Government Changing How It Spends $3 Trillion on Health Care

Get ready for another round of battles over medical coverage and payment systems between the government, health care providers, and consumers – or is it really just one continuous battle?

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The government has been attempting to switch Medicare payments from the traditional fee-for-service format to a plan that compensates health providers based on outcomes. Such methods include Accountable Care Organizations (ACOs), where medical providers receive savings in exchange for reducing health care costs, and bundled or lump sum payment models where bulk payments are made not on individual procedures but on overall packages of services.

The ACO model is gaining momentum, with approximately 7.8 million seniors receiving Medicare services in this way compared to none in 2011. The administration is attempting to accelerate this process by setting goals at 30% of Medicare payments under alternative pay models by 2016 and 50% by 2018.

There is agreement that since a fee-for-service system rewards hospitals and physicians for quantity of patients without a direct connection to quality (aside from complaints or dissatisfied customers), the system has cracks that allow for waste. Tying compensation to outcomes makes common sense, but implementing this approach is by no means straightforward. Here are a few reasons why.

  • Definition of Quality – What metric is used to quantify health? Is it simply that medical usage is down; therefore, medical care is being used more efficiently? (One could get the same result from going to the doctor less often, but collective health is probably not improved.) Lowering repeat visits and limiting unnecessary tests would be an obvious positive, but how does one determine which tests are unnecessary and when health care is being over- or underutilized?

One person’s preventative medicine may be another’s overly cautious approach; one person’s limiting of medical visits could be enabling poorer health and higher medical costs down the road.

The metrics have to be defined and measured very carefully, or the very system proposed to lower costs will set up different unintended cost (and health) incentives through the metrics that are chosen.

  • Assumptions of Control – By making the medical provider responsible for the health outcome, the ACO/bundled payment model assumes not only that the correct and most efficient medical treatment is given, but also that patients will follow it. Providers cannot force patients to follow any treatment, and thus providers will opt out of systems where their compensation relies on too many things that are out of their control.
  • Interaction –These rules do not operate in a vacuum. Even when alternative fee systems work from a medical standpoint, they can be scuttled by competing regulations and incentives for insurance companies, hospitals, providers, employers and patients. Prescription drug limitations based on cost, network restrictions, and the conflict of competing views on necessary services, can put front-line caregivers in impossibly contradictory financial situations.

The Pioneer ACO program is indicative of the challenges. Started in 2012 with 32 health systems and an ACO format, only 19 have stuck with the program to date. Even with good medical results, the financial risks to providers were considered too great to stay in the program. Kaiser Health News notes that 1,700 hospitals qualified for bonuses based on improved measures of quality, yet over 900 of those will receive no money due to penalties from competing incentive programs.

Policy makers must grasp one simple fact: Some component of cost is caused by individual choices that rest on personal responsibility, and we do not live in a society where those choices may be forced upon anyone… yet. We all pay for those choices one way or another through shared risk, but how do the risks and costs get shared?

We do not claim to know what the right balance is. However, it is a safe bet that risks will continue to be shifted away from the insurance companies toward providers and consumers in the name of cost and efficiency – and as much as the administration would like to claim it, these factors are not directly connected to the best health outcomes.

As a consumer of health care, in the short-term, you are likely to see this as increased costs, fewer choices, and an acceptance of greater personal responsibility for your health. In the long-term, costs should stabilize and options will increase – but the share of your greater personal responsibility is likely here to stay. Please do your part by maintaining as healthy a lifestyle as possible.

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