Mr. Quality Goes to Washington

GETTY IMAGES / GEORGE DOYLE It's rare for advocates and other political appointees, once in government, to show leadership—let alone courage—by placing ethics above politics, for example. That's a curiosity, because advocacy itself often requires courage.

Our current president, although elected with the largest majority since Reagan, has shown little taste or talent for politics as contact sport—"No drama Obama." Some left-leaning advocates have been recruited into government, but (as is the tradition) mostly for "deputy" positions. Obama's Cabinet appointments have been, with a few exceptions, seasoned politicians. They play the game.

What makes President Obama's recess appointment in July of Don Berwick as head of the Centers of Medicare and Medicaid Services (CMS) so potentially dramatic is that he made his name as a game changer. The Midwestern son of a small-town doctor, Berwick is a pediatrician and former professor at Harvard's medical school who got bitten by the public health bug. He has spent the past two decades putting the movement for quality and safety in healthcare on the global map. At the same time he has managed to earn the respect not only of his fellow doctors but of competing stakeholders in the hospital, insurance, and pharmaceutical industries, whose cooperation is essential to the success of systemic reform.

The new healthcare law, called the Patient Protection and Affordable Care Act, showcases many of Berwick's own ideas—not least of which is his oft-repeated article of faith that the runaway costs and waste in our fee-for-service system can be cut dramatically without causing a decline in quality. Reform's rollout of supposedly cost-effective, better-coordinated, outcomes-based healthcare is balanced, however unlikely, on this single "more for less" credo: that 32 million more Americans can be covered by public or private insurance even as innovations and efficiencies in delivery and payment—and, of course, sheer cuts in federal spending—"bend the curve" on costs by $455 billion over the next decade.

Somewhat astonishingly, Berwick plans to use a weapon that has long been hiding in plain sight: Big Government. In a 2005 interview in Health Affairs, he argued for freeing CMS from its congressional restraints and pressuring payers and providers to assume a greater share of healthcare's economic risk. "As CMS goes, so goes the system," he said. "CMS needs to continue to develop to be the best possible purchaser of care, on behalf of its beneficiaries. To do that through giving more choice to individuals is a very weak lead. To do it as an aggregate purchaser—demanding performance—is a very strong lead."

Whether Berwick can prevail in disrupting the system at a moment when Congress is partisan to the point of dysfunction is an open question. (Berwick's office refused requests from Pharm Exec for an interview.)

A "Controversial" Nomination

Berwick's recess appointment was, unsurprisingly, met with an immediate uproar from the Republicans. The White House rationalized the move in this way: "Many Republicans in Congress have made it clear in recent weeks that they were going to stall the nomination as long as they could, solely to score political points. But with the agency facing new responsibilities to protect seniors' care under the $938 billion Affordable Care Act, there's no time to waste with Washington game-playing."

With some of the law's most consumer-friendly features kicking in this fall, Democrats are hoping that concrete benefits will win over some skeptics. The first round of $250 checks were mailed to 80,000 seniors in the Medicare Part D donut hole in July. "I don't see politics getting in the way of the implementation of healthcare reform—at least not until January 2015," says Ian Spatz, founder and principal of Rock Creek Policy Group. "But by then, I think most Americans will realize the benefits of reform and be quite happy with it."

Thomas Scully, who led CMS under President George W. Bush, summed up the view from inside the healthcare industry: "Berwick is a very thoughtful, reasonable, mainstream guy. For people to paint him as an outrageous, radical choice is just plain unfair. But no one who knows him has any doubt that he could more than hold his own in a public hearing with a lot of Republican screaming and gnashing of teeth."

In circumventing a congressional vote on his nominee, Obama has stoked the controversy. Even a month later, as Pharm Exec went to press, Republicans were still demanding a public hearing for Berwick. A letter signed by all Senate Finance Committee Republicans reads: "If [Berwick] is not provided opportunity to present his qualifications for the position in the usual process, it casts a shadow over his legitimacy and authority to serve as administrator during a critical time for CMS."

Don Berwick Administrator, Centers for Medicare and Medicaid Services

Man on a Mission

Berwick is already being slammed by opponents as an "academic elitist," but attempts to disqualify him as "out of touch" with the real world is not even remotely accurate. His interest in doctoring wasn't limited to the individual patient—his mission has been to heal the system. After getting a public health degree, he ran quality improvement for Harvard's Health Care System (now Harvard Pilgrim). In 1991, he founded the Institute for Healthcare Improvement (IHI), a feisty startup that grew into a global force backed by donations from top donors such as the Gates, Macarthur, and Robert Wood Johnson foundations. And at IHI, Berwick has worked with large numbers of doctors, nurses, and hospitals to test new approaches.

"To many in the quality and safety world, IHI became their church, and Don its Pope," Dr. Robert Wachter, associate chairman of the Department of Medicine at the University of California, San Francisco, wrote on his widely read blog, Wachter's World. "[IHI] ran on a shoestring for its first decade, fueled largely by the considerable power of Don's vision and personality. Then came the [Institute of Medicine] reports on safety [2000] and quality [2002]—reports that Don had a major hand in crafting—followed by a national movement that promoted transparency, pay-for-performance, tougher regulatory requirements, increased media, and legislative interest."

