Paying for Care
If you were eating in a Chinese restaurant, would you have the temerity to tell the manager how to repackage and re-price the items on the menu?
Tea is typically sold for a pre-paid price (all you can drink for a fixed fee). Egg rolls are usually sold fee for service (one at a time). A typical menu has bundled meals (a bunch of items for a set price) competing against unbundled choices (à la carte). Do you think you could do a better job of pricing and packaging these items than the restaurant manager?
Most people not in the business would have the good sense to say “of course not” and they would offer that response in a heartbeat.
The medical marketplace must be one thousand times more complex than the market for Chinese food. Yet there are all kinds of outsiders who think they know how health care should be packaged and priced. For example, Richard Thaler in The New York Times writes that
[a]n ideal health care delivery system…would include a fee for health rather than fee for service model. Doctors and hospitals should be paid for keeping their patients well.
So how does Thaler know that “paying a fee for health” is even remotely practical? How does he know that trying to achieve the “ideal” wouldn’t make things worse?
He doesn’t. Nor, as far as I can tell, does anyone else.
Part of your world is just…
Not what I need!
Don’t take me half the way.
Thaler is not alone. Elliott Fisher, Mark McClellan and Stephen Shortell wrote in the Wall Street Journal the other day that we should replace the current payment systems with accountable care organizations (ACOs):
Unlike traditional third-party, fee-for-service insurance, which pays more for doing more, the payment models underlying accountable care pay providers more for achieving better care at a lower cost.
This editorial appears to have been in response to an earlier Wall Street Journal editorial by Clay Christensen and his colleagues arguing that ACOs were almost certain to fail. Perhaps they were also responding to Lawton Burns and Mark Pauly, who make some of the same points at the Health Affairs blog.
Let’s not lose sight of the problem that everyone is keen to solve. Since providers are paid by third-party payers, rather than patients, they have an incentive to treat patients in ways that maximize against the third-party payer payment formulas.
What is being proposed is a new set of payment formulas. Since providers will have an incentive to maximize against the new formulas just as they do against the existing ones, why do we think there will be any improvement?
Most “pay for performance,” by the way, is really paying for inputs, not what we really care about: outputs. When systems do try to pay for outputs they run into huge problems, as Linda Gorman has explained at this blog. Suppose we decided to pay doctors based on the improvements in the health condition of their diabetic patients. The trouble is that improvement is affected by genes, patient compliance and a host of other factors that the doctors don’t control. So the payment system may end up rewarding bad doctors and punishing good ones. This is exactly what has happened with pay-for-performance in education — which has been tried and studied extensively.
Still, the urge runs deep. Former Senate Majority Leader Bill Frist and Stephen Shroeder, writing in Politico, and also at the Health Affairs blog, chime in with this:
Five years should provide enough time for CMS and private health insurers to further explore models of care such as accountable care organizations and patient-centered medical homes that reimburse doctors through fixed payments and shared savings, and adopt bundled payments for patients with multiple chronic conditions.
At least Frist and Shroeder are not wedded to ACOS. They leave other options on the table. But they are clear about who is going to find the right payment formulas: the third-party payers.
Think about that for a moment. Suppose all the consumers who eat Chinese food formed an association, hired researchers, studied the problem at great length, held public hearings and after much discussion and debate issued their own proposal for packaging and pricing items on Chinese restaurant menus. Do you think their ideas would be better than the ideas of the owner/managers?
The people who are on the supply side of the market always have more information and better insight than the people on the buyer side. That’s why successful reform needs to start with the people who practice medicine, not with the people who buy their services.
In a Wall Street Journal editorial, I proposed that we let providers approach Medicare with offers of different packages of services and different ways of being paid. So long as the cost to the taxpayer appears to be lower and the quality of care higher, Medicare should accept the offer. Over time, the arrangements that appear to deliver less than what was promised can be cancelled. Those that appear to be working can be continued.
Under this procedure, the government doesn’t presume to know how to practice medicine. It leaves that specialty to doctors. Change originates and continues on the supply side of the market, not the demand side. Providers would be competing with each other to think of newer and better ways of reducing costs and increasing quality.
