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Tea Leaves Are for Drinking: Health Reform After the Supreme Court Ruling

At dinner parties, on a plane, and at the ball park, I get the same question: “Will the Supreme Court strike down health care reform?” I give the same response. In the words of Yogi Berra, “It’s tough to make predictions, especially about the future.”

Mark D. Smith, JD

Regardless of whether the Affordable Care Act (ACA) is upheld, overturned entirely, or stripped of key features, health care reform is already happening, and will continue, no matter what the Court decides.

The bill is massive. Some of its features have already been altered—the long-term care program (the CLASS Act), for example—and others are sure to change in the process of implementation. But in in the midst of uncertainty about the future of the ACA, it’s worth contemplating changes in the delivery system in response to spiraling costs of care, wider concerns about the Federal budget, and thus in anticipation of the ACA or something like it—something has to give.

Provider Consolidation

In times of uncertainty, it’s better to be strong than to be weak. Every hospital in the United States is considering “partnerships” with other institutions. (A joke at Wharton—the University of Pennsylvania’s business school—about mergers and acquisitions was “There is no such thing as a merger: see Acquisitions”). Although hospital consolidation flies the banners of “economies of scale” and “efficiency,” they seem to actually be more about increasing market power to improve their pricing leverage with payers.

More significant, perhaps, is the wave of purchases of physician practices and provider-led plans by hospitals and, surprising to some, by health plans. In California, Optum’s marriage with Monarch and Anthem’s acquisition of CareMore are striking examples. The ACA and unrelenting pressures from rising health care costs have jump-started a battle for the hearts, minds, and wallets of physicians.

Such consolidation was in the works before the ACA, but it has undoubtedly accelerated because of anxiety about the future. This trend of the big getting bigger is likely to continue even if the law goes away.

Pioneering ACOs

Some wag (okay, it was me) was quoted 2 years ago as saying that accountable care organizations (ACOs) were like unicorns, mythical creatures that everyone could describe but no one had ever actually seen.

Well, now we are beginning to see them.

ACOs are a provision of the health care law that will offer physicians and hospitals treating Medicare beneficiaries financial incentives to hold down costs while meeting certain quality measures, such as reducing hospital readmissions. Thirty-two provider organizations in 18 states, including 6 in California, are currently taking part in the Pioneer ACO Model, sponsored by the Center for Medicaid & Medicare Innovation (the CMS Innovation Center). Participating ACOs will be held financially accountable for the care provided to their patients.

In addition to these “pioneers,” there is also a growing catalog of other organizational and payment innovations. These attempts to create physician/hospital organizations that are prepared to take longitudinal clinical and financial responsibility for a defined group of patients are good developments. But make no mistake: their ultimate success is not going to be defined solely—or even principally—by their clinical accomplishments but by their capacity to save money. Which brings me to the 2 likely foci for discussion of health care leading up to the election: Medicare and insurance premium prices.


Conservative lawmaker Paul Ryan and liberal economist Paul Krugman have precious little in common except their first names. Yet both agree that the country’s future prosperity depends on dramatically reining in health care costs.

Medicare is perhaps America’s most popular “entitlement” program; a decade ago it would have been inconceivable that ambitious national politicians would be arguing over how to cut it. But there is now broad bipartisan agreement that restraining the rise of Medicare costs is essential to the fiscal survival of the republic. The election season is likely to produce warring narratives, not about the necessity of constraining costs but about whose approach is more destructive.

Insurance Costs: Headline vs Core Inflation

Economists distinguish between headline inflation, which includes energy and food—seasonal and volatile but politically important entities—and core inflation, which excludes these hot-button items. There is a similar phenomenon in the pricing of health insurance. The headlines about premiums going up or (rarely) down are influenced by a host of ephemeral political and economic factors, such as regulations, underwriting cycles, the state of the economy, and political calculations or blunders by insurers. But the long-term cost of insurance is principally determined by the “core,” the underlying cost of the care that it finances. The ACA contains a host of measures designed to reform the delivery system to reduce its cost. And, notably, 2 important infrastructure investments—health care information technology and comparative effectiveness studies to determine which medical interventions work best—were products of the stimulus package, not the ACA.

The hope is that these efforts and others will cumulatively be able to restrain the cost of care by eliminating waste rather than rationing, as Donald M. Berwick, MD, MPP, and Andrew D. Hackbarth, MPhil, have compellingly argued. But most of these developments are, frankly, experiments; they may take years to bear fruit. Not surprising—we didn’t get into this mess in 3 or 4 years, and we won’t get out of it that quickly either.

Again, the electoral season will likely produce warring narratives, this time over headline insurance pricing. Democrats will likely point to the short-term benefits of the ACA—premium rebates, high-risk insurance pools, and adult kids on their parents’ insurance. Republicans will ask where the promised decreases in premiums are.

According to some recent reports, health care costs have started to flatten out. While some health economists think that the prolonged recession is behind the shift, others are convinced that the changes being adopted by hospitals, doctors, and health plans, which emphasize quality of care over quantity, are responsible. I’m skeptical of the latter, but of course time will tell.

About the author: Mark D. Smith, MD, MBA, has been president and chief executive officer of the California HealthCare Foundation since its formation in 1996. CHCF is an independent philanthropy with assets of more than $700 million, headquartered in Oakland, California, and dedicated to improving the health of the people of California.
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