Considering the fate of the ACA: Repeal & devolve, not repeal & replace

Health Care Current | January 10, 2017

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory, and legislative changes.

My Take

Considering the fate of the ACA: Repeal & devolve, not repeal & replace

By Greg Scott, Vice Chairman and US Leader, Health Plans, Deloitte LLP

In the wake of what so many have called an “historic election,” I’m refreshing (or at least dusting off) my understanding of US political history. Beyond improving my own erudition, I’m trying to help our clients and our professionals consider how overarching political developments and historical trends might shape strategies and efforts to repeal and replace the Affordable Care Act (ACA).

So, I’ve been reading both the old-fashioned way, with actual printed books, and going down lots of fascinating internet rabbit holes. The more that I contemplate how broad historical currents might intersect with the current political moment, the more I think we should reframe our views of how the ACA might be repealed and replaced.

My overarching perspective is that the federalism pendulum is beginning to swing once again away from centralized power in Washington, DC and toward states’ rights and responsibilities. And that this shift will likely correlate with related political and policy trends, such as the primacy of legislative action over executive branch regulations and preferences for competitive market-based approaches rather than government-driven solutions.

If this perspective holds true, many health care industry leaders will likely need to adjust the lenses through which they view potential ACA replacements. Rather than a massive “Trumpcare” statute or other comprehensive federal program to supersede “Obamacare,” the 115th Congress and the incoming Administration may instead seek to devolve many of the ACA-defined federal roles in insurance coverage, financing, and market regulation to the states and the private sector. Many of the proposals floated to date as possible ACA replacements emphasize state-level models and flexibility, with provisions such as Medicaid block grants, no federal coverage mandates, state high-risk pools, and state-defined benefit package requirements.

The governing philosophy underlying such a “repeal-and-devolve” approach seems clear. However, the legislative, political, budgetary, and technical hurdles to achieving this vision should not be underestimated. And while many of us are focused on the federal challenges inherent in the repeal-and-replace efforts, there are concomitant issues and uncertainties in every state capital.

Accordingly, we’ve been studying ACA impacts across state markets, which would assume a higher level of significance under several of the congressional ACA replacement proposals. Our ACA Baseline Index, which is outlined below, is a simplified output of a model that compares ACA “facts on the ground” in five measures:

  • Gains in insurance coverage (2015 vs. 2013)
  • New federal subsidies per state resident, a combination of enhanced funding for the Medicaid expansion population (2015) and ACA exchange premium tax credits (2016) 
  • Reduced hospital uncompensated costs per state resident (2015 vs. 2013)
  • Health plan exposure per exchange enrollee, reflecting a key metric of ACA insurer financial condition: risk corridor payments owed to plans but unpaid by the federal government (2014 plus 2015) 
  • ACA premium inflation, reflecting the year-over-year price increase of the second-lowest-cost silver product (2017 vs. 2016)

ACA Baseline Index, 2016: Illustrative model output

In this index, Oregon is the state with the highest combined impact from the ACA across the five selected measures. The state experienced among the largest gains in the share of its population with health insurance; ranked first among the 50 states and the District of Columbia in new federal payments per capita for expanded Medicaid coverage and ACA premium subsidies; experienced among the largest reductions in hospital uncompensated care costs; ranked high in our measure of ACA health plan financial challenges; and experienced 2017 ACA average premium increases that were the 24th highest nationwide.

Prior to the ACA, Massachusetts implemented its own state-level reforms (including the program sometimes referred to as “Romneycare”). As a result, MA ranked 51st in terms of the incremental gain in coverage after the implementation of the ACA, as the uninsured rate was already very low.

Our analysis demonstrates that the ACA has reshaped the terrain of US health care in some important ways—but that the nature and extent of these changes vary significantly among the states. Some of the variation can be explained straightforwardly, by whether and how states chose to expand their Medicaid programs and take advantage of ACA financial incentives. Additional layers of complexity also underlie and explain state market variation.

