The first in a long series of steps toward healthcare reform was taken yesterday, when a bill that will introduce sweeping changes to the way insurance is sold in New Jersey was voted out of an Assembly committee.

A2171 defines a health insurance exchange — an online marketplace where individuals and small businesses will buy coverage starting in 2014, when federal healthcare regulations will make insurance mandatory for most Americans. The bill was moved over the objections of health insurers and business trade groups, but with strong support from consumer advocates.

Much of the debate at the crowded hearing, convened by Assemblyman Dr. Herb Conaway (D-Burlington), chair of the Health and Senior Services committee, focused on the type of exchange that would be implemented — an active purchaser or an agnostic clearinghouse.

An active purchaser would, among other things, establish “minimum requirements for the selection, certification, and recertification of qualified plans [as well as] criteria and procedures for decertifying plans…”

In contrast, the clearinghouse model allows all insurers to compete for customers, as long as their plans meet federal reform standards.

Ev Liebman, AARP state director for advocacy, applauded the active purchaser provision but said it didn’t go quite far enough. She urged that the bill “be strengthened to clearly allow [the exchange] to work on behalf of consumers and demand quality, responsiveness to consumer concerns, reasonable rates, efficient plan designs, robust provider networks, and comprehensive benefits.

Other advocates for the active purchaser option included New Jersey Policy Perspective, New Jersey Citizen Action, the Main Street Alliance, and NJPIRG.

On the other side, Ward Sanders, president of the New Jersey Association of Health Plans, whose members include New Jersey’s health insurance companies, favors the clearinghouse. He warns that an active purchaser “can choke competition, reduce consumer choice, and ultimately lead to a dysfunctional market.”

Christine Stearns, vice president of the New Jersey Business & Industry Association, testified against the active purchaser provision, saying that it could increase bureaucracy and push costs higher.

“Businesses do not offer health benefits because health insurance costs too much,” Stearns said. “If New Jersey is going to create an insurance exchange that will attract businesses back into the insurance market, it has to find a way to control costs.”

The Chamber of Commerce of Southern New Jersey and the Commerce and Industry Association of New Jersey also came down in favor of the clearinghouse.

Ultimately it was the active purchaser advocates who prevailed: the bill was approved by the committee and sent on to the full Assembly. Conaway said he expected a Senate hearing on the bill to be scheduled later this month. He added that under his legislation, the exchange would be a sort of middle-of-the-road active purchaser, not an “aggressive” regulator.

But the active vs. agnostic argument is just one of the provisions likely to fuel debate in the coming months. Legislators face a June 30 deadline to adopt exchange legislation, which will make the state eligible for millions of dollars in federal grants.

The bill also calls for the appointment of a seven-member board, whose members will include the state commissioners of insurance and human services. The other five public members can’t be employees of health insurance or healthcare companies and are barred from working in the industry for two years after leaving the board.

This provision also drew strong opposition from health insurance and business representatives, who argued the board will lose access to valuable expertise, but was endorsed by consumer advocates who contended it will avoid conflicts of interest.

In addition, A2171 directs the board to create a separate marketplace where small businesses can buy coverage for their employees, called the State Business Health Options Program (SHOP). When the exchange begins offering coverage on January 1, 2013, only companies with 2 to 50 employees will be eligible to use SHOP; that will be extended to 100 employees in 2016, and more than 100 workers in 2017.

The bill also directs the board to create a Basic Health Plan, as authorized by the federal Affordable Care Act. In 2014, ACA will increase eligibility for Medicaid from the federal poverty level to 133 percent of poverty. Establishing a Basic Health Plan will allow New Jersey to access a special pool of federal funds to provide healthcare coverage to individuals between 133 percent and 200 percent of the poverty level.

The board will play a very active role in the active purchaser paradigm. The exchange “must offer to enrollees only health benefits plans that have been certified by the board, approved for issuance or renewal by the commissioner of banking and insurance, and underwritten by a carrier.”

What’s more, the board must certify, “those plans that it determines provide good value and offer high-quality coverage to enrollees.” And before an insurance carrier operating in the exchange can raise rates, it must “submit a justification to the board. . . ”

ACA subsidizes low- and moderate-income families to help them buy coverage in the exchange. Those with incomes up to four times the federal poverty level will be eligible for the sliding-scale subsidies that decrease as income rises. A family of four earning up to $80,000 annually would qualify for subsidies.

Raymond Castro, senior policy analyst for New Jersey Policy Perspective, presented an estimate that in the decade that will follow the 2014 rollout of health reform, New Jersey will benefit from billions in additional federal health subsidies and new Medicaid funding. He added that the bill will benefit the state by “creating more competition among insurers, and a larger insurance pool for individuals and small businesses.” And he said consumers will benefit, because the bill “requires that only quality, comprehensive insurance plans can be offered in the exchange.”

A2171 permits health insurance carriers to offer “limited scope dental benefits” as long as the plan provides pediatric dental benefits that meet federal regulations under ACA.

The bill also creates a New Jersey Health Benefit Exchange Trust Fund, which will collect funds from health insurance carriers and be a repository for the federal grants that the state will receive to implement the exchange. To fund day-to-day operations, the bill authorizes the exchange to levy a surcharge on “all qualified health benefits plans,” and to levy an assessment on health insurance carriers doing business in New Jersey that decide not to offer coverage via the exchange.

About 1.3 million New Jerseyans are uninsured and it’s estimated that the Affordable Care Act will get more than 400,000 of them covered in 2014, through an expansion of Medicaid eligibility and through federal subsidies.

Conaway said moving the exchange bill through the committee means “We are one step closer to a world where people who need insurance will have access to it. People who are insured have a better health status; that has been proven over and over again.”