IHI's 100,000 Lives Campaign promoted best practices for hospitals and physicians, while its rapid response team model has been adopted as a national standard of cardiovascular care. IHI has also spearheaded alternative delivery and payment models such as accountable care organizations (ACOs), in which hospitals and doctors are motivated to collaborate—and limit care—because their CMS payment is based on clinical outcome rather than a list of services, diagnostics, and treatments. But Berwick's provocative idea that quality and cost are not inversely related is what most animates reform. To support his claim, Berwick cites the decades-long (and disputed) research by Jonathon Skinner and Elliott Fisher at the Dartmouth Institute for Health Policy and Clinical Practice showing that some regions and hospitals in the US with the highest spending on healthcare, including intensive advanced diagnostics, achieve outcomes that are no better than their cheaper cousins.

In anticipation of a public hearing on Berwick's original nomination in April, Health Affairs' editor John Inglehart wrote, "If Berwick can persuade ... skeptics that the IHI is built on collaborations with healthcare providers, not regulatory regimes formulated by the government, maybe he will have a chance to translate his private successes into public victories." Installed now not by vote but by fiat, Berwick will now have to sell reform to the American people.

Plainspeaking and Provocation

Berwick's advocacy has been nothing if not outspoken. He has shown an admirable mettle in speaking plainly about the inefficiencies and inequities of the healthcare system. And as the crisis has accelerated, his willingness to counter the rhetoric of adherents of the status quo has only grown more pointed. A speech he delivered in London in 2008 was so deliberately provocative that it now reads like a parody.

"I am romantic about the National Health Service," Berwick said, praising the British single-payer system as "a global treasure." Among its virtues is that "you cap your healthcare budget." He added, "Please don't put your faith in market forces. In the United States, competition is a major reason for our duplicative, supply-driven, fragmented care system."

On the day of Berwick's appointment in April, Senate Minority Leader Mitch McConnell and other Republicans took to the House floor to rail against him. "Many of us are alarmed by the nominee's focus on the British healthcare system," McConnell said, slamming Berwick for "applauding a system where care is denied, delayed, or rationed." Anti-reform zealots from TheWall Street Journal's editorial page to an army of bloggers have followed suit, only identifying Britain's NICE by its negatives—never mentioning the fact that it provides Brits with universal healthcare at a per-patient cost almost 50 percent less than in the US.

Berwick clearly favors taking the battle to the enemy. It remains to be seen whether he will continue to provoke from his new pulpit—and, if so, whether his plainspeak will prove persuasive. "A lot of people make a lot of money on inefficiency—on production of things that have no value," Berwick told Health Affairs. "So the minute you try to become truly efficient, you're going to run into stakeholders who are going to tell you that you're harming care, and the knee-jerk reactions of doctors and others will be to reinforce that idea ... [Efficiency] will not come out of the supplier sector ... It will have to come out of very demanding purchasers."

Big Government or Free Market Reform?

The healthcare reform legislation got not a single Republican vote in the Senate. The right's argument is that the healthcare industry operates like any other market, with competition for consumer choice forcing price down and performance up. Certain aspects of the machine may work like that, but the usual link between cost and benefit is generally obscured from the consumer through physician decision-making and third-party payment. Value remains unpredictable at point of purchase.

Berwick maintains that commercial incentives and competition have mainly contributed to the crisis of escalating costs. "We simply have a toxic dynamic in healthcare, that if you make something it will be used. No other market works that way. We have to target supply-driven care as a matter of public policy," he said in the Health Affairs interview. He says that the goal of reform is in fact to make healthcare function like other markets, with demand rather than supply the driver, and to rid the system of wasteful inefficiencies—goals that would seem to appeal to conservatives who are not simply pro-business.

The imperative to realign the system's incentives through performance-based delivery and payment may have new urgency, but it is not new for CMS. Nor is it a partisan issue. The trend dates back at least to 1984, when the Reagan administration introduced diagnosis-related group payment. Then-CMS head Tom Scully instituted pay-for-performance reimbursement for nursing homes and hospitals in 2002. "There's agreement across the political spectrum that the private sector has failed to control costs," says Scully. "That's not exactly a radical notion." Yet pay-for-performance can breed its own waste and dangers, like doctors' cherry-picking patients for best outcomes. Similarly, cost-effectiveness drug pricing can produce its own wasteful overprescribing.

It All Comes Down to Dollars

Party politics are but one of Berwick's headaches. He also has to turn around the ship at CMS, a 4,000-person, $759 billion behemoth that must now be motivated to embrace reform. At CMS, demoralization may be especially acute because the agency has been reduced to a rubber-stamp function, which it performs secondhand through subcontracts with the private sector via a regional network of fiscal intermediaries and carriers. Whether Berwick's reported charisma, coupled with the wholesale restructuring, can make these dry bones dance remains to be seen.

