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What Companies Need to Know about Obamacare

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What Companies Need to Know about Obamacare
Sean Hopkins

The sense of relief that swept advocates of national health insurance once the bill passed has been tempered by new struggles over the regulations that will accompany many aspects of the law. One provision, for example, requires that unless insurance companies spend a minimum percentage of patient premiums on true medical costs related to patient care, they must refund money to policyholders.

In response, insurance companies are lobbying to include as many expenses as possible in the category of “true medical costs.” Thus, writes Robert Pear in the New York Times, insurers want to include “quality improvement activities” in this category, thus allowing them to count spending on health information technology, nurse hotlines, efforts to prevent fraud, and healthcare review.

Hospitals, which have been the healthcare choice of last resort for the uninsured, also have an important stake in how the regulations play out, says #b#Sean Hopkins#/b# , senior vice president of health economics at the New Jersey Hospital Association on Alexander Road. Whether physicians willingly shoulder the burden of caring for the newly insured will be largely dependent on the payment mechanism that will be put in place by future regulations.

Hopkins will be part of a panel on “Obama Care — The Good, the Bad, and the Inevitable” at the Mercer County Chamber of Commerce’s economic round table breakfast on Tuesday, June 8, at 8 a.m. at the Trenton Country Club. Cost: $40. For more information call 609-689-9960 or e-mail info@mercerchamber.org. To register, go to www.mercerchamber.org.

Already in the United States many primary care physicians do not accept Medicaid because its payments are so low. But what will happen if the rates paid to physicians by the insurance covering the newly insured are too low and, hence, unacceptable to doctors?

#b#What if#/b# ? As New Jersey awaits the beginning of coverage for an estimated 300,000 through an expansion in Medicaid payments (set to begin in 2014), Hopkins poses the following questions about medical care for the newly insured: “When they do get insured ultimately, are there going to be primary care physicians interested in taking their insurance? Will they accept the rates out of the exchanges and the expanded Medicaid? And will there be enough specialists?”

If physicians do not cooperate, people will continue to flood hospital emergency rooms for primary care. And, observes Hopkins, “the emergency room is the most expensive place to see someone for a sore throat.”

Even when a public option was under discussion, says Hopkins, payment rates were linked to Medicare, which in New Jersey covers only 89 percent of inpatient care. Medicaid is much worse, covering only 68 percent of an inpatient stay. “The good thing about the exchange,” says Hopkins, “is that providers can negotiate what the appropriate levels will be for services, and hopefully the rates will be closer to commercial rates.”

Although hospitals are able to negotiate what their payments will be from commercial insurers, so far it is not clear how the negotiations within the exchanges will work.

#b#Up and down#/b# . In the years 2013 and 2014 only, the federal government will subsidize state governments so they can raise the level of payments to primary care physicians from Medicaid levels of $20 for a 15-minute office visit to the Medicare level of $60. But the real question is how to get doctors interested in seeing these Medicaid patients, says Hopkins, who suggests physicians might be enticed with loan forgiveness or tax credits.

From the perspective of hospitals, Hopkins balances the big plus of insurance coverage for many more New Jerseyans with the potential minus of a financial blow to hospitals in the early years of the plan.

Hopkins welcomes increased coverage for the uninsured. Although full implementation will not be until 2019, 32 million additional people are expected to be covered nationally, he says. Projections also suggest that of the 1.3 to 1.4 million uninsured New Jerseyans, an additional 923,000 people will have healthcare coverage.

A potential minus: an imbalance created by an immediate decrease in Medicare payments to hospitals. Hospitals across the nation have committed $155 billion in reductions of payments from Medicare to hospitals over the next 10 years to help pay for the costs of the healthcare reform package. Its cost over the same period was estimated by the Congressional Budget Office to be $940 billion. In New Jersey the size of the reductions, which will begin immediately through decreases to the annual inflationary updates, will be $4.5 billion over the decade.

