Picking up the tab for health system reform
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Although the Patient Protection and Affordable Care Act received a deficit-reducing score from the Congressional Budget Office (CBO), the health system reform law also comes with an estimated $940 billion price tag to be paid over 10 years. With such a hefty tab, many in the medical community are wondering who will pay for reform.

“The cost of health care reform is spread fairly broadly,” noted Marta Van Beek, MD, MPH, chair of the American Academy of Dermatology Association’s Congressional Policy Committee, and associate clinical professor of dermatology at the University of Iowa.

While some of the provisions will likely put a financial and regulatory burden on dermatology practices, many of which are small physician practices, others will lessen such burdens.

The CBO score

The CBO projections suggest that the law could reduce the deficit by $143 billion over the first 10 years, and more than $1 trillion during the next decade. At the same time, the CBO acknowledges that projecting beyond 2019 is difficult because of the uncertainties that exist regarding the population’s health, insurance coverage and health care delivery systems.

These projected reductions come primarily from cuts to existing health programs and new tax revenues. Among the savings cited by the CBO are $132 billion in Medicare payments, $40 billion in home health care payments, and $22 billion in hospital payments. Examples of new revenue the law will generate include $210 billion through increased Medicare taxes, $107 billion from health industry fees from pharmaceutical companies, health insurers, and medical device manufacturers, and $52 billion from an employer penalty for not providing health insurance. See the sidebar, “Paying for reform,” for a longer list of revenue sources in the law.[pagebreak]

Critics of the CBO numbers contend that some of the deficit-reducing measures are unlikely to be approved in the political arena. As a result, they say, the law will fall short of its expected cost savings. Michael J. Ramlet, coordinator of the American Action Forum’s Operation Healthcare Choice, believes that health system reform will raise the deficit by more than $500 billion during the first 10 years and by nearly $1.5 trillion in the following decade. (The AAF is a non-profit think tank; former Minnesota Sen. Norm Coleman, a Republican, serves as its CEO.)

Proponents of health care reform, on the other hand, suggest that the CBO underestimates the law’s potential savings because it doesn’t account for measures designed to streamline health care delivery, such as accountable care organizations (ACOs) and bundled payment programs. The CBO could not associate cost savings with any demonstration projects until they are proven to work, Ramlet explained.

“The CBO numbers are probably the least biased ones we have right now,” Dr. Van Beek said. “They are the best we have to work with.” The CBO’s job was to score the bill as written. It had to assume that all of the provisions would be carried out as stated. If the provisions change, then the scores will follow suit, she noted.

Behind the numbers

Regarding how some of those reductions came about, Dr. Van Beek explained that every interest group in the medical community came to the table with a proposed amount that they were willing to contribute to the cost of health care reform and then negotiated from there. Hospitals accepted a smaller Medicare payment rate and eliminated payments previously used to offset the cost of providing uncompensated care. Pharmaceutical companies and medical device manufacturers agreed to pay new fees. Both, along with physicians, expect to gain newly insured patients, which translates into more revenues. But because physicians are a much more diverse group they generally were not among those at the table, Dr. Van Beek noted. [pagebreak]

“Despite all of this talk about bending the cost curve, based on bipartisan projections, the health care reform bill will not change health care spending dramatically up or down,” Dr. Van Beek said.

The federal government will increase spending largely to subsidize insurance payments for individuals and to expand Medicaid. States were not asked to contribute to either of these initiatives for the first few years, she added. Dr. Van Beek noted that adding 16 million individuals to the Medicaid roster could cause access problems in many states because of the low payment rates. Although the law requires states to pay primary care physicians treating Medicaid patients Medicare rates beginning in 2013, it doesn’t adjust payment rates for specialists. “There will be a lot of new patients who will have some form of insurance, but who will face limited access to dermatologists because of the flaws in the Medicaid payment system,” she said.

Ramlet concurred that the expansion of Medicaid will put a financial burden on physician practices. “When you expand Medicaid, which historically pays at the lowest rate, you create a tough operating environment because physicians don’t have the reimbursement level they need.”

The spending cuts getting the most attention, however, are those to Medicare. The bulk of those cuts are to the Medicare Advantage plans and not physician payments, Dr. Van Beek stressed. The Medicare Advantage plans, which are alternatives to traditional Medicare run by private insurers, attract approximately one-quarter of all Medicare-eligible individuals, she said. But long before health care reform, many individuals in the medical community believed that providing bonuses to insurance companies to offer these plans was a poor use of taxpayer dollars, Dr. Van Beek noted.[pagebreak]

Cost of doing business

Some provisions in the law will increase the financial and regulatory cost of running a practice, while others will streamline such efforts. Dermatology is already known to have the highest indirect practice expenses among physician specialties, according to the 2011 fee schedule issued by the Centers for Medicare and Medicaid Services.

