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?"