The U.S. spends a lot of money on healthcare; a staggering $4.3 trillion overall and almost $13,000 per individual, which is significantly more than what most other major countries in the developed world spend per capita. And, as I recently opined in this column, we are also getting sicker as a nation – nearly half of the U.S. population now lives with at least one chronic condition, such as heart disease and diabetes, which are the two leading causes of death in our country. We can largely thank an unworkable fee-for-service (FFS) model, which prioritizes profits over patient outcomes, for the crisis we are facing today. This broken system has and continues to drive our nation’s failing healthcare delivery system deeper into the ground.
For decades, led by the Centers for Medicare and Medicaid Services (CMS), the nation’s largest payer, the government has tried, at times admirably, to control rising healthcare costs while improving quality and patient safety, all while demanding accountability and price transparency in the process. Along their 40-year journey to reform, however, CMS has encountered fierce resistance from healthcare delivery organizations, physicians and their powerful lobbies in Washington, D.C. If you follow the money, the reason is obvious: FFS still pays the hospital bills. And, fearing political and legal backlash, CMS instead chose a piecemeal approach to reform.
To understand where CMS missed the mark, it’s instructive to take a step back in time and chronicle some of the agency’s most noteworthy enforcement actions and the industry response that ensued.
In 1983, CMS introduced Diagnosis-Related Groups (DRGs). In simple terms, instead of hospitals billing Medicare for each charge for care administered, DRGs introduced the concept of assigning a fixed price for a defined bundle of services that a hospital would provide for different categories of diagnoses, whether it be diabetes, heart failure, pneumonia or other serious conditions. It was the first serious attempt to impose cost controls in healthcare delivery.
In 2008, CMS announced that they would no longer be reimbursing hospitals for costly and preventable ”Never Events” or Hospital-Acquired Conditions (HACs), including patient falls, surgery performed in the wrong part of the body, surgical site infections or pressure ulcers. It was one of the most transformative actions taken in recent years by CMS to finally hold hospitals accountable for the mistakes they themselves made in the administration of patient care – and it didn’t take an act of Congress.
In a related move, the agency, in 2012, began imposing heavy fines on general acute-care hospitals for Medicare FFS patients who were readmitted, unplanned, within 30 days of discharge for certain conditions, including heart failure (HF), myocardial infarction (AMI), chronic obstructive pulmonary disease (COPD) and elective primary total hip arthroplasty and/or total knee arthroplasty (THA/TKA). Created by the Patient Protection and Affordable Care Act (PPACA), the Hospital Readmissions Reduction Program (HRRP) supported the government’s “national goal of improving health care for Americans by linking payment to the quality of hospital care.”
In 2015, CMS continued its march to the promised land of value-based care by setting a benchmark of having 85% of Medicare FFS payments tied to quality or value by 2016 and 50% of payments structured according to alternative payment models (APM) by 2018. Despite falling short of its 2018 goal, it was “the first time in the history of the Medicare program that [Department of Health and Human Services] HHS has set explicit goals for alternative payment models and value-based payments,” said then-Secretary of the agency, Sylvia Burwell.
Most recently, last year, CMS required hospitals to publicly post their prices for 300 “shoppable services” that a healthcare consumer can schedule in advance. The goal was to increase transparency – a key ingredient of getting to a market-based model. While CMS optimistically thought these reforms would drive much-needed and long overdue change, many of these so-called “fixes” turned out instead to be band-aid solutions in search of a problem.
As I explained in our book, Bringing Value to Healthcare, when bundled pricing for services (i.e. DRGs) was introduced, hospitals predictably tried to offset the lower FFS revenues by ramping up demand and the capacity to handle more procedures. For example, they made new investments in diagnostic imaging equipment and other technology to keep high profit margin procedures churning along, among other money-making tactics. In essence, highly efficient providers stood to make more on services like hip replacements, while those unable to pivot lost out. As author Steven Brill succinctly put it in this Time piece, “all those high-tech advances – pacemakers, MRIs, 3-D mammograms – have produced an ironically upside-down health care marketplace. It is the only industry in which technological advances have increased costs instead of lowering them.”
Additionally, to shield themselves from malpractice lawsuits, providers were under added pressure to continue turning up the volume at the service code level to provide more healthcare. Compounding the problem, DRGs also severely diminished the role of doctors as “gatekeepers” responsible for managing, coordinating and directing care in the most efficient way possible.
Under this new complex coding and reimbursement payment structure, which became an administrative nightmare for compliance managers, physicians turned their energy and attention toward coding their interventions to achieve maximum reimbursement. Ultimately, this meant devoting less time and focus to their primary job: caring for their patients. Doctors were also resigned to send their patients to see more specialists for more superfluous tests because CMS care coordination reimbursement is minimal. The squeeze just wasn’t worth the juice. Alarmingly, in talking to hospital executives from some of our most respected institutions for our book, they told us that 30-40% of the “care” delivered today isn’t clinically necessary!
