The number of patient-centered medical homes recognized by the National Commission on quality Assurance is rising

The number of patient-centered medical homes is growing. They are being recognized by the National Commission on Quality Assurance and are just one part of the innovation of the American healthcare system.

Medicare Reductions — Real or Imaginary?

The Obama administration is expected to release a report today that indicates that healthcare reform will reduce Medicare spending by $575 billion over the next 10 years, starting with an $8 billion savings in 2011.  This could add 12 years of solvency to the program’s trust fund.

As with any partisan government report, we need to evaluate the accuracy of the numbers and the underlying assumptions.  Does it present a realistic and complete assessment?  Will the savings be used to solidify the Medicare trust fund, reduce premiums for our nation’s seniors or for another purpose?  The report indicates that Medicare spending cuts will help to lower seniors’ monthly premiums by nearly $200 annually by 2018.  For the moment, let’s assume and hope that the estimate is accurate and will be used to solidify the trust fund and reduce premiums for seniors.  These are all good outcomes and well worth pursuing.

One approach to generating the above savings is to implement price controls.  Medicare spending will keep increasing, only not as fast. Under the law, spending will rise by 5.3% a year on average over the next decade, compared to 6.8% without the cuts.  

The biggest portion of the Medicare cuts is from reductions in projected payment increases to hospitals and other providers over the next 10 years. The second biggest portion is reductions in payments to Medicare Advantage plans.  Cuts to Medicare Advantage plans start right away. The report says Medicare Advantage cuts account for $5.3 billion through 2011, more than 60% of the total estimated two-year savings of $7.8 billion.  An analysis by the Kaiser Family Foundation earlier in 2010 suggests that reductions in payments to Medicare Advantage would amount to $130 billion by 2019.  The reason for these reductions, per some analysts, is that the Medicare Advantage plans are overpaid when compared to the cost of care in traditional Medicare.  

As we’ve written before, price controls produce unintended effects.  How will hospitals and physicians react to a reduction in spending?  Will they sacrifice the quality of care?  Will they provide fewer services?  Will seniors realize $200 reductions in premiums but a greater reduction in services and quality?  Is that constructive? 

The insurance industry says the cuts will mean steep premium increases for millions of seniors in the plans. That could trigger an exodus, with seniors returning to traditional Medicare.  Is this the effect the government intended?

Unintended effects also is one of the reasons that a national health plan, so seductively attractive in many ways, was not implemented.  Monopolistic, or near monopolistic control, can yield arbitrary strategies and tactics that are not beneficial to Medicare beneficiaries and providers.

More effective than using the stick (ie, payment reductions) to force providers to become more efficient is to first provide incentives to drive quality and efficiency.  For example, a program to reduce hospital readmissions due to preventable infections and other problems is estimated to save $8 billion over 10 years. And projects involving the patient-centered medical home (ie, a new, team-based approach to providing medical care for seniors) is estimated to save $5 billion over the same period, by keeping patients with chronic health problems healthier and avoiding hospitalization.

The incentives in place in our healthcare delivery system often discourage cost-effective, high quality care.  Instead, these programs encourage more cost-effective care by removing wasteful care from the system.  These programs encourage higher-quality care.   

Revising incentives, gaining consensus and support and implementing new programs takes time and investment.  While better in the long run, the issues facing Medicare and the healthcare system overall are pressing.  Therefore, the carrot (ie, programs that drive higher-quality, lower cost care) cannot be the only approach that is used.  The stick also must be used to gain short-term improvements.  Unintended effects will need to be managed. 

My suggestion is that the proportion of stick to carrot needs to be constructive.  The current approach relies heavily on price controls (ie, the stick) and experiments to a limited degree with quality-improvement programs that drive lower cost.  The ratio needs to be changed to a more even balance between the two approaches.  That will yield longer-term benefits and reduce the impact of unintended effects.

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Price controls — Do they ever work?

A proposed rule from CMS would reduce physicians’ Medicare payments by 6.1% starting Jan. 1, 2011. That is in addition to a projected 23.5% cut scheduled to take effect Dec. 1, 2010 unless Congress changes it.

The sustainable growth-rate formula (SGR) formula has called for payment cuts to doctors for years, with Congress stepping in intermittently to stop the reductions.  The latest intervention came on June 24, 2010 when the House replaced a 21.2% Medicare physician pay cut with a 2.2% raise through November.  Unless, Congress acts by the end of November, the 2.2% raise will be eliminated and the 21.2% cut will be implemented, resulting in a 23.5% reduction in current reimbursement rates.

Add in the potential 6.1% reduction scheduled for January 2011 and physicians face the potential of a nearly 30% SGR cut.

Do we need academic studies and journalistic investigations to tell us how doctors will respond?  Of course not.  We all can guess what will happen.  However, the studies and investigations are available.  As reported in the New York Times and elsewhere, physicians will reduce the number of Medicare patients they see.  As reported in a new study in Health Affairs, doctors will respond by simply treating more patients or ordering more tests and procedures for existing patients to make up for the lost income.  Cost cuts for Medicare will not yield a commensurate decrease in Medicare spending.  Also, there will be a growth in spending for commercial and Medicaid patients.  An onward and upward goes the healthcare cost spiral.

