JONATHAN COHN OCTOBER 28, 2011
[Guest post by Darius Tahir]
Want to know whether health care reform will really reduce health care spending? Then pay close attention to what’s happening with a new regulation designed to reconfigure the way we pay doctors and hospitals.
As any card-carrying health care wonk can tell you, the root of all evil (or at least a lot of evil) in our health care system is “fee-for-service” reimbursement. That’s the most common way that we pay for medical care in this country: By paying the provider of that care for every service rendered. So an office visit is one charge. A test or procedure is another. It happens that way in the doctor’s office and it happens that way at the hospital.
The problem with that system is that it gives providers financial incentive to keep providing more care, which is not only expensive but also, frequently, unnecessary (or even counter-productive). The Affordable Care Act tries to rectify that by introducing a new payment model: It encourages providers to organize into “Accountable Care Organizations,” which Medicare (and, hopefully, other insurers) would pay with lump sum payments – no matter how many services were delivered.
The hope is to offer incentives for quality, not quantity: If the providers offer quality care that costs less than the value of the target sum, then the payer and the providers get to split the savings. But it’s up to the administration to come up with the specifics for this arrangement, through the regulatory process. And when the administration released its first draft of those rules in April, it was promptly met with widespread criticism. While providers didn’t necessarily dispute the theory behind ACOs, they hated the fine print of the program. And that was a big problem. The program is voluntary: If providers don’t buy into the program, it won’t work.
So the administration went back to the drawing, in the hopes of mollifying providers’ concerns. Last Thursday, it released a revised set of regulations. How do the revised rules stack up—and will they actually make the health care system more efficient?
Not surprisingly, this time around the administration has made things a lot easier on providers—by, first, limiting the downside risk. (In other words, limitng the amount of money providers could lose if they sign up for the program and don’t save money.) The administration also relaxed quality measures and antitrust scrutiny.
“They’ve made modest changes in order to encourage participation," Judy Feder, a professor of public policy at Georgetown told me, and “they’re working hard to respond to provider reactions—when you see softening [on the rules], it’s because of that.” Mark Zezza, a senior fellow at the Commonwealth Fund, agreed: “CMS is trying to get as many providers as possible [to sign on] so they can see what does and doesn’t work.”
So far providers seem to be reacting positively,The American Medical Association declared itself “pleased;” the CEO of the American Hospital Association said CMS “provided more flexibility;” the American Medical Group Association called the rules “a big step in the right direction.”
The groups seemed particularly pleased by the details of the changes. Originally, for example, the rules provided for two kinds of ACOs: a conservative model, intended for inexperienced or unconfident providers, and an aggressive model, intended for providers who felt they knew what they were doing and could save money while maintaining or increasing quality of care. The difference between the two models centered on how savings were disbursed: For the aggressive version, there was a higher upside (they could keep more savings) and a higher downside (if they missed the targets established by the government, they would have to pay money back); for the conservative version, there was a lower upside and a lower downside (for the first two years, missing targets didn’t result in a penalty paid to the government.) The revised rules eased the downside for the conservative option even more—now, there’s no downside for the first three years; it won’t be until an ACO reapplies forreapproval after those three years that it will be forced to share in any downside risk.
Providers were also happy with other important rules changes. the administration cut the number of quality indices they will use to judge ACOs from 65 to 33. It also scaled down its electronic health record requirements: Before, electronic health records were mandatory. Now they’re just a high-scoring bonus.
Of course, making providers happy isn’t necessarily a good thing. Some experts criticized this change. After reading the rules, Aaron Carroll, a professor of the Indiana University School of Medicine and influential health blogger at The Incidental Economist, tweeted “No sticks. Sigh” after reading the rules. But Zezza was more optimstic, telling me that maximizing involvement in the program may be the most important thing right now: Tinkering with the financial incentives, up or down, can always come later. At this stage, he said, the most important thing is “to get everyone on board and see whether everything’s working.” (He also suggested that reducing the number of quality measurements would streamline the amount of paperwork, potentially making it easier for the government to focus its attention on the remaining indices.)
While providers seem to be pleased with the changes, however, they aren’t the only industry group with a stake in the health care battle. The umbrella group for medical devices, the Advanced Medical Technology Association, always wary of changes that will reduce spending on health care, declared that the rule “does not address the very real danger of slowing the development of new treatments and cures.”
America’s Health Insurance Plans, the insurance lobbying group, and the American Benefits Council, an employer group, were disappointed in the ACO antitrust rules. There’s an inherent tension in Medicare ACOs—gathering large numbers of providers together creates the risk that they could collude and hurt payers outside of Medicare, by raising prices. (For example, ACOs might wish to jointly contract with private payers outside of the pilot program.) In the original regulation, ACOs had to submit themselves to the inspection of the Federal Trade Commission; now, they are merely encouraged to do so.
But experts who weighed in on the record seemed less concerned about the change. Of the rule’s impact, Jeffrey Brennan of the law firm McDermott, Will & Emery argued that risk-averse firms would likely stay below an anticompetitive market share despite the relaxed rules. Kevin Outterson of The Incidental Economist wrote “Antitrust lawyers and economists will still have plenty of antitrust work.”
Like everything else in the health care law, these regulations represent a compromise. And compromises are never perfect. But the early signs seem encouraging, which means healthcare wonks should have something to smile about.
Darius Tahir is an intern at The New Republic.