A new Medicare plan will track how much is spent on millions of individual patients, with a goal of increasing efficiency and lowering costs. Hospitals that hold down spending will be rewarded, and those that don’t will be penalized. Hospitals are concerned that incentives tied to a “value-based purchasing” plan could have unintended consequences, and even affect patient care.


  • Robert Moffit Senior Fellow, Center for Policy Innovation, The Heritage Foundation
  • Nancy Foster Vice president of Quality and Patient Safety Policy, American Hospital Association
  • Uwe Reinhard James Madison Professor of Political Economy; Professor of Economics and Public Affairs


  • 13:06:42

    MR. KOJO NNAMDIFrom WAMU 88.5 at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. Later in the broadcast, the government releases the Pentagon papers and we remember Phillip Rose, the legendary producer on Broadway who broke racial barriers.

  • 13:07:10

    MR. KOJO NNAMDIBut first, Medicare is around 13 percent of the federal budget and growing fast and along with Medicaid it will one day be the biggest contributor to the federal deficit. So no wonder it's at the center of the debate about healthcare reform and the federal budget.

  • 13:07:29

    MR. KOJO NNAMDICutting costs and increasing efficiency are on the agendas of both Democrats and Republicans. The administration has begun the process with a new plan. In July, Medicare will start tracking how much money hospitals spend on each patient, including what happens after patients leave the hospital.

  • 13:07:49

    MR. KOJO NNAMDIHospitals that hold down costs will be rewarded, while those whose patients end up costing more will be penalized. Whether the plan will make Medicare more efficient remains to be seen but one thing is clear, Medicare reform is on the table and joining us in studio to discuss it is Nancy Foster, who is the vice-president of Quality and Patient Safety Policy for the American Hospital Association. Nancy Foster, thank you for joining us.

  • 13:08:17

    MS. NANCY FOSTERPleasure to be here.

  • 13:08:18

    NNAMDIAnd joining us from studios at the Heritage Foundation is Robert Moffit. He is a senior fellow at the Center for Policy Innovation at The Heritage Foundation. Robert Moffit, good to talk to you again.

  • 13:08:31

    MR. ROBERT MOFFITThank you for inviting me.

  • 13:08:33

    NNAMDII'll start with you, Robert. Medicare as we know is the healthcare program for the elderly and disabled. We hear a lot of big numbers related to Medicare and that the Medicare trust fund will run dry in the next two decades or maybe even sooner. What will happen if absolutely nothing changes?

  • 13:08:53

    MOFFITWell, if nothing changes, you're quite right. We'll be running deficits between now and the time that the Medicare trust fund is exhausted, which the trustees tell us is 2024, CBO says it's actually 2020. So that means that we're going to have higher and higher taxes in order to pay the Medicare bills.

  • 13:09:17

    MOFFITAt the same time, while all this is taking place, right now, we are going to be faced with an unprecedented demand for medical services because this year the first wave of the 77 million Baby Boomers will be eligible for retirement. So you and I and everybody else are going to watch the largest, single demand for medical services in the history of the world and the costs are going to be tremendous.

  • 13:09:46

    MOFFITUnder those circumstances, both the President and the Congress are looking at ways to control Medicare costs. Now, what the President wants to do is control Medicare costs through payment systems. What members of Congress want to do is change the incentives, which govern the program.

  • 13:10:02

    MOFFITBut truthfully, there doesn't seem to be very much debate between Republicans and Democrats in Congress on the absolute necessity of getting Medicare costs under control.

  • 13:10:14

    NNAMDIWe're talking about measuring Medicare and inviting your calls at 800-433-8850. Are you concerned about the future of Medicare? What do you think would help to make Medicare more efficient? Call us at 800-433-8850, go to our website, kojoshow.org, or send email to kojo@wamu.org. Nancy Foster, the plan we mentioned to tie costs to hospital performance is called valued based purchasing. What would it mean in practice?

  • 13:10:42

    FOSTERWell, value-based purchasing is actually a fairly complicated process by which more than just costs is being tied to rewards for hospitals. Also hospitals are being measured on the quality of care they provide. So there's a lot of things going on, a lot of moving parts to this proposal.

  • 13:11:05

    FOSTERThe link between quality and better performance for our patients is something hospitals have supported and the knowledge that we will now be rewarded for doing well by our patients is something we have favored. The efficiency measure that you had referenced earlier, where hospitals will be measured for the care they provide and also for all of the care that goes on three days before a patient is admitted through 90 days after admission, according to the proposal that was put out by the Medicare officials, has us concerned in some respects.

