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Cost Sustainability

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(Modern Healthcare, May 18, 2013)

By Bill Frist and Dr. Manoj Jain

We have done it. We have decreased the increase in the cost of healthcare. Let us explain. For three decades (1980–2009), the cost of healthcare has been increasing each year at an average rate of 7.4%—double the rate of inflation. However, over the past three years, the increase in healthcare expenditures has remained at a low 3.1%.

Is this decline the desperately needed bend in the healthcare cost curve or just the impact of the depressed economy?

Four leading studies point us in different directions. Last month’s Kaiser Family Foundation study deduced that 77% of the decline was attributable to the economic downturn and is likely temporary. A report by the Robert Wood Johnson Foundation echoed these conclusions.

In contrast, two articles in the May issue of Health Affairs point to structural changes such as “less rapid development of imaging technology and new pharmaceuticals, increased patient cost sharing and greater provider efficiency” as major causes of the decline, suggesting that only 40% to 55% of the decline was because of the economic downturn.

The final answer is probably somewhere in between, with about half of the decrease realized by encouraging changes in the way healthcare is delivered and the other half due simply to the downturn in our economy. Regardless, it is important to recognize—and celebrate—that the cost curve has bent without collapsing our healthcare system or being prompted by draconian measures in rationing of healthcare. Moreover, the decline has not led to deterioration in our quality measures. In fact, they have improved.

Now, the $2.7 trillion question is, “How can we sustain this slower growth over the next decades?”

Undeniably, during the past several years, the singular focus of conversation among policy makers has shifted from simply more care and better quality of care to better value in healthcare, where value is defined as quality over cost. The onset of value-based purchasing by Medicare and higher copays and deductibles for patients in employer-based plans has helped in disseminating this message to doctors and patients.

Yet if history is any indicator, the cost of healthcare will rise once again as our economy strengthens. So, last month the Bipartisan Policy Center made 50 bold recommendations on how to sustain the lower growth of healthcare costs. These recommendations are unique because they focus on improving the entire system of care over a prolonged period of time and break through the partisan rhetoric surrounding healthcare reform.

We want to highlight a few of the recommendations that will impact providers—hospitals and doctors. The BPC encourages advancing accountable care organizations to a 2.0 version where the entire spectrum of patients’ needs would be covered for a fixed payment, and in doing so replace the irrational and outdated sustainable growth-rate formula for physician reimbursement.

Also, the BPC policy paper suggests changing our present voluntary bundle payments program to the standard method of payments for certain DRGs. The impact of such a change in the payment system can be profound. When in the 1980’s Medicare changed payments to hospitals by DRG, length of stay and hospital payments declined.

If such measures are not successful in restricting the cost of healthcare, then a fallback spending limit or a “cap” would take effect based on annual per beneficiary spending growth to a target of GDP.

To sustain these reductions in cost, the availability of current cost data and transparency of such data are essential. At present when patients get their bills, they do not know the difference between healthcare charges, expenditures and costs. To borrow an analogy from car sales: the sticker price, the new owner’s price and the dealer’s invoice price, respectively.

As for providers, physicians are often unaware whether an antibiotic costs $150 or $15 when writing the prescription or a doctor’s order in the hospital chart.

These costs have real impact for Americans. One RAND Corp. study found that if healthcare costs had risen at the slower rate equal to the Consumer Price Index, an average American family would have had an additional $5,400 more to spend each year on education, entertainment, food and clothing over the past decade. But instead, the average family has spent that money on healthcare. With our healthcare system at this crucial crossroads, we need to take this opportunity and stop the collateral damage.

A slower growth of healthcare cost would mean less burden on the individual family, freeing that family to invest in and live a higher quality of life. And for communities it would free billions of dollars for education, businesses, job creation and future innovation.

The good news is that it can be done. And the blueprint for eliminating waste, lowering the cost and maximizing the value is actively being considered by voices that rise above partisan bickering.

Manoj Jain is an infectious disease specialist in Memphis, Tenn.
Bill Frist is a heart transplant surgeon and former U.S. Senate majority leader.

This article was originally published in Modern Healthcare.

Changing the Way Physicians are Paid: Report of the National Commission on Physician Payment Reform

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(Health Affairs Blog, March 4, 2013)

By Bill Frist and Steven Schroeder

The loud cries warning that rising health care costs are going to destroy the nation’s economy have been shouted so often that the will to move firmly in any one direction has almost halted. We’ve all heard them: health care costs are unsustainable, excessive spending is fueling our nation’s debt, and despite high costs, health outcomes are behind much of the world and aren’t improving.

