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Pulling it Together: The “Third School” for Controlling Health Care Costs?

For as long as I have been in the field, there have been two dominant schools of thought about how to control health care costs. One school, The Regulators, believed that the best way to slow increasing costs was to control the total resources going into the health care system: putting limits on the supply of medical professionals, technology and facilities; setting payment rates; or putting enough purchasing power in the hands of government to drive the right bargain with the health care industry. The other school, The Marketeers, believed that competing health plans and information-empowered, prudently-purchasing consumers would drive down costs, especially if insurance were restructured to give people the right incentives. Although their philosophies were mirror opposites, both the Marketeers and the Regulators sought to control costs by applying external forces of different kinds to the health care system. Neither school had much interest or faith in getting inside the black box of health care delivery or medical practice as a way to control costs; doctors, hospitals and insurers—whether regulated or competing in a marketplace—would have to work that out on their own.

We may now be witnessing the ascendancy of a third school, the Systems Reformers. The Systems Reformers believe that the best way to bend the cost curve is not through external market incentives or regulatory controls, but from the inside out, by creating a smarter health care system with the information base, new delivery models and payment incentives that will improve quality and lower costs. In truth, the Systems Reformers have lived among us all along, but until recently their research and ideas were more focused on improving quality than controlling costs and were featured mainly in respected journals and conferences. They seldom made it into the lexicon or armamentarium of policymakers or the spotlight of journalists.

The Systems Reformers’ paradigm is reflected in the “bending the curve” elements of the health reform legislation currently in Congress, which mostly come in the form of pilot projects and experiments. These include tests of ideas like Accountable Care Organizations, “pay for performance” and “bundled payments,” as well as efforts to create a smarter, evidence-based health delivery system through comparative effectiveness research. But not all Systems Reformers’ ideas are embodied in the health reform bills in Congress. Numerous experiments are underway across the health care delivery system and in both the private and public sectors and touted by a broad range of health care leaders.

The Systems Reformers’ paradigm did not emerge because of some recent discovery. Jack Wennberg published his first major study of small area variations in costs and practice patterns in Science in 1973, and continued to publish similar research regularly after that.  And the cost effectiveness of the Mayo Clinic was as regularly reported then as it is now. These ideas have been in the mix for a long time, but they have never before joined with regulatory and market strategies with the primary goal of controlling costs rather than improving quality or received the kind of high level endorsements they are getting today.

Partly what has happened is the health policy equivalent of being in the right place at the right time. In the current health reform debate, policymakers needed approaches to cost containment that offered the promise of long-term results and the potential to bring conservatives, liberals and large stakeholders together. Systems Reformers offered the promise of future savings without the old ideological fights and interest group opposition.  Articulate experts and prominent leaders in both the public and private sectors were also willing and able to make the case for Systems Reformers’ ideas, not least OMB Director Peter Orszag. The President also gave Systems Reformers a huge boost by embracing these themes until switching the emphasis more recently to “health insurance reform” when it became clear that Systems Reformers resonated better with insiders and policy wonks than with the public.

In a feat never before seen in our field, Atul Gawande’s wonderful New Yorker piece traveled through the White House and across Capitol Hill in about two days, not so much because the research he was describing was new (Wennberg had reported similar findings many times for thirty years) or because his analysis was so brilliantly written (which it was).  The timing was right for a new strategy to bend the curve through delivery, information and payment changes that did not divide policymakers and stakeholders along the familiar ideological lines. The article also rippled through the medical profession with similar speed. For many practitioners this was health reform they could relate to; getting under the hood of medical practice and health care institutions and changing practice as well as pursuing quality improvement and cost containment in tandem.  News media attention to the New Yorker piece and policymaker interest in it brought attention to Systems Reformers’ ideas to new levels.

No doubt some veteran health policy people see Systems Reformers’ ideas as a way to avoid bigger regulatory or market changes that they believe need to be made. But many in the loose Systems Reformers’ movement seek far-reaching changes in the practice of medicine and in how health professionals and health care institutions are paid that would reshuffle financial interests in fundamental ways. The driving force for the Systems Reformers agenda comes from health care leadership groups themselves, but its broader vision it is not a defensive, narrow or timid one.

As a strategy for controlling costs, the Systems Reformers’ approach trades the political downsides of the old approaches for much less certainty about scalability and results. As Brookings’ Henry Aaron commented when speaking to Lisa Wangsness of the Boston Globe: “The truthful answer is, we’re trying things out. When exactly the [cost] curve gets bent and how far it bends eventually is something no responsible person can give a hard answer to today.”

There are still many very serious question marks here. Can we figure out how to bundle payments? Will Accountable Care Organizations take off or remain limited to the relatively small number of integrated health systems that already exist today? Is this just the new buzz word in health care like so many before it? How long will it take for comparative effectiveness research to begin to pay off, and will we be able to figure out a system for incorporating it into coverage and payment decisions without raising the spectre of “rationing”? Can all of the promising delivery reform efforts now underway across the country to make the health care system more cost effective “scale up” in a way that is measurable, not just at Mayo or for one company here or there but to really bend the curve?

It is a note of caution that when it came to producing hard cash to pay for health reform legislation, the Congress—driven in large part by the Congressional Budget Office’s estimates—did not put many of its eggs in the payment and delivery reform basket. To produce a scoreable, deficit-neutral bill, they resorted to a mix of tried and true reductions in Medicare payments and new revenue raisers, plus added a Medicare Commission modeled loosely on the military base closure commission.

Nevertheless, the Systems Reformers’ agenda has now become part of the cost containment discussion in a new more official way, and it has a firm foothold in the health reform legislation now moving through Capitol Hill and new energy in the private sector. Time will tell whether Systems Reformers’ school has staying power along with market and regulatory approaches, but for now it is worth noting its emergence as a third leg of the stool of cost containment strategies at the highest level of health policy.