The Business of Health Care

Craig GarthwaiteThe Affordable Care Act is premised, at least in part, on the notion that competition can be harnessed to reduce healthcare costs and improve quality. This explains why insurance in the individual market has not been nationalized. Instead, consumers go to an online exchange where they customers can easily (at least in theory) compare plans offered by different firms. Unleashing competitive forces should result in lower premiums for these plans. And why not? Over the past two decades, competition has been one of the few success stories in the U.S. health economy. For example, when competition intensified in the 1990s, healthcare costs moderated. When competition weakened in the wake of provider mergers and the backlash to the narrow networks that were essential to cost containment, healthcare costs rose.

When most people think about the benefits of competition, they tend to think about prices. Monopolies charge high prices; competitors charge low prices. There is nothing wrong with this perspective, but it misses a more fundamental point. In the long run, the greatest benefit of competition is that it has the potential to fuel innovation. This is as true, in theory, for health insurers as it is for telecommunications and consumer electronics. It hasn’t always been true in practice; for several decades after the IRS made employer-sponsored health insurance tax deductible, insurers tended to offer the same costly indemnity products. But consumers eventually demanded lower premiums, and insurers responded with managed care. After the backlash, insurers developed high deductible health plans and value based insurance design. Insurers are now moving towards reference pricing. These plans offer consumers reimbursement up to a pre-specified level for treatments that can be easily broken into a treatment episode such as hip replacements or MRIs. Patients have the choice of any provider, but they bear the cost of choosing a more expensive facility.

High deductibles and reference pricing are fine, but do not always work in practice. Chronically ill patients quickly exhaust their deductibles, and reference pricing does not work well for chronic diseases. In order to complement these tactics, some insurers are once again offering narrow network plans. We commented in earlier blog posts that the ACA would catalyze the return of these narrow networks and also warned that this might fuel another backlash. Unfortunately, a recent New York Times article shows, the backlash is well underway.

Continue reading “Narrow Networking”

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farzad_mostashariToday, I’m launching a new company, called Aledade.

Aledade partners with independent primary care physicians to make it easy and inexpensive for them to form and join Accountable Care Organizations (ACO) in which doctors are paid to deliver the best care, not the most care.

This is good for patients who will find that their trusted primary care doctors are more available and better informed than ever before. It’s good for doctors who want to practice the best medicine possible, the way they always wanted to. It’s good for businesses and health plans looking for healthcare partners that deliver the highest possible value and outcomes. And it’s good for the country as higher quality, lower cost care will help lessen the strain on our budget and our economy.

The world of start-ups may not be the usual path for those leaving a senior federal post, but it’s the right decision.

For me, Health IT was never the “ends,” but a “means” to better health and better care, and I continue to believe that better data and technology is the key to a successful transformation of health care. And it is why the attempts to do so now can succeed, where they have failed before.

Empowering doctors on the frontlines of medicine with cutting edge technology that helps them understand and improve the health of all their patients- that is the mission of our new company, and one that has animated my entire career.  Continue reading “Launching Aledade”

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flying cadeuciiMeaningful Use and Pay for Performance – two of the most talked about programs in healthcare IT over the past several years. They are both based on the premise that if you want to drive behavior change among providers and improve quality of care, you need to offer financial rewards to get results.

But what about the consumer? We have now entered a new era in healthcare where the consumer is rightfully front and center – AHIP is even calling 2014 the “Year of the Consumer.” Payers, and other population health managers, who until recently viewed consumers as claims, now want to “engage,” “motivate” and “delight” them.

The challenge, however, is that we are giving consumers more responsibility, but not making them accountable for the quality of care they provide for themselves.

As a country we have spent tens of billions of dollars on Meaningful Use incentives and Pay for Performance programs for clinicians. Providers need to demonstrate they are making the best choices for patients, being efficient and coordinating care.

They need to educate patients and give them access to information based on the belief that if patients are informed, they will take responsibility and action. Unfortunately, this seems like a “Field of Dreams” spinoff – “If we say it, they will act.”

However, that movie has a different ending. The intentions are good, but the flaw is that consumers don’t simply need more information. They need personalized guidance and support, and they need to feel like they have a financial stake in the game.

So the big question is – why aren’t we spending more time thinking about how the concepts behind “meaningful use” and “pay for performance” could be used as a way to get consumers engaged in their health? Yes, clinicians are important as they direct approximately 80 percent of the healthcare spend in our “sick-care” health system.

