JCJ asked an excellent question:
Do you think in the future insurance companies will offer a single payment for services? My question has to do with my specialty – radiation oncology. If a woman undergoes lumpectomy for breast cancer and meets criteria for hypofractionated whole breast radiation (age > 50, no previous chemotherapy, separation (sorry, technical term) < 25 cm) yet still receives a more protracted course of treatments might insurance companies be justified in paying for the only for the shorter course and let the doctor explain the difference? Similarly a man with favorable risk prostate cancer could undergo a course of treatment with radiation receiving 28 doses while at another hospital seven miles away might receive 40 or 43 treatments….
Death panels!
A really good jumping off point for discussing payment models?
You decide!
There are three major types of payment models insurance companies (including Medicare) use to pay providers. Each have their advantages and disadvantages. There are two additional models that are in pilot testing right now that should be discussed as well.
Right now, the typical insurance company pays providers on a “fee for service” model. Under this model, volume of proceudres is what gets paid. In JCJ’s scenario, the radiation oncologists gets paid for either 28 doses or 40 doses. And he’ll get the same rate for each dose. This model is administratively simple as the claims systems just needs to see procedure code X and pays out rate Y. However, this model encourages both overtreatment (40 doses instead of 28) and treatment using more expensive options. For instance, there is significant research that shows physical therapy offers as good or better pain relief than surgery for certain types of back pain. However, PT pays out at a much lower rate (and to a different provider) than surgery pays to the surgeon making the recommendation for surgery. Effectiveness of intervention is roughly the same, but the cost efficiency of the surgical intervention is significantly lower.
The next model has been around for a while in a variety of guises and names. It is a capitation model where a provider group is given a fixed sum of money each year/month to take care of a roster of patients. This is the old HMO model, this is a part of the Accountable Care Organization (ACO) model, this is a “global budget” model. The idea behind this model is to get providers to be much more cost sensitive because their profit margin is dependent on not spending money.
In JCJ’s example, a capitated provider group would have a strong incentive to run a standard 28 dose protocal and then follow up with testing to identify which patients the protocal was successful and stop any additional dosing for them while continuing dosing/treatment for the patients who were not responding as well to the initial 28 doses. In a back pain example, the incentive would be for physical therapy (an effective and comparatively cheap intervention) to be tried first before surgery as the money is coming out of the provider group’s pocket in either scenario.
The upside of a capitated payment schema is the incentives are aligned to try the cheap but effective strategies of intervention at the first level. Groups that truly understand both the financial impacts of capitation and their patient population will try to intervene non-medically before they have to intervene medically as this tends to be much cheaper. Ezra Klein at Wonk Blog pointed out a good example of this in April, 2013:
Health Quality Partners is all about going there. The program enrolls Medicare patients with at least one chronic illness and one hospitalization in the past year. It then sends a trained nurse to see them every week, or every month, whether they’re healthy or sick. It sounds simple and, in a way, it is. But simple things can be revolutionary…
Health Quality Partners’ results have been extraordinary. According to an independent analysis by the consulting firm Mathematica, HQP has reduced hospitalizations by 33 percent and cut Medicare costs by 22 percent.
Using an in-person visit instead of the MBA approved high contact/low effectiveness approach of call center nurses dramatically increased both social bonds (those are pretty powerful disease fighting tools), medication compliance, and preventative risk maitenance. If HQP was a capitated group getting the average Medicare spend per patient, their profit margins would be obscene even with their higher labor cost. Furthermore, their patients would be in better health and spending way less time and risk in the hospital. Double win.
There are two major downsides of a capitated payment system. It is administratively complex, The complexity comes from risk adjustment payments as not all medical groups or medical homes will have identical risk pools. One group might have 90% 30 somethings and the other group will by 60% 50 or 60 somethings. The younger group will get less money per patient and send some money to the group covering the older adults. Additionally, there is significant back-end reinsurance. For instance, if there was a single medical group in a capitated model covering 30 people wounded in the Boston Marathon bombing, that is an extremely unusual event, and that group will get back end payments to make it whole.
The bigger “flaw” in a capitated payment system is that it is guaranteed to produced sobbing news conferences as the doctors denied an unproven and/or extraordinarily expensive course of therapy to a patient who died but whose family saw an article quoting Jenny McCarthy about this treatment for that particular disease. Any system that discourages overtreatment or treatments that have low effectiveness will hit outlier cases and in a population of 315,000,000 at least a few of those outliers will be well-connected and telegenic.
The last major model is bundled payments. It is a hybrid between fee for service and capitation. It is a fixed sum payment for a given diagnosis adjusted for a couple of variables. For instance and speaking hypothetically, a bundled payment for favorable risk prostate cancer might be large enough to cover on average 33 radiation doses, regular follow-ups and screenings for those 33 doses, and all the other things that occur within that course of treatment. On any given patient, the providers may profit or lose money, but the goal is to provide a bundle of payments that covers average treatments. Like capitation, there is a similar (but softer) incentive to minimize overtreatment. Like fee for service, the administration of these payments is “reasonably” straight forward. During the course of treatment if the diagnosis changes or the initial course of action is not working, the payment bundle can also change.
