The devil is in the detail

By: Mike Saunders • Illustrations by Angus Grieg Posted on: Fall 2013

Ready or not, the Affordable Care Act’s biggest reforms have begun to kick in. SPH experts ponder its likely benefits—and potential pitfalls.

Whatever you think about the nation’s new health care law, it’s nothing if not resilient. The Patient Protection and Affordable Care Act—sometimes called Obama­care or the ACA—has emerged unscathed from a Supreme Court battle and survived around 40 attempts by the House of Representatives to shoot it down. (Even as SPHere went to press, Republican lawmakers were making another effort to change, delay, or defund the ACA, leaving the federal government largely shut down.) But now comes its biggest test—the real world. Can it increase coverage, improve care, and reduce costs?

In January 2014, most of the 2010 law’s provisions will go into effect. Health insurance will be mandated for all, and private insurance plans will have to meet minimum coverage standards. There will be no annual coverage limits or exclusions for users with preexisting medical conditions. Reluctant state governors have already established state-run health insurance marketplaces—or decided to let the federal government do it for them. One change that won’t come into effect just yet is the employer mandate. In July 2013, the government announced it was postponing by one year the requirement for firms with more than 50 employees to provide insurance coverage to workers.

For the law’s backers, however, January 1, 2014, remains a moment of great promise. “We are hoping that in a very short period of time, we will see better coverage, better care, better quality of care, and then better prevention in public health for the entire country,” says Howard K. Koh (’95), assistant secretary for health at the US Department of Health & Human Services (HHS).

Carrot and Stick

Behind its public face, the new law’s biggest benefit could be something most people will never see, according to Professor David Rosenbloom, interim chair of health policy & management. He says the law’s implementation of electronic medical records and the accompanying reduction of insurance paperwork will be one of the most positive changes over time. Streamlined record keeping may increase efficiency, while rankings for readmissions, inpatient infections, and other metrics may eventually increase quality by eliminating unhelpful and sometimes damaging interventions.

Rosenbloom notes these structural changes “may translate into higher profits for providers” rather than lower prices for patients, but the ACA was packaged with two major initiatives that aim to link Medicare reimbursement payments to improved performance. One of them, the Hospital Value-Based Purchasing Program, contains a financial motivation for hospitals to improve care and cut costs—as measured by factors such as ­better patient outcomes, fewer hospital readmissions, and reduced frequency of certain tests and procedures. If they score well against a range of metrics, hospitals are eligible for a share of millions in incentive payments paid for by a 1-percent reduction in Medicare reimbursement.

That’s the carrot. The stick comes in the form of penalties, for example, for hospitals with high readmission rates, says Carol VanDeusen Lukas, clinical associate professor of health policy & management. Hospital payments account for the largest share of Medicare spending, and Medicare is the largest single payer for hospital services. In 2009, hospital readmissions cost Medicare $26 billion.

“Say you come into the hospital because you have a heart attack,” says VanDeusen Lukas, “and the hospital cares for that and you’re released. If a week later, you get hit by a bus and come back to the same hospital, that is counted as a readmission.” She also says hospitals will be penalized if a patient admitted for a specific procedure is discharged but then comes back to the hospital within a short time for a planned readmission as part of routine care.

One inherent challenge in applying these measurements to reimbursement is accurately measuring the behavior you’re trying to affect, says VanDeusen Lukas, who directs Boston University’s Safety Net ACTION Partnership II, which aims to speed the transfer of research from bench to bedside. “A second is limiting unintended consequences. There is some evidence that safety-net hospitals are disproportionately disadvantaged by readmissions penalties because, for example, many of their patients have complex medical and socioeconomic issues that make them less compliant with their medications and more likely to bounce back.”

Many of these readmitted patients have chronic conditions being treated by multiple doctors, all making decisions about patient care independently of each other. The ACA aims to improve coordination by encouraging providers to combine into accountable care organizations (ACOs) to serve Medicare patients. While the government says ACOs could save Medicare close to $1 billion by reducing readmissions, Rosenbloom worries that the push for coordination might become one for consolidation, fueling an ongoing nationwide flurry of hospital mergers and practice acquisitions. In March 2013, McKinsey & Company reported that hospitals now own 54 percent of physician practices, compared to 22 percent in 2002. “I think it’s big and contrary to the public interest,” Rosenbloom says. “There is a lot of evidence that hospital consolidation—and particularly the elimination of competition as a result of hospital consolidation—raises prices. Large complex organizations in the health care system do not turn out to be more efficient or lower cost than smaller ones.”

And that brings Rosenbloom to one of his biggest concerns with the new health care law—and the public policy conversations that have surrounded it.

“There really is not yet a strong constituency for actually lowering the cost of health care,” he says. “The most people have talked about at the policy level is this ‘bending the curve’ to slow the rate of growth. That is all code talk for, ‘We are going to continue to spend more per capita on health care than we have.’ And none of the forces now in play will actually lead to a reduction in costs.”

