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.

40 replies »

  1. 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 convergence in practice patterns or start to drive some of the highest cost providers out of business. I also note that in a recent article about Safeway’s healthcare costs, I learned that the variance in the cost of a routine colonoscopy varied between $700 and $7,000 among providers within a 30 minute drive of its CA headquarters.
    Regarding the primary care clinics you are involved in, I certainly agree that a good relationship with a PCP who can spend adequate time with the patient can build trust and improve compliance. However, if your model were the norm, we would need over twice as many PCP as we have now to provide that level of primary care to the currently insured as well as the uninsured and underinsured. In talking late last year with the management of Walgreen’s worksite clinic business, they made a number of the same points as you did. However, in response to a question, they also noted that there hasn’t been much impact on reducing hospital inpatient bed days per thousand members, at least not so far. Perhaps you could share any data you might have on that. The huge healthcare cost drivers, it seems to me, are episodes of care that include a hospital stay or an outpatient visit, especially unnecessary surgical interventions. Second opinions and shared decision making can presumably help with the latter.
    When I think about my own experience with primary care, it makes me wonder a bit about how much potential there really is to drive costs lower. After a CABG in 1999, my cardiologist has also been my PCP. I think he is absolutely terrific. He’s very knowledgeable, is tied into a good network of specialists, and I perceive him as a cost-effective practitioner. He also does our corporate physicals so many of my colleagues go to him as well, and they share my views about him for the most part. I trust him completely and he has gotten to know me quite well. Anyway, since the CABG, I have always been 100% compliant on taking the prescribed medications. I never smoked, rarely drink and was never overweight. However, my diet is a lot less than perfect though it’s gotten better in the last couple of years. As to exercise, while I always walked a lot, I never really did anything more strenuous to get the heart rate up because I’m not athletic and I don’t like to go to a gym. That changed a couple of years ago when I found something that seems to work for me. The point is that here I have a doctor I think is wonderful and trust completely, I’m a well educated guy, I knew what I was being urged to do with respect to diet and exercise but still wasn’t completely compliant because I found it distasteful. I just wonder how typical my own experience is.

  2. 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 your ramblings.
    “In the world of coding, time is perplexing. On the one hand, time is built into the evaluation and management (E/M) codes, so physicians are told to base their E/M code selection on the history, exam and medical decision-making elements, not on time spent. Times are listed for each service in the CPT manual only as a guideline. On the other hand, CPT lists a variety of codes that are strictly time dependent and even has codes for prolonged services.”
    “For example, according to CPT, a 99203 office visit typically requires 30 minutes of a physician’s time, while a 99213 office visit requires 15 minutes on average.”
    If the average time is really 8.5 minutes then it seems every doc out there is already committing insurance fraud.
    The 50% is all you need, it’s mere existence proves my point.
    My Friend Eric lives in a nicer house then me, drives a nicer car, and has a very hot younger wife. He is typical of the primary care docs I know. Now Dr. S works in the hospital, he has the movie star life, new stripper GF every week, party like no tomorrow, etc etc. While Eric might be slumming it compared to Dr. S he is still doing a whole lot better then me. I take your reply to mean you won’t advocate for an increase in administrative fees so I can indulge in life’s finer things?
    I knew I should have looked up which one you treat with antibiotics. What ever antibiotics are meant to treat, including what you get from the strippers, is a short office visit, Dr. doesn’t need 20 minutes to chastise lifestyle or poor choice in women. Some times all you need is 5 or 8.5 minutes.
    What ever bacteria gives you that is mild and doesn’t require 20 minutes at the Docs office.
    Thanks for calling me out on that, actually had to research for a bit to remember what you are suppose to use antibiotics for.

