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A Kinder, Gentler Approach to Managing Health Care Risk

Health care’s purchasers crave certainty. But complexity – and therefore uncertainty – rules. Assurances are hard to come by.

The most common question asked by prospective clients of my onsite clinic/medical management firm is how much less their employee health benefits will cost if they deploy our services. They often expect that we’ll review their claims history and nail down what their health care will cost once we’re involved. Looking in the rear view mirror can inform the future, but it isn’t foolproof.

The Complexity of Health Care Risk

The challenge here is that so many different mechanisms contribute to the need for care, the ways care is accessed, the ways care is delivered, and the ways it is priced. Even mechanisms that, in isolation, are strong, often are inadequate in the context of larger cost drivers.

This means that while predicting results in general terms is straightforward, doing so with any precision or specificity is a challenge. My firm can point to consistent previous performance with other clients, and show that in most cases we generate a 15+ percent overall savings on group health expenditures, net of the clinic investment. And we can detail how our management of the process is both broader and more targeted than the management of risks before we arrived. But while we’ll sometimes guarantee certain performance targets, we also know that the cards can and will sometimes fall against us.


Even Useful Management Approaches May Prove Inadequate

In the onsite clinic sector, vendors often describe the savings they’ll generate in terms of “replacement” costs. They may argue, for example, that a clinic office visit will cost $X less than on the health plan network. Drugs and labs will cost $Y less in the clinic’s dispensary than they would outside.

This is certainly true. Many primary care services can be delivered more cost effectively in a clinic than in a conventional primary care practice that is trying to optimize the revenue opportunities available through fee-for-service reimbursement.

But a clinic’s unit cost savings may not be large enough to reduce overall health plan costs. Health plan performance is shaped not just by clinical management, but also by financial and administrative influences. Even good primary care, which we know creates positive impacts throughout the system, isn’t an adequate check on a system that, over decades, has developed many often subtle ways to extract more money than it is legitimately entitled to.

The failure to address the robust mechanisms that underlie care and cost may account in part for the fact that, even with the addition of screening, care managers and other components, most medical homes developed in traditional primary care practices have been unable to demonstrate measurable savings or health improvements.

Vectors Of Health Care Risk

It can be useful to list some of the drivers of risk, as a way of developing a broader strategy.

Of course there are the conditions that require care. Health care must tend to the entire range of health experience: pregnancy, injuries, diabetic episodes, incontinence, heart attack, arthritis, neurological disease and everything in between. Frailties can come on us suddenly, in a stroke or a fall, or be progressive and chronic, as with asthma or cancer.

In groups or regions, these issues may be spun by cultural tendencies. Some behaviors generate or exacerbate health conditions. And, as the Dartmouth Atlas makes clear, health care providers in different markets may respond to the same conditions with entirely different care and cost patterns.

But our health system also has financial incentives that encourage overtreatment, drive up pricing, keep information isolated, and steer patients to particular sites, often independent of appropriateness or performance. Quality and cost results can vary wildly, depending on which doctor was seen, whether information could be seamlessly exchanged, whether the care was coordinated, and many other factors.

Layer on top of this whether people are willing to engage in their own health. Will they participate in approaches that are designed to identify problems and follow a regimen to manage ongoing conditions?

We also know that incentives can influence lifestyle, how care is accessed and how it is adhered to, and therefore the health outcomes and costs that result. Carrots and sticks can encourage patients to follow rules built around what’s known to work: doctors and services that offer the best value, letting the primary care physician be your patient advocate and guide, bringing specialty information back to the primary care doctor.

And then there’s just plain poor health and bad luck, which drive catastrophic cases, the fastest growing area of health care cost. People in automobile accidents or suffering major illness. Munich Re recently reported that the percentage of cases that exceed $1 million grew seven-fold over the past decade. Many high cost cases involve misdiagnosis and mismanagement that result in poor quality and excessive cost, one reason behind Walmart’s recent Center-of-Excellence contract announcement.

