Supreme Court Health Care Decision Sets Stage For Insurers, Hospitals To Make Big Changes

The Supreme Court decision to uphold President Barack Obama's health care reform law eliminates much of the uncertainty facing health insurance companies, hospitals and other players in the health care industry. Now, they've all got to bear down and get ready for big changes coming in 2014.

The health care companies that come out ahead will be the ones who figure out the fastest how to cut down on waste while simultaneously improving the quality of the medical care they provide and making patients happiest, said Sheryl Skolnick, a health care equity analyst and managing director at CRT Capital Group in Stamford, Conn. UnitedHealth Group, the largest U.S. insurance company, and HCA Holdings, the biggest hospital chain, have demonstrated some success in these areas, Skolnick said. But a lot will happen between now and 2014.

"It's going to take a lot of time to be able to pick the overall winners and losers," Skolnick said Thursday. Once the exchanges go live in 2014, health insurance companies will have to show they can price their plans in a way that garners market share and earns a profit, she said. Hospitals' success will depend in part on whether they can negotiate payment rates with private plans that are higher than their costs, Skolnick said.

The health care industry has been preparing for, and in some cases getting ahead of, the transformation of the system sought by the health care reform law since Obama signed it in 2010. But although health care companies have had that time to prepare, the possibility that the Supreme Court would upend the law loomed over their efforts. There's still a chance the law will be repealed by Congress and Mitt Romney if the presumptive Republican presidential nominee bests Obama in November, but the Court's ruling means they can carry on and quicken their pace.

The good news for health insurance companies is they'll have as many as 23 million new customers buying their product on the law's state-based "exchange" marketplaces, many of whom will be receiving tax credits from the federal government to offset the cost. Likewise, hospitals -- which the American Hospital Association says absorbed the cost of $39.3 billion in unpaid bills in 2010 -- will see fewer uninsured people who can't afford the medical care they receive.

But the law also places strict new regulations on health insurance companies , including a requirement that they spend at least 80 percent of the premiums they take in on treatments and a prohibition against turning away costly sick people. Fewer hospital patients will be uninsured but there's no guarantee that health plans will pay enough to make up for the $155 billion in Medicare cuts hospitals will see through 2019. Health insurance stocks fell while shares of hospital corporations rose after the Supreme Court decision Thursday.

The push to transform the American health care system, including the health care reform law, is on par with the Industrial Revolution, said Delos Cosgrove, the president and CEO of the Cleveland Clinic.

"We are in the midst of a restructuring revolution of health care delivery," Cosgrove said. "Providers have got to be able to decrease the cost of health care, improve the quality of health care, [and] increase access for our patients along the way."

The health care reform law has already had an effect on the health care industry . Health insurance companies have begun to diversify their revenue streams by making acquisitions, such as WellPoint's purchase of 1-800-Contacts. Hospitals are merging with each other and have been buying up physician practices and hiring doctors on staff. Health insurance companies and medical providers are working together to create collaborative arrangements that emphasize quality and efficiency, which is the only way to address costs without arbitrarily denying care to people, Cosgrove said.

Big, national health insurance companies will be in better shape to come out ahead of their smaller rivals, said Robert Laszewski, who consults for health care companies as president of Health Policy and Strategy Associates in Alexandria, Va. "This law has always been advantageous to the big insurance company with big market share," Laszewski said.

Likewise, for-profit hospital chains like HCA are big enough to reduce costs and change their practices across the board to emphasize quality in ways smaller companies can't do, said Skolnick, of CRT Capital Group.

For nonprofit hospitals, health care reform looks to be a real challenge, according to Moody's Investors Service. Although more patients with health insurance means fewer people receiving medical care without paying their bills, Medicare payment cuts and pressure from private health insurance companies to keep rates down will squeeze their revenue, according to Moody's.

"Hospitals and health systems that are currently high-cost and/or low quality are at a disadvantage," said Mark Pascaris, a senior analyst at Moody's. "They're going to be under a lot of pressure to improve right now."