Are Patients Smart Enough to Choose Higher-value Providers and Insurers?

I’ve been hearing the argument lately that healthcare is so complex that patients are incapable of making good decisions. I (mostly) disagree. Here’s how I break this argument down:

Treatment decisions: This is when the patient weighs the different treatment options’ risks and benefits and decides on the one that is right for them. This certainly cannot be done without the assistance of a physician, who needs to simplify those risks and benefits and help clarify which ones are most relevant to the patient. Shared decision making! These decisions are important and determine many aspects of healthcare spending and patient outcomes and satisfaction, but they are not integral to fixing the healthcare system.

Insurance plan decisions: This refers to patients choosing which insurance plan they will get. There are actually usually two rounds of decisions for this. The first-round decision is done by the employer, which narrows down the many options in the region to just a few. Then the employee does the second-round decision of choosing one of those options. A similar process happens with Medicaid in many states–Medicaid contracts with a few different insurers, and the enrollee chooses one. And even Medicare Advantage has a similar two-round decision. Patients need to understand what their likely care expenses will be that year (super tough to predict for many people!) and then choose the plan that seems most likely to cover those care needs with the lowest out-of-pocket spending. And since out-of-pocket spending is a combination of many things (deductible, copays, coinsurance, other alternative payment schemes like reference pricing or multi-tiered networks), this can get pretty complex, and would likely be impossible for a majority of people to easily identify the plan that would be best for them. The two-round decision most people face simplifies this quite a bit by narrowing down the options (at the risk of agency costs), but sometimes there are still too many options. And for those dealing with the open market without a first-round decision narrowing down their options, ways to simplify their selection are an absolute necessity. That’s why I like the idea of dividing plans into different standardized tiers according to their coverage, networks, and out-of-pocket requirements. Software-encoded decision algorithms, which have a patient put in their information and then identify the plan best suited to them, are also great.

Provider decisions: Patients get to choose which providers they go to for care. Lumped in this category is also imaging options (like my experience shopping for an MRI), lab options, and any other medical services they may need. These provider decisions are subject to two rounds of decisions just like insurance plans. The insurer does the first-round decision by narrowing down the provider options (the “in-network providers”), and then the patient typically chooses one of those. What do you need to understand to be able to choose the best provider? I’ve talked about this elsewhere. Patients need simple, salient quality metrics, and they need to know their expected overall out-of-pocket costs. Relatively well-educated people can use well-structured information like that and 80% of them will make the right decision. I don’t know what percent of people with less education can make the right decision when there’s an obvious right answer, but certainly it will be much lower.

So, can patients make good provider and insurer decisions? I believe most of them can if they have the right information and the incentives to consider both cost and quality of the options available to them. It will never be 100%, but that’s okay, because we don’t need 100% of people to make a perfectly rational high-value decision in order to get the changes necessary to start fixing healthcare.

The Impact of Single Payer on Healthcare Spending

warren sanders
Image credit: politico.com

One of the main reasons people are pushing for a single-payer system in the U.S. (termed “Medicare for All” these days) is to achieve universal access to insurance coverage. But what about its impact on total healthcare spending? This is how I think about that question.

First, remember that there are two aspects of spending that we need to be thinking about. The level of spending is how much we’re currently spending, and the trend of spending is how much that amount is increasing over time.

Level of Spending. Even though a single-payer system will increase the number of people with insurance, it’s possible it could still reduce the level of spending overall (although estimates vary widely). How could it save money? The overall cost to administer health insurance would probably go down simply due to sheer economies of scale (of course, this is debated too). Plus, the amount of advertising done by a single government-run insurer will be less than the amount currently being spent by private insurance companies. Single payer allows greater price control as well, so that could be a huge savings (although, if it means paying all providers current Medicare rates, that could be catastrophic).

Trend of Spending. Healthcare spending continues to increase faster than inflation, mostly due to medical innovation, rising prices, and an older and sicker population. Would single payer affect our trend of spending? Well, sort of. It can refuse to increase prices, which is a very tempting spending reduction mechanism that our government has tried in healthcare before (ahem, SGR). But with the relative administrative simplicity single payer would bring to providers, there would be at least some wiggle room for price reductions. Or it could refuse to cover low-yield or really expensive drugs and treatments (rationing), which we generally don’t take well to in this country. Unfortunately, there just aren’t a lot of effective ways single payer can directly impact the trend of spending, which is ultimately the most important one.