  • 13:11:43

    FOSTERWe believe it holds hospitals accountable for costs that are beyond their control or beyond their influence. And what we'd like to see is for Medicare to scale that back so that we are being held accountable for those costs that we have influence over and not for the broader array of costs that incurred by a patient.

  • 13:12:03

    NNAMDIIt's my understanding that hospitals don't like the idea of going as far as 90 days out. They'd rather see it limited to maybe 30 days?

  • 13:12:11

    FOSTERThat's exactly right. We'd like to see it more limited and whether 30 days is the right number or not is sort of up for debate but that is a number we're familiar with. There are other measures that we're currently using and publicly reporting that look at hospital care 30 days post-admission. So at least starting with that as the measure of efficiency makes a lot of sense to us.

  • 13:12:35

    NNAMDIRobert Moffit, while this plan applies only to Medicare patients, it's likely to affect all patient care, why is that?

  • 13:12:43

    MOFFITWell, because virtually every hospital in the United States receives Medicare payments. So the Medicare payment system has an enormous influence on private sector payers. The large insurance companies often copy the patterns of payment that you find in the Medicare program.

  • 13:13:02

    MOFFITSo the idea that the private sector would be in some sense insulated from Medicare payment changes is fanciful. The truth is, is that companies will look at the Medicare practice. I think that they will determine based on the performance of the Medicare program and doing what the Medicare program wants to do, increase in this case, the quality of patient care, the performance of hospitals and efficiency in delivering care.

  • 13:13:29

    MOFFITThey're going to look at that and they're going to see what works and what doesn't. My concern about all of this, of course, is as Nancy's, I think, hit on this. I think the benchmark of establishing a performance for doctors and other healthcare medical professionals who, you know, may be treating these patients 90 days after the patient leaves the hospital, imposes a responsibility on the hospital, for which the hospital cannot legitimately take responsibility. Hospitals are not necessarily capable of monitoring the care regime of persons who are no longer at the hospital for over three months, two or three months.

  • 13:14:09

    MOFFITSo I think the administration certainly is -- should look at this. The objective is very desirable. I don't think there's any question about it, reducing costs, improving care with better coordination, improving the performance of the hospitals. But what you don't want is you don't want a situation where you create all kinds of unintended consequences for the hospitals and the patients.

  • 13:14:33

    NNAMDIPursuing that for just one second, Nancy Foster, what's the difference between a hospital being able to monitor someone whom it has treated for 30 days as opposed to for 90 days?

  • 13:14:44

    FOSTERWell, it's not really the monitoring that we're talking about. It's more of the implication that the complications that would ensue that might cause costs to go up are things that the hospital perhaps could have or should have caught before they discharge the patient. Or many hospitals are now reaching out to patients once they've been discharged.

  • 13:15:10

    FOSTERSo for a short period of time, we continue to work with those patients to ensure that they are on a path to health. But on beyond that, we're hoping that the patients are back working with their primary care physicians with the others whom they've come to rely on for their ongoing treatment and we think, you know, the hospital should not be the source of that care principally.

  • 13:15:35

    NNAMDIWe're talking about value-based purchasing in Medicare that goes into effective in July with Nancy Foster. She is the vice-president of Quality and Patient Safety Policy for the American Hospital Association. Robert Moffit is a senior fellow at The Center for Policy Innovation at The Heritage Foundation.

  • 13:15:51

    NNAMDIAnd now joining us by telephone from Princeton is Uwe Reinhard, the James Madison professor of political economic and a professor of economics and public affairs at Princeton University. Uwe Reinhard, thank you for joining us.

  • 13:16:03

    MR. UWE REINHARDMy pleasure, good afternoon.

  • 13:16:05

    NNAMDIUwe, linking pay to performance in healthcare isn't new is it?

  • 13:16:11

    REINHARDWe've talked about it for 20 years and there has been very little of it though because for several reasons. One, you really need fairly a powerful computers to drive a system like that. And then you need metrics that are actually robust enough to be fair and it's actually a much easier said than done, to actually measure what a physician did when a patient brings, you know, his own body, his own history to it, to be able to adjust to the condition of the patient coming in.

