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Sebelius Sees Progress on Health System Transformation

By John Reichard, CQ HealthBeat Editor

February 12, 2013 -- New forms of payment and health care delivery have moved beyond the pilot stage and are now "becoming the face of American medicine," Health and Human Services (HHS) Secretary Kathleen Sebelius said in a recent speech to the American Medical Association (AMA).

Sebelius said the signs are multiplying that a fundamental restructuring of the health system is under way, adding that it is contributing to the recent slowdown in overall health spending growth.

Congressional Budget Office (CBO) Director Douglas Elmendorf made a similar point in his remarks to the Senate Budget Committee. Elmendorf said something appears to be causing the spending slowdown in addition to the dampening effect that the economic downturn has had on health care spending by consumers.

Sebelius cited various factors as evidence of structural changes in health care, including a doubling since 2008 of the number of doctor's offices with electronic health records, the formation of about 250 accountable care organizations to promote team-based care, about 500 hospitals using bundled payments to spur more coordinated care and a decline in the number of hospital readmissions of Medicare patients. As a result of federal policies that have lowered Medicare payments for certain readmitted patients, readmissions fell by 70,000 over the past year, she said.

Sebelius added that doctors are increasingly reluctant to induce childbirth as an elective procedure, which is reducing the need for costly neonatal intensive care.

Sebelius noted that the Obama administration is intent on heading off the March 1 automatic cuts under the sequester provisions of the budget control law (PL 112-240), which include 2 percent cuts in Medicare payments to doctors and other providers.

But, she said, avoiding the sequester is just a first step. Without stronger efforts to control health costs, the system will face severe payment reductions later on, Sebelius said. "We also have to put health care spending on a sustainable trajectory," she said, urging doctors to become leaders in finding better ways to control health care costs.

White House National Economic Council Director Gene Sperling recently signaled that President Barack Obama would propose significant cuts to Medicare in his upcoming fiscal 2014 budget proposal.

Sebelius said the Obama administration is committed to overhauling the Sustainable Growth Rate formula that Medicare uses to pay doctors. However, Sebelius punted when asked after her remarks whether the administration would propose new Medicare payment cuts to offset the $138 billion, 10-year cost of overhauling the SGR and replacing it with a 10-year freeze on payments.

She noted that the administration has included an SGR overhaul in budget proposals and that it has separately proposed Medicare cuts, but it hasn't "married" the two to link the cuts to an SGR overhaul.

Sebelius also noted that the administration has been testing alternative models to resolving medical malpractice disputes and will release some promising findings from the tests in coming weeks.

Senate Budget Committee Chairman Patty Murray, D-Wash., hailed a projected slowdown in Medicare spending growth at a hearing that had Elmendorf as its sole witness.

Noting CBO projections released last week, Murray said, "I stopped and underlined one statistic because I found it so surprising. The statistic is that CBO has lowered its estimate of federal spending for Medicare and Medicaid to such a degree that spending for 2020—one year—is now $200 billion lower than CBO thought back in 2010, an improvement of 15 percent.

"And let's be clear: That improvement has occurred since enactment of the Affordable Care Act."

Murray said she's hearing from former CBO Director Peter Orszag and from providers that "significant innovation is already under way."

Elmendorf said CBO's revisions have occurred because "there's been a marked slowdown in the rate of growth of health care spending across the health care system. We see this in private insurance costs. We see this in Medicaid. We see this in Medicare. And within Medicare, we see it" in Parts A, B and D of the program.

"So it's a very broad-based slowdown, under way now for several years. We are working intensively, as are many other people, to try to understand the sources of that slowdown. Our current assessment is that a part of that comes from the financial crisis and recession that reduced the income and wealth that people have to spend on health care. But we think that a significant part is more structural in nature and involves underlying changes in the way that health care is practiced and delivered. The challenge for us and others is to understand how much of those structural factors represent a transient phenomenon and how many represent a more enduring phenomenon. And we really don't know at this point."

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