by Patrick Riley, MBA, MHA, CHE – Senior Healthcare Industry Analyst

Introduction

For most Americans, The Patient Protection Affordable Care Act (ACA) remains an enigma. Just six years since its signing and two Supreme Court decisions later, the ACA is still very much misunderstood and maligned. Yet, history has yet to judge the efficacy and long term value the ACA brings to society, if any.

President Obama, the healthcare Commander and Chief offered his thoughts in the Journal of American Medical Association (JAMA) on the exact anniversary date (March 23rd) of his signing of this historic piece of healthcare legislation in 2010. In his commentary, Obama wrote in a definitive style presenting positive factoids of the ACA in linear form and perceived importance. It was as if the President was narrating evidence in a preliminary discovery motion of a trial to determine the fate of his watershed healthcare legislation. He also laments, perhaps prematurely for presidential historians, that his vision for universal coverage was not achieved with implementation of the ACA. He concludes his thesis with some strong advice for the continuation of his landmark attempt to establish a national healthcare policy regardless of what party occupies the Oval Office in January of 2017.

In his closing, Mr. Obama offers a variety of possible cures for the ACA. The boldest of which is his somewhat surprising call for the government to offer its own health insurance. This Public Option, as the president referred to it, would reside in select smaller states or rural areas where there are only 2 to 3 choices on the public exchange. Mr. Obama also suggests legislators should increase subsidies for policies offered on the exchanges to make health insurance more affordable for more American families.

The President concludes with a call for the nation’s $3 trillion dollar healthcare industry vertical to be made more efficient. Not a unique observation, as Berwick, Lavizzo-Mourey, Blumenthal, and Emanuel as well as Wilensky echo in their recent scholarly writings about the future of healthcare in America and the increased need for enhanced efficiencies across the healthcare continuum. However, The President reiterated this salient point calling for more innovation and effort to reengineer the U.S. healthcare continuum to be more efficient and hone its resources to convince investors to commit more resources up-front, prior to diagnosis of chronic and degenerative disease. Mr. Obama stated, “The Affordable Care Act has pushed insurers, doctors and hospitals to focus on preventive care.”

This Frost & Sullivan Market Insight explores Mr. Obama’s final preventive care model claim and examines the U.S. healthcare ecosystem post ACA to determine what progress, if any, has been made to that end. This Market Insight also will examine what other impact, if any, the ACA has had on the U.S. healthcare continuum to date.

Defining Value in a Volume Driven Reimbursement Model

Prevention as implied by Mr. Obama is the end product of a calculated and sustainable healthcare delivery system, not an episodic means to this end. What is driving this movement? The answer may be, as Paul Starr expressed in his Remedy and Reaction – The Peculiar American Struggle over Health Care that a society must first define the value of the healthcare it receives before it can be fully integrated with social services and the culture of its people. Just providing access to healthcare resources does not guarantee a quality outcome or the improved health of a defined population. On the contrary, it may in fact burden the very people for whom it was designed by having them pay for a bureaucratic, disjointed, and inept delivery system. If there is no perceived societal value the very tenets that support health policy for the masses are flawed. What then has transpired post ACA to give the president an impression of a macro shift for providers, payers, and hospitals alike to make the pronouncement that we are on the brink of transforming a well-established and entrenched medical industrial complex into a progressive preventive care system?

Politics Aside, Progress in Achieving a Value Over Volume Equation

Despite Capitol Hill partisan political gridlock and a public belief that the ACA has either been repealed or perhaps never signed into law, there is evidence of progress being made. There is also equally as many allegations that very little momentum has been achieved. What we do know from the Congressional Budget Office (CBO) is that the U.S. has spent $157 billion enacting the ACA to date.  This amount is, however 25% less than the CBO projected in 2010. Also, 18 million individuals, according to the President, who previously did not have health insurance now do as a result of online open health insurance exchanges as prescribed by the ACA.

The key to ACA incremental progress appears not to be the result of social acceptance of the principles of a healthcare legislative initiative, as was the case with the enactment of Medicare and Medicaid in the mid-1960s. But rather, to a response to an innovative form of Value-based Reimbursement.

