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Building a Better Mousetrap

The story was front page and above the fold in The New York Times. Six teachers in Newark are leaving the traditional school system to start a public school of their own.

If the product was something other than education, this would have been no news at all. I would guess that the vast majority of businesses in this country were started by people who walked away from an employer, convinced that they could make a better product on their own. Teachers rarely have the opportunity to do the same, however. They are usually trapped in a system that does not allow innovation or experimentation and is ordinarily hostile to entrepreneurship.

What does all this have to do with health care? A lot. Doctors are just as trapped as teachers. And that is the most important defect in the health care system.

This, of course, is not the conventional view. The received wisdom in the health policy community is that doctors have too much freedom, not too little. Witness the wide variation in medical practice patterns — from city to city and region to region — all seemingly unrelated to medical outcomes. How can anyone defend that? Certainly not me. Where I part company with so many of my colleagues is that they blame the doctors for this problem — I blame the third-party payers.

Were we to look into the matter, I’m sure we would find wide variations in the practice of teaching from school to school, district to district and state to state. Yet I still maintain the teachers are essentially trapped. This may appear to be an oxymoron, but it’s really not. Both in education and in health care, the practitioners have a great deal of freedom to waste resources. But they have virtually no freedom to profit by discovering innovative ways of lowering costs and raising quality.

Practitioners in both these fields have no ability to do what Michael Porter and Elizabeth Teisberg in Redefining Health Care say is essential: to repackage and re-price their products in customer-pleasing ways — the way that producers in just about every other market can.

Could we learn something from the teachers? Newark is not alone. There are teacher-run public schools in Boston, Detroit, Los Angeles, New York and in the state of Minnesota. In some cases, they have the backing of the teachers’ unions. In general, I am very skeptical of the ability to solve this problem by dealing with third-party payers. But if the teachers can try it, why can’t we do the same in health care?

The health care analogue to all of this is something I have proposed for Medicare. Let doctors, hospitals and anybody on the provider side of the market be encouraged to propose ways of repackaging and repricing their products. Medicare should be open to any deal, so long as:

1.    The cost to the taxpayers does not go up;
2.    The quality of care to the patient does not go down; and
3.    The provider suggests a credible way of measuring outcomes six months or a year into the arrangement to make sure that rules 1 and 2 have not been violated.

To get us jump-started, I even propose to begin right away paying centers of excellence (that have already been studied to death) 50 cents for every dollar they are saving Medicare and then broadcast widely that Medicare welcomes more opportunities to re-contract with others.

What I imagine is a hustling, bustling cauldron of entrepreneurial activity — as provider energies are channeled into generating cost-reducing, quality-improving ideas, instead of focusing on how to maximize against Medicare’s reimbursement formulas.

Will it work? I don’t know. But I’m sure it has a better chance than the idea of D.C. bureaucrats dictating to doctors how they should practice medicine.

John C. Goodman, PhD, is president and CEO of the National Center for Policy Analysis.  He is also the Kellye Wright Fellow in health care. The mission of the Wright Fellowship is to promote a more patient-centered, consumer-driven health care system. Dr. Goodman’s Health Policy Blog is considered among the top conservative health care blogs on the internet where pro-free enterprise, private sector solutions to health care problems are discussed by top health policy experts from all sides of the political spectrum.

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  3. Paolo….actually no it doesn’t. If total expenditures stay the same, i.e. price paid for care delivered, but instead of insuring some portion of that members paid it directly, premium would drop, carrier profit might or might not, and no one else would be making it up. There is money to be made in the more efficient delivery of healthcare, transationally speaking. You can reduce carrier expense, taxes, and other expenses and not touch profit.
    ” Rebates are not disclosed and the pricing paradigm of PBMs is extremely murky. I have a close family member who does this for as a pharmacist and you are flat out wrong on this topic.”
    MG you caught me in a friendly mood so I will try to be nice about this. You have a close friend who is a pharmacist. I have contracts on my laptop, signed by both the PBM and group. Seeing as how I have personally sold this, just this week in fact I sat with a client and discussed rebates, I think I’ll stick to my facts over your hearsay.
    Item number 2, the problem is right there in the first sentenance, your with Aetna not OBA. You should really do something about that, you wouldn’t have so many problems. This week I signed up two clients that are rolling out a web site that allows members to look up pricing from their laptop. One of them is also implementing an MRI PPO to target the abuse in imaging. We are going to be able to replace $3700 hospital MRIs with $700 ones.
    3 average HSA deductible is $2000, about 15% of our business has HSAs. The average traditional deductible would be around $800. Our deductibles are the same as our competitors becuase when we take business from them we copy their exact same plan design, we just deliver it better. Total plan cost is single digit renewal, most of that is the premium paid to the carrier. Our claims portion is flat to negaitve depending on how long we have had the group. Longer we have had them the less we can reduce their claims from what they were.
    We have offices in two states. Business based in 14 or so. Lives in all 50. Company is barely worth multimillion if we didn’t count debt. If a good idea and hard work was enough to make you successful I would have retired by now. Trouble finding good staff, no access to capital to grow, regualtion in some states lock us out. Unfair competition from carriers. Not easy being a small business in the country no matter how great of a job you do or good your idea was.

