By Mark Miller
CHICAGO Aug 28 Question: What do you call
Obamacare's $716 billion cut in Medicare spending during the
Answer: A good start - and not because seniors don't deserve
their Medicare benefits.
The Affordable Care Act (ACA) achieves those spending cuts
over 10 years by decreasing payments to Medicare providers. The
Republican Party, which is expected to vote today on its
platform at its Tampa convention, is likely to adopt the
Romney-Ryan health care plank calling for fundamental changes in
Medicare and restoration of the $716 billion by repealing the
ACA. Democrats, and some health care experts, charge that their
plans would boost seniors' out-of-pocket costs for prescription
drugs and premiums, and end Medicare as we know it.
But the smoke from the presidential campaign battle obscures
an important fact. Obama's Medicare reimbursement cuts are no
more than a down payment on a vital project: Getting our
nation's health care spending in line with the rest of the
In 2010, the U.S. spent 18 percent of its gross domestic
product on health care, about seven percentage points higher
than the average for all other industrialized countries,
according to the Organization for Economic Cooperation and
Development (OECD). Our rate of spending growth for health care
is double that of other OECD nations. We're spending $2.5
trillion a year on health care, and researchers who study the
health care system estimate that about one-third of every dollar
we spend doesn't do anything to improve health.
Here are some of the top targets for greater efficiency and
better care - along with estimated annual savings from an
authoritative 2009 research project convened by the Institute of
Medicine (IOM), the health arm of the not-for-profit National
Academy of Sciences. IOM invited leading health care experts to
present and discuss research papers on the nature of excess
health costs, and evidence on the effectiveness of strategies
for controlling them.
PAY FOR VALUE, NOT VOLUME
The current U.S. health care system's reliance
on fee-for-service reimbursement encourages health care
providers to provide more - not better - care. That could be
fixed by paying providers for performance. "The idea is to get
providers away from an incentive to just turn the crank faster
and faster," says John Rother, chief executive officer of the
National Coalition on Health Care (NCHC), a non-profit reform
coalition of medical professionals, businesses, organized labor
and other groups.
A better approach is to pay providers for performance -
outcomes, quality and efficiency. The ACA funds pilot programs
for several promising models for this, including incentives for
providers to form so-called "Accountable Care Organizations" and
patient-centered medical homes. But the transition won't be
easy, notes Paul Ginsburg, who served on the IOM panel and is
president of the Center for Studying Health System Change.
"The biggest obstacle is the need for coordination between
all the different payers, because you don't want to put
providers in a situation where half of their patients are
fee-for-service, and the other half are in a pay-for-performance
The practical application of this model is far in the
future. "It's really a dream that is being pursued," says
IOM's estimated potential annual savings: $210 billion.
COORDINATE CARE FOR THE VERY ILL
A disproportionate share of Medicare dollars are spent
taking care of the sickest patients. The non-profit Kaiser
Family Foundation reports that 10 percent of fee-for-service
Medicare beneficiaries accounted for 58 percent of total
Medicare spending. Average per capita Medicare spending for
these beneficiaries was $48,210, compared with average per
capita spending of $3,910 among the bottom 90 percent.
The IOM research found that major savings could be achieved by
doing a better job of coordinating their care. "Today, very ill
patients with multiple chronic conditions often receive care in
a very fragmented way from different physicians who aren't
talking to one another," Rother says. "The result is not only
over-treatment but often unnecessary hospitalization."
IOM's estimated potential annual savings: $80 billion.
PREVENTION & LIFESTYLE
Many chronic conditions stem from individual behavior,
including obesity, drinking, and drug abuse. That means we spend
health care dollars on medical conditions that could be
prevented through adoption of healthier lifestyles. But Ginsburg
emphasizes that the opportunity here is to change lifestyles,
rather than provide medical services.
"We've had a lot of success over a long period of time with
smoking reduction," Ginsburg says. "Obesity is much more
challenging to figure out."
IOM's estimated potential annual savings: $55 billion.
PAY HOSPITALS LESS
Half of every health care dollar in the U.S. goes to
hospitals, Rother says, and many simply charge too much. The
cost of inpatient services in the U.S. is 164 percent of the
group average for 12 OECD countries, and 45 percent higher than
what Canada pays, OECD data shows.
Medicare already uses a system of set prices for procedures,
called diagnosis-related groups. But in the commercial insurance
arena, more competitive market forces could bring down prices.
Ginsburg argues that insurers and employers need to focus on
restructuring their provider networks. "We need insurers to
evolve their benefit designs to increase incentives to enrollees
for using more efficient, lower-priced providers," he says.
"That could include narrower networks of providers, or tiered
plan designs, where all the hospitals are in the network but
enrollees have incentives to go to hospitals that provide higher
That's a tall order, Ginsburg notes, especially in markets
where a single hospital has dominant market share or pricing
power, based on reputation.
IOM's estimated potential annual savings: $85 billion.
ATTACK FRAUD & ABUSE
No one is quite sure how much money is wasted through fraud
and abuse in the health care system, but in Medicare alone,
estimates run as high as $98 billion a year. The ACA gave the
federal government several new tools for fighting fraud,
including reforms in payment processes, and consolidation of
fraud-fighting initiatives. Last year, the government recovered
$4.1 billion, the most ever recovered in a single year - but
only a fraction of the estimated total loss.
An FBI investigation in 2007 estimated that fraud and abuse
accounted for anywhere from 3 percent to 10 percent of total
health care spending. "We know there is a lot of it out there,"
Rother says. "For every dollar we put into anti-fraud efforts,
we get $10 back in savings."
IOM's estimated potential annual savings: $75 billion.