He added that once the exchange is up and running “small employers and small businesses and people who are self-employed and have been waiting for decades for relief from the high cost of insurance now will have a mechanism to achieve the insurance that they need.”

Conaway said that opponents of the bill said the opponents “are concerned about the fact that the exchange is going to evaluate what the health plans are offering to the public.” When the plans request rate increases “the exchange is going to be reviewing them and making their own evaluation.”

The exchange will also oversee the operation of the exchange marketplace in an effort to avoid “adverse selection,” a phenomenon in which those in poor health flock to purchase insurance, thus increasing the risk level of the pool and driving up costs.

He said there is nothing in the legislation that would necessarily cause the exchange to exclude a carrier, but he said opponents of the active purchaser system are concerned that its impact would drive some carriers out of the market. “There is nothing [in the bill] that says that this is going to happen. But this is the fear.”

The consumer advocacy group New Jersey Citizen Action issued a statement in support of the bill. “While there could be stronger language giving the exchange more authority to negotiate with insurers for the highest-quality, most-affordable options for consumers, the bill in its current form aims to promote fairness in the private market, and is a big improvement over what we have now.”

2012 is the year that the first major components of the federal Affordable Care Act will be put in place nationwide. The top priority, at least in New Jersey, is to develop a health insurance exchange — a virtual marketplace that will let individuals and small businesses comparison shop for coverage.

Trenton needs to get the job done by June 30, which is the deadline to apply for an estimated $5 million in long-term federal grants to actually implement the government-mandated insurance exchange.

Health insurance exchanges are a key part of federal healthcare reform. Supporters believe that if exchanges are done right, they could broaden health insurance choices and simplify the decision-making process. Some advocates argue that online insurance exchanges can reduce the cost of health coverage, though that point is definitely in contention.

In 2010, New Jersey received an initial $1 million federal grant that has funded an extensive planning process directed by the state Department of Banking and Insurance. The Rutgers Center for State Health Policy (RCSHP) was commissioned by DOBI to evaluate various policy options the state must address as it designs an exchange, and to convene forums of stakeholders — healthcare providers, insurance companies and brokers, consumer advocates, and business groups — to gather their views on what the exchange should look like.

The center, led by director Joel Cantor, has held more than a dozen stakeholder forums over the past few months. Those gatherings have resulted in at least one key point of agreement: New Jersey should create and run its own exchange. If it doesn’t, the federal government will step in and run the exchange for the state.

“Failure to plan,” said Marshall McKnight, spokesman for the DOBI, “means ending up with a federal exchange by default. By planning, we’re keeping New Jersey’s options open.” Some close to the process also believe that a state-run exchange will simpler for individuals and small businesses to use.

At the same time, RCSHP has identified major points of disagreement among key stakeholders. Consumer advocates, including New Jersey Citizen Action, want the exchange to be an “active purchaser” that negotiates with health insurers to bring down the cost of coverage. Said Jeff Brown, Citizen Action healthcare campaign coordinator, “We want the board [that governs the exchange] to be able to actively negotiate with insurance companies for the best prices for consumers.”

But health insurers and brokers want the exchange to be an open clearinghouse, where health plans market policies and compete for customers. Ward Sanders, president of the New Jersey Association of Health Plans, said any health plan licensed in New Jersey ought to be free to sell policies on the exchange, and let the marketplace determine pricing.

“The vast majority of the healthcare premium dollar goes to provide healthcare, and there is nothing about the exchange that is going to change that.” He said health plans already use their leverage to negotiate rates with hospitals, doctors, and other care providers, and if the exchange steps into the marketplace as an active purchaser, plans that can’t meet its pricing targets might be shut out of this new marketplace. “And if you are a plan that gets shut out of the exchange, you have to wonder why you’re doing business in the state,” Sanders said.

That sentiment is seconded by Larry Altman, vice president, Office of Healthcare Reform at the state’s largest health insurer, Horizon Blue Cross Blue Shield of New Jersey.

“Exchanges will work best if they promote competition, consumer choice, and transparency,” Altman said. “It is also important that the exchanges treat all competitors equally. Creating a level playing field will ensure that consumers have a range of choices, while still having the security that all the products are actuarially and financially sound.”

Altman indicated that Horizon is gearing up to serve the tens of thousands of new health insurance shoppers who will be drawn into the market by the ACA. “We are preparing to ensure that consumers, including many who are currently uninsured, have a positive experience and have the information and tools they need to make informed decisions.”

Another key issue for the legislature: should the board that governs the exchange include stakeholders, such as health insurers, healthcare providers, and consumer advocates? Here again, Trenton has sharply differing views to sort out: insurers want stakeholders on the governing board, while consumer advocates want board members with no current ties to the health industry.

“We want to make sure that board is composed of independent experts who are free from conflicts of interest,” Brown said. Citizen Action wants to see a separate advisory board that will enable stakeholders to provide input to the governing board.

Another issue that Rutgers is wrestling with is whether New Jersey should have one exchange that sells policies to both small employers and individuals, or whether those markets should be separate. It also is considering the pros and cons of establishing a Basic Health Plan to ease the transition for individuals moving between Medicaid and commercial health plans.

On November 15, the center convened a wrap-up session addressed by Seton Hall Law School professor John Jacobi, who wrote a research paper on how the exchange should be governed, a project conducted with the RCSHP and funded by a grant from the Robert Wood Johnson Foundation. Jacobi proposed that the exchange be a quasi-independent arm of the state that would be “in, but not of” a department of state government.

