My Evaluation of Joe Biden’s Healthcare Platform, Part 1

Official portrait of Vice President Joe Biden in his West Wing Office at the White House, Jan. 10, 2013. (Official White House Photo by David Lienemann)

Let’s take a look at Joe Biden’s healthcare plan! This is important because, if the democrats win the senate and hold the house, there’s a reasonable chance his healthcare reform plans will, in some shape, become law. But remember the expected caveat: Even though he can have a big influence on setting the priorities and agenda for his party and congress, and even though there is latitude in how he implements laws, it’s still congress that makes the laws.

As usual, I am relying only on the official campaign website for information. Joe Biden has a number of different pages talking about different healthcare issues, such as coronavirus-related issues, gun violence, and the opioid epidemic. But the main one that reviews his plans for the healthcare system as a whole is here.

And what is his plan? Here are what I believe to be all the relevant quotes, copied directly from his website:

  • Instead of starting from scratch and getting rid of private insurance, he has a plan to build on the Affordable Care Act by giving Americans more choice, reducing health care costs, and making our health care system less complex to navigate.
  • He’ll also build on the Affordable Care Act with a plan to insure more than an estimated 97% of Americans.
  • [Give] Americans a new choice, a public health insurance option like Medicare.
  • Whether you’re covered through your employer, buying your insurance on your own, or going without coverage altogether, the Biden Plan will give you the choice to purchase a public health insurance option like Medicare.
  • [Increase] the value of tax credits to lower premiums and extend coverage to more working Americans.
  • Help middle class families by eliminating the 400% income cap on tax credit eligibility and lowering the limit on the cost of coverage from 9.86% of income to 8.5%.
  • Increase the size of tax credits by calculating them based on the cost of a more generous gold plan, rather than a silver plan. This will give more families the ability to afford more generous coverage, with lower deductibles and out-of-pocket costs.
  • [Offer] premium-free access to the public option for those 4.9 million individuals who would be eligible for Medicaid but for their state’s inaction, and making sure their public option covers the full scope of Medicaid benefits.
  • States that have already expanded Medicaid will have the choice of moving the expansion population to the premium-free public option as long as the states continue to pay their current share of the cost of covering those individuals.
  • Biden will ensure people making below 138% of the federal poverty level get covered. He’ll do this by automatically enrolling these individuals when they interact with certain institutions (such as public schools) or other programs for low-income populations (such as SNAP).
  • The public option, like Medicare, will negotiate prices with providers, providing a more affordable option for many Americans who today find their health insurance too expensive.
  • Because the premium tax credits will now be calculated based on the price of a more generous gold plan, families will be able to purchase a plan with a lower deductible and lower out-of-pocket spending.
  • The Biden Plan will bar health care providers from charging patients out-of-network rates when the patient doesn’t have control over which provider the patient sees (for example, during a hospitalization).
  • The concentration of market power in the hands of a few corporations is occurring throughout our health care system, and this lack of competition is driving up prices for consumers. The Biden Administration will aggressively use its existing antitrust authority to address this problem.
  • Lower costs and improve health outcomes by partnering with the health care workforce. The Biden Administration will partner with health care workers and accelerate the testing and deployment of innovative solutions that improve quality of care and increase wages for low-wage health care workers, like home care workers.
  • The Biden Plan will repeal the existing law explicitly barring Medicare from negotiating lower prices with drug corporations.
  • For these cases where new specialty drugs without competition are being launched, under the Biden Plan the Secretary of Health and Human Services will establish an independent review board to assess their value. The board will recommend a reasonable price, based on the average price in other countries (a process called external reference pricing) or, if the drug is entering the U.S. market first, based on an evaluation by the independent board members. This reasonable price will be the rate Medicare and the public option will pay. In addition, the Biden Plan will allow private plans participating in the individual marketplace to access a similar rate.
  • As a condition of participation in the Medicare program and public option, all brand, biotech, and abusively priced generic drugs will be prohibited from increasing their prices more than the general inflation rate. The Biden Plan will also impose a tax penalty on drug manufacturers that increase the costs of their brand, biotech, or abusively priced generic over the general inflation rate.
  • [Allow] consumers to buy prescription drugs from other countries.
  • Biden will end [the] tax deduction for all prescription drug ads, as proposed by Senator Jeanne Shaheen.
  • The Biden Plan supports numerous proposals to accelerate the development of safe generics, such as Senator Patrick Leahy’s proposal to make sure generic manufacturers have access to a sample.
  • Vice President Biden supports repealing the Hyde Amendment because health care is a right that should not be dependent on one’s zip code or income. And, the public option will cover contraception and a woman’s constitutional right to choose.
  • Stop the rash of state laws that so blatantly violate the constitutional right to an abortion, such as so-called TRAP laws, parental notification requirements, mandatory waiting periods, and ultrasound requirements.
  • Biden will reissue guidance specifying that states cannot refuse Medicaid funding for Planned Parenthood and other providers that refer for abortions or provide related information and reverse the Trump Administration’s rule preventing Planned Parenthood and certain other family planning programs from obtaining Title X funds.
  • California came up with a strategy that halved the state’s maternal death rate. As president, Biden will take this strategy nationwide.
  • [Double] America’s investment in community health centers.
  • As Vice President, Biden was a champion for efforts to implement the federal mental health parity lawimprove access to mental health care, and eliminate the stigma around mental health. As President, he will redouble these efforts to ensure enforcement of mental health parity laws and expand funding for mental health services.

Well, I think those quotes already make this week’s post plenty long. Let’s have a week to digest all that, and next Tuesday I’ll provide some commentary on how those proposals do or don’t address the core causes of the issues in our healthcare system.

An Example of How Evidence Can Be Misleading (Bundled Payments Version)

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Bundled payments are a proven strategy in non-healthcare industries, only we call them by different names. We say we’re paying for a “hotel room” when really we’re paying for the use of the room, the cleaning of the room, the “free” wifi, the “free” continental breakfast, access to the concierge, etc. We say we’re paying for a “cruise” when really we’re paying for the cabin, the unlimited food, the port fees, the access to the shows, use of the onboard pools, etc. These terms (“hotel room” and “cruise” are just two examples) are shorthand terms that refer to the bundle of goods and services you get when you pay that single price. That’s how it works in every industry.

