Health care reform: Three ways to fix Obamacare

For the last eight years, far too much of the national debate on health care reform has focused on health coverage and not health care.

For those leading the charge back in March 2010, the Affordable Care Act was predominantly framed as a reform of the insurance sector. Fast forward to today and Republicans and Democrats are still arguing over things like exchange enrollments (vs. expectations) or what steps can be taken to directly control spiraling cost increases in monthly premiums.

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This approach is entirely backwards. When the government wanted to increase the safety of U.S. passenger vehicles, it didn't do it by "reforming" the automotive insurance industry. Accidents and deaths per mile driven weren't reduced because federal bureaucrats required insurers to treat all drivers of the same age the same way or to offer "gold" plans with mandatory coverage for windshield chip repair. And yet that's exactly the approach we've taken with healthcare.

Industry lobbyists love this setup, because it allows their clients to avoid tackling the real challenges of cost and quality while the political world debates issues that have little to do with actual patient treatment.

To have any chance of success, real healthcare reform needs to dramatically change how we pay for what we get. The current model is broken. It is unaffordable, it is piecemeal, there is little accountability for outcomes, and it is not consumer-centered.

In virtually every other industry, consumer demand drives service providers and product manufacturers to 1) improve quality and 2) compete on price. In contrast, in healthcare the approach has always been to try to reduce costs by manipulating organizational structures – as with HMOs or Accountable Care Organizations – while leaving in place the original sin of fee-for-service provider reimbursement, which will always incentivize volume-driven care decisions, and not a focus on outcomes.

As Washington DC looks to a change in the White House, the focus of the next generation of reform should be in three areas:

First, replace fee-for-service provider reimbursement with bundled payments and other approaches that link costs to outcomes. One of the few healthcare reform success stories we've had occurred in 2008, when the Centers for Medicare & Medicaid (CMS) announced it would no longer pay for so-called "never events" – preventable incidents like hospital falls or objects left in patients after surgery that should never happen in modern health care delivery organizations.

This first meaningful connection between payment and outcomes led directly to a 17 percent decline in hospital-acquired conditions from 2010 to 2013. Notably, it took financial incentives/consequences before this happened.

Secondly, policy makers need to unwind the existing incentives for consolidation – a trend that is threatening the competitiveness of many local markets. ACA established a bureaucratic labyrinth of new organizational structures, regulations and incentives. Rather than focusing on the capabilities and culture needed to move toward better outcomes at lower cost, providers and payers have been compelled to invest in new staff and technologies to comply with all these new regulations.

On the provider side, this effort spawned a flood of consolidation, with healthcare delivery systems buying or affiliating with other systems, and physicians seeking refuge in employment from proliferating bureaucracy. The FTC's efforts to constrain this trend have been limited at best. The gravest danger we face as a nation is that all these systems become too big to fail – and, more importantly, too big to care.

Finally, it's past time to require transparency of cost and outcomes, so consumers can make informed choices about their care.

Transparency took a hit recently, when the Obama administration bowed to Congressional pressure and delayed the release of a new "five star" hospital rating system based on health outcomes for patients treated under Medicare. The delay is likely to be just a short-term respite for the industry. As patient-consumers increasingly transition to high-deductible plans and other models that increase their cost exposure, they will demand more transparency and information for the choices they need to make.

On their own, approaches like the star ratings won't provide enough information for consumers. When an entire facility has the same one- to five-star rating, it's difficult for a cancer patient or an expectant mom to translate that simple score into information that's relevant for their specific procedures. However, simply having some awareness that not every hospital is performing equally well and consumers should be making informed choices is an important first step toward a true market-based healthcare system.

If we are serious about healthcare reform, we need to move beyond the current obsession with coverage to a real debate about accountability, transparency, cost and quality. We also get into trouble when government is overly prescriptive with solutions. Policy makers should set the fundamentals needed for a market-based, patient-centric system, then get out of the way and watch the world change.

Commentary by Rita Numerof, PhD, president of Numerof & Associates, a firm that helps businesses across the healthcare sector define and implement strategies for winning in dynamic markets.

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