Although ambitious health care reform efforts are not new, this one has the backing of a Republican administration, which actively plans to seek its implementation, and it was drafted with political expediency in mind–seeking ways to dovetail with both public and private agencies and infrastructures.

Nationwide in scope, the initiative will solicit requests for proposals from states for various demonstration projects, while market conditions in Pennsylvania could make it a strong contender among participants and key policy leaders in the state have expressed an interest in the projects.

Rationale of the Report

In response to a request from Tommy G. Thompson, Secretary of the Department of Health and Human Services, the National Academy of Science’s Institute of Medicine (IOM) convened a committee to identify several demonstration projects that might be implemented this year, with the hope of yielding models for broader health system reform within a few years.

The IOM’s panel, chosen with concurrence of Thompson, included Anne Barry, director of finance for the State of Minnesota; Donald M. Berwick, M.D., MPP, president of the Institute of Health Care Improvement; Arthur Garson Jr., M.D., dean of the University of Virginia Medical School; Joseph P. Newhouse, Harvard medical economist; Bill Sage, expert on malpractice liability and alternatives to liability; Doug Wagner, a national expert on chronic care; Karen Davis, an expert on health insurance coverage and president of the Commonwealth Fund.

The panel’s sketch of American health care depicted a system in crisis: one in seven Americans is uninsured, the cost of health insurance is increasing in excess of 12 percent each year, states are looking to cut costs by narrowing eligibility criteria and benefits of public insurance programs, tens of thousands die annually from medical errors, underuse of beneficial services and overuse of medically unnecessary procedures are widespread, disturbing racial and ethnic disparities in access and use of medical services persist, and the delivery system continues to lack even rudimentary information capabilities to exchange patient information and coordinate patient care.

These problems are aggravated by sizable obstacles in the external environment confronting health care providers, the panel said, including regulatory, payment and legal barriers. A patchwork of federal and state regulatory requirements has evolved over the decades, organized around institutions and professionals, while many insurance programs still fail to provide crucial services to the chronically ill, such as outpatient prescription drugs, patient eduication and support services, and convienient alternatives to face-to-face interactions between providers and patients.

The legal liability system fails to fulfill either of its two main objectives, the panel added: to encourage enhanced safety and quality, and to provide timely and fair compensation to injured patients. "Not surprisingly," the panel wrote, "the frustration of health care professionals is at a high level, further exacerbating the tight labor market."

All those things had Thompson very concerned, said Gail Warden, IOM panel chair and president of the Henry Ford Health System in Detroit.

The panel wanted their proposals to yield a high return on investment, in terms of dollars or health, while it also recognized that the sheer size and complexity of America’s health care sector makes wholesale change difficult. In a 180-page report released Nov. 19 by the IOM, Fostering Rapid Advances in Health Care: Learning from System Demonstrations (2002), the panel said it had striven to identify "bold and transformational demonstration projects with the potential to contribute to a major redesign of health care processes," a "building block" approach to address key aspects of the health care delivery system, as well as the financing and legal environment in which health care is provided.

The panel recommended an array of demonstration projects, nearly all of which involve public and private partnerships, recognizing that most health care markets are influenced by both competitive and cooperative forces. In its selection of projects, the panel specifically applied criteria related to likelihood of successful implementation, such as whether or not it would have a broad base of support, recognize and address barriers and build on existing competencies.

Five Project Areas

The panel identified five major categories of demonstrations:

• Shifting states’ medical liability systems into a safety-focused, nonjudicial compensation system (4-5 projects).

• Reducing the toll of chronic conditions on individuals and communities (10-12 projects).

• Providing model primary care at a subset of the nation’s 859 community health centers (40 projects).

• Using information and communications technology infrastructure to create a paperless health care system (8-10 projects).

• Making affordable state health insurance coverage available to all Americans (3-5 projects).

All of the projects have initial start-up costs, the panel wrote, most of which will need to be assumed by the federal government.

Changes in the liability system are a critical component of health care system redesign, the panel wrote. Demonstration projects in this category would create injury compensation systems outside of the courtroom designed to help stabilize malpractice insurance premiums by limiting the financial exposure of providers, while offering fair compensation, promoting nonadversarial discussions between patients and clinicians, and encouraging providers to report medical errors and to involve patients in safety improvement activities.

