Cover Story -- Health Reform
From the 1930s onward, health reform has been a national concern. With a new, determined president, growing consensus and billions in federal funds, dramatic change may be a hand.
Two years ago on a frigid February morning, then-Sen. Barack Obama stood on the steps of the Old State Capitol in Springfield, Ill., and laid out an ambitious agenda for change. In particular, he called for bold action on health care. “Let’s be the generation that finally tackles our health care crisis. We can control costs by focusing on prevention, by providing better treatment to the chronically ill, and using technology to cut the bureaucracy,” he said. “Let’s be the generation that says right here, right now, that we will have universal health care in America by the end of the next president’s first term.”
But February 2007 was a different time. The credit crisis was months off; no Wall Street banks were being bailed out, nor were Freddie Mac and Fannie Mae; the big three automakers were not yet on death’s door; and, most important, the overall economy was still 10 months from officially entering the recession.
Even as the economic dominoes began to fall, Obama continued to advocate sweeping health care reform. But his message became more nuanced as he campaigned for and ultimately won the presidency: Health care and the health of the economy are intertwined.
Reform must be “intimately woven into our overall economic recovery plan,” Obama said in December when he nominated former U.S. Sen. Thomas A. Daschle for secretary of Health & Human Services and head of the White House Office of Health Reform. “It’s not something we can sort of put off because we are in an emergency. This is part of the emergency.”
In his inaugural address in January, Obama went further, emphasizing the economic aspects of health system reform. “We will restore science to its rightful place, and wield technology’s wonders to raise health care’s quality and lower its cost,” he said. He made no mention of expanding access or covering the uninsured.
Daschle has amplified this economic focus, saying that addressing health care issues not only will improve the competitiveness of American business, it will also prevent many personal bankruptcies, helping to “pull our economy out of its current tailspin.”
Key congressional leaders, including Senate Finance Committee Chair Max Baucus (D-Mont.) and Health, Education, Labor and Pensions Committee Chair Edward M. Kennedy (D-Mass.), support the notion. “Health care reform is not a distraction from addressing the economy. Health care reform is central to restoring America’s economy,” Baucus said last November as he unveiled his blueprint for reform.
Clearly, Obama and the Democrats have repositioned health reform as an economic necessity. In addition, a broad new coalition favoring reform has emerged, including business, labor, providers, insurers and community interest groups. All agree that current health cost trends are unsustainable, while quality is uneven and access is inadequate and getting worse. With that kind of backing, something will be done. The question is, will it be enough?
Reform will be costly, perhaps $150 billion to $200 billion annually, and will add to the ballooning public debt, which the Congressional Budget Office in early January said could reach $1.186 trillion in fiscal 2009. That figure does not include Obama’s economic stimulus package, a multibillion-dollar shock treatment intended to halt the nation’s financial freefall. Congress’ appetite for further deficit spending will determine if and how quickly health reform funding emerges.
“There are two different views,” says economist Gail Wilensky, senior fellow at Project Hope. “One is that we are already spending so much on bailouts—coming up on $1.5 trillion. Who cares if we add another $150 billion for health care reform and IT?”
She believes Congress will proceed in stages. “I am more in the other camp, that the financial pressure will require some kind of rollout over a few years,” says Wilensky, who headed the Health Care Financing Administration under the first President Bush and has since served on several federal health care commissions.
That seems to be the case. At press time, the economic stimulus package included roughly $20 billion for health IT and another $87 billion to shore up state Medicaid coffers, plus $39 billion to subsidize COBRA benefits for newly unemployed Americans. But when it comes to the regular federal budget, expansions of existing government programs are likely early steps, says Molly Collins Offner, director of policy for the American Hospital Association.
First up is the State Children’s Health Insurance Program. Congress was expected to approve reauthorization by early February. Eligibility is likely to be expanded to 400 percent of the poverty level, up from 250 percent. That alone could cost $80 billion over 10 years. A temporary increase in the federal contribution to Medicaid, known as the Federal Medical Assistance Percentage, or FMAP, might also be passed in the first quarter of 2009. “We are pretty certain it will happen,” Collins Offner says.
A long-term fix for the Medicare physician payment formula is also likely to avoid the 20-plus percent cut that would occur when the current patch runs out in 2010. Some estimate that could cost a half-trillion dollars over 10 years.
The fact that Daschle has been appointed both HHS secretary and White House reform chief suggests that funding for existing programs will be folded into the reform effort. “It is a very strong signal that this administration is committed to doing something on reform,” Collins Offner says. However, she expects the bulk of any reform to emerge through a legislative process that is likely to start in the spring or summer.
On one point, though, there is nearly unanimous agreement: Successful reform will depend on redesigning health care delivery and payment systems to increase efficiency and reduce costs. It will profoundly affect the organization, operations and finances of health care providers.
