CBO: ObamaCare-Like Programs Don’t Save Money or Reduce Costs

By Matt Cover | January 20, 2012 | 3:03 AM EST

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(CNSNews.com) – Health care reform programs that are similar to those promoted by the ObamaCare law do not save the government money or reduce health care costs, according to a new report by the Congressional Budget Office (CBO).

The report examined 10 major demonstration projects conducted by Medicare in which managed care programs and value-based payment programs are evaluated. The two types of health care reforms are key features of ObamaCare – the Patient Protection and Affordable Care Act, which became law in March 2010.

In the managed-care programs – where care-management companies were hired to coordinate care between doctors and patients with chronic diseases like diabetes, sending nurses to monitor whether patients were following doctor’s orders – the CBO found that the programs did not reduce costs enough to save the government money.

“The evaluations show that most programs have not reduced Medicare spending: In nearly every program involving disease management and care coordination, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program,” the report said.

In the case of value-based payment programs – where hospitals are paid based on whether they achieve better outcomes for their patients – the CBO again found that all but one of the programs assessed did not reduce health care costs enough to save Medicare any money.

“The bundled-payment demonstration achieved savings for the Medicare program, but the demonstrations that paid bonuses to providers on the basis of their quality scores, estimated savings, or both, produced little or no savings,” reported the CBO.

Bundled payments refer to when Medicare pays a hospital a single lump sum for one type of service – in this case, heart surgery – instead of paying for each surgery individually, as it normally does.

The CBO noted, however, that this single demonstration project only saved money because Medicare was able to negotiate a bundled payment that was lower than the total cost of making individual payments to doctors – not because the hospitals were more efficient.

“The Heart Bypass demonstration yielded savings because Medicare was able to negotiate bundled-payment rates with the seven hospitals and the relevant physicians on their medical staffs that were lower than the separate payments that they otherwise would have received,” it reported.

Both managed-care and value-based payment reforms are key parts of ObamaCare. The CBO noted that the law empowers the government to conduct more demonstration projects and to take them national immediately if officials believe they could save significant amounts of money – in effect, changing Medicare without congressional approval or action.

For instance, the law establishes the Value-Based Purchasing Program, which will provide financial rewards to hospitals that meet government-defined health care quality goals.

The law also establishes Accountable Care Organizations – networks of health care providers the provide managed-care to their patients.

The main theory behind the law is that the government can use Medicare’s massive market share to force changes on the entire health care system, since Medicare payments make up a significant part of a hospital’s income.

In both the managed care and value-based demonstration projects evaluated by the CBO, participants were given financial incentives by Medicare to change how they delivered health care to their patients.

In the managed-care demonstrations, private disease-management companies were hired to provide managed care for patients with chronic diseases. In the value-based payment demonstrations, hospitals were allowed to keep some of the savings they generated or were expected to generate by changing to a value-based payment system.

In both cases, the few projects that did manage to reduce costs did not reduce them enough to actually reduce Medicare spending – most did not even reduce costs.

Most importantly for the future of ObamaCare, CBO noted that if the government is going to institutes similar programs, it will have to drastically change Medicare in order to have hope of achieving any savings.

CBO said that any future reforms would face “significant challenges” in trying to wring savings out of the health care system by incentivizing hospitals to change their practices.

“Demonstrations aimed at reducing spending and increasing quality of care face significant challenges in overcoming the incentives inherent in Medicare’s fee-for-service payment system, which rewards providers for delivering more care but does not pay them for coordinating with other providers, and in the nation’s decentralized health care delivery system, which does not facilitate communication or coordination among providers,” the report said.

“The results of those Medicare demonstrations suggest that substantial changes to payment and delivery systems will probably be necessary for programs involving disease management and care coordination or value-based payment to significantly reduce spending and either maintain or improve the quality of care provided to patients.”