The Affordable Healthcare Act, AKA Obamacare, has been, to put it mildly, controversial since the day it was introduced. But, after surviving a U.S. Supreme Court challenge and one of the most costly elections in our nation’s history – Obamacare is still standing. Now, it’s time for those of us engaged in dispensing, administering, selling to or financing the American healthcare industry to figure out what it means and the best way to proceed.
For most companies that lend to the healthcare segment, the obligors are hospitals, private medical practices and manufacturers or distributors of medical devices. Much has been made of Obamacare’s anticipated Medicare savings of $700+ billion over the next ten years, but those “savings” include substantial reductions in payments to hospitals and physicians over that span. Hospital administrators will be under tremendous pressure to produce profits when revenues are expected to decline as costs continue to rise. According to the Medicare actuary, 15% of hospitals will find their Medicare business unprofitable by 2019; 30% by 2030. Percentage increases like this are not sustainable.
No group is spared when it comes to shouldering the costs of Obamacare. Health insurance providers will pay substantial annual fees, pharmaceutical companies will pay fees on certain branded drugs and individual taxpayers will contribute in the form of higher Medicare taxes and increased taxes on so-called “Cadillac” healthcare plans. There is also a 2.3% excise tax on medical device sales that some fear could curtail medical device innovation.
As Obamacare enters its fourth year, some of the big issues are about to kick in. Accountable Care Organizations have been established all over the country to link all the constituents of a patient’s healthcare delivery. Insurance exchanges have been rebranded “marketplaces” and are under way in many states (although the Federal Government will be involved in running these marketplaces in more than half of the states).
Where is the good news about Obamacare? Well, for starters over 30 million formerly uninsured Americans will now have healthcare insurance, which is good for America. There should be an expansion in sales of those medical devices referenced above to monitor and diagnose those 30 million new patients. Insurers can no longer exclude customers with pre-existing conditions and there are many measures that will improve the quality of medical care for all Americans. For instance, hospitals will not be paid for unnecessary readmissions or hospital-acquired conditions, which will result in improved quality of care for all of us. Physicians will be paid for the quality of care and not the quantity.
Lenders need to be certain that their obligors have taken necessary precautions that contemplate the impact of Obamacare and be aware of which hospitals, practitioners and manufacturers will rise to meet these new challenges.
As with any new piece of legislation, those that understand it best will be in the best position to react to the new environment. The Act is only 906 pages . . . good reading!
Mike Sweeney is the general manager of EverBank Commercial Finance Inc.’s platform and is a frequent author and speaker on healthcare equipment finance topics.