A Better Way to Approach Medicare’s Impossible Task
As the “Super Committee” faces mounting pressure to rein in Medicare spending, two sides seem to be squaring off. The don’t-touch-a-thing-other-than-squeezing-provider-fees position seems to appeal to mainly Democrats, while eat-your-spinach reforms, including more cost sharing and higher premiums, seem to appeal mainly to Republicans. Neither position is very appealing to voters, however, nor should they be.
Is there a third way? Is there a way to get the job done and appeal to voters — young and old — at the same time? We think there is. Tom Saving and I suggested a different approach in a recent post at the Health Affairs blog.
To see how it might work, we first have to understand that what Medicare is currently trying to do is virtually impossible. Consider that Medicare has a list of about 7,500 separate tasks that it pays physicians to perform. For each task there is a price that varies by location and other factors. Of the 800,000 practicing physicians in this country, not all are in Medicare and no doctor will be a candidate to perform every task on Medicare’s list.
Still, Medicare is potentially setting about 6 billion prices at any one time all over the United States of America, as well as in Guam, Puerto Rico, the Mariana Islands, American Samoa and the Virgin Islands.
Each price Medicare pays is tied to a patient with a condition. And of the 7,500 things doctors could possibly do to treat a condition, Medicare has to be just as diligent in not paying for inappropriate care as it is paying for procedures that should be done. Medicare isn’t just setting prices. It is regulating whole transactions.
Let’s say that the 50 million or so Medicare enrollees average about 10 doctor visits per year and let’s conservatively assume that each visit gives rise to only one procedure. Then considering all of the ways a procedure can be correctly and incorrectly coded, Medicare is regulating 3 quadrillion potential transactions over the course of a year! (A quadrillion is a 1 followed by 15 zeroes.)
Is there any chance that Medicare can make the right decisions for all these transactions? Not likely.
What does it mean when Medicare makes the wrong decisions? It often means that doctors face perverse incentives to provide care that is too costly, too risky and less appropriate than the care they should be providing. It also means that the skill set of our entire supply of doctors will become misallocated, as medical students and even practicing doctors respond to the fact that Medicare is over-paying for some skills and under-paying for others.
A more sensible approach is to quit asking for the impossible. Instead, let’s begin the process of allowing medical fees to be determined the way prices are determined everywhere else in our economy — in the marketplace.
We believe there are at least nine important policy changes that can circumvent these two problems and free the marketplace in the process.
Retail Outlets. All over the country there are retail establishments that are offer primary care services to cash-paying patients. Because these services arose outside of the third-party payment system, their prices are free market prices. Walk-in clinics, doc-in-the-box clinics and free-standing emergency care clinics post prices and usually deliver high quality care. Many follow evidence-based protocols, keep records electronically and order prescriptions electronically.
Medicare should immediately allow enrollees to obtain care at almost all of these places — paying posted, market prices, not Medicare’s prices. And since these fees are way below what Medicare would have paid at a physician’s office or hospital emergency room, this reform would lower Medicare’s costs, even as it makes primary care more accessible.
Note: Medicare can always reverse this decision in isolated cases where the provider fees turn out not to be competitive, although if Medicare is using its monopsony power, prices and output are already non-competitive.
Telephone and Email Services. Medicare should allow enrollees to take advantage of commercial telephone and email services. TelaDoc offers physician telephone consultations at a price that is probably lower than the same service delivered by a nurse at a Minute Clinic. And, where appropriate, its services are more accessible than those of the walk-in clinic. Also, TelaDoc doctors use electronic medical records and they prescribe electronically. Again, it is important to pay market prices, not Medicare’s prices, although Medicare patients should probably pay a good portion of the cost of each phone call out of pocket.
Concierge Doctors. Medicare should encourage physicians to repackage and re-price their services in ways that are good for the doctor, good for the patient and good for Medicare. For example, Medicare should encourage — rather than discourage — the emergence of concierge doctor arrangements.
A typical concierge doctor charges about $1,500 per patient per year. In return, patients get telephone and email consultations, same-day or next-day appointments, electronic medical records, electronic prescribing, etc. and an agent to help them solve problems in dealing with the rest of the health care system.
If patients and doctors are willing, Medicare should be willing to throw its 7,500 item price list away, pay some portion of the concierge fee and let medical marketplace handle everything else.
