A Health Reformer’s Online Diary

A Demonstration Project Worth Trying

Without effective cost controls, President Obama’s laudable effort to achieve universal coverage will merely postpone the crash of our healthcare system. Experts doubt that programs to increase the use of health IT or improve preventive and chronic care will save much in the near term. And the proposed combination of Medicare payment cuts and new taxes will sustain the government subsidies required to expand coverage for only a few years. After that, the tide of health spending growth will sweep everything away, and first-class health care will be limited to the affluent.

Harold Luft, a well-known health policy expert, writes optimistically on the Health Affairs blog about the demonstration projects included in the current Congressional bills. These include pilots designed to show how the healthcare delivery system could be reformed through the use of bundled payments, accountable care organizations, incentives to reduce hospital readmissions, and “medical homes.” Without getting into the details, I’d suggest that none of these experiments--except possibly for efforts to cut readmissions--will have much impact in the current environment. The reason is that they all depend on reducing the fragmentation of the health care system, but not in ways that are likely to lower costs. In fact, the main effect of these discussions so far has been to induce hospitals to employ more physicians, raising their bargaining power with health plans. Some physician practices are also gearing up to become medical homes, partly in the hope of garnering increased care coordination payments.

I have a modest proposal for another demonstration project. This could easily be carried out within the four-year period that will elapse between passage of the reform legislation and the advent of insurance exchanges to help individuals and small businesses find affordable insurance. And, judging by a similar experiment in Minnesota a decade ago, it could save more than enough money to finance universal coverage, while slowing the rate of growth in health costs to a level we can afford.

Under my reform proposal, the system would be organized around primary care, as it is in other advanced countries that have much lower costs than we do. All primary-care physicians would be induced to join groups large enough to take financial responsibility for professional services, including primary and specialty care, lab and imaging tests, and outpatient prescription drugs. Competition among these primary-care groups to deliver a standard benefit package would replace competition among insurance companies. With the aid of published cost and quality reports, consumers—including Medicare and Medicaid beneficiaries--would choose primary-care physicians from among those in local groups. If they picked a doctor in a higher-cost group, they’d pay a higher premium. So, while the physician groups would be allowed to make their own budgets (risk-adjusted for the relative sickness of their patients), they would have to control spending in response to market forces.

There would be only one government-regulated insurer per region, and it would neither manage care not negotiate prices. It would serve as a conduit for money to be transferred from employers, individuals and the government to providers. By reducing administrative costs, this modified single-payer system would enable us to achieve universal coverage without higher taxes. And in the long run, competition among physician groups would cut costs by 30 percent or more by reducing waste and improving the quality of care.

Current trends in the marketplace would help the government establish a demonstration project to test this “utility insurer” system. In some areas, two or three health plans already have most of the insurance business, and hospitals employ most of the primary-care physicians. The government would select a regional market with these characteristics to test the restructuring of the national healthcare financing and delivery system.

After a bidding process in that market, the government would select one of the local carriers for the pilot and “sweeten” the price of transferring members from the losers to the chosen plan. Using the state power of public domain, the government would then require the hospitals to divest their primary-care groups to serve as the core of the competing physician groups in the demonstration project. (The hospitals would not have to be compensated, by the way, because most of them show paper losses on primary-care physicians. The financial value of these doctors to hospitals is that they fill beds, refer to hospital specialists, and order tests from hospital labs.)

The government would negotiate rates with hospitals and other institutional providers, leaving the market competition in the hands of physicians, whose decisions drive 80 percent of health costs. This is the right place for competition, because the insurance companies add little value except by organizing provider networks. In a utility insurer system, they would no longer do that, but they could still earn a government-limited profit margin by performing the basic functions of transferring funds and doing actuarial projections. Each insurer would answer to a regional health board comprised of provider, employer, and consumer representatives, which would fire the company if it did not fulfill its contractual obligations to the community.

Will it work? There’s only one way to find out. If this approach proves more effective than the subjects of the other demonstration projects, it could be implemented nationwide at the same time that the universal coverage provisions of the current reform bills go into effect. We have little to lose by testing the idea, and much to gain if it can hold down costs.

 

An Alternative Solution To The Healthcare Crisis

With Congress in recess, this is a good time to reflect on where healthcare reform is heading and what our lawmakers should do when they return.

Right now, most of the focus is on lowering insurance costs and covering the uninsured. While these are laudable goals, neither is achievable without changing how healthcare is organized and how healthcare providers are paid. So while we do need insurance reform, we also need to restructure the delivery system.

Some leading health policy experts—people like Elliott Fisher, Karen Davis, Don Berwick, Len Nichols, and Mark McClellan--are now talking about something they call “accountable care organizations.” Essentially, these are hospitals plus the medical staffs to which most physicians belong, even if they no longer practice in the hospital. The idea is to make each ACO accountable for the quality and cost of care for their patients. By getting physicians and other providers to collaborate in teams across care settings and throughout episodes of care, this approach would theoretically improve quality and efficiency and lower costs.

As Fisher, Davis and Berwick point out, organizations like the Geisinger Health System in Pennsylvania have proved that this actually works. But in another paper, Fisher and his cohorts at the Dartmouth Medical School admit that truly integrated systems and HMOs based on multispecialty groups are few and far between. (The outstanding exception is Kaiser Permanente, which has a large market share in California.) They point out that financial incentives must be changed to get most providers to work together, either in multispecialty groups or "virtual networks" of physicians linked to hospitals. Among the payment methods that Fisher, Davis and Berwick advocate are “shared savings, bundled payments, or global fees for care.”

