Finally, an easy way to pay for this.

Photographer: Bob Riha, Jr./Childrens Hospital Los Angeles via Getty Images

Saving Money on Cardiac Care

Peter R. Orszag is a Bloomberg View columnist. He is a vice chairman of investment banking at Lazard. He was President Barack Obama’s director of the Office of Management and Budget from 2009 to 2010 and the director of the Congressional Budget Office from 2007 to 2008.
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The federal government's own actuaries are once again pessimistic that America's health-care costs will continue their slow growth. Thankfully, their boss, Sylvia Burwell, the secretary of Health and Human Services, is working hard to prove them wrong. On Monday, she took another big step in the right direction.

Medicare costs this year are up only 4 percent, which means that on an inflation-adjusted basis, spending per beneficiary is declining. And that’s been the pattern of the past five years -- despite the actuaries’ repeated predictions that cost growth is on the verge of picking up.

A key driver of this Medicare spending deceleration has been the health-care market's expectation that the payment system is shifting toward value-based payments -- that is, paying doctors, hospitals and other providers based on how well they treat medical problems rather than on how many services they provide. Health-care leaders have been skating to where they believe the puck will be, wringing efficiencies out of their systems. Given how inefficient health care has been historically, their efforts haven't been all that difficult.

At this point, it's crucial to fulfill the market's expectations. If the system now fails to move quickly away from fee-for-service payments, many recent efficiency efforts are likely to be dropped.

A big question is how. The most promising, and practical, path forward is to set up a cascading array of “bundled payments” -- that is, all-inclusive reimbursement for specific episodes of care. Many health experts agree.

The bundled payments must be mandatory, as is Medicare’s bundle for hip and knee surgery -- itself an historic step. Making the shift voluntary for hospitals and doctors leads to watered-down incentives, in an attempt to encourage participation. And weak incentives lead to disappointing outcomes.

Which brings us to Secretary Burwell’s important announcement Monday. She is building on the hip and knee bundle, not only by expanding into other forms of orthopedics but, importantly, by introducing mandatory bundles in cardiac care.

Medicare will pay a set fee for coronary artery bypass grafts, a form of surgery that improves blood flow to the heart. The agency will also pay a set fee for the care involved in responding to a heart attack.

The new cardiac bundles, like the hip and knee bundle, include the care a patient receives after leaving the hospital. That’s important, because post-acute care appears to account for great variation in health costs, and it's the aspect of care where extra spending has provided the least benefit.

The Medicare actuaries may question whether these new bundles can save much money, but that's not too surprising; they’ve been missing the boat on the changing dynamic in health-care payments for years.

The bundled payments illustrate how the system is changing for the good. Secretary Burwell has just made it vividly clear to everyone in health care that the days of paying for volume are ending.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Peter R. Orszag at porszag5@bloomberg.net

To contact the editor responsible for this story:
Mary Duenwald at mduenwald@bloomberg.net