A Look Forward To Health Care In 2017: Top Five Trends

The new year is already underway and we expect both a new Republican-dominated Congress and President Donald Trump to bring ambitious policy changes to health care. With significant pent up energy among the Republicans and a limited 18-month window for legislation, lawmakers will be in an immediate all-out policy-making mode. This is particularly true for health care, which many in Congress consider a top issue on the docket. With an eagerness for change, health care is in flux, and difficult decisions will need to be made that will directly affect Americans both socially and economically. In this world, many are left wondering what to expect in 2017. Here are the top five health care trends to watch in the New Year. ObamaCare, Interrupted In all likelihood, legislation to repeal to the Affordable Care Act (ACA) will be sitting on Trump’s desk in short order. But a replacement plan will be missing and will require the balance of the year or later before it is complete. Despite all the rhetoric around “repeal and replace,” the governing realities are much more complex. For one, Republicans have a lot of finer points to work out. Five lawmakers and two conservative think tanks have introduced different health care blueprints and Republicans will work to get at least a handful of Democrats to sign onto their proposal, meaning we’re in for a year of consensus building as essential questions are answered and final proposals are built. For 2017, that may not be too much of an issue. Open enrollment closed on January 31 and those that have ACA coverage will keep it, but the clock is ticking. Insurers will need certainty around the law so they can design plans, set rates and premiums, and decide where they want to participate before some or all of the ACA exchanges phase out. If no replacement is forthcoming, the consequences could be significant, particularly for hospitals and health systems that must provide care regardless of insurance status, with reduced overall payments to offset the expense. And the pressure is on for lawmakers, as well. Millions of people now depend on the ACA’s benefits — from those who have gained coverage through the marketplaces and Medicaid, to children that can stay on their parents’ plans until age 26, to those receiving no-cost preventive services. A total overhaul could mean taking those benefits away completely, or shifting people into the ranks of the underinsured. Similar to an elaborate game of Jenga, our health system is made of interconnected pieces that if pulled at the wrong time or the wrong way, may result in the collapse of the entire structure. No question, change is needed. But we also can’t return to the days of millions of uninsured, coverage lock-outs due to pre-existing conditions, emergency rooms as the site of primary care, an unmanaged population that is invisible to the health care system, and ever-escalating costs. In the end, 2017 will be the year that we move beyond some of the partisan stand offs that have tainted the ACA. One hallmark of these reforms will be moving away from the top-down federal mandate approach toward one that prioritizes customization and state-led innovations. Health Care Hunger Games Each choice has implications, some more advantageous than others. Letting the markets figure it out is in line with Republican ideology about getting government programs out of the way of private sector innovation and consumer choice. And it could be accomplished with Medicare Advantage (MA) plans — a favorite of Republicans because they provide private plans with fixed amount for care, allowing the plans themselves to push providers into alternative payment models (APMs) if that is effective at reducing costs and risk. But to date, such a push has been slow to materialize, with CMS finding that most MA providers remain in fee-for-service (FFS) and focus on cutting rates, not incenting the redesign of care. Moreover, even if MA plans embraced APMs, only about one-third of beneficiaries are covered in these plans, with even lower adoption in some states (2 percent in Wyoming). This means the status quo of FFS payment in Medicare for most providers, which keeps the system tied to volume-based payments that could lead to unsustainable cost growth and budget overruns. The second option is to alter the current APM through rulemaking to favor physician-led approaches and physician-owned hospitals and outpatient clinics. These approaches could lead to greater employment and consolidation of physicians, as well as a temptation to avoid caring for the highest-risk populations. This in turn would lead to some patients delaying care or turning to emergency rooms for ambulatory treatments. The last and most advantageous choice is to build on the APMs that are currently in place, with improvements to ensure they work to their full potential. Significant provider sector investments have already been made in these models, and any reversal of the current movement toward value-based care would cost the sector billions. Moreover, they are bearing the predicted fruit. Today, about 30 percent of all Medicare reimbursements are now flowing through an alternative payment model, and just in the Medicare Shared Savings Program, participants have generated $1.29 billion in savings since 2012, while improving quality in 84 percent of all quality indicators. Premier’s experience with our ACO collaborative has actually been even better, delivering three times the return as all the other ACOs in 2015. Rather than throwing the baby out with the bathwater, I think Republicans will largely keep the current value-based care models in place today, while creating new options that give physicians greater choice. This is the only antidote to perpetual cuts to fee-for-service (which we can most definitely expect in any repeal and replace plan), as well as rising costs for medical devices and drugs. We will see substantive policy changes, such as added use of legal waivers, changes to the measures and benchmarks, fixes to the risk adjustment methodology, and potentially changes to the savings shared back with providers. But no matter how it’s organized, the writing is on the wall — we are long past the days of rewards based on consumption. In 2017, value becomes the new economy and measurement its currency. 