Troyen Brennan and Thomas Lee
First posted 8/24/11 on the Health Affairs Blog
Copyright ©2011 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.
“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.”
– Bill Gates
The legislative phase of health care reform closed with President Obama’s signature on the Patient Protection and Affordable Care Act (PPACA) on March 23, 2010. We are now over one year into the regulation and adjudication phase, which will shape the impact of the imposing 1600 page law. This phase will last for years as government regulators interpret — and courts re-interpret — the legislative language, and develop action from its broad outlines.
During this phase, it will be tempting for everyone in health care to believe that little is happening –- at least at first. Skepticism that change is really going to occur has been intensified by the negative reactions to the initial version of proposed regulations for Accountable Care Organizations. Indeed, the message that “change will be optional” was essential to create consensus sufficient to pass the PPACA. Patients were assured that if they liked their current insurance plan, they would not have to change it. Employers were assured that they would continue to have broad discretion over the benefits that they offered employees.
But major change over the longer term is highly likely, and not just because of Bill Gates’ observation that a decade is a long time. The impact of regulatory changes in health care can be enormous as they are allowed to play out; witness the unanticipated but tectonic effects of the Employee Retirement and Income Security Act (ERISA) of 1973 on health care.
We believe that the most striking changes will occur in the locus of risk for poor health. For the past 40 years, much of that has been held by the insurers, employer and the government acting as insurer. Every sign today is that risk will begin to move to consumers, and to providers, the latter in the form of what is today called an accountable care organization. Health reform appears to be speeding the migration of risk.
Some will have doubts about this shift of risk. Calls for change in U.S. health care based on lack of access, uncontrolled costs, and poor quality have been heard for the last forty years. Some savvy and experienced health care leaders are no doubt certain that the reform winds blowing today will soon die out, and the sturdy system of private insurance and fee for service will prevail. Those who managed through the mid-1990’s episode of health reform may feel well justified to take a “sit tight” approach.
This Time Is Different
The passage of comprehensive reform. But we believe the decade ahead will be different for two major reasons. The most obvious is that for the first time in the United States, comprehensive federal reform of the health care system has occurred. The PPACA intends to improve health care access for nearly 50 million uninsured people, while introducing a variety of reforms to reduce costs and improve quality — an extraordinary set of goals. It is ambitious in scope and will affect nearly every area of health care, in particular limiting insurer prerogative and pushing providers toward new reimbursement schemes.
Of course, implementation of the PPACA’s central tenets — including health insurance regulations and coverage expansion involving growth of Medicaid eligibility with insurance exchanges for individual and small group markets – are rather dependent on the Democrats retaining the White House in 2012 and at least a split Congress. But even short of that, the PPACA has set in motion a real debate about the health care future
The financial crisis and deficits. The second key reason that this time is different is the financial crisis faced by the country and the government. The government calculates that there will be huge and yawning deficits for the foreseeable future, with no clear relief in sight, certainly not in the next decade. Compare this situation to 1995, when health care reform failed. At that point, the Clinton Administration was about to enter a period of budget surplus. In contrast, as the congressional “supercommittee” formed under the recent debt ceiling deal begins to consider deficit reduction measures, all eyes today have to be on cost control. Thus Republican proposals for health care reform, such as those set forth by Representative Ryan, are in many ways just as radical as the PPACA in terms of change in health care financing. The difference is, the Republican proposals are not aimed at increasing coverage.
The Obama Administration understands the danger of financing health care for more in a period of budget deficits. It has stood firm on not increasing provider payment — the most important sign of which is the decision not to modify the Medicare formula for physician payment, the so-called Sustainable Growth Rate (SGR). It is nearly incomprehensible that the Administration would enjoy the support of the American Medical Association throughout the reform process, and not budge on SGR revocation. Hospitals face the same treatment going forward. The sober new reality is that federal reimbursement for health services must actually decrease— another phenomenon that our health care system had not experienced.
These financial and legal realities now are re-defining where risk for spending on health care should reside. Traditionally, insurance companies held the risk and employed utilization management programs to address it. Over the last 35 years, self-insured employers have come to retain the risk for poor health for their employees and families, but they have relied largely on insurers and disease management firms for programs that control costs. And the government, in the form primarily of Medicare and Medicaid, assumes risk for those eligible for benefits under these programs.
Accountable Care Organizations: A Shift Of Risk To Providers
What we see with the PPACA’s endorsement of, and focus on, accountable care organizations is an effort to move half or more of the risk for the quality and costs of health care to providers. This was attempted before, in the Clinton Administration’s proposed Health Security Act, but in the late 1990’s global capitation for providers largely failed. Of course, the financial situation for the country was radically different at the time; huge deficits were not impelling reform.
The call for accountable care organizations is based on the widely accepted notion that health care inflation is based on fee-for-service payment methods. Under fee for service, providers get paid more for doing more, and so they do more. But “more” often involves unnecessary or wasteful care that brings little health value. The hope for accountable care organizations is that by making providers responsible for the health of a population, and paying them on a fixed budget, they will adjust their choices about therapy, providing only that which is necessary. This prospect brings the accountable care organization concept bipartisan support, although some continue to harbor the suspicions from our last effort at “managed care” in the 1990’s.
The Potential Shift Of Risk To The Patient
The other potential risk bearer is the individual patient, who would be encouraged to have “more skin in the game” by having higher deductibles, copayments, and co-insurance, and thereby make more cost-effective decisions about health care. The same effect occurs when Medicare becomes a defined contribution, under the Ryan plan, rather than a defined benefit. Underlying these programs is the assumption that “thick” insurance coverage for the individual has created moral hazard: insulated from costs of the care, the individual chooses to have any procedure or test the doctor recommends, and there is little shopping for low cost services. Creating higher deductibles puts the patient at risk for costs, and forces him or her to spend time locating lower cost approaches to treatment.
The wide variation in costs for procedures even within discrete metropolitan areas provides a real basis for savings, and the threat that patients might “shop” in this manner forces providers to reexamine and try to reduce their cost structures. Of course, most such plans limit the out-of-pocket expense at some level, which is usually quite a bit lower than spending for the sickest 70 percent of Americans in a given year. So consumer activity is limited by morbidity, but will impact a good deal of ambulatory, discretionary health care.
Nonetheless, the prospect of shift of risk helps explain much of what we see business, insurers (including the government) and providers doing today to address reform. And — despite frequent assertions that the concept of accountable care organizations remains to be defined, and complaints about first efforts to do so — the movement toward accountable care organizations appears to us to be even more likely than when the debate over health care reform began.
In the end, this risk shift should change the role of traditional insurers. We can expect them to move more toward providers; or more toward being “consumer information” companies. Recent information suggests both moves are underway. In summary, substantial change is inevitable in our health care system, given that we just cannot afford our current system of care. It will affect patients, providers and insurers, all in different ways, and a great deal will turn on exactly where the risk for illness resides.
Troy Brennan, MD, JD is Chief Medical Officer at Caremark. Thomas H. Lee, MD, is an internist and cardiologist, and is Network President for Partners Healthcare System and Chief Executive Officer for Partners Community HealthCare, Inc, the integrated delivery system founded by Brigham and Women’s Hospital and Massachusetts General Hospital.