Last week the Department of Health and Human Services (HHS) proposed a new method of paying for health care services, using its authority under the Affordable Care Act (ACA) to scale up payment reforms that have been shown to save money while maintaining the quality of care.
In 75 metropolitan areas, Medicare will use “bundled payments” for hip and knee replacements — meaning that every aspect of an intervention, from the surgeon’s work to the artificial joint to post-surgery rehab, will be covered in a single payment. Ultimately, providers will both share in any cost savings or risk penalties if there are cost overruns or quality falls short.
For the first time these payment changes will be mandatory. This is an important step in furthering the Obama administration’s goal to make most Medicare payments through alternative models (not fee-for-service) by 2018.
Starting with hips and knees for such mandatory changes makes sense because there is a wide cost variation for these procedures, but no evidence linking cost to quality. Furthemore, this is an area where research — both before the ACA and more recently — has shown bundling to save money without a loss of quality. Private payers have also experimented with bundling with reported success.
The ACA set up a Center for Medicare and Medicaid Innovation (CMMI) with the charge to create payment reform pilots and experiments to discover how to best pay for value rather than volume of services. The ability for HHS to take the evidence and scale up strategies that work was one of the three primary cost-control strategies embedded in the ACA. The other two strategies were the Independent Payment Advisory Board and the “Cadillac Tax” on high-premium health insurance.
Payment reform seemed to enjoy the most political support, with bipartisan groups of lawmakers aligning against the Cadillac Tax and numerous votes to repeal the payment advisory board (including one just a few weeks ago). In April, Congress passed legislation to permanently change how doctors are paid in Medicare — getting rid of the need for annual “doc fixes” in a push to promote more value-based payments. The law passed the House by a 392-37 vote and the Senate by 92-8.
Yet recent action by the House Appropriations Committee is threatening this cost-control effort. The Labor, HHS and Education bill, as passed through the committee, defunds both the CMMI and the Agency for Healthcare Research & Quality (AHRQ). Such defunding is quite hypocritical given how crucial discovering the most effective payment reforms is to fulfilling bipartisan wishes to better incentivize health care value.
The action is also a short-sighted fiscal gimmick. With the tight caps and sequester on appropriated discretionary spending, the committee’s cuts, on paper, make room for other near-term spending in the appropriations bill. However, the Congressional Budget Office has said such action will actually increase the deficit by $37 billion over the next 10 years because of the potential for less progress on health care cost control leading to an increase in Medicare mandatory spending. (For more see this by the Committee for a Responsible Federal Budget.)
The Senate is likely to fund CMMI at the sequester and discretionary cap levels but severely cut AHRQ. Given how important getting a handle on health care costs is to the future of the federal budget, we need more, not less, research on how to best transform our health care system.
As we have said before, this is a crucial moment for cost-control efforts. Doctors, hospitals, insurance companies and patient advocates are all working to reorient the health care system with cost savings at the forefront. One reason they are doing so is that they understand the largest payer for health care in the country, Medicare, is focused on rewarding those organizations that can save money while maintaining quality. The knee and hip replacement announcement is just one small piece of that but sends an important signal about the push for change. Congress should not disrupt that push.