Among the things that would be easier to do in health reform than many other things would be to foster or force collaboration among employers. For years, large employers have crafted their own benefit plans for their companies. These plans can be very different from each other employer to employer. In addition, their administrative practices differ from each other as well, with some requiring lots of managed care oversight while others don't. Some cover transplants, others don't. One will cover preventive care, another won't. And so it goes. Formularies for prescription drugs vary all over the map.
All of this has the effect of driving up costs in the provider world. Providers of all stripes put in place massive systems and hire millions of people across the country to deal with all of this variation--from how to check for eligibility to which procedures are covered or how much a patient will be asked to pay for a hospital stay. For the most part, most of this is driven by some sense among employers or their consultants that crafting a specific solution for the company adds value to the company's bottom line or makes it more competitive in the market place.
My sense is that this is overblown. Few people go to work for companies strictly because of the health benefit plan specifics. In fact, if someone is joining a company for the health benefits, it is because they probably need them. So in some ways, large employers may actually be doing themselves harm by attracting sicker than average employees. I don't know that this is the case, but what I am saying is that the benefit plan in its details isn't of that much interest to employees. The fact that the employer offers benefits is more important as is the cost of the coverage along with deductibles and other cost sharing elements.
Wouldn't it make more sense for employers, who continually complain about the high cost of health care (with good reason) to collaborate and adopt one benefit plan or, failing that, two or three, with all of them covering exactly the same things, containing the same drug formularies, having the same managed care components and so on. In this way, providers would become very familiar with these plans and reduce their billing and other administrative costs. Why? Because so many staff in provider organizations are there just to deal with the variations and exceptions. Reduce the variation and staff can be reduced.
But there are other benefits as well for employer and employee. Workers going from company to company, at least among those who are in the collaborative, would know what their benefits will be. They wouldn't have to worry about the drug they take falling off the formulary, forcing them to pay more and find another medication. Employers could actually compare costs with each other because the confounding factor of differing benefit plans would end. In fact, employers would save more dollars because they could combine their analytical infrastructure and compare costs and outcomes with each other.
Communities would benefit because employers would be working together to improve diabetic care across all of their populations at once. They could all adopt common practices to deal with obesity and smoking cessation, combining their efforts collectively with public health programs. Ditto for wellness.
Short of national health care, there are things like this that we could do today. Employers should begin to adopt common benefit plans, payment policies, network standards, etc. In this way, we could begin to reduce variation, reduce costs and improve outcomes. Why large employers particularly haven't done this is curious.
Saturday, November 21, 2009
Wednesday, November 18, 2009
A common carrier approach to hospital-based physicians
It would appear that we’re not going to move to a single payer system in health care for at least another 5-10 years, unless employers finally give up on trying to control costs. Given this state of affairs, it would then seem apparent that we ought to try to solve some of the thornier problems created by a multi-payer, fractured and generally unregulated health care market.
Among the structural problems presented by the current system is the lack of collaboration among payers. Even on things that payers might legally be able to work on, they don’t seem that interested in collaboration. The medical home work in some states has brought multiple payers together, but on virtually all other issues, payers are resistant to or legally prevented from adopting common practices.
This is unfortunate because it is the variations in how health plans pay and administer claims and benefits that drives much of the cost in the delivery system. If we could find a way to eliminate or simplify some of these administrative policies, or, failing that, have all plans adopt common policies, a lot of excess cost would be driven from the system. I have an earlier blog post that calls for a national fee schedule as one example.
Another potential for collaboration is in the area of hospital-based physicians, known in the industry as PARE groups--pathology, anesthesia, radiology and emergency physicians. These groups, especially emergency physicians, have very different dynamics that drive their businesses. They must take all patients regardless of ability to pay. Because they work strictly in a hospital setting for the most part (there are some exceptions), if the hospital accepts a patient, the doctor must accept that patient as well regardless of the patient’s ability to pay. Because ERs are the front door to the delivery system, they get more than their fair share of non-payers or low payers like Medicaid, which makes up a disproportionate share of ER visits.
What these physicians do is simply shift their excess costs to private, commercial payers. Each private payer negotiates its own deal with these providers, though increasingly, these doctors are choosing not to participate in provider networks feeling they can’t get a good enough deal. The result is often charges that are 2-5 times Medicare rates and if plans won’t pay, physician groups try to collect from patients. Patients are shocked when they get a bill from one of these providers (if the state allows the physician to balance bill) when they thought they were in a contracted hospital and using a contracted surgeon.
HMOs are forced to pay the bill by the provider because they are prohibited by law from refusing to, but PPOs and other plan types don’t have these prohibitions and patients are put in the middle. States like California have been hot beds of disputes between plans, providers, patients and the state, which recently upheld a ban on balance billing. The other complicating factor for plans and patients, as well has hospitals, is that virtually all of the hospital-based physicians across the country practice in groups that are essentially monopolies within the delivery networks in which they practice. In some geographic areas, they are absolute monopolies representing the only group that practices in a certain region. In most regions, there is at least one other competing entity, but hospitals often choose a single group of anesthesiologists, radiologists or pathologists to provide these services. Another complicating factor is the high rates of pay for this group of physicians. It is not uncommon for a radiologist to earn in excess of $400,000 a year and many do much better. But this is a wholly different matter for another post another day.
This set of issues has fostered an unequal relationship between health plans and providers to negotiate competitive rates. The result is an increasingly contentious set of negotiations or a resort to non-traditional means to settle disputes. This means more lawsuits by plans against providers for using their monopoly power to drive up costs. It means providers suing plans and states to allow them to balance bill members. All of this is waste and it drives wedges between the parties.
A non-market solution is needed
Given the importance of having PARE groups in all payer networks and the very critical need of communities to have access to these physicians, it seems logical that all payers should come together with employer groups, government, hospitals and other community leaders to set rates. Patients need and demand access to emergency rooms, anesthesiologists, pathologists and radiologists. None of these providers can pick and choose whom they serve and they cannot limit the amount of charity care they provide. It is thus incumbent upon the community, the state or the nation to develop an all-payer approach that provides universal access at common rates. While this effort would prove difficult to pull off, it would end the bitter struggles among the parties and become a model for the kind of solutions that would move us forward instead of continuing more discord and excess cost.
