Evaluating Sanders’s Medicare for All Act of 2019, Part 7 (Conclusion)

Part 1 reviewed Title 1, which states that basically everyone will be covered and can receive care from pretty much any provider. Part 2 reviewed Title 2, which states that insurance benefits will be comprehensive without any regular out-of-pocket expenditures. Part 3 reviewed Titles 3 and 4, which lay down some provider standards and also some expectations regarding data reporting. Part 4 reviewed Titles 5 and 6, which establish some quality standards and a national health budget, plus it gives an updated process for how fee schedules will be made. Part 5 reviewed Titles 7, 8, and 9, which are primarily nuts and bolts of where tax money will be placed, some clarifying statements, and a lot of conforming  amendments. Part 6 reviewed Titles 10 and 11, which describe the transition plan and give a few definitions.

Now that we’ve spent all this time reading the bill and summarizing all 11 titles of it, let’s do some analysis.

First, here is a summary of the key points from Parts 1-6 that give the overall description of the style of M4A that this bill would create:

  • Coverage is universal–it will probably include everyone who is legally in U.S.
  • The government will have a monopoly on the essential benefits–meaning no duplicate coverage can be sold
  • Benefits will be comprehensive, including long-term care, vision, and dental, and states will have the freedom to add even more benefits
  • There will be no cost sharing requirements (including premiums, copays, coinsurance, etc.) except for $200 max annual cost for choosing brand name medications when generic alternatives are available
  • All providers who meet federal and state minimum requirements will be in network
  • Participating providers will be required to report outcomes and quality information in a standardized way
  • A national provider fee schedule will set prices nationwide (subject to a cost-of-living multiplier), and the making and updating of this fee schedule will be required to include MedPAC
  • A national health budget will be created annually, and my guess is that this will be used as a multiplier to reduce all prices across the board if that budget is exceeded
  • Drug prices will be negotiated annually

Remember that, of the three main issues everyone is trying to solve in healthcare systems (usually referred to as “cost, quality, and access”), the access piece is the simplest to understand. It’s conceptually easy to grasp how a government program could achieve universal coverage. This M4A bill is a prime example–just change Medicare eligibility criteria to include everyone in the country.

The most difficult of the three problems to crack is cost. Sure, a government can reduce prices to unilaterally lower cost (and when I say cost, really I mean total healthcare spending), but that would not change the actual cost of the inputs that go into delivering care to patients–it just means providers are getting paid less. And with average provider profits being less than 10%, that means that approach can only lower prices by a maximum of less than 10%. And with continued demographic changes and new medical innovations as they are, total healthcare spending will continue to go up and up even if we force profits down to zero.

You see the problem? Administratively lowering prices to control spending is not a winning or sustainable formula.

What we need is to find some way to get providers to innovate in ways that actually reduce the costs of delivering care. And to motivate providers to risk innovating like this, they need financial incentives. If they could be assured their value-improving innovation would somehow lead to greater profits, they would be willing to try. And if it succeeds, their competitors would also try the same thing.

What I’m saying is that if we could structure our healthcare system in a way that makes it clear to providers that they will increase their profitability if they find a way to deliver better value (usually this means equivalent quality at a lower price), then the incentives will be properly aligned for long-term reductions in total healthcare spending.

This isn’t something government can do directly–it’s not like CMS can say, “All providers do this specific thing differently and, voila, your cost of delivering care to your patients will decrease.” No, this is something that government can only create the incentives for and then watch how providers respond. It’s galling not to be able to control such an important thing directly. But this is the most important issue for all healthcare systems that no existing system has seemed to solve. This M4A bill we’ve been examining is no different.

What’s the solution? I’ve already spent many words explaining my Healthcare Incentives Framework, which shows in detail how to create those incentives for providers (and, if applicable, insurers). I won’t rehash all of it here. But I will summarize it by saying that if we can ensure that providers will win increased market share and profit when they raise their value relative to competitors, they will have a profit motivate to innovate in value-improving ways. That’s an important point.

How do we get market share to flow to higher-value providers? Patients have to be able to identify and then choose those higher-value providers! This is what they want to anyway. But how do we accomplish that?

It requires patients to have three things: (1) multiple provider options, (2) knowledge of the quality and price of each of those options beforehand, and (3) some incentive to actually be willing to consider price when choosing between providers.

That third requirement is not as intuitive. What I mean is that, if someone will pay the same price regardless of which option they choose, don’t you think they will ignore price and simply choose the highest-value option every time? Yes. But if they can choose a slightly lower-quality option and save hundreds or thousands of dollars, now they start considering price. The principle is this: patients must pay more if they choose a more expensive provider and pay less if they choose a less expensive provider. This is what will cause them to consider price as well, and it is what will assure providers that, if they find a way to lower their costs of delivering care and decide to lower their price, they will win more market share and increased profits.

Can we tweak this bill to enable all of that? Of course.

First, I commend the drafters for including a requirement to report standardized quality and outcomes data. Only with those data can you compare the relative quality of the different provider options. The Secretary just needs to make sure that the quality and outcome metrics they use are the ones most relevant to patients trying to choose between multiple provider options.

Next, we need to get patients to know prices beforehand. But just having access to the individual prices of the 30 different things that are included in a care episode isn’t enough. It needs to be a single price (known as a “bundled price”) that covers all the services involved in that care episode. This bundled price could be something like a surgery, or it could be a 60-minute diagnostic appointment, or it could even be a year’s worth of managing a chronic condition.

The challenge, here, is that all prices would be the same, so prices would become irrelevant and only quality would be considered. My recommendation is that this bill allows providers to offer to charge Medicare a lower price than the listed price, and then Medicare would have to share some of those savings with the patients who choose those cheaper providers. This could come in the form of cash rebates, although it might encourage people to find ailments for which they can choose cheaper providers and make some money off Medicare. I would rather it be money that is put toward reducing future expenses of some sort. If, for example, everyone had to at least pay an income-dependent nominal premium every year, the shared savings money from Medicare could go to reducing their future premiums. This may be too indirect/time lagged to provide sufficient immediate motivation to actually consider choosing a lower-cost provider, but I’m guessing that would be the most palatable way (in the minds of the sponsors of the bill) to achieve this.

Remember how this idea of getting patients to pay less if they choose a less-expensive provider fits into the big picture. If patients are motivated to choose providers based on quality and price, they will be choosing based on which is the highest value to them (because value is quality/price), and the incentives for providers to innovate to improve value relative to competitors will be in place.

I would also like to see a Medicare website (and accompanying app) that lists all providers in the region, their quality and outcomes data, and their prices. This would make it easier for people to choose providers based on quality and price.

Of course, there will always be healthcare services for which this kind of deliberate selection is impossible, either because the patient’s symptoms are too ambiguous to know even what they need, or because time or emotional capacity is limited. And many patients will not be able to integrate all these different pieces of information to make a rational decision. But even without 100% perfect decisions all the time, it will create a strong enough incentive for value-improving innovation that the cost of healthcare will go down and the quality will go up. And even for services that are not amenable to this kind of value-based decision, the value-improving innovations from other services will likely bleed into them as well.

So, I guess the Medicare for All Act of 2019 didn’t need as many changes as I expected when I was reading through it. A few simple yet substantial changes are all that it needs to make it truly transformative–not just from a coverage perspective, but also from a cost and quality perspective.

This bill is dead, but I’m confident another single-payer system bill will be proposed in the next few years, and I hope it includes the changes detailed here so that it will not create yet another healthcare system in the world that achieves universal coverage but at the expense of creating barriers to solving the cost and quality problems.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s