The implementation of expanded insurance coverage, however, will happen more slowly. In lieu of a public option, states will be required to set up their own insurance exchanges, where small business and individuals and employees affected by large employer mandates will be able to purchase insurance.

#b#Meanwhile, in New Jersey . . .#/b# The states must begin to set up the exchanges by 2011, and they must be operational by 2014. Beginning in 2014, Medicaid coverage will be expanded to 133 percent of the federal poverty level for all non-elderly individuals and states will receive 100 percent federal funding for the first three years of this expansion.

This will create an imbalance in which hospitals get reduced payments from Medicare before there is more coverage for the uninsured. “The lag between the payment reductions and the start up of increased coverage will force hospitals to ‘float’ the financial burden associated with the transition, which could push some hospitals closer to the edge,” Hopkins says.

This imbalance might well increase the volatility of New Jersey hospitals, which are already teetering financially. Since 2007, New Jersey has seen nine hospital closures and six bankruptcies.

“In New Jersey we have been lagging behind the balance of the country from a financial perspective,” says Hopkins. “Our operating margins, the difference between payments and cost for services, are no more than a tick over breakeven at one-half to one percent, and at any time 33 to 48 percent of our hospitals are operating in the red.”

These New Jersey percentages are about three percent behind the national average for operating margins.

“When you get into the realm of conceding payments from our largest payer, which is Medicare, all the tumblers have to fall into place so that it doesn’t introduce additional volatility in the financial stability of hospitals,” says Hopkins.

Hopkins grew up in Delaware County, Pennsylvania. He did not choose to go into either his mother or his father’s line of business, but his profession merges both of their career experiences. His father and his grandfather as well were both pharmacists, and his mother an accountant.

After graduating with a bachelor of accounting from St. Joseph’s University in Philadelphia in 1981, Hopkins worked for the City of Trenton at the Henry J. Austin Health Center, a federally qualified health center. “I had the opportunity to see healthcare on the ground, working with a medically underserved clientele,” says Hopkins. For two years he watched members of the community come in to access a variety of healthcare services, including dental. “It gave me a chance to see how healthcare could change lives,” he says.

Following that more hands-on experience was a four-year stint at the New Jersey Hospital Association, as a staffer in the department Hopkins now oversees.

Hopkins’ next position was at KA Consulting, where he spent 10 years consulting in areas like Medicare, Medicaid, managed care, reimbursement, and management contract analysis. He also oversaw statewide studies. “When something big happened at the federal level, we did global statewide analysis for all our clients,” he says.

In Hopkins’ current position at the New Jersey Hospital Association he oversees economic modeling and forecasting, advocacy efforts, and continuing education.

The ultimate effect of the healthcare reform bill, suggests Hopkins, will depend on the regulations put in place to implement it. “Kathleen Sebelius [federal Secretary of Health] and the federal government are going to have to issue an enormous amount of regulations to implement the intent of the healthcare reform package,” he says. The New Jersey Hospital Association will be keeping an eye on these regulations and trying to make sure they are not detrimental. But as yet, says Hopkins, “we don’t have a sense of how the establishment and negotiation of rates or payment agreements will take place.”

In New Jersey decisions about regulations will have strong repercussions for healthcare and, through their effects on the financial stability of New Jersey hospitals, the state’s economy. Hospitals are very large employers and often serve as the economic drivers of the communities where they reside, says Hopkins. When a hospital goes out of business, suddenly 1,200 to 1,500 jobs no longer exist.

In New Jersey the hospital industry as a whole generates an income of $18 billion a year and provides over 145,000 full and part-time jobs. The industry’s $7.5 billion in salaries yield about $400 million in state taxes.

Hopkins and his association will be working to keep New Jersey hospitals viable. “I’m concerned that they have been teetering on the edge,” he says. “Nine have lost that battle, and the last thing I want to do is see more hospitals that have negative margins and low cash reserves with additional stresses to the point where they lose the battle and we lose access and large employers.”

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