The way doctors are paid is one of the most significant drivers of escalating health care costs. The National Commission on Physician Payment Reform, which we chair, was formed by the Society of General Internal Medicine to provide the public and private sector with recommendations for transforming the way we pay doctors in order to rein in spending and improve quality.

On Monday, after a year of intensive study, the 14-member Commission issued a blueprint for exactly how to move the nation toward a physician payment system that will yield better results for payers and patients.

Addressing Physician Payment

Numerous proposals have been put on the table to stop the well-documented rise in health care expenditures. Recent plans have included raising the eligibility age for Medicare, turning to high deductible plans, reducing physician reimbursement, and limiting services available to those with coverage. Such proposals have escalated as calls to reduce the nation’s overall debt have dominated lawmakers’ agendas and the feared sequestration has gone into effect with cuts that directly impact the medical community.

But many of these ideas are short-sighted, making cuts that will yield savings now, but not keep costs from continuing their upward spiral or improve patient care. In fact, many of them could harm patients. Any effort to overhaul the current system must start by addressing the core structural problem: our physician payment system and its misaligned incentives.

The Commission calls for drastic changes to the current fee-for-service payment and urges a rapid transition to new payment models, shifting the US to a blended payment system that rewards value over volume.

Accelerating Adoption Of New Payment Models

Although the effectiveness of mechanisms such as bundled payments, financial risk sharing, pay for performance, and other experiments in reducing costs and improving quality are not yet proven, the Commission believes that the nation must move swiftly to adopt these promising models.

The Commissioners judged that five years would be an appropriate length of time to test these new models and incorporate them into increasing numbers of practices, with the goal of broad adoption by the end of the decade. A five-year transition period would give physicians and health care organizations adequate time to make needed changes to their models of care, such as install electronic medical records or change billing systems.

It would also enable CMS time to further evaluate the experiments currently underway to test accountable care organizations, patient-centered medical homes, and other alternative delivery and payment mechanisms. Yet, the Commission believes that the nation cannot wait until definitive results come in to activate these new payment and delivery models.

During this transition period, we should start implementing new payments models for the care of people with multiple chronic conditions, including behavioral health disorders. Use of fixed payments should also begin now for in-hospital procedures, such as heart attacks and joint replacements, and their follow-up. These are areas where significant potential exists now for cost savings and better quality.

Fixing Fee-For-Service

The Commission is fully aware that ACOs and bundled payments are not a panacea; many of these models still pay individual physicians on a fee-for-service basis. What we don’t want is old wine in new bottles — we need to ensure that the current skewed fee-for-service incentives aren’t incorporated into these new models.

That’s why the Commission makes a number of recommendations for immediate changes to the current fee-for-service system that will yield cost savings and improve patient care, including the following:

Include a component of quality or outcome-based performance reimbursement in all fee-for-service contracts.  UnitedHealthcare reports that the 250,000 physicians participating in its Premium Designation program — whose compensation depends in part on their meeting quality measures — have significantly lower complication rates for stent placement procedures and knee arthroscopic surgery, and have 14 percent lower costs, than specialists not in the program.  WellPoint has obtained similar results in its pilot programs.

Increase reimbursement for evaluation and management (E&M) services. The current fee-for-service system places a higher value on high-technology care than preventive measures.

For both Medicare and private insurers, annual updates should be increased for evaluation and management codes, which are currently undervalued. Updates for procedural diagnosis codes, which are generally overvalued and thus create incentives for overuse, should be frozen for a period of three years. During this time period, efforts should continue to improve the accuracy of relative values, which may result in some increases as well as some decreases in payments for specific services.

The undervalued evaluation and management services at issue are often those that provide preventive health and wellness care, address new or undiagnosed problems, and manage chronic illnesses. The current skewed physician payment system causes a number of problems, such as creating a disincentive to spend time with patients with complex chronic conditions; leading physicians to offer care for highly reimbursed procedures rather than lower-reimbursed cognitive care; and neglecting illness prevention and disease management. High reimbursement for procedures also subtly nudges specialists such as gastroenterologists and pulmonologists away from E&M services and toward doing procedures.