For the uninitiated, “shared savings” means allowing physicians to share in savings they create by keeping people out of the hospital or holding down the costs of their hospitalizations. “Bundled payments,” the solution du jour, refers to giving hospitals global payments for procedures or episodes of care that extend beyond hospitalization; the hospitals would apportion part of these payments to the physicians involved in each case. “Global fees for care” is ambiguous; it could mean bundled payments for procedures or something bigger.

Senate reformers have proposed bundled payments for hospitals and post-acute-care services such as nursing homes, rehab facilities, and home health. But many hospital executives believe that the next step will be to include physicians in such schemes. That is one reason why a growing number of hospitals are accelerating their hiring of both primary-care doctors and specialists. Hospital leaders believe that the easiest and best way to align physicians with their institutions’ quality and cost goals is to have them in-house.

The increasing physician employment by hospitals is already restructuring health care to a significant extent. According to the Medical Group Management Association (MGMA), the percentage of practices that were hospital-owned increased from 24 percent in 2002 to nearly 50 percent in 2008. The percentage of providers (including physicians) employed by hospitals jumped from 25 percent to 37 percent in the same period. Although the MGMA survey excluded practices of one and two physicians (MGMA members are groups of three or more), it’s likely that just as many small-practice physicians went to work for hospitals in the past few years as the business environment grew tougher across the country. In some markets, like Cleveland, Greenville, SC, and Peoria, IL, most primary-care physicians already work for hospitals, and the number of independent specialists is dwindling.

Because of this strong trend, the ACO proposal comes along at a very opportune time. But it is missing some elements that could make it an effective solution to our healthcare crisis. First, instead of limiting the ACO’s financial risk to gainsharing or bundling within episodes of care, ACOs should take full financial responsibility for all of the care provided to their patient populations. While this didn’t work out in the ‘90s, when HMOs tried to pass their risk to integrated delivery systems, there is now much more alignment between doctors and hospitals, and more sophisticated systems of quality measurement exist to detect underuse of recommended services.

Second, instead of health plans or the government setting ACO budgets, the ACOs themselves should decide how much they need to provide good care to their patient populations. If the organizations competed with each other for patients, based on published cost and quality reports, and if consumers had a financial incentive to choose doctors in the lowest-cost ACOs, the ACOs would have to be cost-efficient to survive. The quality reports and the threat of malpractice suits would deter them from cutting corners on care. And to eliminate any incentive to market to healthy patients, risk adjustment would be used to periodically raise or lower payments to the ACOs, depending on the relative sickness of their patients. 

Third, if ACOs took responsibility for the cost of care, insurance companies could eventually be phased out. The federal government would collect healthcare contributions from employers and consumers and apportion them to the ACOs. Regional health boards comprised of employers, consumers, and providers would supervise the system. Is this a single payer system? Yes, but it would have the advantages of single payer, including a huge reduction of administrative costs, without the disadvantages, such as a big federal bureaucracy running health care and imposing budgets from Washington. Unlike a "Medicare for all" kind of approach that left the delivery system untouched, this regional, bottom-up single-payer system would be designed to deliver high-quality, universal health care at a price we could afford.

The governance of ACOs would have to be shared between hospitals and physicians to get the best results. In rural areas where hospitals had no nearby competitors, the units of competition would have to be physician networks covering large areas, and these networks would have to share hospitals. Similarly, where certain rare specialties were in short supply, competing ACOs would have to share the services of those physicians. There are certainly many other obstacles to this approach. But, provided that the financial incentives were correct, they could be overcome with ingenuity and persistence.

If Reform Doesn't Make The Industry Angry, It Won't Work

If Obama and Congressional Democrats make a lot of people in the healthcare industry angry, their healthcare reforms might not pass. But if they don’t make a lot of those people angry, it won’t work. It’s really that simple.

As the letter that six industry groups sent the President yesterday makes abundantly clear, they’re not prepared to go beyond pious platitudes in carrying out their pledge to shave $2 trillion off of health care spending in the next 10 years. Representing physicians, hospitals, insurance companies, device makers, pharmaceutical companies and health workers, the groups proposed old standbys like health information technology, quality improvement, administrative simplification, better chronic disease care, and health promotion as their solutions to the cost crisis that grips health care and our nation.

To be fair, President Obama offered similar panaceas during his election campaign, and he has pretty much allowed Congress to carry the reform ball since he took office. His new campaign to promote reform is still pretty limp. In an online op-ed piece today, Christina Romer, chair of the President’s Council of Economic Advisors, cited a report by the council showing that health care is on unsustainable path (which we all knew). So what’s the solution? “The administration and health industry leaders have pledged to work toward a goal of reducing health care cost growth by 1.5 percentage points per year.” That’s great! Break out the champagne! But how are we going to get there?

The Democrats’ inability to answer that question has opened them to a Republican counterattack. “This report [by the Council of Economic Advisors] is nothing but smoke and mirrors,” said House Minority Leader John Boehner in a statement. “Everyone agrees that reducing the cost of health care would benefit our economy, but the Administration hasn’t offered a credible plan to do so without raising taxes or rationing care.”

Unfortunately, he’s right.

So let’s get real, Democrats. The industry’s representatives are only going to make nice with you in return for something that they want. And what they want is to maintain the status quo as long as possible. As health economist Uwe Reinhardt once told me, the people who say that U.S. healthcare is a non-system have got it all wrong. “It’s actually one of the most finely honed systems in the world. It’s like a Mercedes Benz. Its purpose is to maximize the amount of money that can be sucked out of the rest of society. And it does that with uncanny efficiency.”

