Reform Outlook: State and Local Differences

Last week’s blog post addressed the possibility of differences between what the health reform laws promise and what they will ultimately deliver.  I argued that the probability of reform evolving as enacted is considerably less than 100%.  This forecast is not uniformly negative.  I expect somewhat less than half of the authorized expenditures will be disbursed over time, yet some beneficiaries could actually receive all that the laws have promised (while some others get nothing).  Separate from the national perspective, who gets what and where the benefits are realized will be determined by two significant factors—state politics and local economic conditions.

Substantial implementation powers are delegated to state governments, and states are responding in very different ways.  At one extreme, voters in three states have passed referenda that effectively prevent their states from implementing the federal laws.  Attorneys General in approximately 20 states are pursuing constitutional challenges that would, if successful, make ObamaCare a moot point.  At the other extreme, several states are moving full-speed ahead to implement the powers delegated to them, such as creation of insurance exchanges to facilitate purchase of mandated insurance by 2014.  The ultimate impact of the federal reform laws in a state that has opted out of reform will obviously be very different from the impact in a state that is pursuing full participation.

State and local differences in economic circumstances will also have a major influence on reform’s ultimate payoff, most notably in the adoption of Medicaid as a vehicle for expanding coverage.  Many states will not have the funds or the desire to meet their long-term obligations for enrolling patients in Medicaid, which will cause the projected number of insured patients to fall short of expectations.  In addition, the number of patients insured by employers will depend on the strength of local economies.  Reforms’ projections of reducing the portion of uninsured Americans from 17% in 2010 to 6% by 2018 are based on economic forecasts that are widely believed to be overoptimistic for the country as a whole, but actual results will vary substantially by locality. 

If you are confused by this analysis, you understand the situation.  It is confusing.  The health reform laws of 2010 embody incredible complexity due to the politics of getting them passed at all.  They are not the result of a rational, methodical, non-partisan process to solve a well-defined problem.  The latest reform laws are based on so many assumptions and other “guesstimates” that their outcome is literally unpredictable, and the resulting uncertainty needs to be adjusted for significant differences at the state and local levels.  How do you think reform will play out in your neck of the woods?  In your opinion, how much does location matter? 

Expected Value of HITECH and Health Reform

Am I the only one who seriously doubts that the health laws of 2009 and 2010 will be implemented as enacted?  Lots of people seem to assume that reform dollars are “money in the bank.”  For example, a major bond rating agency recently suggested that financially troubled hospitals will see a major turnaround in 2014 when they get a windfall from mandatory health insurance.  Another well-known organization just upgraded its industry outlook on the premise that HITECH will start pumping tens of billions of dollars into hospitals’ and doctors’ coffers next year.  And anti-trust regulators are concerned that providers will increase profits by becoming accountable care organizations in accord with the Affordable Care Act. 

I think the optimistic outlook is a case of counting chickens before the eggs have hatched.  Republicans control of the House Ways & Means Committee for the next two years surely diminishes the likelihood that Congress will appropriate all monies authorized by the reform laws, and the emerging consensus on HITECH suggests that the number of providers qualifying as meaningful users will be far smaller than originally expected.  A dismal economic outlook still raises doubts about consumers’ abilities to purchase mandated insurance in 2014, or even to pay their rapidly increasing share of health care bills in the interim.  In addition, states have almost no capacity to finance the reforms that are delegated to them. 

The overall situation immediately brings to mind an important concept from economics and business—expected value.  It is the probability-weighted estimate of future returns, derived from a careful analysis of factors that could cause value over time to be less than expected under the ceteris paribus assumption (i.e., all other things being equal).  Expected value analysis adjusts an income stream for the probabilities that actual events won’t evolve in accord with original expectations. 

To me, the recent shift in political power and the economic outlook suggest that the probability of reform evolving as enacted is considerably less than 100%.  I am not sure what the actual discount should be, but I am certain that providers and payers will not ultimately receive all the money that the laws would allow.  To launch discussion, I’ll suggest that the expected value of reforms’ authorized infusions of cash should be discounted at least 50%.  What discount would you use?  I also believe that health care enterprises must immediately take steps to make up the difference by becoming efficient and effective—learning how to produce their services at an acceptable and accountable level of quality, as inexpensively as possible.  (I optimistically believe it can be done!)  Has anyone got a better idea? 

What If My Forecast Is Wrong?

Because I was a weatherman before becoming a health futurist, I am accustomed to questions about consequences if a forecast completely misses the mark.  Getting wet is the worst that might happen if it rains on a day expected to be clear, but health care executives don’t want to go to all the trouble of preparing for a storm if I am wrong in my current 80% expectation that health care will be battered by economic tempests for at least two more years.  (Admittedly, this forecast can alternatively be interpreted as a 20% possibility of desirable conditions, such as rapid economic recovery or unexpected support for increased federal health spending in a Republican-controlled House.)

Refusing to fall into the proverbial trap of talking about the weather but doing nothing about it, I have been clearly suggesting how health care’s executives and caregivers should prepare for a perfect economic storm.  The essential keys to battening down the hatches are rapid, enterprise-wide adoption of IT-based performance improvement processes and long-term, multi-stakeholder partnerships for capturing wasted resources and reallocating them to activities that produce more health per dollar already being spent. 

Providers and purchasers must implement pervasive business processes that identify unexplained variations from expected performance and then make sure the deviations don’t happen again.  This is harsh medicine for an industry that has been free to operate for 50 years without budget constraints or direct performance monitoring.  Nevertheless, I believe that brutal economic restructuring—not rational health reform—is putting an end to the medical economy’s halcyon era. 