Legal Rights

It seems like ancient history now, but well-intentioned plans for a federally administered, one-payer insurance system with universal access flitted around Congress in the early days of the health care debate. These proposals were quickly scrapped as too sweeping, too extreme, too radical a change from the existing health care delivery infrastructure.

And so we find ourselves, says Wendy Mariner, a professor of health law, with an entrenched private industry now subject to increasing levels of federal regulation to ensure the goals of a massive public program.

“I think what is particularly interesting about this is that by getting everybody in the system, we wanted to turn what is internationally known as a human right into a legal right in America. We also, for political and policy reasons, wanted to retain the private insurance industry,” she says. “But it is far more difficult to construct and implement a law that requires private industry to conform to public goals than it is to simply have a public program with one set of rules.”

In 2012, Mariner co-organized an amicus curiae brief signed by 104 health law professors that supported the HHS in the Supreme Court case that upheld the constitutionality of health insurance mandates.

Mariner doesn’t hold back when asked her views on the sources of some of the cost escalation. “The problem really is that medical care in the US is ridiculously expensive—and unnecessarily so—at least for what we get in quality. We pay providers a lot more money in this country than they get paid anywhere else, and every other developed country seems to be doing just fine in terms of overall quality of care and patient outcomes.”

View from HHS

Assistant Secretary for Health Howard K. Koh (’95) believes there are two lesser-known aspects of the ACA that will likely have an outsized impact on the lives of thousands of US residents—an end to coverage limits and new minimum health benefit standards.

“in the past, medical bankruptcy was a major concern for many people,” says Koh. “As a physician, I regularly saw patients who were struggling to deal with their illness, but also equally concerned about whether their coverage would be taken away from them because of annual limits on coverage or lifetime limits on coverage.”

Beginning in 2014, says Koh, those limits will be banned, substantially reducing the risk of medical bankruptcy. “People can finally focus on getting better and have the security of insurance coverage that is strong and affordable for them.”

All insurance coverage plans, both private and those offered by state-run insurance exchanges, will be required to meet minimum essential health benefit standards in 10 categories, including inpatient services, outpatient care, emergency services, mental health, and social services.

“This is a way of putting forward a comprehensive package of items and services—what we call essential health benefits for all people—on our insurance coverage starting next year,” Koh says.

For premiums to remain stable, the pool of new health insurance applicants needs to include the young and healthy, not just the elderly or infirm. To bring as many people as possible into the new exchanges, HHS has embarked on an intensive outreach program.

“We now understand that health is much more than what happens to you at the doctor’s office,” says Koh. “Health starts where people live, labor, learn, play, and pray. And in public health, there is the theme of the social determinants of health. The Affordable Care Act recognizes that in order to really keep people healthy and keep communities healthy, we need to use that approach.”


Health care is now the world’s largest industry, according to McKinsey analysts, with a value three times greater than the global banking sector. After more than 20 years of steady increases, health care expenses now represent 17.6 percent of US gross domestic product—nearly $600 billion more than the expected benchmark for a nation of the United States’ size and wealth.

Removing incentives to order multiple tests should bring costs down, as should discouraging readmissions in favor of coordinated care. However, neither of these measures actually changes the way hospitals set prices for care delivered to private insurance patients.

Few aspects of health care are as mystifying to consumers—or regulators—as the way hospitals set prices for services. While Medicare reimbursements hew tightly to actual costs plus a slim profit, pricing for procedures covered by private insurance is a high-stakes free-for-all. The same X-ray that Medicare economists say should cost $20 can be priced at $200 at the same hospital for non-Medicare patients, or $250 at a different hospital in the same city. Prices for a generic Tylenol tablet can be 100 times higher in a hospital than in a neighborhood drugstore; charges for the same knee replacement can be twice as much at one hospital than at a crosstown competitor.

In 2006, Massachusetts became the first state in the nation to pass a law mandating health insurance; six years later, legislators were forced back to the drawing board to try to wrangle costs. In late 2012, the state’s Health Care Cost Containment Law went into effect with the goal of slashing an estimated $200 billion from state health care costs over 15 years. At the forefront are public health priorities with programs to reduce rates of preventable chronic diseases such as obesity, diabetes, and asthma. These measures are backed up by hefty fines for hospitals whose costs rise faster than the growth rate of the state’s economy. To avoid penalties, most doctors and hospitals will need to cut their overall costs by half.

So it’s reasonable to assume, says Mariner, that the ACA will require its own second act to fulfill the “affordable” part of its name, despite the upcoming changes. What may have been unreasonable were predictions that the ACA would achieve the improbable trifecta of expanding coverage and improving quality while reducing costs.

“It works according to theory. What doesn’t make sense to me is the expectation that it will bring prices down as much as we think, because people will normally charge whatever they can—particularly in an area in which people have very little understanding of what the service actually costs,” she says. “A provider can charge whatever he wants because we don’t know what it takes to have a particular kind of operation or a particular diagnostic test. If we went into a grocery store or a deli and they charged us $160 for a salami sandwich, you’d immediately know that makes no sense.”