50 Shades Of Health Care While the ACA was predominantly a federal program pushed down to the states, the opposite dynamic is likely to be central to the Republican replacement plan, instead pushing greater control to the states to design their Medicaid programs as they deem fit. This will likely make Medicaid expansion more palatable to conservative Governors and legislatures that previously rejected it, as they will now be given the freedom to structure programs to include personal responsibility requirements such as employment, co-pays, or lifestyle changes. But, to gain the best results, providers need to find more efficient and innovative ways to care for Medicaid recipients. And to make the most of what is likely to be reduced federal financial support, states will need to explore delivery system reforms that improve the health of communities and control costs. Tapping new advancements in data and enlisting health systems that share the same goal to align their performance to benefit all residents, more providers may push states to pursue Medicaid waivers, particularly those that test delivery system reform. These programs align well with the alternative payment models in MACRA, are budget neutral, and have been shown to align financial incentives with evidence-based best practices in population health management. Using these waivers, states are able to foster a locally driven move away from the fee-for-service mindset that focuses on treating the sick, to a system that emphasizes prevention and wellness — and saves a lot of money in the process. Take Alabama, which last year won a waiver to provide care to 60 percent of the state’s Medicaid beneficiaries through regional care organizations (RCOs) that receive a set per member, per month fee for all care delivered. Similar to other payment programs, if quality is maintained and the care delivered costs less than what was allotted, the providers keep the remainder. If it costs more, the providers are at risk for the overage. Although Alabama is still working to set this program up, other states, such as Colorado, Maryland, and Washington, with similar experience with these types of waivers have reported strong health care cost and quality gains. Still other states, such as Ohio and Arkansas, have applied for and won grants to test episode-based bundled payments for certain high-cost acute care episodes, with providers eligible to receiving bonus payments for cost savings if outcome goals are met. In 2017, I expect many more of these innovative programs to produce results, and states that have been waiting to see the returns will follow with applications modeled on the most successful programs. I also expect that 2017 will be the year that providers increasingly leverage these programs through the creation of provider-sponsored Medicaid managed health plans that contract directly with the state, aligning the financial risk directly with performance across the continuum of care. Year Of Living Competitively With this election, many pharmaceutical companies may have thought they would get a reprieve on pricing, but escalating drug costs remains a huge issue on the table. Drug price increases affect consumers in a number of ways, including insurance premium costs and higher co-pays for therapies. In fact, Blue Cross Blue Shield of Idaho recently increased costs for its plans by 49 percent, attributing 41 percent of the increase to escalating drug costs for beneficiaries. Similarly, in 2016, the top 10 Medicare Part D prescription drug plans increased their premiums by an average of 8 percent, with five of the plans raising premiums by double digits, the highest rate of increase in the program’s history. Driving some of these price increases are anti-competitive economics. A recent Senate Special Committee on Aging Report found several market dynamics that contribute to the problem, including sole source drugs that allow for monopoly pricing power, small markets that do not provide enough competitive leverage, and closed distribution channels that prevent new competitors from accessing the drug for necessary generic or bioequivalence studies. We expect 2017 to be the year where Congress, the states, and the courts focus less on price controls and more on closing loopholes and market anomalies that have to date worked to prevent competitive forces from modulating prices. At the regulatory level, we expect bipartisan support for new legislation that would require the Food and Drug Administration (FDA) to fast track new generic drug applications in cases where there are two or fewer manufacturers in the market, levying a decision within 150 days, as opposed to the four plus years it can take today. It’s also safe to assume we’ll see action on efforts to ease closed distribution regulations to allow generics competitors to gain appropriate access to samples that would enable testing of therapeutic equivalence. In the courts, state, and federal attorneys will take up a myriad of anti-competitive dynamics that have been used for years to extend patents or prevent competition in the marketplace. Suits have already been filed to challenge the biosimilar 180-day waiting period, which today requires biosimilar competitors to notify the brand maker of their intent to market after they have FDA approval, as opposed to in tandem with their filing. This can delay market entry by six months