The fourth, and much smaller payment model that could be absolutely interesting directly addresses the central problem with US health care spending — our prices are way too high for a given service when compared to OECD norms. This model is called “reference pricing” where an insurance company generates a list of fairly uniform, non time critical services and the range of prices that providers charge. Most blood work, most MRI and other advanced imagining, most elective surgery would fall under standard, non-time critical services. From this list, the insurance company would say for a MRI of the left knee has contracted rates of $375 to $1700 to providers. The insurance company using reference pricing would then find a price where there is a good access to quality providers and declare that they’ll pay up to $900 for a left knee MRI (a payment level sufficient for to cover 100% of rates for 80% of the providers) and anything over $900 is member responsibility. The goal is to drive down unit cost of services by making the very high price providers lower their prices.
The final payment method for health care services by health insurance companies is to trade chickens for services — my company is a major stockholder in both Tyson and Perdue just to maintain our access to a strategic chicken reserve.
CONGRATULATIONS!
At the turn of the century, I underwent care for a spinal injury from a doctor who was working under this model. I spent ten months in complete agony, being unable to walk more than about 50 feet. He did essentially nothing, and was preparing to declare me permanently disabled. At the age of 33. I finally threw in the towel, got a loan, and went to a private doctor in town. He had me back at work in six weeks. I might add that the total cost of actually fixing my problem was under $3,000 dollars.
This is the only time in my life I have contemplated filing a lawsuit. It was more profitable for him to dump me on the tender mercies of the state as an incurable than lift a finger to fix my problem.
I hope this method of paying doctors is either illegal now, or unprofitable as hell for someone, because “health care” like this is no health care at all.
Jockey Full of Malbec
You were awesome in Neverwhere.
Capri
Presumably both the 28 doses and 40 doses physicians read the same meta-analysis and double-blinded randomized study papers that look at various outcomes vs. number of radiation treatments. Somehow they read the literature and came to 2 different conclusions, but neither should have pulled that number out of the air.
Where does evidence-based medicine come into play? If there are no positive benefits anyone has ever noticed over, say 30 treatments, but the 40-dose Dr. want to be on the “safe side” by over treating I’m not sure I’d want my insurance co. (and by extension me) to help pay for his or her superstitions.
Richard Mayhew
@Capri: This is where the evidence based medicine comes into play.
Ideally, the insurance company has a bunch of nerds in back who are reading the journals, and reading the output of the comparative effectiveness research groups and they come in and say 98% of cases 33 doses are sufficient and here are the indicators for the other 2% of cases where more doses are justified….
jenn
Really interesting, thanks! (I’m pretty fond of Option 5, myself!)
JCJ
@Capri:
I can address whole breast radiation better than I can prostate treatment, so let me answer in a dfferent tumor system (hyperspecialization – my partner treats all the prostate cancer in my group.) After partial mastectomy (lumpectomy) the standard treatment for years has been whole breast radiation for 25 – 28 treatments followed by a “boost” dose of radiation to the lumpectomy site. In Canada (and other countries) a shorter course of whole breast treatment has been the standard using 16 treatments with a higher daily dose resulting in an equivalent biological dose. I was always skeptical of this treatment, not because of concern over the effectiveness of the dosage but rather whether there might be more problems with both skin toxicity during treatments and long term cosmetic changes (a higher daily dose can cause more side effects.) A few years ago the Ontario Cooperative Oncology Group published the results of a randomized trial where over 1200 women were treated with either the longer course (25 treatments) or the shorter course (16 treatments.) After 12 years of follow up the results were presented which showed no difference in either short term or long term side effects and more importantly no differerence in cancer control. When I discuss this with a patient I make a lame joke and point out that she can get treated for the longer period of time if she likes me a lot and wants to see me for alonger period of time, but that nobody likes me that much. If I am then asked if there is an advantage to the longer course I say that there is one – I get paid more, but that there is no advantage for her. This shorter course cannot be used for every patient, but I cetainly prefer it.
There is an organization called the National Comprehensive Cancer Network (NCCN) that issues guidelines that are pretty much the gold standard and they include this treatment schedule in their guidelines. Also, the National Surgical Adjuvant Breast Project (NSABP) includes this course of treatment as an option in some of the research protocols as an option in breast radiation.
I hope this makes some sense. I am typing this in spurts during clinic so it might be somewhat scattered.
nastybrutishntall
@CONGRATULATIONS!: Sounds like a bad doctor, not a bad healthcare model. A different bad doctor in a different healthcare model would have fused your spine for 30K and left you with an old man’s back for the next 30-60 years if you were lucky.
