Dallas, TX (PRWEB) December 09, 2013
On June 28, 2012, after months of suspense, the US Supreme Court announced its decision on the constitutionality of the Patient Protection and Affordable Care Act (PPACA) (referred to hereafter, as “ACA” or “the Act”). The Court, led by Chief Justice John Roberts, ruled that the individual mandate, which compels individuals to purchase health insurance, is constitutional as a form of taxation. However, the Court also ruled that states do not have to expand Medicaid coverage – a key provision of the Act – for fear of facing withdrawn federal funding for the program as earlier threatened by the federal government (Supreme Court, 2012).
The healthcare landscape for payers, pharmaceutical and medical devices companies, and providers is expected to change remarkably over the next few years due to the various provisions of the ACA, some of which have already been implemented. The Act is expected to extend insurance coverage to approximately 25 million previously uninsured individuals by 2023 (CBO, 2013). Although this potentially increases top-line revenue growth for all players, new rebates, taxes, cuts, and fees are poised to decrease margins.
Universal Coverage: A Little Farther than Thought
When the ACA was passed, the Congressional Budget Office (CBO) estimated that 30 million previously uninsured individuals would have access to healthcare. However, the Supreme Court’s decision labeling the federal government’s threat to deny states Medicaid funding if they fail to expand Medicaid coverage as unconstitutional, has caused the CBO to revisit its earlier estimates. According to the CBO’s latest forecast, about 25 million previously uninsured people will be insured by 2023, which is 16.7% less than the 30 million initially expected. Furthermore, it is estimated that Medicaid enrollment will increase by only seven million people by 2014, which is 46.2% less than the 13 million enrollees initially expected (CBO, 2012). Consequently, a projected 31 million people will still be left without insurance by 2023. This includes undocumented workers and low-income persons living in the 26 states that have thus far, declined to expand Medicaid, including Virginia – a state known for having one of the strictest Medicaid eligibility standards in the US. If fully implemented, the ACA will potentially halve the number of uninsured individuals in the US – a significant improvement, no doubt – but this alone, will not completely solve the problem of a lack of universal healthcare coverage in the US.
Imminent Surge in Prescription Drug Spending
Prescription drug spending will increase in the US. According to the Centers for Medicare & Medicaid Services (CMS), prescription drug expenditures will increase by 74.4% from $274.8 billion in 2012 to $457.3 billion in 2021 with the implementation of the ACA’s provisions; this increase represents a larger expected growth than would be seen without the implementation of the Act. The key drivers for this additional growth are expected increases in the volume of individual and group insurance coverage, as well as coverage expansions, primarily with Medicaid. Although the government plans to fund most of the added costs resulting from coverage expansions with new taxes, fees, and rebates imposed by the ACA, the worrisome growth in US healthcare expenditures – with a forecast close to $4.7 trillion in 2021 spending alone – does not show signs of abating (CMS, 2012a). This, combined with the relatively slow growth of the country’s Gross Domestic Product (GDP) in recent years, does not paint a pretty picture of things to come unless the economy shows tremendous improvement over the next few years.
Difficult Times on the Horizon for Healthcare Providers
The sustainable growth rate (SGR) formula, used by the government to check physician payments under Medicare, is poised to reset to its lower, statutory target if Congress does not act before January 1, 2014. Since 2003, Congress has used various methods, including freezes, to temporarily block the SGR formula from going into effect. Based on information emanating from the American Medical Association (AMA), if the SGR resets, it will automatically result in a 24.4% reduction in reimbursement levels in 2014, which is unwelcome news for providers.
According to the AMA, the cost of patient care has increased by 25% since 2001, while physician Medicare payments have increased by only 4% (excluding the 2% cut from sequestration) (AMA, 2013). With various other cuts such as reductions in Medicare and Medicaid Disproportionate Share Hospital (DSH) payments, and a 1% decrease in Medicare payments for hospital acquired infections targeted at healthcare providers, healthcare providers will need to tighten up on their spending.
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