The system is fraught with overspending. Fixing that problem requires providers to respond to market incentives and for patients to become more knowledgeable.
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Most of the focus of the Affordable Care Act is on expanding insurance coverage and defining how insurance companies provide insurance to individual purchasers. These are important issues, but the real challenge for health care is to change the dynamics that have led to such unsustainable spending growth over the last several decades.
The spending problem has arisen because of a lack of accountability and responsibility by both health care providers and consumers. It's way too early to declare "success," or even to be sure the progress to date is sustainable -- but there has been some progress.
For institutional providers, most hospitals and other institutional providers have moved away from payments based on the number of days a person spends in a hospital or on the individual services provided during a hospital stay. Almost three decades ago, Medicare moved to a payment system that pays hospitals a single amount for an inpatient stay based on the diagnosis of the patient at discharge. Many private-sector payers have followed Medicare's lead and adopted similar systems of reimbursement. About 15 years ago, Medicare expanded the concept of a single payment for services provided during an encounter to home care, outpatient hospital care, and nursing home care.
Paying for a single stay or episode of care with a single payment encourages hospitals and other institutional providers to become more efficient in providing care during the hospital stay or home care episode, but it does not necessarily lower overall health care costs. In fact, the current system could be regarded as encouraging re-admissions, since it allows the institution to receive additional payments for treating the same problem. Because of such concerns, Medicare is starting a program that will penalize hospitals that readmit patients with certain diagnoses within a short period of time.