Moreover, physicians doing diagnostic or therapeutic procedures earn considerably more than physicians who mainly evaluate and manage patients — even those with multiple chronic conditions.  In 2011, a radiologist, on average, earned $315,000 a year, while a family doctor on average earned $158,000. This has led medical students — many of whom leave school heavily in debt — away from the E&M specialties and toward the higher paying procedural and imaging specialties.

While the discussion about reimbursement has generally focused on services performed by primary care physicians, the real issue is not one of relative payment of specialists versus primary care physicians but, rather, of payment for E&M services as contrasted with procedural services.  These include E&M services provided by, among others, cardiologists, endocrinologists, hematologists, infectious disease specialists, neurologists, psychiatrists, and rheumatologists.

Eliminate higher payment for facility-based services that can be performed in a lower-cost setting.  Recently, there has been a trend to reimburse medical services performed in outpatient facilities at a lower rate than those same services when provided in hospitals. For example, Medicare pays $450 for an echocardiogram done in a hospital and only $180 for the same procedure in a physician’s office. It makes no sense to pay extra for an in-hospital procedure that can be done more cheaply in an ambulatory facility.

Make payment mechanisms for physicians transparent so physicians are reimbursed roughly equally for equivalent services, regardless of market power. In recent years, the pace of hospital-system consolidation has accelerated. Because of their increased market share, large health care systems can negotiate higher reimbursement for services provided by their physicians than can physicians working independently or in smaller practices.  Large hospital systems are buying up independent practices, threatening the viability of independent physicians and raising the cost of health care.

This has led to a situation where private payers often pay different rates for the same physician services, depending on the market power of the physician group. Payments by private payers for medical services should be transparent to the public.

Abolish Medicare’s Sustainable Growth Rate (SGR). Simply stated, the SGR has not worked in practice and shows no prospect of ever working. The practice of setting expenditure targets one year and ignoring the consequences of exceeding them the next year makes no sense.  Moreover, setting a spending cap without addressing the underlying issues of the volume and price of services and health outcomes is a short-term answer. Since the SGR is based on the aggregate payment for physicians’ services by Medicare, there is no incentive for individual physicians to try to hold down costs, and those who do are, in effect, penalized.  It is the Tragedy of the Commons.

There is wide agreement that the SGR should be eliminated — a decision made easier by the fact that the Congressional Budget Office recently reduced the cost of doing so to $138 billion.  However, there is still little agreement on how to pay for it. We contend that the funds can be found entirely by reducing overutilization of medical services within Medicare.

A Time To Act

The chorus of voices that shouted loudly and repeatedly about the need to rein in health care costs should be commended. But those same voices should now unite around a solution. From where we sit it starts with moving away from stand-alone fee-for-service payment. The Commission’s recommendations put us on that path.

Bill Frist, a physician, is a former Republican senator from Tennessee and Senate majority leader, and Steven Schroeder is a professor of health and health care in the department of medicine at the University of California, San Francisco. The two men co-chair the National Commission on Physician Payment Reform, which has issued a report providing recommendations aimed at controlling health spending by changing the way doctors are paid.

This article was originally featured in the Health Affairs blog http://healthaffairs.org/blog/2013/03/04/changing-the-way-physicians-are-paid-report-of-the-national-commission-on-physician-payment-reform/

Premium Support is the Only Way to Fix America’s Medicare Mess

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(The Week, March 27, 2012)

By Bill Frist, M.D.

To save Medicare — and rein in our national debt — we must transform the entitlement program into a defined-contribution system

Nothing is scarier than losing your health.

A close second, however, is getting sick and not being able to afford the care you need. For seniors, Medicare has been the entitlement program that for 47 years has dependably provided health security and peace of mind.

But today, demographics are shifting. Fewer workers are contributing to the pay-as-you-go system that by 2030 will cover double the number of beneficiaries it does now. Those reaching 65 this year, on average, will take out in services more than twice what they paid in over their lifetime. That is simply unsustainable. Medicare cannot last as currently configured.

Absent real changes, Medicare will be unable to meet the needs of seniors in the future.

And looming behind all this is our nation’s debt, skyrocketing on autopilot from $15 trillion today to $22 trillion in eight years. The higher the debt, the slower our economy grows, and the fewer jobs are created. Though a lot of people think Social Security is the culprit, it is not. As a percentage of GDP, it is our two government health programs, Medicare and Medicaid, which, left unchecked, will disproportionately balloon over the next 50 years.

