Health Affairs

It is increasingly well-known that improper payments cost taxpayers as much as $50 billion each year. These include reimbursements for billing for non-existent patients, falsified diagnoses, non-covered procedures, services not rendered or simply upcoded, as well as billing errors in favor of providers. Steps are being taken to address these issues through increased acceptance of approaches, tools and techniques from private industry and from industries outside of healthcare. More than just technology, some of the most powerful ideas to come along are that incentives matter, decentralization may achieve results faster and better, and stretch goals are crucial.

Scale of the problem

Safeguarding taxpayer resources and maintaining access to healthcare are clear public policy priorities. The Government Accountability Office (GAO) has long designated Medicare as a high-risk federal program due to its vulnerability to waste, fraud and abuse. Conservative estimates by the National Health Care Anti-Fraud Association are that improper payments represent 3 percent of national health care spending. The GAO and others estimate nearly 10 percent of the more than $500 billion in current annual Medicare payments are improper. At the same time, Medicare provides necessary — and often much needed — access to health care for 48 million Americans.

Medicare is caught between two countervailing impulses: the desire of beneficiaries (and providers and the adult children of beneficiaries) to have a benefit package that covers more, rather than less, and the desire to restrain program spending due to its impact on the federal budget. This tension is heightened by the transition of the Baby Boomers from paying taxes into Medicare to receiving benefits.

The default is that Medicare covers acute care therapies, tests and procedures if there is a patient that wants to receive them and a provider who is willing to deliver them, whether there is evidence of any benefit to the patient or not. As I tell students in my Introduction to Health Policy Course, while Medicare sets payment rates (and is therefore like Marlon Brando in The Godfather: “I have an offer you can’t refuse”), when it comes to what is covered in the acute care setting, it is more like my Grandmother serving lunch (“whatever you would like, honey.”)

There are exceptions. Recently, the Medicare Evidence Development and Coverage Advisory Committee decided not to approve the payment of PET scans to aid in the diagnosis of Alzheimer’s disease. However, such a move is rare, and both provider and patient groups are protesting this decision.

The release of average charges for common procedures in more than 3,000 U. S. hospitals last week by the Centers for Medicare and Medicaid Services (CMS) elicited divergent reactions – not surprisingly. On one hand, it was front-page news for most of the major newspapers: “Hospital Billing Varies Wildly, Government Billing Data Shows,” was the headline in the New York Times. The article went on to speculate that these new data would likely “intensify a long debate over the methods that hospitals use to determine their charges.”

On the other hand the data were “old hat” to most health policy analysts. Several colleagues mentioned to me that “this is old news” and “it isn’t meaningful at all because we all know that charges don’t mean anything.”

“No one pays charges” is the common refrain. “Charges are merely an accounting fiction.”

Charges Do Matter — They Matter A Great Deal

Counter to the belief of both hospital industry representatives and many of my colleagues, hospital charge levels and rapidly escalating charges matter a great deal. While individual states and the Affordable Care Act (ACA) have instituted limits on the amounts low-income uninsured patients pay hospitals, insured patients that receive care at hospitals that are “Non-Par” or “out-of-network” are still victims of hospital’s exorbitant charging practices. When patients receive emergency services at an out-of-network hospital, the patient and/or insurance company (depending on insurer cost sharing for out-of-network care) pay full charges.

High and increasing hospital charges, combined with increasing proportions of cases admitted through the hospital Emergency Department (ED), are major factors behind the ever-declining negotiating leverage of private health insurers. This situation, coupled with the increased pricing power of the ever-more-concentrated provider industry, will be a major contributor to the almost certain rapid escalation in total U.S. health care costs in coming years.

The Affordable Care Act survived the Supreme Court and a presidential election, so why does it face such an uncertain future? One reason is that it was essentially silent on how to control costs. This has led many pundits — including the likes of Paul Krugman and Robert Reich — to argue that the best approach would be to extend Medicare to everyone. A January National Research Council report on the relative disadvantage of America in global health outcomes, especially compared to countries with national health insurance, added further fuel to the fire. But is a larger government role in health insurance the best approach?