The approach would replace the existing tort liability system with one of two nonjudicial claims resolution systems. Option one is a provider-based early payments system that would offer predetermined limits on noneconomic damages and federally subsidized reinsurance to self-insured provider groups that promptly identify and compensate patients for avoidable injuries. Under this option, provider organizations such as hospitals, large medical groups and closed-panel HMOs–with whom independent physicians could affiliate in order to participate in the project–would first need to self-insure their liability risk or purchase experience-rated primary coverage. If an avoidable event causes a patient injury, providers would promptly notify patients and tender payment for net economic harm and capped noneconomic harm. States would monitor provider compliance with error reporting and early payment obligations, and would protect participating provider organizations from tort liability in cases where payment is promptly tendered.

Option two is an administrative resolution that would grant all health care professionals and facilities within a state immunity from tort liability in exchange for mandatory participation in a state-sponsored system under which providers would need to disclose errors to patients, while providers or their liability carriers would be responsible for paying amounts determined by a publicly administered adjudication system. Compensation amounts would be based on criteria such as avoidability, net economic harm, and capped noneconomic harm. A multidisciplinary expert panel would oversee the system, which would also include a consumer and provider appeals mechanism.

The chronic care projects, initially to be limited to Medicare beneficiaries, would establish a coordinating structure to sponsor learning collaboratives and community-wide educational efforts, while each site would establish chronic care management programs to provide evidence-based treatment of chronic diseases and services to meet the preventive and acute care needs of the enrolled population. A major component would be the expanded use of information and communications technology (ICT), including Internet-based communication, chronic care registries and medication order entry systems. Demonstration sites would be given flexibility under Medicare to offer innovative benefits coverage and provider payments.

The model primary care projects would encourage demonstration sites to experiment with interdisciplinary teams; ICT support; lay health workers; new roles for patients and their families; and enhanced coordination across other settings such as mental health, housing, education and employment. The project would create sustained partnerships between patients and clinicians and give patients access to care guides tailored to their treatment plans, using robust ICT infrastructures. Flexible payment modalities would allow community health centers to move from visit-based payments to those based on group counseling and education visits, and Internet-based communication and care delivery.

The ICT projects would attempt to establish within a large market, state or multi-state region an infrastructure to support Internet-based communication between patients and clinicians–including teleconsulting among clinicians, confidential and secure computer-based clinical information on each patient to be available real-time, access to up-to-date scientific information, and computer-aided support tools such as reminder systems and medication order entry systems. The panel envisions these projects to provide the initial sites of a national health information infrastructure.

The state health insurance projects could expand insurance coverage through federal and tax credits applied to an insurance plan, or expanded eligibility for public insurance programs, or a combination. During the first 18 months of the project, state governments would partner with private insurers, HHS and others to establish an electronic clearinghouse for insurance eligibility verification and immediate enrollment of uninsured individuals. This electronic clearinghouse could eventually be used for billing and provider payment. Recognizing the currently severe financial constraints of many states, the panel acknowledged that the federal government may need to provide the majority of sustained funding for these demonstrations in the near term.

Reaction By Medical Community

The medical community had mixed reactions to the report, applauding some proposals yet remaining skeptical of others. However, the one common denominator was the desire for change and all welcomed what the IOM was attempting to do.

The American Medical Association was asked to participate in a roundtable discussion on medical liability immediately after the report was released. President-elect Donald J. Palmisano, M.D., J.D., represented the AMA and came away with a few questions, yet was encouraged that such a strong group was acting to resolve physician’s most severe health care problem–liability.

Constitutional issues and trial lawyer opposition lead the AMA to question how realistic are the IOM’s recommended reforms of medical liability. Although the AMA supports the IOM approach, it believes that there are a lot of constitutional issues that trial lawyers will be able to exploit in order to block implementation of the proposals. The AMA also questions how the IOM system will be funded.

