On June 28, 2012, the last day of its session, the United States Supreme Court addressed challenges to the constitutionality of the “Individual Mandate” provision of the Affordable Care Act (the “ACA”), under which most individuals not covered under other programs must purchase health insurance or pay a penalty. The Court also considered a challenge to the expansion of Medicaid coverage to all individuals with income below 133% of the federal poverty level, also intended to increase the percentage of individuals with health insurance. Each of these provisions was scheduled to become effective in 2014. This Update is a follow-up to our firm’s June 28 bulletin alerting clients and others of this decision.
Holdings of the Court
The Court held that the Individual Mandate was within Congress’ constitutional authority under its Taxing Powers, but not under the Commerce Clause. The Court struck down a provision that would have cut off a state’s entire Medicaid funding if it declined to implement the Medicaid expansion. Instead, the Court held that existing Medicaid funding should be maintained even if a state chose not to implement the expanded program.
Health Reform-Lingering Uncertainty
Some uncertainty remains regarding the future of the ACA. Republican leaders have already vowed to seek repeal of the law, and the prospects for this will obviously be affected by the results of the fall elections. Some governors have indicated that they will not implement the Medicaid expansion. While the range of possibilities is significant, a blanket repeal of the ACA will be difficult to achieve. Certain provisions of the law, such as those requiring insurers to cover individuals with pre-existing conditions, as well as dependents of insureds of up to 26 years of age, are very popular with the voting public.
How Providers Should React
Although adjustments to the ACA may be anticipated, health care providers are best advised to assume the law will be implemented substantially in its present form. The impact of the decision does not signal so much a change in direction for providers as an acceleration of efforts to function effectively under the law, including increased pressure to make certain investments. For example, the impetus for providers to position themselves to form or to have relationships with ACOs could require significant IT, operational and other investments.
Health care providers with 50 or more employees will also be subject to the provisions of the law dealing with employment and the workplace. (The impact on employers now that the law has been upheld is being addressed in a separate Firm Update).
The ACA was designed to result in a greater percentage of insured individuals, but at somewhat reduced reimbursement rates. Slightly more than half of the 30 million new insureds projected under the ACA was expected to result from the Medicaid expansion, which states may now more readily decline. Actual gains in the percentage of patients with insurance will depend on how many states accept such expansion. Each state’s financial outlook, as well as the November elections, could influence a state’s decision on expansion. In any state in which the Medicaid expansion is rejected, the likelihood of offsetting lower reimbursement rates by higher numbers of insured patients is diminished. The Congressional Budget Office has estimated that the rejection of Medicare expansion by several states will result in six million fewer Medicaid insureds than previously estimated; of these, approximately half are expected to acquire health insurance through health insurance exchanges. We will keep you informed as to state decisions on Medicaid expansion as information becomes available.
As to provisions of the law already in effect, no further action is called for beyond assuring present compliance. Efforts to comply with requirements to become effective in the future should now continue in earnest. Finally, some provisions of the ACA will derive details of implementation from regulations issued by applicable federal agencies, some of which have not been issued at all and some of which are in proposed form. A prime example of this is the 60-day rule, under which providers must repay overpayments within 60 days of determining that overpayments have been received. The response to these situations includes a combination of trying to anticipate the final outcome of rule-making and acting accordingly, while keeping a close watch on the ongoing rule-making process.
The Court’s decision should accelerate the development of ACOs. Provider consolidations and collaborations should accelerate, as providers seek to avoid being left out in the cold and having their products priced as commodities by ACOs in which they have no say in governance. Market basket cuts that have been implemented will remain in effect, as will program grants and awards made under the Medicare and Medicaid Innovation Program. The ACA’s numerous provisions for increased funding of RAC Audits and other programs designed to reduce and detect fraud and other improper billings will also continue in effect.
Requirements imposed on tax exempt hospitals in order to maintain their tax exempt status are currently in effect, and compliance is likely to be shaped by ongoing IRS rule-making. The IRS has recently proposed regulations governing publication of a hospital’s charity care policies, as well as procedures relating to billing and collection. Some of these rules are surprisingly restrictive and should be given current attention even if the regulations are only in proposed form. The IRS has indicated that it will in the future issue regulations on community needs assessments to be performed every three years. Pending final regulations, hospitals should use their best efforts to plan for compliance with these regulations.
Future Implementation Deadlines Requiring Significant Advance Planning
In October 2012, value-based billing provisions will become effective. Under these provisions, hospital reimbursement will be adjusted for hospitals that do well on quality measures relating to clinical processes and patient satisfaction, and that improve their performance on these measures. Plans for value-based purchasing for other categories of providers, including nursing homes and home health agencies will be issued in the future.
Further, under the so-called “Physician Sunshine” provisions, certain payments received by physicians and teaching hospitals during each year starting in 2012 from manufacturers of pharmaceuticals and medical devices must be publicly disclosed the following year, starting in 2013. Current attention should be given to the development of methods to capture the information required to be reported.
Also, effective in 2013, payments to hospitals for excess preventable readmissions will be reduced by a specified percentage. Operational changes designed to minimize such readmissions should be devised and implemented. Finally, effective in 2015, certain hospitals will receive a 1% payment reduction for hospital-acquired conditions.
Health Insurance Exchanges
Health care providers should be attentive on an ongoing basis to the creation and implementation of state or federal health care exchanges in their state, to monitor whether the design or operation of such exchanges might offer positive opportunities or be prejudicial to their interests.
Nursing Home Impacts
A number of the ACA’s provisions could affect nursing homes. Under regulations to be issued later this year, nursing homes will be required to disclose a wide variety of ownership and financial information regarding their dealings with related and other parties, to be made public by the government. Effective in 2012, staffing information is also required to be disclosed and will be made public on the Nursing Home Compare Website.
The impact of the Court’s decision largely upholding the Affordable Care Act is far reaching and multi-faceted. The Court’s action provides a concrete impetus for health care providers to assess and ensure their overall readiness.
©2012 Hinckley Allen. This publication is not intended to be legal advice, but is intended only to inform the reader of recent developments in the law. The enclosed materials are provided for educational and informational purposes only, for the use of clients and others who are interested in the subject matter. If legal advice is required concerning a particular matter, your attorney should be consulted.