Musings on Payment Reform
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The Commonwealth of Massachusetts - along with a number of other states (including New Hampshire and Maine) and the federal government - is kicking around a number of ideas concerning payment reform. The argument goes something like this - since the current health care system, led by the gigantic Medicare program, pays primarily on a fee for service basis. This “do something” payment model encourages clinicians and hospitals to do “more” for patients than they might do otherwise, if they weren’t encouraged to “do something” to get paid. Add to that the fact that fee for service - again led by Medicare - pays more for new technology than it does for existing technology, and less for primary care, and you have the primary ingredients in the recipe that’s driven our system to be technologically driven, volume driven, fragmented and very expensive.
In Massachusetts, the group that’s working on payment reform seems to think the solution to this problem is to move everyone away from fee for service and into something that’s being called, “global budgets.” Put simply, global budgets are a new and improved form of capitation. Let me be clear on this one - I’m actually a big fan of both. I believed in capitation when I worked in state government, and I worked for a medical practice (Harvard Vanguard Medical Associates) before I came to Harvard Pilgrim that was built on global budgets.
And before I go any further, I would offer up the cover story in this month’s issue of Health Leaders Magazine - titled “Bundling By Decree” as a solid a representation of the pros and cons of this debate as it winds its way through the national discussion around health care and payment reform. This article is primarily about bundling payments around episodes of care, but the issues it raises - in both directions - apply in either context.
With that said, I wonder about whether or not global budgets, at least in the short term, are the answer to our health care cost and quality problems. For some provider organizations, global budgets work - but they work in large part because those particular clinicians believe in them, and want to practice in environments that are based on them (like Harvard Vanguard/Atrius HealthCare). But that represents a fairly small slice of the practicing clinician community - I’m guessing 10-15 percent. Maybe 20. It’s also not clear to me that this issue, above all else, drives our cost/quality problem, since many other countries that spend a lot less than we do on health care and have solid clinical results use fee for service payment systems too.
As far as I can tell, those other countries that spend less than us on health care do two things differently than we do. First, they spend less on each service than we do - sometimes a lot less. They also have robust primary care systems. This, in particular, is just the opposite of our approach. Our payment policies - and as a result, our medical education system - have been disinvesting in primary care for years.
In the short term, I’m not sure global budgets solve this disinvestment problem. First of all, it’s financial and operational whiplash for a system that’s been running on fee for service for years. That, all by itself, will take some getting used to. It’s also not clear that Medicare or Medicaid - which make up 50-60 of the payments to providers to begin with - would also adopt global budgets. If they don’t, having private sector payors using global budgets and the public sector payors using fee for service is just about the worst outcome I can think of for providers and their patients. The mixed messages these two payment models would send about what matters and what’s important would be virtually undecipherable.
This makes me wonder if our short term approach shouldn’t focus instead on changing the message all payors send under the current fee for service system to providers by improving the way we pay for primary care. No one thinks we can possibly deliver integrated, coordinated care if we don’t send some signals to the medical and medical education community that primary care matters. If a young medical student can make $250 an hour in primary care - or $1,000 an hour in dermatology - or $2-3,000 an hour in cardiology or orthopedics - how hard do you think it is to get that person into primary care? The answer is it’s wicked hard - and the declining number of students going into primary care coming out medical school for the past decade is proof positive of that. We used to be 50/50 primary care / specialty care. Now we’re 70/30, and some of the anecdotal information suggests that kids coming out of U.S. medical schools are now running 15/85 primary care/specialty care.
Think about it. No one disputes the fact that primary care has a key role to play in care management and care coordination - especially as the Baby Boomers get older. The state’s Payment Reform Commission says global budgets will take three to five years to implement - and expects that every doctor will be using an EMR as one of its requirments for success. Will this approach really grab today’s medical students and practicing clinicians and say - ”HEY! It’s time to invest in primary care!” In the short term, I think we’re more likely to get more capacity, faster, into primary care by boosting, on a relative basis, the fees paid to primary care providers by the private plans, Medicare and Medicaid.
Over time, maybe everybody gets to global budgets, but in the meantime, I think we need to do more to support primary care.
Athena Health has dubbed Medicare an ideal payer and BCBS, Tufts, and Harvard Pilgrim are not among their top payers evaluated by a multitude of criteria. My question is what will HP do to become more efficient since there seems to be room for some improvement. Medicare has become the balancing insurer for the rest of the industry and it looks like that will end soon. What are insurance plans willing to do to bring down costs? Even with a 50% market share in Massachusetts Blue Cross does little to reduce even the growth of their premiums. The rest of major insurers, making up 80% of the private market also has not figured out how to reduce their overhead. Isn’t it time?
I just received my renewal information. The increase is 9.74%. I want health care reform that puts health insurance providers out of business. I will vote for anything that gets rid of the greed of health care insurers. Ever since openning my company, I have paid 100% for the coverage of my employees. Every year the health insurance providers increase my rates by double digit percentages. Enough is enough. Health care reform is absolutely necessary and I think providers like Harvard Pilgrim should pay for it. I don’t know how employees of health insurance providers can live with themselves. What an insult. Do not bother responding with your song and dance that your costs are rising. It is no mystery to all of us about how much senior managers of health insurance organizations are paid in regular compensation, bonues and deferred income. You people are in the same category as Bernie Madoff and should be thrown in jail.
