The 2016 election: 12 questions every executive should be asking

Jan. 6, 2017
Chas Roades, Chief Research Officer, Advisory Board

Chas Roades, Chief Research Officer, Advisory Board, offered the company’s initial perspective on the election results in a letter to its member hospital and health system executives after Donald Trump’s victory in the Nov. 8 presidential election. We thought we’d share Roades’ letter because it contains a soup-to-nuts perspective on prescient issues concerning the evolving state of healthcare in the United States in the face of a new administration.

In a stunning upset, Donald Trump claimed victory as the next president of the United States while Republicans celebrated retaining control of both the House and the Senate.

While the outcome of the election has long been expected to have a far-reaching impact across a number of policy areas, the Republican sweep of Congress and White House could result in profound changes in health policy after a hard-fought election on both sides of the aisle.

Although the exact implications of the race will become more apparent in the coming days and weeks, we expect Republicans to emphasize the election results as a mandate for change and use the opportunity to pursue significant new initiatives.

So what can providers expect from a Trump administration and a GOP Congress? Let’s take a look at what’s potentially in store for Medicare, Medicaid, and the private insurance market—and what those changes mean for provider strategy—by looking at the most common questions I’ve already received following the election.

1. Is the Affordable Care Act headed for repeal?

Since the enactment of the ACA in 2010, Republicans have voiced a clear opposition to the law and voted over 60 times in the House for its repeal. With the removal of President Obama’s looming veto threat, we expect that repeal of the law—in some form—will be one of the first policy changes pursued by the Trump Administration following his inauguration, but the practical reality of how to do that given that much of it has been implemented could complicate the timing and scope of the effort.

Moreover, outstanding questions linger on whether Republicans will pair that repeal with a replacement effort to mitigate some of the perceived negative outcomes of that repeal in terms of insurance coverage impact and other discontinued program investments.

Given the 60-vote requirement in the Senate, repeal will likely need to be developed in the context of reconciliation, which means the overall bill may require other reductions in federal spending to offset the cost of the effort. Additionally, the new Administration will need to assess whether it can quickly find party consensus on a replacement plan or if that portion of the dialogue will be pushed back to later in the year (or, perhaps, indefinitely).

While there are many programs that could be impacted by such repeal, the biggest issues involve coverage expansion and payment reform.

2. If funding for Medicaid expansion is repealed, what happens to provider rates of uncompensated care?

Republicans could seek to repeal the Medicaid expansion enacted under the ACA. Although the ultimate impact would be dependent on the specifics of any Republican replacement plan, the likely net effect is a reduction in the number of individuals covered by Medicaid, which would increase uncompensated care and bad debt.

As part of repeal, Republicans might seek to restore Medicaid Disproportionate Share Hospital Payments (DSH), which are slated to be cut significantly under the ACA, to pre-ACA levels. Congress has repeatedly delayed and extended those cuts in subsequent legislation, and they have yet to take effect. But to restrain costs, it’s possible that Congress could retain DSH cuts even if it repeals Medicaid expansion. Organizations should prepare for the possibility that the Medicaid expansion is undone, bad debt rises, and DSH payment cuts still eventually kick in.

3. How might Medicaid reform impact my organization’s financial situation?

Republicans, including President-elect Trump and Speaker Paul Ryan, have proposed significant Medicaid reforms by limiting the growth of federal funding for Medicaid while shifting greater control over eligibility and benefits to states. These reforms—whether in the form of per capita allotments or block grants—might lead states to cut some combination of eligibility, benefits, and payment rates.

For providers, this would portend lower revenue and a need to double down on efforts to reduce costs.

4. What is the future of the ACA health insurance exchanges and private insurance mandates?

While the future of the employer mandate to provide health insurance is uncertain, the individual mandate may not survive the GOP Congress (though Republicans have expressed some support for other reforms such as provisions for pre-existing conditions and parental coverage up to age 26).

And while the so-called “Cadillac tax” might be doomed, the Ryan plan has proposed capping the tax exclusion for employer-sponsored insurance, which would have a similar effect on the value of pre-tax health benefits.

The health insurance exchanges, already embattled from stagnant enrollment and adverse selection, are certainly a potential target for repeal, but Republicans may alternatively implement some transition to phase out subsidies rather than immediately disrupt coverage.

