Eye on Washington

Chad Mulvany

Did Scott Brown's victory in the Massachusetts general election put an end to healthcare reform?

It took a little time for the Obama administration and the Democrats to regroup after the surprising setback in Massachusetts, but with health care back in the forefront, the outlook appears rocky, at best, considering the Democrats squandered super-majority in the Senate and the predictable impasse that was the ultimate outcome of Obama's recent "healthcare summit."

Nonetheless, some kind of reform will still be achieved: Brown's victory for a Massachusetts Senate seat may make the passage of a federal package of comprehensive healthcare reforms unlikely, but it should not be misconstrued as reform's swan song. The problems with our healthcare system are too great to ignore by any of the principal players involved in the reform process. What, then, will reform look like-and how should providers prepare?

At this juncture, reform can follow several paths to achieving at least some of the goals necessary to improve the healthcare system. Providers that are caught flatfooted by the shifting economic incentives resulting from reform will be ill prepared to succeed under a reimbursement paradigm that rewards value (high-quality, low-cost care) instead of volume.

The Song Remains the Same

The political landscape may have tilted, but the healthcare system continues to struggle with its well-documented cost and quality problems.

Exponential cost growth. Health care consumed 17.3 percent of gross domestic product (GDP) in 2009 and continued to grow faster than overall inflation.a At the current pace, it is estimated that healthcare expenditures will account for 20 percent of GDP in 2015. This growth pace is the driving factor in the high rates of uninsured-at last estimate 16 percent nationally-and is unsustainable for both the private and public sectors.

In the private sector, escalating healthcare costs make goods and services produced in the United States more expensive and less competitive than those produced in other industrialized countries. These rising costs also act as a drag on corporate profits and job growth, making hiring and retaining employees more expensive each year.

The public sector picture is grimmer. According to actuaries, the Part A trust fund will be insolvent by 2017. Borrowing $500 billion annually is not an option-at least not at affordable interest rates or without triggering inflation and currency devaluation. When the trust fund reaches the point of insolvency, Congress will have to use a combination of cost cutting and tax increases that will impact every wage earner above the poverty line to meet the nation's healthcare obligation to its senior citizens.

Underperforming outcomes. Despite spending more per capita than any other country on the planet, the United States ranks lower than most other industrialized countries across a broad basket of population health measures. In a sense, this is good news. You don't have to break the bank to provide high-quality care. Further proving this point, policy experts point to pockets of high-quality, low-cost care throughout the country as proof the delivery system can be more efficient. The challenge is reshaping the economic incentives in the healthcare system to change practice patterns, which is one of the goals of reform.

Reform by Any Other Name …

Brown's improbable victory in Massachusetts's special election called into question the scope of reforms now possible and the path that can be used to achieve them. It sets up the possibility of three distinctly different scenarios reflecting Congress's attempts to achieve at least some of the changes necessary to control cost, improve quality, and ultimately expand access. Providers should understand all three scenarios, identify likely outcomes, and prepare for those changes.

Scenario 1: The Big Bang. After a brief and unsuccessful attempt to incorporate some distinctly Republican ideas into the existing healthcare reform bills, Democrats could use a parliamentary procedure known as reconciliation to pass reform along party line votes. Resulting legislation would represent a compromise between the House and Senate bills that were passed late last year.b The package would include mandates for businesses and individuals to purchase insurance, sweeping insurance market reforms, and measures aimed at reducing cost and improving the quality of care.

At the time this column was being prepared for publication, it was looking like a distinct possibility that the Democrats would attempt this approach. Yet this approach also has a low probability of success. Although the overall differences in the House and Senate bill appear to be few, those that do exist are substantial and potentially unfixable using the reconciliation process. Even if a measure could be crafted to satisfy all factions of the Democratic party, many moderates are leery of using parliamentary procedure to muscle reform through-especially in an election year. Given the increasing likelihood that this approach will be used; however, whether it can succeed remains to be seen.

Scenario 2: The Long Shot. Democrats and Republicans could start from scratch and create a smaller package of reforms that reflect the beliefs of moderates in both parties. The legislation could include some coverage expansion via Medicaid or the State Children's Health Insurance Program, limited insurance market and tort reforms, and measures aimed at reducing cost and improving the quality of care.c

As this scenario's name implies, the odds of its becoming realized are prohibitively low for political reasons on both sides of the aisle.

Scenario 3: Piecemeal. Assuming scenarios one and two fall flat, cost cutting and delivery system reform measures could be enacted over time through budget legislation and the rulemaking process of the Centers for Medicare & Medicaid Services (CMS). Although the scale of the payment cuts might not be as deep as envisioned in the existing legislation, providers would still have to manage high levels of uninsured patients.

The private sector also has numerous demonstration projects in the market that mirror reforms contemplated by Congress. Insurers, responding to pressure from employers that are struggling with premium costs, will move to implement these demonstrations on a wider scale.

Given the political realities facing the country, this scenario seems ultimately to be the most likely to be successful. It's easier to move delivery system reforms that many industry participants have already agreed to through budget legislation and normal CMS rule making. Both processes would receive far less scrutiny than anything labeled "reform." This approach also has the advantage of being easier to explain to the public, as the measures would be designed to reduce the deficit-something that most Americans support.

The common elements in all three scenarios are cost cutting and reform of the delivery system, representing a rare common ground where there is broad agreement in both parties. Given the general consensus on the need to reduce costs (disagreement is on what to do with the savings), providers should continue to prepare for an economic shift to a value-based payment system.

What Should Providers Do?

HFMA, through its work on reform, has identified several key competencies that providers will need to master to succeed under a value-based payment system. In addition to managing costs, two competencies- physician integration and risk management-will apply in any situation; they will serve hospitals well both in the current system and under a value-based system. They are also the most difficult to master, so providers would be wise to begin implementing them now.

Physician integration. Providers need to consider their physician integration strategy in light of reform's new economic incentives. Moving forward, this strategy should be focused on aligning hospitals' and physicians' financial interests to improve quality and reduce costs. There is no one-size-fits-all approach, and these considerations will need to be incorporated into the spectrum of relationships, from fully employed physician to independent practitioners with hospital privileges.

Risk management. Risk management in the context of healthcare reform includes managing population health, reducing costs, and improving quality. Although providers will have to master managing population health in the near future, they will be best served by pursuing strategies to address the latter two items. The best way to do so is to use performance management strategies designed to reduce variation and eliminate waste in hospital processes.

The Powell Rule

Gen. Colin Powell says that the time to act is when you're between 40 and 70 percent sure of an event. If you act before you have 40 percent certainty, you have insufficient knowledge, and after you have 70 percent certainty, it's too late for meaningful action. At this juncture, providers can be reasonably certain reforms that reduce cost and improve the quality of care will be enacted somehow. Waiting to address integration issues or cost and quality improvement opportunities could place an organization's continued financial viability at risk.

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


a. Truffer, C.J., et al., "Health Spending Projections Through 2019: The Recession's Impact Continues,"Health Affairs,Feb. 4, 2010.

b. See HFMA, "Health Reform: Comparison of House and Senate Bills."

c. See the commentary by Rep. Bill Cassidy (R-La.), "How Dems Can Win Health Reform,"Politico, Feb. 10, 2010. 

Publication Date: Thursday, April 01, 2010

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