The past year has seen several significant events overhang the health care industry. The first, the much-anticipated U.S. Supreme Court decision in June, upheld the constitutionality of the individual mandate of the Patient Protection and Affordable Care Act (ACA, or Obamacare). The second, and equally important, was the presidential and congressional elections in which President Barack Obama was reelected to a new four-year term, the Senate remained in Democratic control with a slight increase in their majority, and the House of Representatives remained in Republican control.

However, since the passage of the ACA in 2010, the health care industry and state governments have been reacting to the sweeping legislation, albeit some more quickly than others, as well as to forces in the marketplace calling for change in the way patient care is delivered and efforts to reign in the costs of health care in the United States. This article will address several initiatives that New York state and the federal government are implementing, which they believe will increase efficiency, lower costs, and better coordinate the delivery of care to patients. Whether these initiatives will produce the expected results or create unintended by-products remains to be seen.

Managed Long-Term Care

Implementing a campaign promise to reform the state’s Medicaid system and reduce health care costs,1 following his election in 2010, Governor Andrew M. Cuomo empanelled a team of industry health care representatives (Medicaid Redesign Team) to recommend a series of reforms to New York’s Medicaid program. Virtually all of the recommendations made by the Medicaid Redesign Team were implemented in the state’s budget for the 2011-2012 fiscal year. The recommendations provided for, among other things, a cap on New York State Department of Health-controlled Medicaid expenditures, reductions in payments to providers, and a requirement that individuals who receive home and community-based long-term care (i.e., care periods longer than 120 days) through Medicaid must enroll in state-approved managed long-term care (MLTC) plans.

Under MLTC plans, the traditional fee-for-service Medicaid model is eliminated. Instead, plan providers receive a capitated payment (i.e., for example, a fixed monthly payment per patient) to deliver the required services, thereby shifting the financial risk from the state to the plan. If care costs exceed the capitated payments, the plan loses money; if care costs less, the plan profits. The required services provided by MLTC plans include long-term services such as home health care, adult day health care and nursing services in the home, as well as various health and social services. The goal of MLTC plans is for the state to reduce its total Medicaid expenses for long-term care services on a going-forward basis. Consumers of health care benefit by having a single entity—the MLTC plan—that is responsible for assessing, implementing and monitoring their plans of care.

The MLTC program is administered by the DOH and became mandatory in November 2012 for dually eligible individuals (i.e., those enrolled in both Medicaid and Medicare) in the five boroughs of New York City. It will be gradually implemented throughout the rest of the state.

The Medicaid Redesign Team estimates that shifting long-term care patients from the traditional fee-for-service model to MLTCs will save the state approximately $85 million in fiscal year 2012-2013, increasing to $135 million in fiscal year 2013-2014 and $168 million in fiscal year 2014-2015.2 The goal, of course, is to perform this transition without an appreciable negative effect on patient service; it remains to be seen, however, whether patient outcomes will be affected and whether costs will be meaningfully reduced as these programs get underway. Given continuing budgetary pressures in New York and elsewhere and demands on state resources (including the recent need to respond to and rebuild the damage caused by “Superstorm” Sandy), New York appears to be unlikely to scale back this cost-cutting initiative in any material way in the near term.

Patient-Centered Homes

A patient-centered medical home (PCMH) is a model of care generally led by a physician, which seeks to provide coordinated care throughout a patient’s lifetime, with the goal of improving patient outcomes and reducing costs to the health care system. The PCMH is not a physical building but rather an approach to providing comprehensive health care. In the PCMH model, the patient has an ongoing relationship with a physician who leads a team that is collectively responsible for patient care. The PCMH is responsible for meeting most of a patient’s physical and mental health requirements, including prevention and wellness, acute care, chronic care and end-of-life care. The PCMH coordinates care across all aspects of the health care system, including specialty care, hospitals, home health care and community services.

