The Patient Protection and Affordable Care Act (PPACA) is now law. And while federal reform legislation may evolve over time, absent outright repeal, the new law will reshape America's delivery system—with significant implications for hospitals, physicians, and other providers nationwide.

For leaders in the trenches of health care administration, it is time to develop localized game plans to address legal and operational challenges associated with health care reform.

By understanding the primary areas targeted by new health care legislation and focusing efforts accordingly, health care executives can position their organizations for the transformative changes that lie ahead.

Major Themes of Health Care Reform for Providers

Putting aside hotly contested issues such as the proper scope of federal authority and the cost of expanded coverage, the new law has pragmatic implications for health care providers in five broad areas that will affect provider activity in a number of different ways.

Quality, Value, and Cost Management

PPACA aims to reshape hospital and physician behavior and economic incentives by increasingly rewarding the variables of quality, value, and cost value, rather than conventional payment by volume of service delivered. In this vein, the Department of Health and Human Services (DHHS) is charged with implementing specific initiatives, which include:

• Authorizing several quality- and value-based demonstration and pilot programs involving accountable care organizations, value-based purchasing, and bundled payments under Medicare and Medicaid
• Establishing by 2012, the Center for Medicare and Medicaid Innovation to test innovative payment and service delivery models, and a value-based payment modifier to provide differential payments to physicians based upon quality and cost
• Expanding the Physician Quality Reporting Initiative (PQRI), and converting PQRI to a "report or be paid less" regimen beginning in 2016

Primary vs. Specialty Care Distinctions

In various respects, the new law is decidedly pro-primary care and arguably hostile to certain high-end specialty services, as illustrated by the following changes:

• Providing bonus payments for primary care evaluation and management services beginning in 2011
• Changing reimbursement and utilization rules for expensive diagnostic imaging services (e.g., MRI, CT) to effectively reduce reimbursement for these services
• Restricting an established Stark Law exception to limit development of physician-owned hospitals beginning in 2011 and imposing other restrictions on surviving physician-owned specialty hospitals thereafter

Transparency

Various provisions of PPACA promote or require enhanced disclosure and transparency regarding hospitals, physicians, and other health care providers. These include:

• Imposing new requirements on exempt hospitals to demonstrate responsiveness to community need and adherence to charitable mission
• Modifying the Stark Law's in-office ancillary services exception to require patient notification of alternative suppliers of enhanced diagnostic imaging services
• Developing (by 2012) new systems to measure and report physician resource use, and directing release of Medicare claims data for purposes focusing on effectiveness and cost

Oversight, Responsibility, and Accountability

The PPCPA law further promotes enhanced provider responsibility and accountability through various means, including providing for provisional oversight of new service providers and suppliers through prepayment review and payment caps, and providing for exclusion of Medicare-terminated providers from Medicaid participation.

Enhanced Need for Attention to Regulatory Compliance

Several provisions have been retooled to promote compliance with existing laws regulating the delivery and reimbursement of health care. Supplemental measures include:

• Imposing new duties on industry participants including special requirements on DME, home health, and certain other services, requiring refund of overpayments within 60 days, and mandating compliance programs
• Expanding the National Practitioner Data Bank, and expanding and mandating data sharing to help ferret out fraud and abuse
• Broadening the scope of false claims laws to delineate additional offenses and to establish additional funding to auditing and enforcement activities

Five Action Items for Health Care Executives and Board Members

Although some provisions of PPACA are implemented in phases, the law does specify a timeline and road map for short and long term provider activity. Major action items should build on core themes underlying the legislation itself, and can be expressed in finite and tangible terms.

1. Develop Essential Infrastructure

Though the law mandates "demonstration" programs beginning by 2012, the overall future direction of Medicare payment systems is somewhat apparent. In coming years, successful systems will necessarily emphasize quality and outcome metrics rather than volume of services delivered. To remain competitive under a changed paradigm, provider organizations will be well-served to develop the systems, infrastructure, and practices to facilitate delivery of care according to these changing and redefined criteria.

One central component of effective integration will be information technology functioning as a central nervous system for provider networks and allowing performance assessment in a useful manner. Federal financial support already supports "meaningful use" of EHR technology, and the 2013 sunset of certain Stark Law and Anti-Kickback Statute legal incentives promoting the deployment of clinical information technology may spur greater adaptation in the future

Since future directions are now more apparent, many provider organizations will consider accelerated deployment of the requisite HIT and related infrastructure needed to succeed in a reformed payment and delivery system in order to take advantage of still-lawful federally protected financial support vehicles.

2. Survey Existing Resources and Build Upon Them

Accountable care organizations, value-based purchasing programs, and other initiatives will not be immediately transplanted to or developed in every locality across America, and many systemic changes will be more incremental in nature. Assuming, however, that (at least) some federally prescribed demonstration projects under PPACA prove fruitful in enhancing quality and/or managing costs, such systems may well be replicated on a more widespread and permanent basis in the relatively near future. This reorientation will very likely encompass private third-party payers in addition to Medicare, Medicaid, and other government programs.

Various clinical and administrative structures and systems already exist to a greater or lesser degree in many communities. These include provider networks (e.g., IPAs, PHOs), payer arrangements with captive or "friendly" health plans, and other management services and related arrangements involving personnel, technology, risk assessment, financial management and other infrastructure.

