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Obamacare to the rescue?

ECONOMISTS for decades have pointed to spiraling health care costs as a major threat to the U.S. economy. Massive government funding of the industry began with the advent of Medicare and Medicaid in the mid 1960s when health care costs comprised five percent of our nation's gross domestic product It is 18% today. If costs continue to grow at historic rates, health care will comprise 34% of GDP in 2040. This expense places an unsustainable burden not only on government budgets, but on businesses trying to compete in a global market and on individuals. Medical bills are the No. 1 reason for personal bankruptcies in the U.S.

The Patient Protection and Affordable Care Act attempts to address three significant problems that have existed for years by getting more individuals covered (45,000 people die each year because they do not have health insurance); covering those with preexisting conditions; and containing overall costs.

Figuring to play a big part in ObamaCare is the Independent Payment Advisory Board (IPAB), a Federal agency created by the Affordable Care Act. IPAB will consist of 15 members with health care system expertise who will be appointed by the president--subject to Senate confirmation. It was established as a "backstop" to achieve specified savings in the Medicare program without affecting coverage or quality should government projected per capita growth rates in the program exceed spending targets.

However, it is very likely that its influence will extend well beyond Medicare and permeate throughout the entire health care system since most large commercial health insurers tend to follow the lead of Medicare's cost-containment efforts. Furthermore, IPAB's recommendations will be binding unless overruled by a super-majority vote of Congress, in which case Congress will be required to utilize a fast-track process to develop and implement its own ideas to achieve the same level of savings.

With the enormous amount of money at stake and many powerful health care special interests--hospitals, physicians, pharmaceutical companies, nursing homes, etc.--lobbying to satisfy their insatiable appetite for more of it, IPAB will have sufficient independence to make needed cuts. Indeed, a number of special interest health care organizations are opposed to IPAB as they realize its potential to change the status quo.

Similar efforts to rein in Federal spending have worked in the past concerning the defense industry. The Base Realignment and Closing Commission, a Federal government commission of nine members appointed by the president, was formed subsequent to the Cold War. BRAC was needed because of the excessive costs of unneeded military bases in an environment characterized by enormous local political pressure on members of Congress to preserve such installations. The initial four BRAC rounds closed more than 350 military installations during a three-decade span.

First and foremost, the Independent Payment Advisory Board should focus their efforts on a long-term plan to change the payment system in health care. Economists across the spectrum long have recognized that, if we utilize a payment system that pays health care providers more money for doing more things to patients, they will do them whether they are needed or not.

Numerous studies have documented unnecessary medical tests and procedures, and even the American Medical Association has pointed to the importance of reducing unnecessary care to patients. The Institute of Medicine says that 30% of everything done to patients is unnecessary, with similar findings from the Center for Medicare and Medicaid Services and other health industry analysts.

While the Federal government has tinkered with the payment system in the past, it has been unwilling to bite the political bullet necessary to discard the fee-for-service payment system and announce a plan to transition to capitation as the primary payment methodology. Capitation entails establishing a budget for health care providers. For example, Medicare might pay $10,000 per year for each patient for which a health care system provides care, but it must include all of his or her care.

The capitation payment amount is calculated by Federal government actuaries to compensate health care providers fairly while, at the same time, incentivizing them to be efficient in the provision of medical care to their patients. While some patients are relatively healthy and cost much less than the $10,000 in our example, others are sicker and cost more. If the population of capitated patients is large enough, cost of care become very predictable for the health care organization with a consistent mix of sick and healthy patients.

The transition to capitation would take some time as integrated health care delivery systems learn to manage capitation with improved information management systems and reeducation of physicians whose mindset is rooted firmly in the fee-for-service environment.

Our current payment system often has been analogized to a balloon--when the government squeezes one part, such as reducing payment amounts to health care providers, another part expands because health care providers react by generating a higher volume of services to maintain their income. This has been the cat-and-mouse game played since the advent of Medicare and Medicaid almost 50 years ago.

This has not been lost on some of the administrators of the Medicare program. Medicare has implemented capitation payments in its managed care product, Medicare Advantage. However, the specific payment formula is flawed and historically has cost more than traditional fee-for-service Medicare because it permits health care providers that inflate their diagnostic coding to receive excessive capitated payments. This has been well-documented in the literature, but Medicare has not taken effective steps to eliminate the practice.

Capitation payments only should be adjusted by the age of patients being served; this cannot be falsified--older patients tend to use more health care services. Opportunities for coding schemes by health care providers that often make patients look sicker than they really are should be eliminated.

Moreover, Medicare noted in the proposed Federal Register regulations for Accountable Care Organizations that it increasingly may move in the direction of capitation payment systems. National spending targets will be adopted. These are important, but necessarily will fail without fundamental alterations in the payment system, which then will stimulate the changes in the health care delivery system that should make hitting the spending targets possible.

While capitation is essential for controlling costs, no payment system is perfect. Fee-for-service medicine encourages overutilization while capitation could tempt some to underutilize services if the proper safeguards are not built into the new system. Strong quality assurance tracking, reporting, and accountability must be instituted.

Consideration also should be given to developing similar safeguards to new rules that apply to health insurers under the Affordable Care Act, which require them to spend 85% of premiums on patients' medical care or refund the difference.

The goal of containing health care costs is achievable. In fact, the most progressive health care systems in the country already are changing the behavior of physicians who drive health care costs by writing all the orders for hospital admissions, diagnostic tests, treatments, home health care, prescriptions, etc. IPAB needs to study these success stories and implement its mandate in a manner that encourages high quality medical care.

IPAB will need to implement other cost-containment strategies as well:

* There should be a rapid acceleration of wellness and prevention programs. One-third of Americans are obese and two-thirds are overweight, contributing to numerous serious chronic diseases. Many medical specialists believe that more than half of the nation's 580,000 annual cancer deaths are preventable.

* There has to be a crackdown on billing fraud and abuse.

* Strong health education and physical fitness programs should be required in schools; healthy habits started early often last a lifetime.

* A review of the U.S.'s excessive use of prescription drugs is in order.

* Care for the elderly in noninstitutionalized environments--to the maximum extent possible--should be encouraged.

Health care costs threaten our economy and only will worsen as the population ages unless the nation acts decisively. Major social change rarely is easy. Developing an equitable and efficient health care system is a great challenge.

Pres. Barack Obama has stated that he welcomes ideas to improve the Affordable Care Act. Congress should work with the President to implement and support the best parts of the law while refining components that need improvement--and eliminate those that do not work.

Steve Riczo is president and CEO of the health care consulting company Riczo & Co., Cleveland, Ohio.
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Title Annotation:Public Policy
Author:Riczo, Steve
Publication:USA Today (Magazine)
Geographic Code:1USA
Date:Mar 1, 2014
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