There are arguments out there that say we need to cover everything for everyone; that it’s immoral to ration care. Each human life is priceless, and choosing not to pay for a service that could save or prolong a life is trying to put a price on something that is priceless. It violates the moral test of government:
The moral test of government is how that government treats those who are in the dawn of life, the children; those who are in the twilight of life, the elderly; those who are in the shadows of life; the sick, the needy and the handicapped.
Former U.S. Vice President Hubert Humphrey
I disagree. And having recently read The Road to Serfdom by Hayek, I’ll put it in his terms because he’s given the best explanation of the counter-argument.
If we spend all that money on healthcare and ignore all the other potential uses for that same money, we are making a huge spending decision without even being able to determine whether that money was put to its best use.
How about an example?
If a grandma has the choice to (1) spend $300,000 on cancer treatment that is likely to give her about two more months of life or (2) spend that same sum on 4 years of university tuition for her granddaughter who would not otherwise be able to afford university, what would she choose? Maybe some would choose to live two months longer, but I suspect most grandmothers would put a price on their own life by choosing a better use for that money.
I know–she’s getting to make the decision for herself, which is a very important difference. But I hope the principle is clear: Governments could choose to spend a huge portion of their limited resources on covering every single healthcare service for every single person, but that crowds out other virtuous options, such as school lunches for low-income kids, housing programs for the homeless, mental health treatment for incarcerated individuals, . . .
If we don’t let micro- and macro-considerations of the alternative uses of limited resources enter into our economic decisions, we are headed down the same road that all planned economies in the past have traveled.
In last week’s post, I summarized this article, which is the last in the Fundamentals of U.S. Health Policy series published by The New England Journal of Medicine. The article was written by Michael Chernew, Ph.D., and discusses the role of market forces (more specifically, competition) in improving our healthcare delivery system.
I’m heavily biased toward using competition inasmuch as it is possible (for good reason), but that doesn’t mean I’m blind to our failed attempts at improving competition in healthcare. And Dr. Chernew does a great job summarizing many of those failed attempts while remaining optimistic that competition still has a role in improving our healthcare delivery system.
I completely agree with his conclusion that where the market fails, we need government involvement. It’s a conclusion that is commonly agreed upon amongst researchers in this field.
But the difference between me and most other health policy researchers is this: I believe the market will work to a much greater degree than others do. Maybe this is because my original bias toward decentralized decisions and efficiency led me to question harder why all those supposedly market-improving reforms failed.
Others may say, “Well, all these reforms failed, so I guess the market just won’t work in healthcare, so let’s see what the government can do to fix this mess instead.” But I say, “Let’s figure out why they failed. And if the reason they failed is because markets just won’t work in healthcare, great! Let’s turn to the government for help.”
The answers I’ve found over the last several years about why all those competition-improving efforts have failed tell me that markets can work to an extensive degree in healthcare, we’ve just never created the environment for it to happen.
I’m passionate about this because if we don’t understand that environment and then create it, the future fiscal health of most countries will sooner or later be ruined because the non-market government solutions they’ve come up with so far are insufficient at stimulating the cost-reducinginnovation necessary to make healthcare systems sustainable.
My concerns with Dr. Chernew’s paper are in the section where he lists all the ways transparency efforts and benefit design change efforts have failed and then gives as the explanation for these failures that, “The core problem is that for markets to work, patients must face the economic consequences of their choices, but labor-market concerns dampen employers’ enthusiasm for adopting plans that impose such consequences.”
Translation: Employers don’t want to force employees to face big out-of-pocket spending in the plans they offer them because that’s not popular among employees, which will lead to employee dissatisfaction and possibly even lead to the best recruits choosing other jobs. And so employers are unwilling to adopt the insurance plan benefit designs that are necessary to make competition work in healthcare.
I disagree for a few reasons. First, an insurance plan does not have to make the patient pay the entire price out of pocket for them to be price sensitive. They only have to make the patient pay some of the price difference between their provider options. Second, employers can offer a few plan options to employees, only one of which would impose such requirements. Third, if there were multiple plan options to choose from, the one with such requirements would likely be fairly popular because the premium would be much lower on account of all the savings generated by those requirements leading enrollees to choose lower-priced providers.
The main potential limiter to the popularity of such a plan would probably be in its implementation. Is there an app that the patient can use that would easily tell them the provider options in their region and what their out-of-pocket cost would be for each one? Better yet, does that app also integrate patient-relevant quality information? Such apps are out there. And providing an explanation about the benefit design purpose and the accompanying app in the plan’s description would probably overcome a big chunk of the issues causing people not to use transparency information.
