As I first read the list of papers for this month’s issue of Health Affairs, a thematic volume on payment reform, I had a feeling of déjà vu as I recalled the 2009 meetings of the Senate Finance Committee, which I attended as senior health policy advisor to Sen. Olympia Snowe (R-ME).  As senators contemplated how to ‘bend the cost curve’, a seemingly endless series of hearings and meetings were held at which we heard many describe their proposals to improve care and reduce costs – and cases were made to include most of the payment reforms reported in this month’s issue.

As these were discussed, it wasn’t uncommon to receive an inquiry from a member of the media inquiring about a specific proposal, asking whether ‘this was it’ – always looking for the breakthrough which would revolutionize health care.  Such magic bullet thinking mirrors a society in which individuals might be willing to take a statin but often forgo diet modification, smoking cessation and exercise to lower their cardiovascular risk.

Yet, as readers recognize, health is remarkably complex, and we continue to develop a system of health care finance that is no less so.  So it came as no surprise that health reform produced a scattershot of proposals to reform how we pay for care – yet each appears about as likely as a single shot pellet to slay the immense beast of unsustainable spending.

This issue underscores the wisdom of the Congressional Budget Office in its failure to find substantial savings in most of these proposals.  And that springs from the fact that in 2009 many payment reforms either were not fully tested, or simply had relatively narrow application.  For example, at that time it wasn’t clear how Medicare could broadly implement Geisinger Health System’s payment innovations.

Consequences Both Unforeseen And Intended

This issue provides a valuable progress report on payment reform efforts, and the effective analysis of proposals is a more difficult proposition than most appreciate.  It is reasonable to report endpoints in terms of cost savings, along with measures of health outcomes and quality measures.  Yet closer examination can reveal a host of issues in how a reform distributes risks, responsibilities and rewards – and those are often skewed by the bias which underlies a given proposal.  And those biases can spawn all sorts of adverse effects.

For example, while Accountable Care Organizations (ACO) can promote care coordination, little concern was raised during health reform about the impact of ACOs in promoting provider consolidation.  Yet such side effects can raise new problems.  It is intriguing that the paucity of physician opposition to ACOs in 2009 was explained by some as a consequence of the increasing employment of practitioners by health systems.  Yet that development itself had other consequences: while hospitals have described their absorption of physician practices as a benevolent endeavor, few noted that health entitlement programs would face higher reimbursement rates as care shifted to a hospital outpatient setting.  Patients might even find their physician less accessible as local clinics closed.

The fact is that a minefield of adverse effects – both unanticipated and intended – lie before payment reform proposals.  Today’s concerns about hospital readmissions were preceded by the innovation of prospective payment.  Integrated care can offer efficiencies in the short term, yet an anticompetitive environment down the road.  It’s clear that payment reform can begin to resemble a game of ‘Whack-a-Mole”.

Follow The Money

Anyone who has been involved in the endeavor of legislative drafting knows that some adverse effects are deliberately created.  That truth should prompt a careful examination of proposals to establish where benefits will actually accrue.  Especially as the interests of the most critical “stakeholders” – the taxpayers and patients who finance the system and whose health depends on it – are too often secondary to those of the health sector.

So one must examine a proposal in depth, beyond the evaluation of simple endpoint data, in order to establish its full impact.  When a new reform involves gainsharing, who primarily benefits?  One of these proposals was first laid out to me in a form which funneled approximately 80 percent of savings back to the provider.  That seems a dubious path to Medicare solvency.  In other cases payment reforms are focused at more effectively treating the sickest patients.  That’s an effective short term strategy to improve health and reduce costs, but if savings are simply skimmed off, without plowing back a portion into slowing disease development in healthier individuals, impact on the spending curve will be limited.  Short term expediency is a significant concern, and since Congress is often inclined in that direction, the use of every dollar saved is a critical concern.  These examples and more help to underscore why rapidly drafted legislation can be problematic.