Using a conventional "make or buy" analysis, in many communities these established resources may be capable of serving as a platform from which more advanced care coordination can evolve and related support systems providing needed tactical support can develop. For many organizations, it will be both prudent and necessary to explore partnerships and the formation of broader networks and alliances which move beyond the traditional market and geographical boundaries in order to move quickly into the new environment.

Hospitals and physicians will be well served to evaluate their business and professional relationships in the context of existing relationships and available hard and soft infrastructure elements, and to consider how that apparatus can be used to prepare for and engage in the next-generation delivery and payment systems that are now encompassed within the new law.

3. Define and Implement a Strategy

Rome wasn't built in a day, and the nation's health care system most certainly won't be transformed overnight. Nonetheless, it seems likely that some early adopters will be best-positioned to thrive over the long term in a reconfigured payment system emphasizing different quality-driven incentives. Given the breadth of potential change, incremental actions by organized provider communities may be the most pragmatic course. Those sequential activities can potentially take a number of forms, such as:

• Engaging in "silent pilot" or "war gaming" exercises inside the organization through which quality, cost and related metrics are assessed in relation to internal or externally defined benchmarks;
• Creating "live" relationships with a friendly payer (e.g., a hospital or health system as a self-insured organization or, if available, a compatible local health plan), to develop and test clinical integration and related strategies emphasizing quality and cost that involve selected disease states or conditions; or
• Exploring and implementing more traditional payer-driven programs focusing on quality and cost. Of course, such arrangements will render provider communities relatively more beholden to the demands of existing payer arrangements, rather than emphasizing the lessons of their own experiences.

4. Begin the Organizational and Cultural Transformation Process

Information technology, data systems, practice protocols and other tools and structures supporting the new "quality and value" construct will only go so far to achieve new performance goals. Even more central to future success is the process of reshaping the organization and culture existing throughout much of the nation's existing delivery system. Legacy organizations such as the Cleveland Clinic, Mayo Clinic, and others have developed over many decades, and the vast majority of provider communities cannot quickly, if ever, replicate the culture and values implicit in these organizations today. Even modest behavioral changes can sometimes take years to implement.

Given the timeline contemplated by the new law (with dramatic payment and delivery system changes becoming widespread within a handful of years), scarce time exists to move from point A to point B. Given this reality, near term attention to organizational structure, governance, management, financial incentives and other variables is both prudent and necessary. Such actions might begin, for example, by establishing "medical groups" (if non-traditional) including physicians from one or more separate legal organizations, which may start to consider themselves as a single group or network for patient care purposes in the newly-reformed environment.

These newly established medical groups will require formal governance and committee systems to address financial, clinical and other needs. Such bodies will commonly focus on clinical services, working relationships and practices, and also involve data and feedback mechanisms to begin to assess non-traditional measures of physician production and productivity, e.g., quality, resource utilization, protocol compliance and related measures, many of which are encompassed within the rubric of "clinical integration" articulated through recent pronouncements of the Federal Trade Commission as an important antitrust law compliance strategy.

In many physician groups—typically those involving a single tax ID and/or hospital/health system affiliated integrated systems—cultural change from a fee-for-service to a quality based mind-set can begin by revising provider compensation and incentive structures. In many settings, this will be an evolutionary process which migrates from compensation plans based almost entirely on production-based measures, (e.g., dollars per RVU), to other plans considering quality and related metrics initially, followed by eventual movement to more stable base plus incentive systems over time. The cultural transformation process will also likely result in some weeding out (by self-selection and otherwise) of the medical group's provider cadre, as those unable or unwilling to adjust to an evolving environment will likely move on to other opportunities.

5. Address the Regulatory Challenges of Increased Transparency, Accountability, and Overall Payment Reform

Of course, most change initiatives combine so-called carrots with sticks. PPACA does focus on activities and values related to enhanced quality, value and cost management in health care. However, the law also emphasizes increased information transparency and disclosure, provider responsibility and accountability, which, combined with enhanced regulatory compliance tools, will surely provide DHHS and other regulatory enforcement bodies with a number of hefty enforcement tools.

Most objective observers would agree that the majority of today's providers strive to "do right" and abide by relevant fraud and abuse, antitrust and other laws . . . as such provisions are understood today. Yet the combination of enhanced transparency and oversight, coupled with new compliance criteria, will likely mean that some behavior representing today's "typical" business practices may soon be redefined as illegal is tomorrow's evolving regulatory environment. This circumstance, which is amplified since the new laws don't generally grandfather existing arrangements for compliance purposes, makes it critical that providers pay close attention and devote needed resources on assessment and prevention, rather than relying only upon remediation when legal compliance problems are detected. Since actions risking exclusion from Medicare can effectively constitute a professional death penalty for individuals and institutions alike, prevention and self-management through strong compliance initiatives will certainly constitute an important investment in the future.

Conclusion

The precise strategic, tactical and other measures to be used by health care providers responding to the new law will obviously require tailored consideration within different communities. Nonetheless, the magnitude of changes brought about by the new law, and the expedited timeline within which those changes will occur, prompt a call for action. As a result, health care executives, physician leaders, and board members of hospitals and health systems within a given region will want to apply their existing capabilities and resources to promote movement into the new health care paradigm.