By John Reichard, Nellie Bristol and Jane Norman, CQ HealthBeat Staff

November 28, 2011 -- The announcement last week by Donald M. Berwick that he will step down Dec. 2 as administrator of the Centers for Medicare and Medicaid Services, and the selection of Marilyn Tavenner, his principal deputy, as his successor, raises many questions—about not just the future of Medicare and Medicaid, but also oversight of the wider health system.

As head of CMS, Berwick has advocated innovative programs to improve the quality and efficiency of treatment in Medicare and Medicaid. He launched efforts to reorganize and more closely monitor the insurance industry. And he was determined to improve patient safety. But the overriding task of his agency since the health care overhaul passed has been to prepare for and begin implementing the sweeping law.

Tavenner will carry on that work on an acting basis and, if she is confirmed by the Senate, as permanent CMS administrator. Can she fill Berwick's shoes? Does she have strengths he doesn't? How will CMS change? Here's our take on what lies ahead at CMS as new leadership takes over next week.

1. Don Berwick is a passionate and articulate advocate for the health care law. Marilyn Tavenner seems more reserved and has kept a lower profile. Will there be hiccups in the implementation of the overhaul now that Berwick is leaving?
Berwick moves audiences with his descriptions of how he thinks the health law can change medicine for the better. He is an articulate champion of the idea that change is not only possible but achievable—based on the work he has done developing patient safety programs, measuring quality and setting performance goals, and identifying promising community programs that can be implemented on a national scale. It's unlikely Tavenner will capture crowds as Berwick does. But those who have worked with her during her tenure as Virginia's secretary of health and human services and as an executive with Hospital Corp. of America say she always has shown a strong commitment to patient care.

Erik Swensson, who led the department of surgery at Johnston-Willis hospital outside Richmond when Tavenner rose up through the ranks of the HCA facility from head of nursing to become its CEO, emphasizes Tavenner's skills as a pragmatic manager. But he describes her as a visionary, too—but perhaps one more grounded in the real world of health care.

"I may not agree with all his policies, but this guy has got big ideas," he says of Berwick. "And personally, some of them I think would be very difficult, if not impossible, to accomplish. Whereas Marilyn would also be a visionary. But she's also a pragmatist. She knows doctors, and she knows nurses, and she knows hospitals. Marilyn will know if you can get from X to Y. And sometimes, from the outside of the Washington Beltway, I wonder whether the people know, can you get from X to Y? This isn't a reference to anyone else, but her head is not going to be in the clouds." The other point about Tavenner is that she is no stranger to implementing the health care law (PL 111-148, PL 111-152). She's been doing it since she was appointed principal deputy administrator in February 2010.

2. When is the administration likely to formally send up her nomination? Will just the Senate Finance Committee handle the confirmation or will the HELP panel have a say?
There's still lots of unknowns. The White House hasn't yet formally sent the nomination to the Senate. When it does arrive, the Finance Committee would handle the confirmation hearings. But there's no word from Chairman Max Baucus, D-Mont., or Senate leadership on their plans or the timing. Republicans have sent the signal that they expect confirmation through the committee process—in other words, no rerun of the Berwick recess appointment that circumvented the Senate. As for the Health, Education, Labor and Pensions Committee, it's doubtful it would get involved.

3. How well will Tavenner perform in hearings? Will she be responsive to lawmakers while still serving as an effective advocate for the health care law?
Tavenner is still pretty much an unknown when it comes to speechifying and testifying in Washington as well as dealing with the press.

During an appearance on C-SPAN in November 2010, she appeared to deny that the health care law includes $500 billion in Medicare and Medicaid cuts, which it does. Tavenner seemed to be trying to frame the question to her advantage, as if the question had been whether the health care law would reduce Medicare benefits, and said it wouldn't. But a viewer might have thought the health care law doesn't cut Medicare, which it does. As Virginia's secretary for health and human services, Tavenner wouldn't respond to questions about allegations that she and then-Gov. Tim Kaine suppressed the findings of a state task force report (see question below).