  • 13:16:45

    REINHARDAll of that is science, but it's also an art. So it took years to get to the point where we can even start testing that in the field. And so I think I salute the attempt to do this and I think we will do it increasingly and it will drive quality but I actually agree with the previous speakers, that certainly 90 days after discharge is much too long a period for the hospital to have control over what a patient does.

  • 13:17:18

    REINHARDYou know, you have to worry what environment they're discharged into. Is there someone at home who can help that patient out of bed? There are many, many factors that would have to be controlled for and I don't think these quality metrics can do that. I would just simply -- frankly, if I had started with it, I would've cut it off maybe a week after discharge and then if somebody has to come back, even within 30 days, for something that demonstratively is the hospital's fault, then you could put that into the equation for pay for performance.

  • 13:17:56

    REINHARDBut even there you don't know. What if a patient goes home and you told them not to drink and they do. How can you hold the hospital responsible for behavior? I think it's a sort of signature of this administration. I have a feeling they think they're not going to be in power forever so they want to get every good idea implemented that there ever was.

  • 13:18:22

    NNAMDISpeaking of every good idea implemented, Uwe, how much is the healthcare reform law supposed to curb Medicare costs?

  • 13:18:30

    REINHARDMedicare costs, well, I mean, as an official cut-off the future growth amounting to something like $500 billion. Now, the way that...

  • 13:18:43

    NNAMDIBy the end of the decade.

  • 13:18:45

    REINHARDYes, over the decade. The way that gets down is the hospitals get an increase in their fees every year and now you're going to say, well, we assume that you can have productivity gains. So we're going to knock off one percent off that increase and that would save, according to the Commercial Budget Office, some $500 billion.

  • 13:19:06

    REINHARDBut that's pretty much it, you know, the total hospital spending, total medical spending, not just hospital and everything is so close to $7 trillion over that decade.

  • 13:19:20

    NNAMDINancy Foster, the penalties and rewards tied to performance are financial, how would that work and what does your organization see as some of the implications of that?

  • 13:19:30

    FOSTERWell, there are several payment penalties tied to the future Medicare payments. They include fairly complicated calculations around penalizing hospitals for excess readmissions, penalizing them for not achieving well on certain quality measures, penalizing them if they have a large number of what are called hospital-acquired conditions, the infections and so forth that might emerge during the course of your care. So there are many different penalties including the productivity adjustment that Professor Reinhard referred to.

  • 13:20:08

    FOSTERAll of that gets incorporated into a hospital's thinking about what their budget is, how they are going to best serve their patients and how they are going to excel at treating patients so that they don't incur some of these penalties. We have had public reporting on quality measures. Things like, did you deliver the right medications and the right treatment for heart attack patients, heart failure patients, surgical patients and a number of others over the last decade now.

  • 13:20:41

    FOSTERWe've also included in that information around whether patients are really experiencing care in the way they want to receive care. For instance, did their doctors and their nurses communicate with them well? All of that information has been publicly reported and is now going to be rolled into rewards or penalties for the hospital. Its intent is to certainly encourage higher quality and more efficient care. And we see a lot of evidence that even just the public reporting of the data has caused great improvements in care over the course of the last decade.

  • 13:21:21

    FOSTERWhat we're also concerned about is some of the unintended consequences that might emerge. For example, just last week, we sent a letter to the head of CMS, the agency that oversees Medicare, expressing some concern that the way in which they are measuring readmissions puts at a disadvantage those hospitals that serve the large minority patient populations and others in our country, who have a problem accessing primary care once they're out of the hospital.

  • 13:22:01

    FOSTERWe don't want those safety net hospitals to be put at a disadvantage in this whole system. So, we're carefully monitoring how the effect of linking payment or public reporting of quality data to hospital performance will have potential unintended consequences for the most vulnerable of our citizens.

  • 13:22:26

    NNAMDIUwe Reinhard, first you and then Robert Moffit. But first you, Uwe. Why is measuring performance in health care so difficult?

  • 13:22:35

    REINHARDSimply because the outcome from a medical intervention depends in part on what the doctor did. It depends on what hospitals did, how drugs were administered. But a lot of it is also driven by the body of the patient. It's after all a highly complex system, much more complicated than the space shuttle. And all kinds of things can go wrong there. Then you have the environment in which people are discharged. Some people have elevators in the building, some don't.