Richard Mayhew
@JCJ: Damn, that is good information! Keep on writing and informing from the provider POV please!
kindness
Some TeaHaddists think they should just be able to give their physicians a couple of chickens for an office visit. Well that’s nice but what if you don’t raise chickens? Why shouldn’t I be able to use anything in my garden to pay my doctor? Out here in California it’s more like:
Hey Doc, Here’s a bag of Grand Daddy Purple I just harvested. Thanks for the visit….
Xantar
So you’re saying Sue Lowden is a pioneer in the field of health services payment? Who’da thunk?
Roger Moore
@nastybrutishntall:
Oh, it’s a bad healthcare model, all right. It’s just that the core of the bad model is for profit medicine with doctors and insurance companies earning more money by ignoring the patients’ needs. As long as the doctor is allowed to put profit above health, bad outcomes are sure to follow.
Lee
@CONGRATULATIONS!:
That is a perfect example why you should always get a second opinion with any sort of major medical issue.
Cervantes
@CONGRATULATIONS!: ACOs are not, in fact, just like the old Health Maintenance Organization/managed care model that flopped so miserably back in the day. The word “accountable” in the name is a clue. Under managed care, docs often had to call a bureaucrat who had never seen the patient to get a treatment approved. ACOs don’t work that way, the providers get to make the decisions. Second, there are several kinds of quality checks which affect reimbursement rates, including patient- reported satisfaction, measured outcomes, and indicated processes of care. I think your doctor may have made a misjudgment about whether whatever treatment you ultimately got would be effective — there’s a lot of overtreatment for back pain and it usually goes away on its own — but global payment is potentially better for patients than fee for service. We have a much bigger problem with giving people useless, and even harmful treatment, than we do with undertreating. A lot of back surgery that used to be performed was worse than useless. So don’t take too much away from your anecdote.
Roger Moore
@kindness:
Payment in kind worked out OK for my great grandfather back in the old country. I mean this in all seriousness. Especially during the Weimar hyperinflation, payment in kind worked out fine. One of my family’s heirlooms today is a joiner’s masterpiece that my great grandfather received as payment for medical care.
Lee
@Richard Mayhew: & @JCJ:
This is why I love coming to this site. The comments can be pretty impressive.
kindness
@Roger Moore: And I support it. I think it comes down to the individual physician now day. When my parents were kids, there was no health insurance. You went to the doctor, you paid how ever you could and the doctor either agreed with you or told you no. When I was a kid, we had health insurance and it seems most doctors now days prefer some form of cash (or future check) to chickens or kind bud. It would be nice to see a mix. It’s all so cloaked in legalese now that I don’t know if a physician even had a choice any longer.
Capri
@JCJ: You make perfect sense, and if – God forbid – I ever got breast cancer, I’d want someone like you to be my physician.
Here’s the issue -all those patients who see a MD who is either less ethical or less well read. They tell their patients that they’ve always done 25 treatments but now, due to Obamacare no doubt, the insurance company will only let them do 16.
Big R
I really, really appreciate this whole series of posts. It makes the whole system make more sense, and helps me to better articulate why Obamacare, for any of its faults, is still better than the existing system.
My question is this: my parents used to be covered under [REDACTED], which required prescriptions to be done through mail-order pharmacies. Thankfully, they’re now working for what Soonergrunt describes as “the best employer in the world,” but I’m trying to understand what’s the incentive for using a prescription-by-mail service. It wasn’t any cheaper on price, it appeared, and patient outcomes were significantly worse (as in, they’d order a prescription, some shipping snafu would keep it from being timely delivered, and then they’d have to go to an in-person pharmacy to get the scrip filled anyway). Seems like the system was worse for patient and insurer.
Big R
Trying to figure out what I said to put my last comment in moderation. I think talking about those things that come in orange bottles and are assigned to you by a physician is what did it.
MikeJ
@Big R: I wish John would switch to a different spam solution. You can’t even find the spam words list on wordpress.org any more because it is viewed as ineffective.
Jay S
@CONGRATULATIONS!: At Group Health Cooperative, it’s HMO model has physicians paid a salary under contract to a separate corporation. They have limited financial interest in GHC’s margin, as long as it remains solvent. Capitation doesn’t have to be evil.
Yatsuno
@MikeJ: Even the location where said orange pills are dispensed is enough. But sometimes FYWP just does it randomly without reason as well.
kindness
@Jay S: My insurance, Kaiser Permanente it’s the physicians who own the operation and they make the medical decisions. Now that doesn’t mean money doesn’t come into play in making decisions. It does mean a doctor is deciding your care rather than a bean counter though.
Mnemosyne
@kindness:
It’s so hard to say, though — I could easily see an unscrupulous doctor group exploiting that model. There’s a reason why we lose about $50 billion to Medicare fraud every year.
The only real solution is to remove the profit motive entirely as other countries have done.
Richard Mayhew
@kindness: Kaiser is a very interesting model of organization as it is an integrated payor-provider so the incentive structure is a bit different than an organization that only pays or only provides…. I’ll get a post up on organization structures sometime this week.