  3. 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 assembly line of diagnosis and treatment, but about developing working relationships with patients so that the practice or clinic can become their medical home. That sometimes takes a little time, and that time is valuable to ensuring better care throughout the continuum.
    Our clinics replace higher costs for services delivered on the self-funded or fully insured health plan network, and they typically drop overall costs by 20-30 percent, a 3:1 ROI on the group health side along. (We believe the savings on the Occ Health side are higher, but the numbers are harder to get.)
    Re: your first comment to this post, the analytics are available – there are several very credible algorithms – and they’re very powerful and solid. The problem is the data. There’s very good data, for example from Jerry Reeves MD at the UNITE HERE union and other health plans showing that within each market and specialty, there is typically a 6x-8x difference in resource consumption (i.e., cost) between the least and most expensive physician to get the identical outcome.
    But at this point, few plans have been willing to release their data, though I believe that will turn around. Last year, the Bush Administration in concert with the AMA successfully beat back a legal challenge from Consumer Checkbook (www.checkbook.org) that asked for the Medicare Physician data to be released for 4 states and DC. The argument from HHS was that “doctors have a right to privacy,” even though, in their role as vendors to public programs like Medicare and Medicaid, they receive public dollars. To my knowledge, the only other vendors who have this kind of protection are covert operatives. One of the questions for the Obama administration is whether physician data from public programs will finally be released, so we can identify which physicians are high and low performers. That will allow steerage to the good and away from the poor.
    In other words, transparency is absolutely key, but we’re still fighting the battle to obtain the data necessary to do the analyses. This is one reason why a national payers data base is so essential. That could also become the common resource to drive genuine comparative effectiveness research.
    Hope this is helpful.

  4. 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 healthcare he or she can access, for those who put more credence in life expectancy (and infant mortality) statistics than I do, the Japanese experience certainly casts doubt on the need for or potential benefits from longer visits with a PCP. I have also heard experienced emergency medicine doctors in this country claim that in the vast majority of cases, they can diagnose a patient’s problem within five minutes even when they’ve never met them before.

  5. 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 apoplectic when the employer chose us to build a care management program. Our medical loss savings were more than 35% after factoring in our costs. That was 35% more than you knuckleheads could obtain. Made y’all look bad. Please Nate, tell us more about yourself.

  6. 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 is needed and contribute a bit more to the pervasive waste in health care.
    I think you are confusing primary care docs with some specialists in regards to the movie-star life style.

  7. 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 overcome their clueless legislation.
    One of the reasons self funding is the most efficient way in this country to deliver benefits is the fragmentation and competition. For any group over 50 lives I can shop 50+ stop-loss carriers. It is a highly competitive market with very slim margins. Carriers lose cases over pennies.
    Same with my role the TPA, if I don’t have the latest technology and top of the line services all at a price just over breakeven I’m gone. PPO and UR just the same.
    Our system works incredibly well when there is competition and people left to do their jobs. I disagree with the alliance. History shows when any two of the three form and alliance the 3rd gets screwed. You want employers competing with providers to the death, see BCBS MA and Partners Health as an example of what happens when sides play nice.
    Sadly Congress and State legislatures have been trying to kill self funding for years now so it is not nearly as effective as it was. Freeing employers to self fund again would eliminate a number of the problems we have and do it at no cost to the tax payor.
    Margalit we already know the optimal model and we don’t need any pilots, we just need politicians to stop passing laws screwing everything up. The savings is immediate and there is no analysis cost. In states we are allowed I can take a plan from fully insured to self funded and save them money right away and start improving care. If the Democrats in Congress would stop blocking AHP laws we could cut the cost of insurance to small employers 20% overnight. If Medicare and Medicaid paid fair rates we could cut the cost of all private insurance 10%. Scaling back COBRA and HIPAA would save a couple percent. Every time insurance premiums drop a couple percent millions of more people get covered.
    The reality of the situation is this problem was created by politicians and will not be solved by them.
    “CMS prevents a provider from doing that.”
    Please explain this. Granted I only have 10+years experience administering a Medicare Supplement trust during which time we processed tens of thousands of office visits that included codes you say are not allowed by CMS but maybe we did it wrong all those year.
    “8.5 minutes primary care visits should not exist.”
    Of course not, when I have the flu and all I need is an antibiotic I really rather spend 20-30 minutes at the doctors office discussing ways to live a healthier lifestyle so I don’t get the flu again. 8.5 minutes is exactly the right time it takes to treat conditions requiring 8.5 minutes. Now when I have something that requires 18.2 minutes I appreciate the doctor giving me 18.2.
    “8.5 minutes visits and their counterpart phenomena of packed waiting rooms are a result of absurdly low reimbursements for primary care services.”
    Well no they are actually the result of doctors wanting to make more money. Nothing requires a doctor to drive a Mercedes or live in a mansion, or have a hot wife, those are all choices, choices that require he make more money and to do so see more patients in a day. The doctor could choose to have no wait, live in a condo, and date unattractive women his own age and our reimbursements would be sufficient.
    I don’t have a hot young girlfriend are you ok with me upping the cost of administration from the absurdly low amount we collect so I can afford the life I desire?