  4. Nate – Some relevant counterpoints.
    1. Rebates are not disclosed and the pricing paradigm of PBMs is extremely murky. I have a close family member who does this for as a pharmacist and you are flat out wrong on this topic. It is not a transparent process or what of much a PBM does would go by the wayside.
    2. I actually just called my nursing advocate and several other departments with Aetna to get pricing info for an MRI I need and guess what – they gave me little to nothing that was of use. I was reduced to calling the providers directly at a few imaging centers and hospitals to try to get his information. Even then, it was problematic and limited over what I could get over the phone even though I knew the exact CPT codes I was seeking price quotes on.
    I also have really struggled to get the quality and pricing info I need for a family member in the past year who was afflicted with a rarer form of lupus and greatly struggled to get the information I needed even on drug pricing. If I did have experience with the healthy system and family/friends to help out, it would have been incredibly frustrating/overwhelming.
    3. So what is the average deductible on your plans compared to traditional plans in your area? What are you rate increases compared to your competitors?
    Ditto on the savings rate passed back to employees by their employees from high-deductible plans? Is it more than the 20-40% I have seen from most HR benefit consultants?
    If you have accomplished so much, I find it next to impossible to believe that you wouldn’t have been able to build up a company that was a multimillion operation that was in multiple states.

  5. If total health care expenditure does not change, then any decrease in premiums seen by one group must necessarily cause either (i) lower profits for the insurer or (ii) higher premiums for another group. It’s a zero-sum game.

  6. “completely disclosed/transparent especially around rebates.”
    Why would rebates and discounts not be transparent and disclosed? The only place that happens are in the plans Obama is trying to force everyone into. My clients know where their Rx money is going. Heck some of our plans are even passing rebates to the member at time of filling.
    “Are there significant information sources available on cost/quality/transparency available to make high-deductible plans work as advertised?”
    Yes we have access to plenty of information to make them work. And the information doesn’t always need disclosed directly to the member to be successful, by using a health advocate or nurse with access to the info you can accomplish the same thing.
    “the reason this was enacted that you generally just saw employers (mostly in the small market) moving to an incredibly high deductible (say $4-5k and up for a family) and pocketing most if not all of the savings.”
    BS, BS, and oh ya BS. There ain’t a person inteligent enough in the white house or his admin to know this. Unless you are the one selling these plans or the employer buying them you have no idea what the final benefits are to make such a statement. If you asked the DOI or carrier what the employee deductible is on my 600 clients they would say $5000. Not a single employee has a $5000 deductible though. That is why people that don’t understand the business shopuldn’t be regualting or critizing it.
    “Maybe you have clients which are the exception to this rule for the most part.”
    I know of 2 dozen other companies directly that are doing the exact same thing we are. I am aware of 50 more. People passing on a $5000 deductible are the rare exception not the norm and I have the facts t prove it.
    “Berwick’s job.”
    Berwick got his job becuase of the ” radical communist/socialist/fascist/anarchist/totalitarian/nazi” element, not for any acheivement he has ever accomplished in his life. he is an academic, he has never contributed anything successful to the healthcare market. I accomplished more in healthcare at the age of 18 1/2 then he has to this day. If at 25 they appointed me I would have already solved the Medicare and Medicaid problem and gone back to private sector work by now.
    Paolo, are best and almost all of our clients are the sick one you are talking about, open up I am going to try that honey crap people are talking about. It is a common misconception by those not daily involved in the delivery of insurance that high deductible plans are only good for the healthy. In fact, the severly sick usually benefit more. If an employer is getting single digit rate increases they don’t want to deal with me, most of you can’t stand me, imagine paying to have to deal with me, it is the groups that get 30% rate increases and have to do something that are of open mind to make changes. This is why I claim we really don’t have an affordability crisis in private insurance, most groups just aren’t bothered enough to do anything about it. Those that are call and fix the problem.

