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Will High Court Tamper with Cost-Cutting Reforms?

Spending on health care is slowing down – a much-needed development since the nation’s long-term deficit problem is largely tied to projections that spending on Medicare and Medicaid will remain out of control.

But slowdowns have happened before, and there’s no guarantee that this one will last. The Supreme Court in the next few weeks could rule the entire health care reform law unconstitutional, which would be a blow to cost-control efforts since at least some of the recent slowdown is being attributed to delivery system changes sparked by the law.

During the mid-1990s, in the wake of the Clinton administration’s failed health care reform effort, an insurance industry that perceived it had a public mandate to take radical steps to hold down costs switched millions of Americans into health maintenance organizations. They succeeded in holding down costs for a while, but the effort collapsed when patients rebelled against the industry’s ham-handed tactics in denying needed care.

In the 1980s, another period when health care costs were growing faster than the economy as a whole, Medicare switched hospitals to a new payment system known as “diagnostic related groups.” Instead of getting paid a fee for every service or product, hospitals received a set payment for an entire procedure – an appendectomy, for instance, or a heart transplant.

Again, the new system worked for a while in holding down costs. But it wasn’t long before hospitals began pleading poverty and convinced the government to raise the price of DRGs at the same rate as the rest of health care. Thus the upward spiral began again.

Today, less than two years after passage of the Affordable Care Act and just a few weeks before the Supreme Court is set to rule on a core precept of its constitutionality, the health care system is once again in the midst of one those rare periods of relatively tame overall growth. Health care spending rose just 3.9 percent last year, which, after adjusting for inflation, meant it grew no faster than the rest of the economy. It was the second straight year of modest growth.

Reform advocates say it’s too soon to give credit for the slowdown to the law’s changes to the health care delivery system since most of them have yet to go into effect. The law called for setting up accountable care organizations (ACOs) to coordinate the fragmented delivery system, eliminate waste and improve overall efficiency. Medicare is also moving to substitute alternative reimbursement systems like bundled payments to wean providers off a fee-for-service system that incentivizes overutilization of expensive and often unnecessary services.

“We’ve seen (slower spending) before . . . during other times of talk about reform,” said Richard Gilfillan, the acting director of the Center for Medicare and Medicaid Innovation, which was created under the ACA to foster changes in the delivery system. “But there’s nothing fundamentally changed structurally yet to alter the trend line.”

Still, the pilot project phase of reform is well underway and more extensive than anything ever before attempted by the Center for Medicare and Medicaid Services. Already 32 major health care organizations are participating in an initiative to set up ACOs.  Hospitals are reengineering their workflow and emergency, intensive care and operating room procedures to minimize hospital-acquired infections, which should save lives, shorten hospital stays and lower costs.

Many hospitals across the country are also moving quickly to institute patient follow-up systems to ensure they are staying on their medications and receiving appropriate care in nursing homes or other post-acute care facilities. Starting next October, Medicare will begin penalizing hospitals if patients are readmitted within 30 days of their discharge.

At a forum at the left-leaning Center for American Progress Tuesday, Ezekiel Emanuel, one of the architects of reform in the Obama administration and now a provost at the University of Pennsylvania, said the government is moving too slowly in implementing the most crucial part of reform – changing the payment system from fee-for-service to bundled payments. “We need deadlines,” he said. “There is still uncertainty about when and whether there will be change in the payment system.”

Under a bundled payment, ACOs, often anchored by a hospital, will receive a set fee for an acute care episode such as a heart attack or an orthopedic implant. Medicare is considering several potential models for the new payment system – moving from a simple “gain sharing” approach to models where it makes a single payment that covers all care from hospital admission to 60 days afterward.

“The big challenge now is reengineering care,” said Emanuel. “That’s why bundling is the way to go. They (providers) can figure out how best to reengineer the care process to fit within the bundle.”

Some states are already experimenting with bundled payments in their Medicaid programs, Emanuel said. For instance, Arkansas is implementing a system where it will pay single fees for pregnancy and delivery; managing patients with depression and attention deficit disorder; and treating chronic conditions like congestive heart failure. “That’s a very radical and I think innovative approach,” he said.

But it’s unlikely that such reforms will move forward if the Supreme Court rules the entire law unconstitutional. While the individual mandate to purchase insurance – the core of the complaint filed by 26 states – has nothing to do with changing the delivery system, the high court heard arguments that claimed the entire law hinged on that aspect and should be rescinded if the mandate isn’t covered by the commerce clause.

Cost-control advocates expressed confidence that the Supreme Court would rule narrowly, and not tamper with the numerous sections in the law that seek to make the delivery system more efficient and effective. Citing the long-term need to rein government spending on health care for the poor and elderly, Sen. Sheldon Whitehouse, D-R.I., who also spoke at the forum, said an expansive ruling against the law “will be a signal that the court has really gone off the rails. We can go forward with the confidence that the delivery system reform piece will go forward.”

Merrill Goozner has been writing about economics and health care for many years. The former chief economics correspondent for the Chicago Tribune, Merrill has written for a long list of publications including the New York Times, The American Prospect, The Washington Post and The Fiscal Times. You can read more pieces by him at GoozNews.

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