Richard Mayhew
@Big R: Good guess — orange bottle handing out places seems to be a trigger word for FYWP-edness. I took care of it.
Villago Delenda Est
@JCJ:
Those asshats at the AMA are going to find out where you practice and make your life hell for spoiling the scam.
Seriously, why aren’t there more physicians like you? Putting the patient first?
Roger Moore
@Big R:
I assume that it’s cheaper for the pharmacy and hence for the insurance company, but they’re still charging patients the same.
? Martin
@CONGRATULATIONS!:
On the back side of capitation models needs to be a process for measuring outcomes and penalizing care providers for not meeting them. There’s a fair bit in ACA for doing exactly that – people with x cancer have an 80% survival rate, and if your HMO has a 70% survival rate (disability rate, etc.), then there’s going to be consequences. Additionally, if they get their survival rate to 90%, there should be an incentive. Some of that exists now, but not nearly enough.
The long term challenge is how to keep everyone from gaming the outcomes. The entirety of the public education debate now centers on the outcomes – how does one side game the outcomes to make public schools look like shit so they can defund them, etc.
Villago Delenda Est
@Big R:
My health care provider is the same outfit that Soonergrunt works for, and I order my prescriptions over the ‘tubes 30 days out from end of supply, and they arrive in a timely manner. “Socialized medicine” looks pretty damn good to me…always has, because the focus is on the patient and keeping him or her well enough to do the job they’re supposed to do…true outcome based medicine. Paying dividends to rentiers is not anywhere in the equation.
Villago Delenda Est
@kindness:
The only problem is that if you have a bean-counting doctor, you might be in trouble.
I always thought doctor/lawyers was a very interesting combo, but doctor/MBAs might be even worse.
Big R
@Villago Delenda Est: SORRY! I should have been clear. Parents work for the best employer in the world NOW. Their LAST health-care insurer (i.e., not the one you’re talking about) required mail-order orange bottle delivery.
Yatsuno
@Jay S: Group Health got into trouble a few years back for being too adversely selective even though they’re the state government’s first health care option. They are technically a non-profit but man they watch the books like hawks. They’ll do great under ACA though, especially if they can gain market share over Regence.
CONGRATULATIONS!
@Mnemosyne: My doctor was, put nicely, unscrupulous. God only knows what he was filing with his insurers, but it was obvious he was pulling in money hand over fist. Shortly after my unpleasant experience with him, he lost his office lease by allowing an X-ray machine to leak radioactive fluid all over his office and instead of dealing with it in the normal, legal fashion, which presumably would involve a lot of three-letter agencies and money, had a cleaning crew of illegal immigrants come in over the weekend, mop it up, and call it a day.
I count myself really lucky that he did nothing for my care at all.
Having done some digging since I last posted, I just found that he left private practice some years ago (probably after the radiation leak incident) and is now practicing at our local hospital – failing upwards. Yet another reason on top of my already existing standing orders to wife and family that no matter what the medical emergency, I am to be transported to any other hospital no matter the distance and time involved rather than be taken to the one down the street.
BTW, with SoCal Kaiser now (NorCal is a different entity and has…issues) and in general pretty happy with the level of care. HMOs certainly can be run very well.
kindness
My impression of Kaiser so far (12 years in) is that if you want something that elective, that is cosmetic they aren’t all that good. They do offer some of these services but they have higher co-pays than life threatening procedures. If you have a life threatening thing though they are right on it.
When I snapped my ACL skiing 3 years back they thought it was just a sprain and told me to intially ice it and stay off it. Once I got the MRI that showed a complete tear they immediately OK’d the ACL replacement surgery. It was an outpatient procedure done with 3 tiny holes and I was walking freely that week. All for a $5 copay.
From what others have told me, if you want something outside the normal treatment modes, they are tough at approving it, especially for non-life threatening stuff. So obviously money does impact what they OK. They are Not For Profit which is not the same as Non Profit. Non-Profits make no extra money. Not For Profits have to plow any extra money back into the operation either through facility upgrades or bonuses to the physicians and staff.
fuckwit
Wow that is some wonky-ass shit. Fantastic. I’m thrilled to see this stuff discussed in this kind of detail.
Pulling it back up to the hype level, “death panels” is Rethug projection, once again. I’m so tired of that meme.
We already have death panels: they’re called insurance companies. If you can’t afford it, you die. Millions of poor people are sentenced to death by simply being poor. I’ve been one of those whol lives in that world. If I get sick, I die, end of story, do not pass go. As soon as I run out of money, America is done with me, and I need to be lined up against the wall and shot, and gotten the fuck out of the way. That’s how it works in America. Or did. Maybe now with Obamacare I can afford enough medical coverage to keep me alive through any tough times or illnesses. I’m excited to see what my options are next month.