I know I’m leaving out lots of other impacts Medicare for All would have on the level and trend of spending, but I think I’ve covered most of the major ones.

So does this mean we are doomed then? Even if we get universal coverage, there’s no way to avoid total fiscal collapse secondary to runaway healthcare spending? No! Implemented correctly, single payer could do a great job helping to avoid many episodes of care, and it could also enable the costs of delivering the care that cannot be avoided to go down immensely. I’ve explained how already.

So let’s just keep all this in mind as Medicare for All is being debated. People can quibble about the projected savings/costs and various other numbers all day long, but the important part in the long run is how it’s implemented.

Why Isn’t Price Transparency Working in Healthcare?

transparent
Image credit: wish.com

I strongly believe that getting people the information and incentives necessary to choose higher-value providers and insurers is the solution to improving value in healthcare (see my Healthcare Incentives Framework). But, you say, we’ve tried that and it doesn’t work, and current efforts are a waste of time!

Here’s an example of some great research that you might use to support your opinion:

Examining a Health Care Price Transparency Tool: Who Uses It, and How They Shop for Care (Sinaiko and Rosenthal, Health Affairs, April 2016)

The news media would see this and report the main findings–that only 3% of enrollees used Aetna’s price comparison tool–and argue that even people who have the opportunity to shop for care will not do it, which they will interpret to mean any “consumer-driven” healthcare effort is proven through evidence not to work. People can wrest information to prove whatever they want.

But what if you actually read the study?

Sinaiko and Rosenthal found that only about 60% of enrollees even had a claim during their study period. And of those 60%, I’m guessing a large percentage of those were outpatient visits (primary care or specialty) with established providers, which are claim types that people historically do not shop for. Think about it, if you have your favorite hairdresser who knows you best, you have a relationship with that person, and you like how they cut your hair, are you going to price shop every single time you need to get your hair cut?

Now take out all the non-shoppable services (the subject of a future post), and we’re left with a relatively small percentage of enrollees who may have actually had a reason to shop for care. But, wait, what about the people whose insurance plan required them to pay the same amount regardless of which provider they chose? (Remember, people need an incentive to choose higher-value options.) I wish I had the numbers to know what percent of enrollees would be left after all those exclusions. 30%? 10%? Those enrollees would be the target audience who we want to use the price comparison tool.

I assume Aetna did a good job notifying people about this price comparison tool, so maybe 75% of people read the mailer and then half of them remembered it when it came time to shop for care. Why only half? Because people aren’t yet accustomed to shopping around for value in healthcare. They’re used to going to the lab their doctor tells them to go to, for example. It doesn’t even cross their mind that there are cheaper options out there. I think there’s also an assumption that you have to go where your doctor tells you to otherwise your doctor can’t get the results. Thanks, non-interoperable EMRs.

So what are we left with? 3% of enrollees seems about right.

What about shoppable services, specifically? Considering all the factors above, the percent of people getting those services who actually shopped first blew me away. Tonsillectomy: 54%. Total knee replacement: 48%. Inguinal hernia repair: 27%. Cararact or lens procedure: 18%. Vaginal delivery or C section: 16%. Carpal tunnel release: 12%. These lower-percentage ones strike me as the ones that would more commonly be performed by a doctor you’re already established with (again, making you less likely to shop around), but I could be wrong here.

Anyway, you know what this proves to me? That price comparison tools can work! And I believe they will be used more and more as people start getting insurance plans that require them to pay more for more expensive options, and as they remember they can shop for price. The younger generation will probably drive a lot of this because they will be more used to using these tools and shopping for care and will eventually get older and start needing more services.