However, what most people do not realize is that 75 percent of healthcare costs are driven by preventable conditions like heart disease and type-2 diabetes. And while some consumers may throw up their hands and blame genetics for the majority of their health issues, it’s a fact that 50 percent of what makes us healthy is under our control – as opposed to 20 percent for genetics.

So what if we made wearable technologies such as FitBit more “meaningful” for the consumer?  Instead of just tracking steps, what if consumers were financially rewarded for taking steps to improve their health (pun intended) through health premium reductions, copay waivers or even gift cards?

Consider a scenario where an individual who was identified as being pre-diabetic and then took action to prevent the onset of diabetes. What if we required that proactive person to pay less in premiums than someone who was not taking any initiative to improve their health? That would clearly be very motivating.

Continue reading “Should Health Consumers Be Paid for Performance Too?”

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Brian-KlepperOn Vox, the vivacious new topical news site, staffed in part by former writers at the Washington Post Wonk Blog, Sarah Kliff writes how Donald Berwick, MD, the recent former Administrator of the Centers for Medicare and Medicaid Services and the Founder of the prestigious Institute for Healthcare Improvement, has concluded that a single payer health system would answer many of the US’ health care woes.

Dr. Berwick is running for Governor of Massachusetts and this is an important plank of his platform. Of course, it is easy to show that single payer systems in other developed nations provide comparable or better quality care at about half the cost that we do in the US.

All else being equal, I might be inclined to agree with Dr. Berwick’s assessment. But the US is special in two ways that make a single payer system unlikely to produce anything but even higher health care costs than we already have.

First, it is very clear that the health care industry dominates our regulatory environment, so that nearlyevery law and rule is spun to the special rather than the common interest. In 2009, the year the ACA was formulated, health care organizations deployed 8 lobbyists for every member of Congress, and contributed an unprecedented $1.2 billion in campaign contributions in exchange for influence over the shape of the law.

This is largely why, while it sets out the path to some important goals, the ACA is so flawed.

Continue reading “Would a Single Payer System Be Good for America?”

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Robert PearlDespite the political angst, the doomsday predictions and a very rocky launch, the Affordable Care Act has enabled more than 8 million Americans to acquire insurance coverage through the public exchanges.

Health insurance increases the probability that patients will access the medical care they need. And my colleagues at Kaiser Permanente are already seeing some positive stories emerging as a result.

Beginning in 1978, Medicare beneficiaries had a second option. They could enroll in private Health Maintenance Organizations (HMOs) under a “risk contract” between CMS and the HMOs.

Continue reading “Medicare Advantage: Moving toward a Better Model for American Health Care”

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flying cadeuciiAs health care reform rolls out, there is a growing focus on restructuring the health service delivery system in the hope of improving health care quality and “bending the cost curve.”

A key part of this focus has been on physician organization and, in particular, moving toward large, multispecialty physician groups or hospital-physician systems that can provide integrated, coordinated patient care (e.g., through “Accountable Care Organizations”).

In a recent chapter in Advances in Health Care Management’s Annual Review of Health Care Management, however, we and our co-author Jeff Goldsmith find that there is little evidence for the superiority of these integrated models in terms of patient care quality or cost-savings, and that the trends toward physician consolidation has been much less dramatic than is often thought.

Using data from a variety of sources, we find there are two separate phenomena at work in physician organization. At one end of the spectrum (bottom tail of the size distribution of physician groups), the majority of physicians continue to practice in small groups, although there has been some movement from really small practices (one to three or four physicians) to slightly larger groups (five to nine physicians).

Still, nearly two-thirds of office-based physicians continue to practice in solo settings, two-person partnerships, and small (usually single specialty) groups with five or fewer physicians.

At the other end of the spectrum (upper tail of the distribution), however, is a smaller number of very large and rapidly growing multispecialty physician groups, which are often owned by hospitals, health plans, private equity firms, or other non-physician sponsors.

These two stories of what is happening in the distribution of physician group size are described as “a tale of two tails.”

Continue reading “What We’ve Learned from Horizontal and Vertical Integration of Physicians”

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flying cadeuciiIn September 2012, I said that Republican governors should be expanding their Medicaid programs under Obamacare.

I argued that Republicans have long called for state block grants and the flexibility to run their own Medicaid programs in what are the state “laboratories of democracy.”

I made the point that, given the then recent Supreme Court decision enabling states to opt out of the expansion, the Obama administration would be hard pressed to deny any reasonable proposal from Republican governors.

If Republicans really believed in state responsibility and flexibility for how they run their Medicaid programs, this was the opportunity to prove it. (See here.)

Since then, a few Republican governors have taken that tack and the Obama administration has been very cooperative and flexible.