? Martin
@Roger Moore:
Well, keep in mind that the real revolution in medical care didn’t come until post-WWII. Prior to that, medical care was usually little more than looking in your ear, taking a culture, giving you a pill. If you were really sick you went to an institution to treat your polio or leprosy or whatever. If you needed surgery, it was fairly primitive – ether and a scalpel. Prior to the 60s if you had a heart attack the procedure to treat it was not far removed from making you comfortable and waiting to see if you died or not. CPR with chest compressions came around that time, as did external defibrillators. EMTs became more valuable, as did quick response to hospitals. The likelihood that you would survive a heart attack doubled, and there’s a clear uptick in human life expectancy when a culture has this technology and infrastructure available to everyone. Infant mortality rate is something like 1/50th what it was a century ago. Surviving pregnancy is similar. But all of these things moved healthcare from ‘cheap, everyone can afford’ to ‘sometimes insanely expensive’. I mean, a century ago it was effectively impossible to spend the lifetime median income ($45K for 30 years = $1.3M) on healthcare. Now, that’s pretty possible. Just need a transplant.
So, what you’re really describing is a tradeoff at the edges. In spite of our technical ability to replaces someone’s heart, should we only permit that for people that can afford it? And that trickles down to ‘should we only save children whose parents can afford the care?’ Both of my kids legitimately cost more than we could afford to bring into this world. My wife had terribly complicated pregnancies, both kids were premature. A century ago she wouldn’t have survived the first pregnancy and if she had, neither kid would have survived being born that early. And today, I wouldn’t have been able to afford to save her or the kids on what I earn, even at the real cost of the treatment.
That’s a hard debate. And it’s one we legitimately have to deal with because we’re approaching a point that we can keep people alive indefinitely. Should we give organ transplants to people in their 90s?
Jay S
@Richard Mayhew: Kaiser and Group Health have similar payer-provider structures, but I don’t know much about Kaiser’s practitioner compensation model. Salaried providers can provide an important brake for over treatment. There need to be accountability structures for under performance as well.
kindness
@CONGRATULATIONS!: I’m N. Cal Kaiser. Not sure what you mean when you say they have ‘Issues’ up here.
pseudonymous in nc
If you’re going to have private practitioners, reference/tariff pricing seems like the most obvious approach, because it establishes a baseline.
In Australia, for instance, you’ll be told the non-reimbursable amount in advance of any treatment, and that gives you a better comparative metric than the itemised bistromaths of the American system. There are also incentives for sticking to tariffs, like being able to batch/bundle reimbursement claims rather than bill them separately.
? Martin
@kindness:
Yeah, but that is how it should be.
The point of pooled risk is to share costs for things that morally we should not tell people to go without. We should not tell people to die because they’re poor. But we also should not tell people that they can go ahead and get elective surgery because they’re poor, or that they’re entitled to unlimited free doctors visits every time they get a runny nose. There’s a balance needed in there.
In my post above I mention my wife’s pregnancy and my kids being preemies. It must have cost Kaiser hundreds of thousands in care for both pregnancies. We had tons of equipment in the house, nurses every few days, long hospital stays, surgeries, unending tests, weeks in the NICU – and so on. After the 2nd her OB laid out what would be involved if we wanted a 3rd child. We didn’t want a 3rd as it turned out, but it was sobering – at least one more surgery for my wife, and she would be admitted to the hospital the moment the pregnancy test came up positive and she would stay there until term. They were willing to do it – and it would cost us $0 because there are no copays for pregnancy related things, but we weren’t. So, I indicated I wanted to get a vasectomy. That was elective – that would cost, I don’t know $200 or something. Maybe more. It was still cheap, but not $0 cheap. Economically, our best bet was to take our chances, hope my wife didn’t get pregnant again, and if she did, lay that cost on Kaiser (which, since we’d gotten more in services out than we’d ever pay in meant that you and every other Kaiser member was paying for us). Kaiser should have been over the moon to pay for my procedure, but no, it’s elective – we had to pay.
Adverse selection comes in many forms.
Villago Delenda Est
@Big R:
Oh, I understood that…and my health care provider does prescriptions by mail the right way. It really is a great system, and I wouldn’t trade it for all the tea in China.
BTW, even though I use the ‘tubes for mine, they send me the old fashioned method of doing it by mail too, for the old fogies who haven’t learned the new tricks yet.
Big R
@pseudonymous in nc: I strongly approve of the use of “bistromaths” to describe the American insurance system.
Jay S
@Yatsuno: I’m not sure what you are referring to, unless it was under Washington adopting a requirement for covering people with preexisting conditions several years ago. I understand GHC was hit pretty badly by adverse selection then, and many insurers didn’t offer plans in WA. The law was relatively quickly changed.
Is there something else I missed?
Villago Delenda Est
@Lee:
In absolute agreement with you on that. Richard Mayhew’s posts have been superb, chock full of good information, well presented and understandable to us knuckleheads who are not in the loop. JCJ is just awesome, too.