At the federal level, the ACA provided for the establishment of the Center for Medicare and Medicaid Innovation within the Centers for Medicare & Medicaid Services to test-pilot a number of reforms, including PCMHs. At the state level, 42 states have adopted policies and programs to advance the PCMH model,3 and a November study by Health Affairs found that 25 states are actively implementing the model.4

New York is seen as among the leaders in this area following the legislature’s 2009 adoption of a law authorizing the DOH to implement a program facilitating the development of PCMHs through incentive payments. Medical practices that wish to qualify as PCMHs must meet certain standards that have been promulgated by the National Committee for Quality Assurance (NCQA), a non-profit organization that develops quality standards and performance measures for health care entities. The NCQA ranks medical practices as Level I, II or III, depending upon how they match up against its standards. In addition to a normal fee-for-service reimbursement, medical practices that qualify as PCMHs receive an incentive payment for primary care services provided to beneficiaries of Medicaid or Family Health Plus,5 the amount of which is dependent upon whether the practice is a Level I, II or III practice.

In New York, DOH-approved PCMHs are gaining traction with collaborations between medical practices to qualify for and receive the incentive payments provided by the New York program.6 As data is collected and analyzed with respect to PCMH demonstration projects, both the DOH and the federal government will be carefully assessing the impact of these programs and whether they should become more widely utilized throughout their health care systems.7

Electronic Health Records

The Health Information Technology for Economic and Clinical Health (HITECH) Act, part of the American Recovery and Reinvestment Act of 2009, provided for eligible professionals and eligible hospitals to receive incentive payments under the Medicare and Medicaid programs for adopting and demonstrating “meaningful use” of electronic health records (EHRs). Since 2011, $36 billion has been made available for incentive payments to providers under the program, which includes three “Stages.” In August of this year, the U.S. Department of Health and Human Services (HHS) and Centers for Medicare & Medicaid Services issued a final rule establishing the criteria for qualification as a “meaningful user” of EHRs under Stage 2 of the program, including exchanging information between providers electronically and allowing patients to have secure online access to their health information.

Stage 1 of the program, which began in January 2011, had set forth the basic functionalities that all EHRs must include, such as capturing data electronically and providing patients with electronic copies of their health information. The final rule delayed the timeline for implementation of Stage 2, which is now expected to begin as early as 2014. Stage 3, currently targeted for implementation in 2016, is expected to focus on using EHRs to improve quality, safety, and efficiency, which the federal government hopes will lead to improved health outcomes.

The Stage 2 final rule relaxed some reporting requirements for health care providers. Eligible professionals will now be required to report to Centers for Medicare & Medicaid Services on nine out of 64 total clinical quality measures, while eligible hospitals and critical access hospitals will now be required to report on 16 out of 29 total clinical quality measures. Providers that are eligible only for Medicaid incentive payments will report their clinical quality measure data to their respective states. Those Medicare providers that do not demonstrate meaningful use by July 1, 2014 (for eligible hospitals) or by Oct. 1, 2014 (for eligible professionals) will see their Medicare payments reduced in 2015 unless they qualify for one of several types of hardship exceptions. These exceptions may be available for new providers, those who practice in a geographic area that lacks sufficient internet access, those subject to a natural disaster or similar unforeseen circumstance, or for specialists who do not typically have direct interaction with patients. Medicaid eligible professionals and hospitals that do not demonstrate meaningful use will not be subject to a Medicaid payment adjustment, but will not receive Medicaid incentive payments.

The Office of Inspector General of HHS has expressed concern that the movement toward EHRs has resulted in an increase in fraud and abuse. Some EHR computer programs allow detailed patient histories to be generated automatically with the push of a button; if misused, these programs could allow a provider to bill for services that were not actually provided. It may also be possible to “clone” one patient’s examination findings into the records for other patients. In October, the Office of Inspector General distributed a survey to providers requesting information on fraud and abuse issues and the safeguards they are employing to prevent various types of wrongdoing.

Accountable Care

An Accountable Care Organization, or ACO, is a group of health care providers (including physicians, hospitals, and sometimes other entities) that assumes responsibility for the quality of care for a given population, as well as the cost of delivering it. The basic organization concept was set forth in the ACA and later spelled out in detail in final regulations issued by HHS in October 2011. These final regulations replaced an earlier set of draft regulations that were criticized by many within the industry for not making the ACO program sufficiently attractive to potential participants.

