Assessing the First Year of CMS’ New Innovation Center

Some true believers in the free market say new ideas only grow in the wild, that the words “government” and “innovation” are mutually exclusive.

An infant agency — the Center for Medicare and Medicaid Innovation — hopes to prove them wrong.

In a report released this month, “One Year of Innovation: Taking Action to Improve Care and Reduce Costs,” the Innovation Center summarizes its first year — 16 initiatives involving more than 50,000 health care providers in all 50 states. The center’s initiatives range from setting up a framework to establish accountable care organizations to working with states to coordinate care for individuals eligible for both Medicare and Medicaid.

The goal is to begin shifting the country’s huge health care system away from paying for volume and toward paying for value.

The Innovation Center, charged with devising, testing and refining new payment and delivery systems, has a budget of $10 billion over a decade. That represents about 0.1% of Medicare and Medicaid spending — considerably less than most organizations typically spend on research and development.

The Affordable Care Act calls on CMS to develop new tools to improve quality and reduce costs in government-subsidized health care programs. The Innovation Center is a sort of a designer/foundry combination, trying to draw and build new tools at the same time. So far, response has been mostly positive from industry and government leaders.

The White House is “thrilled with the level of involvement and interest so far,” Jeanne Lambrew, President Obama’s deputy assistant on health policy, told participants at the National Health Policy Conference last week in Washington, D.C.

Jane Hyatt Thorpe and Teresa Cascio of George Washington University’s Hirsh Health Law and Policy Program’s HealthReformGPS said Innovation Center officials are “making considerable progress on their mandated tasks.”

Medicare as Payment Innovation Leader

Government regulation has long been accused of interfering with innovation in some industries, but in the delivery of health care — particularly the way health care is paid for — the accusation may not apply.

“The reality is that over the years, the private sector has by and large followed Medicare’s lead in payment systems,” Innovation Center Director Richard Gilfillan said in a recent Washington Post story.

“Medicare has been the most innovative payer if you look back over the last 30 years,” Gilfillan said.

Too Slow or Too Fast?

Another common criticism of government involvement in business is that government bureaucracies can’t be nimble enough to rapidly respond to market changes.

Speed and agility don’t appear to be lacking at the CMS Innovation Center. In fact, one criticism after the center’s first year is that it may be trying to go too fast.

In a status report by the Urban Institute that was commissioned by the Robert Wood Johnson Foundation, Robert Berenson and Nicole Cafarella gave the new center generally good marks for its first year of work.

However, they added, “Some policy and health delivery observers express concern that the Innovation Center’s speed and approach are leaving behind potential innovators that have not been ready to respond to the quick pace of RFPs (requests for proposals). They seek a more deliberative process that permits establishment of a consensus vision — and plan — for achieving a reformed health care delivery system. Exactly how such a consensus would be achieved remains unclear, given divergent views of how ‘paying for value’ can best be achieved.”

Poor Cost-Reduction Track Record

So far, Medicare doesn’t have a very good track record of reducing spending, according to the Congressional Budget Office. The Innovation Center hopes to change that.

A CBO report released last month showed that only one of 10 major Medicare demonstration projects launched since 1967 actually saved the government money.

Robert Laszewski, a veteran health care consultant, summed it up on his Health Care Policy and Marketplace Review blog: “Thirty years into managed care, the stark reality is that we aren’t yet smart enough to get things under control.”

Some reform critics predict the Innovation Center’s projects are unlikely to result in savings, like most of their predecessors.

Laszewski said fear of failure isn’t a good reason to turn away from the Innovation Center’s goals.

“It would be wrong to assume we shouldn’t do these new projects just because the last ones didn’t succeed,” Laszewski told the Post. “If Thomas Edison had stopped the first time he failed, we wouldn’t have the light bulb.”

Laszewski said policymakers should concentrate on the lessons learned from a Medicare experiment that did manage to save money.

Medicare made bundled payments to hospitals and physicians to cover all services connected with heart bypass surgeries, and Medicare spending for those services declined by about 10%, Laszewski wrote on his blog.

“The good news here is that when put on a budget, when the payment system was changed to create a downside if results weren’t improved, one of the studies did identify ‘significant savings.'”

“What we’ve learned is that you can’t rely on people to do the right thing just because you’ve provided them with more information,” Laszewski told the Post. “You’ve got to change the way they’re paid so that there is a downside to not doing the right thing. … You can’t have all carrot with no stick.”

Here’s a look at what else is making news in health reform.