Patients have paid a high price while being shuffled aimlessly through a fragmented and siloed system that has failed to provide quality care across the continuum. We see the ramifications of this system playing out today in our chronic disease epidemic. The greatest shortcoming of the DRG experiment is that CMS never connected the new payment structure to patient outcomes. The agency also assumed that if costs were reduced, delivery quality and patient safety would be a natural byproduct of change. That hasn’t materialized in any significant way either.
When CMS stopped reimbursing hospitals for their own mistakes, it should have set the stage for improved quality and control initiatives. However, the data shows that hospitals are still largely regarded as unsafe. There are between 44,000 and 98,000 preventable hospital related deaths each year, with patient falls numbering somewhere between 700,000 to 1 million annually. In many cases, these falls result in injury and even more utilization. Leapfrog Group’s most recent hospital safety ratings of 2,862 general acute care hospitals found that only 30% received an A rating and more than 40% received a C grade or below. One statistic shows that more than 50,000 lives could be saved if “all hospitals performed at the level of A graded hospitals.”
With respect to hospital readmission penalties, more than 90% of hospitals have been penalized at least once since HRRP’s inception. Moreover, recent data shows Medicare is reducing readmission payments to nearly 50% of all hospitals because of high readmissions. While HRRP’s goals are commendable, and fewer hospitals expect to be penalized next year, thousands of hospitals are being fined. That’s still thousands too many. Some hospitals have also found workarounds such as readmitting patients on “day 31” or, as one doctor explained, treating patients in the ER or as “observation stays” to avoid readmittance penalties.
CMS’ efforts to tie payments to outcomes have clearly not had their intended effect, and part of the dilution has come from intense delivery sector pressure. All you have to do is look at the industry’s powerful lobby groups – namely the American Hospital Association (AHA) and the American Medical Association (AMA) – to find numerous attempts to try and thwart these efforts at every turn.
When CMS announced their rules for hospital price transparency, the AHA fought the measure all the way to the Supreme Court. As I explained amid the legal battle, hospitals cynically disguised their opposition to pro-consumer reforms as patient advocacy, arguing that even if the transparency rule were to go into effect, pricing complexity would render the information useless to patients. The resistance to such a simple reform is absolutely mystifying – especially when put in the context of how most other consumer-facing industries operate, where, at a minimum, customers know the baseline cost of products and services they are paying for upfront.
Thankfully, hospitals and their beltway henchmen lost the transparency fight, but despite issuing more than 300 warnings, CMS has only fined two hospitals to date. Sadly, it has been more bark than bite. The AHA also sued the government over the rule requiring disclosure of privately negotiated rates between hospitals and commercial health insurers, and together with the AMA, also took the government to court over the surprise billing law. The list of litigation goes on. These advocacy groups spend millions each year on lobbying in Washington and profit greatly from procedure coding. They also benefit from the generous support of state and federal elected representatives who have high stakes in protecting doctor and hospital interests – many of which are states’ largest employers and political donors.
While CMS has been trying to improve quality and lower costs in healthcare delivery for decades, they have ultimately chosen not to exercise the power and authority they have to change the underpinnings of a failing and broken system. Constrained by political pressure and the threat of legal action, they have instead pursued reforms at the margins. Failing to drive the industry towards a value-based system that ensures accountability for patient outcomes has allowed providers to continue driving our broken, unaffordable, fragmented and provider-centric FFS train. Continuing down the tracks has led to higher costs that are then passed on to commercial payers, who in turn pass them on to employers and ultimately consumers in the form of higher deductibles and copays.
There are a lot of sheriffs in the wild, wild west town of healthcare delivery, all digging in to protect their own interests – and that’s not good. Getting to a new value-based model will require hard work and introspection from all stakeholders, including healthcare systems, payers and pharmaceutical and device manufacturers, to fundamentally change the way they think about care and how it’s delivered. But CMS, with its immense regulatory and market power, has the most clout to restore law and order and achieve what all industry stakeholders say they want, namely “better health outcomes at lower cost.” For years, this mantra has been the industry’s rallying cry for change. Still, the reality is that costs are largely not linked to patient outcomes that factor in critical benchmarks like social determinants of health (SDOH). In shying away from actively driving the industry towards value, CMS has been unable to break the logjam. And, until they are willing to demonstrate decisive leadership and institute reforms that have real teeth, the wheel of dysfunction continues to go round, keeping consumers helplessly stuck in a system going downhill.
Covid-19 came at a heavy cost, with over a million lives lost and hospitals hemorrhaging huge financial losses due to a FFS model that buckled under the crisis. It was a jolting wake-up call for a sleepy industry resistant to change, but if we learned anything from the pandemic, it’s that timidity can no longer substitute for real leadership. We must demand accountability, top to bottom, from all who have a stake in healthcare delivery’s future. CMS has demonstrated that they have the wherewithal to get it done.
We hope the past isn’t a prologue. But as I explained in my last column, the journey to population health management continues to be predictably painful and slow for health care delivery organizations, even as they acknowledge that population health is the future. As our Numerof & Associates 2022 State of Population Health Survey Report found, continued fears over the threat of financial losses remains the largest obstacle to adopting value-based care. With 2023 on the horizon, we can expect to brace for more dark and stormy days ahead.