Whatever else he may do, Berwick's success or failure will be measured in dollars and cents: Can he bend the curve of annual federal healthcare spending by 50 percent, from 4 percent to 2 percent? CMS will not be able to meet this goal merely by slashing budgets. Rather than just blindly signing the invoices, CMS will increasingly negotiate better prices for its beneficiaries. In addition, the Affordable Care Act grants CMS new powers to set in motion a realignment of incentives around quality.

Yet the White House may seek to keep Berwick on a short leash. On the day after President Obama signed the healthcare reform bill, Secretary of Health and Human Services Kathleen Sebelius announced big changes at CMS. The bureaucracy is being restructured around five "centers" intended to align its organization with the bill's key provisions, and five healthcare advocates, all sharing extensive government experience, were appointed as administrators.

A Thousand Small Cost Cuts

The collaboration of pharma and other stakeholders in the rollout of reform is essential for its success. The drug industry was one of the first stakeholders to come to the table of the administration's reform campaign, trading its support for an $80 billion cap on "givebacks," including a 50 percent discount to seniors in the donut hole. That rebate, going into effect next year, will be a very costly writeoff for pharma. But the law will increase the demand for drugs: Not only does it expand coverage to 32 million more Americans but its focus on cost-effectiveness and health outcomes will result in greater investment in prevention and early diagnosis and treatment. (The elimination of cost sharing for preventive services, for example, means that the use of vaccines will increase.)

A sharp spike in the demand for drugs, however welcome, will present problems of its own, says Connie Austin, a partner in Ernst & Young's Global Life Sciences Practice. "Companies will have to look carefully at their manufacturing and supply-chain capabilities to make certain that they are adequate—and make necessary investments if not."

At the top of CMS's agenda is what might be called quality-based cost cutting, which will target payments to hospitals, drug and device makers, and other nonphysician providers. Federal healthcare layouts are slated for a 10-year, $455 billion slashing, with Medicare Advantage cuts alone totaling $136 billion. The Part D donut hole may fall prey to the cost-effectiveness reaper, accelerating its 2020 closing date.

The law's overall cost to the pharma industry over the next decade is generally estimated to break $100 billion. That's 20 percent higher than the original $80 billion deal, but scarcely a threat to industry innovation—pharma is expected to earn more than $3 trillion in sales over the first 10 years of reform.

Berwick will be in charge of the new $10 billion Medicare and Medicaid Innovation Center, to test alternative incentive models, including accountable care organizations, patient-centered medical homes, and episode bundled payments. CMS has been entirely under Congress' thumb, with the inevitable result that some 30 previous pilot projects have all been ditcheds, casualties of congressional inaction. The healthcare reform act attempts to overcome this obstacle by shifting decision-making authority largely from Congress to the head of HHS, who can fund and run any one of 18 new delivery and payment models—and approve it for wider application unless Congress issues a kill order.

Last year's stimulus bill allocated $1.1 billion for comparative-effectiveness research (CER), but this year's healthcare reform bill prohibits the government from making decisions about cost and coverage based on the conclusions. The problem with setting policy based on comparative data is well known: What works best for the "average" patient may not work at all for a particular individual patient. Yet while Congress forbids CMS from "picking winners and losers," managed care and other insurers are increasingly doing so. And in response to growing show-me-the-value pressure from payers in other countries, drugmakers are incorporating comparative measures into clinical development decisions.

"Pharma is going to have to find new systems and processes of demonstrating the value of its products while getting to market as quickly as possible," says Austin.

Pharma analysts agree that healthcare reform will accelerate efforts drugmakers are already making to transform their business model and cost structure. As an empowered CMS increases pressure on pricing and outcomes, each company will have to decide what level of risk it accepts, says Austin. "This will encourage them to further refine their overall strategy, modifications to product and customer portfolios, and other changes."

Berwick spent his first day at CMS singing the praises of electronic medical records—one of the few controversy-free items on his agenda. His "Meet Don Berwick" speech was reportedly a hit with the staff. Says Scully: "I have a friend at CMS, a very conservative doctor, who said he was just floored—Don gave one of the most inspiring talks about healthcare that this guy had ever heard."

Yet nothing would be less surprising than seeing Don Berwick fail. The Republicans could sink his appointment before the midterm elections. The White House may crush his spirit with caution and compromise.

Less than a month into the job, he was already on the receiving end of a bipartisan congressional pile-on—for implementing a pre-reform 2.9 percent cut in hospital inpatient payments to recoup $3.7 billion in overpayments over the past two years. According to CMS math, this "correction" averages out to be only a 0.8 percent decrease for 2010, but that was sufficient to unite the two polarized parties around a single cause: Patient care will suffer!

Still, this is the role that Berwick has been rehearsing for all his life, and his plainspoken powers of persuasion may prove the cynics wrong. Says Berwick: "Healthcare [reform] has some of the properties of major social movements in this country: civil rights, environment. So many oxen to be gored, and a lot of people with oxen that won't get gored but think they will. And this [coalition of] the people who would be better off and the people who are needlessly afraid of change—that's 80 percent of America."