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One Consultant’s View on Health Care System Reform, And the Need to Drive Down Costs

May 23, 2017
by Heather Landi
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On May 4, on Capitol Hill in Washington D.C., House Republicans passed the American Health Care Act (AHCA), legislation designed to repeal and replace some portions of the insurance-related provisions of the Affordable Care Act, and paving the way for a Republican-led effort to reform the healthcare system.

Many healthcare policy leaders have noted that there is a long road ahead before the bill might head to President Donald Trump’s desk as the bill still needs to pass the Senate. In fact, the Congressional Budget Office (CBO) is scheduled to release its analysis of the revised bill this week and, depending on the CBO’s updated analysis, there is ongoing uncertainty about how the GOP’s efforts to overturn and replace portions of the ACA will ultimately play out.

In the wake of the House vote, Healthcare Informatics Associate Editor Heather Landi spoke with Michael Abrams, co-founder and managing partner of St. Louis-based consulting firm Numerof and Associates, to discuss current federal health care reform efforts. In that discussion, Abrams shared his perspective that federal legislators need to address the fundamental issues that are challenging the U.S. health care system, rather than just solely addressing the insurance provisions within the ACA. “The underlying issue is that we’re looking at healthcare costs that are accelerating rapidly and will only go up from here; and it’s a function of the way we pay for healthcare and not a function of the insurance system,” he said.

Michael Abrams

In that interview, Abrams shared his thoughts on health care system reform, in broad terms, why value-based care programs at the federal level are too complex and what the leaders of patient care organizations should be focusing on now to effectively navigate the increased uncertainty about the direction and pace of healthcare policy change. Below are excerpts from that interview.

Why do you think the American Health Care Act, and previously the ACA, doesn’t go far enough to address the underlying issues in healthcare?

Most of what this legislation [AHCA] does results in fewer insured lives, and fewer insured lives means fewer paying customers and more unreimbursed care for hospitals. The major source of savings in the bill is the reduction in spending on Medicaid, through per capita caps or block grants and by phasing out the Medicaid expansion. Reduced spending here means less revenue for hospitals, which means more pressure on hospitals, more belt tightening by hospitals. Don’t get me wrong, I think that there’s plenty of waste and inappropriate delivery of services in hospitals; that is what has brought us to where we are today, which is, we spend twice as much as any other developed economy and we don’t even get the same quality of outcome. But paying less for every unit of service is not going to fix the problem, and effectively that’s what we’re doing here. And all the while we’re arguing about how to spread the cost, but we’re not changing the underlying issue, which is the cost itself.

What should healthcare provider organization leaders be taking away from all this?

Well, for many years now, advisors to the healthcare community have been telling healthcare delivery executives that they need to learn how to be profitable, at lower payment rates, and clearly that’s where we’re going. Let’s talk about the consequences of this: You force upon hospitals more unreimbursed care, they have shrinking bottom lines, they merge in order to try to save themselves; so smaller ones, the rural ones, close their doors. What are you left with? You’re left with fewer and larger systems that dominate healthcare delivery, trying to get by on smaller and smaller margins. But the truth of the matter is, they are still doing things the way they’ve always done it. By that I mean, there is still tremendous waste in the system, any healthcare administrator whom you talk to off the record, will acknowledge that 30 to 40 percent of the services that are delivered are unnecessary or downright harmful. And why is that? Because we have a payment system that is piecework—the more service you provide, the more money you get paid. You are incentivizing hospitals to deliver more acute care services; you can pay less and less for every unit of service, but you haven’t changed the underlying dynamic.

What is the end product? You have fewer and larger systems that dominate healthcare delivery, and they are all trying to get by on leaner and leaner margins, but many of them are not doing anything different than what they have always done. They are trying to pay their staff less, and trying to pay their physicians less, and at what point do people start leaving the field and say ‘I’m not taking Medicare and I’m not taking Medicaid, it doesn’t pay me to do it anymore.’

What do you think leaders in Washington D.C. should be focused on regarding healthcare reform?

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