  • 13:23:09

    REINHARDThere may be air conditioning or not. There may be somebody home who can help these people getting out of bed early after discharge. So there really quite enormous factors that affect outcome that are not under the control of hospitals. And controlling for them statistically, you can do a little bit of that, but it's very hard to get that perfectly right. So this is an imperfect system. Although I might tell you what do we do at the universities?

  • 13:23:40

    REINHARDWe're getting these kids in and then they do an awful lot of work and we take a few measurements and exam and that's their number. And in the end, that kid gets described by one GPA. That's also pretty crude and somehow we've lived with that.

  • 13:23:56

    NNAMDIRobin Moffit, some people point out that Medicare costs less per person now than it has in years, but efficiencies alone aren't going to keep Medicare solvent. What are some of the other pressures on the system?

  • 13:24:09

    MOFFITWell, one pressure, of course, is demographic. I mean, we're going to see, as I said earlier, you're going to see an explosion of enrollment in Medicare and that's going to be driving the demand for medical services up. Another is the fact that our medical system is basically on the receiving of a really impressive performance in biomedical research and technology and there's no evidence that they were going to put a lid on that research or on the technology.

  • 13:24:41

    MOFFITSo that means that people are going to have access to more technologically advanced medical services in the future. That will also drive up health care cost. The efficiencies that we talked about earlier, I mean, you can achieve efficiencies if your idea is to basically take a single rule, apply it on a wide variety of people with radically different circumstances and you will be able to certainly achieve some outcome. The question is whether indeed you were actually creating a better system for those patients or whether in fact you're worsening their condition.

  • 13:25:18

    NNAMDIHere now is Rafael (sp?) in Washington, D.C. Rafael, you're on the air, go ahead please.

  • 13:25:25

    RAFAELHi, Kojo. I just want to chime in on the pay for performance piece.

  • 13:25:31


  • 13:25:31

    RAFAELI've worked as a hospital administrator and, you know, ran certain departments and things of that nature. Now seeing that, you know, if people are being paid by performance, then what will happen is a lot of patients will be left out in the cold based on their acuity. Because a fellow comes in who's extremely ill, they may not hit those benchmarks or what have you that are in the Medicare Reform Bill. But how would people avoid creating a greater disparity? Especially in places like D.C. where we have people who are extremely ill.

  • 13:26:06

    NNAMDIRafael, I'm glad you raised that question because we also got an email or a comment on our Facebook page from Stir (sp?) who says, "If you reward hospitals for denying care to those who need it, then you will see cost go down in the long term care and go up exponentially in acute care. The best way to reduce fraud, waste and abuse of the system is to appoint more investigators with the power to levee sanctions." What do you say, Nancy Foster?

  • 13:26:33

    FOSTERWell, we've actually seen a lot of work that suggest the best way to get to more efficient, higher quality care is in fact to have good, reliable, quality measures and allow physicians and nurses and hospital administrators and others who have a critical role in achieving the best for the patient to see that data and to understand what it is that the places that are doing well and doing best by their patient are in fact doing. There's lots of opportunity to really improve the quality of care. And in the long term, by keeping people healthier, we are driving down cost.

  • 13:27:14

    FOSTERBy avoiding complications in care, we are driving down cost. It's hard for the Congressional Budget Office to really measure those kinds of behavior changes and understand exactly what the impact will be on Medicare. So they really don't include that in the estimates of what health reform will do. But we've noticed vast improvements in the quality of care for those things that are being measured. And we hear from hospitals every day about how that has affected their ability to drive out unnecessary costs.

  • 13:27:49

    NNAMDIRafael, thank you for your call. Robert Moffit, Democrats and Republicans have different approaches to addressing the Medicare cost issue. Republican Paul Ryan, for example, has a plan that would end traditional fee for service Medicare. What's the idea?

  • 13:28:04

    MOFFITWell, actually Ryan's proposal to end traditional Medicare fee for service is not radically different in many respects than premium support positions in the past. I would say this, that the president himself, in the law, in his proposal, creates something called the Center for Medicare Innovation, which has about 20 different demonstration programs, payment demonstration programs. And the purpose of these demonstration programs is basically to move Medicare from a traditional fee for service system into systems of capitation, where doctors are paid on a capitated basis or salaried physicians.