Under the current system, providers get up every morning and ask: How can I squeeze more money out of the payment system today? Under the system I am envisioning, they will get up every morning and ask: How can I lower costs and raise quality today? And, since they won’t have any revenue unless they also attract patients, they will have to satisfy their real customers as well.
Yes, I know. HHS can’t negotiate with 800,000 doctors overnight. But we could start with centers of excellence that have been studied and studied. And with a little fieldwork, HHS should be able to discover in no time hundreds of other cases where higher quality and lower costs are already being achieved.
I know I would start with Dr. Jeffrey Brenner, subject of Atul Gawande’s New Yorker article on “hot spots.” Just to remind the reader, Brenner is saving federal and New Jersey taxpayers millions of dollars by basically engaging in “social work” that changes patient behavior and lowers costs. He gets almost nothing in return because Medicare and Medicaid only pay for medical care, not social work.
The Obama approach is to try to force Brenner to become an ACO and to start doing things he’s not doing today. Even then he won’t make very much money, so no other doctor in America will have any incentive to follow in his footsteps.
My approach would be to pay Brenner $1 million a year, provided he keeps doing exactly what he’s been doing and promises to never become an ACO. Then I would tell everyone else in America ― not just doctors, but also nurses, social workers, and everyone else ― that if they can think of ways of reducing health care costs and improving quality at the same time, they too can get rich.
It’s the American way.
Clever song pairing.
“Yes, I know. HHS can’t negotiate with 800,000 doctors overnight. But we could start with centers of excellence that have been studied and studied.”
It would make sense to negotiate with these doctors in order to be more efficient. However, I dont think it’s going to happen.
“Then I would tell everyone else in America ― not just doctors, but also nurses, social workers, and everyone else ― that if they can think of ways of reducing health care costs and improving quality at the same time, they too can get rich.”
Get rich? Ok, let’s follow this and put our thinking caps on, but I guess it won’t happen.
I don’t think that ACOs give the consumer enough credit. Having normal consumers buy HSAs, if they choose to, along with catastrophic policies, should cover all but the truly needy (who need state sponsered care), and would put the control of care where it belongs, on the consumer. Medical advice is readily available from conscientious providers, and the internet.
Al Peden
The theory behind ACOs makes some sense to me but the practicality of it does not seem to work in the long run.
“(T)he government doesn’t presume to know how to practice medicine. It leaves that speciality to doctors. Change originates and continues on the supply side of the market, not the demand side. Providers would be competing with each other to think of newer and better ways of reducing costs and increasing quality.”
I’m looking forward to this.
It is true that the supply side has more information about the industry they are operating in, but it is ultimately the consumers and insurance companies that have to pay. Consumers, who can mostly gain access to decent care with an insurance, must be enlightened about how the insurance companies are messing up a free market system of competition.
Jihn, Great song.
Ur solution is flawed too.
Every solution need to be consumption driven.
The effort should be on educating consumers and let them chose.
Systems(not a system) need to be experimented and properly reported in an open environment.
Lean solutions, Critical Conversations, and big data mapping are technologies that can be used in analysis and improving processes.
Fundamental premise is consumer choice, provider responsibility.
As long as competitive information is available consumer can make wise choices.
Employer= Employee-Provider partnerships are important.
“Under the system I am envisioning, they will get up every morning and ask: How can I lower costs and raise quality today?”
One can only hope this is the outcome!
I think most people miss the real issue. It is not about providing better health alternatives or lowered cost of care it is solely about control.
Politicians, with rare exception, have no concept of the complex human system and social interactions that go into the day to day decision making by doctors practicing rwal world medicine.
Everything they think they know comes from the hallowed halls of academic medicine which in no way replicates the average medical practioner’s office or profession.
We live in a complex society where social values in one part of the country are totally differrent from those in other parts. It would be far more efficient and effective if the system was decentralized and decision making for what was necessary and what was not was left up to those immediately affected.
Does universal coverage work in Massachusetts? For the most part, yes. That is because the people of the Commonwealth decided for themselves that this is what they wanted and what they were willing to pay for and not because some titular head surrounded by his/her advisors or experts decided what would be appropriate for the citizenry.
