Reform Redux

Updated on June 24, 2013
Mike Cassidy

By Mike Cassidy

Will this next decade of health care reform be the real deal—or will these concepts falter as have the earlier generations of health care reform?

  • RB-RVS and DRGs were the reimbursement reforms of the 1980s;
  • Capitation and managed care were the payment reforms of the 1990s;
  • PPOs, PHOs, IPA were structural reforms of the 2000s.

These reform measures experienced some degree of initial success, although obviously not enough to avoid the Obama health care reform agenda, i.e. the Patient Protection and Affordable Care Act of 2010 (PPACA).

PPACA is an even more ambitious program than the Clinton health care reform package proposed in 1993, which may still be fresh enough in many peoples’ minds to believe it was almost 20 years ago.  PPACA not only covers payment reform, but also covers insurance reform, expanded coverage, individual mandates, health insurance exchanges, and new taxes for funding purposes.

Although PPACA has obviously cleared the first hurdle by achieving congressional enactment, despite the ongoing constitutional challenges, PPACA has not done much more for reimbursement reform other than mandate the development of new and innovative reimbursement mechanisms.  The Hospital News website should be a propitious opportunity to vet some of these new issues.  Not only should there be no shortage of topics, I think there may be so many topics that it may be difficult to select just a few.  Fortunately the American Health Lawyers Association has just published its list of the Top 10 Health Care Issues for 2011, as follows:

1. Constitutionality of the Individual Mandate

2. Accountable Care Organizations

3. Fraud and Abuse and Program Integrity

4. Medicare Payment Modifications

5. Medicare Physician Payment:  The Sustainable Growth Rate Formula

6. Delivery System Reforms

7. Medical Loss Ratio Requirements

8. Physician Employment

9. Insurance Reform and Medicaid Expansions


I think a good place to start would be the Sustainable Growth Rate (SGR), since CMS has just issued its annual calculation letter to the Medicare Payment Advisory Commission (MedPac warning that SGR will produce a 29.5% decrease in the Medicare Physician Fee Schedule in 2012, as reported in on March 14, 2011.  No one has answered the question whether SGR was an ill advised concept or a good idea that was ignored because of political pressure.  When enacted as part of the RB-RVS Physician Fee Schedule, the SGR formula was designed to control either utilization or cost so that the combination of the utilization and fee schedule reimbursement would remain within the projected Medicare budget for the next two decades.  The application of the formula is simple; if utilization exceeds projected increases then the Medicare conversion factor will be reduced to keep total expenditures within budget parameters.  Congress’s concern regarding explosive utilization was well founded, because utilization has increased greater than projected thereby producing the conservation factor reductions.

However, for the past nine years Congress has postponed the reduction and in some years actually substituted Medicare increases.  Therefore, although beginning with small reductions in the mid-2000s, the cumulative effect of the deferred reductions and the ever increasing utilization is now producing potentially disastrous reductions, i.e. a 29.5% decrease for 2012.  When writers talk about a permanent fix, they are referring to a redesign of the system to eliminate the impact of these accumulative deferred reductions.  It is obviously not sufficient to simply deal with 2012, because 2013 will be worse.

The systemic reimbursement reforms contemplated by PPACA will not happen for several years.  They are not even designed to happen for several years, and there is more reason to assume there will be delays then there is reason to assume things will proceed on time.  If you remember back to RB-RVS, the study by Dr. Hsiao at Harvard took approximately five years to complete, it was enacted as part of the Omnibus Budget Reconciliation Act of 1989, became effective January 1, 1992, and took four more years for transition from the old fee schedule to the new fee schedule.

IF SGR had been allowed to work as designed, would it have maintained some balance between utilization and great structure?  What can be done as a short term fix; should SGR simply be eliminated until there is a new generation of reimbursement reform?  Is the real problem, or at least one of the real problems, that the Stark, Anti-Kickback and other referral restrictions are so philosophically skewed that it prevents efficient medical provider organizations but instead practically mandates that everyone must have their own “latest technology” because sharing resources is almost impossible.  Doesn’t it seem strange that physician income is going down while utilization and expenditures are going up?

Your thoughts on this are not only invited, but will be summarized in the next issue of this series, and I would appreciate your input on what should be the next issue to be considered.

For more information or to contact Mike Cassidy, visit his Featured Thought Leader Page on this site.

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