Billing by Time, Rather than Task. Most professionals are not paid by task — the way doctors are paid. They are paid by the time it takes to deliver their services. When we pay doctors by task, we will always omit valuable services from the price list, no matter how long the list. In the current system, doctors get no compensation (or woefully inadequate compensation) for talking to patients by telephone and email, for patient education, for helping patients become smart shoppers for drugs and diagnostic tests and for dozens of other things.
As an alternative, we should allow doctors to change the mix of services they offer, and pay them for their time. If the change in practice is substantial enough, we should allow patient copayments and let them be determined in the marketplace. The test of whether the new set of services has added value is whether seniors are willing to pay more out of pocket to get them.
Paramedical Personnel. One way to expand the supply of low-cost medical care is through the increased use of nurses and physician assistants to perform tasks that do not require a physician’s level of expertise. The current system discourages the creative use of paramedical personnel, however. The reason: when a task is performed by a nurse rather than a physician, Medicare automatically reduces its fee. (See the example here.)
A better approach would be to allow doctors to profit when they find ways of reducing the cost to the payer. This is the natural outcome in a free market, where firms that reduce customer cost benefit both themselves and the customers. Absent a free market, rules that allow innovators to benefit when they reduce the cost to taxpayers should be encouraged. Doctors who want to practice medicine in a different way and be paid in a different way should be allowed to do so long as the cost to Medicare goes down and the quality of care patients receive does not suffer. The principle: doctors should be encouraged to earn more income by saving Medicare money.
Bundling. One of the obstacles to offering patients a package surgery price, covering all services, is that surgery typically involves several entities who are financially independent. For example, the hospital, the surgeon, the anesthetist, etc. In a normal market, independent entities come together all the time, jointly produce a good or service, and agree on how to divide the revenue from the exercise. This would be naturally happening in medicine as well, were it not for the Stark amendment — making such arrangements illegal.
Clearly this impediment to efficiency must be removed. Providers should be encouraged to offer package prices for bundled services and Medicare should be willing to pay the package price wherever it is expected to be less than what taxpayers would otherwise have paid. Patients should share in the savings as well — in order to encourage them to patronize lower-cost, higher-quality provision.
Medical Tourism. You don’t have to go to India, Thailand or Singapore these days to find high-quality, low-cost medical care. Medical tourism is coming much closer to our shores. For example, a renowned Indian heart surgeon is building a medical tourist facility in the Cayman Islands. Others will surely follow suit. Since the international medical tourism market is a real market where providers routinely compete for patients based on price and quality, Medicare should take advantage of it.
Further, if a patient saves money for Medicare by traveling, the patient should share in the savings. As in the case of doctors, patients should be encouraged to make money by saving Medicare money.
You don’t actually have to go off shore to participate in the market for medical tourism. There is a flourishing market for it on shore. The only problem: it’s generally not available to Americans. Canadians, for example, routinely come to the United States for surgical procedures and they usually face a package price for all services agreed to in advance. The general rule: hospitals only step outside the system and charge package prices to people who travel (thus, they are a marginal customer) and who pay out of pocket (thus, the hospital has to compete on price.)
Seniors too could be in this market, and they would be if Medicare allowed seniors to share in the savings created by traveling to a higher-quality, lower-cost facility.
Selective Relaxation of Price Controls. There is substantial evidence that Medicare fees are well below normal fees paid by the private sector. There is very little evidence to show us what difference this makes, however. Are we substituting rationing by waiting for rationing by price? Are seniors getting lower quality care? Are they being deprived of amenities? One way to seek answers to these questions is to let a few doctors in a given area — but not most — charge anything they like for Medicare covered services. Medicare would continue to pay its list price, but the patient would have to pay any remaining extra charge out of pocket.
Patients then would have a choice. They could go to doctors who charge the regulated Medicare fee. Or they could go to doctors who charge a market-determined fee. Here’s the test: can doctors who are free to do so attract patients even though those patients have to pay more than they would pay elsewhere? If so, that means that Medicare patients under the current system are being denied convenience, amenities and perhaps quality and that they are willing to pay for in the market. In the face of such evidence, Medicare should then be willing to allow even more doctors the same option.
