What Healthcare Delivery Reform Proposals Are Getting Wrong

Let’s pretend I own a primary care clinic. There are quite a few doctors who work in my clinic (primary-care and specialists), and everything’s going great–we have plenty of patients, have a good reputation in the area, and are fairly profitable.

And then I am told I have to start doing this “patient-centered medical home” thing, which means I will now be responsible for all aspects of my patients’ care plans. If my patients go to other doctors, I need someone to talk to those outside physicians and find out what they did. I need to have someone available to answer questions and solve problems at all hours of the day and night so my patients will have continual guidance on how to make good decisions if something goes wrong. I need to hire a “care manager” to keep a close eye on all my high-maintenance patients (e.g., ones with multiple chronic diseases or social disabilities), calling them to make sure they’re taking their medications, teaching them how to follow their care plan the best, and all sorts of babysitting-type things like that. I also need to invest in a more comprehensive electronic health record system so I can keep track of all of this stuff. And I should probably also periodically pay someone to perform a data analysis on how efficiently the doctors in my clinic are performing so that I can find ways to further improve patient health and reduce the cost to my patients. And, as an incentive for my physicians to go along with all of this, I should probably find a way to adjust compensation to reward them for improving their patients’ health and lowering costs. . . . You get the picture.

So now I, the clinic manager, am faced with a choice: turn my clinic into a medical home OR just leave things the way they are.

In evaluating the first choice, I think about the upsides. Most of my patients will be healthier and better taken care of. Maybe even my physicians will have greater job satisfaction, which leads to increased productivity and lower turnover.

And then I think about the downsides. I will expend a lot of energy and money doing all of those things. I stand to lose profits from those increased costs and because my doctors will probably be performing fewer high-profit procedures. This loss of profit might be mitigated by the fact that my physicians will now have more time to take on additional patients, but that assumes I will be able to strengthen my reputation so much that I can steal market share from local competitors.

In summary, I figure the main upside is that my patients will be healthier, and the main downside is that it will generate a net loss in revenue. As high-minded as I am, I am not willing to risk my business’ very viability to potentially improve my patients’ health by implementing this medical home thing, so I choose to leave things the way they are.

Now, step out of the clinic manager perspective and analyze this with me for a second. This whole conversation begs the question: If medical-home patients’ care is so much less expensive (because of fewer procedures, ER visits, and the like), who is getting all of those savings? It’s obviously not the clinic (who, interestingly, is the one being asked to make the effort to change and assume all the attendant financial risk). Have you figured it out? It’s the payer! So patients and insurance companies will reap all the benefits, while the provider will take all the risks, make all the effort, and sacrifice profitability.

If any delivery reform proposal (e.g., ACOs, medical homes, etc.) is to be widely accepted by providers, that reform idea must include a way for the providers to reap some of the financial benefits. And that’s where many of these trendy reforms go wrong.

Kinds of Healthcare Costs

I learned that there are two kinds of medical costs, broadly categorized: care costs and managerial costs. They’re kind of self explanatory, don’t you think?

The interesting thing about the U.S. healthcare system is that I’ve never seen an aggregate percentage estimate of just how much of our total healthcare spending (you know, that 18-ish percent of GDP) goes to managerial costs. Maybe some health economist has come up with that number somewhere, but I haven’t seen it. Think about it–you would have to estimate and add the total managerial costs of Medicare, Medicaid, the private insurance sector, CHIP, the VA system, the system for congress and for those with kidney failure and for native Americans. . . . Sounds fun. Other countries have anywhere between 2 to 5 percent estimates for their total managerial costs.

What I have heard, though, are estimates for the total managerial costs of Medicare (2 percent) and the private insurance industry (20 percent). You’d think the 2 percent is awesome and the 20 percent is horrible. Well, the 20 percent is horrible, but not bad considering they’ve got to spend so much money on screening applicants and trying to find ways to deny claims and developing thousands of new compensation plans and payment schedules and paying awesome executives. (It is the private sector, after all.)

And as for the 2 percent, I think it might be a little too low. Maybe a little more spending on managerial stuff could go towards ways to prevent fraud, cause apparently that’s a pretty big thing with Medicare. So maybe every extra dollar of fraud prevention would save a few dollars of fake claims, up to a point. That would maybe leave the Medicare number up around 3 percent, which is still not too bad. Unless you don’t trust government’s estimates of their own efficiency. They want to look good, right? Number-fudging isn’t that hard to do, especially with something so complex as healthcare.