Except healthcare. When we get a bill for a knee replacement, it only contains the surgeon’s cost (okay okay, including the hardware). But there’s also a bill for the anesthesiologist. And for the operating room. And for the hospitalization if you need to stay.

Why would all those things be listed individually if you know you will need a surgeon, an anesthesiologist, and an operating room every single time you get a knee replacement?

Enter bundled payments. They finally turn healthcare a little bit more into a normal industry by allowing patients to pay a single price for the bundle of services that should always be included in that one upfront price.

Sidenote: yes, healthcare is and should always be different from other industries in many important ways. For more details on that, read Arrow’s seminal article on the topic. None of this is incompatible with those insights.

But apparently bundled payments are not very helpful according to this Health Affairs review of the evidence. What gives?

When I see a paper like that, I appreciate the effort to summarize the evidence, but I cringe thinking about all the headlines and misinterpretations and misconceptions that it will perpetuate. People are going to start saying that our large-scale efforts to implement bundled payments are a waste of money . . . and they have evidence to back them up!

But that’s totally the wrong conclusion. This is how I interpret this study: I first think about the overall purpose of bundled payments. When you put their role into the context of the Healthcare Incentives Framework, their purpose is to allow patients to know up front the full price for accomplishing the job they have (get their knee functional again). This enables the patient to compare the price of different options. If they also have quality information of those options, now patients have the ability to shop for the best value (Value = Quality / Price). And when patients start choosing which provider to do their knee replacement based on value, market share starts to shift to the higher-value providers, thus forcing the lower-value providers to change in ways that either raise their quality, lower their price, or (hopefully) both! This is the potential benefit of bundled payments–it is an essential component in stimulating a newfound evolution toward higher quality and lower prices in the market for that specific service.

Compare that to how these studies evaluated the utility of bundled payments: They implemented them for a single procedure and usually with just one of many insurers a provider contracts with. Thus, in most cases the providers were still reimbursed the old fashioned way by all their other insurers. And I would guess that very few competitors in any given region were participating in the same bundled payment program. Therefore, there was no way providers were going to completely shift how they deliver the service because of the narrow scope, a lack of uniform incentives, and a lack of any strong financial imperative to do so (their biggest risk was only of losing a percentage of revenue on small portion of their patients–enough to motivate them to try to do some things a little differently but not to completely redesign how they deliver care–and the risk of losing market share to their competitors due to low value was almost nil). In short, these studies did not get even close to creating the environment for an evolution toward higher value.

With this as context, it’s a surprise to me that any of these bundled payment studies found any benefit at all!

Now, if I could perform my dream study (the design details here and here), that would make a splash. It would get us much closer to the true estimation of how impactful bundled payments could be in healthcare. And until a study like that is done, remember the importance of context, and take any evidence on the impacts of bundled payments with a large grain of salt.

Next week I’ll start looking at Joe Biden’s healthcare plans, so look forward to that!

Evaluating the ACP’s Vision for Our Healthcare System, Part 3 of 3: Coverage and Cost of Care

The last in my series evaluating ACP’s “vision for a better U.S. health care system.” Check out the intro to the series, Part 1, context for Part 2, and Part 2.

This is the paper that generated the most media attention, much of which incorrectly asserted that the ACP endorsed “Medicare for All.” So let me, at the outset, clear this up: The ACP doesn’t endorse Medicare for All in this paper. It endorses a couple different options to achieve universal coverage, one of which is a single-payer system. There are many ways to achieve a single-payer system, and Medicare for All is just one way to do that. Maybe this sounds like semantics, but I think it’s important to be accurate here because the term “Medicare for All” carries with it a lot of specific ideas about how a single-payer system should be implemented, and it also carries with it specific political affiliations. The ACP was not committing to any of those specific ideas or political affiliations; the writers were only endorsing the general single-payer system approach as one of two options for how to increase insurance coverage.

Now, on to assessing the details of the paper.

Part 1 of this paper reviews the state of insurance coverage and healthcare spending, which sets the stage for Parts 2 and 3 to talk about ways to expand coverage and lower care costs.

Part 2 is mostly what I want to talk about. First, it asserts unabashedly that the ACP feels that universal health insurance coverage is essential. And since having insurance coverage is pointless if its spending requirements are not affordable or if providers are unavailable, it adds those access details in as also being essential.

Then it lists two options that it sees as being able to achieve that goal: a “single-payer financing approach” and a “publicly financed coverage option.” Let’s look at each one.

Single-payer financing approach. This means a single government-run insurance company provides insurance for everyone in the country. It doesn’t necessarily prevent people from purchasing private supplemental insurance, but it would cover everything considered to be essential. The paper then discusses some of the well-known benefits and concerns that come along with having a single-payer system. The interesting part to me, which makes sense coming from a physician organization, is their particular concern about how this would affect physicians. It could decrease administrative burden and uncompensated care, but it could also decrease autonomy. And the big concern is that if it relies on “Medicare’s flawed payment system,” it would perpetuate a few undesirable things, including bad incentives (such as an over-reliance on fee for service), the overvaluing of certain services (procedures), and unsustainably low reimbursements (that would make some providers go bankrupt). Any prior “Medicare for All” proposal I’ve seen relies on Medicare’s payment system, so this is a good example of why the ACP is not endorsing Medicare for All specifically.

Publicly financed coverage option. Another name for this is a “public option.” Basically it’s a government-run insurance plan that will be offered alongside private insurance plans. It would be available for employees to opt into rather than use their employer-sponsored insurance as well. An essential part of this insurance plan is that it would have premium and cost-sharing subsidies (so that, again, lower-income people don’t end up with useless coverage). Later on in this paper, they say that no matter which option is chosen, it needs to have included with it a mandatory or automatic enrollment component. I’m not sure how premiums would be paid for by people auto-enrolled into the public option plan–possibly through filing their taxes–but isn’t this looking more and more like the Affordable Care Act? Require people to have insurance coverage and subsidize lower-income people to be able to buy it? Yes, that’s the ACA. The one difference is that one of the insurance plans people can select from will be run by the government (which, incidentally, was originally part of the ACA plan).

