Can the Cleveland Clinic save American health care?

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Politics,Beltway Confidential,Philip Klein

CLEVELAND — In the first presidential debate of the 2012 election, when President Obama sought to defend the health care law’s cost containment measures, he pointed to the Cleveland Clinic as a model for the rest of the nation.

“(A)t Cleveland Clinic, one of the best health care systems in the world, they actually provide great care cheaper than average.,” Obama said. “And the reason they do is because they do some smart things.” Defending the health care law’s controversial, cost-cutting Independent Payment Advisory Board, Obama said, “what this board does is basically identifies best practices and says, let’s use the purchasing power of Medicare and Medicaid to help to institutionalize all these good things that we do.”

The success of Obama’s health care law will be largely dependent on whether its cost containment measures – which aim to save money through Medicare by encouraging providers to operate more efficiently – prove effective. Earlier this week, a report by the Government Accountability Office estimated that if Obamacare’s cost containment measures become unsustainable, than the law would add $6. 2 trillion to the nation’s long-term debt instead of reducing deficits as promised.

Last week, I paid a visit the Cleveland Clinic, where I spoke to the hospital’s chief lobbyist about whether the institution’s approach to health care could be duplicated throughout the health care system. We also discussed the hospital’s efforts to lobby Ohio to take part in the Medicaid expansion in the health care law.

“There’s some unique features about the Cleveland Clinic that really derive from its beginning in 1921 when it was established as a group practice,” noted Oliver Henkel, the hospital’s chief government relations officer.

Three of four of the hospital’s founding doctors served together during World War I, where they observed the way in which military physicians coordinated care on the battlefield. After the war, they decided to start a group practice based around the same principles.

Today, the sprawling campus has 13 different clinical institutes, all focused on a specific disease or organ and the doctors coordinate patient care with one another.  All of the doctors are paid a salary, which Henkel argued gives them no incentive to order extra tests or perform unnecessary procedures that drive up costs. The doctors only sign one-year contracts and their renewal is contingent on passing annual performance reviews.

Though doctors could earn more money by going into their own private practice, Henkel said, “Doctors are very impatient with the amount of detail that isn’t related to the practice of medicine…They come into a practice like this and they don’t have to worry about that. All of the insurance forms are completed by other people, we are self-insured from a medical malpractice point of view all of the concern about how regulations impact medicine are supervised by somebody else.”

The trillion-dollar question facing the U.S. health care system is whether what works for institutions such as the Cleveland Clinic could be successfully exported.  Much of the projected Medicare savings in the law (which are being used to help offset the cost of the expansion of coverage) are based on the idea of cutting payments to providers by encouraging them to more efficient. One of the law’s initiatives is to develop new Accountable Care Organizations modeled after systems such as the Cleveland Clinic and the Mayo Clinic. If the Cleveland Clinic’s success can be attributable to “unique features” dating back to the institution’s founding over 90 years ago, is it realistic to expect the rest of the country to adapt?

“If a group, or a hospital, or a hospital system hasn’t had experience in this… it is not altogether easy,” Henkel said. But he observed that, “the learning is accelerating.” He said that the Cleveland Clinic holds monthly seminars for senior executives at other hospital systems.

“The jury is still out on what the savings will be with Accountable Care Organizations, but the design we think is a correct one,” he said. The Cleveland Clinic itself declined to set up an ACO under the health care law, Henkel said, because they are still experimenting with different designs and evaluating the potential economic risks.

Richard Foster, the recently departed chief actuary of Medicare, repeatedly warned that the Medicare cuts in the health care law would prove unsustainable, because many providers wouldn’t be able to achieve the efficiencies the law calls for, and thus would simply stop accepting Medicare patients.

“I think Richard overstates the case a tad,” said Henkel, a proponent of the health care law. “You could make a much more meaningful case for Medicaid than you can for Medicare, quite frankly, because the reimbursement for Medicaid is lower than it is for Medicare.”

Henkel argues that with the flood of Baby Boomers retiring,  “your population of patients is going to be dominated by Medicare and the folks who can organize their practices to be able to at least break even on Medicare practice are the ones that are going to be in it for the long haul.”

On the other hand, he said, he was “very concerned, quite frankly, about the community hospitals that are in our rural areas in particular. Because the economics of running a hospital have become increasingly difficult and unless that’s a hospital that’s owned by the community and that community makes a decision that it’s going to subsidize it, it’s in real danger of going out of business.”

He said that the Cleveland Clinic, is already “planning on the fact that the insurers who are selling their product on the exchanges are going to be reimbursing at a much lower rate than they are currently in the private insurance industry, much closer to Medicare rates.”

Because the Cleveland Clinic has other ways to raise revenue – such as doing consulting work – it is in a better position than smaller community hospitals to make up for lower payment rates.

Republican Gov. John Kasich disappointed conservatives last month by announcing that he would support the expansion of Medicaid in Ohio as part of the national health care law. The Cleveland Clinic continues to lobby aggressively for the expansion, which it estimates would generate $40 million to $50 million a year in revenue for the hospital system (or as much as $68 million in the less likely scenario that everybody who qualifies for the expansion uses Medicaid).

“We have been very actively involved,” Henkel said of the hospital’s lobbying efforts on Medicaid.

Following the Supreme Court decision last June that gave states the option of whether to participated in the Medicaid expansion, the Cleveland Clinic decided to push Ohio to embrace it.

“We started to talk to the folks in Columbus,” he said, including Greg Moody, the state’s director of health transformation and John McCarthy, Ohio’s Medicaid director. “We tried to convince them that this was in the best interest (of the state).”

Now that Kasich is on board, the Cleveland Clinic is lobbying the legislature to get behind it, arguing that it would economically benefit the state and improve health outcomes.

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Philip Klein

Commentary Editor
The Washington Examiner