Senate Republicans on Thursday released a long-awaited “discussion draft” of proposed healthcare reform legislation, which, if enacted, would cut back Medicaid program spending and changes to insurance regulations that will have potentially negative consequences for healthcare providers—and, to a lesser extent, payers.

The 142-page draft of proposed reform legislation is designed to repeal and replace the Affordable Care Act. If enacted by Congress, the bill would cause millions of Americans to lose health insurance currently provided under the ACA, as well as a result of dramatic cuts in the Medicaid program.

The ACA expanded the Medicaid program to provide coverage for low-income Americans previously excluded from the program and the private, largely employment-based health insurance system, providing federal funding to states for the vast majority of the cost of newly eligible beneficiaries.

However, the Senate bill calls for a major pullback on Medicaid expansion, with even deeper cuts in the program than the House version passed last month.

The Senate version phases out the ACA’s expansion of Medicaid over three years through 2023, rather than in 2020 under the House bill. Yet, starting in 2025, it institutes tougher funding caps for the federal contribution to Medicaid based on the Consumer Price Index, which has grown slower than medical price inflation.

Currently, Medicaid covers one in five Americans, including many with complex and costly needs for medical care and long-term services. As the country’s public health insurance program for low-income children, adults, seniors and people with disabilities, Medicaid pays for the care of more than 60 percent of nursing home residents and nearly half the births in the United States, according to the Kaiser Family Foundation, which notes that most people covered by Medicaid would be uninsured or underinsured without it.

The bill would ultimately make healthcare more expensive for hospitals and physicians to provide. Slashing Medicaid poses significant financial risks for healthcare organizations that have come to rely on Medicaid payments in the seven years since the ACA was signed into law.

The Senate’s so-called “Better Care Reconciliation Bill” comes at a critical time in healthcare, as the industry is transitioning from fee-for-service to value-based care. The proposed legislation has the potential for complicating the transition process for providers and payers, industry watchers say.

Beth Israel Deaconess Care Organization (BIDCO), a Massachusetts value-based physician and hospital network as well as accountable care organization, is dreading the potential chaos and confusion that the proposed legislation would portend in Massachusetts. The state has worked hard to obtain a federal waiver for its healthcare delivery reform efforts designed to transition MassHealth—the state’s Medicaid program—away from fee-for-service toward a value-based payment model.

“It’s frustrating that even as we work in partnership with the state to deliver high-quality, affordable healthcare to residents most in need, we continue to be confronted with unnecessary uncertainty brought on by the federal government,” says Jeffrey Hulburt, president and CEO of BIDCO, which has nine hospitals and about 2,600 physicians.

“Providers and payers in the Commonwealth are at the brink of making long-term, strategic decisions about how and whether to invest in the state’s innovative and promising MassHealth ACO program. Those difficult decisions are now compounded by the burning question: Will federal support for this program actually exist, as promised?” Hulburt adds. “A lack of clarity around the future of federal funding for the MassHealth ACO program undermines the state’s efforts to make healthcare affordable and accessible to all. Even worse, it fails the nearly 2 million poor, elderly, and disabled Massachusetts residents who depend on the program for their most basic healthcare needs.”

Rosemarie Day, a consultant and former deputy director and COO of the Health Connector, the first state-run health insurance exchange in Massachusetts, contends that major cuts to Mediaid will have a ripple effect across the healthcare system with unintended consequences—not just for providers but also for payers.

“There’s an awful lot of money that comes from the Medicaid program. Certainly, on the provider side, the specter of having folks who have needs but are going to be potentially unfunded again is going to be a shock to the system,” says Day. However, she notes that capping payments to states for Medicaid will be deferred and phased in over time.

Still, Day anticipates that this loss of Medicaid revenue, particularly for safety net hospitals, community health centers and long-term nursing facilities, will reduce the ability of healthcare organizations to invest in information technology projects and other capital investment.

“They won’t feel the immediate pain of phasing out the Medicaid expansion and the cap,” she adds. “But as hospitals have less funding in one bucket, they tend to need to go find money elsewhere, potentially shifting costs over to the commercial side. So, you get that backwards ripple effect up into the world of employer-sponsored insurance, which right now isn’t directly affected by what’s in this bill, but indirectly can be down the road.”

When it comes to private insurance, the healthcare reform bill passed by the House in May allows states to opt out of major insurance requirements established under the ACA, including those that define what benefits must be covered and a ban on charging people with pre-existing conditions higher premiums if their coverage lapses. And, while the Senate bill retains the ACA’s protections for patients with pre-existing conditions, it also eliminates Obamacare’s individual mandate to buy coverage as well as the employer mandate to offer it.

In addition to potentially decimating the Medicaid safety net, a perfect storm of prohibitively high premiums as well as the relegation of patients to underfunded high-risk pools could force Americans to lose health insurance or have to pay through the nose for coverage. That becomes good news for payers, which can charge high premiums and pay out fewer claims.

“From the onset of this debate, America’s hospitals and health systems have been guided by a set of key principles that would protect coverage for Americans,” said Rick Pollack, president and CEO of the American Hospital Association. “Unfortunately, the draft bill under discussion in the Senate moves in the opposite direction, particularly for our most vulnerable patients.”

As a result, the AHA is urging the Senate to “go back to the drawing board” and come up with legislation that continues to provide coverage to all Americans who currently have it.

“The Senate proposal would likely trigger deep cuts to the Medicaid program that covers millions of Americans with chronic conditions such as cancer, along with the elderly and individuals with disabilities who need long-term services and support,” added Pollack. “Medicaid cuts of this magnitude are unsustainable and will increase costs to individuals with private insurance.”

This cumulative loss of coverage would be a dire development, according to a new study published online this week in the New England Journal of Medicine from the Harvard T.H. Chan School of Public Health which shows that expanding health insurance actually increases access to care, improves health, and reduces mortality. Researchers analyzed a decade's worth of evidence concluding that insurance coverage increases access to care and improves a wide range of health outcomes.

“There remain many unanswered questions about U.S. health insurance policy, including how to best structure coverage to maximize health and value and how much public spending we want to devote to subsidizing coverage for people who cannot afford it,” write the authors of the study. “But whether enrollees benefit from that coverage is not one of the unanswered questions.”

As Congress moves to repeal Obamacare, which has expanded health insurance to more than 20 million Americans, researchers point to an analysis of mortality which “suggests that expanding Medicaid saves lives at a societal cost of $327,000 to $867,000 per life saved,” while “other public policies that reduce mortality have been found to average $7.6 million per life saved, suggesting that expanding health insurance is a more cost-effective investment than many others we currently make.”

Reversing the progress that has been made in reducing the number of uninsured since the ACA became the law of the land, combined with big cuts to Medicaid, will only result in sicker Americans while raising costs for safety net hospitals and leading to more overcrowding in emergency rooms that serve large populations of older and poorer patients.

Keeping people out of hospital ERs is what’s potentially at stake. Under the provisions of the Senate bill, the healthcare industry as a whole stands to lose in a scenario in which the rich stay healthy, the poor become increasingly sick, with providers, payers, and U.S. taxpayers ultimately left footing the bill.

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