The people from Partners Healthcare System were quiet during the presentation. The CEO of Tufts Medical Center pointed out that effective cost control was impossible as long as the disparities in reimbursement rates among provider groups remained in place. She pointed out, too, that overlaying global rates on a rate system based on market power would just perpetuate the existing problem.
I took a different tack. I pointed out that instituting global payments would represent a huge shift of actuarial risk from insurance companies, which are structured and compensated for taking risk, to providers (doctors and hospitals), who are not.
I recall one of the top three state officials turning to me in surprise and saying, "Really?"
Well, we can see how much influence the CEO of Tufts Medical Center and I have had on the public policy debate. As I have noted, the state has gone whole hog in assuring that the competitive price advantage enjoyed by Partners persists into the future. The recent legislation also provides tremendous encouragement for the spread of capitated rate plans. The former is a victory for Partners, the latter for BCBS.
Think of it. The firm, in the face of little or no empirical proof, has persuaded an entire state to adopt a rate-making approach whose main value is to shift risk from it, the dominant insurance company. Now, risk does not disappear. Usually in society, we pay people to assume more risk. Also, people from whom risk is shifted usually expect a lower return. Here, the risk is shifted, but the insurance company gives up nothing. Indeed, it is secure in pricing its product because it knows exactly how much money it will pay out in medical claims. Meanwhile, the percent of premiums it collects to cover administrative costs remains remarkably constant, even as revenue grows. The capital reserves that it has accumulated over the years to cover actuarial risk remain untouched, even thought the degree of risk assigned to it has fallen.
In contrast, doctors who take on risk contracts must secure that risk with their salaries. If they are good at case management, i.e., meeting the arbitrary targets set by the insurer (and now the state), they might make a bit of a surplus to share among themselves. (Recall, though, that how that surplus is shared remains a tough question. Who gets it? The primary care doctors or the specialists?) If they are not good at case management, or if something goes awry in the actuarial forecast that is the basis for the contract they have signed, their salaries go down. There are no cash reserves to help them meet the deficiency, except their personal bank accounts.
Hospitals that take on risk simply face the prospect of higher or lower income, ultimately improving or diminishing their balance sheets and their ability to fund renewal and replacement of important capital assets used in providing care to patients. As with the doctors, there are no cash reserves dedicated to risk management. The hospital's endowment or working capital gets depleted as necessary to cover its losses.*
And the state official said, "Really?"
Really. Even if you believe that capitated contracts are the best thing that could happen in health care, you should not and cannot believe that the transfer of risk inherent in such contracts should go unrecognized. The state's failure to account for this gift to the insurance company represents an example of incomplete policy-making.
Oh wait, since the state intends to apply this kind of rate-making to Medicaid patients, it is also a beneficiary of the shift in risk.
Combined, the "gift" from providers to the insurer and the Commonwealth is this year's version of the Great Train Robbery.
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* Hmm, if I am the CPA firm doing the annual financial audit of such a hospital, shouldn't I require it to reduce current income to create a new reserve account for this risk? It may be a year or two or more before the actual surplus or deficit is known.
9 comments:
You're right but I think you are describing an extreme and not the current reality. Most if not all groups continue to share risk with the insurers and have caps on total risk, upside and downside. Also in some cases if a group owes money back to the insurer it may be due to their own increased FFS revenue. Thistir still FFS with a reconciliation to a budget and not true capitation... yet.
I agree with comment below. Your analysis assumes lax state oversite and MCO revenue as usual. Could happen, but it might not. If cost growth decelerates, hospitals make less, but so do insurers. Again, if the books are open and the state presses, the scenario you describe may not materialize.
Brad
Sorry, but I do not understand both comments. My point is that risk has been shifted to providers compared to whatever baseline you would like to use. The degree of risk increases each year in the contracts.
BTW, why shouldn't I assume lax state oversight? That is what has existed and will continue to exist.
You totally nailed it. My only wish it that your blog could get even more play. The people who need to see it don’t or won’t acknowledge the reality of the situation. They all are hand maidens to the demise of the system and BCBS is laughing all the way to the bank. Egregious.
Or is this bill introducing risk where previously there was very little? In a system where insurers have been readily able to pass spending increases to employers, how much burden of risk have they been under?
The Affordable Care Act created a mandated minimum medical loss ratio for insurers; I believe that many states, including Massachusetts, have such a rule in place as well. The federal rule has resulted in some rebates to premium payers, publicized by USDHHS recently.
It seems to me that your beef with the new law could be addressed in a couple of different ways (which have varying probabilities of ever happening): (1) Increase the mandated medical loss ratio (i.e., further limiting the insurer profit margin), perhaps on a temporary basis tied to reducing the reserves you've characterized as unneeded. (2) Take us back to the bad old days of rate setting, so that payor-provider deals would not be an option. (3) Work to ensure that implementing regulations at least place the issues you describe on the agendas of the new and newly-renamed state agencies charged with implementing the new law.
In the last iteration of health reform in Massachusetts, the regulators were careful to create the framework for separation (at least in theory) of insurance risk -- properly belonging to insurers -- from quality risk -- properly belonging to providers, assuming minimally-adequate reimbursement. It seems to me that these concepts can, and should, be brought forward into the current framework.
I'm trying to read the new law in my spare time, so I may have further thoughts on this subject as I slog through it .... For anyone who wants to join me in this effort, I've embedded the full text, and an official summary here: Massachusetts Health Reform Bill Tackles Cost Control and More (HealthBlawg) – http://vsb.li/J58MNj
I agree with Paul that insurers should not be paid for risk that they don’t assume. Self-funded employers assume all cost risk of providing health insurance for their employees except to the extent that they purchase stop loss reinsurance. Insurers earn very modest fees per employee per month (PEPM) or per member per month (PMPM) to administer claims and provide a network. If an ACO accepted all of the medical cost risk inherent in a true global payment arrangement, insurers should be paid on an administrative services only (ASO) basis only.
Alternatively, we could see the spread of a model similar to Kaiser Permanente or Geisinger Health System (for one-third of its members) where some of the providers and the insurer are on the same team and under the same ownership.
A nice set of blogs, Paul. Keep on hollerin’ – this exercise of market power is abominable! Exemptions from antitrust should be reassessed.
Why not just pay the providers directly if there is capitation? What purpose do insurance companies serve in that situation except for little more than money collectors who then hand fees to providers who assume the risk.
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