The Road from McAllen to El Paso

Head Shot Dr. Harold S LuftDr. Atul Gawande has provided a chilling description of the problems facing true health reform in his  recent New Yorker article.  In  The Cost Conundrum he describes how medical care is provided in McAllen, Texas, which is second only to Miami as the most expensive healthcare market in the country. McAllen’s per capita expenditures are twice those in El Paso, Texas, a city with similar demographics.

There are no good reasons for the differences. McAllen’s population isn’t demonstrably sicker and the care isn’t measurably better.  There is also little understanding among the participants about what causes the higher spending. What is chilling is how easy the medical care environment in El Paso could become like McAllen’s.

Gawande refers to the accountable care organization (ACO) concept proposed by Elliott Fisher and colleagues at Dartmouth University. They propose that physicians whose practices are focused around a specific hospital be given incentives to lower the overall costs of patient care.

Payer Costs are Provider Revenues

The ACO has merit as a goal, but the challenge is in forming them.  Getting very intelligent people such as physicians and hospital administrators to change their behaviors, especially if such changes may reduce their income, will be difficult. We need ways to encourage voluntary participation of both physicians providing care in the hospital and those who decide who should be hospitalized.

The Dartmouth data show that in areas like McAllen, there is much more interventional work, such as tests, procedures and admissions, than in areas like El Paso.  With more access to, and time with, primary care physicians there is less need for interventional work.  This means redistributing resources from the interventionists to primary care clinicians.

It is hard to imagine a new ACO with interventionists and primary care physicians achieving this redistribution.  The interventionists often wield scalpels and have a ready ally in the hospital that depends on them to keep beds filled.The Answer Lies in Separation, Not Amalgamation

Interventionists should partner with the facility in which they do most of their work. Elsewhere, I describe these new care delivery teams (CDTs) that are effectively the inpatient side of Fisher’s ACOs.  CDTs would be voluntary associations of a facility (usually a hospital) and those physicians whose work depends on the facility.

Unlike Fisher’s ACO, the CDT specifically excludes office-based physicians responsible for the ongoing treatment of patients.  The CDT also need not include all eligible physicians at the hospital, just the voluntary paticpants.

The CDT may be a single entity with physician employees or a loose collaboration of independent physicians and a facility, collectively deciding its own governance rules.  The key is that the CDT takes responsibility for an episode of care at a fixed price.  Physicians might be compensated by salary, fee-for-time, or fee-for-service and may share in the gains or losses of the CDT.

CDTs will focus on how to provide inpatient care more efficiently and at higher quality.  (Quality measurement is critical in any reform; see my overall proposal. Savings will be achieved not through lower net provider income, but through better management and clinical decisions.  For example, instead of routinely repeating imaging, radiologists may review well-done MRI and CAT scans done elsewhere.  Orthopedists can agree on the necessary implants, allowing the hospital to strike better deals with suppliers.  Nurses may be empowered to implement routine procedures reducing infection rates.  Lowering Interventional Costs and Rewarding High Quality Care

CDTs by themselves will not solve the key problem identified by Gawande — the overuse of interventional services.  To address that problem, we need to redirect patients toward those physicians who provide high quality care at lower overall cost.  This can be achieved by combining (1) a mechanism shifting resources from interventional care to effective outpatient management with (2) a way to identify those physicians who provide such effective care.

A  comprehensive realignment of the payment system can accomplish this, but in the interim, a  voluntary major risk pool (MRP) can move us in the right direction.  The MRP covers hospitalizations and chronic illness.  This coverage for insurers eliminates costly underwriting.  The MRP, however, is not simply reimbursing plans for expenses incurred; it directly offers attractive bundled payments to CDTs.  These episode-based payments allow CDTs to do what they do best—high intensity acute care—and reap increased income.   Higher provider incomes within CDTs are not inconsistent with lower costs to the MRP as the CDT reduces the resources needed from suppliers outside the CDT.

The MRP obtains electronic copies of claims from the insurers who are its clients and from Medicare, more information than the Dartmouth group has.  After linking all the data and substituting coded identifiers, the MRP will make available the data under arrangements ensuring patient confidentiality.

The Power of the Electronic Matchmaker

Insurers and others accessing the MRP data will see there are local providers with efficient practice patterns, but not their names.  An intermediary trusted by physicians will serve as an electronic “matchmaker,” transmitting messages from insurers seeking efficient physicians.   By remaining anonymous until a “deal is struck,” efficient physicians will negotiate better remuneration—probably not just higher fees, but payment for ongoing patient management, telephone and e-mail consultations, and other innovations.  Some physicians may band together, perhaps by sharing electronic medical records, forming real or virtual group practices—the outpatient component of the ACO.