I’m really interested in the question of fee for service. I recently e-mailed Alain Enthoven to ask him what he thought of Hal Luft’s new book. He said that he respects Luft tremendously, but he simply does not believe that we can solve our problems with fee for service.
Charlie - thanks for a thoughtful response to the Payment Reform commission’s work to date. I hope your points get heard among all the noise that’s out there. Global payments, without additional recognition of the need to reallocate resources from the Haves to the Have-Nots (i.e. specialists to pcps) is not going to be any more successful than any of the other failed methodologies.
Charlie: Do you feel that private plans, working independently, can start this process, or is it the role of state government to make this happen across the board?
Bruce: We all know that the current system is flawed, and the insurance companies and their Exec comp plans certainly contribute to the problem to some degree. But to pin them with responsibility for the entire problem is way off base.
Now if we could stop the population from aging and engaging in poor health behaviors while simultaneously altering the flawed incentives and systemic underpayments in the Medicare and Medicaid sysyems, then I think you might have a case. Short of that, I think we’re better off sprinkling the blame around a bit.
I have appreciated the dialogue and the effort expended be each writer. It is difficult to put into a succinct note how very complex healthcare is in the U.S.
Now you may take a pause on this blog as you more seriously pursue helping the Commonwealth as gubernatorial candidate.
I hope you will consider keeping the dialogue alive here, as healthcare and its ever increasing portion of our domestic product remains such a large issue. It is a immense issue that directly effects the economy and, of course, the citizens.
Please consider keeping this blog active, and may many of you write as you agree or disagree what is said here. It is extremely valuable discussion.
Dear Bill Carew, Medicare and Medicaid were a significant portion of my practice for over 30 years. My practice was very successful and the income generated was in upper 5% of physicians in my specialty Family Practice. The reimbursement rates is only one side of the equation as patients with Medicare and Medicaid have more frequent visits and also have family and friends who have other insurance expanding practice in not thought of ways. It is true that there are serious organizational and efficiency problems in our system, but they pale in the poor administrative excesses of private insurance. Physicians stand ready to make adjustments to their practice routines for the health and economic solvency of their patients, but this means a payment system that is consistent with this. What we have presently is far from this. Again what are the insurance willing to do to make themselves less costly administratively?
Hi Charlie…
Excellent thoughts - all of them. But they get me to thinking about the reallocation dilemma…
Assuming that there are no additional resources to be used to pay for increased rates for primary care, in HPHC’s overall spending, what percentage decrease in payments (rates X utilization) in acute and speciality services would be necessary to provide a 10% increase in primary care rates at existing utiliziation levels? Can this be achieved best by 1) the purchasers through rate and utilization controls 2) PCPs through medical home type strategies or 3) a combination will in fact be needed?
I look forward to this kind of debate in your candidacy!
Richard - Good questions. I would say this. First of all, the PCP world is not big $$ in the grand scheme of physician payments overall - so a 10% increase there is not a big hit to everyone else. That said, I think your larger observation about the need to re-structure some of the operating models - and the payment models - is probably right.
And thanks to those of you who commented favorably on keeping this discussion on this site going after I leave. HPHC will continue the conversation. We believe it’s a valuable source of information and input to the plan.
My question would be if such a high proportion of young medical students are going into specialty care, why is that not driving down the compensation rate over time?
We either have a limitless need for cardiologists and dermatologists (at $1000 or $3,200 per hour!) or something in the medical industry is keeping these rates artificially high.
The reverse should be true regarding the compensation of primary care physicians; if there’s a scarcity it should be driving up the compensation rates.
I would direct Bruce to review something like HPHC’s 2008 annual report before deeming the insurance carriers as the only problem and a bunch of evil villains. Premium income was $2,590,980,000. Medical and Hospital expenses and Claims Adjustment expenses totalled $2,411,858,000 (93% of of premium income). General Admin Spending was $156,542,000, which I believe would includes all the salaries, IT investments, program administration, etc. Seems to me that HPHC at least is spending the vast majority of it’s money on covering the claims incurred by its members (i.e. paying for services & products charged by the provider community and rx companies). Of course the insurance carriers could be operate more leanly. There is always room for improvement. But they’re by no means the biggest, nor the only problem with our system.
Declan - in a real market, you’d be right. But remember, the federal government is the market maker here - and their pricing model is classic government formula/inputs only driven. The Medicare program calculates what it thinks the value of a particular service is worth, using mostly inputs (whatever that means) to derive a number, and the rest of the industry - including us (sigh) - use that as a baseline. I would prefer not to, frankly, but Medicare is so big it frames the market price for everyone else. Going forward, I expect HPHC will try to vary from the Medicare core where it can, but it’s hard to do that when everyone uses the Medicare fee schedule as the way they keep score.
Locke - nice work!
I will take Mr. Locke at his word for his numbers. However he left out the out of pocket expense of his equation. These are the co-payments for services and drugs and the extra expense providers have to spend to collect them. Also you are talking about the commercial side of business and leaving out the very lucrative Medicare Advantage plan. Is the overhead there 7% also? Please advise.