Clearly, the industry is running scared. That’s why hospitals and doctors are suddenly pledging to cut costs and rein in overuse of services. That’s why the insurers are offering to cover everyone without considering their health status. That’s why drug manufacturers and device makers are willing to support comparative effectiveness research (albeit with strings attached). So, instead of compromising with them, now is the time to whip them into shape and, in the phrase of blogger and healthcare consultant Robert Laszewski, “sweat the 30 percent” of waste in the system out of the providers and insurers.

It’s not going to be easy. The attainment of that goal—or even the more modest one of reducing cost growth by 1.5 percentage points—requires a fundamental restructuring of the health care financing and delivery system. There are a number of proposals to do that, and they all require much greater government intervention than anything now on the table. That doesn’t necessarily mean switching to a single-payer system—which wouldn’t, by itself, address the key problems in healthcare delivery. But at a minimum, we need to organize providers into larger business units or networks, put primary-care physicians in charge, and give physicians financial responsibility for the care they order. If we do those three things, we will save enough to finance comprehensive, universal health care and slow health spending growth to a pace that we can afford.

Of course, this will make many people unhappy. But those aren’t the millions of people who are uninsured or who are insured but still can’t pay their medical bills. And they aren’t the millions of other people who are being put out of work as our economy buckles under the strain of unaffordable health care. Let’s get real now, before the situation gets any worse.

 

Healthcare Groups Throw Their Hat Into The Reform Ring

It’s crunch time for healthcare reform. The Senate may vote on legislation as early as next month, and the cake might be baked by the end of the summer. Trillions of dollars hang in the balance.

The industry groups representing physicians, hospitals, pharmaceutical companies, device makers, and insurers saw this coming and have been meeting for several months to come up with the cost-saving proposal they presented to President Obama on Monday. The docs and insurers don’t love each other, and the drug companies and hospitals have little in common, but they are all invested in the status quo. While they know it can’t last, the change they can believe in is as little change as possible.

The real threat to the industry is the lack of government money to expand coverage. Obama proposed a reserve fund that was half of the minimum amount that reform might cost, and he can’t even fund that, because Congress kicked him in the teeth when he proposed capping tax deductions for the rich. Meanwhile, Sen. Max Baucus can’t seem to get the CBO to play ball and say that his untested reform ideas will save money. So the industry players—except for the insurance companies, who have problems of their own--are mightily afraid that Congress will make major changes to contain costs. Knowing that the Democrats can push reform through the Senate with the budget reconciliation maneuver, the industry realizes it has no choice but to make nice with the reformers. Instead of fighting them, it has decided to co-opt them. It’s talking a good game about quality and health IT and reducing overuse of services, but it doesn’t want the government to negotiate drug prices, transfer income from specialists to primary care docs, launch a public health plan, or limit any of the high-cost, low-value technologies that eat up so many dollars.

By the way, the pundits have it wrong: Healthcare reform is not going to pass because the industry supports it; the industry is coming to the table because it knows that reform is going to pass. That’s why there are so many born-again, socially conscious healthcare businessmen. All of a sudden, insurers are talking about not charging women more than men for insurance; drug makers are talking about value-based pricing on drugs for the chronically ill; and healthcare leaders are proposing that they (not the government) cut the growth in healthcare costs by 1.5 percentage points, which would save about $2 trillion over 10 years. They weren’t talking like that last year, before Obama was elected President.

Of course, this is all part of the dance that will lead to some kind of rough compromise. All parties know that 1) the public is fed up with the status quo; 2) employers are mad as hell and won’t take it anymore; and 3) unless health care is tamed soon, it will destroy whatever is left of the economy. Still, nobody wants to take a big financial hit if they can avoid it. So the industry will try to preserve as much as it can, while hoping that some Hail Mary pass like electronic health records or the “patient-centered medical home” will reach a wide receiver in the end zone. But I suspect that even hospital and drug and insurance executives, in their heart of hearts, realize that the old world is dying and that a new one will be born before the year is out, whether they like it or not.

The Right’s War on Healthcare Reform

The debate over the economic stimulus package is shaping up as an early contest between Democrats and Republicans over the direction of health-care reform. One indication of that is a recent blog on Bloomberg.com by Betsy McCaughey, a former lieutenant governor of New York and a fellow at the Hudson Institute. This commentary, championed by Rush Limbaugh and Fox News, is as wrongheaded as the Republican opposition to the stimulus legislation as a whole.

McCaughey argues that the health-reform sections of the House stimulus bill “reflect the handiwork of Tom Daschle,” the former nominee for Secretary of Health and Human Services. She uses this unproven assumption to frame these provisions—which have broad mainstream support--as a Trojan horse concealing dangerous elements of socialized medicine. For example, here’s what she writes about the bill’s promotion of health information technology:

“One new bureaucracy, the National Coordinator of Health Information Technology, will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective. The goal is to reduce costs and ‘guide’ your doctor’s decisions. These provisions in the stimulus bill are virtually identical to what Daschle prescribed in his 2008 book, ‘Critical: What We Can Do About the Health-Care Crisis.’ According to Daschle, doctors have to give up autonomy and ‘learn to operate less like solo practitioners.’”