The major risk pool is the mechanism reallocating dollars.  More effective chronic illness management will lower admission rates and the MRP will transfer more dollars to those health plans directing more patients to efficient ambulatory care providers.  To find those providers, health plans will negotiate better payment arrangements.  To steer patients towards those providers, plans will provide new incentives and sources of information.  We can create what Fisher and Gawande have in mind, as long as we think about how to manage the transition.

McAllen and El Paso are almost 800 miles apart—a long day’s drive.  To move away from the expensive McAllen model of care, we need not just a destination but a plan how to get there.  The self-interest of the players is currently driving us in the wrong direction. By harnessing that self-interest with realigned incentives we can reform the system.  Without taking account of the incentives, we will never get to where we need to go.

Harold S. Luft is Professor Emeritus in health policy at University of California, San Francisco, and author of Total Cure:  The Antidote to the Health Care Crisis (Harvard University Press, 2008).  More information is available at  www.haroldluft.com.

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31 replies »

  1. You actually make it appear really easy along with your presentation but I find this topic to be really one thing which I believe I’d by no means understand. It seems too complex and extremely extensive for me. I’m having a look ahead to your subsequent put up, I will attempt to get the hold of it!

  2. the US government is greed. Politicians are more power and money hungry then your average CEO. Bastards in washington would destroy a nation if it benefited them

  3. It’s all about reallocating RVUs from procedures to cognitive services. If the RVU value for E&M codes is increased at the expense of overutilized procedures, there will be a natural shift in utilization that will allow family docs to spend more time with patients and solve many more problems without handing patients off to another specialist or testing facility. It will be budget neutral. It will also entice more med students to enter primary care.
    It’s a shame that money talks, Peter. I don’t like it any more than you do, but it’s pervasive throughout society. If you want to go after the financial services and healthcare industries, you might as well not stop there because we live in a society that is driven by the almighty dollar. I don’t know what the answer is, but I can assure you it’s not something we can regulate or legislate our way out of. Greed is far more powerful than the U.S. Government.

  4. Deron, I’ve never heard docs talk about how to cut their pay through the RVU system, instead they propose expanding RVUs to include the touchy-feely part of their practice now not reimbursed. Would your agreement of R Watkins comment include his suggestion of simply cutting RVU reimbursment? Is that where you get the $1.499 trillion?

  5. R Watkins – Thank you for your concise, no nonsense comment. You are absolutely correct that the RVU system is a big part of the problem. The best part of that: it would cost $1.499 trillion less to address that than what Washington is offering up.
    Peter – You read an article all the way through?? You could knock me over with a feather right now!

  6. “but there is no reason in the world why the states can’t or shouldn’t be the locus of policy and control.”
    Since Tom put it on the table this is how Medicare, Medicaid, education and regualtion in general needs to be done. Most importatnly is to stop sending the money to the federal government to take a cut of it and send back to the states. This breeds corruption and waste. All funding should be raised by the states and kept in the states.

  7. Nate asks:
    > We are mostly smart people here is anyone
    > really fooled by the new names?
    Gee, I hope not. And Nate’s absolutely right — all this is simply the HMO by another name. It seems to me that re-legalizing the HMO (repeal AWP laws and reform CPOM laws to start with) and implementing a variant of “Medicare Advantage for All” is a stepwise thing that doesn’t require a new vocabulary or a new organizational form.
    I’d be especially pleased to see “Alabama Medicare Advantage”, “Alaska Medicare Advantage”, “Arizona Medicare Advantage”, “Arkansas Medicare Advantage” … “Wyoming Medicare Advantage”. The feds could provide research and reccommendations, but there is no reason in the world why the states can’t or shouldn’t be the locus of policy and control. In this respect at least I am squarely a Jeffersonian democrat. Or perhaps a Chestertonian Distributist.

  8. Thanks for this important post Harold, I read “The Cost Conundrum” right through. What we see is the real cause of high medical care in America – greed and corruption, while using lies to divert blame to the government and legal system. Wall Street has played the same game and the health system’s outcome will be the same as the financial system’s – with innocents taking most of the hit.

  9. CDTs will only serve to further fragment a fragmented health care system. The cynical comment of the McAllen primary care physician in the Gawande article who stated, “of course she would be cathed,” would be amplified. CDTs would break down the communication between primary care and interventionists. The real answer is the Geisinger model where there is a vertically integrated system that creates transparency and has outcomes that are driven by all members of the clinical team. ACOs are realistic in those settings. The challenge is to adapt the Geisinger model in research focused medical centers that are funded and run by research dollars and high tech intervention and interventionists. Perhaps your model for care with CDTs should be reserved for those centers that have failed miserably trying to become vertically integrated…that maintain their focus on research dollars, and acknowledge but do not value clinical care.

