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Supreme Court Ruling Allows Health Care Reform to Move Forward

Supreme Court Ruling Allows Health Care Reform to Move Forward

Health Care Law Note
(July 3, 2012)

On Thursday, June 28, 2012, the Supreme Court of the United States issued its long-awaited ruling regarding the constitutionality of the Patient Protection and Affordable Care Act of 2010 (“PPACA”).  Over the past few years, the uncertainty of health reform has been one of the largest challenges facing our clients.  Although the Supreme Court ruling does not answer all questions surrounding the future of health care, it does give some guidance for the future.  The decision means that PPACA's provisions will continue gradually rolling out through 2018. 

Legislation Overview

The overarching goals of the PPACA legislation are to reduce costs, improve quality, and expand health care coverage.  In attempting to achieve these goals, PPACA transitions the fee for service delivery system into a model that promotes integration and coordination, links payment to quality health outcomes, and expands patient access to insurance coverage.      

Timeline of PPACA Provisions

Many PPACA provisions have been in effect since the legislation was enacted in 2010.  However, the most transformative changes to the health care industry are scheduled to roll out over the next three years, including the Medicaid expansion provision.  Although states will now only waive new federal funding if they choose not to expand Medicaid, the decision will certainly be a key battleground issue.  The following is a selection of important dates of implementation affecting health care providers through 2015:


  • Integrated and coordinated care incentives.  PPACA allows health care providers to establish coordinated delivery systems called "Accountable Care Organizations" ("ACOs").  ACOs that meet or exceed quality measures while reducing costs may share in the cost-savings to the Medicare program. The ACO incentives have been in effect since January 1, 2012; however, the program is ongoing.
  • Medicare Value-Based Purchasing (“MVBP”) program commences October 1, 2012.  The MVBP program ties a hospital’s Medicare reimbursement to performance on a number of quality measures for specific conditions.  Hospitals will be responsible for increased reporting on these quality measures.  Although there are potential increases based upon a hospital’s scores, base operating DRG rates will be reduced 1% for Fiscal Year 2013, further reducing to 2% for Fiscal Year 2017 and beyond.  
  • Payments for unnecessary hospitalizations decrease beginning October 1, 2012.  Hospitals exceeding an “expected” readmission rate will receive reduced Medicare payments.  Hospital readmission rates will be published by the Secretary of Health and Human Services.


  • Medicaid payments for preventative and primary care increase.  PPACA expands the definition of “other diagnostic, screening, preventative, and rehabilitative services” in the Medicaid statute to include a wider range of eligible preventative services.  States offering Medicaid coverage with no cost-sharing by patients will receive a one percentage point increase in federal matching payments for the defined preventative services.  Additionally, primary care physicians providing primary care services will be reimbursed at no less than 100% of the Medicare payment rate for 2013 and 2014.
  • Reporting requirements increase.  Health care providers and organizations will be required to collect and report additional information, including physician performance data and the financial relationship between health entities. 


  • Individual insurance mandate begins. 
  • Federal and participating state insurance exchanges open. 
  • Medicaid coverage expands.  PPACA’s original aim was to incentivize all states to expand Medicaid coverage to all individuals under age 65 with incomes below 133% of the federal poverty line by making all Medicaid funding conditional on a state’s acceptance of the expansion.  However, the recent Supreme Court decision prohibits the federal government from removing a state’s entire Medicaid budget for failure to expand Medicaid coverage.  Thus, states will now have the option to forego only new federal funding and keep their existing level of Medicaid coverage.  Medicaid programs in states opting out of the Medicaid expansion will remain substantially as they are today. 
  • Disproportionate Share Hospital (“DSH”) payments decrease.  Medicare DSH payments will be initially reduced by 75%. After this reduction, further payment increases will be based on a calculation of the uninsured population and the amount of uncompensated care provided. Similarly, Medicaid DSH payments will be reduced based on an assessment by the Secretary of Health and Human Services.  For states opting out of the Medicaid expansion, there will theoretically be a greater uninsured population and it remains to be seen how the Secretary will assess this.
  • Annual caps on the dollar amount payable by insurance plans prohibited.
  • Implementation of "Pay or Play" employment-based insurance. Employers with more than 50 employees may choose to offer coverage to employees or pay a penalty and send employees into the state or federal Health Exchanges to acquire insurance.  In 2014, the monthly penalty for employers who do not offer coverage will be equal to the number of full-time employees minus 30 multiplied by one-twelfth of $2,000 for any applicable month.


  • Medicare payments to certain hospitals for hospital-acquired conditions decrease.  Hospitals in the top 25 percentile of hospital-acquired conditions receive a 1% reduction in Medicare payment.  A report on hospital-acquired conditions will be published by the Secretary of Health and Human Services. 

By 2014, PPACA should increase access to health care coverage by newly insuring an estimated 34 million Americans over the next decade.  The legislation’s long-term success in reducing costs and improving quality remain uncertain.  However, the Supreme Court ruling provides some stability for those relying on the law, and health care providers may now proceed with planning for the future with some certainty about the trajectory of health care reform.

You may read the full text of PPACA and a breakdown of all ten titles of the legislation at:

Smith Moore Leatherwood is happy to answer any questions health care providers have about how PPACA will impact your organization.        

Jeffrey R. Whitley
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