Healthcare: So Much Left To The Regulators!

Monday, October 4, 2010 - 01:00

Editor: Please describe your practice, background, and approach to representing clients on healthcare reform matters.

Morrisey: My practice includes healthcare regulatory, public policy, reimbursement, legislative, and risk mitigation counseling for a wide range of clients, including manufacturers, providers, suppliers, investors, and employers. We represent clients on major matters involving the government (whether administrative, Congressional, or enforcement in nature) that have significant financial implications to publicly traded companies. Among other reasons I joined King & Spalding from Sidley Austin five months ago to help advance the firm's healthcare reform efforts.

Prior to reentering private practice in 2004, I worked at the House Energy and Commerce Committee where I was the Deputy Staff Director and Chief Health Counsel. In this capacity I regularly advised the chairman and Members of Congress on policy matters and served as the committee's lead healthcare negotiator on matters involving the White House, Senate, Ways and Means Committee, HHS, CMS, and FDA. Our committee was one of two in the House of Representatives charged with overseeing the drafting of many of the major healthcare laws that emerged during that time, including the Medicare Modernization Act and Medicare Part D.

My client counseling on healthcare reform brings several perspectives to bear. First, how does the law impact a client's business model and how can the client make money or mitigate risk under the new environment. Second, wearing the hat of a regulator, how does the government interpret some of these terribly unclear provisions? What serves their interests? Once you know where the government is going, you can align business interests accordingly or try to modify the government's approach.

More than any other law in recent memory, the regulators will help determine how healthcare reform plays out in the marketplace. We're looking at hundreds of rules, guidance documents, and sweeping changes impacting virtually all aspects of healthcare with a myriad of governmental entities involved. So much of the decision making has been delegated to the HHS Secretary and to the states and is not clearly laid out in the statute. This makes for a much different type of implementation than we've seen in the past. It requires a great deal of strategic thinking and an ability to connect the dots in terms of how all of the moving parts of healthcare reform come together. Simply knowing one facet of the law is just not enough, when you may end up getting tripped up in so many different areas. Companies need to take a holistic approach to their own implementation efforts. That is why K&S has formed a multidisciplinary task force. Our goal is to leverage our breadth and depth to handle every conceivable issue implicated under the new law.

Editor: Will regulatory clarification of many of the critical employer-related provisions of the new healthcare law be necessary before we can assess the overall economic impact of the law? Do you anticipate that more vigilance will be required in overseeing how the regulators implement the law's provisions?

Morrisey: My answer is mixed. No, in the sense that many of the most crucial provisions of this law, which drive broader economic issues, are known. For example, there are major tax increases embedded in the law which will have a dampening effect on economic growth; there are also significant new regulatory burdens placed on employers' healthcare programs, which are also known. These create calculable costs to employers, the healthcare system, and the economy. At the same time, there is such a great deal of uncertainty in certain parts of the law and we don't yet know how the states will make their own decisions. Because of those facts, it's hard to make a final assessment about the ultimate burdens this law will place on the system. For example, we still don't have a really good handle on how some of the medical-loss ratio provisions will unfold or exactly how many plans will maintain their grandfather status under the new law. Sure, we have preliminary thoughts, but brand new businesses and legal entities will likely come into existence to maximize revenue and mitigate losses. These will take time for the system to evaluate.

With respect to oversight, I do think Congress will continue to play an important role in the implementation process. Beyond some of the more obvious flaws of the new law, the legislation could have benefited from additional scrubbing by Congress. To put this in perspective - typically, a law of this magnitude would have had a House-Senate conference where staff would have edited the work product numerous times. That just didn't happen here as a result of how the political deals came together. This increases the pressure on the regulators to get the interpretations just right, but it will also ensure that the Hill is weighing in on many of the open regulatory questions. Finally, I would expect expanded oversight of this law if the Republicans pick up either the House of Representatives or the Senate in the fall elections.

Editor: Have there been some constitutional challenges to the law?