So those are the two options the ACP supports. They also mention another approach: convert all insurers to non-profits and require everyone to have health insurance (another variation of the ACA, but this time there’s no public option and instead all the insurers are non-profits). But they say there is not enough information on how such a system could be applied to the U.S., so they don’t endorse it. And all the other options for reform that are out there (such as “market-based approaches”) would not achieve universal coverage, so they were eliminated from consideration.

Even though the ACP is politically neutral, you can see that their foundational beliefs and priorities line up much more closely with modern liberal thinking rather than conservative thinking/beliefs/priorities. This is what I expected, and I discussed it in my intro to this series.

Part 3 discusses strategies they support to lower healthcare costs. There are 5 of them: invest more in primary and comprehensive care, reduce excessive pricing and improve efficiency, reduce low-value care, rely more on global budgets and all-payer rate setting, and use more reference pricing.

Rather than get into the merits and drawbacks of these different policies here, lets finish this series with a brief discussion about whether the two options they endorse to attain universal coverage will get in the way of the ideas we talked about in Part 2.

If you will recall, the second ACP paper we discussed gave 6 different recommendations, the two main ones being to (1) give patients price and quality information to help them choose higher-value providers and (2) getting providers to shift to value-based purchasing arrangements (especially different forms of capitation) with insurers.

With a single-payer system, usually the implementation involves setting a uniform nationwide price for each service (adjusted by region for cost of living). This would completely ruin their idea of getting patients to choose providers based on value because the price would be the same for all providers. I will not get into detail on how, but setting a price floor like that completely distorts providers’ innovation incentives. It would kill pretty much any cost-lowering innovation that results in slightly reduced quality, even if the innovation could result in drastically lower cost.

But, on the upside, since there’s only one insurer to deal with, a single-payer system would allow for perfectly uniform incentives for any provider that chooses to enter a VBP arrangement!

With a public option like they have described, there is the exact same problem with distorted/ruined incentives due to uniform pricing, but at least the extent of the problem is limited to the number of patients who are on the public option plan. And, as for providers’ efforts to enter into VBP arrangements, it would probably make it slightly easier to get uniform incentives because I assume VBP arrangements would be harmonized between Medicare and this public option. But any provider who wants to design their own VBP arrangement is going to have to have an even harder time attaining uniform incentives because I suspect they would have to convince the plan administrators of Medicare and the public option independently, which means they’re trying to win over yet another public payer to be able to move forward with their idea.

Am I saying that the ACP’s efforts to accomplish universal coverage will interfere with their efforts to improve the care delivery system? Yes. The two options they endorse don’t necessarily need to be implemented in a way that does that, but I see nothing in what they’ve written that specifies that they should be implemented in a way that mitigates those problems. (For details on how this could be done, see what an optimal single-payer system would look like here and what an optimal ACA-type system would look like here.)

I think different groups of people were working on each paper, and even though they were reporting their findings and recommendations to the same group of ACP leaders for approval, it’s quite a difficult task as one of those ACP leaders to be presented with complex recommendations from two different groups and figure out exactly how they might conflict with each other.

Well, there we have it. The ACP endorsed some things that would be very beneficial, but they fell into the same trap of not thinking about these things from a complete system perspective, so their efforts to get more people into the system will interfere with the changes the system needs to deliver better value over time. This is why any healthcare reformer first needs to have a firm understanding of the core causes of low value and how those can be resolved before deciding on the details of how to enact universal coverage.

But I am happy the ACP jumped directly into this arena. It shows that powerful physician groups are also interested in figuring out how to fix the healthcare system. Maybe the biggest benefit from their efforts of researching and releasing these papers (and then having them critiqued) is that it will make the ACP and other provider groups more likely to recognize and support policies that will truly move us closer to fixing our healthcare system.

My Ideas Versus Congress’ Ideas to Transition to Alternative Payment Models

Next week I’ll finish looking at the ACP’s papers on fixing healthcare. But this week, I wanted to say one more thing about alternative payment models (APMs)–how to transition to them.

First, let’s think about this task without using the Healthcare Incentives Framework. How would a policy maker go about trying to get our healthcare system to shift from FFS to APMs (ignoring the fact that this is the wrong way to look at it)?

They would probably start by saying, “We need to find a way to give incentives to providers and payers to try out these different APMs.” This would be fairly easy to do through Medicare, so they would create some Medicare APM programs and structure them in a way that makes the benefits of joining large enough that lots of providers will want to participate.

They would also encourage private insurer-provider diads to start using APMs. How could they do that? They would probably just have to offer them money to do so.

These two approaches are what we’ve seen policy makers do. Medicare has the Medicare Shared Savings Program to get providers to enter into ACO contracts with Medicare, and the Bundled Payments for Care Improvement initiative to get providers to enter into bundled payment contracts with Medicare.

And to encourage private insurer-provider diads to start using APMs as well, I am only aware of two initiatives:

  1. Medicare joined up with a bunch of private payers to institute a patient-centered medical home program called Comprehensive Primary Care Plus.
  2. In 2015, congress passed the Medicare Access and CHIP Reauthorization Act (MACRA). A major part of this law is something called the Merit-based Incentive Payment System (MIPS). MIPS applies to all providers receiving reimbursements from Medicare, and it says they will now get a bonus or penalty based on a few criteria (quality, cost, EHR use, and quality improvement efforts) UNLESS they are actively participating in enough APMs (including qualifying programs with private payers!), in which case they are exempted from MIPS bonuses/penalties and instead they get an automatic 5% bonus.

I don’t think congress has passed any direct-to-private-insurer incentives to create APM programs (unless you count the Comprehensive Primary Care Plus program), but congress is influencing private insurers indirectly through providers because providers who want to get the 5% bonus and be exempted from MIPS will be pressuring private insurers to sign APM contracts with them.