The idea of universal Medicare is powerful and attractive. Mr. Krugman points out that in the last forty years, average Medicare costs per person have grown by 400 percent while those for private insurance have increased more than 700 percent. His numbers suggest that if everyone had Medicare for the last 40 years, we might now spend only 14 percent of GDP on health care instead of nearly 18 percent, while also reaching universal coverage. Mr. Reich argues that “Medicare-for-All” would save between $58 billion and $400 billion annually, and similarly concludes: “Medicare isn’t the problem. It’s the solution.” Critics of the U.S. system are also quick to point out that Americans don’t live as long as their counterparts in countries that spend much less, suggesting universal Medicare could save money and improve our health.

The argument for universal Medicare basically comes down to three key claims: (1) Medicare gets lower prices, (2) Medicare’s administrative costs are lower; and (3) Greater spending does not mean better health. Each of these deserves closer attention.

If you missed last week’s Health Affairs briefing on our May issue, “Tackling The Cost Conundrum,” or if you just want to see it again, video and speaker materials are now available on the Health Affairs website. You can watch the whole briefing or select particular panels or speakers.

The Affordable Care Act included provisions to accelerate the transition to value-based payment, including Accountable Care Organizations (ACOs). Many private sector insurers, providers and employers also are moving in this direction.

However, many of today’s measures are inadequate to the task of assessing and paying for value. Current measures focus on process and clinical outcomes, as opposed to health status, and few are based on patient-reported data that would measure the overall care experience.

In addition, most measures are add-ons to current work rather than an integral part of the care process, requiring manual chart reviews and retrospective data analysis. Not only does this make implementation burdensome, it limits opportunity for real-time feedback and adjustment.

These inadequacies create opportunities to implement new measures that will be more meaningful to consumers, clinicians, purchasers and policy makers. But to avoid a proliferation of measures that are inconsistent or questionable in terms of assessing value, a framework is needed to define specific measures for each component of value – health outcomes, patient experience and per capita cost (see Table 1, click to enlarge).

Much has been made of the slowdown in health spending growth and the role played by the economy. I have to confess that my first take, after studying plots of business cycles and health spending, was that health spending “had a mind of its own” and paid no attention to business cycles. Consider the two most recent recessions depicted in the chart below. During the recession of 2001, health spending growth actually shot up at the same time that the growth in gross domestic product (GDP) was dropping, and continued to rise even after the recession officially ended.

During the Great Recession, spanning December 2007 through June 2009, the growth in health spending dropped by about 2 percentage points and then leveled off while GDP growth dropped by nearly 10 percentage points and then quickly rebounded to a more normal long run rate of growth (though not sufficient to make a large dent in unemployment). I hope you can see why I was skeptical of a predictable relationship.

Following the third straight year in which the Centers for Medicare and Medicaid Services estimated the growth in national health expenditures to be a record-low 3.9 percent, considerable speculation on the causes of slower spending growth has come from a variety of sources. There seems to be a consensus among actuaries, academics, and other analysts that the recession and the associated increase in unemployment and decline in insurance coverage led individuals to cut back on their use of health care services. (See here, here, But, while the recession is clearly associated with the dramatic slowdown in spending growth from 2007-2009, there is also evidence that the slowdown in spending preceded the recent recession and seems to be continuing during the modest economic recovery.

Observers of this more general trend have begun to suggest that fundamental structural changes in the health system are playing a role in recent spending trends. The ability of some high profile providers and health systems to achieve high quality outcomes with greater efficiency has garnered a lot of attention and some suggest that more salaried employment of physicians could be altering the practice patterns that developed under a fee-for-service system. Others have pointed to patient-centered medical homes, accountable care organizations, and other payment and delivery system reforms as potential contributors to the slowdown in spending growth. The Obama administration has also argued that the Affordable Care Act has started to have a moderating effect on spending growth.

The extent to which the economy versus broader systemic changes has been driving slower spending growth has enormous implications for forecasting future spending trends. If the economy has been the primary driver of recent trends, we should expect spending growth to return to historically high levels as the economy recovers. The Congressional Budget Office (CBO) and the CMS actuaries have revised their Medicare and Medicaid forecasts downward to reflect the latest trends, but both entities seem to suggest that spending growth over the long term will return to historical levels. If, however, more structural changes are at work, then perhaps there is reason to be hopeful that health care spending growth will continue at a rate much closer to the rate of growth in the economy.