Health Care Stamps. The efficiency of markets vis-à-vis centralized control is well documented wherever centralized control has been tried. But how do we transition from the current centrally controlled Medicare system to individual control. Perhaps we can learn something from how the food industry is treated. Supermarkets contain thousands of individual products all with prices attached. Since food consumption is a necessity, just as health care, how do we insure that food is available to all? Rather than having Foodcare, we subsidize low income individuals by selling them “dollar value food stamps” at discounted prices. These stamps are real money to the grocery stores and to the recipients. Since individuals consume more than their food stamp limit, on the margin they are spending a dollar for a dollar. However, if they choose to buy pricey steak instead of hamburger using food stamps dollars, they will have less to spend on other products.
Competition for food stamp dollars forces stores to compete on price and, unlike health care, the prices are transparent. Every paper contains full page ads in which price plays a dominant role. This proposal would be especially ideal for the dual eligible population (qualifying for both Medicare and Medicaid) because this population has first dollar coverage anyway. A combination of the Clinton Commission’s “premium support” and health care stamps would result in controlling the federal contribution to the cost of Medicare for this group and letting the elderly consume whatever level of health care they desire.
We should make certain that the poor have the wherewithal to pay for their health care not by forcing them to wait or take poorer quality, but with health care dollars. These health care dollars would be full dollars to providers, insuring that the poor can complete for resources with all other buyers of care.
In each of these cases, and in others we could think of, the principle is the same: let markets do what only markets can do well. Essentially we let the market replace the gigantic Medicare regulatory apparatus.
The math in this post sheds light on how difficult it really is to manage utilization for 50 million Medicare enrollees. Medicare tries to set a price that is close to the actual market clearing price. Then it hopes procedures aren’t performed unnecessarily. However, there is really no way to ensure either is the case.
Failure to act on this issue will only increase the burden on all American’s, and care for the elderly will suffer as well. For a party of “change”, the left just double down on costly and outdated methods of caring for the public. Good suggestions.
A market clearing price is the price of goods or services where quantity supplied is equal to quantity demanded (aka equilibrium price). Is there some data to confirm that is how Medicare sets prices today?
My understanding was that Medicare continues to use Resource Based Relative Value Schedules and Diagnostic Related Groups to set physician and hospital covered charges/eligible expenses; then imposed balance billing limits to control participant out of pocket expense … triggering cost shift to everyone else who is not eligible for government price setting and out-of-pocket expense control. If that is changed, I apparently have fallen behind.
Good ideas, all.
It all makes sense to me.
Great and timely post.
Note to CMS: Explain to us again why it is that pricing as lawyers and others do by time and materials, where the time price reflects the quality and type of labor input, will not work in the “special” world of health care.
Thanks, John, for continuing to remind us of the fundamentals. I have been told that politics requires hearing an idea, no matter how sound and correct, for 10 years before it will make headway.
Private insurance companies largely base their payments upon the same Medicare value system.
“As an alternative, we should allow doctors to change the mix of services they offer, and pay them for their time.”
Many if not most specialties are paid directly by time or indirectly based upon complexity equating more time. I get paid by the minute.
Steve
Excellent reform ideas.
With coding and the RBRVS, CMS has created a system that is trying to replace what markets normally do. All the disadvantages of central planning increase as the complexity of the system increases. The result is our distorted healthcare marketplace.
I would add that, with respect to retail clinics especially, patients should get the same monetary benefit as if they engage in medical tourism. That is, if the retail clinic is providing the service at a fee lower than the Medicare rate, CMS should motivate the senior to go to the retail clinic by offering to split some fraction of the savings with the senior, and add it to her Social Security deposit at the end of the period.
To be sure, this introduces risk of fraud, which must be audited. Nevertheless, if the benefit only goes to the provider, not the consumer, we won’t see much movement.
With respect to food stamps, another benefit is that supermarkets and agricultural producers do not lobby Congress for coverage of this item and not that item. So, there is a lot less wasted lobbying investment when the subsidy goes to the demand side instead of the supply side.
Retail outlets: Without commenting on their usefulness and without the desire to support or reject them I have not noted these retail outlets charging less than Medicare. In fact for simply providing the flu vaccine my understanding is that they charge more where permitted. That means most patients pay more while their prices are fixed at a lower rate for Medicare patients. At one time their prices for the flu shot was over two times what Medicare allowed a physician’s office to charge.