On the other hand, Tavenner appears to have handled herself well in hearings and in meetings with lawmakers in the Virginia Legislature—and, before that, in other political challenges. "When she was health and human services secretary at the beginning point of the recession, it was really essential that all the agencies under the Cabinet would operate as efficiently as possible," says Jill Hanken, a staff attorney with the Virginia Poverty Law Center. "She was involved in delicately using the scalpel to cut programs for fiscal reasons. But at the same time, there were some important steps forward in terms of prenatal care, protection of safety net programs for the uninsured, and improvements for foster care children."

Terry Dickinson, executive director of the Virginia Dental Association, credits Tavenner with helping to get a measure through the Legislature allowing dental hygienists to take on some of the responsibilities of dentists in delivering care in medically underserved, impoverished parts of southwestern Virginia. Tavenner met with dentists in the Virginia Dental Association's house of delegates to address their concerns about the measure. "She understood the political reality of how we needed to walk that line," Dickinson recalls. "You have to think about the big picture, and how do you get health care to these folks," Dickinson recalls Tavenner as saying. "She just had a great way of talking with the group."

And Tavenner managed turf wars skillfully in world of hospital politics, says Jay Grinney, CEO of the rehabilitation chain HealthSouth. In a HealthBeat profile of Tavenner in May, Grinney said that when he first became Tavenner's boss at HCA she was the CEO of Chippenham hospital in the southern part of Richmond, Va. He put her in charge of creating a merged doctor network with HCA's nearby Johnston-Willis facility. The two facilities had different medical staffs, cultures, and markets. Company insiders doubted she could pull it off. But Tavenner worked through the issues and successfully brought together the two sites, Grinney says.

4. Allegedly, when she worked for Virginia Gov. Tim Kaine, they suppressed the findings of a Virginia state task force report saying that 800 kids in state-run psych facilities wouldn't have treatment options close to home if the state followed through on a plan to close the facilities. Then she wouldn't talk more about the issue with the press. Is that going to cause her confirmation trouble? What does it say about her management style?
If Republicans want to make trouble for Tavenner in a confirmation hearing, it's logical that they will ask about the handling of the task force report.

"What happened with the Commonwealth Center really, I think, caught people off guard," Mira Signer, executive director of the Virginia branch of the National Alliance for the Mentally Ill, said in the profile of Tavenner earlier this year. Advocates scrambled to keep the facility from being shut down, and it remained open.

Tavenner backers typically draw a blank when asked about the task force report, which appears to be an anomaly in a career noted for concern with promoting access to care. Does it reflect a closed way of doing business? "In my dealings with her, she was pretty transparent," says Hanken, who describes Tavenner as having had "an open-door policy."

5. What about morale at CMS? People say Berwick really fired up the troops with his vision that improving quality is a way to lower costs. Will Tavenner have the same impact?
Tavenner has earned much staff goodwill during her tenure at the agency, CMS insiders say. Tavenner too appears to be a motivator, although no one is likely to match Berwick's particular brand of charisma.

Swennson says, "The attitude and the atmosphere that I felt within the hospital was a very functional one. The hospital and the doctors for the most part got along, and the nurses did, and they were very attentive to what the patients needed." There was a feeling "throughout the hospital that we had good management, that if we had a problem we could go to Marilyn and she would take care of it. There wasn't any ideology. There weren't any personal issues. It was just a very clean way to do business. And it was very effective."

6. Would Tavenner bring her own people with her to fill management slots? Should we expect other top people at CMS to leave after Berwick's departure?
Tavenner has been in Washington now for more than 18 months, so don't expect anything big anytime soon. Berwick devotees say they are committed to staying and carrying on the work he has started at the agency. Some changes in the administrator's office seem inevitable at some point. But don't expect any big shakeup in the wider agency.

7. Tavenner oversaw a state Medicaid program, something unusual for the top CMS official. How much difference is that going to make in running the agency?
"It's great to have somebody in that broader role who knows Medicaid," said Matt Salo, executive director of the National Association of Medicaid Directors. Salo said Tavenner's state experience could help ensure Medicaid is "viewed as just as important as Medicare when thinking about the big picture."

