Analysts View Medicare ‘Doc Fix' Bill As Major Change in Health-Care Financing

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By Sara Hansard

April 15 — Medicare physician payment legislation that received final congressional approval April 14 will have an impact beyond physicians, including on insurers, health-care analysts told Bloomberg BNA April 15.

“This has the potential to have a bigger impact on the American health-care financing system than Obamacare,” Robert Laszewski, president of policy and marketplace consulting firm Health Policy and Strategy Associates LLC, told Bloomberg BNA in discussing the Medicare Access and CHIP Reauthorization Act (H.R. 2).

The Affordable Care Act “is huge, but it is about reforming the individual health insurance market, which is a relatively small part of the market,” he said. “This is about changing the financing system for the entire American health-care system.”

Health-care scholar Joseph Antos of the American Enterprise Institute, a free market-oriented research organization, said of the bill's provisions pushing providers to a payment system based on quality and away from the current fee-for-service system: “This could have a huge impact in the sense that some of these alternative payment models begin to look like insurance companies.”

President Barack Obama is expected to sign the legislation soon.

Moving Away From Fee-for-Service

The bill would replace Medicare's sustainable growth rate formula and establish new payment systems from 2016 through 2019. The bill “puts us on a four-year track to convert us away from fee-for-service,” Laszewski said. “We're going to see enormous activity in the provider markets in the next four years,” as physicians consolidate, he said.

A key question is “who's going to run this market—physician organizations or hospitals?” Laszewski said. “Insurance companies will play a major role as well, as they contract with these organizations, or in some cases compete with them.”

However, Laszewski added, “the pilot accountable care organizations in Medicare had very small savings. What we have done here with the passage of this bill is we've moved into systems of care that we expect will work but we haven't proven will work yet.”

Responsibility for Financial Risk

Congress and the administration are “really signaling hard that they want to see people in accountable care organizations” (ACOs) and other types of new payment and delivery models, Antos said.

“The intention is for those organizations to be fully responsible for the financial risk” of providing care to patients, he said. “That is clearly what insurance companies do.”

Individual solo-practice physicians won't be able to meet that challenge, and the new payment system will continue the push for doctors to sell their practices to hospitals, Antos said. Health insurers have been warning that industry consolidation may lead to less negotiating power for insurers and higher health-care costs. “Insurers may have to re-think their relationship to the Medicare program,” he said.

Aligning Providers With Plans

But Dan Mendelson, chief executive officer of health-care advisory company Avalere Health LLC, said the bill gives physicians and insurers the same incentives to control costs. “The effect on the insurance industry is physicians are going to be more likely to seek alternative arrangements and to align themselves with delivery systems and insurers,” he said.

In a telephone call with reporters April 15, American Medical Association CEO James Madara said it will take time for new systems, such as accountable care organizations, to develop.

In addition, the bill provides “a lot of flexibility,” he said. “One can find a way to latch onto systems that improve and reward quality, and one can do that in an independent practice, in an ACO, in a group of varying size.”

Madara also acknowledged that consolidation of providers is occurring. But, he said, “I don't think we're going to end up in one homogeneous place.” Some consolidations have been reversed, he said. “There will be consolidation in some areas, there will be individual practice still in areas, and so we have to make sure that we have a flexible range of solutions so that physicians and patients can pick ones that best suit them.”

‘Stability and Predictability' in Payments

Clare Krusing, spokeswoman for America's Health Insurance Plans, said the bill provides “stability and predictability in payments moving forward.” However, she said, health insurers have concerns about changes in the “Medigap” supplemental insurance system.

Under the bill, Medigap policies will be prohibited from covering deductibles in Medicare's Part B program for new Medicare enrollees in 2020, Antos said. The policies are “very popular with seniors,” he said.

“But it's also the case that there have been changes in what Medigap insurers have been selling,” Antos said. Plans offered by companies such as UnitedHealth Group Inc., which sells Medigap policies through AARP, have been moving away from covering Medicare deductibles, he said.

To contact the reporter on this story: Sara Hansard in Washington at

To contact the editor responsible for this story: Janey Cohen at

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