So I disagree with Dr. Chernew’s implication that competition in healthcare is going to be fairly limited because employers are unwilling to implement such plans. I actually wonder if there aren’t already groups of large employers banding together in different regions of this country making plans to all make such benefit designs available to their employees at the same time in an effort to get so many people in the region choosing based on quality and price that the providers are forced to respond in value-improving ways. (If any employers are out there considering such an attempt, I am happy to advise!)
But I do think that this last topic was the perfect one to end the series with, and Dr. Chernew was one of the best people they could have chosen to address the topic so effectively. How to increase the efficiency of the delivery system is the big challenge that neither the Republicans nor the Democrats seem to have an answer to, but it’s the issues that is going to loom larger in the future, especially if we turn to more administrative pricing and quickly discover that the price floor (the point at which the price is too low because it makes providers unprofitable) is actually incredibly high.
Well, that wraps it up for this series. I learned a ton and I appreciate NEJM’s efforts to educate more people about health policy!
This is the last part of the Fundamentals of U.S. Health Policy series! And it’s a super interesting one. Michael Chernew, Ph.D., wrote about the role of market forces in U.S. health care. Since this is squarely in my area of focus, I have a lot of thoughts. Thus, this week I’ll stick to summarizing Dr. Chernew’s article, and then next week I’ll provide some commentary.
Forewarning, I’m following the paper’s logic flow, which, to my brain, is a little meandering, so it’s easy to lose one’s place, but I’ll clarify as much as I can now and then attempt to provide additional insight next week.
Remember how Total Healthcare Spending = Price x Quantity? (Well, actually, it’s the sum of the price x quantity of all the different services being provided in our healthcare system.) Dr. Chernew is basically using that equation when he starts out by saying that our challenge is to reduce the quantity of low-value services provided and to lower prices.
And then the big question . . .
What role should markets play in doing that?
He finally gets to the answer at the end, which is that markets and government should both be used to complement each other. Markets can be leveraged inasmuch as they will help, and this should be paired with the government regulations needed to help them work as well as they can.
I won’t list his specific recommendations quite yet about how we could do that because first I need to review what he says in the rest of the article about markets and how they work.
First, he says that markets are the “foundation of our economy,” and they promote efficient production and cost-reducing innovation. He doesn’t exactly give the step-by-step explanation of how they do that, but you can gather it from his next several paragraphs. Markets create competition, which is when consumers (in this case, patients) have “the ability and incentives . . . to seek low-price, high-quality providers. . . .” And because of that competitive pressure to win consumers, the players in a market are forced to innovate in ways that make production more efficient.
Great, so a good healthcare market will help patients choose low-price, high-quality providers. Unfortunately, healthcare markets are more imperfect than other markets. Want a big piece of evidence for this? Look at the extent of unwarranted price variations that exist in healthcare. It’s way more than in other markets.
But why is the healthcare market so bad?
“Competition in health care fails for several fundamental reasons. First, patients often lack the information needed to assess both their care needs and the quality of their care. Second, illness and health care needs are inherently difficult to predict, exposing people to financial risks that they must insure against. This risk gives rise to an insurance system that shields patients from the price of care, dampening their incentive to use care judiciously and to seek care from providers offering high-quality care at affordable prices. The information problem, amplified by insurance, reduces the ability and incentives for patients to seek low-price, high-quality providers and impedes well-functioning markets. This problem has been magnified lately by consolidation of health care providers.”
So, basically, it’s difficult for patients to really know what care they need, they have a hard time assessing quality of care, they’re shielded from prices because of insurance, and consolidation has limited their options. The result of all that is they have neither the ability nor the incentives to choose low-price, high-quality providers.
This, by the way, sounds almost exactly like what I’ve written (or linked to) a thousand times before, which is that patients need to start making value-sensitive decisions, and to do that they need (1) multiple options, (2) the ability to identify the value of each option, and (3) the incentive to choose the highest-value option.
Regarding consolidation, he gives some interesting data, which show that only 51% of markets have 3 or more hospital systems.
Based on all of that, many would conclude that we should abandon markets altogether in healthcare. But he says, “The weaknesses associated with market-based health care systems are severe, but that does not mean the market should be abandoned.”
And then he proceeds to give a few examples of beneficial things that have come from markets already, such as new payment models, telemedicine, a shift from inpatient to outpatient care, and narrow networks (which allows for lower prices).
Those, however, end up being overshadowed by the list of ways we’ve tried and failed to bolster market function by providing patients with better information about quality and prices and by changing insurance benefit designs.
