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Who Will Take The Lead In Fixing Medicare?



February 14th, 2012
by Kenneth Kaufman

Spurred by the nation’s federal deficit, unsustainable healthcare costs, and other economic challenges, America’s healthcare system must change from a fee-for-service to a fee-for-value system, challenging all industry participants to make healthcare more efficient, effective, accessible, and affordable.

While patients, employers, and payers clearly benefit from lower costs, the fee-for-service system in place since Medicare’s enactment in 1966 incentivizes hospitals and physicians to increase utilization of services. This more-patients-more-services-more-revenue proposition contributes to higher levels of overall healthcare spending, which consumes an ever-increasing share of federal and state budgets and can no longer be afforded by our society.

Under the nascent value-based system, defined with cost and quality dimensions, the business case for all participants would align. But a radical change in incentives to move the Medicare program rapidly away from fee for service doesn’t appear likely. Numerous demonstration projects to test different care delivery and payments systems have been underway for two decades through the Centers for Medicare & Medicaid Services (CMS) and commercial payers. Despite this sizeable head start, a January 2012 report from the Congressional Budget Office concluded that most of these programs have not reduced Medicare spending, chiefly due to the “significant challenges in overcoming the incentives inherent in Medicare’s current payment system,” and that “substantial changes to payment and delivery systems will probably be necessary. . .to significantly reduce spending and either maintain or improve the quality of care provided to patients.” More models will need to be developed and tested by CMS and its new Center for Medicare and Medicaid Innovation.

Given current political realities, any federal realignment solution will likely be complex and its implementation slow. In view of this situation, hospitals and physicians must voluntarily—ahead and independent of incentives—start the work that needs to be done to lower Medicare costs. Together, hospital and physician services account for 72 percent of total Medicare spending (46 percent and 26 percent respectively, according to CMS data). But together, they are the part of the healthcare system that best understands both the problems and the alternative solutions.

Costs don’t need to be what they currently are; current costs are a function of how care is currently provided. Much cost reduction can be accomplished by providers without Congress or CMS action. This recommendation is counterintuitive in an industry where fee for service is still the dominant payment mode. Providers are not in control of the timing of what Malcolm Gladwell calls the “tipping point”—when fee-for-service payment will “reach the moment of critical mass, the threshold, the boiling point” and move over to a fee-for-value payment system. This change will include not only payment mechanisms but philosophies and systems of care, which will require of providers new organizational infrastructures, incentives, skillsets, and more.  Hospitals, health systems, and other providers that wait for the last-possible fee-for-service dollar run the risk of being totally unprepared to compete in a radically revised system of care.

It will be painful for providers to make the changes suggested here. However, the cost of inaction or indifference will create much more pain for providers. Hospitals and health systems that are not proactive in addressing new payment mechanisms and philosophies and systems of care will watch new and better-prepared competitors dramatically change the way care is delivered in their communities.

Five strategies can be used by providers to fix Medicare.

First, lower expenses associated with care and second, reduce the total amount of services provided per episode of care. The need is clear: Recent OECD data show that the U.S. is the highest-end outlier in healthcare cost and utilization spheres, spending more as a percent of GDP on higher-unit-cost services and using more of such services per capita than other developed countries.

Our outlier status is not immutable. To reduce the expense of care, hospital management teams and boards must know their current “adjusted Medicare cost per discharge” and the trends contributing to recent cost increases of related direct and indirect patient care. Hospitals must then commit to reducing the rate of such increases until at least relative year-to-year reductions in cost per discharge are achieved.

To reduce the amount of services, management teams and boards must focus on current utilization rates for Medicare patients and commit aggressively to reducing those rates. This will involve changing the way care is delivered. To lower the total services delivered on a per-inpatient or per-outpatient basis, hospitals and physicians must eliminate unnecessary diagnostic testing, admissions, and readmissions. Rates of services for each should be regularly monitored and reported to the board, management, and physicians.

Third, redesign care to improve care value. Richard Bohmer, a physician and Harvard Business School professor, observes that high-performance, high-value healthcare organizations “deliberately design microsystems—including staff, information and clinical technology, physical space, business processes, and policies and procedures that support patient care—to match their defined subpopulations and pathways.” Importantly, different conditions or patient groups have different microsystem designs.