Telephone and email services do not directly solve the problems and widespread use in this fashion IMO could cause major unintended problems. Why should these services be paid at market prices while the traditional physician is paid at Medicare’s prices?
Concierge physicians that charge $1,500: That sounds like VIP care. I have no problem with concierge physicians, but one has to recognize that for every VIP physician that exists there is one less physician available. A VIP’s practice is limited to 600. How many VIP’s are needed to treat the same number of patients treated by the traditional physician? VIP’s are traditionally the primary care provider. What about specialists? If all physicians were VIP physicians we would have to at least double the number of physicians in the country.
Billing by time: That is a wonderful way to create a selective system where physicians take easy low resource patients and socialize a lot. Who will treat the difficult patients?
Bundling: One can always have a new and fresh idea by bundling care when the care is unbundled and then unbundling care when the care is bundled. Sometimes care should be bundled and sometimes care shouldn’t be bundled so the grass always looks greener from the other side.
Medical Tourism: We should be untying the hands of medical practitioners so that we encourage people to come here instead of sending them abroad. Medical care should have been a cash cow, but for government intervention with regard to pricing, rules and regulations.
I am tired so I am skipping the rest. If one wants to save Medicare the costs of raising Medicare rates then the simple and correct answer is to permit balanced billing and for the faint of heart permit balanced billing with restrictions. Start placing health care into the market place instead of trying to avoid the market place by creating new ideas that only come into existence because of government intervention and price controls. Some of those suggestions would have been prominently used by physicians who might have charged less for them or simply included them in his overall model of health care without a charge.
For those that are truly poor, physicians will accept less like they did in the past or they can be additionally subsidized. The physician will learn that he already has been paid for his overhead costs and in most cases will accept a marginal profit for those truly in need.
The following is from our friend Dr. Bob, responding to my Wal-Mart Health Alert from last week, but I think it applies to this post as well:
John,
Amen to your response. There is a place for “physician extenders”, but not to convey to the patient that that care is equivalent to what she would get from her own PCP, with out the wait and hassle. The benefit (that i suspect) can be offset by the years of study, but if the patient has a simple uncomplicated problem, it is no more or less convenient to go to Wall Mart; remembering full well, that the spread of contagion is in a place like Wall Mart. There is so much to consider beside the low cost, high contagion setting. In the first place, sick people should not have to go to a drug store for their health care, but for tooth paste, any more than someone looking for a quick fix should go to their PCP for flashlight batteries or nailpolish remover. And she is probably alone, and therefore spreading contagion and joy, as she lets the baby run around spreading bacteria or viruses on other humans or on everything they touch. This can become a public health problem that no one has addressed or questioned.
Sure, 60-70% of kids I saw every day could and and were seen by my specially trained pediatric nurse practitioner, but knew that I was there if something beyond their comfort level were to show up.
John; I don’t think anyone of our great and fabulous financial folks who are deciding where, when, and by whom patients could be seen and treated, strictly in an easily contaminated but less expensive venue, has had any knowledge of public health measures, and possibly creating a situation that could very quickly become a major problem causing greater expense. Not unlike the H1N1 flu epidemic. It hit hardest in hotels, grocery stores, schools, etc. where it could be passed around easily and swiftly.
Dr. Bob
John, good post, but you have stated in previous Posts that healthcare delivery is a complex system. As such, it is fraught with misunderstanding and incompetency as well as patient noncompliance and ignorance. You have also stated correctly that the Medicare Advantage Program has historically accomplished system savings in areas where Care Coordination and Care Management is performed within an Integrated Delivery System (IDS). The only proven way to reduce costs in our healthcare system is to deliver care through an Integrated Physician Delivery System that coordinates and manages care delivery. These Care Coordination programs performed within an IDS result in greatly improved clinical metrics; i.e., lower LDL levels, higher HDL levels,lower Blood pressures, controlled glycemic levels, lower triglycerides, etc. These improved clinical metrics result in much lower healthcare expenditures overall.
