Patient Protection and the ACA
The Future of Health Care Restructuring

The ABI Journal / Volume XXXIV, Number 6 / June 2015
by: Eric Huebscher

The Patient Protection and Affordable Care Act (ACA) represented the first major change in governmental health care legislation since the introduction of the Medicare program in the mid-1960s. The primary goals of the ACA was to improve the quality and affordability of health ser¬vices delivered to qualified individuals in the U.S. Prior to this law, the public consensus was that the cost of health care was increasing at an alarming rate, far exceeding ordinary inflation. At the same time, states became increasingly concerned that their uninsured population was the culprit of these spiraling out-of-control costs. Through the intro¬duction of Health Exchanges,¹ the ACA intended to expand both public and private health insurance options while at the same time lower costs.

The Centers of Medicare and Medicaid Services Chief Actuary Richard Foster wrote in 2010² that the total net cost of the ACA would amount to more than $251 billion through 2019. Embedded in this calculation, Foster wrote that the nation would see an increase of $828 billion in health coverage expansion, but achieve savings of $575 billion through reductions in Medicare spending. The pro¬jected costs and savings, Foster wrote, would essen¬tially begin in late 2014 and begin to blossom in 2015 and beyond. As such, the U.S. has only just scratched the surface of the financial and health impacts of the ACA on the public at large. As is the case in many aspects of health care delivery sys¬tems and changes, the passage of time is essential to prove conceptual theories in an effort to match current market conditions.

Since the introduction of the ACA, there has been a fair amount of both public acceptance and objection, largely centering on each state’s finan¬cial responsibility and requirement to participate in the program.³ States were faced with the decision of whether or not to participate in the ACA, develop its Health Exchange and begin receiving federal finan¬cial subsidies in support of their decision. A num¬ber of states initially objected to being forced into the ACA, which, along with other factors, resulted in a constitutional case being brought to the U.S. Supreme Court.

In National Federation of Independent Business v. Sebellius, the Supreme Court upheld the Constitutionality of the ACA. However, of significance, the Court found that states could not be forced into the ACA program to the detriment of their current state Medicaid funding.⁴ Since the ACA’s inception, the U.S. has seen an increase of approximately 11 million individuals insured through state-established Health Exchanges. In addition, there has been continuing discussions and debate on the ACA’s long-term impact on state bud¬gets and related funding.

Although it is still in its infancy, the ACA has the potential to reshape several aspects of the medi¬cal delivery systems’ landscape. Hospitals, insur¬ance companies and health care providers have not sat on the sidelines while the results of the ACA implementation continue to be played out in the marketplace. One major result or benefit of the ACA is the resurgence of health care providers to, in essence, band together to form Accountable Care Organizations (ACO), a concept that is not new to the health care marketplace. The term “ACO” was first coined in 2006⁵ and added to the ACA legisla-tion that was signed into law in 2010. In fact, the ACO concept dates back even further to Medicare Health Care Quality Demonstration projects in2003. With the resurrection of the ACO concept due to the introduction of the ACA, the health care marketplace has already begun to see changes. These changes have resulted in further aggregations of larger institutions swallowing up smaller ancillary practices and health care providers. As these efforts continue to unwind, the full impact of the ACA/ACO dynamic will be realized and evaluated. The number of ACO’s in the U.S. has grown from 32 in 2011 to more than 100 today.⁶ These and other factors have and will continue to have a marked impact on health care restructuring activities.

By 2013, health care spending in the U.S. exceeded $2.9 trillion.⁷ Spending per capita was more than $9,000, and health care is more than 17 percent of the nation’s gross domestic product, a level of spending that is unparal¬leled anywhere else the world. No other country spends at this level for the delivery of health care services, either in total or on a per-capita basis. A significant portion of the spending (between 40-50 percent) rests with the delivery of care in hospitals.

Hospitals have historically been the place of service for a large portion of the population. As such, we have seen growth in hospitals in decades past to meet these needs. Over time, it has become increasingly clear that hospitals are both very expensive sites of service and very difficult to change once spending and reimbursement models change. This has created fierce competition among large and small hospital groups to vie for patients, as well as to work to achieve cost savings. For example, hospitals have strived to reduce the length of patient stays while at the same time looking for ways to combine operations with other similarly situated institutions. The major shift has been the consolida-tion of hospital systems either being purchased or affiliated in order to achieve economies of scale and harness larger portions of patient populations. This translates to hospitals working toward delivering health care to larger and larg¬er populations over an increasing geographic area.⁸ These factors have created fertile ground for various health care restructuring activities.

Individual medical practices are not immune to the ever-developing landscape of health care restructuring activities. At the same time that hospitals are looking for partners, either in the form of a purchase/sale or affiliation,⁹ individual medical providers are considering the implication of larger and more complex health care delivery models. While try¬ing to achieve cost savings, hospitals have quickly realized that the management of larger patient populations is essential to any long-term financial stability. Hospitals have beds to fill, and physician practices (mostly primary care and general medicine) have patients that end up in hospitals. Thus, it is logical for these ever-growing hospital systems to swallow up individual and small group physician organizations. In doing so, hospitals achieve an improved chance of driving patient volume, while at same time capturing other ancillary services. As with hospitals, physician groups will require assistance in navigating this new landscape.

As with anything else, nothing stays the same, and health care is no different. It remains to be seen whether both the cost savings and improved quality of health care will ever be achieved. One thing is certain: There is and will continue to be a level of uncertainty among virtually all aspects of the health care delivery system. Contrasted with the past, where physicians tended to have more stable and secure roles, the ever-changing marketplace presents challenges and decisions that have never before been experienced. These and other factors have created fertile ground for health care, opera-tional and, in some cases, forensic restructuring professionals to advise clients and institutions on both sides of any transac¬tion. Lastly, the wild card in this deck is who will be elected to the White House in the 2016 presidential elections. Either way, the marketplace will certainly change. abi

Reprinted with permission from the ABI Journal, Vol. XXXIV, No. 6, June 2015.

The American Bankruptcy Institute is a multi-disciplinary, nonpartisan organization devoted to bankruptcy issues. ABI has more than 12,000 members, representing all facets of the insolvency field. For more information, visit abi.org.

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1. Health Exchanges were established as part of the ACA as a commercial means (by individual states) to facilitate the purchase of health insurance by qualified individuals.
2. “Estimated Financial Effects of the ‘Patient Protection and Affordable Care Act,’” as amended, Richard Foster, April 22, 2010.
3. States were given the opportunity to either opt in or out of the program, shortly after the law was enacted in 2010.
4. State Medicaid funding is in part federally funded through varying expense-sharing protocols.
5. Elliott Fisher, Dartmouth Institute for Health Policy and Clinical Practice.
6. Centers for Medicare and Medicaid Services.
7. Id.
8. Kenneth L. Davis, “Hospital Mergers Can Lower Costs and Improve Medical Care,” Wall Street Journal, Sept. 15, 2014, available at www.wsj.com/articles/kenneth-l-davis-hospital-mergers-can-lower-costs-and-improve-medical-care-1410823048 (last visited April 30, 2015).
9. There has been some recent discussion that hospitals will look toward “affiliation” rather than “purchase” due to an increase in potential antitrust issues as reported by the Federal Trade Commission. “FTC Sides with Insurers on Antitrust Concerns,” Crain’s New York Business, April 28, 2015, available at www.crainsnewyork.com/article/20150428/PULSE/150429865/ftc-sides-with-insurers-on-antitrust-concerns (last visited April 30, 2015).