In March, when former Utah Congressman Jason Chaffetz infamously remarked that Americans should forgo waiting in line for the new iPhone and instead invest in their own health care, his statement was widely derided as financially illiterate and, more bluntly, offensive. Months later, it is even more absurd in the face of the fact that the U.S. government, when faced with a simple opportunity to make health care more affordable for average Americans, has essentially decided not to bother.
One of the most widely recognized issues in American health care is our unique reimbursement system. Most physicians in the U.S. are paid under a “fee-for-service” model, a sum for each test or service that a patient receives. As a result, a single hospital visit could include dozens of different medical bills. And the amount paid to hospitals for each service is identical regardless of whether it is ultimately helpful. Historically, this model has led hospitals to overtreat patients without a corresponding increase in the quality of care.
It also stifles innovation. Many health care organizations have been hesitant to adopt telemedicine, consumer diagnostics, and other innovative technologies, despite their potential benefits for patients, largely because there is currently no way to bill for them. A study by Harvard and Stanford researchers in Health Affairs this month found that adopting innovations like telemedicine and team-based care would cause fee-for-service health systems to lose more than $40,000 per primary care physician in 95 percent of cases. Bypassing an unnecessary clinic visit, however convenient for patients, hurts physicians’ bottom lines. For scientists, engineers, and entrepreneurs seeking to apply their skills to advance preventive health care, this is discouraging.
So how can we drive the innovation we need in health care with the cost controls to make that innovation accessible to patients? One promising solution is changing how we pay for health care. There is overwhelming bipartisan agreement that we need to move away from fee-for-service and toward alternative payment models, models that would reward physicians for delivering high-quality care that best-treated patients and could even penalize them for cost overruns. These types of pricing systems could tie hospital payments to reduced readmissions or “bundle” payment for all services related to a particular course of treatment into a single flat fee. For example, a hip replacement would be paid for as one lump sum, encompassing the materials, surgery, and physical therapy and rehabilitation. These models may align financial incentives between hospitals and Medicare to reduce total health care costs while improving the coordination of care.
One upside of the Affordable Care Act is that it encouraged government agencies to experiment with this kind of pricing, with the goal of lowering health care costs in the bigger picture someday. Starting in 2012, the ACA authorized the Centers for Medicare and Medicaid Services, or CMS, to pilot dozens of demonstration programs with health systems to test these new payment models in practice. If Medicare designed payment models that performed well, the law noted that the agency could make those changes permanent.
Many of these demonstration programs produced promising results. Patient health outcomes improved, the rate of spending growth went down, and fewer patients were readmitted to hospitals with medical complications. From 2000 to 2010, Medicare costs per enrollee had risen by an average of 7.4 percent each year. Between 2010 and 2016, after these reforms, Medicare costs per enrollee rose by an average of just 1.3 percent each year. Today, about 30 percent of health care payments are made via different flavors of these alternative payment models that aim to reward the value rather than volume of health care. Additionally, the same Health Affairs study found that switching approximately 60 percent of our delivery system to bundled payment–type models could make telemedicine and team-based primary care profitable. In 2015, the Senate passed a bill by an overwhelming 92–8 vote to expand these pay-for-performance measures to more physician practices.
These were all moves in the right direction. Bundled payments give physicians—rather than Medicare—the flexibility and freedom to determine how to provide the best care within that lump sum and reward them when patients get better. There’s a direct incentive to offer the most cost-effective treatments and minimize redundant tests, procedures, and consultations. This dynamic promotes competition and innovation among health systems, which race to offer the highest-quality services for each bundle at the lowest cost. This might mean adopting remote monitoring technologies that allow patients to leave the hospital early or take treatments at home, testing different joint replacement biomaterials to see which provide the best value for their price, or experimenting with new workflows to streamline the total time it takes to examine and treat a patient for a given episode of care. In turn, this incentivizes technologists to build a value-driven future for medicine. In the end, the patients are the ones who win.
Unfortunately, last month the Trump administration’s CMS canceled two mandatory value-based bundled payment models and slashed participation for a third in half, an unprecedented rollback of an otherwise smart, bipartisan program.
CMS cut the number of mandatory geographic areas participating in the Comprehensive Care for Joint Replacement Model from 67 to 34 and outright canceled the Episode Payment Models and Cardiac Rehabilitation Incentive Payment Model, which were slated to begin in January of 2018. These rollbacks will allow many hospitals to continue billing under a bloated, unsustainable fee-for-service system that will leave Americans uncertain and unsatisfied with the cost and quality of their health care.
Whether we as a country choose to receive health care coverage from the government, private carriers, or a mix of both, the key to building the future of health care will depend on Medicare and other insurers unreservedly testing and adopting payment models that link health care prices to value and reduce incentives for overtreatment and waste. In making these changes, the Trump administration is actively reversing America’s progress in health care.