This is a good place to recognize outgoing HHS Secretary Sebelius for her leadership by being willing to work with state Republicans in order to get millions of people covered who wouldn’t be getting coverage otherwise.

Good faith Republican Medicaid proposals have led to good faith responses from Sebelius’ Department of Health and Human Services (HHS) and a few done deals and other deals still in the works.

Many Republicans have said that Medicaid is not sustainable and that the feds could well cut the new Obamacare funding in future years. Sebelius responded by giving these governors an out if funding were to be cut.

Of course Medicaid is unsustainable, that’s why the states should be given the autonomy to run their own plans and deal with these challenges in any number of different ways the country can learn from.

Continue reading “Virginia Should Take Obamacare’s Money”

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flying cadeuciiIn ancient Athens, the philosopher Diogenes wandered the daylight markets holding a lantern, looking for what he termed, “an honest man.”

It seems since the dawn of the consumer economy that customers and buyers have traded most heavily on a single currency – trust.

Three millennia later, our financial system still hinges on the basic premise that the game is not rigged and any trusted intermediary is defined by a practitioner who puts his client’s interests ahead of his own.

Anyone responsible for procurement of healthcare may feel like a modern-day Diogenes as they wander an increasingly complex market in search of transparent partners and aligned interests. The art of managing medical costs will continue to be a zero-sum game where higher profit margins are achieved at the expense of uninformed purchasers.

It’s often in the shadowed areas of rules-based regulation and in between the fine print of complex financial arrangements that higher profits are made.

Are employers too disengaged and outmatched to manage their healthcare expenditures?

Are the myriad intermediaries that serve as their sentinels, administrators and care managers benefiting or getting hurt by our current system’s lack of transparency and its deficit of information?

Continue reading “ACA 101: An Employer’s Search for Objective Advice”

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Being against Obamacare has been the keystone, the capstone, the mighty sledgehammer, the massive metaphor of your choice for the right for five years now. They couldn’t stop it from being passed. They couldn’t stop it at the Supreme Court.

They weren’t able to choke it off by “defunding” it. They rejoiced at the rubber-meets-the-sky rollout of Healthcare.gov, but then the kinks got worked out of that.They railed at the administration using discretionary powers built into the law to help it work better. Every horror story of Obamacare ruining people’s lives they came up with turned out to be false.

Almost all of the people cynically cancelled by the insurance companies as a way to sell them more expensive insurance got insured again fairly quickly. Then 7 million people signed up on the exchanges, and altogether some 10 million formerly uninsured people now have medical coverage.

But the right still needs to call it a “train wreck.” The magic mantra has to work for them. Just this morning, here’s a Republican Congressman saying that we have to cut Food Stamps because: Obamacare. Say that again slowly?

It’s getting harder and harder on the right to come up with new ways to say it isn’t working when it actually seems to be working. I have to hand it to them, though: Those spin factories are filled with hard-working creative people. Get to work early, stay late, trash Obamacare. Hey, it’s a living.

So what’s the latest? This fall, Obamacare premiums are going to “skyrocket”!

Continue reading “Obamacare Premiums Are Going To “Skyrocket”? Forget About It.”

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A state the size of Vermont claiming savings of $120,000,000 through a patient-centered medical home (PCMH) program should raise eyebrows.

North Carolina made similar claims about its PCMH model, only to have the results so thoroughly debunked that consulting firm, Milliman, was forced to retract its key assertion.

I expect more from Vermont, if only because I’m a Democrat and Vermont has turned so “blue” that in 2008 John McCain received only 10,000 more votes than Calvin Coolidge garnered in 1924.  However, it turns out red states don’t have a monopoly on invalid PCMH data.

A brief summary of the Vermont Blueprint for Health, as described in the enabling legislation, would be: “a program for integrating a system of healthcare for patients, improving the health of the overall population…by promotion health maintenance, prevention, and care coordination and management.”

This is to be achieved by emphasizing the usual suspects — patient-centered medical homes and various support mechanisms for them.   The idea is to achieve “a reduction in avoidable acute care (emergency visits and inpatient admissions).”

Growth in participation has been phenomenal. In 2009, only a few practices and a dozen employees were involved, so we can call that the baseline year.  The report’s findings take us through 2012, by the end of which two-thirds of the state’s primary care practices (104) and population (423,000) were involved, along with 114 full-time employees.

The State’s Analysis

Through the end of 2012, the state — by using the classic fallacy (also embraced by the wellness industry) of comparing participants to non-participants — was able to show savings of $120,000,000 and a double-digit ROI.

Continue reading “More Evidence That Patient Centered Medical Homes Don’t Work”

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