It’s too early in the ACA repeal-and-replace effort to predict the approach, much less the outcome. But it’s quite possible that “repeal-and-replace” might eventually be more accurately described as “repeal-and-devolve.” The sort of state market variation reflected in our ACA Baseline Index might become even more pronounced and distinctive if indeed federal-level market intervention recedes and state discretion and local market dynamics gain more prominence.

The metaphor of the “patchwork quilt” has long been used to describe how the national Medicaid program is really a stitched-together construct of unique, state-level programs and exchanges. In a different but related context, “laboratories of democracy” was a metaphor used by US Supreme Court Justice Louis Brandeis in the early 20th Century to describe how states can and should act as public policy innovators under his vision of federalism.

My take: The patchwork quilt and laboratories of democracy concepts seem very relevant to how ACA repeal-and-devolve scenarios might develop over the coming months and years.

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Insurance coverage gains: US Census Bureau, American Community Survey
New federal subsides per capita: CMS Medicaid Benefit Expenditure System, Kaiser Family Foundation Analysis of Effectuated Enrollment Snapshot, US Census
Hospital uncompensated care: American Hospital Association, US Census
ACA health plan exposure per enrollee: CMS, Kaiser Family Foundation
ACA premium inflation: Kaiser Family Foundation Analysis of and state insurer rate filings

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Implementation & Adoption

Hospitals with highest readmission rates have improved

The Hospital Readmission Reduction Program under the ACA has contributed to a decline in hospital readmissions, according to a recent analysis published in the Annals of Internal Medicine. Notably, hospitals that started with the highest readmission rates have improved the most since the passage of the ACA.

The researchers looked at Medicare discharges for 2,868 hospitals and categorized hospitals into four performance categories – highest, average, low, and lowest – by the readmission rate in 2000. By 2013, readmissions for the lowest performers – hospitals with the highest readmissions rates – had decreased by 92.4 per 10,000 discharges after the ACA passed compared with 69 per 10,000 in hospitals with the lowest number of readmissions.

Under the program, hospitals with high readmission rates for certain conditions receive financial penalties. According to the study, hospitals that were penalized the most have improved the most. Multiple factors could contribute to lower readmissions, including the penalties, public reporting, and increased attention to readmissions.

(Source: Wasfy et al. “Readmission rates after passage of the Hospital Readmissions Reduction Program: A pre–post analysis,” Ann Intern Med, 2016)

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Military health system to test value-based insurance design model

On December 23, 2016, President Obama signed the National Defense Authorization Act for Fiscal Year 2017 into law, which creates a value-based insurance design (VBID) demonstration in TRICARE.

TRICARE is the health care program for the US Department of Defense (DoD) Military Health System (MHS). It covers an estimated 9.4 million people, including current and retired military professionals and their families. The Act requires the DoD Secretary to pilot a VBID program and then assess whether it should be expanded to the entire TRICARE population. The program includes the following elements:

Before implementing the pilot, the Secretary must submit a report to Congress that explains how it will identify high-value services and medications and reduce copayments or cost sharing for those services and explains the effect of these changes on TRICARE and individual’s costs. The report is due June 1, 2017, and MHS must implement the program by no later than January 1, 2018.

Background: VBID aims to increase health care quality and reduce costs by creating incentives for patients to use high-value services (e.g., wellness visits and preventive screenings) and providers with higher quality and efficiency scores. Incentives are usually financial (e.g., lower out-of-pocket costs for beneficiaries that use high-value services and higher costs for services of less value). The US Centers for Medicare and Medicaid Services (CMS) is piloting a model focused just on services in Medicare Advantage. It allows MA health plans to offer different benefit designs for enrollees that have certain health conditions, waiving the “uniformity” requirement that requires health plans to offer the same benefits and cost sharing to all plan enrollees (see the October 11, 2016 Health Care Current).