Among pressing issues for the program is how to move a care improvement agenda in an era of tight budgets at both the state and federal level. That will involve a change in culture, Salo said, to provide greater focus on innovating and outcomes rather than process and paperwork. Movement in that direction often is slowed by the constant tensions between state and federal administrators, he said. Tavenner will understand the dynamic from both sides.

Former Medicare and Medicaid administrator Gail Wilensky, now a senior fellow at Project HOPE, agrees, saying Tavenner "is likely to be especially sensitive to the issues and sometimes frustrations that states historically have had with the agency," including "timeliness or lack thereof" on decisions relating to waivers and other issues. Diane Rowland, executive director of the Kaiser Family Foundation's Commission on Medicaid and the Uninsured, said Tavenner's experience also will help in establishing state-based aspects of the health care overhaul. "It will help her to have a grasp on the state challenges as health reform is implemented," Rowland said.

8. A lot has been said about Berwick's vision and ideas. What about health care is Tavenner most passionate about?
Unlike Berwick, Tavenner doesn't have a signature set of specific issues that she has championed. Those who have worked with her talk about her unwavering commitment to patient care and to ensuring that patients have access to the care they need and that providers are paid in a way that promotes that access.

"She's a pragmatic person who wants to make things work and has patients at heart," Debbie Oswalt, executive director of the Virginia Health Care Foundation, told HealthBeat in May. 

9. How are health industry stakeholders responding to the Tavenner nomination?
So far, so good for Tavenner. In fact, some of the reaction was nearly ecstatic.

Chip Kahn, president and CEO of the Federation of American Hospitals, said she has served "skillfully and with distinction" as deputy administrator. "Ms. Tavenner's successful career is characterized by her willingness to go the extra mile and to reach across the aisle to achieve results. She is an ideal candidate to head CMS, and we encourage the Senate to approve her nomination quickly," said Kahn.

Tavenner is a former hospital chief executive and president of the Virginia Hospital Association, and she spent 10 years in executive-level positions with the Hospital Corporation of America.

Rich Umbdenstock, president and CEO of the American Hospital Association, where Tavenner has served as a board member, said she is a "very capable administrator" with a varied and rich background. "We have no doubt that she will provide strong leadership in these challenging times," he said.

The doctors like her, too. The American Medical Association issued a statement strongly supporting her.

"We have worked extensively with her in her role as deputy administrator, and she has been fair, knowledgeable and open to dialogue," said Peter W. Carmel, AMA president. "With all the changes and challenges facing the Medicare and Medicaid programs, CMS needs stable leadership, and Marilyn Tavenner has the skills and experience to provide it."

Those representing skilled-nursing facilities (SNFs) praised Tavenner's understanding of the connections between Medicare and Medicaid when it comes to delivering quality care to residents of nursing homes. That came when she was health secretary in Virginia, they said.

"Marilyn Tavenner is a strong choice to lead CMS because of her reputation as a smart, competent administrator, and because she has a strong working knowledge of how Medicare and Medicaid funding adequacy are both integral to the ongoing ability of SNFs to provide high quality long term and post-acute care to U.S. seniors," said Alan G. Rosenbloom, president of the Alliance for Quality Nursing Home Care.

10. What about Berwick's future?
Right now, no one seems to know what his plans are. Or at least they're not saying. When he announced his resignation last week, Berwick did not address his future. Those close to him at the agency said he was expected to return to his home in Boston and spend time with his family before deciding his next move.

Rumors are rampant that Berwick ultimately may stay at HHS in a non-political, technical position, either in the secretary's office or at the Center for Medicare and Medicaid Innovation. The Institute for Healthcare Improvement, where Berwick was CEO and president before moving to CMS last year, is referring press calls back to CMS, at least until after he leaves office.

IHI's CEO and president, Maureen Bisognano, said in an email that she is confident Berwick will continue to contribute to the national agenda of redesigning health care delivery and financing. "That is his life's work, mission and passion," she added.

