Leavitt Partners Statement on PPACA Passage

March 23, 2010 at 10:59am



Today the President signed H.R. 3590, the “Patient Protection and Affordable Care Act,” (PPACA) following the House of Representatives’ passage of the Senate version of health care reform. This bill is now the law of the land. The Senate is expected to consider H.R. 4872, the “Reconciliation Act of 2010,” this week. By the end of March, the policy making focus of health care reform will shift from the halls of Congress to the labyrinth of the bureaucracy. There are tremendous opportunities for innovators in the market to shape how the massive legislation is implemented.


We Have Only Just Begun. The PPACA, as amended, spans 2,409 pages. Approximately 1,000 of these pages apply to Medicare, Medicaid, transparency or program integrity. The number of pages created during the regulatory process now beginning will easily expand to ten times this amount. Major parts of the legislation do not take effect until 2014, not to speak of legal challenges. Two national elections will occur in the interim. There will be at least 24 new governors after this November. Thus, health reform should not be viewed as a single event, but rather a lengthy process with new decision-makers emerging along the way.


Where the Money Goes. Together, (PPACA and “Reconciliation”), the gross cost of health legislation is projected to be just under $1 trillion over 10 years. Of this amount, $434 billion in federal funds and another $20 billion in state funds will be funneled through Medicaid. While this addresses a near-term need, it also creates a longer term pitfall.. . PPACA provides $466 billion in premium assistance subsidies to individuals with income up to 400 percent of the federal poverty level. Another $40 billion in tax credits is provided to small businesses and $56 billion will be spent on Medicare prescription drug coverage.


Where the Money Comes From. Together, PPACA and Reconciliation legislation will be financed through a combination of new taxes and $507 billion of reductions in current programs, principally Medicare. Reductions in payments to Medicare Advantage (MA) plans, Medicare and Medicaid Disproportionate Share (DSH) hospitals, and home health agencies offset new costs to the federal government. Drug manufacturers will pay higher rebates.


Market Opportunities. While some healthcare payers may look to consolidate assets and begin planning for market exits, other private and public payers and will look to try out new payment systems, reduce administrative costs, and pilot new strategies to improve the health of populations while lowering the cost of care. Enterprising providers will find partners and strategies that create and capture value and will assume more accountability for outcomes than ever before. Successful health plans and data analytics firms will find ways to make better use of data through new data partnerships. The federal government will invest billions of dollars in administrative functions dealing with eligibility determinations, enrollment, and the connection of federal data systems. Businesses that can connect data systems and bring transparency will be in high demand. Although the Congressional Budget Office (CBO) gives little credit for enhancing program integrity, efforts to reduce improper payments, errors, and fraud will be given heightened visibility and additional resources. We are entering a period of dramatic change in the healthcare landscape. Many opportunities will be available to organizations with the foresight and courage to identify and pursue them.