Tag: The ACA

Getting Pay-For-Performance Right

Feb 4, 2013• 4

By Ashish Jha, MD

Over the past decade, there has been yet another debate about whether pay-for-performance, the notion that the amount you get paid is tied to some measure of how you perform, “works” or not. It’s a silly debate, with proponents pointing to the logic that “you get what you pay for” and critics arguing that the evidence is not very encouraging. Both sides are right.

In really simple terms, pay-for-performance, or P4P, can be thought about in two buckets: the “pay” part (how much money is at stake) and the “performance” part (what are we paying for?). So, in this light, the proponents of P4P are right: you get what you pay for. The U.S. healthcare system has had a grand experiment with P4P: we currently pay based on volume of care and guess what? We get a lot of volume. Or, thinking about those two buckets, the current fee-for-service structure puts essentially 100% of the payments at risk (pay) and the performance part is simple: how much stuff can you do? When you put 100% of payments at risk and the performance measure is “stuff”, we end up with a healthcare system that does a tremendous amount of stuff to patients, whether they need it or not.

Against these incentives, new P4P programs have come in to alter the landscape. They suggest putting as much as 1% (though functionally much less than that) on a series of process measures. So, in this new world, 99%+ of the incentives are to do “stuff” to patients and a little less than 1% of the incentives are focused on adherence to “evidence-based care” (though the measures are often not very evidence-based, but let’s not get caught up in trivial details). There are other efforts that are even weaker. None of them seem to be working and the critics of P4P have seized on their failure, calling the entire approach of tying incentives to performance misguided.

The debate has been heightened by the new national “value-based purchasing” program that Congress authorized as part of the Affordable Care Act. Based on the best of intentions, Congress asked Medicare to run a program where 1% of a hospital’s payments (rising to 2% over several years) is tied to a series of process measures, patient experience measures, and eventually, mortality rates and efficiency measures. We tried a version of this for six years (the Premier Hospital Quality Incentives Demonstration) and it didn’t work. We will try again, with modest tweaks and changes. I really hope it improves patient outcomes, though one can understand why the skeptics aren’t convinced.Continue reading…

The Gold Plated Health Care System: What the New Numbers Tell Us about the State of the Economy

Feb 2, 2013• 36

By Jeff Goldsmith

For the third year in a row, national health spending in 2011 grew less than 4 percent, according to the CMS Office of the Actuary. However, the report said modest rebounds in pharmaceutical spending and physician visits pointed toward an acceleration of costs in 2012 and beyond. CMS’s analysts make much of the cyclical character of health spending’s relationship to economic growth and also forecast a doubling of cost growth in 2014 to coincide with the implementation of health reform.

This non-economist respectfully disagrees and believes the pause could be more durable, even after 2014. Something deeper and more troublesome than the recession is at work here. As observed last year, the health spending curve actually bent downward a decade ago, four years before the economic crisis. Health cost growth has now spent three years at a pre-Medicare (indeed, a pre-Kennedy Administration) low.

More Than The Recession Is At Work

Hospital inpatient admissions have been flat for nine years, and down for the past two, despite compelling incentives for hospitals to admit more patients. Even hospital outpatient volumes flat-lined in 2010 and 2011, after, seemingly, decades of near double-digit growth. Physician office visits peaked eight years ago, in 2005, and fell 10 percent from 2009 to 2011 before a modest rebound late in 2011 — all this despite the irresistible power of fee-for-service incentives to induce demand.

The modest rebound in pharmaceutical spending (2.9 percent growth) in 2011 appears to have been a blip. IMS Health reports that US pharmaceutical sales actually shrank in 2012, for the first time in recorded history, and that generic drugs vaulted to the high 70s as a percent of prescriptions!

