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Dr. Pate’s Prescription for Change

St. Luke’s Health System’s Journey to Transform Health Care

2017 Predictions: Medicare, Drug Costs, Cybersecurity and More

2017
By Dr. David C. Pate, News and Community
December 27, 2016

So, what should we expect in the coming year?

I should first say that making predictions is perilous, as we have seen with our recent presidential election cycle. With that said, here are my 2017 predictions:

Healthcare Reform and the Affordable Care Act

Expect a bill to repeal the ACA very early in 2017. It is not likely to garner enough support to overcome a filibuster in the Senate, so anticipate that Republicans will then try to dismantle as much of the ACA as they can through the reconciliation process.

Based upon the delay written into the one ACA repeal bill that did make it to President Obama before being vetoed, and based upon comments by some Republican leaders, it seems likely the bill would delay the implementation date of changes for two to three years to give Republicans an opportunity to craft a replacement bill and to box Democrats into supporting the replacement in order to avoid millions of people losing their insurance coverage.

Medicaid

While Republicans oppose Medicaid expansion in general, a number of Republican states have expanded their Medicaid programs. It seems unlikely that the Trump administration will want to alienate those governors or put them in a compromising position by ending the federal support for these expansions.

It may be that expansion costs will be incorporated in the Medicaid block grants, but few doubt that Medicaid block grants will put significant pressures on state Medicaid budgets and will cause states to reevaluate their eligibility and benefits structures.

In Idaho, there was a gain of three Republicans in the House and one in the Senate, all but ensuring that Medicaid expansion will not occur here, especially since two of the staunchest supporters of Medicaid expansion were defeated.

Medicare Modernization

Expect to hear much more about Republicans’ efforts to “modernize” Medicare, namely through a premium support model where beneficiaries would be given vouchers or tax credits to purchase private insurance on the open market. Democrats will fight this vigorously and in the end, we will see how many Republicans, especially those who have to run for reelection in two years, are willing to go out on a limb to support this, knowing that it is very unpopular with seniors. President-elect Trump has indicated he has no interest in touching Medicare.

Pharmaceutical Costs

President-elect Trump favors allowing Medicare to negotiate with pharmaceutical companies for lower drug prices and the importation of high-cost drugs from other countries.

The U.S. is unusual relative to other countries comprising the Organisation for Economic Co-operation and Development in that we do not regulate or negotiate the prices of new prescription drugs when they come onto the market, as does nearly every other country. Many of those countries will not approve a medication for use in their country unless it confers a significant clinical benefit over an existing drug relative to the price.

For example, Australia’s Pharmaceutical Benefits Advisory Committee has rejected roughly half of the cancer drug applications it has received over the past decade because the benefits did not justify the price.

As a consequence, Americans tend to spend two to three times what citizens of these other countries spend on medications. The Medicare program is prohibited by law from negotiating prices and must cover all medications approved by the U.S. Food and Drug Administration.

The Veterans Health Administration, on the other hand, is permitted to select the medications it will cover and negotiate prices. As a result, veterans do not have access to all of the medications Medicare beneficiaries do, however, the V.A. prices are on average 40 percent cheaper.

While President-elect Trump may support allowing Medicare to negotiate drug prices, there would likely be steep opposition in Congress on both sides of the aisle, especially considering the power and influence of the pharmaceutical lobby.

Continued Transformation from Fee-for-service to Pay-for-value

Regardless of the new administration, pressure to improve affordability of health insurance and to reduce healthcare costs will not abate. Hospitals are likely to see continued reimbursement pressures. Changes to the ACA are likely to result in more uninsured and, once again, higher rates of charity care and bad debt. Increases in the use of health savings accounts are likely to result in significantly reduced healthcare spending. Those health systems that can accept and manage accountability for health outcomes and total cost of care have the ability to control their destiny; those who can’t are likely to see declining performance.

Employers

We are likely to see the repeal of the so-called “Cadillac tax” in the coming year. This will take some pressure off employers, but we would also expect to see employers continue to shift a significant portion of health plan increases onto employees. I think we also can expect to see additional movement by employers away from defined benefit plans to defined contribution plans and increased participation in private exchanges. There is also likely to be a continued increase in the amount of deductibles and in the number of employees with health savings accounts.

