The constitutional waiting game is finally over. Nearly three months to the day after the historic hearings on the constitutionality of the Patient Protection and Affordable Care Act, the Supreme Court has upheld the vast majority of the law’s provisions. This includes the individual mandate, although the penalties for noncompliance were ruled constitutional under Congress’s taxing authority, not its power to regulate interstate commerce.
But in a twist that few expected, the Court also ruled that the ACA’s provisions governing the Medicaid expansion went too far (more on that in a moment). For a detailed look at how the Court reached its decision, I highly recommend taking a look through the individual justices’ concurrences and dissents to Chief Justice John Roberts’s majority opinion.
Overall, the ruling lifts the uncertainty surrounding the law for patients and providers: payment reform is here to stay, and the time to focus on transforming patient care across the continuum is now. This historic decision will have repercussions that echo well beyond health care providers, but in my capacity as the Advisory Board’s Chief Research Officer, I wanted to share a few quick observations about what today’s ruling means for them.
Validating the ACA only underscores urgency of solving health care’s quality and affordability problem. Although the ACA promises to extend coverage to millions of previously uninsured Americans, its provisions related to payment innovation — shared savings programs, bundled payments, pay-for-performance initiatives — have sharpened health care purchasers’ focus on reining in health spending and improving quality. In the commercial insurance world, the wholesale shift away from “defined benefit” health plans toward “defined contribution” approaches continues apace.
Employers increasingly unwilling to shoulder escalating health costs, cash-strapped state governments unable to bear an ever-greater Medicaid burden, and Medicare’s continued rollout of payment reform pilots aimed at bending the spending curve all lean toward placing health care on a defined budget. As we discuss in our ongoing research meeting series for hospital and health system chief executives, providers must continue their efforts to restructure operations to deliver patient care in a high quality yet affordable way or risk becoming increasingly shut out of purchaser-defined high-value care networks.
Aging and chronic disease are still the biggest drivers of care transformation. As the Health Care Advisory Board has demonstrated through its Medicare Breakeven Project, the impact of our aging population remains the single biggest threat to hospital and health systems’ ability to keep their doors open for their patients—with or without the ACA.
Over the next decade, as baby boomers age into Medicare (and out of commercial insurance), providers’ payer mix and case mix will become ever-more weighted toward publicly insured patients, who historically have tended to use a disproportionately large volume of relatively poorly reimbursed services. Coupled with the cuts to growth in Medicare payments already included in the ACA, these shifts will have by far the greatest impact on hospital and health system financial sustainability over the next several years.
As I’ve often stressed to providers, cost cutting alone is insufficient to meet these challenges, which will require a sustained focus on both operational excellence inside the four walls of the hospital as well as care transformation across the care continuum.
The ruling generates new uncertainty surrounding the Medicaid expansion. The one substantive invalidation included in Chief Justice Roberts’ decision—a conclusion reached by seven of the nine justices—regards the law’s provisions for expanding Medicaid eligibility. The Court effectively said that the federal government could not withhold matching funds for states’ existing Medicaid programs if they choose to forgo expanding Medicaid eligibility for citizens up to 133 percent of the federal poverty level. This essentially makes the Medicaid expansion optional for states, and, for providers in states that have relatively strict eligibility requirements, generates new uncertainty around how many new Medicaid enrollees to expect.
This means hospitals and health systems will have to endure the full impact of the Medicare payment reductions included in the ACA, while the total financial support to providers vis-a-vis the coverage expansion remains in doubt. In effect, the potential loss of this critical pillar of coverage expansion will effectively accelerate providers’ efforts to restructure operations to generate sustainable margins over time.
The constitutional question has been resolved, but political uncertainty remains. The Supreme Court may have declared the ACA (mostly) constitutional, but debate over the means by which this legislation seeks to achieve coverage expansion and cost reduction is far from over. Political support and opposition to the law remain intense, and it is likely to figure prominently in future debates surrounding federal spending—not to mention the election-year hopes of President Obama, Mitt Romney, and members of Congress.
Regardless of what comes next, today’s Medicaid surprise reminds us again: providers continue to face new, and sometimes unexpected challenges during this extraordinary period in our industry’s history.