The summary of this section of the paper is that giving patients better information about quality and prices have had very little success because . . .
Patients rarely use price- and quality-transparency tools
These sorts of decisions are complex
Patients fear disrupting their relationships with their physicians
Changing benefit designs to get patients to directly pay for more of their care (e.g., implementing high deductibles) has had a larger effect on utilization, but it hasn’t significantly impacted the market because . . .
What tends to happen is higher-value and lower-value care both decrease
Not enough patients end up getting steered toward higher-value providers to actually impact market prices.
He provides his explanation for all these failures: “The core problem is that for markets to work, patients must face the economic consequences of their choices, but labor-market concerns dampen employers’ enthusiasm for adopting plans that impose such consequences.”
In the realm of getting patients to choose higher-value insurance plans, there’s been a little bit of headway with insurance exchanges, although there are many drawbacks to those, too . . .
Beneficiaries make poor plan choices
Insurance exchanges induce more price sensitivity, which leads people to choose lower-premium plans that impose greater financial risk on them, which they often cannot bear
And, to make things worse, many of the downsides of insurance exchanges can worsen inequity.
Dr. Chernew is not exactly giving a glowing review of market-based reform attempts, is he? His comments are all accurate though.
Next, though, he says that “in evaluating their merits, we need to compare them with other systems, such as government-run models.” And government-run models have their own set of limitations.
Luckily, we are not facing an either-or decision. The important question is how government and markets can complement one another. “We do not need to abandon markets–we can make them better.”
Finally, getting to his recommendations about how to use markets and government to complement each other, he says we could work to increase the effectiveness of transparency initiatives, limit provider consolidation, and impose gentle regulations to prevent the most severe market failures (like limits on surprise billing and instituting price caps on the most excessive prices).
Dr. Chernew’s conclusion is that, “If we fail to improve market functioning, stronger government involvement will most likely be needed.” Agreed.
This is the second last paper in the NEJM series, and I think they’ve done a great job covering the major topics so far to give the “lay of the land” of this incredibly exciting field.
This one, written by Matthew Fiedler, Ph.D., gives an overview of the different camps that are vying for their respective visions of how to reform the healthcare system. And I’ll start by giving a quick summary of all his main points, then I’ll discuss some issues I have with this paper after that.
He first defines the main big-picture policy issues that are being debated by the two competing groups (essentially Republicans and Democrats, although he doesn’t refer to the groups by those names): What role should government play in ensuring broad health insurance coverage? And, How should we cope with the lack of competition in many health care provider markets?
Then Dr. Fiedler explains that the two groups disagree about which problem should be solved first. There’s the group that advocates first for universal coverage, which is because their beliefs are that health insurance substantially improves health and financial security, and that the well-being of lower-income people is particularly important, and that governments should have broad latitude to intervene in the health care system. And the other group, he explains, disagrees, and they instead believe that federal coverage programs, particularly those serving lower-income people, are too expansive.
He then talks more about the first group, explaining that there is actually a division between those who want to expand on the ACA-type approach of keeping the patchwork of coverage and those who want to replace the coverage patchwork with a single integrated coverage program. The second option would be simpler and impose smaller administrative and hassle costs, but it would require higher taxes and greater disruption to existing coverage arrangements.
Circling back to the group that feels that programs that serve lower-income people are too expansive, Dr. Fiedler says that their plan is to repeal things and take away subsidies for helping individuals obtain coverage. That’s why the CBO concluded that their approach would increase the uninsured by more than 20 million (but would also substantially reduce federal spending).
As for the second issue that he defined at the beginning of his paper–that of dysfunctional health care competition–he seems to attribute it to concentrated health care markets (for example, 90% of hospital markets meet the threshold for being highly concentrated), and then he explains the implications of that and approaches to addressing it.
The implications of concentrated markets are, as he explains, that it allows providers to demand high prices from private insurers, which increases the cost of insurance. It may also encourage providers to operate inefficiently and can even reduce providers’ pressure to improve quality because patients’ ability to switch providers is limited.
One approach to addressing this issue is a combination of several efforts, such as strengthening anti-trust enforcement, eliminating other policies that weaken competition (such as certificate-of-need requirements, which limit market entry, and “any willing provider” requirements, which keep insurers from offering providers increased volume in exchange for lower prices), and enhancing price transparency. About price transparency, he says it is pursued in hopes of encouraging patients to seek out lower-priced providers and encouraging providers to price more competitively, “although prior experience with price transparency is uneven.”