The solution is for cost cutting to be part of a broader strategy for healthcare cost management.  Only a partial list of strategies include:

• Incentives that encourage patients to better manage their own health (eg, reductions in healthcare premiums for weight loss; value-based insurance design)
• Financial incentives for physicians based on patient outcomes
• Better management of the healthcare services and resources available to patients (eg, patient centered medical homes)
• Evidence-based increases or reductions in reimbursement for select healthcare services based on the value they deliver in terms of outcomes
• Reductions in administrative requirements
• Better sharing of healthcare information between providers
• Development of cost-effective treatment algorithms and incentives for physicians to comply with them

Taking cost out of the healthcare system will affect provider income.  However, the reduction in income does not need to translate dollar-for-dollar in a reduction in profitability.  More efficiently using our healthcare system will yield a reduction in the infrastructure required to deliver healthcare.  For example, a reduction in the administrative burden for a doctor or a hospital can be accompanied by a reduction in staff.   Therefore, reductions in services are more palatable than simple cuts in reimbursement.

A thoughtful and coordinated strategy for reducing the use of our healthcare system that improves outcomes is the critical next step.  Hodge-podge cost cuts by government and private payers only leads to more ill effects.  As illustrated above, such attempts actually lead to increases in reimbursement.  This is where the Federal administration needs to focus its efforts and provide leadership. 

Many of us look today at China and wonder about the wisdom of state capitalism.  Under this system, authoritarian governments use markets “to create wealth that can be directed as political officials see fit.” The ultimate motive, he continues, “is not economic (maximizing growth) but political (maximizing the state’s power and the leadership’s chances of survival).” Under state capitalism, market enterprises exist to earn money to finance the ruling class. (Credits to  “The End of the Free Market” by Ian Bremmer.)  In the United States’ healthcare industry, democratic capitalism has led to chaos. 

In 2009 and 2010, we saw how the country reacts to a state takeover of the healthcare industry.  I am not arguing for a complete takeover.  However, a step in that direction where the administration works with healthcare industry to develop a coordinated strategy seems wise and appropriate.  Once the plan is developed, we can leave it to the free markets to implement it.  Without leadership, chaos and cost rises that significantly hinder the health of business, large and small, will continue.

The Big Bad Drug Industry?

A recent study by the Kaiser Family Foundation found that spending in the US for prescription drugs was $234.1 billion in 2008, nearly 6 times the $40.3 billion spent in 1990. Although prescription drug spending has been a relatively small proportion of national health care spending (10% in 2008, compared to 31% for hospitals and 21% for physician services), it has been one of the fastest growing components, until the early 2000’s growing at double-digit rates compared to single-digit rates for hospital and physician services.  

Since 2000, the rate of increase in drug spending has declined each year except for 2006, which was the year Medicare Part D was implemented. By 2008, the annual rate of increase in prescription spending was 3%, compared to 5% for hospital care and 5% for physician services. From 1998 to 2008, prescription drugs contributed 13% of the total growth in national health expenditures, compared to 30% for hospital care and 21% for physician and clinical services.  

 

Annual prescription spending growth slowed from 1999 (18%) to 2005 (6%).  The key reasons for this slowing of prescription drug spending are: 

• Increased use of generic drugs
• Increase in tiered copayment benefit plans
• Changes in the types of drugs used
• A decrease in the number of new drugs introduced.

This profile raises the question as to why the drug industry has been a major focus of the healthcare reform effort.  Sure, some drugs cost more than $100,000 per dose.  That is significant, even for people with insurance coverage, and not easily understood by many consumers and healthcare professionals.  But given the limited portion of healthcare costs due to drugs, the significant rate of introduction of generic drugs, the lack of a significant drug pipeline outside of oncology and other, select disease states, there seems to be limited room for better managing these costs.

 

Instead, the lack of a significant pipeline outside of oncology therapies should be a major concern.  Pharmaceuticals offer the potential to improve outcomes while offsetting hospital and other healthcare costs.  The United States should support research efforts into new therapies while encouraging appropriate choice of drug therapy and compliance with indicated therapy regimens.  Such concepts as the patient-centered medical home and value-based insurance design should make inroads.  Appropriate provider and patient education will encourage even better therapy choice and enhanced compliance.

 

  

 

Let’s focus our energies in areas where cost savings and improved outcomes can be gained as there is significant room for improvement in the United States.  Let’s not excessively beat up those who are seeking to improve healthcare outcomes in a cost-effective way.

 

PCMH and NCQA Certification

Since 2008, NCQA has offered physician practices the opportunity to earn a certification as a patient-centered medical home (PCMH).  The certification is supported by the American College of Physicians, the American Academy of Family Physicians, the American Academy of Pediatrics and the American Osteopathic Association and Bridges to Excellence. 

The NCQA PPC-PCMH certification measures nine aspects of a practice:
• Access and Communication
• Patient Tracking and Registry Functions
• Care Management
• Patient Self‐Management Support
• Electronic Prescribing
• Test Tracking
• Referral Tracking
• Performance Reporting and Improvement
• Advanced Electronic Communications

The certification sets requirements for a primary care practice to enter the world of PCMH and stay at the vanguard of this trend. Practices that achieve NCQA’s PCMH Recognition are positioned to take advantage of financial incentives offered by health plans and employers, as well as of federal and state-sponsored pilot programs. However, certifying primary care practices is not enough to drive the PCMH concept to success.

As we’ve previously discussed, the success of the PCMH relies on an integrated approach throughout the healthcare system. The support and active involvement of health plans, specialists, non-physician providers, diagnostic labs and other members of the healthcare community is required to achieve all goals of the PCMH. Without the support of the complete healthcare community, an NCQA certified primary care practice is like an All-Star playing on a team with .200 hitters. The team is still bound to end up in last place despite one person’s outstanding performance.