Presentation on July 10, 2012, by John Duval at the University of Richmond. This program was co-sponsored by the UR Osher Lifelong Learning Institute and the MCV Hospitals Auxiliary. This comprehensive overview of recent health reform legislation covers the impact on hospitals and the American health care system. Topics include the uninsured, insurance exchanges, healthcare workforce shortages, health care quality and the future of health care.

1. Rough Waters Ahead:
Navigating Health Reform and the
Future of Health Care
John F. Duval
CEO, Medical College of Virginia Hospitals
July 10, 2012

2. Agenda
• The law and its parts
• What’s popular, what’s controversial
• The promise and key disconnects
– Costs
– Employer behavior
– Workforce adequacy
– Safety Net
– Impact on academic centers
• The Supremes
• The fall out
– States’ option
• Stay tuned
• What will change no matter what
1

3. What is good about
the health care
delivery system?

4. John’s List
• Robust medical community, well represented by specialties
• Strong & dedicated allied health workforce
• Best education system in the world across all disciplines
• Cutting edge technologies & pharmaceuticals
• Strong research basis
• Social safety net
• Modern physical plant
• Improving transparency & accountability
• Improving quality & safety
• Major economic engine, frequently largest employer
3

5. What is not good
about the
health care
delivery system?

6. John’s List
• Current costs and growth rate are economically not sustainable
• ≈ 50 million uninsured
• Racial / economic / geographic disparities in access to care
• Unnecessary variations in amount / quality of care provided and some care
is not evidence based
• Quality and safety accountability improving, but still too opaque
• Economic incentives between provider and insurer communities not
aligned
• Regulatory structure / licensure laws result in inefficient use of workforce
• Sickness as opposed to wellness focused
• High administrative overhead is wasteful
• Education costs of healthcare workforce are borne by providers and
government payors
5

7. Patient Protection and Affordable Care Act (PPACA):
Signed into Law March 23, 2010
• Most comprehensive change in healthcare finance
since 1964 Medicare & Medicaid legislation
• Reforms the actuarial financing model for health
services in the United States
• Improves access to care for most citizens and
reduces the number of uninsured
• Reins in unpopular insurance industry practices
• Increases quality and safety of health care
• Improves transparency of health and insurance
information
• And much, much more
6

8. Details of the Law
• Individual Mandate
– Requires U.S. citizens and legal residents to have health insurance or pay a tax penalty --
(Penalties equal $95 in 2014, $325 in 2015, $695 in 2016)
• Expansion of Medicaid
– Expands Medicaid coverage to all non-Medicare eligible individuals under age 65 with
incomes up to 133% of federal poverty level (FPL)
– States that participate will receive 100% federal financing phased down to 90% federal
financing by 2020
• Health Insurance Exchanges
– Creates state-based health insurance exchanges through which individuals and businesses
with up to 100 employees can purchase qualified coverage
– Establishes four benefit tiers covering 60% (Bronze), 70% (Silver), 80% (Gold), and 90%
(Platinum) of the benefits cost of the plan
– Creates an essential benefits standard, including coverage for: emergency services, hospital
services, physician services, prescription drugs, preventative services, and mental
health/substance abuse
Source: Kaiser Family Foundation: Summary of New Health Reform Law
(Link: http://www.kff.org/healthreform/upload/8061.pdf) 7

9. Details of the Law
• Subsidies
– Provides premium credits and cost-sharing subsidies to U.S. citizens and legal immigrants up
to 400% of the FPL (e.g. 4 person household = $92,200)
– Provides tax credits to certain employers
• Employer Requirements
– Employers with 50+ full-time employees not offering coverage assessed a $2,000 penalty
• Changes to Private Insurance
– Provides dependent coverage for children up to age 26
– Prohibits health plans from placing lifetime and annual limits on the dollar value of coverage
– Prohibits pre-existing condition exclusions
• New Care and Payment Models
– Develops pilot programs to test new care models including Accountable Care Organizations,
patient-centered medical homes, bundled payment schemes, and others
• Investments
– Allocates resources to workforce development, trauma centers, innovation, and other areas
Source: Kaiser Family Foundation: Summary of New Health Reform Law
(Link: http://www.kff.org/healthreform/upload/8061.pdf) 8

10. How is PPACA Paid For?
• Imposed tax penalties for individuals who opt out and large
employers who do not provide health insurance to employees
• For individuals earning greater than $200,000 and couples earning
greater than $250,000:
– Increased Medicare tax rate
– Imposed tax on unearned/investment income
• Imposed taxes on health insurance sector and pharmaceutical and
medical device manufacturers
Source: Kaiser Family Foundation: Summary of New Health Reform Law
(Link: http://www.kff.org/healthreform/upload/8061.pdf) 9

