Health & Medical Organ Transplants & Donation

US Health Care Reform and Transplantation, Part II

US Health Care Reform and Transplantation, Part II

Abstract and Introduction


The Patient Protection and Affordable Care Act passed in 2010 will result in dramatic expansion of publically funded health insurance coverage for low-income individuals. It is estimated that of the 32 million newly insured, 16 million will obtain coverage through expansion of the Medicaid Program, and the remaining 16 million will purchase coverage through their employer or newly legislated insurance exchanges. While the Act contains numerous provisions to improve access to private insurance as discussed in Part I of this analysis, public sector coverage will significantly be affected. The cost of health care reform will be borne disproportionately by Medicare, which faces nearly $500 billion in cuts to be identified by a new independent board. Transplant centers should be concerned about the impact of the reform on the financial aspects of transplantation. In addition, this legislation also utilizes the Medicare Program to drive reform of the health care delivery system, by encouraging the development of integrated Accountable Care Organizations, experimentation with new 'models' of health care delivery, and expanded support for Comparative Effectiveness Research. Transplant providers, including transplant centers and physicians/surgeons need to lead this movement, drawing on our experience providing comprehensive multidisciplinary care under global budgets with publically reported outcomes.


Enactment of the Patient Protection and Affordable Care Act in 2010 dramatically altered the American health care landscape. The legislation aims to expand coverage, restrain the growth in health care costs and improve delivery through more efficient and integrated health systems. This legislation does not intend to reform rather than sever the existing tie between employment and health insurance coverage, as described in companion article (Part I).

For patients unable to afford private insurance, the Act expands the Medicaid program, and provides substantial new subsidies for low-income patients to purchase coverage. To finance this expansion and other provisions, growth in Medicare spending will be reduced through novel mechanisms including an independent payment review board. Because organ transplantation is a high, expensive and disproportionately subject to payment and regulation by public payers, it may be significantly impacted by this provision. Medicare remains the primary payer for renal transplantation because of the end-stage renal disease (ESRD) entitlement, and Medicare is a leading insurer for transplantation of other organs. Therefore, it is highly significant that more than $500 billion—over one half of the total estimated cost of the legislation—will be funded through Medicare payment reductions and other Medicare-related provisions. The other major public programs that will be affected, state Medicaid Programs, are already squeezed by the recession and skyrocketing costs; yet, the health care reform legislation anticipates that much of the increase in the access to care will be achieved through Medicaid coverage expansions.

The Obama Administration believes that delivery system reform is the key to successfully improving access to care, while simultaneously reining in the overall cost of health care in the United States. The plan supports an expanded program of Comparative Effectiveness Research (CER), which will assess the cost-effectiveness of alternative treatment options and provide an evidence base for clinical care strategies that improve quality or contain costs. Buried in the reform bill is a provision to support novel delivery and payment systems designed to promote accountability and reduce cost by changing providers' incentive to provide more care to more patients.

This paper will explore the provisions of the health care legislation that impact coverage and payment under Medicare and Medicaid. We examine the potential impact on transplant center financial viability under the proposals. Equally important, we consider how transplant centers can play a leadership role in the development of novel delivery systems such as Accountable Health Organizations.

Public Sector (Medicaid) Coverage Expansion

For those unable to afford to pay for premiums, the bill expands Medicaid coverage to 133% of the federal poverty level as of January 1, 2014. Initially, the federal government will subsidize 100% of the added costs of this coverage, which will be reduced to 90% of costs by 2020. The remainder of this expense would then be borne by the states. Medicaid expansion will doubtlessly increase the number of patients with access to transplant care and will likely be the primarily means of achieving a coverage expansion in our population. Transplant centers may face significant revenue shortfalls as a result of an expanded number of Medicaid only patients seeking care. Current Medicaid reimbursement is generally inadequate, often providing insufficient funding to even reimburse centers for the standard acquisition cost to obtain a deceased donor organ. This situation will be exacerbated in large urban regions, with long waiting times and a greater need to use marginal organs, both of which are likely to increase the overall cost of transplant care.

Medicare Payment and Regulatory Reform

Several aspects of payment reform (reduction) are likely to have particularly dramatic effects on reimbursement for transplant-related services. The Health Care Reform (HCR) legislation will create an Independent Payment Advisory Board (IPAB) consisting of 15 members appointed by the President. IPAB will recommend changes to spending under the Medicare program to restrain growth to less the growth in the Consumer Price Index (CPI). The IPAB's recommendations will take effect unless Congress passes legislation to generate equal or greater savings in the Medicare program. This provision of the legislation is opposed by leading organizations representing surgeons and other specialists, as it will shift control of the Medicare program to an unelected, potentially unrepresentative body. It is likely that surgeons will represent only a small proportion of IPAB, leading potentially to further funding increases for primary care and reductions in specialty care reimbursement. While IPAB is technically precluded from submitting proposals that would ration care, increase revenues or change benefits, this language is so general that it is unlikely to result in any real limits on IPAB's authority.

