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Why Congress Should Consider Bob Laszewski’s Health Care Affordability Model

ALP_H_BK_0010 Over the last few months, I have become increasingly disheartened over the prospects for meaningful health care reform.

First, the process is terribly conflicted, and it shows. In the first quarter of 2009, the Center for Responsive Politics reported that the health care industry contributed $128 million to Congress. Now that the tide has turned, this has gone mostly to Democrats who, as it turns out, are just as receptive as their Republican predecessors.

In turn, the Congressional health care reform proposals so far are mostly about coverage entitlements and access – fair enough – but despite cost containment rhetoric, they mostly ignore the ever rising cost burden that has brought health care to its knees. As longtime health care crusader Paul O’Neill pointed out in last weekend’s NY Times, the proposals pay relatively little attention to adjusting the health system’s structural flaws that encourage and tolerate tremendous waste and excess: fee-for-service reimbursement; a specialist-dominated medical paradigm; and a lack of enterprise-wide infrastructure that can facilitate transparency, transactional streamlining, and evidence-based decision-support. It appears we could be headed for Massachusetts-style health care reform, in which all the concessions will be made by the people paying the bills, and virtually none are borne by the health industry itself.

The health care waste that has been glossed-over in these proposals is monumental, the result of millions of premeditated decisions made by real people. Consider, for example, the MedPac report issued a couple weeks ago that found that physicians who own or lease imaging devices order images at twice the rate of physicians who do not have a financial stake in them. Or the fact that, even though the majority of claims are auto-adjudicated and we live in the age of electronic fund transfers, it takes health plans – which earn interest while they hold onto the funds – more than a month on average to pay a physician’s practice and nearly two months to pay a health system. Or that many health plan brokers represent that they are independent consultants to employers, but steer their clients to health plans with whom they have a financial relationship.

There are literally thousands of examples like this tucked inside every health care sector: the supply chain, the IT sector, the care delivery system and the finance system. No one knows for sure what these excesses actually cost, but estimates vary between 30 percent ($800 billion) and 60 percent ($1.5 trillion) of our annual total health care expenditures. These are breathtaking numbers. We fork over these immense sums every year for services that provide little or no value.

In the process, we have eroded our national economic stability. The President and his health team have repeatedly noted that health care cost represents the single largest threat to the nation’s long term financial viability. The savings that presumably would accrue from meaningful reform are key to the success of their larger economic plan.

The American people may not understand the technical issues, but they’re also aware that the system is not working in their interests. In a recent NY Times/CBS poll, 72 percent of respondents – nearly 3 in 4 – said they favored “the government’s offering everyone a government administered health insurance plan like Medicare that would compete with private health insurance plans.” While I doubt that the rank-and-file of respondants understands what a public option would really mean, the deeper message seems clear: the current system is dreadfully broken and we need a different approach.

But the Democratic proposals seem oblivious to how crucial the issue is to the President or the American people. And so their focus has been on two seemingly extraneous issues.

First is whether the proposals’ programmatic costs will come in at less than a trillion dollars over 10 years (rather than their long term impacts). Let’s leave aside the fact that a trillion dollars is less than 40 percent of our annual health care expenditure at the moment.

Internally, the Congressional Budget Office and then Congress scores each proposal – the most recent version of the Affordable Health Choices Act from the Senate Health, Education, Labor and Pensions Committee (HELP) came in at $611.4 billion over 10 years – even though the evaluations may not consider ancillary deals made to win the buy-in of powerful health care lobbies, or financing that offloads costs onto some part of the private sector.

Still, if 30-60 percent of all current health care cost is waste, it is not clear why we should spend another $60 billion a year to improve the system. Why can’t we recover and apply the wasted resources instead?

Second is whether the government offers a public option. This issue is worth a separate post, but suffice it to say that the cost growth of Medicare, a public option, has tracked closely with that of commercial health plans for 30 years. There is literally no evidence that the placing a program in the public domain – where it is highly susceptible to perverse influences like lobbying – is any guarantee of better performance.

