How the current bills would affect industry

WASHINGTON —

When Congress and the White House began talking about a health-care overhaul, industries that profit from the $2.5 trillion system were understandably nervous.

But as the legislation takes shape, much of the anxiety appears to have been misplaced. Most of the major players, including hospitals, health insurers and pharmaceutical companies, are likely to benefit — some handsomely — over the long term.

While hospitals and drugmakers have made deals with President Obama and the Senate Finance Committee to help finance the overhaul, their profits could soar as more people have insurance coverage.

"Everyone has been nicked a little bit, but they are all flesh wounds," said Nancy Chockley, president of the National Institute for Health Care Management, a nonpartisan health-policy research organization funded by Blue Cross and Blue Shield plans and government grants.

To be sure, lawmakers have not reached agreement on key issues that could have far-reaching effects on insurance companies and health-care providers. They include proposals to set up a government-run health plan to compete with insurers and an independent commission to exert broad authority over Medicare spending.

And it isn't clear whether the highly publicized deals — in which the industries agreed on savings to help pay for overhaul — will hold.

But for now, "it appears the goal of the health overhaul is to expand coverage and contain costs, but without imposing too much pain on any one industry sector," said Jack Hoadley, a health-policy analyst at Georgetown University.

A scorecard showing where various industries stand:

Hospitals

Worried they would pay too high a price for the overhaul, hospitals were the first industry sector to make a deal with Obama and the Senate Finance Committee. Hospital groups agreed to give up $155 billion in Medicare funds over the next decade, about an 8 percent cut. But the industry believes it will gain $170 billion by treating fewer uninsured patients.

"The hospitals did quite well for themselves," said Sheryl Skolnick, a hospital analyst with CRT Capital Group in Stamford, Conn.

But Skolnick and other experts note that health-care overhaul will affect individual hospitals differently. Hospitals that treat greater numbers of uninsured — generally urban and public hospitals — will gain the most; those most dependent on Medicare may face the biggest financial risks.

Pluses: An individual insurance mandate and subsidies for low-income Americans to buy coverage will mean more paying patients for hospitals. Hospitals were assured that cuts in Medicare and federal Disproportionate Share funding that compensates hospitals for treating the uninsured won't occur until insurance expansion is in place. Even then, about 60 percent of the funding will remain to help hospitals treat illegal immigrants and Medicaid recipients.

Minuses: Loss of $155 billion in federal funding over a decade. Obama and Senate Finance Committee Chairman Max Baucus, D-Mont., want to create an independent commission that would have broad powers over Medicare spending. The industry wants Congress to retain control over Medicare because the industry has more influence over lawmakers.

Mixed: While hospitals oppose a government-run health plan, they have won assurances from Obama and House committees that they will have the ability to negotiate reimbursement rates above what Medicare pays. This is important because hospitals generally lose money on Medicare, which pays less than private insurers. Nonetheless, hospitals are still nervous about any plan to negotiate with the federal government. Plans to expand Medicaid, the state-federal health program for the poor, will reduce the number of uninsured patients, but the program typically pays lower reimbursements than private insurers or Medicare.

Health insurers

Health insurers have become the most vilified industry in the health-care debate — their profits and cost-control strategies make them an easy target, and Democrats are criticizing them in response to slipping poll numbers.

Last spring, the insurance industry offered its own deal to policymakers: If the government would require all Americans to have insurance, insurers would accept all applicants and not charge higher premiums because of a person's medical history.

But the industry has staunchly opposed a government-run public plan, saying it would lead to a government takeover of the health-insurance field.

Pluses: A proposed individual health-insurance mandate has strong House and Senate support. That and subsidies to help low-income Americans pay for coverage could bring insurers tens of millions of new customers.

Minuses: House Democrats and the administration are trying to eliminate bonus Medicare payments to Medicare Advantage plans, private health programs that cover one in every five seniors. The House committees' bills require health insurers to spend a certain minimum percentage of their premium dollars on health costs, which the industry opposes. The Senate Finance Committee is considering a tax on so-called "Cadillac" — high-cost — health plans. Insurers say the tax would be passed on to customers.

