Eye on Washington

Gail R. Wilensky

It matters little who wins the White House or controls Congress after the 2012 election-healthcare providers will still face many of the same challenges they are facing today.

That's not to say the outcome of the 2012 election will not make a difference. A lot could happen starting in 2013. The nature and amount of legislation that will be passed in the years to come will certainly depend on whether President Obama is reelected, whether the country continues with split government, whether the House and Senate are controlled by the same or different parties, and whether the majorities are larger or smaller than they are today.

But 2012 is a different story. From what we have seen of the campaign season to date, it seems clear that 2012 will mostly be a year of posturing and stalemate. Generally speaking, not much tends to happen legislatively during politically contentious election years. And that describes 2012 rather well.

Politics aside, some issues will need to be resolved soon-like "the doc fix," which would reduce Medicare payments to physicians by 27 percent if not resolved by March, or an extension of the payroll tax cut, which the Congressional Budget Office has judged to be one of the more effective policies to stimulate the economy in the near term.

It's unlikely, however, that we will see much legislative action to address three important challenges facing healthcare providers: the need to change the incentives in health care, the need to reform the delivery system, and the need for entitlement reform-particularly as it relates to future Medicare spending growth.

The Need to Change Incentives

There is widespread agreement that if the United States is to slow the growth rate of spending on health care and improve the value for what is spent, the current incentives implicit in the nation's healthcare payment system must be changed. Most healthcare payment today involves some form of fee-for-service, which is notorious for encouraging the provision of more volume and more complex services.

In Medicare, for most services, other than those provided by physicians, there has been a move to bundled payment, where a single payment covers multiple services that are typically delivered over multiple days, or even weeks (as with home care, for example). The use of a bundled payment encourages efficiency within the bundle of services, but like all fee-for-service payment, it encourages greater volume (i.e., more bundles), which is at the root of the Medicare program's concern with hospital readmissions. There is also currently no incentive or reward for producing higher quality "bundles of care," and to the extent that higher quality may reduce the likelihood of reoccurrence, there is actually an implicit penalty.

For physicians, the incentives are even worse. The relative value scale uses a disaggregated fee schedule that rewards neither efficiency nor quality.

The problem is that there is no consensus on how best to redesign the payment system. To address this problem, the Innovation Center within the Centers for Medicare & Medicaid Services (CMS) is sponsoring several bundling demonstrations focusing on bundled payment for hospital and post-acute care, with and without physician services, and for the hospital stay, encompassing all services including physician services. Unfortunately- and, to me, inexplicably-there are no demonstrations designed to test different ways of paying physicians independently from the hospital.

There also are many interesting demonstrations under way in the private sector involving performance-based pay, patient-centered medical homes, episode-based payments, and global fees. The hope is that what is learned from these various pilots and demonstrations will be sufficient to guide efforts to design the next generation of payment systems.

The Need to Reform the Delivery System

There is also widespread agreement that payment reform needs to be accompanied by delivery system reform that will facilitate the delivery of the higher-quality, more efficient care that payment reform aims to reward. Fee-for-service payment in a fragmented delivery system has been responsible for many of the well-known problems with the nation's health care. Having the majority of physicians practice in small, single-specialty practices that are independent from the hospital facilities that they use also complicates the move toward more integrated, coordinated care.

Some have wondered whether payment reform should precede or be preceded by delivery system reform. This is an open question. My view is that payment reform will help drive delivery system change and should be strongly pursued, in any event, wherever the opportunity presents itself. Both types of reform clearly are needed.

The Need for Entitlement Reform

It will be hard to fix the debt and deficit without resolving issues relating to entitlement reform, particularly Medicare and Medicaid. Entitlements represent 55 percent of the budget. Social Security constitutes a large portion and, like Medicare, needs to be put on a fiscally sustainable basis. But with Social Security, the changes are much easier-at least at a policy level. For Medicaid, the main challenge involves dealing with issues around long-term care, which the Community Living and Assistance Services and Support (CLASS) Act clearly has been unsuccessful in addressing.

Reforming Medicare poses a bigger challenge because there is no clear consensus on what "reform" means. Perhaps it will be clearer after the 2012 election, but it may take a greater crisis to force the nation to come to some agreement about what types of changes are acceptable even to consider.

The Affordable Care Act has alleviated some of Medicare's short-term fiscal pressures. The legislated reductions in payments for providers of all services to Medicare and a general slowing in healthcare spending have produced unusually slow rates of spending growth, to quite dramatic effect, although questions remain as to why healthcare spending, both in Medicare and overall, has slowed to the extent that it has and whether the phenomenon is likely to continue. The Part A Trust Fund is currently projected to remain solvent until 2024-five years sooner than was projected in 2010, but far off in the future, especially for most politicians.

Current law projections show Medicare spending through the rest of the decade growing on an annual per capita basis at 3.6 percent-about the rate of growth of the economy. But even this slow per capita growth rate translates to an annual growth rate of 6.6 percent when retiring baby boomers are taken into account. It is unclear whether the legislated changes will negatively affect access as some have predicted and whether that undermines their future viability.

The real question is what will happen after 2020, when the currently budgeted reductions expire. Democrats have set GDP plus 1 as their spending goal, to be achieved by reducing provider payments as needed, with the reductions being enforced by the yet-to-be-created Independent Payment Advisory Board. Republicans have suggested the same spending goal, but want to achieve it by converting Medicare to a premium support program. Whatever strategy is chosen will mean a resource-constrained environment for providers both in the current decade and the decade to come.

Gail R. Wilensky, PhD, is a senior fellow at Project HOPE; a former administrator of HCFA, now CMS; and a former chair of the Medicare Payment Advisory Commission (gwilensky@projecthope.org). 

Publication Date: Thursday, March 01, 2012

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