Medicare’s Future: Will Spending Reforms Really Work?
Policy + Politics

Medicare’s Future: Will Spending Reforms Really Work?

It sounded like pie in the sky, but it came from the guardians of Medicare: the new health care reform law, they predicted, will not only extend health insurance to 30 million people but greatly slow the old-age health insurance program’s slide toward insolvency.

How? By forcing the health care industry to increase its productivity as quickly as most other parts of the economy. That, of course, hasn’t happened in decades, despite repeated effort, and the trustees pointedly warned that “specific changes have not yet been designed, tested or evaluated.’’

The trustees for Medicare and Social Security issued a report  last week predicting that the new health care reform law could generate so much better productivity that the Medicare trust fund could stay solvent until 2029 — 12 years longer than predicted just one year ago.

Many experts are deeply skeptical, but most analysts are even more convinced that the health care system is riddled with incentives to spend money without paying attention to actual results.

The new law pushed through early this year by President Obama and Democratic leaders contains scores of provisions aimed at transforming the way hospitals and doctors organize health care and how they get reimbursed. It creates an Independent Payment Advisory Board to come up with recommendations for boosting efficiency; a Center for Medicare and Medicaid Innovation to run pilot projects on new ways to deliver care; and a Patient-Centered Outcomes Research Institute to look at ways for getting better results.

The law is also filled with new buzzwords and pilot projects: “accountable care organizations,’’ “global payments,’’ and new “delivery models” like “medical homes.”

Anticipated Results

Will any of this produce results? Supporters of the new law say it could and it should, if only because there’s no reason why productivity in health care shouldn’t improve at about the same pace as airlines, retailing or manufacturing. “Medical care started out as a cottage industry, and we still practice the bulk of it like a cottage industry in the United States,” said Kativa Patel, a former policy advisor in the Obama White House who is now an analyst the New America Foundation. “It’s all splintered and in silos, and completely not centered around the patient.”

At least initially, the new health care law will deliver savings to Medicare whether or not the system becomes more efficient. That’s because hospitals agreed to accept slower increases in their reimbursement rates as part of a political bargain. Those concessions are expected to reduce hospital revenues by almost $40 billion over the next ten years.

As part of the political bargain, hospitals got two things in exchange: 30 million newly insured customers and an exemption until 2019 from cost-cutting recommendations to be made by the new Independent Payments Advisory Board. Robert A. Berenson, a fellow at the Urban Institute and a member of the Medicare Payment Advisory Commission, recently estimated that hospitals will reap about $40 billion in extra revenue from new patients — about equal to the revenue they are expected to lose.

At least initially, the new health care law will deliver savings to Medicare whether or not the system becomes more efficient.

Most analysts agree that health care needs a broad overhaul of the fee-for-service system of payments, which rewards hospitals and doctors based on the quantity of procedures they provide rather than on the outcomes for their patients. That’s why the new law calls for so many pilot projects to experiment with new ways of organizing medical care. Pilot projects are already underway for “medical homes,’’  which are supposed to provide patients with chronic illnesses a primary physician as well as specialists, who all work together.

“Accountable care organizations’’ are networks of hospitals and health care providers that will be reimbursed at least in part on the quality of health care they deliver. A five-year pilot project is already getting underway in New Hampshire, and the new health care law will create many more.

Though many of the ideas are based on the successes at institutions like the Cleveland Clinic and the Mayo Clinic, the new approaches would require wrenching changes for many health care providers and may not yield big improvements. But even if the new law does produce new “models”  for providing health care, the law doesn’t necessarily mean those ideas can be implemented.

The new law calls for two major studies on the regional differences in Medicare costs and results. The mandate reflects one of the hottest ideas in health care, which is that patients in some parts of the country have both lower costs and get better results than in other areas. Many reform advocates argue that Medicare could save vast amounts of money if health care providers adopted the “best practices’’ used in areas that get the best results.

A New Authority

But the new law stops short of mandating anything like that. Instead, it says the secretary of Health and Human Services should “encourage” the new Independent Payment Advisory Board (or IPAB) to consider the findings of the studies. If the boards wants, it can then “encourage’’ the Center for Medicare and Medicaid Innovation to test the ideas through pilot projects or other research.

Many supporters of health care reform are pinning their hopes on the new Independent Payment Advisory Board. The board, made up of experts, is required to come up with recommendations for limiting the rise of per capita Medicare costs. If costs are climbing faster than the target, the secretary of Health and Human Services is required to implement the board’s recommendations. Congress could veto the changes, but it would have to come up with alternative changes that save just as much money.

It’s the first time that an independent board has had that much power over Medicare rules. But it has big limitations. It is also barred permanently from recommending any actions that would raise taxes, increase premiums, cut benefits or tighten the eligibility requirements for Medicare. And though the board has to make its first recommendations by January 2014, it isn’t allowed to recommend any changes for hospitals before 2019.

It’s a big responsibility, and even bigger handcuffs.