Limitations of this competition-enhancing collection of policies are that enhancing antitrust enforcement is too late in already-concentrated markets, and even if the other efforts help, robust competition may not be realistic (or even desirable) in some smaller markets anyway given the fixed costs associated with operating another hospital or physician practice.
Dr. Fiedler then discusses the other approach to addressing non-competitive healthcare markets and their high prices, which is to turn to administrative pricing. This could include price caps, and it could also include a “public option,” which would be a new publicly run insurance plan that would compete alongside private plans, thereby keeping private insurers honest in their premiums. He gives the downsides of these policies, especially that they may decrease providers’ incentives to improve quality because they prevent providers from parlaying investments in quality into higher prices or lucrative new volume, but then he acknowledges that the magnitude of this effect is uncertain.
That pretty much summarizes his main points. On the upside, I think he did a good job approaching the topic in an organized fashion. On the downside, I think this paper was incredibly (yet subtly) biased, which is totally inappropriate for a series of articles that is ostensibly providing a neutral introduction to health policy. This does NOT mean I’m accusing Dr. Fiedler of trying to trick people–I think this paper is simply an accurate reflection of his political influences and his understanding of these health policy topics. The fact that the NEJM editors did not make him change many of these things before publishing this paper is probably a reflection of their political persuasions as well.
This post is already long enough, but I’ll try to succinctly point out some of my main issues.
First, framing the two problems as a coverage issue and a “competition” issue. The second one is not just about healthcare competition. It’s about reigning in healthcare spending, which, if it continues on its current trend, will be the primary cause of bankrupting our country. His narrow focus on competition minimizes the problem, which then undermines the legitimacy of the group that wants to focus on that problem first rather than focus on the coverage issue first. He would have done well to at least parrot conservatives’ statements about not wanting to put even more people into an already unsustainable healthcare system and push us even faster toward bankruptcy but instead to get the costs down first, which would have the side-benefit of pricing many of the uninsured into the system as well.
Next, he describes liberals’ beliefs about the benefits of insurance and their interest in getting coverage for the poor, and then his description of conservatives’ beliefs and priorities is . . . nonexistent, other than to say that they “disagree” and then list all the things they want to take away without providing any rationale for why this might also be a reasonable approach (depending on your core values and priorities). It’s a subtle marginalization of the other side and, unfortunately, reflects all too well our current intolerant political atmosphere.
Another concern, which I’ll make my final concern, is how he makes a show of providing the downsides of his favoured policies but then immediately minimizes them as if to say the downsides are minor, and, conversely, how he describes much more persuasively the downsides of his unfavoured policies without any minimization. A good example of this is his entire discussion about the two different approaches to addressing non-competitive healthcare markets. I’ll spare you long quotations; go read directly from the paper if you have access, starting at the last paragraph of the second page of the article.
I realize Dr. Fiedler did not have room in that article for a thorough analysis of the huge and multifaceted issues he was introducing, so I hope one day to meet him and discuss some of these topics with him. Until then, for anyone interested in a few more details on these topics, here are some links to material I’ve written on these topics before . . .
For how market consolidation fits into our overall spending issues, see here. For a more complete discussion on price transparency, see here and here. For the potential harms and potential benefits of administrative pricing, see here. For some discussion on public options, see here. And for a thorough evaluation of Medicare for All versus other options, see here and here and here and here.
Let’s see if I can make sense of pharmacy benefit managers (PBMs), the companies that seem to have a reputation as shady price-increasing middlemen in prescription drugs. This is part of my effort to better understand prescription drug prices and what’s wrong with that market.
First, consider the flow of a medicine from start to end.
The obvious start is that drug manufacturers make the medicine. And then that medicine has to get to pharmacies. Pharmacies do not want to contract with every single drug manufacturer directly, so instead they use wholesalers, who do that contracting for them and buy the drugs from the manufacturers and store them, and then those wholesalers are able to quickly supply all the drugs a pharmacy could want for a small markup. I don’t know the details on whether pharmacies can shop around for the best deal on a drug from different wholesalers or if they just contract with a single one, but, regardless, now the pharmacy has its drugs, and this part of the supply chain seems to work properly.
Next, the patient. They buy the drugs from the pharmacy. If they’re going through insurance, the pharmacy inputs into their computer the medication details and the patient’s insurance information and then out of the black box comes an out-of-pocket price for the patient to pay to obtain the medication and a price for the insurer to pay (and that bill gets sent directly to the insurer). That’s the end of the line for the medicine.
