July 24, 2014

The Impact of the 2010 Health Reform Law on Hospitals

Sills Cummis & Gross P.C.

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively the “Health Reform Law”) contain major changes that impact hospitals, including:

  • Payment and delivery of care reform;
  • New IRS requirements for tax-exempt hospitals; and
  • Enhanced fraud & abuse enforcement, through:
  • Expansion of the RAC program;
  • Changes to the Stark & Anti-Kickback laws and False Claims Act; and
  • New program integrity measures.

Payment Reform
Payment reform focuses on changing current reimbursement methods to decrease costs and to improve quality and efficiency. The Health Reform Law creates the new Center for Medicare and Medicaid Innovation (CMI) within CMS to design and test innovative payment models to achieve these goals.
CMS will also implement demonstration projects to test bundled payments that cover an “episode of care,” defined as 3 days pre-hospitalization to 30 days post-discharge. Participating hospitals will be responsible for splitting the bundled payment over the episode of care to cover the cost of hospital, physician and post-acute care services.
The Health Reform Law also seeks to transform Medicare from a passive buyer to a value-based purchaser by providing incentive payments to hospitals that meet certain quality and efficiency standards, and by modifying payments made to physicians and groups based on quality and cost. The value-based initiative will reduce reimbursement for hospital-acquired infections, establish a value-based purchasing plan for skilled nursing and home health, and reduce payments for hospital readmissions.
Delivery of Care Reform
Delivery of care reform encourages providers to integrate and coordinate care through the use of accountable care organizations and medical homes. Accountable care organizations (ACOs) are integrated delivery systems that consist of primary care physicians and sub-specialists, one or more hospitals, and a defined patient population. ACOs will be eligible to capture shared savings, provided that certain quality and efficiency benchmarks are satisfied, by seeking to align hospital-physician incentives and rewarding high quality and efficient care.
In order to establish an ACO and benefit from the shared savings reform, all parties must accept joint responsibility for the cost and quality of care provided to its patients. ACOs are also required to enter into a 3-year agreement with CMS, establish a formal legal structure, and include primary care physicians to serve at least 5,000 patients. ACOs are expected to promote evidence-based medicine, patient engagement, and high-quality care.
The Health Reform Law also seeks to expand the use of medical homes. A medical home is a patient-centered delivery system where a primary care physician coordinates patient care across a team of health care professionals. The Health Reform Law allows Medicaid programs to make payments to medical homes that focus on treating chronic conditions.
The Health Reform Law also provides $120 million for states to assist primary care physicians in establishing medical homes, which generally require a significant upfront investment in information technology. The New Jersey Department of Health and Senior Services is currently exploring medical home models to implement throughout the state.
IRS Tax-Exempt Hospital Reform
Pursuant to the Health Reform Law, at least once every 3 years, tax-exempt hospitals are required to conduct a community health needs assessment, taking into account input from the surrounding community. Failure to conduct an assessment will result in a penalty of $50,000, beginning in taxable years after 2012. Exempt hospitals must also submit information in their Form 990 about the community health needs that are being addressed, as well as needs that are not being addressed.
Tax-exempt hospitals are also required to adopt a written “financial assistance policy” that describes criteria for eligibility, the basis for calculating charges, and how to apply for assistance. Charges under the financial assistance program must be limited to the lowest amount charged to patients with insurance. A hospital cannot make extraordinary collection efforts until reasonable efforts are made to determine if an individual qualifies for financial assistance.
Enhanced Fraud and Abuse Enforcement
The Health Reform Law will result in increased enforcement through the following:

  • RAC Expansion. The Health Reform Law expands the Recovery Audit Contractor (RAC) program by requiring all state Medicaid programs to contract with one or more RACs by December 2010, and also by expanding the RAC program to Medicare Part C (Medicare’s HMO program) and Part D (Medicare’s prescription drug benefit program).
  • Changes to the Anti-Kickback & Stark Laws and FCA, along with New Program Integrity Measures. The Health Reform Law also contains several provisions aimed at decreasing fraud and abuse by increasing transparency, funding, and enforcement. The foregoing is accomplished through changes to the Stark and Anti-Kickback laws, amendments to the False Claims Act, and many new program integrity measures.

This communication provides general information and is not intended to provide legal advice. Should you require legal advice, you should seek the assistance of counsel.

Copyright © 2010 Sills Cummis & Gross P.C. All rights reserved. ATTORNEY ADVERTISING. Prior results do not guarantee a similar outcome.

About the Author

Gary Herschman, Health Care Attorney, Sills Cummis, Law firm

Gary W. Herschman is Chair of the Firm's Health Care Practice Group. His health care practice experience includes the representation of a diverse group of health care clients, including health systems, hospitals, nursing homes, long-term care facilities, ambulatory surgery centers, home health companies, investment funds specializing in health care, imaging centers, medical groups, ambulance companies, specialty care networks, management companies and other health care businesses.

Mr. Herschman represents health care providers in connection with strategically positioning...


About the Author

Anjana Patel, Health care attorney, Sills Cummis Law Firm

Anjana Patel is Vice Chair of the Sills Cummis & Gross Health Care Practice Group. Ms. Patel represents a diverse group of health care providers, including hospitals, nursing homes, ambulatory surgery centers and other ambulatory care facilities, pharmaceutical and medical device companies, investment funds specializing in health care, physician groups and various other health care facilities and businesses.


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