What Did SCOTUS* Do?

Posted by Joel Wittman

In my article that was posted in the April 2012 Blog, I posed the question of how the Supreme Court will rule on the Patient Protection and Affordable Care Act (ACA) and what the effects might be of the decision.  I wrote in the April Blog: “Things are never as simple as they seem to be.  The good intention of the current administration to increase access to health insurance coverage for all individuals at affordable pricing may not be good enough to preserve the goals of the ACA.  Do you throw out the baby with the bath water if the entire plan is deemed unconstitutional?  Do you preserve part of plan and try to make the best of the remaining regulations?  Or, do you leave the ACA as is and have the first meaningful health care reform since the Great Society?  Only SCOTUS can let us know.”  Well, now we know.

In a landmark and surprising decision, the Court ruled 5 to 4 to uphold the ACA but with a change to the penalty phase for states that do not comply with the expanded Medicaid program (states would lose any new financing related to the expansion and not their entire federal Medicaid contribution).  The controversial “individual mandate” provision was not overturned by the Court because of the crossover vote cast by Chief Justice Roberts.  By siding with the liberal bloc of the Court, the Chief Justice exhibited, in my opinion, a common sense approach to resolving this issue.  While he did write that the individual mandate cannot be supported under the commerce clause of the constitution, he approved its legality as a tax, ergo Congress has the constitutional authority to impose taxes.  Again, in my opinion, a sensible approach to resolving a divisive matter.  The Chief Justice commented that it is not the judiciary’s responsibility to set policy; this falls to the people in the form of their elected officials.  A wise decision given that a rescission of the ACA would have created wholesale chaos in the healthcare industry, not to mention the deleterious effects it would have on that portion of the population that would be denied health care coverage.

The ACA addressed only one part of the holy health care trinity – access, quality, and cost – that comprises health care.  It does a wonderful job of increasing access and does suggest changes to curtail costs and improve quality.  But, it’s a start.  And the industry had already reacted to the provisions of the ACA well before its constitutionality was upheld.  The reform train has left the station, is gaining momentum, and is transporting change to the way in which health care services are delivered and reimbursed.

The ACA has already introduced changes to the health care landscape.  Its effects on the health care industry include creation of Accountable Care Organizations, bundled reimbursement methodologies, outcomes measurement, financial sanctions for poor quality results, and greater emphasis on care coordination and management (see Inspiris and Humana).

All sectors of the industry are affected.  Hospitals stand to improve their profitability as their uncompensated care will be reduced as a larger portion of the population receive health care coverage.  The effects on the insurance industry seem to be mixed:  those companies that focus on the Medicaid population should experience an increase to their business (see Amerigroup and Molina Healthcare) while it is not certain that the access to new clients would be enough to offset the cost to insurers related to the requirements to cover patients with pre-existing conditions, charge sick patients the same as healthy ones, eliminate the coverage caps on patient reimbursement, and adhere to the medical-loss ratio.  Medical device companies face a 2.3% tax on sales starting in January 2013 to help finance the ACA while pharmaceutical firms have already agreed to pay more taxes and offer additional rebates and subsidies in an effort to close the Medicare “doughnut hole.”   It would also seem that corporate America would encounter reductions in profitability because of the requirement to provide coverage to employees.

The times they are “a-changin’.”  Adaptation to the ACA should not come as a surprise to the health care community.  The law was a known quantity and the result of bargaining between industry executives and politicians.  I’m confident that the industry will continue to innovate, will be able to meet these challenges, and will provide affordable, quality health care to patients while experiencing a positive impact on the bottom line.  After all, health care is a business.

* Supreme Court of the United States

Joel Wittman is an Adjunct Associate Professor at the Wagner School of Public service of New York University.  He is the proprietor of both Health Care Mergers and Acquisitions and The Wittman Group, two organizations that provide management advisory services to companies in the post-acute health care industry. He can be reached at joel.wittman@verizon.net.