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The Financial Professional's Guide to Healthcare Reform

ISBN: 978-1-118-09322-1
406 pages
May 2012
The Financial Professional
A comprehensive reference guide interpreting and applying healthcare reform law for consultants, appraisers, accountants, and attorneys

The Financial Consultants'Guide to Healthcare Reform provides an historical backdrop on how the healthcare system got to its present state including the Massachusetts Reform and Medicare Advantage along with an explanation of the principal types of health insurance in the United States and how "insurance" actually works. A review and explanation of each of the reform provisions follows, including an analysis of what the implications are for providers, consumers and business and what responses each of these communities might have to the Reform. Using the authors' insights and firsthand experiences in U.S. healthcare finance, this book explains the new healthcare law for individuals and businesses alike, what to expect from it and what actions they need to take to comply.

  • Interprets and applies the health care reform law
  • Provides examples of what the impact of the law might look like
  • Extensive use of sidebars to provide in-depth analysis or background on particular topics of import, where the reader may need more detail to understand the context of Reform's changes.
  • Written for consultants, appraisers, accountants, and attorneys
  • Written by major figures in the world of healthcare valuation and consulting

The Financial Consultants' Guide to Healthcare Reform provides a complete handbook to healthcare reform for financial consultants, both for understanding this important legislation as well as for planning responses to it.

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Foreword xvii

Preface xix

Acknowledgments xxiii

CHAPTER 1 Introduction 1

A Brief Recap of the History of Reform 1

Early Reform Efforts 1

Tax Deductibility of Health Insurance 1

The Great Society: Medicare and Medicaid 2

The 1970s: Medicare HMOs and ERISA 3

Regulation: The Anti-Kickback Statute 3

Prospective Payment Systems 3

The 1990s 3

Rise of Managed Care 4

The Stark Law: Anti-Referral Statute 4

Balanced Budget Act of 1997 5

Balanced Budget Revision Act and Benefits Improvement and Protection Act 6

Failure of Managed Care 7

Provider Integration and Consolidation 7

Summary of the Healthcare Market in 2000 8

The New Century 9

One Size Fits All? Geographic Disparities in the U.S. Healthcare System 11

Profit and Nonprofit Hospitals and Health Insurers 12

History of Blue Plans 13

Medicare: The Other White Meat 14

Other Market-Based Studies 14

Geo-Clinical Differences 15

Summary 18

CHAPTER 2 Massachusetts 21

The Time Line of Massachusetts Reform 22

Early Reform Legislation in Massachusetts 22

Acts of 1996 23

Targeting the Small Group Market 23

Targeting the Trade Associations Offering Health Insurance to their Members 23

The Intervening Years 24

Components of the 2006 Massachusetts Legislation 24

Merging the Small Group and Individual Markets 24

Commonwealth Care Subsidies 24

Key Features of Massachusetts Reform 25

Recounting the Results of Reform in Massachusetts 25

Universal Coverage 25

Response of the Healthcare Provider Community 26

Differing Views of Massachusetts Reform 26

Special Commission on the Health Care Payment System 27

The Alternative Quality Contract 28

State Government Reports Tracking the Results of Reform 28

The Small Group and Individual Market versus Self-Insured Market 29

Massachusetts Quarterly Reports 31

Massachusetts Attorney General’s Report 33

Similar Experience in Other Markets 34

Specific Comparisons 34

Take from the Poor and Give to the Rich? 36

Impact on Market Share of Financially Weaker Providers 37

Most Favored Nation Clauses 37

Tiered Pricing 38

Recent Legislative Changes through August 2010 38

Open Hearings in December 2009 38

August 2010 Changes in Massachusetts 39

Open Enrollment 40

Review of Premium Increases 40

Tiered Network Requirement 41

What CanWe Learn from the Massachusetts Experience? 41

CHAPTER 3 Insurance Reforms 47

What is Insurance? 47

Components of Health Insurance and Healthcare Entitlement 48

Sources of Coverage 48

Medicare 49

Medicaid 50

Self-Insured Employers 50

Small Group (Small Business) Insureds 50

Individual Insureds 50

Large Group—Business Not Self-Insuring 50

Uninsured 50

Health Insurers 50

How Do Health Insurers Provide Health Insurance? 51

Understanding Acturial Risk 54

How Does Self-InsuranceWork? 56

Regional and Industry Factors in Health Insurance 58

The Reform of Health Insurance 59

Minimum Essential Coverage 60

PreventiveMedicine Services 61

The Precious Metals of Health Insurance Policies 61

Defining Actuarial Value 62

Deductibles 62

Glossary of Health Insurance and Medical Terms 62

Consumer Protection Provisions 63

Guaranteed Availability and Renewability of Insurance in the Small Group and Individual Market 64

