tag:blogger.com,1999:blog-32053362.post5432122672026704952..comments2024-03-26T00:25:34.026-04:00Comments on Not Running a Hospital: Rational economic creatures?Paul Levyhttp://www.blogger.com/profile/17065446378970179507noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-32053362.post-14004509035812064562011-10-28T00:36:49.955-04:002011-10-28T00:36:49.955-04:00This is currently being evaluated and debated in a...This is currently being evaluated and debated in a 3-year Medicare demonstration project: http://www.cms.gov/DemoProjectsEvalRpts/MD/itemdetail.asp?itemID=CMS1204388Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-32053362.post-60896339963316537032011-10-27T17:07:26.375-04:002011-10-27T17:07:26.375-04:00I believe the hypothetical situation you wrote abo...I believe the hypothetical situation you wrote about regarding whether or not physicians act as rationale economic creatures may miss the point. <br /><br />It is likely that the bulk of physicians do not look at what insurance someone has when deciding what tests and treatment to order, especially if they are part of a larger organization. (Though I am sure some do). Thus their behavior will be driven by what the bulk of their patients have as insurance, or at least by what they believe the payor mix is.<br /><br />So, if they are 75% FFS and 25% capitated, it likely still makes sense that they will treat everyone as FFS as the extra revenue from the 75% may well outweigh the loss taken on the 25%.<br /><br />However, it really isn't a matter of how each individual patient is treated. The efficiency of the care they provide will be based on how their systems are set up. Thus in the current FFS based system, there is no incentive to consider whether a test is "worth it" or not, in fact there is a disincentive. Moreover there's an incentive to do "every test" based on the fear of litigation. There is also an economic incentive to "do more" in general. Thus the systems most physicians work in are not set up to provide care in the most efficient way possible.<br /><br />It is only when the bulk of the patients are capitated that it becomes an economic necessity to change the systems under which the physician functions to ones that are more efficient. Thus, when it becomes 75% capitated and 25% FFS, the organization the physician is working in will have an imperative to figure out how to make it's systems supportive of evidence based efficient care, and then the physicians will work that way.<br /><br />I agree there is no proof that a system of capitation drives more efficient care, but the rationale is strong. My personal experience ion the 1990s was working in a largely capitated system (Hitchcock Clinic in New Hampshire, where I believe about 65-75% of our patients were capitated). There we understood the need to provide efficient care for the survival of the organization. Unfortunately I don't think there was enough of an understanding of system functions. Thus we tended to rely on the "individual" to "do the right thing". Just like with patient safety, so long as we continue to rely on the individual (and blame them when something goes wrong) we'll never make progress until we start designing systems that make the right thing the easy thing to do, and make it difficult if not impossible to do the wrong (or inefficient) thing. We did not do that. This, I believe, had a large part in the backlash against managed care at the time.Jesse Wagner, MD SFHMnoreply@blogger.comtag:blogger.com,1999:blog-32053362.post-1207612089421860342011-10-27T13:19:24.640-04:002011-10-27T13:19:24.640-04:00Barry, it's been about 4 years now that I have...Barry, it's been about 4 years now that I have been wishing you were running the Central Committee to Fix Health Care. You're just too rational, is the problem. :)<br /><br />nonlocalAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-32053362.post-26018146222164455922011-10-27T13:06:18.124-04:002011-10-27T13:06:18.124-04:00Paul,
As an economist myself, I have to take issue...Paul,<br />As an economist myself, I have to take issue with a few aspects of this analysis. First, you're using the term "rational economic creature" when you actually mean "profit-maximizer". Treating all patients alike is not profit-maximizing behavior in the strictest sense, but it remains rational behavior in the scenario you described. Your scenario merely suggests that hospital administrators value other things in addition to profits. This is an idea that has a long history in the economics of health care (Joe Newhouse put together a nice framework in 1972).<br /><br />I suppose my question to you is, given that you need to treat all patients equally, what's your next step if capitation expands? Presumably you can't lose money on a larger and larger percentage of your patients. In the case of capitation for all patients, what should I expect your hospital administrator to do?Andynoreply@blogger.comtag:blogger.com,1999:blog-32053362.post-50551450139876429092011-10-27T09:25:12.998-04:002011-10-27T09:25:12.998-04:00One point missing from the discussion relates to h...One point missing from the discussion relates to how doctors are evaluated for bonus compensation purposes. If they are salaried and have no incentive to order additional tests, that’s one thing. However, if management is measuring their revenue generation or relative value units billed and makes it clear that it’s a significant factor in determining bonuses, that’s another. As I understand it, among large group practices and hospital systems, only Mayo and Kaiser do NOT look at individual physician revenue generation in determining compensation. At Mayo, the individual doctor generally has no idea what insurance, if any, the patient in front of him has. While fee for service should incentivize providing more care rather than less, other factors such as the perception of the local standard of care and the medical tort litigation environment are likely to be more important factors. At the same time, the incentive to provide less care rather than more in a capitated environment could be mitigated by the achievement of measurable quality metrics and good patient satisfaction scores. <br /><br />Ideally, if the payment model is moving toward capitation, CEO’s should try to build a culture that strives to provide high quality cost-effective care with a cost structure that is consistent with the culture. Most important, revenue generation at the individual physician level should NOT be a factor in determining bonus compensation.Barry Carolnoreply@blogger.comtag:blogger.com,1999:blog-32053362.post-41908516254594597342011-10-27T08:22:48.732-04:002011-10-27T08:22:48.732-04:00Right, same idea.Right, same idea.Paul Levyhttps://www.blogger.com/profile/17065446378970179507noreply@blogger.comtag:blogger.com,1999:blog-32053362.post-66034784023279109282011-10-27T07:54:09.914-04:002011-10-27T07:54:09.914-04:00Why wouldn't the hospital choose to treat ever...Why wouldn't the hospital choose to treat everyone as FFS patients and take the profit from the real FFS patients to cover the losses from the global fee patients? Unless my global fees are much lower than than the ones for FFS I should still make a profit when averaged over all my patients. This might also prevent lawsuits that are based on different treatments for the same patient diagnosis.John W.noreply@blogger.comtag:blogger.com,1999:blog-32053362.post-67883520555286036382011-10-27T06:49:39.094-04:002011-10-27T06:49:39.094-04:00From Facebook:
The problem is that good economic s...From Facebook:<br />The problem is that good economic sense is not necessarily pegged down to social sensiblity (rationality), as in the case of a medical institution which has an interest in both the private and the public. To solve the problem, is a greater question of whether we are ready to reinvent the business model and to align the interest of both the parties.Hongming Xunoreply@blogger.com