6/16/2015

What Brill's 'Bitter Pill' Gets Wrong on Obamacare - Bloomberg View

H E A LTH C A RE R EF OR M

WhatBrill's'BitterPill'Gets
WrongonObamacare

JAN12,20153:25PMEST

ByPeterR.Orszag

aA

StevenBrill'snewbookabouttheprocessofpassingtheAffordableCareActissometiculously
reported,IfoundmyselfsurprisedbymanydetailsofaprocessImyselfwasdeeplyinvolvedin.I
learnedfromAmerica'sBitterPill,forexample,thatinOctober2009oneofmyWhiteHouse
colleaguesapparentlywroteamemoarguingthatIhadmisledPresidentBarackObamain
highlightingthepotentialforthelegislationtoslowthegrowthofU.S.healthcarecosts.Brill
approvinglyquotesastaffmembersayingthatthepointofthememowasthatPeteroverstatedto
thepresidenthowgreatthebillwasoncosts.
Ifthereportingisaccurate,theanecdoteisnotjustsurprisingbutalsotelling.Asubstantialamount
ofskepticism,perhapsevenwithintheWhiteHouse,existedaboutwhetherthehealthcare
legislationdidenoughoncosts.Yetthecostcurveinhealthcareisbendingmoredrasticallythan
evenIbelievedpossibleinthefallof2009.Thatsbecausethecollectiveimpactofthe
legislationsindividualmeasures,alongwithsimilarchangesintheprivatesector,hasproduceda
shiftinperspectiveandthereforebehavioramonghealthcareleaders.
ThisisasignificantpointthatBrillfailstoacknowledgetothegreatdetrimentofhisthesis.
Ironically,though,it'snotedtowardtheendofthebookbyGaryGottlieb,theoutgoingchief
executiveofPartnersHealthCareinBoston,whosays,Therearealotofproblemswith
Obamacare.Buttheattentionitfocused,atleastintheindustry,oncostswiththosepilotsmadea
lotofusrealizewehavetochangehowweoperate.
Changeisindeedhappening.Theresultsthusfarhavebeenastonishing.In2014,Medicare
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6/16/2015

What Brill's 'Bitter Pill' Gets Wrong on Obamacare - Bloomberg View

spendingperbeneficiaryfell,ininflationadjustedterms.TotalMedicarespendingwas$126
billion,orawhopping18percentbelowwhattheCongressionalBudgetOffice,in2009,projected
forlastyear,accordingtoarecentKaiserFamilyFoundationanalysis.AndthisMedicare
decelerationhassubstantiallyaffectedthelongtermU.S.budgetoutlook.
WhyhaveMedicarecostsstoppedrisingasfastasexpected?Thebiggestexplanationisthedirect
effectofpolicychanges,includingreductionsinhowmuchMedicarepayshospitalsandMedicare
Advantageplans,accordingtotheKaiserreport.Therestoftheeffectisunexplained,butIsuspect
itistiedtotheindirecteffectsofObamacare.(Theanalysisfortotalhealthspendingismore
complicated,becauseithasbeenaffectedbytheweakeconomy.NotsoforMedicare.)
Inparticular,asIhavewrittenforseveralyearsnow,threebigtrendsareaffectingthehealthcare
sector.Thefirstistheexpectation,alongwiththegrowingifmodestreality,thatwearemoving
awayfromfeeforservicepaymentandtowardpayinghospitalsanddoctorsforvalue.Thesecond
isthattheU.S.healthcaresystemisrapidlydigitizingin2013,almost60percentofhospitalshad
atleastabasicelectronichealthrecord,upfromonly10percentin2009.Andthethirdtrendisthat
consumersarebeingpresentedwithmoreinformationabouthowmuchtheirtreatmentscostand
moreincentivestoavoidunnecessarilyhighcharges.
Whilethesedevelopmentsarenotduesolelytothehealthlegislation,Obamacare(andthe2009
stimulus)contributed,byvaryingdegrees,toeachofthem.Oneclearaimofthelaw,forinstance,
wastoshovehealthcareawayfromthepracticeofpayingforeachtestandprocedure,because
whenwepayforquantitythatswhatweget.
Asthisshiftisundertakenthroughaccountablecareorganizationsandothermechanisms,
providersaregiventheincentivetoprovidebettercare,ratherthanmorecare.Thisprocessresults
inblurringthedistinctionbetweenaprovider(ahospital,say)andapayer(aninsurancecompany).
Afterall,whenahospitalbenefitsfromlowerthanexpectedutilization,ithastheincentiveto
effectivelyactasaninsurancecompany.Brillhimselfrecommendsthat,inordertocontrolcosts,
hospitalsbeturnedintoinsurancecompanies.Hedoesntseemtorealizethatthatseffectively
whatoccurswhenthepaymentsystemisreformed.
Tobesure,themeasureswewerefinallyabletoincludeintheAffordableCareActthatpromote
payingforvaluewerenotallthatIorotherswanted.Buttheywereapparentlyenoughtogenerate
theresponsenotedbyGottlieb.Andhispointthatthelegislationshiftedexpectationswasboth
thebasisformyguardedoptimisminthefallof2009andalsosomethingthatcouldneverbe
modeledbytheCongressionalBudgetOffice.
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What Brill's 'Bitter Pill' Gets Wrong on Obamacare - Bloomberg View

Animportantnoteofcautionisinorder:Wearestillearlyinthisprocess.Medicarepayments,in
particular,arestilldominatedbyfeeforservice.Moreprogressisnowbeingmadeoutside
Medicare.Indeed,in2014,40percentofcommercialpaymentstodoctorsandhospitalscontained
valuebasedprovisions,accordingtoCatalystforPaymentReform.That'supfromonly11percent
in2013.UnlessMedicareleadstheway,though,eventheseeffortsmayfalter.
TheObamaadministrationthereforeneedstoforcefullyapplytheauthoritythelawprovidesto
maketheshifttowardvaluebasedpaymentirreversible.Itshould,forexample,declareaclear
timetablewithspecificgoalsforvaluebasedpaymentswithinMedicare.Anditshouldactoverthe
nextfewmonths,beforetheupcomingpresidentialcampaigncausespeopletoassume,again,that
feeforserviceisheretostay.Ifthathappens,theprogressmadetodatewouldprobablydissipate.
BrillhaswrittenanoutstandingbookabouttheadministrationseffortstopassObamacare.Nowit
isuptotheadministrationtoprovehimwrongaboutwhatthelegislationdoestothetrajectoryof
healthcarecosts.
Tocontacttheauthoronthisstory:
PeterOrszagatporszag3@bloomberg.net
Tocontacttheeditoronthisstory:
MaryDuenwaldatmduenwald@bloomberg.net

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