Harvard Policy Researcher Says Obamacare Will Inadvertently Break Fee-For-Service Model

In Washington, Amitabh Chandra stood before a roomful of economists, policy makers and health care experts earlier this month. As director of Health Policy Research at Harvard’s Kennedy School of Government, he closed a presentation about the slowdown in health care spending over the last decade by citing an article in The New York Times.

“Changes in the way doctors and hospitals are paid — how much and by whom — have begun to curb the steady rise of health care costs in the New York region,” the article declared. “Costs are still going up faster than overall inflation, but the annual rate of increase is the lowest in 21 years.”

Then came the punch line. The article, written by my now-retired colleague Milt Freudenheim, was published in December 1993, when the so-called managed care revolution promised for a few hopeful years to change the way doctors practiced medicine and curb the breakneck rise in health care costs for good.

It is a sobering reminder that the recent improvements could wither away just as they did two decades ago.

And within that experience underlies the ominous forecast by Mr. Chandra, Jonathan Skinner of Dartmouth College and Jonathan Holmes of Harvard.

Together, they believe that spending on healthcare, which already consumes nearly 18 percent of the nation’s gross domestic product, will continue to grow 1.2 percentage points faster than the economy over the next 20 years.

“It’s very scary,” Professor Chandra told me.

At the very least, it suggests that health care reform is by no means over. The Affordable Care Act might be on track to meeting its primary goal of providing coverage for most uninsured Americans and protecting everyone against the risk of losing their insurance.

However, for all its innovative proposals to flush waste out of the system, reining in health care spending still appears well beyond the grasp of Obamacare.

And keep in mind: coverage is NOT care. If people have difficulty accessing their doctors, or seeing them in off-hours, we’re still going to see gratuitous spending in our ERs. Although Direct Care challenges this wasteful spending.

“We have been consistently bending the cost curve over the last 20 years, but the kinds of things that we do don’t tend to be permanent,” said Charles Roehrig, who runs the Center for Sustainable Health Spending at the Altarum Institute, a nonprofit based in Washington. “It will take a lot of work just to stay on the same curve we have been on for a while.”

The evolution of the American medical-industrial complex has been driven by two critical dynamics. The first is the development of new technologies. The second is our willingness to pay for them.

However, this second factor is changing every time a patient demands affordable care, and a doctor successfully delivers it.

But consider what happened in the 1990s, when pretty much anyone with a heart ailment had a stent implanted. It turns out, though, that stents aren’t universally useful. A study a few years ago discovered stents “did not reduce the risk of death, myocardial infarction, or other major cardiovascular events” for patients with stable coronary artery disease.

Still, until recently, doctors prescribed them and patients got them. Often, an insurer or the government picked up the bill, whether the treatment helped our health or not.

Research by Louise Sheiner of the Federal Reserve found that Americans’ out-of-pocket spending actually declined over the last half-century as a share of the nation’s gross domestic product, even as health care spending soared. That’s because Medicare and Medicaid shouldered much of the increased burden.

With no incentive to say no, the medical industry has little cause to be cautious.

Seriously, it’s as if healthcare WANTS economist Milton Friedman to perpetually roll in his grave.

And though stents seem to be on their way out for most people, the Next Big Thing is coming into focus. At the conference, which was sponsored by the Brookings Institution, there was much talk of proton beam accelerators for cancer treatment, which cost hundreds of millions of dollars to install yet offer no established advantages to patients.

In 2010, nine facilities were operating, planned or under construction across the country. This year there are 20.

Can this be stopped, or at least slowed? Forces encouraging restraint have not been very successful. Medicare has pushed cheaper generics to replace brand-name drugs. Nurse practitioners have taken over tasks formerly performed by more expensive doctors. Advanced EMRs are being developed and implemented. But the savings have proved fleeting.

The question is whether the innovations in the Affordable Care Act can consistently bend the cost curve.

Most health care economists agree that the Affordable Care Act, along with other forces, will help reduce waste, pushing the industry to drop the “fee for service” model that encourages doctors and hospitals to spend more whether it is useful or not.

Mark McClellan, a former administrator for the Centers on Medicare and Medicaid Services under George W. Bush, and Alice Rivlin, a former vice chairwoman of the Federal Reserve, point out that innovations that improve health or reduce the cost of medical services may also increase demand.

“It would be a mistake to assume that slow growth in health care spending will continue,” they wrote, “or that spending reflects high-value care and therefore, health care delivery reform is no longer an urgent priority.”

It’s obviously important to patients and doctors. We’re witnessing the rise and spread of Direct Care across the nation.

Professor Chandra calls himself “extremely optimistic” about the government’s efforts to move the health care industry away from the wasteful fee-for-service model. His forecast that health care spending will exceed G.D.P. growth by 1.2 percentage points may indeed be scary, but it amounts, in fact, to an amazing improvement over the status quo.

Over the past 40 years, healthcare spending has been growing 2.4 percentage points faster than the economy, on average.

That’s not good enough, though. By 2032, health care will consume almost a quarter of the nation’s economic production, taking a larger chunk from workers’ wages and either forcing taxes up to pay the government’s share, adding more to the national debt, or squeezing out other important public services.

If we really want to win the health care spending war, it’s going to take more than reform. It will take a revolution.

Join the revolution at IWantDirectCare.com