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Affordable Care Act: What Does It Mean for Physicians?

There is nothing the news media like more than an ugly bipartisan debate. The Affordable Care Act has given them exactly that. But now that the Supreme Court has upheld the constitutionality of the health care reform law, what does it mean for the physicians and hospitals charged with delivering medical care under this new payment system?

We sat down with Arnold Milstein, MD, MPH, who has been at the forefront of federal health policy changes over the past 15 years, to understand how physicians at Stanford will be affected in the years to come.

What is the purpose of the Affordable Care Act?

The ACA was created for two primary purposes. It gives non-affluent Americans a means of affording health insurance, and it sets into motion changes in how physicians and hospitals are paid by Medicare. Its primary beneficiaries are non-affluent Americans who previously made too much money to qualify for Medicaid, but didn’t earn enough to afford health insurance coverage.

How will Medicare payment change for physicians?

It will gradually shift incentives and payments away from rewarding volume of services to rewarding value. Doctors who achieve the best outcomes with the lowest total insurer and patient spending — including spending for services such as hospitalization and drugs — will be paid more favorably than other physicians. 

What changes will physicians begin to feel?

Doctors who treat more Medicare patients will feel these changes the most. How much Medicare pays will be closely tied to their quality-of-care scores and the total cost of the resources consumed by patients whose care they heavily influenced. Doctors and hospitals that are more cost effective will gradually receive higher payment by Medicare. As before, consideration will be given for hospitals providing GME, research and services to disproportionately high shares of uninsured and Medicaid patients. 

As 2018 approaches, physicians will begin to feel a different method of rewarding cost-effective practice from private payers when the “Cadillac tax” provision of the Affordable Care Act comes into play.

What is the Cadillac tax?

Starting in 2018, individuals who enroll in a health plan that exceeds a formula-based total cost per year will pay a 40 percent tax on the excess amount. Patients covered under private insurance plans will begin to migrate into health plans that do not expose them to this tax. To be able to offer excise tax-free plans without cutting the plan’s benefits, insurers will become more selective in selecting their provider networks. Doctors and hospitals that generate very high average total spending per patient per year or per episode of hospital treatment are less likely to be included in insurance plans that avoid the Cadillac tax. 

How does this differ from managed care?

The Medicare payment structure under the Affordable Care Act is designed to better reward clinicians and hospitals that achieve the best possible measurable quality of care and patient experience for the lowest total spending. Managed care frequently attempted to squeeze down unit prices and service volume without consideration for quality distinctions or low total health spending. Thus, a hospital-surgeon dyad requiring higher payment but whose patients suffered many fewer costly post-discharge complications was often disadvantaged in some forms of managed care. 

What role does the Clinical Excellence Research Center (CERC) play in health care reform?

Stanford’s Clinical Excellence Research Center brings together experts in the fields of medicine, business and engineering to create new care delivery models that will substantially lower per capita health spending without impairing, and while frequently improving, the patient’s health care experience. In the past year, CERC has developed such care models for poor prognosis cancer care, chronic kidney disease, morbid obesity and colorectal cancer screening. The new care models will now be tested and refined by our fellows in partnership with health care systems across the United States, including Stanford.

CERC is the first effort by a major research university to solve a problem of global concern, one that is especially huge here in the United States — health care that’s unquestionably valuable but unaffordable to a growing percentage of citizens.

By Grace Hammerstrom 


A professor of medicine at Stanford, Arnold Milstein, MD, MPH, directs Stanford’s Clinical Excellence Research Center (CERC). He has been at the forefront of federal health policy changes for the past 15 years, and served as a congressionally-appointed MEDPAC commissioner from 2004 to 2010.

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