Trustees need to review the ACA's major themes and draw on their committees' expertise to help their hospitals and systems move forward.
The Supreme Court's decision to uphold the Accountable Care Act swings the spotlight back to hospitals: How will they respond to the law's provisions and their impact on the larger health care economy?
Hospitals and health systems' response should begin with an updated briefing for the board on the decision's principal implications. Such a briefing would be consistent with the board's duty-of-care expectations. Executive leadership, the general counsel and outside strategic advisors are well-positioned to provide this briefing.
This is not to suggest that boards have not been aware of the ACA and its general themes. To the contrary, most boards long ago have received baseline briefings on the ACA, and on the larger changes to the traditional health care economy. For the most part, they understand physician integration, have approved ACO-type initiatives and generally are aware of the wave of consolidation in the nonprofit health care sector. But for boards, as with hospitals and systems, there has been an understandable reluctance to take the deep dive into the ACA while its future hung in the balance. Well, on June 28, it became time to push the reset button on board education concerning the ACA and delivery system transformation.
The Supreme Court's decision affirmed most parts of a law that represents the most fundamental change to health care financing since the enactment of Medicare and Medicaid. While there may be uncertainty about its ultimate interpretation, there are none regarding its application. The ACA is here to stay, and fundamental fiduciary principles will hold the board to a level of familiarity that is commensurate with its significance. The board's thorough understanding of ACA themes is essential to exercise oversight, advise senior management on strategic planning, and make informed decisions. A superficial awareness will not suffice.
That said, boards don't need to appreciate the constitutional basis for the Supreme Court's decision, read the entire ACA or prepare to recite its provisions on demand. Rather — and with management's guidance — board education should focus on the broader themes arising from the ACA that are most likely to affect oversight and decision-making, including:
- the implications of the long-term reduction in Medicare reimbursement to hospitals;
- the extent to which the individual mandate and extended dependent coverage will affect admissions;
- the increasing shift from fee-for-service to new reimbursement models intended to achieve reimbursement savings;
- whether negotiations with insurance companies will become more difficult;
- the prospect of states opting out of the ACA's expansion of Medicaid;
- continued integration through physician employment;
- the newly fundamental relationship between quality of care and reimbursement;
- further consolidation of the nonprofit hospital sector;
- the extent to which the federal deficit crisis may prompt further funding changes.
Board members should be familiar with these key themes. They will not be required to be experts in the law of reform — they are entitled to rely upon the advice of management and outside advisors. But they will be expected to have an understanding that will allow them to ask the right questions and evaluate the advice of experts.
The board also will be expected to re-examine its structure and composition in light of the challenges forthcoming as reform initiatives increase momentum. In particular, the board will be expected to focus closely on the following key committees:
- Finance: How these changes — and the organization's responses — will affect its credit rating
- Strategic planning: Alignment opportunities available to the organization
- Information technology: The ability of the system's technology platform to respond to the new relationship between data and payment
- Compliance: Government enforcement of the ACA's new anti-fraud provisions and its supplemental requirements for maintaining tax-exempt status
- Human resources: The ACA's unique implications on the organization as a major employer
- Nominating: Whether the board comprises the expertise necessary to meet the law's strategic, fiscal, operating, quality and compliance challenges
Management also may take this opportunity to engage the board in a more thorough discussion about its oversight role in improving quality in general and measuring progress to improve outcomes and patient satisfaction in particular.
The Supreme Court's decision provides a singularly important teaching moment. Attentive management will take the initiative to educate the board promptly and thoroughly on the ACA, its significance to the health care economy and the hospital or health system. It will position the board to respond to the expected acceleration in the pace of change and in the availability of strategic opportunities. Management also will take the opportunity to remind the board how the system's strategic plan is designed to respond to these challenges. In this way, management will be positioning the board to be more informed and effective fiduciaries.
Michael W. Peregrine (email@example.com) is partner at the law firm McDermott Will & Emery, Chicago.
For more on the Supreme Court's decision, read the American Hospital Association's legal analysis.