The Office of the National Coordinator of Health IT, which is not new, would receive substantially increased authority under this bill. But the intent is not to make sure that physicians are following government-approved guidelines. Instead, the bill’s authors want to ensure that physicians are using the electronic health records that $20 billion of taxpayer money is helping to purchase. The kind of quality data that doctors who accept government subsidies would have to provide might eventually be used in a pay-for-performance program that could improve the quality of care for Medicare patients. But this does not mean that the government will tell physicians how to practice.    

The sentence from Daschle’s book that McCaughey quotes out of context bears no relation to the health IT provision. Daschle is talking about how physicians will have to learn how to provide better value by working with other providers as members of a care team, rather than working alone and coordinating care poorly, if at all.

McCaughey also assails a clause in the bill that, she says, would penalize doctors who are not “meaningful users” of electronic health records. It is true that physicians who don’t acquire EHRs and use them by 2016 will see a slight decrease in their Medicare payments. But McCaughey is simply wrong when she says that the bill does not define “meaningful user.” To meet this requirement, a doctor must prescribe electronically, exchange data with other providers, and submit quality data to the government.

McCaughey raises and attacks this straw man in order to suggest that the quality measures—which would probably be vetted by a respected body like the National Quality Forum—will be designed to discourage the use of new technologies. Of course, there is no evidence of this in the legislation.

Not surprisingly, she also objects to the bill’s provision for funding comparative effectiveness research, which would find out which healthcare interventions work best. She asserts that a new Federal Coordinating Council for Comparative Effectiveness Research would be equivalent to the Federal Health Board that Daschle proposes in his book. That board would make decisions on benefits and other elements of federal health programs. But the Federal Coordinating Council described in the House bill is an inter-agency body that would advise the President and Congress on infrastructure requirements and expenditures for comparative effectiveness research. Nowhere in this bill is it suggested that the Federal Coordinating Council would make benefit decisions. Nor is it modeled after the U.K.’s National Institute for Clinical Effectiveness (NICE), as McCaughey claims.

While Republicans like former Medicare chief Gail Wilensky support comparative effectiveness research, McCaughey sees it as a slippery slope that will lead to a government-run, European-style system of socialized medicine. Ignoring the fact that the Blue Cross Blue Shield Association, Kaiser Permanente, and other private-sector entities already study comparative effectiveness, she sternly warns us that NICE rations health care by prohibiting coverage of treatments that are deemed too expensive in relation to their benefit. But nothing in the economic stimulus package requires either Medicare or private health plans in the U.S. to take cost into account in making coverage decisions.

McCaughey is not the only right-wing pundit to assert that the $1 billion down payment on comparative effectiveness research in the stimulus package would be a step toward rationing. Michael Cannon, director of health policy studies at the Cato Institute, a libertarian think tank, has been quoted as saying, "The intent is to use that information to ration care. Why else would you come up with the research to help people choose what provides a lot of value for the money and what doesn't?"  

In many ways, the socialized systems that McCaughey and other conservatives want us to fear deliver higher-quality care than the American system does, at much lower cost. Moreover, everyone in those countries is guaranteed access to care. In contrast, millions of Americans are denied care because they can’t pay for it—which certainly qualifies as a form of rationing. And a major reason for this, as Daschle explains in his book, is the high cost of care. That, in turn, can be partly attributed to the wasteful use of technology and the huge amount of inappropriate care that is provided in this country, notes Daschle.

But McCaughey doesn’t get it. “The health-care industry is the largest employer in the U.S.,” she says. “It produces almost 17 percent of the nation’s gross domestic product. Yet the [stimulus] bill treats health care the way European governments do: as a cost problem instead of a growth industry. Imagine limiting growth and innovation in the electronics or auto industry during this downturn. This stimulus is dangerous to your health and the economy.”

In other words, she views any effort to restrain health costs as inimical to economic growth. Tell that to the auto industry as it faces bankruptcy, partly because of its over-the-top health spending. Tell that to the government, as Medicare and Medicaid threaten to swallow the entire federal budget and strangle the states. And tell that to people who have lost their health insurance and can’t get a doctor to treat them outside of an overcrowded emergency room.

Wake up and smell the coffee, Betsy.

 

No, Virginia, Reform Is Not an Economic Santa Claus

Healthcare reformers are divided into two camps, as Merrill Goozner ably explains in his latest healthcare blog. One group, primarily focused on achieving universal coverage, assumes that cost control can be dealt with later. The other camp believes we must first restructure our health-care delivery system to bring costs under control. I believe we can and must do both at the same time. But first we have to shed our illusion that health-care reform itself will significantly stimulate the economy. In fact, if it’s done right, it will cost jobs. And if it’s not done right—if all we do is provide government subsidies to make it easier to buy insurance, slap some rules on the health plans, and have the government bargain with drug companies—healthcare reform will fail.

Goozner points out that in this decade, healthcare has been the great engine of job creation, and that it has continued to add jobs even since the financial crisis began. Forty percent of the new jobs created since 2002, when the last recession bottomed out, have been in healthcare, he notes. And in the past year, while the economy as a whole shed 1.5 million jobs, healthcare added about 500,000.

To this I would add that the hospital construction boom is also continuing. “October building starts for hospitals were about the same as September, and not much different from August, which was better than June and July,” says Jim Haughey, chief economist at Norcross, GA-based Reed Construction Data, a subsidiary of Reed Business Information. A recent American Hospital Association survey shows that hospitals plan to build less next year, but the juggernaut has not yet hit a wall.