Mixed: Four of five congressional committees have approved a public option, but the crucial Senate Finance Committee package is likely to have instead a nonprofit cooperative that would function more like a public utility.

Drug companies

In a deal with the White House and the Senate Finance Committee, the drug industry has agreed to put up about $80 billion to help finance an expansion of health coverage. But the industry is likely to make that up by having more Americans insured so they can buy brand-name drugs.

The drug industry pledged to sell brand-name drugs for half price to senior citizens when they hit the gap or "doughnut hole" in their Medicare Part D benefit. In the coverage gap, seniors pay the full cost of drugs on their own. The discount would start soon after a health-care bill is approved.

Another part of the deal includes drugmakers paying higher rebates for medicines sold to individuals eligible for both Medicaid and Medicare. Such rebates were reduced when the Medicare prescription-drug benefit was established in 2003, but the overhaul bill would restore some.

In return, the pharmaceutical industry has won concessions that drug-reimportation laws that would allow Americans to buy less expensive drugs from abroad would not be changed.

But it did not win any promises that would preclude congressional attempts to allow the government to negotiate lower drug prices under Medicare.

"If the price negotiation goes away, I think there is a real good chance the drug industry stands to gain from health reform," said Frank Palumbo, director of the Center on Drugs and Public Policy at the University of Maryland.

Pluses: Expensive biologic drugs would have 12 years of exclusivity protection from cheaper competing medicines under the approved House bills and Senate proposals. Obama, the AARP and some lawmakers were calling for five or seven years. While biologic drugs are a small portion of industry sales, they represent the fastest-growing segment of the market. More Americans with health insurance means more people will be able to buy medicines. The House bills would gradually close the Medicare "doughnut hole" by 2023, which would increase consumer demand.

Minuses: The House Energy and Commerce bill calls for government negotiation of Medicare Part D prescription-drug prices directly with drug makers. Such negotiation has been prohibited by Congress. The industry would prefer to negotiate with the more than 250 Medicare drug plans because it has significantly more leverage with the plans than with the government.

Doctors

Physicians probably have the least at stake under the current plans in the House and Senate.

"Doctors are being given a pass in health reform," said Gail Wilensky, senior fellow at Project Hope.

Pluses: Congress plans to eliminate the current Medicare physician payment formula that threatens to cut doctor payments by nearly 20 percent each year unless Congress acts. The payment fix will give doctors an extra $230 billion over the next decade, according to the Congressional Budget Office.

Minuses: No significant medical-liability changes are in any of the overhaul bills.

Mixed: Medicaid would be expanded in the House bills. Amounts vary but could cover everyone in families with incomes as high as 150 percent of the federal poverty level, which is $33,075 for a family of four. While the expansion means more patients have insurance, Medicaid pays much lower rates compared with Medicare and private insurance. The public option in the House bills would allow doctors to negotiate rates that exceed Medicare rates, but it is uncertain how much leverage doctors would have. Primary-care doctors probably would benefit from creation of an independent Medicare commission because the panel would be more likely to increase their fees and lower specialists' rates.

Nursing homes

Because most patients are covered by Medicare or Medicaid, reducing the number of uninsured doesn't help the facilities. As a result, the industry doesn't see much gain in the overhaul.

Pluses: The House Energy and Commerce Committee bill would establish a national long-term-care insurance program. Beneficiaries would receive a daily cash benefit of about $50 to $75 — for home care, adult day care, assisted living and nursing homes.

Minuses: Nursing homes would see Medicare reimbursements cut by 3 to 5 percent, or as much as $45 billion, over the next decade. While Medicare contributes only about 13 percent of nursing-home revenue, the industry relies on the money to offset low Medicaid reimbursement.

Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health-care policy-research organization not affiliated with Kaiser Permanente.