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 Could Cuts To Medicare Stifle Private-Sector Innovation?

An across-the-board 2 percent sequestration in Medicare reimbursement, as well as impending sustainable growth rate cuts, could jeopardize private-sector health care innovation, particularly in the long term and post-acute care sector, Sen. Ben Cardin (D-Md.) asserted yesterday during a Senate Finance Committee hearing on Capitol Hill.

Embracing innovation in health care as an opportunity to change things for the better was the main theme of the hearing, which included a witness panel consisting of representatives from health insurance giant United Health Group as well as three provider groups. But it was Kindred Healthcare Chief Executive Officer Paul Diaz who ended up fielding the majority of questions during the two-hour hearing.

Cardin was the only committee member to raise concerns about the linkage between cuts in Medicare reimbursement and Medicaid funding and private-sector innovation. “You are all facing additional cuts in Medicaid in every state in the nation; you’re looking at significant reductions in care costs over baseline,” Cardin said. “We’re running against a cliff, with [Medicare] sequestration, the SGR [sustainable growth rate cuts]. If we continue, you will not be in business. What do we do?” he asked Diaz.

“I think your concern is well placed,” Diaz said. “I see innovation and investment in technology in our company coming to a screeching halt as a consequence of the [2 percent cut in Medicare reimbursement] sequestration effect. There are only so many years we can freeze wage rates for nurses and cut without affecting patient care. So we are living that struggle today.”

In his opening statement, Diaz highlighted some initiatives that Kindred has implemented in an effort to elevate quality for its patients, such as several models being tested to promote “active physician engagement in care management across an episode of care.” For example, Kindred is working with a health system in Indianapolis that has been selected as a Pioneer Accountable Care Organization by the Centers for Medicare & Medicaid Services (CMS).

Diaz suggested that he and his fellow panel members “pick five things that we think move the dial the most, like reducing lengths of stay, something that we all champion” and focus on that “because if we’re getting patients home faster, there should be incentives for that. And so providers that are doing those things and getting superior outcomes should be rewarded. And providers that are not should be held accountable.”

Committee Chairman Sen. Max Baucus (D-Mont.) made clear at the outset of the hearing his desire to discuss how the private sector is driving innovation in health care. “Let us embrace innovation as an opportunity to change things for the better,” Baucus said in his opening remarks. “Let us encourage public-private partnerships. And, as [Albert] Einstein advised, let us not do what we always did.”

Conspicuously absent from the witness panel was representation from a federal agency, particularly CMS’ Center for Medicare and Medicaid Innovation, which, Baucus noted, was intentional. “I wanted to hear from the private sector and hear from the horse’s mouth rather than a federal agency,” he said.

Although Medicare savings and the witnesses’ efforts to achieve savings while improving quality was the focus of most of the hearing, Sen. Jay Rockefeller (D-W.V.) expressed concern about how Medicaid and the Children’s Health Insurance Program (CHIP) will fare amid the private sector’s efforts to innovate.

“It worries me that all the attention is on Medicare when Medicaid and CHIP” by far account for the largest amount of money spent in the federal health care programs, he said. “There is no focus on new ways of working with Medicaid and CHIP. I worry about this in terms of a national quality strategy.”

In response, Diaz noted that many of the innovations applied to Medicare patients in his company could also be applied to Medicaid and CHIP beneficiaries.

When asked by Rockefeller why he believes such innovations could apply to other program beneficiaries, Diaz noted that his doctors and nurses see patients, not insurers or payers. “My doctors and nurses don’t see patients through Medicaid or Medicare or a United lens, they just see a patient,” Diaz said. “And so when we talk about clinical innovations, such as electronic health records and coordination of care, it’s through a patient lens not a payment lens.”

Sen. Ron Wyden (D-Ore.) also took time to direct his questions to Diaz regarding long term care and models that foster “independence at home.” In particular, Wyden was interested in learning more about programs and technologies that enable individuals to live at home longer.

“I’d like to follow up with you about what implications there are with respect to medical monitoring equipment,” Wyden said to Diaz.

Chairman Baucus closed the hearing with a request to the panel that they “be aggressive, be bold, and let us know what you think might work better” when it comes to innovation. “We depend on you, you’re the private sector. You know what works and what doesn’t. You’ve got great reception from this committee. I urge you to keep it up.”

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