  10. One of the potiential reasons for such tremendous practice and cost variance as so eloquently outlined by Dr Gawande is quality of the physician pool. McAllen is much more likely to draw an entrepreneurial MD over an erudite one. Not a big recruiting ground for future Mayo Consultants I suspect. Additionally, testing is a lot more appealing when you are overwhelmed by patient volume and even more so when there is an element of self referral to laboratory and imaging services. These Comparisons are interesting but not all that enlightening.
    The key to successful overhaul of medicine will not be management of physican practice patterns as most of us know what we are doing. It will be fundamental reform of the health insurance business, tort reform and individual responsibility for health care issues.

  11. it’s like I died and went back to 1970. If you really want another go around of HMOs why can’t we save on the printing and just call them HMOs, PHOs, and IPOs again? We are mostly smart people here is anyone really fooled by the new names?
    “With more access to, and time with, primary care physicians there is less need for interventional work. This means redistributing resources from the interventionists to primary care clinicians. ”
    Add scraping BRBVS to that and you are right back to capitation and PCPs. CDTs are the PHOs and IPOs of 15 years ago they referred to. If for some reason rationing succeeds this time are we really banking on it doing so because we gave it a more market friendly name? That sounds more like a sure fire gimmick to sell it to the public just to have it blow up again. If we can’t even be honest about what we are proposing how can we ever expect it to work?
    If the interest really lies in fixing the system then starting with a commonly known entity, HMOs, is far more likely to succeed then discussing vague theories with strange names no one has ever heard of. What about HMOs are you proposing we change? If you start there everyone knows what your talking about. When you propose CDTs(really a PHO) you must first educate everyone on what this hypothetical entity is and does, not to mention how it is structured and countless other questions.
    HMO 2.0 what’s going to be different this time? How do we improve on the tried and failed concept so it is publicly palatable this time?
    Evidenced based medicine
    Realign payment system
    More efficient care
    This is Ted Kennedy circa 1973. nothing being discussed is new, this is the same things we were promised with HMOs 1.0.
    “More effective chronic illness management will lower admission rates and the MRP will transfer more dollars to those health plans directing more patients to efficient ambulatory care providers.”
    “The current revival of the HMO movement should come as no surprise. HMOs have proven themselves again and again to be effective and efficient mechanisms for delivering health care of the highest quality. HMOs cut hospital utilization by an average of 20 to 25 percent compared to the fee-for-service sector. They cut the total cost of health care by anywhere from 10 to 30 percent. And they accomplish these savings without compromising the quality of care they provide their members.”
    “Some physicians may band together, perhaps by sharing electronic medical records, forming real or virtual group practices—the outpatient component of the ACO.”
    “many medical experts argue that the peer review built into group practice in the HMO setting promotes a quality of care superior to that found in the traditional health care system….”

  12. Thank you so much for this post. I haven’t yet read your book, but I plan to.
    Can you tell me how your proposal deals with mental health, specifically for people with chronic problems, i.e. someone with bipolar disorder? Psychiatrists work in both inpatient and outpatient settings. Would it be the psychiatrists or the primary care doctor who was incentivized with an extra chronic care payment from the universal pool to keep the person out of the hospital?

  13. The thing that struck me about Atul Gawande’s article is how much room there is for medical costs to rise significantly from here if more providers in more geographic regions adopted the practice patterns prevalent in McAllen, TX.
    The history of CMS’ attempts to control costs by squeezing provider payments is that utilization grows instead. Yet, the theory behind the proposal for a robust public insurance option that would pay Medicare rates or, at best, 10% above Medicare, is that we can save a lot of money by squeezing provider payments relative to what they currently collect from private insurers.
    One aspect of healthcare economics that I don’t see discussed very much is the capital intensity of much of it including hospital based care, imaging services and lab tests. Any very capital intensive business model generally carries high fixed costs and low marginal costs. So, if there are extra hospital beds, imaging equipment time slots and lab capacity, the marginal cost of utilizing the extra capacity is very low relative to the likely payment, even from Medicare (or Medicaid).
    If we are really interested in bending the medical cost growth curve by driving out wasteful utilization, we would entrust MedPAC to use comparative effectiveness data to drive payment policy. Cost ineffective services, tests and procedures would either not be covered at all or would be reimbursed at the rate of the least costly alternative, including doing nothing. The problem, of course, is that doctors resist any threat or challenge to their autonomy and independence. They do not seem especially interested in working with hospitals to develop bundled payments for expensive surgical procedures, and they are not interested in taking on the risks associated with capitated payments for the management of chronic disease even for very large group practices with tens of thousands of patients. Finally, the formation and operation of accountable care organizations (ACO’s) is far easier said than done. It appears that doctors and hospitals are likely to be the biggest obstacles to substantive reform that can meaningfully impact costs over time. So, I ask them again: what’s your contribution to solving the problem of unsustainable growth in healthcare costs?