The legislation exempts hospitals and hospice providers from the jurisdiction of IPAB until 2019 substantially limiting the impact of the Medicare reforms. Therefore, the savings from Medicare spending reform is likely to fall significantly short of the $500 billion estimated mark. Furthermore, the chief actuary of the Department of Health and Human Services estimates that although government health care spending may decrease over time, total national health care spending is likely to increase faster as a result of HCR, resulting in a net increase in 3.0% of GDP by 2019. Thus, although passed as a way to lower US health care spending, HCR may not 'bend the cost curve' as desired, although it should improve access to health care.

The plan also reduces Medicare payments to hospitals, particularly large academic centers serving less affluent communities by reducing Disproportionate Share Hospital (DSH) payments by 75%. Many transplant centers exist in hospitals that provide a care for underserved populations and that benefit from DSH payments. While some DSH funds may be reinstated through new allocation systems if projected drops in the uninsured do not materialize, the Administration believes that the increased access to insurance in both the private sector and Medicaid will reduce the need for these subsidies. Unfortunately, the reality is that in most states Medicaid payments do not provide enough reimbursement to break even for caring for these patients. Without the offset of DSH, it is likely that access to high-cost services, like transplant, may become worse not better for patients with low socioeconomic status.

Medicare payments would also be reduced in hospitals with high rates of readmissions (which are common in the transplant population) and for patients with hospital-acquired infections (also increased given the immunosuppressed state). Thus, the overall impact on hospitals with transplant programs may be significant. Transplant centers need to proactively manage the discharge and readmission process, ensure continuity of care and develop strategies to manage patients in lower cost settings.

Medicare beneficiaries covered by the Part D medication coverage will also receive some relief. The plan aims to close the existing 'donut hole' in the drug coverage provisions. The donut hole is where a beneficiary is responsible for paying 100% of yearly Rx drug expenses between $2251 and $5100. The coverage gap, currently at 100% of the drug cost, will decrease to 25% by 2020. By 2020, the program will pay for 75% of generic drug costs. This will be achieved by providing a $250 rebate and gradually reducing the cost-sharing provisions for beneficiaries in the coverage gap. For brand name drugs, manufactures must discount the cost of prescriptions filled in the coverage gap by 50%. The annual cost of immunosuppressive medications runs from $13 000 to $25 000 annually, depending on the specific medication regimen. Our patients should, therefore, benefit significantly from these provisions as long as they remain Medicare eligible.

One aspect of Medicare coverage, which is not specifically addressed in the bill, but likely to be affected by legislation, is the Sustainable Growth Rate (SGR) provision. The SGR was passed as part of the Medicare reforms in 1997 to slow the growth in spending for Part B (physicians and nonphysician provider services). The SGR results in automatic reductions in physician payments under Medicare if the rate of increase in total payments exceeds a goal targeted to the growth in gross domestic product. Unfortunately, this formula failed to address the increase in technology leading to Congressional intervention in previous years to prevent the cuts from being enacted. However, Congress did not adjust the targets. Therefore, given the budgeting basis currently in the statute, physician payments under Medicare are due to be reduced by 21%. While this draconian cut has been stayed by congressional action every year previously, as of June 21, 2010 Congress has still not passed legislation to permanently address this issue.

Many of the above changes will also impact the already cash-strapped Medicaid program. New demonstration programs in Medicaid will include bundled payments, medical homes for children that use pediatricians to manage care and improved coordination between Medicare and Medicaid. The legislation provides that primary care physicians will be paid at Medicare rates to improve access to providers for patients. Unfortunately, no additional payment is allocated to nonprimary care providers except general surgeons in health professional shortage areas. Transplant centers will be significantly affected by the Medicaid expansion because lack of insurance is currently an exclusion criterion for transplantation. Expansion of the Medicaid program will allow more patients to seek care with 'coverage', albeit with reimbursement that is inadequate to actually support transplant care. Thus, unlike emergency services, which will receive some reimbursement for care currently provided for free with expanded Medicaid coverage, transplant centers may be forced to accept patients who are guaranteed to result in significant financial losses.

Financing of Health Reform—Public Sector Changes

The bill includes a variety of funding mechanisms to cover the nearly $1 trillion cost projected for the first decade of the program. In addition to the excise tax on Cadillac health plans, the Act expands taxes on a variety of individuals, business and providers (Table 1). It is likely that these tax provisions will affect higher income members of transplant centers' faculty and staff through the Medicare tax provisions. It will also limit the size and scope of health benefit plans available to employees and patients seeking transplant care.