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OIG: Practice support and IT are CMS’s main challenges for MACRA implementation

Last month, the US Department of Health and Human Services (HHS) Office of the Inspector General (OIG) released an early review of the Quality Payment Program (QPP) implementation under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). OIG said that CMS has made significant progress, especially in engaging and educating clinicians in regulatory decision-making and management priorities. However, OIG identified two key vulnerabilities that it says are critical for CMS to address in 2017 to ensure the program’s success:

  • Providing sufficient guidance and technical assistance to ensure that clinicians are ready to participate in the QPP
  • Developing IT systems to support data reporting, scoring, and payment adjustments

OIG says CMS should expand its technical assistance efforts, issue additional sub-regulatory guidance, award and oversee key contracts, and finish developing backend IT systems necessary to support the QPP’s day-to-day operations. CMS also must continue outreach and education programs to clinicians and test and improve digital reporting systems throughout the first year of implementation. OIG says that it is crucial that CMS prepare the IT platform to receive data from clinicians.

Stakeholder concerns about the QPP have centered on whether the required reporting under the program is too burdensome for small providers or too complex for clinicians to understand without assistance. Many have also raised concerns that confusion or errors with first year reporting may lead to lower payment rates.

Background: The first performance year for the QPP started on January 1, 2017, and the first payment adjustments will take place on January 1, 2019. Clinicians can participate in one of two tracks under MACRA: the Merit-Based Incentive Payment System or Advanced Alternative Payment Models (APMs). While Advanced APMs have higher payment rates, they entail other program requirements, notably clinician assumption of downside financial risk.

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Report: Social risk factors affect patient outcomes and physician performance

The Office of the Assistant Secretary for Planning and Evaluation (ASPE) at HHS found that Medicare patients with greater social needs fare worse on process, clinical outcome, safety, and patient experience measures. On average, providers who serve a disproportionate share of these patients tend to have lower scores on quality measures, including in all five CMS programs that tie payment to performance for hospitals. The report was congressionally mandated under the Improving Medicare Post-Acute Care Transformation Act.

Social determinants of health like income, employment, and community support are associated with worse health outcomes. Value-based care programs can help patients with social needs like these if the incentives encourage providers to offer care coordination or other population health services. But, if value-based payments do not account for patient mix, they might deter providers from serving these patients or from participating in value-based care programs.

ASPE found that Medicare beneficiaries with social needs had worse outcomes regardless of the provider they saw. Dual eligibles have the worst outcomes, but these patients also tend to see lower-quality providers.

The agency also found that there are providers that serve a high proportion of Medicare beneficiaries with social needs and achieve high performance, indicating that high performance is possible with the right strategy and support in place.

(Source: ASPE, “Social risk factors and performance under Medicare’s value-based purchasing programs,” HHS, 2016)

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On the Hill & In the Courts

Repealing Affordable Care Act: How might Congress use the budget process to achieve this goal?

Last week, Senate Budget Committee Chairman Mike Enzi introduced a budget resolution to start the process for the new Congress and Trump Administration to repeal and replace the ACA. The standard pathway that the budget process follows, as established by the Congressional Budget Act of 1974, has several steps:

The latest draft of the Senate’s budget resolution would instruct the House Energy and Commerce and Ways and Means Committees and the Senate Finance and Health, Education, Labor and Pensions Committee by January 27, 2017 to assemble legislation – a reconciliation bill – that would repeal the ACA. It would also outline a timeline for phasing in a replacement plan. The reconciliation bill avoids the typical 60-vote requirement in the Senate; it cannot be filibustered, and Republicans only need 51 votes to pass the bill – votes that they are likely to get given their 52-seat majority. However, the details of a final reconciliation bill have yet to be determined and could take some time to finalize.

In the meantime, last week, one group of House Republicans released a plan to replace the ACA, The American Health Care Reform Act of 2017. It would create a standard health insurance tax deduction of $7,500 for individuals and $20,500 for family coverage, bolster the use of health savings accounts, and give states funding to establish high-risk pools for individuals with pre-existing conditions. Lawmakers have released several additional proposals to replace the ACA, but no agreement has been reached on those proposals to date.

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CMS introduces new clinical episodes for bundled payment models

On December 20, 2016, CMS published a final rule that introduces three new mandatory episode-based bundled payment demonstrations and a program that provides an incentive payment that encourages clinicians to use cardiac rehabilitation services. The demonstrations are scheduled to begin on July 1, 2017 and will run for five years. The rule also finalizes the Medicare ACO Track 1+ Model, which was first proposed in October 2016 (see the November 1, 2016 Health Care Current).

