Published November 05, 2012
It’s election season, and we’re sure you’ve been hearing a lot about the rising cost of health care.
Medical spending in the United States is rising faster than inflation and has nearly doubled in the last decade. The U.S. government is trying to tackle that problem, and through the Affordable Care Act, dubbed “Obamacare,” they’ve begun changing the way they pay hospitals for Medicare patients.
On October 1, hospitals started receiving federal funding based on a “pay-for-performance” model (more on that later). To put it simply, hospitals will get more money if they adhere to what the government considers good medical and patient care practices, and less money if they don’t. The Congressional Budget Office estimates that Obamacare overall will reduce the growth in Medicare costs by $716 billion over the next ten years.
A change sounds very appealing, but what’s so different about this system from the old system? Does it have larger ramifications for the economy? And really, if we aren’t actually working in hospitals or are currently patients, why should we care?
The Problem With Medicare (and Most Health Care)
Medicare is essentially a form of government health insurance mostly for people who are 65 and older (it also takes care of people of any age with a disability or with end-stage renal disease). It pays at least a fraction of your medical costs and prescriptions directly to your doctor or hospital and is one of the largest health insurers in the world–it accounts for 17% of U.S. health spending and one-eighth of the federal budget.
Physicians and their hospitals were being reimbursed by Medicare (and private insurance companies) according to the procedures they performed and drugs they prescribed. According to this system, called fee-for-service, they were paid more if they performed more numerous or more expensive procedures. This wasn’t a universally popular approach: Many health policy analysts felt that this incentivized doctors to perform bigger or unnecessary procedures and raised costs without improving patient care.
Another problematic aspect of the system: Medicare Advantage, which is a plan that allows you to go through a private insurer (at additional cost) to receive Medicare benefits. It’s estimated that Medicare Advantage was the most costly element of the plan and cost the government about 14% more money than standard Medicare plans–but patients on every Medicare plan paid for it with increased premiums.
The money Medicare was shelling out for this flawed system was largely financed by taxpayers, through payroll taxes, taxes on Social Security benefits and interest on trust fund assets, and it was no pittance–in 2010, Medicare covered roughly 47 million patients and spent $523 billion.
How Obamacare Proposes to Improve Incentives and Care
Now, as part of President Obama’s plan for health care reform (“Obamacare“), the solution to misaligned incentives is what’s called the pay-for-performance model, which pays hospitals more not for the procedures they perform or drugs they prescribe, but instead:
Rewards hospitals financially for adhering strictly to established procedures, which reduce medical errors and the costs to fix them. For example, hospitals can be penalized if they don’t immediately provide medication to a patient having a heart attack.
Pays hospitals more for providing exemplary patient care, as measured by patient surveys.
Offers preventive services such as checkups for free. A checkup that catches any illnesses in the early stage is much cheaper than treating a full-blown disease that only got caught when it was more developed.
Nearly two-thirds of the $716 billion in savings will come from the new way of paying private insurers through Medicare Advantage and from the rules around medical procedures.
But the purpose of measuring patient care through surveys is focused more on improving patient care than cutting costs–this year, only $1 billion will be doled out as incentives to hospitals who distinguish themselves. Next year, double that amount will be doled out as an incentive for outstanding patient care and adherence to procedure.
Are Patient Surveys an Effective Measure of Care?
Already, the surveys aren’t so popular with hospitals. Because they aren’t exactly known as places of cheer, and because patients so often disagree with or dismiss their doctor’s advice, some doctors and administrators feel that the surveys aren’t a reliable representation of patient care. “You go to Disney for a great vacation experience,” Dr. Rhonda Scott tells The Wall Street Journal. “You go to Ruth’s Chris for a great dining experience. Do you think it is a great experience when I tell you that you have stage-four cancer and you may be dead in three months?”
Hospitals also worry that variables–like a high-traffic emergency room whose long waits breed grumpy patients–will negatively affect their scores and therefore, their payouts. But officials say that the surveys focus on clear and effective communication, something that any hospital should be able to provide, and that the evaluations are adjusted for demographic differences so that hospitals aren’t penalized simply for taking on patients with more serious health issues.
How Do the New Policies Affect You?
As far as patients go, it’s fair to expect that things might be a little different in many hospitals from now on. The Journal reports that many facilities getting low patient satisfaction ratings are implementing changes to fix that–things like flat screen TVs, having nurses visit every hour instead of every two and having room cleaners ask patients if they missed anything.
But don’t expect that every hospital visit from now on will end with a survey. Many hospitals are only required to ask the opinions of 100 people per year (larger hospitals will complete more surveys), and are audited to make sure they aren’t hand-picking respondents to guarantee good reviews. Aside from that, the new program should lead to two things–better patient care and lower Medicare costs … which hopefully leads to a third thing: less cost to the taxpayer, or at least more efficient use of taxpayer funds (AKA your money).
Medicare is one of the biggest health insurance providers to experiment with realigning incentives, so if the experiment is a success in terms of saving money and improving patient care, it isn’t far-fetched to think that other insurers might adapt that model. So keep an eye on the news: Your own insurance may be changing in the next few years.
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