  14. Search El Paso, Texas and McAllen, Texas. They’re the 6th and 7th largest metros in Texas. Click on the Wikipedia links. Read about the cities. El Paso’s much bigger than McAllen, but their metro areas and counties are quite similar in population. Both are 80% to 86% Hispanic. How does this affect variations in practice patterns? Can’t tell without knowing the medical community’s demographics.
    Note that while schools and other institutions are discussed and listed in the articles, hospitals and other health care info is not as far as I can see. What does that tell you?
    Also, I don’t see info about the average and median ages of the populations.
    Both cities are on the Mexican border. How does that affect practice patterns?
    Are these cities good samples for studies of practice patterns? Did the authors look for a couple of similar cities with extreme differences to make their points, or are there a lot of cities like this? The Dartmouth studies seemed to show this is pretty typical, but it’s been a long time since I’ve read any of them.

  15. In today’s discussion on politico.com’s Arena about obstacles to passing ObamaCare, one of the problems mentioned is the fear of change. Ironically, a majority of Americans voted for change last year, but anyone who has managed change and studied change management knows the fear of change is huge.
    I’ve also read that changing a person’s behavior is very difficult. See smoking, addictions and attitudes toward those who are different and newcomers.
    Since I haven’t read the literature regarding El Paso and McAllen, I don’t know their demographics. What are their relative income levels, educational levels, mixes of minorities and majorities, citizens and non citizens? And doesn’t Universal Health have a hospital or two in McAllen? UHS knows how to keep its beds full.
    I remember calling the former president of a large multihospital system in Minneapolis and asking him about the Dartmouth reports on variations in practice patterns from town to town. That was in the very early 1980s, and he had no clue. Despite numerous articles by academics, reporters and bloggers that have been published since then, I doubt that physicians have changed their behavior and variations in practice patterns enough to be noticed. Certainly, Prof. Luft still sees it fit to advocate what some pioneers were basically advocating 25 to 35 years ago.
    Why so little change?
    So far, nobody has come up with a workable scheme of financial incentives that can be sold to providers and patients. “Do good” won’t work.
    Thus, we continue to strugggle to find alternative ways to reform health markets, some of which I’ve outlined in the Millenson thread on Obama vs Hillary at the AMA, which is below.
    The Politico.com thread about what sophisticated political people see as obstacles to ObamaCare is here: http://www.politico.com/arena/
    While the Politico thread reflects many view points, what’s interesting is that so many people from outside health care are taking over the health reform debate and are saying what many of us have been saying for decades.

  16. Thank you for your concerns and views about the escalating cost of health care. I believe if the focus was shifted to the patient rather than the treatment many of these concerns would disappear. Helping people understand and spreading the common practice and belief that one can heal self and live in a perfectly healthy body will eliminate these cost concerns. Much success in all you do.

  17. Dear Mr. Luft,
    you wrote: “My concern is that those writing the guidelines will be more in tune with the McAllen model of care than with finding out what patients really desire and are willing (at the margin) to pay for”.
    First, guidelines (at least in my specialty) are written by academics who tend to be rather conservative with regards to imaging and invasive treatments. A lot of helpful guidelines already do exist – e.g. imaging for headaches and axial back pain, billions are wasted on inappropriate imaging for these diagnoses.
    Second, except for Halverson/Ishad who reportedly discuss the problem in “Epidemic of Care” (just started reading it) and some people who know this from intuition and/or international comparison, NO ONE sees the detrimental influence of patient preferences on health care costs – the newest drugs, the most modern scans, the shiniest facilities … combine these preferences with docs who have no financial interest in keeping cost down (but who do have an interest keeping patients happy and not getting sued), and you know the outcome.

  18. This is a very interesting discussion about the escalation of price on health care. It’s so intriguing because of the growing stratification in prices — costly medicines, tests, co-pays and the like when you go into the office, vs. absolutely free information on the web. So while you commented on doctor’s changing their behaviors as unprofitable, there ARE some out there. Websites like drgreene.com educate for no cost because of the generosity of the physician. That particular site even includes a live Q&A chat weekly. While this can’t replace doctor’s visits, the self education can cut out some of the basic inquiry based doctor’s visits, and the patients’ knowledge and participation could even make each visit shorter. So while the majority of physicians are needing to rely upon a twisted system for profit, the generosity of a select few are providing the foundations of health care information for a declining price.

