NEJM Study: Vertical consolidation may negate benefits of health care coordination

A study* of the early performance of Accountable Care Organizations (ACOs) formed under the ACA suggests that, in funding such programs, the ACA creators may have sawed at the branch they were sitting on.

The analysis of of ACOs in the Medicare Shared Savings Program (MSSP), by a team led by Harvard's J. Michael McWilliams*, looked at total Medicare Parts A and B spending and spending on patients with select specific conditions in participating ACOs that entered the program in 2012 and 2013. In the MSSP, the largestof the ACO programs, organizations take on no downside risk -- they stand only to gain if they keep spending below targets.

The study found modest reductions in spending compared to control groups by the 2012 cohort, and negligible reductions in the 2013 cohort. Most of the improvement was in two subgroups: those whose spending was higher than the regional average prior to the program launch, and those that were composed of independent physician groups rather than those owned by hospitals. The second finding throws up a red flag with respect to current trends:

we estimated substantially greater savings for independent primary care groups than for groups integrated with hospitals when comparing spending changes in ACOs with local concurrent changes. There are both theoretical considerations and previous observational studies that would support the pattern of savings that we observed. In particular, independent physician groups have stronger incentives to lower inpatient and hospital outpatient spending than groups integrated with hospitals because their shared-savings bonuses are not offset by forgone profits from reductions in hospital care. Our findings suggest that financial integration between physicians and hospitals, which may increase commercial health care prices,is not necessary for ACO success. Early signals from the MSSP, however, may not predict the long-term efficiencies from various organizational structures under new payment models

Will Republicans now learn to hate Medicare payment reform?

HHS and CMS yesterday announced a major expansion of efforts to move Medicare payments away from fee-for-service and toward so-called value-based and bundles payments. The ACA seeded this effort with a host of pilot programs, and the administration is looking to build on the momentum generated, as HHS Secretary Sylvia Burwell writes in the New England Journal of Medicine:

As we work to build a health care system that delivers better care, that is smarter about how dollars are spent, and that makes people healthier, we are identifying metrics for managing and tracking our progress. A majority of Medicare fee-for-service payments already have a link to quality or value. Our goal is to have 85% of all Medicare fee-for-service payments tied to quality or value by 2016, and 90% by 2018. Perhaps even more important, our target is to have 30% of Medicare payments tied to quality or value through alternative payment models by the end of 2016, and 50% of payments by the end of 2018. Alternative payment models include accountable care organizations (ACOs) and bundled-payment arrangements under which health care providers are accountable for the quality and cost of the care they deliver to patients. This is the first time in the history of the program that explicit goals for alternative payment models and value-based payments have been set for Medicare.

One worry about this initiative: phasing out fee-for-service has until now been a bipartisan goal. A bipartisan "doc fix" bill to update and reform the Medicare payment structure foundered only the question of how to pay for it - necessary because the status quo baked an unsustainable "Sustainable Growth Rate," established in 1997 and "patched" with a payment hike every year, into long-term budget projections.  The doc fix would have transitioned doctors to payments based on "performance scores" and, like the HHS/CMS initiative, encouraged formation of ACOs, medical homes and other structures purporting to foster coordinated care.

The bipartisan consensus on healthcare cost control

It would be inaccurate to say that there are two main methods of controlling healthcare costs. But it's fair, I think, to say that there are two poles, with an important if unproven class of measures between them.

One pole is government control over the price of medical services, procedures and products, including drugs. The means vary widely, from direct government payment of providers (the U.K.) to regional government approval of rates negotiated by all insurers (Switzerland, for hospitals). Government rate-setting is employed by every wealthy country except the United States, which is also to say every country that provides universal health insurance to its citizens. Not coincidentally, the U.S. spends two-and-a-half times the OECD per capita healthcare spending average and almost twice as much as a percentage of GDP (as of 2011).