Multi-Vectored Problems Require Multi-Vectored Solutions
The deeper point is that much of this turmoil can be managed more effectively but that doing so requires a multi-focused effort. The emerging models for improving care and cost can’t only rely on primary care, or selecting better doctors and hospitals, but will leverage incentives, data-driven narrow networks, volume-based contracts, clinical decision support, care-neutral reimbursement, and a host of other mechanisms that can bring health care back into homeostasis.

In other words, the new way of managing care isn’t just about replacing a higher cost service out on the plan with a lower cost one in the clinic. It’s about changing the care patterns and many of the structures that support that care. It’s about better ways to manage the processes that undergird care and cost. And while it may be difficult to precisely forecast the result each time, it isn’t hard to understand that the path to that result is less rigged, better for the patient and better for the purchaser.

Brian Klepper, PhD is an independent health care analyst and Chief Development Officer for WeCare TLC Onsite Clinics. His website, Replace the RUC, provides extensive background on the role that the AMA’s RVS Update Committee has had on America’s health care cost crisis. This essay originally was published inMedscape Connect Care and Cost Blog.

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MD as HELLCindy RPeterJanie Williams, RNBrian Klepper Recent comment authors
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Brian Klepper
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Yes, MD as Hell, as I’ve said on many occasions the patient gets the short end of the stick. The current system structure and incentives cause patients to get a lot more procedures, including surgeries, than they need, often with significant risk and harm attached. It also causes them, as purchasers, to pay double what patients in other industrialized countries do for what is often poorer quality care.

MD as HELL
Guest
MD as HELL

Is there a patient under all this? Usually there is a pony.

Cindy R
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Cindy R

Margalit –
I couldn’t agree with your comments more. And don’t we really want to INCREASE the utilization of primary care?

Brian Klepper
Guest

Margalit, You don’t get any argument from me on large risk pools – unfortunately, its impossible to do away with the concept of risk. You can only have very large pools and try to dilute its impacts. That said, the current political environment is not receptive to monkeying with a structure that’s been very good to the most influential players. You can have the best ideas in the world, but the policy world isn’t going to consider them unless they accrue to the benefit of the guys in charge. Don’t waffle on the term appropriateness. There are many, many different… Read more »

Margalit Gur-Arie
Guest

Thank you, Brian. This is very helpful.

Only one last quibble, I am not certain that the incentives in most of Europe (NHS excluded) are that different, seeing that fee for service is the most common way of paying doctors.
Maybe we should look at the model from 25 years ago and see why it got corrupted over time…. I have my theories, of course…. 🙂

Margalit Gur-Arie
Guest

Brian, I am looking at other countries, not just different regions in this one country, and what I am seeing is based on OECD averages for each nation. 1) Utilization is inline with everybody else, with few notable exceptions. 2) Unit prices are orders of magnitude higher than everywhere else. Overall price is equal to utilization times unit price and you can reduce either one to lower your overall price. What perplexes me to no end is the obsession with reducing utilization/volume, not surgically where needed, but across the board in broad strokes, as a measure to control prices, instead… Read more »

Brian Klepper
Guest

Peter, While I agree with you that people often have their priorities out of kilter, health care does not cost $20. Last year’s Milliman Medical Index showed that the average family of 4 now spends north of $20K/year. I have clients in Wisconsin that are currently spending more than $19K/employee, and that doesn’t include the employee’s out-of-pocket costs. Much of this cost is unnecessary and inappropriate, and stems from predatory unit pricing – see todays LA Times article (http://www.latimes.com/business/money/la-fi-mo-medical-bills-20130201,0,3225077.story) – and over-treatment. Most doctors aren’t, as you put it, on “salaries.” Their income derives from piecework, so the more they… Read more »

Brian Klepper
Guest

Margalit, That would be true if your assumption was correct, but it isn’t. Waste is not concentrated in just a few areas. It is rampant in the specialties, because most specialists earn the lion’s share of their income on diagnostics and procedures. Specialists in most regional medical centers also are paid as a percentage of what they prescribe, so there is a symbiotic relationship that foments excess. Your argument also ignores that tremendous practice variation between physicians within specialty and markets for a given condition, with episodic costs typically and consistently ranging 6x-8x between the highest and lowest cost specialist.… Read more »

Peter
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Peter

Brian,

Thank you for your thoughts. I really dont think $500,000/yr is too much at all as i often find that people don’t prioritize correctly. They would rather have things (clothes, computers, entertainment……) than pay for their health care. People bulk at 20.00 copay which is ridiculous as they willingly pay 20.00 for so many other ‘things’. I don’t see physicians salaries as the burden at all.

