The Patient Protection and Affordable Care Act (a/k/a “Health Care Reform” or “ObamaCare”) has generated much controversy since its introduction and offers the potential to transform the American health care system in more profound ways than any other legislation since the inception of Medicare. While this legislation has both passionate proponents and detractors, it is undoubtedly safe to say that the one aspect of the PPACA that is causing the most rancor is the individual mandate or, in other words, the requirement that virtually all citizens purchase some form of health insurance. This requirement is driving wide-ranging lawsuits that will likely find their way to the Supreme Court before the 2012 Presidential elections. If the Supreme Court were to rule that the individual mandate is unconstitutional, but the rest of the legislation passes muster (as is becoming an increasing possibility), what degree of financial risk would this type of ruling cause hospitals to incur?

The PPACA is a very broad piece of legislation that has a panoply of potential reimbursement cuts and a handful of opportunities for potential reimbursement hikes. Overall, however, the Congressional Budget Office (CBO) has estimated that the entire PPACA, as enacted, would reduce the Federal deficit by $143 billion over 10 years (with significant caveats). The concept behind how this deficit reduction would be realized is, in large part, through payment reductions to providers, using productivity and inflation adjustments as a primary driver for those reductions, among several other approaches. The saving grace for hospitals, in this model, has been that the individual mandate will dramatically boost their “insured” populations, offering significant offsets (and perhaps tangible positive bottom-line impact, if executed correctly) against those losses in the form of much smaller uncompensated care base.

A Supreme Court-blessed PPACA minus the individual mandate, removes the most compelling financial “carrot” that hospitals can expect to enjoy under PPACA. Even if the Supreme Court were to find that the entire PPACA legislation did not pass constitutional muster, the reality is that many of the concepts enshrined in PPACA will likely be with us forever, because those individual concepts are popular with the American citizenry (for example, bans on pre-existing conditions, removal of “lifetime caps”, parents being allowed to carry offspring on their policies until age 26, etc.) and they make sense for the long-term survival of Medicare (such as value-based purchasing, payment bundling, reducing readmissions, and DSH cuts).

How could PPACA draw enough new entrants into the insurance system without a mandate in order to provide some type of cushion for already financially-strapped providers? At the request of Sen. Ben Nelson from Nebraska, the Government Accountability Office (GAO) prepared a report detailing other alternatives to the individual mandate to keep PPACA viable. The report explored options offered by a number of industry experts ranging from staggering open enrollment periods to provide a greater incentive to get insurance as quickly as possible to employer auto-enrollment to many other options. Different experts made different recommendations that would likely somewhat mitigate the issue of so many individuals remaining uninsured, but no suggestion or combination of suggestions seem to approach the level of reduction in the uninsured population that an individual mandate would offer, and this significant level of reduction is what will help hospitals navigate through the challenging waters of PPACA.

So, we may have a case here of “beware of what you wish for” as it relates to PPACA. The many well-received and desired components of the bill may be jeopardized (along with the financial health of many providers) if the individual mandate is not upheld by the Supreme Court. A reduced or eliminated PPACA will leave virtually all of the burdens of cost containment on the shoulders of hospitals with precious little opportunity to offset those financial burdens.

Rich Temple
Executive Consultant, Beacon Partners

The views and opinions expressed in this blog are mine personally and are not necessarily representative of Beacon Partners, its management, employees or its subsidiaries.