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Experts Chart Direction of Health Care in California and Nation

IRVINE — We are facing big changes in health care — no matter what happens with efforts to repeal the national health care reform law.

That’s the word from an impressive array of health care and economic experts who gathered at the end of February for the 20th Annual Health Care Forecast Conference at UC-Irvine.

The future, they said, is now. The health care system is changing dramatically because health care reform has built a momentum that likely will last for years, despite any legislative, economic and judicial developments aimed at stalling it.

“The Affordable Care Act will remain the law of the land until the Supreme Court rules one way or the other,” according to Ted Shannon, health equity analyst for Arrowpoint Partners, an investment firm based in Denver.

“That Supreme Court ruling,” Shannon said, “whatever it is, isn’t likely to happen until at least 2013.”

Chris Jennings, a former health care analyst for the White House and now head of Jennings Policy Strategies, said the legislative repeal effort has just about fizzled.

“I think the upshot here is, it’s unlikely it will actually be repealed,” Jennings said. “And even if it were somehow successful, the market will have changed so much, repeal wouldn’t even alter it.”

The next year or two will be filled with change in health care, Shannon said. “And if industry players aren’t ready for it,” Shannon said, “they are going to be in a world of hurt.”

What’s on the Horizon

We could be looking at a world of opportunity because so many signs are pointing to a recovering national economy, according to economist James Glassman.

“When you listen to the market, the problems are all changing,” Glassman said. “The U.S. economy is back. As the economy is on the mend, a lot of these things will be fixed.”

Consumer spending is at a new high, the stock market is rising, businesses are showing profitability, investment and hiring are up, and the real estate market is no longer inflated, Glassman said.

“We look at how we’re doing as a country by looking at our potential,” he said. “We should experience [economic] growth of around 4% a year, that’s the Federal Reserve projection, as well.”

All of those rosy indicators, when combined with a steady flow of federal health care reform dollars, set the stage for a period of transformational growth in health care delivery, Glassman said.

The pace of health care reform, though, will most likely be set by individual states, according to health policy consultant Peter Harbage. States have the flexibility to move as quickly or as slowly as they want with health care reform.

“There are a lot of opportunities to move forward,” he said. “The strength of the system is that states can get the ability to tailor programs to what they want.”

States’ decisions depend on pressure from the local level, Harbage said. “Individual providers can lead, as well,” he said. “County and local leaders also need to figure out what ways they can move forward.”

There are a lot of choices, Harbage said. “There is money out there for ACOs, for public health, for work force development, for innovation. This is a big task,” Harbage said. “But in the long term, you’re talking about efficiencies that will save money.”

Trends and Developments

In addition to external forces — influx of federal reform dollars, and the national and local efforts to transform the health care delivery system — there are trends in medicine that are altering the health care system, according to Robert Kocher, director of the McKinsey Center for U.S. Health System Reform.

“Group sizes are getting bigger,” Kocher said. “Right now, 50% of providers are employed by hospitals. That’s a huge change in the way medicine is practiced in this country.”

The shift toward hospital-centered care brings its own challenges, he said.

“The biggest driver of premium costs is that hospitals have been able to set prices,” Kocher said. “There’s a concern that they’ve developed a sort of monopolistic power. There is a worry about the hospital as the hub.”

According to Michael Ramseier, vice president of health services at WellPoint, premium increases have been forced onto the commercial side by deficiencies in public payment.

“In California, Medi-Cal and Medicare account for roughly 60% of the people in hospitals. Commercial [insurance] is about 30% of the volume,” Ramseier said. Medi-Cal is California’s Medicaid program.

“And yet the revenue comes mostly from the commercial payer,” he said. “Everyone loses money on Medi-Cal patients, and maybe breaks even with Medicare patients.”

That basically means that, not only are taxpayers paying a lot of health care costs, but private insurance is basically subsidizing public insurance, according to Ramseier. Insurance companies still make money, but health care providers are squeezed and the cost to employers and individual insurance buyers keeps rising. It’s a payment model, Ramseier said, that is not sustainable.

“If we don’t fix the underfunding of Medi-Cal, we’re going to continue to have escalating premiums on the commercial side,” Ramseier said.

WellPoint, which reported earnings of $2.9 billion last year, owns Anthem Blue Cross in California, which is now seeking premium increases of as much as 15%. Anthem last year sought increases as high as 39%.

Unicorns of Health Care

Accountable care organizations are one possible solution, Ramseier said, particularly in this state. “California is a uniquely optimal site for development of ACOs,” he said, “because the HMO delivery model is already in place.”

ACO is a broad term that is like a unicorn, Ramseier said, because people know what it looks like, but no one has actually seen one yet.

One type of ACO being floated by federal officials is shared savings, where a group is eligible for a share of the money saved, once certain quality performance standards are met.

But according to one panelist at the conference, that is not a great idea.

“Shared savings is weak tea, and will be a failure,” Robert Margolis of HealthCare Partners said. “You have to have a certain amount of physician risk.”

The idea of shared savings, he said, doesn’t offer real incentive because it is based on what-ifs and offers an unspecified amount of reimbursement for a quality standard that may or may not save money and produce payout.

“There has to be a transformative process,” Margolis said, “where we focus on proactive population management.”

Data are key, Margolis said. If you have detailed patient information on a population-level registry, you can develop systems to treat chronic conditions such as diabetes before they become expensive to treat.

“I think this is a very powerful tool,” Margolis said. “You can initiate outreach to patients, get to them early on and avoid admissions and readmissions. That level of population health is where ACOs need to go,” he said.

Here Come the ACOs

The ACO model is coming to Medicare, and that could be transformative, according to John Gorman, CEO of the Gorman Health Group in Washington, D.C.

“Medicare is going to be the most influential ACO,” Gorman said. “It will set the bar for all of the others. What you see in Medicare becomes the blueprint for what you see in the rest of the payment systems.”

The ACO model could work well for seniors because so many elder conditions are chronic, he said. “The Medicare ACO draft regulations should be out by March 15,” he said. “Then you’re looking at the 60-day comment period, it should be finalized over the summer. Then the first Medicare ACOs should launch in January 2012.”

That may sound like a long way off, he said, but it’s the blink of an eye in a health policy timeline.

“For many of us wanting to pursue this, we’re going to feel like we’re shot out of a friggin’ cannon,” Gorman said. “There is so much riding on this, and the payoff could be tremendous.”


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