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POLICY: Enthoven on the rational place for consumer choice in health care, and why CDHC is missing the point

It was a little while back that I heard a webinar from Michael Porter, and I described him as the next great business school professor to get lost in the health care quagmire. At Stanford Alain Enthoven has been stuck there for many, many years, (mind you, so am I!) but he at least has a deep and systemic understanding of how health care works, and how it could work better — even if he never enjoyed the satisfaction of seeing his ideas adopted on a national scale. You’ll recall that some of his ideas were at least partly behind the Clinton plan. (Incidentally Porter was pretty dismissive about Enthoven in the Q&A section of his talk). After I wrote my article (and another on Regina Herzlinger) I got some complimentary email from Enthoven, and I suspected that he wasn’t going to let the "consumer-directed" academics have it all their own way.

His response to Porter et al (with Laura Tollen from Kaiser Permanente’s Research Institute) is in an article at Health Affairs (free in its web only edition) called Competition In Health Care: It Takes Systems To Pursue Quality And Efficiency. What he does is to analyze what we need to do to create a rational market in health care, and then contrast that to Porter’s suggestions.

First up. Will high deductibles and personal HSAs really act as a market force on providers’ behavior?

Porter and Teisberg’s answer to these failings of the FFS indemnity system—“reasonable copays and large deductibles combined with medical savings accounts [that] would let patients take some financial responsibility for their choices”—is insufficient. Copays give patients some responsibility for the frequency with which they demand doctor visits but leave them insensitive to the costs of services provided during those visits. Deductibles aren’t a solution because health care expenses are concentrated among patients whose costs exceed reasonable deductibles. By most estimates, the most costly 30 percent of patients account for 90 percent of total health care spending.

This kind of insurance leaves patients cost-unconscious once they anticipate reaching the deductible or out-of-pocket spending limit. Coinsurance helps, but only to the point where limits on out-of-pocket spending—typical in most health insurance arrangements—are reached. Ironically, though, it is the very people who will exceed these limits (those who need expensive treatments) for whom Porter and Teisberg expect regional centers of excellence to compete on cost and quality.

Bingo.  Nothing more needs to be said, and I have never heard anything from the pro-HSA/personal account crowd explaining how to deal with that issue. Meanwhile despite the pro-consumer directed lobby’s idea that information is all that is needed it’s clear that information is necessary but not sufficient. Enthoven gives a couple of examples of why incentive change is needed for the information availability to work:

First, the most high-profile CABG patient in the nation—former President Bill Clinton—chose to undergo this procedure at New York–Presbyterian Hospital/Columbia University Medical Center in 2004, although this hospital ranked twenty-second in risk-adjusted CABG mortality rates among thirty-six hospitals performing the procedure in the state. In a more disappointing example, the Pennsylvania Health Care Cost Containment Council published a consumer guide to CABG surgery with risk-adjusted mortality data. In a random sample of 50 percent of Pennsylvania cardiologists, 87 percent said that the guide had little or no influence on their referral recommendations.If referring cardiologists do not use this information, it is unlikely that patients will. Although it is important to provide this kind of information, much more work must be done to make it useable for patients.

And then there’s the key issue of how to manage the chronically ill — the ones who we spend 70% of the money on — using care coordination between providers.

Under a completely free-choice model such as that of Porter and Teisberg, a patient with diabetes would seek out the best providers for diabetes, and a patient with congestive heart failure would do similarly. Putting aside doubts that ill patients will regularly travel far from home to centers of excellence, the problem remains: Many patients have multiple chronic conditions. In addition, people with chronic illnesses also need primary care. It simply cannot be good medicine for people with multiple chronic diseases to receive primary care and care for each of their conditions in separate locations, with different sets of doctors who don’t communicate regularly about the patient.To be fair, under the provider-level competitive model, one could imagine regional specialty centers that treat a variety of conditions that often coexist with one another (for example, the diabetes center would include experts in hypertension and heart disease). However, this raises the question of whether there are natural limits to the expansion of that expertise that stop short of a fully integrated delivery system. We do not think so.

