How the Affordable Care Act Will Affect Provider Reimbursement

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The Patient Protection and Affordable Care Act (ACA) is an immense piece of legislation. This early in the ACA's life, it is difficult to estimate what effects it will have on any part of healthcare, such as reimbursements and revenue cycle management. While there are no absolute conclusions, one thing is for certain: The ACA is changing healthcare in enormous ways.

According to The New York Times, 48 million Americans were living without health insurance in 2012. That number constituted 15.4 percent of the country. The ACA aims to bring insurance to these Americans - but what does that mean for healthcare providers?

The effects of the ACA on provider reimbursement will manifest in the short and long term. The more immediate changes to provider reimbursement may include a sudden increase in patients - while long-term plans are being formed around a new generation of payment and care delivery models.

I. Short-term effects

Anticipating the patient influx

The most immediate expected effect of the ACA for providers is a sudden rise in patient populations. Millions of Americans are expected to obtain coverage under the ACA, thanks to the health insurance exchange marketplace set up under federal and state governments. Those Americans who cannot afford coverage will be eligible for government subsidies, and in some states, Medicaid will be expanded to cover those living at 138 percent below the federal poverty level.

With more patients insured, providers should expect to see a rise in service requests. This increase in volume might provide a boost in revenue, but also runs the risk of overloading physician practices, especially with the current shortage of primary care physicians. The transition is likely to be a gradual process. Some practices may need to hire new providers or staff to handle the increase in volume. And if payers are not providing proper or timely reimbursement, providers can drop those plans.

What will reimbursement rates look like for providers taking exchange plans? According to The Wall Street Journal and Becker’s Hospital Review, some payers are cutting their payments to doctors under these new exchange plans. UnitedHealthcare and Blue Shield of California were highlighted as two insurers lowering reimbursement rates to those closer to what Medicaid pays to providers.

While some providers may feel that they are having trouble keeping pace with their current patient numbers, another goal of the ACA and insurance exchanges is to break up the homogeneity of patient types for practices. The exchanges will ideally bring in a greater number of young patients, alongside older patients who will require regular care.

Doing away with pre-existing conditions

One of the most advertised aspects of the ACA is that it bans discrimination based on pre-existing conditions. An estimated 129 million non-elderly Americans live with a pre-existing health condition that might have led to coverage denial pre-ACA. This includes 17.6 million children in the U.S. The ACA mandates that payers cannot deny anyone coverage based on conditions, from cancer to asthma to diabetes.

Furthermore, payers cannot cancel patient coverage due to sickness or errors on applications. The ACA also bans limits on lifetime coverage.

Today's patients with chronic conditions do not need to worry about losing their coverage if they switch jobs or receive bills that go beyond their insurance limits. Instead, they can receive regular medical services, which healthcare providers are in turn reimbursed for.

Payers are required to cover more than ever

As of 2011, payers were required to cover 63 new preventative services - none of which included a copay for patients - so long as those services were provided by a network healthcare provider. Some of these services included diagnostic screenings and vaccinations.

Now, under the ACA, individual and small group health plans are required to cover 10 essential health benefits, including maternity coverage and mental health and substance abuse disorder services. Once again, in each case, payers will be required to reimburse providers for these services, which will likely grow in popularity as more Americans become insured.

Tracing the money

Multinational firm PricewaterhouseCooper reported that of the 30 million Americans who will be insured under the ACA, 45 percent will be signed up with individual exchanges and 23 percent will receive insurance through their employers. While the government will continue to fund Medicaid as it expands, this begs the question of whether insurance companies will allow all these services to eat into their profits. The sudden rise in services covered by payers converging with as many as 30 million newly-insured Americans could lead to significant changes for insurers.

Money may come from reduced reimbursement for other services. Major services like surgeries and hospital admissions may see a drop in reimbursement amount to start in order to free up money for the sharp rise in everyday services like screenings. Or reimbursements may simply be reduced across the board.

However, it's important to note that preventive care will over time lessen the need for secondary care, even where the fee-for-service model is retained. In this way, costs to payers may balance out and find equilibrium.

Many of these changes will be more apparent with primary care physicians rather than specialists, in part because preventive services provided by these doctors reduce the need for specialist services. The immediate rise in demand won't be for heart surgeons, but for family doctors and other general practice doctors.

II. Long-term effects

Changing payment and care models

While the ACA has a number of immediate impacts on healthcare provider reimbursement, many researchers and healthcare professionals are looking toward its long-term effects.

Some of the biggest changes in healthcare right now are the new fee-for-value payment models that are replacing traditional fee-for-service programs. Through Medicare and Medicaid, the government has been spurring providers to adopt these new service models - largely through promotion of accountable care organizations (ACOs), patient-centered medical homes (PCMH) and other integrated networks - but it remains to be seen whether private insurers will follow.

Currently, the ACA legislates savings, which are used to fund these programs and offer providers incentive payments during the transitional or pilot period. But without federal backing, will the private sector have any impetus to adopt value-based care models?