But the tricky part is that final transaction, how the prices are determined in that black box. This is where the mystery and intrigue and confusion come in.
Let’s talk about PBMs.
Originally, the precursors of today’s PBMs were simply companies that helped insurers process medication claims after patients would buy them. I’m not sure exactly how they morphed into today’s version of a PBM, but based on what I’ve been reading, my guess is that it went something like this . . .
Insurers (especially smaller self-insured employers) wanted someone with expertise in all things medications to create a formulary for them–surely a very complicated process–and since these precursor PBMs were already processing all the drug claims anyway, they were an obvious choice to ask to take on the new role of creating and managing formularies.
Next, since these precursor PBMs were now making formularies for several different insurers, they inadvertently had amassed significant power over many patients’ out-of-pocket prescription prices (and, therefore, patients’ prescription choices). So when drug prices started to climb higher, these precursor PBMs wanted to stay competitive and offer formularies with all the best medicines for the cheapest, so they got into the game of negotiating directly with drug manufacturers. And that is probably the point where they became modern-day PBMs. The three PBMs with the largest market share today are Express Scripts, CVS CareMark, and UnitedHealth’s OptumRx
But if the drug manufacturer is selling their drugs to pharmacies via wholesalers, what are PBMs and drug manufacturer negotiating over?
Kickbacks for PBMs to get more patients to buy their medications. That’s really what it boils down to. Although the payments from drug manufacturers to PBMs can take various forms, the simplest one is that the drug manufacturer pays a PBM a nice sum for the PBM to include their drugs on the PBM’s formulary. The PBM then passes some of this money on to the patients by lowering their copay for those drugs.
There are a lot of hidden details in these PBM-drug manufacturer negotiations. It’s an area rife with hidden numbers. The main question is, How much do PBMs actually get paid (including all the different forms of kickbacks) from the drug manufacturers? Nobody knows. There have been government attempts to force them to disclose this, but the laws only require them to report on certain kickbacks, and it’s probably not too difficult for them to look really good by shifting the majority of their kickbacks to different categories that are not reported.
My other question is, How do insurers choose a PBM? This should be a fairly answerable question with the right contacts. Is this a fairly transparent market, where insurers can go to each PBM and ask how much the total cost will be of the drugs their patients will get, plus the fees paid to the PBM? Based on the sheer complexity and number of variables involved, I doubt the PBM selection is easy and transparent. This means PBMs can get away with not only hiding how much they are getting paid by drug manufacturers, but also not passing much of that money on to the patients and insurers. And nobody will ever know truly how much these middlemen are adding to our skyrocketing drug prices.
My research emphasis is on systemwide financial incentives to improve value, which means I do not talk on here very much about the nitty gritty of health disparities. I do, however, regularly comment on the big-picture aspects of health disparities, usually by saying that it’s important for society to determine how much care citizens should be guaranteed and then to go about getting that to them in ways that don’t undermine the financial incentives in the system.
Having a clear idea of what we mean when we throw terms like “health inequities” and “health disparities” is a good place to start, and I love the definition that Dr. Evans provides:
Health inequities are “inequalities that are deemed to be unfair, unjust, avoidable, or unnecessary, that can be reduced or remedied through policy action.”
So not every inequality is bad. And of the ones that are, not all of them can be reduced or remedied through policy action. There are facts of genetics and demographics and even socioeconomics that lead to appropriate inequalities or that lead to inappropriate inequalities that there is no way to fix through policy. So, the ones that are bad and are amenable to policy solutions are what we are calling “inequities,” and they are what we are interested in. (By the way, in case you hadn’t noticed, this topic falls squarely into the wealth redistribution spectrum.)
After the definition, she goes on to write about several aspects and causes of inequity, notable inclusions being the unresolved carryforward effects of our nation’s history of racism and slavery, intergenerational poverty, White supremacy, and our unwillingness “to respect Indigenous Americans’ rightful claim to their native lands.”
What currently has the most profound effect on health inequities? Probably access to stable health insurance coverage. The unfortunate fact that our American healthcare system uses employers to provide health insurance makes this worse because minorities have higher unemployment and underemployment.
Dr. Evans also goes over some data on the underrepresentation of minorities in health professions, and then she makes this somewhat perplexing (to me at least) statement:
“Underrepresentation [of minorities in medicine] further intensifies health disparities by limiting the pool of culturally competent clinicians who can offer appropriate leadership in both academia and patient care.”
I guess by “culturally competent,” she is meaning someone who is a member of or who at least has a deep understanding of minority cultures.
