Unintended Consequences Part IV

The powers of the new Healthcare Commissioner are enormous. So far, significant changes to the Medicare reimbursement system for providers have required Congressional action. If the House Bill is passed, the President will have enormous power to change how providers are reimbursed without asking Congress. The Commissioner can implement patient-centered medical homes and other care organizations, value based purchasing, bundling of services, differential payment rates, performance or utilization based payments, partial capitation, and direct contracting with providers. This power is subject to enormous abuse, which would seem almost inevitable.

The government is experiencing serious annual deficits, has a large accumulated deficit, and is facing huge deficits in the years to come. If the House Bill passes with its robust public option, the federal government could control the reimbursement rates for up to 80% of all provider claims within 10 years. One projection shows that the total cost for hospital services in 2020 could reach 1.5 trillion dollars. The government could be responsible for paying 1.2 trillion of that amount. How tempting it will be to cut hospital reimbursement and the reimbursement of other providers to decrease the government’s deficit.

However, it is not just a matter of how much of a cut hospitals may have to bear but also by what methodology they will get paid. Some of the code words above such as value-based purchasing and bundling of services should be alarming to providers. It means the government can decide winners and losers. It would appear that the government could do this on a local basis, regional basis, or even national basis.

On the local or regional level, the government could request bids from providers to provide certain services. Obviously, the first objective would be to lower the prices for those services. Hopefully, the government would also consider quality in its selection. But that would beg the question of how to measure quality. Ultimately, you can bet that politics would come into play to determine the winners and losers. Unions would try to use their clout to ensure that unionized facilities get selected. Community groups would lobby for the hospitals located in or close to their communities. Big donors to the political party in power would expect their recommendations to be considered and so on. Will hospital and doctors groups have to take on significant lobbying costs just to stay in business?

The government could also determine winners and losers on a national scale. In the 80s, hospitals and freestanding companies opened up new SNFs, psychiatric facilities, rehab facilities, and LTACs. The terrific expansion of these sub-acute units and facilities was largely a response to Medicare’s implementation of the DRG system of reimbursement for acute care services. The DRG system incented hospital discharge planners to move patients out of acute status as soon as possible and into sub-acute status where more reimbursement could be received. Initially, there was no real clinical purpose served by moving patients to these units. Many companies and hospitals invested significant capital in providing sub-acute services as volumes grew. This investment added value to their services and they are now an accepted part of the care continuum. Many hospitals converted some of their excess acute care capacity caused by the shorter length of stays to other uses. If the government decides to bundle these services into one reimbursement per patient episode, the incentive that generated growth in the sub-acute services will be turned on its head. Hospital and doctor consortiums will be the likely recipients of the bundled payments. They will want to keep as much of the funds as possible and pay outside vendors as little as possible. As a result, the average length of stays in hospitals will begin to increase and the admissions to sub-acute facilities will decrease. New capital may be needed to expand hospitals bed capacity while many sub-acute facilities are underutilized. This will be an enormous waste of resources at a time when hospitals will not have the capital resources available to them.

The House Bill encourages the Health Care Commissioner to experiment with different reimbursement models. There are an infinite number of ways to reimburse providers. Hopefully, the government will realize there are enormous consequences to changing the payment model as witnessed by the growth in sub-acute care services after the major change in the 80s. All businesses need some stability in their pricing model and volume projections to do appropriate long term planning.  

                The Unintended Consequences of Healthcare Reform – #1
                The Unintended Consequences of Healthcare Reform – #2
                The Unintended Consequences of Healthcare Reform – #3 Part 1
                The Unintended Consequences of Healthcare Reform – #3 Part 2
                The Unintended Consequences of Healthcare Reform – #4