Competition vs single offerings?

I recently had a Twitter conversation with a smart observer of the human condition recently who is not in the weeds on healthcare. She asked a damn good question that I want to probe at for a bit.

I am very curious to learn more about stances that argue for the benefits (or costs) of having a marketplace alongside public systems.

I immediately thought about Medicare and Medicare Advantage. Right now there are three primary delivery and payment streams for Medicare.

The first is traditional Medicare where doctors and hospitals are paid on a fee for service model. There is no out of pocket maximum and the benefits are still grafted on the skeleton of Blue Cross and Blue Shield plan designs from the late 50s. They have been modernized and tweaked since then but the basic split is still there.

Next there is the Center for Medicare and Medicaid Innovation (CMMI). CMMI uses traditional Medicare and experiments widely and wildly. (Disclaimer, one of the projects that I am working on at Duke was a CMMI funded project. I also just got read into a pitch to CMMI on a new payment model as well). This is where accountable care organizations, bundled payments, diabetes care management programs and alternative payment models come from. So far, the evidence is that accountable care organizations save some money without losing quality, bundled payments for orthopedic procedures do a good job of compressing prices and lowering total net spend and lots of other things are being thrown against the wall for evaluation to see what works.

The final stream is Medicare Advantage. Here the federal government writes risk adjusted checks to insurers. Those checks are based on the typical cost of a traditional Medicare patient in that geographic area. Insurers make money if they can keep people happy for less than the check that they get from the Feds.

There is good evidence that Medicare Advantage improves quality while lowering cost when there is significant market penetration. Austin Frakt from 2016 has a good round-up:

 

First, let’s remind ourselves why we might (or might not) expect a spillover effect. If the following two conditions are met, then a spillover could occur:

  1. MA plans encourage greater efficiency in health care utilization. They might do so by, for example, preferentially contracting with more efficient providers, which would encourage others to become more efficient to gain access to MA networks.
  2. Providers care for both MA and TM patients in similar fashion, so that if MA succeeds in inducing efficiency enhancing practice, it applies to TM as well.

And the 5th paper he cites has a good summary of the recent research:

 

5. “Recent Growth In Medicare Advantage Enrollment Associated With Decreased Fee-For-Service Spending In Certain Counties,” by Garret Johnson, Jose Figueroa, and Ashish Jha (Health Affairs, 2016)

The authors bring the spillover literature up to date with an analysis of the association of changes in county-level MA market penetration with changes in county-level TM spending between 2007 and 2014….

A spillover was observed only for counties in the highest quartile of baseline MA market penetration  (>17.2). In those counties, a 10% increase in penetration was associated with a $154 annual decrease in TM spending per beneficiary. The results suggest a threshold effect, by which spillovers only occur (or are detectable with OLS methods) when MA market penetration is sufficiently large. The estimated spillover accounts for 11% of the recent slowdown in TM spending and more than offset the payment to MA plans above TM costs.

Martin Gaynor and colleagues have looked at implied competition in English hospitals. They found that increased competition improved quality while holding costs constant. Better care was delivered and mortality rates declined. Lives were saved.

I think my biggest opinion on this is humility. We don’t have an optimal system. And even if we did have an optimal system today, it will be slightly sub-optimal tomorrow. We have a massive learning problem and dissemination of best practices problem. I think competition with well defined rule-sets and regulators that seek to maintain “spirit” rather than “letter” of the law guidelines will find subtle and occasionally blindingly obvious ways to do things a little bit better than the smartest committee of people can find and then implement quickly.

I think there is a strong need for a viable public backstop that sets a high floor with reasonably free flow of people in and out of multiple systems. If a private/parrellel system delivers a great deal without doing systemic harm, it is solving a major learning problem and producing a significant social good. If a private system fails miserably, they just lit some VC bro’s money on fire. That should not be a major societal constraint. Competition keeps everyone honest as long as it is honest competition.