She then gets more political, and this is interesting to me, so please allow a brief detour . . .
I have noticed that in perspective articles like this in NEJM and other medical journals, outright “liberal” statements are given boldly and unapologetically; on the other hand, outright “conservative” statements are eschewed in favor of couching in general values and academic speak. I think this is a reflection of academic medicine’s general political persuasion, which extends to judging which positions are socially acceptable and unacceptable. It makes me sad that both sides are apparently not equally able to give their opinions directly and powerfully because they both have essential contributions and ideas and conceptions of values that must be understood if we want to make a truly thoughtful decision about how to address health inequities. And, if this commentary is making you wonder about my personal political biases, I’ve disclosed them before here.
Anyway, Dr. Evans gets more political: She refers to the Declaration of Independence and the Constitution and says they incorporate the ideals of a social contract, which she defines by saying “the state exists to serve the people’s will.” But then she writes, “Fracturing of this social contract has reinforced inequality, inequity, and poor access.” Is our social contract fractured? Is having health inequities somehow the same as our government not reflecting the people’s will? She seems to think so. Regardless, we do need some serious changes to our political system, and this book should be required reading for any political reformer.
Finally, Dr. Evans gives some recommendations: Provide adequate income and educational supports to lift all children from poverty, stage a frontal attack on racial and gender pay gaps and on occupational segregation, and recognize health care as a human right.
There you go. This was a great primer on what you can expect to hear from most researchers and health policy folk on the topic of health inequities!
I think Dr. McGlynn starts with a great framing of the problem: After nearly two decades of experimentation with several of the best ideas about how to improve quality, there has not been much progress. Sure, new innovations (drugs, devices, procedures, etc.) have increased what we can do, but our overall ability to deliver evidence-based care to Americans is not really improving. She shows a great graph looking at our progress at getting people’s blood pressure under control. The percent of people whose blood pressure is well controlled has not, on average, gone up much in the last 18 years.
In other (blunt) words, we suck at care delivery innovation.
Why? Well, her answer looks at it from the structure-process-outcomes framework, which she describes and then proposes some solutions. My answer is two words: financial incentives. I won’t re-explain it here, but this post is a good start.
The structure-process-outcomes framework is a useful one, so let’s talk about it for a second. Those are the three major dimensions that can help to define quality, according to Avedis Donabedian.
Structure refers to things like clinic personnel (such as after-hours doctor access and care managers to check on high-risk patients), access to records that provide lists of patients with certain needs (like how many uncontrolled diabetics haven’t had an appointment for more than three months), and also basic facilities and management things. Getting the right structure is important because it provides the foundation for the other two dimensions.
Process refers to things we do, such as prescribing beta blockers and ACE/ARBs to patients with systolic heart failure, and ordering age-appropriate cancer screenings.
Outcomes refers to how the patients actually fare. How many have well-controlled blood pressure and diabetes, how often heart failure and COPD patients get hospitalized for exacerbations, etc.
We can measure any of those three things, and often we try to link them to reimbursement. Although, as Dr. McGlynn pointed out at the start, it hasn’t worked.
As a side note, trying to link reimbursement to the outcomes dimension is especially unpopular amongst providers because they can do everything right and prescribe all the right meds and schedule all the necessary follow-up appointments, but they can’t control whether the patient actually takes the medications and follows up, which means providers are often getting penalized for things that they don’t have control over.
Anyway, now you’re familiar with one of the foundational frameworks that has been used to approach quality improvement in healthcare.
Dr. McGlynn’s proposed solutions are very academic: focus more on social determinants of health since they often have a bigger impact on health than do medical treatments, start measuring things differently (stop measuring discrete events because that worsens fragmentation, use the more clinically meaningful EHR data for measurement rather than insurance claims data), and do a better job linking healthcare systems with appropriately resourced public health and community-based services. I believe all of them are important and will be helpful but not transformational like the solutions illuminated by the Healthcare Incentives Framework.
Lastly, I want to push back against one of her conclusions. She talks about how there has been little relationship found thus far between methods of financing and quality, and then she says, “Financial incentives alone cannot fix fragmented and reactive systems or create the operating systems required to enable reliable delivery of high-quality care.” And while I agree that financial incentives alone cannot fix our healthcare quality, I feel like she’s implying that it’s not the core mechanism of change and is instead just another lever we should consider using. I could be misreading that though. But whether I am misreading her or not, thinking of financial incentives as just another lever among many to improve healthcare quality is a generally held sentiment among healthcare experts. It’s another symptom of how healthcare experts misinterpret data and come to incorrect conclusions.