  8. “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 change one thing in this HC mess, this one would be my first choice, by far.

  9. 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.

  10. 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 build benefits into the system to reward providers and create an alliance between providers, patients, and the insurers.
    This model has great simplicity and attacks what is probably the greatest source of waste in the current medical system, over-utilization. I would suggest savings over 30% after factoring in the costs of maintaining the network and the care managing agency.

  11. 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 hampered efforts to rein in costs (AWP, mushy Tort Reform, benefit mandates, etc.) all comes from the same government that wants to introduce a government-run plan (called a “public plan” so as not to alarm the public).

  12. 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.

  13. “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 then filling Nexium but the only way to break them is force them. Same thing for NSAs.
    This is why any reform that continues to exclude the consumer from responsability will never work.

  14. 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 the authorization, or denied requests frivolously,”
    Can you produce a cite for any of this? Won’t hold my breath, this was the exception and hardly common practice. During the time you mention my family owned a UR company and PPO. If we where half as bad as you claim doctors wouldn’t have been falling over themselves to join our network and employers wouldn’t have been paying to piss off their employees.
    “The wellness/prevention movement in its current form is relatively new”
    Maybe in your small sphere of experience, I have been doing most of this stuff going back 10-15 years.
    “and the ROI often takes years.”
    ??? ROI on pre-natal takes about 9 months. ROI on diagnostic testing approval takes a couple weeks. ROI on lifestyle changes like smoking of course take a life time.
    “extend the time spent with patients, – i.e., beyond 8.5 minutes for an established visit”
    And what prevents a provider from billing 99214 or 99215 instead of 99213? We already pay more for more time. You need to be looking at the 2 hour log jam in the doctors office then study the incremental time vs. reimbursement. A doctor is paid more for spending more time with a patient but they are paid CONSIDERABLY more for the initial time the patient is sitting in the waiting room. Seeing more patients generates more compensation at base or initial rate which is higher then incremental value of additional time spent. This is the way it should be, a 8.5 minute office visit still requires the patient only be checked in once, billed once, dealt with once, you can’t pay twice as much for a 17 minute visit as you do a 8.5 when the amount of input has not doubled or anything close to it.
    Insurance companies should be buying providers an array of modern decision-support tools? I don’t even need to comment on that.
    Insurance companies should now dictate rules of engagement? Personally I always thought that was something better left to the patient and provider.
    If insurance companies are so bad at managing risk compared to self funded plans why does congress keep pushing everyone into a couple fully insured mega carriers?
    Bev M.D. Back to my point, her job was to communicate the medical status of the patient, leaving out words like “no” in regards to cancer would obviously be a major failure of the task. In that case she failed at her objective of communicating the presence of cancer or not. Posting arguments or ideas on THCB about healthcare is not the same as communicating one’s cancer status. The concern is in the success of the communication not the packaging. Should I be irate if your report comes addressed in an envelope with the address written incorrectly? No, of course not, my concern is the fact I have no tumor not how the letter was addressed, the paper stock chosen, or if you have the proper salutation.
    Your crazy logic would preclude discussion with anyone not schooled in proper kings English. This is a clear display of your arrogance that anyone not educated at the finest of colleges or born an English speaker is worthy of debate. I guess I am just more a man of the common people, I don’t care how you punctuate or if your word choice is off as long as you have an intelligent and well supported argument. You care less about the quality of the argument as long as it is delivered in a manner you dictate.
    By no means am I justifying waste but the extra 30% we spend is mostly disposable income. The reason our cost is so high is because we have the money to spend to allow our cost to get so high. Like you say one very serious concern of reform is where will that extra money go if we suddenly “solve” HC? If we spend it on long drives in the country and more crap from china the “savings” could actually cost us more then what we where spending. I have never seen an elasticity of money study specific to healthcare but generally speaking money turns over 7 to 20 times. If we save 100 billion in HC and it instead goes to middle east or china that is 700 billion to 2 trillion in lost GDP. Feds collect 16% of GDP in taxes I think I recall so federal receipts would drop 112 billion to 320 billion. Things aren’t always as simple as the politicians promise are they?
    Love the idea of holding people accountable for where they choose to live, to bad it will never happen. I always wondered why someone that chose to live in high tax NY or CA paid less in federal income taxes them me. Why do I subsidize other peoples choice of residence? Unfortunately CA and NY outnumber me so I don’t foresee it ever being fixed.
    One person’s 30-60% waste is another person’s last and only chance at life. They might be wrong and it usually is wasted money but so far no one has the spine to take the blame for saying no. Insurance companies did this very well under HMOs just like they where designed to, people resented them for dong it. We can’t have it both ways. We can’t require someone to tell us no then sue them when they do. We must ration and until people come to grips with this we will have cost issues, all the fancy talk in the world doesn’t change the debate, who do you want to ration care and how do you protect them from the backlash?
    We already know current SS and Medicare taxes leave SS bankrupt in 2037 and Medicare in 2016. Just to maintain what was already promised we would need to sharply increase those taxes. To them replace private insurance with another tax would require an unthinkable tax rate.

