The Affordable (?) Care Act: A Law of Unintended Consequences

As a medical economist asked almost daily to comment on the health reform, I remember that Murray Weidenbaum (chairman of the President’s Council of Economic Advisers in the 1980s) described our professional role as “serving as a social wet blanket, dampening the enthusiasm of proponents of simplistic solutions.”  The more I learn about the recent laws and their implementation, the more I am convinced that reform as legislated in 2010 is simplistic.  It will actually make health care more expensive for patients.  Unless I am missing something—please let me know if I am—the long-run outcomes are likely to be the opposite of “affordable.”

For example, one of the laws’ major unintended consequences will be determined by the regulation of medical expenses.  When Democratic leaders shifted the reform focus from containing costs to overhauling insurance, they severely criticized health plans for spending too much on administration.  The final legislation consequently requires health plans to spend 80% or 85% of premium income on medical care—based on the simplistic but politically appealing premise that health insurance is unaffordable because insurers spend too much on non-medical expenditures.

If Congressional leaders had explored the relationship between administrative costs and the price of health insurance, I believe they would have discovered some non-medical expenses that ought to be increased.  For example, health plans should be spending more money to prevent the delivery of unnecessary care and to help patients manage chronic conditions.  The economic problem is finding the level of administrative spending that produces desired outcomes at the least cost.  The political “solution” was establishing an arbitrary cap that will cause more money to be spent on care that does not benefit the patient. 

Limits on administrative expenses will also force insurers to spend less on sales and customer service—a sad irony because reform is intended to allow (or force) millions of uninsured Americans to buy individual policies.  As an economist, I foresee a real problem as sellers are required to spend less on administration while serving a growing market.  I do not know the mix of medical and non-medical spending that would produce the most health for Americans, but I am seriously concerned that the reform laws were passed without any focus on this fundamental economic issue. 

All stakeholders in the medical marketplace—health plans included—are guilty of wasteful spending that needs to be harnessed and redirected to productive use.  However, more non-medical spending is arguably needed to control the cost curve, at least in the short-run.  This issue cannot be resolved within the 450 words of a blog post, but it deserves extensive discussion.  Do you think that limiting administrative expenses is a solution or a new problem?  

Initial Impressions of Final Rules on Meaningful Use

Online resources have published ample summaries of the final rules issued last week.  CMS has put all the “meaningful use” regulations and official interpretations on a well-organized Web site, www.cms.gov/EHRIncentivePrograms.  I see no value in posting one more recap of these details.  My preliminary comments here are focused on implications instead.  

As much as I appreciate the extraordinary work of selfless public servants who wrote them, the rules are not final.  Federal regulators only defined the conditions for incentive payments through 2012 for a law that extends to 2016 and beyond.  The rulemakers’ unexpected approach made a lot of sense because it proved they were listening carefully to public comments.  By developing a phased approach with reasonable options, they addressed up-front concerns about roadblocks for getting started on the path to incentive payments.  The initial hurdles are not the impediments that were feared. 

However, providers and vendors who made public comments on the proposed rules should have been more thoughtful about getting what they asked for.  The not-really-final rules resolve short-run concerns but don’t provide any detail about where the incentive program is headed in the long-run.  Providers can now evaluate the odds of getting reimbursed for their up-front investments in EHR, but only for the first two years of the program.  Given political and economic uncertainties for the foreseeable future, prospects for incentive payments in the later years are still tenuous at best. 

The final rules for 2011-2012 clearly note that reimbursement incentives will be “all or nothing” under the program.  The law does not allow partial credit.  The rules further amplify the exceedingly complex structure of the underlying legislation.  (I intended to read all 864 pages before writing this blog post, but I could not get past page 100.)  I read the entire ARRA/HITECH law twice last year and did not fully comprehend its ambiguities until trying to digest the final regulations over the past week.  I will ultimately get through the final regulations, but I do not expect to experience a “Eureka” moment of enlightenment in the process.  The quest for HITECH funds may be easier than expected to start, but I fear it will be harder to complete because answers to the most important questions have been deferred.  Yet-to-be specified details are devilish at best. 

Nothing that I’ve read over the past week changes my fundamental belief that the need for EHRs is more important than ever.  (See last week’s blog post for elaboration of this perspective.)  Providers aspiring to be in business beyond 2012 must be engaged in digital transformation now.  I don’t think that existing approach to medical records can produce efficiencies demanded by the new medical marketplace.  What do you think?  Now that we know final rules for the next two years, are HITECH incentives worth pursuing under any circumstances?