One way may be by simply setting a precedent for savings as well as improved quality of care. The Centers for Medicare and Medicaid Services performed a pilot program for Medicare-aligned ACOs in 2012. The cost-saving results showed that costs for nearly 670,000 beneficiaries under the pilot ACO programs grew by only 0.3 percent in that year. Similar beneficiaries under non-ACO programs saw cost growth of 0.8 percent comparatively. Of the 32 Pioneer ACOs, 13 produced savings, with a gross total savings of $87.6 million in 2012. Only two of the ACOs in the program experienced shared losses.

One of the huge cost savers, according to CMS, was that the ACOs managed to lower hospital admission and readmission rates. In fact, overall, the Pioneer ACOs performed better than fee-for-service Medicare providers across 15 different clinical quality measures.

ACOs are not the only applicable model either. A study appearing in the journal Medical Care from researchers at Boston University's Economics Department and the University of Massachusetts' Quantitative Health Sciences Department examined how PCMH models and bundled primary care payments might affect medical costs.

The researchers compared claims from 2008 to 2010 on approximately 10,000 patients in practices that were gradually moving to PCMH models and receiving risk-adjusted base payments. This was compared to data from about 200,000 patients in control practices using fee-for-service reimbursement, the traditional payment model wherein providers are paid for each individual service for patients.

The study, while small compared to the CMS ACO pilot program, found that the practices receiving bundled payments under the PCMH model saw spending reductions of 1.5 percent in a single year and 1.8 percent in two years.

The PCMH study and the ACO pilot program are just two examples of research being done now into the value-based payment models encouraged by the ACA, and savings or slowed cost growth are exactly the kind of incentive that may draw in more private insurers.

Among the currently used care and reimbursement models are:

  • Medical homes: Medical homes are the primary care payment model seen in the PCMH study - they focus on care coordination, health IT and health tracking.
  • Bundled payments: Sometimes called "episode of care," this model carries a single payment and price for all services provided to a patient during an episode of care. For instance, the bundled payment is delivered for both a surgical procedure as well as discharge and rehabilitation services.
  • Shared savings: Shared savings are seen in programs like ACOs. Here, the payment model rewards physician groups for collaborating, reducing overall spending and distributing payment based on percentages of net savings.
  • Direct pay: Direct pay models cut out the middleman and remove insurer reimbursement from the equation. According to Physicians Practice, doctors who use the direct pay model may have more time for individual patients and can offer competitive pricing.
  • Capitation: Under this model, a group of providers are paid a single, set amount intended to cover a group of patients for services over a period of time. This model was popular among HMOs and is resurfacing with the introduction of ACOs.

Growth among the primary care industry

There is a significant focus placed on primary care doctors by the ACA. Integrated care and PCMH models make the primary care physicians the central resource for patients, providing the first line of service for everything from physical to mental and behavioral healthcare. However, primary care physicians are often reimbursed less than specialists, which has led a number of doctors to fear that the ACA will ask them to provide new, expanded services at the same level of reimbursement.

However, it is also important to keep in mind that payers are more accountable than ever, and in many regards, primary care physician will be billing for a greater number of services, due to the emphasis the ACA places on preventative care.

While time will tell how reimbursement works out for these physicians, the ACA is likely to usher in a boost in the medical staffing industry. The ACA already recognizes the need for a stronger primary care workforce and has creative incentives like scholarship funding, loan repayments and forgiveness programs among other benefits to expand the number of primary care doctors, nurses and physicians assistants. Practices may not be able to predict their staffing needs under the new law, but the ACA goes out of its way to ensure that the new doctors and workers will be there when providers need them.

Looking ahead

What can providers expect from reimbursement looking forward? According to William Rusnak, M.D., a resident physician, financial investor, and entrepreneur, the future is bright.

"When talking about general physicians, like those in primary care, obstetrics and gynecology, and general surgery, I personally think that there is only one direction for reimbursements to go, and that is up," Rusnak said. "In the cases where this isn't true, we are already witnessing providers who are working diligently to find other ways to support themselves, such as in models like direct care, in which physicians accept payment directly from patients."

Rusnak, who frequently writes about healthcare technology, made an astute observation about healthcare providers: They are adaptable. As e-prescribing, EHR technology and changes to the International Classification of Diseases code sets have shown recently and in the past, good healthcare providers change with the industry around them.

While there may be peaks and troughs in reimbursement while the ACA takes hold, it is most important that providers learn to successfully ride the wave and maintain their fiscal balance.

Caleb Clarke's picture

Caleb Clarke

Director, Strategic Development, Sales & Marketing

Clarke has 20 years of operational, sales and marketing experience across a broad range of companies. In the healthcare industry, he worked at a Managing General Underwriter firm and later with a managed care organization. After working in both marketing and sales management roles in the construction industry, he was a service line manager at Atlanta’s Orkin Pest Control. Clarke earned a bachelor’s degree from Vanderbilt University, and holds an MBA from Georgia State University with a concentration in marketing.

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