Health Affairs’ May issue, released today, analyzes the recent slowing in the growth of health care expenditures and explores whether the trend will last. The issue also addresses major cost drivers in Medicare and presents proposals for putting the program on a more sustainable path. Another article tracks federal spending on mental health during severe state budget constraints throughout the recession.

As Health Affairs Founding Editor John Iglehart notes on his “From The Founding Editor” page (quoted at length below), the new thematic volume, “Tackling The Cost Conundrum,” continues the journal’s coverage of a topic that has been a “driving theme” of the journal since its inception. The May issue will be discussed at a National Press Club briefing tomorrow morning, Tuesday, May 7. The issue and briefing are supported by a grant from the Robert Wood Johnson Foundation.

Researchers writing in the new issue are cautiously optimistic that the slowdown in health care spending is here to stay. A study by Michael Chernew, Alexander Ryu, and colleagues at Harvard Medical School looks at two factors potentially contributing to the record slowdown in growth to 3.1 percent during 2007-11: job loss and benefit changes shifting costs to the insured. Analyzing National Health Expenditure Accounts and large-employer data, the authors found that benefit design changes that increased enrollees’ out-of-pocket costs were responsible for about one-fifth of the observed decrease in the rate of growth. However, the slowdown occurred even when benefit generosity at large firms was held constant. The authors suggest that other factors are largely responsible and that major events, such as health reform, shifts in payment methodology, and the transformation of the delivery system’s organization may contribute to a longer-term trend of slower spending growth.

In a related article, David Cutler and Nikhil Sahni of Harvard University conclude that fundamental changes, including less-rapid development of imaging technology and new pharmaceuticals, increased patient cost-sharing, and greater provider efficiency, led to the majority of the slowdown in health care spending growth; if this path continues for the next ten years, public-sector health care spending could wind up $770 billion under projections, they write.

US presidents and policymakers have for decades struggled with the issue of ballooning health care costs and were unsuccessful, or unmotivated, in finding a path to lasting cost containment. Recently, though, there has been progress. The forthcoming issue of Health Affairs, “Tackling the Cost Conundrum,” explores the slowing growth of health care expenditures of late and examines whether it is a temporary or lasting phenomenon; the issue also examines major cost drivers and presents proposals for putting Medicare on a more sustainable path.

Please join Health Affairs Founding Editor John Iglehart on Tuesday, May 7, at the National Press Club in Washington, DC, for a Health Affairs briefing at which we unveil the May 2013 thematic issue, “Tackling the Cost Conundrum.” The thematic issue and briefing are supported by a grant from the Robert Wood Johnson Foundation.

WHEN & WHERE:
.
Tuesday, May 7, 2013
9:00 a.m. – 12:30 p.m.
National Press Club
529 14th Street NW (Metro Center)
Washington, DC
Register Now

Follow live Tweets from the event @HA_Events, and join in the conversation with the hashtag #HA_Costs.

Although the April 1 Call Letter from the Centers for Medicare and Medicaid Services (CMS) seemed to reverse proposed rate cuts to Medicare Advantage (MA) plans, the outlook for insurers still isn’t rosy. The “all-in” impact of the per capita rate increases will be offset by new risk coding intensity adjustments, shifts to fee-for-service parity, and the Health Insurance Tax, actually resulting in an expected 2-3 percent cut for MA plans for 2014.

The Call Letter also limits beneficiary cost sharing, a lever that plans have typically used to offset reductions. Such measures come on top of the potential risk of reductions from sequestration, which may lower fee-for-service (FFS) and health plan capitations by a further 2 percent per year.

The expected impact is lower than the original CMS proposal of 8 – 9 percent for 2014, but the announcement still serves as an urgent reminder of the endgame for Medicare— the rate cuts outlined in the Affordable Care Act (ACA) that will result in approximately 14 percent reductions in MA reimbursements, relative to pre-ACA reimbursements, by 2017. Traditionally MA has enjoyed a rate premium compared with FFS, often justified by the enhanced benefits available to members. These cuts, however, will put the plans roughly at parity.

US presidents and policymakers have for decades struggled with the issue of ballooning health care costs and were unsuccessful, or unmotivated, in finding a path to lasting cost containment. Recently, though, there has been progress. The forthcoming issue of Health Affairs, “Tackling the Cost Conundrum,” explores the slowing growth of health care expenditures of late and examines whether it is a temporary or lasting phenomenon; the issue also examines major cost drivers and presents proposals for putting Medicare on a more sustainable path.