  15. 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 company deals.
    It is still difficult for me to convince my congressional representatives of these simple concepts. That is why they have latched on to Guwande’s New Yorker piece: he writes to help them understand. I am afraid their eyes will glaze over on the ‘Healthcare Affordability Model’ without real life examples.

  16. Margalit,
    Community rating and risk adjustment are complementary concepts, not mutually exclusive. The purpose of risk adjustment is to compensate insurers who wind up with a riskier than average population and pay insurers with a healthier than average population less than the average community rate per member. While the risk adjustment mechanism is not perfect, it’s not bad either though it still tends to overpay for the healthy and underpay for the very sick.
    Regarding financing mechanisms, I thought Dr. Emanuel’s VAT proposal was the weakest part of his plan because I don’t think it would raise anywhere near the revenue he suggests at a l0% rate. The broadest based value added taxes in Europe raise about 0.4% of GDP for each 1% of tax rate. To raise the revenue that we would need to replace private insurance with taxpayer funded vouchers plus cover the currently uninsured, I think the VAT rate would have to be closer to 20% than the 10% he proposes. I have never heard any economists affirmatively concur that we could raise the revenue we would need at a 10% rate, or even if we could, that it could possibly pass through the political process without adding a host of exemptions for necessities like food bought in supermarkets, medical care, education costs, government purchases, etc.
    Alternatively, to move to payroll tax financing, I’m pretty sure that the payroll tax rate would have to be in the 15% range or roughly comparable to the current combined Social Security and Medicare tax – employee and employer share together. In fiscal 2008, according to the Congressional Budget Office (CBO), social insurance taxes (Medicare plus Social Security) raised $900 billion or 6.3% of GDP. Total healthcare spending is currently between 16% and 17% of GDP. Medicare spending was 3.2% of GDP last year while Medicaid was under 3% of GDP. Even if those two programs remained intact, heavy duty taxation would be required to replace private insurance, cover the uninsured and, perhaps, mitigate some of the out-of-pocket spending for the sickest among us.
    The bottom line is that there are no easy answers. If there were, we would have implemented them decades ago.