I’ve done the best I can on this blog to show that such a sentiment is incorrect. I’ve tried to explain that financial incentives are the core mechanism we have to induce change in the healthcare system, just as they are the core mechanism that makes every other industry function the way they do. And even though healthcare is different from other industries in many ways, those differences do not fundamentally alter the role of financial incentives in healthcare.
And that is why my answer to the question, “What will it take to improve quality?” is to systematically fix financial incentives first and then watch the quality-improving innovation emerge and expand.
The New York Times has a healthcare blog called The Upshot, and Austin Frakt of The Incidental Economist is a regular contributor. He recently wrote an article about drug prices, which is what got me thinking a little more about drug prices and prompted my post last week.
Sidenote: He has not been blogging very regularly anymore on The Incidental Economist, and it feels like a great hole has opened up in the health policy blogosphere. He has a great way of getting interested in a topic and finding all the useful evidence on the subject and then synthesizing it all, and through that process thousands of followers get carried along that journey of learning about an important health policy topic.
I think the topics Dr. Frakt covers in his most recent Upshot article are important, so I want to highlight some of them.
First, there is a link between higher prices and more innovation. Drug company executives aren’t dumb–if there’s a lot of money to be had in a certain drug market, they will put their R&D investments into those areas.
But the potential to make a lot of money with a drug doesn’t always line up with the potential to make a lot of health with a drug. We try to help those two things line up by manually setting patent lengths longer for drugs that will have a greater impact on health, but American politics is messy, so it doesn’t always work out that way. Another way to try to help those two things line up is by using administrative pricing. For example, New York Medicaid, similar to many countries, establishes prices based on a drug’s “therapeutic value.” If there is a high therapeutic value, the drug will be priced higher, and therefore the drug company will make more money if they focus their R&D on areas that are the most likely to increase health.
There is a whole independent nonprofit group dedicated to helping figure out the therapeutic value of drugs, and it’s called the Institute for Clinical and Economic Review (ICER). Some have proposed Medicare use the recommendations from ICER, but these days the trending proposal (which essentially accomplishes the same thing but is more politically palatable) is to instead look at the prices other countries set for drugs (presumably based on therapeutic value assessments) and then set our prices similarly. This is referred to as international reference pricing.
And while I think these proposals make a lot of sense because I, too, want more medications available to help my patients better, from a market perspective, I still have huge reservations to these sorts of administrative pricing proposals. It’s the same argument I end up at every time an administrative pricing proposal comes up: Taking the pricing power away from the collective knowledge of the market and putting it in the hands of a group of experts will never be accurate enough to allow the most efficient use of resources. And, in impossible-to-predict ways, it may create barriers to innovation.
I will talk more about the specific downsides of administrative pricing next week. And, by the way, my purpose here is not to say that administrative pricing is always wrong; rather, my purpose is to say that there are significant unpredictable costs associated with such a policy, and those short- and long-term costs need to be taken into account when deciding which policy would be best.
A couple weeks ago, I wrote about an experience I had at work with a patient wanting to stay in the hospital for two extra days just so he could spend a few hours with his daughter from out of town before going to a skilled nursing facility where no visitors would be allowed. The cost of staying in the hospital those couple extra days was probably at least $4,000 total, but the patient and his family were (rationally) ignoring that cost because they weren’t going to have to pay for any of it directly themselves.
The solution I proposed to such system-level irrational spending was to have the person making the purchase decision bear at least part of the cost of that decision. That way, if they choose something more expensive, it will be done with a consideration for the additional cost that choice entails.
As context for my proposed solution to such a problem, remember three things: (1) every system is perfectly designed to get the results it gets, (2) the design of a system generates a set of incentives, and (3) incentives are what drive the results of every system. So does no one have an incentive to get the people making purchase decisions to bear at least part of the price differential?
This is how I look at it:
Anything that lowers the total cost of care (while at least holding quality constant) is desirable for whoever is bearing the burden of that total cost of care. And the parties who bear that burden are the insurer and the patient, to varying degrees.
But since the patient typically doesn’t have much of an idea about what their out-of-pocket cost will be or how those costs will be impacted by choosing a different procedure or a different provider, they are not in a position to do anything about it.
The insurer, on the other hand, has the capacity to know–or at least give a reasonable estimate of–the cost of something. Therefore, we need to look to insurers for the necessary changes.
But think about this proposal from an insurer’s perspective . . .