Hospitals can begin with a microsystem grouping that identifies the special needs and costs of Medicare patients with multiple chronic conditions. A sharp focus on this cohort of patients would be a high-priority microsystem, as described by Dr. Bohmer. Some organizations are now using case management, a collaborative practice model, as the center of care design for such patients who traditionally present with high utilization and high costs.

Fourth, implement a first-class palliative care program. Not a new concept but often a misunderstood one, palliative care is comprehensive, interdisciplinary care that focuses primarily on promoting quality of life. Provided alongside all other appropriate medical treatments, palliative care is a very good way to have important conversations with patients and families about the right level of care given the expected outcome. Steven Pantilat, M.D., who heads UCSF’s Palliative Care Program, comments: “Clinicians often fail to properly elicit and heed the wishes of patients, and the dominant hospital culture of cure and save at all costs leads to care that may be technically excellent but adds to suffering rather than relieving it.”

A study published in the Archives of Internal Medicine indicates that the cost of care for patients who receive palliative care is $1,700 lower per discharged patient and $4,900 lower for those who die in the hospital. Hospitals and health systems need to provide leadership support and funding of palliative care programs to ensure the critical and active participation of physicians.

Fifth, develop a world view. Given the pace and interconnectedness of change now occurring worldwide, healthcare executive teams and boards should be considering what the future might bring for healthcare, medicine, technology, and pharmaceutical and scientific discovery, and what developments might mean for healthcare needs and services in their communities. Consideration of all points of view, even if challenging to widely held beliefs, should be encouraged.

In their article in The New Republic, ethicists Daniel Callahan, Ph.D., and Sherwin Nuland, M.D., raise particularly difficult questions about the fundamental way Americans think about medicine in their own lives: “We now view all diseases as things to be conquered. But what if all this turns out not to be true? What if there are no imminent, much less foreseeable, cures to some of the most common and most lethal diseases? What if, in individual cases, not all diseases should be fought?”

This view of medical advances would certainly call into question approaches to healthcare that suggest that if we just try hard enough and/or provide enough care, the desired patient outcome is always just around the corner.

Answering questions such as those of Drs. Callahan and Nuland requires a societal conversation that cannot be limited to hospitals or physicians. However, providers can play an important role in starting a dialogue that hopefully will advance a new understanding in our society of what patients can realistically expect from America’s rapidly evolving healthcare system.

In framing the providers’ role in fixing Medicare, the hope is to spark conversations that will better enable hospitals and physicians to meet healthcare needs in their communities. There will be no one-size-fits-all solution, but fixing Medicare has rapidly become both an ethical and business imperative for physicians and the nation’s hospitals and health systems.

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1 Trackback for “Who Will Take The Lead In Fixing Medicare?”

  1. Healthcare (re)design
    February 16th, 2012 at 8:52 am

2 Responses to “Who Will Take The Lead In Fixing Medicare?”

  1. jhoward1119 Says:

    I agree that health care providers will be reluctant to converting from a fee-for-service payment system to a fee-for-value payment system. While fee-for service is the dominant payment system in healthcare, it has focused the attention on quantity instead of quality of care. If we convert to a fee-for-value system what will be the criteria for payment? In many cases there will not be a positive outcome so there will need to be consistent and legit criteria for payment. Being a part of a health care establishment, I have witnessed the need to offset costs in one area by overcharging in another area. I believe the inflation of the fee-for-service system has been a supplement for off-setting those miscellaneous costs. If we are successful in converting to a fee-for-value system how can we be sure that it won’t result in lack of care? If providers are more concerned with providing cost effective care they may cut corners, omit necessary test, and withhold more effective drugs for the less expensive drugs.

  2. hwilliston Says:

    If we preserve fee for service then the only way to impact costs is to have transparency as to where the money is being spent. This to me means publishing on the internet the cost per patient per year by every provider number. To digest the data this could be broken down by specialty or type of provider and by zip code. How many MRIs does the partner in an imaging center order compared to his colleagues. Give the data to the media as the Wall Street Journal has requested and they will help make some sense of our extravagance. The same data can be used to identify the patient outliers and make more concentrated attempts to manage their care.

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