Posted 1/19/12 on Forbes
Great post by Rick Ungar over on The Policy Page. Still, I’m left wondering. It’s an election year and given the stakes, I think we’ll look back on 2012 as the year of the great Healthcare Reform debate – Part 2. What we have today is really just the beginning of a long and winding investment in Healthcare Reform – Part 1. I think the question remains – have we tamed the cost beast with real legislation – or is it just legislation around the edges? Here’s why I’m wondering.
National Healthcare Expenditure – or NHE. Total agreement with Rick that costs are “out-of-control” because our NHE is really $3 trillion – this year. Actually, NHE for 2012 is probably closer to $2.7 trillion but there’s this nagging bookkeeping accrual of about $300 billion where we (narrowly) avoided those darn pesky SGR cuts to Medicare. It’s come to be known affectionately as “doc fix” – and we’ve kicked that can down the road for 9 consecutive years. Maybe we’ll just write it off – and maybe we should – but it’s actually on the books so we can’t just ignore it – can we? That puts the real NHE at about $3 trillion for 2012 (+ about 4% for each year forward – as far as the eye can see). As one economist said – we don’t have a debt problem in this country – we have a healthcare problem.
Accountable Care Organizations – or ACO’s. The current math is that ACO’s (a key aspect of Obamacare) will accrue “just under $1 billion in savings” over the next three years. Our NHE is $3 trillion – per year. That $333 million per year savings is a fairly insignificant 0.01%. Savings aside, the CBO just announced the results of a 20 year study that negates much of the entire ACO and “bundling payment” premise. From a FierceHealthcare article referencing CBO’s own blog post yesterday – “After two decades of trying to shift toward rewarding quality care, disease management and care coordination demonstrations and value-based payment demonstrations have not reduced Medicare spending. The report found that on average, the 34 disease management and care coordination programs designed to improve the quality of care for chronically ill Medicare patients barely affected hospital admissions. For almost every program, spending stayed the same or, after considering the fees paid to participating organizations, it rose.” Whoopsy.
Treatment Disparities. I’m in total agreement that these do exist, and I do agree that Obamacare is designed to address this issue, but I don’t believe they will reduce our NHE – and certainly not by any significant amount. On the contrary, any impact on NHE in this category is likely to be negative – not positive. I think it’s a reasonably safe assumption that any adjustments for “treatment disparities” are likely to mean more healthcare spending and benefits for the disparaged and not automatically a reduction in spending for the privileged.
Insurance Rebates. Yes, Obamacare took the payers out to the woodshed. Medical Loss Ratios (or basically what the insurance companies pay out for actual healthcare services) will be mandated – but is this really going to dent our NHE? Here’s an Insurance Industry (AHIP) chart from 2009 (pre-Obamacare) that shows the breakout of spending relative to payers and other healthcare expenses (inpatient, outpatient, Physician Services and drugs) :
Value Based Purchasing. Again, from that just released CBO study over 20 years: “After two decades of trying to shift toward rewarding quality care, disease management and care coordination and value-based payment … have not reduced Medicare spending.”
Hospital Readmissions. Tons of cycles being expended on this category too. No question that hospitals (and entrepreneurs) will be heavily focused on this “low hanging fruit” – it’s already started in earnest. But how much is it relative to that $3 trillion? Here’s the longer, more detailed definition of the clause:“The Program will begin in FY 2013 and will apply to payments for discharges occurring on or after October 1, 2012. For FY 2013, the Secretary [HHS] shall select measures that cover at least the following five specific conditions or procedures: (1) acute myocardial infarction (AMI); (2) heart failure; (3) pneumonia; (4) surgeries; and (5) health care-associated infections. Beginning in FY 2014 and thereafter, the measures selected must include efficiency measures, including measures of Medicare spending per beneficiary. Such measures must be adjusted for factors such as age, sex, race, severity of illness, and other factors that the Secretary determines appropriate.” Now, I forget the legal term for those big swinging barn doors at the end of that last sentence – but they look pretty wide open to me. Those “adjusted” factors are known in the industry as “avoidable” (hospital induced) versus unavoidable (patient induced) readmissions. The basic calculation then for payment on readmits is unavoidable (patient induced) OR more than 30 days after discharge. That’s a fairly sizable distinction in terms of potential savings. I contend that it’s a relatively small fraction of that original 30%. Why? Because hospital readmits for each of the above conditions are reasonably unavoidable with patients that:
- Are Older
- Are not always able to take care of themselves
- Will most likely have one or several other diseases
- Have trouble with memory, sight and mobility
- Are often alone
So – Value Based Purchasing (by CBO’s own estimate) and hospital readmissions (a small fraction of the 30%) will not likely have a big impact on $3 trillion. Not saying we shouldn’t do these things as better healthcare practices – but making a big dent in $3 trillion? I’m just not seeing it.
