Fog Alert: Will the ACA Be the New SGR for Physicians?

April 04, 2017

The Affordable Care Act (ACA) survived another existential threat last month when House Republican leaders pulled a bill that would have largely repealed and replaced the 7-year-old healthcare reform law.

For physicians, the ACA's future promises to resemble a painful saga called the SGR — short for Medicare's sustainable growth rate formula for setting physician compensation. Year after year, physicians wondered whether Congress would postpone a massive Medicare pay cut triggered by the formula. They complained that SGR uncertainty complicated business decisions, such as buying new equipment, hiring staff, or taking on a new partner: Should we wait?

That same kind of uncertainty hangs over the ACA as physicians ponder a handful of questions. Will President Donald Trump and a Republican Congress attempt to implement the law in good faith and even strengthen it, or actively undermine it? Will they make good on their vow to introduce another repeal-and-replace bill? How many more private insurers will drop out of the ACA marketplaces, or exchanges, for individual and small-group policies? And will more states choose to expand Medicaid eligibility under the law and collect extra federal funding in the process?

"Everything is in limbo," said Jon Rosell, PhD, executive director of the Kansas Medical Society. "But then, uncertainty has been a common state of affairs for healthcare."

Medscape Medical News interviewed Dr Rosell and other healthcare experts to shine a light into the fog of the ACA's future.

Uncertainty Number 1: The Exchanges

The future of the ACA exchanges will have a direct bearing on physician practices in several ways. In a worst-case scenario, the continued exodus of insurers from the exchange could leave Americans in some areas without the choice of a single health plan and strip them of coverage they now enjoy. Once-insured patients then become self-pay patients, if not charity-care patients.

In 2017, 57% of Americans had the choice of three insurers, down from 85% in 2016, according to the Kaiser Family Foundation (KFF), working from federal data. The percentage of Americans who had only one insurer to choose from rose from 2% to 21% in this time frame.  In geographic terms, the percentage of counties with only one insurer increased from 7% to 32%.

All eyes are on the health insurance industry to see what it does in 2018. In January, Humana announced it was pulling out of the exchanges next year. Anthem is hinting that it will follow suit, according to published reports (the company declined to respond to a request for a comment). But the full picture won't emerge until other insurers officially notify the federal government about their intentions to participate in the exchanges in 2018 later this spring. Originally they had to file an initial application between April 5 and May 3, but the Centers for Medicare & Medicaid Services recently pushed back this filing period to May 10 through June 21.

Those applications aren't the final word, according to attorney Timothy Jost, a healthcare law expert who teaches at Washington and Lee University. The drop-dead date for participation in the exchanges is September 27, when signed contracts are due. However, Jost told Medscape Medical News that insurers don't have the luxury to dawdle because some state insurance departments will be asking them to put proposed premium rates, deductibles, coinsurance percentages, and the like for 2018 on paper as early as this spring.

"Insurers are deciding right now what they're going to be doing next year," Jost said.

If individuals who now have an exchange health plan lose it because of insurer attrition, physicians with the most to lose financially could be the self-employed with hospital-based practices, said consultant Ron Howrigon, president and CEO of Fulcrum Strategies in Raleigh, North Carolina. Howrigon has in mind emergency medicine, radiology, anesthesiology, and pathology groups that contract with hospitals to staff those departments but do their own billing.

"If an uninsured patient rolls into the emergency department, the hospital can't turn them away, and any one of those specialties could end up treating him," Howrigon told Medscape Medical News.  Hospital-employed, salaried physicians, in contrast, are largely shielded from the financial hit of uninsured patients, although more hospital charity care could make less money available for raises.

Patients losing their insurance isn't the only repercussion if fewer insurers decide to participate in the exchanges next year. With less competition, and more and more counties covered by only one insurer, physicians stand to lose bargaining clout when they negotiate health plan contracts. Likewise, insurers that remain in the exchanges may double down on a narrow-network provider strategy to ensure profitability, Howrigon said.

Uncertainty Number 2: Medicaid Expansion

The exchanges where individuals and families can buy private coverage with federal premium subsidies are one pillar of the ACA. Another pillar is the option for states to expand Medicaid eligibility to include the working poor, with the federal government funding 90% of the cost. The pillar also survived in the wake of House Republican leadership withdrawing their repeal-and-replace bill, called the American Health Care Act (AHCA).