Here’s another great paper on this topic:

Americans Support Price Shopping for Health Care, But Few Actually Seek Out Price Information (Mehrotra, Dean, Sinaiko, and Sood, Health Affairs, August 2017)

This study supports what I’ve written above. Here are some takeaways from it. It’s looking specifically at people who have the type of insurance plans that would give them an incentive to compare prices:

  • 72% of people think it’s really important to shop for value in healthcare
  • 93% of people know prices vary greatly among providers
  • Only 22% of people think higher prices in healthcare equate to better quality
  • 75% of people said they don’t know of a resource they can use to compare costs among providers
  • 77% of people who didn’t price shop for their last healthcare service said it was because they were seeing a provider with whom they were already established
  • Only 1% said they didn’t shop because it was emergency care

A Framework for Categorizing Governments

One of my favorite things is exhaustive, mutually exclusive categorizations. This was true of me even as a teenager, I just didn’t recognize it yet. So when I was taught about different types of governments in my Canadian high school social studies class (democracy, parliamentary system, capitalism, socialism, fascism, communism, etc.), it really bothered me that I couldn’t plot them all on a spectrum to compare them. Many years later, I think I’ve solved this conundrum. I have identified 5 spectra governments can be plotted on, and the best part is that they are exhaustive and mutually exclusive:

1. Political spectrum: Who makes the laws
(autocracy/single person <—-> democracy/everyone)

2. Legal spectrum: How much the laws are spelled out beforehand
(rule of man <—-> rule of law)

3. Economic spectrum: Locus of decision making about the distribution and use of resources
(planned economy/centralized <—-> capitalism/decentralized)

4. Welfare spectrum: Degree of wealth redistribution
(zero <—-> full)

5. Liberty spectrum: Degree of freedom of speech, religion, relocation, job, drugs, sexuality, etc.
(zero <—-> full)

A few comments on these:

Some of these spectra interact. By this I mean that if a government sits at one end of one spectrum, this affects where it is likely to sit on other spectra. For example, an autocracy is more likely to sit closer to the “zero” side of the liberty spectrum because autocrats often limit liberties to maintain their power.

Most of the general government categorizations we think about are silent regarding multiple spectra. For example, when we think of socialism, we usually only think of two of the spectra: the economic spectrum (government ownership of the means of production, so it’s on the “centralized” side) and the welfare spectrum (lots of wealth redistribution). These two characteristics could be instituted by very different governments and still technically be called socialism, such as by a democracy that has a very well-defined body of laws and a ton of freedom about everything else, or by an autocracy where a dictator rules by the law of himself and allows very few freedoms about most things. It helps me understand different government ideals (such as socialism and fascism) better when I try plotting them on these five spectra to see where they land on the ones they have opinions about and also to see which ones they are silent on.

Much of the confusion that occurs when discussing the merits of different governments comes from confusing/mixing these spectra. When you use a single term to refer to multiple spectra (socialism, communism, fascism, etc.), the different spectra seem to get mixed together and the conversation loses clarity. Someone may be talking about their interest in socialism because they feel that significant wealth redistribution is the morally right thing for a society to do, but they may also believe that capitalism/decentralized is the most efficient way to organize an economy to generate sufficient wealth to be able to carry out that welfare. You have to identify the different spectra individually.

A constitution, when seen in the context of this framework, is simply a document that provides hard end points for how far a government can shift toward one end or the other of these five spectra.

A person’s ideas about how to fix healthcare are inseparable from their opinions about government more generally, so our conversations about both will be more productive when we communicate clearly which spectrum we are talking about.

What I Learned from Shopping for an MRI

mri
Image credit: gehealthcare.com

My wife is a runner and recently improved her running form to avoid injury. Unfortunately, forefoot strikes were new for her feet, and she was going too fast and too far for her anatomy to respond appropriately. During runs, she began having forefoot pain, which progressed to hurt even with walking. This is a classic story for a stress fracture, and her workup led to an MRI.

Knowing of massive price variations in healthcare markets, I suggested she call around to shop for the best price. Here’s what she found:

Option A (20 minutes away): $500 self-pay, $850 with insurance

Option B (40 minutes away): $640 self-pay, $920 with insurance

Option C (40 minutes away): $400 self-pay,

Option D (40 minutes away): $400 self-pay,

Option E (20 minutes away): $675 self-pay,

Option F (20 minutes away): $1,480 self-pay, $560 with insurance

After Option B, she stopped writing down prices with insurance because they were always at least a few hundred dollars more than the self-pay price.

The two best options, C or D, were the same price and distance away, so how about comparing quality? Both had nice websites that talked about how well-trained their radiologists are and how great their MRI machines are, but there were no actual details that could help me determine which would be better quality. So we ultimately chose Option C because the person on the phone was the nicest.

What’s with Option F? It was the only hospital-based option we contacted, and it’s part of the same company as my insurance. I guess they give a massive discount for having their insurance. Their self-pay price is typical of what I have come to expect from hospital-based services–always crazy expensive.

