Under the proposal, the major public and private players in each state would negotiate payment rates with service providers such as hospitals. The idea is to get away from paying for each individual test and procedure. Negotiated rates could be based on an entire course of treatment. Payments would have to fit within an overall budget that could grow no faster than the average rise in wages.
The spending limits would be enforced by an independent council, but crucial details need to be spelled out. In Massachusetts, for example, budget-busting providers will be required to file plans with the state laying out how they’ll amend their spendthrift ways.
The federal government would provide grants to states interested in developing their plans.
Tanden joined a brain trust of former administration officials floating the proposal recently in the New England Journal of Medicine. The group included Peter Orszag (former budget director), John Podesta (transition director), Donald Berwick (first Medicare chief), Ezekiel Emanuel (Orszag’s health policy guru), and Joshua Sharfstein (former No. 2 at the Food and Drug Administration). Also on board was former Senate Majority Leader Tom Daschle, D-S.D., Obama’s first pick to shepherd his health care overhaul.
This item from the Associated Press dubs the initiative “Health Care Overhaul, Version 2.0,” with the goal of establishing a “first-ever budget for the nation’s $2.8-trillion health care system, through negotiated limits on public and private spending in each state.”
The proposal represents an expansion of the accountable care organization concept in the Patient Protection and Affordable Care Act’s Medicare Shared Savings Program (Section 3022 of the PPACA) beyond Medicare to encompass private payments. It is a government led market intervention designed to shift the business model and economics of the health care industry away from the current model that rewards the provision of discrete medical procedures to an all inclusive, coordinated system of care.
Arguably, the existing health maintenance organization (HMO) is based on the same principle. But that hasn’t bent the so-called cost curve. The difference here is that the power of government would be brought to bear to hold down costs such as in Massachusetts. The Bay State recently enacted legislation that among other things, subjects providers to cost growth benchmarks. Those providers exceeding the benchmarks must file and implement a performance-improvement plan, with potential penalty up to $500,000 for failure to comply. The New England Journal of Medicine has more details on the Massachusetts law here.
In 2011, some health insurers were conceding the individual market was failing, entering the dreaded death spiral of adverse selection. But none went as far as Aetna CEO, Chairman and President Mark Bertolini at a Las Vegas conference this week in proclaiming the business model of health insurance broken and facing extinction.
“The system doesn’t work, it’s broke today” Bertolini was quoted as saying by HealthData Management in remarks to attendees of the HIMSS12 conference. “The end of insurance companies, the way we’ve run the business in the past, is here.”
A fundamental function of any form of insurance is underwriting the selection and rating of risks. With medical underwriting ending January 1, 2014 under the Patient Protection and Affordable Care Act (PPACA), it’s no wonder Bertolini sees the end of health insurance as we have known it.
The PPACA as well as other factors are forcing health insurers to reinvent themselves. But as what? Since Accountable Care Organizations (ACOs) being created by the reform law are risk sharing mechanisms that reward better patient outcomes and reduced treatment costs though more coordinated, more holistic patient care, Bertolini sees a role for insurers to help manage that risk. “We need to move the system from underwriting risk to managing populations,” Bertolini was quoted as saying. “We want to have a different relationship with the providers, physicians and the hospitals we do business with.”
What about state health benefit exchanges created by the PPACA that open for business in 2014? The exchanges are to serve as purchasing pools to help individuals and small businesses aggregate purchasing power to get better deals on health insurance than they would otherwise get negotiating on their own behalf. If health insurance is becoming a thing of the past as Bertolini predicts, what will they be buying? Bertolini foresees all-inclusive, branded “health systems” (perhaps similar to California-based Kaiser Permanente) that leverage health information technologies to put patients in charge of their health.
The Pittsburgh Tribune Review reports insurer Highmark Inc. will spend up to $500 million to develop a new network of doctors, community hospitals and outpatient locations in Western Pennsylvania in addition to the $475 million it has promised to prop up West Penn Allegheny Health System. According to the newspaper, the network will include medical malls, ambulatory care centers, a health information exchange, partnerships with community hospitals and primary and specialty care centers. The deal is pending approval from Pennsylvania regulators.
“We believe this investment on behalf of our customers is crucial to address the unsustainable increases in health-care costs that are making health insurance less affordable for our customers and the community,” explained Highmark spokesman Michael Weinstein.
While not mentioned in the story, another likely driver of this payer-provider consolidation is to ease the establishment of an accountable care organization (ACO) among the involved entities.
Kaiser Health News (KHN) reports on what could become a growing trend: Health insurers buying medical groups and forming physician management companies. “It’s the latest sign that the barrier between companies that provide health coverage and those that actually provide care to patients is crumbling,” writes KHN’s Christopher Weaver.
The key driver is payers’ desire to clamp down on rising medical costs that are passed on to consumers as higher insurance and managed care plan premiums. Those fast rising premiums are threatening the viability of payers’ individual and small group market segments by heightening the danger of adverse selection and insolvency.
The trend also fits nicely with a provision of the Patient Protection and Affordable Care Act allowing providers to form so-called Accountable Care Organizations (ACOs). Authorized to begin operating in January 2012 under the PPACA, ACOs are designed to incentivize doctors and hospitals to band together to improve value and outcomes for Medicare patients and sharing any reduced Medicare reimbursements with them. ACOs could also become a template for a new managed care model for privately insured patients as well.
Going forward, there could be tension between the degree of ownership and involvement of payers with physician practices, leading to regulatory and legal scrutiny relative to state laws that bar corporations from directly practicing medicine in order to protect the independent medical judgment of physicians from business management decisions.