The Medicare Change Obama Was Talking About

Mary Duenwald describes the accountable care organizations mentioned in the State of the Union.

In the briefest of terms, in his State of the Union address, President Barack Obama promised to save as much money on Medicare in the next decade as was proposed by the Bowles-Simpson commission. That would include, he said, lowering tax subsidies for drug companies and asking more affluent beneficiaries to pay more.

And he said it would also include making a fundamental change in the way the government pays for care -- by basing bills not on fee-for-service but on "the quality of care our seniors receive." This explains why John Kitzhaber, the governor of Oregon, was watching the State of the Union address from first lady Michelle Obama's box. Kitzhaber has made his state's Medicaid program a laboratory that will test a promising model for making that change.

Kitzhaber, a former emergency room doctor, has promised/gambled that the Oregon Health Plan will reduce the growth of Medicaid costs in his state by 2 percent within two years. To pay for this effort, the federal government is to kick in about $1.9 billion over five years, but only if the state can keep its 2 percent promise.

The governor's strategy is a variation on the "accountable care organizations" that the 2010 Affordable Care Act is promoting nationally. These are collaborations among doctors and hospitals to take responsibility for the quality and cost of care of a defined population of patients.

In Oregon, all state residents who receive health care through Medicaid and the Children's Health Insurance Program are being placed into what amount to huge accountable care organizations. Oregon calls them "coordinated care organizations," and there are 15 of them, corresponding to geographic regions in the state. Doctors and hospitals within each one are to experiment with nontraditional ways of delivering and billing for care -- for example, by making administration more efficient, fostering greater cooperation among doctors and hospitals, providing more preventive care, and expanding mental and behavioral health care.

The CCOs will also experiment with "medical homes," in which doctors work in teams with nurses, nurse practitioners, physician assistants and others to manage all aspects of a patient's health. Medical homes have been successful in some health-care systems -- including the Capital District Physicians' Health Plan Inc. in upstate New York -- but whether they can work throughout the state of Oregon, and quickly, is an open question.

If Oregon is successful, it will share in the savings it creates. If not, the state will lose its extra funding, and the medical world in general will worry in earnest about whether the ACA can succeed at its most important job -- to improve the quality and slow the growing cost of care.

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