So there we see the evidence of how policy makers not using the Healthcare Incentives Framework are approaching this effort to shift to APMs.

What would I do, knowing the principles illustrated in the Healthcare Incentives Framework?

First, I would discard the assumption that, for APM usage to increase, artificial incentives need to be created. The Healthcare Incentives Framework makes it clear that if an APM could truly offer increased value to patients, it would naturally arise in the market IF there are no barriers to it doing so. Next, I would go about looking for barriers and eliminate them. And only after doing that, if I want to accelerate the uptake of APMs, I could also offer artificial incentives.

APMs are a contract between an insurer and a provider, so let’s look at both parties.

Providers: Their incentive is to provide care of all kinds–this is how they make money. And any investment that enables them to raise their value relative to their competitors and that is not too risky will be desirable to them AS LONG AS they can be reasonably assured that patients will be able to identify their value as being higher than competitors’ and also have an incentive to choose the highest-value option. So, from a provider perspective, as long as any APM contract being offered by an insurer meets those requirements, they will be happy to participate.

Insurers: Their incentive is to minimize the total cost of care because they are getting a fixed amount of money in premiums, so any expenditure that is prevented is money that stays in their pocket (assuming those frustrating medical loss ratio rules instituted by the Affordable Care Act don’t come into play). The problem is, insurers don’t have much control over the total cost of care. Sure, they can try to negotiate the lowest prices possible, but providers are the ones that largely determine the total cost of care because they are the ones with the ability to prevent care episodes and to determine how much care is needed for care episodes that cannot be prevented. What I am saying is that insurers have the incentive to reduce the total cost of care, but providers are the ones able to make that happen. Therefore, insurers need to pass along their incentives to providers with these APM contracts. And insurers are happy to give money to providers to institute and run these programs if they can reasonably expect to save a lot more money than what they are giving.

With all that as context, what would I do to transition our healthcare system to APMs?

First, I would make sure providers are willing to join APM contracts by reasonably assuring them that if their investments into the program successfully increase their value, they will win more market share (and, therefore, profit).* How can I do that? By enabling patients to identify the highest-value provider up front and also ensuring that they actually have an incentive to choose the highest-value provider. I won’t go into details here on how to accomplish those things because I’ve written extensively about them before. But the result of those changes is that it would make providers see APMs as a potential for being very beneficial not only to their patients but also their profitability, which would probably result in them taking the lead in designing many of the APMs since they’re the ones who know best what changes could make a difference.

Next, I would make sure insurers are also willing to sign on to these APM contracts. Since insurers don’t like investing a lot of money into a program and then being required to give away all the financial benefits of that investment, I would eliminate the Affordable Care Act’s medical loss ratio requirements.

Next, lest you worry that insurers will forever keep all the savings generated by these APM contracts, I would enhance the ability for patients to compare the cost and quality of different insurance plans. That way, insurers will want to lower premiums because they will be assured that patients shopping for insurance will see that they are offering higher value (particularly in the form of lower premiums), so more patients will choose them, thus raising their profit as a result of increased market share.

Next, I would probably continue the programs Medicare is already doing, but I would also allow Medicare to sign on to other APM contracts happening between private insurers and providers. This would enable providers to get all insurers to reimburse them using the same contract, which would give them uniform incentives and make a huge difference in how much they are able to optimize toward that program.

Finally, if I do all that and am still unsatisfied with how fast this shift to APMs is happening, I would offer bonuses paid through Medicare to providers who are working hard to implement APMs (like the 5% bonus Medicare already implemented, described above). And if all that fails at getting this shift to happen as fast as I want, I would consider also offering grants to providers and insurers to try out APMs so that they don’t have to risk their own money designing and implementing them.

This approach is very different than the one currently being used by policy makers, and it would require changes that might be more difficult to make, but it would also not be limited by our current understanding of the “best” APMs. Instead, it would create the right environment for our healthcare system to continually shift toward better and better payment models as they are invented and refined.

* I know that an increase in market share does not automatically increase profitability, but this is my shorthand way of saying that it will increase their market power, which leads to increase profit either through a low-margin high-volume pricing strategy or through a high-margin low-volume pricing strategy. And my prediction is that, given where prices in healthcare are these days, the vast majority of providers would find that the profit-maximizing pricing strategy would be a lower-margin higher-volume option inasmuch as provider capacity allows.

Fee for Service Versus Alternative Payment Models? That’s the Wrong Way to Look at It

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I was reading an interesting article on The Health Care Blog this week, How to Pandemic-Proof Our Health Care Payment System, by Aisha Pittman and Seth Edwards, and it got me thinking about how fee for service has become a scapegoat. And since I’m on an alternative payment model (APM) kick the last few weeks (here and here), I’ll keep it going and save my evaluation of the ACP’s solutions to healthcare for the near future.

First, I need to debunk a myth. Here’s the myth: all fee-for-service (FFS) reimbursement is bad. The corollary to this is that all APMs are better. We need to stop seeing healthcare payments as dichotomous (FFS vs APMs) and start seeing them as sitting on a spectrum. This spectrum is the breadth-of-services-purchased-in-a-bundle spectrum. FFS is closer to the “narrow” end, and APMs are somewhere toward the “broad” end. But no end of the spectrum is inherently good or bad.

If FFS isn’t automatically bad and APMs aren’t automatically good, what determines whether any individual payment to a healthcare provider is good or bad? The answer: How closely it lines up with the principle of having a single payment for a single healthcare need. One payment for one job!

The patient needs a second opinion on a challenging diagnosis? One payment (that would include the doctor’s time). The patient cuts open their finger chopping vegetables? One payment (that would include nurse intake time, the doctor’s time, the lidocaine, the sutures, suture removal, etc.). The patient needs a bad knee replaced? One payment (that would include pre-op, op, and recovery care). The patient wants to have a baby? One payment (that would include all obstetric care from pre-pregnancy planning through delivery). The patient needs a year’s worth of diabetes management? One payment (that would include doctor consultations, podiatry care, lab work, etc.).