They may enact other insurance market reforms to try to improve coverage options and affordability (selling across state lines, increased use of HSAs, high-risk pools, building portability into employer-sponsored insurance, etc.), in addition to a likely new focus on consumer transparency for provider costs and quality performance.

Other voices in the party have argued to keep some of the exchange infrastructure and modify the market so that it had fewer requirements and more state flexibility, but at this point, the future of the exchanges remains in doubt.

5. Can we expect a repeal of the ACA’s cuts to long-term Medicare spending?

Unlikely. One aspect of the ACA that will almost certainly remain is the Medicare spending cuts (including productivity adjustments) intended to offset the cost of the original legislation. In fact, the previous repeal legislation approved by the House has clearly left those rate reductions intact, meaning that the repeal scenario may be especially hard on providers who will no longer see the benefits of coverage expansion but will still be subject to a number of the significant rate cuts that were included in the ACA. Other cost-reduction provisions, such as the creation of IPAB, are more controversial and thus expected to be repealed with little debate.

The upshot, of course, is that hospitals and health systems will almost certainly continue to bear the brunt of price cuts to Medicare, but may not enjoy the upside from coverage expansion. This is likely to place enormous downward pressure on price, making most providers rethink their approach to cost containment.

For the past few years, hospitals and health systems have managed to maintain their profitability by cutting out the “low-hanging fruit” of excess costs. But further downward pressure on Medicare rates will likely force executives to look at more radical sources of cost savings.

Advisory Board analysis indicates that a plurality of available cost savings to providers today comes from minimizing variation in clinical procedures and outcomes. The challenge is significant—requiring alignment from clinicians and administrators across the care continuum—but the upside is enormous.

6. In general, is the pendulum swinging away from payment reform?

If given the choice, many providers and other stakeholders might well voice a preference for accountable care models as a cost-control strategy over even deeper fee-for-service rate cuts. That viewpoint could encourage the new Congress and Administration to continue to support risk-based payment and pay-for-performance models.

But even if long-term momentum does shift away from such models, congressional experts agree that most existing programs would only be transitioned or phased out under a thoughtful repeal approach, not eliminated immediately.

7. Does this mean the end of the bundled payment programs?

Probably not. There is generally support from both parties for the idea of bundling payments related to a single episode of care. While some Republicans have expressed discomfort with the mandatory Comprehensive Care for Joint Replacement (CJR) and proposed Episode-Based Payment Model (EPM) programs, that has had more to do with the mandates emanating from the ACA-created Centers for Medicare and Medicaid Innovation (CMMI) rather than from Congress.

The pace and vigor of mandated bundling may flag if CMMI is weakened or eliminated (see below), but the clear cost-saving potential for CMS from bundled payment means provider efforts toward episodic efficiency and appropriate post-acute pathways must remain top priorities.

8. How about the ACO programs?

It’s true that the Medicare Shared Savings Program (MSSP) was established by the ACA itself and as such would theoretically be eliminated by a full repeal. And the existing ACO programs’ disappointing early results (they haven’t generated significant savings to CMS) mean that CMS and Congress could be moving to emphasize bundled payments over ACOs as a clearer and simpler driver of savings.

But as with bundled payments, there currently is no proposed replacement for alternative payment models (such as MSSP) per se, and little near-term indication that they would be targeted in more specific repeal efforts, though the situation bears watching.

In the meantime, we believe providers should continue to prepare and execute near-term strategies for navigating population-level Medicare risk, including a deliberate approach to both the ACO options available and Medicare Advantage (more on that below).

9. Is CMMI on the chopping block?

CMMI’s loose financial accountability and unusually broad program authority have been subjects of Republican criticism, and previous House bills repealing the ACA have eliminated CMMI’s authority and funding.

For example, Speaker Paul Ryan has proposed eliminating the Center’s funding after 2020. That said, the notions of program innovation, private sector alignment, and a desire for greater accountability through pay-for-performance and risk-based payment are all principles that enjoy broad bipartisan support in Congress, though it is unclear if the specific programs included will remain intact. And it’s worth noting that while CMMI is not a congressional favorite at the moment, it does provide the Administration with tools to implement payment changes outside of the legislative process, giving President-elect Trump’s team a reason to keep it.