One rare topic of common ground amongst U.S. politicians as it relates to healthcare reform is the shared belief that the way healthcare is presently paid for in America is in need of conceptual and operational overhaul. Moreover, bipartisan support is present for moving away from paying for care simply by volume of clinical procedure to reimbursing for the value or quality of the outcome for this same procedure.

Accordingly, the ACA established the CMS (Innovation Cente r) providing its administrators with a number of cost-cutting and quality-enhancing tools to test new payment models and whole healthcare system designs. Empowered and financed now by law instead of Congress, the very mission and intent of the CMS Innovation Center is to develop, identify, support, access and introduce new innovative payment models whose designated purpose is to reduce Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) costs while at the same time improving quality outcomes. Funded with an established $10 billion dollar budget, which is reinstated every 10 years, the CMS Innovation Center was designed to tackle 3 distinct model-development design architectures: “the Patient Care Models Group which seeks to identify models that improve care in individual episodes; the Seamless Care Models Group looks for models that cover populations across time and settings: and the Community Improvement Models Group seeks models that improve community or population health.”

Despite a concerted effort to elude political influence, advocates of market-driven solutions voiced their opinions to Congress in opposition to the CMS Innovation Center’s perceived autonomy  suggesting  the CMS Innovation Center is nothing more than a government driven healthcare structure and should have its funding, mission, and leadership reviewed and approved by Congress before implementation. In response to this discourse, the Innovation Center awarded close to $1 billion dollars to applicants within the first year of operations to established healthcare experts and entrepreneurs alike who have responded to the challenge from the Innovation Center for what is referred to as ground-up solutions that meet the challenge of achieving the Triple Aim for healthcare; (1) improve the quality of health and individual experience of prescribed care, (2) improve the health of a defined population, and (3) reduce the cost per capita for all care received.

Within the language and construct of these new Innovation Center grants are carefully written clauses that call for competition amongst health care industry vendors prior to funds being awarded. This was a conscious effort to stimulate market driven best-practices and appease free-market advocates.

Transforming Reimbursement Policy Also Improves Quality Outcomes

Asking each healthcare asset or resource along the healthcare continuum to amend or replace its current billing and reimbursement methodology prior to ACA would have had little or no chance of finding a champion to carry it forward in hope of amending the current Medicare and Medicaid statutes. With the pronouncement and introduction of the Triple Aim as the basis for health reform (ACA), including the CMS Innovation Center, opportunity presented itself for creative and exploratory payment modeling woven tightly with pre-established quality measurements as metrics for improving the quality of, and patient experience for, healthcare services. The intent was imminently clear, healthcare services should no longer be billed for without any relationship to the quality of the care that was delivered.

A clear indication of where CMS is headed with its multi-faceted value based reimbursement initiatives can be seen in its November 16, 2015 publishing of the Comprehensive Care for Joint Replacement (CJR) model the very first of its mandatory bundled payment initiative timelines.

CJR directs a comprehensive overhaul to how providers and hospitals alike will manage and coordinate care, not just how or how much to bill as prescribed by Medicare Parts A & B. Hospitals are also being asked to, for the first time, assume and share risk under CJR with focus on achieving better coordinated care, medication regimen compliance, improved patient experience, discharge planning, and increased emphasis on post-acute care utilization. CJR also calls for closer coordination between hospitals and orthopedic surgeons to reduce the variance in lower extremity joint replacement (LEJR) surgeries. Moreover, the intent of CJR also calls for post-acute care coordinators to plan more closely with hospitals to develop symbiotic relationships in establishing better efficient and cost effective care for CJR patients.

As the first bundled-payment mandate, CJR was established in large part to assist in achieving the goal set by Health and Human Services (HHS) Secretary Burwell to move 50% of CMS payments to a value based methodology as opposed to volume by January 1, 2018. With over 400,000 LEJR procedures a year, the choice by CMS to use lower extremity joint replacement procedures as a basis to test the impact of cost and quality interventions through bundled payment will be certainly statistically significant with such a large volume of surgical procedures currently experiencing seismic variance in quality outcomes, recurrent surgeries, failed prostheses, extended length of stay (LOS) inpatient bed time, and post-acute care recovery time.

Specifically, CMS spent $7 billion dollars in 2014 on LEJR procedures. CJR is to be a 5 year demonstration project commencing on 1 April 2016 that is projected to save $153 million dollars and is mandatory for some 800 hospitals practicing in 67 Metropolitan Statistical Areas, (MSAs).