Creating the legal and regulatory framework for common payments would require leadership from either state governments or Congress, but this is the kind of initiative that might gain wide support because of the unique nature of these providers and the critical role they play in health care. It is my contention that many of the hospital-based physicians would welcome this approach. I have talked to at least two who thought it would be an interesting approach to a difficult problem.
When markets fail to develop an appropriate answer for a critical service, governments or communities must step in to correct that failure. There is no better place to have government play this role than in payment to hospital-based physicians. Importantly, administrative costs would decline markedly if this approach were adopted.
Among the structural problems presented by the current system is the lack of collaboration among payers. Even on things that payers might legally be able to work on, they don’t seem that interested in collaboration. The medical home work in some states has brought multiple payers together, but on virtually all other issues, payers are resistant to or legally prevented from adopting common practices.
This is unfortunate because it is the variations in how health plans pay and administer claims and benefits that drives much of the cost in the delivery system. If we could find a way to eliminate or simplify some of these administrative policies, or, failing that, have all plans adopt common policies, a lot of excess cost would be driven from the system. I have an earlier blog post that calls for a national fee schedule as one example.
Another potential for collaboration is in the area of hospital-based physicians, known in the industry as PARE groups--pathology, anesthesia, radiology and emergency physicians. These groups, especially emergency physicians, have very different dynamics that drive their businesses. They must take all patients regardless of ability to pay. Because they work strictly in a hospital setting for the most part (there are some exceptions), if the hospital accepts a patient, the doctor must accept that patient as well regardless of the patient’s ability to pay. Because ERs are the front door to the delivery system, they get more than their fair share of non-payers or low payers like Medicaid, which makes up a disproportionate share of ER visits.
What these physicians do is simply shift their excess costs to private, commercial payers. Each private payer negotiates its own deal with these providers, though increasingly, these doctors are choosing not to participate in provider networks feeling they can’t get a good enough deal. The result is often charges that are 2-5 times Medicare rates and if plans won’t pay, physician groups try to collect from patients. Patients are shocked when they get a bill from one of these providers (if the state allows the physician to balance bill) when they thought they were in a contracted hospital and using a contracted surgeon.
HMOs are forced to pay the bill by the provider because they are prohibited by law from refusing to, but PPOs and other plan types don’t have these prohibitions and patients are put in the middle. States like California have been hot beds of disputes between plans, providers, patients and the state, which recently upheld a ban on balance billing. The other complicating factor for plans and patients, as well has hospitals, is that virtually all of the hospital-based physicians across the country practice in groups that are essentially monopolies within the delivery networks in which they practice. In some geographic areas, they are absolute monopolies representing the only group that practices in a certain region. In most regions, there is at least one other competing entity, but hospitals often choose a single group of anesthesiologists, radiologists or pathologists to provide these services. Another complicating factor is the high rates of pay for this group of physicians. It is not uncommon for a radiologist to earn in excess of $400,000 a year and many do much better. But this is a wholly different matter for another post another day.
This set of issues has fostered an unequal relationship between health plans and providers to negotiate competitive rates. The result is an increasingly contentious set of negotiations or a resort to non-traditional means to settle disputes. This means more lawsuits by plans against providers for using their monopoly power to drive up costs. It means providers suing plans and states to allow them to balance bill members. All of this is waste and it drives wedges between the parties.
A non-market solution is needed
Given the importance of having PARE groups in all payer networks and the very critical need of communities to have access to these physicians, it seems logical that all payers should come together with employer groups, government, hospitals and other community leaders to set rates. Patients need and demand access to emergency rooms, anesthesiologists, pathologists and radiologists. None of these providers can pick and choose whom they serve and they cannot limit the amount of charity care they provide. It is thus incumbent upon the community, the state or the nation to develop an all-payer approach that provides universal access at common rates. While this effort would prove difficult to pull off, it would end the bitter struggles among the parties and become a model for the kind of solutions that would move us forward instead of continuing more discord and excess cost.
Creating the legal and regulatory framework for common payments would require leadership from either state governments or Congress, but this is the kind of initiative that might gain wide support because of the unique nature of these providers and the critical role they play in health care. It is my contention that many of the hospital-based physicians would welcome this approach. I have talked to at least two who thought it would be an interesting approach to a difficult problem.
When markets fail to develop an appropriate answer for a critical service, governments or communities must step in to correct that failure. There is no better place to have government play this role than in payment to hospital-based physicians. Importantly, administrative costs would decline markedly if this approach were adopted.
Sunday, November 15, 2009
Medical homes aren't enough. Payment reform must follow. All at once.
Among the work going on around the country to reform health care is a grand experiment to transform primary care in America. The name of this effort is the “patient-centered medical home” or PCMH. This transformation is happening in various locales around the country--in Michigan, Pennsylvania, New York, Arizona, Minnesota and elsewhere. Health insurers like United, Aetna and Cigna, as well as Blue Cross plans are funding pilot programs and working directly with physician practices to do two things:
1. Pay them more
2. Increase their collective capacity
On the pay front, it has become apparent to a growing cadre of academics, employers and others that the disparities among physicians has created disincentives for med school grads to go into primary care while creating huge incentives to practice in a high paid specialty like radiology, cardiology, surgery or emergency medicine. For those who believe in the free market this disparity may not be much a concern--one could rationally argue that it is the market that is deciding who gets paid what. So a non-interventionist radiologist (quite a mouthful; a doctor who reads films from x-rays, MRI and CT scans) will make perhaps $350,000 right out of med school while a general internist is paid $150,000 or $160,000.
It’s the free market working, no? Well, therein lies a complex story.
Many if not most fee schedules in the U.S. are tied to something called the Resource-based Relative Value Scale, otherwise known in the health care industry as RBRVS. Medicare adopted this methodology in the early nineties in an attempt to develop an objective way to compensate physicians. I won’t bore my readers with the details of this undertaking, but RBRVS has exacerbated a number of the problems in health care. One of the most compelling is the disproportionate increase in pay to specialty care physicians at the expense of primary care (PCP) over the past 10 years.
