Published on Kaiser Health News, 9/20/10
Decades of fee-for-service reimbursement became the health industry's article of faith, encouraging virtually everyone in the system to do as much as possible to every patient, with half or more of all expenditures wasted or unnecessary. But it was also a recipe for national disaster. Over the last decade, nearly all U.S. economic growth was absorbed by health care.
Now, after reform, the industry faces the prospect that the payment equation will be reversed. The money will be tied, in still unclear ways, to doing only what's appropriate. The notion terrifies many health care professionals. Sustaining the industry's current prosperity levels will depend on an ongoing excess from reform's failure.
The Cadillac tax, probably the law's strongest cost control provision, threatens health plans with a 40 percent tax on the portion of premium that's higher than $10,200 (individual) and $27,500 (family), starting in 2018. The logic is straightforward. Health plans, which aggregate lives and dollars, will be encouraged to reduce costs, and will in turn create incentives throughout the continuum for more efficient care delivery. Everyone will follow the money.
The 2018 premium targets may seem high, but they are a short distance from here to where the penalties begin. Just-released data from the Kaiser Family Foundation/HRET 2010 Employer Health Benefits Annual Survey show that the growth in premiums for family coverage slowed dramatically, rising an average of 3 percent this year. (KHN is a project of the Foundation). If premium growth rates don't exceed an average of 8.2 % until 2018, as they have for most of the past decade, then they'll come in under the threshold for the Cadillac tax. But if they rise at all beyond this, consequences will accrue. And, of course, for the many higher cost union and governmental health plans, the threshold is even closer. Many health care professionals will see this mechanism as a financial peril, and seek to neutralize it.
The Cadillac tax, probably the law's strongest cost control provision, threatens health plans with a 40 percent tax on the portion of premium that's higher than $10,200 (individual) and $27,500 (family), starting in 2018. The logic is straightforward. Health plans, which aggregate lives and dollars, will be encouraged to reduce costs, and will in turn create incentives throughout the continuum for more efficient care delivery. Everyone will follow the money.
The 2018 premium targets may seem high, but they are a short distance from here to where the penalties begin. Just-released data from the Kaiser Family Foundation/HRET 2010 Employer Health Benefits Annual Survey show that the growth in premiums for family coverage slowed dramatically, rising an average of 3 percent this year. (KHN is a project of the Foundation). If premium growth rates don't exceed an average of 8.2 % until 2018, as they have for most of the past decade, then they'll come in under the threshold for the Cadillac tax. But if they rise at all beyond this, consequences will accrue. And, of course, for the many higher cost union and governmental health plans, the threshold is even closer. Many health care professionals will see this mechanism as a financial peril, and seek to neutralize it.
The new law also hangs its hopes on Accountable Care Organizations, still unproven structures that will demand dramatic changes in health systems operations. Integrated Delivery Networks, hospitals, physician group practices and Independent Practice Associations are anxiously awaiting the fall release of the government's proposed rules describing the short- and long-term financial incentives for hitting quality and cost targets. The key question will be whether the arrangement warrants transitioning to a system that actually strives for efficient, quality care. Some thoughtful, experienced market analysts like Jeff Goldsmith and Roger Collier doubt most organizations' capacity to develop and maintain the collaborative trust required for ACO success.
Many physicians, particularly specialists, see moves away from fee-for-service and toward accountability as an assault on "the patient-physician relationship," code for revenue generation. Infuriated over the American Medical Association's support of the health care law, the Florida Medical Association recently issued a "no confidence" voteand joined with 13 other state medical societies to advocate for unregulated health care.
In 2009, health care-related organizations contributed $1.2 billion to Congress to protect their financial interests. That resolve makes it seem unlikely that the nation's wealthiest and most influential economic sector will simply accept constraints on its historical profitability.
Now the health industry's goals are aligned with the GOP, which has vowed to dismantle health reform after November and fostered high profile, state-level lawsuits. With reform teams focused on rule clarification and implementation, opportunities will abound for special interest influence.