For these reasons, the single most important reform that our next president must address is Medicare modernization.

Absent real changes, Medicare will be unable to meet the needs of seniors in the future.

This week marks the two-year anniversary of the President Obama’s health reform initiative. But that law did little to reform Medicare. Instead, it primarily addressed an entirely different issue, increasing access and expanding Medicaid so that one out of every four Americans will be on Medicaid in 36 months. Structurally, President Obama did not change Medicare at all.

If demographics, determined years in advance, define the impending bankruptcy of Medicare, why haven’t our elected leaders acted? Well, in fact, both President Clinton and President Obama, under mandates by Congress, appointed high-profile presidential commissions to address the issue of entitlement reform and Medicare modernization.

The irony is that both bipartisan commissions, one in 1998 and the other in 2010, demonstrated majority support for the exact same type of fundamental reform for Medicare, a plan that maximized security for our seniors, choice for the individual, and longterm sustainability of the program.

It’s called premium support. Here is how it would work:

When you become eligible for Medicare at 65, you choose a health plan from a menu of integrated private plans that all cover the basic benefit package provided under traditional Medicare today. They can vary in depth and scope of additional coverage. Or you can choose to keep traditional Medicare instead of choosing one of the more modern plans. It’s your choice. All the plans and the exchange system through which they are selected are regulated by the federal government to guarantee security, fairness, and accountability for the individual and a level playing field for the plans.

Your premium for the coverage will be paid partly by the government (known as a defined contribution or premium support). For example, hypothetically, this year the government might pay $8,000, and you pony up a supplementary sum — the total would depend on the additional benefits of the plan you selected. Your personal contribution would be means-tested, with more aggressive subsidies paid for those without resources to afford the basic coverage. The premium support level would be adjusted by income, geography, and health status. You would be able to afford it.

Is such a transformation of Medicare risky? Not really.

The government has a whole lot of experience successfully managing such an exchange, transparently ensuring its equity and value. It has been doing so with the FEHBP (Federal Employees Health Benefit Plan) for the past 52 years. This system has insured all federal employees, currently covering 9 million people, including me when I was a senator — making it the largest employer-sponsored group health insurance program in the world.

The advantages of premium support are many.

Each senior is empowered with a choice of comprehensive plans, similar to what each member of Congress enjoys. Plans can rapidly adopt improved innovations in benefits and coverage rather than wait years for Washington to pass another law. And increased price transparency demanded by active consumers interested in making a value-based choice of plans will empower 50 million Americans to powerfully participate in reducing waste, continually squeezing the fat out of the system.

Premium support would reduce total spending by stimulating price competition among plans (just as has been observed with the Medicare prescription drug coverage structure created in 2003). Beneficiaries become more cost conscious in choosing a plan that best suits their needs.

No longer would doctor and hospital reimbursement be determined by Washington-based price fixing (and arbitrary, blunt, across-the-board cuts) but rather, by value to beneficiaries. No longer will federal centralized pricing of 155,000 service codes based on episodic and unpredictable review be necessary. A side benefit would be a reduction in the costly and distorting power of lobbyists and Washington-based special interests who thrive on managing this centralized price setting to their advantage.

Premium support makes Medicare sustainable longterm, and goes a long way toward reversing the debt and entitlement problems that threaten America’s future.

And what are the naysayers worried about? First, they say providing seniors with more choice is just too confusing. But seniors can keep what they have in traditional Medicare if they want. Second, they argue premium support simply shifts costs and does nothing to reduce the overall price of care. But aligning reimbursement with value and quality rather than quantity will minimize this shift.

The premium support concept is neither novel nor new. Initially proposed in a bipartisan spirit by two congressmen in 1983, endorsed by two prominent health policy economists in 1994, supported by a majority of both of the last two presidential commissions, and more recently proposed by members of both political parties in Congress, premium support is the leading solution to achieve Medicare modernization for seniors and fiscal solvency for our country.

Dr. William H. Frist is a nationally acclaimed heart transplant surgeon, former U.S. Senate Majority Leader, the chairman of Hope Through Healing Hands and Tennessee SCORE, professor of surgery, and author of six books.

 

This article was originally featured in The Week http://theweek.com/article/index/226065/premium-support-is-the-only-way-to-fix-americas-medicare-mess

How the Supreme Court’s ‘ObamaCare’ ruling will affect you

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(The Week, March 13, 2012)

By Bill Frist, M.D.

