It seems safe to say now that a comprehensive reform of healthcare in the United States is not going to pass. President Obama unveiled his own plan, which closely resembles the Senate’s version of the healthcare overhaul. A political email I received today described it as “little more than a regurgitation” of the Senate plan. Tomorrow’s televised health care summit has already been criticized, with both Democrats and Republicans stating that it is very unlikely to break the stalemate. In some ways this is sad, and in others, not surprising. Having learned the lessons from the Clinton era, the president outlined the features he wanted included, and then left the details to Congress. This seemed to wisely contrast with the 1993-4 effort, which was undertaken using secret backroom work, and the result dropped upon Congress in the form of a giant stone tablet. The result was quite predictable. If the current effort fails, the political fallout will take center stage. Blame may be assigned in having attempted the task without real bipartisan action. But is such cooperation realistic with an issue as huge and as complex as healthcare? It may be more plausible to work within existing programs, adding incremental tweaks rather than attempting to reshape 1/6th of the economy by force. Large-scale healthcare reform may be beyond what our political system is able to achieve. Of course, healthcare is already undergoing significant change. If comprehensive reform is ever again taken up by our executive or legislative branches, the system then is likely to be very different from what it is now.
I previously discussed how the planned -21.2% update to the Medicare Part B (physician’s fee schedule) had been put off for two months. That time is approaching again. It appears that some sort of temporary freeze will be applied again. I have heard of a freeze until October 2010, and have also seen a proposal for a ten-year freeze.
A ten-year freeze makes little economic sense, and may serve only to place a large gauze wrap on the issue (as opposed to small band-aids), until a real solution can be developed. The fee-schedule problem is an ongoing issue, and the ever-increasing proposed cuts are reaching levels that make no sense. Congress knows this, and has only implemented the cut once, in 2002. It is noted that there was not a large-scale provider dropout from Medicare, which is always mentioned by physician groups when lobbying against the proposed cuts.
What is missing from these periodic debates is a voice asking “Why in America, a nation which has benefited so greatly from capitalism and free-enterprise, do we have one-sixth of our economy operating under a system of administered prices?”
The last few years have certainly not been capitalism’s greatest moment, and providers have other considerations than economic reward. But the cost explosion in healthcare is a very complex problem with a significant (and conceptually simple) contributing factor; the people who purchase care are rarely the people who consume it. Combined with a system of arbitrary price schedules, there should be little surprise that our system has led to ever-increasing costs without correspondingly increased efficiencies.
The system will eventually improve. Healthcare is not going to be allowed to swallow our entire economy. The forces that will keep it in check are already underway, although it will be a rough ride while these adjustments take place.
The Boston Globe weighed in today with an editorial on scrapping traditional fee-for-service healthcare reimbursement in favor of a global payment method. They know a thing or two about health costs in Massachusetts, the state where I trained to become a surgeon. After passing their landmark healthcare reform legislation in 2006, they decreased their already lower-than-average number of uninsured. The predictable side-effect of this achievement was a steady increase in overall healthcare expenditures. Now, they are struggling with getting these costs under control. The same story would very likely have played out if national health reform had passed (and still might, if the effort is salvaged). The Globe is correct in noting that fee-for-service is a significant driver of healthcare spending (but not the only cause). The Globe advocates a global payment scheme with annual updates ‘ratcheted downward’ to contain cost increases. The problem is that there is no real way to eliminate the fee-for-service structure in the majority of markets right now. The reason is simple: the elements needed for success are not aligned. Most doctors are members of small group private practices. How will global payments be implemented for them? Paying the hospital and expecting them to equitably distribute the bundled payments to various private physicians who served on a given patient’s hospitalization is not realistic. This could work for cases where the physicians are hospital employees, and perhaps that may be the venue for implementing a pilot study of the global payment effort. I also do not think that arbitrary ‘payment ratcheting’ makes much sense, and is just another inefficient central planning gimmick which would likely have severe unintended consequences. Global payment and similar efforts work best when the economic interests of providers, hospitals, and payers are all aligned. This is best seen in cases where the hospital acts as the provider and the insurer of care, with doctors on salary. In these cases, neither the hospital nor the physicians benefit from providing excess or costlier care than that required. Two good examples are the VA system and Kaiser Permanente. If global payments are tried before the system is ready for it, the best chance for success will be to start with less complex procedures. Inclusive packages could be created for the basic interventional procedures. The institution and providers will have even more reason to provide a high-quality, efficient experience with reproducible results. These forces normally operate in most businesses, but it should be borne in mind that it is past regulative interference with market functioning which has led to the current incentive structure.
With less than a month to go, the effort is underway to block the March 1, 2010 cut to the Medicare fee schedule. On that date, a -21.2% update to the schedule is to go into effect. Physician’s email inboxes are filling up with the standard specialty society appeals to call, click or write their legislators, urging them to block this action.
I had predicted that this issue would be dealt with after the overall health reform effort is decided. That prediction is likely going to be incorrect; as it appears that the SGR issue is going to have to be dealt with prior to the reform effort endgame. The entire reform effort itself remains in critical condition as previously discussed.
The buildup to the SGR deadline is ‘déjà vu all over again’, as this has come up every year, and at different times during the year when partial-year patches have been applied, as in this case. The entire charade is tiresome and has well worn out its welcome. The issue is that costs continue to increase, and trying to hold it back with artificial mathematical constructs such as the SGR (and the entire RBRVS scheme) will not work forever.
Anyone with the solution should step forward. Here are a three possibilities, and my thoughts on them, in no particular order.
Allow the cut to go through – This option is apparently off the table, but if it occurred, it would send a shockwave through all private practices and all hospital-based practices unless separate ‘carve outs’ were negotiated, something that would be unlikely to occur. Since private payers will soon follow CMS policy, it won’t be long before a 21% revenue reduction takes place throughout the sector. This shockwave would result in some practices closing, some merging, and some being integrated by hospitals. A safer alternative would be to impose the cuts in small amounts over time, say 3% or so per year. It was clear that the 2002 cut was not accompanied by a large volume drop in providers willing to take Medicare. Whether or not that would be true in the face of multiple cuts is not as clear.
Allow market pricing of healthcare services – This could be done by simply dissolving the RBRVS entirely (will not happen) or by allowing providers to charge above the fee schedule amounts, but capping the amount which will be paid by third parties. This also will not happen, as the system simply is not set up for this kind of market reality after having existed for decades under the current hybrid system.
Scrap the entire SGR and use a new method – Although this is favored by many specialty societies, the problem here is that unless market forces are allowed to act, any new system will be another over-complex system of administered prices. Allowing the fee schedules to be attached to a Medical Inflation Index would be an improvement, but this will lead to sharper increases in cost.