Trenton is moving forward to implement the ACA — although progress has been in fits and starts. In 2010 the Assembly passed an exchange authorization bill sponsored by Assembly Health Committee Chairman Herb Conaway (D-Burlington). That bill hasn’t come before the Senate for a vote and legislative sources expect the process to start over when the new legislature takes office later this month.

State Sen. Joseph F. Vitale (D-Middlesex), incoming chair of the Senate health committee, said “It is my intent after the first of the year to sit down with DOBI and talk about what they are designing and what we have in mind. We have to have a meeting of the minds on this; this has to be done legislatively.” Vitale said that while Gov. Chris Christie is on record as not supporting the ACA, the governor has made it clear that he “will do what is right for New Jersey.”

The ACA is expected to significantly reduce the ranks of the uninsured, who now number an estimated 1.1 million New Jerseyans. The RCSHP estimates that 444,000 of the state’s uninsured will get covered in 2014, either by purchasing coverage on the exchange or by enrolling in Medicaid. Excluding the elderly, who are covered by Medicare, the RCSHP estimates that the ACA will reduce the percentage of uninsured New Jerseyans from 14.5 percent to 8.6 percent.

The state’s Medicaid rolls will grow significantly in 2014, when the ACA broadens Medicaid eligibility nationwide to 138 percent of the federal poverty level. According to the RCSHP, an additional 234,0000 New Jerseyans will join Medicaid in 2014; currently more than 1 million residents are covered by the program.

The RCSHP projects that New Jersey will still have 684,000 uninsured adults in 2014, of whom about 40 percent will be undocumented immigrants.

To ensure that insurance coverage is affordable, subsidies will be provided on a sliding scale based on income, up to four times the federal poverty level. That means that for a family of four, subsidies would be available up to a householder income level of about $88,000 a year. Cantor estimated that 320,000 New Jerseyans will be eligible for subsidies to help them afford to buy coverage from the exchange in 2014.

New Jersey has some of the highest health insurance rates in the nation. Cantor said a standard policy purchased today in the state’s individual market can easily cost a 50-year-old single person more than $500 a month.

Regardless of all the work going on in Trenton, national legal and political forces threaten to derail the ACA. The U.S. Supreme Court is expected to rule by June on the constitutionality of the law’s “individual mandate,” which requires most Americans to either get health coverage or pay a fine.

If the court overturns all or part of the law, its implementation could be aborted. The March 2010 enactment of the ACA was the centerpiece of President Barack Obama’s domestic agenda — and if he loses the 2012 presidential election, his successor might lead a movement to repeal the ACA or to thwart its continued rollout.

But the state has no real alternative but to forge ahead.

McKnight explained that New Jersey will need a robust information technology infrastructure, so insurance companies will be able to sell policies online via the exchange. DOBI has a consulting contract with KPMG LLC “to perform a gap analysis of our current state IT and operational capabilities and those required to run an exchange,” McKnight said.

June 30 is only the first critical deadline the state must meet. The next, said McKnight, is January 1, 2013, when the federal Department of Health and Human Services “will decide if we have sufficient planning and resources in place.” If the answer is in the affirmative, open enrollment will begin October 2013 and the program should be fully up and running on January 1, 2014.

Christ Hospital in Jersey City is the latest New Jersey hospital to seek a merger with a larger, financially stronger system, looking to survive the new normal for healthcare, in which government, employers, and health insurance companies are trying to clamp down on the double-digit growth in spending. These financial pressures are most critical for safety net hospitals like Christ, which each year rack up huge deficits caring for the poor and uninsured — hospitals that would be very deep in the red without millions of dollars in state aid.

Christ is asking state approval to be acquired by Prime Healthcare, a for-profit company that owns 14 California hospitals. The transfer must be approved by both the state attorney general and the commissioner of health. And while Christ chief executive officer Peter Kelly has asked for an expedited review so he might close the deal by December 31, he said the complexity of the merger means it’s unlikely to happen before next year.

Kelly said Prime plans to invest $35 million in Christ, money that would put the hospital on a sound financial footing and enable it to invest in the new equipment it sorely needs.

“Christ Hospital is losing money every day,” Kelly said. “We have reduced our losses substantially, but the sooner we transfer the ownership, the sooner Prime can invest the money we need for working capital and equipment– everything from a new CAT scanner to new patients beds and new waiting room chairs that we can’t afford right now. The idea is to take a financial burden off the state’s back.”

Christ has a staff of about 1,400, mostly nonunion. The 400 nurses are represented by the Health Professionals and Allied Employees union. Spokesperson Jeanne Otersen said HPAE isn’t opposed to the deal with Prime, but said “any change at Christ needs to protect the mission of the hospital, the services it provides, and the jobs.”

Opposing the sale to Prime is Joseph Scott, chief executive officer of Jersey City Medical Center, who instead wants a merger of JCMC and Christ. Scott noted that a study issued in July of the Hudson County hospital market, commissioned by the state and conducted by the Navigant consulting firm, found there are excess hospital beds in Hudson County and recommended consolidating services among the county’s hospitals. This countywide clinical integration, according to Navigant, would both improve quality by providing a critical mass of clinical expertise and reduce cost through efficiencies. Scott said he favors an open bidding process for Christ, which has instead chosen to negotiate exclusively with Prime. “I’m hoping the attorney general comes back and says ‘put it out for bid’ and then everyone gets a chance to put their best foot forward.”

Scott would retain a portion of Christ Hospital as an acute care hospital and convert the balance to a “medical mall” that offers a variety of services that could include doctors’ offices, mammograms and other imaging services, and a subacute nursing facility. Scott said JCMC would bid for Christ with partner Community Healthcare Associates, led by E. Stephen Kirby, a former chief executive officer of LibertyHealth, the parent of JCMC. In 2008 CHA redeveloped the former Barnert Hospital in Paterson into a medical mall and in October acquired the former William B. Kessler Memorial Hospital in Hammonton in order to develop a medical mall there.

