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David Cutler is Otto Eckstein professor of applied economics at Harvard University.
David Cutler

Congress can help

Rather than ‘repeal and replace,' both parties should consider ‘improve and innovate'

By David Cutler
Posted: February 21, 2011 - 12:01 am ET

Health reform is once again front and center in Congress. Clearly, Democrats and Republicans have very different views about last year's Patient Protection and Affordable Care Act, and some in the Republican party argue that nothing short of repeal is worth pursuing.

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But that may not be the right conclusion. There is another path that is available to Republicans, and that path would gather some Democratic support as well. Rather than “repeal and replace,” however, the Republican mantra will need to be “improve and innovate.”

I am a supporter of the Affordable Care Act, but even supporters of the bill agree the legislation is not perfect. Too much was left out to avoid the rationing label, and some issues were addressed only tangentially. Republicans and like-minded Democrats together can make the bill better by pursuing three avenues:

  • First, Congress should strengthen the delivery system reforms in the bill. The key to saving money in healthcare is to improve the efficiency with which services are delivered. As virtually every analyst agrees, medical care costs too much because care is not coordinated. Take a concrete example. One in five Medicare beneficiaries admitted to a hospital will be rehospitalized within a month, often without seeing a doctor or nurse between admissions. People take too many medications upon discharge, they stop taking other medications that are necessary, they have side effects that need to be addressed and so on. The result is a trip back to the hospital.

    Eliminating unnecessary readmissions is not rocket science. Having a nurse coordinate among the patients, their primary-care physicians and specialists reduces readmissions by three-quarters. Electronic monitoring aids this process. The difference between a readmission rate of 20% and one of 5% is tens of billions of dollars annually.

    The failure to ensure good coordination is not technological. Rather, it is financial. Hospitals are paid extra for readmissions and nothing for care coordination, so coordination is haphazard and readmissions are common.

    The Affordable Care Act has a number of steps to address this. It bundles acute- and post-acute-care payments for many admissions, sets up an accountable care organization program and offers incentives for value-based care. But in each case, the law could go further. Incentives could be stronger and be implemented sooner. Successful programs could be expanded more rapidly. And private initiative could be encouraged more. If Congress chooses to follow this path, the net effect would be a bipartisan commitment to delivery system reform that would significantly increase the odds of major cost reductions.

  • Second, Republicans could lead an effort to reform the nation's malpractice laws. There is some malpractice reform in the Affordable Care Act, but it is not enough. Because the law demands so much of physicians in changing the way they practice medicine, physicians need to feel that every impediment to change has been lessened. Fear of being sued stops many physicians from pursuing better approaches to care. Thus, we need to lessen that fear.

    Republicans harp on caps for malpractice compensation, but that is not the real issue—total malpractice awards are not a large share of medical spending. Rather, doctors need to feel that providing the right care will avoid the time and administrative hassles of being sued.

    This argues for an evidence-based standard for malpractice reform: If a physician follows evidence-based standards in caring for a patient, that physician cannot be sued. Such reform would pave the way for focusing on the right care at the right time.

  • Third, Congress should attack a neglected but enormously important issue: administrative costs. Perhaps $200 billion annually is spent on administrative services that need not occur—billing operations that require photocopies and faxes instead of electronic interchange; time that physicians and nurses spend on the phone instead of seeing patients; and documentation requirements that reward good billing practices but not good care.

    Administrative costs remain in the system because no one has the ability to get rid of them on their own. Medicare and Medicaid contribute to administrative costs, but so do private insurers. Providers could be more efficient, but many choose not to be. Congress could address this issue by setting clear goals and providing the tools to meet those goals. A bold declaration would help: The U.S. should commit to reducing administrative costs by 50% in the next five years. HHS would be charged with making this happen and proposing further legislation as needed.

    Congress has occasionally acted this way, with good results. In 2009, Congress appropriated money for healthcare information technology, and tasked HHS with developing a plan to make IT ubiquitous and interoperable. The department has done that, and the country is well on the way to meeting the IT goal. Now we need to expand this model to overall administrative reform.

Republicans and Democrats will never agree about everything in health reform. But for too long, that disagreement has prevented any progress. The question for Congress is whether it should move ahead on areas where there could be widespread agreement, or whether we will have more gridlock. If congressional leaders want to improve the healthcare system, they would find many supporters and a grateful public.

David Cutler is Otto Eckstein professor of applied economics at Harvard University.

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