Health Care Reform in Arizona - AZ Business Magazine Nov/Dec 2010

Business And Community Leaders Are Trying To Figure Out What Health Care Reform Will Mean In Arizona

For government and business, providers and patients, the U.S. health care reform legislation promises a new world of costs and care.

Most individuals without insurance will be able to get it. Those who have insurance already probably will have to pay more for it. Hospitals, doctors and others in the front lines of health care will begin to change long-established ways of doing business. State governments and many businesses, already battered by recession, will face new costs and possibly some benefits.

But beyond these generalizations, little is certain about what health care reform will mean in Arizona and across the country. The bill is vague in many areas and leaves important details of implementation to be determined by federal regulators and other officials in the weeks and months ahead.

“Quite frankly, we won’t know the financial impacts until we move through the process and see what the federal government and insurance companies do,” says Donna Davis, chief executive officer of the Arizona Small Business Association (ASBA).

Barry Broome, president and chief executive officer of the Greater Phoenix Economic Council (GPEC), says it is too early know what the bill will mean.

“It sounds very good to be able to cover the uninsured, but what the costs are and how they are going to be distributed are still not clear,” he says.

Marjorie Baldwin, director of the School of Health Management and Policy and assistant dean at Arizona State University’s W. P. Carey School of Business, says it is important to note that the law’s primary purpose is to cover the uninsured.

“This bill is about access,” Baldwin says. “It’s designed to cover the uninsured. There is much less in it about quality of care and little about cost controls.”

On what the price tag for health care reform will be, Baldwin says, “The one safe prediction is that it is going to cost much more than anticipated.”

Hospitals and doctors
Whether the health care overhaul is ultimately deemed a success will be determined to a large extent by what happens inside the nation’s hospitals, clinics and doctors’ offices.

Peter Pavarini, a health care lawyer for Squire, Sanders and Dempsey and an adviser to health care organizations, believes hospitals are actually well-positioned to adapt to the new law.

“Hospitals have been anticipating something happening for some time,” Pavarini says. “Hospitals have the resources to prepare better than some of the other players in the health care system.”

Several provisions in the law are expected to lead to a dramatic shift in the way hospitals are paid by insurance. Under the existing system, providers receive set rates for specific medical procedures. The new law moves toward a system in which hospitals receive a set amount for treating an overall condition or a so-called “bundled payment.” This shift is expected to require more detailed treatment plans, coordinated care and closer cooperation among hospitals and physicians.

“With the bundled payments, you have to have a more integrated approach and an approach that aligns physicians and hospitals,” says Suzanne Pfister, vice president of external affairs at St. Joseph’s Hospital and Medical Center in Phoenix.

The hospital already has been moving in this direction, according to Pfister. St. Joseph’s has forged a series of partnerships with area health care organizations, including outpatient and short-stay providers United Surgical Partners and SimonMed Imaging
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“We are continuing to look at moving from acute care to a continuum of care,” Pfister says.

Pavarini believes the new payment systems for Medicaid and Medicare will bring big changes to care at hospitals. When the system is in place, hospitals will get a set payment for delivering all of the care a patient receives from 72 hours before admission to 30 days after discharge, he notes.

“That’s a whole different model from what we have now,” Pavarini says. “This means it’s not good enough just to get the patient in and out of the hospital. It means testing can’t be duplicative. And it means patients better be ready for discharge when they’re released.”

Pavarini says doctors and hospitals will need to cooperate more closely as the law is implemented. He sees hospitals forging formal alliances with physician groups and appointing more practicing physicians to their boards of directors.
A more basic concern for hospitals is how much they will be paid. Because expansion of Medicaid is a key feature of the law, hospitals are concerned about long-term revenue.

“Payments are going to shift more to the level of Medicaid, and Medicaid has not been a particularly good payer,” Pfister says.

Officials at Phoenix-based Banner Health, one of the largest nonprofit health care systems in the country, are still examining the legislation to assess its consequences.

“This reform is primarily about health insurance, not health care reform,” the organization said in a statement. “It will result in expanded AHCCCS (Medicaid) coverage in Arizona and access to insurance, but the need remains to address reducing the cost of health care.”

The bill includes a number of provisions that will increase the role of primary-care physicians. Medicaid fees will go up for primary-care doctors, who also will be eligible for bonuses from Medicare.

St. Joseph’s is concerned about being able to find enough physicians as health care reform is implemented in the coming years, according to Pfister.

“Arizona has fewer physicians per capita than the national average, so we face that already. Arizona does not have enough primary-care physicians and even some specialists,” she says.

The larger hospitals that have formal ties to physicians and other providers probably will fare best under health care reform, according to Pavarini. But he believes smaller, more isolated hospitals will struggle and some will close.

“Arizona has a number of smaller hospitals in less populated areas,” he says. “I think the outlying hospitals in rural communities could have difficulty.”

Businesses
While all businesses will be affected by the health care reform law, some will feel it more than others. Probably least affected will be firms that already provide health insurance now and have a pool of employees large enough to allow the companies to self-insure.

“For most large businesses, fundamentally there’s not a lot of change,” says Keith Maio, president and chief executive officer of National Bank of Arizona. “For us, we’ll have to be a little more paperwork conscious.”

ASU’s Baldwin says the principal effect on large employers will be slightly higher expenses, as they absorb some of the cost of the system’s expanded coverage.

“For larger employers, the law is not going to mean a big difference, but they are going to see their costs go up,” she says.

Smaller businesses though will face new uncertainties, and, for some, significant new costs.

“I would say that there is a cloud of concern generally for small businesses,” says Maio, whose bank has many small business customers. “People who have been through the recession and are still slugging it out have learned to survive. But they still have trouble seeing how they can get back to where they were . That’s why something like the health care bill can have such an impact.”

The law offers a complex mix of incentives and penalties designed to spur employers to offer health insurance. In 2014, employers with 50 or more workers who do not provide coverage will face penalties of $2,000 or $3,000 per employee. Some employers who provide insurance and have fewer than 50 workers will be eligible for tax credits.

“In a sense there is both a carrot and a stick,” says Bradford Kirkman-Liff, professor in the School of Health Management and Policy at W. P Carey. “The idea is to create a very strong incentive to provide insurance.”

The tax credits could offset as much as half of the insurance costs for some employers, Kirkman-Liff notes.

“Arizona has a high number of small employers. Many of them don’t provide health insurance, but some do. This would give them a reason not to drop it,” he says.

The law also instructs states to establish insurance exchanges, where small employers and individuals can purchase policies from insurance companies. The exchanges are designed to bring down the cost of insurance by combining groups of buyers into large pools.

But even with government subsidies and insurance exchanges, some businesses will find the burden too large, according Maio.

“The greatest impact will be on those that employ entry-level employees,” he says. “Arizona has a lot of lower-wage businesses who won’t be able to afford to provide insurance. I think some will opt to pay the fine. Then what have you accomplished?”

Another problem that Maio sees is the 50-employee threshold for the coverage requirement. Employers with fewer than 50 can escape penalties for not providing insurance.

“Have you given them a disincentive to adding people?” he asks.

Davis at ASBA says most business owners are focused on short-term challenges and do not have a clear picture of how the law will affect them.

“For some small businesses who fit the prescribed requirements, it will help offset some of their costs,” Davis says. “For others, it simply won’t.”