With the election of GOP candidate Donald Trump to the presidency, every long-stalled Republican healthcare proposal has vaulted into the realm of possibility.

The hospital sector reasserted itself as the hub of American healthcare during the Obamacare era—an era which may coming to a close in the wake of the November elections. While any changes made to the Affordable Care Act will immediately impact hospitals at many levels—and likely for the negative—the long-term hospital trends toward value-based care, clinical integration and consolidation should persist.

If President-elect Trump and the GOP Congress can pull off the long-promised “repeal and replace” of Obamacare, we likely see significant increases in uninsured people and/or plans with skimpier coverage, both of which could burden hospitals more than any other segment in the healthcare industry. Health systems would likely revert to the dynamic immediately preceding passage of the Affordable Care Act, but evolved to incorporate modern tenets of value-based population health management. Should Trumpcare adopt a laissez faire attitude toward mergers and hospital closures, we could also see a sharp increase in hospital consolidation as well as integration with insurers. And an effort to sell insurance across state lines could spur the creation of national alliances between health systems and insurers, all competing against each other.

Broadly speaking, value-based initiatives launched by CMS (such as bundled payments and accountable care organizations) have been ingrained into the healthcare industry by Obamacare. Commercial insurers had long sought to prod providers away from fee-for-service, but were reluctant to rekindle their 1980s reputation as hard-nosed HMOs. Hospitals and physician practices participating in Medicare demonstrations have acclimated to accepting risk and alternative payment models. Similarly, the ACO has provided a framework for hospitals to clinically integrate with employed and affiliated physicians. The shift to value-based care may even accelerate in the coming years as large health systems come to view risk-bearing contracts as a means to offset increased bad debt from uninsured/underinsured patients.

We don’t speak much of it now, but achieving a “balanced payer mix” was one of the driving forces for hospital acquisitions in the pre-Obamacare era, when urban hospitals that handled a heavy load of uninsured patients sought to balance this bad debt by acquiring suburban hospitals that served affluent areas with high insured rates.

As Obamacare lowered the nation’s uninsured rate, payer mix balance became less of a concern for health systems, particularly in states that expanded Medicaid eligibility. A 2015 report from Kaiser Family Foundation showed that uninsured and self-pay discharges at Ascension Health (the largest nonprofit health system in the nation) decreased by nearly a third in states that expanded Medicaid eligibility, but only 4 percent in non-expansion states.

The way hospitals have handled bad debt associated with uninsured/underinsured patients is by receiving Disproportionate Share (DSH) payments, funded by federal matching funds. The main thrust of the ACA’s forebear, RomneyCare, was to shift these funds already being used for hospitals’ uncompensated care toward health insurance for all state residents. Likewise, under Obamacare, DSH payments to hospitals were supposed to decrease as more people became insured, although many of the cuts have been put off until 2018. CMS has also used uncompensated care payments to incentivize states to expand Medicaid eligibility.

Would Trumpcare simply restore DSH-payments to pre-ACA levels, or would any effort to direct funds back to hospitals may be portrayed as a “hospital bailout?” This decision gets to the crux of how the GOP plan will replace Obamacare: will the replacement rely strictly on market forces, or become a conservative version of the ACA, creating/modifying mechanisms to encourage providers to move toward a particular worldview?

House Speaker Paul Ryan’s “A Better Way” proposal calls for rescinding DSH cuts planned through 2020, and then in 2021 creating a combined national pool of uncompensated care funds, to be distributed to hospitals based on charity care. Conceivably, the replacement plan could use the CMS Innovation Center or some other mechanism to tie DSH payments to risk payments, or privatizing public hospitals.

Whether encouraged by government programs or only through traditional insurers, health systems will continue to move toward value-based care. The dynamic favors the large health system with a critical mass of patients for population health management, as well as a reservoir of capital to build the infrastructure to effectively capture the larger patient base, from unified electronic health records to convenient outpatient facilities.