The problem has been,is and will always be an overreaching demand for control by big government.
Richard Thaler gives yet another example of “theoretically, this should work” (1993 quote from Ira Magaziner, when confronted by field experts on his untenable “managed workers compensation” plan, part of HilaryCare).
There are legions of these theories, that just don’t work in reality (1994 Managed Competition, 1997 Provider Sponsored Organizations, 1997 Sustainable Growth Rate, 2003 Chronic Care Improvement Program, and now Accountable Care Organizations). Oh, when will they ever learn?
Just another example of “theoretically, this should work” (1993 quote from Ira Magaziner, when confronted by field experts on his untenable “managed workers compensation” plan, part of HilaryCare). There are legions of these theories, that just don’t work in reality (1994 Managed Competition, 1997 Provider Sponsored Organizations, 1997 Sustainable Growth Rate, 2003 Chronic Care Improvement Program, and now Accountable Care Organizations). Oh, when will they ever learn?
Yes, but unlike health care, the manager of the aforementioned Chinese restaurant is actually interested in your ideas about whether his/her food bundles are more appealing than the competing Chinese restaurant down the street. They are interested because they are competing on price and service. Whereas a low price may get customers in the door, they really want to provide a service that entices customers to pay a higher price because they like the service and bundles/packages sold.
You have a point but your analogy misses an important distinction.
If people were paying using their own money, they could choose to either pay for inputs or outcomes as they wished. People would undoubtedly differ in their choices. But mostly health care is paid for by third parties—even for those with high deductible, the expensive stuff is always paid for by third party payers. Whether payments should be made for inputs or outcomes and how to do it is not as ridiculous as you suggest and a restaurant where we and the owner can choose how we the customer pays for items can vary.
The problem is third parties, whether they be insurers, govt, or the spouse in the exam room. They all get in the way of proper care and push the responsibility away from the patient to seek out proper care that meets his or her own health ideology.
I read a joke about a dumb fox that got its leg caught in a trap. After chewing his way through three of his legs, he was still caught in the trap because he never got his trapped leg out. This is precisely what is happening in healthcare today. Govt, insurers, and even physician societies keep making things worse by doubling and tripling down on a third party system of payment that only guarantees increasing costs year to year.
Give the third parties a back seat, catastrophic coverage with means testing possible for low incomes. Make all transactions other than catastrophic the responsibility of the patient and the physician or other healthcare professional.
My oh my how costs would decrease and quality would rise.
But is that what today’s power brokers want?
I doubt it!
I’ve seen a fair amount of bipartisan criticism of the fact that our healthcare system incentivizes treatement rather than health. Dr’s have an economic incentive to continually provide treatment rather than actually improve their patient’s health. “Paying for health” does seem to make sense at least intuitively as a means of alterting the incentive structure.
Dear John and Colleagues–
This is one of those “folk medicine” ideas about how to cure the healthcare system. Few acknowledge that if fee for service is changed to some form of payment that covers bundles or pays cap rates, or some other variation, a huge problem arises: WHO is to get paid for WHAT service? Some money has to flow to the medical community or there will not be enough capacity in the system to serve patients. But which doctors should get paid and how much?
Paying in advance, even to a group practice which one can assume has ethical and assiduous management, means that people may be being paid to stand around and wait for a patient to come in. He has no incentive to do more, to seek out patients who need more and are not getting it. Which institutional providers should be paid and how much? Who would elect to send three times the average payment to Stanford or MD Anderson or Mayo? Do you see the great incentive to do less, the mirror of the FFS incentive to do more?
People forget that one of the virtues of Fee for service is that in addition to providing a payment, FFS records essential data: the patient, the provider, the service, the payer, and the setting for service. Unless an entire organization works under capitation, as does Kaiser, it is a falsity that having government patients paid in some aggregate way while others are on FFS will mean a reduction in billing costs, as you can bet that setting that bundled price will mean looking at an aggregate of FFS charges. In fact, government payers will insist on the same detailed data to audit the contracting provider.