The other pole is to offload an ever-increasing share of the healthcare tab onto consumers, causing them to restrict their healthcare consumption.  The U.S. has de facto taken this route. According to Kaiser Family Foundation research, the percentage of workers who pay an annual deductible of more than $1,000 for a single-person plan provided by the employer rose from 10% in 2006 to 38% in 2013. From 2003 to 2013, while premiums overall rose 80%, the cost of the average worker's share of the premium rose 89%, from $2,412 for a family plan in 2003 to $4,565 in 2013. According to the 2013 PwC Touchstone Survey of major US companies, 44% of employers were considering offering high-deductible health plans as the only benefit option to their employees in 2014; 17% did so in 2013.  Deductibles have also skyrocketed in the individual market, a trend accelerated by the Affordable Care Act. In the ACA exchanges, the average bronze plan's single person deductible was just over $5,000 and the average silver plan's, just under $3,000.

How Obama might ditch the individual mandate and save the ACA

The "doc fix" legislation that would replace the current unsustainable physician payment formula for Medicare while transitioning payments away from fee-for-service is a rather remarkable instance of substantive bipartisan cooperation. Republicans and Democrats have agreed on methods of bundling payments and paying for quality that, whatever their merits, would require intensive government monitoring.  Had these methods been incorporated in the Affordable Care Act, Republicans would doubtless be demonizing them as relentlessly as they have the thus-far-dormant Independent Payment Advisory Board for Medicare, notwithstanding that Paul Ryan included a similar board in his 2009 Patients' Choice Act.

The doc fix must be "paid for," however, since the un-implementable cuts to doctors' payments mandated by the law they would replace are incorporated into the federal budget baseline. And in the pay-for, Republicans in both houses of Congress have introduced a poison pill: delay or repeal the Affordable Care Act's individual mandate. That would save money by ensuring that far fewer people enroll in Medicaid or enroll in the ACA's Qualified Health Plans (mostly with federal subsidies). CBO estimates that  the 5-year delay proposed by the House GOP would result 13 million fewer insured Americans by 2018: seven million fewer buying private health plans, five million fewer in Medicaid, and a million eschewing employer-provided insurance.

As written, such a bill would probably destroy the ACA, draining the risk pool and thus inducing insurers to jack up prices. That's assuming no viable replacement for the mandate, however.  In fact the outline of a viable replacement exists, in the ACA "repeal and replace" proposal introduced in the Senate this past February by Senators Coburn, Burr and Hatch.

Query: will the doc fix bend the healthcare cost curve?

[Program note: the lede is somewhat buried here, in that the post goes from exposition to open query 5 paragraphs down. Also, see update at bottom re doc fix pay-fors]

The doc fix is in, as Sarah Kliff pithily put it. That is, bipartisan legislation unveiled on Feb. 6 would repeal the broken Medicare payment formula that has had to be patched every year -- and transition essentially all Medicare payment to doctors away from fee-for-service and into (alleged) payment-for-performance.

Under the proposed legislation, three existing merit-based incentive payment programs would be consolidated. Payments to doctors will be adjusted based on a composite score of their performance compared to peers comprised of  scores in four categories: 1) quality of care; 2) resource use; 3) "meaningful use" of electronic health records (EHRs); and 4) improvement over their own past performance.* The quality measures, to be updated every year with input from "eligible professional organizations and other relevant stakeholders," are in five categories: clinical care, safety, care coordination, patient and caregiver experience, and population health and prevention.

If it passes and works more or less as designed -- two enormous ifs -- the doc fix, as I have noted before, could eclipse in impact all the toxically politicized budget wrangling of the past five years.  "Healthcare reform is entitlement reform": if Medicare cost growth is slowed significantly, our fiscal future is likely secured  If it works (or, for that matter, if it fails spectacularly), the doc fix could have more impact on the healthcare cost curve than the Affordable Care Act, since its package of consolidated performance incentives, as Sarah Kliff points out, "constitute a more significant move toward pay-for-value than is the Affordable Care Act, where those efforts are either limited to pilot programs (like the Accountable Care Organizations) or, if they are system-wide, tend to limit providers' risk to two percent or three percent of their reimbursements. Going up to nine percent [as the doc fix does by 2021] would step up the incentives in a pretty major way."