So far, 31 states and Washington, DC, have said yes to Medicaid expansion, but not all at once. Four politically red states — Alaska, Indiana, Louisiana, and Montana — have come aboard since 2015. More states could follow suit, creating another wild card for physicians.

Physicians employed by hospitals indirectly stand to gain from Medicaid expansion, healthcare experts say, because it has improved the finances of hospitals besieged by indigent patients and bad debt. That's especially true for hospitals and health systems in rural and urban areas, said Fred Bentley, a vice president at the healthcare consulting firm Avalere who heads its Center for Payment and Delivery Innovation. "Some insurance is better than none," Bentley told Medscape Medical News. As for independent physicians, whether Medicaid expansion is a good thing depends largely on how well their particular state program pays right now.

In general, Medicaid reimbursement rates are notoriously low, trailing those for Medicare and commercial insurance and dissuading many physicians from accepting Medicaid patients. A KFF study of state Medicaid fees for all physician services in 2014 put Rhode Island at the bottom of the list, with rates equalling 38% of Medicare's that year. Nationwide, that percentage was 66%.

However, in three states, Medicaid paid physicians more than Medicare in 2014 — 129% in Alaska, 141% in North Dakota, and 104% in Montana. All three opted for Medicaid expansion. And some nonexpansion states — Wyoming (96%), Nebraska (90%), Mississippi (89%), and Oklahoma (89%) — came fairly close to matching Medicare.

"You'd be surprised that reimbursement is pretty good in some places," said Laurie Morgan, a partner in the practice management consulting firm of Capko & Morgan, in an interview with Medscape Medical News. "If you're already enrolled in a state's Medicaid program, and it's a good relationship, yes, you should hope for Medicaid expansion."

A March poll by the practice management consulting firm Karen Zupko and Associates found that 48% of physicians in nonexpansion states were not hoping for Medicaid expansion, while another 34% weren't sure. The survey was confined to vascular, general surgery, orthopedic, otolaryngology, and interventional pain specialists.

"The funding has to improve in Alabama (where reimbursement equalled 76% of Medicare in 2014) or docs will just not see these patients," commented one clinician, whose state has declined expansion.

Physicians in some nonexpansion states have advocated expansion even though their Medicaid fees are nothing to brag about. The rates in Kansas were 78% of Medicare's in 2014, and they sustained a 4% cut earlier this year. Nevertheless, the state's medical society has supported Medicaid expansion because "physicians have a commitment to their patients," said Dr Rosell, the group's executive director.

The Kansas Medical Society almost got its wish. The Republican-controlled state legislature there approved a bill to expand Medicaid eligibility, but Kansas Governor Sam Brownback, a fellow Republican, vetoed it. Brownback said the legislation did not satisfy his requirements that expansion be budget neutral, eliminate waiting lists for disability services, and impose work requirements. He also faulted it for failing to defund Planned Parenthood.

Uncertainty Number 3: Trump and Congress

Trump and congressional Republicans say that with fewer insurers to choose from on the exchanges and rising premiums, the ACA is in a death spiral, or exploding, or imploding — pick an apocalypse. That's not the view of many experts, including those in the Congressional Budget Office (CBO).

In an analysis of the AHCA co-produced with the Joint Committee on Taxation, the CBO stated that the individual and small group market for health insurance would be stable in most areas if the ACA continued to be the law of the land.

However, the Trump administration and a Republican-controlled Congress could sabotage the ACA to the point of apocalypse. The Internal Revenue Service (IRS) already has softened its enforcement of the individual mandate to obtain health coverage. The IRS is supposed to exact a penalty from individuals who don't comply, but in February it announced that it would process tax returns that didn't indicate whether the taxpayer had coverage as opposed to automatically rejecting them. While not eliminating the penalty per se, the new policy turns a blind eye toward mandate violators who owe the penalty, which the CBO credits with helping to spur enrollment and make the exchanges stable in most locales.

The Trump administration also could depress sign-ups on the ACA exchanges by shortening the open enrollment period or not bothering to promote it with advertisements and outreach programs. The most damaging action Trump could take, however, would be to stop defending a lawsuit that challenges payments to health insurers that provide cost-sharing subsidies under the law.