Kelly doesn’t dispute the Navigant report’s conclusion that Hudson County hospitals need to combine services. But instead of having those conversations now, he wants to wait until Christ is financially stabilized by merging with Prime.

“If we can be acquired by Prime, and we are financially stable, then we can have much more meaningful discussion [about combining services] if we are speaking from a position of stability as opposed to instability,” Kelly said “After the acquisition goes through, there is nothing that would preclude us from advancing discussions with the other hospitals in Hudson County and the state to look at a meaningful way to reshape how healthcare is delivered. Because we will all have to address that.”

Kelly said his offer to discuss clinical partnerships with the other county hospitals is included in the certificate of need application requesting merger approval with Prime that Christ submitted to the attorney general and the state health commissioner. A spokesperson for the health department said the certificate won’t be made public until it is deemed complete by the state.

Kelly said the state requested nearly 50 additional pieces of information to supplement the application and “we just sent down three bound folders of information for the attorney general to review.” He said he’s concerned that critics of the deal “are trying to insinuate that this is being done behind closed doors. We’re not going through any back doors here—this whole process will be public.”

Concerns have been raised by news reports in California that several Prime hospitals have had unusually high levels of the infection septicemia and that Prime has engaged in questionable billing practices know as “upcoding” to increase reimbursements from health plans. Kelly said he personally reviewed the California health department documents relating to these issues and is satisfied the allegations are without merit.

Ward Sanders, president of the New Jersey Association of Health Plans, said he wants to make sure that if Prime acquires Christ, it is willing to negotiate managed care contracts with the state’s health insurance companies and not operate out-of-network, which Sanders said could raise healthcare costs and lead to higher expenses for health plans and their members, who include unions, employers, workers, and individuals.

Kelly said all these issues will be aired thoroughly at separate hearings by the attorney general and the state health department.

Scott said he is concerned that as a for-profit hospital, Prime will be less willing to provide charity care to uninsured patients. Prime “has to make sure their investors get paid, and I don’t want our hospital to become a dumping ground for all the charity care they don’t want to take care of,” he said.

According to Prime spokesperson Edward Barrera, Prime wrote off about $140 million in charity care in California last year. “We are an award-winning hospital, with nine of our hospitals recently cited for their quality by the Joint Commission,” the national hospital accrediting body, he said.

In October, deficit-plagued Hoboken University Medical Center, another Hudson County safety net hospital, was acquired by the for-profit company that owns Bayonne Hospital. The state-owned University Hospital, a Newark safety net hospital, is in discussions that could result in its merger into the not-for-profit healthcare system Barnabas Health, whose six hospital includes Newark Beth Israel Medical. University is the principal teaching hospital of University of Medicine and Dentistry of New Jersey; a task force appointed by Gov. Chris Christie is expected to issue a report in December that could recommend dismantling UMDNJ. The task force has already proposed shifting UMDNJ’s medical school in New Brunswick to Rutgers.

Hospital executives confirm that merger discussions are widespread throughout the state, and involve financially healthy standalone hospitals looking to join larger systems, so they will be able to compete in the wake of the 2010 Affordable Care Act. The ACA reduces Medicare reimbursement to New Jersey hospitals by a total of $4.5 billion over the decade beginning in 2011. The state’s share of Medicare reductions to the U.S. hospital sector were agreed to during the Congressional debate over the ACA, to help pay for the expansion of health coverage to an estimated 30 million uninsured American in 2014, which is the central goal of the ACA.

Both Jersey City Medical Center and Christ Hospital were among the bidders for Hoboken University Medical Center. But the Hoboken Municipal Hospital authority said it chose the Bayonne group because it offered the best hope of keeping Hoboken as a full-service acute-care hospital and saving the jobs of its more than 1,000 workers.

Kelly said that when he joined Christ in 2005 it was losing $3 million a month; he’s been able to reduce the losses to under $1 million a month. Without the $7 million in stabilization funds the state provides to safety net hospitals, Christ would lose about $10 million this year. But some question why, with such huge losses, Christ Hospital should continue to operate a free-standing, independent hospital.

According to Kelly, the city needs the services that Christ is able to provide as a full-service hospital. “We have 50,000 visits to our emergency room every year and we [admit] about 12,000 patients a year. We are in the middle of a medically underserved area in Jersey City. We service a substantial portion of Jersey City that is not served by other hospitals, as well as Union City and Secaucus.”

The news that Dr. David Shulkin, president of Morristown Medical Center, is launching a doctor-owned primary care practice that could eventually number hundreds of physicians was greeted yesterday as evidence that the changes sweeping U.S. healthcare are making their way to New Jersey—a state still dominated by small practices that struggle to buy expensive digital medical record technology while facing pressure to improve quality and lower cost.

Shulkin launched the Primary Care Partners group by signing up seven North Jersey primary care practices.

Shulkin also is vice president of Atlantic Health, the healthcare system that owns Morristown Medical Center, Overlook Medical Center in Summit, and Newton Medical Center. Atlantic Health created PCP, then made Shulkin the majority stockholder and president. The initial 15 doctors bought stock, and as more doctors come on board they will also buy stock. Shulkin’s equity will shrink, until he is one of hundreds of member doctors who own the practice, he explained.

A primary care practice with hundreds of doctors is unusual in New Jersey but increasingly common around the country. “When I tell people what we are doing,” Shulkin said, “they ask, ‘what took you so long?’”