It's a supreme irony that this potentially radical long-term budget reform is strongly bipartisan -- put forward by the outgoing chair of the Senate Finance Committee, Max Baucus, and the Republican Chairs of the House Ways and Means and Energy and Commerce Committees, Dave Camp and Fred Upton. I wonder if it can stay that way. Partisanship will be in force on the unresolved matter of how to pay for the fix, which needs to be paid for only because the status quo baked an unsustainable "Sustainable Growth Rate" into long-term budget projections.** The collaboration on new payment mechanisms, however, is evidence that either a) Republicans are capable of rational thought and action when an issue is somehow sequestered from ideological dispute, or b) that both parties are in the grip of untested shibboleths regarding the potential of pay-for-performance and currently prevalent principles of its design. Probably a bit of both.

A program note: as I mentioned in a prior post, I am branching out from amateur blogging to amateur reporting.  On the prior subject on which I mentioned I would seek expert input -- "what will Republicans do to the ACA if they win both houses of Congress and the presidency by 2014?" --I have completed an article based on in-depth discussions with healthcare economists on both sides of the political spectrum that will either appear on this blog or elsewhere early next week. I plan to do the same with respect to the potential impact of the doc fix (that is, the SGR Repeal and Medicare Provider Payment Modernization Act). Let me again go open source here (my prior query drew a blogged response from Duke's Don Taylor) and pose the following questions:

As we hyperventilate, a quiet healthcare revolution?

Healthcare wonks were understandably a-twitter yesterday over the unveiling of the first substantive "repeal and replace" legislation -- a bill from Senators Coburn, Burr and Hatch that would re-remake the individual insurance market, semi block-grant Medicaid and take a big bit out of the employer's health insurance tax deduction.

The bill is important. Some of its core provisions could be enacted within the framework of the ACA. Some of those provisions -- e.g., replacing the individual mandate with a combination of continuous-coverage protection and default auto-enrollment -- are palatable to some progressives, and others -- capping the employer's tax deduction at 65% of the cost of an average plan -- might be downright attractive to them.  Others, not so much. But as a framework for possible compromise with ACA proponents -- e.g.,  if, say, Democrats have the Senate and Republicans the House and presidency in 2017 -- it has potential.

Under the radar, meanwhile, are two bipartisan efforts that could potentially have a more profound impact on healthcare costs, and therefore on healthcare delivery, as well as on the nation's long-term fiscal outlook.  Both are attempts to move government payment for health services away from fee-for-service. Both seek to foster a combination of coordinated care and pay-for-performance (as do pilot programs in the ACA).  Significantly, amazingly, this potentially revolutionary effort has not yet taken on strong partisan markings.

The most recent effort on this front bears the imprimatur of Congress's most creative and informed healthcare legislator, Senator Ron Wyden (D-Ore.), in concert with Sen. Johnny Isakson, (R-Ga.); Rep. Erik Paulsen (R-Minn.); and Rep. Peter Welch (D-Vt.). The bill, the Better Care, Lower Cost Act of 2014, hones in on the sickest Medicare patients, a small percentage of whom account for the majority of costs.  Modern Healthcare's Andis Robeznieks explains:

Could a "doc fix" have a bigger impact on U.S. healthcare than the ACA?

Two interrelated features of the U.S. healthcare system are probably the primary causes for the uniquely high cost of healthcare in the U.S.: weak government control over pricing, and the fee-for-service payment model.

These interrelated weaknesses are exacerbated, as a weekend Washington Post exposé showed, in that Medicare pretty much lets doctors determine the rates at which they paid, by leaving it to the AMA to produce estimates of how long each procedure takes. Surprise! The doctors' chief trade group massively pads the estimated times required for most procedures. 

Even if procedure prices were based on accurate time estimates, free-for-service incentivizes providers to perform a high volume of the most expensive procedures. Nonetheless, countries in which the government imposes monopsony price control -- i.e., every other wealthy country in the world -- generally manage to deliver universal healthcare at two thirds to half the cost per capita of healthcare in the U.S.  Government control over pricing, as Ezra Klein recently forced healthcare free market evangelist Avik Roy to admit, is the sine qua non of effective heathcare cost control.  And we in the U.S. don't have it, as a study published in Health Affairs ("It's the Prices, Stupid...", Gerard F. Anderson et al., 2003) explains:

What would Simpson-Bowles 2.0 do to Medicare?