Elimination of Lifetime Limits on Coverage 64

Elimination of Annual Limits on Coverage 64

Prohibition Against Rescission of Coverage 65

Appeals of Benefit Denials 65

Self-Insured Plans 66

Insured Plans 66

Government Review of Premium Increases 68

Waiting Periods for Coverage 68

Protections for Children 68

Prohibition Against Exclusion for Preexisting Conditions 69

Administrative Simplification 69

Grandfathered Health Insurance Plans 70

Medical Loss Ratios 71

Cost Containment 72

Insurer Provisions 72

Provider Provisions 72

Cost-Effective Medicine 72

Rating and Other Reforms in the Small Group and Individual Market 73

Different Forms of Rating Health Insurance Policies 73

Merger of Small Group and Individual Markets 74

Illustration 74

Mini-Med Plans 78

Insurance Exchanges 78

Establishment of the Exchanges 79

Requirements of Exchanges 79

Qualified Health Plans 79

Open Enrollment Periods 80

Functional Requirements 80

Benefit Requirements 81

The Massachusetts Experience 81

Chapter Summary 84

Implications and Responses for Small Business 85

Implications and Responses for Larger Businesses 85

Implications for the Provider Community 85

Some Thoughts for Lenders and Small-Business Investors 86

Appendix 3.1: Selected Legislative Text for Insurance Exchanges 86

Appendix 3.2: CMS Proposed Regulations—Glossary of Health Insurance and Medical Terms 89

Appendix 3.3: Using the Massachusetts Health Connector 91

CHAPTER 4 Medicare Advantage Plans 99

How Many Medicare Beneficiaries are in Medicare Advantage Plans? 101

HealthMaintenance Organization (HMO) Plans 101

Preferred Provider Organization (PPO) Plans 101

Private Fee-for-Service (PFFS) Plans 101

Special Needs Plans (SNP) 102

Geographic Distribution of Medicare Advantage Enrollees 102

History ofMedicare Advantage and Its Predecessors 104

Age, Gender, Severity of Illness, and Risk Score Adjustments to the Capitation Rates 105

Medicare Advantage and the Medicare Modernization Act 107

Enrollee Benefits 110

Choosing a Medicare Advantage Plan 111

Changes from the Reform 112

Minimum Medical Loss Ratio 112

Payment Rates 112

Effect on Beneficiary ‘‘Rebates’’ or Enhanced Benefits 113

Quality-Based Incentive Payments 115

Rebates 117

Low Enrollment Plans 117

New Plans 117

Implications for the Provider Community 118

Implications for Insurers 118

Implications forMedicare Advantage Beneficiaries 118

Appendix 4.1: PPACA Sections Affecting Medicare Advantage 119

HCERA } 1102. Medicare Advantage Payments 119

HCERA } 1103. Savings from Limits on MA Plan Administrative Costs 120

PPACA } 3203. Benefit Protections and Simplifications 120

PPACA } 3204. Simplification of Annual Beneficiary Election Period 121

PPACA } 3206. Extension of Reasonable Cost Contracts 121

PPACA } 3208. Making Senior Housing Facility Demonstration Permanent 122

PPACA } 3209. Authority to Deny Plan Bids 122

CHAPTER 5 Medicaid Expansion 125

Introduction and Overview 125

Medicaid Enrollment and Spending 126

Eligibility Changes 128

Basic Categories of Medicaid-Eligible Individuals 128

New Rules 128

Maintenance of Effort (MOE) Requirement 128

Modified Adjusted Gross Income or MAGI 129

Presumptive Eligibility 129

Key Expansion Groups 129

Coverage of Men 129

Coverage of Women without Children 130

Community First Choice Option 130

Legislative Provisions 132

Other Incentives for Home and Community-Based Services 134

Spousal Impoverishment and Home and

Community-Based Services 134

Other Requirements 135

Benefits 135

New Standards for Benchmark-Equivalent Coverage 135

Preventive Care for Adults 137

Medical or Health Homes 137

Birthing Centers 142

Prescription Drug Coverages 142

Miscellaneous Provisions 143

Financing the Changes 143

Expansion States 143

Special Adjustment to FMAP for States Recovering from a Major Disaster 144

Implications and Responses for Low-Income Uninsured and Taxpayers 147

Appendix 5.1: Table of Medicaid Provisions in the PPACA 148

Appendix 5.2: Subtitle D—Medicare Part D Improvements for Prescription Drug Plans and MA-PD Plans 149

