Both liberals and conservative critics have charged that the health reform legislation that President Obama signed this spring focuses mainly on insurance coverage, and does little to rein in the spiraling cost of health care. This isn’t true. But the legislation is dense– and, as usual, the truth is more complicated than a lie. There is no single “fix” that will “break the curve” of health care inflation. The Affordable Care Act (ACA) contains multiple provisions that open the door to cost containment in myriad ways.
In today’s issue of The New England Journal of Medicine (NEJM), Peter Orszag, director of the White House Office of Management and Budget (OMB) and OMB special health advisor Zeke Emmanuel explain how the bill will make Medicare more affordable: “Perhaps most fundamentally,” they write, “the ACA recognizes that reform, particularly changing the delivery system, is not a one-time event. It is an ongoing, evolutionary process requiring continuous adjustment. The ACA therefore establishes a number of institutions that can respond in a flexible and dynamic way to changes in the health care system.”
What is most exciting is that under the new legislation, Congressional lobbyists will not be able to block the process: “The secretary of health and human services (HHS) is empowered to expand successful pilot programs without the need for additional legislation.”
Below excerpts from their “Perspective” in the June 16 NEJM:
“Although the bill has now been signed into law, the debate over its design and intended effects has not abated. As concerns appropriately mount about the nation’s medium- and long-term fiscal situation, critics of the ACA have resurrected doubts about its cost-containment measures and overall fiscal impact. Many commentators have claimed that the bill focuses mostly on coverage and contains little in the way of cost control.
“Yet we would argue that even from a purely “green eye shade” viewpoint, the bill will significantly reduce costs. . . . the Congressional Budget Office (CBO) . . . has determined that the ACA will reduce the federal budget deficit by more than $100 billion over the first decade and by more than $1 trillion between 2020 and 2030. And the Commonwealth Fund recently projected that expenditures for the whole health care system will be reduced by nearly $600 billion in the first decade.
“But these savings will be illusory if we do not reform health care delivery to bring down the long-term growth in costs, and the ACA puts us on the path to doing just that. In fact, it institutes myriad elements that experts have long advocated as the foundation for effective cost control. More important is how the legislation approaches this goal. The ACA does not establish a rigid bureaucratic structure to be changed only episodically through arduous legislative action. Rather, it establishes dynamic and flexible structures that can develop and institute policies that respond in real time to changes in the system in order to improve quality and restrain unnecessary cost growth.
“So what are the cost-control elements of the ACA? First, some reforms aim to eliminate unnecessary costs to the system; these include measures against fraud and abuse in the Medicare and Medicaid programs, which the Department of Health and Human Services predicts will return approximately $17 in reduced spending for every dollar invested ($7 billion over 10 years, according to the CBO). Administrative simplification under the ACA will reduce unnecessary paperwork and create uniform electronic standards and operating rules to be used by all private insurers, Medicare, and Medicaid — saving the federal government an estimated $20 billion over 10 years and saving insurers, physicians, hospitals, and other providers tens of billions of dollars a year (according to the U.S. Healthcare Efficiency Index) . . .
“An estimated $1.1 billion will be saved in Medicare by calculating payment for complex imaging studies under the assumption that the machines will operate not just 50%, but 75%, of the time. And about $135 billion will be saved in the first decade by eliminating unjustified subsidies to Medicare Advantage plans.
“These savings are oriented toward reducing the level of health care costs rather than the growth rate of such costs. If that were all the legislation did, it would technically pay for health care reform but would miss an opportunity to put downward pressure on the growth of health care costs — an essential step in reducing our long-term fiscal imbalances. .. . . .
“ . . .Bending the curve” of health care inflation . . requires a more direct change in the way health care is delivered. Health care costs are unevenly distributed: 10% of patients account for 64% of costs. Many of these are patients with chronic conditions, such as congestive heart failure, diabetes, and hypertension. Sustained cost control will occur only with more coordinated care that prevents avoidable complications for patients with chronic illness. As Stanford’s Victor Fuchs has noted, coordinated care requires three “I”s: information, infrastructure, and incentives.