So, what if my forecast is wrong?  What if medical expenditures actually do rise from 17% of GDP in 2010 to 20% by 2015 as other experts have predicted?  Should decision-makers breathe a sigh of relief and plan to carry on with business as usual?  I certainly don’t think so, but neither did the leaders of several dozen integrated health care systems that decided to become accountable for consistently good performance long before an intractable economic downturn was on anyone’s radar.  The success of these game-changing systems ought to suggest a new and different path for tradition-bound providers and payers. 

Besides, health professionals should be working to create the best health care system that 17% of GDP can buy, even if I believed we’d see nothing but blue skies from now on!  In the very unlikely event that the economy turns around early next year and House Republicans decide to increase health spending, shouldn’t our top priority still be to do health care right all the time, as inexpensively as possible?  In other words, providers and payers should be making the same changes, whether my forecast is right or wrong.  If you disagree, please propose feasible alternatives. 

Post-Election Results Analysis

I stepped out on a limb last week by analyzing results before the polls closed.  Final tallies confirmed my expectation that the election would not provide any good news for medical care or real health reform.  The outcome brings to mind an ad slogan from the 1950s, trading a headache for an upset stomach.  The future will be painful for anyone awaiting relief from government, even if the source of discomfort is changed.  Here are a few post-election observations offered to stimulate discussion.

• Republicans did not take over Washington, DC.  They only seized the House.  Democrats still control the Senate and White House.  Republican efforts to repeal ObamaCare will be well-publicized, but they will be futile.  Even if Republican “repeal and replace” alternatives (e.g., malpractice reform, interstate sale of health plans, strengthening the doctor-patient relationship, prohibiting taxpayer-funded abortions, etc.) offered any hope of solving cost and quality problems, they have almost no chance of being enacted in the next two years.

• Republicans did take commanding control in a lot of states.  The magnitude of their victories suggests that legislatures and governors will impede (or, in some states, prevent) implementation of reforms delegated to states in the 2010 laws.  The dire economic circumstances of most states increases even further the likelihood that the laws will not be implemented as enacted. 

• The election results were quickly followed by release of the latest economic indicators, which continue to be generally dismal.  Unemployment remained at 9.6%.  Overall consumer purchasing power even deteriorated.  I still cannot see how consumers will be able to afford additional financial burdens forced upon them by the 2010 reforms.  Nothing about ObamaCare or last week’s Republican victories shows how we can avoid the health care “train wreck” that both parties addressed during the 2008 elections.

• Last, and definitely not least, the implementation of health reform will be affected by decisions that must be made sooner rather than later to avoid general economic disaster.  Most new Representatives and Senators won by promising to reduce the deficit and increase jobs.  Most economists (me included) see the choice as reducing the deficit or increasing jobs.  If deficit reduction prevails—the more likely outcome, in my opinion—reductions in federal support for health care will larger and faster than expected.

Last week’s election results make me all the more certain that real reforms are going to come from the private sector—visionary providers, payers, purchasers, and their business partners working together to improve the efficiency and effectiveness of health care in spite of government reforms.  What do you think?  Please comment, particularly if you see any silver linings in dark clouds on the political horizon.  After all, we Chicagoans were so dismayed by this election that most of us only voted once…

Election Results Analysis…One Day Early

Futurists are expected to step out on a limb, so I’ll daringly interpret the results of the mid-term elections before the votes are cast and counted.  I’m totally unwilling to say who will win because this election is like no other.  However, my crystal ball (I really do have a crystal ball on my desk!) gives a pretty clear picture of how the final tallies will affect health care for the next two years—no matter who is elected.  The dynamics of this election foretell much more than the winners.

First and foremost, the campaigns and the candidates suggest to me that the two parties are badly fractured, if not irreparably damaged.  Neither the Democrats nor the Republicans are likely to be cohesive political forces when the next Congress convenes in January.  Internal divisions within the parties will probably create more gridlock than differences between the parties.  In the likely event that Republicans gain control of the House of Representatives, rifts between Tea Party loyalists and traditional party leaders will seriously complicate efforts to “repeal and replace” the reform laws of 2010.  The most probable outcome will be failure to appropriate program funding authorized by the laws.  ObamaCare will largely remain the law of the land, but it will not be funded at anything near the anticipated levels.

In the unlikely event that the Democrats retain control of Congress (about equal to the unlikely event of the water landing that flight attendants mention before take-off), the most probable outcome is slightly different.  Many Democrats who supported the 2010 laws are likely to push for changes in the laws if they are reelected, but appropriations are still likely to fall short of authorizations due to the a dismal economic situation and Democratic concessions to control deficit spending in order to get reelected.

In other words, I expect that the election’s impact on health care is pretty much the same no matter which party wins, albeit for different reasons.  The federal government’s future contribution to the health care “pie,” 17% of the GDP, is fixed at best—especially because consumer purchasing power is not going to grow to make up the difference.  Those of us in the provider and payer communities have no choice but to do a better job with our current resources.  Growth is not an option for the industry as a whole, although it is a possibility for progressive organizations that learn how to do a better job when their competitors do not.  Reforming business processes is the no-lose response for providers and payers who plan to survive and thrive in a market that will be unforgiving—no matter who wins next week.

What do you see in your crystal ball?  Here’s your chance to be a futurist, with the attendant risks and rewards.