Annette Catino, chief executive officer of the managed healthcare network QualCare, said PCP “Is preparing for the future. Healthcare reimbursements are going down and everyone — hospitals and doctors — have to figure out a better way: more efficiency with less money. And they will be held to a higher standard; there will be more accountability for the quality of the care they provide.”

Catino said Shulkin is in the vanguard of an accelerating consolidation movement among doctors and hospitals. “We will be hearing about more and more of these deals; a lot are being worked on behind the scenes” she said, citing Barnabas Health and Hackensack University Medical Center as those building physician organizations.

Shulkin runs Morristown Medical Center. “I am a primary care doctor. I have a strong belief that primary care doctors are having a very tough time. You need to have a certain size group to meet all the increasing demands — so I’m helping create a future model of primary care.”

Shulkin said his goal is to build a 300- to 400-doctor primary care group, adding that dozens of doctors are considering joining. He pointed out that he has experience running a large doctor group: Atlantic Health employs 300 doctors, but they are all specialists.

PCP’s mission “is to figure out a way [for primary care] to survive and thrive in the complexities of the medical environment,” Shulkin said. He noted that the future is expected to usher in new payment systems, with doctors getting bundled payments instead of a fee for each service — a practice that is widely blamed for much of the soaring cost of healthcare. “There are new ways of thinking about how we have to manage populations of patients,” said Shulkin. Delivering cost-effective care, he said, requires technology to measure the impact of care on patient health. “If we don’t have a robust primary care community, we are never going to achieve any of the goals that most of us are hoping for the country.”

Raymond J. Saputelli, chief executive officer of the New Jersey Academy of Family Physicians, said there is a “strong trend toward physician integration” with other doctors or with hospitals, “because smaller practices don’t have the resources to remain viable in the current environment.”

Joining a larger group, Saputelli said, provides the opportunity for clinical integration, in which the patient’s care is coordinated by the primary care doctor working in collaboration with specialists. The key, he said, is ensuring that a larger organization “does not remove the family physician’s independence to practice primary care the way they are trained.”

When a doctor joins PCP, “the first thing that will happen is you get a group of experts to come in and install electronic medical records in your practice,” Shulkin said—an investment that many doctors have resisted, both because of the expense and the time it robs from their patients.

PCP is collaborating with the physician practice management firm Continuum Health Alliance, which will provide technology, administrative support, and other services. Dr. John M. Tedeschi, chief executive officer of Continuum, said the government wants to see “more integrated doctor groups that can provide the technology and the infrastructure so that we can begin to measure the care we are giving.”

For the most part, New Jersey doctors are lagging in the adoption of electronic health records that can be used to keep track of whether patients get routine screenings and preventive care and whether their health is improving.

Most practices “are small and this is very complicated work. You need the ability to do analysis to measure the clinical care you give and make sure the patients benefit from it,” said Tedeschi. The challenge, he said, is to use technology, clinical integration, best practices and other tools to prevent healthcare from consuming 20 percent of GNP in the future—up from the current level of about 17 percent. He said patients have to become partners with the healthcare system: “We can’t continue on this streak of obesity and heart disease and diabetes.”

PCP will recruit physicians in the area served by Atlantic’s three hospitals: Morristown, Overlook, and Newton. But Shulkin said PCP is not designed to be a source of admissions for those hospitals. Atlantic traditionally defined itself as a hospital system “but that is no longer the case — you have to think about our job. We are a not-for profit, a healthcare system, not a hospital system.”

“This is not about having doctors admit patients to our hospitals, it is about making sure that primary care doctors in this community see it as a viable place to set up a practice and earn a living,” Shulkin explained. He added that when PCP doctors retire, the practice will have the means to bring in new doctors. Today, doctors retire and close their practice for want of a young doctor who can afford to take over.

David Knowlton, CEO of the New Jersey Health Care Quality Institute, said Shulkin is a very savvy businessman who is totally committed to quality: “He believes that quality is the best marketing in any healthcare venture.”

Shulkin is leading the creation of a Medicare Accountable Care Organization at Atlantic Health, which will be part of the shift toward paying hospitals for higher-quality outcomes, known as gain sharing. Building a large primary care practice fits into this strategy, Knowlton said, because it is generally thought that an ACO needs to oversee a large and integrated group of patients. It’s tough for primary care doctors to survive in solo or small group practices, and Shulkin “is trying to figure out a way to put the doctors in an environment that will work for them.” There will be more deals like this coming: “You are going to see a deal a minute,” he said.

New Jersey wants to remake its Medicaid program to improve healthcare and save money, goals applauded by many in the medical community. But the state was counting on a $107 million refund from the federal government to help its efforts, money it looks unlikely to get — at least not in time for this fiscal year’s budget.

That doesn’t mean Medicaid reform is in jeopardy, but the state has more work to do if it’s going to meet its targets, which call for a Medicaid makeover by next July.

The clock is ticking. Meanwhile New Jersey is still waiting for the federal government to give its approval to a 160-page Medicaid Reform Proposal known as the Comprehensive Waiver. Submitted in September by the state Department of Human Services (DHS) to the federal Centers for Medicare and Medicaid Services (CMS), the waiver was meant to save $300 million this fiscal year, through major changes to the $11 billion Medicaid program. Those revisions included contracting with managed care providers to oversee adult behavioral health and long-term care.

But a third of that $300 million was slated to come from a $107 million Medicare refund that the state is seeking from the federal government. Now it appears that New Jersey can’t count on that money, at least not anytime soon.

“The $107 million would have been welcomed, and we were pushing very hard to get it. It would have been a quick source of funds and revenue for us,” said Valerie Harr, who oversees Medicaid as director of the Division of Medical Assistance and Health Services in the state Department of Human Services.