With Mandatory Bundled Payments Comes Horizontal Integration

With the signing of the ACA came added new financial and operational impetus for hospitals, providers, and health insurance carriers to remedy existing practices for adopting new revenue cycle management, heightened quality improvement, and most recently, mandatory bundled payments.

This confluence of energy, strategy, and operations forced an organizational restructuring and dismantling of existing healthcare industry verticals. Moreover, what followed became an impacted consolidation of a continuum of integrated services. Historically, all had been independent vendors simultaneously, yet uncoordinated billers of Medicare and third party insurers for the same patients.

In 2014 alone, there was a plethora of consolidation and horizontal integration within the expanding healthcare industry. Of particular interest for Capitol Hill and insurance federal regulators was the activity of the “Big 5” commercial health insurance companies. Most recently (July, 2016), the Justice Department submitted injunctions in court to block the merger of Aetna and Humana and Anthem of Cigna. If allowed to proceed, the Big 5 would have become the Mammoth 3 controlling some $91 billion dollars in premiums. This would, in the view of the Justice Department, highly limit competitive forces in the insurance markets across the country. Lesson learned here, if an anticipated healthcare industry vertical consolidation limits fair-market competition, Washington will intervene to prevent any perception of choices and price fixing due to the suggestion of a no competition environment.

Yet, despite strong oversight efforts in the insurance industry much healthcare industry consolidation and horizontal integration has, and continues to take place. In 2014 alone there were a reported 1,299 mergers and acquisitions, up from 1,035 the previous year. Hospital and physician consolidations have increased steadily since the enactment of the tenets of the ACA. In addition, hospitals and provider groups are entering in to non-binding agreements along with outright merger and acquisition deals. This is a growing phenomenon which is being categorized as partnerships, collaborations, and/or joint ventures. This flexibility has allowed for a wealth of integration with Accountable Care Organizations (ACOs), bundled payment arrangements, and loosely structured community integrated health networks. These newly formed local healthcare ecosystems can include employers, hospitals, provider groups, payers, social service and spiritual resources. Hospitals are also rapidly and very strategically aligning through mergers and acquisitions, specifically larger urban hospitals and health systems have begun a run of acquiring stand-alone rural hospitals to solidify patient referrals from contiguous counties.

In response to CJR Robotic Assisted Surgical Device (RASD) Original Equipment Manufacturers (OEMs) are also horizontally consolidating to develop surgically assisted robotics that specializes in knee and hip total replacements. And the Durable Medical Equipment (DME) companies that supply hospitals with a steady supply of knee and hip prosthetics are now being required to adhere to another mandated bundled payment directive which is forcing the whole DME industry to integrate horizontally to meet an Innovation Center competitive bidding mandate in 97 MSAs.

Final Thoughts

All of the current consolidation and integration of the healthcare industry vertical eventually will consolidate into a dynamic and symbiotic healthcare ecosystem. Management and operations of this new structure will be a function of another ACA generated term, population health management or PHM. And with each value based payment reform this ecosystem will continue to expand and morph to adapt horizontally with new digital dimensions and healthcare modalities to meet the new requirements for reimbursement in a linear equation where quality outcomes match payment for all consolidated services. As this new healthcare delivery ecosystem matures, its value will eventually be defined from the investments made to prevent chronic disease, replacing cost-saving efficiencies generated in treating these same chronic diseases post-diagnosis.

Conclusion

The President’s assertion that the ACA has “pushed” doctors, hospitals, and insurers to focus on prevention is accurate only in the intellectual context of a vision for a maturing U.S. healthcare delivery system. Operationally, the paradigm shift to a preventive delivery system he suggests is not yet a reality. However, the seeds for achieving a truly preventive model of healthcare have been planted through bundled payment reform as a direct result of the ACA. What needs to follow now is methodology for arriving at the perceived value the U.S. healthcare delivery system offers society. Presently, this quotient of value is calculated in capital reimbursement for treatment, not prevention. However, current efforts being put forth by the CMS Innovation Center, not Congress, the Supreme Court, or the President is enabling the steady improvement of the overall health of the nation, reduced costs per capita for the consumption healthcare as a commodity, and vastly improved quality outcomes.

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