CHAPTER 6 Mandates, Subsidies, Penalties . . . and Taxes 151

The Individual Mandate 151

Amount of the Penalty 151

Examples 152

Example: Single Individual with No Dependents, 2014 to 2016, with Household Income up to $50,000 152

Example: Single Individual with No Dependents, 2014 to 2016, with Household Income up to $500,000 152

Example: Family of Four, 2014 to 2016, with Household Income up to $125,000 152

Failure to Pay Penalty Imposed on Individuals 153

Impact of the Mandate 153

Congressional Budget Office Analysis 153

Government Accountability Office 154

Geographic Disparities in the Cost of Insurance 155

Subsidy Eligibility 157

Tax Credits and Subsidies 158

Tax Credits 158

IRS Credit Examples for Middle-Class Families 159

Subsidies 160

How the Credits and Subsidies Impact Premium Cost 160

Employer Requirements 162

Definition of Large Employer 162

Large Employers Not Offering Coverage 162

Large Employers Offering Coverage 162

Large Employers with More Than 200 FTEs 163

Notice 2011–36 164

The Role of the Tax Code and the Internal Revenue Service 169

Nondiscrimination Rules in the Provision of Health Insurance 169

Suspension of Compliance and Penalties 170

Possible Solution to the Nondiscrimination Provision for Insured Businesses 170

Inexplicable Changes to Flexible Spending Accounts: Notices 2000–59 and 2011–5 172

Payment or Reimbursement of Medicines or Drugs Prescribed after January 1, 2011 172

Exceptions 172

Debit Cards 172

Inventory Information Approval System (IIAS) 173

Maximum Deferral 173

Itemized Deductions for Medical Expenses 173

Reporting of Health Benefits on Form W-2 173

Aggregate Cost of Applicable Employer-Sponsored Coverage 174

Reportable Coverage 174

Example for Family Coverage 175

Examples Where Flexible Spending Account (FSA) Exists 175

Methods of Calculating the Cost of Coverage 175

COBRA Applicable Premium Method 175

Modified COBRA Applicable Premium Method 176

Terminated Employees 176

Health Insurance Information Provided by Employers to All Employees 176

Annual Return to IRS on Coverage 177

Tax Treatment of Healthcare Benefits Provided with Respect to Children under Age 27: Notice 2010–38 177

Tax Credit for Employee Health Insurance Expenses of Small Employers: Notices 2010–44 and 2010–82 177

Definition of Eligible Employer 178

Steps to Determine Whether an Employer Is Eligible for a Credit 178

Determine the Employees Who Are Taken into Account for Purposes of the Credit 178

Determine the Number of Hours of Service Performed by Those Employees 179

Calculate the Number of the Employer’s FTEs 179

Determine the Average Annual Wages Paid Per FTE 179

Determine the Qualifying Premiums Paid by the Employer That Are Taken into Account for Purposes of the Credit 179

