Tuesday, February 15, 2011

Catharsis is not policy-making

If you ever needed an indication of why the public remains confused about the issue of health care costs and insurance premiums, look no further than a story in today's Boston Globe entitled, "Insurers seeking smaller rate hikes." It is not that the reporter has done a poor job. Quite the contrary. The structure of the piece is good, and the story is fair and accurately reported. It is just that the current exigencies of newspaper production make it impossible to devote sufficient space in a daily story to portray the whole picture. So, in an understandable effort to give equal time to divergent viewpoints, the story ends up as a "he said-she said" exposition, leaving out underlying facts and context that might help the public understand why we are where we are.

So, let's deconstruct and expand the story to give more insights.

When the undersecretary of consumer affairs and business regulation sets forth her view of the rightness of the Governor's intervention in the rate-setting process, she neglects to mention that the intervention was arbitrary and found to be legally deficient by appellate boards in the state government. In essence, she attempts to proclaim economic and regulatory virtue in actions that fundamentally had a political origin during the last gubernatorial campaign.

She fails to mention that the underlying costs of providing health care have not changed very much. So insurance companies, bowing to political pressure, have been forced to come down hard on those providers whose contracts happen to have come up for renewal. These have often not been those with higher reimbursement rates. In essence, the administration's intervention succeeded in increasing the payment differential between the have's and have not's among the providers, contributing to the very factors disclosed by the Attorney General that lead to higher, not lower, health care costs.

When she says that the answer to the world's problems is to move to global payments, she makes no commitment to the idea that payment disparities among providers will be eliminated as part of this move.

When the Blue Cross Blue Shield spokesperson says that the proposed premiums are inadequate to cover costs, he leaves out the fact that this insurer has systematically overpaid certain providers, relative to other providers, for their services. These divergent payments are reflective of market power, as opposed to higher quality or other measurable factors, and, as noted, are a major contributor to the cost of health care in the state. He also leaves out the fact that early contracts to persuade or reward providers to sign the company's new global contract regime were particularly generous, especially in the early years of those contracts, increasing the company's costs.

When the head of the association of health plans (which does not include BCBS) continues her long-standing practice of blaming providers for all the problems, she not only neglects the contribution of the inefficient administration of her members, but she too fails to distinguish between those providers who enjoy above-market rates and those who are paid less. Why? Because her members, too, have been forced by market power concerns into paying some providers more for no net benefit to society.

In short, the entire story consists of each party passing blame to another or inappropriately taking credit for something that deserves no credit. Over the nine years I was running a hospital, I came to see the debate often set forth in this manner. It has some cathartic value for the insiders, but it offers little to the public that is helpful. It suggests to the medical profession, too, that the people who move money around to pay for health care have little or no understanding of the underlying demographic and societal factors that are determinative of health care costs, or of the manner in which process improvement and transparency could help bend the cost curve and improve clinical outcomes and the public health.


Aside: Some recent developments in which insurers are attempting to introduce products based on tiered networks, or charging different copay's rates based on which provider you visit, are good news. But without publicly available date on clinical outcomes, these efforts run the risk of failure because the (undeserved) reputational advantages enjoyed by certain providers will trump the price differential in people's minds. You can get a sense of that in many of the comments on this story.

It took years after the introduction of low-cost long distance service by MCI and others in competition with AT&T for the latter's market share to drop below the 60th percentile, and the service provided was identical. People's habits die hard, even in the face of accurate information. How much more so when no information is offered to demonstrate that a move to a lower cost provider will result in service of equal or better quality.


Anonymous said...

Paul, all of your comments resonate. Never more than while in a hospital being a department chair, working with administration and mid level management, and being on our medical executive committee, did I make more use of that famous two-hand signal where two index fingers are pointing in opposite directions (e.g., signifying that each party involved in a dispute was blaming the other). This is a kindergarten level game that is here played out in the pages of a gullible press which should know better. Then the public commenters exacerbate it by repeatedly citing various versions of "don't mess with my MGH" instead of "my Medicare" - thus proving your point about disparities based on unproven differences in reputation.

Although some forms of this go on in my city, I believe Boston has developed it to a world class art form. Unsustainable, sorry to say.
Time to stop blaming and start thinking.

nonlocal MD

Josh said...

Good piece, I had some of the same feelings while reading the article. You beat me to putting words on paper, plus I think you have captured a broader view than I would have.

To close the loop fully, the sad part of this political policy debate is that the ones most impacted are the small companies trying to afford/ keep insurance for their employees. While the average increase this year seems "acceptable" to the reader, what will the situation look like in 3-5 years if the business owners are renewing for the 2nd or 3rd time in a row at a 15-20% increase. Or what will the products on the table look like from the insurer that is taking a loss year after year?

I have heard from a few different companies that they have laid off younger workers to try to save money. However, the result was it pushed the average age in the company up-- costing them more than the workers’ salaries that were laid off.

In my mind, the broader issue is that the Connector has failed to offer products that are attractive/affordable enough for small companies to benefit from reform in Massachusetts. Consequently we will see this annual chicken fight play out over rate reviews between insurers and the state. It certainly doesn't seem to be the best public policy in a state with just a handful of mostly non-profit insurers.
Josh Archambault
Pioneer Institute

Barry Carol said...

It’s good to see the tiered network and limited network insurance products finally starting to catch on with employers in Massachusetts. I think employers could help this approach along if they convert their health insurance offering into a defined contribution plan. So, for employees who are offered a choice between a tiered or limited network product and the traditional offering, those who want the more expensive product should be required to pay the full premium difference with their own money.

BCBS had to offer generous terms for its Alternative Quality Contract to induce early adopters to try it. If the concept of a global payment coupled with shared savings proves itself, future contracts should, presumably, be structured to produce more meaningful savings vs. the fee for service payment model.

I was at a meeting last week with Karen Ignagni, CEO of America’s Health Insurance Plans (AHIP). She made the point that the insurance industry now has lots of analytics capability to assess provider cost and quality that simply didn’t exist 15-20 years ago. Because of those tools, she expressed optimism about the potential of value based insurance design including tiered networks and limited networks to materially mitigate healthcare cost growth over time. I share that optimism.

Anonymous said...

When rate increases just below 10% are a cause for celebration (at a time when overall inflation is just about zero), things in health care are even worse than I thought...So I wouldn't term this "catharsis" just extremely depressing...and the absence of that perspective in the story is also discouraging. Nancy

Anonymous said...

Josh, Love to hear your concrete ideas for how the Connector should be using its authority to lower rates for small employers.

Nancy Turnbull