When a Medicare patient who is not a part of a Care Coordination system routinely goes to Walmart or an independent NP or MD office and then gets acutely ill or injured, the lack of care coordination will ALWAYS result in higher cost to he patient and the healthcare system due to duplication of services and testing, incompetence, specialist churning and inappropriate testing, medication errors, nosocmial infections, lack of continuity of care, etc.
Its great to introduce free market reforms, but it must be done within an IDS with serious Care Coordination. Otherwise, savings will not occur due to the complexity within the system itself.
Larry, at best the Integrated Delivery System only proved that using the known metrics being measured that there might have been some improvement in those metrics during a limited time span. The truth is that quality was assessed in physician offices on a continuous basis. It was far from meaningful, but did make the physician concentrate on certain metrics to the exclusion of others. They even went so far as to review physician charts to rate quality and then repeated the identical rating a relatively short time later. Physicians knew what they were looking for and complied.
They even left what questions would be asked regarding patient education for the next time they came. Thus the initial failure rate was extremely high but when these instructions were copied and the physician had the patient sign the paper like all the others needed that physician rated 100% on the next evaluation even though the paper was never even read. Much of the so called proofs from managed care were totally bogus.
You say: “The only proven way to reduce costs in our healthcare system is to deliver care through an Integrated Physician Delivery System”
I would say that is totally false. If I had to bet on any recent innovation it would be HSA’s (MSA’s).
Al, remember that your persoanl experience with an IDS doesn’t necessarily translate to other IDS experiences. Furthermore, Care Coordination (including Medical Home strategies) is still in its infancy and is being improved monthly by my organization through the valuable input of our engaged physicians, our professional staff, and our members. I am sure that this is true of other organizations in this field as well. We are experiencing very real improvements in the health and well being of our members and their healthcare costs are decreasing steadily. However, we wrestle with methods to improve member compliance and member use of their medical home. It is difficult, but I can tell you that our engaged physicians appreciate our Care Coordination services because our service puts them in better touch with their patients and gives them better and more accurate clinical information about their patients. We are documenting these improvements and we are looking forward to sharing these results over the next couple years with the public.
Larry please don’t tell me “Al, remember that your persoanl experience with an IDS doesn’t necessarily translate to other IDS experiences.” I am not relying upon personal experience rather I am relying upon peer reviewed studies, history and a company policy towards physicians in general where my first hand experience is unimportant.
I am pleased to find you proud of your company and trying to promote it. I even hope you are right in your personal assessment, but history has proven your direct predecessors wrong too many times. Until you have real proof one has to consider much of what you say puffery recognizing that puffery can become true. I agree that care coordination is in its infancy and that is a problem. I await real proof and a logical explanation demonstrating that the incentives are aligned appropriately. If that occurs, which I sincerely doubt, I will stand and say bravo.
Al, I am not aware of any peer reviewed studies that disprove the significance of Care Coordination and Management by an IDS. In fact, there are many studies that do exactly the opposite. This is why CMS is focusing on Care Coordination through an IDS…called ACO’s. An ACO is simply an IDS with a different name.
Regrettably, CMS, through the PPACA, is trying to dictate how an IDS or ACO operates and this will be a failure. As John points out in todays Blog, CMS is also trying to dictate how Bundling works…again a mistake. The medical marketplace must be involved in Bundling decisions, just like physicians must be involved in Care Coordination decisions for Care Coordination to work properly for the benefit of the patients and the system itself. In your experience with Care Coordination, were the physicians not involved in the decision process? If not, I would totally agree with you that the process of Care Coordination would not be a permanent fix or cost effective. Physicians MUST be involved with Care Coordination for it to be cost effective.
Larry, rarely do we find good peer reviewed studies where there is some degree of blinding on things of this nature unless these things have been around for years. We do have blinded and peer reviewed studies of things that have similar incentives to what you describe. They tell a different story than you do.
I listened to your first claim that care coordination is in its infancy. Then I became confused when you told me about the many studies that back up your claims. How can something be in its infancy and already have many good studies that prove their validity? Simple. Just like with HMO’s studies were created using variables that could only show good things. Let us hear about the blind studies that prove your contentions along with your words regarding what those studies conclusively proved and you words regarding selectivity, etc. After all you say there are many. Make sure the studies lasted for many years since differences take time before statistical significance can be demonstrated. You have another problem. Earlier you told us how your group differed from other groups. Therefore to be accurate one has to deal with your methodology which seems to be proprietary. Thus it doesn’t seem possible that all these proofs you talk about exist with regard to your company.