There is no question that the recession’s 7-million increase in the uninsured depressed cost growth. But the main reason health cost growth has been slowing for ten years is the steadily growing number of Americans — insured or otherwise — that cannot afford to use the health system. The cost of health care may have played an unscripted role in the 2008 economic collapse. A 2011 analysis published in Health Affairs found that after accounting for increased health premium contributions, out-of-pocket spending growth and general inflation, families had a princely $95 more a month to spend on non-health items in 2009 than a decade earlier. To maintain their living standards, families doubled their household debt in just five years (2003-2008), a debt load that proved unsustainable. When consumers began defaulting on their mortgages, credit cards and car loans, the resultant chain reaction brought down our financial markets, and nearly resulted in a depression.

By sucking up consumers’ income since 2008, the rising cost of health benefits has weighed heavily upon the recovery. According to the 2012 Milliman Cost Index, the cost of health coverage rose by 32.8 percent from 2008 to 2012, while family income did not grow at all in real terms. The total cost (employer and employee contributions plus OOP spending) of a standard PPO policy for a US family of four was $20,700, almost 42 percent of the US household median income in 2012.

Could Wasteful Healthcare Spending Be Good for the Economy?

Jan 31, 2013• 25

By John Goodman

Suppose I throw a rock through a store owner’s window. You admonish me for this act of vandalism. But I reply that I have actually done a good deed.

The store owner will now have to employ someone to haul the broken glass away and someone else, perhaps, to clean up afterward. Then, the order of a new glass pane will create work and wages for the glassmaker. Plus, someone will have to install it. In short, my act of vandalism created jobs and income for others.

The French economist, Frédéric Bastiat called this type of reasoning the “fallacy of the broken window.” All the resources employed to remove the broken glass and install a new pane, he said, could have been employed to produce something else. Now they will not be. So society is not better off from my act of vandalism. It is worse off — by one pane of glass.

But there is a new type of Keynesian (to be distinguished from Keynes himself) that rejects the economist’s answer. Wasteful spending can actually be good, they argue. If so, they will love what happens in health care.

By some estimates one of every three dollars spent on health care is unnecessary and therefore wasteful. ObamaCare’s “wellness exams” for Medicare enrollees — so touted during the last election — is an example. Millions of taxpayer dollars will be spent on this service, yet there is no known medical benefit. Similarly, ObamaCare is encouraging all manner of preventive care — by requiring no deductibles or copayments — which is not cost effective.

About Time? Smokers Face Tough New Rules Under Obamacare

Jan 25, 2013• 105

By Dan Diamond

The Affordable Care Act contains a number of provisions intended to incent “personal responsibility,” or the notion that health care isn’t just a right — it’s an obligation. None of these measures is more prominent than the law’s individual mandate, designed to ensure that every American obtains health coverage or pays a fine for choosing to go uninsured.

But one provision that’s gotten much less attention — until recently — relates to smoking; specifically, the ACA allows payers to treat tobacco users very differently by opening the door to much higher premiums for this population.

That measure has some health policy analysts cheering, suggesting that higher premiums are necessary to raise revenue for the law and (hopefully) deter smokers’ bad habits. But other observers have warned that the ACA takes a heavy-handed stick to smokers who may be unhappily addicted to tobacco, rather than enticing them with a carrot to quit.

Under proposed rules, HHS would allow insurers to charge a smoker seeking health coverage in the individual market as much as 50% more in premiums than a non-smoker.

That difference in premiums may rapidly add up for smokers, given the expectation that Obamacare’s new medical-loss ratios already will lead to major cost hikes in the individual market. “For many people, in the years after the law, premiums aren’t just going to [go] up a little,” Peter Suderman predicts at Reason. “They’re going to rise a lot.”

Meanwhile, Ann Marie Marciarille, a law professor at the University of Missouri-Kansas City, adds that insurers have “considerable flexibility” in how to set up a potential surcharge for tobacco use. For example, insurers could apply a high surcharge for tobacco use in older smokers — perhaps several hundred dollars per month — further hitting a population that tends to be poorer.

Is this cost-shifting fair? The average American tends to think so.

And With the Stroke of a Pen, Health Insurance Exchanges Become Health Insurance Marketplaces ….

Jan 23, 2013• 6

By DAVID WILLIAMS

Thanks to David Kerrigan of the Massachusetts Health Connector for pointing out that the Obama Administration has suddenly switched terminology: health insurance exchanges are now health insurance marketplaces. I think it’s a great idea, which is why I wrote a blog post on this very topic on Friday. The Hill (Obama officials ditch ‘exchanges’ in rebranding of healthcare reform law) covers the story.

