New Ways to Lower Health Care Costs
The long-debated health care bill may cut costs if best practices prevail
April 1, 2010
As details about the health care bill unfold, one aspect has been underreported: a provision for bending the cost curve of health care down. And a good thing, if it works, since 22 percent of the $3.7 trillion federal budget goes to Medicare and Medicaid. The bill allows the government to provide seed money to institutions that create scalable models of innovative programs and procedures. It authorizes more than two dozen demonstration projects and studies and at least five pilot projects aimed at improving quality outcomes and slowing growth of long-term costs.
The Congressional Budget Office and many budget and health care experts are skeptical about how much can be saved from these initiatives. Much will be riding on the Center for Medicare and Medicaid Innovation (CMI), a newly created federal agency that has been granted considerable authority and leeway to find solutions.
One of the principal payment changes in the new law is a “bundled payment” pilot project to provide more coordinated care for Medicare beneficiaries. This national effort is aimed at conditions that require coordination from hospitals, physician offices and home health and rehabilitation facilities. Instead of paying for each service, the program will provide a single, comprehensive fee that covers some or all of the services and providers. Ken Thorpe, professor of health policy and management at Emory University, said, “The point of doing this is to really build integration into an amazingly fragmented delivery system.”
Bundling payments is a widely endorsed method aimed at reforming the fee-for-service system, a primary health care cost driver. But some doctors fear they will get shortchanged in a partnership with hospitals. Some also are concerned that patients may be hurt if providers skimp on services to maximize profits.
The advantage to doing pilot and demonstration projects is that they test new approaches on a smaller scale so that the techniques can be fully vetted and evaluated before being instituted nationally. But the real engine for instituting new, best practices may be the CMI, which will evaluate and disseminate successful community-generated care models that reduce costs and maintain or enhance care quality. The government plans to give CMI a $10 billion budget over the next 10 years. It will prioritize 18 initiatives that range from payment reform to electronic monitoring. Methods that work will be offered as models for the rest of the country.
Health and Human Services Secretary Kathleen Sebelius will choose and approve tests she considers appropriate and expand those she deems successful. The complicated work of reforming health care delivery may rest with Donald Berwick, President Obama’s expected choice to run Medicare and Medicaid. Berwick is president and CEO of the Cambridge-based Institute for Healthcare Improvement, which estimates that 30 percent of U.S. health care dollars, or about $700 billion annually, is spent on care that could be eliminated without reducing quality.
Karen Davis, president of the health philanthropy at the Commonwealth Fund, and David Cutler, a Harvard economist, concluded that the annual growth in expenditures can be reduced from 6.4 percent to 6.0 percent.
Gail Wilensky, an economist and senior fellow for Project HOPE, sees it differently. The most dramatic cost reduction measures in the reform were “neutered,” Wilensky argued, including increased taxes on high cost insurance plans (reduced and delayed) and definitive implementation of payment reforms. And unproven models could run into patient and doctor resistance and other implementation obstacles, she added. “Historically it has been a big leap from getting something that has promising results to actually getting it implemented,” she said.
Robert Moffit of the Heritage Foundation, a former Reagan administration official, said, “I think a lot of this is wishful thinking to be honest...” The biggest hope for cost reduction, he said, is greater emphasis on comparing the effectiveness of various medical treatments. But that would only produce savings if the government gets “really tough” and denies coverage to less efficacious services.
“Looking at this from 50,000 feet, have they changed the dynamics of the current system? No,” Moffit said. The new law, he continued, “Basically take[s] what is there and make[s] it more complex and more expensive. That’s what I see.”
But high powered advocates including Harvard associate professor, surgeon and writer Atul Gawande, endorsed the reform’s experimental approach in a piece in The New Yorker. “Our fee for service system, doling out separate payments for everything and everyone involved in a patient’s care, has all the wrong incentives: it rewards doing more over doing right, it increases paperwork and the duplication of efforts, and it discourages clinicians from working together for the best possible results….And the best way to fix all this—well, plenty of people have plenty of ideas. It’s just that nobody knows for sure.” Let the experiment begin.