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A model to replace the commercial insurance portion of the ACA

In my view, any replacement of the ACA needs to separate the discussion into the three major market segments:  Medicare, Medicaid and commercial.  Commercial in this context includes not just employer based insurance, but also the individual market(s) that were mostly addressed by the ACA through offerings on the several exchanges.

This post will only address the latter, the commercial segment.

In my view, the key problem with runaway costs in the commercial market is that the market has lost most of the feedbacks related to price signals.  The price signals are not related to insurance; they are related to care delivery.  More price competition among insurers will have little effect (since insurers only make perhaps 3% on premiums).  But innovations on the pricing of care delivery could have a material and beneficial effect on costs.

If we look at the rare subsegments of the commercial market where care is not usually covered by insurance (e.g., infertility, lasik surgery, cosmetic surgery, even dentistry) we see that they market behaves “normally.”  “Normal” in this context means that the products (in this case, service bundles) have prices known in advance, the providers compete on quality metrics that are not established by the government, the products have warranties, and the costs for the products have decreased over the last 20 years, even though quality has improved.

I don’t know of an insured service that meets the above criteria for “normal.”

If we were to devise a plan to restore price signals to the provider marketplace, we would first need to remove insurance as the intermediary for most purchases.  How might we accomplish that?  The easy answer is to raise deductibles, but that clearly answers only a fragment of the problem.  But suppose we implement the following model as a framework for replacement of the commercial segment of the ACA:

  1. Keep all existing ACA plans as valid (although it might make sense to relax the limitations on variances by age group)
  2. Allow sales of very high deductible health plans, VHDHPs (think $20,000 deductible).  These would be very inexpensive (likely $1,000 to $2,000 per individual per year).
  3. Request or require plans to offer riders to VHDHPs that cover:
    • Primary care
    • Pharmaceuticals
  4. Allow consumers to contribute to HSAs irrespective of the nature of the health plans they select
  5. Allow consumers with any health plan to borrow money from the federal government at the fed funds rate in any instance where they do not have enough cash (or HSA balance) to cover their deductible for health services.
  6. Limit the repayment of debt to the government to the same cash limit as the ACA (9.5% of income).

If payers offer a primary care bundle as a rider to a VHDHP, it would probably cost between $600 and $1200 depending on age bracket.   The moment that insurers offer such bundles, there would be a cascade of primary care providers offering a service bundle for a lower cost (because they don’t incur claims adjudication costs, and now would have lower billing costs).  Consumers would frequently drop their insurer bundle and buy care directly from their primary care provider.

Most individuals in the country (over 50%) would not incur any care costs other than pharmaceuticals beyond their VHDHP and their primary care bundle (which may or may not have a co-pay).  If pharmaceutical costs are high, they could buy that rider from the insurer (or from a PBM since they would likely jump in to bypass insurers).  That set of products (insurance + care bundle) would cost about half of the existing ACA plan.  Folks would abandon ACA plans once they figure this out.  And that would be fast.

But what about the 20-30% of people who don’t use primary care but use mostly specialty care?  Diabetics seeing endocrinologists?  Ischemic heart disease patients seeing medical cardiologists?

Many of you recognize that physicians talk to each other.  If primary care physicians are billing patients $600 per year for a primary care bundle and NOT incurring insurance billing overhead, it is entirely likely that medical specialists would do the same thing for their patients.  This means that primary care physicians would be competing with primary care physicians on the basis of cost and quality.  Specialists would be competing with specialists on the basis of cost and quality.  Do you suppose a multi-specialty group would offer a bundle for all medical physician services?    Hmmmm.

It would take longer for the facility-based care market to move toward consumer-understandable products.  In the interim, acute services that surpass the $20,000 deductible are covered.  Costs below $20,000 would be addressed by a combination of HSA balances and by borrowing from the federal government.  Incidentally, most of that borrowed money would actually get paid back.

In this framework, no one is worse off than they were with the ACA.  Most patients would see their total costs cut about in half.  And now we have actual provider-centric price competition.  Imagine.

This is a path to move the care delivery market toward true competitive price signals.

I welcome your comments.

Framework for Discussion of Population Health Management IT Tools

I am pleased by the frenzy of investment in tools that support the various elements of accountable care/population health.  I am a little surprised how rarely the advertised tools are detailed by the  business functions that the tools support.  I would suggest there are three broad categories of tools in support of accountable care:

  1. Provider performance measurement
  2. Predictive analytics
  3. Care coordination

Each of these categories has one or more key subcategories.  I think it would be useful to detail the subcategories to assist in IT tool selection.

Provider Performance Measurement Tools

This is the category that has been around the longest, and hence is the most mature.  Typically, these tools aggregate claims and group the claims by care episode.  Grouping of claims by episode gives an organization two fundamental capabilities:

  • If the organization is going to contract for care, the tools give information on how to craft the contract, or indeed whether to contract at all
  • If the tools are used during referral of an active patient, the tools can direct a clinician to select a referral target based on previous cost and quality performance

There are literally dozens of tools in this category.  The problem for most provider organizations is gaining access to a significant fraction of claims history to run the tools.  This is somewhat easier for a health plan (because they have the claims for their members) but a provider organization might need claims from multiple payers about many other providers to make this tool perform successfully.

Predictive analytics

Predictive analytics tools are used for two broad purposes as well:

  • Prospective assessment of costs for a defined population to support actuarial assessment/pricing
  • Identification of individuals likely to be utilizers to target treatment to mitigate the risk of adverse cost or quality events

The claims-based predictive analytics tools are quite good at supporting the first bullet above.  Unfortunately, claims-based analytics tools are poor at the second.  The two problems with claims-based tools are 1) the predictive value is low for individual patients (R-squared is often under 50%) and 2) the claims arrive too late to be of any use (60 days post discharge does not give a lot of insight).