However, the Hill has a weird angle on this. The article heavily features an anti-ObamaCare activist, Dean Clancy who says:

“They could call them motherhood or apple pie, but it wouldn’t change our feelings about them… We’re encouraged that they’re showing signs of desperation. I think that it’s too late in the game to try to start calling this something different. And [we’re] not going to spend a lot of effort fighting over a word.”

Clancy’s website is called blockexchanges.com, so he may actually have more commitment to the word exchange than the Obama folks. Somehow blockmarketplaces.com just doesn’t have the same ring to it. (That domain is still available at this writing in case you want to grab it.) Blockexchanges also has some misleading information on its home page:

“Remember, without the state exchanges, ObamaCare cannot function.”

Actually, the federal government will step in if the states don’t.

Personally, I don’t sense desperation but rather a gradual wising up about what implementation will require. The term “marketplace” makes a good deal of sense for someone who is comparison shopping for health insurance. Here’s to more commonsense improvements as ObamaCare is rolled out.

David E. Williams is co-founder of MedPharma Partners LLC, strategy consultant in technology enabled health care services, pharma, biotech, and medical devices. Formerly with BCG and LEK. He writes regularly at Health Business Blog, where this post first appeared.

Why Employers Should Stop Worrying About Health Costs

Jan 23, 2013• 4

By Leah Binder

A report published by the Institute of Medicine (IOM) on high-value health care attracted attention when it was issued last June. Authored by a group of eleven leading hospital executives, A CEO Checklist for High-Value Health Care describes programs at various hospitals that resulted in quality improvements and lowered costs. The report has a section called “Yield,” quantifying the extent of these improvements. These programs sound notable, and in fact I know some of the executives and hospitals involved, and would vouch that many significantly improved patient care.

But the report is less impressive when it tackles the cost side of the value equation, especially when it names cost control outcomes like: “days cash on hand increased from 180 to 202,” and “multiple years of 4-5 percent [hospital] margin.” Clearly, the hospitals improved their own bottom lines, but by how much did patient bills decrease? The hospital executives don’t account for that in the “yield.”

It seems this report defines “high-value” to mean highly valuable to hospital CEOs. Strikingly, though, the authors do not find it necessary to explicitly say so anywhere within the report. Perhaps they simply assume that a high-value checklist for hospital CEOs is automatically high-value to CEOs in other industries that are paying for services from hospitals. No offense to these well-meaning and highly accomplished hospital executives, but that is not always the case. Purchasers don’t see high-value health care in hospital cash flow or profit margins. They see value when they get the best service at the best price.

In Defense of Narrow Networks

Jan 22, 2013• 27

By David Dranove & Craig Garthwaite

It wasn’t long ago that the newly established health exchanges were being celebrated. Before the ongoing website catastrophe, politicians and policymakers were lauding the low premiums in these new health insurance market places. On September 24, President Obama said, “And the premiums are significantly lower than what they were able to previously get … California — it’s about 33 percent lower. In my home state of Illinois, they just announced it’s about 25 percent lower.”

How times have changed! Even supporters of the exchanges have rightly criticized the technical problems that have prevented millions of Americans from signing up. However, many critics are also complaining about the large number of health plan offerings with “narrow networks” of physicians that enrollees can visit for medical services. The Missouri Health Advocacy Alliance expressed “major concern” when Anthem excluded BJC HealthCare from its narrow network. Seattle Children’s Hospital, which was excluded from several exchange plans, has sued the Washington State Office of Insurance for “failing to ensure adequate network coverage.”

Criticism of narrow networks is misguided and counterproductive. As we explain below, narrow networks will be of little consequence to most of the individuals who sign up for the exchanges, and the elimination of narrow networks could eliminate our single best opportunity to harness market forces to reduce costs and improve quality. Indeed, narrow networks are largely responsible for the low premiums that were being celebrated just one month ago.