Consider the writings of Tom Bodenheimer, MD, and others writing the Annals of Internal Medicine in 2007:
“A large, widening gap exists between the incomes of primary care physicians and those of many specialists. This disparity is important because non-competitive primary care incomes discourage medical school graduates from choosing primary care careers. The Resource-Based Relative Value Scale, designed to reduce the inequality between fees for office visits and payment for procedures, failed to prevent the widening primary care–specialty income gap for 4 reasons: 1) The volume of diagnostic and imaging procedures as increased far more rapidly than the volume of office visits, which benefits specialists who perform those procedures; 2) the process of updating fees every 5 years is heavily influenced by the Relative Value Scale Update Committee, which is composed mainly of specialists; 3) Medicare’s formula for controlling physician payments penalizes primary care physicians; and 4) private insurers tend to pay for procedures, but not for office visits, at higher levels than those paid by Medicare.”
Consider this conclusion in a GAO report on primary care released in 2008:
“Under this [RBRVS] structure, in which physicians receive a fee for each service provided, a financial incentive exists to provide as many services as possible, with little accountability for quality or outcomes. Because of technological innovation and improvements over time in performing procedures, specialist physicians are able to increase the volume of services they provide, thereby increasing revenue.”
And this:
“To illustrate, in one metropolitan area, Boston, Massachusetts, Medicare’s fee for a 25 to 30-minute office visit for an established patient with a complex medical condition is $103.42;23 in contrast, Medicare’s fee for a diagnostic colonoscopy—a procedural service of similar duration—is $449.44.”
To emphasize, this is only one problem with payment to physicians and primary care, but RBRVS has contributed to significant imbalances that are now proving difficult to overcome. In part, this has given rise to the aforementioned PCMH.
It turns out, though you will get argument about this, that the RBRVS system is deeply flawed in that it values procedures and diagnostic tests at a higher value that it does thinking. Primary care physicians are valuable, if they are good, because they can piece together the history, lifestyle and medical conditions of individuals and help guide them through a process of caring for themselves, managing their conditions and referring them to appropriate specialty or hospital care when necessary. The RBRVS system under values this cognitive work because it was developed using resource and cost inputs not quality outputs. Thus, in the RBRVS world, a visit to a primary care physician isn’t worth much. It doesn’t help that the folks who manage RBRVS are from the AMA and represent a lot of medical specialties.
The effect RBRVS has had is insidious: Primary care physicians rush patients through exams so that they can be paid adequately thus limiting their effectiveness. In fact, PCPs too often simply refer patients to specialists because they cannot spend enough time to make an informed judgment about a concern that he or she may have.
It is widely recognized around the world that having adequate numbers of primary care is tantamount to producing much better outcomes for patients at dramatically lower costs. In the U.S. the ratio of primary care to specialty is about 1 to 2.1. In many countries around the world it is 50:50 or more, though finding a source for this is difficult. Barbara Starfield has done more research on this than anyone and she consistently finds that in both foreign countries or U.S. states with high levels of primary care, costs are lower and outcomes better.
That brings me back to PCMH. While it is certainly important that we somehow shore up primary care, it is just as important to reform payment. It has been my point for years that reforming payment is going to have be done universally, not one health plan, one state at a time. If we don’t reform payment “all at once” PCMH won’t ever come into being because the resources won’t be there from payers to sustain it. Medicare and Medicaid will need to participate as well. If we continue with the RBRVS method of fee-for-service, the system is finally going to collapse.
1. Pay them more
2. Increase their collective capacity
On the pay front, it has become apparent to a growing cadre of academics, employers and others that the disparities among physicians has created disincentives for med school grads to go into primary care while creating huge incentives to practice in a high paid specialty like radiology, cardiology, surgery or emergency medicine. For those who believe in the free market this disparity may not be much a concern--one could rationally argue that it is the market that is deciding who gets paid what. So a non-interventionist radiologist (quite a mouthful; a doctor who reads films from x-rays, MRI and CT scans) will make perhaps $350,000 right out of med school while a general internist is paid $150,000 or $160,000.
It’s the free market working, no? Well, therein lies a complex story.
Many if not most fee schedules in the U.S. are tied to something called the Resource-based Relative Value Scale, otherwise known in the health care industry as RBRVS. Medicare adopted this methodology in the early nineties in an attempt to develop an objective way to compensate physicians. I won’t bore my readers with the details of this undertaking, but RBRVS has exacerbated a number of the problems in health care. One of the most compelling is the disproportionate increase in pay to specialty care physicians at the expense of primary care (PCP) over the past 10 years.
Consider the writings of Tom Bodenheimer, MD, and others writing the Annals of Internal Medicine in 2007:
“A large, widening gap exists between the incomes of primary care physicians and those of many specialists. This disparity is important because non-competitive primary care incomes discourage medical school graduates from choosing primary care careers. The Resource-Based Relative Value Scale, designed to reduce the inequality between fees for office visits and payment for procedures, failed to prevent the widening primary care–specialty income gap for 4 reasons: 1) The volume of diagnostic and imaging procedures as increased far more rapidly than the volume of office visits, which benefits specialists who perform those procedures; 2) the process of updating fees every 5 years is heavily influenced by the Relative Value Scale Update Committee, which is composed mainly of specialists; 3) Medicare’s formula for controlling physician payments penalizes primary care physicians; and 4) private insurers tend to pay for procedures, but not for office visits, at higher levels than those paid by Medicare.”
Consider this conclusion in a GAO report on primary care released in 2008:
“Under this [RBRVS] structure, in which physicians receive a fee for each service provided, a financial incentive exists to provide as many services as possible, with little accountability for quality or outcomes. Because of technological innovation and improvements over time in performing procedures, specialist physicians are able to increase the volume of services they provide, thereby increasing revenue.”
And this:
“To illustrate, in one metropolitan area, Boston, Massachusetts, Medicare’s fee for a 25 to 30-minute office visit for an established patient with a complex medical condition is $103.42;23 in contrast, Medicare’s fee for a diagnostic colonoscopy—a procedural service of similar duration—is $449.44.”
To emphasize, this is only one problem with payment to physicians and primary care, but RBRVS has contributed to significant imbalances that are now proving difficult to overcome. In part, this has given rise to the aforementioned PCMH.
