Hospitals Have Little to Gain From New Payment Models | Healthcare of Tomorrow

The portion of President Barack Obama’s health care law aimed at lowering the number of uninsured in the country has largely rolled out, leaving the administration increasingly turning its attention to another goal of the Affordable Care Act: controlling health care costs. It doesn’t appear, however, that the proposals will make a significant dent in government spending, and questions remain over whether providers – particularly hospitals – could see any benefit from the initiatives.

In recent months, Obama and Sylvia Burwell, the secretary for Health and Human Services, have touted a move toward payment models that reward better quality of care, rather than the current model that compensates health care providers for the number of medical services they provide.

“The message is: ‘We are going to pay you less to do more,'” Dr. Kavita Patel, managing director of clinical transformation at the Brookings Institution’s Center for Health Policy, says of the planned measures.

The government has been testing several initiatives aimed at slowing or reducing health care spending, which grows faster than the rest of the economy and makes up one-fifth of the country’s expenditures. By 2018, the administration plans to place half of payments on Medicare – the government’s program for adults 65 and older – under new models.

Attempts at changing payment models in the past, however, have yielded only modest savings at best. Also, what remains unclear is why hospitals would buy into a payment system voluntarily that likely would reduce their bottom lines.

“The answer is: They wouldn’t,” says Gerard Anderson, director of the Center for Hospital Finance and Management at the Johns Hopkins Bloomberg School of Public Health.

Hospitals do participate in different payment models, he says, so they can be prepared if there is a change in the way payments are delivered.

Katherine Hayes, director of health policy at the Bipartisan Policy Center, says that for many hospitals, the move is in part altruistic. “It’s based on the philosophy of the hospital and who the key leaders are,” she says. “There are those who are committed to improving care and lowering costs.”

Changing how health care is paid for is considered necessary for the country’s economic stability. Though recent data have shown that the growth in health care spending has slowed – a trend economists largely attribute to lingering results from the Great Recession – there is no guarantee the trend will stick.

Because of the Affordable Care Act, which requires Americans to buy insurance or pay a penalty, the number of uninsured has dropped by a third, while the number of people enrolling in public insurance is growing. When combined with the Children’s Health Insurance Program, Medicaid – the government’s program for low-income Americans – reached 70 million in enrollment last year, after the government expanded eligibility under the health care law.

Medicare, for its part, is projected to grow as the baby boomer generation ages into it. It is likely to reach more than 80 million enrollees by 2050. Already, government figures show that in 2013, spending on the program neared $600 billion, accounting for 14 percent of the federal budget.

Mounting health care costs may be dire news for the U.S. deficit, but they have been a boon for hospitals, whose share of health care costs, despite shrinking in recent years, is larger than that of other parts of the health care industry. The current fee-for-service model works well for hospitals’ business: The more procedures and tests they do, the more reimbursement they can collect.

Patel says hospitals are experimenting to see whether they can change their business models. A hospital that becomes more efficient with Medicare patients, for instance, can make up the difference in income by taking in a higher volume of patients, some of whom might have commercial insurance.

Still, she adds: “They were happy with [fee-for-service] because they make money off it.”

But hospitals that don’t adopt new payment models risk not being able to compete. “A lot of areas are doing well in fee-for-service care … and aren’t interested in alternative payment models,” Hayes says. But when other hospitals in the area are using them, there is pressure to do the same, she points out.

“Some may wait too long and may not be able to get key providers, like surgeons, in their network,” she says. “Those who succeed will get a higher percentage of patients in the community than those who don’t take this on.”

There likely are several ways to reduce costs while still improving outcomes, experts say. In 2012, the Institute of Medicine found that a third of health care spending, or $785 billion, is wasted on unnecessary care, including repeated tests, or unneeded procedures that don’t make people better, but could even hurt them.

One type of payment system in the spotlight the accountable care organization model, which reward doctors and hospitals for saving money and for improving the health care of their patients. Hospitals are given a price limit, and if they stay under it, they get to keep a certain amount of the savings they incur.

The American Hospital Association says it is open to trying new models of payment delivery. “Members are enthusiastic about accountable care organizations and moving toward a more value-based care delivery,” says Melissa Jackson, senior associate director of policy at the American Hospital Association. “The risk-reward balance, however, is sometimes off kilter. … Savings are limited, and participation requires a high investment up front.

“Hospitals are doing it because it is the right thing to do, but there is a cost.”

There has been scant evidence that accountable care organizations can significantly reduce health care costs. Anderson points out that hospitals may not want to partake because the more they save, the less they ultimately make. “If I’m a hospital, why would I cut anything, because I’d rather have all of it? Most of them don’t, and that’s why it’s not working well,” he says.

Patel called accountable care organizations “training wheels” that would move the country into value-based care. They won’t make significant change, she says, but will start to change the conversation around health care payments and the approach to population health.

Dr. Ezekiel Emanuel, chairman of the department of medical ethics and health policy at the University of Pennsylvania, and Topher Spiro, vice president for health policy at the Center for American Progress, wrote a recent op-ed in The Wall Street Journal criticizing the emphasis the government is placing on the payment models.

“If Mr. Obama doesn’t act soon to control costs, escalating costs may ultimately threaten the sustainability of his coverage expansion – and his entire health-reform legacy,” they wrote.

Instead, they suggested bundling payments, which involves one fee for a range of services that are then distributed by a hospital. According to the Congressional Budget Office, this move could save the country about $50 billion over a decade.

But not everyone is optimistic that these various experiments can bring about significant savings. These alternative payment models are far from the norm. “There is a lot of confidence, and most of it is not warranted,” Anderson says. “There is nobody with significant power [in the health care industry] who wants to control health care costs. Until we have that, we will muddle along in terms of coming up with good ideas, implementing them and getting lukewarm results.”

Still, it’s difficult to say how much the country will suffer as a result of health care spending. Government officials warn decade after decade, year after year, that the country cannot sustain anymore spending on medical services. “We keep addressing the goal line of what’s acceptable as we reach it and pass it,” Anderson says. “It is cannibalizing other budgets, causing us to spend less on programs like education and housing.”

The government, he says, may hold the to control spending power, but is highly influenced by the health care industry.

Hayes agrees that the government can lead the effort. “Right now [hospitals] have one foot in fee-for-service and one foot in alternative payments, but Congress needs to send the message that we are going in this direction,” Hayes says.

This likely will require passing additional legislation.

“The Affordable Care Act was really about coverage,” Anderson says. “It wasn’t about affordable care.”