Enthoven has me convinced that structured provider systems with virtual or real integration and their incentives alignment to produce the best care at a defined price per capita are the best way to deliver medical care to populations. That was the original goal of the HMO movement, even though it was destroyed when the HMO went from being a real organization to being just another insurance product for benefits consultants to sell. So why did this all get thrown out with the bathwater in the managed care backlash? Enthoven again gives the right answer, and this is confirmed by survey data from Harris that I was using at the time in the mid-1990s.  People wanted a choice, and when they were forced from free-to-them open access to managed care plans that used the same doctors but paid them less and pissed them off (the doctors that is), they didn’t like it. My doctor use to call PruCare (Prudential’s HMO "ZooCare") and I’m sure his patients noticed.  Enthoven is correct when he explains the consequences this way.

Conventional wisdom now has it that people don’t like managed care. The more nuanced truth is that they don’t choose managed care when their employers pay practically the full premium of whatever they choose. Then, there is little to be gained financially by accepting a limited provider network. In contrast, when employers pay a fixed-dollar amount and each employee can keep the full savings, experience shows that high percentages of employees choose economical care. For example, 70–80 percent of active employees and dependents covered by the University of California, CalPERS, and Wells Fargo in California choose HMOs.Another reason markets have not produced competition among IDSs is the widespread employer practice of offering only one insurance carrier, which, in turn, offers only one delivery system (although this is changing; see the discussion of tiered networks below). Seventy-seven percent of insured employees are offered only a single carrier.

So you can get consumers to make a choice within the context of real differences in the insurance product that they buy. But in a world where that’s going to work you really need to have organizations affiliated with the insurers that can actually manage the kind of team-based, guideline-driven medical care that is needed.

For a delivery system to market its superior efficiency, it usually needs to be affiliated with its own or a partner carrier. Thus, offering different carriers is a necessary but not sufficient condition for competition among delivery systems. Ten carriers all offering every FFS doctor in town is not competition, nor is one carrier offering three plan designs (HMO, PPO, point of service), all using the same doctors. Competition to serve whole employer groups on a single-carrier basis has historically resulted in all-inclusive networks. But for these to be effective, carriers must select providers based on quality, efficiency, and willingness to work in teams and with evidence-based guidelines. However, people want to choose their own doctors. In a world of competitive delivery system–based managed care, therefore, people must have a choice among managed care organizations as well as “unmanaged care”—if they are willing to pay the excess cost

In other words there needs to be a cooperative arrangement between payer and provider, and probably an exclusive one too. Sadly for all of us, that only appears to exist here in communities and states where there’s a long history of it (e.g. urban areas of California, Minnesota and Seattle). Otherwise managed care is the same gong show as FFS, with the money going to different places (insurance executives rather than specialist physicians).

Of course the overall problem that I fear Enthoven has shrunk away from over the years is that creating this kind of an incentive structure means creating an environment where consumers/employees/enrollees pay for membership of a system, and have the tools to judge whether that system is worth the extra money they need to pay for it at an open enrollment period. To my mind that really necessitates putting all small and medium businesses into a buying pool, And not just that. But now you need to know a little about buying pools, and I’ll use an example that I know well. Me.

I’m in a buying pool that called PacAdvantage, and it gets me a high deductible "non-system" plan from Blue Shield for about $200 a month; if I bought that same plan via eHealthinsurance.com it would be about $80 a month, until Blue Shield notices (as it did) that I had had knee surgery a few years back and was probably going to have knee problems again, and the price went up to over $400 a month. Of course for that price I could probably buy into an HMO with better coverage if it wasn’t using underwriting, but then again I probably wont use $400 a month’s worth of care (unless I have more knee surgery) so what would be the point?

