By Bill Kramer

Is there a “Third School” of reformers that could help us resolve the long debate about how to contain health care spending?  Drew Altman’s recent column describes the history of the debate between the “Regulators” and the “Marketeers”, and he suggests that a new school of thought – the “System Reformers” – is in the ascendance.  According to Altman:

The Systems Reformers believe that the best way to bend the cost curve is not through external market incentives or regulatory controls, but from the inside out, by creating a smarter health care system with the information base, new delivery models and payment incentives that will improve quality and lower costs. . . .

The Systems Reformers’ paradigm is reflected in the “bending the curve” elements of the health reform legislation currently in Congress, which mostly come in the form of pilot projects and experiments. These include tests of ideas like Accountable Care Organizations, “pay for performance” and “bundled payments,” as well as efforts to create a smarter, evidence-based health delivery system through comparative effectiveness research.

He describes the Systems Reformers’ approach as a  “third leg of the stool of cost containment strategies.”

While Altman is right about the importance of the Systems Reformers’ ideas, I don’t consider this to be a new paradigm.

We’re really talking about two different things.  The debate between the Regulators and the Marketeers is a philosophical disagreement about the fundamental political economy of the health care sector.  The use of System Reforms, however, is simply an issue of how deep we go into the health care system in order to bring about reforms.  The former issue is about which fork in the road we should take; the latter is about how far we can go down that road.

The debate about the merits of regulation and markets is very important, and we do need to make a choice.  This issue is not unique to health care; it’s been raging in other sectors as well – for example, regulatory limits vs. cap and trade mechanisms to reduce air pollution.  In health care, the Regulators point to the failure of markets to contain costs, and they advocate regulation of supply and prices.  In the U.S. political debate, the ultimate model of the Regulators’ approach is a single payer plan.  Marketeers, on the other hand, point to the failure of past regulatory approaches (e.g., price controls, certificate of need) and the fact that health care markets haven’t been structured in a way to provide incentives for cost containment.  Intelligent and well-intentioned people can find good reasons to support either approach.

In the current national debate, we’ve largely made the choice to go down the Marketeer path.  Despite the protests of disappointed single payer advocates, all five major bills in Congress are based on a market-based approach.  If we did a word count of Congressional speeches on health reform during the past six months, it’s likely that “competition” and “choice” would be near the top.  And even wonky phrases like “cost conscious consumers”, “financial incentives”, and “transparency” have leaked into Congressional speeches, demonstrating that the Marketeers are in ascendance.

How does the “System Reform” approach fit into this?  As Altman says, it looks at the health care system from the “inside out”, and the System Reformers deserve credit for helping us understand how the health insurance and medical care markets really work.  But the solutions that Altman points to are tools, not systemic solutions.  These tools, such as electronic health records, comparative effectiveness research, and alternative payment mechanisms, have been around for a long time.  The problem is that they haven’t been used widely within the health insurance and medical delivery system. For example, most physicians have not been quick to adopt electronic health records, since there is little reward for making improvements in efficiency and quality in the current system.  The solution to this lies outside, i.e., with the purchasers, consumers and/or regulators.  In order for the system reform tools to be used by health insurers and providers, there needs to be pressure from the outside.  One way to do this is a Regulatory approach, e.g., establishing a single payer plan and requiring all physicians to accept salaries or capitation rates set by the government.  Another way is with a Market approach, e.g., establishing health insurance exchanges and reforming the individual and small group market to encourage healthy competition and provide incentives for improved cost, quality and customer service.

The Congressional bills have used the work of the System Reformers to turn the Marketeer approach from a guiding principle into something meaningful and practical in the health care system.  For example, using the information that John Wennberg, Elliott Fisher and their colleagues have documented in their enormously important  Dartmouth Atlas, the bills in Congress include pilots for Medicare payment reforms, such as bundling and pay-for-quality, which should reduce the geographic variation in costs and the inflationary effects of the current fee-for-service payment system.  Another example: System Reformers have pointed out that much of the medical care provided is not supported by evidence-based research; many physicians rely instead on simple protocols, community norms and what they were taught in medical school decades ago.  The lack of good clinical information has led to overuse as well as underuse of medical services, creating high costs and inconsistent quality of care.  Based on this finding, the bills in Congress include funding for comparative effectiveness research.  In a well-functioning market, good information is essential; CER will nudge the system toward more efficiency and higher value.

The work of the System Reformers is tremendously valuable, since it shows us what specifically needs to be done to improve our health insurance and medical care system.  This doesn’t, however, make it a “third school” of cost containment.  The current direction for health reform in Congress can be best understood as a Marketeer approach that is more likely to be effective in containing costs because it incorporates the System Reformers’ deep understanding of health markets.

Bill Kramer is an independent health care consultant, focusing on health care management, finance and public policy. Bill served as a senior executive with Kaiser Permanente for over 20 years, most recently as Chief Financial Officer for Kaiser Permanente’s Northwest Region. More information about Bill may be found at his website. You can read more of his commentaries on health care management and policy at his blog, Now’s the Time, where this post first appeared.