Margalit Gur-Arie
Guest

Brian, We sort of know which services are most likely to be inappropriate and unnecessary, or at least overused compared to other developed countries. It’s not doctor visits, certainly not primary care doctor visits; it’s not hospitalizations; it’s not length of stay; and it’s not most other procedures. It’s expensive scans and some semi-elective stuff. So why are we coming down as a ton of bricks on people that a) derive no financial benefit from the excess and b) are the most logical venue by which to curb this excess, if and only if, they are empowered to check the… Read more »

Brian Klepper
Guest

Nothing is wrong with $500k/year, Peter, if the value you provide is very significant and appropriate. But in a system where we know that as much as 55% of the services are inappropriate and unnecessary, it may be excessive for an entire class of professionals to consistently make more than 10x the household income of the national population, and more than 20x the income of 1/3 of the population. Keep in mind that this reimbursement has not been established, as Jeff Goldsmith recently pointed out, by market forces, but through administrative mechanisms. In other words, they’re artificial. It’s a pretty… Read more »

Peter
Guest
Peter

What is wrong with 500,000/year, Brian?

Brian Klepper
Guest

Janie, No, the extremely modest reimbursement cuts by CMS and the health plans has not caused increases in volumes. Those volumes have been generated by the unit pricing of specific services that has made them so lucrative. (See https://thehealthcareblog.com/blog/2013/02/06/the-untouchables/ or https://thehealthcareblog.com/blog/2012/08/01/why-medical-management-will-re-emerge/). The data on this phenomenon are overwhelming and definitive. When you say that “doctors are not getting rich on these gigs,” it depends on which doctors you’re talking about and what you mean by rich. Practicing physicians aren’t in Bill Gates or Warren Buffett’s league, but orthopedic surgeons, radiologists, cardiologists, dermatologists, ophthalmologists and other specialists can often expect to… Read more »

Brian Klepper
Guest

Margalit, Under the old paradigm, it was very difficult for small or large Centers of Excellence (COE) to be identified, known and influential. The proliferation of data has made the golden pockets of medicine you allude to much more visible and accessible, and relatively small organizations like Virginia Mason in Seattle have suddenly been propelled to the spotlight as a result. The COE program pursued by groups like Walmart, Lowes, Pepsico and others, has effectively served notice that appropriateness, value and a willingness to be transparent on quality, safety and cost will matter to purchasers. It also serves notice to… Read more »

Margalit Gur-Arie
Guest

Brian, I don’t think that we are living in a Golden Era of Medicine, but I do believe that we used to live in an era that made it possible to have Golden pockets of Medicine, albeit inequitably distributed amongst our people. What I would have liked to see is the identification and expansion of these pockets of excellence, including the tiny ones that no one wants to discuss, into larger and larger areas, until everybody has access to excellence. Instead, what I see is a new paradigm based on meaningless and very loud slogans (e.g. value instead of volume,… Read more »

Janie Williams, RN
Guest
Janie Williams, RN

Funny, just as the wage and price freeze of the 1970s caused the worst inflation in our country’s history, the continued cutting of and uncertainty in physician payments by CMS and most insurers, have caused the volume oddity you describe. Innovation has been up front and center, enabling tests and reports to be done quicker enabling the volume to increase so that those signing the orders can continue to pay their mortgages. Doctors are not getting rich with these gigs. the hosptial executives and insurance executives are, while the patients are the grist for their cash registers. You forgot to… Read more »