  17. Expanding on Margalit’s “do[es] not guarantee results because nobody can say for sure what exactly the waste percentage is” — also because we don’t know how the new system will be gamed. And it will be.
    Abby — Bob’s idea is sort of orthogonal to Enthoven in that it can be applied or bolted onto about any sort of basic delivery organization. You can think of it as a tax on any financing mechanism that provides poor incentives from a public perspective.

  18. How is Bob’s taxing plan significantly different from Alain Enthoven’s earlier proposals?

  19. I think, Peter, that that is because recovering and applying wasted resources to the tune of 30-60 percent, takes time and planning, research and implementation, all of which require upfront investment and do not guarantee results because nobody can say for sure what exactly the waste percentage is. Nevertheless, this should be done sooner rather than later, and here is one part of the 60 billion.
    The other part is presumably to cover the uninsured which also needs to be done before all wringing out of waste is complete.

  20. I think that this is the nub of it when Brian says, “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?”
    Do we not need some sort of rational health reform plan that focuses on methods for wringing out the unnecessary medical costs?

  21. Brian, I did read Bob’s detailed description and I don’t really see anything in there that will prevent insurers from aggressively protecting their profits under this suggested plan. There are supposed to be some boards in place that will make sure that everything is fair and properly measured. No idea how you do that. No idea how you measure quality either. I guess the plan is saying that we should measure it and that some federal board will somehow do it, but it is very unclear how.
    I would prefer the much simpler proposal of Dr. Emanuel, with two exceptions. I would prefer community rating instead of risk adjustment calculations for payments to the plan. I would also change the funding mechanism from VAT to payroll tax, since VAT always hits the poor much harder than the wealthy. Other than that Dr. Emanuel’s simplicity and straightforwardness is brilliant, and considering who he is and the circles he moves in, maybe, just maybe, someone will listen to him and allow him to play real ball.

  22. Brian,
    I think both you and Bob have probably forgotten more healthcare knowledge on your coffee breaks than I’ll ever learn. You also probably know that I’ve long been a believer in price and quality transparency and getting the system’s incentives right.
    The price and quality transparency issue encounters substantial pushback from physicians because of the difficulty in measuring quality and properly adjusting for differences in patients’ age, risk profile, socioeconomic status and degree of compliance with instructions and recommendations. At the same time, insurers all claim that they can easily distinguish between the high utilizers and the cost-effective practitioners among both doctors and hospitals.
    If I look at prescription drugs, I’m struck by how effective the move toward tiered formularies was in steering patients toward generics which are now approaching 70% of all prescriptions, but still less than 20% of dollars spent on drugs. This is an example of a financial incentive that is easy for patients and doctors to understand. It is also helpful that doctors can guide patients toward generic drugs without affecting their own income.
    I would like to see the tiering approach extended to doctors, hospitals, and, importantly, Medicare Part B beneficiary contributions. The incremental co-payment to use a more expensive hospital or a less cost-effective doctor doesn’t have to be huge. It just has to be enough to get the patient’s attention. As for Medicare Part B, current law has long called for beneficiary premiums to cover 25% of the program’s cost nationally. Since we know that Medicare spending varies considerably by state, I think the beneficiary premium should also vary by state within reason. For example, the current $97 or so per month that beneficiaries pay could be reduced slightly for states where Medicare spends 100% of the nationwide average or less. For the higher cost states, the premium should be raised enough to cover 25% of Part B spending in that state or a maximum of $150 per month, whichever is less. The idea is to get the attention of PATIENTS in high costs states to create pressure on doctors and hospitals in those states to improve the cost-effectiveness of their practice patterns. There is absolutely no fundamental reason why Part B payments should be the same in nominal dollars throughout the country when no other insurance product works that way. I think an approach like this might be easier to implement and execute over the short to intermediate term.