Non-claims-based predictive tools are much more reliable if the objective is to direct active patient care.  Non-claims-based tools would include:

  • Tools to assess probability of readmission of a patient at discharge: This assessment is based on current clinical data (from the chart) and knowledge of the patient’s social circumstances (from interview or home assessment).  This data, although harder to accrue and generally available only to the provider directly, is vastly more useful for predicting utilization.
  • Tools to stratify populations based on global risk:  Nearly any primary care physician can identify the top 3-4% of risky patients in his/her practice.  Risk, in this context is a combination of overall disease burden and weakness of social support mechanisms (primarily family) for the patient.  Patients with high disease burden could be targeted for a deeper home assessment to identify preventable risks or potential family support mechanisms to mitigate the risk of utilization.

It is worth noting that disease burden alone is often not a particularly strong indicator of future utilization, hence inclusion of data about a patient’s home environment is critical.  The non-claims-based tools are often much more manual, but far more effective at identifying the high-utilization patients in advance.

There are many tools to assist in the prediction of population costs, and they work well.  There are very few tools to assist a provider organization in identification of high-risk patients.

Care Coordination Tools

As with the other tools, there are two very different objectives in care coordination:

  • Disease management tools:  These tools establish clinical objectives by disease state for each patient to assist in filling in gaps in care and to support reporting of compliance standards to external entities (payers, CMS).  Disease management tools support compliance reporting and quality management.  They do not drive cost reduction (indeed, they often raise utilization).
  • Case management tools:  These tools focus on specific patients in high-risk categories to manage the risk of excessive utilization or risk of treatment failure in complex conditions.

There are many tools that support disease management functions.   These may be a component of the EMR specific to the clinical setting, or an add-on application to the EMR.  In contrast, case management tools are somewhat more rare in the marketplace.  The problem, as often as not, is that the critical issues in case management are often inter-clinical-setting.  The implementation problem may be large enough that the provider organization is not well situated to “connect” to all of the key clinical settings to enable effective case management.

A Note on HIEs

Some might consider HIEs as an element in care coordination.  In my view, HIEs alone do not “count” as care coordination tools.  They may (or may not) be supportive, but if a tool cannot instantiate an intervention and report on completion of an intervention, it is tough to label it as a care coordination tool.  Most HIEs would fail in this regard.


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?


How ought we modify the ACA to improve it?

I think it would be instructive to launch a discussion about how best to repair the ACA (aka Obamacare).  I suggest the following would be useful changes that would be broadly accepted:

1) Permanently remove the employer mandate:  I think most economists think this is bad policy, and probably has a significant influence on restricting job growth and increasing the incentives to shift to part-time workers

2) Permanently remove the individual mandate:  The notion that the individual mandate is ‘required’ is, I think overblown.  If the law were changed to implement eligibility rules that require advance purchase (e.g., must buy insurance by 12/1 of the prior year to get coverage, or be continuously insured the change insurers), that would mitigate the tendency of folks not buying insurance until they are sick

3) Keep the exchanges and community rating, BUT:  relax the 3:1 rate variance (old to young ratio) and allow true rating by age and geography.  Also, erase the requirements that minimum insurance is 60% actuarial value.  Let insurers offer as high a deductible as they would like, as long as it is still community rated.

4) Repeal the IPAB:  I don’t think this will have any discernible impact on cost, and is likely to cause more administrative burden in an already overburdened system

5) Remove the limitations on admin costs (i.e., the  mandatory Medical Loss Ratios):  I don’t think anyone believes this reduces premiums; it just decreases the admin functions that may improve utilization control.  Let the payers compete on premiums.

Let me know what y’all think.


Another View of Patient Stratification Data

I had a chat yesterday with a colleague of mine in Portland.  He had just glanced at some of the pages on this site, and referenced a slide from a presentation by Ernst Berndt, and reported in Paul Levy’s blog on 2/20/2013.  You can see that the overall concentration of spend reported here is similar to my text in the “stratify patients” section.

You can see that the graph shows the top 1% consume about 20.2% of care costs, and the top 5% consume about 47.5%.  I think (but I am not sure) this is the overall US healthcare population (it sounds close).

Thanks for Ernst Berndt and Paul Levy for broadcasting.


Which populations are appropriate for care/case management focus?

Most commonly, patients are identified through predictive risk analytics as potential high utilizers.  These patients are then the focus for case management.  Question for discussion:

  • We would probably expect to use different case management styles (and even tools) for the very high utilizers (e.g, over $50,000 per year) than for the moderate utilizers (e.g., $10,000 to $50,000 per year).  How many “levels” of case management ought we implement?
  • Would we expect to have significantly different interventions between the levels of case management?

Looking forward to comments.

Costs of IT in support of accountable care

We have recently endured another round of reports noting that investment in healthcare IT does not seem to have very significant ROI.  We have had redundant reports noting that:

  • EMRs may not have significant ROI
  • HIEs may or may not be “sustainable”
  • Industry IT costs are still trending upward, even though healthcare IT investment is generally lower than other information intensive industries

I continue to wonder why buyers are surprised.  ROI is fundamentally based on changes in revenue or cost after an implementation.  If clinical tool sets do not have much effect on either, why would we expect an ROI?

Perhaps more humorously, in a fee-for-service environment (in which most physicians are still practice), ROI is more commonly driven by better billing characteristics (e.g., better coding on bills, more accurate ‘upcoding’) than by process improvement.  In fact, process costs tend to rise in ambulatory care when clinical systems are implemented.

Does anyone think that these reports have any bearing at all on the value of clinical tools when deployed in an accountable care environment?  That is, if we are actually economically incentivized to improve the cost/quality profile, wouldn’t the investment in care coordination tools have much more obvious value?



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