Electronic Health Records (EHR’s). Here’s another one guaranteed to deliver a huge financial windfall, right? In fact, the net effect of EHR implementation in 2012 – and likely through 2015 is more simply to begin the accounting side of care quality (not billing – that’s long been the purview of Practice Management software – already in fairly wide distribution). As long as clinical records are paper-based – we can’t apply analytics at scale for establishing quality metrics – across a nation. Moving to EHR’s will allow analytics on an unprecedented scale – and for that – I’m a huge fan/supporter. In the short term (like the next 3-5 years) we’re really just starting to make that technology investment. In the short term, the loss of productivity to small practices (where a large % of healthcare is delivered) as they move from paper to electronic is a really big hit. Really. Big. Hit. This isn’t a simple case of moving from paper and pen to word processing. These electronic systems affect the entire provider-patient workflow. Ask any doctor or practice that has implemented an EHR system. The first year costs relative to lost productivity eclipse the software/hardware costs by a really wide margin. Secondly, the cost savings everyone highlights (duplication of lab tests and related procedures) is absolutely a worthwhile goal of moving to EHR’s, but that can only happen when the health records are mobile and interoperable. Is there any precedent for this on a National Scale – in 5, 10, 20 years? At this very first stage of implementation (and through 2015) these EHR’s are not necessarily connected or automatically part of any larger network (local, regional or national). No real gains here – for several (if not many) years. Do we need to do this. Yes. Are we hitting NHE yet? Not so much.
When you sum all this – our current healthcare system at a glance looks like this:
So, while I am in fact rooting for all of these efforts to succeed wildly, I’m just not seeing how they can deliver the really massive savings – you know – like ever. In hindsight, it’s easy to see why. Obamacare is the sausage we got through the legislative grinder – but its legislation around the edges. It’s not the real legislation. It’s Legislation Crudités. As I’ve argued before, we have two major weapons in our battle of the healthcare bulge. Legislation and innovation – and we need a 1,000 cc’s of both – mainlined to the heart of some really big, systemic problems – STAT! We have not fundamentally changed the really big elephant in the room. Here is that elephant:
- $3 trillion per year + 4% growth each year – as far as the eye can see. The Real NHE.
- A healthcare payment system that’s reversed – high rewards to expensive procedures and specialties – not primary or preventative care
- Just bundling the payment (vs. individual transactions) may feel good but it doesn’t reverse the focus (from expensive specialty care to preventative primary care)
- A Food industry that’s backwards. Focused on speed and low cost – not health
- Schools gave up the Pepsi/Coke machine fight – cash strapped schools just added the revenue to their budgets
- Salad ingredients plus prep is way more expensive than any “value” meal at a fast food chain
- Primary Care Physician shortage – now, ongoing and no end in sight
- Sure retail clinics, Nurse Practitioners and others will pick up slack – but is that really the best healthcare choice – or by necessity?
- Adding about 30M newly insured to the healthcare system
- Aging population – about 10,000 people turn 65 – every day (for the next 15-20 years)
- Smoking – still the leading cause of preventable death AND – wait for it – still at 20%. I’m out of breath just reading that one.
This week, Phoenix played host to the iHT2 Health IT Summit & CMIO Forum. One of the panels was aptly titled “A Comprehensive Look at Healthcare Delivery Reform: From Accountable Care to Patient-Centered Medical Home and Beyond.” At the end, I asked the four panelists this question. “Will Obamacare have a significant impact on NHE, the current payment system or the primary care physician shortage?” The one vendor (non-MD) hesitated – because he was pretty confident in technologies innate ability to tame this beastie. The three MD’s didn’t blink or hesitate. The straw poll was 3 no’s and 1 vote of “vendorspeak.” It just didn’t instill a whole lot of confidence in the room.
So yes, I’m thrilled we’ve finally started actual implementation of Obamacare (call it Healthcare Reform – Part 1), but this is no time for a parade in the parking lot. We need to double down on both legislation AND innovation. Given the pending Supreme Court decision and the full election in November I really want to get to the Healthcare Reform Debate – Part 2. I think it deserves our collective and immediate attention.
Dan Munro writes about early stage Healthcare IT innovation with a focus on new services and challenges that we all face as patients. He’s currently the Founder and CEO of iPatient – an online service designed to help transform the patient-provider dialog. He is likely to include film references and quotes as in “All of life’s riddles are answered in the movies.” Twitter handle is: @danmunro.