In his must-read essay, Goozner asks, “Who in the midst of a deep recession will be willing to whack away at medical waste when it is one of the only sectors generating lots of new jobs for fearful Americans?”

President-Elect Obama and his lieutenants certainly don’t view healthcare reform as a job killer. In fact, at a recent press conference Obama said that the absence of reform is costing jobs as large and small employers alike pour money into our overpriced healthcare system rather than into “expanding and creating new jobs.” Obama declared, “If we want to overcome our economic challenges, we must finally address our healthcare challenge.”

MIT economist Jonathan Gruber, whose thinking seems to be aligned with that of the incoming Administration, said in a New York Times op-ed piece that spending more federal money on Medicaid and the State Children’s Health Insurance Plan could free up state funds for infrastructure projects. He also cited the jobs that would be created if Obama’s proposal to spend $50 billion on health IT were approved. Democratic reform proposals that emphasize primary care would create more demand for nurse practitioners, physician assistants, and RNs, he added.

There are a couple of problems with this line of thought, however. First, while throwing more money at health IT would accelerate adoption of electronic medical records, the number of extra software and technical jobs that would be created would be far fewer than the number that would be eliminated as a result of the efficiencies that healthcare providers would gain from computerization. Second, there aren't enough nurses now because our training system can't keep up with demand. It's doubtful that we could end that shortfall quickly. A more fundamental problem is that in a time when money is tight, we can't spend more on health care; we have to figure out how to get more for less.

Both Tom Daschle, who will be leading the reform brigade, and the health-policy experts who recently wrote a report on reform under the aegis of the Center for American Progress, Obama's central think tank, believe that delivery-system reform will be necessary to achieve the Administration's goals. And that means cutting lots of waste out of the system. In this effort, the Obamians will have strong support from employers and AHIP, the insurance industry association. In its latest reform proposal, AHIP called for Congress to set a goal of reducing the growth of healthcare costs by up to 30 percent over five years, which would save about $500 billion. On the other side, as Daschle has acknowledged, there will be fierce opposition from the health care industry to any serious reform effort that will reduce the income or threaten the positions of healthcare providers.

If the Obamians can harness the forces of employers, insurers and consumers to overcome the power of healthcare providers, pharma companies, and device makers, they will have an opportunity to take a giant whack out of the waste and overuse of technology that are chiefly responsible for our healthcare crisis. But if they do so, they will also be slowing the healthcare job engine in communities large and small.

There are ways to overcome this obstacle. For one thing, if Medicare paid less for procedures and more for evaluation and management--and private payers followed suit--the specialty sector would shed jobs, but some of the people laid off, including midlevel practitioners, could be employed in primary care. By planning how to shift people around within healthcare, job losses could be minimized. 

Also, healthcare should be viewed within the context of the government's industrial policy. Right now, except in the defense sector, we don't have much of an industrial policy, but Obama has promised to change that. As we develop viable new industries, we should shift people into those areas from healthcare. Of course, that will require a great deal of retraining and education, and there will be dislocations. But in the long run, our economy will be better off as a result.

The point is that we can’t depend on continued growth in a healthcare sector that is rapidly becoming unaffordable to the majority of people. And we can’t ensure the future of America if our economy depends on domestically consumed services rather than on the production of competitive goods and services that can be exported around the world. So let’s stop talking about healthcare as a driver of economic growth and start realizing that the only way to ensure good healthcare for all is to reduce waste and use the money to buy care for those who don’t have it.

 

Health Reform Report From Transition Central

There was nothing really radical or transformative in the health care reform platform that Barack Obama presented during the election campaign. While it had much in common with the centrist proposals of Hillary Clinton and John Edwards, it didn’t even go as far as his primary opponents’ plans did, because Obama’s proposal didn’t require all adults to obtain health insurance. In terms of reforming the health care delivery system, Obama also echoed other Democrats’ (and some Republicans’) calls for better preventive and chronic care and the rapid adoption of health IT—neither of which would shake up the health care establishment, especially if these initiatives were supported by new federal funds.

       Nevertheless, a new report from the Center for American Progress, which is closely allied with Obama’s transition team, suggests that the next Administration might be prepared to go much further in restructuring the system than Obama’s campaign platform indicated. Entitled The Health Care Delivery System: A Blueprint for Reform, this relatively brief tome (117 pp.) was written by 15 health-policy experts, including John Podesta, the head of the transition team, and Dora Hughes, Obama’s senior health-policy advisor. Among the other luminaries who penned this report are Robert Berenson, a senior fellow at the Urban Institute and formerly a top Medicare official; Donald Berwick, president of the Institute for Healthcare Improvement and one of the leaders of the hospital safety movement; David Blumenthal, a Harvard Medical School professor and director of the Institute for Health Policy; Paul Ginsburg, president of the Center for Studying Health System Change; Jeanne Lambrew, a senior fellow at the Center for American Progress and a professor at the University of Texas; Thomas Lee, network president for Partners Healthcare System and also a Harvard professor; and Steven Schroeder, a professor of health policy at the University of California, San Francisco, who was president and CEO of the Robert Wood Johnson Foundation from 1990 to 2002.

      While all of these experts are mainstream thinkers, some of the ideas they advocate in this report are positively radical. Among other things, they’re talking about having physicians join larger organizations and work in care teams as part of a major effort to create a high-performance health care system. In addition, they propose fundamental changes in how physicians and hospitals are reimbursed. They’d move away from fee for service and embrace various prospective payment systems, including bundled case rates and capitation. They’d move the emphasis of American medicine from specialty to primary care and from personalized medicine to population health. In all of this, the federal government would play the lead role.