The free-market Trump administration may not stand in the way of Anthem/Cigna and Aetna/Humana mergers the way President Obama did, meaning a further consolidation of national payers. Furthermore, the Trump FTC may not get in the way of health system megamergers, as Obama’s FTC has halted mergers in Chicago, central Pennsylvania, and West Virginia. As I’ve written earlier, the Obama FTC has not been blanket anti-merger, rather focused on stopping those that would create ultra-dominant health systems within a specific geography.

In earlier blogs, I’ve described how geographic regions will coalesce around between two and four mutually exclusive health systems. At least one per region could operate its own health plan, with others working in concert with traditional insurers on narrow-network insurance products. This paradigm could accelerate under the Trump administration, with an increase in uninsured patients and a permissive attitude toward mergers. The suburbs will see a duplication of services as health systems build facilities in high growth areas. Cities, many of which are overbedded, with health systems shuttering services such as maternity wards, or even whole hospitals, while redistributing beds to the suburbs.

The regional specificity of health systems complicates the long-held Republican healthcare panacea of selling insurance across state lines, which was one of Trump’s few concrete policy proposals. Insurers must be able to sell customers a satisfactory provider network where they live; you’re not going to buy a Costco membership if the nearest store is two states over. Rates are often determined by what deals insurers can cut with local providers. A dominant health system in Charlotte or Cape Coral can demand higher rates from an insurer, as can a prestigious hospital like Mayo Clinic. But insurers can play health systems off of each other in more competitive markets.

But an easy way to force the issue of buying across state lines would be to create a national exchange for individuals. Imagine the current exchanges being switched to something like Florida Health Choices, an online marketplace without mandate, subsidies or essential minimum benefits, but on a national scale. Senator Marco Rubio launched the exchange in 2008, back when he was Speaker of the Florida House of Representatives and insurance exchanges were a Republican idea. To attract more insurers, states could be allowed to drop their Medicaid beneficiaries onto the national exchange, each member buoyed by capitated rates funded by U.S. Speaker Paul Ryan’s Medicaid block grants.

With such a large patient pool, higher expenses in one market may be evened out by better deals in more competitive markets. While critics of this aspect of Trumpcare have focused on the abolishment of state mandates for essential benefits, the larger issue is that buying across state lines essentially necessitates a national marketplace, either set up by the government or a public/private partnership.

And perhaps more fancifully, if Paul Ryan really wants to create vouchers for Medicare (which faces heavy opposition from both sides of the aisle), he could propose expanding Medicare Advantage to the 55+ population, while preserving traditional Medicare for those above 65. This would serve the dual purpose of making privatized Medicare more acceptable as well as creating a de facto high risk pool of older beneficiaries.

While Obamacare can be gutted in the Senate through reconciliation with 50 votes, any replacement needs 60 votes, unless the filibuster is killed. If sold as a consumer-driven healthcare program that preserves some aspects of Obamacare while expanding Medicare coverage, the über-exchange could even get votes from Democratic legislators worried that the populist backlash will continue though the 2018 midterms.

A national exchange with a customer base of uninsured individuals, Medicaid recipients, and voluntary 55+ with vouchers would demand participation from nearly all health systems and the remaining mega-insurers (Anthem/Cigna, Aetna/Humana, UnitedHealth and the Blues). If the GOP re-imposed a form of the Cadillac tax for employers, über-exchange model would spread to the group market as employers make premium costs more transparent to employees as part of an effort to get out of paying taxes for too-rich health benefits.

Any degree of this proposal would accelerate the creation of healthcare ecosystems into mutually exclusive regional and even national entities, where insurance carriers and integrated delivery networks operate on the subscription model (similar to Costco or Amazon Prime), with premiums acting as a monthly membership fee for access to a particular brand’s physicians, hospitals, health clubs, discounts and other benefits.

We’ll soon know whether Trump’s plans for the ACA will consist of cosmetic tweaks or full-scale repeal. Because they are at the center of the U.S. healthcare web, hospitals will feel any reverberations from the November 8 election, but they will also be in a good position to wait out the tremors.

For more market access insights, follow Mark Cherry on Twitter: @MarkCherryDRG


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