Care Management Models

Ideas for Atul Gawande and the Amazon/Berkshire/JP Morgan Venture

A Framework for Reducing Costs Through Consumer-Centric Care Management

I have given some thought to what I would suggest to Atul Gawande if he were to ask me how he could use the Amazon/Berkshire/JP Morgan (ABJ) joint venture to move the US health care market toward a more cost-controlled model.  I have outlined below some of the specifics that the ABJ venture could implement that might substantially move the market toward a more sustainable cost model. I do think there is a path here.  I think the core objective is consumer empowerment in price decisions.  But, suffice it to say, this would be a big change.

Does consumerism work in health care?

The answer appears to be “yes.”  If we look at care services that are often not covered by insurance, (e.g., infertility treatment, most cosmetic surgery, lasik surgery and a substantial amount of dental work), we find a couple of common characteristics:

  • The prices are fixed and known in advance,
  • The services have warranties,
  • The services have quality metrics established by the provider (as opposed to the government), and, most importantly,
  • The prices for the services have decreased in real terms over time.

The markets aren’t perfect by any means.  It can be difficult to find prices for these services because the markets are not particularly orderly.  And warranties and quality metrics are inconsistent.  But prices for these services have gone down over time.  I don’t think there is any example of a service covered by insurance that has gone down in real terms over time.  There are some examples of cost-saving substitutions (e.g., inserting a stent versus doing open heart surgery), but I am unaware of any insured service costs actually falling in real terms.

How could we make this work more broadly, particularly in an employer-based insurance model like the Amazon/Berkshire/JP Morgan (ABJ) venture?

It is a credible question whether we could revise the employer-based indemnification and payment model for care services to better replicate the efficacy of price signals for services that are not insured.

The key point here is that competition among insurers is NOT the problem.  Insurers make about 3% margin on premiums.  If they made 0%, we would still have prices increasing faster than inflation and no one would notice the one-time 3% savings. The objective is to generate provider-to-provider competition, as with the uninsured services above.  I think the possibility is pretty high that we could achieve this.

What would the model look like?

Suppose we deployed an employee coverage model along the following framework:

  • Establish consumer-understandable prices for a substantial fraction of services– Restore consumer-understandable price signals by establishing an on-line market for provider services. The service set would include:
    • Fixed-priced bundles for primary care and medical specialty care (probably as annual contracts). Annual contracts for primary care or medical specialty care is be pretty straightforward.  Some primary care physicians offer annual contract for care now (typically about $900) but they are hard to find because there is no orderly market to find them.
    • Bundles for many common procedures. Some bundles are quite challenging, but many are readily feasible.  Complex procedures might require a bid/proposal framework.
    • Prices for ancillary services (labs, diagnostic imaging, etc.).
    • An on-line marketplace. Services would be offered on the web (presumably via Amazon) to establish an open competitive market for provider services, indexed by geography and any other consumer-centric characteristic (e.g., language preference). Rules for the posting will make consumer comparisons easier. I will refer to this service as “Amazon Health.”


  • Restore consumer price exposure– One of the significant roadblocks to consumer centric market change is the structure of insurance. If consumers have no cost exposure above (for example) $5,000, they will not care about the price of the large number of services above that level.  Further, providers will be unincentivized to compete against other providers, since they will not gain significant benefit for doing so. Their only task is to contract with insurers.  The solution is to redesign the deductible/benefit framework to expose health consumers to costs up to about $50,000.  This level would include approximately 95% of all consumer care events.  Specifically:
    • Overall consumer dollar exposure may not change much (e.g., a benefit design with $0 deductible but $20% copay up to $50,000 would still limit overall out-of-pocket exposure to $10,000). I actually prefer higher deductibles, but that is a separate discussion.
    • The framework should be extensible to other self-insured employers in the same markets to amplify the market of the ABJ venture employees.
    • Employees/members with 20% exposure would likely shop for services based (at least partially) on price.
    • If the initiative catches on in geographies where ABJ is employee-heavy, it could be replicated in other markets if a small number of large employers replicate the ABJ benefit design and use the “Amazon Health” service to aggregate provider care offerings in their geography.


  • Disintermediate the health plans provider networks- Require that all participating payers (that is, those payers that provide administrative services to ABJ venture employees) accept any of the bundled services defined in item 1) above as “in-network” (that is, expenses apply to the deductible and are covered above the deductible) whether or not the provider is formally in the network of the participating plan.  This means that any provider in any geography where ABJ has employees could post a price for a service and be “in network.”


  • Indemnify consumers without using insurance– Establish a consumer payment framework for provider services that limits consumer exposure but does not obliterate the price signals:
    • Fund HSAs for employees
    • For employees that incur costs beyond their HSA totals, provide a loan framework to cover the shortfall.
    • Payments on the loan are limited to a fraction of salary (analogous to the ACA limits on the cost of insurance). Keep in mind that most employees in this model would actually repay the loan.  It is also probable (with the correct benefit design) that the combination of care costs and insurance costs would be lower than the current cost of insurance alone for the vast majority of consumers.

The net result of these four legs is that price signals would be restored, providers would have a marketplace in which to post prices and compete, and the market should see downward pressure on services prices.

There are indeed complexities to be addressed (e.g., likely state waivers for benefit design outside of the ACA, potentially federal waivers for HSA- qualified expenditures, management of employee departures when debt is outstanding, etc.), but the potential is there.



Compliance is Not Quality

I am a little surprised (and somewhat dismayed) by the perspective of many of the competent clinicians that I speak with about quality management.  Many will speak of the various federal reporting initiatives (e.g., PQRS for Medicare FFS, STARs for Medicare Advantage, CQM for Meaningful Use, etc) and suggest that their quality standards are performing well.

I usually respond with “What quality standards?”

Federally established performance metrics are compliance standards, not quality standards.  Some of them may actually impact quality, but many do not.  Does anyone think that BMW sets their performance standards based on the federal government?  WalMart?  Cisco?  Verizon?  Does BMW compete on their federal mileage rating?  Does WalMart brag about SOX compliance? Does Cisco advertise their unqualified audit?

Quality should generally be something that is understood by the consumer of the product as a value.  I recognize that it is often true that the payer for the product is not the consumer, but the selection of the product is usually a consumer issue.

Were I in an orthopedic group, it would be reasonable for my group to set standards for performance that would be understood by our customers- the patients selecting our group.  We might select major joint device failure rate over 10 years, or pain and range of motion six months post discharge or incidence of  infection.  All of these are items that a consumer of major joint services would understand and value.  We certainly would not expect a consumer to care about his orthopedic surgeon’s HEDIS scores.

Can we stop characterizing compliance as quality and focus on real consumer-understandable quality metrics?  I am looking forward to the development of real, competitive quality metrics.  It will be relatively easy to establish meaningful quality metrics for procedural specialties (although it will be somewhat more difficult to actually collect the relevant data).  It will be slightly more challenging to establish and collect meaningful quality metrics for medical specialties/subspecialties, but it can be done.

Has anyone seen innovative competitive quality metrics to report?


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