It turns out, though you will get argument about this, that the RBRVS system is deeply flawed in that it values procedures and diagnostic tests at a higher value that it does thinking. Primary care physicians are valuable, if they are good, because they can piece together the history, lifestyle and medical conditions of individuals and help guide them through a process of caring for themselves, managing their conditions and referring them to appropriate specialty or hospital care when necessary. The RBRVS system under values this cognitive work because it was developed using resource and cost inputs not quality outputs. Thus, in the RBRVS world, a visit to a primary care physician isn’t worth much. It doesn’t help that the folks who manage RBRVS are from the AMA and represent a lot of medical specialties.
The effect RBRVS has had is insidious: Primary care physicians rush patients through exams so that they can be paid adequately thus limiting their effectiveness. In fact, PCPs too often simply refer patients to specialists because they cannot spend enough time to make an informed judgment about a concern that he or she may have.
It is widely recognized around the world that having adequate numbers of primary care is tantamount to producing much better outcomes for patients at dramatically lower costs. In the U.S. the ratio of primary care to specialty is about 1 to 2.1. In many countries around the world it is 50:50 or more, though finding a source for this is difficult. Barbara Starfield has done more research on this than anyone and she consistently finds that in both foreign countries or U.S. states with high levels of primary care, costs are lower and outcomes better.
That brings me back to PCMH. While it is certainly important that we somehow shore up primary care, it is just as important to reform payment. It has been my point for years that reforming payment is going to have be done universally, not one health plan, one state at a time. If we don’t reform payment “all at once” PCMH won’t ever come into being because the resources won’t be there from payers to sustain it. Medicare and Medicaid will need to participate as well. If we continue with the RBRVS method of fee-for-service, the system is finally going to collapse.
Saturday, November 14, 2009
Instead of a single payer, let's create stronger regulation
Perhaps in trying to solve the health care crisis we’re going about it the wrong way. Rather than creating a single payer system or moving more to free market solutions (the political divide between liberals and conservatives) we could focus on regulatory oversight rather than government run or insurance company run health care.
If the federal government regulated administrative markets, it could define standards such as eligibility for coverage, provider payment methods and benefit plan standards to reduce or eliminate variation and thus reduce administrative cost. Doing this would reduce the options employers or government plans could offer but it wold have effect of reducing the amount of staff employed at plans, hospitals and physicians who perform non-health care related functions such as customer service, claims payment, billing and collection, eligibility checking and underwriting.
The cost of administration in the U.S. is not trivial. Estimates are that between 25 and 30 percent of all health care dollars are spent for administration. At today’s national health care total expense of $2.5 trillion this amounts to as much as $750 billion. Reducing this by just 15 percent produces more than $100 billion in savings, which would pay most or all of the cost of coverage for the un-insured.
The administrative requirements of American health care are driven by variation and the lack of regulation and standards. Because we pay for half of all care with private sector dollars via premiums to health plans, insurers and administrative service companies there is wide variation in benefit plans, eligibility rules and payments to health care providers. In the health plan and payer world there are literally millions of customer service reps, claim payers, underwriters, actuaries, product staff, computer programmers, provider representatives, doctors, case managers, sales and marketing staff, lawyers and others. This staff develops products and variations on those products, answers member and provider questions, pays health care claims and programs changes into computer systems.
In the provider world, hospitals and physicians employ an army of people to decipher the variations in benefit plans, policies and payment methods and rules. Both sides try to maximize their revenue and minimize cost, but each one schemes against the other to do so. Plans try to reduce payments to providers while providers try to figure out to get more from payers. These non value-added activities go on every day in the provider and plan worlds. One side planning how to pay less and the other side planning how to get more. Believe me, there is a great deal of expense involved in this interchange.
Providers increasingly tell me in our conversations that the variation in benefit plans, in administrative rules and in payment schemes must end because they have seen how much they cost to administer and know this is robbing the system of dollars to pay for health care. But to date, there has been no serious effort by providers to ask Congress or state houses for regulatory oversight of payers so that this variation is reduced. And of course payers aren’t going to volunteer to simplify their policies and procedures. Neither are they allowed to collaborate with other payers to reduce or eliminate variation among them.
So, as a start to reducing cost, here are a few things Congress could do to reduce variation so that providers can focus on providing care and not on figuring out how and what they are going to be paid or how a patient’s benefit plan works.
1. Mandate national payment methods and levels for physicians, hospitals and others. There is no longer any justification for the various levels of payment to physicians and hospitals for the same service just because the payer is different. This should include Medicare, Medicaid and commercial insurers.
2. Reduce the number of benefit plans allowed to three. High, low and medium. That’s it. And all coverage should cover the same things--at a minimum, all doctor visits, all hospitalizations and prescription drugs. Other coverage could be provided in the higher level plan, but the basic plan would cover everything. Use the most common federal employee benefit plan as a basis for the low benefit plan.
3. Administrative rules for payers would all have to be the same--prior authorizations for high tech radiology, hospital pre-admission rules and claim submission rules would be allowed, but would have to comply with national, evidence-based guidelines. Ditto for drug lists. All drug lists would have to be the same and all step-therapy and pre-authorizations identical. It might be necessary to endow the FDA with new powers to set these standards.
4. End state oversight of health insurance. This gives rise to endless variation and cost across state lines. Use ERISA as the new regulatory framework for health insurance across the country,including employers and insurers under the same umbrella.
These four things are a place to start. They won’t bring about a single payer, but they will eliminate a lot of the non-value added, non socially-beneficial variations in health care and allow for greater focus on caring for patients. And they will save at least $100 billion and probably a lot more. Now that’s cost containment we can believe in.
If the federal government regulated administrative markets, it could define standards such as eligibility for coverage, provider payment methods and benefit plan standards to reduce or eliminate variation and thus reduce administrative cost. Doing this would reduce the options employers or government plans could offer but it wold have effect of reducing the amount of staff employed at plans, hospitals and physicians who perform non-health care related functions such as customer service, claims payment, billing and collection, eligibility checking and underwriting.
The cost of administration in the U.S. is not trivial. Estimates are that between 25 and 30 percent of all health care dollars are spent for administration. At today’s national health care total expense of $2.5 trillion this amounts to as much as $750 billion. Reducing this by just 15 percent produces more than $100 billion in savings, which would pay most or all of the cost of coverage for the un-insured.