In other words, one of the lessons of the last 50 years is that changing the financing model alone probably won’t fix health care. What’s needed – what is critical right now – are changes to the ways health care is supplied, tooled, delivered, managed and reimbursed, independent of any health plan’s sponsorship and legal structure.

So far, our current round of reform has conspicuously dodged those issues, presumably at the industry’s encouragement. The long term consequences of that avoidance, though, could prove disastrous.

*****

One of the problems with taking on health care reform is that it is so complicated, with endless facets and special cases, and with stakes that are extraordinarily high. After all, we’re tinkering with an economic sector that represents one dollar in seven and one job in eleven. There is a tendency to suggest that the health care marketplace IS the problem, and that we can solve problems through policy alone.

But the truth is that the marketplace has not been allowed to work in health care, or at least not in the classical sense. Government has financed about half of health care over the last several decades, distorting market functions. And the most powerful organizational forces in the market – physicians, hospitals, health plans, drug companies, device companies – have consistently lobbied against transparency of cost and quality information, the one ingredient that markets need to work effectively. The hope is that good policy both empowers market innovation and constrains its propensity for excess.

What is really needed in situations like these, though it rarely appears, is a fresh approach from an unimpeachably non-partisan and credible source. That approach must cut through complexity to get at the root of the problem, preferably with a relatively simple, easy-to-understand idea. I believe Bob Laszewski has provided us with this kind of solution.

There are many excellent writers and thinkers in health care, but I doubt many would object if I suggest that Bob Laszewski is at the very pinnacle of this group. His articles, written plainly and clearly, are a model of lucid, informed thought. A former health insurance executive, he has deep expertise in health care finance. A longtime DC health policy advisor, he has extensive connections with and is highly regarded within that community.

Bob has written a summary piece and a detailed piece about the Health Care Affordability Model. These posts should be as high on the required reading list for everyone involved in the national health policy reform discussion as Gawande’s Cost Conundrum article was for the White House staff.

The Affordability Model posits a simple idea: Let’s use tax incentives to align everyone’s interest around driving out waste. If health plans and their health system partners hit targets, they keep their advantage. If they don’t, they lose them. He then provides sufficient underlying detail to convince us that it is a workable plan for attacking one specific, important piece of the health care crisis: unrelenting cost growth. He states it like this:

The Health Care Affordability Model creates unavoidable incentives for health plans and their provider network partners to maintain their tax qualification:

  • The health plan would be placed at a substantial competitive disadvantage without it.
  • Doctors, hospitals, and other providers who were not in a tax qualified health care network would lose patients to networks that did control costs.
  • Employers and consumers would almost certainly purchase their health benefits only from qualified plans.

And, unlike most health care reform proposals, the Affordability Model would simultaneously reduce both public and private health care costs.The Health Care Affordability Model is not a standalone health care reform proposal. It could be attached to virtually any health care reform plan now on the table.

There is nothing new about using tax incentives to shape individual and corporate behaviors. We have used them to encourage employers to purchase coverage for their employees, but we have not applied them to drive behavior within the health industry itself.
In my experience, most seasoned health care professionals have very good ideas about what will work and won’t work, and what remedies can be applied to fix the current crisis. There isn’t a lot of mystery about this. Empowered primary care, data aggregation and mining for transparency and decision support, some new genomic assays, new imaging procedures, face-to-face disease management, and many other approaches are known to work but have been under-utilized. As Bob notes, there simply hasn’t been the reason to pursue these approaches.
We know, for example, that, when they’re appropriate, minimally invasive surgeries are a grand slam. They dramatically reduce the pain associated with an invasive procedure. They have lower episodic costs. They’re associated with fewer complications and nosocomial infections. And they produce quicker back-to-work times for workers. But we often pay surgeons less to do them, so we have created a perverse incentive to use the older, less positive approach. Under the Affordability Model, there would be a clear incentive for health plans, clinicians and everyone that supports them to change to the better, higher value approach.
To me, the real beauty of the Affordability Model is that it offers minimalist steerage. It implements a (relatively) simple, straightforward incentive, and then allows the market to innovate to achieve the desired results. It is as hands-off as possible, is likely to keep the best parts of our system intact and creates the impetus to drive out services that offer little value. It empowers the health care marketplace.
Who will be against Bob’s proposal? Nearly everyone in the industry, because over time it will organically reduce revenues throughout the industry. But they ought to be for it, because it would stabilize health care, and at long last provide the sustainability that has been missing for so long.
Read Bob’s piece closely, and you’ll hear the passion he has infused into it. This is not simply a post, a suggestion. It is the distilled, highly focused advice of a top professional, offered to his country in a time of need. It is the summary wisdom of a life’s work.
Congress has not adequately turned to the very pressing cost problem that Bob’s model addresses. If it does not do so, the result will health care reform that is empty, meaningless and, ultimately, shameful.
My fervent hope, for all of us, is that they are listening with open minds, and that they have the courage to follow his advice.
Brian Klepper is a health care analyst and commentator.