Please join Health Affairs Founding Editor John Iglehart on Tuesday, May 7, at the National Press Club in Washington, DC, for a Health Affairs briefing at which we unveil the May 2013 thematic issue, “Tackling the Cost Conundrum.”

WHEN & WHERE:
.
Tuesday, May 7, 2013
9:00 a.m. – 12:30 p.m.
National Press Club
529 14th Street NW (Metro Center)
Washington, DC
Register Now

Follow live Tweets from the event @HA_Events, and join in the conversation with the hashtag #HA_Costs.

More than two-thirds of Medicare beneficiaries have multiple chronic conditions, such as heart disease and diabetes, and that number is projected to rise significantly in the U.S., given our aging population. The Chronic Conditions Dashboard, recently launched by the Centers for Medicare & Medicaid Services (CMS), is the first in a series of planned web-based enhanced data analytic and visualization tools.

Use of the data available from the Dashboard can help policymakers, local health leaders, and health systems improve care coordination and health outcomes, and can help slow the increase in expenditures for Medicare beneficiaries living with multiple chronic conditions. The Dashboard was developed to be user-friendly and incorporated strong health information privacy protections, as individually-identifiable information cannot be accessed. The release of the Chronic Conditions dashboard supports the Administration’s Health Data Initiative that seeks to release more health-related data in more usable formats to support health promotion and care innovation.

A belated nod to the latest Health Wonk Review, posted last week by Louise Norris at Colorado Health Insurance Insider. Louise has assembled a number of great posts, including Peter Neumann and James Chambers’ Health Affairs Blog post on Medicare’s reset of its “coverage with evidence development” policy.

Does the United States have at its disposal a method for predictably controlling the cost and improving the quality of our health care? Can we begin by budgeting or Indexing Health Care expenditures in the Medicare HMO program now called Medicare Advantage (MA) to grow at the same rate or more slowly than the gross domestic product (GPD)?

The Indexed Health Care proposal that I outline below builds on the success of MA, but it also calls for important reforms in that program. After indexing MA costs to GDP growth, the next steps should be to progressively convert Medicare from fee-for-service to prepaid capitated payments, and to index Medicare and all federal health care expenditures – including tax expenditures – to GDP growth. The private health care sector must be persuaded to move from FFS to capitated payments.

The Affordable Care Act (ACA) includes several changes to the Medicare fee-for-service (FFS) program that seek to create higher-quality and more affordable care for Medicare beneficiaries. Program-wide changes to FFS such as Shared Savings programs and demonstration projects such as Multi-Payer Advanced Primary Care Practice and Comprehensive Primary Care initiatives are seeking to change the way healthcare is organized and delivered. A common feature across these programs is the increasing emphasis on population health management (PHM) in FFS and an increasing expectation that providers accept and manage the health and health care of defined populations.

A set of elements have been identified in the literature as being core to PHM. These include identifying and stratifying risk, promoting health and wellness, implementing targeted programs based on identified risk, integrating community and other resources in managing patients, and monitoring health and quality-of-life outcomes on an ongoing basis. While some providers have the capability to implement PHM practices, many organizations have a fairly steep learning curve and will likely need training and assistance with specific functions that are viewed as being central to PHM.

Theoretical frameworks are helpful, but examining practical experience with PHM can provide useful lessons. Since the inception of what is now known as the Medicare Advantage (MA) program, health plans have developed and implemented programs that are designed to manage the health of a defined population. Given the increased interest and focus on PHM, an understanding of the approaches used by MA to manage their enrollee population can be useful to the implementation of ACA FFS provisions and to other payers, providers, and policy makers who might be considering similar efforts.

Medicare is poised to revise its “coverage with evidence development” (CED) policy, which has important implications for beneficiaries’ access to new medical technology as well as manufacturers’ reimbursement for their products.

For years, Medicare has employed CED, under which the program provides conditional coverage for new technology while it collects additional evidence on the technology’s effectiveness. The concept has great intuitive appeal in that it promises to provide access to promising technology for which the evidence base may be immature. As Medicare officials and other experts have argued, by linking coverage of new technologies to requirements that patients participate in registries or clinical trials, CED can help identify the circumstances in which patients are most likely to benefit and potentially accelerate access to innovations.

