This blog post is a cross post with Silverevolution. Silverevolution is an ACCESS Health blog devoted entirely to innovations and issues related to care of the elderly and chronically ill. Click here to visit the Silverevolution blog.
The United States Capitol Building. (Photo: House Press Gallery)
We at ACCESS Health have been watching the news closely for the last two weeks. The issue of interest was the vote by the United States (US) House of Representatives on March 26 to repeal the Medicare sustainable growth rate formula and to “strengthen Medicare access by improving physician payments and making other improvements.” The bill can be viewed here.
This event is noteworthy in a few ways. One is that the 392 to 37 vote reveals overwhelming bipartisan support for these changes. Another is that, if passed by both houses of Congress, the bill would change the US healthcare payment system significantly. The bill still needs to be passed by the Senate.
If passed, how will the bill affect healthcare in the US? First, the bill repeals the sustainable growth rate formula used by Medicare. The sustainable growth rate formula pegs provider reimbursements to economic growth, as measured by gross domestic product (GDP). In place of the sustainable growth rate formula, the bill proposes value based payment models such as accountable care organizations and bundled payment. Accountable care organizations link doctors, hospitals, and other health professionals together to develop tailored care plans for Medicare patients. These care plans encompass the entire care process, matching the appropriate service to patients’ needs and reducing duplication of efforts. The bundled payment system reimburses care providers based on expected costs for specific clinical issues. This prevents unexpectedly high costs for patients.
Presently, the US healthcare system uses a fee for service model to pay providers. This means providers are paid for each individual service or operation, regardless of necessity or efficacy. As described in Forbes, “[Fee for service] actually rewards providers financially when patients suffer complications or infections, and pays them more if [providers] order unnecessary tests or procedures.”
Changing this system would remove incentives for healthcare providers to push large numbers of services on patients. Replacing fee for service with value based payment models could improve patient outcomes while reducing costs.
Spending on healthcare as a percentage of GDP in the United States, Singapore, and the world. (Graph: World Bank)
In the future, the high percentage of GDP spent on healthcare in the US may fall. According to World Bank data, the United States spent nearly eighteen percent of its GDP on healthcare in 2012, the highest in the world. GDP savings on healthcare would allow higher spending in other areas, such as education.
However, it is still too early to tell whether the bill will pass the Senate. In addition, there are still many challenges to the change. Many healthcare providers still cling to fees for services models of payment. It is also challenging to define key performance values for providers. Will providers aim to reduce readmission rates or improve life expectancies of patients? At this point, performance values are not standardized. Nevertheless, the strong bipartisan support for the bill shows a consensus that the existing sustainable growth rate model is undesirable.
This movement represents a move toward a capitation payment system, which pays providers a set amount for each patient, regardless of service type. Capitation systems are used by countries like Italy, the United Kingdom, and Denmark. In addition to the US, fee for service is used in countries like Japan, Germany, and Canada.
Interestingly, China has used the fee for service system since the 1980s. China has experienced healthcare cost increases, poor quality, and a questioning of medical ethics. These factors have led to experimental healthcare reforms, since the 2000s. City and local governments were encouraged by the central government to redesign the healthcare system, with wellbeing of patients as a main goal. China tried bundled payment systems, with some success. Jining saw a thirty three percent reduction in expenditure, while Shanghai saw a seven to twelve percent reduction in cost per outpatient visit. However, these initial results are not conclusive of the superiority of a capitation system. China continues to experiment with and review healthcare reforms.
If the US moves forward with the repeal of the sustained growth rate for Medicare, other countries facing challenges with fee for service healthcare models may follow suit. The ripples of this bill are potentially larger than domestic US healthcare policy. What do you think of these policy developments? Tell us your thoughts by leaving a comment.