Chad Mulvany

One of the most comprehensive and integrated proposals for healthcare reform to date is set forth in a February 2009 report by the Commonwealth Fund. Healthcare providers should be aware of this proposal, as it anticipates many of the ways the nation's healthcare system can be expected to be transformed in the near future.

The report, The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way, bases its recommendations on four broad policy pillars-coverage, infrastructure, health promotion, and payment reform.a Several of these pillars are similar in spirit to those described in HFMA's whitepaper Healthcare Payment Reform: From Principles to Action, as shown in the sidebar following this column.

Although the ideas suggested by the Commonwealth Fund are radical, most exist as experiments or were funded through the stimulus package created by the American Recovery and Reinvestment Act (ARRA). In reflecting on the potential impact of these ideas, it is important both to be aware of where the experiments are occurring and to consider the prospects for those provisions that remain in the policy realm. Payment reform should receive particularly close attention because it has the greatest potential for near-term impact on hospitals.


The Commonwealth Fund's coverage proposal includes an individual mandate for insurance with affordability assured by capping premiums at a percentage of income. Much like the Massachusetts plan, there is also an employer coverage mandate and an insurance exchange (albeit with a public plan available to all).

A key point made throughout the 77-page overview is that without the other "supporting" reforms enumerated, sustaining universal coverage is problematic due to the cost-a supposition Massachusetts is currently proving.


The two key components in the proposal regarding infrastructure are adopting health IT (HIT) to facilitate patient-centered care and using comparative effectiveness research to aid patient decision making and to design insurance benefits with cost sharing based on treatment effectiveness.

HIT. The stimulus package includes $19 billion for HIT implementation. The Commonwealth Fund agrees with ARRA on the 2015 deadline. Given that the penalty for noncompliance under ARRA involves a significant reduction to a facility's Medicare update factor, most organizations will undoubtedly meet that deadline. The real question is whether HIT systems hurriedly devised and installed will actually improve the quality and efficiency of patient care.

Comparative effectiveness.Even though ARRA allocated $1 billion to comparative effectiveness research, special interest groups stripped from this provision the ability to compare outcomes for price. Although Medicare will not use this information to make coverage decisions, it's a good bet that private payers will do so to some extent.

Federal comparative effectiveness research, along with other available data, provides the information necessary for hospital administrators and medical staffs to standardize clinical pathways-a crucial step to prepare facilities for bundled payment systems that are supported by both President Obama and the Medicare Payment Advisory Commission (MedPAC).

Health Promotion

The Commonwealth Fund's plan recognizes that providing higher quality care more cost-effectively is not sufficient to reduce healthcare spending. The plan addresses the demand side of the equation by targeting controllable causes of chronic illnesses such as diabetes, obesity, and heart disease. Specifically, the plan seeks to increase federal taxes on tobacco products and alcoholic beverages and levies a tax on sugar-sweetened soft drinks. The revenues raised would be used to fund public health programs and expand insurance coverage.

The tax funding component of the plan will prove challenging, as evidenced by polls in New York State where a similar proposal is under consideration. Nonetheless, expanded public health programs have strong congressional support-particularly by Sen. Max Baucus (D-Mont.), a key architect of healthcare reform-and therefore are likely to be included in any legislative overhaul.

Although the details are far from finalized, facilities should think about building on existing community wellness programs and moving further upstream into preventive care, as it has the potential to evolve into a revenue generating opportunity.

Payment Reform

The payment reforms proposed are aimed at shifting providers' profit incentive from the volume of services provided to enhancing the overall value of outcomes produced. The four key levers for this shift are encouraging primary care, creating medical homes, bundling payments for acute care, and bringing prices into alignment in various areas of Medicare.

Primary care. The proposal seeks to increase the number of primary care physicians by increasing Medicare payments for their services. Increases in payments to these physicians would be budget neutral and come at the expense of specialists.

Economic incentives are needed to ensure that there are sufficient numbers of primary care physicians, especially given the shortages experienced when Massachusetts expanded coverage. Sen. Baucus, in his white paper on healthcare reform, advocates "using federal reimbursement systems and other means" to resolve such shortages. Given his support, it's likely that this component will find its way into legislation. However, if payment increases to primary care physicians come at the expense of payments to specialists, it's not hard to imagine specialist groups vigorously lobbying against the measure.

