Healthcare Reform and Orthopedics

President Obama signed the Patient Protection and Affordable Care Act of 2009 into law on March 23, 2010.

President Obama/Wikimedia.orgThe bill's $940 billion price tag will, according to the Congressional Budget Office, trim the federal deficit by $139 billion over the next decade and over $1 trillion over the next two decades.

Thus came to an end the first round of fierce partisan debate where all physicians in Congress voted along party lines. Round two promises to spill over into next fall's elections and the federal courts.

Regardless of one's political leanings or the likelihood of repeal of parts of the new law before its provisions kick in, or, actions by the courts to strike down any parts of the law as unconstitutional, there are provisions in this bill that will have an immediate impact on orthopedic surgeons and the orthopedic industrial complex that supports them.

Those provisions include 32 million new patients with money to pay for services, a new 2.3% device excise tax, new disclosures requirements of surgeon/industry relationships, additional resources for comparative effectiveness research, cuts to Medicare Advantage programs, and the establishment of a payment advisory board to help Medicare cut costs.

Who wins and who loses?

The day after the President signed the bill, two grown-ups from the health care industry went on national news programs to give their analysis.

Former Republican U.S. Senate Majority Leader and cardiologist, Bill Frist, M.D., told MSNBC, "Everybody's a winner." He said, "Hospitals will do well. With an additional $2 trillion going into the system, industry will be pleased."

Another grown-up, Stephen MacMillan, the dean of medical device manufacturing executives told the "Squawk Box" on CNBC that the new device tax will not keep his company, Stryker, from continuing to find ways to innovate. He said that everybody in the health care industry "took their piece" and the company realized it "needed to take some pain."

32 Million New Patients

What will over 30 million new patients mean to device manufacturers?

In a September 18, 2009, article in OTW entitled: "Is This Tax Good for Business?” our publisher Robin Young provided an analysis.

Orthopedic companies sold about $30 billion of devices in 2008. Young predicted that if only 15 million new patients came into the system, orthopedic companies would sell 8% more implants. "That's $2.4 billion of incremental revenues, about $1.8 billion in incremental gross profits, and very likely, $1.2 billion in incremental operating profits."

What will that number of newly insured patients mean to orthopedic surgeons?

Again, if only 15 million new patients came into the system, Young predicted there would be an increase of 300, 000 new orthopedic patients.

Physician Shortage

Leaders of AAOS and NASS have told OTW that there are not currently enough surgeons practicing to accommodate an increase in patients. Provisions in the legislation that raise reimbursement rates for primary care doctors and offers special loan repayment programs to students who choose primary care, don’t help the specialty practices.

Stuart Altman, a professor of national health policy at Brandeis University, points to the recent experiences of Massachusetts. The state was facing a primary care shortage when its insurance reform law was implemented. By 2009, a survey by the Massachusetts Medical Association found that more than half of internists and 40% of family doctors were not accepting new patients, the lowest acceptance rates since the survey was started eight years ago.

Fitzhugh Mullan, a professor of health policy and pediatrics at The George Washington University, said that in the long term, "it will cause us to increase and rebalance our workforce" to make it more efficient.” He says the rebalancing will include an increase in the number of physician assistants and nurse practitioners, who can be trained more quickly than doctors, to fill the primary care gap and reduce wait times.

New Excise Tax

To help pay for the cost of insuring new patients, device manufacturers will be assessed a new 2.3% excise tax with full deductibility and will cover all product classes with the exception of retail products like contact lenses.

The $2 billion per year tax was reduced from an original proposal that called for twice that amount.

"I think at the end of the day, the excise tax reduces the ability of medical device companies to spend money on discretionary spending, " said Biomet’s Bill Kolter, to the Times Union of Fort Wayne after the bill was passed. "That could have an effect on things like (research and development) and employment."

Zimmer issued a statement saying:

"We applaud expanded insurance coverage for millions of Americans...While we continue to disagree with a tax on medical technology innovations, we are pleased that the House refrained from increasing the $20 billion device industry tax. We are also pleased the tax will be delayed two years to 2013."

Medtronic said it estimates the impact of the tax will be roughly $150 million to $200 million annually beginning in 2013. The company said it had no immediate plans to eliminate jobs as a result of the device tax or health care reform. "We accept our shared fiscal responsibility for coverage expansion, " said the company in a prepared statement.

Tax hits on other businesses and industries include:

• $52 billion on companies that do not provide what the government deems "acceptable" or "affordable" insurance for workers
• $60 billion on health insurers
• $27 billion on drugmakers and importers

Let the Sun Shine

The Physician Payment Sunshine Act was passed as part of the bill. This provision has the potential to change the competitive dynamic between device companies because they will now be able to see which physicians are working with their competitors.

Beginning in 2012, drug and medical device companies will be required to disclose payments to doctors and teaching hospitals of anything over $10, with the first report available in 2013. If an individual receives more than $100 from a company in a year, then everything [even amounts less than $5] must be reported.

There is nothing that physicians need to report and the materials can be reviewed by physicians and companies before the disclosures go public.

The government will establish rules for collecting information about payments from device and drug companies no later than October 2011.

Comparative Effectiveness

The law creates a nonprofit “Patient-Centered Outcomes Research Institute” charged with examining the "relative health outcomes, clinical effectiveness, and appropriateness" of different medical treatments by evaluating existing studies and conducting its own. The institute will be governed by a 19-member board that includes patients, doctors, hospitals, drug makers, device manufacturers, insurers, payers, government officials, and health experts.

The law states that the institute does not have the power to mandate or even endorse coverage rules or reimbursement for any particular treatment. Medicare may take the institute’s research into account when deciding what procedures it will cover, so long as the new research is not the sole justification and the agency allows for public input.

Last year, Congress approved $1.1 billion in stimulus funding for effectiveness research. The new legislation appropriates at least $500 million per year to fund the institute.

New Payment Advisory Board

A new 15-member Independent Payment Advisory Board (IPAB) with significant authority with respect to Medicare payment rates is created by the legislation. Beginning in 2014, in any year in which the Medicare per capita growth rate exceeded a target growth rate, the IPAB would be required to recommend Medicare spending reductions. The recommendations would become law unless Congress passed an alternative proposal that achieved the same level of budgetary savings.

By law the board, "shall not include any recommendation to ration health care, raise revenues or Medicare beneficiary premiums, increase Medicare beneficiary cost sharing (including deductibles, coinsurance, and copayments), or otherwise restrict benefits or modify eligibility criteria."

Medicare Cuts

Medicare Advantage payments will be frozen in 2011 and lowered in 2012 until $136 billion in spending on the program has been cut by 2019. The law also requires private Medicare Advantage carriers to keep their overhead to 15% or less.

Medicare currently pays private plans to administer Medicare benefits and pays them about 14% more than the per-patient cost of the traditional Medicare program

"You are going to start seeing companies dropping out, " said Robert Moffit, a policy analyst at the Heritage Foundation.

Gross cuts in projected payments to insurers, hospitals and other providers total $533 billion over ten years, according to a preliminary analysis by the Kaiser Family Foundation. About $100 billion will be plowed back into Medicare, leaving a net cut of $428 billion. Medicare spending will continue to grow under the law, just not as fast.

Unfinished Work

The legislation clearly moves the nation along the road to making health care available to virtually every person. It leaves the job of finding a permanent solution to a flawed physician payment system and new practice standards that will allow physicians to stop practicing defensive medicine, to the future.

Nor does it address the light at the end of tunnel…the onrushing train of $38 trillion or more in unfunded Medicare promises to retiring baby boomers.