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Experts: Major Health Financing Changes Inevitable, But Not Until After the Election

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.

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