The ACA Will Be Repealed. It’s the Replacement That’s Tricky.
Donald Trump has transitioned from presidential candidate to president-elect, and has nominated conservative Republican Rep. Tom Price, MD (R-GA) to oversee the Department of Health and Human Services. In the same announcement, healthcare consultant Seema Verma, with ties to Vice President-elect Mike Pence, was nominated to oversee the Centers for Medicare and Medicaid Services (CMS). The House and Senate each have Republican majorities, although the Senate’s is slim, at 52 to 48, and not filibuster-proof. The House is 241 to 194.
“Repeal and replace” the Affordable Care Act (ACA) is the first order of business for the Congress, beginning at noon on January 20 when Trump is sworn in. Senate Majority Leader Mitch McConnell (R-KY) has declared it so. It sounds so urgent, but after the election, the House Republicans approved a motion to delay their judicial challenge to House v. Burwell, which deals with cost-sharing responsibilities for low-income public exchange enrollees. That motion signaled that Republicans are prepared to take more time to implement changes.
Early this month, both houses passed the 21st Century Cures Act, which doles out $6.3 billion to fund a range of initiatives, from bolstering mental health programs and dealing with the opioid epidemic to funding the National Institutes of Health and getting the Food and Drug Administration to hasten its review and approval processes for drugs and medical devices.
After the election, we spoke with Larry Kocot, head of the healthcare advisory group at KPMG; Mark Lutes, chairman of Epstein Becker Green; and we’ve included remarks made by Scott Gottlieb, a fellow at the American Enterprise Institute who is now a member of Trump’s landing team at HHS. His observations regarding legislative adjustments to the Medicare Access and CHIP Reauthorization Act (MACRA) were made during our webinar on that subject in July 2016.
Less Prescriptive, Fewer Regulations
The shift from fee-for-service to value-based reimbursement has been under way for many years, even before the ACA was passed in 2010. The $64,000,000 question facing hospitals, insurers and other providers is, will it continue if the ACA is repealed?
“I predict that the format of some of the value-based activity will be less prescriptive, and will have fewer quality statistical loops to jump through for participants in the programs,” said EBP chairman Lutes. “And the participants in those programs are likely to welcome that.” As would a lot of investors from the private and strategic sides.
Every time Congress has come up with a new, value-based purchasing format, he added, the implementing regulations that come out have been exceedingly complex. “They require reams of documentation from the application stage, and for judging performance. The new administration may lessen those hurdles and actually make them increasingly attractive to providers to participate in.”
MACRA was passed by bipartisan vote in April 2015, but only began to take effect in April 2016, when the CMS produced a ream of regulations to implement the plan to move physicians who treat Medicare patients from fee-for-service reimbursement to value-based reimbursement plans.
The effect, as described by Scott Gottlieb, was not what the Congress intended. “A few things to keep in mind from a political standpoint, this was done on a very broad bipartisan basis. I think there were 92 votes in the Senate and an overwhelming bipartisan majority in the House. And the other thing to keep in mind is that since it’s been passed there’s been a lot of buyer’s remorse on the bipartisan basis as well.”
As Gottlieb described it, “I think [the ACA and MACRA are] flawed in many respects, but the law was exceedingly prescriptive. So, when you come up with an exceedingly prescriptive statute, you tend to end up with very prescriptive regulation.”
His view back then was that, even with their flaws, the laws will be tweaked, “But the basic framework’s going to persist, notwithstanding some of the political lamenting right now. There’s a lot of folks who are very invested in this new basic framework.”
KPMG’s Kocot agreed. “This move to value, the payment systems, the delivery systems, will continue. This is a bipartisan concept. You saw it with the passage of MACRA, and I don’t see that abating.” He added, “As a matter of fact, some Republican leaders have said without equivocation that this will continue.”
Looking Ahead to 2018
Trump has four years to make or break his presidency with a majority in both houses of Congress. But the mid-term elections in November 2018 could bolster or squash his plans. Kocot is already focused on the mid-terms, because that’s where the new administration’s focus is, as well. “For one of those rare cycles in 2018, the Senate election is going to be overwhelmingly Democrats defending seats. . . . The way the math is shaping up, the Republicans have a reasonable chance in 2018 to get a 60-vote majority [in the Senate]. It’s important for their overall agenda going into 2019 and 2020, and the presidential election in 2020.”
Bringing this back to health care, Trump told supporters he would call Congress back into a special session to repeal the ACA. Since he’s not president until January 20, he has no power to do that. And by that date, the new Congress will have convened two weeks earlier. We mention this to point out that the president-elect is still getting his bearings on how government works.
The Republicans’ replacement plan is still unformed. The most prominent is House Speaker Paul Ryan’s (R-WI), which Kocot sees as a starting point, not a target, for discussion. But the over-arching lesson the Republicans learned from the battles over the ACA, which passed without their party’s support in 2010, is that any replacement needs bipartisan approval. “The trick here is going to be trying to pass something that repeals,” Kocot said. “That is different than ‘destroy.’ And you have to do this in an eloquent way.”
Trump’s talking points align nicely with Ryan’s plan, and he wants to change the Medicaid expansion funding to give block grants to the states, which makes hospitals particularly vulnerable to assuming the bad debts they’d shed thanks to the ACA.
With the bipartisan bills, MACRA and the 21st Century Cures Act now in place, the next Congress will be able to compromise on the ACA’s replacement. “It’s not a filibuster-proof Senate, and that will inevitably produce legislative compromise,” Lutes said. “The president-elect is very deal-oriented. He knows how to do transactions, how to reach deals and move on. So we’ll probably see things actually moving along with perhaps more compromise than anyone envisions, as a result of the overall deal orientation of the administration.”
Winners and Losers
Any change in Medicaid coverage will have outsized effects on hospitals and health systems. The uncertainty about what will happen between the repeal in January 2017 and the replacement that isn’t expected until after the mid-term elections in 2018 is the problem facing healthcare providers.
No one expects the incoming administration to jump into the trials that are now underway, as the Justice Department challenges the mega-mergers in the insurance industry. However the decisions play out, Lutes sees promise for the managed care sector. “They could be creating individual products that match well with the incentives, consumer-responsibility incentives that some reform-oriented theorists and policy makers will adopt. So there could be a reduction in opportunity in some portions of the market, but an increase in opportunities in other portions.”
Even before the election, behavioral health care programs and many areas of post-acute care were favored targets of private equity and strategic investors. With the 21st Century Cures Act in place, more investors will move into services sectors such as behavioral health care, home health and hospice services, long-term care and rehabilitation.
If the FDA does streamline its approval processes, look for more venture capital to promote innovation in the medical device sector, and more acquisitions as those companies grow. The pharmaceutical sector, which came under a lot of fire during the campaign season for high drug prices, still has a lot of work to be done as part of the Cures Act’s “Cancer Moonshot” and the BRAIN Initiative.
And don’t forget the data analytics, electronic health records and revenue cycle management companies. No matter what replaces the ACA, data will be at the heart of the healthcare business.
