Former Medicare administrator: How to solve the tough problems that the Affordable Care Act doesn't

When it comes to healthcare in the United States, for the most part we agree on the core problems: unsustainable spending growth (far out of line with growth in other types of spending), inconsistent patient safety measures, inconsistent adoption of clinically-appropriate strategies, and a lack of insurance coverage for 16 percent of the population.

For some Americans, the Affordable Care Act, sometimes referred to as Obamacare, was supposed to fix all of those problems. It hasn’t, explained Gail Wilensky, who delivered the 2012 Mark McKenna Lecture presented by the W. P. Carey School's Health Sector Supply Chain Research Consortium. 

Wilensky, a senior fellow at the international health foundation Project HOPE and a former administrator of what is now the Centers for Medicare and Medicaid Services (CMS), spoke about the significant problems that the Affordable Care Act doesn’t solve -- and what needs to be done to solve them now.

It’s a critically important issue, Wilensky explained, because unsustainable growth in healthcare spending (which now accounts for about 18 percent of GDP, up from 5 percent in 1960, and predicted to grow to 20 percent by 2020) will affect the money we have to spend on other things. In fact, she said, one reason that wages have grown so imperceptibly over the last decade has been much higher healthcare spending: employers have to keep paying more and more for employee health coverage, so they have less to dole out in raises.

Affordable Care Act

The Affordable Care Act (ACA) is labeled healthcare reform, Wilensky said, but it’s really just health insurance reform. “The ACA is primarily about expanding coverage and reforming insurance -- not a small problem, and one that this country has struggled mightily with, but it’s actually the easy part,” she said.

“The really hard part is slowing down the spending growth rate, improving quality, and improving patient safety.”

It’s hard to imagine tackling that challenge, Wilensky said, without changing the way providers are paid, reforming the liability system, and involving patients. “We must pay physicians in a way that rewards the behaviors we want and penalizes the behaviors we don’t want.” The legal system must be set up to protect providers who practice according to those incentives. And patients need to have skin in the game too.

“So these are some major issues that -- as important as expanding coverage is -- are not yet resolved.” If we’re going to resolve those tough issues, Wilensky said, we need to measure better, have better information, and change and align the incentives to reward providers who produce high-value care and patients who seek out high-value care.

Changing provider incentives

Medicare’s move to bundled payments -- now in its pilot phase -- is a start toward that end, Wilensky said. A bundled payment is a single payment for all of the services a patient received during an episode of care (a hospital stay as well as care during recovery, for example). “Now when someone goes to the hospital Medicare will pay based on the diagnosis at discharge. What the hospital does in order to produce that discharge is something that Medicare doesn’t need to approve on each individual patient level. The same is true for outpatient care.”

But there are some critical components missing from the Medicare bundled payments initiative, Wilensky explained. “It rewards efficiency within the bundle but it doesn’t give you extra brownie points for quality, and it doesn’t reward efficiency across bundles. That’s why we’re interested in readmissions to hospitals. The concern is that in a system that rewards admissions you have a potential for the institutions that make the most revenue to be the ones that aren’t doing a very good job the first time, causing readmissions to occur.” For that reason, it makes more sense to extend the bundled payment beyond the patient’s hospital discharge, so that if the patient has to be readmitted with a complication or infection, for example, the hospital doesn’t get paid again. That way, hospitals are incentivized to provide the highest quality care the first time around.

Still, the really big issue, Wilensky said, is the way physicians are paid. “Medicare has payments for some seven thousand billing codes, and the way a physician gets more income is by billing for more and more complex services.” Physicians who try to practice in a “conservative” way -- doing only those procedures that are clinically necessary and appropriate -- take a financial hit within the current system.

It’s no wonder, then, that physicians provide a higher number of increasingly complex procedures. That is what economists call a perverse incentive -- the system rewards exactly the kind of behavior we’re trying to avoid (in this case, increases in healthcare spending).

“Linking the rewards to the kind of behavior we want is really important,” Wilensky argued. “But it’s something we have not done at all. It’s a mystery to me how we can keep trying to change the system and not understand that at least under our current delivery system, the physicians are the captains of the delivery team and if they have perverse incentives it’s going to be very hard to actually slow healthcare spending.”

Try, try again

One way to change the incentives physicians face is to change the way they are paid. But “while we all agree that we need a better delivery system, we aren’t at all clear about what that system should look like,” Wilensky said. The answer, then, is to test different ideas.

There are some pilot programs, in both the public and the private sector, doing just that. United Health Care (UHC), as just one example, has engaged in a series of pilot projects involving performance-based contracting with physicians as well as incentives for those physicians who score well on both quality and efficiency metrics. UHC found that it was much easier to improve quality metrics than to slow down spending, so now they’re trying “industrial strength” incentives to reward efficiency.