15 replies
  1. 1
    HinTN says:

    This all implies knowledgeable regulators being honest brokers. Color me sceptical without a massive societal reawakening.

    ETA: Great post, though

  2. 2
    wvng says:

    Timely post. Thank you.

  3. 3
    Betty Cracker says:

    As long as the “competition” is between organizations tasked with population health management that are held to rigorous quality standards, I can see how it would yield benefits in the form of outcome and efficiency improvements. That’s a far more appealing proposition than throwing consumers to the market wolves, which was the last market-based solution that was supposed to save us.

  4. 4
    Mike S (Now with a Democratic Congressperson!) says:

    This is timely. How do I decide which is best for me? I am medicare eligible this coming summer and I’m getting deluged with mail and phone calls about medicare insurance options and “help” on my medicare issues. I’m ignoreing this all for now, because I have some commitments I have do deal with for the next month or so, but I plan to start wading into this morass in March. I guess I’d vaguely assumed it would be like Healthcare.gov, where all the options would be ranked by price, deductible, out-of-pocket, etc. and I could tick-off my Doctors and medications and I could most easily see which one met my needs, but this is a buyers nightmare of choices spread out many documents and websites! I’m guessing that Traditional medicare plus a supplement is generally a good choice, but picking even one of those even if I ignore medicare advantage is daunting. (I live in Berks County in SE Pennsylvania and seem to have a lot of competing hospital systems and insurers.

  5. 5
    Another Scott says:

    Interesting post.

    My take: There’s competition, and then there’s competition.

    [Begin dreaded computer analogy]

    Back in the days of various flavors of DOS and Windows 2.x, there was a lot of competition in the OS and computer software business. OSes and OS enhancements: IBM vs MS vs Quarterdeck vs Digital Research vs HP. Languages and Compilers: Borland vs MS vs Galaxy vs Microway vs … Office Suites: WordPerfect vs Word; QuattroPro vs Excel; FoxPro vs dBase vs Oracle vs dB2 vs…

    There was lots of innovation and lots of choices – “safe” market leaders vs cheaper upstarts, etc.

    Eventually things consolidated and we ended up, with (arguably) some nefarious practices involving certain monopolistic practices, where we are now. Consolidation has greatly compressed the available choices and there is (arguably) almost no (effective) competition in prices or features any more. Instead, users are pushed on a subscription or upgrade treadmill to keep revenue moving into the gaping yaw of huge corporations.

    [End]

    It’s easy to see the healthcare/insurance/delivery system going the same way. There are multiple players, but they’ve segmented the market so that they don’t really compete against each other.

    Yes, in principle, competition is good. But there’s no such thing as a “free market” – especially in health care. There’s still no way for a patient to know in advance what a procedure will cost, and they can’t be sure that someone or some organization that they’ve never heard of won’t bill them if they end up in the hospital. You’re right that single-entity providers can and usually do get fat and lazy and there’s little incentive for them to innovate to reduce costs, improve efficiency, and deliver better services to real people. But without strong oversight (“Competition keeps everyone honest as long as it is honest competition.”), well, we’re just trading one fat and lazy behemoth for another.

    And we have to recognize that the unbridled capitalistic profit motive is almost by inspection an enemy of inexpensive universal health care.

    How one designs a healthcare system so that one gets the benefits of competition without capitalistic excesses is a very tough problem. It’s good that you and others are thinking about it.

    My $0.02.

    Thanks.

    Cheers,
    Scott.
    (“At first glance, keeping a kinda private system like we have, but with a ‘public option’ and/or an early Medicare/Medicaid buy-in option would seem to have the best of both worlds.”)

  6. 6
    Barbara says:

    From my perspective, one of the big advantages of MA plans is that you can get a much more integrated Medicare benefit than you can under the original plan, which silos every part — A, B & D, into separate reimbursement streams. Around 40% of Medicare beneficiaries are enrolled in MA, though the range is high on a county by county basis — from under 10% to as high as 70% in some counties, including those in Western Pennsylvania. One thing that I have seen is data showing that Part D benefits offered as part of MA plans tend to be better or richer than those offered by standalone plans, and that is mostly the result of being able to integrate them into existing plan programs and provider contracts. As in, your physician is more likely to order generic drugs and so on.

