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Untwisting the Obamacare Rubik’s Cube

Walter Eisner • Wed, December 7th, 2016

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Orthopedic surgeon, Tom Price M.D. (residency at Emory University, 20 years in the OR) has been tapped by President-elect Donald Trump to lead the repeal and replace of the Affordable Care Act (ACA).

Tom Price,  M.D. / Wikimedia Commons

Tom Price, M.D. / Wikimedia Commons

Dr. Price, who is a member of Congress and chair of the U.S. House of Representatives Budget Committee, will also soon be America’s Secretary of Health and Human Services (HHS).

What does “repeal and replace” actually mean for not only Dr. Price’s colleagues in the orthopedic community but also for patients and the companies that supply the industry?

The Affordable Care Act

The original Affordable Care Act (ACA) legislation is a 2, 000 page long Rubik’s Cube.

The law gives Dr. Price, as HHS Secretary, wide power to rewrite thousands of rules and regulations that are now baked into the fabric of reimbursements and insurance coverage requirements.

According to HHS, almost 20 million people now have health insurance coverage under the ACA. Hospitals have seen their uncompensated care costs plummet, states are receiving more federal funds through Medicaid to cover low income people and federal taxes collected to pay for the program exceed expenses of the law. Orthopedic procedures are up.

Untwisting this Rubik’s Cube will not be easy.

What exactly is to be repealed and replaced, how will it be accomplished, and most importantly, what does it mean for orthopedic patients, providers and device makers?

We’ll look at these questions as January 20, 2017, Inauguration Day, approaches.

This week we’ll look at the repeal challenges and the impact on the orthopedic community. In the coming weeks, we’ll look at Dr. Price’s prescription for replacement and what that might mean for orthopedic surgeons and patients.

We have an idea of the politics and mechanics of repeal and replace as this past year Republicans passed legislation to repeal and replace the ACA, only to have it vetoed by President Obama. With a Republican in the White House that same legislation could be passed again and signed into law. That legislation contained a two-year window to give Congress time to come up with a replacement bill.

Right after the election, the president-elect said on 60 Minutes that there would be no window between repeal and replace and there were pieces of the ACA he wanted to keep in place.

Repeal Targets

The Republican past attempt to repeal and replace, called the “Restoring Americans’ Healthcare Freedom Reconciliation Act of 2015, ” was based largely on Dr. Price’s prescription to eliminate Medicaid coverage for people near or below the poverty line, to eliminate subsidies to help middle-income people buy their own insurance on new marketplaces, eliminate tax penalties for the uninsured, meant to push everyone to buy health insurance, and to eliminate various taxes created by the law to help fund those programs, including the 2.3% medical device tax.

Congressional Action

Source: Wikimedia Commons and Martin Falbisoner

Source: Wikimedia Commons and Martin Falbisoner

Republicans passed their bill in 2015 under a legislative parliamentary procedure called reconciliation that skirted the Senate filibuster rule.

One aspect of that attempt is that it did not attempt to change the insurance reform provisions of the ACA, specifically the ban on preexisting condition exclusions and health status underwriting, caps on annual and lifetime dollar limits, actuarial value requirements and age underwriting restrictions.

The reason those aspects were left untouched under the 2015 reconciliation procedure is that they did not affect revenues and outlays.

Looking ahead under a Trump administration, Senate Democrats would have the filibuster at their disposal to block any replace and repeal legislation if Republicans can’t garner the 60 votes necessary to stop a filibuster. Short of an outright repeal and triggering a filibuster, Republicans could stop funding for: the subsidies that have helped people in the exchange plans afford their premiums; the payments toward insurers that allow for lower cost-sharing on silver plans; federal assistance to states that expand Medicaid; and penalties for people who do not buy insurance.

This would essentially mean the end of the exchanges, Medicaid expansion and the individual mandate.

It would also mean pushing costs to states.

Orthopedics and MACRA

The impact of repeal and replace on the orthopedic community is up in the air. Many patients needing orthopedic implants are still largely over age 65 and are covered by Medicare. Repealing the ACA would not have a dramatic impact on Medicare. However, Republican proposals to privatize Medicare certainly would. But that’s another story.

Orthopedic surgeons would still be subject to the provision of MACRA (Medicare Access and CHIP Reauthorization Act) which demands quality reporting requirements for reimbursement and surgeons would continue to be subject to the move away from fee-for-service reimbursements being replaced with bundled payments. MACRA had 91% support from Congress, with 484 members voting for the bill.

MACRA will replace the Meaningful Use program for physicians in 2017. MACRA regulations require physicians to show continued progress on EHR [electronic health record] adoption and interoperability.