      Here just a few of the proposals to smash through our century-long gridlock in health care reform efforts:

     Organizing providers. “The most effective way to address our cost and quality challenges is to confront the root cause—the chaos in everyday health care,” write Robert Berenson and Thomas Lee. “We should focus our efforts on accelerating the organization of health care providers so that they can adopt systems that are likely to reduce errors and improve the overall coordination of care.”

     In the current environment, they note, approaches such as disease management and health IT are of limited value. To use these tools to help build a high-performance system, the federal government “should provide compelling incentives to encourage providers to become part of organizations, and then achieve the efficiencies that will enable them to reduce costs.” To overcome patient resistance to large clinics, they suggest, small offices should be maintained within these organizations and tied together with the aid of information technology.

      According to Berenson and Lee, changing how providers are reimbursed is the key to shifting the system’s center of gravity from small independent practices to large integrated delivery systems, such as those of Kaiser Permanente and Partners Healthcare, which they view as the ideal type of organization. Instead of paying doctors primarily fee for service and “lite” pay for performance based on process measures, they would use “robust” P4P tied to patient outcomes, case rates, and capitation that includes quality incentives. Physician groups could be paid more if they accepted a higher level of financial risk and delivered high-quality care.

     Quality improvement. Donald Berwick and Chiquita Brooks-LaSure state, “Most health care providers, even large hospitals, still lack both the will and the competence to improve the processes of care, and most health care boards of senior executives and trustees view the improvement of care as a strategic agenda at best secondary to maintaining revenues and stabilizing public reputation.”

      While some hospitals and doctors do their best to improve quality, they note, hospitals lose money when they do the right thing—such as trying to prevent congestive heart failure patients from being readmitted—and primary-care doctors lack the resources to coordinate care properly. In other advanced countries, they note, the need to work within limited budgets has forced providers to become more creative and to provide better health care for specified populations. They propose that the U.S. system be restructured to create similar conditions. “Integrated care structures and population-based budgets provide the conditions for far higher value and lower cost,” they conclude.

     Reimbursement reform. Throughout the report, the coauthors cite the perverse payment system in the U.S. as a key obstacle to change. Fee for service encourages providers to do more, even when it won’t improve health. And even in Medicare’s prospective payment system for hospitals, far too much is paid for certain surgical procedures, while medical services are undervalued.

     Paul Ginsburg would change all of this with a mixture of payment methods to incentivize more appropriate provider behavior. He’d reimburse episodes of acute care with case rates covering hospital, physician, outpatient lab and drug services, and would pay providers more when their patients had better outcomes. In addition, he supports the idea of the patient-centered medical home, in which primary care doctors would receive capitation payments for care coordination services that today are not covered by either Medicare or private payers.

      Cost effectiveness research: David Blumenthal and Karen Davenport would have Medicare look not only at the clinical effectiveness of tests and treatments, but also at their cost effectiveness--an idea that has been banished from American political discourse since the demise of the U.S. Office of Technology Assessment in the early ‘90s. They would have Congress give Medicare authority to examine the clinical impact of especially costly interventions and give providers incentives to use less expensive, equally effective methods.

 Clearly, these experts have a number of different agendas, and some specific details of their reform plans conflict with each other. But their main point—that we need to change how doctors and hospitals provide care—comes across loud and clear. If President-Elect Obama heeds their call, we could see real reform in his first term in office—at a price that we can afford as a nation.

Obama's HHS Choice--Dean, Daschle, or a Republican

The job of Secretary of Health and Human Services will be a particularly important one in the Obama Administration, because the President-Elect is strongly committed to health care reform. Among those who have been suggested as contenders for the post are former South Dakota Senator Tom Dashle, former Vermont Governor Howard Dean, Rep. Rosa DeLauro of Connecticut, and Kansas Governor Kathleen Sebelius.

      While DeLauro and Sebelius are little known nationally, Dean has been prominent since his 2004 run for President, and he has also been Chairman of the Democratic National Committee since 2005. When he was Vermont’s Governor, Dean, who is a physician, expanded health care coverage to nearly all of the state’s children, and he also expanded Medicaid to cover prescription drugs for a third of the program’s recipients. As a Presidential candidate, he proposed enlarging Medicaid and the State Children’s Health Insurance Program to cover all uninsured children and young adults up to age 25. (Obama, too, wants to cover all children but would make some parents responsible for buying the insurance.) Dean also wanted to bring poor adults under the SCHIP umbrella. 

     Tom Dashle is familiar from his years as Majority Leader and later Minority Leader of the Senate when it was dominated by Republicans. In that stressful, difficult role, he showed a remarkable equanimity under pressure while keeping the beleaguered Democrats together. Since leaving the Senate, he has been fighting for health-care reform, trying to achieve consensus across party lines with the help of fellow ex-Majority Leaders George Mitchell, Bob Dole, and Howard Baker. Their Leaders’ Project (part of the Bipartisan Policy Center) has held forums across the country this year. Dashle has also written a book called Critical: What We Can Do About the Health Care Crisis.

      In that book, Dashle makes a number of proposals that are close to Obama’s health care platform, including more emphasis on preventive and chronic care, a shared responsibility approach to financing, and changes in how doctors and hospitals are paid. Like the President-Elect (and many other Democrats, past and present), he also wants to create a national insurance pool, similar to the Federal Employees Health Benefit Program, that would allow individuals and small firms to get lower insurance rates.