While cardiac rehabilitation services improve health outcomes and decrease readmissions, only about 35 percent of AMI patients over the age of 50 receive these services.

The Surgical Hip and Femur Fracture Treatment (SHFFT) model expands the existing Comprehensive Care for Joint Replacement (CJR) model, which began its first performance year in April 2016. CMS says that episode payment models can help health care providers and delivery sites reduce redundancies while providing opportunities to redesign care and improve quality. The models emphasize patient discharge planning and treatment adherence in the post-discharge period.

Some stakeholders are concerned that these initiatives may be discontinued or rolled back under the new administration. Incoming HHS Secretary, Tom Price, has previously said that CMMI should not make participation in their demonstrations mandatory. Moreover, industry stakeholders, including the American Hospital Association, have raised concerns that CMMI is not giving providers enough time to implement the necessary infrastructure for care redesign.

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FDA guidance recommends protecting medical devices from cyber threats

On December 28, 2016, the US Food and Drug Administration (FDA) published guidance to help companies protect medical devices from cybersecurity threats. The guidance, while nonbinding, comes as an increasing number of medical devices are networked wirelessly. Networked devices can improve clinical reaction time and decrease data inconsistencies, but their software can be more vulnerable to cybersecurity threats. The guidance is part of FDA’s recommendations around devices’ post-market management.

The FDA says that manufacturers and companies should have a structured, systematic approach to risk and quality management systems, including methods to identify and assess a device’s vulnerabilities and to analyze and detect potential threat sources. The framework established by the National Institute of Standards and Technology (NIST) is a good model; it helps companies identify, protect, detect, respond, and recover from cybersecurity threats.

Companies should use a risk-based framework for manufacturers to assess when to report to the FDA changes to medical devices for cybersecurity vulnerabilities. Currently, device manufacturers are required to preemptively report any planned corrections or software removals on a medical device to the FDA. Routine updates and patches to devices’ cybersecurity systems do not need to be reported since they are considered device enhancement. However, if a vulnerability or data exploitation occurs that may pose a risk to a device user’s health, the manufacturer must notify the FDA as soon as it is identified.

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Around the Country

Medicaid directors urge Trump administration to give states a role in shaping federal Medicaid rules

The National Association of State Medicaid Directors (NAMD) asked the incoming administration to establish a formal process for state Medicaid programs to review new federal regulations and guidance. The group, which represents state Medicaid directors from all 50 states, the District of Columbia, and US territories, also identified areas for potential collaboration with the Trump Administration during its first 100 days.

NAMD says that reform proposals could change the existing Medicaid regulatory structure, including state plan amendments, 1115 demonstration waivers, and other current rules. The group is asking the new administration to improve the timeliness and efficiency of interactions between the federal and state Medicaid agencies.

NAMD also asked that the new administration foster federal-state collaboration by:

  • Ensuring APMs under MACRA and other federally-driven models and payment reforms are coordinated with each other and with state-driven initiatives
  • Prioritizing efforts to drive long-term stability with Medicare and Medicaid dual-eligibles
  • Advancing proposals to enhance the transparency of prescription drug costs and pricing
  • Establishing a process for states to review and provide feedback on sub-regulatory guidance and related documents on Medicaid managed care/risk-based delivery models
  • Partnering with states on issues that impede the ability of Medicaid to improve services and outcomes for individuals with behavioral health conditions
  • Working with states to develop policies and regulations that reflect statutory intent
  • Helping states meet CMS goals for increasing the use of home and community-based services 
  • Partnering with states to address fair labor standards in Medicaid home and community-based services programs
  • Forming state-federal partnerships to find opportunities to standardize information systems while giving states ability to customize their systems when appropriate
  • Enhancing collaboration with states around the functionality and data analytics produced by the transformed Medicaid Statistical Information Services

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Hawaii’s 1332 ACA exemption waiver approved

On December 30, 2016, CMS approved Hawaii’s Section 1332 state innovation waiver. The waiver exempts the state from certain ACA provisions like the Small Business Health Options Program, which Hawaii says interferes with the state’s 40-year-old “Prepaid Health Care Act.” This is the first 1332 state innovation that CMS has approved. The waiver’s five year performance period will begin January 1, 2017.