or more. And we can expect more scrutiny of pay-for-delay deals where branded manufacturers reach agreements with generic companies to delay market entry for new products in exchange for cash or other payments of value. Through The Looking Glass Consumerism has been on the rise in health care for the better part of a decade, but it hasn’t truly materialized as many would have envisioned. Consumers today have more cost and quality information than ever before, but it can still be difficult to uncover meaningful differences between the various options. In other cases, the information is not personalized to them, providing information on total costs as opposed to their individual out-of-pocket expenses. Moreover, even in cases where consumers have a clear choice, they may not be able to act on it due to health plan or other restrictions. But as we move into a post-ACA world, we can expect more consumers to become directly exposed to costs through health savings accounts (HSAs) and high-deductibles, meaning that they are going to seek care choices that provide the most value and convenience to them. The net is that providers need to start thinking more broadly in this new world — not just about how they deliver care, but about the total experience. Is the website easy to use and mobile friendly? Can patients book lower cost FaceTime appointments for non-emergency consults? Does the organization provide enough parking? Do patients understand costs up front, before receiving prescribed care? Can you describe your quality in terms that patients can really understand? Is the billing system easy to understand and straightforward? On the policy front, that could involve some substantial changes, particularly at the state level, where new laws could be enacted to protect or empower consumers that are increasingly becoming the payers for health care services. Already, four states (California, Florida, Connecticut, and Utah) have passed legislation that would cap the amounts that can be collected from “surprise billing” or the practice of billing for out-of-network costs that the individual had no knowledge of receiving. Still more passed laws requiring disclosure of out-of-network costs and billing estimates. And five states (California, Florida, Maryland, Oregon, and New Jersey) have comprehensive sites that allow consumers to compare the prices and charges for common procedures. Going forward, it’s reasonable to assume that there will be greater transparency around cost, quality, and co-pay data to enable consumers to make more informed choices. Not only is care going beyond the four walls of the provider organization, but so is the entire buying experience. For 2017, clinicians need to stop thinking exclusively about just performing better than their local competitors and start thinking about providing a customer experience that rivals the top consumer brands. Without question, 2017 is going to be a year of change. But through it all, we must remember the larger purpose. Republican or Democrat, we’re all aligned behind designing a health care system that is coordinated, innovative, cost-effective, high-quality, available, and affordable for all Americans. If we keep the end goals in focus, this could be the year of tremendous promise and progress.

Healthcare Insurance: America’s Collective Action Nightmare

Across the country, ugly confrontations are occurring between Republican lawmakers who pledged to repeal Obamacare and Americans who are afraid of losing their healthcare coverage. The protesters’ fears are understandable. The cost of medical services can be devastating. The chief selling point for Obamacare was that, between the guarantee of coverage on the exchanges and the expansion of Medicaid, the vast majority of Americans would be protected. And the main difficulty that Republicans face in repealing Obamacare is the widespread concern that tens of millions of people might be tossed off the rolls. The confrontations are the unavoidable consequence of a collective action dilemma. The dilemma is this: To achieve good collective outcomes, government must often prevent people from doing what they think is best for themselves. Individually, I might like to be free to dump trash in the most convenient place, to pollute the waterways and skies, to fish and hunt without limit, to drink and drive, or to use other people’s property and possessions without their permission. Millions of other people might want these liberties too. But collectively, we’re all vastly better off when everyone’s freedom to do these things is constrained. One of the benefits of government is that it can prevent people from acting in ways that are individually rational but that, when practiced widely, make us collectively worse off. In healthcare, the collective action dilemma stems from the fact that comprehensive coverage—by which I mean all forms of third-party payment, including Medicare and Medicaid, as well as private insurance—is the main driver of the healthcare cost spiral that gone unchecked since the mid-1900s. The problem is a vicious circle. The more insurance a person has, the less the cost of health care figures in individual decision making. The less costs matter, the more willing people are to use healthcare, especially healthcare that is expensive. The more people consume, the more society spends and the pricier healthcare becomes. As healthcare costs increase, the more people want insurance and the more they want insurance that covers everything. Return to step #1. In short, third-party payment got the healthcare cost spiral going and has fed off it ever since. The cycle ends when millions of people start going bare because insurance has become too expensive for them to afford. By that point, of course, healthcare is prohibitively expensive too, and people who are uninsured or at risk of becoming so are worried to