Medical homes. Additional payments would be provided to practices that qualified as medical homes and patients who designate one, as their primary care physicians would be eligible for reduced cost sharing. The concept is vigorously supported by MedPAC and is the subject of an ongoing Centers for Medicare & Medicaid Services (CMS) demonstration project ( 

The private sector is also encouraging the spread of medical homes. An online New York Times story dated Feb. 9, 2009, reports on UnitedHealth Group's experimentation with the model in Arizona, at IBM's urging, as a way to control chronic care costs (

Bundled payments. Using a phased approach starting in 2010, the proposal would gradually include services provided up to 30 days after discharge in the acute care payment. MedPAC has supported the concept, and it is a key cost-cutting component of President Obama's budget (

The CMS Acute Care Episode (ACE) demonstration project will test bundled payments for select orthopedic and cardiovascular procedures. Demonstration sites have been selected and the project is slated to launch during the first half of this year.

There also are two private sector experiments with bundled payments. Geisinger Health System's ProvenCare program started out with elective coronary artery bypass (CABG) surgery, and has been expanded to six other conditions, including anemia, hip replacement, and perinatal care.

Much like Geisinger's ProvenCare, the Prometheus project ( has created expanded case rates (ECRs) for conditions with defined best-practice clinical pathways. What's unique about the Prometheus approach is that ECR payments can be apportioned to each type of care provider, allowing for nonaffiliated entities to participate in the case rate without complex negotiations.

Price alignment. The Commonwealth Fund proposes using price alignment in three ways to control costs. The first way is by reducing the Medicare update factor for traditionally high-cost regions. Although he did not explicitly support this approach, Peter Orszag, PhD, director of the Office of Management and Budget, also recently indicated he believes there are significant cost savings to be squeezed from high-cost areas. During congressional testimony on March 10, Orszag commented that reducing regional cost variation could save up to $700 billion annually (Armstrong, D., and Wayne, A., "Senate Finance Chairman Sets Summer Deadline for Health Care Overhaul," CQ Today Online News, March 10, 2009). Based on this comment alone, hospitals in high-cost areas should redouble efforts to control cost and utilization by collaborating with physicians.

The other two ways of controlling costs target Medicare Part D and Medicare Advantage Plan costs by reducing the price Medicare pays for dual-eligible beneficiary pharmaceuticals to the Medicaid rate and bringing the per capita spending benchmarks for the Advantage Plans in line with those of fee-for-service Medicare. President Obama's budget suggests that both Part D and Advantage Plan expenditures could be reduced and reallocated, providing a down payment on comprehensive reform. However, it's hard to imagine that the pharmaceutical and insurance industries will quietly allow their cash cows to be sacrificed for the public good.

Final Thoughts

Given the dollars in play and the sensitive nature of health care as an issue, reform will be a messy process. This was recently illustrated when two major unions-the American Federation of State, County and Municipal Employees and the Service Employees International Union-withdrew from the Healthcare Reform Dialogue, a coalition led by the American Hospital Association, over failure to reach agreement on how a universal coverage scheme might work.

Nonetheless, given the public pressure and the sense of political urgency, the probability of sweeping reform is higher now than ever. When the dust settles, the proposals highlighted above will likely be in the final version in some form. Providers should start thinking not only about how anticipated reforms will impact patient care workflows and short-term bottom lines, but also about how these changes will cause hospitals' business models to evolve.

Chad Mulvany is a technical manager in HFMA's Washington, D.C., office, and a member of HFMA's Virginia Chapter.


a. To read the report, go to, and search on the key words "path" and "2020 vision."

Two Projects: Common Strategic Goals

Healthcare reform projects from both the Commonwealth Fund and HFMA have principles that overlap.

Societal benefit. A new payment system should provide the resources to support broad societal benefits such as medical education, medical research, and care for the disenfranchised.

Alignment. Payments should align incentives among all stakeholders to maximize the efficiency and coordination of health services based on accepted practice and evidence-based protocols.

Quality. Payments should encourage and reward high-quality care and discourage medical errors and ineffective care.

Commonwealth Fund

Affordable coverage for all. Build on the current mixed private and public coverage system to extend affordable health insurance to all with a strategy designed to ensure access and provide the foundation for payment reform.

Aligned incentives and effective cost control. Change the way we pay for care to reward high quality and prudent stewardship of healthcare resources and to encourage reorganization of care so that it is well coordinated and responsive to patient needs.

Accountable, accessible, patient-centered, and coordinated care. Move from the current fragmented healthcare delivery system to one that is patient-centered, accessible, and organized so patients and families can easily navigate care, and that holds providers accountable for high-quality, cost-effective care across the continuum of care over time.

Publication Date: Friday, May 01, 2009

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