  23. That is what I have bee telling. All these people want to put more money to reduce the cost of a system that is already too expensive.
    No one is loooking at the structural issues and hence I agree that the reform is difficult to come by.
    To be fair though, These wastes are not all the time money in the toilet. They are financing employment of tons of people – granted to do the tasks that does not have any meaningful use. Who wants to screw around to create another job loss problem.
    We have proposed overall healthcare reform ideas on our blog over last several months..in structure, policy, some thought on IT. The ideas will be useful if only we decide that we want reform – not the talk of reform.

  24. Ah, Nate; still hale and hearty I see. You would care very much if your doctor failed to proofread his dictation like you do your comments. For instance, I had another secretary who often forgot the word “no” in her transcriptions – as in “there is NO evidence of tumor.” So if I didn’t proofread my report would read “there is evidence of tumor.”
    If you don’t care enough to do a good job communicating, then bad things can happen. You, in particular, need to think about this.

  25. Brian – Here’s the question I have. How do we aggregate all of the good points that you, Bob, and a few others have repeatedly made over the last few months and get them on the desks of every congressman and VIP within the Administration? The feeble attempts at “reform” coming out of Washington are not helpful. While the odds at changing their course may seem unsurmountable, we as citizens need to do something.
    The only messages being delivered to Joe the Plumber are coming out of Washington, therefore that’s all the public knows at this point. Lowering cost doesn’t make for a good soundbite like covering everyone does, but the public needs to understand that attacking costs is the only way to sustainable reform.
    I’ve said several times on THCB over the last year that we should be consolidating the good points made here into a workable solution. Whether we realize it or not, this blog has provided a nice think tank with a WIDE variety of players and views. It seems that we’ve all approached it simply as enterntainment, when we could have also had a product come from the discussions.
    I could keep typing all day, but I have to get ready for my job which involves daily contact with all of the major healthcare system stakeholders and great access to all of the sources of waste throughout the system. Can Max Baucas make that claim?

  26. Margalit,
    In the detail of his proposal, Bob Laszewski specifies both a standardized health plan benefit design and a health plan exchange designed to establish apples-to-apples cost baselines. He writes,
    “Health insurers would be required to offer at least the standard option benefit plan in each state in which they operate through the insurance exchange. Through competitive bidding each plan would establish its baseline costs in the first year.”
    In other words, Bob’s proposal would not permit many of the cheap but so-skinny-as-to-be-useless health plans that masquerade as coverage currently. The benefit structures and protections would have to meet a robust standard that applies across the sector.

  27. Nate,
    I won’t bother to dignify your clownishly silly and belligerent (as usual) comment.
    In the OLD days – 10-20 years ago, during a time when health plans at least made a pretense at managing care and cost, pre-cert was simply a method of trying to determine appropriateness before an expensive procedure was delivered. Of course, the plans often kept providers on hold for long periods trying to get through for the authorization, or denied requests frivolously, which infuriated both doctors and patients.
    There have been a host of medical management trends in health plans, ranging from utilization review, utilization management, large case management, disease management (almost always telephonic, with educational materials sent out through the mail, and therefore nearly totally ineffectual), and many others. The wellness/prevention movement in its current form is relatively new (but of course J&J has had an extensive program for years), but the numbers on efficacy are relatively sparce and the ROI often takes years. As I said, over the last decade most health plans have largely withdrawn from being aggressive managers. They made a lot more money by not engaging in these activities.
    As for primary care, the term “empowerment” is a shorthand for paying primary care physicians more to 1) extend the time spent with patients, – i.e., beyond 8.5 minutes for an established visit – which should result in more meaningful treatment plans and adherence, 2) access to an array of modern decision-support tools and 3) changing the rules of engagement with specialists so that downstream care plans are made collaboratively with the PCP.
    As I’ve described elsewhere, now that enrollment is plummeting around the country, some plans are finally taking steps again to try to aggressively manage care and cost – CIGNA with its clinics and patient engagement efforts and Aetna with its IT tools are good examples. But the fact remains that there are many approaches that are known to be highly effective in reducing cost and improving quality that the health plans as a group have just not gotten behind yet. Primary care – the most powerful of all – has been paralyzed by poor reimbursements and overwhelming volumes and is at the top of the list, which is why it is in deep crisis in the country now.

