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Brookings Heavyweights Aim to Bend Cost Curve by Nixing Fee-for-Service Payments

By John Reichard, CQ HealthBeat Editor

April 29, 2013 -- The Brookings Institution recently released a new plan for bending the health spending cost curve by ending fee-for-service payments in Medicare over the next decade, among other steps.

Signing on to the report were a number of figures with solid left-leaning credentials, along with a number of prominent GOP analysts who are more traditional Republicans not associated with the tea party movement.

On the Democratic side, the lineup includes former Senate Majority Leader Tom Daschle, former White House Office of Management and Budget Director Peter Orszag, former Health and Human Services (HHS) Secretary Donna Shalala, Harvard University economist David Cutler, and former Congressional Budget Office (CBO) Director Alice Rivlin.

On the right, the authors include former HHS Secretary Michael O. Leavitt, American Enterprise Institute scholar Joseph Antos, and former CBO Director Dan Crippen. Other signers have had ties to Republican administrations. They include Mark McClellan, former administrator of the Centers for Medicare and Medicaid Services, and Katherine Baicker of the Harvard School of Public Health, who served as an economist in the Bush White House.

"This really began to get momentum with us around the time that the sequester began to take effect," Leavitt said at an afternoon news briefing. There are moments, he said, and the sequester signals one is approaching, "when the pressure becomes big enough that something is compelled to happen. When it does, there needs to be a proposal that Republicans and Democrats can in fact agree upon."

What's in the Middle

The plan outlined reflects agreement among thought leaders in both parties who also have broad experience with the way Washington works, Leavitt asserted. He outlined four areas of common ground:

  • Care must be integrated.
  • Payment needs to move away from fee for service and toward a system in which providers take on risk, meaning they agree to be responsible for the care of patients for a "capitated," fixed sum of money that is agreed upon ahead of time.
  • The principle of consumer choice needs to be an essential component of health care.
  • The plan "needed to be scorable" by congressional budgeteers.

The authors said their proposal would save $300 billion in its first decade but more than $1 trillion after the second decade. Leavitt said that he personally thinks that estimate is "fairly conservative."

The authors said the plan also would set the health system on a path to overall health spending that grows at "GDP plus zero," in other words at the growth rate of the Gross Domestic Product.

McClellan said of the plan, "if there's an acronym to remember, it's probably 'MCC.' " The blueprint, like a recent proposal issued by the Bipartisan Policy Center, urges more aggressive steps to coordinate treatment in the Medicare fee-for-service program. But it's arguably more aggressive, urging that within five years there be an option for beneficiaries to enroll in "Medicare Comprehensive Care," or MCC.

"MCC organizations include collaborations of providers that receive a globally capitated, comprehensive payment for their attributed beneficiaries and must meet a set of care quality and outcome performance measures for full payment," the proposal says. The initial benchmark for MCC payment would be based on current beneficiary spending and quality of care. Over time the spending target would be based on GDP.

"Providers can continue to receive traditional fee-for-service payments, though those payments will likely continue to tighten over time and become less optimal for covering the costs of delivering effective care," the plan says. After 10 years, "we expect the vast majority of Medicare beneficiaries to be treated by providers who are paid using MCC methods."

Leavitt said the plan would draw on the experience of the Medicare Part D prescription drug program he helped to launch. Republicans laud that program as a model way to use competition to control costs and improve quality. But the authors of the plan sought to distinguish the proposal from the premium support approach proposed unsuccessfully by Republicans in last fall's elections. They said it would not shift costs to beneficiaries because it would cause overall health spending to be reined in by streamlining care.

The plan also would more closely track quality of care and per capita cost growth in Medicaid. "States that improve quality of care and reduce per capita beneficiary cost trends "would keep a disproportionate share of the savings," a summary says. The current demonstration program to streamline treatment of those dually eligible for Medicare and Medicaid would be converted into a permanent program for "Medicare-Medicaid Aligned Care."

Changes to private insurance "include limiting the tax exclusion of employer-provided health insurance benefits by imposing a cap on federal subsidies that would grow at the same per capita rate as those in Medicare or the exchanges," said a news release. That would generate savings of $120 billion over a decade. Other changes would "promote effective antitrust enforcement and developing more efficient medical liability systems."

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