What you need to know about Obamacare’s cost-cutting measures

October 6, 2014

When we talk about the Affordable Care Act, we talk about the millions of Americans newly insured under the law. Or the state marketplaces, the Medicaid expansions. Or the Web site kinks.

But a host of cost-cutting initiatives are built into the legislation, and partnerships with health providers nationwide — big and small, urban and rural — reduce government spending. 

Stephen Zuckerman, co-director of Urban Institute’s Health Policy Center who has studied the economics of health care for three decades, said care quality is particularly emphasized in the ACA. He co-wrote this paper to answer critics who said the law didn’t do anything to cut health-care spending. This conversation has been edited for clarity and length.

“I got into health care 30 years ago. This has long been the case: Many people don’t have health insurance, and health care is expensive.

The Affordable Care Act caused a major shift in the country’s ability to provide people with health-care coverage. But cost-containing remains a challenge: When you give people insurance, they’re likely to go out and get the care they weren’t getting when they were uninsured. That’s a good thing — but it’s going to add cost to the program.

There was a lot of criticism of the ACA not addressing cost containment. But the law built on money-saving devices that have been around for a long time — such as managed competition in creating the marketplaces, so that health plans would have incentive to compete with one another and keep premiums low. In the first year, and going into the second year, you’re seeing lower premiums and slower growth in premiums.

You also have explicit controls on Medicare payments. The feeling was: You’re going to finance this coverage expansion, and providers were going to have a lot fewer uninsured patients. So, the law focuses on reducing payments for one of the major public programs, Medicare.

Under the Affordable Care Act, hospitals, home-care programs and skilled nursing facilities are going to be seeing lower Medicare payments. A range of policy ideas address this. Many are related to hospital readmissions, which are costly. Incentives were put in place for hospitals to reduce readmissions for pneumonia, congestive heart failure and heart attacks. If they didn’t, they’d pay a penalty.

People are working under the assumption that, in a system where prices are not well controlled, providers don’t necessarily have the incentive to organize in the most efficient ways possible. Hospitals may be overstaffed, for example. They may not be taking advantage of electronic health records that allow for a better flow of information.

The ACA recognized that — and it introduced the notion of an Accountable Care Organization. The ACOs are set up to manage, specifically, the costs of the populations they’re treating. If they’re successful in providing services at lower costs while maintaining quality, hospitals earn bonuses. They get a share of the savings.

Before the ACA, quality wasn’t always the first thing considered.

One of my first projects at the Urban Institute, in the 1980s, was an evaluation of a change in hospitals getting paid on a cost-based system — they were essentially reimbursed for all costs incurred. Hospitals, more recently, have been paid a fixed price per patient. They didn’t have an incentive to keep patients in the hospital for a long time — which means they had an incentive to get patients out of hospitals.

That’s not always a good thing for a sick person. Or the system. Patients get discharged too quickly and get readmitted somewhere else. Or they end up in a nursing facility for expensive rehabilitation.

You can’t compromise quality if you’re going to save costs.

Nowadays, we know how to expand insurance coverage. Policymakers have done that effectively. We know much less about cost containment, and how to make that happen in a way that preserves quality. A lot of experimentation is taking place under the ACA.

It’s early. The jury is still out on how it’ll all work.”

Here are some of the Affordable Care Act’s cost-cutting creations:

  • The Patient-Centered Outcomes Research Institute conductscomparative-effectiveness research, which aims to uncover the positives and negatives of different treatment options. The institute’s objective: Help doctors, patients and policymakers make informed choices amid an ever-shifting health climate.
  • Hospitals can apply to become Accountable Care Organizations. That means doctors, nurses and social workers band together to deliver continuous, coordinated care to patients. If they slash government spending, they get to keep a share of the savings.
  • The Readmissions Reduction Program penalizes hospitals when patients return too frequently with, for example, heart problems or pneumonia. The idea: Doctors should prevent these maladies after a patient’s first stay. Readmissions result in Medicare payment cuts.
  • Starting next year, the Independent Payment Advisory Board will recommend changes to Medicare if costs exceed a certain target (GDP plus 0.5 percent). The 15-member agency, comprised of experts across the health-care industry, will focus on curbing costs without affecting coverage or quality.
  • Pilot programs for “bundled” Medicare payments give health-care providers a lump sum for certain treatments. The idea: Hospitals gain flexibility to better allocate resources — and save money through reduced complications and readmissions.

Danielle Paquette is a reporter covering the intersection of people and policy. She’s from Indianapolis and previously worked for the Tampa Bay Times. Follow her on Twitter: @Dpaqreport.

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Alpha Traore

Hello everybody, I am Alpha from Burkina Faso. I am married, and I have a two years wonderful boy. My major is business. I have some experience in online learning, and I like Jim way of teaching the economics subject. I am very excited to be with you guys this semester, and I am sure we are going to learn a lot from each other.

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