What Providers Can Expect From "Repeal and Replace"

Last week House Republicans gave us a first glimpse of what they mean by “repeal and replace” of the Affordable Care Act (ACA). 

Lack of unity in the GOP and opposition from leading healthcare industry groups means the American Health Care Act (AHCA) faces significant hurdles and likely changes as it works its way through congressional committees and the budget reconciliation process. However, we can glean a few insights into how the final legislation might impact healthcare providers.

Key Provisions of American Health Care Act

For now, our prediction that MACRA will not fall victim to repeal and replace seems to be holding true. The AHCA targets the ACA’s Medicaid reforms, insurance affordability provisions, individual and employer mandates, and the taxes implemented to pay for the reforms—but it doesn’t touch any of the CMS payment model reforms.

Some highlights of the AHCA as it now stands that would have the greatest impact on hospitals, health systems and physicians:

•  Freeze of funding for states that expanded Medicaid
• Transition to per capita (block grants) Medicaid funding
• Restoration of Medicaid disproportionate share hospital (DSH) payments to pre-ACA levels
• Elimination of penalty for failure to maintain insurance coverage
  • Current premium tax credit system for purchase of insurance replaced by credits that increase with age and are capped at higher income levels
  • Increase of contribution limits to health savings accounts and reduction of excess contribution penalties

Expect Margin Pressure

The changes to Medicaid funding—from percentage of actual costs to per capita block grants-—are likely to shift a larger share of costs for that population to states.

Bond raters stated that the legislation as written would negatively impact their outlook for both for-profit and not-for-profit hospitals. "We expect that federal payments will grow more slowly than Medicaid program costs, forcing states to make changes that would likely be credit negative for hospitals, including lowering payments to hospitals and other providers, reducing coverage or benefits and reducing targeted payments to safety-net hospitals,” Moody’s said in its analysis.

This situation would likely force states to cut eligibility and benefits, in turn leading to higher levels of uncompensated care for providers. As states consider how to maneuver with flat or declining funding for the Medicaid population, they will look to improve efficiency through delivery model changes and possible cuts in provider reimbursement.

Two other changes—the removal of the individual mandate penalty and shift to age-based tax credits, which are expected to be less generous for most people than the ACA subsidies—are likely to result in an increase in uninsured patients and uncompensated care.

In the short term, the restoration of Medicaid DSH funding should stem the bleeding for many hospitals. But in the long run, everyone will be operating with less money for the same population.

Greater Consumer Control of Healthcare Dollar

Whatever happens with the health reform bill, the GOP seems intent on bending the cost curve by encouraging greater consumer choice. Increased contribution limits for HSAs and lower thresholds for deducting medical expenses, combined with repeal of the Medicare surtax and net investment income tax, aim to give consumers more control over how they spend their healthcare dollars.

The hope is that overall healthcare costs will start to decline as consumers feel more financial accountability for that care. However, this cause and effect depends on consumers seeing that link between their own wellness and the cost of care.

Reining in healthcare costs is a cause that we must all rally behind. As the battle on Capitol Hill plays out, providers can embrace payment model reforms to transform their business models to deliver better, more cost-effective care for a healthier population.

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