The key to Obama's thinking on the structural deficit, again, is bending the health care cost curve. Two stories in today's Times point toward how that may be done over time -- and why Obama fought so hard to retain a strong Independent Payment Advisory Board (IPAB) for Medicare in the PPACA, along with a host of pilot programs to test new payment systems.
First, David Leonhardt spotlights a not-so-modest proposal:
In the new issue of the journal Health Affairs, two doctors [Dr. Bach and Dr. Pearson], both former Medicare officials, have laid out a plan to do so. It would give expensive new treatments three years to prove that they worked better than cheaper treatments, or their reimbursement rates would be cut to that of the cheaper treatments.
To illustrate the need and possible workings of such a plan, Leonhardt returns to a topic he covered in depth during the health care debate (cited by Bach and Pearson): treatment for prostate cancer. Briefly, three forms of radiation are now available, costing, respectively, $10,000, $42,000, and $50,000 on average (naturally, the oldest is the cheapest; the newest, the most expensive, requiring massive new equipment investments from practitioners). There is no evidence that any of these treatments is more effective than the others. Medicare pays for all three without distinction. Providers' profit margins, needless to say, are much higher on the more expensive treatment. Under the Bach-Pearson proposal, if the newer treatments were not proved more effective within the three years, Medicare would only reimburse $10,000 for each treatment.
Such proposals might ultimately prove to be within the power of IPAB to implement, though there are severe constraints. James C. Capretta of the Ethics and Public Policy Center explains how IPAB works:
To hit its budgetary targets, the IPAB is strictly limited in what it can recommend and implement. It can’t change cost-sharing for covered Medicare services. Indeed, it can’t change the nature of the Medicare entitlement at all, or any aspect of the beneficiary’s relationship to the program. The only thing it can do is cut Medicare payment rates for those providing services to the beneficiaries.
This wasn’t an accident. It reflects the cost-control vision of those who wrote the bill. They believe the way to cut health care costs is with stronger federal payment controls. They envision the IPAB coming up with new payment models which will push hospitals and physicians to emulate today’s most efficient delivery models. Call it “government-driven managed care.”
And in the not-terribly-distant future, IPAB will have to act. Capretta:
But make no mistake: Beginning in 2015, Medicare spending is now supposed to be limited, on a per capita basis, to a fixed growth rate, initially set at a mix of general inflation in the economy and inflation in the health sector. Starting in 2018, the upper limit is set permanently at per capita gross domestic product growth plus one percentage point.Capretta also predicts, however, that IPAB will fall into the past trap of imposing across-the-board payment rate reductions "rather than reforms which may or may not lead to more efficient organizational arrangements." He does not specifically consider the use of outcomes research in the manner outlined by Bach and Pearson. But Bach and Pearson detail the ways in which the PPACA maintains existing constraints on Medicare's use of outcomes research for pricing:
In some respects, the prospects for applying comparative effectiveness research to Medicare’s coverage or reimbursement policies appear quite limited. Under current law and because of years of precedent, Medicare generally covers any treatment that is deemed "reasonable and necessary," regardless of the evidence on the treatment’s comparative effectiveness or its cost in relation to other treatments.2 Likewise, with only very rare exceptions, Medicare does not use comparative effectiveness information to set payment rates. Instead, it links reimbursement in one way or another to the underlying cost of providing services.3 To these established precedents, the Affordable Care Act added several explicit limitations on Medicare’s payment formulation and the use of comparative effectiveness research (Exhibit 1).Their proposal, however, is constructed to provide at least a glimmer of potential to evade those constraints. The limitations listed in Exhibit 1 include:
It would seem that conditioning the level of payment to outcomes research results would run afoul of the first provision listed above -- i.e., would be construed as a payment recommendation. On the other hand...
Section 6301(d)(8)(A)(iv): The Institute shall ensure that the research findings not be construed as practice guidelines, coverage recommendations, payment, or policy recommendations.
Section 1182(a): The Secretary [of health and human services] may only use evidence and findings from research...to make a determination regarding coverage...if such use is through an iterative and transparent process which includes public comment and considers the effect on subpopulations.
