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Talking Points: Affordable Care Act's Impact on the Boardroom

Web editor Laura J. Finn talked to two attorneys in the Washington, D.C. office of corporate law firm Arnold & Porter to find out how the Supreme Court’s ruling on the Patient Protection and Affordable Care Act of 2010 will impact companies in the healthcare industry, and their boards.

Healthcare companies
Jeffrey L. Handwerker, partner and pharmaceutical litigator, believes that the Affordable Care Act offers some opportunities for healthcare companies.  “With the focus on prevention and wellness, ACA contains a number of financial incentives for health care providers, like hospitals, who achieve better health outcomes for their patients, and other efficiencies.”  His advice to board members of health care providers is to consider how they can tailor their business models “to help to achieve these overarching goals of improved healthcare quality and efficiency and lower cost.” 

Insurance companies
Insurance companies will make some well-known changes as a result of so-called Obama Care. For example, companies can no longer exclude people with pre-existing conditions, and children will be allowed on their parents’ policies until age 26. In addition to these market reforms, there are also lesser-known provisions that will impact insurance companies, like the medical loss ratio, for example. The medical loss ratio provision states that 80% of an insurance premium must go to actual paying of coverage and only 20% may be used for overhead, marketing and profit.

But there is some good news for insurance companies, according to Charles Landgraf, a partner in the firm’s Legislative and Public Policy practice group.  “The good news is that insurance companies avoided the worst possible outcome, which is being subject to market reforms and not having the new, young, healthy people requiring health insurance.” With a health insurance mandate, the young and healthy demographic that were previously uninsured will now buy insurance, balancing out the good risk and the bad risk for insurance companies. 

Boards of insurance companies should refocus on the unfinished implementation that is coming on federal and state levels. Landgraf says that board members should watch to see if states set up exchanges, or if the federal government does that.  With this ruling, “boards need to be quite focused on implementation and deadlines in place for 2014,” he says.

Pharmaceutical companies
Handwerker believes that the impact of the court’s decision will be small for pharmaceutical companies.  “The decision to uphold the individual mandate will help to ensure access to health care, including pharmaceuticals, for millions of Americans who are currently uninsured.  It remains to be seen how the narrowing of the Medicaid expansion will affect coverage and whether states decide to opt out of the expanded Medicaid coverage."

Boards of pharmaceutical companies, nevertheless, have a lot to consider, as well. Handwerker suggests they think about how they can aid providers in achieving various health care incentives.  He cautions that pharmaceutical company boards also need to “be mindful of the fees, increased Medicaid rebates, and other regulatory costs associated with ACA.”  He says boards should consider the implications of the Independent Payment Advisory Board, an independent group established by the Affordable Care Act and tasked with curbing costs that do not affect quality of coverage. While the implementation of ACA is a year and a half away, it’s best for boards to begin planning for the impending changes now, as major changes are in motion.

Topic tags: board of directors, corporate governance, Patient Protection and Affordable Care Act of 2010

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