So, What Exactly Is a Health Insurance Exchange Anyway???

Jan 21, 2013• 24

By David Williams

I’m a health care expert who follows health reform closely, so when I’m confused about something I know most people are.

When Massachusetts passed the universal coverage law in 2006 I didn’t understand exactly what the Connector was supposed to do. If they had called it a health insurance store or marketplace or comparison site I would have grasped the concept better. Once it’s explained it’s obvious, but why use the word “connector” in the first place?

The federal Affordable Care Act makes matters even worse. It calls these things health insurance “exchanges.”

That word has the wrong connotations. When I hear the word “exchange” I think of a stock exchange. That’s not somewhere I go to buy or compare products or services to use. Others think of “exchange” as what they do when they made a purchase that was the wrong size or received a gift they didn’t like.

Even for health wonks that fully grasp the concept, the word “exchange” is confusing, because the term is also used in the context of health information exchanges, which are used to exchange clinical data. I often hear people asking about the impact of the “exchange” –without specifying “insurance exchange” or “information exchange,” and I have to ask them which they mean.

There’s a simple solution to this: let’s dump the word “exchange” and use a term that’s more understandable and appropriate. How about:

Store
Marketplace
Comparison site
Supermarket

Obamacare’s Fiscal Cliff

Jan 21, 2013• 10

By John Goodman

Did you notice that in the standoff over the fiscal cliff, all the discussion was about the Bush tax cuts? Which ones would be made permanent? And for whom? There was no discussion about the ObamaCare tax increases. I think that was a huge tactical mistake on the part of the Republicans.

Over and over again, President Obama claimed he was trying to protect the middle class from higher taxes. It was a claim that went unchallenged ― by the Republicans and by the mainstream media.

Yet five of the tax increases Americans are facing this month are new taxes created under the Affordable Care Act (ObamaCare). Three of the five will hit people who are solidly middle class.

Next year, things will get worse. The new tax on health insurance is about as regressive as a tax can be. It will total $100 billion over the next 10 years and very little of that amount will be paid by anyone who can be called “rich.”

The health insurance tax will fall on private sector Medicaid plans, which have about 70% of all Medicaid enrollees.
The tax will fall on Medicare Advantage plans whose enrollees have below average incomes and are disproportionately minority.
The tax will hit every small business and every individual who buys insurance in the commercial market place.
The tax will not fall on self-insured plans whose enrollees include the highest paid workers and the highest paid CEOs.

Unleashing the Innovation Monster

Jan 16, 2013• 14

By David Dranove

I have been absent from the blogosphere for about two months. The fact is, there just isn’t all that much new to write about. Healthcare spending growth continues to moderate, but not by enough to stave off forecasts of doom for Medicare and Medicaid. Nor can employers begin to shift money from health benefits back into wages. But wheels are turning. Health networks are expanding as providers prepare to offer ACOs and/or increase their bargaining clout. A handful of states are poised to start up exchanges with the feds ready to take the reins in the laggard states. Aon/Hewitt is about ready to launch a private sector exchange. We will start to learn whether exchanges save or destroy private health insurance.

The Affordable Care Act has had many detractors but at least it has disrupted the status quo. We needed to see fundamental changes in how we pay for and deliver healthcare services and the ACA has delivered. But ACA has brought us a very particular set of changes. Time will tell if we have chosen the right path.

Even as the industry changes the way it does business, one critical aspect of change is missing. The faces are all the same. The same large systems that dominated the fee for service world seem poised to dominate the shared savings world, and the same insurers that dominated the traditional employer-based insurance market stand ready to dominate exchanges. Value might be created when old businesses play by new rules, but even more value is created when new players are free to enter and perhaps even break the rules.

Entry is the engine that drives economic progress. Entrants bring new technologies to manufacturing and new service models to sales. Threatened by entry, incumbents strive to innovate and improve customer service. This is as true in high tech industries as it is in the service economy. Research confirms that entry is ubiquitous – in a typical manufacturing industry, fully one third of established firms are replaced by entrants within five years. Though the data is not as readily available, turnover in the service sector is likely even higher.