11. PPACA: What is Popular?
• Extends insurance coverage to 32 million people
• Allows parents to cover children up to the age of 26 under their
private insurance plans
• Eliminates lifetime dollar limits on benefits imposed by most
medical plans
• Prevents medical plans from denying insurance and benefits based
on preexisting conditions
• Limits the amount insurers spend on administrative costs versus
medical costs (Medical Loss Ratio)
• Provides more transparency with publically reported metrics
related to quality, safety, and patient outcomes
10

12. PPACA: What is Controversial?
• Mandates individuals have health insurance by 2014 or pay a penalty
• Expands Medicaid coverage to residents with incomes up to 133% of the
federal poverty level (FPL)
– Federal government will cover all costs for this group starting in 2014 and
will phase down to 90% by 2020
• Role of the States
– Health Insurance Exchanges
– Medicaid Expansion
• Requires some employers with 50+ employees who do not offer health
insurance to pay a penalty
• Significantly reduces Medicaid and Medicare Disproportionate Share Hospital
(DSH) allocations
• New taxes on Individuals, health insurance sector, and manufacturers of
pharmaceuticals and medical devices
11

13. PPACA: What the Law Doesn’t Cover
• PPACA does not adequately address important issues facing
the health delivery system including:
– Impending physician and nursing shortages
– Rapidly escalating costs and their cause within our hospitals and
health systems
– Large variations in medical practice observed across the nation
– Financing of graduate medical education / other workforce
issues
– Foreign national population
– Costs of those who opt out
12

15. Program Costs

16. Murphy’s Law of health care
legislation:
“If it can cost more than the
highest available official
estimate, it probably will.”
Senate Joint Economic Commission
15

17. Will They Be Right?
• Coverage expansions
cost $938 billion over
10 years
• Federal deficit reduced
by $124 billion over 10
years
Source: Kaiser Family Foundation, 2011
16

18. A Lesson from History…
Program (Estimate Year) Original estimate Actual cost
Medicare Part A (1965) $9b/1990 $67b/1990
All of Medicare (1967) $12b/1990 $110b/1990
ESRD program (1972) $100m/1974 $229m/1974
Medicaid DSH (1987) < $1b/1992 $17b/1992
Mcare Home Care (1988) $4b/1993 $10b/1993
Source: Senate Joint Economic Committee, 7/31/09
17

21. Employer Behavior

22. Employer Behavior
• Penalty for large employer not offering coverage if one
employee receives credit toward exchange = $2,000
• What does annual premium cost the employer? $4,000-6,000
• What will employers do?
• According to McKinsey & Company survey, “30 percent of
employers will definitely or probably stop offering employer
sponsored insurance in the years after 2014”
• What does that mean for employer-sponsored insurance? The
cost of exchange credits?
• What does it mean for access to health care providers?
Source: McKinsey & Company, “How US health care reform will affect
employee benefits “ (June 2011, McKinsey Quarterly)
21

23. Workforce

24. Health Care Labor Force
• Projected shortages BEFORE health care reform
• Reform makes some efforts to begin addressing
shortages
BUT
• The law covers 32 million new patients nationally and
approximately 1 million in Virginia
• That may not add up…
23

25. Will There Be Enough Doctors?
• Pockets of physician shortages now
• 40% of practicing physicians ≥ age 55
• In Virginia, a recent survey showed one-third
were ≥ age 55 and 10% ≥ age 65
• How many more will we need?
– E.g., currently 6,830 geriatricians nationally
• That is only 1 for every 1,900 seniors ≥ age 75
• IOM indicates 36,000 needed by 2030
Sources: Alliance for Health Reform, 2011; Virginia DHP, 2009; Institute of Medicine, 2008
24

26. What About Other Health Professionals?
• 33% of nursing workforce ≥ age 50
– More than half of these plan to retire within 10
years
• Will an improved economy
reduce supply?
• Nursing shortage projected
to grow to 260,000 RNs by 2025
Source: Alliance for Health Reform, 2011
25

27. What other health professionals may be needed?
• Physical/occupational therapists
• Pharmacists
• Medical technologists
• Clinical psychologists
• Dieticians
• Rehabilitation counselors
• Medical coders
• Health information technicians
26

29. Impact on Academic Medical Centers (AMC)
• Costs for post-graduate medical training programs are rapidly
escalating due to:
– Escalating stipends for trainees
– Increased salary demands of faculty
– Additional resources needed to meet increased regulatory requirements
• Even with these growing costs, some AMCs continue to expand
residency programs despite a 15 year freeze on federal support for
residency training positions
• However, training programs will no longer be able to fund these
additional slots because of reimbursement changes
• With a looming physician shortage, AMCs will have extreme
difficulty meeting the growing demand for primary care doctors and
specialists
28