The AMA strongly disagrees with the IOM conclusion that capping liability is not a long-term solution to the problem. The AMA believes that the lack of limits on non-economic damages (pain and suffering and punitive damages) is destabilizing the insurance market by increasing premiums and affecting care. The AMA supports caps on non-economic damages, such as in California’s Medical Injury Compensation Reform Act (MICRA). The AMA-supported H.R. 4600, which include caps on non-economic damges, has passed the House, but stalled in the Senate. Palmisano asked Sec. Thompson if his support for H.R. 4600 has diminished. Sec. Thompson said, "No, absolutely not," according to Palmisano.

The AMA has said since 1989 that the nation needs to have a model like MICRA, which has been in place for 25 years. California’s rates were once among the highest in the nation and now they are stable, down in the lower third. Rates for an obstetrician are around $50,000 compared to Florida or Philadelphia, where rates will be over $210,000.

Palmisano said the California model is needed immediately to stabilize the situation. "We think the IOM demonstration projects are very innovative, but since we are in a crisis, it may take 4-5 years and will be a voluntary agreement between the federal government and the states to do these projects. The nation cannot afford to lose more physicians or have patient’s hurt because they can’t find a physician in their hour of need," Palmisano said.

The IOM’s criticism of the MICRA law is that, although it may bring some stability in the insurance rates, it doesn’t enhance safety, as it doesn’t get rid of the system that discourages communication and early reporting of potential errors because of the risk of lawsuits. The AMA agrees, but views immediate and nationwide non-economic caps as a needed emergency measure.

Another AMA concern is that states that have not been able to get medical liability reform through their legislature would be unable to embrace IOM’s alternative approach. Whoever is responsible for blocking medical liability reform in a state could also block the alternatives methods. Palmisano did not see that issue addressed in his reading of the IOM report. Florida, Pennsylvania and West Virginia are states unlikely to have their legislature embrace this, but something needs to be done for them right now, Palmisano said.

In regard to technology infrastructure, Palmisano said one of the problems is the cost. Physicians are having problems keeping their practices open because the government made a 5.4 percent error last year in the Medicare formula and haven’t corrected it. This year, 42 percent of physicians say if it is not fixed, they will no longer take Medicare patients. He questioned that if the Medicare error cannot be fixed, then how will they fix everything else? These price controls stifle innovation, Palmisano said.

Edward Dench, M.D., president of the Pennsylvania Medical Society, said that it would be hard to argue against demonstration projects when something so desperately needs to change. He supports testing alternatives to malpractice, but is a little leery of the concept of guaranteeing results, which he said a no-fault system would do. He worries that everyone will be asking this committee for money.

A strong advocate of telemedicine, or using computer-aided health care in remote areas, Dench does not believe it will save money, but that it will improve care in places that don’t have it now.

As for chronic care, Dench agrees with the IOM that preventative health is necessary–it is not what the doctors do, but what the patient does. Dench expressed astonishment at the lack of common sense in health care and said preventive measures such as reduction of obesity and smoking would improve health care costs dramatically, aligning himself with IOM’s views.

Implementation Agenda

The report was received with enthusiasm by the Bush administration and will be used in the text of President Bush’s State of the Union address. Upon receipt, immediate steps were taken by Thompson’s staff to plan ways to implement these projects as soon as possible, Warden said.

Though no states have been singled out for experiments thus far, Warden pointed to Secretary Thompson’s home of Wisconsin as a good place to start a demonstration and stated that Texas with its diversity could also make the list. Conducive environments to host a project would be where consumers and purchasers are on the same page and states with infrastructure already in place. States will be chosen through RFPs issued by agencies like the HHS and the Agency for Healthcare Quality and Research. States would then respond to the RFPs with a proposal to host a demonstration project.

The IOM did not have the task of finding funding for the demonstrations, although they did suggest a combination of private-public sector funding with states and the federal government involved. Foundations and the business community would also be invited to participate and it was suggested that the administration should examine waivers for certain programs and tax credits or relief for those who participate.

Warden said that there is potential for success now that the Republicans have health care as a major domestic issue that needs to be addressed. They have an opportunity because they control both houses as well as the White House and ought to take advantage of it. This approach might be better received than the one by the Clinton administration, because it’s not prescriptive and allows people to buy in and participate where Clinton’s plan was more prescriptive. Constituencies across the health care spectrum have an opportunity to shape the changes. With this new plan, everyone can experiment and try it in a different way. That is the strength of the report.