    One thing that is often underestimated is the role of Medicare FFS in making the competitive environment for health plans more hospitable because the default proposition based on bargaining power gets reversed — if you are an out of network provider in an MA plan, you will get paid exactly what you will get paid under Medicare FFS. If you are an out of network provider in a commercial plan, you can basically charge whatever you want. The Medicare dynamic protects patients who do use out of network providers (balance billing beyond what Medicare allows is a federal crime) as well as making providers with market power more likely to come to the table.

  7. 7
    Sab says:

    Wow. Where else on the internet could I see this discussion? I turn 65 this month. I need to see this. Thank you David and Barbara and everyone else who comments on your arcane discussions.

    ETA also Scott

  8. 8
    Neophema says:

    @Mike S (Now with a Democratic Congressperson!): Faced the same set of choices recently. (I live nearby in Chester County, PA.) I’m self-employed and was getting slaughtered in the individual market because of my age and inability to qualify for subsidies, so Medicare was a Godsend after years of putting up with crap, ultra-high-deductible insurance that was all I could afford. Started out with a Medicare Advantage plan, but got nickel and dimed on doctor visits and comparatively higher out-of-pocket maximums vs. Medigap plans. Recently switched to a Medicare Plan G, which has a $185 deductible, after which everything is covered. Also not limited to in-network docs and hospitals. Keep in mind that Medigap plans are medically underwritten except when you first enroll at age 65 (which nobody tells you.) If you switch from Advantage to Medigap, you have to go through underwriting. I opted for the certainty of fixed outlays, looking ahead to a time when I could be living on a fixed income with comparatively greater healthcare needs. Note that Medigap benefits are government regulated, so plans offered by different companies are the same — so it makes sense to go to a broker and pick the lowest-cost quality company in your area. Downside to Medigap is you also need Rx coverage, which was covered in the Advantage plan. I was OK with that. Just my experience … I’m certainly not an expert.

    BTW, competition does appear to work in the MA market. The MA plan that was costing me over $100/mo. is now offered for zero premium for what appear to be essentially the same benefits.

    Also thrilled to have a Democratic congressperson at last!

  9. 9
    Juice Box says:

    A private system is the only thing that can push back against the other big players. Big Provider may push dubious expensive therapies (proton beam, surgical robots, bone marrow t’plants for solid cancers, “right to try” laws, etc.) Elected officials have trouble saying “no” to constituents in those cases (laws were passed requiring coverage for BMTs to treat breast CA at one pointj. Heartless big business has been better at that kind of control.

    Big Funder (aka the federal government) also needs some pushback at times. Cutting (or failing to grow) the budget for the VA, like cutting the budget for the NHS, occurs when the wrong party is in power. Unfortunately, Big Insurance has more power to resist that.

  10. 10
    Robert Camner says:

    @Mike S (Now with a Democratic Congressperson!): I just went throught this. The Medicare maze is NOTHING like healthcare.gov, which, though not perfect, I found possible to navigate. Just wait ‘til you look at Medicare Part D! In my area (South Puget Sound), there are over 20 different Part D plans. Many from the same company with moderately different prices. The online info gives info about the # of items on the formulary, and the pricier plans have more formulary drugs. Right now I don’t take any expensive medicine, so I could go for the cheap plan. But, as we age, we are far more likely to need an expensive drug for some expensive-to-treat condition. So what does one do? Pay for the $100,000/month drug (which my brother-in-law is taking) until open enrollment comes around and I can switch plans?

    My brother in law had the help of someone who works in the retail end of pharmacy benefit management and who has access to stuff that the rest of us don’t. It STILL was very confusing.