The young energetic intern pitches such a plan to the executives, “Hey, how about we offer a new and innovative insurance plan that gets rid of the typical deductible and instead makes enrollees pay a 50% coinsurance on each service they receive (subject to their out-of-pocket max, of course). We could set the total price of each service (and, therefore, their coinsurance portion) at our negotiated rates with each provider. And we’ll make an app that will allow them to compare prices beforehand.”
The room’s executives would immediately see all the problems with such a plan. “This is too complicated for people! They will hate it and never want to get an insurance plan from us again.” “We can’t divulge our negotiated rates, all the providers who find out they are getting paid less will be angry and demand more from us.” “What about things that are not shoppable?” “If a single bad publicity event comes out of this experiment, it will severely damage our reputation and we’ll lose market share as a result, so we stand to lose more than we could gain.” “We’re going to have to make premiums extra low for such a plan to be able to convince people to try it out, but there’s no way to easily communicate how this plan is different, so a lot of people will just choose it because it’s cheap and says it has a $0 deductible and then they won’t be prepared to pay all their coinsurance costs.” “What about out-of-network coinsurance rates?” “Nobody’s ever done something like this before, so it’s too crazy to try unless we are likely to make a killing on it, which we aren’t.”
I talked about these same issues in my Why Insurers Don’t Innovate post a year ago. And not all of them are immediately solveable. But if we could address at least a majority of those executives’ concerns, I believe we would start seeing some enterprising insurers try this out.
The big thing would be solving the novel complexities that such a plan would create and then finding a way to convey this information to potential enrollees, either in the health insurance marketplace or in employer benefits explanations. And we would have to hope that many people would be willing to use an app to check healthcare prices in compensation for paying a much lower premium.
There would be lots of challenges to solve, and apparently no insurer has yet determined that the potential benefits are worth the potential harms. But I have hope that this will happen and be successful sooner or later. Maybe if the first enterprising insurer to try it can identify some first-mover advantages and create some barriers to imitation, they would stand to gain a lot more.
Also, remember there’s the static-world benefits to patients making value-sensitive decisions (they get better deals on the care they buy), and then there’s the dynamic-world benefits (the market starts to evolve toward delivering higher value). This kind of insurance plan design change, as it starts and then spreads, will enact a big change in providers’ incentives. In other words, the system will be fundamentally changed, which will result in much higher value care being delivered as it evolves in response to that change.
This week at work, I had a patient in the hospital who had been through a pretty challenging illness, and he was going to have to be discharged to a skilled nursing facility (SNF) to rehab for a few weeks. Sadly, SNFs in my area don’t currently allow any visitors due to the pandemic. The patient is very close with his daughter, who lives out of state, and she was flying in the next day to visit him and lend support in his challenging time.
Unfortunately, he was ready for discharge to the SNF now, and upon hearing my plans for discharge, the family requested we keep him in the hospital until he could see his daughter. Because she would be arriving late afternoon the next day, it would be too late to send him to the SNF that day, so he would be stuck in the hospital an extra two days just so he could see his daughter for a few hours.
It’s a perfectly reasonable request, right? But what am I to do when I get a request like that? What’s the socially responsible thing to do? If I assume that every day spent in my hospital costs at least $2,000, I am left judging whether $4,000 of society’s money is worth spending on this brief visit from the patient’s daughter.
As all these things were going through my mind, I gave them my response: “Sure.”
Maybe that’s an irrational use of society’s resources, but it’s a rational response to the situation. I, as a physician, am often asked the be the incidental steward of society’s resources.
And I face experiences like this every week at work. Actually, I would contend that there are thousands of these illogical spending decisions happening every single day across the healthcare system.
The issue at play here is this: The people making decisions about healthcare purchases are not the people directly paying for it.
But what if Medicare patients were required to pay even just a portion of the $2,000/day cost of staying in a hospital? Of course, not all patients could afford it, so there would have to be a policy to account for that, but let’s focus on the people who could afford it. Suddenly, the conversation with that family changes quite a bit.
“Can you keep him in the hospital two extra days so he can see his daughter for a few hours?”
“Sure, I’m happy to do that. Medicare requires patients to pay 50% of the cost of each hospital day though, which means it’s costing him $1,000/day to keep him here, so you need to decide if it’s worth paying $2,000 extra for him to see her for a few hours.”
Then the people making the purchase are directly bearing a portion of the cost of that purchase, and the utilization of resources becomes more rational.
In my Healthcare Incentives Framework, I focus so much on removing the barriers to people bearing at least part of the cost of their healthcare purchases for this very reason. And the way to get there starts with changing insurance plan designs and enabling patients to obtain price information up front.