Quantifying and pricing ‘risk’ is what insurance is all about. This intellectual achievement is described in Peter Bernstein’s marvelously written Against the Gods, the Remarkable Story of Risk. He describes how the business of risk really took off in England in the 1600s when shippers were willing to pay for financial protection against the unlikely but real possibility that a storm or other mishap would result in the expensive loss of a ship and all its cargo. The individuals willing to write their signature under the contract terms (hence ‘under’ ‘writers’) were shrewd businessmen who made a tidy profit by ‘pooling’ the payments (otherwise known as premiums) for multiple risks across many shippers for a defined period of time. Pooling (known as the law of large numbers) made the average risk narrowly quantifiable (‘X’ ships were known to go down every Y months) and bearable (a larger number of shippers paying the underwriter resulted in a ‘pool’ of money that was available pay for the one or two ships that would go down and later be used as props for the movie the Little Mermaid).
In the 400 years since then, ship insurance has been expanded to cover practically anything, including the risk of becoming sick. This is a great concept for the average consumer because the premium we pay today is far more tolerable than the individual risk of bankruptcy from a tumor, ulcer or a heart attack. As an aside, it's a powerful social good that warrants the oversight of a Department of Insurance in every state in the U.S.
On the other hand, consumers may find notions of retail to be much simpler. In this system, the insurance middleman is cut out. Goods and services can be packaged according to the market-based laws of supply and demand. Shippers and patients can shop and barter for the best service at the best price. Yet, when illness strikes, the market fails: quality and price are not transparent and there often is no time to make a good decision.
Of course, it’s not all black and white. Risk and retail are often mixed. Insurers feel they are being victimized by retail-style demand, while valuable retail health care is getting tired of being viewed as a cost by the insurer. While the insurer wants the best value for their dollar once they have to pay on a loss, it is still a loss.
Why is this important? In the opinion of the DMCB, the policy debate over many of the thorny issues surrounding the delivery of primary care services for the chronically ill have muddled the notions of risk and retail. On one side, altering the delivery of primary care with disease management support, chronic care model re-engineering, pay for performance or information technology is supposed to “pay for itself” thanks to the downstream mitigation of risk. On the retail side, these same services are supposed to increase efficiency (lower the price) or quality (at the same or higher price) or both, leading to a great deal for the consumer (and, by the way, a retail-based resuscitation of primary care). But it doesn’t stop there: most supporters of each of these primary care initiatives argue their merits lay in both risk and retail. As will be seen below, the difference is in what gets emphasized.
Unfortunately, the DMCB agrees the peer-review evidence of risk mitigation is inconclusive, making many underwriters leery about reducing the premium they charge consumers for the risk just because there’s disease management, a medical home, P4P or an electronic medical record (EMR). That leeriness is particularly understandable, because when you think about it, underwriters aren’t being asked to reduce the premium, they’re being asked to keep the premium at the same level and give a percent of it to support disease management, a medical home, P4P or an EMR.
The DMCB points out that while the ‘return on investment’ evidence may be less than perfect, the case for retail has gone mostly ignored and is probably weaker. ‘Concierge medicine’ and ‘minute clinics’ outside of chronic illness may provide some lessons, but to my knowledge no one has tested whether consumers with diabetes or heart failure would be willing to personally pay for remote coaching, the medical home, a lower A1c or an EMR-enabled practice. In the experience of the DMCB, patients want it if someone else pays for it.
So why so much blog? Because the DMCB believes the risk-retail distinction is less important in chronic illness care because the United States has already decided that risk beats retail. Like it or not, the vehicle for managing the expense of chronic illness care is not a financing issue, it’s predominantly an insurance issue:
- Pooling risk remains a powerful if imperfect methodology for making all illness care affordable, including chronic illness.
- It’s unlikely that much of a ‘retail space’ will be carved out just for chronic illness.
- The three remaining candidates for U.S. president and their allies in Congress are emphasizing insurance-based mechanisms in their campaign promises.
In the opinion of the DMCB, this landscape is why disease management has achieved much of its success. While there are retail virtues, its supporters have emphasized its ability to mitigate risk in the commercial insurance sector by: 1) presenting credible if imperfect evidence of risk reduction not only in the peer review literature but in its proprietary business dealings, and 2) has been willing to accept financial performance guarantees (a.k.a risk transfer), in essence rebating a portion of its fees if too many 'ships' end up in the emergency room. In contrast, supporters of the medical home, P4P or EMR have even less to show in terms of proof of savings and are unlikely to even give the money back if things don’t work out.
This has important lessons for supporters of the medical home, physician P4P and office-based EMR. Among the reasons why uptake has not been as widespread as disease management is because in an insurance dominated world where risk beats retail, their emphasis on the ‘retail’ dimensions represents cost to the insurer and hasn’t gained much retail support from consumers.
The DMCB asks if they will be come to terms with the world of insurance and the risk-based 'coin of the realm?' Be able to demonstrate a beneficial impact on insuring the risk of persons with chronic illness? Provide performance guarantees? They will, once the struggle to define their role begins with understanding the role of risk in caring for persons with chronic illness.