CMS denied the state’s request to allow state agencies other than the Department of Human Services Med Quest Division to conduct insurance exchange operations. Hawaii uses, and federal officials said the requested change was not possible.

To-date, few states have applied for 1332 waivers (see the March 22, 2016 Health Care Current). However, analysts have suggested that Republicans may use 1332 waivers to vary the ACA by state. For example, House Majority Leader, Kevin McCarthy, recently requested input and recommendations from governors and commissioners on 1332 waivers as part of his general request for comments on repealing and replacing the ACA (see the December 13, 2016 Health Care Current).

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Breaking Boundaries

Parkinson’s disease researchers shed light into the mysteries of the microbiome

Researchers at the California Institute of Technology have discovered a possible link between gut bacteria in patients with Parkinson’s disease and deterioration of motor skills. A diverse community of beneficial and sometimes harmful bacteria live in the gut and influence the functioning of the immune and nervous systems. The microbiome is communities of microorganisms, including bacteria, fungi, and yeast that live on people, plants, soil, water, and in the atmosphere. Scientists are only recently scratching the surface of how the microbiome influences health.

Seventy percent of all neurons in the peripheral nervous system are in the intestines, and gastrointestinal (GI) problems often precede motor symptoms in patients with Parkinson’s disease. Parkinson’s disease affects one million people in the US and up to 10 million people around the world. Common symptoms include tremors and difficulty walking, and 75 percent of patients have GI abnormalities. The disease is also characterized by the aggregation of a protein called alpha-synuclein within cells in the brain and gut.

To test whether bacteria in the gut may contribute to Parkinson’s disease, the researchers studied mice that overproduce alpha-synuclein and display symptoms of the disease. The researchers compared a group of mice that had complex gut bacteria with a group bred in a sterile environment that lacked the bacteria. The team observed the two groups doing different activities to measure their motor skills. The group lacking the gut bacteria performed significantly better, demonstrating to the team that the gut bacteria regulate symptoms of Parkinson’s disease.

The researchers explained that when gut bacteria break down dietary fiber, they produce short-chain fatty acids, which are molecules that previous research has shown can activate immune responses in the brain. The team hypothesized that an imbalance in these molecules may lead to brain inflammation and other symptoms in Parkinson’s disease. They were able to show that when the bacteria-free mice were fed these fatty acids, immune cells in the brain became activated. Finally, the last step in the study was to obtain fecal samples from patients with Parkinson’s disease and from a control group. When the human microbiome samples were transplanted into the bacteria-free mice, they began to exhibit symptoms and showed higher levels of the short-chain fatty acids in their feces. Transplanted fecal samples from the control group did not trigger Parkinson’s disease symptoms in the mice. This final experiment suggests that changes to the gut microbiome are likely more than just a consequence of Parkinson’s disease.

For patients with Parkinson’s disease, this research may lead to more effective treatments that target the gut. These could be drugs aimed at modulating the short-chain fatty acids or certain probiotics that may reduce symptoms.

Related: Last spring, the White House Office of Science and Technology (OSTP) announced the National Microbiome Initiative (NMI), a collaboration with federal agencies and private-sector stakeholders to advance the understanding of microbiomes. Most of the efforts coming out of the initiative focus on developing new scientific tools for understanding how microbiomes work. Specific projects seek to learn how microbes affect diabetes and multiple sclerosis. Another project is exploring whole-genome sequencing to check if patients harbor antibiotic-resistant superbugs.

(Source: Jo Handelsman, “Announcing the National Microbiome Initiative,” White House blog, May 13, 2016; Timothy R. Sampson et al, “Gut microbiota regulate motor deficits and neuroinflammation in a model of Parkinson’s disease, Cell, December 1, 2016)

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