The nation’s highest court is about to judge the president’s signature legislative achievement — and it’s not just politicians who are invested in the outcome.

Is the new health care law constitutional? You might think it doesn’t matter — or at least, that it doesn’t matter to you. But the fact is, the Supreme Court’s decision on President Obama’s Affordable Care Act (ACA) will almost certainly affect you directly.

How, exactly? For one thing, the court’s decision could play a key role in determining our next president and possibly your next congressman. If you are poor, the ruling may decide whether or not you have coverage. If you are not poor, it will impact how much you pay for health care. If you own a small business, it might determine if you must purchase health insurance for your employees. And if you work for a large business, it may determine whether you still receive your insurance from your employer. If you’re a doctor, it will likely affect your reimbursement. If you’re a patient, it will determine your benefits.

On March 26, 27, and 28, the Supreme Court will hear extensive oral arguments on the constitutionality of the ACA. This is the culmination of 26 states filing suits in federal district courts and opinions from seven federal appellate courts. A final written opinion likely will be delivered in June, 18 months before the individual mandate kicks in and just five months before the presidential election.

If the individual mandate is ultimately deemed constitutional, then for the first time in our history, you will have to purchase a product to live in America.

The ACA is a highly charged law that, according to the latestRealClearPoliticsaverage, is viewed unfavorably by half of Americans. The law essentially does two massive, controversial things: (1) Mandates that individuals purchase health insurance coverage, and (2) expands Medicaid by 16 million enrollees. This expansion means almost one in four Americans will be on Medicaid, the government program originally intended for our poorest citizens. If you don’t purchase insurance, you will pay a fine of $695 per adult and $347 per child.

Together, these provisions will reduce the uninsured by 32 million, but will still leave an estimated 23 million individuals uninsured in 2020.

The focus of the Supreme Court opinion will be on the constitutionality of these two issues, though two additional items will also be considered. One is whether the entire law falls if a part of it, such as the mandate, is ruled unconstitutional, and the other is whether the court has jurisdiction to rule at all now, since the law has yet to go fully into effect.

There is already plenty of discussion on the legal merits of the case, particularly as it regards the taxing power and the Commerce Clause. But what are the very real implications of the upcoming ruling? Here is what to look for:

1. If the court upholds the individual mandate, it will take effect 18 months later — unless Congress acts to repeal or postpone it (which won’t happen as long as Obama is in the White House). If the individual mandate is ultimately deemed constitutional, then for the first time in our history, you will have to purchase a product to live in America.

2. If the individual mandate is ruled unconstitutional, the court will then decide whether to let the rest of the law stand, including the expansion of Medicaid and the largely popular individual insurance reforms. If the rest is left intact, the Congressional Budget Office projects that 16 million of the 32 million Americans expected to gain insurance under the law would be ineligible for the new coverage and that non-group, individual premiums might increase 15 to 20 percent. It would then be up to each state to decide whether or not to adopt the individual mandate.

3. If the court decides that the Medicaid expansion is constitutional, it will take effect in 2014 — unless Congress acts to postpone, repeal, or not fund it. But if the expansion is left intact, with almost a quarter of all Americans covered by Medicaid, the program would grow to include a portion of the middle class.

4. If Medicaid expansion is overruled, coverage will remain at current, varying state levels, and an estimated 16 million low-income individuals will not be able to take advantage of the new Medicaid coverage that would have begun in 2014.

5. Politically, if the new law is judged constitutional, Democrats will celebrate the judicial affirmation of the spirit and substance of the historic reform, illustrating President Obama’s leadership. Republicans would fan the existing flames of unpopularity among the majority of Americans, citing federal government overreach, rallying around an election call for repeal as they did in 2010. If any part is unconstitutional, the bases of both parties will be emboldened to make health reform the defining issue, after the economy, in the elections in November.

This one is worth following. It will be a game-changer. And not just for the politicians and pundits in Washington. It’s a game-changer for you, too.

 

Dr. William H. Frist is a nationally acclaimed heart transplant surgeon, former U.S. Senate Majority Leader, the chairman of Hope Through Healing Hands and Tennessee SCORE, professor of surgery, and author of six books. Learn more about his work at BillFrist.com.

 

This article was originally featured in The Week http://theweek.com/article/index/225477/how-the-supreme-courts-obamacare-ruling-will-affect-you