What’s behind all my quibbling?  In the buying pool get a huge choice of benefit packages, and I will tailor the one I want to my situation. If I can get a better deal outside the pool I’ll take it. So inevitably the pools/buying groups will attract the sicker people (i.e. those who think they will have high health costs) and the healthier ones will take their chance on the individual market and increasingly on high-deductible plans, perhaps with an HSA attached. And of course those high-deductible plans won’t let in anyone who may be sick.  (Our good buddy Ron’s latest commercials which he sent me all state clearly that "medical underwriting is required")

So we have to bite the bullet here. If this is going to work to create the level playing field for integrated provider systems to compete on everyone has to to in a buying pool of some type, and the buying pools must offer the same benefits package. There must also be (as Enthoven mentions in the Oregon BENU pool) real-risk adjustment between the insurers so that they are dealing with the same level of acuity in the population. If that were to happen, and people were to choose their IDS (and plan which would be essentially the same thing) based on a combination of value for money and what trusted authorities (not that they exist here yet) say about their ability to deliver the co-ordinated, cost-effective, informed and evidence-based care that Enthoven’s talking about, then you’d slowly see a market driven alignment of providers to serve that outcome.

We are of course miles away from that outcome, and let’s not beat around the bush here. That arrangement is so close to a single payer universal insurance system that its opponents are able to tar it with the same brush. Enthoven objected to the Clinton plan mostly because it put Medicaid into its big buying pools. But, in the end, everyone has to go into them if this system is going to work–it cant be restricted just to the small business part of the commercial population and "everyone" includes Medicaid, Medicare, the uninsured and everyone else apart from possibly big businesses and the very wealthy. And that is of course how it’s done in Japan, Germany, and most other countries that use this type of a group approach to buying health care (And by the way their governments all also regulate price and provider supply).

And this intellectual "big tent" isn’t so crazy. After all it’s only in the UK where Enthoven’s ideas have ever been implemented at a policy level, and they were moving away from pure global budgeting single payer to an "internal market". Policy wise the "voucher/buying pool" group and the single payer group are so much more aligned than the other side, which really doesn’t give a rat’s arse about care quality or universal coverage. So given that the non-sense of Porter, Herzlinger and the Galen crowd is in the ascendancy, even if it doesn’t cure any of our fundamental problems and probably makes them worse, can we get Alain over to join in a truce between the "voucher" crowd and the "single payer" crowd.

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Matthew HolttheorajonesRon GreinerAbbyBob Recent comment authors
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Ron Greiner
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Ron Greiner

Wrong again Matthew, I have clients that are 64 years old paying less than $200 a month for insurance that pays 100%, including Rx, after the deductible. It is you Matthew that supports cherry picking. Your clients simple put to COBRA their sick insured who can’t work for insurance termination. That’s what I call cherry picking. It is true I’m in the underage market but tax free HSAs will be in Medicare soon Matthew, you know that. It’s much different than your article that consumer directed health care is missing the point. You can make the underage market sound bad,… Read more »

Matthew Holt
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Bob–you should undestand that this problem is concetrated in those who have already blown through their deductibles and max out of pockets. It’s not about getting people to avoid the doctor visit. It’s about limiting the spending on the very sick and getting that to adhere to what is (to the best of our knowledge) evidence based medicine. This is especially the case in older and sicker populations — particularly the ones that group health plans will be covering (as our pal Ron picks off the younger healthier ones).

Bob
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Bob

Theora posted “Consumers start out brain dead with regard to medical services. You’re suggesting that if we make them pay the financial costs of care more directly, they will semi-magically know what is a smart thing to do and what isn’t a smart thing to do in order to get better. This is because, apparently, you think the incentives are wrong–people will spend on frivolous healthcare because it doesn’t cost them anything. But um, that’s just flat wrong” – – – – I am giving the consumer more credit than you, and I disagree that they are totally brain dead.… Read more »

Eric Novack
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Matthew- you have never called me beautifully anything… Theora- as has been pointed out by our host on many occasions on this site, the affordable choice often has the same outcome as the expensive one… It is worth noting your comment about emergency rooms and ob/gyn losing money. That is certainly not the case— otherwise, why would all the hospitals around Phoenix be paying for unbelievable upgrades to their labor and delivery areas– making them look more like the Marriott? Also, the emergency department is the main source of admissions for many hospitals– thus income. And- while technically emergency department… Read more »

Ron Greiner
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Ron Greiner

Don’t worry about me Matthew, I’ll be gone in a minute. Then nobody will argue with liberal comments except Dr. Novack, and he is way too nice.
“Auschwitz was a public, government-run enterprise.”