10. What does the election mean for MACRA—and more important, physician reimbursement and strategy?

Some of the strongest evidence for bipartisan support of payment reform comes from the overwhelming majorities—92-8 in the Senate and 392-37 in the House—that voted in favor of MACRA, the comprehensive rewrite of Medicare’s physician reimbursement model. MACRA continues to enjoy strong bipartisan congressional support today.

Because MACRA puts long-term pressure on physicians to adopt Alternative Payment Models such as ACOs and bundled payments, any action to roll back those programs (repealing ACA wholesale or defunding CMMI, for example) would serve to undermine MACRA’s effectiveness.

Providers should watch carefully to see how the incoming government addresses many of the loose ends still outstanding after MACRA’s 2017 transition year. In advance of more clarity on the technical points, providers should assume that tracking and managing physician performance will pay dividends in any case.

The potential for further payment cuts across the board will probably accelerate the trend toward physician practice aggregation already at work. Hospitals and health systems will need to be able to determine which physician groups to work with, what corporate structure to leverage, and which performance objectives to measure. Having a deliberate strategy around physician integration just assumed a new urgency.

11. Is Medicare Advantage going to become the dominant form of Medicare coverage?

Of the 57 million Medicare beneficiaries, nearly 18 million are already enrolled in privately administered Medicare Advantage plans. Both MA enrollment and provider interest in offering MA plans have been on the rise, and the advent of Republican-controlled government could augur an even quicker shift.

While it is not likely that MA (or, for that matter, any other privatized Medicare model) will fully supplant traditional Medicare in the immediate future, providers would be wise to craft strategies that address both the MA and traditional Medicare segments in complementary, scalable ways.

12. Will traditional Medicare move toward a premium-support model under the GOP?

The Ryan plan for Medicare does include a long-term goal to transition Medicare away from a traditional entitlement to a “premium-support” or defined-contribution model, which is essentially a voucher program allowing seniors to buy their own Medicare health plans.

The proposal would add a new level of consumer choice into Medicare decisions. While the idea is certainly worth watching as the new Congress and Administration begin to work together, it’s not clear that the idea has much support from the President-elect, who was notably unenthusiastic about significant reform of traditional entitlements.

Key takeaways for provider executives

It should be clear by now that the next several months are likely to be marked by uncertainty over the likelihood and nature of repeal or reform of the Affordable Care Act. But there are a few no-regrets strategies for providers that are likely to remain essential in any scenario:

  • Be prepared to live under further rate cuts to public reimbursement. The Republicans that control Congress—and very soon the presidency—have the same goals of curbing Medicare spending growth. But they do not have the same patience, meaning that rate cuts are here to stay, while the coverage expansion upside may be much more limited.
    This means providers have to maintain a relentless focus on taking excess cost out of their systems, eliminating unwarranted clinical variation, and rationalizing their fixed-cost footprints. The new Administration might also be more inclined to see the cost benefits of consolidation, assuming providers can demonstrate them.
  • Develop an intentional Medicare risk strategy to offset rate cuts. Medicare’s bundling, ACO, and MA programs may not be as endangered as other parts of the ACA, and for good reason: They are an essential building block of the bipartisan MACRA law. But they also provide an alternative to living under continued pressure from fee-for-service rate cuts. Determining the right mix of Medicare risk-based contracts for your own organization is still the key to a sustainable Medicare strategy.
  • Renew and revisit your physician alignment strategy. The potential for disruption in Medicare reimbursement is likely going to add new urgency to the wave of medical group consolidation. Given the almost certain uptake in interest for alignment options among physicians, health systems will need to know with whom they want to work, in what capacity, and with which performance goals in mind.
  • Accelerate your investment in consumer-oriented care delivery. Consumer-oriented healthcare just got a shot in the arm. Many of the reforms included in the Ryan plan include greater use of HSAs, individual insurance portability, and greater consumer transparency and choice for health plans—all of which only underscores how consumer preferences at the point of coverage and point of care are likely to have a profound impact on care delivery. Consumers increasingly demand easier and more affordable access to care and greater flexibility in payment options.

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