A great deal of improvement would occur if all providers were paid the price they set, as long as there are alternatives in the community. Remember that “Competition” can only occur if there is surplus capacity, so that a lower priced provider has room to take additional patients attracted by that price. We are heading into two decades where there will be a shortage of doctors. Don’t you think that paying what the doctor asks is a better way to have him remain in practice than attempting to fix his charges from the outside?
As a Medicare enrollee as well as a health professional, I, too, am appalled by the size of provider charges. But I am also frightened by the off the cuff suggestions by people who do not work in the industry and are unaware of how this payment method evolved, and the role the government has in perpetuating it. I, for one, don’t want to pay a provider for NOT serving me, as that is what capitation can amount to. And, I have seven specialists; how do I divide an annual payment among them?
Commentators would like to simplify the health system and make it transparent so they can make better decisions about it. But their willingness to advocate for certain popular changes without facts does not make one feel confident about where the health system would end up if they substitute their decision-making for that of people working in the field.
Everyone needs to calm down and look at how the health system is modifying its approaches to payment. Women have long negotiated a global fee for Obstetricians to cover pre-natal care, the birth, and a year of post-natal care for her and the child. This is an example of a real chance for consumers to comparison-shop based on their preferred birthing style and their budget. A little reading would show dozens of these variations on the payment theme. They have evolved as a response to market demand.
That example illustrates the undeniable fact that global prices can only be negotiated for elective procedures; they do not work with emergent medical problems at all.
We are on the front end of a payment renewal called CASH, as with high value health savings accounts. (John loves this.) And I do subscribe to a more careful price negotiation between providers and health plan negotiators. Rather than just a percent increase applied to all charges, they could ask for charges for a sequence of care for people with the same condition, being treated in the same way over a period of time. It’s called “cohort capitation.” Besides smoothing the income stream over a period of time, the other benefit is that both quality and cost-efficiency results can be measured and applied to the next contract.
Don’t forget the time-honored payment method used by state or county-owned teaching hospitals–it’s just an annual budget. Of course those providers also take government patients and have to provide fee for service charges. Do you see an opportunity here?
Facile comments about payment just make the writer show himself to be uninformed.
Cheers…
Wanda J. Jones, President
New Century Healthcare Institute
San Francisco
Dear John,
I read somewhere that China doctors are paid to keep their patients well! And when they are not well, they are NOT paid. It’s an interesting idea on paper, but difficult to operate with in a practical sense. For instance, what is the definition of “well”? Also, what of the patient who continuously eats bad foods and doesn’t take normal precautions against colds, flu, accidents…what of his poor doctor then who cannot be paid for constantly attending him?
Of course, we have that now, don’t we? The numbers of people who don’t mind healthy habits.
Rick Lane
This from a guy who advocates for market based medicine which has never been shown to reduce costs?
Steve
John, I disagree with so many statements made in your Blog today that I don’t know where to start. First of all, you assume wrongly that CMS will know whether a supply side (Provider) proposal will result in flat or lower costs. Example: CMS assumes that Bundling of costs into one fixed fee will result in long term savings…again, wrong! Wanda Jones eloquently explains why it doesn’t work. The fact is that Bundling has never worked long term because the Providers (Supply side) always will figure out how to game the system. Hence the 1000+ DRG’s of today instead of the only 400 DRG’s back when the TEFRA program started. This is Gaming by the private sector hospital lobby – nothing more and nothing less. CMS thinks that adding more DRG’s for specificity purposes would solve the problem, but the private sector always wins – by necessity. The taxpayer loses because CMS has to hire more bureacrats to administer the ever expanding DRG system and any savings that do occur are overwhelmed by the extra adminsitrative costs. The Prospective Payment System that brought us DRG’s (via TEFRA) was probably the most sweeping and radical change in healthcare reimbursement that was ever conceived and achieved. It slowed down the growth in expenditures, but it hasn’t solved the problem. It is simply Bundling in a hospital environment.
Wanda also details very plainly why the fee for service system is best. The FFS system is critical as a starting point because it addresses the need for Providers to get paid at the time of service (or soon thereafter through a third party) for their time and expertise – just like the restaurant owner expects to be paid at the time of service for their food offerings.