Administration Actions

  • On Friday, CMS published a fact sheet on the essential health benefits that insurers must cover in the state health insurance exchanges under the federal health reform law. The fact sheet answers questions that have been raised by states, patient groups and other stakeholders. It also lays out a timeline for implementation (Norman, CQ HealthBeat, 2/17).
  • Last week, White House officials touted a 10-year, $14 billion plan in President Obama‘s fiscal year 2013 budget proposal to expand and simplify the small-business tax credit provision in the federal health reform law (Pecquet, “Healthwatch,” The Hill, 2/16). The overhaul provision was designed to benefit about 360,000 employers with fewer than 25 workers, but the new budget plan would raise the eligibility threshold to 50 or fewer workers and benefit up to 500,000 businesses by the time the overhaul is fully implemented in 2014 (Belogolova, National Journal, 2/16).
  • Last week, HHS denied Wisconsin‘s request for a temporary waiver from the federal health reform law’s medical-loss ratio rule and granted North Carolina a partial waiver. Wisconsin had sought to lower its MLR to 71% in 2011 and increase it to 77% by 2013 (Pecquet, “Healthwatch,” The Hill, 2/16). HHS also agreed not to penalize insurers in North Carolina that paid at least 75% of premiums to medical care in 2011 (Adams, CQ HealthBeat, 2/16).

Challenges to Reform

  • The concept of the individual mandate — which conservative opponents of the federal health reform law are challenging as unconstitutional — was developed by conservative economists more than 20 years ago. Designed as an alternative to health reform models favored by Democrats, Senate Republicans and conservative scholars welcomed and endorsed the mandate. Although Democrats initially resisted the concept, they warmed up to it when it was included in the 2006 Massachusetts health reform law that former Gov. Mitt Romney (R) signed (Cooper, New York Times, 2/14).

Eye on the Courts

  • Last week, 43 Senate Republicans filed a brief urging the U.S. Supreme Court to remove the individual mandate in the federal health reform law, arguing that the requirement is unconstitutional because it requires economic activity (Baker, “Healthwatch,” The Hill, 2/13). Fifteen state chambers of commerce also filed a brief requesting that the high court rule on the health reform law as soon as possible to avoid further uncertainty that could affect their business decisions (Atlanta Business Journal, 2/13).
  • Last week, two not-for-profit groups that support a single-payer health care system in the U.S. — Single Payer Action and It’s Our Economy — filed briefs arguing that residents should not be required to buy insurance. The groups stated that the federal health reform law’s mandate “entrenches … private insurance companies” that “have a perverse profit incentive to deny health care to those who need it” (Norman, CQ HealthBeat, 2/14).

In the States

On the Hill

  • In a letter to the White House last week, Sen. Michael Enzi (R-Wyo.) expressed “deep disappointment” with President Obama‘s decision to allow members of his Cabinet — including HHS Secretary Kathleen Sebelius — to participate in fundraising events for his reelection campaign. He said it would be “particularly inappropriate” for Sebelius to be present at the events because of her “ongoing role” in the implementation of the federal health reform law (Pecquet, “Healthwatch,” The Hill, 2/15).
  • Last week, House Republicans criticized a statement by acting Office of Management and Budget Director Jeff Zients that the penalty for not obtaining health coverage under the federal health reform law is “not a tax” (Nather, Politico, 2/15). The lawmakers said that Zients’ comment undermines the White House’s defense of the individual mandate in the multistate lawsuit against the overhaul (Pecquet, “Healthwatch,” The Hill, 2/15).

Studying Its Effects

  • More than 86 million U.S. residents in 2011 gained access to preventive care benefits under the federal health reform law, according to a pair of new HHS reports (Pecquet, “Healthwatch,” The Hill, 2/15). One report estimated that about 32.5 million Medicare beneficiaries benefited from the law’s preventive services provisions (CQ HealthBeat, 2/15). The second report found that an additional 54 million individuals with private health insurance took advantage of expanded coverage for preventive services (“Healthwatch,” The Hill, 2/15).
  • In an analysis released last week, RAND Health researchers reported that premiums in the health insurance exchanges created by the federal health reform law would increase by just 2.4% for most U.S. residents if the individual mandate is repealed or overturned (Sanger-Katz, National Journal, 2/16). The report also found that eliminating the mandate would reduce by 12.5 million the number of residents who gain insurance through the law and more than double government spending per newly insured resident (Frieden, MedPage Today, 2/16).

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