Will the Medicare cuts in health-care reform stick?
It's a bit after 5 p.m. on a Friday, which means it's a good time for a long post on the sustainability of the Medicare productivity adjustments in the Affordable Care Act.
Excited? No? Then let me rephrase.
The most legitimate concern about the Affordable Care Act's pay-fors is that some portion of the $220 billion reduction in Medicare productivity payments won't stick. Richard Foster, Medicare's chief actuary, is clearly of this opinion: "While such payment update reductions will create a strong incentive for providers to maximize efficiency," he told the House Budget Committee, "it is doubtful that many will be able to improve their own productivity to the degree achieved by the economy at large." (It's worth noting that his testimony singles out this "one category" of savings as unrealistic, suggesting he considers the remaining $300 billion in cuts fairly uncontroversial.)
Foster's concerns should be taken seriously (and you can download his full testimony here). But they also need to be put into context: Eventually, Medicare is going to have to make much larger cuts than even the Affordable Care Act envisions. Nobody disagrees about that. Not the Affordable Care Act's proponents, and not its detractors. Nobody. But cutting costs isn't easy. And what Foster is saying is that if the system keeps working the way it is now, cutting costs will drive doctors out of business. He's right about that.
The question is whether the system will keep working the way it is now. The Affordable Care Act's proponents see the productivity cuts as one half of a squeeze play whose ultimate point isn't just to pay for health-care reform but to lower costs in Medicare -- and then the system -- as a whole. The cuts will push providers to find more cost-effective ways of caring for patients if they want to keep their profits up. Foster acknowledges as much when he says "such payment update reductions will create a strong incentive for providers to maximize efficiency." To put it differently, the payment reductions will force providers to do things more cheaply. But can things be done more cheaply without hurting patients?
That's where the legislation's delivery-system reforms come in. And this gets us to the right question, which isn't "are the Medicare cuts sustainable?" but "will the delivery-system reforms work?" If the answer to that question is "no," and if we can't think of some set of delivery-system reforms that do work, then the Medicare cuts are not sustainable -- and neither is Medicare, or the rest of the health-care system, or the American economy.
The delivery-system portion of the legislation is thick with experiments and ideas, so I'm not going to go through all of it. But here are a few of the basic ones: Converting the health-care system to electronic records makes it much easier to track patient outcomes and then use that data to make the system more efficient, not to mention offer an infrastructure where providers can easily look up the most cost-effective treatments for different conditions. Bundling care -- where a provider gets a lump sum to treat a diabetic for a year, as opposed to getting paid for every new thing they do to the diabetic -- will encourage more efficient care, as the hospital makes money when it doesn't overtreat, as opposed to when it does. Accountable Care Organizations would act as sophisticated care managers for their patients, making more money when the patients get top-flight care and, in particular, care that's coordinated (There's a lot of money wasted because the hospital doesn't know what the ER did for a patient). The hospitals that have the highest rate of infections and unnecessary readmittance will lose Medicare funding.
Then there's the hope of synergies: Health IT makes ACOs more effective, as it's a lot easier to share data and track outcomes. The flood of new research on what treatments work best make it much easier to do bundled care payments, as providers have a much better idea of what will work and what's a waste of money. The effort to record and punish high infection rates is backed up by the ACOs, which will be penalized for sending patients to providers who underperform. The Independent Payment Advisory Board has the power to take experiments that are proving effective and quickly spread them through the Medicare system.
So will any of this work? The honest answer is that I don't know, and neither does anyone else. Some of the ideas won't pan out. Some of them will work better than we expect. The biggest question is whether the political system is committed to continuously funding the things that seem to be working and replacing the experiments that aren't. The reality is that none of this needs to work all that well for the Medicare cuts to be sustainable, at least over the next few decades. But for Medicare to be sustainable, some of these things -- or their successors -- are going to have to work, and work big. Same goes for private insurance. Unless we can figure out some way to cover quality medical care without watching costs shoot up by 8 percent every year, none of this is sustainable.
But be skeptical when you read commentary (or legislation) on these questions that doesn't say anything about reforming the way we deliver care -- and that includes my commentary. The political system is better at talking about insurance than talking about how medical care is delivered, but insurance is expensive because it's paying for medical care, and it won't be affordable unless the medical care it's paying for becomes affordable. To end this on an optimistic note, we're going to figure this out. How do I know? Because we have no choice. And that would be true even if the Affordable Care Act hadn't passed. But happily, the Affordable Care Act, and its ambitious delivery-system reforms did pass. So now we're getting started. It's about time.
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