The administrative requirements of American health care are driven by variation and the lack of regulation and standards. Because we pay for half of all care with private sector dollars via premiums to health plans, insurers and administrative service companies there is wide variation in benefit plans, eligibility rules and payments to health care providers. In the health plan and payer world there are literally millions of customer service reps, claim payers, underwriters, actuaries, product staff, computer programmers, provider representatives, doctors, case managers, sales and marketing staff, lawyers and others. This staff develops products and variations on those products, answers member and provider questions, pays health care claims and programs changes into computer systems.
In the provider world, hospitals and physicians employ an army of people to decipher the variations in benefit plans, policies and payment methods and rules. Both sides try to maximize their revenue and minimize cost, but each one schemes against the other to do so. Plans try to reduce payments to providers while providers try to figure out to get more from payers. These non value-added activities go on every day in the provider and plan worlds. One side planning how to pay less and the other side planning how to get more. Believe me, there is a great deal of expense involved in this interchange.
Providers increasingly tell me in our conversations that the variation in benefit plans, in administrative rules and in payment schemes must end because they have seen how much they cost to administer and know this is robbing the system of dollars to pay for health care. But to date, there has been no serious effort by providers to ask Congress or state houses for regulatory oversight of payers so that this variation is reduced. And of course payers aren’t going to volunteer to simplify their policies and procedures. Neither are they allowed to collaborate with other payers to reduce or eliminate variation among them.
So, as a start to reducing cost, here are a few things Congress could do to reduce variation so that providers can focus on providing care and not on figuring out how and what they are going to be paid or how a patient’s benefit plan works.
1. Mandate national payment methods and levels for physicians, hospitals and others. There is no longer any justification for the various levels of payment to physicians and hospitals for the same service just because the payer is different. This should include Medicare, Medicaid and commercial insurers.
2. Reduce the number of benefit plans allowed to three. High, low and medium. That’s it. And all coverage should cover the same things--at a minimum, all doctor visits, all hospitalizations and prescription drugs. Other coverage could be provided in the higher level plan, but the basic plan would cover everything. Use the most common federal employee benefit plan as a basis for the low benefit plan.
3. Administrative rules for payers would all have to be the same--prior authorizations for high tech radiology, hospital pre-admission rules and claim submission rules would be allowed, but would have to comply with national, evidence-based guidelines. Ditto for drug lists. All drug lists would have to be the same and all step-therapy and pre-authorizations identical. It might be necessary to endow the FDA with new powers to set these standards.
4. End state oversight of health insurance. This gives rise to endless variation and cost across state lines. Use ERISA as the new regulatory framework for health insurance across the country,including employers and insurers under the same umbrella.
These four things are a place to start. They won’t bring about a single payer, but they will eliminate a lot of the non-value added, non socially-beneficial variations in health care and allow for greater focus on caring for patients. And they will save at least $100 billion and probably a lot more. Now that’s cost containment we can believe in.
Thursday, November 12, 2009
How about a national fee schedule?
Most people don't think about payments to health care providers, but it might surprise many to realize the wide variation in what and how providers are compensated in the U.S. Each insurer, provider network or government payer pays providers differently--in methods and levels. If one were to develop an index of payments, Medicare would be at 100%, Medicaid at 50 or 60% and commercial insurers and networks at 125% or so. The method of payment also differs significantly payer to payer, with Medicare, for example, paying hospitals fixed rates for a particular hospital stay while a commercial carrier pays a percent of the charges or a daily rate per day in the hospital. This variation not only causes perverse incentives in how care is delivered it is an administrative monstrosity to track.
The administratative issues alone are mind-boggling in these schemes, but their impact on providers and patients is far more troubling. Without belaboring the point, the variation in payment to providers is unsustainable--it defies the imagination how we can continue to support a system whereby a provider is paid differntly depending upon the insurance coverage of the patient. Thus a provider doing the same procedure for a Medicare vs. a commerecial patient is paid differently even though he or she spent the same amount of time with each one. Even among commercial patients, payments differ by as much as 30 or 40 percent for the same visit length and type. This is truly nutty.
A giant step forward in the health care debate would be to establish a national fee schedule for provider payments. That would mean physicians, hospitals and other providers would be paid according to national standards and other payment systems banned. Thus all providers would be paid the same amount for a given procedure, visit or test, no matter who the insurer is paying the tab. Thus an office visit in Anywhere, U.S.A for an established patient would be $100 whether a patient was insured through Medicare, Medicaid, Blue Cross, United Health Care, Humana or a local health plan.
To accomplish this would require legislation to direct CMS or another government agency to establish a national fee schedule, which would be indexed like Medicare is today by region. While there would be enormous argument about how to set fees, once that argument was settled, the administrative cost savings for both payers and providers would be huge.
This one change would bring about fundamental reform in how we provide and pay for health care in America. It is the least disruptive, the most unobtrusive and the most profound change, short of establishing a single payer system with one benefit plan. By setting the table for reimbursement, the nation decides, like it does with transportation and communication systems, that there are some elements of basic goods and services that must be regulated. If the government regulated the rates paid to providers, it would create the right kinds of incentives for all players in health care and health administration.
I would liken a universal fee schedule to the establishment of standards for power transmission. Every power plant must abide by the same requirements to deliver electricity to a household. What one plugs into that standard amperage is up to the consumer and the businesses manufacturing products. The government has an equally compelling interest in insuring a level playing field in health care.
The administratative issues alone are mind-boggling in these schemes, but their impact on providers and patients is far more troubling. Without belaboring the point, the variation in payment to providers is unsustainable--it defies the imagination how we can continue to support a system whereby a provider is paid differntly depending upon the insurance coverage of the patient. Thus a provider doing the same procedure for a Medicare vs. a commerecial patient is paid differently even though he or she spent the same amount of time with each one. Even among commercial patients, payments differ by as much as 30 or 40 percent for the same visit length and type. This is truly nutty.