Kaiser's Rowland expects Berwick will be very much in demand. Many places respect him, she said, and would want him, and he's "very committed to seeing things through." Rowland is sure he will "continue to be an advocate for these reforms."

By John Reichard, CQ HealthBeat Editor

December 5, 2011 -- Consumers won't have to pay taxes on rebates they receive when health insurers exceed medical loss ratio (MLR) standards governing the percentage of premium revenue they must spend on medical care and quality improvement activities, under interim final regulations issued last week by the Centers for Medicare and Medicaid Services (CMS).

The regulations also propose that insurers will have to send notices to consumers showing not just the amount of any rebate but also what the medical loss ratio, or MLR, means and how it has improved under the health care law (PL 111-148, PL 111-152). And the regulations remind insurers that they can't exclude broker and agents' fees when adding up administrative expenses.

The final MLR regulation took effect at the start of 2011. But the recent announcement addressed such previously unresolved issues as the way insurers report MLRs and the mechanism for distributing rebates. It also disclosed progressively tougher MLR standards for so-called mini-med plans, which offer very limited benefits—typically to low-wage workers—and for "expatriate" health plans sold to Americans living abroad.

The news release announcing the changes quotes Marilyn Tavenner for the first time in her new position as acting CMS administrator. "If your insurance company doesn't spend enough of your premium dollars on medical care or quality improvement this year, they'll have to give you rebates next year," Tavenner said.

According to CMS, early estimates were that starting in 2012 up to 9 million Americans could get rebates totaling $600 million to $1.4 billion. But "early reports suggest insurers lowered premium growth rather than face the prospect of providing rebates—a win-win for consumers," the CMS news release said. Rebates under the MLR will be paid for the first time in 2012 and must be paid by August of next year.

Insurers must pay any rebate they owe to the group policyholder, which is usually the employer. The employer would keep part of the rebate and would have different options for distributing the rest to employees.

If the insurer owed the policy holder—say an employer—a rebate of $20,000 for example, and the employees paid 40 percent of premium costs, they would get 40 percent of the rebate, or $8,000. The employer could pay the $8,000 by lowering premiums by that amount the following year or by paying a cash refund to workers.

Rebates paid in 2012 will go to plan enrollees that year, not to enrollees in 2011, even though the data on medical and administrative outlays used to determine MLRs is from 2011. "We believe that this results in administrative simplicity, as it does not require tracking former enrollees," CMS says in the rule.

The MLR standards require that individual and small group plans pay out at least 80 percent of premium revenue for medical care or quality improvement and no more than 20 percent for administrative costs (including profits). In the case of large groups, the MLR standard is 85 percent.

MLRs are calculated by dividing a numerator—total medical and quality improvement expenses—by a denominator—total premium revenues. In the case of mini-med plans and "expatriate" plans sold to Americans living abroad, CMS has permitted sponsors to have a far lower total of medical and quality improvement expenses, which recognizes the heavy administrative costs involved in offering the plans.

But those standards will get tougher. For 2011, CMS is allowing a multiplier of two for the numerator in order to meet the MLR standard (thus if combined medical and quality improvement expenses of a mini-med plan totaled 40 percent of the premium dollar and the MLR requirement is 80 percent the plan would meet the requirement, because it could multiply the 40 percent by two).

In the case of mini-med plans, the multiplier will drop to 1.75 in 2012, to 1.5 in 2013, and to 1.25 for 2014. "In 2014, the use of annual dollar limits on coverage will be banned and we expect that these mini-med policies will cease to exist," a CMS fact sheet says. In the case of expatriate policies, the 2.0 multiplier will continue.

CMS said that mini-med MLRs will be posted publicly in the spring of 2012 "to further enhance transparency to consumers." The MLR requirements also allow insurers to consider certain costs involved in converting to the ICD-10 billing system as quality improvement expenses and to deduct certain taxes from total premium revenues.