Nor is the business community likely to mobilize to ensure that appropriateness and efficiency remain at the core of the law. During the fevered battles surrounding health care reform, mainstream business groups wrote letters to Congress expressing their frustration with the lack of cost controls in the bills. But their lobbying contributions failed to provide a meaningful counterweight to the health industry's influence. They acquiesced, despite a direct productivity interest in higher-value health care and the fact that non-health care business represents five-sixths of the U.S. economy (to health care's one-sixth).
Last week's news that America's employers transferred recent health care cost increases to employees can be understood as a self-imposed limit on their health care financial commitments. If this is confirmed by employers' withdrawal from health plan sponsorship, then the health industry could be stymied. The new rules promoting universal coverage notwithstanding, declining employer subsidies, increasingly nervous international creditors, and a recession that makes it harder to raise and allocate tax dollars could converge to price the rank and file of America's families out of the health care market. American health care could implode.
Even if the forces against health care policy change triumph, though, a new market interest in value is growing rapidly. Innovative new services and tools – Web-based data exchange, analytics to identify patient risk and provider performance, clinical decision support, patient engagement, medical homes, value-based benefit design, new clinical technologies – are achieving cost and quality improvements unimaginable a decade ago.
But everyone in health care is aware that both policy- and market-based reforms' ultimate goals are better care for less money. The operative words, "less money," mean we should expect a fierce, sustained effort by health care groups, bolstered by the opposition political party, to preserve and increase the profitability it has come to feel entitled to.
From where we sit, with the withering campaign that must be in the works, the odds of the new law remaining intact, with teeth, are questionable. For reforms to succeed, then, steady vigilant hands, focused on the nation's larger interest, will be critical.
Brian Klepper, PhD and David C. Kibbe, MD, MBA write together about health care policy, market dynamics, technology and economics.
Many physicians, particularly specialists, see moves away from fee-for-service and toward accountability as an assault on "the patient-physician relationship," code for revenue generation. Infuriated over the American Medical Association's support of the health care law, the Florida Medical Association recently issued a "no confidence" voteand joined with 13 other state medical societies to advocate for unregulated health care.
In 2009, health care-related organizations contributed $1.2 billion to Congress to protect their financial interests. That resolve makes it seem unlikely that the nation's wealthiest and most influential economic sector will simply accept constraints on its historical profitability.
Now the health industry's goals are aligned with the GOP, which has vowed to dismantle health reform after November and fostered high profile, state-level lawsuits. With reform teams focused on rule clarification and implementation, opportunities will abound for special interest influence.
Nor is the business community likely to mobilize to ensure that appropriateness and efficiency remain at the core of the law. During the fevered battles surrounding health care reform, mainstream business groups wrote letters to Congress expressing their frustration with the lack of cost controls in the bills. But their lobbying contributions failed to provide a meaningful counterweight to the health industry's influence. They acquiesced, despite a direct productivity interest in higher-value health care and the fact that non-health care business represents five-sixths of the U.S. economy (to health care's one-sixth).
Last week's news that America's employers transferred recent health care cost increases to employees can be understood as a self-imposed limit on their health care financial commitments. If this is confirmed by employers' withdrawal from health plan sponsorship, then the health industry could be stymied. The new rules promoting universal coverage notwithstanding, declining employer subsidies, increasingly nervous international creditors, and a recession that makes it harder to raise and allocate tax dollars could converge to price the rank and file of America's families out of the health care market. American health care could implode.
Even if the forces against health care policy change triumph, though, a new market interest in value is growing rapidly. Innovative new services and tools – Web-based data exchange, analytics to identify patient risk and provider performance, clinical decision support, patient engagement, medical homes, value-based benefit design, new clinical technologies – are achieving cost and quality improvements unimaginable a decade ago.
But everyone in health care is aware that both policy- and market-based reforms' ultimate goals are better care for less money. The operative words, "less money," mean we should expect a fierce, sustained effort by health care groups, bolstered by the opposition political party, to preserve and increase the profitability it has come to feel entitled to.
From where we sit, with the withering campaign that must be in the works, the odds of the new law remaining intact, with teeth, are questionable. For reforms to succeed, then, steady vigilant hands, focused on the nation's larger interest, will be critical.
Brian Klepper, PhD and David C. Kibbe, MD, MBA write together about health care policy, market dynamics, technology and economics.
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