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Health Law's Legacy May Be Cost Controls More Than Expanded Coverage

By John Reichard, CQ HealthBeat Editor

March 3, 2014 -- Republicans, whether during the 2008 presidential election or the subsequent health care overhaul debate, faulted Democrats as being too focused on expanding coverage and not enough on controlling costs.

But some analysts, including former Congressional Budget Office Director Peter Orszag, suggest that perhaps the biggest change the law has delivered is in helping to slow down health care spending.

Coverage gains, while significant, have been sharply below projections. But few analysts foresaw the continued slowdown of medical spending over the past few years. Most do not credit the health law by itself for that. But a number say the overhaul—along with earlier private sector changes that authors of the law sought to intensify—may be having a significant long-term effect.

At a conference last week sponsored by the Aspen Institute, Orszag said that innovation occurring within Medicare in the wake of the 2010 law (PL 111-148, PL 111-152) is helping, along with other factors, to lay the foundation for a transformation of the health care system.

If policymakers build on the changes underway by ramping up pressure on Medicare to move away from the fee for service method of paying for health care services, the changes underway will continue, Orszag said. That assessment was echoed by former Centers for Medicare and Medicaid Services Administrator Tom Scully, a Republican.

If the push for alternative payment models wanes, on the other hand, the changes now in motion will lose their momentum and spending will again take off, Orszag and Scully agreed.

Orszag, who also served as President Barack Obama's budget director, said the recent Medicare spending slowdown is so dramatic that if it continues, the nation's dreary fiscal outlook will be turned on its head.

"Basically the entire long-term fiscal imbalance facing the United States comes from Medicare, Medicaid, and other health expenditures," he told the "Care Innovation Summit" on Feb. 27.

"If you continue the rate of growth that has occurred over the past five years in Medicare the entire fiscal imbalance disappears. That's how big the slowdown has been."

But Orszag added that "that's no guarantee of future performance."

His remarks came after a presentation by Patrick Conway, who heads the Center for Medicare and Medicaid Innovation at the Centers for Medicare and Medicaid Services. Created by the health law, the center has a 10-year budget of $10 billion which renews automatically at that funding level after a decade.

It has fostered a wide range of experiments in retooling health care delivery, and plays a major role in fostering Medicare contracting with accountable care organizations, or ACOs. These entities feature new affiliations among providers to provide team-based care in traditional Medicare. Their reimbursement hinges in part on whether they meet targets for controlling spending and improving quality. That marks a first step toward moving traditional Medicare away from fee for service payment incentives that reward the volume of care delivered regardless of its efficiency and quality, known as "value" in health policy speak.

Conway noted numerous experiments along with the dramatic flattening of Medicare spending growth in recent years. He spoke, for example, of declining hospital readmissions associated with those experiments and said the ACO program is proving to be so promising in controlling costs that it may be the first project coming out of innovation center to be scaled up nationally.

Orszag said based on recent trends and experiments described by Conway, along with private sector changes, "we've got a pathway forward here. This is a very exciting time to be in this sector."

Medicare spending is in a state of massive deceleration, he said, not because younger people are coming into the program with baby boomers retiring, or because of lower pricing. Those factors are having a small impact, but the big influence is a slowdown in the utilization of health care services, he said.

"The reason that that's happening is that the provider space in particular is looking out and projecting a significant change in how they're paid," Orszag asserted. In effect, they are making a bet that payment will no longer be based on the volume of care but rather its quality and efficiency.

He pointed to significant efforts in the hospital industry to reduce readmissions. They "are doing so today at a huge cost to them in terms of net revenue. They are doing it, maybe because they are benevolent, but, fundamentally because they believe that in that three- to five-year window they are going to be paid in a different way."

"Therein lies the trick, which is you've got a significant amount of private sector activity predicated on this projected shift in the payment model," Orszag said. "And if that projected shift doesn't happen, then a lot of this activity I think will fade away or will be reversed or will be dropped."

"The single most important thing we could do is set a goal—for let's say 75 percent of Medicare revenue being non–fee-for-service in a certain period—by like 2018 and a glide path for getting there," he said. "That will then unleash a lot of private sector activity around it. Payers and providers are looking for Medicare to be the fullback. They're already sort of running behind them, but you can only go as fast as your blocker ahead of you can do in general."

Scully agreed that the new provider focus on value will die without such a goal.

"We agree too damn much," he said. "I think we should shoot for a hundred percent" of Medicare spending by 2018 not being based on fee for service.

"Fundamentally price fixing has not worked in any economy in the history of the world ever," he added. "Every time you take somebody out the of the price fix environment and you get them in a risk environment, you get better results. It's just human nature. "

When a physician group is paid a fixed per capita fee for a year's worth of care for a patient and is told to talk to the person about sticking with his medication and incentivized to keep him out of the hospital, "it works overnight," Scully said. People "are smart, and they follow economic incentives, capitalism, and that's a good thing."

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