This focus on rewarding efficiency in healthcare delivery, Wilensky said, makes achieving supply chain efficiency ever more critical. ”Because one of the ways to reduce inefficiency is to look at all of the ingredients -- all of the components of the supply chain -- that are driving total cost.”

But the challenge, especially in the public sector, is translating a pilot into practice.

“When I was at what’s now called the Centers for Medicare and Medicaid Services,” Wilensky explained, “one of the pilots we started was a coronary artery bypass demonstration that brought together all of the physicians involved with the hospital, paid them a bundled payment and required quality metrics and some patient safety protections. It seemed to work well. We grew it some over time. And then…nothing. By then we had a different president, a different set of administrators, and Congress was thinking about other things. That’s what worries me most about relying on pilots as the sole source of innovation.”

The system is a bit different now, Wilensky noted. “The Secretary of Health and Human Services has new authority under the ACA to scale up successful pilots (those that lowered costs and improved quality) and replicate them nationally. But can does not equal will; the ACA should require the Secretary to scale up successful pilots.”

Liability reform

If we’re asking healthcare providers to be more conservative -- to think about whether a test or procedure is really necessary before ordering it, rather than simply defaulting to ordering the gamut of expensive tests and procedures -- then the system needs to protect those doctors and institutions, Wilensky said.

But arbitrary caps on pain and suffering damages, as some states have instituted, don’t improve the quality of care, she explained. Instead, we need a quid pro quo strategy where providers are protected from liability if they adopt Institute of Medicine patient-safety measures and evidenced-based protocol, and there is no proven criminal negligence.

Better information

Yet rewarding healthcare providers who practice conservative medicine requires actually knowing the procedures or tests that are necessary for a patient with a given condition, and those that aren’t. And that requires better information, Wilensky said. “We need to know what works, when, for whom, in what circumstances.”

And for that, we need comparative effectiveness research (CER), “designed to inform healthcare decisions by providing evidence on the effectiveness, benefits, and harms of different treatment options.” Wilensky sees CER first as a way to improve health outcomes -- to “spend smarter.” She said that she’d like to see comparative effectiveness research used as one factor in determining both co-insurance levels and reimbursement rates.

“I like the concept of value-based insurance, where the co-insurance is high if there’s a high degree of clinical uncertainty or a low probability of a good clinical outcome, and low otherwise.” Reimbursement for providers could work the same way, Wilensky said: higher for those providers who produce higher-value outcomes (i.e., better results at a lower cost).

The Affordable Care Act makes a good start down that road, with the establishment of the Patient-Centered Outcomes Research Institute (PCORI), but it’s not clear how PCORI will be used in decision making, Wilensky said. She said it’s likely that the private sector will have to blaze the trail in this area.

And not going down the path of “smarter spending” based on information about what works and what doesn’t? “If we can’t use information about what works, when, and for whom, and get the incentives in place to reward physicians and institutions that provide the best value, then most of the alternatives start looking really ugly,” Wilensky said. “We can’t stay on our current path for very long.”

Consumers need to take part, too

We also “urgently” need more active involvement from healthcare consumers -- patients. “The pressure has always been on providers,” Wilensky said. “We need to get consumers more involved, help them understand plan options and costs, give a financial reason to care, and encourage and reward healthier lifestyles.”

Patients covered by Medicare, and often patients covered by other types of insurance as well, “have very little economic interest in terms of who provides better quality at a lower price; it’s not their money,” Wilensky explained. The private sector is beginning to look at reforms in this area, she said, offering lower premiums or lower co-insurance for people who go to institutions or clinicians that have measurably greater value.

Not involving patients -- instead only focusing on the providers -- Wilensky said, would be like trying to slow a car down with one foot on the brake and the other on the gas. Consumers, in other words, need to have skin in the game of controlling healthcare costs, too.

--The Health Sector Supply Chain Research Consortium (HSRC-ASU) is a research group within the W. P. Carey School of Business at Arizona State University. The consortium was founded in 2004 to bring together health sector organizations and academic researchers to conduct research on topics related to the strategic management of the health care supply chain. The Annual Mark McKenna Lecture in Health Sector Supply Chain brings key innovators who have improved health sector supply chain management to Arizona State University annually to highlight the importance of the supply chain in improving organizational performance and clinical practice.

Bottom line

  • Critical healthcare problems not solved by the Affordable Care Act are unsustainable spending growth, inconsistent patient safety measures, and inconsistent adoption of clinically-appropriate strategies
  • Solving those problems will require changing the way healthcare providers are paid, reforming the liability system, and involving patients

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