Meeting the law’s mandate for using quality measures, publicly reporting them, and eventually having payment tied to performance will be the most expensive and difficult challenge for dermatologists, Dr. Van Beek said. It will take some time to develop measures that are valid and appropriately risk-adjusted so that dermatologists who take care of the sickest patients aren’t punished by using quality measures, she said. But the law’s current timetable does not allow enough time for this development and implementation to occur. Moreover, trying to conduct quality reporting when the necessary technology is not yet available will add to the burden. On top of all of this, there are the associated penalties for non-compliance in 2015.

Working with ACOs and bundled payment programs are two other challenges facing dermatologists beginning in 2012. However, these initiatives will come down initially as demonstration projects, Dr. Van Beek noted, so dermatologists will have a choice regarding whether they get involved early on. That decision will likely depend on whether the local health care organizations and providers are participating as both initiatives seek to consolidate care being provided. In 2013, the law calls for the establishment of a national Medicare pilot program to develop and evaluate bundled payments for physician services; acute, inpatient, and outpatient hospital services; and episodes of care. [pagebreak]

The CBO accounts for $19 billion in taxes from new 1099 reporting requirements for small businesses included in the law. Dermatologists must now file a 1099 tax form each time they purchase more than $600 worth of goods. This provision will increase the paperwork burden for small physician practices, Ramlet said.

Dr. Van Beek, however, is optimistic that this provision will be fixed by Congress this year. “There is broad agreement on both sides of the aisle that this is a bad provision,” she said.

Meanwhile, dermatologists in small practices who offer employee health insurance will benefit from tax credits through 2013. However, those with more than 50 employees will be subject to a penalty beginning in 2014 if they do not provide health insurance. Beginning this year, employers must report the value of their employees’ health care benefits on each employee’s W-2 tax form.

A provision in the law that calls for administrative simplification will decrease the regulatory burden for dermatologists, Dr. Van Beek noted. Insurers will be required to use the same set of claim forms and denial codes across the board. That will save dermatologists a significant amount of time interacting with the various private insurers who currently use different forms and codes, she said.

Physicians will also fund reform through increased taxes on their income. The reform law imposes a new 3.8 percent Medicare tax on investment income, such as dividends and interest, for individuals earning more than $200,000 a year, or married couples earning more than $250,000 a year. Additionally, individuals in the aforementioned tax brackets will have to pay a higher percentage of their Medicare payroll tax on wages. These additional taxes will take effect in 2013. [pagebreak]

The health care reform law calls on a broad spectrum of sources to pay for it. At the same time, the law is asking physicians to increase their use of health information technology, measure the quality of care being provided, and modernize their practices. Making the necessary investments required to accomplish all of these tasks is difficult when they are faced with reimbursement cuts year after year, Dr. Van Beek said. “The physician community would have liked to see some of the savings from the Medicare Advantage plan applied to fixing the sustainable growth rate,” she added, to provide assurance that Medicare rates will remain stable in the long term.

Instead, physicians have the looming specter of the Independent Payment Advisory Board (IPAB), a 15-member board that, starting in 2015, will have the power to recommend Medicare spending cuts to achieve the law’s cost-saving targets. This Board, whose creation was opposed by the American Academy of Dermatology Association and other physician groups, will be discussed in detail in the next issue of Dermatology World.

Paying for reform

To arrive at a score that would reduce the deficit over the next 10 years, the Congressional Budget Office cited a variety of savings achieved by the Patient Protection and Affordable Care Act, as well as many new revenue sources.


Medicare payments (primarily through changes to Medicare Advantage plans): $132 billion

Home health care payments: $40 billion.

Hospital payments: $22 billion.


Increased Medicare taxes: $210 billion.

Health industry fees from pharmaceutical companies, health insurers, and medical device manufacturers: $107 billion.

Employer penalty for not providing health insurance: $52 billion.

Excise taxes on high-cost health insurance policies: $32 billion.

Financial penalties for Americans whodon’t purchase health insurance: $17 billion.

A 10 percent tax on indoor tanning services*: $2.7 billion.

* Suggested by AADA

For more details about the provisions in the Patient Protection and Affordable Care Act, visit the AAD’s Health System Reform Resource Center.



Paying for reform