Though Medicare has experimented with conditional coverage policies since the 1990s, the formal CED designation and its characterization date to two guidances the Centers for Medicare and Medicaid Services (CMS) issued in 2005 and 2006. CMS has used CED in 19 cases over the years on diverse technologies, including lung volume reduction surgery, implantable cardioverter defibrillators (ICDs), and positron emission tomography (PET) for cancer. (See Table 1 at the end of the post, click twice to enlarge.) The CED policies have varied in their data collection requirements, with some featuring randomized controlled trials and others relying on patient registries or other data collection strategies

A Health Affairs Web First article released today describes the new rapid-cycle approach to program evaluation at the recently established Center for Medicare and Medicaid Innovation. The Affordable Care Act created the Innovation Center within the Centers for Medicare and Medicaid Services (CMS) to test payments and service delivery models, reduce costs in Medicare and Medicaid, and improve quality.

As the Innovation Center moves ahead with innovative payment and service delivery models, the Rapid Cycle Evaluation Group at the center delivers frequent feedback to providers while evaluating the outcomes of each model tested. When a model is considered for testing, staff from the Rapid Cycle Evaluation Group and CMS’ Office of the Actuary are immediately assigned to help create the model. The Office of the Actuary provides timely and impartial actuarial, economic, and statistical estimates–and monitors Innovation Center initiatives once testing has begun. This group’s rigorous and speedy assessment and evaluation is driven by performance metrics and robust new methodologies.

Researchers from the evaluation group have also been organized into “affinity groups” and use CMS data to answer critical policy questions that may shape future payment and service delivery models. The Innovation Center also plans to identify and promote population health metrics–measures of the functional status, healthy behavior, and health outcomes of a population–to promote disease prevention and achieve a more accountable, equitable, and coordinated health care system. All these efforts will contribute to the Innovation Center’s success in carrying out its mission of improving the quality of care combined with the slowing spending growth.

For those who like to look for silver linings, there are at least two events in the past few weeks that could provide a glimmer of hope. First, both the Budget Committee in the Republican controlled House has passed a budget and, for the first time in four years, the budget committee in the Democratic controlled Senate has also passed a budget. Both the House and the Senate have passed their budgets. The Senate’s budget passed by a slim 50 to 49 vote margin. And for a short time, there had been some uncertainty whether the House would approve its budget because it doesn’t eliminate the deficit fast enough for some House conservatives – some indication of the pressure the right is putting on the leadership.

The second glimmer of hope is that the President has been reaching out to Congressional Republicans in a way that he had not done during his first term–taking a group of Senate Republicans to dinner and meeting with the House Republican leadership on their home turf. However, as Mitch McConnell (R KY) was quick to point out, meeting with Republicans is far different than finding common ground or strategies for compromise.

To no great surprise, the budget documents themselves suggest two very different and divergent views of the country’s future–differences that will make finding a compromise a serious challenge.

In the late 1990’s, smarting from the collapse of managed care, HCFA’s retreat from the public release of provider performance data, and continued large increases in health costs in the face of evidence of waste and variation in quality, a group of large employers established the so-called “value agenda” and committed to using purchasing leverage to achieve it. Value was defined by the simple equation of quality/cost.

Organizations like GE, where I worked at the time, realized that we needed to start with transparency, to make quality variations that mattered to consumers and patients visible. Thus, The Leapfrog Group was born. The announcement of its formation and the release of the Leapfrog Hospital Survey occurred between the publication of two seminal Institute of Medicine reports, “To Err is Human” and “Crossing the Quality Chasm,” and helped the value-purchasing agenda gain traction.

Transparency, however, while a necessary and important beginning, is not alone sufficient. To borrow from the Institute of Medicine’s tagline, taken from Goethe, “Knowing is not enough; we must apply. Willing is not enough; we must do.” A hard-working clinician in Cincinnati described how hard it was to “do” and made it clear that we need to tackle changing the payment system next. He was referring to the fact that in his fee-for-service practice, the better care he took of his patients with diabetes, the lower his income became. Those frequent phone calls to adjust insulin doses led to fewer complications and fewer office visits. He summed it up by saying that, “if I keep getting better, I’ll go right out of business.” It became obvious that if we don’t work to change our payment system, which at its worst punishes quality and efficiency and at its best is indifferent to them, it is disingenuous to expect better quality and efficiency.