Monday, July 13, 2009

The DMCB Enters the Health Care Affordability Model Debate (and ponders the role of health insurance in controlling costs)

There's been considerable bloggery over Robert Laszewski’s post on how to control health care costs with a ‘Health Care Affordability Model’ (HCAM). While the Disease Management Care Blog likes to imagine the inhabitants of Greater Blogistan's postings really do actually influence national policy, the DMCB thinks the bigger lesson here is what the reactions of the commentariat (here and here and here and here and here) teach us about how health insurers are generally viewed.

Briefly, Mr Laszewski would make health insurers responsible for controlling healthcare cost inflation under the threat of losing their federal tax qualification. Health plans would be obliged to meet actuarially predetermined cost targets that are based on the growth of the gross domestic product (GDP). Targets would be established by a ‘Health Care Actuarial Certification Board’ within the Department of Commerce. What’s more, there would be State ‘sub-Boards.’ He believes this can be part of any health reform legislation currently before Congress. Mr. Laszewski would like to phase this in over three years.

The DMCB agrees with the politically astute prognosis from Dr. Millenson: the likelihood that this will be included in the legislative sausage-making process is about the same as a U.S. Senator ever having to remit a co-pay for a medical service. What's important however, is that Mr. Laszewski et al's proposal is based on the idea that health plans are not only responsible for spiraling health care costs but they also somehow have control over them.

They mostly aren't and they really don’t.

Commercial health plans’ benefits, premiums, capital requirements, enrollee communications, provider networks and ultimately surpluses are all already tightly regulated by State Departments of Insurance. Most well run employer sponsored plans are run as if they are tightly regulated. While they can command large discounts from hospitals and doctors, the yeild from that strategy was used up long ago. Instead, insurers are ultimately just a means to pool risk. The price of that risk is increasing, not because of the insurers, but because of external cost drivers that include (but are not limited to) pricier technology, dysfunctional fee for service incentives and an increasing burden of chronic illness. In other words, they collect actuarially defined premiums, pay the bills and pass all the costs plus a small margin (that varies from year to year in the underwriting cycle) to the consumer.

When the DMCB says they mostly aren't responsible, that doesn't mean insurers don't have a role to play in defining a benefit that promotes quality and fulfilling a fiduciary duty to their enrollees. All that, however, is at the margins. The truth is that the managed care backlash defanged the insurers over a decade ago.

If they were given their fangs back, they’d probably turn to leveraging a selective network of high efficiency providers (tiered networks including the option of excluding hospitals and physicians that cost too much), denying payments on the basis of suspect medical necessity (for example, low risk prostate cancer, coronary stents for angina or treatments for colorectal cancer and that’s just for starters) and ‘steering’ patients toward the cheapest alternative when all else is equal (for example, medications for diabetes mellitus). Health plans can't do this today because elected representatives, regulators and the public don't trust them to do this right. We still have the Sicko hangover and insurers behaving badly. It's less a matter of comparative effectiveness research (CER) and more a matter of policy.

By the way, the DMCB thinks there are many health plans that could, in aggregate, do this right. They're generally smaller, not-for-profit with effective Boards and meaningful consumer input. They're generally not centrally-controlled public and behemoth plans. Some entity somewhere is going to have to start using the terms 'no,' 'not covered' and 'denied' in earnest. Whether it's based on CER (we 'know' drugs and exercise beat invasive heart procedures) or common sense (whoa, how much for a cancer treatment designed to extend life by 4 months?) it's going to need to happen sooner or later.

The DMCB likes to imagine Congress will get health reform right. It daydreams about the income potential of its blog. HCAM without the means to back it up shares in the same level of unreality.


SteveH said...

Just a brief background. I became interested in healthcare some 36 years ago when my father was researching his dissertation on hospital cost inflation. His research then has since been eclipsed by fundamental changes in how healthcare is now delivered but a central point that still seems true is that hospitals compete not for patients but for physician services and that relationship seems to be part of the disconnect from consumer directed care in the face of a physician prescribed good. It certainly explains the providers seeming indifference to the patient and viewing the patient as an ATM. Certainly this is a result of fee for service payment regimes to which moral hazard can attach. Christenssen in his recent book points to the solution as being one where integrated capitation health networks paired with HSAs and high deductible catastrophic health insurance can begin to bring focus back to the patient and provide an opportunity for incentives for wellness. But implementation requires that current methods of delivering care must radically change. Somebody has to get hurt in such a change.

The focus now in Washington on shuffling payment dollars around with lip service and hand waving about reform is not going to control costs. There seems to be a reluctance to address fee for service. It appears everyone wants to offend the insurance companies but no one wants to offend the providers. Well, real reform requires offending everyone. The role of government seems to me to be to provide the market incentives and regulatory framework to allow the private sector to solve the problem. If physicians are salaried professionals then fee for service is no longer an issue and outcomes become more important. But hospitals must also change. Perhaps along the lines of Kaiser, The Cleveland Clinc or the Mayo Clinic all three examples of integrated capitation.

Currently I am pessimistic and don't see much in real reform going on in Washington.

Jaan Sidorov said...

Hi Steve:

All great points. Maybe one 'reality check' gauge of Congress' health reform proposals is the hue and cry from the various stakeholders. Unless they are really upset, we'll know it truly is lip service and hand waving.

I couldn't agree more about the advantages of Mayo and Kaiser, but getting from here (50% of health care is embedded in small physician owned practices that are not subject to an eminent domain style government grab) to there is a thorny challenge.

What do you think about ACOs? Should we even bother with pilots?


SteveH said...


HR 3200 has an ACO pilot program. And Medicare Advantage is an active ACO. I would say that other organizing rationales used by Mayo, Kaiser, Cleveland Clinic and others approach the goals of an ACO. The fact that HR3200 has this pilot program to assess effectiveness is hopeful but I am skeptical of how the rules will be promulgated and enforced. I am not an expert, just a citizen who is interested in fixing the problem. The substantive parts of the bill seem to be just shuffling dollars around and raising taxes and cutting some benefits while increasing others. CBO has scored the bill with a net impact on the federal deficit of only about $300 billion total over 9 years. This is not a horrible outcome for a complex bill and certainly much less on a net basis than I anticipated. But the additional $1 trillion of spending by the federal government over this same period will somewhat distort private investment and consumption. Some individuals will have a windfall while others will pay still more in taxes.

Christensen in his recent book on innovation in healthcare considers the electronic medical record key to making an ACO work. But I have not finished reading it yet.

HR 3200 ACO pilot has incentives built in but my question is why if Kaiser and Cleveland Clinic and Mayo already do this without incentives from the government why do we need pilot programs in the first place don't we know this already works?

As a side note I recently pored over my mother-in-laws hospital bill and discovered in the chargemaster a series of charges for self-administered medications that totaled for two 4 day hospitalizations $7000. Uwe Reinhardt and Christensen and many others have noted the disconnect between chargemaster prices and costs and the variability of pricing across hospitals. This seems to point to a lack of true cost accounting (something that Cleveland Clinic has implemented). Until these problems with prices are solved then we are stuck have this bizzare market with monopolists and monopsonists which have failed to align prices with costs.