HCA Holdings 2012 Annual Report Download - page 36

Medicare Managed Care (Medicare Advantage or “MA”). Under the MA program, the federal government
contracts with private health plans to provide inpatient and outpatient benefits to beneficiaries who enroll in such
plans. In 2012, approximately 12.8 million Medicare beneficiaries elected to enroll in MA plans. Effective in
2014, the Health Reform Law requires MA plans to keep annual administrative costs lower than 15% of annual
premium revenue. The Health Reform Law reduces, over a three year period starting in 2012, premium payments
to the MA plans such that CMS’ managed care per capita premium payments are, on average, equal to traditional
Medicare. In addition, the Health Reform Law implements fee payment adjustments based on service
benchmarks and quality ratings. As a result of these changes, payments to MA plans are estimated to be reduced
by $138 to $145 billion between 2010 and 2019. These reductions to MA plan premium payments may cause
some plans to raise premiums or limit benefits, which in turn might cause some Medicare beneficiaries to
terminate their MA coverage and enroll in traditional Medicare.
Physician-Owned Hospital Limitations
Over the last decade, we have faced significant competition from hospitals that have physician ownership.
The Health Reform Law prohibits newly created physician-owned hospitals from billing for Medicare patients
referred by their physician owners. As a result, the law effectively prevents the formation of new physician-
owned hospitals that participate in Medicare and Medicaid after December 31, 2010. While the law grandfathers
existing physician-owned hospitals, it does not allow these hospitals to increase the percentage of physician
ownership and significantly restricts their ability to expand services.
Program Integrity and Fraud and Abuse
The Health Reform Law makes several significant changes to health care fraud and abuse laws, provides
additional enforcement tools to the government, increases cooperation between agencies by establishing
mechanisms for the sharing of information and enhances criminal and administrative penalties for non-
compliance. For example, the Health Reform Law: (1) provides $350 million in increased federal funding over
the next 10 years to fight health care fraud, waste and abuse; (2) expands the scope of the RAC program to
include MA plans and Medicaid; (3) authorizes HHS, in consultation with the OIG, to suspend Medicare and
Medicaid payments to a provider of services or a supplier “pending an investigation of a credible allegation of
fraud;” (4) provides Medicare contractors with additional flexibility to conduct random prepayment reviews; and
(5) tightens up the rules for returning overpayments made by governmental health programs and expands FCA
liability to include failure to timely repay identified overpayments.
Impact of Health Reform Law on the Company
The expansion of health insurance coverage under the Health Reform Law may result in a material increase
in the number of patients using our facilities who have either private or public program coverage. In addition, the
Health Reform Law provides for the establishment of a value-based purchasing program, ACOs and bundled
payment pilot programs. These and related initiatives create possible sources of additional revenue. However,
with respect to the expansion of coverage, it is unclear how many states will decline to implement the Medicaid
expansion. Those states with relatively low income eligibility requirements for Medicaid may have the greatest
financial incentives to implement the Medicaid expansion. The Company has a significant presence in several of
these low income eligibility states, including Florida, Georgia, Kansas, Louisiana, Missouri, Oklahoma, Texas
and Virginia. However, the governors of a number of states, including Texas, in which a significant number of
the Company’s licensed beds are located, have announced their intentions to opt out of expanding their Medicaid
programs pursuant to the Health Reform Law. These statements are not legally binding and may be subject to
change. It is difficult to predict the size of the potential revenue gains to the Company as a result of the expanded
coverage, ACO and bundled payment provisions of the Health Reform Law because of uncertainty surrounding a
number of material factors, including the following:
• how many states will implement the Medicaid expansion provisions and under what terms;
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