While $87 billion sounds like a big increase for Medicaid, many state officials and hospital leaders believe it won’t be enough. Thirty-six states face budget deficits in 2009, totaling perhaps $180 billion to $200 billion, according to the National Governors Association. For most, Medicaid is the single largest and fastest-growing budget item.
States facing the steepest deficits and those with historically low Medicaid benefits are at highest risk. Nevada falls into both categories. While an FMAP increase might bring in an additional $120 million or more, that will barely dent a projected total state budget shortfall of $1.6 billion. “Nothing will save us here,” says Dwight Hansen, director of financial services for the Nevada Hospital Association.
Nevada has already cut Medicaid reimbursement to hospitals and delayed planned increases to physicians. For 2009, the governor is asking for additional budget cuts of up to one-third across the board, which will probably mean further Medicaid cuts.
“We started from a program that only paid 70 percent of cost, and we are going down from there,” Hansen says. Nevada also has one of the lowest Medicaid enrollment rates—only 7 percent of the population is covered compared with 13 percent nationally. “Any program that requires the state to come up with matching funds is going nowhere,” Hansen says.
Compounding the problem in Nevada is a spike in uninsured patients due to a substantial increase in unemployment. With the uninsured rate projected to hit 9 percent late this year, Hansen expects to see Nevada’s 40 acute care hospitals incur an additional $215 million in uncompensated care. Many hospitals, including the largest public hospital in the state, already have been forced to cut services.
Nationally, the picture isn’t much better. Half of hospitals reported increases in uncompensated care as a proportion of revenues, with 20 percent characterizing the increase as “significant” in a November 2008 AHA survey of 557 hospitals. Just over a third reported a greater need to subsidize money-losing services. The group posted an aggregate total margin of minus 1.6 percent.
Even in states like Minnesota with relatively low uninsured rates and more generous Medicaid programs, uncompensated care is rising, says orthopedic surgeon Michael Rock, M.D., chief medical officer for the Mayo Clinic’s two Rochester hospitals. Nonetheless, he believes expanding access to public programs will play a big part in reform. Increasing Medicaid eligibility to 100 percent of the poverty level nationally would help, as might lowering Medicare eligibility to age 55.
“This would take a lot of pressure off of employer-sponsored plans,” he says. Prospects for that may be dim given Obama’s expressed concerns about the long-term viability of Medicare and Social Security.
But if expanding existing programs is to have a real impact on health care costs, payments must cover actual costs, says Richard Umbdenstock, AHA president and CEO. According to a study by actuaries Milliman Inc., about $89 billion in costs from Medicare and Medicaid underpayments are shifted annually to patients with private insurance, adding about $1,800 in out-of-pocket costs and higher premiums. On average, Medicare pays about 91 percent of hospital costs while Medicaid pays about 88 percent.
“This is a hidden tax,” Umbdenstock says, adding that eliminating it is essential to keep private health premiums affordable. However, in the current budget environment, “the first objective is to make sure there are no further cuts in public programs,” he says.
During the presidential campaign, Obama called for a five-year, $50 billion investment in health IT. The $20 billion in the stimulus package is viewed as a down payment on that pledge. With public plans already underfunded, though, how can the government afford massive investments in new IT?
IT advocates say that fully interoperable electronic medical records are essential to increase system efficiency, which, in turn, is necessary for financially sustainable reform. Some experts estimate that advanced information technology could cut the nation’s health care expenses by up to $700 billion a year, though others are highly skeptical.
“Health care IT is important to fund early because it will take a long time to pay off,” says John Holahan, director of the Urban Institute’s Health Policy Center. The idea is to reduce duplication of services. But that would also reduce provider reimbursement, Holahan points out, which is one reason large incentives may be needed to get IT investment off the ground.
Another reason for incentives: Implementing electronic medical records is extraordinarily difficult and expensive. Mayo has spent hundreds of millions of dollars over a dozen years and still does not have a fully interoperable system, in part because it relies on two vendors. “Because one unit chose Cerner and one chose IDX, we are limited in our ability to standardize across our own enterprise, let alone 5,700 hospitals nationwide,” Rock says.
IT industry sources, however, believe interoperability is attainable, especially for providers launching new systems. “Over the last three years, people have come together to focus on interoperability,” says Michael L. Kappel, senior vice president, government and industry relations, McKesson Technology Solutions. “Legacy systems are still an issue. As hospitals upgrade, they are gaining capabilities. It’s still not plug-and-play, but it’s getting closer.”
Rock believes massive new capital will be required to successfully introduce EMRs. Even among hospitals with 500 beds or more, only about 20 percent have fully functional systems. Today’s budget challenges make IT adoption even more difficult.