  19. Atul sheds some very powerful light on the challenges of cost containment. His closeup perspectives on healthcare reform challenges are informed not only by his clinical experience, but also by his time working for a Member of Congress – which is where I first met him ~16 years ago. Also, his description of the situation in McAllen is a good contrast to the more global perspectives presented in the NEJM article by Elliott Fisher, Don Berwick and Karen Davis. I compared these two viewpoints on health reform a couple of weeks ago at http://www.healthpolcom.com/blog/2009/06/01/theory-v-practice-in-health-reform/

  20. The current RVU system is an important part of the problem. In theory, it would just take some changes by Medicare to re-balance things. The politics of the real-world, however, are what keep it from happening. Moreover, the changes that may be necessary in one geographic area may not be as necessary in others. That’s why I’m arguing for more flexibility and a removal of many of these decisions from the political domain.
    RBAR suggests a simple reliance on professional guidelines and less focus on quality measurement. My concern is that those writing the guidelines will be more in tune with the McAllen model of care than with finding out what patients really desire and are willing (at the margin) to pay for. I think we need to provide the underlying data in closer to real-time to allow guidelines to change rapidly and to learn from innovative best-practices.
    Lynn Bailey raises some important points that I address in more detail in my book, Total Cure: The Antidote to the Health Care Crisis. In brief, the Stark laws would need some clarification (the CDT is sharing risk and the separation between the CDTs and the ambulatory care physicians is quite in keeping with Stark). I am concerned about anti-trust issues, but I’m not sure this proposal makes things any worse, and may improve the situation by increasing patient price sensitivity. Pricing information is stripped off in the public data releases, making collusion difficult. CDTs could be formed to include any facility (e.g. ambulatory surgical centers) and might even be extended to other major categories of care, such as oncology infusion centers.
    And my apologies to all those associated with Dartmouth—I do know that fine institution still calls itself a college.

  21. Dear Prof. Luft, may I add but a small point: You cited Dr Gawande’s research at Dartmouth University. The correct name should be Dartmouth College.

  22. To achieve effective CDTs will require Congress modify or repeal Stark and perhaps anti-trust laws. There is a fine line between cooperation and collusion. I’m concerned that creating hospital based physicians and outpatient office/clinic based physicians further destabilizes the medical profession only this time we have a moat around the hospital castle. What about more and more clinical technology (and outpatient surgery owned by surgeons) outside the hospital’s control?
    MRPs are a form of reinsurance and are subject to insurance regulations, yet another patchwork quilt of rules, regulations and incentives requiring modifications.
    Insurance reform is still in the background in reform discussions and no one has mentioned modifying ERISA.
    An interesting structure with different incentives but getting there is half the fun.

  23. Isn’t a major part of the problem the totally nonsensical RVU system? Procedures are paid for at such grotesquely inflated rates, that of course they will be performed too frequently. If procedures were paid at only a few bucks above overhead, as E and M codes are, there would be much less incentive to perform them when not indicated.

  24. The McCallen situation narrows down to one (1) word: Corruption.
    If the law is applied we will see the healthcare costs normalize.
    The HL7 Guy

  25. I am sure that you find overutilization in El Paso as well, just not absolutely excessive as in McAllen. This competitive models sounds shaky and associated with another layer of bureaucracy (quality measurement, redistribution etc.). Using existing guidelines and paying only for reasonable care seems much more feasible. Yes, that sounds like the deaded HMO model – but maybe people are ready now when it is clear that: 1. care restrictions are based on medical evidence or good expert consensus and 2. we cannot spend a fifth of the GDP because some people like their back inappropriate MRIs, surgeries and cardiac caths covered by a third party payor.
    Offer a third party payor that offers better protection from failure to diagnose lawsuits, reduces paperwork, reimburses well and asks physicians to practice reasonably – I am sure a significant share of physicians would sign up, and probably rather the better ones.

  26. Long term government controls on Medicare fees have caused the health care cost inflation throughout the US. McAllen reacted to Hillarycare in the early 1990’s. Behavior was affected by government or anticipated government controls.

  27. Harold, Self-interest of physicians is definitely a big part of the sky-rocketing health care costs but can you also discuss the incentives that will help steer them away from self-interest to health care reform. Currently, preventive medicine and diagnostics are not getting the reimbursement code that would provide the necessary incentives….

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