If I could do one pilot to show how healthcare needs to change, this is what I would do . . . (See my next post for the nuts and bolts of how this could be implemented.) (P.S. I know this isn’t of general interest even to people interested in health policy, but I wanted it to be available to the world, so here it is.)
Purpose
- Remove barriers to patients being able to choose the highest-value providers, which will reward those providers financially for being higher value and encourage lower-value providers to innovate to improve their value as well
Scope
- Initially, the pilot will only focus on a single care episode (for example, hip replacements)
Two Core Design Principles of the Pilot
- Uniform incentives for providers
- Engage patients to use quality and price when choosing among providers
How These Principles Will Be Implemented
- All payers (public and private) will be encouraged to participate inasmuch as regulation allows (see the note on Medicare and Medicaid participation below)
- Payers and providers will participate in determining the care episode to be tested, what services will be included in that care episode, and which quality metrics will be reported by all participating providers
- Providers will report the standardized quality metrics, which will be made available for patients to view on _____.org (this website needs to be a widely known one-stop-shop for patients to get information on healthcare providers’ quality)
- Payers and providers will amend contracts (if needed) to reimburse for the care episode via episode-based pricing; capitated contracts could also work, but there are issues*
- Payers will adjust cost-sharing requirements for the care episode to allow patients to bear all or part of the price differential between providers (by having patients pay less out of pocket when they choose lower-priced providers and/or by having them pay more out of pocket when they choose higher-priced providers) (for example, reference pricing or different copay tiers)
- Payers will also have mechanisms to assist patients who need help understanding these plan benefit changes
Predicted Impacts of the Pilot
- Short-term effect: More patients will choose higher-value providers (lower prices and/or higher quality) because they will have price and quality information and will have cost-sharing incentives to use that information when they make decisions among providers
- Long-term effect (will have a more significant impact on value): Providers will be assured profit increases via increased market share if they can innovate to raise their value relative to competitors, so provider-led value-improving innovation efforts will increase
- To be able to observe this long-term effect, we need to choose a care episode that is complex enough and variable enough in its cost and outcomes that there is a significant opportunity for care redesign to improve value (e.g., hip and knee replacements, coronary artery bypass grafts)
Why Broad Participation Is Key
- Without the majority of patients being engaged in this way, providers’ potential market share rewards for value improvements may be insufficient to spur innovation efforts
- If payer reimbursement policies are not uniform, providers’ value-improving innovations may result in reimbursement reductions (and, therefore, opposing incentives) from non-participating payers
- e.g., a provider redesigns post-surgical knee replacement care and reduces readmissions within 90 days by 50%; that provider will still receive the same amount of reimbursement from participating payers, but it will lose a substantial amount of revenue from non-participating payers, and this revenue reduction could be enough to dissuade providers from doing these care redesigns
Pilot Evaluation
- Data from an all-payer claims database will be used to track the average total price of the care episode in the market
- The pilot’s standardized quality metrics will be used to track to average quality of care
A Note on Medicare and Medicaid Participation
- Regulations on cost sharing for publicly insured patients will limit the ability for public payers to amend cost-sharing requirements; but, for the sake of providers having uniform incentives, public payers are encouraged to still participate by at least amending contracts with providers to reimburse them in the ways described above
- Public payers can be rewarded for pilot participation because they can set prospective prices at historical averages minus 2%, and providers will most likely be willing to accept the slight price reduction because it will be more than compensated for by the fact that they will get to keep all the savings they generate through their cost-lowering care innovations
* I won’t get into them now, but the issues have to do with the dilution of incentives caused by one party doing a lot of work to innovate and then having to share the benefits of that innovation with everyone in the organization. Would you do extra chores if your parents split the extra allowance you earned between you and all your siblings?
Clear Thinking on Healthcare 