The thing I learned from this experience is that, when you self-pay, that means you aren’t running the money you’re spending through insurance, so the $400 we spent on the MRI doesn’t even count toward our annual deductible! Therefore, price-conscious healthcare shoppers who self-pay are getting a short-term deal but may be subject to more than their annual out-of-pocket max if something big comes up later on.

Our insurer wouldn’t even let us submit our receipt after the fact to count that $400 toward our deductible, which makes sense from their perspective. They don’t want us self-paying potentially higher prices than they have contracted for things because it could use up our deductible faster than it would have otherwise, which would mean they’re on the hook for covering more of our costs of care than their actuaries had planned. You’d think they’d at least add a clause to their policies that says that if patients find a lower price than the insurer was able to negotiate, they will accept that self-paid amount as counting toward their deductible. But in a poorly functioning insurance market, insurers are never forced to put in the effort to make reasonable policies like that.

Fortunately the MRI was negative!

Some Blog Changes

This blog is going to change a little bit, starting today.

Now that I’m finally done all my clinical training and am a fully licensed internal medicine physician and working as a hospitalist, I can start dedicating more regular time to my main passion–health policy. I will be releasing weekly blog posts on Tuesdays (supposedly the day of the week that needs the most morale boosting!). I will avoid any tendency to make these posts too formal, and I will try to keep them short as well.

I have two main reasons for doing this, both of which I would like to be up front about. The first is for me to keep learning. When I write, I’m forced to synthesize my thoughts more deliberately. The second reason is to get more people reading what I write, which will provide me more feedback about my ideas and hopefully (even in a small way) influence greater support for worthwhile policies.

How will regular posts help more people read what I write? My understanding is that a blog needs five things to gain traction: (1) worthwhile material, (2) a dependable timeline for when to expect new posts, (3) persistence in posting that new material regularly for a long time, (4) advertising, and (5) luck. Keeping the same URL helps, too, which I learned the hard way. I will advertise by working to syndicate my posts on other sites, plus sharing on social media.

So, look forward to my post next Tuesday!

Building a Healthcare System from Scratch, Part 8: Fixing the American Healthcare System

0_Q6aA7SRV0ZrXWees
Image credit: thepolicy.us

This is the final installment of the Building a Healthcare System from Scratch series, and it begins with the same caveat as Part 7—to understand the rationale behind the ideas presented, you need to read and understand all the prior parts of the series, beginning at Part 1.

Now that I have explained the Healthcare Incentives Framework (Parts 1 through 6) and described what various types of systems would look like that have implemented the principles of it (Part 7), we are ready to look at something more complex: rather than building an optimal system from scratch, how can this framework be applied to an existing system that needs fixing? The American healthcare system will be a perfect case study for this.Picture1

Where it sits right now, the American healthcare system seems to land somewhere in between the libertarian-type system and the single-payer system described in Part 7, except that it fails to implement the majority of the principles of the framework. It is also overly complex, which contributes greatly to its impressive administrative expenses. So what could a much-simplified American healthcare system look like that also maximally implements the principles of this framework? With consideration for and much guessing about Americans’ preferences regarding healthcare, here is an imagined description . . .

The United States eventually chose to strengthen its individual mandate. The government now mandates all people, without exception, to have a healthcare insurance plan that covers all services included on its list of “essential health benefits.” For those who forego insurance coverage, they pay a tax penalty that ends up being nearly the same as the premiums they would have paid. If uninsured individuals receive care that they cannot afford, they usually end up having to either go on long-term repayment plans or declare bankruptcy because there is no bailout available for them.

The website healthcare.gov has become the ultimate source for healthcare insurance shopping. All qualified insurance plans (i.e., plans that cover all the essential health benefits) are listed there, along with their coverage level (according to the metal tiers), prices, and a short description that highlights any other benefits the plan offers that may help prevent healthcare expenditures.

Premium subsidies are available to all whose premiums will exceed a certain percentage of their income, and the subsidy amount is pegged to the second-cheapest qualified insurance plan available to them. The subsidies are automatically applied at the time people are choosing a plan on healthcare.gov. Because this system worked so well and was basically duplicative of Medicare and Medicaid, both programs were slowly phased out, which decreased insurance churn and increased time horizons. However, a vestige of Medicaid remains in that, depending on an individual’s annual income, there are also limits on how much they can be required to pay out of pocket for care.