Financing for the changes in the Medicare and Medicaid program will also include reductions in payments to Medicare Advantage Plans, which provide Medicare benefits through HMO-type coverage. Based on data suggesting that these plans cost more and provide less care, the law will decrease payments based on a percentage of fee for service (FFS) payments, with higher reductions in areas with relatively high FFS payments. Managed Advantage plans will receive bonuses based on quality and will be subject to termination if they repeatedly have a medical loss ratio of less than 85% for 5 years.

The Administration also hopes to substantially reduce the amount of Medicare and Medicaid funds lost through waste, fraud and abuse. The plan commits a substantial amount of resources to better review and enforcement of provisions related to durable medical equipment suppliers. Medicare and Medicaid providers will be expected to establish strong compliance programs and abuses will incur increased penalties. Providers will have only 1 year, rather than 3, to submit claims for Medicare services. Overpayments not returned within 60 days of discovery may be pursued as false claims, effective upon enactment of the legislation. As the major payer for renal transplant services and, in particular, for organ acquisition costs, it is possible that transplant centers will be significantly affected by these provisions.

Health Care Delivery Reform Driven by Medicare Demonstration Projects

Underlying many aspects of the Act is the belief that health care can be improved by ensuring that patients are provided the correct care at the right time. By moving Medicare reimbursement away from FFS to a bundled care payment model with explicit quality indicators, the health care reform legislation hopes to reduce costs by eliminating expensive services that have low or unproven benefits. The plan seeks to expand the knowledge base of best practices, guidelines and CER which can guide clinical decision-making and coverage decisions and mandates development of a national quality improvement strategy.

Delivery System Reform: The legislation seeks to increase the formation of integrated and coordinated care providers including Accountable Care Organizations (ACOs) and other care 'models'. ACOs include providers (physicians, hospitals, nursing facilities and ancillary care) who create an organized delivery system whose objective is to save costs and improve quality. These ACOs share a number of characteristics with transplant centers. For example, transplant centers routinely provide multidisciplinary care, report outcomes in a transparent manner and function as a 'medical home' that coordinates care and manages emergency room visits. Moreover, the academic medical centers that house most transplant programs will exist at the core of many of the ACOs and will be the focus of other 'models' to be developed by a new Center for Innovation within the Center for Medicare and Medicaid Services, positioning many of the institutions which house transplant centers to be leaders in this evolution.

In addition, transplant centers may serve as a model for reform efforts in other ways as well. For example, many transplant centers are already receiving bundled payments for the entire episode of transplant services rather than for individual visits and procedures provided. This 'bundling' of payments is a recurring theme in the health care reform legislation that is designed to ensure cross-specialty cooperation and shared risk. Additional financing of pilot programs will develop bundled payments for hospital and posthospital care for specific conditions (e.g. acute MI). These payments are very similar to many current transplant contracts as they include care beginning 3 days prior to admission and extend to 30 days following discharge. The providers will be held accountable for quality and patient outcomes which will be directly measured, similar to the center-specific reports currently provided to transplant programs. If successful in 'bending the cost curve', the ACOs and other integrated delivery networks anticipated in the reform legislation will share in any savings that accrue. Transplant centers should be looked to as a model of the delivery of integrated delivery systems within these new organizations. Finally, there are provisions do develop a Medical Home Care Model and expand Federally Qualified Health Centers (FQHC) which may benefit the long-term care of transplant recipients in the community if properly integrated.

Research, Quality of Care and Comparative Effectiveness Research

The new legislation also seeks to improve accountability and utilize CER to aid in clinical decision-making. Through a newly created nonprofit Patient-Centered Outcomes Research Institute, the Medicare program will fund evaluations of new technologies, drugs and surgical procedures.

The transplant community should embrace this initiative for two reasons. First, CER requires risk adjusted outcomes to assess value. For transplant, fully transparent program-specific reports, risk-adjusted observed outcomes are already provided through the membership and professional standards committee of the United Network for Organ Sharing and the Scientific Registry of Transplant Recipients. We believe that other health care enterprises can look to transplant centers for models of quality measurement and improvement. However, we also believe that lessons learned by the transplant community in dealing with reporting should be considered including the danger of limiting innovation. We also recognize that the transplant community should consider expanded definitions including transplant benefit (net benefit compared to waitlist survival) as part of CER.

Second, although there are alternative treatments for end stage organ failure, transplantation appears to offer better survival and improved quality of life. Moreover, renal transplantation remains one of the few truly cost-saving therapies, offering superior clinical outcomes at a lower cost. It appears that other transplants (heart, liver) may be cost-effective, given their impact on patient survival. The relative impact of other aspects of care for patients with end stage organ failure seems less clear and may also benefit from CER. The transplant community will need to establish the true benefit of adjunctive treatments (e.g. radiofrequency ablation for stage II hepatocellular carcinomas or islet cell transplants in patients with type I diabetes). In addition, some types of transplants likely will come under increased scrutiny (e.g. liver transplant for recurrent hepatitis C and kidney transplantation in highly sensitized patients requiring desensitization).

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