Clarian and Health Care and Medicare and Eli Lilly and Co. and Insurance and Medicaid and Government Health Care and Health Care Businesses and Health Care Costs and WellPoint and Health Care Reform and Hospitals and Medical Devices and Health Care & Life Sciences and Health Care & Insurance and Pharmaceutical

Bill kicks off years of change for local health care players

March 22, 2010

The health reform bill passed Sunday night will open the doors to years of changes that are only partially clear today.

The legislation is likely to make a big impact not only on Indiana’s health industry but also on all employers and individuals.

“Everything’s going to change,” said Greg Pemberton, a health care attorney at Ice Miller LLP in Indianapolis. But because provisions of the bill phase in over the next decade, he added, “There’s going to be less of a dramatic change that happens overnight.”

The most immediate impact will fall on health insurers and individuals. When the law takes effect, companies like WellPoint Inc. will no longer be able to deny coverage to those with expensive medical conditions. They will face limitations on how much more they can charge a sick person than a healthy one.

By 2014, individuals will be forced to have insurance and companies will have to offer insurance—or else pay a fine. But insurers worry that the fines are not large enough to force all people to pay, meaning many will wait to buy until they face huge medical bills.

“WellPoint is disappointed that after more than a year of debate, Congress has approved health care legislation that does little to reduce cost and improve quality—two important elements to building a sustainable health care system that provides affordable coverage for all Americans,” wrote Kristin Binns, spokeswoman for the insurer, in an e-mail. The company's stock price, along with the stock of other insurers, fell in morning trading.

Many analysts, and even WellPoint executives, have predicted a wave of consolidation by health insurers in response to reform. The bill will require insurers to spend at least 85 percent of their premium revenue on medical claims. That means lower profit per customer for health insurers. Some will want to merge to achieve economies of scales in order to keep up profit levels that appeal to investors.

“Government is going to be a much stronger, more visible business partner, if you will, than they are today,” said Jim Parker, who was chief of staff to WellPoint CEO Angela Braly until last year. He now runs his own consulting firm, Indianapolis-based Meridian Strategic Advisors.

He added, “The industry will tend to be, ironically enough, more bureaucratic than less so, less innovative than more, and in some ways, less customer-responsive than more so, and more responsive to the regulator.”

The benefit to health insurers will begin in 2014, when lower-income Americans begin to receive taxpayer-funded subsidies to help them purchase health insurance. Congressional number crunchers predict those subsidies will reduce the number of the uninsured by 19 million in 2014 and as much as 32 million in 2019.

Between now and 2014, uninsured people with medical problems could receive coverage in a new high-risk pool created by the legislation.

More people with insurance is good news for just about every sector of the health industry. It should mean fewer unpaid bills at hospitals and more customers available to doctors. It also means more people will be able to afford expensive prescription drugs, such as those made by Indianapolis-based Eli Lilly and Co.

Lilly’s senior vice president of communications, Bart Peterson, applauded passage of the bill in a statement issued Monday morning.

“While not perfect, we believe the legislation sustains and encourages innovation, a key priority for reform that will ensure we can deliver the next generation of treatments and cures for patients,” Peterson said.

The bill creates a pathway for generic versions of biotech drugs to come to the U.S. market for the first time. However, Lilly and its peers successfully lobbied for 12 years of exclusivity on their biotech drugs, a big increase from the five they currently enjoy on chemical pills. Patents can extend those periods of exclusivity even longer.

More insured patients also means fewer unpaid bills at hospitals. That’s good, noted Dan Evans, CEO of Indianapolis-based Clarian Health. But there’s a downside to it as well.

Half of the additional people insured would receive coverage through the federal Medicaid program. In Indiana, the Medicaid program pays rates substantially lower than it costs doctors and hospitals to provide care.

So hospitals and doctors will still lose money on these patients—if they agree to see them at all. And losses will be made up by charging higher rates to patients with private insurance, Evans said.

“The cost shifting will have to continue. Private payers will continue to pay more,” he said. “The proof of that is the number of hospitals and doctors who are [already] closing their doors to Medicaid.”

The expansion of insurance coverage will be paid for with a new Medicare payroll tax on individuals making more than $200,000 a year and families making more than $250,000. Much of the rest of the money will come from $12 billion a year in new fees on the health industry.

Drugmakers will collectively pay $2.7 billion a year. Health insurers will pay $6.7 billion a year. And makers of medical devices will pay $2 billion each year.

Executives from the device industry have said the fees would kill jobs and slow innovation. It falls on them hardest because they often sold their products directly to health care providers, whether or not the end customer had insurance. That means the newly insured customers will have a minimal benefit for device makers.

Les Funtleyder, a health care stock analyst at Miller Tabak & Co. in New York, views the bill as positive overall for health care stocks. The downside of the whole exercise, however, is that it fails to control ever-rising medical costs.

“We would suggest, however, that because there is little apparent direct cost-control in the bill (which among other reasons is why it is positive for the stocks) there will be revisions to policy over the next few years,” he wrote in an e-mail to investors Monday morning. In other words, health reform is far from done.

Clarian's Evans agreed.

"It’s got one-half of the algorithm and not the other half," he said of the bill. "Unless and until individuals are incented to improve their own health, and unless and until health care providers are incented on quality rather than quantity, the fiscal cost of health care reform will be too great."

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