Gerard Anderson on new payment models

Will Hospitals Lose Money Under Obamacare?

By Kimberly Leonard
U.S. News & World Report, July 17, 2015

The portion of President Barack Obama's health care law aimed at lowering the number of uninsured in the country has largely rolled out, leaving the administration increasingly turning its attention to another goal of the Affordable Care Act: controlling health care costs. It doesn't appear, however, that the proposals will make a significant dent in government spending, and questions remain over whether providers – particularly hospitals – could see any benefit from the initiatives.

In recent months, Obama and Sylvia Burwell, the secretary for Health and Human Services, have touted a move toward payment models that reward better quality of care, rather than the current model that compensates health care providers for the number of medical services they provide.

The government has been testing several initiatives aimed at slowing or reducing health care spending, which grows faster than the rest of the economy and makes up one-fifth of the country's expenditures. By 2018, the administration plans to place half of payments on Medicare – the government's program for adults 65 and older – under new models.

Attempts at changing payment models in the past, however, have yielded only modest savings at best. Also, what remains unclear is why hospitals would buy into a payment system voluntarily that likely would reduce their bottom lines.

"The answer is: They wouldn't," says Gerard Anderson, director of the Center for Hospital Finance and Management at the Johns Hopkins Bloomberg School of Public Health.

Hospitals do participate in different payment models, he says, so they can be prepared if there is a change in the way payments are delivered.

There has been scant evidence that accountable care organizations can significantly reduce health care costs. Anderson points out that hospitals may not want to partake because the more they save, the less they ultimately make. "If I'm a hospital, why would I cut anything, because I'd rather have all of it? Most of them don't, and that's why it's not working well," he says.

Not everyone is optimistic that these various experiments can bring about significant savings. These alternative payment models are far from the norm. "There is a lot of confidence, and most of it is not warranted," Anderson says. "There is nobody with significant power [in the health care industry] who wants to control health care costs. Until we have that, we will muddle along in terms of coming up with good ideas, implementing them and getting lukewarm results."

Still, it's difficult to say how much the country will suffer as a result of health care spending. Government officials warn decade after decade, year after year, that the country cannot sustain anymore spending on medical services. "We keep addressing the goal line of what's acceptable as we reach it and pass it," Anderson says. "It is cannibalizing other budgets, causing us to spend less on programs like education and housing."

"The Affordable Care Act was really about coverage," Anderson says. "It wasn't about affordable care."


'It's the Prices, Stupid': An Interview with Health Policy Expert Gerard Anderson

By Gerard Anderson, Elizabeth Palmberg
Sojourners, June 2011

Sojourners: What are some of the most important causes for why the U.S. is paying a lot more than other wealthy countries [in the OECD] for health care without getting improved results?

Anderson: A higher health-care cost is pretty much because of what I call, “It’s prices, stupid.” We just pay approximately twice as much for each good and service that we utilize in the U.S. vis-a-vis other industrial countries. In fact, for a hospital visit it’s about three times more than other industrialized countries for a similar visit — in a shorter period of time that you’re in the hospital, we still spend about three times more. So it seems to be that we just pay more for identical services compared to other industrialized countries.

Sojourners: Why?

Anderson: Because, in most other countries they have a single purchaser, which is a very tough negotiator, whereas in the United States we have so many different purchasers that nobody has a lot of power.

Sojourners: If you didn’t have to think about political realities at all, what health-care policies would you suggest the U.S. adopt?

Anderson:  Basically, that everybody has the same health care and access to the same health care.

Sojourners: Through a single-payer system?

Anderson:  Well, that’s the payment side. And then access to the same delivery system as well.

Sojourners: So, both single-payer and a standardized quality of care?

Anderson:  Correct.



By Don McCanne, MD

Gerard Anderson is a professor of health policy and management and professor of international health at the Johns Hopkins University Bloomberg School Public Health, and professor of medicine at the Johns Hopkins University School of Medicine. He may be most famous as co-author of the 2003 landmark Health Affairs article, “It’s the Prices, Stupid,” demonstrating that prices are much more important than quantity of services in explaining why health care spending is so high in the United States. He is as qualified as anyone to comment on the anticipated impact of the new payment models in health care.

The new models will pay for quality rather than quantity, thus supposedly controlling health care spending while maintaining quality.

What does Professor Anderson have to say about this? “There is a lot of confidence, and most of it is not warranted. There is nobody with significant power [in the health care industry] who wants to control health care costs. Until we have that, we will muddle along in terms of coming up with good ideas, implementing them and getting lukewarm results.”

As Anderson says, “The Affordable Care Act was really about coverage. It wasn't about affordable care.”

What could we do? In an interview a year after the Affordable Care Act was signed into law, he indicated that the United States needed a single purchaser that could negotiate prices, providing everyone with the same health care and health care access - a single payer on the payment side, with ensured access on the delivery side.

These new models that attempt to convince providers that they need to reduce the volume of services, when the greater problem is prices, simply are not going to gain traction, other than token participation. Providers may be willing to work less, but they are not going to give up significant revenues.

Under single payer, we would receive the right volume, at the right prices. As long as the prices are fair, providers will participate.