“It is disappointing news,” Harr continued. “But we are constantly updating our forecasting, and there are a lot of factors that go into projecting the Medicaid [budget] and this will be one component.”

This isn’t the first time this year that New Jersey has been frustrated in its attempts to save money on Medicare. The state originally proposed saving $32.5 million by imposing income restrictions on new enrollees in New Jersey FamilyCare, the state-funded expansion of Medicaid. But it backed off in the face of vocal protests from legislators and stakeholders. The rules didn’t change: parents earning 133 percent of the poverty level can continue to sign up for the program.

The state had also floated a plan requiring Medicaid members to pay a $25 co-pay for emergency room visits, but backed off on that as well, in face of opposition.

But how does a Medicare matter affect New Jersey’s Medicaid budget?

Harr explained that New Jersey is among several states seeking a total of $4.2 billion in Medicare refunds. For years, care that should have been billed to Medicare by the Social Security Administration’s disability program was erroneously billed to Medicaid, a joint state and federal program. New Jersey’s portion of that refund would be $107 million.

Sean Hopkins, senior vice president of the New Jersey Hospital Association, has closely monitored the state’s efforts to get the Medicare refund. “For a couple of decades the Medicaid program was covering services to people who were eligible for Medicare,” he said. When the snafu came to light, he said at one point the federal government suggested that the states should get their money back from the healthcare providers, then ask them to rebill Medicare. “That will not happen. The claims would not be timely. They are very old claims. And to have the providers have to go back and bill Medicare would be a tremendous burden,” Hopkins said.

Several years ago the states seeking the refund formed a coalition and hired a Washington law firm to help them resolve the issue.

“Initially, the states were trying to get a legislative fix, and there were various efforts to have it fixed at the legislative level” by Congress, Harr said. “Ultimately there was a proposal to try to have an administrative solution, and conversations with HHS were positive,” she added. It appeared that the federal government “was willing to work with the states around this issue.”

But Harr said the tide of the negotiations turned in late October, when the general counsel of HHS “reported back [to the coalition] that the secretary of HHS does not have the authority to provide the administrative remedy that the states were hopeful” of receiving.

Since an administrative fix by HHS is off the table, Harr commented, “We probably are not going to be able to count on receiving that $107 million, at least in the short term.” She noted that she has not yet had “conversations with the governor’s office or even with our chief financial officer [in DHS], so I don’t know in terms of budgeting what the decision will be.”

The rest of the $300 million savings reflect changes the state is seeking in the Medicaid program that are detailed in the Comprehensive Waiver. Harr said the CMS came back with about 200 questions, and when the issues are resolved the agency will decide whether to approve all or part of the waiver.

“We need to look at our latest spending projections” which she said will be affected by the timing of the CMS ruling on the waiver, and then the timing of the changes spelled out in the waiver. “Then we will have to make the decision about how much of that $107 million we need to account for.”

Suzanne Ianni is chief executive officer of the Hospital Alliance of New Jersey, whose members are “safety net” hospitals that provide care to the inner city poor and typically have the largest Medicaid and uncompensated care caseloads. Ianni said she supports the waiver and appreciates the fact that the it does not propose cutting Medicaid reimbursements to her member hospitals.

According to Ianni, the waiver “is truly a reform document aimed at innovative strategies to both streamline Medicaid’s administration and improve the health of Medicaid patients through programs such as medical homes and Accountable Care Organizations. We sincerely appreciate that the Christie administration refrained from provider cuts as New Jersey’s Medicaid rates are already some of the lowest in the nation.”

It’s too early to predict the impact of the state’s not getting the $107 million to plug into the current budget. “As the year rolls on, there are a lot of moving parts in the budget,” Hopkins said. “The budget is a blueprint for what you expect to happen, and then real experience replaces it.”

Common wisdom in the healthcare industry: emergency room visits represent the biggest cost to hospitals. Then why is Robert Wood Johnson University Hospital in Hamilton mounting a marketing campaign to pull patients into its ER? Its recently announced 15/30 pledge promises a medical evaluation within 15 minutes of arrival and an exam within 30.

Robert Wood Johnson is hardly alone. Hospitals across the state are expanding their emergency departments and striving to cut waiting times to compete for patients.

Meanwhile, the state is struggling to reduce ER use by Medicaid recipients.

Suzanne Ianni , CEO of the Hospital Alliance of New Jersey, whose members include “safety net” hospitals in cities with large charity care and Medicaid caseloads, helps reconcile these two trends. She said hospitals are advertising their low ER waiting times in order to attract patients with commercial health insurance, which pays better rates to the hospital than Medicaid.

“It’s not going to help [the hospital] if they get more charity care and Medicaid patients through the door,” she said.

Skip Cimino, CEO of Robert Wood Johnson University Hospital also believes that these trends are not diametrically opposed.

“The state is trying to do a good thing as it relates to ED” use by Medicaid patients, Cimino said. He noted he has worked with the state Department of Human Services (DHS) to reduce trips to the ER for less acute conditions by improving primary care for Medicaid members. But Cimino said a patient who already has a family doctor “will call their doctor in the middle of the night, and the doctor will say, ‘go to the ER.’ It’s our responsibility to take care of them.”

Emergency room use is on the rise nationwide, from 123.7 million visits in 2008 to 136 million in 2009, the most recent figures available from the Centers for Disease Control and Prevention. Cimino did not have stats for New Jersey, but he estimated that ED visits have been flat in recent years, and that hospitals that attract more visits are gaining market share from other hospitals.

Cimino said it took several years to revamp the Robert Wood Johnson ED to make the 15/30 pledge feasible. Dr. Eileen Singer, chair of the department of emergency medicine, said changes included putting teams with a doctor, two nurses and a technician in zones “where they just treat a certain amount of patients and they aren’t walking back forth.”

