What Does ACA “Repeal and Replace” Mean for Hospitals?

February 6, 2017; Wall Street Journal

The only thing that makes a nonprofit hospital executive more nervous than change is the uncertain prospect of change. This is especially true when the change is financial. Looming plans to “repeal and replace” the Affordable Care Act are making a lot of hospital executives nervous because it’s unclear how the effort will affect their organizations’ bottom lines.

The theory behind the ACA was deceptively simple: provide insurance to more people, cover more pre-existing and chronic conditions, encourage health care systems to become one-stop shops for a patient’s health care (thereby becoming better able to monitor their health), and focus payments on promoting wellness rather than treating illness will reduce the rate of increase in both health insurance costs and health care costs and help people be healthier.

There have been successes in improving the quality of and access to care, but there have also been problems with financial implementation of the 2010 law. Too many newly insured people were in need of sometimes-expensive health care, and too many healthy people, especially young people, didn’t purchase health insurance. The federal government estimates that 20 million people have received coverage under the ACA since 2010, but the actual number may be lower because it includes people who were previously insured and shifted coverage from one provider to another. In addition, the conservative Heritage Foundation claims their research into actual ACA enrollment numbers shows that the vast majority of newly covered patients are covered under Medicaid, not private insurance. Medicaid reimbursements to providers, including hospitals, are typically far lower than payments made by private insurance carriers, and often do not cover a provider’s actual cost of care.

Insurance has been a key component of ACA implementation, with many nonprofit hospitals developing into health care systems hiring their own doctors and other providers building their own clinics. They would then sell their own health insurance products to patients, using that insurance to tie patients to the health care systems’ own network of providers and hospitals. Unfortunately, poor cost projections and some early underpricing of health insurance as a tactic to gain market share has left many health insurance companies with large and unexpected losses, prompting them to stop selling insurance on the ACA-created state insurance exchanges. For hospitals and health systems, rather than being a profit center as anticipated, their health insurance divisions have become a cash drain that must be subsidized from other operations, placing additional pressure on already shrinking revenue margins.

Will hospitals return to the pre-Obamacare environment where they relied less on insured patients and more on federal support? The focus is now on what will happen to “disproportionate share payments” to hospitals in low-income areas and annual raises to Medicare reimbursements. Under the ACA, these payments were slated to be reduced by $232 billion over ten years; without the ACA, will the funding be restored?

“If you’re going to repeal the Affordable Care Act, we need to have the cuts repealed as well,” LifePoint Health Chief Executive William Carpenter told a San Francisco health-care conference in January. In 2015, then-Rep. and now HHS Secretary nominee Tom Price (R-GA) helped the House of Representatives pass a bill to restore some of the disproportionate share payments as part of an ACA dismantling effort. That legislation was ultimately vetoed by President Obama.

Rob Casalou, chief executive of the nonprofit St. Joseph Mercy Health System in Michigan, says legislators he meets with are sympathetic but noncommittal about his health system’s funding concerns as repeal and replace winds its way through the legislative process. “Until they have a good replacement, and all they can really do is repeal or partially repeal, it makes us very worried on the coverage front and on the financial front,” he said.—Michael Wyland