      Dashle’s major proposal is to create a Federal Health Board that would oversee and set the rules for government-funded and government-subsidized health programs, including Medicare, Medicaid, and the expanded FEHBP. Together, these programs might eventually cover the majority of Americans; in any case, private insurers would be likely to follow the policies of this Federal Health Board, as they follow Medicare in many areas.

     Comprised of government-appointed experts, Dashle’s Federal Health Board would, among things, decide which benefits would be covered, supervise comparative effectiveness research, and recommend infrastructure investments. It’s a smart plan from the viewpoint of protecting rational health policy decisions from the assaults of special interests. In fact, in terms of drawing up standard benefit packages, it’s the only way to go. But I have serious reservations about how well it could run the health care system—even a system that might, in the future, be increasingly government-financed.

     For starters, all health care is local. While Dashle does propose an advisory role for regional health boards that would include business and consumer representatives, his model is too centralized to respond to the differences in how health care is delivered at the local level. One size does not fit all in health care.

     Second, even if experts could agree on what should be in a benefit package or on how doctors should be compensated, that doesn’t mean that the stakeholders would abide by the outcome. Interestingly, Dashle points out that the Federal Reserve’s power rests on its support from Congress. The same would be true of a Federal Health Board. Simply punting the decisions to a group of experts would not remove their political impact. Also, at a time of economic meltdown, let’s not forget that neither the Federal Reserve nor the SEC—both models for Dashle’s plan—have functioned very well in terms of oversight. We can’t depend on a Federal Health Board to make the right decisions for health care any more than we can rely on regulatory agencies to keep our financial system on the tracks.

      That said, either Daschle or Dean would make a fine HHS Secretary. Daschle would have excellent relations with a Democratic-controlled Congress, and Dean would be able to apply his proven executive abilities. Obama might also consider Dr. Mark McClellan, who heads the Brookings Institution’s Engelberg Center for Health Reform. As a former head of the Food and Drug Administration and of the Centers for Medicare and Medicaid Services in the Bush Administration, McClellan knows the levers of HHS well, and he also has a detailed knowledge of the policy issues. Among his accomplishments: He implemented Medicare Part D. Whatever you think of that program, it was a monumental job to put it into place. If Obama wants to bring a Republican into his Cabinet, McClellan has a lot to offer—including his recently stated belief that the time for healthcare reform is now.

Reform Can Still Happen, But Not If It Costs More

Many years ago (it feels like a lifetime), I was an editor at Variety, the show business magazine. I was there on “black Monday” in 1987, when the stock market dropped 22 percent in one day, and I helped write the story about the crash and how it might affect the entertainment business. Titled “Wall Street Lays An Egg: The Sequel,” which referred to Variety’s famous 1929 headline, the article quoted stock analysts about the likelihood of an adverse impact on purchases of videocassette players, cable subscriptions, movie theater revenues, and initial public offerings. Nothing about the larger implications of what then looked like the beginning of a very severe recession. 

    I was reminded of that narrowness of vision recently when I was moderating a pre-session conference at the National Congress on Health Reform in Washington, DC, in late September. Prior to the first panel discussion, a few speakers were standing around jawing. Dr. Ezekiel Emanuel of the National Institutes of Health was telling us what renowned Stanford University economist Victor Fuchs had told him: Health care reform would arrive only during a time of national crisis, such as a depression or a major war. We were now on the cusp of such an era, he said almost gleefully, and so the prospects for real reform had never been better.

    Now, I have a lot of respect for both Emanuel and Fuchs, who are clearer, more farsighted thinkers than many other reformers. And perhaps they’re correct when they say that the special interests that defend the status quo will never be beaten back until the country faces a major crisis, such as the one we have now. But I have a problem with the notion that we can divide the prospects for health care reform from the prospects for our nation’s economic recovery. It is true that universal health coverage would make our people healthier and more productive, which would help the country get back on its feet. It’s also true that when people are really down and out—as they were during the Great Depression—they’re more likely to help each other, as they did when the first Blues plans charged everyone the same. But just because universal health care would benefit the economy doesn’t mean that we have the wherewithal or the will to build it in the next few years.

     At the same National Congress on Health Reform, Families USA President Ron Pollack, who’s been building a reform coalition for years, said, “Where the rubber hits the road is how you finance [reform]. Because you won’t be able to expand coverage without paying for it.” And, of course, that’s a big problem as our economic and tax base shrinks, as expected, over the few years.

     One way to pay for reform, Pollack noted, would be to cap the tax exclusion for employer-provided insurance. Emanuel suggested the same thing in a recent New York Times blog. Although Sen. McCain’s plan to eliminate the exemption goes too far, he wrote, one could limit the exclusion for a family policy to $12,000 and have employees pay tax on the value of “excessive health benefits.” He estimated that this change would net $25 billion in extra federal tax revenue, which could be applied to covering the uninsured.

     Well, that’s fine, except that it would cover only about a fifth of the uninsured. (Emanuel also mentions the need for insurance market reform, but doesn’t explain how that would save money.) Moreover, as health costs and premiums rise, more and more people would be taxed on their employer-provided benefit. So this would be a redistribution of wealth from the middle to the lower class—never a popular political gambit, especially during a recession.