Nationwide, more than half of hospital admissions come in through the ER, but that figure is 70 percent for RWJ, according to Cimino. “So our focus on emergency medicine impacts the whole hospital.”

The state addressed what it sees as excess ED utilization in the waiver it submitted to the federal government, seeking to reform its Medicaid program. The waiver states that DHS will appoint a task force to recommend by January 1 how to reduce non-emergency use of the ER, which could include requiring co-payments from Medicaid members and creating “ER diversion programs.” According to DHS, 62 percent of Medicaid visits to the ER are for non-emergency issues.

Ward Sanders, president of the New Jersey Association of Health Plans, the trade group for health insurers, is opposed to emergency room care for non-emergencies. “Quality and cost suffer if patients receive non-acute care in the ER,” he said. “Quality is affected because a primary care physician is much more likely to know a patient’s medical history and baseline medical status, which can be used as part of decision-making on how to proceed, and is better equipped to manage follow-up care.”

Sanders continued, “A hospital ER doctor may not have access to medical records or have a relationship with the patient. Cost is affected because the cost of care for something like the common cold in an ER is significantly higher” than in a primary care physician’s office. He added that the cost differential extends to NJ FamilyCare, which is the state’s expansion of Medicaid. Sanders said the higher cost “affects taxpayers, as the state is the ultimate payer for NJ FamilyCare and the State Health Benefits Program, and other payers.”

Sanders said it’s difficult to solve what he sees as a problem of excess ED use, “but it certainly is made worse by hospitals actually advertising for low-acuity care. We would like to see the practice of advertising for low-acuity care restricted or banned.”

Dr. Michael Gerardi is on the board of the American College of Emergency Physicians and director of pediatric emergency medicine at Morristown Medical Center. He said ED visits are on the rise “because people realize the ED is the best place to get an answer as quickly as possible for whatever ails them. We have a lot of tools available to us: you can get a CAT scan or an ultrasound and a total work up in six to eight hours, instead of several days.”

He said Morristown is in the midst of expanding its ED, which now sees about 85,000 patients a year, a number he expects will rise to 100,000 in three years. He said someone who is seriously ill should not drive longer to get to a hospital with a shorter wait time — since all ED’s triage patients to make sure the sickest are seen immediately.

Gerardi estimated that 40 percent of Morristown’s admissions come through the ED “so a healthy thriving ED is key to a hospital’s success. You want the doctors in the community to be comfortable referring people to your hospital.”

He said there is a shortage of doctors to provide primary care to Medicaid patients in part because Medicaid reimbursement rates are so low. He said he receives about $28 to treat a Medicaid patient in the ED.

In September, Hackensack University Medical Center began posting wait times online for its satellite emergency room at Pascack Valley “to better communicate with our patients and their families. So far the reaction has been great. Patients and families know what to expect, even during the busiest times of the day,” said Darlene Cox, administrative director, Emergency Services.

“Wait times are calculated based on the average of the two-hour period prior to the posted estimate. Times are calculated from check-in to when the patient is seen by a physician,” said Benjamin Bordonaro, acting chief information officer and chief technology officer.

Dr. David Istvan, chief of the ED at Englewood Hospital and Medical Center, said in 2009 the ED was renovated for $30 million and now has 40 private rooms where family members can stay with the patient. He said it’s essential for a hospital to have a first-rate ED, because the community sees the ED as the center of the hospital. And with patient admissions expected to decline in the future, and more complex procedures done on an outpatient basis, the ED will increasingly be the public face of the hospital.

“In the minds of the public, the hospital is an ED with lots of different departments to support it.” He said patients chose to go to the ED instead of the doctor’s office for various reasons, and it’s difficult to second guess that decision.

“Sometimes they have a good reason for going to the ED and sometimes not. They may not have a doctor, or the doctor is not available, and they make the decision themselves,” he said.

New Jersey saves a total of $153 million next year through two major programs aimed at retirees. Costs have risen too, as dependent children are covered longer, insurers are banned from capping medical payouts and existing plans lose grandfathered status and must comply with new rules.

Where it saves, where it costs
Federal health care reform has already had a sizable impact on the costs of providing coverage to New Jersey’s government employees. In the coming year, the state is estimated to save around $153 million through health reform, with more programs in effect than last year. At the same time, new costs are expected to be $55 million. Projected savings are three times higher than likely costs.

But those new costs total $55 million, according to projected figures provided by the state Treasury. That makes for a net savings of $98 million. The figures cover only the costs to cover health care for state, local and school board employees, and do not yet account for additional costs and savings to any state departments or agencies that will start to comply with the law in 2014.

Because states must comply with the federal law, extra costs are unavoidable, but New Jersey applied for the programs allowing the larger savings.

Christie opposes law
Governor Christie has spoken repeatedly about Obama’s reforms, most recently calling the Affordable Health Care Act “a government takeover of health care.” But his administration has pursued programs that bring federal health care reform dollars to bear on state health care expenses.

Michael Drewniak, a Christie spokesman, said the governor’s opposition to the national policy had not stopped his administration from seeking opportunities to save. “Governor Christie has always said that, while he disagrees with the federal health care law and that it imposes on the historic powers of states to regulate health insurance, he is bound to respect it while it is the law of the land. In the meantime, we will comply with the law in its current form in the way that is most advantageous to New Jersey and its citizens.” The three-to-one savings ratio has already meant money was available to offset premium raises for certain retired state workers.

This month, some retirees who worked for the state learned their premiums would remain flat, as state actuaries announced the price of government worker health care plans in 2012.

