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'Model' Health Systems Press Case For Medicare Fix In Reform

Jul 20, 2009

When talking about his vision for the U.S. health care system, President Barack Obama points to places like the Mayo Clinic in Minnesota and Intermountain Healthcare in Utah, which are known for providing high-quality, low-cost care.

"We need to identify the best practices across the country, learn from the success, and replicate that success elsewhere," he said last month.

But officials at these institutions, called "integrated" because of the close relationships between hospitals and doctors--say the congressional health overhaul bills, at least in their current form, would do little to reward them or encourage others to follow their lead.

They're pressing lawmakers to move much more aggressively to revamp the way Medicare pays for care to discourage unnecessary services and reward "value" over volume.

"Unless we get the incentives right, nothing else in health reform really matters," said Greg Poulsen, senior vice president at Intermountain Healthcare, a nonprofit system of hospitals and doctors in Salt Lake City.

Partly at their behest, members of Congress from Minnesota and Wisconsin last month introduced a bill that would create a Medicare “value index” to change the way doctors are paid, but the legislation so far hasn't been included in any health overhaul bills.

Because of that and other issues, several integrated systems expressed "significant concerns" about the House bill in a letter last week to Rep. Ron Kind, D.-Wis., one of the sponsors of the value-index legislation. They said the legislation doesn't meet the goal of "compensating for quality rather than quantity."

Nicholas Papas, spokesman for the Department of Health and Human Services, said the administration is pleased with the legislation and is "confident there will be opportunities to keep working with the committee leadership to refine the proposals that are emerging."

Other ideas backed by the integrated health systems—such as "bundling" payments to doctors and hospitals together for a patient's illness to encourage more efficient care—may get backing only as pilot programs. The Senate Finance Committee bill, which may go further, hasn't been released yet.

The debate about Medicare, the federal health program for the elderly, is taking on new urgency amid growing questions about whether the health overhaul legislation would meet Obama's goal of slowing costs, or "bending the curve." Last week, Douglas Elmendorf, director of the Congressional Budget Office, said that the legislation would add to the federal deficit.

Obama, in his weekly address on Saturday, countered that by improving quality and efficiency, "the reforms we make will help bring our deficits under control in the long term.” And the White House renewed its push for shifting control of Medicare spending from Congress to a proposed independent commission—something it said would restrain costs over time.

Other Hospitals Worry

Medicare accounts for 22 percent of all U.S. health care spending and is often emulated by private insurers. It has enormous influence over how health care is paid for in the U.S.

But it's unlikely that Congress will restructure its payment system any time soon, experts say. One reason is that the integrated health systems pushing for a rejiggering make up just a sliver of all the nation's hospitals. Another is that most institutions aren't ready to be more financially tied to their doctors or fear a payment change would hurt them.

About two-thirds of hospitals lose money on Medicare patients and many hospitals worry "they’ll lose even more money under payment reform," said Len Nichols, director of the Health Policy Program at the New America Foundation, a Washington think tank.

In most communities, doctors work independently of their local hospitals and are paid by Medicare and most private insurers under fee-for-service arrangements. Hospitals, meanwhile, are typically reimbursed based on patients' diagnoses, so they get paid for doing less for each patient. The incentives are sometimes at cross purposes, and aren't based on how well patients do.

By contrast, Mayo doctors are paid salaries, and don't get paid more for providing more care. And they take a team approach to coordinating care, working to reduce unnecessary tests and office visits and using electronic health records to monitor patients' outcomes. These steps save money, but Mayo itself doesn't benefit financially.

Based on their experience, Mayo and others say that "global" or "bundled" payments would prod all hospitals and doctors to improve and streamline their care. Under this idea, providers get a flat fee for treating a patient’s illness or handling a patient’s condition over time. For example, the government would pay a single fee for a patient’s hip replacement to cover the hospital stay, surgery and rehabilitation at home or in a nursing home. The fee would be higher for providers who delivered better care at lower cost.

“By having Medicare make a single payment to a team of providers, you change the culture and changing the culture is what allows the hospital and multiple doctors to act as a team as opposed to acting independently,” said Poulsen of Intermountain Healthcare.

Many hospitals are worried about proposals to “bundle” payments because of the possibility that managed care companies would end up controlling Medicare dollars previously paid directly to them. “Who gets the bundle is the key question,” said Linda Quick, president of the South Florida Hospital and Healthcare Association, which is based in Hollywood, Fla. and represents about 50 hospitals.

Overhaul proposals by the House Democrats and the Senate Health Education, Labor and Pensions Committee call for pilot programs to test new Medicare payment systems, including a new type of provider arrangement called “accountable health organizations,” groups of hospitals and doctors that get paid based on how well they meet cost and quality targets. But the programs don’t go far enough fast enough, the officials from integrated health systems say.

“There is not sufficient attention being paid to the fundamental problem of reforming Medicare,” said Oliver Henkel, chief government relations officer at the Cleveland Clinic. “We don’t yet see enough meat on the bones of Medicare payment reform.”

Payment Changes Lag

The last major Medicare payment change for hospitals was in 1983, when Medicare switched from paying hospitals a fee for each service to a fee based on a patient's diagnosis, said Poulsen of Intermountain Healthcare. "That was a great first step, but we've yet to make a second," he said.

Integrated health systems also are taking aim at the tremendous regional variation in Medicare spending. The program spends about $6,600 a year per enrollee in Minnesota compared to about $15,000 in southern Florida. The integrated systems, a number of which are in the Upper Midwest, want those disparities reduced, but such a change would likely draw strong opposition if it came at the expense of high-cost areas like New York and California.

Quick of the Florida hospital group said that her member hospitals expect to get paid less after a health care overhaul, but that she doesn't expect "at the end of the day anyone will get paid more."

Both the American Medical Association and the American Hospital Association say they favor additional study of new payment strategies, rather than any major revamping now.

That's the approach Congress seems to be pursuing. In addition, lawmakers are on track to approve across-the-board federal payment reductions of $155 billion over 10 years for hospitals, reflecting a deal reached recently by major hospital groups, the White House and Senate Democrats. That agreement assumes that the hospitals will see increased revenues as reform legislation results in fewer uninsured Americans, whose care is now a financial burden.

Mayo and similar health systems object to the sweeping cuts. "Across-the-board cuts will be harmful to everyone and we think it is particularly bad to penalize the high-value organizations,” said Jeff Korsmo, executive director of the Mayo Clinic Health Policy Center. “We will have to violate our values in order to stay in business and reduce our access to government patients.”

As a result of low reimbursement rates, Mayo’s Arizona operations in 2007 stopped accepting new Medicare patients seeking primary care. About half of Mayo’s patients are on Medicare. Last year, Mayo said it lost about $840 million by treating Medicare patients, money it had to make up by treating privately insured patients.

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