Matthew Holt
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I’m thinking of imposing a word count limit in comments!

Ron Greiner
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Ron Greiner

theorajones, You wrote,//”You don’t buy health insurance with money, you bye [sic] it with good health.” Fascinating sort of product whose selling point is that it only works well for the people who don’t actually intend to use it.// My friend with bone cancer, who can’t work anymore, had no idea he was going to be diagnosed. Insurance pays for an unforseen claim or expense. With your bias you could say that nobody needs auto insurance because nobody is expecting to have an accident. Of course you say this is all backed up by the Rand study, which of course… Read more »

Matthew Holt
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Response to commenters Eric has some intersting points that I will jump into next week, but although he doesn’t mean it that way, the lack of EBM has been taken as a indication to do whatever they like by doctors. Bob is correct. Adverse selection is rife in voluntary pools, that’s why they should be large and IN-voluntary. I don’t know if Bob has made that logical leap. Ron–what are you talking about? Your own ads that you sent me said “medical underwriting required” and the policies you sell cut in at $2600 of spending per individual. It’s the spending… Read more »

theorajones
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theorajones

“You don’t buy health insurance with money, you bye [sic] it with good health.” Fascinating sort of product whose selling point is that it only works well for the people who don’t actually intend to use it. “Specialty hospitals and surgery centers do have costs that are, on average, about 30% less than general hospitals for similar care– why? efficiency.” Really? I thought it was also because they didn’t have money-losing services like ERs or OB/GYN, and because they focused their service delivery on patients’ ability to pay. That’s not efficiency–that’s free riding. “once a consumer it taken out of… Read more »

Ron Greiner
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Ron Greiner

Well said. I never “bother” my wife with the spew that people say here, except Matthew, rarely, because he’s pretty good. But, I broke into what she was doing and said, “Read this. This guy is pretty smart.” Then I gave her Bob’s comment above. She read it and said, “Consumers go brain dead when someone else is paying the bill, boy, he’s right there.” I can see Bob said a whole lot more than just that. So Bob, you do know what you are doing, that’s refreshing. Bob wrote, //” As long as those premiums are sufficient to cover… Read more »

Abby
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Abby

I’m going to have to digest this a bit more, but I do have a couple of preliminary thoughts. I liked Porter and Teisberg’s argument in favor of no-balance billing. It may be that patients are less price-sensitive when they’re no longer on the hook, but I don’t think that people who are wheeled into the operating room for an emergency bypass are particularly price sensitive anyway. (When your doctor tells you that you’ll die if you don’t get the surgery, you get the surgery.) And coming home from the hospital with expensive and difficult-to-decode bills doesn’t speed your recovery.… Read more »

Bob
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Bob

Several points, just hitting the high spots . . . With any plan, not just HDHP’s, once a consumer it taken out of the loop financially they become brain dead with regard to medical services. Doesn’t matter if you are talking about a $20 office copay, or 100% coverage above the deductible (or so-called “stop loss” point), the results are the same. If someone else (read the carrier) is paying the tab the consumer no longer cares how much it costs, just do it. Your (Matthew) example of choosing the PacAdvantage plan over an individually underwritten plan is an example… Read more »

Eric Novack
Guest

Matthew- well written, even if I do not agree. I ask again for an explanation about “risk-pooling” in home and auto and life insurance. Please tell me how an individual insurance market can function in those areas? If Kaiser in CA or Group Health in Seattle can actually prove better outcomes- please let me know. Specialty hospitals and surgery centers do have costs that are, on average, about 30% less than general hospitals for similar care– why? efficiency. If there was evidence that these hospitals had worse or objectively inferior outcomes, we would read about it here and elsewhere. More… Read more »