Payers

I do not expect to see any significant shift in antitrust policy or enforcement with a Trump administration. The Anthem and Cigna merger trial is under way and I predict the government will win. The Aetna and Humana trial is just getting under way, and though I expect the government to prevail in that case as well, I am less certain.

This will be a challenging year for payers. They are far less likely to collect on risk corridor payments under a Trump administration. Insurers feel these payments are owed to them, but Republicans in the House have considered the payments discretionary and subject to appropriation. The lower court has ruled in favor of House Republicans and the Obama administration has appealed. Expect the Trump administration to abandon that appeal and let the lower court ruling stand.

Additionally, payers may need to submit rates for the 2018 public exchanges before there is clarity around what Republicans intend to do with respect to repealing and replacing the ACA. If so, I expect that many more insurers will drop out of the marketplaces. If, as threatened, Republicans keep the guaranteed issue provision but eliminate the individual mandate, insurers will fear a further worsening of the risk pool as healthier individuals drop their coverage.

Public Exchanges

The biggest threat to public exchanges is if Republicans defund the subsidies. It is not at all clear that they intend to do so, however Republicans have indicated they favor tax credits for the purchase of insurance plans, and tax credits would be far less effective than subsidies in making health care more affordable for lower-income individuals and families.

There will be continued movement to narrow network products in an attempt to hold down costs.

An increasing number of people are discovering their insurance plans to, in essence, be insurance for catastrophic illness because of the high premiums and ultra-high deductibles. Premiums, deductibles, co-pays and co-insurance have risen to levels that outstrip the liquid assets of more and more people.

Information Technology

The focus will be on the use of analytics to better guide management of populations that a provider network will care for. Telemedicine will continue to grow as an option to provide services in a lower-cost environment and as a way to provide services to areas with physician shortages. There will be increasing use of smart phones and apps in the management of health and illness (so-called mobile health or mHealth).

Cybersecurity will continue to be a threat, as efforts by those who seek to hack into computer systems carrying potentially valuable information become increasingly sophisticated.

Health Systems

This will be a tough year for health systems as they face uncertainty about the future of the ACA, the regulatory environment and continuing reimbursement pressures, despite rising drug costs. For organizations whose boards and physicians are not fully committed to the transformation to pay-for-value, this may be a time when momentum and progress stall. That will be unfortunate, and may weaken their long-term positioning.

I do not expect the pressures for consolidation to lessen, yet some of the largest health systems in the country are financially underperforming, and in some cases, struggling.

The challenge to the merger of two health systems in Chicago – Advocate and NorthShore – will proceed to trial, and I expect the government to win that case.

To the extent that the ACA is repealed and there is a decrease in the number of people insured through the marketplaces and through Medicaid expansion, we can expect to see a deterioration in hospital financial performance, as bad debt and charity expenses increase.

Those health systems and provider networks that figure out population health and demonstrate the capabilities to manage the health of populations and be accountable for the outcomes and total cost of care for those populations will be the clear winners. A disproportionate number of these systems will have their own health plan or will be significantly partnered with an insurer.

St. Luke’s Health System

2017 will be a pivotal year for us. We have significantly developed the capabilities and competencies of our network, St. Luke’s Health Partners, and as of Jan. 1, 25 percent of our revenue will be at full risk. All of the work we have been doing for the past seven years is coming together to allow us to successfully be accountable for the health outcomes and total cost of care for multiple populations.

Our partnership with SelectHealth, our work around high reliability that has resulted in St. Luke’s being named a Top 15 Health System by Truven Health Analytics for three years in a row and, most recently, our move to a single, integrated electronic health record across the entire health system are among those strategic elements upon which we are basing our ability to deliver what our communities want and deserve.

About The Author

David C. Pate, M.D., J.D., is president and CEO of St. Luke's Health System, based in Boise, Idaho. Dr. Pate joined the System in 2009. He received his medical degree from Baylor College of Medicine in Houston and his law degree from the University of Houston Law Center.