Try labeling those examples with the normal lexicon. You’ll see FFS, bundled billing, and capitation. Yet, they’re all “good” because they all require one payment for the job the patient wants the healthcare system to do for them.

How we get to that is a topic for another day, but think what could happen if we always paid one payment for one job (and if the services included in those payments were standardized from provider to provider): There could be prices advertised up front, there could be standardized quality metrics, patients could shop around for the highest value (assuming insurance plan designs don’t get in the way of the shopping incentive), higher-value providers would get more patients and make more money, competition over value would be stimulated, and our healthcare system would start naturally improving the value it is delivering year after year.

So let’s stop making FFS the scapegoat–which obscures the underlying principles–and start focusing on giving patients a single fee for a single job.

Context for what “Value-based Purchasing” (VBP) Really Is About

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As I was reading through the ACP’s “Health Care Delivery and Payment System Reforms” paper this week, I was thinking more about the principles underlying this whole “value-based purchasing” (VBP) thing. So, before we delve into the ACP’s opinions on the topic, I thought it would be helpful to give a little context about what VBP really is.

I’ve written about these topics before here and here, and those posts describe somewhat different aspects of VBP and fee for service than what I’m talking about today.

The stated goals of VBP boil down to two things: (1) reward (and thereby improve) value and (2) decrease healthcare spending. If you’re familiar with my Healthcare Incentives Framework, you know I think trying to give providers bonuses for delivering better quality is not a transformational nor a sustainable effort. But what of the goal to decrease spending? Let’s talk about that for just a minute.

Question: Who stands to gain (or, save) the most if healthcare spending goes down? Answer: The person on the hook for paying for it. Paying for healthcare is a shared responsibility between the patient and the insurer, but really the risk for having to cover large healthcare expenditures resides with the insurer. (Yeah, that’s the point of insurance.)

So, if insurers are the ones that stand to benefit the most if healthcare costs go down*, what can they do to make that happen? They don’t directly control what providers do, but can they financially incentivize those providers somehow to find ways to decrease healthcare spending for them?

Yes. That’s what VPB is. And that primarily takes two forms:

First, they can simply pay them extra to reorganize in certain ways that would decrease spending. The insurer hopes the additional investment will result in a lot more savings than they invested. So, an example of this would be when insurers give clinics extra money when they offer expanded services such as after-hours access to doctors, social workers, and care coordinators. Think: patient-centered medical home.

Second, they can shift some of the risk to providers, so providers will make more money if they successfully decrease spending but will also make less money if spending increases. Think: Any “shared savings” plan, such as an ACO.

Now when we talk more about VBP, you will see these two tactics at work. Really, these are the only two tactics insurers can use, so every VBP model is some variation of one or both of them.

*There are some complicating factors in that statement. One is that with the ACA’s medical loss ratio restrictions, they actually don’t stand to gain much if they find a way to decrease medical spending, because they’re required to turn around and send a lof of that extra money they saved back to their enrollees in the form of rebates. It messes with insurers’ incentives to lower the cost of care, and this is one of the many reasons I despise those regulations. Another complicating factor is that insurers make a large amount of their profits (if anyone knows a specific number, I’m all ears) off the stock market by investing the premium money until they need to pull that money back out of those investments and pay for care. So, the more they get paid in premiums, the more they have available to invest in the interim. If all insurers could collude and find a way to keep healthcare super expensive, they would be tempted to do that, especially if they could keep premiums high AND decrease spending at the same time (and keep 100% of the difference). However, that is not a Nash equilibrium–there’s an incentive for someone to cheat the others and make more money than their competitors by lowering premiums and winning all the market share–so I don’t expect it to be a lasting thing even if it is happening informally in certain markets at certain times.

Evaluating the ACP’s Vision for Our Healthcare System, Part 1 of 3: Barriers to Care and Social Determinants

I am back from my blogging hiatus, and I’m excited to write about the three papers the ACP released earlier this year about how they think healthcare should be fixed!

I gave an intro to this series here, which basically gives the caveats about whose opinions these papers–written by the second largest physician organization in the U.S.–do and do not represent. Now, let’s get into it.

This is the paper where the ACP lays out their recommended solutions to issues related to non-financial barriers to care and social determinants of health. And in case you didn’t already know, I say “non-financial barriers to care” because even people with good insurance coverage that has affordable out-of-pocket requirements can still have many barriers to care. That’s what we call “coverage without access.”

This paper first reviews some of the evidence on a number of public health issues (nutrition, tobacco use, substance use, maternal mortality, firearm injuries and deaths, environmental health and climate change), and then it reviews the main non-financial barriers to care (race and ethnicity, LGBTQIA identity, gender, physical and intellectual disability, location, age, language and citizenship status, incarceration status, religion and beliefs, health literacy, intersectional barriers).

Next, it gives policy position statements and each one is followed by some policy recommendations, so let’s look at each one in turn:

  1. This one says that all people should have equitable access to high-quality care and that none of those non-financial barriers to care should impact that. Then they recommend that policies be put in place to focus on minimizing those non-financial barriers to care. They don’t actually give a set of specific policy recommendations on which ones to prioritize or how to do it, but they do reference a few other ACP papers that give more specifics in certain areas. So, this first one is a nice safe policy statement without any real substance on how to make a difference.
  2. This one says that we need to do a better job ensuring there are enough physicians and hospitals overall and in underserved areas. And it actually gives a few specifics. Notably, the ACP thinks there should be more internists! They want residency spots increased, and they want more programs that support medical trainees to choose primary care and to serve in underserved areas. They also make a general statement about wanting there to be more effort put into ensuring rural and critical access hospitals are available. And they again reference a number of different existing ACP papers that go into detail in a number of those areas.
  3. This one says that they want more public health research and more policy interventions that address social determinants of health. Then, again they simply reference other ACP papers for specifics.
  4. This one says that we need to devote more resources to environmental health and climate change. And, again, without any specifics here, they reference other ACP papers.
  5. This one lists the most “critical” public health objectives that the ACP thinks we should focus our time and money on the most, which are tobacco use, substance use, maternal mortality, firearm-related injuries and deaths, and access to high-quality food. It references APC papers on the subjects that already have papers, and it recommends more research in the other areas.