  28. Brian Klepper, maybe you cleaned offices at all the major insurance companies, you surely didn’t work in any position of meaning.
    First off medical management isn’t the correct term, you where trying to say they stopped precertification. And if that is wrong. They scalled back pre-cert becuase providers learnd you can’t keep someone in the hospital two weeks for a 2 day procedure. Behavorial health, high cost Rx, imaging, and countless other prociedures still require pre-cert. One only has to be smart enough to search UHC and pre-cert and you will get hundreds of results. You can even find the 800 numbers and call them if you still don’t believe it.
    As far as this medical management term you made up that would seem to also claim they don’t have disease management programs, pre-natal programs, or wellness.
    Are you starting to see how stupid of a claim that was?
    I sorta agree with the point about them allowing premium to rise so their % earns them more but you butchered the background, more egregious when you do it correcting someone.
    LOVE your power terms, praticing your sound bites for a run at office? What does empowering primary care mean?
    made provider performance more available? You are aware the carriers that tried it, all of whom you supposedly worked for, got their back sides sued off right? When the court tells you no that usually puts an end to it.
    no person who expects to be take seriously comments with BS that can be easily refuted with a yahoo search either.
    bev M.D. did raise one point in a round about way. HC reform as long as it is an issue rasies a lot of money for politicians. If they every truely “solved” HC they would be out millions annually. Does anyone want to wager on politicians being more concerned about the nation then their reelection?
    If they pass something before August break then the money dries up, keep it alive over summer, or gosh forbid, into the election year and they will rake in the dough. Anyone see how the car dealers are getting their franchises back….

  29. I have found that those that attack a message over grammer and spelling usually aren’t inteligent enough to attack the actual message. Unless your Actuary’s third grade english teacher trying to correct your poor performance back then who cares? If your only retort is misuse of words you need to take that extra time and learn the subject matter. The point of typing is communication, everyone knew what he was trying to say so he succeded in his intent. If you don’t like his spelling or word choice your the one with an issue to be ashamed of.

  30. While I agree that every legitimate suggestion ought to be considered, after three consecutive posts on the subject, I still don’t understand how this plan changes anything for the better.
    If insurers are allowed to offer whatever plans they wish, what is to prevent them from offering high deductible HSA style plans that will attract the young and healthy away from the “basic” plans? Those HSA plans will be very affordable and will effectively be cherry picking. The sicker folks will be stuck with either the expensive “unaffordable” plans or forced by employers into “affordable” (for the employer) plans that will bankrupt the sick employee. They will be worse off then they are today.
    And how is this affordability decided? Lowest premiums? How exactly will quality versus cost be balanced? The assumption that providers and payers and consumers will miraculously find a way to sort these things out by working together in harmony is a bit questionable, considering that this never happened so far.
    Unless I’m missing something, I can see how insurers and employers will be able to work around this system and even benefit from it. Providers will probably see their reimbursements cut in the name of affordability. Consumers with very little need for health care will be fine too, until they get sick or injured. The ones that are already sick will find themselves in a world of hurt.

  31. fee or salary for cost effective service is the wave of the future…short,sweet, and to the point.
    but too simple for the leadership of our country. they like controls and manipulation.

  32. Oh, and while we’re piling on Actuary, he needs to proofread his comments too. (I am assuming male gender, and I bet I am right.)
    One does not “reign” in anything. A king “reigns” over his subjects. One “reins” in a horse, and anything else that’s getting out of control.
    Like the secretary I once had who always transcribed my dictation of a “discrete” tumor mass as “discreet.” Who ever heard of a diplomatic tumor? – and that’s why I stay anonymous, to protect the incompetent.

