Barack Obama

Hooray for Two New Reforms That Won't Save a Dime on Medicare Spending!


Over at the Washington Post yesterday, Wonkblog's Sarah Kliff noted the unsung implementation of two new policies associated with the Affordable Care Act (ACA or Obamacare):

There are two big parts of the health reform law going into effect today. One penalizes hospitals if patients are re-admitted to the hospital within one month of a visit for a condition that should have been dealt with on the first trip. The other seeks to redistribute higher Medicare payments to the hospitals that are delivering better care….

Both are supposed to—finally!—deliver better care at lower cost. As Kliff explains

The first one cuts payments to hospitals for preventable re-admissions in Medicare. That's when a senior turns up at a hospital within one month of a previous visit with a problem that should have been dealt with on their first visit — or, perhaps, was caused by that first visit.

This happens a lot: The independent Medicare Payment Advisory Commission estimates that 15.3 percent of hospital admissions result in a re-admission. In 2010 alone, this happened 1.9 million times at an estimated cost of $17.5 billion. 

Until now, there weren't much in the way of penalties for a patient landing back in the hospital. There was actually a financial incentive for readmitting a patient, as that would mean delivering more health care that they could bill for.

That calculus changes today. Hospitals now stand to lose as much as 1 percent of their reimbursement rate if their patient lands back in a hospital bed within weeks.

I'm curious to see just how this plays out. You can see the logic behind the fines. And the predictable response by hospitals, which almost certainly will be to jack up all sorts of preventive care any time a senior darkens the door of a hospital admissions room. I will be surprised if this in any way significantly cuts costs. And even if it does (and Kliff marshalls some evidence that a pilot plan has), it's small beer in the overall scheme of Medicare: "We're only talking about $300 million of the $140 billion spent on Medicare hospital visits annually, or 0.2 percent."

The second change, Kliff writes, is 

called Value Based Purchasing, also looks to nudge hospitals to delivering higher-quality care.

It begins with the federal government withholding 1 percent of payments to about 3,000 hospitals that deliver acute care. That money goes into a sort of pool, with about $850 million at stake. The hospitals that do well on certain quality metrics will get paid even more out of the pool than they put in — in other words, they get a raise. Those that do poorly on quality may not get anything back out of the pool — they deserve a rate cut, the thinking goes, because they are not delivering high-enough-quality care.

Again, the goal is to create an incentive for hospitals to deliver high-quality care, rather than perform lots and lots of procedures.

Next year, the penalty kicks up to 2 percent. Again, the amount of money at stake is small in the scheme of things.

Read the whole Wonkblog entry here.

And more important, it takes place in the larger context of a government-financed program (Medicare) which is a poster child for the failure to reduce expenditures per enrollee even as the number of enrolles has vastly expanded (and will continue to grow).

There comes a time when you've got to admit that no amount of tweaks to the system will help if the system is the problem. Medicare was ostensibly created to help seniors get late-life medical care that would otherwise wipe them (and their families) out financially. It has achieved the first goal more or less while pushing the entire country to the brink of bankruptcy.

There's no way to fix that if you keep the system basically as it is, with the government covering most or all of the costs in an entitlement format. You can either ration care to control costs (the basic European model) or introduce the same market and consumer forces that have somehow managed to reduce costs and increase efficiency in just about every other field of human endeavor.

For more pessimism on this score, consider how the price tag of Obamacare's first decade of operation increased even before the plan was put into place. During the debate over the passage of health-care reform, Obama pushed the cost at around $1 trillion for the law's first decade (2010-2019), a time frame that counted just six years of full-blown implementation (2014-2019). As Peter Suderman noted in March, when the Congressional Budget Office got around to updating its estimate this year, "the true cost of paying for the law's coverage expansions over a full decade was more like $1.8 trillion."

Related: Reason TV's 2009 vid, "Would Obamacare cover sticker-shock treatment?"

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  1. I just read a horrifying thread at Huffingtonpost (why do I do this to myself?), about how Romney would “make consumers pay for their treatments”. It discusses how, under Romney’s proposal, co-pays for routine medical treatment would be non-zero, forcing millions of people to actually have to spend money to get medical care.

    The comment thread made me want to kill myself.

    1. Wierd, you must be wired wrong. That kind of thing usually just makes me want to kill others.

  2. So avoid the penalty by never sending anyone home. Problem solved.

  3. The independent Medicare Payment Advisory Commission estimates that 15.3 percent of hospital admissions result in a re-admission.

    As you might expect, the definition of a “preventable” re-admission that triggers penalties is somewhat, err, controversial.

    Not to mention that the government has gone to great lengths to incentivize hospitals to discharge as early as possible, and then gone to great lengths to incentivize hospitals to admit if there is any question at all.

    So, discharge early, while the patient is still (a little) sick, readmit if the patient gets a little sicker, and get penalized for readmitting. Its like three-dimensional chess, played with a two-headed coin.

  4. RC is being too generous. The readmissions thing is cluster fuck. Also, the penalty isn’t applied to just the readmission, but to the base payment for all Medicare patients. People seem to think the penalty is just applied to the readmissions.

    1. How many hospitals out there are doing everything they can to keep the percentage of Medicare patients as high as possible on the hospital census anyway?

      Isn’t the name of the game to keep the Medi/Medi count as low as possible?