    At the National Congress, Sen. Ron Wyden (D-OR) said that his reform plan, embodied in a bill that already has the bipartisan support of 16 U.S. Senators, will not be derailed by the financial crisis. The Congressional Budget Office, he noted, had given his legislation a favorable rating, predicting that it would be revenue neutral in the first two years and would start costing the government less in the third year after its implementation. Wyden’s plan, which requires everyone to buy insurance, would let people choose among group plans in government-regulated regional markets, using the money that their employers now spend on health insurance. Companies would be required to raise salaries by that amount or, if they don’t currently cover their workers, pay into a fund. Insurance companies would have to take everyone and charge them the same amount, regardless of health status. Government subsidies would be available for the less well-off.

     The Wyden plan has much to recommend it, including the portability of insurance from job to job. But at the National Congress, he admitted that his plan does nothing to restructure the care delivery system. While he believes in changing the basis of provider payments, expanding the use of health IT, better preventive care, etc., he doesn’t believe that we’ll get savings from those things for a long time. The problem is that without those savings, costs will continue to rise faster than inflation, and so the extra amount that employers pay workers in salary will buy less and less health care. In other words, Wyden’s proposal may work today, but not tomorrow.

      There is another way out that politicians and policymakers aren’t mentioning. Under that approach, health care reform would be based on a radical overhaul of the care delivery system. It’s not on the agenda today because too many powerful interests would oppose it. But in the long run, it’s the only way—short of a single payer system with a government-imposed global budget—to control costs while providing universal coverage. The reason why it would work—if coupled with a competitive market mechanism--is that it would establish an effective process to reduce the vast amount of waste and inefficiency in the system.

     Dr. Lucian Leape, adjunct professor of health policy at the Harvard School of Public Health and the father of the hospital safety movement, described the case for delivery reform succinctly at the National Congress: “There are too many people making too much money off of the sick,” including insurance companies, hospital executives, and some physicians, he said. Considering the amount of money that’s spent on inappropriate care, administrative costs, and profits, he estimated, delivery system reform could cut health costs by half.

     Other experts agree that the opportunity to reduce spending is somewhere between 30 percent and 50 percent of the $2.3 trillion that we now spend on health care. If we could liberate even 10 percent of that through a rapid restructuring of the system, we could cover everyone without raising taxes by a penny. If we start dealing with the real problems, our economic crisis need not stop reform.

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                    

    

     

 

Minnesota Leaps Ahead in Health Care Reform

    

Minnesota’s newly enacted health care reform legislation, expected to save 12 percent of the state’s health costs while covering 12,000 more people, sets some important precedents that could influence other states and that should echo loudly in the halls of Congress when it takes up the issue next year.

     The culmination of 15 months of work by two bipartisan commissions, the reform measure was trimmed considerably to meet objections from Republican Governor Tim Pawlenty, who had appointed one of the panels. The biggest change made in the bill, after the governor vetoed an earlier version of it, is that the final version reduces the number of uninsured who would receive state-subsidized coverage.

      Still, the legislation promises to transform Minnesota health care in ways that could greatly improve preventive and chronic care. Among other things, the measure encourages the creation of primary-care-based “medical homes” to coordinate care for patients with chronic diseases, and it requires both the state and private insurers to pay care coordination fees to physicians. Today, in Minnesota and across most of the nation, primary-care doctors have little incentive to coordinate care, because they’re reimbursed only for office visits.

     Equally important, the Minnesota legislation enables physician groups to set their own prices for “baskets of care” for such chronic conditions as coronary artery and heart disease, diabetes, asthma, and depression. These prices have to be the same for all health plans and individuals. To prevent discrimination against sicker patients, the overall payments will be “risk-adjusted” to account for differences in the disease burden of each group’s patient population.

      Using published cost and quality data, consumers will now be able to choose among physician groups, rather than just insurance companies. This competitive approach is expected to encourage physicians to take better care of chronic-disease patients, who generate about 75 percent of health care spending.

     “There will be much more consumer involvement in choosing providers, based both on cost and quality, when they have a chronic disease,” notes State Senator Linda Berglin (DFL-Minneapolis), one of the bill’s sponsors. “So we think that the transparency piece will provide an incentive for providers to do a good job of taking care of people with these diseases. Because when they do, they can reduce their price,” thereby attracting more patients.

     The January 2008 report of Pawlenty’s Health Care Transformation Task Force, on which the legislation was based, recommended even broader changes. Aiming to cut Minnesota’s uninsured rate in half while reducing its health spending by 20 percent, the task force proposed that “provider groups and care systems…compete for patients by submitting bids on the total cost of care for a given population.” Insurance companies would still take overall financial risk, but wouldn’t negotiate prices or manage care.

     Despite the radical sound of this proposal, business, insurance, and medical leaders were all represented on the commission, and the medical establishment supported the resultant legislation.

    Gov. Pawlenty said he vetoed the initial bill partly because it required too much state money to expand coverage for the working poor. Earlier in the legislative process, he wanted to use some of the state’s Health Care Access Fund—which was to provide part of the money for the reforms—to close a $965 million budget gap. Derived from a tax on doctors and hospitals that Minnesota has levied since 1992, this money was supposed to be used to cover the uninsured. In the end, the governor settled for a $50 million loan from the Health Access Fund that is to be repaid out of the projected savings from the reform program.

     What the passage of this bill—and its approval by Gov. Pawlenty, who’s on the short list for Republican vice presidential candidates—shows is that the two parties can work together and make progress on health care reform. But, as Berglin notes, it was the business community that made Minnesota’s reform legislation possible. So, for this kind of reform to occur on a national level, business and consumer groups must put their shoulders to the wheel. If they do, no special interest will be able to stop the momentum of reform.