The National Association of Insurance and Financial Advisers (NAIFA), a group representing insurance agents, expressed disappointment that the latest MLR regulations do not permit insurers to exclude agent and broker fees for administrative expenses. The National Association of Insurance Commissioners (NAIC) adopted a resolution last week urging Congress to quickly consider legislation that would ensure consumer access to broker services. CMS did not act on its own to ease that access by counting broker and agent fees as administrative.

"NAIFA is disappointed that the administration rejected the NAIC recommendation to take action that would ensure continued consumer access to professional health insurance agents in its Final MLR rule," said NAIFA President Robert Miller. "However, NAIFA remains hopeful that Congress will join the NAIC in recognizing the harm caused to consumers and make the necessary changes to the law."

By John Reichard, CQ HealthBeat Editor

December 1, 2011 -- White House Deputy Chief of Staff Nancy-Ann DeParle joined two Senate Democrats in calling attention to rising enrollment and falling premiums in the Medicare Advantage (MA) program—results contrary to Republican predictions of what would happen to the program under the health law.

"President Obama is committed to making Medicare stronger and today's report is another sign that the Affordable Care Act is working for America's seniors," DeParle said in a blog post.

According to a new report by the Government Accountability Office, enrollment in the most common types of Medicare Advantage plans grew 6 percent from April 2010 to April 2011, and monthly premiums dropped on average from $28 to $24, a decline of 14 percent. Benefits remained stable, and the percentage of plans with limits on out-of-pocket spending increased from 74 percent to 100 percent.

"Health reform is making Medicare Advantage more efficient, and that means more money in seniors' pockets and more seniors enrolled in high-quality plans," said Senate Finance Chairman Max Baucus, D-Mont. "The act reduced wasteful overpayments to private Medicare Advantage plans while increasing plans' incentives to offer high-quality care," said Sen. Tom Harkin, D-Iowa. CMS has instituted a bonus payment system that pays plans more if they rate highly on quality.

The health law reduces payments to Medicare Advantage plans over a period of years, which has led to projections by the CMS Actuary that enrollment will fall. That hasn't happened yet, and Democrats are making the most of their opportunity to talk about that fact. As reimbursement cuts deepen in coming years, that may change, however.

The GAO report did show declines in the number of plans offered in the MA program—from 2,307 to 1,964. Most of the drop reflected a decline in a type of plan known as private fee-for-service plans, which under a 2008 law popularly known as the Medicare Improvements for Patients and Providers Act (PL 110-275) required those types of plans to establish networks of providers. In many cases the plans stopped operating rather than meet the requirement. According to the GAO report, CMS officials said 75 percent of the plans that did not renew in 2011 were private fee-for-service plans.

GAO also noted that "the number of HMO plans also decreased—from 1,279 in 2010 to 1,127 in 2011, which in part may be due to CMS's efforts to simplify MA plan offerings by eliminating potentially duplicative plans and those with low enrollment."

By Dena Bunis, CQ HealthBeat Managing Editor

November 30, 2011 -- Federal officials are determined to get health care providers to buy in to new health information technology (IT) as a way to improve quality and save money. In an effort to get broader participation in that program, Health and Human Service Secretary (HHS) Kathleen Sebelius announced that she is pushing back the deadline for physicians and hospitals to meet new standards until 2014.

"When doctors and hospitals use health IT, patients get better care and we save money," Sebelius said in Cleveland, where she was speaking at Cuyahoga Community College. "We’re making great progress, but we can’t wait to do more. Too many doctors and hospitals are still using the same record-keeping technology as Hippocrates. Today, we are making it easier for health care providers to use new technology to improve the health care system for all of us and create more jobs."

Sebelius also released a report that showed the adoption of health IT has doubled in two years.

In an effort to get Medicare and Medicaid providers who have started health IT systems but were waiting until 2012 to officially apply for an incentive payment because they didn’t want to have to meet certain advanced, Stage 2, meaningful use standards, HHS officials are now telling them if they apply this year they won’t have to meet the Stage 2 standards until 2014. And, they’ll still could get incentive payments starting this year.

This change will affect the Medicare and Medicaid incentive programs,

Electronic Health Record (EHR) incentive payments for eligible health care professionals can total as much as $44,000 over five years under the Medicare EHR Incentive Program and $63,750 over five years under the Medicaid EHR Incentive Program.

