Cost Containment and the Patient
Protection and Affordable Care Act
FIU LAW REVIEW SYMPOSIUM
November 12, 2010
David Orentlicher, MD, JD
Visiting Professor of Law
University of Iowa College of Law
Samuel R. Rosen Professor
Indiana University School of Law-Indianapolis
On one hand

The legislation “puts into place
virtually every cost-control reform
proposed by physicians, economists,
and health policy experts.”

Orszag & Emanuel, NEJM (2010)
On the other hand

"The job of figuring how to cover
uninsured people used up all the
political oxygen that was available.
They didn't have the energy for costs."

Alan Sager, quoted by McClatchy-Tribune News
Service, April 1, 2010
Cost containment

Outline of today’s presentation
 The
cost problem
 Is PPACA the solution?
Cost containment

Outline of today’s presentation
 The
cost problem
 Is PPACA the solution?
The highest spending country

Health care spending in economicallyadvanced democracies
US
Switzerland
Canada
Germany
Japan
New Zealand

$7,290/capita
61% of US
53% of US
49% of US
35% of US
34% of US
16%
67%
63%
65%
51%
57%
of
of
of
of
of
of
GDP
US
US
US
US
US
OECD Health Data 2009 (2007 data except 2006
for Japan)
The cost problem
What do we get for our money?
Infant mortality per 1,000 births
OECD, 2006
Quality of care

Breast cancer, 5-year survival rate


Colon cancer, 5-year survival rate


Japan-67.3%, US-65.5%, Canada-60.7%, France-57.1%,
UK-50.7%
Asthma hospitalization rate (per 100,000 pop.)


US-90.5%, Canada-87.1%, Japan-86.1%, France-82.8%,
UK -77.9%
US-120, UK-75, Japan-58, France-43, Canada-18
Diabetes hospitalization rate (per 100,000 pop.)

US-57, UK-32, Canada-23, Germany-14, Italy-11

Mark Pearson, OECD, U.S. Senate Testimony (2009)
Inadequate return on our health care $

US health system is less efficient than systems in:
Spain, France, Germany, Austria, Italy
 UK, Denmark, Norway
 Japan, China, Australia
 Canada, Mexico, Colombia, Venezuela



Evans, et al., 323 BMJ 307 (2001)
US patients treated in higher-cost communities
have similar outcomes to US patients in lowercost communities
Inadequate return on our health care $

Not because we’re less healthy
 We’re
less likely to smoke, we drink less, and
we’re younger than people in other economicallydeveloped countries
 We’re more obese and overall less healthy, but
this is only a small part of our health care costs
 McKinsey
& Company study found that “disease
burden” adds $25 billion in health care costs for
treatment of disease (out of $2.5 trillion in health care
spending)
Why are costs higher in the US?
Higher prices in US

Costs are higher in US in large part because
prices for health care services are higher
 On
the buyer side, governments in single-payer
systems can bargain more effectively than can US
insurance companies with doctors, hospitals and
pharmaceutical companies
 On the seller side, hospital mergers have led to
greater negotiating leverage with insurers
Peterson & Burton, Congressional Research Service (2007)
Higher volume in US--greater use of surgical
procedures and expensive diagnostic tests

More procedures to treat blocked coronary arteries (2 x
OECD avg.), more knee replacements (1.5 x OCED
avg.), and more cesarean sections (1.25 x OECD avg.)



Increase in outpatient surgery centers very important
More MRI exams (> 2 x OECD avg.) and more CT
exams (> 2 x OECD avg.)
High ratio of specialists to primary care physicians

US patients more likely to be hospitalized for conditions
preventable by good primary care
OECD Health Data (2009); Peterson & Burton (2007)
Patient insensitivity to costs

Insurance => Price-insensitive consumers


If treatment costs $100 and yields a “value” of $75, it
shouldn’t be provided—but if the patient only pays $25
and receives the $75 value, it will be worth it to the
patient
Americans pay more total dollars out of pocket, but we
generally pay a smaller percentage of our health care costs
out of pocket (i.e., through deductibles and co-payments)
(premium payments are not included)


France-8%, US-13%, Germany-13%, Canada-15%, Japan-17%,
Switzerland-32% (Peterson & Burton 2007)
Tax subsidies for insurance premiums
Physician incentives to over-provide care

Fee-for-service reimbursement => Qualityinsensitive physicians and hospitals

When physicians and hospitals are paid more to do more,
regardless of outcome, they’ll do more


Especially when they lose money on higher quality care (Urbina, NY
Times, Jan. 11, 2006)
Example of clinic that switched from salary to
commission on fees generated; doctors scheduled more
appointments and ordered more blood tests and x-rays