Years Prior to 2014 179

Premiums Taken into Account 180

Phaseout 180

Example for Taxable Small Employer 181

Example for a Tax-Exempt Small Employer 181

Tax-Exempt Employers Not Described in } 501(c) and Exempt Under } 501(a) 182

Consumer Operated and Oriented Plan (CO-OP Program) 182

Funding of Patient-Centered Outcomes Research: Notice 2011–35 182

Excise Tax on High-Cost Employer-Sponsored Health Coverage 182

Applicable Employer-Sponsored Coverage 182

Computation of Annual Limit in 2018 183

Health-Cost Adjustment Percentage 183

Self-Insured Plans 183

Exceptions 183

Computation of Annual Limit after 2018 183

Entity Responsible for Paying the Tax 183

AddedMedicare Tax on the Upper-Middle Class and High-Income Individuals 184

Wages 184

Investment Income 184

Threshold Amount 184

Net Investment Income 184

Application to Estates and Trusts 185

Active Interests in Partnerships and S Corporations 185

Modified Adjusted Gross Income 186

Increased Medicare Part B Premium 186

Increased Medicare Part D Premium 186

Internal Revenue Code Changes for Tax-Exempt Hospitals 186

Required Financial Assistance Policy 186

Limitation of Charges to Patients Eligible for Financial Assistance 187

Prohibition against Extraordinary Collection Actions 189

Section 4959 Excise Tax 190

Form 990 Requirements 190

Implications and Responses for Small Business 190

Tax Changes 190

Implications and Responses for Larger Business 191

Implications and Responses for Individual Taxpayers and Consumers 191

Mandate and Subsidies 191

Taxes 192

Some Thoughts for Lenders and Small-Business Investors 192

Appendix 6.1: Table of Internal Revenue Service Notices 192

Appendix 6.2: Table of Regulations (Treasury Decisions) 193

CHAPTER 7 Delivery System Reforms 197

Overview of Delivery System Reforms 197

Hospital Value-Based Purchasing 197

Hospital VBP Rulemaking 198

Purpose 199

Use of Measures 199

Scoring Methodology 199

Quality Measures 200

Performance Periods 203

Performance Standards 204

Funding 208

Value-Based Incentive Payment 208

Demonstration Programs 214

Hospital Readmissions Reduction Program 216

Defining Readmissions 216

Calculation of the Adjustment Factor 217

Risk Adjustment, Timing, and Reporting 218

Payment Adjustments for Conditions Acquired in Hospitals 219

Payment Bundling 220

The Argument for Bundling 221

Voluntary National Pilot Program 221

HHS Obligations 222

Revisions of Market Basket Updates and Incorporation of Productivity Improvements intoMarket Basket Updates 223

Independent Payment Advisory Board 226

IPAB Cost Containment Proposals 226

Membership 227

Annual Reporting 228

Medicare Geographic Payment Disparities 229

Medicare and Medicaid Disproportionate Share Hospital Payment Program 231

Medicare DSH 231

Medicaid DSH 232

CHAPTER 8 Accountable Care Organizations 239

Historical Parallels 239

Precursor to ACOs: Physician Group Practice (PGP) Demonstration 240

Program Results According to CMS 240

Center for Medicare andMedicaid Innovation 241

Independence at Home Medical Practices 241

The Proposed Regulations of March 31, 2011, and the Final Regulations of October 20, 2011 242

