On the brink of significant regulatory change, one consequence of health care reform is to encourage new business arrangements involving hospitals, physicians and other provider entities.

While final details await resolution through the congressional conference process (and, thereafter, through anticipated DHHS rulemaking), it seems likely that the Patient Protection and Affordable Care Act approved by the Senate on December 24, 2009, will define the essential framework for the current federal reform process.

Putting aside important and sometimes controversial policy concerns (e.g., the "public option," abortion funding, etc.) raised by the act that have garnered media attention, this article reviews some practical considerations likely to merit substantive attention by the affected health care provider community.

Key Themes in the Act

Within its 2000+ pages of legalese, the act emphasizes several themes related to strategic development of business opportunities in the field.

The Accountability Principle

In the new regulatory environment, one central attribute of successful organizations will likely be the demonstrated ability to deliver services in a measurable, coordinated manner across the overall inpatient and outpatient care continuum. Whether characterized as an Integrated Delivery System (IDS), Accountable Care Organization (ACO), clinically integrated network or by another name, the act effectively demands that hospitals and physicians organize collaboratively to participate in the newly restructured health care system, especially regarding the receipt and distribution of new or different forms of third party reimbursement. Much of the promised reorganization is based upon the ability of participating providers to become accountable for the cost and quality of services rendered to a broad population of covered patients, in contrast to a historically fragmented system dominated by the hospital inpatient prospective payment system and the prevalence of fee for service medicine.

In many respects, the act will accelerate existing trends already occurring within many health care systems nationwide; see, e.g., discussion materials compiled by the Integrated Delivery System Round Table^TM, a collaboration between the Medical Group Management Association and Faegre & Benson. Of course, previously voluntary steps moving towards integration will now acquire greater urgency as providers confront the prospect of systemic changes to the health care payment system, both under the Medicare Program and, ultimately, within the commercial insurance marketplace.

Clinical Integration: One Legally Compliant Approach to the Law

As noted, many details of the new law await clarification through the DHHS rulemaking process, even apart from the final legislative codification. Nonetheless, it is probable that one key attribute of successful organizational behavior will be the ability of providers to accept a greater degree of financial responsibility for patient health outcomes, either globally on a full or modified capitated basis, according to specific care epidodes, or through some other type of flat‑fee payment format in which incentives are changed to emphasize efficiency, effectiveness and cost management.

To participate in the new environment, in some settings all physicians involved in the care of a patient population will likely become health system employees, such that all care rendered will be billed on a unitary basis by a health system acting as a single enterprise. In other settings, however, it will remain necessary to link (at least) some independent community physicians to a hospital nexus to function effectively in a reconstituted delivery system. In all settings, outcomes will be measured, results monitored and services increasingly paid for on a bundled, partially capitated, performance‑based or according to another "combined" methodology reflecting the much heralded aspiration that payment be based upon "value not volume."

Even before passage of the act, legal principles have emerged delineating the lawful scope of physician/hospital coordination of concerted business activities in a manner compliant with the antitrust laws, which might otherwise condemn such collective behavior as unlawful price fixing or other anticompetitive behavior. By approving evidence-based, interdependent organizations and similar entities, the federal government has heretofore endorsed the concept of "clinical integration" as permitting independent providers to act collectively in a lawful, pro‑competitive manner under defined circumstances. See Clinical Integration and EHRs: The Convergence of Compliance and Business Opportunity.

The federal stimulus funds previously made available under the American Recovery and Reinvestment Act created powerful economic forces promoting the further development of electronic health records and related health information exchange to support such clinical integration, among other things. See Economic Stimulus Package Sends Clear Message: Adopt EHR Technology Now or Pay the Price Later. The act will accelerate these trends and promote development of electronically linked, clinically integrated hospital/physician care networks on an expedited basis, both generally and to better address some of the challenges and opportunities referenced below.

Legislative Encouragement of New Behaviors by Hospital and Physicians

Much discussion has surrounded the role of health care reform in "bending the cost curve" to moderate unacceptably high inflation in the delivery system.

In his article, "How the Senate Bill Would Contain the Cost of Health Care," published in the December 14 issue of The New Yorker, Atul Gawande applauded the very absence of a single global "solution" for cost-containment in favor of the act's promotion of many separate programs for change. He suggests this diversity of effort is more likely to achieve desired results.

