospital (DSH) payments by Medicare and Medicaid will be phased out (Adler, 2013). AMCs rely on these payments to help subsidize its high volume of Medicaid and uninsured patients (Morris, 2013). These payments should become unnecessary given that nearly everyone will be covered by adequate insurance. However, Medicaid reimbursement is inadequate and the CBO also estimates that about 27 million Americans will still be left uninsured (Dubois, 2013). These 27 million Americans are more likely to seek care at AMCs rather than their competitors (FAIR, 2013).
Academic Medical Centers typically have been reimbursed for the costs of their teaching programs through both direct and indirect medical education payments (Taylor, 2013). Federal support of resident training has not varied since 1997 when Congress capped the number of training slots supported by the CMS as part of the Balanced Budget Act (Taylor, 2013). The Patient Protection and Affordable Care Act does not amend the number of these training slots. The PPACA does however take back 35% of unused graduate medical education slots and redistributes the remaining 65% to rural and underserved areas (Gruber, 2013). Also, the future of all direct and indirect graduate medical education payments is uncertain at the moment as Congress is currently discussing cuts to these payments as part of its deficit reduction plans (Morris, 2013). Academic medical centers rely on these graduate medical education payments. Cuts to graduate medical education payments will negatively impact AMC’s education programs (Herman, 2012, p. 1).
Academic medical centers must also decide if they should become Accountable Care Organizations (ACOs). The Patient Protection and Affordable Care Act establishes the Medicare Shared Saving Program (MSSP) for ACOs. The stated goal of MSSPs is to achieve better care for individuals, better health for populations, and slower growth in costs through improvements in care (Kocot, 2013). An ACO must assume responsibility for the care of a clearly defined population of Medicare beneficiaries, and if it succeeds in delivering high-quality care while reducing costs it will share in the cost savings with Medicare (DHHS, 2013). The American Hospital Association estimates that it would cost between $11.6 million and $26.1 million for an academic medical center to build an ACO infrastructure. However, the CMS estimated these costs to be only $1.8 million (Kocot, 2013). CMS’ ACO proposal is based on the results of a demonstration project in which the participating hospitals were predominantly large medical centers with well-established infrastructures, like UAMS. Despite this, only half of the participants were able to share in the financial incentives under MSSP (Kastor, 2013). Also, none of the participants were able to recoup their initial investment by the third year of operation (Kastor, 2013). CMS’ proposal appears to transfer too much risk to the ACO relative to the potential rewards, and CMS may need to consider providing monies to fund the infrastructure required to establish hospital-led ACOs (Kocot, 2013). However, the addition of any such provisions seems unlikely (Morris, 2013). A degree of standardization of clinical care is also necessary in order to realize the savings for which ACOs are designed. Such standardization is not characteristic of the work of many clinical faculty members at AMCs who may have their own ways of diagnosing and treating patients who have similar diseases. Furthermore, doctors must accustom themselves to working with teams of auxiliary personnel to optimize their patients ' care, particularly for chronic conditions (Morris, 2013). Establishing an ACO infrastructure at AMCs will require changing several aspects of the traditional culture surrounding hospitals. Conversion from a hierarchical structure of departments to one that is more horizontal and collaborative is necessary (Kastor, 2013).
Restatement of Working Diagnosis
Academic medical centers face tough decisions about how to forecast for the uncertain change that surrounds the Patient Protection and Affordable Care Act. Planning for definite impending effects, for now, seems to be the most beneficial and impactful thing AMCs can do. However, uncertainty should not prevent AMCs from preforming assumption-based analysis to aid in decision-making processes. ACMs can justifiably make some decisions to change the structure of their organization, or move to a more decentralized quality driven facility. These decisions are not based on definite impending effects, but on likely assumptions made by interpreting the PPACA’s provisions.
Recommendations
Despite the uncertainty surrounding the PPACA’s implications on academic medical centers, current knowledge of definite impending effects leads to the necessity of taking action to insure AMC’s best possible position in the health care marketplace. Based on the projections from the Department of Anesthesiology, surpluses will be created in clinical departments. If AMCs experience a change in volume I think it will be due to flight of patients to competitors, and not an overwhelming increase in patients just because they now have insurance. To compete with both faith based non-profit acute care centers and for profit acute care center hospitals, AMCs should focus on patient retention of those who will now have insurance due to the PPACA. Marketing campaigns tailored to specific academic medical centers should be established to show former and prospective patients that AMCs have been committed to serving the underserved populations of the United States for years, and that they hope to continue to do so in the future now that the underserved population has viable insurance. Focusing on proselytizing the social capital that AMCs have developed will show the American public that AMCs are here to serve them, and not just to collect their insurance checks. This will hopefully prevent flight and retain the patient volume that AMCs need. Not much can be done about the $158 billion dollar nationwide cuts to hospitals, the phasing out of DHS payments, or the cuts in graduate medical education payments, but AMCs need to prepare for losses of these payments by focusing on cost control for all operations. For now I do not think it is a good idea for AMCs to become Accountable Care Organizations. The initial investment is too uncertain, and its benefits have not yet been proven viable. Also as of November 13, 2013 only 106,185 people have completed enrollment for insurance under the PPACA (Taylor, 2013). This may be due to the technical difficulties still being experienced, but unless this number drastically increases by March of 2014 restructuring AMCs to comply with the quality metrics and other provisions associated with ACOs will not be worth the investment. Each AMC should evaluate its local market area and position before making any organizational or policy changes. For now, it is better for AMCs to focus on patient retention and cost control, and wait and see what is actually going to happen in the early months of 2014.

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