  7. Maybe off topic, but for the recent posts, I think this comment fits best here:
    Obama and all the supporters for this disgusting legislation we have been debating here, during the alleged debate to pass it, clearly said this was not a tax. And yet today, the defense by the Attorney General of the US Government, per the lawsuit filed in Florida by 20 states and heard in court TODAY, their defense was this was a tax, and thus out of the jurisdiction of states’ attack.
    What god damn hypocrisy, and you want these people to continue representing you in 2011? Again, you supporters are at least idiots, if not more nefariously have an agenda to screw the public and enjoy it!!!
    Again, why haven’t 1 of 279 people used their support of this legislation in their campaigning this reelection season? The silence is deafening!!!
    So is the laughter coming out of my house as this bs is just getting higher and deeper!!!

  8. High deductible plans don’t reduce the overall cost of healthcare, they just transfer risk to the insured away from the insurance company. People who take high deductible plans don’t ever envision having to pay the deductible, or at least don’t understand the risk of not being able to pay it, while getting some assumed peace of mind having at least some insurance. This is like offering a higher down payment for a car to reduce monthly payments, the cost of the car however is the same.

  9. The problem with very high-deductible policies is adverse selection. Very healthy individuals or small groups will obviously save money by partially self-insuring. But if every young and healthy group does this, then the only individuals/groups purchasing low-deductible policies will be the old and sick, making their policies a lot more expensive.
    Unless high-deductible insurance changes the behavior of small group participants, then the total spending on health care does not change. All you are doing is shifting cost from one group to another. And since the group that gets to pay more is the sick one, you can actually making health care less accessible to the overall population.
    In general, before you can evaluate whether a policy is good or not, you have to look at its total impact, not just its impact on those who benefit from it.

  10. MG, if Nate spent 1/2 as much time sharing data on what he & his groups have accomplished re: better health/lower cost as he does ranting about the political boogeymen under his bed, he’d be in line to take over that radical communist/socialist/fascist/anarchist/totalitarian/nazi Berwick’s job.
    I dearly hope the results ARE what Nate boasts of; and I sure wish he would do so with a teaspoon of honey rather than his buckets of vinegar.
    As for Dr. Goodman, here he seems uncharacteristically to be grasping at straws, rummaging for solutions he hasn’t sweat over much himself.

  11. Talking out of both sides of your mouth which is usual. The one area where tiering and transparency have generally worked is in pharmacy although there are still several problematic issues here especially around stuff that isn’t completely disclosed/transparent especially around rebates. I can believe that you are saving bucks here if you work aggressively with small employers.
    As for the other parts, you still didn’t answer my question. Are there significant information sources available on cost/quality/transparency available to make high-deductible plans work as advertised?
    As for the deductible issue, the reason this was enacted that you generally just saw employers (mostly in the small market) moving to an incredibly high deductible (say $4-5k and up for a family) and pocketing most if not all of the savings. Yeah employers do fund some of the difference back but from the figures I have seen it is generally in the 20-40% range while they pocket the rest.
    Maybe you have clients which are the exception to this rule for the most part. A $4-5k deductible (with a likely OOP of $7500 to 10k) to the average family earning about $40-$50k a year is quite significant.

  12. I have 600 total small groups, 2-300, lives doing it. They reduce the premium they pay to the carrier minimum 20% usually closer to 50% and sometimes even higher.
    We are constantly below what the carriers can offer becuase we work with the employees. We teach them how to pick cost effective providers, we show them how to shop for Rx. We share discount info. All the stuff you say isn’t being done we are doing.
    The Irony in all this, the real laugher, is your left as far left as left goes brainless President basically outlawed what we are doing effective 1/1/2014 when he mandated you can’t sell plans with a deductible greater then $2000. When people knock the right claiming we don’t have ideas, or we are short on details then ignore we are actually doing what we say while your socialist commrade ruins it all is what pisses me off more then anything. Everything is propoganda and politicis 24/7/365, you people on the left will lie your ass off no matter how much it hurts the country.
    So come 1/1/2014 when all my clients are forced to go back to the fully insured carrier and buy the low deductible Obama says they should and their cost goes up 20%+ have you figured out how your going to blame the right for that? When they have to cut benefits, replace their current $500 deductible with the Obama 2K and still pass on sizeable increases to the employees you have your talking points on how it is all the rights fault cause we didn’t have any ideas right?
    Rarely do I have a client who sees their cost go up more then 10%. Most are low single digits. We have a proven and effect solution to solve the problem….and Obama outlaws it, then MG follows up and says we lack ideas and specifics.