Why do you continue to ignore the fact that Providers who group together in IPA’s and share risk with the Insurers save money and create healthier patients. The Harvard Business school and Harvard Medical school proved this fact beyond a shadow of a doubt in their 6 year comparison study of unmanaged traditional Medicare patients vs Medicare Advantage patients that was published in the December 2012 issue of Health Affairs. The results of their study: Care Coordination among IPA providers in a shared risk environment resulted in healthier patients and lots of cost savings.
Shared savings resulting from better outcomes does indeed work and should supplement the FFS system. P4P’s based on process measures and outcome measures also works when conceived properly by doctors; not administrators. Example; when IntegraNet experiences an ER admission from one of our managed members, we view this as a failure of our Care Coordination and Medical Home system. We hold the PCP and ourselves responsible for this failure. Ideally, there should be no ER visists or admission from our managed care population unless it is from an uncontrollable accident such as a car accident. Our admissions should ideally all be elective admissions that are planned in advance. I know, this sounds like “pie in eth sky”, but this is our goal. We fail every day, but we also are getting better every day. We work with our patients and with our doctors to create a better marriage between them. We expect our doctors to work with our patients to create healthier behaviors and better compliance, not just to treat their complaints. This is Medical Home based Care Coordination.
Let me share a recent encounter which illustrates what the healthcare ( or health insurance) market can do. The small group of providers with whom I work in a community health center serving largely Medicaid and the uninsured were recently feted ( lunchtime pizza and soda) by an orthopedic surgeon and his office manager.This surgeon is part of a large well known and well regarded orthopedic surgery group in a large Midwestern metropolitan area.
For those of you who miss the import of this note that highly paid specialist have not historically stooped to the marketing tactics of pharmaceutical firms.
Why? In a few words: cost sharing or deductibles, co-payments and co-insurance which is causing more and more employees and their families to start to pay real money for medical care. It is causing some to hesitate when it comes to expensive, non emergent care (such as orthopedic surgery). What, at least some surgeons ( and I suspect other expensive specialists) are noticing are cancelled operations, open OR schedules and underutilized surgery centers and patients who are asking more questions about the appropriateness and necessity and value of procedures.
While cost sharing isn’t the whole answer to the problems of cost and quality, my opinion is that it will have more of a positive impact than ACOs.
The chinese restaurant owner sets his pricing and business model based upon what he beleives will be successsful. If what he chooses does not generate customers, as an entrepreneur he will change or go out of business. So, it is the reality of losing customers that drives his prices and services, costs, convenience and quality to levels of efficency and market responsiveness.
Until healthcare providers risk the loss of patients they will not change to consumer responsive pricing or services. As long as hospitals are protected with certificate of need (CONs) that prevent competition, and physicians are protected by laws that prevent physician extenders from doing services that really don’t require and MD, the world will not change.
As long as CMS price fixes the market with CPT codes there will not be any price competition or creative services developed. Even commercial carriers base their negotiated prices off of a relationship to Medicare and use the CPT coding scheme for reimbursements.
Some third party reimbursement is inherent in any pooling of risks. The goal must be to minimize third party reimbursements, expanding coverage, and making the patient the customer rather than the insurer or employer or the government.
Obama care favors third party payment over consumerism by maximizing small group deductible to $2,000. This favors paying for services through premiums rather than savings.
If allowed and promoted by legislation account based plans (HRAs, HSAs) are a start, but the megatrend movement and expansion of “healthcare consumerism” will open the path to a more direct patient-provider relationship with financial incentives and information alignment within a more engaging system of health and healthcare.
Financial incentives for patinets and providers as we;; as “information therapy” can be built into any plan, not just account based plans.
Looking for Feedback.
Hi everybody. We have been working on a white paper on healthcare reform, arguing that we need to let the members of a group health plan take more control of the shape of the plan. We are interested in comments and feedback, both from people in healthcare and from consumers. If you have time and are interested in dry, academic subjects, please take the time to read the paper and send me your thoughts.
Thanks
Blake Ashby
http://cheatinghistory.com/?p=294