At the annual conference of the Medical Group Management Association (MGMA), held in San Francisco the week prior to the presidential election, the group’s leaders said they did not expect the election outcome to affect the direction of MACRA. “It was a bipartisan piece of legislation, ” said Anders Gilberg, senior vice president of government affairs at MGMA. “The only thing that often changes is interruption at the leadership leve …at the HHS and CMS.”

Moving payment policy away from volume and towards quality was a goal for all the Congressional offices participating in the construction of MACRA.

However, MACRA could still face challenges if Congressional Republicans decide to repeal or constrain the ACA sections that give CMS [Centers for Medicare and Medicaid Services] the authority to operate the CMS Innovation Center (CMMI). Dr. Price has often criticized the CMMI. A full repeal of the ACA, or even limitations to the CMMI’s authority or budget, could cripple the government’s ability to operate the demonstration projects that are the cornerstones of MACRA.

Healthcare leaders likely will not like changing CMMI. Modern Healthcare's second-quarter CEO Power Panel, a survey of 86 healthcare CEOs, found that the executives overwhelmingly backed the ACA and supported its goal of pushing providers away from fee-for-service medicine and toward delivering value-based care.

Impact on Device Companies

For device companies, the impact of repeal, say some Wall Street analysts and one device company, would be minor.

Immediately after the election, the big ortho stocks and hospitals took hits, while pharma and insurance stocks rose.

Joanne Wuensch of BMO Capital Markets told us this year has been all about investing in safer haven medtech, particularly given concerns regarding pricing that have weighed on biotech and pharma names.

“With the election behind us, and the result ‘not Hilary’ the shift is moving towards dollars moving out of medtech and into other health care names—particularly the larger names.”

She highly doubts that ACA will be dismantled, but that it will be tweaked, as it should be, in her opinion.

“Further, the implementation of the ACA really did not help medtech stocks, so changes (or even a full reversal) probably would not hurt medtech stocks. The only outlier to this statement is likely some of the orthopedic procedures (hip and knee) which are more elective, driven by employment, and/or associated insurance coverage. Remember we saw a large bolus of procedures the quarter before ACA implementation, and we wonder if there will be a higher volume of procedures this quarter as people fear coverage will change next year.”

She believes the odds of the medical device tax returning in 2018, after its two-year hiatus, has become very low and if the new administration implements a tax holiday, we might see an acceleration in industry consolidation.

Leaders at Stryker Corporation are uncertain about whether the ACA will be suspended or repealed and how and when the changes will take place. However, the company stated that since it has a diversified business with steady capital sales, its revenue model is robust enough that whatever happens, there won’t be a huge impact on its business.

Larry Biegelsen of Bank of America [BoA] wrote after the election that the Trump victory increases the likelihood that the 2.3% medical device tax will be repealed which is positive for the industry. In addition, Republicans have traditionally been more industry-friendly when it comes to agencies such as FDA and CMS.

He says there is a risk for the device industry for a potential reduction in the number of insured Americans if the ACA is repealed and replaced because this could negatively impact procedure volume.

Finally, says Biegelsen, Trump is likely to advocate corporate tax reform and repatriation of overseas cash which could benefit the device industry. “Net-net, a Trump presidency creates a good deal of uncertainty but we see the election results as a slight positive for the industry at this point.”

Unexpected Turns and Risks

Interestingly, Biegelsen says BoA’s Washington consultant believes policies related to the transparency of product pricing may take unexpected turns under a Republican Administration that campaigned with a heavily populist bent. “However, it seems unlikely that Congress would enact policies that make substantial changes to device product pricing.”

Biegelsen’s consultant said that when Republicans passed their previous repeal and replace law, they did so with full knowledge that President Obama would veto it. But now, knowing that any bill they pass would be signed by a President Trump, Republicans “will have to proceed with caution lest they cause substantial disruption to individuals and businesses who are several years into living with the current system—plans will begin the process of submitting 2018 bids in April of 2017.”

Meaningful action could be delayed to the second quarter of 2017. “Congressional Republicans and the incoming Trump Administration will have to navigate the political imperative to quickly ‘repeal’ the ACA as promised while facing the very real political and policy constraints that are associated with actually delivering on that pledge, ” said Biegelsen’s consultant.

While President Trump’s new HHS Director, orthopedist Dr. Price could take several administrative steps to cripple the ACA and discourage people from signing up with exchanges, Congressional action will be required to affect an outright repeal of the law. Congress will get their opportunity to get in the act when Dr. Price comes before the Senate for approval of his appointment.

In our next article, we’ll look closer at replacement options as prescribed by Dr. Price and the possible impacts on the orthopedic surgeon.

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