Wednesday, April 24, 2013

First, assume a ladder.

One day I was with a prominent health care economist here in Boston. I brought up the issue of the market imperfections and the upward cost pressures that have been created in this city by the presence of a dominant provider group and a dominant insurance company.  His dismissive reply, "Just get the pricing right (with global payments) and everything will be fine."

I was reminded of the story of the engineer and the economist who, walking through a remote forest, fell into a very deep hole with vertical sides.  The engineer said, "We'll die down here.  No one can hear us calling for help, and it is impossible to climb out."

The economist said, "On the contrary, there is no problem.  First, assume a ladder."

Our healthcare expert likewise fell into the trap of assuming too much.  Proper pricing certainly can help solve problems of supply and demand, but not when the structure of the market is so perverse as to prevent normal pricing factors from working.  If there is a ladder, it is broken.

The Office of the Attorney General in Massachusetts today issued an important report.  Entitled "Examination of Health Care Cost Trends and Cost Drivers," the report might help policy-makers refrain from "assuming a ladder," from basing their conclusions on hopes rather than realities.  But only if they read and listen.  What follows are quotes from the OAG report.  I was intrigued to find some similarities to points made on this blog for the past several years.  This is certainly not because I asserted them, but rather because the OAG expert staff analysis reached those points based on the facts, not on assumptions.  Here goes:

We examine market developments and their implications for three categories of market participants: Purchasers (Part I of the Report), Health Plans (Part II), and Providers (Part III). The conduct and choices of these market participants directly impact health care spending levels in Massachusetts. Our principal findings in each of these categories are:

I. Purchasers/Consumers
A. Purchasers have increasingly moved to tiered and limited network products.
B. Purchasers have increasingly moved to PPO products, including self-insured PPO products, and away from fully-insured HMO products.
C. Purchasers have increasingly moved to high-deductible products (in general, defined in this Report as products with an annual individual deductible of $1,000 or more).
D. Purchaser enrollment trends have significant implications for health plans designing products and for providers managing risk contracts. 

II. Health Plans
A. Health plans continue to pay providers widely different amounts to care for patients of comparable health.
B. Variation in provider total medical expenses (“TME”) exists across Massachusetts and within separate geographic areas.
C. Growth in prices of medical services, not utilization, is still the primary cost driver for each of the major commercial health plans in Massachusetts.
D. The design of health plan products affects risk selection (which types of consumers tend to purchase which types of products), total medical spending, and care management.

III. Providers
A. Providers are taking on increased performance risk under extremely complex contracts that lack consistency in incenting providers to coordinate care, manage costs, and successfully take on risk.
B. Providers are taking on increased insurance risk without consistent mitigation by health plans. That is, contracts between health plans and providers vary widely with respect to protecting against extraordinary claims and adjusting for the health status of the provider’s patient population.
C. Providers are aligning in ways that are not explained by care coordination or risk contracting requirements, though those reasons are often cited. Provider consolidation and alignments have significant market implications that should be measured and monitored, particularly where consolidation may reduce access to lower-cost options for consumers and undermine efforts to promote value-based decisions by purchasers.


mark said...

Indeed, and assuming risk becomes a moot point when the provider is an LLC or Delaware Corp with nothing substantive as back up. There is a present day scramble to grab the best revenues streams as out patient services are returning to hospitals where the reimbursement is higher. See the WSJ article of last December 12th "Same Doctor, Double the Cost." Patients will continue to flock to the Boston giants--MGH, BWH and BID because they do not buy the illusion that world class healthcare is out in their communities and comes packaged as an ACO. Real, not "imagined" healthcare, but how to deal with supply and demand and who will control the cost.

Barry Carol said...

If more purchasers are moving to tiered network and narrow network insurance products, it implies that the high cost providers with significant market power are gradually losing patients or, at least, are seeing patients who must pay more out-of-pocket than if they went to a lower cost doctor or hospital. If that trend persists, a tipping point should eventually be reached that would force the high cost systems to lower their prices or downsize their organizations. I think full price and quality transparency tools for both patients and referring doctors will help to accelerate this trend.