“Information will come from the spread of electronic health records, a process that will be jump-started by the Recovery Act’s $26 billion investment in health information technology. Electronic health records will supply providers with more accurate and real-time data on their patients, as well as provide checks on drug interactions and decision support to improve the quality of care. In addition, the Patient-Centered Outcomes Research Institute (PCORI) that was created by the ACA will empower physicians and patients with new information regarding the effectiveness of various medical technologies and interventions. The integration of the PCORI’s research findings with decision supports, guidelines, and other aspects of electronic health records should greatly enhance the information that physicians and patients can use in choosing the right tests and treatments for a particular situation.
“Infrastructure reform is evident in the law’s provisions supporting enhanced horizontal coordination among providers and more constant monitoring of patients. For physicians, health care reform encourages greater integration in many ways — for instance, through the redesign of delivery systems such as medical homes and accountable health care organizations. In addition, the law includes a new hospital readmission policy to address the fact that nearly 20% of Medicare patients are readmitted within 30 days after a hospital discharge and that lack of coordination in “handoffs” such as hospital discharges has been identified as a particular problem in the health care system overall. More than half of these readmitted patients have not seen their physician between discharge and readmission, and a recent study suggests that better coordination of care can reduce readmission rates for major chronic illness. The policy provides $500 million over 5 years to manage care for 30 days after hospital discharge and also imposes payment penalties on hospitals with high risk-adjusted readmission rates for certain conditions.
“These changes in information and infrastructure will not spontaneously affect how doctors deliver care; incentives within the system also need to be recalibrated, since the dominant fee-for-service payment system creates disincentives to making the changes necessary for coordinated care. In addition to the hospital readmission policy, the ACA will create incentives for hospitals to adopt proven practices that substantially reduce their rates of hospital-acquired infections and other avoidable conditions; hospitals that still have rates in the top 25% will face reductions in Medicare payments. Similarly, the ACA’s pilot programs involving bundled payments will provide physicians and hospitals with incentives to coordinate care for patients with chronic illnesses: keeping these patients healthy and preventing hospitalizations will be financially advantageous. (These efforts will also enhance physicians’ autonomy by allowing them to devise the best practices for keeping patients healthy.)
“Perhaps most fundamentally, the ACA recognizes that reform, particularly changing the delivery system, is not a one-time event. It is an ongoing, evolutionary process requiring continuous adjustment. The ACA therefore establishes a number of institutions that can respond in a flexible and dynamic way to changes in the health care system. The PCORI will assess new medical tests, drugs, and other treatments as they are developed, thereby providing continuously updated information for physicians and patients. Similarly, over the next decade, the Innovation Center in the Centers for Medicare and Medicaid Services will be developing, testing, and evaluating new policies and programs that enhance the quality of care for Medicare beneficiaries, reduce the cost of their care, or both. And the secretary of health and human services (HHS) is empowered to expand successful pilot programs without the need for additional legislation.
“The most important institutional change in the ACA, however, is likely to be the establishment of the Independent Payment Adviso
ry Board (IPAB), an independent panel of medical experts tasked with devising changes to Medicare’s payment system. Beginning in January 2014, each year that Medicare’s per capita costs exceed a certain threshold, the IPAB will develop and propose policies for reducing this inflation. The secretary of HHS must institute the policies unless Congress enacts alternative policies leading to equivalent savings. . . .
“The combination of these three bodies — the IPAB, the Innovation Center, and the PCORI — holds the potential for providing up-to-date information and developing policies that can improve the quality of care and the value provided by the health care system on an ongoing basis. Ensuring that these new bodies live up to their potential and earn reputations for rigor and integrity will be one of the most important challenges as the implementation of the ACA continues.
“. . . one of the essential aspects of the legislation is that unlike previous efforts, it does not rely on just one policy for effective cost control. Instead, it puts into place virtually every cost-control reform proposed by physicians, economists, and health policy experts and includes the means for these reforms to be assessed quickly and scaled up if they’re successful. . . .”