Productivity of Health Professionals: An Alternative to MU for ROI in HIT

The final federal rule on meaningful use (MU) of electronic health records (EHR) is being published at the same time this weekly blog gets posted, so log on next Tuesday for my initial commentary on the resulting regulations.  However, one compelling reason for adopting EHRs—their potential for producing much-needed and valuable improvements in caregivers’ productivity—will not be addressed in the final rule.  I want to make sure that the positive link between electronic records and the output of labor does not get lost in the din of MU discussions unleashed today.

The absence of concern with EHRs’ contributions to productivity is not an oversight of federal regulators or providers who spoke up during the public comment period.  Congress was focused on other issues, such as quality of care and security of protected information, when it passed ARRA/HITECH in response to the dismal economic circumstances of early 2009.  The recovery law appropriated substantial sums for creating HIT jobs in technical support services, not expanding the supply of clinical care. 

The “reform” laws enacted this March include significant appropriations to address the recognized shortage of health professionals, but the supply of caregivers will not be expanded for nearly a decade.  In the meantime, provider organizations will not have enough professional personnel to meet existing demand, particularly in the underserved area of primary care.  Today’s final rules on MU will define how a “qualifying” provider can use EHR to qualify for incentive payments, but they will not explicitly help today’s caregivers deliver acceptable levels of care to more patients each hour.

Health care executives will spend lots of time over the next few months deciding whether becoming a “meaningful user” is worth the HITECH “carrot.”  I suggest that they should conduct a parallel analysis to see how investments in HIT might be used to increase professional productivity, independent of potential MU reimbursement.  For many provider organizations, the increase in net revenue associated with EHR-enabled improvements in output per practitioner may actually be greater than the incentive payments—without the costs of reporting and compliance!  For example, HIT that allows a nurse or a physician to treat one more patient each hour could generate a better ROI than an investment made solely to comply with “meaningful use.”  What do you think about this alternative focus on productivity to justify investments in HIT? 

Log on next week for my initial reactions to the final rule on MU.  Better yet, publish your comments between now and then in the spirit of generating a healthy discussion.        

It’s the stupid economy…

If a picture is worth a thousand words, the Daumier print below could serve as two blog posts. It aptly represents a tendency to miss what should attract our attention. I use this slide in my speeches to show how our focus on actions in Washington—particularly the recovery and insurance overhaul laws—is diverting us from the real challenge to our future. The comet racing toward us is not reform. It’s the economy that merits our full and immediate attention. Adverse economic trends threaten the near-term future of providers, payers, purchasers, and patients much more than the “reform” laws that are being examined in telescopic detail.

Health industry players are accustomed to looking to Washington for more money when times get tough, and the government has always delivered in the past. However, today’s economic outlook suggests persistent stagnation is the most likely scenario for the next few years. A simultaneous backlash against deficit spending is likely to halt real growth in government spending for the first time in many decades, meaning that the medical sector should not count on additional federal funds for its growth.

Sutton’s Law says to go where the money is. Unfortunately, as an economist and futurist, I cannot see any extra money anywhere. Corporations are struggling to stay barely profitable in a harsh global economy, and the outlook for consumers is correspondingly bleak. I simply do not know how average Americans are going to come up with the extra dollars that “reform” is expecting them to spend on health care over the next few years. (If anyone knows where to find more money for health care, please pass along the information in a comment. I’d love to have some good news to share with my readers.)

So what should be done to stay in the business of health care until 2014 when most Americans will presumably have insurance? Getting through the tough economic times ahead compels providers and payers to become efficient, to find how to perform necessary (but not necessarily the usual) business tasks at lower cost. At the same time, they need to find ways to provide more value by passing the savings along to cash-strapped consumers in better, less-expensive services.

Given that many of the marketplace’s inefficiencies are directly related to a dysfunctional reimbursement system involving all parties, solutions need to be developed with multiple business partners. No single entity can go it alone and expect to survive under current economic circumstances. Instead of looking to Washington for more money, now is the time for key stakeholders to collaborate in creating a good health system than works. It won’t be easy, but it sure beats the alternative of looking for distant solutions when real opportunities are visible with the naked eye. Has anyone got a better idea?