Richard Mayhew
@? Martin: That is the big thing — the first health care revolution was an agricultural revolution (beat Malthusian traps) so there were sufficient calories that everyone is in decent shape to fight germs when nasty bugs come around. The second is the “oh doh” moments that we take for granted in public health (working sewers and clean water) and basic prevention services (washing hands, sterilization of instruments etc). The third is the antibiotic and vaccine revolutions that turned childhood killers into a week of the sniffles. Those are the easiest and cheapest systemic wins. We’ve already incorporated those wins into our society (although given the unwillingness to fund public infrastructure, that may be in dispute over the next generation)
Tissue Thin Pseudonym (JMN)
@Villago Delenda Est: Please do not confuse us bean counters with MBAs. We actually have a completely separate degree. And people very rarely let us make the big decisions. Most things that get blamed on the bean counters are someone else’s fault. All we do is tell the boss what the costs are under the different scenarios; we very rarely tell them that they need to chose the option that has the lowest costs.
? Martin
@Jay S:
Kaiser is split into two. The insurance side is a not-for-profit. The care side is physician-owned. The two work in conjunction. Physicians are both salaried and benefit from any cost savings on the care side. The not-for-profit insurance side keeps the incentives on the care side toward lower-cost of care, rather than more care. It seems to work quite well – not unlike the basic direction that ACA points Medicare.
Villago Delenda Est
@Tissue Thin Pseudonym (JMN):
OK, I understand your point. People who compile and present the data should not be lumped in with the asshats that use it to pay for their new boat.
kindness
@? Martin: Yup that is pretty much it. Full disclosure is probably called for. I work as an Analyst for N. Cal Kaiser in their Regional offices here in Oakland. My area is Outside Medical Services and I also assist as a communications adjunct between the various Transplant Coordinators within N. Cal Kaiser and the outside facilities that do the transplants (UCSF, UCD, UCLA, Stanford, etc).
Jay S
@? Martin: Thanks, I thought Kaiser and GHC had much the same structure, and apparently they do. I am probably in over my head but I believe GHC’s not for profit insurance side incurs all the costs of care, so the providers wouldn’t directly benefit from savings.
MD Rackham
@Big R: The insurer usually owns the postal orange bottle provider they require you to use, so they get to keep the profit that would otherwise be going to Rite-Aid, CVS, etc.
Everything they do is driven by maximizing profit. If you receive some healthcare in the process, good for you, but that’s a lost profit opportunity.
jl
This is a great series of posts. Thanks.
My only quibble is whether fee-for-service is easy and cheap to administer. That is true if the insurance companies agree to just pay all the bills that come in from providers. My understanding is that there are armies of drones working for both the insurance companies and providers who comb over insanely complex and inscrutable provider bills and insurance reimbursements battling over line items, and the charges for each line. I’ve had students who, in their ‘first careers’ worked on both sides.
My other comment is that I think there is too much emphasis on finding a payment model that will solve the US healthcare system’s problems. Healthcare, and the application of evidence based medicine, always has to be custom tailored to an individual patient. I think there will always be cases where the incentives enforced by any payment model will conflict with management decision making in either profit or non-profit settings. Capitation is based on average costs. Even if you do receive treatment in a capitated setting, a money goon hovering over the clinical people will not care about average costs, but marginal costs of a patient. So you get stuff like wanting to hurry mothers out of the maternity ward. The fact that there were cheaper than expected births that offset the extra costs of a mother who should really say an extra day means nothing to a money person who wants to minimize the cost of each patient.
I also wonder whether some of the benefits that are attributed to each payment system are really due to the system itself, or other aspects of the system that have to be changed to implement the system. For example, is it reference pricing itself, or the increased price transparency required for reference pricing that reduces costs. The amount of conflict of interest permitted in the US system for docs and prescribing, lab tests and outpatient procedures also differ by payment model.
Edit: the point being is that any payment model is a very blunt instrument to use to manipulate these other factors. Maybe the other factors, such as transparency and conflict of interest should be addressed directly.
Anyway, I hope there are a lot more posts in this series.
And that Richard can dish some real dirt, say about what goes on in the reimbursement process in a future post.
@pseudonymous in nc:
“the itemised bistromaths of the American system”
I like that. The US Healthcare system, where all the numbers are awful.
Edit: and it is nearly impossible to get a binding price quote in the US before anything significant in the US heatlhcare system. But Australia can manage to do it. How did they do that?