A giant step forward in the health care debate would be to establish a national fee schedule for provider payments. That would mean physicians, hospitals and other providers would be paid according to national standards and other payment systems banned. Thus all providers would be paid the same amount for a given procedure, visit or test, no matter who the insurer is paying the tab. Thus an office visit in Anywhere, U.S.A for an established patient would be $100 whether a patient was insured through Medicare, Medicaid, Blue Cross, United Health Care, Humana or a local health plan.
To accomplish this would require legislation to direct CMS or another government agency to establish a national fee schedule, which would be indexed like Medicare is today by region. While there would be enormous argument about how to set fees, once that argument was settled, the administrative cost savings for both payers and providers would be huge.
This one change would bring about fundamental reform in how we provide and pay for health care in America. It is the least disruptive, the most unobtrusive and the most profound change, short of establishing a single payer system with one benefit plan. By setting the table for reimbursement, the nation decides, like it does with transportation and communication systems, that there are some elements of basic goods and services that must be regulated. If the government regulated the rates paid to providers, it would create the right kinds of incentives for all players in health care and health administration.
I would liken a universal fee schedule to the establishment of standards for power transmission. Every power plant must abide by the same requirements to deliver electricity to a household. What one plugs into that standard amperage is up to the consumer and the businesses manufacturing products. The government has an equally compelling interest in insuring a level playing field in health care.
The Way Forward
When we started the debate over health care reform earlier this year, it is probably probably safe to say that collectively as a people, we knew, either intuitively or objectively, that the American health care system was beyond repair. While polls on health care tend to be a muddle, everyone I talk to agrees that something is very wrong and we need to do something about it. And yet, we seem to be incapable of coming to grips with the means to fix the deep set problems we all see or feel. The political divide, on full display over the past several months, pits conservatives and liberals against each other and prevents meaningful discussion of real system reform. When liberals call for a single payer, conservatives rail at a government takeover. When conservatives call for buying insurance across state lines and tort reform, liberals scoff.
The current reform measures under discussion in Washington right now will fix only one aspect of a broken system--coverage for many of the un-insured (though even this seems in doubt). What they will not do is cover everyone, nor will they reduce costs. It is this growing realization that has independent-minded voters in a state of dismay. Throughout the campaign, Obama pledged to bring cost trends down. But in fact, health reform is apparently going to cost an already expensive system more. The Administration may say, as his budget director Peter Orszag has, that the House-passed bill “positions” the nation for reductions, but it seems apparent that virtually no one believes the bill will seriously address system cost.
It has been apparent for years that if we cannot mitigate financial trends in the health care system, it will collapse. In fact, it may already have done so, though few dare say it. Still, the voices about Medicare’s insolvency have grown louder and even a few conservatives are beginning to whisper that something must be done. Employers, both large and small, continue to complain loudly about costs, as do patients. Their voices are only going to get louder.
It is my opinion, having worked in the health care enterprise (mostly for payer organizations) for more than 25 years, that the system has indeed failed. The fact that we cannot come to a consensus on reform does not mean that health care will somehow go on as it is today. For while Congress debates what measure to pass, the underlying forces that drive costs higher continue unabated. It is curious then why those who have health insurance seem relatively disengaged (town hall meetings aside) from the discussion about reform because they are finding it increasingly difficult to pay for care and thus are sometimes delaying it or paying their portion of the bill slowly if at all. As a result providers find their collection rates in decline. This has led them to beef up accounts receivable departments and to seek higher payments from health plans and employers. But all of this has the effect of simply increasing costs for everyone.
A massive cost shift in health care has been in place for many years, as Medicare has fallen further and further behind in covering provider costs. (One might reasonably argue that provider costs are too high, but let’s leave that for another discussion on another day.) Medicaid has always been the lowest payer and has been a drain on the system for years. Over the past decade or so, employers have complained of the shift in cost to them from government programs. It is odd then why they have not led an effort for national health care since they and their employees are the victims of this burden.
A simple and compelling problem in a private, multi-payer system is that none of the players are allowed to collaborate with each other to insure that no one pays more than their fair share. Medicare doesn’t seem to care about cost shifting to private payers. (In fact, it may help the program.) Nor, it would seem, do Medicaid programs. Because both government entities (and they now pay for close to half of all the care in the country) pay what is purported to be less than the cost of care, providers simply charge health plans, employers and patients more than the cost of care to make up the difference.
What has happened over time has been written about by many--small employers simply drop coverage because they cannot afford it. This adds to the number without insurance or on government programs and those remaining employers and plans in the private market must pay the difference, with trends having accelerated over time as there are fewer participants in the pool that pays more. In the insurance industry, this is called a “death spiral.” What this means is that more and more U.S. citizens are covered by Medicare and Medicaid or they are without insurance. But providers, in many cases, are obligated to care for these patients and uphold standards of care. If they aren’t paid enough to cover those costs, they simply charge more to those who can pay. When the U.S. economy was growing rapidly employers were able to fund large increases in premiums. In fact, they felt compelled to as they competed for workers.
Since the economy has plunged and health costs continued to increase by two to three times the rate of inflation, employers began to cut back--first forcing workers to pay more out of their paychecks for coverage, ultimately reducing benefits so that workers now pay higher out of pocket costs. (While deductibles and coinsurance have increased fairly dramatically, individuals still pay a small share of the cost of care.)
This is where we find ourselves today. Employers continue to face significant premium increases, consumers higher costs, providers less revenue, all the while Medicare and Medicaid are growing in number and the un-insured problem persists. If this is not a state of collapse, I am not sure what would qualify as one.
To be certain, there are many other problems in health care. Quality is suspect, the population is aging and increasingly ill and new drugs and treatments drive costs higher without concomitant gains in outcomes. It is my contention that these other problems are secondary to the root problem of a multi-payer system which drives administrative costs up enormously and overly complicates our ability to standardize and measure the practice of medicine conducive to evidence-based guidelines . The evidence from other developed countries would seem to prove that a system in which government plays a more central role as a payer or regulator produces superior results at lower costs. But the distrust of government in American is such that conservatives, for the most part, cannot bring themselves to consider seriously a single payer or heavily regulated payer world.
Because this model has been taken off the table reformers are forced to work in a narrow corridor to try to make the system incrementally better. Problem is, if one doesn’t remake the entire payer world “all at once,” reforms will actually make things worse.