Morrisey: There are a number of constitutional challenges to the new law which are going to be unfolding over the course of the next few years. Two of the arguments that have been raised involve the law's mandate on individuals to purchase healthcare insurance and whether the federal government has inappropriately encroached on states' authority.

Editor: Does the new healthcare law change the underlying problems of unsustainable costs of our healthcare delivery system?

Morrisey: The answer to that is an unequivocal "no." The law did very little to tackle the problems of runaway healthcare costs because it didn't align the interest of consumers, providers and payers. It will increase the cost of healthcare by imposing new taxes on various entities within the healthcare system and establishing many new regulatory burdens. The law also puts additional strains on the long term viability of Medicare, Medicaid, and Social Security as the new law "pays" for healthcare reform through funding mechanisms that would have instead enhanced the solvency of those programs.

To be clear, there are some provisions in the law that are positive (think accountable care organizations - ACOs - and potentially value-based purchasing) and may reduce cost if they are implemented correctly, but once again this reinforces the need for the Secretary to implement these provisions just right in order to take advantage of the reforms.

Additionally, it is important to understand what didn't make it into the final law. Quite frankly, very little was done to tackle tort reform and the practice of defensive medicine and to make consumers more cost sensitive to their economic choices. Structurally, the Health Insurance Exchanges hold promise, but the benefit structure needs to be rewritten. Absent rewriting or a perfect implementation, it is hard to see how the Exchanges don't become a dumping ground for employers. Then we are back to rearranging deck chairs on the Titanic - just more cost-shifting between payers without addressing the underlying drivers of cost.

Editor: One of the assertions made was that by controlling the costs of the uninsured through pools, the costs for everyone would be lowered.

Morrisey: I think that some of the pooling initiatives that are included could be very positive, but some of the concepts were not adequately developed, and are running into problems. Also, the reinsurance provisions could provide some benefit to employers, but they too need more defined parameters about how they can be a useful part in developing cost-cutting techniques instead of simply serving as a sop to employers to keep them in the game for another few years. Right now, the provision effectively operates like a pass through of dollars from the federal government to employers without much accountability.

The final point regarding pools is that simply banding people together without rhyme or reason by itself won't lower costs. While risk pools will bring the uninsured into the system and should spread costs around (thereby lowering premiums for insured lives) it doesn't necessarily save the system, as a whole, money. For a pool to be effective, better focus must be paid to managing the sickest, highest-spend, chronic-condition patients.

Editor: Do you think the uncertainties associated with the new law's application have had the effect of delaying business decisions regarding expansions or dampened new hiring?

Morrisey: I think it's hard to say. While a number of companies have correctly taken charges on their earnings to reflect the financial costs (or in some cases upsides) of the new law, many companies are taking a wait-and-see approach to healthcare reform to better understand the bottom line impact on their company. We have seen some companies adding full time employees to deal with some of the regulatory burdens associated with the new law. Smart companies are also dedicating significant resources to understand healthcare reform and what it means to their business model.

Editor: As implementation proceeds, will it be critical to restore investor confidence by using a transparent process to address issues, such as cost shifting?

Morrisey: Yes, but it's also critical to send a message to investors that the government will stop its attack on American business through the imposition of significant new tax increases and regulatory burdens. Over time, the taxes and the regulatory burdens are going to cost companies job growth opportunities. Transparency about the regulatory process will also be very important so that companies have certainty in long-range planning. At the end of the day, businesses need to know whether policy makers have simply shifted a problem from group A to group B or really addressed rising healthcare costs.

Editor: Which areas of the new healthcare legislation present the greatest impact on your clients?

Morrisey: In a broad sense - the fear of the unknown. Many companies don't fully understand how all of the insurance provisions and the health insurance exchanges will play out. Some companies are also struggling to find the resources to comply with the volume of changes required under the law. Many companies are under investing in healthcare reform planning and risk mitigation and as a result may fall behind their competitors in the development of new business models. Several major industries will see significant shifts in their payer mix under this law, and a number of companies do not see it coming. Some do, and they will be the thought leaders under the new regime.

The comments of the interviewee reflect solely the opinion of the interviewee.

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