Well, I admit I am underwhelmed at the substance here. And yet, even though I expected this paper to offer more specifics that I could evaluate, it does do a good job of organizing the issues and putting the other existing ACP papers into context. My only comment, then, will be that all of these policies fit into the “equitable access” category of my Healthcare Incentives Framework. (Sure, some will take issue with my “equitable access” terminology not being broad enough, and I will let them.) Policy responses to these issues should be pursued in each country to the extent that each society deems appropriate, and when the designers of the policies understand the rest of the Healthcare Incentives Framework, they will be empowered to implement those policies in ways that do not interfere with the long-term value improvement of their healthcare system.

We will see what the other two papers (Part 2 here, Part 3 here) have to offer in the coming weeks.

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

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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!

Building a Healthcare System from Scratch, Part 7: Concrete Descriptions of Some Optimal Systems

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Image credit: Rattanachat

In Parts 1 through 6, I explained the Healthcare Incentives Framework, which is useful for clarifying the necessary ingredients of an optimal healthcare system. Those are the pre-requisite readings to understanding this post, and I will not fully summarize or provide the rationale for them here. But, just as a reminder, Parts 1 through 6 culminated in the goal of getting market share to flow to higher-value providers and insurers, which would be enabled through three critical inputs to decision makers/patients: (1) multiple options, (2) the ability to identify the highest-value option, and (3) incentives to choose the highest-value option. As barriers to those three inputs are minimized, any healthcare system will begin to evolve to deliver higher and higher value. This is the only way to unlock sustained value improvement in healthcare systems.

An important point about this framework is that it is, in a sense, welfare-spectrum neutral, meaning the principles apply to healthcare systems that sit at any point on the welfare spectrum, from libertarian-type systems to fully government-run systems.

Now let’s imagine up some concrete examples of what different types of systems might look like if we built them from scratch using the ingredients from the Healthcare Incentives Framework.Picture1

A Libertarian-type System

In this system, there are many private insurers all offering creative and innovative health insurance plans. Their efforts are focused on trying to maximize cost-saving prevention so they can lower their costs and then outprice their competitors. This has led to many ways of keeping people out of hospitals and emergency departments. But since health insurance is an inherently complex product, there are some standardized levels of coverage that have been agreed upon to help people compare those plans apples to apples. This standardization has been implemented in a way that maximally improves comparability with minimal limitation on plan design flexibility. Multiple health insurance comparison shopping websites have arisen, all highlighting those standardized coverage levels, differences between plans, and clear pricing.

An important aspect of these insurance plans is that most of them require the enrollee to pay some part of the price differential between providers; this did not need to be mandated because insurers found that they are able to price premiums more aggressively when they have implemented those cost-sharing characteristics. The plans that do not have this feature are much more expensive, but some people prefer them because they don’t ever need to worry about prices when choosing providers.

There is no requirement for people to buy health insurance, but because there is also no guarantee of care if someone without insurance has a catastrophic medical expense, many people are motivated to buy catastrophic coverage. The rest of their care they buy a la carte out of pocket.

Many of the poor, as well as people with chronic expensive medical conditions, are priced out of the insurance market, but private charities have cropped up that assist with this for most of them.

Looking at the provider side, nonprofits have played a leading role in establishing standards in provider quality metric tracking and reporting. These nonprofits also certify the quality information being reported by providers, so patients are able to compare the quality of different providers apples to apples. The quality metrics being reported and certified are determined by what patients find most relevant in helping them decide between providers for each service they are shopping for. Similar to the health insurance shopping websites, there are provider shopping websites presenting those standardized metrics alongside providers’ advertised prices.

Because providers are assured increased market share when their value goes up relative to competitors, there is a great variety of innovation toward crafting high-value care experiences for patients. Most of the value improvements are in the form of cost-lowering innovations because of the downward pressure on price exerted by the uninsured population and the price-sensitive insured population. Providers have particularly found that shifting the location of care to less expensive settings (including even the patient’s own home) and shifting to relying more on narrowly trained provider types (particularly for treatments that are relatively algorithmic) is very effective at lowering costs. Suppliers of healthcare devices have also found that they are more successful as they focus on developing lower-cost devices, even if that means sacrificing some amount of quality or features. And since government regulations have been kept to a minimum, all these innovations have been allowed to progress and flourish quickly. This occasionally results in unsafe practices and devices cropping up, and individuals have been hurt in the process, but people have felt that the rapidity of innovation that has improved so many lives has been worth that cost. And any practice that proves to be unsafe is exposed quickly in this marketplace.

Providers have also found that, when patients are shopping for a provider, they are looking for a specific well-defined service or bundle of services, such as a year’s worth of chronic disease management, a CT scan, a hip replacement (including all the pre-op workup and the post-op rehab), or a diagnostic evaluation. This has led to standardized bundles of services (also certified by those non-profits), which has made shopping for healthcare services easier and also enhanced the ability to compare the prices from one provider to another.

This system is not perfect. Some people choose not to buy insurance and then have to declare bankruptcy when they have an expensive care episode (or end up not getting care due to inability to pay), and some people want to buy insurance but are frustrated that they cannot afford it, although this number is decreasing each year. Providers face challenges dealing with multiple insurance plans with different reimbursement schemes and coverage rules. And unsafe practices or innovations crop up every so often that harm patients. But, overall, the value delivered by insurers and providers increases rapidly as insurers find new ways to prevent care episodes, and, for the care episodes that cannot be prevented, providers find ways to make care safer, more convenient, and more affordable.

A Single-payer System

With the government running the single insurance company for this system, they have been able to easily implement many of the needed aspects of an optimal healthcare system. They automatically cover all known cost-saving and cost-effective preventive services without copays, which includes population-based preventive services but also focuses more and more on targeting extra services to high-utilizing patients to prevent hospitalizations and ED visits. Their cradle-to-grave time horizon has helped this immensely.