You are playing the same game that was played when HMO’s tried to prove how great they were. They were promoters, not scientists and had a lot of money to burn considering the amount of money they expected to earn. They pulled the wool over many eyes for a good length of time and since then we have seen all sorts of plans that claim they have solved the problem, but secrecy surrounds their business models.
Stop playing the game of physicians must be involved to make a plan seem better. Physicians come in two parts. One part is a doctor and that is the part they play when they see patients. The other part is that of a businessman and that is the part that is involved with your plan. What is really needed is to let the patient decide by permitting him to hold the money as if it were his own. Then you can do as you wish.
What I really love is how government and business obfuscates the discussion by using all sorts of acronyms that change with the wind. HMO, ACO, IDS, etc. It is time to start dealing with incentives and demonstrate TRANSPARENCY.
Al, we don’t employ or contract with physicians to be businessmen! We work and partner with physicians to be clinicians and scientists. Care Coordination has been around since 2002 in a serious format, although it has existed prior to that in captive groups such as Kaiser. The studies that are out there relative to Medicare Advantgae patients prove that Coordinated Care systems, by whatever name you want to call them, work because the cost of the care delivered to unnmanagaed Medicare patients in the same practice setting as Medicare Advantage patients is higher over periods of time that are greater than one year. CMS, AHIP, Kaiser, and other foundations have published studies that prove that Care Coordination systems reduce unnecessary hospitalization and ER visits and improve medication compliance, among other desirable results even when physicians are not as involved as they should be in the process. You can attempt to diminish the importance of this, but the facts remain the same. Care Coordination works and it works very well when physicians are involved in the clinical decisions.
Sorry Larry I apparently wasn’t clear enough for you. Like most people physicians have multiple personas and act accordingly. Thus many times when dealing with a physician with regard to business you have a businessman not a doctor. Thus saying doctors are involved in the decision making can be near meaningless. Say what you wish, but human nature prevails so one should always make sure the incentives are in the right direction.
To date we have seen models similar to yours creating incentives that are in the wrong direction and center on the organization’s financial success rather than the patient’s health. Of course in any specific case like yours no one can know in which direction your incentives lie and only hope they lie in the right direction. This hope is severely compromised when the understanding of how medical decisions are made is considered proprietary. Without transparency one has to assume the worst and wait for solid verifiable proof. That is something you do not have.
With regard to your non specific and non present tangential proof you have discussed indirect metrics and not a broad set of outcomes. With regard to Medicare Advantage in particular, if it is so good why does Medicare Advantage require a higher per capita rate? Let us get down to the proofs. We have a lot of proof over a period of many years that a certain set of incentives that capitation models use create worse outcomes for the poor, chronically ill and elderly. Where is your proof that the opposite occurs?
Care coordination is not the issue. The issue is what model is care coordination functioning under. Pretty words don’t mean pretty outcomes.
Al, take a look at the AHIP studies going back to 2002. They have studied Care Coordination within the Medicare Advantage setting every year since 2002 in many different cities and regions. Always the same favorable care coordination result as I have already described in general. Care Coordination facilitates and provides the physician and the patient with the information that is needed to deliver the right care at the right time in a more efficient manner.
Our bottom line is both the health of the patient as measured by clinical outcomes and by healthcare expenditures in the ER and hospital settings particularly.
What have they proven with the AHIP studies? AHIP = American Health Insurance Plans. Could this be the same tactic used by the HMO’s in earlier years? Could these studies simply be created with underlying bias and selectivity to satisfy the needs of the insurers that make money off of these plans?
No matter because you have not shown where any of these studies have proven that your model works or that your outcomes are better. Where you are utilizing a capitated system you have similar incentives to HMO’s and thus are most likely to have the same results: “During the study period, elderly and poor chronically ill patients had worse physical health outcomes in HMOs than in FFS systems” __Ware
Now it is up to you to demonstrate that your proprietary model prevents this from happening. If you cannot do that then simply stop making claims that you can until you have solid verifiable proof or at least show in specific how. Unfortunately the lack of transparency that you control prevents any attempts from doing so.