“If you don’t already have an EMR, it’s hard to imagine seeing it as a priority right now,” Rock says.
Coming up with the masses of experts needed to implement EMRs nationwide will also be a problem. Highly skilled workers are required to incorporate efficient care processes into an EMR. “You can throw a lot of money at an EMR, but if you don’t have the people with the skills to develop it, CPOE and clinical order sets in particular, you cannot adopt this new technology,” Rock says.
New payment models that encourage evidence-based care will also be needed, says Blair Childs, senior vice president for public affairs at Premier Inc. “We have perverse payment incentives based on volume; they are not based on health outcomes or the cost-effectiveness of care,” he says. “If you are a hospital that reduces admission rates or complications that may [have resulted] in additional services being delivered, you are penalized for it.”
Based on the success of the Hospital Quality Incentive Demonstration project, Childs believes the payment system can be fixed. Jointly run by Premier and the Centers for Medicare & Medicaid Services, the pay-for-performance project improved quality on 30 standardized measures by 15.8 percent over three years at 250 participating hospitals. Costs at the better performing hospitals also came down. “Quality and cost do not have to be in opposition; they should go hand in glove,” Childs says.
However, performance measures covering many more medical conditions than those monitored by the existing 30 measures will be needed to implement a quality-based system.
“The problem is comprehensive and it requires a comprehensive solution,” says Scott P. Serota, president and CEO of the Blue Cross and Blue Shield Association. That will require consensus among payers and providers on quality measures and care guidelines and considerable research on comparative effectiveness of treatments.
A national health board has been proposed to oversee development of additional care performance standards. But device and pharmaceutical manufacturers oppose a centralized approach, arguing it will stifle innovation.
Adherence to evidence-based treatment protocols will also require a shift in liability standards, says cardiologist James Rohack, M.D., president-elect of the American Medical Association. He believes that as much as 20 percent to 30 percent of health care costs stem from so-called defensive medicine.
For example, thousands of MRI and CT scans are given annually to patients who present with headaches but no neurological symptoms. The scans are not indicated by medical evidence. But because a few doctors have been sued for missing asymptomatic brain aneurysms, they are widely administered—a phenomenon he believes will continue unless liability is limited when providers can show evidence-based standards were followed.
Wilensky speaks of “virtual groups” that might combine independent physicians and a hospital into a single delivery and contracting entity, and gain-sharing arrangements as ways to encourage physician-hospital integration and promote quality and efficiency. But the history of such arrangements is spotty at best. One mechanism might be to bundle physician and hospital payments into a single, global fee for high-volume, high-cost diagnosis related groups, such as cardiac surgery. That approach has worked well at some integrated systems, such as the Geisinger Health System in Pennsylvania.
Mayo’s Rock adds Virginia Mason, Intermountain Healthcare, Scott and White, Kaiser Permanente and Mayo Clinic to the list of successful integrations. But he is unsure of the prospects for adopting these models universally. “There would be a lot of pushback from providers,” he says.
Rohack also is uncertain how to create incentives to economize without sacrificing quality. “Capitation was supposed to be the solution, but as the profits for the insurance companies began to bring down the capitation rates, it became untenable for providers because of the rates being offered. Any model needs to be tested,” he says.
Still, many observers believe that health reform will succeed despite the financial, political and technical obstacles.
“We are extremely confident that we will see comprehensive reform,” says Paul Cotton, senior legislative affairs representative for AARP. Unlike in previous attempts at reform, this time diverse interest groups are approaching the problem in an open and flexible way. “People aren’t just throwing bombs at each other,” he says. “They are actually sitting down and making compromises. We find that incredibly hopeful.”
But no matter how effectively health care is reformed, the bottom line is that it will have to do more with less. And that will require great flexibility, creativity and collaboration among hospitals and physicians.
“The willingness to put the same amount of money into the same system is diminishing,” Wilensky says. “It is not only unsustainable, it is not at all clear that we are getting anything like what should be in terms of results at the other end. The world is up for change.”—Howard Larkin is a freelance writer in Oak Park, Ill.
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Franklin D. Roosevelt1935 |
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Harry S. Truman1945 |
Dwight D. Eisenhower1952 |
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John F. Kennedy1960 |
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Lyndon B. Johnson1963 |
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Richard Nixon1970 |
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Gerald Ford1974 |
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Jimmy Carter1977 |
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Ronald Reagan1983 |
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George H.W. Bush1990 |
Bill Clinton1993 |
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George W. Bush2003 |
The information in this timeline was compiled by Jeanette Harlow, director of the American Hospital Association Resource Center. Click here for more information.
This article 1st appeared in the February 2009 issue of HHN Magazine.
American Presidents and Health Reform: A Chronolgy
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