The prices the insurer assigns to services are not firm but are rather considered to be the “maximum allowable reimbursement,” so any provider that wants to charge a lower price will have the freedom to do that. And providers who innovate and find ways to charge less win market share because the insurance plan’s cost-sharing policies require people to pay less out of pocket when selecting a less expensive provider. The insurer has also found that paying a single fee for standardized bundles of services has motivated a great deal of provider innovation and cooperation.

Together, all these reimbursement policies help to prevent as many care episodes as possible and minimize the cost of the episodes that are not preventable.

The insurer’s fee schedule also includes a multiplier to adjust for regional cost variations, and they leverage this to increase reimbursement in underserved areas as well, which has especially helped rural areas maintain enough providers.

As a condition of being accepted as in-network by the insurance plan, providers are required to use an electronic medical record that is able to decode and record to the patient’s secure cloud-based personal health record. Providers are also required to report specific quality metrics. These quality metrics are never used for giving bonuses, but they instead focus on the aspects of quality that patients find most relevant when they’re trying to decide between provider options. The insurer operates a single website that lists all in-network providers along with these risk-adjusted quality metrics and each provider’s prices (displayed as the amount the patient will be expected to pay out of pocket).

Providers appreciate this system for many reasons. They only deal with a single insurer, which minimizes insurance-related overhead expenses and gives them a single set of incentives to respond to. They are completely free to build hospitals and clinics wherever they think they will be most profitable. And they can organize care however they want provided they adhere to the safety and reporting regulations.

Now, having seen the main aspects of this system, let us consider the impact of not adhering to the Healthcare Incentives Framework’s requirement of having multiple insurer options. Recall that the jobs insurers are primarily responsible for are risk pooling and cost-saving prevention. And the reason having multiple options is desirable is because—assuming patients can identify and then choose the highest-value insurance plans—insurers will have a profit motive driving them to innovate to find ways to increase the value they deliver, which especially means finding ways to do more cost-saving prevention that will result in more care episodes being prevented, thus lowering the total cost of care and insurance prices. With a single government-run insurer, that innovation and its attendant benefits will be curtailed. Clearly there are many compensatory benefits, including simplicity, reduced administrative overhead, uniform incentives, and a straightforward way of achieving a society’s goal of universal access to insurance. Depending on the priorities of the country, these benefits may outweigh the costs. It is a question of values. But the decision becomes clearer when the costs and benefits of each option are understood.

A Government-run System

This system, like the single-payer system described above, has a single insurer that is run by the government. But here the government also owns all the healthcare facilities and employs all the healthcare providers.

On the insurance side, reimbursement policies are familiar, with “maximum allowable reimbursements,” bundled pricing, differential cost-sharing for patients, and a website reporting the quality metrics and prices (out-of-pocket costs) of providers. The insurer also has a robust department working on preventing care episodes by finding innovative ways to keep people healthy.

But what about the provider side? Initially it may seem that patients only have a single healthcare provider option, but just because a single entity owns all the hospitals and clinics does not mean they are all the same. In this system, the government determines where healthcare facilities will be built and what services they will provide, but it allows great freedom in their operation. At every facility, providers are able to organize care however they like, and they are also free to charge any price as long as it is at or below the maximum allowable reimbursement for each service. They have great motivation to put in the effort required to find ways to lower costs (thereby enabling them to charge lower prices) and improve quality because they receive bonuses that are calculated based on the amount of money they saved the system (the number of patients treated multiplied by how much less than the maximum allowable reimbursement each of those patients was charged).

Because the insurer and providers are all operating under one roof, the billing in this system is particularly simple. Some specific requirements are in place for the purpose of accumulating data that will help track for problems in the healthcare system, but there are no complex billing codes or arcane documentation requirements. When providers document a patient encounter, they do so for the purpose of communicating to other providers what they thought and did.

Government healthcare expenditures in this system are sustainable mostly because providers are actively innovating to improve value—much of which results in them being able to lower prices so they can earn bonuses.

Overall, this system has been organized in a way that, despite the government ownership of providers, maintains the ability to reward value with market share, which drives value improvement. The insurance side also innovates to prevent care episodes by leveraging its cradle-to-grave time horizons and connections with other non-healthcare public health sectors.

There are barriers to provider innovation compared to other systems. Providers face the upside of potential bonuses for doing well, but there is not necessarily much downside risk in providers who are mediocre or worse and still getting paid their stable salary. In any other market, the risk of being forced out of business due to lost market share drives competitors to innovate to improve their value so they can become profitable, but in this system the worst-case scenario is that the government closes their clinic and relocates those providers elsewhere. Additionally, many innovations require new types of facilities or caregivers, or they require cooperation between multiple types of providers, which can be difficult when providers have limited control over facility design, placement, and reimbursement contracts.

The effects of these innovation barriers are difficult to quantify, but they need to be balanced with the benefits of a reduced documentation burden, a simpler billing system, and a more reliable dispersion of healthcare services across the country.

Conclusion

Policy makers overseeing any type of system need to understand their system’s current barriers to the three critical inputs: multiple options, ability to identify the highest-value option, and incentive to choose the highest-value option. (Many of the most common barriers to those three inputs are outlined in Part 6.) They need to understand that those barriers are the primary inhibitors of their healthcare system evolving to deliver increasingly higher value for patients over time. And as they enact policies that eliminate those barriers, they will see a predictable chain reaction of more patients choosing higher-value insurance plans and providers, those higher-value competitors earning more profit, and parties in the healthcare system beginning to innovate to deliver higher value, all of which will result in the healthcare system transformation that is sorely needed the world over. Policy makers who understand this Healthcare Incentives Framework are also empowered to propose and support policies that expand access in ways that do not create new barriers to those three critical inputs.

As healthcare reforms begin to take this focused direction, the innovations and value improvements will be exciting to watch!