Each ACO will be assigned a population of Medicare beneficiaries and take responsibility for the full continuum of their care, including primary care, administering necessary tests and procedures, and specialist care when required. A spending target is established for these patients based on their collective health care spending history, and if the ACO is able to meet certain quality requirements and reduce overall per-patient spending below the target, it will receive a share of the savings to distribute to its providers. Some ACOs may also agree to assume the risk of paying to the federal government a portion of any cost overage, in exchange for the right to a larger percentage of the potential savings. As of Nov. 20, 2012, the Centers for Medicare & Medicaid Services has announced approval of 169 Medicare ACOs of various types, and many more are expected to be approved and to commence operation throughout 2013.

The government’s hope is that when providers are held jointly accountable for patient health, they will have powerful incentives to work more collaboratively and efficiently. That same philosophy has also driven non-government payers to encourage the formation of ACO-like organizations, irrespective of whether the entity intends to seek approval as a Medicare ACO. Some ACO-like entities have stated an intention to organize and streamline their administrative procedures and delivery of care to patients of private insurers first, before seeking to assume the responsibility to reduce costs and improve care to a population of Medicare patients.

An increasing number of insurance companies are adopting the ACO model. Blue Cross Blue Shield of Illinois, for example, has partnered with Chicago-based Advocate Health Care to provide care to 250,000 PPO members and 125,000 HMO members, making it probably the largest commercial ACO in the country. Cigna claims that its commercial ACO in Arizona reduced the cost of Cigna’s medical claims in the state by 10 percent in its first year of operation, and Cigna and Aetna have both expressed their intention to offer commercial ACOs and ACO-like arrangements across the United State. Aetna’s 2011 acquisition of Medicity, a health information technology company, was an important building block in its plan to roll out commercial ACOs.

The jury is still out, however, regarding the likelihood of widespread adoption of the ACO model by physician groups and smaller hospitals. The costs of establishing an electronic infrastructure and satisfying the other startup requirements and ongoing administrative requirements imposed by HHS, as well as ongoing working capital needs, may be daunting.

Conclusion

The above developments are just a few of the many programs that are being tested or considered by the federal and state governments in their efforts to better coordinate and deliver care and reduce overall health care costs. Whether these or other initiatives will succeed remains to be seen, but it is apparent that regulatory activities will continue at a robust pace for the foreseeable future.

Leslie J. Levinson is a partner at Edwards Wildman Palmer and chairs the firm’s healthcare practice group, in which Eric Fader and George Greenslade, both counsel, also practice.

Endnotes:

1. New York state reportedly spends approximately $54 billion a year on its Medicaid program, the highest of any state. See State Budget Solutions webpage at www.statebudgetsolutions.org/issues/view/breaking-news/3/healthcare.

2. Medical Redesign Team Work Group Final Recommendations, Proposal Number 90, available on the DOH’s website at http://www.health.ny.gov/health_care/medicaid/redesign/docs/redesign_proposals.pdf.

3. See http://www.commonwealthfund.org/Blog/2012/May/Measuring-the-Success-of-Medical-Homes-blog.aspx.

4. Available at http://content.healthaffairs.org/content/31/11/2432.full.pdf+html.

5. Family Health Plus is a public health insurance program sponsored by the DOH that provides health care through participating managed care plans for adults with incomes that are too high to qualify them for Medicaid.

6. See, for example, press release dated Aug. 1, 2012 of Manhattan Physician Group, a physician-owned medical group, announcing the opening of a PCMH in Harlem (available at www.prnewswire.com/news-releases/manhattans-physician-group-opens-patient-centered-medical-home-in-harlem-164577126.html).

7. Private insurance companies are also implementing their own non-Medicaid PCMH programs that are open to individuals who are not enrolled in a public insurance program. The insurance company programs typically require the medical practices receiving incentive payments to qualify as PCMHs under the NCQA standards.