In specific terms, the act prescribes a variety of pilot programs and system studies ultimately aimed at modifying provider behavior to achieve greater accountability and efficiency within the health care system. While principal reference is made to the Senate bill as the probable eventual embodiment of the reform initiative, the parallel House bill (the Affordable Health Care for America Act passed on November 7, 2009) also contains various similar delivery and payment initiatives, some of which may also be reflected in the final legislation.

Over the next several years a number of revisions will be made to the framework for the delivery and reimbursement of services by hospitals and physicians nationwide. Health care providers will need to understand implications of the following programs, among others—and adapt their business practices accordingly.

• Establishment of Center for Medicare and Medicaid Innovation. No later than January 1, 2011, a new Center for Medicare and Medicaid Innovation will be established within CMS (the "CMI") and charged with developing and implementing "innovative" payment and service delivery arrangements to reduce costs while preserving or enhancing the quality of care rendered to persons covered by the Medicare and Medicaid Programs.
• Extension of gainsharing demonstration projects. Funding for certain hospital/ physician projects to improve quality and efficiency of services under Medicare is extended through 2011.
• Hospital readmissions reduction program. Starting in fiscal years on and after October 1, 2012, hospital PPS payments will be reduced based upon a percentage of potentially avoidable Medicare readmissions for certain conditions.
• Medicare shared savings program. Not later than January 1, 2012, a shared savings program will be established for eligible Accountable Care Organizations which achieve certain cost and quality outcomes. An eligible ACO will include a network of hospitals and physicians which becomes accountable for the quality, cost and overall care of Medicare fee-for-service beneficiaries (with a minimum of 5000 persons so assigned). Such an ACO must have in place a formal legal structure allowing for the receipt and distribution of shared savings to participating providers and suppliers, among other requirements.
• Hospital value-based purchasing program. Beginning on October 1, 2012, and for subsequent fiscal years, a percentage of hospital reimbursement will be based on quality-measured performance related to cardiac and surgical care as well as other high-cost conditions.
• National pilot program for payment bundling. This five‑year pilot program for integrated care during an episode of care involving a hospitalization will be established not later than January 1, 2013. As with several other initiatives, the program seeks to improve quality while reducing costs by selecting eligible providers to be paid for an entire episode of care, rather than under the current piecemeal format.
• Improvements to the physician quality reporting initiative. The already existing PQRI program incenting physicians to report quality data has been expanded, and will use "sticks" as well as "carrots" to promote data reporting as demanded by the Medicare Program if timely compliance is not achieved by the end of 2014.
• Value-based payment modifier under the physician fee schedule. Pursuant to measures of quality and cost established by DHHS not later than January 1, 2012, which will be applied in phases beginning January 1, 2015, a system of adjusted physician payments will be implemented for care rendered to Medicare beneficiaries.
• Payment adjustment for hospital acquired conditions. Based upon criteria developed by DHHS, poorly performing hospitals will suffer penalties according to defined benchmarks applied to patient discharges commencing in Fiscal Year 2015 and thereafter. This program may be expanded to include nursing homes, ambulatory surgical centers and other providers over time.
• Pediatric Accountable Care Organization demonstration project. Beginning on January 1, 2012, DHHS will pay qualifying pediatric ACOs a share of savings for care provided to Medicaid beneficiaries in participating states. While specialized in nature, this program may be of particular interest to certain providers anticipating an increase in Medicaid patients served as the act is implemented.

Next Steps

Experience strongly suggests the importance of building workable, symbiotic physician-hospital organizations to participate in systemic health care change. The challenges and opportunities posed by the act are substantial in nature, and will necessitate consideration of legally compliant business strategies consistent with the provisions of federally-prescribed health care reform. As the foregoing discussion suggests, many programmatic elements will become effective in the relatively near future, so affected providers would be well advised to confront relevant issues on an expedited basis.

At a minimum, development of pragmatic governance, financial and operational structures needed to achieve clinically integrated status and participate in new forms of third party reimbursement will be critical for many health systems which include both independent and employed physicians, regardless of which new opportunities are embraced or challenges confronted in particular circumstances.

Creating a legally appropriate business framework and implementing appropriate strategic steps in these new circumstances will be a key determinant of the successful health care system of tomorrow.