death that they’ll be ruined financially should they or a loved one get sick. That is the situation today. The connection between third party payment and healthcare spending will be obvious to anyone who bothers to look. In the figure below, the red line shows the ratio between the total amount that consumers paid out of pocket for healthcare and the amount that was spent by Medicare, Medicaid, and private insurers. The line declines steeply, showing that, since 1960, an ever-increasing fraction of healthcare dollars has been routed through third-party payers. (The decline is especially pronounced in the mid-1960s, when Medicare and Medicaid were introduced.) The blue bars show annual healthcare spending per capita. As the red line falls, per capita spending rises inexorably. The logic is simple. The more we rely on third party payers, the more we spend because the less each of us worries about costs when deciding how much healthcare to use. The segment of the healthcare market in which people buy goods and services directly provides more evidence. There is no cost crisis in this segment and never has been. Prices for Lasik surgery, in vitro fertilization services, abortions, plastic surgery, and other treatments that aren’t covered by insurance are reasonable and often decline. The same is true for over-the-counter drugs. Hospitals can sell aspirin tablets for $10 apiece because insurers pay their bills. The corner drugstore can charge only pennies because you do. Often, the self-pay sector and the insurance sector operate side by side, and when they do the self-pay sector is always cheaper. The prices that insurers and government agencies like Medicare pay for blood tests, MRIs, wheelchairs, vasectomies, and other medical goods and services greatly exceed those paid by patients who foot their own bills. The reasons are simple. Self-pay patients seek out bargains and force providers to compete. Insurers don’t. Providers can also serve self-pay patients more cheaply because they don’t have the administrative burdens that third party payment imposes. To solve the cost crisis, then, America must transfer as much responsibility for healthcare purchasing as it can from Medicare, Medicaid, and other third-party payers to consumers. Ideally, consumers would pay for everything except services that are required to meet catastrophic needs, for which insurance will always be essential. The problem is how to get from where we are to where we ought to be, despite the hysteria that is gripping the nation. There must be a transition, a sustained program of education, and a safety net for the poor. A transition is needed because Americans will have to learn to save money to meet the predictable costs of healthcare and to feel comfortable buying services themselves. Today’s seniors didn’t save as much as they should have during their working years because they expected Medicare to take care of them. Today’s workers aren’t saving either. They’re relying on their employers to withhold the money needed to cover their premiums and they’re hoping that when they retire, Medicare will take care of them too. Both seniors and workers are also relying on third party payers to negotiate prices instead of shopping for good values themselves. It will take time, probably a generation, to replace these bad habits with good ones. Education is needed because Republicans have promised to replace Obamacare with something better, but for the vast majority of Americans “better” means as much insurance coverage as they currently have (or more) for a lower price than they currently pay. No one can deliver that because, as private insurance, Medicare, and Medicaid drive prices and spending higher and higher, premiums and taxes have to increase. Only when Americans realize that insurance is the problem, not the solution, will a program better than Obamacare be feasible politically. A safety net is needed because there will always be people who are too poor to purchase their own medical treatments, just as there will always be people who are too poor to buy their own housing, transportation, or food. The safety net will have to provide for them—but it should do so by giving them money or vouchers, not by providing insurance or Medicaid. Food stamps aren’t insurance. They’re vouchers that people use to buy what they want. The Earned Income Tax Credit isn’t insurance either. It is a source of funds that poor people use to cover their needs, and studies have repeatedly shown that it helps them immensely. We should give poor people money to buy healthcare too. In the short run, the education program is the most urgently needed. Republicans will have to teach fearful Americans that healthcare is expensive because it is insured. This will be hard to do. Democrats, most of whom want universal insurance coverage for everything and all of whom want to kick the Republicans out of office, will do what they can to stoke voters’ fears. Health care businesses will too. They know that private insurance, Medicare, and Medicaid are their cash-cows, so they will say and do what they must to protect them. Worst of all, Republicans have undermined their ability to teach anyone anything by cultivating a reputation for being stupid, dishonest, and corrupt. They have sided with superstition against science, have embraced the least educated portion of the electorate, have repeatedly lied about things like “death panels” and defensive medicine, have cried “rationing” whenever any effort has been made to rein in healthcare spending, and have sold their souls to drug companies and other industry interests. No wonder millions of Americans think they’re mendacious. I don’t trust them, and I am aligned with them in this debate. If we can’t get from where we are to where we need to be, it will be partly because so few Republican officeholders have the credibility to lead.