To do that, the state spent about $20 million of a roughly $90 million windfall, achieved this year as the state health care plans use an employee group waiver plan to manage retiree prescription costs. The remaining $75 million in savings return to state coffers. Alongside that, savings from an Early Retiree Reinsurance Program will total an estimated $78 million. The early-retiree program creates a federally funded reinsurance program for employer-based early-retiree plans, which reduces the burden on state insurers. It pays for up to 80 percent of costs incurred and paid, between $15,000 and $90,000 per eligible early retiree, spouse or dependent, each year. Cost drivers from the national changes come from two new mandates, and a further rollback of grandfather status for certain health insurance plans.

Covered till 26
As part of the federal changes, the definition of “dependent” will change, and dependent children must be covered by health plans up to age 26. Public workers are expected to subscribe their dependent children into family health care plans in higher numbers, meaning that the three state, local and school board employee insurance groups each expect to spend up to $10 million each to meet that demand.

In the most expansive change, the Affordable Health Care Act implemented a Patient’s Bill of Rights, which sponsors said would stop insurers from denying coverage to children with preexisting conditions and making lifetime dollar limits on coverage illegal.

The removal of payout caps will cost an estimated $30 million in state coverage for employees next year.

As insurance premiums increase and small business revenue slides, more people are finding themselves without medical coverage in New Jersey.

This week, the Kaiser Family Foundation released a survey showing a 9 percent increase nationally in annual premiums to provide health coverage for a family of four.

Christine Stearns of the New Jersey Business and Industry Association said the rise in New Jersey matches the national trend. But it does not tell the whole story about premium increases.

The initial rate increases for renewing health insurance policies have risen more dramatically, causing employers in the state with fewer than 50 workers to cut coverage or raise copays and contributions, said Stearns, vice president of legislative and legal affairs for the association.

“What I’m hearing is that there are 10 to 20 percent initial premium increases” for 2011, Stearns said. “It used to be that small employers would look at items like physical therapy and make decisions on how many visits would be part of the plan. Now, they’re making hard decisions like whether they can afford prescription drug coverage at all.”

Rising costs and dwindling revenue from the economic downturn have forced more businesses to drop insurance coverage for their workers altogether, Stearns said.

Since the first quarter of 2008, the number of people who have health care coverage through their small-business employers has declined by more than 160,000, according to association and state figures.

Still, New Jersey still stands strong in insured employees compared with other states. It ranks fourth nationally in the percentage of firms that offer health insurance to workers, Stearns said.

But workers for both small and large businesses are feeling the pinch of rising copays, reduced coverage and higher contributions.

“It’s been constantly going up about 20 percent every year for the past five years,” said Agnes Boywitt, 64, of Freehold Township, who works for a large company in northern New Jersey.

The increases are one of the big factors that caused her and her husband to cut out vacations and trim other spending, Boywitt said.

“We used to go antiquing and to car shows, but not anymore,” she said.

Eating out usually means splurging on breakfast, she said.

Higher costs for services and an increase in the use of those services has led to the premium increases, said Wardell Sanders, president of the New Jersey Association of Health Plans, a trade group.

New technology is part of the rise in costs for insurers across the country, Sanders said. Cutting-edge chemotherapy drugs can cost $100,000 a year for a patient, he said.

Some fees from out-of-network providers are exorbitant, he said.

“We’ve seen a meaningful number of providers charging outrageous sums,” Sanders said.

And New Jersey has the highest end-of-life care costs in the country, he said.

Sanders said that large companies that have self-funded insurance programs are seeing similar increases in costs.

An attorney representing health care providers in New Jersey said it’s easy for insurance carriers to pin increased premiums on the providers.

“At a minimum, it’s a dramatic overstatement to say it’s provider costs,” said Mark Manigan, a Roseland attorney. “Anyone would be hard-pressed to find a health care provider who is making more money now on the same volume than they did two years ago. Reimbursements are not going up, they’re going down.”

Kaiser’s survey found that annual premiums for insurance through employers average $5,429 for a single person and $15,073 for a family of four in 2011. Those rates rose 8 percent for single people and 9 percent for families, from the previous year. In 2010, premiums rose just 3 percent for families from 2009.

Marjorie Perry, the president of MZM Construction and Management in Newark, said sharply higher health insurance costs have forced her to reduce staff.

“You’re almost looking for employees who have other means of getting insurance,” Perry said. “You’re excited when they say they don’t need coverage.”

Five years ago, she paid $2,500 a month to cover eight employees and families. She now pays that for three employees and their families, who now do not have prescription drug coverage, Perry said.

Not all of the rise in premiums nationally can be attributed to higher health care costs.

Based on Office of Management and Budget figures, an estimated 1 percent of the rise came from changes resulting from the federal health care law enacted last year, said Gary Claxton, director of Kaiser’s Health Care Marketplace Project.

The changes he cited were children up to age 26 being allowed to remain on their parents’ insurance and requiring preventive medical services, such as annual examinations and colonoscopies, with no copay.

Premiums soon could go higher.

As Congress works to decrease the federal deficit by cutting spending for Medicare and Medicaid, policy experts say health providers will have to find money elsewhere, which could force insurance premiums higher for most Americans.

If health care spending is cut by Congress’ deficit supercommittee, “then those providers will look to get some of that back elsewhere,” Claxton said.

That, he said, will make it harder for private insurance companies to negotiate lower rates for employers and privately insured individuals.

The 12-member supercommittee must create a plan to reduce the federal debt by $1.5 trillion by Nov. 23, and Congress must vote on it by Dec. 23.

It is impossible to predict the supercommittee’s results, said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans. But offering less government health coverage could hurt those who do pay for insurance.

“Historically, these costs get shifted to people with private coverage,” he said.