      Oh, and on both of these proposals, it isn’t the hospitals in the affluent suburbs that are going to get hurt the worst–it’s the inner city hospitals that are serving minority and low-income patients disproportionately.

      If you’re hurting payments to Medicare, you’re hurting hospitals that don’t have a lot of private pay patients disproportionately. But then, as usual, the Obama Administration doesn’t care about minorities or the poor–since they think they can count on those demographics for their support already.

  5. “hospitals that do well on certain quality metrics will get paid even more out of the pool than they put in”

    So this isn’t about high-quality care, but scoring well on metrics. And those metrics are no doubt about meeting arbitrary time limits, prescribing medications that are called for under ‘best practices,’ etc., instead of treating the patient as an individual.

  6. Obama Whitehouse Openly Bribes Defense Contractors

    At issue are the crush of Pentagon budget cuts set to go into effect starting in January should Congress fail to avert them. Under federal law, many employers are supposed to give 60-day notice of “mass layoffs” if they are considered likely, but the Obama administration for months now has urged companies not to do so.
    Last week, the administration doubled down on that plea by offering to cover legal fees in compensation challenges.

    1. I wasn’t sure if Reason did an article that covered this that simply got buried, but this shows just how slimy President Not My Fault is and how sycophantic and stupid his supporters are.

      Can you imagine the wailings of butthurt that would ensue of Dubya did something like this? Using taxpayer money to pay for the legal fees of defense contractors who violate the very law he signed?

      Seriously, do yourself a favor and shove this in the face of every friend of yours who is planning to vote for Obama. You’ll have fewer friends at the end of the day, but at least you won’t have to associate with liars and idiots anymore.

    2. While I’m voting for Gary Johnson, I’m shamelessly going straight ticket GOP for Congress, just to indulge the faint hope of seeing a president (legitimately) perp-walked out of office in my lifetime. This is one more charge for the list.

  7. As a physician, I have to point out that this is just more “red tape” which will complicate care and drive up costs. The penalties for readmissions will be difficult to enforce appropriately and will provide perverse incentives for the way care is delivered. The incentives to promote “quality of care,” as one poster has pointed out, will focus on metrics rather than the overall care of the patient. Certain metrics will improve but quite likely to the detriment of overall patient care. Focusing on certain metrics fails to account for how other variables are affected. It assumes that there is some fantasy world where health care providers have unlimited time and resources and fails to acknowledge that time spent trying to meet certain metrics and documenting these efforts is time that could be spent on other more important tasks.

    The reforms fail due to one basic flaw. They are centered on a third party rather than the most interested party – the customer/patient.

  8. I will be surprised if this in any way significantly cuts costs.

    Clap harder, damn you. Tinkerbell is losing altitude.

  9. You don’t suppose we’ll be seeing people who should, for whatever reason, be admitted within 30 days, not getting admitted – sicker – until day 31, do you?

    1. That would never happen.

    2. Unless there are 10 pages of regulation devoted to how to properly count to 30, I predict there will be some creative counting happening as well.

    3. Or caregivers schedule “routine follow-up” appointments then suspiciously forget to tell the patient or record it anywhere until a patient shows up for it.

  10. Romney would “make consumers pay for their treatments”.

    Romney makes Hitler look like a saint.

    1. You know who else made consumers pay for their treatme…


      Never mind.

  11. Larry Drake vs Clint Howard?

  12. Alt text: Vagina dentata!

  13. Enforcement and implementation sounds problematic. I’m unfamiliar with the details, but I’m imagining both programs will involve a lot of guesswork and formalized standards implemented by distant overseers.

    Couldn’t caregivers just categorize unexpected readmissions as routine followups?

    I like the idea of more money for better quality, but measuring quality seems difficult. What is quality? Speed, accuracy, friendliness? I question the ability of anyone, especially the government, to come up with a universal metric for quality that’s anything more than a very rough approximation.

    It also seems weird to grade this on a curve. Let’s assume some halfway reasonable standards. What if they all perform horribly or they all perform acceptably? All-losers could result in retained payments for the system. That gives overseers incentive to craft standards that flunk most caregivers and save the government money. Or if they force a winner from amongst the mediocre then rewards flow to uninspired, as in any inefficient bureaucracy.

    All-winners could result in such a difficult competitive struggle (for relatively few dollars) that the connection between effort and reward is diminished. Hardworking caregivers might see little or no financial benefit. This isn’t about empathy for them (everybody should, in principle, work hard at their jobs), rather it undermines the efficacy of incentives when hard work is under-rewarded, just as when laziness is rewarded.

  14. I realize this isn’t up for grabs, but I really wish they’d lift the ban on corporate practice of medicine and allow businesses to unify all this stuff together. Just aside from the enormous costs of care, the average person gets a bajillion bills from a hospital stay – the doctors, the nurses, the radiologist, the anesthesiologist, the drugs, etc. etc. It’s insane. Corporations (and LLCs and whatever else) should be able to experiment with various things to unify the bill to consumers and then work out the internal allocations behind the veil. That would go far to simplifying the average person’s interaction with providers of health care, and if we ever went to an out of pocket system it would foster simplification (like when you buy a car, you don’t cut a separate check for the tires and the windows and the sound system).

    While I’ve gone there, they should also lift the ban on corporate practice of law. Corporations can bring you drinking water and pharmaceuticals, and hold custody of your bank records and SMS records, but they can’t draft a will for you? Dumb. Only lawyers think that being a lawyer is a special position of trust within society.

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