The government also did away with the employer mandate and somehow found the political willpower to repeal all tax breaks for healthcare expenditures, which eventually led to employers getting out of the business of providing healthcare insurance for their employees and just giving that money to employees directly as regular pay.

Altogether, these changes mean that all Americans shop for their healthcare insurance on healthcare.gov. For anyone who is unable to do this themselves, there is a phone number to call to connect with someone who can assist them in selecting the plan that seems best for them.

A few changes were also made to encourage more insurance options. First, many regulations were eliminated, including the medical loss ratio requirement and state insurance department approvals of rates. These became unnecessary after people began to be able to compare the value of different insurance plans and choose based on that because overpriced or low-value plans (either from too much overhead or too high of rates in general) lost market share and profit. State-specific insurance regulations were standardized so that insurers can easily expand to new markets. And a law was passed requiring transparency of all price agreements between providers and insurers, which made the process of forming contracts with providers in a new region easier. These policies led to almost all markets having multiple options for each coverage tier.

In this way, the United States achieved universal access to affordable healthcare insurance relying on the private market while preserving the ability and incentive for all people to select the highest-value insurance plan for them. As a result, insurance plans aggressively innovate to find ways to prevent care episodes so that they can offer lower premiums and attract higher market share. Insurers also found that implementing differential cost-sharing requirements led people to start choosing lower-priced providers, which also enabled the insurer to lower premiums further. Finding provider prices has become easier ever since the price transparency law was passed.

The government has had to help overcome the problems caused by a multi-payer system by enforcing some standardization, including uniform insurance forms/processes, standardized bundles of care that all insurers in a region either agree or disagree to implement together, and standardized quality metrics that providers are required to report. These quality metrics are not used for bonuses, so they have been changed to be more focused on what patients need to know to choose between providers for specific services.

These quality metrics are now reported on an additional section on healthcare.gov that lists all providers, their quality metrics, and their prices (seen as your expected out-of-pocket cost if you log in) in an easy-to-compare format. Due to patients’ differential cost sharing requirements for most services, as well as broad common knowledge of the existence and utility of this website, most patients have begun to refer to it before choosing providers. This part of healthcare.gov has even been developed into a highly rated smartphone app.

In response to these changes, providers found that their value relative to competitors largely determined their market share and profitability, which unleashed an unsurpassed degree of value-improving innovation. The cost of care in the United States was previously so high that the majority of those initial innovations led to much cheaper care, which led to much lower insurance premiums and eased the premium subsidy burden on the federal government. Thanks to these changes, the federal deficit has begun to sustainably diminish quicker than any budgetary forecasting model could have predicted, which has also helped stabilize the American economy.

There are still barriers to people being able to identify and choose the highest-value insurers and providers. There are many important aspects of quality that are unmeasurable. Many people do not have the health literacy required to figure out which insurance plan or provider would be best for their situation and preferences, despite the ease of comparison enabled by healthcare.gov. There are medical emergencies that do not allow shopping (although the number of these has turned out to be much less than was previously thought because most of what used to present to emergency departments were not actually emergencies).

In spite of these lingering barriers, enough patients are choosing the higher-value options that providers and insurers still have a strong incentive to innovate to improve their value so they can win the market share and profit rewards available to higher-value competitors. And the result is that Americans are being kept healthy more often and are receiving care that is higher quality and more affordable.

That concludes my imagined description of how the American healthcare system could look with the principles from the Healthcare Incentives Framework fully applied. Just as a reminder, it represents merely a guess of how it could end up given the current system. This is by no means the only way to apply the principles of this framework, nor is it my secret idealized version of how it could end up. But I hope it was useful and thought provoking as a case study!

We have come a long way in this series. Throughout it, I worked hard to make the principles of the Healthcare Incentives Framework clear, and I hope the concrete examples have helped solidify those as well as demonstrate their potential for sustainably fixing healthcare systems around the world. If you want a more academic treatment on this framework (at least the part of it that applies specifically to providers), I published that as a medical student.

I intend to help policy makers of all types find ways to apply the principles discussed in this series. Please contact me if you have questions or would like me to help work through potential applications. Contact info is on my About Me and This Blog page. In the meantime, I hope you will follow along as I continue to blog about how to fix our healthcare system!