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.

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.

The current issue of Health Affairs addresses an important precursor to health care payment reform: the need to change Medicare governance so that the nation’s largest health care payer can make changes without undue political influence.

The article, “Medicare Governance and Provider Payment Policy,” written by Hoangmai Pham and Paul Ginsburg from the Center for Studying Health System Change and Mathematica’s James Verdier points out:

It is… appropriate for political debate to drive major policy directions in Medicare—such as when hospital prospective payment replaced cost reimbursement. But constituencies such as particular subgroups of hospitals can exert disproportionate influence, in turn spurring detailed legislation or rule making that is inconsistent with broader policy goals. Whether through Congress, the White House, or directly through lobbying CMS staff, such activity can undermine the integrity, equity, and predictability that new and complex payment reforms require to garner buy-in from stakeholders and work effectively.

The authors consider two options for changing Medicare governance:

• creation of a new Medicare payment policy board
• elevating Centers for Medicare & Medicaid Services to Cabinet status and requiring the Medicare Payment Advisory Commission to analyze “the implications for costs, access, and quality of any legislation directly affecting Medicare payment policy that is reported from committees of either House, just as the CBO provides budget cost estimates on spending legislation”

Both ideas are worth exploring, and the time is now.

The Medicare Payment Advisory Commission, which guides the nation’s largest health care payer, is suggesting major changes to the way health care is delivered in America.