JCJ
@Villago Delenda Est:
Sorry for the late reply – sometimes the problem could also be related to other charges for services. I am in a group with two other physicians and we have a contract to provide radiation oncology services to the hospital system where we practice. When we see patients they receive two bills – one from us (professional charges) and on from the hospital (technical charges.) The hospital owns the equipment and pays the radiation therapy technologists, nurses, physicists, etc. Some physicians are employed by a hospital (and thus paid by the hospital) and there may be a single “global” bill. I would be concerned about pressure from the owners of the equipment to keep the treatments as long as possible. The technical charges are pretty big. You and others might have heard about self referrals in radiation oncology. That is often a situation where a group of urologists buy the equipment and staff a clinic then hire a radiation oncologist and refer patients for treatment of prostate cancer. This can be a big money maker as the daily technical charges for these treatments (intensity modulated radiation therapy) are substantial. This is where I would think it would be reasonable for an insurer to pay for a shorter (hypofractionated) course for a patient with (as an example) favorable risk prostate cancer (stage T1c or T2a, PSA < 10, Gleason grade 6 or lower) and if the treating physician wanted to give the longer course that would be up to the doctor to discuss with the patient. If the longer course were given and there were no charges to the patient for the additional 12 – 15 treatments that might be Medicare fraud, but that is another subject altogether. In addition, for the favorable risk prostate cancer outlined above (with a low PSA density) a very strong argument could be made for active surveillance where no surgery or radiation is done up front but the PSA level is monitored along with physical exam. Many cases can be managed this way with treatment done only if certain changes are noted.
JCJ
@JCJ:
As a follow up – I recall a few years ago a patient that I treated with intensity modulated radiation therapy (IMRT) for brain metastases from breast cancer. I had no trouble with her insurance company but the hospital used the wrong diagnosis code (198.5 instead of 198.3) so insurance refused to pay for the IMRT. The hospital doesn’t care who pays them so they sent the bill on to the patient – 22 treatments for $35,000. Obviously the hospital doesn’t get paid that much (and neither do I!) after insurance discounts, write offs, etc., but if you don’t have insurance those are the charges you can see. Her situation was fixed but it caused unnecessary stress for her and her family.
(Normally IMRT is not used for brain metastases but it was necessary for her as she had undergone previous radiation to a metastasis in the base of her skull two years earlier in the region of her left mastoid process and the only way to treat all of the brain metastases without overlapping with the previously treated area was to use IMRT – in case anyone wonders why I used IMRT for brain metastases)
Doktor_K
@Richard Mayhew: I think of Kaiser as a completely integrated health care delivery system. With most HMO plans you have various stops along the way for care (provider, laboratory, imaging, hospital, urgent care, etc) that your medical group has to account for in determining capitation rates. With Kaiser, that is not the issue–everything is done at a Kaiser facility–so there is not only economies of scale, Kaiser can hold down costs. Kaiser is also different in that certain sub-specialities have a “center” at particular medical centers–at least in Southern California. So, if you need Cardiothoracic Surgical Services, you will be going to the Kaiser Medical Center in Hollywood–thereby generating efficiencies relative to care and services. Also, Kaiser providers are based on the staff model, in that they are salaried with bonuses relative to care and patient outcome metrics.
Back in the day (80’s to mid-90’s) care at Kaiser was a little suspect, but they have turned the corner with more of a focus on preventative care and having one of the most robust EMR/Patient Information modules in the country. You can access your medical info, labs, meds, and communicate with your doctor all from one interface.
Villago Delenda Est
@JCJ:
And I’m sure you, as a physician, know full well that such stress corrodes the benefits of the treatments you proscribe for your patients. Result: the system works against healing people, to the frustration of the patient and the physician.
It’s insane.
pseudonymous in nc
@jl:
Because they know what they’re going to be reimbursed. Same in France, same in Germany, same in most countries where you have private practitioners. It’s not a bullshit rack-rate that gets discounted down to what they actually expect or haggled out over time: it’s a number agreed through consultation between providers and insurers that says “this is what you’re getting from us, charge whatever you like, but we’re going to make it a whole lot easier if you stick within that schedule.” The guarantee of easy batch-billing and fast processing means they can budget around the scheduled fees.
It helps in those systems that the places where the costs can ramp up — inpatient care, in particular — have a broader public-sector provision, with the idea being that if you’re in hospital, you’re not really in a position to drive a hard bargain over prices.
Richard Mayhew
@jl:
Working backwards — nope, I can’t dish too much, I actually like my job most days of the week :)
Agreed, payment models are fairly blunt instruments, but understanding the goals and limitations of each model is a useful way to develop an appreciation of what an insurance company is trying to do and why it is trying to do it (minimize NPV of pay-outs.) I agree that marginal cost v. average cost without a very strong regulator is a source of serious conflict especially notable on maternity cases.
As far as claims payments on a fee for services model, yeah there can be an army of people looking at claims, but the best systems have auto-adjudication rates in the very high 90s. That type of system requires a substantial up front cost to develop a very robust IT and claim system, and a committment by senior management to drill down into hold groups to figure out why Claim Type XYZ needs 300 manual interventions a week. Inefficient fee for service payers can have four or five times the number of claims management types as efficient providers.
jl
@Richard Mayhew:
Thanks for response.
” Working backwards — nope, I can’t dish too much, I actually like my job most days of the week :) ”
Ohhh NOES!
” understanding the goals and limitations of each model is a useful way to develop an appreciation of what an insurance company is trying to do ”
I agree, and didn’t mean to criticize your choice of topic. I think economists are more guilty of focusing too much on reimbursement systems as cure alls than the people actually involved in the work.
” the best systems have auto-adjudication rates in the very high 90s.”