Eligibility and Governance 242

Eligibility 242

ACO Professional 246

Hospital 246

Provider Identification 246

Legal Structure and Governance 246

Leadership and Management Structure 247

Agreement Requirement 249

Starting Dates for ACO Agreement 249

Processes to Promote Evidence-Based Medicine and Patient Engagement 249

Primary Care Providers and the Assignment of Beneficiaries to the ACO 250

Post-Agreement Declines in Beneficiaries Below 5,000 254

Annual Reporting 254

Data Sharing 254

Sharing of Claims Data with the ACO 254

Initial Data Sharing 255

Subsequent Data Sharing 255

Data Use Agreement (DUA) 256

Beneficiary Opportunity to Opt Out of Data Sharing 256

Future Regulatory Changes 257

Future Changes to the ACO 257

Examples of Significant ACO Changes as Specified by CMS 257

Material Changes 257

Quality and Other Reporting Requirements 258

Design of Quality Measure Table 258

CMS Program, NQF Measure Number, Measure Steward 260

National Quality Forum (NQF) 260

Physician Quality Reporting System Measures 265

EHR Incentive Program Measures 266

Hospital Inpatient Quality Reporting Program 266

Consumer Assessment of Healthcare Providers and Systems (CAHPS) 266

Calculating the Performance Score for Each Measure within a Domain 266

Aggregating the Individual Domain Scores 268

Public Reporting of Quality Performance Standard Scores 271

Shared Savings Determination 271

Track 1 271

Track 2 271

Setting the ACO Budget or Expenditure Benchmark 272

Included Expenditures 272

Adjustments 273

Catastrophic Claims Adjustment 273

CMS Outline of Steps to Determine Budget 273

Other Adjustment Issues 274

Minimum Savings Rate (MSR) 274

Limits on Shared Savings or Sharing Cap: Performance Payment Limit 275

One-Sided Model 275

First Dollar Shared Savings 275

Withhold of Shared Savings 276

Loss Factors Specific to the Two-Sided Model 276

Minimum Loss Rate (MLR) 276

Shared Loss Rate 277

Comment from the Regulations 277

Maximum Shared Loss Cap 277

Example from the Proposed Regulations 277

Repayment of Loss Mechanism 278

Comparing the Features of the Two Tracks or Models 278

Claims Run-Out 278

ACO Distribution of Shared Savings 282

Public Reporting of Shared Savings 282

Termination of the ACO Agreement 283

By CMS 283

By the ACO 284

Overlap with Other Shared Savings Initiatives 284

Pioneer ACOs 284

Advanced Payment ACOModel 285

Eligibility 285

Advanced Payment Structure 286

Recoupment of Advance Payments 286

Antitrust Issues 286

The Internal Revenue Service and ACOs 287

Implications for Beneficiaries 288

Implications for Providers 289

Performance Factors to Watch in the Future 289

Some Thoughts for Lenders and Small-Business Investors 290

CHAPTER 9 Healthcare Workforce 293

Innovations in the Healthcare Workforce 294

National Health Care Workforce Commission 294

State Workforce Development Grants 296

National Center for Health Workforce Analysis 297

Increasing the Supply of the Healthcare Workforce 298

Federally Supported Loan Funds and Retention Programs 298

Commissioned and Reserve Corps 299

Healthcare Workforce Education and Training 301

Enhanced Primary Care Training 301

Training Grant and Demonstration Programs 302

United States Public Health Sciences Track 305

Support of the Existing Healthcare Workforce 306

Primary Care Reimbursement and Other Workforce Improvements 308

Medicare Bonus Payments to Primary Care Physicians and

General Surgeons 308

FQHC Improvements 310

Distribution of Unused Residency Positions 311

Counting Resident Time and Non-Provider Settings 312

Counting Resident Didactic and Scholarly Activities 313

Preserving Resident Caps from Closed Hospitals 314

Other Provisions 314

Improving Access to Healthcare Services 316

Funding of FQHCs and CHCs 316

Designating MUPs and HPSAs 317

Other Access Improvement Provisions of PPACA 318

CHAPTER 10 Transparency and Program Integrity 321

Physician Ownership and Other Transparency 322

Limitation on Physician Ownership of Hospitals 322

Transparency of Physician Ownership 324

Physician-Owned Imaging Services 327

Prescription Drug Transparency 328

PBM Transparency 328

Nursing Home and SNF Transparency 329

Compliance Program Accountability 329

Nursing Home Compare 331

Cost Reporting Reforms 331

CMP Reduction 332

Independent Monitor Demonstration 334

Facility Closure 335

Culture Change 336

Nationwide Background-Check Program 336

Patient-Centered Outcomes Research 337

Medicare, Medicaid, and CHIP Integrity Provisions 340

Provider Screening and Other Enrollment Requirements under Medicare, Medicaid, and CHIP 340

Enhanced Medicare and Medicaid Program Integrity Provisions 341

National Practitioner Data Bank 346

Maximum Medicare Claims Submission Period 346

Enrollment Requirement and Documentation on

Referrals for Ordering Physicians 347

Face-to-Face Encounter Requirement for Home Health and DME 347

Enhanced Civil Monetary Penalties 347

Stark Self-Referral Disclosure Protocol 348

Expansion of the DMEPOS Competitive Bid Process 351

Expansion of the Recovery Audit Contractor (RAC) Program 351

Additional Medicaid Program Integrity Provisions 353

Additional Program Integrity Provisions 354

Elder Justice Act 354

Healthcare Fraud Enforcement 356

CHAPTER 11 Section 340B Expansion 361

Overview of the 340B Program and Reforms 361

Expansion of Covered Entities 363

Program Integrity Provisions 366

Manufacturer Compliance 366

Covered Entity Compliance 366

Administrative Dispute Resolution 367

Regulations Implementing 340B Legislation 368

Proposed Rule on Civil Monetary Penalty 368

Proposed Rule on Administrative Dispute Resolution Process 369

Proposed Rule on Orphan Drugs 370

CHAPTER 12 Medical Tort Litigation Demonstration Program 373

ACA Demonstration Program Provisions 374

HEALTH Act 376

CHAPTER 13 Other Provisions 379

Physician Quality Reporting System 379

Physician Feedback Program 381

Impact of the ACA 381

Misvalued Codes Under the Physician Fee Schedule 382

Proposal for Validation of RVUs 383

Proposal for Consolidating Reviews of Potentially Misvalued Codes 384

Modification of Equipment Utilization Factor for Advanced Imaging Services 384

Adjustment in Technical Component Discount on Single-Session Imaging to Consecutive Body Parts 387

About the Authors 389

Index 391

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