In Part 8, I will conclude this series by imagining how the U.S. healthcare system might look with the Healthcare Incentives Framework fully implemented.

Building a Healthcare System from Scratch, Part 6: Barriers to Choosing the Highest-value Options

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Image credit: changingpaces.com

In Part 5, we talked about the three requirements for getting market share to flow to the highest-value options, which is necessary if we want higher-value parties (insurers and providers) to be rewarded with profit. The context for why this is the crucial feature of our optimal from-scratch healthcare system is discussed in parts 1, 2, 3, and 4.

As a reminder, those three requirements were for patients to have (1) multiple options, (2) the ability to identify the highest-value option, and (3) incentives to choose the highest-value option. Let’s look at examples of the common barriers to each of them so we will know what to avoid when we build our optimal healthcare system.

Multiple Options

Our goal: Avoid any policies that directly or indirectly limit the number of competitors in a market.

For providers, this means allowing them to build hospitals and clinics whenever and wherever they want. They will not do this with reckless abandon because they will know that, if they choose to build in a new region and end up delivering lower value than the incumbents, they will not get many patients and their new endeavor will not be profitable.

For insurers, this means avoiding regulations that make it difficult for them to enter new markets. Nationally standardized regulations will simplify the process of selling insurance in multiple markets, but  this does nothing to ease insurers’ greatest challenge of entering new markets, which is the challenge of negotiating prices with providers in that region. But having many provider options in a region should help with this.

And as for things that affect both providers and insurers, we will need good antitrust laws to prevent too much consolidation. And we will need to avoid policies that limit the freedom of them to vary their price and quality so that they can offer unique value propositions (otherwise we end up with many options that all are effectively the same, which defeats the purpose).

Identifying the Highest-value Option

The barriers to this are different for providers and insurers.

On the insurer side, the most difficult aspect of identifying the highest-value option is being able to predict which mixture of premium, copay, deductible, coinsurance, etc. will cover what you need in the cheapest way possible, as well as identifying/predicting which services will be needed and whether they are covered in the benefits. Having some standardization can make this much simpler (but still challenging), such as what healthcare.gov does with multiple standardized quality tiers of insurance plans and grouping all those options together to be compared apples to apples.

On the provider side, one of the first challenges is getting people to recognize that they have multiple options that are of very different value. In almost every other industry, people are great value shoppers, but they have been conditioned historically not to even think about it when choosing healthcare providers, which is probably a consequence of the chronic unawareness of the huge variations in the quality of providers as well as the third-party payer system that so often causes people to pay the same no matter which provider they choose. This is one reason why healthcare provider quality reporting websites are so infrequently used even when they are available.

The other issues with identifying the highest-value providers can be divided into barriers to knowing price beforehand and barriers to knowing quality.

Barriers to knowing price beforehand: The biggest one is uncertainty about what services will be needed—for example, most people do not present to the emergency department with a diagnosis already, nor can they predict what additional complications might arise during a hospitalization. But for specific, well-defined episodes of care, such as an elective surgery, there are great ways to make prices knowable beforehand (look up bundled pricing for an example).

Barriers to knowing quality: People do not know where to find quality information even if they do go looking for it. And if they find it, most of what they find are quality metrics geared specifically toward comparing providers for the purpose of allocating bonuses rather than quality metrics that actually provide metrics that are relevant to helping a patient choose between providers. For example, a hospital’s overall mortality rate or readmission rate has little bearing on the quality of care a patient will receive for something like a straightforward elective gallbladder removal. Standardized, easy-to-understand, appropriately risk-adjusted, patient decision-oriented quality data are needed.

And the last thing to mention in this section are the barriers to identifying the highest-value option that will not likely be overcome. For example, medical emergencies don’t allow time to make a thoughtful decision about which hospital to go to. And low health literacy is a barrier for many people. And there are many important aspects of care that cannot easily be measured, such as a primary care doctor’s ability to diagnose the cause of ambiguous symptoms. Does the presence of these more insurmountable barriers mean that no health system will ever be able to get market share to flow to the higher-value options? No—even if many decisions about which provider to go to are not particularly logical or value-focused, as more people start choosing providers based on price and quality information, higher-value providers will begin to win more market share and the desired incentive scheme that motivates value-maximizing behaviors will arise.

Incentives to Choose the Highest-value Option

Even when people (1) have multiple insurer and provider options and (2) are able to identify the highest-value options, there are still barriers to them choosing the highest-value options.

The first barrier is when anyone but the patient is acting as the decision maker. These alternative decision makers typically have a financial stake in the decision and want to choose the cheapest option without regard for quality. For example, insurers that offer very narrow networks act almost like a first-cut decision maker to narrow patients’ possible provider choices down to only providers that are willing to accept the lowest prices. Patients/patient advocates should be the decision makers because only they will adequately weigh the quality aspects that are most important to and impactful on them.

But even when the patient is the decision maker, they will ignore prices if they are required to pay the same amount regardless of the provider or insurer they choose. This is usually not an issue with insurance plan selection, but it is a major issue with provider selection. For example, flat copays require the same payment from the patient regardless of the full price of the providers. High-deductible plans solve this problem for any service below the deductible, but, once that deductible is surpassed, they have the same problem. Ideas such as reference pricing, multi-tier provider networks, or even paying patients for choosing lower-cost providers can help with this.

Summary

If the above discussed barriers to the three requirements for getting market share to flow to the highest-value options are minimized, the healthcare system will naturally and continuously evolve toward higher value because it will motivate providers and insurers to perform their jobs in value-maximizing ways. Government interventions may still be considered for areas where natural incentives will not motivate those parties to do all the jobs we want them to do (particularly in the area of equitable access), but the “healthcare market” will start functioning to benefit patients and what they value.

This concludes the big-picture explanation of this Healthcare Incentives Framework. In other words, we have now discussed all the ingredients that need to go into an optimal from-scratch healthcare system. In Part 7, we will solidify the implications of this framework by imagining up a few examples of different types of healthcare systems with the Healthcare Incentives Framework implemented to show how all those ingredients can come together.Picture1