It would seem without question that a system that pays variable rates for the exact same product cannot survive, yet that is what we have in a multi-payer world. It would be as if WalMart charged different prices for the same product depending upon where you lived or how much you earned. This is precisely what we have in health care. For a basic office visit to your primary care physician, there are likely to be 10-15 different prices paid to that doctor depending upon a patient’s insurance plan. Medicare might pay $80, Medicaid, $40, Blue Cross $88, Aetna or United Health Care $96, a local plan $90 (unless they pay capitation, which is a different kettle of fish altogether) and someone without insurance $5 or $10 if the doctor will see him or her at all.
And this is just one market. Guess what? Payment rates vary from community to community, state to state, hospital to hospital, physician to physician--for no logical reason except that’s the way we pay for health care in a multi-payer, unregulated market. Medicare supposedly adjusts payments to reflect underlying wages; Medicaid programs vary depending upon state budgets; Blue Cross rates will be 5-15 percent more than Medicare in most instances, depending upon their market share or the make-up of the provider community in a state or locale. (Blue Cross plans collectively insure one third of privately covered patients.) The national insurance carriers (Aetna, United and Cigna) have fee schedules that vary from community to community largely based on their underlying market share, but generally often pay more than Blue Cross plans. Other networks have contracts with providers that pay at very high rates, again for no socially beneficial reason.
For procedures the differences can be even greater. Payments for heart bypass surgery or hip replacement can differ by 50 to 200 percent, depending upon the region of the country or the delivery system. For hospital-based physicians (emergency room, anesthesia and radiology) the variations are even greater. Making sense of it is virtually impossible for payers, providers, employers and patients. In point of fact, it’s just a nutty system. And yet, we cannot agree on how to correct or at least mitigate this problem.
When markets fail, governments typically act to regulate them or pass laws to mitigate their worst excesses. When the financial system was in collapse, the federal government took a central roll in ensuring that it could survive. Not many would argue that national leadership and action was required. Even the conservative Bush administration realized it had to bail out banks and other institutions. Why then cannot conservatives bring themselves to call for some sort of national solution for health care?
So, what can we do about health care in America? Rather than propose a specific fix, I would focus on the governance issues that impede progress. I propose a commission of wise men and women empowered to offer solutions to our health care dilemma. Such a commission would be appointed by Congress and the President and would act on behalf of the people to do three important things:
1. Develop a common view of what we have today. Such an undertaking would help the nation understand the current state and dispel the myths about the system.
2. Educate the American people by holding hundreds of town hall meetings to share the common view, trying to leave political opinions aside (though this is virtually impossible).
3. Develop solutions to present to Congress, the President and the American people. One proposal, one view, one bill.
Who would sit on such a commission? That would be a difficult decision. If it included the stake holders in the current system, they would simply argue their points of view and we’d likely get nowhere. If we left it to politicians, well, we’d have what we have today--a bill that addresses very little of the actual problem. If we left it to academics, we’d have a system that might look good on paper, but might be unworkable in practice.
There are reasonable voices on health care who might be able to work together to craft a solution. Some of the foundations such as the Kaiser Family Foundation, Commonwealth Fund or the Robert Wood Johnson Foundation perform an enormous amount of research and fund many pilots in hopes of finding solutions. Perhaps we ought to let them decide who is on the commission.
There is no easy way forward. But unless we find a way, more and more people will die because they have no real access to preventive or primary care. Many will suffer because we don’t have a system to coordinate care among providers. We will all pay more than we should taking critical resources away from education, transportation and other infrastructure. As a nation we will be less competitive and our economy will suffer.
At the heart (forgive the pun) of the health care crisis in America are moral and national paradoxes. If we cannot provide the means for all citizens to obtain basic health care, what do we stand for as a nation? If we cannot make the difficult decisions required to solve big problems, what do we tell our children?
These questions are fundamental to a people and to the health of a civilization. When one component of our culture is out of balance, we must somehow pull together and put aside some of our differences to solve it. If we can’t do that, health care will be just one more example of our failure as a nation and as a people.
The current reform measures under discussion in Washington right now will fix only one aspect of a broken system--coverage for many of the un-insured (though even this seems in doubt). What they will not do is cover everyone, nor will they reduce costs. It is this growing realization that has independent-minded voters in a state of dismay. Throughout the campaign, Obama pledged to bring cost trends down. But in fact, health reform is apparently going to cost an already expensive system more. The Administration may say, as his budget director Peter Orszag has, that the House-passed bill “positions” the nation for reductions, but it seems apparent that virtually no one believes the bill will seriously address system cost.
It has been apparent for years that if we cannot mitigate financial trends in the health care system, it will collapse. In fact, it may already have done so, though few dare say it. Still, the voices about Medicare’s insolvency have grown louder and even a few conservatives are beginning to whisper that something must be done. Employers, both large and small, continue to complain loudly about costs, as do patients. Their voices are only going to get louder.
It is my opinion, having worked in the health care enterprise (mostly for payer organizations) for more than 25 years, that the system has indeed failed. The fact that we cannot come to a consensus on reform does not mean that health care will somehow go on as it is today. For while Congress debates what measure to pass, the underlying forces that drive costs higher continue unabated. It is curious then why those who have health insurance seem relatively disengaged (town hall meetings aside) from the discussion about reform because they are finding it increasingly difficult to pay for care and thus are sometimes delaying it or paying their portion of the bill slowly if at all. As a result providers find their collection rates in decline. This has led them to beef up accounts receivable departments and to seek higher payments from health plans and employers. But all of this has the effect of simply increasing costs for everyone.
A massive cost shift in health care has been in place for many years, as Medicare has fallen further and further behind in covering provider costs. (One might reasonably argue that provider costs are too high, but let’s leave that for another discussion on another day.) Medicaid has always been the lowest payer and has been a drain on the system for years. Over the past decade or so, employers have complained of the shift in cost to them from government programs. It is odd then why they have not led an effort for national health care since they and their employees are the victims of this burden.
A simple and compelling problem in a private, multi-payer system is that none of the players are allowed to collaborate with each other to insure that no one pays more than their fair share. Medicare doesn’t seem to care about cost shifting to private payers. (In fact, it may help the program.) Nor, it would seem, do Medicaid programs. Because both government entities (and they now pay for close to half of all the care in the country) pay what is purported to be less than the cost of care, providers simply charge health plans, employers and patients more than the cost of care to make up the difference.
