Wednesday, July 22, 2009

The next step in payment reform

Much has been made of the recent report of the Massachusetts Special Commission on the Health Care Payment System. This is an interesting and thoughtful report and well worth reading in its entirety. The commission's main conclusion -- a move to a capitated (or "global") form of health care payments -- is based on the following principles:

1. As currently implemented, fee-for-service payment rewards service volume rather than outcomes and efficiency, and therefore other models should be considered.
2. Health care payments should cover the cost of efficiently provided care, support investments in system infrastructure, and ensure timely access to high quality, patient-centered care. Additional payment should reward and promote the delivery of coordinated, patient-centered, high quality health care that aligns with evidence-based guidelines where available, and produces superior outcomes and improved health status. Performance measurement should rely on reliable information and utilize uniform, nationally accepted quality measures.
3. Provider payment systems should balance payments for cognitive, preventive, behavioral, chronic and interventional care; support the development and maintenance of an adequate supply of primary care practitioners; and respond to the cross-subsidization occurring within provider organizations as a result of the current lack of balance in payment levels by service.
4. Differences in health care payments should reflect measurable differences in value (cost and quality). Payments should be adjusted for clinical risk and socio-economic status wherever technically possible, and should promote greater equity of payments across payers and providers, to the extent that this is financially feasible.
a. Differences in health care payments should be transparent, including across different payers.
b. Costs associated with desired investments in teaching and research should be paid outside of base payments, and should require provider accountability for how such payments are spent.
c. Costs associated with desired investment in special “stand by” capacity should be accounted for in the payment system.
5. The health care payment system should be structured in such a way as to minimize provider, payer and patient administrative costs that do not add value.
6. Payment reform must consider how:
a. Some payment methods may require certain organization of the service delivery system, and
b. Health benefit designs either support or limit payment reform.
7. Health care per capita costs and cost growth should be reduced, and providers, payers, private and public purchasers and patients should all share in the savings arising from payment reform.
8. The health care payment system should be transparent so that patients, providers and purchasers understand how providers are paid, and what incentives the payment system creates for providers.
9. It will be necessary to consider the diversity of populations, geography and providers across the Commonwealth when designing payment reform to ensure high quality, patient-centered care to all populations and geographic regions in the Commonwealth.
10. Implementation should be phased over time with:
a. Clear and attainable deadlines;
b. Planned evaluation for intended and unintended consequences; and
c. Mid-course corrections.

It seems to me that a logical conclusion that follows from these principles and recommendations is that the capitated rates to be collected by the providers should be set by state regulation rather than by the current negotiations and market forces at play in the state. Why? Well, there are simply no reasons beyond the factors mentioned above to account for any difference in the per-person-per-month charge collected by different providers.

Today, rates that are established by negotiation between insurers and providers are mainly based on the relative market power of the two organizations. Note that this factor is totally absent from the principles set forth above. If it were allowed to come into play in a capitated world, what would happen?

Well, for example, we know that the doctors and hospitals in the Partners Healthcare System currently get fee-for-service payments about 30% greater than other providers. If a capitated rate were established for PHS providers today based on this differential, it would perpetually reward this health care system for its market dominance, to the detriment of the other public policy imperatives mentioned above. The differential would cement Partners' standing as the dominant provider group in the state, enabling it to recruit doctors and absorb hospitals by offering its new captives a higher rate than they could previously receive.

So, it seems to me that the job of the state in this new order is to establish risk-adjusted annual health budgets for the different risk categories of the public; to weight them by geographic cost-of-living factors; and to apply the appropriate adders for medical education and the other factors mentioned above. This would then become the rate schedule to be used by every insurer with every primary care doctor in the state, regardless of what provider network that doctor was affiliated with.

Perhaps an insurer could be permitted to offer different rate incentives or disincentives from other insurers for differences in measurable quality outcomes, but these, too, would have to be uniform across all providers for each insurance company.

The Commission may or may not have considered this option in their planning, but it should certainly be front and center when the Legislature considers the next step.


Anonymous said...

With the capitation systems as proposed by the state or federal governments, or capitation systems that BIDMC would consider appropriate, how would residents of states such as Maine or the Dakotas that don't have major medical centers receieve the same level of care as residents of Boston? The concept of sending more money to the big high-cost centers, which presumably have better qualified doctors and more and better equipment, will condemn large areas of the country to lower quality health care, less opportunity for top treatment of major conditions, and poorer outcomes for the treatments they receive.

I expect that the real answer will be that "Your capitation zone coverage won't cover treatment at that center so you will have to take your chances with what you get in your local area."

Do the proposals in congress apply to members of congress?

Anonymous said...

Here's a variation on that idea that looks interesting (see embedded link to Prometheus); accompanied by a thoughtful blog post by the Happy Hospitalist, a sometimes irreverent but, IMO, "real doctor" with true inside knowledge of how screwed up we are.


Paul Levy said...

Anon 10:30,

Dunno exactly. I guess if your state authorities wanted the annual personal health care budget to allow for visits to high priced centers, presumably they would build that amount of money into the annual fee (on some kind of weighted statistical basis.) But remember that a component of capitation is that the funds and decisions about care are essentially managed by the primary care doctors.

No, proposals in Congress do not apply to members of Congress. Maybe that should be a requirement, however!

David Harlow said...

As a somewhat unreconstructed believer in health planning, I see the merit in your conclusion that rate setting would be appropriate under the global payment system proposed by the MA commission. However, it seems to me that your argument is equally applicable under the current state of affairs, no? Finally, if MA really does move from statements of high principle to implementation, would a return to rate-setting really be a politically viable move? The idea may have merit, but it would be difficult to get there (especially if Charlie Baker, who oversaw the dismantling of the rate setting system, gets elected Governor ...).

Paul Levy said...

Agreed on your first point, David, but what has changed is an expert Commission that has adopted overall principles. Political viability is dependent on lots of factors. I don't speak for Charlie at all, but I wonder if he might have some different views on the matter after seeing the market power leverage exercised by Partners during his tenure at Harvard Pilgrim.

Barry Carol said...

I think an alternative approach to dealing with powerful provider organizations like Partners is to create countervailing power. As I understand it, for example, Harvard Pilgrim offers a health plan that excludes Partners from its network in exchange for a lower price. Or, suppose both patients and referring doctors knew how much all hospitals and specialists charged for various procedures based on contract rates, not list prices. Suppose patients who wanted to go to one of the high cost providers had to pay a meaningfully higher share of the cost or at least enough to get his or her attention. Presumably, patients might be more willing to go to an alternative facility that was less costly but just as good while referring doctors might be more likely to steer them in that direction. Of course, robust user friendly transparency tools would be necessary to facilitate such a change in behavior.

Interestingly, in the retailing world, most categories have only two or maybe three competitors but there is vigorous competition among all players. Think Wal-mart vs. Target; Home Depot vs. Lowe’s; CVS vs. Walgreens; Sears vs. Penney. While retailing is admittedly a lot less complex than healthcare, the retailing world wouldn’t function very well without price transparency either.

Tight regulation is appropriate for utilities because they are natural monopolies. The business model is so capital intensive, it just wouldn’t make sense to build duplicate facilities to serve the same customers and geography. That’s not true for healthcare, in my opinion.

Anonymous said...

Re: Paul Levy reply to first post.

If part of the payment to the "high priced centers" is based on federal payments related to quality of care, then those "high priced centers" should be available to every patient on an equal basis. The medicare system is available to all medicare-qualified patients, wherever they live. The only limitation is whether they can find someone to treat them.