    And all this confusing setup is for the “benefit” of older folks who are decreasingly likely to make heads or tails of it.

    The theoretical (but seemingly minor) cost benefits of “competition alongside a public option” is not worth the anxiety (economic and psychological) caused by a way-too-complicated system.

  11. 11
    jl says:

    I think important to note that there are two ways you can have private versus public competition, which is the assumed model here as far as I can tell. Does private for-profit health insurance substitute or complement public plans? Both are forms of competition. In some countries where for-profit plans can only supplement, but never substitute for, basic mandatory health care non-profit policies, the growth or shrinkage of private plans is an indicator of the adequacy of the public system, and general affordability of basic versus higher level health services. Statistical mumbo jumgo is required to tease out the separate issues.

    Second, competition can be very effective for good basic health services in a system that enforces healthy competition between providers and insurers on a non-profit basis, or with very strict quality and careful price regulation, as shown in Switzerland and the Netherlands. There is no reason, from international evidence, to pit standard sketchy US style for-profit system against a public system.

  12. 12
    Brachiator says:

    @Barbara:

    From my perspective, one of the big advantages of MA plans is that you can get a much more integrated Medicare benefit than you can under the original plan, which silos every part — A, B & D, into separate reimbursement streams. Around 40% of Medicare beneficiaries are enrolled in MA, though the range is high on a county by county basis — from under 10% to as high as 70% in some counties, including those in Western Pennsylvania. One thing that I have seen is data showing that Part D benefits offered as part of MA plans tend to be better or richer than those offered by standalone plans, and that is mostly the result of being able to integrate them into existing plan programs and provider contracts.

    Thanks for this. I’m starting to get this material, even though I think I might not need it for a few years yet, and this helps put things into perspective. I agree that most of the Medicare Advantage plans look better than standalone plans.

    The wild thing is that for an employer plan, I had one set of relatively comprehensive options that included hospitals and medications, and had to select separate plans only for dental and vision. But Medicare is a confusing array of options.

  13. 13
    Ruckus says:

    @Brachiator:
    I see that US healthcare insurance has not changed in decades. I used to purchase plans for my employees and trying to find a decent plan to be a user of, to pay for, was a nightmare. The options were never comparable between companies, mostly because that made decisions easier. One thing I figured out was that the more complex/confusing a company tried to make their plans, without really telling you any information, that was a plan to avoid. They were actively trying to screw the customer (me) as well as the users (my employees). Now figuring out Medicare is about the same and I think it’s because of conservative policies to make it that way. Medicare a number of years back was not all that difficult to understand/use. But now it is because, if for no other reason, you have part D, medication. Why is that separate from your healthcare? Because the provider half of the system figured out that it’s another profit system, just a different payer and that making it confusing is another opportunity for profit.

  14. 14
    Brachiator says:

    @Ruckus:

    Medicare a number of years back was not all that difficult to understand/use. But now it is because, if for no other reason, you have part D, medication. Why is that separate from your healthcare? Because the provider half of the system figured out that it’s another profit system, just a different payer and that making it confusing is another opportunity for profit.

    All I can say is that I am not looking forward to having to sit down and wade through all the Medicare mailings I have been accumulating.

    I think a commenter made a good point that this should be more like the best of healthcare.gov.

    I am not a veteran, but I wonder how the administration of veteran’s medical benefits compares. Maybe it’s a foolish question.

  15. 15
    Procopius says:

    @Another Scott:

    There’s still no way for a patient to know in advance what a procedure will cost, and they can’t be sure that someone or some organization that they’ve never heard of won’t bill them if they end up in the hospital.

    Not to mention that in a significant part of the cases the patient has no choice. Either the doctor directs her to specific drugs/treatment regimes or hospital, or the ambulance driver chooses the hospital, usually based on travel time. The argument that “competition” would allow “better shopping” was never made in good faith. Unregulated markets or worse, “self-regulating” markets, inevitably lead to disaster.

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