HHS officials also intend to step up their outreach to medical professionals and to vendors who are selling their health IT products to doctors and hospitals. There will be more education and training for those who have signed up but not yet met the meaningful use standards that HHS official say are the necessary for all impending payment changes involving patient-centered medical homes, accountable care organizations, bundled payments, and value-based purchasing.

"These efforts will complement existing outreach efforts to doctors and hospitals including the Obama Administration’s work to create a nationwide network of 62 Regional Extension Centers," an HHS release said.

The willingness to use of health IT is beginning to catch on. A new Centers for Disease Control and Prevention (CDC) survey recently released found that 52 percent of office-based physicians in the United States intend to enroll in the Medicare and Medicaid EHR incentive programs. The CDC data also show the percentage of physicians who have adopted basic electronic health records in their practice has doubled from 17 to 34 percent between 2008 and 2011 (with the percent of primary care doctors using this technology nearly doubling from 20 to 39 percent).

By Jane Norman, CQ HealthBeat Associate Editor

November 29, 2011 -- Even with a legal challenge to the health care law awaiting oral argument before the U.S. Supreme Court, planning for exchanges continued to move ahead last week with an announcement of $220 million more in federal grants for 13 states.

Of the 13, eight are parties to the suit against the health care law (PL 111-148, PL 111-152) and nine have Republican governors.

Health and Human Services Secretary Kathleen Sebelius said in a conference call with reporters that more than half of all 50 states have made "significant progress" toward setting up state-based exchanges that will serve as marketplaces for individual and small business health insurance policies. She noted that 49 states and the District of Columbia have now accepted some portion of exchange funding grants.

But the path has not been smooth and may continue to be problematic when state legislatures that have adjourned meet early next year and again tackle the exchange question. Tea party members have been highly critical of Republicans in statehouses who continue the law's implementation.

Richard Cauchi, program director for the National Conference of State Legislatures Health Program, in a brief on the NCSL website said that some members of at least 45 state legislatures have proposed to limit, change or oppose the health care law.

In all, 18 states have passed binding legislation opposing elements of the health overhaul, says the NCSL.

States that don't have exchanges in place by 2014 will have to have federal exchanges instead. HHS, however, has been stressing flexibility in dealing with states and officials said in a fact sheet posted last week that grants could be awarded through Dec. 31, 2014, even for approved exchange activities after that date.

In states that don't set up exchanges, "to the greatest extent possible, HHS intends to work with States to preserve the traditional responsibilities of State insurance departments when establishing a Federally-facilitated Exchange," HHS said in the fact sheet. "Additionally, HHS will seek to harmonize Exchange policy with existing State programs and laws wherever possible."

Chiquita W. Brooks-LaSure, Director of Coverage Policy at HHS, said the Obama administration is encouraging states to continue to move forward. "It is a bipartisan concept to continue establishing exchanges," said Brooks-LaSure. She added that the Obama administration is confident the health care law will be upheld.

The high court is expected to hear oral arguments in March in a suit brought by 26 states, the National Federation of Independent Business and two individuals.

The states receiving grants were Alabama, Arizona, Delaware, Hawaii, Idaho, Iowa, Maine, Michigan, Nebraska, New Mexico, Rhode Island, Tennessee and Vermont. Of them, Delaware, Hawaii, New Mexico, Rhode Island and Vermont are not challenging the law in court.

Among the group, 12 states are receiving Level One grants that represent one year of funding. But Rhode Island is so far along that it has qualified for a Level Two grant, which goes to states that have made more progress in planning for their exchanges. The exchanges are due to begin operation in 2014.

Some GOP-led states have accepted small sums of exchange planning money but don't want more. Kansas, for example, in August returned a $31 million "early innovator" grant that was to pay for exchange development there.

