August 31, 2014

There Is Consensus On Health Care Reform Next Steps -- Post One of Three

This is post one of a three-part series on the developing consensus for the next steps on health care reform. Part 2 is here. Part 3 is here.

Recently, I discussed how the new health care reform plan from the Bipartisan Policy Center’s (BPC) Health Care Cost Initiative mirrors the core values of nearly every major deficit reduction plan -- a reduction in spending on the federal budget’s health care programs and an increase in revenues from limiting tax expenditures. I argued that if the absence of political will to pursue a “grand bargain” among a majority of members of Congress continues, perhaps the BPC plan could become an alternative “smaller bargain” that would go a long way towards attacking the nation’s long-term fiscal challenge.

In a series of three blog posts, I will look more closely at how the BPC report, along with a few other high-profile, bipartisan health care reform plans released recently, demonstrates that there is a developing consensus among fiscal and health care policy experts about the steps policymakers need to take to move the nation towards a less costly, more effective and more patient-centered system. 

The plans, all released since the 2012 election, are: The BPC plan, the health care portion of the latest Simpson-Bowles plan, the plan from the Engleberg Center for Health Care Reform at Brookings, and the plan from the National Coalition on Health Care. The groups took pains to both find scorable savings within the 10-year budget window while also choosing to proffer reforms that would spur a longer-term transformation in the health care system -- making it better while having savings grow beyond the budget window. They all anticipate that by using the federal government’s market power through Medicare and the tax code, changes would filter through to the private sector, transforming the health care system as a whole. 

Furthermore, these groups developed their plans with a keen understanding of the political difficulties inherent in getting health care reform legislation passed. The fact that they ended up producing such similar plans should give some hope that, were the legislative process to provide an opening, the groundwork has been laid for an effective, bipartisan solution. The similarities among the key parts of these proposals and the proposals in the President’s budget, as well as, to some degree, the House Republican and Senate Democratic budgets, add to this hope. Of course, one should always have caution to not get too optimistic about changes to the status quo in health care. (See this illuminating article from Ezra Klein as to what can happen even when health care change is remarkably successful.)

The basic premise of all of these plans is that the most politically acceptable and orderly way for the U.S. to transform its health care system into one that is more effective, efficient and less costly is by shifting the system in two primary ways, through two primary means. This first blog post in my series examines the first shift -- a shift in how the health care system’s supply side, the providers, practice medicine and get paid for it. The second blog post will look at shifting the demand side -- the patient’s sensitivity to health care costs. The third post will look at the savings and deficit effects of these reforms.

The first shift, and the one with the most consensus, is a shift away from fee-for-service medicine -- which encourages maximal resource use -- towards a value-based system, which rewards effectiveness and efficiency. The means through which this shift is achieved is a series of Medicare provider payment reforms and reductions, building, in part, on the experiments and pilot projects from the Affordable Care Act (ACA).

All of the bipartisan plans would create an entirely new and comprehensive “value-based” insurance product within Medicare designed to pay providers for outcomes instead of per service. The ACA attempted to set up outcome-based payments through a hodge-podge of initiatives. Payment bundling is one such attempt in which a group of providers gets paid a single amount based on a set of services or an episode of care -- like a procedure or diabetes management. Care coordination is another area of experimentation encouraged by the ACA where a group of providers gets extra funding to manage the full care of a patient -- through professionals dedicated specifically to the task, through a reorganization of practice norms, or perhaps as part of a program to transition someone between the hospital and the home.

Theoretically, these initiatives encourage providers to become focused more on comprehensive patient health and satisfaction than they would be under a fee-for-service system. Furthermore, these initiatives usually have some sort of “shared savings” aspect to them, where providers share with the government in whatever savings materialize due to the reduction of overtreatment or mistreatment. 

What the new insurance product in Medicare would do is combine all of these strategies, and allow the comprehensive model to compete directly with fee-for-service Medicare -- in effect allowing patients/beneficiaries to share in the savings as premiums theoretically decrease in the more efficient “value-based” insurance design.

In its entirety, the hope for savings from the new Medicare strategy and from the ACA initiatives -- which many of the bipartisan plans double-down on in traditional Medicare -- is drawn from the consensus that those with multiple chronic diseases are the highest spenders in the health care arena. Studies suggest that just the top 5 percent of spenders are responsible for over half of health care spending. Thus, targeting them for more efficient care seems to hold the greatest promise for moving the needle on health care spending over the long term. (For an optimistic take, see Atul Gawande’s article on “hot spotters.”)

The desirability of shifting away from fee-for-service is discussed and acted upon through similar but less dramatic policy shifts in the President’s budget, and also mentioned as a goal in both the House and Senate budgets.

The bipartisan plans provide some other “supportive” reforms that make these changes work better -- like fraud reduction, medical workforce changes, better health information technology, and reforms to the malpractice system to reduce defensive medicine.

While health care reform remains a political flashpoint, it is encouraging that experts of differing perspectives are coming together around a set of payment reforms that could serve as the basis for a reform plan that improves both value and outcomes. Stay tuned for my next blog post on another crucial piece of the reform puzzle, and then for what it all means for the federal budget.