by Tom Robertson
Executive Director, Vizient Research Institute

Emperor penguins congregate on desolate stretches of packed ice in colonies comprised of tens of thousands of birds – some colonies are estimated to reach 50,000 breeding adults. Before an egg hatches, a mating pair alternates between searching for food and keeping the egg off of the ice, balancing it on their feet. Upon returning from feeding, one member of the pair must find their partner, often in a blizzard, to exchange roles. Once a chick can maintain its own body temperature, both parents leave to forage for food.

When they return, they must be able to recognize their own chick from the thousands who plead indiscriminately to all adults for food. Parents recognize the distinct call of their own young and ignore the cries of others. This ability to “listen through the noise” is a skill that would serve us well at a time when health care policy is perhaps as uncertain as it has ever been.

We sometimes get swept up in catch phrases like “shifting from volume to value” when there is less fundamental change in the market than the vocabulary would imply. After years of operating under the Affordable Care Act (ACA), volume still matters to almost every provider, and value-based payments are anything but a wholesale shift away from fee-for-service. It’s worth taking a moment to reflect on the original goals of President Obama’s health care policy, and of the context around affordable care rhetoric.

The outgoing administration never set out to reduce costs, they wanted to expand coverage. In order to satisfy federal requirements that there be cost savings or new revenue to offset incremental spending – in addition to reduced payment rates to providers and increased taxes – policymakers suggested ACOs and implemented bundled pricing, but the fundamental motive was expanded coverage, not lower costs. Bundled pricing has a successful track record, not just under the ACA, but dating back almost 30 years when hospital and physician payments for heart surgeries were first packaged together. Prospective payments – whether DRGs, acute bundles or eventually longitudinal episode payments for chronic conditions – reward efficiency and penalize avoidable variation.

Global spending targets typical of ACOs have, by contrast, struggled to have their desired effect. A recent assessment of the ACO program found that CMS had saved less than 1 percent of attributed beneficiary spending and only 0.08 percent of total Medicare spending, before accounting for administrative costs incurred by providers. The departure of Dartmouth from the ACO program was particularly noteworthy. The administration’s reluctance to embrace the financial results is understandable when we remember that expanding access, not cost reduction, was their primary motivation.

The priorities under a Republican administration might be expected to tilt back toward cost reduction and away from access. Federal subsidies for the individual insurance market exchanges may attract additional scrutiny, which could exacerbate the rapid increase in premiums; there is no stable insurance scenario in which individual beneficiaries are able to elect when to buy coverage based on their own health status. Without the federal subsidies, the exchange market never would have left the ground, and even with them it is spiraling down at an alarming rate.

It is an unanswered question as to whether a new administration would feel compelled to find a substitute for the individual insurance market should it collapse. In the absence of federal premium subsidies, which have escalated at an unsustainable rate, the appetite of commercial insurers for the individual market would be expected to contract considerably. If that occurred, opposition to an expansion of Medicare as an alternative to a heavily subsidized private sector market for uninsured individuals might dissipate.

Some would argue that Medicare (with its ability to dictate unit prices) represents a more efficient solution to the uninsured problem. Two elements of the ACA that should be expected to survive, whether in a private or public sector plan, are the elimination of benefit exclusions for pre-existing conditions and the extension of coverage through age 26 for dependents living with their parents. With Republicans having no deep attachment to the subsidized individual insurance market or to the ACO concept, it is reasonable to wonder how much support those initiatives will have moving forward.

It is easier to anticipate continued expansion of prospective bundled pricing – not just acute surgical bundles but eventually longitudinal episode prices for conditions like CHF, COPD, or high-incidence cancers. Access expansion was driven by philosophy; cost reduction will be driven by necessity. According to the U.S. Census Bureau, the number of Americans over the age of 65 will increase by 60 percent between 2015 and 2030; by 2050 it will have virtually doubled. The working age population, who are expected to fund their own health care costs plus most of ours, will increase by only 5 percent between 2015 and 2030. A July 2016 study by the McKinsey Global Institute found that (excluding governmental transfers such as unemployment, welfare, etc.) well over 60 percent of U.S. households saw real income flat or declining between 2005 and 2015. The expansion of Medicare beneficiaries, propped precariously on a relatively flat working-age population with no measurable growth in household income, suggests that cost reduction will be an unavoidable priority for Washington policymakers.

A recently concluded Vizient Research Institute study of 200 health systems nationwide, slated for release in February, found enormous variation in discretionary utilization of resources across hospitals within the same system. Intra-system variation commonly exceeded differences observed between health systems. Persistent variation in the use of post-acute care facilities, major imaging, and end-of-life care tells us that we are ill-prepared for an expansion of prospective bundled pricing. Waiting for policy changes in Washington while leaving variation unattended is a bit like a fleet of fishermen waiting in the harbor for the new species and size limits while a tsunami approaches. There is a 30-foot wall of water coming at us in the form of unsustainable Medicare spending. It’s time to move to higher ground.

Penguins live in a harsh environment. Months of uninterrupted darkness, howling winds and featureless expanses of ice. If they stand still, they’ll die. In spite of the elements, they are able to block out all distractions and focus on one tiny voice in a cacophony of 50,000 voices competing for their attention. In health care, we have been conditioned to be reactive. To wait for regulatory winds to shift and then to adapt. In this latest political transition, however, we would do well to block out distractions and to focus on one signal coming from the ice – an unsustainable ratio of Medicare spending to working population. That’s the voice calling out to us. We can’t afford to stand still.

About the author and the Vizient Research Institute™. As executive director of the Vizient Research Institute, Tom Robertson and his team have conducted strategic research on clinical enterprise challenges for 20 years. The groundbreaking work at the Vizient Research Institute drives exceptional member value using a systematic, integrated approach. The investigations quickly uncover practical, tested results that lead to measurable improvement in clinical and economic performance.

Published: January 5, 2017