Health Care Payment Reform

The idea of an independent Medicare commission to set rates for health care providers –but not physicians or hospitals–seems wacky to me. In yesterday’s New York Times, Albert R. Hunt makes a good case of why the commission concept should be strengthened during the Senate-House compromise on health care reform:

One constructive action lawmakers could take is to put some teeth back in the Obama proposal for a Medicare commission that would be empowered to set rates for hospitals, doctors and other providers, subject to congressional veto. The House killed the idea outright, and the Senate diluted it, exempting hospitals and doctors. Nancy Pelosi, the speaker of the House, and other liberals argue it infringes on congressional prerogatives. They also worry about a commission someday controlled by Bush or Reagan-type appointees.

Even then a congressional vote still could either block action or frame a political argument for the next elections.

The best case for infringing on congressional prerogatives may be the way this bill has been written. The hospitals, drug companies, doctors, insurance industry and device makers all carved out their special provisions. Everyone is for curbing health care costs; just don’t make cuts that affect powerful interests, which is almost every sector of the health care industry. History is clear: Congress will bow to those interests rather than make the tough decisions required to bend the cost curve.

Mr. Obama’s budget chief, and health care expert, Peter Orszag, calls a commission one of the “game-changers” that “would make sure that there is someone always on the beat, looking for ways to bend that curve.” The Democratic leaders, ideally with more effective pressure from the White House, have leeway in fashioning the final particulars. The measure would have a lot more credibility if this commission concept were strengthened, not diluted even more.

Writing in a web-first article in  Health Affairs, Dr. Robert Wachter,  professor and associate chair of the Department of Medicine at the University of California, San Francisco, reviews the past decade of patient safety and gives it a B- score.

In updating a five-year review, Wachter examines the role of health care payment in promoting patient safety:

The “no pay for errors” policy, launched in 2008, has increased hospitals’ focus on preventing certain adverse events (despite relatively trivial payment cuts to date). However, concerns have beenraised about fairness (particularly since many of the events on the list are not known to be substantially preventable)  and unintended consequences (such as keeping hospitalized elderly patients in bed in a misguided effort to prevent falls).

For now, I give this category a C+, with some points awarded to Medicare’s new policy for being a clever way to begin reshaping the reimbursement system to promote patient safety.

RAND researchers writing in the New England Journal of Medicine give a big thumbs-up for bundled payments to replace fee-for-service medicine.

In an article titled “Controlling U.S. Health Care Spending — Separating Promising from Unpromising Approaches,” the researchers estimated the likely impact of 12 policy options:

Bundled payment provides a mechanism for reducing both the volume of services and the prices charged for them. We estimate that under optimistic scenarios and with broad use of the Prometheus model³ of bundled payment for six chronic conditions and four acute conditions or procedures requiring hospitalization, national health care spending could be reduced by 5.4% between 2010 and 2019.

Price transparency alone does not lead to lower prices for health care services, according to an analysis of the New Hampshire HealthCost transparency program by the New Hampshire Insurance Department and the Center for Studying Health System Change.

..the study found public price reporting had no impact on price variation across providers, a result attributed in part to the lack of competition among providers and few incentives for consumers to compare providers based on price.

This isn’t surprising, but it does underscore just how many things have to work together to create a health care market in which patients shop for value, defined by the combination of efficiency and quality. The study’s authors wrote:

Whatever the extent of provider competition in a particular community, price transparency efforts are unlikely to spur significant price shopping by consumers as long as insurance benefit designs continue to contain little incentive for consumers to choose low-cost providers. In New Hampshire, as well as nationally, financial pressures on both public and private employers may result in more widespread adoption of high-deductible plans, tiered-provider networks and other benefit designs aimed at making consumers more cost-conscious when choosing providers. As more employers aggressively pursue such strategies, more consumers will find incentive to use price transparency tools like HealthCost.

However, there are limits to the extent to which increased patient cost sharing can be expected to lead to more active shopping by consumers. Some New Hampshire stakeholders suggested making HealthCost a more useful shopping tool by adding information about more “big-ticket items” such as heart bypass surgery and hip replacements. However, prices for expensive services often exceed a patient’s deductible even under a high-deductible plan, which would reduce that patient’s incentive to shop for price; in some cases, prices may exceed a patient’s annual out-of-pocket maximum as well, which would eliminate the price-shopping incentive altogether.

A new payment system that would reward hospitals based on the quality of care they deliver would apparently shock hospital board leaders. According to a report on the Wall Street Journal’s Health Blog, a new Health Affairs survey finds virtually all board chairmen believe their hospital is at least average:

Ninety-nine percent of hospital board chairmen think their hospital fares at least as well as a typical hospital on standard quality measures. Among the chairmen of hospitals that perform worst, 100% say their hospital performs at least as well as a typical hospital.

With this kind of leadership, it’s no wonder the quality of hospital care in America is so unreliable.

Everyone interested in the future of health care watches Geisinger Health System to see how its innovations in health care payment and delivery are working.

Paul Levy, CEO of Beth Israel Deaconess Medical Center, posted a blog entry based on a Philadelphia Inquirer article about policymakers’ interest in Geisinger. He posed an important question designed to tease out the system’s success:

Question: How much is due to the common bottom line between the MDs and the hospital, and how much is owning the insurance company? Also, how much of this is transferable to other settings that do not have the dominant market position enjoyed by Geisinger?

Although the idea of paying hospitals, physicians and other care providers for defined episodes of care makes intuitive sense, working out the details of how to do so is not for the faint of heart.

In the current issue of Health Affairs, RAND researchers point out the key problem with episode-based payment: the fragmented nature of the health care delivery system:

The array of trajectories a patient could take through the health care system—potentially touching multiple providers located in different settings—highlights the challenges of delivering coordinated care. Medicare beneficiaries receive care from a median of seven physicians,⁵ and the typical primary care physician must coordinate with 229 other physicians working in 117 practices.⁶ Typically, no single provider or set of providers claims responsibility for managing a patient’s care from the start to finish of a care episode. Episode-based approaches seek to remediate these problems by strengthening incentives for greater coordination among the array of providers involved in a patient’s care.

Check out their analysis of the research that needs to be done and the consensus-building that must occur before episode-base payment can occur.

Check out a great case study of  Mount Auburn Hospital and the Mount Auburn Cambridge IPA in the current issue of Health Affairs.

The report suggests that Massachusetts, which is considering global payments to replace fee-for-service medicine for all payers in the state, may have found the way to align physicians’ and hospitals’ financial interests with those of the payers. However, patients have not yet been brought into the alignment:

…since patients don’t pay more if they seek care outside Mount Auburn, they face no disincentive to go outside the system—even though a new doctor or hospital may repeat tests or miss something in the patient’s history or prescription list.

The role of doctors in health care reform cannot be overstated–and yet it is rarely mentioned.

Arnold S. Relman, MD, has a valuable perspective in today’s New England Journal of Medicine.

Mayo Clinic points out a problem with health care reform proposals on the table.  Since President Obama likes to highlight Mayo as an example of the way health care should be delivered, the nation’s health care payment system needs to support its high-quality, low-cost model.

According to a story on Minnesota Public Radio:

Mayo contends that there can’t be any real reform unless Medicare starts rewarding systems that provide quality health care at reasonable prices.