Liberals are up in arms about the new Simpson-Bowles deficit reduction framework because, in brief, it calls for about $1.4 trillion less in revenue over ten years than Simpson-Bowles 1.0  (let's call it SB 1) along with roughly another $1.8 trillion in spending cuts, counting interest savings. That's more cuts than those mandated by the looming sequester, but more back-loaded, and with $600 billion coming from Medicare and Medicaid, which the sequester doesn't touch.

The shock comes from the reduction in proposed new revenue compared to the original plan, a change that simply reflects Obama's more limited revenue goals ($1.2 trillion over ten years at last ask, compared to $2.6 in SB 1). Spending cuts remain approximately the same, making the whole package proportionately more cut-heavy.

I want to look for a moment at the $600 billion in savings SB 2 proposes for "health care reforms" -- $200 billion more than SB 1 laid out, but  no more than Obama put forward in his last "grand bargain" offer to Boehner.  Simpson and Bowles envision bending the health care curve in ways that overlap with those envisioned by Obama -- though BS 1 cuts benefits in ways that Obama would not approve, and BS 2 would presumably cut benefits still more. Their rather sketchy new framework takes an "all of the above' approach to reducing healthcare costs -- hitting providers, beneficiaries, and drug companies:

Reduce Medicare and Medicaid spending by improving provider and beneficiary incentives throughout the health care system, reducing provider payments, reforming cost-sharing, increasing premiums for higher earners, adjusting benefits to account for population aging, reducing drug costs, and getting better value for our health care dollars (Feb-Dec 2013)

Morning in, ah, Medicare?

Well, it's a sunny pre-holiday Friday morning, and I am cheered by Ezekiel Emanuel in today's Times heralding the bending of the healthcare cost curve, as it now seems over the past ten years. On the cost control front, perhaps the ACA will look in retrospect something like the surge in Iraq, giving a jolt of indeterminate magnitude to a st of processes already in motion.

In any case, perhaps superficially, I am riffling through my mind the hopeful signs that have emerged on the healthcare front in recent weeks. If I want to go head over heels in caffeinated optimism, I might imagine that Atul Gawande's vision of a kind of venture capital process of reform stimulated by the ACA -- dozens of simultaneous experiments, a handful of which will yield dramatic results -- may actually occur over the next ten-odd years.

Hopeful signs include the fact that, for all the GOP's caterwauling about "bureaucrat-controlled" and "government-controlled" healthcare, beneath the radar some Republicans are looking at cost control measures that are indeed government-imposed, and likely to be effective.  For example, as I noted recently, two long-term "doc fix" bills are currently circulating in Congress, one bipartisan (but mainly Democrat), one Republican. While the GOP bill accords far more input to healthcare providers, both purport to either end or radically curtail fee-for-service payments.

A second sign of some nonideological thinking on the Republican side emanates from a bipartisan initiative, the Partnership for the Future of Medicare, co-chaired by former CBO head Douglas Holtz-Eakin and Ken Thorpe, a professor at Emory. The pair this week distilled a  PFM report in a post on the Health Affairs blog. I think of Holtz-Eakin, former economic adviser to the McCain campaign, as an intensely partisan critic of Obamanomics and the ACA, an impression gleaned mainly from quotes in news articles.  I was therefore somewhat surprised to learn that he is preaching the futility of simple cuts to benefit formulas, and calling for more systemic reform that does not simply rely on the Competition Fairy:

Will the 'doc fix' revolutionize U.S. healthcare?

I'm new to this, and so lack important context, but it looks to me as if a pending 'doc fix' -- a long-term replacement for the failed Medicare reimbursement formula (part of the Balanced Budget Act of 1997) that Congress patches up every year --could transform our healthcare delivery system at least as sweepingly as the Affordable Care Act.

Modern Healthcare's Rich Daly reports that two rival bills have been introduced. A bipartisan bill all but phases out fee-for-service, while a GOP bill preserves but modifies it. The first,  introduced by Rep Allyson Schwartz (D-Pa) and co-sponsored by Rep. Joe Heck (R-Nev.), an osteopath, is summarized by Daly as follows:

Schwartz's bill (PDF) would mostly unravel the fee-for-service system by requiring physicians to adopt one of several replacement models that the CMS would test and approve over five years. Physicians who did not do so would face successive payment cuts, although a small number of physicians could remain in a modified fee-for-service system if they met certain quality benchmarks or were near retirement.