Here's how those subsidies work. Just as tax credits defray the cost of health plan premiums, the cost-sharing subsidies reduce out-of-pocket expenses, such as deductibles, coinsurance, and copays for people with low to middling income. Insurers pick up more of these costs instead, and the federal government reimburses them for that.

For a person with an income under 150% of the poverty level, the subsidy can knock a $3600 deductible for medical care and prescription drugs down to $255, according to KFF. Of the 11.1 million people enrolled in an exchange health plan in 2016, 57% benefitted from cost-sharing subsidies, which came to $7 billion that year.

The Republican-controlled Congress never appropriated the funds to reimburse insurers for the cost-sharing subsidies they provide. The Obama administration cut the checks instead straight from the Treasury. House Republicans sued the Obama administration over this in 2014, contending that it never had the authority to spend the money. A federal district court in Washington, DC, ruled in the Republicans' favor last year, prompting the Obama administration to appeal.

Now the Trump administration has become the defendant in the case. The White House could kill off the subsidies by crying "uncle" in the lawsuit and letting the House prevail. However, both sides have agreed to put the appellate case on hold while they explore an out-of-court resolution of the issue. House Republicans leaders as well as the White House have indicated that the cost-sharing subsidies are at least safe through 2017, mindful of how their disappearance could destabilize the exchanges. Consumers would have less of an incentive to buy coverage, and insurers would lose billions of dollars, giving them one more reason to exit the exchanges.

Trump and a Republican Congress could do more than merely undermine the ACA. They could revive their legislative efforts to repeal and replace it outright. True, House Speaker Paul Ryan (R-WI) said the ACA would be the "law of the land" for the foreseeable future after he withdrew the AHCA from House consideration on March 24.  Within a week of a humiliating defeat, House Republican leaders said they hadn't given up on repealing the ACA. And now the White House is floating a bill that would allow states to opt out of some ACA requirements, such as the need for health plans to cover certain essential services, according to Reuters.

There are enough possible ACA plot twists to spook health insurers into raising premiums on the exchanges next year simply to hedge their bets, according to Timothy Jost.

"I think we'll see big rate increases, and not because they're justified," said Jost. "It's because the insurers are so nervous about the uncertainty with the Trump administration."

"Will It Be Slowly Strangled to Death?"

Uncertainty about the ACA has spread to the medical profession. Karen Zupko and Associates found in its survey that only 59% of physicians currently participating in an ACA exchange plan to stick with it in 2018. Five percent intended to drop out, while 26% weren't sure. It's not clear from the results how many physicians on the fence anticipated slimmer pickings in 2018, and how many were simply disgusted with exchange health plans. Many physicians complained about below-par reimbursement rates and high deductibles that gave them more work collecting from patients.

"With the number of payers dropping out of the exchange and the number of patients who refuse to pay their portion of the extremely high deductibles and coinsurance," one clinician commented in the Karen Zupko survey, "I do not see how providers can continue to participate."

The fog surrounding the ACA adds to the angst that physicians feel about the administrative and financial challenges of their profession, said consultant Deborah Walker Keegan, PhD, president of Medical Practice Dimensions. Accordingly, they have all the more reason to seek escape hatches, such as joining a large group or shifting to a concierge practice and its lesser dependence on third-party payers. "It's because we don't know what's going to happen," Dr Keegan told Medscape Medical News.

Practice-management consultant Mike La Penna makes a similar assessment. The failed attempt to repeal the ACA and the constant prophecies of its impending doom are "creating a heightened sense of risk" for physicians who have tried to organize their practices around the healthcare reform law, La Penna said in an interview with Medscape Medical News.

"The people who now manage the ACA [in the Trump administration] don't like it," said La Penna, president of the La Penna Group. "They don't want it to succeed. Will it be slowly strangled to death?"

Goodbye to a sense of stability, said La Penna. And hello to worry.

"Anytime there is indecision, people freeze," he said. "It makes people who own practices more conservative. Should I buy that next piece of equipment? Do I hire a new medical assistant? Do I sign a long-term lease for my office?

"The next time the hospital comes knocking to buy your practice, you listen."

Follow Robert Lowes on Twitter @LowesRobert

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