  33. Actuary,
    I think its great that you’re so pleased with the behaviors of the health plan sector, but the facts fly in the face of your assertion. In 1999, United Health Group announced that they would no longer do medical management, because it did not produce net cost savings and angered both docs and patients. Their real reasoning, though, was that they made a percentage of total costs, and as costs exploded, they would make more. United was immediately followed by all the other health plans, and in the seven years subsequent to 1999, premium inflation was 60%, compared with the 25% in the 7 years before.
    I’ve been working in this industry a long time and have worked for most of the major plans. If they were so interested in saving money, they would have empowered primary care, made provider performance more available, and gone down many other paths that have been proven to save money.
    So while its nice that you think what you’re saying here – and I’ve seen you say it before – its utter, ideological nonsense.
    And, by the way, while this site tolerates it (for reasons that are a mystery to me), no person who expects to be taken seriously writes anonymously.

  34. I share Brian’s “disheartenment”. Why, oh why, are all the structural/cost issues being completely ignored? (well, never mind, it’s because they’re HARD.)
    Another suggested model for structural reform is proposed by Michael Porter in this week’s New England Journal of Medicine. Although more difficult to implement, I believe it has all the necessary components. Read it here:
    It seems as if the hardest part is going to be to get Congress to listen at all, much less choose one of these models. I cynically begin to wonder if this is all just posturing with a desired endpoint of zero reform, and Washington strikes again, despite Obama’s promises of “change.”

  35. Human behaviour is largely driven by risk and reward, especially when it goes about career, wealth and social status. A good system may raise the bar of bad behaviour and lower both its probability and extent of harm from it. So, it makes a lot of sense to improve the system.
    I agree with Brian and Bob that Congress, media and public spend too much time and energy on the demand side of the equation. In my blog, http://betterhc.blogspot.com/2009/07/healthcare-reform-balancing-act.html, I give a brief overview of the winds on Capitol Hill and some ideas currently being discussed or worth discussing. I would like to stay optimistic as far as the general direction of health care reform is concerned, but …

  36. Excellent post, but I would like to take exception with one thing, “nearly” everyone in the industry should not include the the “big bad” Health Insurance companies.
    They are for comparative effectiveness research and the like.
    Actually, insurance companies and employers are aligned, in that they both are trying to hold down costs, but the $$$ that is a “cost” to some is “income” to providers.
    Let’s not forget legislation that has hampered efforts to reign in costs (AWP, mushy Tort Reform, benefit mandates, etc.) all comes from the same government that wants to introduce a government-run plan (called a “public plan” so as not to alarm the public).

  37. Well, Heather, “they” can hardly do worse. And remember that “they” are “us”.
    Even in a good system, bad behavior will produce a bad result, and even in a bad system good behavior will produce a good result. A good system will make good behavior easier and bad behavior harder, but that’s all.

  38. I would love to see reforms made to this system. The concern is that we are going to dump tons of money into something that is not working to try to fix it. I’m crossing my fingers that they can find a solution that doesn’t completely bankrupt us.

  39. No one disagrees with Bob’s assertion that many of the incentives of the health care system are way out of whack here. Starting out with the tax deduction of health benefit plans, however, is the most controversial and contentious place to venture for a health care reform effort. Altering how Medicare and Medicaid pay for services is a much preferred starting point in that it can drive provider behavior in the right direction and is already under substantial regulatory control, e.g., doesn’t require an act of Congress to implement.

  40. Brian Klepper writes:
    > Who will be against Bob’s proposal? Nearly everyone
    > in 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.
    I think our recent experiences with the financial sector tell us that the only sustainability C-Suite types care about is short term: until their deferred compensation fully vests. When Alan Greenspan said he was very surprised by this, most everyone laughed, didn’t they?
    I like the basic idea for the same reasons you do, but to think that anyone in the industry will like it because in two or three generations things will be better is, well, wishful thinking. Would that it were hopeful thinking instead, but no, I don’t think so.