Stealth Healthcare Reform

In 2010, in what has, unexpectedly, turned out to be a very productive legislative year, a historic healthcare reform bill was passed.  Many will say that the bill passed will NOT ultimately solve the underlying cost problem and will only add cost to the system.  In many ways the naysayers are correct.  The bill focused on health insurance reform and not on reforming the entire healthcare system.  Coverage will be increased and the uninsured rolls will decrease.  However, without controlling costs, they are bound to skyrocket, as it has occurred in Massachusetts.  There is a lot of gnashing of teeth and legal challenges to the major provisions of the healthcare reform bill, dubbed “Obamacare”.  However, it is really much ado about nothing.  In effect the bill will tweak the insurance industry and provide a path for greater coverage of the uninsured.  However, real healthcare reform actually was initiated two years ago.  In what I would call “Stealth Healthcare Reform” by luck or happenstance, I am sure not wisdom, the wheels of true healthcare reform are turning beneath the surface of what you see in the newspapers.  The real revolution is not being televised.  If you are not in the industry, you may not even realize what is going on.  However, contained within the stimulus bill passed two years ago and the reform bill are innocuous appearing, small but incredibly transformative provisions that all smart and aware healthcare organizations are responding to right now.  When you put them together, you have the catalyst for the entire healthcare industry, including providers and payers, to transform and challenge themselves to rein in runaway costs.

The first important provisions of stealth healthcare reform were embedded in the stimulus package.  The American Recovery and Reinvestment Act of 2009 (ARRA), commonly referred to as the Stimulus or The Recovery Act, was enacted in February of 2009.  The stimulus funding was intended to create jobs and promote investment and consumer spending during the recession.  The bill also included incentives for the first steps towards true healthcare reform.  The bill included over $155 billion for healthcare initiatives.  Most were targeted towards supporting current programs such as Medicaid ($86 billion).  However, there was also a provision to allocate $25 billion to encourage all healthcare providers to invest in Health Information Technology (HIT).  Prior to the Act the US trailed most other industrialized nations in the use of HIT.

EHR Adoption

International Comparison of EHR Adoption Rates

There has been an interest in moving the US to Electronic Health Records (EHRs) for over 30 years.  This interest intensified in the early 2000’s as healthcare costs continued to skyrocket and progressive organizations such as Geisinger and Kaiser Permanente were making large investments in HIT and beginning to deliver increased healthcare value.  In 2004, President George W. Bush called for widespread adoption of electronic health records in 10 years.  To further this aim, he doubled government HIT funding to $100 million for demonstration projects and created a new sub-cabinet position of National Health Information Coordinator.   Nevertheless, there was still very little traction in terms of EHR uptake, especially in terms of comprehensive EHRs.  In a 2008 survey of ambulatory physicians only 4% reported having an extensive, fully functional electronic records system and 13% reported having a basic system.  In a 2009 survey of hospitals, only 1.5% of U.S. hospitals had a comprehensive EHR (i.e., present in all clinical units), and an additional 7.6% had a basic system (i.e., present in at least one clinical unit).  In both surveys, costs were identified as the major barrier.  The stimulus funding now represents real money to overcome this barrier and catalyze the transition to EHRs.  Through the Center for Medicare and Medicare Services (CMS), the government has created an incentive structure to ensure that EHRs are not only implemented but also used in ways that have demonstrated value for patients and payers.  The so-called “Meaningful Use” regulations provide incentives for all providers to move their business model to a new platform and operate in a way that focuses on value creation.  Competition will shift to how well can you use your EHR to deliver differentiated value.  A first step towards true delivery system reform, necessary but not sufficient.

The key accelerant applied to this context was The Patient Protection and Affordable Care Act (PPACA), which was signed into law by President Barack Obama on March 23, 2010.  The law includes numerous health-related provisions to take effect over a four-year period primarily targeted at insurers, including prohibiting health insurers from denying coverage or refusing claims based on pre-existing conditions, expanding Medicaid eligibility, subsidizing insurance premiums, providing incentives for businesses to provide health care benefits, and establishing health insurance exchanges.  The front-page fight has been over the legality of the act and the impact on the insurance industry with provisions that would increase coverage but not necessarily bend the cost curve.  However, through some act of accidental brilliance, true reform measures actually are buried within the act.  The fact is that, if you follow the 80/20 rule, the insurance industry should not be the target for controlling costs.  Insurance costs represent 10-20% of healthcare costs.  The delivery system including doctors, hospitals and pharma represent 80% of the costs.  The delivery system MUST be reformed if you are to truly bend the cost curve and not just drive more cost shifting.  There just happens to be several, not well publicized, provisions in the PPACA that are driving the necessary reform on the delivery side, though in a stealth fashion.

First, there are several provisions that improve support for Primary Care.  There has already been a great deal of attention paid to primary care redesign in recent years due to the declining numbers and income for the profession.  A strong primary care system is critical for decreasing costs and improving quality.  Due to increased attractiveness and financial benefits of specialty practice, the ranks of primary care doctors have declined over recent years.  This has led to the promotion of the Patient-Centered Medical Home (PCMH), a revitalized model for how primary care be delivered.  The PPACA also includes several provisions to support and strengthen primary care delivery:

  • Medicare 10% increase in primary care reimbursement rates, 2011–2016 ($3.5 billion)
  • Medicaid reimbursement for primary care increased to at least Medicare levels, 2013–2014 ($8.3 billion)
  • 32 million more people insured, with preventive and primary care coverage, leading to less uncompensated care
  • Medicare and Medicaid patient-centered medical home pilots
  • Grants/contracts to support medical homes
  • Scholarships, loan repayment, and training demonstration programs to invest in primary care physicians, midlevel providers, and community providers
  • $11 billion for Federally Qualified Health Centers, 2011–2015, to serve 15 million to 20 million more patients by 2015

Secondly, there are other provisions that will stimulate changes in the organization and delivery of health services and create powerful incentives to improve efficiency and productivity, but probably none is as powerful as the incentive to develop Accountable Care Organizations (ACOs).  ACOs are collections of health care providers that formally assume responsibility for the cost and quality of health care given to a defined group of patients.  This will usually include doctors and hospitals.  They will be paid differently (e.g. bundled payments) and may share in savings that they generate.  This means that incentives will be aligned between payers and providers, that doctors and hospitals will have to work together and that doing more may hurt providers rather than increase their incomes.  There are also quality performance requirements to counter-balance any incentive to withhold appropriate care.  Just about every healthcare organization in the county is trying to figure out how to position themselves as an ACO.  The implications are enormous in terms of structure, information systems and relationships.

The thing that probably could not have been better planned is that all of these provisions and incentives work together.  The new information technology implemented will support the PCMH and the ACO model.  The PCMH supports the ACO because a strong primary care base will be needed to better manage cost and quality in the ACO.  The ACO will drive alignment and clinical integration of previously fragmented local delivery systems.  The improved integration and coordination will delivery tangible increased value to patients and payers.  Although it is by no means perfect, the government is actually, by chance, on the right track with its Stealth Healthcare Reform plan.


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