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Bending the Curve with Carrots and Sticks



November 12th, 2009

Editor’s Note: In addition to John Wennberg and Shannon Brownlee (photos and bios above), authors of this post include James Weinstein, MS, DO, and Elliott Fisher, MD, MPH. Weinstein is chair of the Department of Orthopaedic Surgery at the Dartmouth-Hitchcock Medical Center. Fisher is Director of the Center for Population Health at The Dartmouth Institute for Health Policy and Clinical Practice and Professor of Medicine and of Community and Family Medicine at Dartmouth Medical School.

Now that Congress appears to be on its way to passing some sort of health insurance reform legislation, attention is turning to our dysfunctional, disorganized, and wasteful delivery system.

Both the House and Senate bills contain a little something for everyone in terms of delivery system reform, but how close they come to fulfilling that ambition will depend in large measure upon achieving four major goals:

  1. Improving the science of health care delivery;
  2. Fostering the expansion of organized systems of care;
  3. Establishing informed patient choice as the standard of care for elective surgeries, tests, and procedures;
  4. Constraining the undisciplined growth in health care capacity and spending.

A Science Of Health Care Delivery

Both House and Senate bills would create new institutes (the Patient Centered Outcomes Research Institute in the Senate Finance Committee bill), aimed at providing much needed comparative effectiveness research. While such research is necessary for improving outcomes, it is not sufficient. The nation’s research priorities must also include the development of a science of health care delivery, which is currently a black box. Patients with similar conditions are treated in very different ways by different providers, few of whom devote any research effort at all to determining how best to allocate resources and how to achieve the most effective care pathways.

What’s more, few existing electronic health records (EHRs) are able to support the kind of ongoing research into the relationship between care processes and measures of efficiency (such as delays in discharge). Nor can they support research looking at the link between care processes and health outcomes (such as those recently applied successfully to back pain treatment). The latter requires incorporating patients’ reports of their health status into both effectiveness research and routine care. As EHRs are rolled out, they must enable the creation of registries and the tracking of patient outcomes, so that organized systems can learn continually to improve care.

Fostering Organized Systems Of Care

Expanding organized systems of care will require shared savings plans that reward Accountable Care Organizations, or ACOs (either newly formed or existing organized group practices) for reducing utilization while maintaining quality. Shared savings can also soften the short-term financial blow that will likely result from reining in excess utilization, and ease the transition to value-based care, especially for supply-sensitive services – the routine hospitalizations, physician visits, and procedures that are delivered to chronically ill patients, and which we estimate account for about 60 percent of Medicare spending.

The current legislation authorizes the CMS to support the development of ACOs and new payment models – either as pilots (in the House bill) or as a national voluntary shared savings program (in the Senate’s). Although the principles of how ACOs might be structured and rewarded have been outlined, a number of details will have to be worked out to make sure they evolve into high-performing organizations that deliver on the promise of “accountability.” This will require learning, adapting the model, and technical support. In addition, the CMS will need to make the Medicare claims data more rapidly and widely available.

Establishing Informed Patient Choice

Patients facing elective services, even invasive surgical procedures, routinely don’t understand what they’re getting into. This can lead to higher costs when patients undergo treatment that they would not have wanted had they been fully informed, and may encourage malpractice suits. Changing the standard of care from informed consent to informed choice that is achieved through shared decision making could reduce unwanted care.

We recommend two parallel strategies to achieve this goal. First, the CMS should move rapidly to implement standardized approaches to informing patients. Simply disseminating patient decision aids regardless of their quality, as the Senate HELP Committee bill would do, will not achieve the goal of ensuring that patients are making informed choices. Any research institute that emerges from the legislation should direct funds to validating patient decision aids and shared decision-making processes. Fully implementing informed patient choice will also require that state legislatures redraft informed consent laws to promote informed patient choice as the standard of practice for elective treatments.

Second, the CMS must reimburse providers for the cost of supporting shared decision making; reward those who achieve high-quality patient decision making; and ultimately, require hospitals and ambulatory surgery centers to support shared decision making as a condition of participating in Medicare and Medicaid. We see this reimbursement fitting easily into the Medical Home concept.

Constraining Undisciplined Growth

The current legislation achieves short-term savings largely through across-the-board cuts in the prices Medicare pays to providers. This approach penalizes efficient providers and communities that achieve high levels of quality for lower spending, and misses a critical opportunity to use the annual adjustment in Medicare fees to encourage slower spending growth and greater accountability. We strongly advocate a more nuanced approach that involves both carrots and sticks.

