Sunday, May 23, 2010

A Step Towards Global Payment

There is a growing consensus that somehow our current fee-for-service system of financing health care is an important cause of high cost and needs to be replaced.

Under fee-for-service, providers get paid for each office visit, lab test, x-ray, hospital admission, etc. So the more they do, the more they get paid. It is generally believed that this incentive causes providers to increase the cost of health care by providing more services than are medically justifiable. The incentive effect is magnified by the unique economic arrangement in health care, whereby most purchasing decisions are made by providers (doctors) rather than by customers (patients).

The only alternative to fee-for-service that has been identified is global payment, which comes in two forms.

One is to pay a flat fee for an episode of care like treating a patient who has had a heart attack or who receives a total hip replacement. The idea here is that with a flat fee, providers will want to maximize profit by reducing the cost of the care provided. This arrangement has been used for years by Medicare Part A which pays hospitals a predetermined amount for each admission rather than for individual services. When the plan was introduced in the 1980’s, the swift reduction in the length of hospital stays convinced many that the incentive was effective. Consideration is being given to expanding this plan by “bundling” under a single fee the physician and hospital services as well as the related outpatient care provided before and after the admission.

The other form is capitation, in which the provider provides all of the health care services patients need in return for a predetermined monthly fee per patient. HMO’s are examples of this arrangement. The incentive to do more under fee-for-service is reversed under capitation since the amount of income remains the same regardless of the amount of service provided.

There are three main barriers standing in the way of implementing capitation on a wide scale.

One is the concern that patients will not be given all of the care they need and that care will be “rationed.” While there was lots of talk about this during the managed care era of the 1990’s when the capitation method of payment was widely employed, there is little evidence that patients were harmed and reason to believe that they may have benefitted by avoiding the risks associated with unnecessary treatments.

Another is restriction on choice of physician. Providers who accept capitation will have to live within fixed budgets. They will therefore need to create provider networks over which they have some control and require their patients to obtain their care from the providers who make up those networks.

A third is the need to consolidate hospitals and doctors into unified, centrally managed organizational entities. Providers that live within a pre-determined and fixed budget will have to manage their money and will not be able to tolerate unregulated decisions that have financial consequences. The medical profession has fought for years to preserve its independence from corporate oversight, but their position cannot prevail in the context of global payment.

These things need to be talked about and so I was pleased to see the Op-Ed piece by Joanna Weiss in the May 18 issue of The Boston Globe. Her main theme was that health care providers often profit from their own misdeeds, such as collecting fees for treating conditions caused by their own preventable medical errors. But later on she reported on Intermountain Healthcare, a Utah-based integrated healthcare system that is financed in part by global payments. Of the three barriers identified above, she mentioned only one – rationing.

So her discussion of global payment was incomplete, but it’s a step in that direction.

Sunday, May 16, 2010

Don Berwick and the Cost of Health Care

Don Berwick, Harvard pediatrician and founding executive of the Institute for Healthcare Improvement, has been nominated by President Obama to head the Centers for Medicare and Medicaid Services (CMMS). As its name implies, CMMS is the federal agency in charge of Medicare and Medicaid.

Republicans are already taking aim at the nomination, alleging that Berwick favors rationing of health services. The Berwick appointment requires the advice and consent of the Senate and assumption is that Republicans will use its nomination hearings to renew the debate on health care reform; a strategy they believe will help them in the fall elections.

However politically motivated the Republican attacks, they may have the effect of re-opening the debate on health care costs. Recently, we saw the first skirmish of that debate in the context of health reform legislation, but all parties to it quickly left the field in favor of a focus on health insurance.

In a perfect world, health care costs would be brought under control by eliminating unnecessary services, improving operating efficiency and devising new methods of providing care, all in ways that doctors and patients would find acceptable. But it is not a perfect world and so the measures that end up being taken will leave some people actually worse off and others thinking they are.

So we need to get the issue out in the open and have it out. If the Republicans end up doing that in the Berwick nomination hearings, they will serve a useful purpose, whatever their motivation.

Tuesday, May 04, 2010

Cost Still Not of Concern

The recently enacted health insurance reform law will increase the overall cost of health care more than was implied by the Obama administration during the legislative debate.

That is the conclusion of the chief Medicare actuary, Richard S. Foster, as reported in the April 24 issue of The New York Times. His study indicated that a result of the law would be to increase national spending for health care by $311 billion during the period 2010 to 2019.

The administration did not directly claim otherwise during the debate, but left a different impression by saying that the provisions of the law would “bring down health care costs for families and businesses and governments.” It may be true that the cost per covered person will be lower under the new law than it otherwise would have been, but the total cost will be higher because more people will have coverage. So the nation’s health care bill will go up.

None of that came as a surprise. Politicians are notorious for understating the cost of the programs they promote.

What was noteworthy in my mind was that the story in NYT was on page 8 of its Saturday edition. What that says to me is that cost is still not an issue of significant public concern, despite its threat to the financial stability of the nation.

One of the unintended consequences of health insurance is the separation of patients from the cost of care. What insured patients are aware of is the cost of insurance, which they blame on the insurance company, not on the providers who end up with the lion’s share of the insurance premiums the patients pay.

It means to me that our leadership, in and out of government, has a formidable challenge when it comes to convincing people that the cost of health care is a serious problem which we must deal with, even if it means some unpleasant inconvenience.

Sunday, May 02, 2010

Breaking Up Partners

The Massachusetts General Hospital and Brigham and Women’s Hospital, both Harvard affiliated, are the health care power houses of Boston. In 1994 they merged to become Partners HealthCare.

In the Boston area, it is very difficult to sell a health insurance policy that does not cover services from MGH and the Brigham, which are thought of as being at the pinnacle of modern medicine. However, it might be possible to sell a policy that provided access to one of them, thus giving insurance companies the possibility of bargaining for terms by playing them off against each other.

The threat of that happening is the factor commonly given credit for the two proud, renowned, and fiercely independent hospitals deciding to merge. It is not what the hospitals said at the time, but is what most knowledgeable people believe.

If that supposition is correct, the strategy worked magnificently – not only in preventing competition, but in creating a healthcare juggernaut so formidable that it has been able to extract premium payment rates from health insurance companies doing business in Massachusetts. There being quite active competition among those companies, and Partners being a provider each must have in order to sell insurance, Partners has been able to demand and get that premium.

Now that Massachusetts has gone for universal coverage, cost is becoming an issue. The premium payments being extracted by Partners from insurance companies have been featured recently in several stories in The Boston Globe with the implication that those payments are contributing to the cost problem.

Now the feds are getting interested. The April 29t issue of The Boston Globe reported that the US Department of Justice has requested information and documents from Partners on “contracting and other practices in health care markets in Eastern Massachusetts” – in effect opening an anti-trust investigation.

The merger that created Partners has quite clearly contributed to the high cost of health care in Massachusetts. It should never have been allowed to happen and ought to be undone.

MGH and the Brigham are remarkable institutions. The concentration of raw brainpower within each of them is unsurpassed anywhere in the medical world. If competition between them caused only a fraction of that talent to be devoted to finding better and less expensive ways to provide health care, one can imagine a flood of innovation that would spread throughout the country and the world at large.

If the Obama administration were to break up Partners, the contribution to health care reform in America could be larger than that of the entire 2,000 page reform bill recently enacted.

This page is powered by Blogger. Isn't yours?

FREE counter and Web statistics from sitetracker.com