If you can do so without getting in trouble dishing, it would be interesting to hear more about developments in reimbursement systems and how that might effect efficiency of different models. I guess I’ve heard mainly horror stories from people who have had to deal with the reimbursement disasters manually and forensically.
Edit: also curious re your perception of role of local provider market power in cost variation.
Richard Mayhew
@jl: On reimbursements systems, the big thing is having an active, well staffed, experienced IT/development group combined with claims folks who understand how the different moving parts work together combined with sales/marketing knowing what the implications are of the promises that they make to sell a plan combined with senior management willing to make investments on both internal and external solutions that won’t pay off in the next three quarters.
And even with that, when a claim system is running mumble, mumble million claims a week, a 3% kick-out rate still produces grumble, grumble tens of thousands of claims that need to be eyeballed.
Richard Mayhew
@jl: On local market power in cost variation — as long as you can stand bad puns, I’ll have something by the end of the week — short version — it is real, and Econ 101 is a joke when thinking about healthcare.
jl
@Richard Mayhew:
” both internal and external solutions that won’t pay off in the next three quarters.”
My experience is that insurance companies and organizations like Kaiser are terrified of the annual enrollment process, about both being listed by an employer and employee choices. That fear seems to drive a lot of the thinking, especially about those “promises that they make to sell a plan”, particularly about what to put on paper, and what should be left unsaid about expected performance, info given to the covered on benefits, and interaction with utilization..
I guess I’m future suggesting posts now, that will get you in trouble! Sorry.
Edit: maybe how/if health care reform will alter that would be a safer topic than particulars of current system.
IdahoFlanuse
@Roger Moore:
My policy allows both mail order or retail, but in the case of mail order I get a 3 month supply and my copay is zero. The retail is a $5 or $25 copay and only a single month supply. Love the mail order since it can be setup for auto renewal.
jl
I have heard discussions that reminded of Mr. Micawber
” Annual increase in per member per month $X, result happiness.
Annual increase in per member per month $X plus one penny, result disaster.”
Older
@Big R: I think the answer is that most of them are better. I’m going to try to be careful, considering the danger of being moderated, but I’m referring to getting orange bottles by mail.
When we first used that system, we had an infant who needed daily doses of a fairly expensive medication. We found that the mail provider offered by our insurance could send us a month’s worth for about the cost of a day or two bought locally.
Hadn’t needed this service before, so I don’t know when it first became available. It was never required, just available for those who wanted it. When we began using it, the costs were very low, $5 for generics and $12 if no generic was available. Over the years, costs went up, and we were shifted from one provider to another according to which one got our insurer’s contract. Now that we’re old, we use a lot more of those orange bottles, but our local provider decided to compete with the mail folks and they are doing a very good job. Our generics tend to cost a dollar or two each refill.
As to insurance itself, I was a federal or postal employee all my working life, and when I first began working, it was still customary for the patient to just pay the doctor. You know, most of us could actually afford it. When I had kids, I decided to take one of the plans offered by the government. I chose the “major medical” plan. I still paid the doctor, but when the total got to be some “large” amount (for the day), I would send my receipted bills to the insurance company, and they would send me a check for the share that was covered. This was good up into the middle of the 70’s, if I recall correctly. During this time, I moved to a different city, and started getting asked questions about which male citizen would be paying my bills. I did not take my family to any doctor who insisted on knowing. I had a fine family doctor to whom I said, “I won’t answer any questions about what other person is responsible for my bills. I pay my own way, and I will promise to pay on the spot in cash until you trust me. Then we can have that conversation.”
By the time I had the medically needy infant, it was the late 80’s and things had changed. Everyone had to have insurance, which was accompanied by a) scarey large bills, which we weren’t expected to pay, and b) complicated statements from the insurance company which now had to be involved in every medical transaction.
Currently I don’t so much have a doctor, as a whole collection of them. All but one are members of group practices which maintain a stable of experts to argue with the insurance companies, which, I am told, reject every claim at first presentation as a matter of principle. The one exception works alone. She has given up having a nurse and a receptionist, and makes her own appointments using an answering machine. It helps that her specialty does not require the patient to disrobe, I suppose. She charges a fixed rate which I am told by other doctors is just about what’s left for them after they finish paying all the other costs and the other clinic employees. She’s the only one I know of now doing this, but some years ago there was another in the area. I believe he moved away.
Apparently, it’s mainly the effect of the insurance companies that keep things so expensive. But we all should remember that there is a lot more medicine now than there used to be, and a lot of it involves expensive equipment. We would not want to give up modern medicine just so we could pay in chickens again. On the other hand, there’s no doubt that we are failing to get our money’s worth under the current system.
kindness
Really I would prefer Single Payer all things considered. When you look at Physician reimbursement world wide, we pay our doctors WAY more than every other nation out there. Would put me out of a job but I’d manage.
Villago Delenda Est
@Richard Mayhew:
Econ 101 is a joke about everything but pin factories, pretty much.