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Joe - R.Ph.AbbyPeterBarry CarolHealthcare Guru Recent comment authors
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Barry Carol
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Barry Carol

Brian, Thanks very much for your detailed response. I’m encouraged by your comments about the availability of solid data analytics. I hope the physician data from Medicare can be made available in the near future which would be a critical advance in transparency and make it easier to steer patients toward the most cost-effective doctors and hospitals by using appropriate financial incentives like we already do for prescription drugs. Your comment about the 6x-8x differential between the most and least cost-effective practitioners in a market or region suggests there is more potential than I realized to either bring about more… Read more »

Nate
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Nate

Peter, Some times I think you like being embarrassed and the world seeing how much of a dolt you are. I own three TPAs, lets start by getting the basic facts right. Why don’t you share with us what it was you were/are selling there peter, little hard to discuss anything with you when you hide behind generalities. Wow 35% savings; impressive can’t wait to hear what this magic elixir was. FYI I don’t own nor sell medical management, I process claims and collect data so others can implement “Medical Management”. Can’t wait for you to share some facts with… Read more »

Brian Klepper
Guest

Barry, Re: primary care. You’ll recall that I’m involved in running comprehensive primary care clinics for employers. Our clinics have 20 minute established office visits (as opposed to 8.5 in the field) and patient loads of around 1600 per physician or nurse practitioner, as opposed to 2,500-3,500 in the field. We find that the extra time between a clinician and a patient allows them to chat, to learn more about one another and to build trust, and that trust almost certainly translates into higher rates patient adherence to their treatment regimens and improved outcomes. Primary care isn’t just about an… Read more »

Barry Carol
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Barry Carol

A number of months back, Frontline aired a documentary that examined five healthcare systems around the world. One was the U.S., of course, and another was the Japanese system. The Japanese primary care doctor who was interviewed stated that the typical primary care office visit in that country lasted 3-5 minutes! At the same time, the Japanese have the highest life expectancy in the world – 86 years for women and 79 for men. While I personally think that personal behavior, genetics and socioeconomic status have far more to do with a given person’s health status than the quality of… Read more »

Peter
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Nate – You worked for a TPA (Third Party Administrator), I’m laughing. You boneheads simply drive costs up with your misguided “medical management”. When we installed our program with large self insured employers, our first step was to pull the plug on your managed care. You paid our bills, net medical bills. We controlled care though our networks and didn’t even allow you speak with providers. Now I understand your ridiculous posts. I’m afraid that you and your TPA buddies couldn’t save a dollar you found in the parking lot. We worked with several different TPA’s and they all went… Read more »

Margalit Gur-Arie
Guest

Nate, given your experience, I’m 100% certain that you know that a doctor cannot bill a higher E&M just because he spent more time with a patient (counseling >50% excluded). Unless you document a laundry list of organ systems, the E&M code stays the same. I don’t understand why you are asking that question. You should probably not ask for an antibiotic when you have the flu. Maybe you should spend a few more minutes, over the 8.5, with your doctors so he/she can explain why. Most likely, to save time, the doctor will just write a script where none… Read more »

Nate
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Nate

Peter and Margalit, Hi my name is Nate I would love to introduce myself and tell you what I have been doing for the past 15 years. I would ask both of you to read up on self funding as your talking around it but apparently unaware it exist. Roughly 50% of EVERYONE with employer based covered is self-funded. It’s not some new crazy idea that needs studied. Peter what you reference in your comment is what TPAs have been doing for 30 years. Congress and the courts make it more difficult then it needs to be but we eventually… Read more »

