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The Next Health Care System

Reform must include building a smarter delivery system for the new century.

One reason a consensus on controlling health care costs is so elusive is that Congress is actually debating two issues at once.

The first debate is about finding near-term reductions in Medicare, the giant federal health care program for seniors, to help fund an expansion of coverage to the 46 million uninsured. That's a grinding process of squeezing payments to doctors, hospitals, and insurers to create savings that the Congressional Budget Office will certify in calculating the health bills' overall costs. This process isn't painless: Interest groups are accepting some cuts and fighting others. But the choices are familiar and easily quantified. These decisions amount to tinkering under the hood of an aging but still serviceable family sedan.


The cost debate's second front is more like designing a hydrogen car, something new entirely. In this discussion, Congress is trying to determine how to fundamentally re-engineer the health care system to lower its long-term cost trajectory. Most of the choices involved are unfamiliar and difficult to quantify; even CBO resists precise estimates. Yet it is these decisions that will determine whether health reform creates a system that truly "bends the curve" and curtails long-range spending growth.

Although more-combustible disputes have obscured the consensus, there's substantial agreement about what such a system -- the next health care system -- might look like. No one in Washington has described that vision more compellingly than Peter Orszag, the distance-running, data-crunching wonk who serves as President Obama's Office of Management and Budget director.

In a recent conference call, Orszag identified three pillars of what he called a "more-efficient, higher-value, lower-cost health care system." The first is information: He envisions a world where doctors have computerized access to their patients' health records and can inform their treatment decisions with detailed research on the comparative effectiveness of different options. The second is a change in financial incentives -- a transition from the current fee-for-service model that pays doctors and hospitals for each procedure toward a bundled system in which teams of providers share fixed sums for managing a patient's overall health. Last is a shift in training priorities to produce more of the primary-care doctors that team-oriented care strategy requires.


In essence, Orszag and like-minded experts want to build on the approaches used by such places as the Cleveland Clinic, where integrated systems deliver high-quality care at lower costs. The problem, Orszag says, is that no one knows exactly how to reconstruct today's fragmented health care delivery system to those specifications. "There is not a complete plan that exists today ... to capture those opportunities," he says.

The Obama administration's response has two steps. It wants pilot projects to test elements of the new system, such as penalties for hospitals that must readmit too many of their Medicare patients after surgery, or incentives for states to establish "medical homes" with doctors and nurses who coordinate treatment for the chronically ill. Then the administration wants to create an Independent Medicare Advisory Council with enhanced authority to compel adoption of the most-promising innovations. The House and Senate are moving toward that two-step approach.

Orszag maintains that it would be irresponsible to proceed faster, given the uncertainty inherent in big changes -- shifting toward paying providers more for results than for volume, for example. But even some of his allies disagree. Many think that the Democratic bills are advancing these ideas too tepidly for fear of antagonizing providers. "They are small, little incremental steps," frets Kenneth Thorpe, chairman of Emory University's Public Health School. Douglas Holtz-Eakin, John McCain's 2008 campaign policy director, agrees: "They have the right boxes checked ... but they don't have the scale." CBO echoed that verdict in its dismissive review of the bills' long-term savings.

There's no shortage of ideas for accelerating change. Thorpe wants more investment in teams to coordinate care. Others argue that partially taxing employer-provided health care would encourage patients to seek more-efficient providers. Len Nichols, who directs the centrist New America Foundation's health program, would impose automatic payment cuts for Medicare in high-cost regions if the independent commission's proposals don't achieve sufficient savings. Malpractice reform might promote greater efficiency, too.


The health care debate has focused mostly on patching the biggest hole in the existing system by covering the uninsured. But that repair may not be sustainable -- politically or financially -- unless the legislation also moves more boldly to begin building a smarter health care system for the new century.

This article appears in the August 1, 2009 edition of National Journal Magazine.

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