Part 2: 2010 Lecture on US Health Reform

OHE annually sponsors a lecture that examines an important issue in health care. This year’s speaker was Dr Alan Garber, Director both of Stanford University’s Center for Health Policy and its Center for Primary Care and Outcomes Research at the School of Medicine.  His presentation, ‘US Healthcare Reform: Monumental Health System Transformation or Fatally Flawed Compromise?’, is summarised in two blog posts.  The second of these follows.

Objectives and key provisions of the Patient Protection and Affordable Care Act

A broad set of health care delivery and payment changes are to be put into effect.  ‘Health insurance exchanges’ are an important part of this.  These are state-level ‘marketplaces’ of health insurance plans, with a range of offerings; benefits and premiums will be transparent to the buyer. Plans, which will compete on cost and quality, will be subject to regulatory control to ensure availability and specify how rates are set.

Numerous programmes also are included in the legislation aimed at changing how doctors and hospitals are paid.  For example, some are intended to develop and implement changes in Medicare; others will focus on tying payment to outcomes.

An Independent Payment Advisory Board (IPAB) will debut in 2014 and have significant power over Medicare expenditures, among other things, if Medicare expenditures rise above the rate designated by the law.  The legislation provided for an unprecedented amount of independence from Congress, a major procedural change for Medicare.  However, the IPAB is subject to limits: it cannot recommend changes that would ‘ration’ care (not defined in the law), increase the collection of revenues to pay for Medicare, increase the out-of-pocket costs for Medicare recipients or restrict benefits.  Before 2019, most physician and hospital services are exempt from payment rate reductions by the IPAB, although Congress itself can pass legislation reducing payments.

Comparative effectiveness research will be the focus of the new Patient-Centered Outcomes Research Institute.  This body will not only perform literature reviews and undertake modelling efforts, but also collect new data of various kinds.  It is charged with looking at what works best for whom and under what circumstances as well as patterns of care and benefit design.  However, strict limits are placed on Institute powers: it cannot specify a cost-effectiveness threshold or make coverage decisions; it may only make recommendations.  In practice, according to Dr. Garber, commercial insurers and government payers both will use this information to make coverage decisions, bundle payments and take other steps to improve care and outcomes.

Will changes under the new law make US health care better -- or worse?

It is easy to make an argument for either, according to Dr. Garber.

The situation could get worse. For example, implementation of some key insurance features depends on action by the states: each state must set up its own health insurance exchange, must establish a high-risk pool, and continue to administer and partially fund the joint federal-state Medicaid programme.  Dr Garber pointed out that not all States are enthusiastic and not all are well equipped to develop and implement such programmes.

Access to care could worsen for some populations.  Physicians, for example, could stop taking Medicare or Medicaid patients if large enough discrepancies develop between what they are paid by these government programmes and what commercial insurers pay.

Demonstration projects authorised under the law to develop new approaches at the hospital level could fail or be useful only in a subset of hospitals.

Individuals still may not purchase insurance because the subsidies are too low or those who do purchase care will be those most likely to need care – dramatically driving up costs for insurance plans.  According to Dr Garber, it’s already the riskiest who are most likely to purchase individual policies. Finally, the new financial penalties for many individuals who do not purchase insurance will be lower – often dramatically so - than the cost of insurance.

The legislation also may promote monopoly power among providers or insurers, which in turn can lead to high prices for commercial insurance.  This could lead to government attempts to regulate the premiums insurers charge, similar to what has happened in Massachusetts.

The situation could improve. For example, incentives for physicians and hospitals to integrate care better already are beginning to produce results, according to Dr Garber.  Payment incentives to improve health outcomes may work; as may emphasis on primary care and prevention.  Medical device makers may be encouraged to give greater emphasis to new technologies that provide better outcomes at lower costs.  And many of the fears about adverse effects of the legislation may not materialize.

What will determine the outcome?

Four factors were identified by Dr Garber as key.  First, how and how well the law is implemented is critical.  This will be a very complex set of tasks and depends heavily on effective leadership at the federal level.  ‘Rule making’, the development of regulations that implement the law, can be done poorly or well - and will have major impact.

The other three factors are changes in the behaviour of providers, employers and individuals, and Congress.  Changing the behaviour of providers is the target of much of the legislation.  It is providers that are at the centre of changes in delivery and organization of care and have tremendous responsibility for improving care.  Employers and individuals also are expected to contribute to health improvement and to help make the changes in insurance work well.  And, finally, what Congress does in the coming years will matter.  Although repeal is not likely, Congress could take actions – such as increasing payments to doctors under Medicare – that would compromise cost savings.  Dr Garber believes that budgetary concerns will make Congress more reluctant than in the past to agree to payment increases and other policies that increase expenditures.

Suppose the legislation had not passed?  The ‘status quo’ was not stable, Dr Garber pointed out – problems were worsening and increasing.  Without reform legislation, the prospects for reductions in costs and sustained improvements in health outcomes were unfavourable.  He believes this legislation is a step in the right direction.

The full text of Dr Garber’s lecture now is available as part of the OHE Annual Lecture series.

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