Margalit Gur-Arie
Guest

“And what prevents a provider from billing 99214 or 99215 instead of 99213?” Nate, CMS prevents a provider from doing that. It’s not about time. It’s about counting irrelevant series of actions, instead of measuring quality and outcomes. 8.5 minutes primary care visits should not exist. 8.5 minutes visits are the reason for lack of care coordination, duplication of tests, unnecessary referrals to specialists, patient non compliance, wrong diagnoses and all sorts of mistakes. 8.5 minutes visits and their counterpart phenomena of packed waiting rooms are a result of absurdly low reimbursements for primary care services. If we can only… Read more »

Margalit Gur-Arie
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Peter, I am not saying that reducing over-utilization is not possible. It is and it should be done. However, it will take quite a bit of time to create the optimal model and it will require pilots like the one you describe and probably a host of others as well. The savings will not be immediate and all those pilots and analysis cost money. That is why there will be a need for upfront investment for any health reform. We may recoup this investment down the road. “May” being the key word here.

Peter
Guest

Margalit, Focusing solely on over-utilization and patient compliance, why not build a pilot program consisting of a medical network with providers willing to limit utilization to that which is justified by clinical findings, and a single payer agency using software to evaluate performance against the agreed upon rules and assure appropriate care. This agency would be charged with the responsibility for assuring appropriate care. In other words, separate the payer from the insurers. If this sounds too simple and too radical, it isn’t. There are real benefits to insurers once the need to manage care is removed. One can also… Read more »

Actuary
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Actuary

Brian, As to my so-called “ideological nonsense”, the number one goal of the self insured employers is to lower costs, and carriers compete on that basis. Therefore we (insurers and employers) are on the same side – and what I am saying is totally factual. Nothing ideological about it. FYI – most major carriers write a lot of administrative services only (ASO) business. bev M.D. – thanks sooooo much for the helpful lesson. I guess you reign over me grammatically. The question is, what are your thoughts on the content of the below(now corrected)sentence? Let’s not forget legislation that has… Read more »

Abby
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Abby

Thanks Tom,
It just seemed like Enthoven ahd already proposed, as one of his points–that health plans that were more expensive than the cheapest one meeting certain quality standards should not be tax deductible. Obviously Enthoven has argued for much more systemic reforms related to integration of care.

Nate
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Nate

“As a pharmacist I likewise see thousands of prescriptions for Nexium (due to marketing AND/OR backroom insurance deals),and wonder how much money is still wasted in this Proton Pump Inhibitor class.” Joe, as a TPA this is one we have been going after aggresivly. What amazes me is how much time and money I need to spend to “help” someone make a better choice, like not getting Nexium. In partnership with one of our PBMs we starting paying for Prilosec/Omeprazole OTC at 100% with no co-pay becuase that is cheaper then them filling Nexium. They could purchase it themselves cheaper… Read more »

Nate
Guest
Nate

So we agree, when you chastised him with; “but the facts fly in the face of your assertion. In 1999, United Health Group announced that they would no longer do medical management,” You where either opaque or wrong. They curtailed a very small part of medical management for a very small part of the market to focus on more effective medical management. This also ignores the fact that 50% of the employer market is self funded and none of what you said applies to that. “the plans often kept providers on hold for long periods trying to get through for… Read more »

Joe - R.Ph.
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Joe - R.Ph.

I think it would be helpful for Laszewski to offer examples of how these changes would be effective. That is what makes Gawande’s articles so easy to understand. Laszewski discusses “unavoidable imperatives for healthplans” and Gawande talks about different ways to treat pain from gallstones. As a pharmacist I likewise see thousands of prescriptions for Nexium (due to marketing AND/OR backroom insurance deals),and wonder how much money is still wasted in this Proton Pump Inhibitor class. You can call that “comparitive effectiveness research” but in the end it’s obvious either way. We waste money due to slick marketing and insurance… Read more »