First the carrots. The secretary of Health and Human Services (HHS) should be authorized to establish a category of providers who have demonstrated the ability to slow spending growth and improve quality of care. This would include not only ACOs, but also other provider groups participating in performance measurement that focuses on overall cost accountability, such as medical homes. These would be eligible for financial bonuses related to demonstrated improvements in quality and slower cost growth.

Congress should also consider giving CMS a stick that it could use to penalize providers in regions with excessive growth in per capita spending. We know that some regions of the U.S., such as McAllen, Texas, and East Long Island, spend more and have grown faster than others. Restraining excess spending may save some money today, but more importantly, it would serve as a signal that Medicare is serious about reducing future spending growth. This is key to getting Medicare’s budget back in balance over the long haul. Indeed, if all U.S. regions could slow spending growth by even 1%, savings of more than $1 trillion over the next 15 years would accrue to Medicare alone.

We suggest that providers in regions where overall per capita growth in spending exceeds a reasonable target should receive reduced updates. This could be aimed narrowly at the highest-cost hospitals within those regions. Given the contribution of hospital expansion to rising costs (a “record breaking” $50 billion of hospital construction in 2008, according to MedPAC), such an “outlier penalty” could encourage more rational and population-based planning.

An alternative method of reducing spending would be to spread the reduced updates across all providers within high-growth regions. This would serve as an incentive for both physicians and hospital administrators to rein in the local medical arms races and ancillary services that contribute to skyrocketing costs.

Either way, reducing updates to high-growth regions or specific providers should discourage the easy flow of money from bond and equity markets for hospital expansion, and could spur the most inefficient providers to participate in ACOs and other shared savings programs. The key here is encouraging local providers to consider how to slow – or even reduce – local spending on unnecessary care. Some communities that have successfully held down costs did so by merging hospitals and eliminating unneeded capacity.

Other aspects of the health care reform bills are worth noting. The Senate Finance Committee has included a provision for a Workforce Advisory Committee, which would look into both the specialty composition and number of physicians being trained. Our data indicate that the nation does not need more physicians, but we do need to shift the ratio of primary care physicians (PCPs) to specialists back toward more PCPs. The bill’s provision for redirecting residency slots toward rural hospitals and hospitals that are short of personnel should also shift residencies toward the most organized, efficient teaching hospitals, whose practices we want to disseminate.

A Call For An All-Payer Atlas

Finally, we call on Congress to include measures to create an all-payer atlas, similar to the Dartmouth Atlas for Medicare. As the largest single payer, the CMS can do much to drive the delivery system toward higher-value and patient-centered care, but private payers could also play a part. There is some uncertainty about utilization patterns among the under-65 population. Through the insurance exchanges, private payers could be encouraged (or even compelled) to share claims data for the creation of an all-payer atlas, which can be used in defining patient populations for ACOs, benchmarks for efficiency, and fine-tuning risk-adjusted, population-based reimbursement strategies aimed at rewarding efficient institutions.

Achieving our four goals will depend in part upon the willingness of the secretary of HHS to move rapidly from pilot projects to payment reform, and to put into action payment models that at least some hospitals and physician groups might not welcome at first. But given the Congressional Budget Office’s alarming projections for health care spending, which will have an impact not only on the federal budget but also the capacity of American companies to compete in the global marketplace, the need to reduce health care inefficiency and spending has never been more pressing.

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1 Response to “Bending the Curve with Carrots and Sticks”

  1. Dr. M.Z.Younis Says:

    around 1906 we have about 170 Medical School and 90 million American.
    Now we have around 140 Medical school with 300 + million American.
    The number of medical students has been almost the same over the last 20 years.
    We need to support more public Medical Schools as one part of the solution.
    The basic argument I have in my economic & Finance classes is that Physicians induce demand.
    This argument is not completely true, because there is no relationship proven between income level and professional honesty. Like any profession a few Physicians might induce demand, but the majority will keep their professional integrity and their patients health above unneeded medical treatment.
    Historically, technology led to reduction in price of food, TV, and computers and so on. We need to examine why the advancement in medical technology led to the increase in the cost of health care.
    It could be monopoly , lack of single payer system or government subsidy and distortion of the health care market. The answer to these problems need further investigations.

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