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Obama’s $10 Billion Center Unhooks Cost Checks From Burea

One of 10 cost-control efforts attempted by Medicare over two decades has saved the U.S. government money, the Congressional Budget Office reported in January. Richard Gilfillan, head of the most ambitious bid yet, says he can improve those odds.

Gilfillan runs a $10 billion “innovation” fund created by the 2010 U.S. health-care law to identify ways to lower medical costs and improve the quality of care. His solution, now taking shape, is to take the job out of the hands of bureaucrats and place it with companies and individuals who know best how to compete in a changing marketplace, Bloomberg Businessweek reports in its March 26 issue.

Republicans say the law created an Obama administration slush fund that can be used to manipulate how Medicare is run without congressional oversight. Gilfillan says independence from entrenched political and bureaucratic interests is the only way to guarantee private-sector involvement and creativity.

“This is not a government-run demonstration project,” Gilfillan said in an interview. “This is about private-sector initiatives across the country; entrepreneurs, innovators coming up with ideas.”

Key to that effort is the naming of 73 unpaid private- sector “innovation advisers,” who will act as go-betweens between project administrators and Gilfillan and his administrators, he said.

Richard Gilfillan speaks during a news conference at the Department of Health and Human Services in Washington. Photo: Alex Wong/Getty Images Close

Richard Gilfillan speaks during a news conference at the Department of Health and Human... Read More

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Richard Gilfillan speaks during a news conference at the Department of Health and Human Services in Washington. Photo: Alex Wong/Getty Images

Private-Sector Support

While the debate over the constitutionality of the health- care law rolls toward an eventual decision by the Supreme Court as early as June, with the first legal arguments set for this month, efforts such as Gilfillan’s “Innovation Center,” located in a Baltimore building that’s a mile from Medicare’s main campus, are moving forward undeterred.

Policy changes to Medicare, the federal health program for the elderly and disabled, and Medicaid, the U.S. insurance program for the poor, often ripple out to the broader health- care system.

Private-sector interest was evident at a meeting held by Gilfillan in January attended by more than 1,000 doctors, drug company officials and entrepreneurs. Midway through Gilfillan’s speech, he got a rise from the audience after he inadvertently gave an incorrect deadline to apply for $1 billion in grants this year.

A murmur ran through the crowd, and several people shouted out “Friday?” concern clear in their voices.

“I’m sorry,” Gilfillan responded with a laugh, correcting himself. “Guess there’s a few interested people here.”

Grants for 15 States

The center spent $43 million on administration in 2011, including funding for 69 employees and $52 million on projects. Spending this year will more than double to $112 million for administration, as the number of employees rises to 204. About $1.6 billion will go toward projects, according to the administration’s fiscal 2013 budget plan.

Last April, the center awarded $15 million to 15 states to experiment with ways to improve care for low-income people eligible for both Medicaid and Medicare, who tend to be costlier than wealthier elderly patients. California’s project, starting in January 2013, plans to test whether paying organizations to coordinate medical and social services for more than 1.1 million dual-eligible patients can improve their care and cut costs.

In December, contracts worth $218 million went to 26 hospital systems, including about $5 million for Lifepoint Hospitals Inc. (LPNT) of Brentwood, Tennessee, for an effort to reduce hospital-acquired infections and preventable complications.

Nationwide Expansion

The next big step comes in March, when the center plans to award as much as $1 billion in grants to those who successfully pitch “compelling new models” of delivering or paying for health care, according to a funding announcement.

Gilfillan, who ran a local managed-care plan in Pennsylvania before taking on the Innovation Center job, is optimistic he can overcome skepticism, partly because he doesn’t feel handcuffed by some of the government rules that have weighed down others who have tried to make changes.

If actuaries for Medicare certify that a program reduces the cost of patient care without affecting quality, Gilfillan’s boss, U.S. Health and Human Services Secretary Kathleen Sebelius, can expand it nationwide under the health-care law without having to get permission from Congress.

He also doesn’t have to demonstrate that an experiment will be “budget-neutral,” Washington parlance for not requiring any new spending, before he approves a grant for it.

Republicans Want Oversight

“If we find something that can work, we have the ability to spread it rapidly” across Medicare because of the Innovation Center’s involvement, said Julie Lewis, director of health policy for Amedisys Inc. (AMED), a Baton Rouge, Louisiana-based company that provides home health-care and operates therapy centers.

It’s that independence that concerns Republicans who opposed creating it in the original health-care law, and still believe it needs to be leashed.

Something like the innovation center could work with “proper oversight and guidelines as to how that money’s actually used,” said Representative Charles Boustany, a Louisiana Republican who is a heart surgeon.

That’s now lacking, said Boustany, who sits on the Ways and Means Committee, which supervises Medicare.

Republicans in the U.S. Senate and House wrote Sebelius separately in November and January asking for reports on who Gilfillan has hired and how the innovation center is spending its money. She hasn’t responded, they said.

NIH Comparison

“The question is, is that going to end up being a slush fund, where you hand out money to a certain health-care group that you’ve decided you want to benefit,” Boustany said in an interview. “I’m very concerned this is going to be a way of picking some winners and losers, rather than one actually looking at how you improve health care and innovate.”

Gilfillan says he’ll run his agency similarly to the National Institutes of Health, the $30 billion U.S. biomedical research agency that selects science projects through a peer review process. Money will be handed out using “competitive processes,” he said.

“We’ll be measuring in a very concrete way the results of every one of our initiatives and doing rigorous evaluations of every program,” he said. “We’ll see meaningful results over the next few years and be able to demonstrate success.”

An experiment Amedysis plans in New Orleans is one of the first that will be overseen by the center, though it won’t be contributing to its funding. Being done in conjunction with Louisiana State University, also in Baton Rouge, the project will focus on keeping low-income patients with multiple chronic health conditions out of hospitals, said Lewis, one of the “innovation advisers” at Gilfillan’s agency.

Spreading the Word

A group of doctors and nurses will focus on just a few dozen patients with diabetes and other health problems and manage their cases without taking cost into account, Lewis said. The theory is that doing intensive preventive care may be costly upfront, but it will cut down on more expensive hospital stays down the line, she said.

Other companies are also using the innovation center to spread word about their own experiments.

Pfizer Inc. (PFE), the world’s biggest drugmaker, and Janssen Alzheimer Immunotherapy, a unit of Johnson & Johnson (JNJ), are offering a $300,000 prize for ideas to improve the care of Alzheimer’s patients. To find people who might be interested in competing, the companies made a presentation at Gilfillan’s January conference.

Only Successful Experiment

The newest efforts stand in stark contrast to what’s been attempted in the past, those involved with the center said.

Previous failures by Medicare experiments include a project that let physician groups keep any share of savings they could generate by more efficiently caring for their patients and six attempts to control health costs by employing nurses as care managers, the CBO said in its January report.

The only experiment of the 10 it studied that succeeded at reducing costs was a project to change the way Medicare paid for heart bypass surgery, the budget office said.

Medicare “went in before with more of a cost objective in mind, and any time you do that you’re probably not going to get better care and better health,” said Suzanne Blaug, head of the Janssen unit, in an interview.

By flipping the script and focusing on health improvements first, “we believe that costs will be reduced,” she said.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Romaine Bostick at rbostick@bloomberg.net

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