Hemenway, 322 NEJM 1059 1990
Cost containment

Outline of today’s presentation
 The
cost problem
 Is PPACA the solution?
PPACA and cost control


Many different provisions designed to contain
costs (remember Orszag & Emanuel quote)
Serious question whether all of the provisions
really address the cost problem

PPACA doesn’t take on the major drivers of higher
costs other than to some extent through
demonstration projects and Medicare reimbursement
reductions
Addressing the major drivers of costs

High prices

Single-payer or all-payer negotiations



Oberlander & White, 361 NEJM 1131 (2009)
Health savings accounts?
High volume
Replace fee-for-service with salary and/or capitation
(also addresses problem of high prices)
 Rebalance specialist/primary care reimbursement ratio
 Limits on hospital beds, surgical suites, MRI scanners
and other facilities


Orentlicher, 19 Annals Health L. 449 (2010)
How will PPACA reduce prices?

Permanent reductions in Medicare reimbursement rates
for hospitals, nursing homes and other facilities (§ 3401)
- $196 billion in savings through 2019


Will Medicare reductions lead facilities to shift costs to private
insurers?
Independent Medicare Advisory Board (§ 3403)


Will develop proposals to keep Medicare spending within statutory
targets, and proposals will automatically take effect unless Congress
adopts substitute provisions (cannot ration health care, raise costs
to recipients, restrict benefits or modify eligibility criteria)
Also will provide Congress with recommendations for slowing the
growth of health care spending in the private sector.
How will PPACA reduce volume?

Patient-Centered Outcomes Research Institute (§
6301)
Created to promote “comparative-effectiveness
research”
 May not recommend coverage changes or other
policies based on its analyses, but Medicare and
Medicaid may consider the Institute’s analyses in
determining coverage policies
 May not use a “dollars-per-quality adjusted life year . .
. as a threshold” nor may HHS employ such a
measure as a threshold for coverage.

Potential impact of PCORI

Comparative-effectiveness and cost-effectiveness
decisions are controversial

Mammography screening guidelines in 2009
 US
Preventive Services Task Force recommended that
routine screening begin at age 50 instead of age 40

Oregon Health Care Plan
 Ended
up with fairly generous “basic” coverage
National Institute for Health and Clinical Excellence
loses its authority to deny coverage for treatments based
on costs after a decade of operation
 The “tragic choices” problem

 It’s
difficult to make life-and-death decisions openly
Quality-adjusted payments under PPACA





Incentive payments to hospitals that meet specified
performance standards (§3001)
Adjustments to physician reimbursement based on quality
and cost of care provided (§3001)
Expansion of reports to physicians that indicate how their
use of resources in patient care compares to use by other
physicians (§3003)
Lower payments to hospitals with high numbers of patients
who become sicker because of their hospital care (§3008)
Lower payments to hospitals that have excessive numbers of
patients readmitted to the hospital after discharge (§3025)
Quality-adjusted payments

Pay for performance so far has a mixed track
record
It’s difficult to assess quality of care—did a patient
do well because of—or despite—the doctor’s
intervention?
 Often, process-based measures are used, but those
need continual updating
 Impact has been modest to date

PPACA demonstration projects



Bundled payments for hospital care and for the
month following discharge (capitation lite) (§2704
and §3023)
Capitation payments instead of fee-for-service
reimbursement (§2705)
Incentives for doctors and hospitals to form
accountable care organizations (financial rewards
for higher quality and/or lower cost care) (§2706
and §3022)

Will integrated systems exploit market power to
maintain revenues rather than to introduce efficiencies
and reduce costs?
The bottom line under PPACA

Between 2009 and 2019, health care spending is
projected to increase 0.2% as a result of PPACA


But, health care coverage is projected to increase by 32.5
million
After the big increase in spending in 2014 for the
newly insured, health care spending is projected to
grow by 6.7% rather than 6.8% between 2015 and
2019 (or 6.4% instead of 6.6% in 2019)

Sisko, et al. 2010

(Of course, these are projections that may or may not come to
fruition)
What is a QALY?
Major
stroke
0
1
Perfect
health
Dead
Recurrent
stroke
Studying for a
law school exam
OECD

Organisation for Economic Co-operation and
Development (www.oecd.org). The 33 member
countries include:
U.S., Canada, Mexico, Chile
 Denmark, Norway, Sweden, Finland
 U.K., France, Germany, Netherlands, Switzerland
 Portugal, Spain, Italy, Greece, Turkey, Israel
 Hungary, Czech Republic, Slovak Republic, Slovenia,
Poland
 Japan, Korea
 Australia, New Zealand
