State-Driven EHR Implementation

To Implement or Not To Implement: That Is The Thought Experiment

Among the many provisions of the Patient Protection and Affordable Care Act (PPACA) is the pillar of the individual mandate requiring most Americans to purchase health insurance by 2014. Even in the midst of implementing the state-wide health insurance exchanges, four courts have come to markedly different decisions about the Constitutionality of the individual mandate and PPACA in general. This judicial dialogue has thrown a cloud of uncertainty over implementation decisions and has left many to speculate about the right course of action.

Two district court decisions in Virginia and Michigan, both of which were by Clinton appointees, have upheld the Constitutionality of PPACA. Earlier this year, however, another district court decision from Virginia and the now-famous decision in Florida held the individual mandate to be unconstitutional.Only the decision in Florida held that the individual mandate was so central to the whole of health reform that all of PPACA was unconstitutional in aggregate, based on the observation that Congress did not have the authority to “compel an individual to involuntarily enter the stream of commerce by purchasing a commodity on the private market.” While expedited appeal to the Supreme Court has been requested, thousands of health insurers and other organizations planning to build businesses around the exchange system must attempt to read the tea leaves in the courts and make bets about what the future of American health.

This dilemma forces states to decide how to allocate funding for technology infrastructure and ultimately implement 21st century healthcare. They can choose to implement the law, spending their already strapped budgets to overhaul their information systems and compliance architecture to enable insurance exchanges, or they can refuse to play along. Those betting that the Supreme Court will strike down the law in its entirety and thus deciding to hinder implementation may cede authority to HHS to construct their insurance exchange infrastructure as a stopgap measure. With many millions of state funds on the line, let us propose a thought experiment, and suggest that from a strategic perspective, the entire labyrinth can be reduced to a decision tree. Identifying key outcomes stemming from the legal battle over PPACA, and probabilities of those outcomes, can help identify why a particular course of action may be advantageous for states. For the purposes of this thought experiment, let us posit the following assumptions:

  1. That states have only one decision to make: whether to implement proactively or to resist implementation.
  2. That regardless of whether or not the individual mandate is ruled constitutional, it is the construction of insurance exchanges that will result in the largest cost to the states (in fact, if exchanges must be constructed, it could be argued that the individual mandate would lower costs, but this is for another experiment). Let us call the cost of state-driven implementation of insurance exchanges $N, and the cost of non-implementation $0.
  3. That the cost of implementation will be higher if the Federal Government is making decisions than if states themselves are deciding how to implement. It seems reasonable to hypothesize that with greater knowledge of the local political and economic landscape, combined with greater pressure from local constituencies, that state governments would be achieve more efficient implementation. This logic undoubtedly drove the original Congressional rationale to have states drive implementation of the exchanges in the first place. Let us then call the cost of Federal-driven implementation $N’, where $N’ > $N.
  4. Somehow we must estimate the probability of the Courts’ decision. Given that of the four rulings, only the Florida ruling declared the entire law unconstitutional, the “score,” if you will, is 3:1 in favor of upholding PPACA in aggregate, and 2:2 in favor of the individual mandate. However, the Supreme Court opinion will be influenced far more by the individual justices than by the decisions of the lower courts. And their opinions have been changing rapidly. In March 2010 George Washington University Professor Orin Kerr remarked that “there is less than 1% chance that the courts will invalidate the individual mandate,” and other prominent court pundits predicted in September 8-1 or 7-2 votes in favor of health reform. Spring forward to early 2011, where the Wall Street Journal suggested that probability of the Supreme Court upholding the individual mandate and PPACA could be closer to 50%, hinging on the opinion of a single justice, Anthony Kennedy. 

If, and it is a very large if, but if these suppositions hold, then our decision framework seems to suggest that unless states believe that an HHS implementation would be twice as costly as their own, i.e. that $N’ ≥ 2 * $N, that states should resist implementation as long as possible. Resistance is the most cost effective option in the short run.

It is difficult for me to conclude this, as I firmly believe that the creation of insurance exchanges, with an individual mandate, would be in the long run best interest of American consumers. But my belief is based on macro-dynamics of the insurance industry and the healthcare system, not the painful budgetary decisions with which state governments must wrestle. While is difficult to quantify many of these costs of implementation, if one ascribes to the prior set of assumptions, conscientious non-action seems like a safer bet because of the equivocal position of the Supreme Court.

With Justice Ginsberg’s recent comment about the unlikelihood of bypassing the Fourth Circuit Court of Appeals, it seems the actions of the Supreme Court will waylay states in a prolonged morass in which they must steer the tillers by the shifting of political winds. While the Supreme Court’s review is a critical part of due process, the uncertainty brought about by their delay will cost taxpayers millions of dollars and stymie progress towards the intelligent healthcare that was the intent of reform in the first place. I can only hope that the Court recognizes the consequences of their actions, and that their opinion receives the careful deliberation it deserves as a landmark decision in US history.

Stuart Kamin

MBA/MPH Candidate 2012
Haas School of Business
University of California, Berkeley

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