Last week, the Bipartisan Policy Center’s Health Care Cost Containment Initiative (HCCI), led by Former Senate Majority Leaders Tom Daschle and Bill Frist, Former Senate Budget Committee Chairman Peter Domenici, and Former Congressional Budget Office Director Alice Rivlin, released its recommendations for the next phase of health system reform. I had been looking forward to the report, as Frist advocated a number of interesting health system reforms while serving in the Senate, including a federal reinsurance mechanism. First has also said, however, that he believes that the Affordable Care Act ought to be reformed rather than repealed, which remains a minority view on the right.

The report is built around four pillars: structural Medicare reform; tax and regulatory reform; an effort to prioritize quality, prevention, and wellness; and encouraging states to pursue delivery, payment, workforce, and liability reform.

1. One of interesting tensions on structural Medicare reform is that while Domenici and Rivlin are the architects of the Bipartisan Policy Center’s Protect Medicare Act, which uses competitive bidding between fee-for service (FFS) Medicare and approved private plans to yield savings over time, a concept that has been embraced by congressional Republicans and that presumably appeals to Frist, Daschle has been skeptical of this approach. Moreover, while conservative lawmakers have by and large accepted a continuing role for FFS Medicare as a “public option” that will compete with private plans, there has been a great deal of hostility towards the Independent Payment Advisory Board (IPAB) that is meant to improve the efficiency of FFS Medicare by driving payment innovation.

HCCI calls for the creation of “Medicare Networks” as an option within traditional Medicare. These Medicare Networks would essentially be integrated care delivery networks, and each would enter into a contract with CMS that would establish a unique spending target. Networks that spend less than the target would be entitled to share in the savings while those that exceed the target would be obligated to eat some of the overage. Beneficiaries choosing to enroll in a Medicare Network would receive a premium discount. And to make Medicare Networks more attractive still, providers that belong to or contract with them will receive payment increases as established under current law while those that only participate in fee-for-service Medicare will have their payment rates frozen for several years.

The authors describe Medicare Networks as an improved version of Accountable Care Organizations (ACOs), and they identify a number of flaws in the current ACO model. Providers have only weak incentives to join ACOs, ACOs are eligible to share in savings but not to endure some of the cost of overages, payment reform for ACOs has been very limited, and beneficiaries don’t benefit from savings generated by the most successful ACOs. The Medicare Network concept aims to address all of these deficiencies. Medicare Networks continue to susceptible to some of the criticisms against ACOs, like those recently offered by Clayton Christensen, Jeffrey Flier, and Vineeta Vijayarhagavan. Yet HCCI addresses some of these criticisms elsewhere in their report.

Medicare Networks are also very different from Medicare Advantage Plans, e.g., while Medicare Networks continue to rely in part on Medicare payment schedules, Medicare Advantage Plans receive fully-capitated payments. And while Medicare Advantage Plans are sponsored by health plans or providers with an insurance component, Medicare Networks are purely provider-led.

HCCI draws heavily on Domenici-Rivlin in its approach to Medicare Advantage Plans. Yet the balance is tilted in favor of traditional Medicare, a concession, one assumes, to Tom Daschle. Initially, for example, Medicare Advantage Plans would bid to offer a standard benefit package with a higher actuarial value than traditional Medicare. Beneficiaries enrolling in Medicare Advantage Plans that are cheaper than the benchmark — which is based on the enrollment-weighted average of all plan bids unless Medicare Advantage Plans exceed 40 percent of local market share, in which case its set to the 35th percentile bid – will receive a dollar-for-dollar rebate equal to the difference while those enrolling in plans more expensive than the benchmark will have to pay the difference. But if traditional Medicare is more expensive than the benchmark for Medicare Advantage Plans in a given region, beneficiaries won’t have to pay the difference to enroll in it. That is, while the Protect Medicare Act applies competitive bidding to all plans, including traditional Medicare, in a given region, HCCI limits competitive bidding to Medicare Advantage Plans.

HCCI offers a number of other recommendations as well, e.g.: updating the Medicare benefit package to reduce demand for medigap coverage, as this supplemental coverage appears to raise utilization of medical services; strengthening protections for low-income Medicare beneficiaries; and reducing spending on high-income Medicare beneficiaries.

2. On tax and regulatory reform, HCCI proposes capping the income-tax exclusion for employer-sponsored insurance at the value of the 80th percentile of single and family ESI premiums in 2015, and indexing the amount to GDP per capita growth and then GDP per capita growth plus 0.5 percent after 2023. This approach is far more complicated than the universal credit proposed by Sen. John McCain in 2008, but it will presumably prove less disruptive to high-earning individuals who receive employer-sponsored insurance. And it certainly represents an improvement over the “Cadillac tax” in the ACA.

The authors also address the danger that while provider consolidation can be a good thing if it leads to higher-quality integrated care, it can be a bad thing if it results in anti-competitive behavior. This section of the report is notably weak, as it hints at but largely neglects the pernicious role that large hospitals play in blocking new entrants, thus dampening competition.

3. On quality, prevention, and wellness, HCCI offers a panoply of pilot programs.

4. The section on how states can pursue delivery, payment, workforce, and liability reform is dense and forward-looking.

(a) On dual-eligibles, for example, HCCI recommends the full integration of Medicare and Medicaid services under a single program. I’ve recommened that we considering federalizing responsibility for dual-eligibles, which is one way to achieve this goal.

(b) The authors offer thoughts on how to reform insurance regulation. Encouragingly, they recognize how hospitals abuse their market power to force insurers to include them in “preferred” or highest-value tiers of medical providers, and they recommend that states prohibit hospitals from refusing to contract with insurers that place them in a lower tier. They also call for restricting “all-or-nothing” contracting more broadly, so that insurers can be more discriminating about the providers to which they steer their customers. They also identify modest steps insurers and states might take to encourage price transparency, e.g., encouraging insurers to sure data on average anticipated costs for accessing various medical services.

(c) HCCI sticks to encouraging states to test alternative models for medical liability reform.

(d) And perhaps the best section of the report calls for scope of practice reforms to allow non-physician primary care professionals to offer safe, high-quality service at the lowest cost. Because states take the lead in this space, they only propose that the federal government give states government wide scope to relax current restrictions. They also call for initiatives designed to increase the supply of medical professionals, a piece of the health care cost puzzle that we tend to neglect.