What has happened over time has been written about by many--small employers simply drop coverage because they cannot afford it. This adds to the number without insurance or on government programs and those remaining employers and plans in the private market must pay the difference, with trends having accelerated over time as there are fewer participants in the pool that pays more. In the insurance industry, this is called a “death spiral.” What this means is that more and more U.S. citizens are covered by Medicare and Medicaid or they are without insurance. But providers, in many cases, are obligated to care for these patients and uphold standards of care. If they aren’t paid enough to cover those costs, they simply charge more to those who can pay. When the U.S. economy was growing rapidly employers were able to fund large increases in premiums. In fact, they felt compelled to as they competed for workers.
Since the economy has plunged and health costs continued to increase by two to three times the rate of inflation, employers began to cut back--first forcing workers to pay more out of their paychecks for coverage, ultimately reducing benefits so that workers now pay higher out of pocket costs. (While deductibles and coinsurance have increased fairly dramatically, individuals still pay a small share of the cost of care.)
This is where we find ourselves today. Employers continue to face significant premium increases, consumers higher costs, providers less revenue, all the while Medicare and Medicaid are growing in number and the un-insured problem persists. If this is not a state of collapse, I am not sure what would qualify as one.
To be certain, there are many other problems in health care. Quality is suspect, the population is aging and increasingly ill and new drugs and treatments drive costs higher without concomitant gains in outcomes. It is my contention that these other problems are secondary to the root problem of a multi-payer system which drives administrative costs up enormously and overly complicates our ability to standardize and measure the practice of medicine conducive to evidence-based guidelines . The evidence from other developed countries would seem to prove that a system in which government plays a more central role as a payer or regulator produces superior results at lower costs. But the distrust of government in American is such that conservatives, for the most part, cannot bring themselves to consider seriously a single payer or heavily regulated payer world.
Because this model has been taken off the table reformers are forced to work in a narrow corridor to try to make the system incrementally better. Problem is, if one doesn’t remake the entire payer world “all at once,” reforms will actually make things worse.
It would seem without question that a system that pays variable rates for the exact same product cannot survive, yet that is what we have in a multi-payer world. It would be as if WalMart charged different prices for the same product depending upon where you lived or how much you earned. This is precisely what we have in health care. For a basic office visit to your primary care physician, there are likely to be 10-15 different prices paid to that doctor depending upon a patient’s insurance plan. Medicare might pay $80, Medicaid, $40, Blue Cross $88, Aetna or United Health Care $96, a local plan $90 (unless they pay capitation, which is a different kettle of fish altogether) and someone without insurance $5 or $10 if the doctor will see him or her at all.
And this is just one market. Guess what? Payment rates vary from community to community, state to state, hospital to hospital, physician to physician--for no logical reason except that’s the way we pay for health care in a multi-payer, unregulated market. Medicare supposedly adjusts payments to reflect underlying wages; Medicaid programs vary depending upon state budgets; Blue Cross rates will be 5-15 percent more than Medicare in most instances, depending upon their market share or the make-up of the provider community in a state or locale. (Blue Cross plans collectively insure one third of privately covered patients.) The national insurance carriers (Aetna, United and Cigna) have fee schedules that vary from community to community largely based on their underlying market share, but generally often pay more than Blue Cross plans. Other networks have contracts with providers that pay at very high rates, again for no socially beneficial reason.
For procedures the differences can be even greater. Payments for heart bypass surgery or hip replacement can differ by 50 to 200 percent, depending upon the region of the country or the delivery system. For hospital-based physicians (emergency room, anesthesia and radiology) the variations are even greater. Making sense of it is virtually impossible for payers, providers, employers and patients. In point of fact, it’s just a nutty system. And yet, we cannot agree on how to correct or at least mitigate this problem.
When markets fail, governments typically act to regulate them or pass laws to mitigate their worst excesses. When the financial system was in collapse, the federal government took a central roll in ensuring that it could survive. Not many would argue that national leadership and action was required. Even the conservative Bush administration realized it had to bail out banks and other institutions. Why then cannot conservatives bring themselves to call for some sort of national solution for health care?
So, what can we do about health care in America? Rather than propose a specific fix, I would focus on the governance issues that impede progress. I propose a commission of wise men and women empowered to offer solutions to our health care dilemma. Such a commission would be appointed by Congress and the President and would act on behalf of the people to do three important things:
1. Develop a common view of what we have today. Such an undertaking would help the nation understand the current state and dispel the myths about the system.
2. Educate the American people by holding hundreds of town hall meetings to share the common view, trying to leave political opinions aside (though this is virtually impossible).
3. Develop solutions to present to Congress, the President and the American people. One proposal, one view, one bill.
Who would sit on such a commission? That would be a difficult decision. If it included the stake holders in the current system, they would simply argue their points of view and we’d likely get nowhere. If we left it to politicians, well, we’d have what we have today--a bill that addresses very little of the actual problem. If we left it to academics, we’d have a system that might look good on paper, but might be unworkable in practice.
There are reasonable voices on health care who might be able to work together to craft a solution. Some of the foundations such as the Kaiser Family Foundation, Commonwealth Fund or the Robert Wood Johnson Foundation perform an enormous amount of research and fund many pilots in hopes of finding solutions. Perhaps we ought to let them decide who is on the commission.
There is no easy way forward. But unless we find a way, more and more people will die because they have no real access to preventive or primary care. Many will suffer because we don’t have a system to coordinate care among providers. We will all pay more than we should taking critical resources away from education, transportation and other infrastructure. As a nation we will be less competitive and our economy will suffer.
At the heart (forgive the pun) of the health care crisis in America are moral and national paradoxes. If we cannot provide the means for all citizens to obtain basic health care, what do we stand for as a nation? If we cannot make the difficult decisions required to solve big problems, what do we tell our children?
These questions are fundamental to a people and to the health of a civilization. When one component of our culture is out of balance, we must somehow pull together and put aside some of our differences to solve it. If we can’t do that, health care will be just one more example of our failure as a nation and as a people.
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