Red or Blue Pill for Payment Reform? Both Won’t Work

Are the House and Senate giving us a false choice for how to control health care costs in Massachusetts? Aren’t there other options?

A few major themes have emerged from the two payment reform proposals and highlight the fact that they fail to align incentives for patients to be more involved in the purchase of their health insurance and their health care.

For example, even with full transparency of cost and quality (which is a huge lift on its own) for many patients, high-cost still correlates with higher quality in medicine. A recent report from Attorney General Coakley proved this theory wrong, but simply providing patients with cost data without placing the right incentives in their health plan to choose the low-cost high-quality provider will result in many selecting the most expensive care. As a result, these proposals will fall short of sustainably bending the cost curve.

There is another way for the Commonwealth- patient-centered health plans, see Health Affairs($) for national savings estimates. The impact would be significant in Massachusetts as less than 3% of residents are on a form of these plans, compared to 13% nationally.

Any reform of payment methods must be aware of limits on the state’s power to regulate the 53% of Massachusetts companies that are self-insured (and are therefore regulated by the federal government), and of course Medicare beneficiaries in the state. The bills do not touch long term care, prescription drugs, hospital fixed costs, health plan reserves, medical devices or insurance overhead. So what does that leave us, an awfully small pool out of the roughly $60B to cut from. From a practical standpoint, are we looking to “fix” our health care problems by laying off workers or severely reducing their pay? That is one of the few options left. Is that a long-term sustainable and innovative approach?

The media and most stakeholders have missed this point completely. Instead of debating what arbitrary reduction in growth we would like to see (if we are just making up numbers I propose GSP minus 10%).  We need to be realistic and have a debate about how these proposals will play out in implementation, the unintended consequences,  and how stakeholders will react to the incentives in the bill. (For example, how do we deal with those living in Massachusetts but receiving their care in another state. Or the other way around.)

My concern is that both houses of the legislature will pass their versions with some minor tweaks, and then in conference committee, behind closed doors and with lots of industry lobbying, a “compromise” will be struck taxing both insurers and providers.

From a consumer and long-term health sector perspective, this will be a raw deal.

It is built on two flawed assumptions. First that new taxes, assessments, and surcharges will not be passed onto consumers in some form. Second, that the answer to our health care problem is chasing previous flawed government intervention with more flawed government intervention. These two assumptions should not be the terms of debate for payment reform in Massachusetts. Is there a third pill to consider?

Joshua Archambault is director of health care policy at the Pioneer Institute where this post first appeared. He is also the co-author of The Great Experiment.