The states and grants are:

• Alabama, $8.5 million
• Arizona, $29.8 million
• Delaware, $3.4 million
• Hawaii, $14.4 million
• Idaho, $20.3 million
• Iowa, $7.7 million
• Maine, $5.8 million
• Michigan, $9.8 million
• Nebraska, $5.4 million
• New Mexico, $34.2 million
• Tennessee, $1.5 million
• Vermont, $18 million
• Rhode Island, $58.5 million

By Nellie Bristol, CQ HealthBeat Associate Editor

December 5, 2011 -- While saying Medicare and Medicaid cuts from federal budget sequestration are unlikely to be implemented, momentum is building throughout the health care system for major changes in financing in both the public and private sectors, experts recently agreed. Nevertheless, they added, serious discussion on a system overhaul is unlikely until after the November elections.

A combination of events—including the rise of the tea party with its budget reduction focus and the passage of the health care overhaul (PL 111-148, PL 111-152)—has convinced state health officials and private sector stakeholders that major changes in health care financing are unavoidable, Len Nichols of the George Mason University Center for Health Policy Research and Ethics said at an Alliance for Health Reform event on deficit reduction. "Whatever else may be true about the health care law, it sent a very clear signal: Business as usual is over and business as usual is over because we can't afford it." He added that "it doesn't matter who wins these elections, we are going to cut health spending."

The speakers at the forum didn't dwell on the reasons they thought the automatic cuts that are scheduled to take effect in 2013 under the deficit reduction law (PL 112-25) won't happen. But they spent much of the two-hour forum talking about alternatives to the 2 percent across-the-board spending reductions the law requires given that the joint deficit reduction panel failed to reach any agreements on cuts.

Payment system changes will have to affect all services in order to be effective, he added. "If all we do is public sector payment reform we will have failed and we will have simply driven private sector prices up even higher." He suggested there should be continuing efforts to better integrate care through accountable care organizations, medical homes and other models. "The only way to make this work is to do exactly the kinds of walking toward payment reform that we're beginning to talk about," Nichols said.

"I think both history and common sense suggest that Congress will move away from the main parts of the sequestration over the next year or the next couple of years." said Stuart Butler, director of the Heritage Foundation's Center for Policy Innovation.

Sheila Burke of the John F. Kennedy School of Government at Harvard, agreed. But she said any action is unlikely in an election year. "We can essentially spend the next six or eight months preparing for what will really be the debate that will occur following the elections," she said. The outcome of the elections will determine the direction of competing ideologies on the role of government, a debate that could have a large effect on public health care programs, she added.

Butler said lawmakers have two broad options for reducing federal health care spending: continue to squeeze money from different parts of the program, or allocate budgets either to beneficiaries under a defined contribution method or to institutions in the form of a capped budget.

Dan Mendelson, CEO and founder of Avalere Health consultants, predicted that the ultimate budget plan would include cuts from providers and beneficiaries, rather than the provider-only approach outlined under sequestration, along with increases in revenues. "You cannot get to a $2 trillion or $3 trillion number" without involving "all three of those buckets," he said.

He suggested concentrating on the parts of Medicare and Medicaid that are currently unmanaged, including long-term and post-acute care and services for Medicare and Medicaid dual-eligibles. He also advocated an overhaul of Medicare physician payments.

Panelists also agreed that the most successful approaches to systems change are likely to come from state experimentation. "The states have shown tremendous resourcefulness" in trying a variety of financing and delivery approaches, said Burke, a former chief of staff to former Sen. Bob Dole, R-Kan. Even with the departure from the Centers for Medicare and Medicaid Services of health system "visionary" Donald M. Berwick and threatened budget cuts, Burke said "I'm not at all of the view that [systems innovation] will stop." Butler said federal efforts to encourage smaller scale experiments need to be enhanced. "Reform is happening all the time. . . . We should be capitalizing on that," with the federal role being "allowing things to happen, not trying to lead it," he said.

But in the end, the experts said, reducing health care costs will involve reducing salaries and profits for health care professionals and others in the system. "One person's cost is somebody else's income," Nichols pointed out, suggesting providers be allowed to share in the savings of any improved efficiencies. Butler added that when reductions are made, professionals are likely to increase the volume of services to make up for it.