  • 13:28:44

    MOFFITSo, what is curious about the debate we're having right now is that, in fact, both Republicans and Democrats are in agreement on some very, very basic ideas. One is that traditional fee for service, as we know, it is outdated. What Ryan's big change is, is that he wants to change the way in which the dollars flow through the system. Right now, in Medicare Part D, for example, the dollars go to health plans that are chosen directly by individuals. So there's a high degree of patient satisfaction with that program.

  • 13:29:16

    MOFFITThat's the Medicare Drug Program. What he would like to do is to have the rest of Medicare operate something like that. Certainly, there's a lot of details that had to be worked out many of these plans. But I don't think it's true that one side is more concerned about cost than the other. I think what is really remarkable is the degree to which they do go about it in very, very different ways, as Professor Reinhard pointed out.

  • 13:29:44

    MOFFITThe first 10 years of the Patient Protection and Affordable Care Act is going to bring about changes in Medicare, payment reductions in Medicare that amount to over $575 billion. I mean, I've been in town here for quite some time. I mean, that is record-breaking payment reductions. Yes, you can control cost, but the problem of doing it that way is you often shift cost and at the same time as the Medicare actuary pointed out, you're going to actually reduce access to care for a number of the senior citizens who are on the receiving end of these cuts.

  • 13:30:22

    NNAMDIUwe Reinhard, Paul Ryan has described his plan as being exactly like the plan that members of Congress have, but you've disputed that.

  • 13:30:28

    REINHARDOh, yeah. That's not true, because the plan members of Congress have is a defined contribution plan. But the defined contribution rises in step with rising health care cost. While Congressman Ryan's plan, the contributions rises in step with the consumer price index, which rises much less quickly than health care spending. So the result Bob have mentioned cost shifting. What the Ryan plan does, it shifts the burden of health care spending for the elderly from the shoulders of the taxpayer to the shoulders of the elderly.

  • 13:31:09

    REINHARDNow, maybe you want to do this, my plea in what I've written is let's be honest about it. This is what is being proposed. By the way, I don't view the Ryan plan a shift from fee for service to another payment method, because the health plans that would get these Medicare beneficiaries, they would probably pay doctors and hospitals fee for service as they do now. So, in the Ryan plan, there's absolutely nothing about payment reform.

  • 13:31:43

    REINHARDIt is just simply shifting from a defined benefit plan with the taxpayer promises the elderly, we'll buy you a certain defined set of benefits when you get sick through a defined contribution plan where the taxpayer says to the elderly, we'll make a contribution to your private insurance premium year after year, but we're going to let that increase only at the consumer price index, which may be 2 percent, while health spending may be rising at 4 to 6 or 7 percent.

  • 13:32:18

    REINHARDAnd then, over time, more and more of the burden of health care spending of the elderly would fall on the elderly themselves. And that just has to be honestly stated. I think that's what we should say and then have a debate whether that is the social contract we want with the elderly.

  • 13:32:38

    NNAMDIAfraid we're running out of time. Very quickly, Nancy Foster, lower cost may be a way to measure efficiency and in this case cost is seen as value so that holding down cost is seen as giving patients more value. But do we know if that means the patient is getting the same, better or worse care?

  • 13:32:58

    FOSTERWell, we don't know if we simply measure cost, whether the patient is getting good care or not. What we have to do is couple measurement of quality, making sure we know that the patient is getting all of the care he or she needs at the right time and in the right way. That will help us drive down costs. And we should be able to measure the savings that we are able to achieve. But for us, for hospitals, for hospital leaders, it's really important that we stay focused on delivering the right care at the right time and understanding what that is before we move forward.

  • 13:33:36

    NNAMDINancy Foster is the vice president of Quality and Patient Safety Policy for the American Hospital Association. Thank you for joining us.

  • 13:33:43

    FOSTERGlad to do so.

  • 13:33:43

    NNAMDIRobert Moffit is a senior fellow at the Center for Policy Innovation at the Heritage Foundation. Robert, thank you for joining us.

  • 13:33:50

    MOFFITThank you very much, Kojo.

  • 13:33:52

    NNAMDIUwe Reinhard is the James Madison Professor of Political Economy and a professor of economics and public affairs at Princeton University. Uwe Reinhard, thank you for joining us.

  • 13:34:02

    REINHARDIt's been my pleasure.

  • 13:34:03

    NNAMDIWe're going to take a short break. When we come back, we'll be talking about the public release of the Pentagon Papers 40 years after they were published in the New York Times and the significance of that release. I'm Kojo Nnamdi.

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