It is also conceivable that our proposed payment model could be incorporated into Medicare processes without running afoul of the language in the Affordable Care Act that restricts Medicare’s use of comparative effectiveness research. The intent of that language was to keep national comparative effectiveness assessments from leading to mandatory decisions about coverage or payment. The secretary of health and human services might well determine that applying comparative effectiveness evidence in the way we describe would constitute the required "iterative and transparent process" (Exhibit 1) for setting reimbursement rates. But if Medicare efforts to adopt our proposed approach were judged to be inconsistent with the intent of the Affordable Care Act, we would recommend perseverance. New amendments to the act could be considered, but we would hope that minor changes to the reimbursement model would be all that would be needed to allow Medicare to move forward without sacrificing the basic goal of using comparative effectiveness evidence to link coverage and reimbursement.
Call the lawyers. The second provision seems to contradict the first. More thorough context for each is required.* I hope to this on a future date.
More broadly: the powers of IPAB, are the guts of Obama's long-term plans for the serious "spending cuts" (Mr. Sullivan, please note).
The second Times article, by Reed Abelson, highlights programs that health insurers are piloting now to place similar constraints on treatment choice.
UnitedHealthcare plans to announce on Wednesday a one-year project with five oncology practices, offering doctors an additional fee. The new fee is meant to encourage doctors to follow standard treatments rather than opting too often for individualized and unproven courses of therapy, which can include the most expensive drug combinations. By proposing a different type of payment structure, companies hope to lower doctors’ dependence on a system that generates substantial sums for cancer specialists who routinely favor top-of-the line treatments.The PPACA also includes funding for numerous pilot programs providing hospitals with incentives "to coordinate and manage patient care."
Regional insurers in some states, including California, Washington and Pennsylvania, are negotiating similar limits with doctors and their clinics. WellPoint, another large insurer, is developing a way of paying oncologists to coordinate and manage patient care.
Abelson outlines the current skewed incentives, acknowledged by many doctors:
By almost any measure, cancer treatments can be exorbitantly expensive. Cancer care in the United States costs almost $100 billion a year, and medical bills for the average patient on chemotherapy can top $100,000 a year.
With the new health care law, everyone is under pressure to find ways to save money. Many specialists favor the most aggressive care even if there is little to no evidence the patient will benefit, because both doctors and patients have every incentive to spare no expense. Patients and their families often demand one last treatment. And oncologists can reap tremendous profits, sometimes earning more than half of their income on the difference between what they pay for chemotherapy drugs and what they charge the insurers for the patient’s treatment plan....
many cancer specialists acknowledge that the current payment system is unsustainable. “It has all the potential to bankrupt the system,” said Dr. Michael Neuss, an oncologist in private practice in Cincinnati. He described the existing payment plans as “our dirty little secret.”
“A lot of us want to get out of selling drugs,” he said.
Abelson's article should be read in light of Atul Gawande's memorable in depth look at the agonizing choices faced by people with terminal or likely-terminal disease, and the way the U.S. medical establishment pushes so many toward maximal treatment -- the cultural propensity that Betsy McCaughey smeared Ezekiel Emanuel for highlighting, giving birth to the "death panel" meme. Gawande shows how people who are clearly dying and people who are not exposed to or do not open themselves to the possibility of palliative care often torture themselves and spend hundreds of thousands of dollars on treatments that can't save them and often have little or no chance of alleviating their suffering or prolonging their lives even marginally.
Both Abeslon's and Gawande's articles highlight ambiguity. Insurers, one doctor quoted by Abelson points out, have their own incentives--and of course have been often vilified for denying expensive treatments. What makes sense as an average guideline may not be the best course of treatment for many individuals. Treatment effectiveness research can remain ambiguous indefinitely.
One doctor cited by Abelson embraces such ambiguity:
Of course, Republicans crying crocodile tears over the deficit will scream 'death panel' at anyone who utters the first peep in that debate. For those who would make a serious bid to control costs, it's "keep your government hands off my Medicare!"
Dr. Newcomer of UnitedHealthcare acknowledged that some trade-offs were not clear cut but could be judged on factors like the difference in cost between the drugs — is it a few hundred dollars or a few thousand? “I think that’s a perfectly legitimate debate,” he said.
IPAB, however, is largely shielded from electoral politics -- though members must be confirmed by the, ugh, Senate. It is Obama's baby.
* I would note in passing that the provisions limiting outcomes research cited by Bach and Pearson also provide very explicit defense against according any Medicare administrative body or authority any shadow of "death panel" authority -- or indeed, even limited choice authority. Here is Bach/Pearson's full compendium:
Exhibit 1 Limits On Medicare’s Use Of Comparative Effectiveness Research