How the Health Reform Could Affect Hospitals: Q&A With Avalere Health CEO Dan Mendelson

Should the Supreme Court overturn all, or even part of the Patient Protection and Affordable Care Act, hospital leaders may need to reassess some of their short-term and long-term business and operational strategies.

Dan Mendelson, the CEO of Washington-based healthcare consulting firm Avalere Health, discusses the Supreme Court's upcoming decision on the constitutionality of the healthcare law and how it will affect hospitals.

Question: What should hospitals and providers expect if the Supreme Court upholds the entire law?

Dan Mendelson: This scenario puts us in a much more stable position than we're in right now, but it immediately subjects hospital revenues to the uncertainty that Republicans will mount a successful effort to repeal the bill. The next level of uncertainty becomes: Can the GOP marshal the political support to get over the finish line and take down the key elements of the bill that drive coverage?

If the Court upholds the law, 30 million more people will have insurance by 2016 —about 16 million previously uninsured will move into Medicaid and 14 million into the exchanges. That increase in hospital revenue is offset by reductions in revenue that the hospital community agreed to as part of the healthcare reform act.

Q: What should providers expect if the Supreme Court overturns the individual health insurance mandate but keeps the rest of the law intact?

DM: Hospitals should expect that, of the 20 million people who would have gotten insurance through the exchanges, the number will be reduced significantly.

You can expect the Obama Administration to aggressively push a work around to the exchanges if the court allows them to do that. There is a scenario where they strike down the mandate and also take down the exchanges. There is also a scenario where they strike the mandate and leave the exchanges. When hospitals are looking at the latter scenario, they need to go one step further. If the mandate goes away, hospitals cannot expect more than half of those lives to materialize as insured. The administration will try to move that along with more incentives and with open enrollment periods to encourage people to use the health exchanges — the White House will try to make what remains of the law work. But it will be quite difficult.

If the Medicaid piece stands, there are still a significant number of previously uninsured individuals who will newly have insurance. Those are the folks who are least likely to be able to pay their hospital bills. It's out of their reach. In many communities, this coverage boost will be very significant for hospitals laboring under a high level of bad debt.

Q: What should providers expect if the Supreme Court overturns all of the PPACA?

DM: We're kind of back to square one then, and there are more than 50 million uninsured people in this country.

That will once more become the front and center issue for hospitals: How do you deal with charity care issue or bad debt concerns?

It will be a matter of going back to the drawing board and finding a more durable solution to the problem of our fragmented healthcare system.

Q: What would be the best Supreme Court decision scenario for hospitals?

DM: Undoubtedly, that the law is upheld. Hospitals benefited from the passage of this legislation. It helped them move down the path of integration, think about their future and better serve their patients. And it covered 30 million people, alleviating the charity care problem.

The law also came with budgetary reductions but — make no mistakes about it — those budgetary reductions will come back one way or another if the law is repealed. Hospitals are always going to be living with budgetary reductions; the only question is whether they will get additional covered lives. That is what is at stake here for hospitals.

Q: What is the worst-case scenario for hospitals?

DM: I would say the worst case scenario is taking down the whole law. If the Court takes down just the health insurance mandate, at least there are millions of more people covered by Medicaid.

Q: What might happen to Medicare ACOs if the Supreme Court overturns the entire PPACA?

DM: The fate of all of CMS' new programs will need to be worked out. Some of the programs will go away. Having said that, other programs could continue under current law. The Administration will aggressively go through and see what they can salvage. I expect they'll be able to salvage some parts, but not others.

The healthcare law also made fundamental changes in Medicare advantage payments in order to align on quality measures. It put in place the Star Ratings program where managed care companies are paid on the basis of quality. If the Court takes down the law, that program goes down with it. So the question becomes: How do we pay Medicare Advantage plans? Those plans have aligned quality incentives for hospitals based on the new metrics.

I fully expect if the whole law goes down we will be smack in the middle of another legislative cycle. [The PPACA] is a big bill. There are hundreds of related provisions that will need to be cleaned up, and Congress and the Administration will have to work together to ensure continuity in Medicare. You don't want the Medicare program to implode.

Q: What are several ways hospital leaders should prepare, regardless of how the Supreme Court decides on the PPACA?

DM: Irrespective of how the Supreme Court rules, the concept of care integration and continuity of care have, I think, become expected. What that means is, irrespective of what the Supreme Court does or what Congress does in the coming year, it's imperative that every provider have a strategy for care innovation and for being able to show quality in way that is both consistent and reproducible; providers should ultimately feel comfortable putting their money where their mouth is. As a student of Becker's Hospital Review, I do think those messages have slowly gone out. We're seeing a real uptick in the number of hospitals who are starting to contract on a more integrated basis for post-acute care. Those are the kinds of things hospitals need to focus on, irrespective of the Supreme Court decision.

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