  13. We have had this discussion on here several times and you always dance around the topic of their being the necessary infrastructure and cost/quality/safety information available to really enable high-deductible plans to work as advertised?
    As for your particular group with 80 or so groups, I am surprised you were able to see that magnitude of difference in premiums. Generally what I have seen with high-deductible plans is that you get a one-time savings of about 15-20% if they actually fund down the deductible like your example or if they contribute to an HSA/HRA but that the rates going ahead forward are nearly equal to traditional PPO plans.

  14. MG what is it you do for a living? You sure don’t have a clue what your talking about with insurance. Lets talk high deductibles.
    1/1/10 we moved a block of 80 or so groups from traditional deductibles to a high deductible. This cut their premium from 5.4 million to roughly 2.6 million. The groups then self fund back down to the deductible they had prior to 1/1. So far they have saved roughly $600,000, annual savings should come in just under 1,000,000.
    I find it very interesting when liberals with their head up their back side make comments like;
    “what passes for ‘ideas’ on the right-side of the spectrum.”
    “would agree with in theory but provides little to no details in terms of how we accomplish this with our current system.”
    ” In theory, it sounds great with plenty of great buzzwords and general theories. In actuality, the U.S. healthcare system is nowhere near it needs to be in terms of being able to support such a system”
    Maybe you don’t understand the difference between a theory and reality, we aren’t proposing theroies we are proposing actual working solutions that have been tested and work. Unlike you liberals who are full of nothing but theories that never pan out, everything being proposed is tested and in practice.
    Please do share more how the stuff my 600 clients are doing today are nothing but theories that won’t work in 2015 even though they have been doing it successfully for 20 years.

  15. For doctors, the way to lower costs is for them to do less (fewer visits, fewer procedures). This lowers their income so is a non-starter. The only way around this is to pay a “per member per month” fee to the doctor (capitation). I believe that this was tried and failed for a large number of reasons… Is this what you are proposing?
    I believe that Kaiser has doctors on salary so this removes the incentive to do more procedures to make the next boat payment. The doctors in Kaiser seem to be very happy (and so do the patients).

  16. This is essentially the essence of what passes for ‘ideas’ on the right-side of the spectrum. It is like rehashed and rewarmed ideas that most reasonable people would agree with in theory but provides little to no details in terms of how we accomplish this with our current system.
    It is kind of like the whole idea around ‘consumer-directed health plans’ with HSAs/HRAs. In theory, it sounds great with plenty of great buzzwords and general theories. In actuality, the U.S. healthcare system is nowhere near it needs to be in terms of being able to support such a system and it won’t be even after 2015.
    Kind of reminds me of ‘1. Incent Providers 2. ??? 3. Improved outcomes, lower cost!’

  17. ” I blame the third-party payers.”
    I think your missing the word public in their John. Every State I have ever operated in there were/are doctor owned plans. Nothing in private insurance prevents doctors from trying anything they want. The CA HMO/IPA/PHO etc etc period being a clear example. For the most part history has been very convincing in proving doctors are terrible entrepreneurs from the standard business sense. They just aren’t very good business men, more of the artist type.
    I don’t like the idea of rewarding someone for fixing something they broke. That’s like paying a contractor to repair a building they built wrong, something very governmenty to do. Instead let them compete, we need to devise a system where the most efficient profit more and the less efficient are forced out of business and replaced by new entites with new ideas. Let hospitals create slim networks and bid for lives. Medicare will pay a base cost and members will pay the difference, efficent and well serving hospitals will attract more business and poor ones will be forced to improve or go out of business.

  18. Great Idea! However, as a consumer;it seems that the provider fails to understand that eliminating the Hold of insurance companies upon providers and consumers alike. Is the only possible way to eliminate waste and streamline administrative overhead.
    Employer Based Health Insurance has and is a miserable administrator of Health Insurance. Seeking the best advantage for themselves and passing terminally ill insurance plans onto employees. Insurance needs to be accountable directly to the member.Not the Administrator which has no personal interests in your concerns.Please,stop overlooking the consumer as a means to reduce cost.After all your providers have done nothing toward reducing costs of care.

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