A Body Of Evidence

It’s now been nearly a decade since I first heard calls in Congress for a system of pay for performance as a means to reduce escalating health care costs.  Some of the first proposals for “P4P” quickly raised concerns, as many applications could be best described as “payment for outcome”.  Practitioners were justifiably concerned that such a system would fail to account for comorbidities and other factors which impact results – including some seldom considered, such as the psychosocial and economic status of patients.  The fact is, equitable payment for performance must be founded on comprehensive and conclusive evidence.

Few would dispute that Americans need to realize better value for their health care dollar.  Yet our history in tinkering with reimbursement schemes suggests a critical prerequisite to effective payment reform is determining what our spending priorities should be – including establishing the comparative value of preventive, diagnostic and treatment alternatives.  Objective examination of alternatives – including means of delivery and payment – is essential to assure the fiscal health of Medicare.  Yet while that approach is consistent with our nation’s emphasis on merit and competition, it involves identifying relative winners and losers.  And despite the fact that decisions based on value benefit taxpayers and patients, Congress is politically pressured to manage health entitlements for the benefit of other stakeholders.

So it comes as no surprise that congressional support for comparative study is marginal at best, and the inclusion of economic analysis to determine high value alternatives inspires virulent political opposition.  Nevertheless, the clinical scientist in me holds out hope.  Value-based spending policy – the path most industrialized nations have implemented – may soon be the least objectionable alternative before us.

As Winston Churchill once put it, “Americans can always be counted on to do the right thing…after they have exhausted all other possibilities.”

Payment Reform And The Latest Medicare Debate

A key question is how payment reforms will be implemented.  Will they be imposed on all providers or in limited circumstances, and how many will require new organizational structures, such as ACOs?  One issue is the degree to which reforms create increasing complexity.  That can be a response to a need, or another way for groups to gain economic advantage.  This quandary leads me to observe that payment reform efforts will be nearly inextricable from the raucous debate on the future of Medicare.

I’m optimistic we might move to a value-based system because the three primary strategies commonly put forth to address Medicare’s growing fiscal crisis — raising taxes, cutting benefits, and borrowing — appear even more unacceptable.  The first option simply cannot address the magnitude of the problem and the third is off the table, so we now face another national debate on the very nature of Medicare.  Given the cost sharing which beneficiaries already face, the reliance of Americans on Medicare for health security, and our current spending trajectory, the options offered in the political arena are wholly insufficient.

Congress could move towards a more responsible stewardship of comprehensive Medicare coverage, though that would necessitate placing patients ahead of industry, as well as setting coverage priorities.  Such an approach is criticized as echoing the systems of other industrialized nations, but methods based on evidence and sound fiscal management have proved effective.  This was the proactive route to pursue in health reform.  Yet rather than creating a Health Board which could promote value in Medicare, we have the Independent Payment Advisory Board (IPAB), which must rely on provider payment cuts to constrain Medicare spending growth.

It is disturbing that most elected representatives have supported the illusion that any treatment can be purchased regardless of efficacy and cost.  That points to a Congress which may seek to maintain that deceit by following a path of lesser resistance – the “management by objective” approach.  Congress may rely on the private sector to control spending, using the metrics of costs and endpoints to reward providers.  That could come in the form of both targeted payment reforms and more broadly the use of private plans as agents of cost control.  Such an approach would provide a level of insulation for elected officials, and charges of rationing would be countered by arguments that beneficiaries had “choice”.  But this approach is likely to pose a number of adverse effects for beneficiaries…including vastly increased costs.  It would be naïve to ignore that some payment reform proposals move us toward this approach.

It may be that Americans will reject the approach based on objectivity and transparency in favor of a political solution in which they can exercise some measure of choice, and in which rationing is covert and privately administered.  At the same time – while this month’s issue provides critical new data on payment reforms – a deficit of evidence on which to base policy on broader payment and delivery system reform remains a critical problem.  Seven years after Medicare Part D began, data on the efficacy of private plans remains inadequate.  At the same time we know that Medicare Advantage indisputably costs more, but evidence of the benefit of higher spending is lacking.  Subjective accounting, a lack of transparency, and political slogans aren’t making things better.

This issue makes another dent in the battle to produce some answers.  We certainly need more.