30. The Supremes

31. After several rulings and appeals at the Federal Court level, the
Supreme Court of the United States heard oral arguments from
March 26-28, 2012 and issued its opinion on June 28, 2012
30

32. The Four Questions Before the Supreme Court
1. Anti-Injunction Act
– Does the Anti-Injunction Act require that the Supreme Court wait to render a
decision on the case until after a tax was actually levied?
2. Constitutionality of Individual Mandate
– Is the individual mandate constitutional under Congress’ authority to regulate
interstate commerce?
3. Constitutionality of Medicaid Expansion
– Is it constitutional to compel states to participate in the Medicaid expansion
by threatening to remove existing federal Medicaid funds if they do not
participate in the expansion?
4. Severability
– If the individual mandate is not deemed constitutional, is this provision
severable from the rest of PPACA, or should the entire bill be struck down?
31

33. The Opinion of the Court
1. Anti-Injunction Act – NOT APPLICABLE
– The Supreme Court declined to apply the Anti-Injunction Act and
wait to hear arguments until taxes are actually levied in 2014
2. Constitutionality of Individual Mandate – UPHELD
– The Court did not uphold that the individual mandate was justified
under the Commerce Clause because it compels new commercial
activity rather than regulate existing commercial activity
– However, the Supreme Court defined the individual mandate as a
tax and deemed this provision constitutional based on Congress’
power to levy and collect taxes
32

34. The Opinion of the Court
3. Constitutionality of Medicaid Expansion – UPHELD WITH
LIMITATION
– The Court deemed the Medicaid expansion constitutional with the
stipulation that the federal government cannot withhold existing
Medicaid funding from states if they choose not to participate in
the expansion
4. Severability – NOT ADDRESSED
– The individual mandate was upheld, so the question of whether the
rest of the law remains constitutional was no longer relevant
33

35. What does the ruling mean?
• Implementation of PPACA Continues
– States must continue developing Health Insurance Exchanges
– Hospitals, Health Systems, and Physicians must prepare for influx of newly covered
lives into the health delivery system and the financial ramifications of PPACA
• States can opt out of the Medicaid expansion
– This curtails the legislation’s intent of extending health insurance coverage to 32
million individuals
– In states that opt out, some individuals between 100%-133% of federal poverty
level may be eligible for federal subsidies to purchase insurance through exchanges
– However, individuals below 100% of the federal poverty level are not eligible for
these subsidies
– Most individuals under 133% of the federal poverty level will avoid paying “tax”
penalty due to affordability exemption
34

36. Policy Issues for State Medicaid Expansion
Opt In
• Long-term cost
• Long-term support (Workforce, etc.)
• Long-term benefits of reduced uninsured population
Opt Out
• Cost of larger uninsured population
• Federal leverage – What sticks still remain?
• Lost dollars to state
• Tax exportation
35

37. Stay Tuned
• What we don’t know
• Critical disconnects
• What is happening in spite of reform
36

38. What About What We Don’t Know?

39. The Secretary Shall…
Source: Congressional Quarterly Weekly, 4/5/10

40. He Wasn’t Discussing Reform, But…
“There are things we
know that we know.
There are known
unknowns. That is to say
there are things that we
now know we don't
know. But there are also
unknown unknowns.
There are things we do
not know we don't
know.” D. Rumsfeld
39

41. Critical Disconnects
• Cost estimates?
• Economic impact
• Employer reaction to
exchanges
• Access to providers
• Graduate medical / other
Education
• Implementation unknowns
40

42. Other Critical Disconnects
• Payment alignment with delivery goals
• Regulatory barriers to new delivery models
• Tort reform
• Medicaid/Medicare requirements / provider cuts
/ Disproportionate Share Hospital payments
• Undocumented foreign nationals
• Personal responsibility
• And more…
41

43. Dealing with the Disconnects
• Health reform is a fluid process
– Officials at the federal and state level will continue to tweak
provisions of the law on a yearly basis
– New legislation will be passed incrementally to resolve the
disconnects and improve the overall health care system
• Health provider community must inform this fluid process
– Hospital executives, physicians, nurses, and other health
professionals must advocate for necessary changes
– Input from these experts will inform the policy process and help
tie up the loose ends of PPACA
42

44. Ongoing efforts, even before
(in spite of) reform
• Quality improvement
• Increased safety
• Greater efficiency
• More transparency
• Coordinated care
• Healthier populations
• Integrated providers
43

45. The Great Unknown