There are numerous provisions of the Affordable Care Act (ACA), aimed at reducing the cost of America’s healthcare. According to Healthcare Finance News, the cost-saving strategies include specific reductions in reimbursements to providers of healthcare services for Medicare and Medicaid patients. For hospitals alone, these reductions will amount to some $150 billion over the next ten years. Further, beginning on January 1, 2015, reimbursements to physicians and hospitals will be tied to the quality of the care; defined by the ACA as “value-based care.” Since the Medicare/Medicaid patient populations often make up a very large percentage of a provider’s practice, the reductions can represent a significant blow to the provider’s revenues.
When a provider’s revenue source shows signs of reduction, an effort must be made to supplement the missing income. An industry-wide concern is that as reimbursements are reduced in the traditional healthcare sector (Medicare, Medicaid, and group health), providers may look to restore lost revenues by changing some of their billing behaviors in the property/casualty (P&C) space, through a process called “cost-shifting.”
Cost-shifting is a general term for provider behavior involving seeking more revenue from some patients or payers to make up for lower or insufficient revenue from others.
Cost-shifting to the P&C payers could have the following impact:
- Medicare and Medicaid are known to have already low reimbursement rates. Starting in 2015, Medicare will begin to link compensation to patient outcomes and “most or all Medicare physician payments will be tied to quality outcomes in 2017.” As additional reimbursement reductions are scheduled, it may reduce the numbers of participating providers and may promote the incidence of cost-shifting as a means to recover lost revenues.
- Tens of millions of previously uninsured Americans will have coverage as a result of provisions of the ACA: expanded Medicaid in many states; children being allowed to stay on their parent’s coverage until age 26; healthcare exchanges that offer health care plans at a much lower rate than previously available for most applicants. With so many more Americans being insured, there should be substantially less indigent care. The question becomes whether the increased population can make up for the reduced reimbursements.
- Providers can make up some of the reduced revenues by maximizing revenues from P&C carriers, where fee reduction schedules often don’t exist. Where fee reduction schedules do exist, they are still richer than the Medicare and Medicaid schedules. While most states have fee schedules in place to control costs in their workers’ compensation segment, very few states have taken the same steps for the auto insurance industry. Surely this has a lot to do with how workers’ compensation is regulated versus how the auto insurance industry is regulated.
The final issue to consider in the context of possible cost-shifting is that P&C medical payments are generally “first dollar,” and are easier to collect than bills where the patient participates in the financial responsibility for the bill. “First dollar” means that there is no deductible for the patient to meet before payment for medical benefits commence. As a consequence, all of the billings are directed to the carrier and not the patient or insured, so the provider doesn’t have to wait for the patient to make payments or have the responsible party fail to pay the bill entirely.
The jury is still out as to whether or not cost-shifting will occur as a direct result of the ACA. There isn’t enough data available yet to see a definitive trend, however, this will be one space to watch.